SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
CENIT Bancorp, Inc.
- ----------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- ----------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies.
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2) Aggregate number of securities to which transaction applies.
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3) Per unit price or other underlying value of transaction computed to
Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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<PAGE>
CENIT Bancorp, Inc.
Corporate Offices
Main Street Tower
300 East Main Street, Suite 1350
Norfolk, Virginia 23510
(757) 446-6600
CENIT
Bancorp, Inc.
April 28, 2000
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders (the
"Meeting") of CENIT Bancorp, Inc. (the "Company"), which will be held at The
Chrysler Museum of Art Theater, 245 West Olney Road, Norfolk, Virginia, on June
14, 2000 at 5:00 p.m.
The attached Notice of the Meeting and the Proxy Statement describe the formal
business to be transacted at the Meeting.
The Board of Directors of the Company recommends a vote "FOR" each of the three
persons who have been nominated to serve as a director of the Company.
YOUR VOTE IS IMPORTANT. You are urged to sign, date and mail the enclosed Proxy
Card promptly in the postage-paid envelope provided, or vote via the Internet or
by telephone in accordance with the instructions set forth on the Proxy Card. If
you attend the Meeting, you may vote in person even if you have already mailed
in your Proxy Card or voted by Internet or telephone.
On behalf of the Board of Directors and all of the employees of the Company and
its subsidiary, I wish to thank you for your continued support. We appreciate
your interest.
Sincerely yours,
/s/ Michael S. Ives
Michael S. Ives
President and Chief Executive Officer
<PAGE>
CENIT Bancorp, Inc.
Main Street Tower
300 East Main Street, Suite 1350
Norfolk, Virginia 23510
(757) 446-6600
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held on June 14, 2000
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the
"Meeting") of CENIT Bancorp, Inc. (the "Company") will be held at The Chrysler
Museum of Art Theater, 245 West Olney Road, Norfolk, Virginia 23510, on June 14,
2000, at 5:00 p.m.
A proxy statement and a proxy card for the Meeting are enclosed. The
Meeting is for the purpose of considering and voting upon the following matters:
1. The election of three directors for terms of three years each; and
2. Such other matters as may properly come before the Meeting or any
adjournment thereof.
The Board of Directors has established April 17, 2000, as the record date
for the determination of stockholders entitled to notice of and to vote at the
Meeting and at any adjournments thereof. Only record holders of the common stock
of the Company as of the close of business on that date will be entitled to vote
at the Meeting or any adjournments thereof. A list of stockholders entitled to
vote at the Meeting will be available at CENIT Bancorp, Inc., Main Street Tower,
300 East Main Street, Suite 1350, Norfolk, Virginia 23510, for a period of ten
days prior to the Meeting and also will be available for inspection at the
Meeting itself.
EACH STOCKHOLDER, WHETHER HE OR SHE PLANS TO ATTEND THE MEETING, IS
REQUESTED TO SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD WITHOUT DELAY IN THE
ENCLOSED POSTAGE-PAID ENVELOPE, OR VOTE VIA THE INTERNET OR BY TELEPHONE IN
ACCORDANCE WITH THE INSTRUCTIONS SET FORTH ON THE PROXY CARD. ANY PROXY GIVEN BY
A STOCKHOLDER MAY BE REVOKED AT ANY TIME BEFORE IT IS EXERCISED. A PROXY MAY BE
REVOKED BY FILING WITH THE SECRETARY OF THE COMPANY A WRITTEN REVOCATION OR A
DULY EXECUTED PROXY BEARING A LATER DATE. ANY STOCKHOLDER PRESENT AT THE MEETING
MAY REVOKE HIS OR HER PROXY AND VOTE PERSONALLY ON EACH MATTER BROUGHT BEFORE
THE MEETING. HOWEVER, IF YOU ARE A STOCKHOLDER WHOSE SHARES ARE NOT REGISTERED
IN YOUR NAME, YOU WILL NEED ADDITIONAL DOCUMENTATION FROM THE RECORD HOLDER OF
YOUR SHARES TO VOTE PERSONALLY AT THE MEETING.
By Order of the Board of Directors
/s/ John O. Guthrie
John O. Guthrie
Corporate Secretary
CENIT Bancorp, Inc.
Norfolk, Virginia
April 28, 2000
IMPORTANT: THE PROMPT RETURN OF PROXIES WILL SAVE THE COMPANY THE EXPENSE OF
FURTHER REQUESTS FOR PROXIES IN ORDER TO ENSURE A QUORUM AT THE MEETING. A
SELF-ADDRESSED ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE. NO POSTAGE IS
REQUIRED IF MAILED IN THE UNITED STATES. ALSO, PROXIES MAY BE RETURNED BY
INTERNET OR BY TELEPHONE IN ACCORDANCE WITH THE INSTRUCTIONS SET FORTH ON THE
PROXY CARD.
<PAGE>
CENIT Bancorp, Inc.
Main Street Tower
300 East Main Street, Suite 1350
Norfolk, Virginia 23510
(757) 446-6600
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
June 14, 2000
Solicitation and Voting of Proxy.
This proxy statement is being furnished to stockholders of CENIT Bancorp,
Inc. (the "Company"), in connection with the solicitation by its Board of
Directors of proxies to be used at the Annual Meeting of Stockholders (the
"Meeting") to be held at The Chrysler Museum of Art, 245 West Olney Road,
Norfolk, Virginia 23510, on June 14, 2000, at 5:00 p.m., and at any adjournments
thereof. The 1999 Annual Report to Stockholders, including the consolidated
financial statements for the year ended December 31, 1999, accompanies this
proxy statement, which is first being mailed to stockholders on or about May 15,
2000.
Regardless of the number of shares of common stock owned, it is important
that stockholders be represented by proxy or present in person at the Meeting.
Stockholders are requested to vote via the Internet or by telephone in
accordance with the instructions set forth on the enclosed Proxy Card or by
completing the enclosed proxy card and returning it signed and dated in the
enclosed postage-paid envelope. Stockholders are urged to indicate their vote in
the spaces provided on the proxy card. Proxies solicited by the Board of
Directors of the Company will be voted in accordance with the directions given
therein. Where no instructions are indicated, proxies will be voted FOR the
election of each of the nominees for director named in this proxy statement.
A proxy may be revoked at any time prior to its exercise by filing written
notice of revocation with the Secretary of the Company, by delivering to the
Company a duly executed proxy bearing a later date, or by attending the Meeting,
filing a notice of revocation with the Secretary and voting in person. However,
if you are a stockholder whose shares are not registered in your name, you will
need additional documentation from the record holder of your shares to vote
personally at the Meeting.
The cost of solicitation of proxies in the form enclosed will be borne by the
Company. The Company has engaged Georgeson & Company to assist it in proxy
solicitations regarding the meeting. Georgeson & Company will perform these
services at an anticipated cost of approximately $9,500 plus expenses. Proxies
may also be solicited personally or by telephone, fax, or telegraph by
directors, officers and regular employees of the Company or CENIT Bank (the
"Bank"), without additional compensation. The Company and/or Georgeson & Company
will also request persons, firms and corporations holding shares in their names,
or in the name of their nominees, which are beneficially owned by others, to
send proxy material to and obtain proxies from such beneficial owners, and will
reimburse such holders for their reasonable expenses in doing so. The Company
and/or Georgeson & Company may request banks and brokers or other similar agents
or fiduciaries to transmit the proxy materials to the beneficial owners for
their voting instructions and will reimburse them for their expenses in so
doing.
Voting Securities and Principal Stockholders.
The securities that may be voted at the meeting consist of shares of Common
Stock of the Company (the "Common Stock"), with each share entitling its owner
to one vote on all matters to be voted on at the Meeting, except as described
below.
<PAGE>
The close of business on April 17, 2000, has been established by the Board of
Directors as the record date (the "Record Date") for the determination of
stockholders entitled to notice of and to vote at the Meeting and any
adjournments thereof. The total number of shares of Common Stock outstanding on
the Record Date was 4,753,663.
The presence, in person or by proxy, of at least a majority of the total
number of shares of Common Stock entitled to vote is necessary to constitute a
quorum at the Meeting. In the event there are not sufficient votes for a quorum
at the time of the Meeting, the Meeting may be adjourned in order to permit the
further solicitation of proxies. With respect to any action to be taken at the
Meeting other than the election of directors (which election will be determined
by a plurality of votes cast), the affirmative vote of a majority of those
shares present and voting on the action will be required.
Securities Ownership of Certain Beneficial Owners.
The following table sets forth certain information about those persons known
by management to be beneficial owners of more than 5% of the shares of Common
Stock outstanding on April 17, 2000. Persons and groups owning in excess of 5%
of the Company's Common Stock are required to file certain reports regarding
such ownership with the Company and with the Securities and Exchange Commission
(the "SEC") in accordance with Sections 13(d) and 13(g) of the Securities
Exchange Act of 1934 (the "Exchange Act").
<TABLE>
<CAPTION>
Amount and Nature
of Reported
Beneficial Percent of
Title of Class Name and Address of Beneficial Owner Ownership Class(1)
-------------- ------------------------------------ ---------- ---------
<S> <C> <C> <C>
Common Stock Mid-Atlantic Investors ("Mid-Atlantic") 478,560 (2) 10.1%
and related parties
P. O. Box 7574
Columbia, South Carolina 29202
Common Stock CENIT Employees Stock 446,347 (3) 9.4%
Ownership Plan and Trust
("ESOP")
Main Street Tower
300 East Main Street, Suite 1350
Norfolk, Virginia 23510
<FN>
(1) The total number of shares of Common Stock outstanding at April 17, 2000
was 4,753,663 shares.
(2) This information on beneficial ownership is based solely on information
supplied by Mid-Atlantic Investors, H. Jerry Shearer and Jerry Zucker (the
"Mid-Atlantic Group") which the Company has not independently verified. Mr.
Zucker disclosed that he has sole dispositive and voting power over 325,752
shares. Mr. Shearer disclosed that he has sole dispositive and voting power
over 2,808 shares. All parties report shared dispositive and voting power
over 150,000 shares.
(3) Michael S. Ives and John O. Guthrie administer the ESOP in their capacity
as trustees of the CENIT Employees Stock Ownership Trust (the "ESOP
Trust"). As of the Record Date, 235,145 shares of Common Stock in the ESOP
had been allocated to participating employees, and the trustees must vote
all allocated shares held in the ESOP in accordance with the instructions
of the participating employees. Under the ESOP, the ESOP trustees have
discretionary voting rights as to allocated shares for which no voting
instructions have been received.
</FN>
</TABLE>
2
<PAGE>
The following table sets forth certain information, as of April 17, 2000,
about beneficial ownership of the Common Stock of the Company for each director,
director nominee, certain executive officers and for all directors, director
nominees and executive officers of the Company as a group.
Number of Shares of
Common Stock
Name Beneficially Owned(1) (2) Percent of Class
- ------------------------- ------------------------- ----------------
David L. Bernd 21,085 *
Patrick E. Corbin 29,030 *
William J. Davenport, III 8,938 *
Thomas J. Decker, Jr. 9,599 *
John F. Harris 7,115 *
William H. Hodges 13,765 *
Michael S. Ives 198,696 4.08%
Charles R. Malbon, Jr. 10,971 *
Roger C. Reinhold 9,055 *
Anne B. Shumadine 38,445 *
David R. Tynch 18,858 *
Barry L. French 37,720 *
John O. Guthrie 49,294 1.03%
Roger J. Lambert 8,722 *
Alvin D. Woods 23,654 *
All directors, director nominees and 490,202 (3) 10.00%
executive officers as a group (4)
*Represents less than 1% of the outstanding shares of Common Stock.
(1) All shares shown as beneficially owned are owned directly or held by
spouses or children of the named persons, unless otherwise indicated.
(2) Includes 3,468, 3,468, 1,500 and 3,468 shares held in the Management
Recognition Plan ("MRP") Trust as described elsewhere in this proxy
statement on behalf of Messrs. French, Guthrie, Lambert and Woods,
respectively; 14,528, 7,649, 8,590, 6,472 and 7,220 shares held in the ESOP
Trust and allocated to Messrs. Ives, French, Guthrie, Lambert and Woods,
respectively; and 3,085, 116,881, 7,974, 10,224, 750, 5,574 and 250 shares
which Messrs. Bernd, Ives, French, Guthrie, Lambert, Woods and each other
director, respectively, could acquire within 60 days of April 17, 2000,
through the exercise of stock options.
(3) Includes 1,592 shares held in the ESOP Trust allocated to an executive
officer other than Messrs. Ives, French, Guthrie, Lambert and Woods.
(4) Includes 146,738 shares of Common Stock which such persons could acquire
within 60 days of April 17, 2000, through the exercise of stock options.
The total number of shares of Common Stock outstanding at April 17, 2000,
was 4,753,663 shares.
ELECTION OF DIRECTORS AT THE MEETING
Pursuant to the Company's bylaws, the Board of Directors has established the
number of directors of the Company at eleven. Effective at the Meeting, each of
the members of the Board of Directors of the Company also serves presently as a
director of the Bank. Directors are elected for staggered terms of three years
each, with a
3
<PAGE>
term of office of only one of the three classes of directors expiring each year.
Directors serve until their successors are elected and qualified. No person
being nominated as a director is being proposed for election pursuant to any
agreement or understanding between any person and the Company.
The three nominees proposed for election at the Meeting are Messrs. David L.
Bernd and David R. Tynch, and Ms. Anne B. Shumadine. The Board of Directors
believes that the nominees will stand for election and will serve if elected.
However, in the event that any such nominee is unable to serve or declines to
serve for any reason, it is intended that proxies will be voted for the election
of the balance of those nominees named and for such other persons as may be
designated by the present Board of Directors. Unless authority to vote for the
directors is withheld, it is intended that the shares represented by the
enclosed Proxy will be voted FOR the election of the three nominees.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF ALL NOMINEES
NAMED IN THIS PROXY STATEMENT.
Information with Respect to Nominees and Continuing Directors.
The following table sets forth, as of April 17, 2000, the names of the
nominees and other directors, their ages, the year in which their terms as
directors of the Company expire, and the year in which they became a director of
the Company.
<TABLE>
<CAPTION>
Expiration of Term Director of
Positions Held as Company the Company
Name with the Company Age Director Since
- ---------------------- ---------------- --- ---------- ------
<S> <C> <C> <C> <C>
Nominees
David L. Bernd Director 51 2000 1991
Anne B. Shumadine Director 57 2001 1991
David R. Tynch Director 52 2000 1994
Continuing Directors
John F. Harris Director 62 2001 1998
William H. Hodges Director 70 2001 1991
Roger C. Reinhold Director 58 2001 1994
William J. Davenport, III Director 52 2002 1998
Michael S. Ives President/Chief 47 2002 1991
Executive Officer/
Director
Charles R. Malbon, Jr. Director 50 2002 1998
</TABLE>
Set forth below is certain information with respect to the directors and the
director nominees of the Company. Unless otherwise indicated, the principal
occupation listed for each person below has been his or her principal occupation
for the past five years.
David L. Bernd has been a director of the Bank since 1984. Mr. Bernd is
presently Chief Executive Officer of Sentara Healthcare, a regional health
services corporation where he has been employed since 1973.
4
<PAGE>
Patrick E. Corbin is a certified public accountant and Principal of Corbin
& Company, P.C., an accounting firm, and has been employed by that firm since
1980. He has been a director of the Bank since 1988. Mr. Corbin is not standing
for election to another term.
William J. Davenport, III, has been a director of CENIT Bank or its
predecessor bank since 1985. He is and has been a private investor and realtor
for several years.
Thomas J. Decker, Jr., has been a director of CENIT Bank or its predecessor
bank since 1987 and is President of The Prudential-Decker Realty, a real estate
brokerage company. Mr. Decker is not standing for election to another term.
John F. Harris has been a director of CENIT Bank or its predecessor bank
since 1987. He is President of Affordable Homes, Inc., a developer of
residential housing in the Hampton Roads, Virginia, area.
William H. Hodges has served as a director of the Bank since 1989, when he
retired as a judge of the Virginia Court of Appeals. Judge Hodges had served on
the Court of Appeals since his appointment to that position in 1985, and had
previously served as a state circuit court judge.
Michael S. Ives has been a director of the Bank and has been the President
and Chief Executive Officer of the Bank since January, 1987.
Charles R. Malbon, Jr., serves as Chairman of the Board and has been a
director of CENIT Bank or its predecessor bank since 1993. He is Vice President
of Tank Lines, Inc.
Roger C. Reinhold became a director of the Company and the Bank on April 1,
1994. Prior to April 1, 1994, Mr. Reinhold had been President and Chief
Executive Officer of Homestead Savings Bank, F.S.B. ("Homestead") since 1982. He
joined Homestead in 1972.
Anne B. Shumadine was elected as a director of the Bank in 1991. Mrs.
Shumadine is President of Signature Financial Management, Inc., a financial
planning firm. She is also an attorney. Ms. Shumadine's current term as a
director expires in 2001, but she is being proposed to fill a term that will
expire in 2003 in order to fill a vacancy that would otherwise exist in that
class of directors.
David R. Tynch became a director of the Company and the Bank on April 1,
1994. Mr. Tynch is President and Managing Partner of the law firm of Cooper,
Spong & Davis, P.C. in Portsmouth, Virginia. He joined that firm in 1986. Prior
to April 1, 1994, Mr. Tynch had been a director of Homestead since 1985.
Meetings of the Board and Committees of the Board.
During 1999, the Board of Directors of the Company held twelve meetings. No
director of the Company who served as a director during 1999 attended fewer than
75% in the aggregate of the total number of the Company's board meetings and the
total number of meetings of board committees on which such director served
except Mr. Bernd, who attended 50% of the aggregate meetings and Mr. Decker, who
attended 50% of the aggregate meetings.
The Boards of Directors of the Company and the Bank have established various
committees, including Audit, Compensation, and Nominating Committees.
The Audit Committee of the Board of Directors consists of directors Corbin,
Bernd, Decker and Reinhold and is chaired by Mr. Corbin. This Committee meets
quarterly with the Company's and the Bank's internal auditor, and periodically
with the Company's and the Bank's external auditors, and reports to the Board of
Directors and to senior management on the Company's and the Bank's financial
condition and internal auditing practices and procedures. During the year ended
December 31, 1999, the CENIT Bancorp Audit Committee and CENIT Bank Audit
Committee met jointly four times.
5
<PAGE>
The Compensation Committee of the Board of Directors consists of directors,
Shumadine, Hodges, Malbon, Reinhold and Tynch and is chaired by Mrs. Shumadine.
This Committee meets periodically to evaluate the compensation and fringe
benefits of the Company's and the Bank's directors, officers and employees.
During the year ended December 31, 1999, the Compensation Committee met three
times.
The Board of Directors of the Company appoints a Nominating Committee each
year prior to the annual meeting of its stockholders. The present members of the
Nominating Committee are Charles R. Malbon, Jr., Anne B. Shumadine, and Michael
S. Ives and is chaired by Mrs. Shumadine. The Committee met one time in 1999.
The Committee considers and recommends the nominees for director to stand for
election at the Company's annual meeting of stockholders and will consider
nominees proposed by stockholders if the proposed nominees are submitted by the
annual deadline described on page 15 of this Proxy Statement.
Directors' Fees.
Each of the Company's directors, other than the President of the Company,
receives a director's fee of $300 per month. The Chairman of the Board of the
Company receives an additional fee of $900 per month. Each of the Bank's
directors, other than the President of the Bank, receives a director's fee of
$1,200 per month plus an attendance fee of $300 for each of the 12 regular
monthly meetings. Mr. Ives, as an employee, does not receive director's fees
from any entity.
The chairman of each committee receives a $300 per meeting attendance fee,
and each member receives a $150 per meeting attendance fee. Directors do not
receive fees for serving on the Nominating Committee.
6
<PAGE>
Executive Compensation.
The following table provides certain summary information concerning the
compensation of the Company's chief executive officer and the four other most
highly compensated executive officers of the Company and the Bank during 1999
(together, the "named executive officers").
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long-Term Compensation
Annual Compensation Awards
Securities
Underlying
Options/ All Other
Name and Principal Restricted SARs Compensation
Position Year Salary Bonus Stock Award (#) (3)
- -------------------------- ---- -------- ------- ----------- ----------- ----
<S> <C> <C> <C> <C> <C> <C>
Michael S. Ives 1999 $260,000 $ - - 40,000 $ 10,636
President and CEO, 1998 220,000 50,000 - 40,000 16,387
CENIT Bancorp, Inc. 1997 173,000 50,000 72,360 (1)(2) 4,953 15,523
and CENIT Bank
Barry L. French 1999 125,000 - - 3,500 $ 8,878
Senior Vice President/ 1998 97,750 17,200 - 3,000 12,767
Retail Banking Group 1997 88,400 16,000 23,580 (1)(2) 1,632 12,696
Mgr., CENIT Bank
John O. Guthrie 1999 110,000 - - 3,500 $ 8,248
Senior Vice President/ 1998 101,500 24,200 - 3,000 13,667
CFO/Corporate Secretary 1997 90,000 19,500 23,580 (1)(2) 1,632 12,741
CENIT Bancorp, Inc.,
and CENIT Bank
Roger J. Lambert 1999 110,000 - - 3,500 $ 8,246
Senior Vice President/ 1998 93,000 10,000 - 3,000 11,667
Information Services 1997 73,588 - 22,500 (1)(2) - 10,082
Group Mgr., CENIT
Bank
Alvin D. Woods 1999 125,000 - - 3,500 $ 8,783
Senior Vice President/ 1998 97,750 26,200 - 3,000 13,519
Credit Policy & Admin. 1997 82,500 20,500 23,580 (1)(2) 1,632 12,874
CENIT Bancorp, Inc.,
Senior Vice President,
Chief Lending Officer
CENIT Bank
<FN>
---------------
(1) Represents 4,824, 1,572, 1,572, 1,500 and 1,572 shares awarded to Messrs.
Ives, French, Guthrie, Lambert and Woods, respectively, under the MRP,
valued at $15.00 per share as of March 1, 1997, the date on which the
grants were effective. Under these grants, Mr. Ives' shares became fully
vested on March 1, 2000, and Messrs. French's, Guthrie's, Lambert's and
Woods' shares become fully vested on March 1, 2002.
(2) The shares held in the MRP Trust will vest in full on the occurrence of
certain other events, including a change in control of the Company or the
executive's death or disability. Regardless of vesting, the executives are
entitled to receive all dividends payable on the restricted shares, and to
direct the MRP trustees as to the manner in which the shares are to be
voted, until the shares are distributed to the executives or are forfeited.
7
<PAGE>
At December 31, 1999, based on the closing stock price of $17.31 on that
date, the value of the remaining restricted stock held on Messrs. Ives',
French's, Guthrie's, Lambert's and Woods' behalf in the MRP Trust was
$83,516, $60,040, $60,040, $25,969 and $60,040, respectively.
(3) Includes $4,750 contributed to the Bank's 401(k) Plan by the Bank in 1997
on behalf of Mr. Ives; 442, 623, and 232 shares held in the ESOP Trust
allocated to Mr. Ives in 1999, 1998, and 1997, respectively; $3,000,
$3,000, and $3,000 representing taxable compensation received by Mr. Ives
related to an automobile allowance in 1999, 1998, and 1997, respectively;
and $1,632 representing taxable compensation received by Mr. Ives related
to group term life insurance in 1997.
Includes $4,750 contributed to the Bank's 401(k) Plan by the Bank in 1997
on behalf of Mr. French; 340, 454, and 144 shares held in the ESOP Trust
allocated to Mr. French in 1999, 1998 and 1997, respectively; $3,000,
$3,000 and $3,000 representing taxable compensation received by Mr. French
related to an automobile allowance in 1999, 1998 and 1997, respectively;
and $1,138 representing taxable compensation received by Mr. French related
to group term life insurance in 1997.
Includes $4,750 contributed to the Bank's 401(k) Plan by the Bank in 1997
on behalf of Mr. Guthrie; 303, 496, and 159 shares held in the ESOP Trust
allocated to Mr. Guthrie in 1999, 1998, and 1997, respectively; $3,000,
$3,000, and $3,000 representing taxable compensation received by Mr.
Guthrie related to an automobile allowance in 1999, 1998, and 1997,
respectively; and $766 representing taxable compensation received by Mr.
Guthrie related to group term life insurance in 1997.
Includes $3,672 contributed to the Bank's 401(k) Plan by the Bank in 1997
on behalf of Mr. Lambert; 303, 403, and 107 shares held in the ESOP Trust
allocated to Mr. Lambert in 1999, 1998 and 1997, respectively; $3,000,
$3,000 and $3,000 representing taxable compensation received by Mr. Lambert
related to an automobile allowance in 1999, 1998, and 1997; and $588
representing taxable compensation received by Mr. Lambert related to group
term life insurance in 1997.
Includes $4,750 contributed to the Bank's 401(k) Plan by the Bank in 1997
on behalf of Mr. Woods; 334, 489, and 150 shares held in the ESOP Trust
allocated to Mr. Woods in 1999, 1998, and 1997, respectively; $3,000,
$3,000, and $3,000 representing taxable compensation received by Mr. Woods
related to an automobile allowance in 1999, 1998, and 1997, respectively;
and $1,138 representing taxable compensation received by Mr. Woods related
to group term life insurance in 1997.
</FN>
</TABLE>
8
<PAGE>
The following table provides information on stock option/stock appreciation
rights ("SAR") grants to the Company's named executive officers during 1999.
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Potential realizable value at
assumed annual rates of
stock price appreciation for
option
Individual Grants term (3)
Number of Percent of
securities total options
underlying granted to
options employees Exercise or
granted (#) in fiscal year base price Expiration
Name (1) (2) ($/Sh) date 5% ($) 10% ($)
------ ----- ----- -------- ------ ------ -------
<S> <C> <C> <C> <C> <C> <C>
Michael S. Ives 40,000 74.0% $18.00 10/25/09 $452,804 $1,147,495
Barry L. French 3,500 6.5% 18.00 10/25/09 39,620 100,406
John O. Guthrie 3,500 6.5% 18.00 10/25/09 39,620 100,406
Roger J. Lambert 3,500 6.5% 18.00 10/25/09 39,620 100,406
Alvin D. Woods 3,500 6.5% 18.00 10/25/09 39,620 100,406
<FN>
- ---------------
(1) The options granted to Messrs. Ives, French, Guthrie, Lambert and Woods
vest over a four-year period, with one-fourth of the options granted
becoming exercisable on each October 25 commencing October 25, 2000.
The options may become exercisable earlier than such dates upon a
"change of control" as defined in the Company's Long-Term Incentive
Plan, which was adopted in 1998, or upon the grantee's retirement,
disability or death.
(2) Excludes from percentage calculations grants to non-employee directors.
(3) Represents gain that will be realized assuming the options were held
for the entire ten-year period and the price of Common Stock increased
at compounded rates of 5% and 10% from the exercise price of $18.00 per
share. Potential realizable values per option or per share under these
rates of stock price appreciation would be $11.32 and $28.69,
respectively. However, these amounts represent assumed rates of
appreciation only. Actual gains, if any, on stock option exercises and
common stockholdings will be dependent on overall market conditions and
on the future performance of the Company and the Common Stock. There
can be no assurance that the amounts reflected in this table will be
achieved.
</FN>
</TABLE>
9
<PAGE>
The following table provides information on the number of shares acquired on
exercise and on the value of unexercised stock options/SARs held by the
Company's Chief Executive Officer and certain other executive officers at
December 31, 1999.
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Stock
Stock Options/SARS at Options/ SARs At
Shares Acquired Value End of Fiscal Year End of Fiscal Year
Name on Exercise (#) Realized ($) Exercisable/ Unexercisable Exercisable/ Unexercisable
------ ---------------- -------------- --------------------------- --------------------------
<S> <C> <C> <C> <C>
Michael S. Ives - $ - 113,815 / 74,305 $1,261,707 / $16,258 (1)
Barry L. French 3,200 39,816 10,966/ 7,166 76,655 / 5,345 (2)
John O. Guthrie 1,200 15,192 8,216/ 7,166 48,427 / 5,345 (3)
Roger J. Lambert - - 750/ 5,750 - / -
Alvin D. Woods 3,000 45,480 2,958/ 7,166 10,368 / 5,345 (4)
<FN>
(1) The market value of Common Stock at December 31, 1999 was $17.31 per
share, and the exercise price for in-the-money options/SARs is $3.84 per
share on 81,261 shares, $7.67 on 7,302 shares, $11.55 on 7,302 shares,
$12.34 on 7,302 shares and $15.00 on 4,953 shares.
(2) The market value of Common Stock at December 31, 1999 was $17.31 per
share, and the exercise price for in-the-money options/SARs is $7.09 on
4,000 shares, $7.67 on 1,200 shares, $11.55 on 2,400 shares, $12.34 on
2,400 shares and $15.00 on 1,632 shares.
(3) The market value of Common Stock at December 31, 1999 was $17.31, and the
exercise price for in-the- money options/SARs is $7.09 on 1,050 shares,
$7.67 on 1,400 shares, $11.55 on 2,400 shares, $12.34 on 2,400 shares and
$15.00 on 1,632 shares.
(4) The market value of Common Stock at December 31, 1999 was $17.31, and the
exercise price for in-the- money options/SARs is $11.55 on 1,200 shares,
$12.34 on 1,200 shares, and $15.00 on 1,224 shares.
</FN>
</TABLE>
Compensation Committee Interlocks and Insider Participation.
There are no known interlocks involving Compensation Committee members and
executive officers of the Company.
During 1999, members of the Compensation Committee engaged in the following
transactions with the Company and its subsidiaries:
Churchland Branch Lease. The Bank leases its office in the Churchland area
of Chesapeake, Virginia from T. R. & T., a general partnership of which Roger C.
Reinhold and David R. Tynch are two of the partners. This branch was formerly
operated by Homestead. The lease agreement grants the Bank a lease for a term of
15 years, which commenced February 1, 1986, with options to renew the lease for
four additional terms of five years each. The monthly rent is $3,948 with
adjustments made at the end of each five-year period. The total rent paid for
the year ended December 31, 1999 was $47,379. Based on a review of the lease in
September 1985, the predecessor of the Office of Thrift Supervision approved the
lease in accordance with federal regulations. The Bank has vacated this office
and the lease will not be renewed when it expires on February 1, 2001.
Compensation Committee Report on Executive Compensation.
The Compensation Committee, which is composed of the nonemployee Directors of
the Company listed below, recommends to the Board of Directors of the Bank the
annual salary levels and any bonuses to be paid to the
10
<PAGE>
Bank's executive officers. All salaries and bonuses paid to the Company's
executive officers are received by them from the Bank in their capacities as its
officers. The members of the Committee also serve as the committee with
authority to make Long-Term Incentive Plan awards, and this report covers the
Committee members' policies and actions in that capacity.
The Committee recommended the 1999 salaries for executive officers based on
its subjective determination of a reasonable salary level for each officer
relative to each individual's particular responsibilities and past performance.
Mr. Ives' salary for 1999 continued at the 1998 level of $260,000.
In 1999, the Bank paid no bonuses to executive officers pursuant to the
Bank's Key Executive Incentive Plan ("Incentive Plan") because the Company did
not achieve the threshold level of earnings per share during 1998.
During 1999, the Committee recommended certain changes to the Incentive Plan
that became applicable to executive officers' performance in 1999 for purposes
of determining bonuses potentially payable in 2000. The changes include a
performance measurement table, comprised of two sets of measures to determine
performance during each calendar year for purposes of earning bonuses to be paid
in the following year. The first set, Corporate Measures, consists of specific
quantitative goals with respect to the Company's return on equity and earnings
per share. The second set, Individual Measures, consists of specific
quantitative, qualitative or project-related goals for each officer for the
year. With respect to each Corporate and Individual Measure, multiple attainment
levels (including minimum and maximum levels) are established, with specific
dollar amounts that can be earned at each level of the measure.
In 1999, the Committee granted stock option awards under the Long-Term
Incentive Plan, continuing the Committee's policy of making annual grants with
the objective of providing competitive long-term incentives to the executive
officers. The Committee generally makes grants on a substantially consistent
basis resulting in approximately the same total awards each year, but subject to
annual discretion and change and to periodic review for competitiveness. When
compared to the 1998 awards (which were determined as part of an overall
executive compensation review conducted in 1998), the amounts of the 1999 awards
to the executive officers were identical in the case of Mr. Ives and increased
by 500 shares in the case of the other officers.
COMPENSATION COMMITTEE
Anne B. Shumadine, Chair
William H. Hodges
Charles R. Malbon, Jr.
Roger C. Reinhold
David R. Tynch
Neither the Compensation Committee report above nor the stock performance
graph that follows is incorporated by reference in any prior or future SEC
filings, directly or by reference to the incorporation of proxy statements of
the Company, unless such filing specifically incorporates the report or the
stock performance graph. SEC rules provide that the Compensation Committee
report and the stock performance graph are not deemed to constitute "soliciting
material" or to be filed with the SEC, and are not subject to SEC Regulations
14A or 14C, except as provided in SEC regulations, or to the liabilities under
Section 18 of the Exchange Act.
Stock Performance Graph.
The following graph provides a comparison with the stated indices of the
percentage change in the Company's cumulative total stockholder return on its
Common Stock for the period beginning December 31, 1994. The Company's stock
performance is compared to the Center for Research in Securities Prices ("CRSP")
Total Return Index for The Nasdaq Stock Market (U.S. Companies) which is a broad
market equity index calculated by CRSP at the University of Chicago. This index
comprises all domestic common shares traded on The Nasdaq Stock Market and The
Nasdaq Small Cap Market.
11
<PAGE>
In addition, the Company's stock performance is compared to The Nasdaq Total
Return Industry Index of Savings Institutions (SIC Code 603). This industry
index has also been calculated by the CRSP.
It should be noted that in light of the short period of time reflected by
this graph, there is no reason to assume that the performance of the Company's
Common Stock for the period shown on the graph will be reflective of long- term
performance. In any event, the following graph is designed to be only a general
depiction of one measure of corporate performance to be used by stockholders in
evaluating the performance of the Company.
Comparison of Cumulative Total Return Among CENIT Bancorp, Inc. CRSP
Total Return Index for The Nasdaq Stock Market (R) (US Companies) and
CRSP Total Return Index for Nasdaq Savings Institutions (SIC Code 603)
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
12/30/94 12/29/95 12/31/96 12/31/97 12/31/98 12/31/99
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
CENIT Bancorp, Inc. 100.0 181.4 209.3 409.3 338.0 280.7
CRSP Index for The 100.0 141.3 173.9 213.1 300.4 556.0
Nasdaq Stock Market
CRSP Index for Savings 100.0 149.9 192.3 334.0 304.4 258.8
Institutions
Notes:
A. The lines represent monthly index levels derived from compounded daily
returns that include all dividends
B. The indexes are reweighted daily, using the market capitalization on the
previous trading day
C. If the monthly interval, based on the fiscal year-end, is not a trading
day, the preceding trading day is used
D. The index level for all series was set to $100.00 on 12/30/94
</TABLE>
12
<PAGE>
Employment Agreement and Change of Control Arrangements.
President and Chief Executive Officer of the Company and the Bank. Pursuant
to an employment agreement (the "Agreement") entered into between the Company
and Michael S. Ives on November 1, 1997, Mr. Ives is employed as the President
and Chief Executive Officer of the Company and the Bank. The current term of the
Agreement expires December 31, 2000, and the Agreement is renewable by the Board
of Directors of the Company for successive one year terms.
The Agreement provides for Mr. Ives to be paid a base salary subject to
increases approved at the discretion of the Company, and for Mr. Ives to
participate in all Company benefit and compensation plans available to senior
executives. For the year ended December 31, 1999, Mr. Ives received total base
salary in the amount of $260,000. Mr. Ives did not receive a bonus in 1999 for
services rendered in 1998.
The Agreement provides for termination of Mr. Ives' employment for "cause"
(as defined in the Agreement) at any time or in certain events specified by
banking regulations. In the event that Mr. Ives' employment is terminated for
reasons other than cause or upon a voluntary resignation by Mr. Ives for good
reason, including his assignment to render services other than in a senior
management or executive capacity or a material reduction in base salary, Mr.
Ives would be entitled to continue to receive his base salary for one year from
the date of termination. The Company is also required to continue Mr. Ives'
benefits plans for a period of one year following a termination without cause.
In addition, if a "change of control" of the Company occurs, Mr. Ives will be
entitled to additional compensation if within 12 months thereafter his
employment is terminated without cause or he voluntarily terminates his
employment. In these circumstances, Mr. Ives will be entitled to receive, in
lieu of any salary continuation otherwise payable under the Agreement, a lump
sum payment equal to 2.99 times Mr. Ives' average annual compensation received
during the five years next ending prior to the date of the change of control. A
"change of control" is defined in the Agreement to occur upon any of the
following events: (a) the acquisition by any person or group, as beneficial
owner, of 20% or more of the outstanding shares or the voting power of the
outstanding securities of the Company; (b) either a majority of the directors of
Company at the annual stockholders meeting has been nominated other than by or
at the direction of the incumbent directors of the Company's Board of Directors,
or the incumbent directors cease to constitute a majority of the Company's Board
of Directors; (c) the Company's shareholders approve a merger or other business
combination pursuant to which the outstanding common stock of the Company no
longer represents more than 50% of the combined entity after the transaction;
(d) the Company's shareholders approve a plan of complete liquidation or an
agreement for the sale or disposition of all or substantially all of the
Company's assets; or (e) any other event or circumstance determined by the
Company's Board of Directors to affect control of the Company and designated by
resolution of the Board of Directors as a change of control.
If a change of control of the Company were to occur during 2000, Mr. Ives
would be entitled to a severance payment of $1,303,311 in addition to certain
stock option and related stock appreciation rights and restricted stock
acceleration rights, subject to reduction in coordination with Section 280G of
the Internal Revenue Code. Under Section 280G, assuming that Mr. Ives' severance
payment and the value of his stock options, stock appreciation rights and
restricted stock acceleration contingent upon the change of control equaled or
exceeded three times his average W-2 compensation for the five tax years
immediately preceding the change of control, the payment and benefits would
constitute "parachute payments." As a result, the amount by which the severance
payment and benefits exceeded Mr. Ives' average annual W-2 compensation for the
five-year period would be deemed to be "excess parachute payments," a 20% excise
tax on the excess parachute payments would be imposed on Mr. Ives, and the
Company would not be entitled to deduct the excess parachute payments. Mr. Ives'
Agreement provides that if his severance payment would otherwise result in
excess parachute payments in the opinion of the Company's independent
accountants, then the Company will reduce the severance payment to an amount
that would not give rise to excess parachute payments.
The Agreement also restricts the ability of Mr. Ives to compete with the
Company or the Bank for a period of 12 months after the termination of his
employment under the Agreement, but this non-competition provision is not
operative following any change of control.
Change of Control Arrangements. Pursuant to agreements (the "Change of
Control Agreements") entered into between the Company and Barry L. French, John
O. Guthrie, Roger J. Lambert and Alvin D. Woods on
13
<PAGE>
December 18, 1998, the Company agreed to make payments to these officers under
certain circumstances if a "change of control" of the Company (as defined above)
occurs. Each such officer will be entitled to a severance payment if within 12
months after a change of control of the Company, the officer's employment is
terminated without cause or the officer voluntarily terminates his employment
(other than after circumstances constituting cause). The severance payment will
be a lump sum amount generally equal to 12 months' base salary plus an
additional month's salary for each of the officer's years of service up to 12
years. Under the Change of Control Agreements, if the Company commits to employ
the officer during a designated transition period of up to 6 months after the
change of control without reduction of his base salary and without requiring his
relocation outside the Company's headquarters area, the officer will receive the
severance payment upon his voluntary resignation only if the resignation occurs
after the transition period. The Change of Control Agreements provide the same
limitations on "excess parachute payments" as are described above with respect
to Mr. Ives' Agreement.
Transactions with Certain Related Persons.
A number of the Company's directors, director nominees, and officers and
their associates are customers of the Company's bank subsidiary. Except as
indicated below, extensions of credit made to them are in the ordinary course of
business, are substantially on the same terms, including interest rates and
collateral, as those prevailing at the same time for comparable transactions
with others, and do not involve more than normal risk of collectibility or
present other unfavorable features. None of such credits are classified as
nonaccrual, past due, restructured or potential problem. All outstanding loans
to such officers, directors, director nominees, and their associates are current
as to principal and interest. As of March 31, 2000, loans to directors, director
nominees, executive officers and their interests who had loans at any time
during 1999 in excess of $60,000 totaled approximately $3.8 million.
Other Potential Conflicts. Management of the Company does not believe that any
director or officer or affiliate of the Company, or any record or beneficial
owner of more than 5% of the Common Stock of the Company, or any associate of
any such director, officer, affiliate or stockholder, is a party adverse to the
Company or any of its subsidiaries or has a material interest adverse to the
Company or any of its subsidiaries in any material proceeding.
Compliance with Section 16(a) of the Securities Exchange Act of 1934.
Section 16(a) of the Exchange Act requires the Company's officers and
directors, and persons who own more than ten percent of a registered class of
the Company's equity securities, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission ("SEC") and the National
Association of Securities Dealers. Officers and directors and greater than ten
percent stockholders are required by SEC regulation to furnish the Company with
copies of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by it, the
Company believes that during 1999 its officers and directors and greater than
ten percent stockholders complied with all applicable Section 16(a) filing
requirements, except that Charles R. Malbon, Jr., filed a report that was
required to be filed in May 1999 in June 1999.
Independent Accountants.
The Board of Directors has selected the accounting firm of
PricewaterhouseCoopers LLP, independent accountants, to be the Company's
independent accountants for the year ended December 31, 1999. A representative
of PricewaterhouseCoopers LLP is expected to be present at the Meeting, will
have the opportunity to make a statement at the meeting if he or she desires to
do so, and will be available to respond to appropriate questions. The Board of
Directors has not yet made a determination regarding the selection of
independent accountants for the year ending December 31, 2000. Under the
Company's Certificate of Incorporation and Bylaws, stockholders are not required
to ratify or confirm the selection of independent accountants made by the Board
of Directors.
14
<PAGE>
Stockholder Participation.
In the event that a stockholder wishes to submit a proposal for consideration
by the stockholders of the Company at the 2001 Annual Meeting of Stockholders
(the "2001 Meeting"), then in order for the proposal to be includible in the
proxy statement for the 2001 Annual Meeting, such proposal must be received by
the Secretary of the Company no later than December 28, 2000.
The Bylaws of the Company provide a procedure for certain business to be
brought before annual meetings of the Company's stockholders, and such proposals
may be properly brought before the meeting even if they are not includible in
the proxy statement for the meeting, so long as the proposing stockholder
complies with the advance notice provisions of the Bylaws. If written notice of
business proposed to be brought before the 2001 Meeting is given to the
Secretary of the Company, delivered or mailed to and received at the principal
executive offices of the Company not later than December 28, 2000, such business
may be brought before the 2001 Meeting. Information regarding the contents of
the required notice to the Company is to be found in the Company's Bylaws, which
are available from the Company upon request.
Stockholders are also permitted to submit nominations of candidates for the
Board of Directors. If a stockholder wishes to nominate a candidate to stand for
election as a director at the 2001 Meeting, the nomination shall be made by
written notice to the Secretary of the Company, which must be delivered or
mailed to and received at the principal executive offices of the Company not
later than December 28, 2000. The requirements regarding the form and content of
stockholder nominations for directors are also set forth in the Bylaws.
Other Matters Which May Properly Come Before the Meeting.
Neither the Board of Directors nor management of the Company intends to
bring before the Meeting any business other than the matters referred to in the
Notice of Meeting and this proxy statement. If any other business should be
properly presented, the persons named in the proxy will vote on such matters
according to their best judgment.
Whether or not you intend to be present at the Meeting, you are urged to
return your proxy promptly. If you are present at the Meeting and wish to vote
your shares in person, your proxy may be revoked by voting at the Meeting.
Annual Report on Form 10-K and Additional Information.
A copy of Form 10-K as filed with the Securities and Exchange Commission is
available without charge to stockholders upon written request. Requests for this
or other financial information about CENIT Bancorp, Inc., or the Bank, should be
directed to Stuart F. Pollard, Vice President, Corporate Communications, CENIT
Bank, Post Office Box 1811, Norfolk, Virginia 23501-1811, Telephone (757) 446-
6692.
By Order of the Board of Directors
/s/ John O. Guthrie
John O. Guthrie
Corporate Secretary
CENIT Bancorp, Inc.
Norfolk, Virginia
April 28, 2000
YOU ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON. WHETHER OR NOT YOU
PLAN TO ATTEND THE MEETING, YOU ARE REQUESTED TO VOTE VIA THE INTERNET OR
TELEPHONE OR TO SIGN AND PROMPTLY RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
15
<PAGE>
[FRONT OF PROXY CARD]
Please mark
X votes as in
this example
The Board of Directors recommends a vote "FOR" proposal 1
1. Election of Directors
Nominees: David L. Bernd, Anne B. Shumadine, David R. Tynch
FOR ALL DIRECTORS WITHHOLD
LISTED ABOVE AUTHORITY
---- ----
(Instruction: To withhold authority to vote for any individual nominee(s)
write the name(s) of such nominee(s) in the following space.)
- --------------------------------------------------------------------
2. To vote, in its discretion, upon any other
matters that may properly come before the
meeting or any adjournment thereof. See
"Other Matters Which May Properly Come
Before the Meeting" in the Proxy Statement.
Date: ---------------------, 2000
- ---------------------------------
Signature
- ---------------------------------
Signature
PLEASE SIGN your name exactly as it appears
hereon. Joint accounts need only one signature,
but all accountholders should sign if possible.
When signing as an administrator agent,
corporation officer, executor, trustee, guardian or
similar position or under a power of attorney,
please add your full title to your signature.
<PAGE>
[BACK OF PROXY CARD]
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
CENIT BANCORP, INC.,
FOR USE ONLY AT THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD
ON JUNE 14, 2000 AND ANY ADJOURNMENT THEREOF.
The undersigned hereby acknowledges prior receipt of the Notice of the
Annual Meeting of Stockholders (the "Meeting") and the Proxy Statement
describing the matters set forth below, and indicating the date, time and place
of the meeting, and hereby appoints the Board of Directors of CENIT Bancorp,
Inc. (the "Company"), or any of them, as proxy, each with full power of
substitution to represent the undersigned at the Meeting, and at any adjournment
or adjournments thereof, and thereat to act with respect to all votes that the
undersigned would be entitled to cast, if then personally present on the matters
referred to on the reverse side in the manner specified.
This Proxy, if executed, will be voted as directed, but, if no instructions
are specified, this Proxy will be voted FOR the election of the Director
nominees listed. Please sign and date this Proxy on the reverse side and return
it in the enclosed envelope. This Proxy must be received by the Company no later
than June 14, 2000.
This Proxy is revocable and the undersigned may revoke it at any time prior
to the Meeting by giving written notice of such revocation to the Secretary of
the Company. Should the undersigned be present and wish to vote in person at the
Meeting, or any adjournment thereof, the undersigned may revoke this Proxy by
giving written notice of such revocation to the Secretary of the Company on a
form provided at the Meeting.
<PAGE>
[FRONT COVER]
CENIT BANCORP, INC.
Annual Report 1999
<PAGE>
(GRAPHIC OMMITTED)
CENIT's Corporate Offices, in the center of Norfolk's Financial District, frame
the Downtown holiday skyline. Begun in 1985, the holiday lighting program is
coordinated by the Downtown Norfolk Council and underwritten by private property
owners and the City of Norfolk. The 12 miles of lights adorning the city skyline
are illuminated on the Saturday before Thanksgiving and stay lighted until New
Year's Eve. The event has become the region's picture post card.
<PAGE>
Corporate Profile
- ------------------------------------------------------------------------------
CENIT Bancorp, Inc., (the "Company") with headquarters in Norfolk,
Virginia, is the holding company for CENIT Bank (the "Bank"), a federal stock
savings bank based in Norfolk, Virginia.
CENIT Bank has been in business since 1889. The Bank is the largest bank or
thrift institution headquartered in the Norfolk-Virginia Beach-Newport News
Statistical Area, the 27th largest Metropolitan Statistical Area (MSA) in the
United States and the fourth largest MSA in the southeast.
At December 31, 1999, CENIT Bancorp had assets of $674.2 million, deposits
of $464.6 million and stockholders' equity of $51.3 million with 4,751,644
shares of common stock outstanding.
The Bank operates twenty retail banking offices in the cities of Norfolk,
Portsmouth, Virginia Beach, Chesapeake, Hampton and Newport News and in York
County, Virginia. The Bank attracts retail deposits from the general public in
its market area by providing a variety of deposit services. As a community bank,
the focus is personal banking for local individuals and businesses.
Deposits are insured by the Federal Deposit Insurance Corporation up to
applicable limits. The Bank is a member of the Federal Home Loan Bank System.
The Bank invests its funds in permanent and construction residential loans,
consumer loans, and commercial real estate and business loans. The Bank also
invests in mortgage-backed certificates and U.S. Treasury and federal agency
securities.
The Company's common stock trades on The Nasdaq Stock Market (R) under the
symbol CNIT.
Visit us on the Internet at www.cenit.com
<PAGE>
Table of Contents
- -------------------------------------------------------------
Report To Our Stockholders..............................1
Board of Directors and Executive Management.............5
Community Advisory Boards...............................6
Five Year Financial Summary.............................8
Management's Discussion and Analysis....................9
Consolidated Financial Statements......................21
Notes To Consolidated Financial Statements.............26
Report of Independent Accountants......................51
Corporate Information..................................52
Map of Retail Banking Offices..........................53
Investor Information....................Inside Back Cover
Highlights of The Year
- ------------------------------------------------------------------------------
- - Record earnings of $1.30 per share
- - A 16.5% increase in the average balance of noninterest-bearing deposits
- - An increase of average transaction deposits to 46% of total deposits
- - A decrease of 59% in nonperforming assets
- - A 73% increase in merchant card processing fees, net of expenses
- - Online banking - www.cenit.com
- - Enhancement of our community banking franchise
<PAGE>
Report to Our Stockholders
- ------------------------------------------------------------------------------
[PICTURE OF MICHAEL S. IVES INSERTED HERE]
Michael S. Ives
President and
Chief Executive Officer
Your Board of Directors and I are pleased to present to you the 1999 Annual
Report for CENIT Bancorp, Inc.
The period from the beginning of 1999 through the beginning of 2000 was a
time of great changes and great challenges for CENIT and other financial
institutions. While the overall economy remained robust, conditions affecting
the financial services industry changed markedly. Prevailing short- term
interest rates rose sharply and are expected to continue to rise. The so- called
"yield curve" of the U.S. Treasury Securities has inverted, which means that
yields on shorter term securities such as two-year U.S. Treasury Notes now
exceed yields on longer term securities such as U.S. Treasury Bonds with
maturities of 10 years or more. With this increase in overall interest rates,
mortgage loan originations fell sharply over the course of 1999 as mortgage loan
refinancings dropped precipitously. In this environment, bank stocks plummeted
notwithstanding widespread evidence of strong earnings and excellent asset
quality and general public expectations for the continuation of the current
economic expansion for an indefinite period of time.
Our share price was no exception. From December 31, 1998, to December 31,
1999, our share price declined from $21.50 to $17.31. This compares to a decline
of approximately 16% in the S&P Regional Bank Stock Index and approximately 15%
in the CRSP Total Return Index for Nasdaq Savings Institutions.
Some of our shareholders have asked me, "What is CENIT going to do about
its share price?" Before we answer this question, we want to tell you about the
Company and our achievements during 1999.
On the surface, little changed at CENIT during 1999. Our earnings per share
grew modestly; the outstanding balance of our core banking loans, i.e.,
commercial business, commercial real estate, multifamily residential, consumer,
and acquisition, development, residential lots and construction loans ("core
banking loans"), increased by 6.2% over the year; and the average balance of our
transaction accounts, i.e., checking, savings, and money market deposit accounts
for 1999, grew by approximately 11% over the average balance for such accounts
over 1998. However, the Company did not grow its assets rapidly, did not merge
with another community bank, and did not acquire deposits from another financial
institution. So what did CENIT accomplish during 1999, a year of great change in
the financial services industry?
The simple answer, and the correct answer, is that CENIT executed its
Business Plan during 1999. Our Business Plan has been, and remains, to enhance
our core earnings and franchise value through the exploitation of our position
as the largest community bank headquartered in our market, the fourth largest
MSA in the Southeast, and the only community bank serving all six of the most
populous cities in our market. To take advantage of our competitive position, we
have implemented banking technology competitive with the largest banks and have
developed a strategic network of retail banking offices convenient to a large
percentage of our local population.
During 1999, we placed special emphasis on (1) strengthening our balance
sheet through
1
<PAGE>
increases in our core banking loans and transaction accounts; (2) improving our
core earnings; (3) preserving our asset quality; and (4) improving our
facilities and technology. In addition, we placed the highest priority on the
successful implementation of our program to prevent any adverse impact on the
Company from the so-called "Y2K problem."
Strengthening Our Balance Sheet. During 1999, we continued to strengthen
our balance sheet by increasing our core banking loans as a percentage of net
loans and by increasing the average balance of our transaction accounts as a
percentage of total deposits. This increases our net interest income in the
years ahead because our core banking loans tend to have higher yields than our
residential mortgage loans and our transaction deposits tend to have a lower
cost of funds than certificates of deposit or other borrowed money. This ongoing
process of growing our core banking loans and transaction deposits increases our
core earnings and franchise value over time.
The percentage of our net loan portfolio consisting of core banking loans
increased to 53% at the end of 1999 from 48% at the end of 1998, with a net
increase in core banking loans of approximately $15 million, or 6.2%. Also,
during 1999, the Company increased the percentage of its average deposits
consisting of transaction accounts from 40% in 1998 to 46% in 1999. Overall, the
Company's banking initiatives resulted in an increase of approximately $21
million, or 11%, in average transaction deposits in 1999 compared to 1998. Of
particular importance, the average balance of our noninterest-bearing deposits
for 1999 grew to approximately $66 million, representing an increase of
approximately 17% over the average balance of these deposits in 1998.
To continue these trends in our balance sheet during 2000, we must attract
new commercial and retail customers. We have strengthened our commercial and
retail banking teams and have worked to increase the volume of referrals from
our existing customers, our Advisory Boards, and our other sources of new
business. Our commercial and acquisition, development and construction loan
pipeline is approximately $59 million at March 31, 2000, one of the highest
levels in the Company's history. Similarly, our retail banking executives
continue to solicit large transaction accounts from new and existing customers
to increase significantly our transaction accounts.
Loans in our pipeline do not necessarily become closed loans; accounts in
solicitation and negotiation do not necessarily become open accounts. Tenacity
is essential to convert these business opportunities into business obtained in
order for us to grow our core banking loans and our transaction accounts. Our
competitive position presents new opportunities to us, and we will be zealous in
our efforts to take advantage of these business opportunities as they arise.
Improving Our Core Earnings. Our earnings per share for 1999 increased to
$1.30 per diluted share compared to $1.27 per diluted share in 1998. Net income
for 1999 was $6,059,000 compared to $6,115,000 in 1998. The increase in earnings
per share for 1999 and the slight decrease in net income reflect primarily the
impact of share repurchases by the Company during 1999. Share repurchases tend
to increase earnings per share from a decrease in average shares outstanding and
to decrease net income from a reduction in the income on the funds used to
repurchase shares.
As I mentioned previously, rising interest rates during 1999 adversely
impacted mortgage lending. This had two major negative effects on our income
during 1999.
First, the obvious impact was a substantial reduction in our direct income
from mortgage banking and commercial mortgage brokerage comparing 1999 with
1998. Gains on the sale of mortgage loans and commercial mortgage brokerage fees
decreased from $1,498,000 in 1998 to $916,000 in 1999. For five consecutive
quarters, from the fourth quarter of 1998 through the fourth quarter of 1999,
there was a decrease in our gains on the sale of mortgages from the prior
quarter.
2
<PAGE>
Second, the reduction in mortgage originations by all lenders had a direct
impact on our noninterest-bearing deposits. Comparing the fourth quarter of 1999
with the fourth quarter of 1998, the average balance of our customers'
noninterest-bearing escrow accounts that are used primarily for mortgage loan
closings fell from $18.1 million to $12.7 million. This funding shortfall had to
be covered by interest-bearing deposits or borrowed funds, thereby raising our
interest expense. Fortunately, substantial increases in our noninterest-bearing
regular commercial and consumer deposits offset much of this decline in our
escrow account balances.
Commencing in the second quarter of 2000, we expect to see a general
improvement in mortgage lending as housing starts and resales remain strong.
Also, we have added several new mortgage lending officers to our staff. If the
housing market remains strong, we expect that our mortgage banking income and
escrow account balances will rebound quite nicely during 2000.
Meanwhile, our core banking operations continue to grow. At March 31, 2000,
our commercial and acquisition, development and construction loan pipeline is
among the strongest in the history of the Company in terms of volume and
quality. Our mortgage loan pipeline grew significantly in March. These and other
factors give us great confidence in our ability to grow our core earnings in
2000 notwithstanding the expectation for further increases in interest rates.
Preserving Our Asset Quality. From the very beginning of this Company's
public existence in 1992, we expressed the importance of asset quality to
management and our shareholders. Excellent asset quality is the cornerstone of
our Business Plan. We worked hard to improve our already strong asset quality in
1999 and have some impressive numbers to report.
At the end of 1999, our nonperforming assets were only $603,000, or .09% of
our total assets. Our coverage ratio, i.e., our allowance for loan losses as a
percentage of nonperforming loans, was 1,018%.
These asset quality figures are phenomenal, and it is difficult to imagine
that we can improve materially upon them. This is particularly true since we are
a retail bank with a large number of consumer loans. Personal financial
difficulties and bankruptcies for a small percentage of our borrowers cannot be
avoided in consumer lending and make it inevitable that we will have some level
of nonperforming assets from these sources.
We have no reason to believe that we will suffer any overall material
decrease in our asset quality during 2000, even if there is an increase in
nonperforming assets over the minuscule level existing at the end of 1999. We
strive constantly to examine credit requests from a long-term perspective,
recognizing the ebb and flow of the business cycle. Please be assured that our
commitment to excellence in asset quality is stronger than ever.
Enhancing Our Facilities and Technology. As the largest community bank in
our market, we face strong competition not only from other community banks but
also from the large regional banks. To compete successfully, we must offer basic
banking services that are competitive with the larger banks and a high level of
personal service competitive with the smaller community banks. This is a
delicate balance for us, but if we are able to meet this dual standard of
resources and personal service, our potential for growth in our core banking
business is tremendous.
Superior banking technology and a convenient network of retail banking
offices are essential for us to compete successfully with both the larger
regional banks and the smaller community banks. During 1999, we undertook
several initiatives to enhance our banking services and our retail banking
network.
Notwithstanding the diversion of our technological resources to our Y2K
compliance program, we implemented an on-line banking program especially for our
commercial banking customers which permits them to perform a wide range of
banking services using their choice of the Internet or direct access through a
personal computer or a specially designed screen phone.
3
<PAGE>
Together with our other commercial banking services, such as check imaging and
deposit pickup services, our on-line banking initiative makes us highly
competitive with the regional banks for larger commercial customers in our
market.
Also, in 1999, we relocated our existing retail banking office in the
Churchland area of Chesapeake and Portsmouth to a modern retail facility in one
of the most prominent locations in Churchland. This new retail office also
contains offices for commercial and mortgage lending officers.
Finally, we relocated our Corporate Headquarters to the Main Street Tower
in the Financial District in the city of Norfolk. The Financial District has
long been considered the commercial hub of our market. Located within the
Financial District are the headquarters of most of the regional banks serving
our market, the primary offices of the area's largest law firms, and many of our
community's leading cultural and entertainment venues. The opening in 1999 of
the MacArthur Center shopping mall, featuring Nordstrom's and Dillards'
department stores, has added to the commercial vitality of the Financial
District.
Though our suite of corporate offices in the Main Street Tower at 7,500
square feet is modest by most standards, the synergy with our Financial District
retail and commercial banking office in the Main Street Tower is exciting. Our
Norfolk Advisory Board meets regularly in our new offices. Our banking
executives interact daily with existing and potential customers in the Financial
District. We have a new prominence and a new credibility that enhance our
ability to attract larger commercial customers.
I now return to the question that I posed at the beginning of this Report
and that is, "What did CENIT do during 1999?" The short answer is that we
executed our Business Plan and made your Bank a better bank.
We recognize that fundamental improvement in our Bank is only part of the
story. If this fundamental improvement is not reflected in our share price over
time, our shareholders have every right to expect more from us. We are acutely
aware of our responsibilities to our shareholders, and we strive constantly to
identify and analyze all business opportunities that may benefit our
shareholders over the long term.
Several years ago a shareholder asked me at our annual meeting if we would
entertain inquiries from larger banks about possible acquisitions of CENIT. I
responded that CENIT has an "open door" policy pursuant to which we are amenable
to discussing business combinations with banks of all sizes, those larger than
us as well as those smaller than us.
This continues to be our policy. Any transaction with another community
bank must enhance our core earnings and not impair our intrinsic franchise
value. Similarly, any transaction with a larger bank must reward our
shareholders appropriately for the intrinsic value of our franchise, our
strategic position within our market, and the great potential in this market.
Simply put, we will not sacrifice shareholder value that we have so
painstakingly built just to effect a merger with another bank, whether larger or
smaller than us. We will, however, be vigilant and explore every business
opportunity that may arise for the benefit of our shareholders.
In closing, we enter the Year 2000 highly confident that our Bank will
continue to grow and improve. We are focused on shareholder value and the
utilization of any and all appropriate means to increase our share price and to
enhance shareholder value over the long term. We appreciate your investment in
our Company and commit ourselves to your service as stewards for your
investment.
/s/ Michael S. Ives
Michael S. Ives
President and Chief Executive Officer
4
<PAGE>
Board of Directors and Executive Management
- ------------------------------------------------------------------------------
- - Board of Directors
Charles R. Malbon, Jr.
Chairman
Vice President, Tank Lines, Inc.
David L. Bernd
CEO, Sentara Health Care
Patrick E. Corbin, CPA
Principal, Corbin & Company, P.C.
William J. Davenport, III
Real Estate Developer/Investor
Thomas J. Decker, Jr.,
President, The Prudential-Decker Realty
L. Renshaw Fortier*
Chairman, Laren Company
John F. Harris
President, Affordable Homes, Inc.
The Honorable William H. Hodges
Judge, Virginia Court of Appeals (Retired)
Michael S. Ives
President & Chief Executive Officer
Roger C. Reinhold
Commercial Investments
Retired President, Homestead Savings Bank
William L. Rueger*
Management Consultant
Anne B. Shumadine, Esq.
President, Signature Financial Management, Inc.
Director, Mezzullo & McCandlish,
A Professional Corporation
David R. Tynch, Esq.
President and Managing Partner,
Cooper, Spong & Davis, P.C.
* CENIT Bank Board Only
- - Executive Management
Michael S. Ives
President & Chief Executive Officer
Barry L. French
Senior Vice President,
Retail Banking Group Manager
John O. Guthrie
Senior Vice President,
Chief Financial Officer &
Finance and Administration Group Manager
Roger J. Lambert
Senior Vice President,
Information Services Group Manager
Alvin D. Woods
Senior Vice President,
Chief Lending Officer &
Lending Group Manager
5
<PAGE>
Community Advisory Boards
- -------------------------------------------------------------------------------
- - Norfolk
Michael A. Glasser, Esq.
Chairman
Partner, Glasser and Glasser PLC
Joan D. Gifford
Vice Chairman
Chairman, Coldwell Banker
Gifford Realty, Inc.
Paulette Benson
Consulting Engineer
Richard C. Burroughs
Vice Chairman, Harvey Lindsay
Commercial Real Estate
Wendell C. Franklin
Senior Vice President & Partner,
S. L. Nusbaum Realty Company
Richard Wells Gresham AIA
Vice President,
E.T. Gresham Company, Inc.
Claus Ihlemann
Owner, Decorum
Karen Jaffe
Partner,
Jaffe, Caplan, Fleder
Gus J. James, II, Esq.
Partner,
Kaufman & Canoles PC
Peter W. Karangelan
President, Azalea Inn #1, Inc.
Walter D. Kelley, Jr., Esq.
Partner, Willcox & Savage, P.C.
Linda S. Laibstain, Esq.
Partner, Hofheimer Nusbaum, P.C.
John M. Ryan, Esq.
Partner, Vandeventer Black, LLP
H. Wayne Smith
Property Manager, Equity Office
Properties
Alvin A. Wall, CPA
President, Wall, Einhorn &
Chernitzer, P.C.
Howard M. Webb, Sr.
President,
Webb Technologies, Inc.
Barclay C. Winn
President
Winn Nursery of Virginia, Inc.
Barbara Zoby
President,
Yukon Lumber Company
- - Tri-City
West Chesapeake, Suffolk,
Portsmouth
Michael R. Kirsch
Chairman
Vice President
K Plus, Inc./One Source
Dan E. Griffin
Vice Chairman
Architect
Robert C. Barclay, IV, Esq.
Partner, Cooper, Spong & Davis
Roger L. Brown
Restaurateur
Gwendolyn S. Davis
Legislative Liaison
Principal Management Analyst,
City of Portsmouth
Richard J. Harrison, Jr., CPA
Richard J. Harrison, Jr., P.C.
Samuel H. Lamb, II
Provost,
Tidewater Community College
Bill Moody
Vice President, Sales
Nesson Meat Company
Rennie R. H. Richardson
President, Richardson Real Estate Co.
John P. Wright
President,
Waverton Associates, Inc.
- - Chesapeake
South Chesapeake
James A. Roy, Esq.
Chairman
Partner, Roy, Larsen,
Romm & Lascara, P.C.
James J. Wheaton, Esq.
Vice Chairman
Partner, Willcox & Savage, P.C.
W. Michael Bryant
President, OBBCO Safety & Supply, Inc.
Fella Rhodes
Associate Broker,
William E. Wood & Associates
Steven B. Powers, MD
Private Practice
Debbie Ritter
Chesapeake Civic Leader,
Member, City Council,
City of Chesapeake
Greg Skillman
President, Seaboard Mechanical
Stephen Telfeyan, Esq.
Partner, Basnight, Kinser
& Leftwich, P.C.
Gayle A. Terwilliger, DDS
Dentist, Private Practice
Olivia T. Walton, CPA
Owner, Walton Associates
- - Virginia Beach East
Kal Kassir
Chairman
Owner, The Corner Market
Robert M. Howard
Vice Chairman
Executive Vice President,
Accounting and Finance
Professional Hospitality Resources Inc.
Thomas R. Eckert
Owner, Baylake Pines School
6
<PAGE>
Charles G. Faison, Jr.,
President, Bayside Exxon Service Center
Charles W. Guthrie
President, Lynnhaven Marine
Robert G. Jones, Esq.
Partner,
Jones, Marcari, Russotto, Walker & Spencer, P.C.
Gerald L. Kerr, III
Attorney At Law
Donald E. Lee, Jr., Esq.
Owner, Donald E. Lee, Jr. and Associates
John P. Martin
Owner, Great Atlantic Travel & Tour
Paul V. Michels
President, Coastal Training
Technologies Corp.
Thaddeus J. Nowak
Executive Vice-President/COO
Hall Auto World, Inc.
Judith L. Rosenblatt
Attorney At Law
Partner, GEROE & ROSENBLATT LC
John R. Savino
Agent, The Prudential-Decker Realty
Trudy H. Waranch
Partner, Jacobson, Waranch &
Broyman, P.C.
Brian P. Winfield, CLU
Winfield and Associates
- - Virginia Beach West
Kirk Hammaker
Chairman
General Manager,
Riedman Insurance
Wendell A. White
Vice Chairman
President,
Professional Realty Corp.
Stephen B. Ballard
President,
S. B. Ballard, Inc.
Richard A. Beskin
President, Beskin and Associates, Inc.
Charles W. Best, III, Esq.
Partner, Charles W. Best III, P.C.
Glenn R. Croshaw, Esq.
Wilcox & Savage, P.C.
Blair G. Ege
Vice President
Mass Mutual Financial Group
Samir A. Halabi
President, Automax Sales, Inc.
William F. "Toby" Harris
Vice President, National City Mortgage
Owner, Freeman, Inc.
Owner, Bayside Commercial Lending
William A. Hearst
Foundation Administrator, Lee A. &
Helen G. Gifford Foundation
Clarence A. Holland, MD
Physician, Bayside Family Practice
Glen A. Huff, Esq.
Partner, Huff, Poole & Mahoney P.C.
Norma O. Magpoc, MD
Physician
Frances Denney Richardson, CPA
Failes & Associates
Robert E. Ruloff, Esq.
Partner, Shuttleworth, Ruloff,
Giordano, & Swain, P.C.
Mark E. Slaughter, Esq.
Partner, Pender & Coward
Harold E. Smith
Partner & Senior Vice President,
GSH Real Estate
Jerry R. Sutphin
Owner, Sutphin Enterprises, L.L.C.
J. Randolph Sutton
President,
Waterfront Marine Construction, Inc.
Jerry Womack
President, Suburban Grading & Utilities
- - Peninsula
Hampton, Newport News, York County
Herbert V. Kelly, Jr., Esq.
Chairman
Partner, Jones, Blechman,
Woltz & Kelly, PC
Thomas R. Brooks, CPA
Vice Chairman
Partner, Witt, Mares & Co., PLC
James F. Allen, MD, F.A.C.S.
Neurosurgeon, Hampton Roads
Neurosurgeon & Spine Center, Inc.
T. James Bayne, Jr.
President, Credit Control Corp.
Randolph P. Bryant
President, Wolftrap Operations
Charles R. Conte, Jr.
Owner, Conte's Bike Shop, Inc.
Betty Anne Davis, CPD, A.I.B.D.
Owner, Davis Designs
Co-owner, Davis-Penland
Building and Remodeling, LLC
Wendy C. Drucker
Vice President, Drucker & Falk, LLC
Beverly J. Dunston
Owner, Dominion Title and Escrow
Allen R. Jones
President, Dominion Physical Therapy
Anna Van Buren McNider
Owner, Digital Images
Jere M. Mills
Businessman
Allen C. Tanner, Jr., Esq.
Partner, Tanner, Mulkey, Gordon, P.C.
C. Dwight West, III
President, C.D. West
& Company, Insurance
Charles W. Wornom
Vice President, Abbitt Management,
Abbitt & West
Joseph M. Ziglar, Jr.
President, Chesapeake Masonry Corp.
7
<PAGE>
Five Year Financial Summary
- -------------------------------------------------------------------------------
(Dollars in thousands, except per share)
<TABLE>
<CAPTION>
At or for the year ended December 31,
1999 1998 1997 1996 1995
------------------------------------------------------------------
Financial Condition Data:
<S> <C> <C> <C> <C> <C>
Total assets $ 674,213 $ 641,056 $718,083 $ 707,100 $ 639,812
Securities available for sale:
U.S. Treasury, other U.S. Government agency
and other debt securities, net 55,535 48,117 45,347 46,305 65,118
Mortgage-backed certificates, net 82,763 17,019 91,841 177,706 203,176
Loans held for investment, net 469,618 484,783 486,487 422,219 319,194
Real estate owned, net 218 377 1,098 2,769 1,828
Deposits 464,618 496,772 507,670 498,965 450,530
Borrowings 155,233 88,084 157,239 155,138 138,171
Stockholders' equity 51,265 50,076 49,937 49,608 46,729
Operating Data:
Interest income $ 43,312 $ 47,031 $ 50,776 $ 48,171 $ 45,527
Interest expense 21,980 25,805 29,310 28,087 27,476
----------------------------------------------------------------------
Net interest income 21,332 21,226 21,466 20,084 18,051
Provision for loan losses 98 510 600 377 697
----------------------------------------------------------------------
Net interest income after provision for loan losses 21,234 20,716 20,866 19,707 17,354
Other income 7,132 7,013 5,713 3,894 2,944
Other expenses 18,899 18,197 17,312 18,172 16,174
----------------------------------------------------------------------
Income before income taxes 9,467 9,532 9,267 5,429 4,124
Provision for income taxes 3,408 3,417 3,264 1,821 1,652
----------------------------------------------------------------------
Net income $ 6,059 $ 6,115 $ 6,003 $ 3,608 $ 2,472
----------------------------------------------------------------------
Earnings per share:
Basic $ 1.32 $ 1.30 $ 1.24 $ .74 $ .52
----------------------------------------------------------------------
Diluted $ 1.30 $ 1.27 $ 1.20 $ .72 $ .50
----------------------------------------------------------------------
Cash dividends per share $ .60 $ .41 $ .33 $ .25 $ .13
----------------------------------------------------------------------
Selected Financial Ratios and Other Data:
Return on average assets 0.96% 0.92% 0.86% (1) 0.54% (2) 0.40%(3)
Return on average stockholders' equity 11.97 12.04 12.00 (1) 7.56 (2) 5.57 (3)
Average stockholders' equity to average assets 8.02 7.68 7.17 7.20 7.21
Stockholders' equity to total assets at year end 7.60 7.81 6.95 7.02 7.30
Interest rate spread 3.00 2.88 2.85 2.83 2.60
Net interest margin 3.60 3.43 3.27 3.22 3.07
Other expenses to average assets 3.00 2.75 2.48 (1) 2.74 (2) 2.63 (3)
Net interest income to other expenses 112.87 116.65 123.99 (1) 110.52 (2) 111.61 (3)
Nonperforming assets to total assets .09 .23 .34 .80 .45
Allowance for loan losses to total net loans .82 .83 .78 .90 1.16
Dividend payout ratio (4) 45.45 31.54 26.95 33.63 25.81
Book value per share $ 11.29 (5) $ 10.93 (5) $ 10.57 $ 10.11 $ 9.76
Tangible book value per share 10.57 (5) 10.13 (5) 9.72 9.22 9.38
Number of retail branch offices 20 20 20 19 16
<FN>
- --------
(1) Exclusive of the $405 of expenses related to the proxy contest and other
matters and the related tax effect, the return on average assets and return
on average stockholders' equity for the year ended December 31, 1997 would
have been .90% and 12.50%, respectively, and the ratio of other expenses to
average assets and net interest income to other expenses would have been
2.42% and 126.97%, respectively.
(2) Exclusive of the $2,340 one-time SAIF special assessment paid in November,
1996 and the related tax effect, the return on average assets and return on
average stockholders' equity for the year ended December 31, 1996 would have
been .76% and 10.52%, respectively, and the ratio of other expenses to
average assets and net interest income to other expenses would have been
2.39% and 126.86%, respectively.
(3) Exclusive of the $757 of merger expenses and the $563 loss on the sale of
securities and the related tax effect, the return on average assets and
return on average stockholders' equity for the year ended December 31, 1995
would have been .57% and 7.91%, respectively. Exclusive of the $757 of
merger expenses relating to the Princess Anne combination, the ratio of
other expenses to average assets and net interest income to other expenses
would have been 2.50% and 117.09%, respectively.
(4) Represents dividends per share divided by basic income per share. Dividends
per share represent historical dividends declared by the Company.
(5) Book value per share and tangible book value per share, computed by
including unallocated common stock held by the Company's Employee Stock
Ownership Plan at December 31, 1999, were $10.79 and $10.10, respectively,
and at December 31, 1998 were $10.41 and $9.65, respectively.
</FN>
</TABLE>
8
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
- -------------------------------------------------------------------------------
Financial Condition of the Company
Total Assets. At December 31, 1999, the Company had total assets of $674.2
million, an increase of $33.2 million since December 31, 1998. This increase is
primarily from purchases of mortgage-backed certificates, offset by a decrease
in loans held for investment and federal funds sold.
Securities Available For Sale. Securities available for sale totaled $138.3
million at December 31, 1999 compared to $65.1 million at December 31, 1998. The
net increase of $73.2 million from December 31, 1998 resulted primarily from the
net effect of $101.0 million of purchases, $10.5 million of repayments, and
$15.4 million of proceeds from maturities or calls. Purchases included $37.0
million of adjustable-rate mortgage certificates with an average rate reset of
28 months and $39.9 million of fixed-rate certificates with an average maturity
of 8.7 years.
The portfolio of securities available for sale at December 31, 1999 was
comprised primarily of $41.3 million of U.S. Government agency securities, $14.0
million of U.S. Treasury securities and $82.8 million of mortgage-backed
certificates.
Loans. The balance of net loans held for investment decreased from $484.8
million at December 31, 1998 to $469.6 million at December 31, 1999.
Single-family first mortgage loans decreased $30.1 million from $251.1 million
at December 31, 1998 to $221.0 million at December 31, 1999, while all other net
loans increased by $14.9 million from $233.7 million at December 31, 1998 to
$248.6 million at December 31, 1999. The increase in other net loans is the
result of the Company's emphasis on originating consumer and commercial loans
during 1999.
Deposits. During 1999, the Company's total deposits decreased from $496.8
million at December 31, 1998 to $464.6 million at December 31, 1999. The
Company's noninterest-bearing deposits decreased from $78.7 million at December
31, 1998 to $64.5 million at December 31, 1999, primarily as a result of
attorney escrow accounts at December 31, 1999, being lower compared to December
31, 1998. Attorney escrow account deposits fluctuate with the level of mortgage
activity handled by the attorneys. Average noninterest- bearing deposits
increased from $56.4 million in 1998 to $65.7 million in 1999. The balance of
all interest checking, savings and money market accounts at December 31, 1999
was $152.4 million, an increase of $196,000 compared to the balance of these
accounts at December 31, 1998, while the average balance of these accounts
increased from $138.7 million in 1998 to $150.6 million in 1999. Certificate of
deposit balances decreased $18.1 million from $265.8 million at December 31,
1998 to $247.7 million at December 31, 1999. The increase in average
noninterest-bearing deposits and decrease in certificates of deposit resulted
from the Company's ongoing strategy to seek lower-cost deposits to further
enhance the Company's profitability.
Borrowed Funds. The Company's borrowed funds, which include Federal Home Loan
Bank ("FHLB") advances and securities sold under agreements to repurchase,
increased from $88.1 million at December 31, 1998 to $155.2 million at December
31, 1999. FHLB advances increased from $75.0 million to $142.0 million during
this period. The primary use of funds from FHLB advances was the purchase of
mortgage-backed certificates.
Capital. The Company's and CENIT Bank's (the "Bank") capital ratios
significantly exceeded applicable regulatory requirements at both December 31,
1999 and 1998. During 1999, the Company repurchased 80,330 shares of its
outstanding common stock.
9
<PAGE>
Asset Quality. The Company's total nonperforming assets decreased by 59%, to
a total of $603,000, or .09% of assets, at December 31, 1999 compared to $1.5
million, or .23% of assets, at December 31, 1998. Real estate owned ("REO")
decreased by 42%, from $377,000 at December 31, 1998 to $218,000 at December 31,
1999. Nonperforming loans were $379,000 and $1.1 million at December 31, 1999
and 1998, respectively. The Company's allowance for loan losses was $3.9 million
at December 31, 1999, compared to $4.0 million at December 31, 1998, resulting
in a coverage ratio of 10 times nonperforming loans at December 31, 1999 and 4
times nonperforming loans at December 31, 1998.
Comparison of Operating Results for the Years Ended December 31, 1999 and 1998
General. The Company's pre-tax income was $9.5 million for the years ended
December 31, 1999 and 1998. During 1999, net interest income after the provision
for loan losses increased by $518,000, other income increased by $119,000 and
other expenses increased by $702,000.
Net Interest Income. The Company's net interest income before provision for
loan losses increased by $106,000 for the year ended December 31, 1999. This
increase resulted from a $3.7 million decrease in interest income, which was
exceeded by a $3.8 million decrease in interest expense.
Interest on loans decreased by approximately $3.4 million, or 9%, from $39.9
million in the year ended 1998 to $36.5 million in 1999. This decrease was
attributable to a $27.1 million decrease in the average balance of loans, and a
decrease in the yield on the Company's loan portfolio from 7.87% in 1998 to
7.60% in 1999. The decrease in the average balance of loans resulted primarily
from a decrease in residential single-family loans. The weighted average yield
on the loan portfolio for the month of December 1999 was 7.76%.
Interest on investment securities increased $573,000 in 1999 compared to
1998. This increase resulted primarily from an increase in the average balance
of the portfolio from $44.5 million in 1998 to $56.6 million in 1999. Interest
on mortgage-backed certificates decreased $675,000 primarily the result of a
decrease in average balances from $47.0 million in 1998 to $36.3 million.
The Company's interest expense decreased by $3.8 million, as a result of a
decrease in interest on both deposits and borrowings. The average balance of
interest-bearing deposits decreased by $25.4 million in 1999 compared to 1998,
while the average costs of interest-bearing deposits decreased from 4.54% in
1998 to 4.13% in 1999. The average balance of borrowings decreased by $13.0
million in 1999 compared to 1998, while the average cost of the borrowings
decreased from 5.35% in 1998 to 5.06% in 1999.
The Company's net interest margin increased from 3.43% for the year ended
December 31, 1998 to 3.60% for the year ended December 31, 1999. The net
interest margin for 1999 increased, in part, due to the increase of $9.3 million
of average noninterest- bearing deposits between 1999 and 1998. For the fourth
quarter of 1999, the Company's net interest margin was 3.58% compared to 3.57%
in the fourth quarter of 1998. The Company's interest rate spread increased from
2.88% in the year ended December 31, 1998 to 3.00% in the comparable 1999
period. The increase in the Company's interest rate spread occurred because the
Company's overall yield on its interest-earning assets decreased from 7.59% to
7.32%, while the overall cost of its interest-bearing liabilities decreased from
4.71% in 1998 to 4.32% in 1999. The Company's net interest spread in the fourth
quarter of 1999 was 2.98% compared to 2.95% in the fourth quarter of 1998. 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
from $510,000 in 1998 to $98,000 in 1999. Net chargeoffs totaled
10
<PAGE>
$262,000 in 1999 compared to $269,000 in 1998. The difference between the
provision for loan losses and net loans charged-off during 1999 relates
primarily to loan types in which the Bank is no longer active and for which
provisions for loan losses have previously been made.
Other Income. Total other income increased by 2%, from $7.0 million in 1998
to $7.1 million in 1999. Gain on sales of loans decreased $282,000 in 1999 due
primarily to the decreased volume of mortgage loan originations. Deposit fees
and merchant processing fees increased by $57,000 and $402,000, respectively, in
1999 compared to 1998. Deposit fees increased in 1999 as a result of additional
transaction accounts and increases in the Company's deposit fee schedule.
Merchant processing fees increased in 1999 as the Company continued to
experience substantial growth in its merchant portfolio. Brokerage fees
recognized by the Bank's commercial mortgage loan brokerage subsidiary decreased
by $300,000 in 1999 compared to 1998, as a result of a decrease in the volume of
brokerage activity.
Other Expenses. Total other expenses increased from $18.2 million in the year
ended December 31, 1998 to $18.9 million in 1999. Merchant processing expenses
increased by $187,000 in 1999 as a result of increased volume. Expenses related
to professional fees increased by $67,000 during 1999 due, in part, to
activities associated with the century date change. Equipment, data processing
and supply expenses increased by $131,000 in 1999, reflecting increases
primarily in depreciation and maintenance. Salaries and employee benefits
increased by $223,000 or 2.7%, reflecting general wage increases.
Income Taxes. The Company's income tax expense for both the years ended
December 31, 1999 and 1998 was $3.4 million, which represented an effective tax
rate of approximately 36% for each year.
Comparison of Operating Results for the Years Ended December 31, 1998 and 1997
General. The Company's pre-tax income increased by 2.9% to $9.5 million for
the year ended December 31, 1998 from $9.3 million for 1997. This increase was
attributable primarily to a $1.3 million increase in other income, offset by a
$885,000 increase in other expenses and a $150,000 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 $240,000 for the year ended December 31, 1998, a 1.1%
decrease from 1997. This decrease resulted from a $3.7 million decrease in
interest income, which exceeded a $3.5 million decrease in interest expense. The
Company sold a substantial portion of its lower-yielding mortgage-backed
certificate portfolio during 1998 and used proceeds from the sale to fund other
interest-earning assets and to pay down borrowings, thereby reducing the asset
size of the Company. Interest on the Company's portfolio of mortgage-backed
certificates decreased by $5.5 million in 1998 primarily due to a $77.8 million
decrease in their average balances. This decrease was not totally offset by
reductions in interest expense or interest income from other sources.
Interest on loans increased by approximately $1.7 million, or 4.5%, from
$38.2 million in the year ended 1997 to $39.9 million in 1998. This increase was
attributable to a $37.1 million increase in the average balance of loans, the
effect of which more than offset a decrease in the yield on the Company's loan
portfolio from 8.12% in 1997 to 7.87% in 1998. The increase in the average
balance of loans resulted from both an increase in originations and from the
purchase of residential single-family loans. The weighted average yield on the
loan portfolio for the month of December 1998 was 7.56%.
Interest on investment securities decreased $133,000 in 1998 compared to
1997. This decrease resulted primarily from a decrease in the
11
<PAGE>
yield on the portfolio from 6.24% in 1997 to 5.93% in 1998.
The Company's interest expense decreased by $3.5 million, as a result of a
decrease in interest on both deposits and borrowings. The average balance of
interest bearing deposits decreased by $19.4 million in 1998 compared to 1997,
while the average costs of interest bearing deposits decreased from 4.66% in
1997 to 4.54% in 1998. The average balance of borrowings decreased by $33.8
million in 1998 compared to 1997, while the average cost of the borrowings
decreased from 5.54% in 1997 to 5.35% in 1998.
The Company's net interest margin increased from 3.27% for the year ended
December 31, 1997 to 3.43% for the year ended December 31, 1998. This resulted
primarily from the sale of lower-yielding mortgage-backed certificates and
reduction in the asset size of the Company, and also a $13.7 million increase in
the average balance of noninterest-bearing deposits. For the fourth quarter of
1998, the Company's net interest margin was 3.57% compared to 3.31% in the
fourth quarter of 1997. The Company's interest rate spread increased from 2.85%
in the year ended December 31, 1997 to 2.88% in the comparable 1998 period. The
increase in the Company's interest rate spread occurred because the Company's
overall yield on its interest-earning assets decreased from 7.73% to 7.59%,
while the overall cost of its interest-bearing liabilities decreased from 4.88%
in 1997 to 4.71% in 1998. The Company's net interest spread in the fourth
quarter of 1998 was 2.95% compared to 2.86% in the fourth quarter of 1997. 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
from $600,000 in 1997 to $510,000 in 1998. Net chargeoffs totaled $269,000 in
1998 compared to $623,000 in 1997. At December 31, 1998, the Company's total
allowance for loan losses was $4.0 million and nonperforming loans totaled $1.1
million, resulting in a coverage ratio of 374%, compared to a coverage ratio of
343% at December 31, 1997.
The provision for loan losses decreased by $90,000 in 1998 compared to 1997.
The Company considered a number of factors in determining the 1998 loan loss
provision and the adequacy of the allowance for loan losses at December 31,
1998, including: (a) the level of nonperforming loans at December 31, 1998 and
1997, (b) the increase in the percentage of non-residential mortgage loans in
the loan portfolio, which have more inherent risk in comparison to residential
mortgage loans and, (c) the decrease in net loan chargeoffs during 1998.
Other Income. Total other income increased by 22.8%, from $5.7 million in
1997 to $7.0 million in 1998. Gain on sales of loans increased $482,000 in 1998
due primarily to the increased volume of mortgage loan originations. Deposit
fees and merchant processing fees increased by $414,000 and $671,000,
respectively, in 1998 compared to 1997. Deposit fees increased in 1998 as a
result of additional transaction accounts and increases in the Company's deposit
fee schedule. Merchant processing fees increased in 1998 as the Company
continued to experience substantial growth in its merchant portfolio. Brokerage
fees recognized by the Bank's commercial mortgage loan brokerage subsidiary
decreased by $382,000 in 1998 compared to 1997, primarily as a result of a
decrease in the volume of brokerage activity.
Other Expenses. Total other expenses increased from $17.3 million in the year
ended December 31, 1997 to $18.2 million in 1998. Total other expenses for 1997
includes $405,000 of expenses relating to the proxy contest and other matters.
Merchant processing expenses increased by $636,000 in 1998 as a result of
increased volume. Expenses related to professional fees increased by $266,000
during 1998 due, in part, to a recovery of legal costs in 1997 related to
previous problem assets. Equipment, data processing and supply expenses
increased by $158,000 in 1998, reflecting increases primarily in depreciation
and maintenance.
12
<PAGE>
Income Taxes. The Company's income tax expense for the year ended December
31, 1998 was $3.4 million, which represents an effective tax rate of 35.8%. The
Company's income tax expense for 1997 was $3.3 million, which represented an
effective tax rate of 35.2%. The effective tax rate increased during 1998
primarily as a result of the increase in the income of the Bank subject to state
tax.
Liquidity
The principal sources of funds for the Company for the year ended December
31, 1999, included $194.0 million in proceeds from FHLB advances, $10.5 million
in principal repayments of securities available for sale, $15.3 million in
proceeds from sales, maturities and calls of securities available for sale, and
$55.7 million in proceeds from the sale of loans. Funds were used primarily to
repay FHLB advances totaling $127.0 million, to fund purchases of investment
securities available for sale totaling $101.0 million, and to originate loans
held for sale of $54.5 million.
Savings institutions, such as 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 requirements 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%. The Bank's liquid asset ratio exceeded regulatory requirements at
December 31, 1999 and 1998.
At December 31, 1999, the Company had outstanding mortgage and nonmortgage
loan commitments, including unused lines of credit, of $57.8 million,
outstanding commitments to purchase loans of $850,000 and outstanding
commitments to sell mortgage loans of $4.5 million, if such loans close. The
Company anticipates that it will have sufficient funds available to meet its
current commitments.
Certificates of deposit that are scheduled to mature within one year totaled
$205.0 million at December 31, 1999. The Company believes that a significant
portion of the certificates of deposit maturing in this period will remain with
the Company. 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.
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.
The primary goal of the Company's asset/liability management strategy is to
maximize its net interest income over time while keeping interest rate risk
exposure within levels established by the Company's management. The Company's
ability to manage its interest rate risk depends generally on the Company's
ability to match the maturities and repricing characteristics of its assets and
liabilities while taking into account the separate goals of maintaining asset
quality and liquidity and achieving the desired level of net interest income.
The principal variables that affect the Company's management of its interest
rate risk include the Company's existing interest rate gap position,
management's assessment of future interest rates, the need for the Company to
replace assets that may prepay before their scheduled maturities, and the
withdrawal of liabilities over time.
One technique used by the Company in managing its interest rate risk exposure
is the management of the Company's interest sensitivity
13
<PAGE>
gap. The interest sensitivity gap is defined as the difference between the
amount of interest-earning assets anticipated, based upon certain assumptions,
to mature or reprice within a specific time period and the amount of
interest-bearing liabilities anticipated, based upon certain assumptions, to
mature or reprice within that time period. At December 31, 1999, the Company's
one year "negative gap" (interest-bearing liabilities maturing within a period
exceed interest-earning assets repricing within the same period) was
approximately $34.8 million, or 5.2% of total assets. Thus, during periods of
rising interest rates, this implies that the Company's net interest income would
be negatively affected because the yield of the Company's interest-earning
assets is likely to rise more slowly than the cost on its interest-bearing
liabilities. In periods of falling interest rates, the opposite effect on net
interest income is likely to occur. The interest sensitivity gap position of the
Company is a static analysis at December 31, 1999. Because many factors affect
the composition of the Company's assets and liabilities, a change in prevailing
interest rates will not necessarily result in a corresponding change in net
interest income that would be projected using only the interest sensitivity gap
table for the Company at December 31, 1999.
At December 31, 1998, the Company's one year "positive gap" was approximately
$120.9 million, or 18.9% of total assets. The change in the one year gap of
approximately $155.7 million was primarily the result of: (a) slower prepayment
assumptions in 1999 regarding prepayment of loans which has resulted in a
decrease in one year interest sensitive loans of $23.3 million, (b) an increase
in mortgage-backed securities with one year interest sensitivity of $15.2
million due primarily to purchases, (c) a decrease of $11.4 million of one year
interest sensitive deposits due primarily to a decrease in the outstanding
balances of certificates of deposit and, (d) an increase of $127 million in one
year interest sensitive advances from the FHLB as proceeds were used to purchase
mortgage- backed certificates and a $60 million advance moved from a fixed rate
maturing in over one year to a variable rate.
The Company manages its interest rate risk by influencing the adjustable and
fixed rate mix of its loans, securities, deposits and borrowings. The Company
can add loans or securities with adjustable, balloon or call features, as well
as fixed rate loans and mortgage securities if the yield on such loans and
securities is consistent with the Company's asset/liability management strategy.
Also, the Company can manage its interest rate risk by extending the maturity of
its borrowings or selling certain assets and repaying borrowings.
Certain shortcomings are inherent in any method of analysis used to estimate
a financial institution's interest rate gap. The analysis is based at a given
point in time and does not take into consideration that changes in interest
rates do not affect all assets and liabilities equally. For example, although
certain assets and liabilities may have similar maturities or repricing, they
may react differently to changes in market interest rates. The interest rates on
certain types of assets and liabilities also may fluctuate in advance of changes
in market interest rates, while interest rates on other types may lag behind
changes in market rates. The interest rates on loans with balloon or call
features may or may not change depending upon their interest rates relative to
market interest rates. Additionally, certain assets, such as adjustable-rate
mortgages, have features that may restrict changes in interest rates on a
short-term basis and over the life of the asset.
The Company is also subject to prepayment risk, particularly in falling
interest rate environments or in environments where the slope of the yield curve
is relatively flat or negative. Such changes in the interest rate environment
can cause substantial changes in the level of prepayments of loans and
mortgage-backed certificates, which may also affect the Company's interest rate
gap position.
The methodology used estimates various rates of withdrawal (or "decay") for
money market
14
<PAGE>
deposit, savings, and checking accounts, which may vary significantly from
actual experience.
The following table sets forth the amounts of interest-earning assets and
interest-bearing liabilities outstanding at December 31, 1999 that are subject
to repricing or that mature in each of the future time periods shown. The table
reflects certain assumptions regarding prepayment of loans and mortgage-backed
certificates that are outside of actual contractual terms, and are based on the
1999 prepayment experience of the Company. Additionally, loans with call or
balloon provisions are included in the period in which they balloon or may first
be called. Except as stated above, the amount of assets and liabilities shown
that reprice or mature during a particular period were determined in accordance
with the contractual terms of the asset or liability.
15
<PAGE>
Interest Sensitivity Analysis
December 31, 1999
(Dollars in thousands, except footnotes)
<TABLE>
<CAPTION>
Over
Over One Three
Total Year to Years or
0-3 4-6 7-12 Within Three Non-
Months Months Months One Year Years Sensitive Total
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Assets
Interest-earning assets:
Loans (1) $154,304 $ 50,035 $ 84,391 $288,730 $ 114,142 $ 73,770 $476,642
Securities available for sale:
U.S. Treasury securities 5,010 3,006 4,997 13,013 991 - 14,004
Other U.S. Government agency
securities - - 2,983 2,983 37,321 977 41,281
Other debt security - - - - - 250 250
Mortgage-backed certificates 9,140 7,688 12,251 29,079 40,416 13,268 82,763
Federal funds sold 12,908 - - 12,908 - - 12,908
Federal Home Loan Bank stock - - - - - 7,100 7,100
-------------------------------------------------------------------------------
Total interest-earning assets 181,362 60,729 104,622 346,713 192,870 95,365 634,948
-------------------------------------------------------------------------------
Liabilities
Interest-bearing liabilities:
Interest-bearing deposits:
Passbook, statement savings
and checking accounts (2) 3,085 3,084 6,171 12,340 18,937 44,823 76,100
Money market deposits 5,993 5,994 11,987 23,974 27,726 24,642 76,342
Certificates of deposits 74,919 57,263 72,818 205,000 31,141 11,544 247,685
-------------------------------------------------------------------------------
Total interest-bearing deposits 83,997 66,341 90,976 241,314 77,804 81,009 400,127
Advances from the Federal Home Loan Bank 127,000 - - 127,000 15,000 - 142,000
Securities sold under
agreements to repurchase 13,233 - - 13,233 - - 13,233
-------------------------------------------------------------------------------
Total interest-bearing liabilities 224,230 66,341 90,976 381,547 92,804 81,009 555,360
-------------------------------------------------------------------------------
Interest sensitivity gap $(42,868) $ (5,612) $ 13,646 $(34,834) $ 100,066 $ 14,356 $ 79,588
-------------------------------------------------------------------------------
Cumulative interest sensitivity gap $(42,868) $(48,480) $(34,834) $(34,834) $ 65,232
--------------------------------------------------------
Cumulative interest sensitivity gap as a
percentage of total assets (6.4)% (7.2)% (5.2)% (5.2)% 9.7%
<FN>
- ----------------------
(1) Excludes nonaccrual loans of $292,000
(2) Excludes $64.5 million of noninterest-bearing deposits.
</FN>
</TABLE>
16
<PAGE>
The following table provides information about the Company's financial
instruments that are sensitive to changes in interest rates as of December 31,
1999, based on the information and assumptions set forth in the notes to the
table. Totals as of December 31, 1998 are included for comparative purposes. The
Company had no derivative financial instruments, foreign currency exposure or
trading portfolio as of December 31, 1999 and 1998. The amounts included under
each expected maturity date for loans, mortgage-backed certificates, and other
investments were calculated by adjusting the instrument's contractual maturity
date for expectations of prepayments, as set forth in the notes to the table.
Similarly, expected maturity date amounts for interest-bearing core deposits
were calculated based upon estimates of the period over which the deposits would
be outstanding as set forth in the notes. With respect to the Company's
adjustable rate instruments, amounts included under each expected maturity date
were measured by adjusting the instrument's contractual maturity date for
expectations of prepayments, as set forth in the notes.
The interest-earning assets maturing in one year decreased while those
maturing after five years increased at December 31, 1999 compared to December
31, 1998. This was due primarily to a decrease in the loan prepayment rate
assumptions at December 31, 1999. Prepayment rates decreased at December 31,
1999 due to a higher interest rate environment at the end of 1999 compared to
1998. The interest-earning assets maturing in three years increased at December
31, 1999 primarily the result of additional investment purchases in 1999 with
three year remaining maturities at the end of 1999. The average interest rate on
interest-earning assets decreased at December 31, 1999. The decrease was
primarily the result of lower rates on a higher volume of mortgage-backed
certificates.
The interest-bearing liabilities maturing in one year increased at December
31, 1999 as compared to 1998. A callable fixed rate advance of $60 million, in
the four year category at December 31, 1998, was called and converted to an
adjustable rate advance at December 31, 1999. Accordingly, the $60 million
advance moved to the one year category at December 31, 1999. Additionally,
adjustable rate advances increased at December 31, 1999 in order to fund the
purchase of mortgage-backed certificates and offset the decrease in
interest-bearing deposits. Both the rate and balance of advances were higher at
December 31, 1999 than at December 31, 1998, contributing to the higher rate on
interest-bearing liabilities at December 31, 1999 compared to December 31, 1998.
17
<PAGE>
<TABLE>
<CAPTION>
Amount maturing in:
------------------
There- Fair
(Dollars in thousands) 1 Year 2 Years 3 Years 4 Years 5 Years after Total Value
------ ------- ------- ------- ------- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans (1) (2)
Fixed rate $ 44,170 $ 29,354 $ 18,866 $ 11,718 $ 8,063 $ 23,645 $135,816 $133,669
Average interest rate 7.98% 7.96% 7.89% 7.75% 7.63% 7.32% 7.81%
Adjustable rate 141,254 61,499 40,098 29,142 21,318 47,515 340,826 340,207
Average interest rate 8.18% 7.75% 7.63% 7.62% 7.61% 7.41% 7.85%
Mortgage-backed certificates (3)
Fixed rate 10,027 8,563 7,366 6,391 5,602 1,201 39,150 39,150
Average interest rate 6.95% 6.95% 6.95% 6.95% 6.95% 6.95% 6.95%
Adjustable rate 13,022 9,217 6,636 4,793 3,476 6,469 43,613 43,613
Average interest rate 6.65% 6.76% 6.76% 6.76% 6.76% 6.76% 6.76%
Investments (4) 22,271 13,003 26,111 1,000 - 250 62,635 62,635
Average interest rate 6.63% 5.37% 5.55% 6.00% -% 9.25% 5.93%
Federal funds sold 12,908 - - - - - 12,908 12,908
Average interest rate 5.50% -% -% -% -% -% 5.50%
-------------------------------------------------------------------------------------
Total - December 31, 1999 $243,652 $121,636 $ 99,077 $ 53,044 $ 38,459 $ 79,080 $634,948 $632,182
Average interest rate 7.72% 7.41% 7.02% 7.46% 7.44% 7.33% 7.47%
-------------------------------------------------------------------------------------
Total - December 31, 1998 $290,320 $122,896 $ 66,174 $ 42,589 $ 25,290 $ 57,344 $604,613 $609,428
Average interest rate 7.33% 7.55% 7.52% 7.68% 7.96% 7.92% 7.50%
-------------------------------------------------------------------------------------
Interest-bearing liabilities:
Interest-bearing deposits (5) (6) $241,314 $ 49,987 $ 27,817 $ 18,911 $ 18,935 $ 43,163 $400,127 $400,690
Average interest rate 4.68% 3.99% 3.55% 3.22% 3.70% 2.38% 4.15%
Borrowings (7) 140,233 15,000 - - - - 155,233 155,233
Average interest rate 5.51% 4.84% -% -% -% -% 5.44%
-------------------------------------------------------------------------------------
Total - December 31, 1999 $381,547 $ 64,987 $ 27,817 $ 18,911 $ 18,935 $ 43,163 $555,360 $555,923
Average interest rate 5.51% 4.19% 3.55% 3.22% 3.70% 2.38% 4.51%
-------------------------------------------------------------------------------------
Total - December 31, 1998 $265,755 $ 56,012 $ 29,433 $ 94,997 $ 15,203 $ 44,744 $506,144 $510,161
Average interest rate 4.72% 4.54% 3.62% 4.76% 3.22% 2.30% 4.38%
-------------------------------------------------------------------------------------
<FN>
(1) Assumes the following annual prepayment rates:
-For single-family residential adjustable loans which adjust based upon
changes in the one-year constant maturity treasury index, 28%;
-For single-family fixed-rate first mortgage loans, from 6% to 48%;
-For commercial real estate loans, an average of 22%;
-For consumer loans, an average of 29%; and
-For most other loans, from 2% to 66%.
(2) Excludes nonaccrual loans of $292,000.
(3) Assumes average prepayment rates for adjustable mortgage-backed
certificates of 28% and for fixed-rate mortgage-backed certificates of 17%.
(4) Totals include the Company's investment in FHLB Stock. Investment
securities with call features are reflected in the maturity period in which
the security is expected to be called based on interest rates at December
31, 1999.
(5) For money market deposits, savings and checking accounts, assumes annual
decay rates of 31%, 14% and 18%, respectively. These estimated rates are
those last published by the Office of Thrift Supervision in November, 1994.
(6) Excludes $64.5 million of noninterest-bearing deposits.
(7) The estimated expected maturity at December 31, 1999 of the $15 million of
convertible FHLB advances is 1.7 years based on information from FHLB.
</FN>
</TABLE>
18
<PAGE>
Impact of Inflation and Changing Prices
The Consolidated Financial Statements and Notes presented herein have been
prepared in accordance with accounting principles generally accepted in the
United States, which generally require the measurement of financial position and
operating results in terms of historical dollars without considering the changes
in the relative purchasing power of money over time due to inflation. The impact
of inflation is reflected in the increased cost of the Company's operations.
Unlike most industrial companies, nearly all of the assets and liabilities of
the Company are monetary. As a result, interest rates have a greater impact on
the Company's performance than do the effects of general levels of inflation.
Impact of New Accounting Standards
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, Accounting for Derivative Instruments and Hedging Activities. As
amended, the statement becomes effective for fiscal years beginning after June
15, 2000 and will not be applied retroactively. This statement establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities.
This Statement is not currently applicable to the Company, because the Company
does not have any derivative instruments and is not involved in hedging
activities.
Impact of the Year 2000 Issue
The Year 2000 Issue was the result of computer programs being written using
two digits rather than four to define the applicable year. As a result, such
computer programs would not recognize the correct date after December 31, 1999.
Also, systems and equipment that were not typically thought of as "computer
related" (referred to as "non-IT") contained imbedded hardware or software that
may have had 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 included: 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.
As of the issuance of the Company's financial statements for the year ended
December 31, 1999, there were no Year 2000 failures that have occurred with
respect to the Company's critical systems. The Company's significant borrowers
and third party providers were not impacted by the century date change in any
way that adversely affected the Company.
The Company estimates that total costs related to the Year 2000 project were
approximately $1,050,000. The Company estimates that approximately 84% of these
costs were related to the redeployment of existing personnel to address Year
2000 Issues, while approximately 16% of these costs represented incremental
expenses to the Company. Of the $1,050,000 of Year 2000 project costs,
approximately $545,000, $345,000 and $160,000 were incurred in 1999, 1998, and
1997, respectively. Some computer related initiatives were delayed due to the
allocation of resources towards Year 2000 issues. Management believes there was
not 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.
19
<PAGE>
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995
Information contained in the above discussions titled, "Report to Our
Stockholders" and "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: (a) management's goals to improve interest rate margins and
increase the loan portfolio, and (b) the Company's interest rate risk position
and future credit and economic trends, including inflation and changing prices.
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.
20
<PAGE>
<TABLE>
Consolidated Statement of Financial Condition
- -------------------------------------------------------------------------------
(Dollars in thousands, except per share data)
December 31,
<S> <C> <C>
1999 1998
----------------------------
Assets
Cash $ 17,554 $ 14,656
Federal funds sold 12,908 42,289
Securities available for sale at fair value (adjusted cost
of $139,386 and $64,327, respectively) 138,298 65,136
Loans, net:
Held for investment 469,618 484,783
Held for sale 3,456 3,878
Interest receivable 4,067 3,723
Real estate owned, net 218 377
Federal Home Loan Bank stock, at cost 7,100 5,066
Property and equipment, net 13,757 13,002
Goodwill and other intangibles, net 3,293 3,647
Other assets 3,944 4,499
----------------------------
Total assets $ 674,213 $ 641,056
----------------------------
Liabilities and Stockholders' Equity
Liabilities:
Deposits:
Noninterest-bearing $ 64,491 $ 78,712
Interest-bearing 400,127 418,060
----------------------------
Total deposits 464,618 496,772
Advances from the Federal Home Loan Bank 142,000 75,000
Securities sold under agreements to repurchase 13,233 13,084
Advance payments by borrowers for taxes and insurance 565 599
Other liabilities 2,532 5,525
----------------------------
Total liabilities 622,948 590,980
----------------------------
Commitments (Note 17)
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 4,751,644 and 4,808,806, at
December 31, 1999 and December 31, 1998, respectively 48 48
Additional paid-in capital 12,964 14,177
Retained earnings - substantially restricted 42,914 39,600
Common stock acquired by Employees Stock
Ownership Plan (ESOP) (3,862) (4,052)
Common stock acquired by Management
Recognition Plan (MRP) (125) (199)
Net unrealized gain on securities available for sale,
net of income taxes (674) 502
----------------------------
Total stockholders' equity 51,265 50,076
----------------------------
$ 674,213 $ 641,056
----------------------------
<FN>
The notes to consolidated financial statements are an integral part of this
statement.
</FN>
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statement of Operations
- -------------------------------------------------------------------------------
(Dollars in thousands, except per share data)
Year Ended December 31,
1999 1998 1997
-------------------------------------------
<S> <C> <C> <C>
Interest and fees on loans $ 36,506 $ 39,931 $ 38,220
Interest on mortgage-backed certificates 2,533 3,208 8,685
Interest on investment securities 3,237 2,664 2,775
Dividends and other interest income 1,036 1,228 1,096
-------------------------------------------
Total interest income 43,312 47,031 50,776
-------------------------------------------
Interest on deposits 16,737 19,571 20,972
Interest on borrowings 5,243 6,234 8,338
-------------------------------------------
Total interest expense 21,980 25,805 29,310
-------------------------------------------
Net interest income 21,332 21,226 21,466
Provision for loan losses 98 510 600
-------------------------------------------
Net interest income after provision for loan losses 21,234 20,716 20,866
-------------------------------------------
Other income:
Deposit fees 2,511 2,454 2,040
Gains on sales of:
Securities, net -- 72 84
Loans, net 748 1,030 548
Loan servicing fees and late charges 277 318 322
Other 3,596 3,139 2,719
-------------------------------------------
Total other income 7,132 7,013 5,713
-------------------------------------------
Other expenses:
Salaries and employee benefits 8,524 8,301 8,313
Equipment, data processing, and supplies 2,992 2,861 2,703
Federal deposit insurance premiums 241 260 277
Expenses related to proxy contest and other
matters -- -- 405
Other 7,142 6,775 5,614
-------------------------------------------
Total other expenses 18,899 18,197 17,312
-------------------------------------------
Income before income taxes 9,467 9,532 9,267
Provision for income taxes 3,408 3,417 3,264
-------------------------------------------
Net income $ 6,059 $ 6,115 $ 6,003
-------------------------------------------
Earnings per share:
Basic $ 1.32 $ 1.30 $ 1.24
-------------------------------------------
Diluted $ 1.30 $ 1.27 $ 1.20
-------------------------------------------
Dividends per common share $ .60 $ .41 $ .33
-------------------------------------------
<FN>
The notes to consolidated financial statements are an integral part of this
statement.
</FN>
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statement of Comprehensive Income
- -------------------------------------------------------------------------------
(Dollars in thousands)
Year Ended December 31,
1999 1998 1997
------------------------------------------
<S> <C> <C> <C>
Net income $ 6,059 $ 6,115 $ 6,003
------------------------------------------
Other comprehensive loss, before income taxes:
Unrealized losses on securities available for sale
Unrealized holding losses arising during the period (1,897) (445) (233)
Less: reclassification adjustment for gains included in
net income -- (72) (84)
------------------------------------------
Other comprehensive loss, before income taxes (1,897) (517) (317)
Income tax benefit related to items of other
comprehensive loss 721 164 109
------------------------------------------
Other comprehensive loss, net of income taxes (1,176) (353) (208)
-------------------------------------------
Comprehensive income $ 4,883 $ 5,762 $ 5,795
--------------------------------------------
<FN>
The notes to consolidated financial statements are an integral part of this
statement.
</FN>
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statement of Changes in Stockholders' Equity
- -------------------------------------------------------------------------------
(Dollars in thousands)
Common Accumulated
Stock Other
Common Common Additional Acquired Comprehensive
Stock Stock Paid-In Retained by ESOP Income (Loss),Net
Shares Amount Capital Earnings and MRP of Income Total
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 4,905,132 $ 49 $ 17,637 $ 31,040 $ (181) $ 1,063 $ 49,608
Comprehensive income -- -- -- 6,003 -- (208) 5,795
Cash dividends paid -- -- -- (1,627) -- -- (1,627)
Purchase of Common Stock
by ESOP -- -- -- -- (4,232) -- (4,232)
Exercise of stock options
and related tax benefits 66,111 1 482 -- -- -- 483
Other -- -- -- -- (90) -- (90)
----------------------------------------------------------------------------------------------
Balance, December 31, 1997 4,971,243 50 18,119 35,416 (4,503) 855 49,937
Comprehensive income -- -- -- 6,115 -- (353) 5,762
Cash dividends paid -- -- -- (1,931) -- -- (1,931)
Exercise of stock options
and related tax benefits 69,063 -- 602 -- -- -- 602
Stock repurchases (231,500) (2) (4,667) -- -- -- (4,669)
Other -- -- 123 -- 252 -- 375
----------------------------------------------------------------------------------------------
Balance, December 31, 1998 4,808,806 48 14,177 39,600 (4,251) 502 50,076
Comprehensive income -- -- -- 6,059 -- (1,176) 4,883
Cash dividends paid -- -- -- (2,745) -- -- (2,745)
Exercise of stock options
and related tax benefits 23,168 -- 198 -- -- -- 198
Stock repurchases (80,330) -- (1,463) -- -- -- (1,463)
Other -- -- 52 -- 264 -- 316
----------------------------------------------------------------------------------------------
Balance, December 31, 1999 4,751,644 $ 48 $ 12,964 $ 42,914 $ (3,987) $(674) $ 51,265
----------------------------------------------------------------------------------------------
<FN>
The notes to consolidated financial statements are an integral part of this
statement.
</FN>
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statement of Cash Flows
- -------------------------------------------------------------------------------
(Dollars in thousands)
Year Ended December 31,
1999 1998 1997
------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 6,059 $ 6,115 $ 6,003
Add (deduct) items not affecting cash during the year:
Provision for loan losses 98 510 600
Provision for losses on real estate owned 22 15 81
Amortization of loan yield adjustments 743 381 158
Depreciation, amortization and accretion, net 1,727 1,930 2,593
Net (gains) losses on sales/disposals of:
Securities -- (72) (84)
Loans (748) (1,030) (548)
Real estate, property and equipment (345) 36 16
Proceeds from sales of loans held for sale 55,651 82,893 45,338
Originations of loans held for sale (54,509) (82,608) (46,097)
Change in assets/liabilities, net
Decrease (increase) in interest receivable and other assets 430 1,168 (1,121)
(Decrease) increase in other liabilities (1,944) 3,176 (46)
------------------------------------------------
Net cash provided by operating activities 7,184 12,514 6,893
------------------------------------------------
Cash flows from investing activities:
Purchases of securities available for sale (100,965) (48,237) (16,087)
Proceeds from sales of securities available for sale -- 66,660 35,447
Principal repayments on securities available for sale 10,517 34,855 49,243
Proceeds from maturities and calls of securities available
for sale 15,350 18,000 17,000
Net decrease (increase) in loans held for investment 14,263 2,307 (64,572)
Net proceeds on sales of real estate owned 223 597 1,224
Additions to real estate owned (24) (86) (129)
Purchases of Federal Home Loan Bank stock
and Federal Reserve Bank stock (4,700) (1,650) (1,850)
Redemption of Federal Home Loan Bank stock 2,666 5,295 1,000
Purchases of property and equipment (2,215) (1,273) (2,727)
Proceeds from sales of property and equipment 327 453 10
------------------------------------------------
Net cash (used for) provided by investing activities (64,558) 76,921 18,559
------------------------------------------------
Cash flows from financing activities:
Proceeds from exercise of stock options 138 173 357
Net (decrease) increase in deposits (32,154) (10,898) 8,705
Proceeds from Federal Home Loan Bank advances 194,000 587,000 1,255,000
Repayment of Federal Home Loan Bank advances (127,000) (657,000) (1,258,000)
Proceeds from other borrowings -- -- 4,000
Repayment of other borrowings -- (2,575) (1,425)
Net increase in securities sold under agreement to repurchase 149 3,420 2,526
Cash dividends paid (2,745) (1,931) (1,627)
Purchase of common stock by ESOP -- -- (4,232)
Common stock repurchases (1,463) (4,669) --
Other, net (34) (121) (123)
------------------------------------------------
Net cash provided by (used for) financing activities 30,891 (86,601) 5,181
------------------------------------------------
(Decrease) increase in cash and cash equivalents (26,483) 2,834 30,633
Cash and cash equivalents, beginning of year 56,945 54,111 23,478
------------------------------------------------
Cash and cash equivalents, end of year $ 30,462 $ 56,945 $ 54,111
------------------------------------------------
Supplemental disclosures of cash flow information:
Cash paid during the year for interest $ 6,770 $ 8,910 $ 11,624
Cash paid during the year for income taxes 3,247 2,855 2,820
Schedule of noncash investing and financing activities:
Real estate acquired in settlement of loans 342 312 1,603
Loans to facilitate sale of real estate owned 281 470 2,058
Loan to facilitate sale of property -- 1,336 --
<FN>
The notes to consolidated financial statements are an integral part of this
statement.
</FN>
</TABLE>
25
<PAGE>
Notes To Consolidated Financial Statements
- -------------------------------------------------------------------------------
Note 1
Summary of Significant Accounting Policies
CENIT Bancorp, Inc. (the "Holding Company" or the "Company") is a Delaware
corporation that owns CENIT Bank (the "Bank"), a federally chartered stock
savings bank.
The Company operates in one business segment, providing retail and
commercial banking services to customers within its market area.
The preparation of the financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the financial
statements and that affect the reported amounts of income and expenses during
the reporting period. Actual results could differ from those estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company,
its wholly-owned subsidiary, the Bank, and the Bank's wholly-owned subsidiaries.
All significant intercompany balances and transactions have been eliminated.
Investment Securities
Investment securities are accounted for in accordance with Statement of
Financial Accounting Standards No. 115 (FAS 115), "Accounting for Certain
Investments in Debt and Equity Securities." FAS 115 requires that certain
securities be classified into one of three categories: held to maturity,
available for sale, or trading. Securities classified as held to maturity are
carried at amortized cost; securities classified as available for sale are
carried at their fair value with the amount of unrealized gains and losses, net
of income taxes, reported as a separate component of stockholders' equity; and
securities classified as trading are carried at fair value with the unrealized
gains and losses included in earnings.
Premium amortization and discount accretion are included in interest income
and are calculated using the interest method over the period to maturity of the
related asset. The adjusted cost of specific securities sold is used to compute
realized gain or loss on sale. The gain or loss realized on sale is recognized
on the trade date.
Loans
Loans held for investment are carried at their outstanding principal
balance. Unearned discounts, premiums, deferred loan fees and costs, and the
allowance for loan losses are treated as adjustments of loans in the
consolidated statement of financial condition.
At December 31, 1999 and 1998, approximately seventy-nine percent and
seventy-five percent, respectively, of the principal balance of the Bank's real
estate loans were to residents of or secured by properties located in Virginia.
This geographic concentration is also considered in management's establishment
of loan loss reserves.
Interest on loans is credited to income as earned. Interest receivable is
accrued only if deemed collectible. Generally, interest is not accrued on loans
over ninety days past due. Uncollectible interest on loans that are
contractually past due is charged-off or an allowance is established based on
management's periodic evaluation. The allowance is established by a charge to
interest income equal to all interest previously accrued, and income is
subsequently recognized only to the extent that cash payments are received
until, in management's judgment, the borrower has reestablished the ability to
make periodic interest and principal payments, in which case the loan is
returned to accrual status. Interest income is recognized on loans which are
ninety days or more past due only if management considers the principal and
interest balance to be fully collectible. Loan origination and commitment fees
and certain direct loan origination costs and premiums and discounts related to
purchased loans are deferred and amortized as an adjustment of yield over the
contractual life of the related loan. The unamortized portion of net deferred
fees is recognized
26
<PAGE>
in income if loans prepay or if commitments expire unfunded. The amortization of
net fees or costs is included in interest and fees on loans in the consolidated
statement of operations.
Loans held for sale are carried at the lower of cost or market on an
aggregate basis. Loan fees collected and direct origination costs incurred with
respect to loans held for sale are deferred as an adjustment of the carrying
value of the loans and are included in the determination of gain or loss on
sale.
Impaired Loans
Impaired loans are specifically reviewed loans for which it is probable
that the Company will be unable to collect all amounts due according to the
terms of the loan agreement. The specific factors that influence management's
judgment in determining when a loan is impaired include evaluation of the
financial strength of the borrower and the fair value of the collateral.
Impaired loans are measured and reported based on the present value of expected
cash flows discounted at the loan's effective interest rate, or at the fair
value of the loan's collateral if the loan is deemed "collateral dependent." A
valuation allowance is required to the extent that the measure of the impaired
loans is less than the recorded investment.
Allowance for Loan Losses
The allowance for loan losses represents management's estimate of an amount
adequate to absorb potential losses on loans that may become uncollectible.
Factors considered in the establishment of the allowance for loan losses include
management's evaluation of specific loans, the level and composition of
classified loans, historical loan loss experience, concentrations of credit, the
relative inherent risk of loan types that comprise the loan portfolio, and other
judgmental factors. The allowance for loan losses is increased by charges to
income and decreased by charge-offs, net of recoveries. Actual future losses may
differ from estimates as a result of unforeseen events.
Real Estate Owned
Real estate acquired in settlement of loans is recorded at the lower of the
unpaid loan balance or estimated fair value less estimated costs of sale at the
date of foreclosure. Subsequent valuations are periodically performed and
valuation allowances are established if the carrying value of the real estate
exceeds estimated fair value less estimated costs of sale. Costs related to
development and improvement of real estate are capitalized. Net costs related to
holding assets are expensed.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and
amortization. Major renewals or betterments are capitalized and depreciated over
their estimated useful lives. Repairs and maintenance are charged to expense in
the year incurred. Depreciation and amortization are computed principally on the
straight-line basis over the estimated useful lives of the related assets.
Goodwill and other intangibles
Goodwill represents the excess of cost over the fair value of net assets
acquired and is amortized on a straight-line basis over 15 years. The core
deposit intangible represents the estimated fair value of certain customer
relationships acquired and is amortized on an accelerated basis over 10 years.
Long-Lived Assets
Long-lived assets to be held and those to be disposed of and certain other
intangibles are evaluated for impairment using the guidance of Statement of
Financial Accounting Standards No. 121 (FAS 121), "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," which was
adopted by the Company on January 1, 1996. FAS 121 establishes when an
impairment loss should be recognized and how an impairment loss should be
measured. The adoption of FAS 121 did not have a significant impact on the
financial statements of the Company.
27
<PAGE>
Deposits
Interest on deposits is accrued and compounded according to the contractual
term of the deposit account and either paid to the depositor or added to the
deposit account. On term accounts, the forfeiture of interest (because of
withdrawal prior to maturity) is offset as of the date of withdrawal against
interest expense.
Securities Sold Under Agreements to Repurchase
The Bank enters into sales of securities under agreements to repurchase
(reverse repurchase agreements). Fixed-coupon reverse repurchase agreements are
treated as financing transactions, and the obligations to repurchase securities
sold are reflected as liabilities in the statement of financial condition. The
securities underlying the agreements continue to be recorded as assets.
Income Taxes
The provision for income taxes is based upon income taxes estimated to be
currently payable and certain changes in deferred income tax assets and
liabilities. The deferred tax assets and liabilities relate principally to the
use of different reporting methods for bad debts, depreciation, and Federal Home
Loan Bank stock dividends.
Statement of Cash Flows
For purposes of the statement of cash flows, the Company considers cash and
federal funds sold to be cash and cash equivalents.
Earnings Per Share
Basic earnings per share for the years ended December 31, 1999, 1998, and
1997 were determined by dividing net income for the respective year by 4,581,574
shares, 4,715,697 shares, and 4,853,484 shares, respectively. Diluted earnings
per share for the years ended December 31, 1999, 1998, and 1997 were determined
by dividing net income for the respective year by 4,659,103 shares, 4,829,641
shares, and 4,986,066 shares, respectively. The difference in the number of
shares used for basic earnings per share and diluted earnings per share
calculations for each of the three years results solely from the dilutive effect
of stock options. Options on approximately 131,000 and 65,000 shares were not
included in computing diluted earnings per share for the years ended December
31, 1999 and December 31, 1998, respectively, because their effects were
antidilutive. There were no options on shares at December 31, 1997 that were
antidilutive.
Note 2
Cash
The Bank is required by the Federal Reserve Bank to maintain average
reserve balances. The average amount of these reserve balances for the year
ended December 31, 1999 was $7,029,000. On December 31, 1999, the reserve
balance was $7,877,000.
28
<PAGE>
Note 3
Intangible Assets
Goodwill and core deposit intangibles, and the related amortization, are as
follows (in thousands):
Core Deposit
Goodwill Intangible Total
-------------------------------------
Balance, December 31, 1997 $ 3,654 $ 356 $ 4,010
Amortization (290) (73) (363)
-------------------------------------
Balance, December 31, 1998 3,364 283 3,647
Amortization (290) (64) (354)
-------------------------------------
Balance, December 31, 1999 $ 3,074 $ 219 $ 3,293
-------------------------------------
At December 31, 1999, the Company had recorded $1,516,000 of accumulated
amortization.
29
<PAGE>
Note 4
Securities Available for Sale
Securities available for sale are as follows (in thousands):
<TABLE>
<CAPTION>
December 31,
1999 1998
----------------------------------------- -----------------------------------------------
Gross Gross Gross Gross
Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair
Cost Gains Losses Value Cost Gains Losses Value
----------------------------------------- -----------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities $ 14,004 $ 11 $ (11) $ 14,004 $ 26,043 $ 353 $ -- $ 26,396
----------- ----------- ----------- ----------- ----------- ---------------------- -----------
Other U. S. Government agency
securities 42,114 - (833) 41,281 21,344 134 (7) 21,471
----------- ----------- ----------- ----------- ----------- ---------------------- -----------
Other debt security 250 - - 250 250 - - 250
----------- ----------- ----------- ----------- ----------- ---------------------- -----------
Mortgage-backed certificates:
Federal Home Loan
Mortgage Corporation
participation certificates 41,768 177 (149) 41,796 11,445 214 - 11,659
Federal National Mortgage
Association pass-through
certificates 38,670 31 (337) 38,364 3,293 53 (1) 3,345
Government National
Mortgage Association
pass-through certificates 2,580 23 - 2,603 1,952 63 - 2,015
----------- ----------- ----------- ----------- ----------- ---------------------- -----------
Total mortgage-backed
certificates 83,018 231 (486) 82,763 16,690 330 (1) 17,019
----------- ----------- ----------- ----------- ----------- ---------------------- -----------
$ 139,386 $ 242 $ (1,330) $ 138,298 $ 64,327 $ 817$ (8) $ 65,136
----------- ----------- ----------- ----------- ----------- ---------------------- -----------
</TABLE>
During 1999, the Company did not sell any available for sale securities. During
1998 and 1997, the Company recognized gross gains of $143,000 and gross losses
of $71,000 on the sale of available for sale securities.
The amortized cost and fair value of securities available for sale at
December 31, 1999 are shown below by contractual maturity (in thousands):
Amortized Fair
Cost Value
---------------------------
Due in one year or less $ 16,003 $ 15,996
Due after 1 year through 5 years 40,115 39,289
Due after 5 years 250 250
Mortgage-backed certificates 83,018 82,763
---------------------------
$ 139,386 $ 138,298
---------------------------
30
<PAGE>
Note 5
Loans
Loans held for investment consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
1999 1998
--------------------
<S> <C> <C>
First mortgage loans:
Single family $ 221,041 $ 251,117
Multi-family 8,082 7,874
Construction:
Residential 58,528 66,853
Nonresidential 7,685 4,101
Commercial real estate 81,724 76,611
Consumer lots 3,566 3,703
Acquisition and development 18,065 11,444
Equity and second mortgage 56,469 52,845
Purchased mobile home 31 52
Boat 2,855 4,275
Other consumer 11,937 10,537
Commercial business 36,739 33,485
---------------------------
506,722 522,897
Undisbursed portion of construction
and acquisition and development loans (34,714) (35,463)
Allowance for loan losses (3,860) (4,024)
Unearned discounts, premiums, and loan
fees, net 1,470 1,373
-----------------------------
$ 469,618 $ 484,783
-----------------------------
</TABLE>
At December 31, 1999, the Company's gross loan portfolio contained $188,400
of adjustable-rate mortgage loans and $50,880 of loans which are callable or
balloon at various dates over the next seven years. Prime-based loans, net of
the undisbursed portion of construction and acquisition and development loans,
totaled $90,915 at December 31, 1999.
31
<PAGE>
Nonaccrual loans are as follows (in thousands):
<TABLE>
<CAPTION>
December 31,
1999 1998 1997
------------------------------------
<S> <C> <C> <C>
Single family $ 103 $ 416 $ 528
Land acquisition 48 -- 200
Purchased mobile home 20 15 48
Other consumer 10 68 24
Commercial business 111 64 240
------------------------------------------
$ 292 $ 563 $ 1,040
------------------------------------------
</TABLE>
Interest income that would have been recorded under the contractual terms of
such nonaccrual loans and the interest income actually recognized are summarized
as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997
------------------------------------
<S> <C> <C> <C>
Interest income based on contractual terms $ 33 $ 61 $ 92
Interest income recognized 22 36 30
----------------------------------------
Interest income foregone $ 11 $ 25 $ 62
----------------------------------------
</TABLE>
Changes in the allowance for loan losses are as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997
-------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $ 4,024 $ 3,783 $ 3,806
Provision for loan losses 98 510 600
Losses charged to allowance (358) (382) (836)
Recovery of prior losses 96 113 213
-------------------------------------------
Balance at end of year $ 3,860 $ 4,024 $ 3,783
-------------------------------------------
</TABLE>
There were no impaired loans at December 31, 1999 and 1998.
Loans serviced for others approximate $11,967,000 at December 31, 1999,
$13,826,000 at December 31, 1998, and $16,013,000 at December 31, 1997.
32
<PAGE>
Note 6
Interest Receivable
The components of interest receivable are as follows (in thousands):
December 31,
1999 1998
--------------------
Interest on loans $ 2,523 $ 2,766
Interest on mortgage-backed certificates 628 178
Interest on investments and interest-bearing
deposits 931 819
--------------------
4,082 3,763
Less: Allowance for uncollected interest (15) (40)
--------------------
$ 4,067 $ 3,723
--------------------
Note 7
Real Estate Owned
Real estate owned is as follows (in thousands):
December 31,
1999 1998
--------------------
Residential - Single family $ 123 $ 325
Land 105 105
--------------------
228 430
Less: Valuation allowance (10) (53)
--------------------
$ 218 $ 377
--------------------
Changes in the valuation allowance for real estate owned are as follows (in
thousands):
Year Ended December 31,
1999 1998 1997
----------------------------
Balance at beginning of year $ 53 $ 106 $ 200
Provision for losses 22 15 81
Losses charged to allowance (65) (68) (175)
-----------------------------
Balance at end of year $ 10 $ 53 $ 106
-----------------------------
The provision for losses on real estate owned is included in other expense
in the accompanying Consolidated Statement of Operations.
33
<PAGE>
Note 8
Federal Home Loan Bank Stock
Investment in the stock of the Federal Home Loan Bank (FHLB) is required by
law for federally insured savings associations such as the Bank. No ready market
exists for the stock and it has no quoted market value. The FHLB is required
under the Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA") to use its future earnings in various government-mandated programs
including low to moderate income housing. These programs and other uses of the
FHLB's future earnings could impair its ability to pay dividends to the Company
on this investment.
Note 9
Property and Equipment
Property and equipment consist of the following (in thousands):
December 31,
1999 1998
--------------------
Buildings and leasehold improvements $ 11,265 $ 9,857
Furniture and equipment 10,042 9,845
--------------------
21,307 19,702
Less: Accumulated depreciation and amortization (10,527) (9,404)
--------------------
10,780 10,298
Land 2,977 2,704
--------------------
$ 13,757 $13,002
--------------------
Depreciation and amortization expense is $1,261,000, $1,251,000, and
$1,154,000 for the years ended December 31, 1999, 1998 and 1997, respectively.
In December 1998, the Company sold its corporate office building and leased
back a portion of the building over a three-year period that ends December 31,
2001. The transaction was accounted for as a sale-leaseback. Accordingly, gain
on the sale of $404,000 was deferred and is recognized in proportion to the
related gross rent charged to expense over the lease term. During 1999, $202,000
of the deferred gain on the sale was recognized.
34
<PAGE>
Note 10
Deposits
Deposit balances by type and range of interest rates at December 31, 1999
and 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
December 31,
1999 1998
---------------------------
<S> <C> <C>
Noninterest-bearing:
Commercial checking $ 55,568 $ 69,801
Personal checking 8,923 8,911
---------------------------
Total noninterest-bearing deposits 64,491 78,712
---------------------------
Interest-bearing:
Passbook and statement savings
(interest rates of 2.41% at 1999 and
2.46% at 1998) 32,191 36,588
Checking accounts (interest rates of 1.52% at
1999 and 1.43% at 1998) 43,909 41,762
Money market deposits (interest rates of
3.56% at 1999 and 3.36% at 1998) 76,342 73,896
Certificates:
3.99% or less 52 345
4.00% to 4.99% 159,000 121,862
5.00% to 5.99% 67,257 113,417
6.00% to 6.99% 13,908 18,818
7.00% to 7.99% 7,312 9,958
8.00% to 8.99% 156 294
9.00% to 9.99% - 1,120
---------------------------
Total certificates 247,685 265,814
---------------------------
Total interest-bearing deposits 400,127 418,060
---------------------------
Total deposits $ 464,618 $ 496,772
---------------------------
</TABLE>
Certificates in denominations greater than $100,000 aggregated $26,417,000
and $24,940,000 at December 31, 1999 and 1998, respectively. The weighted
average cost of deposits approximated 4.13% and 4.54% for the years ended
December 31, 1999 and 1998, respectively.
35
<PAGE>
The following is a summary of interest expense on deposits (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997
-------------------------------------
<S> <C> <C> <C>
Passbook and statement savings $ 830 $ 1,235 $ 1,522
Checking accounts 579 605 602
Money market deposits 2,614 2,412 1,566
Certificates 12,751 15,373 17,351
Less: Early withdrawal penalties (37) (54) (69)
-----------------------------------------
$ 16,737 $ 19,571 $ 20,972
-----------------------------------------
</TABLE>
At December 31, 1999, remaining maturities on certificates are as follows (in
thousands):
2000 $ 205,000
2001 23,237
2002 7,904
2003 3,958
2004 7,586
-----------
$ 247,685
-----------
At December 31, 1999, the Bank has pledged mortgage-backed certificates, U.
S. Treasury securities, and other U. S. Government agency securities with a
total carrying value of $2,458,000 to the State Treasury Board and $200,000 to
the Federal Court as collateral for certain public deposits.
Note 11
Advances from the Federal Home Loan Bank
At December 31, 1999, advances from the Federal Home Loan Bank (FHLB)
consist of $127,000,000 of short-term variable advances and a $15,000,000
convertible fixed-rate advance with an interest rate of 4.84%. The $15,000,000
fixed-rate advance matures in December 2003 and is subject, in December 2001, to
a one-time option by the FHLB to convert to an adjustable-rate advance. These
advances are collateralized by mortgage-backed certificates with a net book
value of approximately $1,881,000 and by first mortgage loans with a net book
value of approximately $218,136,000.
The weighted average cost of advances from the FHLB is 5.23% and 5.43% for
the years ended December 31, 1999 and 1998, respectively.
36
<PAGE>
Note 12
Securities Sold under Agreements to Repurchase
At December 31, 1999, U. S. Treasury securities, U. S. Government agency
securities and mortgage-backed certificates sold under agreements to repurchase
had a carrying value of $13,605,000 and a market value of $13,498,000. The
mortgage-backed certificates underlying these repurchase agreements were
delivered to a branch of the Federal Reserve Bank which is acting as custodian
in the transaction. The Company enters into reverse repurchase agreements with
dealers and certain commercial deposit customers. The reverse repurchase
agreements executed with commercial deposit customers do not constitute savings
accounts or deposits and are not insured by the Federal Deposit Insurance
Corporation. At December 31, 1999, all of the Company's reverse repurchase
agreements were with commercial customers.
The following is a summary of certain information regarding the Company's
reverse repurchase agreements (dollars in thousands):
December 31,
1999 1998
---------------------------
Balance at end of year $ 13,233 $ 13,084
Average amount outstanding during the year 15,711 12,026
Maximum amount outstanding at any month end 20,755 22,913
Weighted average interest rate during the year 4.08% 4.45%
Weighted average interest rate at end of year 3.78% 3.96%
Weighted average maturity at end of year daily daily
Note 13
Other Income and Other Expense
The components of other income and other expense are as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997
<S> <C> <C> <C>
-------------------------------------------
Other income:
Brokerage fees $ 168 $ 468 $ 850
Merchant processing fees 2,464 2,062 1,391
Other miscellaneous 964 609 478
-------------------------------------------
$ 3,596 $ 3,139 $ 2,719
-------------------------------------------
Other expense:
Net occupancy expense of premises $ 2,154 $ 1,901 $ 1,848
Professional fees 678 611 345
Expenses, gains/losses on sales,
and provision for losses on real
estate owned, net 44 89 215
Merchant processing 1,953 1,766 1,130
Other miscellaneous 2,313 2,408 2,076
-------------------------------------------
$ 7,142 $ 6,775 $ 5,614
-------------------------------------------
</TABLE>
37
<PAGE>
Note 14
Income Taxes
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial and income
tax reporting purposes.
Significant components of the Company's deferred tax assets and liabilities are
as follows (in thousands):
<TABLE>
<CAPTION>
December 31,
1999 1998 1997
-------------------------------------------
<S> <C> <C> <C>
Deferred tax assets:
Bad debt reserves $ 1,353 $ 1,474 $ 1,251
Unrealized losses on securities
available for sale 413 - -
Other 298 324 219
-------------------------------------------
2,064 1,798 1,470
-------------------------------------------
Deferred tax liabilities:
Federal Home Loan Bank
stock dividends (660) (696) (696)
Unrealized gains on securities
available for sale - (308) (472)
Depreciation (303) (344) (296)
Other (250) (251) (299)
--------------------------------------------
(1,213) (1,599) (1,763)
--------------------------------------------
Net deferred tax asset (liability) $ 851 $ 199 $ (293)
--------------------------------------------
</TABLE>
The provision for income taxes consists of the following (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997
-------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ 2,997 $ 3,452 $ 3,109
State 343 294 131
-------------------------------------------
3,340 3,746 3,240
-------------------------------------------
Deferred:
Federal 57 (277) 20
State 11 (52) 4
-------------------------------------------
68 (329) 24
-------------------------------------------
$ 3,408 $ 3,417 $ 3,264
-------------------------------------------
</TABLE>
The reconciliation of "expected" federal income tax computed at the statutory
rate (34%) to the reported provision for income taxes is as follows (in
thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997
-------------------------------------------
<S> <C> <C> <C>
Computed "expected" tax provision $ 3,219 $ 3,241 $ 3,151
Increase (decrease) in taxes
resulting from:
State income taxes, net of federal
tax benefit 235 194 86
Other (46) (18) 27
--------------------------------------------
Provision for income taxes $ 3,408 $ 3,417 $ 3,264
--------------------------------------------
</TABLE>
For tax purposes, the Bank may only deduct bad debts as charged off. This
amount may differ significantly from the amount deducted for book purposes.
Retained earnings at December 31, 1999 includes $6,134,000 representing that
portion of the Bank's tax bad debt allowance for which no provision for income
taxes has been made. This amount would be subject to federal income taxes if the
Bank were to use the reserve for purposes other than to absorb losses.
38
<PAGE>
Note 15
Employee Benefit Plans
Employees Stock Ownership Plan
The following summarizes information relating to the Company's Employee
Stock Ownership Plan, which covers substantially all employees after they have
met certain eligibility requirements.
Stock Purchase - 1992
In 1999, 1998 and 1997, dividends received by the ESOP, all of which
related to allocated shares, were first used for administrative expenses, and
dividends remaining were distributed to plan participants. Dividends received on
allocated shares in 1999 totaled $124,000, of which $111,000 was distributed to
participants; in 1998 totaled $93,000, of which $72,000 was distributed to
participants; and in 1997 totaled $81,000, of which $63,000 was distributed to
participants. At December 31, 1999, the ESOP has 198,335 allocated shares. A
total of 18,564 shares were distributed in 1999 to terminated employees. All
shares held by the ESOP relating to the 1992 stock purchase are considered
outstanding for earnings per share calculations.
Stock Purchase - 1997
The Company recognizes compensation expense on an accrual basis based upon
the estimated annual number of shares to be released valued at the shares' fair
value. ESOP related compensation expense recognized by the Company totaled
$299,200 in 1999 and $467,933 in 1998.
The loan between the ESOP and the holding company has a fifteen-year term
with monthly principal and interest payments which commenced as of January 1998.
Shares are released and allocated to eligible participants annually. The number
of shares released and allocated annually is based upon the pro rata amount of
the total principal and interest paid in that year as compared to the total
estimated principal and interest to be paid over the entire term of the loan.
Dividends received on unallocated shares were used for debt service.
Of the 248,157 shares purchased in 1997, 211,202 were unallocated at
December 31, 1999. In 1999 and 1998, 16,246 and 20,709 shares were allocated and
were included in earnings per share calculations. A total of 145 shares were
distributed in 1999 to terminated employees. At December 31, 1999, the fair
value of unearned shares approximated $3,656,000.
401(k) Plan
The Company has a 401(k) plan to which eligible employees may contribute a
specified percentage of their gross earnings each year. For the years ended
December 31, 1999, 1998 and 1997, the maximum percentage that could be
contributed by employees was 15%, 15%, and 10%, respectively. The Company
contributed a total of $207,000 to this plan during the year ended December 31,
1997. In 1999 and 1998, no contributions were made.
Postretirement Benefit Plan
The Company sponsors a postretirement health care and life insurance
benefit plan. This plan is unfunded and the Company retains the right to modify
or eliminate these benefits. Participating retirees and eligible dependents
under the age of 65 are covered under the Company's regular medical and dental
plans. Participating retirees and eligible dependents age 65 or older are
eligible for a Medicare supplement plan. The medical portion of the plan is
contributory for retirees, with retiree contributions adjusted annually, and
contains other cost-sharing features such as deductibles and copays. The life
insurance portion of the plan is noncontributory.
As permitted by FAS 106, the Company elected to amortize its unrecognized
transition obligation over 20 years. At December 31, 1999 and December 31, 1998,
the Company's unfunded accumulated postretirement benefit obligation totaled
$815,000 and $804,000, respectively, and the accrued postretirement benefit cost
39
<PAGE>
recognized in the Statement of Financial Condition totaled $218,000 and
$177,000, respectively. Postretirement benefit cost was $96,000, $97,000, and
$69,000 in 1999, 1998 and 1997, respectively.
Note 16
Stock Options and Awards
At December 31, 1999, the Company has two stock-based compensation plans,
the CENIT Stock Option Plan and the Management Recognition Plan, which are
described below. The Company has elected not to adopt the recognition provisions
of Statement of Financial Accounting Standards No. 123 (FAS 123), "Accounting
for Stock-Based Compensation," which requires a fair-value based method of
accounting for stock options and similar equity awards, and will continue to
follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued
to Employees," and related Interpretations to account for its stock-based
compensation plans.
Stock Option Plans
In conjunction with the Bank's 1992 conversion, the Company adopted the
CENIT Stock Option Plan for the benefit of non- employee directors and key
officers. During the period 1992-1997, the Company granted options relating to
370,875 shares of common stock, which is the total number of shares reserved for
issuance under the Stock Option Plan. Options granted in 1992 in connection with
the conversion became exercisable in full from two to five years after the date
of grant, options granted in 1993 became exercisable in full, two years after
the date of grant, and options granted in 1994, 1995, 1996 and 1997 are
exercisable 25% each year over the four-year period after the applicable date of
grant. In addition, limited stock appreciation rights were granted with the
options issued under the Stock Option Plan. These rights may be exercised in
lieu of the related stock options only in the event of a change in control of
the Company, as defined in the Stock Option Plan.
In 1998, the Company adopted the CENIT Long-Term Incentive Plan for the
benefit of non-employee directors and key officers and employees. The total
number of shares of common stock reserved for issuance under the Long-Term
Incentive Plan is 251,238. Options granted in 1999 and 1998 are exercisable 25%
each year over the four-year period after the date of grant.
Under both the Stock Option Plan and the Long-Term Incentive Plan, the
option price cannot be less than the fair market value of the common stock on
the date of the grant, and options expire no later than ten years after the date
of the grant.
40
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997
-------------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ --------------- ------ ----------- ------ -----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year 249,110 $ 10.50 271,938 $ 6.09 343,149 $ 5.40
Granted 66,000 18.00 67,000 22.25 12,705 15.00
Exercised (27,278) 5.07 (84,798) 5.31 (83,916) 4.63
Forfeited - - (5,030) 15.65 - -
-------- -------- --------
Outstanding at end of year 287,832 12.73 249,110 10.50 271,938 6.09
-------- -------- --------
Options exercisable at
year end 173,574 164,331 233,424
</TABLE>
The weighted average fair value of options granted during 1999, 1998 and
1997 was $5.32, $6.09 and $4.89, respectively.
The weighted average fair value of all of the options granted during the
period 1995 through 1999 has been estimated using the Black-Scholes
option-pricing model with the following weighted average assumptions:
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997
--------------------------------------------------------------------
<S> <C> <C> <C>
Annual dividend yield 3.33% 2.70% 2.22%
Weighted average risk-free interest rate 6.46% 4.76% 6.47%
Weighted average expected volatility 31.00% 29.00% 28.00%
Weighted average expected life in years 6.0 6.0 6.3
</TABLE>
The provisions of FAS 123 require pro forma disclosure of compensation
expense for the Company based on the fair value of the awards at the date of the
grant. Under those provisions, the Company's net income and earnings per share
would have been reduced to the following pro forma amounts (in thousands, except
per share data):
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997
----------------------------------------------------------------------
<S> <C> <C> <C>
Net income:
As reported $ 6,059 $ 6,115 $ 6,003
Pro forma 5,960 6,071 5,973
Basic earnings per share:
As reported $ 1.32 $ 1.30 $ 1.24
Pro forma 1.30 1.29 1.23
Diluted earnings per share:
As reported $ 1.30 $ 1.27 $ 1.20
Pro forma 1.28 1.26 1.20
</TABLE>
41
<PAGE>
The following table summarizes information about the options outstanding
at December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------------------------- --------------------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life Price Exercisable Price
- ----------------------- ------------------ ----------------- ---------------- ----------- -----------------
<S> <C> <C> <C> <C> <C>
$3.84 92,716 2.58 $ 3.84 92,716 $ 3.84
$5.95 8,703 0.83 5.95 8,703 5.95
$7.09 to $7.73 16,152 4.23 7.49 16,152 7.49
$11.55 to $12.34 29,004 6.54 11.95 25,077 12.01
$15.00 10,257 7.17 15.00 4,926 15.00
$18.00 66,000 9.75 18.00 - 18.00
$22.25 65,000 8.45 22.25 26,000 22.25
--------- --------
287,832 6.15 12.73 173,574 8.54
--------- -------
</TABLE>
Management Recognition Plan
The objective of the MRP is to enable the Company to retain personnel of
experience and ability in key positions of responsibility. The MRP was
authorized to acquire up to 2% of the shares of common stock of the Company
issued in the conversion. The Bank contributed $247,250 to the MRP to enable the
MRP trustees to acquire a total of 64,500 shares of the common stock in the
conversion at $3.84 per share. As a result of an oversubscription in the
subscription offering, the MRP was able to acquire only 45,000 shares in the
conversion. In 1997, the MRP purchased 14,118 additional shares at an average
price of approximately $15.13 per share. No shares were purchased in 1999 or
1998.
A total of 37,086 shares were granted in 1992 and vested 20% each year over
five years beginning in 1993. The shares granted in 1996 and 1997 vest at the
end of three to five years. Compensation expense, which is recognized as shares
vest, totaled $73,000, $72,000, and 122,000 for 1999, 1998 and 1997,
respectively. The unamortized cost of the shares purchased, which represents
deferred compensation, is reflected as a reduction of stockholders' equity in
the Company's consolidated statement of financial condition.
A summary of MRP grants is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997
-----------------------------------------------
<S> <C> <C> <C>
Outstanding at beginning of year 31,275 34,182 30,393
Granted - - 14,118
Exercised (6,183) (2,907) (10,329)
--------------------------------------------------
Outstanding at end of year 25,092 31,275 34,182
--------------------------------------------------
</TABLE>
No grants were forfeited during 1999 and 1997 and no grants were
exercisable at December 31, 1999, 1998, and 1997. During 1998, 3,783 shares were
forfeited and returned to the outstanding balance. At December 31, 1999, the
weighted average period until the awards become vested is approximately one
year. The weighted average fair value of shares granted in 1997 was $15.00.
42
<PAGE>
Note 17
Commitments and Financial Instruments With Off-Balance Sheet Credit Risk
The Company is a party to financial instruments with off-balance sheet
credit risk in the normal course of business to meet the financing needs of its
customers and, to a lesser extent, to reduce its own exposure to fluctuations in
interest rates. These financial instruments include commitments to extend credit
in the form of loans or through letters of credit, interest rate caps and
interest rate swaps. At December 31, 1999, financial instruments with
off-balance sheet risk are limited to outstanding loan commitments and letters
of credit. There are no open interest rate cap or interest rate swap positions
at December 31, 1999.
Loan commitments are agreements to extend credit to a customer provided
that there are no violations of the terms of the contracts prior to funding.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee by the customer. Because certain of the
commitments are expected to be withdrawn or expire unused, the total commitment
amount does not necessarily represent future cash requirements. The Company
evaluates each customer's creditworthiness on a case- by-case basis. The type
and amount of collateral obtained varies but generally includes real estate or
personal property.
The Company had loan commitments, excluding the undisbursed portion of
construction and acquisition and development loans, as follows (in thousands):
<TABLE>
<CAPTION>
December 31,
1999 1998
---------------------------
<S> <C> <C>
Commitments outstanding:
Mortgage loans:
Fixed rate (rates between 7.75% and 11.23% at
1999 and between 6.00% and 8.25% at 1998) $ 2,938 $ 4,615
Variable rate 3,766 1,219
Commercial business loans 3,448 5,617
---------------------------
$ 10,152 $ 11,451
---------------------------
</TABLE>
At December 31, 1999, the Company has granted unused consumer and
commercial lines of credit of $31,864,000 and $15,752,000, respectively, and has
commitments to purchase loans totaling $850,000.
Standby letters of credit are written unconditional commitments issued to
guarantee the performance of a customer to a third party and total approximately
$6,526,000 at December 31, 1999. The credit risk involved in issuing standby
letters of credit is essentially the same as that involved in extending a loan
and the collateral obtained, if any, varies but generally includes real estate
or personal property. Because most of these letters of credit expire without
being drawn upon, they do not necessarily represent future cash requirements.
Commitments to purchase securities are contracts for delayed delivery of
securities in which the seller agrees to make delivery on a specified future
date of a specified instrument, with a specified coupon, for a specified price.
At December 31, 1999, the Company had no such commitments.
Rent expense under long-term operating leases for property approximates
$1,015,000, $713,000, and $709,000 for the years ended December 31, 1999, 1998
and 1997, respectively. The minimum rental commitments under noncancelable
leases with an initial term of more than one year for the years ending December
31, are as follows (in thousands):
2000 $ 848
2001 724
2002 506
2003 448
2004 443
Thereafter 1,168
--------
$ 4,137
--------
43
<PAGE>
Note 18
Regulatory matters
Capital Adequacy
The Bank is subject to various regulatory capital requirements administered
by the Office of Thrift Supervision ("OTS"). Failure to meet minimum capital
requirements can initiate certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could have a direct
material effect on the Company's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the Bank
must meet specific capital guidelines that involve quantitative measures of the
Bank's assets, liabilities and certain off-balance-sheet items as calculated
under regulatory accounting practices. The Bank's capital amounts and
classifications are also subject to qualitative judgments by regulators about
components, risk weighting and other factors.
As set forth in the table below, quantitative measures established by
regulation to ensure capital adequacy require the Bank to maintain minimum
amounts and ratios of tier 1 (core) capital to adjusted total assets, of tier 1
risk-based and total risk-based capital to risk-weighted assets and tangible
equity capital to adjusted total assets. As of December 31, 1999, the Bank
exceeded all capital adequacy requirements to which it is subject.
As of December 31, 1999, the most recent notification from the OTS
categorized the Bank as "well capitalized" under the framework for prompt
corrective action. To be considered well capitalized under prompt corrective
action provisions, the Bank must maintain capital ratios as set forth in the
following table. There are no conditions or events since that notification that
management believes have changed the Bank's categorizations.
The Bank's actual capital amounts and ratios are as follows (dollars in
thousands):
<TABLE>
<CAPTION>
Required for
Actual Required Well Capitalized
---------------------------- ----------------------- ----------------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1999:
Tier 1 (core) capital $ 47,444 7.1% $ 26,877 4.0% $ 33,597 5.0%
Tier 1 risk-based capital 47,444 10.8 17,603 4.0 26,405 6.0
Total risk-based capital 51,271 11.7 35,207 8.0 44,008 10.0
Tangible equity capital 47,444 7.1 13,439 2.0 - -
As of December 31, 1998:
Core capital $ 45,271 7.1% $ 25,481 4.0% $ 31,851 5.0%
Tier 1 risk-based capital 45,271 10.5 17,221 4.0 25,832 6.0
Total risk-based capital 49,074 11.4 34,442 8.0 43,053 10.0
Tangible capital 45,271 7.1 12,740 2.0 - -
</TABLE>
44
<PAGE>
Dividend Restrictions
The Bank's capital exceeds all of the capital requirements imposed by
FIRREA. OTS regulations provide that an association whose (i) proposed capital
distribution does not exceed the retained earnings for that year combined with
the retained earnings of the preceding two years, and (ii)exceeds all fully
phased-in capital requirements before and after a proposed capital distribution
can, after prior notice but without the approval by the OTS, make capital
distributions during the calendar year. Any additional capital distributions
require prior regulatory approval.
The Company is subject to the restrictions of Delaware law, which generally
limit dividends to the amount of a corporation's surplus or, in the case where
no such surplus exists, the amount of a corporation's net profits for the fiscal
year in which the dividend is declared and/or the preceding fiscal year.
Note 19
Stockholders' Equity
As part of the Bank's conversion from a federally chartered mutual savings
bank to a federally chartered stock savings bank, the Bank established a
liquidation account for the benefit of eligible depositors who continue to
maintain their deposit accounts in the Company after conversion. In the unlikely
event of a complete liquidation of the Bank, each eligible depositor will be
entitled to receive a liquidation distribution from the liquidation account, in
the proportionate amount of the then current adjusted balance for deposit
accounts held, before distribution may be made with respect to the Bank's
capital stock. The Bank may not declare or pay a cash dividend to the Company
on, or repurchase any of, its capital stock if the effect thereof would cause
the retained earnings of the Bank to be reduced below the amount required for
the liquidation account. Except for such restrictions, the existence of the
liqui dation account does not restrict the use or application of the Bank's
retained earnings. At December 31, 1999, the liquidation account balance was
$2,747,000.
45
<PAGE>
Note 20
Related Party Transactions
The Company has made loans to executive officers, directors, and to
companies in which the executive officers and directors have a financial
interest. The following is a summary of related party loans (in thousands):
Balance at January 1, 1999 $ 4,295
Originations - 1999 1,980
Repayments - 1999 (1,459)
----------
Balance at December 31, 1999 $ 4,816
----------
Under the Company's current policy, related party loans are made on
substantially the same terms, including interest rate and collateral
requirements, as are available to the general public. The Company believes loans
to related parties do not involve more than the normal risk of collectibility.
Commitments to extend credit and letters of credit to related parties totaled
$1,566,000 at December 31, 1999.
Note 21
Disclosures About Fair Value of Financial Instruments
The following summary presents the methodologies and assumptions used to
estimate the fair value of the Company's financial instruments presented below.
The Company operates as a going concern and except for its investment securities
portfolio and certain residential loans, no active market exists for its
financial instruments. Much of the information used to determine fair value is
highly subjective and judgmental in nature and therefore the results may not be
precise. The subjective factors include, among other things, estimates of cash
flows, risk characteristics, credit quality, and interest rates, all of which
are subject to change. Since the fair value is estimated as of December 31,
1999, the amounts which will actually be realized or paid upon settlement or
maturity of the various instruments could be significantly different.
Cash and Federal Funds Sold
For cash and federal funds sold, the carrying amount is a reasonable
estimate of fair value.
Investment Securities
Fair values are based on quoted market prices or dealer quotes for U.S.
Treasury securities, other U.S. government agency securities, and
mortgage-backed certificates. As required by FAS 115, securities available for
sale are recorded at fair value.
46
<PAGE>
Loans
The fair value of loans is estimated by discounting the future cash flows
using the current rates at which similar loans would be made to borrowers with
similar credit ratings for the same remaining maturities, or based on quoted
market prices for mortgage-backed certificates securitized by similar loans,
adjusted for differences in loan characteristics. The risk of default is
measured as an adjustment to the discount rate, and no future interest income is
assumed for nonaccrual loans.
The fair value of loans does not include the value of the customer
relationship or the right to fees generated by the account.
Federal Home Loan Bank Stock
The carrying value of Federal Home Loan Bank stock is a reasonable estimate
of the fair value.
Deposit Liabilities
The fair value of deposits with no stated maturities (which includes demand
deposits, savings accounts, and money market depos its) is the amount payable on
demand at the reporting date. The fair value of fixed-maturity certificates of
deposit is estimated using a discounted cash flow model based on the rates
currently offered for deposits of similar maturities.
FAS 107 requires deposit liabilities with no stated maturity to be reported
at the amount payable on demand without regard for the inherent funding value of
these instruments. The Company believes that significant value exists in this
funding source.
Short-term Borrowings
For short-term borrowings (which include short-term advances from the
Federal Home Loan Bank and securities sold under agreements to repurchase), the
carrying amount is a reasonable estimate of fair value.
Long-term Borrowings
Rates currently available to the Company for borrowings with similar terms
and remaining maturities are used to estimate fair value of existing borrowings.
Loan Commitments and Standby Letters of Credit
The Company has reviewed its loan commitments and standby letters of credit
and determined that differences between the fair value and notional principal
amounts are not significant.
47
<PAGE>
The estimated fair values of the Company's financial instruments that differ
from their carrying amount are as follows (in thousands):
<TABLE>
<CAPTION>
December 31,
1999 1998
--------------------------- -------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
--------------------------- -------------------------
<S> <C> <C> <C> <C>
Financial assets:
Loans held for investment, net $ 469,618 $ 466,852 $ 484,783 $ 489,598
Financial liabilities:
Deposits with stated maturities 247,685 248,248 265,814 267,603
Long-term borrowings 15,000 14,491 75,000 77,228
</TABLE>
As mentioned in the assumptions above, the estimated fair value of loans
and deposits does not include any value for the customer relationship or the
right to future fee income which may be generated by these relationships.
Note 22
Condensed Parent Company Only Financial Statements
The following condensed financial statements for CENIT Bancorp, Inc. should
be read in conjunction with the consolidated financial statements and the notes
thereto.
<TABLE>
<CAPTION>
Condensed Statement of Financial Condition
(In thousands)
December 31,
1999 1998
---------------------------
<S> <C> <C>
Assets:
Cash $ 53 $ 56
Securities available for sale at fair value 250 250
Equity in net assets of the Bank 50,064 49,420
Other assets 1,216 776
---------------------------
$ 51,583 $ 50,502
---------------------------
Liabilities:
Other liabilities $ 318 $ 426
---------------------------
---------------------------
Stockholders' equity 51,265 50,076
---------------------------
$ 51,583 $ 50,502
---------------------------
</TABLE>
48
<PAGE>
<TABLE>
<CAPTION>
Condensed Statement of Operations
(In thousands)
Year Ended December 31,
1999 1998 1997
-------------------------------------------
<S> <C> <C> <C>
Equity in earnings of the Bank $ 6,293 $ 6,520 $ 6,767
Interest income 23 22 --
Interest expense -- (76) (110)
Salaries and employee benefits (118) (296) (349)
Expenses related to proxy contest
and other matters -- -- (405)
Professional fees (182) (202) (247)
Other expenses (88) (86) (87)
-------------------------------------------
Income before income taxes 5,928 5,882 5,569
Benefit from income taxes 131 233 434
-------------------------------------------
Net income $ 6,059 $ 6,115 $ 6,003
-------------------------------------------
Condensed Statement of Cash Flows
(In thousands)
Year Ended December 31,
1999 1998 1997
-------------------------------------------
Cash flows from operating activities:
Net income $ 6,059 $ 6,115 $ 6,003
Add (deduct) items not affecting cash:
(Undisbursed earnings)distributions in
excess of earnings of the Bank (1,819) 1,399 (3,157)
Amortization - 6 3
(Increase) decrease in other assets (138) 1,860 (114)
(Decrease) increase in liabilities (34) (73) 189
-------------------------------------------
Net cash provided by operations 4,068 9,307 2,924
-------------------------------------------
Cash flows from investing activities:
Purchase of securities available for sale -- (250) --
-------------------------------------------
Net cash used for investing activities -- (250) --
-------------------------------------------
Cash flows from financing activities:
Cash dividends paid (2,745) (1,931) (1,627)
Net proceeds from issuance of common stock 137 173 357
Increase in other borrowings -- -- 4,000
Principal payments on other borrowings -- (2,575) (1,425)
Common stock repurchases (1,463) (4,669) --
Purchase of common stock by ESOP -- -- (4,232)
-------------------------------------------
Net cash used for financing activities (4,071) (9,002) (2,927)
-------------------------------------------
Net (decrease) increase in cash and cash
equivalents (3) 55 (3)
Cash and cash equivalents at beginning of period 56 1 4
-------------------------------------------
Cash and cash equivalents at end of period $ 53 $ 56 $ 1
-------------------------------------------
</TABLE>
49
<PAGE>
Note 23
Quarterly Results of Operations (Unaudited)
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended December 31, 1999
First Second Third Fourth
Quarter Quarter Quarter Quarter
------------------------------------------------------------
<S> <C> <C> <C> <C>
Total interest income $ 10,727 $ 10,568 $ 10,690 $ 11,327
Total interest expense 5,380 5,324 5,448 5,829
-----------------------------------------------------------
Net interest income 5,347 5,244 5,242 5,498
Provision for loan losses 14 22 39 23
-----------------------------------------------------------
Net interest income after provision
for loan losses 5,333 5,222 5,203 5,475
Other income 1,831 1,824 1,891 1,587
Other expenses 4,875 4,840 4,549 4,634
-----------------------------------------------------------
Income before income taxes 2,289 2,206 2,545 2,428
Provision for income taxes 824 794 916 874
-----------------------------------------------------------
Net income $ 1,465 $ 1,412 $ 1,629 $ 1,554
-----------------------------------------------------------
Earnings per share:
Basic $ .32 $ .31 $ .35 $ .34
-----------------------------------------------------------
Diluted $ .31 $ .30 $ .35 $ .33
-----------------------------------------------------------
Dividends per common share $ .15 $ .15 $ .15 $ .15
-----------------------------------------------------------
Year Ended December 31, 1998
First Second Third Fourth
Quarter Quarter Quarter Quarter
-----------------------------------------------------------
Total interest income $ 12,564 $ 12,317 $ 11,367 $ 10,783
Total interest expense 7,177 7,014 6,006 5,608
-----------------------------------------------------------
Net interest income 5,387 5,303 5,361 5,175
Provision for loan losses 204 136 100 70
-----------------------------------------------------------
Net interest income after provision
for loan losses 5,183 5,167 5,261 5,105
Other income 1,565 1,869 1,803 1,776
Other expenses 4,498 4,701 4,506 4,492
-----------------------------------------------------------
Income before income taxes 2,250 2,335 2,558 2,389
Provision for income taxes 793 831 934 860
-----------------------------------------------------------
Net income $ 1,457 $ 1,504 $ 1,624 $ 1,529
-----------------------------------------------------------
Earnings per share:
Basic $ .31 $ .32 $ .34 $ .33
-----------------------------------------------------------
Diluted $ .30 $ .31 $ .33 $ .33
-----------------------------------------------------------
Dividends per common share $ .10 $ .10 $ .10 $ .11
-----------------------------------------------------------
<FN>
NOTE: May not add to total for year due to rounding.
</FN>
</TABLE>
50
<PAGE>
Report of Independent Accountants
- -------------------------------------------------------------------------------
[LETTERHEAD OF PRICEWATERHOUSECOOPERS LLP APPEARS HERE]
To the Board of Directors and
Stockholders of CENIT Bancorp, Inc.
Norfolk, Virginia
In our opinion, the accompanying consolidated statement of financial condition
and the related consolidated statements of operations, of comprehensive income,
of changes in stockholders' equity and of cash flows present fairly, in all
material respects, the financial position of CENIT Bancorp, Inc. and its
subsidiary at December 31, 1999 and 1998, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1999, in conformity with accounting principles generally accepted in the
United States. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of the
financial statements of CENIT Bancorp, Inc. in accordance with auditing
standards generally accepted in the United States which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Virginia Beach, Virginia
February 10, 2000
51
<PAGE>
Corporate Information
- ------------------------------------------------------------------------------
- - Executive Offices
Main Street Tower, Suite 1350
300 East Main Street
Norfolk, VA 23510-1753
Telephone (757) 446-6600
- - Banking Offices
Norfolk
745 Duke Street
300 East Main Street
2203 East Little Creek Road
Super Kmart Center, 6101 Military Highway
Portsmouth
3315 High Street
5627 High Street
Chesapeake
675 North Battlefield Boulevard
2600 Taylor Road
2612 Taylor Road
(Mortgage Loan Production Office)
Virginia Beach
1616 Laskin Road
699 Independence Boulevard
905 Kempsville Road
641 Lynnhaven Parkway
3001 Shore Drive
4801 Columbus Street
Super Kmart Center, 3901 Holland Road
Newport News
13307 Warwick Boulevard
Hampton
2205 Executive Drive
550 Settlers Landing Road
York County
Victory Boulevard and Commonwealth Drive
(Retail, Mortgage, Real Estate & Commercial Offices)
Super Kmart Center, 5007 Victory Boulevard
- - Subsidiary of CENIT Bank
CENIT Commercial Mortgage Corporation
- - Personal & Commercial Banking Services
CENIT Online Banking www.cenit.com
Personal Banking
Checking and Savings Accounts
Retirement Accounts
24 Hour Banking ATMs
Members, HONOR (R) PLUS
VISA (R) Networks with access to DISCOVER
MASTERCARD (R) AMERICAN EXPRESS (R)
ARMED FORCES FINANCIAL (R) (AFFN)
BankLine(sm) 24 Hour Account Information
Full Service Investment Brokerage
Safe Deposit Boxes
Construction and Permanent
Residential Mortgages
Lot Loans
Equity Loans and Lines of Credit
Car and Personal Loans
Personal Credit Cards
Private Banking Services
Commercial Banking
Business Checking Accounts
Interest Deposit Accounts
Interest on Lawyers' Trust Accounts
ESTEEM (sm) Banking for Medical Professionals
BusinessManager (R) Receivables Financing
Corporate Cash Management Services
Wire Transfers and EFT Services
Corporate Credit Cards
Merchant BankCard Processing
Loans to Businesses
Small Business Administration (SBA)
Government Guaranteed Loans
Construction and Permanent
Commercial Mortgages
Lines of Credit
Term Loans
Equipment Loans
Commercial Mortgage Loan Brokerage
52
<PAGE>
CENIT Bank Retail Banking Offices
- ------------------------------------------------------------------------------
[GRAPHIC OMITTED]
[MAP SHOWN HERE]
Norfolk
1 - 745 Duke Street
2 - 300 East Main Street
3 - 2203 E. Little Creek Road
4 - Super Kmart, 6101 Military Hwy.
Chesapeake
5 - 675 N. Battlefield Boulevard
6 - 2600 Taylor Road
Portsmouth
7 - 5627 High Street
8 - 3315 High Street
Virginia Beach
9 - 1616 Laskin Road
10 - 699 Independence Boulevard
11 - 905 Kempsville Road
12 - 641 Lynnhaven Parkway
13 - 3001 Shore Drive
14 - 4801 Columbus Street
15 - Super Kmart, 3901 Holland Road
Hampton
16 - 2205 Executive Drive
17 - 550 Settlers Landing Road
Newport News
18 - 13307 Warwick Boulevard
York County
19 - Victory and Commonwealth
20 - Super Kmart, 5007 Victory
53
<PAGE>
Investor Information
- ------------------------------------------------------------------------------
- - Annual Meeting of Stockholders
The Annual Meeting of Stockholders of
CENIT Bancorp, Inc. will be held at 5:00 p.m.
on Wednesday, June 14, 2000 in the theater of
the Chrysler Museum of Art, 245 West Olney
Road, Norfolk, Virginia. All stockholders are
cordially invited to attend.
- - Stock Price Information
CENIT Bancorp, Inc. Common Stock trades
on The Nasdaq Stock Market(R) under the
symbol CNIT. Newspapers and other stock
tables may identify the stock under various
abbreviations for CENIT Bancorp, Inc.
The table below shows the reported high
and low sales prices of CENIT Bancorp, Inc.
Common Stock by quarters in fiscal years
1999 and 1998.
1999 1998
Quarter High Low High Low
- -------------------------------------------------------
First $23.13 $19.38 $29.00 $23.33
- -------------------------------------------------------
Second $20.88 $18.00 $28.67 $20.50
- -------------------------------------------------------
Third $19.50 $16.50 $24.63 $16.75
- -------------------------------------------------------
Fourth $19.00 $16.88 $21.50 $14.13
- -------------------------------------------------------
Source: The Nasdaq Stock Market (R)
Note:
Sales prices have been restated for the 3-for-1
stock split declared on March 24, 1998.
- - Stock Transfer Agent
ChaseMellon Shareholder Services
15th Floor, 450 West 33rd Street
New York, NY 10001-2697
Questions regarding your account should
be referred in writing or by telephone to:
ChaseMellon Financial Services
85 Challenger Road
Overpeck Centre
Ridgefield Park, NJ 07660-2108
Telephone 1-800-526-0801
- - Annual Report on Form 10-K and
Additional Information
A copy of Form 10-K as filed with the
Securities and Exchange Commission is
available without charge to stockholders
upon written request. Requests for this or
other financial information about CENIT
Bancorp, Inc. should be directed to:
Stuart F. Pollard
Vice President and
Director of Investor Relations
CENIT Bancorp, Inc.
Post Office Box 1811
Norfolk, VA 23501-1811
Intsernet: [email protected]
- - Independent Accountants
PricewaterhouseCoopers LLP
One Columbus Center, Suite 400
Virginia Beach, Virginia 23462
<PAGE>
[BACK COVER]
CENIT BANCORP, INC.
Main Street Tower, Suite 1350
300 East Main Street
Norfolk, Virginia 23510-1753
