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 September 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 E. Main Street, Suite 1350
Norfolk, Virginia 23510
- ------------------------------- ---------
(Address of principal executive office) (Zip code)
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 4,450,408
Title of Class ----------------------------
Number of Shares Outstanding
as of November 1, 2000
CENIT BANCORP, INC. AND SUBSIDIARY
Contents
- --------------------------------------------------------------------------------
Page
PART I - FINANCIAL INFORMATION
Item 1
Financial Statements
Consolidated Statement of Financial Condition as of September 30, 2000
(Unaudited) and December 31, 1999.......................................... 1
Unaudited Consolidated Statement of Operations for the Three Months and
Nine Months ended September 30, 2000 and September 30, 1999................ 2
Unaudited Consolidated Statement of Comprehensive Income for the Nine
Months Ended September 30, 2000 and September 30, 1999..................... 3
Unaudited Consolidated Statement of Changes in Stockholders' Equity for
the Nine Months ended September 30, 2000................................... 4
Unaudited Consolidated Statement of Cash Flows for the Nine Months
ended September 30, 2000 and September 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............. 17
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................................................................ 18
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)
September 30, 2000 December 31, 1999
------------------ -----------------
Cash $ 16,811 $ 17,554
Federal funds sold 12,468 12,908
Securities available for sale at fair value (adjusted
cost of $107,122 and $139,386, respectively) 106,341 138,298
Loans, net:
Held for investment 473,080 469,618
Held for sale 2,392 3,456
Interest receivable 3,839 4,067
Real estate owned, net 81 218
Federal Home Loan Bank stock, at cost 5,050 7,100
Property and equipment, net 13,152 13,757
Goodwill and other intangibles, net 3,031 3,293
Other assets 4,282 3,944
---------- ---------
$ 640,527 $ 674,213
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest-bearing $ 80,662 $ 64,491
Interest-bearing 401,758 400,127
---------- ---------
Total deposits 482,420 464,618
Advances from the Federal Home Loan Bank 88,000 142,000
Securities sold under agreements to repurchase 15,627 13,233
Advance payments by borrowers for taxes and insurance 957 565
Other liabilities 3,404 2,532
---------- ---------
Total liabilities 590,408 622,948
---------- ---------
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 4,488,882 and 4,751,644 shares,
at September 30, 2000 and December 31, 1999, respectively 45 48
Additional paid-in capital 9,542 12,964
Retained earnings - substantially restricted 44,816 42,914
Common stock acquired by Employee Stock Ownership Plan (ESOP) (3,710) (3,862)
Common stock acquired by Management Recognition
Plan (MRP) (90) (125)
Accumulated other comprehensive loss, net of income taxes (484) (674)
---------- ---------
Total stockholders' equity 50,119 51,265
---------- ---------
$ 640,527 $ 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 INCOME
(Dollars in thousands, except per share data)
Three months Nine Months
Ended Ended
September 30, September 30,
2000 1999 2000 1999
---- ---- ---- ----
Interest and fees on loans $ 9,646 $ 8,857 $ 28,100 $ 27,500
Interest on mortgage-backed certificates 1,211 731 4,046 1,263
Interest on investment securities 518 847 1,958 2,425
Dividends and other interest income 259 255 779 796
-------- --------- --------- ---------
Total interest income 11,634 10,690 34,883 31,984
-------- --------- --------- ---------
Interest on deposits 4,579 4,193 13,337 12,560
Interest on borrowings 1,644 1,255 5,358 3,591
-------- --------- --------- ---------
Total interest expense 6,223 5,448 18,695 16,151
-------- --------- --------- ---------
Net interest income 5,411 5,242 16,188 15,833
Provision for loan losses 19 39 48 75
-------- --------- --------- ---------
Net interest income after provision
for loan losses 5,392 5,203 16,140 15,758
-------- --------- --------- ---------
Other income:
Deposit fees 672 603 2,046 1,886
Merchant processing fees 650 716 1,767 1,907
Gains on sales of loans and securities, net 237 174 512 606
Commercial mortgage brokerage fees 164 0 166 168
Other 209 398 670 979
-------- --------- --------- ---------
Total other income 1,932 1,891 5,161 5,546
-------- --------- --------- ---------
Other expenses:
Salaries and employee benefits 2,179 1,951 6,446 6,522
Equipment, data processing and supplies 770 730 2,364 2,221
Net occupancy expense of premises 591 528 1,719 1,576
Merchant processing 506 550 1,360 1,533
Expenses, gains/losses on sales and provision
for losses on real estate owned, net 2 11 41 46
Professional fees 132 88 477 479
Other 597 691 1,766 1,888
-------- --------- --------- ---------
Total other expenses 4,777 4,549 14,173 14,265
-------- --------- --------- ---------
Income before income taxes 2,547 2,545 7,128 7,039
Provision for income taxes 917 916 2,566 2,534
-------- --------- --------- ---------
Net income $ 1,630 $ 1,629 $ 4,562 $ 4,505
======== ========= ========= =========
Earnings per share:
Basic $ .37 $ .35 $ 1.02 $ .98
======== ========= ========= =========
Diluted $ .37 $ .35 $ 1.01 $ .97
======== ========= ========= =========
Dividends per common share paid $ .15 $ .15 $ .45 $ .45
======== ========= ========= =========
<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)
Nine Months
Ended
September 30,
2000 1999
---- ----
Net income $ 4,562 $ 4,505
-------- -------
Other comprehensive income (loss), before income taxes: Unrealized gains
(losses) on securities available for sale:
Unrealized holding gains (losses) arising during the period 323 (1,211)
Less: reclassification adjustment for gains included in net income 16 -
-------- -------
Other comprehensive income (loss), before income taxes 307 (1,211)
Income tax (provision) benefit related to items of other comprehensive income (loss) (117) 460
-------- -------
Other comprehensive income (loss), net of income taxes 190 (751)
-------- -------
Comprehensive income $ 4,752 $ 3,754
======== =======
<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
Nine Months Ended September 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 - - - 4,562 - 190 4,752
Cash dividends declared - - - (2,660) - - (2,660)
Exercise of stock options and
related tax benefits 7,738 - 54 - - - 54
Stock repurchases (270,500) (3) (3,427) - - - (3,430)
Other - - (49) - 187 - 138
------- ---- ------- ------- ------ ------ --------
Balance, September 30, 2000 4,488,882 $ 45 $ 9,542 $44,816 $(3,800) $ (484) $ 50,119
========= ==== ======= ======= ======= ====== ========
<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)
Nine months ended September 30,
-------------------------------
2000 1999
---- ----
Cash flows from operating activities:
Net income $ 4,562 $ 4,505
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 48 75
Provision for losses on real estate owned 26 22
Amortization of loan yield adjustments 710 569
Depreciation, amortization and accretion, net 1,367 1,279
Exercise of stock options tax benefit 32 159
Net gains on sales/disposals of:
Securities (16) -
Loans (496) (606)
Real estate, property and equipment (80) (298)
Proceeds from sales of loans held for sale 32,649 46,171
Originations of loans held for sale (31,102) (42,710)
Change in assets/liabilities:
Decrease in interest receivable and other assets 55 577
Increase (decrease) in other liabilities 114 (2,398)
--------- --------
Net cash provided by operating activities 7,869 7,345
--------- --------
Cash flows from investing activities:
Purchases of securities available for sale (5,538) (86,762)
Principal repayments on securities available for sale 11,627 6,494
Proceeds from maturities of securities available for sale 8,000 12,350
Proceeds from sales of securities available for sale 18,193 -
Net (increase) decrease in loans held for investment (4,063) 17,978
Net (expense) proceeds on sales of real estate owned (40) 284
Additions to real estate owned (6) (24)
Purchases of Federal Home Loan Bank stock (250) (2,500)
Redemption of Federal Home Loan Bank stock 2,300 2,116
Proceeds from sale of property and equipment 11 326
Purchases of property and equipment (473) (1,010)
---------- --------
Net cash provided by (used for) investing activities 29,761 (50,748)
--------- --------
Cash flows from financing activities:
Proceeds from exercise of stock options and warrants 43 138
Net increase (decrease) in deposits 17,802 (19,171)
Proceeds from Federal Home Loan Bank advances 207,000 83,000
Repayment of Federal Home Loan Bank advances (261,000) (53,000)
Net increase in securities sold under agreement
to repurchase and federal funds purchased 2,394 1,842
Cash dividends paid (2,014) (2,056)
Common stock repurchase (3,430) (373)
Other, net 392 266
---------- --------
Net cash (used for) provided by financing activities (38,813) 10,646
---------- --------
Decrease in cash and cash equivalents (1,183) (32,757)
Cash and cash equivalents, beginning of period 30,462 56,945
--------- --------
Cash and cash equivalents, end of period $ 29,279 $ 24,188
========= ========
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 6,319 $ 4,868
Cash paid during the period for income taxes 2,486 2,347
Schedule of noncash investing and financing activities:
Real estate acquired in settlement of loans $ 133 $ 302
Loans to facilitate sale of real estate owned 290 281
<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 nine
month periods ended September 30, 2000 and 1999 are not necessarily indicative
of results that may be expected for the entire year or any interim periods. The
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 nine month and three month period ended September 30, 2000,
weighted average shares used to compute basic earnings per share were 4,462,405
and 4,353,593, respectively. For the nine months and three months ended
September 30, 1999, weighted average shares used to compute basic earnings per
share were 4,578,034 and 4,592,926, respectively.
Diluted earnings per share is calculated by adding potential common shares
to the weighted average shares outstanding. For the nine month and three month
period ended September 30, 2000, weighted average shares used to compute diluted
earnings per share were 4,512,892 and 4,403,455, respectively. For the nine
months and three months ended September 30, 1999, weighted average shares used
to compute diluted earnings per share were 4,658,141 and 4,663,600,
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 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 September 30, 2000, the Company had total assets of $640.5 million,
compared to $674.2 million at December 31, 1999, a decrease of $33.7 million, or
5.0%.
Securities Available for Sale
Securities available for sale totaled $106.3 million at September 30, 2000
and are comprised of mortgage-backed certificates, U. S. Government agency
securities, and other debt securities. The net decrease of $32.0 million, or
23.1% from the December 31, 1999 balance of $138.3 million resulted primarily
from $19.6 million in maturities and principal repayments and from the sale of
$18.2 million of investment and mortgage-backed securities, 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 $473.1 million at
September 30, 2000 from $469.6 million at December 31, 1999, an increase of $3.5
million or 0.7%. The increase was primarily due to a $10.9 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 55% of gross loans at September 30, 2000 as compared to 53% and 52%
at December 31, 1999 and September 30, 1999, respectively. The increase in Core
Banking Loans was partially offset by a $7.5 million decrease in single-family
residential loans. Loans held for sale at September 30, 2000 were $2.4 million,
down from $3.5 million at 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.
September 30, 2000 December 31, 1999
------------------ -----------------
(Dollars in Thousands)
Amount Percent Amount Percent
------ ------- ------ -------
Real estate loans:
Residential permanent 1- to 4-family:
Adjustable rate $ 146,035 28.21% $ 149,163 29.44%
Fixed rate
Conventional 65,098 12.57 69,055 13.63
Guaranteed by VA or insured by FHA 2,386 .46 2,823 .56
---------- --------- ---------- ---------
Total permanent 1- to 4-family 213,519 41.24 221,041 43.63
Residential permanent 5 or more family 8,328 1.61 8,082 1.59
---------- --------- ---------- ---------
Total permanent residential loans 221,847 42.85 229,123 45.22
---------- --------- ---------- ---------
Commercial real estate loans:
Hotels 6,589 1.27 10,711 2.11
Office and warehouse facilities 43,218 8.35 38,908 7.68
Retail facilities 23,545 4.55 22,098 4.36
Other 8,171 1.58 10,007 1.97
---------- --------- ---------- ---------
Total commercial real estate loans 81,523 15.75 81,724 16.12
---------- --------- ---------- ---------
Construction loans:
Residential 1- to 4-family 50,497 9.75 48,912 9.65
Residential 5 or more family 7,185 1.39 9,616 1.90
Nonresidential 20,105 3.88 7,685 1.52
---------- --------- ---------- ---------
Total construction loans 77,787 15.02 66,213 13.07
---------- --------- ---------- ---------
Land acquisition and development loans:
Consumer lots 4,301 .83 3,566 .70
Acquisition and development 17,541 3.39 18,065 3.57
---------- --------- ---------- ---------
Total land acquisition and development
loans 21,842 4.22 21,631 4.27
---------- --------- ---------- ---------
Total real estate loans 402,999 77.84 398,691 78.68
---------- --------- ---------- ---------
Consumer loans:
Boats 2,284 .44 2,855 .56
Home equity and second mortgage 61,218 11.82 56,469 11.14
Other 12,977 2.51 11,968 2.37
---------- --------- ---------- ---------
Total consumer loans 76,479 14.77 71,292 14.07
---------- --------- ---------- ---------
Commercial business loans 38,222 7.39 36,739 7.25
---------- --------- ---------- ---------
Total loans 517,700 100.00% 506,722 100.00%
---------- ========= ---------- ======
Less:
Allowance for loan losses 3,813 3,860
Undisbursed portion of construction and
acquisition and development loans 42,313 34,714
Unearned discounts, premiums, and loan fees, net (1,506) (1,470)
---------- ----------
44,620 37,104
---------- ----------
Total loans, net $ 473,080 $ 469,618
========== ==========
8
Deposits
Total deposits increased $17.8 million, or 3.8%, from $464.6 million at
December 31, 1999 to $482.4 million at September 30, 2000. This increase was
mainly attributed to the growth in checking, savings and money market deposits
(collectively, "Transaction Deposits") of $21.9 million, or 10.1%. The
noninterest-bearing portion of Transaction Deposits grew $16.2 million, or
25.1%, while interest-bearing savings, checking and money market deposits grew
$5.7 million, or 3.8%. The Company continues to focus on growing Transaction
Deposits as part of its banking initiatives. Transaction Deposits as of
September 30, 2000 represented 50% of total deposits compared to 47% at December
31, 1999.
Total deposits at September 30, 2000 decreased $18.4 million compared to
the balance of total deposits at June 30, 2000 of $500.8 million. The decrease
primarily includes a $9.2 million decrease in the Company's certificates of
deposit balance and an $8.0 million decrease in the noninterest-bearing portion
of deposits. The decrease in the certificates of deposit balance was the result
of some maturing certificates of deposit not being renewed and the Company not
actively seeking new certificates of deposit accounts through incentive
promotions during the third quarter of 2000. The decrease in the September 30,
2000 noninterest-bearing deposit balance as compared to June 30, 2000
noninterest-bearing deposits was attributable, in part, to normal volume
fluctuations in the Company's commercial escrow deposit accounts. However, the
total average noninterest-bearing deposit balance increased $6.1 million, or
8.6%, for the third quarter of 2000 compared to the second quarter of 2000.
Capital
The Company's and the Bank's capital ratios exceeded applicable regulatory
requirements at September 30, 2000.
On May 1, 2000, the Company announced the Board of Directors had given the
Company's management authorization to repurchase 233,000 shares of CENIT common
stock (the "2000 Authorization"). As of November 2, 2000, the Company completed
the repurchase of all shares under the 2000 Authorization.
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.
Nonperforming assets increased $1.4 million to $2.0 million at September
30, 2000 compared to $600,000 at December 31, 1999. The increase was mainly
attributable to the addition of eight single family residential mortgage loans,
totaling $1.3 million, to nonperforming assets during the first nine months of
2000.
9
The following table sets forth information about the Company's
nonperforming loans, REO, and other repossessed assets at the dates indicated.
September 30, December 31,
2000 1999
------------ ------------
(Dollars in Thousands)
Nonperforming loans:
Real estate loans:
Permanent residential 1- to 4-family
Nonaccrual $1,266 $ 54
Accruing loans 90 days or more past due 248 87
------ -------
Total 1,514 141
------ -------
Land acquisition and development loans:
Nonaccrual 47 48
------ -------
Total 47 48
------ -------
Consumer loans:
Nonaccrual:
Boats 7 10
Home equity and second mortgage 34 49
Other 21 20
Accruing loans 90 days or more past due 10 -
------ -------
Total 72 79
------ -------
Commercial business loans:
Nonaccrual 252 111
------ -------
Total 252 111
------ -------
Total nonperforming loans:
Nonaccrual 1,627 292
Accruing loans 90 or more days past due 258 87
------ -------
Total 1,885 379
Real estate owned, net 81 218
Other repossessed assets, net 15 6
------ -------
Total nonperforming assets, net $1,981 $ 603
------ -------
Total troubled debt restructurings - -
------ -------
Total nonperforming assets, net, and
troubled debt restructurings $1,981 $ 603
====== =======
Total nonperforming assets, net, and troubled
debt restructuring, to total assets .31% .09%
====== =======
10
Allowance for Loan Losses. The following table sets forth activity of the
allowance for loan losses for the periods indicated.
Nine months ended September 30,
-------------------------------
2000 1999
---- ----
(Dollars in Thousands)
Balance at beginning of period $ 3,860 $ 4,024
Provision for loan losses 48 75
Losses charged to allowance (155) (286)
Recovery of prior losses 60 69
------- -------
Balance at end of period $ 3,813 $ 3,882
======= =======
The Company's coverage ratio (total allowance for loan losses to total
nonperforming loans) was approximately two times, ten times, and five times the
nonperforming loans at September 30, 2000, December 31, 1999, and September 30,
1999, respectively. For the nine months ended September 30, 2000 and September
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
September 30, 2000 September 30, 1999
---------------------------- ----------------------------
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
------- -------- ---- ------- -------- ----
(Dollars in thousands)
Interest-earning assets:
Loans (1) $ 480,315 $ 9,646 8.03% $ 468,494 $ 8,857 7.56%
Mortgage-backed certificates 70,676 1,211 6.85 42,397 731 6.90
U.S. Treasury and other U.S.
Government agency securities 37,369 518 5.54 59,480 847 5.70
Federal funds sold 9,654 159 6.59 13,884 176 5.07
Federal Home Loan Bank stock 5,115 100 7.82 4,186 79 7.55
---------- ------- ---------- -------
Total interest-earning assets 603,129 11,634 7.72 588,441 10,690 7.27
---------- ------- ---------- -------
Noninterest-earning assets:
REO 78 298
Other 39,939 38,910
---------- ----------
Total noninterest-earning assets 40,017 39,208
---------- ----------
Total assets $ 643,146 $ 627,649
========== ==========
Interest-bearing liabilities:
Passbook and statement savings $ 31,264 187 2.39% $ 34,077 209 2.45%
Checking accounts 44,279 151 1.36 41,938 147 1.40
Money market deposit accounts 82,928 788 3.80 75,718 660 3.49
Certificates of deposit 246,560 3,453 5.60 255,146 3,177 4.98
---------- ------- ---------- -------
Total interest-bearing deposits 405,031 4,579 4.52 406,879 4,193 4.12
---------- ------- ---------- -------
Advances from the Federal Home
Loan Bank 88,283 1,411 6.39 83,489 1,097 5.26
Securities sold under agreements
to repurchase 16,617 233 5.61 15,010 158 4.21
---------- ------- ---------- --------
Total borrowings 104,900 1,644 6.27 98,499 1,255 5.10
---------- ------- ---------- -------
Total interest-bearing liabilities 509,931 6,223 4.88 505,378 5,448 4.31
---------- ------- ---------- -------
Noninterest-bearing liabilities:
Deposits 76,972 66,790
Other liabilities 5,874 4,671
---------- ----------
Total noninterest-bearing liabilities 82,846 71,461
---------- ----------
Total liabilities 592,777 576,839
---------- ----------
Stockholders' equity 50,369 50,810
---------- ----------
Total liabilities and stockholders' equity $ 643,146 $ 627,649
========== ==========
Net interest income/interest rate spread $ 5,411 2.84% $ 5,242 2.96%
======= ======== ======== ====
Net interest position/net interest margin $ 93,198 3.59% $ 83,063 3.56%
========== ======== ========== ====
Ratio of average interest-earning assets to
average interest-bearing liabilities 118.28% 116.44%
========== ==========
<FN>
(1) Includes nonaccrual loans and loans held for sale.
</FN>
12
For the Nine Months For the Nine Months
Ended Ended
September 30, 2000 September 30, 1999
---------------------------- ----------------------------
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
------- -------- ---- ------- -------- ----
(Dollars in thousands)
Interest-earning assets:
Loans (1) $ 474,164 $ 28,100 7.90% $ 485,138 $ 27,500 7.56%
Mortgage-backed certificates 78,410 4,046 6.88 23,726 1,263 7.10
U.S. Treasury and other U.S.
Government agency securities 46,472 1,958 5.62 56,350 2,425 5.74
Federal funds sold 9,522 439 6.15 15,274 552 4.82
Federal Home Loan Bank stock 5,853 340 7.74 4,357 244 7.47
---------- -------- ---------- ---------
Total interest-earning assets 614,421 34,883 7.57 584,845 31,984 7.29
---------- -------- ---------- ---------
Noninterest-earning assets:
REO 128 353
Other 38,025 38,064
---------- ----------
Total noninterest-earning assets 38,153 38,417
---------- ----------
Total assets $ 652,574 $ 623,262
========== ==========
Interest-bearing liabilities:
Passbook and statement savings $ 31,617 566 2.39% $ 35,041 640 2.44%
Checking accounts 43,155 446 1.38 40,089 429 1.43
Money market deposit accounts 81,437 2,241 3.67 74,444 1,909 3.42
Certificates of deposit 251,586 10,084 5.34 256,543 9,582 4.98
---------- -------- ---------- ---------
Total interest-bearing deposits 407,795 13,337 4.36 406,117 12,560 4.12
---------- -------- ---------- ---------
Advances from the Federal Home
Loan Bank 103,296 4,758 6.14 80,110 3,107 5.17
Securities sold under agreements
to repurchase 15,350 600 5.21 16,177 484 3.99
---------- -------- ---------- ---------
Total borrowings 118,646 5,358 6.02 96,287 3,591 4.97
---------- -------- ---------- ---------
Total interest-bearing liabilities 526,441 18,695 4.73 502,404 16,151 4.29
---------- -------- ---------- ---------
Noninterest-bearing liabilities:
Deposits 69,973 65,530
Other liabilities 5,378 5,041
---------- ----------
Total noninterest-bearing liabilities 75,351 70,571
---------- ----------
Total liabilities 601,792 572,975
---------- ----------
Stockholders' equity 50,782 50,287
---------- ----------
Total liabilities and stockholders' equity $ 652,574 $ 623,262
========== ==========
Net interest income/interest rate spread $ 16,188 2.84% $ 15,833 3.00%
======== ==== ========= ====
Net interest position/net interest margin $ 87,980 3.51% $ 82,441 3.61%
========== ==== ========== ====
Ratio of average interest-earning assets to
average interest-bearing liabilities 116.71% 116.41%
========== ==========
<FN>
(1) Includes nonaccrual loans and loans held for sale.
</FN>
13
Comparison of Operating Results for the Three Months Ended September 30, 2000
and September 30, 1999.
General
The Company's $2.5 million pre-tax income remained substantially the same
for the three months ended September 30, 2000 as compared to the three months
ended September 30, 1999. A $189,000 increase in net interest income after
provision for loan losses and a $41,000 increase in other income was offset by a
$228,000 increase in other expenses.
Net Interest Income
The Company's net interest income before provision for loan losses
increased $169,000 or 3.2% to $5.4 million for the third quarter of 2000
compared to $5.2 million for the third quarter of 1999. A $944,000, or 8.8%
increase in interest income was substantially offset by an increase of $775,000,
or 14.2% in interest expense for the third quarter of 2000 compared to the same
period in 1999.
Interest on loans increased $789,000, or 8.9%, to $9.6 million for the
third quarter 2000 compared to $8.9 million for the same period in 1999. An
increase in the average loan balances coupled with an increase in the average
loan yield contributed to the increased loan interest income. The average loan
balance increased $11.8 million to $480.3 million in the third quarter of 2000
compared to $468.5 million in the third quarter of 1999. In addition, the
average loan yield for the three months ended September 30,2000 was 8.03% as
compared to 7.56% for the same period in 1999. The increase in the average loan
balance was primarily attributable to loan originations, net of loan portfolio
pay downs. The higher interest rate environment contributed to the increased
loan yields in the three months ended September 30, 2000, compared to the three
months ended September 30, 1999.
Interest on the Company's portfolio of mortgage-backed certificates
increased $480,000, to $1.2 million for the quarter ended September 30, 2000
from $731,000 for the comparable 1999 period. The average balance of the
portfolio increased $28.3 million from $42.4 million in the third quarter of
1999 to $70.7 million in the third quarter of 2000.
Interest on deposits increased by $386,000, or 9.2%, for the quarter ended
September 30, 2000 compared to the quarter ended September 30,1999. This
increase was attributed to both a 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 $6.7 million, or 4.4%, for the
third quarter of 2000 compared to the same period in 1999. The average cost of
deposits increased to 4.52% for the three months ended September 30, 2000
compared to 4.12% for the three months ended September 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 $389,000 for the three months ended
September 30, 2000 compared to the same period in 1999. This increase was
substantially due to a $4.8 million increase in the average balance of advances
from Federal Home Loan Bank to $88.3 million for the third quarter of 2000
compared to $83.5 million for the comparable period in 1999. The overall average
cost of borrowings for the third quarter of 2000 increased to 6.27% from 5.10%
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
third quarter of 1999 compared to outstanding advances bearing higher rates
during the third quarter of 2000.
Provision for Loan Losses
The provision for loan losses was $19,000 for the third quarter of 2000
compared to $39,000 for the third quarter of 1999. Net loans charged off during
the three months ended September 30, 2000 were $49,000, compared to $46,000 in
net loans charged off for the comparable 1999 period.
14
Other Income and Expenses
Other expenses net of other income increased $187,000 for the three months
ended September 30, 2000 compared to the comparable period in 1999. A $228,000
increase in salaries and employee benefits, a $63,000 increase in net occupancy
expense and a $189,000 decrease in other miscellaneous income was partially
offset by increases of $164,000 in commercial mortgage brokerage fees, $69,000
in deposit fees and $63,000 in gains on sales of loans and securities. The
$189,000 decrease in other miscellaneous income is primarily the result of gains
on the sale of property and equipment of $203,000 in the third quarter of 1999
compared to gains on the sale of property and equipment of $25,000 in the third
quarter of 2000.
Comparison of Operating Results for the Nine Months Ended September 30, 2000 and
September 30, 1999.
General
The Company's pre-tax income increased by $89,000 to $7.1 million for the
nine months ended September 30, 2000 from $7.0 million for the nine months ended
September 30, 1999. The increase was primarily attributed to a $382,000 increase
in net interest income after provision for loan losses and a $92,000 decrease in
other expenses partially offset by a $385,000 decrease in other income.
Net Interest Income
The Company's net interest income increased $355,000 or 2.2% to $16.2
million for the first nine months of 2000 compared to $15.8 million for the
first nine months of 1999. A $2.9 million increase in interest income was
partially offset by a $2.5 million increase in interest expense.
Interest on loans increased $600,000, or 2.2%, to $28.1 million for the
first nine months of 2000 compared to $27.5 million for the same period in 1999.
While the average loan yield increased to 7.90% for the first nine months of
2000 as compared to 7.56% for the same period in 1999, the average loan balance
decreased $11.0 million to $474.2 million in the first nine months of 2000. The
decrease in the average loan balance was primarily attributable to net portfolio
pay downs. The higher interest rate environment contributed to the increased
loan yields in the first nine months of 2000 compared to the same period in
1999.
Interest on the Company's portfolio of mortgage-backed certificates
increased $2.8 million, to $4.0 million for the nine months ended September 30,
2000 from $1.3 million for the comparable 1999 period. The average balance of
the portfolio increased $54.7 million from $23.7 million in the first nine
months of 1999 to $78.4 million in the first nine months 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 $777,000, or 6.2%, for the nine months
ended September 30, 2000, compared to the nine months ended September 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
$1.7 million increase in the average balance of interest-bearing deposits
consisted of a $6.6 million net increase in the average balance of
interest-bearing checking, savings, and money market deposits partially offset
by a $5.0 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 nine months ended September 30, 2000
increased to 4.36% 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 $1.8 million for the nine months ended
September 30, 2000 compared to the same period in 1999. This increase was due in
part to a $23.2 million increase in the average balance of FHLB advances to
$103.3 million for the first nine months of 2000 compared to $80.1 million for
the comparable period in 1999. Additionally, the overall average cost of
borrowings for the first nine months of 2000 increased to 6.02% from 4.97% 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 nine months of 1999 compared to outstanding advances bearing higher rates
during the first nine months of 2000.
15
Provision for Loan Losses
The Company's provision for loan losses was $48,000 for the nine months
ended September 30, 2000 as compared to $75,000 for the same period in 1999. Net
loans charged off during the nine months ended September 30, 2000 were $95,000
compared to $217,000 for the comparable 1999 period. Normal recurring net
chargeoffs for the nine-month period ended September 30, 2000 and September 30,
1999 decreased $27,000 which represents the change in the provision for loan
losses, while net chargeoffs for loan types in which the Bank is no longer
active decreased $94,000.
Other Income
Total other income decreased by $385,000, or 6.9%, for the first nine
months of 2000 compared to the same period in 1999. A $309,000 decrease in other
miscellaneous income and a $94,000 decrease in gains on sales of loans
contributed to the decrease. The $309,000 decrease in other miscellaneous income
was attributable primarily to $287,000 of gains from the sale of assets in 1999
compared to $76,000 of gains on the sale of assets in 2000. Higher interest
rates adversely impacted mortgages originated for sale resulting in lower
volumes of loans sold in the first nine months of 2000 compared to the same
period in 1999.
Deposit fees and net merchant processing income increased $160,000, or
8.5%, and $33,000, or 8.8%, respectively, for the first nine months of 2000
compared to the first nine months of 1999.
Other Expenses
Total other expenses, excluding merchant processing expense discussed
above, increased by $81,000 or less than 1.0%, for the nine months ended
September 30, 2000 compared to the same period in 1999. The increase was
primarily due to increases in equipment and net occupancy expense, partially
offset by decreases in salary and employee benefits expense and other expense.
Liquidity
The principal sources of funds for the Company for the nine months ended
September 30, 2000 included $207.0 million of advances from the FHLB, $32.6
million in proceeds from the sale of loans, $19.6 million in proceeds from
principal repayments and maturities of securities available for sale, $18.2
million in proceeds from the sale of securities available for sale and a $17.8
million increase in deposits. Funds were used primarily to repay $261.0 million
in FHLB advances, to originate loans held for sale of $31.1 million, to fund
purchases of securities available for sale of $5.5 million, and to fund a $4.1
million increase in loans held for investment.
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 September 30, 2000 and December 31, 1999, the
Bank exceeded the required liquid asset ratio of 4.0%.
16
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 nine 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
6.a. Exhibit 10.26 - Employment Agreement with Roger J. Lambert
The Employment Agreement with Roger J. Lambert is attached as
Exhibit 10.26.
6.b. Reports on Form 8-K during the third quarter of 2000
On September 26, 2000, the Company filed Form 8-K, Item 4 and Item 7.
Item 4 reported that on September 19, 2000, the Company's Board of
Directors voted to engage the accounting firm of KPMG LLP as the
principal accountant to audit the Company's financial statements for
the fiscal year ending December 31, 2000, to replace the firm of
PricewaterhouseCoopers LLP, the principal accountant engaged to audit
the Company's financial statements as of December 31, 1999 and 1998,
and for each of the years in the two year period ended December 31,
1999. Item 7 included, as an exhibit, a letter from
PricewaterhouseCoopers LLP.
17
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: November 9, 2000 /S/ Michael S. Ives
-------------------------------------
Michael S. Ives
President and Chief Executive Officer
DATE: November 9, 2000 /S/ John O. Guthrie
-------------------------------------
John O. Guthrie
Senior Vice President and
Chief Financial Officer
18