<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 September 30, 2000
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 November 11, 2000
----- -----------------------------------
Common Stock, No Par Value 8,782,000
1
<PAGE> 2
INDEX
BANCFIRST OHIO CORP.
<TABLE>
<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...................................................................................... 8-22
Item 3. Quantitative and Qualitative Disclosures About Market Risk....................................................... 23
PART II. OTHER INFORMATION
Other Information .............................................................................................. 24
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 .............................................................................................. 25
</TABLE>
2
<PAGE> 3
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
BANCFIRST OHIO CORP.
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
ASSETS: SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- -------------
<S> <C> <C>
Cash and due from banks $ 30,386 $ 32,191
Federal Funds sold 197 183
Securities held-to-maturity, at amortized cost
(approximate fair value of $16,190 and
$20,601 in 2000 and 1999, respectively) 16,341 20,786
Securities available-for-sale, at fair value 372,278 310,449
------------- -------------
Total securities 388,619 331,235
------------- -------------
Loans, net of unearned income 1,067,971 849,767
Allowance for possible loan losses (10,197) (7,431)
------------- -------------
Net loans 1,057,774 842,336
------------- -------------
Bank premises and equipment, net 18,504 14,789
Accrued interest receivable 10,150 8,260
Intangible assets 22,248 12,606
Other assets 39,832 32,606
------------- -------------
Total assets $ 1,567,710 $ 1,274,206
============= =============
LIABILITIES:
Deposits:
Non-interest-bearing deposits $ 73,658 $ 65,086
Interest-bearing deposits 1,025,083 734,090
------------- -------------
Total deposits 1,098,741 799,176
------------- -------------
Federal funds purchased -- 24,100
Federal Home Loan Bank advances and other borrowings 356,760 361,398
Accrued interest payable 5,704 3,618
Other liabilities 7,272 5,806
------------- -------------
Total liabilities 1,468,477 1,194,098
------------- -------------
SHAREHOLDERS' EQUITY:
Common stock, no par or stated value, 20,000,000 shares authorized, 9,098,918
and 8,164,807 shares issued in 2000 and 1999, respectively 80,713 66,318
Retained earnings 42,494 35,795
Accumulated other comprehensive income - unrealized
holding losses on securities available for sale, net (7,106) (8,334)
Treasury stock, 734,961 and 569,628 shares, at cost, in 2000
and 1999, respectively (16,868) (13,671)
------------- -------------
Total shareholders' equity 99,233 80,108
------------- -------------
Total liabilities and shareholders' equity $ 1,567,710 $ 1,274,206
============= =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE> 4
BANCFIRST OHIO CORP.
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------ ------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Interest Income:
Interest and fees on loans $ 23,853 $ 16,700 $ 61,435 $ 49,317
Interest and dividends on securities:
Taxable 6,521 4,852 18,070 14,487
Tax-exempt 420 493 1,263 1,356
------------ ------------ ------------ ------------
Total interest income 30,794 22,045 80,768 65,160
------------ ------------ ------------ ------------
Interest expense:
Deposits 13,310 7,961 31,040 23,891
Borrowings 6,660 4,493 19,700 12,538
------------ ------------ ------------ ------------
Total interest expense 19,970 12,454 50,740 36,429
------------ ------------ ------------ ------------
Net interest income 10,824 9,591 30,028 28,731
Provision for possible loan losses 450 405 1,350 1,130
------------ ------------ ------------ ------------
Net interest income after provision for
possible loan losses 10,374 9,186 28,678 27,601
------------ ------------ ------------ ------------
Other income:
Trust and custodian fees 645 624 2,002 1,800
Customer service fees 668 576 1,739 1,655
Gain on sale of loans 769 437 1,907 1,694
Other 1,322 927 3,726 2,153
Investment securities gains, net 256 -- 256 296
------------ ------------ ------------ ------------
Total other income 3,660 2,564 9,630 7,598
------------ ------------ ------------ ------------
Non-interest expense:
Salaries and employee benefits 4,480 4,048 13,140 12,308
Net occupancy expense 545 432 1,553 1,230
Amortization of intangibles 512 358 1,274 1,060
Other 2,768 2,357 7,585 7,358
------------ ------------ ------------ ------------
Total non-interest expense 8,305 7,195 23,552 21,956
------------ ------------ ------------ ------------
Income before income taxes 5,729 4,555 14,756 13,243
Provision for Federal income taxes 1,887 1,403 4,693 4,159
------------ ------------ ------------ ------------
Net income $ 3,842 $ 3,152 $ 10,063 $ 9,084
============ ============ ============ ============
Basic earnings per share $ 0.44 $ 0.39 $ 1.22 $ 1.10
============ ============ ============ ============
Diluted earnings per share $ 0.44 $ 0.39 $ 1.22 $ 1.10
============ ============ ============ ============
Weighted average common shares outstanding:
Basic 8,789 8,141 8,223 8,232
============ ============ ============ ============
Diluted 8,804 8,147 8,238 8,241
============ ============ ============ ============
Cash dividends per common share $ 0.138 $ 0.133 $ 0.414 $ 0.400
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE> 5
BANCFIRST OHIO CORP.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
------------
2000 1999
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 10,063 $ 9,084
Adjustment to reconcile net income to net cash
provided by operations:
Depreciation and amortization 4,095 4,267
Provision for possible loan losses 1,350 1,130
Gain on sale of assets (2,274) (1,990)
Increase in interest receivable (783) (733)
Increase in other assets (2,798) (2,587)
Increase in interest payable 711 284
Decrease in other liabilities (5,383) (73)
FHLB stock dividend (1,038) (753)
--------- ---------
Net cash provided by operating activities 3,943 8,629
--------- ---------
Cash flows from investing activities:
(Increase) decrease in federal funds sold and short term investments (14) 462
Proceeds from maturities of securities held-to-maturity 4,479 4,727
Proceeds from maturities and sales of securities available-for-sale 88,804 80,922
Purchase of securities available-for-sale (28,398) (89,897)
Increase in loans, net (134,213) (106,982)
Purchases of equipment and other assets (1,504) (2,820)
Proceeds from sale of loans 37,405 54,660
Acquisition of Chornyak and Associates, Inc. -- (2,050)
Acquisition of Milton Federal Financial Corp., net of cash acquired (23,241) --
--------- ---------
Net cash used in investing activities (56,682) (60,978)
--------- ---------
Cash flows from financing activities:
(Decrease) increase in federal funds purchased (24,100) 28,000
(Decrease) increase in Federal Home Loan Bank advances and other
borrowings (69,570) 33,500
Net increase (decrease) in deposits 136,770 (348)
Cash dividends paid (3,366) (3,292)
Issuance (purchase) of stock, net 11,200 (4,850)
--------- ---------
Net cash provided by financing activities 50,934 53,010
--------- ---------
Net (decrease) increase in cash and due from banks (1,805) 661
Cash and due from banks, beginning of period 32,191 28,731
--------- ---------
Cash and due from banks, end of period $ 30,386 $ 29,392
========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements
5
<PAGE> 6
BANCFIRST OHIO CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 (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, 1999
for additional disclosures, including a summary of the Company's accounting
policies. The results of operations for the three month and nine month periods
ended September 30, 2000 are not necessarily indicative of the results to be
expected for the full year.
1) BASIS OF PRESENTATION:
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. 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 (as amended by SFAS No. 138), "Accounting for Derivative
Instruments and Hedging Activities" was issued. These statements
establish accounting and reporting standards for derivative instruments
and for hedging activities. The provisions of these statements are to
be implemented in the first quarter of 2001 and will primarily impact
the accounting for the Company's interest rate swap transactions that
had a total notional amount of $49.4 million at September 30, 2000. The
Company does not anticipate that these standards will have a
significant impact on its financial statements.
In September 2000, the FASB issued SFAS No. 140, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities." SFAS No. 140 revises the standards for accounting for
securitizations and other transfers of financial assets and collateral,
requires certain disclosures, but carries over most of the provisions
of SFAS No. 125 without reconsideration. This Statement provides
consistent standards for distinguishing transfers of financial assets
that are sales from transfers that are secured borrowings. SFAS No. 140
is effective for transfers occurring after March 31, 2001. This
statement is effective for recognition and reclassification of
collateral and for disclosures relating to securitization transactions
and collateral for fiscal years ending after December 15, 2000. The
Company does not anticipate the adoption of SFAS No. 140 will have a
material effect on its earnings or financial condition.
3) ACQUISITION
On June 20, 2000, the Company completed the acquisition of Milton
Federal Financial Corporation ("Milton"). In connection with the
acquisition, the Company issued 918,885 common shares having a total
value of approximately $14.2 million and paid cash of $14.1 million to
the Milton shareholders. The acquisition is being accounted for as a
purchase. Accordingly, Milton's results of operations have been
included from the date of acquisition. Total assets added from this
acquisition approximated $259.4 million.
6
<PAGE> 7
The following summarizes the pro-forma results of operations for the
nine-month period ended September 30, 2000 and 1999 as if Milton had
been acquired at the beginning of each period presented:
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
2000 1999
---- ----
(In thousands, except per share amounts)
----------------------------------------
<S> <C> <C>
Net interest income $ 33,266 $ 34,150
Net income 10,692 10,170
Basic and diluted earnings per share $ 1.21 $ 1.10
</TABLE>
4) COMPUTATION OF EARNINGS PER SHARE
The computation of earnings per share is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Actual weighted average common shares outstanding 8,789 8,141 8,223 8,232
Dilutive common stock equivalents:
Stock options -- -- -- 3
Bonus shares - Company match 15 6 15 6
------------ ------------ ------------ ------------
Weighted average common shares outstanding
adjusted for dilutive common stock equivalents 8,804 8,147 8,238 8,241
------------ ------------ ------------ ------------
Net income $ 3,842 $ 3,152 $ 10,063 $ 9,084
------------ ------------ ------------ ------------
Basic earnings per share $ 0.44 $ 0.39 $ 1.22 $ 1.10
------------ ------------ ------------ ------------
Diluted earnings per share $ 0.44 $ 0.39 $ 1.22 $ 1.10
------------ ------------ ------------ ------------
</TABLE>
5) COMPREHENSIVE INCOME
The Company's comprehensive income, determined in accordance with SFAS
No. 130, was $5,533 and $1,552 for the three months ended September 30,
2000 and 1999, respectively, and $11,291 and $4,211 for the nine months
ended September 30, 2000 and 1999, respectively.
6) STOCK DIVIDEND
On September 21, 2000, the Company's Board of Directors declared a 5%
stock dividend payable October 31, 2000 to shareholders of record as of
October 10, 2000. All share and per share amounts have been adjusted to
give retroactive effect to this stock dividend.
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 bank
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; the integration of Milton Federal Financial Corporation
into the Company's operations; and other risks detailed in the Company's Form
10-K for the year ended December 31, 1999 and its other 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
BANCFIRST OHIO CORP.
SELECTED FINANCIAL DATA:
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
AT OR FOR THE THREE MONTHS AT OR FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
2000 1999 2000 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Interest income $ 30,794 $ 22,045 $ 80,768 $ 65,160
Interest expense 19,970 12,454 50,740 36,429
------------- ------------- ------------- -------------
Net interest income 10,824 9,591 30,028 28,731
Provision for possible loan losses 450 405 1,350 1,130
Non-interest income 3,660 2,564 9,630 7,598
Non-interest expense 8,305 7,195 23,552 21,956
------------- ------------- ------------- -------------
Income before income taxes 5,729 4,555 14,756 13,243
Provision for Federal income taxes 1,887 1,403 4,693 4,159
------------- ------------- ------------- -------------
Net income $ 3,842 $ 3,152 $ 10,063 $ 9,084
============= ============= ============= =============
PER SHARE DATA:
Basic earnings per share $ 0.44 $ 0.39 $ 1.22 $ 1.10
Diluted earnings per share 0.44 0.39 1.22 1.10
Cash dividends 0.14 0.13 0.41 0.40
Book value 11.30 10.33 N/A N/A
Tangible book value 8.77 8.73 N/A N/A
BALANCE SHEET DATA:
Total assets $ 1,567,710 $ 1,235,885 N/A N/A
Loans 1,067,971 830,238 N/A N/A
Allowance for possible loan losses 10,197 7,158 N/A N/A
Securities 388,619 324,573 N/A N/A
Deposits 1,098,741 789,274 N/A N/A
Borrowings 356,760 358,250 N/A N/A
Shareholders' equity 99,233 83,604 N/A N/A
PERFORMANCE RATIOS (1):
Return on average assets 0.97% 1.03% 0.95% 1.01%
Return on average equity 15.60 14.95 15.59 13.93
Tangible return on average tangible equity 22.77 19.42 21.44 17.89
Net interest margin 3.00 3.44 3.13 3.50
Interest rate spread 2.73 3.12 2.84 3.15
Non-interest income to average assets 0.92 0.84 0.91 0.85
Non-interest expense to average assets 1.96 2.24 2.11 2.33
Efficiency Ratio (2) 53.84 54.97 55.52 56.76
ASSET QUALITY RATIOS:
Non-performing loans to total loans 0.75% 0.44% N/A N/A
Non-performing assets to total assets 0.53 0.33 N/A N/A
Allowance for possible loan losses to total loans 0.95 0.86 N/A N/A
Allowance for possible loan losses to
non-performing Loans 126.9 196.2 N/A N/A
Net charge-offs to average loans (1) 0.06 0.06 0.05% 0.10%
CAPITAL RATIOS:
Shareholders' equity to total assets 6.33% 6.76% N/A N/A
Tier 1 capital to average total assets 6.67 6.33 N/A N/A
Tier 1 capital to risk-weighted assets 9.95 9.27% N/A N/A
</TABLE>
(1) Ratios are stated on an annualized basis.
(2) The efficiency ratio is equal to non-interest expense (excluding
amortization and non-recurring expenses) 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, federal deposit insurance
assessments, 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 by dividing net interest
income 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 amount, 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 September 30,
2000 1999
------------------------------------------ -------------------------------------
(Dollars in Thousands)
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate (1) Balance Expense Rate (1)
--------------- ------------ ------------- -------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Securities:
Taxable $ 339,265 $ 6,503 7.63% $ 288,082 $ 4,853 6.68%
Tax exempt 30,492 646 8.43 32,252 758 9.32
--------------- ------------ ------------- -------------- ------------ -----------
Total securities 369,757 7,149 7.69 320,334 5,611 6.95
Loans (2):
Commercial 459,634 10,727 9.28 392,700 8,722 8.81
Real Estate 510,032 10,252 8.00 327,907 6,030 7.30
Consumer 125,307 2,890 9.18 97,117 1,965 8.03
--------------- ------------ ------------- -------------- ------------ -----------
Total loans 1,094,973 23,869 8.67 817,724 16,717 8.11
Federal funds sold 1,110 17 6.09 4 -- 0.00
--------------- ------------ ------------- -------------- ------------ -----------
Total earning
assets (3) 1,465,840 31,035 8.42% 1,138,062 22,328 7.78%
--------------- ------------ ------------- -------------- ------------ -----------
Non-interest
earning assets 113,722 73,042
--------------- --------------
Total assets $1,579,562 $1,211,104
=============== ==============
Interest-bearing
deposits:
Demand and
savings deposits $ 260,137 $ 2,006 3.07% $ 241,338 $ 1,584 2.60%
Time deposits 733,772 11,305 6.13 488,933 6,377 5.17
--------------- ------------ ------------- -------------- ------------ -----------
Total deposits 993,909 13,311 5.33 730,271 7,961 4.33
Borrowings 403,324 6,659 6.57 328,783 4,493 5.42
--------------- ------------- -----------
Total interest-
bearing liabilities 1,397,233 19,970 5.69% 1,059,054 12,454 4.67%
------------ ------------- ------------ -----------
Non-interest-
bearing deposits 72,417 61,921
--------------- --------------
Subtotal 1,469,650 1,120,975
Accrued expenses
and other liabilities 11,873 6,466
--------------- --------------
Total liabilities 1,481,523 1,127,441
Shareholders'
equity 98,039 83,663
--------------- --------------
Total liabilities and
shareholders' equity $1,579,562 $1,211,104
=============== ==============
Net interest income
and interest rate
spread (4) $11,065 2.73% $ 9,874 3.12%
============= ============ ============= ===========
Net interest margin (5)
3.00% 3.44%
============ ===========
Average interest-
earning assets to
average interest-
bearing liabilities 104.9% 107.5%
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended September 30,
2000 1999
--------------------------------------- --------------------------------------
(Dollars in Thousands)
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate (1) Balance Expense Rate (1)
-------------- ------------ ----------- --------------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Securities:
Taxable $ 321,083 $ 18,043 7.51% $ 293,679 $ 14,461 6.58 %
Tax exempt 30,199 1,944 8.60 33,104 2,086 8.42
-------------- ------------ ----------- --------------- ---------- -----------
Total securities 351,282 19,987 7.60 326,783 16,547 6.77
Loans (2):
Commercial 441,606 30,104 9.11 367,510 24,747 9.00
Real Estate 404,953 23,812 7.85 338,464 18,904 7.47
Consumer 113,968 7,564 8.87 94,843 5,718 8.06
-------------- ------------ ----------- --------------- ---------- -----------
Total loans 960,527 61,480 8.55 800,817 49,369 8.24
Federal funds sold 534 25 6.25 777 27 4.65
-------------- ------------ ----------- --------------- ---------- -----------
Total earning
assets (3) 1,312,343 81,492 8.29% 1,128,377 65,943 7.81%
-------------- ------------ ----------- ---------- -----------
Non-interest
earning assets 96,339 70,120
-------------- ---------------
Total assets $1,408,682 $1,198,497
============== ===============
Interest-bearing
deposits:
Demand and
savings deposits $ 238,433 $ 5,249 2.94% $ 232,933 $ 4,370 2.51 %
Time deposits 593,684 25,791 5.80 497,289 19,521 5.25
-------------- ------------ ----------- --------------- ---------- -----------
Total deposits 832,117 31,040 4.98 730,222 23,891 4.37
Borrowings 412,179 19,700 6.38 312,888 12,538 5.36
-------------- ----------- --------------- -----------
Total interest-
bearing liabilities 1,244,296 50,740 5.45 % 1,043,110 36,429 4.67%
------------ ----------- ------------ -----------
Non-interest-
bearing deposits 67,287 61,358
-------------- ---------------
Subtotal 1,311,583 1,104,468
Accrued expenses
and other liabilities 10,860 6,850
--------------
---------------
Total liabilities 1,322,443 1,111,318
Shareholders'
equity 86,239 87,179
-------------- ---------------
Total liabilities and
shareholders' equity $1,408,682 $1,198,497
============== ===============
Net interest income
and interest rate
spread (4) $ 30,752 2.84% $ 29,514 3.15%
============== =========== ============ ===========
Net interest margin (5)
3.13% 3.50%
=========== ==========
Average interest-
earning assets to
average interest-
bearing liabilities 105.5% 108.2%
</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%.
(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 SEPTEMBER 30 NINE MONTHS ENDED SEPTEMBER 30,
2000 VS. 1999 2000 VS. 1999
INCREASE (DECREASE) INCREASE (DECREASE)
------------------- -------------------
(Dollars in thousands)
VOLUME RATE TOTAL VOLUME RATE TOTAL
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Securities:
Taxable $ 920 $ 730 $ 1,650 $ 1,432 $ 2,150 $ 3,582
Non-taxable (41) (71) (112) (185) 43 (142)
------------ ------------ ------------ ------------ ------------ ------------
Total securities 879 659 1,538 1,247 2,193 3,440
------------ ------------ ------------ ------------ ------------ ------------
Loans:
Commercial 1,525 480 2,005 5,070 287 5,357
Real estate 3,599 623 4,222 3,883 1,025 4,908
Consumer 620 305 925 1,235 611 1,846
------------ ------------ ------------ ------------ ------------ ------------
Total loans 5,744 1,408 7,152 10,188 1,923 12,111
Fed funds sold -- 17 17 (10) 8 (2)
------------ ------------ ------------ ------------ ------------ ------------
Total interest-earning assets (1) 6,623 2,084 8,707 11,425 4,124 15,549
------------ ------------ ------------ ------------ ------------ ------------
Interest-bearing liabilities:
Deposits:
Demand and savings deposits 128 294 422 106 773 879
Time deposits 3,601 1,327 4,928 4,058 2,213 6,271
------------ ------------ ------------ ------------ ------------ ------------
Total interest-bearing deposits 3,729 1,621 5,350 4,164 2,986 7,150
Borrowings 1,121 1,045 2,166 4,465 2,696 7,161
------------ ------------ ------------ ------------ ------------ ------------
Total interest-bearing liabilities 4,850 2,666 7,516 8,629 5,682 14,311
------------ ------------ ------------ ------------ ------------ ------------
Net interest income $ 1,773 $ (582) $ 1,191 $ 2,796 $ (1,558) $ 1,238
============ ============ ============ ============ ============ ============
</TABLE>
(1) Computed on a fully tax equivalent basis, assuming a tax rate of 35%.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000
AND 1999
Net Income. Net income for the three months ended September 30, 2000
increased 22.0% to $3.8 million, compared to net income of $3.2 million for the
three months ended September 30, 1999. Basic and diluted earnings per share in
the third quarter of 2000 equaled $0.44, compared to $0.39 for the same period
in 1999. Net income for the third quarter of 2000 includes approximately
$480,000 of earnings contributed by Milton, which was acquired on June 20, 2000
in a purchase transaction. Net interest income increased 12.9% while
non-interest income increased 42.7% in the three months ended September 30,
2000, as compared to the same period in 1999, and non-interest expense increased
15.4%. Excluding Milton's contribution to the 2000 results, net interest income
decreased 1.6%, non-interest income increased 39.2% and non-interest expense
increased 6.4% compared to the year ago period. The provision for possible loan
losses was $450,000 in 2000 compared to $405,000 in the prior year period. The
Company's net interest margin decreased to 3.00% for the third quarter of 2000,
compared to 3.44% for the same period in 1999. The Company has experienced a
steady decline in its net interest margin during 2000 due primarily to increases
in market interest rates and competitive pricing pressures for deposits. The
Company expects this trend to reverse with the stabilization of market interest
rates and the repricing of assets that have not yet benefited from higher market
interest rates more than offsetting upward pricing pressures on maturing
certificates of deposit. The Company's return on average assets and return on
average
12
<PAGE> 13
equity were .97% and 15.60%, respectively, in the third quarter of 2000,
compared to 1.03% and 14.95%, respectively, in the third quarter of 1999. The
Company's tangible earnings (net income excluding amortization of intangibles)
for the three months ended September 30, 2000 were $4.3 million, or $.49 per
diluted share, representing an annualized return on tangible equity of 22.77%.
Interest Income. Total interest income increased 39.7% to $30.8 million
for the three months ended September 30, 2000, compared to $22.0 million for the
third quarter of 1999. This increase resulted from a 64 basis point increase in
the average yield on earning assets and a $327.8 million increase in average
earning assets. Milton contributed $4.2 million of interest income and $196.5
million of average earning assets to the results for the third quarter of 2000.
Excluding Milton's contribution of $168.3 million, the average balance of loans
increased $108.9 million, or 13.3%, a result of the Company's emphasis on
increasing the loan portfolio.
The weighted average yield on interest-earning assets increased to
8.42% during the three months ended September 30, 2000, compared to 7.78% during
the same three month period in 1999. The Company's yield on average loans
increased from 8.11% during the three months ended September 30, 1999 to 8.67%
during the three months ended September 30, 2000, primarily as a result of
increases in yields resulting from higher market interest rates. Yields on the
investment portfolio increased from 6.95% during the third quarter of 1999 to
7.69% during the third quarter of 2000, also benefiting from increased market
rates.
Interest Expense. Total interest expense increased 60.4% to $20.0
million for the three months ended September 30, 2000, compared to $12.5 million
for the three months ended September 30, 1999. Interest expense increased due to
a 102 basis point increase in the cost of funds and a $338.2 million, or 31.9%,
increase in the average balance of interest-bearing liabilities. Milton
contributed $2.8 million of interest expense and $199.9 million of average
interest-bearing liabilities to the results for the third quarter 2000.
The Company's cost of funds increased to 5.69% for the three
months ended September 30, 2000 compared to 4.67% for the same period of 1999.
The increase in cost of funds resulted primarily from increases in market
interest rates which have resulted in higher rates being paid on short-term
repricing borrowings as well as renewals of maturing certificates of deposit.
The Company expects upward pricing pressure to continue in the near term with
respect to maturing certificates of deposits as $166.4 million of such deposits
with an average rate of 5.77% are scheduled to mature through the end of January
2001. Thereafter in 2001, certificates of deposit that are scheduled to mature
have an average rate of approximately 6.33%.
Provision for Possible Loan Losses. The provision for possible loan
losses was $450,000 for the three months ended September 30, 2000, compared to
$405,000 for the third quarter of 1999. Total non-performing loans were $8.0
million at September 30, 2000 compared to $3.6 million at September 30, 1999.
The allowance for possible loan losses at September 30, 2000 was $10.2 million,
or .95% of total loans and 126.9% of non-performing loans compared to $7.2
million, or .86% of total loans and 196.2% of non-performing loans at September
30, 1999. 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 was $3.7 million for the
three months ended September 30, 2000, compared to $2.6 million for the three
months ended September 30, 1999. The following table sets forth the Company's
non-interest income for the periods indicated:
13
<PAGE> 14
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------- -------------
2000 1999 2000 1999
-------------- ------------- -------------- --------------
(In thousands)
<S> <C> <C> <C> <C>
Trust and custodian fees $ 645 $ 624 $ 2,002 $ 1,800
Customer service fees 668 576 1,739 1,655
Financial planning fees 403 196 1,159 440
Investment securities gains 256 -- 256 296
Gains on sales of loans 769 437 1,907 1,694
Other 919 731 2,567 1,713
-------------- ------------- -------------- --------------
TOTAL $ 3,660 $ 2,564 $ 9,630 $ 7,598
============== ============= ============== ==============
</TABLE>
Trust and custodian fees increased 3.4% to $645,000 in the third
quarter of 2000 from $624,000 in the third quarter of 1999. Growth in trust
income continued to result primarily from the expansion of the customer base,
higher asset values and increased sales of retail investment products.
Customer service fees, representing service charges on deposits and
fees for other banking services, increased 16.0% in the third quarter of 2000 to
$668,000 from $576,000 in the third quarter of 1999. The increase in fee income
resulted primarily from $75,000 of fee income contributed by Milton to the
results for the third quarter 2000 as well as increased levels of overdraft
related fees.
Financial planning fee income increased 105.6% to $403,000 for the
third quarter of 2000 compared to $196,000 in 1999 due to higher levels of fee
income on new investment activity as well as fees received on assets under
management.
Gains on sales of loans totaled $769,000 for the three months ended
September 30, 2000 compared to $437,000 for the three months ended September 30,
1999. During the third quarter of 2000, the Company sold $6.2 million of the
guaranteed portion of its SBA and other government guarantee loan originations
in the secondary market compared to $3.8 million during the third quarter of
1999, realizing gains of $441,000 in 2000 compared to $305,000 in 1999. Also,
the Company recorded gains of $328,000 from the sales of residential loans
during the third quarter of 2000 compared to $132,000 in 1999. Loan origination
and sale activity during the third quarter of 2000 improved as a result of the
stabilization of interest rates.
The Company intends to continue to place emphasis on its small business
lending activities, including the evaluation of expansion into new markets. The
nature of the political climate in Washington, D.C. may subject existing
government programs to much scrutiny and possible cutbacks. It is not currently
known whether the SBA program will be impacted. Management believes that any
such cutbacks could negatively affect the Company's activities in the SBA
lending programs as well as the planned expansion of such activities.
Investment securities gains of $256,000 were realized during the third
quarter of 2000 in connection with the sale of approximately $46.8 million of
securities acquired in the Milton acquisition and $24.1 million of lower
yielding securities held in the Company's investment portfolio. Proceeds from
the sale of securities were used primarily to reduce short-term borrowings. No
securities were sold in the year ago period.
Other income increased $188,000 to $919,000 in the third quarter of
2000 compared to $731,000 in the third quarter of 1999, primarily as a result of
a $116,000 increase in earnings on bank-owned life insurance and a $27,000
increase in electronic banking fee income.
Non-Interest Expense. Total non-interest expense increased $1.1 million
to $8.3 million for the three months ended September 30, 2000, compared to $7.2
million for the three months ended September 30, 1999. Excluding non-interest
expense attributed to Milton, total non-interest expense increased $464,000 or
6.4%. The following table sets forth the Company's non-interest expense for the
periods indicated:
14
<PAGE> 15
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
2000 1999 2000 1999
-------------- -------------- ------------- --------------
(In thousands)
<S> <C> <C> <C> <C>
Salaries and employee benefits $ 4,480 $ 4,048 $ 13,140 $ 12,308
Occupancy expense 545 432 1,553 1,230
Furniture, fixtures and equipment 291 214 761 690
Data processing 369 284 1,016 906
Taxes other than income taxes 211 173 642 684
Federal deposit insurance 63 69 147 207
Amortization of goodwill and other intangibles 512 358 1,274 1,060
Other 1,834 1,617 5,019 4,871
-------------- -------------- ------------- --------------
TOTAL $ 8,305 $ 7,195 $ 23,552 $ 21,956
============== ============== ============= ==============
</TABLE>
Salaries and employee benefits increased $432,000, or 10.7%, and
accounted for approximately 54.0% of total non-interest expense in the three
months ended September 30, 2000 compared to 56.3% in the third quarter of 1999.
The average full time equivalent staff was 404 in 2000 compared to 383 in 1999.
Of the increase in expense, $265,000 was added by Milton, as well as normal
salary increases.
Net occupancy expense increased 26.2% to $545,000 in the third quarter
of 2000 from $432,000 in the third quarter of 1999. Excluding $73,000 of expense
added by Milton, this increase resulted primarily from rent expense associated
with the Company's training and technology center which commenced operations in
November 1999.
Furniture, fixtures and equipment expense increased $77,000, or 36.0%
in the third quarter of 2000 from the comparable period of 1999. The increase is
primarily attributed to higher repairs and maintenance costs as well as to
$21,000 of expenses added by Milton.
Data processing expense increased $85,000, or 29.9%, in the third
quarter of 2000 from the comparable period of 1999. Increased costs in 2000
resulted from higher software and maintenance costs related to continued
technological enhancements to the Company's data processing systems as well as
to $8,000 of expenses added by Milton.
Taxes other than income taxes increased $38,000, or 22.0%, in the third
quarter of 2000 compared to the third quarter of 1999. The prior year expense
benefited from refunds received for prior year taxes as a result of the
favorable outcome of a pending tax case.
Federal deposit insurance expense decreased $6,000 to $63,000 in 2000
from $69,000 in the third quarter of 1999, reflecting lower premium rates offset
in part by $21,000 of expense added by Milton.
Amortization of goodwill and other intangible assets increased $154,000
in the third quarter of 2000 compared to the third quarter of 1999 due to
$168,000 of amortization related to goodwill resulting from the Milton
acquisition.
Other non-interest expenses increased $217,000, or 13.4%, to $1.8
million during the third quarter of 2000 compared to $1.6 million in the third
quarter of 1999. Excluding Milton's contribution to the 2000 results, other
non-interest expenses increased $127,000, or 7.9%. This increase was primarily
attributed to a $64,000 increase in advertising and marketing expenses.
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 53.8%
for the third quarter of 2000, compared to 55.0% for the comparable period in
1999. Controlling costs and improving productivity, as measured by the
efficiency ratio, is considered by management a primary factor in enhancing
performance.
15
<PAGE> 16
Provision for Income Taxes. The Company's provision for Federal income
taxes was $1.9 million, or 32.9% of pretax income, for the three months ended
September 30, 2000 compared to $1.4 million, or 30.8% of pretax income, for the
three months ended September 30, 1999. 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, earnings on bank-owned life insurance, and the non-deductibility, for tax
purposes, of goodwill and core deposit intangible amortization expense.
COMPARISON OF OPERATING RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND
1999
Net Income. Net income for the nine months ended September 30, 2000 was
$10.1 million, or $1.22 per basic and diluted share, compared to net income of
$9.1 million, or $1.10 per basic and diluted share, for the nine months ended
September 30, 1999. Net income for the nine months ended September 30, 2000
includes approximately $600,000 of earnings contributed by Milton. Net interest
income increased 4.5% and non-interest income increased 26.7% in the nine months
ended September 30, 2000, as compared to the same period in 1999 while
non-interest expense increased 7.3%. Excluding Milton's contribution to the 2000
results, net interest income decreased 1.3%, non-interest income increased 25.4%
and non-interest expense increased 3.9% compared to the comparable period of
1999. The provision for possible loan losses increased 19.5% from the
comparative period. The Company's net interest margin decreased to 3.13% for the
nine months ended September 30, 2000, compared to 3.50% for the same period in
1999. The Company's return on average assets and return on average equity were
.95% and 15.59%, respectively, for the nine months ended September 30, 2000,
compared to 1.01% and 13.93%, respectively, for the nine months ended September
30, 1999.
Interest Income. Total interest income increased 24.0% to $80.8 million
for the nine months ended September 30, 2000, compared to $65.2 million for the
comparable period in 1999. This increase resulted from a $184.0 million increase
in average earning assets for the nine months ended September 30, 2000 compared
to 1999, and a 48 basis point increase in the average yield on interest-earning
assets. Milton contributed $5.0 million of interest income and $74.7 million in
average earning assets to the year to date 2000 results. Excluding Milton's
contribution of $65.6 million, the average balance of loans increased $94.1
million, or 11.7%. The increase in loan balances was a result of the Company's
emphasis on loan growth to increase overall yields on earning assets.
The weighted average yield on interest-earning assets increased to
8.29% during the nine months ended September 30, 2000, compared to 7.81% during
the comparable period in 1999. The Company's yield on average loans increased
from 8.24% during the nine months ended September 30, 1999 to 8.55% during the
nine months ended September 30, 2000. The increase in yield has resulted
primarily from increases in market interest rates. Yields on the investment
portfolio increased from 6.77% during 1999 to 7.60% during 2000, also due
primarily to increases in market interest rates.
Interest Expense. Total interest expense increased 39.3% to $50.7
million for the nine months ended September 30, 2000, compared to $36.4 million
for the nine months ended September 30, 1999. Interest expense increased due to
a higher cost of funds and a higher balance of interest-bearing liabilities
during the first nine months of 2000, as compared to the same period in 1999.
The average balance of interest-bearing deposit accounts increased $101.9
million, or 14.0%, during the nine months ended September 30, 2000 compared to
1999 while the average balance of borrowings increased 31.7%, from $312.9
million to $412.2 million. Milton contributed $3.3 million of interest expense
and $75.4 million of average interest-bearing liabilities to the year to date
2000 results.
The Company's cost of funds increased to 5.45% for the nine months
ended September 30, 2000 compared to 4.67% for the same period of 1999,
primarily due to increases in market interest rates which have resulted in
higher rates being paid on short-term repricing borrowings as well as renewals
of maturing certificates of deposits.
Provision for Possible Loan Losses. The provision for possible loan
losses was $1.4 million for the nine months ended September 30, 2000, compared
to $1.1 million for the nine months ended September 30, 1999 and was considered
sufficient to maintain the Company's allowance for possible loan losses at an
adequate level. The increased provision in 2000 resulted primarily from
increases in, as well as a change in the mix of, the loan portfolio.
Non-Interest Income. Total non-interest income increased $2.0 million,
or 26.7%, to $9.6 million for the nine months ended September 30, 2000 from $7.6
million for the nine months ended September 30, 1999.
16
<PAGE> 17
Customer service fees, representing service charges on deposits and
fees from other banking services, increased 5.1% for the nine months ended
September 30, 2000 to $1.7 million. Milton contributed $85,000 of such income to
the year to date 2000 results. Trust income increased 11.2% to $2.0 million in
2000, from $1.8 million in 1999. Growth in trust and custodian fees resulted
primarily from the expansion of the customer base, higher asset values, and
increased sales of retail investment products. Financial planning fee income
increased $719,000 to approximately $1.2 million due to the results in 2000
including nine months of activity compared to six months in 1999. Also, higher
levels of fee income on new investment activity and increases in assets under
management contributed to the improved results in 2000. The $854,000 increase in
other income to $2.6 million in 2000 compared to $1.7 million in 1999 resulted
primarily from higher levels of electronic banking fee income, SBA net servicing
fee income and increased earnings from bank-owned life insurance.
Gains on sales of loans increased from $1.7 million for the nine months
ended September 30, 1999 to $1.9 million for the comparable period in 2000.
During the nine months ended September 30, 2000, the Company sold approximately
$21.7 million of the guaranteed portion of its SBA and other government
guaranteed loan originations in the secondary market compared to $16.6 million
during the first nine months of 1999, realizing gains of $1.5 million in 2000,
compared to gains of $1.1 million in 1999. In addition, the Company sold $13.7
million of residential real estate loans realizing gains of $374,000 in the
first nine months of 2000, compared to $610,000 of gains on sales of loans
totaling $36.4 million in 1999.
Non-Interest Expense. Total non-interest expenses increased $1.6
million, or 7.3%, during the first nine months of 2000 compared to the same
period in 1999. Excluding expenses totaling $736,000 added by Milton, total
non-interest expense increased 3.9%. For the nine months ended September 30,
2000, the Company's efficiency ratio was 55.5%, compared to 56.8% for the nine
months ended September 30, 1999.
Salary and employee benefits expense increased $832,000, or 6.8%
primarily as a result of staff additions associated with increased loan
production and other fee income generating activities. Milton contributed
$301,000 to the increase reflected in the year to date 2000 results. Salaries
and employee benefits accounted for 55.8% of total non-interest expense for the
nine months ended September 30, 2000 compared to 56.1% in 1999. The average
full-time equivalent staff was 391 in 2000 compared to 385 in 1999.
Net occupancy expense increased 26.3%, or $323,000 for the first nine
months of 2000 compared to the first nine months of 1999. This increase resulted
primarily from rent associated with the Company's training and technology
facility that opened in November 1999, as well as from expenses associated with
the New Albany branch that opened in May 1999. Also, Milton added $75,000 of
expense to the year to date 2000 results.
Furniture, fixtures and equipment expense increased $71,000, or
10.3% for the nine months ended September 30, 2000 compared to the same period
in 1999. The increase in furniture and equipment expense was due principally to
higher depreciation and repairs and maintenance costs. Also, Milton added
$21,000 of expense to the year to date 2000 results.
Data processing expense totaled $1.0 million for the nine months ended
September 30, 2000, compared to $906,000 in 1999. Higher costs in 2000 have
resulted primarily from higher depreciation and amortization of equipment and
software enhancements due to technological advancements.
Taxes other than income taxes decreased $42,000, or 6.1%, for the first
nine months in 2000 compared to the same period in 1999. This decrease resulted
primarily from lower tax rates.
Federal deposit insurance expense decreased $60,000 to $147,000 in 2000
from $207,000 in 1999, reflecting lower premium rates in effect in 2000, offset
in part by $21,000 of expense added by Milton.
Amortization of goodwill and other intangible assets approximated $1.3
million for the nine months ended September 30, 2000 compared to $1.1 million in
1999. This increase was primarily due to $228,000 of amortization related to
goodwill resulting from the Milton acquisition.
17
<PAGE> 18
Other non-interest expenses increased to $5.0 million during the nine
months ended September 30, 2000 from $4.9 million during the same period in
1999. Excluding $82,000 of expenses added by Milton, other non-interest expenses
increased $66,000, or 1.4%, due primarily to higher levels of advertising and
marketing expenses.
Provision for Income Taxes. The Company's provision for Federal income
taxes was $4.7 million, or 31.8% of pretax income, for the nine months ended
September 30, 2000 compared to $4.2 million, or 31.4% of pretax income, for the
nine months ended September 30, 1999. 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, earnings on bank-owned life insurance, and the non-deductibility, for tax
purposes, of goodwill and core deposit intangible amortization expense.
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 $349,000 of such property at
September 30, 2000 and $476,000 at September 30, 1999.
Non-performing loans totaled $8.0 million, or 0.75% of total loans, at
September 30, 2000, compared to $3.6 million, or .44% of total loans, at
September 30, 1999. Non-performing assets totaled $8.4 million, or a .53% of
total assets at September 30, 2000, compared to $4.1 million, or a .33% of total
assets at September 30, 1999. The increase in non-performing loans from
September 30, 1999 resulted equally from increases in non-performing
single-family residential mortgage loans and commercial loans. Management of the
Company is not aware of any material amounts of loans outstanding, not disclosed
in the tables 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 and restructured loans:
<TABLE>
<CAPTION>
SEPTEMBER 30,
2000 1999
----------------- -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Non-accrual loans $ 4,107 $ 2,368
Accruing loans 90 days or more past due 3,931 1,280
----------------- -----------------
Total non-performing loans 8,038 3,648
Other real estate owned 349 476
----------------- -----------------
Total non-performing assets $ 8,387 $ 4,124
================= =================
Restructured loans $ 2,952 $ 2,986
================= =================
Non-performing loans to total loans 0.75% 0.44%
Non-performing assets to total assets 0.53% 0.33%
Non-performing loans plus restructured
loans to total loans 1.03% 0.80%
</TABLE>
Restructured loans consist of one loan that was restructured in May
1999 and has been performing in accordance with its restructured terms since
such time.
18
<PAGE> 19
The aggregate amounts of the Company's classified assets as of
September 30, 2000 and 1999 were as follows:
SEPTEMBER 30,
2000 1999
---- ----
Substandard $ 15,192 $ 8,093
Doubtful 279 20
------------- -------------
Total $ 15,471 $ 8,113
============= =============
The increase in classified assets was attributable primarily to an
increase in the classification of residential real estate mortgage loans past
due greater than 90 days from $843,000 at September 30, 1999 to $5.3 million at
September 30, 2000.
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 allowance for possible loan losses at the dates
indicated.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000 1999
--------------- --------------- --------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance at beginning of period $ 9,908 $ 6,873 $ 7,431 $ 6,643
Provision charged to expense 450 405 1,350 1,130
Loans charged-off (248) (384) (736) (1,168)
Recoveries of loans previously charged off 87 264 379 553
Acquired allowance for loan losses -- -- 1,773 --
--------------- --------------- --------------- --------------
Balance at end of period $ 10,197 $ 7,158 $ 10,197 $ 7,158
=============== =============== =============== ==============
Loans outstanding at end of period $1,067,971 $830,238 N/A N/A
Average loans outstanding $1,094,973 $817,724 $960,527 $800,817
Allowance as a percentage of loans outstanding 0.95% 0.86% N/A N/A
Net charge-offs to average loans (annualized) 0.06% 0.06% 0.05% 0.10%
Allowance for possible loan losses to non-performing loans 126.9% 196.2% N/A N/A
Allowance for possible loan losses to non-performing loans
plus restructured loans 92.8% 107.9% N/A N/A
</TABLE>
The allowance for possible loan losses totaled $10.2 million at
September 30, 2000, representing .95% of total loans, compared to $7.2 million
at September 30, 1999, or .86% 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 and nine months ended September 30, 2000 were
$161,000 and $357,000, respectively, compared to net charge-offs of $120,000 and
$615,000, respectively, for the same periods in 1999. 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 126.9% at September 30, 2000,
compared to 196.2% at September 30, 1999. Although used as a general indicator,
the coverage
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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 .75% of total loans at September 30, 2000.
COMPARISON OF SEPTEMBER 30, 2000 AND DECEMBER 31, 1999 FINANCIAL CONDITION
Total assets were $1.57 billion at September 30, 2000, compared to
$1.27 billion at December 31, 1999, an increase of $293.5 million, or 23.0%.
Total assets added from the Milton acquisition approximated $259.4 million.
Total investment securities increased by $57.4 million to $388.6
million at September 30, 2000 compared to December 31, 1999. This increase was
attributed primarily to the securitization of approximately $71.3 million of
single-family residential mortgage loans and $47.1 million of securities added
by the Milton acquisition, offset in part by the sale of $70.9 million of
securities (previously discussed). 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
September 30, 2000, 95.8% of the total investment portfolio was classified as
available-for-sale, while those securities that the Company intends to hold to
maturity represented the remaining 4.2%. This compares to 93.7% and 6.3%
classified as available-for-sale and held to maturity, respectively, at December
31, 1999.
Total loans increased $218.2 million to $1.07 billion at September 30,
2000 compared to December 31, 1999. At September 30, 2000, commercial and
commercial real estate loans totaled $473.6 million, residential real estate
loans totaled $467.7 million and consumer loans totaled $126.7 million.
Excluding $192.2 million of loans added by the Milton acquisition, less $71.3
million of securitized loans, discussed previously, total loans have increased
$97.3 million. Management continues to emphasize increasing earning assets and
earning asset yields.
Premises and equipment increased from $14.8 million at December 31,
1999 to $18.5 million at September 30, 2000. This increase has resulted
primarily from $3.5 million of fixed assets added by the Milton acquisition.
Other assets increased from $32.6 million at December 31, 1999 to $39.8
million at September 30, 2000 primarily as a result of the Milton acquisition
that contributed $6.2 million to the September 30, 2000 total.
Total deposits increased $299.6 million to $1.10 billion at September
30, 2000 from $799.2 million at December 31, 1999, with $162.8 million of this
increase attributable to the Milton acquisition. The Company continues to
emphasize growth in its existing retail deposit base, provided incremental
deposit growth is cost effective compared to alternative funding sources.
Excluding deposits added by Milton, total deposits have increased $136.8 million
since year-end 1999, with $100.1 million of this increase attributable to retail
and other deposits and $36.7 million attributable to brokered deposits. Total
interest-bearing deposits accounted for 93.3% of total deposits at September 30,
2000, compared to 91.9% at December 31, 1999.
Total borrowings, including federal funds purchased, decreased $28.7
million to $356.8 million at September 30, 2000, compared to $385.5 million at
December 31, 1999. This decrease resulted primarily from the use of funding
provided by increases in deposits to reduce short-term borrowings.
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.
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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 $372.3 million were classified as available-for-sale as of September 30,
2000, representing 95.8% 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.
The Company's bank subsidiary is a member 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 products and
strategies.
On June 20, 2000, the Company completed the acquisition of Milton
Federal Financial Corporation. In connection with the acquisition, the Company
issued 918,885 common shares having a total value of approximately $14.2 million
and paid cash of $14.1 million to the Milton shareholders. The acquisition is
being accounted for as a purchase. Accordingly, Milton's results of operations
have been included from the date of acquisition. Total assets added from this
acquisition approximated $259.4 million.
The Company obtained a $15 million term loan with a financial
institution in order to partially fund the acquisition of County Savings Bank in
August 1996. This loan, which was amended September 29, 2000, has an outstanding
balance of $8.0 million at September 30, 2000. Under the terms of the amended
loan agreement, the Company is required to make quarterly interest payments and
annual principal payments, based on a seven-year amortization, which commences
in September 2001. The unpaid loan balance is due in full September 30, 2007.
The loan agreement also contains certain financial covenants, all of which the
Company was in compliance with at September 30, 2000. Also, the Company has
pledged 67% of the stock of the First National Bank of Zanesville as security
for the loan.
On October 18, 1999, the Company completed an offering of $20.0 million
aggregate liquidation amount of 9.875% Capital Securities, Series A, due 2029.
These securities represent preferred beneficial interests in BFOH Capital Trust
1, a special purpose trust formed for the purpose of the offering. The proceeds
from the offering were used by the Trust to purchase Junior Subordinated
Deferrable Interest Debentures ("Debentures") from the Company. Under Federal
Reserve Board regulations, these Capital Securities may represent up to 25% of a
bank holding company's Tier 1 capital. The holders of the Capital Securities are
entitled to receive cumulative cash distributions at the annual rate of 9.875%
of the liquidation amount. Distributions are payable semi-annually on April 15
and October 15 of each year, beginning on April 15, 2000. The Company has fully
and unconditionally guaranteed the payment of the Capital Securities, and
payment of distributions on the Capital Securities. The Trust is required to
redeem the Capital Securities on or, in certain circumstances, prior to October
15, 2029. There are no significant covenants or limitations with respect to the
business of the Company that is contained in the instruments that govern the
Capital Securities and Debentures.
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.
Shareholders' equity at September 30, 2000 was $99.2 million, compared
to prior year-end shareholders' equity of $80.1 million, an increase of $19.1
million. This increase resulted primarily from the issuance of common shares in
connection with the Milton acquisition, discussed above.
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 September 30, 2000, the Company had a total risk-based capital
ratio of 10.9%, of which 10.0% consisted of Tier 1 capital. The leverage ratio
for the Company at September 30, 2000, was 6.7%.
Cash dividends paid to shareholders of the Company totaled $3.4
million, or $0.41 per share, during the first nine months of 2000. This compares
to dividends of $3.3 million, or $0.40 per share, for the same period in 1999.
Cash
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dividends paid as a percentage of net income amounted to 34.0% and 36.2% for the
nine months ended September 30, 2000 and 1999, respectively.
CONTINGENCIES AND UNCERTAINTIES - YEAR 2000
During the periods leading up to January 1, 2000, the Company addressed
the potential problems associated with the possibility that the computers that
control or operate the Company's information technology system and
infrastructure may not have been programmed to read four digit date codes and,
upon arrival of the year 2000, may have recognized the two-digit code "00" as
the year 1900, causing systems to fail to function or generate erroneous data.
The Company experienced no significant problems related to its information
technology systems upon arrival of the Year 2000, nor was there any interruption
in service to its customers of any kind. The Company could incur losses if Year
2000 issues adversely affect its depositors or borrowers or impairing the
payroll systems of large employers in the Company's primary market areas.
Because the Company's loan portfolio is highly diversified with regard to
individual borrowers and types of businesses, the Company does not expect, and
to date has not realized, any significant prolonged difficulties that will
affect net earnings or cash flow.
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ITEM 3:
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For a discussion of the Company's asset and liability management
policies as well as the potential impact of interest rate changes upon the
market value of the Company's portfolio equity, see "Management's Discussion and
Analysis - Interest Rate Risk Management" in the Company's Form 10-K for the
year ended December 31, 1999. The following summarizes the Company's simulations
of net interest income and net present value (NPV) as of June 30, 2000, the most
recent period for which this information is available:
<TABLE>
<CAPTION>
PROJECTED CHANGE % CHANGE
CHANGE IN INTEREST RATES AMOUNT FROM BASE FROM BASE
------------------------------------- ----------------- ----------------- -----------------
<S> <C> <C> <C>
Net interest income:
200 basis point increase $ 42,008 $ (1,005) (2.34)%
Base scenario-no change 43,013 N/A N/A
200 basis point decrease 44,615 1,602 3.72
NPV:
200 basis point increase $ 67,089 (26,815) (28.56)%
Base scenario 93,904 N/A N/A
200 basis point decrease 92,914 (990) (1.05)
</TABLE>
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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
The proxy holders for the 2001 annual meeting of shareholders will use
their discretion in voting on any and all matters brought before the
2001 annual meeting which were not provided to the Company in an
advance notice on or prior to February 3, 2001.
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 -
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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: November 13, 2000 (SIGNED) /S/ GARY N. FIELDS
--------------------------------------------
Gary N. Fields
President and
Chief Executive Officer
Date: November 13, 2000 (SIGNED) /S/ KIM M. TAYLOR
--------------------------------------------
Kim M. Taylor
Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
25
