U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly period ended September 30, 1998
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OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________to_______________
Commission file number 33-22224-B
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Beverly National Corporation
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(Name of small business issuer as specified in its charter)
Massachusetts 04-2832201
- ------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
240 Cabot Street Beverly, Massachusetts 01915
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code (978) 922-2100
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Check whether the issuer (l) filed all reports required to be filed by
Section l3 or l5 (d) of the Securities Exchange Act during the past l2 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
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State the number of shares outstanding of each of the issuer's classes of
common equity, as of November 2, 1998. 1,560,974 shares
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Transitional small business disclosure format Yes
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No X
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<PAGE>
BEVERLY NATIONAL CORPORATION
INDEX
PART I. FINANCIAL INFORMATION PAGE
Item 1.
Financial Statements (Unaudited)
Consolidated Balance Sheets at
September 30, 1998 and December 31, 1997 . . . . . . . . . . 4-5
Consolidated Statements of Income for the Three Months and
Nine Months Ended September 30, 1998 and 1997 . . . . . . . 6-7
Consolidated Statements of Cash Flow for the
Nine Months Ended September 30, 1998 and 1997 . . . . . . . 8-9
Notes to Consolidated Financial Statements . . . . . . . . . 10
Item 2.
Management's Discussion and Analysis of
Financial Condition and Results of Operations. . . . . . . . 11
PART II. OTHER INFORMATION
Item 1.
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . 21
Item 2.
Changes in Securities and Use of Proceeds . . . . . . . . . 21
Item 3.
Defaults Upon Senior Securities . . . . . . . . . . . . . . 21
Item 4.
Submission of Matters to a Vote of Security Holders . . . . 21
Item 5.
Other Information. . . . . . . . . . . . . . . . . . . . . 21
Item 6.
Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . 21
Signatures. . . . . . . . . . . . . . . . . . . . . . . . . 20
<PAGE>
Forward Looking Statements
Certain statements contained in this quarterly report, including those
contained in Management's Discussion and Analysis of Financial Condition and
Results of Operations and elsewhere, are forward looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995 and are
thus prospective. Such forward looking statements are subject to risks,
uncertainties and other factors which could cause actual results to differ
materially from future results expressed or implied by such statements.
Such factors include, but are not limited to changes in interest rates,
regulation, competition and local and regional economy.
<PAGE>
BEVERLY NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
September 30, December 31,
1998 1997
------------ ------------
ASSETS
Cash and due from banks $ 8,872,593 $ 9,587,570
Federal funds sold 15,800,000 9,100,000
Investments in available-for-sale securities 33,857,818 20,796,287
Investments in held-to-maturity securities 12,651,033 17,185,188
Federal Reserve Bank stock, at cost 97,500 97,500
Loans:
Commercial 24,048,551 23,184,382
Real estate - construction and land development 4,533,542 6,506,718
Real estate - residential 47,012,091 49,140,474
Real estate - commercial 44,089,344 44,241,896
Consumer 8,065,891 7,651,660
Municipal 2,680,217 1,750,000
Other 487,512 512,516
Allowance for possible loan losses (1,981,217) (2,163,349)
Deferred loan fees, net 126,942 19,848
Unearned income 0 0
------------ ------------
Net loans 129,062,873 130,844,145
Mortgages held for sale 850,596 376,533
Premises and equipment, net 4,657,712 4,819,606
Accrued interest receivable 1,366,210 1,162,497
Other assets 1,426,947 1,410,187
------------ ------------
$208,643,282 $195,379,513
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest bearing $ 35,032,302 $ 39,083,761
Interest bearing
Regular savings 39,204,620 39,187,382
NOW accounts 34,457,606 32,036,110
Money market accounts 22,421,434 15,813,378
Time deposits 56,879,014 50,170,379
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Total deposits 187,994,976 176,291,010
Notes payable 385,627 385,627
Employee Stock Ownership Plan loan 200,000 300,000
Other liabilities 1,587,212 1,412,166
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Total liabilities 190,167,815 178,388,803
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<PAGE>
Stockholders' equity:
Preferred stock, $2.50 par value per share;
300,000 shares authorized; issued and
outstanding none
Common stock, $2.50 par value per share;
2,500,000 shares authorized; issued 1,606,098
shares as of September 30, 1998 and 791,349
shares as of December 31, 1997; outstanding
1,559,974 shares as of September 30, 1998 and
760,482 shares as of December 31, 1997. 4,015,245 1,978,373
Paid-in Capital 2,442,116 4,319,092
Retained earnings 12,531,034 11,558,988
Treasury stock, at cost, 46,124 shares as of
September 30, 1998 and 30,867 as of December 31, (427,467) (572,093)
Net unrealized holding loss on available-for-
sale securities 114,539 6,350
Unearned compensation - Employee Stock Ownership
Plan (200,000) (300,000)
------------ ------------
Total stockholders' equity 18,475,467 16,990,710
------------ ------------
$208,643,282 $195,379,513
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
BEVERLY NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENT
(UNAUDITED)
Nine Months Ended Three Months Ended
September 30, September 30,
1998 1997 1998 1997
----------- ----------- ----------- -----------
INTEREST INCOME:
Interest and fees on
loans $ 8,795,360 $ 8,382,606 $ 2,932,717 $ 2,910,395
Interest and dividends on
investment securities:
Taxable 1,875,619 1,813,020 686,572 581,763
Tax-exempt 20,746 9,491 9,860 2,058
Federal Funds Sold 699,782 373,534 252,095 169,275
Other interest 0 0 0 0
----------- ----------- ----------- -----------
Total interest and dividend
income 11,391,507 10,578,651 3,881,244 3,663,491
----------- ----------- ----------- -----------
INTEREST EXPENSE:
Interest on Deposits 4,160,451 3,701,776 1,436,977 1,284,024
Interest on Notes payable 26,343 26,132 8,867 8,867
----------- ----------- ----------- -----------
Total interest expense 4,186,794 3,727,908 1,445,844 1,292,891
----------- ----------- ----------- -----------
Net interest and dividend
income 7,204,713 6,850,743 2,435,400 2,370,600
Provision for loan losses 0 0 0 0
----------- ----------- ----------- -----------
Net interest and dividend
income after provision for
loan losses 7,204,713 6,850,743 2,435,400 2,370,600
----------- ----------- ----------- -----------
NONINTEREST INCOME:
Income from fiduciary
activities 902,434 796,509 306,309 262,271
Service charges on deposit
accounts 291,286 332,307 93,046 114,307
Other deposit fees 168,914 166,002 55,635 60,294
Other income 297,631 272,524 117,128 97,335
----------- ----------- ----------- -----------
Total noninterest income 1,660,265 1,567,342 572,118 534,207
----------- ----------- ----------- -----------
<PAGE>
NONINTEREST EXPENSE:
Salaries and employee
benefits 3,727,897 3,497,291 1,275,495 1,177,893
Occupancy expense 628,956 549,793 236,805 175,311
Equipment expense 332,882 312,956 111,136 99,173
Investment security
(gain)/ loss, net 0 0 0 0
Loss (Gain) on sale of
other real estate
owned, net 0 8,275 0 0
Data processing fees 189,633 195,643 70,010 63,367
F.D.I.C. insurance premium 16,025 14,986 5,445 5,055
Stationary and supplies 129,345 137,633 48,083 43,751
Other expense 1,400,179 1,186,988 453,921 375,698
----------- ----------- ----------- -----------
Total noninterest expense 6,424,917 5,903,565 2,200,895 1,940,248
----------- ----------- ----------- -----------
Income before income taxes 2,440,061 2,514,519 806,623 964,559
Income taxes 966,119 1,050,306 317,800 400,906
----------- ----------- ----------- -----------
Net Income $ 1,473,942 $ 1,464,214 $ 488,823 $ 563,653
=========== =========== =========== ===========
Earnings per share:
Weighted average
shares outstanding 1,649,758 1,508,878 1,670,080 1,508,878
=========== =========== =========== ===========
Net income per share $ 0.89 $ 0.97 $ 0.29 $ 0.37
Dividends per share $ 0.30 $ 0.24 $ 0.12 $ 0.18
Special dividend per share $ 0.03 $ 0.03 $ 0.00 $ 0.00
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
BEVERLY NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 1998 and 1997
(Unaudited)
1998 1997
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Increase (decrease) in cash and cash equivalents
Cash flows from operating activities:
Interest received $10,979,806 $10,262,239
Service charges and other income 1,660,265 1,549,365
Interest paid (4,130,809) (3,697,617)
Cash paid to suppliers and employees (6,152,159) (5,753,791)
Income taxes paid (856,292) (1,013,966)
----------- -----------
Net cash provided by operating activities 1,500,811 1,346,230
----------- -----------
Cash flows from investing activities:
Proceeds from maturities of investment
securities held-to-maturity 12,250,189 7,492,554
Proceeds from maturities of investment
securities available-for-sale 10,529,497 13,444,498
Purchases of investment securities
held-to-maturity (7,550,594) (8,342,090)
Purchases of investment securities
available-for-sale (23,557,637) (9,134,255)
Net (increase) decrease in loans 1,845,704 (11,465,638)
Proceeds from sale of mortgages (478,678) 774,079
Proceeds from sale of other real
estate owned 0 74,658
Capital expenditures (176,713) (481,563)
Recoveries of previously charged off loans 52,914 19,750
(Increase) decrease in other assets 57,130 (333,031)
Increase (decrease) in other liabilities 5,809 8,721
----------- -----------
Net cash provided by (used in) investing
activities (7,022,379) (7,942,317)
----------- -----------
Cash flows from financing activities:
Net decrease in demand deposits, NOW,
money market, and savings accounts 4,995,331 3,105,151
Net increase (decrease) in time deposits 6,708,635 2,873,139
Issued common stock 159,896 0
Issued treasury stock 144,626 1,771
Dividends paid (501,897) (362,120)
----------- -----------
Net cash provided by (used in) financing
activities 11,506,591 5,617,941
----------- -----------
Net decrease in cash and cash equivalents 5,985,023 (978,146)
Cash & cash equivalents beginning of year 18,687,570 25,363,278
----------- -----------
Cash & cash equivalents at Sept 30: $24,672,593 $24,385,132
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
BEVERLY NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 1998 and 1997
(Unaudited)
(Continued)
Reconciliation of net income to net cash provided by operating activities:
1998 1997
----------- -----------
Net income $ 1,473,943 $ 1,464,214
----------- -----------
Depreciation expense 338,607 326,317
Amortization expense of investment securities 7,363 19,014
Accretion income of investment securities (98,005) (32,105)
Change in prepaid interest (2,950) (2,950)
Provision for loan losses 0 0
Increase (decrease) in taxes payable 109,827 36,340
Increase in interest receivable (203,713) (222,952)
Increase (decrease) in interest payable 55,985 30,291
Increase (decrease) in accrued expenses 3,725 (150,009)
Net (gain) loss on sale of mortgages 4,615 (9,702)
Net (gain) loss on sale of other real estate owned 0 8,275
Change in deferred loan fees (117,346) (80,369)
Change in prepaid expenses (71,240) (40,134)
----------- -----------
Total adjustments 26,868 (117,984)
----------- -----------
Net cash provided by operating activities $ 1,500,811 $ 1,346,230
=========== ===========
Non-cash investing activities:
Loans transferred to other real estate owned $ 0 $ 82,933
<PAGE>
BEVERLY NATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCAL STATEMENTS
FOR THE NINE AND THREE MONTHS ENDED SEPTEMBER 30, 1998
(UNAUDITED)
1. BASIS OF PRESENTATION
The interim consolidated financial statements contained herein are
unaudited but, in the opinion of management, include all adjustments
which are necessary, to make the financial statements not misleading.
All such adjustments are of a normal recurring nature. The results of
operations for any interim period are not necessarily indicative of
results that may be expected for the year ended December 31, 1998.
2. EARNINGS PER SHARE
Earnings per share calculations are based on the weighted average number
of common shares outstanding during the period. The computation of
basic and diluted earnings per share have been adjusted retroactively for
all periods presented to reflect the 2 for 1 stock split on
April 7, 1998.
3. LEVERAGED E.S.O.P.
The prepared financial statements include adjusting entries to properly
reflect the leveraged portion of the Employee Stock Ownership Plan.
4. RECLASSIFICATION
Certain amounts in the prior year have been reclassified to be consistent
with the current year's statement presentation.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Introduction
- ------------
The following discussion and related consolidated financial statements include
Beverly National Corporation (the "Corporation") and its subsidiaries, Beverly
National Bank (the "Bank"), and Cabot Street Realty Trust.
Summary
- -------
The Corporation's net income for the nine months ended September 30, 1998, was
$1,473,942 as compared to $1,464,214 for the time period ended
September 30, 1997. This represents an increase of $9,728 or 0.7%. Earnings
per share totaled $.89 for the nine months ended September 30, 1998, as
compared to earnings per share of $.97 for the nine months ended September
30, 1997. The earnings per share reflects both improvement in core earnings
and a higher number of shares outstanding.
NINE MONTHS ENDED SEPTEMBER 30, 1998
AS COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 1997
Net Interest Income
- -------------------
Net interest and dividend income for the nine months ended September 30, 1998,
totaled $7,204,713 as compared to $6,850,743 for the same time period in 1997.
This is an increase of $353,970 or 5.2%. Total interest and dividend income
equaled $11,391,507 for the nine months ended September 30, 1998 as compared
to $10,578,651 for the same time period in 1997, an increase of $812,856 or
7.7%. Loan income for the nine months ended September 30, 1998, totaled
$8,795,360 as compared to $8,382,606 for the same time period in 1997. This
increase of $412,754 or 4.9% reflects continued increased loan production.
Interest and Dividends on Taxable Investment Securities for the nine months
ended September 30, 1998 totaled $1,875,619 as compared to $1,813,020 for the
same period in 1997. This increase of $62,599 or 3.5%, is due to higher
volumes of investment balances. The investment portfolio increased $8,527,376
during the first nine months while net loans decreased $1,781,272. The
interest earned from federal funds sold increased $326,248 or 87.3% for the
nine months ended September 30, 1998 as compared to 1997, reflecting an
increase in volume.
Deposit interest expense equaled $4,160,451 for the nine months ended
September 30, 1998, as compared to $3,701,776 for the same period in 1997.
This increase of $458,675 or 12.4% reflects increased deposits and the current
strategy of managing the cost of funds of the Bank. Average deposit rates
within the local market have been higher than the national market.
Notes payable interest expense for the nine months ended September 30, 1998
was $26,343 in comparison to $26,132 for the same time period in 1997.
Corporate borrowings remained stable for both periods.
<PAGE>
Loan Loss Provision
- -------------------
No provisions to the allowance for the possible loan losses were warranted
during either the nine months ended September 30, 1998 or 1997. At September
30, 1998, the Corporation's allowance for possible loan losses was $1,981,217
representing 1.5% of gross loans as compared to $2,163,349 or 1.6% of total
loans at December 31, 1997. Factors that enabled the Bank to forego
provisions included management's evaluation of economic conditions including
a stable local economy. The ratio of allowance for loan losses to
non-performing assets equaled 396.3% at September 30, 1998 as compared to
633.7% at December 31, 1997.
The Corporation's non-accrual loans were $499,949 at September 30, 1998 as
compared to $341,366 at December 31, 1997. This increase is not considered
by management to be indicative of any general trend in the loan portfolio or
local economy.
A total of $235,045 in loans were charged off by the Corporation during the
first nine months of 1998 as compared to $42,987 charged off during the
corresponding period in 1997. These charge-offs consisted primarily of loans
to small businesses and individuals. A total of $52,914 was recovered of
previously charged off notes by the Corporation during the nine month period
ended September 30, 1998, as compared to $19,750 recovered of previously
charged off notes during the corresponding period in 1997.
Noninterest Income
- ------------------
Noninterest income totaled $1,660,265 for the nine months ended September 30,
1998 as compared to $1,567,342 for nine months ended September 30, 1997.
This is an increase of $92,923 or 5.9%. Income from fiduciary activities
totaled $902,434 for the nine months ended September 30, 1998 as compared
to $796,509 for nine months ended September 30, 1997 an increase of $105,925
or 13.3% due to growth of recurring trust services. Service charges on
deposit accounts totaled $291,286 for the nine months ended September 30,
1998, as compared to $332,307 for the same time period in 1997. The local
market is very competitive for core deposits. New products offered have
limited service charge fees.
Other deposit fees increased slightly with an increase of $2,912 or 1.8% for
the nine months ended September 30, 1998 as compared to the same time period
in 1997. Other income for the nine month period ended September 30, 1998
totaled $297,631 as compared to $272,524 September 30, 1997. This increase
of $25,107 or 9.2% is due to additional rental income.
<PAGE>
Noninterest Expense
- -------------------
Noninterest expense totaled $6,424,917 for the nine months ended September 30,
1998, as compared to $5,903,565 for the same time period in 1997. This is an
expense increase of $521,352 or 8.8%. Salaries and benefits totaled $3,727,897
for the nine months ended September 30, 1998 as compared $3,497,291 for the
same time period in 1997. This increase of $230,606 or 6.6% can be attributed
to increased staff in the commercial loan and retail services. Occupancy
expense totaled $628,956 for the nine months ended September 30, 1998 as
compared to $549,793 for the same period in 1997. This increase of $79,163 or
14.4% is due to increased rental expense and leasehold improvements relating
to the Cummings Center Branch, Beverly High School Branch, Hamilton Wenham
Regional High School Branch and two stand alone ATM sites. The costs of
equipment totaled $332,882 for the nine months ending September 30, 1998 as
compared to $312,956 for the same period in 1997. Data processing fees
totaled $189,633 for the nine months ended September 30, 1998 as compared to
$195,643 for the corresponding time period in 1997. The decrease of $6,010 or
3.1% is related to processing volumes. The FDIC insurance premium totaled
$16,025 for the nine months ended September 30, 1998 as compared to $14,986
for the corresponding period in 1997. This is an increase of $1,039 or 6.9%
of premium expense. This increase is based on the Bank's portion of the FICO
assessment from FDIC. Other expenses for the nine months ending 1998 totaled
$1,400,179 as compared to $1,186,988 for the nine months ended September 1997.
This is an increase of $213,191 or 18.0%. Several expense categories
contributed to this increase including business development, consulting,
electronic banking, legal and miscellaneous expense.
Income Taxes
- ------------
The income tax provision for the nine months ended September 30, 1998 totaled
$966,119 in comparison to an income tax provision of $1,050,306 for the same
time period in 1997. This decrease of $84,187 or 8.0% reflects a decrease in
taxable income, due to additional investment in tax exempt securities and
loans.
Net Income
- ----------
Net income amounted to $1,473,942 for the nine months ended September 30, 1998
as compared to net income of $1,464,214 for the same period in 1997, which is
an increase of $9,728 or 0.7%.
<PAGE>
THREE MONTHS ENDED SEPTEMBER 30, 1998
AS COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 1997
Net Interest Income
- -------------------
Net interest and dividend income for the three months ended September 30, 1998
totaled $2,435,400 as compared to $2,370,600 for the same time period in 1997.
This increase was $64,800 or 2.7%. Total interest and dividend income equaled
$3,881,244 for the three months ended September 30, 1998 as compared to
$3,663,491 for the same time period in 1997, an increase of $217,753 or 5.9%.
Loan income for the three months ended September 30, 1998, totaled $2,932,717
as compared to $2,910,395 for the same time period in 1997. This increase of
$22,322 or .8% represents increased loan production income. Interest and
Dividends on Taxable Investment Securities for the three months ended
September 30, 1998 totaled $686,572 as compared to $581,763 for the same
period in 1997. This is an increase of $104,809 or 18.0%. The investment
portfolio increased $1,599,167 during the third quarter. The interest earned
from federal funds sold increased $82,820 or 48.9% for the three months ended
September 30, 1998 when compared to the same time period in 1997, due to
increased volume. This reflects increased liquidity due to limited loan
growth and strong deposit growth.
Deposit interest expense equaled $1,436,977 for the three months ended
September 30, 1998, as compared to $1,284,024 for the same period in 1997.
This increase of $152,953 or 11.9% reflects the increased deposit volume and
the current strategy of managing the cost of funds of the Bank. The Bank
generally pays competitive rates for its deposit base in the local market.
Notes payable interest expense for the three months totaled $8,867 for the
period ended September 30, 1998 and the corresponding time period in 1997.
Loan Loss Provision
- -------------------
No provisions to the allowance for possible loan losses were made during the
third calendar quarters of 1998 or 1997.
A total of $9,888 loans were charged off by the Corporation during the third
quarter of 1998 as compared to $863 charged off during the corresponding
period in 1997. These charge-offs consisted primarily of loans to small
businesses and individuals. A total of $2,852 was recovered of previously
charged off notes by the Corporation during the three month period ended
September 30, 1998, as compared to $2,396 recovered during the corresponding
period in 1997.
<PAGE>
Noninterest Income
- ------------------
Noninterest income totaled $572,118 for the three months ended September 30,
1998 as compared to $534,207 for three months ended September 30, 1997. This
is an increase of $37,911 or 7.1%. Income from fiduciary activities totaled
$306,309 for the three months ended September 30, 1998 as compared to $262,271
for the three months ended September 30, 1997. An increase in reoccurring
trust fees created this positive variance. Service charges on deposit
accounts totaled $93,046 for the three months ended September 30, 1998, as
compared to $114,307 for the same time period in 1997. The local market is
very competitive for core deposits. New products offered have limited service
charge fees. Other deposit fees decreased $4,659 or 7.7% for the three months
ended September 30, 1998 as compared to the same time period in 1997. This
negative variance is caused by a reduction in overdraft charges collected. A
new service that links accounts reduces overdraft balances. Other income for
the three month period ended September 30, 1998 totaled $117,128 as compared
to $97,335 for the three month period ended September 30, 1997, an increase of
$19,793 or 20.3%. Additional rental income from CSRT created this positive
variance.
Noninterest Expense
- -------------------
Noninterest expense totaled $2,200,895 for the three months ended September 30,
1998, as compared to $1,940,248 for the same time period in 1997. This
increase totaled $260,647 or 13.4%. Salaries and benefits totaled $1,275,495
for the three months ended September 30, 1998 and $1,177,893 for the same time
period in 1997. This increase is due to the increased staff in commercial
loans and retail services. Occupancy expense increased $61,494 or 35.1% and
totaled $236,805 for the three months ended September 30, 1998 as compared to
$175,311 for the same period in 1997 due to the increase in the branch system.
The costs of equipment totaled $111,136 for the three months ended September
30, 1998 as compared to $99,173 for the same period in 1997. Data processing
fees totaled $70,010 for the three months ended September 30, 1998 as compared
to $63,367 for the corresponding time in 1997. This increase of $6,643 or
10.5% relates to higher volumes, data processing upgrades and new products and
services. The FDIC Insurance Premium was $5,445 for the three months ended
September 30, 1998 as compared to $5,055 for the corresponding period in 1997.
The increase is due to the FICO assessment by the FDIC placed upon the Bank.
Other expenses totaled $453,921 at three months ended September 30, 1998 as
compared to $375,698 for the same period in 1997, an increase of $78,223 or
20.8%. Several expense categories contributed to this increase including
business development, consulting, electronic banking, legal and miscellaneous
expense.
Income Taxes
- ------------
The income tax provision for the three months ended September 30, 1998 totaled
$317,800 in comparison to an income tax provision of $400,906 for the same
time period in 1997. This decrease of $83,106 or 20.7% reflects a decrease in
taxable income, due to additional investment in tax exempt securities and
loans.
<PAGE>
Net Income
- ----------
Net income amounted to $488,823 for the three months ended September 30, 1998
as compared to net income of $563,653 for the same period in 1997, which is a
decrease of $74,830 or 13.3%.
Capital Resources
- -----------------
As of September 30, 1998, the Corporation had total capital in the amount of
$18,475,467, as compared with $16,990,710 at December 31, 1997, which
represents an increase of $1,484,757 or 8.7%.
The Bank is required to maintain a Tier 1 capital at a level equal to or
greater than 4.0% of the Bank's adjusted total assets. As of September 30,
1998, the Bank's Tier 1 capital amounted to 7.83% of total assets. In
addition, banks and holding companies must maintain minimum levels of
risk-based capital equal to risk weighted assets of 8.00%. At September 30,
1998, the Bank's ratio of risk-based capital to risk weighted assets amounted
to 13.85%, which satisfies the applicable risk based capital requirements. As
of December 31, 1997, the Bank's Tier 1 capital amounted to 7.78% of total
assets and risk based capital amounted to 13.09% of total risk based assets.
The capital ratios of the Bank exceed regulatory requirements.
The Corporation is required to maintain a Tier 1 capital at a level equal to
or greater than 4.0% of the Corporation's adjusted total assets. As of
September 30, 1998, the Corporation's Tier 1 capital amounted to 8.86% of total
assets. In addition, banks and holding companies must maintain minimum levels
of risk-based capital equal to risk weighted assets of 8.00%. At September 30,
1998, the Corporation's ratio of risk-based capital to risk weighted assets
amounted to 14.02%, which satisfies the applicable risk based capital
requirements. As of December 31, 1997, the Corporation's Tier 1 capital
amounted to 8.68% of total assets and risk based capital amounted to 14.39% of
total risk based assets. The capital ratios of the Corporation and the Bank
exceed regulatory requirements.
<PAGE>
Liquidity
- ---------
The primary function of asset/liability management is to assure adequate
liquidity and maintain an appropriate balance between interest-sensitive
earning assets and interest-bearing liabilities. Liquidity management
involves the ability to meet the cash flow requirements of customers who may be
either depositors wanting to withdraw funds or borrowers needing assurance
that sufficient funds will be available to meet their credit needs. Interest
rate sensitivity management seeks to avoid fluctuating net interest margins and
to enhance consistent growth of net interest income through periods of changing
interest rates. Certain marketable investment securities, particularly those of
shorter maturities, are the principal source of asset liquidity. The
Corporation maintains such securities in an available for sale account as a
liquidity resource. Securities maturing in one year or less amounted to
approximately $12,283,858 or 26.4% at September 30, 1998 of the investment
securities portfolio, and $10,605,238 at December 31, 1997, representing 27.9%
of the investment securities portfolio. Assets such as federal funds sold,
mortgages held for sale, as well as maturing loans are also sources of
liquidity. The Corporation's goal and general practice is to be interest rate
sensitive neutral, and maintain a net cumulative gap at one year or less than
10% of total earning assets, so that changes in interest rates should not
dramatically impact income as assets and liabilities mature and reprice
concurrently.
Year 2000 Preparedness
- ----------------------
There is concern over the ability of many computer software programs to
function when the year 2000 arrives. Many existing computer programs use the
last two digits to refer to the year. This may cause errors in computer
programs that are date oriented and do not recognize the difference between a
year that begins with 20 instead of the current 19.
A critical part of the Bank's service is provided through computer operations.
The Bank has implemented a comprehensive program to develop an operating
strategy to properly assess and correct all Year 2000 issues. The Year 2000
operational team was formed during the second quarter, 1997. This operational
team assessed all critical systems and operational programs relating to Year
2000. All computer hardware has been tested and non-compliant computers have
been identified for remediation. All software have been categorized and are
currently being tested. It is expected that all systems will be verified and
remediated by the second quarter, 1999.
<PAGE>
The Bank's primary vendors have been identified and testing of the Bank's
core processing systems are underway. The testing of these systems will be
completed by second quarter, 1999. Contingency plans are in the process of
being completed in the event these critical systems do not meet testing
requirements.
In addition, the Bank has taken a proactive stance in working with both loan
and deposit customers in preparing for Year 2000 because borrowers who do not
address the Year 2000 issue may not have the resources to service the debts of
their company if their operations, vendors, or customers are impacted by Year
2000. Seminars have been presented for the largest borrowers and depositors
to help prepare them for Year 2000. The Trust Division has also communicated
with all their customers. Loan and deposit customers have been provided with
notice of the Year 2000 initiatives of the Bank.
The costs associated with upgrading the software and hardware to achieve Year
2000 compliance is estimated to be $85,000 for 1998 and $115,000 for 1999.
Failure to resolve a material Year 2000 issue could result in the interruption
in normal business activities or operations such as servicing depositors,
processing transactions or servicing loans. The Corporation plans to continue
to work with third party service providers to ascertain their Year 2000
compliance status and to coordinate testing efforts. However, there can be no
assurance that the computer systems of others on which the Corporation relies
will be Year 2000 ready on a timely basis, or that a failure to resolve Year
2000 issues by another party, or remediation or conversion that is incompatible
with the Corporation's computer systems, will not have a material adverse
effect on the Corporation.
The Corporation has assessed its exposure to the risk of a liquidity crisis or
financial losses stemming from the withdrawal of significant deposits or other
sources of funds as the millennium date change approaches. The Corporation
has developed liquidity contingency plans to define and prioritize sources of
liquidity. Based on the Corporation's analysis and strong earnings record,
high liquidity and strong capital position, it is the opinion of management
that Y2K liquidity risk should not have a significant impact on the
Corporation.
The Corporation and the Bank are subject to examination and supervision by the
Board of Governors of the Federal Reserve System, and the Office of the
Comptroller of the Currency, respectively. These agencies are actively
examining the status of preparation of the institutions which they supervise
for compliance with applicable laws and prudent industry practices, including
those associated with preparation for the Year 2000. As regulated
institutions, the Corporation and the Bank could become subject to formal or
informal supervisory actions if their preparation for the Year 2000 failed to
satisfy regulatory requirements or prudent industry standards. As regulated
institutions, banks and bank holding companies face greater regulatory and
litigation risks for failure to adequately prepare for the Year 2000 than many
companies in other industries. However, such risks are not considered by
Management to be probable based upon the current level of preparation for the
Year 2000 and the Corporation's plans to fully prepare for the Year 2000.
<PAGE>
The Company has assessed the risks presented by its reliance upon computer
based products outside of information technology processing (such as HVAC,
elevators, telephone and security systems). The Company believes that the
risks associated with these areas are being adequately addressed in the
Company's Y2K preparations.
The Corporation is developing contingency plans for its mission critical
systems and will refine and test these plans in 1999. However, there can be
no assurance that the Corporation's remediation efforts and contingency plans
will be sufficient to avoid unforeseen business disruptions or other problems
resulting from the Year 2000 issues.
<PAGE>
SIGNATURES
In accordance with the requirements 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.
BEVERLY NATIONAL CORPORATION
(Registrant)
Date: November 12, 1998 By: /s/ Lawrence M. Smith
------------------ -----------------------
Lawrence M. Smith
President, Chief Executive
Officer
Date: November 12, 1998 By: /s/ Peter E. Simonsen
------------------ -----------------------
Peter E. Simonsen
Treasurer, Principal
Financial Officer
<PAGE>
PART II - Other Information
Item 1. Legal Proceedings None
Item 2. Changes in Securities and Use of Proceeds None
Item 3. Defaults Upon Senior Securities None
Item 4. Submission of Matters to a Vote of Security Holders None
Item 5. Other Information None
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
Exhibit Number
27. Financial Data Schedule
b. The Corporation did not file any reports on Form 8-K
during the quarter ended September 30, 1998.
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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 8,872,593
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 15,800,000
<TRADING-ASSETS> 850,596
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