UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
-----------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
-----------------------
For Quarter Ended March 31, 2000 Commission File Number 0-20378
CENIT BANCORP, INC.
------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 54-1592546
- ---------------------------------------- -------------------------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
300 East Main Street, Suite 1350
Norfolk, Virginia 23510
- ---------------------------------------- ------------------------
(Address of principal executive (Zip code)
office)
Registrant's telephone number, including area code: (757) 446-6600
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 latest practicable date.
Common Stock $.01 Par Value 4,716,498
- --------------------------- -----------------------------------
Title of Class Number of Shares Outstanding
as of May 11, 2000
CENIT BANCORP, INC. AND SUBSIDIARIES
Contents
- -------------------------------------------------------------------------------
Page
----
PART I - FINANCIAL INFORMATION
Item 1
Financial Statements
Consolidated Statement of Financial Condition as of March 31, 2000 (Unaudited)
and December 31, 1999.........................................................1
Unaudited Consolidated Statement of Operations for the Three Months
Ended March 31, 2000 and March 31, 1999.......................................2
Unaudited Consolidated Statement of Comprehensive Income for the Three
Months Ended March 31, 2000 and March 31, 1999................................3
Unaudited Consolidated Statement of Changes in Stockholders' Equity for the
Three Months ended March 31, 2000.............................................4
Unaudited Consolidated Statement of Cash Flows for the Three Months Ended
March 31, 2000 and March 31, 1999.............................................5
Notes to Unaudited Consolidated Financial Statements..........................6
Item 2
Management's Discussion and Analysis of Financial Condition and Results
of Operations............................................................. 7
Item 3
Quantitative and Qualitative Disclosures about Market Risk................15
PART II - OTHER INFORMATION
Item 1
Legal Proceedings.........................................................15
Item 2
Changes in Securities.....................................................15
Item 3
Defaults Upon Senior Securities...........................................15
Item 4
Submission of Matters to a Vote of Security Holders.......................15
Item 5
Other Information ........................................................15
Item 6
Exhibits and Reports on Form 8-K..........................................15
Signatures................................................................15
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
CENIT BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
(Dollars in thousands, except per share data)
ASSETS
(Unaudited)
March 31, 2000 December 31, 1999
-------------- -----------------
Cash $ 19,311 $ 17,554
Federal funds sold 12,910 12,908
Securities available for sale at fair value (adjusted
cost of $136,276 and $139,386, respectively) 134,674 138,298
Loans, net:
Held for investment 464,826 469,618
Held for sale 1,116 3,456
Interest receivable 4,178 4,067
Real estate owned, net 217 218
Federal Home Loan Bank stock, at cost 6,050 7,100
Property and equipment, net 13,519 13,757
Goodwill and other intangibles, net 3,205 3,293
Other assets 4,123 3,944
--------- ---------
$ 664,129 $ 674,213
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest-bearing $ 71,304 $ 64,491
Interest-bearing 426,879 400,127
--------- ---------
Total deposits 498,183 464,618
Advances from the Federal Home Loan Bank 95,000 142,000
Securities sold under agreements to repurchase 15,073 13,233
Advance payments by borrowers for taxes and insurance 1,021 565
Other liabilities 3,796 2,532
--------- ---------
Total liabilities 613,073 622,948
--------- ---------
Stockholders' equity:
Preferred stock, $.01 par value; authorized 3,000,000
shares; none outstanding - -
Common stock, $.01 par value; authorized 7,000,000 shares;
issued and outstanding 4,753,663 and 4,751,644 at March 31,
2000 and December 31, 1999, respectively 48 48
Additional paid-in capital 12,983 12,964
Retained earnings - substantially restricted 42,940 42,914
Common stock acquired by Employee Stock Ownership Plan (ESOP) (3,812) (3,862)
Common stock acquired by Management Recognition Plan (MRP) (110) (125)
Accumulated other comprehensive income,
net of income taxes (993) (674)
--------- ---------
Total stockholders' equity 51,056 51,265
--------- ---------
$ 664,129 $ 674,213
========= =========
<FN>
The notes to unaudited consolidated financial statements are an integral part of
this statement.
</FN>
1
CENIT BANCORP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in thousands, except per share data)
Three Months
Ended
March 31,
-----------------------
2000 1999
---- ----
Interest and fees on loans $ 9,132 $ 9,445
Interest on mortgage-backed certificates 1,429 273
Interest on investment securities 776 770
Dividends and other interest income 261 239
--------- --------
Total interest income 11,598 10,727
--------- --------
Interest on deposits 4,261 4,198
Interest on borrowings 1,943 1,182
--------- --------
Total interest expense 6,204 5,380
--------- --------
Net interest income 5,394 5,347
Provision for loan losses 29 14
--------- --------
Net interest income after provision for loan losses 5,365 5,333
--------- --------
Other income:
Deposit fees 708 659
Merchant processing fees 511 514
Commercial mortgage brokerage fees - 158
Gains on sales of loans, net 132 240
Other 242 260
--------- --------
Total other income 1,593 1,831
--------- --------
Other expenses:
Salaries and employee benefits 2,296 2,436
Equipment, data processing and supplies 808 747
Net occupancy expense of premises 572 526
Merchant processing 391 429
Professional fees 157 174
Other 563 563
--------- --------
Total other expenses 4,787 4,875
--------- --------
Income before income taxes 2,171 2,289
Provision for income taxes 782 824
--------- --------
Net income $ 1,389 $ 1,465
========= ========
Earnings per share:
Basic $ .31 $ .32
========= ========
Diluted $ .30 $ .31
========= ========
Dividends per common share $ .15 $ .15
========= ========
<FN>
The notes to unaudited consolidated financial statements are an integral part of
this statement.
</FN>
2
CENIT BANCORP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(Dollars in thousands)
Three Months
Ended
March 31,
------------------------
2000 1999
---- ----
Net income $ 1,389 $ 1,465
-------- -------
Other comprehensive loss, before income taxes:
Unrealized holding losses on securities available for
sale arising during the period (514) (323)
-------- -------
Other comprehensive loss, before income taxes (514) (323)
Income tax benefit related to items of other comprehensive loss 195 122
-------- -------
Other comprehensive loss, net of income taxes (319) (201)
-------- -------
Comprehensive income $ 1,070 $ 1,264
======== =======
<FN>
The notes to unaudited consolidated financial statements are an integral part of
this statement.
</FN>
3
CENIT BANCORP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Three Months Ended March 31, 2000
(Dollars in thousands)
Common
Stock Accumulated Other
Common Common Additional Acquired Comprehensive
Stock Stock Paid-In Retained by ESOP Loss, Net of
Shares Amount Capital Earnings and MRP Income Taxes Total
------ ------ --------- -------- ------- -------------- ------
Balance, December 31, 1999 4,751,644 $ 48 $12,964 $42,914 $(3,987) $ (674) $ 51,265
Comprehensive income - - - 1,389 - (319) 1,070
Cash dividends declared - - - (1,363) - - (1,363)
Exercise of stock options and
related tax benefits 2,019 - 19 - - - 19
Other - - - - 65 - 65
------- ---- ------- ------- ------ ------- --------
Balance, March 31, 2000 4,753,663 $ 48 $12,983 $42,940 $(3,922) $ (993) $ 51,056
========= ==== ======= ======= ======= ======= ========
<FN>
The notes to unaudited consolidated financial statements are an integral part of
this statement.
</FN>
4
CENIT BANCORP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
Three months ended March 31,
----------------------------
2000 1999
---- ----
Cash flows from operating activities:
Net income $ 1,389 $ 1,465
Add (deduct) items not affecting cash in the period:
Provision for loan losses 29 14
Amortization of loan yield adjustments 203 178
Depreciation, amortization and accretion, net 463 432
Net gains on sales/disposals of:
Loans (132) (240)
Real estate, property and equipment (25) (45)
Proceeds from sales of loans held for sale 9,380 17,340
Originations of loans held for sale (6,909) (15,943)
Change in assets/liabilities:
Net (increase) decrease in interest receivable and other assets (240) 534
Net increase (decrease) in other liabilities 810 (2,512)
-------- -------
Net cash provided by operating activities 4,968 1,223
-------- -------
Cash flows from investing activities:
Purchases of securities available for sale (5,538) (11,136)
Principal repayments on securities available for sale 3,641 2,279
Proceeds from maturities of securities available for sale 5,000 4,000
Net decrease (increase) in loans held for investment 4,584 (7,748)
Net proceeds on sales of real estate owned (21) 57
Additions to real estate (1) -
Purchases of Federal Home Loan Bank stock (250) -
Redemption of Federal Home Loan Bank stock 1,300 816
Purchases of property and equipment (116) (225)
-------- -------
Net cash used for investing activities 8,599 (11,957)
-------- -------
Cash flows from financing activities:
Proceeds from exercise of stock options and warrants 12 9
Net increase (decrease) in deposits 33,565 (6,543)
Proceeds from Federal Home Loan Bank advances 11,000 -
Repayment of Federal Home Loan Bank advances (58,000) -
Common stock repurchases - (373)
Net increase in securities sold under agreement
to repurchase 1,840 3,103
Cash dividends paid (681) (684)
Other, net 456 481
-------- -------
Net cash used for financing activities (11,808) (4,007)
-------- -------
Increase (decrease) in cash and cash equivalents 1,759 (14,741)
Cash and cash equivalents, beginning of period 30,462 56,945
-------- -------
Cash and cash equivalents, end of period $ 32,221 $ 42,204
======== =======
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 2,274 $ 1,660
Cash paid during the period for income taxes - 127
Schedule of noncash investing and financing activities:
Real estate acquired in settlement of loans $ 122 $ 76
Loans to facilitate sale of real estate owned 146 -
<FN>
The notes to unaudited consolidated financial statements are an integral part of
this statement.
</FN>
5
CENIT BANCORP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Note 1 - Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and, therefore, do not
include all of the disclosures and notes required by accounting principles
generally accepted in the United States. In the opinion of the management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. The results of operations for the three
month periods ended March 31, 2000 and 1999 are not necessarily indicative of
results that may be expected for the entire year or any interim periods. Certain
previously reported amounts have been reclassified to agree with the current
presentation. The interim financial statements should be read in conjunction
with the December 31, 1999 consolidated financial statements of CENIT Bancorp,
Inc. (the "Company").
Note 2 - Per Share Data
Basic earnings per share is calculated using weighted average shares
outstanding. For the three month period ended March 31, 2000, weighted average
shares used to compute basic earnings per share were 4,543,261. For the three
months ended March 31, 1999, weighted average shares used to compute basic
earnings per share were 4,566,074.
Diluted earnings per share is calculated by adding common stock equivalents
to the weighted average shares outstanding. For the three month period ended
March 31, 2000, weighted average shares used to compute diluted earnings per
share were 4,599,677. For the three months ended March 31, 1999, weighted
average shares used to compute diluted earnings per share were 4,654,449.
6
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
- -------------------------------------------------------------------------------
General
The Company's business currently consists of the business of its sole
subsidiary, CENIT Bank (the "Bank"). The principal business of the Bank consists
of attracting retail deposits from the general public in its market area through
a variety of deposit products and investing these funds in commercial, real
estate and consumer loans. The Bank also invests in mortgage-backed
certificates, securities issued by the U.S. Treasury and U.S. Government
agencies, federal funds sold, Federal Home Loan Bank stock, and other
investments permitted by applicable laws and regulations.
Financial Condition Of The Company
Total Assets
At March 31, 2000, the Company had total assets of $664.1 million, compared
to $674.2 million at December 31, 1999, a decrease of $10.1 million, or 1.5%.
Securities Available for Sale
Securities available for sale totaled $134.7 million at March 31, 2000 and
are comprised of mortgage-backed certificates, U. S. Treasury and other U. S.
Government agency securities, and other debt securities. The net decrease of
$3.6 million, or 2.6% from the December 31, 1999 balance of $138.3 million
resulted primarily from $8.6 million in proceeds from maturities and principal
repayments, offset partially by $5.5 million in purchases of available for sale
securities.
Loans
The balance of net loans decreased to $465.9 million at March 31, 2000 from
$473.1 million at December 31, 1999, a decrease of $7.1 million or 1.5%. The
decrease was primarily due to net portfolio paydowns and a decline in the
Company's mortgage lending business caused by rises in mortgage lending rates.
Permanent single-family mortgage loans held for investment and net held for sale
balances decreased a total of $6.2 million, or 2.8%, from December 31, 1999 to
March 31, 2000. In addition, for the three months ended March 31, 2000, mortgage
loan originations totaled $46.2 million, down from $49.6 million for the three
months ended December 31, 1999.
7
The following table sets forth the composition of the Company's loans in
dollar amounts and as a percentage of the Company's total gross loans held for
investment at the dates indicated.
March 31, 2000 December 31, 1999
--------------------- ---------------------
(Dollars in Thousands)
Amount Percent Amount Percent
------ ------- ------ -------
Real estate loans:
Residential permanent 1- to 4-family:
Adjustable rate $ 147,705 29.23% $ 149,163 29.44%
Fixed rate
Conventional 66,812 13.22 69,055 13.63
Guaranteed by VA or insured by FHA 2,688 .53 2,823 .56
--------- ------ ---------- ------
Total permanent 1- to 4-family 217,205 42.98 221,041 43.63
Residential permanent 5 or more family 8,529 1.69 8,082 1.59
--------- ------ ---------- ------
Total permanent residential loans 225,734 44.67 229,123 45.22
--------- ------ ---------- ------
Commercial real estate loans:
Hotels 10,615 2.10 10,711 2.11
Office and warehouse facilities 38,086 7.54 38,908 7.68
Retail facilities 23,259 4.60 22,098 4.36
Other 10,309 2.04 10,007 1.97
--------- ------ ---------- ------
Total commercial real estate loans 82,269 16.28 81,724 16.12
--------- ------ ---------- ------
Construction loans:
Residential 1- to 4-family 48,747 9.65 48,912 9.65
Residential 5 or more family 2,866 .57 9,616 1.90
Nonresidential 13,476 2.67 7,685 1.52
--------- ------ ---------- ------
Total construction loans 65,089 12.89 66,213 13.07
--------- ------ ---------- ------
Land acquisition and development loans:
Consumer lots 3,609 .71 3,566 .70
Acquisition and development 18,632 3.69 18,065 3.57
--------- ------ ---------- ------
Total land acquisition and development
loans 22,241 4.40 21,631 4.27
--------- ------ ---------- ------
Total real estate loans 395,333 78.24 398,691 78.68
--------- ------ ---------- ------
Consumer loans:
Boats 2,712 .54 2,855 .56
Home equity and second mortgage 57,778 11.43 56,469 11.14
Other 11,704 2.32 11,968 2.37
--------- ------ ---------- ------
Total consumer loans 72,194 14.29 71,292 14.07
--------- ------ ---------- ------
Commercial business loans 37,760 7.47 36,739 7.25
--------- ------ ---------- ------
Total loans 505,287 100.00% 506,722 100.00%
--------- ====== ---------- ======
Less:
Allowance for loan losses 3,835 3,860
Undisbursed portion of construction and
acquisition and development loans 38,068 34,714
Unearned discounts, premiums, and
loan fees, net (1,442) (1,470)
--------- ----------
40,461 37,104
--------- ----------
Total loans, net $ 464,826 $ 469,618
========= ==========
8
Deposits
Total deposits increased $33.6 million, or 7.2%, from $464.6 million at
December 31, 1999 to $498.2 million at March 31, 2000. The Company experienced
significant increases in both transaction deposits of $22.3 million, or 10.3%,
and certificates of deposit of $11.3 million, or 4.6%. The increase in
transaction deposits was primarily attributable to the Company's continued focus
on growing this line of business as part of its banking initiatives.
Certificates of deposit increased primarily as a result of a special retail
promotion on 18 and 60 month certificates of deposit held in the first quarter
of 2000.
Capital
The Company's and the Bank's capital ratios exceeded applicable regulatory
requirements at March 31, 2000.
The Board of Directors of the Company previously gave the Company's
management the discretion to repurchase up to 150,000 of the Company's shares.
The Company is not obligated to conduct such a repurchase at all, and the
Company's decision to do so, as well as the timing of any repurchase, will
depend on a variety of factors. As of May 11, 2000, 102,000 shares had been
repurchased under this discretionary authority. On April 24, 2000, the Board of
Directors of the Company gave the Company's management, subject to regulatory
approval, the discretion to repurchase up to an additional 233,283 of the
Company's shares. No shares have been repurchased under the latter discretionary
authority.
Asset Quality
Nonperforming Assets. Nonperforming assets consist of nonperforming loans,
real estate acquired in settlement of loans ("REO"), and other repossessed
assets. Generally the Company does not accrue interest on loans that are 90 days
or more past due, with the exception of certain VA-guaranteed or FHA insured
one- to four-family permanent mortgage loans, certain credit card loans, and
matured loans for which the borrowers are still making required monthly payments
of interest, or principal and interest, and with respect to which the Bank is
negotiating extensions or refinancings with the borrowers.
9
The following table sets forth information about the Company's nonperforming
loans, REO, and other repossessed assets at the dates indicated.
March 31, December 31,
2000 1999
------------ ------------
(Dollars in Thousands)
Nonperforming loans:
Real estate loans:
Permanent residential 1- to 4-family
Nonaccrual $ 174 $ 54
Accruing loans 90 days or more past due 718 87
------ -------
Total 892 141
------ -------
Land acquisition and development:
Nonaccrual 48 48
------ -------
Total 48 48
------ -------
Consumer loans:
Nonaccrual
Boats 9 10
Home equity and second mortgage 34 49
Other 26 20
Accruing loans 90 days or more past due 1 -
------ -------
Total 70 79
------ -------
Commercial business loans:
Nonaccrual 15 111
------ -------
Total 15 111
------ -------
Total nonperforming loans:
Nonaccrual 306 292
Accruing loans 90 or more days past due 719 87
------ -------
Total 1,025 379
Real estate owned, net 217 218
Other repossessed assets, net 3 6
------ -------
Total nonperforming assets, net 1,245 603
Total troubled debt restructurings - -
------ -------
Total nonperforming assets, net, and
troubled debt restructurings $1,245 $ 603
===== ======
Total nonperforming assets, net, and troubled
debt restructurings, to total assets .19% .09%
=== ===
The increase in permanent residential 1- to 4-family accruing loans 90 or
more days past due represents a single loan which is being serviced by a third
party.
10
Allowance for Loan Losses. The following table sets forth activity of the
allowance for loan losses for the periods indicated.
Three months ended March 31,
----------------------------
2000 1999
---- ----
(Dollars in Thousands)
Balance at beginning of period $ 3,860 $ 4,024
Provision for loan losses 29 14
Losses charged to allowance (76) (108)
Recovery of prior losses 22 14
------- -------
Balance at end of period $ 3,835 $ 3,944
======= =======
The Company's coverage ratio (total allowance for loan losses to total
nonperforming loans) was approximately four times, ten times, and three times
the nonperforming loans at March 31, 2000, December 31, 1999, and March 31,
1999, respectively. For the three months ended March 31, 2000 and March 31,
1999, the difference between the provision for loan losses and net loans charged
off during the respective period relates primarily to loan types in which the
Bank is no longer active and for which provisions for loan losses have
previously been made. Management believes that these provisions are adequate.
Average Balance Sheets
The following tables set forth, for the periods indicated, information
regarding: (i) the total dollar amounts of interest income from interest-earning
assets and the resulting average yields; (ii) the total dollar amounts of
interest expense from interest-bearing liabilities and the resulting average
costs; (iii) net interest income; (iv) interest rate spread; (v) net interest
position; (vi) the net yield earned on interest-earning assets; and (vii) the
ratio of total interest-earning assets to total interest- bearing liabilities.
Average balances shown in the following tables have been calculated using daily
average balances.
11
For the Three Months For the Three Months
Ended Ended
March 31, 2000 March 31, 1999
---------------------------- ----------------------------
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
------- -------- ------ ------- -------- ------
(Dollars in thousands)
Interest-earning assets:
Loans (1) $ 470,134 $ 9,132 7.77% $ 500,197 $ 9,445 7.55%
Mortgage-backed certificates 83,241 1,429 6.87 14,572 273 7.49
Investment securities 54,816 776 5.66 52,883 770 5.82
Federal funds sold 9,827 138 5.62 12,469 146 4.68
Federal Home Loan Bank stock 6,402 123 7.69 5,011 93 7.42
---------- -------- ---------- --------
Total interest-earning assets 624,420 11,598 7.43 585,132 10,727 7.33
---------- -------- ---------- --------
Noninterest-earning assets:
Real estate owned, net 185 386
Other 36,798 37,777
---------- ----------
Total noninterest-earning assets 36,983 38,163
---------- ----------
Total assets $ 661,403 $ 623,295
========== ==========
Interest-bearing liabilities:
Passbook and statement savings $ 31,786 $ 190 2.40 $ 35,989 $ 218 2.42
Checking accounts 41,526 147 1.42 37,833 134 1.42
Money market deposit accounts 79,839 711 3.56 74,802 626 3.35
Certificates of deposit 253,136 3,212 5.08 258,414 3,220 4.98
---------- -------- ---------- --------
Total interest-bearing deposits 406,287 4,260 4.19 407,038 4,198 4.13
---------- -------- ---------- --------
Advances from the Federal Home
Loan Bank 122,253 1,773 5.80 81,500 1,037 5.09
Securities sold under agreements
to repurchase 14,507 171 4.71 15,208 145 3.81
---------- -------- ---------- --------
Total borrowings 136,760 1,944 5.69 96,708 1,182 4.89
---------- -------- ---------- --------
Total interest-bearing liabilities 543,047 6,204 4.57 503,746 5,380 4.27
---------- -------- ---------- --------
Noninterest-bearing liabilities:
Deposits 61,964 64,187
Other liabilities 5,268 5,610
---------- ----------
Total noninterest-bearing liabilities 67,232 69,797
---------- ----------
Total liabilities 610,279 573,543
---------- ----------
Stockholders' equity 51,124 49,752
---------- ----------
Total liabilities and stockholders' equity $ 661,403 $ 623,295
========== ==========
Net interest income/interest rate spread $ 5,394 2.86% $ 5,347 3.06%
======== ========
Net interest position/net interest margin $ 81,373 3.46% $ 81,386 3.66%
========== ==========
Ratio of average interest-earning assets to
average interest-bearing liabilities 114.98% 116.16%
====== ======
<FN>
(1) Includes nonaccrual loans and loans held for sale.
</FN>
12
Comparison of Operating Results for the Three Months Ended March 31, 2000 and
March 31, 1999.
General
The Company's pre-tax income decreased $118,000 to $2.2 million for the
three months ended March 31, 2000 from $2.3 million for the three months ended
March 31, 1999. The decrease was primarily attributed to a $238,000 decrease in
other income offset by an $88,000 decrease in other expense. Net interest income
remained substantially the same for the first quarter of 2000 compared to the
first quarter of 1999.
Net Interest Income
The Company's interest income before provision for loan losses increased
$871,000 or 8.1% to $11.6 million for the first quarter of 2000 compared to
$10.7 million for the first quarter of 1999. This increase was substantially
offset by an increase of $824,000, or 15.3% in interest expense for the first
quarter of 2000 compared to the same period in 1999.
Interest on loans decreased $0.3 million, or 3.3%, to $9.1 million for the
first quarter 2000 compared to $9.4 million for the same period in 1999. While
the average loan yield increased to 7.77% for the first three months of 2000 as
compared to 7.55% for the same period in 1999, the average loan balance
decreased $30.1 million to $470.1 million in the first quarter of 2000. The
decrease in the average loan balance was attributable, in part, to net portfolio
paydowns and the decline in mortgage lending activity as a result of the higher
interest rate environment. The higher interest rate environment also contributed
to the increased loan yields in the first three months of 2000 compared to the
same period in 1999.
Interest on the Company's portfolio of mortgage-backed certificates
increased $1.2 million, to $1.4 million for the quarter ended March 31, 2000
from $273,000 for the comparable 1999 period. The average balance of the
portfolio increased $68.7 million from $14.6 million in the first quarter of
1999 to $83.2 million in the first quarter of 2000. This increase was primarily
attributable to the purchase of $51.8 million in mortgage-backed securities in
the third quarter of 1999.
Interest on deposits increased by $63,000, or 1.5%, for the quarter ended
March 31, 2000 compared to the quarter ended March 31,1999. The overall average
balance of interest-bearing deposits decreased by $751,000. The average balance
of certificates of deposit decreased by $5.3 million, or 2.0%, while
interest-bearing checking, savings and money market deposits increased by $4.5
million, or 3.0%, for the first quarter of 2000 compared to the same period in
1999. The average cost of deposits increased to 4.19% for the first three months
of 2000 compared to 4.13% for the first three months of 1999. The higher
interest rate environment and a special certificates of deposit promotion held
in the first quarter of 2000 contributed to the increase in the average cost of
deposits.
Interest on borrowings increased $761,000 for the three months ended March
31, 2000 compared to the same period in 1999. This increase was substantially
due to a $40.8 million increase in the average balance of FHLB advances to
$122.3 million for the first quarter of 2000 compared to $81.5 million for the
comparable period in 1999. The average cost of borrowings for the first quarter
of 2000 increased to 5.69% from 4.89% for the same period in 1999. A major
factor contributing to this increase was the conversion of a $60 million, 5.18%
fixed rate advance outstanding during the first quarter of 1999 to an average
variable rate of 5.80% in the first quarter of 2000.
Provision for Loan Losses
The Company's provision for loan losses remained substantially the same for
the three months ended March 31, 2000 as compared to the same period in 1999.
Net loans charged off during the three months ended March 31, 2000 were $54,000
compared to $94,000 for the comparable 1999 period.
13
Other Income
Total other income decreased by $238,000, or 13.0%, for the first quarter
of 2000 compared to the same period in 1999. The decrease is primarily due to a
$158,000 decrease in commercial mortgage brokerage fees and a $108,000 decrease
in gains on sales of loans. Higher interest rates adversely impacted mortgage
originations resulting in lower volumes of loans sold in the first quarter of
2000 compared to the same quarter in 1999. Commercial mortgage brokerage fees
fluctuate significantly from quarter-to-quarter depending on the balances of
loans brokered. In the first quarter of 2000, there were no commercial mortgages
brokered and therefore no related fee income.
Deposit fees and net merchant processing income increased $49,000, or 7.4%,
and $35,000, or 41.2%, respectively, for the first quarter of 2000 compared to
the first quarter of 1999.
Other Expenses
Total other expense decreased by $88,000 or 1.8%, for the three months ended
March 31, 2000 compared to the same period in 1999. The decrease was primarily
due to a decrease in commission expense related to the lower volume of loan
originations and brokered loans discussed above.
Liquidity
The principal sources of funds for the Company for the three months ended
March 31, 2000 included a $33.6 million increase in deposits, $9.4 million in
proceeds from the sale of loans, $8.6 million in proceeds from principal
repayments and maturities of securities available for sale, a $4.6 million
decrease in loans held for investment, $11 million of advances from the FHLB,
and a $1.3 million redemption of Federal Home Loan Bank stock. Funds were used
primarily to repay $58.0 million in FHLB advances, to originate loans held for
sale of $6.9 million, and to fund purchases of securities available for sale of
$5.5 million.
The Company's liquidity could be impacted by a decrease in the renewals of
deposits or general deposit runoff. However, the Company has the ability to
raise deposits by conducting deposit promotions. In the event the Company
requires funds beyond its ability to generate them internally, the Company could
obtain additional advances from the FHLB. The Company could also obtain funds
through the sale of investment securities from its available for sale portfolio.
All savings institutions, including the Bank, are required to maintain an
average daily balance of liquid assets equal to a certain percentage of the sum
of its average daily balance of net withdrawable deposit accounts and borrowings
payable in one year or less. The liquidity requirement may vary from time to
time (between 4% and 10%) depending upon economic conditions and savings flows
of all savings institutions. At March 31, 2000 and December 31, 1999, the Bank
exceeded the required liquid asset ratio of 4.0%.
14
Item 3 - Quantitative and Qualitative Disclosure About Market Risk
Market Risk Management
The Company's primary market risk exposure is interest rate risk.
Fluctuations in interest rates will impact both the level of interest income and
interest expense and the market value of the Company's interest-earning assets
and interest-bearing liabilities. There were no material changes in the
Company's market risk management strategy, as stated in the Company's 1999
annual report, during the first three months of 2000.
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings - Inapplicable
Item 2 - Changes in Securities - Inapplicable
Item 3 - Defaults Upon Senior Securities - Inapplicable
Item 4 - Submission of Matters to a Vote of Security Holders - None
Item 5 - Other Information - None
Item 6 - Exhibits and Reports on Form 8-K - None
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.
CENIT BANCORP, INC.
DATE: May 12, 2000 /S/ Michael S. Ives
----------------------------
Michael S. Ives
President and Chief Executive Officer
DATE: May 12, 2000 /S/ John O. Guthrie
-----------------------------
John O. Guthrie
Senior Vice President and
Chief Financial Officer
15