<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
- - --- EXCHANGE ACT OF 1934
For the quarterly period ended: March 31, 1996
--------------
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
- - --- EXCHANGE ACT OF 1934
For the transition period from to
--------------- --------------
Commission file number: 33-43317
----------
EASTON BANCORP, INC.
-----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Maryland 52-1745344
------------------------ ------------------------------------
(State of incorporation) (I.R.S. Employer Identification No.)
501 Idlewild Avenue, Easton, Maryland 21601
--------------------------------------------
(Address of principal executive offices)
(410) 819-0300
--------------
(Issuer's telephone number)
Not Applicable
--------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer: (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes X No
--- ---
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date:
On May 8, 1996, 559,328 shares of the issuer's common stock, par value
$.10 per share, were issued and outstanding.
Transitional Small Business Disclosure Format (check one):
Yes No X
--- ---
<PAGE> 2
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
EASTON BANCORP, INC.
BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
---- ----
<S> <C> <C>
ASSETS
Cash and due from banks $ 764,400 $ 991,301
Federal funds sold 9,213,150 4,500,000
Investment securities held-to-maturity (market
value of $497,370 and $496,113, respectively) 500,000 500,000
Loans, less allowance for credit losses of
$263,000 and $260,000, respectively 23,566,699 24,237,775
Premises and equipment, net 1,687,048 1,597,478
Intangible assets, net 105,669 137,844
Accrued interest receivable 147,838 156,483
Other assets 49,111 37,270
----------- -----------
Total assets $36,033,915 $32,158,151
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing $ 1,293,320 $ 1,493,690
Interest-bearing 30,760,513 26,744,305
----------- -----------
Total deposits 32,053,833 28,237,995
Accrued interest payable 106,723 101,109
Securities sold under agreements to repurchase 306,599 277,363
Other liabilities 10,406 10,007
----------- -----------
Total liabilities 32,477,561 28,626,474
----------- -----------
Stockholders' equity
Common stock, par value $.10 per share;
authorized 5,000,000 shares, 559,328
issued and outstanding 55,933 55,933
Additional paid-in-capital 5,217,686 5,217,686
Retained earnings (deficit) (1,717,265) (1,741,942)
----------- -----------
Total stockholders' equity 3,556,354 3,531,677
----------- -----------
Total liabilities and stockholders' equity $36,033,915 $32,158,151
=========== ===========
</TABLE>
See accompanying notes to financial statements.
1
<PAGE> 3
EASTON BANCORP, INC.
STATEMENTS OF INCOME (LOSS)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------
1996 1995
---- ----
<S> <C> <C>
Interest revenue
Loans, including fees $558,695 $431,536
Investment securities 6,469 6,367
Federal funds sold 85,838 17,726
-------- --------
Total interest revenue 651,002 455,629
Interest expense 365,960 216,223
-------- --------
Net interest income 285,042 239,406
Provision for loan losses 3,799 27,654
-------- --------
Net interest income after
provision for loan losses 281,243 211,752
-------- --------
Other operating revenue 22,974 23,868
-------- --------
Other expenses
Salaries and benefits 154,238 154,709
Occupancy 19,259 16,555
Furniture and equipment 21,704 21,188
Other operating 84,339 122,325
-------- --------
Total operating expenses 279,540 314,777
-------- --------
Net income (loss) before income taxes 24,677 (79,157)
Income taxes - -
-------- --------
Net income (loss) $ 24,677 ($79,157)
======== ========
Earnings (loss) per common share $ 0.04 $ (0.14)
======== ========
Weighted average common and common
equivalent shares outstanding 595,320 559,328
======== ========
Earnings (loss) per common share fully diluted $ 0.04 $ (0.14)
======== ========
Weighted average fully diluted shares outstanding 598,519 559,328
======== ========
</TABLE>
See accompanying notes to financial statements.
2
<PAGE> 4
EASTON BANCORP, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------
1996 1995
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Interest received $ 656,075 $ 450,811
Other revenue received 22,974 24,310
Cash paid for operating expenses (234,466) (284,552)
Interest paid (360,346) (204,421)
---------- -----------
84,237 (13,852)
---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid for premises and equipment (3,832) (500)
Net loans to customers 665,116 (3,785,162)
Loan participations purchased (104,346) -
Loan participations sold - 897,750
---------- -----------
556,938 (2,887,912)
---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in customer deposits 3,845,074 2,390,936
---------- -----------
NET INCREASE (DECREASE) IN CASH 4,486,249 (510,828)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 5,491,301 3,177,753
---------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $9,977,550 $ 2,666,925
========== ===========
RECONCILIATION OF NET LOSS TO NET CASH USED IN
OPERATING ACTIVITIES
Net income (loss) $ 24,677 $ (79,157)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 24,341 37,933
Provision for loan losses 3,799 27,654
Decrease (increase) in accrued interest receivable
and other assets 8,645 (16,358)
Increase in operating accounts payable and other
liabilities 26,347 12,728
Deferred loan origination fees (3,572) 3,348
---------- -----------
$ 84,237 $ (13,852)
========== ===========
Noncash activity:
Other real estate acquired through foreclosure $ 110,079 $ -
========== ===========
</TABLE>
See accompanying notes to financial statements.
3
<PAGE> 5
NOTES TO FINANCIAL STATEMENTS:
1. Basis of Presentation
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-QSB and Item
310(b) of Regulation S-B of the Securities and Exchange Commission.
Accordingly, they do not include all the information and footnotes required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included. For
further information, refer to the financial statements and footnotes thereto
for the fiscal period ended December 31, 1995, included in the Company's Form
10-KSB.
2. Cash Flows
For purposes of reporting cash flows, cash and cash equivalents
include cash on hand, unrestricted amounts due from banks, overnight
investments in repurchase agreements, and federal funds sold.
4
<PAGE> 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Easton Bancorp, Inc. (the "Company") was incorporated in Maryland on
July 19, 1991, primarily to own and control all of the capital stock of Easton
Bank & Trust Company (the "Bank") upon its formation. The Bank commenced
business on July 1, 1993, and the only activity of the Company since then has
been the ownership and operation of the Bank. The Bank conducts a general
commercial banking business in its service area, emphasizing the banking needs
of individuals and small- to medium-sized businesses and professional concerns.
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the Company's
financial statements and related notes and other statistical information
included elsewhere herein.
Results of Operations
Net income for the Company for the three months ended March 31, 1996,
was $24,677, compared to a loss of $79,157 during the corresponding period of
1995. This increase in earnings can be attributed primarily to the increase in
net interest income, the reduction in the provision for loan losses, and the
reduction in other operating expenses. The increase in net interest income is
primarily the result of the increase in the Bank's loan portfolio from
$20,635,597 at March 31, 1995, to $23,566,699 at March 31, 1996.
The Bank's provision for loan losses was $3,799 for the quarter ended
March 31, 1996, compared to $27,654 for the quarter ended March 31, 1995. The
allowance for loan losses was $263,000 at March 31, 1996, or 1.10% of total
loans, compared to $260,000 at December 31, 1995, or 1.06% of total loans. The
level of the allowance for loan losses represents management's current estimate
of future losses in the loan portfolio; however, there can be no assurance that
loan losses in future periods will not exceed the allowance for loan losses or
that additional increases in the allowance will not be required.
Noninterest expense decreased $35,237, or 11.2%, to $279,540 for the
quarter ended March 31, 1996, from $314,777 for the quarter ended March 31,
1995. The decrease was primarily related to the decrease in other operating
expenses of $37,986. This decrease in other operating expenses was primarily
due to a $10,124 decline in the premium rate paid by the Bank to the Federal
Deposit Insurance Corporation (the "FDIC") for deposit insurance. In mid-1995,
the FDIC reduced the deposit insurance rates for most banks to zero as a result
of the Bank Insurance Fund reaching its legally mandated reserve ratio. The
FDIC can raise the deposit insurance rates at any time. Any increase in the
deposit insurance rates for the Bank will increase the Bank's cost of funds,
and there can be no assurance that such cost could be passed on to the Bank's
customers. Advertising and legal expenses also declined, dropping $11,239 and
$10,832, respectively.
Return on average assets and average equity, on an annualized basis,
for the quarter ended March 31, 1996, were .31% and 2.81%, respectively,
compared to (1.21)% and (7.41)%, respectively, for the same quarter of 1995.
Earnings per share on a fully diluted basis for the quarters ended March 31,
1996, and March 31, 1995, amounted to $0.04 and $(0.14), respectively.
The Company's assets ended the first quarter of 1996 at $36.0 million,
an increase of 10.8% from $32.2 million at December 31, 1995. This increase
can be attributed primarily to the increase in the Bank's deposits which
resulted in the $4.7 million increase in federal funds sold, offset by the
$671,076 decrease in loans. Total deposits ended the quarter at $32.1 million,
up 11.9% from $28.2
5
<PAGE> 7
million at December 31, 1995. At March 31, 1996, the Company's loan to deposit
ratio was 74.3%, compared to 86.8% at December 31, 1995.
The Company has adopted Statement of Financial Accounting Standards
115 ("SFAS 115") issued by the Financial Accounting Standards Board which
provides for the classification of investment securities into the following
three categories: trading, available-for-sale and held-to-maturity.
Securities that an enterprise has the intent and ability to hold until maturity
are classified as held-to-maturity and reported at amortized cost. Trading
securities and available-for-sale securities are reported at market value with
unrealized gains and losses on trading securities reported in income and
unrealized gains and losses on available-for-sale securities reported as a net
amount in a separate component of shareholders' equity until realized. At
March 31, 1996, the Company held $500,000 in securities classified
held-to-maturity and no securities classified trading or available-for-sale.
Management expects that its 1996 income will exceed expenses. The net
income of $24,677 for the quarter ended March 31, 1996, is the largest profit
shown for any quarter since the Bank opened in July 1993. The growth of loans
and deposits and the associated increase in net interest income are the primary
reasons for the increased income. Although management expects that the
Company's current profitably will continue, future events, such as an
unanticipated deterioration in the loan portfolio, could reverse this trend.
Management's expectations are based on management's best judgement and actual
results will depend on a number of factors that cannot be predicted with
certainty and thus fulfillment of management's expectations cannot be assured.
Liquidity and Sources of Capital
The $3.8 million increase in deposits from December 31, 1995, to March
31, 1996, is primarily reflected in the $4.7 million increase in federal funds
sold, offset by the $671,076 decrease in loans. The Company's primary source
of liquidity is cash on hand plus short-term investments. At March 31, 1996,
the Company's liquid assets totaled $10,477,550, or 29.1% of total assets,
compared to $5,991,301, or 18.6% of total assets, at December 31, 1995. The
Company has a $1,000,000 line of credit, secured by investment securities of
the Bank, from a correspondent bank for future liquidity. If additional
liquidity is needed, the Bank will sell participations in its loans.
The capital of the Company and the Bank exceeded all prescribed
regulatory capital guidelines at March 31, 1996. At March 31, 1996, the Tier 1
leverage ratio for the Bank was 10.01%. At March 31, 1996, the Bank had a
risk- weighted total capital ratio of 15.89%, and a Tier 1 risk-weighted
capital ratio of 14.64%. The Company expects that its current capital and
short-term investments will satisfy the Company's cash requirements for the
foreseeable future. However, no assurance can be given in this regard as rapid
growth, deterioration in the loan quality or poor earnings, or a combination of
these factors, could change the Company's capital position in a relatively
short period of time.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
There are no material pending legal proceedings to which the Company
or the Bank is a party or of which any of their property is the subject.
6
<PAGE> 8
ITEM 2. CHANGES IN SECURITIES.
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted to security holders for a vote during
the quarter ended March 31, 1996.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
3.1 Articles of Incorporation of the Company
(incorporated by reference to Exhibit 3.1 of
Registration Statement on Form S-18, File No.
33-43317).
3.2 Bylaws of the Company (incorporated by reference to
Exhibit 3.2 of Registration Statement on Form S-18,
File No. 33-43317).
10.1 Employment Agreement dated July 22, 1991, between
the Company and Thomas P. McDavid (incorporated by
reference to Exhibit 10.1 of Registration Statement
on Form S-18, File No. 33-43317).
10.2 Easton Bancorp, Inc. 1991 Stock Option Plan
(incorporated by reference to Exhibit 10.2 of
Registration Statement on Form S-18, File No.
33-43317).
10.3 Form of Warrant Agreement (incorporated by reference
to Exhibit 10.3 of Registration Statement on Form
S-18, File No. 33-43317).
11.1 Computation of Earnings Per Share.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K.
There were no reports on Form 8-K filed by the Company during
the quarter ended March 31, 1996.
7
<PAGE> 9
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
EASTON BANCORP, INC.
--------------------------------------
(Registrant)
Date: May 15, 1996 By: /s/ Thomas P. McDavid
------------------- --------------------------------------
Thomas P. McDavid
President
Date: May 15, 1996 By: /s/ Pamela A. Mussenden
------------------ --------------------------------------
Pamela A. Mussenden
Assistant Treasurer
(Principal Financial Officer)
8
<PAGE> 10
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Sequential
Number Description Page Number
- - ------ ----------- -----------
<S> <C>
3.1 Articles of Incorporation of the Company (incorporated by reference to Exhibit 3.1 of
Registration Statement on Form S-18, File No. 33-43317).
3.2 Bylaws of the Company (incorporated by reference to Exhibit 3.2 of Registration
Statement on Form S-18, File No. 33-43317).
10.1 Employment Agreement dated July 22, 1991, between the Company and Thomas P. McDavid
(incorporated by reference to Exhibit 10.1 of Registration Statement on Form S-18,
File No. 33-43317).
10.2 Easton Bancorp, Inc. 1991 Stock Option Plan (incorporated by reference to Exhibit 10.2
of Registration Statement on Form S-18, File No. 33-43317).
10.3 Form of Warrant Agreement (incorporated by reference to Exhibit 10.3 of Registration
Statement on Form S-18, File No. 33-43317).
11.1 Computation of Earnings Per Share.
27.1 Financial Data Schedule.
</TABLE>
<PAGE> 1
EXHIBIT 11.1
EASTON BANCORP, INC.
COMPUTATION OF EARNINGS PER SHARE
QUARTER ENDED MARCH 31, 1996
<TABLE>
<S> <C>
Net income $ 24,677
==========
Average shares outstanding 559,328
Dilutive average shares outstanding under warrants 195,955
Exercise price $ 10.00
Assumed proceeds on exercise $1,959,550
Average market value $ 12.25
Less: Treasury stock purchased with assumed proceeds from
exercise of warrants 159,963
Adjusted average shares-Primary 595,320
Primary earnings per share $ 0.0415
==========
Average shares outstanding 559,328
Dilutive average shares outstanding under warrants 195,955
Exercise price $ 10.00
Assumed proceeds on exercise $1,959,550
Ending market value $ 12.50
Less: Treasury stock purchased with assumed proceeds from
exercise of warrants 156,764
Adjusted average shares-Fully diluted 598,519
Fully diluted earnings per share $ 0.0412
==========
</TABLE>
The stock of the Company is not traded on any public exchange. The
average and ending market values are derived from trades known to management.
Private sales may occur where management of the Company is unaware of the sales
price.
1
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 764,400
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 9,213,150
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 500,000
<INVESTMENTS-MARKET> 497,370
<LOANS> 23,566,699
<ALLOWANCE> 263,000
<TOTAL-ASSETS> 36,033,915
<DEPOSITS> 32,053,833
<SHORT-TERM> 306,599
<LIABILITIES-OTHER> 117,129
<LONG-TERM> 0
0
0
<COMMON> 55,933
<OTHER-SE> 3,500,421
<TOTAL-LIABILITIES-AND-EQUITY> 36,033,915
<INTEREST-LOAN> 558,695
<INTEREST-INVEST> 6,469
<INTEREST-OTHER> 85,838
<INTEREST-TOTAL> 651,002
<INTEREST-DEPOSIT> 365,960
<INTEREST-EXPENSE> 365,960
<INTEREST-INCOME-NET> 285,042
<LOAN-LOSSES> 3,799
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 279,540
<INCOME-PRETAX> 24,677
<INCOME-PRE-EXTRAORDINARY> 24,677
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 24,677
<EPS-PRIMARY> 0.04
<EPS-DILUTED> 0.04
<YIELD-ACTUAL> 3.70
<LOANS-NON> 100,000
<LOANS-PAST> 51,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 260,000
<CHARGE-OFFS> 3,398
<RECOVERIES> 2,599
<ALLOWANCE-CLOSE> 263,000
<ALLOWANCE-DOMESTIC> 263,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
