FRONT COVER
CENIT Bancorp, Inc.
1996 Annual Report
Table of Contents
1 Corporate Profile
2 Report To Our Stockholders
8 Boards of Directors
CENIT Bancorp Management Committee
9 Community Advisory Boards
10 Five Year Financial Summary
11 Management's Discussion and Analysis
19 Consolidated Financial Statements
23 Notes To Consolidated Financial Statements
51 Report of Independent Accountants
52 Investor Information
53 Corporate Information
Inside Back Cover Map of Retail Banking Offices
Corporate Profile
CENIT Bancorp, Inc., with headquarters in Norfolk, Virginia, is the holding
company for CENIT Bank, FSB, a federal stock savings bank based in Norfolk,
Virginia, and Princess Anne Bank, a Virginia commercial bank headquartered in
Virginia Beach, Virginia.
CENIT Bank has been in business since 1889, and Princess Anne Bank since
1985. Together, the two Banks form the second largest bank or thrift institution
headquartered in the Norfolk-Virginia Beach-Newport News Statistical Area, the
27th largest Metropolitan Statistical Area (MSA) in the United States and the
fourth largest MSA in the southeast.
At December 31, 1996, CENIT Bancorp had consolidated assets of $707.1
million, deposits of $499.0 million and stockholders' equity of $49.6 million
with 1,635,044 shares of common stock outstanding.
The two Banks operate nineteen retail banking offices in the cities of
Norfolk, Portsmouth, Virginia Beach, Chesapeake, Hampton and Newport News and in
York County, Virginia. The Banks attract retail deposits from the general public
in their market area by providing a variety of deposit services. As community
banks, the focus is personal banking for local individuals and businesses.
Deposits are insured by the Federal Deposit Insurance Corporation up to
applicable limits.
The Banks invest their funds in permanent and construction residential
loans, consumer loans, and commercial real estate and business loans. The Banks
also invest in mortgage-backed certificates and U.S. Treasury and federal agency
securities.
The Banks are members of the Federal Home Loan Bank System and Princess
Anne Bank is a member bank of the Federal Reserve System.
The Company's common stock trades on the Nasdaq Stock Market under the
symbol CNIT.
1
Report to Our Stockholders
Our Board of Directors and I are pleased to present to you the 1996 Annual
Report for CENIT Bancorp, Inc. (the "Company") and its subsidiaries CENIT Bank,
FSB, and Princess Anne Bank.
During 1996, we continued to make great progress in the development of our
Company. We expanded our retail branch network to provide greater market
coverage and convenience for our customers. Our community banking initiatives
led to strong growth in our noninterest-bearing demand deposit account balances
and in our consumer home equity lending balances, and the Company increased its
residential mortgage loan portfolio systematically over the course of the year.
With these and other actions on our part, the Company's net income grew to over
$5.0 million before the impact of the one-time special Federal Deposit Insurance
Corporation assessment (the "Special Assessment") to recapitalize the Savings
Association Insurance Fund (the "SAIF").
Expanding Our Community Banking Franchise
Our rapid growth and development continued unabated throughout 1996. Over
the past few years, we have demonstrated the capabilities to identify
opportunities for growth as they arise in our market and to act decisively to
seize these opportunities. 1996 was no exception.
Once again, the Company was able to capitalize on a business opportunity.
During 1996, CENIT Bank acquired approximately $68.1 million of deposits in our
local market from five offices of Essex Savings Bank, FSB. CENIT Bank continued
to operate the former Essex retail offices in Downtown Hampton and in the
Denbigh area of Newport News to expand our retail branch network. The deposits
associated with the other three former Essex retail offices were consolidated
into existing CENIT Bank retail offices.
To integrate these two new offices into our retail network, CENIT Bank
completely refurbished the offices and thoroughly equipped them to provide our
customers at these offices with as many of our full range of services as
possible. Both offices are now capable of attracting and serving retail and
commercial banking customers with a wide variety of community banking services
such as ATMs, night depositories, and complete commercial lending and deposit
products.
As a further expansion of our retail banking options for our customers,
CENIT Bank opened its second "supercenter" banking office at the Super Kmart in
Norfolk. Our Super Kmart retail offices afford our customers the opportunity to
bank with us during evening hours and on weekends and many holidays. This makes
us a much more convenient banking option for our customers than the typical
community bank.
2
In March 1996, Princess Anne Bank relocated its Great Neck office in
Virginia Beach from a small facility on a side street to a full-service retail
office on Shore Drive, a major traffic artery. The high visibility of this new
office has resulted in a substantial increase in deposits and customer activity
in the Great Neck office. The Great Neck and Shore Drive areas of Virginia Beach
are growing rapidly, and this new facility makes Princess Anne Bank a strong
competitor for retail and commercial banking customers in this market.
With these new and expanded retail offices, the Company now has a stronger
retail network that is convenient to a large percentage of potential customers
in our local market. This is clearly shown on the map identifying the locations
of our retail offices included on the inside back cover of this Annual Report.
This retail network makes us the only local community banking institution with
retail offices in all six of our market's most populated cities.
Using Our Strength to Grow Our Community Banks
These and other enhancements to our retail banking network caused the total
assets of the Company to increase from $639.8 million at December 31, 1995 to
$707.1 million at December 31, 1996. During this time, loans held for investment
increased from $319.2 million at December 31, 1995, to $422.2 million at
December 31, 1996. Also, total deposits increased from $450.5 million at
December 31, 1995, to $499.0 million at December 31, 1996. Of special note,
noninterest-bearing deposits increased by 19.4% from $38.7 million at
December 31, 1995 to $46.2 million at December 31, 1996. These deposits have
increased by $17.6 million, or 61.8%, since December 31, 1994, and represent a
particularly valuable source of funding to the Company.
Behind these broad statistics relating to the Company's growth in 1996 are
the results of certain of the Company's major programs. This information
provides additional insight into the Company's capacity for future growth.
During 1996, the Company developed a comprehensive program to increase our
home equity and second mortgage loan portfolio. The program was designed to
become an ongoing feature of our retail banking strategy and has proven very
successful. As a result of this program, we increased the outstanding balance of
our home equity and second mortgage loan portfolio by 43.9% in nine months from
$20.6 million at March 31, 1996 to $29.6 million at December 31, 1996.
Our continuing efforts to increase our merchant credit card processing
business also had impressive results in 1996. Our gross processing fees from
merchant sales grew by 47.0% from $502,000 in 1995 to $738,000 in
3
1996, and the total number of our merchant customers increased by 35.9%
from 312 at December 31, 1995 to 424 at December 31, 1996. This phenomenal
growth in our merchant credit card processing business supports our efforts to
increase our noninterest-bearing demand deposits as we encourage our merchant
customers to maintain their commercial accounts with us.
We note with some disappointment that our nonperforming assets increased to
$5.7 million at the end of 1996. However, we are confident that the reasons
behind this increase represent an unusual confluence of unrelated events and not
a general deterioration of our asset quality. As of February 28, 1997, we have
had a net reduction in our nonperforming assets of $954,000 from the level
existing at December 31, 1996. We are making vigorous efforts to continue to
reduce our nonperforming assets very quickly. Our past experience in fashioning
creative solutions to nonperforming assets will serve us well in our attempts to
bring our nonperforming assets to lower levels in 1997.
Record Earnings and Dividends
In our 1995 Annual Report, we spoke of our great potential to increase our
earnings from operations during 1996. We also pointed out the possibility of the
one-time Special Assessment occurring during 1996, which would subject our
earnings to a substantial but nonrecurring charge. We proved to be right on both
counts.
Before the impact of the Special Assessment, the Company earned $5,059,000,
or $3.00 per share, in 1996. Including the $1.45 million after-tax charge from
the Special Assessment, the Company had annual net income of $3.6 million, or
$2.14 per share.
In comparison, annual net income for 1995 was $2.5 million, or $1.48 per
share. Net income for 1995 included the negative impact of a $348,000 after-tax
charge, or $.21 per share, relating to the sale of various securities in our
balance sheet restructuring and a $691,000 after-tax charge, or $.41 per share,
relating to merger expenses. Excluding the impact of these two special events,
the Company earned $3,511,000, or $2.09 per share, in 1995.
Excluding the effects of the Special Assessment in 1996 and the merger and
balance sheet restructuring changes in 1995, the Company's net income in 1996
increased by $1,548,000, or 44.1%, over our income from 1995.
These comparisons provide dramatic evidence of the Company's earnings
potential. Behind these comparisons are a number of factors that provide us with
additional earnings momentum in 1997:
4
- Our net loans held for investment at December 31, 1996 were $422.2
million. This balance is 21.7%, or $75.3 million, higher than our average
net loans held for investment of $346.9 million in 1996.
- Our net interest margin for the fourth quarter of 1996 rose to 3.30%,
some eight basis points higher than our net interest margin of 3.22% for
all of 1996. We enter 1997 with a higher net interest margin than that
which existed on average in 1996.
- The Special Assessment reduced our deposit insurance premiums from a
prior annual rate of $2.30 per $1,000 of deposits insured by SAIF to a
substantially lower annual rate of $.648 per $1,000 of deposits insured
by SAIF. If our deposit balances were to remain unchanged from the levels
at December 31, 1996, our FDIC insurance cost would decrease by
approximately $678,000 below the annual cost of this insurance for 1996
under the previously existing deposit premium schedule.
- In 1996, our deposit fees increased by 39.2% to $1.4 million from $1.0
million in 1995. This occurred primarily because of overall increases in
checking account balances, increases in our deposit fee schedule in
mid-1996, and seven additional ATMs including three installed in the last
quarter of 1996. With the new ATMs and the fee schedule in place for all
of 1997, we expect that deposit fees will continue to grow in 1997.
With these factors in place for 1997, our Board of Directors has provided
you with clear evidence of the increasing profitability of the Company. In late
1996, we increased your quarterly dividend by 25%, to an annual rate of $1.00
per share, to demonstrate to you our high expectations for the future. We look
forward to 1997 with a great sense of excitement.
1997 and Beyond
As impressive as our record of corporate growth in 1996 may be, we are not
relying on our past efforts to ensure a continuation of our progress in 1997. We
have taken a number of actions in recent months that are designed to build upon
our 1996 results.
We have implemented a new promotional program for our Super Kmart retail
offices to accelerate our deposit growth in these offices. Bold "message center"
electronic signs have been installed at ten of our retail offices located
on some of our market's busiest highways to provide us with continuous
advertising for our banking services. Furthermore, we recently began a
systematic and comprehensive calling effort to contact many of our existing
customers to ask these customers to do additional business with the Company.
5
Technological advancements in banking are enabling us to become more
competitive with larger banks in many areas. Unlike most financial institutions
similar to us in size, we have the benefit of our own "in-house" data processing
system. We can implement data processing advancements as we deem appropriate, we
can customize many of our banking services to fit the needs of major depositors,
and we can develop our own solutions to data processing problems. This
flexibility allows us to compete effectively for large depositors with financial
institutions many times our size.
To make our retail offices more efficient and to reduce the time necessary
to train our retail personnel, we have developed and begun the installation of a
proprietary retail banking software package that we call the Branch Delivery
System or BDS. This BDS software package simplifies and expedites customer
banking transactions and gives our customer service representatives the time to
engage our customers in meaningful dialogue concerning their banking needs
during the processing of routine banking transactions.
Other recent developments in technology for the Company include the
installation of a frame relay telephone network to facilitate the rapid
transmission of data among our offices and to provide for the easy expansion of
our branch network as the Company grows. We have also installed data processing
software to develop a marketing customer information file or MCIF to assist us
in identifying existing customers to whom we can offer additional banking
services. Soon to be installed is an interactive voice response customer
information program that will allow our customers to access information about
their accounts over the telephone at any time, night or day.
New technology is our ally and not our foe as we expand our Company.
Combining our community banking approach with our technological capabilities
makes us a formidable banking competitor in our market for the future.
Over th past few months, we have taken a very significant step in the
growth and development of the Company. Princess Anne Bank had three advisory
boards in place at the time of our merger in 1995. Before we expanded our
advisory boards further, we wanted to have the retail network and banking
infrastructure in place to exploit fully the business opportunities that arise
from a comprehensive network of advisory boards. We are now in a position to
move forward with the full development of this vital part of a community banking
structure.
We have begun the process of asking prominent and diverse members of our
local communities to join advisory boards for CENIT Bank and Princess Anne Bank.
Already, we have organized four new advisory boards
6
for our Company, and we plan to establish at least three others very
quickly. We are very pleased with the enthusiasm for our Company that we have
encountered when we approach prospective members for our advisory boards.
Our advisory boards provide us with a means to evaluate our competitive
position in the communities that we serve. They tell us the new banking services
that we need to offer and help us to refine our existing services to better
serve our customers. They assist us in evaluating the effectiveness of our
customer service personnel. In addition, our advisory boards recommend our
banking services regularly to their business associates, friends and family and
are a significant source of business development for the Company.
The essence of a community bank is continuous interaction with its
customers and detailed knowledge of the markets served by the bank. Our advisory
boards will ensure that we never lose touch with our customers and that we are
always knowledgeable about changes and opportunities in our markets.
New marketing initiatives, new technology and new advisory boards will spur
the evolution and growth of the Company. Our resources and capabilities are
increasing rapidly. We expect 1997 to be a year that will present great banking
opportunities for the Company in our markets, and we will take full advantage of
these opportunities to expand our business and profitability.
Our Board of Directors recognizes its responsibility to continue to grow
the Company's earnings and franchise in order to create value for all of us. We
appreciate the trust and support that our stockholders have given to the Company
and its Board of Directors over the years. We will endeavor to be worthy of your
confidence.
Michael S. Ives
President & Chief Executive Officer
7
Boards of Directors and Management Committee
Directors of Directors of Management Committee
CENIT Bancorp, Inc. and Princess Anne Bank of CENIT Bancorp, Inc.
CENIT Bank CENIT Bank
C. L. Kaufman, Jr. John A. Tilhou, Esq., Chairman Michael S. Ives
Chairman, Partner, Mays & Valentine, L.L.P. President & Chief
CENIT Bancorp, Inc. Executive Officer
Investor
David L. Bernd Homer W. Cunningham Barry L. French
President & CEO, Chairman Emeritus Senior Vice President
Sentara Health System Retail Banking
Group Manager
Patrick E. Corbin, William J. Davenport, III
CPA Principal, Vice Chairman John O. Guthrie
Carter Corbin & Real Estate Developer/Investor Senior Vice President
Company, P.C. Chief Financial
Officer & Finance
Homer W. Cunningham* J. Morgan Davis Group Manager
Member Emeritus President & Chief Executive
Officer Patrick L. Hillard
J. Morgan Davis* Senior Vice President
President & Chief Thomas J. Decker, Jr. CENIT Mortgage Company
Executive Officer President, The Prudential-
Princess Anne Bank Decker Realty Roger J. Lambert
Senior Vice President
The Honorable John W. Failes, CPA Information Services
William H. Hodges CEO, Failes & Associates, P.C. Group Manager
Judge, Virginia Court
of Appeals (Retired) L. Renshaw Fortier Barbara N. Lane
Consultant/Counsel, Chairman, Teren Company Senior Vice President
Plasser American Administrative Ser-
Corporation John F. Harris vices Group Manager
President, Affordable Homes
Michael S. Ives Alvin D. Woods
President & Chief Michael S. Ives Senior Vice President
Executive Officer President & Chief Executive Chief Lending Officer
Officer, CENIT Bancorp, Inc. & Lending Group
Frank R.
Kollmansperger, Jr. Charles R. Malbon, Jr. Princess Anne Bank
Management Consultant Vice President
Tank Lines, Inc. J. Morgan Davis
Roger C. Reinhold President & Chief
Commercial Dan Ryan, President Executive Officer
Investments Dan Ryan's For Men
Retired President, Winfred O. Stant, Jr.
Homestead Savings Bank Senior Vice President
& Chief Financial
John A. Tilhou, Esq.* Officer
Chairman,
Princess Anne Bank
Partner, Mays &
Valentine, L.L.P.
David R. Tynch, Esq.
President and Managing
Partner,
Cooper, Spong & Davis,
P.C.
Anne B. Shumandine, Esq.
President, Signature
Financial Management, Inc.
Director, Mezzullo &
McCandlish,
A Professional Corporation
* CENIT Bancorp Board Only
8
Community Advisory Boards
CENIT Bank
Tri-City
(Western Chesapeake,
Suffolk & Portsmouth)
Samuel H. Lamb, II,
Chairman Provost,
Tidewater
Community College,
Portsmouth
Robert C. Barclay, IV,
Esq.
Attorney, Cooper, Spong &
Davis
Roger L. Brown, Owner,
McDonald's Franchises
B. Anne Davis
President & CEO, Diesel
Tech
Gwendolyn S. Davis
Legislative Liaison &
Principal Management
Analyst
City of Portsmouth
Sharon D. Franklin
Owner & Graphic Designer,
Okra Stewdio
Ann M. Kirk, Esq.
Attorney, Private
Practice
Michael R. Kirsch
President, K Plus
Eric J. Sasser
President, Sasser
Construction
Jimmy R. Spruill
Chairman, JJ Fasteners,
Inc.
Andrew M. Virga
Treasurer & CFO,
Virga's Pizza Crust of
Virginia
Junius H. Williams, Jr
Division Manager,
Community & Government
Affairs
Eastern Operations
Division
Virginia Power
Great Bridge
(Southern Chesapeake)
James A. Roy, Esq. Chairman
Partner, Roy, Laine,
Larsen, Romm & Lascara, P.C.
Fella Rhodes,
Managing Broker
Long & Foster Realtors
Debbie Ritter
Professional Dog Breeder
Greg Skillman
President, Seaboard
Mechanical
Peter Szoke, MD
Family Physicians of
Great Bridge, Ltd.
Stephen J. Telfeyan, Esq.
Partner, Basnight, Wright,
Kinser, Telfeyan, &
Leftwich, P.C.
Gayle A. Terwilliger, DDS
Dentist, Private Practice
James J. Wheaton, Esq.
Partner, Willcox & Savage, P.C.
Princess Anne Bank
Pembroke
Wendell A. White, Chairman
Senior Vice President,
The Breeden Company
Joseph M. Gianascoli
President, IKON Office
Solutions
William F. Harris
President, Bank United
Mortgage
Glen A. Huff, Esq.
Partner, Huff, Poole &
Mahoney
Donald E. Lee, Jr., Esq.
Attorney, Private Practice
Robert E. Ruloff, Esq.,
Partner,
Shuttleworth, Ruloff &
Giordano
Shore Drive
Kal Kassir, Chairman
Owner, The Corner Market
Donald F. Bennis, Esq.
Attorney, Private Practice
Thomas R. Eckert
Owner, Bay Lake Pines
School
Charles W. Guthrie
President, Lynnhaven Marine
John R. Savino
Agent, The Prudential-
Decker Realty
Lynnhaven
Brian P. Winfield, Chairman
Winfield & Associates
Gunther H. Degan
President, Degan
Enterprises
Paul V. Michels
President, Coastal Video
Communications Corp.
A. William Reid
President, Cellar Door
Productions of VA, Inc.
Hilltop
John W. Richardson, Esq.
Chairman
Partner, Stallings &
Richardson
Michael Atkinson
Owner, 501 City Grill &
Atlas Diner
Judy B. Crumley
Owner & Treasurer,
Crumley Group, Inc.
Frank Drew
Sheriff, City of Virginia
Beach
Independence
W. K. Hammaker, Chairman
Branch Manager,
Pembroke Riedman
Insurance
Stephen B. Ballard
President, S.B. Ballard,
Inc.
Nancy Cheng
Administrative Vice
President,
Eastern Computers, Inc.
William A. Hearst
Account Executive,
Pembroke Riedman
Insurance
Clarence A. Holland, MD
Physician
Norma O. Magpoc, MD
Physician
Mark E. Slaughter, Esq.
Partner, Pender & Coward
9
Five Year Financial Summary (1)
(Dollars in thousands, except per share)
At or for the year ended December 31,
1996 1995 1994 1993 1992
----------------------------------------------------------------------
Financial Condition Data:
Total assets $ 707,100 $ 639,812 $575,675 $ 508,421 $ 473,239
U.S. Treasury and other U.S. Government
agency securities, net 46,305 65,118 44,650 55,953 43,339
Loans held for investment, net 422,219 319,194 305,578 258,604 279,269
Mortgage-backed certificates, net 177,706 203,176 175,763 135,812 86,853
Real estate owned, net 2,769 1,828 5,718 3,575 6,642
Deposits 498,965 450,530 420,422 407,309 400,590
Borrowings 155,138 138,171 109,035 58,560 35,203
Stockholders' equity 49,608 46,729 42,217 39,810 35,105
Operating Data:
Interest income $ 48,171 $ 45,527 $ 37,826 $ 34,004 $ 37,635
Interest expense 28,087 27,476 19,496 16,910 21,702
Net interest income 20,084 18,051 18,330 17,094 15,933
Provision for loan losses 377 697 490 1,667 2,481
Net interest income after provision for loan losses 19,707 17,354 17,840 15,427 13,452
Other income 3,894 2,944 2,765 2,956 3,113
Other expenses 18,172 16,174 14,402 13,099 13,463
Income before income taxes and cumulative
effect of accounting change 5,429 4,124 6,203 5,284 3,102
Provision for income taxes 1,821 1,652 2,226 1,637 931
Income before cumulative effect of
accounting change 3,608 2,472 3,977 3,647 2,171
Cumulative effect of change in method of
accounting for income taxes -- -- -- -- 553
Net income $ 3,608 $ 2,472 $ 3,977 $ 3,647 $ 2,724
----------------------------------------------------------------------
Earnings per share:
Income before cumulative effect of
accounting change $ 2.14 $ 1.48 $ 2.44 $ 2.28 $ 1.42
Cumulative effect of accounting change -- -- -- -- .36
Net income $ 2.14 $ 1.48 $ 2.44 $ 2.28 $ 1.78
Cash dividends per share ----------------------------------------------------------------------
----------------------------------------------------------------------
$ .75 $ .40 $ .36 $ .27 $ --
Selected Financial Ratios and Other Data:
Return on average assets 0.54% (2) 0.40% (3) 0.72% 0.76% 0.58% (4)
Return on average stockholders' equity 7.56 (2) 5.57 (3) 9.75 9.83 10.31 (4)
Average stockholders' equity to average assets 7.20 7.21 7.40 7.76 5.67
Stockholders' equity to total assets at year end 7.02 7.30 7.33 7.83 7.42
Interest rate spread 2.83 2.60 3.10 3.36 3.17
Net interest margin 3.22 3.07 3.47 3.78 3.58
Other expenses to average assets 2.74 (2) 2.63 (3) 2.61 2.76 2.89
Net interest income to other expenses 110.52 (2) 111.61 (3) 127.27 130.50 118.35
Nonperforming assets to total assets .80 .45 1.42 1.01 2.17
Allowance for loan losses to total net loans .90 1.16 1.24 1.56 1.39
Dividend payout ratio (5) 35.10 27.12 14.76 11.85 --
Book value per share $ 30.34 $ 29.27 $ 26.66 $ 25.41 $ 22.41
Tangible book value per share 27.66 28.15 25.45 25.41 22.41
Number of retail branch offices 19 16 15 12 11
<FN>
________
(1) On August 1, 1995, Princess Anne Bank ("Princess Anne") became a
wholly-owned subsidiary of CENIT Bancorp, Inc. (the "Company") in a merger
accounted for by the pooling of interests method of accounting. Accordingly, the
consolidated financial data presented gives effect to this merger and the
accounts of Princess Anne have been combined with those of the Company for all
periods presented. Also, on April 1, 1994, CENIT Bank, FSB merged with Homestead
Savings Bank, FSB ("Homestead"). This merger was accounted for by the purchase
method of accounting. The consolidated financial data presented above includes
the results of Homestead's operations and financial condition from the date of
acquisition.
(2) Exclusive of the $2,340 one-time SAIF special assessment paid in
November, 1996 and the related tax effect, where applicable, the return on
average assets and return on average stockholders' equity for the year ended
December 31, 1996 would have been .76% and 10.52%, respectively, and the ratio
of other expenses to average assets and net interest income to other expenses
would have been 2.39% and 126.86%, respectively.
(3) Exclusive of the $757 of merger expenses and the $563 loss on the sale
of securities and the related tax effect, the return on average assets and
return on average stockholders' equity for the year ended December 31, 1995
would have been .57% and 7.91%, respectively. Exclusive of the $757 of merger
expenses relating to the Princess Anne combination, the ratio of other expenses
to average assets and net interest income to other expenses would have been
2.50% and 117.09%, respectively.
(4) The return on average assets and average stockholders' equity for 1992
includes the cumulative effect of changing the Company's method of accounting
for income taxes. Without this change, the Company's return on average assets
and average stockholders' equity would have been .47% and 8.22%, respectively.
(5) Represents dividends per share divided by net income per share.
Dividends per share represent historical dividends declared by the Company.
</FN>
10
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Financial Condition of the Company
Total assets. At December 31, 1996, the Company had total assets of $707.1
million, an increase of $67.3 million, or 10.5%, since December 31, 1995. This
increase is accounted for primarily by the Company's purchase of residential
permanent one- to four- family real estate loans, the effect of which was
partially offset by a decrease in securities available for sale.
Securities Available For Sale. Securities available for sale totaled $224.0
million at December 31, 1996 compared to $268.3 million at December 31, 1995.
The net decrease of $44.3 million from December 31, 1995 resulted primarily from
the net effect of $66.5 million of mortgage-backed certificate repayments, $48.8
million of adjustable-rate mortgage-backed certificate purchases, $29.2 million
of proceeds from the maturities or calls of securities, $19.1 million of U.S.
Treasury and other U.S. Government agency securities purchases, and $14.8
million of proceeds from the sale of securities. The portfolio of securities
available for sale at December 31, 1996 was comprised of $6.0 million of other
U.S. Government agency securities, $40.3 million of U.S. Treasury securities and
$177.7 million of mortgage-backed certificates.
Loans. The balance of net loans held for investment increased from $319.2
million at December 31, 1995 to $422.2 million at December 31, 1996.
Adjustable-rate and conventional fixed-rate residential permanent one- to
four-family loans increased from $98.1 million and $47.6 million, respectively,
at December 31, 1995 to $157.5 million and $99.0 million, respectively, at
December 31, 1996. These increases in one- to four- family loans resulted
primarily from the purchase of loans, including three bulk transactions totaling
$84.6 million. The loans acquired in these three transactions included $51.3
million of adjustable-rate loans and $33.3 million of fixed-rate loans, $21.1
million of which balloon at various dates over the next seven years. The
majority of these loans are secured by real estate located in the South and
Southeast regions of the U.S., with the largest concentrations in Virginia,
Alabama and Georgia. Loan purchases for 1996, including individual loans
purchased from correspondents, totaled $105.9 million. The balance of one- to
four-family loans also increased in 1996 as a result of a 43.6% increase in
originations from $51.5 million in 1995 to $73.9 million in 1996.
The balance of outstanding home equity and second mortgage loans also
increased from $20.8 million at December 31, 1995 to $29.6 million at
December 31, 1996. This increase resulted primarily from a successful program
added to the Company's retail banking strategy as evidenced by a 146.8% increase
in originations from $8.1 million in 1995 to $19.9 million in 1996.
Deposits. During 1996, the Company's total deposits increased from $450.5
million at December 31, 1995 to $499.0 million at December 31, 1996. In 1996, as
part of its strategy to expand its community banking franchise in Southeastern
Virginia, CENIT Bank assumed approximately $68.1 million in deposits from five
Essex Savings Bank, FSB ("Essex") branches that were located in the Company's
existing market area. Also, the Company's noninterest-bearing deposits increased
by 19.4% from $38.7 million at December 31, 1995 to $46.2 million at
December 31, 1996. This increase in noninterest- bearing deposits resulted from
the Company's ongoing strategy to seek lower-cost deposits to further enhance
the Company's profitability. The impact of the Essex deposit assumption and the
increase in noninterest-bearing deposits was partially offset by decreases in
certificates of deposit and money market deposit accounts.
Borrowed Funds. The Company's borrowed funds, which include Federal Home
Loan Bank ("FHLB") advances, other borrowings, and securities sold under
agreements to repurchase, increased from $138.2 million at December 31, 1995 to
$155.1 million at December 31, 1996. FHLB advances increased from $133.0 million
to $148.0 million during this period. Although the Company used the majority of
the cash proceeds received in connection with the Essex deposit assumption to
11
reduce its FHLB advances, the Company also utilized FHLB advances to fund the
purchase of loans. The Company may continue to use FHLB advances to fund the
purchase of residential mortgage loans, U.S. Treasury or other U.S. Government
agency securities with maturities of three years or less, or mortgage-backed
certificates.
Capital. The Company's and Banks' capital ratios significantly exceeded
applicable regulatory requirements at both December 31, 1996 and 1995.
Asset Quality. The Company's total nonperforming assets totaled $5.7
million, or .80% of assets, at December 31, 1996 compared to $2.9 million, or
.45% of assets, at December 31, 1995. Real estate owned ("REO") increased from
$1.8 million at December 31, 1995 to $2.8 million at December 31, 1996. REO at
December 31, 1996 included approximately $707,000 relating to a commercial
office building that was acquired by the Company in December, 1996 and sold in
February, 1997. Nonperforming loans increased from $1.0 million at December 31,
1995 to $2.8 million at December 31, 1996. This increase resulted primarily from
a $921,000 increase in permanent residential one- to four-family loans, a
$457,000 commercial real estate loan, and a $409,000 increase in commercial
business loans.
Comparison of Operating Results for the Years Ended December 31, 1996 and
December 31, 1995
General. The Company's pre-tax income increased to $5.4 million for the
year ended December 31, 1996 from $4.1 million for 1995. This increase was
attributable primarily to a $2,033,000 increase in net interest income, a
$950,000 increase in other income and a $320,000 decrease in the provision for
loan losses, the effect of which more than offset a $1,998,000 increase in other
expenses. Other expenses increased primarily as a result of the $2,340,000
pretax charge against earnings relating to the special assessment charged to the
Company in connection with the federal legislation to recapitalize the Savings
Association Insurance Fund ("SAIF") of the Federal Deposit Insurance
Corporation.
Net Interest Income. The Company's net interest income before provision for
loan losses increased by $2,033,000 for the year ended December 31, 1996, an
11.3% increase from 1995. This increase resulted from a $2,644,000 increase in
interest income, which exceeded a $611,000 increase in interest expense. The
increase in interest income was primarily attributable to an increase in the
average balance of loans and to an increase in the average balance and average
yield of the mortgage-backed certificate portfolio. Interest on the Company's
portfolio of mortgage-backed certificates increased by approximately $1.8
million from $11.4 million for the year ended December 31, 1995 to $13.2 million
for the comparable 1996 period. This increase resulted from both a $16.4 million
increase in the average balance of the portfolio and an increase in the average
yield of the portfolio from 6.30% in 1995 to 6.69% in 1996. The increase in the
average balance was a consequence of the Company's purchase of mortgage-backed
certificates in the latter part of 1995 and the first part of 1996 to increase
income of the Company. The increase in the yield on mortgage-backed certificates
occurred primarily as a result of the Company's December, 1995 sale of lower
yielding mortgage-backed certificates with five-year balloon provisions and the
replacement of those assets in December, 1995 and January, 1996 with
higher-yielding, adjustable-rate mortgage-backed certificates. The
mortgage-backed certificate portfolio at December 31, 1996 had a total amortized
cost of $176.2 million and had a weighted average yield of 6.85% for the month
of December, 1996. The portfolio was comprised of $18.0 million, or 10.2% of the
total portfolio, of mortgage-backed certificates with five- and seven-year
balloon provisions; $151.9 million, or 86.2% of the total portfolio, of
adjustable-rate mortgage-backed certificates; and $6.3 million, or 3.6% of the
total portfolio, of fixed-rate mortgage- backed certificates. The weighted
average yields for the month of December, 1996 for these three classifications
were 6.26%, 6.85%, and 8.42%, respectively.
12
Interest on loans increased by approximately $1.3 million from $28.9
million in the year ended 1995 to $30.2 million in 1996. This increase was
attributable to a $27.8 million increase in the average balance of loans, the
effect of which more than offset a decrease in the yield on the Company's loan
portfolio from 8.91% in 1995 to 8.59% in 1996. The increase in the average
balance of loans resulted from both an increase in originations and from the
purchase of residential loans discussed above. The weighted average yield on the
loan portfolio for the month of December, 1996 was 8.32%.
Interest on investment securities decreased $389,000 in 1996 compared to
1995. This decrease resulted from a $7.8 million decrease in the average balance
of the portfolio, the effect of which more than offset an increase in the yield
on the portfolio from 6.26% in 1995 to 6.44% in 1996.
The Company's interest expense increased by $611,000 primarily as a result
of an increase in interest on borrowings. Interest on borrowings totaled $8.8
million in the year ended December 31, 1996 compared to $8.1 million in 1995.
The average balance of FHLB advances increased by $26.4 million in 1996 compared
to 1995 as the Company continued to utilize FHLB advances to fund a portion of
its growth. The impact of the increase in average balances of FHLB advances was
partially offset by a decrease in the average cost of the advances from 6.16% in
1995 to 5.44% in 1996.
The Company's net interest margin increased from 3.07% for the year ended
December 31, 1995 to 3.22% for the year ended December 31, 1996. This increase
was the result of an increase in the Company's interest rate spread from 2.60%
in the year ended December 31, 1995 to 2.83% in the comparable 1996 period. The
increase in the Company's interest rate spread occurred because the Company's
overall yield on its interest- earning assets remained level at 7.73%, while the
overall cost of its interest-bearing liabilities decreased from 5.13% in 1995 to
4.90% in 1996. The Company's calculations of interest rate spread and net
interest rate margin include nonaccrual loans as interest-earning assets.
The Company's net interest margin and interest rate spread gradually
increased during 1996. For the three months ended December 31, 1996, the
Company's net interest margin was 3.30% and the interest rate spread was 2.91%.
Provision for Loan Losses. The Company's provision for loan losses
decreased from $697,000 in 1995 to $377,000 in 1996. The Company's 1996
provision for loan losses was positively impacted by a $288,000 recovery
received relating to one loan. Net chargeoffs totaled $267,000 in 1996 compared
to $790,000 in 1995. At December 31, 1996, the Company's total allowance for
loan losses was $3.8 million and nonperforming loans totaled $2.8 million,
resulting in a coverage ratio of 134.2%.
Other Income. Total other income increased from $2.9 million in 1995 to
$3.9 million in 1996. Deposit fees and merchant processing fees increased by
$401,000 and $236,000, respectively, in 1996 compared to 1995. Deposit fees
increased in 1996 as a result of additional transaction accounts, the addition
of seven ATMs and increases in the Company's deposit fee schedule. Merchant
processing fees increased in 1996 as the Company continued to experience
substantial growth in its merchant portfolio. Gains on the sale of individual
loans and servicing from mortgage operations increased by $85,000 in 1996
compared to 1995, primarily as a result of an increase in the volume of loans
sold. Also, the Company recognized a net gain of $77,000 on the sale of
securities in 1996 compared to a loss of $563,000 in 1995. The effect of these
items was partially offset by a $303,000 decrease in brokerage fees recognized
by CENIT Bank's commercial mortgage loan brokerage subsidiary.
Other Expenses. Total other expenses increased from $16.2 million in the
year ended December 31, 1995 to $18.2 million in 1996. Total other expenses for
1996 includes the $2.3 million SAIF special assessment and for 1995 includes
$757,000 of expenses relating to the Princess Anne merger. Exclusive of the SAIF
special assessment in 1996 and the merger expenses in 1995, total other expenses
were $15.8 million and $15.4 million, respectively. Salaries and employee
13
benefits increased by $293,000 in 1996 primarily as a result of overall
increases in wages and benefits and CENIT Bank's opening of two new Super Kmart
offices, one in November, 1995 and one in August, 1996. The impact of the
increase in wages and benefits was partially offset by a $141,000 net decrease
in commissions in 1996. Net occupancy expense of premises increased by $311,000
in 1996 primarily as a result of incremental costs associated with the opening
of three new offices and the relocation of two offices. Merchant processing
expenses increased by $209,000 in 1996 as a result of increased volume. The
impact of the increases in the above expenses was partially offset by a $334,000
decrease in expenses, gains/losses, and provision for losses on real estate
owned and a $202,000 decrease in professional fees in 1996.
Income Taxes. The Company's income tax expense for the year ended
December 31, 1996 was $1,821,000, which represents an effective tax rate of
33.5%. The Company's income tax expense for 1995 was $1,652,000, which
represented an effective tax rate of 40.0%. The effective tax rate was higher in
the 1995 period due to the nondeductibility of certain merger expenses.
Comparison of Operating Results for the Years Ended December 31, 1995 and
December 31, 1994
General. The Company's pre-tax income decreased to $4.1 million for the
year ended December 31, 1995 from $6.2 million for 1994. This decrease was
attributable primarily to a $1,772,000 increase in other expenses, including
$757,000 of merger expenses, a $279,000 decrease in net interest income, and a
$207,000 increase in the provision for loan losses, the effect of which more
than offset a $179,000 increase in other income.
Net Interest Income. The Company's net interest income before provision for
loan losses decreased by $279,000 for the year ended December 31, 1995 as
compared to that of the previous year. This decrease resulted from a $7,980,000
increase in interest expense, which exceeded a $7,701,000 increase in interest
income. The increase in interest expense was primarily attributable to an
increase in the average balance and average cost of certificates of deposit, and
to an increase in the average balance and average cost of FHLB advances.
Interest on deposits increased by approximately $4.0 million in the year
ended December 31, 1995 compared to 1994. This increase was primarily
attributable to an increase in the average cost of certificates of deposit from
4.48% in 1994 to 5.42% in 1995. The average balance of certificates of deposit
also increased by $27.5 million in 1995 compared to 1994. Overall, the Company's
cost of deposits increased from 3.94% in 1994 to 4.80% in 1995.
The Company's interest on borrowings increased to $8.1 million in the year
ended December 31, 1995 compared to $4.1 million in 1994. The average balance of
FHLB advances increased by $40.6 million in 1995 compared to 1994 as the Company
utilized FHLB advances to fund a portion of its growth. The impact of the
increase in average balances of FHLB advances, combined with an increase in the
average cost of the advances from 4.57% in 1994 to 6.16% in 1995, resulted in a
$3.9 million increase in interest expense on FHLB advances.
Interest on the Company's portfolio of mortgage-backed certificates
increased by approximately $2.2 million from $9.2 million for the year ended
December 31, 1994 to $11.4 million for the comparable 1995 period. This increase
resulted from both an $18.8 million increase in the average balance of the
portfolio and an increase in the average yield of the portfolio from 5.65% in
1994 to 6.30% in 1995. The increase in the average balance was a consequence of
the Company's purchase of mortgage-backed certificates to increase income of the
Company. The increase in the yield on mortgage-backed certificates occurred
because certificates backed by adjustable-rate mortgage loans ("ARMs") adjusted
to higher rates and because of the higher yields on the mortgage- backed
certificates purchased by the Company in 1994 and 1995.elds on the mortgage-
backed certificates purchased by the Company in 1994 and 1995.
The mortgage-backed certificate portfolio at December 31, 1995 had a total
amortized cost of $201.6 million and had a weighted average yield of
14
6.84%. The portfolio was comprised of $22.4 million, or 11.1% of the total
portfolio, of mortgage-backed certificates with five- and seven-year balloon
provisions; $171.6 million, or 85.1% of the total portfolio, of adjustable-rate
mortgage-backed certificates; and $7.6 million, or 3.8% of the total portfolio,
of fixed-rate mortgage- backed certificates. The weighted average yields at
December 31, 1995 for these three classifications were 6.33%, 6.84%, and 8.41%,
respectively.
Interest on loans increased by approximately $4.2 million from $24.7
million in the year ended 1994 to $28.9 million in 1995. This increase was
attributable to a $29.3 million increase in the average balance of loans and an
increase in the yield on the portfolio from 8.39% in 1994 to 8.91% in 1995. The
yield on the Company's loan portfolio in 1995 was positively affected by the
rise in interest rates in 1994 and in the first half of 1995.
Interest on investment securities increased by $974,000 in 1995 compared to
1994. This increase resulted from an $11.5 million increase in the average
balance of the portfolio and an increase in the yield on the portfolio from
5.78% in 1994 to 6.26% in 1995.
The Company's net interest margin decreased from 3.47% for the year ended
December 31, 1994 to 3.07% for the year ended December 31, 1995. This decrease
was the result of a decrease in the Company's interest rate spread from 3.10% in
the year ended December 31, 1994 to 2.60% in the comparable 1995 period. The
decrease in the Company's interest rate spread occurred primarily because of
rising interest rates and the overall growth of the Company. The Company's
calculations of interest rate spread and net interest rate margin include
nonaccrual loans as interest-earning assets.
The Company's net interest margin and interest rate spread gradually
decreased during 1995. For the three months ended December 31, 1995, the
Company's net interest margin was 2.96% and the interest rate spread was 2.46%.
Provision for Loan Losses. The Company's provision for loan losses
increased from $490,000 in 1994 to $697,000 in 1995. The Company's 1994
provision for loan losses was positively impacted by a $275,000 reduction in
specific allowances for loan losses relating to one loan. Net chargeoffs totaled
$790,000 in 1995 compared to $897,000 in 1994. Net chargeoffs in 1995 included
$157,000 relating to CENIT Bank's credit card and mobile home loan portfolios,
which were substantially sold in 1995. At December 31, 1995, the Company's total
allowance for loan losses was $3.7 million and nonperforming loans totaled $1.0
million, resulting in a coverage ratio of 359.5%.
Other Income. Total other income increased from $2.8 million in 1994 to
$2.9 million in 1995. The Company recognized a $563,000 loss on the sale of
securities in 1995, compared to a loss of $273,000 on the sale of securities and
the sale of the mobile home portfolio in 1994. However, gains on the sale of
individual loans and servicing from mortgage operations increased by $92,000 in
1995 compared to 1994 primarily as a result of the interest rate environment and
the improved capabilities of the Company's mortgage department. Also, increases
in brokerage fees recognized by CENIT Bank's commercial mortgage loan brokerage
subsidiary, increases in merchant processing income, and increases in gains on
the sale of miscellaneous assets more than offset decreases in deposit fee
income.
Other Expenses. Total other expenses increased from $14.4 million in the
year ended December 31, 1994 to $16.2 million in 1995. Expenses relating to the
merger with Princess Anne accounted for $757,000 of the increase. Salaries and
employees benefits increased by $553,000 in 1995, which included a $270,000
increase in commissions relating to mortgage operations and commercial mortgage
loan brokerage and a $134,000 increase in overtime and temporary staffing
expenses, a portion of which related to the Princess Anne merger. Equipment,
data processing, and supplies expense increased by $265,000 in 1995 primarily as
a result of increased supplies costs. Net occupancy expense of premises
increased by $261,000 in 1995 primarily as a result of general rent increases,
additional rent expense relating to CENIT Bank's Main Street office, and
15
increased costs resulting from CENIT Bank's opening of the Kiln Creek retail
banking and Peninsula mortgage lending center in the summer of 1995.
Income Taxes. The Company's income tax expense for the year ended
December 31, 1995 was $1,652,000, which represents an effective tax rate of
40.0%. The Company's income tax expense for 1994 was $2,226,000, which
represented an effective tax rate of 35.9%. The effective tax rate was higher in
the 1995 period due to the nondeductibility of certain merger expenses.
Liquidity
The Company's primary sources of funds are deposits, principal repayments
on loans and mortgage-backed certificates, FHLB advances, proceeds from
maturities of investment securities, short-term investments, and funds provided
by operations. While scheduled loan and mortgage-backed certificate amortization
and short-term investments are a relatively predictable source of funds, deposit
flows are greatly influenced by general interest rates, economic conditions, and
competition.
CENIT Bank is required to maintain specific levels of liquid investments.
Current regulations require CENIT Bank to maintain liquid assets, which include
short-term assets such as cash, certain time deposits and bankers' acceptances,
short-term U.S. Treasury obligations, and mortgage-backed certificates with
final maturities of five years or less, as well as certain long-term assets,
equal to not less than 5.0% of its net withdrawable accounts plus short-term
borrowings. CENIT Bank has generally maintained regulatory liquidity in excess
of its required levels. CENIT Bank's liquidity ratio was 9.5% and 9.6% at
December 31, 1996 and December 31, 1995, respectively. As a Virginia state
chartered bank, Princess Anne is not required by regulation to maintain specific
levels of liquid investments.
The Company anticipates that it will have sufficient funds available to
meet its current loan commitments. At December 31, 1996, the Company had
outstanding mortgage and nonmortgage loan commitments, including unused lines of
credit, of $30.3 million, outstanding commitments to purchase loans of $13.0
million, and outstanding commitments to sell mortgage loans of $2.4 million, if
such loans close.
Certificates of deposit that are scheduled to mature within one year
totaled $229.5 million at December 31, 1996. The Company believes that a
significant portion of the certificates of deposit maturing in this period will
remain with the Company. 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 Federal Home Loan Bank of
Atlanta. The Company could also obtain funds through the sale of investment
securities from its available for sale portfolio.
Interest Rate Risk Management
The primary goal of the Company's asset/liability management strategy is to
maximize its net interest income over time while keeping interest rate risk
exposure within levels established by the Company's management. The Company's
ability to manage its interest rate risk depends generally on the Company's
ability to match the maturities and repricing characteristics of its assets and
liabilities while taking into account the separate goals of maintaining asset
quality and achieving the desired level of net interest income. The principal
variables that affect the Company's management of its interest rate risk include
the Company's existing interest rate gap position, management's assessment of
future interest rates, the need for the Company to replace assets that may
prepay before their scheduled maturities, and the withdrawal of liabilities over
time.
The Company's purchase of adjustable-rate mortgage-backed certificates and
origination of other residential, construction, commercial real estate,
commercial business and consumer loans with adjustable rates, call or balloon
features or
16
shorter maturities has increased the Company's sensitivity to interest rate
changes. However, in order to generate fee income and to offer a complete range
of mortgage loan products to its customers, the Company continues to originate
long-term, fixed-rate mortgage loans primarily for sale in the secondary market.
The Company will consider holding certain longer-term, fixed-rate investments if
the yield on such investments is consistent with the Company's asset/liability
strategy. The Company will also consider holding other shorter-term, fixed-rate
investments such as U. S. Treasury and U. S. Government agency securities,
mortgage-backed certificates representing interests in balloon loans, and
15-year mortgage-backed certificates.
At December 31, 1996, the Company's one year "positive gap"
(interest-earning assets maturing within a period exceed interest-bearing
liabilities repricing within the same period) was approximately $12.3 million,
or 1.7% of total assets. Thus, during periods of rising interest rates, this
implies that the Company's net interest income would be positively affected
because the yield of the Company's interest-earning assets is likely to rise
more quickly than the cost on its interest-bearing liabilities. In periods of
falling interest rates, the opposite effect on net interest income is likely to
occur.
Certain shortcomings are inherent in any method of analysis used to
estimate an institution's one-year interest rate gap. For example, although
certain assets and liabilities may have similar maturities or periods to
repricing, they may react in different degrees to changes in market interest
rates. The interest rates on certain types of assets and liabilities also may
fluctuate in advance of changes in market interest rates, while interest rates
on other types may lag behind changes in market rates. The interest rates on
loans with balloon or call features may or may not change depending upon their
interest rates relative to market interest rates. Additionally, certain assets,
such as ARMs, have features that may restrict changes in interest rates on a
short-term basis and over the life of the asset.
The methodology used also estimates various rates of withdrawal (or
"decay") for money market deposit, savings, and checking accounts, which may
vary significantly from actual experience. The estimated decay rates used in the
following table are those rates last published by the Office of Thrift
Supervision in November, 1994.
The following table reflects certain assumptions regarding prepayment of
loans and mortgage-backed certificates that are outside of actual contractual
terms, and are based on the recent prepayment experience of the Company.
Additionally, loans and securities with call provisions are included in the
period in which they may first be called. Changes in the interest rate
environment can cause substantial changes in the level of prepayments of loans
and mortgage-backed certificates, which may also affect the Company's interest
rate gap position.
The following table sets forth the amounts of interest-earning assets and
interest- bearing liabilities outstanding at December 31, 1996 that are subject
to repricing or that mature in each of the future time periods shown. Except as
stated above, the amount of assets and liabilities shown that reprice or mature
during a particular period were determined in accordance with the contractual
terms of the asset or liability.
17
Interest Sensitivity Analysis
December 31, 1996
(Dollars in thousands)
Over Over
One Year Three
Total to Years or
0-3 4-6 7-12 Within Three Non-
Months Months Months One Year Years Sensitive Total
-------------------------------------------------------------------------------
Assets
Interest-earning assets:
Loans (1) $107,364 $ 40,446 $ 91,704 $ 239,514 $103,400 $ 82,599 $425,513
Securities available for sale:
U.S. Treasury securities 3,000 4,517 6,555 14,072 26,224 - 40,296
Other U.S. Government agency
securities 2,003 1,005 995 4,003 2,006 - 6,009
Mortgage-backed certificates 46,464 39,252 73,652 159,368 10,619 7,719 177,706
Federal funds sold and interest-
earning deposits 6,003 - - 6,003 - - 6,003
Federal Home Loan Bank and Federal
Reserve Bank stock - - - - - 7,861 7,861
-------------------------------------------------------------------------------
Total interest-earning assets $164,834 $ 85,220 $172,906 $ 422,960 $142,249 $ 98,179 $663,388
-------------------------------------------------------------------------------
Liabilities
Interest-bearing liabilities:
Interest-bearing deposits:
Passbook, statement savings
and checking accounts (2) 2,996 2,996 5,996 11,988 18,700 47,620 78,308
Money market deposit accounts 3,513 3,513 7,027 14,053 16,268 14,494 44,815
Certificates of deposits 81,159 55,681 92,689 229,529 68,501 31,658 329,688
-------------------------------------------------------------------------------
Total interest-bearing deposits 87,668 62,190 105,712 255,570 103,469 93,772 452,811
Advances from the Federal Home
Loan Bank 148,000 - - 148,000 - - 148,000
Securities sold under
agreements to repurchase 7,138 - - 7,138 - - 7,138
-------------------------------------------------------------------------------
Total interest-bearing liabilities $242,806 $ 62,190 $105,712 $ 410,708 $103,469 $ 93,772 $607,949
-------------------------------------------------------------------------------
Interest sensitivity gap $(77,972) $ 23,030 $ 67,194 $ 12,252 $ 38,780 $ 4,407 $ 55,439
-------------------------------------------------------------------------------
Cumulative interest sensitivity gap $(77,972) $(54,942) $ 12,252 $ 12,252 $ 51,032
-------------------------------------------------------
Cumulative interest sensitivity gap as a
percentage of total assets (11.0)% (7.8)% 1.7% 1.7% 7.2%
<FN>
- ------------
(1) Excludes nonaccrual loans of $2.4 million.
(2) Excludes $46.2 million of noninterest-bearing deposits.
</FN>
Impact of Inflation and Changing Prices
The Consolidated Financial Statements and Notes presented herein have been
prepared in accordance with generally accepted accounting principles, which
generally require the mea- surement of financial position and operating results
in terms of historical dollars without considering the changes in the relative
purchasing power of money over time due to inflation. The impact of inflation is
reflec- ted in the increased cost of the Company's operations. Unlike most
industrial companies, nearly all of the assets and liabilities of the Company
are monetary. As a result, interest rates have a greater impact on the Company's
performance than do the effects of general levels of inflation.
18
Consolidated Statement of Financial Condition
(Dollars in thousands, except per share data)
December 31,
1996 1995
---- ----
Assets
Cash $ 17,475 $ 12,966
Federal funds sold and interest-earning deposits 6,003 7,439
Securities available for sale at fair value (adjusted
cost of $222,367 and $265,862, respectively) 224,011 268,294
Loans, net:
Held for investment 422,219 319,194
Held for sale 1,900 2,982
Interest receivable 5,456 5,291
Real estate owned, net 2,769 1,828
Federal Home Loan Bank and Federal
Reserve Bank stock, at cost 7,861 7,029
Property and equipment, net 12,664 11,272
Goodwill and other intangibles, net 4,381 1,777
Other assets 2,361 1,740
---------------------------
Total assets $ 707,100 $ 639,812
===========================
Liabilities and Stockholders' Equity
Liabilities:
Deposits:
Noninterest-bearing $ 46,154 $ 38,664
Interest-bearing 452,811 411,866
---------------------------
Total deposits 498,965 450,530
Advances from the Federal Home Loan Bank 148,000 133,000
Other borrowings -- 300
Securities sold under agreements to repurchase 7,138 4,871
Advance payments by borrowers for taxes and insurance 631 661
Other liabilities 2,758 3,721
---------------------------
Total liabilities 657,492 593,083
===========================
Commitments (Note 18)
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 1,635,044 and
1,596,675, respectively 16 16
Additional paid-in capital 17,670 16,903
Retained earnings - substantially restricted 31,040 28,641
Common stock acquired by Employees Stock
Ownership Plan (ESOP) -- (300)
Common stock acquired by Management
Recognition Plan (MRP) (181) (142)
Net unrealized gain on securities available for
sale, net of income taxes 1,063 1,611
---------------------------
Total stockholders' equity 49,608 46,729
---------------------------
$ 707,100 $ 639,812
===========================
The notes to consolidated financial statements are an integral part of this
statement.
19
Consolidated Statement of Operations
(Dollars in thousands, except per share data)
Year Ended December 31,
1996 1995 1994
---- ---- ----
Interest and fees on loans $ 30,243 $ 28,907 $ 24,747
Interest on mortgage-backed certificates 13,224 11,406 9,169
Interest on investment securities 3,657 4,046 3,072
Dividends and other interest income 1,047 1,168 838
-------------------------------------------
Total interest income 48,171 45,527 37,826
-------------------------------------------
Interest on deposits 19,240 19,382 15,395
Interest on borrowings 8,847 8,094 4,101
-------------------------------------------
Total interest expense 28,087 27,476 19,496
-------------------------------------------
Net interest income 20,084 18,051 18,330
Provision for loan losses 377 697 490
-------------------------------------------
Net interest income after provision for loan losses 19,707 17,354 17,840
-------------------------------------------
Other income:
Gains (losses) on sales of:
Securities, net 77 (563) (68)
Loans, net 629 544 247
Loan servicing fees and late charges 353 441 541
Other 2,835 2,522 2,045
-------------------------------------------
Total other income 3,894 2,944 2,765
-------------------------------------------
Other expenses:
Salaries and employee benefits 7,762 7,469 6,916
Equipment, data processing, and supplies 2,529 2,512 2,247
Federal deposit insurance premiums,
including
one-time SAIF special assessment of $2,340
in 1996 3,187 893 987
Merger expenses -- 757 --
Other 4,694 4,543 4,252
-------------------------------------------
Total other expenses 18,172 16,174 14,402
-------------------------------------------
Income before income taxes 5,429 4,124 6,203
Provision for income taxes 1,821 1,652 2,226
-------------------------------------------
Net income $ 3,608 $ 2,472 $ 3,977
-------------------------------------------
Net income per common and common
equivalent share $ 2.14 $ 1.48 $ 2.44
-------------------------------------------
Dividends per common share $ .75 $ .40 $ .36
-------------------------------------------
The notes to consolidated financial statements are an integral part of this
statement.
20
Consolidated Statement of Changes in Stockholders' Equity
(Dollars in thousands)
Common Net Unrealized
Stock Gain (Loss) On
Common Common Additional Acquired Securities
Stock Stock Paid-In Retained by ESOP Available
Shares Amount Capital Earnings and MRP For Sale Total
------------------------------------------------------------------------------------------
Balance, December 31, 1993 1,566,409 $ 16 $ 16,296 $ 23,180 $ (832) $1,150 $ 39,810
Net income -- -- -- 3,977 -- -- 3,977
Cash dividends paid, net of
tax benefits relating to
dividends paid on unallo-
cated shares held by ESOP -- -- -- (437) -- -- (437)
Principal payments on ESOP
loan -- -- -- -- 100 -- 100
Exercise of stock warrants 17,186 -- 256 -- -- -- 256
Net change in unrealized gain
(loss) on securities available
for sale, net of income taxes -- -- -- -- -- (1,539) (1,539)
Other -- -- 36 -- 14 -- 50
------------------------------------------------------------------------------------------
Balance, December 31, 1994 1,583,595 16 16,588 26,720 (718) (389) 42,217
Net income -- -- -- 2,472 -- -- 2,472
Cash dividends paid, net of
tax benefits relating to
dividends paid on
unallocated shares held
by ESOP -- -- -- (523) -- -- (523)
Principal payments on ESOP
loan -- -- -- -- 300 -- 300
Exercise of stock options,
stock warrants, and related
tax benefits 13,783 -- 276 -- -- -- 276
Net unrealized gain on
securities transferred on
November 30, 1995 to
available for sale, net of
income taxes -- -- -- -- -- 103 103
Net change in unrealized gain
(loss) on securities available
for sale, net of income taxes -- -- -- -- -- 1,897 1,897
Other (703) -- 39 (28) (24) -- (13)
------------------------------------------------------------------------------------------
Balance, December 31, 1995 1,596,675 16 16,903 28,641 (442) 1,611 46,729
Net income -- -- -- 3,608 -- -- 3,608
Cash dividends paid, net of
tax benefits relating to divi-
dends paid on unallocated
shares held by ESOP -- -- -- (1,209) -- -- (1,209)
Principal payments on ESOP
loan -- -- -- -- 300 -- 300
Exercise of stock options,
stock warrants, and related
tax benefits 38,369 -- 767 -- -- -- 767
Net change in unrealized gain
(loss) on securities available
for sale, net of income taxes -- -- -- -- -- (548) (548)
Other -- -- -- -- (39) -- (39)
------------------------------------------------------------------------------------------
Balance, December 31, 1996 1,635,044 $ 16 $ 17,670 $ 31,040 $ (181) $1,063 $ 49,608
------------------------------------------------------------------------------------------
The notes to consolidated financial statements are an integral part of this
statement.
21
Consolidated Statement of Cash Flows
(Dollars in thousands)
Year Ended December 31,
1996 1995 1994
-------------------------------
Cash flows from operating activities:
Net income $ 3,608 $ 2,472 $ 3,977
Add (deduct) items not affecting cash during the year:
Provision for loan losses 377 697 490
Provision for losses on real estate owned 136 199 274
Amortization of loan yield adjustments (98) (227) (30)
Federal Home Loan Bank stock dividends - - (58)
Depreciation, amortization and accretion, net 2,481 1,617 1,434
Net (gains) losses on sales/disposals of:
Securities (77) 563 68
Loans (629) (544) (247)
Real estate, property and equipment 160 (244) 215
Proceeds from sales of loans held for sale 46,685 37,848 31,442
Originations of loans held for sale (45,003) (33,424) (26,929)
Change in assets/liabilities net of
effects from acquisition:
Increase in interest receivable and other assets (3,689) (772) (477)
Increase (decrease) in other liabilities (532) (410) 1,113
---- ---- -----
Net cash provided by operating activities 3,419 7,775 11,272
----- ----- ------
Cash flows from investing activities:
Purchases of securities available for sale (67,906) (103,420) (32,708)
Purchases of securities held to maturity - (53,321) (88,066)
Proceeds from sales of securities available for sale 14,792 68,689 56,357
Principal repayments on securities available for sale 66,519 8,499 476
Principal repayments on securities held to maturity - 24,020 32,820
Proceeds from maturities and calls
of securities available for sale 29,160 10,000 2,500
Proceeds from maturities of securities held to maturity - - 9,000
Net increase in loans held for investment (105,602) (10,517) (14,857)
Net proceeds on sales of real estate owned 1,837 828 116
Additions to real estate owned (398) (727) (2,081)
Purchases of Federal Home Loan Bank
stock and Federal Reserve Bank stock (7,942) (5,191) (5,198)
Redemption of Federal Home Loan Bank stock 7,110 3,900 4,635
Purchases of property and equipment (2,662) (2,620) (1,567)
Proceeds from sales of property and equipment - 389 -
Payments to acquire business, net of cash received - - (4,674)
------ ------ ------
Net cash used for investing activities (65,092) (59,471) (43,247)
------- ------- -------
Cash flows from financing activities:
Proceeds from exercise of stock options and warrants 583 196 256
Net increase (decrease) in deposits 48,435 30,108 (34,092)
Proceeds from Federal Home Loan Bank advances 1,918,000 1,247,000 371,400
Repayment of Federal Home Loan Bank advances (1,903,000) (1,221,000) (324,149)
Net increase in securities sold under agreement
to repurchase and federal funds purchased 2,267 3,436 975
Cash dividends paid (1,215) (531) (445)
Other, net (324) (468) (49)
---- ---- ---
Net cash provided by financing activities 64,746 58,741 13,896
------ ------ ------
Increase (decrease) in cash and cash equivalents 3,073 7,045 (18,079)
Cash and cash equivalents, beginning of year 20,405 13,360 31,439
------ ------ ------
Cash and cash equivalents, end of year $ 23,478 $ 20,405 $ 13,360
========== ============ =========
Supplemental disclosures of cash flow information:
Cash paid during the year for interest $ 11,883 $ 15,082 $ 8,612
Cash paid during the year for income taxes 1,595 1,691 2,140
Schedule of noncash investing and financing activities:
Real estate acquired in settlement of loans 3,920 3,055 3,611
Loans to facilitate sale of real estate owned 1,622 3,486 3,281
The notes to consolidated financial statements are an integral part of this
statement.
22
Notes To Consolidated Financial Statements
Note 1
Summary of Significant Accounting Policies
CENIT Bancorp, Inc. (the "Holding Company" or the "Company") is a Delaware
corporation that owns CENIT Bank, FSB ("CENIT Bank"), a federally chartered
stock savings bank, and Princess Anne Bank ("Princess Anne"), a Virginia
commercial bank. See Note 2 for a discussion of the business combination between
the Company and Princess Anne.
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and that affect the reported amounts of income and expenses during
the reporting period. Actual results could differ from those estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company,
its two wholly-owned subsidiaries, CENIT Bank, FSB, and Princess Anne Bank (the
"Banks"), and CENIT Bank's wholly-owned subsidiaries. All significant
intercompany balances and transactions have been eliminated.
Investment Securities
On December 31, 1993, the Company adopted Statement of Financial Accounting
Standards No. 115 (FAS 115), "Accounting for Certain Investments in Debt and
Equity Securities." FAS 115 requires that certain securities be classified into
one of three categories: held to maturity, available for sale, or trading.
Securities classified as held to maturity are carried at amortized cost;
securities classified as available for sale are carried at their fair value with
the amount of unrealized gains and losses, net of income taxes, reported as a
separate component of stockholders' equity; and securities classified as trading
are carried at fair value with the unrealized gains and losses included in
earnings.
In November 1995, The Financial Accounting Standards Board issued "A Guide
to Implementation of FAS 115 - Questions and Answers." This guide allowed
entities such as the Company a one-time opportunity to reassess the
appropriateness of the classifications of securities held in their investment
portfolios. As described in Note 4 , on November 30, 1995, the Company
transferred U. S. Government agency securities and mortgage-backed certificates
from held to maturity to available for sale.
Premium amortization and discount accretion are included in interest income
and are calculated using the interest method over the period to maturity of the
related asset. The adjusted cost of specific securities sold is used to compute
realized gain or loss on sale. The gain or loss realized on sale is recognized
on the trade date.
Loans
Loans held for investment are carried at their outstanding principal bal
ance. Unearned discounts, premiums, deferred loan fees, and the allowance for
loan losses are treated as adjustments of loans in the consolidated statement of
financial condition.
Effective January 1, 1995, the Company adopted Statement of Financial
Accounting Standards No. 114 (FAS 114), "Accounting by Creditors for Impairment
of a Loan," and Statement of Financial Accounting Standards No. 118 (FAS 118),
"Accounting by Creditors for Impairment of a Loan - Income Recognition and
Disclosures." These statements require creditors to account for impaired loans,
except for those loans that are accounted for at fair value or at the lower of
cost or fair value, at the present value of the expected future cash flows
discounted at the loan's effective interest rate, or the fair value of the
collateral if the loan is collateral dependent. A loan is impaired when, based
on current information and events, it is probable that a creditor will be unable
to collect all principal and interest amounts due according to the contractual
terms of the loan agreement.agreement.
23
In connection with the Company's adoption of these standards, loans
previously classified as insubstance foreclosures and included in Real Estate
Owned ("REO") were reclassified to loans held for investment. At January 1,
1995, such amounts totaled $3.4 million.
At December 31, 1996 and 1995, approximately seventy-four percent and
eighty-five percent, respectively, of the principal balance of the Banks' real
estate loans were to residents of or secured by properties located in Virginia.
This geographic concentration is also considered in management's establishment
of loan loss reserves.
Interest on loans is credited to income as earned. Interest receivable is
accrued only if deemed collectible. Generally, interest is not accrued on loans
over ninety days past due. Uncollectible interest on loans that are
contractually past due is charged-off or an allowance is established based on
management's periodic evaluation. The allowance is established by a charge to
interest income equal to all interest previously accrued, and income is
subsequently recognized only to the extent that cash payments are received
until, in management's judgment, the borrower has reestablished the ability to
make periodic interest and principal payments, in which case the loan is
returned to accrual status. Interest income is recognized on loans which are
ninety days or more past due only if management considers the principal and
interest balance to be fully collectible. Loan origination and commitment fees
and certain direct loan origination costs are deferred and amortized as an
adjustment of yield over the contractual life of the related loan. The
unamortized portion of net deferred fees is recognized in income if loans prepay
or if commitments expire unfunded. The amortization of net fees or costs is
included in interest and fees on loans in the consolidated statement of
operations.
Loans held for sale are carried at the lower of cost or market on an
aggregate basis. Loan fees collected and direct origination costs incurred with
respect to loans held for sale are deferred as an adjustment of the carrying
value of the loans and are included in the determination of gain or loss on
sale.
Allowance for Loan Losses
The allowance for loan losses represents management's estimate of an amount
adequate to absorb potential losses on loans that may become uncollectible.
Factors considered in the establishment of the allowance for loan losses include
management's evaluation of specific loans, the level and composition of
classified loans, historical loss experience, expectations of future economic
conditions, concentrations of credit and other judgmental factors. The allowance
for loan losses is increased by charges to income and decreased by charge-offs,
net of recoveries. Actual future losses may differ from estimates as a result of
unforeseen events.
Real Estate Owned
Real estate acquired in settlement of loans is recorded at the lower of the
unpaid loan balance or estimated fair value less estimated costs of sale at the
date of foreclosure. Subsequent valuations are periodically performed and
valuation allowances are established if the carrying value of the real estate
exceeds estimated fair value less estimated costs of sale. Costs related to
development and improvement of real estate are capitalized. Net costs related to
holding assets are expensed.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and
amortization. Major renewals or betterments are capitalized and depreciated over
their estimated useful lives. Repairs and maintenance are charged to expense in
the year incurred. Depreciation and amortization are computed principally on the
straight-line basis over the estimated useful lives of the related assets.
Goodwill and other intangibles
Goodwill resulted from a 1994 merger of Homestead Savings Bank, FSB
("Homestead") into CENIT Bank and from a 1996 acquisition of deposits from Essex
Savings Bank, FSB ("Essex") by CENIT Bank. Goodwill represents the excess of
cost over the fair value of net assets acquired and is amortized on a
straight-line basis over 15 years. In connection with the acquisition of
deposits from Essex, CENIT Bank also recorded a core deposit intangible. The
core deposit intangible represents the estimated fair value of certain customer
relationships acquired and is amortized on an accelerated basis over 10 years.
24
Long-Lived Assets
Long-lived assets to be held and those to be disposed of and certain other
intangibles are evaluated for impairment using the guidance of Statement of
Financial Accounting Standards No. 121 (FAS 121), 'Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," which was
adopted by the Company on January 1, 1996. FAS 121 establishes when an
impairment loss should be recognized and how an impairment loss should be
measured. The adoption of FAS 121 did not have a significant impact on the
financial statements of the Company.
Deposits
Interest on deposits is accrued and compounded according to the contractual
term of the deposit account and either paid to the depositor or added to the
deposit account. On term accounts, the forfeiture of interest (because of
withdrawal prior to maturity) is offset as of the date of withdrawal against
interest expense.
Securities Sold Under Agreements to Repurchase
The Banks enter into sales of securities under agreements to repurchase
(reverse repurchase agreements). Fixed-coupon reverse repurchase agreements are
treated as financing transactions, and the obligations to repurchase securities
sold are reflected as liabilities in the statement of financial condition. The
securities underlying the agreements continue to be recorded as assets.
Income Taxes
The provision for income taxes is based upon income taxes estimated to be
currently payable and certain changes in deferred income tax assets and
liabilities. The deferred tax assets and liabilities relate principally to the
use of different reporting methods for bad debts, depreciation, and Federal Home
Loan Bank stock dividends.
Statement of Cash Flows
For purposes of the statement of cash flows, the Company considers cash,
federal funds sold and other overnight interest-bearing deposits to be cash and
cash equivalents.
Earnings and Dividends Per Share
Earnings per share for years ended December 31, 1996, 1995 and 1994 were
determined by dividing net income for the respective year by 1,688,556 shares,
1,676,057 shares, and 1,630,301 shares, respectively, the weighted average
number of shares of common stock and common stock equivalents outstanding during
the year. Stock options and warrants are regarded as common stock equivalents
and are therefore considered in earnings per share calculations, if dilutive.
Common stock equivalents are computed using the treasury stock method. There is
no material difference between primary and fully-diluted earnings per share.
Dividends per share were determined by dividing historical dividends declared by
the Company by historical common shares outstanding of the Company, without
adjustment for the shares issued in connection with the Princess Anne merger.
Princess Anne declared no dividends in 1995 and 1994.
Comparative Financial Statements
The financial statements for 1994 and 1995 have been reclassified to
conform to the 1996 presentation. Such reclassifications had no impact on
previously reported net income.
25
Note 2
Business Combinations
Princess Anne Bank
On August 1, 1995, the Company and Princess Anne Bank became affiliated
pursuant to a definitive agreement entered into in November 1994. The
transactions contemplated by the Agreement and Plan of Reorganization were
approved by the shareholders of both the Company and Princess Anne at special
meetings held on July 26, 1995. Under the terms of the agreement, Princess
Anne's shareholders received 0.3364 shares of CENIT Bancorp common stock for
each share of Princess Anne common stock. This resulted in the issuance of
353,779 shares of CENIT Bancorp common stock. This combination was accounted for
as a pooling of interests. In connection with this transaction, merger expenses
totaling $757,000 were recognized in 1995.
As part of this transaction, effective August 1, 1995, Princess Anne began
operating as a wholly-owned subsidiary of the Company. At August 1, 1995,
Princess Anne reported total assets of $94.1 million and stockholders' equity of
$6.9 million. Effective November 1, 1995, CENIT Bank's three Virginia Beach
branch offices, with total deposits of $80.6 million on that date, were
transferred to Princess Anne. As a result, subsequent to the transfer, Princess
Anne has six branch offices in Virginia Beach.
The following summarizes the separate historical results of operations for
CENIT Bancorp and Princess Anne for periods prior to the merger, during which
time there were no intercompany transactions (in thousands):
CENIT Princess
Bancorp Anne Combined
------- -------- --------
Six months ended June 30, 1995:
(Unaudited)
Net interest income $ 7,092 $ 1,938 $ 9,030
Net income 1,283 492 1,775
Year ended December 31, 1994:
Net interest income 14,723 3,607 18,330
Net income 3,116 861 3,977
CENIT Bancorp's total stockholders' equity increased from $36.2 million at
December 31, 1994 to approximately $38.0 million at June 30, 1995. This increase
resulted primarily from $1,283,000 of net income during the period and a
$517,000 change in the net unrealized gain (loss) on securities available for
sale, net of income taxes. Princess Anne's total stockholders' equity increased
from approximately $6.0 million at December 31, 1994 to approximately $6.8
million at June 30, 1995. This increase resulted primarily from $492,000 of net
income during the period, a $259,000 change in the net unrealized gain (loss) on
securities available for sale, net of income taxes, and $82,000 of proceeds on
the exercise of stock options and warrants.
Homestead Savings Bank
On April 1, 1994, CENIT Bank and Homestead merged pursuant to a definitive
agreement entered into on October 21, 1993. This merger was accounted for by the
purchase method of accounting. Each of the 333,794 shares of Homestead common
stock issued and outstanding was converted into the right to receive $17.08 in
cash, amounting to a total purchase price of $5.7 million. The cash required for
the purchase was obtained by CENIT Bank pursuant to an advance made to CENIT
Bank by the Federal Home Loan Bank of Atlanta.
At March 31, 1994, Homestead had total assets of approximately $53.9
million and deposits of approximately $47.1 million. Homestead had two branch
offices and a mortgage origination office in the Western Branch area of
Chesapeake, Virginia, and one branch office in Portsmouth, Virginia. When
Homestead was merged into CENIT Bank, these offices became part of CENIT Bank.
Additionally, on April 1, 1994, CENIT Bank's previous retail office in
Portsmouth, Virginia was consolidated into Homestead's retail office in that
city because of the proximity of the two locations.
As part of the Homestead merger, assets with a total fair value of $53.7
million were acquired, liabilities with a total fair value of $50.0 million were
assumed, and goodwill of $2.0 million was recorded. Amortization of goodwill
totaled $134,000 in both 1996 and 1995, resulting in a remaining balance of
$1,642,000 and $1,776,000 at December 31, 1996 and 1995, respectively.
26
The following unaudited pro forma financial information for the year ended
December 31, 1994 is presented for informational purposes only. This information
assumes the Homestead merger was consummated on January 1, 1994 and is not
necessarily indicative of the combined results of operations which would
actually have occurred had the transaction been consummated on that date or
which may be obtained in the future. This financial information includes the
actual separate operating results of the Company and Homestead through March 31,
1994, the financial impact of all pro forma adjustments through March 31, 1994,
and the actual combined operating results of the Company for the period April 1,
1994 through December 31, 1994. Dollars are in thousands, except per share data.
Unaudited Pro Forma
Results of Operations
Year Ended December 31, 1994
Total interest income $ 38,788
Net interest income 18,811
Provision for loan losses 500
Other income 2,846
Other expenses 14,761
Provision for income taxes 2,308
Net income 4,088
Earnings per share 2.51
Note 3
Acquisition of deposits
On September 26, 1996 and November 7, 1996, CENIT Bank assumed the deposits
of five Essex Savings Bank, FSB ("Essex") branches pursuant to a Branch Purchase
and Deposit Assumption Agreement dated July 2, 1996. As part of these
transactions, CENIT Bank assumed approximately $68.1 million of deposits,
acquired certain other assets and liabilities, and received approximately $65.5
million of cash. CENIT Bank used the majority of the cash proceeds received in
connection with the deposit assumptions to reduce its Federal Home Loan Bank
(FHLB) advances.
CENIT Bank still operates the former Essex offices located in Downtown
Hampton, Virginia and in the Denbigh area of Newport News, Virginia. The
deposits associated with Essex's Norfolk and Portsmouth, Virginia offices were
consolidated into existing CENIT Bank retail offices in those neighborhoods, and
the deposits associated with Essex's Grafton, Virginia office were consolidated
into CENIT Bank's existing Kiln Creek office located in York County, Virginia.
In connection with these transactions, CENIT Bank recorded total intangible
assets of approximately $2.8 million. Goodwill totaled approximately $2,341,000
and the core deposit intangible totaled approximately $458,000. Amortization of
goodwill and the core deposit intangible in 1996 totaled $39,000 and $21,000,
respectively, resulting in remaining balances of approximately $2,302,000 and
$437,000, respectively, at December 31, 1996.
27
Note 4
Securities Available for Sale
Securities available for sale are as follows (in thousands):
December 31,
1996 1995
----------------------------------------------- ------------------------------------------------
Gross Gross Gross Gross
Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair
Cost Gains Losses Value Cost Gains Losses Value
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
U.S. Treasury securities $ 40,178 $ 181 $ (63) $ 40,296 $ 49,330 $ 782 $ (12) $ 50,100
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Other U. S. Government
agency securities 6,000 14 (5) 6,009 14,960 60 (2) 15,018
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Mortgage-backed certificates:
Federal Home Loan
Mortgage Corporation
participation certificates 162,890 1,302 (139) 164,053 178,789 1,251 (186) 179,854
Federal National Mortgage
Association pass-through
certificates 9,867 250 (4) 10,113 18,522 356 (4) 18,874
Government National
Mortgage Association
pass-through certificates 3,432 108 -- 3,540 4,261 187 -- 4,448
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Total mortgage-backed
certificates 176,189 1,660 (143) 177,706 201,572 1,794 (190) 203,176
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
$ 222,367 $ 1,855 $ (211) $ 224,011 $ 265,862 $ 2,636 $ (204) $ 268,294
=========== =========== ========== =========== =========== =========== ========== ===========
As described in Note 1, on November 30, 1995, the Company transferred U. S.
Government agency securities with a total book value of $13,065,000 and
mortgage-backed certificates with a total book value of $211,001,000 from held
to maturity to available for sale. At the time of transfer, the U. S. Government
Agency securities had a total fair value of $12,962,000 and the mortgage-backed
certificates had a total fair value of $211,498,000.
During 1996, the Company recognized gross gains of $140,000 and gross
losses of $63,000 on the sale of available for sale securities. During 1995, the
Company recognized gross losses of $563,000 on the sale of available for sale
securities.
The amortized cost and fair value of securities available for sale at
December 31, 1996 are shown below by contractual maturity (in thousands):
Amortized Fair
Cost Value
---- -----
Due in one year or less $ 14,010 $ 14,072
Due after 1 year through 5 years 32,168 32,233
Mortgage-backed certificates 176,189 177,706
---------- -----------
$ 222,367 $ 224,011
========== ===========
At December 31, 1996, the Company's amortized cost of its investment in
mortgage-backed certificates available for sale includes $24,266,000 at fixed
rates, including $7,662,000 and $10,319,000 with five- and seven-year balloon
provisions, respectively, and $151,923,000 at variable rates.
28
Note 5
Loans
Loans held for investment consist of the following (in thousands):
December 31,
1996 1995
---- ----
First mortgage loans:
Single family $ 263,498 $ 153,417
Multi-family 7,100 9,343
Construction:
Residential 52,662 55,861
Nonresidential 3,365 50
Commercial real estate 58,314 63,044
Consumer lots 5,396 5,646
Acquisition and development 16,010 14,961
Equity and second mortgage 29,578 20,811
Purchased mobile home 137 206
Boat 7,814 9,766
Other consumer 6,606 5,211
Commercial business 17,922 19,259
------ ------
468,402 357,575
Undisbursed portion of construction
and acquisition and development loans (42,309) (34,728)
Allowance for loan losses (3,806) (3,696)
Unearned discounts, premiums, and loan
fees, net (68) 43
--------- ---------
$ 422,219 $ 319,194
========= =========
At December 31, 1996, the Company's gross loan portfolio contains
$186,449,000 of adjustable-rate mortgage loans and $68,465,000 of loans which
are callable or balloon at various dates over the next seven years. Prime- based
loans, net of the undisbursed portion of construction and acquisition and
development loans, totaled $70,655,000 at December 31, 1996.
29
Nonaccrual loans are as follows (in thousands):
December 31,
1996 1995 1994
---- ---- ----
Single family $1,172 $ 527 $ 452
Multi-family - - 90
Construction - - 53
Commercial real estate 457 - 139
Land acquisition 200 200 527
Purchased mobile home 83 134 310
Other consumer 17 3 -
Commercial business 483 70 68
------ ------ ------
$2,412 $ 934 $1,639
====== ====== ======
Interest income that would have been recorded under the contractual terms
of such nonaccrual loans and the interest income actually recognized are
summarized as follows (in thousands):
Year Ended December 31,
1996 1995 1994
---- ---- ----
Interest income based on contractual
terms $252 $ 80 $168
Interest income recognized 114 33 65
---- ---- ----
Interest income foregone $138 $ 47 $103
==== ==== ====
Changes in the allowance for loan losses are as follows (in thousands):
Year Ended December 31,
1996 1995 1994
---- ---- ----
Balance at beginning of year $ 3,696 $ 3,789 $ 4,039
Provision for loan losses 377 697 490
Losses charged to allowance (738) (995) (1,024)
Recovery of prior losses 471 205 127
Allowance for loans acquired - - 157
------- ------- -------
Balance at end of year $ 3,806 $ 3,696 $ 3,789
======= ======= =======
Impaired loans at December 31, 1996 and 1995 were not significant.
Loans serviced for others approximate $17,740,000 at December 31, 1996,
$20,284,000 at December 31, 1995, and $23,598,000 at December 31, 1994.
30
Note 6
Interest Receivable
The components of interest receivable are as follows (in thousands):
December 31,
1996 1995
---- ----
Interest on loans $ 2,808 $ 2,265
Interest on mortgage-backed certificates 1,962 1,716
Interest on investments and interest-bearing
deposits 907 1,431
------- -------
5,677 5,412
Less: Allowance for uncollected interest (221) (121)
------- -------
$ 5,456 $ 5,291
======= =======
Note 7
Real Estate Owned
Real estate owned is as follows (in thousands):
December 31,
1996 1995
---- ----
Residential:
Single family $ 2,165 $ 1,074
Multi-family - 717
Land 97 198
Commercial real estate 707 -
------ ------
2,969 1,989
Less: Valuation allowance (200) (161)
------- -------
$ 2,769 $ 1,828
======= =======
Changes in the valuation allowance for real estate owned are as follows (in
thousands):
Year Ended December 31,
1996 1995 1994
---- ---- ----
Balance at beginning of year $ 161 $ 192 $ 226
Provision for losses 136 199 274
Losses charged to allowance (97) (230) (308)
----- ----- -----
Balance at end of year $ 200 $ 161 $ 192
===== ===== =====
The provision for losses on real estate owned is included in other expense
in the accompanying consolidated statement of operations.
31
Note 8
Federal Home Loan Bank and Federal Reserve Bank Stock
Investment in the stock of the Federal Home Loan Bank (FHLB) is required by
law for federally insured savings associations such as CENIT Bank. Princess Anne
has also invested in FHLB stock as a requisite for membership in the FHLB. No
ready market exists for the stock and it has no quoted market value. The FHLB is
required under the Financial Institutions Reform, Recovery and Enforcement Act
of 1989 ("FIRREA") to use its future earnings in various government-mandated
programs including low to moderate income housing. These programs and other uses
of the FHLB's future earnings could impair its ability to pay dividends to the
Company on this investment.
Investment in the stock of the Federal Reserve Bank is required by law for
insured institutions such as Princess Anne. No ready market exists for the stock
and it has no quoted market value.
Note 9
Property and Equipment
Property and equipment consist of the following (in thousands):
December 31,
1996 1995
---- ----
Buildings and improvements $ 10,686 $ 9,556
Furniture and equipment 8,457 7,567
----- -----
19,143 17,123
Less: Accumulated depreciation and
amortization (9,294) (8,560)
------ ------
9,849 8,563
Land 2,815 2,709
----- -----
$ 12,664 $ 11,272
======== ========
Depreciation and amortization expense is $1,037,000, $1,061,000, and
$988,000 for the years ended December 31, 1996, 1995 and 1994, respectively.
32
Note 10
Deposits
Deposit balances by type and range of interest rates at December 31, 1996
and 1995 are as follows (in thousands):
December 31,
1996 1995
Noninterest-bearing:
Commercial checking $ 40,130 $ 33,372
Personal checking 6,024 5,292
----- -----
Total noninterest-bearing deposits 46,154 38,664
------ ------
Interest-bearing:
Passbook (interest rates of 3.01% at 1996 and
1995) 21,175 21,258
Checking accounts (interest rates of 2.24% at
1996 and 2.81% at 1995) 30,266 29,783
90-day passbook and statement savings
(interest rates of 3.68% at 1996 and 3.89%
at 1995) 26,867 24,175
Money market deposits (interest rates of
3.25% at 1996 and 3.44% at 1995) 44,815 42,233
Certificates:
3.99% or less 451 644
4.00% to 4.99% 100,302 51,320
5.00% to 5.99% 179,399 133,573
6.00% to 6.99% 37,244 94,235
7.00% to 7.99% 10,280 14,010
8.00% to 8.99% 775 480
9.00% to 9.99% 1,237 155
------- -------
Total certificates 329,688 294,417
------- -------
Total interest-bearing deposits 452,811 411,866
------- -------
Total deposits $498,965 $450,530
======== ========
Certificates in denominations greater than $100,000 aggregated $23,967,000
and $22,923,000 at December 31, 1996 and 1995, respectively. The weighted
average cost of deposits approximates 4.70% and 4.80% for the years ended
December 31, 1996 and 1995, respectively.
33
The following is a summary of interest expense on deposits (in thousands):
Year Ended December 31,
1996 1995 1994
---- ---- ----
Passbook $ 601 $ 695 $ 841
Checking accounts 677 767 748
90-day passbook and statement savings 957 866 767
Money market deposits 1,398 1,506 1,399
Certificates 15,678 15,593 11,696
Less: Early withdrawal penalties (71) (45) (56)
-------- -------- --------
$ 19,240 $ 19,382 $ 15,395
======== ======== ========
At December 31, 1996, remaining maturities on certificates are as follows
(in thousands):
1997 $ 229,529
1998 48,743
1999 19,758
2000 22,420
2001 9,238
---------
$ 329,688
=========
At December 31, 1996, the Banks have pledged mortgage-backed certificates,
U. S. Treasury securities, and other U. S. Government agency securities with a
total carrying value of $15,742,000 to the State Treasury Board as collateral
for certain public deposits.
Note 11
Advances from the Federal Home Loan Bank
At December 31, 1996, advances from the Federal Home Loan Bank (FHLB)
consist of $123,000,000 of short- term variable rate advances and a $25,000,000
callable fixed rate advance with an interest rate of 4.96%. These advances are
collateralized by mortgage-backed certificates with a net book value of
approximately $142,044,000 and by first mortgage loans with a net book value of
approximately $154,289,000. The weighted average cost of advances from the FHLB
is 5.44% and 6.16% for the years ended December 31, 1996 and 1995, respectively
Note 12
Other Borrowings
In connection with CENIT Bank's conversion from a mutual savings bank to a
stock savings bank, the Company established an Employees Stock Ownership Plan
("ESOP"). The ESOP was funded by the proceeds from a $1,000,000 loan from an
unrelated third party lender. The loan, which was repaid in full in 1996, was
secured by the common stock of the Company purchased with the loan proceeds and
was guaranteed by the Company.
34
Note 13
Securities Sold under Agreements to Repurchase
At December 31, 1996, mortgage-backed certificates sold under agreements to
repurchase had a carrying value of $7,661,000 and a market value of $7,273,000.
The mortgage-backed certificates underlying these repurchase agreements were
delivered to a branch of the Federal Reserve Bank which is acting as custodian
in the transaction. The Company enters into reverse repurchase agreements with
dealers and certain commercial deposit customers. The reverse repurchase
agreements executed with commercial deposit customers do not constitute savings
accounts or deposits and are not insured by the Federal Deposit Insurance
Corporation. At December 31, 1996, all of the Company's reverse repurchase
agreements were with commercial customers.
The following is a summary of certain information regarding the Company's
reverse repurchase agreements (dollars in thousands):
December 31,
1996 1995
---- ----
Balance at end of year $ 7,138 $ 4,871
Average amount outstanding during the year 8,616 2,543
Maximum amount outstanding at any month end 30,382 4,871
Weighted average interest rate during the year 4.67% 4.80%
Weighted average interest rate at end of year 4.40% 4.35%
Weighted average maturity at end of year daily daily
Note 14
Other Income and Other Expense
The components of other income and other expense are as follows (in thousands):
Year Ended December 31,
1996 1995 1994
----------------------------------
Other income:
Deposit fees $1,425 $1,024 $1,142
Brokerage fees 413 716 457
Merchant processing fees 738 502 358
Other miscellaneous 259 280 88
------ ------ ------
$2,835 $2,522 $2,045
====== ====== ======
Other expense:
Net occupancy expense of premises $1,715 $1,404 $1,143
Professional fees 474 676 631
Expenses, gains/losses on sales,
and provision for losses on real
estate owned, net 38 372 595
Merchant processing 586 377 272
Other miscellaneous 1,881 1,714 1,611
------ ------ ------
$4,694 $4,543 $4,252
====== ====== ======
35
Note 15
Income Taxes
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial and income
tax reporting purposes.
Significant components of the Company's deferred tax assets and liabilities
are as follows (in thousands):
December 31,
1996 1995 1994
Deferred tax assets:
Bad debt reserves $ 1,297 $ 1,199 $ 1,152
Unrealized losses on securities
available for sale - - 218
Other 34 107 253
------- ------- -------
1,331 1,306 1,623
------- ------- -------
Deferred tax liabilities:
Federal Home Loan Bank
stock dividends (696) (696) (696)
Unrealized gains on securities
available for sale (580) (821) -
Depreciation (327) (291) (461)
Other (106) (106) (54)
------- ------- -------
(1,709) (1,914) (1,211)
------- ------- -------
Net deferred tax asset (liability) $ (378) $ (608) $ 412
======= ======= =======
A net deferred tax asset of $176,000 resulted from the April 1, 1994 merger
with Homestead as described in Note 2.
36
The provision for income taxes consists of the following (in thousands):
Year Ended December 31,
1996 1995 1994
---- ---- ----
Current:
Federal $ 1,810 $ 1,615 $ 1,907
State - 56 174
------- ------- -------
1,810 1,671 2,081
------- ------- -------
Deferred:
Federal 8 (19) 128
State 3 - 17
------- ------- -------
11 (19) 145
------- ------- -------
$ 1,821 $ 1,652 $ 2,226
======= ======= =======
The reconciliation of "expected" federal income tax computed at the
statutory rate (34%) to the reported provision for income taxes is as follows
(in thousands):
Year Ended December 31,
1996 1995 1994
---- ---- ----
Computed "expected" tax provision $ 1,846 $ 1,402 $ 2,109
Increase (decrease) in taxes
resulting from:
State income taxes, net of
federal tax benefit 2 37 126
Nondeductible merger expenses - 172 -
Other (27) 41 (9)
------- ------- -------
Provision for income taxes $ 1,821 $ 1,652 $ 2,226
======= ======= =======
For tax purposes, CENIT Bank may only deduct bad debts as charged off. This
amount may differ significantly from the amount deducted for book purposes.
Retained earnings at December 31, 1996 includes $6,134,000 representing that
portion of CENIT Bank's tax bad debt allowance for which no provision for income
taxes has been made. This amount would be subject to federal income taxes if
CENIT Bank were to use the reserve for purposes other than to absorb losses.
37
Note 16
Employee Benefit Plans
Employees Stock Ownership Plan
The Company recognizes compensation expense on an accrual basis based upon
the annual number of shares to be released valued at historical cost, plus
estimated annual administrative expenses of the ESOP, less estimated annual
dividends to be used for debt service and administrative expenses. ESOP related
compensation expense recognized by the Company totaled $238,000 in 1996,
$281,000 in 1995, and $90,000 in 1994. The Company recognizes interest expense
on the ESOP loan and makes quarterly contributions to the ESOP sufficient to
fund such interest payments. Total contributions to the ESOP, which were used to
fund principal and interest payments on the ESOP loan and administrative
expenses of the ESOP, totaled $254,000 in 1996, $322,000 in 1995, and $132,000
in 1994.
In 1994, dividends received by the ESOP on unallocated and allocated shares
were used for debt service and administrative expenses, respectively. Dividends
received in 1994 on unallocated and allocated shares totaled $22,000 and $9,000,
respectively. In 1995 and 1996, dividends received on both unallocated and
allocated shares were used for debt service. Dividends received in 1995 and 1996
totaled $34,000 and $63,000, respectively. The tax benefit relating to dividends
paid on unallocated shares held by the ESOP is reflected as an addition to
retained earnings. Shares are released and allocated to eligible participants on
an annual basis. The number of additional shares released and allocated annually
is based upon the pro rata amount of the total ESOP loan principal paid in that
year as compared to the ESOP loan principal balance at the beginning of that
year. At December 31, 1996, the ESOP has 26,086 of unreleased shares, all of
which are committed-to-be-released based upon 1996 ESOP loan principal payments,
and 56,441 allocated shares. The historical cost of unreleased shares held by
the ESOP at December 31, 1996 totaled $300,000. A total of 2,649 shares were
distributed in 1996 to terminated employees. All shares held by the ESOP are
considered outstanding for earnings per share calculations.
401(k) Plans
The Company has a 401(k) plan to which eligible employees may contribute a
specified percentage of their gross earnings each year. For the years ended
December 31, 1996, 1995 and 1994, the maximum percentage that could be
contributed by employees was 7%, 6%, and 10%, respectively. The Company matches
50% of employee contributions and in 1994 also contributed 2% of gross payroll
for eligible employees. Effective January 1, 1996, the 401(k) plan was amended
to allow participation by Princess Anne. In 1995 and 1994, Princess Anne had a
separate 401(k) plan covering substantially all employees. Princess Anne
employees could have contributed a specified percentage of their gross earnings
to a maximum of 15% each year. Princess Anne matched 50% of the first 7% of
employees' contributions in 1995 and 100% of the first 6% in 1994. The Company
contributed a total of $154,000, $131,000, and $259,000 to these plans during
the years ended December 31, 1996, 1995 and 1994, respectively.
Postretirement Benefit Plan
The Company sponsors a postretirement health care and life insurance
benefit plan. This plan is unfunded and the Company retains the right to modify
or eliminate these benefits. Participating retirees and eligible dependents
under the age of 65 are covered under the Company's regular medical and dental
plans. Participating retirees and eligible dependents age 65 or older are
eligible for a Medicare supplement plan. The medical portion of the plan is
contributory for retirees, with retiree contributions adjusted annually, and
contains other cost-sharing features such as deductibles and copays. The life
insurance portion of the plan is noncontributory.
38
As permitted by FAS 106, the Company elected to amortize its unrecognized
transition obligation over 20 years. At December 31, 1996 and December 31, 1995,
the Company's unfunded accumulated postretirement benefit obligation totaled
$537,000 and $541,000, respectively, and the accrued postretirement benefit cost
recognized in the statement of financial condition totaled $110,000 and $85,000,
respectively. Postretirement benefit cost was $71,000, $71,000 and $77,000 in
1996, 1995 and 1994, respectively.
Note 17
Stock Options and Awards
At December 31, 1996, the Company has two stock-based compensation plans,
the CENIT Stock Option Plan and the Management Recognition Plan, which are
described below. Princess Anne also had three stock option plans prior to the
merger with the Company. The Company has elected not to adopt the recognition
provisions of Statement of Financial Accounting Standards No. 123 (FAS 123),
"Accounting for Stock-Based Compensation," which requires a fair-value based
method of accounting for stock options and similar equity awards, and will
continue to follow Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," and related Interpretations to account for its
stock-based compensation plans. If the Company had accounted for stock options
granted in 1995 and 1996 under the provisions of FAS No. 123, the pro forma
effect on 1995 and 1996 net income and earnings per share would not be material.
CENIT Stock Option Plan
In conjunction with CENIT Bank's conversion, the Company adopted a stock
option plan for the benefit of directors and specified key officers. The total
number of shares of common stock reserved for issuance under the stock option
plan is 123,625. Under the plan, the option price cannot be less than the fair
market value of the common stock on the date of the grant and options expire no
later than ten years after the date of the grant. Options issued in connection
with the conversion are exercisable in full from two to five years after the
date of grant. Options granted in 1993 became exercisable in full two years
after the date of grant and options granted in 1994, 1995 and 1996 are
exercisable 25% each year over four years. In addition, limited stock
appreciation rights have been granted with the options issued. These may be
exercised in lieu of the related stock options only in the event of a change in
control of the Company, as defined in the stock option plan.
Princess Anne Stock Option Plans
Princess Anne had three stock option plans prior to the merger with the
Company. On August 1, 1995, all options outstanding under these plans converted
into options for common stock of the Company in accordance with the terms of the
stock option plan under which each was issued. Both the number of shares subject
to option and the per share exercise price under each option were adjusted by
the exchange ratio of .3364. On the date of the merger, all options became fully
vested and exercisable.
39
A summary of the Company's stock option plan is as follows. This
information includes stock options relating to Princess Anne's stock option
plans; both the number of shares and the per share exercise price were adjusted
by the exchange ratio of .3364.
Year Ended December 31
1996 1995 1994
---------------------------- ---------------------------- ----------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------------ ------------- ------------ -------------- ----------- ---------------
Outstanding at beginning
of year 133,227 $14.85 139,000 $13.90 117,888 $12.97
Granted 6,234 34.63 5,234 37.00 21,112 19.11
Exercised (24,641) 13.47 (10,839) 13.25 - -
Forfeited (437) 17.83 (168) 23.19 - -
------- ------- -------
Outstanding at end of year 114,383 16.21 133,227 14.85 139,000 13.90
======= ======= =======
Options exercisable at year end 96,661 119,123 121,322
The weighted average fair value of options granted during 1996 and 1995 was
$11.20 and $13.92, respectively.
The following table summarizes information about the options outstanding at
December 31, 1996:
Options Outstanding Options Exercisable
----------------------------------------------------- -----------------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life Price Exercisable Price
- ----------------------- ----------------- ----------- --------- ----------------- -----------
$11.50 71,909 5.6 years $11.50 66,965 $11.50
$17.83 16,154 6.1 years 17.83 16,154 17.83
$21.25 to $23.78 14,852 6.3 years 22.17 12,234 22.00
$34.63 to $37.00 11,468 9.5 years 35.71 1,308 37.00
------- ------
114,383 6.1 years 16.21 96,661 14.23
======= ======
40
Management Recognition Plan
The objective of the MRP is to enable the Company to retain personnel of
experience and ability in key positions of responsibility. The MRP was
authorized to acquire up to 2% of the shares of common stock of the Company
issued in the conversion. CENIT Bank contributed $247,250 to the MRP to enable
the MRP trustees to acquire a total of 21,500 shares of the common stock in the
conversion at $11.50 per share. As a result of an oversubscription in the
subscription offering, the MRP was able to acquire only 15,000 shares in the
conversion. In 1996 and 1995, the MRP purchased 3,535 and 1,484 additional
shares, respectively, at an average price of approximately $33.78 and $39.30 per
share, respectively.
A total of 12,362 shares were granted in 1992 and vest 20% each year over
five years beginning in 1993. The shares granted in 1994, 1995 and 1996 vest at
the end of three to five years. Compensation expense, which is recognized as
shares vest, totaled $82,000, $50,000 and $37,000 for 1996, 1995 and 1994,
respectively. The unamortized cost of the shares purchased, which represents
deferred compensation, is reflected as a reduction of stockholders' equity in
the Company's consolidated statement of financial condition.
A summary of MRP grants is as follows:
Year Ended December 31,
1996 1995 1994
---- ---- ----
Outstanding at beginning of year 9,068 9,479 9,890
Granted 3,535 2,061 2,061
Exercised (2,472) (2,472) (2,472)
------ ----- -----
Outstanding at end of year 10,131 9,068 9,479
====== ===== =====
There were no grants forfeited during these periods and no grants were
exercisable at the end of each period. At December 31, 1996, the weighted
average period until the awards become vested is approximately two years. The
weighted average fair value of shares granted in 1996 and 1995 was $34.63 and
$38.50, respectively.
Note 18
Commitments and Financial Instruments With Off-Balance Sheet Credit Risk
The Company is a party to financial instruments with off-balance sheet
credit risk in the normal course of business to meet the financing needs of its
customers and, to a lesser extent, to reduce its own exposure to fluctuations in
interest rates. These financial instruments include commitments to extend credit
in the form of loans or through letters of credit, interest rate caps and
interest rate swaps. At December 31, 1996, financial instruments with
off-balance sheet risk are limited to outstanding loan commitments and letters
of credit. There are no open interest rate cap or interest rate swap positions
at December 31, 1996.
Loan commitments are agreements to extend credit to a customer provided
that there are no violations of the terms of the contracts prior to funding.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee by the customer. Because certain of the
commitments are expected to be withdrawn or expire unused, the total commitment
amount does not necessarily represent future cash requirements. The Company
evaluates each customer's creditworthiness on a case-by-case basis. The type and
amount of collateral obtained varies but generally includes real estate or
personal property.
41
The Company had loan commitments, excluding the undisbursed portion of
construction and acquisition and development loans, as follows (in thousands):
December 31,
1996 1995
---- ----
Commitments outstanding:
Mortgage loans:
Fixed rate (rates between 7.25% and 9.00% at
1996 and between 6.00% and 8.50% at 1995) $ 1,201 $ 5,868
Variable rate 1,594 6,005
Commercial business loans 638 874
Consumer loans - 40
------- -------
$ 3,433 $12,787
======= =======
At December 31, 1996, the Company has granted unused consumer and
commercial lines of credit of $15,542,000 and $11,348,000, respectively, and has
commitments to purchase loans totaling $13.0 million.
Standby letters of credit are written unconditional commitments issued to
guarantee the performance of a customer to a third party and total approximately
$3,507,000 at December 31, 1996. The credit risk involved in issuing standby
letters of credit is essentially the same as that involved in extending a loan
and the collateral obtained, if any, varies but generally includes real estate
or personal property. Because most of these letters of credit expire without
being drawn upon, they do not necessarily represent future cash requirements.
Commitments to purchase securities are contracts for delayed delivery of
securities in which the seller agrees to make delivery on a specified future
date of a specified instrument, with a specified coupon, for a specified price.
At December 31, 1996, the Company had no commitments to purchase securities.
Rent expense under long-term operating leases for property approximates
$620,000, $460,000, and $331,000 for the years ended December 31, 1996, 1995 and
1994, respectively. The minimum rental commitments under noncancelable leases
with an initial term of more than one year for the years ending December 31, are
as follows (in thousands):
1997 $ 630
1998 654
1999 632
2000 583
2001 507
Thereafter 2,308
-------
$ 5,314
=======
42
Note 19
Regulatory matters
Capital Adequacy
CENIT Bank and Princess Anne Bank are subject to various regulatory capital
requirements administered by the Office of Thrift Supervision and Federal
Reserve Board, respectively. Failure to meet minimum capital requirements can
initiate certain mandatory and possibly additional discretionary actions by
regulators that, if undertaken, could have a direct material effect on the
Banks' financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Banks must meet specific
capital guidelines that involve quantitative measures of the Banks' assets,
liabilities and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Banks' capital amounts and classifications are also
subject to qualitative judgments by regulators about components, risk weighting
and other factors.
As set forth in the table below, quantitative measures established by
regulation to ensure capital adequacy require CENIT Bank to maintain minimum
amounts and ratios of tangible capital to adjusted total assets, of core capital
to adjusted total assets and total capital to risk-weighted assets. Princess
Anne is required to maintain minimum amounts and ratios of leverage capital to
adjusted average total assets, and Tier 1 and total capital to risk-weighted
assets. As of December 31, 1996, the Banks exceeded all capital adequacy
requirements to which they are subject.
As of December 31, 1996, the most recent notification from the Office of
Thrift Supervision and Federal Reserve Board categorized CENIT Bank and Princess
Anne Bank, respectively, as Well Capitalized under the framework for prompt
corrective action. To be considered Well Capitalized under prompt corrective
action provisions, the Banks must maintain capital ratios as set forth in the
following table. There are no conditions or events since that notification that
management believes have changed the Banks' categorizations. As a bank holding
company, the Company is also subject to the capital adequacy guidelines
established by the Federal Reserve Board.
43
The Banks' and Company's actual capital amounts and ratios are as follows
(dollars in thousands):
Required for
Actual Required Well Capitalized
------------------------ --------------------- ---------------------
Amount Ratio Amount Ratio Amount Ratio
As of December 31, 1996:
CENIT Bank
Core capital $28,991 6.0% $14,594 3.0% $24,323 5.0%
Tangible capital 28,991 6.0 7,297 1.5 - -
Tier 1 risk-based 28,991 11.0 10,547 4.0 15,820 6.0
Total risk-based 31,510 11.9 21,094 8.0 26,367 10.0
Princess Anne Bank
Tier 1 leverage $13,789 7.1% $ 7,738 4.0% $ 9,672 5.0%
Tier 1 risk-based 13,789 12.7 4,350 4.0 6,525 6.0
Total risk-based 14,986 13.8 8,700 8.0 10,875 10.0
CENIT Bancorp
Tier 1 leverage $44,163 6.5% $27,171 4.0% $ - -%
Tier 1 risk-based 44,163 11.8 14,959 4.0 - -
Total risk-based 47,969 12.8 29,919 8.0 - -
As of December 31, 1995:
CENIT Bank
Core capital $30,664 6.8% $13,511 3.0% $22,519 5.0%
Tangible capital 30,664 6.8 6,756 1.5 - -
Tier 1 risk-based 30,664 11.9 10,327 4.0 15,491 6.0
Total risk-based 33,198 12.9 20,654 8.0 25,818 10.0
Princess Anne Bank
Tier 1 leverage $12,778 8.1% $ 6,282 4.0% $ 7,853 5.0%
Tier 1 risk-based 12,778 15.9 3,222 4.0 4,833 6.0
Total risk-based 13,762 17.1 6,445 8.0 8,056 10.0
CENIT Bancorp
Tier 1 leverage $43,442 6.8% $25,396 4.0% $ - -%
Tier 1 risk-based 43,442 12.8 13,550 4.0 - -
Total risk-based 46,960 13.9 27,099 8.0 - -
44
Dividend Restrictions
CENIT Bank's capital exceeds all of the capital requirements imposed by
FIRREA. OTS regulations provide that an association that exceeds all fully
phased-in capital requirements before and after a proposed capital distribution
can, after prior notice but without the approval by the OTS, make capital
distributions during the calendar year of up to the higher of (i) 100% of its
net income to date during the calendar year plus the amount that would reduce by
one-half its "surplus capital ratio" (the excess capital over its fully
phased-in capital requirements) at the beginning of the calendar year, or (ii)
75% of its net income during the most recent four-quarter period. Any additional
capital distributions require prior regulatory approval.
As a state chartered bank which is a member of the Federal Reserve,
Princess Anne Bank is subject to legal limitations on capital distributions
including the payment of dividends, if, after making such distribution, the
institution would become "undercapitalized" (as such term is used in the
statute). For all state member banks of the Federal Reserve seeking to pay
dividends, the prior approval of the applicable Federal Reserve Bank is required
if the total of all dividends declared in any calendar year will exceed the sum
of the bank's net profits for that year and its retained net profits for the
preceding two calendar years. Federal law also generally prohibits a depository
institution from making any capital distribution (including payment of a
dividend or payment of a management fee to its holding company) if the
depository institution would thereafter fail to maintain capital above
regulatory minimums. Federal Reserve Banks are also authorized to limit the
payment of dividends by any state member bank if such payment may be deemed to
constitute an unsafe or unsound practice. In addition, under Virginia law no
dividend may be declared or paid that would impair a Virginia chartered bank's
paid-in capital. The Virginia State Corporation Commission has general authority
to prohibit payment of dividends by a Virginia chartered bank if it determines
that the limitation is in the public interest and is necessary to ensure the
bank's financial soundness.
The Company is subject to the restrictions of Delaware law, which generally
limit dividends to the amount of a corporation's surplus or, in the case where
no such surplus exists, the amount of a corporation's net profits for the fiscal
year in which the dividend is declared and/or the preceding fiscal year.
Note 20
Stockholders' Equity
As part of CENIT Bank's conversion from a federally chartered mutual
savings bank to a federally chartered stock savings bank, CENIT Bank established
a liquidation account for the benefit of eligible depositors who continue to
maintain their deposit accounts in the Company after conversion. In the unlikely
event of a complete liquidation of CENIT Bank, each eligible depositor will be
entitled to receive a liquidation distribution from the liquidation account, in
the proportionate amount of the then current adjusted balance for deposit
accounts held, before distribution may be made with respect to CENIT Bank's
capital stock. CENIT Bank may not declare or pay a cash dividend to the Company
on, or repurchase any of, its capital stock if the effect thereof would cause
the retained earnings of CENIT Bank to be reduced below the amount required for
the liquidation account. Except for such restrictions, the existence of the
liquidation account does not restrict the use or application of CENIT Bank's
retained earnings. At December 31, 1996, the liquidation account balance was
$4,554,000.
Warrants for the purchase of 51,089 shares of Princess Anne common stock
were exercised in 1994 and warrants for the purchase of 6,697 shares of Princess
Anne common stock were exercised in 1995 prior to the merger with the Company on
August 1, 1995. At the time of the merger, Princess Anne's outstanding warrants
were converted to warrants to purchase common stock of the Company. For the
period August 1, 1995 to December 31, 1995, a total of 692 shares of the
Company's common stock were issued in connection with exercise of warrants.
In 1996, a total of 14,589 shares of the Company's common stock were issued
in connection with the exercise of warrants. All warrants for the purchase of
the Company's common stock expired on September 30, 1996.
45
Note 21
Related Party Transactions
The Company has made loans to executive officers, directors, and to
companies in which the executive officers and directors have a financial
interest. The following is a summary of related party loans (in thousands):
Balance at January 1, 1996 $ 3,121
Originations - 1996 1,149
Repayments - 1996 (1,215)
---------
Balance at December 31, 1996 $ 3,055
=========
Under the Company's current policy, related party loans are made on
substantially the same terms, including interest rate and collateral
requirements, as are available to the general public. The Company's previous
policy permitted the Company's directors and executive officers to borrow from
the Company at an interest rate one percentage point in excess of the Company's
then existing cost of funds. There is one loan made under the Company's previous
policy still outstanding at December 31, 1996, which has a balance of $157,000
and a fixed interest rate of 7.875%. The Company believes loans to related
parties do not involve more than the normal risk of collectibility. Commitments
to extend credit and letters of credit to related parties totaled $508,000 at
December 31, 1996.
Note 22
Disclosures About Fair Value of Financial Instruments
The following summary presents the methodologies and assumptions used to
estimate the fair value of the Company's financial instruments presented below.
The Company operates as a going concern and except for its investment securities
portfolio and certain residential loans, no active market exists for its
financial instruments. Much of the information used to determine fair value is
highly subjective and judgmental in nature and therefore the results may not be
precise. The subjective factors include, among other things, estimates of cash
flows, risk characteristics, credit quality, and interest rates, all of which
are subject to change. Since the fair value is estimated as of December 31,
1996, the amounts which will actually be realized or paid upon settlement or
maturity of the various instruments could be significantly different.
Cash and Federal Funds Sold
For cash and federal funds sold, the carrying amount is a reasonable
estimate of fair value.
Investment Securities
Fair values are based on quoted market prices or dealer quotes for U.S.
Treasury securities, other U.S. government agency securities, and
mortgage-backed certificates. As required by FAS 115, securities available for
sale are recorded at fair value.
46
Loans
The fair value of loans is estimated by discounting the future cash flows
using the current rates at which similar loans would be made to borrowers with
similar credit ratings for the same remaining maturities, or based on quoted
market prices for mortgage-backed certificates securitized by similar loans,
adjusted for differences in loan characteristics. The risk of default is
measured as an adjustment to the discount rate, and no future interest income is
assumed for nonaccrual loans.
The fair value of loans does not include the value of the customer
relationship or the right to fees generated by the account.
Federal Home Loan Bank and Federal Reserve Bank Stock
The carrying value of Federal Home Loan Bank and Federal Reserve Bank stock
is a reasonable estimate of the fair value.
Deposit Liabilities
The fair value of deposits with no stated maturities (which includes demand
deposits, savings accounts, and money market deposits) is the amount payable on
demand at the reporting date. The fair value of fixed- maturity certificates of
deposit is estimated using a discounted cash flow model based on the rates
currently offered for deposits of similar maturities.
FAS 107 requires deposit liabilities with no stated maturity to be reported
at the amount payable on demand without regard for the inherent funding value of
these instruments. The Company believes that significant value exists in this
funding source.
Short-term Borrowings
For short-term borrowings (which include advances from the Federal Home
Loan Bank and securities sold under agreements to repurchase), the carrying
amount is a reasonable estimate of fair value.
Long-term Borrowings
Rates currently available to the Company for borrowings with similar terms
and remaining maturities are used to estimate fair value of existing borrowings.
Loan Commitments and Standby Letters of Credit
The Company has reviewed its loan commitments and standby letters of credit
and determined that differences between the fair value and notional principal
amounts are not significant.
47
The estimated fair values of the Company's financial instruments that
differ from their carrying amount are as follows (in thousands):
December 31,
1996 1995
------------------ ---------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------------------ ---------------------
Financial assets:
Loans held for investment, net $422,219 $427,615 $319,194 $322,306
Financial liabilities:
Deposits with stated maturities 329,688 332,098 294,417 295,676
As mentioned in the assumptions above, the estimated fair value of loans
and deposits does not include any value for the customer relationship or the
right to future fee income which may be generated by these relationships.
Note 23
Condensed Parent Company Only Financial Statements
The following condensed financial statements for CENIT Bancorp, Inc. should
be read in conjunction with the consolidated financial statements and the notes
thereto.
Condensed Statement of Financial Condition
(In thousands)
December 31,
1996 1995
---- ----
Assets:
Cash $ 4 $ 14
Equity in net assets of the Banks 48,223 46,530
Other assets 1,762 445
------- -------
$49,989 $46,989
------- -------
Liabilities $ 381 $ 260
Stockholders' equity 49,608 46,729
------- -------
$49,989 $46,989
======= =======
48
Condensed Statement of Operations
(In thousands)
Year Ended December 31,
1996 1995 1994
Equity in earnings of the Banks $ 3,943 $ 3,084 $ 4,101
Interest expense (16) (41) (42)
Salaries and employee benefits (276) (65) (19)
Professional fees (108) (155) (52)
Merger expenses - (397) -
Other expenses (122) (86) (73)
------- ------- -------
Income before income taxes 3,421 2,340 3,915
Benefit from income taxes 187 132 62
------- ------- -------
Net income $ 3,608 $ 2,472 $ 3,977
======= ======= =======
Condensed Statement of Cash Flows
(In thousands)
Year Ended December 31,
1996 1995 1994
---- ---- ----
Cash flows from operating activities:
Net income $ 3,608 $ 2,472 $ 3,977
Add (deduct) items not affecting cash:
Undistributed earnings of the Banks (1,941) (2,368) (3,501)
Amortization 26 16 16
(Increase) decrease in other assets (1,192) 163 (360)
Increase in liabilities 121 57 33
------- ------- -------
Net cash provided by operations 622 340 165
------- ------- -------
Cash flows from financing activities:
Cash dividends paid (1,215) (531) (445)
Net proceeds from issuance of common stock 583 196 256
------- ------- -------
Net cash used for financing activities (632) (335) (189)
------- ------- -------
Net increase (decrease) in cash and cash
equivalents (10) 5 (24)
Cash and cash equivalents at beginning of period 14 9 33
------- ------- -------
Cash and cash equivalents at end of period $ 4 $ 14 $ 9
======= ======= =======
49
Note 24
Quarterly Results of Operations (Unaudited)
Year Ended December 31, 1996
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
Total interest income $ 11,852 $ 11,692 $ 12,256 $ 12,371
Total interest expense 7,003 6,870 7,135 7,079
----- ----- ----- -----
Net interest income 4,849 4,822 5,121 5,292
Provision for loan losses 102 53 101 121
--- --- --- ---
Net interest income after provision
for loan losses 4,747 4,769 5,020 5,171
Other income 896 981 1,053 964
Other expenses 3,794 3,870 6,350 4,158
----- ----- ----- -----
Income before income taxes 1,849 1,880 (277) 1,977
Provision for (benefit from) income taxes 646 659 (162) 678
--- --- ---- ---
Net income (loss) $ 1,203 $ 1,221 $ (115) $ 1,299
======== ======== ======== ========
Earnings (loss) per common and
common equivalent share $ .72 $ .73 $ (.07) $ .76
Dividends per common share $ .10 $ .20 $ .20 $ .25
Year Ended December 31, 1995
First Second Third Fourth
Quarter (1) Quarter (1) Quarter Quarter
Total interest income $ 10,698 $ 11,458 $ 11,673 $ 11,698
Total interest expense 6,228 6,898 7,135 7,215
----- ----- ----- -----
Net interest income 4,470 4,560 4,538 4,483
Provision for loan losses 170 189 163 175
--- --- --- ---
Net interest income after provision
for loan losses 4,300 4,371 4,375 4,308
Other income 623 825 1,142 354
Other expenses 3,550 3,839 4,644 4,141
----- ----- ----- -----
Income before income taxes 1,373 1,357 873 521
Provision for income taxes 481 474 498 199
--- --- --- ---
Net income $ 892 $ 883 $ 375 $ 322
======== ======== ======== ========
Earnings per common and common
equivalent share $ .54 $ .53 $ .22 $ .19
Dividends per common share $ .10 $ .10 $ .10 $ .10
<FN>
_______________
(1) Amounts previously reported on Form 10-Q have been adjusted above to
include the results of operations for Princess Anne.
</FN>
50
Report of Independent Accountants
Price Waterhouse
To the Board of Directors and Stockholders of CENIT Bancorp, Inc.
Norfolk, Virginia
In our opinion, based upon our audits and the report of other auditors, the
accompanying consolidated statement of financial condition and the related
consolidated statements of operations, of changes in stockholders' equity and of
cash flows present fairly, in all material respects, the financial position of
CENIT Bancorp, Inc. and its subsidiaries at December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1996, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We did not audit the financial
statements of Princess Anne Bank, a wholly- owned subsidiary, for the year ended
December 31, 1994, which statements reflect net income of $861,000 for the year
ended December 31, 1994. Those financial statements were audited by other
auditors whose report thereon has been furnished to us, and our opinion
expressed herein, insofar as it relates to the amounts included for Princess
Anne Bank, is based solely on the report of the other auditors. We conducted our
audits of the financial statements of CENIT Bancorp, Inc. in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits and the report of other auditors provide a reasonable
basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Norfolk, Virginia
January 30, 1997
51
Investor Information
Annual Meeting of Stockholders
The Annual Meeting of Stockholders of CENIT Bancorp, Inc. will be held at
5:00 p.m. on Wednesday, April 23, 1997 at the Chrysler Museum of Art, 245 West
Olney Road, Norfolk, Virginia. All stockholders are cordially invited to attend.
Stock Price Information
CENIT Bancorp, Inc. Common Stock trades on the Nasdaq Stock Market under
the symbol CNIT. Newspapers and other stock tables may identify the stock under
various abbreviations for CENIT Bancorp.
The table below shows the reported high and low sales prices of CENIT
Bancorp Common Stock by quarters in fiscal years 1995 and 1996.
1996 1995
Quarter High Low High Low
First $ 36 5/16 $33 $36 $20 3/4
Second 35 1/2 33 39 1/2 34 1/2
Third 41 1/4 31 3/4 40 1/4 36
Fourth 41 1/2 38 1/2 38 1/2 35
Source: Nasdaq
Stock Transfer Agent
ChaseMellon Shareholder Services
15th Floor, 450 West 33rd Street
New York, NY 10001-2697
Questions regarding your account should
be referred in writing or by telephone to:
ChaseMellon Financial Services
85 Challenger Road
Overpeck Centre
Ridgefield Park, NJ 07660-2108
Telephone 1-800-526-0801
Annual Report on Form 10-K and
Additional Information
A copy of Form 10-K as filed with the Securities and Exchange Commission is
available without charge to stockholders upon written request. Requests for this
or other financial information about CENIT Bancorp, Inc. should be directed to:
Stuart F. Pollard
Vice President and
Director of Investor Relations
CENIT Bancorp, Inc.
Post Office Box 1811
Norfolk, VA 23501-1811
Independent Accountants
Price Waterhouse LLP
700 World Trade Center
Norfolk, VA 23510-9916
52
Corporate Information
Executive Offices
225 West Olney Road
Norfolk, VA 23510-1586
Telephone (757) 446-6600
CENIT Bank - Retail Banking Offices
Norfolk
745 Duke Street
300 East Main Street
2203 East Little Creek Road
Super Kmart Center, 6101 Military Highway
Portsmouth
3315 High Street
Chesapeake
675 North Battlefield Boulevard
2600 Taylor Road
3220 Churchland Boulevard
2612 Taylor Road
(Mortgage Loan Production Office)
Hampton
2205 Executive Drive
550 Settlers Landing Road
Newport News
13307 Warwick Boulevard
York County
Victory Boulevard and Commonwealth Drive
Super Kmart Center, 5007 Victory Boulevard
Princess Anne Bank - Retail Banking Offices
Virginia Beach
1616 Laskin Road
699 Independence Boulevard
905 Kempsville Road
641 Lynnhaven Parkway
3001 Shore Drive
4801 Columbus Street
Super Kmart Center, 3901 Holland Road
(Office Opens Late 1997)
Banking Services
Personal Banking
Checking and Savings Accounts
Retirement Accounts
24 Hour Banking ATMs
Members,MOST, PLUS, CIRRUS & VISA Networks
with access to DISCOVER, MASTERCARD, and
AMERICAN EXPRESS
Full Service Investment Brokerage
Safe Deposit Boxes
Construction and Permanent
Residential Mortgages
Lot Loans
Equity Loans and Lines of Credit
Car and Personal Loans
VISA and MASTERCARD Credit Cards
Private Banking Services
Commercial Banking
Business Checking Accounts
Interest Deposit Accounts
Interest on Lawyers' Trust Accounts
Corporate Cash Management Services
Wire Tranfers and EFT Services
VISA Business Cards
Merchant BankCard Processing
Loans to Businesses
Small Business Administration (SBA)
Government Guaranteed Loans
Construction and Permanent
Commercial Mortgages
Lines of Credit
Term Loans
Equipment Loans 53
INSIDE BACK COVER
CENIT Bancorp, Inc., Retail Banking Offices
MAP INSERTED HERE
CENIT Bank
Norfolk
1 - 745 Duke Street
2 - 300 East Main Street
3 - 2203 E. Little Creek Rd.
4 - Super Kmart 6101 Military Hwy.
Chesapeake
5 - 675 N. Battlefield Blvd.
6 - 2600 Taylor Road
7 - 3220 Churchland Blvd.
Portsmouth
8 - 3315 High Street
Hampton
9 - 2205 Executive Drive
10 - 550 Settlers Landing Rd.
Newport News
11 - 13307 Warwick Blvd.
York County
12 - Victory Blvd. & Commonwealth Dr.
13 - In Super Kmart, 5007 Victory Blvd.
Princess Anne Bank
Virginia Beach
14 - 1616 Laskin Road
15 - 699 Independence Blvd.
16 - 905 Kempsville Road
17 - 641 Lynnhaven Pkwy.
18 - 3001 Shore Drive
19 - 4801 Columbus Street
20 - In Super Kmart, 3901 Holland Rd.
(Office Opens Late 1997)
BACK COVER
CENIT Bancorp, Inc.
Executive Offices
225 West Olney Road
Norfolk, Virginia 23510-1586
(757) 446-6600