<PAGE> 1
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, 1997
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)
<TABLE>
<S> <C>
COMMONWEALTH OF MASSACHUSETTS 04-2498617
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
400 MYSTIC AVENUE, MEDFORD, MA 02155
(Address of principal executive offices) (Zip Code)
</TABLE>
(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 September 30, 1997:
CLASS A COMMON STOCK, $1.00 PAR VALUE 3,486,797 SHARES
CLASS B COMMON STOCK, $1.00 PAR VALUE 2,290,970 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 7, 1997 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
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Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets:
September 30, 1997 and 1996; June 30, 1997
December 31, 1996. 3
Consolidated Statements of Income:
Three (3) Months Ended September 30, 1997
and 1996; and Nine (9) Months Ended
September 30, 1997 and 1996. 4
Consolidated Statements of Cash Flows:
Nine (9) Months Ended September 30, 1997
and 1996. 5
Consolidated Changes in Stockholders
Equity: December 31, 1995 through
September 30, 1997. 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)
- ---------------------------------------------------------------
<TABLE>
<CAPTION>
(000's) Sep 30, Jun 30, Dec 31, Sep 30,
Assets 1997 1997 1996 1996
- ------ ------- ------- ------- -------
<S> <C> <C> <C> <C>
Cash and due from banks $49,567 $47,660 $46,681 $44,898
Federal funds sold 0 0 21,000 0
Interest-bearing deposits in other banks 60 72 0 0
-------- -------- -------- --------
Total cash and cash equivalents 49,627 47,732 67,681 44,898
-------- -------- -------- --------
Securities available-for-sale, amortized cost $81,483; $85,169;
$81,140; $86,103, respectively 81,642 85,019 81,015 85,640
Securities held-to-maturity, market value $109,340; $108,865;
$107,331; $105,902, respectively 109,223 109,196 107,715 107,019
Loans, net of unearned discount:
Commercial & industrial 43,243 44,389 41,006 39,107
Construction & land development 7,186 8,061 3,576 3,205
Commercial real estate 139,847 141,240 133,757 132,817
Industrial revenue bonds 2,774 2,863 3,030 3,116
Residential real estate 78,312 80,054 76,081 77,735
Residential real estate held-for-sale 1,102 793 557 570
Consumer 20,605 18,340 12,749 8,605
Home equity 17,565 16,695 17,330 17,476
Overdrafts 235 259 194 263
-------- -------- -------- --------
Total loans, net of unearned discount 310,869 312,694 288,280 282,894
Less allowance for loan losses (4,434) (4,438) (4,179) (4,104)
-------- -------- -------- --------
Net loans 306,435 308,256 284,101 278,790
Bank premises and equipment, net 8,515 8,570 8,265 8,335
Accrued interest receivable 4,798 4,403 4,283 4,978
Other real estate owned 155 58 182 280
Other assets 7,488 7,959 7,615 7,648
-------- -------- -------- --------
Total assets $567,883 $571,193 $560,857 $537,588
======== ======== ======== ========
Liabilities
- -----------
Deposits:
Demand deposits $106,450 $103,944 $111,704 $100,188
Savings and NOW deposits 136,281 136,597 129,792 122,519
Money market accounts 64,337 68,828 69,772 69,833
Time deposits 153,968 147,413 164,867 157,751
-------- -------- -------- --------
Total deposits 461,036 456,782 476,135 450,291
Securities sold under agreements to repurchase 29,980 20,270 17,790 17,220
Federal Home Loan Bank (FHLB) borrowings and other borrowed funds 17,070 36,609 12,353 17,577
Other liabilities 7,868 7,324 7,090 6,682
-------- -------- -------- --------
Total liabilities 515,954 520,985 513,368 491,770
Stockholders' equity
- --------------------
Class A common stock, $1.00 par value per share; 3,517 3,515 3,488 3,424
authorized 10,000,000 shares; issued 3,516,797
Class B common stock, $1.00 par value per share; 2,338 2,340 2,348 2,393
authorized 5,000,000 shares; issued 2,338,520
Additional paid-in capital 10,840 10,840 10,786 10,730
Retained earnings 35,318 33,778 31,117 29,718
Treasury stock, 77,550 shares (177) (177) (177) (177)
-------- -------- -------- --------
Realized stockholders' equity 51,836 50,296 47,562 46,088
Unrealized gains(losses) on securities available-for-sale, net of taxes 93 (88) (73) (270)
-------- -------- -------- --------
Total stockholders' equity 51,929 50,208 47,489 45,818
-------- -------- -------- --------
Total liabilities and stockholders' equity $567,883 $571,193 $560,857 $537,588
======== ======== ======== ========
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Century Bancorp, Inc. - Consolidated Statements of Income (unaudited)
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<TABLE>
<CAPTION>
(000's except share data) Three months ended September 30, Nine months ended September 30,
1997 1996 1997 1996
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Interest income
Loans $7,280 $6,608 $21,057 $19,674
Securities held-to-maturity 1,751 1,675 5,366 4,260
Securities available-for-sale 1,274 1,390 3,817 4,349
Interest-bearing deposits in other banks 0 0 1 2
Federal funds sold 90 214 382 703
--------- --------- --------- ---------
Total interest income 10,395 9,887 30,623 28,988
Interest expense
Savings and NOW deposits 998 959 3,005 2,901
Money market accounts 466 533 1,435 1,589
Time deposits 2,088 2,337 6,312 6,844
Securities sold under agreements to repurchase 275 192 688 534
FHLB borrowings and other borrowed funds 164 31 388 128
--------- --------- --------- ---------
Total interest expense 3,991 4,052 11,828 11,996
--------- --------- --------- ---------
Net interest income 6,404 5,835 18,795 16,992
Provision for loan losses 135 255 525 765
--------- --------- --------- ---------
Net interest income after provision
for loan losses 6,269 5,580 18,270 16,227
Other operating income
Service charges on deposit accounts 460 402 1,309 1,221
Lockbox fees 365 262 1,088 994
Brokerage commissions 278 223 839 843
Gain on sales of loans 37 76 88 241
Other income 108 97 323 319
--------- --------- --------- ---------
Total other operating income 1,248 1,060 3,647 3,618
--------- --------- --------- ---------
Operating expenses
Salaries and employee benefits 3,055 2,815 9,090 8,683
Occupancy 323 334 957 1,069
Equipment 285 299 840 865
Other real estate owned 3 (5) 23 29
Other 1,027 894 3,077 2,811
--------- --------- --------- ---------
Total operating expenses 4,693 4,337 13,987 13,457
--------- --------- --------- ---------
Income before income taxes 2,824 2,303 7,930 6,388
Provision for income taxes 1,093 899 3,160 2,502
--------- --------- --------- ---------
Net income $1,731 $1,404 $4,770 $3,886
========= ========= ========= =========
Share data:
Weighted average number of shares outstanding 5,777,767 5,738,706 5,769,503 5,733,736
Net income per share $0.30 $0.24 $0.83 $0.68
Cash dividends declared:
Class A common stock $0.0500 $0.0400 $0.1500 $0.1200
Class B common stock $0.0070 $0.0056 $0.0210 $0.0168
</TABLE>
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<TABLE>
<CAPTION>
Century Bancorp, Inc. - Consolidated Statements of Cash Flows (unaudited) 1997 1996
- --------------------------------------------------------------------------------------------------------------------
For the nine months ended
September 30,
(000's)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $4,770 $3,886
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 525 765
Deferred income taxes (312) (436)
Net depreciation and amortization 442 515
Increase in accrued interest receivable (515) (686)
Decrease in other assets 167 51
Loans originated for sale (6,899) (14,861)
Proceeds from sales of loans 7,037 16,063
Gain on sales of loans (88) (241)
Loss (gain) on sales of real estate owned 4 (52)
Increase (decrease) in other liabilities 778 (219)
------- -------
Net cash provided by operating activities 5,909 4,785
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of securities available-for-sale 18,776 41,193
Purchase of securities available-for-sale (18,993) (27,006)
Proceeds from maturities of securities held-to-maturity 15,502 34,250
Purchase of securities held-to-maturity (16,923) (63,299)
Net (increase) decrease in loans (22,893) 672
Proceeds from sales of real estate owned 319 993
Capital expenditures (1,062) (412)
------- -------
Net cash used in investing activities (25,274) (13,609)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in time deposits (10,899) 2,733
Net decrease in demand, savings, money market and NOW deposits (4,200) (11,057)
Net proceeds from the issuance of common stock 73 58
Cash Dividends (570) (446)
Net increase (decrease) in securities sold under agreements to repurchase 12,190 (4,360)
Net increase in FHLB borrowings and other borrowed funds 4,717 15,680
------- -------
Net cash provided by financing activities 1,311 2,608
------- -------
Net decrease in cash and cash equivalents (18,054) (6,216)
Cash and cash equivalents at beginning of year 67,681 51,114
------- -------
Cash and cash equivalents at end of period $49,627 $44,898
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $11,146 $12,301
Income taxes 3,569 2,764
Noncash transactions:
Property acquired through foreclosure $296 $376
Change in unrealized gains on securities available-for-sale, net of taxes $181 ($615)
</TABLE>
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<TABLE>
<CAPTION>
Century Bancorp, Inc. - Consolidated Statement of Changes in Stockholders' Equity (unaudited)
- -----------------------------------------------------------------------------------------------------------------------------------
December 31, 1995 through September 30, 1997
(000's)
Unrealized
Treasury Treasury Gains(losses)
Stock Stock on Securities
Class A Class B Additional Class A, Class B, available- Total
Common Common Paid-In Retained 30,000 47,550 for-sale, Stockholders'
Stock Stock Capital Earnings Shares Shares net of taxes, Equity
------- ------- ---------- -------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1995 $3,406 $2,396 $10,687 $26,278 $(136) $(41) $ 345 $ 42,935
Conversion of Class B common stock to
Class A common stock, 3,000 shares 3 (3) -- -- -- -- -- --
Stock options exercised, 15,350 shares 15 -- 43 -- -- -- -- 58
Net income, 1st quarter 1996 -- -- -- 1,184 -- -- -- 1,184
Net income, 2nd quarter 1996 -- -- -- 1,298 -- -- -- 1,298
Net income, 3rd quarter 1996 -- -- -- 1,404 -- -- -- 1,404
Cash dividends, Class A common stock
$.040 per share, per quarter -- -- -- (407) -- -- -- (407)
Cash dividends, Class B common stock
$.0056 per share, per quarter -- -- -- (39) -- -- -- (39)
Net change in unrealized gains(losses)
on securities available-for-sale,
net of taxes -- -- -- -- -- -- (615) (615)
------ ------ ------- ------- ----- ---- ----- --------
BALANCE, SEPTEMBER 30, 1996 $3,424 $2,393 $10,730 $29,718 $(136) $(41) $(270) $ 45,818
Conversion of Class B common stock to
Class A common stock, 45,200 shares 45 (45) -- -- -- -- -- --
Stock options exercised, 19,000 shares 19 -- 56 -- -- -- -- 75
Net income, 4th quarter 1996 -- -- -- 1,548 -- -- -- 1,548
Cash dividends, Class A common stock
$.040 per share -- -- -- (136) -- -- -- (136)
Cash dividends, Class B common stock
$.0056 per share -- -- -- (13) -- -- -- (13)
Net change in unrealized gains(losses)
on securities available-for-sale,
net of taxes -- -- -- -- -- -- 197 197
------ ------ ------- ------- ----- ---- ----- --------
BALANCE, DECEMBER 31, 1996 $3,488 $2,348 $10,786 $31,117 $(136) $(41) $ (73) $ 47,489
Conversion of Class B common stock to
Class A common stock, 7,700 shares 8 (8) -- -- -- -- -- --
Stock options exercised, 19,300 shares 19 -- 54 -- -- -- -- 73
Net income, 1st quarter 1997 -- -- -- 1,376 -- -- -- 1,376
Net income, 2nd quarter 1997 -- -- -- 1,664 -- -- -- 1,664
Cash dividends, Class A common stock
$.050 per share, per quarter -- -- -- (347) -- -- -- (347)
Cash dividends, Class B common stock
$.0070 per share, per quarter -- -- -- (32) -- -- -- (32)
Net change in unrealized gains(losses)
on securities available-for-sale,
net of taxes -- -- -- -- -- -- (15) (15)
------ ------ ------- ------- ----- ---- ----- --------
BALANCE, JUNE 30, 1997 $3,515 $2,340 $10,840 $33,778 $(136) $(41) $ (88) $ 50,208
Conversion of Class B common stock to
Class A common stock, 1,500 shares 2 (2) -- -- -- -- -- --
Net income, 3rd quarter 1997 -- -- -- 1,731 -- -- -- 1,731
Cash dividends, Class A common stock
$.050 per share -- -- -- (175) -- -- -- (175)
Cash dividends, Class B common stock
$.0070 per share -- -- -- (16) -- -- -- (16)
Net change in unrealized gains(losses)
on securities available-for-sale,
net of taxes -- -- -- -- -- -- 181 181
------ ------ ------- ------- ----- ---- ----- --------
BALANCE, SEPTEMBER 30, 1997 $3,517 $2,338 $10,840 $35,318 $(136) $(41) $ 93 $ 51,929
====== ====== ======= ======= ===== ==== ===== ========
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<PAGE> 7
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, 1997, 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.
As of January 1, 1997, the Company adopted Financial
Accounting Standards Board Statement of Financial
Accounting Standards ("SFAS") No. 125, "Accounting
for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities." This statement
provides accounting and reporting standards for
transfers and servicing of financial assets and
extinguishment of liabilities based on consistent
application of a financial-components approach that
focuses on control. It distinguishes transfers of
financial assets that are sales from transfers that
are secured borrowings. Under the
financial-components approach, after a transfer of
financial assets, an entity recognizes all financial
and servicing assets it controls and liabilities it
has incurred and derecognizes financial assets it no
longer controls and liabilities that have been
extinguished. The financial-components approach
focuses on assets and liabilities that exist after
the transfer. Many of these assets and liabilities
are components of financial assets that existed prior
to the transfer. If a transfer does not meet the
criteria for a sale, the transfer is accounted for as
a secured borrowing with pledge of collateral. SFAS
No. 127, "Deferral of the effective Date of Certain
Provisions of SFAS No. 125," requires the deferral of
implementation as it relates to repurchase
agreements, dollar-rolls, securities lending and
similar transactions until after December 31, 1997.
Earlier or retroactive applications of this statement
is not permitted. The Company has determined that the
adoption of this statement will not have a material
impact on its consolidated financial statements.
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 (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, a state chartered financial
institution, 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 Insurance Corporation (the
"FDIC").
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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 losses on
loans. Management believes that the allowance for
losses on loans 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, future
additions to the allowance for loans may be necessary
based on changes in economic conditions. In addition,
regulatory agencies periodically review the Company's
allowance for losses on loans. Such agencies may
require the Company to recognize additions to the
allowance for loans based on their judgements about
information available to them at the time of their
examination.
INVESTMENT SECURITIES
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. The
Company has no securities held for trading.
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.
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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.
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.
The Bank accounts 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. This method applies
to 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. 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. The Bank measures
the impairment of troubled debt restructurings using
the pre-modification rate of interest.
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<PAGE> 10
ALLOWANCE FOR LOAN LOSSES
The allowance for 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 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 loan
losses is adequate. In addition, various regulatory
agencies, as part of their examination process,
periodically review the Company's allowance for 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.
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. Real estate substantively repossessed
includes 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 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.
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<PAGE> 11
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.
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<PAGE> 12
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, 1997.
Earnings for the third quarter ended September 30,
1997 were $1,731 thousand, an increase of 23.3% when
compared with the third quarter 1996 earnings of
$1,404 thousand. Earnings per share for the third
quarter 1997 were $0.30 versus $0.24 for the third
quarter of 1996.
For the nine months ending September 30, 1997,
earnings were $4,770 thousand an increase of 22.7%
when compared with the same period last year earnings
of $3,886 thousand. Earnings per share were $0.83 for
the first nine months of 1997 compared with $0.68 for
the first nine months of 1996.
FINANCIAL CONDITION
Loans On September 30, 1997 loans outstanding, net of
unearned discount, were $310.9 million an increase of
9.9% from the total on September 30, 1996. At
September 30, 1997 Commercial Real Estate loans
accounted for 45% and Residential Real Estate loans
accounted for 25.5% of total loans. Construction
loans increased to $7.2 million.
Allowance for Loan Losses
The allowance for loan losses was 1.43% of total
loans on September 30, 1997 compared with 1.45% on
September 30, 1996. Net charge-offs for the nine
month period ended September 30, 1997, were $270
thousand, compared with $854 thousand for the same
period in 1996. 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, 1997, loans on non-accrual status
totaled $1.4 million or .46% of loans; loans past due
90 days or more totaled $457 thousand; restructured
performing loans totaled $3.3 million.
Securities Held-to-Maturity
The securities held-to-maturity portfolio totaled
$109.2 million on September 30, 1997, an increase of
2.1% from the total on September 30, 1996. The
portfolio is concentrated in United States Treasury
and Agency securities and had a weighted average
maturity of 3.6 years.
Securities Available-for-Sale
The securities available-for-sale portfolio totaled
$81.6 million at September 30, 1997, a decrease of
4.7 % from September 30, 1996. The portfolio is
concentrated in United States Treasury and Agency
securities and had a weighted average maturity of 2.0
years.
12 of 15
<PAGE> 13
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION (CON'T.)
Other Assets
On September 30, 1997 other real estate owned
("OREO") totaled $155 thousand, a decrease of $125
thousand from September 30, 1996. During the third
quarter $100 thousand was added to OREO.
Deposits and Borrowed Funds
On September 30, 1997 deposits totaled $461.0
million, which is 2.4% above total deposits on
September 30, 1996. Borrowed funds totaled $47.1
million compared to $34.8 million last year. The
majority of the increase was an increase in
securities sold under agreements to repurchase of
$12.8 million.
RESULTS OF OPERATIONS
Net Interest Income
For the three month period ended September 30, 1997
net interest income totaled $6.4 million, an increase
of 9.8% from the comparable period in 1996.
For the nine month period ended September 30, 1997
net interest income totaled $18.8 million, an
increase of 10.6% from the comparable period in 1996.
Provision for Loan Losses
Loan loss provision for the nine months ended
September 30, 1997 was $525 thousand compared with
$765 thousand for the same period in 1996.
Non-Interest Income and Expense
Other operating income for the quarter ended
September 30, 1997 was $1.2 million, compared to $1.1
million for the third quarter of 1996. Income from
the gain on sales of loans decreased because of a
decrease in mortgage loan originations. Brokerage
commissions increased because of increased activity
in that line of business. The lockbox fee increase
was due to an increase in lockbox related volume.
During the third quarter 1997, operating expenses,
exclusive of OREO expenses, increased by 8.0% from
the same quarter last year. Expenses associated with
OREO increased by $8 thousand for the same period.
For the nine month period ended September 30, 1997
other operating income increased 0.8% while operating
expenses, exclusive of OREO expenses, increased 4.0%
from the same period in 1996.
13 of 15
<PAGE> 14
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION (CON'T.)
Income Taxes
For the third quarter of 1997, the Company's income
taxes totaled $1,093 thousand on pretax income of
$2,824 thousand for an effective tax rate of 38.7%.
For last year's corresponding quarter, the Company's
income taxes totalled $899 thousand on pretax income
of $2,303 thousand for an effective rate of 39.0%.
For the nine month period ended September 30, 1997
income taxes totaled $3,160 thousand on pretax income
of $7,930 thousand for an effective tax rate of
39.8%. For last year's corresponding period, income
taxes totalled $2,502 thousand on pretax income of
$6,388 thousand for an effective rate of 39.2%.
14 of 15
<PAGE> 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
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