FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended 03/31/97
OR
[ ] 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: 000-20809
SIS BANCORP, INC.
(Exact Name of Issuer as Specified in its Charter)
Massachusetts 04-3303264
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
SIS BANCORP, INC.
1441 Main Street
Springfield, Massachusetts 01102
(Address of Principal Executive Offices) (Zip Code)
(413) 748-8000
(Issuers Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ____
Indicate the number of shares outstanding of the registrant's common
stock, as of the latest practicable date: 5,616,800 shares as of May 7, 1997.
<PAGE>
CAUTIONARY STATEMENT FOR PURPOSES OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This Report contains certain "forward-looking statements" including statements
concerning plans, objectives, future events or performance and assumptions and
other statements which are other than statements of historical fact. SIS
Bancorp, Inc. and its subsidiaries (the "Company") wish to caution readers that
the following important factors, among others, may have affected and could in
the future affect the Company's actual results and could cause the Company's
actual results for subsequent periods to differ materially from those expressed
in any forward-looking statement made by or on behalf on the Company herein: (i)
the effect of changes in laws and regulations, including federal and state
banking laws and regulations, with which the Company must comply, and the
associated costs of compliance with such laws and regulations either currently
or in the future as applicable; (ii) the effect of changes in accounting
policies and practices, as may be adopted by the regulatory agencies as well as
by the Financial Accounting Standards Board, or of changes in the Company's
organization, compensation and benefit plans; (iii) the effect on the Company's
competitive position within its market area of the increasing consolidation
within the banking and financial services industries, including the increased
competition from larger regional and out-of-state banking organizations as well
as nonbank providers of various financial services; (iv) the effect of
unforeseen changes in interest rates; and (v) the effect of changes in the
business cycle and downturns in the local, regional or national economies.
<PAGE>
SIS BANCORP, INC. AND SUBSIDIARIES
FORM 10-Q
INDEX
PAGE NO.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Statement of Operations for the
three months ended March 31, 1997 and 1996............................. 1
Condensed Consolidated Statement of Financial Condition
at March 31, 1997 and December 31, 1996................................ 2
Condensed Consolidated Statement of Cash Flows for the
three months ended March 31, 1997 and 1996............................. 3
Condensed Consolidated Statement of Changes in Stockholders' Equity
for the three months ended March 31, 1997 and 1996..................... 5
Notes to the Unaudited Financial Statements............................ 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.............. 8
PART II OTHER INFORMATION
Item 1. Legal Proceedings.......................................... 22
Item 2. Changes in Securities...................................... 22
Item 3. Default upon Senior Securities............................ 22
Item 4. Submission of Matters to a Vote of Security Holders........ 22
Item 5. Other Information.......................................... 22
Item 6. Exhibits and Reports on Form 8-K........................... 22
SIGNATURES................................................................ 23
<PAGE>
SIS BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars In Thousands Except Per Share Amounts)
(Unaudited)
Three Months Ended
March 31,
--------------------------
1997 1996
----------- -----------
Interest and dividend income:
Loans $ 12,984 $ 11,552
Investment securities available for sale 7,788 4,126
Investment securities held to maturity 3,363 2,946
Federal funds sold and short term investments 229 214
----------- -----------
Total interest and dividend income 24,364 18,838
----------- -----------
Interest expense:
Deposits 8,337 8,077
Borrowings 3,534 1,190
----------- -----------
Total interest expense 11,871 9,267
----------- -----------
Net interest and dividend income 12,493 9,571
Less: Provision for possible loan losses 401 700
----------- -----------
Net interest and dividend income after provision
for possible loan losses 12,092 8,871
Noninterest income:
Net gain on sale of loans 106 270
Net gain on sale of securities -- 2
Fees and other income 2,612 2,309
----------- -----------
Total noninterest income 2,718 2,581
----------- -----------
Noninterest expense:
Operating expenses:
Salaries and employee benefits 4,719 4,250
Occupancy expense of bank premises, net 976 782
Furniture and equipment expense 508 542
Other operating expenses 3,673 3,116
----------- -----------
Total operating expenses 9,876 8,690
----------- -----------
Foreclosed real estate (income)expense (28) 160
Net expense (income) of real estate operations 421 (14)
----------- -----------
Total noninterest expense 10,269 8,836
Income before income tax expense 4,541 2,616
Income tax expense 1,771 212
----------- -----------
Net income $ 2,770 $ 2,404
=========== ===========
Earnings per share:
Primary $ 0.50 $ 0.45
Fully diluted $ 0.50 $ 0.45
Weighted average shares outstanding:
Primary 5,559,144 5,336,487
Fully diluted 5,559,284 5,336,487
See accompanying Notes to the Unaudited Financial Statements
1
<PAGE>
<TABLE>
<CAPTION>
SIS BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(Dollars In Thousands Except Share Amounts)
(Unaudited)
March 31, December 31,
1997 1996
------------ -------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 42,524 $ 31,902
Federal funds sold and short-term investments 21,656 10,045
Investment securities available for sale 480,070 449,323
Investment securities held to maturity (fair value: $185,962
at March 31, 1997 and $191,617 at December 31, 1996) 188,614 192,174
Loans receivable, net of allowance for possible losses
($16,287 at March 31, 1997 and $15,597 at December 31, 1996) 616,447 610,597
Accrued interest and dividends receivable 8,988 8,982
Investments in real estate and real estate partnerships 2,730 2,757
Foreclosed real estate, net 344 381
Bank premises, furniture and fixtures, net 27,352 27,106
Other assets 15,020 15,345
----------- -----------
Total assets $ 1,403,745 $ 1,348,612
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 1,006,873 $ 969,517
Federal Home Loan Bank advances 104,693 68,471
Securities sold under agreements to repurchase 154,570 176,577
Loans payable 2,848 2,848
Mortgage escrow deposits 6,539 4,396
Accrued expenses and other liabilities 26,902 24,886
----------- -----------
Total liabilities 1,302,425 1,246,695
----------- -----------
Commitments and contingent liabilities -- --
Stockholders' equity:
Preferred stock ($.01 par value; 5,000,000 shares
authorized: no shares issued and outstanding) -- --
Common stock ($.01 par value; 25,000,000 shares authorized; shares
issued: 5,732,200 at March 31, 1997 and 5,723,600 at December 31, 1996;
outstanding: 5,661,800 at March 31, 1997 and 5,723,600 at December 31, 1996) 57 57
Unearned compensation (3,624) (3,693)
Additional paid-in capital 42,891 42,665
Retained earnings 63,115 60,993
Net unrealized gain on investment securities available for sale 748 1,895
Treasury stock, at cost (70,400 shares) (1,867) --
----------- -----------
Total stockholders' equity 101,320 101,917
----------- -----------
Total liabilities and stockholders' equity $ 1,403,745 $ 1,348,612
=========== ===========
</TABLE>
See accompanying Notes to the Unaudited Financial Statements
2
<PAGE>
<TABLE>
<CAPTION>
SIS BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars In Thousands)
(Unaudited)
Three Months Ended
March 31,
----------------------
1997 1996
--------- ---------
<S> <C> <C>
Cash Flows From Operating Activities
Net income $ 2,770 $ 2,404
Adjustments to reconcile net income to net cash provided by/
(used for) operating activities
Provision for possible loan losses 401 700
Depreciation 718 747
Amortization of premium on investment securities, net 533 588
ESOP and restricted stock expenses 348 376
Investment security gains -- (2)
Income from equity investment in partnerships (1) (87)
Gain on sale of loans (106) (270)
Disbursements for mortgage loans held for sale (15,101) (33,322)
Receipts from mortgage loans held for sale 15,207 33,592
Changes in other assets and other liabilities:
Decrease (increase) in other assets, net 727 (1,549)
(Decrease) increase in accrued expenses and other liabilities 2,016 (904)
--------- ---------
Net cash provided by operating activities 7,512 2,273
--------- ---------
Cash Flows From Investing Activities
Proceeds from sales of investment securities available for sale -- 6,600
Proceeds from maturities and principal payments received
on investment securities available for sale 32,203 46,750
Purchase of investment securities available for sale (64,927) (107,484)
Proceeds from maturities and principal payments received
on investment securities held to maturity 10,713 11,728
Purchase of investment securities held to maturity (7,264) (23,436)
Net increase in loans receivable (6,340) (3,819)
Net decrease in foreclosed real estate 37 1,368
Proceeds from sale of loans 89 284
Purchase of fixed assets (936) (553)
--------- ---------
Net cash used for investing activities (36,425) (68,562)
--------- ---------
</TABLE>
See accompanying Notes to the Unaudited Financial Statements
3
<PAGE>
<TABLE>
<CAPTION>
SIS BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (continued)
(Dollars In Thousands)
(Unaudited)
Three Months Ended
March 31,
---------------------
1997 1996
-------- ---------
<S> <C> <C>
Cash Flows from Financing Activities
Net increase in deposits 37,356 25,738
Net increase in borrowings 14,215 34,845
Net increase in mortgagors' escrow deposits 2,143 1,975
Net proceeds from exercise of stock options 175 --
Repurchase of common stock (2,095) --
Cash dividends paid (648) --
-------- --------
Net cash provided by financing activities 51,146 62,558
-------- --------
Increase (decrease) in cash and cash equivalents 22,233 (3,731)
Cash and cash equivalents, beginning of period 41,947 38,422
-------- --------
Cash and cash equivalents, end of period $ 64,180 $ 34,691
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for interest to depositors
and interest on debt $ 11,733 $ 9,220
Non-cash investing activities:
Transfers to foreclosed real estate, net $ -- $ 341
</TABLE>
See accompanying Notes to the Unaudited Financial Statements
4
<PAGE>
<TABLE>
<CAPTION>
SIS BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
For The Three Months Ended March 31, 1997 and 1996
(Dollars In Thousands)
Net unrealized
gain (loss)
on investment
Unearned Additional securities Treasury
Common Compen- Paid-In Retained available Stock
Stock sation Capital Earnings for sale at Cost Total
------- ------- ---------- -------- ------------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 $ 57 $(3,693) $42,665 $60,993 $ 1,895 $ -- $ 101,917
Net income -- -- -- 2,770 -- -- 2,770
Cash dividends declared ($0.12 per share) -- -- -- (648) -- -- (648)
Issuance of common stock in connection with employee
and non-employee directors benefit programs -- (98) 45 -- -- 228 175
Decrease in unearned compensation -- 167 181 -- -- -- 348
Change in unrealized gain (loss) on investment
securities available for sale -- -- -- -- (1,147) -- (1,147)
Treasury stock purchased -- -- -- -- -- (2,095) (2,095)
------ ------- ------- ------- -------- --------- ---------
Balance at March 31, 1997 $ 57 $(3,624) $42,891 $63,115 $ 748 $ (1,867) $ 101,320
====== ======= ======= ======= ======== ========= =========
Balance at December 31, 1995 $ 57 $(4,937) $41,790 $42,833 $ 1,726 $ -- $ 81,469
Net Income -- -- -- 2,404 -- -- 2,404
Issuance of common stock in connection with employee
and non-employee directors benefit programs -- (241) 241 -- -- -- --
Decrease in unearned compensation -- 529 76 -- -- -- 605
Change in unrealized gain (loss) on investment
securities available for sale -- -- -- -- (241) -- (241)
------ ------- ------- ------- -------- --------- ---------
Balance at March 31, 1996 $ 57 $(4,649) $42,107 $45,237 $ 1,485 $ -- $ 84,237
====== ======= ======= ======= ======== ========= =========
</TABLE>
See accompanying Notes to the Unaudited Financial Statements
5
<PAGE>
SIS BANCORP, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
(Dollars in thousands except per share amounts)
1. Holding Company Formation
SIS Bancorp, Inc., a Massachusetts corporation, was organized by Springfield
Institution for Savings (the "Bank") for the purpose of reorganizing the Bank
into a holding company structure. The Company acquired 100% of the outstanding
shares of the Bank's common stock, par value $1.00 per share, in a 1:1 exchange
for shares of the Company's common stock, par value $.01 per share (the "Company
Common Stock"). Upon the effectiveness of such share-for-share exchange (the
"Reorganization") on June 21, 1996, the Bank became the wholly-owned subsidiary
of the Company and the Bank's former stockholders became stockholders of the
Company. The Reorganization was accounted for in a manner similar to a pooling
of interests, and accordingly, the information included in the financial
statements and their accompanying notes presents the combined results of the
Bank and the Company as if the Reorganization had been effected on January 1,
1996.
2. Condensed Consolidated Financial Statements
The Condensed Consolidated Financial Statements of the Company included herein
are unaudited, and in the opinion of management all adjustments, consisting only
of normal recurring adjustments necessary for a fair presentation of the
financial condition, results of operations and cash flows, as of and for the
periods covered herein, have been made. Certain information and note disclosures
normally included in Condensed Consolidated Financial Statements have been
omitted as they are included in the most recent Securities and Exchange
Commission ("SEC") Form 10-K and accompanying Notes to the Financial Statements
(the "Form 10-K") filed by the Company for the year ended December 31, 1996.
Management believes that the disclosures contained herein are adequate to make a
fair presentation.
These unaudited condensed consolidated financial statements should be read in
conjunction with the Form 10-K.
The results for the three month interim period covered hereby are not
necessarily indicative of the operating results for a full year.
3. New Accounting Pronouncements
Effective January 1, 1997, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 125 "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities", that provides accounting and
reporting standards which require that after a transfer of financial assets, an
entity recognizes the financial and servicing assets it controls and the
liabilities it has incurred, derecognizes financial assets when control has been
surrendered, and derecognizes liabilities when extinguished. In addition to
setting requirements regarding the initial recording and subsequent accounting
for assets, liabilities and derivatives acquired in transfers of financial
assets, this Statement requires that debtors reclassify financial assets pledged
as collateral and that secured parties recognize those assets and their
obligation to return them in certain circumstances in which the secured party
has taken control of those assets. SFAS 125 is effective prospectively for
transfers and servicing of financial assets and extinguishments of liabilities
occurring after December 31, 1996 and for collateral related matters on January
1, 1998. The adoption of this statement did not have a material affect on the
Company's financial position as of March 31, 1997 or on the results of its
operations for the three month period then ended.
In February of 1997 the Financial Accounting Standards Board issued SFAS 128,
"Earnings Per Share". SFAS 128 establishes standards for computing and
presenting earnings per share ("EPS") and applies to entities with publicly held
common stock or potential common stock. This statement simplifies the standards
for computing EPS previously found in APB Opinion No. 15, "Earnings Per Share,"
and makes them comparable to international EPS standards. It replaces the
presentation of primary EPS with a presentation of basic EPS. It also requires
dual presentation of basic and diluted EPS on the face of the income statement
for all entities with complex capital structures and requires reconciliation of
the numerator and denominator of the basic EPS computation to the numerator and
denominator of the diluted EPS computation. SFAS 128 will be effective for
financial statements issued after December 15, 1997, and will be adopted by the
Company in its 1997 annual report.
If SFAS 128 had been effective during the first quarter of 1997, pro forma basic
and diluted EPS for the three months ended March 31, 1997 would have been $0.53
and $0.50, respectively.
6
<PAGE>
4. Dividend Policy
The Company paid its first quarterly cash dividend in the amount of $0.12 per
share on February 20, 1997. On April 24, 1997 the Company declared a dividend of
$0.12 per share payable on May 23, 1997 to shareholders of record as of the
close of business on May 5, 1997.
5. Divestment Related Charges
The Company has certain subsidiaries that are engaged in various real estate
investments, directly or in joint ventures with unaffiliated partners. In
accordance with the Federal Deposit Insurance Corporation Improvement Act of
1991 ("FDICIA"), the Company has terminated its real estate development
activities and is in the process of selling its remaining real estate
investments. In the first quarter of 1997, the Company established a reserve of
$1.0 million relating to the divestment of its real estate investment and
brokerage subsidiaries, Colebrook Inc. and subsidiaries ("Colebrook"). This
amount is included in net expense of real estate operations in the March 31,
1997 Condensed Consolidated Statement of Operations. The $1.0 million reserve
consists of $0.7 million in severance and benefit accruals and $0.3 million for
other expenses. As of March 31, 1997, no amounts have been paid relating to the
divestiture. This divestment is scheduled to be completed within one year.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
(DOLLARS IN THOUSANDS)
Overview
SIS Bancorp, Inc., a Massachusetts corporation (the "Company"), was organized by
Springfield Institution for Savings (the "Bank") for the purpose of reorganizing
the Bank into a holding company structure ("the Reorganization"). Upon the
effectiveness of the Reorganization, the Bank became the wholly-owned subsidiary
of the Company and the Bank's former stockholders became stockholders of the
Company. Substantially all of the Company's operations are conducted through the
Bank. The Bank provides a wide variety of financial services which include
retail and commercial banking, residential mortgage origination and servicing,
and commercial and consumer lending. The Bank's revenues are derived principally
from interest payments on its loan portfolios and mortgage-backed and other
investment securities. The Bank's primary sources of funds are deposits,
borrowings and principal and interest payments on loans and mortgage-backed
securities.
Results of Operations for the Three Months Ended March 31, 1997 and March 31,
1996
The Company reported net income of $2.8 million, or $0.50 per share fully
diluted for the first quarter of 1997 as compared to net income of $2.4 million,
or $0.45 per share fully diluted for the same period last year. The improved
results are primarily attributable to increased net interest income partially
offset by higher noninterest expenses and income tax expense.
Net Interest Income
Net interest income represents the difference between income on interest-earning
assets and expense on interest-bearing liabilities. Net interest income is
affected by the mix and volume of assets and liabilities, and the movement and
level of interest rates. The Company invests in certain assets that have
preferential tax treatment. In order to present yields on a comparable basis,
net interest income is presented on a fully taxable equivalent basis for
purposes of yield and margin analysis.
The following table sets forth, for the period indicated, average balances,
interest income and expense, and yields earned or rates paid on the major
categories of assets and liabilities. Non-accrual loans have been included in
the appropriate average balance loan category, but unpaid interest on
non-accrual loans has not been included for purposes of determining interest
income. In addition, investment securities available for sale are reflected at
amortized cost.
8
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended March 31,
------------------------------------------------------------------------------
1997 1996
-------------------------------------- --------------------------------------
Average Average Average Average
Balance Interest(1) Yield/Cost(1) Balance Interest(1) Yield/Cost(1)
---------- ----------- ------------- --------- ----------- -------------
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Fed funds sold and interest-bearing deposits $ 17,569 $ 229 5.21% $ 15,792 $ 214 5.36%
Investment securities held to maturity 193,075 3,363 6.97% 174,574 2,946 6.75%
Investment securities available for sale 457,804 7,873 6.88% 260,110 4,126 6.35%
Residential real estate loans 237,316 4,732 7.98% 255,386 5,033 7.88%
Commercial real estate loans 115,275 2,557 8.87% 118,681 2,444 8.24%
Commercial loans 165,508 3,527 8.52% 111,522 2,492 8.84%
Home equity loans 106,078 2,075 7.93% 69,350 1,486 8.62%
Consumer loans 4,452 128 11.50% 6,858 97 5.66%
---------- ------ ------ ---------- ------ -----
Total interest-earning assets 1,297,077 24,484 7.55% 1,012,273 18,838 7.44%
Allowance for loan losses (15,883) (15,422)
Non-interest-earning assets 89,906 80,504
---------- ----------
Total assets $1,371,100 $24,484 $1,077,355 $18,838
========== ======= ========== =======
Interest-bearing liabilities:
Deposits
Savings accounts $ 198,288 $ 1,098 2.25% $ 188,855 $ 1,177 2.51%
NOW accounts 58,035 144 1.01% 54,246 168 1.25%
Money market accounts 205,236 1,677 3.31% 203,808 1,696 3.35%
Time deposit accounts 421,806 5,418 5.21% 370,581 5,036 5.47%
---------- ------ ------ ---------- ------ -----
Total interest-bearing deposits 883,365 8,337 3.83% 817,490 8,077 3.97%
Borrowed funds 256,880 3,534 5.50% 83,721 1,190 5.62%
---------- ------ ------ ---------- ------ -----
Total interest-bearing liabilities 1,140,245 11,871 4.22% 901,211 9,267 4.14%
Non-interest-bearing liabilities 130,405 96,523
---------- ----------
Total liabilities 1,270,650 997,734
Total stockholders' equity 100,450 79,621
---------- ----------
Total liabilities and stockholders' equity $1,371,100 $11,871 $1,077,355 $ 9,267
========== ======= ========== =======
Net interest income/spread $12,613 3.33% $ 9,571 3.30%
======= ==== ======= =====
Net interest margin as a % of interest-
earning assets 3.89% 3.78%
==== =====
Tax equivalent adjustment $ 120 $ --
------- -------
Net interest income/spread per Condensed Consolidated
Statement of Operations $12,493 $ 9,571
======= =======
<FN>
(1) On a fully taxable equivalent basis. Calculated using a Federal income tax rate of 34% for 1997 and 1996.
</FN>
</TABLE>
Net interest income on a fully taxable equivalent basis for the three months
ended March 31, 1997 was $12.6 million compared to $9.6 million for the three
months ended March 31, 1996, an increase of $3.0 million or 31.8%. Total
interest income was $24.5 million on a fully taxable equivalent basis for the
three months ended March 31, 1997, an increase of $5.6 million or 30.0% from the
same period last year. These increases are primarily due to an increase in
average interest-earning assets.
Average interest-earning assets totaled $1.3 billion in the first quarter of
1997 compared to $1.0 billion in the first quarter of 1996, an increase of
$284.8 million or 28.1%. Total investments increased $216.2 million and were
funded by higher deposit levels and borrowed funds. Total loans increased $66.8
million as the Company continued to focus on the commercial and home equity
market segments, which grew by $54.0 million or 48.4% and $36.7 million or
53.0%, respectively. Residential real estate loan balances declined $18.1
million or 7.1% for the three months ended March 31, 1997, reflecting
amortization and prepayments of the existing loan portfolio partially offset by
adjustable rate mortgage production. The Company originates long-term fixed rate
mortgages for sale in the secondary market and generally holds adjustable rate
mortgages in the Company's loan portfolio.
Total interest expense was $11.9 million for the three months ended March 31,
1997 compared to $9.3 million during the same period in 1996, an increase of
$2.6 million or 28.1%. This increase is attributable to increases in
interest-bearing deposits and borrowed funds. Interest-bearing deposits totaled
$883.4 million for the quarter ended March 31, 1997 compared to $817.5 million
for the same period in 1996, an increase of $65.9 million or 8.1%. This growth
occurred primarily in time deposits which increased $51.2 million largely
attributable to the introduction of new CD products. Borrowed funds averaged
$256.9 million for the three months ended March 31, 1997 compared to $83.7
9
<PAGE>
million for the same period in 1996 reflecting the use of Federal Home Loan Bank
("FHLB") advances and repurchase agreements to leverage a portion of the
Company's capital.
The following table presents the changes in net interest income (on a fully
taxable equivalent basis) resulting from changes in interest rates or changes in
the volume of interest-earning assets and interest-bearing liabilities during
the periods indicated. Changes which are attributable to both rate and volume
have been allocated evenly between the change in rate and volume components.
Three Months Ended March 31,
1997 versus 1996
--------------------------------
Increase (Decrease) Due to
--------------------------------
Volume Rate Net
-------- -------- ----------
(Dollars In Thousands)
Interest-earning assets:
Federal funds sold and
interest bearing deposits $ 24 $ (9) $ 15
Investment securities held to maturity 317 100 417
Investment securities available for sale 3,268 479 3,747
Residential real estate loans (358) 57 (301)
Commercial real estate loans (73) 186 113
Commercial loans 1,178 (143) 1,035
Home equity loans 753 (164) 589
Consumer loans (52) 83 31
------- ------- -------
Total interest-earning assets 5,057 589 5,646
------- ------- -------
Interest-bearing liabilities:
Deposits:
Savings accounts 56 (135) (79)
NOW accounts 11 (35) (24)
Money market accounts 12 (31) (19)
Time deposit accounts 676 (294) 382
------- ------- -------
Total deposits 755 (495) 260
Borrowed funds 2,422 (78) 2,344
------- ------- -------
Total interest-bearing liabilities 3,177 (573) 2,604
------- ------- -------
Change in net interest income $ 1,880 $ 1,162 $ 3,042
======= ======= =======
Provision for Possible Loan Losses
The Company's provision for possible loan losses was $0.4 million for the first
quarter of 1997 compared to $0.7 million in the first quarter of 1996. The
provision for possible loan losses is based upon management's judgment of the
amount necessary to maintain the allowance for possible loan losses at a level
which is considered adequate.
10
<PAGE>
Non-interest Income
Non-interest income is composed of fee income for bank services and gains or
losses from the sale of assets. The components of non-interest income for the
periods presented are as follows:
Three months ended
March 31,
-------------------------
1997 1996
--------- --------
Net gain on sale of loans $ 106 $ 270
Net gain on sale of securities -- 2
Loan charges and fees 685 707
Deposit related fees 1,604 1,403
Other charges and fees 323 199
------ ------
$2,718 $2,581
====== ======
Net gain on sale of loans decreased $0.2 million. Management attributes the
decrease to reduced production and sale of fixed rate single family residential
mortgage loans due to a higher interest rate environment.
Deposit service charges increased $0.2 million due primarily to fees associated
with the Company's larger noninterest bearing account base.
Non Interest Expense
Salaries and Benefits Expense
Salaries and benefits expense totaled $4.7 million for the first quarter of 1997
compared to $4.3 million for the same period in 1996, an increase of $0.4
million reflecting standard wage increases as well as an increase in staffing
related to new branch openings and branch related support personnel for the
Company's consumer strategy.
Occupancy Expense of Bank Premises
Occupancy expense of bank premises totaled $1.0 million for the first quarter
1997 compared to $0.8 million for the same period in 1996, an increase of $0.2
million. This increase is primarily due to costs associated with the expansion
of the retail branch network and the addition of stand alone ATMs.
11
<PAGE>
Other Operating Expense
The components of other operating expense for the periods presented are as
follows:
Three months ended
March 31,
------------------------------
1997 1996
-------- --------
Marketing $ 591 $ 330
Insurance 139 101
Professional services 747 640
Outside processing 1,117 957
Other 1,079 1,088
------ ------
$3,673 $3,116
====== ======
Marketing expense increased $0.3 million related to advertising and marketing
expenses associated with the promotion of home equity lines and loans.
Outside processing increased $0.2 million, reflecting higher transaction and
account volume resulting from the Company's consumer strategy.
Net Expense of Real Estate Operations
The Company has certain subsidiaries that are engaged in various real estate
investments, directly or in joint ventures with unaffiliated partners. In
accordance with the Federal Deposit Insurance Corporation Improvement Act of
1991 ("FDICIA"), the Company has terminated its real estate development
activities and is in the process of selling its remaining real estate
investments. Net expense of real estate operations was $0.4 million higher
during the first quarter of 1997 compared to the same period in 1996. In the
first quarter of 1997, the Company recognized a $0.6 million gain on the sale of
a real estate property which was offset by the establishment of a reserve of
$1.0 million relating to the divestment of Colebrook. The $1.0 million reserve
consists of $0.7 million in severance and benefit accruals and $0.3 million for
other expenses. As of March 31, 1997, no amounts have been paid relating to the
divestiture. This divestment is scheduled to be completed within one year.
Income Taxes
For the three months ended March 31, 1997 the Company recorded income tax
expense of $1.8 million compared with income tax expense of $0.2 million for the
three months ended March 31, 1996. The increase in income tax expense is
attributable to the Company becoming fully taxable for financial reporting
purposes beginning in the fourth quarter of 1996 and a 73.6% increase in pre-tax
earnings.
12
<PAGE>
Balance Sheet Analysis - Comparison Of March 31, 1997 To December 31, 1996
Total assets increased from $1.3 billion at December 31, 1996 to $1.4 billion at
March 31, 1997. This increase primarily reflects growth in loans and investments
funded through an increase in deposits and wholesale borrowings.
Investments
The Company's investment portfolio increased $27.2 million from $641.5 million
at December 31, 1996 to $668.7 million at March 31, 1997.
The Company engages in investment activities for both investment and liquidity
purposes. The Company maintains an investment securities portfolio which
consists primarily of U.S. Government and Agency securities, corporate
obligations, asset-backed securities, collateralized mortgage obligations,
Federal Home Loan Bank stock, and marketable equity securities. Other short-term
investments held by the Company periodically include interest-bearing deposits
and federal funds sold. The Company also maintains a mortgage-backed securities
portfolio consisting of securities issued and guaranteed by the Federal National
Mortgage Association ("FNMA") and the Federal Home Loan Mortgage Company
("FHLMC") in addition to publicly traded mortgage-backed securities issued by
private financial intermediaries which are rated "AA" or higher by rating
agencies of national prominence.
Securities which the Company has the intent and ability to hold until maturity
are classified as held-to-maturity and are carried at amortized cost, while
those securities which have been identified as assets that may be sold prior to
maturity or assets for which there is not a positive intent to hold to maturity
are classified as available-for-sale and are carried at fair value, with
unrealized gains and losses excluded from earnings and reported as a separate
component of stockholders' equity.
The table below sets forth certain information regarding the amortized cost and
fair value of the Company's investment portfolio at the dates indicated.
<TABLE>
<CAPTION>
March 31, 1997
-----------------------------------------------------------
Available for Sale Held to Maturity
---------------------------- ---------------------------
(Dollars In Thousands)
Amortized Amortized
Cost Fair Value Cost Fair Value
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
U.S. Government and Agency obligations $ 30,898 $ 30,652 $ -- $ --
Collateralized mortgage obligations 27,594 27,359 -- --
Mortgage-backed securities 401,198 402,574 142,020 139,930
Asset-backed securities -- -- 46,394 45,832
Other bonds and short term obligations -- -- 200 200
Other securities 19,331 19,485 -- --
-------- -------- -------- --------
Total $479,021 $480,070 $188,614 $185,962
======== ======== ======== ========
<CAPTION>
December 31, 1996
-----------------------------------------------------------
Available for Sale Held to Maturity
---------------------------- ---------------------------
(Dollars In Thousands)
Amortized Amortized
Cost Fair Value Cost Fair Value
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
U.S. Government and Agency obligations $ 29,901 $ 29,943 $ -- $ --
Collateralized mortgage obligations 28,965 29,007 -- --
Mortgage-backed securities 371,921 374,218 149,856 149,252
Asset-backed securities -- -- 42,118 42,165
Other bonds and short term obligations 1,681 1,681 200 200
Other securities 14,276 14,474 -- --
-------- -------- -------- --------
Total $446,744 $449,323 $192,174 $191,617
======== ======== ======== ========
</TABLE>
13
<PAGE>
Loan Portfolio Composition
Gross loans comprised $631.4 million or 45.0% of total assets as of March 31,
1997. The following table sets forth information concerning the Company's loan
portfolio in dollar amounts and percentages, by type of loan at March 31, 1997
and at December 31, 1996.
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
----------------------- ------------------------
Percent of Percent of
Amount Total Amount Total
--------- ---------- ------------ ----------
(Dollars In Thousands)
<S> <C> <C> <C> <C>
Residential real estate loans $236,622 37.47% $242,410 38.79%
Commercial real estate loans 112,280 17.78% 118,442 18.95%
Commercial loans 170,782 27.05% 155,808 24.93%
Home equity loans 106,460 16.86% 104,206 16.67%
Consumer loans 5,278 0.84% 4,132 0.66%
-------- ------ -------- ------
Total loans receivable, gross 631,422 100.00% 624,998 100.00%
-------- ------ -------- ------
Less:
Unearned income and fees (1,312) (1,196)
Allowance for loan losses 16,287 15,597
-------- --------
Total loans receivable, net $616,447 $ 610,597
======== =========
</TABLE>
The Company continues to actively originate loans secured by first mortgages on
one to four family residences, and offers a variety of fixed and adjustable rate
mortgage loan products. The Company originates long-term fixed rate mortgages
for sale in the secondary market and generally holds adjustable rate mortgages
in the Company's loan portfolio. During the three months ended March 31, 1997,
the Company experienced an increase in prepayments in its adjustable rate
mortgage portfolio. These prepayments offset new originations and resulted in a
$5.8 million decrease in residential real estate balances between December 31,
1996 and March 31, 1997.
During the three months ended March 31, 1997, commercial loan balances increased
$15.0 million, reflecting the Company's continued focus on lending activities in
the local business market. During this same period commercial real estate loan
balances decreased $6.1 million primarily due to prepayments.
Home equity loans outstanding have increased $2.3 million since December 31,
1996. Management attributes this increase to the active promotion of these
products.
Non-performing Assets
Non-performing assets totaled $6.4 million as of March 31, 1997 compared to $7.6
million as of December 31, 1996, a decrease of $1.2 million or 15.3%. The
decrease was principally attributable to a decrease of $2.1 million in
non-accruing commercial real estate loans partially offset by an increase of
$0.9 million in loans past due 90 days but still accruing. The decrease in
non-accruing commercial real estate loans is attributable primarily to the
payment in full of two loans.
14
<PAGE>
The following table sets forth information regarding the components of
non-performing assets for the periods presented:
March 31, December 31,
1997 1996
----------- -----------
(Dollars In Thousands)
Non-accrual loans (1):
Residential real estate loans $1,415 $1,287
Commercial real estate loans 2,362 4,428
Commercial loans 577 674
Home equity loans 188 157
Consumer loans 3 1
------ ------
Total non-accrual loans 4,545 6,547
------ ------
Loans past due 90 days still accruing (2) 1,315 428
------ ------
Total non-performing loans 5,860 6,975
Foreclosed real estate (3) 344 381
Restructured loans on accrual status (4) 197 198
====== ======
Total non-performing assets $6,401 $7,554
====== ======
Total non-performing loans to total
gross loans 0.93% 1.12%
Total non-performing assets to total
assets 0.46% 0.56%
Allowance for possible losses to
non-performing loans 277.94% 223.61%
(1) Non-accrual loans are loans that are contractually past due in excess of 90
days, for which the Company has stopped the accrual of interest, or loans which
are not past due but on which the Bank has stopped the accrual of interest based
on management's assessment of the circumstances surrounding
these loans.
(2) Accruing loans past due 90 days or more are loans which have not been placed
on non-accrual status as, in management's opinion, the collection of the loan,
in full, is not in doubt.
(3) Foreclosed real estate includes OREO, defined as real estate acquired
through foreclosure or acceptance of a deed in lieu of foreclosure. The Company
carries foreclosed real estate at the lower of cost or net realizable value,
which approximates fair value less estimated selling costs.
(4) Restructured loans are loans for which concessions, including reduction of
interest rates or deferral of interest or principal payments, have been granted
due to the borrower's financial condition. Restructured loans on non-accrual
status are reported in the non-accrual loan category. Restructured loans on
accrual status are those loans that have complied with terms of a restructuring
agreement for a satisfactory period (generally six months).
15
<PAGE>
Allowance for Possible Loan Losses
The allowance for possible loan losses reflects an amount that, in management's
judgment, is adequate to provide for potential losses in the loan portfolio. In
addition, examinations of the adequacy of the loan loss reserve are conducted
periodically by various regulatory agencies. The allowance for possible loan
losses at March 31, 1997 was $16.3 million, compared to $14.6 million at March
31, 1996. The activity in the allowance for possible loan losses for the three
months ended March 31, 1997 and 1996 was as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------
1997 1996
---------- -----------
(Dollars In Thousands)
<S> <C> <C>
Balance, beginning of period $ 15,597 $ 14,986
Provision for loan losses 401 700
Charge-offs:
Residential real estate loans (3) --
Commercial real estate loans -- (1,866)
Commercial loans (128) --
Home equity loans (15) (63)
Consumer loans (44) (18)
-------- --------
Total charge-offs (190) (1,947)
Recoveries:
Residential real estate loans 1 408
Commercial real estate loans 426 407
Commercial loans 39 45
Home equity loans 5 11
Consumer loans 8 9
-------- --------
Total recoveries 479 880
-------- --------
Net recoveries/(charge offs) 289 (1,067)
Balance, end of period $ 16,287 $ 14,619
========= =======
Ratio of net loan recoveries/(charge offs) during the period to
average loans outstanding during the period 0.05% (0.19%)
Ratio of allowance for possible loan losses to total loans
at the end of the period 2.58% 2.54%
Ratio of allowance for possible loan losses to non-performing
loans at the end of the period 277.94% 133.73%
</TABLE>
16
<PAGE>
At March 31, 1997, the recorded investment in loans that are considered impaired
under SFAS 114 "Accounting by Creditors for Impairment of a Loan" was $9.6
million. Included in this amount is $1.4 million of impaired loans for which the
related SFAS 114 allowance is $0.3 million and $8.2 million of impaired loans
for which the SFAS 114 allowance is zero. The average recorded investment in
impaired loans during the three months ended March 31, 1997 was approximately
$8.6 million. For the three month period ended March 31, 1997, the Company
recognized interest income on these impaired loans of $0.1 million.
The following table shows the allocation of the allowance for possible loan
losses to the various types of loans as well as the percentage of loans in each
category to total loans.
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
------------------------------- --------------------------------
% of % of
Total Total
Allowance for Allowance for
Amount Loan Losses Amount Loan Losses
------------- ------------- ------------ --------------
<S> <C> <C> <C> <C>
Residential real estate loans $ 2,289 14.05% $ 1,540 9.87%
Commercial real estate loans 4,986 30.61% 5,808 37.24%
Commercial loans 6,831 41.95% 6,711 43.03%
Home equity loans 1,585 9.73% 1,207 7.74%
Consumer loans 596 3.66% 331 2.12%
------- ------ ------- ------
Total allowance for possible loan losses $16,287 100.00% $15,597 100.00%
======= ====== ======= ======
</TABLE>
Deposit Distribution
The principal source of funds for the Company are deposits from local consumers
and businesses. There were no brokered deposits at March 31, 1997. The Company's
deposits consist of demand and NOW accounts, passbook and statement savings
accounts, money market accounts and time deposits.
Total deposits were $1.0 billion at March 31, 1997 compared to $969.5 million at
December 31, 1996, an increase of $37.4 million. This growth occurred primarily
in demand deposits, savings accounts and time deposits. Demand deposits and
savings accounts increased $9.6 million and $9.7 million, respectively, as
customers continue to take advantage of free savings and checking accounts
offered as a result of the Company's consumer deposit strategy to attract and
retain core deposits, which provide the Company with a lower cost source of
funds. The $16.4 million growth in time deposits is primarily attributable to
the introduction of new CD products.
The following table presents the composition of deposits for the periods
indicated:
March 31, 1997 December 31, 1996
------------------------ --------------------------
Percent Percent
of of
Amount Total Amount Total
----------- --------- ----------- ----------
(Dollars In Thousands)
Demand deposits $ 110,128 10.94% $ 100,527 10.37%
NOW accounts 61,185 6.08% 57,980 5.98%
Savings accounts 205,117 20.37% 195,418 20.16%
Money market accounts 207,995 20.66% 209,523 21.61%
Time deposits 422,448 41.95% 406,069 41.88%
---------- ------ ---------- ------
Total deposits $1,006,873 100.00% $ 969,517 100.00%
========== ====== ========== ======
17
<PAGE>
Borrowings
Borrowings consist of FHLB advances, securities sold under agreements to
repurchase, and loans payable. The Company generally uses borrowings to fund
loan growth and to leverage a portion of its capital position. Borrowings
increased $14.2 million from $247.9 million at December 31, 1996 to $262.1
million at March 31, 1997 reflecting a portion of the funding for the growth in
loans and investments.
Regulatory Capital
The Company is subject to various regulatory capital requirements administered
by the federal banking agencies. 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 adverse effect
on the Company's financial statements. Under applicable capital adequacy
requirements the Company must meet specific minimum capital requirements that
involve quantitative measures of the Company's assets, liabilities, and certain
off-balance sheet items as calculated under regulatory accounting practices. The
Company's capital amounts and classification are also subject to qualitative
judgments by the regulators about components, risk weightings, and other
factors.
Quantitative measures established by regulation to ensure capital adequacy
require both the Company and the Bank to maintain minimum amounts and ratios
(set forth in the table below) of total and Tier 1 capital to risk-weighted
assets and Tier 1 capital to average assets. As of March 31, 1997 both the
Company and the Bank exceed all capital adequacy requirements to which they are
subject and qualify as "well capitalized" under applicable regulations of the
Board of Governors of the Federal Reserve System (the "Federal Reserve Board")
and the FDIC. <FN1>
The Company's and Bank's actual capital amounts and ratios are presented in the
table. No deductions were made from capital for interest-rate risk.
<TABLE>
<CAPTION>
Minimum Minimum
Requirements Requirements
For Capital To Qualify As
Actual Adequacy Purposes Well Capitalized
-------------------- ------------------- --------------------
Amount Ratio Amount Ratio Amount Ratio
--------- ------- --------- ------- ---------- --------
As of March 31, 1997:
<S> <C> <C> <C> <C> <C> <C>
Tier I Capital (to Average Assets)
Company $ 96,695 7.1% $ 54,689 4.0% N/A
Bank $ 95,618 7.0% $ 54,650 4.0% $ 68,313 5.0%
Tier I Capital (to Risk Weighted Assets)
Company $ 96,695 12.5% $ 31,056 4.0% $ 46,584 6.0%
Bank $ 95,618 12.3% $ 31,038 4.0% $ 46,557 6.0%
Total Capital (to Risk Weighted Assets)
Company $106,476 13.7% $ 62,112 8.0% $ 77,640 10.0%
Bank $105,399 13.6% $ 62,076 8.0% $ 77,595 10.0%
<CAPTION>
As of December 31, 1996:
<S> <C> <C> <C> <C> <C> <C>
Tier I Capital (to Average Assets)
Company $ 96,317 7.4% $ 52,007 4.0% N/A
Bank $ 95,816 7.4% $ 51,999 4.0% $ 64,999 5.0%
Tier I Capital (to Risk Weighted Assets)
Company $ 96,317 12.8% $ 30,118 4.0% $ 45,177 6.0%
Bank $ 95,816 12.7% $ 30,110 4.0% $ 45,165 6.0%
Total Capital (to Risk Weighted Assets)
Company $105,804 14.1% $ 60,236 8.0% $ 75,296 10.0%
Bank $105,300 14.0% $ 60,220 8.0% $ 75,275 10.0%
</TABLE>
<FN1>Recent amendments to the Federal Reserve Board's Regulation Y, which
included a definition of "well capitalized" for bank holding companies,
became effective on April 21, 1997.
18
<PAGE>
Interest Rate Risk Management
Using management's estimates of asset prepayments and core deposit decay in its
computation, the Company estimates that its cumulative one-year gap position was
liability sensitive by $37.0 million or 2.64% of total assets at March 31, 1997.
The following table sets forth the amounts of assets and liabilities outstanding
at March 31, 1997, which are anticipated by the Company to mature or reprice in
each of the future time periods shown using certain assumptions based on its
historical experience, the current interest rate environment, and other data
available to management. Management believes that these assumptions approximate
actual experience and considers such assumptions reasonable, however, the
interest rate sensitivity of the Company's assets and liabilities could vary
substantially if different assumptions were used or actual experience differs
from the assumptions used. Management periodically reviews and, when
appropriate, changes assumptions used in creating this table.
19
<PAGE>
<TABLE>
<CAPTION>
GAP Position
At March 31, 1997
----------------------------------------------------------------------
More than six
Less than months less
six months than one year 1 - 5 Years Over 5 Yrs TOTAL
------------ ------------- ------------- ------------ ------------
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C>
Assets:
Federal funds sold and
interest bearing deposits $ 21,656 $ -- $ -- $ -- $ 21,656
Investment securities 296,215 160,763 180,267 31,439 668,684
Residential real estate loans 77,393 43,204 101,559 13,366 235,522
Commercial real estate loans 28,185 16,628 58,568 6,554 109,935
Commercial loans 77,672 10,492 73,827 8,508 170,499
Home equity loans 83,464 1,193 13,357 8,983 106,997
Consumer loans 4,727 52 217 241 5,237
Other assets -- -- -- 85,215 85,215
---------- ---------- ---------- ---------- ----------
Total assets $ 589,312 $ 232,332 $ 427,795 $ 154,306 $1,403,745
========== ========== ========== ========== ==========
Liabilities & stockholders' equity:
Savings accounts $ 30,768 $ 30,768 $ 143,581 $ -- $ 205,117
NOW accounts 9,178 9,178 42,829 -- 61,185
Money market accounts 62,398 62,398 83,199 -- 207,995
Time deposits 251,785 111,421 59,242 -- 422,448
Borrowed funds 246,660 250 7,330 7,871 262,111
Other liabilities & stockholders' equity 21,922 21,922 65,766 135,279 244,889
---------- ---------- ---------- ---------- ----------
Total liabilities & stockholders' equity $ 622,711 $ 235,937 $ 401,947 $ 143,150 $1,403,745
========== ========== ========== ========== ==========
Period GAP position $ (33,399) $ (3,605) $ 25,848 $ 11,156
Net period GAP as a percentage of total assets (2.38%) (0.26%) 1.84% 0.79%
Cumulative GAP $ (33,399) $ (37,004) $ (11,156) --
Cumulative GAP as a percentage of total
assets (2.38%) (2.64%) (0.79%) --
<FN>
For purposes of the above interest sensitivity analysis:
Residential loans held for sale at March 31, 1997 totaling $2.4 million are
in the less than six month interest sensitivity period.
Fixed rate assets are scheduled by contractual maturity and adjustable rate
assets are scheduled by their next repricing date. In both cases, assets
that have prepayment optionality are adjusted for the Company's estimate of
prepayments.
Loans do not include non-accrual loans of $4.5 million.
Loans do not include the allowance for loan loss of $16.3 million.
In certain deposit categories where there is no contractual maturity,
Management assumed the sensitivity characteristics listed below based on
the current interest rate environment and the Company's historical
experience. Management reviews these assumptions on a quarterly basis and
may modify them as circumstances dictate.
- Savings accounts are assumed to decay at an annual rate of 30%.
- NOW accounts are assumed to decay at an annual rate of 30%.
- Money market accounts are assumed to decay at an annual rate of 60%.
- Non-interest bearing accounts of $110.1 million are included in
other liabilities and are assumed to decay at an annual rate of 40%.
</FN>
</TABLE>
Certain shortcomings are inherent in the method of analysis presented in the
foregoing table. For example, while certain assets and liabilities may have
similar contractual maturities or periods to repricing, they may react in
different ways to changes in market interest rates. Further, in the event of a
change in interest rates, prepayment and early
20
<PAGE>
withdrawal levels would likely deviate significantly from those assumed in
calculating the table. Additionally, certain assets, such as adjustable rate
mortgages, have features which restrict changes in interest rates on a
short-term basis and over the life of the asset. Finally, the ability of
borrowers to service their adjustable rate mortgages may decrease in the event
of an interest rate increase.
Liquidity
Liquidity measures the ability of the Company to meet its maturing obligations
and existing commitments, to withstand fluctuations in deposit levels, to fund
its operations and to provide for customer credit needs. If the Company requires
funds beyond its ability to generate them internally, it has additional
borrowing capacity with the FHLB and collateral eligible for repurchase
agreements. Because the Company has a stable retail deposit base, management
believes that significant borrowings will not be necessary to maintain its
current liquidity position. Management intends to continue seeking opportunities
for expansion and believes that the Company's liquidity, capital resources and
borrowing capabilities are adequate for its current and intended operations.
21
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is involved in litigation arising in the normal course of
business. Management does not believe that the ultimate liabilities arising from
such litigation, if any, would be material in relation to the consolidated
results of operations or financial position of the Company.
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
Not applicable
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - none
(b) Reports on Form 8-K
On January 23, 1997, a Form 8-K was filed by the Company relating
to (i) the adoption of a Shareholder Rights Plan on January 22, 1997;
(ii) a Stock Repurchase Program authorizing the purchase of up to 5% of
the Company's Common Stock; (iii) and a Press Release issued on 1/23/97
relating to the announcement of financial results for the year ended
12/31/96 and the declaration of a quarterly cash dividend of $0.12 per
share payable on February 20, 1997 to holders of record as of the close
of business on February 3, 1997.
22
<PAGE>
SIGNATURES
Under the requirements of the Securities Exchange Act of 1934, as amended, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SIS BANCORP, INC.
(Registrant)
May 13, 1997 /s/ F. William Marshall, Jr.
Date F. William Marshall, Jr.
President and Chief Executive Officer
May 13, 1997 /s/ John F. Treanor
Date John F. Treanor
Executive Vice President
and Chief Financial Officer
23
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
unaudited financial statements of SIS Bancorp, Inc. at and for the period ended
March 31, 1997 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 42,524
<INT-BEARING-DEPOSITS> 3,656
<FED-FUNDS-SOLD> 18,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 480,070
<INVESTMENTS-CARRYING> 188,614
<INVESTMENTS-MARKET> 185,962
<LOANS> 616,447
<ALLOWANCE> 16,287
<TOTAL-ASSETS> 1,403,745
<DEPOSITS> 1,006,873
<SHORT-TERM> 259,263
<LIABILITIES-OTHER> 33,441
<LONG-TERM> 2,848
0
0
<COMMON> 57
<OTHER-SE> 101,263
<TOTAL-LIABILITIES-AND-EQUITY> 1,403,745
<INTEREST-LOAN> 12,984
<INTEREST-INVEST> 11,151
<INTEREST-OTHER> 229
<INTEREST-TOTAL> 24,364
<INTEREST-DEPOSIT> 8,337
<INTEREST-EXPENSE> 11,871
<INTEREST-INCOME-NET> 12,493
<LOAN-LOSSES> 401
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 3,673
<INCOME-PRETAX> 4,541
<INCOME-PRE-EXTRAORDINARY> 4,541
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,770
<EPS-PRIMARY> .50
<EPS-DILUTED> .50
<YIELD-ACTUAL> 7.51
<LOANS-NON> 4,545
<LOANS-PAST> 1,315
<LOANS-TROUBLED> 197
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 15,597
<CHARGE-OFFS> 190
<RECOVERIES> 479
<ALLOWANCE-CLOSE> 16,287
<ALLOWANCE-DOMESTIC> 16,287
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
