UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[ X ] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 2000.
Commission file number 0-18543
CHESAPEAKE FINANCIAL SHARES, INC.
---------------------------------
Virginia 54-1210845
-------- ----------
(State or other jurisdiction of (I.R.S Employer
incorporation or organization) Identification No.)
19 N. Main St., Kilmarnock, VA 22482
------------------------------ ------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (804)435-1181
Securities registered pursuant to Section 12(b) of the Exchange Act: None
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock ($5.00 par value)
------------------------------
(Title of Class)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities 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 _____
-----
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
Issuer's Revenues for its most recent fiscal year: $20,807,201.
As of March 1, 2001 the aggregate market value of Common Stock of Chesapeake
Financial Shares, Inc. held by nonaffiliates was approximately $9,953,560 based
upon the average sales price per share known to management during January and
February 2001.
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of March 1, 2000.
Class Outstanding at March 1, 2001
----- ----------------------------
Common Stock, $5.00 par value 1,233,701
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Shareholders for the year ended December
31, 2000 are incorporated into Part II, Items 5 through 7 of this Form 10-KSB.
Portions of the definitive proxy statement for the 2001 Annual Meeting of
Stockholders are incorporated into Part III, Items 9 through 12 of this Form 10-
KSB.
Transitional Small Business Disclosure Format Yes ____ No X
----
CHESAPEAKE FINANCIAL SHARES, INC.
FORM 10-KSB
INDEX
-----
PART I
Page
----
Item 1. Description of Business......................................................... 1
Statistical Information......................................................... 11-22
Item 2. Description of Property......................................................... 23
Item 3. Legal Proceedings............................................................... 23
Item 4. Submission of Matters to a Vote of Security Holders............................. 23
PART II
Item 5. Market for Common Equity and Related Stockholder
Matters.................................................................... 24
Item 6. Management's Discussion and Analysis or Plan of
Operation.................................................................. 24
Item 7. Financial Statements............................................................ 24
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure........................................ 24
PART III
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the
Exchange Act............................................................... 24
Item 10. Executive Compensation.......................................................... 24
Item 11. Security Ownership of Certain Beneficial Owners and
Management................................................................. 24
Item 12. Certain Relationships and Related Transactions.................................. 24
Item 13. Exhibits and Reports on Form 8-K................................................ 25
Signatures ................................................................................ 26
PART I
------
Item 1. Description of Business
-------------------------------
The Company
Chesapeake Financial Shares, Inc. (the "Company") is an independent,
community owned financial holding company based in Kilmarnock, Virginia. The
Company was incorporated under the laws of the Commonwealth of Virginia in 1982
in connection with the reorganization of Chesapeake Bank (the "Bank", organized
in 1900) into a one-bank holding company structure. The Company conducts
substantially all of its business activities through its wholly-owned
subsidiary-the Bank. The Company also operates Chesapeake Investment Group, Inc.
and its subsidiaries Chesapeake Financial Group, Inc., Chesapeake Insurance
Agency, Inc., d/b/a Chesapeake Investment Services, and Chesapeake Trust
Company.
On December 31, 2000, the Company and its subsidiaries had 109 full-time
equivalent employees.
The Bank
The Bank is a full-service commercial bank incorporated under the laws of
the Commonwealth of Virginia and traces its origins back to 1900. The current
Bank was formed by the merger on April 27, 1968 of Chesapeake Banking Company,
headquartered in Lively, Virginia, and Lancaster National Bank, headquartered in
Irvington, Virginia. Lancaster National Bank was originally chartered on April
14, 1900, and Chesapeake Banking Company was organized on October 15, 1920. The
Bank (formerly Chesapeake National Bank) converted from a national to a state
chartered bank on June 27,1995.
The Bank has grown to provide a full range of banking and related financial
services, including checking, savings, certificates of deposit and other
depository services, commercial, residential real estate and consumer loan
services, safekeeping services and trust and estate services. Other products
include Touch Tone Teller,24 hour access services, and annuity and brokerage
services. In February 2000 the Bank introduced its internet banking product,
which includes a bill paying service. Check imaging was successfully implemented
during the summer of 2000 as well as a new loan documentation preparation
software. The Bank is a member of the Federal Reserve System and its deposits
are insured by the Bank Insurance Fund of the Federal Deposit Insurance
Corporation.
Total assets have increased 13.6%, 8.6%, and 10.9% for each of the years
ended December 31, 2000, 1999 and 1998, respectively, over prior years. At
December 31, 2000, total loans, net of reserves, amounted to $156.3 million, a
19.7% increase from $130.6 million in total loans at December 31, 1999, which
was a 19.4% increase from the previous year-end total of $109.4 million at
December 31, 1998. Growth in total deposits has followed a similar pattern with
increases of 11.0%, 6.2%, and 11.6% during 2000, 1999 and 1998, respectively,
over prior years.
The Bank operates nine banking offices and thirteen ATMs. The Bank's
existing market area covers most of the area north of the Rappahannock River and
south of the Potomac River known as the "Northern Neck", the area bounded on the
south by the York River and on the north by the Rappahannock River, known as the
"Middle Peninsula", and the Williamsburg area north of the James River. The Bank
expanded its market area to the James City County/Williamsburg area in May 1995.
The Bank's current market area is largely rural. The principal business
activities in the area are related to small commercial enterprises and
residential real estate activities, each of which have benefited from the area's
popularity as a retirement and summer home location. The recent population
growth of the York County - James City County/Williamsburg - Hampton triangle
has provided additional commercial and residential business activity, which has
diversified and expanded traditional revenue sources.
With the exception of the Bank's Rappahannock Westminster Canterbury Office
(the "RWC Office"), the Gloucester Winn-Dixie Office, and the Five
Forks/Williamsburg Office, the Bank's Main Office and branch offices are held in
fee, free of any encumbrances. The RWC Office is leased under an agreement that
expires May 31, 2005. The Gloucester branch occupies facilities rented from
Winn-Dixie Raleigh. The second term on the Gloucester lease expires in October
of 2004 and has one five year renewal. The Five Forks/Williamsburg Office lease
expires December 31, 2005.
The Bank's branch offices are located as follows:
Gloucester Winn-Dixie Office Hayes Office Lively Office
6569 Market Drive 3140 George Washington Route 3 & 201
The Shoppes at Gloucester Memorial Highway Lively
Gloucester Hayes Shopping Center
Hayes
Rappahannock Westminster Kilmarnock Office Mathews Office
Canterbury Office 97 North Main Street Route 14 & 198
10 Lancaster Drive Kilmarnock Mathews Courthouse
Irvington Mathews
Irvington Office Five Forks Office Lafayette Street
King Carter Drive & 4492 John Tyler Highway Financial Center
Tavern Road Williamsburg 1229 Lafayette Street
Irvington Williamsburg
The Company acquired a 2.647 acre commercial property (formerly the
Colonial Store complex) on School Street in Kilmarnock on January 2, 1998. The
long term debt is secured by this property. The building is approximately 27,000
square feet. Approximately half of the space is rented to two tenants, Advance
Auto and deMedici's Fine Italian Restaurante. The remaining space is being used
by the Company's Administrative Support, Operations, and Loan Processing Center.
The space at 19 N. Main Street is leased under an agreement that expires on
April 1, 2002 and has a five year renewal.
The Investment Companies
Chesapeake Financial Group, Inc. ("CFG") was incorporated August 31, 1998
and opened for business at the end of 1998. CFG has established unique
partnerships with premier investment managers to offer superior portfolio
management coupled with highly customized service to high net worth individuals
and institutions.
Chesapeake Insurance Agency, Inc., d/b/a Chesapeake Investment Services
("CIS") offers annuity products (fixed and variable), mutual funds and discount
brokerage products. The Company chartered two additional companies during 2000,
Chesapeake Investment Group, Inc. ("CIG") and Chesapeake Trust Company, Inc.
("CTC"). While both companies were inactive at year end, they are part of a
corporate restructuring that was completed during first quarter of 2001. CIG is
now a wholly owned subsidiary of CFS. CTC has become a wholly owned subsidiary
of CIG, as have CIS and CFG. The Bank has transferred the Trust Department's
business to CIG.
The primary motivation for this change is to present the Company's
financial services to its clients and potential clients in order to enhance the
Company's investment services products and give its customers the attention and
expertise they require.
The Mortgage Company
Chesapeake Mortgage Company, Inc. (the "Mortgage Company"), which is a
wholly-owned subsidiary of the Company, is currently inactive.
See "Lending Activities" below for further information on the mortgage
lending services offered by the Bank.
Other Entities
CNB Properties, Inc., a wholly owned subsidiary of the Bank, was formed
September 23, 1991, to provide a corporate vehicle to buy and hold properties
(such as foreclosures) on a temporary basis.
Lending Activities
The Company provides a wide range of commercial, real estate, and consumer
loan services through the Bank.
Real Estate Lending. The Bank's second largest loan category is its real
estate loan portfolio (both mortgage and construction lending), which amounted
to $47.1 million at December 31, 2000, or 29.7% of the Bank's total loan
portfolio. The Bank offers permanent fixed and adjustable rate first mortgage
loans on one-to-four family residential properties. Most of the long-term fixed
rate mortgages and the adjustable rate mortgages are underwritten and documented
in accordance with the guidelines of the Federal Home Loan Mortgage Corporation
and are sold in the secondary market within fifteen to sixty days after the loan
closing date.
The Bank emphasizes the origination of adjustable rate mortgages in order
to increase the proportion of the Company's total loan portfolio with more
frequent repricing. At December 31, 2000, 45.9% of the mortgage portfolio was
subject to repricing or maturing within twelve months.
The relative customer demand for adjustable-rate and fixed-rate residential
mortgage loans has varied considerably, depending on such factors as the level
of interest rates and expectations regarding future interest rates and the
supply of new housing units placed on the market in the Company's trade area. As
part of its residential lending program, the Bank offers construction loans with
80% loan-to-value ratios to qualified builders and individuals. Construction
loans generally have terms of up to twelve months, with interest rates generally
as fixed commitments. Loan proceeds are disbursed in increments as construction
progresses and as inspections warrant. In addition to builders' projects, the
Bank finances the construction of individual, owner-occupied houses where
qualified contractors are involved. Construction loans are structured either to
be converted to permanent loans at the end of the construction phase or to be
paid off upon receiving financing from another financial institution.
Construction loans afford the Bank the opportunity to charge higher loan
origination fees, to increase the frequency of repricing of its loan portfolio
and to earn yields higher than those obtainable on adjustable-rate loans secured
by existing one - to - four family residential properties. These higher yields
reflect the higher risks associated with construction lending, principally the
difficulty in evaluating accurately the total funds required to complete a
project and the post-completion value of the project. As a result, the Bank
places a strong emphasis upon the borrower's ability to repay principal and
interest.
Consumer Lending. As the competitive and regulatory environments have
changed, the Company has sought to expand its retail banking services to
complement the range of traditional consumer services already offered. The Bank
has maintained its emphasis on consumer loans (an 18.5% increase in 2000 over
1999 and a 25.5% increase in 1999 over 1998) because of their attractive yields
and repricing characteristics. The Bank currently originates a variety of
consumer loans, including lines of credit secured by owner-occupied real estate,
real estate equity loans, boat loans, loans secured by deposits, unsecured loans
and automobile loans. The Bank's consumer loan portfolio was approximately $31.8
million at December 31, 2000, or 20.1% of its total loan portfolio.
Consumer loans generally are considered to entail greater risk than
residential mortgage loans secured by first liens on owner-occupied properties.
The Bank's underwriting and screening processes have been designed to reduce
this risk and have, to date, limited the Bank's consumer delinquency rate to
levels below industry averages. At December 31, 2000, only 0.51% of the Bank's
consumer loan portfolio was 30 days or more delinquent.
Commercial Lending. Commercial lending activities to the Bank's commercial,
industrial, agricultural, and governmental customers include the making of
asset-based and other secured loans, making unsecured loans, and offering demand
and term loans. Management believes commercial loans offer the potential for
better yields and repricing characteristics than most other types of loans. At
December 31, 2000, the Bank's commercial loan portfolio amounted to $76.3
million, or 48.1% of its total loan portfolio. See Note 3 to the consolidated
financial statements included in the Company's 2000 Annual Report to
Shareholders (the "Annual Report") in Exhibit 13 to this report and incorporated
by reference in this report for a breakdown of the major loan classifications.
Of the $76.3 million of commercial loans at December 31, 2000, 56.2% of such
loans either matured or were subject to repricing within one year. (also see
Table 4 at page 18).
Unlike residential mortgage loans, which generally are made on the basis of
the borrower's ability to make repayment from his employment and other income,
commercial loans generally involve more risk. Commercial loans typically are
made on the basis of the borrower's ability to make repayment from the cash flow
of its business and are generally secured by business assets, such as accounts
receivable, equipment, and inventory. As a result, the availability of funds for
the repayment of commercial loans may be substantially dependent on the success
of the business itself. At December 31, 2000, 95.2% of the commercial loans were
secured by some form of collateral and 0.98% of the Bank's commercial loan
portfolio was 30 days or more delinquent. See Table 6 at page 20 showing the
amount of commercial loans charged off during 2000 and 1999.
The Company has adopted Financial Accounting Standards Board ("FASB")
Statement No. 114, "Accounting by Creditors for Impairment of a Loan". This
statement has been amended by FASB Statement No. 118, "Accounting by Creditors
for Impairment of a Loan-Income Recognition and Disclosures". FASB Statement No.
114, as amended, requires that the impairment of loans that have been separately
identified for evaluation is to be measured based on present value of expected
future cash flows or, alternatively, the observable market price of the loans or
the fair value of the collateral. However, for those loans that are collateral
dependent (that is, if repayment of those loans is expected to be provided
solely by the underlying collateral) and for which management has determined
foreclosure is probable, the measure of impairment of those loans is to be based
on the fair value of the collateral. FASB Statement No. 114, as amended also
requires certain disclosures about investments in impaired loans and the
allowance for credit losses and interest income recognized on loans.
The Company considers all consumer installment loans and residential
mortgage loans to be homogeneous loans. These loans are not subject to
impairment under FASB Statement No. 114. A loan is considered impaired when it
is probable that the Company will be unable to collect all principal and
interest amounts according to the contractual terms of the loan agreement.
Factors involved in determining impairment include, but are not limited to,
expected future cash flows, financial condition of the borrower, and the current
economic conditions. A performing loan may be considered impaired, if the
factors above indicate a need for impairment. A loan on nonaccrual status may
not be considered impaired, if it is in the process of collection or there is an
insignificant shortfall in payment. An insignificant delay of less than 30 days
or a shortfall of 5% of the required principal and interest payment generally
does not indicate an impairment situation, if in management's judgment the loan
will be paid in full. Loans that meet the regulatory definitions of doubtful or
loss generally qualify as impaired loans under FASB Statement No. 114.
Charge-offs for impaired loans occur when the loan, or portion of the loan is
determined to be uncollectible, as is the case for all loans. The Company had no
loans subject to FASB Statement No. 114 at December 31, 2000, 1999, and 1998.
Long-Term Debt
See Note 5 to the consolidated financial statements included in the Annual
Report for information concerning term loan agreements of the Company.
Competition
The Bank is subject to intense competition from various financial
institutions and other companies or firms that offer financial services. In its
market area, the Bank is and will be competing with several national and
regional banking institutions, including First Virginia Bank, Wachovia Bank,
SunTrust Bank, Bank of America, and First Union. The Bank competes for deposits
with other commercial banks, savings and loan associations, credit unions and
with issuers of commercial paper and securities, such as money market and mutual
funds. In making loans, the Bank competes with other commercial banks, savings
and loan associations, consumer finance companies, credit unions, leasing
companies and other lenders. Federal and state law changes in recent years have
significantly increased competition among financial institutions, and current
trends towards further deregulation may be expected to increase such competition
even further. Many of the financial organizations in competition with the
Company have greater financial resources than the Company and are able to offer
similar services at varying costs with greater loan capacities.
Supervision and Regulation
General. As a bank holding company and, effective December 7, 2000, a
financial holding company under the Gramm-Leach-Bliley Act of 1999, the Company
is subject to regulation under the Bank Holding Company Act of 1956, as amended
(the "BHCA") and the examination and reporting requirements of the Board of
Governors of the Federal Reserve System (the "Federal Reserve Board"). As a
state-chartered commercial bank, the Bank is subject to regulation, supervision
and examination by the State Corporation Commission of Virginia (the "SCC"). The
Company also is registered under the bank holding company laws of Virginia and,
accordingly, the Company is subject to regulation and supervision by the SCC.
The following description summarizes the significant state and Federal laws
to which the Company and the Bank are subject. To the extent statutory or
regulatory provisions or proposals are described, the description is qualified
in its entirety by reference to the particular statutory or regulatory
provisions or proposals.
The Gramm-Leach-Bliley Act of 1999. The Gramm-Leach-Bliley Act of 1999 (the
"GLB Act" or the "Act"), signed into law on November 12, 1999, amended a number
of Federal banking laws that affect the Company and the Bank, and the provisions
of the Act that are believed to be of most significance to the Company are
discussed below. In particular, the GLB Act permits a bank holding company to
elect to become a financial holding company. In order to become and maintain its
status as a financial holding company, the bank holding company and all of its
affiliated depository institutions must be well-capitalized, well-managed, and
have at least a satisfactory Community Reinvestment Act rating. The Company
filed an election and on December 7, 2000, became a financial holding company.
Under the BHCA, a bank holding company, including a financial holding
company, may not directly or indirectly acquire ownership or control of more
than 5% of the voting shares or substantially all of the assets of any bank or
merge or consolidate with another bank holding company without the prior
approval of the Federal Reserve Board. The BHCA, as amended by the GLB Act, now
generally limits the activities of a bank holding company that is a financial
holding company to that of banking, managing or controlling banks; performing
certain servicing activities for subsidiaries; and engaging in any activity, or
acquiring and retaining the shares of any company engaged in any activity, that
is either (1) financial in nature or incidental to such financial activity, as
determined by the Federal Reserve Board in consultation with the Secretary of
the Treasury; or (2) complementary to a financial activity and does not pose a
substantial risk to the safety and soundness of depository institutions or the
financial system generally, as determined by the Federal Reserve Board.
Activities that are "financial in nature" include those activities that the
Federal Reserve Board had determined, by order or regulation in effect prior to
enactment of the GLB Act, to be so closely related to banking or managing or
controlling banks as to be a proper incident thereto.
The GLB Act covers a broad range of issues, including a repeal of most of
the restrictions on affiliations among depository institutions, securities firms
and insurance companies. In particular, the GLB Act repeals sections 20 and 32
of the Glass-Stegall Act, thus permitting unrestricted affiliations between
banks and securities firms. The Act also provides that, while the states
continue to have the authority to regulate insurance activities, in most
instances they are prohibited from preventing or significantly interfering with
the ability of a bank, directly or through an affiliate, to engage in insurance
sales, solicitations or cross-marketing activities. A financial holding company,
therefore, may engage in or acquire companies that engage in a broad range of
financial services, including securities activities such as underwriting,
dealing, brokerage, investment and merchant banking; and insurance underwriting,
sales and brokerage activities. Although the states generally must regulate bank
insurance activities in a nondiscriminatory manner, the states may continue to
adopt and enforce rules that specifically regulate bank insurance activities in
certain areas identified in the Act. The Act directs the Federal bank regulatory
agencies to adopt insurance consumer protection regulations that apply to sales
practices, solicitations, advertising and disclosures, and such regulations have
been adopted and will become effective April 1, 2001.
The GLB Act includes a system of functional regulation under which the
Federal Reserve Board is confirmed as the umbrella regulator for bank holding
companies, but bank holding company affiliates are to be principally regulated
by functional regulators such as the FDIC for state nonmember bank affiliates,
the Securities and Exchange Commission for securities affiliates and state
insurance regulators for insurance affiliates. The Act repealed the broad
exemption of banks from the definitions of "broker" and "dealer" for purposes
of the Securities Exchange Act of 1934, but identifies a set of specific
activities, including traditional bank trust and fiduciary activities, in which
a bank may engage without being deemed a "broker", and a set of activities in
which a bank may engage without being deemed a "dealer". The Act also makes
conforming changes in the definitions of "broker" and "dealer" for purposes of
the Investment Company Act of 1940 and the Investment Advisers Act of 1940.
The GLB Act contains extensive customer privacy protection provisions.
Under these provisions, a financial institution must provide to its customers,
at the inception of the customer relationship and annually thereafter, the
institution's policies and procedures regarding the handling of customers'
nonpublic personal financial information. The Act provides that, except for
certain limited exceptions, an institution may not provide such personal
information to unaffiliated third parties unless the institution discloses to
the customer that such information may be so provided and the customer is given
the opportunity to opt out of such disclosure. An institution may not disclose
to an unaffiliated third party, other than to a consumer reporting agency,
customer account numbers or other similar account identifiers for marketing
purposes. The Act also provides that the states may adopt customer privacy
protections that are more strict than those contained in the Act. The Act also
makes it a criminal offense, except in limited circumstances, to obtain or
attempt to obtain customer information of a financial nature by fraudulent or
deceptive means. The Act also contains requirements for the posting of notices
by operators of automated teller machines regarding fees charged for the use of
such machines.
Many of the GLB Act's provisions, including the customer privacy protection
provisions, require the Federal bank regulatory agencies and other regulatory
bodies to adopt regulations to implement those respective provisions. Most of
the required implementing regulations have been proposed and/or adopted by the
bank regulatory agencies as of December 31, 2000. Neither the provisions of the
GLB Act nor the Act's implementing regulations as proposed or adopted have had a
material impact on the Company's or the Bank's' regulatory capital ratios (as
discussed below) or ability to continue to operate in a safe and sound manner.
Interstate Banking. The Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 authorizes the Federal Reserve Board to permit adequately
capitalized and adequately managed bank holding companies to acquire all or
substantially all of the assets of an out-of-state bank or bank holding company,
subject to certain conditions, including nationwide and state concentration
limits. Effective June 1, 1997, banks also are able to branch across state lines
(unless state law would permit such interstate branching at an earlier date),
provided certain conditions are met, including that applicable state law must
expressly permit such interstate branching. Virginia has adopted legislation
that permits branching across state lines effective July 1, 1995, provided there
is reciprocity with the state in which the out-of-state bank is based.
Capital Requirements. The Federal Reserve Board, the Office of the
Comptroller of the Currency and the FDIC have issued substantially similar
risk-based and leverage capital guidelines applicable to United States banking
organizations. In addition, those regulatory agencies may from time to time
require that banking organizations maintain capital above the minimum levels
because of its financial condition or actual or anticipated growth. Under the
risk-based capital requirements of these federal bank regulatory agencies, the
Company and the Bank are required to maintain a minimum ratio of total capital
to risk-weighted assets of at least 8%. At least, half of the total capital is
required to be "Tier 1 capital", which consists principally of common and
certain qualifying preferred shareholders' equity, less certain intangibles and
other adjustments. The remainder ("Tier 2 capital") consists of a limited amount
of subordinated and other qualifying debt (including certain hybrid capital
instruments) and a limited amount of the general loan loss allowance. The Tier 1
and total capital to risk-weighted asset ratios of the Company as of December
31, 2000 were 9.8% and 11.0%, respectively, exceeding the minimums required.
In addition, each of the federal regulatory agencies has established a
minimum leverage capital ratio (Tier 1 capital to average tangible assets).
These guidelines provide for a minimum ratio of 3% for banks and bank holding
companies that meet certain specified criteria, including that they have the
highest regulatory examination rating and are not contemplating significant
growth or expansion. All other institutions are expected to maintain a leverage
ratio of at least 100 to 200 basis points above the minimum. The leverage ratio
of the Company as of December 31, 2000, was 8.1%, which is above the minimum
requirements. The guidelines also provide that banking organizations
experiencing internal growth or making acquisitions will be expected to maintain
strong capital positions substantially above the minimum supervisory levels,
without significant reliance on intangible assets.
Limits on Dividends and Other Payments. The Company is a legal entity
separate and distinct from its subsidiary institutions. Substantially all of the
revenues of the Company result from dividends paid to it by the Bank. There are
various legal limitations applicable to the payment of dividends to the Company
as well as the payment of dividends by the Company to its respective
shareholders.
Under federal law, the Bank may not, subject to certain limited exceptions,
make loans or extensions of credit to, or investments in the securities of, the
Company or take securities of the Company as collateral for loans to any
borrower. The Bank is also subject to collateral security requirements from any
loans or extensions of credit permitted by such exceptions.
The Bank is subject to various statutory restrictions on its ability to pay
dividends to the Company. Under the current supervisory practices of the Bank's
regulatory agencies, prior approval from those agencies is required if cash
dividends declared in any given year exceed net income for that year plus
retained earnings of the two preceding years. Under these supervisory practices,
at December 31, 2000, the Bank could have paid additional dividends to the
Company of approximately $3.6 million, without obtaining prior regulatory
approval. The payment of dividends by the Bank or the Company may also be
limited by other factors, such as requirements to maintain capital above
regulatory guidelines. Bank regulatory agencies have authority to prohibit the
Bank or the Company from engaging in an unsafe or unsound practice in conducting
their business. The payment of dividends, depending upon the financial condition
of the Bank, or the Company, could be deemed to constitute such an unsafe and
unsound practice.
Under the federal law, insured depository institutions such as the Bank are
prohibited from making capital distributions, including the payment of
dividends, if, after making such distribution, the institution would become
"undercapitalized" (as such term is used in the statute). Based on the Bank's
current financial condition, the Company does not expect that this provision
will have any impact on its ability to obtain dividends from the Bank.
Community Reinvestment Act. The Bank is also subject to the requirements of
the Community Reinvestment Act (the "CRA"). The CRA imposes on financial
institutions an affirmative and ongoing obligation to meet the credit needs of
the local communities, including low and moderate income neighborhoods,
consistent with the safe and sound operation of those institutions. Each
financial institution's efforts in meeting community credit needs currently are
evaluated as part of the examination process pursuant to twelve assessment
factors. These factors also are considered in evaluating mergers, acquisitions
and applications to open a branch or facility.
FDIC Insurance Assessment. As an institution with deposits insured by the
BIF, the Bank also is subject to insurance assessments imposed by the FDIC. The
FDIC has implemented a risk-based deposit insurance assessment system under
which the assessment rate for an insured institutions may vary according to
regulatory capital levels of the institution and other factors (including
supervisory evaluations). Under the final risk-based assessment system there are
nine assessment risk classifications (i.e., combinations of capital groups and
supervisory subgroups) to which different assessment rates are applied.
Assessment rates for deposit insurance currently range from zero basis points to
27 basis points. The capital and supervisory subgroup to which an institution is
assigned by the FDIC is confidential and may not be disclosed. A bank's rate of
deposit insurance assessments will depend upon the category and subcategory to
which the bank is assigned by the FDIC. Any increase in insurance assessments
could have an adverse effect on the earnings of insured institutions, including
the Bank.
Under the Federal Deposit Insurance Act, insurance of deposits may be
terminated by the FDIC upon a finding that the institution has engaged in unsafe
and unsound practices, is in an unsafe or unsound condition to continue
operations, or has violated any applicable law, regulation, rule, order, or
condition imposed by the FDIC. Management does not know of any practice,
condition, or violation that might lead to termination of deposit insurance.
Other Safety and Soundness Regulations. There are a number of obligations
and restrictions imposed on bank holding companies and their depository
institution subsidiaries by Federal law and regulatory policy that are designed
to reduce potential loss exposure to the depositors of such depository
institutions and to the FDIC insurance funds in the event the depository
institution becomes in danger of default or is in default. For example, under a
policy of the Federal Reserve Board with respect to bank holding company
operations, a bank holding company is required to serve as a source of financial
strength to its subsidiary depository institutions and to commit resources to
support such institutions in circumstances where it might not do so otherwise.
In addition, the "cross-guarantee" provisions of Federal law require insured
depository institutions under common control to reimburse the FDIC for any loss
suffered or reasonably anticipated by the BIF as a result of the default of a
commonly controlled insured depository institution or for any assistance
provided by the FDIC to a commonly controlled insured depository institution in
danger of default. The FDIC may decline to enforce the cross-guarantee provision
if it determines that a waiver is in the best interests of the BIF. The FDIC's
claim for reimbursement is superior to claims of shareholders of the insured
depository institution or its holding company but is subordinate to claims of
depositors, secured creditors and holders of subordinated debt (other than
affiliates) of the commonly controlled insured depository institution.
The Federal banking agencies also have broad powers under current Federal
law to take prompt corrective action to resolve problems of insured depository
institutions. The FDIA requires that the federal banking agencies establish five
capital levels for insured depository institutions - "well capitalized,"
"adequately capitalized," "undercapitalized," "significantly undercapitalized,"
and "critically undercapitalized." It also requires or permits such agencies to
take certain supervisory actions should an insured institution's capital level
fall. For example, an "adequately capitalized" institution is restricted from
accepting brokered deposits. An "undercapitalized" or "significantly
undercapitalized" institution must develop a capital restoration plan and is
subject to a number of mandatory and discretionary supervisory actions. These
powers and authorities are in addition to the traditional powers of the Federal
banking agencies to deal with undercapitalized institutions.
Federal regulatory authorities also have broad enforcement powers over the
Company and the Bank, including the power to impose fines and other civil and
criminal penalties, and to appoint a receiver in order to conserve the assets of
any such institution for the benefit of depositors and other creditors.
Other
During the fourth quarter of 2000, the Company satisfactorily completed a
Combined Safety and Soundness Examination performed by the Federal Reserve Bank
of Richmond. As of February, 2000, the Bank and the Company satisfactorily
completed Transfer Agent Examination, also performed by the Federal Reserve
Bank. As a result of these examinations management is not aware of any current
recommendations of the regulatory authorities which, if they were implemented,
would have a material effect on liquidity, capital resources or operations of
the Company.
Forward-Looking Statements
This report contains certain forward-looking statements with respect to the
financial condition, results of operations, plans, objectives and business of
the Company and the Bank. These forward-looking statements involve certain risks
and uncertainties. Factors that may cause actual results to differ materially
from those contemplated by such forward-looking statements include, among
others, the following possibilities: (a) competitive pressure in the financial
services industry increases significantly; (b) changes in the interest rate
environment reduce margins; (c) general economic conditions, either nationally
or regionally, are less favorable than expected, resulting in, among other
things, a deterioration in credit quality; (d) changes occur in the financial
services regulatory environment; and (e) changes occur in the securities
markets.
Item 1. Statistical Information
--------------------------------
The following statistical information is furnished pursuant to the
requirements of Guide 3 (Statistical Disclosure by Bank Holding Companies)
promulgated under the Securities Act of 1933.
INDEX
Page
TABLE 1. Average Balance Sheets, Net Interest Income, and Rates......... 12-13
TABLE 2. Analysis of Change in Net Interest Income...................... 14
TABLE 3. Types of Investment Securities................................. 15
TABLE 4. Maturity Schedule of Selected Loans as of Dec. 31, 2000........ 16
TABLE 5. Risk Elements.................................................. 17
TABLE 6. Summary of Allowance for Loan Losses........................... 18
TABLE 7. Allocation of the Allowance for Loan Losses.................... 19
TABLE 8. Deposits....................................................... 19
TABLE 9. Return on Equity and Assets.................................... 20
TABLE 10. Short Term Borrowing........................................... 20
TABLE 11. Interest Sensitivity Analysis.................................. 21
TABLE 12. Analysis of Capital............................................ 22
TABLE 1
AVERAGE BALANCES, INCOME AND EXPENSES, YIELDS AND RATES
The following table depicts interest income on earnings assets and related
average yields as well as interest expense on interest-bearing liabilities and
related average rates paid for the periods indicated.
Year Ended December 31,
-----------------------
2000 1999
---- ----
Annual Annual
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
------- ------- ---- ------- ------- -----
(Dollars in thousands)
Assets:
Securities:
Taxable $ 24,909 $ 1,671 6.71% $ 29,351 $ 1,688 5.75%
Tax-exempt(1) 15,224 838 8.34% 13,291 684 7.80%
-------- -------- ----- -------- -------- -----
Total securities 40,133 2,509 7.33% 42,642 2,372 6.39%
Loans (net of unearned income):
Taxable(2) 143,960 13,073 9.08% 119,470 10,859 9.09%
Tax-exempt 1,145 79 10.48% 1,846 138 11.33%
-------- -------- ----- -------- -------- -----
Total loans 145,105 13,152 9.09% 121,316 10,997 9.12%
Federal funds sold and
repurchase agreements 75 6 8.00% 975 40 4.10%
Interest-bearing deposits
in other banks 0 0 0% 284 14 4.93%
-------- -------- ----- -------- -------- -----
Total earning asset 185,313 15,667 8.71% 165,217 13,423 8.38%
Less: allowance for loan
losses (2,324) (2,137)
Total nonearning assets 28,066 24,349
-------- --------
Total assets $211,055 $187,429
-------- --------
TABLE 1 (cont.)
AVERAGE BALANCES, INCOME AND EXPENSES, YIELDS AND RATES
Year Ended December 31,
-----------------------
2000 1999
---- ----
Annual Annual
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
------- ------- ---- ------- ------- ------
(Dollars in thousands)
Liabilities and Shareholder's Equity:
Interest-bearing deposits:
Checking $ 52,221 $ 1,798 3.44% $ 50,065 $ 1,654 3.30%
Regular savings 10,172 275 2.70% 10,955 282 2.57%
Money market savings 3,860 113 2.93% 4,464 129 2.89%
Certificates of deposit:
$100,000 and over 21,543 1,353 6.28% 14,326 681 4.75%
Under $100,000 68,284 3,894 5.70% 63,159 3,232 5.12%
-------- ------- ---- -------- ------- -----
Total interest-bearing
deposits 156,080 7,433 4.76% 142,969 5,978 4.18%
Federal funds purchased
and securities sold under
agreements to repurchase 5,745 396 6.89% 2,737 149 5.44%
Other borrowing 835 42 5.03% 858 47 5.48%
-------- ------- ---- -------- ------- -----
Total interest-bearing
liabilities 162,660 7,871 4.84% 146,564 6,174 4.21%
-------- ------- ---- -------- ------- -----
Noninterest bearing liabilities:
Demand deposits 28,734 23,996
Other liabilities 2,956 1,530
-------- --------
Total liabilities 194,350 172,090
Shareholders' equity 16,705 15,339
Total liabilities and share-
holders' equity $211,055 $187,429
-------- --------
Net interest income/yield $ 7,796 4.46% $ 7,249 4.64%
Interest rate spread 3.87% 4.17%
1) Yields are reported on a taxable equivalent basis assuming a federal tax
rate of 34%.
2) Includes non-accrual loans.
TABLE 2
VOLUME AND RATE ANALYSIS (1)
The following table analyzes changes in net interest income attributable to
changes in the volume of interest-bearing assets and liabilities compared to
changes in interest rates. Nonaccruing loans are included in average loans
outstanding.
Year Ended December 31,
----------------------
2000 vs. 1999 1999 vs. 1998
Increase (Decrease) Increase (Decrease)
Due to Changes in:(1) Due to Changes in:(2)
--------------------------- ---------------------------
Volume Rate Total Volume Rate Total
------ ----- ----- ------ ---- -----
(In thousands)
Earning Assets:
Securities:
Taxable $ (255) $ 238 $ (17) $ (285) $ 87 $ (198)
Tax-exempt 99 55 154 79 0 79
Loans
Taxable 2,226 (12) 2,214 1,420 (523) 897
Tax-exempt (52) (7) (59) (55) (12) (67)
Federal funds sold
and repurchase agreements (37) 3 (34) (33) (16) (49)
Interest-bearing deposits
in other banks (14) 0 (14) (3) 1 (2)
------- ------- ------- ------- ------- -------
Total earning
assets $ 1,967 $ 277 $ 2,244 $ 1,123 $ (463) $ 660
------- ------- ------- ------- ------- -------
Interest-Bearing Liabilities:
Interest checking $ 71 $ 73 $ 144 $ 727 $ 199 $ 926
Regular savings 13 (20) (7) (35) (15) (50)
Money market savings (17) 1 (16) (50) 1 (49)
Time deposits:
CDS $100,000 or more 342 330 672 (128) (88) (216)
CDS Other 262 400 400 (378) (322) (700)
------- ------- ------- ------- ------- -------
Total interest-bearing
deposits 671 784 1,455 136 (225) (89)
Federal funds purchased
and securities sold
under agreements to
repurchase 163 84 247 114 (1) 113
Other borrowing (1) (4) (5) (1) (1) (2)
------- ------- ------- ------- ------- -------
Total interest-bearing
liabilities $ 833 $ 864 $ 1,697 $ 249 $ (227) $ 22
------- ------- ------- ------- ------- -------
Change in net interest
income: $ 1,134 $ (587) $ 547 $ 874 $ (236) $ 638
------- ------- ------- ------- ------- -------
(1) The change in interest due to both rate and volume has been allocated to
change due to volume and change due to rate in proportion to the
relationship of the absolute dollar amounts of the change in each.
(2) The combined effect of changes in both volume and rate that cannot be
separately identified has been allocated proportionately to the change due
to volume and change due to rate.
TABLE 3
SECURITIES HELD FOR RESALE AND INVESTMENT
MATURITY DISTRIBUTION AND AVERAGE YIELD
December 31,
-----------
2000 1999
------- -------
Book Value: (In thousands)
U.S. Government securities. . . . . . $21,054 $24,199
State and political subdivisions. . . 15,110 13,571
Other securities. . . . . . . . . . . 2,552 2,555
------- -------
Total securities $38,716 $40,325
Maturities of Securities Held at December 31, 2000
Over Ten
One One Five Years and
Year to Five to Ten Equity
or Less Years Years Securities Total
------- ----- -------- ---------- -----
(Dollars in thousands)
U.S. Agency Securities:
Book value -- $ 1,040 -- -- $ 1,040
Market value -- 1,034 -- -- 1,034
Weighted average yield(1) 0% 5.97% 0% 0% 5.97%
State and Political Subdivisions:
Book value -- 345 4,081 10,685 15,111
Market value -- 352 4,227 11,260 15,839
Weighted average yield(1) 0% 9.06% 8.26% 8.35% 8.34%
Corporate Debt Securities:
Book value -- 1,046 506 -- 1,552
Market value -- 1,050 500 -- 1,550
Weighted average yield(1) 0% 6.78% 6.56% 0% 6.71%
Mortgage Backed Securities:
Book value 1,176 11,599 7,239 -- 20,014
Market value 1,182 11,727 7,224 -- 20,133
Weighted average yield(1) 7.75% 7.81% 7.16% 0% 7.57%
Other Securities:
Book Value -- -- -- 999 999
Market Value -- -- -- 999 999
Weighted Average Yield(1) 0% 0% -% 5.70% 5.70%
Total Securities:
Book value $ 1,176 $14,030 $11,826 $11,684 $38,716
Market value 1,182 14,163 11,951 12,259 39,555
Weighted average yield(1) 7.75% 7.53% 7.52% 8.32% 7.75%
(1) Yields on tax-exempt securities have been computed on a tax-equivalent
basis.
TABLE 4
LOAN PORTFOLIO AND MATURITY SCHEDULE OF SELECTED LOANS
AS OF DECEMBER 31, 2000
For the table and accompanying notes addressing the loan portfolio, see
"Note 3. Loans" on page 14 of the Annual Report to Shareholders which is
incorporated by reference herein (attached as Exhibit 13 to this Form 10-KSB).
The maturity distribution and rate sensitivity of certain categories of
loans as of December 31, 2000 is presented below.
Management considers the liquidity of the Company to be adequate.
Sufficient assets are maintained on a short-term basis to meet the liquidity
demands anticipated by management. In addition, secondary sources are available
through the use of borrowed funds. See Table 10 at page 22.
1 Year or Less 1-5 Years Over 5 Years
-------------- --------- ------------
Fixed Variable Fixed Variable Fixed Variable
Rate Rate Rate Rate Rate Rate
---- ---- ---- ---- ---- ----
(Dollars in thousands)
Commercial and other $ 8,515 $34,356 $ 7,434 $24,669 $ 1,605 $ 568
Real estate-construction 1,472 0 0 0 3,993 0
Real estate mortgage 1,619 12,809 5,813 19,818 1,615 0
Consumer installment 8,187 4,108 11,756 997 6,744 0
------- ------- ------- ------- ------- ------
Total $19,793 $51,273 $25,003 $45,484 $13,957 $ 568
------- ------- ------- ------- ------- ------
TABLE 5
RISK ELEMENTS
Risk elements associated with the loan portfolio are presented below. The
Company places a loan on nonaccrual status when management believes, after
considering economic and business conditions and collection efforts, that the
borrower's financial condition is such that collection of principal and interest
is doubtful. The Company's policy is to place loans on nonaccrual status if
principal or interest is past due for 90 days or more unless the debt is both
well secured and in the process of being collected.
December 31,
------------
(Dollars in thousands)
2000 1999
---- ----
Nonaccrual loans(1) $ 563 $ 155
Restructured loans 0 0
Foreclosed properties 175 185
----- -----
Total nonperforming assets $ 738 $ $ 340
----- -----
Loans past due 90+ days and
accruing interest $ 28 $ 4
Allowance for loan losses
to period end loans 1.3% 1.7%
Allowance for loan losses to
nonaccrual loans 377.6% 1,449.1%
Nonperforming assets to
period-end loans and
foreclosed properties (2) 0.47% 0.26%
Net charge-offs (recoveries)
to average loans 0.37% (0.02%)
(1) There were no troubled debt restructurings in 2000 or 1999. The Bank
expects to charge off $216,336 in problem loans (fully reserved at December 31,
2000). These loans present potential risk of non-payment and are not included in
the numbers above. The Bank expects to collect all other payments due. See the
discussion on page 31 of the 2000 Annual Report to Shareholders and Note 3 to
the Financial Statements contained therein for additional information on the
risk elements associated with the loan portfolio.
(2) As of December 31, 2000, performing loans totaling approximately $7.6
million were identified as potential problem loans through internal loan review
systems and procedures. The Bank has specifically reserved for potential losses
in these loans as of year-end.
Loan Concentrations: The Bank has no concentration of credit that exceeds
10% of gross loans, except real estate and consumer.
TABLE 6
SUMMARY OF ALLOWANCE FOR LOAN LOSS
The following table shows the Company's loan loss and recovery experience
for the past two years.
The Company tries to maintain an allowance for loan loss that represents an
estimate of all losses estimated in the Bank's loan portfolio. To achieve this
goal, the loan loss provision must be sufficient to cover charged-off loans plus
growth in the loan portfolio. The loan loss provision is a charge against
earnings necessary to maintain the allowance for loan losses at management's
targeted level. In considering the provision for loan loss, an evaluation of the
loan portfolio is conducted. Loans in non-accrual status and loans past due over
ninety days are considered in this evaluation as well as other loans the Company
feels may be a potential loss. The status of non-accrual and past due loans
varies from quarter to quarter based on seasonality and cash flow of customers.
Year ended December 31,
-----------------------
2000 1999
---- ----
(Dollars in thousands)
Balance, beginning of period $ 2,254 $ 2,024
Loans charged off:
Commercial (532) (8)
Real estate construction 0 0
Real estate mortgage (57) 0
Consumer (23) (19)
------- -------
Total loans charged off (612) (27)
------- -------
Recoveries of loans previously charged off:
Commercial 2 27
Real estate - construction 0 0
Real estate - mortgage 1 0
Consumer 75 19
------- -------
Total recoveries 78 46
------- -------
Net loans (charged off) recovered
(534) 19
Provision for (recovery of) loan losses
405 211
------- -------
Balance, end of period $ 2,125 $ 2,254
------- -------
TABLE 7
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
The following table provides a breakdown of the allowance for loan losses
by major categories of the Company's loan portfolio. See Note 3 to the Financial
Statements for the amount of loans in each category.
2000 1999
Percent of loans Percent of loans
in each category in each category
Amount to Total Loans Amount to Total Loans
------ -------------- ------ --------------
(Dollars in thousands)
Commercial $1,236 48.2% $1,559 46.7%
Real estate - construction 0 3.4 0 2.1
Real estate - mortgage 482 26.3 408 27.8
Consumer 364 20.1 264 20.2
Other 43 0.5 23 1.1
Participations 0 1.5 0 2.1
------ ------- ------ -----
Total $2,125 100.0% $2,254 100.0%
------ ------- ------ -----
TABLE 8
DEPOSITS
The average balance and rates for certain categories of deposits for the
last two years are shown in the following table:
Year ended December 31,
-----------------------
2000 1999
---- ----
Average Average Average Average
Balance Rate Balance Rate
------- ---- ------- ----
(Dollars in thousands)
Non-interest bearing demand deposits $ 28,734 $ 23,996
-------- --------
Interest bearing deposits:
Interest checking 52,221 3.44% 50,065 3.30%
Regular savings 10,172 2.70 10,955 2.57
Money market savings 3,860 2.93 4,464 2.89
Time deposits:
Certificates of deposit $100,000 or more
21,543 6.28 14,326 4.75
Other certificates of deposit
68,284 5.70 63,159 5.12
-------- --------
Total interest bearing deposits
156,080 4.76 142,969 4.18
-------- --------
Total deposits $184,814 4.02% $166,965 3.58%
-------- --------
Maturities of time certificates of deposits of $100,000 or more outstanding
at December 31, 2000 were:
2000
----
(Dollars in thousands)
3 months or less $ 8,573
3 - 6 months 4,079
6 - 12 months 7,911
Over 12 months 7,354
-------
Total $27,917
TABLE 9
RETURN ON EQUITY AND ASSETS
The ratio of net income to average total assets and average shareholders'
equity and certain other ratios for the periods indicated are as follows:
Year ended December 31,
-----------------------
2000 1999
---- ----
Return on average assets 1.06% 1.10%
Return on average equity 13.34% 13.44%
Dividend payout ratio 22.10% 19.73%
Average equity to average assets 7.91% 8.18%
TABLE 10
SHORT TERM BORROWING
The Bank periodically borrows funds through federal funds from its
correspondent banks, through securities sold under agreements to repurchase,
through the Federal Home Loan Bank of Atlanta, and through the discount window
at the Federal Reserve Bank of Richmond. The borrowings generally mature daily
for cash flow requirements. The borrowed amounts and their corresponding rates
during 2000 and 1999 are presented below:
Year ended December 31,
----------------------
2000 1999
---- ----
(Dollars in thousands)
Average daily amount outstanding $ 5,745 $2,737
Average interest rate 6.89% 5.44%
Maximum outstanding at any month end $11,100 $9,000
Balance at end of period $ 9,500 $4,800
TABLE 11
INTEREST SENSITIVITY ANALYSIS
December 31, 2000
-----------------
Within 90-365 1 to 5 Over
90 Days Days Years 5 Years Total
-------- -------- -------- -------- --------
(Dollars in thousands)
Earnings Assets:
Loans (2) $ 33,590 $ 39,145 $ 71,572 $ 14,149 $ 158,456
Securities & Time Deposits with other banks 1,323 3,711 16,969 17,552 39,555
Federal funds sold and other short-term investments 9,705 - - - 9,705
-------- --------- -------- -------- ---------
Total interest earning assets $ 44,618 $ 42,856 $ 88,541 $ 31,701 $ 207,716
-------- --------- -------- -------- ---------
Interest-Bearing
Liabilities:
Interest checking, savings and money market savings (3) $ 4,668 $ 8,316 $ 51,760 $ - $ 64,744
Certificates of deposit:
$100,000 and over 8,573 11,988 7,354 - 27,915
Under $100,000 9,078 37,361 27,548 - 73,987
Federal funds purchased and securities sold
under agreements to repurchase 9,500 - - - 9,500
Other borrowing 6 21 121 674 822
-------- --------- -------- -------- ---------
Total interest-bearing liabilities $ 31,825 $ 57,686 $ 86,783 $ 674 $ 176,968
-------- --------- -------- -------- ---------
Period gap $ 12,793 $ (14,830) $ 1,758 $ 31,027 $ 30,748
Cumulative gap $ (2,037) $ (279) $ 30,748
Ratio of cumulative gap to total earning assets (4) 6.16% -0.98% -0.10% 14.80%
(1) The repricing dates may differ from maturity dates for certain assets due
to prepayment assumptions.
(2) Includes nonaccrual loans.
(3) The Bank's Asset Liability Management Committee has found that interest
bearing checking accounts and regular saving accounts are generally not
sensitive to changes in interest rates. However, current interest rate levels
have warranted placing approximately 6.0% of these balances in the 90 day
category.
(4) The Bank's Asset Liability Management Committee monitors interest rate risk
using gap analysis and rate shock - market value - duration analysis using
regulatory guidelines. The relative risk to earnings based on the gaps in the
table above are considered reasonable by management and is within limits
established by the Board of Directors.
TABLE 12
ANALYSIS OF CAPITAL *
December 31,
2000 1999
---- ----
(Dollars in thousands)
Tier 1 Capital:
Common stock $ 6,149 $ 6,132
Additional paid in capital 154 265
Retained earnings 11,473 9,737
Less: Goodwill 0 0
--------- ---------
Total Tier 1 capital $ 17,776 $ 16,134
Tier 2 Capital:
Allowance for loan losses 2,272 1,939
Allowable long-term debt 0 0
--------- ---------
Total Tier 2 Capital 2,272 1,939
Total risk-based capital $ 20,048 $ 18,073
--------- ---------
Risk weighted assets $ 180,199 $ 154,703
Capital Ratios:
Tier 1 risk-based capital ratio 9.8% 10.4%
Total risk-based capital ratio 11.0 11.7
Tier 1 capital to average
adjusted total assets 8.1 8.3
* See the captioned "Note 17 Regulatory Matters" which is included in Exhibit A
at page 26, The Annual Report to Shareholders was filed with the Commission on
or about March 30, 2001.
ITEM 2. Description of Property
--------------------------------
The Company owns one property at December 31, 1998 which was purchased on
January 2, 1998 that is described in PART I, Item 1, The Bank, however, owns and
leases properties as also described in Item 1 of this report.
ITEM 3. Legal Proceedings
--------------------------
The Bank is currently not involved in any material legal proceeding other
than ordinary litigation incidental to its business.
ITEM 4. Submission of Matters to a Vote of Security Holders
------------------------------------------------------------
There were no matters submitted to a vote of security holders during the
quarter ended December 31, 2000.
PART II
ITEM 5. Market for Common Equity and Related Shareholder Matters
------------------------------------------------------------------
This information is included in the 2000 Annual Report to Shareholders at
page 33 in the section captioned, "Dividend and Market Information".
ITEM 6. Management's Discussion and Analysis or Plan of Operation
-------------------------------------------------------------------
This information is included in the 2000 Annual Report to Shareholders at
pages 31-35.
ITEM 7. Financial Statements
------------------------------
This information is included in the 2000 Annual Report to Shareholders
at pages 3-29.
ITEM 8. Changes in and Disagreements with Accountants on Accounting and
-------------------------------------------------------------------------
Financial Disclosure
--------------------
There have been no disagreements between the Company and its independent
accountants for the past two years.
PART III
ITEM 9. Directors, Executive Officers, Promoters and Control Persons;
----------------------------------------------------------------------
Compliance with Section 16(a) of the Exchange Act
-------------------------------------------------
This information is incorporated herein by reference from the Company's
Proxy Statement for the 2001 Annual Meeting of Shareholders at pages 2 through 7
thereof.
ITEM 10. Executive Compensation
--------------------------------
This information is incorporated herein by reference from the Company's
Proxy Statement for the 2001 Annual Meeting of Shareholders at pages 5 through 8
thereof.
ITEM 11. Security Ownership of Certain Beneficial Owners and Management
------------------------------------------------------------------------
This information is incorporated herein by reference from the Company's
Proxy Statement for the 2001 Annual Meeting of Shareholders at pages 2 and 3
thereof.
ITEM 12. Certain Relationships and Related Transactions
--------------------------------------------------------
This information is incorporated herein by reference from the Company's
Proxy Statement for the 2001 Annual Meeting of Shareholders at page 8 thereof.
ITEM 13. Exhibits and Reports on Form 8-K
------------------------------------------
(a) Exhibit Index:
#3 (i)Articles of Incorporation and (ii) Bylaws. Incorporated by
reference to Exhibits 3.1 and 3.2 of previously filed
Registration Statement on Form S-18, Registration No. 33-27825,
dated May 15, 1989, as amended.
#10 Material Contracts. Exhibits 10.1 - 10.6 are incorporated by
reference to Exhibit 10 to previously filed Registration
Statement on Form S-18, Registration No. 33-27825, dated May 15,
1989, as amended.
10.1 Employee Stock Ownership Plan
10.2 Douglas D. Monroe, Jr. Deferred Compensation Agreement
10.3 Thomas B. Denegre, Jr. Deferred Compensation Agreement
10.4 Rappahannock Westminster Canterbury Lease Agreement
10.5 Main Street, Kilmarnock Lease Agreement
10.6 IBM Credit Corporation Equipment Leasing Agreement
10.8 Ted M. Kattmann Employment Agreement filed herewith
10.9 John H. Hunt, II Employment Agreement filed herewith
#13 Annual Report to Security Holders is filed herewith
#21 Subsidiaries of the Registrant is filed herewith.
#22 None
(b) Reports on Form 8-K. No reports were filed by the registrant
during the fourth quarter of 2000.
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto, duly authorized.
CHESAPEAKE FINANCIAL SHARES, INC.
Date: March 26, 2001 By /s/ Douglas D. Monroe, Jr.
-------------- --------------------------
Douglas D. Monroe, Jr.
Chairman of the Board and
Chief Executive Officer
In accordance with the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
/s/ Douglas D. Monroe, Jr. March 26, 2001
----------------------
Douglas D. Monroe, Jr.
Chairman of the Board and
Chief Executive Officer
/s/ T. Nash Broaddus March 26, 2001
---------------------------
T. Nash Broaddus, Director
/s/ Eugene S. Hudnall March 26, 2001
-----------------
Eugene S. Hudnall, Director
/s/ Katherine W. Monroe March 26, 2001
-------------------
Katherine W. Monroe, Director
/s/ Bruce P. Robertson March 26, 2001
------------------
Bruce P. Robertson, Director
/s/ William F. Shumadine, Jr. March 26, 2001
-------------------------
William F. Shumadine, Jr., Director
/s/ Robert L. Stephens March 26, 2001
------------------
Robert L. Stephens, Director
/s/ Jeffrey M. Szyperski March 26, 2001
--------------------
Jeffrey M. Szyperski, Director