SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
For the quarterly period ended March 31, 2005
OR
For the transition period from to
Commission File Number 0-14384
BancFirst Corporation
(Exact name of registrant as specified in charter)
101 N. Broadway, Oklahoma City, Oklahoma
73102-8401
(Address of principal executive offices)
(Zip Code)
(405) 270-1086
(Registrant’s telephone number, including area code)
(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 by checkmark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No ¨.
As of April 30, 2005 there were 7,788,622 shares of the registrant’s Common Stock outstanding.
PART I – FINANCIAL INFORMATION
BANCFIRST CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands)
ASSETS
Cash and due from banks
Interest-bearing deposits with banks
Federal funds sold
Securities (market value: $531,882, $582,975, and $561,242, respectively)
Loans:
Total loans (net of unearned interest)
Allowance for loan losses
Loans, net
Premises and equipment, net
Other real estate owned
Intangible assets, net
Goodwill
Accrued interest receivable
Other assets
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Noninterest-bearing
Interest-bearing
Total deposits
Short-term borrowings
Accrued interest payable
Other liabilities
Long-term borrowings
Junior subordinated debentures
Minority interest
Total liabilities
Commitments and contingent liabilities
Stockholders’ equity:
Senior preferred stock, $1.00 par; 10,000,000 shares authorized; none issued
Cumulative preferred stock, $5.00 par; 900,000 shares authorized; none issued
Common stock, $1.00 par, 20,000,000 shares authorized; shares issued and outstanding: 7,788,247, 7,830,040 and 7,840,796, respectively
Capital surplus
Retained earnings
Accumulated other comprehensive income (loss), net of income tax (benefit) of $(1,065), $5,567 and $1,187, respectively
Total stockholders’ equity
Total liabilities and stockholders’ equity
The accompanying notes are an integral part of these consolidated financial statements.
2
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
INTEREST INCOME
Loans, including fees
Securities:
Taxable
Tax-exempt
Total interest income
INTEREST EXPENSE
Deposits
Total interest expense
Net interest income
Provision for loan losses
Net interest income after provision for loan losses
NONINTEREST INCOME
Trust revenue
Service charges on deposits
Income from sales of loans
Insurance commissions and premiums
Other
Total noninterest income
NONINTEREST EXPENSE
Salaries and employee benefits
Occupancy and fixed assets expense, net
Depreciation
Amortization of intangible assets
Data processing services
Net expense from other real estate owned
Marketing and business promotion
Total noninterest expense
Income before taxes
Income tax expense
Net income
Other comprehensive income, net of tax:
Unrealized gains (losses) on securities
Reclassification adjustment for gains included in net income
Comprehensive income
NET INCOME PER COMMON SHARE
Basic
Diluted
3
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
CASH FLOWS FROM OPERATING ACTIVITIES
INVESTING ACTIVITIES
Purchases of securities:
Held for investment
Available for sale
Maturities of securities:
Proceeds from sales and calls of securities:
Net decrease (increase) in federal funds sold
Purchases of loans
Proceeds from sales of loans
Net other increase in loans
Purchases of premises, equipment and other
Proceeds from the sale of other real estate owned, repossessed assets and other
Net cash used in investing activities
FINANCING ACTIVITIES
Net increase in demand, transaction and savings deposits
Net decrease in certificates of deposits
Net increase in short-term borrowings
Net decrease in long-term borrowings
Issuance of junior subordinated debentures
Issuance of common stock
Acquisition of common stock
Cash dividends paid
Net cash provided by financing activities
Net increase (decrease) in cash and due from banks
Cash and due from banks at the beginning of the period
Cash and due from banks at the end of the period
SUPPLEMENTAL DISCLOSURE
Cash paid during the period for interest
Cash paid during the period for income taxes
4
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The accompanying consolidated financial statements include the accounts of BancFirst Corporation, Century Life Assurance Company, Council Oak Partners, LLC, Wilcox & Jones, Inc., and BancFirst and its subsidiaries (the “Company”). The operating subsidiaries of BancFirst are Council Oak Investment Corporation, Citibank Insurance Agency, Inc., BancFirst Agency, Inc., Lenders Collection Corporation, and PremierSource LLC. Three other operating subsidiaries of BancFirst, Mojave Asset Management Company, Desert Asset Management Company, and Delamar Asset Limited Partnership, were liquidated and dissolved in August 2004. One other operating subsidiary of BancFirst, Express Financial Corporation, was liquidated and dissolved in December 2004. All significant intercompany accounts and transactions have been eliminated. Assets held in a fiduciary or agency capacity are not assets of the Company and, accordingly, are not included in the consolidated financial statements.
The unaudited interim financial statements contained herein reflect all adjustments which are, in the opinion of management, necessary to provide a fair statement of the financial position and results of operations of the Company for the interim periods presented. All such adjustments are of a normal and recurring nature. There have been no significant changes in the accounting policies of the Company since December 31, 2004, the date of the most recent annual report. Certain amounts in the 2004 financial statements have been reclassified to conform to the 2005 presentation.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States inherently involves the use of estimates and assumptions that affect the amounts reported in the financial statements and the related disclosures. These estimates relate principally to the determination of the allowance for loan losses, income taxes and the fair values of financial instruments. Such estimates and assumptions may change over time and actual amounts realized may differ from those reported.
The Company uses the intrinsic value method, as described in Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”) and related interpretations, for accounting for its stock-based compensation. Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (“FAS 123”), as amended by Statement of Financial Accounting Standards No. 148, “Accounting for Stock-Based Compensation-Transition and Disclosure-an amendment of FASB Statement No. 123,” which, if fully adopted by the Company, would change the method the Company applies in recognizing the cost of these plans to the fair value method. Adoption of the cost recognition provisions of FAS 123 has been optional and the Company has not adopted such provisions as discussed in note (3). However, pro forma disclosures as if the Company adopted the cost recognition provisions of FAS 123 in 1995 are required and are presented below.
APB 25 charge
FAS 123 charge
Net income per share:
The effects of applying FAS No. 123 to the pro forma disclosure are not indicative of future results. FAS No. 123 does not apply to grants of options prior to 1995 and the Company anticipates making additional grants in the future.
5
In March 2004, the Financial Accounting Standards Board (FASB) Emerging Issues Task Force (EITF) released Issue 03-01, “Meaning of Other Than Temporary Impairment,” which addressed other-than-temporary impairment for certain debt and equity investments. The recognition and measurement requirements of Issue 03-01, and other disclosure requirements not already implemented, were effective for periods beginning after June 15, 2004. In September 2004, the FASB staff issued FASB Staff Position (FSP) EITF 03-1-1, which delayed the effective date for certain measurement and recognition guidance contained in Issue 03-1. The FSP requires the application of pre-existing other-than-temporary guidance during the period of delay until a final consensus is reached. The adoption of this standard is not expected to have a material effect on the Company’s consolidated financial statements.
In December 2004, the FASB revised FAS 123, “Accounting for Stock-Based Compensation”(FAS 123R). FAS 123R establishes accounting requirements for share-based compensation to employees and carries forward prior guidance on accounting for awards to nonemployees. This statement applies to all awards granted after the required effective date and to awards modified, repurchased or cancelled after that date. The cumulative effect of initially applying this statement, if any, is recognized as of the required effective date. This statement requires a public entity to measure and recognize the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions). The grant-date fair value of employee share options and similar instruments will be estimated using option-pricing models adjusted for the unique characteristics of those instruments. If an equity award is modified after the grant date, incremental compensation cost will be recognized in an amount equal to the excess of the fair value of the modified award over the fair value of the original award immediately before the modification. As of the required effective date, all public entities that used the fair-value based method for either recognition or disclosure under SFAS No. 123 will apply this statement using a modified version of prospective application. Under that transition method, compensation cost is recognized on or after the required effective date for the portion of outstanding awards for which the requisite service has not yet been rendered, based on the grant-date fair value of those awards calculated under SFAS No. 123 for either recognition or pro forma disclosures. For periods prior to the required effective date, those entities may elect to apply a modified version of retrospective application under which financial statements for prior periods are adjusted on a basis consistent with the pro forma disclosures required for those periods by SFAS No. 123. Adoption of SFAS No. 123(R) is required for public entities as of the beginning of the first fiscal year beginning after June 15, 2005. The Company will adopt this new standard effective January 1, 2006. The adoption of this standard is not expected to have a material effect on the Company’s consolidated financial statements.
In January 2004, BancFirst Corporation established BFC Capital Trust II (“BFC II”), a trust formed under the Delaware Business Trust Act. BancFirst Corporation owns all of the common securities of BFC II. In February 2004, BFC II issued $25,000 of aggregate liquidation amount of 7.20% Cumulative Trust Preferred Securities (the “Trust Preferred Securities”) to other investors. In March 2004, BFC II issued an additional $1,000 in Trust Preferred Securities through the execution of an over-allotment option. The proceeds from the sale of the Trust Preferred Securities and the common securities of BFC II were invested in $26,804 of 7.20% Junior Subordinated Debentures of BancFirst Corporation. Interest payments on the 7.20% Junior Subordinated Debentures are payable January 15, April 15, July 15 and October 15 of each year. Such interest payments may be deferred for up to twenty consecutive quarters. The stated maturity date of the 7.20% Junior Subordinated Debentures is March 31, 2034, but they are subject to mandatory redemption pursuant to optional prepayment terms. The Trust Preferred Securities represent an undivided interest in the 7.20% Junior Subordinated Debentures, are guaranteed by BancFirst Corporation, and qualify as Tier 1 regulatory capital. During any deferral period or during any event of default, BancFirst Corporation may not declare or pay any dividends on any of its capital stock.
In October 2004, the Company completed the acquisition of Wilcox & Jones, Inc., an independent insurance agency headquartered in Tulsa, Oklahoma for $4.8 million. The purchase price included $4.0 million in cash and $800 in notes payable. As a result of the acquisition, Wilcox & Jones was merged into the Company and became a wholly-owned subsidiary of BancFirst Corporation. The acquisition was accounted for as a purchase. Accordingly, the effects of the acquisition have been included in the Company’s consolidated financial statements from the date of the acquisition forward.
6
The table below summarizes securities held for investment and securities available for sale.
December 31,
2004
Held for investment at cost (market value; $32,364, $36,732 and $33,168, respectively)
Available for sale, at market value
Total
The table below summarizes the maturity of securities.
Contractual maturity:
Within one year
After one year but within five years
After five years
Total debt securities
Equity securities
At March 31, 2005, the Company held 141 debt securities available for sale that had unrealized gains. These securities had a market value totaling $190,904 and unrealized gains totaling $2,203. The Company also held 89 debt securities available for sale that had unrealized losses. These securities had a market value totaling $292,574 and unrealized losses totaling $5,615. These unrealized losses occurred due to increases in interest rates and spreads and not as a result of a decline in credit quality. The Company has both the intent and ability to hold these debt securities until the unrealized losses are recovered.
7
The following is a schedule of loans outstanding by category:
Commercial and industrial
Agriculture
State and political subdivisions:
Real Estate:
Construction
Farmland
One to four family residences
Multifamily residential properties
Commercial
Consumer
Total loans
Loans held for sale (included above)
The Company’s loans are mostly to customers within Oklahoma and over half of the loans are secured by real estate. Credit risk on loans is managed through limits on amounts loaned to individual borrowers, underwriting standards and loan monitoring procedures. The amounts and types of collateral obtained to secure loans are based upon the Company’s underwriting standards and management’s credit evaluation. Collateral varies, but may include real estate, equipment, accounts receivable, inventory, livestock and securities. The Company’s interest in collateral is secured through filing mortgages and liens, and in some cases, by possession of the collateral. The amount of estimated loss due to credit risk in the Company’s loan portfolio is provided for in the allowance for loan losses. The amount of the allowance required to provide for all existing losses in the loan portfolio is an estimate based upon evaluations of loans, appraisals of collateral and other estimates which are subject to rapid change due to changing economic conditions and the economic prospects of borrowers. It is reasonably possible that a material change could occur in the estimated allowance for loan losses in the near term.
Changes in the allowance for loan losses are summarized as follows:
Balance at beginning of period
Charge-offs
Recoveries
Net charge-offs
Provisions charged to operations
Balance at end of period
8
The net charge-offs by category are summarized as follows:
Commercial, financial and other
Real estate – construction
Real estate – mortgage
Below is a summary of nonperforming and restructured assets:
Past due over 90 days and still accruing
Nonaccrual
Restructured
Total nonperforming and restructured loans
Other real estate owned and repossessed assets
Total nonperforming and restructured assets
Nonperforming and restructured loans to total loans
Nonperforming and restructured assets to total assets
The following is a summary of intangible assets:
Core deposit intangibles
Customer relationship intangibles
Amortization of intangible assets and estimated amortization of intangible assets are as follows:
Amortization:
Three months ended March 31, 2005
Three months ended March 31, 2004
Year ended December 31, 2004
Estimated Amortization:
Year ended December 31,
2005
2006
2007
2008
2009
9
The following is a summary of goodwill by business segment:
Three Months Ended March 31, 2005
Balance at beginning and end of period
Three Months Ended March 31, 2004
Acquisitions
Year Ended: December 31, 2004
Adjustments
The Company borrows under a line of credit from the Federal Home Loan Bank of Topeka, Kansas in order to match-fund certain long-term fixed rate loans. Such advances are at rates from 5.09% to 7.86% and mature from 2005 through 2008. Interest payments on the advances are due monthly. The Company’s assets, including residential first mortgages, are pledged as collateral for the borrowings under the line of credit.
In October 2004, the Company issued two promissory notes related to the acquisition of Wilcox & Jones, Inc., an independent insurance agency, totaling $800. The notes are payable to the prior principals who remain in management positions with the agency. The notes mature in three equal annual installments with the first installment of $267 due in October 2005. The notes have a six month adjustable interest rate equal to the 180 day Treasury Bill. At March 31, 2005 the effective interest rate was 1.95%.
The Company is subject to risk-based capital guidelines issued by the Board of Governors of the Federal Reserve System. These guidelines are used to evaluate capital adequacy and involve both quantitative and qualitative evaluations of the Company’s assets, liabilities, and certain off-balance-sheet items calculated under regulatory practices. Failure to meet the minimum capital requirements can initiate certain mandatory or discretionary actions by the regulatory agencies that could have a direct material effect on the Company’s financial statements. The required minimums and the Company’s respective ratios are shown below.
Minimum
Required
Tier 1 capital
Total capital
Risk-adjusted assets
Leverage ratio
Tier 1 capital ratio
Total capital ratio
10
As of March 31, 2005 and 2004, and December 31, 2004, BancFirst was considered to be “well capitalized”. There are no conditions or events since the most recent notification of BancFirst’s capital category that management believes would change its category.
In November 1999, the Company adopted a new Stock Repurchase Program (the “SRP”) authorizing management to repurchase up to 300,000 shares of the Company’s common stock. The SRP was amended in May 2001 to increase the shares authorized to be purchased by 277,916 shares and was amended again in August 2002 to increase the number of shares authorized to be purchased by 182,265 shares. The SRP may be used as a means to increase earnings per share and return on equity, to purchase treasury stock for the exercise of stock options or for distributions under the Deferred Stock Compensation Plan, to provide liquidity for optionees to dispose of stock from exercises of their stock options, and to provide liquidity for shareholders wishing to sell their stock. The timing, price and amount of stock repurchases under the SRP may be determined by management and must be approved by the Company’s Executive Committee. At March 31, 2005 there were 148,026 shares remaining that could be repurchased under the SRP. Below is a summary of the shares repurchased under the program.
Number of shares repurchased
Average price of shares repurchased
The only component of comprehensive income reported by the Company is the unrealized gain or loss on securities available for sale. The amount of this unrealized gain or loss, net of tax, has been presented in the statement of income for each period as a component of other comprehensive income. Below is a summary of the tax effects of this unrealized gain or loss.
Unrealized gain (loss) during the period:
Before-tax amount
Tax (expense) benefit
Net-of-tax amount
11
The amount of unrealized gain or loss included in accumulated other comprehensive income is summarized below.
Unrealized gain (loss) on securities:
Beginning balance
Current period change
Ending balance
Basic and diluted net income per common share are calculated as follows:
Income
(Numerator)
Income available to common stockholders
Effect of stock options
Income available to common stockholders plus assumed exercises of stock options
As of March 31, 2005 and 2004, there were no options that were excluded from the computation of diluted net income per share for each period because the options’ exercise prices were greater than the average market price of the common shares.
The Company evaluates its performance with an internal profitability measurement system that measures the profitability of its business units on a pre-tax basis. The four principal business units are metropolitan banks, community banks, other financial services, and executive, operations and support. Metropolitan and community banks offer traditional banking products such as commercial and retail lending, and a full line of deposit accounts. Metropolitan banks consist of banking locations in the metropolitan Oklahoma City and Tulsa areas. Community banks consist of banking locations in communities throughout Oklahoma. Other financial services are specialty product business units including guaranteed small business lending, guaranteed student lending, residential mortgage lending, trust services, securities brokerage, electronic banking and insurance. The executive, operations and support groups represent executive management, operational support and corporate functions that are not allocated to the other business units. The results of operations and selected financial information for the four business units are as follows:
Three Months Ended:
March 31, 2005
Net interest income (expense)
Noninterest income
March 31, 2004
Total Assets:
December 31, 2004
The financial information for each business unit is presented on the basis used internally by management to evaluate performance and allocate resources. The Company utilizes a transfer pricing system to allocate the benefit or cost of funds provided or used by the various business units. Certain revenues related to other financial services are allocated to the banks whose customers receive the services and, therefor, are not reflected in the income for other financial services. Certain services provided by the support group to other business units, such as item processing, are allocated at rates approximating the cost of providing the services. Eliminations are adjustments to consolidate the business units and companies.
12
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SUMMARY
Net income for the first quarter of 2005 was $10.9 million, compared to $8.2 million for the first quarter of 2004. Diluted net income per share was $1.36, compared to $1.03 for the first quarter of 2004.
Net interest income of $31.7 million increased $3.8 million, or 13.6%, over the first quarter of 2004. The increase resulted from loan growth combined with rising interest rates. The Company’s net interest margin (on a tax equivalent basis) was 4.67%, up from 4.20% for the same period a year ago. The Company’s provision for loan losses was $792,000, an increase of $72,000 compared to the same period a year ago. Noninterest income of $12.3 million was up 5.5% over the same period in 2004. Noninterest expense totaled $27.0 million versus $26.2 million for the first quarter of 2004. The Company’s total revenues increased $4.4 million, or 11.2%, improving the Company’s efficiency ratio to 61.2%, from 66.1% in the first quarter of 2004. The Company’s effective tax rate was 33.1% for the first quarter of 2005 compared to 35.6% in the first quarter of 2004. The reduction in the Company’s 2005 tax rate was due in part to tax credits generated from certain loan transactions.
Total assets at March 31, 2005 increased to $3.07 billion, up $21.2 million from December 31, 2004 and up $16.4 million from March 31, 2004. Total loans were $2.15 billion, up $54.0 million from December 31, 2004 and up $206.7 million from March 31, 2004. Total deposits were $2.67 billion, up $17.5 million from December 31, 2004 and up $1.9 million from March 31, 2004. Stockholders’ equity was $278 million at both March 31, 2005 and December 31, 2004, which was up $14.1 million compared to March 31, 2004.
13
In January 2004, the Company established BFC Capital Trust II (“BFC II”), a trust formed under the Delaware Business Trust Act. The Company owns all of the common securities of BFC II. In February 2004, BFC II issued $25.0 million of aggregate liquidation amount of 7.20% Cumulative Trust Preferred Securities (the “Trust Preferred Securities”) to other investors. In March 2004, BFC II issued an additional $1.0 million in Trust Preferred Securities through the execution of an over-allotment option. The proceeds from the sale of the Trust Preferred Securities and the common securities of BFC II were invested in $26.8 million of 7.20% Junior Subordinated Debentures of BancFirst Corporation. Interest payments on the 7.20% Junior Subordinated Debentures are payable January 15, April 15, July 15 and October 15 of each year. The stated maturity date of the 7.20% Junior Subordinated Debentures is March 31, 2034, but they are subject to mandatory redemption pursuant to optional prepayment terms.
In October 2004, the Company completed the acquisition of Wilcox & Jones, Inc., an independent insurance agency headquartered in Tulsa, Oklahoma for $4.8 million. As a result of the acquisition, Wilcox & Jones was merged into the Company and became a wholly owned subsidiary of BancFirst Corporation. The acquisition was accounted for as a purchase. Accordingly, the effects of the acquisition have been included in the Company’s consolidated financial statements for the date of the acquisition forward.
RESULTS OF OPERATIONS
Net interest income for the first quarter of 2005 was $31.7 million, up $3.8 million from the first quarter of 2004. The net interest margin in 2005 increased to 4.67% from 4.20% for the first quarter of 2004. An increase in earning assets related to loans between the first quarter of 2004 and the first quarter of 2005 produced a positive volume variance complimented by a positive rate variance. In a rising rate environment, the benefit of the Company’s noninterest-bearing funds is increased, resulting in an increase in the Company’s net interest margin over time. As a result of a rising rate environment, and assuming no change in the volume or mix of the Company’s loans and deposits, the Company’s net interest income would be reasonably expected to continue to slightly increase over the next several quarters.
14
The Company provided $792,000 for loan losses in the first quarter of 2005, compared to $720,000 for the same period of 2004. The Company continues to maintain high credit quality as the increase in the provision for loan losses resulted from overall loan growth. Net loan charge-offs were $282,000 for the first quarter of 2005, compared to $465,000 for the first quarter of 2004. The net charge-offs represent an annualized rate of 0.05% of average total loans for the first quarter of 2005 compared to 0.10% for the first quarter of 2004.
Noninterest income for the first quarter of 2005 increased $646,000 compared to the first quarter of 2004, due to an increase in insurance commissions and premiums offset by a decrease in service charges on deposits. Noninterest expense increased $786,000 compared to the first quarter of 2004. Income tax expense increased $878,000 compared to the first quarter of 2004. The effective tax rate on income before taxes was 33.1%, compared to 35.6% for the first quarter of 2004. The reduction in the Company’s 2005 tax rate was due in part to tax credits from certain loan transactions.
FINANCIAL POSITION
The aggregate of cash and due from banks, interest-bearing deposits with banks, and federal funds sold decreased $8.1 million from December 31, 2004, and $148.1 million from March 31, 2004. These decreases were mainly from funding loan growth in 2005.
Total securities decreased $28.9 million compared to December 31, 2004 and $49.7 million compared to March 31, 2004. The size of the Company’s securities portfolio is a function of liquidity management and excess funds available for investment. The Company has maintained a very liquid securities portfolio to provide funds for loan growth. The net unrealized loss on securities available for sale, before taxes, was $2.44 million at the end of the first quarter of 2005, compared to an unrealized gain of $4.34 million at December 31, 2004 and an unrealized gain of $17.2 million at March 31, 2004. The average taxable equivalent yield on the securities portfolio for the first quarter of 2005 increased to 4.52% from 4.04% for the same quarter of 2004.
Total loans increased $54.0 million from December 31, 2004, and increased $206.7 million from March 31, 2004. The increase compared to year end 2004 and the first quarter of 2004 was due to internal growth. The allowance for loan losses increased $510,000 from year-end 2004 and decreased $147,000 from the first quarter of 2004. The allowance as a percentage of total loans was 1.22%, 1.23% and 1.36% at March 31, 2005, December 31, 2004 and March 31, 2004, respectively. The allowance to nonperforming and restructured loans at the same dates was 236.59%, 211.05% and 161.42%, respectively.
Nonperforming and restructured loans totaled $11.1 million at March 31, 2005, compared to $12.2 million at December 31, 2004 and $16.4 million at March 31, 2004. The ratio of nonperforming and restructured loans to total loans for the same periods was 0.52%, 0.58% and 0.84%, respectively. The level of nonperforming loans and loan losses may rise over time as a result of economic and credit cycles.
Total deposits increased $17.5 million compared to December 31, 2004, and $1.89 million compared to March 31, 2004 due to internal growth. The Company’s deposit base continues to be comprised substantially of core deposits, with large denomination certificates of deposit being only 8.48% of total deposits at March 31, 2005, compared to 8.38% at December 31, 2004 and 9.13% at March 31, 2004.
Short-term borrowings increased $1.03 million from December 31, 2004, and increased $5.96 million from March 31, 2004. Fluctuations in short-term borrowings are a function of federal funds purchased from correspondent banks, customer demand for repurchase agreements and liquidity needs of the bank.
Long-term borrowings decreased $1.18 million from year-end 2004 and $2.95 million from the first quarter of 2004. The decrease compared to the first quarter of 2004 was due to scheduled principal payments. The Company uses these borrowings primarily to match-fund long-term fixed-rate loans.
Stockholders’ equity primarily remained unchanged from year-end 2004 and increased $14.1 million from the first quarter of 2004, due to accumulated earnings. Average stockholders’ equity to average assets for the first quarter of 2005 was 9.17%, compared to 9.05% for the first quarter of 2004. The Company’s leverage ratio and total risk-based capital ratio were 9.84% and 13.73%, respectively, at March 31, 2005, well in excess of the regulatory minimums.
15
FUTURE APPLICATION OF ACCOUNTING STANDARDS
See note (3) of the Notes to Consolidated Financial Statements for a discussion of recently issued accounting pronouncements.
SEGMENT INFORMATION
See note (14) of the Notes to Consolidated Financial Statements for disclosures regarding business segments.
FORWARD LOOKING STATEMENTS
The Company may make forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 with respect to earnings, credit quality, corporate objectives, interest rates and other financial and business matters. Forward-looking statements include estimates and give management’s current expectations or forecasts of future events. The Company cautions readers that these forward-looking statements are subject to numerous assumptions, risks and uncertainties, including economic conditions, the performance of financial markets and interest rates; legislative and regulatory actions and reforms; competition; as well as other factors, all of which change over time. Actual results may differ materially from forward-looking statements.
16
SELECTED CONSOLIDATED FINANCIAL DATA
Per Common Share Data
Net income – basic
Net income – diluted
Cash dividends
Performance Data
Return on average assets
Return on average stockholders’ equity
Cash dividend payout ratio
Net interest spread
Net interest margin
Efficiency ratio
Balance Sheet Data
Book value per share
Tangible book value per share
Average loans to deposits (year-to-date)
Average earning assets to total assets (year-to-date)
Average stockholders’ equity to average assets (year-to-date)
Asset Quality Ratios
Allowance for loan losses to total loans
Allowance for loan losses to nonperforming and restructured loans
17
CONSOLIDATED AVERAGE BALANCE SHEETS AND INTEREST MARGIN ANALYSES
Taxable Equivalent Basis (Dollars in thousands)
Earning assets:
Loans (1)
Securities - taxable
Securities - tax exempt
Total earning assets
Nonearning assets:
Interest receivable and other assets
Total nonearning assets
Interest-bearing liabilities:
Transaction deposits
Savings deposits
Time deposits
Total interest-bearing liabilities
Interest-free funds:
Noninterest-bearing deposits
Interest payable and other liabilities
Stockholders’ equity
Total interest free funds
18
There have been no significant changes in the Registrant’s disclosures regarding market risk since December 31, 2004, the date of its annual report to stockholders.
The Company’s Chief Executive Officer and Chief Financial Officer and Disclosure Committee, which includes the Company’s Chief Risk Officer, Chief Asset Quality Control Officer, Chief Internal Auditor, Holding Company Controller, Bank Controller and General Counsel, have evaluated, as of the last day of the period covered by this report, the Company’s disclosure controls and procedures. Based on their evaluation they concluded that the disclosure controls and procedures of the Company are adequate to ensure that information required to be disclosed by the Company in the reports filed or submitted by it under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the applicable rules and forms. There have been no significant changes in the Company’s internal controls or in other factors that could significantly affect internal controls subsequent to the date of their evaluation.
PART II – OTHER INFORMATION
There were no equity securities of the Registrant sold without registration during the quarter covered by this report.
Stock repurchases by the Registrant during the quarter were as follows:
Period
Month #1 (beginning January 1, 2005 and ending January 31, 2005)
Month #2 (beginning February 1, 2005 and ending February 28, 2005)
Month #3 (beginning March 1, 2005 and ending March 31, 2005)
19
Exhibit
20
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
(Registrant)
Date May 10, 2005
/s/ Joe T. Shockley, Jr.
(Signature)
Joe T. Shockley, Jr.
Executive Vice President
Chief Financial Officer
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