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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-23134
INTERCOUNTY BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
Ohio 31-1004998
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
48 N. South Street, Wilmington, Ohio 45177
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (513) 382-1441
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to 12(g) of the Act:
Common Shares, without par value
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The issuer's common shares are not traded on any securities exchange and are
not quoted by a national quotation service. Management is aware of a sale of
the issuer's shares for $23.00 per share on March 17, 2000. Based upon such
price, the aggregate market value of the issuer's shares held by nonaffiliates
was $46,391,966.
As of March 6, 2000, 3,188,314 common shares were issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The following sections of the definitive Proxy Statement for the 2000 Annual
Meeting of Shareholders of InterCounty Bancshares, Inc. (the "Proxy
Statement"), are incorporated by reference into Part III of this Form 10-K:
1. Board of Directors;
2. Executive Officers;
3. Section 16(a) Beneficial Ownership Reporting Compliance;
4. Compensation of Executive Officers and Directors;
5. Voting Securities and Ownership of Certain Beneficial Owners
and Management; and
6. Certain Relationships and Related Transactions.
INTERCOUNTY BANCSHARES, INC.
For the Year Ended December 31, 1998
Table of Contents
PART I
Page
----
Item 1: Business 3
Item 2: Properties 29
Item 3: Legal Proceedings 29
Item 4: Submission of Matters to a Vote of Security Holders 29
Part II
-------
Item 5: Market for Registrant's Common Equity and Related
Stockholder Matters 30
Item 6: Selected Financial Data 30
Item 7: Management's Discussion and Analysis of Financial
Condition and Results of Operations 32
Item 7A: Quantitative and Qualitative Disclosures About
Market Risk 53
Item 8: Financial Statements and Supplementary Data 54
Item 9: Changes in and Disagreements With Accountants
on Accounting and Financial Disclosure 80
Part III
--------
Item 10: Directors and Executive Officers of the Registrant 80
Item 11: Executive Compensation 80
Item 12: Security Ownership of Certain Beneficial Owners
and Management 80
Item 13: Certain Relationships and Related Transactions 80
Part IV
-------
Item 14: Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 81
Exhibit Index 82
Signatures 83
-2-
PART I
Item 1. Description of Business
GENERAL
InterCounty Bancshares, Inc. ("InterCounty"), an Ohio corporation, is a bank
holding company which owns all of the issued and outstanding common shares of
The National Bank and Trust Company, chartered under the laws of the United
States (the "Bank").
The Bank is engaged in the commercial banking business in Southwestern Ohio,
providing a variety of consumer and commercial financial services. The
primary business of the Bank consists of accepting deposits, through various
consumer and commercial deposit products, and using such deposits to fund
consumer loans, including automobile loans, loans secured by residential and
non-residential real estate, and commercial and agricultural loans. All of
the foregoing deposit and lending services are available at each of the Bank's
17 full-service offices. In addition, the Bank has one office which is
drive-in facilities only and two remote service units. The Bank has also
installed 95 cash dispensers in convenience stores as of the end of 1999.
The Bank also has a trust department which presently administers 836 accounts
having combined assets of $236 million.
On October 8, 1998, the Bank acquired all of the outstanding common shares
of Phillips Insurance Agency Group, Inc. ("Phillips Group"), the holding
company for Phillips Casualty Insurance Agency, Inc., and Phillips Life
Insurance Agency, Inc. (the "Phillips Agencies"). The shares of Phillips
Group were exchanged for 53,606 common shares of InterCounty. On December 11,
1998, the Bank acquired all of the outstanding common shares of Arnold Jones
Insurance Agency, Inc. (the "Jones Agency"), in exchange for 17,777 common
shares of InterCounty. In July 1999, the three operating agencies were merged
into one agency called The Phillips Insurance Agency, Inc. The Phillips
Insurance Agency has its principal office in Blanchester, Ohio. The assets
and income of the insurance agency business were immaterial to the financial
condition and operations of InterCounty during fiscal year 1998.
On September 1, 1992, the Bank acquired Kentucky National Bank of Ohio with
two locations in Georgetown, Ohio for $3,200,000 in cash.
On December 29, 1993, InterCounty acquired the Williamsburg Building & Loan
Company, a mutual savings and loan with total assets of $17.1 million and
equity of $2.9 million. In connection with this merger conversion,
InterCounty issued shares of its common stock, principally to depositors and
other members of Williamsburg and the general public in subscription and
community offerings.
-3-
Because of its ownership of all the outstanding stock of the Bank, InterCounty
is subject to regulation, examination and oversight by the Board of Governors
of the Federal Reserve System (the "FRB") under the Bank Holding Company Act
of 1956, as amended (the "BHCA"). The Bank, as a national bank, is subject to
regulation, examination and oversight by the Office of the Comptroller of the
Currency (the "OCC") and special examination by the FRB. The Bank is a member
of the Federal Reserve Bank of Cleveland. In addition, since its deposits are
insured by the Federal Deposit Insurance Corporation (the "FDIC"), the Bank is
also subject to some regulation, oversight and special examination by the
FDIC. The Bank must file periodic financial reports with the FDIC, the OCC
and the Federal Reserve Bank of Cleveland. Examinations are conducted
periodically by these federal regulators to determine whether the Bank and
InterCounty are in compliance with various regulatory requirements and are
operating in a safe and sound manner.
Since its incorporation in 1980, InterCounty's activities have been limited
primarily to holding the common shares of the Bank. Consequently, the
following discussion focuses primarily on the business of the Bank.
FORWARD LOOKING STATEMENTS
In addition to the historic financial information contained herein with
respect to InterCounty, the following discussion contains forward-looking
statements that involve risks and uncertainties. Economic circumstances,
InterCounty's operations and InterCounty's actual results could differ
significantly from those discussed in the forward-looking statements. Some of
the factors that could cause or contribute to such differences are discussed
herein but also include changes in the economy and interest rates in the
nation and InterCounty's general market area. The forward-looking statements
contained herein include those with respect to the following matters:
1. Management's expectation that it will continue to expand its
consumer lending activities, other than automobile loans;
2. The Bank's expected amount of loan net charge-offs and management's
determination of the adequacy of the loan loss allowance;
3. The effect of changes in interest rates;
4. Growth in the commercial and industrial loan portfolio; and
5. Management's belief that a substantial percentage of the certificates
of deposit maturing within one year will renew with the Bank at
maturity.
-4-
Lending Activities
General. The Bank's income consists primarily of interest income generated by
lending activities, including the origination of loans secured by residential
and nonresidential real estate, commercial and agricultural loans, and
consumer loans.
The following table sets forth the composition of the Bank's loan portfolio by
type of loan at the dates indicated:
At December 31,
----------------------------------------------------------
1999 1998 1997
----------------------------------------------------------
% of % of % of
Amount Total Amount Total Amount Total
------ ----- ------ ----- ------ -----
(Dollars in thousands)
Commercial and
industrial $ 86,521 25% $ 78,801 26% $ 63,661 23%
Commercial real estate 37,833 11 29,936 10 30,835 11
Agricultural 18,343 5 17,925 6 18,387 7
Residential real estate 117,391 33 92,069 30 82,838 30
Installment 87,997 25 83,173 27 79,115 28
Other 2,069 1 2,402 1 2,097 1
------- --- ------- --- ------- ---
Total loans $350,154 100% 304,306 100% 276,933 100%
=== === ===
Deferred net
origination costs 801 806 778
Allowance for loan
losses (3,222) (2,641) (2,761)
------- ------- -------
Net loans $347,733 $302,471 $274,950
======= ======= =======
-5-
At December 31,
----------------------------------
1996 1995
----------------------------------
% of % of
Amount Total Amount Total
------ ----- ------ -----
(Dollars in thousands)
Commercial and
industrial $ 57,985 22% $46,952 19%
Commercial real estate 31,118 11 27,274 11
Agricultural 16,304 6 14,515 6
Residential real estate 79,761 30 79,355 33
Installment 81,033 30 68,821 29
Credit card - - 3,268 1
Other 2,228 1 1,561 1
------- --- ------- ---
Total loans $268,429 100% $241,746 100%
=== ===
Deferred net
origination costs 853 761
Allowance for loan
losses (2,686) (2,644)
------- -------
Net loans $266,596 $239,863
======= =======
Loan Maturity Schedule. The following table sets forth certain information at
December 31, 1999, regarding the net dollar amount of loans maturing in the
Bank's portfolio, based on contractual terms to maturity. Demand loans, loans
having no stated schedule of repayment and no stated maturity and overdrafts
are reported as due in one year or less:
Due 0-1 Year Due 1-5 Years Due 5 + Years Total
(In thousands)
Commercial and
industrial $18,401 $25,917 $42,202 $86,520
Commercial real estate 8,454 2,632 26,747 37,833
Agricultural 6,261 3,129 8,953 18,343
------ ------ ------ -------
Total $33,116 $31,678 $77,902 $142,696
====== ====== ====== =======
-6-
The following table sets forth the dollar amount of certain loans, due after
one year from December 31, 1999, which have predetermined interest rates and
floating or adjustable interest rates:
Predetermined Floating or
rates adjustable rates Total
------------- ---------------- -------
(In thousands)
Commercial and industrial $20,284 $47,835 $ 68,119
Commercial real estate 3,409 25,969 29,378
Agricultural 1,118 10,965 12,083
------ ------ -------
Total $24,811 $84,769 $109,580
====== ====== =======
Commercial and Industrial Lending. Commercial and industrial lending has been
an area of growth for the Bank. The Bank originates loans to businesses in its
market area, including "floor plan" loans to automobile dealers and loans
guaranteed by the Small Business Administration. The typical commercial
borrower is a small to mid-sized company with annual sales under $5,000,000.
The majority of commercial loans are made at adjustable rates of interest tied
to the prime rate. Commercial loans typically have terms of up to five years.
At December 31, 1999 the Bank had $86.5 million, or 25% of total loans,
invested in commercial and industrial loans.
Commercial and industrial lending entails significant risks. Such loans are
subject to greater risk of default during periods of adverse economic
conditions. Because such loans are secured by equipment, inventory, accounts
receivable and other non-real estate assets, the collateral may not be
sufficient to ensure full payment of the loan in the event of a default.
Commercial Real Estate. The Bank makes loans secured by commercial real
estate located in its market area. Such loans generally are adjustable-rate
loans for terms of up to 20 years. The types of properties securing loans in
the Bank's portfolio include warehouses, retail outlets and general industrial
use properties. At December 31, 1999, the Bank had $37.8 million, or 11% of
total loans, invested in commercial real estate loans.
Commercial real estate lending generally entails greater risks than
residential real estate lending. Such loans typically involve larger balances
and depend on the income of the property to service the debt. Consequently,
the risk of default on such loans may be more sensitive to adverse economic
conditions. The Bank attempts to minimize such risks through prudent
underwriting practices.
-7-
Agricultural Loans. The Bank makes agricultural loans, which include loans to
finance farm operations, equipment purchases, and land acquisition. The
repayment of such loans is significantly dependent upon income from farm
operations, which can be adversely affected by weather and other physical
conditions, government policies and general economic conditions. At December
31, 1999, the Bank had $18.3 million, or 5% of total loans, invested in
agricultural loans.
Residential Real Estate. The Bank makes loans secured by one- to four-family
residential real estate and multi-family (over four units) real estate located
in its market area. The Bank originates both fixed-rate mortgage loans and
adjustable-rate mortgage loans ("ARMs"). Fixed-rate loans with terms of 15 to
30 years are typically originated for sale in the secondary market. ARMs are
held in the Bank's portfolio. At December 31, 1999, the Bank had $117.4
million, or 33% of total loans, invested in residential real estate loans.
Installment Loans. The Bank makes a variety of consumer installment loans,
including home equity loans, automobile loans, recreational vehicle loans, and
overdraft protection. Consumer loans involve a higher risk of default than
loans secured by one- to four-family residential real estate, particularly in
the case of consumer loans which are unsecured or secured by rapidly
depreciating assets, such as automobiles. Repossessed collateral for a
defaulted consumer loan may not provide an adequate source of repayment of the
outstanding loan balance as a result of the greater likelihood of damage, loss
or depreciation, and the remaining deficiency may not warrant further
substantial collection efforts against the borrower. In addition, consumer
loan collections depend on the borrower's continuing financial stability, and
thus are more likely to be adversely affected by job loss, illness or personal
bankruptcy. Various federal and state laws, including federal and state
bankruptcy and insolvency laws, may also limit the amount which can be
recovered on such loans. Management believes that the Bank's underwriting
practices have resulted in a favorable delinquency ratio and loan loss
experience for this portion of the Bank's total loan portfolio.
At December 31, 1999, the Bank had $88.0 million, or 25% of total loans,
invested in installment loans. The Bank has reduced its efforts to
originate new and used automobile loans due to increased competition and
narrowing interest rate spreads. The Bank expects to continue, subject to
market conditions, to expand its other consumer lending activities as part
of its plan to provide a wide range of personal financial services to its
customers.
In the fourth quarter of 1996, the Bank sold its $3.9 million credit card loan
portfolio to a correspondent bank, recording a gain on the sale of $326,000.
Of the total loans, approximately $102,000 sixty days or more delinquent was
sold with recourse. Beginning in 1997, new corporate customer credit card
accounts were sold with recourse to the same financial institution. The
recourse feature was eliminated in 1999. The Bank will continue to offer credit
card services indirectly through this correspondent bank.
-8-
Loan Processing. Loan officers are authorized by the Board of Directors to
approve loans up to specified limits. Loans exceeding the loan officers'
approval authority are referred to the Bank's Senior Loan Committee. The
Senior Loan Committee has approval authority up to specified limits. Any
loans made by the Bank in excess of the limits established for the Senior Loan
Committee must be approved by the Chairman of the Board and the President of
the Bank as representatives of the Board of Directors. All loans in excess of
$100,000 are reported to the Board on a monthly basis.
Loan Originations, Purchases and Sales. Although the Bank generally does not
purchase loans, purchases could occur in the future. It did, however, make a
purchase of $21 million in residential real estate loans in late 1995 to
enhance earnings. Fixed-rate residential real estate loans are originated for
sale in the secondary market. From time to time, the Bank sells participation
interests in loans it originates.
Delinquent Loans, Non-performing Assets and Classified Assets. The Bank
attempts to minimize loan delinquencies through aggressive collection efforts.
When a borrower fails to make a required payment on a loan, the Bank attempts
to cause the deficiency to be cured by contacting the borrower. In most
cases, deficiencies are cured promptly.
Generally, when a real estate loan becomes delinquent more than 90 days, an
evaluation of the security is performed. If the evaluation indicates that the
value of the collateral is less than the book value of the loan, a valuation
allowance is established for such loan. When deemed appropriate by
management, the Bank institutes action to foreclose on the real estate or to
acquire the real estate by deed in lieu of foreclosure. A decision as to
whether and when to initiate foreclosure proceedings is based on such factors
as the amount of the outstanding loan in relation to the original
indebtedness, the extent of the delinquency and the borrower's ability and
willingness to cooperate in curing delinquencies. If a foreclosure occurs,
the real estate is sold at public sale and may be purchased by the Bank.
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. 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.
-9-
The following table sets forth certain information regarding the past-due,
non-accrual and renegotiated loans of the Bank at the dates indicated:
At December 31,
--------------------------------------
1999 1998 1997 1996 1995
(In thousands)
Loans accounted for on
nonaccrual basis $ 955 $599 $509 $535 $314
Accruing loans which are
past due 90 days or more 96 343 241 90 208
Renegotiated loans - - - - -
----- --- --- --- ---
Total $1,051 $942 $750 $625 $522
===== === === === ===
If interest on non-accrual loans had been recognized during 1999, such income
would have been $59,000. The amount recognized was not material.
Real estate acquired, or deemed acquired, by the Bank as a result of
foreclosure proceedings is classified as other real estate owned ("OREO")
until it is sold. Interest accrual, if any, ceases no later than the date of
acquisition of the real estate, and all costs incurred from such date in
maintaining the property are expensed. Costs relating to the development and
improvement of the property are capitalized. OREO is recorded by the Bank at
the lower of cost or fair value less estimated costs of disposal, and any
write-down resulting therefrom is charged to the allowance for loan losses.
If fair value less estimated costs of disposal subsequently falls below the
carrying amount, a valuation allowance account is established in the amount of
the deficiency. If the fair value less estimated costs of disposal
subsequently increases and is more than the carrying amount, the valuation
allowance is reduced, but not below zero. Increases or decreases in the
valuation allowance are charged or credited to income.
Allowance for Loan Losses. Federal regulations require that the Bank
establish prudent general allowances for loan losses. Senior management, with
oversight responsibility provided by the Board of Directors, reviews on a
monthly basis the allowance for loan losses as it relates to a number of
relevant factors, including but not limited to, historical trends in the level
of non-performing assets and classified loans, current charge-offs and the
amount of the allowance as a percent of the total loan portfolio. While
management believes that it uses the best information available to determine
the allowance for loan losses, unforeseen market conditions could result in
adjustments, and net earnings could be significantly affected if circumstances
differ substantially from the assumptions used in making the final
determination. At December 31, 1999, the Bank's allowance for loan losses
totaled $3.2 million and was allocated primarily to the consumer segment of
the loan portfolio. A similar allocation existed for all other dates
presented.
-10-
The following table sets forth an analysis of the Bank's allowance for losses
on loans for the periods indicated:
December 31,
------------------------------------------
1999 1998 1997 1996 1995
(Dollars in thousands)
Balance at beginning of
period $ 2,641 $ 2,761 $ 2,686 $ 2,644 $ 2,561
Charge-offs:
Commercial and industrial (200) (702) (178) (28) (13)
Commercial real estate (10) (45) - - -
Agricultural (10) - - (3) (46)
Residential real estate (9) - (6) (1) (2)
Installment (842) (681) (694) (560) (356)
Credit card - - (64) (189) (55)
Other - (7) - (4) -
------- ------- ------- ------- -------
Total charge-offs (1,071) (1,435) (942) (785) (472)
------- ------- ------- ------- -------
Recoveries:
Commercial and industrial 27 7 63 42 10
Commercial real estate 9 - - - -
Agricultural - - - 8 1
Residential real estate 1 - 2 - 6
Installment 213 145 133 158 159
Credit card 2 12 17 13 19
Other - 1 2 6 -
------ ----- ----- ----- -----
Total recoveries 252 165 217 227 195
------ ----- ----- ----- -----
Net charge-offs (819) (1,270) (725) (558) (277)
Provision for possible
loan losses 1,400 1,150 800 600 360
------- ------- ------- ------- -------
Balance at end of period $ 3,222 $ 2,641 $ 2,761 $ 2,686 $ 2,644
======= ======= ======= ======= =======
Ratio of net charge-offs to
average loans outstanding
during the period 0.25% 0.44% 0.26% 0.22% 0.13%
==== ==== ==== ==== ====
Average loans outstanding $330,734 $287,674 $274,372 $256,761 $218,552
======= ======= ======= ======= =======
-11-
Because the loan loss allowance is based on estimates, it is monitored
regularly and adjusted as necessary to provide an adequate allowance. For
1999, the Bank anticipates about the same amount of loan net charge-offs for
each type of loan as that experienced in 1998 except less is expected in
commercial and industrial loans. See Exhibit 99, "Safe Harbor Under the
Private Securities Litigation Reform Act of 1995" attached hereto which is
incorporated herein by reference.
Investment Activities
The following table sets forth the composition of the Bank's securities
portfolio, based on amortized cost, at the dates indicated:
At December 31,
-----------------------------------
1999 1998 1997
(In thousands)
Securities available
for sale:
U.S. Treasuries & U.S.
Agency notes $ 34,730 $ 35,983 $ 44,380
U.S. Agency mortgage-
backed securities 55,324 73,124 49,256
Other mortgage-backed
securities 11,320 16,337 13,212
Municipals 8,563 8,558 -
Other securities 5,833 5,461 4,347
------- ------- -------
Total securities available
for sale 115,770 139,463 111,195
------- ------- -------
Securities held to
maturity:
Municipal securities 44,304 36,832 11,164
------- ------- -------
Total securities held
to maturity 44,304 36,832 11,164
------- ------- -------
Total securities $160,074 $176,295 $122,359
======= ======= =======
-12-
Average securities as a percent of assets was 25.4% in 1997, grew to
32.4% in 1998, and fell to 30.9% in 1999. The securities portfolio at
December 31, 1999 consists of $110.7 million of securities available
for sale and $44.3 million of securities that management intends to
hold to maturity. The available-for-sale portion of the portfolio
consists of primarily fixed-rate securities with an average life of 8.5
years, an average repricing term of 7.7 years, and an average tax-
equivalent yield of 6.62%. This portion includes 32% callable U.S.
Agency bonds, 55% fixed-rate mortgage-backed securities, 5% adjustable-
rate mortgage-backed securities, and 8% long-term fixed-rate tax-exempt
municipal securities. During 1998 and 1999 additions to the available-
for-sale portfolio have included medium-term callable U.S. Agency bonds,
mortgage-backed securities with projected average lives of three to
seven years and 15-20 year maturity municipal bonds. Some of these
purchases were funded through $45 million of borrowed funds from the
Federal Home Loan Bank. The held-to-maturity portion of the portfolio
consisted entirely of long-term fixed-rate tax-exempt municipal
securities with both average life and repricing term of 20.8 years.
At December 31, 1999 the total security portfolio had 5.9% market value
depreciation.
The following table sets forth the amortized cost of the Bank's securities
portfolio at December 31, 1999. U.S. agency mortgage-backed securities are
categorized according to their expected prepayment speeds. All other
securities are categorized based on contractual maturity. Actual maturities
may differ from contractual maturities when borrowers have the right to call
or prepay obligations. Yields do not include the effects of income taxes.
Less than 1 year 1 to 5 years 5 to 10 years
---------------- ------------------ ----------------
Weighted Weighted Weighted
Amortized average Amortized average Amortized average
cost yield cost yield cost yield
---- ------- ---- ------- ---- -------
(Dollars in thousands)
Securities available
for sale:
U.S. Treasuries
and U.S. Agency
notes $ 5,832 5.55% $ 9,982 6.38% $17,916 6.21%
U.S. Agency
mortgage-backed
securities 7,005 6.82 16,784 6.79 13,942 6.77
Other mortgage-
backed securities 6,285 6.66 1,736 6.34 471 6.29
Municipals - - - - - -
Other securities - - 10 - - -
------ ------ ------
-13-
Total securities
available for
sale 19,122 6.38 28,512 6.62 32,329 6.45
------ ------ ------
Securities held
to maturity:
Municipal
securities - - 737 9.15 100 4.50
------ ------ ------
Total securities
held to maturity - - 737 9.15 100 4.50
------ ------ ------
Total securities $19,122 6.38% $29,249 6.68% $32,429 6.45%
====== ====== ======
Over 10 years Total
---------------- ------------------
Weighted Weighted
Amortized average Amortized average
cost yield cost yield
---- ------- ---- -------
(Dollars in thousands)
Securities available
for sale:
U.S. Treasuries
and U.S. Agency
notes $ 1,000 6.87% $34,730 6.17%
U.S. Agency
mortgage-backed
securities 17,593 6.84 55,324 6.80
Other mortgage-
backed
securities 2,828 6.50 11,320 6.55
Municipals 8,563 5.04 8,563 5.04
Other securities 5,823 6.67 5,833 6.65
------ -------
Total securities
available for
sale 35,807 4.08 115,770 6.08
------ -------
Securities held
to maturity:
Municipal
securities 43,467 5.06 44,304 5.13
------ -------
Total securities
held to maturity 43,467 5.06 44,304 5.13
------ -------
Total securities $79,274 4.62% $160,074 5.81%
====== =======
-14-
Trust Services
The Bank received trust powers in 1922 and currently holds $236 million in net
assets in the Trust Department. The Annual Report of Trust Assets filed with
the FDIC and the OCC reports $181 million in managed assets among 543
accounts, and an additional $59 million of non-discretionary assets held in
268 accounts on December 31, 1999. These assets are not included in the
Bank's balance sheet because, under federal law, neither the Bank nor its
creditors can assert any claim against funds held by the Bank in its fiduciary
capacity.
In addition to administering trusts, the services offered by the Trust
Department include investment management, estate planning and administration,
tax and financial planning and employee benefit plan administration. During
1997, the Trust Department entered into an agreement with a licensed broker-
dealer and insurance agent to provide investment services to customers of the
Bank and others, enabling them to purchase fixed annuities, variable
annuities, mutual funds, and stocks and bonds. The Trust Department is
staffed by five officers and six staff members and generated $1,191,000 in
fee income during 1999.
Deposits and Borrowings
General. Deposits have traditionally been the primary source of the Bank's
funds for use in lending and other investment activities. In addition to
deposits, the Bank derives funds from interest payments and principal
repayments on loans and income on earning assets. Loan payments are a
relatively stable source of funds, while deposit inflows and outflows
fluctuate more in response to general interest rates and money market
conditions.
Deposits. Deposits are attracted principally from within the Bank's market
area through the offering of numerous deposit instruments, including checking
accounts, regular passbook savings accounts, NOW accounts, money market
deposit accounts, term certificate accounts and individual retirement accounts
("IRAs"). Interest rates paid, maturity terms, service fees and withdrawal
penalties for the various types of accounts are established periodically by
the Bank's Asset/Liability Committee and the Executive Committee based on the
Bank's liquidity requirements, growth goals and market trends. The Company
has not used brokers in the past to attract deposits, although,
competition from banks and other financial institutions has caused the
Company to include this as a viable alternative to funding needs.
Currently the amount of deposits from outside the Bank's market area is not
significant.
-15-
The following table sets forth the dollar amount of deposits in the various
types of products offered by the Bank as of December 31:
Percent Percent Percent
1999 of Total 1998 of Total 1997 of Total
---- -------- ---- -------- ---- --------
(Dollars in thousands)
Demand $ 43,715 12 $ 41,748 11 $38,662 12%
NOW 62,222 16 61,616 16 53,386 17
Savings 35,658 9 35,983 10 34,445 10
Money market
deposit 47,585 13 39,935 11 29,721 9
CDs less than
$100,000 150,281 40 147,003 39 146,005 44
CDs greater than
$100,000 40,226 10 47,705 13 26,899 8
Other 245 - 230 - 214 -
------- --- ------- --- ------- ---
Total
deposits(1) $379,932 100% $374,220 100% 329,332 100%
======= === ======= === ======= ===
Percent Percent
1996 of Total 1995 of Total
---- -------- ---- --------
(Dollars in thousands)
Demand $ 35,731 12% $36,188 12%
NOW 49,030 16 45,927 16
Savings 35,687 11 37,562 13
Money market
deposit 28,009 9 20,465 7
CDs less than
$100,000 141,680 46 130,062 45
CDs greater than
$100,000 18,788 6 21,110 7
Other 203 - 189 -
------- --- ------- ---
Total
deposits(1) $309,128 100% $291,503 100%
======= === ======= ===
- --------------------------------
(1)IRAs are offered under all deposit account types.
-16-
At December 31, 1999, the Bank's certificates of deposit, excluding deposits
greater than $100,000, totaled $150.5 million, or 40% of total deposits. Of
such amount, approximately $106.4 million matures within one year.
The following table sets forth the dollar amount of time deposits greater than
$100,000 maturing in the periods indicated:
Maturity At December 31, 1999
-------- --------------------
(In thousands)
Three months or less $12,500
Over 3 months to 6 months 13,350
Over 6 months to 12 months 11,425
Over twelve months 2,951
------
Total $40,226
======
Borrowings. The Federal Reserve System functions as a central reserve bank
providing credit for its member banks and certain other financial
institutions. As a member in good standing of the Federal Reserve Bank of
Cleveland, the Bank is authorized to apply for advances, provided certain
standards of credit-worthiness have been met. The Bank is also a member of
the Federal Home Loan Bank system. The Bank currently has outstanding $81.0
million of borrowings from the Federal Home Loan Bank used primarily to fund
the purchase of U.S. Agency mortgage-backed securities and municipal bonds.
Six million of the borrowings have a one-year maturity and adjust
daily at the prime rate. The remaining $75 million consist of three
fixed-rate notes with maturities in 2002 and 2008. At the option of
the FHLB, these notes can be converted to variable-rate instruments
that adjust quarterly at the three month LIBOR rate. Conversion dates
are January 2000 for $30 million, October 2001 for $15 million, and
April 2003 for $30 million.
-17-
The following table sets forth certain information regarding the Bank's
outstanding borrowings at the dates and for the periods indicated:
December 31,
--------------------------
1999 1998 1997
(Dollars in thousands)
Maximum amount of short-term
borrowings outstanding at any
month end during period $40,358 $37,903 $33,364
Average amount of short-term
borrowings outstanding during
period 26,518 31,582 37,928
Amount of short-term borrowings
outstanding at end of period 40,358 22,702 32,734
Weighted average interest rate of
short-term borrowings during period 4.78% 5.14% 5.42%
Weighted average interest rate of
short-term borrowings at end of
period 4.45% 4.41% 6.00%
Average Balance Sheets
The following table presents, for the years indicated, the total dollar
amounts of interest from average interest-earning assets and the resultant
yields, as well as the interest expense on average interest-bearing
liabilities, expressed both in dollars and rates. The table does not reflect
any effect of income taxes and includes non-performing loans in the
calculations.
1999 1998
---------------------------- ---------------------------
Average Interest Average Interest
outstanding Yield/ earned/ outstanding Yield/ earned/
balance rate paid balance rate paid
Loans (1) $330,734 8.38% $27,728 $287,675 8.68% $24,959
Securities
available
for sale 123,212 6.27 7,725 131,224 6.43 8,434
Securities
held to
maturity 39,533 5.03 1,989 23,931 5.64 1,349
-18-
Deposits in banks 283 4.73 14 533 4.81 26
Federal funds sold 1,708 4.86 83 9,237 5.47 505
------- ------ ------- ------
Total interest-
earning assets 495,470 7.58 37,539 452,600 7.79 35,273
Non-earning
assets 33,930 29,002
Allowance for
loan losses (2,945) (2,702)
------- -------
Total assets $526,455 $478,900
======= =======
Savings deposits $ 36,566 2.01 734 $ 35,509 2.58 918
NOW and MMDA 107,664 2.81 3,025 89,276 2.92 2,603
CD's over $100M 43,186 5.28 2,281 39,728 5.53 2,198
Other time
deposits 147,890 5.20 7,685 145,014 5.60 8,118
Short-term
borrowings 26,554 4.77 1,267 31,582 5.14 1,622
Long-term debt 75,539 5.51 4,159 54,430 5.66 3,081
------- ------ ------- ------
Total interest-
bearing
liabilities 437,399 4.38 19,150 395,539 4.69 18,540
------ ------
Demand deposits 41,536 37,560
Other liabilities 3,094 2,996
Capital 44,426 42,805
------- -------
Total liabilities
and capital $526,455 $478,900
======= =======
Net interest
income $18,389 $16,733
====== ======
Interest rate
spread 3.20% 3.10%
Net interest
income margin 3.71 3.70
Ratio of
interest-earning
assets to
interest-bearing
liabilities 113.28% 114.43%
-19-
1997
----------------------------
Average Interest
outstanding Yield/ earned/
balance rate paid
Loans (1) $274,372 8.76% $24,039
Securities
available for sale 95,029 7.05 6,699
Securities
held to
maturity: 7,867 7.89 621
Deposits in banks 866 5.16 45
Federal funds sold 3,582 5.60 200
------- ------
Total interest-
earning assets 381,716 8.28 31,604
Non-earning
assets 26,718
Allowance for
loan losses (2,682)
-------
Total assets $405,752
=======
Savings deposits $ 34,538 2.79 963
NOW and MMDA 81,461 2.89 2,358
CD's over $100M 25,190 5.53 1,394
Other time
deposits 145,105 5.73 8,307
Short-term
borrowings 37,928 5.42 2,057
Long-term debt 6,791 6.05 411
------- ------
Total interest-
bearing
liabilities 331,013 4.68 15,490
------
Demand deposits 33,516
Other liabilities 2,780
Capital 38,443
-------
Total liabilities
and capital $405,752
=======
Net interest
income $16,114
======
-20-
Interest rate
spread 3.60%
Net interest
income margin 4.22
Ratio of
interest-earning
assets to
interest-bearing
liabilities 115.43%
- -------------------------------------------
(1) Includes nonaccrual loans.
The following table describes the extent to which the changes in interest
rates and changes in volume of interest-related assets and liabilities have
affected the Bank's interest income and expense during the periods indicated.
For each category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to (i) changes in volume (the
difference between the average volume for the periods compared, multiplied
by the prior year's yield or rate paid), (ii) changes in rate (the difference
between the weighted average yield or rate paid for the periods compared,
multiplied by the prior year's average volume) and (iii) changes not solely
attributable to either volume or rate.
Years ended December 31,
------------------------------------
1999 vs 1998
------------------------------------
Increase (decrease) due to
------------------------------------
Rate/
Volume Rate Volume Total
------ ---- ------- -----
(In thousands)
Interest income attributable to:
Loans $3,736 $ (841) $(126) $2,769
Securities available for sale (515) (207) 13 (709)
Securities held to maturity 879 (145) (94) 640
Deposits in banks (12) - - (12)
Federal funds sold (412) (56) 46 (422)
----- ----- --- -----
Total interest-earning assets 3,676 (1,249) (161) 2,266
----- ----- --- -----
-21-
Interest expense attributable to:
Savings deposits 27 (203) (8) (184)
NOW and MMDA 536 (95) (19) 422
CD's over $100,000 191 (100) (8) 83
Other time deposits 161 (582) (12) (433)
Short-term borrowings (258) (115) 18 (355)
Long-term debt 1,195 (85) (33) 1,077
----- ----- --- -----
Total interest-bearing
liabilities 1,852 (1,180) (62) 610
----- ----- --- -----
Net interest income $1,824 $ (69) $(99) $1,656
===== ===== === =====
Years ended December 31,
------------------------------------
1998 vs 1997
------------------------------------
Increase (decrease) due to
------------------------------------
Rate/
Volume Rate Volume Total
------ ---- ------- -----
(In thousands)
Interest income attributable to:
Loans $1,083 $ (127) $ (35) $ 921
Securities available for sale 2,096 (514) 153 1,735
Securities held to maturity 1,269 (178) (363) 728
Deposits in banks (17) (3) 1 (19)
Federal funds sold 316 (5) (7) 304
----- ----- --- -----
Total interest-earning assets 4,747 (827) (251) 3,669
----- ----- --- -----
Interest expense attributable to:
Savings deposits 27 (70) (2) (45)
NOW and MMDA 226 18 2 246
CD's over $100,000 805 - - 805
Other time deposits (5) (185) - (190)
Short-term borrowings (352) (100) 17 (435)
Long-term debt 2,939 (34) (236) 2,669
----- ----- --- -----
Total interest-bearing
liabilities 3,640 (371) (219) 3,050
----- ----- --- -----
Net interest income $1,107 $ (456) $ (32) $ 619
===== ===== === =====
-22-
Competition
The Bank competes for deposits with other commercial banks, savings
associations and credit unions and with the issuers of commercial paper and
other securities, such as shares in money market mutual funds. The primary
factors in competing for deposits are interest rates and convenience of office
location. In making loans, the Bank competes with other commercial banks,
savings associations, mortgage bankers, consumer finance companies, credit
unions, leasing companies, insurance companies and other lenders. The Bank
competes for loan originations primarily through the interest rates and loan
fees it charges and through the efficiency and quality of services it provides
to borrowers. Competition is affected by, among other things, the general
availability of lendable funds, general and local economic conditions, current
interest rate levels and other factors which are not readily predictable.
For years the Bank has competed within its market area with several regional
bank holding companies, each with assets in excess of $4 billion. The size of
these financial institutions and others competing with the Bank is likely to
increase further as a result of changes in statutes and regulations
eliminating various restrictions on interstate and inter-industry branching
and acquisitions. Community banks will be challenged by these larger
competitors and the greater capital resources they control.
-23-
REGULATION
General
Because of its ownership of all the outstanding stock of the Bank, InterCounty
is subject to regulation, examination and oversight by the FRB as a bank
holding company under the BHCA. The Bank, as a national bank, is subject to
regulation, examination and oversight by the OCC and special examination by
the FRB. The Bank is a member of the Federal Reserve Bank of Cleveland and a
member of the Federal Home Loan Bank of Cincinnati. In addition, since its
deposits are insured by the FDIC, the Bank is also subject to some regulation,
oversight and special examination by the FDIC. The Bank must file periodic
financial reports with the FDIC, the OCC and the Federal Reserve Bank of
Cleveland. Examinations are conducted periodically by these federal
regulators to determine whether the Bank and InterCounty are in compliance
with various regulatory requirements and are operating in a safe and sound
manner.
Bank Holding Company Regulation
As a bank holding company, InterCounty may be subject to restrictions on
share repurchases.
The FRB has also adopted capital adequacy guidelines for bank holding
companies, pursuant to which, on a consolidated basis, InterCounty must
maintain total capital of at least 8% of risk-weighted assets. Risk-weighted
assets consist of all assets, plus credit equivalent amounts of certain off-
balance sheet items, which are weighted at percentage levels ranging from 0%
to 100%, based on the relative credit risk of the asset. At least half of the
total capital to meet this risk-based requirement must consist of core or
"Tier 1" capital, which includes common stockholders' equity, qualifying
perpetual preferred stock (up to 25% of Tier 1 capital) and minority interests
in the equity accounts of consolidated subsidiaries, less goodwill. The
remainder of total capital may consist of supplementary or "Tier 2 capital".
In addition to this risk-based capital requirement, the FRB requires bank
holding companies to meet a leverage ratio of a minimum level of Tier 1
capital to average total consolidated assets of 3%, if they have the highest
regulatory examination rating, well-diversified risk and minimal anticipated
growth or expansion. All other bank holding companies are expected to
maintain a leverage ratio from at least 4% to 5% of average total consolidated
assets. InterCounty was in compliance with these capital requirements at
December 31, 1999. For InterCounty's capital ratios, see Note 14 to the
Consolidated Financial Statements in Item 8.
-24-
A bank holding company is required by law to guarantee the compliance of
any insured depository institution subsidiary that may become
"undercapitalized" (defined in the regulations as not meeting minimum capital
requirements) with the terms of the capital restoration plan filed by such
subsidiary with its appropriate federal banking agency.
The BHCA restricts InterCounty's ownership or control of the outstanding
shares of any class of voting stock of any company engaged in a
nonbanking business. In addition, the FRB has the authority to require a bank
holding company to terminate any activity or relinquish control of any nonbank
subsidiary (other than a nonbank subsidiary of a bank) upon the determination
by the FRB that such activity or control constitutes a serious risk to the
financial soundness and stability of any bank subsidiary of the bank holding
company. InterCounty currently has no nonbank subsidiaries, except
subsidiaries of the Bank. The ownership of subsidiaries of the Bank is
regulated by the OCC, rather than the FRB.
On November 12, 1999, President Clinton signed into law the Gramm-Leach-Bliley
Act (also known as the Financial Services Modernization Act of 1999). The
Financial Services Modernization Act will, effective March 11, 2000, permit
bank holding companies to become financial holding companies and thereby
affiliate with securities firms and insurance companies and engage in other
activities that are financial in nature. A bank holding company may become a
financial holding company if each of its subsidiary banks is well capitalized
under the Federal Deposit Insurance Corporation Act of 1991 prompt corrective
action provisions is well managed, and has at least a satisfactory rating
under the Community Reinvestment Act, by filing a declaration that the bank
holding company wishes to become a financial holding company. No regulatory
approval will be required for a financial holding company to acquire a
company, other than a bank or savings association, engaged in activities that
are financial in nature or incidental to activities that are financial in
nature, as determined by the Federal Reserve Board.
The Financial Services Modernization Act defines "financial in nature" to
include:
- securities underwriting, dealing and market making;
- sponsoring mutual funds and investment companies;
- insurance underwriting and agency;
- merchant banking; and
- activities that the Federal Reserve Board has determined to be
closely related to banking.
-25-
A national bank also may engage, subject to limitations on investment, in
activities that are financial in nature, other than insurance underwriting,
insurance company portfolio investment, real estate development and real
estate investment, through a financial subsidiary of the bank, if the bank is
well capitalized, well managed and has at least a satisfactory Community
Reinvestment Act rating. Subsidiary banks of a financial holding company or
national banks with financial subsidiaries must continue to be well
capitalized and well managed in order to continue to engage in activities that
are financial in nature without regulatory actions or restrictions, which
could include divestiture of the financial in nature subsidiary or
subsidiaries. In addition, a financial holding company or a bank may not
acquire a company that is engaged in activities that are financial in nature
unless each of the subsidiary banks of the financial holding company or the
bank has a Community Reinvestment Act rating of satisfactory or better.
The specific effects of the enactment of the Financial Services Modernization
Act on the banking industry in general and on the Bank and InterCounty in
particular have yet to be determined due to the fact that the Financial
Services Modernization Act was only recently adopted.
Transactions between InterCounty and the Bank are subject to statutory limits
in Sections 23A and 23B of the Federal Reserve Act (the "FRA"). See "National
Bank Regulation -- Office of the Comptroller of the Currency."
The FRB must approve the application of a bank holding company to acquire any
bank or savings association.
National Bank Regulation
Office of the Comptroller of the Currency. The OCC is an office in the
Department of the Treasury and is subject to the general oversight of the
Secretary of the Treasury. The OCC is responsible for the regulation and
supervision of all national banks, including the Bank. The OCC issues
regulations governing the operation of national banks and, in accordance
with federal law, prescribes the permissible investments and activities of
national banks. The Bank is authorized to exercise trust powers in accordance
with OCC guidelines. See "Description of Business-Trust Services." National
banks are subject to regulatory oversight under various consumer protection
and fair lending laws. These laws govern, among other things, truth-in-
lending disclosure, equal credit opportunity, fair credit reporting and
community reinvestment.
-26-
The Bank is required to meet certain minimum capital requirements set by the
OCC. These requirements consist of risk-based capital guidelines and a
leverage ratio, which are substantially the same as the capital requirements
imposed on InterCounty. The Bank was in compliance with those capital
requirements at December 31, 1999. For the Bank capital ratios, see Note 14
to the Consolidated Financial Statements in Item 8. The OCC may adjust the
risk-based capital requirement of a national bank on an individualized basis
to take into account risks due to concentrations of credit or nontraditional
activities.
The OCC has adopted regulations governing prompt corrective action to resolve
the problems of capital deficient and otherwise troubled national banks. At
each successively lower defined capital category, a national bank is subject
to more restrictive and numerous mandatory or discretionary regulatory actions
or limits, and the OCC has less flexibility in determining how to resolve the
problems of the institution. In addition, the OCC generally can downgrade a
national bank's capital category, notwithstanding its capital level, if, after
notice and opportunity for hearing, the national bank is deemed to be engaging
in an unsafe or unsound practice, because it has not corrected deficiencies
that resulted in it receiving a less than satisfactory examination rating on
matters other than capital or it is deemed to be in an unsafe or unsound
condition. The Bank's capital at December 31, 1999, met the standards for
the highest capital category, a well-capitalized bank.
A national bank is subject to restrictions on the payment of dividends.
During the year 2000, dividends that the Bank subsidiary can pay to the
Holding Company without prior approval of regulatory agencies is limited
to net income in 2000. Based on the current financial condition of the Bank,
these provisions are not expected to affect the current ability of the Bank
to pay dividends to InterCounty in an amount customary for the Bank.
OCC regulations generally limit the aggregate amount that a national bank can
lend to one borrower or aggregated groups of related borrowers to an amount
equal to 15% of the bank's unimpaired capital and surplus. A national bank
may loan to one borrower an additional amount not to exceed 10% of the
association's unimpaired capital and surplus, if the additional amount is
fully secured by certain forms of "readily marketable collateral." Loans to
executive officers, directors and principal shareholders and their related
interests must conform to the OCC lending limits. All transactions between
national banks and their affiliates, including InterCounty, must comply with
Sections 23A and 23B of the FRA, which limit the amounts of such transactions
and require that the terms of the transactions be at least as favorable to the
Bank as the terms would be of a similar transaction between the Bank and an
unrelated party. The Bank was in compliance with these requirements and
restrictions at December 31, 1999.
The Bank is permitted to merge or consolidate with a bank located in another
state, unless that state has specifically prohibited such an interstate
transaction.
-27-
Federal Deposit Insurance Corporation. The FDIC is an independent federal
agency that insures the deposits, up to prescribed statutory limits, of
federally insured banks and thrifts and safeguards the safety and soundness
of the banking and thrift industries. The FDIC administers two separate
insurance funds, the BIF for commercial banks and state savings banks and
the SAIF for savings associations and for banks that have acquired SAIF
deposits. The FDIC is required to maintain designated levels of reserves in
each fund.
The SAIF deposits of Williamsburg obtained by the Bank in the Merger-
Conversion, including the attributed growth factor, which were $17.6 million
at December 31, 1999, remain insured in the SAIF. The Bank is a member of
the BIF, and, at December 31, 1999, it had $364.2 million in deposits insured
in the BIF.
The FDIC is authorized to establish separate annual assessment rates for
deposit insurance for members of each of the BIF and the SAIF. The FDIC may
increase assessment rates for either fund if necessary to restore the fund's
ratio of reserves to insured deposits to its target level within a reasonable
time and may decrease such rates if such target level has been met. The FDIC
has established a risk-based assessment system for both SAIF and BIF members.
Under this system, assessments vary based on the risk the institution poses to
its deposit insurance fund. The risk level is determined based on the
institution's capital level and the FDIC's level of supervisory concern about
the institution.
Federal Reserve Board. The FRA requires national banks to maintain reserves
against their net transaction accounts (primarily checking and NOW accounts).
The amounts are subject to adjustment by the FRB. At December 31, 1999, the
Bank was in compliance with its reserve requirements.
Federal Home Loan Banks. The Federal Home Loan Banks (the FHLBs) provide
credit to their members in the form of advances. As a member, the Bank must
maintain an investment in the capital stock of the FHLB of Cincinnati in an
amount equal to the greater of 1% of the aggregate outstanding principal
amount of the Bank's residential real estate loans, home purchase contracts
and similar obligations at the beginning of each year, or 5% of its advances
from the FHLB. The Bank is in compliance with this requirement with an
investment in FHLB of Cincinnati stock having a book value of $5,498,000 at
December 31, 1999. The FHLB advances are secured by collateral in one or
more specified categories. The amount a member may borrow from the FHLB is
limited based upon the amounts of various assets held by the member. All
long-term advances by each FHLB must be made only to provide funds for
residential housing finance.
-28-
Ohio Department of Insurance. The Bank's insurance agency operating
subsidiaries are subject to the insurance laws and regulations of the State
of Ohio and the Ohio Department of Insurance. The insurance laws and
regulations require education and licensing of agencies and individual agents,
require reports and impose business conduct rules.
Item 2. Properties
InterCounty Bancshares, Inc. and The National Bank and Trust Company own
and occupy their main offices located at 48 North South Street, Wilmington,
Ohio. The National Bank and Trust Company also owns or leases seventeen
full-service branch offices, one remote drive-through ATM facility, and
one remote drive-in facility, all of which are located in Clinton, Brown,
Clermont, Warren, and Highland Counties, Ohio. The Bank also owns and is
holding for future expansion, a building at 52 E. Main Street, Wilmington,
Ohio. This building is currently leased on a short-term basis. InterCounty's
net book value of investments in land and buildings was $8.5 million as of
December 31, 1999.
Item 3. Legal Proceedings
Neither InterCounty nor the Bank is presently involved in any legal
proceedings of a material nature. From time to time, the Bank is a party to
legal proceedings incidental to its business to enforce its security interest
in collateral pledged to secure loans made by the Bank.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
-29-
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
There were 3,188,314 common shares of the Company outstanding on December
31, 1999, held of record by approximately 437 shareholders. There is
presently no active trading market for the Company's shares, nor are the
prices at which common shares have been traded published by any national
securities association or quotation service. The Company's shares are
quoted on the OTC Bulletin Board under the symbol "ICYB". Dividends per
share declared were $.17 in each quarter in 1999. Dividends per share
declared in 1998 were $.125 in each of March, June, and September,
and $.13 per share in December.
On October 8, 1998, InterCounty issued 53,606 common shares in consideration
for all of the outstanding common shares of Phillips Group for the purpose of
providing insurance agency services through an operating subsidiary of the
Bank. On December 11, 1998, InterCounty issued 17,777 common shares in
consideration for all of the outstanding common shares of Jones Agency,
another insurance agency, which became a subsidiary of Bank. In both
instances, InterCounty relied upon the exemption from registration under the
Securities Act of 1933 contained in Section 3(a)(11) and Rule 147 thereunder.
All of the shareholders of both agencies to whom shares of InterCounty were
issued are residents of Ohio, the state in which InterCounty is incorporated
and doing business, and precautions have been taken to ensure that resales of
the shares issued will not violate the limitations of Rule 147.
Item 6. Selected Financial Data
The following table sets forth certain information concerning the consolidated
financial condition, earnings and other data regarding InterCounty at the
dates and for the periods indicated:
December 31,
Statement of financial 1999 1998 1997 1996 1995
condition and other data: (Dollars in thousands)
Total amount of
Assets $542,548 $520,553 $436,605 $380,607 $360,271
Cash and due from banks 18,813 18,241 17,807 11,005 13,680
Securities 155,027 176,580 123,139 88,831 90,760
Loans receivable-net 347,733 302,471 274,950 266,596 239,863
Deposits 379,932 374,220 329,332 309,127 291,503
Short-term borrowings 40,358 22,702 32,734 31,113 31,110
Long-term debt 75,431 75,539 30,716 914 1,108
Shareholders' equity 44,031 44,723 40,980 36,806 33,822
Number of full service
offices 17 16 14 13 12
-30-
Year ended December 31,
1999 1998 1997 1996 1995
Statement of income data: (In thousands)
Interest and loan fee
income $37,539 $35,273 $31,604 $28,824 $25,209
Interest expense 19,150 18,540 15,490 13,830 11,469
------- ------- ------ ------ ------
Net interest income 18,389 16,733 16,114 14,9engage in activities
that are financial in nature without regulatory actions or restrictions,
which could include divestiture of the financial in nature subsidiary or
subsidiaries. In addition, a financial holding company or a bank may not
acquire a company that is engaged in activities that are financial in nature
unless each of the subsidiary banks of the financial holding company or the
bank has a Community Reinvestment Act rating of satisfactory or better.
The specific effects of the enactment of the Financial Services Modernization
Act on the banking industry in general and on the Bank and InterCounty in
particular have yet to be determined due to the fact that the Financial
Services Modernization Act was only recently adopted.
-3-