Back to GetFilings.com
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 September 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 by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes ___ No X
---
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the last practicable date: 3,209,804 shares of the Bank's
common stock, without par value, were outstanding as of October 31, 2002.
1
NB&T FINANCIAL GROUP, INC.
SEPTEMBER 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 13
Item 4. Controls and Procedures 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2 Changes in Securities and Use of Proceeds 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 15
CERTIFICATION of CEO 16
CERTIFICATION of CFO 17
2
NB&T FINANCIAL GROUP, INC. AND SUBSIDIARY
Consolidated Balance Sheets
($ in thousands)
Assets September 30 December 31
2002 2001
-----------------------------------------
(Unaudited)
Cash and due from banks $ 19,221 $ 27,882
Federal funds sold 7,426 468
Interest-bearing demand deposits 4,564 87
------------------ ---------------
Cash and cash equivalents 31,211 28,437
Investment securities available for sale 175,733 171,600
Investment securities held to maturity 44,474 44,430
Loans held for sale 1,262 1,848
Loans, net of allowance for loan losses of $3,804 and $3,810 383,564 378,904
Premises and equipment 14,915 13,758
Federal Home Loan Bank and Federal Reserve Bank stock 7,281 6,914
Other assets 23,661 25,280
------------------ ---------------
Total assets $ 682,101 $ 671,171
=============== ===============
Liabilities
Deposits
Noninterest bearing $ 50,383 $ 52,734
Interest bearing 421,796 426,506
------------------ ---------------
Total deposits 472,179 479,240
Short-term borrowings 27,716 22,055
Long term debt 121,385 114,844
Other liabilities 4,292 4,056
------------------ ---------------
Total liabilities 625,572 620,195
------------------ ---------------
Commitments and contingencies
Equity for ESOP shares 12,380 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 9,147 9,129
Retained earnings 38,683 35,426
Unearned ESOP shares, at cost 122,074 shares (1,872) (1,871)
Treasury shares, at cost, 609,146 shares at 9/30/2002 and
611,146 at 12/31/2001 (5,229) (5,246)
Accumulated other comprehensive income 2,420 (145)
------------------ ---------------
Total stockholders' equity 44,149 38,293
------------------ ---------------
Total liabilities and stockholders' equity $ 682,101 $ 671,171
================== ===============
See notes to condensed consolidated financial statements.
3
NB&T FINANCIAL GROUP, INC. AND SUBSIDIARY
Consolidated Statements of Income
($ in thousands, except per share amounts)
Three Months Ended Nine Months Ended
September 30 September 30
-----------------------------------------------------------------
2002 2001 2002 2001
-----------------------------------------------------------------
(Unaudited)
Interest Income
Loans receivable $ 7,335 $ 7,547 $ 22,085 $ 23,111
Investment securities
Taxable 2,199 2,010 6,811 5,792
Tax exempt 678 679 2,034 2,032
Federal funds sold 27 208 113 616
Deposits with financial institutions 3 4 8 9
----------- ----------- ------------ -----------
Total interest income 10,242 10,448 31,051 31,560
----------- ----------- ------------ -----------
Interest Expense
Deposits 2,622 4,164 8,711 13,066
Short-term borrowings 95 280 279 1,147
Long-term debt 1,550 1,209 4,405 3,466
----------- ----------- ------------ -----------
Total interest expense 4,267 5,653 13,395 17,679
----------- ----------- ------------ -----------
Net Interest Income 5,975 4,795 17,656 13,881
Provision for loan losses 550 375 1,400 1,125
----------- ----------- ------------ -----------
Net Interest Income After Provision for 5,425 4,420 16,256 12,756
----------- ----------- ------------ -----------
Loan Losses
Other Income
Fiduciary activities 243 324 710 936
Service charges on deposit accounts 683 514 1,833 1,421
ATM network fees 141 203 457 620
Insurance agency commissions 662 444 1,776 1,179
Securities gains - - 34 260
Other income 427 431 1,611 1,222
----------- ----------- ------------ -----------
Total other income 2,156 1,999 6,421 5,875
----------- ----------- ------------ -----------
Other Expenses
Salaries and employee benefits 2,913 2,354 8,257 6,696
Net occupancy expenses 288 268 879 756
Equipment expenses 638 675 2,073 1,906
State franchise tax 141 143 413 425
Marketing 165 134 563 404
Other expenses 1,225 1,115 3,986 3,081
----------- ----------- ------------ -----------
Total other expenses 5,370 4,689 16,171 13,268
----------- ----------- ------------ -----------
Income Before Income Tax 2,211 1,730 6,506 5,363
Income tax expense 484 342 1,341 994
----------- ----------- ------------ -----------
Net Income $ 1,727 $ 1,388 $ 5,165 $ 4,369
=========== =========== ============ ===========
Basic Earnings per Share $ 0.56 $ 0.45 $ 1.67 $ 1.38
=========== =========== =========== ===========
Diluted Earnings per Share $ 0.55 $ 0.45 $ 1.66 $ 1.38
=========== =========== =========== ===========
See notes to condensed consolidated financial statements.
4
NB&T FINANCIAL GROUP, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
($ in thousands)
Nine Months Ended
September 30
----------------------------------------
2002 2001
----------------------------------------
(Unaudited)
Operating Activities
Net income $ 5,165 $ 4,369
Items not requiring cash
Provision for loan losses 1,400 1,125
Depreciation and amortization 1,407 1,067
Investment securities amortization (accretion), net 545
FHLB stock dividend (232) (322)
Other (45) (821)
Net change in
Loans held for sale 586 83
Other assets and liabilities 534 589
--------------- ------------------
Net cash provided by operating activities 9,360 6,090
--------------- ------------------
Investing Activities
Purchases of securities available for sale (103,833) (115,770)
Proceeds from sale of securities available for sale 2,425 8,260
Proceeds from maturities of securities available for sale 100,606 66,837
Purchase of Federal Reserve Bank stock (135)
Net change in loans (6,060) 11,280
Proceeds from sale of equipment 110
Acquisition of insurance agencies - (540)
Purchases of premises and equipment (2,650) (2,618)
---------------- ----------------
Net cash provided (used) by investing activities (9,537) (32,551)
-----------------------------------
Financing Activities
Net change in
Deposits (7,061) 26,710
Short-term borrowings 5,661 3,300
Proceeds from trust preferred securities 8,248
Proceeds from long-term debt - 31,000
Repayment of FHLB advances (1,707)
Cash dividends (2,214) (1,938)
Purchase of treasury shares - (1,671)
Proceeds from exercise of stock options 24 24
--------------- ------------------
Net cash provided by financing activities 2,951 57,425
--------------- ------------------
Net Change in Cash and Cash Equivalents 2,774 30,964
Cash and Cash Equivalents, Beginning of Year 28,437 19,395
--------------- ------------------
Cash and Cash Equivalents, End of Year $ 31,211 $ 50,359
=============== ==================
See notes to condensed consolidated financial statements.
5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
September 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 September 30, 2002, and December 31, 2001, and
the results of its operations and cash flows for the nine months ended September
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 (dollars in thousands, except
per share data):
Three Months Ended September 30 Nine Months Ended
------------------------------- -----------------
September 30
-------------
2002 2001 2002 2001
---- ---- ---- ----
Net income $1,727 $1,388 $5,165 $4,369
====== ====== ====== ======
Weighted Average Shares 3,086,331 3,116,523 3,085,933 3,160,725
Effect of dilutive stock options 27,659 15,526 27,480 14,409
------ ------ ------ ------
Adjusted Weighted Average Shares used in the
calculation of diluted earnings per share
3,113,990 3,132,049 3,113,412 3,175,134
========= ========= ========= =========
Basic earnings per share $0.56 $0.45 $1.67 $1.38
Diluted earnings per share $0.55 $0.45 $1.66 $1.38
Note 3, Commitments
Outstanding commitments to extend credit as of September 30, 2002 total
$35,217,000. Standby letters of credit as of September 30, 2002 total
$1,606,000.
6
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 (thousands):
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 5.24%), 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.
Note 6, Allowance for Loan Losses
Credit risk is the risk of loss from a customer default on a loan. The Bank has
in place a process to identify and manage its credit risk. The process includes
initial credit review and approval, periodic monitoring to measure compliance
with credit agreements and internal credit policies, monitoring changes in the
risk ratings of loans and leases, identification of problem loans and special
procedures for the collection of problem loans. The risk of loss is difficult to
quantify and is subject to fluctuations in values and general economic
conditions and other factors. The determination of the allowance for loan losses
is a critical accounting policy which involves estimates and management's
judgment on a number of factors such as net charge-offs, delinquencies in the
loan portfolio and general economic conditions. The Bank considers the allowance
for loan losses of $3.8 million adequate to cover losses inherent in the loan
portfolio as of September 30, 2002. However, no assurance can be given that the
Bank will not, in any particular period, sustain loan losses that are sizeable
in relation to the amount reserved, or that subsequent evaluations of the loan
portfolio, in light of factors then prevailing, including economic conditions
and the Bank's on-going credit review process, will not require significant
increases in the allowance for loan losses. Among other factors, a protracted
economic slowdown and/or a decline in commercial or residential real estate
values in the Bank's markets may have an adverse impact on the adequacy of the
allowance for loan losses by increasing credit risk and the risk of potential
loss.
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 September 30, 2002, and the related condensed
consolidated statements of income for the three- and nine-month periods and cash
flows for the nine-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
October 11, 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 third quarter of 2002 was $1.73 million, an increase of 24.4%
when compared to $1.39 million for the third quarter of 2001. Net income per
share-basic was $0.56 for the third quarter of 2002, an increase of 24.4% from
the $0.45 for the third quarter of 2001. Net income for the first nine months of
2002 was $5.17 million, an increase of 18.2% from the same period of 2001. Net
income per share-basic was $1.67 through September 30, 2002, compared to $1.38
through the same date in 2001, an increase of 21.1%.
Net interest income increased 24.6% to $5.98 million during the third quarter of
2002 compared to $4.80 million during the same quarter last year. Although
interest income was approximately the same, interest expense decreased 24.5%
when comparing these two amounts to the same period last year. Average
interest-earning assets increased 10.2% to $629.3 million during the third
quarter of 2002 compared to the third quarter of 2001, but the average
tax-equivalent yield decreased to 6.61% from 7.43%. Average loans increased 7.1%
to $390.0 million, while their average yield decreased from 8.24% in the third
quarter of 2001 to 7.48% in the third quarter of 2002. Average securities
increased 27.5% to $231.3 million, but their average tax-equivalent yield
decreased from 6.39% for the third quarter last year to 5.33% for the third
quarter of this year.
Average interest-bearing liabilities increased 9.5% to $571.9 million from the
third quarter of last year. The volume growth in average interest-bearing
liabilities was composed of $41.1 million in savings, NOW and money market
accounts, and $30.3 million in additional long-term borrowing. Jumbo
certificates of deposit decreased $17.2 million. The cost of interest-bearing
liabilities decreased from 4.29% during the third quarter of last year to 2.96%
in the third quarter of this year.
The tax equivalent net interest margin increased from 3.50% in the third quarter
of 2001 to 3.92% in the third quarter of 2002.
Net interest income for the first nine months of 2002 increased 27.2% from the
same period last year. Average interest-earning assets increased 11.7% from last
year, while the tax equivalent yield on these assets decreased from 7.53% to
6.64%. Interest-bearing liabilities increased 12.7%, while the cost decreased
from 4.65% to 3.13%. Tax equivalent net interest margin was 3.92% during the
first nine months of 2002, compared to 3.48% in 2001.
The provision for loan losses for the third quarter of 2002 was increased by
$175,000 to $550,000 when compared to the third quarter of last year. Net
charge-offs for the third quarter of 2002 were $552,000, .14% of average loans,
compared to $704,000, .19% of average loans, for the prior year. The provision
for loan losses year-to-date 2002 was $1,400,000, compared to $1,125,000 for the
same period in 2001. Net charge-offs year-to-date 2002 were .36% of average
loans, compared to .35% for the prior year.
Non-interest income was $2.16 million, 7.9% above the third quarter of 2001. The
increase in non-interest income included an increase of 32.9% in service charges
on deposits, primarily overdraft fees, business account charges, and debit card
revenue. Insurance agency commissions increased 49.1% as a result of agency
acquisitions and increased annuity sales. Decreases were recorded in trust
income, due to the decline in market values, and ATM network fees, due to a
lesser number of machines deployed. Year-to-date non-interest income, excluding
securities gains, was $6.39 million, 13.7% above the same
9
period of 2001. Gains on the sale of securities totaled $34,000 in 2002,
compared to $260,000 recorded in 2001.
Non-interest expense increased 14.5% from the third quarter of last year, the
primary reasons being increases in salaries and benefits expense and
amortization of intangibles. These expenses are higher because of the opening of
three new branches, the acquisition of The Sabina Bank, and the acquisition of
two insurance agencies during 2001. The number of full-time equivalent employees
at September 30, 2002, has increased by twenty-three from the same date last
year as a result of this expansion. Amortization of intangibles for the third
quarter of 2002 was $157,000 higher than the same quarter last year. For the
first nine months of 2002, non-interest expense was $16.2 million, 21.9% above
the first nine months of 2001.
Performance ratios for the third quarter of 2002 included a return on assets of
1.01%, and a return on equity of 12.42%. For the first nine months of 2002,
return on assets was 1.02%, and return on equity was 13.12%.
Financial Condition
- -------------------
The changes that have occurred in the Company's financial condition during 2002
are as follows (in thousands):
Sept. 30 Dec. 31 Change Change
2002 2001 Amount Percent
-------------- ---------------- --------------- -------------
Total Assets $ 682,101 $ 671,171 $ 10,930 2
Loans 387,368 382,714 4,654 1
Securities 220,207 216,030 4,177 2
Demand deposits 50,383 52,734 (2,351) (4)
Savings, NOW, MMDA deposits 215,614 206,749 8,865 4
CD's $100,000 and over 37,211 45,158 (7,947) (18)
Other time deposits 168,971 174,599 (5,628) (3)
Total deposits 472,179 479,240 (7,061) (1)
Short-term borrowing 27,716 22,055 5,661 26
Long-term borrowing 121,385 114,844 6,541 6
Shareholders' equity 56,529 50,976 5,553 11
Total assets have increased $10.9 million as a result of funds generated from
earnings and increases in short- and long-term borrowing during 2002. The
increase in funds was invested in the loan and securities portfolios. The $4.7
million increase in the loan portfolio consisted of an $8.1 million increase in
commercial loans and a $1.4 million increase in real estate loans, offset by a
$5.4 million decrease in personal loans. The decrease in deposits has occurred
primarily in certificates of deposit.
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 5.24%), 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.
10
Average total assets grew 10.5% from the third quarter of 2001, to $680.0
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 7.1% to $390.0 million when comparing third
quarters. 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 third quarter of 2002 grew $17.3 million (10.9%) compared to the third
quarter of 2001, and the average amount of residential real estate loans grew
$12.4 million (12.6%) between the two comparable periods.
The securities portfolio average for the third quarter 2002 has increased $49.9
million (27.5%) from the third 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 6.5% from the third quarter of 2001 to $422.9
million. Third quarter average interest-bearing liabilities grew $49.5 million
(9.5%) from the third quarter average in 2001. Third quarter 2002 average
interest-bearing transaction accounts increased $41.1 million (23.8%), average
large certificates decreased $17.2 million (31.3%), and average small
certificates increased $2.0 million (1.2%), all from the third quarter average
in 2001.
Average long-term borrowing increased $30.3 million (33.1%) from the third
quarter of 2001, and was primarily used to fund securities purchases. At
September 30, 2002, the Bank had outstanding $112.9 million of total borrowings
from the Federal Home Loan Bank (FHLB).
Total equity increased 10.3% from September 30, 2001 to $56.5 million at
September 30, 2002. Book value per share was $17.61 at September 30, 2002,
compared to $16.41 at September 30, 2001. Equity to assets was 8.29%, compared
to 7.97% at the end of the third 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.
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):
Sept. 30 Dec. 31 Sept. 30
2002 2001 2001
------------ ------------ ------------
Loans accounted for on
non-accrual basis $ 4,205 $ 4,859 $ 4,205
Accruing loans which are
past due 90 days or more 1,825 858 501
Renegotiated loans - - -
------- ------- -------
Total $ 6,030 $ 5,717 $ 4,706
======== ======== ========
As of September 30, 2002, there were $3.0 million in fourteen non-accrual small
business loans. The majority of this amount consisted of two relationships, one
of which consisted of loans totaling $1.5 million in the nursing home business,
on which monthly payments have been made since January 2002, following the
signing of a forbearance agreement. The second relationship amounts to $744,000
and is in the construction business. The customer has signed a forbearance
agreement and is proceeding with
11
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 seventeen loans that
total $919,000, with the largest individual balance being $116,000. Non-accrual
personal loans consisted of twelve loans that total $203,000, with the largest
individual balance being $72,000.
All loans are expected to be resolved through term payments or through
liquidation of collateral in the normal course of business. In addition,
management has identified a loan relationship totaling $2.0 million that is not
included in the non-performing categories at September 30, 2002, but about which
management, through normal credit review procedures, has become aware of
information regarding possible credit problems that could cause the borrower
future difficulties in complying with present loan repayment terms. The
relationship is current and on accrual status as of September 30, 2002.
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.
At September 30, 2002, the Company's allowance for loan losses totaled $3.80
million and was allocated to specifically classified loans, generally based on a
three-year net charge-off history. The following table sets forth an analysis of
the Company's allowance for loan losses for the periods indicated (in
thousands):
Nine months ended Sept. 30
--------------------------
2002 2001
-------------- --------------
Balance, beginning of period $ 3,810 $ 3,802
Charge-offs:
Commercial 593 432
Residential real estate 117 44
Installment 941 969
Credit card - -
Other - 16
-------- --------
Total 1,651 1,461
Recoveries:
Commercial 54 29
Residential real estate 7 -
Installment 184 156
Credit card - -
Other - 2
-------- --------
Total 245 187
-------- --------
Net charge-offs (1,406) (1,274)
Provision for loan losses 1,400 1,125
-------- --------
Balance, end of period $ 3,804 $ 3,653
======== ========
12
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 September 30, 2002, was 82.0%, compared to 83.4% at
the same date in 2001. Loans as a percentage of total assets were 56.8% at the
end of the third quarter of 2002, compared to 56.2% 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 62% 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 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 September 30, 2002, NB&T Financial Group, Inc.
had a total risk-based capital ratio of 14.16%, a Tier 1 risk-based capital
ratio of 13.24%, and a Tier 1 leverage ratio of 8.11%.
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.
Item 4 - Controls and Procedures
- --------------------------------
(a) The Company's principal executive officer and principal financial officer
have concluded, based upon their evaluation of the Company's disclosure controls
and procedures as of November 8, 2002, that the Company's disclosure controls
and procedures are effective.
(b) There have been no significant changes in the Company's internal controls or
in other factors that could significantly affect these controls subsequent to
the date of their evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
13
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
- --------------------------
Not applicable
Item 2 - Changes in Securities and Use of Proceeds
- --------------------------------------------------
Not applicable
Item 3 - Defaults Upon Senior Securities
- ----------------------------------------
Not applicable
Item 4 - Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
Not applicable
Item 5 - Other Information
- --------------------------
Not applicable
Item 6 - Exhibits and Reports on Form 8-K
- -----------------------------------------
Exhibit 10.1 NB&T Financial Group, Inc. Supplemental Executive
Retirement Plan
Exhibit 10.2 NB&T Financial Group, Inc. Supplemental Executive
Retirement Plan Participation Agreement.
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 July
24, 2002 regarding a press release announcing the results of operations for the
second quarter of 2002.
14
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: November 8, 2002 /s/ Charles L. Dehner
----------------------------
Charles L. Dehner
Treasurer, Executive Vice President,
And Principal Accounting Officer
15
CERTIFICATIONS
--------------
I, Timothy L. Smith, the President and Chief Executive Officer of NB&T
Financial Group, Inc., certify that:
1. I have reviewed this quarterly report on Form 10-Q of NB&T
Financial Group, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 8, 2002 /s/ Timothy L. Smith
----------------------
Timothy L. Smith
16
I, Charles L. Dehner, the Executive Vice President and Treasurer of
NB&T Financial Group, Inc., certify that:
1. I have reviewed this quarterly report on Form 10-Q of NB&T
Financial Group, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 8, 2002 /s/ Charles L. Dehner
----------------------
Charles L. Dehner
17