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, 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 August 5, 1999.
Transitional Small Business Disclosure Format (check one) YES NO X
- -1-
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
- -2-
Calvin B. Taylor Bankshares, Inc. and Subsidiaries
Part I - Financial Information
Consolidated Statements of Condition
(unaudited)
June 30 December 31,
1999 1998
Assets
Cash and due from banks $ 14,195,590 $ 12,157,944
Federal funds sold 20,573,712 33,337,435
Interest-bearing deposits 1,128,000 1,228,000
Investment securities available for sale 3,076,614 2,997,137
Investment securities held to maturity
(approximate fair value of $89,509,188
and $80,848,955) 89,690,963 80,275,711
Loans, less allowance for credit losses
of $2,085,723 and $2,080,798 146,291,852 139,757,463
Premises and equipment 5,383,692 5,530,566
Accrued interest income 2,035,518 1,869,686
Deferred income taxes 203,877 67,354
Other assets 85,298 241,954
$ 282,665,116 $ 277,463,250
Liabilities and Stockholders' Equity
Deposits
Noninterest-bearing $ 37,195,301 $ 36,648,979
Interest-bearing 196,466,270 193,968,706
233,661,571 230,617,685
Accrued interest payable 404,503 456,133
Accrued income taxes 69,344 -
Other liabilities 30,801 46,233
234,166,219 231,120,051
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 29,298,522 26,954,680
48,208,522 45,864,680
Net unrealized gain on securities
available for sale 290,375 478,519
48,498,897 46,343,199
$ 282,665,116 $ 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 six months ended
June 30, June 30,
1999 1998 1999 1998
Interest and dividend revenue
Loans, including fees $ 3,013,855 $ 3,177,912 $ 5,955,682 $ 6,263,820
U.S. Treasury securities 953,156 795,453 1,854,349 1,571,232
State and municipal securities 143,170 112,528 270,872 205,494
Federal funds sold 281,054 263,722 601,186 605,470
Deposits with banks 15,089 18,532 31,384 36,340
Equity securities 4,577 3,388 8,969 6,710
Total interest and
dividend revenue 4,410,901 4,371,535 8,722,442 8,689,066
Interest expense
Deposit interest 1,407,424 1,520,731 2,899,710 3,015,970
Other - - - -
Total interest expense 1,407,424 1,520,731 2,899,710 3,015,970
Net interest income 3,003,477 2,850,804 5,822,732 5,673,096
Provision for credit losses 4,355 - 5,055 -
Net interest income after
provision for credit losses 2,999,122 2,850,804 5,817,677 5,673,096
Other operating revenue
Service charges on deposit
accounts 193,480 179,637 366,249 322,369
Miscellaneous revenue 100,172 105,075 153,795 159,845
Total other operating revenue 293,652 284,712 520,044 482,214
Other expenses
Salaries and employee benefits 761,557 786,077 1,486,459 1,476,539
Occupancy 105,810 91,389 209,837 207,673
Furniture and equipment 90,795 67,230 212,637 218,523
Other operating 400,899 470,459 908,140 746,490
Total other expenses 1,359,061 1,415,155 2,817,073 2,649,225
Income before income taxes 1,933,713 1,720,361 3,520,648 3,506,085
Income taxes 633,883 586,888 1,176,806 1,218,936
Net income $ 1,299,830 $ 1,133,473 $ 2,343,842 $ 2,287,149
Basic earnings per share
$ 0.80 $ 0.70 $ 1.45 $ 1.41
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Calvin B. Taylor Bankshares, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (unaudited)
For the six months ended
June 30
1999 1998
Cash flows from operating activities
Interest received $ 8,426,849 $ 8,375,915
Other revenue received 481,633 482,213
Cash paid for operating expenses (2,510,240) (2,451,127)
Interest paid (2,951,340) (2,996,008)
Taxes paid (953,588) (1,244,901)
2,493,314 2,166,092
Cash flows from investing activities
Cash paid for premises, equipment,
intangibles, and construction in
progress (134,198) (446,434)
Net customer loans repaid (advanced) (6,539,444) 307,531
Redemption of matured securities 19,635,000 22,190,000
Investment in securities (29,324,635) (27,189,963)
Other real estate purchased at foreclosure -
Redemption of certificates, net of
purchases 100,000 (99,000)
(16,263,277) (5,237,866)
Cash flows from financing activities
Net change in time deposits (137,679,222) 1,360,030
Net change in other deposits 140,723,108 7,917,508
Payment on capital lease - (61,720)
Dividends paid - -
3,043,886 9,215,818
Net increase (decrease) in cash (10,726,077) 6,144,044
Cash and equivalents at beginning
of period 45,495,379 29,358,862
Cash and equivalents at end of period $ 34,769,302 $ 35,502,906
Reconciliation of net income to net
cash provided from operating activities
Net income $ 2,343,842 $ 2,287,149
Adjustments
Depreciation and amortization 155,015 198,003
Charitable donation of property 128,806
Loss on sale of securities - -
Loss on disposal of equipment and software -
Deferred tax provision - -
Provision for loan losses 5,055 -
Security discount accretion, net of
premium amortization (129,761) (98,870)
Decrease (increase) in accrued interest
receivable and other assets (11,925) (218,720)
Increase (decrease) in accrued interest
payable and other liabilities 2,282 (1,470)
$ 2,493,314 $ 2,166,092
-5-
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. Operationg
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 form banks, interest bearing deposits in other banks, federal funds sold,
and investment securities) compared to average deposits were 52.83% for the
second quarter of 1999 compared to 54.42% for the first quarter of 1999 and
46.49% for the second quarter of 1998.
At March 31, 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 8.18%.
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 June 30, 1999 and
1998 were 39.65% and 33.02%, respectively. Both are substantially in excess
of regulatory minimum requirements.
Results and Plan of Operation
Net income for the three months ended June 30, 1999, was $1,299,830 or $.80
per share compared to $1,133.473 or $.70 per share for the second quarter of
1998 which contributed to the year to date increase in net income of $56,693
from $2,287,149 or $1.41 per share in 1998 to $2,343,842 or $1.45 per share
in 1999.
- -7-
Results and Plan of Operation (continued)
Net income increased during the six months ended June 30, 1999, due to an
increase in net interest income and a decrease in the consolidated income
taxes. These improvements were 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 1.41% of gross loans, was adequate as of June 30, 1999. At
December 31, 1998, the allowance was 1.47% of gross loans. At March 31,
1999, there were no nonaccruing loans and less than .25% of the portfolio
was delinquent ninety days or more.
The Banks employed one hundred four full time equivalent employees as of
June 30, 1999. The Maryland bank hires seasonal employees during the summer.
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 acquistion loans. Loans originated to date are anticipated to
be held in the portfolios of the originating Banks. Other bank services in-
clude 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 automatic
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.
- -8-
Year 2000 Readiness Disclosure (continued)
The Year 2000 issue relates to computer programs that use only two digits to
indentify 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 was 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.
- -9-
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 on May 5, 1999, during which
the items detailed in the proxy statement dated April 1, 1999,
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 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 June 30, 1999.
- -10-
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: August 9, 1999 By: /s/ Reese F. Cropper, Jr.
Reese F. Cropper, Jr.
President and CEO
Date: August 9, 1999 By: /s/ William H. Mitchell
William H. Mitchell
Chief Financial Officer
- -11-
Calvin B. Taylor Bankshares, Inc.
Financial Data Schedule
Item June 30,
Number 1999
9-03(1) Cash and due from banks 14,195,590
9-03(2) Interest-bearing deposits 1,128,000
9-03(3) Federal funds sold 20,573,712
9-03(4) Trading account assets
9-03(6) Investment and mortgage-
backed securities held for sale 3,076,614
9-03(6) Investment and mortgage-
backed securities held to maturity
- carrying value 89,690,963
9-03(6) Investment and mortgage-
backed securities held to maturity
- market value 89,509,188
9-03(7) Loans 148,377,575
9-03(7)(2) Allowance for losses 2,085,723
9-03(11) Total assets 282,665,116
9-03(12) Deposits 233,661,571
9-03(13) Short-term borrowings -
9-03(15) Other liabilities 504,648
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 46,878,897
9-03(23) Total liabilities and
stockholders' equity 282,665,116
Calvin B. Taylor Bankshares, Inc.
Financial Data Schedule
(continued)
Six Months Ended
Guide June 30,
Number 1999
9-04(1) Interest and fees on loans 5,955,682
9-04(2) Interest and dividends on investments 2,134,190
9-04-(4) Other interest income 632,570
9-04-(5) Total interest income 8,722,442
9-04-(6) Interest on deposits 2,899,710
9-04-(9) Total interest expense 2,899,710
9-04-(10) Net interest income 5,822,732
9-04-(11) Provision for loan losses 5,055
9-04-(13)(h)Investment securities gains/(losses) -
9-04-(14) Other expenses 2,817,073
9-04(15) Income/loss before income tax 3,520,648
9-04(17) Income/loss before extraordinary items 3,520,648
9-04(18) Extraordinary items, less tax -
9-04(19) Cumulative change in accounting
principles -
9-04(20) Net income or loss 2,343,842
9-04(21) Earnings per share - basic 1.45
9-04(21) Earnings per share - diluted 1.45
I.B.5 Net yield on interest earning assets 4.74 %
III.C.1(a) Loans on nonaccrual -
III.C.1(b) Accruing loans past due 90 days or more 363,621
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 15,279
IV.A.3 Total recoveries 12,600
IV.A.4 Allowance for loan loss -
end of period 2,085,723
IV.B.1 Loan loss allowance allocated
to domestic loans 2,085,723
IV.B.2 Loan loss allowance allocated
to foreign loans -
IV.B.3 Loan loss allowance - unallocated -
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 14,195,590
<SECURITIES> 0
<RECEIVABLES> 148,377,575
<ALLOWANCES> 2,085,723
<INVENTORY> 0
<CURRENT-ASSETS> 3,076,614
<PP&E> 5,383,692
<DEPRECIATION> 155,015
<TOTAL-ASSETS> 282,665,116
<CURRENT-LIABILITIES> 233,661,571
<BONDS> 0
0
0
<COMMON> 1,620,000
<OTHER-SE> 46,878,897
<TOTAL-LIABILITY-AND-EQUITY> 282,665,116
<SALES> 3,013,855
<TOTAL-REVENUES> 4,410,901
<CGS> 1,407,424
<TOTAL-COSTS> 3,003,477
<OTHER-EXPENSES> 1,359,061
<LOSS-PROVISION> 2,999,122
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,933,713
<INCOME-TAX> 633,883
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,299,830
<EPS-BASIC> .80
<EPS-DILUTED> .80
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