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, 1997
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, 1997, was 1,547,238 shares.
INTERCOUNTY BANCSHARES, INC.
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets -
March 31, 1997, December 31, 1996
and March 31, 1996 . . . . . . . . . . . . . . . . . . . .1
Consolidated Statements of Income -
Three Months Ended March 31, 1997 and 1996. . . . . . . . .2
Consolidated Statements of Cash Flows -
Three Months Ended March 31, 1997 and 1996 . . . . . . . .3
Notes to Consolidated Financial Statements . . . . . . . . .4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. . . . . 5-9
Part II. Other Information
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . .10
Item 2. Changes in Securities . . . . . . . . . . . . . . . . . .10
Item 3. Defaults Upon Senior Securities . . . . . . . . . . . . .10
Item 4. Submission of Matters to a Vote of Security Holders . . .10
Item 5. Other Information . . . . . . . . . . . . . . . . . . . .10
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . .10
Part I - Financial Information
Item 1. Financial Statements
INTERCOUNTY BANCSHARES, INC. and
THE NATIONAL BANK & TRUST COMPANY
CONSOLIDATED BALANCE SHEETS
At March 31, 1997, December 31, 1996 and March 31, 1996
(thousands)
March 31, December 31, March 31,
1997 1996 1996
(unaudited) (a) (unaudited)
ASSETS:
Cash and due from banks $ 13,781 11,005 15,108
Federal funds sold 2,962 1,016 9,555
------- ------- -------
Total cash and cash equivalents 16,743 12,021 24,663
Interest-bearing deposits in banks 124 126 133
Securities available for sale, at
market value 88,110 81,368 80,690
Securities held to maturity (market
value-$7,458, $8,016, and $8,321) 7,018 7,463 7,566
------- ------- -------
Total securities 95,128 88,831 88,256
Loans 270,118 269,282 246,694
Less-allowance for loan losses 2,650 2,686 2,626
------- ------- -------
Net loans 267,468 266,596 244,068
Premises and equipment 9,160 8,653 8,090
Earned income receivable 3,223 3,308 3,202
Other assets 2,315 1,072 566
------- ------- -------
TOTAL ASSETS $394,161 380,607 368,978
======= ======= =======
LIABILITIES:
Demand deposits $ 34,589 35,731 34,523
Savings, NOW, and money market
deposits 115,013 112,726 109,960
Certificates $100,000 and over 22,363 18,788 18,988
Other time deposits 143,672 141,883 133,934
------- ------- -------
Total deposits 315,637 309,128 297,405
Short-term borrowings 37,503 31,113 33,807
Long-term debt 892 914 1,087
Other liabilities 2,953 2,704 2,576
------- ------- -------
TOTAL LIABILITIES 356,985 343,859 334,875
------- ------- -------
SHAREHOLDERS' EQUITY:
Preferred stock-no par value,
authorized 100,000 shares; none
issued
Common stock-no par value, authorized
3,000,000 shares; issued 1,909,475
shares 1,000 1,000 1,000
Surplus 7,380 7,246 7,228
Net unrealized gain (loss) on
securities available for sale (110) 424 807
Unearned ESOP shares, at cost (731) (732) (844)
Retained earnings 32,723 31,869 28,725
Treasury shares, at cost, 362,237
shares at March 31, 1997; 369,436
at December 31, 1996; 360,498 shares
at March 31, 1996 (3,086) (3,059) (2,813)
------- ------- -------
TOTAL SHAREHOLDERS' EQUITY 37,176 36,748 34,103
------- ------- -------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $394,161 380,607 368,978
======= ======= =======
<FN>
(a) Financial information as of December 31, 1996, 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
THE NATIONAL BANK & TRUST COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(thousands)
(unaudited)
Three Months Ended
March 31
----------------------
1997 1996
INTEREST INCOME:
Interest and fees on loans $ 5,822 5,306
Interest on securities available for sale -
taxable 1,456 1,458
Interest on securities held to maturity -
non-taxable 152 157
Interest on deposits in banks 2 2
Interest on federal funds sold 12 38
----- -----
TOTAL INTEREST INCOME 7,444 6,961
----- -----
INTEREST EXPENSE:
Interest on savings, NOW and money
market deposits 793 703
Interest on time certificates $100,000 and over 252 262
Interest on other deposits 2,030 1,948
Interest on short-term borrowings 456 437
Interest on long-term debt 19 21
----- -----
TOTAL INTEREST EXPENSE 3,550 3,371
----- -----
NET INTEREST INCOME 3,894 3,590
PROVISION FOR LOAN LOSSES 200 150
----- -----
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 3,694 3,440
----- -----
NON-INTEREST INCOME:
Trust income 198 165
Service charges on deposits 286 241
Other service charges and fees 71 75
Other 161 148
----- -----
TOTAL NON-INTEREST INCOME 716 629
----- -----
NON-INTEREST EXPENSES:
Salaries 1,164 1,051
Pension and benefits 231 291
Equipment 273 188
Occupancy 171 148
Deposit insurance 6 10
State franchise tax 141 128
Advertising 69 63
Other 692 669
----- -----
TOTAL NON-INTEREST EXPENSE 2,747 2,548
----- -----
INCOME BEFORE INCOME TAX 1,663 1,521
INCOME TAX 517 444
----- -----
NET INCOME $ 1,146 1,077
===== =====
Earnings per common share $ 0.75 0.70
Dividends declared per common share $ 0.19 0.14
Average shares outstanding 1,528,163 1,533,626
The accompanying notes to financial statements are an integral part of these
statements.
-2-
Part I - Financial Information
(Continued)
Item 1. Financial Statements
INTERCOUNTY BANCSHARES, INC. and
THE NATIONAL BANK & TRUST COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(thousands)
(unaudited)
Three Months Ended
March 31
----------------------
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,146 1,077
Adjustments for non-cash items -
Depreciation and amortization 231 160
Provision for loan losses 200 150
Net discount accretion of securities held for sale (37) (105)
Net discount accretion of securities held to maturity (30) (25)
Decrease in income receivable 85 23
Increase in other assets (975) (33)
Decrease in interest payable (103) (121)
Increase in income taxes payable 426 444
Decrease in other accrued expenses (207) (182)
FHLB stock dividends (54) -
------ ------
NET CASH PROVIDED BY OPERATING ACTIVITIES 682 1,388
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net decrease in interest-bearing deposits in banks 2 -
Proceeds from maturities of securities available
for sale 4,401 7,130
Purchases of securities available for sale (11,861) (6,052)
Proceeds from maturities of securities held to
maturity 525 650
Net increase in loans (1,072) (4,355)
Purchases of premises and equipment (722) (728)
------ ------
NET CASH USED IN INVESTING ACTIVITIES (8,727) (3,355)
------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 6,510 5,902
Repayment of capital lease obligation (22) (21)
Net increase in short-term borrowings 6,390 2,697
Cash dividends paid (213) (155)
Proceeds from stock options exercised 230 -
Purchase of treasury shares (128) -
------ ------
NET CASH PROVIDED BY FINANCING ACTIVITIES 12,767 8,423
------ ------
NET CHANGE IN CASH AND CASH EQUIVALENTS 4,722 6,456
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 12,021 18,207
------ ------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 16,743 24,663
====== ======
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 3,653 3,492
Income taxes paid 93 -
The accompanying notes to financial statements are an integral part of these
statements.
-3-
PART I. FINANCIAL INFORMATION
(Continued)
Item 1. Notes to Consolidated Financial Statements
INTERCOUNTY BANCSHARES, INC. and
THE NATIONAL BANK & TRUST COMPANY
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 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, 1997, are not necessarily indicative of the results to be expected
for the full year to end December 31, 1997. 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,
1996 filed with the Commission.
WEIGHTED AVERAGE SHARES OUTSTANDING
Earnings per common share (EPS) is calculated by dividing net income by the
weighted average number of shares of common stock outstanding during the
period. The assumed exercise of stock options would not have a material
dilutive effect. In accordance with generally accepted accounting principles,
certain shares held in suspense by the Company's employee stock ownership plan
(ESOP) are not considered outstanding until they are committed to be released
for allocation to participants' accounts. The following table shows the
computation of the weighted average shares outstanding.
Three Months Ended
March 31
1997 1996
Weighted Average Shares:
Common shares issued 1,541,150 1,548,977
Unreleased common shares
held by ESOP (12,987) (15,351)
--------- ---------
Common shares outstanding 1,528,163 1,533,626
========= =========
-4-
PART I. FINANCIAL INFORMATION
(Continued)
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
INTERCOUNTY BANCSHARES, INC. and
THE NATIONAL BANK & TRUST COMPANY
RECENTLY ISSUED ACCOUNTING STANDARD
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation," effective January 1, 1996, encourages, but does not
require, adoption of a fair-value-based accounting method for employee stock
options. Management elected to continue to recognize compensation cost using
the intrinsic-value-based method of accounting in Accounting Principles Board
(APB) Opinion No. 25, "Accounting for Stock Issued to Employees." However,
the nature of the Company's stock options is such that the accounting
treatment is the same under both pronouncements. Compensation cost is
recorded during the service period of the optionees based on changes in the
book value of the shares since at the election of the optionees, when the
options are exercised, the Company is obligated to repurchase the shares at
book value. If the Company's shares begin trading on an established market at
greater than book value such that optionees will likely not elect to put the
shares to the Company, the accrued compensation will be recognized as
additional consideration for the stock issued.
SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities" as amended by SFAS No. 127, "Deferral of the
Effective Date of Certain Provisions of (SFAS) Statement No. 125," provides
accounting and reporting standards to distinguish transfers of financial
assets that are sales from transfers that are secured borrowings. Generally,
the new standards are first applicable to transactions occurring after
December 31, 1997. Adoption of SFAS No. 125 is not expected to have a
material effect on the consolidated financial statements.
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 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.
RESULTS OF OPERATIONS
Net income for the first quarter of 1997 was $1,146,000, an increase of 6.4%
from the $1,077,000 earned in the first quarter of 1996. The primary reasons
for the increase in earnings were an 8.5% increase in net interest income and
a 13.8% increase in non-interest income. This quarter also showed a 33%
increase in provision for loan losses and a 7.8% increase in non-interest
expense. Net income per share increased 7.1% to $.75 from $.70 for the first
quarter of 1996.
Net interest income was $3.9 million, $304,000 above the first quarter of
1996. Average interest-earning assets increased $25.0 million (7.5%) to
$360.9 million. The volume increase consisted primarily of an increase of
$25.0 million in loans and $2.4 million in securities, and a decrease of $2.4
million in federal funds sold. The average yield increased from 8.34% to
8.37%. Average interest-bearing liabilities increased 8.1% to $311.5 million
and their cost decreased to 4.62% from 4.71% in the first quarter of 1996.
About half of the volume growth was in lower costing transaction accounts.
Also, maturing fixed-rate certificates were repriced at lower current rates.
As a result, net interest margin increased from 4.30% in the first quarter of
1996 to 4.38% in 1997.
-5-
PART I. FINANCIAL INFORMATION
(Continued)
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
INTERCOUNTY BANCSHARES, INC. and
THE NATIONAL BANK & TRUST COMPANY
(Continued)
The provision for loan losses was increased to $200,000 for the first quarter
of 1997, compared to $150,000 for the same period in 1996. The Bank has
increased its provision to reflect slightly higher net charge-offs so far this
year and growth in the loan portfolio. Net charge-offs for the first quarter
of 1997 were .35% of average loans, compared to .07% for the prior year.
Installment loans are generally charged off if four payments have been missed.
Generally, all other loans are placed on non-accrual status if they are 90
days or more delinquent. A loan may remain on an accrual status after it is
90 days delinquent if it is reasonably certain the account will be settled in
its entirety or brought current within a 30-day period. The current year's
accrued interest on loans placed on non-accrual status is charged against
earnings. The previous year's accrued interest is charged against the
allowance for loan losses. Cash payments received on non-accrual loans are
applied against principal until the balance is repaid. Any remaining payments
are credited to earnings. Non-performing loans include non-accrual loans,
renegotiated loans and ninety days or more past due loans. All loans, except
one-to four-family real estate, which are ten days delinquent are sent to the
Collections Department for collection. One- to four-family real estate loans
are sent when they are fifteen days delinquent. As of March 31, 1997,
management knew of no significant loans not now disclosed that would cause
management to have serious doubts as to the ability of the borrowers to comply
with present loan repayment terms.
The following table sets forth certain information regarding the past-due,
non-accrual and renegotiated loans of the Bank at the dates indicated (in
thousands):
March 31 December 31 March 31
1997 1996 1996
-------- ----------- --------
Loans accounted for on
non-accrual basis $689 535 400
Accruing loans which are
past due 90 days or more 100 90 182
Renegotiated loans - - -
--- --- ---
Total $789 625 582
=== === ===
The increase in non-accrual loans from December 31, 1996, is attributable to
seven loans being placed on non-accrual totaling $283,000 and three loans
totaling $130,000 were either reestablished to accrual status or charged-off.
Most of these loans should be worked out by the end of the third quarter;
three of these are anticipated to be long-term workouts. Management believes
the value of the related collateral, if necessary to collect the principal
outstanding, limits the Bank's exposure to a potential loss of less than
$105,000, including costs of collection. See Exhibit 99 attached hereto,
which is incorporated herein by reference.
-6-
PART I. FINANCIAL INFORMATION
(Continued)
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
INTERCOUNTY BANCSHARES, INC. and
THE NATIONAL BANK & TRUST COMPANY
(Continued)
At March 31, 1997, the Bank's allowance for loan losses totaled $2.65 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 Bank's allowance for losses on loans for the
periods indicated (in thousands):
Three Months Ended
March 31
1997 1996
------------------
Balance, beginning of period $2,686 2,644
Charge-offs:
Commercial 46 7
Residential real estate - -
Installment 166 178
Credit Card 61 38
Other - -
----- -----
Total 273 223
----- -----
Recoveries:
Commercial - 2
Residential real estate - -
Installment 34 48
Credit Card 3 5
Other - -
----- -----
Total 37 55
----- -----
Net Charge-offs (236) (168)
Provision for loan losses 200 150
----- -----
Balance, end of period $2,650 2,626
===== =====
Non-interest income was $716,000 for the first quarter 1997, an increase of
13.8% from the $629,000 earned in the first quarter of 1996. Most categories
in this section have shown increases, although, increased trust income,
deposit service charges, and ATM fees accounted for the majority of the
improvement.
Non-interest expense increased 7.8% for the quarter over the same period in
1996. Salaries increased 10.6% for the quarter due mostly to an increase of
13.2 full-time equivalent employees. Benefits decreased 19.7% as a result of
lower expense related to retirement and stock option plans. Equipment
expenses increased 45.4% from last year as a result of our continued
investment in current technology. Occupancy expense increased 15.7% for the
quarter due to the main office renovation. State franchise tax has increased
9.9% due to the increase in Company capital on which it is based. Other
expense has increased 3.4% from the first quarter of last year.
Performance ratios for the first quarter of 1997 included an annualized return
on assets of 1.21%, and an annualized return on equity of 12.53%, compared to
1.22% and 12.61%, respectively, for the first quarter of 1996.
-7-
PART I. FINANCIAL INFORMATION
(Continued)
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
INTERCOUNTY BANCSHARES, INC. and
THE NATIONAL BANK & TRUST COMPANY
(Continued)
FINANCIAL CONDITION
Some of the changes that have occurred in InterCounty's financial condition
during 1997 are as follows (in thousands):
March 31 December 31
1997 1996 Amount Percent
-------- ----------- ------ -------
Loans $270,118 269,282 836 -
Securities 95,128 88,831 6,297 7
Savings, NOW, MMDA
deposits 115,013 112,726 2,287 2
CD's $100,000 and over 22,363 18,788 3,575 19
Other time deposits 143,672 141,883 1,789 1
Short-term borrowings 37,503 31,113 6,390 21
The loan portfolio showed little change since year end in both balance and
structure. The securities portfolio has increased because of additional
purchases of U.S. Agency callable bonds that have been funded through a
similar amount of short-term borrowing from Federal Home Loan Bank. The Bank
continues to use this strategy on a limited basis to enhance earnings.
Deposit growth has occurred in interest-bearing transaction accounts and large
certificates of deposit. Book value per share was $24.03 compared to $23.86
at December 31, 1996. Equity to assets was 9.43% compared to 9.66% at the end
of last year.
Total assets grew 6.8% from the first quarter of 1996, to a total of $394.2
million. Total loans increased to $270.1 million, an increase of 9.5%.
Commercial and installment loans continue to provide the majority of the
internal growth. Commercial loan average grew $15.1 million (17.6%), and
installment loan average grew $9.3 million (13.0%). The securities portfolio
average has grown 2.7% through the use of excess liquidity. Total deposits
increased 6.1% to $315.6 million. Non-interest bearing deposits remained
about the same as last year. Average interest-bearing liabilities grew $23.3
million, or 8.1%. Average interest-bearing transaction accounts increased
$12.3 million (18.6%), and average retail certificates increased $11.2 million
(8.5%). Total equity increased 9.0% to $37.2 million at March 31, 1997.
LIQUIDITY AND CAPITAL RESOURCES
The maintenance of an adequate level of liquidity is necessary to ensure that
sufficient funds are available to meet customers' loan demand and deposit
withdrawal. InterCounty manages liquidity on both the asset and liability
side of the balance sheet. The loan to total funds ratio at March 31, 1997
was 76%, compared to 74% for the same date in 1996. Management strives to
keep this ratio below 80%. The securities portfolio is primarily "available
for sale" securities that are readily marketable. Approximately 44% of the
portfolio is pledged to secure public deposits and for other purposes as
required by law. The balance of the "available for sale" portfolio could be
sold if necessary for liquidity purposes. Also a stable deposit base,
consisting of 94% core deposits, makes the Bank less susceptible to large
fluctuations in funding needs.
-8-
PART I. FINANCIAL INFORMATION
(Continued)
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
INTERCOUNTY BANCSHARES, INC. and
THE NATIONAL BANK & TRUST COMPANY
(Continued)
The Federal Reserve Board has adopted risk-based capital guidelines which
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, 1997,
InterCounty had a total risk-based capital ratio of 14.23%, a Tier 1 risk-
based capital ratio of 13.29%, and a Tier 1 leverage ratio of 9.43%.
Item 3. Quantitative and Qualitative Disclosures about Market Risks
Not yet required.
-9-
PART II. OTHER INFORMATION
INTERCOUNTY BANCSHARES, INC. and
THE NATIONAL BANK & TRUST COMPANY
Item 1. Legal Proceedings - Not Applicable
Item 2. Changes in Securities - 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, 1997 and 1996
27 Financial Data Schedule for
the Three Months Ended
March 31, 1997.
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, 1997.
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 14, 1997 Charles L. Dehner
Charles L. Dehner
Treasurer, Executive Vice President
and Principal Accounting Officer
-10-