UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
{ X } Quarterly Report Under Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the Quarterly Period Ended June 30, 2000 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: 0-23605
CAVALRY BANCORP, INC.
---------------------
(exact name of registrant as specified in its charter)
Tennessee 62-1721072
- -------------------------------- -----------------
(State or other jurisdiction (I.R.S. Employer
of incorporationor organization) I.D. Number)
114 West College Street, Murfreesboro, Tennessee 37130
- ------------------------------------------------ --------------
(Address of principal executive offices) (Zip Code)
(615) 893-1234
-----------------------------
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 Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and has been subject to such filing requirements
for the past 90 days.
Yes X No
--- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock Issued and Outstanding: 7,104,801 as of August 10, 2000.
CAVALRY BANCORP, INC.
Table of Contents
Part I Financial Information Page
Item 1. Financial Statements
Consolidated Balance Sheets at June 30, 2000 (unaudited)
and December 31, 1999 1
Consolidated Statements of Income (unaudited) for the
Three Month and Six Month Periods Ended June 30, 2000 and 1999 2
Consolidated Statements of Comprehensive Income (unaudited) for
The Three and Six Month Periods Ended June 30, 2000 and 1999 3
Consolidated Statements of Cash Flows (unaudited) for the
Six Month Periods Ended June 30, 2000 and 1999 4
Notes to Consolidated Financial Statements (unaudited) 5-6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-12
Item 3. Quantitative and Qualitative Disclosures About Market Risk 12-13
Part II Other Information 14
Signatures 15
PART I. Financial Information
ITEM 1. FINANCIAL STATEMENTS
CAVALRY BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2000 (UNAUDITED) AND DECEMBER 31, 1999
(DOLLARS IN THOUSANDS)
June 30, December 31,
Assets 2000 1999
- ----------------------------------------------- ----------- ----------
(Unaudited)
Cash. . . . . . . . . . . . . . . . . . . . . . . $ 18,242 $ 20,043
Interest-bearing deposits with
other financial institutions. . . . . . . . . . 21,669 74,379
------------ ---------
Cash and cash equivalents . . . . . . . . . . . . 39,911 94,422
Investment securities available-for-sale
at fair value (amortized cost:. . . . . . . . . 23,938 6,964
$23,971 and $6,968 at June 30, 2000
and December 31, 1999, respectively)
Mortgage-backed securities held
to maturity - at
amortized cost (fair value: . . . . . . . . . . 624 651
$616 and $645 at June 30, 2000
and December 31, 1999, respectively)
Loans held for sale, at estimated fair value. . . 4,399 4,485
Loans receivable, net . . . . . . . . . . . . . . 277,087 272,211
Accrued interest receivable . . . . . . . . . . . 2,076 1,784
Office properties and equipment, net. . . . . . . 14,029 9,892
Federal Home Loan Bank of Cincinnati
stock - at cost . . . . . . . . . . . . . . . . 1,946 1,878
Real estate and other assets acquired
in settlement of loans. . . . . . . . . . . . . 136 166
Other assets. . . . . . . . . . . . . . . . . . . 2,907 2,966
------------ ---------
Total assets. . . . . . . . . . . . . . . . . . . $ 367,053 $395,419
============ =========
Liabilities and Equity
- -------------------------------------------------
Liabilities:
Deposits. . . . . . . . . . . . . . . . . . . . . $ 322,682 $308,929
Borrowings. . . . . . . . . . . . . . . . . . . . 1,605 45,000
Accounts payable and other liabilities. . . . . . 1,660 2,725
------------ ---------
Total liabilities. . . . . . . . . 325,947 356,654
------------ ---------
Shareholders' Equity:
Preferred stock, no par value
Authorized- 250,000 shares; none
issued or outstanding at
June 30, 2000 and December 31, 1999 . . . . . - -
Common stock, no par value
Authorized- 49,750,000 shares; issued
and outstanding 7,104,801 at
June 30, 2000 and December 31, 1999 . . . . . 11,276 10,972
Retained earnings . . . . . . . . . . . . . . . . 38,422 37,194
Unearned restricted stock . . . . . . . . . . . . (3,874) (4,380)
Unallocated ESOP Shares . . . . . . . . . . . . . (4,688) (5,019)
Accumulated other comprehensive loss, net of tax. (30) (2)
------------ ---------
Total Equity. . . . . . . . . . . . . . . . . . . 41,106 38,765
------------ ---------
Total Liabilities and Equity. . . . . . . . . . . $ 367,053 $395,419
============ =========
Note: The balance sheet at December 31, 1999 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See accompanying notes to consolidated financial statements.
1
CAVALRY BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
---- ---- ---- ----
Interest and dividend income:
Loans. . . . . . . . . . . . . . $ 6,420 $ 5,789 $ 12,548 $ 11,432
Investment securities. . . . . . 404 555 696 1,225
Deposits with other
financial institutions . . . . 365 429 914 920
Mortgage-backed securities
held to maturity. . . . . . . 11 12 21 21
---------- ---------- ---------- ----------
Total interest and
dividend income . . . 7,200 6,785 14,179 13,598
---------- ---------- ---------- ----------
Interest expense - deposits . . . 3,085 2,362 6,063 4,699
Interest expense - borrowings . . 15 - 145 -
---------- ---------- ---------- ----------
Total interest expense. . . 3,100 2,362 6,208 4,699
---------- ---------- ---------- ----------
Net interest income. . . . . . . 4,100 4,423 7,971 8,899
Provision for loan losses. . . . 67 423 141 512
---------- ---------- ---------- ----------
Net interest income after
provision for loan losses . . 4,033 4,000 7,830 8,387
---------- ---------- ---------- ----------
Non-interest income:
Servicing income. . . . . . . . 67 68 131 139
Gain on sale of loans, net. . . 442 465 756 906
Gain on sale of office
properties and equipment . . 3 - 18 -
Deposit servicing fees
and charges. . . . . . . . . 618 481 1,179 905
Trust service fees. . . . . . . 267 233 534 438
Other operating income. . . . . 56 59 179 136
---------- ---------- ---------- ----------
Total non-interest income . . 1,453 1,306 2,797 2,524
---------- ---------- ---------- ----------
Non-interest expenses:
Compensation, payroll taxes
and fringe benefits. . . . . 2,268 2,312 4,606 4,380
Occupancy expense. . . . . . . 193 179 349 347
Supplies, communications
and other office expenses . 189 219 400 450
Federal insurance premiums . . 16 38 31 75
Advertising expense. . . . . . 62 114 152 181
Equipment and service
bureau expense. . . . . . . 526 589 1,024 1,173
Other operating expense. . . . 350 364 728 723
---------- ---------- ---------- ----------
Total non-interest expenses 3,604 3,815 7,290 7,329
---------- ---------- ---------- ----------
Earnings before income
tax expense . . . . . . . . 1,882 1,491 3,337 3,582
Income tax expense. . . . . . . 771 626 1,398 1,489
---------- ---------- ---------- ----------
Net income . . . . . . . . . $ 1,111 $ 865 $ 1,939 $ 2,093
========== ========== ========== ==========
Basic earnings per share. . . . . $ 0.18 $ 0.13 $ 0.31 $ 0.31
========== ========== ========== ==========
Weighted average
shares outstanding . . . . . . 6,320,328 6,781,294 6,330,656 6,694,893
========== ========== ========== ==========
Dividends declared $0.05 per share payable July 14, 2000 for shareholders of
record date June 30, 2000.
See accompanying notes to consolidated financial statements.
2
CAVALRY BANCORP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(DOLLARS IN THOUSANDS)
(UNAUDITED)
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
---- ---- ---- ----
Net income . . . . . . . . . . . . . . $1,111 $865 $1,939 $2,093
Other comprehensive income, net of tax
Unrealized losses on securities
available for sale. . . . . . . . . . ( 2) (31) (28) (92)
------- ----- ------- -------
Comprehensive income . . . . . . . . . $1,109 $834 $1,911 $2,001
======= ===== ======= =======
See accompanying notes to consolidated financial statements.
3
CAVALRY BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(DOLLARS IN THOUSANDS)
(UNAUDITED)
2000 1999
---- ----
Operating activities:
Net cash provided by operating activities . . . . $ 1,619 $ 7,684
--------- ---------
Investing activities:
Increase in loans receivable, net. . . . . . . . . . . (4,793) (29,257)
Principal payments on mortgage
backed securities held to maturity. . . . . . . . 26 171
Proceeds from sales of office properties and equipment. 18 -
Purchase of investment securities
available for sale . . . . . . . . . . . . . . . . . (23,854) (26,083)
Proceeds from maturities of investment securities . . . 7,000 35,500
Purchase of office properties and equipment . . . . . . (4,571) (454)
--------- ---------
Net cash used in investing activities . . . . . (26,174) (20,123)
--------- ---------
Financing activities:
Net increase in deposits. . . . . . . . . . . . . . . . 13,753 16,324
Dividends paid. . . . . . . . . . . . . . . . . . . . . (710) (358)
Net decrease in borrowings. . . . . . . . . . . . . . . (43,395) -
Stock repurchase and retirement . . . . . . . . . . . . - (8,865)
Payments by borrowers for
property taxes and insurance. . . . . . . . . . . . . . 396 351
--------- ---------
Net cash provided by (used in)
financing activities. . . . . . . . . . . . . . (29,956) 7,452
--------- ---------
Decrease in cash and cash equivalents . . . . . . . . . . (54,511) (4,987)
Cash and equivalents, beginning of period . . . . . . . . 94,422 53,188
--------- ---------
Cash and cash equivalents, end of period . . . . . . . . $ 39,911 $ 48,201
--------- ---------
Supplement Disclosures of Cash
Flow Information:
Payments during the period for:
Interest. . . . . . . . . . . . . . . . . . . . . . . . . $ 6,230 $ 4,679
========= =========
Income taxes. . . . . . . . . . . . . . . . . . . . . . . $ 1,791 $ 2,254
========= =========
Supplemental Disclosures of Noncash
Investing and Financing Activities:
Interest credited to deposits. . . . . . . . . . . . . . $ 2,174 $ 1,958
========= =========
Increase in deferred tax asset related
to unrealized loss on investments. . . . . . . . . . . $ 10 $ 54
========= =========
Net unrealized losses on investment
securities available for sale . . . . . . . . . . . . $ (38) $ (146)
========= =========
Dividends declared and payable. . . . . . . . . . . . . . $ 355 $ 355
========= =========
See accompanying notes to consolidated financial statements.
4
Cavalry Bancorp, Inc.
Notes to Consolidated Financial Statements
1. Basis of Presentation
Cavalry Bancorp, Inc. (the "Company"), a Tennessee corporation, is the holding
company for Cavalry Banking (the "Bank") which is a federally chartered stock
savings bank.
The accompanying consolidated financial statements of the Company have been
prepared in accordance with Instructions to Form 10-Q. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. However, such
information reflects all adjustments (consisting solely of normal recurring
adjustments) which are, in the opinion of management, necessary for a fair
statement of results for the interim periods.
The results of operations for the three and six months ended June 30, 2000, are
not necessarily indicative of the results to be expected for the year ending
December 31, 2000. The consolidated financial statements and notes thereto
should be read in conjunction with the audited financial statements and notes
thereto for the year ended December 31, 1999.
2 Earnings Per Share
Earnings per share has been computed for the three and six months ended June 30,
2000, based upon weighted average common shares outstanding of 6,320,328 and
6,330,656 respectively. Earnings per share has been computed for the three and
six months ended June 30, 1999, based upon weighted average common shares
outstanding of 6,781,294 and 6,694,893 respectively. The Company had no
dilutive securities, therefore diluted earnings per share is the same as basic
earnings per share.
3. Business Segments
The Company and its subsidiary provide community oriented banking services to
individuals and businesses primarily within Rutherford, Bedford, and Williamson
counties in Middle Tennessee.
The Company's segments are identified by the products and services offered,
principally distinguished as banking, trust and mortgage banking operations.
Approximately 30% of mortgage banking revenues are derived each year from
transactions with agencies of the U.S. government. In addition, one unrelated
entity purchased approximately 50% of mortgages sold in 2000 and 1999.
Segment information is derived from the internal reporting system utilized by
management with accounting policies and procedures consistent with those
described in Note 1 of the 1999 Annual Report to Shareholders. Segment
performance is evaluated by the Company based on profit or loss before income
taxes. Revenue, expense and asset levels reflect those which can be
specifically identified and those assigned based on internally developed
allocation methods. These methods have been consistently applied.
5
Mortgage
For the quarter ended Banking Banking Trust Consolidated
June 30, 2000
Interest revenue. . . . . . . . $ 7,200 $ - $ - $ 7,200
Other income-external customers 674 67 267 1,008
Interest expense. . . . . . . . 3,100 - - 3,100
Depreciation and amortization . 159 29 8 196
Other significant items:
Provision for loan losses. . 67 - - 67
Gain on sales of assets. . . 3 442 - 445
Segment profit. . . . . . . . . 1,813 - 69 1,882
Segment assets. . . . . . . . . 362,129 4,521 403 367,053
Mortgage
For the quarter ended Banking Banking Trust Consolidated
June 30, 1999
Interest revenue. . . . . . . . $ 6,785 $ - $ - $ 6,785
Other income-external customers 540 68 233 841
Interest expense. . . . . . . . 2,362 - - 2,362
Depreciation and amortization . 239 50 10 299
Other significant items:
Provision for loan losses. . 423 - - 423
Gain on sales of assets. . . - 465 - 465
Segment profit. . . . . . . . . 1,535 (103) 59 1,491
Segment assets. . . . . . . . . 367,525 6,415 187 374,127
Mortgage
For the six months ended Banking Banking Trust Consolidated
June 30, 2000
Interest revenue. . . . . . . . $ 14,179 $ - $ - $ 14,179
Other income-external customers 1,358 131 534 2,023
Interest expense. . . . . . . . 6,208 - - 6,208
Depreciation and amortization . 331 62 17 410
Other significant items:
Provision for loan losses . 141 - - 141
Gain on sales of assets . . 18 756 - 774
Segment profit. . . . . . . . . 3,253 (52) 136 3,337
Segment assets. . . . . . . . . 362,129 4,521 403 367,053
Mortgage
For the six months ended Banking Banking Trust Consolidated
June 30, 1999
Interest revenue. . . . . . . . $ 13,598 $ - $ - $ 13,598
Other income-external customers 1,041 139 438 1,618
Interest expense. . . . . . . . 4,699 - - 4,699
Depreciation and amortization . 422 102 21 545
Other significant items:
Provision for loan losses. 512 - - 512
Gain on sales of assets . . - 906 - 906
Segment profit. . . . . . . . . 3,389 92 101 3,582
Segment assets. . . . . . . . . 367,525 6,415 187 374,127
6
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Private Securities Litigation Reform Act Safe Harbor Statement
This Quarterly Report contains forward-looking statements within the meaning of
the federal securities laws. These statements are not historical facts, rather
statements based on the Company's current expectations regarding its business
strategies and their intended results and its future performance.
Forward-looking statements are preceded by terms such as "expects," "believes,"
"anticipates," "intends," and similar expressions.
Forward-looking statements are not guarantees of future performance. Numerous
risks and uncertainties could cause the Company's actual results, performance,
and achievements to be materially different from those expressed or implied by
the forward-looking statements. Factors that may cause or contribute to these
differences include, without limitation, general economic conditions, including
changes in market interest rates and changes in monetary and fiscal policies of
the federal government; legislative and regulatory changes; and other factors
disclosed periodically in the Company's filings with the Securities and Exchange
Commission.
Because of the risks and uncertainties inherent in forward-looking statements,
readers are cautioned not to place undue reliance on them, whether included in
this report or made elsewhere from time to time by the Company or on its behalf.
The Company assumes no obligation to update any forward-looking statements.
Comparison of Financial Condition at June 30, 2000 and December 31, 1999
Total assets were $367.1 million at June 30, 2000, compared to $395.4 million at
December 31, 1999, a decrease of $28.3 million or 7.2%. This decrease was a
result of cash being used to reduce borrowings from $45.0 million to $1.6
million. This decrease was partially offset by an increase in investments from
increased deposits. Cash and cash equivalents decreased from $94.4 million at
December 31, 1999, to $39.9 million at June 30, 2000. This decrease was
primarily a result of cash used to retire $45.0 million in borrowings.
Investments available for sale increased from $7.0 million at December 31, 1999,
to $23.9 million at June 30, 2000, as a result of increased deposits. Loans
receivable net increased $4.9 million from $272.2 million at December 31, 1999,
to $277.1 million at June 30, 2000. The Bank continues to try to serve the
needs of the community by increasing deposits and using those funds to make
loans in the surrounding community.
7
Deposit accounts increased $13.8 million from $308.9 million at December 31,
1999, to $322.7 million at June 30, 2000. Certificates of deposit increased
$1.7 million from $151.0 million at December 31, 1999 to $152.7 million at June
30, 2000. Savings deposits increased $1.3 million from $13.0 million at
December 31, 1999 to $14.3 million at June 30, 2000. Money market accounts
increased $3.5 million from $63.8 million at December 31, 1999 to $67.3 million
at June 30, 2000. Transaction accounts increased $7.6 million from $34.7
million at December 31, 1999 to $42.3 million at June 30, 2000. These increases
were primarily a result of an ongoing effort to raise the deposit base for
Cavalry Banking.
Stockholders' equity increased by $2.3 million from $38.8 million at December
31, 1999, to $41.1 million at June 30, 2000, as a result of net income of $1.9
million for the six months ended June 30, 2000, release of ESOP shares of
$635,000 and release of Management Recognition Plan (MRP) shares of $505,000.
These increases were offset by dividends declared of $710,000 and an increase in
unrealized losses on available-for-sale securities of $28,000.
Nonperforming assets were $499,000 at December 31, 1999 and $720,000 at June 30,
2000.
Comparison of Operating Results for the Three Months Ended June 30, 2000 and
June 30, 1999.
Net Income. Net income increased to $1.1 million for the three months ended
June 30, 2000, from $865,000 for the three months ended June 30, 1999, primarily
as a result of a higher interest income, increased non - interest income, lower
non - interest expense, and a lower provision for loan losses. These increases
were partially offset by an increase in interest expense. The decline in net
interest income was primarily a result of the impact of the decline in cash
equivalents used to fund the special cash distribution of $53.3 million, which
was paid in December 1999.
Net Interest Income. Net interest income decreased $323,000 from $4.4 million
for the three months ended June 30, 1999, to $4.1 million for the three months
ended June 30, 2000. This decline was a result of earning assets being utilized
to fund the special cash distribution paid in December 1999. This distribution
resulted in a decline in the ratio of average interest-earning assets to average
interest-bearing liabilities from 144.19% for the three month period ended June
30, 1999, to 117.18% for the three months ended June 30, 2000.
Interest income increased 5.88% to $7.2 million for the three months ended June
30, 2000, from $6.8 million for the same period in 1999. Interest on loans
increased from $5.8 million for the three months ended June 30, 1999, to $6.4
million for the same period in 2000. This was a result of average loans
outstanding increasing from $264.8 million for the three months ended June 30,
1999, to $280.4 million for the same period in 2000. The average yield
increased from 8.75% for the three months ended June 30, 1999, to 9.16% for the
same period in 2000. This increase in yield was a result of increased lending
rates. Income on all other investments consisting of mortgage backed
securities, investments, FHLB stock, bank deposits and federal funds declined
from $996,000 for the three months ended June 30, 1999, to $780,000 for the same
period in 2000. Average investments decreased from $80.8 million for the three
months ended June 30, 1999, to $49.0 million for the same period in 2000. The
average yield increased from 4.92% for the three months ended June 30, 1999, to
6.37% for the same period in 2000. This increase in rate was a result of rising
interest rates while the decline in volume was a result of funds used to pay
the special cash distribution in December 1999.
8
Interest expense increased from $2.4 million for the three months ended June 30,
1999, to $3.1 million for the same period in 2000. Average deposits increased
from $239.7 million for the three months ended June 30, 1999, to $279.5 million
for the same period in 2000. This increase was a result of continuing efforts
to increase market share of deposits. The average cost of deposits increased
from 3.95% for the three months ended June 30, 1999, to 4.43% for the same
period in 2000. Average borrowings were $1.6 million at an average cost of
3.74% for the three months ended June 30, 2000. There were no borrowings
outstanding during the three months ended June 30, 1999. The total cost of
funds increased from 3.95% for the three months ended June 30, 1999, to 4.42%
for the three months ended June 30, 2000. This increase in cost was a result of
higher interest rates during the quarter ended June 30, 2000. Average
interest-bearing liabilities increased from $239.7 million for the three months
ended June 30, 1999, to $281.1 million for the same period in 2000. Interest
rate spread increased from 3.90% for the three months ended June 30 1999, to
4.32% for the same period in 2000. This increase in spread was a result of
yields on earning assets increasing faster than the cost of funds. Net interest
margin decreased from 5.12 % for the three months ended June 30, 1999, to 4.98%
for the same period in 2000. This decrease was a result of average earning
assets declining and average costing liabilities increasing.
Provision for Loan Losses. Provision for loan losses are charges to earnings to
bring the total allowance for loan losses to a level considered by management as
adequate to provide for estimated loan losses based on management's evaluation
of the collectibility of the loan portfolio, including the nature of the
portfolio, credit concentrations, trends in historical loss experience, specific
impaired loans and economic conditions. Management also considers the level of
problem assets giving greater weight to the level of classified assets than to
the level of nonperforming assets because classified assets include not only
nonperforming assets but also performing assets that otherwise exhibit, in
management's judgement, potential credit weaknesses.
The provision for loan losses was $67,000 for the three months ended June 30,
2000, compared to $423,000 for the same period in 1999. The decrease in the
provision was a result of a smaller increase in total loans outstanding between
the two periods. Management deemed the allowance for loan losses adequate at
June 30, 2000.
Noninterest Income. Noninterest income increased from $1.3 million for the
three months ended June 30, 1999, to $1.5 million for the same period in 2000.
In the mortgage banking segment net gain on sale of loans decreased from
$465,000 for the three months ended June 30, 1999, to $442,000 for the same
period in 2000. This decrease was a result of lower sales volume during the
three months ended June 30, 2000, compared to the same period in 1999. Loan
servicing fees also declined slightly from $68,000 for the three months ended
June 30, 1999, to $67,000 for the same period in 2000. In the banking segment
deposit fees and other operating incomes increased from $540,000 for the three
months ended June 30, 1999, to $674,000 for the same period in 2000. This
increase was primarily a result of growth in the number of transaction accounts.
In the trust segment, trust fees increased from $233,000 for the three months
ended June 30, 1999, to $267,000 for the same period in 2000 as a result of
increased fees and more trust assets under management.
Noninterest Expense. Noninterest expense was $3.6 million for the three months
ended June 30, 2000, compared to $3.8 million for the same period in 1999.
Compensation and other employee benefits remained constant at $2.3 million for
the three months ended June 30, 1999 and 2000. The increase in occupancy
expense was primarily a result of repairs and maintenance on office facilities.
The decreases in other expenses were primarily due to a general slowing of the
economy and an effort to reduce overhead.
Income taxes. The provision for income taxes was $771,000 for the three months
ended June 30, 2000, compared to $626,000 for the same period in 1999. This
increase was primarily a result of higher income before taxes.
9
Comparison of Operating Results for the Six Months Ended June 30, 2000 and
June 30, 1999.
Net Income. Net income decreased to $1.9 million for the six months ended June
30, 2000, from $ 2.1 million for the six months ended June 30, 1999, primarily
as a result of a higher interest expense and a larger provision for income
taxes. These increases in expenses were partially offset by an increase in
interest and non - interest income and a lower provision for loan losses.
Net Interest Income. Net interest income decreased from $8.9 million for the
six months ended June 30, 1999, to $8.0 million for the six months ended June
30, 2000. This decline was a result of earning assets being utilized to fund
the special cash distribution paid in December 1999. This distribution resulted
in a decline in the ratio of average interest-earning assets to average
interest-bearing liabilities from 144.49% for the six months ended June 30,
1999, to 116.79% for the six months ended June 30, 2000.
Interest income increased 4.41% to $14.2 million for the six months ended June
30, 2000, from $13.6 million for the same period in 1999. Interest on loans
increased from $11.4 million for the six months ended June 30, 1999, to $12.5
million for the same period in 2000. This was a result of average loans
outstanding increasing from $257.1 million for the six months ended June 30,
1999, to $277.6 million for the same period in 2000. The average yield
increased from 8.89% for the six months ended June 30, 1999, to 9.04% for the
same period in 2000. This increase in yield was a result of increased lending
rates. Income on all other investments consisting of mortgage backed
securities, investments, FHLB stock, bank deposits and federal funds declined
from $2.2 million for the six months ended June 30, 1999, to $1.6 million
for the same period in 2000. Average investments decreased from $84.6 million
for the six months ended June 30, 1999, to $52.7 million for the same period in
2000. The average yield increased from 5.12% for the six months ended June 30,
1999, to 6.19% for the same period in 2000. This increase in rate was a result
of rising interest rates while the decline in volume was a result of funds used
to pay the special cash distribution in December 1999.
Interest expense increased from $4.7 million for the six months ended June 30,
1999, to $6.2 million for the same period in 2000. Average deposits increased
from $236.5 million for the six months ended June 30, 1999, to $277.6 million
for the same period in 2000. This increase was a result of continuing efforts
to increase market share of deposits. The average cost of deposits increased
from 4.01% for the six months ended June 30, 1999, to 4.39% for the same period
in 2000. Average borrowings were $5.2 million at an average cost of 5.57% for
the six months ended June 30, 2000. There were no borrowings outstanding during
the six months ended June 30, 1999. The total cost of funds increased from
4.01% for the six months ended June 30, 1999, to 4.41% for the six months ended
June 30, 2000. This increase in cost was a result of higher interest rates
during the six months ended June 30, 2000. Average interest-bearing liabilities
increased from $236.5 million for the six months ended June 30, 1999, to $282.8
million for the same period in 2000. Interest rate spread increased from 3.95%
for the six months ended June 30 1999, to 4.18% for the same period in 2000.
This increase in spread was a result of yields on earning assets increasing
faster than the cost of funds. Net interest margin decreased from 5.21% for the
six months ended June 30, 1999, to 4.83% for the same period in 2000. This
decrease was a result of average earning assets declining and average costing
liabilities increasing.
10
Provision for Loan Losses. Provision for loan losses are charges to earnings to
bring the total allowance for loan losses to a level considered by management as
adequate to provide for estimated loan losses based on management's evaluation
of the collectibility of the loan portfolio, including the nature of the
portfolio, credit concentrations, trends in historical loss experience, specific
impaired loans and economic conditions. Management also considers the level of
problem assets giving greater weight to the level of classified assets than to
the level of nonperforming assets because classified assets include not only
nonperforming assets but also performing assets that otherwise exhibit, in
management's judgment, potential credit weaknesses.
The provision for loan losses was $141,000 for the period ending June 30, 2000,
compared to $512,000 for the same period in 1999. The decrease in the provision
was a result of a smaller increase in total loans outstanding between the two
periods. Management deemed the allowance for loan losses adequate at June 30,
2000.
Noninterest Income. Noninterest income increased from $2.5 million for the six
months ended June 30, 1999, to $2.8 million for the same period in 2000. In the
mortgage banking segment net gain on sale of loans decreased from $906,000 for
the six months ended June 30,1999, to $756,000 for the same period in 2000.
This decrease was a result of lower sales volume during the six months ended
June 30, 2000, compared to the same period in 1999. Loan servicing fees also
declined slightly from $139,000 for the six months ended June 30, 1999, to
$131,000 for the same period in 2000. In the banking segment, deposit fees and
other operating incomes increased from $1.0 million for the six months ended
June 30, 1999, to $1.4 million for the same period in 2000. This increase was
primarily a result of growth in the number of transaction accounts. In the
trust segment, trust fees increased from $438,000 for the six months ended June
30, 1999, to $534,000 for the same period in 2000 as a result of increased fees
and more trust assets under management.
Noninterest Expense. Noninterest expense was $7.3 million for the six months
ended June 30, 2000, and 1999. Compensation and other employee benefits
increased from $4.4 million for the six months ended June 30, 1999 to $4.6
million for the same period in 2000. This increase was primarily a result of
the MRP stock incentive plan, which was approved at the annual meeting in April
1999. Most other expenses declined for the six months ended June 30, 2000,
compared the same period in 1999 as a result of slower lending activity and
efforts to control expenses.
Income taxes. The provision for income taxes was $1.4 million for the six
months ended June 30, 2000 compared to $1.5 million for the same period in 1999.
This decrease was primarily a result of lower income before taxes.
Liquidity and Capital Resources
The Company's primary sources of funds are customer deposits, proceeds from loan
principal and interest payments, sale of loans, maturing securities and Federal
Home Loan Bank (FHLB) of Cincinnati advances. While maturities and scheduled
amortization of loans are a predictable source of funds, deposit flows and
mortgage prepayments are influenced greatly by general interest rates, other
economic conditions, and competition. Regulations of the Office of Thrift
Supervision ("OTS"), the Bank's primary regulator, require the Bank to maintain
an adequate level of liquidity to ensure the availability of sufficient
liquidity to fund loan originations, deposit withdrawals and to satisfy other
financial commitments. Currently, the OTS regulatory liquidity for the Bank is
the maintenance of an average daily balance of liquid assets (cash and eligible
investments) equal to at least 4% of the daily balance of net withdrawal
deposits and short-term borrowings. This liquidity requirement is subject to
periodic change. The Company and the Bank generally maintain sufficient cash
and short-term investments to meet short-term liquidity needs. At June 30,
2000, cash and cash equivalents totaled $39.9 million or 10.87% of total assets,
and investments available -for -sale totaling $23.9 million. At June 30, 2000,
the Bank also maintained, but did not draw upon, a line of credit with the FHLB
of Cincinnati in the amount of $10.0 million.
11
As of June 30, 2000, The Bank's regulatory capital was in excess of all
applicable regulatory requirements. At June 30, 2000, under regulations of the
OTS, the Bank's actual tangible, core and risk-based capital ratios were 11.04%,
11.04% and 12.97%, respectively, compared to requirements of 1.5%, 3.0% and
8.0%, respectively.
At June 30, 2000, the Bank had loan commitments of approximately $40.8 million.
In addition, at June 30, 2000, the unused portion of lines of credit extended by
the Bank was approximately $8.3 million for consumer loans and $29.8 million for
commercial loans. Standby letters of credit and financial guarantees are
conditional commitments issued by the Bank to guarantee the performance of a
customer to a third party. Those guarantees are primarily issued to support
public and private borrowing arrangements, including commercial paper, bond
financing, and similar transactions. Most guarantees extend from one to two
years. The credit risk involved in issuing letters of credit is essentially the
same as that involved in extending loan facilities to customers. At June 30,
2000, the Bank had $10.1 million of letters of credit outstanding.
Impact of Inflation and Changing Prices
The consolidated financial statements of the Company and notes thereto,
presented elsewhere herein, have been prepared in accordance with GAAP, which
require the measurement of financial condition and operating results in terms of
historical dollars without considering the change in relative purchasing power
of money over time due to inflation. The impact of inflation is reflected in
the increased cost of the Company's operations. Unlike most industrial
companies, nearly all the assets and liabilities of the Company are financial.
As a result, interest rates have a greater impact on the Company's performance
than do the effects of general levels of inflation. Interest rates do not
necessarily move in the same direction or to the same extent as the prices of
goods and services.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company's interest rate sensitivity is monitored by management through
selected interest rate risk measures produced internally and by the OTS. Based
on internal reviews, management does not believe that there has been a material
change in the Company's interest rate sensitivity from December 31, 1999, to
June 30, 2000. However, the OTS results are not yet available for the quarter
ended June 30, 2000. All methods used to measure interest rate sensitivity
involve the use of assumptions. Management cannot predict what assumptions are
made by the OTS, which can vary from management's assumptions. Therefore, the
results of the OTS calculations can differ from management's internal
calculations. The Company's interest rate sensitivity should be reviewed in
conjunction with the financial statements and notes thereto contained in the
Company's Annual Report for the fiscal year ended December 31, 1999.
The following table presents the Company's maturity gap at June 30, 2000 (In
thousands).
12
Six After After
Within Months One to Three Over
Six To One Three to Five Ten
Months Year Years Years Years Total
--------- -------- --------- --------- ---------- ---------
Interest-earning
assets:
Loans receivable, net . $ 56,627 $47,668 $ 56,264 $ 59,586 $ 61,341 $281,486
Mortgage-backed
securities . . . . . . 9 9 41 48 517 624
FHLB Stock. . . . . . . 1,946 - - - - 1,946
Investment securities . 5,946 10,927 7,065 - - 23,938
Federal funds sold
overnight and other
interest-bearing
deposits. . . . . . . 21,669 - - - - 21,669
--------- -------- --------- --------- ---------- ---------
Total rate
sensitive assets. . . $ 86,197 $58,604 $ 63,370 $ 59,634 $ 61,858 $329,663
========= ======== ========= ========= ========== =========
Interest-bearing
liabilities:
Deposits:
NOW accounts. . . . . . $ 4,613 $ 4,613 $ 18,454 $ 18,454 $ - $ 46,134
Passbook savings
accounts . . . . . . . 1,429 1,429 5,716 5,716 - 14,290
Money market
deposit accounts . . . 6,732 6,732 26,927 26,927 - 67,318
Certificates of
deposit . . . . . . . . 90,443 30,513 27,053 4,555 100 152,664
Borrowings . . . . . . . . 27 553 108 108 809 1,605
--------- -------- --------- --------- ---------- ---------
Total rate
sensitive liabilities $103,244 $43,840 $ 78,258 $ 55,760 $ 909 $282,011
========= ======== ========= ========= ========== =========
Excess (deficiency) of
interest sensitive
assets over interest
sensitive liabilities . . $(17,047) $14,764 $(14,888) $ 3,874 $ 60,949 $ 47,652
Cumulative excess
(deficiency) of
interest sensitive
assets. . . . . . . . . . $(17,047) $(2,283) $(17,171) $(13,297) $ 47,652 $ 47,652
Cumulative ratio of
interest-earning
assets to interest
-bearing liabilities. . . 83.49% 98.45% 92.38% 95.27% 116.90% 116.90%
Interest sensitivity
gap to total rate
sensitive assets. . . . . (5.17)% 4.48% (4.52)% 1.18% 18.49% 14.45%
Ratio of interest-
earning assets to
interest -bearing
liabilities . . . . . . . 83.49% 133.68% 80.98% 106.95% 6,805.06% 116.90%
Ratio of cumulative
gap to total rate
sensitive assets. . . . . (5.17)% (0.69)% (5.21)% (4.03)% 14.45% 14.45%
13
Part II. Other Information
Item 1. Legal Proceedings
Not applicable
Item 2. Changes in Securities and use of Proceeds
Not applicable
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
On April 27, 2000 at the annual meeting of shareholders of Cavalry Bancorp, Inc.
the following Directors were elected for three year terms:
Name For Against Abstain
Ronald F. Knight 4,897,873 11,809 0
Tim J. Durham 4,897,147 12,535 0
Ed Elam 4,890,469 19,213 0
Approve the appointment of Rayburn, Betts & Bates, P.C. as the Company's
Independent Auditor
For Against Abstain
4,900,469 804 8,409
Item 5. Other Information
None
Item 6. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) Exhibits
3.1 Charter of the Registrant*
3.2 Bylaws of the Registrant*
10.1 Employment Agreement with Ed C Loughry, Jr.**
10.2 Employment Agreement with Ronald F Knight **
10.3 Severance Agreement with Hillard C. Gardner**
10.4 Severance Agreement with Ira B. Lewis **
10.5 Severance Agreement with R. Dale Floyd **
10.6 Severance Agreement with M. Glenn Layne **
10.7 Severance Agreement with Joy B. Jobe**
10.8 Severance Agreement with William S. Jones**
10.9 Severance Agreement with David W. Hopper**
10.10 Cavalry Banking Key Personnel Severance Compensation Plan**
10.11 Cavalry Banking Employee Stock Ownership Plan**
10.12 Management Recognition Plan with William H. Huddleston III ***
10.13 Management Recognition Plan with Gary Brown ***
10.14 Management Recognition Plan with Ed Elam ***
10.15 Management Recognition Plan with Frank E. Crosslin, Jr. ***
10.16 Management Recognition Plan with Tim J. Durham ***
10.17 Management Recognition Plan with James C. Cope ***
10.18 Management Recognition Plan with Terry G. Haynes ***
10.19 Management Recognition Plan with Ed C. Loughry, Jr. ***
10.20 Management Recognition Plan with Ronald F. Knight ***
10.21 Management Recognition Plan with William S. Jones ***
10.22 Management Recognition Plan with Hillard C. Gardner ***
10.23 Management Recognition Plan with R. Dale Floyd ***
10.24 Management Recognition Plan with David W. Hopper ***
10.25 Management Recognition Plan with Joe W. Townsend ***
10.26 Management Recognition Plan with M. Glenn Layne ***
10.27 Management Recognition Plan with Joy B. Jobe ***
10.28 Management Recognition Plan with Ira B. Lewis, Jr. ***
10.29 Management Recognition Plan with Elizabeth L. Green ***
10.30 Management Recognition Plan with James O. Sweeney, III ***
13 Annual Report to Stockholders****
21 Subsidiaries of the Registrant****
27 Financial Data Schedule
* Incorporated herein by reference to the Registrant's Registration
Statement on Form S-1, as amended (333-40057).
** Incorporated herein by reference to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1997, as filed with the
Securities and Exchange Commission on March 30, 1998.
*** Incorporated herein by reference to the Registrant's Annual Meeting
Proxy Statement dated March 15, 1999, as filed with the Securities and
Exchange Commission on March 15, 1999.
**** Incorporated herein by reference to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1999, as filed with the
Securities and Exchange Commission on March 27, 2000.
(b) Reports on Form 8-K
No Reports on Form 8-K were filed during the quarter ended June 30, 2000.
14
Pursuant to the requirements of section 13 or 15(d) of the Securities Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
CAVALRY BANCORP, INC.
Date: August 10, 2000 by: /s/ Ed C. Loughry, Jr.
-----------------------
Ed C. Loughry, Jr.
Chairman of the Board
of Directors
Chief Executive Officer
Date: August 10, 2000 by: /s/ Hillard C. Gardner
------------------------
Hillard C. Gardner
Senior Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
15
[ARTICLE] 9
[LEGEND]
This schedule contains financial information extracted from the consolidated
financial statements of Cavalry Bancorp, Inc. for the six months ended June 30,
2000 and is qualified in its entirety by reference to such financial statements.
[/LEGEND]
[CIK] 0001049535
[NAME] CAVALRY BANCORP, INC.
[MULTIPLIER] 1000
[PERIOD-TYPE] 6-MOS
[FISCAL-YEAR-END] DEC-31-2000
[PERIOD-START] JAN-01-2000
[PERIOD-END] JUN-30-2000
[CASH] 18,242
[INT-BEARING-DEPOSITS] 21,669
[FED-FUNDS-SOLD] 0
[TRADING-ASSETS] 0
[INVESTMENTS-HELD-FOR-SALE] 23,938
[INVESTMENTS-CARRYING] 624
[INVESTMENTS-MARKET] 616
[LOANS] 281,486
[ALLOWANCE] 4,241
[TOTAL-ASSETS] 367,053
[DEPOSITS] 322,682
[SHORT-TERM] 526
[LIABILITIES-OTHER] 1,660
[LONG-TERM] 1,079
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 11,276
[OTHER-SE] 29,830
[TOTAL-LIABILITIES-AND-EQUITY] 367,053
[INTEREST-LOAN] 12,548
[INTEREST-INVEST] 717
[INTEREST-OTHER] 914
[INTEREST-TOTAL] 14,179
[INTEREST-DEPOSIT] 6,063
[INTEREST-EXPENSE] 6,208
[INTEREST-INCOME-NET] 7,971
[LOAN-LOSSES] 141
[SECURITIES-GAINS] 0
[EXPENSE-OTHER] 7,290
[INCOME-PRETAX] 3,337
[INCOME-PRE-EXTRAORDINARY] 3,337
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 1,939
[EPS-BASIC] .31
[EPS-DILUTED] .31
[YIELD-ACTUAL] 4.830
[LOANS-NON] 584
[LOANS-PAST] 0
[LOANS-TROUBLED] 0
[LOANS-PROBLEM] 3,991
[ALLOWANCE-OPEN] 4,194
[CHARGE-OFFS] 52
[RECOVERIES] 15
[ALLOWANCE-CLOSE] 4,241
[ALLOWANCE-DOMESTIC] 4,241
[ALLOWANCE-FOREIGN] 0
[ALLOWANCE-UNALLOCATED] 0