UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter ended March 31, 2000
Commission file number 0-23134
INTERCOUNTY BANCSHARES, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
OHIO 31-1004998
- ------------------------------- -------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
48 North South Street, Wilmington, Ohio 45177
---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(513) 382-1441
----------------------------------------------------
(Registrant's telephone number, including area code)
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
The number of shares outstanding of the issuer's common stock, without par
value, as of May 1, 2000, was 3,188,314 shares.
INTERCOUNTY BANCSHARES, INC.
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets -
March 31, 2000, December 31, 1999
and March 31, 1999. . . . . . . . . . . . . . . . . . .1
Consolidated Statements of Income -
Three Months Ended March 31, 2000 and 1999. . . . . . .2
Consolidated Statements of Comprehensive Income
and Changes in Shareholders' Equity -
Three Months Ended March 31, 2000 and 1999.. . . . . .3-4
Consolidated Statements of Cash Flows -
Three Months Ended March 31, 2000 and 1999 . . . . . .5
Notes to Consolidated Financial Statements . . . . . . 6-8
Independent Accountants' Review Report . . . . . . . . . 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. . . . . 10-15
Item 3. Quantitative and Qualitative Disclosures
about Market Risk . . . . . . . . . . . . . . . . . . .15
Part II. Other Information
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . .16
Item 2. Changes in Securities and Use of Proceeds . . . . . . . .16
Item 3. Defaults Upon Senior Securities . . . . . . . . . . . . .16
Item 4. Submission of Matters to a Vote of Security Holders . . .16
Item 5. Other Information . . . . . . . . . . . . . . . . . . . .16
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . .16
Part I - Financial Information
Item 1. Financial Statements
INTERCOUNTY BANCSHARES, INC. and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
At March 31, 2000, December 31, 1999 and March 31, 1999
(thousands)
March 31, December 31, March 31,
2000 1999 1999
(unaudited) (a) (unaudited)
ASSETS:
Cash and due from banks $ 17,380 $18,813 $15,563
Federal funds sold 83 283 2,097
Interest bearing deposits in bank 852 242 15
------- ------- -------
Total cash and cash equivalents 18,315 19,338 17,675
Securities available for sale, at
market value 103,074 110,723 135,402
Securities held to maturity (market
value-$41,499, $40,412, and $37,293) 44,335 44,304 36,841
------- ------- -------
Total securities 147,409 155,027 172,243
Loans 358,754 350,955 316,368
Less-allowance for loan losses 3,336 3,222 2,767
------- ------- -------
Net loans 355,418 347,733 313,601
Loans held for sale 1,622 1,599 563
Premises and equipment 11,802 11,745 12,236
Earned income receivable 3,941 4,321 4,109
Other assets 3,683 2,785 1,692
------- ------- -------
TOTAL ASSETS $542,190 $542,548 $522,119
======= ======= =======
LIABILITIES:
Demand deposits $ 40,142 $ 43,715 $ 38,171
Savings, NOW, and money market
deposits 147,248 145,465 143,442
Certificates $100,000 and over 44,044 40,226 45,644
Other time deposits 155,806 150,526 148,350
------- ------- -------
Total deposits 387,240 379,932 375,607
Short-term borrowings 26,762 40,358 22,569
Long-term debt 80,431 75,431 75,539
Other liabilities 3,075 2,796 3,291
------- ------- -------
TOTAL LIABILITIES 497,508 498,517 477,006
------- ------- -------
SHAREHOLDERS' EQUITY:
Preferred shares - no par value,
authorized 100,000 shares; none
issued - - -
Common shares-no par value, authorized
6,000,000 shares; issued 3,818,950
shares 1,000 1,000 1,000
Surplus 7,936 7,921 7,499
Unearned ESOP shares, at cost (405) (405) (512)
Retained earnings 43,834 43,119 40,253
Accumulated other comprehensive
income (loss), net of taxes (3,410) (3,331) (271)
Treasury shares, at cost, 630,636
shares at March 31, 2000 and
December 31, 1999; 628,408 shares
at March 31, 1999 (4,273) (4,273) (2,856)
------- ------- -------
TOTAL SHAREHOLDERS' EQUITY 44,682 44,031 45,113
------- ------- -------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $542,190 $542,548 $522,119
======= ======= =======
<FN>
(a) Financial information as of December 31, 1999, has been derived from the
audited, consolidated financial statements of the Registrant.
</FN>
The accompanying notes to financial statements are an integral part of these
statements.
-1-
Part I - Financial Information
(Continued)
Item 1. Financial Statements
INTERCOUNTY BANCSHARES, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(thousands)
(unaudited)
Three Months Ended
March 31
----------------------
2000 1999
INTEREST INCOME:
Interest and fees on loans $7,490 $6,551
Interest on securities available for sale -
taxable 1,663 1,950
non-taxable 108 108
Interest on securities held to maturity -
non-taxable 579 459
Interest on deposits in banks 7 3
Interest on federal funds sold 5 26
----- -----
TOTAL INTEREST INCOME 9,852 9,097
----- -----
INTEREST EXPENSE:
Interest on savings, NOW and money
market deposits 962 913
Interest on time certificates $100,000 and over 556 611
Interest on other deposits 1,999 1,973
Interest on short-term borrowings 516 258
Interest on long-term debt 1,066 1,025
----- -----
TOTAL INTEREST EXPENSE 5,099 4,780
----- -----
NET INTEREST INCOME 4,753 4,317
PROVISION FOR LOAN LOSSES 475 350
----- -----
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 4,278 3,967
----- -----
NON-INTEREST INCOME:
Trust services 286 271
Service charges on deposits 379 345
Other service charges and fees 87 87
ATM network fees 161 142
Insurance agency commissions 299 206
Other 179 224
----- -----
TOTAL NON-INTEREST INCOME 1,391 1,275
----- -----
NON-INTEREST EXPENSES:
Salaries 1,717 1,549
Employee benefits 325 259
Equipment 563 488
Occupancy 215 209
State franchise tax 137 157
Marketing 56 70
Other 946 867
----- -----
TOTAL NON-INTEREST EXPENSE 3,959 3,599
----- -----
INCOME BEFORE INCOME TAX 1,710 1,643
PROVISION FOR INCOME TAX 392 407
----- -----
NET INCOME $1,318 $1,236
===== =====
Basic earnings per common share $ 0.42 $ 0.39
Diluted earnings per common share 0.41 0.38
AVERAGE SHARES OUTSTANDING:
To compute basic earnings
per common share 3,175,061 3,163,158
To compute diluted earnings
per common share 3,212,137 3,243,604
-2-
Part I - Financial Information
(Continued)
Item 1. Financial Statements
INTERCOUNTY BANCSHARES, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME and CHANGES IN SHAREHOLDERS' EQUITY
(thousands)
(unaudited)
Retained
Unearned Earnings Accumulated
ESOP Less Cost Other Total Total
Common Shares of Treasury Comprehensive Shareholders' Comprehensive
Shares Surplus at Cost Shares Income (Loss) Equity Income
Balance January 1, 1999 $1,000 $7,368 $(511) $36,678 $ 188 $44,723
Comprehensive
Income:
Net income 1,236 1,236 $1,236
Net unrealized (losses)
on securities available
for sale (net of taxes
of $237) (459) (459) (459)
-----
Total comprehensive income $ 777
=====
Dividends declared
($0.17 per share) (540) (540)
Treasury shares purchased (43) (43)
Stock options exercised 109 66 175
ESOP shares earned 22 (1) 21
----- ----- --- ------ --- ------
Balance March 31, 1999 $1,000 $7,499 $(512) $37,397 $(271) $45,113
===== ===== === ====== === ======
-3-
Part I - Financial Information
(Continued)
Item 1. Financial Statements
INTERCOUNTY BANCSHARES, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME and CHANGES IN SHAREHOLDERS' EQUITY (Continued)
(thousands)
(unaudited)
Retained
Unearned Earnings Accumulated
ESOP Less Cost Other Total Total
Common Shares of Treasury Comprehensive Shareholders' Comprehensive
Shares Surplus at Cost Shares Income (Loss) Equity Income
Balance January 1, 2000 $1,000 $7,921 $(405) $38,846 $(3,331) $44,031
Comprehensive
Income:
Net income 1,318 1,318 $1,318
Net unrealized (losses)
on securities available
for sale (net of taxes
of $41) (79) (79) (79)
-----
Total comprehensive income $1,239
=====
Dividends declared
($0.19 per share) 603 603
ESOP shares earned 15 15
----- ----- --- ------ ----- ------
Balance March 31, 2000 $1,000 $7,936 $(405) $39,561 $(3,410) $44,682
===== ===== === ====== ===== ======
-4-
Part I - Financial Information
(Continued)
Item 1. Financial Statements
INTERCOUNTY BANCSHARES, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(thousands)
(unaudited)
Three Months Ended
March 31
---------------------
2000 1999
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,318 $ 1,236
Adjustments for non-cash items -
Depreciation and amortization 363 305
Provision for loan losses 475 350
Provision for deferred taxes (109) (57)
Net premium amortization of securities
held for sale 34 110
Net discount accretion of securities held to maturity (31) (9)
Origination of mortgage loans held for sale (23) (147)
Proceeds from sales of mortgage loans held for sale - 5,218
Decrease in income receivable 380 137
Increase in other assets (858) (163)
Increase in interest payable 145 71
Increase in income taxes payable 501 300
Decrease in other accrued expenses (321) (480)
FHLB stock dividends (96) (88)
ESOP shares earned 15 19
------ ------
NET CASH FLOW FROM OPERATING ACTIVITIES 1,793 6,802
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of securities available
for sale 2,640 12,620
Proceeds from sales of securities available for sale 4,951 -
Purchases of securities available for sale - (8,992)
Proceeds from maturities of securities held to
maturity - 1,000
Purchases of securities held to maturity - (1,000)
Net increase in loans (8,160) (11,480)
Purchases of premises and equipment (420) (1,082)
------ ------
NET CASH FLOW FROM INVESTING ACTIVITIES (989) (8,934)
------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 7,308 1,387
Net decrease in short-term borrowings (13,596) (133)
Additions to long-term debt 5,000 -
Cash dividends paid (539) (411)
Proceeds from stock options exercised - 88
Purchase of treasury shares - (43)
------ ------
NET CASH FLOW FROM FINANCING ACTIVITIES (1,827) 888
------ ------
NET CHANGE IN CASH AND CASH EQUIVALENTS (1,023) (1,244)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 19,338 18,919
------ ------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 18,315 $17,675
====== ======
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 4,954 $ 4,709
Income taxes paid - 164
The accompanying notes to financial statements are an integral part of these
statements.
-5-
PART I. FINANCIAL INFORMATION
(Continued)
Item 1. Notes to Consolidated Financial Statements
INTERCOUNTY BANCSHARES, INC. and SUBSIDIARIES
BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and the instructions to Form 10-Q.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, the unaudited consolidated
financial statements include all adjustments (consisting of normal, recurring
accruals) considered necessary for a fair presentation of financial position,
results of operations and cash flows for the interim periods.
The financial information presented on pages 1 through 8 of this Form 10-Q
has been subject to a review by J.D. Cloud & Co. L.L.P., the Company's
independent certified public accountants, as described in their report on
page 9.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Results of operations and cash flows for the three month period ended
March 31, 2000, are not necessarily indicative of the results to be expected
for the full year to end December 31, 2000. These unaudited consolidated
financial statements should be read in conjunction with the consolidated
financial statements, accounting policies and financial notes thereto
included in the Company's Annual Report and Form 10-K for the year ended
December 31, 1999 filed with the Commission.
EFFECT OF RECENT ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. It requires an entity to
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. SFAS No.
137, "Accounting for Derivative Instruments and Hedging Activities - Deferral
of the Effective Date of FASB Statement No. 133" established the effective
date for the new standard as fiscal years beginning after June 15, 2000.
-6-
PART I. FINANCIAL INFORMATION
(Continued)
Item 1. Notes to Consolidated Financial Statements, continued
Currently, the Company does not hold any derivatives or conduct hedging
activities as defined by the standard. In most instances the standard, once
adopted, precludes any held-to-maturity security from being designated as a
hedged item. If the Company had adopted SFAS No. 133 in the first quarter
of 2000, the impact would have been limited to transfers, if any, of
securities from the held-to-maturity classification to available for sale.
The Company is evaluating when to adopt SFAS No. 133 and the desirability of
potential investment security reclassifications.
EMPLOYEE STOCK OPTIONS
The Company applies APB No. 25 in accounting for its stock option plans.
Had compensation expense for the Company's stock options granted after 1996
been recognized under the methodology prescribed in SFAS No. 123, the
Company's net income and earnings per share for the three months ended
March 31 would have been impacted as follows: (in thousands, except per
share data)
2000 1999
------ ------
Reported net income $1,318 $1,236
Proforma net income 1,309 1,230
Reported earnings per share-
assuming dilution 0.41 0.38
Proforma earnings per share-
assuming dilution 0.41 0.38
-7-
PART I. FINANCIAL INFORMATION
(Continued)
Item 1. Notes to Consolidated Financial Statements, continued
SEGMENTS
The Company has four principal business units that offer different products
and services. They are managed separately for various reasons including
differing technologies, marketing strategies, and regulations. Revenues
from these business segments for the three months ended March 31 were as
follows: (thousands)
2000 1999
---- ----
Banking $10,497 $ 9,753
Trust services 286 271
ATM network 161 142
Insurance agencies 299 206
------ ------
$11,243 $10,372
====== ======
Additional reportable segment information under SFAS No. 131, "Disclosures
About Segments of an Enterprise and Related Information" are not applicable
since the information as it relates solely to the banking operations would
be the same as the consolidated financial statements in all material espects.
FORWARD-LOOKING STATEMENTS
Certain matters disclosed herein may be deemed to be forward-looking
statements that involve risks and uncertainties, including regulatory policy
changes, interest rate fluctuations, loan demand, loan delinquencies and
losses, and other risks. Actual strategies and results in future time
periods may differ materially from those currently expected. Such forward-
looking statements represent the Company's judgment as of the current date.
The Company disclaims, however, any intent or obligation to update such
forward-looking statements. See Exhibit 99 attached hereto, which is
incorporated herein by reference.
-8-
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
To the Shareholders and Board of Directors
InterCounty Bancshares, Inc.
We have reviewed the accompanying consolidated balance sheets of InterCounty
Bancshares, Inc. and subsidiaries as of March 31, 2000 and 1999, and the
related consolidated statements of income, comprehensive income and changes
in shareholders' equity, and cash flows for each of the three-month periods
ended March 31, 2000 and 1999. These financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying consolidated interim financial statements
for them to be in conformity with generally accepted accounting principles.
We previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of December 31, 1999 (presented
herein), and the related consolidated statements of income, comprehensive
income and changes in shareholders' equity, and cash flows for the year then
ended (not presented herein), and in our report dated February 10, 2000, we
expressed an unqualified opinion on those consolidated financial statements.
In our opinion, the information set forth in the accompanying consolidated
balance sheet as of December 31, 1999, is fairly stated in all material
respects.
/s/ J.D. Cloud & Co. L.L.P.
Cincinnati, Ohio
May 2, 2000
-9-
PART I. FINANCIAL INFORMATION
(Continued)
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operation
Net income for the first quarter of 2000 was $1.32 million, an increase of
6.7% from the $1.24 million earned in the first quarter of 1999. Net income
per share-basic was $.42, compared to $.39 per share, an increase of 7.7%.
The primary reason for the increase in earnings was a 10.1% increase in net
interest income during the first quarter of 2000 from the first quarter of
1999. This quarter also showed an increase of 9.1% in non-interest
income, a 35.7% increase in provision for loan losses, and a 10.0% increase
in non-interest expense above the first quarter of 1999.
Net interest income was $4.75 million, 10.1% above the first quarter of 1999.
Average loans increased 13.1%, and average securities decreased 13.5% when
compared to the same period last year, which resulted in an increase of 3.3%
in average interest-earning assets. Loan growth was concentrated in the
average amount of small business loans, up 13.2%, and the average
amount of real estate loans, up 21.1%. This change in the mix of the balance
sheet increased the tax equivalent yield on interest-earning assets from
7.66% in the first quarter of 1999 to 8.00% in the first quarter of 2000.
Average interest-bearing liabilities increased 3.8% to $450.6 million, and
their cost increased to 4.55% from 4.46% in the first quarter of 1999. Most
of the volume growth in average interest-bearing liabilities was in NOW and
money market accounts, a $5.4 million increase, and additional short-term
borrowing, an increase of $13.3 million, to fund loan growth. Also, less
aggressive bidding on certificates over $100,000 resulted in a decrease of
$6.2 million in the average balance. As a result, tax equivalent net
interest margin increased from 3.71% in the first quarter of 1999 to 3.95% in
the first quarter of 2000.
The provision for loan losses was increased to $475,000 for the first quarter
of 2000, compared to $350,000 for the same period in 1999. Net charge-offs
for the first quarter of 2000 were .10% of average loans, compared to .07%
for the prior year.
-10-
PART I. FINANCIAL INFORMATION
(Continued)
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
The following table sets forth certain information regarding the past-due,
non-accrual and renegotiated loans of the Company at the dates indicated (in
thousands):
Mar 31 Dec 31 Mar 31
2000 1999 1999
------ ------ ------
Loans accounted for on
non-accrual basis $2,785 $ 955 $1,230
Accruing loans which are
past due 90 days or more 89 96 191
Renegotiated loans 0 0 0
----- ----- -----
Total $2,874 $1,051 $1,421
----- ----- -----
As of March 31, 2000, the $2,785,000 in non-accrual loans consisted of
twenty-two relationships, eight of which are collateralized with first
mortgages, six with second mortgages, two have partial US Department of
Agriculture guarantees, two are titled collateral awaiting sale, and the rest
are collateralized with general chattel filings on machinery and equipment,
crops, fixtures, and additional mortgage positions. All loans are expected
to be resolved through term payments or through liquidation of collateral in
the normal course of business. The anticipated loss in year 2000 from all
but one loan is $55,000. The remaining account is a $1,700,000 loan to Bush
Leasing, Inc., a company whose primary owner is George F. Bush, a former
director of the Company. Management is unable to determine the potential
loss on this account until the recently filed Chapter 11 bankruptcy plan is
complete. Projected losses are based on currently available information and
actual losses may differ significantly from those discussed above.
Management knows of no other significant potential problem loans. In
addition, management has identified five other potential problem loans that
total $2.0 million. These are defined as loans that are not included in the
non-performing categories at March 31, 2000, but which management, through
normal credit review procedures, has developed information regarding possible
credit problems that could cause the borrowers future difficulties in
complying with present loan repayment terms.
-11-
PART I. FINANCIAL INFORMATION
(Continued)
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
At March 31, 2000, the Company's allowance for loan losses totaled $3.33
million and was allocated primarily to the consumer segment of the loan
portfolio. A similar allocation existed for all other dates presented. The
following table sets forth an analysis of the Company's allowance for losses
on loans for the periods indicated (in thousands):
Three Months Ended
March 31
2000 1999
------------------
Balance, beginning of period $3,222 $2,641
Charge-offs:
Commercial 259 -
Residential real estate 1 10
Installment 176 284
Credit Card - -
Other 2 3
----- -----
Total 438 297
----- -----
Recoveries:
Commercial 20 1
Residential real estate - -
Installment 56 72
Credit Card 1 -
Other - -
----- -----
Total 77 73
----- -----
Net Charge-offs (361) (224)
Provision for loan losses 475 350
----- -----
Balance, end of period $3,336 $2,767
===== =====
Non-interest income was $1,391,000 for the first quarter of 2000, an
increase of 9.1% from the $1,275,000 earned in the first quarter of 1999.
Most categories in this section have shown increases. Trust income increased
5.6%, deposit service charges were up 10.0%, insurance agency commissions
were up 44.7%, and ATM network fees were up 13.0%. Loan related processing
fees were down $51,000 (34.6%) due primarily to a decreased volume in
originations of fixed-rate real estate loans in 2000.
-12-
PART I. FINANCIAL INFORMATION
(Continued)
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Non-interest expense increased 10.0% for the quarter over the same period in
1999. Salaries and benefits increased 12.9% for the quarter due to general
wage increases and the increased cost of retirement and medical benefits.
Equipment expense increased 15.4% from last year due to the continued upgrade
of our computer network. Occupancy expense increased 2.9% for the quarter.
Other expense has increased 4.1% from the first quarter of last year.
The Company's effective tax rate decreased to 22.9% during the first quarter
of 2000 from 24.8% for the first quarter of 1999, primarily due to increases
in tax-free municipal bonds in the securities portfolio.
Performance ratios for the first quarter of 2000 included a return on assets
of .99%, and a return on equity of 11.94%, compared to .96% and 11.14%,
respectively for the first quarter of 1999.
Financial Condition
The changes that have occurred in InterCounty's financial condition during
2000 are as follows (in thousands):
Mar 31 December 31
2000 1999 Amount Percent
------- ------------ ------ --------
Total Assets $542,190 $542,548 $ (358) -%
Loans 358,754 350,955 7,799 2
Loans held for sale 1,622 1,599 23 -
Securities 147,409 155,027 (7,618) (5)
Demand deposits 40,142 43,715 (3,573) (8)
Savings, Now, MMDA deposits 147,248 145,465 1,783 1
CD's $100,000 and over 44,044 40,226 3,818 9
Other time deposits 155,806 150,526 5,280 4
Total deposits 387,240 379,932 7,308 2
Short-term borrowing 26,762 40,358 (13,596) (34)
Long-term borrowing 80,431 75,431 5,000 7
Although total assets have changed very little during 2000, the balance sheet
mix has changed somewhat. The loan portfolio grew $7.8 million since year-
end, most of the increase being in small business and real estate loans. The
growth was funded through a $7.6 million decrease in the securities
portfolio. The securities portfolio has decreased because of maturities of
U.S. Agency bonds, sales upon which there was no significant gain or loss,
and prepayments of mortgage-backed securities. Deposit growth has occurred
in certificates, both large and small, and a small increase in interest-
bearing transaction accounts, with a decrease in demand deposits. Short-term
borrowing has been reduced as a result of the deposit increases and an
additional $5 million in long-term borrowing.
-13-
Total assets grew 3.8% from the first quarter 1999, to a total of $542.2
million. Total loans increased to $358.8 million, an increase of 13.2%.
Commercial loan average grew $16.8 million (13.2%), real estate loan average
grew $17.8 million (21.1%), and these areas continue to provide the majority
of increase in the portfolio. The securities portfolio average has decreased
$23.4 million (13.5%) from the first quarter of last year because of
maturities, sales, and calls of U.S. Agency callable bonds, and prepayments
of mortgage-backed securities.
Total deposits increased 3.1% from the first quarter 1999 to $387.2 million.
Average non-interest bearing deposits increased 4.8% from last year. Average
interest-bearing liabilities grew $16.3 million (3.8%). Average interest-
bearing transaction accounts increased $5.4 million (5.2%), average large
certificates decreased $6.2 million (13.3%), and average short-term borrowing
increased $13.3 million (55.8%). Total equity decreased 1.0% to $44.7
million at March 31, 2000.
At March 31, 2000 and 1999, the Bank had outstanding $86.0 million and $81.0
million, respectively, of total borrowings from the Federal Home Loan Bank
(FHLB). Six million of the borrowings have a one-year maturity and adjust
daily at the prime rate. In January 2000, a $30 million fixed-rate note that
matures in 2002 was converted to a variable-rate note that adjusts quarterly
at the three-month LIBOR rate. At the option of the Company, this note can
be prepaid in full or in part on the interest rate adjustment date. The
additional $5 million in long-term borrowing was a FHLB fixed-rate note
maturing in 2010. At the option of the FHLB, beginning in March 2001, this
note can be converted to a variable-rate instrument that adjusts quarterly at
the three-month LIBOR rate if that rate equals or exceeds 8.00%.
Book value per share was $14.01 at March 31, 2000 compared to $14.14 at March
31, 1999. Equity to assets was 8.24%, compared to 8.64% at the end of the
first quarter last year. These declines are attributable to the general
increases in market interest rates and the resulting net unrealized loss on
securities available for sale of $3.4 million at March 31, 2000 compared to
$271,000 a year ago.
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PART I. FINANCIAL INFORMATION
(Continued)
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Liquidity and Capital Resources
Effective liquidity management ensures that the cash flow requirements of
depositors and borrowers, as well as Company cash needs, are met. The
Company manages liquidity on both the asset and liability sides of the
balance sheet. The loan to deposit ratio at March 31, 2000, was 92.6%,
compared to 84.4% at the same date in 1999. The increase in this ratio
reflects the challenge of attracting deposits while maintaining positive loan
growth. Loans to total assets were 66.2% at the end of the first quarter of
2000, compared to 60.7% at the same time last year. Management strives to
keep this ratio below 70%. The securities portfolio is 70% "available for
sale" securities that are readily marketable. Approximately 86% of the
"available for sale" portfolio is pledged to secure public deposits, short-
term and long-term borrowings and for other purposes as required by law. The
balance of the "available for sale" securities could be sold if necessary for
liquidity purposes. Management has no immediate plan to sell securities
without careful evaluation of the consequences. Also, a stable deposit base,
consisting of 89% core deposits, makes the Company less susceptible to large
fluctuations in funding needs. The Company has short-term borrowing lines of
credit with several correspondent banks. The Company also has both short-
and long-term borrowing available through the Federal Home Loan Bank (FHLB).
The Company has also begun to explore deposit opportunities in the brokered
certificate of deposit market to help provide liquidity to fund loan growth.
The Federal Reserve Board has adopted risk-based capital guidelines that
assign risk weightings to assets and off-balance sheet items and also define
and set minimum capital requirements (risk-based capital ratios). Bank
holding companies must maintain total risk-based, Tier 1 risk-based and Tier
1 leverage ratios of 8%, 4% and 3%, respectively. At March 31, 2000,
InterCounty had a total risk-based capital ratio of 14.26%, a Tier 1 risk-
based capital ratio of 13.34%, and a Tier 1 leverage ratio of 8.87%.
PART II. OTHER INFORMATION
INTERCOUNTY BANCSHARES, INC. and SUBSIDIARIES
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Since December 31, 1999, there have been no material changes in the Company's
market risks, which for the Company is primarily interest rate risk.
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PART II. OTHER INFORMATION
INTERCOUNTY BANCSHARES, INC. and SUBSIDIARIES
Item 1. Legal Proceedings - Not Applicable
Item 2. Changes in Securities and Use of Proceeds - Not Applicable
Item 3. Defaults Upon Senior Securities - Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders - Not
Applicable
Item 5. Other Information - Not Applicable
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
Exhibit
No. Description
11 Computation of Consolidated
Earnings Per Common Share
For the Three Months Ended
March 31, 2000 and 1999
15 Letter of J.D. Cloud & Co. L.L.P.
Independent Certified
Public Accountants,
dated May 3, 2000,
relating to Financial Information
27 Financial Data Schedule for
the Three Months Ended
March 31, 2000
99 Safe Harbor Under the Private
Securities Litigation Reform Act
of 1995
b. The Company was not required to file Form 8-K during the quarter
ended March 31, 2000.
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SIGNATURES
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.
INTERCOUNTY BANCSHARES, INC.
Registrant
Date: May 4, 2000 /s/Charles L. Dehner
--------------------
Charles L. Dehner
Treasurer, Executive Vice President
and Principal Accounting Officer
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