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 March 31, 1997 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 1,641,213
- --------------------------- ----------------------------
Title of Class Number of Shares Outstanding
as of May 9, 1997
<PAGE>
CENIT BANCORP, INC. AND SUBSIDIARIES
Contents
- -------------------------------------------------------------------------------
Page
PART I - FINANCIAL INFORMATION
Item 1
- ------
Financial Statements
Consolidated Statement of Financial Condition as of March 31, 1997 (Unaudited)
and December 31, 1996....................................................... 1
Unaudited Consolidated Statement of Operations for the Three Months
Ended March 31, 1997 and March 31, 1996..................................... 2
Unaudited Consolidated Statement of Changes in Stockholders' Equity for the
Three Months ended March 31, 1997........................................... 3
Unaudited Consolidated Statement of Cash Flows for the Three Months Ended
March 31, 1997 and March 31, 1996.......................................... 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....................................................... 14
Item 2
- ------
Changes in Securities................................................... 14
Item 3
- ------
Defaults Upon Senior 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........................................ 14
Signatures.............................................................. 14
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
CENIT BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
(Dollars in thousands, except per share data)
<TABLE>
ASSETS
<CAPTION>
(Unaudited)
March 31, 1997 December 31, 1996
-------------- -----------------
<S> <C> <C>
Cash $ 14,975 $ 17,475
Federal funds sold and interest earning deposits 4,743 6,003
Securities available for sale at fair value (adjusted
cost of $204,197 and $222,367, respectively) 205,781 224,011
Loans, net:
Held for investment 441,660 422,219
Held for sale 2,409 1,900
Interest receivable 5,659 5,456
Real estate owned, net 2,209 2,769
Federal Home Loan Bank and Federal Reserve Bank stock, at cost 8,861 7,861
Property and equipment, net 12,978 12,664
Goodwill and other intangibles, net 4,288 4,381
Other assets 3,234 2,361
--------- ---------
$ 706,797 $ 707,100
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest-bearing $ 43,201 $ 46,154
Interest-bearing 445,121 452,811
------- -------
Total deposits 488,322 498,965
Advances from the Federal Home Loan Bank 156,000 148,000
Securities sold under agreements to repurchase 7,973 7,138
Advance payments by borrowers for taxes and insurance 1,164 631
Other liabilities 3,189 2,758
------- -------
Total liabilities 656,648 657,492
------- -------
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 1,639,989 and 1,635,044 shares,
respectively 16 16
Additional paid-in capital 17,784 17,670
Retained earnings - substantially restricted 31,684 31,040
Common stock acquired by Management Recognition
Plan (MRP) (365) (181)
Net unrealized gain on securities available for sale,
net of income taxes 1,030 1,063
------- -------
Total stockholders' equity 50,149 49,608
------- -------
$ 706,797 $ 707,100
========= =========
</TABLE>
The notes to unaudited consolidated financial statements are an integral
part of this statement.
1
<PAGE>
CENIT BANCORP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in thousands, except per share data)
Three Months
Ended
March 31,
1997 1996
---- ----
Interest and fees on loans $8,875 $7,075
Interest on mortgage-backed certificates 2,713 3,507
Interest on investment securities 727 1,023
Dividends and other interest income 236 247
------ ------
Total interest income 12,551 11,852
------ ------
Interest on deposits 5,056 4,861
Interest on borrowings 2,165 2,142
------ ------
Total interest expense 7,221 7,003
------ ------
Net interest income 5,330 4,849
Provision for loan losses 150 102
------ ------
Net interest income after provision for
loan losses 5,180 4,747
------ ------
Other income:
Deposit fees 483 308
Gains on sales of loans 108 183
Loan servicing fees and late charges 79 102
Other 301 303
------ ------
Total other income 971 896
------ ------
Other expenses:
Salaries and employee benefits 2,080 1,920
Equipment, data processing and supplies 686 605
Net occupancy expense of premises 460 407
Expenses, gains/losses on sales and provision
for losses on real estate owned, net 47 13
Professional fees 113 100
Federal deposit insurance premiums 73 234
Expenses related to proxy contest and other
matters 394 -
Other 674 515
------ ------
Total other expenses 4,527 3,794
------ ------
Income before income taxes 1,624 1,849
Provision for income taxes 570 646
------ ------
Net income $ 1,054 $ 1,203
======= =======
Earnings per common and common equivalent share $ .62 $ .72
======= =======
Dividends per common share $ .25 $ .10
======= =======
The notes to unaudited consolidated financial statements are an integral
part of this statement.
2
<PAGE>
CENIT BANCORP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Three Months Ended March 31, 1997
(Dollars in thousands)
<TABLE>
<CAPTION>
Net Unrealized
Common Gain (Loss) on
Common Additional Stock Securities
Common Stock Paid-In Retained Acquired Available for
Stock Shares Amount Capital Earnings by MRP Sale Total
------------ ------ ------- -------- ------ ---- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 1,635,044 $ 16 $17,670 $31,040 $ (181) $ 1,063 $49,608
Net income - - - 1,054 - - 1,054
Cash dividends declared - - - (410) - - (410)
Exercise of stock options and
related tax benefits 4,945 - 114 - - - 114
Net change in unrealized gain (loss)
on securities available for sale,
net of income taxes - - - - - (33) (33)
Other - - - - (184) - (184)
--------- ---- ------- ------- ------ ------- -------
Balance, March 31, 1997 1,639,989 $ 16 $17,784 $31,684 $ (365) $ 1,030 $50,149
========= ==== ======= ======= ====== ======= =======
</TABLE>
The notes to unaudited consolidated financial statements are an integral
part of this statement.
3
<PAGE>
CENIT BANCORP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Three months ended March 31,
----------------------------
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,054 $ 1,203
Add (deduct) items not affecting cash in the period:
Provision for loan losses 150 102
Provision for losses on real estate owned 24 -
Amortization of loan yield adjustments (5) (6)
Depreciation, amortization and accretion, net 518 603
Net (gains) losses on sales/disposals of:
Loans (108) (183)
Real estate, property and equipment 2 1
Proceeds from sales of loans held for sale 6,813 13,529
Originations of loans held for sale (7,232) (12,106)
Change in assets/liabilities:
Decrease in interest receivable and other assets (1,037) (969)
Increase (decrease) in other liabilities 516 (655)
------- -------
Net cash provided by operating activities 695 1,519
------- -------
Cash flows from investing activities:
Purchases of securities available for sale (4,077) (49,820)
Principal repayments on securities available for sale 16,902 15,615
Proceeds from maturities of securities available for sale 5,000 5,960
Net (increase) decrease in loans held for investment (19,023) 2,184
Net proceeds on sales of real estate owned 49 (24)
Additions to real estate owned (77) (20)
Purchases of Federal Home Loan Bank stock
and Federal Reserve Bank stock (1,000) (3,161)
Purchases of property and equipment (601) (304)
------- -------
Net cash used for investing activities (2,827) (29,570)
------- -------
Cash flows from financing activities:
Proceeds from exercise of stock options and warrants 57 112
Net decrease in deposits (10,643) (9,273)
Proceeds from Federal Home Loan Bank advances 316,000 497,000
Repayment of Federal Home Loan Bank advances (308,000) (458,500)
Net increase (decrease) in securities sold under agreement
to repurchase and federal funds purchased 835 (740)
Cash dividends paid (410) (160)
Other, net 533 315
------- -------
Net cash provided by (used for) financing activities (1,628) 28,754
------- -------
Increase (decrease) in cash and cash equivalents (3,760) 703
Cash and cash equivalents, beginning of period 23,478 20,405
------- -------
Cash and cash equivalents, end of period $ 19,718 $ 21,108
========= ========
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 2,941 $ 2,393
Cash paid during the period for income taxes - -
Schedule of noncash investing and financing activities:
Real estate acquired in settlement of loans $ 383 $ 169
Loans to facilitate sale of real estate owned 946 482
</TABLE>
The notes to unaudited consolidated financial statements are an integral
part of this statement.
4
<PAGE>
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 month
periods ended March 31, 1997 and 1996 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, 1996 consolidated financial statements of CENIT Bancorp,
Inc. (the "Company").
Note 2 - Earnings and Dividends Per Share
Earnings per share for the three months ended March 31, 1997 and 1996 are
determined by dividing income for the periods by 1,707,821 and 1,680,202,
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.
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 Bank ("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 commercial real estate
loans, construction loans, land acquisition and development loans, consumer
loans, and commercial business loans, and in residential mortgage loans both
inside and outside their market areas. 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.
Financial Condition Of The Company
Total Assets
At March 31, 1997, the Company had total assets of $706.8 million compared
to $707.1 million at December 31, 1996.
Securities Available for Sale
Securities available for sale totaled $205.8 million at March 31, 1997 and
are comprised of U. S. Treasury securities, other U. S. Government agency
securities, and mortgage-backed certificates. The net decrease of $18.2 million
from December 31, 1996 resulted primarily from $16.9 million of mortgage-backed
certificate repayments, $5.0 million of proceeds from the maturities of
securities, and $4.1 million in purchases of securities available for sale.
Loans
The balance of net loans held for investment increased from $422.2 million
at December 31, 1996 to $441.7 million at March 31, 1997. This increase resulted
primarily from an increase in adjustable-rate residential permanent one- to
four-family loans. For the three months ended March 31, 1997, loan originations
totaled $32.2 million, loan purchases totaled $22.4 million, and total principal
reductions totaled $36.9 million.
5
<PAGE>
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.
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
-------------- -----------------
(Dollars in Thousands)
Amount Percent Amount Percent
------ ------- ------ -------
<S> <C> <C> <C> <C>
Real estate loans:
Residential permanent 1- to 4-family:
Adjustable rate $ 177,345 36.52% $ 157,542 33.63%
Fixed rate
Conventional 97,433 20.07 98,952 21.12
Guaranteed by VA or insured by FHA 6,465 1.33 7,004 1.50
----- ---- ----- ----
Total permanent 1- to 4-family 281,243 57.92 263,498 56.25
Residential permanent 5 or more family 6,831 1.41 7,100 1.52
- ----- ---- ----- ----
Total permanent residential loans 288,074 59.33 270,598 57.77
------- ----- ------- -----
Commercial real estate loans:
Hotels 9,687 1.99 9,651 2.06
Office and warehouse facilities 27,977 5.77 27,178 5.80
Retail facilities 17,929 3.69 18,181 3.88
Other 3,282 .68 3,304 .71
----- --- ----- ---
Total commercial real estate loans 58,875 12.13 58,314 12.45
------ ----- ------ -----
Construction loans:
Residential 1- to 4-family 46,780 9.64 43,807 9.35
Residential 5 or more family 8,315 1.71 8,855 1.89
Nonresidential 3,421 .70 3,365 .72
----- --- ----- ---
Total construction loans 58,516 12.05 56,027 11.96
------ ----- ------ -----
Land acquisition and development loans:
Consumer lots 5,297 1.09 5,396 1.15
Acquisition and development 9,960 2.05 16,010 3.42
----- ---- ------ ----
Total land acquisition and development
loans 15,257 3.14 21,406 4.57
------ ---- ------ ----
Total real estate loans 420,722 86.65 406,345 86.75
------- ----- ------- -----
Consumer loans:
Boats 7,455 1.54 7,814 1.67
Home equity and second mortgage 33,188 6.83 29,578 6.31
Mobile homes 118 .02 137 .03
Other 6,080 1.25 6,606 1.41
----- ---- ----- ----
Total consumer loans 46,841 9.64 44,135 9.42
------ ---- ------ ----
Commercial business loans 18,000 3.71 17,922 3.83
------ ---- ------ ----
Total loans 485,563 100.00% 468,402 100.00%
------- ====== ------- ======
Less:
Allowance for loan losses 3,899 3,806
Loans in process 40,286 42,309
Unearned discounts, premiums, and loan fees, net (282) 68
---- --
43,903 46,183
------ ------
Total loans, net $ 441,660 $ 422,219
========= ===========
</TABLE>
6
<PAGE>
The following table sets forth information about originations, purchases,
sales, and principal reductions for the Company's loans for the period
indicated.
Three Months Ended
March 31, 1997
--------------
(Dollars in Thousands)
Loans originated:
Real estate:
Permanent:
Residential 1- to 4-family $ 12,168
Residential 5 or more family -
--------
Total 12,168
--------
Commercial real estate 859
--------
Construction:
Residential 1- to 4-family 2,008
Residential 5 or more family 1,460
Nonresidential 400
--------
Total 3,868
--------
Land acquisition:
Consumer lots 22
Acquisition and development 209
--------
Total 231
--------
Total real estate loans originated 17,126
--------
Consumer:
Home equity and second mortgage 6,581
Other 1,214
--------
Total 7,795
--------
Commercial business 7,244
--------
Total loans originated 32,165
--------
Loans purchased 22,410
--------
Total loans originated and purchased 54,575
--------
Principal reductions:
Repayments and other principal reductions 30,193
Real estate loans sold 6,723
--------
Total principal reductions 36,916
--------
Net increase in total loans $ 17,659
========
Net increase in loans held for sale $ 498
Net increase in gross loans held for investment 17,161
--------
$ 17,659
========
7
<PAGE>
Deposits
The balance of deposits decreased from $499.0 million at December 31, 1996
to $488.3 million at March 31, 1997. During this period, certificates of deposit
decreased from $329.7 million at December 31, 1996 to $320.8 million at March
31, 1997. Noninterest-bearing deposits decreased from $46.2 million at December
31, 1996 to $43.2 million at March 31, 1997 due, in part, to lower average
balances in certain commercial accounts.
Capital
The Company's and the Banks' capital ratios exceeded applicable regulatory
requirements at March 31, 1997.
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.
8
<PAGE>
The following table sets forth information about the Company's
nonperforming loans, REO, and other repossessed assets at the dates indicated.
March 31, December 31,
1997 1996
---- ----
(Dollars in Thousands)
Nonperforming loans:
Real estate loans:
Permanent residential 1- to 4-family
Nonaccrual $ 879 $1,172
Accruing loans 90 days or more past due 37 246
-- ------ ------
Total 916 1,418
------ ------
Commercial real estate:
Nonaccrual 455 457
------ ------
Construction:
Accruing loans 90 days or more past due - 170
-- ------ ------
Land acquisition and development:
Nonaccrual 200 200
Accruing loans 90 days or more past due 232 -
-- ------ ------
Total 432 200
------ ------
Consumer loans:
Mobile homes (nonaccrual) 64 83
Credit cards (accruing loans 90 days or
more past due) 1 9
Other (nonaccrual) 17 17
------ ------
Total 82 109
------ ------
Commercial business loans:
Nonaccrual 426 483
------ ------
Total nonperforming loans:
Nonaccrual 2,041 2,412
Accruing loans 90 or more days past due 270 425
-- ------ ------
Total 2,311 2,837
Real estate owned, net 2,209 2,769
Other repossessed assets, net 52 55
------ ------
Total nonperforming assets, net $4,572 $5,661
====== ======
Total nonperforming assets, net, to total assets .65% .80%
=== ===
The decrease in nonperforming assets from December 31, 1996 to March 31,
1997 related primarily to the sale of $997,000 of real estate owned during the
first quarter of 1997.
9
<PAGE>
Allowance for Loan Losses. The following table sets forth activity of the
allowance for loan losses for the periods indicated.
Three months ended March 31,
----------------------------
1997 1996
---- ----
(Dollars in Thousands)
Balance at beginning of period $ 3,806 $ 3,696
Provision for loan losses 150 102
Losses charged to allowance (92) (91)
Recovery of prior losses 35 63
------- -------
Balance at end of period $ 3,899 $ 3,770
======= =======
The Company's provision for loan losses increased to $150,000 for the three
months ended March 31, 1997 as compared to $102,000 in the same period in 1996.
At March 31, 1997, the Company's coverage ratio was 168.7% based on a total
allowance for loan losses of $3,899,000 and total nonperforming loans of
$2,311,000. This compares to a coverage ratio of 205.1% at March 31, 1996.
Average Balance Sheets
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.
10
<PAGE>
<TABLE>
<CAPTION>
For the Three Months For the Three Months
Ended Ended
March 31, 1997 March 31, 1996
---------------------------- ----------------------------
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) $ 435,115 $ 8,875 8.16% $ 322,919 $ 7,075 8.76%
Mortgage-backed certificates 161,218 2,713 6.73 215,232 3,507 6.52
U.S. Treasury and other U.S.
Government agency securities 46,319 727 6.28 62,486 1,023 6.55
Federal funds sold 6,089 84 5.52 6,451 85 5.27
Federal Home Loan Bank and
Federal Reserve Bank stock 8,525 152 7.13 9,073 162 7.14
----- --- ----- ---
Total interest-earning assets 657,266 12,551 7.64 616,161 11,852 7.69
------- ------ ------- ------
Noninterest-earning assets:
REO 2,376 1,740
Other 40,632 30,846
------ ------
Total noninterest-earning assets 43,008 32,586
------ ------
Total assets $ 700,274 $ 648,747
========== ==========
Interest-bearing liabilities:
Passbook and statement savings $ 46,991 $ 392 3.34 $ 44,793 $ 380 3.39
Checking accounts 28,963 154 2.12 26,211 170 2.59
Money market deposit accounts 45,797 374 3.27 42,598 344 3.23
Certificates of deposit 324,876 4,136 5.09 288,750 3,967 5.50
------- ----- ------- -----
Total interest-bearing deposits 446,627 5,056 4.53 402,352 4,861 4.83
------- ----- ------- -----
Advances from the Federal Home
Loan Bank 156,789 2,095 5.34 156,357 2,096 5.36
Securities sold under agreements
to repurchase 6,488 70 4.32 3,379 36 4.26
Other borrowings - - - 538 10 7.43
------- ----- ------- -----
Total borrowings 163,277 2,165 5.30 160,274 2,142 5.35
------- ----- ------- -----
Total interest-bearing liabilities 609,904 7,221 4.74 562,626 7,003 4.98
------- ----- ------- -----
Noninterest-bearing liabilities:
Deposits 37,658 35,309
Other liabilities 2,854 3,930
----- -----
Total noninterest-bearing liabilities 40,512 39,239
------ ------
Total liabilities 650,416 601,865
Stockholders' equity 49,858 46,882
------ ------
Total liabilities and stockholders' equity $ 700,274 $ 648,747
========== ==========
Net interest income/interest rate spread $ 5,330 2.90% $ 4,849 2.71%
======== ==== ======== ====
Net interest position/net interest margin $ 47,362 3.24% $ 53,535 3.15%
========== ==== ========== ====
Ratio of average interest-earning assets to
average interest-bearing liabilities 107.77% 109.52%
====== ======
<FN>
(1) Includes nonaccrual loans and loans held for sale.
</FN>
</TABLE>
11
<PAGE>
Comparison of Operating Results for the Three Months Ended March 31, 1997
and March 31, 1996.
General
The Company's pre-tax income for the three months ended March 31, 1997 was
$1,624,000 compared to $1,849,000 during the same period in the prior year. This
decrease is primarily attributable to a $481,000 increase in net interest income
and a $75,000 increase in other income, which was more than offset by a $48,000
increase in the provision for loan losses and a $733,000 increase in other
expenses. Included in other expenses are $394,000 of expenses relating to the
Company's recent proxy contest and other matters. These expenses resulted from
proxy solicitation expenses and from legal and other expenses relating to
investigations of possible violations of banking and securities laws by entities
outside the Company.
Net Interest Income
The Company's net interest income before provision for loan losses
increased by $481,000, or 9.9%, for the quarter ended March 31, 1997 as compared
to that of the previous year. This increase resulted from a $699,000 increase in
interest income, which exceeded a $218,000 increase in interest expense. The
increase in interest income was primarily attributable to an increase in the
average balance of loans. The increase in interest expense was primarily due to
an increase in the average balance of certificates of deposit.
Interest on the Company's portfolio of mortgage-backed certificates
decreased by approximately $794,000 from $3.5 million for the quarter ended
March 31, 1996 to $2.7 million for the comparable 1997 period. This decrease
resulted from a $54.0 million decrease in the average balance of the portfolio
offset by an increase in the average yield of the portfolio from 6.52% in the
quarter ended March 31, 1996 to 6.73% in the comparable 1997 period. The
decrease in the average balance of mortgage-backed certificates was due
primarily to prepayments.
Interest on loans increased by $1.8 million in the quarter ended March 31,
1997 compared to the comparable 1996 period. This increase was primarily
attributable to a $112.2 million increase in the average balance of loans. The
yield on the Bank's loan portfolio decreased from 8.76% in the quarter ended
March 31, 1996 to 8.16% in the comparable 1997 period as purchased loans with
lower yields were added to the loan portfolio.
Interest on investment securities for the quarter ended March 31, 1997
decreased by $296,000 compared to the same period in 1996 primarily due to a
$16.2 million decrease in the average balance of investment securities.
Interest on deposits increased by $195,000 in the quarter ended March 31,
1997 compared to the comparable 1996 period. This increase was primarily
attributable to a $36.1 million increase in the average balance of certificates
of deposit in the quarter ended March 31, 1997 compared to the comparable 1996
period, offset by a decrease in the average cost of certificates of deposit from
5.50% in the quarter ended March 31, 1996 to 5.09% in the comparable 1997
period. During the second half of 1996, the Company assumed $68.1 million of
deposits from Essex Savings Bank, FSB.
The Company's interest on borrowings increased by $23,000 in the quarter
ended March 31, 1997 compared to the comparable 1996 period. This increase was
attributable to a $3.1 million increase in the average balance of securities
sold under agreement to repurchase with commercial deposit customers.
The Company's net interest margin increased from 3.15% for the quarter
ended March 31, 1996 to 3.24% for the quarter ended March 31, 1997. This
increase was the result of an increase in the Bank's interest rate spread from
2.71% in the quarter ended March 31, 1996 to 2.90% in the comparable 1997
period. The Bank'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 increased by $48,000 to $150,000
for the three months ended March 31, 1997, compared to the same period in 1996.
Net loans charged off during the quarter ended March 31, 1997 were $57,000
compared to $28,000 in the comparable 1996 period.
12
<PAGE>
Other Income
Total other income increased from $896,000 in the quarter ended March 31,
1996 to $971,000 in the comparable 1997 period.
Deposit fees increased by $175,000, primarily as the result of increases in
usage fees from the Company's automated teller network and increases in checking
account fees. Merchant processing fees increased by $108,000, and discounts
related to the purchase of accounts receivable through the Business Manager
program at Princess Anne increased by $26,000. These increases were offset by a
reduction of $75,000 in the gains on sales of mortgage loans and a $142,000
reduction in commercial mortgage brokerage fees. Income from these two areas of
the Company's operation often fluctuates from quarter to quarter depending on
the level of loans sold to or placed with others. The Company believes that this
decrease in income from these two areas in the first quarter is not indicative
of a fundamental change in these areas of operation.
Other Expenses
Total other expenses increased by $733,000 for the quarter ended March 31,
1997 compared to the comparable 1996 period. The quarter ended March 31, 1997
includes $394,000 of expenses relating to the Company's recent proxy contest and
other matters. These expenses resulted from proxy solicitation expenses and from
legal and other expenses related to investigations of possible violations of
banking and securities laws by entities outside the Company.
Salaries and employee benefits increased by $160,000 primarily related to
the expansion of the retail banking network. The expansion of the retail banking
network was also partially responsible for increases of equipment, data
processing and supply expense by $81,000 and net occupancy expense of premises
by $53,000. Merchant processing expenses increased by $95,000 due to increases
in volume and intangible amortization increased by $60,000 associated with the
Essex branch purchase and deposit assumption which occurred in the second half
of 1996. Offsetting these increases was a decrease in federal deposit insurance
premiums of $161,000 due to a lower deposit insurance assessment rate during
1997 as compared to 1996.
Liquidity
The principal sources of funds for the Company for the three months ended
March 31, 1997 included $316.0 million in proceeds from FHLB advances, and $21.9
million in proceeds from principal repayment and maturities of securities
available for sale. Funds were used primarily to repay FHLB advances totaling
$308.0 million, to fund purchases of investment securities available for sale
totaling $4.1 million, to fund net increases in loans held for investment of
$19.0 million, and to fund a net decrease in deposits of $10.6 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 7.2% and 9.5% at March
31, 1997 and December 31, 1996, respectively.
On April 25, 1997, the Company purchased $28.4 million of adjustable
residential permanent 1- to 4-family loans with an approximate initial average
yield of 6.99%. This purchase was partially funded with the proceeds from the
sale of $24.2 million of mortgage-backed securities on the same date. The
securities sold had an average yield during 1997 of 5.94%. The net gain, before
taxes, on the sale of these securities was $90,000.
13
<PAGE>
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 - None
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: May 13, 1997 /S/ Michael S. Ives
Michael S. Ives
President and
Chief Executive Officer
DATE: May 13, 1997 /S/ John O. Guthrie
John O. Guthrie
Senior Vice President and
Chief Financial Officer
14
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
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