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, 2001 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 4,430,171
- --------------------------- ---------------------------------------
Title of Class Number of Shares Outstanding
as of April 13, 2001
CENIT BANCORP, INC. AND SUBSIDIARIES
Contents
- --------------------------------------------------------------------------------
Page
PART I - FINANCIAL INFORMATION
Item 1
Financial Statements
Consolidated Statements of Financial Condition as of March 31, 2001
Unaudited)and December 31, 2000 .............................................. 1
Unaudited Consolidated Statements of Income for the Three Months
Ended March 31, 2001 and March 31, 2000 ..................................... 2
Unaudited Consolidated Statements of Comprehensive Income for the
Three Months Ended March 31, 2001 and March 31, 2000 ......................... 3
Unaudited Consolidated Statement of Changes in Stockholders' Equity
for the Three Months ended March 31, 2001 .................................... 4
Unaudited Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 2001 and March 31, 2000 ......................... 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.................................................................16
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
CENIT BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except per share data)
ASSETS
(Unaudited)
March 31, 2001 December 31, 2000
-------------- -----------------
Cash ............................................................ $ 20,048 $ 20,904
Federal funds sold .............................................. 12,236 8,646
Securities available for sale at fair value (adjusted
cost of $135,387 and $98,611, respectively) .................. 136,959 99,262
Loans, net:
Held for investment .......................................... 461,823 472,516
Held for sale ................................................ 4,961 2,536
Interest receivable ............................................. 3,709 3,546
Real estate owned, net .......................................... 363 -
Federal Home Loan Bank stock, at cost ........................... 5,700 5,050
Property and equipment, net ..................................... 12,837 13,087
Goodwill and other intangibles, net ............................. 2,861 2,946
Other assets .................................................... 3,318 3,736
--------- ---------
$ 664,815 $ 632,229
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest-bearing ........................................ $ 96,535 $ 88,748
Interest-bearing ........................................... 408,029 405,736
--------- ---------
Total deposits .......................................... 504,564 494,484
Advances from the Federal Home Loan Bank ..................... 88,000 70,000
Securities sold under agreements to repurchase ............... 15,098 13,369
Advance payments by borrowers for taxes and insurance ........ 970 528
Other liabilities ............................................ 3,371 2,395
--------- ---------
Total liabilities ....................................... 612,003 580,776
--------- ---------
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 4,430,171 and 4,443,271 at March 31,
2001 and December 31, 2000, respectively ................... 44 44
Additional paid-in capital ................................... 8,571 8,798
Retained earnings - substantially restricted ................. 46,881 45,944
Common stock acquired by Employee Stock Ownership Plan (ESOP) (3,606) (3,658)
Common stock acquired by Management Recognition Plan (MRP) ... (68) (78)
Accumulated other comprehensive income,
net of income taxes ........................................ 990 403
--------- ---------
Total stockholders' equity ................................. 52,812 51,453
--------- ---------
$ 664,815 $ 632,229
========= =========
The notes to unaudited consolidated financial statements are an integral part of
these statements.
1
CENIT BANCORP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
Three Months
Ended
March 31,
2001 2000
---- ----
Interest and fees on loans ........................... $ 9,240 $ 9,132
Interest on mortgage-backed certificates ............. 2,047 1,429
Interest on investment securities .................... 6 776
Dividends and other interest income .................. 214 261
------- -------
Total interest income ............................. 11,507 11,598
------- -------
Interest on deposits ................................. 4,507 4,261
Interest on borrowings ............................... 1,464 1,943
------- -------
Total interest expense ............................ 5,971 6,204
------- -------
Net interest income ............................... 5,536 5,394
Provision for loan losses ............................ 12 29
------- -------
Net interest income after provision for loan losses 5,524 5,365
------- -------
Other income:
Deposit fees ...................................... 740 708
Merchant processing fees .......................... 528 511
Gains on sales of loans, net ...................... 294 132
Commercial mortgage brokerage fees ................ 6 -
Other ............................................. 188 242
------- -------
Total other income .............................. 1,756 1,593
------- -------
Other expenses:
Salaries and employee benefits .................... 2,154 2,296
Equipment, data processing and supplies ........... 795 808
Net occupancy expense of premises ................. 543 572
Merchant processing ............................... 410 391
Professional fees ................................. 185 157
Expenses, gains/losses on sales, and provision
for losses on real estate owned, net ............ 5 6
Other ............................................. 622 557
------- -------
Total other expenses ............................ 4,714 4,787
------- -------
Income before income taxes ........................... 2,566 2,171
Provision for income taxes ........................... 949 782
------- -------
Net income ........................................ $ 1,617 $ 1,389
------- =======
Earnings per share:
Basic ............................................. $ .38 $ .31
======= =======
Diluted ........................................... $ .38 $ .30
======= =======
Dividends per common share ........................... $ .16 $ .15
======= =======
The notes to unaudited consolidated financial statements are an integral part of
these statements.
2
CENIT BANCORP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands)
Three Months
Ended
March 31,
2001 2000
---- ----
Net income ....................................................... $ 1,617 $ 1,389
------- -------
Other comprehensive income (loss), before income taxes:
Unrealized holding gains (losses) on securities available for
sale arising during the period ........................... 921 (514)
------- -------
Other comprehensive income (loss), before income taxes ........... 921 (514)
Income tax (provision) benefit related to items of other
comprehensive income (loss) ................................. (334) 195
------- -------
Other comprehensive income (loss), net of income taxes ........... 587 (319)
------- -------
Comprehensive income ............................................. $ 2,204 $ 1,070
======= =======
The notes to unaudited consolidated financial statements are an integral part of
these statements.
3
CENIT BANCORP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Three Months Ended March 31, 2001
(Dollars in thousands)
Common
Stock Accumulated Other
Common Common Additional Acquired Comprehensive
Stock Stock Paid-In Retained by ESOP Income, Net of
Shares Amount Capital Earnings and MRP Income Taxes Total
------ ------ --------- -------- ------- -------------- -------
Balance, December 31, 2000 4,443,271 $ 44 $ 8,798 $45,944 $(3,736) $ 403 $ 51,453
Comprehensive income - - - 1,617 - 587 2,204
Cash dividends declared - - - (680) - - (680)
Exercise of stock options and
related tax benefits 2,000 - 17 - - - 17
Stock repurchases (15,100) - (235) - - - (235)
Other - - (9) - 62 - 53
------- ---- ------- ------- ------ ------- --------
Balance, March 31, 2001 4,430,171 $ 44 $ 8,571 $46,881 $(3,674) $ 990 $ 52,812
========= ==== ======= ======= ======== ======= ========
The notes to unaudited consolidated financial statements are an integral part of
this statement.
4
CENIT BANCORP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Three months ended March 31,
2001 2000
---- ----
Cash flows from operating activities:
Net income ......................................................... $ 1,617 $ 1,389
Add (deduct) items not affecting cash in the period:
Provision for loan losses ........................................ 12 29
Amortization of loan yield adjustments ........................... 310 203
Depreciation, amortization and accretion, net .................... 428 463
Exercise of stock options tax benefits ........................... 9 7
Net gains on sales/disposals of:
Loans ......................................................... (294) (132)
Real estate, property and equipment ........................... 1 (25)
Proceeds from sales of loans held for sale ....................... 16,672 9,380
Originations of loans held for sale .............................. (18,807) (6,909)
Change in assets/liabilities:
Net decrease (increase) in interest receivable and other assets 310 (247)
Net increase in other liabilities ............................. 633 810
--------- ---------
Net cash provided by operating activities ..................... 891 4,968
--------- ---------
Cash flows from investing activities:
Purchases of securities available for sale ......................... (44,016) (5,538)
Principal repayments on securities available for sale .............. 7,233 3,641
Proceeds from maturities of securities available for sale .......... - 5,000
Net decrease in loans held for investment .......................... 10,023 4,584
Additions to real estate ........................................... (16) (22)
Purchases of Federal Home Loan Bank stock .......................... (650) (250)
Redemption of Federal Home Loan Bank stock ......................... - 1,300
Purchases of property and equipment ................................ (75) (116)
--------- ---------
Net cash (used for) provided by investing activities ............ (27,501) 8,599
--------- ---------
Cash flows from financing activities:
Proceeds from exercise of stock options and warrants ............... 8 12
Net increase in deposits ........................................... 10,080 33,565
Proceeds from Federal Home Loan Bank advances ...................... 123,000 11,000
Repayment of Federal Home Loan Bank advances ....................... (105,000) (58,000)
Common stock repurchases ........................................... (235) -
Net increase in securities sold under agreement
to repurchase .................................................... 1,729 1,840
Cash dividends paid ................................................ (680) (681)
Other, net ......................................................... 442 456
--------- ---------
Net cash provided by (used for) financing activities .......... 29,344 (11,808)
--------- ---------
Increase in cash and cash equivalents ................................. 2,734 1,759
Cash and cash equivalents, beginning of period ........................ 29,550 30,462
--------- ---------
Cash and cash equivalents, end of period .............................. $ 32,284 $ 32,221
========= =========
Supplemental disclosures of cash flow information:
Cash paid during the period for interest ......................... $ 1,841 $ 2,274
Cash paid during the period for income taxes ..................... 55 -
Schedule of noncash investing and financing activities:
Real estate acquired in settlement of loans ...................... $ 444 $ 122
Loans to facilitate sale of real estate owned .................... 96 146
The notes to unaudited consolidated financial statements are an integral part of
these statements.
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 of America. 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, 2001 and 2000 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, 2000 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, 2001, weighted average
shares used to compute basic earnings per share were 4,244,087. For the three
months ended March 31, 2000, weighted average shares used to compute basic
earnings per share were 4,543,261.
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, 2001, weighted average shares used to compute diluted earnings per
share were 4,301,469. For the three months ended March 31, 2000, weighted
average shares used to compute diluted earnings per share were 4,599,677.
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 and subsidiaries (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, 2001, the Company had total assets of $664.8 million, compared
to $632.2 million at December 31, 2000, an increase of $32.6 million, or 5.2%.
Securities Available for Sale
Securities available for sale totaled $137.0 million at March 31, 2001 and
are comprised of mortgage-backed certificates and other debt securities. The net
increase of $37.7 million, or 38.0% from the December 31, 2000 balance of $99.3
million resulted primarily from the purchase of $44.0 million in adjustable
mortgage-backed certficates available for sale, partially offset by principal
repayments of $7.2 million.
Loans
The balance of net loans decreased to $466.8 million at March 31, 2001 from
$475.1 million at December 31, 2000, a decrease of $8.3 million, or 1.7%. The
decrease was primarily due to mortgage loan paydowns associated with declines in
mortgage lending rates. Declines in lending rates often accelerate the
refinancing of mortgage loans. A $12.1 million, or 5.9% decrease in permanent
single-family mortgage loans held for investment was partially offset by an
increase in core banking loans and loans held for sale of $3.8 million or, 1.4%
from December 31, 2000 to March 31, 2001. The portion of the loan portfolio
excluding residential mortgage loans ("core banking loans") reached a record
balance of $271.0 million at March 31, 2001.
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, 2001 December 31, 2000
-------------- -----------------
(Dollars in Thousands)
Amount Percent Amount Percent
------ ------- ------ -------
Real estate loans:
Residential permanent 1- to 4-family:
Adjustable rate $ 130,136 25.57% $ 139,663 26.80%
Fixed rate
Conventional 60,883 11.96 63,324 12.15
Guaranteed by VA or insured by FHA 2,187 0.43 2,276 0.44
--------- ------ ---------- ------
Total permanent 1- to 4-family 193,206 37.96 205,263 39.39
Residential permanent 5 or more family 7,694 1.51 7,620 1.46
--------- ------ ---------- ------
Total permanent residential loans 200,900 39.47 212,883 40.85
--------- ------ ---------- ------
Commercial real estate loans:
Hotels 6,500 1.28 6,513 1.25
Office and warehouse facilities 44,006 8.65 42,974 8.25
Retail facilities 24,478 4.81 26,402 5.07
Other 9,642 1.89 9,007 1.73
--------- ------ ---------- ------
Total commercial real estate loans 84,626 16.63 84,896 16.30
--------- ------ ---------- ------
Construction loans:
Residential 1- to 4-family 46,832 9.20 43,968 8.43
Residential 5 or more family 9,342 1.84 9,323 1.79
Nonresidential 26,483 5.20 25,471 4.89
--------- ------ ---------- ------
Total construction loans 82,657 16.24 78,762 15.11
--------- ------ ---------- ------
Land acquisition and development loans:
Consumer lots 3,658 0.72 3,654 0.70
Acquisition and development 17,486 3.44 19,175 3.68
--------- ------ ---------- ------
Total land acquisition and development
loans 21,144 4.16 22,829 4.38
--------- ------ ---------- ------
Total real estate loans 389,327 76.50 399,370 76.64
--------- ------ ---------- ------
Consumer loans:
Boats 1,636 0.32 2,010 0.39
Home equity and second mortgage 62,112 12.20 60,343 11.58
Other 11,428 2.25 12,594 2.41
--------- ------ ---------- ------
Total consumer loans 75,176 14.77 74,947 14.38
--------- ------ ---------- ------
Commercial business loans 44,430 8.73 46,780 8.98
--------- ------ ---------- ------
Total loans 508,933 100.00% 521,097 100.00%
--------- ====== ---------- ======
Less:
Allowance for loan losses 3,762 3,804
Undisbursed portion of construction and
acquisition and development loans 44,725 46,241
Unearned discounts, premiums, and
loan fees, net (1,377) (1,464)
---------- -----------
47,110 48,581
--------- ----------
Total loans, net $ 461,823 $ 472,516
========= ==========
8
Deposits
Total deposits increased $10.1 million, or 2.0%, from $494.5 million at
December 31, 2000 to $504.6 million at March 31, 2001. The Company's transaction
deposits (its checking, savings, and money market deposits) increased $14.0
million, or 5.6% to a record balance of $265.4 million at March 31, 2001 from
$251.4 million at December 31, 2000. The increase in transaction deposits was
primarily attributable to the Company's continued successful execution of its
business strategy to grow this line of business.
Capital
The Company's and the Bank's capital ratios exceeded applicable regulatory
requirements at March 31, 2001.
In January 2001, the Company's Board of Directors gave the Company's
management the discretion to repurchase up to 200,000, or approximately 4.5% of
the Company's shares. The Company is not obligated to conduct these repurchases
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. During the first quarter of
2001, the Company repurchased 15,100 shares under this discretionary authority
at an average price of $15.58.
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,
2001 2000
------------ --------------
(Dollars in Thousands)
Nonperforming loans:
Real estate loans:
Permanent residential 1- to 4-family
Nonaccrual $1,825 $ 1,379
Accruing loans 90 days or more past due 48 -
------ -------
Total 1,873 1,379
------ -------
Land acquisition and development:
Nonaccrual 46 46
------ -------
Total 46 46
------ -------
Consumer loans:
Nonaccrual
Boats 34 5
Home equity and second mortgage 34 34
Other 40 14
------ -------
Total 108 53
------ -------
Commercial business loans:
Nonaccrual 52 202
------ -------
Total 52 202
------ -------
Total nonperforming loans:
Nonaccrual 2,031 1,680
Accruing loans 90 or more days past due 48 -
------ -------
Total 2,079 1,680
Real estate owned, net 363 -
------ -------
Total nonperforming assets, net $2,442 $ 1,680
====== =======
Total nonperforming assets, net, to total assets .37% .27%
=== ===
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,
2001 2000
---- ----
(Dollars in Thousands)
Balance at beginning of period $ 3,804 $ 3,860
Provision for loan losses 12 29
Losses charged to allowance (63) (76)
Recovery of prior losses 9 22
------- -------
Balance at end of period $ 3,762 $ 3,835
======= =======
The Company's coverage ratio (total allowance for loan losses to total
nonperforming loans) was approximately two times, two times, and four times the
nonperforming loans at March 31, 2001, December 31, 2000, and March 31, 2000,
respectively. For the three months ended March 31, 2001 and March 31, 2000, 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 and the allowance for loan
losses 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, 2001 March 31, 2000
------------------------------------------------------------------------
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
(Dollars in thousands)
Interest-earning assets:
Loans (1) $ 468,095 $ 9,240 7.90% $ 470,134 $ 9,132 7.77%
Mortgage-backed certificates 123,062 2,047 6.65 83,241 1,429 6.87
Investment securities 250 6 9.60 54,816 776 5.66
Federal funds sold 8,514 116 5.45 9,827 138 5.62
Federal Home Loan Bank stock 5,472 98 7.16 6,402 123 7.69
---------- -------- ---------- --------
Total interest-earning assets 605,393 11,507 7.60 624,420 11,598 7.43
---------- -------- ---------- --------
Noninterest-earning assets:
Real estate owned, net 279 185
Other 39,361 36,798
---------- ----------
Total noninterest-earning assets 39,640 36,983
---------- ----------
Total assets $ 645,033 $ 661,403
========== ==========
Interest-bearing liabilities:
Passbook and statement savings $ 28,776 $ 159 2.21 $ 31,786 $ 190 2.40
Checking accounts 43,874 119 1.08 41,526 147 1.42
Money market deposit accounts 90,076 833 3.70 79,839 711 3.56
Certificates of deposit 239,725 3,396 5.67 253,136 3,213 5.08
---------- -------- ---------- --------
Total interest-bearing deposits 402,451 4,507 4.48 406,287 4,261 4.19
---------- -------- ---------- --------
Advances from the Federal Home
Loan Bank 94,900 1,275 5.37 122,253 1,772 5.80
Securities sold under agreements
to repurchase 15,911 189 4.75 14,507 171 4.71
---------- -------- ---------- --------
Total borrowings 110,811 1,464 5.28 136,760 1,943 5.69
---------- -------- ---------- --------
Total interest-bearing liabilities 513,262 5,971 4.65 543,047 6,204 4.57
---------- -------- ---------- --------
Noninterest-bearing liabilities:
Deposits 74,376 61,964
Other liabilities 5,399 5,268
---------- ----------
Total noninterest-bearing liabilities 79,775 67,232
---------- ----------
Total liabilities 593,037 610,279
---------- ----------
Stockholders' equity 51,996 51,124
---------- ----------
Total liabilities and stockholders' equity $ 645,033 $ 661,403
========== ==========
Net interest income/interest rate spread $ 5,536 2.95% $ 5,394 2.86%
======== ========
Net interest position/net interest margin $ 92,131 3.66% $ 81,373 3.46%
========== ==========
Ratio of average interest-earning assets to
average interest-bearing liabilities 117.95% 114.98%
====== ======
(1) Includes nonaccrual loans and loans held for sale.
12
Comparison of Operating Results for the Three Months Ended March 31, 2001 and
March 31, 2000.
General
The Company's pre-tax income increased $395,000 to $2.6 million for the
three months ended March 31, 2001 from $2.2 million for the three months ended
March 31, 2000. The increase was the result of increases in net interest income
after provision for loan losses and other income of $159,000 and $163,000,
respectively, as well as a $73,000 decrease in other expenses.
Net Interest Income
The Company's net interest income before provision for loan losses increased
$142,000 or 2.6% to $5.5 million for the first quarter of 2001 compared to $5.4
million for the first quarter of 2000. This increase was substantially due to a
$233,000, or 3.8% decrease in interest expense partially offset by a decrease of
$91,000, or 0.8% in interest income for the first quarter of 2001 compared to
the same period in 2000.
Interest on loans increased $108,000, or 1.2%, to $9.2 million for the first
quarter 2001 compared to $9.1 million for the same period in 2000. While the
average loan yield increased to 7.9% for the first three months of 2001 as
compared to 7.8% for the same period in 2000, the average loan balance decreased
$2.0 million to $468.1 million in the first quarter of 2001. The decrease in the
average loan balance was attributable, in part, to mortgage loan paydowns.
Interest on the Company's portfolio of mortgage-backed certificates
increased $618,000, to $2.0 million for the quarter ended March 31, 2001 from
$1.4 million for the comparable 2000 period. The average balance of the
portfolio increased $39.9 million from $83.2 million in the first quarter of
2000 to $123.1 million in the first quarter of 2001. This increase was primarily
attributable to the Company's restructuring of its securities portfolio. The
Company sold its U. S. Govenment agency securities and purchased additional
mortgage-backed certficates. The average yield on mortgage-backed certficates
decreased from 6.87% for the three months ended March 31, 2000 to 6.65% for the
same period in 2001. The decrease in yield between the two quarters is primarily
a result of the purchase of lower yielding adjustable rate mortgage-backed
certificates during 2000 and the first quarter of 2001.
Interest on investments decreased from $776,000 for the first quarter of
2000 to $6,000 for the same quarter in 2001. The decrease is due primarily to
the sale of the Company's U.S. Government agency securities in the fourth
quarter of 2000.
Interest on deposits increased by $246,000, or 5.8%, for the quarter ended
March 31, 2001 compared to the quarter ended March 31, 2000. While the overall
average balance of interest-bearing deposits decreased by $3.8 million, the
average balance of transaction deposits reached a record balance of $237.1
million for the first quarter of 2001 compared to $215.1 for the first quarter
of 2000, an increase of 10.2%. The average balance of noninterest-bearing
deposits increased 20.0%, from $62.0 million to $74.4 million in the first
quarter of 2001.
Interest on borrowings decreased $479,000 for the three months ended March
31, 2001 compared to the same period in 2000. This decrease was substantially
due to a $27.4 million decrease in the average balance of FHLB advances to $94.9
million for the first quarter of 2001 compared to $122.3 million for the
comparable period in 2000. The total average cost of borrowings for the first
quarter of 2001 decreased to 5.3% from 5.7% for the same period in 2000,
primarily due to the recent reductions in the interest rate environment.
Net interest margin was 3.66% for the first quarter of 2001 compared to
3.46% for the same period in 2000. The Company is seeking to improve its net
interest margin through increases in transaction deposits and restructuring
operations. During the first quarter of 2001, the Company implemented a program
to reduce nonearning cash balances. Cash balance reductions realized from this
program will not substantially begin until the second quarter of 2001. When
fully implemented, the Company expects to reduce average nonearning cash by as
much as $4.0 to $5.0 million, which should enhance the net interest margin going
forward.
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Provision for Loan Losses
The Company's provision for loan losses remained substantially the same for
the three months ended March 31, 2001 as compared to the same period in 2000,
decreasing from $29,000 to $12,000. Net loans charged off during both the three
months ended March 31, 2001 and March 31, 2000 were $54,000. For the three
months ended March 31, 2001 and March 31, 2000, 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.
Other Income
Total other income increased by $163,000, or 10.2%, for the first quarter of
2001 compared to the same period in 2000. The increase is primarily due to a
$162,000 increase in gains on sales of loans. The increase is attributed to the
increased mortgage lending activity as a result of the reduction of mortgage
lending rates that occurred at the end of 2000 and continued into the first
quarter of 2001.
Other Expenses
Total other expense decreased by $73,000 or 1.5%, for the three months ended
March 31, 2001 compared to the same period in 2000.
Liquidity
The principal sources of funds for the Company for the three months ended
March 31, 2001 included $123.0 million in advances from the FHLB, $16.7 million
in proceeds from the sale of loans, a $10.1 million increase in deposits, a
$10.0 million decrease in loans held for investment, and $7.2 million in
proceeds from principal repayments on securities available for sale. Funds were
used primarily to repay $105.0 million in FHLB advances, to fund purchases of
securities available for sale of $44.0 million, and to originate loans held for
sale of $18.8 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.
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995
This Quarterly Report contains forward-looking statements with respect to
the goals, plans, objectives, intentions, expectations, financial condition,
results of operations, future performance and business of the Company,
including, without limitation, statements relating to the earnings outlook of
the Company. These forward-looking statements may be preceded by, followed by or
include the words "may", "could", "would", "should", "believes", "expects",
"anticipates", "estimates", "intends", "plans" or similar expressions. These
forward-looking statements involve risks and uncertainties that are subject to
change based on various factors, many of which are beyond the Company's control.
Some of these factors include (1) the strength of the U. S. economy in general
and the strength of the local economy in which the Company conducts its
operations, which may be different than expected and which may result in, among
other things, deterioration in credit quality or reduced demand for credit; (2)
the effects of, and changes in, the interest rate policies of the board of
governors of the Federal Reserve system, which may be different from those
anticipated by the Company in this Quarterly Report; (3) legislation or
regulatory changes that adversely affect the businesses in which the Company is
engaged; (4) changes in accounting principles, practices, policies or
guidelines; and (5) changes in the real estate market generally and in the
markets in which the Company conducts its operations, which may affect the
demand for mortgages and other real estate-based loans. This Quarterly Report,
including the forward-looking statements contained herein, speaks only as of the
date hereof, and the Company disclaims any obligation to update or revise the
statements contained in this Quarterly Report following the date hereof.
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 2000
annual report, during the first three months of 2001.
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
On January 24, 2001, the Company filed Form 8-K, Item 5 and Item 7. Item 5
reported the Registrant had issued a News Release announcing the results for the
fourth quarter and year ended December 31, 2000 and other information. Item 7
was an exhibit of that News Release.
Also, on January 24, 2001, the Company filed Form 8-K, Item 5 and Item 7. Item 5
reported the Registrant had issued a News Release announcing share repurchase,
dividend increase, and earnings guidance. Item 7 was an exhibit of that News
Release.
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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: April 20, 2001 /S/ Michael S. Ives
-------------------------------------
Michael S. Ives
President and Chief Executive Officer
DATE: April 20, 2001 /S/ John O. Guthrie
--------------------------------------
John O. Guthrie
Senior Vice President and
Chief Financial Officer
16