SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter ended June 30, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
AND EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
__________________ TO _________________
Commission File Number: 0001003986
CALVIN B. TAYLOR BANKSHARES, INC.
(Exact name of issuer as specified in its charter)
Maryland 52-1948274
(State of incorporation) (I.R.S. Employer Identification
No.)
24 North Main Street, Berlin, Maryland 21811
(Address of principal executive offices
(410) 641-1700
(Issuer's telephone number)
Not Applicable
(Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the
Exchange Act during the past 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 latest practicable date:
The registrant has 810,000 shares of common stock ($1.00 par) outstanding as of
August 10, 1998.
Transitional Small Business Disclosure Format (check one) YES NO X
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Calvin B. Taylor Bankshares, Inc. and Subsidiary
Form 10-QSB
Index
Part I - Financial Information Page
Item 1 Financial Statements
Consolidated Statements of Condition 3
Consolidated Statements of Income 4
Consolidated Statements of Cash Flows 5
Notes to Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operation 7-8
Part II - Other Information
Item 1 Legal Proceedings 9
Item 2 Changes in Securities 9
Item 3 Defaults Upon Senior Securities 9
Item 4 Submission of Matters to a Vote of Security Holders 9
Item 5 Other Information 9
Item 6 Exhibits and Reports on Form 8-K 9
- -2-
Calvin B. Taylor Bankshares, Inc. and Subsidiary
Part I - Financial Information
Consolidated Statements of Condition
(unaudited)
June 30 December 31,
1998 1997
Assets
Cash and due from banks $ 14,327,570 $ 9,150,979
Federal funds sold 21,175,156 20,207,703
Interest-bearing deposits 1,328,000 1,229,000
Investment securities available for sale 2,393,750 2,573,450
Investment securities held to maturity
(approximate fair value of $68,374,586
and $63,457,503) 68,610,300 63,249,260
Loans, less allowance for credit losses
of $2,087,525 and $2,080,798 146,883,301 147,190,832
Premises and equipment 4,411,715 4,152,389
Accrued interest income 2,004,704 1,790,423
Intangible assets 96,581 107,476
Deferred income taxes 72,197 104,061
Other assets 141,478 137,039
$ 261,444,752 $ 249,892,612
Liabilities and Stockholders' Equity
Deposits
Noninterest-bearing $ 35,205,481 $ 33,093,588
Interest-bearing 180,865,255 173,699,610
216,070,736 206,793,198
Accrued interest payable 453,306 433,344
Accrued income taxes - 21,527
Obligation under capital lease - 61,720
Other liabilities 5,901 5,806
216,529,943 207,315,595
Stockholders' equity
Common stock, par value $1 per share
authorized 2,000,000 shares, issued and
outstanding 810,000 shares 810,000 810,000
Capital surplus 17,290,000 17,290,000
Retained earnings 26,407,816 24,120,666
44,507,816 42,220,666
Net unrealized gain on securities
available for sale 406,993 356,351
44,914,809 42,577,017
$ 261,444,752 $ 249,892,612
- - 3 -
Calvin B. Taylor Bankshares, Inc. and Subsidiary
Consolidated Statements of Income (unaudited)
For the three months ended For the six months ended
June 30 June 30
1998 1997 1998 1997
Interest and dividend revenue
Loans, including fees $3,177,912 $3,251,793 $6,263,820 $6,414,162
U.S. Treasury securities 795,453 605,752 1,571,232 1,264,851
State and municipal securities 112,528 123,315 205,494 270,675
Federal funds sold 263,722 250,217 605,470 455,491
Deposits with banks 18,532 16,429 36,340 34,390
Equity securities 3,388 3,322 6,710 6,556
Total interest and dividend
revenue 4,371,535 4,250,828 8,689,066 8,446,125
Interest expense
Deposit interest 1,520,731 1,438,367 3,015,970 2,889,506
Other - 1,829 - 1,829
Total interest expense 1,520,731 1,440,196 3,015,970 2,891,335
Net interest income 2,850,804 2,810,632 5,673,096 5,554,790
Provision for credit losses - 25,000 - 25,000
Net interest income after
provision for credit losses 2,850,804 2,785,632 5,673,096 5,529,790
Other operating revenue
Service charges on
deposit accounts 179,637 156,371 322,369 297,364
Miscellaneous revenue 105,075 95,568 159,845 137,095
Total other operating revenue 284,712 251,939 482,214 434,459
Other expenses
Salaries and employee benefits 786,077 774,824 1,476,539 1,400,545
Occupancy 91,389 114,094 207,673 213,301
Furniture and equipment 67,230 61,734 218,523 214,793
Other operating 470,459 279,430 746,490 507,558
Total other expenses 1,415,155 1,230,082 2,649,225 2,336,197
Income before income taxes 1,720,361 1,807,489 3,506,085 3,628,052
Income taxes 586,888 692,772 1,218,936 1,327,342
Net income $1,133,473 $1,114,717 $2,287,149 $2,300,710
Earnings per common share $ 1.40 $ 1.38 $ 2.82 $ 2.84
- - 4 -
Calvin B. Taylor Bankshares, Inc. and Subsidiary
Consolidated Statements of Cash Flows (unaudited)
For the Three Months Ended
June 30
1998 1997
Cash flows from operating activities
Interest received $ 8,375,915 $ 7,818,346
Other revenue received 482,213 425,763
Cash paid for operating expenses (2,451,127) (2,011,754)
Interest paid (2,996,008) (3,015,331)
Taxes paid (1,244,901) (1,779,407)
2,166,092 1,437,617
Cash flows from investing activities
Cash paid for premises, equipment, intangibles,
and construction in progress (446,434) (378,083)
Net customer loans repaid (advanced) 307,531 (10,029,335)
Redemption of matured securities 22,190,000 21,670,000
Investment in securities (27,189,963) (18,183,498.00)
Redemption of certificates, net of purchases (99,000) 293,000
(5,237,866) (6,627,916)
Cash flows from financing activities
Net change in time deposits 1,360,030 (2,232,150)
Net change in other deposits 7,917,508
Payment on capital lease (61,720) (66,923.00)
Dividends paid - (810,000)
9,215,818 (3,109,073)
Net increase (decrease) in cash 6,144,044 (8,299,372)
Cash and equivalents at beginning of period 29,358,682 23,802,923
Cash and equivalents at end of period $ 35,502,726 $ 15,503,551
Reconciliation of net income to net cash provided
from operating activities
Net income $ 2,287,149 $ 2,087,770
Adjustments
Depreciation and amortization 198,003 164,620
Loss on sale of securities - -
Deferred tax provision - -
Provision for loan losses - 25,000
Security discount accretion, net of premium
amortization (98,870) (77,752)
Decrease (increase) in accrued interest
receivable and other assets (218,720) (154,522)
Increase (decrease) in accrued interest
payable and other liabilities (1,470) (607,499)
$ 2,166,092 $ 1,437,617
- - 5 -
Calvin B. Taylor Bankshares, Inc. and Subsidiary
Notes to Financial Statements
1. Basis of Presentation
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for the
interim financial information and with the instructions to Form 10-QSB and
Regulation S-X of the Securities and Exchange Commission. Accordingly,
they do not include all the information and footnotes required by generally
accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of
normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results
of the six months ended June 30, 1998 and 1997 are not necessarily indicative of
the results that may be expected for the years ending December 31, 1998 and
1997. For further
information, refer to the financial statements and footnotes thereto for the
Registrant's fiscal
period ended December 31, 1997.
2. Cash Flows
For purposes of reporting cash flows, cash and cash equivalents
include cash on hand, amounts due from banks and overnight investments in
federal funds sold.
3. Allowance for Loan Losses
The Bank regulators have requested that the portion of the allowance for
loan losses related to off-balance sheet items be included with other
liabilities. The Company has allocated $8,014 of its allowance for loan losses
to unfunded loan commitments and letters of credit.
Comprehensive Income
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, Reporting Comprehensive Income, which requires
the reporting of comprehensive income. Comprehensive income includes
unrealized gains and losses,
including the unrealized gains and losses on available-for-sale securities that
have been reported as a separate component of stockholders' equity, not
recognized in net income. The adoption of this statement had no impact on the
Company's net income or stockholders'
equity.
For the six months ended June 30, 1998 and 1997, total comprehensive income,
net of taxes, was $2,337,791 and $2,266,157, respectively.
- - 6 -
Calvin B. Taylor Bankshares, Inc. and Subsidiary
Part I Financial Information
Item 2. Management's Discussion and Analysis or Plan of Operation.
The following discussion of the financial condition and results of operations
of the Registrant (the Company) should be read in conjunction with the
Company's financial statements and related notes and other statistical
information included elsewhere herein.
General
The Company was incorporated in Maryland on October 31, 1995 as a bank holding
company. Stock of a Maryland state bank with the name Calvin B. Taylor Banking
Company (the "Bank") was exchanged in February, 1996 for the outstanding stock
of the Company.
The Bank was established in 1890 and incorporated in 1907. The Company
currently engages in no business other than owning and managing the Bank. It is
in the process of obtaining final regulatory approval to charter a second bank
in the state of Delaware.
Financial Condition, Liquidity and Sources of Capital
The major sources of liquidity of the Company arise from loan repayments,
short-term investments, including federal funds sold, and an increase in core
deposits. During the
first quarter of the year, the Bank typically experiences a decline in deposits
since these
businesses are using their deposits to meet their cash flow needs. Generally,
this situation
reverses during the second quarter of the year as the businesses start repaying
loans, and the
Bank receives seasonal deposits from tourists and Summer residents. Throughout
the second
and third quarters the Bank maintains its high liquidity level. Funds from
seasonal deposits
are invested in short-term U.S. Treasury Bills and Federal Funds. Because of
decreased loan
demand, the Bank has shifted funds to more liquid investments causing the 1998
liquidity
ratios to be higher than normal for the period. Average liquid assets (cash
and amounts due
form banks, interest bearing deposits in other banks, federal funds sold, and
investment
securities) compared to average deposits were 46.49% for the second quarter of
1998
compared to 46.68% for the first quarter of 1998 and 41.30% for the second
quarter of 1997.
At June 30, 1998, the Bank's interest rate sensitivity, as measured by gap
analysis,
showed the Bank was asset-sensitive with a one-year cumulative gap, as a
percentage of
interest-earning assets, of 32.37%. Generally asset-sensitivity indicates that
assets reprice
quicker than liabilities and in a rising rate environment net interest income
typically increases.
Conversely, if interest rates decrease, net interest income would decline. The
Bank has
classified its demand mortgage and commercial loans as immediately repriceable.
Unlike
loans tied to prime, these rates do not necessarily change as prime changes
since the decision
to call the loans and change the rates rests with management.
Tier one risk-based capital ratios of the Company as of June 30, 1998 and 1997
were
33.02% and 32.46%, respectively. Both are substantially in excess of regulatory
minimum requirements.
Results and Plan of Operation
Net income for the three months ended June 30, 1998, was $1,133,4730 or $1.40
per
share, compared to $1,114,717, or $1.38 per share, for the second quarter of
1997. The
increased earnings for the second quarter reduced the six month earnings
decrease to $13,561
from the $32,317 first quarter net income decrease. Net income for the first
half of 1998 was
$$2,287,149, or $2.82 per share, compared to $2,300,710, or $2.84 per share, for
the same
period 1997. The primary reason net income decreased is due to an increase in
other operating expense.
- -7-
Results and Plan of Operation (continued)
Increases in net interest income and other operating income were offset by
increased
other operating expenses. Other operating expenses have also increased $238,932
or 47.07%
from $507,558 six months of 1997 to $746,490 for the six months ended June 30,
1998.
Other operating expenses of the new bank totaled $37,328. Six month expenses of
the
Maryland bank's new club product totaled $80,272 compared to service charge
income of
$24,055 for the period. During the first quarter of 1998, a branch of the Bank
was robbed
resulting in a loss of $18,102. Federal and State regulatory assessments have
increased by
$14,375 during the first quarter of 1998 compared to the comparable quarter in
1997.
The Bank reviewed its loan portfolio and determined the allowance, at 1.40% of
gross loans, was adequate at June 30, 1998. At December 31, 1997, the allowance
was also
1.41% of gross loans. At June 30, 1998, there were no nonaccruing loans and
only .21% of
the portfolio was delinquent ninety days or more.
The Banks employed one hundred two full time equivalent employees during the
first quarter of 1998. The Maryland bank hires seasonal employees during the
summer. The
Company employs no employees outside those hired by the Banks.
The Banks conduct general commercial banking businesses in their service areas,
of
Worcester County, Maryland and Sussex County, Delaware, and emphasizing the
banking
needs of individuals and small- to medium-sized businesses and professional
concerns. The
Banks offer a full range of deposit services that are typically available in
most banks and
savings and loan associations, including checking accounts, NOW accounts,
savings accounts
and other time deposits of various types ranging from daily money market
accounts to longer-
term certificates of deposit.
The Banks also offer a full range of short- to medium-term commercial and
personal
loans. The Banks originate demand mortgage loans and real estate
construction and
acquisition loans. Loans originated to date are anticipated to be held in the
portfolios of the
originating Banks. Other bank services include cash management services,
safe deposit
boxes, travelers checks, direct deposit of payroll and social security checks,
and automatic
drafts for various accounts. The Company is associated with the MAC network of
automated
teller machines that may be used by Bank customers throughout Maryland and other
regions.
The Banks offer MasterCard and VISA credit card services through a correspondent
bank as
an agent for the Banks.
- -8-
Calvin B. Taylor Bankshares, Inc. and Subsidiary
Part II Other Information
Item 1 Legal Proceedings
Not applicable
Item 2 Changes in Securities
Not applicable
Item 3 Defaults Upon Senior Securities
Not applicable
Item 4 Submission of Matters to a Vote of Security Holders
The Company held its annual meeting during Mary, 1998 during which the items
detailed in the proxy statement dated April 22, 1998, were approved. This
includes
the reelection of the Board of Directors.
Item 5 Other information
Not applicable.
Item 6 Exhibits and Reports on Form 8-K
a) Exhibits
2. Proxy Statement dated April 22, 1998, is incorporated by reference.
b) Reports on Form 8-K
There were no reports on Form 8-K filed for the quarter ended June 30,
1998.
- -9
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Calvin B. Taylor Bankshares, Inc.
Date: _________________ By: /s/ Reese F. Cropper, Jr.
Reese F. Cropper, Jr.
President and CEO
Date: _________________ By: /s/ William H. Mitchell
William H. Mitchell
Chief Financial Officer
- -10-
Calvin B. Taylor Bankshares, Inc.
Financial Data Schedule
Item June 30, 1998
Number
9-03(1) Cash and due from banks 14,327,570
9-03(2) Interest-bearing deposits 1,328,000
9-03(3) Federal funds sold 21,175,156
9-03(4) Trading account assets
9-03(6) Investment and mortgage-backed securities
held for sale 2,393,750
9-03(6) Investment and mortgage-backed securities
held to maturity - carrying value 68,610,300
9-03(6) Investment and mortgage-backed securities
held to maturity - market value 68,374,586
9-03(7) Loans 148,970,826
9-03(7)(2) Allowance for losses 2,087,525
9-03(11) Total Assets 261,444,752
9-03(12) Deposits 216,070,736
9-03(13) Short-term borrowings -
9-03(15) Other liabilities 459,207
9-03(16) Long-term debt
9-03(19) Preferred stock - mandatory redemption
9-03(20) Preferred stock - no mandatory redemption
9-03(21) Common stock 800,000
9-03(22) Other stockholders' equity 44,104,809
9-03(23) Total liabilities and stockholders' equity 261,444,752
- -11-
Calvin B. Taylor Bankshares, Inc.
Financial Data Schedule
(continued)
Six Months Ended
Guide June 30, 1998
Number
9-04(1) Interest and fees on loans 6,263,820
9-04(2) Interest and dividends on investments 1,783,436
9-04(4) Other interest income 641,810
9-04(5) Total interest income 8,689,066
9-04(6) Interest on deposits 3,015,970
9-04(9) Total interest expense 3,015,970
9-04(10) Net interest income 5,673,096
9-04(11) Provision for loan losses -
9-04(13)(h) Investment securities gains/(losses) -
9-04(14) Other expenses 2,649,225
9-04(15) Income/loss before income tax 3,506,085
9-04(17) Income/loss before extraordinary items 3,506,085
9-04(18) Extraordinary items, less tax -
9-04(19) Cumulative change in accounting principles -
9-04(20) Net income or loss 2,287,149
9-04(21) Earnings per share - basic 2.82
9-04(21) Earnings per share - diluted 2.82
I.B.5 Net yield on interest earning assets 5.01 %
III.C.1(a) Loans on nonaccrual -
III.C.1(b) Accruing loans past due 90 days or more 307,515
III.C.1(c) Troubled debt restructuring -
III.C.2 Potential problem loans -
IV.A.1 Allowance for loan loss - beginning of period 2,080,798
IV.A.2 Total chargeoffs 7,172
IV.A.3 Total recoveries 13,899
IV.A.4 Allowance for loan loss - end of period 2,087,525
IV.B.1 Loan loss allowance allocated to domestic loans 2,087,525
IV.B.2 Loan loss allowance allocated to foreign loans -
IV.B.3 Loan loss allowance - unallocated -
- - 12 -
Signatures
Pursuant to the requirements of Section 13 or 15(d) 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.
Calvin B. Taylor Bankshares, Inc.
Date: ____________________ By:___________________________
Reese F. Cropper, Jr.
President and CEO
Date: ___________________ By:___________________________
William H. Mitchell
Chief Financial Officer
- - 13 -
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 14,327,570
<SECURITIES> 21,307,956
<RECEIVABLES> 148,970,826
<ALLOWANCES> 2,087,525
<INVENTORY> 0
<CURRENT-ASSETS> 2,393,750
<PP&E> 4,411,715
<DEPRECIATION> 198,003
<TOTAL-ASSETS> 261,444,752
<CURRENT-LIABILITIES> 216,070,736
<BONDS> 0
0
0
<COMMON> 800,000
<OTHER-SE> 44,104,809
<TOTAL-LIABILITY-AND-EQUITY> 261,444,752
<SALES> 3,177,912
<TOTAL-REVENUES> 4,371,535
<CGS> 1,520,731
<TOTAL-COSTS> 2,850,804
<OTHER-EXPENSES> 1,415,155
<LOSS-PROVISION> 2,850,804
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,720,361
<INCOME-TAX> 586,888
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,133,473
<EPS-PRIMARY> 1.40
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