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 June 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
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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
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(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 August 1, 1999. 1,567,774 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
June 30, 1999 and December 31, 1998 . . . . . . . . . . . . 3-4
Consolidated Statements of Income for the Six Months and
three months Ended June 30, 1999 and 1998 . . . . . . . . . 5-6
Consolidated Statements of Cash Flow for the
Six Months Ended June 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 . . . . . . . . . . . . . . . . . . . . . 22
Item 2.
Changes in Securities and Use of Proceeds . . . . . . . . . 22
Item 3.
Defaults Upon Senior Securities . . . . . . . . . . . . . . 22
Item 4.
Submission of Matters to a Vote of Security Holders . . . . 22
Item 5.
Other Information. . . . . . . . . . . . . . . . . . . . . 22
Item 6.
Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . 22
Signatures. . . . . . . . . . . . . . . . . . . . . . . . . 21
<PAGE>
BEVERLY NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
June 30, December 31,
1999 1999
------------ ------------
ASSETS
Cash and due from banks $ 10,672,255 $ 10,971,822
Federal funds sold 12,700,000 14,500,000
Investments in available for sale
securities 33,195,299 31,879,320
Investments in held to maturity
securities 17,078,123 16,152,624
Federal Reserve Bank Stock, at cost 97,500 97,500
Loans:
Commercial 24,884,757 24,987,512
Real estate-construction & land
development 2,832,925 2,926,158
Real estate-residential 49,847,390 49,678,024
Real estate-commercial 49,840,110 44,223,264
Consumer 8,056,186 8,241,229
Municipal 3,553,461 2,669,963
Other 450,990 1,318,270
Allowance for possible loan losses (1,965,641) (1,934,541)
Deferred loan fees, net 172,228 136,759
------------ ------------
Net loans 137,672,406 132,246,638
Mortgages held for sale 207,600 1,576,925
Premises and Equipment, net 4,746,500 4,561,232
Accrued interest receivable 1,321,639 1,224,462
Other assets 2,381,905 1,819,781
------------ ------------
Total assets $220,073,227 $215,030,304
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest bearing $ 40,996,512 $ 41,721,322
Interest bearing
Regular savings 45,121,717 40,650,954
NOW accounts 35,733,097 35,933,589
Money market accoun 19,642,764 17,884,214
Time deposits 57,175,258 57,359,335
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Total deposits 198,669,348 193,549,414
Notes payable 0 385,627
Employee Stock Ownership Plan loan 0 200,000
Other liabilities 1,865,167 1,955,650
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Total liabilities 200,534,515 196,090,691
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<PAGE>
Stockholders' equity:
Preferred stock, $2.50 par value
per share; 300,000 shares authorized
issued & outstanding none
Common stock, $2.50 par value per
share; 2,500,000 shares authorized;
issued 1,613,918 shares as of June
30, 1999 and 1,609,698 shares as of
December 31, 1998; Outstanding,
1,567,794 shares as of June 30, 1999
and 1,563,574 shares s of December
31, 1998. 4,034,795 4,024,245
Paid-in Capital 2,494,877 2,470,245
Retained Earnings 13,574,680 13,009,685
Treasury stock, at cost (46,124
shares) (427,467) (427,467)
Accumulated Other Comprehensive
Income (138,173) 62,477
Unearned compensation -
Employee Stock Ownership Plan 0 (200,000)
------------ ------------
Total stockholders' equity 19,538,712 18,939,613
------------ ------------
Total liabilities & stockholders'
equity $220,073,227 $215,030,304
============ ============
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
BEVERLY NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Six Months Ended June 30, Three Months Ended June 30,
1999 1998 1999 1998
------------- ----------- -------------- ------------
INTEREST INCOME:
Interest & fees
on loans $ 5,818,429 $ 5,862,643 $ 2,909,727 $ 2,908,361
Interest & dividends
on investment
securities
Taxable 1,359,518 1,189,047 683,613 615,081
Tax-exempt 17,138 10,886 8,421 5,122
Federal Funds Sold 282,072 447,687 156,057 280,801
Other interest 0 0 0 0
---------- ---------- ---------- ----------
Total interest &
dividend income 7,477,157 7,510,263 3,757,818 3,809,302
---------- ---------- ---------- ----------
INTEREST EXPENSE:
Interest on deposits 2,644,404 2,723,474 1,327,182 1,428,431
Interest on Notes
payable 12,604 17,476 0 8,780
---------- ---------- ---------- ----------
Total interest
expense 2,657,008 2,740,950 1,327,182 1,437,211
---------- ---------- ---------- ----------
Net interest &
dividend income 4,820,149 4,769,313 2,430,636 2,372,091
Provision for loan
losses 0 0 0 0
---------- ---------- ---------- ----------
Net interest &
dividend income
after provision for
loan losses 4,820,149 4,769,313 2,430,636 2,372,091
---------- ---------- ---------- ----------
<PAGE>
NONINTEREST INCOME:
Income from fudiciary
activities 695,743 596,125 373,396 324,848
Service charges on
deposit accounts 187,508 198,240 96,371 104,902
Other deposit fees 103,981 113,279 56,134 56,131
Other income 208,304 180,503 102,321 88,813
Mortgage servicing
income 199,913 0 199,913 0
---------- ---------- ---------- ----------
Total noninterest
income 1,395,449 1,088,147 828,135 574,694
---------- ---------- ---------- ----------
NONINTEREST EXPENSE:
Salaries & employee
benefits 2,587,921 2,452,402 1,255,741 1,173,126
Occupancy expense 429,891 392,151 211,754 191,934
Equipment expense 219,445 221,746 110,951 112,446
Investment security
(gain)/loss, net 0 0 0 0
Data processing fees 189,541 119,623 96,202 61,883
FDIC Insurance
premium 10,979 10,580 10,979 10,580
Stationary & supplies 105,973 81,262 48,809 42,717
Other expense 1,021,985 946,257 466,544 504,329
---------- ---------- ---------- ----------
Total noninterest
expense 4,565,735 4,224,021 2,200,980 2,097,015
---------- ---------- ---------- ----------
Income before
income taxes 1,649,863 1,633,439 1,057,791 849,770
Income taxes 646,900 648,319 416,400 337,500
---------- ---------- ---------- ----------
Net Income $1,002,963 $ 985,120 $ 641,391 $ 512,270
========== ========== ========== ==========
Earnings per share:
Primary shares
outstanding 1,433,709 1,464,554
========== ==========
Diluted shares
outstanding 1,613,810 1,642,827
========== ==========
Net income per
share-Primary $0.70 $0.67
Net income per
share-Diluted $0.62 $0.60
Dividends per share $0.28 $0.18
Special dividend
per share $0.00 $0.03
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
BEVERLY NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30, 1999 and 1998
(Unaudited)
1999 1998
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Cash flows from operating activities:
Interest received $ 7,394,381 $ 7,235,721
Service charges & other income 1,348,424 1,117,763
Interest paid (2,651,436) (2,738,983)
Cash paid to suppliers & employees (4,444,477) (4,103,143)
Income taxes paid (646,092) (592,717)
----------- -----------
Net cash provided by operating activities 1,000,800 918,641
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Cash flows from investing activities:
Proceeds from maturities of investment securities
held-to-maturity 4,054,000 9,160,885
Proceeds from maturities of investment securities
available-for-sale 9,686,559 7,870,978
Purchases of investment securities held-to-maturity (4,980,156) (2,541,531)
Purchases of investment securities available
for-sale (11,204,657) (21,332,183)
Net increase in loans (5,472,324) 3,899,544
Proceeds from sale of mortgages 1,380,841 (1,451,725)
Capital expenditures (417,435) (138,845)
Recoveries of previously charged off loans 34,282 49,242
(Increase) decrease in other assets (570,157) (6,259)
Increase (decrease) in other liabilities 57,587 11,341
----------- -----------
Net cash provided by (used in) investing activities (7,431,460) (4,478,553)
----------- -----------
Cash flow from financing activities:
Net increase (decrease) in demand deposits, NOW,
money market & savings accounts 5,174,462 9,444,347
Net increase (decrease) in time deposits (54,527) 5,365,304
Decrease in borrowings (385,627)
Issued common stock 34,754 144,202
Issued treasury stock 0 144,626
Dividends paid (437,969) (314,880)
----------- -----------
Net cash used in financing activities 4,331,093 14,783,599
----------- -----------
<PAGE>
Net increase (decrease) in cash and
cash equivalents (2,099,567) 11,223,687
Cash & cash equivalents beginning of year 25,471,822 18,687,570
----------- -----------
Cash & cash equivalents at June 30: $23,372,255 $29,911,257
=========== ===========
Net Income 1,002,963 985,120
----------- -----------
Depreciation expense 232,167 221,158
Amortization expense of investment securities 11,493 3,745
Accretion income of investment securities (9,367) (71,217)
Change in prepaid interest 5,572 1,967
Provision for loan losses 0 0
Increase (decrease) in taxes payable 808 55,602
(Increase) decrease in interest receivable (97,176) (130,186)
Increase (decrease) in interest payable (35,509) 34,903
(Increase) decrease in accrued expenses (113,369) (125,985)
Net (gain) loss on sale of mortgages (11,516) (5,287)
Change in deferred loan fees 12,274 (76,884)
Change in prepaid expenses 2,460 25,705
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Total adjustments (2,163) (66,479)
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Net cash provided by operating activities $ 1,000,800 $ 918,641
----------- -----------
Non-cash investing activities:
Loans transferred to other real estate owned $0 $0
Loans transferred from conforming mortgages $7,273,841 $0
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
BEVERLY NATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 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 six months ended June 30, 1999, was
$1,002,963 as compared to $985,120 for the time period ended June 30, 1998.
This represents an increase of $17,843 or 1.8%. Primary earnings per share
totaled $.70 for the six months ended June 30, 1999, as compared to earnings
per share of $.67 for the six months ended June 30, 1998. The Bank's loan
portfolio and base of earning assets have steadily grown. However, the
increase in the Bank's net income primarily reflect growth in non-interest
income resulting from the expansion of the Bank's trust business and the
establishment of mortgage servicing rights. These increases, along with
modest improvement in net interest income, more than offset the increases
in the Bank's non-interest expenses.
<PAGE>
SIX MONTHS ENDED JUNE 30, 1999
AS COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
Net Interest Income
-------------------
Net interest and dividend income for the six months ended June 30, 1999,
totaled $4,820,149 as compared to $4,769,313 for the same time period in
1998. This increase was $50,836 or 1.1%. Total interest and dividend
income equaled $7,477,157 for the six months ended June 30, 1999 as
compared to $7,510,263 for the same time period in 1998, a decrease of
$33,106 or 0.4%. Loan income for the six months ended June 30, 1999,
totaled $5,818,429 as compared to $5,862,643 for the same time period in
1998. This decrease of $44,214 or 0.8% reflects the increased level of
competition for loan production and lowering interest margin. Interest and
Dividends on Taxable Investment Securities for the six months ended June
30, 1999 totaled $1,359,518 as compared to $1,189,047 for the same period
in 1998. This increase of $170,471 or 14.3% is attributable to a higher
volume of investments. The taxable investment portfolio increased
$5,129,513 during the past twelve months. The interest earned from federal
funds sold decreased $165,615 or 37.0% for the six months ended June 30,
1999 when compared to the same time period in 1998, due to decreased volume
and rates. This reflects the more effective deployment of assets for steady
loan demand and a stable deposit base.
Deposit interest expense equaled $2,644,404 for the six months ended
June 30, 1999, as compared to $2,723,474 for the same period in 1998. This
is a decrease of $79,070 or 2.9% which reflects 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 six months ended June 30, 1999
totaled $12,604 in comparison $17,476 for the corresponding time period in
1998. This reflects the acceleration of loan fees and relating paydown of
the CSRT bond in March 1999.
<PAGE>
Loan Loss Provision
-------------------
No provisions to the allowance for possible loan losses were made during the
six months ending June 30 of 1999 or 1998, respectively. At June 30, 1999,
the Corporation's allowance for possible loan losses was $1,965,641
representing 1.4% 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 0.37% for June 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 $517,677 at June 30, 1999 as compared
to $297,375 at December 31, 1998. The ratio of non-performing assets to
allowance for loan losses equaled 26.3% at June 30, 1999 as compared to
15.4% at December 31, 1998
A total of $3,182 loans were charged off by the Corporation during the six
months ended June 30, 1999 as compared to $225,158 charged off during the
corresponding period in 1998. These charge-offs consisted primarily of
loans to small businesses and individuals. A total of $34,282 was
recovered of previously charged off notes by the Corporation during the
six months ended June 30, 1999, as compared to $49,242 recovered during
the corresponding period in 1998.
Noninterest Income
------------------
Noninterest income totaled $1,395,449 for the six months ended June 30,
1999 as compared to $1,088,147 for six months ended June 30, 1998. This is
an increase of $307,302 or 28.2%. Income from fiduciary activities totaled
$695,743 for the six months ended June 30, 1999 as compared to $596,125
for the six months ended June 30, 1998. This $99,618 or 16.7% increase can
be primarily attributed to increased reoccurring trust business. Service
charges on deposit accounts totaled $187,508 for the six months ended June
30, 1999, as compared to $198,240 for the same time period in 1998. This
decrease of $10,732 or 5.4% is due to the promotion of deposit products that
do not have a service charge. Other deposit fees decreased $9,298 or 8.2%
for the six months ended June 30, 1999 as compared to the same time period
in 1998. Other income for the six month period ended June 30, 1999 totaled
$208,304 as compared to $180,503 for the six month period ended June 30,
1998, an increase of $27,801 or 13.2%. This increase of other income
is the result of sale of mortgages in the secondary market and higher
rents collected. The Bank established mortgage servicing rights which
increased income $199,913. These mortgage servicing rights were established
due to the higher volume of mortgage loans being serviced.
<PAGE>
Noninterest Expense
-------------------
Noninterest expense totaled $4,565,735 for the six months ended June 30,
1999 as compared to $4,224,021 for the same time period in 1998. This
increase totaled $341,714 or 8.1%. Salaries and benefits totaled
$2,587,921 for the six months ended June 30, 1999 and $2,452,402 for the
same time period in 1998. This $135,519 or 5.5% increase is due to
increased staffing in lending. Occupancy expense totaled $429,891 for the
six months ended June 30, 1999 as compared to $392,151 for the same period
in 1998 which is an increase of $37,740 or 9.6%. This increase is due to
higher expenses of repairs and maintenance of facilities. The costs of
equipment totaled $219,445 for the six months ended June 30, 1999 as
compared to $221,746 for the same period in 1998. Data processing fees
totaled $189,541 for the six months ended June 30, 1999 as compared to
$119,623 for the corresponding time in 1998. This is an increase of $69,918
or 58.5%. The increase is attributed to expansion into additional products
and delivery systems. Other expenses totaled $1,021,985 for the six months
ended June 30, 1999 as compared to $946,257 for the same period in 1998.
This reflects an increase of $75,728 or 8.0% which can be attributed to an
increase in postage, legal, and consulting services.
Income Taxes
------------
The income tax provision for the six months ended June 30, 1999 totaled
$646,900 in comparison to an income tax provision of $648,319 for the same
time period in 1998. This reflects a slight decrease of taxable income.
Net Income
----------
Net income amounted to $1,002,963 for the six months ended June 30, 1999
as compared to $985,120 for the corresponding period in 1998.
<PAGE>
THREE MONTHS ENDED June 30, 1999
AS COMPARED TO THREE MONTHS ENDED June 30, 1998
Net Interest Income
-------------------
Net interest and dividend income for the three months ended June 30, 1999,
totaled $2,430,636 as compared to $2,372,091 for the same time period in
1998. This is an increase of $58,545 or 2.5%. Total interest and dividend
income equaled $3,757,818 for the three months ended June 30, 1999 as
compared to $3,809,302 for the same time period in 1998, a decrease of
$51,484 or 1.3%. Loan income for the three months ended June 30, 1999,
totaled $2,909,727 as compared to $2,908,361 for the same time period in
1998. This increase of $1,366 or 0.1% represents the increased level of
competition for loan production and lowering interest margin. Interest and
Dividends on Taxable Investment Securities for the three months ended June
30, 1999 totaled $683,613 as compared to $615,018 for the same period in
1998. This increase of $68,595 or 11.2% is attributable to a higher volume
of investments. The interest earned from federal funds sold decreased
$124,744 or 44.4% for the three months ended June 30, 1999 when compared
to the same time period in 1998, due to decreased volume and rates. This
reflects the effective deployment of assets for steady loan demand and a
stable deposit base.
Deposit interest expense equaled $1,327,182 for the three months ended
June 31, 1999, as compared to $1,428,431 for the same period in 1998. This
decrease of $101,249 or 7.1% reflects the current rate environment and
strong local competition. The Bank generally pays competitive rates for
its deposit base in the local market.
Notes payable interest expense for the three months ended June 30, 1999
totaled $-0- in comparison $8,780 for the corresponding time period in 1998.
This reflects the paydown of the CSRT bond in March 1999.
<PAGE>
Loan Loss Provision
-------------------
No provisions to the allowance for possible loan losses were made during
the second quarter of 1999 or 1998, respectively. At June 30, 1999, the
Corporation's allowance for possible loan losses was $1,965,641
representing 1.4% 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 0.37% for June 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 $517,677 at June 30, 1999 as compared
to $297,375 at December 31, 1998. The ratio of non-performing assets to
allowance for loan losses equaled 26.3% at June 30, 1999 as compared to
15.4% at December 31, 1998.
A total of $2,796 loans were charged off by the Corporation during the
quarter ended June 30, 1999 as compared to $618 charged off during the
corresponding period in 1998. These charge-offs consisted primarily of
loans to small businesses and individuals. A total of $12,380 was recovered
of previously charged off notes by the Corporation during the quarter ended
June 30, 1999, as compared to $948 recovered during the corresponding period
in 1998.
Noninterest Income
------------------
Noninterest income totaled $828,135 for the three months ended June 30,
1999 as compared to $574,694 for three months ended June 30, 1998. This
is an increase of $253,441 or 44.1%. Income from fiduciary activities
totaled $373,396 for the three months ended June 30, 1999 as compared to
$324,848 for the three months ended June 30, 1998. This $48,548 or 14.9%
increase can be primarily attributed to increased reoccurring trust
business. Service charges on deposit accounts totaled $96,371 for the
three months ended June 30, 1999, as compared to $104,902 for the same
time period in 1998. This decrease is due to the competitive local market
and the promotion of deposit products that do not have a service charge.
Other deposit fees for the three months ended June 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 June 30, 1999 totaled
$102,321 as compared to $88,813 for the three months ended June 30, 1998,
an increase of $13,508 or 15.2%. The increase of other income is the
result of higher rents collected. The Bank established mortgage servicing
rights which increased income $199,913. These mortgage servicing
rights were established due to the higher volume of mortgage loans being
serviced.
<PAGE>
Noninterest Expense
-------------------
Noninterest expense totaled $2,200,980 for the three months ended June 30,
1999, as compared to $2,097,015 for the same time period in 1998. This
increase totaled $103,965 or 5.0%. Salaries and benefits totaled
$1,255,741 for the three months ended June 30, 1999 and $1,173,126 for the
same time period in 1998. This $82,615 or 7.0% increase is due to increased
staffing in lending. Occupancy expense totaled $211,754 for the three
months ended June 30, 1999 as compared to $191,934 for the same period in
1998 which is an increase of $19,820 or 10.3%. This increase is due to
higher expenses of repairs and maintenance of facilities. The costs of
equipment totaled $110,951 for the three months ended June 30, 1999 as
compared to $112,446 for the same period in 1998. Data processing fees
totaled $96,202 for the three months ended June 30, 1999 as compared to
$61,883 for the corresponding time in 1998. This is an increase of $34,319
or 55.5%. The increase is attributed to expansion into additional products
and delivery systems. Other expenses totaled $466,544 for the three months
ended June 30, 1999 as compared to $504,329 for the same period in 1998.
This reflects an decrease of $37,785 or 7.5% which can be attributed to a
decrease in marketing, legal, and consulting services.
Income Taxes
------------
The income tax provision for the three months ended June 30, 1999 totaled
$416,400 in comparison to an income tax provision of $337,500 for the same
time period in 1998. This increase reflects the increase of taxable income
for the quarter.
Net Income
----------
Net income amounted to $641,391 for the three months ended June 30, 1999
as compared to net income of $512,270 for the same period in 1998, which
is a increase of $129,121 or 25.2%. The earnings increase is due to
mortgage servicing rights being established.
Capital Resources
-----------------
As of June 30, 1999, the Corporation had total capital in the amount of
$19,538,712 as compared with $18,939,613 at December 31, 1998, which
represents an increase of $599,099 or 3.2%.
<PAGE>
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 June 30, 1999,
the Bank's Tier 1 capital amounted to 7.77% 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 June 30, 1999, the
Bank's ratio of risk-based capital to risk weighted assets amounted to
12.56%, 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 June
30,1999, the Corporation's Tier 1 capital amounted to 9.01% 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 June 30,
1999, the Corporation's ratio of risk-based capital to risk weighted assets
amounted to 14.36%, 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. Core deposits continued to grow and fund the
additional loan growth. Federal funds sales were reduced to fund additional
investments.
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.
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
$4,221,683 or 8.4% at June 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.
<PAGE>
Year 2000 Preparedness
----------------------
There is worldwide concern over 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 are currently being tested. It is expected that
all systems will be verified and remediated by the second quarter, 1999.
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 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 $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.
<PAGE>
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 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 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>
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 requirement of the Securities Exhange 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:August 11, 1999 By:/s/Lawrence M. Smith
--------------------
Lawrence M. Smith
President, Chief Executive
Officer
Date:August 11, 1999 By:/s/Peter E. Simonsen
--------------------
Peter E. Simonsen
Treasurer, Principal Financial
Officer
<PAGE>
PART II - Other Information
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
27. Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 10,672,255
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 12,700,000
<TRADING-ASSETS> 207,600
<INVESTMENTS-HELD-FOR-SALE> 33,195,299
<INVESTMENTS-CARRYING> 17,078,123
<INVESTMENTS-MARKET> 17,104,941
<LOANS> 139,638,047
<ALLOWANCE> 1,965,641
<TOTAL-ASSETS> 220,073,227
<DEPOSITS> 198,669,348
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,865,167
<LONG-TERM> 0
0
0
<COMMON> 4,034,795
<OTHER-SE> 15,503,917
<TOTAL-LIABILITIES-AND-EQUITY> 220,073,227
<INTEREST-LOAN> 5,818,429
<INTEREST-INVEST> 1,376,656
<INTEREST-OTHER> 282,072
<INTEREST-TOTAL> 7,477,157
<INTEREST-DEPOSIT> 2,644,404
<INTEREST-EXPENSE> 12,604
<INTEREST-INCOME-NET> 4,820,149
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 4,565,735
<INCOME-PRETAX> 1,649,863
<INCOME-PRE-EXTRAORDINARY> 1,649,863
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,002,963
<EPS-BASIC> .70
<EPS-DILUTED> .62
<YIELD-ACTUAL> 7.47
<LOANS-NON> 517,677
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,934,541
<CHARGE-OFFS> 3,182
<RECOVERIES> 34,282
<ALLOWANCE-CLOSE> 1,965,641
<ALLOWANCE-DOMESTIC> 1,699,980
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 265,661
</TABLE>
