President's Letter

In 2013 our earnings were $4.2 million, a 9.4% improvement over 2012. Taken in the context of improvement the 9.4 % is a nice number. But I would like to speak candidly about these results, not only for 2013, but going back to 2003 and put some perspective on where we have been and where I think we are headed.

Since 2003, our 2013 $4.2 million in earnings were higher than all but three years. And one of those years, 2010, our earnings were $8.8 million due to the mark to market accounting of our American National Bank acquisition. This transaction added approximately $5 million in shareholder value without adding any shareholders – a true win for our shareholders.

While we are proud of the consistency in earnings, we are disappointed in the lack of growth over the last ten years. We can find numerous excuses ranging from the “Great Recession”, to the resulting plunge in market rates and the subsequent impact on interest margins, to losing a 7,500 person employer. Yet while these events are real and not within our control, something very positive occurred during this time frame that a great number of banks, both larger and smaller than us, were not able to do- we increased shareholder value, we made each and every quarterly dividend payment, and we actually increased the size of the dividend! And we are awfully proud of that!

At the end of 2003 our book value per share was $17.59; at the end of 2013 it was $19.84. Our dividend in 2003 was $0.96 and today it is $1.20.

The flatness of our earnings over the last ten years is attributable to essentially two items: loan losses and a declining interest margin.

First, we experienced loan losses with customers who could not weather the recession. Our loss on two large customer relationships was particularly painful. We have made the appropriate provisions for these loans and now can move forward. We believe that the improving quality of our loan portfolios, as indicated by lower non-performing loans, will reduce the possibility of major losses next year.

Second, our interest margin, (the difference between the interest earned on assets less the interest we pay for deposits, as a percentage of our interest-earning assets) has been greatly reduced. Reduced interest margin is an industry problem not specific to NB&T and is reflective of decreased loan demand. The lack of good loans forces competitors to go after each other’s good loans, lowering rate to out-price competitors. While we try to find good loans through hard work, and to win and keep them by providing the best customer service, we must remain competitive with our rates. Ultimately, the rate competition strategy is not a good long-term strategy for any bank or the industry. The reduction of our interest margin has caused us to work harder to improve our non-interest expenses (specifically salaries and benefits) which have decreased almost $2 million dollars since peaking at $26.5 million in 2010.

I would like to express my appreciation to the majority of our shareholders who have been supportive of our efforts and results. For those shareholders who have been disappointed in our performance, I value the feedback you have shared with me.

I believe that the last three years have made us better lenders, more frugal managers, a stronger management group and banking team as a whole. We look forward to using those strengths to improve on our 2013 performance.


John J. Limbert
President & Chief Executive Officer
NB&T Financial Group, Inc.
The National Bank and Trust Company