1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
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or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-16356
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CENTRAL BANCORPORATION
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(Exact name of small business issuer as specified in its charter)
Washington 91-1203145
--------------------------------- -------------------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization Identification Number
301 NORTH CHELAN AVENUE
WENATCHEE, WASHINGTON, 98801
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(Address of Principal Executive Offices)
(509) 663-0733
--------------------------
(Issuer's Telephone Number)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes X No
----- -----
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the last practicable date.
1,014,565 shares of common stock outstanding at September 30, 1995
Transitional Small Business Disclosure Format (check one):
Yes No X
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CENTRAL BANCORPORATION
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The following Consolidated Financial Statements are presented for
Registrant, Central Bancorporation, its wholly owned subsidiaries, Central
Washington Bank, North Central Washington Bank, and Central Financial Services,
Inc., the wholly owned subsidiary of Central Washington Bank.
1. Consolidated balance sheets for December 31, 1994 and September 30,
1995.
2. Consolidated statements of operations for the third quarter and first
nine months ended September 30, 1995 and 1994.
3. Consolidated statements of cash flows for the nine months ended
September 30, 1995 and 1994.
4. Notes to consolidated financial statements.
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CENTRAL BANCORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
- ---------------------------------------------------------------------------------------
SEPTEMBER 30, DECEMBER 31,
1995 1994
- ---------------------------------------------------------------------------------------
ASSETS
Cash and due from banks $ 10,528 $ 14,636
Interest bearing deposits in other banks 12,148 4,670
-------- --------
Cash and cash equivalents 22,676 19,306
Securities held to maturity (market value
of $18,157 in 1995 and $19,677 in 1994) 18,182 20,216
Securities available for sale, at market 25,151 27,142
Loans 129,578 122,150
Less allowance for loan losses 1,836 1,667
-------- --------
Loans, net 127,742 120,483
Premises and equipment, net 6,116 6,437
Accrued interest receivable 1,745 1,407
Other assets, net 774 669
-------- --------
Total assets $202,386 $195,660
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing demand $ 27,968 $ 27,245
Interest-bearing 151,495 147,945
-------- --------
Total deposits 179,463 175,190
Short-term borrowings 2,493 2,200
Notes payable 2,895 3,194
Accrued interest and other liabilities 2,220 1,678
-------- --------
Total liabilities 187,071 182,262
Stockholders' equity:
Common stock, $1.67 par value. Authorized
3,000,000 shares; issued and outstanding
1,014,565 in 1995 and 999,243 in 1994. 1,691 1,665
Surplus 2,678 2,616
Retained earnings 10,986 9,507
Unrealized loss on securities available for sale (40) (390)
-------- --------
Total stockholders' equity 15,315 13,398
-------- --------
Total liabilities and stockholders' equity $202,386 $195,660
======== ========
See accompanying notes to consolidated financial statements.
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CENTRAL BANCORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts) (unaudited)
- --------------------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1995 1994 1995 1994
- --------------------------------------------------------------------------------------
INTEREST INCOME:
Interest and fees on loans $3,250 $2,801 $ 9,425 $6,974
Interest on securities:
Taxable 515 518 1,617 1,383
Exempt from federal income tax 57 57 161 191
Other interest income 163 141 352 289
------- ------ ------- ------
Total interest income 3,985 3,517 11,555 8,837
INTEREST EXPENSE:
Interest on deposits 1,533 1,149 4,270 2,860
Interest on borrowings 92 92 290 180
------- ------ ------- ------
Total interest expense 1,625 1,241 4,560 3,040
------- ------ ------- ------
Net interest income 2,360 2,276 6,995 5,797
Provision for loan losses 120 - 120 -
------- ------ ------- ------
Net interest income after the
provision for loan loss 2,240 2,276 6,875 5,797
OTHER INCOME:
Loan servicing fees 54 50 152 152
Service charges on deposit accounts 261 244 763 605
Gain on sales of loans, net 212 26 351 (10)
Loss on securities available for
sale - 0 - (244)
Other service charges and fees 145 153 435 486
------ ------ ------- ------
Total other income 672 473 1,701 989
OTHER EXPENSES:
Salaries and employee benefits 994 917 3,004 2,525
Occupancy expense of premises 143 131 381 347
Printing, stationery and supplies 80 55 256 174
Equipment and data processing 173 248 527 504
Legal and professional 109 29 211 95
Business and occupation taxes 53 47 151 116
Deposit insurance assessment (14) 92 182 243
Other 269 253 885 879
------ ------ ------- ------
Total other expenses 1,807 1,772 5,597 4,883
------ ------ ------- ------
Income before income tax
expense 1,105 977 2,979 1,903
Income tax expense 325 332 898 616
------ ------ ------- ------
Net income $ 780 $ 645 $ 2,081 $1,287
====== ====== ======= ======
Net income per share $0.75 $0.62 $2.00 $1.25
===== ===== ===== =====
See accompanying notes to consolidated financial statements.
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CENTRAL BANCORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands) (unaudited)
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NINE MONTHS ENDED SEPTEMBER 30,
1995 1994
- -----------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,081 $ 1,287
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 398 424
Decrease (increase) in loans held for sale (1,650) 1,342
Provision for loan losses 120 -
Net amortization of premiums (discounts) (68) 58
Loss on securities available for sale - 244
Loan fees deferred, net of amortization 71 105
Dividends on FHLB stock (41) (36)
Other (80) 325
---------- ----------
Total adjustments (1,250) 2,462
---------- ----------
Net cash provided by operating activities 831 3,749
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturing securities held to maturity 2,638 2,200
Purchase of securities held to maturity (572) (9,152)
Proceeds from sales of securities available for sale - 7,224
Proceeds from maturing securities available for sale 9,204 11,375
Purchase of securities available for sale (6,606) (7,640)
Cash used for acquisition costs - 7,281
Change in loans, net (5,800) (15,466)
Acquisition of premise and equipment (77) (222)
---------- ----------
Net cash used in investing activities (1,213) (4,400)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 4,273 11,750
Net increase (decrease) in short-term borrowings 293 (90)
Proceeds from stock options exercised 88 -
Proceeds from borrowings - 2,993
Principal payments on notes payable (300) (3,000)
Cash dividends (602) (595)
---------- ----------
Net cash provided by (used in) financing activities 3,752 11,058
Net increase in cash and cash equivalents 3,370 10,407
Cash and cash equivalents at beginning of year 19,306 11,758
---------- ----------
Cash and cash equivalents at end of period $22,676 $22,165
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for: Interest $4,104 $2,794
Income tax 870 472
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Bancorp purchased all of the capital stock of First Bank Washington for $4,119. In connection with the acquisition,
liabilities were assumed as follows:
Fair value of assets acquired $52,709
Cash paid for capital stock (4,119)
----------
Liabilities assumed $48,590
==========
See accompanying notes to consolidated financial statements.
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CENTRAL BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with instructions to Form 10-QSB.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the nine months ended September 30, 1995 are not
necessarily indicative of the results anticipated for the year ending December
31, 1995. For additional information refer to the consolidated financial
statements and footnotes thereto included in Central Bancorporation's annual
report on Form 10-KSB for the year ended December 31, 1994.
2. NET INCOME PER SHARE
Net income per share is computed using the weighted average number of
common stock outstanding, including shares issuable under stock options plans,
when dilutive, during the periods presented.
The weighted average number of shares outstanding used to compute net
income per share was 1,041,771 during the quarter and 1,038,417 during the nine
month periods in 1995 and 1,035,706 during the quarter and 1,032,714 during the
nine month periods in 1994, respectively.
3. STATEMENT OF CASH FLOWS
For purposes of reporting cash flows, cash and cash equivalents include
cash and due from banks, interest bearing deposits, and federal funds sold.
4. CONSOLIDATION
The consolidated financial statements include the accounts of Central
Bancorporation, Central Washington Bank, North Central Washington Bank, and
Central Financial Services, Inc. All significant inter-company balances and
transactions have been eliminated in consolidation.
The consolidated statements of operations and the consolidated statements
of cash flows only reflect activity from North Central Washington Bank since
the date of acquisition, May 1, 1994.
5. PRO-FORMA STATEMENTS
Bancorp purchased North Central Washington Bank on April 30, 1994. Therefore
the Statements of Operation are not comparable. For purposes of comparability,
below is a condensed pro-forma income statement that assumes the acquisition
had occurred on January 1, 1994 and reflects pro-forma adjustments carried
forward through the periods presented. The pro-forma statements may not be
indicative of the results that would have occurred if the acquisition had been
effective on the dates indicated or of the results that may be obtained in the
future.
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CONDENSED PRO-FORMA THREE MONTHS ENDED NINE MONTHS ENDED
STATEMENTS OF OPERATIONS SEPTEMBER 30, SEPTEMBER 30,
(DOLLARS IN THOUSANDS) 1995 1994 1995 1994
------------------------- ----------------------
Interest income $3,985 $3,517 $11,555 $9,908
Interest expense 1,625 1,241 4,560 3,494
Provision for loan losses 120 - 120 -
---------- ---------- ---------- ----------
Net interest income 2,240 2,276 6,875 6,414
Other income 672 473 1,701 1,134
Other expense 1,807 1,772 5,597 5,535
Income tax expense 325 332 898 654
---------- ---------- ---------- ----------
Net income $ 780 $ 645 $ 2,081 $1,359
========== ========== ========== ==========
Net income per share $0.75 $0.62 $2.00 $1.32
========== ========== ========== ==========
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CENTRAL BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
5. IMPAIRED LOANS
Effective January 1, 1995, Bancorp adopted Statement 114, "Accounting by
Creditors for Impairment of a Loan" and Statement 118, "Accounting by Creditors
for Impairment of a Loan - Income Recognition and Disclosure - an Amendment of
FASB Statement No. 114" which was issued by the Financial Accounting Standards
Board (FASB) in 1994. These Statements require that impaired loans that are
within their scope be measured based on the present value of expected future
cash flows discounted at the loan's effective interest rate or as a practical
expedient, at the loans observable market price, or the fair value of the
collateral if the loan is collateral dependent.
As of September 30, 1995 and during the first nine months of 1995,
Bancorp's investment in impaired loans was not material.
Generally, when a loan becomes impaired Bancorp discontinues the accrual
of interest income. Future interest income is recognized using the cash basis
of accounting until the loan is no longer impaired.
6. ACCOUNTING FOR MORTGAGE SERVICING RIGHTS
In May 1995, the FASB issued Statement No. 122, "Accounting for Mortgage
Servicing Rights," which require Banks to allocate the cost of mortgage loans
sold between the loan principal and loan servicing rights based on their
relative fair values. Bancorp anticipates to adopt the provisions of Statement
No. 122 on a prospective basis beginning January 1, 1996. Management believes
there will be no material impact upon the adoption of this statement.
7. ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES
On October 18, 1995, the FASB approved a on-time suspension of the rules
of Statement No. 115 from mid November to December 31, 1995. This decision
allows financial institutions and corporations a one-time opportunity to
reclassify their investments between "Available for Sale" and "Held to
Maturity. This suspension will allow for the redesignation of any security
within the portfolio without the risk of tainting other securities. Bancorp
has not assessed the impact of the FASB decision on it's financial statements
at this time.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
GENERAL
This discussion is provided for Central Bancorporation ("Bancorp") and
it.s wholly owned subsidiaries Central Washington Bank ("Central") and North
Central Washington Bank ("North Central"). Central and North Central operate in
ten locations, located in North Central Washington, and provide families and
businesses with a wide variety of financial services, primarily loans and
deposits. Central Washington Bank's wholly owned subsidiary, Central Financial
Services, Inc. provides banking customers with financial products, such as
annuities and mutual funds.
On April 30, 1994, Bancorp completed the cash purchase of 100 percent
of the stock of First Bank Washington, the wholly owned subsidiary of FBS
Washington Bancorporation and First Bank System, Inc. Because of the
acquisition, the statements of operations presented in this quarterly report
are not comparable. For a pro-forma presentation of the statements of
operations please see Note 5 to the Consolidated Financial Statements. The
pro-forma statements assume the acquisition occurred on January 1, 1994. It
should be noted that the pro-forma statements may not be indicative of the
results that would have occurred if the acquisition had been effective on the
dates indicated or of the results that may be obtained in the future.
RESULTS OF OPERATIONS
Net income
Net income for the third quarter of 1995 increased by 21 percent to
$780,000 or $.75 per share compared to $645,000 or $.62 per share during the
same period a year ago. Net income for the first nine months increased by 62
percent to $2,081,000 or $2.00 per share compared to $1,287,000 or $1.25 per
share a year ago. The annualized return on average assets during the first nine
months of 1995 was 1.41 percent compared to 1.05 percent during the same period
last year.
The third quarter and nine month improvement in earnings was the
result of an increase in net interest income and reduction in security and
mortgage loan losses, partially offset by a modest provision for loan losses
and higher expenses (related to the operations of North Central). The impact on
earnings related to the purchase of North Central was the addition of
approximately $439,000 during the first nine months of 1995, or $.42 per share
compared to $201,000, or $.19 last year.
The 1994 losses related to the sale of securities and mortgages were
attributable to management's decision to sell lower yielding assets resulting
from significant increases in both short term and long term interest rates
during the first nine months of 1994. The increase in net interest income and
the increase in expenses was primarily related to the operation of Bancorp's
acquired Bank subsidiary, North Central Washington Bank, beginning May 1, 1994.
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Net interest income
Net interest income during the first nine months of 1995 totaled
$6,995,000 a $1,198,000 (20.7 percent) increase over 1994 ($975,000 of the
increase was from North Central). The increase resulted from an increase in net
earning assets offset by slightly lower interest rate spread. The table below
(in thousands) is illustrative:
1995 1994
---- ----
Balance Yield * Balance Yield *
------- ------- ------- -------
Average earning assets:
Loans $ 128,189 9.83% $ 97,867 9.53%
Investments 44,815 5.52 43,167 5.16
Other 8,030 5.86 9,097 4.25
-------- ----- -------- -----
Total 181,034 8.59 150,131 7.95
Average interest-bearing
liabilities:
Deposits 150,429 3.80 123,221 3.10
Other 5,589 6.94 3,850 6.25
-------- ----- -------- -----
Total 156,018 3.91 127,071 3.20
-------- ----- -------- -----
Net earning assets $ 25,016 5.22% $ 23,060 5.24%
======== ===== ========= =====
*Annualized with a 34 percent tax equivalent adjustment.
Net interest income is influenced by changes in both interest rates
(rate) and changes in interest-bearing assets and liabilities (volume). The
table presented below (adjusted for tax equivalency and in thousands) is an
analysis of these changes for the third quarter and first nine months of 1995
compared to the same period a year ago.
THIRD QUARTER YEAR-TO-DATE
----------------------------------- -----------------------------------
Interest Interest Net Int. Interest Interest Net Int.
Income Expense Income Income Expense Income
------- ------- -------- ------- -------- -------
Rate $ 152 $ 205 $ (53) $ 491 $ 553 $ (62)
Volume 317 179 138 2,213 967 1,246
------- ------- ------- ------- ------- -------
$ 469 $ 384 $ 85 $ 2,704 $ 1,520 $ 1,184
======= ======= ======= ======= ======= =======
Bancorp's average earning assets for the first nine months of 1995
increased $30,903,000 ($22,905,000 from North Central) over the first nine
months of 1994 while Bancorp's average interest-bearing liabilities increased
$28,947,000 ($18,420,000 from North Central). The increase in both earning
assets and interest bearing liabilities resulted primarily from the North
Central acquisition. Excluding the volume from the acquisition, Bancorp's
average earning assets and average interest bearing liabilities increased
$7,998,000 and $10,527,000 respectively during the periods presented and were
primarily the result of increases in both deposit and loan volumes. The
difference between the interest earned and the interest paid on this increased
volume resulted in approximately $138,000 and $1,246,000 in additional net
interest during the third quarter and first nine months of 1995, respectively.
The yield on earning assets increased 64 basis points during the first
nine months of 1995 to 8.59 percent as compared to 7.95 percent during the same
period last year. An increase in yield was experienced in loans and investments
securities. This increase is a reflection of the higher interest rates
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experienced since 1994. Bancorp's cost of funds also increased 71 basis points
during the first nine months of 1995 to 3.91 percent as compared to 3.20
percent last year. Because the increase in the cost of funds was slightly
higher than the increase on earning assets, Bancorp's net interest margin
decreased from 5.24 percent during 1994 to 5.22 percent during 1995. Bancorp
net interest margin decreased from 5.27 percent during the first six months of
1995 to 5.15 percent during the third quarter of 1995. This decrease in yield
was a result of higher deposit rates paid during the third quarter resulting
from increasing competitive pressure.
For the nine month period, the higher interest rates experienced since
1994 have not impacted Bancorp's net interest margin significantly. However,
because Bancorp is liability sensitive (ie. liabilities are subject to
repricing faster than assets) a change in the direction of rates may have an
impact on net interest margin. Generally, when interest rates increase
Bancorp's net interest margin decreases and if interest rates decrease
Bancorp's net interest margin may increase. During July 1995, the Federal
Reserve changed the direction of interest rates by slightly lowering the
federal funds rate. This action would normally benefit Bancorp's net interest
margin. However, because of strong loan demand banks are likely to be more
competitive for deposits and therefore these rates may remain relatively high.
Bancorp has approximately $89.8 million in earning assets repricing or
maturing within the next year. As a repricing offset, Bancorp has approximately
$86.9 million in savings and checking accounts whose interest rates may
increase/decrease along with other market interest rates. Historically, the
interest rates paid on savings and checking accounts lag and do not increase as
far as the rates earned on loans and investments. These rates have been
relatively stable over the past year. Because these rates are already low any
decrease in interest rates may not lower these rates significantly. As
discussed above, because of competitive pressures to keep deposit rates
relatively high and because of the already low savings and checking interest
rates Bancorp may continue to experience a decrease in its net interest margin.
In the event interest rates increase, Bancorp has a significant
portion of its securities available for sale to protect Bancorp's margin. These
securities have maturities within one to three years and may be sold prior to
maturity. If they are sold prior to maturity Bancorp may experience losses in
these securities.
Provision and Allowance for Loan Losses
Bancorp provided approximately $120,000 for loan losses during the
third quarter and first nine months of 1995. Bancorp did not provide for any
loan losses in 1994. Bancorp had net loan recoveries of $49,000 and $58,000
during the first nine months of 1995 and 1994, respectively. The 1995 loan loss
provision was primarily the result of increases in Bancorp's loan portfolio and
because of a slow down in net loan recoveries. If Bancorp experiences further
reductions in loan recoveries and further increases in it's loan portfolio,
additional loan loss provisions may be required.
The allowance for loan losses totaled $1,836,000 (1.42 percent of
loans) at September 30, 1995, compared to $1,667,000 (1.36 percent of loans) at
December 31, 1994. Based upon management's continuing evaluation of inherent
risks in the loan portfolio, current levels of classified assets, and economic
factors, management believes the allowance is adequate to absorb potential
losses in the current portfolio.
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Other Income and Expense
Other income, excluding security losses, increased $199,000 or 42
percent during third quarter and increased $468,000 or 37 percent during the
first nine months of 1995 when compared to the same period a year ago. An
increase in gain on sales of loans and an increase in service charges on
deposits were primarily responsible for both period increases. The increase in
service charges on deposit accounts resulted primarily from the purchase of
North Central.
The losses realized on securities available for sale during 1994 were
the result of the sale of Bancorp's longer term available for sale debt
securities. Consistent with Bancorp's internal policies these assets were sold
because of the increase in interest rates and the resulting negative impact on
capital which occurs as a result of the accounting provisions of SFAS No. 115
as well as the adverse impact on net interest margin.
The losses incurred on loans during 1994 were also the result of
higher interest rates. Bancorp sells loans to investors in the secondary market
at yields different than the originated or committed yield which results in
gains and losses. During the first nine months of 1994, Bancorp sold
approximately $12.5 million of 1 to 4 single family real estate to the
secondary market at a net gain of $28,000. This compares to sales of $14.0
million of 1 to 4 single family real estate loans in 1995 at a gain of
$296,000. Included in the 1995 loan sale volume was the sale of $7.1 million 1
to 4 single family portfolio real estate loans which resulted in a gain of
$125,000.
In addition to the 1995 sales of 1 to 4 real estate loans, Bancorp
sold approximately $3.4 million of commercial loans guaranteed by the Small
Business Administration (SBA). These sales, were also to secondary market
investors, and resulted in approximately $55,000 additional gains on sale of
loans. Currently, Bancorp services approximately $4.3 million SBA loans for
others.
Other expenses increased $35,000 or 2 percent and increased $714,000
or 15 percent during the third quarter and first nine months of 1995,
respectively, compared to the same period last year. Excluding the North
Central nine month impact of $537,000, the increase occurred primarily in
Bancorp's salaries and employee benefits, legal and professional fees, and
equipment and data processing offset by a decrease in deposit insurance
assessment.
On August 8, 1995, the Federal Deposit Insurance Corporation (FDIC)
adopted a rule which reduced the assessment banks pay for deposit insurance
from $.23 to $.31 per $100 of insured deposits to a new range of $.04 to $.31.
The actual rate paid by each bank will continue to depend on how much risk it
poses to the Bank Insurance Fund ("BIF"). During the third quarter of 1995,
Bancorp received a $107,000 refund from the FDIC for insurance assessments paid
during the second and third quarter of 1995. Assuming the banks remain in the
same risk category, the annual pre-tax savings to Bancorp would be
approximately $315,000 based on a deposit assessment base of approximately
$166,000,000.
Other expenses as a percent of average assets (annualized) was 3.8
percent in 1995 and 4.0 percent in 1994. Bancorp's efficiency ratio (operating
expenses as a percent of operating income) improved to 65 percent in 1995
compared to 72 percent last year. Bancorp anticipates these ratios to continue
improving as it's Leavenworth and Cashmere branch facilities, which were
started de novo during the past five years, gain profitability as loan and
deposit volumes increase and as efficiencies associated with the acquisition of
North Central continue to be realized.
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FINANCIAL CONDITION
Bancorp as a financial intermediary attracts deposits and invests
those funds in earning assets, primarily loans and investment securities, with
expectations for profit. As of September 30, 1995, Bancorp's total loans
increased $7.4 million while Bancorp's total assets increased $6.7 million
since December 31, 1994. Bancorp's total deposits also increased $4.3 million
during the period. The increase in loans was primarily in both commercial,
commercial real estate and real estate construction loans and was funded with a
increase in deposits and a decrease in securities. The increase in deposits was
primarily in certificates of deposit partially offset by a decrease in both
interest bearing demand and savings accounts. For more information on the
change in cash and cash equivalents, see the Consolidated Statements of Cash
Flows on page 5 of this report.
Loans and Deposits
Below are summaries of outstanding loans and deposits at September 30,
1995 compared to December 31, 1994 (in thousands):
1995 1994
---- ----
Loans
- -----
Commercial $ 19,729 $ 18,255
Real Estate
Construction 7,780 5,649
Commercial 27,828 25,736
1-4 Single family 37,822 38,801
Installment 19,917 18,727
Agricultural 13,631 12,750
Other 2,871 2,232
--------- ---------
Total loans $ 129,578 $ 122,150
========= =========
Deposits
- --------
Non-interest bearing $ 27,968 $ 27,245
Interest bearing demand 38,207 39,626
Money market accounts and
other savings accounts 48,696 50,948
Time deposits, $100,000 or more 12,283 12,155
Other time deposits 52,309 45,216
--------- ---------
Total deposits $ 179,463 $ 175,190
========= =========
Non-accrual and Past Due Loans
Certain information regarding non-accrual, past due, and restructured
loans is set forth in the following table (in thousands):
SEPTEMBER 30, DECEMBER 31,
1995 1994 1994
---- ---- ----
Past due 30+ days and
still accruing $1,670 $ 785 $ 1,675
Non-accrual loans 306 131 388
Past due and non-accrual
loans as a percentage
of loans 1.5% .8% 1.7%
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The total of past due loans and non-accrual loans decreased $87,000 to
$1,976,000 at September 30, 1995 compared to $2,063,000 at December 31, 1994.
The decrease was primarily in non-accrual loans. Total past due and non-accrual
loan increased significantly since September 30, 1994; however, that continue
to be at an acceptable level when measured as a percentage of loans. The
increase was primarily in real estate construction, 1-4 single family,
commercial and commercial real estate, offset by a decrease in agricultural
loans. Bancorp does not anticipate any significant losses with respect to these
loans or any other assets not reported above.
Stockholders' Equity and Liquidity
Bancorp's stockholders' equity at September 30, 1995 was $15,315,000
compared to $13,398,000 at December 31, 1994. On a per share basis,
stockholders' equity totaled $15.10 compared to $13.41 on the same dates,
respectively. Bancorp's annualized return on average equity during the first
nine months of 1995 totaled 19.6 percent compared to 13.5 percent during the
same period a year ago. The increase in stockholders' equity was the result of
the retention of earnings after payment of $602,000 in cash dividends, $88,000
from the exercise of 15,322 shares related to stock options, and by a $350,000,
net of tax, decrease in the unrealized loss on securities available for sale.
Current regulatory capital adequacy guidelines require bank holding
companies and banks to maintain a minimum "leverage" ratio of core capital
(which excludes unrealized gain and losses on securities available for sale) to
total assets of at least 4 percent.
In addition to the leverage ratio requirements, the Bancorp is subject
to risked-based capital guidelines, under which risk percentages are assigned
to various categories of assets and off balance sheet items to calculate a
risk-adjusted capital ratio. They require, Tier I capital of 4 percent and
Total capital of 8 percent.
Below is a summary of the various capital ratios of Bancorp and
subsidiaries at September 30, 1995 compared to December 31, 1994.
North Regulatory
Ratio Bancorp Central Central Minimum
- ----- ------- ------- ------- ----------
Leverage 9/30/95 7.52% 8.30% 8.76% 4.0%
12/31/94 7.03% 8.58% 8.06%
Tier I capital 9/30/95 11.60% 12.29% 15.85% 4.0%
12/31/94 11.16% 13.02% 14.43%
Total capital 9/30/95 12.85% 13.54% 17.11% 8.0%
12/31/94 12.41% 14.28% 15.69%
The above ratios do not include unrealized gains and losses on
securities available for sale which are excluded from the ratios by the federal
regulatory agencies.
Bancorp increased it's liquidity position during the third quarter of
1995 by selling approximately $10.5 million portfolio real estate loans and
SBA loans. These loans were sold in anticipation of future liquidity
requirements. As a result, Bancorp believes its current liquidity position to
be more than adequate to meet future funding needs. Liquidity indicators
include the loan to deposit ratio, which totaled 72 percent and 70 percent on
September 30, 1995 and December 31, 1994, respectively, and the amount of
interest bearing deposits and investment securities maturing in one year, which
totaled $35,846,000 and
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$21,129,000 on the same dates, respectively. Deposits in excess of $100,000 and
short-term borrowing, considered by Bancorp as volatile liabilities, increased
from $14,355,000 at December 31, 1994 to $14,776,000 at September 30, 1995.
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Bancorp filed a current report on Form 8-K dated August 23,
1995 indicating a change in Bancorp's certifying accountant. No financial
statements were filed as part of the report.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CENTRAL BANCORPORATION
(Registrant)
Date October 27, 1995 By /S/ GARY M. BOLYARD
------------------------------- -------------------------
Gary M. Bolyard
President and Chief
Executive Officer
Date October 27, 1995 By /S/ JOSEPH E. RIORDAN
------------------------------- -------------------------
Joseph E. Riordan
Treasurer and Assistant
Secretary (Principal
Financial Officer)
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