<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: SEPTEMBER 30, 1999
Commission file number 0-17539
MADISON BANCSHARES GROUP, LTD.
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(Exact Name of Small Business Issue as Specified In Its Charter)
PENNSYLVANIA 23-2512079
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
1767 SENTRY PARKWAY WEST, BLUE BELL, PA 19422
(Address of principal executive offices) (Zip Code)
(215) 641-1111
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(Registrant's telephone number, including area code)
N/A
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(Former name, former address and former fiscal year,
if changed since last report)
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 Exchange Act of
1934 during the past 12 months (or for such shorter periods 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:
Indicate the number of shares outstanding of each of the Issuer's classes
of common stock, as of the latest practicable date.
1,724,317 shares of Issuer's Common Stock, par value $1 per share, issued
and outstanding as of November 1, 1999.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
PART I
ITEM 1 - FINANCIAL STATEMENTS
SEE ANNEX A 17
PART II
OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS 14
ITEM 2 CHANGES IN SECURITIES 14
ITEM 3 DEFAULTS UPON SAVING SECURITIES 14
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 14
ITEM 5 OTHER INFORMATION 14
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K 15
SIGNATURES 16
</TABLE>
2
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This report contains "forward-looking" statements. Madison
Bancshares Group, Ltd. is including this statement for the express
purpose of availing itself of the protections of the safe harbor
provided by the Private Securities Litigation Reform Act of 1995
with respect to all such forward-looking statements. Examples of
forward-looking statements include, but are not limited to (a)
projections of changes in capital-to-assets ratio, (b) statements
of plans and objectives of the Company or its management or Board
of Directors, (c) statements of future economic performance and
(d) statements of assumptions underlying other statements and
statements about the Company or its business. In order to comply
with the terms of the safe harbor, the Company notes that a
variety of factors could cause the Company's actual results and
experience to differ materially from the anticipated results or
other expectations expressed in the Company's forward looking
statements. The risks and uncertainties that may affect the
operations, performance, development and results of the Company's
business include: (i) the ability of the Company to implement its
growth strategy and manage growth; (ii) the adequacy of allowances
for loan losses and possible continued growth in delinquency
ratios; (iii) the effect of the Company's comparatively high
operating expenses and high efficiency ratios; (iv) credit risks
related to operating activities; (v) possible adverse effect of
failure to resolve "millennium bug" or "year 2000" issues; (vi)
reliance on existing management personnel; and (vii) risks
relating to federal and state government regulation.
Presented herein are the results of operations of Madison
Bancshares Group, Ltd. (the "Company") and its wholly owned
subsidiary, The Madison Bank (the "Bank"), for the quarters ended
September 30, 1999 and 1998. The Bank commenced operations in
August, 1989.
ANALYSIS OF FINANCIAL CONDITION
As of September 30, 1999, the Company held deposits aggregating
$136,342,921, representing an increase of approximately 3% from
deposits of $132,594,518 held at December 31, 1998. Of the
deposits held at September 30, 1999, $20,271,993, or approximately
15%, were non-interest-bearing deposits. At September 30, 1999
total deposit accounts numbered 11,041 and outstanding loans
receivable in connection with loans made to 1,718 loan accounts
totaled approximately $124,409,594 (excluding loan loss reserve
and deferred loan fees). The following tables and graphs set forth
a comparative breakdown of the Company's deposits and loans
outstanding as of September 30, 1999 and December 31, 1998,
respectively.
3
<PAGE>
DEPOSIT LIABILITIES
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998
% of % of
Type of Account Balance Portfolio Balance Portfolio
--------------- -------------- --------- ------------- ---------
<S> <C> <C> <C> <C>
Non-Interest bearing (1) $ 20,271,933 15% $ 23,423,200 18%
Interest bearing (2) 13,201,965 10 11,785,117 9
Money Market (3) 18,047,323 13 17,109,125 13
Savings (4) 8,314,183 6 11,089,034 8
CD's Under 100M (5) 44,779,343 33 38,136,009 29
CD's Over 100M (6) 31,728,174 23 31,052,033 23
------------- ---- -------------- ----
Totals $136,342,921 100% $132,594,518 100%
============= ==== ============== ====
</TABLE>
[Graph] [Graph]
4
<PAGE>
LOANS OUTSTANDING
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998
% of % of
Type of Account Balance Portfolio Balance Portfolio
--------------- -------------- --------- ------------- ---------
<S> <C> <C> <C> <C>
Real Estate Loans, Mortgages(1) $ 26,667,858 21% $ 33,743,039 27%
Commercial Loans (2) 84,704,639 68 72,425,657 57
Consumer Loans (3) 9,639,228 8 9,235,390 7
Residential Loans Held for
Sale (4) 3,397,869 3 11,593,638 9
------------ ---- ------------ ----
Totals $124,409,594 100% $126,997,724 100%
============ ==== ============ ====
</TABLE>
[Graph] [Graph]
RESULTS OF OPERATIONS
NET INCOME
For the nine months ended September 30, 1999, the Company had net
income of $643,929, or $.35 diluted per share, as compared to net
income of $336,885 or $.19 diluted per share during the nine
months ended September 30, 1998. For the quarter ended September
30, 1999, the Company had a net income of $280,221 or $.16 diluted
per share as compared to $161,166, or $.09 diluted per share for
the quarter ended September 30, 1998. The increase in net income
from the quarter and nine months ended September 30, 1999 was
primarily attributable to profits relating to the operations of
the Bank's Mortgage Department and increased asset growth.
5
<PAGE>
NET INTEREST INCOME
Net interest income, the difference between the interest earned on
loans and other investments and the interest paid on deposits and
other borrowings, is the primary source of the Bank's and the
Company's earnings.
The graph below sets forth the Bank's net interest income growth
as compared to non-interest expense for the period from September
30, 1998, through September 30, 1999:
[Graphic Omitted]
The Company's net interest income, after provision for loan losses
increased 28% to $5,290,129 for the nine months ended September
30, 1999 as compared to $4,127,131 for the months ended September
30, 1998. Interest income increased 18% to $9,573,682 for the nine
months ended September 30, 1999, as compared to $8,094,452 for the
nine months ended September 30, 1998. For the quarter ended
September 30, 1999 the Company's interest income increased 16% to
$3,312,414 from $2,864,574 for the quarter ended September 30,
1998. Interest expense on deposits and borrowed funds increased
from $3,647,321 for the nine months ended September 30, 1998, to
$3,923,553 for the nine months ended September 30, 1999, an 8%
increase.
Interest income on investment securities relates to interest on
U.S. Government Obligations and Federal Agency Obligations.
Interest income on U.S. Government Obligations for the nine months
ended September 30, 1999 was $217,683 as compared to $115,728 for
the nine months ended September 30, 1998. For the quarter ended
September 30, 1999, interest income on U.S. Government Obligations
was $140,180 as compared to $30,632 at September 30, 1998. The
increase for the quarter and nine months resulted in more funds
being invested in securities due to increased liquidity from
deposit growth.
6
<PAGE>
Interest income on other securities is comprised primarily of
interest income on Municipal Bonds, Debt Securities, Federal Home
Loan Bank stock dividends and Federal Reserve Bank stock
dividends. Interest income on other securities for the nine months
ended September 30, 1999, was $173,388 as compared to $69,299 for
the nine months ended September 30, 1998. For the quarters ended
September 30, 1999 and 1998 interest income was $70,739 and
$23,446, respectively. The increase in interest income on other
securities is due to the Bank investing in more Federal Reserve
Stock and a $2,000,000 investment in other debt securities.
Interest income on temporary investments represents federal funds
sold. For the nine months and quarter ended September 30, 1999,
interest income on federal funds sold was $329,024 and $90,453,
respectively, as compared to $303,593 and $74,571, respectively,
for the nine months and quarter ended September 30, 1998. As a
result of deposit growth, the Bank is able to increase its
interest income on federal funds sold by deploying these
additional deposits in overnight investments.
Total interest and fees on loans for the nine months ended
September 30, 1999 was $8,853,587 as compared to $7,605,832 for
the nine months ended September 30, 1998. For the quarter ended
September 30, 1999 interest and fees on loans was $3,011,042 as
compared to $2,735,925 for the quarter ended September 30, 1998.
The Bank experienced approximately 12% loan growth from September
30, 1998 to September 30, 1999 while the yield on the portfolio
remained constant during this period.
The increase in interest income was due primarily to growth in
loans. The increase in interest expense was due to growth in
deposits, as the graph below depicts. Interest expense for the
nine months ended September 30, 1999 represented 41% of gross
interest income or $3,923,553, as compared to $3,647,321 or 45% of
gross interest income for the nine months ended September 30,
1998. For the quarter ended September 30, 1999, interest expense
was $1,334,117 as compared to $1,242,921 for the quarter ended
September 30, 1998.
7
<PAGE>
[Plot Points from Graph]
<TABLE>
<CAPTION>
98 98 98 98 99 99 99 99
Sep Oct Nov Dec Jan Feb Mar Apr
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Loans 117,594,647 117,391,043 122,294,245 126,997,720 126,148,426 124,208,238 125,441,785 123,792,555
Deposits 117,931,281 122,480,150 126,376,925 132,594,518 127,384,569 129,412,970 135,296,098 138,027,635
</TABLE>
<TABLE>
<CAPTION>
99 99 99 98 99
May Jun Jul Aug Sep
<S> <C> <C> <C> <C> <C>
Loans 124,562,503 122,947,615 125,509,169 126,043,883 124,469,385
Deposits 136,696,050 140,557,680 133,919,076 134,604,771 136,342,921
</TABLE>
PROVISION FOR LOAN LOSSES
For the nine months and quarter ended September 30, 1999, the Bank
added to its provision for loan losses $360,000 and $95,000,
respectively. During the nine months and quarter ended September
30, 1998, the Bank added $320,000 and $90,000 to its provision for
loan losses, respectively.
As of December 31, 1998, the Bank had $1,111,817 in its allowance
for loan losses, representing .96% of outstanding loans
receivable. During the first nine months ended September 30, 1999
the Bank added $360,000 to the reserve. Loans charged off against
the reserve during third quarter of 1999 amounted to $199,410.
There were recoveries to previously charged off loans during the
nine months ended September 30, 1999 of $1,154. The allowance for
loan loss reserve was $1,273,561 at September 30, 1999,
representing 1.02% of outstanding loans receivable. Management
believes that the allowance for loan losses is reasonable and
adequate to cover any known losses or any losses presently
anticipated in the portfolio.
Other real estate owned at September 30, 1999 totaled $361,905.
One property is a commercial building in Upper Darby,
Pennsylvania. This property is currently listed for sale with a
realtor and was appraised for $300,000. Management continues to
monitor and evaluate the Bank's exposure on this property.
The second property is a single family dwelling located in
Albrightsville, Pennsylvania. The property is currently under
agreement of sale with settlement expected in the fourth quarter
of 1999.
8
<PAGE>
NON-INTEREST INCOME
Other income increased 204% to $2,504,531 for the nine months
ended September 30, 1999 as compared to $825,091 during the same
period in 1998. The increase was due to gains on sale of mortgage
loans through the Bank's Mortgage Department which was established
in June, 1998. For the quarter ended September 30, 1999, other
income increased 102% to $766,937 from $380,098 for the quarter
ended September 30, 1998, primarily due to gains on sale of
mortgage loans.
NON-INTEREST EXPENSE
During the nine months ended September 30, 1999, non-interest
expense increased 52% to $6,750,031 as compared to $4,441,791
during the same period in 1998. Of this amount, $3,901,660, or
approximately 58%, was attributable to salary and related employee
benefits as compared to $2,207,677 or approximately 50% during the
first nine months of 1998. For the quarter ended September 30,
1999, non-interest expense totaled $2,253,754 as compared to
$1,675,283 during the same quarter of 1998, an increase of 35%.
Salary and employee related benefits expense was $1,268,722 for
the quarter ended September 30, 1999 as compared to $858,061
during the same period in 1998, a 48% increase. The increase in
salary and related expenses was due to increased staffing for
branch expansion and primarily the establishment of the Bank's
Mortgage Department and payments of commissions from sale of
mortgage loans.
Combined occupancy and equipment expenses for the nine months
ended September 30, 1999 were $1,047,391 as compared to $837,365,
a 25% increase, during the same period in 1998. For the quarter
ended September 30, 1999, occupancy and equipment expenses were
$353,325 as compared to $303,800 for the quarter ended September
30, 1998. The increase was due to annual increases in rent
expenses, the lease of additional space at the Bank's main office
for the Mortgage Department and the addition of one new branch
since June 30, 1998.
For the nine months ended September 30, 1999, computer expense
totaled $252,568 as compared to $237,520 for the nine months ended
September 30, 1998. For the quarter ended September 30, 1999,
computer expense totaled $87,132 as compared to $80,240 for the
quarter ended September 30, 1998. This increase was due to
expenses incurred by the Mortgage Department and addition of one
new branch.
For the nine months ended September 30, 1999, legal expense
totaled $103,441 as compared to $72,997 for the nine months ended
September 30,
9
<PAGE>
1998, a 42% increase. For the quarter ended September 30, 1999
legal expenses totaled $34,566 as compared to $19,911 for the
quarter ended September 30, 1998. Legal expense increased due
to loan and collection expenses related to the non-accrual
loans and certain collection related expenses that the Company
incurred.
For the nine months ended September 30, 1999, business development
expenses increased 58% to $256,715 as compared to $162,025 for the
nine months ended September 30, 1998. For the quarter ended
September 30, 1999, business development expenses increased 21% to
$80,862 as compared to $66,811 for the quarter ended September 30,
1998. The increased expense was directly attributed to a higher
level of community involvement and sales promotions in connection
with branch expansion.
For the nine months ended September 30, 1999, other operating
expenses totaled $770,411, or approximately 11% of total other
expenses, as compared to $560,478, or 13%, during the same period
in 1998. For the quarter ended September 30, 1999, these expenses
totaled $291,027 as compared to $220,431 for the quarter ended
September 30, 1998. Other operating expenses were comprised
primarily of business promotional materials, telephone, fidelity
insurance premium, shares and loan taxes, ATM expenses, accounting
fees, loan expenses, and other nominal miscellaneous expenses. The
increase in other operating expenses are ATM expenses increasing
by approximately $11,000, telephone expense increases of
approximately $3,000, postage and freight expense increasing by
approximately $18,000, and loans expense decreasing by
approximately $2,000. Other expenses increased marginally to the
rate of growth and volume of the Bank.
Income tax expense for the nine months and quarter ended September
30, 1999 was $400,700 and $116,259 as compared to $173,546 and
$75,302 for the nine months and quarter ended September 30, 1998.
The tax provision increased due to the increased net income of the
Bank.
CAPITAL RESOURCES
The total number of shares of common stock outstanding on
September 30, 1999 was 1,724,317 as compared to 1,562,018 at
December 31, 1998. On September 15, 1999 156,767 shares of common
stock were issued pursuant to a 10% stock dividend declared on
August 17, 1999. During the second quarter of 1999, 5,651 shares
of common stock were issued in conjunction with the exercise of
warrants by one former Director. The book value per share of the
Company's common stock at December 31, 1998 was $5.48, as compared
to $5.84 per share at September 30, 1999, as adjusted for the
stock dividend.
During the nine month period of January 1, 1999 to September 30,
1999, the Company's total assets increased by approximately
$9,822,842 or approximately 7% to $157,748,705.
10
<PAGE>
The chart below depicts various capital ratios applicable to state
chartered Federal Reserve member banks and compares the Company's
actual ratios at September 30, 1999 and December 31, 1998,
respectively, each of which exceeded the levels required for a
bank and bank holding company to be classified as "Adequately
Capitalized".
The Company's actual ratios are as follows:
<TABLE>
<CAPTION>
Regulatory Actual Actual
Ratio Minimum 12/31/98 9/30/99
----- ---------- -------- -------
<S> <C> <C> <C>
Qualifying Total Capital to
Risk Weighted Assets 8.0% 10.72% 14.82%
Tier 1 Capital, net of intangibles
to Risk Weighted Assets 4.0% 9.71% 12.16%
Tier 1 Leverage Ratio of Capital to
Total Adjusted Average Assets 4.0% 8.26% 8.90%
</TABLE>
The Company's capital-to-assets ratio was 6.39% as of December 31,
1998 and remained constant at 6.39% as of September 30, 1999. The
capital-to-assets ratio for the nine months and quarter ended
September 30, 1999 was attributable to the growth in assets.
Management anticipates that its capital-to-assets ratio will
decline in future periods as the Company's core assets continue to
grow. The Company's average return on equity for the year ended
December 31, 1998, was 5.13%; and its return on average assets was
.34%. For the nine months ended September 30, 1999, the Company's
average return on equity was 8.81% and its return on average
assets was .58%. The increase in the Company's return on average
equity and average assets is directly attributable to the
increased net income of the Bank.
LIQUIDITY
The Bank's liquidity, represented by cash and cash equivalents, is
a product of its cash flows from operations. The Bank's primary
sources of funds are deposits, borrowings, amortization and
maturities of outstanding loans, sales of loans, maturities of
investment securities and other short-term investments and income
from operations. Changes in the cash flows of these instruments
are greatly influenced by economic conditions and competition. The
Bank attempts to balance supply and demand by managing the pricing
of its loan and deposit products consistent with the conservative
operating philosophy of its management and board of directors. Any
excess funds are invested in overnight and other short-term
interest-earning accounts. The Bank generates cash flow through
the retail deposit market, its traditional funding source, for use
in investing activities. In addition, the Bank may utilize
borrowings such as Federal Home Loan Bank advances for liquidity
or profit enhancement. At September 30, 1999, the Bank had
outstanding advances of $5,000,000.
11
<PAGE>
The primary use of funds is to meet ongoing loan and investment
commitments, to pay maturing certificates of deposits and savings
withdrawals and expenses related to general operations of the
Bank. At September 30, 1999, the total approved loan commitments
outstanding amounted to approximately $12 million. At the same
date, commitments under unused lines of credit and the unadvanced
portion of commercial credit lines amounted to approximately
$21,894,000. Certificates of deposit scheduled to mature in one
year or less at September 30, 1999 totaled $48,962,000. Investment
securities totaled $20,616,000 at September 30, 1999, of which
$1,001,000 are scheduled to mature or reprice in one year or less.
Management believes that a significant portion of maturing
deposits will remain with the Bank. The Bank anticipates that it
will continue to have sufficient cash flows to meet its current
and future commitments.
The Bank's Asset/Liability Management Committee, comprised of the
members of the Bank's Executive Committee and its Treasurer, are
responsible for managing the liquidity position and interest rate
sensitivity of the Bank. The Committee's function is to balance
the Bank's interest sensitive assets and liabilities, while
providing adequate liquidity for projected needs. The primary
objective of the Asset/Liability Committee is to optimize net
interest margin in an ever changing rate environment.
Due to the nature of the Company's business, some degree of
interest rate risk is inherent and appropriate. Management
attempts to manage the level of earnings exposure arising from
interest rate movements.
Management attempts to structure the Balance Sheet to provide for
repricing of assets and liabilities in approximately equal
amounts. In the opinion of the Company's management, the effect of
any future inflation, reflected in a higher costs of funds
environment, would be minimal since the Bank has the ability to
quickly increase yields on its interest earning assets (primarily
short term investments and commercial loans) through the matching
of funds.
At September 30, 1999, the risk management review included an
"earnings at risk" analysis as well as a "risk sensitivity"
analysis. Potential monthly net revenue change indicated that in a
static rate environment, increased earnings would be approximately
$4,700 annually. If rates fell 200 basis points, monthly revenues
a year from now would increase approximately ($13,200) and a rise
in rates by 200 basis points would represent a monthly decrease in
revenues a year from now of approximately ($9,100). Management
believes that any impact will not be significant.
YEAR 2000 MATTERS
The "Year 2000" issue is the result of computer programs written
using two digits rather than four to define the applicable year.
Any of the Company's
12
<PAGE>
computer programs that have time-sensitive software may
recognize a date using "00" as the year 1900 rather than the
year 2000.
The Company has undertaken a comprehensive upgrade of its computer
systems for Year 2000 compliance. This included a conversion of
the Company's computer system with a Year 2000 compliant core
processing system, during 1998, and the replacement of personal
computers with models which will role over (or will be manually
reset) to the Year 2000 date change. These upgrades were the main
result of the completion of the Company's awareness, assessment
and renovation phases of Year 2000 planning. Testing of mission
critical systems has been completed within the timeframes
established by federal regulators. Implementation of compliant
systems has taken place, based on the results of system
validation. The Company has also developed a business resumption
contingency plan to deal with unforeseen Year 2000 disruptions of
key business partners. Validation of this plan will take place
early in the fourth quarter of 1999.
The total costs of the Year 2000 issue has not been and is not
expected to be material to the Company's financial position or
results of operations in any given year. These costs 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. However, there can be no guarantee that these estimates
will be achieved and actual results could differ from those plans.
Based upon current information, the Company continues to believe
that its Year 2000 expenditures for 1999 will be approximately
$23,500.
The risks associated with the Year 2000 issue include system
failure or miscalculations causing disruptions of operations
including, among other things, an inability to process
transactions and engage in normal business activities. Although
the Company has actively worked towards full compliance, certain
contingency plans have been established to mitigate the impact
should the aforementioned risks be realized. The Company has
completed a business resumption contingency plan. This plan should
enable the Company to resume operations and continue to provide
services in the event of an unforeseen disruption due to the
century date change, should systems or processes outside our
company fail.
RECENT DEVELOPMENTS
On October 5, 1999, the Bank submitted to the Department of
Banking of the Commonwealth of Pennsylvania and to the Federal
Reserve Bank of Philadelphia, Pennsylvania, an application to
establish a branch office located at 100 Gibraltar Road,
Pennsylvania Business Campus, Horsham, PA 19044. The branch is
scheduled to open on or about December 1, 1999, provided approvals
are received.
13
<PAGE>
PART II - OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
None.
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
NOTICE RELATING TO SHAREHOLDER PROPOSALS UNDER RULE 14a-4
A shareholder of the Company may wish to have a proposal presented
at the 2000 Annual Meeting of Shareholders, but not have such
proposal included in the Company's proxy statement and form of
proxy relating to that meeting. If notice of any such proposal is
not received by the Company at the address appearing on the first
page of this Report by March 5, 2000 then such proposal shall be
deemed "untimely" for purposes of Rule 14a-4(c) promulgated under
the Exchange Act and, therefore, the Company will have the right
to exercise discretionary voting authority with respect to such
proposal.
14
<PAGE>
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits Filed
<TABLE>
<CAPTION>
Page Number in
Exhibit Number Sequential Numbering System
- -------------- ---------------------------
<S> <C>
3 Amended and Restated Articles *
of Incorporation, as amended, and
Amended and Restated Bylaws of
the Issuer
10 (1) Amended and Restated Declaration **
of Trust of Madison Capital Trust I
dated July 13, 1998.
(2) Indenture between Madison Bancshares **
Group, Ltd. and Christiana Bank and
Trust Company), as Trustee, dated
July 13, 1998.
(3) Capital Securities Guarantee between Madison **
Bancshares Group, Ltd. and Christiana Bank
and Trust Company), as Trustee, dated
July 13, 1998.
27 Financial Data Schedule
(b) Reports on Form 8-K
On August 17, 1999, the Company filed a Current Report on
Form 8-K reporting the declaration of a 10% stock dividend
by the Company's Board of Directors, payable September 16,
1999 to shareholders of record as of September 1, 1999.
</TABLE>
- --------------------
* Incorporated by reference from the Issuer's Registration Statement on
Form S-1 No. 33-27146
** Incorporated by reference from the Issuer's Quarterly Report on
Form 10-QSB for the quarter ended June 30, 1998.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Issuer
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
Madison Bancshares Group, Ltd.
------------------------------
Vito A. DeLisi
Executive Vice President
------------------------------
E. Cheryl Hinkle
Senior Vice President
Date Executed: November , 1999
16
<PAGE>
ANNEX A
17
<PAGE>
MADISON BANCSHARES GROUP, LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998
------------------ -----------------
<S> <C> <C>
ASSETS
CASH AND CASH EQUIVALENTS:
Cash and amounts due from banks $ 6,195,796 $ 7,793,484
Federal funds sold 4,500,000 7,500,000
------------- -------------
Total cash and cash equivalents 10,695,796 15,293,484
INVESTMENT SECURITIES:
Held to maturity (fair value- 1999, $2,570,301;
1998, $1,613,597) 2,570,535 1,602,493
Available for sale (amortized cost; 1999, $17,056,151;
1998, $1,000,046) 16,996,360 1,010,000
Federal Home Loan Bank Stock 726,000 527,300
Federal Reserve Bank Stock 323,400 176,400
LOANS (Net of allowance for loan losses - 1999, $1,273,561;
1998, $1,111,817) 119,383,055 113,819,315
MORTGAGE LOANS HELD FOR SALE 3,397,869 11,593,638
REAL ESTATE OWNED 361,905 734,089
FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS, NET 1,543,080 1,583,473
ACCRUED INTEREST RECEIVABLE 1,095,469 1,076,682
OTHER ASSETS 655,236 508,989
------------- -------------
TOTAL $ 157,748,705 $ 147,925,863
------------- -------------
------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
DEPOSITS:
Noninterest-bearing demand deposits $ 20,271,933 23,423,200
Interest-bearing demand deposits 13,201,965 11,785,117
Savings deposits 8,314,183 11,089,034
Money market deposits 18,047,323 17,109,125
Time deposits 76,507,517 69,188,042
------------- -------------
Total deposits 136,342,921 132,594,518
Borrowed funds 5,000,000
GUARANTEED PREFERRED BENEFICIAL INTEREST IN
SUBORDINATED DEBT 5,000,000 5,000,000
ACCRUED INTEREST PAYABLE 1,077,400 804,222
ACCRUED EXPENSES AND OTHER LIABILITIES 255,966 76,731
------------- -------------
Total Liabilities 147,676,287 138,475,471
------------- -------------
COMMITMENTS
SHAREHOLDERS' EQUITY:
Preferred stock, $5 par value - authorized 5,000,000 shares; issued and
outstanding, 0 shares
Common stock, $1 par value - authorized 20,000,000 shares;
issued and outstanding, 1,724,317 in 1999 and 1,562,018 in 1998 1,724,317 1,562,018
Capital surplus 8,678,448 7,563,433
Accumulated earnings (290,885) 318,371
Accumulated other comprehensive income (loss) (39,462) 6,570
------------- -------------
Total shareholders' equity 10,072,418 9,450,392
------------- -------------
TOTAL $ 157,748,705 $ 147,925,863
------------- -------------
------------- -------------
</TABLE>
See notes to consolidated financial statements
18
<PAGE>
MADISON BANCSHARES GROUP, LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE PERIODS ENDED SEPTEMBER 30, 1999 AND 1998
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
--------------------------------- ------------------------------
1999 1998 1999 1998
--------------- -------------- ------------ ------------
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $ 3,011,042 $ 2,735,925 $ 8,853,587 $ 7,605,832
Interest and dividends on investment securities:
US Government obligations 140,180 30,632 217,683 115,728
Other securities 70,739 23,446 173,388 69,299
Interest on temporary investments 90,453 74,571 329,024 303,593
--------------- -------------- ------------ ------------
3,312,414 2,864,574 9,573,682 8,094,452
--------------- -------------- ------------ ------------
Interest expense:
Interest on:
Demand deposits 63,129 45,468 186,101 138,511
Savings and money market deposits 193,049 155,672 563,237 472,066
Time deposits 932,783 947,676 2,804,059 2,940,951
Federal funds purchased and other borrowings 32,656 355 32,656 2,043
Preferred trust securities 112,500 93,750 337,500 93,750
--------------- -------------- ------------ ------------
1,334,117 1,242,921 3,923,553 3,647,321
--------------- -------------- ------------ ------------
Net interest income before provision for loan losses 1,978,297 1,621,653 5,650,129 4,447,131
Provision for loan losses 95,000 90,000 360,000 320,000
--------------- -------------- ------------ ------------
Net interest income after provision for loan losses 1,883,297 1,531,653 5,290,129 4,127,131
--------------- -------------- ------------ ------------
Other noninterest income:
Gain on sale of mortgage loans 605,680 160,759 1,966,390 177,539
Service charges on deposit accounts 157,923 188,057 475,010 551,328
Other 3,334 31,282 63,131 96,224
--------------- -------------- ------------ ------------
Total noninterest income 766,937 380,098 2,504,531 825,091
--------------- -------------- ------------ ------------
Other noninterest expenses:
Salary and employee benefits 1,268,722 858,061 3,901,660 2,207,677
Occupancy 232,643 213,489 718,043 614,737
Equipment 120,682 90,311 329,348 222,628
Computer processing 87,132 80,240 252,568 237,520
Deposit insurance 8,324 8,839 35,098 15,633
Legal 34,566 19,911 103,441 72,997
Professional fees 13,850 21,415 39,325 63,054
Business development 80,862 66,811 256,715 162,025
Office and stationary supplies 52,210 46,836 152,217 126,332
Advertising 19,206 11,088 50,165 35,484
Director fees 31,900 37,851 103,150 123,226
Amortization of debt issuance costs 12,630 37,890
Other operating 291,027 220,431 770,411 560,478
--------------- -------------- ------------ ------------
Total noninterest expenses 2,253,754 1,675,283 6,750,031 4,441,791
--------------- -------------- ------------ ------------
Income before income taxes 396,480 236,468 1,044,629 510,431
Provision for income taxes 116,259 75,302 400,700 173,546
--------------- -------------- ------------ ------------
Net income (loss) $ 280,221 $ 161,166 $ 643,929 $ 336,885
=============== ============== ============ ============
Net income per common share - basic $ 0.16 $ 0.09 $ 0.37 $ 0.20
=============== ============== ============ ============
Net income per common share - diluted $ 0.16 $ 0.09 $ 0.35 $ 0.19
=============== ============== ============ ============
Weighted average number of shares - basic 1,724,436 1,712,472 1,722,387 1,687,795
=============== ============== ============ ============
Weighted average number of shares - diluted 1,807,287 1,798,731 1,816,720 1,790,305
=============== ============== ============ ============
</TABLE>
See notes to consolidated financial statements
19
<PAGE>
MADISON BANCSHARES GROUP, LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
------------------ -------------
<S> <C> <C>
Operating activities:
Net income $ 643,929 $ 336,885
Adjustments for non-cash items included in net income:
Depreciation and amortization 234,810 168,588
Provision for loan losses 360,000 320,000
Net amortization of bond premium/discount 9,263 (1,402)
Amortization of deferred fees & costs, net (117,845) 97,970
Gain on sale of mortgages held for sale (1,966,390) (177,539)
Changes in assets and liabilities which provided
(used) cash:
Interest receivable (18,787) (288,358)
Mortgage loans held for resale 10,162,159 (6,481,796)
Other assets (146,247) (431,458)
Accrued expenses and other liabilities 179,235 (3,355)
Accrued interest payable 273,178 127,667
------------------ -------------
Net cash provided by (used in) operating activities 9,613,305 (6,332,798)
------------------ -------------
Investing activities:
Purchase of investment securities available for sale (16,039,698) (47,500)
Purchase of investment securities held to maturity (2,200,000)
Purchase of Federal Home Loan Bank stock (198,700)
Purchase of Federal Reserve Bank stock (147,000)
Proceeds from maturity of investment securities
available for sale 730,000 1,000,000
Proceeds from maturity of investments available for sale 500,000
Net change in loans to customers (5,804,895) (7,340,638)
Purchase of furniture, equipment and leasehold improvements (194,417) (828,241)
Net change in real estate owned 372,184 (256,741)
Proceeds from maturity of investments held to maturity 500,000
------------------ -------------
Net cash used in investing activities (22,982,526) (6,973,120)
------------------ -------------
Financing activities:
Increase in demand, savings and time deposits 3,748,403 3,063,945
Increase (decrease) in borrowed funds 5,000,000 (9,000,000)
Exercise of stock warrants 24,130 234,364
Issuance of trust preferred securities 5,000,000
------------------ -------------
Net cash provided by (used in) financing activities 8,772,533 (701,691)
------------------ -------------
Net decrease in cash and cash equivalents (4,597,688) (14,007,609)
Cash and cash equivalents, beginning of period 15,293,484 23,444,986
------------------ -------------
Cash and cash equivalents, end of period $ 10,695,796 $ 9,437,377
================== =============
Supplemental disclosures of cash flow information:
Interest paid $ 3,650,375 $ 3,519,654
================== =============
Income taxes paid $ 425,000 $ 227,000
================== =============
</TABLE>
See notes to consolidated financial statements
20
<PAGE>
MADISON BANCSHARES GROUP, LTD. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
1. Basis of presentation:
The accompanying unaudited consolidated financial statements were
prepared in accordance with instructions for quarterly reports on Form
10-QSB and, therefore, do not include information or footnotes
necessary for a complete presentation of financial condition, results
of operations, shareholders' equity and cash flows in conformity with
generally accepted accounting principles. However, the financial
statements reflect all adjustments which, in the opinion of management,
are necessary for a fair presentation of financial results and that all
adjustments are of a normal recurring nature. The results of operations
for the three and nine month period ended September 30, 1999 is not
necessarily indicative of the results which may be expected for the
entire fiscal year.
2. Principles of consolidation:
The consolidated financial statements include the accounts of Madison
Bancshares Group, Ltd. (the Company) and its wholly owned subsidiary,
The Madison Bank (the Bank). All material intercompany balances and
transactions have been eliminated.
3. Net income per share:
Basic net income per share is based upon the weighted average number of
common shares outstanding, while diluted net income per share is based
upon the weighted average number of common shares outstanding and
common share equivalents that would arise from the exercise of stock
options and stock warrants.
4. Stock dividend:
On May 19, 1998, the Board of Directors declared a stock dividend in
the amount of twenty percent (20%), payable in shares of the Company's
common stock. Such dividend was payable on or about June 17, 1998 to
holders of the Company's shares of common stock on June 3, 1998. No
fractional shares were issued in connection with such dividend. Per
share computations reflect the changes in the number of shares
resulting from these dividends.
On August 17, 1999, the Board of Directors declared a stock dividend in
the amount of ten percent (10%) payable in shares of the Company's
common stock. Such dividend was payable on or about September 16, 1999
to holders of the Company's common stock on September 1, 1999. No
fractional shares were issued in connection with such dividend. Per
share computations reflect the changes in the number of shares
resulting from these dividends.
21
<PAGE>
5. Comprehensive Income:
The Company adopted Statement of Financial Accounting Standards No.
130, Reporting Comprehensive Income, effective January 1, 1998. The
statement requires disclosure of amounts from transactions and other
events which are currently excluded from the statement of operations
and are recorded directly to shareholders' equity. Comprehensive income
for the three and nine month periods ended September 30, 1999 was
$266,928 and $597,897, respectively. Comprehensive income for the three
and nine month periods ended September 30, 1998 was $166,889 and
$343,532, respectively.
22
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<CIK> 0000846809
<NAME> MADISON BANCSHARES GROUP LTD.
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-31-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1
<CASH> 6,196
<INT-BEARING-DEPOSITS> 0
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<INVESTMENTS-CARRYING> 2,571
<INVESTMENTS-MARKET> 2,570
<LOANS> 124,054
<ALLOWANCE> 1,274
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0
0
<COMMON> 1,724
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<EXPENSE-OTHER> 6,750
<INCOME-PRETAX> 1,044
<INCOME-PRE-EXTRAORDINARY> 1,044
<EXTRAORDINARY> 0
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<YIELD-ACTUAL> 9.26
<LOANS-NON> 1,367
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</TABLE>
