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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002
-------------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition period from to
______________________ ________________________
NB&T FINANCIAL GROUP, 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 No.)
48 North South Street, Wilmington, Ohio 45177
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(937) 382 1441
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ___
---
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the last practicable date: 3,207,804 shares of the Bank's
common stock, without par value, were outstanding as of July 31, 2002.
1
NB&T FINANCIAL GROUP, INC.
JUNE 30, 2002 FORM 10-Q
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Income 4
Condensed Consolidated Statements of Cash Flows 5
Notes to Condensed Consolidated Financial Statements 6
Independent Accountants' Report 8
Item 2. Management's Discussion and Analysis of Financial Condition 9
and Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2 Changes in Securities and Use of Proceeds 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
2
NB&T Financial Group, Inc. and Subsidiary
Consolidated Balance Sheets
($ in thousands)
Assets June 30 December 31
2002 2001
-----------------------------------
(Unaudited)
Cash and due from banks $ 18,719 $ 27,882
Federal funds sold 342 468
Interest-bearing demand deposits 917 87
---------------- ----------------
Cash and cash equivalents 19,978 28,437
Investment securities available for sale 182,830 171,600
Investment securities held to maturity 44,459 44,430
Loans held for sale 4,959 1,848
Loans, net of allowance for loan losses of $3,806 and $3,810 380,621 378,904
Premises and equipment 15,006 13,758
Federal Home Loan Bank and Federal Reserve Bank stock 7,200 6,914
Other assets 24,903 25,280
---------------- ----------------
Total assets $ 679,956 $ 671,171
================ ================
Liabilities
Deposits
Noninterest bearing $ 51,489 $ 52,734
Interest bearing 422,592 426,506
---------------- ----------------
Total deposits 474,081 479,240
Short-term borrowings 24,746 22,055
Long term debt 122,150 114,844
Other liabilities 4,339 4,056
---------------- ----------------
Total liabilities 625,316 620,195
---------------- ----------------
Commitments and contingencies
Equity for ESOP shares 12,249 12,683
---------------- ----------------
Stockholders' Equity
Preferred stock, no par value
Authorized and unissued -- 100,000 shares
Common stock, no par value
Authorized -- 6,000,000 shares
Issued -- 3,818,950 shares 1,000 1,000
Capital surplus 9,140 9,129
Retained earnings 37,825 35,426
Unearned ESOP shares, at cost 122,074 shares (1,872) (1,871)
Treasury shares, at cost, 611,146 shares (5,246) (5,246)
Accumulated other comprehensive income 1,544 (145)
---------------- ----------------
Total stockholders' equity 42,391 38,293
---------------- ----------------
Total liabilities and stockholders' equity $ 679,956 $ 671,171
================ ================
See notes to condensed consolidated financial statements and independent
accountants' report.
3
NB&T Financial Group, Inc. and Subsidiary
Consolidated Statements of Income
($ in thousands, except per share amounts)
Three Months Ended Six Months Ended
June 30 June 30
-----------------------------------------------------------------
2002 2001 2002 2001
-----------------------------------------------------------------
(Unaudited)
Interest Income
Loans receivable $ 7,332 $ 7,546 $ 14,750 $ 15,564
Investment securities
Taxable 2,353 1,766 4,612 3,632
Tax exempt 678 826 1,356 1,503
Federal funds sold 16 256 86 408
Deposits with financial institutions 4 4 5 5
----------- ----------- ------------ -----------
Total interest income 10,383 10,398 20,809 21,112
----------- ----------- ------------ -----------
Interest Expense
Deposits 2,819 4,431 6,089 8,902
Short-term borrowings 90 354 184 867
Long-term debt 1,434 1,133 2,855 2,257
----------- ----------- ------------ -----------
Total interest expense 4,343 5,918 9,128 12,026
----------- ----------- ------------ -----------
Net Interest Income 6,040 4,480 11,681 9,086
Provision for loan losses 475 375 850 750
----------- ----------- ------------ -----------
Net Interest Income After Provision for 5,565 4,105 10,831 8,336
----------- ----------- ------------ -----------
Loan Losses
Other Income
Fiduciary activities 234 255 467 520
Service charges on deposit accounts 593 478 1,150 907
ATM network fees 151 214 316 417
Insurance agency commissions 598 455 1,114 735
Securities gains 34 260 34 260
Other income 696 510 1,184 1,037
----------- ----------- ------------ -----------
Total other income 2,306 2,172 4,265 3,876
----------- ----------- ------------ -----------
Other Expenses
Salaries and employee benefits 2,711 2,243 5,344 4,350
Net occupancy expenses 288 249 591 488
Equipment expenses 734 649 1,435 1,242
State franchise tax 128 144 272 282
Marketing 240 135 398 270
Other expenses 1,432 983 2,761 1,947
----------- ----------- ------------ -----------
Total other expenses 5,533 4,404 10,801 8,579
----------- ----------- ------------ -----------
Income Before Income Tax 2,338 1,873 4,295 3,633
Income tax expense 439 337 857 652
----------- ----------- ------------ -----------
Net Income $ 1,899 $ 1,536 $ 3,438 $ 2,981
=========== =========== ============ ===========
Basic Earnings per Share $ 0.62 $ 0.48 $ 1.11 $ 0.94
=========== =========== ============ ===========
Diluted Earnings per Share $ 0.61 $ 0.48 $ 1.10 $ 0.94
=========== =========== ============ ===========
See notes to condensed consolidated financial
statements and independent accountants' report.
4
NB&T Financial Group, Inc. and Subsidiary
Consolidated Statements of Cash Flows
($ in thousands)
Six Months Ended
June 30
--------------------
2001 2000
-------- --------
(Unaudited)
Operating Activities
Net income $ 3,438 $ 2,981
Items not requiring cash
Provision for loan losses 850 750
Depreciation and amortization 948 741
Investment securities amortization (accretion), net 290
FHLB stock dividend (151) (214)
Other (45) (622)
Net change in
Loans held for sale (3,111) (26)
Other assets and liabilities (210) 562
-------- --------
Net cash provided by operating activities 2,009 4,172
-------- --------
Investing Activities
Purchases of securities available for sale (62,174) (54,158)
Proceeds from sale of securities available for sale 2,425 8,260
Proceeds from maturities of securities available for sale 50,793 39,725
Purchase of Federal Reserve Bank stock (135)
Net change in loans (2,567) 11,626
Proceeds from sale of equipment 98
Acquisition of insurance agencies (468)
Purchases of premises and equipment (2,270) (1,806)
-------- --------
Net cash provided (used) by investing activities (13,830) 3,179
-------- --------
Financing Activities
Net change in
Deposits (5,159) 26,585
Short-term borrowings 2,691 (6,988)
Proceeds from trust preferred securities 8,248
Proceeds from long-term debt 6,000
Repayment of FHLB advances (942)
Cash dividends (1,476) (1,283)
Purchase of treasury shares (1,671)
Proceeds from exercise of stock options 4
-------- --------
Net cash provided by financing activities 3,362 22,647
-------- --------
Net Change in Cash and Cash Equivalents (8,459) 29,998
Cash and Cash Equivalents, Beginning of Year 28,437 19,395
-------- --------
Cash and Cash Equivalents, End of Year $ 19,978 $ 49,393
======== ========
See notes to condensed consolidated financial statements and independent
accountants' report.
5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2002
(unaudited)
Note 1, Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared
in accordance with accounting principles generally accepted in the United States
of America for interim financial information and the instructions to Form 10-Q.
The Form 10-Q does not include all the information and footnotes required by
accounting principles generally accepted in the United States of America for
complete financial statements. Only material changes in financial condition and
results of operations are discussed in Management's Discussion and Analysis of
Financial Condition and Results of Operations.
The consolidated balance sheet as of December 31, 2001 has been derived from the
audited consolidated balance sheet of that date.
In the opinion of management, the condensed consolidated financial statements
contain all adjustments necessary to present fairly the financial condition of
NB&T Financial Group, Inc. as of June 30, 2002, and December 31, 2001, and the
results of its operations and cash flows for the six months ended June 30, 2002
and 2001. The results of operations for the interim periods reported herein are
not necessarily indicative of results of operation to be expected for the entire
year. The unaudited condensed 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, 2001 filed with the Commission.
Note 2, Earnings per Share
Earnings per share (EPS) were computed as follows:
Three Months Ended June 30 Six Months Ended June 30
-------------------------- ------------------------
2002 2001 2002 2001
---- ---- ---- ----
Net income $ 1,899 $ 1,536 $ 3,438 $ 2,981
========== ========== ========== ==========
Weighted Average Shares 3,085,730 3,170,377 3,085,730 3,183,192
Effect of dilutive stock options 29,327 13,655 27,843 15,362
---------- ---------- ---------- ----------
Adjusted Weighted Average Shares used in the
calculation of diluted earnings per share
3,115,057 3,184,032 3,113,573 3,198,544
========== ========== ========== ==========
Basic earnings per share $ 0.62 $ 0.48 $ 1.11 $ 0.94
Diluted earnings per share $ 0.61 $ 0.48 $ 1.10 $ .094
6
Note 3, Commitments
Outstanding commitments to extend credit as of June 30, 2002 total $34,069.
Standby letters of credit as of June 30, 2002 total $2,098.
Note 4, Acquisition Update
In connection with the December 2001 acquisition of assets and assumption of
liabilities of Sabina Bank, the allocation of the purchase price was completed
in the first quarter of 2002 and is summarized as follows:
December 10, 2001
--------------------------------------------------------------
Interest earning assets $ 46,266
Property and equipment 1,627
Core deposit intangible 3,196
Goodwill 3,490
Other assets 497
---------------
Total assets acquired 55,076
---------------
Deposits 41,977
Other liabilities 145
---------------
Total liabilities assumed 42,122
---------------
Net assets acquired $ 12,954
===============
Note 5, Trust Preferred Securities
During the second quarter of 2002, the Company participated in a securities sale
commonly referred to as a "pooled trust preferred securities offering". In that
offering, the Company issued to a trust controlled by the Company $8.248 million
in thirty-year debt securities at a rate of interest adjustable quarterly equal
to the three-month LIBOR rate plus 3.45% (currently 5.34%), and the trust issued
capital securities to an unrelated party. The securities issued by the Company
are classified as Tier 1 capital for regulatory purposes, and the interest is
deductible for federal income tax purposes. The Company made a capital
contribution of $8 million of these funds to the Bank to improve its regulatory
capital ratios.
7
Independent Accountants' Report
Board of Directors
NB&T Financial Group, Inc.
Wilmington, Ohio
We have reviewed the accompanying condensed consolidated balance sheet of NB&T
Financial Group, Inc. as of June 30, 2002 and the related condensed consolidated
statements of income for the three- and six-month periods and cash flows for the
six-month periods then ended. 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 auditing standards generally accepted in the United States of America, 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 reviews, we are not aware of any material modifications that should
be made to the condensed consolidated financial statements referred to above for
them to be in conformity with accounting principles generally accepted in the
United States of America.
The consolidated balance sheet as of December 31, 2001 and the related
consolidated statements of income, retained earnings and cash flows for the year
then ended (not presented herein), were audited by other auditors whose report
dated February 5, 2002, expressed an unqualified opinion on those statements.
/s/ BKD, LLP
Cincinnati, Ohio
July 18, 2002
8
PART I - FINANCIAL INFORMATION
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operation
Net income for the second quarter of 2002 was $1.90 million, an increase of
23.6% when compared to $1.54 million for the second quarter of 2001. Net income
per share-basic was $0.62 for the second quarter of 2002, an increase of 29.2%
from the $0.48 for the second quarter of 2001. Net income for the first six
months of 2002 was $3.44 million, an increase of 15.3% from the same period of
2001. Net income per share-basic was $1.11 through June 30, 2002, compared to
$0.94 through the same date in 2001, an increase of 18.1%.
Net interest income increased 34.8% to $6.04 million during the second quarter
of 2002 compared to $4.48 million during the same quarter last year. Although
interest income was approximately the same, interest expense decreased 26.6%
when comparing these two amounts to the same period last year. Average
interest-earning assets increased 10.4% to $618.5 million during the second
quarter of 2002 compared to the second quarter of 2001, but the average
tax-equivalent yield decreased to 6.73% from 7.44%. Average loans increased 5.4%
to $384.7 million, while their average yield decreased from 8.29% in the second
quarter of 2001 to 7.64% in the second quarter of 2002. Average securities
increased 34.8% to $229.3 million, but their average tax-equivalent yield
decreased from 7.03% for the second quarter last year to 5.70% for the second
quarter of this year.
Average interest-bearing liabilities increased 11.3% to $566.7 million from the
second quarter of last year, and were primarily invested in the securities
portfolio. The volume growth in average interest-bearing liabilities was
composed of $48.3 million in NOW and money market accounts and $27.9 million in
additional long-term borrowing from The Federal Home Loan Bank of Cincinnati
(FHLB), while retail certificates of deposit decreased $21.1 million. The cost
of interest-bearing liabilities decreased from 4.66% during the second quarter
of last year to 3.07% in the second quarter of this year. Year to date net
interest income increased 28.6% during the first half of 2002 compared to the
first half of last year.
The tax equivalent net interest margin increased from 3.56% in the second
quarter of 2001 to 4.06% in the second quarter of 2002.
Net interest income for the first six months of 2002 increased 28.6% from the
same period last year. Average interest-earning assets increased 12.4% from last
year, and the tax equivalent yield on these decreased from 7.84% to 6.87%.
Interest-bearing liabilities increased 14.4%, while the cost decreased from
4.84% to 3.21%. Tax equivalent net interest margin was 3.92% during the first
six months of 2002 versus 3.46% in 2001.
The provision for loan losses for the second quarter of 2002 was increased by
$100,000 to $475,000 when compared to the second quarter of last year. Net
charge-offs for the second quarter of 2002 were $537,000, .14% of average loans,
compared to $316,000, .09% of average loans for the prior year. The provision
for loan losses year-to-date 2002 was $850,000, compared to $750,000 for the
same period in 2001. Net charge-offs year-to-date 2002 were .22% of average
loans, compared to .15% for the prior year.
Non-interest income, excluding securities gains, was $2.27 million, 18.8% above
the second quarter of 2001. Gains on the sale of securities totaled $34,000 in
the second quarter of 2002, compared to
9
$260,000 in the second quarter of 2001. The increase in non-interest income was
primarily due to increases in service charges on deposits, Bank Owned Life
Insurance (BOLI) income and insurance agency commissions. Service charges on
deposits increased 24.1% and were the result of increased accounts from acquired
and opened branches. The increase in BOLI income was $258,000 and was related to
a death benefit claim. Insurance agency commissions increased 31.4% as a result
of higher annuity and property and casualty sales. Year-to-date non-interest
income, excluding securities gains, was $4.23 million, 17.0% above the first
half of 2001.
Non-interest expense increased 25.6% from the second quarter of last year, the
primary reasons being a 20.8% increase in salaries and benefits expense, a 13.8%
increase in occupancy and equipment expense related to the opening of three new
branches, and the amortization of intangibles related to the acquisition of The
Sabina Bank and two insurance agencies during 2001. The number of full-time
equivalent employees has increased by forty-two as a result of this expansion.
Other expense this quarter included a $70,000 donation related to the sale of
excess buildings in Sabina as a result of that acquisition. For the first six
months of 2002, non-interest expense was $10.80 million, 25.9% above the first
six months of 2001.
Performance ratios for the second quarter of 2002 included a return on assets of
1.13%, and a return on equity of 14.83%. For the first half of 2002, return on
assets was 1.02%, and return on equity was 13.50%.
Financial Condition
The changes that have occurred in the Company's financial condition during 2002
are as follows (in thousands):
June 30 December 31 Change Change
2002 2001 Amount Percent
------- ----------- ------ --------
Total Assets $679,956 $671,171 $ 8,785 1%
Loans 384,427 382,714 1,713 -
Securities 227,289 216,030 11,259 5
Demand deposits 51,489 52,734 (1,245) (2)
Savings, Now, MMDA deposits 210,608 206,749 3,859 2
CD's $100,000 and over 39,187 45,158 (5,971) (13)
Other time deposits 172,797 174,599 (1,802) (1)
Total deposits 474,081 479,240 (5,159) (1)
Short-term borrowing 24,746 22,055 2,691 12
Long-term borrowing 122,150 114,844 7,306 6
Shareholders' Equity 54,640 50,976 3,664 -
Total assets have increased $8.8 million as a result of funds generated from
increases in short- and long-term borrowing during 2002. The increase in funds
was primarily invested in the securities portfolio. Although the loan portfolio
has remained at about the same level during the year, an $8.0 million increase
in commercial loans was offset by a $7.6 million decrease in personal loans. The
decrease in deposits has occurred primarily in the large certificates of public
funds deposits.
During the second quarter of 2002, the Company participated in a securities sale
commonly referred to as a "pooled trust preferred securities offering." In that
offering, the Company issued to a trust controlled by the Company $8.248 million
in thirty-year debt securities at a rate of interest adjustable quarterly equal
to the three-month LIBOR rate plus 3.45% (currently 5.34%), and the trust issued
capital securities to an unrelated party. The securities issued by the Company
are classified as Tier 1 capital for
10
regulatory purposes, and the interest is deductible for federal income tax
purposes. The Company made a capital contribution of $8 million of these funds
to the Bank to improve its regulatory capital ratios.
Average total assets grew 11.5% from the second quarter of 2001, to $671.5
million. This growth was primarily the result of the Sabina Bank acquisition in
December of 2001, which added $47 million in assets to the Company.
Average total loans increased 5.4% to $384.7 million. The Sabina Bank
acquisition added $31.3 million to the loan portfolio: $16.1 million in
residential real estate loans, $8.0 million in personal loans, and $7.1 million
in commercial loans. The average amount of commercial loans in the second
quarter of 2002 grew $18.8 million (12.1%) compared to the second quarter of
2001, and the average amount of residential real estate loans grew $9.8 million
(9.7%) between the two comparable periods.
The securities portfolio average for the second quarter 2002 has increased $59.2
million (34.8%) from the second quarter of last year. Most of the purchases were
of U.S. Agency mortgage-backed securities with average lives in the three-year
to five-year range.
Average total deposits increased 9.8% from the second quarter of 2001 to $426.5
million. Second quarter average interest-bearing liabilities grew $57.4 million
(11.3%) from the second quarter average in 2001. Second quarter 2002 average
interest-bearing transaction accounts increased $48.3 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 2001.
Average long-term borrowing increased $27.9 million (32.4%) from the second
quarter of 2001. This increase was primarily invested in the securities
portfolio. At June 30, 2002, the Bank had outstanding $113.7 million of total
borrowings from the Federal Home Loan Bank (FHLB).
Total equity increased 9.3% from June 30, 2001 to $54.6 million at June 30,
2002. Book value per share was $17.03 at June 30, 2002, compared to $16.01 at
June 30, 2001. Equity to assets was 8.04%, compared to 8.24% at the end of the
second quarter of last year. The increases in total equity and book value per
share are attributable primarily to net income and an increase in net unrealized
gain on securities available for sale.
11
Allowance for Loan Losses
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
2002 2001 2001
------ ------ ------
Loans accounted for on
non-accrual basis $5,290 $4,859 $7,896
Accruing loans which are
past due 90 days or more 1,208 858 352
Renegotiated loans 0 0 0
------ ------ ------
Total $6,498 $5,860 $8,248
====== ====== ======
As of June 30, 2002 there were $4.1 million in thirteen non-accrual small
business loans. The majority of this amount consisted of two relationships, one
of which is $1.6 million in the nursing home business and has been making
monthly payments since January 2002 following the signing of a forbearance
agreement. The second relationship amounts to $1.7 million and is in the
construction business. The customer has signed a forbearance agreement and has
proceeded with an orderly liquidation of collateral, which should be adequate to
satisfy the balance owed to the Company.
Non-accrual residential real estate loans consisted of twenty loans that total
$1.0 million with the largest balance being $108,000. Non-accrual personal loans
consisted of nine loans that total $137,000 with the largest balance being
$40,000.
All loans are expected to be resolved through term payments or through
liquidation of collateral in the normal course of business. Management is aware
of one other loan totaling $2.0 million, which is not included in the
non-performing categories at June 30, 2002, in which management through normal
credit review procedures, has developed information regarding possible credit
problems that could cause this borrower future difficulties in complying with
present loan repayment terms.
The allowance for loan losses 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.
12
At June 30, 2002, the Company's allowance for loan losses totaled $3.81 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
2002 2001
------------------
Balance, beginning of period $3,810 $3,802
Charge-offs:
Commercial 294 89
Residential real estate 81 44
Installment 621 551
Credit Card - -
Other - 15
------ ------
Total 996 699
------ ------
Recoveries:
Commercial 26 10
Residential real estate 2 -
Installment 114 115
Credit Card - -
Other - 2
------ ------
Total 142 127
------ ------
Net Charge-offs (854) (571)
Provision for loan losses 850 750
------ ------
Balance, end of period $3,806 $3,981
====== ======
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, 2002, was 81.1%, compared to 83.5% at the
same date in 2001. Loans to total assets were 56.5% at the end of the second
quarter of 2002, compared to 59.7% at the same time last year. Management
strives to keep this ratio below 70%. Of the total securities portfolio, 80%
consists of available-for-sale securities that are readily marketable.
Approximately 48% 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
92% 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.
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, 2002, NB&T Financial Group, Inc. had a
total risk-based capital ratio of 14.03%, a Tier 1 risk-based capital ratio of
13.09%, and a Tier 1 leverage ratio of 8.03%.
13
Item 3 - Quantitative and Qualitative Disclosures about Market Risk
Market risk is the risk of loss arising from adverse changes in the fair value
of financial instruments due to interest rate risk, exchange rate risk, equity
price risk and commodity price risk. The Company does not maintain a trading
account for any class of financial instrument, and is not currently subject to
foreign currency exchange rate risk, equity price risk or commodity price risk.
The Company's market risk is composed primarily of interest rate risk.
Techniques used to measure interest rate risk include both interest rate gap
management and simulation modeling that measures the effect of rate changes on
net interest income and market value of equity under different rate scenarios.
Since December 31, 2001, the Company has experienced no significant change in
market risk. Currently, the Company is not in violation of any interest-rate
risk policy guidelines established by the Asset Liability Management Committee.
14
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
Not applicable
Item 2 Changes in Securities and Use of Proceeds
On June 26, 2002, the Company issued $8.248 million in thirty-year Floating Rate
Junior Subordinated Deferrable Interest Debentures (the "Debentures") to NB&T
Statutory Trust I (the "Trust"), a trust created by the Company for this
purpose. On the same date, the Trust sold for $8.0 million 8,000 Floating Rate
Capital Securities, liquidation amount $1,000.00 each (the "Capital
Securities"), to Preferred Term Securities VI, Ltd. A fee of $248,000 was paid
to FTN Financial Capital Markets and Keefe, Bruyette & Woods, Inc., which acted
as placement agents.
The sale of the Debentures was exempt from registration under the Securities Act
of 1933 (the "Act") as a non-public offering to a wholly-owned subsidiary of the
Company under Section 4(2) of the Act. The Company made a capital contribution
of $8.0 million of the proceeds from the issuance of the Debentures to the Bank
to improve its regulatory capital ratios. The issuance of the Capital Securities
was exempt from registration under the Act by Regulation S, as the Capital
Securities were offered and sold solely to Preferred Term Securities VI, Ltd., a
company organized under the laws of the Cayman Islands, to be held by Preferred
Term Securities VI, Ltd.
Item 3 Defaults Upon Senior Securities
Not applicable
Item 4 Submission of Matters to a Vote of Security Holders
Not applicable
Item 6 - Exhibits and Reports on Form 8-K
Exhibit 11. Statement regarding computation of earnings per share is
contained in Part I.
Exhibit 15 Accountants' acknowledgement.
Exhibit 99 Safe harbor under the Private Securities Litigation Reform
Act of 1995.
Exhibit 99.2 Financial statements certification by CEO.
Exhibit 99.3 Financial statements certification by CFO.
The Company filed a Form 8-K with the Securities and Exchange Commission on
April 24, 2002 regarding a press release announcing the results of operations
for the first quarter of 2002.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NB&T FINANCIAL GROUP, INC.
Date: August 8, 2002
/s/ Charles L. Dehner
-------------------------------
Charles L. Dehner
Treasurer, Executive Vice President,
And Principal Accounting Officer
16