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 March 31, 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 May 5, 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
- -2-
Calvin B. Taylor Bankshares, Inc. and Subsidiaries
Part I - Financial Information
Consolidated Statements of Condition
(unaudited)
March 31 December 31,
1999 1998
Assets
Cash and due from banks $ 14,039,208 $ 12,157,944
Federal funds sold 23,378,645 33,337,435
Interest-bearing deposits 1,228,000 1,228,000
Investment securities available for sale 3,161,764 2,997,137
Investment securities held to maturity
(approximate fair value of $82,354,588
and $80,848,955) 82,132,688 80,275,711
Loans, less allowance for credit losses
of $2,084,432 and $2,080,798 144,348,646 139,757,463
Premises and equipment 5,414,598 5,530,566
Accrued interest income 1,507,939 1,869,686
Deferred income taxes 159,827 67,354
Other assets 88,447 241,954
$ 275,459,762 $ 277,463,250
Liabilities and Stockholders' Equity
Deposits
Noninterest-bearing $ 30,626,024 $ 36,648,979
Interest-bearing 196,726,004 193,968,706
227,352,028 230,617,685
Accrued interest payable 435,010 456,133
Accrued income taxes 385,568 -
Other liabilities 46,917 46,233
228,219,523 231,120,051
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 27,998,692 26,954,680
46,908,692 45,864,680
Net unrealized gain on securities
available for sale 331,547 478,519
47,240,239 46,343,199
$ 275,459,762 $ 277,463,250
- -3-
Calvin B. Taylor Bankshares, Inc. and Subsidiaries
Consolidated Statements of Income (unaudited)
For the three months ended
March 31
1999 1998
Interest and dividend revenue
Loans, including fees $ 2,941,827 $ 3,085,908
U.S. Treasury securities 901,193 775,779
State and municipal securities 127,702 92,966
Federal funds sold 320,132 341,748
Deposits with banks 16,295 17,808
Equity securities 4,392 3,322
Total interest and dividend revenue 4,311,541 4,317,531
Interest expense
Deposit interest 1,492,286 1,495,239
Other - -
Total interest expense 1,492,286 1,495,239
Net interest income 2,819,255 2,822,292
Provision for credit losses 700 -
Net interest income after
provision for credit losses 2,818,555 2,822,292
Other operating revenue
Service charges on deposit accounts 172,769 142,732
Miscellaneous revenue 53,623 54,770
Total other operating revenue 226,392 197,502
Other expenses
Salaries and employee benefits 724,902 690,462
Occupancy 104,027 116,284
Furniture and equipment 121,842 151,293
Other operating 507,241 276,031
Total other expenses 1,458,012 1,234,070
Income before income taxes 1,586,935 1,785,724
Income taxes 542,923 632,048
Net income $ 1,044,012 $ 1,153,676
Basic earnings per share $ 0.64 $ 0.71
- -4-
Calvin B. Taylor Bankshares, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (unaudited)
For the three months ended
March 31
1999 1998
Cash flows from operating activities
Interest received $ 4,600,666 $ 4,592,244
Other revenue received 224,651 196,870
Cash paid for operating expenses (1,251,015) (1,142,832)
Interest paid (1,513,409) (1,487,658)
Taxes paid (3,481) (32,212)
2,057,412 2,126,412
Cash flows from investing activities
Cash paid for premises, equipment,
intangibles, and construction
in progress (88,971) (68,180)
Net customer loans repaid (advanced) (4,591,883) 1,538,127
Redemption of matured securities 14,185,000 18,385,000
Investment in securities (16,373,427) (14,428,915)
(6,869,281) 5,426,032
Cash flows from financing activities
Net change in time deposits (93,352) 3,645,041
Net change in other deposits (3,172,305) (8,139,253)
Payment on capital lease - (61,720)
(3,265,657) (4,555,932)
Net increase (decrease) in cash (8,077,526) 2,996,512
Cash and equivalents at beginning
of period 45,495,379 29,358,682
Cash and equivalents at end of period $ 37,417,853 $ 32,355,194
Reconciliation of net income to net cash provided
from operating activities
Net income $ 1,044,012 $ 1,153,676
Adjustments
Depreciation and amortization 77,507 85,287
Charitable donation of property 128,806 -
Deferred tax provision - (5,798)
Provision for loan losses 700 -
Security discount accretion,
net of premium amortization (72,622) (59,467)
Decrease (increase) in accrued interest
receivable and other assets 513,880 434,407
Increase (decrease) in accrued interest
payable and other liabilities 365,129 518,307
$ 2,057,412 $ 2,126,412
-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. Operating
results of the three months ended March 31, 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.
- -6-
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 Bank 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 54.42% for the
first quarter of 1999 compared to 46.68% first 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 6.78%.
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 March 31, 1999 and
1998 were 37.1% and 35.6%, respectively. Both are substantially in excess
of regulatory minimum requirements.
- -7-
Results and Plan of Operation
Net income for the three months ended March 31, 1999, was $1,044, 012 or
$.64 per share, compared to $1,153,676 or $.71 per share for the first
quarter of 1998. The Company experienced decreased earnings of $109,664,
from prior year earnings. The primary reason net income decreased is due to
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.
Increased other operating income was offset by increased other operating
expenses. The Company experienced increased operating expenses as the result
of the charitable donation of a closed branch facility with a remaining book
value of $128,806. The new branch facility in Pocomoke has been opened. The
Delaware Bank was not open in the first quarter of 1998. This new bank, as
expected, is having an adverse affect on the expenses and income of the
Company. Typically new Banks do not break even until their fourth or fifth
year of operation.
The Company reviewed its consolidated loan portfolio and determined the
allowance, at 1.42% of gross loans, was adequate as of March 31, 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 .01% of the portfolio
was delinquent ninety days or more.
The year 2000 (Y2k) poses many potential problems for businesses and
individuals. In an effort to conserve hard drive space, in the past
programmers wrote programs that would not recognize the year 2000 correctly.
This can cause system failures for computers and other electronic equipment
that has chip components. Management has a Y2k committee, which reports to
the Board, responsible for assessing progress in the Company's plans to
minimize the effects of the Y2k problem. Management has upgraded the hardware
and software it has indentified as needing replacement to be Y2K compliant.
Testing of these systems is almost complete and should be done by the end
of the second quarter of 1999. Management has also sent surveys or met with its
vendors and large customers. The Y2K committee and loan officers are in the
process of following up with large customers who have not satisfactorily
communicated their Y2K preparedness to the Company.
The Company believes most of the costs to address the Y2k issues have
occurred. The remaining incremental costs should be the cost of
communicating with the customers not yet Y2k compliant. Management thinks
these costs will have no significant impact on its earnings. Management has
budgeted $30,000 for this issue during 1999.
Management believes its greatest Y2k issues are external issues, including
whether borrowers are actually Y2k compliant. If borrowers are not
prepared, their ability to continue in business and repay their debt could
become doubtful.
The Banks employed ninety nine full time equivalent employees as of
March 31, 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
- -8-
Results and Plan of Operation (continued)
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 6.22% 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
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.
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
March 31, 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: 5/11/1999 By: /s/ Reese F. Cropper, Jr.
Reese F. Cropper, Jr.
President and CEO
Date: 5/11/1999 By: /s/ William H. Mitchell
William H. Mitchell
Chief Financial Officer
- -11-
Calvin B. Taylor Bankshares, Inc.
Financial Data Schedule
Item March 31,
Number 1999
9-03(1) Cash and due from banks 14,039,208
9-03(2) Interest-bearing deposits 1,228,000
9-03(3) Federal funds sold 23,378,645
9-03(4) Trading account assets
9-03(6) Investment and mortgage-backed
securities held for sale 3,161,764
9-03(6) Investment and mortgage-backed
securities held to maturity -
carrying value 82,132,688
9-03(6) Investment and mortgage-backed
securities held to maturity -
market value 82,354,588
9-03(7) Loans 146,433,078
9-03(7)(2) Allowance for losses 2,084,432
9-03(11) Total assets 275,459,762
9-03(12) Deposits 227,352,028
9-03(13) Short-term borrowings -
9-03(15) Other liabilities 867,495
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 45,620,239
9-03(23) Total liabilities and stockholders'
equity 275,459,762
- - 12 -
Calvin B. Taylor Bankshares, Inc.
Financial Data Schedule
(continued)
Six Months Ended
Guide March 31,
Number 1999
9-04(1) Interest and fees on loans 2,941,827
9-04(2) Interest and dividends on investments 1,033,287
9-04-(4) Other interest income 336,427
9-04-(5) Total interest income 4,311,541
9-04-(6) Interest on deposits 1,492,286
9-04-(9) Total interest expense 1,492,286
9-04-(10) Net interest income 2,819,255
9-04-(11) Provision for loan losses 700
9-04-(13)(h)Investment securities gains/(losses) -
9-04-(14) Other expenses 1,458,012
9-04(15) Income/loss before income tax 1,586,935
9-04(17) Income/loss before
extraordinary items 1,586,935
9-04(18) Extraordinary items, less tax -
9-04(19) Cumulative change in accounting principles -
9-04(20) Net income or loss 1,044,012
9-04(21) Earnings per share - basic 0.64
9-04(21) Earnings per share - diluted 0.64
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 73,040
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 5,671
IV.A.3 Total recoveries 6,056
IV.A.4 Allowance for loan loss
end of period 2,084,432
IV.B.1 Loan loss allowance allocated
to domestic loans 2,084,432
IV.B.2 Loan loss allowance allocated
to foreign loans -
IV.B.3 Loan loss allowance - unallocated -
- - 13 -
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