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, 1998 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 4,984,830
Title of Class Number of Shares Outstanding
as of April 22, 1998
<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, 1998 (Unaudited)
and December 31, 1997......................................................... 1
Unaudited Consolidated Statement of Operations for the Three Months
Ended March 31, 1998 and March 31, 1997........................................2
Unaudited Consolidated Statement of Comprehensive Income for the Three
Months Ended March 31, 1998 and March 31, 1997.................................3
Unaudited Consolidated Statement of Cash Flows for the Three Months Ended
March 31, 1998 and March 31, 1997..............................................4
Unaudited Consolidated Statement of Changes in Stockholders' Equity for the
Three Months ended March 31, 1998..............................................5
Notes to Unaudited Consolidated Financial Statements...........................6
Item 2
Management's Discussion and Analysis of Financial Condition and Results of
Operations..................................................................7
PART II - OTHER INFORMATION
Item 1
Legal Proceedings..........................................................16
Item 2
Changes in Securities......................................................16
Item 3
Defaults Upon Senior Securities............................................16
Item 4
Submission of Matters to a Vote of Security Holders........................16
Item 5
Other Information..........................................................16
Item 6
Exhibits and Reports on Form 8-K...........................................16
Signatures.................................................................16
<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>
<CAPTION>
ASSETS
(Unaudited)
March 31, 1998 December 31, 1997
-------------- -----------------
<S> <C> <C>
Cash $ 19,564 $ 16,993
Federal funds sold 14,591 37,118
Securities available for sale at fair value (adjusted
cost of $136,886 and $135,861, respectively) 137,992 137,188
Loans, net:
Held for investment 519,727 486,487
Held for sale 4,001 3,167
Interest receivable 5,301 4,888
Real estate owned, net 725 1,098
Federal Home Loan Bank and Federal Reserve Bank stock, at cost 10,211 8,711
Property and equipment, net 14,301 14,230
Goodwill and other intangibles, net 3,919 4,010
Other assets 4,095 4,193
--------- ---------
$ 734,427 $ 718,083
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest-bearing $ 63,169 $ 54,874
Interest-bearing 446,276 452,796
--------- ---------
Total deposits 509,445 507,670
Advances from the Federal Home Loan Bank 158,000 145,000
Other borrowings 1,861 2,575
Securities sold under agreements to repurchase 9,778 9,664
Advance payments by borrowers for taxes and insurance 1,366 720
Other liabilities 3,479 2,517
--------- ---------
Total liabilities 683,929 668,146
--------- ---------
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 4,977,321 and 4,971,243 shares,
respectively 50 50
Additional paid-in capital 18,240 18,119
Retained earnings - substantially restricted 35,927 35,416
Common stock acquired by Employee Stock Ownership Plan (ESOP) (4,188) (4,232)
Common stock acquired by Management Recognition
Plan (MRP) (243) (271)
Accumulated other comprehensive income,
net of income taxes 712 855
--------- ---------
Total stockholders' equity 50,498 49,937
--------- ---------
$ 734,427 $ 718,083
========= =========
<FN>
The notes to unaudited consolidated financial statements are an integral part of
this statement.
</FN>
</TABLE>
1
<PAGE>
CENIT BANCORP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months
Ended
March 31,
1998 1997
---- ----
<S> <C> <C>
Interest and fees on loans $ 10,050 $ 8,875
Interest on mortgage-backed certificates 1,483 2,713
Interest on investment securities 679 727
Dividends and other interest income 352 236
--------- -------
Total interest income 12,564 12,551
--------- -------
Interest on deposits 5,102 5,056
Interest on borrowings 2,075 2,165
--------- -------
Total interest expense 7,177 7,221
--------- -------
Net interest income 5,387 5,330
Provision for loan losses 204 150
--------- -------
Net interest income after provision for loan losses 5,183 5,180
--------- -------
Other income:
Deposit fees 603 483
Merchant processing fees 393 227
Commercial mortgage brokerage fees 181 4
Gains on sales of loans and securities, net 175 108
Other 213 149
--------- -------
Total other income 1,565 971
--------- -------
Other expenses:
Salaries and employee benefits 2,088 2,080
Equipment, data processing and supplies 704 686
Net occupancy expense of premises 473 460
Merchant processing 361 190
Professional fees 194 113
Expenses related to proxy contest and other matters - 394
Other 678 604
--------- -------
Total other expenses 4,498 4,527
--------- -------
Income before income taxes 2,250 1,624
Provision for income taxes 793 570
--------- -------
Net income $ 1,457 $ 1,054
========= =======
Earnings per share:
Basic $ .31 $ .22
========= =======
Diluted $ .30 $ .21
========= =======
Dividends per common share $ .10 $ .08
========= =======
<FN>
The notes to unaudited consolidated financial statements are an integral part of
this statement.
</FN>
</TABLE>
2
<PAGE>
CENIT BANCORP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(Dollars in thousands)
<TABLE>
<CAPTION>
Three Months
Ended
March 31,
1998 1997
---- ----
<S> <C> <C>
Net income $ 1,457 $ 1,054
-------- -------
Other comprehensive income (loss), before income taxes:
Unrealized gains (losses) on securities available for sale
Unrealized holding gains (losses) arising during the period (189) (59)
Less: reclassification adjustment for gains included in net income (31) -
-------- -------
Other comprehensive income (loss), before income taxes (220) (59)
Income tax benefit related to items of other comprehensive income (loss) 77 26
-------- -------
Other comprehensive income (loss), net of income taxes (143) (33)
-------- -------
Comprehensive income $ 1,314 $ 1,021
======== =======
<FN>
The notes to unaudited consolidated financial statements are an integral part of
this statement.
</FN>
</TABLE>
3
<PAGE>
CENIT BANCORP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Three months ended March 31,
1998 1997
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,457 $ 1,054
Add (deduct) items not affecting cash in the period:
Provision for loan losses 204 150
Provision for losses on real estate owned 14 24
Amortization of loan yield adjustments 100 (5)
Depreciation, amortization and accretion, net 578 518
Net (gains) losses on sales/disposals of:
Securities (31) -
Loans (144) (108)
Real estate, property and equipment 46 2
Proceeds from sales of loans held for sale 12,945 6,813
Originations of loans held for sale (13,636) (7,232)
Change in assets/liabilities:
Decrease in interest receivable and other assets (251) (1,037)
Increase in other liabilities 651 516
------- -------
Net cash provided by operating activities 1,933 695
------- -------
Cash flows from investing activities:
Purchases of securities available for sale (32,903) (4,077)
Proceeds from sales of securities available for sale 17,768 -
Principal repayments on securities available for sale 9,984 16,902
Proceeds from maturities of securities available for sale 4,000 5,000
Net increase in loans held for investment (33,391) (19,023)
Net proceeds on sales of real estate owned 161 49
Additions to real estate owned - (77)
Purchases of Federal Home Loan Bank stock (1,650) (1,000)
Redemption of Federal Home Loan Bank stock 150 -
Purchases of property and equipment (392) (601)
------- -------
Net cash used for investing activities (36,273) (2,827)
------- -------
Cash flows from financing activities:
Proceeds from exercise of stock options and warrants 36 57
Net increase (decrease) in deposits 1,775 (10,643)
Proceeds from Federal Home Loan Bank advances 267,000 316,000
Repayment of Federal Home Loan Bank advances (254,000) (308,000)
Repayments of other borrowings (714) -
Net increase in securities sold under agreement
to repurchase 114 835
Cash dividends paid (473) (410)
Other, net 646 533
------- -------
Net cash provided by (used for) financing activities 14,384 (1,628)
------- -------
Decrease in cash and cash equivalents (19,956) (3,760)
Cash and cash equivalents, beginning of period 54,111 23,478
------- -------
Cash and cash equivalents, end of period $ 34,155 $ 19,718
======= =======
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 2,704 $ 2,941
Cash paid during the period for income taxes - -
Schedule of noncash investing and financing activities:
Real estate acquired in settlement of loans $ 105 $ 383
Loans to facilitate sale of real estate owned 258 946
<FN>
The notes to unaudited consolidated financial statements are an integral part of this statement.
</FN>
</TABLE>
4
<PAGE>
CENIT BANCORP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Three Months Ended March 31, 1998
(Dollars in thousands)
<TABLE>
<CAPTION>
Common
Stock Accumulated Other
Common Common Additional Acquired Comprehensive
Stock Stock Paid-In Retained by ESOP Income, Net of
Shares Amount Capital Earnings and MRP Income Taxes Total
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997,
as originally reported 1,657,081 $ 17 $18,152 $35,416 $(4,503) $ 855 $ 49,937
Common stock issued in
1998 three-for-one stock split 3,314,162 33 (33) - - - -
--------- ---- ------- ------- ------ ------- --------
Balance, December 31, 1997,
as restated 4,971,243 $ 50 $18,119 $35,416 $(4,503) $ 855 $ 49,937
Comprehensive income - - - 1,457 - (143) 1,314
Cash dividends declared - - - (946) - - (946)
Exercise of stock options and
related tax benefits 6,078 - 80 - - - 80
Other - - 41 - 72 - 113
------- ---- ------- ------- ------ ------- --------
Balance, March 31, 1998 4,977,321 $ 50 $18,240 $35,927 $(4,431) $ 712 $ 50,498
========= ==== ======= ======= ======= ======= ========
<FN>
The notes to unaudited consolidated financial statements are an integral part of this statement.
</FN>
</TABLE>
5
<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, 1998 and 1997 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, 1997 consolidated financial statements of CENIT Bancorp,
Inc. (the "Company").
Note 2 - Per Share Data
On March 24, 1998, the Company declared a three-for-one stock split. All
financial data included in this Form 10-Q reflects the effect of the stock
split.
The Company adopted FAS 128, Earnings per Share, on December 31, 1997. The
Company changed the method used to compute earnings per share and restated all
prior periods.
Basic earnings per share is calculated using weighted average shares
outstanding. For the three month period ended March 31, 1998, weighted average
shares used to compute basic earnings per share were 4,729,096. For the three
months ended March 31, 1997, weighted average shares used to compute basic
earnings per share were 4,914,198.
Diluted earnings per share is calculated by adding common stock equivalents
to the weighted average shares outstanding. For the three month period ended
March 31, 1998, weighted average shares used to compute diluted earnings per
share were 4,868,040. For the three months ended March 31, 1997, weighted
average shares used to compute diluted earnings per share were 5,052,138.
The unallocated common shares held by the Company's Employee Stock
Ownership Plan are excluded from the weighted average shares used to calculate
basic and diluted earnings per share.
Note 3 - Comprehensive Income
On January 1, 1998, the Company adopted FAS 130, Reporting Comprehensive
Income. FAS 130 establishes standards for reporting and displaying comprehensive
income and its components. The adoption of FAS 130 did not have a material
impact on the Company. All of the Company's other comprehensive income relates
to net unrealized gains (losses) on available for sale securities.
6
<PAGE>
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 and CENIT Bank (formerly Princess Anne Bank) (the "Banks"). Effective
February 6, 1998, Princess Anne Bank changed its name to CENIT Bank. On March
24, 25, and 26, 1998, the Boards of Directors of the Banks, as well as the Board
of Directors of the Company, as the sole shareholder of the Banks, voted to
merge CENIT Bank into CENIT Bank, FSB. Following the merger, which is expected
to be completed during the second quarter of 1998, the Company will cease to be
regulated by the Federal Reserve, and will be a registered savings and loan
holding company regulated pursuant to the Homeowner's Loan Act, as amended (the
"HOLA"). As such, the Company will be subject to the regulation, examination,
supervision and reporting requirements of the Office of Thrift Supervision
("OTS").
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 in commercial, real estate and consumer
loans. The Banks also invest in mortgage-backed certificates, securities issued
by the U.S. Treasury and U.S. Government agencies and other investments
permitted by applicable laws and regulations.
Financial Condition Of The Company
Total Assets
At March 31, 1998, the Company had total assets of $734.4 million compared
to $718.1 million at December 31, 1997.
Securities Available for Sale
Securities available for sale totaled $138.0 million at March 31, 1998 and
are comprised of U. S. Treasury securities, other U. S. Government agency
securities, and mortgage-backed certificates. The net decrease of $804,000 from
December 31, 1997 resulted primarily from $10.0 million of repayments, $4.0
million of proceeds from maturities, $17.8 million of proceeds from the sales of
securities, and $32.9 million in purchases of securities available for sale. It
has been the Company's experience that most mortgage-backed certificates prepay
substantially in advance of their scheduled amortizations. Excluding the
mortgage-backed certificates purchased or sold during the first three months of
1998, the Company experienced amortizations or prepayments on its
mortgage-backed certificate portfolio at an annualized rate of approximately 40%
during the first quarter of 1998.
Loans
The balance of net loans held for investment increased from $486.5 million
at December 31, 1997 to $519.7 million at March 31, 1998. This increase resulted
primarily from an increase in adjustable-rate residential mortgage loans of
$31.1 million. For the three months ended March 31, 1998, loan originations
totaled $53.5 million, loan purchases totaled $48.8 million, and total principal
reductions totaled $66.8 million. Loan purchases include the bulk purchase of
$46.1 million of adjustable-rate residential mortgage loans during the first
quarter of 1998 with an initial yield of 6.70%. The collateral for these bulk
purchased loans is located primarily outside the Company's primary market area.
During the first quarter of 1998, amortizations or prepayments of conventional
1- to 4-family residential mortgage loans were approximately 40% on an
annualized basis.
7
<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, 1998 December 31, 1997
-------------- -----------------
(Dollars in Thousands)
Amount Percent Amount Percent
------ ------- ------ -------
<S> <C> <C> <C> <C>
Real estate loans:
Residential permanent 1- to 4-family:
Adjustable rate $ 244,738 43.23% $ 213,682 40.20%
Fixed rate
Conventional 83,248 14.70 89,356 16.81
Guaranteed by VA or insured by FHA 5,104 .90 5,487 1.03
--------- ------ ---------- ------
Total permanent 1- to 4-family 333,090 58.83 308,525 58.04
Residential permanent 5 or more family 6,260 1.11 6,374 1.20
--------- ----------
Total permanent residential loans 339,350 59.94 314,899 59.24
--------- ------ ---------- ------
Commercial real estate loans:
Hotels 10,120 1.78 10,240 1.93
Office and warehouse facilities 28,348 5.01 26,710 5.02
Retail facilities 16,881 2.98 18,249 3.43
Other 3,322 .59 2,714 .51
--------- ------ ---------- ------
Total commercial real estate loans 58,671 10.36 57,913 10.89
--------- ------ ---------- ------
Construction loans:
Residential 1- to 4-family 45,001 7.94 44,208 8.32
Residential 5 or more family 16,185 2.86 12,784 2.40
Nonresidential 3,281 .58 1,420 .27
--------- ------ ---------- ------
Total construction loans 64,467 11.38 58,412 10.99
--------- ------ ---------- ------
Land acquisition and development loans:
Consumer lots 4,415 .78 4,573 0.86
Acquisition and development 14,809 2.62 13,327 2.51
--------- ------ ---------- ------
Total land acquisition and development
loans 19,224 3.40 17,900 3.37
--------- ------ ---------- ------
Total real estate loans 481,712 85.08 449,124 84.49
--------- ------ ---------- ------
Consumer loans:
Boats 5,289 .93 5,685 1.07
Home equity and second mortgage 46,288 8.18 45,194 8.50
Mobile homes 86 .02 95 .02
Other 7,659 1.35 7,250 1.36
--------- ------ ---------- ------
Total consumer loans 59,322 10.48 58,224 10.95
--------- ------ ---------- ------
Commercial business loans 25,139 4.44 24,222 4.56
--------- ------ ---------- ------
Total loans 566,173 100.00% 531,570 100.00%
--------- ====== ---------- ======
Less:
Allowance for loan losses 3,798 3,783
Loans in process 43,831 42,067
Unearned discounts, premiums, and loan fees, net (1,183) (767)
--------- ----------
46,446 45,083
--------- ----------
Total loans, net $ 519,727 $ 486,487
========= ==========
</TABLE>
8
<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, 1998
(Dollars in Thousands)
Loans originated:
Real estate:
Permanent:
Residential 1- to 4-family $ 19,653
Residential 5 or more family -
--------
Total 19,653
--------
Commercial real estate 1,403
--------
Construction:
Residential 1- to 4-family 6,107
Residential 5 or more family 3,472
Nonresidential 2,300
--------
Total 11,879
--------
Land acquisition:
Consumer lots 214
Acquisition and development 2,223
--------
Total 2,437
--------
Total real estate loans originated 35,372
--------
Consumer:
Home equity and second mortgage 7,537
Other 1,651
--------
Total 9,188
--------
Commercial business 8,968
--------
Total loans originated 53,528
--------
Loans purchased 48,756
--------
Total loans originated and purchased 102,284
--------
Principal reductions:
Repayments and other principal reductions 54,078
Real estate loans sold 12,769
--------
Total principal reductions 66,847
--------
Net increase in total loans $ 35,437
========
Net increase in loans held for sale $ 834
Net increase in gross loans held for investment 34,603
--------
$ 35,437
========
9
<PAGE>
Deposits
The balance of deposits increased from $507.7 million at December 31, 1997
to $509.4 million at March 31, 1998. During this period, certificates of deposit
decreased from $328.2 million at December 31, 1997 to $306.2 million at
March 31, 1998, while all other interest-bearing deposits increased by 12.4%
from $124.6 million at December 31, 1997 to $140.0 million at March 31, 1998.
Noninterest-bearing deposits increased 15.1% from $54.9 million at December 31,
1997 to $63.2 million at March 31, 1998.
Capital
The Company's and the Banks' capital ratios exceeded applicable regulatory
requirements at March 31, 1998.
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.
10
<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,
1998 1997
(Dollars in Thousands)
Nonperforming loans:
Real estate loans:
Permanent residential 1- to 4-family
Nonaccrual $ 386 $ 528
Accruing loans 90 days or more past due 316 53
------ ------
Total 702 581
------ ------
Commercial real estate:
Accruing loans 90 days or more past due 535 -
------ ------
535 -
------ ------
Land acquisition and development:
Nonaccrual 100 200
Accruing loans 90 days or more past due - -
------ ------
Total 100 200
------ ------
Consumer loans:
Mobile homes (nonaccrual) 39 48
Credit cards (accruing loans 90 days or
more past due) - 5
Other (nonaccrual) 24 24
------ ------
Total 63 77
------ ------
Commercial business loans:
Nonaccrual 343 240
Accruing loans 90 days or more past due - 5
------ ------
Total 343 245
------ ------
Total nonperforming loans:
Nonaccrual 892 1,040
Accruing loans 90 or more days past due 851 63
------ ------
Total 1,743 1,103
Real estate owned, net 725 1,098
Other repossessed assets, net 148 228
------ ------
Total nonperforming assets, net $2,616 $2,429
====== ======
Total nonperforming assets, net, to total assets .36% .34%
====== ======
At March 31, 1998, nonperforming commercial real estate loans of $535,000
consists of one loan collateralized by a hotel property. The hotel property is
under contract for sale and the Company expects this loan to be repaid in full
during the second quarter of 1998.
11
<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,
1998 1997
(Dollars in Thousands)
Balance at beginning of period $ 3,783 $ 3,806
Provision for loan losses 204 150
Losses charged to allowance (233) (92)
Recovery of prior losses 44 35
------- -------
Balance at end of period $ 3,798 $ 3,899
======= =======
The Company's provision for loan losses increased to $204,000 for the three
months ended March 31, 1998 as compared to $150,000 in the same period in 1997.
At March 31, 1998, the Company's coverage ratio of nonperforming loans was
217.9% compared to a coverage ratio of 343.0% at December 31, 1997.
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.
12
<PAGE>
<TABLE>
<CAPTION>
For the Three Months For the Three Months
Ended Ended
March 31, 1998 March 31, 1997
------------------------------ ----------------------------
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) $ 504,791 $ 10,050 7.96% $ 435,115 $ 8,875 8.16%
Mortgage-backed certificates 87,980 1,483 6.74 161,218 2,713 6.73
U.S. Treasury and other U.S.
Government agency securities 45,001 679 6.04 46,319 727 6.28
Federal funds sold 13,171 180 5.47 6,089 84 5.52
Federal Home Loan Bank and
Federal Reserve Bank stock 9,400 172 7.32 8,525 152 7.13
---------- -------- ---------- --------
Total interest-earning assets 660,343 12,564 7.61 657,266 12,551 7.64
---------- -------- ---------- --------
Noninterest-earning assets:
REO 1,023 2,376
Other 42,263 40,632
---------- ----------
Total noninterest-earning assets 43,286 43,008
---------- ----------
Total assets $ 703,629 $ 700,274
========== ==========
Interest-bearing liabilities:
Passbook and statement savings $ 43,152 $ 353 3.27 $ 46,991 $ 392 3.34
Checking accounts 31,891 147 1.84 28,963 154 2.12
Money market deposit accounts 55,676 500 3.59 45,797 374 3.27
Certificates of deposit 315,145 4,102 5.21 324,876 4,136 5.09
---------- -------- ---------- --------
Total interest-bearing deposits 445,864 5,102 4.58 446,627 5,056 4.53
---------- -------- ---------- --------
Advances from the Federal Home
Loan Bank 141,700 1,925 5.43 156,789 2,095 5.34
Securities sold under agreements
to repurchase 9,228 104 4.51 6,488 70 4.32
Other borrowings 2,424 46 7.59 - - -
---------- -------- ---------- --------
Total borrowings 153,352 2,075 5.41 163,277 2,165 5.30
---------- -------- ---------- --------
Total interest-bearing liabilities 599,216 7,177 4.79 609,904 7,221 4.74
---------- -------- ---------- --------
Noninterest-bearing liabilities:
Deposits 47,923 37,658
Other liabilities 6,222 2,854
---------- ----------
Total noninterest-bearing liabilities 54,145 40,512
---------- ----------
Total liabilities 650,416
Stockholders' equity 50,268 49,858
---------- ----------
Total liabilities and stockholders' equity $ 703,629 $ 700,274
========== ==========
Net interest income/interest rate spread $ 5,387 2.82% $ 5,330 2.90%
======== ========
Net interest position/net interest margin $ 61,127 3.26% $ 47,362 3.24%
========== ==========
Ratio of average interest-earning assets to
average interest-bearing liabilities 110.20% 107.77%
====== ======
<FN>
(1) Includes nonaccrual loans and loans held for sale.
</FN>
</TABLE>
13
<PAGE>
Comparison of Operating Results for the Three Months Ended March 31, 1998 and
March 31, 1997.
General
The Company's pre-tax income for the three months ended March 31, 1998 was
$2.3 million compared to $1.6 million during the same period in the prior year.
This increase is primarily attributable to a $594,000 increase in other income,
a $3,000 increase in net interest income after provision for loan losses, and a
$29,000 decrease in other expenses. Included in other expenses for the three
months ended March 31, 1997 are $394,000 of expenses relating to the Company's
1997 proxy contest and other matters.
Net Interest Income
The Company's net interest income before provision for loan losses
increased by $57,000 for the quarter ended March 31, 1998 as compared to that of
the previous year. This increase resulted from a $13,000 increase in interest
income, and a $44,000 decrease in interest expense.
Interest on the Company's portfolio of mortgage-backed certificates
decreased by $1.2 million from $2.7 million for the quarter ended March 31, 1997
to $1.5 million for the comparable 1998 period. This decrease resulted primarily
from a $73.2 million decrease in the average balance of the portfolio. The
decrease in the average balance of mortgage- backed certificates was due
primarily to prepayments and sales of mortgage-backed certificates.
Interest on loans increased by $1.2 million in the quarter ended March 31,
1998 compared to the comparable 1997 period. This increase was primarily
attributable to a $69.7 million increase in the average balance of loans. The
yield on the Bank's loan portfolio decreased from 8.16% in the quarter ended
March 31, 1997 to 7.96% in the comparable 1998 period as purchased loans with
lower initial yields were added to the loan portfolio.
Interest on investment securities for the quarter ended March 31, 1998
decreased by $48,000 compared to the same period in 1997 primarily due to both a
$1.3 million decrease in the average balance of investment securities and a
decrease in the yield from 6.28% in the first quarter of 1997 to 6.04% in the
same period in 1998.
Dividends and other interest income increased by $116,000 during the first
quarter of 1998 compared to the same period in 1997. Most of the increase is
from interest on federal funds sold which increased by $96,000 due primarily to
an increase of $7.1 million in the average balance outstanding during the first
quarter of 1998 compared to the same period in 1997.
Interest on deposits increased by $46,000 in the quarter ended March 31,
1998 compared to the comparable 1997 period. The average balance of
interest-bearing deposits decreased by $763,000 in the first quarter of 1998
when compared to the same period in 1997 while the average cost of these
deposits for this period increased from 4.53% in 1997 to 4.58% in 1998.
The Company's interest on borrowings decreased by $90,000 in the quarter
ended March 31, 1998 compared to the comparable 1997 period. This decrease was
attributable to a $9.9 million decrease in the average balance of borrowings
offset by an increase of 11 basis points in the cost of these borrowings.
The Company's net interest margin increased from 3.24% for the quarter
ended March 31, 1997 to 3.26% for the quarter ended March 31, 1998, while the
Bank's interest rate spread decreased from 2.90% in the quarter ended March 31,
1997 to 2.82% in the comparable 1998 period. The Company's calculations of net
interest margin and interest rate spread include nonaccrual loans as
interest-earning assets.
Provision for Loan Losses
The Company's provision for loan losses increased by $54,000 to $204,000
for the three months ended March 31, 1998, compared to the same period in 1997.
Net loans charged off during the quarter ended March 31, 1998 were $189,000
compared to $57,000 in the comparable 1997 period.
14
<PAGE>
Other Income
Total other income increased from $971,000 in the quarter ended March 31,
1997 to $1.6 million in the comparable 1998 period.
Deposit fees increased by $120,000, 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 $166,000 from $227,000 in
the first quarter of 1997 to $393,000 in the first quarter of 1998 as the
Company continued to experience substantial growth in its merchant portfolio.
Brokerage fees recognized by CENIT Bank, FSB's commercial mortgage brokerage
subsidiary, increased by $177,000 to $181,000 during the first quarter of 1998
compared to $4,000 during the same period in 1997.
Other Expenses
Total other expenses decreased by $29,000 for the quarter ended March 31,
1998 compared to the comparable 1997 period. The quarter ended March 31, 1997
includes $394,000 of expenses relating to the Company's 1997 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. Merchant processing
expenses increased, due to increased volume, by $171,000 to $361,000 in the
first quarter of 1998 compared to $190,000 in 1997's first quarter while
professional fees increased by $81,000 to $194,000 during the first quarter of
1998 compared to $113,000 during the same period in 1997.
Liquidity
The principal sources of funds for the Company for the three months ended
March 31, 1998 included $267.0 million in proceeds from FHLB advances and $31.8
million in proceeds from principal repayment, sales and maturities of securities
available for sale. Funds were used primarily to repay FHLB advances totaling
$254.0 million, to fund purchases of securities available for sale totaling
$32.9 million and to fund net increases in loans held for investment of $33.4
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.
All savings institutions, including CENIT Bank, FSB, are required to
maintain an average daily balance of liquid assets equal to a certain percentage
of the sum of its average daily balance of net withdrawable deposit accounts and
borrowings payable in one year or less. The liquidity requirement may vary from
time to time (between 4% and 10%) depending upon economic conditions and savings
flows of all savings institutions. At the present time, the required liquid
asset ratio is 4.0%. CENIT Bank, FSB's liquid asset ratio was 9.3% and 8.8% at
March 31, 1998 and December 31, 1997, respectively.
15
<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
6.a Exhibit 10.12 - Consulting Agreement with J. Morgan Davis
Exhibit 10.13 - Non-Competition and Non-Disclosure Agreement with
J. Morgan Davis
6.b Reports on Form 8-K during the first quarter of 1998
On March 26, 1998, the Company filed Form 8-K, Item 5 and Item 7.
Item 5 reported that on March 24, 1998, the Company issued a news
release announcing a three-for-one stock split, quarterly dividend
payment and other information. Item 7 included, as an exhibit, the
news release.
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 5, 1998 /S/ Michael S. Ives
Michael S. Ives
President and Chief Executive Officer
DATE: May 5, 1998 /S/ John O. Guthrie
John O. Guthrie
Senior Vice President and
Chief Financial Officer
16
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT (the "Agreement") is made this 14th day of April,
1998, by and between J. MORGAN DAVIS (the "Consultant"); and CENIT BANCORP,
INC., a Delaware corporation (the "Company"), CENIT BANK, FSB, a federal savings
bank (the "Savings Bank"), and CENIT BANK, a Virginia state chartered commercial
bank (the "Bank").
W I T N E S S E T H:
WHEREAS, the Consultant has heretofore served as a Director of and as
President and Chief Executive Officer of the Bank, and as a Director of the
Company, which is the sole stockholder of the Bank; and
WHEREAS, in such capacities the Consultant has become familiar with all
aspects of and information about (i) the business strategy and business plans of
the Bank, the Company, and the Savings Bank, the other wholly owned subsidiary
of the Company (the Bank, the Company, and the Savings Bank being sometimes
hereinafter referred to together as "CENIT"), (ii) the borrowers, depositors,
and other customers of CENIT, (iii) the marketing, loan pricing, and deposit
rate strategies of CENIT, and (iv) other similar confidential and proprietary
information concerning the business and affairs of CENIT (all such confidential
and proprietary information about the business and affairs of CENIT being
referred to herein as the "CENIT Confidential Information"); and
WHEREAS, by mutual agreement among the Consultant, the Bank, and the
Company, the Consultant has decided to resign as a director and officer of the
Bank and the Company and any subsidiaries of the Bank and the Company, and CENIT
has decided to retain the services of the Consultant as a consultant to CENIT on
and subject to terms and conditions set forth herein; and
WHEREAS, in consideration of the provision of such consulting services and
the release of all claims by the Consultant pursuant to a separate agreement
(the "Release"), of even date herewith, all as set forth herein, CENIT has
agreed to pay the Consultant the compensation described below.
NOW, THEREFORE, in consideration of the mutual promises set forth herein,
the compensation to be paid to the Consultant hereunder, and other good and
valuable consideration, the adequacy and receipt of which is hereby
acknowledged, the Consultant and CENIT hereby agree as follows:
1. Resignation as Director and Officer. Effective as of the date of this
Agreement, the Consultant has resigned as a director and officer of the
Bank, as a director of the Company, and as a director and officer of any
subsidiaries of either the Bank or the Company, and any ventures in which
either the Bank or the Company or any of their respective subsidiaries are
involved. The Consultant has submitted letters of resignation, in the form
attached hereto as EXHIBIT A-1 and
1
<PAGE>
EXHIBIT A-2, to the Board of Directors of the Bank and the Company, and the
Consultant hereby agrees to execute such additional instruments,
agreements, documents, and certificates as either the Bank or the Company
may reasonably request in connection with such resignations by the
Consultant.
2. Termination of Employment Agreement. The Consultant and the Bank are
parties to that certain Employment Agreement (the "Employment Agreement")
dated as of January 30, 1995. The Consultant and the Bank mutually agree
that the Employment Agreement is hereby terminated in all respects,
effective as of the date hereof, and that the respective rights, duties,
and obligations of the Consultant and CENIT shall be as set forth in this
Agreement, the exhibits hereto, the Release, and a separate agreement (the
"Non-Competition and Non-Disclosure Agreement"), of even date herewith. In
connection with the termination of the Employment Agreement, the Consultant
has returned to CENIT all keys to corporate offices, all corporate security
codes, all corporate access devices, if any, all corporate credit cards, if
any, and all corporate equipment documents, reports, minutes, files,
computer records, and correspondence (including all copies thereof). The
Consultant agrees to execute all such instruments, agreements, and
documents as the Bank may reasonably request in connection with the
termination of the Consultant's position with the Bank under the Employment
Agreement. The Bank acknowledges and agrees that, for the limited purposes
contemplated by this Agreement, the Consultant shall remain an employee of
the Bank at the current level of base compensation and with the same
benefits as presently in effect through May 1, 1998, and the Bank shall pay
such compensation and provide such benefits to the Consultant through such
date in accordance with the Bank's standard policies. The Consultant
acknowledges and agrees that effective May 2, 1998, the Consultant will no
longer be an employee of or employed by the Bank. The Bank further
acknowledges and agrees that the Consultant shall have the right after May
1, 1998, as provided under COBRA, to purchase health insurance coverage, at
the Consultant's cost and expense, under the Bank's health insurance plan
as in effect from time to time.
3. Term. Unless earlier terminated pursuant to the provisions set forth in
this Agreement, the term of this Agreement shall be twenty-five (25) months
commencing as of the date of this Agreement and ending May 1, 2000. This
Agreement shall not be subject to extension or renewal unless mutually
agreed by the Consultant and the Bank by the execution of a written
amendment hereto.
4. Duties of the Consultant.
A. At the request of retail account or consumer lending officers or
commercial or real estate lending officers of the Bank, the Consultant
shall meet with existing and prospective customers of CENIT, together
with one or more of the Bank's retail account or consumer lending
officers or commercial or real estate lending officers, in order to
encourage existing and prospective customers to continue to do or to
commence doing business with CENIT and to refer other prospective
customers to CENIT. The Consultant will not, either directly or
indirectly, discourage, or attempt to discourage, any existing or
prospective customer of CENIT from doing business with
2
<PAGE>
CENIT or encourage, or attempt to encourage, any existing or
prospective customer of CENIT to obtain financial services from any
competitor of CENIT. The Consultant shall, at all times, use his best
efforts to present a positive image for CENIT and to encourage all
existing and prospective customers to continue to do business with
CENIT and to expand the range of financial services that such
customers procure from CENIT.
B. The Consultant shall have no authority to enter into binding
agreements or commitments on behalf of CENIT and shall not represent
to any existing or prospective customer of CENIT that the Consultant
has any such authority. The Consultant shall refer any questions
concerning the willingness of CENIT to enter into a binding agreement
or commitment with any existing or prospective customer of CENIT to
senior management of CENIT.
C. Without in any way limiting or qualifying the duties and obligations
of the Consultant under the Non-Competition and Non-Disclosure
Agreement, the Consultant shall not initiate or participate, either
directly or indirectly, in any communications of any kind with any
financial analyst, underwriter, investment advisor, broker, investor,
shareholder or any other person concerning the financial condition or
performance of the Company, any actual or proposed shareholder
proposals or resolutions (whether binding or non-binding) or any
mergers or acquisitions plans or activities of the Company nor shall
the Consultant disclose any information about any such plans or
activities or speculate about the intentions of the Company in this
regard with any such person. In the event that the Consultant receives
any inquiries or other communications from any financial analyst,
underwriter, investment advisor, broker, investor, shareholder or any
other person concerning the financial condition or performance of the
Company, any actual or proposed shareholder proposals or resolutions,
or any mergers or acquisitions plans or activities of the Company, the
Consultant shall immediately refer such person to the President and
Chief Executive Officer of the Company and shall inform the President
and Chief Executive Officer of the Company of each such inquiry or
other communication so received.
D. The Consultant shall support management of CENIT and shall not make
any statements, whether public or private, or whether direct or
indirect, that are in any way critical or disparaging of the business
and affairs of CENIT. Without limiting the generality of the
foregoing, the Consultant shall support and vote, or cause to be
voted, all shares of common stock of the Company, whether now owned or
hereafter acquired, and whether owned directly or beneficially, by the
Consultant (the "Consultant's Shares") in favor of all matters
supported by the Board of Directors of the Company and with respect to
which the Board of Directors of the Company recommends that the
shareholders of the Company vote in favor. The Consultant acknowledges
and agrees that such matters shall include any proxy contests in which
the Company may become engaged including, without limitation, the
proxy contest in which the Company is presently involved, any
shareholder proposals or resolutions, any mergers or acquisition
transactions involving other community financial institutions in the
Company's market area, and any strategic alliances that the Company
may decide to pursue. Not less than ten (10) days before the date of
the annual meeting of shareholders of the Company and any other date
set for a vote of the shareholders at any regular
3
<PAGE>
or special meeting of the shareholders of the Company, the Consultant
shall deliver to the Company his completed, properly executed proxy
voting the Consultant's Shares in favor of all matters supported by
the Board of Directors of the Company and with respect to which the
Board of Directors recommends that the shareholders vote in favor. The
Consultant further agrees to take all appropriate action necessary to
cause any shares held by the Company's employee stock ownership plan
(the "CENIT ESOP") for the benefit of the Consultant to be voted in
favor of all matters supported by the Board of Directors of the
Company and with respect to which the Board of Directors recommends
that the shareholders vote in favor. For purposes of this Agreement,
the Consultant's Shares shall include all such shares in the CENIT
ESOP held for the benefit of the Consultant. In providing such support
of management and all matters supported by the Board of Directors,
however, the Consultant shall not be required to participate directly
in proxy solicitation efforts of the Company, although the Consultant
agrees to refer any financial analyst, underwriter, investment
advisor, broker, investor, shareholder or any other person requesting
information about any matter coming before the shareholders for a vote
to the President and Chief Executive Officer of the Company.
E. In order to secure the performance of the obligation of the Consultant
to vote the Consultant's Shares in favor of any matter with respect to
which the Board of Directors of the Company recommends that the
shareholders of the Company vote in favor, the Consultant shall
execute an irrevocable proxy and power of attorney, in the form
attached to this Agreement as EXHIBIT B, naming the Company, acting
though its President and Chief Executive Officer, and its Senior Vice
President and Chief Financial Officer, as the Consultant's proxy and
attorney in fact, with full power of substitution, to vote the
Consultant's Shares in favor of all matters for which the Board of
Directors of the Company recommends that the shareholders of the
Company vote in favor. The Consultant affirmatively acknowledges and
agrees that such proxy shall be irrevocable and the power granted
thereby shall be deemed to be coupled with an interest for as long as
this Agreement remains in effect or the Consultant has any duties or
obligations to the Bank.
5. Compensation.
A. In consideration of the consulting services to be provided by the
Consultant pursuant to the provisions of this Agreement, the Bank
shall pay to the Consultant during the term of this Agreement,
effective May 2, 1998, if the Consultant is not then in default under
this Agreement, compensation equal to $1,000 per month. All such
payments shall be payable in monthly, semimonthly or bi-weekly
installments in conformity with the Bank's personnel policy relating
to salaried employees and with all appropriate federal, state, and
local withholding and other deductions in accordance with such
policies. In the event of the death of the Consultant during the term
of this Agreement, and if the Consultant is not then in default under
this Agreement, the Bank shall continue to pay such amount to the
executor, administrator or legal representative of the Consultant for
the benefit of the Consultant's estate for a period of six (6) months
following the date of death. The Consultant acknowledges and agrees
that the payment by the Bank of the amount of $1,000 per month to the
Consultant shall be the total compensation payable by the Bank for the
4
<PAGE>
consulting services to be provided under this Agreement and that the
Bank shall have no duty or obligation to provide any other
compensation or benefits of any kind to the Consultant.
B. In addition to the compensation payable by the Bank to the Consultant
under Paragraph 5.A. above, the Bank shall also transfer, or cause to
be transferred, to the Consultant the title to the automobile most
recently used by the Consultant in connection with the Bank's
business. From and after the date of this Agreement, the Consultant
shall be responsible for all costs and expenses incurred by the
Consultant in connection with the ownership, operation, and
maintenance of this automobile.
C. In connection with consulting services provided by the Consultant to
the Bank at the request of the Bank, if the Consultant is asked to
incur any expenses in connection with the provision of such consulting
services, the Bank will reimburse the Consultant for reasonable costs
and expenses directly incurred by the Consultant in providing any such
consulting services.
D. The Consultant shall continue to be entitled to exercise any stock
options for the purchase of shares of common stock of the Company
heretofore granted to the Consultant in accordance with the terms and
conditions of the grant pursuant to which such stock options were made
and the terms and conditions of the CENIT Stock Option Plan (the
"Option Plan"). The Consultant acknowledges and agrees that the
Consultant shall not be entitled to the award of any additional stock
options under the Option Plan or shares under the CENIT Management
Recognition Plan and Trust (the "MRP") and that the Consultant must
exercise any existing exercisable stock options held by the Consultant
before August 1, 1998, in accordance with the provisions of the Option
Plan. The shares of restricted stock previously awarded to the
Consultant under the MRP shall be forfeited to the Company upon the
date of execution of this Agreement because such shares are not fully
vested in the Consultant in accordance with the provisions of the
award of such shares and the MRP.
E. In the event of the default by the Consultant and the termination of
this Agreement as a consequence of such default, the termination shall
be treated as a termination "for cause" for purposes of the Option
Plan, and the right of the Consultant to exercise any stock options
held by the Consultant and not theretofore exercised shall be
extinguished. After the Consultant's service to CENIT is terminated
under this Agreement, the Consultant shall be entitled to
distributions of the benefits to which he is entitled under the CENIT
ESOP and the CENIT 401(k) Plan, which distributions shall be made in
accordance with and subject to the terms of these plans.
F. The compensation to be paid to the Consultant under this Agreement is
the exclusive compensation to be paid by the Bank for the consulting
services, and all rights to compensation, benefits, stock options, and
restricted stock, whether current or deferred, payable to the
Consultant under or in connection with the Employment Agreement are
hereby extinguished.
5
<PAGE>
G. The compensation to be paid to the Consultant under this Agreement is
expressly conditioned upon the full and faithful performance by the
Consultant of each of the duties and obligations of the Consultant
under this Agreement.
H. The Company and the Bank may withhold from any compensation and
benefits payable under this Agreement all federal and state or other
taxes as shall be required pursuant to any law or governmental
regulation or ruling.
I. Notwithstanding the other provisions of this Paragraph 5, at any time
after April 1, 1999, the Consultant shall be entitled to terminate the
right to receive compensation under this Paragraph 5 and in
consideration thereof shall be released from the obligation not to
compete with CENIT under the Non-Competition and Non-Disclosure
Agreement but not from the obligation not to disclose CENIT
Confidential Information under the Non-Competition and Non-Disclosure
Agreement. The Consultant may exercise this right by delivering
written notice to CENIT at least thirty (30) days in advance of the
date on which the Consultant desires to terminate such right to
receive compensation.
6. Publicity. The Consultant and CENIT shall maintain in confidence the
provisions of this Agreement and shall not disclose the terms of this
Agreement to any other person except as provided in this paragraph. The
Consultant agrees that CENIT may disclose the terms of this Agreement
and/or the termination of the Employment Agreement to the extent that
disclosure is required by or deemed to be appropriate under applicable
federal or state banking or securities laws and regulations or in any
litigation to which CENIT may become a party and in which disclosure of the
terms of this Agreement is compelled. The Consultant and CENIT shall
mutually agree upon a statement to be released to the public concerning the
Consultant's resignation of his positions as a director and an officer of
the Bank and the Company and shall otherwise withhold comment on the
circumstances surrounding such resignation. The Consultant agrees that the
limitations imposed on CENIT by this paragraph shall become null and void
in the event of the termination of this Agreement following a breach of the
terms hereof by the Consultant.
7. Termination. CENIT shall be entitled to terminate this Agreement, in the
event of any breach or violation by the Consultant of either the terms of
this Agreement or the terms of the Non-Competition and Non-Disclosure
Agreement or in the event of any act or omission prior to or during the
term of this Agreement that would have permitted the Bank to terminate the
Employment Agreement for cause as provided therein. Before terminating this
Agreement, CENIT shall give the Consultant written notice of any breach or
violation of the Consultant's obligation to perform the consulting services
and the opportunity for a period of three (3) days to cure or remedy such
breach or violation to CENIT's satisfaction; provided, however, that CENIT
shall be under no obligation to give the Consultant such notice and
opportunity to cure if such breach or violation is, in CENIT's reasonable
judgment, not susceptible of being cured or remedied by the Consultant. In
the event of such termination, the obligation of CENIT to pay compensation
and other benefits to the Consultant under this Agreement shall terminate,
and CENIT thereupon shall be entitled to pursue all legal and
6
<PAGE>
equitable remedies available to it under this Agreement, or at law or in
equity, and any limitations imposed hereby upon CENIT's rights and remedies
shall be immediately terminated. The Consultant's duties and obligations
under the Non-Competition and Non-Disclosure Agreement shall survive any
such termination of this Agreement.
8. Release. In connection with the execution of this Agreement, the Consultant
shall execute and deliver to CENIT a Release of All Claims in the form
attached hereto as EXHIBIT C. In accordance with the provisions of the
federal Age Discrimination in Employment Act, such release contains a seven
day right of rescission for the benefit of the Consultant. This Agreement,
and the duties, obligations, and liabilities imposed upon CENIT hereunder,
are expressly made conditional upon the expiration of such seven-day
rescission period without the rescission of such release by the Consultant.
In the event of such rescission by the Consultant, the provisions of this
Agreement shall be null and void.
9. Notices. For the purposes of this Agreement, notices or other
communications provided for in this Agreement shall be in writing and shall
be deemed to have been duly given when hand delivered to the party to whom
directed or mailed by United States certified mail, return receipt
requested, postage prepaid, addressed to such party at such party's address
last known by the party giving such notice. Each party shall advise the
other parties of the appropriate address to which notices should be sent.
Notices of change of address shall be effective only upon receipt. CENIT
hereby advises the Consultant that all notices to CENIT should be addressed
to CENIT Bancorp, Inc., 225 West Olney Road, Norfolk, Virginia 23510,
attention: President.
10. Modification - Waivers - Applicable Law. No provisions of this Agreement
may be modified, waived or discharged unless such waiver, modification or
discharge is agreed to in writing, signed by the Consultant and on behalf
of CENIT by such officers as may be specifically designated by the Board of
Directors of the Company. No waiver of any breach, condition or provision
of this Agreement by any party hereto at any time shall be deemed a waiver
of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time. No agreements or representations, oral or
otherwise, express or implied, with respect to the subject matter hereof
have been made by any party which are not set forth expressly in this
Agreement. The validity, interpretation, construction and performance of
this Agreement shall be governed by the laws of the Commonwealth of
Virginia.
11. Invalidity - Enforceability. The invalidity or enforceability of any
provision of this Agreement shall not affect the validity or enforceability
of any other provision of this Agreement, which shall remain in full force
and effect. Any provision in this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective only to the extent of such prohibition or unenforceability
without invalidating or affecting the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other
jurisdiction.
7
<PAGE>
12. Successor Rights. This Agreement shall inure to the benefit of and be
enforceable by the Consultant's personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees, and shall be binding upon and inure to the benefit of the
Company, the Savings Bank, and the Bank and any successors thereto and any
present and future affiliates and subsidiaries thereof. If the Consultant
should die while any amounts would still be payable to the Consultant
hereunder, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to the Consultant's
legatee or other designee or, if there is no such designee, to the
Consultant's estate.
13. Compliance with Federal Statutes and Regulations. If the Consultant is
suspended and/or temporarily prohibited from participating in the conduct
of the affairs of CENIT by a notice served under Section 8(e)(3) or (g)(1)
of the Federal Deposit Insurance Act (12 U.S.C. Section 1818(e)(3) and
(g)(1)), CENIT's obligations to the Consultant under this Agreement shall
be suspended as of the date of service of any such notice unless stayed by
appropriate proceedings. If the charges in the notice are dismissed, CENIT
may in its discretion (i) pay the Consultant all or part of the
compensation withheld while its obligations under this Agreement were
suspended, and (ii) reinstate (in whole or in part) any of its obligations
which were suspended.
A. If the Consultant is removed and/or permanently prohibited from
participating in the conduct of CENIT's affairs by an order issued
under Section 8(e)(4) or (g)(1) of the Federal Deposit Insurance Act
(12 U.S.C. Section 1818(e)(4) or (g)(1)), all obligations of CENIT
under this Agreement pertaining to CENIT shall terminate as of the
effective date of the order, but vested rights of the parties hereto
shall not be affected.
B. If either the Bank or the Savings Bank is in default (as defined in
Section 3(x)(1) of the Federal Deposit Insurance Act 12 U.S.C. Section
1813(x)(1)), all obligations under this Agreement shall terminate as
of the date of default, but this paragraph shall not affect any vested
rights of the parties hereto shall not be affected.
C. All obligations of CENIT under this Agreement shall be terminated,
except to the extent that it is determined that continuation of the
contract is necessary to the continued operation of the Bank (i) by
the appropriate federal banking agency, at the time the Federal
Deposit Insurance Corporation enters into an agreement to provide
assistance to or on behalf of either the Bank or the Savings Bank
under the authority contained in Section 13(c) of the Federal Deposit
Insurance Act; or (ii) by the appropriate federal banking agency, at
the time such agency approves a supervisory merger to resolve problems
related to operation of either the Bank or the Savings Bank or when
either the Bank or the Savings Bank is determined by such agency to be
in an unsafe or unsound condition; but vested rights of the parties
hereto shall not be affected.
14. Headings. Descriptive headings contained in this Agreement are for
convenience only and shall not control or affect the meaning or
construction of any provision hereof.
8
<PAGE>
15. Legal Conflict. In the event of any conflict between any of the provisions
of this Agreement and the provisions of any applicable statutes or
regulations, as such statutes or regulations are in effect as of the date
of this Agreement, the provisions of such statutes or regulations in effect
as of the date of this Agreement shall control.
IN WITNESS WHEREOF, the parties have executed this Agreement effective as
of the date first above written.
CONSULTANT:
_____________________________(SEAL)
J. Morgan Davis
COMPANY:
CENIT BANCORP, INC.
By______________________________
Title:
SAVINGS BANK:
CENIT BANK, FSB
By______________________________
Title:
9
<PAGE>
BANK:
CENIT BANK
By______________________________
Title:
10
NON-COMPETITION AND NON-DISCLOSURE AGREEMENT
THIS NON-COMPETITION AND NON-DISCLOSURE AGREEMENT (the "Agreement") is made
this 14th day of April, 1998, by and between J. MORGAN DAVIS (the "Consultant");
and CENIT BANCORP, INC., a Delaware corporation (the "Company"), CENIT BANK,
FSB, a federal savings bank (the "Savings Bank"), and CENIT BANK, a Virginia
state chartered commercial bank (the "Bank").
W I T N E S S E T H:
WHEREAS, the Consultant has heretofore served as a Director of and as
President and Chief Executive Officer of the Bank, and as a Director of the
Company, which is the sole stockholder of the Bank; and
WHEREAS, in such capacities the Consultant has become familiar with all
aspects of and information about (i) the business strategy and business plans of
the Bank, the Company, and the Savings Bank, the other wholly owned subsidiary
of the Company (the Bank, the Company, and the Savings Bank being sometimes
hereinafter referred to together as "CENIT"), (ii) the borrowers, depositors,
and other customers of CENIT, (iii) the marketing, loan pricing, and deposit
rate strategies of CENIT, and (iv) other similar confidential and proprietary
information concerning the business and affairs of CENIT (all such confidential
and proprietary information about the business and affairs of CENIT being
referred to herein as the "CENIT Confidential Information"); and
WHEREAS, by mutual agreement among the Consultant, the Bank, and the
Company, the Consultant has decided to resign as a director and officer of the
Bank and the Company and any subsidiaries of the Bank and the Company, and CENIT
has decided to retain the services of the Consultant as a consultant to CENIT on
and subject to terms and conditions set forth in a Consulting Agreement (the
"Consulting Agreement"), of even date herewith; and
WHEREAS, in consideration of the agreement of the Consultant not to compete
with CENIT and not to disclose the CENIT Confidential Information as set forth
herein, CENIT has agreed to pay the Consultant the amount described below.
NOW, THEREFORE, in consideration of the mutual promises set forth herein,
the amount to be paid to the Consultant hereunder, and other good and valuable
consideration, the adequacy and receipt of which is hereby acknowledged, the
Consultant and CENIT hereby agree as follows:
1. Resignation as Director and Officer. Effective as of the date of this
Agreement, the Consultant has resigned as a director and officer of the
Bank, as a director of the Company, and as a director and officer of any
subsidiaries of either the Bank or the Company, and any ventures in which
either the Bank or the Company or any of their respective subsidiaries are
involved.
1
<PAGE>
2. Termination of Employment Agreement. The Consultant and the Bank are
parties to that certain Employment Agreement (the "Employment Agreement")
dated as of January 30, 1995. The Consultant and the Bank mutually agree
that the Employment Agreement is hereby terminated in all respects,
effective as of the date hereof, and that the respective rights, duties,
and obligations of the Consultant and CENIT shall be as set forth in this
Agreement, the Consulting Agreement, the exhibits thereto, and the Release.
3. Term. Unless earlier terminated pursuant to the provisions set forth in
this Agreement, the term of this Agreement shall be twenty-five (25) months
commencing as of the date of this Agreement and ending May 1, 2000;
provided, however, that the obligation of the Consultant under Paragraph
6.B. shall continue through May 1, 2001.
4. Duties of the Consultant. The Consultant shall have the duties and
obligations set forth in the Consulting Agreement and shall be subject to
the agreements, limitations and restrictions set forth herein.
5. Compensation.
A. The Consultant shall continue to receive compensation and benefits as
an employee of the Company through May 1, 1998, pursuant to the
provisions of the Consulting Agreement.
B. In consideration of the agreements of the Consultant set forth in this
Agreement, the Bank shall pay to the Consultant during the term of
this Agreement, effective May 2, 1998, if the Consultant is not then
in default under this Agreement, an amount equal to $13,000 per month.
All such payments shall be payable in monthly, semimonthly or
bi-weekly installments in conformity with the Bank's personnel policy
relating to salaried employees. In the event of the death of the
Consultant during the term of this Agreement, and if the Consultant is
not then in default under this Agreement, the Bank shall continue to
pay such amount to the executor, administrator or legal representative
of the Consultant for the benefit of the Consultant's estate for a
period of one (1) month following the date of death. The Consultant
acknowledges and agrees that the payment by the Bank of the amount of
$13,000 per month to the Consultant shall be the total compensation
payable by the Bank for the agreements of the Consultant set forth in
this Agreement and that the Bank shall have no duty or obligation to
provide any other compensation or benefits of any kind to the
Consultant under this Agreement.
C. The compensation to be paid to the Consultant under this Agreement is
expressly conditioned upon the full and faithful performance by the
Consultant of each of the agreements of the Consultant set forth in
this Agreement.
2
<PAGE>
D. Notwithstanding the other provisions of this Paragraph 5, at any time
after April 1, 1999, the Consultant shall be entitled to terminate the
right to receive compensation under this Paragraph 5 and in
consideration thereof shall be released from the obligation not to
compete with CENIT under Paragraph 6.A. of this Agreement but not from
the obligation not to disclose CENIT Confidential Information under
Paragraph 6.B. of this Agreement. The Consultant may exercise this
right by delivering written notice to CENIT at least thirty (30) days
in advance of the date on which the Consultant desires to terminate
such right to receive compensation.
6. Noncompetition; Nondisclosure:
A. For a period of two (2) years from the date of this Agreement, the
Consultant shall not, directly or indirectly, whether or not receiving
compensation therefor, either as principal, agent, manager, employee,
partner, shareholder, director, officer, consultant or otherwise,
become employed by, or manage or perform services for any business
operation, whether financially or in any other capacity, if such
business operation has a location within a fifty (50) mile radius of
the headquarters of the Company and competes with CENIT. For a period
of two (2) years from the date of this Agreement, the Consultant shall
not, directly or indirectly, whether or not receiving compensation
therefor, either as principal, agent, manager, employee, partner,
shareholder, director, officer, consultant or otherwise, (i) in any
way induce or attempt to induce any employee of CENIT to leave such
employee's position with CENIT to become associated with a business
competing in any way with CENIT or (ii) induce or attempt to induce
any customer of CENIT of either to cease transacting business with
CENIT or transfer any part of such customer's business to any other
depository institution.
B. For a period of three (3) years from the date of this Agreement, the
Consultant shall hold in a fiduciary capacity for the benefit of CENIT
all CENIT Confidential Information, which shall have been obtained by
the Consultant during the Consultant's previous employment by the
Bank, service as a director of the Company or during the term of this
Agreement and which shall not be or become public knowledge (other
than by acts by the Consultant or representatives of the Consultant in
violation of this Agreement). For a period of three (3) years from the
date of this Agreement, the Consultant shall not, without the prior
written consent of CENIT or as may otherwise be required by law or
legal process, communicate or divulge any such CENIT Confidential
Information to anyone other than CENIT and those persons designated by
CENIT.
C. During any period in which the provisions of Paragraph 6.A. are
effective, those provisions shall not preclude the Consultant from
holding any publicly traded stock provided the Consultant does not
acquire any stock interest in any one company in excess of ten percent
(10%) of the outstanding voting stock of that company.
D. Except as provided in Paragraph 6.C. above, the Consultant shall be
deemed to be in violation of the provisions of Paragraph 6.A. if he
(i) is employed by, manages, or performs services for a bank or
company that engages in business or performs services similar to the
business
3
<PAGE>
conducted or services performed by CENIT at the time this Agreement is
terminated; (ii) otherwise performs work in the financial services
industry of a similar nature to that performed by the Consultant for
the Bank previously or during the term of this Agreement; or (iii)
solicits or accepts, other than on behalf of CENIT, any competitive
business from any customers of CENIT or requests or advises any
customer of CENIT to withdraw, curtail, or cancel the customer's
business with CENIT or to refrain from conducting additional business
with or procuring additional services from CENIT.
E. The parties agree that the restrictions contained in this Paragraph 6
are reasonable and fair. If the Consultant competes in violation of
the terms of this Paragraph 6, the parties agree that CENIT will be
irreparably harmed without an adequate remedy at law. Accordingly, the
Consultant acknowledges that if he breaches or threatens to breach any
provision of this Paragraph 6, CENIT shall be entitled to an
injunction, both preliminary and permanent, restraining the Consultant
from such breach or threatened breach, but such injunctive relief
shall not preclude CENIT from pursuing all other legal or equitable
remedies arising out of such a breach.
F. The parties have attempted to limit the Consultant's right to compete
only to the extent necessary to protect CENIT from unfair competition.
The parties recognize, however, that reasonable people may differ in
making such a determination. Consequently, the parties hereby agree
that, if the scope or enforceability of a restrictive covenant set
forth in this Paragraph 6 is in any way disputed at any time, a court
or other trier of fact may modify and reform such provision to
substitute such other terms as are reasonable to protect the
legitimate business interests of CENIT.
G. References in this Paragraph 6 to CENIT shall mean and refer to the
Bank, Savings Bank and/or the Company and their respective present and
future affiliates and subsidiaries as the context may require.
H. The provisions of Paragraph 6.A. and Paragraph 6.B. shall survive any
termination of this Agreement or the Consulting Agreement by CENIT as
a consequence of the breach of any of the provision of this Agreement
or the Consulting Agreement by the Consultant, and the provisions of
Paragraph 6.B. shall survive any termination by the Consultant under
Paragraph 5.D. of the right to receive compensation under this
Agreement.
I. The Consultant shall have the right at any time to seek a
determination from CENIT that conduct in which the Consultant proposes
to engage does not violate the provisions of this Paragraph 6. The
Consultant must seek such a determination before engaging in such
conduct and CENIT will use its best efforts to respond to the
Consultant's request for such a determination within fifteen (15) days
of receipt.
7. Publicity. The Consultant and CENIT shall maintain in confidence the
provisions of this Agreement and shall not disclose the terms of this
Agreement to any other person except as provided in this paragraph. The
Consultant agrees that CENIT may disclose the terms of this
4
<PAGE>
Agreement and/or the termination of the Employment Agreement to the
extent that disclosure is required by or deemed to be appropriate
under applicable federal or state banking or securities laws and
regulations or in any litigation to which CENIT may become a party and
in which disclosure of the terms of this Agreement is compelled. The
Consultant and CENIT shall mutually agree upon a statement to be
released to the public concerning the Consultant's resignation of his
positions as a director and an officer of the Bank and the Company and
shall otherwise withhold comment on the circumstances surrounding such
resignation. The Consultant agrees that the limitations imposed on
CENIT by this paragraph shall become null and void in the event of the
termination of this Agreement following a breach of the terms hereof
by the Consultant.
8. Termination. CENIT shall be entitled to terminate this Agreement,
immediately and without prior notice to the Consultant, in the event of any
breach or violation by the Consultant of either the terms of this Agreement
or the terms of the Consulting Agreement or in the event of any act or
omission prior to or during the term of this Agreement that would have
permitted the Bank to terminate the Employment Agreement for cause as
provided therein. In the event of such termination, the obligation of CENIT
to pay compensation and other benefits to the Consultant under this
Agreement shall terminate, and CENIT thereupon shall be entitled to pursue
all legal and equitable remedies available to it under this Agreement, or
at law or in equity, and any limitations imposed hereby upon CENIT's rights
and remedies shall be immediately terminated. The Consultant's duties and
obligations under Paragraph 6 of this Agreement shall survive any such
termination.
9. Notices. For the purposes of this Agreement, notices or other
communications provided for in this Agreement shall be in writing and shall
be deemed to have been duly given when hand delivered to the party to whom
directed or mailed by United States certified mail, return receipt
requested, postage prepaid, addressed to such party at such party's address
last known by the party giving such notice. Each party shall advise the
other parties of the appropriate address to which notices should be sent.
Notices of change of address shall be effective only upon receipt. CENIT
hereby advises the Consultant that all notices to CENIT should be addressed
to CENIT Bancorp, Inc., 225 West Olney Road, Norfolk, Virginia 23510,
attention: President.
10. Modification - Waivers - Applicable Law. No provisions of this Agreement
may be modified, waived or discharged unless such waiver, modification or
discharge is agreed to in writing, signed by the Consultant and on behalf
of CENIT by such officers as may be specifically designated by the Board of
Directors of the Company. No waiver of any breach, condition or provision
of this Agreement by any party hereto at any time shall be deemed a waiver
of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time. No agreements or representations, oral or
otherwise, express or implied, with respect to the subject matter hereof
have been made by any party which are not set forth expressly in this
Agreement. The validity, interpretation, construction and performance of
this Agreement shall be governed by the laws of the Commonwealth of
Virginia.
5
<PAGE>
11. Invalidity-Enforceability. The invalidity or enforceability of any
provision of this Agreement shall not affect the validity or enforceability
of any other provision of this Agreement, which shall remain in full force
and effect. Any provision in this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective only to the extent of such prohibition or unenforceability
without invalidating or affecting the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other
jurisdiction.
12. Successor Rights. This Agreement shall inure to the benefit of and be
enforceable by the Consultant's personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees, and shall be binding upon and inure to the benefit of the
Company, the Savings Bank, and the Bank and any successors thereto and any
present and future affiliates and subsidiaries thereof. If the Consultant
should die while any amounts would still be payable to the Consultant
hereunder, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to the Consultant's
legatee or other designee or, if there is no such designee, to the
Consultant's estate.
13. Compliance with Federal Statutes and Regulations. If the Consultant is
suspended and/or temporarily prohibited from participating in the conduct
of the affairs of CENIT by a notice served under Section 8(e)(3) or (g)(1)
of the Federal Deposit Insurance Act (12 U.S.C. Section 1818(e)(3) and
(g)(1)), CENIT's obligations to the Consultant under this Agreement shall
be suspended as of the date of service of any such notice unless stayed by
appropriate proceedings. If the charges in the notice are dismissed, CENIT
may in its discretion (i) pay the Consultant all or part of the
compensation withheld while its obligations under this Agreement were
suspended, and (ii) reinstate (in whole or in part) any of its obligations
which were suspended.
A. If the Consultant is removed and/or permanently prohibited from
participating in the conduct of CENIT's affairs by an order issued
under Section 8(e)(4) or (g)(1) of the Federal Deposit Insurance Act
(12 U.S.C. Section 1818(e)(4) or (g)(1)), all obligations of CENIT
under this Agreement pertaining to CENIT shall terminate as of the
effective date of the order, but vested rights of the parties hereto
shall not be affected.
B. If either the Bank or the Savings Bank is in default (as defined in
Section 3(x)(1) of the Federal Deposit Insurance Act 12 U.S.C. Section
1813(x)(1)), all obligations under this Agreement shall terminate as
of the date of default, but this paragraph shall not affect any vested
rights of the parties hereto shall not be affected.
C. All obligations of CENIT under this Agreement shall be terminated,
except to the extent that it is determined that continuation of the
contract is necessary to the continued operation of the Bank (i) by
the appropriate federal banking agency, at the time the Federal
Deposit Insurance Corporation enters into an agreement to provide
assistance to or on behalf of either the Bank or the Savings Bank
under the authority contained in Section 13(c) of the Federal Deposit
6
<PAGE>
Insurance Act; or (ii) by the appropriate federal banking agency, at
the time such agency approves a supervisory merger to resolve problems
related to operation of either the Bank or the Savings Bank or when
either the Bank or the Savings Bank is determined by such agency to be
in an unsafe or unsound condition; but vested rights of the parties
hereto shall not be affected.
14. Headings. Descriptive headings contained in this Agreement are for
convenience only and shall not control or affect the meaning or
construction of any provision hereof.
15. Legal Conflict. In the event of any conflict between any of the provisions
of this Agreement and the provisions of any applicable statutes or
regulations, as such statutes or regulations are in effect as of the date
of this Agreement, the provisions of such statutes or regulations in effect
as of the date of this Agreement shall control.
IN WITNESS WHEREOF, the parties have executed this Agreement effective as
of the date first above written.
CONSULTANT:
_____________________________(SEAL)
J. Morgan Davis
COMPANY:
CENIT BANCORP, INC.
By______________________________
Title:
SAVINGS BANK:
CENIT BANK, FSB
By______________________________
Title:
7
<PAGE>
BANK:
CENIT BANK
By______________________________
Title:
8
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