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, 2000
[ ] 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 3,240,000 shares of common stock ($1.00 par) outstanding as
of November 3, 2000.
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
Accountants' Review Report 7
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operation 8-9
Part II - Other Information
Item 1 Legal Proceedings 10
Item 2 Changes in Securities 10
Item 3 Defaults Upon Senior Securities 10
Item 4 Submission of Matters to a Vote of Security Holder 10
Item 5 Other Information 10
Item 6 Exhibits and Reports on Form 8-K 10
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Calvin B. Taylor Bankshares, Inc. and Subsidiaries
Part I - Financial Information
Consolidated Statements of Condition
(unaudited)
September 30,1999 December 31,2000
Assets
Cash and due from banks $ 14,388,957 $ 18,546,576
Federal funds sold 34,838,182 15,877,383
Interest-bearing deposits 784,000 983,000
Investment securities available for sale 3,947,558 3,402,096
Investment securities held to maturity
(approximate fair value of $78,973,268
and $89,352,513) 79,204,522 89,921,935
Loans, less allowance for credit losses
of $2,131,002 and $2,082,031 162,282,459 152,000,504
Premises and equipment 5,714,424 5,858,928
Accrued interest income 1,687,766 1,928,735
Deferred income taxes 127,836 222,986
Other assets 116,206 178,655
$ 303,091,910 $ 288,920,798
Liabilities and Stockholders' Equity
Deposits
Noninterest-bearing $ 59,592,140 $ 39,151,702
Interest-bearing 184,340,324 199,574,150
243,932,464 238,725,852
Securities sold under agreements to repurchase 4,432,764 -
Accrued interest payable 480,373 424,042
Note payable 235,325 246,413
Accrued income taxes 125,648 56,490
Other liabilities 326,010 247,667
249,532,584 239,700,464
Stockholders' equity
Common stock, par value $1 per share
authorized 10,000,000 shares, issued and
outstanding 3,240,000 shares in 2000 and
1,620,000 in 1999 3,240,000 1,620,000
Additional paid in capital 17,290,000 17,290,000
Retained earnings 32,596,709 30,030,340
53,126,709 48,940,340
Net unrealized gain on securities
available for sale 432,617 279,994
53,559,326 49,220,334
$ 303,091,910 $ 288,920,798
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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,
2000 1999 2000 1999
Interest and dividend revenue
Loans, including fees $3,388,391 $3,033,919 $10,038,406 $ 8,989,601
U.S. Treasury & Agency securities 971,672 1,101,523 2,724,551 2,955,872
State and municipal securities 102,288 135,660 304,950 406,532
Federal funds sold 580,011 379,569 1,260,948 980,755
Deposits with banks 10,792 15,219 33,130 46,603
Equity securities 3,289 4,020 18,104 12,989
Total interest & dividend revenue 5,056,443 4,669,910 14,380,089 13,392,352
Interest expense
Deposit interest 1,487,745 1,439,279 4,313,238 4,338,989
Other 10,994 - 19,491 -
Total interest expense 1,498,739 1,439,279 4,332,729 4,338,989
Net interest income 3,557,704 3,230,631 10,047,360 9,053,363
Provision for credit losses 23,000 8,670 106,080 13,725
Net interest income after
provision for credit losses 3,534,704 3,221,961 9,941,280 9,039,638
Other operating revenue
Service charges on dep accounts 177,679 170,251 539,752 536,500
Miscellaneous revenue 119,726 108,475 313,135 262,270
Total other operating revenue 297,405 278,726 852,887 798,770
Other expenses
Salaries and employee benefits 752,985 705,864 2,296,553 2,192,323
Occupancy 162,591 196,124 473,213 405,961
Furniture and equipment 67,566 72,018 398,115 284,655
Other operating 427,226 387,033 1,221,279 1,295,173
Total other expenses 1,410,368 1,361,039 4,389,160 4,178,112
Income before income taxes 2,421,741 2,139,648 6,405,007 5,660,296
Income taxes 837,824 737,614 2,218,638 1,914,420
Net income $1,583,917 $1,402,034 $4,186,369 $3,745,876
Basic earnings per share $ 0.49 $ 0.43 $ 1.29 $ 1.16
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Calvin B. Taylor Bankshares, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (unaudited)
For the nine months ended
September 30,
2000 1999
Cash flows from operating activities
Interest received $14,583,888 $13,392,800
Other revenue received 868,831 798,802
Cash paid for operating expenses (4,012,433) (3,788,894)
Interest paid (4,276,398) (4,357,433)
Taxes paid (2,149,480) (1,701,102)
5,014,408 4,344,173
Cash flows from investing activities
Cash paid for premises, equipment, intangibles,
and construction in progress (420,042) (222,241)
Net customer loans repaid (advanced) (10,388,035) (5,264,731)
Redemption of matured securities 45,935,000 33,195,000
Investment in securities (35,162,275) (49,108,227)
Equipment sales proceeds 423 -
Redemption of certificates, net of purchases 199,000 195,000
164,072 (21,166,199)
Cash flows from financing activities
Net change in time deposits 2,909,579 1,867,091
Net change in other deposits 2,297,033 8,633,582
Net change in repurchase agreements 4,432,764 -
Payment on mortgage obligation (14,675) -
9,624,701 9,690,673
Net increase (decrease) in cash 14,803,180 (7,131,353)
Cash and equivalents at beginning of period 34,423,959 45,495,379
Cash and equivalents at end of period $49,227,139 $38,364,026
Reconciliation of net income to net cash
provided from operating activities
Net income $4,186,369 $3,745,876
Adjustments
Depreciation and amortization 367,366 259,295
Charitable donation of property - 128,806
Provision for loan losses 106,080 13,725
Security discount accretion, net of premium
amortization (37,170) (217,843)
Decrease (increase) in accrued interest
receivable and other assets 256,913 385,186
Increase (decrease) in accrued interest
payable and other liabilities 134,850 29,159
$5,014,408 $4,344,173
Noncash activites
Building acquired by issuance of debt - $250,000
Donation of property - $128,806
Securities not settled $315,830 -
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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 nine months ended September 30, 2000 are not necessarily
indicative of the results that may be expected for the year ending
December 31, 2000. For futher information, refer to the financial statements
and footnotes thereto for the Registrant's fiscal period ended December 31,
1999.
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. Comprehensive Income
Comprehensive income consists of::
Nine months ended September 30,
2000 1999
Net income $4,186,369 $3,745,876
Unrealized gain (loss) on investment securities
available for sale net of income taxes 152,623 (201,321)
Comprehensive income $4,338,992 $3,544,555
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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
Total assets of the Company have increased approximately $14 million from
December 31, 1999 to September 30, 2000. This is due primarily to an
$18,960,799 increase in Federal funds sold, which was offset by a decrease of
$4,157,619 in cash and due from banks. The 1999 year end cash and due from
banks was higher than normal because the Company had increased its cash
levels as part of its Year 2000 liquidity planning. During the first quarter
of 2000, the Company reduced its excess cash, shifting it to Federal funds sold.
The balance of the increase in Federal funds sold was funded from increased
deposits and securities sold under agreements to repurchase. During the third
quarter of 2000, the Company offered a new product, securities sold under
agreements to repurchase, to retain business accounts by offering a means of
paying interest to these account holders.
During 2000, the Bank has shifted approximately $10 million from investment
securities to loans. Management expects increased earnings from this shift
since loan yields are higher than investment yields. Management monitors its
liquidity position and has determined that this shift would not negatively
impact on the Company's abilities to meet its need for liquidity.
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 53.20% for the third
quarter of 2000 compared to 47.53% for the first quarter of 2000 and 58.29% for
the third quarter of 1999. During the first six months of 2000, the liquidity
of the Company decreased as management shifted funds from investment securities
to loans but during the third quarter the Company increased its investment in
securities and federal funds sold. Typically, loan demand is strongest during
the first two quarters of the year with repayment of seasonal loans occuring
during the third and fourth quarters. Management monitors its liquidity
regularly.
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Financial Condition, Liquidity and Sources of Capital (continued)
At September 30, 2000, 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 25.83%.
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 their demand mortgage and commercial loans
as immediatley 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, 2000
and 1999 were 36.53% and 38.00%, respectively. Both are substantially in
excess of regulatory minimum requirements.
Results and Plan of Operation
This following discussion 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.
Net income for the three months ended September 30, 2000, was $1,583,917 or
$.49 per share compared to $1,402,034 or $.43 per share for the third quarter
of 1999. Year to date net income increased $440,493 or $.13 per share from
$3,745,876 or $1.16 per share in 1999 to $4,189,369 or $1.29 per share in
2000. The $993,997 increase in net interest income, offset by the $180,712
increase in occupancy and equipment expenses, the $104,230 increased
personnel costs, and $304,218 increased taxes, was the primary reason the net
income increased year to date.
Net interest income increased $327,073 for the third quarter of 2000 compared
to the third quarter of 1999 and $993,997 for the first nine months of 2000
compared to the comparable period in 1999 as the Company has shifted funds
from investment securities to loans. The increased yield on Federal Funds
Sold has also contributed to this increase.
Occupancy and furniture and equipment expenses have increased due to the
relocation of the Delaware bank in the second quarter of 1999 from a
temporary trailer to a permanent, fully furnished building and the relocation
of the downtown Pocomoke branch to a new facility. The Company recently
consolidated a second Pocomoke branch into this new branch. Although the
Company's current data processing equipment is meeting the needs of the
banks, it is nearing the end of its economic life. The Company expects to
replace its mainframe computer in the first half of 2001 and expects
equipment depreciation and expense to increase with this replacement.
Personnel expenses are higher for the three and nine month periods ended
September 30, 2000 compared to comparable periods in 1999 due to general
increase in salaries and increased cost of health care insurance.
The Company's other operating expense decreased $73,894 during the first nine
months of 2000 compared to the first nine months of 1999. During the first
quarter of 1999, the Company made a charitable donation of property, with a
book value of $128,806. No comparable transactions have occurred during 2000.
Operating expenses for the third quarter of 2000 are higher than 1999 third
quarter expense to support the increased deposit and securities sold under
agreements to repurchase.
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Results and Plan of Operation (continued)
The Company reviewed its consolidated loan portfolio and determined the
allowance, at 1.30% of gross loans, was adequate as of September 30, 2000.
At December 31, 1999, the allowance was 1.35% of gross loans. At September 30,
2000, there was one nonaccruing loan representing less than .1% of the total
portfolio and .15% of the portfolio was delinquent ninety days or more and
still accruing interest.
The Banks employed one hundred seven full time equivalent employees as of
September 30, 2000. 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 negligible decrease of net interest income 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.
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.
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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 February 8, 2000, 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,
2000.
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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: 11/10/00 By: /s/ Reese F. Cropper, Jr.
Reese F. Cropper, Jr.
President and CEO
Date: 11/10/00 By: /s/ William H. Mitchell
William H. Mitchell
Chief Financial Officer
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