UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 1996 Commission File Number 0-20378
CENIT BANCORP, INC.
(Exact name of registrant as specified in its charter)
Delaware 54-1592546
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
225 West Olney Road
Norfolk, Virginia 23510
(Address of principal executive (Zip code)
office)
Registrant's telephone number, including area code: (757) 446-6600
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 preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES X NO
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock $.01 Par Value 1,633,472
Title of Class Number of Shares Outstanding
as of October 25, 1996
CENIT BANCORP, INC. AND SUBSIDIARIES
Contents
Page
PART I - FINANCIAL INFORMATION
Item 1
Financial Statements
Consolidated Statement of Financial Condition as of September 30, 1996
(Unaudited) and December 31, 1995 . . . . . . . . . . . . . . . . . . . . . 1
Unaudited Consolidated Statement of Operations for the Three Months and Nine
Months ended September 30, 1996 and September 30, 1995 . . . . . . . . . . . 2
Unaudited Consolidated Statement of Changes in Stockholders' Equity for the
Nine Months ended September 30, 1996. . . . . . . . . . . . . . . . . . . . .3
Unaudited Consolidated Statement of Cash Flows for the Nine Months ended
September 30, 1996 and September 30, 1995 . . . . . . . . . . . . . . . . . .4
Notes to Unaudited Consolidated Financial Statements. . . . . . . . . . . . .5
Item 2
Management's Discussion and Analysis of Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
PART II - OTHER INFORMATION
Item 1
Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . .. . . . . . .17
Item 2
Changes in Securities. . . . . . . . . . . . . . . . . . . . .. . . . . . .17
Item 3
Defaults Upon Senior Securities. . . . . . . . . . . . . . . .. . . . . . .17
Item 4
Submission of Matters to a Vote of Security Holders. . . . . .. . . . . . .17
Item 5
Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
Item 6
Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . 17
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
<TABLE>
CENIT BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
(Dollars in thousands, except per share data)
<CAPTION>
ASSETS
(Unaudited)
September 30, 1996 December 31, 1995
<S> <C> <C>
Cash $ 16,851 $ 12,966
Federal funds sold and interest earning deposits 6,049 7,439
Securities available for sale at fair value (adjusted
cost of $239,366 and $265,862, respectively) 240,541 268,294
Loans, net:
Held for investment 382,778 319,194
Held for sale 1,500 2,982
Interest receivable 5,714 5,291
Real estate owned, net 2,579 1,828
Federal Home Loan Bank and Federal Reserve Bank stock, at cost 10,070 7,029
Property and equipment, net 12,621 11,272
Goodwill and other intangibles 4,303 1,777
Other assets 2,956 1,740
$ 685,962 $ 639,812
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<C> <C> <C>
Liabilities:
Deposits:
Noninterest-bearing $ 44,764 $ 38,664
Interest-bearing 448,062 411,866
Total deposits 492,826 450,530
Advances from the Federal Home Loan Bank 131,000 133,000
Other borrowings 75 300
Securities sold under agreements to repurchase 7,497 4,871
Advance payments by borrowers for taxes and insurance 1,011 661
Other liabilities 5,279 3,721
Total liabilities 637,688 593,083
Stockholders' equity:
Preferred stock, $.01 par value; authorized 3,000,000
shares; none outstanding - -
Common stock, $.01 par value; authorized 7,000,000 shares;
issued and outstanding 1,633,438 and 1,596,675 shares,
respectively 16 16
Additional paid-in capital 17,623 16,903
Retained earnings - substantially restricted 30,148 28,641
Common stock acquired by Employees Stock Ownership
Plan (ESOP) (75) (300)
Common stock acquired by Management Recognition
Plan (MRP) (205) (142)
Net unrealized gain on securities available for sale,
net of income taxes 767 1,611
Total stockholders' equity 48,274 46,729
$ 685,962 $ 639,812
<FN>
The notes to unaudited consolidated financial statements are an integral part of this statement.
</FN>
</TABLE>
<TABLE>
<PAGE>1
CENIT BANCORP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in thousands, except per share data)
<CAPTION>
Three months Nine Months
Ended Ended
September 30, September 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Interest and fees on loans $ 7,859 $ 7,314 $ 21,880 $ 21,707
Interest on mortgage-backed certificates 3,269 2,961 10,208 8,343
Interest on investment securities 850 1,037 2,916 2,936
Dividends and other interest income 278 361 795 843
Total interest income 12,256 11,673 35,799 33,829
Interest on deposits 4,537 5,105 14,009 14,167
Interest on borrowings 2,598 2,030 6,999 6,095
Total interest expense 7,135 7,135 21,008 20,262
Net interest income 5,121 4,538 14,791 13,567
Provision for loan losses 101 163 256 522
Net interest income after provision
for loan losses 5,020 4,375 14,535 13,045
Other income:
Deposit fees 366 232 986 783
Gains on sales of loans 124 189 494 345
Gains on sales of securities 45 - 77 -
Loan servicing fees and late charges 80 108 270 346
Other 438 613 1,103 1,116
Total other income 1,053 1,142 2,930 2,590
Other expenses:
Salaries and employee benefits 1,970 1,985 5,785 5,429
Equipment, data processing and supplies 608 627 1,784 1,825
Net occupancy expense of premises 437 382 1,264 1,023
Expenses, gains/losses on sales and provision
for losses on real estate owned, net 24 69 30 310
Professional fees 108 106 325 516
Federal deposit insurance premiums 2,548 201 3,015 679
Merger - 753 - 753
Other 655 521 1,811 1,498
Total other expenses 6,350 4,644 14,014 12,033
Income (loss) before income taxes (277) 873 3,451 3,602
Provision for (benefit from) income taxes (162) 498 1,142 1,452
Net income (loss) $ (115) $ 375 $ 2,309 $ 2,150
Earnings (loss) per common and common
equivalent share $ (.07) $ .22 $ 1.38 $ 1.29
Dividends per common share $ .20 $ .08 $ .50 $ .23
<FN>
The notes to unaudited consolidated financial statements are an integral part of this statement.
</FN>
</TABLE>
<TABLE>
<PAGE>2
CENIT BANCORP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Nine Months Ended September 30, 1996
(Dollars in thousands)
<CAPTION>
Common Net Unrealized
Stock Gain (Lossl) on
Common Additional Acquired Securities
Common Stock Paid-In Retained by ESOP Available for
Stock Shares Amount Capital Earnings and MRP Sale Total
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 1,596,675 $ 16 $ 16,903 $ 28,641 $ (442) $ 1,611 $46,729
Net income - - - 2,309 - - 2,309
Cash dividends declared, net of tax
benefits relating to dividends paid
on unallocated shares held by ESOP - - - (802) - - (802)
Principal payments on ESOP loan - - - - 225 - 225
Exercise of stock options, stock
warrants, and related tax benefits 36,763 - 720 - - - 720
Net change in unrealized gain (loss)
on securities available for sale,
net of income taxes - - - - - (844) (844)
Other - - - - (63) - (63)
Balance, September 30, 1996 1,633,438 $ 16 $ 17,623 $ 30,148 $ (280) $ 767 $48,274
<FN>
The notes to unaudited consolidated financial statements are an integral part of this statement.
</FN>
</TABLE>
<TABLE>
<PAGE>3
CENIT BANCORP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
<CAPTION> Nine months ended September 30,
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,309 $ 2,150
Add (deduct) items not affecting cash in the period:
Provision for loan losses 256 522
Provision for losses on real estate owned - 167
Amortization of loan yield adjustments (30) (193)
Depreciation, amortization and accretion, net 1,765 1,171
Net gains on sales/disposals of:
Securities (77) -
Loans (494) (345)
Real estate, property and equipment (16) (247)
Proceeds from sales of loans held for sale 37,139 23,483
Originations of loans held for sale (35,187) (20,046)
Change in assets/liabilities net of effects from acquisition:
Decrease in interest receivable and other assets (1,519) (433)
Increase (decrease) in other liabilities 1,142 (614)
Net cash provided by operating activities 5,288 5,615
Cash flows from investing activities:
Purchases of securities held to maturity - (42,669)
Purchases of securities available for sale (63,892) (30,106)
Principal repayments on securities available for sale 52,774 16
Principal repayments on securities held to maturity - 20,060
Proceeds from maturities and calls of securities available for sale 22,160 6,000
Proceeds from sales of securities available for sale 14,792 -
Net increase in loans held for investment (64,821) (12,591)
Net proceeds on sales of real estate owned 360 811
Additions to real estate owned (132) (775)
Purchases of Federal Home Loan Bank stock
and Federal Reserve Bank stock (6,651) (2,701)
Redemption of Federal Home Loan Bank stock 3,610 1,600
Proceeds from sale of property and equipment - 358
Purchases of property and equipment (1,337) (1,932)
Net proceeds from assumption of deposits 61,188 -
Net cash provided by (used for) investing activities 18,051 (61,929)
Cash flows from financing activities:
Proceeds from exercise of stock options and warrants 555 217
Net increase (decrease) in deposits (21,348) 43,430
Proceeds from Federal Home Loan Bank advances 1,535,000 812,000
Repayment of Federal Home Loan Bank advances (1,537,000) (794,000)
Net increase in securities sold under agreement
to repurchase and federal funds purchased 2,626 1,171
Cash dividends paid (806) (371)
Other, net 129 (136)
Net cash provided by (used for) financing activities (20,844) 62,311
Increase in cash and cash equivalents 2,495 5,997
Cash and cash equivalents, beginning of period 20,405 13,360
Cash and cash equivalents, end of period $ 22,900 $ 19,357
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 9,195 $ 10,609
Cash paid during the period for income taxes 1,595 971
Schedule of noncash investing and financing activities:
Real estate acquired in settlement of loans $ 2,441 $ 3,005
Loans to facilitate sale of real estate owned 1,372 3,072
<FN>
The notes to unaudited consolidated financial statements are an integral part of this statement.
</FN>
</TABLE>
<PAGE>4
CENIT BANCORP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and, therefore,
do not include all of the disclosures and notes required by generally accepted
accounting principles. In the opinion of the management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. The results of operations for the three and
nine month periods ended September 30, 1996 and 1995 are not necessarily
indicative of results that may be expected for the entire year or any interim
periods. Certain previously reported amounts have been reclassified to agree
with the current presentation. The interim financial statements should be
read in conjunction with the December 31, 1995 consolidated financial
statements of CENIT Bancorp, Inc. (the "Company").
Note 2 - Earnings and Dividends Per Share
Earnings per share for the three and nine months ended September 30, 1996 are
determined by dividing income for the periods by 1,602,531 and 1,675,619,
respectively, the weighted average number of shares of outstanding common
stock and common stock equivalents, where dilutive. The weighted average
number of common stock equivalents for the three months ended September 30,
1996 totaled 70,332. However, these shares were not included in the third
quarter earnings per share calculation as the effect would be anti-dilutive.
Earnings per share for the three and nine months ended September 30, 1995
are determined by dividing income for the periods by 1,685,458 and 1,673,353,
respectively, the weighted average number of shares of common stock and
common stock equivalents outstanding. Stock options and warrants are
regarded as common stock equivalents and are therefore considered in earnings
per share calculations, if dilutive. Common stock equivalents are computed
using the treasury stock method. There is no material difference between
primary and fully-diluted earnings per share. Dividends per share for 1995
were determined by dividing historical dividends declared by the Company by
historical common shares outstanding of the Company, without adjustment for
shares issued in connection with the Princess Anne Bank ("Princess Anne")
merger. Princess Anne declared no dividends in 1995 prior to its merger with
the Company.
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
The Company's business currently consists of the business of CENIT Bank, FSB
("CENIT Bank") and Princess Anne (the "Banks"). The principal business of
the Banks consists of attracting retail deposits from the general public in
their market areas through a variety of deposit products and investing these
funds primarily in their market areas in residential mortgage loans,
commercial real estate loans, construction loans, land acquisition and
development loans, consumer loans, and commercial business loans. The Banks
also invest in mortgage-backed certificates, securities issued by the U.S.
Government and federal agencies and other investments permitted by applicable
laws and regulations.
On September 26, 1996, CENIT Bank assumed the deposits of four Essex Savings
Bank, FSB ("Essex") branches pursuant to a Branch Purchase and Deposit
Assumption Agreement dated July 2, 1996. As part of this transaction, CENIT
Bank assumed approximately $62.8 million of deposits, acquired certain other
assets and liabilities, and received approximately $61.0 million of cash.
CENIT Bank used the majority of the cash proceeds received in connection with
the deposit assumption to reduce its Federal Home Loan Bank of Atlanta advances.
In connection with this transaction, CENIT Bank has recorded total intangible
assets of approximately $2.6 million. Goodwill totals approximately $2.2
million and will be amortized on a straight-line basis over 15 years. The
core deposit intangible totals approximately $427,000 and will be amortized
on an accelerated basis over ten years.
CENIT Bank continues to operate the former Essex offices located in Downtown
Hampton, Virginia and in the Denbigh area of Newport News, Virginia. The
deposits associated with Essex's Norfolk and Portsmouth, Virginia offices
have been consolidated into existing CENIT Bank retail offices in those
neighborhoods. CENIT Bank will also acquire the deposits of Essex's
Grafton, Virginia location on or about November 7, 1996. These deposits will
be consolidated into CENIT Bank's Kiln Creek office located in York County,
Virginia. The Grafton office has approximately $5 million of deposits.
<PAGE>5
Financial Condition Of The Company
Total Assets
At September 30, 1996, the Company had total assets of $686.0 million, an
increase of $46.2 million, or 7.2%, since December 31, 1995. This increase
is accounted for primarily by the Company's purchase of residential permanent
1- to 4-family real estate loans.
Securities Available for Sale
Securities available for sale totaled $240.5 million at September 30, 1996
and are comprised of U. S. Treasury securities, other U. S. Government agency
securities, and mortgage-backed certificates. The net decrease of $27.8
million from December 31, 1995 resulted primarily from the net effect of
$52.8 million of mortgage-backed certificate repayments, $48.8 million in
adjustable rate mortgage-backed certificate purchases, $22.2 million of
proceeds from the maturities or calls of securities, $15.1 million of U.S.
Treasury and other U.S. Government agency securities purchases, and $14.7
million of proceeds from the sale of securities.
Loans
The balance of net loans held for investment increased from $319.2 million at
December 31, 1995 to $382.8 million at September 30, 1996. This increase
resulted primarily from an increase in residential permanent 1- to 4-family
real estate loans. For the nine months ended September 30, 1996, loan
originations totaled $134.7 million, loan purchases totaled $62.7 million,
and total principal reductions totaled $128.0 million.
<PAGE>6
<TABLE>
The following table sets forth the composition of the Company's loans in
dollar amounts and as a percentage of the Company's total gross loans held for
investment at the dates indicated.
<CAPTION>
September 30, 1996 December 31, 1995
(Dollars in Thousands)
Amount Percent Amount Percent
<S> <C> <C> <C> <C>
Real estate loans:
Residential permanent 1- to 4-family:
Adjustable rate $116,506 27.19% $ 98,093 27.44%
Fixed rate
Conventional 100,203 23.39 47,633 13.32
Guaranteed by VA or insured by FHA 7,257 1.69 7,691 2.15
Total permanent 1- to 4-family 223,966 52.27 153,417 42.91
Residential permanent 5 or more family 8,349 1.95 9,343 2.61
Total permanent residential loans 232,315 54.22 162,760 45.52
Commercial real estate loans:
Hotels 9,697 2.26 9,652 2.70
Office and warehouse facilities 28,127 6.56 30,483 8.52
Retail facilities 18,936 4.42 17,450 4.88
Other 3,324 0.78 5,459 1.53
Total commercial real estate loans 60,084 14.02 63,044 17.63
Construction loans:
Residential 1- to 4-family 45,320 10.58 51,637 14.44
Residential 5 or more family 7,549 1.76 4,224 1.18
Nonresidential 3,165 .74 50 0.02
Total construction loans 56,034 13.08 55,911 15.64
Land acquisition and development loans:
Consumer lots 5,309 1.24 5,646 1.58
Acquisition and development 15,801 3.69 14,961 4.18
Total land acquisition and development
loans 21,110 4.93 20,607 5.76
Total real estate loans 369,543 86.25 302,322 84.55
Consumer loans:
Boats 8,305 1.94 9,766 2.73
Home equity and second mortgage 26,760 6.24 20,811 5.82
Mobile homes 151 .04 206 0.06
Other 6,139 1.43 5,211 1.46
Total consumer loans 41,355 9.65 35,994 10.07
Commercial business loans 17,549 4.10 19,259 5.38
Total loans 428,447 100.00% 357,575 100.00%
Less:
Allowance for loan losses 3,999 3,696
Loans in process 41,167 34,728
Unearned discounts, premiums, and loan fees, net 503 (43)
45,669 38,381
Total loans, net $382,778 $319,194
</TABLE>
<PAGE>7
<TABLE>
The following table sets forth information about originations, purchases, sales, and principal reductions
for the Company's loans for the period indicated.
<CAPTION>
Nine Months Ended
September 30, 1996
(Dollars in Thousands)
<S> <C>
Loans originated:
Real estate:
Permanent:
Residential 1- to 4-family $ 60,421
Residential 5 or more family -
Total 60,421
Commercial real estate 5,457
Construction:
Residential 1- to 4-family 14,985
Residential 5 or more family 1,844
Nonresidential 3,287
Total 20,116
Land acquisition:
Consumer lots 921
Acquisition and development 2,764
Total 3,685
Total real estate loans originated 89,679
Consumer:
Home equity and second mortgage 13,811
Other 3,894
Total 17,705
Commercial business 27,335
Total loans originated 134,719
Loans purchased 62,656
Total loans originated and purchased 197,375
Principal reductions:
Repayments and other principal reductions 91,325
Real estate loans sold 36,669
Total principal reductions 127,994
Net increase in total loans $ 69,381
Net decrease in loans held for sale $ (1,491)
Net increase in gross loans held for investment 70,872
$ 69,381
</TABLE>
<PAGE>8
Deposits
The balance of deposits increased from $450.5 million at December 31, 1995 to
$492.8 million at September 30, 1996. Also during this period, noninterest-
bearing deposits increased from $38.7 million at December 31, 1995 to $44.8
million at September 30, 1996. As discussed above, on September 26, 1996,
CENIT Bank acquired approximately $62.8 million of deposits from Essex. These
deposits included approximately $51.4 million of certificates of deposit, $6.2
million of money market deposit accounts, $3.5 million of passbook and
statement savings accounts, and $1.7 million of checking accounts.
Capital
The Company's and the Banks' capital ratios exceeded applicable regulatory
requirements at September 30, 1996.
Asset Quality
Nonperforming Assets. Nonperforming assets consist of nonperforming loans,
real estate acquired in settlement of loans ("REO"), and other repossessed
assets. Generally the Company does not accrue interest on loans that are 90
days or more past due, with the exception of certain VA-guaranteed or FHA
insured one- to four-family permanent mortgage loans, certain credit card
loans, and matured loans for which the borrowers are still making required
monthly payments of interest, or principal and interest, and with respect to
which the Banks are negotiating extensions or refinancings with the borrowers.
<PAGE>9
<TABLE>
The following table sets forth information about the Company's nonperforming
loans, REO, and other repossessed assets at the dates indicated.
<CAPTION>
September 30, December 31,
1996 1995
(Dollars in Thousands)
<S> <C> <C>
Nonperforming loans:
Real estate loans:
Permanent residential 1- to 4-family
Nonaccrual $ 1,106 $ 420
Accruing loans 90 days or more past due 340 77
Total 1,446 497
Permanent residential 5 or more family 189 -
Commercial real estate 468 -
Land acquisition and development 200 200
Consumer loans:
Boats 12 -
Home equity and second mortgage 30 107
Mobile homes 94 134
Credit cards (accruing loans 90 days or
more past due) - 13
Other 16 3
Total 152 257
Commercial business loans:
Nonaccrual 547 70
Accruing loans 90 days or more past due 8 4
Total 555 74
Total nonperforming loans:
Nonaccrual 2,662 934
Accruing loans 90 or more days past due 348 94
Total 3,010 1,028
Real estate owned, net 2,579 1,828
Other repossessed assets, net 13 1
Total nonperforming assets, net $ 5,602 $ 2,857
Total nonperforming assets, net, to total assets .82% .45%
</TABLE>
The increase in nonperforming assets from December 31, 1995 to September
30, 1996 related primarily to a $751,000 increase in real estate owned, a
$686,000 increase in nonaccrual permanent residential 1- to 4-family real
estate loans, a $477,000 increase in nonaccrual commercial business loans,
and a $468,000 commercial real estate loan. Real estate owned at September
30, 1996 includes approximately $1.4 million obtained by a deed in lieu of
foreclosure in August 1996 relating to a construction loan. This real estate
owned is comprised of eleven single family residences and one single family
lot. At September 30, 1996, nine of the single family residences are
complete or substantially complete and the other two homes are approximately
60% and 85% complete, respectively.
Nonaccrual permanent residential 1- to 4-family real estate loans increased
primarily as a result of the inclusion of five loans totaling $676,000 secured
by condominium units located in a Houston, Texas high rise. These loans have
private mortgage insurance and the Company and the borrower are in the process
of executing a modification agreement.
Nonaccrual commercial business loans increased primarily as a result of the
inclusion of two loans to two related entities totaling $377,000. The Company
has a total of seven loans with approximately $1.0 million outstanding at
September 30, 1996 to these borrowers and other related entities. The other
five loans are comprised of a $279,000
<PAGE>10
commercial real estate loan, a $200,000
acquisition and development loan, a $126,000 permanent 1- to 4-family
residential real estate loan, two auto loans totaling $15,000, and a $15,000
commercial loan. The $126,000 residential real estate loan and the two auto
loans are also on nonaccrual at September 30, 1996. All of the loans except
for the $200,000 acquisition and development loan are also
cross-collateralized and cross-defaulted.
One of the borrowers' companies suffered a severe cashflow drain in the first
half of 1996 and ceased operations in late July, 1996. Currently, one of the
related entities is engaged in substantive negotiations for the sale of a
large parcel of land to an unrelated third party. A portion of this land
secures the $200,000 acquisition and development loan. The Company believes
the five nonperforming loans will return to a performing status only in the
event this land is sold. Otherwise, the Company believes liquidation of
collateral will become necessary.
The $468,000 nonaccrual commercial real estate loan is secured by an office
building located in Virginia Beach, Virginia. The Company believes that
foreclosure on this property is highly probable.
<TABLE>
Allowance for Loan Losses. The following table sets forth activity of the
allowance for loan losses for the periods indicated.
<CAPTION>
Nine months ended September 30,
1996 1995
(Dollars in Thousands)
<S> <C> <C>
Balance at beginning of period $ 3,696 $ 3,789
Provision for loan losses 256 522
Losses charged to allowance (399) (956)
Recovery of prior losses 446 148
Balance at end of period $ 3,999 $ 3,503
</TABLE>
The Company's provision for loan losses decreased to $256,000 for the nine
months ended September 30, 1996 as compared to $522,000 in the same period in
1995. This decrease is a result of the continued reduction in net losses
charged against the allowance. At September 30, 1996, the Company's coverage
ratio was 132.9% based on a total allowance for loan losses of $3,999,000 and
total nonperforming loans of $3,010,000. This compares to a coverage ratio
of 190.9% at September 30, 1995.
Average Balance Sheets
<TABLE>
The following tables set forth, for the periods indicated, information
regarding: (i) the total dollar amounts of interest income from interest-
earning assets and the resulting average yields; (ii) the total dollar amounts
of interest expense from interest-bearing liabilities and the resulting
average costs; (iii) net interest income; (iv) interest rate spread; (v) net
interest position; (vi) the net yield earned on interest-earning assets; and
(vii) the ratio of total interest-earning assets to total interest-bearing
liabilities. Average balances shown in the following tables have been
calculated using daily average balances.
<PAGE>11
<CAPTION>
For the Three Months For the Three Months
Ended Ended
September 30, 1996 September 30, 1995
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans (1) $363,986 $ 7,859 8.64% $325,751 $ 7,314 8.98%
Mortgage-backed certificates 194,063 3,269 6.74 186,164 2,961 6.36
U.S. Treasury and other U.S.
Government agency securities 53,285 850 6.38 66,356 1,037 6.25
Federal funds sold 7,259 97 5.35 15,349 225 5.86
Federal Home Loan Bank and
Federal Reserve Bank stock 10,014 181 7.23 7,464 136 7.29
Total interest-earning assets 628,607 12,256 7.80 601,084 11,673 7.77
Noninterest-earning assets:
REO 2,402 2,499
Other 37,149 24,806
Total noninterest-earning assets 39,551 27,305
Total assets $668,158 $628,389
Interest-bearing liabilities:
Passbook and statement savings $ 45,536 391 3.43% $ 44,833 412 3.68%
Checking accounts 27,035 165 2.44 28,160 185 2.63
Money market deposit accounts 42,031 336 3.20 43,415 380 3.50
Certificates of deposit 274,148 3,645 5.32 293,289 4,128 5.63
Total interest-bearing deposits 388,750 4,537 4.67 409,697 5,105 4.98
Advances from the Federal Home
Loan Bank 181,087 2,518 5.56 131,478 1,994 6.07
Securities sold under agreements
to repurchase 6,960 75 4.31 2,348 25 4.26
Other borrowings 237 5 8.44 473 11 9.30
Total borrowings 188,284 2,598 5.52 134,299 2,030 6.05
Total interest-bearing liabilities 577,034 7,135 4.95 543,996 7,135 5.25
Noninterest-bearing liabilities:
Deposits 39,336 33,860
Other liabilities 3,672 5,631
Total noninterest-bearing
liabilities 43,008 39,491
Total liabilities 620,042 583,487
Stockholders' equity 48,116 44,902
Total liabilities and stockholders'
equity $668,158 $628,389
Net interest income/interest rate
spread $ 5,121 2.85% $ 4,538 2.52%
Net interest position/net interest
margin $ 51,573 3.26% $ 57,088 3.02%
Ratio of average interest-earning
assets to average interest-bearing
liabilities 108.94% 110.49%
<FN>
(1) Includes nonaccrual loans and loans held for sale.
</FN>
</TABLE>
<TABLE>
<PAGE>12
For the Nine Months For the Nine Months
Ended Ended
September 30, 1996 September 30, 1995
<CAPTION>
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans (1) $335,603 $ 21,880 8.69% $324,438 $ 21,707 8.92%
Mortgage-backed certificates 204,506 10,208 6.66 177,873 8,343 6.25
U.S. Treasury and other U.S.
Government agency securities 60,102 2,916 6.47 62,837 2,936 6.23
Federal funds sold 7,267 289 5.30 10,765 462 5.72
Federal Home Loan Bank and
Federal Reserve Bank stock 9,385 506 7.19 7,044 381 7.21
Total interest-earning assets 616,863 35,799 7.74 582,957 33,829 7.74
Noninterest-earning assets:
REO 1,908 3,084
Other 37,648 22,954
Total noninterest-earning assets 39,556 26,038
Total assets $656,419 $608,995
Interest-bearing liabilities:
Passbook and statement savings $ 45,033 1,148 3.40% $ 44,574 1,163 3.48%
Checking accounts 26,590 508 2.55 28,967 577 2.66
Money market deposit accounts 41,974 1,010 3.21 43,883 1,119 3.40
Certificates of deposit 281,166 11,343 5.38 282,984 11,308 5.33
Total interest-bearing deposits 394,763 14,009 4.73 400,408 14,167 4.72
Advances from the Federal Home
Loan Bank 162,943 6,651 5.44 128,172 5,974 6.21
Securities sold under agreements
to repurchase 9,230 327 4.72 2,055 70 4.54
Other borrowings 372 21 7.53 928 51 7.33
Total borrowings 172,545 6,999 5.41 131,155 6,095 6.20
Total interest-bearing liabilities 567,308 21,008 4.94 531,563 20,262 5.08
Noninterest-bearing liabilities:
Deposits 37,532 28,707
Other liabilities 4,203 4,827
Total noninterest-bearing
liabilities 41,735 33,534
Total liabilities 609,043 565,097
Stockholders' equity 47,376 43,898
Total liabilities and stockholders'
equity $656,419 $608,995
Net interest income/interest rate
spread $ 14,791 2.80% $ 13,567 2.66%
Net interest position/net interest
margin $ 49,555 3.20% $ 51,394 3.10%
Ratio of average interest-earning
assets to average interest-bearing
liabilities 108.74% 109.67%
<FN>
(1) Includes nonaccrual loans and loans held for sale.
</FN>
</TABLE>
<PAGE>13
Comparison of Operating Results for the Three Months Ended
September 30, 1996 and September 30, 1995.
General
The Company had a pre-tax loss of $277,000 for the three months ended
September 30, 1996 compared to pre-tax income of $873,000 during the same
period in the prior year. This decrease in income is largely attributable
to a $1,706,000 increase in other expenses resulting primarily from the
$2,340,000 special assessment charged to the Company in connection with the
recently enacted federal legislation to recapitalize the Savings Association
Insurance Fund ("SAIF") of the Federal Deposit Insurance Corporation. The
impact of the increase in other expenses and an $89,000 decrease in other
income more than offset the effect of a $583,000 increase in net interest
income and a $62,000 decrease in the provision for loan losses.
Net Interest Income
The Company's net interest income before provision for loan losses increased
by $583,000, or 12.8%, for the quarter ended September 30, 1996 as compared
to that of the previous year. This increase resulted from an increase in
interest income. The increase in interest income was primarily attributable
to an increase in the average balance of loans and mortgage-backed
certificates, and to an increase in the yield of mortgage-backed certificates.
Interest on loans increased by $545,000 in the quarter ended September 30,
1996 compared to the comparable 1995 period. This increase was attributable
to a $38.2 million increase in the average balance of loans, the effect of
which more than offset a decrease in the average yield of the portfolio from
8.98% in the quarter ended September 30, 1995, to 8.64% in the comparable 1996
period.
Interest on the Company's portfolio of mortgage-backed certificates increased
by approximately $308,000 from $3.0 million for the quarter ended September 30,
1995 to $3.3 million for the comparable 1996 period. This increase resulted
from both a $7.9 million increase in the average balance of the portfolio and
an increase in the average yield of the portfolio from 6.36% in the quarter
ended September 30, 1995 to 6.74% in the comparable 1996 period. The increase
in the yield on mortgage-backed certificates occurred because certificates
backed by adjustable-rate mortgage loans ("ARMs") adjusted to higher rates
and as a result of the sale of lower yielding mortgage-backed certificates
during the fourth quarter of 1995 and the subsequent purchase of higher
yielding adjustable mortgage-backed certificates.
Interest on deposits decreased by $568,000 in the quarter ended September 30,
1996 compared to the comparable 1995 period. This decrease was primarily
attributable to a $19.1 million decrease in the average balance of
certificates of deposit in the quarter ended September 30, 1996 compared
to the comparable 1995 period and a decrease in the average cost of
certificates of deposit from 5.63% in the quarter ended September 30, 1995
to 5.32% in the comparable 1996 period.
The Company's interest on borrowings increased by $568,000 in the quarter
ended September 30, 1996 compared to the comparable 1995 period. This
increase was attributable to a $49.6 million increase in the average balance
of Federal Home Loan Bank (FHLB) advances, the effect of which was partially
offset by a decrease in the average cost of FHLB advances from 6.07% in the
quarter ended September 30, 1995 to 5.56% in the comparable 1996 period.
The Company's net interest margin increased from 3.02% for the quarter ended
September 30, 1995 to 3.26% for the quarter ended September 30, 1996. This
increase was the result of an increase in the Company's interest rate spread
from 2.52% in the quarter ended September 30, 1995 to 2.85% in the comparable
1996 period. The Company's calculations of interest rate spread and net
interest rate margin include nonaccrual loans as interest-earning assets.
Provision for Loan Losses
The Company's provision for loan losses decreased by $62,000 to $101,000 for
the three months ended September 30, 1996, compared to the same period in
1995. This decrease is a result of the continued reduction in net losses
charged against the allowance.
Other Income
Total other income decreased from $1,142,000 in the quarter ended
September 30, 1995 to $1,053,000 in the comparable 1996 period. The effect
of a $134,000 increase in deposit fees and a $45,000 gain on the sale of
securities
<PAGE>14
was more than offset by a $65,000 decrease in gains on the sale
of loans, a $28,000 decrease in loan servicing fees and late charges, and a
$175,000 decrease in other miscellaneous income. Other miscellaneous income
decreased primarily as a result of a $315,000 decrease in brokerage fees
recognized by CENIT Bank's commercial brokerage subsidiary, the effect of
which was partially offset by a $95,000 increase in merchant processing
income.
Other Expenses
Total other expenses increased by $1,706,000 for the quarter ended
September 30, 1996 compared to the comparable 1995 period. The 1996 period
includes the $2,340,000 SAIF special assessment discussed above. Also, the
1995 period includes $753,000 of merger expenses relating to the merger with
Princess Anne. Exclusive of the SAIF special assessment in the 1996 period
and the merger expenses in the 1995 period, total other expenses were
$4,010,000 and $3,891,000, respectively. Net occupancy expenses of premises
increased by $55,000 primarily as a result of incremental costs associated
with Princess Anne's relocation of its Great Neck office and CENIT Bank's
opening of a new Super Kmart office. Other miscellaneous expense increased
by $134,000 primarily as a result of a $77,000 increase in merchant processing
expenses and increases in loan expenses relating to an equity loan promotion.
Comparison of Operating Results for the Nine Months Ended September 30,
1996 and September 30, 1995.
General
The Company's pre-tax income for the nine months ended September 30, 1996 was
$3,451,000 compared to $3,602,000 during the same period in the prior year.
The effect of a $1,224,000 increase in net interest income, a $340,000
increase in other income, and a $266,000 decrease in the provision for loan
losses was more than offset by a $1,981,000 increase in other expenses. The
increase in other expenses resulted primarily from the $2,340,000 SAIF special
assessment discussed above.
Net Interest Income
The Company's net interest income before provision for loan losses increased
by $1,224,000, or 9.0%, for the nine months ended September 30, 1996 as
compared to that of the previous year. This increase resulted from a
$1,970,000 increase in interest income, which exceeded a $746,000 increase
in interest expense. The increase in interest income was primarily
attributable to an increase in the average balance and yield of mortgage-
backed certificates. The increase in interest expense was primarily
attributable to an increase in the average balance of FHLB advances.
Interest on the Company's portfolio of mortgage-backed certificates increased
by approximately $1,865,000 from $8.3 million for the nine months ended
September 30, 1995 to $10.2 million for the comparable 1996 period. This
increase resulted from both a $26.6 million increase in the average balance of
the portfolio and an increase in the average yield of the portfolio from
6.25% in the nine months ended September 30, 1995 to 6.66% in the comparable
1996 period. The increase in the yield on mortgage-backed certificates
occurred because certificates backed by ARMs adjusted to higher rates and as
a result of the sale of lower yielding mortgage-backed certificates during
the fourth quarter of 1995 and the subsequent purchase of higher yielding
adjustable rate mortgage-backed certificates.
Interest on loans increased by $173,000 in the nine months ended September
30, 1996 compared to the comparable 1995 period. This increase was
attributable to an $11.2 million increase in the average balance of loans,
the effect of which more than offset a decrease in the average yield of the
portfolio from 8.92% in the quarter ended September 30, 1995 to 8.69% in
the comparable 1996 period.
The Company's interest on borrowings increased by $904,000 in the nine months
ended September 30, 1996 compared to the comparable 1995 period. This
increase was attributable to a $34.8 million increase in the average balance
of FHLB advances, the effect of which was partially offset by a decrease in
the average cost of FHLB advances from 6.21% in the nine months ended
September 30, 1995 to 5.44% in the comparable 1996 period.
The Company's net interest margin increased from 3.10% for the nine months
ended September 30, 1995 to 3.20% for the nine months ended September 30,
1996. This increase was the result of an increase in the Company's interest
rate spread from 2.66% in the nine months ended September 30, 1995 to 2.80%
in the comparable 1996 period. The Company's calculations of interest rate
spread and net interest rate margin include nonaccrual loans as
interest-earning assets.
<PAGE>15
Provision for Loan Losses
The Company's provision for loan losses decreased by $266,000 to $256,000
for the nine months ended September 30, 1996, compared to the same period
in 1995. This decrease is a result of the continued reduction in net
losses charged against the allowance.
Other Income
Total other income increased from $2,590,000 in the nine months ended
September 30, 1995 to $2,930,000 in the comparable 1996 period. This
increase resulted primarily from a $203,000 increase in deposit fees and
a $149,000increase in the gain on sale of loans.
Other Expenses
Total other expenses increased by $1,981,000 for the nine months ended
September 30, 1996 compared to the comparable 1995 period. The 1996 period
includes the $2,340,000 SAIF special assessment discussed above. Also,
the 1995 period includes $753,000 of merger expenses relating to the merger
with Princess Anne. Exclusive of the SAIF special assessment in the 1996
period and the merger expenses in the 1995 period, total other expenses were
$11,674,000 and $11,280,000, respectively. Salaries and employee benefits
increased by $356,000 primarily as a result of overall increases in wages,
increases in directors' fees, and CENIT Bank's opening of a new Super Kmart
office. Net occupancy expense of premises increased by $241,000 primarily as a
result of incremental costs associated with Princess Anne's relocation of
its Great Neck office and CENIT Bank's opening of a new Super Kmart office,
the relocation of its Norfolk Main Street office, and the opening of a new
Kiln Creek office. Other miscellaneous expense increased by $313,000
primarily as a result of a $173,000 increase in merchant processing expenses
and increases in loan expenses and marketing expenses relating to an equity
loan promotion. Expenses, gains/losses, and provision for loan losses on
real estate owned decreased by $280,000 from $310,000 in the nine months
ended September 30, 1995 to $30,000 in the comparable 1996 period. In
the 1995 period, net holding costs totaled $239,000, the provision for
losses on REO totaled $167,000, and net gains on sales totaled $96,000.
This compares to net holding costs of $49,000 and net gains on sales of
$19,000 in the 1996 period. There were no provisions for losses on REO
in the 1996 period. Professional fees decreased by $191,000 largely due to
decreases in legal expenses.
Liquidity
The principal sources of funds for the Company for the nine months ended
September 30, 1996 included $1.54 billion in proceeds from FHLB advances,
$52.8 million in principal payments of mortgage-backed certificates, and $37.1
million in proceeds from the sale of loans. In addition, the Company received
$61.2 million of net proceeds from the assumption of the Essex deposits.
Funds were used primarily to repay FHLB advances totaling $1.54 billion, to
fund purchases of investment securities available for sale totaling $63.9
million, to fund a $64.8 million net increase in loans held for investment,
and to fund a net decrease in deposits of $21.3 million.
The Company's liquidity could be impacted by a decrease in the renewals of
deposits or general deposit runoff. However, the Company has the ability to
raise deposits by conducting deposit promotions. In the event the Company
requires funds beyond its ability to generate them internally, the Company
could obtain additional advances from the FHLB. The Company could also
obtain funds through the sale of investment securities from its available
for sale portfolio.
CENIT Bank is required to maintain specific levels of liquid investments.
Current regulations require CENIT Bank to maintain liquid assets, which
include short-term assets such as cash, certain time deposits and bankers'
acceptances,short-term U.S. Treasury obligations, and mortgage-backed
certificates with final maturities of five years or less, as well as certain
long-term assets, equal to not less than 5.0% of its net withdrawable
accounts plus short-term borrowings. CENIT Bank has generally maintained
regulatory liquidity in excess of its required levels. CENIT Bank's
liquidity ratio was 9.2% and 9.6% at September 30, 1996 and December 31,
1995, respectively.
On September 24, 1996, the Company committed to purchase approximately
$11.7 million of adjustable-rate residential permanent 1- to 4-family
loans with an initial approximate yield of 6.96%. This purchase will
be funded primarily with short-term FHLB advances.
<PAGE>16
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings - Inapplicable
Item 2 - Changes in Securities - Inapplicable
Item 3 - Defaults Upon Senior Securities - Inapplicable
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 - None
(b) Reports on Form 8-K
Form 8-K dated September 26, 1996
Item 2 - Acquisition or Disposition of Assets
On October 10, 1996, the Registrant filed a Report on Form 8-K disclosing
that on September 26, 1996, CENIT Bank, a wholly-owned subsidiary of the
Registrant, assumed the deposits of four Essex Savings Bank, FSB branches
pursuant to a Branch Purchase and Deposit Assumption Agreement dated July 2,
1996. As part of this transaction, CENIT Bank assumed approximately $63
million of deposits, acquired certain other assets and liabilities, and received
approximately $61 million of cash. CENIT Bank used the majority of the cash
proceeds received in connection with the deposit assumption to reduce its
Federal Home Loan Bank of Atlanta advances.
<PAGE>17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CENIT BANCORP, INC.
DATE: October 25 , 1996 /S/ Michael S. Ives
Michael S. Ives
President and Chief Executive Officer
DATE: October 25 , 1996 /S/ John O. Guthrie
John O. Guthrie
Senior Vice President and
Chief Financial Officer
<PAGE>18
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 16,851
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 6,049
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 240,541
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 388,277
<ALLOWANCE> 3,999
<TOTAL-ASSETS> 685,962
<DEPOSITS> 492,826
<SHORT-TERM> 138,572
<LIABILITIES-OTHER> 6,290
<LONG-TERM> 0
0
0
<COMMON> 16
<OTHER-SE> 48,258
<TOTAL-LIABILITIES-AND-EQUITY> 685,962
<INTEREST-LOAN> 21,880
<INTEREST-INVEST> 13,124
<INTEREST-OTHER> 795
<INTEREST-TOTAL> 35,799
<INTEREST-DEPOSIT> 14,009
<INTEREST-EXPENSE> 21,008
<INTEREST-INCOME-NET> 14,791
<LOAN-LOSSES> 256
<SECURITIES-GAINS> 77
<EXPENSE-OTHER> 14,014
<INCOME-PRETAX> 3,451
<INCOME-PRE-EXTRAORDINARY> 2,309
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,309
<EPS-PRIMARY> 1.38
<EPS-DILUTED> 1.38
<YIELD-ACTUAL> 7.74
<LOANS-NON> 2,662
<LOANS-PAST> 348
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,696
<CHARGE-OFFS> 399
<RECOVERIES> 446
<ALLOWANCE-CLOSE> 3,999
<ALLOWANCE-DOMESTIC> 3,999
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
