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, 1999 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 4,798,780
Title of Class Number of Shares Outstanding
as of May 10, 1999
<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, 1999
(Unaudited)and December 31, 1998............................................. 1
Unaudited Consolidated Statement of Operations for the Three Months
Ended March 31, 1999 and March 31, 1998...................................... 2
Unaudited Consolidated Statement of Comprehensive Income for the Three
Months Ended March 31, 1999 and March 31, 1998............................... 3
Unaudited Consolidated Statement of Changes in Stockholders' Equity for the
Three Months ended March 31, 1999............................................ 4
Unaudited Consolidated Statement of Cash Flows for the Three Months Ended
March 31, 1999 and 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
Item 3
Quantitative and Qualitative Disclosures about Market Risk................18
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 SUBSIDIARIES
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
(Dollars in thousands, except per share data)
ASSETS
<TABLE>
<CAPTION>
(Unaudited)
March 31, 1999 December 31, 1998
-------------- -----------------
<S> <C> <C>
Cash $ 20,304 $ 14,656
Federal funds sold 21,900 42,289
Securities available for sale at fair value (adjusted
cost of $69,172 and $64,327, respectively) 69,658 65,136
Loans, net:
Held for investment 492,263 484,783
Held for sale 2,717 3,878
Interest receivable 4,013 3,723
Real estate owned, net 392 377
Federal Home Loan Bank stock, at cost 4,250 5,066
Property and equipment, net 12,916 13,002
Goodwill and other intangibles, net 3,558 3,647
Other assets 3,726 4,499
--------- ---------
$ 635,697 $ 641,056
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest-bearing $ 73,597 $ 78,712
Interest-bearing 416,632 418,060
--------- ---------
Total deposits 490,229 496,772
Advances from the Federal Home Loan Bank 75,000 75,000
Securities sold under agreements to repurchase 16,187 13,084
Advance payments by borrowers for taxes and insurance 1,080 599
Other liabilities 3,502 5,525
--------- ---------
Total liabilities 585,998 590,980
--------- ---------
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 4,791,940 and 4,808,806 shares,
respectively 48 48
Additional paid-in capital 13,837 14,177
Retained earnings - substantially restricted 39,696 39,600
Common stock acquired by Employee Stock Ownership Plan (ESOP) (4,006) (4,052)
Common stock acquired by Management Recognition
Plan (MRP) (177) (199)
Accumulated other comprehensive income,
net of income taxes 301 502
--------- ---------
Total stockholders' equity 49,699 50,076
--------- ---------
$ 635,697 $ 641,056
========= =========
<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,
1999 1998
---- ----
<S> <C> <C>
Interest and fees on loans $ 9,445 $ 10,050
Interest on mortgage-backed certificates 273 1,483
Interest on investment securities 770 684
Dividends and other interest income 239 347
-------- --------
Total interest income 10,727 12,564
-------- --------
Interest on deposits 4,198 5,102
Interest on borrowings 1,182 2,075
-------- --------
Total interest expense 5,380 7,177
-------- --------
Net interest income 5,347 5,387
Provision for loan losses 14 204
-------- --------
Net interest income after provision for loan losses 5,333 5,183
-------- --------
Other income:
Deposit fees 659 603
Merchant processing fees 514 393
Commercial mortgage brokerage fees 158 181
Gains on sales of loans and securities, net 240 175
Other 260 213
-------- --------
Total other income 1,831 1,565
-------- --------
Other expenses:
Salaries and employee benefits 2,436 2,088
Equipment, data processing and supplies 747 704
Net occupancy expense of premises 526 473
Merchant processing 429 361
Professional fees 174 194
Other 563 678
-------- --------
Total other expenses 4,875 4,498
-------- --------
Income before income taxes 2,289 2,250
Provision for income taxes 824 793
-------- --------
Net income $ 1,465 $ 1,457
======== ========
Earnings per share:
Basic $ .32 $ .31
======== ========
Diluted $ .31 $ .30
======== ========
Dividends per common share $ .15 $ .10
======== ========
<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,
1999 1998
---- ----
<S> <C> <C>
Net income $ 1,465 $ 1,457
-------- -------
Other comprehensive loss, before income taxes:
Unrealized losses on securities available for sale
Unrealized holding losses arising during the period (323) (189)
Less: reclassification adjustment for gains included in net income - (31)
-------- -------
Other comprehensive loss, before income taxes (323) (220)
Income tax benefit related to items of other comprehensive loss 122 77
-------- -------
Other comprehensive loss, net of income taxes (201) (143)
-------- -------
Comprehensive income $ 1,264 $ 1,314
======== =======
<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 CHANGES IN STOCKHOLDERS' EQUITY
Three Months Ended March 31, 1999
(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, 1998 4,808,806 $ 48 $14,177 $39,600 $(4,251) $ 502 $ 50,076
Comprehensive income - - - 1,465 - (201) 1,264
Cash dividends declared - - - (1,369) - - (1,369)
Exercise of stock options and
related tax benefits 1,464 - 17 - - - 17
Stock repurchases (18,330) - (373) - - - (373)
Other - - 16 - 68 - 84
--------- --- ------ ------ ------- ------- -------
Balance, March 31, 1999 4,791,940 $ 48 $13,837 $39,696 $(4,183) $ 301 $ 49,699
========= === ====== ====== ======= ======= =======
<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 CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Three months ended March 31,
----------------------------
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,465 $ 1,457
Add (deduct) items not affecting cash in the period:
Provision for loan losses 14 204
Provision for losses on real estate owned - 14
Amortization of loan yield adjustments 178 100
Depreciation, amortization and accretion, net 432 578
Net (gains) losses on sales/disposals of:
Securities - (31)
Loans (240) (144)
Real estate, property and equipment (45) 46
Proceeds from sales of loans held for sale 17,340 12,945
Originations of loans held for sale (15,943) (13.636)
Change in assets/liabilities:
Net (increase) decrease in interest receivable and other assets 534 (251)
Net increase (decrease) in other liabilities (2,512) 651
------- -------
Net cash provided by operating activities 1,223 1,933
------- -------
Cash flows from investing activities:
Purchases of securities available for sale (11,136) (32,903)
Proceeds from sales of securities available for sale - 17,768
Principal repayments on securities available for sale 2,279 9,984
Proceeds from maturities of securities available for sale 4,000 4,000
Net increase in loans held for investment (7,748) (33,391)
Net proceeds on sales of real estate owned 57 161
Purchases of Federal Home Loan Bank stock - (1,650)
Redemption of Federal Home Loan Bank stock 816 150
Purchases of property and equipment (225) (392)
------- -------
Net cash used for investing activities (11,957) (36,273)
------- -------
Cash flows from financing activities:
Proceeds from exercise of stock options and warrants 9 36
Net increase (decrease) in deposits (6,543) 1,775
Proceeds from Federal Home Loan Bank advances - 267,000
Repayment of Federal Home Loan Bank advances - (254,000)
Repayments of other borrowings - (714)
Common stock repurchases (373) -
Net increase in securities sold under agreement
to repurchase 3,103 114
Cash dividends paid (684) (473)
Other, net 481 646
------- -------
Net cash provided by (used for) financing activities (4,007) 14,384
------- -------
Decrease in cash and cash equivalents (14,741) (19,956)
Cash and cash equivalents, beginning of period 56,945 54,111
------- -------
Cash and cash equivalents, end of period $ 42,204 $ 34,155
======= =======
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 1,660 $ 2,704
Cash paid during the period for income taxes 127 -
Schedule of noncash investing and financing activities:
Real estate acquired in settlement of loans $ 76 $ 105
Loans to facilitate sale of real estate owned - 258
<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, 1999 and 1998 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, 1998 consolidated financial statements of CENIT Bancorp,
Inc. (the "Company").
Note 2 - Per Share Data
Basic earnings per share is calculated using weighted average shares
outstanding. For the three month period ended March 31, 1999, weighted average
shares used to compute basic earnings per share were 4,566,074. For the three
months ended March 31, 1998, weighted average shares used to compute basic
earnings per share were 4,729,096.
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, 1999, weighted average shares used to compute diluted earnings per
share were 4,654,449. For the three months ended March 31, 1997, weighted
average shares used to compute diluted earnings per share were 4,868,040.
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 its sole
subsidiary, CENIT Bank (the "Bank"). The principal business of the Bank consists
of attracting retail deposits from the general public in its market area 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, federal funds sold, Federal Home Loan Bank stock, and other
investments permitted by applicable laws and regulations.
Financial Condition Of The Company
Total Assets
At March 31, 1999, the Company had total assets of $635.7 million compared
to $641.1 million at December 31, 1998.
Securities Available for Sale
Securities available for sale totaled $69.7 million at March 31, 1999 and
are comprised of U. S. Treasury and other U. S. Government Agency securities,
mortgage-backed certificates, and other debt securities. The net increase of
$4.6 million or 6.9% from the December 31, 1998 balance of $65.1 million
resulted primarily from $11.1 million in purchases of available for sale
securities, partially offset by $4.0 million in proceeds from maturities, and
$2.3 million in principal repayments.
Loans
The balance of net loans held for investment increased from $484.8 million
at December 31, 1998 to $492.3 million at March 31, 1999, an increase of $7.5
million or 1.5%. This increase is primarily due to an increase in fixed rate
single-family mortgages of $14.6 million, offset by an $11.8 million decrease in
adjustable rate single-family mortgages. The Company's core banking loans
(multi-family, commercial real estate, construction, land acquisition and
development, commercial business and consumer loans) increased 2.0% or $4.7
million from December 31, 1998 to March 31, 1999. For the three months ended
March 31, 1999, loan originations totaled $54.1 million and loan purchases
totaled $23.7 million, of which $22.5 million was a bulk purchase of 15 year
fixed-rate residential loans. Total principal reductions totaled $72.2 million.
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, 1999 December 31, 1998
-------------- -----------------
(Dollars in Thousands)
Amount Percent Amount Percent
------ ------- ------ -------
<S> <C> <C> <C> <C>
Real estate loans:
Residential permanent 1- to 4-family:
Adjustable rate $ 169,258 31.96% $ 181,104 34.63%
Fixed rate
Conventional 80,922 15.28 66,041 12.63
Guaranteed by VA or insured by FHA 3,685 .70 3,972 .76
-------- ----- --------- -----
Total permanent 1- to 4-family 253,865 47.94 251,117 48.02
Residential permanent 5 or more family 7,597 1.43 7,874 1.51
-------- ----- --------- -----
Total permanent residential loans 261,462 49.37 258,991 49.53
-------- ----- --------- -----
Commercial real estate loans:
Hotels 9,201 1.74 9,208 1.76
Office and warehouse facilities 37,898 7.16 36,659 7.01
Retail facilities 23,251 4.39 22,823 4.37
Other 8,301 1.57 7,921 1.51
-------- ----- --------- -----
Total commercial real estate loans 78,651 14.86 76,611 14.65
-------- ----- --------- -----
Construction loans:
Residential 1- to 4-family 49,503 9.35 47,232 9.03
Residential 5 or more family 13,692 2.58 19,621 3.75
Nonresidential 4,337 .82 4,101 .79
-------- ----- --------- -----
Total construction loans 67,532 12.75 70,954 13.57
-------- ----- --------- -----
Land acquisition and development loans:
Consumer lots 3,569 .67 3,703 .71
Acquisition and development 13,390 2.53 11,444 2.19
-------- ----- --------- -----
Total land acquisition and development
loans 16,959 3.20 15,147 2.90
-------- ----- --------- -----
Total real estate loans 424,604 80.18 421,703 80.65
-------- ----- --------- -----
Consumer loans:
Boats 3,979 .75 4,275 .82
Home equity and second mortgage 52,229 9.86 52,845 10.11
Other 10,470 1.98 10,589 2.02
-------- ----- --------- -----
Total consumer loans 66,678 12.59 67,709 12.95
-------- ----- --------- -----
Commercial business loans 38,314 7.23 33,485 6.40
-------- ----- --------- -----
Total loans 529,596 100.00% 522,897 100.00%
-------- ===== --------- =====
Less:
Allowance for loan losses 3,944 4,024
Loans in process 34,744 35,463
Unearned discounts, premiums, and loan fees, net (1,355) (1,373)
-------- ---------
37,333 38,114
-------- ---------
Total loans, net $ 492,263 $ 484,783
======== =========
</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, 1999
---------------------
(Dollars in Thousands)
Loans originated:
Real estate:
Permanent:
Residential 1- to 4-family $ 19,146
Residential 5 or more family -
---------
Total 19,146
---------
Commercial real estate 3,883
---------
Construction:
Residential 1- to 4-family 3,429
Residential 5 or more family -
Nonresidential 819
---------
Total 4,248
---------
Land acquisition:
Consumer lots 266
Acquisition and development 3,497
---------
otal 3,763
---------
Total real estate loans originated 31,040
---------
Consumer:
Home equity and second mortgage 8,063
Other 2,085
---------
Total 10,148
---------
Commercial business 12,874
---------
Total loans originated 54,062
---------
Loans purchased 23,668
---------
Total loans originated and purchased 77,730
---------
Principal reductions:
Repayments and other principal reductions 55,462
Real estate loans sold 16,713
---------
Total principal reductions 72,175
---------
Net increase in total loans $ 5,555
=========
Net decrease in gross loans held for sale $ (1,144)
Net increase in gross loans held for investment 6,699
---------
$ 5,555
=========
9
<PAGE>
Deposits
The balance of deposits decreased $6.5 million or 1.3% from $496.8 million
at December 31, 1998 to $490.2 million at March 31, 1999. Certificates of
deposits and noninterest-bearing deposits decreased $5.4 million and $5.1
million, respectively, from December 31, 1998 to March 31, 1999. This decrease
was partially offset by an increase of $4.0 million in interest-bearing
checking, savings and money market deposits.
Capital
The Bank's capital ratios exceeded applicable regulatory requirements at
March 31, 1999.
In June 1998, the Board of Directors of the Company gave the Company's
management the discretion to repurchase up to five percent (or 249,830 shares)
of the Company's shares. As of December 31, 1998, the Company repurchased
231,500 shares. The remaining 18,330 shares were repurchased in January 1999.
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.
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
--------- ------------
(Dollars in Thousands)
<S> <C> <C>
Nonperforming loans:
Real estate loans:
Permanent residential 1- to 4-family
Nonaccrual $ 429 $ 359
Accruing loans 90 days or more past due 562 511
------ -------
Total 991 870
------ -------
Consumer loans:
Boats (nonaccrual) 29 37
Home equity and second mortgage (nonaccrual) 57 57
Credit cards (accruing loans 90 days or
more past due) - 2
Other (nonaccrual) 40 46
------ -------
Total 126 142
------ -------
Commercial business loans:
Nonaccrual 107 64
Accruing loans 90 days or more past due - -
------ -------
Total 107 64
------ -------
Total nonperforming loans:
Nonaccrual 662 563
Accruing loans 90 or more days past due 562 513
------ -------
Total 1,224 1,076
Real estate owned, net 392 377
Other repossessed assets, net 13 21
------ -------
Total nonperforming assets, net $1,629 $ 1,474
====== =======
Total nonperforming assets, net, to total assets .26% .23%
====== =======
</TABLE>
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,
----------------------------
1999 1998
---- ----
(Dollars in Thousands)
Balance at beginning of period $ 4,024 $ 3,783
Provision for loan losses 14 204
Losses charged to allowance (108) (233)
Recovery of prior losses 14 44
------- -------
Balance at end of period $ 3,944 $ 3,798
======= =======
The Company's provision for loan losses decreased to $14,000 for the three
months ended March 31, 1999 as compared to $204,000 for the same period in 1998.
At March 31, 1999, the Company's coverage ratio of nonperforming loans was
322.2% based on a total allowance of $3,944,000 and total nonperforming loans of
$1,224,000. This compares to a coverage ratio of 217.9% at March 31, 1998.
During the first quarter of 1999, net loan charge-offs exceeded the loan loss
provision by $80,000. This $80,000 difference consists of charge-offs of types
of loans in which the Bank is no longer active and for which provisions for loan
losses have been made previously which management believes to be adequate.
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, 1999 March 31, 1998
---------------------------- ----------------------------
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) $ 500,197 $ 9,445 7.55% $ 504,791 $ 10,050 7.96%
Mortgage-backed certificates 14,572 273 7.49 87,980 1,483 6.74
Investment securities 52,883 770 5.82 45,001 684 6.08
Federal funds sold 12,469 146 4.68 13,171 180 5.47
Federal Home Loan Bank and
Federal Reserve Bank stock 5,011 93 7.42 9,400 167 7.11
--------- ------ --------- ------
Total interest-earning assets 585,132 10,727 7.33 660,343 12,564 7.61
--------- ------ --------- ------
Noninterest-earning assets:
Real estate owned, net 386 1,023
Other 37,777 42,263
--------- ---------
Total noninterest-earning assets 38,163 43,286
--------- ---------
Total assets $ 623,295 $ 703,629
========= =========
Interest-bearing liabilities:
Passbook and statement savings $ 35,989 $ 218 2.42 $ 43,152 $ 353 3.27
Checking accounts 37,833 134 1.42 31,891 147 1.84
Money market deposit accounts 74,802 626 3.35 55,676 500 3.59
Certificates of deposit 258,414 3,220 4.98 315,145 4,102 5.21
--------- ------ --------- ------
Total interest-bearing deposits 407,038 4,198 4.13 445,864 5,102 4.58
--------- ------ --------- ------
Advances from the Federal Home
Loan Bank 81,500 1,037 5.09 141,700 1,925 5.43
Securities sold under agreements
to repurchase 15,208 145 3.81 9,228 104 4.51
Other borrowings - - - 2,424 46 7.59
--------- ------ --------- ------
Total borrowings 96,708 1,182 4.89 153,352 2,075 5.41
--------- ------ --------- ------
Total interest-bearing liabilities 503,746 5,380 4.27 599,216 7,177 4.79
--------- ------ --------- ------
Noninterest-bearing liabilities:
Deposits 64,187 47,923
Other liabilities 5,610 6,222
--------- ---------
Total noninterest-bearing liabilities 69,797 54,145
--------- ---------
Total liabilities 573,543 653,361
--------- ---------
Stockholders' equity 49,752 50,268
--------- ---------
Total liabilities and stockholders' equity $ 623,295 $ 703,629
========= =========
Net interest income/interest rate spread $ 5,347 3.06% $ 5,387 2.82%
======== ========
Net interest position/net interest margin $ 81,386 3.66% $ 61,127 3.26%
========= =========
Ratio of average interest-earning assets to
average interest-bearing liabilities 116.16% 110.20%
====== ======
<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, 1999 and
March 31, 1998.
General
The Company's $2.3 million pre-tax income remained unchanged for the three
months ended March 31, 1999 compared to the same period in the prior year. An
increase in other income of $266,000 and a decrease in the provision for loan
losses of $190,000 were offset by a decrease in net interest income of $40,000
and an increase of $377,000 in other expenses.
Net Interest Income
The Company's net interest income before provision for loan losses remained
substantially the same for the quarter ended March 31, 1999 as compared to that
of the previous year. A $1.8 million decrease in interest income was offset by a
$1.8 million decrease in interest expense for the first quarter of 1999 as
compared to the same period in 1998. As a result of changes in the interest rate
environment in 1998, management used the proceeds from the sale, maturity and
principal repayment of certain securities, primarily mortgage-backed
certificates, to reduce advances from the Federal Home Loan Bank ("FHLB") rather
than seek alternative investment opportunities. This strategy reduced both
interest earning assets and interest bearing liabilities during the first
quarter of 1999 compared to the first quarter of 1998. Total interest-earning
assets decreased from an average of $660.3 million during the first quarter of
1998 to $585.1 million during the first quarter of 1999, while total
interest-bearing liabilities decreased from $599.2 million during the first
quarter of 1998 to $503.7 during the first quarter of 1999. As a result, the
Company's net interest margin increased from 3.26% for the quarter ended March
31, 1998 to 3.66% for the quarter ended March 31, 1999.
Interest on the Company's portfolio of mortgage-backed certificates
decreased by $1.2 million from $1.5 million for the quarter ended March 31, 1998
to $274,000 for the comparable 1999 period. The decrease was attributable to a
$73.4 million decrease in the average balance of the portfolio during the first
quarter of 1999 compared to the first quarter of 1998. The decrease in the
portfolio average balance was primarily due to the sales and prepayments of
mortgage-backed securities as a result of the interest rate declines in 1998.
Interest on loans decreased by $605,000 in the quarter ended March 31, 1999
compared to the same period in 1998. This decrease was attributable to both
decreases in average balances as well as a decrease in loan yields associated
with declining market rates in 1998. The average loan balance for the quarter
decreased $4.6 million from $504.8 million for March 31, 1998 to $500.2 million
for March 31, 1999. The yield on the loan portfolio for March 31, 1999 was 7.55%
compared to 7.96% for the same period in 1998.
Interest on deposits decreased by $904,000 for the quarter ended March 31,
1999 compared to the quarter ended March 31, 1998. The decrease was attributed
to both a decrease in the average balance of interest-bearing deposits as well
as a decrease in the average cost of these deposits. The average balance of
interest-bearing deposits and the average cost of these deposits were $407.0 and
4.13%, respectively, for the first quarter of 1999 as compared to $445.9 and
4.58%, respectively, for the first quarter of 1998.
Interest on borrowings decreased $893,000 in the first quarter of 1999
compared to the same quarter in 1998. This decrease was substantially due to a
$60.2 million decrease in the average balance of FHLB advances for the quarter
from $141.7 million for March 31, 1998 to $81.5 million for March 31, 1999.
Provision for Loan Losses
The Company's provision for loan losses decreased by $190,000 to $14,000
for the three months ended March 31, 1999 as compared to $204,000 for the same
period in 1998. Net loans charged off during the three months ended March 31,
1999, were $94,000 compared to $189,000 for the comparable 1998 period. The
difference between the provision for loan losses and net loans charged off
during the first quarter of 1999 relates primarily to loan types in which the
Bank is no longer active and for which provisions for loan losses have been made
previously which management believes to be adequate.
14
<PAGE>
Other Income
Total other income increased by $266,000 or 17.0% for the quarter ended
March 31, 1999 as compared to the same period in 1998. The increase was
primarily attributed to increases of $56,000 in deposit fees, $121,000 in
merchant processing fees and $96,000 in gains on sales of loans, all of which
are the result of increased volume.
Other Expenses
Total other expenses increased by $377,000 or 8.4% from the first quarter
of 1999 compared to the first quarter of the previous year. The increase is
primarily the result of a $348,000 increase in salaries and employee benefits
associated, in part, with the implementation of the Company's core banking
growth initiatives which required additional lenders and retail bankers, as well
as salary increases.
Liquidity
The principal sources of funds for the Company for the three months ended
March 31, 1999 included $17.3 million in proceeds from the sale of loans, $6.3
million in proceeds from principal repayments and maturities of securities
available for sale, and a $3.1 million increase in securities sold under
agreement to repurchase. Funds were used primarily to originate loans held for
sale of $15.9 million, to fund purchases of securities available for sale of
$11.1 million, and to fund a $7.7 million increase in loans held for investment,
as well as to compensate for a $6.5 million decrease in deposits.
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 the 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 March 31, 1999 and December 31, 1998, the
required liquid asset ratio was 4.0%. The Bank's liquid asset ratio was 9.98%
and 9.32% at March 31, 1999 and December 31, 1998, respectively.
15
<PAGE>
Impact of the Year 2000 Issue
The Year 2000 Issue is the result of computer programs being written using
two digits rather than four to define the applicable year. As a result, such
computer programs will not recognize the correct date after December 31, 1999.
Also, systems and equipment that are not typically thought of as "computer
related" (referred to as "non-IT") contain imbedded hardware or software that
may have a time element.
In 1997, the Company implemented a four phase project of inventory,
assessment, renovation and testing/implementation to address the Year 2000
Issue. The scope of the project includes: ensuring the compliance of all
applications, operating systems and hardware on the mainframe, PC and LAN
systems; addressing issues related to non-IT embedded software and equipment;
and addressing the compliance of the Company's significant borrowers and third
party providers. A summary of significant milestones is presented below:
The first three phases of inventory, assessment and renovation have been
substantially completed. The fourth phase, testing and implementation, was
substantially completed at March 31, 1999. The Company plans to conduct
additional testing throughout the year and prepare and finalize contingency
plans.
- The Company has determined, based primarily on communications with
vendors, that the majority of the Company's non-IT related systems and equipment
are currently Year 2000 compliant. Compilation of written documentation
regarding compliance was substantially completed at the end of the first quarter
of 1999, as was testing of critical systems that the Company determined needed
to be conducted.
- The potential impact of Year 2000 will depend not only on the corrective
measures the Company undertakes but also on other entities who provide data to
or receive data from the Company and on those whose operational capability or
financial conditions are important to the Company. The Company has received
assurances from all major third party vendors that they are either Year 2000
compliant or expect to be in compliance prior to the end of the second quarter
of 1999. In addition, management has reviewed significant lending and deposit
relationships and consulted with these customers as to their plans to address
Year 2000 issues. The plans of such parties are currently being monitored and
the Company is prepared to deal with any fundamental impact on the Company.
- The Company has established an internal review process to evaluate its
Year 2000 testing results. Monthly progress reports are made to the Company's
senior management and Board of Directors.
- The Company estimates, based on current projections of allocations of
existing resources and known direct costs, that total costs related to the Year
2000 project from 1997 to 2000 will be approximately $1,150,000. The Company
estimates that approximately 78% of these costs will be related to the
redeployment of existing personnel to address Year 2000 Issues, while
approximately 22% of these costs will represent incremental expenses to the
Company since inception of the Year 2000 project. Since inception, the Company
estimates it has incurred approximately $640,000 of costs related to its Year
2000 project, of which approximately $73,000 represents incremental expenses
primarily for software upgrades and outside consultant fees. Of the $640,000 of
Year 2000 project costs incurred since inception, approximately $160,000,
$340,000 and $140,000 were incurred in 1997, 1998 and the first quarter of 1999,
respectively. The remaining estimated costs to complete the project include
additional testing, monitoring and contingency activities during the remainder
of 1999 and into the year 2000. Some computer related initiatives have been
delayed due to the allocation of resources towards Year 2000 issues. Management
believes there has not been an adverse impact on the Company's financial
condition or day to day operations as a result of computer projects being
deferred due to reallocation of resources to the Year 2000 project.
- The Company has established a Customer Awareness Program to inform
customers of Year 2000 issues and provide status reports as to the Bank's Year
2000 efforts.
Based on our testing program, it is the Company's opinion that critical
systems are Year 2000 compliant. In the unlikely event that a critical system
does not perform as expected or if there is non-compliance by a major third
party provider, the Company is developing a contingency plan to address the
possible failure of critical systems. The Company expects to complete its
contingency plan by the end of the second quarter of 1999.
16
<PAGE>
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995
Information contained in the above discussion titled, "Management's
Discussion and Analysis of Financial Condition and Results of Operations," other
than historical information, may contain forward-looking statements that involve
risks and uncertainties including, but not limited to, the Company's compliance
with and estimates related to Year 2000 issues. These statements are made
pursuant to the safe harbor provisions of the Private Litigation Reform Act of
1995, and are provided to assist the reader in understanding anticipated future
financial and operational results. Although the Company believes that the
assumptions underlying the forward-looking statements contained herein are
reasonable, any of these assumptions could ultimately prove to be inaccurate.
The Company's actual results may differ materially from those projected in
forward-looking statements.
17
<PAGE>
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 1998
annual report, during the first three months of 1999.
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings - Inapplicable
Item 2 - Changes in Securities - Inapplicable
Item 3 - Defaults Upon Senior Securities - Inapplicable
Item 4 - Submission of Matters to a Vote of Security Holders - None
Item 5 - Other Information - None
Item 6 - Exhibits and Reports on Form 8-K - None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CENIT BANCORP, INC.
DATE: May 14, 1999 /S/ Michael S. Ives
-------------------
Michael S. Ives
President and Chief Executive Officer
DATE: May 14, 1999 /S/ John O. Guthrie
-------------------
John O. Guthrie
Senior Vice President and
Chief Financial Officer
18
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