<PAGE>
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, 1999
------------------------------
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
---------------
Beverly National Corporation
-----------------------------------------------------------
(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
------------------
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
-------------- --------------
State the number of shares outstanding of each of the issuer's classes of
common equity, as of November 1, 1999. 1,568,094 shares
-------------------
Transitional small business disclosure format Yes
--------
No X
--------
<PAGE>
BEVERLY NATIONAL CORPORATION
INDEX
PART I. FINANCIAL INFORMATION PAGE
Item 1.
Financial Statements (Unaudited)
Consolidated Balance Sheets at
September 30, 1999 and December 31, 1998 . . . . . . . . . 3-4
Consolidated Statements of Income for the Nine Months and
Three months Ended September 30, 1999 and 1998 . . . . . . . 5-6
Consolidated Statements of Cash Flow for the
Nine Months Ended September 30, 1999 and 1998 . . . . . . . 7-8
Notes to Consolidated Financial Statements . . . . . . . . . 9
Item 2.
Management's Discussion and Analysis of
Financial Condition and Results of Operations. . . . . . . . 10
PART II. OTHER INFORMATION
Item 1.
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . 20
Item 2.
Changes in Securities and Use of Proceeds . . . . . . . . . 20
Item 3.
Defaults Upon Senior Securities . . . . . . . . . . . . . . 20
Item 4.
Submission of Matters to a Vote of Security Holders . . . . 20
Item 5.
Other Information. . . . . . . . . . . . . . . . . . . . . 20
Item 6.
Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . 20
Signatures. . . . . . . . . . . . . . . . . . . . . . . . . 19
<PAGE>
BEVERLY NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------ ------------
ASSETS
<S> <C> <C>
Cash and due from banks $ 13,152,413 $ 10,971,822
Federal funds sold 0 14,500,000
Investments in available for sale
securities 32,164,367 31,879,320
Investments in held to maturity
securities 17,078,080 16,152,624
Federal Reserve Bank stock, at cost 97,500 97,500
Loans:
Commercial 25,502,912 24,987,512
Real estate- construction and land
development 3,496,775 2,926,158
Real estate- residential 53,340,176 49,678,024
Real estate- commercial 50,072,304 44,223,264
Consumer 7,975,706 8,241,229
Municipal 3,535 175 2,669,963
Other 867,392 1,318,270
Allowence for possible loan losses (2,143,412) (1,934,541)
Deferred loan fees, net 192,736 136,759
------------ ------------
Net loans 142,839,764 132,246,638
Mortgages held for sale 1,024,540 1,576,925
Premises and equipment, net 4,705,336 4,561,232
Accrued interest receivable 1,639,593 1,224,462
Other assets 2,543,468 1,819,781
------------ ------------
$215,245,061 $215,030,304
============ ============
LIABILITES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest bearing $ 41,335,957 $ 41,721,322
Interest bearing
Regular savings 47,125,923 40,650,954
NOW accounts 33,590,218 35,933,589
Money market accounts 19,385,444 17,884,214
Time deposits 51,901,797 57,359,335
------------ ------------
Total deposits 193,339,339 193,549,414
Notes payable 0 385,627
Employee Stock Ownership Plan loan 0 200,000
Other liabilities 2,030,466 1,955,650
------------ ------------
Total liabilites 195,369,805 196,090,691
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
1,613,918 shares as of September 30,
1999 and 1,609,698 shares as of
December 31, 1998; outstanding
1,567,794 shares as of September 30,
1999 and 1,563,574 shares as of
December 31, 1998. 4,034,795 4,024,245
Paid in capital 2,494,877 2,470,673
Retained earnings 13,959,824 13,009,685
Treasury stock, at cost, 46,124 shares
as of September 30, 1999 and
December 31, 1998. (427,467) (427,467)
Net unrealized holding gain (loss) on
available for sale securities (186,773) 62,477
Unearned compensation-Employee Stock
Ownership Plan 0 (200,000)
------------ ------------
Total stockholders' equity 19,875,256 18,939,613
------------ ------------
$215,245,061 $215,030,304
============ ============
</TABLE>
The accompanying notes are an intergral part of these consolidated financial
statements.
<PAGE>
BEVERLY NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Nine months ended Three Months ended
September 30, September 30,
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $ 8,946,223 $ 8,795,360 $ 3,127,794 $ 2,932,717
Interest and dividends on
investment securities:
Taxable 2,083,599 1,875,619 724,081 686,572
Tax-exempt 24,524 20,746 7,386 9,860
Federal funds sold 376,807 699,782 94,735 252,095
Other interest 1,046 0 1,046 0
----------- ----------- ----------- -----------
Total interest and
dividend income 11,432,199 11,391,507 3,955,042 3,881,244
----------- ----------- ----------- -----------
Interest expense:
Interest on deposits 3,953,164 4,160,451 1,308,760 1,436,977
Interest on notes payable 12,603 26,343 0 8,867
----------- ----------- ----------- -----------
Total interest expense 3,965,767 4,186,794 1,308,760 1,445,844
----------- ----------- ----------- -----------
Net interest and dividend
income 7,466,432 7,204,713 2,646,282 2,435,400
Provision for loan losses 0 0 0 0
----------- ----------- ----------- -----------
Net interest and dividend
income after provision for
loan losses 7,466,432 7,204,713 2,646,282 2,435,400
----------- ----------- ----------- -----------
Non interest income:
Income from fiduciary
activities 1,037,280 902,434 341,537 306,309
Service charges on deposit
accounts 285,543 291,286 98,035 93,046
Other deposit fees 159,423 168,914 55,442 55,635
Mortgage servicing rights 192,848 0 (7,065) 0
Other income 307,645 297,631 99,341 84,768
----------- ----------- ----------- -----------
Total noninterest income 1,982,739 1,660,265 587,290 539,758
----------- ----------- ----------- -----------
Noninterest expense:
Salaries and employee
benefits 3,908,250 3,727,897 1,320,329 1,275,495
Occupancy expense 641,643 628,956 211,752 204,446
Equipment expense 328,158 332,882 108,713 111,136
Data processing fees 285,444 189,633 95,903 70,010
Stationary and office
supplies 154,963 129,345 48,990 48,083
Other expense 1,491,214 1,416,204 458,251 459,365
----------- ----------- ----------- -----------
Total noninterest expense 6,809,672 6,424,917 2,243,938 2,168,535
----------- ----------- ----------- -----------
Income before income taxes 2,639,499 2,440,061 989,634 806,623
Income taxes 1,031,900 966,119 385,000 317,800
----------- ----------- ----------- -----------
Net income $ 1,607,599 $ 1,473,942 $ 604,634 $ 488,823
=========== =========== =========== ===========
Earnings per share:
Basic shares outstanding 1,540,639 1,539,088 1,537,999 1,527,429
=========== =========== =========== ===========
Diluted shares outstanding 1,724,250 1,704,724 1,728,632 1,717,792
=========== =========== =========== ===========
Net income per share-Basic $ 1.04 $ 0.96 $ 0.39 $ 0.32
Net income per share-Diluted $ 0.93 $ 0.89 $ 0.35 $ 0.28
Dividends per share $ 0.42 $ 0.30 $ 0.15 $ 0.12
Special dividend per share $ 0.00 $ 0.03 $ 0.00 $ 0.00
</TABLE>
The accompanying notes are an intergral part of these consolidated financial
Statements.
<PAGE>
BEVERLY NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Interest received $11,001,081 $10,979,806
Service charges and other income 1,970,467 1,660,265
Interest paid (4,036,880) (4,130,809)
Cash paid to suppliers and employees (6,519,304) (6,152,159)
Income taxes paid (1,018,029) (856,292)
----------- -----------
Net cash provided by operating activities 1,397,335 1,500,811
----------- -----------
Cash flows from investing activites
Proceeds from maturities of investment securities
held to maturity 4,154,000 12,250,189
Proceeds from maturities of investment securities
available for sale 11,722,046 10,529,497
Purchases of investment securities held to maturity (5,080,156) (7,550,594)
Purchases of investment securities available for
sale (12,256,787) (23,557,637)
Net increase in loans (10,794,190) 1,845,704
Proceeds from sale of mortgages 564,657 (478,678)
Capital expenditures (494,199) (176,713)
Recoveries of previously charged off loans 218,195 52,914
(Increase) decrease in other assets (662,058) 57,130
Increase (decrease) in other liabilities (255,470) 5,809
------------ -----------
Net cash provided by (usedin) investing activities (12,883,962) (7,022,379)
------------ -----------
Cash flows from financing activities:
Net increase (decrease) in demand deposits, NOW,
money market & savings accounts 5,247,463 4,995,331
Net increase (decrease) in time deposits (5,457,539) 6,708,635
Issued common stock 34,754 159,896
Issued treasury stock 0 144,626
Dividends paid (657,460) (501,897)
----------- -----------
Net cash used in financing activities (832,782) 11,506,591
----------- -----------
Net increase (decrease) in cash and cash
equivalents (12,319,409) 5,985,023
Cash and cash equivalents beginning of year 25,471,822 18,687,570
----------- -----------
Cash and Cash equivalents at September 30: $13,152,413 $24,672,593
=========== ===========
</TABLE>
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, 1999 AND 1998
(UNAUDITED)
(CONTINUED)
Reconciliation of net income to net cash provided by operating activites:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Net income $ 1,607,599 $ 1,479,943
----------- -----------
Depreciation expense 350,095 338,607
Amortization expense of investment securities 16,242 7,363
Accretion income of investment securities (15,098) (98,005)
Change in prepaid interest (5,572) (2,950)
Provision for loan losses 0 0
Increase (decrease) in taxes payable 13,871 109,827
(Increase) decrease in interest receivable (415,131) (203,713)
Increase (decrease) in interest payable (65,541) 55,985
Increase (decrease) in accrued expenses 14,084 3,725
Net (gain) loss on sale of mortgages (12,272) 4,615
Change in deferred loan fees (17,131) (117,346)
Change in prepaid expenses (73,811) (71,240)
----------- -----------
Total adjustments (210,264) 26,868
----------- -----------
Net cash provided by operating activites $ 1,397,335 $ 1,506,811
=========== ===========
Non cash investing acitivities:
Loans transferred to other real estate owned $ 0 $ 0
=========== ===========
</TABLE>
<PAGE>
BEVERLY NATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(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, 1999.
2. EARNINGS PER SHARE
Earnings per share calculations are based on the weighted average
number of common shares outstanding during the period.
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. The
leveraged portion of the plan was paid off in January 1999.
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 includes Beverly National Corporation (the
"Corporation") and its subsidiaries, Beverly National Bank (the "Bank"), and
Cabot Street Realty Trust (the "CSRT").
Summary
- -------
The Corporation's net income for the nine months ended September 30, 1999, was
$1,607,599 as compared to $1,473,942 for the time period ended September 30,
1998. This represents an increase of $133,657 or 9.1%. Basic earnings per
share totaled $1.04 for the nine months ended September 30, 1999, as compared
to Basic earnings per share of $.96 for the nine months ended September 30,
1998. Throughout the first nine months of 1999, on a fully diluted basis, net
income per share increased $.07 per share from $.86 per share for the nine
month period ended September 30, 1998 to $.93 for the same period in 1999.
The increase in the Bank's net income primarily reflects growth in net interest
income and increased non-interest income resulting from the expansion of the
Bank's trust business and the establishment of mortgage servicing rights.
These increases offset the increases in the Bank's non-interest expenses.
NINE MONTHS ENDED SEPTEMBER 30, 1999
AS COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 1998
Net Interest Income
- -------------------
Net interest and dividend income for the nine months ended September 30, 1999,
totaled $7,466,431 as compared to $7,204,713 for the same time period in 1998.
This increase was $261,719 or 3.6%. Total interest and dividend income equaled
$11,432,199 for the nine months ended September 30, 1999 as compared to
$11,391,507 for the same time period in 1998, an increase of $40,692 or 0.4%.
Loan income for the nine months ended September 30, 1999, totaled $8,946,223 as
compared to $8,795,360 for the same time period in 1998. This increase of
$150,863 or 1.7% reflects the increased volume of loan production and stronger
interest margin. Interest and Dividends on Taxable Investment Securities for
the nine months ended September 30, 1999 totaled $2,083,599 as compared to
$1,875,619 for the same period in 1998. This increase of $207,980 or 11.1% is
attributable to a higher volume of investments. The taxable investment
portfolio increased $2,987,596 during the past twelve months. The interest
earned from federal funds sold decreased $322,975 or 46.2% for the nine months
ended September 30, 1999 when compared to the same time period in 1998, due to
decreased volume. This reflects the more effective deployment of assets.
<PAGE>
Deposit interest expense equaled $3,953,164 for the nine months ended September
30, 1999, as compared to $4,160,451 for the same period in 1998. This is a
decrease of $207,287 or 5.0% which reflects the current strategy of managing
the cost of funds of the Bank. Higher priced certificates of deposit rolled
off and were replaced with deposits at lower rates. The Bank generally pays
competitive rates for its deposit base in the local market.
Notes payable interest expense for the nine months ended September 30, 1999
totaled $12,603 in comparison $26,343 for the corresponding time period in
1998. This reflects the acceleration of loan fees and related paydown of the
CSRT bond in March 1999.
Loan Loss Provision
- -------------------
No provisions to the allowance for possible loan losses were made during the
nine months ending September 30 of 1999 or 1998, respectively. At September
30, 1999, the Corporation's allowance for possible loan losses was $2,143,412
representing 1.5% of gross loans as compared to $1,934,541 and a ratio of 1.4%
of gross loans at December 31, 1998.
The ratio of non-performing assets to total loans and mortgages held for sale
was 0.26% for September 30, 1999 as compared to 0.22% as of December 31, 1998.
This increase can be attributed to a slightly higher non accrual balance. The
Corporation's non-accrual loans were $371,550 at September 30, 1999 as compared
to $297,375 at December 31, 1998. The ratio of non-performing assets to
allowance for loan losses equaled 17.6% at September 30, 1999 as compared to
15.4% at December 31, 1998.
A total of $9,325 loans were charged off by the Corporation during the nine
months ended September 30, 1999 as compared to $235,046 charged off during
the corresponding period in 1998. These charge-offs consisted primarily of
loans to small businesses and individuals. A total of $218,196 was recovered
of previously charged off notes by the Corporation during the nine months
ended September 30, 1999, as compared to $52,914 recovered during the
corresponding period in 1998.
<PAGE>
Noninterest Income
- ------------------
Noninterest income totaled $1,982,739 for the nine months ended September 30,
1999 as compared to $1,660,265 for nine months ended September 30, 1998. This
is an increase of $322,474 or 19.4%. Income from fiduciary activities totaled
$1,037,280 for the nine months ended September 30, 1999 as compared to $902,434
for the nine months ended September 30, 1998. This $134,846 or 14.9% increase
can be attributed to increased reoccurring trust business. Service charges on
deposit accounts totaled $285,543 for the nine months ended September 30, 1999,
as compared to $291,286 for the same time period in 1998. This decrease of
$5,743 or 2.0% is due to the promotion of deposit products that do not have a
service charge. Other deposit fees decreased $9,491 or 5.6% for the nine
months ended September 30, 1999 as compared to the same time period in 1998.
Other income for the nine month period ended September 30, 1999 totaled
$307,645 as compared to $297,631 for the nine month period ended September 30,
1998, an increase of $10,014 or 3.3%. This increase of other income is the
result of sale of mortgages in the secondary market and increased rent
income from CSRT. The Bank established mortgage servicing rights which
increased income $192,848. These mortgage servicing rights were established
due to the higher volume of mortgage loans being serviced.
Noninterest Expense
- -------------------
Noninterest expense totaled $6,809,672 for the nine months ended September 30,
1999 as compared to $6,424,917 for the same time period in 1998. This increase
totaled $384,755 or 6.0%. Salaries and benefits totaled $3,908,250 for the
nine months ended September 30, 1999 and $3,727,897 for the same time period
in 1998. This $180,353 or 4.8% increase is due primarily to increased lending
staff. Occupancy expense totaled $641,643 for the nine months ended September
30, 1999 as compared to $628,956 for the same period in 1998 which is an
increase of $12,687 or 2.0%. This increase is due to higher expenses of repairs
and maintenance of facilities. The cost of equipment totaled $328,158 for the
nine months ended September 30, 1999 as compared to $332,882 for the same
period in 1998. Data processing fees totaled $285,444 for the nine months
ended September 30, 1999 as compared to $189,633 for the corresponding time
in 1998. This is an increase of $95,811 or 50.5%. The increase is attributed
to expansion into additional products and delivery systems. Other expenses
totaled $1,491,214 for the nine months ended September 30, 1999 as compared
to $1,416,204 for the same period in 1998. This reflects an increase of
$75,010 or 5.3% which can be attributed to an increase in postage, supplies,
relating to the Bank's new check imagining system, and consulting services.
Income Taxes
- ------------
The income tax provision for the nine months ended September 30, 1999 totaled
$1,031,900 in comparison to an income tax provision of $966,119 for the same
time period in 1998. This reflects a slight increase of taxable income.
Net Income
- ----------
Net income amounted to $1,607,599 for the nine months ended September 30, 1999
as compared to $1,473,942 for the corresponding period in 1998.
<PAGE>
THREE MONTHS ENDED SEPTEMBER 30, 1999
AS COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 1998
Net Interest Income
- -------------------
Net interest and dividend income for the three months ended September 30, 1999,
totaled $2,646,282 as compared to $2,435,400 for the same time period in 1998.
This is an increase of $210,882 or 8.7%. Total interest and dividend income
equaled $3,955,042 for the three months ended September 30, 1999 as compared
to $3,881,244 for the same time period in 1998, an increase of $73,798 or 1.9%.
Loan income for the three months ended September 30, 1999, totaled $3,127,794
as compared to $2,932,717 for the same time period in 1998. This increase of
$195,077 or 6.7% represents a higher loan volume. Interest and Dividends on
Taxable Investment Securities for the three months ended September 30, 1999
totaled $724,081 as compared to $686,572 for the same period in 1998. This
increase of $37,509 or 5.5% is attributable to a higher volume of investments.
The interest earned from federal funds sold decreased $157,360 or 62.4% for
the three months ended September 30, 1999 when compared to the same time
period in 1998, due to decreased volume.
Deposit interest expense equaled $1,308,760 for the three months ended
September 30, 1999, as compared to $1,436,977 for the same period in 1998. This
decrease of $128,217 or 8.9% reflects the current rate environment. Higher
priced certificates of deposit were replaced with deposits at lower rates.
The Bank generally pays competitive rates for its deposits in the local market.
Notes payable interest expense for the three months ended September 30, 1999
totaled $-0- in comparison $8,867 for the corresponding time period in 1998.
This reflects the paydown of the CSRT bond in March 1999.
Loan Loss Provision
- -------------------
No provisions to the allowance for possible loan losses were made during the
third quarter of 1999 or 1998, respectively. At September 30, 1999, the
Corporation's allowance for possible loan losses was $2,143,412 representing
1.5% of gross loans as compared to $1,934,541 and a ratio of 1.4% of gross
loans at December 31, 1998.
The ratio of non-performing assets to total loans and mortgages held for sale
was 0.26% for September 30, 1999 as compared to 0.22% as of December 31, 1998.
This increase can be attributed to a higher non accrual balance. The
Corporation's non-accrual loans were $371,550 at September 30, 1999 as
compared to $297,375 at December 31, 1998. The ratio of non-performing assets
to allowance for loan losses equaled 17.6% at September 30, 1999 as compared
to 15.4% at December 31, 1998.
A total of $6,143 loans were charged off by the Corporation during the quarter
ended September 30, 1999 as compared to $9,988 charged off during the
corresponding period in 1998. These charge-offs consisted primarily of loans
to small businesses and individuals. A total of $183,914 was recovered of
previously charged off notes by the Corporation during the quarter ended
September 30, 1999, as compared to $3,672 recovered during the corresponding
period in 1998.
<PAGE>
Noninterest Income
- ------------------
Noninterest income totaled $587,290 for the three months ended September 30,
1999 as compared to $539,758 for three months ended September 30, 1998. This
is an increase of $47,532 or 8.8%. Income from fiduciary activities totaled
$341,537 for the three months ended September 30, 1999 as compared to $306,309
for the three months ended September 30, 1998. This $35,228 or 11.5% increase
can be primarily attributed to increased reoccurring trust business. Service
charges on deposit accounts totaled $98,035 for the three months ended
September 30, 1999, as compared to $93,046 for the same time period in 1998.
This increase is due to a higher volume of transaction accounts during the
quarter. Other deposit fees for the three months ended September 30, 1999 as
compared to the same time period in 1998 were virtually the same for both
periods. Other income for the three month period ended September 30, 1999
totaled $99,341 as compared to $84,768 for the three months ended September 30,
1998, an increase of $14,573 or 17.2%. The increase of other income is the
result of higher rent income. Mortgage servicing rights decreased income
$7,065 for the three months ended September 30, 1999 as compared to none in
for the same period in 1998. This decrease reflects amortization of the
servicing costs and limited mortgages sold for the period.
Noninterest Expense
- -------------------
Noninterest expense totaled $2,243,938 for the three months ended September
30, 1999, as compared to $2,168,535 for the same time period in 1998. This
increase totaled $75,403 or 3.5%. Salaries and benefits totaled $1,320,329
for the three months ended September 30, 1999 and $1,275,495 for the same
time period in 1998. This $44,834 or 3.5% increase is due to increased
staffing in lending. Occupancy expense totaled $211,752 for the three months
ended September 30, 1999 as compared to $204,446 for the same period in 1998
which is a increase of $7,306 or 3.6%. This increase is due to higher expenses
of repairs and maintenance of facilities. The cost of equipment totaled
$108,713 for the three months ended September 30, 1999 as compared to $111,136
for the same period in 1998. Data processing fees totaled $95,903 for the
three months ended September 30, 1999 as compared to $70,010 for the
corresponding time in 1998. This is an increase of $25,893 or 37.0%. The
increase is attributed to expansion into additional products and delivery
systems. Other expenses totaled $458,251 for the three months ended September
30, 1999 as compared to $459,365 for the same period in 1998. The reduction
of marketing expenses was offset by additional postage and supply expenses
relating to the Bank's new check imagining system and consulting services.
Income Taxes
- ------------
The income tax provision for the three months ended September 30, 1999 totaled
$385,000 in comparison to an income tax provision of $317,800 for the same time
period in 1998. This increase reflects the increase of taxable income for
the quarter.
<PAGE>
Net Income
- ----------
Net income amounted to $604,634 for the three months ended September 30, 1999
as compared to net income of $488,823 for the same period in 1998, which is a
increase of $115,811 or 23.7%. The earnings increase is due to stronger net
interest margin.
Capital Resources
- -----------------
As of September 30, 1999, the Corporation had total capital in the amount of
$19,875,256 as compared with $18,939,613 at December 31, 1998, which represents
an increase of $935,643 or 4.9%. 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, 1999, the Bank's Tier 1 capital amounted to 8.19%
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, 1999, the Bank's ratio of risk-based capital to risk weighted
assets amounted to 13.97%, which satisfies the applicable risk based capital
requirements. As of December 31, 1998, the Bank's Tier 1 capital amounted to
7.83% of total assets and risk based capital amounted to 12.56% of total risk
based assets.
The Corporation 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
30,1999, the Corporation's Tier 1 capital amounted to 9.21% 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, 1999,
the Corporation's ratio of risk-based capital to risk weighted assets amounted
to 15.49%, which satisfies the applicable risk based capital requirements. As
of December 31, 1998, the Corporation's Tier 1 capital amounted to 8.86% of
total assets and risk based capital amounted to 14.03% of total risk based
assets. Federal funds sales were reduced to fund additional loans.
The capital ratios of the Corporation and the Bank exceed regulatory
requirements.
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.
<PAGE>
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
$2,401,500 or 4.9% at September 30, 1999 of the investment securities
portfolio, and $8,150,954 at December 31, 1998, representing 16.9% 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 worldwide concern regarding the ability of computers to function when
the Year 2000 arrives. Historically, many computer programs used 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" or that ends in "00" instead of
"99".
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 address 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 have
been tested. Systems have been verified and remediated in 1999.
The Bank's primary vendors have been identified and tested of the Bank's core
processing systems. Contingency plans are completed and continue to be tested
to verify that these critical systems meet 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 trust 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 $135,000 for 1999.
<PAGE>
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. 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 records,
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.
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 has developed contingency plans for its mission critical
systems and will continue to refine and test these plans throughout 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>
Forward Looking Statements
- --------------------------
Certain statements contained in this Annual 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 the
local and regional economy.
<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 10, 1999 By: /s/ Lawrence M. Smith
------------------ -----------------------
Lawrence M. Smith
President, Chief Executive
Officer
Date: November 10, 1999 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
On October 5, 1999 the Board of Directors of Beverly National
Corporation authorized the repurchase of up to 80,000 shares,
or approximately five percent of the Corporation's outstanding
common stock.
Repurchases are authorized to be made by the Corporation from
time to time in private or open market transactions as, in the
opinion of management, market conditions warrant. The
repurchased shares will be held as treasury stock and will be
available for general corporate purposes.
While there is no assurance that the Corporation will repurchase
the full number of shares authorized, the Corporation's
authorization provides the management with flexibility to
consummate such repurchases expeditiously in responding to
opportunities in the marketplace.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
27. Financial Data Schedule
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 13,152,413
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 1,024,540
<INVESTMENTS-HELD-FOR-SALE> 32,164,367
<INVESTMENTS-CARRYING> 17,078,080
<INVESTMENTS-MARKET> 16,924,728
<LOANS> 144,983,176
<ALLOWANCE> 2,143,412
<TOTAL-ASSETS> 215,245,061
<DEPOSITS> 193,339,339
<SHORT-TERM> 0
<LIABILITIES-OTHER> 2,030,467
<LONG-TERM> 0
0
0
<COMMON> 4,034,795
<OTHER-SE> 15,840,461
<TOTAL-LIABILITIES-AND-EQUITY> 215,245,061
<INTEREST-LOAN> 8,946,223
<INTEREST-INVEST> 2,108,123
<INTEREST-OTHER> 377,853
<INTEREST-TOTAL> 11,432,199
<INTEREST-DEPOSIT> 3,953,164
<INTEREST-EXPENSE> 12,603
<INTEREST-INCOME-NET> 7,466,432
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 6,809,672
<INCOME-PRETAX> 2,639,499
<INCOME-PRE-EXTRAORDINARY> 2,639,499
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,607,599
<EPS-BASIC> 1.04
<EPS-DILUTED> .93
<YIELD-ACTUAL> 7.61
<LOANS-NON> 371,550
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,934,541
<CHARGE-OFFS> 9,325
<RECOVERIES> 218,196
<ALLOWANCE-CLOSE> 2,143,412
<ALLOWANCE-DOMESTIC> 1,708,234
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 435,178
</TABLE>
