UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
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. 0-15752
CENTURY BANCORP, INC.
(Exact name of registrant as specified in its charter)
COMMONWEALTH OF MASSACHUSETTS 04-2498617
(St. or other jurisdiction of incorp. or organization)(I.R.S. Employer ID #)
400 MYSTIC AVENUE, MEDFORD, MA 02155
(Address of principal executive offices) (Zip Code)
(617)391-4000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities and Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. X Yes No
Indicate the number of shares outstanding of each of the registrant's
classes of common stock as of June 30, 1996:
Class A Common Stock, $1.00 par value 3,394,097 Shares
Class B Common Stock, $1.00 par value 2,345,370 Shares
SIGNATURES
Pursuant to 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.
Date: November 12, 1996 Century Bancorp, Inc.
(Registrant)
\s\ Paul V. Cusick, Jr. \s\ Kenneth A. Samuelian
Paul V. Cusick, Jr. Kenneth A. Samuelian
Vice President and Treasurer Vice President and Controller,
(Principal Financial Officer) Century Bank & Trust Company
(Chief Accounting Officer)
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Century Bancorp, Inc.
Page
Index Number
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets:
September 30, 1996 and 1995; June 30, 1996
and December 31, 1995. 3
Consolidated Statements of Income:
Three (3) Months Ended September 30, 1996
and 1995; and nine (9) Months Ended
September 30, 1996 and 1995. 4
Consolidated Statements of Cash Flows:
Nine (9) Months Ended September 30, 1996
and 1995. 5
Consolidated Changes in Stockholders
Equity: December 31, 1994 through
September 30, 1996. 6
Notes to Consolidated Financial
Statements 7 - 11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 12 - 14
Part II. Other Information
Item 1 through Item 6 15
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PART I - Item 1
- ----------
Century Bancorp, Inc. - Consolidated Balance Sheets (unaudited)
- ---------------------------------------------------------------
(000's) Sep 30, Jun 30, Dec 31, Sep 30,
Assets 1996 1996 1995 1995
- ------ ------- ------- ------- -------
Cash and due from banks $44,898 $32,165 $41,061 $39,504
Federal funds sold 0 0 10,000 0
Int-bearing deposits in other banks 0 0 53 38
------- ------- ------- -------
Total cash and cash equivalents 44,898 32,165 51,114 39,542
------- ------- ------- -------
Secs AFS, amort cost $86,103; $93,803;
$100,159; $64,077, respectively 85,640 93,145 100,754 64,251
Secs HTM, mark val $105,902; $100,139;
$78,410; $70,735, respectively 107,019 101,613 77,987 70,765
Loans, net of unearned discount:
Commercial & industrial 39,107 40,156 37,811 38,992
Construction & land development 3,205 3,187 1,444 1,695
Commercial real estate 132,817 131,499 130,173 130,407
Industrial revenue bonds 3,116 3,204 3,362 3,442
Residential real estate 77,735 77,405 80,899 80,348
Residential real estate held-for-sale 570 1,895 1,233 1,170
Consumer 8,605 8,864 9,243 9,610
Home equity 17,476 17,669 21,130 22,025
Overdrafts 263 133 143 197
------- ------- ------- -------
Tot loans, net of unearned disc 282,894 284,012 285,438 287,886
Less allow for poss loan losses (4,104) (4,012) (4,193) (4,311)
------- ------- ------- -------
Net loans 278,790 280,000 281,245 283,575
Bank premises & equipment, net 8,335 8,420 8,716 8,169
Accrued interest receivable 4,978 4,308 4,292 3,891
Other real estate owned 280 313 845 620
Other assets 7,648 12,011 6,975 7,545
------- ------- ------- -------
Total assets $537,588 $531,975 $531,928 $478,358
======== ======== ======== ========
Liabilities
- --------------
Deposits:
Demand deposits $100,188 $90,122 $99,953 $90,661
Savings and NOW deposits 122,519 132,007 131,181 115,828
Money market accounts 69,833 71,746 72,463 75,121
Time deposits 157,751 155,724 155,018 132,114
------- ------- ------- -------
Total deposits 450,291 449,599 458,615 413,724
Secs sold under agreemnts to repurchase 17,220 13,650 21,580 16,120
FHLB borrowings & other borrowed funds 17,577 17,176 1,897 654
Other liabilities 6,682 7,106 6,901 6,219
------- ------- ------- -------
Total liabilities 491,770 487,531 488,993 436,717
Stockholder's equity
- ----------------------
Class A com stck, $1.00 par value p/s; 3,424 3,422 3,406 3,341
auth 10,000,000 shrs; issued 3,424,097
Class B com stck, $1.00 par value p/s; 2,393 2,393 2,396 2,460
auth 5,000,000 shrs; issued 2,392,920
Additional paid-in capital 10,730 10,725 10,687 10,684
Retained earnings 29,718 28,464 26,278 25,232
Treasury stock, 77,550 shares (177) (177) (177) (177)
------- ------- ------- -------
Realized stockholders' equity 46,088 44,827 42,590 41,540
Unreal (loss) gns on secs AFS (270) (383) 345 101
------- ------- ------- -------
Total stockholders' equity 45,818 44,444 42,935 41,641
------- ------- ------- -------
Total liabs and stckhldrs' equity $537,588 $531,975 $531,928 $478,358
======== ======== ======== ========
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Century Bancorp, Inc. - Consolidated Statements of Income (unaudited)
- -------------------------------------------------------------------------------
(000's except share data) Three months ended Year-to-Date ended
September 30, September 30,
1996 1995 1996 1995
Interest income ------- ------- ------- -------
Loans $6,608 $6,685 $19,674 $19,607
Securities held-to-maturity 1,675 1,080 4,260 2,498
Securities available-for-sale 1,390 976 4,349 3,088
Interest-bearing deps in other banks 0 0 2 0
Federal funds sold 214 394 703 1,453
------- ------- ------- -------
Total interest income 9,887 9,135 28,988 26,646
Interest expense
Savings and NOW deposits 959 1,016 2,901 2,947
Money market accounts 533 621 1,589 1,906
Time deposits 2,337 1,982 6,844 5,459
Sec sold under agrmnts to reprchs 192 176 534 456
FHLB & other borrowed funds 31 16 128 37
------- ------- ------- -------
Total interest expense 4,052 3,811 11,996 10,805
------- ------- ------- -------
Net interest income 5,835 5,324 16,992 15,841
Provision for poss loan losses 255 375 765 1,185
------- ------- ------- -------
Net int inc after provision
for possible loan losses 5,580 4,949 16,227 14,656
Other operating income
Service charges on deposit accounts 402 401 1,221 1,186
Lockbox fees 262 365 994 1,071
Brokerage commissions 223 260 843 694
Gain on sales of loans 76 83 241 155
Other income 97 106 319 362
------- ------- ------- -------
Total other operating income 1,060 1,215 3,618 3,468
------- ------- ------- -------
Operating expenses
Salaries and employee benefits 2,815 2,785 8,683 8,309
Occupancy 334 319 1,069 1,003
Equipment 299 291 865 805
Other real estate owned (5) 34 29 196
Other 894 868 2,811 3,117
------- ------- ------- -------
Total operating expenses 4,337 4,297 13,457 13,430
------- ------- ------- -------
Income before income taxes 2,303 1,867 6,388 4,694
Provision for income taxes 899 575 2,502 1,278
------- ------- ------- -------
Net income $1,404 $1,292 $3,886 $3,416
======= ======= ======= =======
- ---------------------------------------------------------------------------
Share data:
Wtd avg number of shrs o/s 5,738,706 5,722,530 5,733,736 5,722,477
Net income per share $0.24 $0.23 $0.68 $0.60
Cash dividends declared:
Class A common stock $0.0400 $0.0300 $0.1200 $0.0900
Class B common stock $0.0056 $0.0042 $0.0168 $0.0126
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Century Bancorp, Inc. - Consolidated Statements of Cash Flows (unaudited)
1996 1995
- ---------------------------------------------------------------------------
For the nine months ended
September 30,
(000's)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $3,886 $3,416
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for possible loan losses 765 1,185
Deferred income taxes (436) 672
Net depreciation and amortization 515 328
Increase in accrued interest receivable (686) (600)
Decrease (increase) in other assets 51 (1,156)
Loans originated for sale (14,861) (10,141)
Proceeds from sales of loans 16,063 9,716
Gain on sales of loans (241) (155)
Gain on sales of real estate owned (52) (2)
Prov for poss losses on other real estate owned 0 50
Decrease in other liabilities (219) (1,373)
------- -------
Net cash provided by operating activities 4,785 1,940
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from matrities of sec available-for-sale 41,193 22,375
Purchase of securities available-for-sale (27,006) (15,021)
Proceeds from maturities of sec held-to-maturity 34,250 18,650
Purchase of securities held-to-maturity (63,299) (41,526)
Net decrease (increase) in loans 672 (15,910)
Proceeds from sales of real estate owned 993 3,124
Capital expenditures (412) (1,132)
-------- --------
Net cash used in investing activities (13,609) (29,440)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in time deposit accounts 2,733 1,924
Net (decrease) increase in demand, savings,
money market and NOW deposits (11,057) 2,258
Net proceeds from the issuance of common stock 58 3
Cash Dividends (446) (327)
Net (decr) incr in sec sold under agr to repurch (4,360) 6,320
Net increase (decrease) in FHLB & other borr funds 15,680 (280)
-------- --------
Net cash provided by financing activities 2,608 9,895
-------- --------
Net decrease in cash and cash equivalents (6,216) (17,602)
Cash and cash equivalents at beginning of year 51,114 57,144
-------- --------
Cash and cash equivalents at end of period $44,898 $39,542
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $12,301 $10,532
Income taxes 2,764 1,425
Noncash transactions:
Property acquired through foreclosure $376 $600
Chg in unrlzd gains on sec afs, net of tax ($615) $996
5 of 15
Century Bancorp, Inc. -
Consolidated Statement of Changes in Stockholders' Equity (unaudited)
- ----------------------------------------------------------------------------
December 31, 1994 through September 30, 1996
(000's)
Cl A Cl B Add Cl A, Cl B, Total
Comm Comm Pd-In Retnd 30K 47,550 G/L Stkhlds
Stk Stk Cap Erngs Shrs Shrs AFS Equty
- ----------------------------------------------------------------------------
BALANCE, DEC 31, 1994 3,312 2,488 10,683 22,142 (136) (41) (895) 37,553
Conv of Cl B stk to
to Cl A, 28,251 shrs 28 (28) - - - - - -
Stk opts exer, 667 shrs 1 - 1 - - - - 2
Net inc, 1st qtr 1995 - - - 1,043 - - - 1,043
Net inc, 2nd qtr 1995 - - - 1,081 - - - 1,081
Net inc, 3rd qtr 1995 - - - 1,293 - - - 1,293
Cash divs, Cl A cm stk
$.030 per share, per qtr - - - (296) - - - (296)
Cash divs, Cl B cm stk
$.0042 per share, per qtr - - - (31) - - - (31)
Net chg in unrlzd ls
on secs AFS, net of txs - - - - - - 996 996
---------------------------------------------------
BALANCE, SEP 30, 1995 3,341 2,460 10,684 25,232 (136) (41) 101 41,641
Conv of Cl B stk to
Cl A stk, 63,447 shrs 64 (64) - - - - - -
Stk opts exer, 1,000 shrs 1 - 3 - - - - 4
Net inc, 4th qtr 1995 - - - 1,157 - - - 1,157
Cash divs, Cl A comm stk
$.030 per share - - - (101) - - - (101)
Cash divs, Cl B comm stk
$.0042 per share - - - (10) - - - (10)
Net chg in unrealized G/L
on secs AFS, net of txs - - - - - - 244 244
---------------------------------------------------
BALANCE, DEC 31, 1995 3,406 2,396 10,687 26,278 (136) (41) 345 42,935
Conv of Cl B stk to
Cl A stk, 3,000 shrs 3 (3) - - - - - -
Stk opts exer, 13,800 shrs 13 - 38 - - - - 51
Net inc, 1st qtr 1996 - - - 1,184 - - - 1,184
Net inc, 2nd qtr 1996 - - - 1,298 - - - 1,298
Cash divs, Cl A comm stk
$.040 per share, per qtr - - - (270) - - - (270)
Cash divs, Cl B comm stk
$.0056 per share, per qtr - - - (26) - - - (26)
Net chg in unrealized G/L
on secs AFS, net of txs - - - - - - (728) (728)
---------------------------------------------------
BALANCE, JUNE 30, 1996 3,422 2,393 10,725 28,464 (136) (41) (383) 44,444
Stk opts exer, 1,550 shrs 2 - 5 - - - - 7
Net income, 3rd qtr 1996 - - - 1,404 - - - 1,404
Cash divs, Cl A comm stock
$.040 per share - - - (137) - - - (137)
Cash divs, Cl B comm stock
$.0056 per share - - - (13) - - - (13)
Net chg in unrealized G/L
on secs AFS, net of txs - - - - - - 113 113
---------------------------------------------------
BALANCE, SEP 30, 1996 3,424 2,393 10,730 29,718 (136) (41) (270) 45,818
===================================================
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Century Bancorp Inc.
Notes to Consolidated Financial Statements
Basis of Presentation
In the opinion of management, the accompanying unaudited interim
consolidated financial statements reflect all adjustments,
consisting of normal recurring adjustments, which are necessary to
present a fair statement of the results for the interim period
presented of Century Bancorp, Inc. (the "Company"). The results of
operations for the interim period ended September 30, 1996, are not
necessarily indicative of results for the entire year. It is
suggested that these statements be read in conjunction with the
consolidated financial statements and the notes thereto included in
the Company's Annual Report.
Effective January 1, 1996, the Company adopted Financial Accounting
Standards Board ("FASB") Statement of Financial Accounting Standards
("SFAS") No. 122, "Accounting for Mortgage Servicing Rights, an
amendment of FASB Statement No. 65". SFAS No. 122 requires the
Company to recognize as separate assets rights to service mortgage
loans for others however those servicing rights are acquired. The
current sales volume of loans serviced for others is negligible and,
therefore, the adoption of SFAS No. 122 has not had, and is not
expected to have, a material impact on the Company's financial
statements.
As of January 1, 1996, the Company adopted SFAS No. 123, "Accounting
for Stock-Based Compensation". SFAS No. 123 establishes financial
accounting and reporting standards for stock-based compensation
plans. SFAS No. 123 encourages, but does not require, a fair value
based method of accounting for stock-based compensation plans. SFAS
No. 123 allows an entity to continue to measure compensation cost
for those plans using the intrinsic value based method prescribed
by Accounting Principles Board ("APB") Opinion No. 25. For those
entities electing to use the intrinsic value based method, SFAS No.
123 requires pro forma disclosures of net income and earnings per
share computed as if the fair value based method had been applied.
The Company continues to account for stock-based compensation costs
under APB Opinion No. 25, and will provide the additional required
disclosures relating to 1995 and 1996 stock options in its 1996
Annual Report.
Summary of Significant Accounting Policies
The consolidated financial statements include the accounts of
Century Bancorp, Inc. (the "Company") and its wholly-owned
subsidiary, Century Bank and Trust Company. In November 1992,
the Company merged its former subsidiaries, Century North Shore Bank
and Trust Company and Century Bank/Suffolk into Century Bank and
Trust Company (the "Bank"). The Company provides a full range of
banking services to individual, business and municipal customers in
Massachusetts. As a bank holding company, the Company is subject to
the regulation and supervision of the Federal Reserve Board. The
Bank is subject to supervision and regulation by applicable state
and federal banking agencies, including the Federal Reserve Board,
the Office of the Comptroller of the Currency (the "Comptroller")
and the Federal Deposit
7 OF 15
Insurance Corporation (the "FDIC"). The Bank is also subject to
various requirements and restrictions under federal and state law,
including requirements to maintain reserves against deposits,
restrictions on the types and amounts of loans that may be granted
and the interest that may be charged thereon, and limitations on the
types of investments that may be made and the types of services that
may be offered. Various consumer laws and regulations also affect
the operations of the Bank. In addition to the impact of regulation
commercial banks are affected significantly by the actions of the
Federal Reserve Board as it attempts to control the money supply and
credit availability in order to influence the economy. All aspects
of the Company's business are highly competitive. The Company faces
aggressive competition from other lending institutions and from
numerous other providers of financial services.
Basis of Financial Statement Presentation
The financial statements have been prepared in conformity with
generally accepted accounting principles and to general practices
within the banking industry. In preparing the financial statements,
management is required to make estimates and assumptions that affect
the reported amounts of assets and liabilities as of the date of the
balance sheet and revenues and expenses for the period. Actual
results could differ from those estimates.
Material estimates that are susceptible to change in the near-term
relate to the allowance for possible losses on loans and other real
estate owned ("OREO") . Management believes that the allowance for
possible losses on loans and OREO is adequate based on independent
appraisals and review of other factors associated with the assets.
While management uses available information to recognize losses on
loans and OREO, future additions to the allowance for loans and OREO
may be necessary based on changes in economic conditions. In
addition, regulatory agencies periodically review the Company's
allowance for possible losses on loans and OREO. Such agencies may
require the Company to recognize additions to the allowance for
loans and OREO based on their judgements about information available
to them at the time of their examination.
Investment Securities
Effective January 1, 1994, the Company adopted Financial Accounting
Standards Board ("FASB") Statement of Financial Accounting Standards
("SFAS") No. 115, "Accounting for Certain Investments in Debt and
Equity Securities." Under SFAS No. 115, debt securities that the
Company has the positive intent and ability to hold to maturity are
classified as held-to-maturity and reported at amortized cost; debt
and equity securities that are bought and held principally for the
purpose of selling are classified as trading and reported at fair
value, with unrealized gains and losses included in earnings; and
debt and equity securities not classified as either held-to-maturity
or trading are classified as available-for-sale and reported at fair
value, with unrealized gains and losses excluded from earnings and
reported as a separate component of stockholders' equity, net of
estimated related income taxes. SFAS No.
8 of 15
115 does not apply to unsecuritized loans. However, after mortgage
loans are converted to mortgage-backed securities, they are subject
to its provisions. Upon adoption, the Company classified its
investment securities into two categories: held-to-maturity and
available-for-sale; the Company has no securities held for trading.
As a result of adoption, stockholders' equity was decreased by
approximately $895,000, representing the net unrealized loss on
securities available-for-sale less applicable income taxes at
December 31, 1994. In 1993 and in prior periods, investment
securities intended to be held-to-maturity were carried at amortized
cost, marketable equity securities were carried at the lower of
aggregate cost or market value, with unrealized losses reported as
a separate component of stockholders' equity, and investment
securities held for sale were carried at the lower of cost or market
value with unrealized losses recognized in current year earnings.
Premiums and discounts on investment securities are amortized or
accreted into income by use of the level-yield method. If a decline
in fair value below the amortized cost basis of an investment is
judged to be other than temporary, the cost basis of the investment
is written down to fair value. The amount of the writedown is
included as a charge to earnings. Gains and losses on the sale of
investment securities are recognized at the time of sale on a
specific identification basis.
Loans
Interest on loans is recognized based on the daily principal amount
outstanding. Accrual of interest is discontinued when loans become
90 days delinquent unless the collateral is sufficient to cover both
principal and interest and the loan is in the process of collection.
Loans, including impaired loans, on which the accrual of interest
has been discontinued are designated non-accrual loans. When a loan
is placed on non-accrual, all income which has been accrued but
remains unpaid is reversed against current period income and all
amortization of deferred loan fees is discontinued. Non-accrual
loans may be returned to an accrual status when principal and
interest payments are not delinquent and the risk characteristics
of the loan have improved to the extent that there no longer exists
a concern as to the collectibility of principal and income. Income
received on non-accrual loans is either recorded in income or
applied to the principal balance of the loan depending on
management's evaluation as to the collectibility of principal.
Loans held for sale are carried at the lower of aggregate cost or
market value. Gain or loss on sales of loans is recognized at the
time of sale when the sales proceeds exceed or are less than the
Bank's investment in the loans. Additionally, gains and losses are
recognized when the average interest rate on the loans sold,
adjusted for normal servicing fee, differs from the agreed yield to
the buyer. The resulting excess service fee receivables, if any,
are amortized using the interest method over the estimated life of
the loans, adjusted for estimated prepayments.
Discounts and premiums on loans purchased from failed financial
institutions that represent market yield adjustments are accreted
or amortized to interest income over the estimated lives of the
loans using the level-yield method.
9 of 15
Loan origination fees and related direct incremental loan
origination costs are offset and the resulting net amount is
deferred and amortized over the life of the related loans using
the level-yield method.
In May, 1993, the FASB issued SFAS No. 114, "Accounting by Creditors
for Impairment of a Loan," which was amended in October, 1994 by
SFAS No. 118, "Accounting by Creditors for Impairment of a Loan -
Income Recognition and Disclosures." The statements generally
require all creditors to account for impaired loans, except those
loans that are accounted for at fair value or at lower of cost or
fair value, at the present value of the expected future cash flows
discounted at the loan's effective interest rate. These statements
apply to all creditors and all loans, uncollateralized as well as
collateralized, except large groups of smaller-balance homogeneous
loans that are collectively evaluated for impairment, loans that
are measured at fair value and leases and debt securities as defined
in SFAS No. 115. Management considers the payment status, net worth
and earnings potential of the borrower, and the value and cash flow
of the collateral as factors to determine if a loan will be paid in
accordance with its contractual terms. Management does not set any
minimum delay of payments as a factor in reviewing for impaired
classification. Impaired loans are charged-off when management
believes that the collectibility of the loan's principal is remote.
In addition, criteria for classification of a loan as in-substance
foreclosure has been modified so that such classification need be
made only when a lender is in possession of the collateral. These
statements also require impairment of troubled debt restructurings
to be measured using the pre-modification rate of interest. The
Bank adopted these statements on January 1, 1995. Management has
determined that the implementation of these statements was not
material to the Bank's consolidated financial statements.
Allowance For Possible Loan Losses
The allowance for possible loan losses is based on management's
evaluation of the quality of the loan portfolio and is used to
absorb losses resulting from loans which ultimately prove
uncollectible. In determining the level of the allowance, periodic
evaluations are made of the loan portfolio which take into account
such factors as the character of the loans, loan status, financial
posture of the borrowers, value of collateral securing the loans and
other relevant information sufficient to reach an informed
judgement. The allowance is increased by provisions charged to
income and reduced by loan charge-offs, net of recoveries.
While management uses available information in establishing the
allowance for possible loan losses, future adjustments to the
allowance may be necessary if economic conditions differ
substantially from the assumptions used in making the evaluations.
Loans are charged off in whole or in part when, in management's
opinion, collectibility is not probable. Management believes that
the allowance for possible loan losses is adequate. In addition,
various regulatory agencies, as part of their examination process,
periodically review the Company's allowance for possible loan
losses. Such agencies may require the Company to recognize
additions to the allowance based on their judgements about
information available to them at the time of their examination.
10 of 15
Other Real Estate Owned
Other real estate owned ("OREO") includes real estate acquired by
foreclosure and real estate substantively repossessed. Real estate
acquired by foreclosure is comprised of properties acquired through
foreclosure proceedings or acceptance of a deed in lieu of
foreclosure. SFAS No. 114 narrowed the definition of real estate
substantively repossessed to include only those loans for which the
Company has taken possession of the collateral, but has not
completed legal foreclosure proceedings. Both in-substance
foreclosures and real estate formally acquired in settlement of
loans are recorded at the lower of the carrying value of the loan
or the fair value of the property constructively or actually
received. Loan losses from the acquisition of such properties are
charged against the allowance for possible loan losses. After
foreclosure, if the fair value of an asset minus its estimated cost
to sell is less than the carrying value of the asset, such amount is
recognized as a valuation allowance. If the fair value of an asset
less its estimated cost to sell subsequently increases so that the
resulting amount is more than the asset's current carrying value,
the valuation allowance is reversed by the amount of the increase.
Increases or decreases in the valuation allowance are charged or
credited to income. Gains upon disposition of OREO are reflected
in the statement of income as realized. Realized losses are charged
to the valuation allowance.
Bank Premises And Equipment
Bank premises and equipment are stated at cost less accumulated
depreciation and amortization. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets
or the terms of leases, if shorter.
It is general practice to charge the cost of maintenance and repairs
to operations when incurred; major expenditures for improvements are
capitalized and depreciated.
Income Taxes
The Company uses the asset and liability method of accounting for
income taxes. Under the asset and liability method, deferred tax
assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income
in the years in which temporary differences are expected to be
recovered or settled. Under this method, the effect on deferred
tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
____________________________________________________________
11 of 15
Item 2 Management Discussion and Analysis of Financial Condition
and Results of Operations.
Overview
For the quarter ended and year-to-date ended September 30, 1996.
Earnings for the third quarter ended September 30, 1996 were $1,404
thousand, an increase of 8.7% when compared with the third quarter
1995 earnings of $1,292 thousand. Earnings per share for the third
quarter 1996 were $.24 versus $.23 for the third quarter of 1995.
For the nine months ending September 30, 1996, earnings were $3,886
thousand an increase of 13.8% when compared with the same period
last year. Earnings per share were $.68 for the first nine months of
1996 compared with $.60 for the first nine months of 1995.
Financial Condition
Loans
On September 30, 1996 loans outstanding, net of unearned discount,
were $282.9 million an decrease of 1.7% from the total on September
30, 1996. At September 30, 1996 Commercial Real Estate loans
accounted for 46.9% and Residential Real Estate loans accounted for
27.7% of total loans. Construction loans increased to $3.2 million.
Allowance for Possible Loan Losses
The allowance for possible loan losses was 1.45% of total loans on
September 30, 1996 compared with 1.50% on Septembere 30, 1995. Net
charge-offs for the nine month period ended September 30, 1996, were
$854 thousand, compared with $1,113 thousand for the same period in
1995. The allowance for loan losses is based on management's
overview of the quality of the loan portfolio, previous loan loss
experience and current economic conditions.
As of September 30, 1996, loans on non-accrual status totaled $2.8
million or .98% of loans; loans past due 90 days or more totaled
$92 thousand; restructured performing loans totaled $2.6 million.
Securities Held-to-Maturity
The securities held-to-maturity portfolio totaled $107.0 million
on September 30, 1996, an increase of 51.2% from the total on
September 30, 1995. The portfolio is concentrated in United States
Treasury and Agency securities and had a weighted average maturity
of 3.7 years.
Securities Available-for-Sale
The securities available-for-sale portfolio totaled $85.6 million
at September 30, 1996, an increase of 33.3 % from September 30,
1995. The portfolio is concentrated in United States Treasury and
Agency securities and had a weighted average maturity of 2.1 years.
12 of 15
Managements Discussion and Analysis of Financial Condition
and Results of Operation (con't.)
Other Assets
On September 30, 1996 other real estate owned ("OREO") totaled $280
thousand, a decrease of $340 thousand from September 30, 1995.
During the third quarter $201 thousand was added to OREO and $244
thousand of OREO was sold.
Deposits and Borrowed Funds
On September 30, 1996 deposits totaled $450.3 million, which is 8.8%
above total deposits on September 30, 1995. Borrowed funds totaled
$34.8 million compared to $16.8 million last year. The majority of
the increase was a borrowing from the Federal Home Loan Bank of
$16.5 million.
Results of Operations
Net Interest Income
For the three month period ended September 30, 1996 net interest
income totaled $5.8 million, an increase of 9.6% from the comparable
period in 1995.
For the nine month period ended September 30, 1996, net interest
income totaled $17.0 million, an increase of 7.3% from the first
nine months of 1995.
Provision for Loan Losses
Loan loss provision for the nine months ended September 30, 1996 was
$765 thousand compared with $1,185 thousand for the same period in
1995.
Non-Interest Income and Expense
Fee income for the quarter ended September 30, 1996 was $1.1 million,
a 12.8% decrease from the third quarter of 1995. Income from the
gain on sales of loans decreased because of an decrease in mortgage
loan originations. Brokerage commissions decreased because of
decreased activity in that line of business. The lockbox fee
decrease was due to a decrease in lockbox related volume.
During the third quarter 1996, operating expenses, exclusive of
OREO expenses, increased by .2% from the same quarter last year.
Expenses associated with OREO decreased by $39 thousand for the
same period.
For the nine month period ended September 30, 1996 non-interest
income increased 4.3% while operating expenses, exclusive of OREO
expenses, increased 1.5% from the same period in 1995.
13 of 15
Managements Discussion and Analysis of Financial Condition
and Results of Operation (con't.)
Income Taxes
For the third quarter of 1996, the Company's income taxes totaled
$899 thousand on pretax income of $2,303 thousand for an effective
tax rate of 39.0%. For last year's corresponding quarter, the
Company's income taxes totalled $575 thousand on pretax income of
$1,867 thousand for an effective rate of 30.8%.
For the nine month period ended September 30, 1996 income taxes
totaled $2,502 thousand on pretax income of $6,388 thousand for an
effective tax rate of 39.2%. For last years corresponding period,
income taxes totaled $1,278 thousand on pretax income of $4,694
thousand for an effective tax rate of 27.2%.
The major contribution to the increase in the effective tax rate for
the third quarter 1996 compared with the third quarter 1995 was a
reduction of the deferred tax asset valuation allowance. The
reduction of this allowance for the third quarter of 1996 was $75
thousand compared to a reduction of $255 thousand for the third
quarter of 1995.
14 of 15
Part II - Other Information
Item 1 Legal proceedings - Not applicable
Item 2 Change in securities - Not applicable
Item 3 Defaults upon senior securities - Not applicable
Item 4 Submission of matters to a vote - Not applicable
Item 5 Other information - Not applicable
Item 6 Exhibits and reports on form 8-K - Not applicable
15 of 15
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 44,898,000
<INT-BEARING-DEPOSITS> 0
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<TRADING-ASSETS> 0
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<INVESTMENTS-CARRYING> 192,659,000
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<ALLOWANCE> 4,104,000
<TOTAL-ASSETS> 537,588,000
<DEPOSITS> 450,291,000
<SHORT-TERM> 0
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0
0
<COMMON> 5,817,000
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<INCOME-PRETAX> 6,388,000
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<NET-INCOME> 3,886,000
<EPS-PRIMARY> .68
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<LOANS-NON> 2,780,000
<LOANS-PAST> 92,000
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