1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended JUNE 30, 1997
-------------------------------------------------
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ______________________ to _______________________
Commission file number. 0-15752
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CENTURY BANCORP, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
COMMONWEALTH OF MASSACHUSETTS 04-2498617
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) IdentificationNo.)
400 MYSTIC AVENUE, MEDFORD, MA 02155
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(617)391-4000
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities and Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. X Yes
No
Indicate the number of shares outstanding of each of the registrant's classes
of common stock as of June 30, 1997:
CLASS A COMMON STOCK, $1.00 PAR VALUE 3,485,297 SHARES
CLASS B COMMON STOCK, $1.00 PAR VALUE 2,292,470 SHARES
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.
Date: AUGUST 6, 1997 CENTURY BANCORP, INC.
- ----------------------------------- -----------------------------------
(Registrant)
/s/ Paul V. Cusick Jr. /s/ Kenneth A. Samuelian
- ----------------------------------- -----------------------------------
PAUL V. CUSICK, JR. KENNETH A. SAMUELIAN
VICE PRESIDENT AND TREASURER VICE PRESIDENT AND CONTROLLER,
(PRINCIPAL FINANCIAL OFFICER) CENTURY BANK & TRUST COMPANY
(CHIEF ACCOUNTING OFFICER)
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Century Bancorp, Inc.
Page
Index Number
----- ------
Part I. Financial Information
- ------- ---------------------
Item 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets:
June 30, 1997 and 1996; March 31, 1997 and
December 31, 1996. 3
Consolidated Statements of Income:
Three (3) Months Ended June 30, 1997
and 1996; and six (6) Months Ended
June 30, 1997 and 1996. 4
Consolidated Statements of Cash Flows:
Six (6) Months Ended June 30, 1997
and 1996. 5
Consolidated Changes in Stockholders
Equity: December 31, 1995 through
June 30, 1997. 6
Notes to Consolidated Financial
Statements 7-11
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS 12-14
Part II. Other Information
- -------- -----------------
Item 1 through Item 6 15
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PART I - Item 1
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Century Bancorp, Inc. - Consolidated Balance Sheets (unaudited)
- -------------------------------------------------------------------------------------------------------------------------------
(000's) Jun 30, Mar 31, Dec 31, Jun 30,
Assets 1997 1997 1996 1996
- ------ -------- -------- -------- --------
Cash and due from banks $ 47,660 $ 38,371 $ 46,681 $ 32,165
Federal funds sold 0 0 21,000 0
Interest-bearing deposits in other banks 72 0 0 0
-------- -------- -------- --------
Total cash and cash equivalents 47,732 38,371 67,681 32,165
-------- -------- -------- --------
Securities available-for-sale, amortized cost $85,169; $83,230;
$81,140; $93,803, respectively 85,019 82,544 81,015 93,145
Securities held-to-maturity, market value $108,865; $111,483;
$107,331; $100,139, respectively 109,196 113,168 107,715 101,613
Loans, net of unearned discount:
Commercial & industrial 44,389 44,857 41,006 40,156
Construction & land development 8,061 6,025 3,576 3,187
Commercial real estate 141,240 132,909 133,757 131,499
Industrial revenue bonds 2,863 2,948 3,030 3,204
Residential real estate 80,054 77,335 76,081 77,405
Residential real estate held-for-sale 793 309 557 1,895
Consumer 18,340 15,642 12,749 8,864
Home equity 16,695 16,703 17,330 17,669
Overdrafts 259 305 194 133
-------- -------- -------- --------
Total loans, net of unearned discount 312,694 297,033 288,280 284,012
Less allowance for loan losses (4,438) (4,348) (4,179) (4,012)
-------- -------- -------- --------
Net loans 308,256 292,685 284,101 280,000
Bank premises and equipment, net 8,570 8,528 8,265 8,420
Accrued interest receivable 4,403 4,874 4,283 4,308
Other real estate owned 58 134 182 313
Other assets 7,959 8,171 7,615 12,011
-------- -------- -------- --------
Total assets $571,193 $548,475 $560,857 $531,975
======== ======== ======== ========
Liabilities
- -----------
Deposits:
Demand deposits $103,944 $ 95,631 $111,704 $ 90,122
Savings and NOW deposits 136,597 132,554 129,792 132,007
Money market accounts 68,828 70,570 69,772 71,746
Time deposits 147,413 152,448 164,867 155,724
-------- -------- -------- --------
Total deposits 456,782 451,203 476,135 449,599
Securities sold under agreements to repurchase 20,270 19,980 17,790 13,650
Federal Home Loan Bank (FHLB) borrowings and other borrowed funds 36,609 21,474 12,353 17,176
Other liabilities 7,324 7,444 7,090 7,106
-------- -------- -------- --------
Total liabilities 520,985 500,101 513,368 487,531
Stockholders' equity
- --------------------
Class A common stock, $1.00 par value per share; 3,515 3,503 3,488 3,422
authorized 10,000,000 shares; issued 3,515,297
Class B common stock, $1.00 par value per share; 2,340 2,340 2,348 2,393
authorized 5,000,000 shares; issued 2,340,020
Additional paid-in capital 10,840 10,806 10,786 10,725
Retained earnings 33,778 32,304 31,117 28,464
Treasury stock, 77,550 shares (177) (177) (177) (177)
-------- -------- -------- --------
Realized stockholders' equity 50,296 48,776 47,562 44,827
Unrealized losses on securities available-for-sale, net of taxes (88) (402) (73) (383)
-------- -------- -------- --------
Total stockholders' equity 50,208 48,374 47,489 44,444
-------- -------- -------- --------
Total liabilities and stockholders' equity $571,193 $548,475 $560,857 $531,975
======== ======== ======== ========
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Century Bancorp, Inc. - Consolidated Statements of Income (unaudited)
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(000's except share data) Three months ended June 30, Six months ended June 30,
1997 1996 1997 1996
---------- ---------- ---------- ----------
Interest income
Loans $ 7,112 $ 6,529 $ 13,777 $ 13,066
Securities held-to-maturity 1,802 1,446 3,615 2,585
Securities available-for-sale 1,300 1,496 2,543 2,959
Interest-bearing deposits in other banks 0 2 0 2
Federal funds sold 118 233 293 489
---------- ---------- ---------- ----------
Total interest income 10,332 9,706 20,228 19,101
Interest expense
Savings and NOW deposits 1,062 1,001 2,007 1,942
Money market accounts 485 525 969 1,056
Time deposits 2,094 2,290 4,224 4,507
Securities sold under agreements to repurchase 213 171 413 372
FHLB borrowings and other borrowed funds 138 54 224 67
---------- ---------- ---------- ----------
Total interest expense 3,992 4,041 7,837 7,944
---------- ---------- ---------- ----------
Net interest income 6,340 5,665 12,391 11,157
Provision for loan losses 135 255 390 510
---------- ---------- ---------- ----------
Net interest income after provision
for loan losses 6,205 5,410 12,001 10,647
Other operating income
Service charges on deposit accounts 438 431 849 819
Lockbox fees 414 362 723 732
Brokerage commissions 267 281 561 620
Gain on sales of loans 30 77 51 165
Other income 106 119 215 222
---------- ---------- ---------- ----------
Total other operating income 1,255 1,270 2,399 2,558
---------- ---------- ---------- ----------
Operating expenses
Salaries and employee benefits 3,022 2,874 6,035 5,868
Occupancy 315 343 634 735
Equipment 282 269 555 566
Other real estate owned 6 12 20 34
Other 1,038 1,004 2,050 1,916
---------- ---------- ---------- ----------
Total operating expenses 4,663 4,502 9,294 9,119
---------- ---------- ---------- ----------
Income before income taxes 2,797 2,178 5,106 4,086
Provision for income taxes 1,133 880 2,067 1,603
---------- ---------- ---------- ----------
Net income $ 1,664 $ 1,298 $ 3,039 $ 2,483
========== ========== ========== ==========
- ------------------------------------------------------------------------------------------------------------------------
Share data:
Weighted average number of shares outstanding 5,769,282 5,736,220 5,765,302 5,731,224
Net income per share $ 0.29 $ 0.23 $ 0.53 $ 0.43
Cash dividends declared:
Class A common stock $ 0.0500 $ 0.0400 $ 0.1000 $ 0.0800
Class B common stock $ 0.0070 $ 0.0056 $ 0.0140 $ 0.0112
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Century Bancorp, Inc. - Consolidated Statements of Cash Flows (unaudited) 1997 1996
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For the six months ended
June 30,
(000's)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,039 $ 2,483
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 390 510
Deferred income taxes (214) (233)
Net depreciation and amortization 294 353
Increase in accrued interest receivable (120) (16)
Increase in other assets (223) (4,382)
Loans originated for sale (3,538) (11,879)
Proceeds from sales of loans 3,529 11,465
Gain on sales of loans (51) (165)
Loss (gain) on sales of real estate owned 4 (42)
Increase in other liabilities 234 205
-------- --------
Net cash provided by (used in) operating activities 3,344 (1,701)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of securities available-for-sale 13,056 30,680
Purchase of securities available-for-sale (17,000) (24,237)
Proceeds from maturities of securities held-to-maturity 7,502 28,750
Purchase of securities held-to-maturity (8,925) (52,395)
Net (increase) decrease in loans (24,473) 1,352
Proceeds from sales of real estate owned 316 749
Capital expenditures (846) (235)
-------- --------
Net cash used in investing activities (30,370) (15,336)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in time deposits (17,454) 706
Net decrease in demand, savings,money market and NOW deposits (1,899) (9,722)
Net proceeds from the issuance of common stock 73 51
Cash Dividends (379) (296)
Net increase (decrease) in securities sold under agreements to repurchase 2,480 (7,930)
Net increase in FHLB borrowings and other borrowed funds 24,256 15,279
-------- --------
Net cash provided by (used in) financing activities 7,077 (1,912)
-------- --------
Net decrease in cash and cash equivalents (19,949) (18,949)
Cash and cash equivalents at beginning of year 67,681 51,114
-------- --------
Cash and cash equivalents at end of period $ 47,732 $ 32,165
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 7,442 $ 7,503
Income taxes 2,327 2,140
Noncash transactions:
Property acquired through foreclosure $ 196 $ 175
Change in unrealized losses on securities available-for-sale, net of taxes $ (15) $ (728)
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Century Bancorp, Inc. - Consolidated Statement of Changes in Stockholders' Equity (unaudited)
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December 31, 1995 through June 30, 1997
(000's) Unrealized
Treasury Treasury Gains(losses)
Stock Stock on Securities
Class A Class B Additional Class A, Class B, available- Total
Common Common Paid-In Retained 30,000 47,550 for-sale, Stockholders'
Stock Stock Capital Earnings Shares Shares net of taxes, Equity
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1995 $3,406 $2,396 $10,687 $26,278 $(136) $(41) $ 345 $42,935
Conversion of Class B common
stock to Class A common
stock, 3,000 shares 3 (3) - - - - - -
Stock options exercised,
13,800 shares 13 - 38 - - - - 51
Net income, 1st quarter 1996 - - - 1,184 - - - 1,184
Net income, 2nd quarter 1996 - - - 1,298 - - - 1,298
Cash dividends, Class A
common stock $.040 per
share, per quarter - - - (270) - - - (270)
Cash dividends, Class B
common stock $.0056 per
share, per quarter - - - (26) - - - (26)
Net change in unrealized
gains(losses) on securities
available-for-sale, net of
taxes - - - - - - (728) (728)
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BALANCE, JUNE 30, 1996 $3,422 $2,393 $10,725 $28,464 $(136) $(41) $(383) $44,444
Conversion of Class B common
stock to Class A common
stock, 45,200 shares 45 (45) - - - - - -
Stock options exercised,
20,550 shares 21 - 61 - - - - 82
Net income, 3rd quarter 1996 - - - 1,404 - - - 1,404
Net income, 4th quarter 1996 - - - 1,548 - - - 1,548
Cash dividends, Class A common
stock $.040 per share, per
quarter - - - (273) - - - (273)
Cash dividends, Class B common
stock $.0056 per share, per
quarter - - - (26) - - - (26)
Net change in unrealized
gains(losses) on securities
available-for-sale, net of
taxes - - - - - - 310 310
--------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1996 $3,488 $2,348 $10,786 $31,117 $(136) $(41) $ (73) $47,489
Conversion of Class B common
stock to Class A common
stock, 7,700 shares 8 (8) - - - - - -
Stock options exercised,
7,000 shares 7 - 20 - - - - 27
Net income, 1st quarter 1997 - - - 1,376 - - - 1,376
Cash dividends, Class A common
stock $.050 per share - - - (173) - - - (173)
Cash dividends, Class B common
stock $.0070 per share - - - (16) - - - (16)
Net change in unrealized
gains(losses) on securities
available-for-sale, net of
taxes - - - - - - (329) (329)
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BALANCE, MARCH 31, 1997 $3,503 $2,340 $10,806 $32,304 $(136) $(41) $(402) $48,374
Stock options exercised,
12,300 shares 12 - 34 - - - - 46
Net income, 2nd quarter 1997 - - - 1,664 - - - 1,664
Cash dividends, Class A common
stock $.050 per share - - - (174) - - - (174)
Cash dividends, Class B common
stock $.0070 per share - - - (16) - - - (16)
Net change in unrealized
gains(losses) on securities
available-for-sale, net of
taxes - - - - - - 314 314
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BALANCE, JUNE 30, 1997 $3,515 $2,340 $10,840 $33,778 $(136) $(41) $ (88) $50,208
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Century Bancorp Inc.
Notes to Consolidated Financial Statements
BASIS OF PRESENTATION In the opinion of management, the accompanying
- --------------------- unaudited interim consolidated financial statements
reflect all adjustments, consisting of normal recurring
adjustments, which are necessary to present a fair
statement of the results for the interim period
presented of Century Bancorp, Inc. (the "Company"). The
results of operations for the interim period ended June
30, 1997, are not necessarily indicative of results for
the entire year. It is suggested that these statements
be read in conjunction with the consolidated financial
statements and the notes thereto included in the
Company's Annual Report.
As of January 1, 1997, the Company adopted Financial
Accounting Standards Board Statement of Financial
Accounting Standards ("SFAS") No. 125, "Accounting for
Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities." This statement provides
accounting and reporting standards for transfers and
servicing of financial assets and extinguishment of
liabilities based on consistent application of a
financial-components approach that focuses on control.
It distinguishes transfers of financial assets that are
sales from transfers that are secured borrowings. Under
the financial-components approach, after a transfer of
financial assets, an entity recognizes all financial
and servicing assets it controls and liabilities it has
incurred and derecognizes financial assets it no longer
controls and liabilities that have been extinguished.
The financial-components approach focuses on assets
and liabilities that exist after the transfer. Many of
these assets and liabilities are components of
financial assets that existed prior to the transfer. If
a transfer does not meet the criteria for a sale, the
transfer is accounted for as a secured borrowing with
pledge of collateral. SFAS No. 127, "Deferral of the
effective Date of Certain Provisions of SFAS No. 125,"
requires the deferral of implementation as it relates
to repurchase agreements, dollar-rolls, securities
lending and similar transactions until after December
31, 1997. Earlier or retroactive applications of this
statement is not permitted. The Company has determined
that the adoption of this statement will not have a
material impact on its consolidated financial
statements.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ------------------------------------------
The consolidated financial statements include the
accounts of Century Bancorp, Inc. (the "Company") and
its wholly-owned subsidiary, Century Bank and Trust
Company (the "Bank"). The Company provides a full range
of banking services to individual, business and
municipal customers in Massachusetts. As a bank holding
company, the Company is subject to the regulation and
supervision of the Federal Reserve Board. The Bank, a
state chartered financial institution, is subject to
supervision and regulation by applicable state and
federal banking agencies, including the Federal Reserve
Board, the Office of the Comptroller of the Currency
(the "Comptroller") and the Federal Deposit Insurance
Corporation (the "FDIC").
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The Bank is also subject to various requirements and
restrictions under federal and state law, including
requirements to maintain reserves against deposits,
restrictions on the types and amounts of loans that may
be granted and the interest that may be charged
thereon, and limitations on the types of investments
that may be made and the types of services that may be
offered. Various consumer laws and regulations also
affect the operations of the Bank. In addition to the
impact of regulation, commercial banks are affected
significantly by the actions of the Federal Reserve
Board as it attempts to control the money supply and
credit availability in order to influence the economy.
All aspects of the Company's business are highly
competitive. The Company faces aggressive competition
from other lending institutions and from numerous other
providers of financial services.
BASIS OF FINANCIAL STATEMENT PRESENTATION
- -----------------------------------------
The financial statements have been prepared in
conformity with generally accepted accounting
principles and to general practices within the banking
industry. In preparing the financial statements,
management is required to make estimates and
assumptions that affect the reported amounts of assets
and liabilities as of the date of the balance sheet and
revenues and expenses for the period. Actual results
could differ from those estimates.
Material estimates that are susceptible to change in
the near-term relate to the allowance for losses on
loans. Management believes that the allowance for
losses on loans is adequate based on independent
appraisals and review of other factors associated with
the assets. While management uses available information
to recognize losses on loans, future additions to the
allowance for loans may be necessary based on changes
in economic conditions. In addition, regulatory
agencies periodically review the Company's allowance
for losses on loans. Such agencies may require the
Company to recognize additions to the allowance for
loans based on their judgements about information
available to them at the time of their examination.
INVESTMENT SECURITIES
- ---------------------
Debt securities that the Company has the positive
intent and ability to hold to maturity are classified
as held-to-maturity and reported at amortized cost;
debt and equity securities that are bought and held
principally for the purpose of selling are classified
as trading and reported at fair value, with unrealized
gains and losses included in earnings; and debt and
equity securities not classified as either
held-to-maturity or trading are classified as
available-for-sale and reported at fair value, with
unrealized gains and losses excluded from earnings and
reported as a separate component of stockholders'
equity, net of estimated related income taxes. The
Company has no securities held for trading.
Premiums and discounts on investment securities are
amortized or accreted into income by use of the
level-yield method. If a decline in fair value below
the amortized cost basis of an investment is judged to
be other than temporary, the cost basis of the
investment is written down to fair value. The amount of
the writedown is included as a charge to earnings.
Gains and losses on the sale of investment securities
are recognized at the time of sale on a specific
identification basis.
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LOANS
- -----
Interest on loans is recognized based on the daily
principal amount outstanding. Accrual of interest is
discontinued when loans become 90 days delinquent
unless the collateral is sufficient to cover both
principal and interest and the loan is in the process
of collection. Loans, including impaired loans, on
which the accrual of interest has been discontinued are
designated non-accrual loans. When a loan is placed on
non-accrual, all income which has been accrued but
remains unpaid is reversed against current period
income and all amortization of deferred loan fees is
discontinued. Non-accrual loans may be returned to an
accrual status when principal and interest payments are
not delinquent and the risk characteristics of the loan
have improved to the extent that there no longer exists
a concern as to the collectibility of principal and
income. Income received on non-accrual loans is either
recorded in income or applied to the principal balance
of the loan depending on management's evaluation as to
the collectibility of principal.
Loans held for sale are carried at the lower of
aggregate cost or market value. Gain or loss on sales
of loans is recognized at the time of sale when the
sales proceeds exceed or are less than the Bank's
investment in the loans. Additionally, gains and losses
are recognized when the average interest rate on the
loans sold, adjusted for normal servicing fee, differs
from the agreed yield to the buyer. The resulting
excess service fee receivables, if any, are amortized
using the interest method over the estimated life of
the loans, adjusted for estimated prepayments.
Discounts and premiums on loans purchased from failed
financial institutions that represent market yield
adjustments are accreted or amortized to interest
income over the estimated lives of the loans using the
level-yield method.
Loan origination fees and related direct incremental
loan origination costs are offset and the resulting net
amount is deferred and amortized over the life of the
related loans using the level-yield method.
The Bank accounts for impaired loans, except those
loans that are accounted for at fair value or at lower
of cost or fair value, at the present value of the
expected future cash flows discounted at the loan's
effective interest rate. This method applies to all
loans, uncollateralized as well as collateralized,
except large groups of smaller-balance homogeneous
loans that are collectively evaluated for impairment,
loans that are measured at fair value and leases and
debt securities. Management considers the payment
status, net worth and earnings potential of the
borrower, and the value and cash flow of the collateral
as factors to determine if a loan will be paid in
accordance with its contractual terms. Management does
not set any minimum delay of payments as a factor in
reviewing for impaired classification. Impaired loans
are charged-off when management believes that the
collectibility of the loan's principal is remote. In
addition, criteria for classification of a loan as
in-substance foreclosure has been modified so that such
classification need be made only when a lender is in
possession of the collateral. The Bank measures the
impairment of troubled debt restructurings using the
pre-modification rate of interest.
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ALLOWANCE FOR LOAN LOSSES
- -------------------------
The allowance for loan losses is based on management's
evaluation of the quality of the loan portfolio and is
used to absorb losses resulting from loans which
ultimately prove uncollectible. In determining the
level of the allowance, periodic evaluations are made
of the loan portfolio which take into account such
factors as the character of the loans, loan status,
financial posture of the borrowers, value of collateral
securing the loans and other relevant information
sufficient to reach an informed judgement. The
allowance is increased by provisions charged to income
and reduced by loan charge-offs, net of recoveries.
While management uses available information in
establishing the allowance for loan losses, future
adjustments to the allowance may be necessary if
economic conditions differ substantially from the
assumptions used in making the evaluations. Loans are
charged off in whole or in part when, in management's
opinion, collectibility is not probable.
Management believes that the allowance for loan losses
is adequate. In addition, various regulatory agencies,
as part of their examination process, periodically
review the Company's allowance for loan losses. Such
agencies may require the Company to recognize additions
to the allowance based on their judgements about
information available to them at the time of their
examination.
OTHER REAL ESTATE OWNED
- -----------------------
Other real estate owned ("OREO") includes real estate
acquired by foreclosure and real estate substantively
repossessed. Real estate acquired by foreclosure is
comprised of properties acquired through foreclosure
proceedings or acceptance of a deed in lieu of
foreclosure. Real estate substantively repossessed
includes only those loans for which the Company has
taken possession of the collateral, but has not
completed legal foreclosure proceedings. Both
in-substance foreclosures and real estate formally
acquired in settlement of loans are recorded at the
lower of the carrying value of the loan or the fair
value of the property constructively or actually
received. Loan losses from the acquisition of such
properties are charged against the allowance for loan
losses. After foreclosure, if the fair value of an
asset minus its estimated cost to sell is less than the
carrying value of the asset, such amount is recognized
as a valuation allowance. If the fair value of an asset
less its estimated cost to sell subsequently increases
so that the resulting amount is more than the asset's
current carrying value, the valuation allowance is
reversed by the amount of the increase. Increases or
decreases in the valuation allowance are charged or
credited to income. Gains upon disposition of OREO are
reflected in the statement of income as realized.
Realized losses are charged to the valuation allowance.
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BANK PREMISES AND EQUIPMENT
- ---------------------------
Bank premises and equipment are stated at cost less
accumulated depreciation and amortization. Depreciation
is computed using the straight-line method over the
estimated useful lives of the assets or the terms of
leases, if shorter.
It is general practice to charge the cost of
maintenance and repairs to operations when incurred;
major expenditures for improvements are capitalized and
depreciated.
INCOME TAXES
- ------------
The Company uses the asset and liability method of
accounting for income taxes. Under the asset and
liability method, deferred tax assets and liabilities
are recognized for the future tax consequences
attributable to differences between the financial
statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred
tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the
years in which temporary differences are expected to be
recovered or settled. Under this method, the effect on
deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that
includes the enactment date.
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Item 2 MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Overview For the quarter ended and year-to-date ended June 30,
- -------- 1997.
Earnings for the second quarter ended June 30, 1997
were $1,664 thousand, an increase of 28.2% when
compared with the second quarter 1996earnings of $1,298
thousand. Earnings per share for the second quarter
1997 were $.29 versus $.23 for the second quarter of
1996.
For the six months ending June 30, 1997, earnings were
$3,039 thousand an increase of 22.4% when compared with
the same period last year earnings of $2,483 thousand.
Earnings per share were $.53 for the first six months
of 1997 compared with $.43 for the first six months of
1996.
FINANCIAL CONDITION
- -------------------
Loans On June 30, 1997 loans outstanding, net of unearned
- ----- discount, were $312.7 million an increase of 10.1% from
the total on June 30, 1996. At June 30, 1997 Commercial
Real Estate loans accounted for 45.2% and Residential
Real Estate loans accounted for 25.9% of total loans.
Construction loans increased to $8.1 million.
Allowance for Loan Losses
- -------------------------
The allowance for loan losses was 1.42% of total loans
on June 30, 1997 compared with 1.41% on June 30, 1996.
Net charge-offs for the six month period ended June 30,
1997, were $131 thousand, compared with $406 thousand
for the same period in 1996. The allowance for loan
losses is based on management's overview of the quality
of the loan portfolio, previous loan loss experience
and current economic conditions.
As of June 30, 1997, loans on non-accrual status
totaled $1.9 million or .61% of loans; loans past due
90 days or more totaled $209 thousand; restructured
performing loans totaled $3.4 million.
Securities Held-to-Maturity
- ---------------------------
The securities held-to-maturity portfolio totaled
$109.2 million on June 30, 1997, an increase of 7.5%
from the total on June 30, 1996. The portfolio is
concentrated in United States Treasury and Agency
securities and had a weighted average maturity of 3.6
years.
Securities Available-for-Sale
- -----------------------------
The securities available-for-sale portfolio totaled
$85.0 million at June 30, 1997, a decrease of 8.7 %
from June 30, 1996. The portfolio is concentrated in
United States Treasury and Agency securities and had a
weighted average maturity of 2.0 years.
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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION (CON'T.)
Other Assets
- ------------
On June 30, 1997 other real estate owned ("OREO")
totaled $58 thousand, a decrease of $313 thousand from
June 30, 1996. During the second quarter $60 thousand
was added to OREO and $136 thousand of OREO was sold.
Deposits and Borrowed Funds
- ---------------------------
On June 30, 1997 deposits totaled $456.8 million, which
is 1.6% above total deposits on June 30, 1996. Borrowed
funds totaled $56.9 million compared to $30.8 million
last year. The majority of the increase was an increase
in borrowing from the Federal Home Loan Bank of $16.0
million.
RESULTS OF OPERATIONS
- ---------------------
Net Interest Income
- -------------------
For the three month period ended June 30, 1997 net
interest income totaled $6.3 million, an increase of
11.9% from the comparable period in 1996.
For the six month period ended June 30, 1997 net
interest income totaled $12.4 million, an increase of
11.1% from the comparable period in 1996.
Provision for Loan Losses
- -------------------------
Loan loss provision for the six months ended June 30,
1997 was $390 thousand compared with $510 thousand for
the same period in 1996.
Non-Interest Income and Expense
- -------------------------------
Other operating income for the quarter ended June 30,
1997 was $1.3 million, compared to the same amount for
the second quarter of 1996. Income from the gain on
sales of loans decreased because of a decrease in
mortgage loan originations. Brokerage commissions
decreased because of decreased activity in that line of
business. The lockbox fee increase was due to an
increase in lockbox related volume.
During the second quarter 1997, operating expenses,
exclusive of OREO expenses, increased by 4.0% from the
same quarter last year. Expenses associated with OREO
decreased by $6 thousand for the same period.
For the six month period ended June 30, 1997 other
operating income decreased 6.2% while operating
expenses, exclusive of OREO expenses, increased 2.1%
from the same period in 1996.
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14
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION (CON'T.)
Income Taxes
- ------------
For the second quarter of 1997, the Company's income
taxes totaled $1,133 thousand on pretax income of
$2,797 thousand for an effective tax rate of 40.5%. For
last year's corresponding quarter, the Company's income
taxes totalled $880 thousand on pretax income of $2,178
thousand for an effective rate of 40.4%.
For the six month period ended June 30, 1997 income
taxes totaled $2,067 thousand on pretax income of
$5,106 thousand for an effective tax rate of 40.5%. For
last year's corresponding period, income taxes totalled
$1,603 thousand on pretax income of $4,086 thousand for
an effective rate of 39.2%.
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15
Part II - Other Information
Item 1 Legal proceedings - Not applicable
Item 2 Change in securities - Not applicable
Item 3 Defaults upon senior securities - Not applicable
Item 4 Submission of matters to a vote - Not applicable
Item 5 Other information - Not applicable
Item 6 Exhibits and reports on form 8-K - Not applicable
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