<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 0-18840
BancFirst Ohio Corp.
(Exact name of registrant as specified in its charter)
Ohio 31-1294136
---- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
422 Main Street Zanesville, Ohio 43701
(Address of principal executive offices)
(Zip Code)
(740) 452-8444
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
Class Outstanding as of May 11, 1999
----- ------------------------------
Common Stock, No Par Value 7,929,636
<PAGE> 2
<TABLE>
INDEX
BANCFIRST OHIO CORP.
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE NO.
--------
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheet.............................. 3
Consolidated Statement of Income........................ 4
Consolidated Statement of Cash Flows.................... 5
Notes to Consolidated Financial Statements.............. 6-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................... 8-19
PART II. OTHER INFORMATION
Other Information............................................... 20
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits on Item 601 of Regulation S-K
(b) Exhibit 27: Financial Data Schedule
(c) Reports on Form 8-K
Signatures............................................................... 21
</TABLE>
2
<PAGE> 3
<TABLE>
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
BANCFIRST OHIO CORP.
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<CAPTION>
March 31, December 31,
1999 1998
(Unaudited)
----------- -----------
<S> <C> <C>
ASSETS:
Cash and due from banks $ 21,658 $ 28,731
Federal funds sold 314 469
Securities held-to-maturity, at amortized cost
(approximate fair value of $25,023 and $26,809 in
1999 and 1998, respectively) 24,696 26,518
Securities available-for-sale, at fair value 293,520 301,097
---------- ----------
Total securities 318,216 327,615
---------- ----------
Loans, net of unearned income 786,985 777,063
Allowance for possible loan losses (6,701) (6,643)
---------- ----------
Net loans 780,284 770,420
---------- ----------
Bank premises and equipment, net 13,532 12,863
Accrued interest receivable 7,740 7,278
Intangible assets 11,559 11,898
Other assets 22,077 21,737
========== ==========
Total assets $1,175,380 $1,181,011
========== ==========
LIABILITIES:
Deposits:
Non-interest-bearing deposits $ 58,159 $ 65,588
Interest-bearing deposits 730,425 724,034
---------- ----------
Total deposits 788,584 789,622
Federal funds purchased -- --
Federal Home Loan Bank advances and other borrowings 290,250 296,750
Accrued interest payable 2,548 2,510
Other liabilities 5,743 4,594
---------- ----------
Total liabilities 1,087,125 1,093,476
SHAREHOLDERS' EQUITY:
Common stock, no par value, 20,000,000 shares
authorized, 8,076,488 shares issued in 1999 and 1998 64,113 64,096
Retained earnings 29,631 27,892
Accumulated other comprehensive income - unrealized
holding losses on securities available-for-sale, net (449) (440)
Treasury stock, 218,157 and 180,458 shares, at cost,
in 1999 and 1998, respectively (5,040) (4,013)
---------- ----------
Total shareholders' equity 88,255 87,535
---------- ----------
Total liabilities and shareholders' equity $1,175,380 $1,181,011
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE> 4
<TABLE>
BANCFIRST OHIO CORP.
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATE)
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1999 1998
------- -------
<S> <C> <C>
INTEREST INCOME:
Interest and fees on loans $16,192 $16,492
Interest and dividends on securities:
Taxable 4,744 4,431
Tax-exempt 412 306
Other interest income 23 6
------- -------
Total interest income 21,371 21,235
------- -------
Interest expense:
Deposits 8,051 8,480
Borrowings 3,919 3,620
------- -------
Total interest expense 11,970 12,100
------- -------
Net interest income 9,401 9,135
Provision for possible loan losses 350 307
------- -------
Net interest income after
provision for possible loan losses 9,051 8,828
------- -------
Other income:
Trust and custodian fees 566 453
Customer service fees 530 483
Gain on sale of loans 604 1,114
Other 459 260
Investment securities gains, net 124 24
------- -------
Total other income 2,283 2,334
------- -------
Other expense:
Salaries and employee benefits 4,054 3,834
Net occupancy expense 410 385
Amortization of intangibles 339 354
Other 2,374 2,421
------- -------
Total other expense 7,177 6,994
------- -------
Income before income taxes 4,157 4,168
Provision for Federal income taxes 1,316 1,360
------- -------
Net income $ 2,841 $ 2,808
======= =======
Basic and diluted earnings per share $ 0.36 $ 0.35
======= =======
Weighted average common shares outstanding:
Basic 7,881 7,964
======= =======
Diluted 7,893 7,969
======= =======
Cash dividends per common share $ 0.140 $ 0.135
======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE> 5
<TABLE>
BANCFIRST OHIO CORP.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
1999 1998
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,841 $ 2,808
Adjustments to reconcile net income to net cash
provided by operations:
Depreciation and amortization 1,315 685
Provision for possible loan losses 350 307
Gain on sale of assets (728) (1,138)
Increase in interest receivable (462) (239)
(Increase) in other assets (698) (827)
Increase in interest payable 38 459
Increase (decrease) in other liabilities 1,154 (2,038)
FHLB stock dividend (296) (287)
-------- --------
Net cash provided by (used in) operating activities 3,514 (270)
-------- --------
Cash flows from investing activities:
Decrease in federal funds sold and short term investments 155 26
Proceeds from maturities of securities held-to-maturity 1,860 1,802
Proceeds from maturities and sales of securities
available-for-sale 25,776 29,239
Purchase of securities available-for-sale (18,179) (32,125)
Increase in loans, net (31,241) (31,649)
Purchase of loans -- (18,837)
Purchases of equipment and other assets (1,066) (879)
Proceeds from sale of loans 21,758 36,549
Purchase of bank owned life insurance -- (15,000)
-------- --------
Net cash used in investing activities (937) (30,874)
-------- --------
Cash flows from financing activities:
Decrease in federal funds purchased -- (10,000)
Increase (decrease) in Federal Home Loan Bank advances
and other borrowings (6,500) 30,065
Net increase (decrease) in deposits (1,038) 13,128
Cash dividends paid (1,102) (1,076)
Issuance (purchase) of stock, net (1,010) 228
-------- --------
Net cash provided by (used in) financing activities (9,650) 32,345
-------- --------
Net increase (decrease) in cash and due from banks (7,073) 1,201
Cash and due from banks, beginning of period 28,731 21,650
-------- --------
Cash and due from banks, end of period $ 21,658 $ 22,851
======== ========
Supplemental cash flow disclosures:
Income taxes paid $ -- $ 1,200
======== ========
Interest paid $ 11,932 $ 11,641
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements
5
<PAGE> 6
BANCFIRST OHIO CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 (UNAUDITED)
The consolidated financial statements for interim periods are unaudited;
however, in the opinion of management of BancFirst Ohio Corp. ("Company"), the
accompanying consolidated financial statements contain all material adjustments
(consisting of only normal recurring adjustments) necessary to present fairly
the financial position and results of operations and cash flows for the periods
presented. The unaudited financial statements are presented in accordance with
the requirements of Form 10-Q and do not include all disclosures normally
required by generally accepted accounting principles. Reference should be made
to the Company's consolidated financial statements and notes thereto included in
the Company's annual report on Form 10-K for the year ended December 31, 1998
for additional disclosures, including a summary of the Company's accounting
policies. The results of operations for the three month period ended March 31,
1999 are not necessarily indicative of the results to be expected for the full
year. Certain reclassifications have been made to the 1998 consolidated
financial statements to conform to the 1999 presentation.
1) BASIS OF PRESENTATION:
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiary. All significant intercompany
transactions and accounts have been eliminated in consolidation.
2) NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, Statement of Financial Accounting Standards (SFAS) No.
133, "Accounting for Derivative Instruments and Hedging Activities" was
issued. SFAS No. 133 is effective for fiscal years beginning after June
15, 1999 and establishes accounting and reporting standards for
derivative instruments and for hedging activities. The provisions of
this statement will primarily impact the accounting for the Company's
interest rate swap transactions which had a total notional amount of
$50.6 million at March 31, 1999. The Company has not determined what
impact this standard will have on its financial statements.
3) SUBSEQUENT EVENTS
On April 5, 1999, the Company acquired Chornyak & Associates, Inc., a
full service financial planning company. In connection with this
acquisition, the Company issued 82,000 common shares having a total
value of approximately $2.1 million for all of the outstanding shares
of Chornyak & Associates, Inc. This acquisition is being accounted for
as a purchase transaction.
6
<PAGE> 7
4) COMPUTATION OF EARNINGS PER SHARE
The computation of earnings per share is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------
1999 1998
------ ------
(In thousands, expect per share data)
<S> <C> <C>
Actual weighted average common
shares outstanding 7,881 7,964
Dilutive common stock equivalents:
Stock options 6 1
Bonus shares - Company match 6 4
------ ------
Weighted average common shares
outstanding adjusted for dilutive common
stock equivalents 7,893 7,969
====== ======
Net income $2,841 $2,808
====== ======
Basic earnings per share $ 0.36 $ 0.35
====== ======
Diluted earnings per share $ 0.36 $ 0.35
====== ======
</TABLE>
5) COMPREHENSIVE INCOME
The Company's comprehensive income, determined in accordance with SFAS
No. 130, was $2,832 and $2,596 for the three months ended March 31,
1999 and 1998, respectively.
7
<PAGE> 8
ITEM 2:
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
BANCFIRST OHIO CORP.
For a comprehensive understanding of the Company's financial condition and
performance, this discussion should be considered in conjunction with the
Company's Consolidated Financial Statements, accompanying notes, and other
information contained elsewhere herein.
This discussion contains forward-looking statements under the Private Securities
Litigation Reform Act of 1995 that involves risks and uncertainties. Although
the Company believes that the assumptions underlying the forward-looking
statements contained herein are reasonable, any of the assumptions could be
inaccurate, and therefore, there can be no assurance that the forward-looking
statements included herein will prove to be accurate. Factors that could cause
actual results to differ from the results discussed in the forward-looking
statements include, but are not limited to: economic conditions (both generally
and more specifically in the markets in which the Company and its Banking
Subsidiary 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; prepayments of loans and securities; material unforeseen changes
in the liquidity, results of operations, or other financial position of the
Company's customers; 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.
8
<PAGE> 9
<TABLE>
BANCFIRST OHIO CORP.
SELECTED FINANCIAL DATA:
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<CAPTION>
AT OR FOR THE THREE MONTHS
ENDED MARCH 31,
1999 1998
---------- ----------
<S> <C> <C>
STATEMENT OF INCOME DATA
Interest Income $ 21,371 $ 21,235
Interest expense 11,970 12,100
---------- ----------
Net interest income 9,401 9,135
Provision for possible loan losses 350 307
Non-interest income 2,283 2,334
Non-interest expense 7,177 6,994
---------- ----------
Income before income taxes 4,157 4,168
Provision for Federal Income taxes 1,316 1,360
---------- ----------
Net income $ 2,841 $ 2,808
========== ==========
PER SHARE DATA:
Basic earnings per share $ 0.36 $ 0.35
Diluted earnings per share 0.36 0.35
Dividends 0.14 0.135
Book value 11.23 10.93
Tangible book value 9.76 9.38
BALANCE SHEET DATA:
Total assets $1,175,380 $1,114,980
Loans 786,985 776,213
Allowance for possible loan losses 6,701 6,719
Securities 318,216 272,593
Deposits 788,584 760,175
Borrowings 290,250 259,514
Shareholders' equity 88,255 87,081
PERFORMANCE RATIOS (1):
Return on average assets 0.97% 1.04%
Return on average equity 13.02 13.23
Tangible return on average tangible equity 16.50 17.11
Net interest margin 3.51 3.64
Interest rate spread 3.14 3.19
Non-interest income to average assets 0.74 0.86
Non-interest expense to average assets 2.35 2.46
Efficiency ratio (2) 57.96 57.14
ASSET QUALITY RATIOS:
Non-performing loans to total loans 0.47% 0.36%
Non-performing assets to total assets 0.36 0.29
Allowance for possible loan losses to total loans 0.85 0.87
Allowance for possible loan losses to
non-performing loans 181.4 238.9
Net charge-offs to average loans (1) 0.15 0.11
CAPITAL RATIOS:
Shareholders' equity to total assets 7.51% 7.81%
Tier 1 capital to total assets 6.57 6.80%
Tier 1 capital to risk-weighted assets 10.06 10.37%
</TABLE>
(1) Ratios are stated on an annualized basis.
(2) The efficiency ratio is equal to non-interest expense (excluding
amortization expense) divided by net interest income on a fully tax
equivalent basis plus non-interest income excluding gains on sales of
securities.
9
<PAGE> 10
OVERVIEW
The reported results of the Company primarily reflect the
operations of the Company's bank subsidiary. 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, and other general and
administrative expenses.
AVERAGE BALANCES AND YIELDS
The following table presents, for each of the periods
indicated, the total dollar amount of interest income from average
interest-earning assets and the resultant yields, as well as the interest
expense on average interest-bearing liabilities, expressed both in dollars and
percentage rates, and the net interest margin. Net interest margin is calculated
on a fully tax equivalent basis ("FTE") by total interest-earning assets. The
net interest margin 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.
10
<PAGE> 11
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1999 1998
--------------------------------- ---------------------------------
Average Income/ Yield/ Average Income/ Yield/
Balance Expenses Rate (1) Balance Expenses Rate (1)
---------- -------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
SECURITIES:
Taxable $ 294,713 $ 4,744 6.53% $ 245,186 $ 4,431 7.33%
Tax-exempt 32,673 633 7.86% 23,266 463 8.07
---------- ------- ---------- -------
Total securities 327,386 5,377 6.66% 268,452 4,894 7.39
LOANS (2):
Commercial 339,845 7,802 9.31% 312,372 7,135 9.26
Real Estate 352,503 6,535 7.52% 371,332 7,345 8.02
Consumer 92,070 1,873 8.25% 85,196 2,031 9.67
---------- ------- ---------- -------
Total loans 784,418 16,210 8.38% 768,900 16,511 8.71
Federal funds sold 2,065 23 4.52% 565 8 5.74
---------- ------- ---------- -------
Total earning assets (3) 1,113,869 21,610 7.87% 1,037,917 21,413 8.37
Non-interest earning assets 68,675 57,508
---------- ----------
Total assets $1,182,544 $1,095,425
========== ==========
INTEREST-BEARING DEPOSITS:
Demand and savings deposits 231,884 1,464 2.56% 209,673 1,515 2.93%
Time deposits 499,127 6,587 5.35% 494,060 6,965 5.72
---------- ------- ---------- -------
Total deposits 731,011 8,051 4.47% 703,733 8,480 4.89
Borrowings 294,642 3,919 5.39% 244,640 3,620 6.00
---------- ------- ---------- -------
Total Interest-bearing liabilities 1,025,653 11,970 4.73% 948,373 12,100 5.18
Non interest-bearing deposits 61,376 49,206
---------- ----------
Subtotal 1,087,029 997,579
Accrued expenses and other
liabilities 7,016 11,743
---------- ----------
Total liabilities 1,094,045 1,009,322
Shareholders' equity 88,499 86,103
---------- ----------
Total liabilities and shareholders'
equity $1,182,544 1,095,425
========== ==========
Net interest income and interest
rate spread (4) $ 9,640 3.14% $ 9,313 3.19%
======= ===== ======= =====
Net interest margin (5) 3.51% 3.64%
===== =====
Average interest-earning assets to
average interest-bearing liabilities 108.6% 109.4%
===== =====
</TABLE>
(1) Calculated on an annualized basis.
(2) Non-accrual loans are included in the average loan balances.
(3) Interest income is computed on a fully tax equivalent (FTE) basis,
using a tax rate of 35% in 1999 and 1998.
(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.
11
<PAGE> 12
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>
THREE MONTHS ENDED MARCH 31,
1999 VS. 1998
(IN THOUSANDS)
INCREASE (DECREASE)
---------------------------------
------ ------- -----
VOLUME RATE TOTAL
------ ------- -----
<S> <C> <C> <C>
Interest-earning assets:
Securities:
Taxable $ 832 $ (519) $ 313
Non-taxable 183 (13) 170
------ ------- -----
Total securities 1,015 (532) 483
------ ------- -----
Loans:
Commercial 631 36 667
Real estate (362) (448) (810)
Consumer 155 (313) (158)
------ ------- -----
Total loans 424 (725) (301)
------ ------- -----
Federal funds sold 17 (2) 15
------ ------- -----
Total interest-earning assets (1) 1,456 (1,259) 197
------ ------- -----
Interest-bearing liabilities:
Deposits:
Demand and savings deposits 151 (202) (51)
Time deposits 71 (449) (378)
------ ------- -----
Total interest-bearing deposits 222 (651) (429)
Borrowings 690 (392) 298
------ ------- -----
Total interest-bearing liabilities 912 (1,043) (131)
------ ------- -----
Net interest income $ 544 $ (216) $ 328
====== ======= =====
</TABLE>
(1) Computed on a fully tax-equivalent basis, assuming a tax rate of 35%.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND
1998
Net Income. Net income for both the three months ended March 31, 1999
and 1998 was $2.8 million. Basic and diluted earnings per share in the first
quarter of 1999 equaled $0.36, compared to $0.35 for the same period in 1998.
Net interest income increased 2.9% in the three months ended March 31, 1999, as
compared to the same period in 1998 while the provision for possible loan losses
and non-interest expense increased 14.0% and 2.6%, respectively. Non-interest
income decreased 2.2% from the comparative period. The Company's net interest
margin decreased to 3.51% for the first quarter of 1999, compared to 3.64% for
the same period in 1998. The decrease in non-interest income related primarily
to lower levels of gains on sales of loans. Non-interest expense increased
primarily due to increased personnel costs resulting from staff additions that
occurred over the course of 1998. The Company's return on average assets and
return on average equity were .97% and 13.02%, respectively, in the first
quarter of 1999, compared to 1.04% and 13.23%, respectively, in the first
quarter of 1998.
12
<PAGE> 13
Interest Income. Total interest income increased .6% to $21.4 million
for the three months ended March 31, 1999, compared to $21.2 million for the
first quarter of 1998. This increase was primarily attributed to a $76.0
million, or 7.3%, increase in average earning assets which was offset in part by
a 50 basis point decrease in the average yield on interest-earning assets. The
Company's yield on average loans decreased from 8.71% during the three months
ended March 31, 1998 to 8.38% during the three months ended March 31, 1999. The
decline in average yields has primarily resulted from the repayment and
refinancing of higher yielding loans at lower rates. Yields on the investment
portfolio decreased from 7.39% during the first quarter of 1998 to 6.66% during
the first quarter of 1999. The yield on investments for the first quarter 1998
benefited approximately 20 basis points from $135,000 of additional accretion of
discounts on mortgage-backed and other securities that resulted from
prepayments. Further prepayments of loans and securities in the future could
have an adverse effect on the Company's average yield on earning assets as well
as the Company's net interest margin as a result of the prepayment of higher
yielding assets that are replaced with lower yielding assets originated in the
current interest rate environment.
Interest Expense. Total interest expense decreased 1.1% to $12.0
million for the three months ended March 31, 1999, compared to $12.1 million for
the three months ended March 31, 1998. Interest expense decreased due to a lower
cost of funds balance during the first quarter of 1999, as compared to the same
period in 1998. The decrease in interest expense resulting from a lower cost of
funds was partially offset by a higher average balance of interest-bearing
liabilities in the first quarter in 1999 which increased $77.3 million, or 8.1%,
from the first quarter in 1998.
The Company's cost of funds increased to 4.73% in the three months
ended March 31, 1998 compared to 5.18% in the same period of 1998. The cost of
funds benefited from the repricing of maturing certificates of deposit at lower
rates, interest rate reductions on demand and savings deposits and the repayment
and refinancing of higher rate FHLB advances in December, 1998.
Provision for Possible Loan Losses. The provision for possible loan
losses was $350,000 for the three months ended March 31, 1999, compared to
$307,000 in the first quarter of 1998. The provision for possible loan losses
was considered sufficient by management for maintaining an adequate allowance
for possible loan losses. 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. See Asset Quality.
Non-Interest Income. The following table sets forth the Company's
non-interest income for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------
1999 1998
------ ------
<S> <C> <C>
Trust and custodian fees $ 566 $ 453
Customer service fees 530 483
Investment securities gains 124 24
Gains on sales of loans 604 1,114
Other 459 260
------ ------
Total $2,283 $2,334
====== ======
</TABLE>
Total non-interest income decreased $51,000 for the three months ended
March 31,1999, compared to the same period a year ago. This decrease was
attributed to a $510,000 decrease in gains on sales of loans, offset in part by
increases in fee income. During the first quarter of 1999, the Company sold
approximately $4.4 million of the guaranteed portion of loans originated under
the SBA and other government guarantee programs compared to $6.0 million in the
first quarter of 1998, realizing gains of $342,000 in 1999, compared to gains of
$613,000 in 1998. In addition, the Company sold $16.7 million of residential
mortgage loans during the first quarter of 1999, realizing gains of $262,000
compared to gains of $501,000 in the first quarter of 1998 on sales of loans
totaling $29.4 million.
Customer service fees, representing service charges on deposits and
fees from other banking services, increased 9.7% in the first quarter of 1999,
to $530,000, from $483,000 in the first quarter of 1998. Trust income increased
24.9% to $566,000 in the first quarter of 1999, from $453,000 in the first
quarter of 1998. Growth in trust and custodian fees resulted primarily from
higher asset values. The $199,000 increase in other income to $459,000 in the
first quarter of 1999 compared to $260,000 in the first quarter of 1998 resulted
from higher earnings on bank owned life
13
<PAGE> 14
insurance (purchased in January 1998) and higher servicing income due to
increased levels of serviced loans as well as a lower level of amortization of
servicing assets.
Non-Interest Expense. The following table sets forth the Company's
non-interest expense for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
1999 1998
------ ------
(IN THOUSANDS)
<S> <C> <C>
Salaries and employee benefits $4,054 $3,834
Net occupancy expense 410 385
Furniture, fixtures and equipment 223 207
Data processing 312 341
Taxes other than income taxes 244 217
Federal deposit insurance 69 71
Amortization of goodwill and other intangibles 339 354
Other 1,526 1,585
------ ------
Total $7,177 $6,994
====== ======
</TABLE>
Total non-interest expense increased $183,000 to $7.2 million in the
three months ended March 31, 1999, compared to $7.0 million in the three months
ended March 31, 1998. This increase generally resulted from expansion of the
Company's operating activities and addition of loan production personnel, which
was partially offset by efficiencies achieved from the merger of the Company's
banking subsidiaries under a single bank charter in May 1998.
Salaries and employee benefits increased 5.7% to $4.1 million and
represented approximately 59.3% of total operating expenses (non-interest
expense less amortization of intangibles) in the three months ended March 31,
1999 compared to 57.7% in the first quarter of 1998. The average full time
equivalent staff increased 1.8% from 379 in 1998 to 386 in 1998.
Net occupancy expense increased to $410,000 in the first quarter of
1999 from $385,000 in the first quarter of 1998. This increase resulted from
higher costs associated with new branch facilities opened and acquired in the
fourth quarter of 1998.
Furniture, fixtures and equipment expense increased $16,000, for the
first quarter of 1999. The increase in furniture and equipment expense was due
principally to higher depreciation and maintenance costs.
Data processing expense decreased $29,000, or 8.5%, for the first
quarter of 1999. Lower costs in 1999 resulted from efficiencies and cost
reductions achieved from data processing systems conversions in 1998.
Taxes other than income taxes increased $27,000, for the first quarter
of 1999 compared to the first quarter of 1998. The 1998 results included the
recognition of credits for overpayment of taxes in prior years.
Federal deposit insurance expense decreased $2,000 to $69,000 in 1999
from $71,000 in the first quarter of 1998.
Amortization of goodwill and other intangible assets resulting from the
application of purchase accounting in connection with the County Savings Bank
acquisition totaled $318,000 during the first quarter of 1999 compared to
$348,000 in the first quarter of 1998.
Other non-interest expenses decreased 3.7% to $1.5 million during the
first quarter of 1999 compared to $1.6 million in the first quarter of 1998.
Other operating costs decreased during the first quarter of 1999 primarily as a
result of efficiencies achieved from the May 16, 1998 merger of the Company's
banking subsidiaries under a single bank charter.
14
<PAGE> 15
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 was 58.0%
for the first quarter of 1999, compared to 57.1% for the comparable period in
1998. Controlling costs and improving productivity, as measured by the
efficiency ratio, is considered by management a primary factor in enhancing
performance. While increases in operating expense levels have been modest in
1999, increases in net interest income and other fee income have also been
modest and continue to be affected by the relatively low interest rate
environment, flat yield curve and competitive pressures.
Provision for Income Taxes. The Company's provision for Federal income
taxes was $1.3 million, or 31.7% of pretax income, for the three months ended
March 31, 1999 compared to $1.4 million, or 32.6% of pretax income, for the
three months ended March 31, 1998. The effective tax rate for each period
differed from the federal statutory rate principally as a result of tax-exempt
income from obligations of states and political subdivisions and non-taxable
loans, the non-deductibility, for tax purposes, of goodwill and core deposit
intangible amortization expense, and earnings on bank owned life insurance.
ASSET QUALITY
Non-performing Assets. To maintain the level of credit risk of the loan
portfolio at an appropriate level, management sets underwriting standards and
internal lending limits and provides for proper diversification of the portfolio
by placing constraints on the concentration of credits within the portfolio. In
monitoring the level of credit risk within the loan portfolio, management
utilizes a formal loan review process to monitor, review, and consider relevant
factors in evaluating specific credits in determining the adequacy of the
allowance for possible loan losses. The Company's banking subsidiary formally
documents its evaluation of the adequacy of the allowance for possible loan
losses on a quarterly basis and the evaluation is reviewed and discussed with
its board 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 $545,000 of such property at
March 31, 1999 compared to $607,000 at December 31, 1998 and $457,000 at March
31, 1998.
Non-performing loans totaled $3.7 million, or 0.47% of total loans, at
March 31, 1999, compared to $3.7 million, or .48% of total loans at year end
1998 and $2.8 million, or 0.36% of total loans, at March 31, 1998.
Non-performing assets totaled $4.2 million, or 0.36% of total assets at March
31, 1999, compared to $4.3 million, or 0.37% of total assets, at December 31,
1998 and $3.3 million, or .29% of total assets at March 31, 1998. The increase
in non-performing loans from March 31, 1998 resulted equally from increases in
non-performing single family residential mortgage loans and commercial loans.
The following is an analysis of the composition of non-performing assets:
15
<PAGE> 16
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31, MARCH 31,
1999 1998 1998
--------- ------------ ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Non-accrual $1,195 $1,294 $1,295
Accruing loans 90 days or more past due 2,500 2,432 1,517
------ ------ ------
Total non-performing loans 3,695 3,726 2,812
Other real estate owned 545 607 457
------ ------ ------
Total non-performing assets $4,240 $4,333 $3,269
====== ====== ======
Non-performing loans to total loans 0.47% 0.48% 0.36%
Non-performing assets to total assets 0.36% 0.37% 0.29%
</TABLE>
One loan with an outstanding principal balance of $2.9 million at March
31, 1999 and collateralized by a first mortgage on a nursing home facility is
not included in the totals in the table above. This loan was 30 days delinquent
at March 31, 1999 and 60 days delinquent at April 30, 1999. Management is in the
process of working out arrangements with a third party who will operate the
facility and assume the existing first mortgage indebtedness. Management
believes that any loss that may result from the ultimate resolution of this
credit is adequately covered by the specific allocation of the Company's
allowance for possible loan losses to this loan at March 31, 1999.
Allowance for Possible Loan Losses. The Company records a provision
necessary to maintain the allowance for possible loan losses at a level
sufficient to provide for potential future credit losses. The provision is
charged against earnings when it is established. An allowance for possible loan
losses is established based on management's best judgment, which involves a
continuing review of prevailing national and local economic conditions, changes
in the size and composition of the portfolio and review of individual problem
credits. Growth of the loan portfolio, loss experience, economic conditions,
delinquency levels, credit mix, and selected credits are factors that affect
judgments concerning the adequacy of the allowance. Actual losses on loans are
charged against the allowance.
The following table summarizes the Company's loan loss experience, and
provides a breakdown of the charge-off, recovery and other activity for the
periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
1999 1998
-------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Balance at beginning of period $ 6,643 $ 6,617
Provision charged to expense 350 307
Loans charged-off (441) (384)
Recoveries of loans previously charged-off 149 179
-------- --------
Balance at end of period $ 6,701 $ 6,719
======== ========
Loans outstanding at end of period $786,985 $776,213
Average loans outstanding 784,418 768,900
Allowance as a percent of loans outstanding 0.85% 0.87%
Net charge-offs to average loans (annualized) 0.15% 0.11%
Allowance for possible loans losses to non-
performing loans 181.4% 238.9%
</TABLE>
The allowance for possible loan losses totaled $6.7 million at March
31, 1999, representing .85% of total loans, compared to $6.7 million at March
31, 1998, or .87% of total loans. Charge-offs represent the amount of loans
actually removed as earning assets from the balance sheet due to
uncollectibility. Amounts recovered on previously charged-off assets are netted
against charge-offs, resulting in net charge-offs for the period. Net loan
charge-offs for the three months ended March 31, 1999 were $292,000, compared to
net charge-offs of $205,000 for the same period in 1998.
16
<PAGE> 17
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 181.4% at March 31, 1999, compared
to 238.9% at March 31, 1998. 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 0.47% of total loans at March 31, 1999.
COMPARISON OF MARCH 31, 1999 AND DECEMBER 31, 1998 FINANCIAL CONDITION
Total assets amounted to $1.18 billion at March 31, 1999, a decrease of
$5.6 million, or .5%, from December 31, 1998.
Total investment securities decreased by $9.4 million to $318.2
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 March 31, 1999, 92.2% 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 7.8%. This compares to 91.9% and 8.1% classified as available-for-sale
and held to maturity, respectively, at December 31, 1998.
Total loans increased $9.9 million to $787.0 million at March 31, 1999.
This increase reflects the Company's continued emphasis on increasing the loan
portfolio in order to improve overall earning asset yields.
Premises and equipment increased from $12.9 million at December 31,
1998 to $13.5 million at March 31, 1999, the increase relating primarily to the
construction of a new branch facility located in New Albany, Ohio.
Other assets increased from $21.7 million at December 31, 1998 to $22.1
million at March 31, 1999 primarily as a result of increases in the cash
surrender value of bank owned life insurance.
Total deposits decreased to $788.6 million at March 31, 1999 from
$789.6 million at December 31, 1998. The Company continues to emphasize growth
in its existing retail deposit base provided incremental deposit growth is cost
effective compared to alternative funding sources. Total interest-bearing
deposits accounted for 92.6% of total deposits at March 31, 1999, compared to
91.7% at December 31, 1998.
Total borrowings decreased $6.5 million to $290.3 million at March 31,
1999, compared to $296.8 million at December 31, 1998.
LIQUIDITY AND CAPITAL RESOURCES
The objective of liquidity management is to ensure the availability of
funds to accommodate customer loan demand as well as deposit withdrawals while
continuously seeking higher yields from longer term lending and investing
opportunities. This is accomplished principally by maintaining sufficient cash
flows and liquid assets along with consistent stable core deposits and the
capacity to maintain immediate access to funds. These immediately accessible
funds may include federal funds sold, unpledged marketable securities, reverse
repurchase agreements or available lines of credit from the Federal Reserve
Bank, Federal Home Loan Bank (FHLB), or other financial institutions. An
important factor in the preservation of liquidity is the maintenance of public
confidence, as this facilitates the retention and growth of a large, stable
supply of core deposits in funds.
The Company's principal source of funds to satisfy short-term liquidity
needs comes from cash, due from banks, federal funds sold and borrowing
capabilities through the FHLB as well as other sources. Changes in the balance
of cash and due from banks are due to changes in volumes of federal funds sold,
and the float and reserves related to deposit accounts, which may fluctuate
significantly on a day-to-day basis. The investment portfolio serves as an
additional source of liquidity for the Company. Securities with a market value
of $293.5 million were classified as available-for-sale as of March 31, 1999,
representing 92.2% 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.
17
<PAGE> 18
The Company's bank subsidiary is a member of the FHLB. Membership
provides an opportunity to control the bank's cost of funds by providing
alternative funding sources, to provide flexibility in the management of
interest rate risk through the wide range of available funding sources, to
manage liquidity via immediate access to such funds, and to provide flexibility
through utilization of customized funding products to fund various loan and
investment products and strategies.
The Company obtained a $15 million term loan with a financial
institution in order to partially fund the acquisition of County Savings Bank.
This loan had an outstanding balance of $6.3 million at March 31, 1999. Under
the terms of the loan agreement, the Company is required to make quarterly
interest payments and annual principal payments, based on a ten year
amortization, which commenced in February 1998. The unpaid loan balance is due
in full September 1, 2003. The loan agreement also contains certain financial
covenants all of which the Company was in compliance with at March 31, 1999.
Shareholders' equity at March 31, 1999 was $88.3 million, compared to
prior year-end shareholders' equity of $87.5 million, an increase of $720,000.
This increase resulted primarily from the retention of earnings (net of
dividends paid) offset by purchases of treasury stock (net) totaling $1.0
million.
Under the risk-based capital guidelines, a minimum capital to
risk-weighted assets ratio of 8.0% is required, of which, at least 4.0% must
consist of Tier 1 capital (equity capital net of goodwill). Additionally, a
minimum leverage ratio (Tier 1 capital to total assets) of 3.0% must be
maintained. At March 31, 1999, the Company had a total risk-based capital ratio
of 10.94%, of which 10.06% consisted of Tier 1 capital. The leverage ratio for
the Company at March 31, 1999, was 6.57%.
Cash dividends declared to shareholders of the Company totaled $1.1
million, or $0.14 per share, during the first three months of 1999. This
compares to dividends of $1.1 million, or $0.135 per share, for the same period
in 1998. Cash dividends paid as a percentage of net income amounted to 38.8% and
38.3% for the three months ended March 31, 1999 and 1998, respectively.
In April 1999 the Company issued 82,000 common shares in connection
with the acquisition of a full service financial planning company. The Company
also entered into a five year employment agreement with the sole shareholder of
the acquired company. Under the terms of such agreement, the Company granted
this individual an option to purchase up to 30,000 common shares, subject to a
four year vesting schedule.
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.
CONTINGENCIES AND UNCERTAINTIES - YEAR 2000
The Year 2000 Issue concerns the inability of information systems to
properly recognize and process date-sensitive information beyond December 31,
1999. This could cause a system failure or other computer errors, leading to a
disruption in the operation of such systems. All of the Company's banking
operations have been converted to a core data processing system that the Company
began utilizing in 1996. Substantially all of the software utilized by the
Company is purchased or licensed from external providers.
The Company has conducted a review of its data processing systems to
ensure that all data processing applications are Year 2000 compliant. This
review project has seven phases: 1) identify applications; 2) assign primary
responsibility; 3) contact vendors for certification; 4) determine testing plan
and perform test procedures; 5) determine impact of non compliance; 6) correct
non compliance situations; and 7) develop contingency plan. Testing of all
critical systems has been substantially completed. Contingency plans are being
developed and are expected to be completed by the end of June 1999. Based on its
assessment at this time, management does not anticipate any disruption in the
Company's operations as a result of the Year 2000 Issue.
In addition, the Company has implemented procedures for identifying
potential problems that the Company's borrowers may experience. The Company has
also held seminars for borrowers and other customers to assist them in
addressing the Year 2000 Issue.
18
<PAGE> 19
To date, costs associated with required modifications necessary to
become Year 2000 compliant have not been significant. The Company estimates that
it will incur additional costs of approximately $250,000 to $300,000 primarily
for equipment and software purchases relating to Year 2000 compliance. These
cost estimates are based on currently available information and may change as
the Company continues its Year 2000 project.
19
<PAGE> 20
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits on Item 601 of Regulation S-K
Exhibit 3(a) - Articles of Incorporation, as amended (incorporated by
reference to Exhibit 3.1 to Company's Form 10-K for 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).
Exhibit 3(b) - Code of Regulations, as amended (incorporated by
reference to Exhibit 3.2 to the Company's Form 10-K for the year ended
December 3,1, 1991, Exhibit 3.4 to the Company's Form 10-K for the year
ended December 31, 1992 and Exhibit 3.5 to the Company's Form 10-K for
the year ended December 31, 1993).
(b) Exhibit 27: Financial Data Schedule
(c) Reports on Form 8-K - None -
20
<PAGE> 21
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BancFirst Ohio Corp.
(Registrant)
Date May 14, 1999 (Signed) /s/ Gary N. Fields
------------------- -----------------------------------------
Gary N. Fields
President and
Chief Executive Officer
Date May 14, 1999 (Signed) /s/ Kim M. Taylor
------------------- -----------------------------------------
Kim M. Taylor
Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
21
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<CASH> 21,658
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 314
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 293,520
<INVESTMENTS-CARRYING> 24,696
<INVESTMENTS-MARKET> 25,023
<LOANS> 786,985
<ALLOWANCE> (6,701)
<TOTAL-ASSETS> 1,175,380
<DEPOSITS> 788,584
<SHORT-TERM> 0
<LIABILITIES-OTHER> 8,291
<LONG-TERM> 290,250
0
0
<COMMON> 64,113
<OTHER-SE> 24,142
<TOTAL-LIABILITIES-AND-EQUITY> 1,175,380
<INTEREST-LOAN> 16,192
<INTEREST-INVEST> 5,156
<INTEREST-OTHER> 23
<INTEREST-TOTAL> 21,371
<INTEREST-DEPOSIT> 8,051
<INTEREST-EXPENSE> 11,970
<INTEREST-INCOME-NET> 9,401
<LOAN-LOSSES> 350
<SECURITIES-GAINS> 124
<EXPENSE-OTHER> 7,177
<INCOME-PRETAX> 4,157
<INCOME-PRE-EXTRAORDINARY> 2,841
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,841
<EPS-PRIMARY> .36
<EPS-DILUTED> .36
<YIELD-ACTUAL> 7.87
<LOANS-NON> 1,195
<LOANS-PAST> 2,500
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 6,643
<CHARGE-OFFS> (441)
<RECOVERIES> 149
<ALLOWANCE-CLOSE> 6,701
<ALLOWANCE-DOMESTIC> 6,701
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
