U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD
FROM TO
COMMISSION FILE NO. 0-25710
ANNAPOLIS BANCSHARES, INC.
(Exact name of small business issuer as specified in its charter)
Maryland 52-1606384
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2024 West Street, Annapolis, Maryland 21401
(address of principal executive offices and zip code)
(410) 266-3000
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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. YES X NO
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
The registrant has 785,375 shares of common stock outstanding as of March 31,
1996.
<PAGE>
PART I - FINANCIAL INFORMATION - ITEM 1. FINANCIAL STATEMENTS
ANNAPOLIS BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
As of As of
March 31,1996 December 31, 1995
ASSETS ..................................... (Unaudited) (Audited)
<S> <C> <C>
Cash and federal fund sold ................. $ 4,455,551 $ 6,099,052
Investment securities available for sale ... -- 1,804,812
Investment securities held to maturity ..... 975,365 1,587,680
Other securities ........................... 982,200 982,200
Loans available for sale ................... 474,400 750,000
Loans, less allowance for loan
losses of $719,993 and $686,636 .......... 70,804,936 67,226,982
Premises and equipment (net) ............... 1,927,612 1,943,994
Accrued interest receivable ................ 656,958 647,355
Deferred income taxes ...................... 173,308 192,841
Other assets ............................... 585,483 649,627
------------ ------------
TOTAL ASSETS ............................... $ 81,035,813 $ 81,884,543
============ ============
LIABILITIES
Deposits
Demand ................................... $ 2,226,444 $ 2,082,290
Now accounts ............................. 1,778,160 2,361,376
Savings and Money Market ................. 12,427,088 14,507,526
Time, $100,000 and over .................. 8,601,390 7,940,295
Other time ............................... 40,823,626 37,113,828
------------ ------------
Total Deposits ............................. 65,856,709 64,005,315
Borrowings ................................. 5,000,000 7,025,000
Due to banks ............................... 541,829 1,733,090
Accrued interest payable ................... 62,057 62,967
Income taxes payable ....................... 195,902 --
Other liabilities .......................... 124,212 163,043
Dividends payable .......................... 49,086 45,090
------------ ------------
TOTAL LIABILITIES .......................... 71,829,795 73,034,505
------------ ------------
STOCKHOLDERS' EQUITY
Common stock, par value $1.00 per share .... 785,375 784,175
Authorized 5,000,000 shares; issued and
outstanding 785,375 and 784,175
Additional paid-in capital ................. 5,354,028 5,341,728
Retained earnings .......................... 3,066,615 2,755,180
------------ ------------
9,206,018 8,881,083
Unrealized gain(loss) on investment
securities available for sale ......... -- (31,045)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY ................. 9,206,018 8,850,038
------------ ------------
TOTAL LIABILITIES .......................... $ 81,035,813 $ 81,884,543
& STOCKHOLDERS' EQUITY ============ ============
</TABLE>
<PAGE>
ANNAPOLIS BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Three
Months Ended Months Ended
March. 31, 1996 March. 31, 1995
<S> <C> <C>
INTEREST INCOME
Loans, including fees ................. $ 1,856,321 $ 1,369,514
Deposits in banks and federal fund
sold ............................... 51,605 59,991
Investments securities ................ 37,892 77,263
----------- -----------
Total interest income .......... 1,945,818 1,506,768
----------- -----------
INTEREST EXPENSE
Interest on deposits .................. 837,770 663,996
Interest on borrowed funds ............ 67,713 65,447
----------- -----------
Total interest expense ......... 905,483 729,443
----------- -----------
Net interest income ................... 1,040,335 777,325
Provision for loan losses ............. 33,357 50,214
----------- -----------
Net interest income after
provision for loan losses ............. 1,006,978 727,111
----------- -----------
NON INTEREST INCOME
Rental income ......................... 63,021 61,422
Gain(loss) on sale of loans, net ...... 43,831 (12,302)
Gain(loss) on sale of investments ..... (50,579) --
Other ................................. 11,994 11,167
----------- -----------
Total noninterest income ....... 68,267 60,287
----------- -----------
NON INTEREST EXPENSE
Compensation and related expenses ..... 323,010 228,242
Occupancy expense ..................... 50,730 54,281
Directors fees ........................ 18,750 18,750
Stationary, printing and postage ...... 15,601 16,058
Data processing expense ............... 15,537 14,380
Equipment repairs and depreciation .... 21,579 20,695
Advertising ........................... 5,801 12,878
Accounting and legal .................. 9,115 23,534
Insurance expense ..................... 6,974 39,513
Dues and subscriptions ................ 2,651 3,403
Education, seminars and travel ........ 7,798 5,564
Other expense ......................... 10,272 9,525
----------- -----------
Total noninterest expense ...... 487,818 446,823
----------- -----------
Income before income taxes ............ 587,427 340,575
Income taxes .......................... 226,907 131,500
----------- -----------
Net income ............................ $ 360,520 $ 209,075
=========== ===========
EARNINGS PER COMMON SHARE ............. $ 0.46 $ 0.30
</TABLE>
<PAGE>
Annapolis Bancshares, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three Three
Months Ended Months Ended
March 31, 1996 March 31, 1995
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income .............................................................................. $ 360,520 $ 209,075
Adjustments to reconcile net income to
cash provided by operating activities:
Provision for loan losses ............................................................... 33,357 50,214
Loss on sale of Investments ............................................................. 50,579 --
Gain on Sale of Loans ................................................................... (43,831) --
Loans originated for sale ............................................................... (2,350,400) --
Sales of loans originated for sale ...................................................... 2,669,830 --
Depreciation and Amortization ........................................................... 22,793 26,175
Amortization of premiums and acretion
of discounts, net ....................................................................... (289) --
(Increase) Decrease in
Accrued interest receivable ........................................................... (9,603) (13,883)
deferred income tax ................................................................... -- --
Other assets .......................................................................... 64,144 35,022
Increase (Decrease) in
Deferred loan fees & discounts ........................................................ 82,319 12,820
Accrued interest payable .............................................................. (910) (259)
Income taxes payable .................................................................. 195,902 59,337
Other liabilities ..................................................................... (38,831) (16,236)
------------ ------------
Net cash provided by operations ...................................................... 1,035,580 362,265
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Investment Securities ....................................................... 0 (700,000)
Sale of investment securities available for sale ........................................ 1,804,812 --
Maturity, Repayment of Investment Securities ............................................. 612,604 859,226
Loans originated ........................................................................ (11,922,160) (5,932,034)
Principal repayments on loans ........................................................... 8,228,530 4,249,144
Loans purchased ......................................................................... 0 (1,639,295)
Loans sold .............................................................................. 0 1,619,507
Purchase of premises and equipment ...................................................... (6,410) (1,698)
------------ ------------
Net cash used in investing activities ................................................ (1,282,624) (1,545,150)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits ................................................................ 1,851,394 2,785,294
Net Proceeds from Issuance of Common Stock .............................................. 13,500 113,490
Proceeds from Long-Term Borrowing ....................................................... (2,025,000) (2,000,000)
Net increase (decrease) in due to banks ................................................. (1,191,261) 0
Cash dividend paid on common stock ...................................................... (45,090) (27,469)
------------ ------------
Net cash provided by financing activities ............................................ (1,396,457) 871,315
------------ ------------
NET INCREASE (DECREASE) IN CASH
& CASH EQUIVALENTS ...................................................................... (1,643,501) (311,570)
CASH & EQUIVALENTS AT BEGINNING
OF PERIOD ............................................................................... 6,099,052 2,808,128
------------ ------------
CASH & EQUIVALENTS AT END OF PERIOD ..................................................... $ 4,455,551 $ 2,496,558
============ ============
</TABLE>
<PAGE>
Annapolis Bancshares, Inc.
Consolidated Statement of Changes in Stockholders' Equity
(Unaudited)
<TABLE>
<CAPTION>
Common Stock Unrealized Total
---------------------------- Capital Retained Gains(Losses) Stockholders'
Three Months Ended March 31, 1995 Shares Par value Surplus Earnings on Securities Equity
- - -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance December 31, 1994 549,372 $549,372 $4,433,893 $1,827,135 - $6,810,400
Cash Dividend $.0417 per share - - - (27,973) - (27,973)
Sale of stock 10,090 10,090 103,400 - - 113,490
Net Income - - - 209,075 - 209,075
Balance March 31, 1995 559,462 $559,462 $4,537,293 $2,008,237 - $7,104,992
</TABLE>
<TABLE>
<CAPTION>
Common Stock Unrealized Total
---------------------------- Capital Retained Gains(Losses) Stockholder's
Three Months Ended March 31, 1996 Shares Par value Surplus Earnings on Securities Equity
- - -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance December 31, 1995 784,175 $784,175 $5,341,728 $2,755,180 (31,045) $8,850,038
Cash Dividend $.0625 per share - - - (49,085) - (49,085)
Exercise of Options 1,200 1,200 12,300 - - 13,500
Net Income - - - 360,520 - 360,520
Change in unrealized gains
(losses) on securities - - - - 31,045 31,045
Balance March 31, 1996 785,375 $785,375 $5,354,028 $3,066,615 $0 $9,206,018
</TABLE>
<PAGE>
Annapolis Bancshares, Inc.
Average Balances and Yields
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, 1996 March 31, 1995
------------------------------------- --------------------------------------------
ASSETS Average Average Average Average
Balance Interest Rate Balance Interest Rate
<S> <C>
Interest earning assets <C> <C> <C> <C> <C>
Interest bearing deposits
in other banks $25,499 $327 5.13% $57,797 $848 5.87%
Federal funds sold 3,833,551 51,605 5.38% 4,129,900 59,605 5.77%
Investments 2,866,829 37,565 5.24% 5,516,728 76,801 5.57%
Loans receivable 69,423,455 1,856,321 10.70% 55,698,481 1,369,514 9.84%
Total Interest Earning Assets 76,149,334 1,945,818 10.22% 65,402,906 1,506,768 9.22%
Non earning Assets
Cash and due from banks 80,141 251,023
Premises and equipment 1,937,990 1,996,047
Other assets 1,638,723 1,337,232
Allowance for loan loss (690,610) (533,683)
Total Assets $79,115,578 $1,945,818 3.28% $68,453,525 $1,506,768 8.80%
LIABILITIES AND STOCKHOLDERS'
EQUITY
Interest bearing liabilities
Interest bearing deposits
NOW accounts $1,943,206 $14,046 2.89% $1,627,333 $9,819 2.41%
Savings and money market 13,494,553 126,974 3.76% 14,001,809 149,840 4.28%
Time deposits 45,985,555 696,749 6.06% 37,851,041 504,337 5.33%
Total interest bearing
deposits 61,423,315 837,770 5.46% 53,480,183 663,996 4.97%
Borrowings 5,181,499 67,713 5.23% 4,846,154 65,447 5.40%
Total interest bearing
liabilities 66,604,814 905,483 5.44% 58,326,337 729,443 5.00%
Non interest bearing
liabilities
Demand deposits 2,367,897 2,812,200
Other liabilities 1,099,937 365,803
Total Liabilities 70,072,647 905,483 5.17% 61,504,340 729,443 4.74%
Stockholders' equity 9,042,931 6,949,185
Total liabilities and
stockholders' equity $79,115,578 $905,483 4.58% $68,453,525 $729,443 4.26%
Net interest spread 4.78% 4.21%
Net yield on earning assets 76,149,334 1,040,335 5.46% 65,402,906 777,325 4.75%
</TABLE>
PART I - FINANCIAL INFORMATION - ITEM 2. MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The following is management's discussion and analysis of the historical
financial condition and results of operations of Annapolis Bancshares, Inc.
("the Company") on a consolidated basis with its wholly owned subsidiary, Bank
of Annapolis, (the Bank") for the periods presented. The purpose of this
discussion is to focus on those trends and information about the Company which
are not otherwise apparent in the accompanying consolidated Financial Statements
presented in Part I, Item 1., above. Those statements should be read in
conjunction with this discussion and analysis. All adjustments for a fair
presentation are reflected in the Consolidated Financial Statements. All
adjustments are of normal recurring nature.
RECENT DEVELOPMENTS
On April 16, 1996, Annapolis Bancshares, Inc.(the "Company") entered into a
definitive merger agreement (the "Merger Agreement") with Sandy Spring Bancorp,
Inc. ("Sandy Spring"). Pursuant to the Merger Agreement each share of the
Company's common stock will be exchanged for .62585 shares of Sandy Spring
common stock, subject to certain adjustments based upon the market value of
Sandy Spring stock at the time of the closing. The consummation of the
transaction is subject to approval by the shareholders of the Company,
regulatory approvals, and various other conditions.
SUMMARY
The consolidated earnings of the Company are derived primarily from the
operations of its wholly-owned subsidiary, the Bank. The Company reported net
income for the three months ended March 31, 1996 of $360,520 a 72.4% increase
over the $209,075 net income for the three months ended March 31, 1995. Earnings
per share were $0.46 for the three month period ended March 31, 1996 and $0.30
for the three month period ended March 31, 1995. The increase in net income and
earnings per share is primarily due to a 33.8% increase in net interest income
to $1,040,335 as of March 31, 1996 compared to $777,325 as of March 31, 1995.
The provision for loan loss for the three month period ended March 31, 1996
decreased $16,857. The decrease was mainly due to an addition provision of
$33,827 relating to the disposition of commercial non real estate loans in the
period ended March 31, 1995.
<PAGE>
The Company's return on average assets for the periods ended March 31, 1996 and
March 31, 1995 was 1.82% and 1.23%, respectively. The Company's return on equity
for the periods ended March 31, 1996 and March 31, 1995 was 15.95% and 12.03%
respectively. The increase in the return on average assets is primarily due to
the growth of the Companys average interest bearing assets and liabilities
during the period. The increase in the return on equity is due to the increase
in the net interest spread and the additional new capital from the exercise of
common stock warrants.
FINANCIAL CONDITION
The Company, through its Bank subsidiary, functions as a financial intermediary,
and as such its financial condition can be examined in terms of developing
trends in its sources and uses of funds. These trends are the result of both
external factors, such as changing economic conditions, regulatory changes and
competition, and also internal factors such as management's evaluation as to the
best use of funds under these changing conditions.
The Company's primary source of funds is through the Bank's deposit accounts.
The Bank offers a full line of business and personal savings and checking
accounts, money market demand accounts, individual retirement accounts and
certificates of deposit. As shown on the Consolidated Balance Sheets, total
deposits increased $1.9 million or 2.9% to $65.9 million as of March 31,1996
from $64.0 million as of December 31, 1995. An additional source of funds is
through the Bank's borrowings. At March 31, 1995, the Bank has a total of $5.0
million of borrowings from the Federal Home Loan Bank of Atlanta.
The Company's primary uses of funds are for loans and investments. The Bank
offers a variety of credit products, including but not limited to commercial and
residential real estate loans, commercial term loans and lines of credit,
consumer loans (including home equity lines of credit), and letters of credit.
Net loans receivable increased $3.6 million or 5.3% for the three months ended
March 31, 1996, to $70.8 million from $67.2 million as of December 31, 1995.
Real estate loans, both commercial and residential, comprise the largest portion
of the Bank's loan portfolio, totalling $65.0 million or 90.3% of the Bank's
total loans at March 31, 1996. As of March 31, 1996, the Bank has $6.6 million
or 9.2% of its total loan portfolio, in commercial non mortgage loans and $1.0
million or .50% of its total loan portfolio, in consumer loans.
<PAGE>
The Bank established a Mortgage Loans available for sale portfolio. Loans
designated available for sale are primarily residential single family mortgage
loans with fixed rate characteristics. In addition, the Bank has established
relationships with other lenders in the secondary market to purchase the loans
originated for this portfolio. The Bank expects this activity to significantly
increase the non interest income. At March 31, 1996 the bank held $474,400 of
loans in the available for sale portfolio.
The Bank holds $2.0 million of fixed and variable rate investment securities.
The portfolio is comprised of a U.S. Treasury Note, Mortgage-Backed Security, a
tax exempt bond and stock with the Federal Reserve Bank and Federal Home Loan
Bank ("FHLB").
The bank sold $1.8 million of variable rate U.S. Government Agency securities
designated as investments available for sale. As a result of these sales, the
bank incurred a loss of $50,579 in the quarter ended March 31, 1996. The Bank
did not purchase investment securities for the held to maturity or available for
sale portfolio's in the quarter ended March 31, 1996. At March 31, 1996 the
market value of the investment portfolio totalled $2.0 million. All of the
Bank's investments are classified as held until maturity. The Bank's Cash and
Federal Funds Sold decreased to $4.5 million at March 31, 1996 from $6.1 million
at December 31, 1995. The primary objective of the investment portfolio is to
provide liquidity, while enhancing the net interest margin.
The Bank has two investments in real property at March 31, 1996. In 1993 the
Bank purchased a four story 36,000 sq. ft. office facility located at 2024 West
St., Annapolis, MD, and an adjacent property on 1 Hudson Street. The Company and
the Bank relocated into the new facility, which is now the Company's principal
office. This facility functions as the main office operations and administration
headquarters of the Bank, which includes a full service retail bank. The Bank
occupies portions of the first and second levels, as well as a portion of the
lower level.
The Bank has contracted to lease 14,280 sq. ft., which is the entire third and
fourth floors, as well as 2,200 sq ft. of the lower level, to one tenant. The
contract is a five year lease with an additional five year option. At March 31,
1996 the building and the property on 1 Hudson Street is fully leased to others.
The properties are included in Premises and Equipment on the March 31, 1996
Consolidated Balance Sheets for a total of $1.9 million net of accumulated
depreciation.
The second investment is real estate located in Annapolis, MD, which the Bank
purchased in 1989 for future expansion of the Bank's
<PAGE>
facilities. The site's cost of $464,976 is included in Other Assets on the March
31, 1996 Consolidated Balance Sheets.
The Bank is currently marketing the property for sale, having abandoned its
intended development of the property upon contracting to purchase the West
Street facility described above. At March 31, 1996, the property is under a
contract of sale which permits the contract purchaser to conduct a feasibility
study of the land and proceed with the option to purchase the property.
LIQUIDITY AND INTEREST RATE SENSITIVITY MANAGEMENT The primary functions of
asset / liability management are to assure adequate liquidity and carefully
manage interest rate risk. Liquidity management involves the ability to meet the
cash flow requirements of customers who may be either depositors wanting to
withdraw funds or borrowers needing assurance that sufficient funds will be
available to meet their credit needs. Interest rate sensitivity refers to the
change in earnings which results from changes in the level of interest rates. To
the extent that interest income and interest expense do not respond equally to
changes in interest rate levels, or that all rates do not change uniformly,
earnings will be affected.
Sources of liquidity for the Bank include cash, federal funds sold, loan and
investment repayments. Cash and federal funds sold totalled $4.5 million or 5.5%
of total assets as of March 31, 1996. Loan repayments totalled $8.2 million for
the three months ended March 31, 1996. Liquidity is also measured by the ability
to obtain deposits and borrowed monies at market rates.
Total deposits increased to $65.9 million at March 31, 1996 from $64.0 million
at December 31, 1995. Access to savings deposits may be restricted by excessive
interest rates paid by competitors, adverse publicity about the banking
industry, and similar matters. The Bank is a member of the Federal Home Loan
Bank System. As of March 31, 1996, the Bank had a Credit Availability of $8.0
million secured by a blanket floating lien on all of the Bank's amortizing loans
which are first liens on 1-4 family residential properties, and a credit
availability of $1,985,000, secured by certain commercial real estate loans. The
ability to draw on these funds is subject to the availability of sufficient
eligible collateral. As of March 31, 1996 the Bank has approximately $15.6
million of 1-4 family residential loans secured by first liens. The Bank
currently has outstanding $5.0 million of advances from the Federal Home Loan
Bank of Atlanta. Further advances may require additional purchases of FHLB
stock.
<PAGE>
In addition, the Bank has available a $1,000,000 unsecured line of credit and a
$5.0 million Reverse Repurchase Line of Credit with correspondent bank secured
by a portion of the Bank's investment portfolio. The establishment of these
credit facilities allows the Bank greater flexibility in its financing
activities. In addition, the Bank has the ability to increase it's liquidity by
borrowing money through the Federal Reserve discount window, by selling loans,
and/or by curtailing its loan origination volume.
The Bank's objective of asset/liability management is to enhance long term
profitability and reduce exposure to interest rate risks through its management
of interest rate sensitive assets and liabilities. An asset or liability is
interest rate sensitive within a specific time period if it will mature or
reprice within that time period. Since most of the Bank's deposit liabilities
are interest rate sensitive during any upcoming annual period, the Bank seeks to
have the majority of its portfolio loan products at adjustable rates, thereby
decreasing the possible adverse effect of interest rate swings. Adjustable rate
loans generally have interest rates that adjust periodically in accordance with
market interest rates, and are intended to provide a positive margin over the
cost of interest bearing liabilities.
CAPITAL RESOURCES AND CAPITAL ADEQUACY At March 31, 1996 the Company's total
stockholders equity was $9.2 million representing 11.36% of total assets. At
March 31, 1996 the Company has 785,375 shares of Common Stock outstanding. The
Company also has outstanding additional warrants to purchase up to 12,000 shares
of Common Stock.
The Company has an Incentive Stock Option Plan (the "Option Plan"). The Option
Plan authorizes the grant of nonqualified and incentive stock options for 30,000
shares of Common Stock, to such officers and certain other employees of the
Company and/or the Bank as the Company's board of directors may determine. In
the quarter ended March 31, 1996, 1,200 employee stock options were exercised at
$8.75 per share, resulting in additional capital of $13,500. At March 31, 1996
19,800 options have been granted and 8,400 options have been exercised.
The Company declared its fourteenth consecutive quarterly cash dividend to
stockholders of record on March 29, 1996 paid on April 12, 1996 in the amount of
$0.0625 per share for a total of $49,085.
<PAGE>
The risk based capital ratios at March 31, 1996 were 13.40% for Tier I and
14.45% for Tier I & II, which exceed the regulatory minimums of 4% and 8%,
respectively. The leverage ratio at March 31, 1996 was 11.64% compared to the 3%
regulatory minimum.
RESULTS OF OPERATIONS
INTEREST INCOME. Interest income totalled $1.9 million for the three month
period ended March 31, 1996 an increase of $439,050 or 29.1% from interest
income of $1.5 million for the three month period ended March 31, 1995. The
increase is attributable to the increase in average interest earning assets of
$10.1 million or 16.4% to $76.1 million at March 31, 1996 from $65.4 million at
March 31, 1995 and an increase in the yield on interest earning assets to 10.22%
at March 31, 1996 from 9.22% in 1995. Average loans receivable increased $13.7
million or 24.6% to $69.4 million at March 31, 1996 from $55.7 million at March
31, 1995. The yield on average loans receivable increased to 10.70% for the
period ended March 31, 1996 compared to 9.84% for the period ended March 31,
1995.
Investments decreased $2.6 million or 48.0% to $2.9 million at March 31, 1996
from $5.5 million at March 31,1995. The decrease was primarily due to the sale
of $2.5 million of investment securities available for sale, amortization and
maturity of investment securities held to maturity.
INTEREST EXPENSE. Interest expense totalled $905,483 for the three month period
ended March 31, 1996 an increase of $176,040 or 24.1% from interest expense of
$729,443 for the period ended March 31, 1995. The increase was attributable to
an increase in average interest bearing liabilities of $8.3 million or 14.2% to
$66.6 million from $ 58.3 million at March 31, 1995, and an increase in the cost
on interest bearing liabilities to 5.44% at March 31, 1996 from 5.00% in 1995.
The increase in interest expense on deposits is primarily attributable to the
increase in time deposit accounts. The increase in total interest expense is
also due to additional interest expense on borrowings. Average borrowings
increased $335,345 or 6.92% to $5.2 million at March 31, 1996 from $4.8 million
for the period ended March 31, 1995.
NET INTEREST INCOME Net interest income is the difference between interest
income and interest expense. Net interest income totalled $1.0 million for the
three months ended March 31, 1996 an increase of $263,010 or 33.8% from net
interest income of $777,325 for the period ended March 31, 1995. The increase in
net interest income is primarily due to an increase in the volume of interest
earning assets and liabilities during the period and an increase in the net
interest spread to 4.78% at March 31, 1996 from 4.21% at March 31, 1995.
PROVISION FOR LOAN LOSSES In recognition of the inherent risks which the Bank
assumes in connection with the business of extending credit, the Bank maintains
an allowance for loan losses. The loan loss allowance is maintained through a
periodic provision for loan losses, based on Management's evaluation of the
collectibility of loans, prior loan loss experience, and other factors such as
changes in the nature and volume of the loan portfolio, overall portfolio
quality, review of specific problem loans, and current economic conditions that
may affect a borrower's ability to repay. Management's policy is to maintain the
allowance at a level considered adequate based on the above factors.
Consequently, the loan loss provision is general, rather than specific, in that
it does not relate to any specific anticipated losses on loans in the loan
portfolio. Although management believes that the current allowance is adequate
to absorb possible losses on existing loans that may become uncollectible,
actual loan losses are dependent on future events and, as such, future additions
to the provision may be necessary.
The allowance for loan losses is based upon estimates, and ultimate losses may
vary from the current estimates. Estimates are reviewed monthly and, as
adjustments become necessary, they will be reported in earnings in the period in
which they become known. The allowance for loan losses is increased by
provisions charged to operating expense and reduced by net charge-offs. The
allowance for loan losses was $719,993 or 1.0% of net loans receivable at March
31, 1996 compared to $686,636 or 1.0% of net loans receivable at December 31,
1995.
The provision for loan losses decreased $16,857 for the three month period ended
March 31, 1996 to $33,357 from $ 50,214 for the period ended March 31, 1995. The
decrease is primarily a result the disposition of certain commercial non real
estate loans in the period ended March 31, 1995. As of March 31,, 1996 the Bank
had no non-accruing loans.
NON INTEREST INCOME
Gain(Loss) on Sale of Loans increased $56,133 for the period ended March 31,
1996 from the period ended March 31, 1995. The increase was primarily due to the
sale of a mortgage loans originated for sale in the secondary market.
The loss on investment securities was $50,579 for the period ended March 31,
1996 due to the sale of certain U.S. Government Agency securities held in the
investments available for sale portfolio. Proceed from the sale of these
investments totalled $1,804,812.
<PAGE>
NON INTEREST EXPENSE Compensation and related expenses totalled $323,010 and
$228,242 for the three month periods ended March 31, 1996 and 1995,
respectively. The increase is attributable to expansion of the Bank's staff as
operations continued to expand throughout the periods presented. Compensation
and related expenses will continue to increase due to further expansion of
operations, competitive salary pressures, and rising health care and other
benefit costs. In accordance with Statement of Financial Accounting Standards
No. 91, certain direct salary costs of originating loans are netted against
salaries expenses in the period during which the loan is made, then amortized to
expense over the life of the loan.
Accounting & Legal expenses totalled $9,115 and $23,534 for the three month
period ended March 31, 1996 and 1995 respectively. The decrease of $14,419 was
due primarily to expenses incurred in becoming a member of The Nasdaq Stock
Market, Inc., and legal expense incurred with the disposition of certain
commercial non real estate loans in the quarter ended March 31, 1995.
Insurance Expense totalled $6,974 and $39,513 for the three month period ended
March 31, 1996 and 1995 respectively. In 1995 the BIF enacted a reduction in the
annual insurance assessment that commercial banks must pay on federally insured
bank deposits. The reduction in the premium schedule from 23 to 4 basis points
was later reduced to zero subject to a statutory required annual payment of
$2,000. The FDIC is authorized to raise deposit insurance premiums as necessary
to keep the BIF at required levels, so there is no assurance that existing rates
will not be changed. The Bank's insurance premium was reduced to zero.
INCOME TAXES The Company and the Bank file consolidated Federal Income Tax
returns and separate Maryland Income and Franchise Tax returns. The provision
for income taxes of the Company and the Bank, on a consolidated basis, was
$226,907 and $131,500 for the three months ended March 31, 1996 and 1995.
<PAGE>
IMPACT OF INFLATION The Financial Statements have been prepared in accordance
with Generally Accepted Accounting Principles (GAAP), which require the
measurement of financial position and operating results in terms of historical
dollars without considering the changes in the relative purchasing power of
money over time due to inflation. The impact of inflation is reflected in the
increased cost of the Bank's operations. Unlike most industrial companies,
nearly all the assets and liabilities of the Bank are monetary in nature. As a
result, interest rates have a greater impact on the Bank's performance than do
the effects of general levels of inflation. Interest rates do not necessarily
move in the same direction or to the same extent as the price of goods.
<PAGE>
ITEM NO. 11 - COMPUTATION OF EARNINGS PER SHARE:
Three Months Ended
March 31,
1996 1995
Average Shares Outstanding 784,241 703,232
Net Income 360,520 209,075
Earnings per Share $0.46 $0.30
Common Stock Warrants Outstanding 12,000
Stock Options Outstanding 11,400
<PAGE>
PART II OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not involved in any legal proceedings of a material
nature at this time other than those occurring in
the ordinary course of business which in the aggregate involves amounts
which are believed by management to be immaterial to the financial
condition of the company.
Item 2. Changes in Securities.
None
Item 3. Defaults upon Senior Securities.
None
Item 4. Submission of Matters to a Vote of Security Holders.
None
Item 5. Other Information.
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits required by Item 601 of Regulation S-K filed
herewith:
Exhibit 11 - Computation of Earnings per Share
(b) Reports on Form 8-K.
None
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Annapolis Bancshares, Inc.
(Registrant)
May 14, 1996 By: /s/ JOHN W. MARHEFKA, JR.
John W. Marhefka, Jr.
President and
Chief Executive Officer
/s/ RUSSELL J. GRIMES JR.
Russell J. Grimes Jr.
Chief Financial Officer
and Treasurer
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1
<CURRENCY> DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<CASH> 80,538
<INT-BEARING-DEPOSITS> 30,117
<FED-FUNDS-SOLD> 4,344,896
<TRADING-ASSETS> 0
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<INVESTMENTS-CARRYING> 1,957,565
<INVESTMENTS-MARKET> 1,939,128
<LOANS> 71,279,336
<ALLOWANCE> 719,993
<TOTAL-ASSETS> 81,035,813
<DEPOSITS> 65,856,709
<SHORT-TERM> 5,000,000
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<COMMON> 785,375
0
0
<OTHER-SE> 8,420,643
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<INTEREST-TOTAL> 1,945,818
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<INTEREST-EXPENSE> 905,483
<INTEREST-INCOME-NET> 1,040,335
<LOAN-LOSSES> 33,357
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 419,551
<INCOME-PRETAX> 587,427
<INCOME-PRE-EXTRAORDINARY> 360,520
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 360,520
<EPS-PRIMARY> 0.46
<EPS-DILUTED> 0.46
<YIELD-ACTUAL> 10.22
<LOANS-NON> 0
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