<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: JUNE 30, 2000
Commission file number 0-17539
MADISON BANCSHARES GROUP, LTD.
-----------------------------------------------------------
(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
-----------------------------------
(Registrant's telephone number, including area code)
N/A
-------------------------------------------
(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.
1,931,320 shares of Issuer's Common Stock, par value $1 per share, issued
and outstanding as of August 4, 2000.
<PAGE>
PART 1
ITEM 1 - FINANCIAL STATEMENTS
ANNEX A
<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 June 30, 2000 and 1999. The Bank commenced operations in
August, 1989.
ANALYSIS OF FINANCIAL CONDITION
As of June 30, 2000, the Company held deposits aggregating $150,754,775,
representing an increase of approximately 16% from deposits of $130,338,463 held
at December 31, 1999. Of the deposits held at June 30, 2000, $25,430,707, or
approximately 17%, were non-interest-bearing deposits. At June 30, 2000 total
deposit accounts numbered 11,849 and outstanding loans receivable in connection
with loans made to 2,407 loan accounts totaled approximately $141,727,703
(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 June 30, 2000 and December 31, 1999, respectively.
<PAGE>
<TABLE>
<CAPTION>
DEPOSIT LIABILITIES
June 30, 2000 December 31, 1999
% of % of
TYPE OF ACCOUNT BALANCE PORTFOLIO BALANCE PORTFOLIO
--------------- ------- --------- ------- ---------
<S> <C> <C> <C> <C>
Non-Interest bearing (1) 25,430,707 17% 20,540,071 16%
Interest bearing (2) 14,154,959 9 12,704,649 10
Money Market (3) 15,437,953 10 15,205,159 12
Savings (4) 10,047,949 7 8,150,269 6
CD's Under 100M (5) 48,572,600 32 40,498,507 31
CD's Over 100M (6) 37,110,607 25 33,239,808 25
------------ ------------ ------------ ------------
Totals $150,754,775 100% $130,338,463 100%
============ ============ ============ ============
</TABLE>
<PAGE>
LOANS OUTSTANDING
<TABLE>
<CAPTION>
June 30, 2000 December 31, 1999
% of % of
TYPE OF ACCOUNT BALANCE PORTFOLIO BALANCE PORTFOLIO
--------------- ------- --------- ------- ---------
<S> <C> <C> <C> <C>
Real Estate Loans, Mortgages(1) $ 24,097,852 17% $ 24,652,775 19%
Commercial Loans (2) 94,946,384 67 89,988,247 69
Consumer Loans (3) 11,622,758 8 9,592,584 8
Residential Loans Held for
Sale (4) 11,060,709 8 5,418,972 4
------------ ------------ ------------ ------------
Totals $141,727,703 100% $129,652,578 100%
============ ============ ============ ============
</TABLE>
RESULTS OF OPERATIONS
For the six months ended June 30, 2000, the Company had net income of $150,841,
or $.08 per share, as compared to net income of $363,708 or $.20 per share
during the six months ended June 30, 1999. For the quarter ended June 30, 2000,
the Company had a net income of $121,725 or $.07 per share as compared to
$216,960, or $.12 per share for the quarter ended June 30, 1999. The decrease in
net income from the quarter and six months ended June 30, 2000 was primarily
attributable to branch openings in Horsham and Summit Square. The additional
staffing at the corporate office to manage the asset growth of the Bank also
impacted the operating expenses of the Bank.
ANALYSIS OF 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.
<PAGE>
The graph below sets forth the Bank's interest income and interest expense
growth for the period from June 30, 1999, through June 30, 2000:
[GRAPHIC]
In the printed document there is a line graph with the following plot
points depicted.
<TABLE>
<CAPTION>
1999 2000
------------------------------------------------------------ -------------------------
Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Int Inc. 464,190 689,903 679,692 684,434 710,555 687,962 761,202 690,176 683,187 738,253
Tot Non Int Exp 563,549 725,918 741,491 744,670 725,940 775,288 843,062 863,062 796,222 802,187
<CAPTION>
2000
-------------------------
Apr May Jun
<S> <C> <C> <C>
Net Int Inc. 681,036 760,940 784,353
Tot Non Int Exp 771,780 909,835 957,056
</TABLE>
The Company's net interest income, after provision for loan losses increased 19%
to $4,040,198 for the six months ended June 30, 2000 as compared to $3,406,832
for the six months ended June 30, 1999. The Company's net interest income, after
provision for loan losses, increased 21% to $2,076,418 for the quarter ended
June 30, 2000 as compared to $1,717,615 for the quarter ended June 30, 1999.
Interest income increased 18% to $7,359,027 for the six months ended June 30,
2000, as compared to $6,261,268 for the six months ended June 30, 1999. For the
quarter ended June 30, 2000 the Company's interest income increased 19% to
$3,795,753 from $3,180,462 for the quarter ended June 30, 1999. Interest expense
on deposits and borrowed funds increased from $2,589,436 for the six months
ended June 30, 1999, to $3,138,829 for the six months ended June 30, 2000, a 21%
increase. The increases in interest income and interest expense are due to the
loan and deposit growth of the Bank and the increased yields on both portfolios.
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 six months ended June 30, 2000 was $563,052 as compared to
$77,503 for the six months ended June 30, 1999. For the quarter ended June 30,
2000, interest income on U.S. Government Obligations was $281,536 as compared to
$54,616 at June 30, 1999. The increase for the quarter resulted from funds
invested in securities due to increased liquidity from deposit growth.
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 six months ended June 30, 2000, was $143,840 as compared to $102,649 for the
six months ended June 30, 1999. For the quarters ended June 30, 2000 and June
30, 1999 interest income was $72,256 and $81,339, respectively. The increase in
interest income on
<PAGE>
other securities for the six months ended is due to the Bank investing in
more Federal Reserve Stock and a $2,000,000 investment in other debt
securities. The decrease for the quarter ended is due to a decrease in FHLB
dividends for March and June of 2000.
Interest income on temporary investments represents federal funds sold. For the
six months and quarter ended June 30, 2000, interest income on federal funds
sold was $25,001 and $16,584 as compared to $238,571 and $132,286 for the six
months and quarter ended June 30, 1999. The decrease in interest on temporary
investments represents the deployment of the funds into longer term investments
of U.S. Government and Agency Securities.
Total interest and fees on loans as of June 30, 2000 was $6,627,134 as compared
to $5,842,545 for the six months ended June 30, 1999. For the quarter ended June
30, 2000 interest and fees on loans was $3,425,377 as compared to $2,912,221 for
the quarter ended June 30, 1999. The Bank experienced approximately 15% loan
growth from June 30, 1999 to June 30, 2000 and an increase of approximately .50%
yield on the portfolio during this same 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 six months ended June 30, 2000 represented 43%
of gross interest income or $3,138,829, as compared to $2,589,436 or 41% of
gross interest income for the six months ended June 30, 1999. For the quarter
ended June 30, 2000, interest expense was $1,639,335 as compared to $1,317,847
for the quarter ended June 30, 1999.
[GRAPHIC]
In the printed document there is a line graph with the following plot
points depicted.
<TABLE>
<CAPTION>
1999
--------------------------------------------------------------------------------------------------
Jun Jul Aug Sep Oct Nov Dec
<S> <C> <C> <C> <C> <C> <C> <C>
Loans 122,947,615 125,509,169 125,979,742 124,409,594 130,288,713 130,023,724 129,652,577
Deposits 140,582,994 133,919,076 134,604,771 136,346,333 142,626,817 138,462,568 130,423,177
<CAPTION>
2000
---------------------------------------------------------------------------------------
Jan Feb Mar Apr May Jun
<S> <C> <C> <C> <C> <C> <C>
Loans 128,067,795 128,654,920 130,872,850 134,684,442 135,276,524 141,727,704
Deposits 130,574,122 133,264,889 139,421,749 140,353,813 141,551,302 151,589,299
</TABLE>
<PAGE>
PROVISION FOR LOAN LOSSES
For the six months and quarter ended June 30, 2000, the Bank added to its
provision for loan losses $180,000 and $80,000, respectively. During the six
months and quarter ended June 30, 1999, the Bank added $265,000 and $145,000 to
its provision for loan losses, respectively.
As of December 31, 1999, the Bank had $1,262,256 in its allowance for loan
losses, representing .99% of outstanding loans receivable. During the first six
months ended June 30, 2000 the Bank added $180,000 to the reserve. Loans charged
off against the reserve during second quarter of 2000 amounted to $67,001. There
were recoveries to previously charged off loans during the six months ended June
30, 2000 of $13,830. The allowance for loan loss reserve was $1,389,085 at June
30, 2000, representing .99% of outstanding loans receivable. Management believes
that the allowance for loan losses is reasonable and adequate to cover any known
losses or any losses reasonably expected in the portfolio.
Other real estate owned at June 30, 2000 totaled $273,868. This consists of one
property in Drexel Hill, Pennsylvania. The property is currently listed for sale
with a realtor and management continues to monitor and evaluate the Bank's
exposure on this property. It is management's opinion that minimal losses, if
any, are expected.
NON-INTEREST INCOME
Other income decreased 25% to $1,299,813 for the six months ended June 30, 2000,
which was primarily comprised of gains on sales of mortgage loans in the
secondary market, as compared to $1,737,594 during the same period in 1999. For
the quarter ended June 30, 2000, other income decreased 18% to $754,379 from
$920,636 for the quarter ended June 30, 1999. The decrease in other income for
the quarters and six months ended June 30, 2000, was due to a rising interest
rate environment, resulting in a decline on sale of mortgage loans.
NON-INTEREST EXPENSE
During the six months ended June 30, 2000, non-interest expense increased 14% to
$5,113,800 as compared to $4,496,277 during the same period in 1999. Of this
amount, $2,906,268, or approximately 57%, was attributable to salary and related
employee benefits as compared to $2,632,938 or approximately 59% during the
first six months of 1999. For the quarter ended June 30, 2000, non-interest
expense totaled $2,667,966 as compared to
<PAGE>
$2,265,750 during the same quarter of 1999, an increase of 18%. Salary and
employee related benefits expense was $1,515,621 for the quarter ended June
30, 2000 as compared to $1,346,478 during the same period in 1999, a 13%
increase. The increase in salary and related expenses was due to increased
staffing for branch expansion in Horsham and Summit Square as well as
additional corporate staff additions.
Combined occupancy and equipment expenses for the six months ended June 30, 2000
were $829,092 as compared to $694,066, a 19% increase, during the same period in
1999. For the quarter ended June 30, 2000, occupancy and equipment expenses were
$410,961 as compared to $344,627 for the quarter ended June 30, 1999. The
increase was due to annual increases in rent expenses and the lease of
additional space at two new branches in Horsham and Summit Square.
For the six months ended June 30, 2000, computer expense totaled $202,307 as
compared to $165,436 for the six months ended June 30, 1999. For the quarter
ended June 30, 2000, computer expense totaled $114,699 as compared to $80,879
for the quarter ended June 30, 1999. This increase was due to growth in volume
of accounts and transactions processed.
For the six months ended June 30, 2000, legal expense totaled $71,632 as
compared to $68,875 for the six months ended June 30, 1999, a 4% increase. For
the quarter ended June 30, 2000 legal expenses totaled $39,641 as compared to
$42,952 for the quarter ended June 30, 1999. Legal expense includes the expenses
incurred related to loans as well as corporate legal needs of the Company.
For the six months ended June 30, 2000, business development expenses decreased
4% to $168,257 as compared to $175,853 for the six months ended June 30, 1999.
For the quarter ended June 30, 2000, business development expenses decreased 14%
to $84,907 as compared to $103,980 for the quarter ended June 30, 1999. The
decreased expense was attributable to less monies spent on outside business
development activities.
For the six months ended June 30, 2000, stationary and supplies expense was
$117,216 as compared to $100,007 for the six months ended June 30, 1999. The
increase of approximately 17% is due to the assets and volume growth of the
Bank. For the quarter ended June 30, 2000, supplies expense was $56,857 as
compared to $46,632 for the quarter ended June 30, 1999. The increase in
stationary and supplies expense for the quarter ended June 30, 2000 compared to
the quarter ended June 30, 1999, is due to growth and the set-up of the Summit
Square branch.
For the six months ended June 30, 2000, other operating expenses totaled
$613,188, or approximately 12% of total other expenses, as compared to $479,384,
or 11%, during the same period in 1999. For the quarter ended June 30, 2000,
these expenses totaled $337,230 as compared to $212,892 for the quarter ended
June 30, 1999. Other operating expenses were comprised primarily of business
promotional materials, telephone, fidelity insurance
<PAGE>
premium, shares and loan taxes, ATM expenses, accounting fees, loan expenses,
and other nominal miscellaneous expenses, as well as the contra expenses
related to FASB 91 costs on loan origination. The increase in other operating
expenses are ATM expenses increasing by approximately $13,000, telephone
expense increases of approximately $14,000 and loans expense increasing by
approximately $36,000. Other expenses increased marginally to the rate of
growth and volume of the Bank.
Income tax expense for the six months and quarter ended June 30, 2000 was
$75,370 and $41,106 as compared to $284,441 and $155,541 for the six months and
quarter ended June 30, 1999. The tax provision decrease is due to the earnings
decrease of the Company.
CAPITAL RESOURCES
The total number of shares of common stock outstanding on June 30, 2000 was
1,931,320 as compared to 1,747,947 at December 31, 1999. During the first six
months ending June 30, 2000, 8,373 shares of common stock were issued in
conjunction with the exercise of warrants to one Director and 175,000 shares of
common stock issued in conjunction with a private placement to three Directors.
(See Item 2. Changes in Securities and Use of Proceeds). The book value per
share of the Company's common stock at December 31, 1999 was $5.88, as compared
to $5.91 per share at June 30, 2000.
During the six month period ended June 30, 2000, the Company's total assets
increased by approximately $19,701,905 or approximately 13% to $175,544,315.
The chart below depicts certain capital ratios applicable to state chartered
Federal Reserve member banks and bank holding companies. The Company's actual
ratios at June 30, 2000 and December 31, 1999, respectively, each of which
exceeded the levels required to be classified as "adequately capitalized" under
applicable regulatory guidelines.
Regulatory Actual Actual
RATIO MINIMUM 12/31/99 6/30/00
Qualifying Total Capital to
Risk Weighted Assets 8.0% 14.57% 14.62%
Tier 1 Capital, net of intangibles
to Risk Weighted Assets 4.0% 12.16% 12.59%
Tier 1 Leverage Ratio of Capital to
Total Adjusted Average Assets 4.0% 8.96% 9.43%
<PAGE>
The Company's capital-to-assets ratio decreased from 6.60% as of December 31,
1999 to 6.50% as of June 30, 2000. The decrease in the capital-to-assets ratio
for the six months and quarter ended June 30, 2000, 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, 1999, was
9.39%; and its return on average assets was .61%. For the six month period ended
June 30, 2000, the Company's average return on equity was 2.73% and its return
on average assets was .18%. The significat decrease in the Company's return on
average equity and average assets is directly attributable to the increased
branch expansion that the Company has planned. This negative impact on earnings
should be temporary in nature and may reverse if the branches start growing and
obtain a market share in their specific markets.
The chart below depicts certain capital ratios applicable to state chartered
Federal Reserve member banks. The Bank's actual ratios at June 30, 2000 and
December 31, 1999, respectively, each of which exceeded the levels required for
a bank to be classified as "adequately capitalized" under applicable regulatory
guidelines.
Regulatory Actual Actual
RATIO MINIMUM 12/31/99 6/30/00
Qualifying Total Capital to
Risk Weighted Assets 8.0% 13.02% 13.43%
Tier 1 Capital, net of intangibles
to Risk Weighted Assets 4.0% 11.92% 12.34%
Tier 1 Leverage Ratio of Capital to
Total Adjusted Average Assets 4.0% 9.06% 9.51%
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 June 30, 2000, the
Bank had $7,000,000 in FHLB advances.
<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 June 30, 2000, the total approved
loan commitments outstanding amounted to approximately $21 million. At the same
date, commitments under unused lines of credit and the unadvances portion of
commercial credit lines amounted to approximately $18,948,439. Certificates of
deposit scheduled to mature in one year or less at June 30, 2000 totaled
$70,173,044. Investment securities totaled $20,333,266 at June 30, 2000, of
which $2,497,727 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 June 30, 2000, 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 $681,400 annually. If rates fell 200 basis points, monthly
revenues a year from now would increase approximately $689,500 and a rise in
rates by 200 basis points would represent a monthly decrease in revenues a year
from now of approximately $649,800. Management believes that any impact will not
be significant.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
None.
ITEM 2 CHANGES IN SECURITIES
(c) On June 28, 2000, the Company sold an aggregate of 175,000 shares of its
Common Stock to three Directors for aggregate consideration of $1,006,250. The
Company also has an agreement with a family trust affiliated with a fourth
Director to purchase an aggregate of 160,000 shares of its Common Stock for
aggregate consideration of $920,000, subject to receipt of regulatory approvals.
There were no underwriters involved in connection with the foregoing sales nor
were any underwriting discounts or other commissions paid. The Company issued
the securities in reliance upon the exemption afforded by Section 4(2) of the
Securities Act of 1933, as amended.
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) On May 16, 2000 the Company held its Annual Meeting of Shareholders. As of
the record date the total number of votes eligible to cast at the Annual Meeting
was 1,756,320. The following proposals were presented for a vote by the
company's stockholders:
PROPOSAL I - Election of Three (3) Class I Directors.
PROPOSAL II - Ratification of the Appointment of Deloitte & Touche LLP as the
Company's independent auditors for the 2000 fiscal year.
(b) At the Company's Annual Meeting, all nominees were re-elected to a three
year term.
<PAGE>
(c) PROPOSAL I. ELECTION OF DIRECTORS. Three directors were nominated by the
Company to stand for re-election to the Board. As set forth below each of the
Company's nominees were re-elected.
NAME OF NOMINEE VOTE FOR VOTE WITHHELD ABSTAIN
--------------- -------- ------------- -------
Philip E. Hughes, Jr. 1,247,898 4,748 8,145
Kathleen A. Kucer, MD 1,247,898 4,748 8,145
Blaine W. Scott 1,247,898 4,748 8,145
PROPOSAL II. RATIFICATION OF DELOITTE & TOUCHE LLP AS THE COMPANY'S INDEPENDENT
AUDITORS FOR THE 2000 FISCAL YEAR.
VOTES FOR VOTES WITHHELD ABSTAIN
--------- -------------- -------
1,258,627 1,135 1,029
ITEM 5 OTHER INFORMATION
None.
<PAGE>
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits Filed
Page Number in
EXHIBIT NUMBER SEQUENTIAL NUMBERING SYSTEM
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 --
--------------------
* Incorporated by reference from the Issuer's Registration Statement on Form S-1
No. 33-27146
<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.
/s/ Vito A. DeLisi
------------------------------
Vito A. DeLisi
Executive Vice President
/s/ E. Cheryl Hinkle
------------------------------
E. Cheryl Hinkle
Senior Vice President
Date Executed: August 4, 2000
<PAGE>
ANNEX A
<PAGE>
MADISON BANCSHARES GROUP, LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
<TABLE>
<CAPTION>
June 30, 2000 December 31, 1999
------------- -----------------
<S> <C> <C>
ASSETS
CASH AND CASH EQUIVALENTS:
Cash and amounts due from banks $ 5,998,746 $ 2,588,835
Federal funds sold 4,500,000 500,000
------------- -------------
Total cash and cash equivalents 10,498,746 3,088,835
INVESTMENT SECURITIES:
Held to maturity (fair value- 2000, $2,568,775;
1999, $2,567,857) 2,570,067 2,570,106
Available for sale (amortized cost; 2000, $17,054,851;
1999, $17,055,709) 16,677,099 16,749,747
Federal Home Loan Bank Stock 762,700 750,000
Federal Reserve Bank Stock 323,400 323,400
LOANS (Net of allowance for loan losses - 2000, $1,389,085;
1999, $1,262,256) 128,911,027 122,635,380
MORTGAGE LOANS HELD FOR SALE 11,060,709 5,418,972
REAL ESTATE OWNED 273,868 577,039
FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS, NET 2,025,680 1,661,814
ACCRUED INTEREST RECEIVABLE 1,442,569 1,281,928
OTHER ASSETS 998,450 785,189
------------- -------------
TOTAL $ 175,544,315 $ 155,842,410
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
DEPOSITS:
Noninterest-bearing demand deposits $ 25,430,707 20,540,071
Interest-bearing demand deposits 14,154,959 12,704,649
Savings deposits 10,047,949 8,150,269
Money market deposits 15,437,953 15,205,159
Time deposits 85,683,207 73,738,315
------------- -------------
Total deposits 150,754,775 130,338,463
BORROWED FUNDS 7,000,000 9,000,000
GUARANTEED PREFERRED BENEFICIAL INTEREST IN
SUBORDINATED DEBT 5,000,000 5,000,000
ACCRUED INTEREST PAYABLE 1,235,529 960,268
ACCRUED EXPENSES AND OTHER LIABILITIES 144,619 261,148
------------- -------------
Total Liabilities 164,134,923 145,559,879
------------- -------------
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, 2000 1,931,320; and 1999 1,747,947 1,931,320 1,747,947
Capital surplus 9,585,586 8,745,557
Accumulated earnings (deficit) 141,803 (9,038)
Accumulated other comprehensive income (loss) (249,317) (201,935)
------------- -------------
Total shareholders' equity 11,409,392 10,282,531
------------- -------------
TOTAL $ 175,544,315 $ 155,842,410
============= =============
</TABLE>
See notes to consolidated financial statements
<PAGE>
MADISON BANCSHARES GROUP, LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND SIX MONTH PERIODS ENDED JUNE 30, 2000 AND JUNE 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $ 3,425,377 $ 2,912,221 $ 6,627,134 $ 5,842,545
Interest and dividends on investment securities:
US Government obligations 281,536 54,616 563,052 77,503
Other securities 72,256 81,339 143,840 102,649
Interest on temporary investments 16,584 132,286 25,001 238,571
----------- ----------- ----------- -----------
3,795,753 3,180,462 7,359,027 6,261,268
----------- ----------- ----------- -----------
Interest expense:
Interest on:
Demand deposits 58,918 63,829 119,336 122,972
Savings and money market deposits 176,778 202,762 341,938 370,188
Time deposits 1,167,161 938,756 2,167,561 1,871,276
Guaranteed preferred beneficial interest in
subordinated debt 112,500 112,500 225,000 225,000
Federal funds purchased & other interest 123,978 0 284,994
----------- ----------- ----------- -----------
1,639,335 1,317,847 3,138,829 2,589,436
----------- ----------- ----------- -----------
Net interest income before provision for loan losses 2,156,418 1,862,615 4,220,198 3,671,832
Provision for loan losses 80,000 145,000 180,000 265,000
----------- ----------- ----------- -----------
Net interest income after provision for loan losses 2,076,418 1,717,615 4,040,198 3,406,832
----------- ----------- ----------- -----------
Other noninterest income:
Gain on sale of mortgage loans 521,569 739,741 873,347 1,360,710
Service charges on deposit accounts 189,350 143,404 339,398 317,087
Other 43,460 37,491 87,068 59,797
----------- ----------- ----------- -----------
Total noninterest income 754,379 920,636 1,299,813 1,737,594
----------- ----------- ----------- -----------
Other noninterest expenses:
Salary and employee benefits 1,515,621 1,346,478 2,906,268 2,632,938
Occupancy 274,569 231,498 574,964 485,400
Equipment 136,392 113,129 254,128 208,666
Computer processing 114,699 80,879 202,307 165,436
Deposit insurance 6,817 18,830 10,335 26,774
Legal 39,641 42,952 71,632 68,875
Professional fees 24,700 (2,039) 40,675 25,475
Business development 84,907 103,980 168,257 175,853
Office and stationary supplies 56,857 46,632 117,216 100,007
Director fees 28,900 35,950 58,575 71,250
Advertising 35,003 21,939 70,995 30,959
Amortization of debt issuance costs 12,630 12,630 25,260 25,260
Other operating 337,230 212,892 613,188 479,384
----------- ----------- ----------- -----------
Total noninterest expenses 2,667,966 2,265,750 5,113,800 4,496,277
----------- ----------- ----------- -----------
Income before income taxes 162,831 372,501 226,211 648,149
Provision for income taxes 41,106 155,541 75,370 284,441
=========== =========== =========== ===========
Net income $ 121,725 $ 216,960 $ 150,841 $ 363,708
=========== =========== =========== ===========
Net income per common share - basic $ 0.07 $ 0.13 $ 0.09 $ 0.21
=========== =========== =========== ===========
Net income per common share - diluted $ 0.07 $ 0.12 $ 0.08 $ 0.20
=========== =========== =========== ===========
Weighted average number of shares - basic 1,762,208 1,724,436 1,758,173 1,721,345
=========== =========== =========== ===========
Weighted average number of shares - diluted 1,799,389 1,805,865 1,793,252 1,806,010
=========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements
<PAGE>
MADISON BANCSHARES GROUP, LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
Operating activities:
Net income $ 150,841 $ 363,708
Adjustments for non-cash items included in net income:
Depreciation and amortization 235,964 155,789
Provision for loan losses 180,000 265,000
Net amortization of bond premium/discount 25,305 1,348
Amortization of deferred fees & costs, net 30,913 136,787
Gain on sale of mortgages held for sale (873,347) (1,360,710)
Changes in assets and liabilities which provided (used) cash:
Mortgage loans held for resale (4,768,390) 6,698,578
Accrued interest receivable (160,641) (33,631)
Other assets (238,521) (139,562)
Accrued interest payable 275,261 (19,032)
Accrued expenses and other liabilities (116,529) 183,446
------------ ------------
Net cash provided by (used in) operating activities (5,259,144) 6,251,721
------------ ------------
Investing activities:
Purchase of investment securities available for sale (6,039,698)
Purchase of investment securities held to maturity (2,200,000)
Purchase of Federal Home Loan Bank stock (12,700) (198,700)
Purchase of Federal Reserve Bank stock (147,000)
Proceeds from maturity of investment securities
avilable for sale 730,000
Net change in loans to customers (6,486,560) (1,640,592)
Purchase of furniture, equipment and leasehold improvements (574,570) (133,097)
Net change in real estate owned 303,171 471,033
------------ ------------
Net cash used in investing activities (6,770,659) (9,158,054)
------------ ------------
Financing activities:
Increase in demand, savings and time deposits 20,416,312 7,963,162
Decrease in borrowed funds (2,000,000)
Exercise of stock warrants 32,152 24,130
Issuance of common stock 991,250
------------ ------------
Net cash provided by financing activities 19,439,714 7,987,292
------------ ------------
Net increase in cash and cash equivalents 7,409,911 5,080,959
Cash and cash equivalents, beginning of period 3,088,835 15,293,484
------------ ------------
Cash and cash equivalents, end of period $ 10,498,746 $ 20,374,443
============ ============
Supplemental disclosures of cash flow information:
Interest paid $ 2,863,568 $ 2,608,468
============ ============
Income taxes paid $ 63,000 $ 250,000
============ ============
</TABLE>
See notes to consolidated financial statements
<PAGE>
MADISON BANCSHARES GROUP, LTD. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
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 six month periods ended June 30, 2000 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. Private Placement:
On June 28, 2000 the Company issued 175,000 shares of common stock at a
market price of $5.75 per share in connection with a private placement
offering. This offering resulted in an increase of $991,250 in
additional capital for the period ended June 30, 2000.
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 six month period ended June 30, 2000 and 1999 was $103,459 and
$330,969, respectively.
