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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended Commission file number
December 31, 1996 0-18840
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BancFirst Ohio Corp.
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(Exact name of registrant as specified in its charter)
Ohio 31-1294136
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(State or other jurisdiction of (I.R.S. employer identification No.)
incorporation ororganization)
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422 Main Street
Zanesville, Ohio 43701
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (614) 452-8444.
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Securities registered pursuant to section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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None None
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Securities registered pursuant to Section 12(g) of the Act:
Title of each class
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Common Stock, par value $10.00 per share
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. X Yes No.
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
Page 1 of 64 Pages
Exhibit Index Appears on Page 61
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As of February 28, 1997 the approximate aggregate market value of the
voting stock beneficially owned by non-affiliates of the registrant was
$93,070,000 computed on the basis of $32.50 per share, the closing sales price
on the NASDAQ - National Market on February 28, 1997. On that date, 3,981,908
shares of Common Stock, par value $10.00 per share, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
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Portions of the registrant's Proxy Statement for the 1997 Annual
Meeting of Shareholders, to be filed with the Securities and Exchange Commission
not later than 120 days after the close of its fiscal year, pursuant to
Regulation 14A, are incorporated by reference into Items 10, 11, 12 and 13 of
Part III of this annual report.
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TABLE OF CONTENTS
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PART I Page(s)
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Item 1 - Business..................................................... 4
Item 2 - Properties................................................... 15
Item 3 - Legal Proceedings............................................ 18
Item 4 - Submission of Matters to a Vote of
Security Holders.......................................... 18
PART II
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Item 5 - Market for Registrant's Common Equity and
Related Stockholder Matters............................... 19
Item 6 - Selected Financial Data...................................... 20
Item 7 - Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................................ 21
Item 8 - Financial Statements and Supplementary Data.................. 34
Item 9 - Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure.................... 58
PART III
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Item 10 - Directors and Executive Officers of the
Registrant................................................ 58
Item 11 - Executive Compensation....................................... 58
Item 12 - Security Ownership of Certain Beneficial
Owners and Management..................................... 58
Item 13 - Certain Relationships and Related
Transactions.............................................. 58
PART IV
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Item 14 - Exhibits, Financial Statement Schedules,
and Reports on Form 8-K................................... 59
Signatures................................................................. 60
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ITEM 1: BUSINESS
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GENERAL
The Company, a registered bank and savings and loan holding company
organized under the laws of the State of Ohio, conducts a full-service
commercial and retail banking business through its wholly-owned subsidiary banks
and savings and loan association (collectively referred to as "Banking
Subsidiaries"), First National Bank of Zanesville ("FNB"), Bellbrook Community
Bank ("Bellbrook") and County Savings Bank ("County"). County was acquired on
August 14, 1996. At December 31, 1996, the Company had total assets of $1.06
billion, total deposits of $732.7 million and shareholders' equity of $77.9
million.
The Company is headquartered in Zanesville, Ohio, the county seat of
Muskingum County. Through the Banking Subsidiaries, the Company operates 25
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 Banking 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.
The Company believes its profitability 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 lending 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 lending centers located in Akron, Cleveland, Columbus, and
Dayton, 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 July 1996, FNB opened its first
supermarket office, located in Reynoldsburg, Ohio. Finally, on August 14, 1996,
the Company acquired County which had total assets of approximately $554
million. The Company's strategic direction has culminated in over $700 million
of asset growth since December 31, 1991, an increase in excess of 250%.
The Company's Board of Directors and management intend to seek
continued controlled growth of the organization through selective acquisitions
of banks and/or savings and loan associations. The objective of such
acquisitions will be to: increase the opportunity for quality earning asset
growth, deposit generation and fee-based income opportunities; diversify the
earning assets portfolio and core deposit base through expansion into new
geographic markets; and improve the potential profits from its combined
operations through economies of scale. In furtherance of such objectives, the
Company intends to continue its pursuit of business combinations which fit its
strategic objectives of growth, diversification and market expansion
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and which provide the potential for enhanced shareholder value. At the present
time, the Company does not have any understanding or agreements for any
acquisition or combination.
MARKET AREA AND COMPETITION
The financial services industry in the Company's primary market area is
highly competitive. The Banking Subsidiaries compete actively with regional and
super-regional bank holding companies, community banks, savings institutions,
mortgage bankers, brokerage firms, insurance companies and loan production
offices in each of their primary market areas. 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 Banking 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 any of the Banking Subsidiaries. The business of the Company and the
Banking Subsidiaries is not seasonal to any material degree.
REGULATION AND SUPERVISION. As a bank holding company, the Company is
subject to regulation, supervision and examination by the Board of Governors of
the Federal Reserve System ("FRB") 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 FRB. 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.
As a result of the acquisition of County, the Company became a savings
and loan holding company. As a savings and loan holding company, the Company is
subject to regulation under the Home Owners Loan Act of 1933, as amended
("HOLA") and its examination and reporting requirements, and is subject to the
supervision of the Office of Thrift Supervision ("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.
FNB and Bellbrook are also subject to regulation, supervision, and
examination by the office of the Comptroller of Currency ("OCC"). FNB is subject
to regulation, supervision, and examination by the OCC. Bellbrook is subject to
regulation, supervision, and examination by the Federal Deposit Insurance
Corporation ("FDIC") and the Ohio Division of Financial Institutions. County is
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,
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including the FRB. An important purpose of these policies is to curb inflation
and control recessions through control of the supply of money and credit. The
FRB and/or OTS 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.
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 FRB and/or OTS has been given 60 days' prior written notice of such
proposed acquisition and within that time period the FRB and/or OTS 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 FRB and/or OTS approval under the BHCA. An
acquisition may be made prior to the expiration of the disapproval period if the
FRB and/or OTS issues written notice of its intent not to disapprove the action.
Under a rebuttable presumption established by the FRB, 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 Securities Exchange Act of 1934,
as amended (the "Exchange Act"), such as the Company, would constitute the
acquisition of control of such bank holding company.
In addition, any "company" would be required to obtain the approval of
the FRB and/or OTS under the BHCA before acquiring 25% (5% in the case of an
acquirer that is a bank holding company) or more of 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.
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 that 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
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amount equal to its minimum capital requirements may not pay any dividends
without the prior 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 a
Tier 1 thrift whose capital is decreasing because of substantial losses.
HOLDING COMPANY STRUCTURE. Transactions involving banking subsidiaries.
The Banking Subsidiaries are subject to Federal Reserve Act restrictions that
limit the transfer of funds or other items of value from the Banking
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 is
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 the FRB, 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 FRB 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 FRB, 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. FRB 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.
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 FRB for bank holding
companies,
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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 December 31, 1996, the Company's Tier 1 and total capital to
risk-adjusted assets ratios were 10.1% and 11.1%, 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 any of the Banking Subsidiaries has been advised by the
appropriate federal banking regulator of any specific Leverage Ratio applicable
to it. As of December 31, 1996, the Company's Leverage Ratio was 6.1%.
The Banking Subsidiaries are also subject to capital requirements
substantially similar to those imposed by the FRB on bank holding companies. As
of December 31, 1996, each of the Banking Subsidiaries had capital in excess of
the foregoing minimum regulatory capital requirements.
Under the Financial Institutions Reform, Recovery and Enforcement Act
("FIRREA"), the OTS is required to establish capital requirements for thrifts no
less stringent than those established by the OCC with respect to banks subject
to its jurisdiction. The OCC has established capital requirements for banks
under its jurisdiction that are substantially similar to bank holding company
capital requirements adopted by the FRB 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 earnings, 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 requirements of the
regulation for mortgage loans. At December 31, 1996, County had Tangible Capital
and Core Capital equal to 6.30% of adjusted total assets, and risk-based capital
equal to 11.11% 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.
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Under the regulations, a national bank will be: (i) "well capitalized" if it has
a total capital ratio of 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 December 31, 1996, both FNB and Bellbrook 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.
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 meet the QTL test 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.
9
<PAGE> 10
RECENT DEVELOPMENTS
The deposits of County are presently insured by the Savings Association
Insurance Fund (the"SAIF"), which together with the Bank Insurance Fund (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. During 1996 the SAIF
premium schedule remained at $0.23 to $0.31 per $100 of insured deposits. All of
FNB and Bellbrook's insured deposits are BIF deposits (except $29.2 million of
Oakar deposits), while all of County's deposits are SAIF deposits.
On September 30, 1996, President Clinton signed into law the Deposit
Insurance Funds Act of 1996, which included provisions recapitalizing the SAIF,
provides for the eventual merger of the thrift fund with the BIF, and
reallocates payment of the annual Financing Corp. ("FICO") bond obligation. As
part of the package, the FDIC imposed a special one-time assessment of 65.7
basis points to be applied against all SAIF-assessable deposits as of March 31,
1995, which brought the SAIF up to the statutorily prescribed 1.25% designated
reserve ratio. The special assessment, which was paid in November 1996, was
included as a $2.3 million pretax charge to the Company's operations in
September 1996. The assessment reduced the Company's 1996 net income by
approximately $1.5 million, or $0.45 per share.
Effective January 1, 1997, SAIF members will have the same risk-based
assessment schedule as BIF members. The Banking Subsidiaries will effectively
pay no assessment for deposit insurance coverage beginning on January 1, 1997.
However, all SAIF and BIF institutions including the Banking Subsidiaries will
be responsible for sharing the cost of interest payments on the FICO bonds. The
cost will be an annualized charge of 1.3 basis points for BIF deposits and 6.5
basis points for SAIF deposits. The approximate annual cost of interest payments
for the Company is estimated at $300,000.
As a result of the Deposit Insurance Funds Act of 1996, the Secretary
of the Treasury is to review recommendations in 1997 for the establishment of a
common charter for banks and savings associations. Accordingly, County may be
required to convert its state savings association charter to either a national
bank charter, a state depository institution charter, or a newly designed
charter. If such a recommendation is enacted into law, the Company will no
longer be regulated at the holding company level by the OTS. The Company is
unable to predict whether such initiatives will result in enacted legislation
requiring a charter change and if so whether the charter change would
significantly impact County's operations.
LENDING PRACTICES
Loan Portfolio Composition. 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>
DECEMBER 31,
----------------------------------------------------------
1996 1995 1994 1993 1992
--------- --------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Residential mortgage ............... $337,911 $105,604 $100,963 $92,036 $79,958
Construction mortgage .............. 7,716 2,859 1,232 1,695 4,308
Commercial, financial and industrial 299,630 107,015 103,415 90,268 77,499
Consumer ........................... 76,598 53,340 42,333 28,084 21,569
--------- --------- -------- -------- --------
Total loans ...................... 721,855 268,818 247,943 212,083 183,334
Allowance for
possible loan
losses ........................... (6,599) (3,307) (3,095) (3,007) (2,384)
--------- --------- -------- -------- --------
Net loans .......................... $715,256 $265,511 $244,848 $209,076 $180,950
========= ========= ======== ======== ========
</TABLE>
10
<PAGE> 11
The Company's loan portfolio totaled $715.3 million at December 31,
1996, representing 67.7 % 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 December 31, 1996 represented
46.8% of the Company's total loans. As of December 31, 1996, the Company's
outstanding commercial loans represented 41.5% of total loans and the Company's
outstanding consumer loans constituted 10.6% of total loans.
Residential mortgage. The Company originates loans secured by first
lien mortgages on single-family residences located mainly in its market areas.
The Company principally originates adjustable-rate products with a maturity of
up to 30 years, although these loans may be repaid over a shorter period due to
prepayments and other factors. These loans have a maximum loan to value ratio of
80%, although with private mortgage insurance, this ratio could go to 90%. 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 FRB, plus
a margin.
The acquisition of County enhanced the Company's 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 generally retains
the loan servicing rights associated with any loans sold in the secondary
market.
Construction mortgage. The Company originates loans to construct
commercial real estate properties and, to a lesser extent, to construct
single-family residences. For owner occupied commercial construction properties,
the maximum loan to value ratio is 75%. For non-owner occupied commercial
construction properties, the maximum loan to value ratio is 70%. For residential
construction properties, the guidelines for residential mortgages apply. All
construction loans are secured by first lien mortgages. These construction
lending activities generally are limited to the Company's primary market area.
At December 31, 1996, construction loans totaled $7.7 million, or 1.1% of total
loans.
Commercial. The Company originates commercial loans for various
business purposes including the acquisition and refinancing of commercial real
estate. Such loans are 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 generally requires that the
ratio of the loan amount to the value of the collateral cannot exceed 75%.
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 December 31, 1996, the guaranteed portion of loans that were held-for-sale
totaled $1.4 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 lending center was opened in Akron, Ohio during the second quarter of
1996, and an additional small business lending center was established in Dayton,
Ohio in July 1996. Uncertainties exist surrounding government programs,
including the SBA, due to scrutiny by the United States Congress. This will be
evaluated by management in determining future activities in this area.
At December 31, 1996, the Company's commercial loans, including
commercial real estate, consisted of loans with an average principal balance of
$158,000. The largest commercial loan at that date had a principal balance of
$6.8 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 December 31, 1996, the Company's
consumer loans amounted to $76.6 million, or 10.6% of total loans.
11
<PAGE> 12
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. Home equity
loans are secured by first or second lien mortgages. The maximum loan to value
ratio for first lien mortgages is 90%. Home equity loans that are secured by
second lien mortgages must have a loan to value ratio of at least 80% when added
to the balance of the first lien mortgage.
At December 31, 1996, 60.6% 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. The targeted loan to value ratio for loans secured by new
and used automobiles is 80%. Depending on market conditions and customer credit
ratings, the Company may lend up to a 100% loan to value ratio.
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.
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,
--------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
---------------------- --------------------- --------------------- -------------------- -------------------
PERCENT PERCENT PERCENT PERCENT PERCENT
OF OF OF OF OF
LOANS TO LOANS TO LOANS TO LOANS TO LOANS TO
ALLOWANCE TOTAL ALLOWANCE TOTAL ALLOWANCE TOTAL ALLOWANCE TOTAL ALLOWANCE TOTAL
--------- -------- --------- -------- --------- -------- --------- -------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Residential mortgage $1,392 46.8% $ 117 39.3% $ 196 40.7% $ 183 43.4% $ 507 43.6%
Construction mortgage 24 1.1 -- 1.1 -- 0.5 -- 0.8 -- 2.4
Commercial .......... 2,704 41.5 3,164 39.8 1,822 41.7 2,086 42.6 1,419 42.3
Consumer ............ 2,479 10.6 26 19.8 1,077 17.1 738 13.2 458 11.7
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
TOTAL ............... $6,599 100.0% $3,307 100.0% $3,095 100.0% $3,007 100.0% $2,384 100.0%
====== ===== ====== ===== ====== ===== ====== ===== ====== =====
</TABLE>
The increase in the allowance for possible loan losses at December 31,
1996 resulted primarily from the addition of County's allowance at the time of
acquisition. See Management's Discussion and Analysis of Financial Condition and
Results of Operations of the Company.
12
<PAGE> 13
Loan maturities and repricing periods of the loan portfolio at December
31, 1996 were as follows:
<TABLE>
<CAPTION>
WITHIN ONE TO AFTER
ONE FIVE FIVE
YEAR YEARS YEARS TOTAL
---- ----- ----- -----
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Residential mortgage $ 237,590 $ 60,519 $ 39,802 $ 337,911
Construction mortgage 7,494 98 124 7,716
Commercial 169,520 94,562 35,548 299,630
Consumer 36,062 38,231 2,305 76,598
-------- -------- ------- --------
$ 450,666 $ 193,410 $ 77,779 $ 721,855
======== ======== ======= ========
Loans due after one year with:
Floating rates $ 121,947
Predetermined rates $ 149,242
</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,
banks and savings and loan associations 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.
13
<PAGE> 14
The following table sets forth certain information relating to the
Company's investment securities portfolio.
<TABLE>
<CAPTION>
OBLIGATIONS
OTHER U.S. OF STATE AND MORTGAGE-
U.S. GOVERNMENT POLITICAL BACKED YIELD
TREASURY AGENCIES SUBDIVISIONS SECURITIES OTHER TOTAL (FTE)
-------- --------- ------------ ---------- -------- --------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1996
- -----------------
SECURITIES AVAILABLE-FOR-SALE:
Maturity/Repricing:
Within one year $ 9,793 $ -- $ 901 $ 48,200 $ 8,491 $ 67,385 6.56%
After one through five years 2,088 553 6,775 97,382 -- 106,798 6.89%
After five through ten years -- 6,920 5,507 17,188 4,988 34,603 6.80%
After ten years -- 4,955 3,118 19,902 1,016 28,991 6.97%
-------- -------- -------- --------- -------- ---------
Total carrying value $ 11,881 $ 12,428 $ 16,301 $ 182,672 $ 14,495 $ 237,777
======== ======== ======== ========= ======== =========
Yield (FTE) 7.14% 7.34% 7.69% 6.71% 6.15% 6.79%
Average maturity (in years) .71 10.35 6.20 7.47 8.14 7.14
SECURITIES HELD-TO-MATURITY:
Maturity/Repricing:
Within one year $ -- $ 1,999 $ 475 $ 3,846 $ -- $ 6,320 7.59%
After one through five years -- -- 4,782 11,868 50 16,700 8.12%
After five through ten years -- -- 3,797 9,247 -- 13,044 8.00%
After ten years -- -- -- 10,729 6 10,735 8.09%
-------- -------- -------- --------- -------- ---------
Total carrying value $ -- $ 1,999 $ 9,504 $ 35,690 $ 56 $ 46,799
======== ======== ======== ========= ======== =========
Fair value 2,000 9,163 36,431 58 47,652
Yield (FTE) 6.55% 8.01% 8.09% 8.00% 8.01%
Average maturity (in years) .50 4.91 7.73 4.00 6.87
DECEMBER 31, 1995
- -----------------
SECURITIES AVAILABLE-FOR-SALE:
Maturity/Repricing:
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
</TABLE>
14
<PAGE> 15
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.
Maturities of the Company's time certificates of deposit of $100,000 or
more outstanding at December 31, 1996, are summarized as follows:
<TABLE>
<CAPTION>
AMOUNT
---------------
(IN THOUSANDS)
<S> <C> <C>
3 months or less $ 68,990
3 through 6 months 27,009
6 through 12 months 12,484
Over 12 months 17,116
------------
Total $ 125,599
=============
</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.
The Company's Banking Subsidiaries are members of the Federal Home Loan
Bank ("FHLB") system. This membership is maintained to enhance shareholder value
through the utilization of FHLB advances to aid in the management of the
Company'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 products with characteristics not necessarily present in the
existing deposit base, as well as the ability to manage liquidity.
EMPLOYEES
At December 31, 1996, the Company had 388 employees, 317 of whom were
full-time and 71 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.
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES
The Company does not have any banking offices located in a foreign
country and has no foreign assets, liabilities, or related income and expense
for the years presented.
ITEM 2: PROPERTIES
- -------------------
The Company's headquarters and FNB's main office are located in The
First National Bank Building, 422 Main Street, Zanesville, Ohio. The building is
used exclusively by the Company and FNB.
15
<PAGE> 16
All of the offices listed below are owned by the Company or its
subsidiaries free and clear of any encumbrances.
<TABLE>
<CAPTION>
Location Description
-------- -----------
FNB
<S> <C> <C>
1. Main Office
422 Main Street Six story building built in 1934 with approximately 34,302 square
Zanesville, OH 43701 feet.
2. Duncan Falls Office
Main & Mound Streets
Duncan Falls, OH 43734 One story building built in 1959 with 1,148 square feet.
3. Frazeysburg Office
Third & State Streets
Frazeysburg, OH 43822 One story building built in 1959 with 1,302 square feet.
4. Maple-Bell Office
2801 Maple Avenue
Zanesville, OH 43701 One story building built in 1972 with 2,316 square feet.
5. New Concord Office
27 East Main Street One story building with basement, built in 1962 with 4,478 square
New Concord, OH 43762 feet.
6. Terrace Point Office
1820 Maple Avenue One story building with basement, built in 1959 with 2,427 square
Zanesville, OH 43701 feet.
7. Zane Plaza Office
225 N. Maysville Avenue
Zanesville, OH 43701 One story building built in 1965 with 2,386 square feet.
8. Dresden Office
727 Main Street
Dresden, OH 43821 Two story building built in 1930 with 1,000 square feet.
COUNTY
1. Arlington Office One story building acquired in 1977 with approximately 2,170 square
3005 Northwest Blvd. feet.
Upper Arlington, OH 43221
2 Bexley Office
2585 East Main Street One story building acquired in 1977 with approximately 2,814 square
Bexley, OH 43209 feet.
3. Clintonville Office One story building acquired in 1982 with approximately 1,847 square
4311 North High Street feet.
Columbus, OH 43215
4. Heath Office One story building built in 1962 with approximately 1,987 square
580 Hebron Road feet.
Heath OH 43056
</TABLE>
16
<PAGE> 17
<TABLE>
<CAPTION>
<S> <C> <C>
5. Newark - Downtown Office Two story building with a basement built in 1955 with approximately
42 North Third Street 13,400 square feet.
Newark, OH 43055
6. Newark - 21st Street Office One story building built in 1975 with approximately 1,600 square
973 North 21st Street feet. This building is located on property that is subject
Newark, OH 43055 to a ground lease dated January 1, 1975 for a term of 99 years, with a
99 year renewal option. Monthly rental payments are $450.
7. Pataskala Office One story building built in 1973 with approximately 1,385 square
26 West Broad Street feet.
Pataskala, OH 43062
8. Utica Office One story building built in 1976 with approximately 828 square feet.
8 North Main Street
Utica, OH 43080
BELLBROOK
1. Main Office One story building built in 1971 with approximately 5,700 square
2010 Lakeman Drive feet.
Bellbrook, OH 45305
</TABLE>
The following locations are leased by FNB:
The Sunrise Office, 80 Sunrise Center, Zanesville, Ohio, 43701, is a
one story building built in 1980, containing 2,420 square feet. FNB is
purchasing the land on a land contract basis. The original amount of
the land contract was $75,000. The present balance of the land contract
is $52,311, with monthly principal and interest payments of $903.
The Colony Square Office, 3575 Maple Avenue, Zanesville, Ohio, 43701,
is a one story building built in 1982 with 994 square feet. The
building is locate on property subject to a ground lease dated February
25, 1982, with a base lease of 15 years followed by a series of five
year renewal options aggregating 25 years, favoring the Bank. The
current monthly rental payment is $2,300.
The Reynoldsburg Financial Center, 6300 East Livingston Avenue,
Reynoldsburg, Ohio 43068, is leased space in a supermarket. The lease
is for a term of 15 years commencing March 5, 1996 and expiring March
31, 2011, with monthly rental payments of $3,583. This lease may be
terminated at the option of FNB on the fifth or tenth anniversaries
(March 2001 or March 2006) with 6 months prior notice.
The Newark Financial Center, 1040 North 21st Street, Newark, Ohio,
43055, is subleased office space within a building consisting of
approximately 2,400 square feet. The sublease is for a term of 50
months, commencing on August 1, 1994, and expiring September 29, 1998,
with monthly rental payments of $3,870.
The Heath Financial Center, 792 Hebron Road, Heath, Ohio, 43056, is
subleased office space within a building consisting of approximately
1,700 square feet. The sublease is for a term of 50 months, commencing
on August 1, 1994, and expiring September 29, 1998, with monthly rental
payments of $2,500.
The Columbus Business Financial Center, Gahanna, Ohio 43230, is leased
office space within a building consisting of approximately 3,136 square
feet. The lease is for a term of five (5) years, commencing September
21, 1995 and expiring on September 30, 2000, with monthly rental
payments of $4,258.
The Cleveland Loan Production Office, 6140 West Creek Road,
Independence, Ohio 44131, is leased office space in a building
consisting of approximately 1,443 square feet. The lease is for a term
of three years commencing March 1, 1997, and expiring on February 29,
2000, with monthly rental payments of $1,503.
17
<PAGE> 18
The Akron/Canton Loan Production Office, 175 Montrose West Avenue,
Copley Township, Ohio 44321, is leased office space in a building
consisting of approximately 781 square feet. The lease is for a term of
2 years commencing June 1, 1996 and expiring on May 31, 1998, with
monthly rental payments of $1,074.
The Dayton Bellbrook Loan/Investment office, 7956 Clyo Road,
Centerville, Ohio 45459, is leased office space in a building
consisting of approximately 688 square feet. The lease is for a term of
one (1) year commencing September 1, 1996 and expiring August 31, 1997,
with monthly rental payments of $400.
The following locations are leased by County:
The Corporate offices (including the Capitol Square branch office), 66
South Third Street, Columbus, Ohio, 43215 is a two story building with
a lower level with 15,000 square feet. The lease is for a term of five
years commencing August 1993 followed by a series of five year renewal
options aggregating 20 years. Minimum monthly rental payments are
$15,122.
The Granville office, 143 East Broadway, Granville, Ohio, 43023 is
leased space in an office building consisting of 689 square feet. The
lease is for a term of 10 years commencing January, 1983 followed by
one 10 year renewal option. Minimum monthly rental payments are $901.
The Dublin Loan Production office, 6055 Tain Drive, Dublin, Ohio, 43017
is leased space in an office building consisting of 660 square feet.
The lease was for at term of one year commencing February 1, 1996. This
lease was not renewed.
The Operations Center, 7099 Huntley Road, Worthington, Ohio, 43085 is
leased space in an office building consisting of 12,500 square feet.
The lease is in the second of 3 two year renewal periods, with monthly
rental payments of $5,200.
The aggregate annual rentals paid during the Corporation's last fiscal year does
not exceed five percent of its operating expenses.
ITEM 3: 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.
ITEM 4 - SUMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- -----------------------------------------------------------
No matters were submitted for a vote of security holders of the Company during
the fourth quarter of 1996.
18
<PAGE> 19
PART II
-------
ITEM 5: MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
- ---------------------------------------------------------------------------
MATTERS
-------
<TABLE>
<CAPTION>
QUARTERLY MARKET AND DIVIDEND INFORMATION
Per Share Data
1996 1995
------------------------------------------ ------------------------------------------
MARKET PRICE CASH Market Price Cash
--------------------------- ---------------------------
HIGH LOW DIVIDENDS High Low Dividends
--------------------------- -------------- --------------------------- --------------
<S> <C> <C> <C> <C> <C> <C>
1st Quarter $ 35.50 $ 29.50 $ .25 $ 26.00 $ 24.00 $ .23
2nd Quarter 36.50 30.50 .25 27.00 24.00 .23
3rd Quarter 32.00 27.25 .25 28.00 26.00 .23
4th Quarter 32.00 28.25 .26 31.00 26.50 .25
</TABLE>
QUARTERLY MARKET AND DIVIDEND INFORMATION
On April 30 1993, the Company's common stock commenced trading on the
National Association of Securities Dealers Automated Quotation System (NASDAQ)
National Market System under the symbol BFOH. The high and low market prices
represent high and low sales prices for the Company's common stock as furnished
to the Company by NASDAQ. There were 1,167 and 1,164 shareholders of the
Company's common stock at December 31, 1996 and 1995, respectively. The Company
plans to continue to pay quarterly cash dividends. The ability of the Company to
pay cash dividends is based upon receiving dividends from its Banking
Subsidiaries, as well as existing cash balances. As discussed in Note 15 to the
consolidated financial statements, certain restrictions exist regarding the
ability of the Banking Subsidiaries to pay dividends.
19
<PAGE> 20
ITEM 6: SELECTED CONSOLIDATED FINANCIAL DATA OF THE COMPANY
- -------------------------------------------------------------
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
1996 (5) 1995 1994 1993 1992
----------- ------------ ----------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Interest income $ 53,177 $ 34,063 $ 27,652 $ 24,863 $ 25,087
Interest expense 28,630 16,357 11,259 9,321 10,310
-------- -------- ------- ------- -------
Net interest income 24,547 17,706 16,393 15,542 14,777
Provision for possible loan losses 1,257 967 338 799 1,044
Non-interest income 6,258 4,984 3,801 3,569 2,873
Non-interest expense 21,235 12,805 11,410 10,568 9,702
-------- -------- ------- ------- -------
Income before income taxes 8,313 8,918 8,446 7,744 6,904
Provision for federal income tax 2,354 2,706 2,572 2,323 1,986
-------- -------- ------- ------- -------
Net income $ 5,959 $ 6,212 $ 5,874 $ 5,421 $ 4,918
========= ========= ======== ======== ========
PER SHARE DATA: (1)
Net income $ 1.78 $ 2.09 $ 1.98 $ 1.82 $ 1.65
Dividends 1.01 0.94 0.89 0.82 0.73
Book value 19.57 16.82 14.76 14.23 13.19
Tangible book value 16.01 16.80 14.72 14.17 13.12
BALANCE SHEET DATA:
Total assets $ 1,056,920 $ 476,429 $ 429,384 $ 387,202 $ 355,923
Loans 721,855 268,818 247,943 212,083 183,334
Allowance for possible loan losses 6,599 3,307 3,095 3,007 2,384
Securities 284,576 178,252 153,595 148,724 147,916
Deposits 732,689 348,545 320,836 310,586 310,118
Borrowings 236,609 74,135 63,525 32,986 4,900
Shareholders' equity 77,894 50,010 43,844 42,295 39,350
PERFORMANCE RATIOS:
Return on average assets 0.85% 1.38% 1.48% 1.51 % 1.47%
Return on average equity 10.05 13.05 13.28 13.19 12.85
Net interest margin 3.78 4.27 4.49 4.78 4.88
Interest rate spread 3.22 3.55 3.89 4.22 4.26
Non-interest income to average assets 0.90 1.11 0.95 0.99 0.83
Non-interest expense to average assets(2) 2.59 2.84 2.87 2.94 2.81
Efficiency ratio(3) 57.33 56.63 56.10 56.09 55.08
ASSET QUALITY RATIOS:
Non-performing loans to total loans 0.35 0.38 0.21 0.19 0.46
Non-performing assets to total assets 0.29 0.22 0.12 0.11 0.24
Allowance for possible loan losses
to total loans 0.91 1.23 1.25 1.42 1.30
Allowance for possible loan losses to
non-performing loans 258.0 322.9 608.1 731.6 284.8
Net charge-offs to average loans .19 0.29 0.11 0.09 0.23
CAPITAL RATIOS:(4)
Shareholders' equity to total assets 7.37 10.50 10.21 10.92 11.06
Tier 1 capital to total assets 6.06 10.49 10.18 10.89 11.01
Tier 1 capital to risk-weighted assets 10.08 17.70 20.32 20.90 19.90
<FN>
- ----------------
(1) Per share data has been restated to reflect all stock dividends and stock splits.
(2) Excludes nonrecurring charges totaling $2,632 in 1996.
(3) The efficiency ratio is equal to non-interest expense (excluding nonrecurring charges) 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) The Company's acquisition of County in August 1996 significantly affects the comparability of the Company's
results of operations for prior years.
</TABLE>
20
<PAGE> 21
ITEM 7: 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.
This discussion contains forward-looking statements under the Private
Securities Litigation Reform Act of 1995 that involve risks and uncertainties.
Although the Company believes that the assumptions underlying the
forward-looking statements contained herein are reasonable, any of the
assumptions could be inaccurate, and therefore, there can be no assurance that
the forward-looking statements included herein will prove to be accurate.
Factors that could cause actual results to differ from the results discussed in
the forward-looking statements include, but are not limited to: economic
conditions (both generally and more specifically in the markets in which the
Company and its Banking Subsidiaries operate); competition for the Company's
customers from other providers of financial services; government legislation and
regulation (which changes from time to time and over which the Company has no
control); changes in interest rates; material unforeseen changes in the
liquidity, results of operations, or financial condition of the Company's
customers; delays in, customer reactions to, and other unforeseen complications
with respect to, the implementation of the Company's planned integration of
County; and other risks detailed in the Company's filings with the Securities
and Exchange Commission, all of which are difficult to predict and many of
which are beyond the control of the Company.
OVERVIEW
The reported results of the Company primarily reflect the operations of
the Company's bank and thrift subsidiaries. The Company's results of operations
are dependent on a variety of factors, including the general interest rate
environment, competitive conditions in the industry, governmental policies and
regulations and conditions in the markets for financial assets. Like most
financial institutions, the primary contributor to the Company's income is net
interest income, which is defined as the difference between the interest the
Company earns on interest-earning assets, such as loans and securities, and the
interest the Company pays on interest-bearing liabilities, such as deposits and
borrowings. The Company's operations are also affected by non-interest income,
such as checking account and trust fees and gains from sales of loans. The
Company's principal operating expenses, aside from interest expense, consist of
salaries and employee benefits, occupancy costs, federal deposit insurance
assessments and other general and administrative expenses.
On August 14, 1996, the Company acquired County in a transaction
accounted for under the purchase method of accounting for business combinations.
Accordingly, the Company's consolidated financial statements include the
operating results of County from the date of acquisition. At the time of
acquisition, County had approximately $554 million in total assets, $411 million
in loans and $365 million in total deposits. The Company also recorded goodwill
and other intangible assets of $14.5 million as a result of the application of
purchase accounting. Funding for the acquisition was provided by proceeds from
the issuance of 1 million shares of common stock, $15 million of bank borrowings
and approximately $7 million of available cash.
On June 30, 1995 the Company acquired Bellbrook 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 Bellbrook.
Average Balances and Yields. The following tables 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.
21
<PAGE> 22
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------------------
1996 1995 1994
------------------------------- -------------------------- --------------------------
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCE EXPENSES RATE(1) BALANCE EXPENSES RATE(1) BALANCE EXPENSES RATE(1)
----------- --------- ------- -------- -------- -------- -------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Securities:
Taxable $191,758 $ 13,082 6.82% $143,206 $ 9,631 6.73% $125,072 $ 7,846 6.27%
Tax-exempt 25,632 1,983 7.74 21,931 1,738 7.92 19,019 1,497 7.87
-------- -------- -------- ------- -------- --------
Total securities 217,390 15,065 6.93 165,137 11,369 6.88 144,091 9,343 6.48
Loans (2):
Commercial 186,409 18,121 9.72 108,189 10,836 10.02 98,606 8,543 8.66
Real estate 197,505 14,645 7.42 104,978 8,319 7.92 99,476 7,495 7.53
Consumer 61,600 5,810 9.43 48,539 4,016 8.27 34,200 2,770 8.10
-------- -------- -------- ------- -------- --------
Total loans 445,514 38,576 8.66 261,706 23,171 8.85 232,282 18,808 8.10
Federal funds sold 5,055 268 5.30 3,510 193 5.50 2,711 116 4.28
-------- -------- -------- ------- ---- -------- -------- ----
Total earning assets(3) 667,959 53,909 8.07% 430,353 34,733 8.07% 379,084 28,267 7.46%
-------- -------- ---- -------- ------- ---- -------- -------- ----
Non-interest-earning assets 30,423 20,066 18,930
-------- -------- --------
Total assets $698,382 $450,419 $398,014
======== ======== ========
Interest-bearing deposits:
Demand and savings deposits $170,835 $ 4,546 2.66 $155,480 4,417 2.84 168,938 4,420 2.62
Time deposits 288,100 16,393 5.69 142,987 8,008 5.60 111,467 4,964 4.45
-------- -------- -------- ------- -------- --------
Total 458,935 20,939 4.56 298,467 12,425 4.16 280,405 9,384 3.35
Borrowings 131,818 7,693 5.84 63,488 3,932 6.19 35,532 1,875 5.28
-------- -------- ---- -------- ------- ---- -------- -------- ----
Total interest-bearing liabilities 590,753 28,632 4.85% 361,955 16,357 4.52% 315,937 11,259 3.56%
-------- ---- ------- ---- -------- ----
Non-interest-bearing deposits 41,520 38,310 35,823
------ ------ ------
Total interest-bearing liabilities
and non-interest-bearing deposits 632,273 400,265 351,760
Accrued expenses and other 6,796 2,555 2,017
-------- -------- --------
Total liabilities 639,069 402,820 353,777
Shareholders' equity 59,313 47,599 44,237
-------- -------- --------
Total liabilities and shareholders' equity $698,382 $450,419 $398,014
======== ======== ========
Net interest income and interest rate spread(4) $25,277 3.22% $18,376 3.55% $17,008 3.89%
======= ==== ======= ==== ======= ====
Net interest margin(5) 3.78% 4.27% 4.49%
Average interest-earning assets to average
interest-bearing liabilities 113.1% 118.9% 120.0%
<FN>
(1) Calculated on an annualized basis.
(2) Non-accrual loans are included in the average loan balances,
(3) Computed on an FTE basis utilizing a 34% tax rate. The applicable adjustments were $730, $672 and $579 for the
years ended December 31, 1996, 1995 and 1994, respectively.
(4) Interest rate spread represents the difference between the average yield on interest-earning assets and the
average cost of interest-bearing liabilities.
(5) The net interest margin represents net interest income as a percentage of average interest-earning assets.
</TABLE>
22
<PAGE> 23
Rate and Volume Variances. Net interest income may also be analyzed by
segregating the volume and rate components of interest income and interest
expense. The following table discloses the dollar changes in the Company's net
interest income attributable to changes in levels of interest-earning assets or
interest-bearing liabilities (volume), changes in average yields on
interest-earning assets and average rates on interest-bearing liabilities (rate)
and the combined volume and rate effects (total). For the purposes of this
table, the change in interest due to both rate and volume has been allocated to
volume and rate change in proportion to the relationship of the dollar amounts
of the change in each. In general, this table provides an analysis of the effect
on income of balance sheet changes which occurred during the periods and the
changes in interest rate levels.
<TABLE>
<CAPTION>
DECEMBER 31,
1996 VS. 1995 1995 VS. 1994
INCREASE (DECREASE) INCREASE (DECREASE)
------------------------------------------- -------------------------------------------
VOLUME RATE TOTAL VOLUME RATE TOTAL
----------- ------------ ------------ ------------- ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans:
Commercial $ 7,613 $ (328) $ 7,285 $ 880 $ 1,413 $ 2,293
Real estate 6,893 (567) 6,326 426 398 824
Consumer 1,180 614 1,794 1,185 61 1,246
--------- ---------- ---------- ---------- --------- ---------
Total loans 15,686 (281) 15,405 2,491 1,872 4,363
Securities:
Taxable 3,310 141 3,451 1,192 593 1,785
Tax-exempt 287 (42) 245 231 10 241
--------- ---------- ---------- ---------- --------- ---------
Total securities 3,597 99 3,696 1,423 603 2,026
Federal funds sold 82 (7) 75 39 38 77
--------- ---------- ---------- ---------- --------- ---------
Total interest-earning
assets(1) 19,365 (189) 19,176 3,953 2,513 6,466
--------- ---------- ---------- ---------- --------- ---------
Interest-bearing liabilities:
Deposits:
Demand and savings deposits 419 (290) 129 (366) 363 (3)
Time deposits 8,255 130 8,385 1,593 1,451 3,044
--------- ---------- ---------- ---------- ---------- ---------
Total interest-bearing deposits 8,674 (160) 8,514 1,227 1,814 3,041
Borrowings 4,000 (239) 3,761 1,685 372 2,057
--------- ---------- ---------- ---------- --------- ---------
Total interest-bearing
liabilities 12,675 (400) 12,275 2,912 2,186 5,098
--------- ---------- ---------- ---------- ---------- ---------
Net interest income $ 6,690 $ 211 $ 6,901 $ 1,041 $ 327 $ 1,368
========== =========== =========== =========== ========== ==========
<FN>
(1) Computed on a fully tax-equivalent basis, assuming a tax rate of 34%.
</TABLE>
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
Net Income. Net income of the Company totaled $6.0 million for the year
ended December 31, 1996, a decrease of $253,000, or 4.1% from 1995. Earnings per
share in 1996 equaled $1.78, compared to $2.09 in 1995, a 14.8% decrease.
Operating results in 1996 include after tax charges of $1.5 million for the
one-time special assessment to recapitalize the SAIF and $213,000 for
restructuring costs incurred in connection with the consolidation of overlapping
operations of the Company's banking and thrift subsidiaries. Net interest income
and non-interest income increased 38.6% and 25.6%, respectively, in 1996 as
compared to 1995 while the provision for possible loan losses and non-interest
expense increased 30.0% and 65.8%, respectively. The Company's net interest
margin decreased to 3.78% in 1996 as compared to 4.27% in 1995, primarily
reflecting the lower net interest margin on County's interest earning assets as
well as the interest cost on acquisition related borrowings. Increases in
non-interest income resulted from higher gains on sales of the guaranteed
portion of SBA loans, higher levels of fee income and the inclusion of County's
operating results from August 14, 1996. The provision for possible loan losses
increased primarily due to an increase in net charge-offs as well as an increase
in loan delinquencies. Non-interest expense increased due to the non-recurring
charges noted above as well as the inclusion of County's operating expenses and
higher cost associated with the expansion of trust and other operating
activities. The Company's return on average assets and return on average equity
were .85% and 10.05%, respectively, in 1996, compared to 1.38% and 13.05%,
respectively, in 1995. Excluding the nonrecurring charges noted above, the
Company's return on
23
<PAGE> 24
average assets and return on average equity in 1996 were 1.10% and 12.98%,
respectively. The lower return on assets in 1996 compared to 1995 resulted
primarily from the lower earnings contribution of County relative to its
average assets.
Interest Income. Total interest income increased 56.1% to $53.2 million
for 1996, compared to $34.1 million for 1995. This increase resulted from a
$237.6 million, or 55.2%, increase in average interest-earning assets in 1996.
The average balance of loans increased $183.8 million, or 70.2%. These increases
resulted primarily from the acquisition of County which contributed $209.0
million of the increase in average earning assets and $161.9 million of the
increase in average loans.
The weighted average yield on interest-earning assets was 8.07% in
1996, basically unchanged from 1995, reflecting the relatively stable interest
rate environment in 1996. The Company's yield on average loans decreased from
8.85% in 1995 to 8.66% in 1996 This resulted primarily from a slightly lower
yield on County's loan portfolio due to a higher portion of such loans
consisting of lower yielding residential mortgage loans. Yields on the
investment portfolio remained relatively stable, increasing from 6.88% in 1995
to 6.93% in 1996.
Interest Expense. Total interest expense increased 75.0% to $28.6
million for 1996 as compared to $16.4 million for 1995. Interest expense
increased due to a higher average balance of interest-bearing liabilities
outstanding and due to a higher cost of funds during 1996 as compared to 1995.
The average balance of deposit accounts increased $160.5 million, or 53.8%, to
$458.9 million in 1996 as compared to $298.5 million in 1995. Average
interest-bearing liabilities increased 63.2%, from $362.0 million to $590.8
million. These increases also primarily resulted from the acquisition of County
which contributed $195.2 million to the increase in average interest bearing
liabilities and $138.4 million to the increase in total deposits. The Company's
marketing efforts and continued deposit growth at new branch offices as well as
funding required by the Company's asset growth strategies also contributed to
the increase in average interest-bearing liabilities.
The Company's cost of funds increased to 4.85% in 1996 as compared to
4.52% in 1995 primarily due to a higher cost of funds associated with County's
interest-bearing liabilities. 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 30.0% to $1.3 million in 1996, as compared to $967,000 in 1995.
The increase in the provision for possible loan losses was affected by a higher
level of net charge-offs, $826,000 versus $755,000 during 1996 and 1995,
respectively, as well as a higher level of non-performing loans. Total
non-performing loans increased to $2.6 million at December 31, 1996, from $1.0
million at December 31, 1995, with County adding $482,000 to the 1996 total. The
allowance for possible loan losses at December 31, 1996 was $6.6 million, or
.91% of total loans and 258.0% of non-performing loans compared to $3.3 million,
or 1.23% of total loans and 322.9% of non-performing loans at December 31, 1995.
Management's estimate of the adequacy of its allowance for possible loan losses
is based upon its continuing review of prevailing national and local economic
conditions, changes in the size and composition of the portfolio and individual
problem credits. Growth of the loan portfolio, loss experience, economic
conditions, delinquency levels, credit mix and selected credits are factors that
affect judgments concerning the adequacy of the allowance.
Non-Interest Income. Total non-interest income increased 25.6% to $6.3
million in 1996, as compared to $5.0 million in 1995. The increase in 1996 was a
result of a $838,000 increase in fees and other income, $321,000 of which was
contributed by County. This increase was also a result of a $529,000 increase in
gains on sales of loans. During 1996, the Company sold approximately $14.4
million of the guaranteed portion of its SBA loan originations in the secondary
market compared to $11.5 million in 1995, realizing gains of $1.8 million
compared to $1.3 million.
Customer service fees, representing service charges on deposits and
fees from other banking services, increased 5.4% in 1996, to $1.8 million, from
$1.7 million in 1995. This increase resulted from increased basic fee structures
as well as from fee income contributed by County to the 1996 results. Trust
income increased 15.3% to $1.5 million in 1996, from
24
<PAGE> 25
$1.3 million in 1995. The growth in trust and custodian fee income resulted
primarily from the expansion of the Company's customer base and higher asset
values. The $553,000 increase in other income to $1.1 million in 1996 compared
to $565,000 in 1995 was primarily attributable to County's loan service fee and
related income as well as a higher volume of fee related accounts in 1996
compared to 1995.
The following table sets forth the Company's non-interest income for
the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1996 1995 1994
----------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Trust and custodian fees $ 1,451 $ 1,259 $ 1,129
Customer service fees 1,807 1,714 1,726
Investment securities gains (losses) 43 136 (57)
Gain on sale of loans 1,839 1,310 668
Other 1,118 565 335
-------- -------- -------
Total $ 6,258 $ 4,984 $ 3,801
========= ========= ========
</TABLE>
Non-Interest Expense. Total non-interest expense increased $8.4
million, or 65.8%, to $21.2 million in 1996 as compared to $12.8 million in
1995. Included in the 1996 totals are pretax charges of $2.3 million for the one
time special SAIF assessment and $323,000 for restructuring costs incurred in
connection with the consolidation of overlapping operations, previously
discussed. In addition, other non-interest expenses added by County that are
included in the 1996 results totaled $3.8 million. Excluding nonrecurring
expenses and non-interest expenses added as a result of the County acquisition,
total non-interest expenses were $14.6 million in 1996 compared to $12.8 million
in 1995, representing an increase of $1.8 million or 13.8%. This increase
generally resulted from expansion of the Company's operating activities over the
past year.
The following table sets forth the Company's non-interest expense for
the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1996 1995 1994
----------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Salaries and employee benefits $ 9,995 $ 6,866 $ 6,071
Net occupancy expense 1,221 752 643
Furniture and equipment expense 564 408 415
Data processing expense 831 647 521
Taxes other than income taxes 709 518 496
Federal deposit insurance 2,697 430 717
Amortization of intangibles 549 28 28
Other 4,669 3,156 2,519
-------- -------- -------
Total $ 21,235 $ 12,805 $ 11,410
========= ========= ========
</TABLE>
Salaries and employee benefits accounted for approximately 47.1% of
total non-interest expense in 1996 compared to 53.6% in 1995. The average full
time equivalent staff level was 274 in 1996 compared to 196 in 1995. Salaries
and employee benefits increased 45.6%, from $6.9 million in 1995 to $10.0
million in 1996, with $2.0 million of the increase added by County. In general,
higher salaries and employee benefits costs resulted from the Company's
continued market expansion as well as new product offerings.
25
<PAGE> 26
Net occupancy expense increased 62.4% to $1.2 million in 1996 from
$752,000 in 1995. This increase resulted from occupancy expenses of $407,000
added by County with the remainder attributed to the expansion of the Company's
small business lending centers and the opening of a supermarket branch in July
1996.
Furniture and equipment expense increased $156,000, or 38.2% in 1996.
In addition to expenses of $108,000 added by County, the increase in furniture
and equipment expense was due principally to higher depreciation costs.
Data processing expense increased $184,000 in 1996, or 28.4% to
$831,000 from $647,000 in 1995. In addition to $112,000 of expenses added by
County, higher costs in 1996 resulted from the expansion of technology
throughout the Company to enhance customer service, increase efficiencies and
improve information management systems.
Taxes other than income taxes increased $191,000, or 36.9%, in 1996
compared to 1995. This increased resulted from $140,000 of expenses added by
County as well as from higher equity levels (on which such taxes are based) of
the Banking Subsidiaries.
Excluding the special one time SAIF assessment of $2.3 million, Federal
deposit insurance expense decreased $42,000 to $388,000 in 1996 from $430,000 in
1995. This decrease resulted from lower Bank Insurance Fund premium assessment
rates that took effect during the second quarter of 1995, more than offsetting
deposit insurance costs of $349,000 added by County.
Amortization of goodwill and other intangibles resulting from the
application of purchase accounting in connection with the County acquisition
totaled $521,000 during 1996 with no comparable amount in 1995.
Increases in other non-interest expenses, excluding nonrecurring
charges of $323,000 and expenses of $395,000 added by County, totaled $795,000
and were primarily related to the expanded volume of business activities.
The efficiency ratio is one method used in the banking industry to
assess profitability. It is defined as non-interest expense less amortization
expense divided by the net revenue stream, which is the sum of net interest
income on a tax-equivalent basis and non-interest income excluding net
investment securities gains or losses. The Company's efficiency ratio (excluding
nonrecurring charges) was 57.3% for 1996, as compared to 56.6% for 1995.
Controlling costs and improving productivity as measured by the efficiency
ratio, is considered by management a primary factor in enhancing performance.
Operating expense levels increased slightly in 1996 as a result of the Company's
expansion into new markets, increase growth and volume of activities, and
overall inflation.
Provision for Income Taxes. The provision for Federal income taxes
decreased $352,000 to $2.4 million in 1996, for an effective tax rate of 28.3%.
This compared to Federal income tax expense of $2.7 million in 1995 which
represented an effective tax rate of 30.3%. The decrease in expense in 1996
resulted from the overall decrease in the level of taxable earnings. The
effective tax rate for each period differs from the federal statutory rate of
34% principally as a result of 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,
26
<PAGE> 27
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.
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 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 in 1994.
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
27
<PAGE> 28
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
Bellbrook. 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 small
business lending 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.
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 56.6% for 1995, slightly higher than
the ratio for 1994 of 56.1%.
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.
28
<PAGE> 29
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 Banking 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. The Company owned $539,000 of such property at
December 31, 1996 and $24,000 at December 31, 1995.
Non-performing loans totaled $2.6 million, or 0.35% of total loans, at
December 31, 1996, compared to $1.0 million, or 0.38% of total loans, at
year-end 1995. Non-performing assets totaled $3.1 million, or 0.29% of total
assets at December 31, 1996, compared to $1.0 million, or 0.22% of total assets,
at December 31, 1995. Management of the Company is not aware of any material
amounts of loans outstanding, not disclosed in the table below, for which there
is significant uncertainty as to the ability of the borrower to comply with
present payment terms. The following is an analysis of the composition of
non-performing assets:
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995 1994 1993 1992
-------------- -------------- -------------- -------------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Non-accrual loans $ 991 $ 440 $ 237 $ 181 $ 772
Accruing loans 90 days or more
past due 1,567 584 272 230 65
----------- ---------- ---------- ---------- ----------
Total non-performing loans 2,558 1,024 509 411 837
Other real estate owned 539 24 -- -- --
----------- ---------- ---------- ---------- ----------
Total non-performing assets $ 3,097 $ 1,048 $ 509 $ 411 $ 837
============ =========== =========== =========== ===========
Non-performing loans to total loans 0.35% 0.38% 0.21% 0.19 % 0.46%
Non-performing assets to total
assets 0.29% 0.22% 0.12% 0.11 % 0.24%
</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.
29
<PAGE> 30
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>
YEAR ENDED DECEMBER 31,
1996 1995 1994 1993 1992
----------- ---------- ---------- ----------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance at beginning of period $ 3,307 $ 3,095 $ 3,007 $ 2,384 $ 1,731
Charge-offs:
Residential mortgage (12) (10) (3) -- (8)
Construction mortgage -- -- -- -- --
Commercial (67) (373) (15) (21) (17)
Consumer (1,020) (479) (302) (242) (498)
--------- --------- --------- --------- ---------
Total charge-offs (1,099) (862) (320) (263) (523)
--------- --------- --------- --------- ---------
Recoveries:
Residential mortgage 5 2 -- -- --
Construction mortgage -- -- -- -- --
Commercial 41 12 1 3 7
Consumer 227 93 69 84 125
--------- --------- --------- --------- ---------
Total recoveries 273 107 70 87 132
--------- --------- --------- --------- ---------
Net charge-offs (826) (755) (250) (176) (391)
Provision charged to operations 1,257 967 338 799 1,044
County's allowance for possible loan losses
at time of acquisition 2,861
--------- --------- --------- --------- ---------
Balance at end of period $ 6,599 $ 3,307 $ 3,095 $ 3,007 $ 2,384
========= ========= ========= ========= =========
Loans outstanding at end of period $ 721,855 $ 268,818 $ 247,943 $ 212,083 $ 183,334
Average loans outstanding $ 445,514 $ 261,706 $ 232,282 $ 196,393 $ 170,142
Allowance as a percent of
loans outstanding 0.91% 1.23% 1.25% 1.42% 1.30%
Net charge-offs to average loans 0.19% 0.29% 0.11% 0.09% 0.23%
Allowance for possible loan
losses to non-performing loans 258.0% 322.9% 608.1% 731.6% 284.8%
</TABLE>
The allowance for possible loan losses totaled $6.6 million at December
31, 1996, representing 0.91% of total loans, compared to $3.3 million at
December 31, 1995, 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 year ended December 31, 1996 were $826,000, compared to net
charge-offs of $755,000 for the year ended December 31, 1995. Charge-offs have
been made in accordance with the Company's standard policy and have occurred
primarily in the commercial and consumer loan portfolios.
The allowance for possible loan losses as a percentage of
non-performing loans ("coverage ratio"), was 258.0% at December 31, 1996,
compared to 322.9% 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. Total non-performing loans as a percentage of total
loans remained a relatively low 0.35% of total loans. The increase in
non-performing loans resulted from County's non-performing loans of $482,000 as
well as from increases in the volume of consumer installment and single family
residential real estate loans.
COMPARISON OF DECEMBER 31, 1996 AND DECEMBER 31, 1995 FINANCIAL CONDITION
Total assets amounted to $1.1 billion at December 31, 1996, as compared
to $476.4 million at December 31, 1995, an increase of $580.5 million, or
121.8%. The acquisition of County provided $550.0 million of asset growth while
internal growth amounted to $30.5 million, or 6.4%.
30
<PAGE> 31
Total investment securities increased by $106.3 million to $284.6
million. The acquisition of County added $101.6 million of investment securities
while the remainder of the Company's securities portfolio increased $4.8
million. The Company's general investment strategy is to manage the portfolio to
include rate sensitive assets, matched against interest sensitive liabilities to
reduce interest rate risk. In recognition of this strategy, as well as to
provide a secondary source of liquidity to accommodate loan demand and possible
deposit withdrawals, the Company has chosen to classify the majority of its
investment securities as available-for-sale. At December 31, 1996, 83.6% of the
total investment portfolio was classified as available-for-sale, while those
securities which the Company intends to hold to maturity represented the
remaining 16.4%. This compares to 95.3% and 4.7% classified as
available-for-sale and held to maturity, respectively, at December 31, 1995.
Total loans increased $453.0 million, or 168.5%, to $721.9 million at
December 31, 1996. The acquisition of County provided $427.9 million of growth
while internal growth totaled $25.1 million, or 9.3% from year end 1995. This
overall increase in the loan portfolio was consistent with the Company's
continued strategy of increasing assets and improving yields on earning assets
while adhering to prudent underwriting standards.
Premises and equipment increased $3.8 million to $8.0 million at
December 31, 1996 with $3.2 million of this increase resulting from the
acquisition of County. Also, increases occurred as a result of the Company's
continued expansion of markets and services.
Deposits totaled $732.7 million at December 31, 1996, an increase of
$384.1 million over the balance at December 31, 1995. The acquisition of County
provided $363.0 million of deposit growth while internal growth amounted to
$21.1 million, or 6.1%. The increase attributable to internal growth resulted
from marketing efforts and continued growth at new branch offices. Total
interest-bearing deposits accounted for 92.3% of total deposits at December 31,
1996 as compared to 88.0% at December 31, 1995.
Total borrowings increased $162.5 million to $236.6 million at December
31, 1996, as compared to $74.1 million at December 31, 1995. This increase
resulted primarily from County's total borrowings of $136.9 million at December
31, 1996 as well as $15.0 million of new borrowings obtained by the Company to
partially fund the acquisition of County. In connection with this borrowing, the
Company entered into a $15.0 million loan agreement with LaSalle National Bank
("LaSalle"). Pursuant to the loan agreement, the Company could borrow up to
$15.0 million in the form of a seven-year term loan expiring September 1, 2003,
with interest payable at a floating rate equal to LIBOR plus 1.35%. The Company
is required to make quarterly interest payments, and will be required to make
annual principal payments beginning in February 1998, based upon a 10-year
amortization. The Company has pledged all of the stock of FNB as security for
the loan. The loan agreement contains certain financial covenants which requires
that (i) the Company maintain a minimum ratio of total capital to risk-weighted
assets of 10%; (ii) each of the Banking Subsidiaries, which represent greater
than 10% of the Company's consolidated capital, maintain a minimum ratio of Tier
1 capital to risk-weighted assets of 6.0%, Tier 1 capital to average assets of
5.0% and total capital to risk-weighted assets of 10.0%; (iii) the Company
maintain a minimum annualized return on average assets of not less than 0.75%;
(iv) FNB, Bellbrook and County maintain a minimum annualized return on average
assets of not less than 1.00%. 0.75% and 0.65% respectively; and (v) each of
FNB, Bellbrook and County maintain a ratio of non-performing loans to equity
capital of less than 25.0% and a minimum ratio of allowance for possible loan
losses to non-performing loans of 100.0%, 50.0% and 50.0%, respectively. At
December 31, 1996, the Company was in compliance with each of these financial
covenants. The loan agreement also restricts the Company's ability to sell
assets, grant security interests in the stock of the Banking Subsidiaries, merge
or consolidate, and engage in business activity unrelated to banking.
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
31
<PAGE> 32
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 agreement or available lines of credit from the FRB, 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. Changes in the
balance of cash and due from banks are due to changes in volumes of federal
funds sold, and the float and reserve 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 December 31, 1996,
securities with a market value of $237.8 million were classified as
available-for-sale, representing 83.6% of the total investment portfolio.
Classification of securities as available-for-sale provides for flexibility in
managing net interest margin, interest rate risk, and liquidity. Cash flows from
operating activities amounted to $12.4 million and $3.4 million for 1996 and
1995, respectively.
The Company's bank and thrift subsidiaries are members of FHLB.
Membership provides an opportunity to control the bank's cost of funds by
providing alternative funding sources, to provide flexibility in the management
of interest rate risk through the wide range of available funding sources, to
manage liquidity via immediate access to such funds, and to provide flexibility
through utilization of customized funding products to fund various loan and
investment product and strategies.
Shareholders' equity at December 31, 1996 was $77.9 million, compared
to $50.0 million at December 31, 1995, an increase of $27.9 million, or 55.8%.
This increase resulted primarily from the Company's 1,000,000 common share
offering that was completed in August, 1996 in connection with the acquisition
of County and netted the Company proceeds of $25.8 million. Partially offsetting
this increase was the change in unrealized gains on available-for-sale
securities of $638,000 from $304,000 at December 31, 1996 compared to $942,000
at December 31, 1995. This change in the effect on equity was primarily
attributable to changes in interest rates.
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 December 31, 1996, the Company had a total risk-based capital
ratio of 11.1%, of which 10.1% consisted of Tier 1 capital. The leverage ratio
of the Company at December 31, 1996, was 6.1%.
Cash dividends declared to shareholders of the Company totaled $3.5
million, or $1.01 per share, during 1996. This compares to dividends of $2.7
million, or $.94 per share, for 1995. Cash dividends paid as a percentage of net
income amounted to 59.0% and 43.7% for the years ended December 31, 1996 and
1995, respectively.
Considering the Company's capital adequacy, profitability, available
liquidity sources and funding sources, the Company's liquidity is considered by
management to be adequate to meet current and projected needs.
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 the 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
32
<PAGE> 33
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 rates. In
its simulations, management estimates the effect on net interest income of
changes in the overall level of interest rates. ALCO policy guidelines provide
that a 200 basis point increase or decrease over a 12-month period should not
result in more than an 8% negative impact on net interest income. Simulations as
of December 31, 1996, and throughout the year, 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,
1996. 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 91-180 181-365 1 TO 5 OVER 5
AS OF DECEMBER 31, 1996 DAYS DAYS DAYS YEARS YEARS TOTAL
- ----------------------- ----------- ----------- ------------ ----------- ----------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Federal funds sold $ 2,193 $ -- $ -- $ -- $ -- $ 2,193
Loans 167,895 99,776 182,996 193,410 77,778 721,855
Investment securities 52,047 6,568 15,090 123,498 87,373 284,576
--------- --------- --------- --------- -------- ----------
Total $ 222,135 $ 106,344 $ 198,086 $ 316,908 $165,151 $1,008,624
========= ========= ========= ========= ======== ==========
INTEREST-BEARING LIABILITIES:
Demand, interest-bearing $ 117,373 $ -- $ -- $ -- $ -- $ 117,373
Savings 82,034 -- -- -- -- 82,034
Time, $100 and over 68,990 27,009 12,484 16,896 220 125,599
Time, other 116,667 66,256 74,467 93,426 688 351,504
Short-term borrowings 11,650 -- -- -- -- 11,650
Long-term borrowings 142,010 111 27,730 38,139 16,969 224,959
--------- --------- --------- --------- -------- ----------
Total 538,724 93,376 114,681 148,461 17,877 913,119
Off balance sheet items -
interest rate swaps (27,500) -- -- 27,500 -- --
--------- --------- --------- --------- -------- ----------
Total gap (289,089) 12,968 83,405 140,947 147,274 95,505
--------- --------- --------- --------- -------- ==========
Cumulative gap $(289,089) $(276,121) $(192,716) $ (51,769) $ 95,505
========= ========= ========= ========= ========
Cumulative gap as a percentage
of total assets (27.4)% (26.1)% (18.2)% (4.9)% 9.0%
</TABLE>
The Company has entered into certain interest rate swap contracts as part of its
asset-liability management program to assist in managing the Company's interest
rate risk and not for speculative reasons. The notional principal amount of
these instruments reflect the extent of the Company's involvement in this type
of financial instrument and do not represent the Company's risk of loss due to
counterparty nonperformance or due to declines in market value of the swap
contracts from changing interest rates. Such swaps are accounted for as hedges
on a historical cost basis, with the related swap income or expense recognized
currently.
33
<PAGE> 34
The Company had $27.5 million of notional swap principal contracts
outstanding at December 31, 1996 related to asset-liability management
activities. These swaps were entered into principally to manage the timing
differences in repricing characteristics of various variable rate borrowings.
The swap contracts have maturity dates ranging from December 1999 to December
2001 and require the Company to pay a fixed rate of interest ranging from 6.09%
to 6.58% in return for receiving a variable rate of interest based on the three
month London Inter Bank Offered Rate (LIBOR). No such contracts were outstanding
at December 31 1995. The net expense associated with interest rate swap
contracts was $28,000 during 1996 and is included with interest on borrowings.
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 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.
ITEM 8: REPORT ON AUDITS OF CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS
- ----------------------------------------------------------------------------
ENDED DECEMBER 31, 1996, 1995 AND 1994
--------------------------------------
34
<PAGE> 35
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, 1996 and 1995, 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, 1996. 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, 1996 and 1995, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1996 in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
Columbus, Ohio
January 24, 1997
35
<PAGE> 36
BANCFIRST OHIO CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1996 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1996 1995
----------- -------------
ASSETS
<S> <C> <C>
Cash and due from banks (Note 3) $ 18,856 $ 14,102
Federal Funds sold 2,193 2,600
Securities held-to-maturity (approximate fair value of $47,652,
and $8,548 at December 31, 1996
and 1995, respectively, (Note 4)) 46,799 8,392
Securities available-for-sale, at fair value 237,777 169,860
-------- ---------
Total investment securities 284,576 178,252
Loans (Notes 5 and 6) 721,855 268,818
Allowance for possible loan losses (6,599) (3,307)
-------- ---------
Net loans 715,256 265,511
-------- ---------
Premises and equipment, net (Note 7) 7,962 4,120
Accrued interest receivable 6,696 3,458
Goodwill and other intangibles 14,187 --
Other assets 7,194 8,386
-------- ---------
Total assets $ 1,056,920 $ 476,429
========= ==========
LIABILITIES
Deposits (Note 8):
Noninterest-bearing deposits $ 56,179 $ 41,835
Interest-bearing deposits 676,510 306,710
-------- ---------
Total deposits 732,689 348,545
Short-term borrowings (Note 9) 11,650 7,400
Long-term borrowings (Note 10) 224,959 66,735
Accrued interest payable 2,255 1,261
Other liabilities 7,473 2,478
-------- ---------
Total liabilities $ 979,026 $ 426,419
--------- ----------
Commitments and contingencies (Notes 13, 14 and 19)
SHAREHOLDERS' EQUITY (NOTE 15)
Common stock, $10 par value, 7,500,000 shares authorized;
shares issued: 1996 - 4,033,919, 1995 - 3,033,919 $ 40,340 $ 30,340
Capital in excess of par value 22,807 6,889
Retained earnings 15,466 13,022
Unrealized holding gains on securities available
for sale, net 304 942
Less: 54,420 and 62,923 shares of common stock
in treasury, at cost, 1996
and 1995, respectively (1,023) (1,183)
-------- ---------
Total shareholders' equity 77,894 50,010
-------- ---------
Total liabilities and shareholders' equity $ 1,056,920 $ 476,429
========= ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
36
<PAGE> 37
BANCFIRST OHIO CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------
1996 1995 1994
------------ -------------- ---------------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $ 38,518 $ 23,088 $ 18,738
Interest and dividends on
securities:
Taxable 12,877 9,611 7,846
Tax exempt 1,315 1,148 988
Other interest income 467 216 80
--------- ---------- -----------
Total interest income 53,177 34,063 27,652
--------- ---------- -----------
Interest expense:
Time deposits, $100 and over 3,755 2,498 1,578
Other deposits 17,183 9,927 7,806
Short-term borrowings 123 167 88
Long-term borrowings 7,569 3,765 1,787
--------- ---------- -----------
Total interest expense 28,630 16,357 11,259
--------- ---------- -----------
Net interest income 24,547 17,706 16,393
Provision for possible loan losses
(Note 6) 1,257 967 338
--------- ---------- -----------
Net interest income after
provision for possible loan
losses 23,290 16,739 16,055
--------- ---------- -----------
Other income:
Trust and custodian fees 1,451 1,259 1,129
Customer service fees 1,807 1,714 1,726
Investment securities gains
(losses), net 43 136 (57)
Gain on sale of loans 1,839 1,310 668
Other 1,118 565 335
--------- ---------- -----------
Total other income 6,258 4,984 3,801
--------- ---------- -----------
Other expenses:
Salaries and employee benefits 9,995 6,866 6,071
Net occupancy expense 1,221 752 643
Furniture and equipment expense 564 408 415
Data processing expense 831 647 521
Taxes other than income taxes 709 518 496
Federal deposit insurance 2,697 430 717
Amortization of intangibles 549 28 28
Other 4,669 3,156 2,519
--------- ---------- -----------
Total other expenses 21,235 12,805 11,410
--------- ---------- -----------
Income before income taxes 8,313 8,918 8,446
Provision for federal income taxes
(Note 12) 2,354 2,706 2,572
--------- ---------- -----------
Net income $ 5,959 $ 6,212 $ 5,874
========== =========== ============
Net income per share $ 1.78 $ 2.09 $ 1.98
========== =========== ============
Weighted average number
of shares outstanding 3,354,975 2,973,694 2,971,358
========= ========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
37
<PAGE> 38
BANCFIRST OHIO CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Unrealized
Holding
Gains
(Losses)
Capital On
in Securities Total
Common Stock Excess Available- Share-
------------------- of Par Retained For-Sale, Treasury Holders'
Shares Amount Value Earnings Net Stock Equity
--------- ------- ----- -------- ----------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993 1,516,960 $15,170 $ 21,978 $ 6,178 $ -- $(1,031) $ 42,295
Adjustment to reflect unrealized
holding gains January 1, 1994-
-net of income taxes of $808 -- -- -- -- 1,567 -- 1,567
Purchase of 10,482 shares
common stock, at cost -- -- -- -- -- (240) (240)
Treasury stock, 6,635 shares
issued -- -- 37 -- -- 116 153
Cash dividend ($.89 per share) -- -- -- (2,487) -- -- (2,487)
Pooled affiliate cash dividend -- -- -- (40) -- -- (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 $(1,689) -- -- -- -- (3,278) -- (3,278)
Net income -- -- -- 5,874 -- -- 5,874
--------- ------- -------- -------- ------- ------- --------
Balance at December 31, 1994 3,033,919 30,340 6,845 9,525 (1,711) (1,155) 43,844
Purchase of 5,000 shares
common stock, at cost -- -- -- -- -- (139) (139)
Treasury stock, 6,220 shares
issued -- -- 44 -- -- 105 149
Pooled affiliate stock activity -- -- -- -- -- 6 6
Cash dividend ($.94 per share) -- -- -- (2,715) -- -- (2,715)
Change in unrealized gains
(losses), net of income
taxes of $1,367 -- -- -- -- 2,653 -- 2,653
Net income -- -- -- 6,212 -- -- 6,212
--------- ------- -------- -------- ------- ------- --------
Balance at December 31, 1995 3,033,919 30,340 6,889 13,022 942 (1,183) 50,010
--------- ------- -------- -------- ------- ------- --------
Issuance of 1,000,000 shares of
common stock 1,000,000 10,000 15,824 -- -- -- 25,824
Treasury stock, 8,503 shares
issued -- -- 94 -- -- 160 254
Cash dividend ($1.01 per share) -- -- -- (3,515) -- -- (3,515)
Change in unrealized gains
(losses), net of income
taxes of $(329) -- -- -- -- (638) -- (638)
Net income -- -- -- 5,959 -- -- 5,959
--------- ------- -------- -------- ------- ------- --------
Balance at December 31, 1996 4,033,919 $40,340 $ 22,807 $ 15,466 $ 304 $(1,023) $ 77,894
========= ======= ======== ======== ======= ======= ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
38
<PAGE> 39
BANCFIRST OHIO CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1996 1995 1994
--------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 5,959 $ 6,212 $ 5,874
Adjustments to reconcile net income
to net cash provided by operations:
Depreciation and amortization 2,564 849 2,065
Provision for possible credit losses 1,257 967 338
Deferred taxes payable 786 (14) 424
Gains on sale of assets (1,882) (1,446) (600)
Decrease in interest receivable (29) (392) (34)
Decrease (increase) in other assets 3,568 (3,775) (271)
Increase in interest payable 393 676 148
Increase in other liabilities 375 658 94
FHLB stock dividend (576) (293) (181)
-------- -------- --------
Net cash provided by operating activities 12,415 3,442 7,857
-------- -------- --------
Cash flows from investing activities:
Decrease (increase) in federal funds sold 407 (2,300) 1,418
Proceeds from maturities of securities held-to-maturity 2,767 12,427 31,885
Proceeds from maturities and sales of securities available-for-sale 71,911 38,707 12,022
Purchase of securities held-to-maturity (663) (5,846) (21,922)
Purchase of securities available-for-sale (62,783) (66,511) (30,372)
Purchase of loans (24,045) -- --
Increase in loans, net (39,870) (32,173) (46,840)
Acquisition of County Savings Bank, net of cash acquired (42,407) -- --
Purchases of equipment and other assets (1,491) (600) (932)
Proceeds from sale of assets 24,535 12,505 7,803
-------- -------- --------
Net cash used in investing activities (71,639) (43,791) (46,938)
-------- -------- --------
Cash flows from financing activities:
Net increase in deposits 19,748 27,709 10,251
Net proceeds from issuance of common stock 25,824 -- --
Increase (decrease) in short-term borrowings 4,250 (3,250) 4,650
Increase in other long term debt 2,417 13,860 25,889
Proceeds from acquisition debt 15,000
Cash dividends paid (3,515) (2,715) (2,527)
Purchase of treasury stock -- (139) (240)
Reissuance of treasury stock 254 155 153
-------- -------- --------
Net cash provided by financing activities 63,978 35,620 38,176
-------- -------- --------
Net increase (decrease) in cash and due from banks 4,754 (4,729) (905)
Cash and due from banks, beginning of period 14,102 18,831 19,736
-------- -------- --------
Cash and due from banks, end of period $ 18,856 $ 14,102 $ 18,831
======== ======== ========
Supplemental cash flow disclosures:
Income taxes paid $ 2,255 $ 2,360 $ 2,226
Interest paid $ 23,553 $ 15,681 $ 11,116
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.
39
<PAGE> 40
BANCFIRST OHIO CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(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), Bellbrook Community Bank (Bellbrook) and
County Savings Bank (County), acquired in August 1996 (see Note 2). All
significant intercompany accounts and transactions have been eliminated in
consolidation.
Investment Securities:
Effective January 1, 1994, the Corporation adopted Statement of
Financial Accounting Standards (SFAS) No. 115, Accounting for Certain
Investments in Debt and Equity Securities. 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 December 31, 1996 and 1995, the Corporation did not hold any
trading securities.
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.
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.
Mortgage Servicing Rights:
The costs to acquire the right to service mortgage loans are
capitalized and amortized over the estimated remaining servicing lives of the
underlying loans. Amortization is calculated based on the estimated net
servicing revenue, considering various factors including prepayment experience
and market rates. Impairment of the carrying value of capitalized mortgage loan
servicing rights is periodically evaluated by management in relation to the
estimated fair value of those rights.
40
<PAGE> 41
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 Standards (SFAS) No. 114, "Accounting by Creditors for Impairment of
a Loan" as amended by 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 possible 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.
Interest Rate Swap Contracts
The Corporation has entered into certain interest rate swap contracts
as part of its asset-liability management program to assist in managing the
Corporation's interest rate risk and not for speculative reasons. The notional
principal amount of these instruments reflect the extent of the Corporation's
involvement in this type of financial instrument and do not represent the
Corporation's risk of loss due to counterparty nonperformance or due to declines
in market value of the swap contracts from changing interest rates. Such swaps
are accounted for as hedges on an accrual basis, with the related swap income or
expense recognized currently, and recorded in the same category as the interest
income or expense on the hedged item.
Goodwill and Other Identified Intangibles:
Intangible assets are amortized using straight-line and accelerated
methods over the estimated remaining benefit periods which approximate 25 years
for goodwill, 15 years for core deposit intangibles and 5 years for covenants
not to compete.
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 betterments 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, 1996 and 1995, other real estate owned was $539 and $24, respectively, and
is included on the balance sheet in other assets.
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.
41
<PAGE> 42
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
1995 acquisition accounted for as a pooling-of-interests.
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 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. 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 affect 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 1996 presentation.
2. MERGERS AND ACQUISITIONS:
On August 14, 1996, the Corporation acquired County in a transaction
accounted for under the purchase method of accounting for business combinations.
Accordingly, the Corporation's consolidated financial statements include the
operating results of County from the date of acquisition. At the time of
acquisition, County had approximately $554,000 in total assets, $411,000 in
loans and $365,000 in total deposits. The Corporation also recorded goodwill and
other intangible assets of $14,708 as a result of the application of purchase
accounting. Funding for the acquisition was provided by proceeds of $25,824 (net
of underwriting discounts and offering expenses totaling $2,176) from the
issuance of 1 million shares of common stock, $15,000 of bank borrowings and
approximately $7,000 of available cash.
The following summarizes the pro-forma results of operations for the years ended
December 31, 1996 and 1995 as if County had been acquired at the beginning of
each period presented:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
---------------------------------------------
1996 1995
------------------ -----------------
<S> <C> <C>
Net Interest Income $ 33,327 $ 30,820
Net Income $ 7,043 $ 8,637
Net Income per Share $ 1.77 $ 2.17
</TABLE>
On June 30, 1995, the Corporation completed its merger with Bellbrook,
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 Bellbrook. In connection with the
transaction, the Corporation issued 158,959 of its common shares to Bellbrook's
shareholders.
42
<PAGE> 43
The 1995 results of operations of the Corporation include the
pre-merger results of operations for Bellbrook for the period January 1, 1995,
through June 30, 1995. Summarized operating activity for Bellbrook for the 1995
pre-merger period was as follows:
<TABLE>
<CAPTION>
<S> <C>
Net interest income $510
Non-interest income 147
Net income 109
</TABLE>
Separate results of operations of the combined entities for December
31, 1994 were as follows:
<TABLE>
<CAPTION>
1994
----
<S> <C>
Net interest income
BancFirst Ohio $15,331
Bellbrook 1,062
Combined $16,393
Non-interest income
BancFirst Ohio $ 3,527
Bellbrook 274
Combined $ 3,801
Net income
BancFirst Ohio $ 5,657
Bellbrook 217
Combined $ 5,874
</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 $5,893 and
$4,713 at December 31, 1996 and 1995, respectively.
4. INVESTMENT SECURITIES:
During 1995, the Financial Accounting Standards Board (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 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.
43
<PAGE> 44
The amortized cost and estimated fair value of investment securities
are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
---------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---- ----- ------ -----
<S> <C> <C> <C> <C>
Securities Available-for-Sale:
U.S. Treasury securities $ 11,775 $ 107 $ 1 $ 11,881
Securities of other government agencies 12,446 48 66 12,428
Obligations of states and political subdivisions 16,090 266 55 16,301
Other securities 14,495 -- -- 14,495
Mortgage-backed securities 182,509 1,127 964 182,672
-------- -------- ------- -------
$ 237,315 $ 1,548 $ 1,086 $ 237,777
======== ======== ======== ========
Securities Held-to-Maturity:
Securities of other government agencies $ 1,999 $ 1 $ -- $ 2,000
Obligations of states and political subdivisions 6,266 121 12 6,375
Industrial Revenue Bonds and other 2,844 2 -- 2,846
Mortgage-backed securities 35,690 741 -- 36,431
------- ------- ------- -------
$ 46,799 $ 865 $ 12 $ 47,652
======== ======== ======== ========
<CAPTION>
DECEMBER 31, 1995
---------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
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>
44
<PAGE> 45
The amortized cost and estimated fair value of debt securities at
December 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 or prepayment penalties.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
---------------------------
ESTIMATED
AMORTIZED FAIR
COST VALUE
-------- ---------
Securities Available-For-Sale
<S> <C> <C>
Within one year $ 10,582 $ 10,693
After one through five years 9,366 9,468
After five through ten years 17,273 17,365
After ten years 17,585 17,579
------- --------
54,806 55,105
Mortgage-backed and related securities 182,509 182,672
------- --------
$ 237,315 $ 237,777
======== =========
Securities Held-to-Maturity
Within one year $ 475 $ 480
After one through five years 6,887 6,939
After five through ten years 3,747 3,802
-------- --------
11,109 11,221
Mortgage-backed securities 35,690 36,431
------- --------
$ 46,799 $ 47,652
======== =========
</TABLE>
Proceeds from sales of securities available-for-sale during 1996, 1995
and 1994 were $16,337, $12,098 and $4,060, respectively. Gross gains of $60,
$144 and $1 and gross losses of $17, $8 and $58 were realized on sales in 1996,
1995 and 1994, respectively.
Securities available-for-sale with a fair value of $83,973 at December
31, 1996 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,
-------------------
1996 1995
-------- -------
<S> <C> <C>
Commercial, financial and industrial $299,630 $107,015
Real estate--mortgage 337,911 105,604
Real estate--construction 7,716 2,859
Consumer 76,598 53,340
-------- --------
$721,855 $268,818
======== ========
</TABLE>
45
<PAGE> 46
The Corporation has made loans to certain directors, executive
officers, and their affiliates in the ordinary course of business. An analysis
of the year ended December 31, 1996 activity with respect to these related party
loans is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1996
-----------
<S> <C>
Beginning balance $3,517
New loans 358
Repayments (834)
Loans no longer classified as related
party loans (115)
-------
Ending balance $2,926
=======
</TABLE>
At December 31, 1996 and 1995, the recorded investment in loans
considered to be impaired under SFAS No. 114 was $151 and $669 (of which $568
was on a non-accrual basis at December 31, 1995), respectively. The related
allocation of the allowance for possible loan losses for these impaired loans
was $34 and $68, respectively. The average recorded investment in impaired loans
for the year ended December 31, 1996 and 1995 was approximately $119 and $535,
respectively. The Corporation would have recognized $12 in 1996 and $30 in 1995
of interest income under the original terms of these loans, however, actual
interest income of approximately $12 and $4 was recognized during 1996 and 1995,
respectively.
6. ALLOWANCE FOR POSSIBLE LOAN LOSSES:
An analysis of activity in the allowance for possible loan losses is as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1996 1995 1994
---------- ----------- ----------
<S> <C> <C> <C>
Balance at beginning of period $ 3,307 $ 3,095 $ 3,007
Provision charged to operations 1,257 967 338
Addition due to acquisition 2,861 -- --
Loans charged off (1,099) (862) (320)
Loan recoveries 273 107 70
------- ------- -------
Net charge-offs (826) (755) (250)
-------- ------- -------
Balance at end of period $ 6,599 $ 3,307 $ 3,095
======== ========= ========
</TABLE>
46
<PAGE> 47
7. PREMISES AND EQUIPMENT:
Premises and equipment are summarized below:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1996 1995
------------ ----------
<S> <C> <C>
Land $ 1,623 $ 924
Buildings and improvements 7,354 3,531
Furniture, fixture and equipment 8,502 5,009
Construction in progress 60 80
-------- -------
17,539 9,544
Less accumulated depreciation and amortization 9,577 5,424
-------- -------
Premises and equipment, net $ 7,962 $ 4,120
========= ========
</TABLE>
Total depreciation expense was $902, $793 and $707 for the years ended
December 31, 1996, 1995 and 1994, respectively.
8. DEPOSITS:
A summary of deposits is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1996 1995
------------ -----------
<S> <C> <C>
Demand, noninterest-bearing $ 56,179 $ 41,835
Demand, interest-bearing 117,373 98,795
Savings 82,034 50,414
Time, $100 and over 125,599 44,327
Time, other 351,504 113,174
-------- --------
$ 732,689 $ 348,545
========= =========
</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 year, and the average
rates paid at year-end for the various categories of short-term borrowings:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
---------- -------- ---------
<S> <C> <C> <C>
Federal funds purchased:
Average balance $2,016 $2,532 $1,490
Average rate 6.10% 6.30% 5.84%
Maximum month-end balance $11,650 $12,600 $10,650
Balance at year-end $11,650 $7,400 $10,650
Average rate on balance at year-end 7.50% 5.75% 6.50%
</TABLE>
47
<PAGE> 48
10. LONG-TERM BORROWINGS:
Long-term borrowings are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1996 1995
----------- ----------
<S> <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
FHLB Advances (average rate 6.39%) 199,959 56,735
Term debt with a financial institution (6.88%) due 2003 15,000 --
-------- -------
$ 224,959 $ 66,735
========= ========
</TABLE>
Minimum annual retirements on long-term borrowings for the next five
years consisted of the following at December 31, 1996:
<TABLE>
<CAPTION>
WEIGHTED
MATURITY AVERAGE PRINCIPAL
(PERIOD ENDING) INTEREST RATE REPAYMENT
--------------- ------------- ---------
<S> <C> <C>
1997 6.42 $169,851
1998 5.93 17,734
1999 6.24 14,266
2000 6.76 3,051
2001 6.75 3,088
2002 and thereafter 6.64 16,969
---- ----------
Total 6.39% $224,959
==== ==========
</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 December
31, 1996 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 fair value of $10,303 and
$12,416 and accrued interest of $71 and $124 at December 31, 1996 and 1995,
respectively. The reverse repurchase agreements have a weighted average maturity
of 1.04 years and 2.04 years, at December 31, 1996 and 1995, respectively.
The term debt with a financial institution was obtained by the
Corporation to partially fund the acquisition of County. Under terms of the loan
agreement, the Corporation is required to make quarterly interest payments
commencing 90 days from the funding date (August 14, 1996) and annual principal
payments commencing February 1998. The unpaid loan balance is due in full
September 1, 2003. The loan agreement contains certain financial covenants, all
of which the Corporation was in compliance with at December 31, 1996. Also, 100%
of the stock of First National collateralizes this borrowing.
11. RETIREMENT PLANS:
The Corporation has a defined contribution plan which covers
substantially all full-time employees. Contributions to the plan are based upon
a predetermined percentage of the employees' base compensation. Expenses related
to the plan for the years ended December 31, 1996, 1995 and 1994 were
approximately $435, $333, and $349 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
48
<PAGE> 49
alternatives. Operations have been charged $ 240, $111, and $104 for
contributions to the Plans for the years ended December 31, 1996, 1995 and 1994,
respectively.
The Corporation maintains 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. Minimal expenses
were incurred by the Corporation for the years ended December 31, 1996 and 1995,
respectively, in connection with the Plan. There were no related expenses for
the year ended December 31, 1994.
The Corporation currently provides certain health care benefits for
eligible retirees, using 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. At December 31, 1996, the recorded
liability for postretirement benefits was $1,003. For the years ended December
31, 1996, 1995, and 1994, health care benefit costs for eligible retirees was
$101, $39, and $26, respectively.
On January 1, 1994, the Corporation adopted Statement of Financial
Accounting Standards (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>
YEAR ENDED DECEMBER 31,
---------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Current $1,568 $2,720 $2,148
Deferred 786 (14) 424
------ ------- ------
Provision for income taxes $2,354 $2,706 $2,572
====== ======= ======
</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>
YEAR ENDED DECEMBER 31,
------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Tax at federal statutory rate 34% 34% 34%
Permanent differences:
Tax-exempt interest, net of
allowed interest expense (6) (4) (5)
Other -- -- 1
--- --- ---
Effective tax rate 28% 30% 30%
=== === ===
</TABLE>
49
<PAGE> 50
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 components of the net deferred tax asset (liability) were
as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1996 1995
----------- ------------
<S> <C> <C>
Deferred tax assets arising from:
Allowance for possible loan losses $2,054 $782
Reserve for health insurance 383 47
Depreciation 24 8
Deferred compensation 14 33
Purchase accounting adjustments 242 --
Serviced loan interest 151 --
Other 348 38
------ -------
Total deferred tax assets 3,216 908
------ -------
Deferred tax liabilities arising from:
Gain on sale of loans 1,072 574
Deferred loan fees and costs 952 53
FHLB stock dividends 475 160
Unrealized holding gains on securities 157 485
Other, net 127 --
------ -------
Total deferred tax liabilities 2,783 1,272
------ -------
Net deferred tax asset (liability) $433 $(364)
====== =======
</TABLE>
The Corporation did not record a valuation allowance at December 31,
1996 as the net 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.
County qualified under provisions of the Internal Revenue Code which permitted
deductions for bad debts based on a percentage of taxable income before such
deductions or based on specified experience formulas. On August 20, 1996,
President Clinton signed into law the Small Business Job Protection Act which
included a repeal of the special thrift bad debt provisions. Although the
percentage of taxable income method will no longer be available to County, the
tax requirement to invest in certain qualifying types of investments and loans
has been eliminated, thus providing greater flexibility to County in structuring
its balance sheet to maximize returns. These related tax changes had no
significant impact on the Corporation's 1996 financial position or results of
operations.
13. LEASE COMMITMENTS:
The Corporation leases equipment, land at two branch locations, and
certain office space. One land lease has five renewal options for five years
each and the other has a lease term until 2073.
A summary of noncancelable future operating lease commitments at
December 31, 1996 follows:
<TABLE>
<CAPTION>
<S> <C> <C>
1997 $ 499
1998 472
1999 270
2000 137
2001 57
2002 and thereafter 405
-------
$ 1,840
=======
</TABLE>
50
<PAGE> 51
Rent expense under all lease obligations, including month-to-month
agreements, aggregated approximately $319, $155, and $132 for the years ended
December 31, 1996, 1995 and 1994, 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>
DECEMBER 31,
------------------------
1996 1995
----------- -----------
<S> <C> <C>
Financial instruments whose contract amounts represent
credit risk:
Loan commitments $47,646 $20,113
Standby letters of credit 734 2,017
</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.
Interest rate swaps generally involve the exchange of fixed and
floating rate interest payments without the exchange of the underlying notional
amount. Notional amounts represent agreed upon amounts on which calculations of
interest payments to be exchanged are based. Notional amounts do not represent
direct credit exposures. The actual market or credit exposure of this type of
financial instrument is significantly less than the notional amount. Direct
credit exposure is limited to the net difference between the calculated pay and
receive amounts on each transaction, which is generally netted and paid or
received monthly, and the inability of the counterparty to meet the terms of the
contract. This risk is normally a small percentage of the notional amount and
fluctuates as interest rates move up and down. Market risk is more directly
measured by the fair values of the interest rate swap agreements. The
Corporation had $27,500 of notional swap principal contracts outstanding at
December 31, 1996 related to asset-liability management activities. These swap
contracts have maturity dates ranging from December 1999 to December 2001 and
require the Corporation to pay a fixed rate of interest ranging from 6.09% to
6.58% in return for receiving a variable rate of interest based on the three
month London Inter Bank Offered Rate (LIBOR). No such contracts were outstanding
at December 31, 1995.
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 $2,022 and $2,442 of which $329 and $251
represent outstanding balances at December 31, 1996 and 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 December
51
<PAGE> 52
31, 1996 and 1995, were $13,966 and $358, respectively, with guaranteed
principal by the SBA totaling $8,415 and $287, respectively.
The Corporation has no significant concentrations of credit risk with
any individual counter-party. The Corporation's lending is concentrated
primarily in the State of Ohio market area.
15. SHAREHOLDERS' EQUITY:
The payment of dividends by banking subsidiaries is subject to
regulatory restrictions by various regulatory authorities. These restrictions
for national banks provide 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 December 31, 1996,
$9,479 of the retained earnings of the banking subsidiaries is available for the
payment of dividends to the Corporation without regulatory agency approval.
On April 19, 1994, the Corporation declared a stock split in the form
of a 100% stock dividend. All per share data for 1994 reflects this dividend.
16. REGULATORY CAPITAL REQUIREMENTS:
The Corporation is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory, and possibly additional
discretionary, actions by the regulators that, if undertaken, could have a
direct material effect on the Corporation's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
the Corporation and its subsidiaries must meet specific capital guidelines that
involve quantitative measures of the Corporation's assets, liabilities and
certain off balance sheet items as calculated under regulatory accounting
practices. The Corporation's capital amounts and classification are also subject
to qualitative judgments by the regulators about components, risk weightings and
other factors.
Quantitative measures established by regulators to ensure capital
adequacy require the Corporation to maintain minimum amounts and ratios (set
forth in the table below) of total and Tier 1 capital (as defined in the
applicable regulations) to risk-weighted assets (as defined) and Tier 1 capital
(as defined) to average assets (as defined). Management believes, as of December
31, 1996, that the Corporation meets all capital adequacy requirements to which
it is subject.
As of December 31, 1996, the most recent notifications from the various
primary regulators of the Corporation and its subsidiaries categorized each
entity as well capitalized under the regulatory framework for prompt corrective
action. To be categorized as well capitalized, an institution must maintain
minimum total risk-based, Tier 1 risk-based and tier 1 leverage ratios as set
forth in the table below. There are no conditions or events since that
notification that management believes have changed the institution's category.
52
<PAGE> 53
The Corporation's actual capital amounts and ratios are as follows:
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1996:
Total Capital (to Risk-Weighted
Assets):
Consolidated $69,622 11.13% $50,042 8.00% $62,552 10.00%
First National 36,480 13.56 21,522 8.00 26,902 10.00
County 36,850 11.11 26,542 8.00 33,178 10.00
Bellbrook 2,626 10.51 2,000 8.00 2,500 10.00
Tier 1 Capital (to Risk-Weighted
Assets):
Consolidated 63,022 10.08 25,021 4.00 37,531 6.00
First National 35,196 13.08 10,761 4.00 16,141 6.00
County 34,005 10.25 N/A N/A 19,907 6.00
Bellbrook 2,355 9.42 1,000 4.00 1,500 6.00
Tier 1 Capital (to Average Assets):
Consolidated 63,022 6.06 31,224 3.00 52,041 5.00
First National 35,196 7.63 13,830 3.00 23,050 5.00
County 34,005 6.30 16,197 3.00 26,995 5.00
Bellbrook 2,355 7.41 953 3.00 1,589 5.00
</TABLE>
17. 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.
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, Federal Funds Sold and Short-Term
Borrowings--The carrying amount approximates fair value.
53
<PAGE> 54
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.
The fair values of financial instruments were as follows:
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
-------------------------- --------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Cash and due from banks $ 18,856 $ 18,856 $ 14,102 $ 14,102
Federal funds sold 2,193 2,193 2,600 2,600
Securities available-for-sale 237,777 237,777 169,860 169,860
Securities held-to-maturity 46,799 47,652 8,392 8,548
Loans, net of allowance for loan losses 715,256 717,875 265,511 267,094
Demand and savings deposits 255,586 255,586 191,044 191,044
Time deposits 477,103 478,188 157,501 158,683
Short-term borrowings 11,650 11,650 7,400 7,400
Long-term borrowings 224,763 224,543 66,735 67,048
Interest rate swaps -- (73) -- --
</TABLE>
18. PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION:
Parent Company only condensed financial information is as follows:
54
<PAGE> 55
CONDENSED BALANCE SHEET
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1996 1995
------------ ----------
<S> <C> <C>
Assets:
Cash $ 306 $ 7
Investment in repurchase agreement with subsidiary 7,000 8,530
Investment in subsidiaries 83,605 39,882
Intangible assets 2,800 --
Other assets 500 1,609
------- -------
Total assets $ 94,211 $ 50,028
======== ========
Liabilities and equity:
Long-term borrowings $ 15,000 --
Other liabilities 1,317 18
------- ---------
Total liabilities 16,317 18
Shareholders' equity 77,894 50,010
------- -------
Total liabilities and equity $ 94,211 $ 50,028
======== ========
</TABLE>
CONDENSED STATEMENT OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 AND 1994
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1996 1995 1994
---- ---- ------
<S> <C> <C> <C>
Dividends from subsidiary $ 7,500 $ 2,000 $ 5,000
Interest income 7 16 10
Interest expense (422) -- --
Operating expenses (895) (477) (271)
----- ------ ------
Income before income tax and
equity in earnings of subsidiaries 6,190 1,539 4,739
Federal income tax benefit 520 128 88
----- ------ ------
Income before equity in
earnings of subsidiaries 6,710 1,667 4,827
Earnings in excess of (less than) dividends (751) 4,545 1,047
----- ------ ------
Net income $ 5,959 $ 6,212 $ 5,874
====== ======= =======
</TABLE>
55
<PAGE> 56
<TABLE>
<CAPTION>
CONDENSED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 AND 1994
YEAR ENDED DECEMBER 31,
----------------------------------------------
1996 1995 1994
----------- ----------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 5,959 $ 6,212 $ 5,874
Adjustments to reconcile net income
to net cash provided by operations:
Amortization and depreciation 218 9 23
(Increase) decrease in other assets 1,412 (1,539) 6
(Decrease) increase in other liabilities (201) (15) 32
Earnings less than (in excess of) dividends 751 (4,545) (1,047)
-------- ------- -------
Net cash provided by operating
activities 8,139 122 4,888
-------- ------- -------
Cash flows from financing activities:
Issuance of common stock 25,824
Increase in long-term debt 15,000
Cash dividends paid (3,515) (2,715) (2,487)
Purchase of treasury stock -- (139) (240)
Treasury shares issued 254 155 153
-------- ------- -------
Net cash provided by (used in)
financing activities 37,563 (2,699) (2,574)
-------- ------- -------
Cash flows from investing activities:
Acquisition of County (46,612) -- --
Purchase of equipment and other assets (321) (13) (20)
Decrease (increase) in repurchase
agreement with subsidiary 1,530 2,570 (2,300)
-------- ------- -------
Net cash provided by (used for)
investing activities (45,403) 2,557 (2,320)
-------- ------- -------
Net increase (decrease) in cash 299 (20) (6)
Cash, beginning of period 7 27 33
-------- ------- -------
Cash, end of period $ 306 $ 7 $ 27
======== ======= =======
</TABLE>
The Parent Company paid $2,255, $2,360 and $2,226 for income taxes in
1996, 1995 and 1994 and $277 for interest in 1996.
19. SAVINGS ASSOCIATION INSURANCE FUND RECAPITALIZATION:
On September 30, 1996, President Clinton signed into law the Deposit
Insurance Funds Act of 1996, which included provisions recapitalizing the
Savings Association Insurance Fund (SAIF), provides for the eventual merger of
the thrift fund with the Bank Insurance Fund (BIF), and reallocates payment of
the annual Financing Corp. (FICO) bond obligation. As part of the package, the
Federal Deposit Insurance Corp. (FDIC) imposed a special one-time assessment of
65.7 basis points applied against SAIF assessable deposits as of December 31,
1995, which brought the SAIF up to the statutorily prescribed 1.25% designated
reserve ratio. The special assessment, which was paid in November 1996, was
included as a $2,309 pretax charge to the Corporation's operations in September
1996. This assessment reduced the Corporation's earnings by approximately $1,524
or $.45 per share.
56
<PAGE> 57
20. 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 will be applicable for the year ended December 31, 1997, and
establishes accounting standards for the impairment of long-lived assets,
certain identifiable intangibles, and goodwill related to those assets to be
held and used, and for long-lived assets and certain identifiable intangibles to
be disposed of. It is anticipated that the adoption of this statement will not
materially impact the reported financial statements or condition of the
Corporation.
During 1996, the FASB issued Statement of Financial Accounting
Standards (SFAS) No. 125, "Accounting for Transfers and Servicing of financial
Assets and Extinguishment of Liabilities." This statement is effective January
1, 1997, and provides accounting and reporting standards for loan
securitizations based on control of the underlying financial assets. It also
provides accounting and implementation guidance for other transfers, including
partial transfers of loans, servicing of financial assets, repurchase
agreements, securities lending and extinguishments of liabilities. The effective
date relative to certain provisions, including those related to repurchase
agreements and securities lending, has been deferred by the FASB until 1998. The
impact of this statement on the consolidated financial statements is not
expected to be material.
57
<PAGE> 58
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- ------------------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
There have been no disagreements between the Corporation and its independent
auditors on accounting and financial disclosure matters during the periods
covered by this report.
PART III
--------
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- -----------------------------------------------------------
*
ITEM 11: EXECUTIVE COMPENSATION
- -------------------------------
*
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- -----------------------------------------------------------------------
*
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -------------------------------------------------------
*
* Reference is made to the information under the captions "Election of
Directors," "Executive Officers," "Executive Compensation, "Security
Ownership of Certain Beneficial Owners and Management," and "Certain
Relationships and Related Transactions" in the Corporation's Proxy
Statement for the Annual Meeting of Shareholders to be held April 17, 1997,
which is incorporated by this reference into this annual report.
58
<PAGE> 59
PART IV
-------
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
- ------------------------------------------------------------------------
(a) (1) Financial Statements
BancFirst Ohio Corp. and Subsidiaries:
Report of Independent Accountants
Consolidated Balance Sheets as of December 31, 1996 and 1995
Consolidated Statements of Income for the Years Ended
December 31, 1996, 1995 and 1994
Consolidated Statements of Changes in Stockholders' Equity
for the Years Ended December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for the Years ended
December 31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements
(a) (2) Financial Statement Schedules
Schedules to the financial statements for which provision is made
in the applicable accounting regulation of the Securities and
Exchange Commission are not required under the related
instructions or are inapplicable, and therefore have been omitted.
(a) (3) Exhibits
List and Index on page 61
(b) None
(c) The exhibits required by Item 601 of Regulation S-K are filed as
a separate part of this report.
59
<PAGE> 60
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Corporation has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
BANCFIRST OHIO CORP.
By: (Signed) /s/ William F. Randles
----------------------------------
William F. Randles
Director and Chairman of the Board
Dated: Zanesville, Ohio
March 12, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
- ---------- ----- ----
<S> <C> <C>
(Signed) /s/ Philip E. Burke Director March 12, 1997
- ------------------------------------
Philip E. Burke
(Signed) /s/ Gary N. Fields Director and Chief March 12, 1997
- ------------------------------------ Executive Officer
Gary N. Fields
(Signed) /s/ Richard O. Johnson Director March 12, 1997
- ------------------------------------
Richard O. Johnson
(Signed) /s/ Milman H. Linn, III Director March 12, 1997
- ------------------------------------
Milman H. Linn, III
(Signed) /s/ James L. Nichols Director March 12, 1997
- ------------------------------------
James L. Nichols
(Signed) /s/ Karl C. Saunders Director March 12, 1997
- ------------------------------------
Karl C. Saunders
(Signed) /s/ J. W. Straker, Jr. Director March 12, 1997
- ------------------------------------
J. W. Straker, Jr.
(Signed) /s/ William F. Randles Director and Chairman March 12, 1997
- ------------------------------------ of the Board
William F. Randles
(Signed) /s/Kim M. Taylor Chief Financial Officer and March 12, 1997
- ------------------------------------ Chief Accounting Officer
Kim M. Taylor
</TABLE>
60
<PAGE> 61
Exhibit List and Index
BancFirst Ohio Corp. Form 10-K
for the year ended December 31, 1996
SEQUENTIALLY
EXHIBIT NO. DESCRIPTION NUMBERED PAGE
- ----------- ----------- -------------
2.1 Stock Purchase Agreement by and between the Company and
First Financial Group, Inc. dated March 27, 1996 ---
(incorporated by reference to Exhibit 2.1 to the
Company's Registration Statement on Form S-3,
Registration No. 333-06707).
3.1 Articles of Incorporation of the Company, as amended
(incorporated by reference to Exhibit 3.1 to the
Company's Form 10-K for the year ended December 31, ---
1991, Exhibit 3.3 to the Company's form 10-K for the
year ended December 31, 1992 and Exhibit 3.6 to the
Company's Form 10-K for the year ended December 31,
1994).
3.2 Code of Regulations of the Company, as amended
(incorporated by reference to Exhibit 3.2 to the
Company's form 10-K for the year ended December 31, ---
1991, Exhibit 3.4 to the Company's Form 10-K for the
year ended December 31, 1992 an Exhibit 3.5 to the
Company's Form 10-K for the ended December 31, 1993).
10.3 Loan Agreement by and between the Company and LaSalle
National Bank dated August 14, 1996 (incorporated by ---
reference to Exhibit 10.1 to the Company's Registration
Statement on Form S-3, Registration No. 333-06707).
*11.1 Computation of Per Share Earnings 62
*21.1 Subsidiaries of the Company 63
*23.1 Consent of Coopers & Lybrand 64
*27.1 Financial Data Schedule ---
- ------------------
*Filed herewith.
61
<PAGE> 1
EXHIBIT NO. 11.1 COMPUTATION OF PER SHARE EARNINGS
- ----------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Gross Weighted Average Common Shares Outstanding 3,413,636 3,034,092 3,034,092
Weighted Average Treasury Shares Outstanding 58,661 60,398 62,734
---------- ---------- ----------
Net Weighted Average Common Shares Outstanding 3,354,975 2,973,694 2,971,958
========== ========== ==========
Net Income ($ in thousands) $ 5,959 $ 6,212 $ 5,874
========== ========== ==========
Net Income Per Common Share $ 1.78 $ 2.09 $ 1.98
========== ========== ==========
</TABLE>
62
<PAGE> 1
EXHIBIT NO. 21.1 SUBSIDIARIES OF THE CORPORATION
- ----------------
Name of Subsidiary State of Incorporation
- ------------------ ----------------------
The First National Bank of Zanesville National banking association
422 Main Street under the laws of the
Zanesville, OH 43701 United States
Bellbrook Community Bank Ohio chartered bank
2010 Lakeman Drive under the laws of the
Bellbrook, Ohio 45305 State of Ohio
County Savings Bank Ohio chartered savings
66 South Third Street and loan association under
Columbus, Ohio 43215 the laws of the State of Ohio
Subsidiaries do business under their own names.
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statements of
BancFirst Ohio Corp. on Form S-8 (File Nos. 33-64288 and 33-64436) of our
report dated January 24, 1997, on our audits of the consolidated financial
statements of BancFirst Ohio Corp. and Subsidiaries as of December 31, 1996 and
1995, and for the years ended December 31, 1996, 1995, and 1994, which report
is included in this Annual Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
Columbus, Ohio
March 10, 1997
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<CURRENCY> U.S.DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 18,856
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 2,193
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 237,777
<INVESTMENTS-CARRYING> 46,799
<INVESTMENTS-MARKET> 47,652
<LOANS> 721,655
<ALLOWANCE> (6,599)
<TOTAL-ASSETS> 1,056,920
<DEPOSITS> 732,689
<SHORT-TERM> 11,650
<LIABILITIES-OTHER> 9,728
<LONG-TERM> 224,959
<COMMON> 40,340
0
0
<OTHER-SE> 37,554
<TOTAL-LIABILITIES-AND-EQUITY> 1,056,920
<INTEREST-LOAN> 38,518
<INTEREST-INVEST> 14,192
<INTEREST-OTHER> 467
<INTEREST-TOTAL> 53,177
<INTEREST-DEPOSIT> 20,938
<INTEREST-EXPENSE> 28,630
<INTEREST-INCOME-NET> 24,547
<LOAN-LOSSES> 1,257
<SECURITIES-GAINS> 43
<EXPENSE-OTHER> 21,235
<INCOME-PRETAX> 8,313
<INCOME-PRE-EXTRAORDINARY> 5,959
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,959
<EPS-PRIMARY> 1.78
<EPS-DILUTED> 1.78
<YIELD-ACTUAL> 8.07
<LOANS-NON> 991
<LOANS-PAST> 1,567
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,307
<CHARGE-OFFS> (1,099)
<RECOVERIES> 273
<ALLOWANCE-CLOSE> 6,599
<ALLOWANCE-DOMESTIC> 6,599
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
