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 June 30, 2001
Commission file number 0-23134
NB&T FINANCIAL GROUP, INC.
(Formerly knows as 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)
(937) 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 August 1, 2001, was 3,121,922.
NB&T FINANCIAL GROUP, INC.
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets -
June 30, 2001, December 31, 2000
and June 30, 2000 . . . . . . . . . . . . . . . . . . . . 1
Consolidated Statements of Income -
Three and six Months Ended June 30, 2001
and 2000. . . . . . . . . . . . . . . . . . . . . . . . . 2
Consolidated Statements of Comprehensive Income
and Changes in Shareholders' Equity -
Six Months Ended June 30, 2000 and 2001 . . . . . . . . .3-4
Consolidated Statements of Cash Flows -
Six Months Ended June 30, 2001 and 2000 . . . . . . . . .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. . . . 10-16
Item 3. Quantitative and Qualitative Disclosures
about Market Risks. . . . . . . . . . . . . . . . . . .16
Part II. Other Information
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . 17
Item 2. Changes in Securities and Use of Proceeds . . . . . . . 17
Item 3. Defaults Upon Senior Securities . . . . . . . . . . . . 17
Item 4. Submission of Matters to a Vote of Security Holders . . 17
Item 5. Other Information . . . . . . . . . . . . . . . . . . . 17
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . 17
Part I - Financial Information
Item 1. Financial Statements
NB&T FINANCIAL GROUP, INC. and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
At June 30, 2001, December 31, 2000 and June 30, 2000
(thousands)
June 30, December 31, June 30,
2001 2000 2000
(unaudited) (a) (unaudited)
<s> <c> <c> <c>
ASSETS:
Cash and due from banks $ 20,377 $ 19,331 $ 19,921
Federal funds sold 28,858 15 147
Interest bearing deposits in banks 158 49 1
------- ------- -------
Total cash and cash equivalents 49,393 19,395 20,069
Securities available for sale, at
market value 123,223 115,836 101,438
Securities held to maturity (market
value, $44,720, $44,268, and $42,158) 44,401 44,374 44,348
------- ------- -------
Total securities 167,624 160,210 145,786
Loans 361,986 374,101 370,818
Less-allowance for loan losses 3,981 3,802 3,508
------- ------- -------
Net loans 358,005 370,299 367,310
Loans held for sale 1,545 1,519 1,564
Premises and equipment 12,554 11,532 11,501
Earned income receivable 4,589 5,002 4,184
Other assets 12,637 11,275 2,864
------- ------- -------
TOTAL ASSETS $606,347 $579,232 $553,278
======= ======= =======
LIABILITIES:
Demand deposits $ 42,129 $ 42,965 $ 41,026
Savings, NOW, and money market
deposits 163,735 147,470 141,843
Certificates $100,000 and over 58,309 43,040 43,468
Other time deposits 169,100 173,213 162,802
------- ------- -------
Total deposits 433,273 406,688 389,139
Short-term borrowings 33,160 40,148 34,802
Long-term debt 86,323 80,323 80,431
Other liabilities 3,618 2,591 2,929
------- ------- -------
TOTAL LIABILITIES 556,374 529,750 507,301
------- ------- -------
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 8,144 8,128 8,080
Unearned ESOP shares, at cost (303) (299) (406)
Retained earnings 46,399 44,742 44,760
Accumulated other comprehensive
income (loss), net of taxes 715 223 (3,135)
Treasury shares, at cost, 697,028
shares at June 30, 2001; 613,666
at December 31, 2000; 615,166 shares
at June 30, 2000 (5,982) (4,312) (4,322)
------- ------- -------
TOTAL SHAREHOLDERS' EQUITY 49,973 49,482 45,977
------- ------- -------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $606,347 $579,232 $553,278
======= ======= =======
<FN>
(a) Financial information as of December 31, 2000, 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
NB&T FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(thousands, except shares and per share data)
(unaudited)
Three Months Ended Six Months Ended
June 30 June 30
------------------ ----------------
2001 2000 2001 2000
<s> <c> <c> <c> <c>
INTEREST INCOME:
Interest and fees on loans $ 7,546 $7,794 $15,564 $15,283
Interest on securities
available for sale:
Taxable 1,766 1,607 3,632 3,271
Non-taxable 258 108 366 216
Interest on securities held
to maturity - non-taxable 568 575 1,137 1,155
Interest on deposits in banks 4 2 5 8
Interest on federal funds sold 256 13 408 18
------ ------ ------ ------
TOTAL INTEREST INCOME 10,398 10,099 21,112 19,951
------ ------ ------ ------
INTEREST EXPENSE:
Interest on savings, NOW and
money market deposits 1,135 997 2,291 1,959
Interest on time certificates
$100,000 and over 845 633 1,631 1,189
Interest on other deposits 2,451 2,208 4,980 4,207
Interest on short-term borrowings 354 460 867 976
Interest on long-term debt 1,133 1,150 2,257 2,216
------ ----- ------ ------
TOTAL INTEREST EXPENSE 5,918 5,448 12,026 10,547
------ ----- ------ ------
NET INTEREST INCOME 4,480 4,651 9,086 9,404
PROVISION FOR LOAN LOSSES 375 375 750 850
------ ----- ------ ------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 4,105 4,276 8,336 8,554
------ ----- ------ ------
NON-INTEREST INCOME:
Trust services 318 338 612 624
Service charges on deposits 478 460 907 839
Other service charges and fees 76 81 154 169
ATM network fees 214 175 417 336
Insurance agency commissions 455 334 735 633
Securities gains 260 - 260 -
Income from Boli 158 - 320 -
Other 213 189 471 367
------ ----- ------ ------
TOTAL NON-INTEREST INCOME 2,172 1,577 3,876 2,968
------ ----- ------ ------
NON-INTEREST EXPENSES:
Salaries 1,885 1,623 3,666 3,340
Employee benefits 351 321 676 646
Equipment 643 586 1,231 1,149
Occupancy 249 218 488 432
State franchise tax 144 101 282 239
Marketing 159 125 270 251
Other 973 975 1,966 1,852
----- ----- ------ ------
TOTAL NON-INTEREST EXPENSE 4,404 3,949 8,579 7,909
----- ----- ------ ------
INCOME BEFORE INCOME TAX 1,873 1,904 3,633 3,613
PROVISION FOR INCOME TAX 337 371 652 762
----- ----- ------ ------
NET INCOME $1,536 $1,533 $2,981 $2,851
===== ===== ===== =====
Basic earnings per common share $ .48 $ .48 $ .94 $ .90
Diluted earnings per common share .48 .48 .94 .89
Dividends declared per common share .21 .19 .42 .38
AVERAGE SHARES OUTSTANDING:
To compute basic earnings
per common share 3,170,377 3,177,706 3,183,192 3,176,384
To computed diluted earnings
per common share 3,184,032 3,206,382 3,198,554 3,210,716
The accompanying notes to financial statements are an integral part of these
statements.
-2-
Part I - Financial Information
(Continued)
Item 1. Financial Statements
NB&T FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME and CHANGES IN SHAREHOLDERS' EQUITY
(thousands, except per share data)
(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
<s> <c> <c> <c> <c> <c> <c> <c>
Balance January 1, 2000 $1,000 $7,921 $(405) $38,846 $(3,331) $44,031
Comprehensive
Income:
Net income 2,851 2,851 $2,851
Net unrealized gains
on securities available
for sale (net of taxes
of $102) 196 196 196
-----
Total comprehensive income $3,047
=====
Dividends declared
($0.38 per share) (1,210) (1,210)
Treasury shares purchased (221) (221)
Stock options exercised 133 172 305
ESOP shares earned 26 (1) 25
----- ----- --- ------ ----- ------
Balance June 30, 2000 $1,000 $8,080 $(406) $40,438 $(3,135) $45,977
===== ===== === ====== ===== ======
-3-
Part I - Financial Information
(Continued)
Item 1. Financial Statements
NB&T FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME and CHANGES IN SHAREHOLDERS' EQUITY (Continued)
(thousands, except per share data)
(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
<s> <c> <c> <c> <c> <c> <c> <c>
Balance January 1, 2001 $1,000 $8,128 $(299) $40,430 $ 223 $49,482
Comprehensive
Income:
Net income 2,981 2,981 $2,981
Net unrealized gains
on securities available
for sale (net of taxes
of $342) 664 664 664
Reclassification
adjustment for net
realized gain on sale
of available-for-sale
securities included in
net income (net of
tax benefit of $88) (172) (172) (172)
-----
Total comprehensive income $3,473
=====
Dividends declared
($0.42 per share) (1,325) (1,325)
Treasury shares purchased (1,671) (1,671)
Stock options exercised 2 2 4
ESOP shares earned 14 (4) 10
----- ----- --- ------ ----- ------
Balance June 30, 2001 $1,000 $8,144 $(303) $40,417 $ 715 $49,973
===== ===== === ====== ===== ======
-4-
Part I - Financial Information
(Continued)
Item 1. Financial Statements
NB&T FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(thousands)
(unaudited)
Six Months Ended
June 30
------------------
2001 2000
<s> <c> <c>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,981 $ 2,851
Adjustments for non-cash items -
Depreciation, amortization and accretion 741 739
Provision for loan losses 750 850
Realized gains on securities available for sale (260) -
Gain on loan sale (82) -
Increase in BOLI (320) -
Origination of mortgage loans held for sale (4,359) -
Proceeds from mortgage loans held for sale 4,380 -
Decrease (increase) in mortgage loans held for sale (26) 35
Decrease in income receivable 460 137
Increase in other assets (626) (181)
Increase in interest payable 52 201
Increase in income taxes payable 164 286
Increase (decrease) in other liabilities 512 (258)
FHLB stock dividends (214) (198)
ESOP shares earned 19 25
------ ------
NET CASH PROVIDED BY OPERATING ACTIVITIES 4,172 4,497
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of securities available
for sale 39,725 4,770
Proceeds from sales of securities available for sale 8,260 4,951
Purchases of securities available for sale (54,158) -
Proceeds from loan sales 8,950 -
Net decrease (increase) in loans 2,676 (20,427)
Purchases of premises and equipment (1,806) (489)
Acquisition of insurance agencies (468) -
------ ------
NET CASH USED IN INVESTING ACTIVITIES 3,179 (11,195)
------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 26,585 9,207
Net increase (decrease) in short-term borrowings (6,988) (5,556)
Additions to long-term debt 6,000 5,000
Cash dividends paid (1,283) (1,143)
Proceeds from stock options exercised 4 142
Purchase of treasury shares (1,671) (221)
------ ------
NET CASH PROVIDED BY FINANCING ACTIVITIES 22,647 7,429
------ ------
NET CHANGE IN CASH AND CASH EQUIVALENTS 29,998 731
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 19,395 19,338
------ ------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 49,393 $ 20,069
====== ======
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 11,974 $ 10,346
Income taxes paid 488 604
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
NB&T FINANCIAL GROUP, INC. AND SUBSIDIARY
BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with U.S. 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 U.S. generally accepted accounting principles for complete
financial statements. In the opinion of management of NB&T Financial
Group, Inc. (the "Company") 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 U.S. 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 six-month period ended
June 30, 2001, are not necessarily indicative of the results to be expected
for the full year to end December 31, 2001. 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 on Form 10-K for the year ended
December 31, 2000 filed with the Securities and Exchange Commission.
LOANS
During the quarter ended March 31, 2001, the Company sold $8.8 million of
real estate loans and recognized a gain of $82 thousand.
Changes in the allowance for loan losses for the six-month periods ended
June 30 were as follows:
2001 2000
---- ----
<s> <c> <c>
Balance at beginning of period $3,802 $3,222
Provision for loan losses 750 850
Charge-offs (699) (723)
Recoveries 128 159
----- -----
Balance at end of period $3,981 $3,508
===== =====
-6-
PART I. FINANCIAL INFORMATION
(Continued)
Item 1. Notes to Consolidated Financial Statements (Continued)
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 would have been reduced by $20 and $17
thousand in the three-month periods ended June 30, 2001 and 2000,
respectively, and $41 and $27 thousand in six-month periods then ended.
Earnings per share would have been reduced by $.01 in the six-month
period ended June 30, 2001. Earnings per share for the three-month
periods ended June 30, 2001 and 2000, and the six-month period ended
June 30, 2000 would not have been impacted.
RECENT ACQUISITIONS
On May 3, 2001, The National Bank and Trust Company (NB&T) acquired two
related insurance agencies located in Wilmington and Greenfield, Ohio for
approximately $865 thousand in cash and other obligations. The acquisition
was accounted for as a purchase transaction, and the aggregate purchase
price was assigned to the net assets acquired based on their fair value on
the dates of acquisition. The assets, liabilities and results of operation
since the acquisition date are included in the accompanying financial
statements.
On July 9, 2001, NB&T and Sabina Bank, subsidiary of Premier Financial
Bancorp, Inc., jointly announced the signing of a definitive agreement for
the acquisition by NB&T of the business of Sabina Bank. Sabina Bank operates
three offices in Sabina, Ada and Waynesfield, Ohio. Under the terms of the
Agreement, NB&T will acquire substantially all of the assets and assume
specified liabilities, including the deposits, of Sabina Bank. NB&T will
pay to Premier Financial Bancorp in cash an amount equal to 2.25 times the
regulatory Tier I capital of Sabina Bank, less intangible assets and certain
other amounts. Based on financial data as of March 31, 2001, that amount
would have been $11.5 million. The transaction is expected to be consummated
before the end of the year, subject to regulatory approval and customary
conditions of closing, and will be accounted for as a purchase transaction.
EFFECT OF RECENT ACCOUNTING STANDARDS
In June 2001, the Financial Accounting Standards Board issued Statements
of Financial Accounting Standards No. 141, Business Combinations, and No.
142, Goodwill and Other Intangible Assets, effective for fiscal years
beginning after December 15, 2001. Under the new rules, goodwill will no
longer be amortized but will be subject to annual impairment tests in
accordance with the Statements. Other intangible assets will continue
to be amortized over their useful lives.
-7-
The Company will apply the new rules on accounting for goodwill and other
intangible assets beginning in the first quarter of 2002. During 2002,
the Company will perform the first of the required impairment tests of
goodwill as of January 1, 2002 and has not yet determined what the effect
of these tests will be on the earnings and financial position of the
Company.
COMMITMENTS AND CONTINGENT LIABILITIES
The Company is a party to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of its
customers. These financial statements include commitments to extend credit
and standby letters of credit. They involve, to varying degrees, elements
of credit risk in excess of the amount recognized in the balance sheet. The
Company's exposure to credit loss in the event of nonperformance by the other
party to the financial instrument for commitments to extend credit is
represented by contract amount of those instruments.
The Company used the same credit policies in making commitments and
conditional obligations as it does for on-balance-sheet instruments.
Financial instruments whose contract amounts represent off-balance-sheet
credit risk at June 30, 2001 were as follows (thousands):
<s> <c>
Commitments to extend credit $33,783
Standby letters of credit 1,686
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses. Since many of the commitments are expected to expire without being
drawn upon, the total commitment amounts do not necessarily represent future
cash requirements.
The Company evaluates each customer's credit worthiness on a case-by-case
basis. The amount of collateral obtained if deemed necessary by the Company
is based on management's credit evaluation of the counter party. Collateral
held varies, but may include accounts receivable, crops, inventory, property,
plant and equipment, and income-producing commercial properties.
Standby letters of credit are conditional commitments issued by the Company
to guarantee the performance of a customer to a third party. At June 30,
2001, standby letters of credit were primarily issued to support public bond
financing by state and local government units and entities involved in
development and maintenance and repair. They expire during the period from
2001 through 2012.
The Company is party to various claims and proceedings arising in the normal
course of business. Management, after consultation with legal counsel,
believes that the liabilities, if any, arising from such proceedings and
claims will not be material to the consolidated financial position or results
of operations.
-8-
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
To the Shareholders and Board of Directors
NB&T FINANCIAL GROUP, INC.
We have reviewed the accompanying consolidated balance sheets of NB&T
Financial Group, Inc. (formerly known as InterCounty Bancshares, Inc.) and
subsidiaries as of June 30, 2001 and 2000, the related consolidated
statements of income for each of the three-month and six-month periods
ended June 30, 2001 and 2000, and the related consolidated statements of
comprehensive income and changes in shareholders' equity, and cash flows
for each of the six-month periods ended June 30, 2001 and 2000. 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 U.S. 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 U.S. generally accepted accounting
principles.
We previously audited, in accordance with U.S. generally accepted auditing
standards, the consolidated balance sheet as of December 31, 2000 (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 7, 2001, 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, 2000, is fairly stated in all material
respects.
/s/ J.D. Cloud & Co. L.L.P.
-----------------------------
J.D. Cloud & Co. L.L.P.
Cincinnati, Ohio
August 10, 2001
-9-
PART I. FINANCIAL INFORMATION
(Continued)
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
NB&T FINANCIAL GROUP, INC. AND SUBSIDIARIES
Results of Operation
Net income for the second quarter of 2001 was $1.54 million, compared to
$1.53 million for the second quarter of 2000. Net income per share-basic was
$.48 for the second quarter of 2001, the same as the second quarter of 2000.
Net income for the first six months of 2001 was $2.98 million, an increase of
4.6% from 2000. Net income per share-basic was $.94 through June 30, 2001,
compared to $.90 through the same date in 2000.
The second quarter of 2001 showed a decrease in net interest income of 3.7%
compared to the same quarter last year. Although interest income increased
3.0%, interest expense increased 8.6% when comparing these two amounts to the
same period last year. Average loan growth was achieved in small business
loans, up 3.3%, and home equity loans, up 11.4%, but the sale of $8.8 million
of real estate loans at the end of the first quarter resulted in a net
decrease of 0.3% in average loans when compared to the same period last year.
As a result, excess funds were invested in the securities portfolio, which
showed an increase of 16.2% in the average balance when compared to the same
period of 2000. This change in the mix of the balance sheet, and significant
decreases in market rates, decreased the tax equivalent yield on interest-
earning assets from 8.08% in the second quarter of 2000 to 7.61% in the
second quarter of 2001.
Average interest-bearing liabilities increased 11.7% to $509.2 million, and
their cost decreased to 4.66% from 4.81% when comparing the second quarter of
2001 to the second quarter of 2000. The volume growth in average interest-
bearing liabilities was composed of $19.2 million in NOW and money market
accounts, $27.8 million in both retail and large certificates of deposit,
and $6.0 million in additional long-term borrowing.
The tax equivalent net interest margin decreased from 3.82% in the second
quarter of 2000 to 3.37% in the second quarter of 2001 as a result of the
decline in tax equivalent yield on average interest-earning assets, partially
offset by the decrease in the cost of average interest-bearing liabilities.
Net interest income for the first six months of 2001 decreased 3.4% from the
same period last year. Average interest-earning assets increased 8.6% from
last year, and the tax equivalent yield on these decreased from 8.04% to
7.84%. Average interest-bearing liabilities increased 10.6%, while the cost
increased from 4.68% to 4.84%. Tax equivalent net interest margin was 3.46%
during the first six months of 2001 versus 3.88% in 2000.
-10-
PART I. FINANCIAL INFORMATION
(Continued)
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
The provision for loan losses was the same as the second quarter of last
year. Net charge-offs for the second quarter of 2001 were $316,000, .09%
of average loans, compared to $203,000, .06% of average loans for the prior
year. The provision for loan losses year-to-date 2001 was $750,000, compared
to $850,000 for the same period in 2000. Net charge-offs year-to-date 2001
were .15% of average loans, compared to .16% for the prior year.
The allowance is an amount that management believes will be adequate to
absorb potential losses on existing loans that may become uncollectible.
This evaluation is based on prior loan loss experience and such factors as
changes in the nature and volume of the loan portfolio, overall portfolio
quality, review of specific problem loans, and current economic conditions
that may affect the borrowers' ability to pay.
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):
June 30 December 31 June 30
2001 2000 2000
------ ------ ------
<s> <c> <c> <c>
Loans accounted for on
non-accrual basis $7,896 $4,098 $3,600
Accruing loans which are
past due 90 days or more 352 113 609
Renegotiated loans 0 0 0
----- ----- -----
Total $8,248 $4,211 $4,209
----- ----- -----
The increase in non-accrual loans was due to one of the problem loans
reported in the 2000 Annual Report to Shareholders being placed on non-
accrual status. As of June 30, 2001, the $7,896,000 in non-accrual loans
consisted of $6,800,000 in four commercial loan relationships. The largest
relationship is with a longstanding customer whose outstanding balances with
the Bank total approximately $6,000,000. Of this amount, $4,100,000 is
collateralized by a first mortgage on commercial property with an 80% U.S.
Department of Agriculture (USDA) government guarantee. Several meetings have
taken place with the customer with the intent of restructuring a portion of
the debt. Due to the many variables affecting the restructuring, a loss, if
any, to the Bank cannot be determined. Another relationship is with Bush
-11-
PART I. FINANCIAL INFORMATION
(Continued)
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
Leasing, Inc., a company whose primary owner is George F. Bush, a former
director of the Company. The servicing and collection of the related
receivables of $570,000 has been outsourced. Management is unable to
determine the potential for losses on these accounts since the receivables
are collateralized with vehicles whose condition at the end of the lease can
either negatively or positively impact the final amount received. The other
two of the four commercial relationships consist of loans that are
collateralized with general UCC chattels and various titled vehicles.
The remaining $1,096,000 in non-accrual loans consists of thirty accounts
that are collateralized by either a first or second mortgage on real estate
and are expected to be resolved through term payments or through liquidation
of collateral in the normal course of business. The anticipated loss in the
year 2001 from the remaining $1,096,000 in non-accrual loans is $187,000.
Projected losses are based on currently available information and actual
losses may differ significantly from those discussed above.
In addition, management has identified one relationship that is not included
in the non-performing categories at June 30, 2001, but about 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. That one
relationship's total outstanding balance is $399,000 with a 75% government
guarantee supporting the account. Management is unable to determine any loss
potential at this time.
At June 30, 2001, the Company's allowance for loan losses totaled $3.98 million
and was allocated to specifically classified loans and was generally based on a
three-year net charge-off history. The following table sets forth an analysis
of the Company's allowance for losses on loans for the periods indicated (in
thousands):
Six Months Ended
June 30
2001 2000
------------------
<s> <c> <c>
Balance, beginning of period $3,802 $3,222
Charge-offs:
Commercial 89 401
Residential real estate 44 2
Installment 551 318
Credit Card - -
Other 15 2
----- -----
Total 699 723
----- -----
-12-
PART I. FINANCIAL INFORMATION
(Continued)
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
Recoveries:
Commercial 10 44
Residential real estate - -
Installment 115 113
Credit Card - 1
Other 2 1
----- -----
Total 127 159
----- -----
Net Charge-offs (571) (564)
Provision for loan losses 750 850
----- -----
Balance, end of period $3,981 $3,508
===== =====
Non-interest income, excluding securities gains, was $1,912,000 for the
second quarter of 2001, an increase of 21.2% from the $1,577,000 earned in
the second quarter of 2000. This increase was primarily due to increases
in ATM network fees, Bank Owned Life Insurance (BOLI) income, and insurance
agency commissions. Additionally, $260,000 in gains on the sale of
securities was recorded in the second quarter of 2001. For the first six
months of 2001, non-interest income, excluding securities gains, was
$3,616,000, 21.8% above the first six months of 2000.
Non-interest expense increased 11.5% for the quarter over the same period
in 2000. Salaries and benefits increased 15.0% for the quarter partially
due to accrued expense reductions in the second quarter last year related
to incentive compensation plans. Equipment expense increased 9.7% from last
year due to the continued upgrade of the computer network. Occupancy expense
increased 14.7% for the quarter, primarily the result of increased utility
costs. State franchise tax has increased 41.2% from the second quarter last
year due to the increase in capital on which it is based. Other increases
include legal and professional fees related to problem loan workouts, up 9.3%
from the second quarter of last year. For the first six months of 2001, non-
interest expense was $8.58 million, 8.5% above the first six months of 2000
due primarily to the same reasons as described above.
The Company's effective tax rate decreased to 18.0% during the second quarter
of 2001 from 19.5% for the second quarter of 2000, primarily due to non-
taxable BOLI income.
Performance ratios for the second quarter of 2001 included a return on assets
of 1.02%, and a return on equity of 12.12%. For the first half of 2001,
return on assets was 1.01%, and return on equity was 11.96%.
-13-
PART I. FINANCIAL INFORMATION
(Continued)
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
Financial Condition
The changes that have occurred in the Company's financial condition during
2001 are as follows (in thousands):
June 30 December 31
2001 2000 Amount Percent
------- --------- ------ --------
<s> <c> <c> <c> <c>
Total Assets $606,347 $579,232 $27,115 5%
Federal Funds Sold 28,858 15 28,843 N/M
Loans 361,986 374,101 (12,115) (3)
Securities 167,624 160,210 7,414 5
Demand deposits 42,129 42,965 (836) (2)
Savings, Now, MMDA deposits 163,735 147,470 16,265 11
CD's $100,000 and over 58,309 43,040 15,269 35
Other time deposits 169,100 173,213 (4,113) (2)
Total deposits 433,273 406,688 26,585 7
Short-term borrowing 33,160 40,148 (6,988) (17)
Long-term borrowing 86,323 80,323 6,000 7
Total assets have increased $27.1 million as a result of funds generated
from increases in deposits and long-term borrowing during 2001. The loan
portfolio shows a net decrease from December 31, 2000 due to an $8.8 million
loan sale at the end of the first quarter and decreased loan demand in the
commercial and indirect personal loan portfolios. The securities portfolio
has increased slightly since year-end, although the majority of the excess
funds have remained short-term in Federal Funds sold. Deposit growth has
occurred in the more liquid transaction accounts and large certificates of
public funds deposits. Short-term borrowing has been reduced as a result
of the elimination of the need for overnight borrowing.
Total assets grew 9.6% from the end of the second quarter of 2000, to a total
of $606.3 million. Total loans decreased to $362.0 million, a decrease of
2.4% from June 30, 2000. The average amount of commercial loans in the
second quarter of 2001 grew $4.9 million (3.3%) compared to the second
quarter of 2000, and the home equity loan average grew $2.7 million (11.4%)
between the two comparable periods. The securities portfolio average for
the second quarter 2001 has increased $23.7 million (16.2%) from the second
quarter of last year. Most of the purchases were of U.S. Agency callable
bonds with maturities in the two-year to five-year range.
-14-
PART I. FINANCIAL INFORMATION
(Continued)
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
Total deposits increased 11.3% from the end of the second quarter of 2000
to $433.3 million. Second quarter average interest-bearing liabilities grew
$53.4 million (11.7%) from the second quarter average in 2000. Second
quarter 2001 average interest-bearing transaction accounts increased $19.2
million (17.8%), average large certificates increased $17.6 million (40.4%),
and average small certificates increased $10.3 million (6.5%), all from the
second quarter average in 2000.
Average long-term borrowing increased $6.0 million (7.5%) from the second
quarter of 2000. At June 30, 2001 and 2000, the Bank had outstanding $86.0
million and $80.0 million, respectively, of total borrowings from the Federal
Home Loan Bank (FHLB). In January 2001 a $30 million variable-rate note that
adjusts quarterly at the three-month LIBOR rate was paid off and restructured
into three $12 million notes with a weighted average rate of 5.01% and
maturity dates in January 2011.
Total equity increased 8.7% from June 30, 2000 to $50.0 million at June 30,
2001. Book value per share was $16.01 at June 30, 2001, compared to $14.35
at June 30, 2000. Equity to assets was 8.24%, compared to 8.31% at the end
of the second quarter of last year. These increases are attributable, in
part, to the general decreases in market interest rates and the resulting net
unrealized gain on securities available for sale of $.7 million at June 30,
2001, compared to a net unrealized loss of $3.1 million a year ago. Also, on
June 1 the Company purchased 83,632 of Company shares from Wilmington College
at $20 per share for a total purchase price of $1.7 million. These shares
represent 2.6% of the shares outstanding. These shares will initially be
held in treasury, although the Company may eventually use these shares for
employee stock benefit plans.
Effect of Recent Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, Business Combinations, and No. 142,
Goodwill and Other Intangible Assets, effective for fiscal years beginning
after December 15, 2001. Under the new rules, goodwill will no longer be
amortized but will be subject to annual impairment tests in accordance with
the Statements. Other intangible assets will continue to be amortized over
their useful lives.
The Company will apply the new rules on accounting for goodwill and other
intangible assets beginning in the first quarter of 2002. During 2002, the
Company will perform the first of the required impairment tests of goodwill
as of January 1, 2002 and has not yet determined what the effect of these
tests will be on the earnings and financial position of the Company.
-15-
PART I. FINANCIAL INFORMATION
(Continued)
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
Recent Acquisitions
On May 3, 2001, The National Bank and Trust Company (NB&T), a subsidiary
of NB&T Financial Group, Inc, acquired Bacon & Associates Agency, Inc. of
Wilmington, Ohio and Bacon & Dettwiller Affiliated Insurance Agencies, Inc.
in Greenfield, Ohio, which were then merged into the NB&T Insurance Agency.
The transaction was structured as a purchase of the shares of the two
agencies for cash.
On July 9, 2001, NB&T and Sabina Bank, subsidiary of Premier Financial
Bancorp, Inc., jointly announced the signing of a definitive agreement for
the acquisition by NB&T of the business of Sabina Bank. Sabina Bank operates
three offices in Sabina, Ada and Waynesfield, Ohio.
Under the terms of the Agreement, NB&T will acquire substantially all of the
assets and assume specified liabilities, including the deposits, of Sabina
Bank. NB&T will pay to Premier Financial Bancorp in cash an amount equal to
2.25 times the regulatory Tier I capital of Sabina Bank, less intangible
assets and certain other amounts. Based on financial data as of March 31,
2001, that amount would have been $11.5 million.
The acquisition will not require the approval of the shareholders of either
NB&T Financial Group or Premier Financial Bancorp. The transaction is
expected to be consummated before the end of the year, subject to regulatory
approval and customary conditions of closing.
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 June 30, 2001, was 83.5%,
compared to 95.3% at the same date in 2000. Loans to total assets were 60.0%
at the end of the second quarter of 2001, compared to 67.0% at the same time
last year. Management strives to keep this ratio below 70%. The securities
portfolio consists of 74% available-for-sale securities that are readily
marketable. Approximately 56% 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. Also, a stable
deposit base, consisting of 86% 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 the ability to obtain deposits in the
brokered certificate of deposit market to help provide liquidity to fund loan
growth.
-16-
PART I. FINANCIAL INFORMATION
(Continued)
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
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 June 30, 2001, NB&T had
a total risk-based capital ratio of 14.03%, a Tier 1 risk-based capital ratio
of 12.98%, and a Tier 1 leverage ratio of 8.12%.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Since December 31, 2000, the Company has become slightly asset sensitive
compared to being liability sensitive in the zero- to one-year range. This
is the result of an eleven percent deposit growth and a two percent decrease
in loans being invested in short-term instruments. This change has not
caused any guidelines established by the Asset Liability Management Committee
to be violated.
-17-
PART II. OTHER INFORMATION
NB&T FINANCIAL GROUP, INC.
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
On April 24, 2001, the Annual Meeting of the shareholders of the Company was
held. The following members of the Board of Directors of the Company were
re-elected for terms expiring in 2003 by the votes indicated:
FOR WITHHELD
S. Craig Beam 2,787,370 8,235
James W. Foland 2,787,370 8.235
Darleen M. Myers 2,787,370 8,235
Robert A. Raizk 2,787,370 8,235
Janet M. Williams 2,787,370 8,235
In addition, the following two matters were approved by the votes indicated:
1. The adoption of an amendment to the Second Amended and Restated Articles
of Incorporation of the Company to change the name of the Company to NB&T
Financial Group, Inc.:
FOR AGAINST ABSTAIN BROKER NON-VOTE
2,795,085 0 520 0
2. The adoption of an amendment to the Amended Code of Regulations of the
Company to change the name of the Company to NB&T Financial Group, Inc.,
effective upon the effectiveness of the amendment to the Articles of
Incorporation.
FOR AGAINST ABSTAIN BROKER NON-VOTE
2,795,085 0 520 0
Item 5. Other Information - Not Applicable
-18-
PART II. OTHER INFORMATION
(Continued)
NB&T FINANCIAL GROUP, INC.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
Exhibit
No. Description
2 Asset Purchase and Liability
Assumption Agreement (Incorporated
by reference to Current Report on
Form 8-K filed on July 9, 2001)
3.1 Second Amended and Restated Articles
of Incorporation, as amended
3.2 Amended Code of Regulation, as
amended
11 Computation of Consolidated
Earnings Per Common Share
For the Three and Six Months
Ended June 30, 2001 and 2000
15 Letter of J.D. Cloud & Co. L.L.P.
Independent Certified
Public Accountants,
dated August 10, 2001,
relating to Financial Information
Item 6. Exhibits and Reports on Form 8-K (continued)
99 Safe Harbor Under the Private
Securities Litigation Reform Act
of 1995.
b. The Company filed a Form 8-K with the Securities and Exchange
Commission on April 24, 2001 regarding a press release announcing
the results of operations for the first quarter 2001. A form 8-K
was filed on May 4, 2001 regarding the announcement of the
acquisition of Bacon & Associates Agency, Inc. and Bacon &
Dettwiller Affiliated Insurance Agencies, Inc. A Form 8-K was
filed on June 6, 2001 regarding a press release announcing the
purchase of treasury shares.
-19-
PART II. OTHER INFORMATION
NB&T FINANCIAL GROUP, INC.
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.
NB&T FINANCIAL GROUP, INC.
Registrant
Date: August 14, 2001 /s/Charles L. Dehner
-----------------------------------
Charles L. Dehner
Treasurer, Executive Vice President
and Principal Accounting Officer
-20-