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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 SEPTEMBER 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
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Commission file number. 0-15752
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CENTURY BANCORP, INC.
- --------------------------------------------------------------------------------
(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 Identification No.)
incorporation or organization)
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 September 30, 1999:
CLASS A COMMON STOCK, $1.00 PAR VALUE 3,614,050 SHARES
CLASS B COMMON STOCK, $1.00 PAR VALUE 2,149,350 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 8, 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.
Page
Index Number
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PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets:
September 30, 1999 and December 31, 1998. 3
Consolidated Statements of Income:
Three (3) Months Ended September 30,
1999 and 1998; and Nine (9) Months 4
Ended September 30, 1999 and 1998.
Consolidated Statements of Changes in Stockholders
Equity: Nine (9) Months Ended September 30,
1999 and 1998. 5
Consolidated Statements of Cash Flows:
Nine (9) Months Ended September 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
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PART I - Item 1
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<TABLE>
<CAPTION>
Century Bancorp, Inc. - Consolidated Balance Sheets (unaudited)
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(000's) Sept. 30, Dec. 31,
Assets 1999 1998
- ------ -------- --------
<S> <C> <C>
Cash and due from banks $ 33,340 $ 34,518
Federal funds sold and interest-bearing deposits in other banks 30 26,501
-------- --------
Total cash and cash equivalents 33,370 61,019
-------- --------
Securities available-for-sale, amortized cost $245,528 and
$210,290, respectively 239,319 210,157
Securities held-to-maturity, market value $149,288 and
$160,109, respectively 154,550 159,875
Loans, net of unearned discount:
Commercial & industrial 74,709 64,822
Construction & land development 27,534 21,691
Commercial real estate 192,030 187,285
Industrial revenue bonds 205 1,034
Residential real estate 82,285 87,518
Consumer 11,763 14,355
Home equity 19,271 18,839
Overdrafts 320 359
-------- --------
Total loans, net of unearned discount 408,117 395,903
Less: allowance for loan losses 6,654 6,022
-------- --------
Net loans 401,463 389,881
Bank premises and equipment, net 10,386 10,543
Accrued interest receivable 7,153 6,518
Other assets 18,116 15,333
-------- --------
Total assets $864,357 $853,326
======== ========
Liabilities
- ---------
Deposits:
Demand deposits $129,680 $163,241
Savings and NOW deposits 159,196 153,207
Money market accounts 78,956 84,848
Time deposits 214,410 242,129
-------- --------
Total deposits 582,242 643,425
Securities sold under agreements to repurchase 49,370 57,690
Federal Home Loan Bank (FHLB) borrowings and other borrowed funds 130,795 34,846
Other liabilities 11,554 27,564
Long term debt 28,750 28,750
-------- --------
Total liabilities 802,711 792,275
Stockholders' equity
- --------------------
Class A common stock, $1.00 par value per share; authorized
10,000,000 shares; issued 3,720,350 and 3,673,397, respectively 3,720 3,673
Class B common stock, $1.00 par value per share; authorized
5,000,000 shares; issued 2,196,900 and 2,226,320, respectively 2,197 2,227
Additional paid-in capital 11,013 10,965
Retained earnings 50,319 44,451
Treasury stock, Class A, 106,300 and 30,000 shares, at cost, respectively (1,526) (136)
Treasury stock, Class B, 47,550 shares, each period, at cost, respectively (41) (41)
-------- --------
65,682 61,139
Accumulated other comprehensive income (loss) (4,036) (88)
-------- --------
Total stockholders' equity 61,646 61,051
-------- --------
Total liabilities and stockholders' equity $864,357 $853,326
======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
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<TABLE>
<CAPTION>
Century Bancorp, Inc. - Consolidated Statements of Income (unaudited)
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(000's except share data) Three months ended Sept. 30, Nine months ended Sept. 30,
1999 1998 1999 1998
------- ------- ------- -------
Interest income
<S> <C> <C> <C> <C>
Loans $ 9,056 $ 9,193 $26,540 $24,310
Securities held-to-maturity 2,264 2,352 6,957 6,058
Securities available-for-sale 3,341 2,653 9,678 5,773
Federal funds sold and interest-bearing deposits in other banks 21 205 240 1,286
------- ------- ------- -------
Total interest income 14,682 14,403 43,415 37,427
Interest expense
Savings and NOW deposits 908 1,043 2,894 3,236
Money market accounts 517 641 1,627 1,644
Time deposits 2,751 3,490 8,447 8,302
Securities sold under agreements to repurchase 471 449 1,289 1,134
FHLB borrowings, other borrowed funds and long term debt 1,881 972 4,964 1,398
------- ------- ------- -------
Total interest expense 6,528 6,595 19,221 15,714
------- ------- ------- -------
Net interest income 8,154 7,808 24,194 21,713
Provision for loan losses 225 225 675 575
------- ------- ------- -------
Net interest income after provision
for loan losses 7,929 7,583 23,519 21,138
Other operating income
Service charges on deposit accounts 469 456 1,349 1,337
Lockbox fees 447 398 1,355 1,252
Brokerage commissions 358 258 1,125 859
Other income 133 139 408 417
------- ------- ------- -------
Total other operating income 1,407 1,251 4,237 3,865
------- ------- ------- -------
Operating expenses
Salaries and employee benefits 3,589 3,422 10,659 9,953
Occupancy 378 423 1,142 1,071
Equipment 337 317 1,009 955
Other 1,309 1,310 4,152 3,680
------- ------- ------- -------
Total operating expenses 5,613 5,472 16,962 15,659
------- ------- ------- -------
Income before income taxes 3,723 3,362 10,794 9,344
Provision for income taxes 1,275 1,273 3,925 3,468
------- ------- ------- -------
Net income $ 2,448 $ 2,089 $ 6,869 $ 5,876
======= ======= ======= =======
- ---------------------------------------------------------------------------------------------------------------------------------
Share data:
Weighted average number of shares outstanding, basic 5,804,096 5,817,667 5,814,641 5,806,509
Weighted average number of shares outstanding, diluted 5,827,577 5,858,784 5,843,089 5,848,388
Net income per share, basic $0.42 $0.36 $1.18 $1.01
Net income per share, diluted $0.42 $0.36 $1.18 $1.00
Cash dividends declared:
Class A common stock $0.0800 $0.0500 $0.2200 $0.1500
Class B common stock $0.0370 $0.0070 $0.0910 $0.0210
</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'
Nine months ended September 30, Stock Stock Capital Earnings Class A Class B Income (Loss) Equity
------- ------- ---------- -------- -------- -------- ------------- -------------
(000's)
1998
- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 $3,541 $2,327 $10,877 $37,180 ($136) ($41) $109 $53,857
Net income -- -- -- 5,876 -- -- -- 5,876
Other comprehensive income, net of tax:
Increase in unrealized gain on
securities available-for-sale -- -- -- -- -- -- 718 718
-------
Comprehensive income 6,594
Conversion of Class B common stock to
Class A common stock, 70,200 shares 71 (71) -- -- -- -- -- --
Stock options exercised, 27,250 shares 27 -- 75 -- -- -- -- 102
Cash dividends, Class A common stock,
$.15 per share -- -- -- (533) -- -- -- (533)
Cash dividends, Class B common stock,
$.021 per share -- -- -- (47) -- -- -- (47)
------ ------ ------- ------- ---- --- ---- -------
Balance at September 30, 1998 $3,639 $2,256 $10,952 $42,476 ($136) ($41) $827 $59,973
====== ====== ======= ======= ==== === ==== =======
1999
- ----
Balance at December 31, 1998 $3,673 $2,227 $10,965 $44,451 ($136) ($41) ($ 88) $61,051
Net income -- -- -- 6,869 -- -- -- 6,869
Other comprehensive income, net of tax:
Increase in unrealized loss on
securities available-for-sale -- -- -- -- -- -- (3,948) (3,948)
-------
Comprehensive income 2,921
Conversion of Class B common stock to
Class A common stock, 29,420 shares 29 (29) -- -- -- -- -- --
Stock options exercised, 17,533 shares 18 -- 48 -- -- -- -- 66
Treasury stock repurchases, 92,300 shares -- -- -- -- (1,390) -- -- (1,390)
Cash dividends, Class A common stock,
$.22 per share -- -- -- (805) -- -- -- (805)
Cash dividends, Class B common stock,
$.091 per share -- -- -- (196) -- -- -- (196)
------ ------ ------- ------- ------ --- ------ -------
Balance at September 30, 1999 $3,720 $2,197 $11,013 $50,319 ($1,526) ($41) ($4,036) $61,646
====== ====== ======= ======= ====== === ====== =======
</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
- ------------------------------------------------------------------------------------------------------------------------------------
For the nine months ended
September 30,
(000's)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 6,869 $ 5,876
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 675 575
Deferred income taxes (681) (228)
Net depreciation and amortization 1,384 588
Increase in accrued interest receivable (635) (1,488)
Increase in other assets (560) (1,679)
Loans originated for sale -- (2,532)
Proceeds from sales of loans 145 3,118
Gain on sales of loans (2) (47)
Gain on sales of real estate owned -- (7)
Increase (decrease) in other liabilities 1,982 (2,183)
------- --------
Net cash provided by operating activities 9,177 1,993
------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of securities available-for-sale 56,736 71,214
Purchase of securities available-for-sale (91,918) (89,579)
Proceeds from maturities of securities held-to-maturity 52,649 59,787
Purchase of securities held-to-maturity (47,730) (116,309)
Decrease in payable for investments purchased (17,992) (6,499)
Net cash paid for acquired institution -- (5,786)
Net increase in loans (12,191) (1,567)
Proceeds from sales of real estate owned -- 137
Capital expenditures (721) (1,087)
------- --------
Net cash used in investing activities (61,167) (89,689)
------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in time deposits (27,499) (32,197)
Net (decrease) increase in demand, savings, money market and NOW deposits (33,464) 2,058
Net proceeds from the issuance of common stock 66 102
Treasury stock repurchases (1,390) --
Cash Dividends (1,001) (580)
Net (decrease) increase in securities sold under agreements to repurchase (8,320) 6,700
Net increase in FHLB borrowings and other borrowed funds 95,949 37,153
Issuance of long term debt -- 28,750
------- --------
Net cash provided by financing activities 24,341 41,986
------- --------
Net decrease in cash and cash equivalents (27,649) (45,710)
Cash and cash equivalents at beginning of year 61,019 97,892
------- --------
Cash and cash equivalents at end of period $33,370 $ 52,182
======= ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $18,999 $ 17,665
Income taxes 2,567 3,891
Noncash transactions:
Property acquired through foreclosure -- $ 130
Change in unrealized (losses) gains on securities available-for-sale, net of taxes ($ 3,948) $ 718
</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
September 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 September 30,
1999.
Earnings for the third quarter ended September 30, 1999
were $2.4 million, an increase of 17.2% when compared with
the third quarter 1998 earnings of $2.1 million. Diluted
earnings per share for the third quarter 1999 were $0.42
versus $0.36 for the second quarter of 1998. The increase
was attributable to balance sheet growth.
For the nine months ending September 30, 1999, earnings
were $6.9 million an increase of 16.9% when compared with
the same period last year earnings of $5.9 million.
Diluted earnings per share for the first nine months were
$1.18 versus $1.00 for the first nine months 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.
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 $1.9 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 September 30, 1999 total loans outstanding, net of
unearned discount, were $408.1 million, an increase of
3.1% from the total on December 31, 1998. At September 30,
1999 commercial real estate loans accounted for 47.1% and
residential real estate loans accounted for 24.9% of total
loans. Construction loans increased to $27.5 million at
September 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 1.63% of total loans on
September 30, 1999 compared with 1.52% on December 31,
1998. Net charge-offs for the nine month period ended
September 30, 1999, were $43 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.)
September 30, 1999 December 31, 1998
------------------ -----------------
(Dollars In Thousands)
Nonaccruing loans $983 $1,281
Loans past due 90 days
or more $170 $ 698
Nonaccruing loans as a
percentage of total loans .24% .32%
Subsequent to September 30, 1999 there was deterioration
with one borrower's credit quality, whose total
relationship amounted to $4.1 million. As a result of this
deterioration, management has placed this credit to
nonaccrual loans during the 4th quarter. As of the date of
this filing, the loss exposure on this credit and its
potential impact on the provision for loan losses cannot
be reasonably estimated.
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, deposit flows 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.
September 30, 1999 December 31, 1998
------------------ -----------------
(Dollars In Thousands)
SECURITIES AVAILABLE-FOR-SALE
U.S. Government and
Agencies $192,794 $198,305
Other Bonds and Equity Securities 16,358 7,232
Mortgage-backed Securities 30,167 4,620
-------- --------
Total Securities Available-for Sale $239,319 $210,157
======== ========
SECURITIES HELD-TO-MATURITY
U.S. Government and
Agencies $ 81,822 $105,823
Other bonds 61 86
Mortgage-backed Securities 72,667 53,966
-------- --------
Total Securities Held-to-Maturity $154,550 $159,875
======== ========
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Management's Discussion and Analysis of Financial
Condition and Results of Operation (con't.)
SECURITIES AVAILABLE-FOR-SALE
The securities available-for-sale portfolio totaled $239.3
million at September 30, 1999, an increase of 13.9% from
December 31, 1998. The portfolio is concentrated in United
States Treasury and Agency securities and has an estimated
weighted average maturity of 5.5 years.
SECURITIES HELD-TO-MATURITY
The securities held-to-maturity portfolio totaled $154.6
million on September 30, 1999, a decrease of 3.3% from the
total on December 31, 1998. The portfolio is concentrated
in United States Treasury and Agency securities, including
Mortgage Backed Securities and has an estimated weighted
average maturity of 7.7 years.
DEPOSITS AND BORROWED FUNDS
On September 30, 1999 deposits totaled $582.2 million,
representing a 9.5% decrease in total deposits from
December 31, 1998. Total deposits declined by $29.2
million or 4.8% from September 30, 1998. Total deposits
decreased primarily as a result of the cyclical municipal
deposit trends and a reduction in high rate certificates
of deposits acquired from Haymarket. Borrowed funds
totaled $180.2 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 September 30, 1999 net
interest income totaled $8.2 million, an increase of 4.4%
from the comparable period in 1998. For the nine month
period ended September 30, 1999 net interest income
totaled $24.2 million, an increase of 11.4% 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 4.09% in the first nine
months of 1999 from 4.60% 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 September 30, 1999 the
loan loss provision totaled $225 thousand compared to $225
thousand for the same period last year. For the nine month
period ended September 30, 1999 the loan loss provision
totaled $675 thousand compared to $575 thousand for the
same period in 1998.
Loan loss provision increased due to growth in the loan
portfolio. The Company's loan loss allowance as a
percentage of total loans outstanding has increased from
1.52% at September 30, 1998 to 1.63% at September 30,
1999.
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Management's Discussion and Analysis of Financial
Condition and Results of Operation (con't.)
NON-INTEREST INCOME AND EXPENSE
Other operating income for the quarter ended September 30,
1999 was $1.4 million compared to $1.3 million for the
third quarter of 1998. Broker commissions increased $100
thousand or 38.8% due to an increase in broker related
transactions during the period. For the nine month period
ending September 30, 1999 other operating income totaled
$4.2 million compared to $3.9 million for the same period
in 1998. This was mainly attributable to increased broker
commissions which increased $266 thousand or 31%.
During the third quarter 1999, operating expenses
increased by $141 thousand to $5.6 million or 2.6% from
the same quarter last year. Most of the increase was in
salaries and employee benefits. For the nine month period
ended September 30, 1999 operating expenses totaled $17.0
million compared to $16.0 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 third quarter of 1999, the Company's income taxes
totaled $1.3 million on pretax income of $3.7 million for
an effective tax rate of 34.2%. For last year's
corresponding quarter, the Company's income taxes totaled
$1.3 million on pretax income of $3.4 million for an
effective rate of 37.9%. For the nine month period ended
September 30, 1999 income taxes totaled $3.9 million on a
pretax income of $10.8 million for an effective tax rate
of 36.4% For last year's corresponding period income taxes
totaled $3.5 million on pretax income of $9.3 million for
an effective tax rate of 37.1%.
==========================================================
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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