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 June 30, 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 5,018,092
Title of Class Number of Shares Outstanding
as of August 7, 1998
<PAGE>
CENIT BANCORP, INC. AND SUBSIDIARY
Contents
- ------------------------------------------------------------------------------
Page
PART I - FINANCIAL INFORMATION
Item 1
Financial Statements
Consolidated Statement of Financial Condition as of June 30, 1998 (Unaudited)
and December 31, 1997..........................................................1
Unaudited Consolidated Statement of Operations for the Three Months and Six
Months ended June 30, 1998 and June 30, 1997...................................2
Unaudited Consolidated Statement of Comprehensive Income for the Six
Months Ended June 30, 1998 and June 30, 1997...................................3
Unaudited Consolidated Statement of Changes in Stockholders' Equity for the
Six Months ended June 30, 1998.................................................4
Unaudited Consolidated Statement of Cash Flows for the Six Months ended
June 30, 1998 and June 30, 1997................................................5
Notes to Unaudited Consolidated Financial Statements...........................6
Item 2
Management's Discussion and Analysis of Financial Condition and Results of
Operations................................................................. 6
Item 3
Quantitative and Qualitative Disclosures About Market Risk.................17
PART II - OTHER INFORMATION
Item 1
Legal Proceedings..........................................................18
Item 2
Changes in Securities......................................................18
Item 3
Defaults Upon Senior Securities............................................18
Item 4
Submission of Matters to a Vote of Security Holders........................18
Item 5
Other Information..........................................................18
Item 6
Exhibits and Reports on Form 8-K...........................................18
Signatures....................................................................18
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
CENIT BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
(Dollars in thousands, except per share data)
ASSETS
<TABLE>
<CAPTION>
(Unaudited)
June 30, 1998 December 31, 1997
------------- -----------------
<S> <C> <C>
Cash $ 16,963 $ 16,993
Federal funds sold 12,876 37,118
Securities available for sale at fair value (adjusted
cost of $69,499 and $135,861, respectively) 70,254 137,188
Loans, net:
Held for investment 511,917 486,487
Held for sale 6,536 3,167
Interest receivable 4,498 4,888
Real estate owned, net 487 1,098
Federal Home Loan Bank and Federal Reserve Bank stock, at cost 5,850 8,711
Property and equipment, net 14,599 14,230
Goodwill and other intangibles, net 3,828 4,010
Other assets 4,049 4,193
--------- ---------
$ 651,857 $ 718,083
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest-bearing $ 68,870 $ 54,874
Interest-bearing 430,340 452,796
--------- ---------
Total deposits 499,210 507,670
Advances from the Federal Home Loan Bank 85,000 145,000
Other borrowings 697 2,575
Securities sold under agreements to repurchase 11,508 9,664
Advance payments by borrowers for taxes and insurance 1,122 720
Other liabilities 2,745 2,517
--------- ---------
Total liabilities 600,282 668,146
========= =========
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 4,996,610 and 4,971,243 shares,
respectively 50 50
Additional paid-in capital 18,488 18,119
Retained earnings - substantially restricted 36,955 35,416
Common stock acquired by Employee Stock Ownership Plan (ESOP) (4,144) (4,232)
Common stock acquired by Management Recognition
Plan (MRP) (242) (271)
Accumulated other comprehensive income,
net of income taxes 468 855
--------- ---------
Total stockholders' equity 51,575 49,937
--------- ---------
$ 651,857 $ 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 SUBSIDIARY
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Three months Six Months
Ended Ended
June 30, June 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest and fees on loans $ 10,274 $ 9,502 $ 20,324 $ 18,377
Interest on mortgage-backed certificates 1,022 2,296 2,505 5,009
Interest on investment securities 678 698 1,358 1,425
Dividends and other interest income 343 270 694 505
-------- -------- --------- ---------
Total interest income 12,317 12,766 24,881 25,316
-------- -------- --------- ---------
Interest on deposits 4,994 5,142 10,097 10,198
Interest on borrowings 2,020 2,243 4,094 4,408
-------- -------- --------- ---------
Total interest expense 7,014 7,385 14,191 14,606
-------- -------- --------- ---------
Net interest income 5,303 5,381 10,690 10,710
Provision for loan losses 136 150 340 300
-------- -------- --------- ---------
Net interest income after provision
for loan losses 5,167 5,231 10,350 10,410
-------- -------- --------- ---------
Other income:
Deposit fees 616 493 1,220 976
Merchant processing fees 537 327 930 555
Commercial mortgage brokerage fees 183 122 364 125
Gains on sales of loans and securities 287 206 462 314
Other 246 211 459 360
-------- -------- --------- ---------
Total other income 1,869 1,359 3,435 2,330
-------- -------- --------- ---------
Other expenses:
Salaries and employee benefits 2,105 1,947 4,193 4,027
Equipment, data processing and supplies 773 670 1,478 1,356
Net occupancy expense of premises 455 459 928 919
Merchant processing 472 273 832 463
Expenses, gains/losses on sales and provision
for losses on real estate owned, net 11 94 80 141
Professional fees 173 125 367 238
Expenses related to proxy contest and other matters - 11 - 405
Other 712 615 1,321 1,172
-------- -------- --------- ---------
Total other expenses 4,701 4,194 9,199 8,721
-------- -------- --------- ---------
Income before income taxes 2,335 2,396 4,586 4,019
Provision for income taxes 831 848 1,624 1,418
-------- -------- --------- ---------
Net income $ 1,504 $ 1,548 $ 2,962 $ 2,601
======== ======== ========= =========
Earnings per share
Basic $ .32 $ .31 $ .62 $ .53
======== ======== ========= =========
Diluted $ .31 $ .31 $ .61 $ .51
======== ======== ========= =========
Dividends per common share $ .10 $ .08 $ .20 $ .17
======== ======== ========= =========
<FN>
The notes to unaudited consolidated financial statements are an integral part of this statement.
</FN>
</TABLE>
2
<PAGE>
CENIT BANCORP, INC. AND SUBSIDIARY
UNAUDITED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(Dollars in thousands)
<TABLE>
<CAPTION>
Six Months
Ended
June 30,
1998 1997
---- ----
<S> <C> <C>
Net income $ 2,962 $ 2,601
-------- -------
Other comprehensive income (loss), before income taxes:
Unrealized gains (losses) on securities available for sale
Unrealized holding gains (losses) arising during the period (500) 358
Less: reclassification adjustment for gains included in net income (72) (90)
-------- -------
Other comprehensive income (loss), before income taxes (572) 268
Income tax benefit (expense) related to items of other comprehensive income (loss) 185 (96)
-------- -------
Other comprehensive income (loss), net of income taxes (387) 172
-------- -------
Comprehensive income $ 2,575 $ 2,773
======== =======
<FN>
The notes to unaudited consolidated financial statements are an integral part of this statement.
</FN>
</TABLE>
3
<PAGE>
CENIT BANCORP, INC. AND SUBSIDIARY
UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Six Months Ended June 30, 1998
(Dollars in thousands)
<TABLE>
<CAPTION>
Common Accumulated
Stock Other
Common Additional Acquired Comprehensive
Common Stock Paid-In Retained by ESOP Income, Net of
Stock 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 - - - 2,962 - (387) 2,575
Cash dividends declared - - - (1,423) - - (1,423)
Exercise of stock options and
related tax benefits 25,367 - 284 - - - 284
Other - - 85 - 117 - 202
--------- ---- ------- ------- ------ ------ --------
Balance, June 30, 1998 4,996,610 $ 50 $18,488 $36,955 $(4,386) $ 468 $ 51,575
========= ==== ======= ======= ======= ====== ========
<FN>
The notes to unaudited consolidated financial statements are an integral part of this statement.
</FN>
</TABLE>
4
<PAGE>
CENIT BANCORP, INC. AND SUBSIDIARY
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Six months ended June 30,
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,962 $ 2,601
Add (deduct) items not affecting cash in the period:
Provision for loan losses 340 300
Provision for losses on real estate owned 14 67
Amortization of loan yield adjustments 233 37
Depreciation, amortization and accretion, net 1,108 1,132
Net (gains) losses on sales/disposals of:
Securities (72) (89)
Loans (390) (224)
Real estate, property and equipment 51 13
Proceeds from sales of loans held for sale 33,221 15,768
Originations of loans held for sale (36,211) (17,183)
Change in assets/liabilities:
Decrease in interest receivable and other assets 670 (1,096)
Increase in other liabilities 124 660
-------- --------
Net cash provided by operating activities 2,050 1,986
-------- --------
Cash flows from investing activities:
Purchases of securities available for sale (37,237) (8,088)
Principal repayments on securities available for sale 25,720 26,676
Proceeds from maturities of securities available for sale 11,000 10,500
Proceeds from sales of securities available for sale 66,660 26,686
Net increase in loans held for investment (25,743) (58,073)
Net proceeds on sales of real estate owned 302 680
Additions to real estate owned (12) (82)
Purchases of Federal Home Loan Bank stock (1,650) (1,600)
Redemption of Federal Home Loan Bank stock
and Federal Reserve Bank stock 4,511 -
Proceeds from sale of property and equipment 59 6
Purchases of property and equipment (1,075) (1,208)
-------- --------
Net cash provided by (used for) investing activities 42,535 (4,503)
-------- --------
Cash flows from financing activities:
Proceeds from exercise of stock options and warrants 183 167
Net increase (decrease) in deposits (8,460) 11,653
Proceeds from Federal Home Loan Bank advances 508,000 686,000
Repayment of Federal Home Loan Bank advances (568,000) (703,000)
Repayments of other borrowings (1,878) -
Net increase in securities sold under agreement
to repurchase and federal funds purchased 1,844 5,016
Cash dividends paid (948) (1,232)
Other, net 402 461
-------- --------
Net cash used for financing activities (68,857) (935)
-------- --------
Decrease in cash and cash equivalents (24,272) (3,452)
Cash and cash equivalents, beginning of period 54,111 23,478
-------- --------
Cash and cash equivalents, end of period $ 29,839 $ 20,026
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 5,583 $ 6,097
Cash paid during the period for income taxes 1,205 925
Schedule of noncash investing and financing activities:
Real estate acquired in settlement of loans $ 210 $ 868
Loans to facilitate sale of real estate owned 470 1,224
<FN>
The notes to unaudited consolidated financial statements are an integral part of this statement.
</FN>
</TABLE>
5
<PAGE>
CENIT BANCORP, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Note 1 - Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and, therefore, do not
include all of the disclosures and notes required by generally accepted
accounting principles. In the opinion of the management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. The results of operations for the three and six
month periods ended June 30, 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 six month period and three month period ended June 30,
1998, weighted average shares used to compute basic earnings per share were
4,739,667 and 4,750,237, respectively. For the six months and three months ended
June 30, 1997, weighted average shares used to compute basic earnings per share
were 4,924,572 and 4,934,946, respectively.
Diluted earnings per share is calculated by adding common stock equivalents
to the weighted average shares outstanding. For the six month period and three
month period ended June 30, 1998, weighted average shares used to compute
diluted earnings per share were 4,873,557 and 4,879,072, respectively. For the
six months and three months ended June 30, 1997, weighted average shares used to
compute diluted earnings per share were 5,057,855 and 5,063,573, respectively.
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 established 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.
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
On June 3, 1998, the Company, as the sole shareholder of its two subsidiary
banks, merged CENIT Bank (formerly Princess Anne Bank) into CENIT Bank, FSB.
Following the merger, the Company ceased to be regulated by the Federal Reserve
and became a registered savings and loan holding company regulated pursuant to
the Homeowner's Loan Act, as amended. As such, the Company is subject to the
regulation, examination, supervision and reporting requirements of the Office of
Thrift Supervision ("OTS"). In July, 1998, CENIT Bank, FSB changed its name to
CENIT Bank (the
"Bank").
6
<PAGE>
The Company's business currently consists of the business of the Bank. The
principal business of the Bank consists of attracting retail deposits from the
general public in its market areas through a variety of deposit products and
investing these funds in commercial, real estate and consumer loans. The Bank
also invests 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 June 30, 1998, the Company had total assets of $651.9 million, compared
to $718.1 million at December 31, 1997, a decrease of $66.2 million or 9.2%. The
decrease is primarily the result of proceeds from the sale, maturity and
principal repayment of certain securities, primarily mortgage-backed
certificates, being used to reduce advances from the Federal Home Loan Bank
("FHLB") instead of being reinvested in additional securities.
Securities Available for Sale
Securities available for sale totaled $70.3 million at June 30, 1998 and
are comprised of U. S. Treasury securities, other U. S. Government agency
securities, and mortgage-backed certificates. The net decrease of $66.9 million
from the December 31, 1997 balance of $137.2 million resulted primarily from
$25.7 million of repayments, $37.2 million of purchases, $11.0 million of
proceeds from the maturities of securities, and $66.7 million from the sale of
securities.
Loans
The balance of net loans held for investment increased from $486.5 million
at December 31, 1997 to $511.9 million at June 30, 1998, an increase of $25.4
million or 5.2%. During the first half of 1998, amortizations or prepayments of
conventional 1- to 4-family residential 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>
June 30, 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 $ 224,399 40.54% $ 213,682 40.20%
Fixed rate
Conventional 78,565 14.20 89,356 16.81
Guaranteed by VA or insured by FHA 4,574 .83 5,487 1.03
---------- ----- ---------- -----
Total permanent 1- to 4-family 307,538 55.57 308,525 58.04
Residential permanent 5 or more family 6,038 1.09 6,374 1.20
---------- ----- ---------- -----
Total permanent residential loans 313,576 56.66 314,899 59.24
---------- ----- ---------- -----
Commercial real estate loans:
Hotels 9,436 1.70 10,240 1.93
Office and warehouse facilities 30,390 5.48 26,710 5.02
Retail facilities 18,580 3.36 18,249 3.43
Other 5,293 .96 2,714 .51
---------- ----- ---------- -----
Total commercial real estate loans 63,699 11.50 57,913 10.89
---------- ----- ---------- -----
Construction loans:
Residential 1- to 4-family 44,092 7.97 44,208 8.32
Residential 5 or more family 16,528 2.99 12,784 2.40
Nonresidential 3,409 .62 1,420 .27
---------- ----- ---------- -----
Total construction loans 64,029 11.58 58,412 10.99
---------- ----- ---------- -----
Land acquisition and development loans:
Consumer lots 4,457 .80 4,573 0.86
Acquisition and development 13,986 2.53 13,327 2.51
---------- ----- ---------- -----
Total land acquisition and development
loans 18,443 3.33 17,900 3.37
---------- ----- ---------- -----
Total real estate loans 459,747 83.07 449,124 84.49
---------- ----- ---------- -----
Consumer loans:
Boats 4,969 .90 5,685 1.07
Home equity and second mortgage 51,157 9.24 45,194 8.50
Mobile homes 71 .01 95 .02
Other 8,667 1.57 7,250 1.36
---------- ----- ---------- -----
Total consumer loans 64,864 11.72 58,224 10.95
---------- ----- ---------- -----
Commercial business loans 28,842 5.21 24,222 4.56
---------- ----- ---------- -----
Total loans 553,453 100.00% 531,570 100.00%
---------- ===== ---------- =====
Less:
Allowance for loan losses 3,907 3,783
Loans in process 38,934 42,067
Unearned discounts, premiums, and loan fees, net (1,305) (767)
---------- ----------
41,536 45,083
---------- ----------
Total loans, net $ 511,917 $ 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.
Six Months Ended
June 30, 1998
-------------------
(Dollars in Thousands)
Loans originated:
Real estate:
Permanent:
Residential 1- to 4-family $ 44,686
Residential 5 or more family -
--------
Total 44,686
--------
Commercial real estate 10,683
--------
Construction:
Residential 1- to 4-family 12,386
Residential 5 or more family 4,075
Nonresidential 2,430
--------
Total 18,891
--------
Land acquisition:
Consumer lots 599
Acquisition and development 2,418
--------
Total 3,017
--------
Total real estate loans originated 77,277
--------
Consumer:
Home equity and second mortgage 18,747
Other 4,055
--------
Total 22,802
--------
Commercial business 21,456
--------
Total loans originated 121,535
--------
Loans purchased 51,214
--------
Total loans originated and purchased 172,749
--------
Principal reductions:
Repayments and other principal reductions 114,822
Real estate loans sold 32,697
--------
Total principal reductions 147,519
--------
Net increase in total loans $ 25,230
========
Net increase in loans held for sale $ 3,347
Net increase in gross loans held for investment 21,883
--------
$ 25,230
========
9
<PAGE>
Deposits
The balance of deposits decreased from $507.7 million at December 31, 1997,
to $499.2 million at June 30, 1998. During this period, certificates of deposit
decreased from $328.2 million at December 31, 1997, to $290.1 million at
June 30, 1998, as the Company did not seek to match the highest certificate
rates within its market. All other interest- bearing deposits increased by 12.5%
from $124.6 million at December 31, 1997 to $140.2 million at June 30, 1998.
Noninterest-bearing deposits increased 25.5% from $54.9 million at December 31,
1997 to $68.9 million at June 30, 1998.
Capital
The Company's and the Bank's capital ratios exceeded applicable regulatory
requirements at June 30, 1998.
In June 1998, the Board of Directors of the Company gave the Company's
management the discretion to initiate a repurchase of up to five percent of the
Company's shares. The Company is not obligated to conduct such a repurchase at
all, and the Company's decision to do so, as well as the timing of any
purchases, will depend on a variety of factors.
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 Bank is
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.
June 30, 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 86 53
------ ------
Total 472 581
------ ------
Land acquisition and development
Nonaccrual 100 200
Accruing loans 90 days or more pasts due - -
------ ------
Total 100 200
------ ------
Consumer loans:
Mobile homes (nonaccrual) 27 48
Credit cards (accruing loans 90 days or
more pasts due) 1 5
Other (nonaccrual) 26 24
------ ------
Total 54 77
------ ------
Commercial business loans:
Nonaccrual 73 240
Accruing loans 90 days or more past due 49 5
------ ------
Total 122 245
------ ------
Total nonperforming loans:
Nonaccrual 612 1,040
Accruing loans 90 or more days past due 136 63
------ ------
Total 748 1,103
Real estate owned, net 487 1,098
Other repossessed assets, net 1 228
------ ------
Total nonperforming assets, net $1,236 $ 2,429
====== ======
Total nonperforming assets, net, to total assets .19% .34%
====== ======
The decrease in nonperforming assets from December 31, 1997 to June 30,
1998 of $1.2 million related primarily to both the net decrease in nonaccrual
loans of $428,000 and the net decrease in real estate owned and other
repossessed assets of $838,000, which offset an increase in accruing loans 90 or
more days past due of $73,000.
11
<PAGE>
Allowance for Loan Losses. The following table sets forth activity of the
allowance for loan losses for the periods indicated.
Six months ended June 30,
-------------------------
1998 1997
---- ----
(Dollars in Thousands)
Balance at beginning of period $ 3,783 $ 3,806
Provision for loan losses 340 300
Losses charged to allowance (286) (452)
Recovery of prior losses 70 56
------- -------
Balance at end of period $ 3,907 $ 3,710
======= =======
The Company's provision for loan losses increased to $340,000 for the six
months ended June 30, 1998, as compared to $300,000 in the same period in 1997.
At June 30, 1998, the Company's coverage ratio was 522% based on a total
allowance for loan losses of $3.9 million and total nonperforming loans of
$748,000. This compares to a coverage ratio of 343% 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
June 30, 1998 June 30, 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) $ 520,626 $10,274 7.89% $ 469,859 $ 9,502 8.09%
Mortgage-backed certificates 63,591 1,022 6.43 129,576 2,296 7.09
U.S. Treasury and other U.S.
Government agency securities 45,444 678 5.97 44,130 698 6.33
Federal funds sold 12,494 173 5.54 7,481 103 5.51
Federal Home Loan Bank and
Federal Reserve Bank stock 8,834 170 7.70 9,300 167 7.19
---------- ------- ---------- --------
Total interest-earning assets 650,989 12,317 7.57 660,346 12,766 7.73
---------- ------- ---------- --------
Noninterest-earning assets:
REO 600 1,828
Other 45,276 37,897
---------- ----------
Total noninterest-earning assets 45,876 39,725
---------- ----------
Total assets $ 696,865 $ 700,071
========== ==========
Interest-bearing liabilities:
Passbook and statement savings $ 40,937 341 3.33% $ 45,604 385 3.38%
Checking accounts 35,512 162 1.82 29,141 149 2.04
Money market deposit accounts 61,777 587 3.80 45,223 370 3.27
Certificates of deposit 297,437 3,904 5.25 325,511 4,238 5.21
---------- ------- ---------- --------
Total interest-bearing deposits 435,663 4,994 4.59 445,479 5,142 4.62
---------- ------- ---------- --------
Advances from the Federal Home
Loan Bank 135,484 1,857 5.48 149,154 2,127 5.70
Securities sold under agreements
to repurchase 11,901 138 4.64 10,024 116 4.62
Other borrowings 1,311 25 7.63 - - -
---------- ------- ---------- --------
Total borrowings 148,696 2,020 5.43 159,178 2,243 5.64
---------- ------- ---------- --------
Total interest-bearing liabilities 584,359 7,014 4.80 604,657 7,385 4.89
---------- ------- ---------- --------
Noninterest-bearing liabilities:
Deposits 55,192 40,913
Other liabilities 6,144 3,819
---------- ----------
Total noninterest-bearing liabilities 61,336 44,732
---------- ----------
Total liabilities 645,695 649,389
Stockholders' equity 51,170 50,682
---------- ----------
Total liabilities and stockholders' equity $ 696,865 $ 700,071
========== ==========
Net interest income/interest rate spread $ 5,303 2.77% $ 5,381 2.84%
======= ==== ======== ====
Net interest position/net interest margin $ 66,630 3.26% $ 55,689 3.26%
========== ==== ========== ====
Ratio of average interest-earning assets to
average interest-bearing liabilities 111.40% 109.21%
========== ==========
<FN>
(1) Includes nonaccrual loans and loans held for sale.
</FN>
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
For the Six Months For the Six Months
Ended Ended
June 30, 1998 June 30, 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) $ 512,752 $ 20,324 7.93% $ 452,583 $ 18,377 8.12%
Mortgage-backed certificates 75,784 2,505 6.61 145,395 5,009 6.89
U.S. Treasury and other U.S.
Government agency securities 45,224 1,358 6.00 45,218 1,425 6.30
Federal funds sold 12,830 352 5.48 6,789 187 5.50
Federal Home Loan Bank and
Federal Reserve Bank stock 9,115 342 7.50 8,915 318 7.13
---------- -------- ---------- ---------
Total interest-earning assets 655,705 24,881 7.59 658,900 25,316 7.68
---------- -------- ---------- ---------
Noninterest-earning assets:
REO 811 2,100
Other 43,712 39,131
---------- ----------
Total noninterest-earning assets 44,523 41,231
---------- ----------
Total assets $ 700,228 $ 700,131
========== ==========
Interest-bearing liabilities:
Passbook and statement savings 42,038 694 3.30% $ 46,294 777 3.36%
Checking accounts 33,711 309 1.83 29,052 302 2.08
Money market deposit accounts 58,743 1,086 3.70 45,508 745 3.27
Certificates of deposit 306,242 8,008 5.23 325,196 8,374 5.15
---------- -------- ---------- ---------
Total interest-bearing deposits 440,734 10,097 4.58 446,050 10,198 4.57
---------- -------- ---------- ---------
Advances from the Federal Home
Loan Bank 138,575 3,781 5.46 152,950 4,222 5.52
Securities sold under agreements
to repurchase 10,572 243 4.59 8,266 186 4.50
Other borrowings 1,865 70 7.51 - - -
---------- -------- ---------- ---------
Total borrowings 151,012 4,094 5.42 161,216 4,408 5.47
---------- -------- ---------- ---------
Total interest-bearing liabilities 591,746 14,191 4.80 607,266 14,606 4.81
---------- -------- ---------- ---------
Noninterest-bearing liabilities:
Deposits 51,578 39,295
Other liabilities 6,153 3,283
---------- ----------
Total noninterest-bearing liabilities 57,731 42,578
---------- ----------
Total liabilities 649,477 649,844
Stockholders' equity 50,751 50,287
---------- ----------
Total liabilities and stockholders' equity $ 700,228 $ 700,131
========== ==========
Net interest income/interest rate spread $ 10,690 2.79% $ 10,710 2.87%
======== ==== ========= ====
Net interest position/net interest margin $ 63,959 3.26% $ 51,634 3.25%
========== ==== ========== ====
Ratio of average interest-earning assets to
average interest-bearing liabilities 110.81% 108.50%
========== ======
<FN>
(1) Includes nonaccrual loans and loans held for sale.
</FN>
</TABLE>
14
<PAGE>
Comparison of Operating Results for the Three Months Ended June 30, 1998 and
June 30, 1997.
General
The Company's pre-tax income for the three months ended June 30, 1998, was
$2.3 million compared to $2.4 million during the same period in the prior year.
This decrease is primarily attributable to a $510,000 increase in other income,
the effect of which was more than offset by a $507,000 increase in other
expenses and a $64,000 decrease in net interest income after provision for loan
losses.
Net Interest Income
The Company's net interest income before provision for loan losses
decreased by $78,000, or 1.4%, for the quarter ended June 30, 1998, as compared
to that of the previous year. This decrease resulted primarily from a $449,000
decrease in interest income which exceeded a $371,000 decrease in interest
expense. The decrease in interest income was primarily attributable to a
decrease in the average balance of mortgage-backed certificates. The decrease in
interest expense was primarily due to a decrease in the average balance of
certificates of deposit.
Interest on the Company's portfolio of mortgage-backed certificates
decreased by approximately $1.3 million from $2.3 million for the quarter ended
June 30, 1997, to $1.0 million for the comparable 1998 period. This decrease
resulted from a $66.0 million decrease in the average balance of the portfolio
during the second quarter of 1998 compared to 1997 and a decrease in the average
yield of the portfolio from 7.09% in the quarter ended June 30, 1997, to 6.43%
in the comparable 1998 period. The decrease in the average balance of
mortgage-backed certificates was due to sales and repayments.
Interest on loans increased by $772,000 in the quarter ended June 30, 1998,
compared to the comparable 1997 period. This increase was primarily attributable
to a $50.8 million increase in the average balance of loans. The yield on the
Company's loan portfolio decreased from 8.09% in the quarter ended June 30,
1997, to 7.89% in the comparable 1998 period primarily as a result of purchased
loans with lower yields being added to the loan portfolio during 1998.
Interest on investment securities for the quarter ended June 30, 1998,
decreased by $20,000 compared to the same period in 1997. The yield on this
portfolio decreased from 6.33% in the quarter ended June 30, 1997 to 5.97% for
the quarter ended June 30, 1998.
Interest on deposits decreased by $148,000 in the quarter ended June 30,
1998, compared to the comparable 1997 period. This decrease was primarily
attributable to a $28.1 million decrease in the average balance of certificates
of deposit in the quarter ended June 30, 1998, compared to the comparable 1997
period.
The Company's net interest margin remained at 3.26% for the quarters ended
June 30, 1997 and June 30, 1998. The Company's interest rate spread decreased
from 2.84% in the quarter ended June 30, 1997, to 2.77% in the comparable 1998
period. The Company's calculations of interest rate spread and net interest rate
margin include nonaccrual loans as interest-earning assets.
Provision for Loan Losses
The Company's provision for loan losses decreased by $14,000 to $136,000
for the three months ended June 30, 1998, compared to the same period in 1997.
Net loans charged off during the quarter ended June 30, 1998, were $27,000
compared to $339,000 in the comparable 1997 period.
Other Income
Total other income increased from $1.4 million in the quarter ended
June 30, 1997, to $1.9 million in the comparable 1998 period, an increase of
$510,000 or 37.5%.
Deposit fees increased by $123,000, 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 $210,000, gains on sales of
loans and securities increased by $81,000, and commercial mortgage brokerage
fees increased by $61,000, all of which were primarily the result of increases
in the volume of transactions.
15
<PAGE>
Other Expenses
Total other expenses increased by $507,000 for the quarter ended June 30,
1998, compared to the comparable 1997 period.
An increase of $99,000 in commercial mortgage brokerage compensation was
primarily responsible for increases in salaries and employee benefits of
$158,000. Equipment, data processing and supply expense increased by $103,000.
Merchant processing expenses increased by $199,000 due to increases in volume.
Professional fees increased by $48,000 which includes $23,000 of legal expenses
related to the merger of the Company's two subsidiary banks. Expenses associated
with REO decreased by $83,000 consistent with lower levels of REO in the second
quarter of 1998 compared to the same period in 1997. Other expense increased by
$97,000 which includes $63,000 related to the merger of the Company's banks.
Comparison of Operating Results for the Six Months Ended June 30, 1998 and June
30, 1997.
General
The Company's pre-tax income for the six months ended June 30, 1998, was
$4.6 million compared to $4.0 million during the same period in the prior year.
This increase is primarily attributable to a $1.1 million increase in other
income, the effects of which more than offset a $478,000 increase in other
expenses and a $40,000 increase in provision for loan losses.
Net Interest Income
The Company's net interest income before provision for loan losses
decreased by $20,000 during the six month period ended June 30, 1998 compared to
the same period in 1997. Interest income decreased by $435,000 while interest
expense decreased by $415,000 during the six month periods of 1998 compared to
1997.
Interest on the Company's portfolio of mortgage-backed certificates
decreased by approximately $2.5 million from $5.0 million for the six months
ended June 30, 1997, to $2.5 million for the comparable 1998 period. This
decrease resulted from a $69.6 million decrease in the average balance of the
portfolio and a decrease in the average yield on the portfolio from 6.89% in the
six months ended June 30, 1997, to 6.61% in the comparable 1998 period. The
decrease in the average balance of mortgage-backed certificates was due to sales
and repayments.
Interest on loans increased by $1.9 million in the six months ended June
30, 1998, compared to the comparable 1997 period. This increase was primarily
attributable to a $60.2 million increase in the average balance of loans. The
yield on the Company's loan portfolio decreased from 8.12% in the six months
ended June 30, 1997, to 7.93% in the comparable 1998 period primarily as a
result of purchased loans with lower yields being added to the loan portfolio.
Interest on investment securities for the six months ended June 30, 1998
decreased by $67,000 compared to the same period in 1997 primarily due to a
decrease in the portfolio's yield from 6.30% in 1997 to 6.00% in 1998.
Interest on deposits decreased by $101,000 in the six months ended June 30,
1998, compared to the comparable 1997 period. This decrease was primarily
attributable to a $19.0 million decrease in the average balance of certificates
of deposit in the six months ended June 30, 1998.
The Company's net interest margin increased from 3.25% for the six months
ended June 30, 1997, to 3.26% for the six months ended June 30, 1998. The
Company's interest rate spread decreased from 2.87% in the six months ended June
30, 1997, to 2.79% in the comparable 1998 period. The Company's calculations of
interest rate spread and net interest rate margin include nonaccrual loans as
interest-earning assets.
Provision for Loan Losses
The Company's provision for loan losses increased by $40,000 to $340,000
for the six months ended June 30, 1998, compared to the same period in 1997. Net
loans charged off during the six months ended June 30, 1998, were $216,000
compared to $396,000 in the comparable 1997 period.
16
<PAGE>
Other Income
Total other income increased from $2.3 million in the six months ended
June 30, 1997, to $3.4 million in the comparable 1998 period, an increase of
$1.1 million or 47.4%.
Deposit fees increased by $244,000, 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 $375,000, and commercial
mortgage brokerage fees increased by $239,000, the result of increases in the
volume of transactions. Gains on sales of loans and securities increased by
$148,000.
Other Expenses
Total other expenses increased by $478,000 for the six months ended June
30, 1998, compared to the comparable 1997 period.
Salaries and employee benefits increased by $166,000, or 4.1%, which
includes a $184,000 increase in commercial mortgage brokerage compensation.
Equipment, data processing and supply expense by $122,000. Merchant processing
expenses increased by $369,000 due to increases in volume. Professional fees
increased by $129,000 due, in part, to $37,000 of legal expenses during the
first six months of 1998 related to the merger of the Company's two subsidiary
banks. REO expense decreased by $61,000 as a result of the decrease in REO
outstanding during the first half of 1998 compared to 1997. In the first half of
1997, the Company incurred $405,000 of expenses related to the 1997 proxy
contest and other matters. Other expense increased by $149,000 which includes
$63,000 related to the merger of the Company's banks.
Liquidity
The principal sources of funds for the Company for the six months ended
June 30, 1998 included $508.0 million in proceeds from FHLB advances, $25.7
million in principal repayments of securities available for sale, $66.7 million
in proceeds from sales of securities available for sale, and $33.2 million in
proceeds from the sale of loans. Funds were used primarily to repay FHLB
advances totaling $568.0 million, $25.7 million net increase in loans held for
investment, to fund purchases of investment securities available for sale
totaling $37.2 million, and to originate loans held for sale of $36.2 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, 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's liquid asset ratio was 9.7% and 8.8% at June 30,
1998 and December 31, 1997, respectively.
Item 3 - Quantitative and Qualitative Disclosure About Market Risk
Market Risk Management
The Company's primary market risk exposure is interest rate risk.
Fluctuations in interest rates will impact both the level of interest income and
interest expense and the market value of the Company's interest-earning assets
and interest- bearing liabilities. There were no material changes in the
Company's market risk management strategy, as stated in the Company's 1997
annual report, during the first half of 1998.
17
<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
At the Company's annual meeting held on May 20, 1998 (the "Annual
Meeting"), the Company's stockholders reelected four directors of the Company,
John F. Harris, William H. Hodges, Roger C. Reinhold, and Anne B. Shumadine. The
voting results in the election for directors were as follows:
FOR WITHHELD
John F. Harris 1,463,463 58,839
William H. Hodges 1,462,911 59,391
Roger C. Reinhold 1,464,006 58,296
Anne B. Shumadine 1,463,956 58,346
The terms of office of each of the other directors of the Company continued
following the Annual Meeting. These directors are David L. Bernd, Patrick E.
Corbin, William J. Davenport, III, Michael S. Ives, C. L. Kaufman, Jr., Charles
R. Malbon, Jr., John A. Tilhou, and David R. Tynch.
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: August 12, 1998 /S/Michael S. Ives
Michael S. Ives
President and Chief Executive Officer
DATE: August 12, 1998 /S/ John O. Guthrie
John O. Guthrie
Senior Vice President and
Chief Financial Officer
18
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-1-1998
<PERIOD-END> JUN-30-1998
<CASH> 16,963
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 12,876
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 70,254
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 522,360
<ALLOWANCE> 3,907
<TOTAL-ASSETS> 651,857
<DEPOSITS> 499,210
<SHORT-TERM> 37,205
<LIABILITIES-OTHER> 3,867
<LONG-TERM> 60,000
0
0
<COMMON> 50
<OTHER-SE> 51,525
<TOTAL-LIABILITIES-AND-EQUITY> 651,857
<INTEREST-LOAN> 20,324
<INTEREST-INVEST> 3,863
<INTEREST-OTHER> 694
<INTEREST-TOTAL> 24,881
<INTEREST-DEPOSIT> 10,097
<INTEREST-EXPENSE> 14,191
<INTEREST-INCOME-NET> 10,690
<LOAN-LOSSES> 340
<SECURITIES-GAINS> 72
<EXPENSE-OTHER> 9,199
<INCOME-PRETAX> 4,586
<INCOME-PRE-EXTRAORDINARY> 2,962
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,962
<EPS-PRIMARY> .62
<EPS-DILUTED> .61
<YIELD-ACTUAL> 3.26
<LOANS-NON> 612
<LOANS-PAST> 136
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,783
<CHARGE-OFFS> 286
<RECOVERIES> 70
<ALLOWANCE-CLOSE> 3,907
<ALLOWANCE-DOMESTIC> 3,907
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
