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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 JUNE 30, 1999
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or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from__________________________________________________
Commission file number. 0-15752
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CENTURY BANCORP, INC.
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(Exact name of registrant as specified in its charter)
COMMONWEALTH OF MASSACHUSETTS 04-2498617
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
400 MYSTIC AVENUE, MEDFORD, MA 02155
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(Address of principal executive offices) (Zip Code)
(781)391-4000
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(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, 1999:
CLASS A COMMON STOCK, $1.00 PAR VALUE 3,668,677 SHARES
CLASS B COMMON STOCK, $1.00 PAR VALUE 2,150,190 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: AUGUST 9, 1999 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.
<TABLE>
<CAPTION>
PAGE
INDEX NUMBER
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<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets:
June 30, 1999 and December 31, 1998. 3
Consolidated Statements of Income:
Three (3) Months Ended June 30,
1999 and 1998; and Six (6) Months Ended June 30,
1999 and 1998. 4
Consolidated Statements of Changes in Stockholders
Equity: Six (6) Months Ended June 30, 1999 and 1998. 5
Consolidated Statements of Cash Flows:
Six (6) Months Ended June 30, 1999 and 1998. 6
Notes to Consolidated Financial
Statements 7 - 8
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS 9 - 13
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT
MARKET RISK 13
PART II. OTHER INFORMATION
Item 1 through Item 6 14
</TABLE>
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PART I - Item 1
Century Bancorp, Inc. - Consolidated Balance Sheets (unaudited)
<TABLE>
<CAPTION>
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(000's) June 30, Dec. 31,
ASSETS 1999 1998
- ------ ------- --------
<S> <C> <C>
Cash and due from banks $ 42,087 $ 34,518
Federal funds sold and interest-bearing deposits in other banks 3 26,501
--------- ---------
Total cash and cash equivalents 42,090 61,019
--------- ---------
Securities available-for-sale, amortized cost $219,656 and
$210,290, respectively 214,663 210,157
Securities held-to-maturity, market value $158,446 and
$160,109, respectively 161,919 159,875
Loans, net of unearned discount:
Commercial & industrial 69,449 64,822
Construction & land development 25,232 21,691
Commercial real estate 194,699 187,285
Industrial revenue bonds 221 1,034
Residential real estate 85,464 87,518
Consumer 13,184 14,355
Home equity 20,163 18,839
Overdrafts 686 359
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Total loans, net of unearned discount 409,098 395,903
Less allowance for loan losses (6,467) (6,022)
--------- ---------
Net loans 402,631 389,881
Bank premises and equipment, net 10,351 10,543
Accrued interest receivable 6,297 6,518
Other assets 17,957 15,333
--------- ---------
Total assets $ 855,908 $ 853,326
========= =========
LIABILITIES
- -----------
Deposits:
Demand deposits $ 131,873 $ 163,241
Savings and NOW deposits 162,021 153,207
Money market accounts 80,243 84,848
Time deposits 226,028 242,129
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Total deposits 600,165 643,425
Securities sold under agreements to repurchase 43,410 57,690
Federal Home Loan Bank (FHLB) borrowings and other borrowed funds 112,095 34,846
Other liabilities 10,088 27,564
Long term debt 28,750 28,750
--------- ---------
Total liabilities 794,508 792,275
STOCKHOLDERS' EQUITY
- --------------------
Class A common stock, $1.00 par value per share; authorized
10,000,000 shares; issued 3,718,677 and 3,673,397, respectively 3,719 3,673
Class B common stock, $1.00 par value per share; authorized
5,000,000 shares; issued 2,197,740 and 2,226,320, respectively 2,198 2,227
Additional paid-in capital 11,009 10,965
Retained earnings 48,244 44,451
Treasury stock, Class A, 50,000 and 30,000 shares, at cost, respectively . (484) (136)
Treasury stock, Class B, 47,550 shares, each period, at cost, respectively (41) (41)
--------- ---------
64,645 61,139
Accumulated other comprehensive income (loss) (3,245) (88)
--------- ---------
Total stockholders' equity 61,400 61,051
--------- ---------
Total liabilities and stockholders' equity $ 855,908 $ 853,326
========= =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
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Century Bancorp, Inc. - Consolidated Statements of Income (unaudited)
<TABLE>
<CAPTION>
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(000's except share data) Three months ended June 30, Six months ended June 30,
1999 1998 1999 1998
---------- ------------- --------- ------------
<S> <C> <C> <C> <C>
Interest income
Loans $ 8,836 $ 7,811 $ 17,484 $ 15,117
Securities held-to-maturity 2,368 1,896 4,693 3,706
Securities available-for-sale 3,323 1,663 6,337 3,120
Federal funds sold and interest-bearing deposits in other banks 56 720 219 1,081
---------- ---------- ---------- ----------
Total interest income 14,583 12,090 28,733 23,024
Interest expense
Savings and NOW deposits 1,060 1,144 1,986 2,193
Money market accounts 539 510 1,110 1,003
Time deposits 2,769 2,665 5,696 4,812
Securities sold under agreements to repurchase 403 365 818 685
FHLB borrowings, other borrowed funds and long term debt 1,710 355 3,083 426
---------- ---------- ---------- ----------
Total interest expense 6,481 5,039 12,693 9,119
---------- ---------- ---------- ----------
Net interest income 8,102 7,051 16,040 13,905
Provision for loan losses 225 185 450 350
---------- ---------- ---------- ----------
Net interest income after provision
for loan losses 7,877 6,866 15,590 13,555
Other operating income
Service charges on deposit accounts 455 440 880 881
Lockbox fees 517 472 908 854
Brokerage commissions 417 316 767 601
Gain on sales of loans 0 17 0 39
Other income 143 122 275 239
---------- ---------- ---------- ----------
Total other operating income 1,532 1,367 2,830 2,614
---------- ---------- ---------- ----------
Operating expenses
Salaries and employee benefits 3,555 3,294 7,070 6,531
Occupancy 366 303 764 648
Equipment 337 322 672 638
Other 1,491 1,196 2,843 2,370
---------- ---------- ---------- ----------
Total operating expenses 5,749 5,115 11,349 10,187
---------- ---------- ---------- ----------
Income before income taxes 3,660 3,118 7,071 5,982
Provision for income taxes 1,375 1,133 2,650 2,195
---------- ---------- ---------- ----------
Net income $ 2,285 $ 1,985 $ 4,421 $ 3,787
========== ========== ========== ==========
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Share data:
Weighted average number of shares outstanding, basic 5,814,533 5,809,420 5,820,000 5,800,838
Weighted average number of shares outstanding, diluted 5,842,324 5,851,732 5,850,962 5,843,056
Net income per share, basic $ 0.39 $ 0.34 $ 0.76 $ 0.65
Net income per share, diluted $ 0.39 $ 0.34 $ 0.76 $ 0.65
Cash dividends declared:
Class A common stock $ 0.0800 $ 0.0500 $ 0.1400 $ 0.1000
Class B common stock $ 0.0370 $ 0.0070 $ 0.0540 $ 0.0140
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
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<TABLE>
<CAPTION>
Century Bancorp, Inc. - Consolidated Statement of Changes in Stockholders' Equity (unaudited)
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Accumulated
Class A Class B Additional Treasury Treasury Other Total
Common Common Paid-In Retained Stock Stock Comprehensive Stockholders'
Six months ended June 30, Stock Stock Capital Earnings Class A Class B Income (Loss) Equity
----------------------------------------------------------------------------------------
(000's)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1998
- ----
Balance at December 31, 1997 $3,541 $2,327 $10,877 $37,180 $(136) $(41) $ 109 $ 53,857
Net income -- -- -- 3,787 -- -- -- 3,787
Other comprehensive income, net of tax:
Decrease in unrealized gain on
securities available-for-sale -- -- -- -- -- -- (115) (115)
--------
Comprehensive income 3,672
Conversion of Class B common stock to
Class A common stock, 28,200 shares 29 (29) -- -- -- -- -- --
Stock options exercised, 27,250 shares 27 -- 76 -- -- -- -- 103
Cash dividends, Class A common stock,
$.100 per share -- -- -- (354) -- -- -- (354)
Cash dividends, Class B common stock,
$.014 per share -- -- -- (32) -- -- -- (32)
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Balance at June 30, 1998 $3,597 $2,298 $10,953 $40,581 $(136) $(41) $( 6) $ 57,246
=====================================================================================
1999
- ----
Balance at December 31, 1998 $3,673 $2,227 $10,965 $44,451 $(136) $(41) $( 88) $ 61,051
Net income -- -- -- 4,421 -- -- -- 4,421
Other comprehensive income, net of tax:
Increase in unrealized loss on
securities available-for-sale -- -- -- -- -- -- (3,157) (3,157)
--------
Comprehensive income 1,264
Conversion of Class B common stock to
Class A common stock, 28,580 shares 29 (29) -- -- -- -- -- --
Stock options exercised, 16,700 shares 17 -- 44 -- -- -- -- 61
Treasury stock repurchases, 20,000 shares -- -- -- -- (348) -- -- (348)
Cash dividends, Class A common stock,
$.140 per share -- -- -- (511) -- -- -- (511)
Cash dividends, Class B common stock,
$.054 per share -- -- -- (117) -- -- -- (117)
-------------------------------------------------------------------------------------
Balance at June 30, 1999 $3,719 $2,198 $11,009 $48,244 $(484) $(41) $( 3,245) $ 61,400
=====================================================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
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<TABLE>
<CAPTION>
Century Bancorp, Inc. - Consolidated Statements of Cash Flows (unaudited) 1999 1998
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For the six months ended
June 30,
(000's)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,421 $ 3,787
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 450 350
Deferred income taxes (512) (223)
Net depreciation and amortization 887 335
Decrease (increase) in accrued interest receivable 221 (1,976)
Increase in other assets (820) (603)
Loans originated for sale 0 (2,532)
Proceeds from sales of loans 52 3,048
Gain on sales of loans (1) (46)
Increase in other liabilities 516 5,077
-------- --------
Net cash provided by operating activities 5,214 7,217
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of securities available-for-sale 52,588 34,013
Purchase of securities available-for-sale (61,902) (76,585)
Proceeds from maturities of securities held-to-maturity 40,399 35,000
Purchase of securities held-to-maturity (42,739) (46,980)
Decrease in payable for investments purchased (17,992) 0
Net cash paid for acquired institution 0 (5,786)
Net increase in loans (13,112) (3,004)
Capital expenditures (400) (882)
-------- --------
Net cash used in investing activities (43,158) (64,224)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in time deposits (15,880) (6,635)
Net decrease in demand, savings, money market and NOW deposits (27,159) (14,005)
Net proceeds from the issuance of common stock 61 103
Treasury stock repurchases (348) 0
Cash Dividends (628) (386)
Net (decrease) increase in securities sold under agreements to repurchase (14,280) 1,380
Net increase (decrease) in FHLB borrowings and other borrowed funds 77,249 (8,673)
Issuance of long term debt 0 28,750
-------- --------
Net cash provided by financing activities 19,015 534
-------- --------
Net decrease in cash and cash equivalents (18,929) (56,473)
Cash and cash equivalents at beginning of year 61,019 97,892
-------- --------
Cash and cash equivalents at end of period $ 42,090 $ 41,419
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 12,711 $ 9,003
Income taxes 2,214 2,530
Noncash transactions:
Property acquired through foreclosure $ 0 $ 130
Change in unrealized losses on securities available-for-sale, net of taxes $ (3,157) $ (115)
</TABLE>
See accompanying Notes to Consolidated Financial Statements
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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") and its wholly owned
subsidiary, Century Bank and Trust Company (the "Bank").
The results of operations for the interim period ended
June 30, 1999, 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 on Form 10K for year ended December 31,
1998.
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.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include the accounts
of the Company and its wholly-owned subsidiary, the Bank.
The Company provides a full range of banking services to
consumer, 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 Federal Deposit Insurance
Corporation (the "FDIC"), and the Massachusetts Division
of Banks.
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
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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.
==========================================================
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ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
OVERVIEW For the quarter ended and year-to-date ended June 30,
1999.
Earnings for the second quarter ended June 30, 1999 were
$2.3 million, an increase of 15.1% when compared with the
second quarter 1998 earnings of $2.0 million. Diluted
earnings per share for the second quarter 1999 were $0.39
versus $0.34 for the second quarter of 1998. The increase
was attributable to balance sheet growth and the
acquisition of Haymarket Cooperative Bank ("Haymarket").
The acquisition took place on June 11, 1998.
For the six months ending June 30, 1999, earnings were
$4.4 million an increase of 16.7% when compared with the
same period last year earnings of $3.8 million. Diluted
earnings per share for the first six months were $0.76
versus $0.65 for the first six months of 1998. The
increase was attributable to balance sheet growth and the
acquisition of Haymarket.
YEAR 2000 The Company has completed its assessment of Year 2000
issues and developed a plan, budget, and testing strategy
for mission-critical systems. The Company relies on its
recently converted new core processing system for critical
data warehousing and transaction processing. Other, less
critical, systems are supported by purchased applications
software. The Company is continually evaluating mission-
critical vendor plans and monitoring project milestones.
The Company has tested its key transaction processing
system and has substantially completed testing its core
processing system and most other applications. The vendor
has disclosed that its core processing system is Year 2000
compliant. There can be no guarantee that the systems of
other companies, or third party vendors on which the
Company's systems rely, will be remedied on a timely
basis. Therefore, the Company could be negatively impacted
to the extent other entities not affiliated with the
Company are unsuccessful in properly addressing their
respective Year 2000 compliance responsibilities. Specific
factors that might cause such material differences
include, but are not limited to, the availability and cost
of personnel trained in this area and the ability to
locate and correct all relevant computer codes.
The Company will continue to utilize both internal and
external resources to update, or replace, develop and test
all software information systems for Year 2000
modification. The Company's cost of Year 2000 remediation,
which includes its cost of converting to its new core
processing system, is expected to approach $2.0 million,
of which approximately $1.7 million has been incurred. The
Company's cost does not include internal costs. The
Company expects that the majority of the costs yet to be
incurred will be to replace or update existing hardware
and software on non-mission critical items, which will be
capitalized and amortized in accordance with the Company's
existing accounting policy. In most instances, upgrades to
computer hardware and software are being made to improve
the capacity and performance of the systems as well as to
achieve Year 2000 compliance. Maintenance and modification
costs will be expensed as incurred.
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Management's Discussion and Analysis of Financial
Condition and Results of Operation (con't.)
The costs of the project and the date on which the Company
plans to complete Year 2000 testing are based on
management's best estimates, which were derived utilizing
numerous assumptions of future events including the
continued availability of certain resources, third party
modification plans and other factors.
The Bank has also assessed the impact of the Year 2000
issue on its major borrowing customers. Borrowers that
could experience a significant disruption in their
business due to a Year 2000 failure have been identified.
Management has received responses from this identified
group, with a small number requiring further follow-up.
Management has substantially completed this assessment.
Large deposit customers associated with lockbox services
have been identified and assessed. These customers will
continue to be monitored for Year 2000 compliance.
A contingency plan has been substantially completed for
high risk assessed systems. This plan covers preparing
business resumption and liquidity needs in the event of
possible Year 2000 disruptions. The Bank's contingency
plan was put in place at the end of the second quarter of
1999.
FINANCIAL CONDITION
LOANS On June 30, 1999 total loans outstanding, net of unearned
discount, were $409.1 million, an increase of 3.3% from
the total on December 31, 1998. At June 30, 1999
commercial real estate loans accounted for 47.6% and
residential real estate loans accounted for 20.9% of total
loans. Construction loans increased $25.2 million at June
30, 1999 from $21.7 million on December 31, 1998.
The increase in loans was mainly attributable to corporate
loans which are comprised of commercial, construction and
commercial real estate lending. Originations of corporate
loans reflect the Company's increased interest for this
type of loan as well as higher real estate values. The
increase in corporate loans was partially offset by a
decrease in consumer loans. Consumer loans are comprised
mainly of personal installment and personal credit line
loans.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses was 1.58% of total loans on
June 30, 1999 compared with 1.52% on December 31, 1998.
Net charge-offs for the six month period ended June 30,
1999, were $5 thousand, compared with net recoveries of
$29 thousand for the same period in 1998.
Management believes that the allowance for loan losses is
adequate. Management uses available information to provide
for losses but recognizes that changes in economic
conditions may result in additional losses and additional
loss provisions. Also, the allowance is reviewed in
conjunction with regulatory examinations. These reviews
may require the Company to make additional provisions to
the allowance based on judgements made by the regulators.
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Management's Discussion and Analysis of Financial
Condition and Results of Operation (con't.)
<TABLE>
<CAPTION>
JUNE 30, 1999 DECEMBER 31, 1998
------------- -----------------
(Dollars In Thousands)
<S> <C> <C>
Nonaccruing loans $2,281 $1,281
Loans past due 90 days
or more $ 720 $ 698
Nonaccruing loans as a
percentage of total loans .56% .32%
</TABLE>
The increase in nonaccruing loans was mainly attributable
to residential mortgages which were placed on nonaccrual.
These mortgages were fully collateralized.
INVESTMENTS Management continually evaluates its investment
alternatives in order to properly manage the overall
balance sheet mix. The timing of purchases, sales and
reinvestment, if any, will be based on various factors
including expectation of movements in market interest
rates and loan demand. Notwithstanding these events, it is
the intent of management to grow the earning asset base
through loan originations, loan purchases or investment
acquisitions while funding this growth through a mix of
retail deposits, FHLB advances, and retail repurchase
agreements.
<TABLE>
<CAPTION>
JUNE 30, 1999 DECEMBER 31, 1998
------------- -----------------
(Dollars In Thousands)
<S> <C> <C>
SECURITIES AVAILABLE-FOR-SALE
U.S. Government and
Agencies $169,505 $198,305
Other Bonds 13,544 7,232
Mortgage-backed Securities 31,614 4,620
-------- --------
Total Securities Available-for Sale $214,663 $210,157
======== ========
SECURITIES HELD-TO-MATURITY
U.S. Government and
Agencies $ 85,831 $105,823
Other bonds 61 86
Mortgage-backed Securities 76,027 53,966
-------- --------
Total Securities Held-to-Maturity $161,919 $159,875
======== ========
</TABLE>
SECURITIES AVAILABLE-FOR-SALE
The securities available-for-sale portfolio totaled $214.7
million at June 30, 1999, an increase of 2.1% from
December 31, 1998. The portfolio is concentrated in United
States Treasury and Agency securities and has an estimated
weighted average maturity of 4.5 years.
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Management's Discussion and Analysis of Financial
Condition and Results of Operation (con't.)
SECURITIES HELD-TO-MATURITY
The securities held-to-maturity portfolio totaled $161.9
million on June 30, 1999, an increase of 1.3% from the
total on December 31, 1998. The portfolio is concentrated
in United States Treasury and Agency securities and has an
estimated weighted average maturity of 4.7 years.
DEPOSITS AND BORROWED FUNDS
On June 30, 1999 deposits totaled $600.2 million,
representing a 6.7% decrease in total deposits from
December 31, 1998. Total deposits decreased primarily as a
result of the cyclical municipal deposit trends. Borrowed
funds totaled $155.5 million compared to $92.5 million at
December 31, 1998. In order to maintain total assets and
offset the decline in cyclical demand and time deposits,
the Bank increased borrowings from the Federal Home Loan
Bank.
RESULTS OF OPERATIONS
NET INTEREST INCOME
For the three month period ended June 30, 1999 net
interest income totaled $8.1 million, an increase of 14.9%
from the comparable period in 1998. For the six month
period ended June 30, 1999 net interest income totaled
$16.0 million, an increase of 15.4% from the comparable
period in 1998. Interest income was primarily affected
positively by the acquisition of Haymarket. The net yield
on average earning assets on a fully taxable equivalent
basis decreased to 4.11% in the first six months of 1999
from 4.82% during the same period in 1998. The decrease
was mainly attributable to leveraged balance sheet
transactions.
PROVISION FOR LOAN LOSSES
For the three month period ended June 30, 1999 the loan
loss provision totaled $225 thousand compared to $185
thousand for the same period last year. For the six month
period ended June 30, 1999 the loan loss provision totaled
$450 thousand compared to $350 thousand for the same
period in 1998.
Loan loss provision increased due to growth in the loan
portfolio and an increase in nonaccruing loans. The
Company's loan loss allowance as a percentage of total
loans outstanding has increased from 1.53% at June 30,
1998 to 1.58% at June 30, 1999.
NON-INTEREST INCOME AND EXPENSE
Other operating income for the quarter ended June 30, 1999
was $1.5 million compared to $1.4 million for the second
quarter of 1998. Broker commissions increased $100
thousand or 32% due to an increase in broker related
transactions during the period. For the six month period
ending June 30, 1999 other operating income totaled $2.8
million
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Management's Discussion and Analysis of Financial
Condition and Results of Operation (con't.)
compared to $2.6 million for the same period in 1998. This
was mainly attributable to increased broker commissions
which increased $166 thousand or 28%.
During the second quarter 1999, operating expenses
increased by $634 thousand to $5.7 million or 12.4% from
the same quarter last year. The second quarter increase
reflects expenses associated with the Haymarket
acquisition. Approximately half of the increase was in
salaries and employee benefits with the remaining half in
all other expenses. For the sixth month period ended June
30, 1999 operating expenses totaled $11.3 million compared
to $10.2 million for the same period in 1998. Salaries and
other employee benefits as well as other operating
expenses made up the majority of the increase. The
majority of the increase in salaries was caused by an
increase in the wage base and personnel costs associated
with the acquisition of Haymarket. Other operating
expenses increased because of costs associated with the
Haymarket purchase and amortization of costs associated
with a Trust Preferred Offering, which was issued during
May 1998.
INCOME TAXES
For the second quarter of 1999, the Company's income taxes
totaled $1.4 million on pretax income of $3.7 million for
an effective tax rate of 37.6%. For last year's
corresponding quarter, the Company's income taxes totaled
$1.1 million on pretax income of $3.1 million for an
effective rate of 36.3%. For the sixth month period ended
June 30, 1999 income taxes totaled $2.7 million on a
pretax income of $7.1 million for an effective tax rate of
37.5% For last year's corresponding period income taxes
totaled $2.2 million on pretax income of $6.0 million for
an effective tax rate of 36.7%.
==========================================================
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The response is incorporated herein by reference from the
discussion under the subcaption "Market Risk and Asset
Liability Management" of the caption "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS" on pages 9 and 10 of the Annual Report
which is incorporated herein by reference.
==========================================================
13 of 14
<PAGE> 14
PART II - OTHER INFORMATION
Item 1 Legal proceedings - The Company is not engaged in any legal
proceedings of a material nature at the present time. From
time to time, the Company is party to routine legal
proceedings within the normal course of business. Such
routine legal proceedings, in the aggregate, are believed by
management to be immaterial to the Company's financial
condition and results of operation.
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
14 of 14
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