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 June 30, 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 4,551,164
------------------------
Title of Class Number of Shares Outstanding
as of August 9, 2000
CENIT BANCORP, INC. AND SUBSIDIARY
Contents
- ------------------------------------------------------------------------------
Page
----
PART I - FINANCIAL INFORMATION
Item 1
Financial Statements
Consolidated Statement of Financial Condition as of June 30, 2000 (Unaudited)
and December 31, 1999........................................................ 1
Unaudited Consolidated Statement of Operations for the Three Months and
Six Months ended June 30, 2000 and June 30, 1999............................. 2
Unaudited Consolidated Statement of Comprehensive Income for the Six
Months Ended June 30, 2000 and June 30, 1999..................................3
Unaudited Consolidated Statement of Changes in Stockholders' Equity for
the Six Months ended June 30, 2000............................................4
Unaudited Consolidated Statement of Cash Flows for the Six Months
ended June 30, 2000 and June 30, 1999.........................................5
Notes to Unaudited Consolidated Financial Statements..........................6
Item 2
Management's Discussion and Analysis of Financial Condition and Results
of Operations..............................................................6
Item 3
Quantitative and Qualitative Disclosures About Market Risk................16
PART II - OTHER INFORMATION
Item 1
Legal Proceedings.........................................................17
Item 2
Changes in Securities.....................................................17
Item 3
Defaults Upon Senior Securities...........................................17
Item 4
Submission of Matters to a Vote of Security Holders.......................17
Item 5
Other Information.........................................................17
Item 6
Exhibits and Reports on Form 8-K..........................................17
Signatures...................................................................17
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
CENIT BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
(Dollars in thousands, except per share data)
ASSETS
(Unaudited)
June 30, 2000 December 31, 1999
------------- -----------------
Cash $ 25,626 $ 17,554
Federal funds sold 10,964 12,908
Securities available for sale at fair value (adjusted
cost of $111,190 and $139,386, respectively) 109,614 138,298
Loans, net:
Held for investment 475,545 469,618
Held for sale 3,990 3,456
Interest receivable 4,041 4,067
Real estate owned, net 69 218
Federal Home Loan Bank stock, at cost 6,050 7,100
Property and equipment, net 13,375 13,757
Goodwill and other intangibles, net 3,118 3,293
Other assets 3,639 3,944
--------- ---------
$ 656,031 $ 674,213
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest-bearing $ 88,677 $ 64,491
Interest-bearing 412,098 400,127
--------- ---------
Total deposits 500,775 464,618
Advances from the Federal Home Loan Bank 86,000 142,000
Securities sold under agreements to repurchase 15,006 13,233
Advance payments by borrowers for taxes and insurance 754 565
Other liabilities 3,097 2,532
--------- ---------
Total liabilities 605,632 622,948
--------- ---------
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 4,623,498 and 4,751,644 shares
at June 30, 2000 and December 31, 1999, respectively 46 48
Additional paid-in capital 11,366 12,964
Retained earnings - substantially restricted 43,824 42,914
Common stock acquired by Employee Stock Ownership Plan (ESOP) (3,761) (3,862)
Common stock acquired by Management Recognition
Plan (MRP) (99) (125)
Accumulated other comprehensive (loss) income,
net of income taxes (977) (674)
--------- ---------
Total stockholders' equity 50,399 51,265
--------- ---------
$ 656,031 $ 674,213
========= =========
<FN>
The notes to unaudited consolidated financial statements are an integral part of
this statement.
</FN>
1
CENIT BANCORP, INC. AND SUBSIDIARY
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in thousands, except per share data)
Three months Six Months
Ended Ended
-------------------- ----------------------
June 30, June 30,
2000 1999 2000 1999
---- ---- ---- ----
Interest and fees on loans $ 9,322 $ 9,198 $ 18,454 $ 18,643
Interest on mortgage-backed certificates 1,406 258 2,834 532
Interest on investment securities 665 809 1,441 1,579
Dividends and other interest income 258 303 520 541
-------- --------- --------- ---------
Total interest income 11,651 10,568 23,249 21,295
-------- --------- --------- ---------
Interest on deposits 4,498 4,170 8,758 8,367
Interest on borrowings 1,770 1,154 3,714 2,336
-------- --------- --------- ---------
Total interest expense 6,268 5,324 12,472 10,703
-------- --------- --------- ---------
Net interest income 5,383 5,244 10,777 10,592
Provision for loan losses - 22 29 36
-------- --------- --------- ---------
Net interest income after provision
for loan losses 5,383 5,222 10,748 10,556
-------- --------- --------- ---------
Other income:
Deposit fees 666 624 1,374 1,283
Merchant processing fees 607 677 1,117 1,191
Commercial mortgage brokerage fees 2 10 2 168
Gains on sales of loans and securities, net 144 192 275 432
Other 217 321 461 580
-------- --------- --------- ---------
Total other income 1,636 1,824 3,229 3,654
-------- --------- --------- ---------
Other expenses:
Salaries and employee benefits 1,971 2,134 4,267 4,571
Equipment, data processing and supplies 786 744 1,593 1,491
Net occupancy expense of premises 556 522 1,128 1,048
Merchant processing 464 553 854 982
Professional fees 188 217 345 391
Expenses, gains/losses on sales and provision
for losses on real estate owned, net 33 27 39 35
Other 610 643 1,170 1,197
-------- --------- --------- ---------
Total other expenses 4,608 4,840 9,396 9,715
-------- --------- --------- ---------
Income before income taxes 2,411 2,206 4,581 4,495
Provision for income taxes 868 794 1,649 1,618
-------- --------- --------- ---------
Net income $ 1,543 $ 1,412 $ 2,932 $ 2,877
======== ========= ========= =========
Earnings per share:
Basic $ .34 $ .31 $ .65 $ .63
======== ========= ========= =========
Diluted $ .34 $ .30 $ .64 $ .62
======== ========= ========= =========
Dividends per common share $ .15 $ .15 $ .30 $ .30
======== ========= ========= =========
[FN]
The notes to unaudited consolidated financial statements are an integral part of
this statement.
</FN>
2
CENIT BANCORP, INC. AND SUBSIDIARY
UNAUDITED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(Dollars in thousands)
Six Months
Ended
June 30,
-------------------------
2000 1999
------ ------
Net income $ 2,932 $ 2,877
-------- -------
Other comprehensive income (loss), before income taxes:
Unrealized gains (losses) on securities available for sale
Unrealized holding losses arising during the period (504) (952)
Less: reclassification adjustment for gains included in net income 16 -
-------- -------
Other comprehensive loss, before income taxes (488) (952)
Income tax benefit related to items of other comprehensive loss 185 362
-------- -------
Other comprehensive loss, net of income taxes (303) (590)
-------- -------
Comprehensive income $ 2,629 $ 2,287
======== =======
<FN>
The notes to unaudited consolidated financial statements are an integral part of
this statement.
</FN>
3
CENIT BANCORP, INC. AND SUBSIDIARY
UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Six Months Ended June 30, 2000
(Dollars in thousands)
Accumulated
Common Other
Stock Comprehensive
Common Additional Acquired Income (Loss),
Common Stock Paid-In Retained by ESOP Net of Income
Stock Shares Amount Capital Earnings and MRP Taxes Total
------------ ------ --------- -------- ------- --------- --------
Balance, December 31, 1999 4,751,644 $ 48 $12,964 $42,914 $(3,987) $ (674) $ 51,265
Comprehensive income - - - 2,932 - (303) 2,629
Cash dividends declared - - - (2,022) - - (2,022)
Exercise of stock options and
related tax benefits 4,854 (1) 39 - - - 38
Stock repurchases (133,000) (1) (1,604) - - - (1,605)
Other - - (33) - 127 - 94
--------- ---- ------- ------- ------- ------ --------
Balance, June 30, 2000 4,623,498 $ 46 $11,366 $43,824 $(3,860) $ (977) $ 50,399
========= ==== ======= ======= ======= ====== ========
<FN>
The notes to unaudited consolidated financial statements are an integral part of
this statement.
</FN>
4
CENIT BANCORP, INC. AND SUBSIDIARY
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
Six months ended June 30,
--------------------------
2000 1999
---- ----
Cash flows from operating activities:
Net income $ 2,932 $ 2,877
Add (deduct) items not affecting cash in the period:
Provision for loan losses 29 36
Provision for losses on real estate owned 26 22
Amortization of loan yield adjustments 442 349
Depreciation, amortization and accretion, net 923 855
Net gains on sales/disposals of:
Securities (16) -
Loans (259) (432)
Real estate, property and equipment (56) (96)
Proceeds from sales of loans held for sale 17,867 33,430
Originations of loans held for sale (18,149) (32,438)
Change in assets/liabilities:
Decrease in interest receivable and other assets 439 206
Increase (decrease) in other liabilities 154 (3,136)
--------- --------
Net cash provided by operating activities 4,332 1,673
--------- --------
Cash flows from investing activities:
Purchases of securities available for sale (5,538) (31,925)
Principal repayments on securities available for sale 7,553 3,876
Proceeds from maturities of securities available for sale 8,000 9,350
Proceeds from sales of securities available for sale 18,193 -
Net (increase) decrease in loans held for investment (6,230) 11,321
Net proceeds on sales of real estate owned (40) 215
Additions to real estate owned (5) -
Purchases of Federal Home Loan Bank stock (250) (400)
Redemption of Federal Home Loan Bank stock 1,300 1,566
Proceeds from sale of property and equipment 11 1
Purchases of property and equipment (341) (456)
--------- --------
Net cash provided by (used for) investing activities 22,653 (6,452)
--------- --------
Cash flows from financing activities:
Proceeds from exercise of stock options and warrants 22 77
Net increase (decrease) in deposits 36,157 (15,620)
Proceeds from Federal Home Loan Bank advances 48,000 41,000
Repayment of Federal Home Loan Bank advances (104,000) (41,000)
Common stock repurchases (1,605) (373)
Net increase in securities sold under agreement
to repurchase and federal funds purchased 1,773 3,738
Cash dividends paid (1,360) (1,370)
Other, net 156 143
--------- --------
Net cash used for financing activities (20,857) (13,405)
--------- --------
Increase (decrease) in cash and cash equivalents 6,128 (18,184)
Cash and cash equivalents, beginning of period 30,462 56,945
--------- --------
Cash and cash equivalents, end of period $ 36,590 $ 38,761
========= ========
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 4,489 $ 3,244
Cash paid during the period for income taxes 1,471 1,882
Schedule of noncash investing and financing activities:
Real estate acquired in settlement of loans $ 122 $ 199
Loans to facilitate sale of real estate owned 144 -
<FN>
The notes to unaudited consolidated financial statements are an integral part of
this statement.
</FN>
5
CENIT BANCORP, INC. AND SUBSIDIARY
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 six
month periods ended June 30, 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 six month and three month period ended June 30, 2000,
weighted average shares used to compute basic earnings per share were 4,516,812
and 4,490,362, respectively. For the six months and three months ended June 30,
1999, weighted average shares used to compute basic earnings per share were
4,750,589 and 4,575,103, respectively.
Diluted earnings per share is calculated by adding common stock equivalents
to the weighted average shares outstanding. For the six month and three month
period ended June 30, 2000, weighted average shares used to compute diluted
earnings per share were 4,567,611 and 4,535,545, respectively. For the six
months and three months ended June 30, 1999, weighted average shares used to
compute diluted earnings per share were 4,655,412 and 4,656,375, respectively.
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 June 30, 2000, the Company had total assets of $656.0 million, compared
to $674.2 million at December 31, 1999, a decrease of $18.2 million, or 2.7%.
Securities Available for Sale
Securities available for sale totaled $109.6 million at June 30, 2000 and
are comprised of mortgage-backed certificates, U. S. Government agency
securities, and other debt securities. The net decrease of $28.7 million, or
20.7% from the December 31, 1999 balance of $138.3 million resulted primarily
from the sale of $18.2 million of investment and mortgage-backed securities and
$15.6 million in maturities and principal repayments, offset partially by $5.5
million in purchases. The securities sold consisted of $11.0 million in United
States Treasury and Agency securities and $7.2 million in adjustable rate
mortgage-backed securities with average yields of 5.9% and 7.7%, respectively.
6
Loans
The balance of net loans held for investment increased to $475.5 million at
June 30, 2000 from $469.6 million at December 31, 1999, an increase of $5.9
million or 1.3%. The increase was primarily due to an $8.6 million increase in
the Company's "Core Banking Loans," which consist of its loans held for
investment portfolio other than first mortgage single-family loans. The
Company's focus on Core Banking Loans growth has resulted in Core Banking Loans
representing 54% of gross loans at June 30, 2000 as compared to 53% and 51% at
December 31, 1999 and June 30, 1999, respectively. The increase in Core Banking
Loans was partially offset by a $2.8 million decrease in single- family
residential loans.
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 loans held for
investment at the dates indicated.
June 30, 2000 December 31, 1999
--------------------- ----------------------
(Dollars in Thousands)
Amount Percent Amount Percent
------ ------- ------ -------
Real estate loans:
Residential permanent 1- to 4-family:
Adjustable rate $ 150,107 28.92% $ 149,163 29.44%
Fixed rate
Conventional 65,666 12.65 69,055 13.63
Guaranteed by VA or insured by FHA 2,516 .48 2,823 .56
---------- ------ ---------- ------
Total permanent 1- to 4-family 218,289 42.05 221,041 43.63
Residential permanent 5 or more family 8,423 1.62 8,082 1.59
---------- ------ ---------- ------
Total permanent residential loans 226,712 43.67 229,123 45.22
---------- ------ ---------- ------
Commercial real estate loans:
Hotels 7,914 1.53 10,711 2.11
Office and warehouse facilities 39,312 7.57 38,908 7.68
Retail facilities 24,518 4.72 22,098 4.36
Other 8,522 1.64 10,007 1.97
---------- ------ ---------- ------
Total commercial real estate loans 80,266 15.46 81,724 16.12
---------- ------ ---------- ------
Construction loans:
Residential 1- to 4-family 50,635 9.75 48,912 9.65
Residential 5 or more family 7,718 1.49 9,616 1.90
Nonresidential 14,711 2.83 7,685 1.52
---------- ------ ---------- ------
Total construction loans 73,064 14.07 66,213 13.07
---------- ------ ---------- ------
Land acquisition and development loans:
Consumer lots 3,755 .72 3,566 .70
Acquisition and development 20,534 3.96 18,065 3.57
---------- ------ ---------- ------
Total land acquisition and development
loans 24,289 4.68 21,631 4.27
---------- ------ ---------- ------
Total real estate loans 404,331 77.88 398,691 78.68
---------- ------ ---------- ------
Consumer loans:
Boats 2,454 .47 2,855 .56
Home equity and second mortgage 59,721 11.50 56,469 11.14
Other 13,029 2.52 11,968 2.37
---------- ------ ---------- ------
Total consumer loans 75,204 14.49 71,292 14.07
---------- ------ ---------- ------
Commercial business loans 39,628 7.63 36,739 7.25
---------- ------ ---------- ------
Total loans 519,163 100.00% 506,722 100.00%
---------- ====== ---------- ======
Less:
Allowance for loan losses 3,842 3,860
Undisbursed portion of construction and
acquisition and development loans 41,279 34,714
Unearned discounts, premiums, and loan fees, net (1,503) (1,470)
---------- ----------
43,618 37,104
---------- ----------
Total loans, net $ 475,545 $ 469,618
========== ==========
8
Deposits
Total deposits increased $36.2 million, or 7.8%, from $464.6 million at
December 31, 1999 to $500.8 million at June 30, 2000. This increase was mainly
attributed to the growth in checking, savings and money market deposits
(collectively, "Transaction Deposits") of $31.1 million, or 14.3%. The
noninterest-bearing portion of Transaction Deposits grew $24.2 million, or
37.5%, while interest-bearing savings, checking and money market deposits grew
$6.9 million, or 4.5%. The Company continues to focus on growing Transaction
Deposits as part of its banking initiatives. Transaction Deposits as of June 30,
2000 represented 50% of total deposits compared to 47% at December 31, 1999.
Capital
The Company's and the Bank's capital ratios exceeded applicable regulatory
requirements at June 30, 2000.
On April 24, 2000, the Board of Directors of the Company gave the Company's
management authorization to repurchase approximately 233,000 of the Company's
common stock (the "2000 Authorization") to supplement the remaining balance of
the July, 1999 authorization to repurchase 150,000 shares (the "1999
Authorization"). During the second quarter of 2000, the Company completed the
repurchase of shares under the 1999 Authorization and repurchased 45,000 shares
under the 2000 Authorization. Through August 9, 2000, the Company repurchased an
additional 74,500 shares. The Company is not obligated to conduct the
repurchases to the full extent of this authorization, and the decision to do so,
as well as the timing of any repurchase, will depend on a variety of factors.
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.
June 30, December 31,
2000 1999
--------- ----------
(Dollars in Thousands)
Nonperforming loans:
Real estate loans:
Permanent residential 1- to 4-family
Nonaccrual $ 185 $ 54
Accruing loans 90 days or more past due 680 87
------ -------
Total 865 141
------ -------
Construction loans:
Nonaccrual 85 -
------ -------
Total 85 -
------ -------
Land acquisition and development loans:
Nonaccrual 48 48
------ -------
Total 48 48
------ -------
Consumer loans:
Nonaccrual
Boats 8 10
Home equity and second mortgage 34 49
Other 17 20
------ -------
Total 59 79
------ -------
Commercial business loans:
Nonaccrual 13 111
------ -------
Total 13 111
------ -------
Total nonperforming loans:
Nonaccrual 390 292
Accruing loans 90 or more days past due 680 87
------ -------
Total 1,070 379
Real estate owned, net 69 218
Other repossessed assets, net - 6
------ -------
Total nonperforming assets, net $1,139 $ 603
====== =======
Total troubled debt restructurings - -
------ -------
Total nonperforming assets, net, and
troubled debt restructurings $1,139 $ 603
====== =======
Total nonperforming assets, net, and troubled
debt restructurings, to total assets .17% .09%
====== =======
10
Allowance for Loan Losses. The following table sets forth activity of the
allowance for loan losses for the periods indicated.
Six months ended June 30,
----------------------------------
2000 1999
------- -------
(Dollars in Thousands)
Balance at beginning of period $ 3,860 $ 4,024
Provision for loan losses 29 36
Losses charged to allowance (87) (195)
Recovery of prior losses 40 24
------- -------
Balance at end of period $ 3,842 $ 3,889
======= =======
The Company's coverage ratio (total allowance for loan losses to total
nonperforming loans) was approximately three times, ten times, and three times
the nonperforming loans at June 30, 2000, December 31, 1999, and June 30, 1999,
respectively. For the six months ended June 30, 2000 and June 30, 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
June 30, 2000 June 30, 1999
---------------------------- ----------------------------
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
------- -------- ----- ------- -------- -----
(Dollars in thousands)
Interest-earning assets:
Loans (1) $ 471,974 $ 9,322 7.90% $ 487,072 $ 9,198 7.55%
Mortgage-backed certificates 81,313 1,406 6.92 14,209 258 7.27
Investment securities 47,331 665 5.62 56,312 809 5.75
Federal funds sold 9,085 142 6.25 19,456 230 4.73
Federal Home Loan Bank stock 6,050 116 7.67 3,882 73 7.52
---------- ------- ---------- --------
Total interest-earning assets 615,753 11,651 7.57 580,931 10,568 7.28
---------- ------- ---------- --------
Noninterest-earning assets:
REO 123 375
Other 37,402 37,488
---------- ----------
Total noninterest-earning assets 37,525 37,863
---------- ----------
Total assets $ 653,278 $ 618,794
========== ==========
Interest-bearing liabilities:
Passbook and statement savings $ 31,804 189 2.38% $ 35,079 213 2.43%
Checking accounts 43,648 148 1.36 40,683 149 1.47
Money market deposit accounts 81,528 742 3.64 72,802 623 3.42
Certificates of deposit 255,117 3,419 5.36 256,105 3,185 4.97
---------- ------- ---------- --------
Total interest-bearing deposits 412,097 4,498 4.37 404,669 4,170 4.12
---------- ------- ---------- --------
Advances from the Federal Home
Loan Bank 99,516 1,574 6.33 75,319 973 5.17
Securities sold under agreements
to repurchase 14,914 196 5.26 18,314 181 3.95
---------- ------- ---------- --------
Total borrowings 114,430 1,770 6.19 93,633 1,154 4.93
---------- ------- ---------- --------
Total interest-bearing liabilities 526,527 6,268 4.76 498,302 5,324 4.27
---------- ------- ---------- --------
Noninterest-bearing liabilities:
Deposits 70,907 65,353
Other liabilities 5,018 5,012
---------- ----------
Total noninterest-bearing liabilities 75,925 70,365
---------- ----------
Total liabilities 602,452 568,667
---------- ----------
Stockholders' equity 50,826 50,127
---------- ----------
Total liabilities and stockholders' equity $ 653,278 $ 618,794
========== ==========
Net interest income/interest rate spread $ 5,383 2.81% $ 5,244 3.01%
======= ==== ======== ====
Net interest position/net interest margin $ 89,226 3.50% $ 82,629 3.61%
========== ==== ========== ====
Ratio of average interest-earning assets to
average interest-bearing liabilities 116.95% 116.58%
====== ======
<FN>
(1) Includes nonaccrual loans and loans held for sale.
</FN>
12
For the Six Months For the Six Months
Ended Ended
June 30, 2000 June 30, 1999
------------------------------- -------------------------------
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
---------- --------- ------ --------- -------- ------
(Dollars in thousands)
Interest-earning assets:
Loans (1) $ 471,054 $ 18,454 7.84% $ 493,598 $ 18,643 7.55%
Mortgage-backed certificates 82,277 2,834 6.89 14,390 532 7.39
Investment securities 51,074 1,441 5.64 54,813 1,579 5.76
Federal funds sold 9,456 280 5.92 15,981 376 4.71
Federal Home Loan Bank stock 6,226 240 7.71 4,443 165 7.43
---------- -------- ---------- ---------
Total interest-earning assets 620,087 23,249 7.50 583,225 21,295 7.30
---------- -------- ---------- ---------
Noninterest-earning assets:
REO 153 381
Other 37,100 37,426
---------- ----------
Total noninterest-earning assets 37,253 37,807
---------- ----------
Total assets $ 657,340 $ 621,032
========== ==========
Interest-bearing liabilities:
Passbook and statement savings 31,795 379 2.38% 35,532 431 2.43%
Checking accounts 42,587 295 1.38 39,149 282 1.44
Money market deposit accounts 80,684 1,453 3.60 73,796 1,249 3.39
Certificates of deposit 254,126 6,631 5.22 257,253 6,405 4.98
---------- -------- ---------- ---------
Total interest-bearing deposits 409,192 8,758 4.28 405,730 8,367 4.12
---------- -------- ---------- ---------
Advances from the Federal Home
Loan Bank 110,885 3,347 6.04 78,392 2,010 5.13
Securities sold under agreements
to repurchase 14,710 367 4.99 16,770 326 3.89
---------- -------- ---------- ---------
Total borrowings 125,595 3,714 5.91 95,162 2,336 4.91
---------- -------- ---------- ---------
Total interest-bearing liabilities 534,787 12,472 4.66 500,892 10,703 4.27
---------- -------- ---------- ---------
Noninterest-bearing liabilities:
Deposits 66,435 64,890
Other liabilities 5,155 5,276
---------- ----------
Total noninterest-bearing liabilities 71,590 70,166
---------- ----------
Total liabilities 606,377 571,058
---------- ----------
Stockholders' equity 50,963 49,974
---------- ----------
Total liabilities and stockholders' equity $ 657,340 $ 621,032
========== ==========
Net interest income/interest rate spread $ 10,777 2.84% $ 10,592 3.03%
======== ==== ========= ====
Net interest position/net interest margin $ 85,300 3.48% $ 82,333 3.63%
========== ==== ========== ====
Ratio of average interest-earning assets to
average interest-bearing liabilities 115.95% 116.44%
====== ======
<FN>
(1) Includes nonaccrual loans and loans held for sale.
</FN>
13
Comparison of Operating Results for the Three Months Ended June 30, 2000 and
June 30, 1999.
General
The Company's pre-tax income increased $205,000 to $2.4 million for the
three months ended June 30, 2000 from $2.2 million for the three months ended
June 30, 1999. The increase was primarily attributed to a $161,000 quarter-to-
quarter increase in net interest income after provision for loan losses.
Additionally, other expenses net of other income decreased $44,000 for the three
months ended June 30, 2000 as compared to the same period of 1999.
Net Interest Income
The Company's interest income before provision for loan losses increased
$139,000 or 2.7% to $5.4 million for the second quarter of 2000 compared to $5.2
million for the second quarter of 1999. A $1.1 million, or 10.2% increase in
interest income was substantially offset by an increase of $944,000, or 17.7% in
interest expense for the second quarter of 2000 compared to the same period in
1999.
Interest on loans increased $124,000, or 1.3%, to $9.3 million for the
second quarter 2000 compared to $9.2 million for the same period in 1999. While
the average loan yield increased to 7.90% for the second quarter of 2000 as
compared to 7.55% for the same period in 1999, the average loan balance
decreased $15.1 million to $472.0 million in the second quarter of 2000. The
decrease in the average loan balance was primarily attributable to net portfolio
pay downs. The higher interest rate environment also contributed to the
increased loan yields in the three months ended June 30, 2000, compared to the
three months ended June 30, 1999.
Interest on the Company's portfolio of mortgage-backed certificates
increased $1.1 million, to $1.4 million for the quarter ended June 30, 2000 from
$258,000 for the comparable 1999 period. The average balance of the portfolio
increased $67.1 million from $14.2 million in the second quarter of 1999 to
$81.3 million in the second 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 $328,000, or 7.9%, for the quarter ended
June 30, 2000 compared to the quarter ended June 30,1999. This increase was
attributed to both a substantial increase in the average balance of
interest-bearing checking, savings and money market deposits and an increase in
the overall cost of deposits. The average balance of interest-bearing checking,
savings and money market deposits increased by $8.4 million, or 5.7%, for the
second quarter of 2000 compared to the same period in 1999. The average cost of
deposits increased to 4.37% for the three months ended June 30, 2000 compared to
4.12% for the three months ended June 30, 1999. The increase in the average
balance of interest-bearing checking, savings and money market deposits is the
result of the Company's continued focus on the growth of this line of business.
The higher interest rate environment contributed to the increase in the average
cost of deposits.
Interest on borrowings increased $616,000 for the three months ended June
30, 2000 compared to the same period in 1999. This increase was substantially
due to a $24.2 million increase in the average balance of advances from Federal
Home Loan Bank to $99.5 million for the second quarter of 2000 compared to $75.3
million for the comparable period in 1999. The overall average cost of
borrowings for the second quarter of 2000 increased to 6.19% from 4.93% for the
same period in1999. A major factor contributing to this increase was the
conversion of a $60 million, 5.18% fixed rate advance outstanding during the
second quarter of 1999 to an average variable rate of 6.6% in the second quarter
of 2000.
Provision for Loan Losses
The Company had no provision for loan losses for the second quarter of 2000
compared to $22,000 for the second quarter of 1999. Net loans recovered during
the three months ended June 30, 2000 were $8,000, compared to $77,000 in net
loans charged off for the comparable 1999 period.
14
Other Income and Expenses
Net other income and expense remained substantially the same for the second
of 2000 compared to the same period in 1999. Increases in deposit and net
merchant processing fees were offset by a decrease in the gains on sales of
loans.
Comparison of Operating Results for the Six Months Ended June 30, 2000 and June
30, 1999.
General
The Company's pre-tax income increased $86,000 to $4.6 million for the six
months ended June 30, 2000 from $4.5 million for the six months ended June 30,
1999. The increase was primarily attributed to a $192,000 increase in net
interest income after provision for loan losses offset by a $106,000 increase in
other expenses net of other income.
Net Interest Income
The Company's interest income before provision for loan losses increased
$185,000 or 1.7% to $10.8 million for the first half of 2000 compared to $10.6
million for the first half of 1999. A $2.0 million increase in interest income
was partially offset by a $1.8 million increase in interest expense.
Interest on loans decreased $189,000, or 1.0%, to $18.5 million for the
first six months of 2000 compared to $18.6 million for the same period in 1999.
While the average loan yield increased to 7.84% for the first six months of 2000
as compared to 7.55% for the same period in 1999, the average loan balance
decreased $22.5 million to $471.1 million in the first half of 2000. The
decrease in the average loan balance was primarily attributable to net portfolio
pay downs. The higher interest rate environment also contributed to the
increased loan yields in the first six months of 2000 compared to the same
period in 1999.
Interest on the Company's portfolio of mortgage-backed certificates
increased $2.3 million, to $2.8 million for the six months ended June 30, 2000
from $532,000 for the comparable 1999 period. The average balance of the
portfolio increased $67.9 million from $14.4 million in the first half of 1999
to $82.3 million in the first half 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 $391,000, or 4.7%, for the six months
ended June 30, 2000, compared to the six months ended June 30,1999. This
increase resulted from an increase in the average balance of interest-bearing
deposits and an increase in the average cost of deposits. The $3.5 million
increase in the average balance of interest-bearing deposits consisted of a $6.6
million increase in the average balance of interest-bearing checking, savings,
and money market partially offset by a $3.1 million decrease in the average
balance of certificates of deposits. The Company has continued to focus on the
growth of interest-bearing checking, savings and money market deposits as part
of its banking initiatives. The overall average cost of deposits for the six
months ended June 30, 2000 increased to 4.28% from 4.12% for the comparable 1999
period. The higher interest rate environment contributed to the increase in the
average cost of deposits.
Interest on borrowings increased $1.4 million for the six months ended June
30, 2000 compared to the same period in 1999. This increase was due in part to a
$32.5 million increase in the average balance of FHLB advances to $110.9 million
for the first half of 2000 compared to $78.4 million for the comparable period
in 1999. Additionally, the average cost of borrowings for the first half of 2000
increased to 5.91% from 4.91% 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 six months of 1999 to an average
variable rate of 6.2% during the first six months of 2000.
15
Provision for Loan Losses
The Company's provision for loan losses remained substantially the same for
the six months ended June 30, 2000 as compared to the same period in 1999. Net
loans charged off during the six months ended June 30, 2000 were $47,000
compared to $171,000 for the comparable 1999 period. Normal recurring net
chargeoffs for the six-month period ended June 30, 2000 and June 30, 1999
remained substsantially the same, while net chargeoffs for loan types in which
the Bank is no longer active decreased $116,000.
Other Income
Total other income decreased by $425,000, or 11.6%, for the first half of
2000 compared to the same period in 1999. A $166,000 decrease in commercial
mortgage brokerage fees and a $173,000 decrease in gains on sales of loans
contributed to the decrease in other income. Higher interest rates adversely
impacted mortgages originated for sale resulting in lower volumes of loans sold
in the first half of 2000 compared to the same period in 1999. Commercial
mortgage brokerage fees fluctuate significantly from period-to-period depending
on the balances of loans brokered.
Deposit fees and net merchant processing income increased $91,000, or 7.1%,
and $54,000, or 25.8%, respectively, for the first half of 2000 compared to the
first half of 1999.
Other Expenses
Total other expenses, excluding merchant processing expense discussed
above, decreased by $191,000 or 2.2%, for the six months ended June 30, 2000
compared to the same period in 1999. The decrease was primarily due to decreases
in salary and benefits expense and professional fees, partially offset by
increases in net occupancy and equipment expense.
Liquidity
The principal sources of funds for the Company for the six months ended
June 30, 2000 included $48.0 million of advances from the FHLB, a $36.2 million
increase in deposits, $18.2 million in proceeds from the sale of securities
available for sale, $17.9 million in proceeds from the sale of loans, and $15.6
million in proceeds from principal repayments and maturities of securities
available for sale. Funds were used primarily to repay $104.0 million in FHLB
advances, to originate loans held for sale of $18.1 million, to fund a $6.2
million increase in loans held for investment 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 June 30, 2000 and December 31, 1999, the Bank
exceeded the required liquid asset ratio of 4.0%.
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 six months of 2000.
16
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
- ------------------------------------------------------------
At the Company's annual meeting held on June 14, 2000 (the "Annual
Meeting"), the Company's stockholders reelected three directors of the Company,
David L. Bernd, Anne B. Shumadine, and David R. Tynch. The voting results in the
election for directors were as follows:
FOR AGAINST
--------- -------
David L. Bernd 3,753,568 596,637
Anne B. Shumadine 3,774,198 576,007
David R. Tynch 3,774,448 575,757
The terms of office of directors William J. Davenport, III, John F. Harris,
William H. Hodges, Michael S, Ives, Charles R. Malbon, Jr., and Roger C.
Reinhold continued following the Annual Meeting. Patrick E. Corbin and Thomas J.
Decker, Jr. did not stand for reelection.
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: August 14, 2000 /S/Michael S. Ives
-----------------------
Michael S. Ives
President and Chief Executive Officer
DATE: August 14, 2000 /S/ John O. Guthrie
-------------------------
John O. Guthrie
Senior Vice President and
Chief Financial Officer
17