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 September 30, 1999
[ ] 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 1,620,000 shares of common stock ($1.00 par) outstanding
as of November 4, 1999.
Transitional Small Business Disclosure Format (check one) YES NO X
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Calvin B. Taylor Bankshares, Inc. and Subsidiaries
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
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Calvin B. Taylor Bankshares, Inc. and Subsidiaries
Part I - Financial Information
Consolidated Statements of Condition
(unaudited)
September 30 December 31,
1999 1998
Assets
Cash and due from banks $ 17,311,662 $ 12,157,944
Federal funds sold 21,052,364 33,337,435
Interest-bearing deposits 1,033,000 1,228,000
Investment securities available
for sale 3,397,468 2,997,137
Investment securities held to maturity
(approximate fair value of $95,429,940
and $80,848,955) 95,678,491 80,275,711
Loans, less allowance for credit losses
of $2,091,266 and $2,080,798 145,008,469 139,757,463
Premises and equipment 5,618,829 5,530,566
Accrued interest income 1,638,406 1,869,686
Deferred income taxes 194,023 67,354
Other assets 44,925 241,954
$ 290,977,637 $ 277,463,250
Liabilities and Stockholders' Equity
Deposits
Noninterest-bearing $ 40,172,520 $ 36,648,979
Interest-bearing 200,945,838 193,968,706
241,118,358 230,617,685
Accrued interest payable 424,700 456,133
Notes payable 250,000 -
Accrued income taxes 59,475 -
Other liabilities 47,350 46,233
241,899,883 231,120,051
Stockholders' equity
Common stock, par value $1 per share
authorized 2,000,000 shares, issued and
outstanding 1,620,000 shares 1,620,000 1,620,000
Capital surplus 17,290,000 17,290,000
Retained earnings 29,890,556 26,954,680
48,800,556 45,864,680
Net unrealized gain on securities
available for sale 277,198 478,519
49,077,754 46,343,199
$ 290,977,637 $ 277,463,250
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Calvin B. Taylor Bankshares, Inc. and Subsidiaries
Consolidated Statements of Income (unaudited)
For the three months ended For the nine months ended
September 30, September 30,
1999 1998 1999 1998
Interest and dividend revenue
Loans, including fees $ 3,033,919 $ 3,090,783 $ 8,989,601 $ 9,354,603
U.S. Treasury securities 1,101,523 966,122 2,955,872 2,537,354
State and municipal
securities 135,660 139,461 406,532 344,955
Federal funds sold 379,569 405,231 980,755 1,010,701
Deposits with banks 15,219 17,265 46,603 53,605
Equity securities 4,020 4,046 12,989 10,756
Total interest and
dividend revenue 4,669,910 4,622,908 13,392,352 13,311,974
Interest expense
Deposit interest 1,439,279 1,660,900 4,338,989 4,676,870
Other - - - -
Total interest expense 1,439,279 1,660,900 4,338,989 4,676,870
Net interest income 3,230,631 2,962,008 9,053,363 8,635,104
Provision for credit losses 8,670 1,175 13,725 1,175
Net interest income after
provision for credit losses 3,221,961 2,960,833 9,039,638 8,633,929
Other operating revenue
Service charges on
deposit accounts 170,251 186,292 536,500 508,661
Miscellaneous revenue 108,475 102,392 262,270 262,237
Total other
operating revenue 278,726 288,684 798,770 770,898
Other expenses
Salaries and employee
benefits 705,864 703,773 2,192,323 2,180,312
Occupancy 196,124 175,148 405,961 382,821
Furniture and equipment 72,018 78,954 284,655 297,477
Other operating 387,033 328,244 1,295,173 1,074,734
Total other expenses 1,361,039 1,286,119 4,178,112 3,935,344
Income before income taxes 2,139,648 1,963,398 5,660,296 5,469,483
Income taxes 737,614 671,083 1,914,420 1,890,019
Net income $ 1,402,034 $ 1,292,315 $ 3,745,876 $ 3,579,464
Basic earnings per share $ 0.87 $ 0.80 $ 2.31 $ 2.21
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Calvin B. Taylor Bankshares, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (unaudited)
For the nine months ended
September 30
1999 1998
Cash flows from operating activities
Interest received $ 13,392,800 $ 13,353,423
Other revenue received 798,802 711,584
Cash paid for operating expenses (3,788,894) (3,652,745)
Interest paid (4,357,433) (4,625,667)
Taxes paid (1,701,102) (1,810,687)
4,344,173 3,975,908
Cash flows from investing activities
Cash paid for premises, equipment,
intangibles, and construction in progress (222,241) (935,851)
Net customer loans repaid (advanced) (5,264,731) 3,344,834
Redemption of matured securities 33,195,000 36,770,000
Investment in securities (49,108,227) (56,715,755)
Other real estate sales proceeds 39,000 -
Redemption of certificates, net of purchases 195,000 1,000
(21,166,199) (17,535,772)
Cash flows from financing activities
Net change in time deposits 1,867,091 6,705,272
Net change in other deposits 8,633,582 18,033,921
Payment on capital lease - (61,720)
Dividends paid (810,000) -
9,690,673 24,677,473
Net increase (decrease) in cash (7,131,353) 11,117,609
Cash and equivalents at beginning of period 45,495,379 29,358,682
Cash and equivalents at end of period $ 38,364,026 40,476,291
Reconciliation of net income to net cash provided
from operating activities
Net income $ 3,745,876 3,579,464
Adjustments
Depreciation and amortization 259,295 286,196
Charitable donation of property 128,806
Loss on sale of securities - -
Loss on disposal of equipment and software -
Deferred tax provision (31) -
Provision for loan losses 13,725 1,175
Security discount accretion, net of
premium amortization (217,843) (206,214)
Decrease (increase) in accrued interest
receivable and other assets 385,186 286,945
Increase (decrease) in accrued interest
payable and other liabilities 29,159 28,342
$ 4,344,173 $ 3,975,908
Noncash activites
Building acquired by issuance of debt $ 250,000 $ -
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Calvin B. Taylor Bankshares, Inc. and Subsidiaries
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, 1999 and 1998 are not necessarily
indicative of the results that may be expected for the years ending December
31, 1999 and 1998. For further information, refer to the financial statements
and footnotes thereto for the Registrant's fiscal period ended December 31,
1998.
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.
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Calvin B. Taylor Bankshares, Inc. and Subsidiaries
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 was exchanged in February, 1996 for the outstanding
stock of the Company. A second bank was chartered as a Delaware state bank
with the name Calvin B. Taylor Bank of Delaware.
The Maryland bank was established in 1890 and incorporated in 1907 while
the Delaware bank. was chartered in 1997, opening late during the second
quarter of 1998. The Company currently engages in no business other than
owning and managing the Banks.
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 Banks receive seasonal deposits from tourists and summer residents.
Throughout the second and third quarters the Banks maintain a high liquidity
level. Funds from seasonal deposits are invested in short-term U.S. Treasury
Bills and Federal Funds. Average liquid assets (cash and amounts due from
banks, interest bearing deposits in other banks, federal funds sold, and
investment securities) compared to average deposits were 58.29% for the third
quarter of 1999 compared to 52.83% for the second quarter of 1999 and 55.17%
for the third quarter of 1998.
At September 30, 1999, the Company's interest rate sensitivity, as measured by
gap analysis, showed the Company was asset-sensitive with a one-year cumulative
gap, as a percentage of interest-earning assets, of 10.14%. 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. Both banks
have 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. The cumulative gap declined primarily due to the shift
from demand loans to investment securities with longer terms while money
market accounts, now accounts, and savings accounts, which are considered
immediately repriceable, have increased.
Tier one risk-based capital ratios of the Company as of September 30, 1999
and 1998 were 38.00% and 36.73%, respectively. Both are substantially in
excess of regulatory minimum requirements.
Results and Plan of Operation
Net income for the three months ended September 30, 1999, was $1,402,034 or
$.87 per share compared to $1,292,315 or $.80 per share for the third quarter
of 1998 which contributed to the year to date increase in net income of
$166,412 from $3,579,464 or $2.21 per share in 1998 to $3,745,876 or $2.31
per share in 1999.
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Results and Plan of Operation (continued)
Net income increased during the nine months ended September 30, 1999, due
primarily to an increase in net interest income. This improvement was offset
by an increase in other operating expense. During the first quarter of
1999, the Company made a charitable donation of property, with a book value
of $128,806. The Delaware Bank was opened during the second quarter of 1998.
As expected the new branch is not contributing to the net income of the
Company. Typically new Banks are not profitable for their first couple of years
of operation.
The Company reviewed its consolidated loan portfolio and determined the
allowance, at 1.42% of gross loans, was adequate as of September 30, 1999.
At December 31, 1998, the allowance was 1.47% of gross loans. At September
30, 1999, there were no nonaccruing loans and less than .10% of the
portfolio was delinquent ninety days or more.
The Banks employed ninety-seven full time equivalent employees as of
September 30, 1999. The Company employs no employees outside those hired
by the Banks.
Net interest income of the company is one of the most important factors in
evaluating the financial performance of the Company. The Company uses
interest sensitivity analysis to determine the effect of rate changes. Net
interest income is projected over a one-year period to determine the effect
of an increase or decrease in the prime rate of 100 basis points. If prime
were to decrease one hundred basis points, the Company would experience a
decrease of net interest income of less than one percent if all assets and
liabilities maturing within that period were adjusted for the rate change.
The sensitivity analysis does not consider the likelihood of these rate
changes nor whether management's reaction to this rate change would be to
reprice its loans and deposits. This paragraph contains certain forward-
looking statements within the meaning of and made pursuant to the safe
harbor provisions of the Private Litigation Securities Reform Act of 1995.
The Banks conduct general commercial banking businesses in their service
areas, of Worcester County, Maryland and Sussex County, Delaware, while also
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 auto-
mated 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.
Year 2000 Readiness Disclosure
The following information is provided as a "Year 2000 Readiness Disclosure"
in compliance with the Year 2000 Information and Readiness Disclosure Act of
1998.
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Year 2000 Readiness Disclosure (continued)
The Year 2000 issue relates to computer programs that use only two digits
to identify a year in the date field. Unless corrected, these programs could
read the year 2000 as the year 1900, and likely would adversely affect any
number of calculations that are made using the date field. Financial
institutions are highly computerized organizations, and the Year 2000 issue
represents a significant risk to the industry. The Company faces the same
risks as the industry. The potential risk of any major loan or deposit system
failure of the Year 2000 issue are that loan interest and balances could not
be accurately calculated, billed and collected, and deposit interest and
balances could not be accurately calculated and paid to customers. These
failures could have a significant impact on the operations and liquidity
of a financial institution.
The Company adopted a Year 2000 Testing Strategy and Plan (the Plan) during
1998. This Plan is consistent with the mandates and guidelines set forth by
the FDIC and the FFIEC. Within the Company, a committee of senior managers
was formed to address this issue. The management committee identified five
major phases of a strategic plan: awareness, assessment, renovation,
validation, and implementation.
The awareness phase is a continuing effort to educate employees, customers,
business partners, and vendors of the impact of the Year 2000 issue. The
effort is well under way through communication with the appropriate
constituencies and training of all employees.
During the initial assessment phase, which was completed April 30, 1998, a
detailed listing was compiled of all hardware, software, equipment, and
venders owned or used by the Company. All manufacturers, software providers,
and vendors were requested to provide information regarding their Year 2000
readiness. On completion of this initial assessment phase, any hardware or
software that was identified as Year 2000 non-compliant was slated for
replacement or renovation.
The validation phase consisted of testing all hardware and software for Year
2000 readiness. In November and December 1998, test transactions were
processed to validate changes made to the core banking system of deposits
and loans. The tests were a success, and no Year 2000 problems were
indicated. All of the Company's ATM machines have been upgraded to be
compliant with Year 2000 requirements. The validation and renovation of all
systems was completed on May 26, 1999.
Contingency planning for all mission critical functions was completed on
June 15, 1999. Management's current estimate of the worst case scenario
that may occur would be that the branches would function off-line for the
time period immediately following year end 1999. This off-line processing
would have minimal impact if the length of time that this condition existed
were limited. To accommodate all branches, the bookkeeping department,
located at the operations center, will have a complete trial balance of all
accounts for all branches. The contingency plan was tested on May 12, 1999 and
on November 10, 1999, both were successful. All branches operated without
electricity, which included the computer systems, typewriters, and cash
advance machines.
During 1998, the Company incurred $44,898 of expense above the normal
replacement costs, and has incurred $21,119 of expense to date in 1999
related to Year 2000 compliance. Management has allocated $30,000 for
ongoing Year 2000 remediation costs that may occur between now and January,
2000. The Company does not track internal costs for personnel devoted to
Year 2000 issues; however, two individual have spent significant time on the
project, and many other individuals have spent numerous hours to ensure that
the Company will be compliant.
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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
Not applicable
Item 5 Other information
Not applicable
Item 6 Exhibits and Reports on Form 8-K
a) Exhibits
2. Proxy Statement dated April 1, 1999, is incorporated by reference.
b) Reports on Form 8-K
There were no reports on Form 8-K filed for the quarter ended
September 30, 1999.
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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
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Calvin B. Taylor Bankshares, Inc.
Financial Data Schedule
Item September 30,
Number 1999
9-03(1) Cash and due from banks 17,311,662
9-03(2) Interest-bearing deposits 1,033,000
9-03(3) Federal funds sold 21,052,364
9-03(4) Trading account assets
9-03(6) Investment and mortgage-backed
securities held for sale 3,397,468
9-03(6) Investment and mortgage-backed
securities held to maturity -
carrying value 95,678,491
9-03(6) Investment and mortgage-backed
securities held to maturity -
market value 95,429,940
9-03(7) Loans 147,099,735
9-03(7)(2) Allowance for losses 2,091,266
9-03(11) Total assets 290,977,637
9-03(12) Deposits 241,118,358
9-03(13) Short-term borrowings -
9-03(15) Other liabilities 531,525
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 1,620,000
9-03(22) Other stockholders' equity 47,457,754
9-03(23) Total liabilities and stockholders'
equity 290,977,637
Calvin B. Taylor Bankshares, Inc.
Financial Data Schedule
(continued)
Nine Months Ended
Guide September 30,
Number 1999
9-04(1) Interest and fees on loans 8,989,601
9-04(2) Interest and dividends on investments 3,375,393
9-04-(4) Other interest income 1,027,358
9-04-(5) Total interest income 13,392,352
9-04-(6) Interest on deposits 4,338,989
9-04-(9) Total interest expense 4,338,989
9-04-(10) Net interest income 9,053,363
9-04-(11) Provision for loan losses 13,725
9-04-(13)(h)Investment securities gains/(losses) -
9-04-(14) Other expenses 4,178,112
9-04(15) Income/loss before income tax 5,660,296
9-04(17) Income/loss before extraordinary items 5,660,296
9-04(18) Extraordinary items, less tax -
9-04(19) Cumulative change in accounting principles -
9-04(20) Net income or loss 3,745,876
9-04(21) Earnings per share - basic 2.31
9-04(21) Earnings per share - diluted 2.31
I.B.5 Net yield on interest earning assets 4.64 %
III.C.1(a)Loans on nonaccrual -
III.C.1(b)Accruing loans past due 90 days or more 77,631
III.C.1(c)Troubled debt restructuring -
III.C.2 Potential problem loans -
IV.A.1 Allowance for loan loss -
beginning of period 2,083,347
IV.A.2 Total chargeoffs 19,513
IV.A.3 Total recoveries 13,707
IV.A.4 Allowance for loan loss - end of period 2,091,266
IV.B.1 Loan loss allowance allocated
to domestic loans 2,091,266
IV.B.2 Loan loss allowance allocated to
foreign loans -
IV.B.3 Loan loss allowance - unallocated -
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