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 09/30/97
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: 5,580,842 shares as of November 3,
1997.
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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 of 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; (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.
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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 and nine months ended September 30, 1997 and 1996................. 1
Condensed Consolidated Statement of Financial Condition
at September 30, 1997 and December 31, 1996............................. 2
Condensed Consolidated Statement of Cash Flows for the
nine months ended September 30, 1997 and 1996........................... 3
Condensed Consolidated Statement of Changes in Stockholders' Equity
for the nine months ended September 30, 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............................................... 28
Item 2. Changes in Securities........................................... 28
Item 3. Default upon Senior Securities.................................. 28
Item 4. Submission of Matters to a Vote of Security Holders............. 28
Item 5. Other Information............................................... 28
Item 6. Exhibits and Reports on Form 8-K................................ 28
SIGNATURES.............................................................. 29
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SIS BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars In Thousands Except Per Share Amounts)
(Unaudited) (Unaudited)
Three Months Ended Nine Months Ended
--------------------------------- ------------------------------
September 30, September 30, September 30, September 30,
1997 1996 1997 1996
-------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Interest and dividend income:
Loans $ 13,958 $ 12,472 $ 40,285 $ 35,946
Investment securities available for sale 8,019 5,934 24,105 15,230
Investment securities held to maturity 3,169 3,279 9,849 9,494
Federal funds sold and short term investments 357 121 716 380
-------- -------- -------- --------
Total interest and dividend income 25,503 21,806 74,955 61,050
-------- -------- -------- --------
Interest expense:
Deposits 8,735 8,270 25,614 24,338
Borrowings 4,258 2,291 11,782 5,439
-------- -------- -------- --------
Total interest expense 12,993 10,561 37,396 29,777
-------- -------- -------- --------
Net interest and dividend income 12,510 11,245 37,559 31,273
Less: Provision for possible loan losses 402 750 1,203 2,200
-------- -------- -------- --------
Net interest and dividend income after provision
for possible loan losses 12,108 10,495 36,356 29,073
Noninterest income:
Net gain on sale of loans 136 105 328 537
Net gain on sale of securities 10 62 21 64
Fees and other income 3,157 2,761 8,533 7,645
-------- -------- -------- --------
Total noninterest income 3,303 2,928 8,882 8,246
-------- -------- -------- --------
Noninterest expense:
Operating expenses:
Salaries and employee benefits 4,971 4,408 14,631 12,900
Occupancy expense of bank premises, net 982 810 2,885 2,387
Furniture and equipment expense 565 558 1,596 1,614
Other operating expenses 3,751 3,846 10,992 10,617
-------- -------- -------- --------
Total operating expenses 10,269 9,622 30,104 27,518
-------- -------- -------- --------
Foreclosed real estate expense 90 29 58 252
Net (income) expense of real estate operations (63) (8) 416 (170)
-------- -------- -------- --------
Total noninterest expense 10,296 9,643 30,578 27,600
Income before income tax expense (benefit) 5,115 3,780 14,660 9,719
Income tax expense (benefit) 1,946 (6,421) 5,731 (5,931)
-------- -------- -------- --------
Net income $ 3,169 $ 10,201 $ 8,929 $ 15,650
======== ======== ======== ========
Earnings per share:
Primary $ 0.57 $ 1.85 $ 1.60 $ 2.86
Fully diluted $ 0.57 $ 1.84 $ 1.58 $ 2.82
Weighted average shares outstanding:
Primary 5,521,785 5,511,554 5,584,339 5,475,422
Fully diluted 5,559,872 5,556,512 5,647,024 5,543,980
See accompanying Notes to the Unaudited Financial Statements
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1
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SIS BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(Dollars In Thousands Except Share Amounts)
(Unaudited)
September 30, December 31,
1997 1996
-------------- -----------
ASSETS
<S> <C> <C>
Cash and due from banks $ 34,464 $ 31,902
Federal funds sold and short-term investments 6,692 10,045
Investment securities available for sale 502,868 449,323
Investment securities held to maturity (fair value: $182,537 at September 30, 1997
and $191,617 at December 31, 1996) 182,320 192,174
Loans receivable, net of allowance for possible losses
($18,393 at September 30, 1997 and $15,597 at December 31, 1996) 670,056 610,597
Accrued interest and dividends receivable 9,517 8,982
Investments in real estate and real estate partnerships 2,666 2,757
Foreclosed real estate, net 199 381
Bank premises, furniture and fixtures, net 28,244 27,106
Other assets 15,991 15,345
----------- -----------
Total assets $ 1,453,017 $ 1,348,612
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 1,021,613 $ 969,517
Federal Home Loan Bank advances 134,297 68,471
Securities sold under agreements to repurchase 148,888 176,577
Loans payable 2,670 2,848
Mortgage escrow deposits 6,543 4,396
Accrued expenses and other liabilities 32,048 24,886
----------- -----------
Total liabilities 1,346,059 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: 5,727,242 at September 30, 1997 and 5,723,600 at December 31, 1996;
outstanding: 5,580,842 at September 30, 1997 and 5,723,600 at December 31, 1996) 57 57
Unearned compensation (3,036) (3,693)
Additional paid-in capital 43,218 42,665
Retained earnings 67,901 60,993
Net unrealized gain on investment securities available for sale 2,678 1,895
Treasury stock, at cost (146,400 shares at September 30, 1997) (3,860) --
----------- -----------
Total stockholders' equity 106,958 101,917
----------- -----------
Total liabilities and stockholders' equity $ 1,453,017 $ 1,348,612
=========== ===========
See accompanying Notes to the Unaudited Financial Statements
</TABLE>
2
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<TABLE>
<CAPTION>
SIS BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars In Thousands)
(Unaudited)
Nine Months Ended
September 30,
------------------------
1997 1996
---------- ----------
<S> <C> <C>
Cash Flows From Operating Activities
Net income $ 8,929 $ 15,650
Adjustments to reconcile net income to net cash provided by/
(used for) operating activities
Provision for possible loan losses 1,203 2,200
Depreciation 2,275 2,271
Amortization of premium on investment securities, net 1,836 1,585
ESOP and restricted stock expenses 1,375 1,104
Investment security gains -- (64)
Income from equity investment in partnerships 6 (47)
Gain on sale of loans (328) (537)
Disbursements for mortgage loans held for sale (42,571) (65,258)
Receipts from mortgage loans held for sale 42,898 65,795
Loss on sale of fixed assets and real estate -- 343
Changes in other assets and other liabilities:
Increase in other assets, net (1,937) (8,501)
Increase in accrued expenses and other liabilities 7,162 3,092
--------- ---------
Net cash provided by operating activities 20,848 17,633
--------- ---------
Cash Flows From Investing Activities
Proceeds from sales of investment securities available for sale 7,002 30,863
Proceeds from maturities and principal payments received
on investment securities available for sale 117,753 90,816
Purchase of investment securities available for sale (178,248) (262,977)
Proceeds from maturities and principal payments received
on investment securities held to maturity 32,381 37,211
Purchase of investment securities held to maturity (22,876) (58,991)
Net decrease in investments in real estate -- 475
Net increase in loans receivable (60,980) (40,489)
Net decrease in foreclosed real estate 409 1,862
Proceeds from sale of loans 92 4,056
Proceeds from sale of fixed assets and leases -- 267
Purchase of fixed assets (3,328) (2,029)
--------- ---------
Net cash used for investing activities (107,795) (198,936)
--------- ---------
See accompanying Notes to the Unaudited Financial Statements
</TABLE>
3
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<TABLE>
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SIS BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (continued)
(Dollars In Thousands)
(Unaudited)
Nine Months Ended
September 30,
-----------------------
1997 1996
---------- ---------
<S> <C> <C>
Cash Flows from Financing Activities
Net increase in deposits 52,096 68,746
Net increase in borrowings 37,959 124,288
Net increase in mortgagors' escrow deposits 2,147 2,101
Net proceeds from exercise of stock options 168 --
Repurchase of common stock (4,193) --
Cash dividends paid (2,021) --
-------- --------
Net cash provided by financing activities 86,156 195,135
-------- --------
Increase in cash and cash equivalents (791) 13,832
Cash and cash equivalents, beginning of period 41,947 38,422
-------- --------
Cash and cash equivalents, end of period $ 41,156 $ 52,254
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for interest to depositors
and interest on debt $ 36,528 $ 29,861
Income taxes paid $ 2,172 $ 438
Non-cash investing activities:
Transfers to foreclosed real estate, net $ 227 $ 845
See accompanying Notes to the Unaudited Financial Statements
</TABLE>
4
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<TABLE>
SIS BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
For The Nine Months Ended September 30, 1997 and 1996
(Dollars In Thousands)
Net unrealized
gain (loss)
on investment
Additional securities Treasury
Common Unearned Paid-In Retained available Stock
Stock Compensation 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 $ 60,033 $ 1,895 $ - $ 101,917
Net income - - - 8,929 - - 8,929
Cash dividends declared ($0.38 per share) - - - (2,021) - - (2,021)
Issuance of common stock in connection with employee
and non-employee directors benefit programs - (98) (67) - - 333 168
Decrease in unearned compensation - 755 620 - - - 1,375
Change in unrealized gain on investment
securities available for sale - - - - 783 - 783
Treasury stock purchased - - - - - (4,193) (4,193)
------- --------- --------- --------- --------- ------- ---------
Balance at September 30, 1997 $ 57 $ (3,036) $ 43,218 $ 67,901 $ 2,678 $(3,860) $ 106,958
======= ========= ========= ========= ========= ======= =========
Balance at December 31, 1995 $ 57 $ (4,937) $ 41,790 $ 42,833 $ 1,726 $ - $ 81,469
Net income - - - 15,650 - - 15,650
Issuance of common stock in connection with employee
and non-employee directors benefit programs - (315) 297 - - - (18)
Decrease in unearned compensation - 970 382 - - - 1,352
Change in unrealized gain on investment
securities available for sale - - - - (1,393) - (1,393)
------- --------- --------- --------- --------- ------- ---------
Balance at September 30, 1996 $ 57 $ (4,282) $ 42,469 $ 58,483 $ 333 $ - $ 97,060
======= ========= ========= ========= ========= ======= =========
See accompanying Notes to the Unaudited Financial Statements
</TABLE>
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 and nine month interim periods 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 September 30, 1997 or on the results of its
operations for the three and nine month periods 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 December 31, 1997 financial statements.
If SFAS 128 had been effective during the first nine months of 1997, pro forma
basic EPS for the three and nine months ended September 30, 1997 would have been
$0.61 and $1.71, respectively. Pro forma diluted EPS for the three and nine
months ended September 30, 1997 would have been $0.58 and $1.60, respectively.
In June 1997, the Financial Accounting Standards Board issued SFAS 131,
"Disclosures about Segments of an Enterprise and Related Information" which
establishes standards for the way that public business enterprises report
6
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financial and descriptive information about its reportable operating segments in
annual financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. SFAS 131 defines reportable operating segments as components of an
enterprise about which separate financial information is available that is
evaluated regularly by management in deciding how to allocate resources in
assessing performance. The statement is effective for financial statements for
periods beginning after December 15, 1997. Management of the Company does not
believe that the adoption of SFAS 131 will have a material impact on its
financial statements.
4. Dividend Policy
The Company paid cash dividends in the amount of $0.12, $0.12 and $0.14 per
share on February 20, 1997, May 23, 1997 and August 21, 1997, respectively. On
October 22, 1997 the Company declared a dividend of $0.14 per share payable on
November 21, 1997 to shareholders of record as of the close of business on
November 4, 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 September 30,
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 September 30, 1997, no amounts have been paid relating to
the divestiture. This divestment is scheduled to be completed by March 31, 1998.
6. Agreement and Plan of Merger
On August 18, 1997, the Company and Glastonbury Bank & Trust Company ("GBT")
signed a definitive Agreement and Plan of Reorganization and on September 12,
1997 the parties signed a related Agreement and Plan of Merger, under which the
Company would acquire all of the outstanding shares of GBT (the "Merger"). GBT
is a Connecticut commercial bank that provides a variety of deposit, loan and
investments services to small and medium-sized businesses and consumers. As a
result of the Merger, GBT will become a wholly owned subsidiary of the Company.
The transaction will be accounted for as a pooling of interests and is
structured as a tax-free exchange of 0.74 of a share of the Company's common
stock for each of GBT's 1,829,920 shares of common stock. The Merger is
scheduled to be completed by year end 1997, and is subject to approval of the
shareholders of the Company and GBT as well as various regulatory agencies. As
of November 10, 1997 the Federal Reserve Bank of Boston and the Federal Deposit
Insurance Corporation notified the Company that they had no objections to the
notifications filed by the Company to acquire GBT. While the Company does not
anticipate any undue delays in receiving the remaining regulatory approvals, as
of November 10, 1997 the Company had not yet received the approvals of the
Massachusetts Board of Bank Incorporation and the Connecticut Department of
Banking.
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.
On August 18, 1997, the Company and Glastonbury Bank & Trust Company ("GBT")
signed a definitive Agreement and Plan of Reorganization and on September 12,
1997 the parties signed a related Agreement and Plan of Merger, under which the
Company would acquire all of the outstanding shares of GBT (the "Merger"). GBT
is a Connecticut commercial bank that provides a variety of deposit, loan and
investments services to small and medium-sized businesses and consumers. As a
result of the Merger, GBT will become a wholly owned subsidiary of the Company.
The transaction will be accounted for as a pooling of interests and is
structured as a tax-free exchange of 0.74 of a share of the Company's common
stock for each of GBT's 1,829,920 shares of common stock. The Merger is
scheduled to be completed by year end 1997, and is subject to approval of the
shareholders of the Company and GBT as well as various regulatory agencies. As
of November 10, 1997 the Federal Reserve Bank of Boston and the Federal Deposit
Insurance Corporation notified the Company that they had no objections to the
notifications filed by the Company to acquire GBT. While the Company does not
anticipate any undue delays in receiving the remaining regulatory approvals, as
of November 10, 1997 the Company had not yet received the approvals of the
Massachusetts Board of Bank Incorporation and the Connecticut Department of
Banking.
The Company has conducted a review of its computer systems to identify those
areas that could be affected by the "Year 2000" issue (i.e., that current
computer programs use only two digits to identify a year in the date field and
cannot reflect a change in the century) and is developing an implementation plan
to resolve the issue. A timely resolution of the Year 2000 issue depends largely
upon the expertise and advice of outside vendors and consultants retained by the
Company to both modify existing software and develop new software to address
current deficiencies. The Company is not aware of any obstacles or issues that
are presently anticipated in connection with the resolution of the Year 2000
issue that are likely to cause significant operational problems or are otherwise
expected to have a material adverse effect on the Company's financial condition
or future results of operations.
Results of Operations for the Three Months Ended September 30, 1997 and
September 30, 1996
The Company reported net income of $3.2 million, or $0.57 per share fully
diluted for the three months ended September 30, 1997 as compared to net income
of $10.2 million, or $1.84 per share fully diluted for the same period last
year. In 1996 financial results for the quarter were affected by two
non-recurring tax events totaling $8.0 million. Excluding the impact of these
tax items, the Company experienced an increase in pre-tax operating earnings
primarily attributable to increased net interest income and noninterest income
as well as lower provisions for possible loan losses, partially offset by higher
noninterest expense 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
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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.
<TABLE>
<CAPTION>
Three Months Ended September 30,
------------------------------------------------------------------------------------------
1997 1996
--------------------------------------------- ----------------------------------------
Average
Average Average Average Yield/
Balance Interest (1) Yield/Cost (1) Balance Interest (1) Cost(1)
-------------- --------------- --------------- -------------- ------------ ----------
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Fed funds sold and short-term investments $ 26,011 $ 357 5.37% $ 9,029 $ 122 5.29%
Investment securities held to maturity 180,931 3,169 7.01% 193,415 3,279 6.78%
Investment securities available for sale 484,878 8,082 6.67% 353,556 5,975 6.76%
Residential real estate loans 235,559 4,766 8.09% 241,064 4,764 7.90%
Commercial real estate loans 120,172 2,606 8.67% 119,211 2,596 8.71%
Commercial loans 178,298 3,836 8.42% 139,128 3,053 8.59%
Home equity loans 128,779 2,587 7.97% 87,201 1,834 8.37%
Consumer loans 4,534 163 14.38% 4,373 225 20.58%
----------- --------- ------ ----------- -------- ------
Total interest-earning assets 1,359,162 25,566 7.52% 1,146,977 21,848 7.62%
Allowance for loan losses (17,550) (15,195)
Non-interest-earning assets 93,694 86,001
----------- -----------
Total assets $ 1,435,306 $ 25,566 $ 1,217,783 $ 21,848
=========== ========= =========== ========
Interest-bearing liabilities:
Deposits
Savings accounts $ 206,050 $ 1,165 2.24% $ 196,741 1,236 2.50%
NOW accounts (2) 28,284 73 1.02% 56,639 156 1.10%
Money manager accounts (2) 31,572 85 1.07% - - 0.00%
Money market accounts 206,880 1,736 3.33% 208,641 1,740 3.32%
Time deposit accounts 426,855 5,676 5.28% 389,219 5,137 5.25%
----------- --------- ------ ----------- -------- ------
Total interest-bearing deposits 899,641 8,735 3.85% 851,240 8,269 3.86%
Borrowed funds 283,242 4,258 5.88% 162,513 2,292 5.52%
----------- --------- ------ ----------- -------- ------
Total interest-bearing liabilities 1,182,883 12,993 4.36% 1,013,753 10,561 4.14%
Non-interest-bearing liabilities 150,676 115,809
----------- -----------
Total liabilities 1,333,559 1,129,562
Total stockholders' equity 101,747 88,221
----------- -----------
Total liabilities and
stockholders' equity $ 1,435,306 $ 12,993 $ 1,217,783 $ 10,561
=========== ========= =========== ========
Net interest income/spread $ 12,573 3.16% $ 11,287 3.48%
========= ====== ======== ======
Net interest margin as a % of interest-
earning assets 3.70% 3.94%
====== ======
Tax equivalent adjustment $ 63 $ 42
--------- --------
Net interest income/spread per Condensed Consolidated
Statement of Operations $ 12,510 $ 11,245
========= ========
<FN>
(1) On a fully taxable equivalent basis. Calculated using a Federal income tax rate of 34% for 1997 and 1996.
(2) During July 1997, the Company implemented a program which converted certain NOW accounts to money manager accounts. This
program has no effect on the Company's depositors, but has provided additional investable funds to the Company by
substantially reducing the reserve balances required to be maintained at the Federal Reserve Bank of Boston.
</FN>
</TABLE>
Net interest income on a fully taxable equivalent basis for the three months
ended September 30, 1997 was $12.6 million compared to $11.3 million for the
three months ended September 30, 1996, an increase of $1.3 million or 11.4%.
This increase was primarily the result of higher levels of interest earning
assets partially offset by a decrease of 24 basis points in the net interest
margin to 3.70% for the three months ended September 30, 1997 from 3.94%
reported for the same period last year.
Total interest income was $25.6 million on a fully taxable equivalent basis for
the three months ended September 30, 1997, an increase of $3.7 million or 17.0%
from the same period last year primarily due to an increase in average
interest-earning assets. Average interest-earning assets totaled $1.4 billion in
the third quarter of 1997 compared to $1.1 billion in the third quarter of 1996,
an increase of $212.2 million or 18.5%. Total investments increased $118.8
million and were funded by higher deposit levels and borrowed funds. Total loans
increased $76.4 million as the Company continued to focus on the commercial and
home equity market segments, which grew by $39.2 million or 28.2% and $41.6
million or 47.7%, respectively. Residential real estate loan balances declined
$5.5 million or 2.3% for
9
<PAGE>
the three months ended September 30, 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 $13.0 million for the three months ended September
30, 1997 compared to $10.6 million during the same period in 1996, an increase
of $2.4 million or 23.0%. This increase is attributable to increases in
interest-bearing deposits and borrowed funds. Average interest-bearing deposits
totaled $899.6 million for the quarter ended September 30, 1997 compared to
$851.2 million for the same period in 1996, an increase of $48.4 million or
5.7%. This growth occurred primarily in time deposits which increased $37.6
million largely due to growth in corporate jumbo CD balances. Borrowed funds
averaged $283.2 million for the three months ended September 30, 1997 compared
to $162.5 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 as well as the match funding of certain fixed rate
commercial loans.
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 September 30,
1997 versus 1996
--------------------------------
Increase (Decrease) Due to
--------------------------------
Volume Rate Net
----------- -------- ---------
Interest-earning assets:
Federal funds sold and
interest bearing deposits $ 231 $ 4 $ 235
Investment securities held to maturity (215) 105 (110)
Investment securities available for sale 2,204 (98) 2,106
Residential real estate loans (110) 112 2
Commercial real estate loans 21 (11) 10
Commercial loans 851 (68) 783
Home equity loans 855 (102) 753
Consumer loans 7 (69) (62)
------- ------- -------
Total interest-earning assets 3,844 (126) 3,718
------- ------- -------
Interest-bearing liabilities:
Deposits:
Savings accounts 56 (127) (71)
NOW accounts (76) (7) (83)
Money manager account 42 43 85
Money market accounts (15) 11 (4)
Time deposit accounts 499 40 539
------- ------- -------
Total deposits 506 (40) 466
Borrowed funds 1,759 207 1,966
------- ------- -------
Total interest-bearing liabilities 2,265 167 2,432
------- ------- -------
Change in net interest income $ 1,579 $ (293) $ 1,286
======= ======= =======
Provision for Possible Loan Losses
The Company's provision for possible loan losses was $0.4 million for the third
quarter of 1997 compared to $0.8 million in the third 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
September 30,
-----------------------------
1997 1996
----------- -----------
Net gain on sale of loans $ 136 $ 105
Net gain on sale of securities 10 62
Loan charges and fees 764 943
Deposit related fees 1,801 1,592
Other charges and fees 592 226
------ ------
$3,303 $2,928
====== ======
Non-interest income totaled $3.3 million for the third quarter of 1997 compared
to $2.9 million for the same period in 1996, an increase of $0.4 million or
12.8%. Deposit related fees increased $0.2 million due to fees associated with
the Company's larger non-interest bearing deposit base. Other charges and fees
are up $0.4 million due to a recovery of $0.2 million paid by the Massachusetts
Thrift Fund for Economic Development, Inc. and $0.1 million from fees associated
with Business Manager, a commercial cash management product introduced by the
Company in 1997, which involves the funding and management of accounts
receivable for small-to-medium sized business customers. Loan charges and fees
declined $0.2 million reflecting a decline in commercial loan prepayment fees.
Non-interest Expense
Salaries and Benefits Expense
Salaries and benefits expense totaled $5.0 million for the third quarter of 1997
compared to $4.4 million for the same period in 1996, an increase of $0.6
million reflecting standard wage increases as well as increased staffing related
to new branch openings and branch related support.
Occupancy Expense of Bank Premises
Occupancy expense of bank premises totaled $1.0 million for the third 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 which includes the opening of five new branches and
the addition of three stand alone ATMs since January 1, 1996.
11
<PAGE>
Other Operating Expense
The components of other operating expense for the periods presented are as
follows:
Three months ended
September 30,
-----------------------------
1997 1996
----------- -----------
Marketing $ 421 $ 694
Insurance 126 93
Professional services 711 854
Outside processing 1,220 1,035
Other 1,273 1,170
------ ------
$3,751 $3,846
====== ======
Other operating expenses totaled $3.8 million for both the third quarters of
1997 and 1996. The $0.3 million decrease in marketing expense reflects a
television advertising campaign in 1996 directed towards the Company's consumer
strategy. Professional services expense decreased $0.1 million, primarily due to
lower levels of legal, consulting, and audit and accounting expenses. Outside
processing expense increased $0.2 million, reflecting higher transaction and
account volume resulting from the Company s consumer strategy.
Foreclosed Real Estate Expense
Foreclosed real estate expense reflects losses on sales, writedowns and net
operating results of foreclosed properties. These expenses remained relatively
flat for the three months ended September 30, 1997 compared to the same period
last year.
Net Expense of Real Estate Operations
The Company's real estate investment and brokerage subsidiary, Colebrook Inc.
and its subsidiaries ("Colebrook"), engages 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 of $(0.1) million and zero for the three months ended
September 30, 1997 and September 30, 1996, respectively, reflect normal
operating results.
Income Taxes
For the three months ended September 30, 1997 the Company recorded income tax
expense of $1.9 million compared with an income tax benefit of $6.4 million for
the three months ended September 30, 1996. The tax benefit recorded in the third
quarter 1996 was influenced by two non-recurring tax events totaling $8.0
million. Exclusive of these events the increase in income tax expense is
attributable to a 35.3% increase in pre-tax earnings.
12
<PAGE>
Results of Operations for the Nine Months Ended September 30, 1997 and September
30, 1996
The Company reported net income of $8.9 million, or $1.58 per share fully
diluted for the nine months ended September 30, 1997 as compared to net income
of $15.7 million, or $2.82 per share fully diluted for the same period last
year. Net income in 1996 was positively impacted by two non-recurring tax
benefits totaling $8.0 million. Excluding the impact of these tax items, the
Company experienced an increase in pre-tax operating earnings primarily
attributable to increased net interest income as well as lower provisions for
possible loan losses, 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.
13
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended September 30,
---------------------------------------------------------------------------------------
1997 1996
--------------------------------------------- ----------------------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest (1) Cost (1) Balance Interest (1) Cost (1)
---------------- -------------- ----------- --------------- -------------- --------
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Fed funds sold and short-term investments $ 17,812 $ 716 5.30% $ 9,404 $ 380 5.31%
Investment securities held to maturity 188,102 9,849 6.98% 186,354 9,494 6.79%
Investment securities available for sale 478,910 24,323 6.77% 312,169 15,318 6.54%
Residential real estate loans 236,184 14,242 8.04% 246,932 14,557 7.86%
Commercial real estate loans 116,200 7,625 8.75% 119,139 7,613 8.52%
Commercial loans 172,794 11,173 8.53% 126,587 8,386 8.70%
Home equity loans 116,389 6,903 7.93% 77,748 4,911 8.44%
Consumer loans 4,445 426 12.78% 6,103 479 10.48%
------------- --------- ------ ------------- -------- ------
Total interest-earning assets 1,330,836 75,257 7.54% 1,084,436 61,138 7.52%
Allowance for loan losses (16,633) (15,255)
Non-interest-earning assets 92,059 83,851
------------- -------------
Total assets $ 1,406,262 $ 75,257 $ 1,153,032 $ 61,138
============= ========= ============= ========
Interest-bearing liabilities:
Deposits
Savings accounts $ 203,728 $ 3,424 2.25% $ 193,874 $ 3,631 2.50%
NOW accounts (2) 48,405 365 1.01% 56,101 485 1.15%
Money manager accounts (2) 10,640 85 1.07% - - -
Money market accounts 205,972 5,116 3.32% 206,425 5,137 3.32%
Time deposit accounts 423,703 16,623 5.25% 377,253 15,085 5.34%
------------- --------- ------ ------------- -------- ------
Total interest-bearing deposits 892,448 25,613 3.84% 833,653 24,338 3.90%
Borrowed funds 271,801 11,782 5.72% 129,272 5,439 5.53%
------------- --------- ------ ------------- -------- ------
Total interest-bearing liabilities 1,164,249 37,395 4.29% 962,925 29,777 4.13%
Non-interest-bearing liabilities 141,045 106,574
------------- -------------
Total liabilities 1,305,294 1,069,499
Total stockholders' equity 100,968 83,533
------------- -------------
Total liabilities and
stockholders' equity $ 1,406,262 $ 37,395 $ 1,153,032 $ 29,777
============= ========= ============= ========
Net interest income/spread $ 37,862 3.25% $ 31,361 3.39%
========= ====== ======== ======
Net interest margin as a % of interest-
earning assets 3.79% 3.86%
====== ======
Tax equivalent adjustment $ 303 $ 88
--------- --------
Net interest income/spread per Condensed Consolidated
Statement of Operations $ 37,559 $ 31,273
========= ========
<FN>
(1) On a fully taxable equivalent basis. Calculated using a Federal income tax rate of 34% for 1997 and 1996.
(2) During July 1997, the Company implemented a program which converted certain NOW accounts to money manager accounts. This
program has no effect on the Company's depositors, but has provided additional investable funds to the Company by
substantially reducing the reserve balances required to be maintained at the Federal Reserve Bank of Boston.
</FN>
</TABLE>
Net interest income on a fully taxable equivalent basis for the nine months
ended September 30, 1997 was $37.9 million compared to $31.4 million for the
nine months ended September 30, 1997, an increase of $6.5 million or 20.7%. This
increase was primarily the result of higher levels of interest earning assets
partially offset by a decrease of 7 basis points in the net interest margin to
3.79% for the period ended September 30, 1997 from 3.86% reported for the same
period last year.
Total interest income was $75.3 million on a fully taxable equivalent basis for
the nine months ended September 30, 1997, an increase of $14.1 million or 23.1%
from the same period last year primarily due to an increase in average
interest-earning assets. Average interest-earning assets totaled $1.3 billion
for the nine months ended September 30, 1997 compared to $1.1 billion for the
same period in 1996, an increase of $246.4 million or 22.7%. Total investments
increased $168.5 million and were funded by higher deposit levels and borrowed
funds. Total loans increased $69.5 million as the Company continued to focus on
the commercial and home equity market segments, which grew by $46.2 million or
36.5% and $38.6 million or 49.7%, respectively. Residential real estate loan
balances declined $10.7 million or 4.4% for the nine months ended September 30,
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.
14
<PAGE>
Total interest expense was $37.4 million for the nine months ended September 30,
1997 compared to $29.8 million during the same period in 1996, an increase of
$7.6 million or 25.6%. This increase is attributable to increases in
interest-bearing deposits and borrowed funds. Average interest-bearing deposits
totaled $892.4 million for the nine months ended September 30, 1997 compared to
$833.7 million for the same period in 1996, an increase of $58.8 million or
7.1%. This growth occurred primarily in time deposits which increased $46.5
million largely attributable to the introduction of new CD products as well as
growth in the corporate jumbo CD portfolio. Borrowed funds averaged $271.8
million for the nine months ended September 30, 1997 compared to $129.3 million
for the same period in 1996 reflecting the use of FHLB advances and repurchase
agreements to leverage a portion of the Company's capital as well as the match
funding of certain fixed rate commercial loans.
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.
Nine Months Ended September 30,
1997 versus 1996
---------------------------------
Increase (Decrease) Due to
---------------------------------
Volume Rate Net
----------- --------- ---------
(Dollars In Thousands)
Interest-earning assets:
Federal funds sold and
short term investments $ 339 $ (3) $ 336
Investment securities held to maturity 90 265 355
Investment securities available for sale 8,325 680 9,005
Residential real estate loans (641) 326 (315)
Commercial real estate loans (190) 202 12
Commercial loans 3,025 (238) 2,787
Home equity loans 2,366 (374) 1,992
Consumer loans (145) 92 (53)
-------- -------- --------
Total interest-earning assets 13,169 950 14,119
-------- -------- --------
Interest-bearing liabilities:
Deposits:
Savings accounts 175 (382) (207)
NOW accounts (62) (58) (120)
Money manager accounts 42 43 85
Money market accounts (11) (10) (21)
Time deposit accounts 1,840 (302) 1,538
-------- -------- --------
Total deposits 1,984 (709) 1,275
Borrowed funds 6,087 256 6,343
-------- -------- --------
Total interest-bearing liabilities 8,071 (453) 7,618
-------- -------- --------
Change in net interest income $ 5,098 $ 1,403 $ 6,501
======== ======== ========
Provision for Possible Loan Losses
The Company's provision for possible loan losses was $1.2 million for the nine
months ended September 30, 1997 compared to $2.2 million for the same period in
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.
15
<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:
Nine months ended
September 30,
------------------------
1997 1996
--------- --------
Net gain on sale of loans $ 328 $ 537
Net gain on sale of securities 21 64
Loan charges and fees 2,145 2,404
Deposit related fees 5,095 4,539
Other charges and fees 1,293 702
------ ------
$8,882 $8,246
====== ======
Non-interest income totaled $8.9 million for the nine months ended September 30,
1997 compared to $8.2 million for the same period in 1996, an increase of $0.6
million or 7.7%. Deposit fees grew $0.6 million due to fees associated with the
Company's larger non-interest bearing deposit base. Other charges and fees
increased $0.5 million due to $0.2 million in fees associated with the Business
Manager, a commercial cash management product introduced by the Company in 1997,
a recovery of $0.2 million paid by the Massachusetts Thrift Fund for Economic
Development, Inc., and a $0.1 million increase in fees earned in sales of
non-deposit investment products. Loan charges and fees decreased $0.3 million
due to lower mortgage servicing fees and commercial loan prepayment fees. Net
gain on sale of loans decreased $0.2 million due to lower production and sale of
fixed rate single family residential mortgage loans.
Non-interest Expense
Salaries and Benefits Expense
Salaries and benefits expense totaled $14.6 million for the nine months ended
September 30, 1997 compared to $12.9 million for the same period in 1996, an
increase of $1.7 million reflecting standard wage increases, higher Employee
Stock Ownership Plan ("ESOP") expenses resulting from an increase in the
Company's stock price and additional staffing related to new branch openings and
branch related support.
Occupancy Expense of Bank Premises
Occupancy expense of bank premises totaled $2.9 million for the nine months
ended September 30, 1997 compared to $2.4 million for the same period in 1996,
an increase of $0.5 million. This increase is primarily due to costs associated
with the expansion of the retail branch network which includes the opening of
five new branches and the addition of three stand alone ATMs since January 1,
1996.
16
<PAGE>
Other Operating Expense
The components of other operating expense for the periods presented are as
follows:
Nine months ended
September 30,
------------------------
1997 1996
--------- --------
Marketing $ 1,418 $ 1,446
Insurance 396 287
Professional services 2,067 2,344
Outside processing 3,497 3,090
Other 3,614 3,450
------- -------
$10,992 $10,617
======= =======
Other operating expenses totaled $11.0 million for the nine months ended
September 30, 1997 compared to $10.6 million for the same period in 1996, an
increase of $0.4 million. Outside processing expense grew $0.4 million,
reflecting higher transaction and account volume resulting from the Company's
consumer strategy. Professional services expense declined $0.3 million,
primarily due to lower levels of legal, consulting, and audit and accounting
expenses. Insurance expense was up $0.1 million due to higher FDIC insurance
premiums.
Foreclosed Real Estate Expense
Foreclosed real estate expense reflects losses on sales, writedowns and net
operating results of foreclosed properties. These expenses were $0.1 million for
the nine months ended September 30, 1997 compared to $0.3 million for the same
period in 1996. This $0.2 million decrease reflects increased gains on the sale
of foreclosed properties during the nine months ended September 30, 1997 as
compared to the same period last year.
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 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 for the nine
months ended September 30, 1997, an increase of $0.6 million compared to the
same period in 1996. In the first quarter of 1997, the Company established a
reserve of $1.0 million relating to the divestment of Colebrook which was
partially offset by a $0.6 million gain on the sale of a real estate property.
The $1.0 million reserve consists of $0.7 million in severance and benefit
accruals and $0.3 million for other expenses. As of September 30, 1997, no
amounts have been paid relating to the divestiture. This divestment is scheduled
to be completed by March 31, 1998.
Income Taxes
For the nine months ended September 30, 1997 the Company recorded income tax
expense of $5.7 million compared with an income tax benefit of $5.9 million for
the nine months ended September 30, 1996. The tax benefit recorded in 1996 was
impacted by two non-recurring tax events totaling $8.0 million. Exclusive of
these events the increase in income tax expense is attributable to a $4.9
million or 50.8% increase in pre-tax earnings.
17
<PAGE>
Balance Sheet Analysis - Comparison Of September 30, 1997 To December 31, 1996
Total assets increased from $1.3 billion at December 31, 1996 to $1.5 billion at
September 30, 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 $43.7 million from $641.5 million
at December 31, 1996 to $685.2 million at September 30, 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, FHLB
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 net of tax 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>
September 30, 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 $ 11,310 $ 11,322 $ -- $ --
Collateralized mortgage obligations 26,523 26,565 -- --
Mortgage-backed securities 436,938 440,417 134,237 134,365
Asset-backed securities -- -- 47,883 47,972
Other bonds and short term obligations -- -- 200 200
Other securities 23,878 24,564 -- --
-------- -------- -------- --------
Total $498,649 $502,868 $182,320 $182,537
======== ======== ======== ========
<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>
18
<PAGE>
Loan Portfolio Composition
Gross loans comprised $686.3 million or 47.2% of total assets as of September
30, 1997. The following table sets forth information concerning the Company's
loan portfolio in dollar amounts and percentages, by type of loan at September
30, 1997 and at December 31, 1996.
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
--------------------------- -------------------------
Percent of Percent of
Amount Total Amount Total
----------- ----------- ---------- ----------
(Dollars In Thousands)
<S> <C> <C> <C> <C>
Residential real estate loans $237,623 34.62% $242,410 38.79%
Commercial real estate loans 121,355 17.68% 118,442 18.95%
Commercial loans 189,440 27.60% 155,808 24.93%
Home equity loans 133,049 19.39% 104,206 16.67%
Consumer loans 4,841 0.71% 4,132 0.66%
-------- ------ -------- ------
Total loans receivable, gross 686,308 100.00% 624,998 100.00%
-------- ------ -------- ------
Less:
Unearned income and fees (2,141) (1,196)
Allowance for loan losses 18,393 15,597
-------- --------
Total loans receivable, net $670,056 $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 nine months ended September 30,
1997, the Company experienced an increase in prepayments in its adjustable rate
mortgage portfolio. These prepayments offset new originations and resulted in a
$4.8 million decrease in residential real estate balances between December 31,
1996 and September 30, 1997.
During the nine months ended September 30, 1997, commercial loan balances
increased $33.6 million, reflecting the Company's continued focus on lending
activities in the local business market. During this same period commercial real
estate loan balances increased $2.9 million primarily due to new originations,
partially offset by prepayments.
Home equity loans outstanding have increased $28.8 million since December 31,
1996. Management attributes this increase to the active promotion of these
products.
Non-performing Assets
Non-performing assets totaled $4.9 million as of September 30, 1997 compared to
$7.6 million as of December 31, 1996, a decrease of $2.7 million or 35.8%.
19
<PAGE>
The following table sets forth information regarding the components of
non-performing assets for the periods presented:
September 30, December 31,
1997 1996
--------------- ---------------
(Dollars In Thousands)
Non-accrual loans (1):
Residential real estate loans $1,703 $1,287
Commercial real estate loans 899 4,428
Commercial loans 1,368 674
Home equity loans 81 157
Consumer loans 7 1
------ ------
Total non-accrual loans 4,058 6,547
------ ------
Loans past due 90 days still accruing (2) 121 428
------ ------
Total non-performing loans 4,179 6,975
Foreclosed real estate (3) 199 381
Restructured loans on accrual status (4) 475 198
------ ------
Total non-performing assets $4,853 $7,554
====== ======
Total non-performing loans to total
gross loans 0.61% 1.12%
Total non-performing assets to total
assets 0.33% 0.56%
Allowance for possible losses to
non-performing loans 440.13% 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 Compamy 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).
20
<PAGE>
The principal amount of non-performing loans aggregated $4.2 million at
September 30, 1997 compared to $7.0 million at December 31, 1996. Interest
income that would have been recorded if the loans had been performing in
accordance with their original terms aggregated $0.4 million and $0.7 million
for the nine months ended September 30, 1997 and 1996, respectively. Interest
income recorded on these loans for the nine months ended September 30, 1997 and
1996 was $0.3 million and $0.6 million, respectively
The principal amount of restructured loans aggregated $0.5 million at September
30, 1997 compared to $0.2 million at December 31, 1996. Interest income that
would have been recorded if the loans had been performing within their original
terms aggregated $33 thousand and $15 thousand for the periods ended September
30, 1997 and 1996, respectively. Interest income recorded on these loans
amounted to $33 thousand and $2 thousand for the nine months ended September 30,
1997 and 1996, respectively.
Watch List Loans
The Company maintains a "watch list" of loans, which represents performing loans
that have potential weaknesses that require Management's attention. These
potential weaknesses may stem from a variety of factors including, among other
things, economic or market conditions, adverse conditions in the obligor's
operations or financial condition weaknesses. Watch list loans totaled $9.1
million and $18.1 million at September 30, 1997 and December 31, 1996,
respectively.
Classified Loans
The Company's Credit Grade Policy (the "Policy") provides for the classification
of loans considered to be lesser quality as "substandard", "doubtful", or "loss"
loans. A loan is considered substandard under the Company's Policy if it is
inadequately protected by the current sound worth and paying capacity of the
obligor or of the collateral pledged, if any. Substandard loans include those
characterized by the "distinct possibility" that the Company will sustain "some
loss" if the deficiencies are not corrected. Loans classified as doubtful, of
which the Company has none, have all of the weaknesses inherent in those
classified as substandard with the added characteristic that the weaknesses
present make "collection or liquidation in full" on the basis of currently
existing facts, conditions and values, "improbable." Loans characterized as
loss, of which the Company has none, are those considered "uncollectible" and of
such little value that their continuance as bankable assets is not warranted.
Classified loans, all of which are categorized substandard, totaled $5.5 million
and $7.6 million at September 30, 1997 and December 31, 1996, respectively.
Included in these amounts are $4.1 million and $6.5 million of loans which have
been reported as non-performing assets at September 30, 1997 and December 31,
1996, respectively.
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 September 30, 1997 was $18.4 million, compared to $14.9 million at
September 30, 1996 reflecting both reduced provisions and charge-offs and
increased recoveries during the 1997 period. The activity in the allowance for
possible loan losses for the nine months ended September 30, 1997 and 1996 was
as follows:
21
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------------
1997 1996
---------- ----------
(Dollars In Thousands)
<S> <C> <C>
Balance, beginning of period $ 15,597 $ 14,986
Provision for loan losses 1,203 2,200
Charge-offs:
Residential real estate loans (195) (755)
Commercial real estate loans (721) (2,255)
Commercial loans (387) (355)
Home equity loans (113) (190)
Consumer loans (196) (61)
-------- --------
Total charge-offs (1,612) (3,616)
Recoveries:
Residential real estate loans 1 594
Commercial real estate loans 2,821 1,036
Commercial loans 272 163
Home equity loans 80 98
Consumer loans 31 27
-------- --------
Total recoveries 3,205 1,918
-------- --------
Net recoveries/(charge-offs) 1,593 (1,698)
Balance, end of period $ 18,393 $ 15,488
======== ========
Ratio of net loan recoveries/(charge-offs) during the period to
average loans outstanding during the period 0.25% (0.29%)
Ratio of allowance for possible loan losses to total loans
at the end of the period 2.68% 2.55%
Ratio of allowance for possible loan losses to non-performing
loans at the end of the period 440.13% 249.65%
</TABLE>
In August 1997, the Company received payment of $3.0 million in full
satisfaction of a commercial real estate loan with a net book balance of $1.1
million. Accordingly, $1.9 million was recorded as a recovery to the allowance
for possible loan losses.
At September 30, 1997, the recorded investment in loans that are considered
impaired under SFAS 114 "Accounting by Creditors for Impairment of a Loan" was
$3.7 million. Included in this amount is $1.0 million of impaired loans for
which the related SFAS 114 allowance is $0.3 million and $2.7 million of
impaired loans for which the SFAS 114 allowance is zero. The average recorded
investment in impaired loans during the three and nine months ended September
30, 1997 was approximately $7.9 million and $8.7 million, respectively. For the
three and nine month periods ended September 30, 1997, the Company recognized
interest income on these impaired loans of $0.2 million and $0.5 million,
respectively.
22
<PAGE>
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 allowance for
possible loan losses in each category to total allowance for possible loan loss.
<TABLE>
<CAPTION>
September 30, 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 $ 2,842 15.45% $ 1,540 9.87%
Commercial real estate loans 5,542 30.13% 5,808 37.24%
Commercial loans 6,875 37.38% 6,711 43.03%
Home equity loans 2,391 13.00% 1,207 7.74%
Consumer loans 743 4.04% 331 2.12%
------- ------ ------- ------
Total allowance for possible loan losses $18,393 100.00% $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 September 30, 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 September 30, 1997 compared to $969.5
million at December 31, 1996, an increase of $52.1 million or 5.4%. This growth
occurred primarily in demand deposits, savings accounts and time deposits.
Demand deposits and savings accounts increased $18.7 million and $8.6 million,
respectively, as customers continue to take advantage of free checking and
savings 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 $23.7 million growth in time deposits is primarily
attributable to the introduction of new consumer CD products and growth in
corporate jumbo CD balances.
23
<PAGE>
The following table presents the composition of deposits at the dates indicated:
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
--------------------------- -------------------------
Percent of Percent of
Amount Total Amount Total
----------- ----------- ---------- ----------
(Dollars In Thousands)
<S> <C> <C> <C> <C>
Demand deposits $ 119,220 11.67% $100,527 10.37%
NOW accounts (1) 25,736 2.52% 57,980 5.98%
Money manager accounts (1) 37,718 3.69% -- --
Savings accounts 203,986 19.97% 195,418 20.16%
Money market accounts 205,135 20.08% 209,523 21.61%
Time deposits 429,818 42.07% 406,069 41.88%
---------- ------ ---------- ------
Total deposits $1,021,613 100.00% $ 969,517 100.00%
========== ====== ========== ======
<FN>
(1) During July 1997, the Company implemented a program which converted certain Now accounts to money manager accounts. This
program has no effect on the Company's depositors, but has provided additional investable funds to the Company by
substantially reducing the reserve balances required to be maintained at the Federal Reserve Bank of Boston.
</FN>
</TABLE>
Borrowings
Borrowings consist of FHLB advances, securities sold under agreements to
repurchase, and loans payable related to the Company's ESOP. The Company
generally uses borrowings to fund loan growth and to leverage a portion of its
capital position. Borrowings increased $38.0 million from $247.9 million at
December 31, 1996 to $285.9 million at September 30, 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 September 30, 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 and the FDIC.
24
<PAGE>
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
-------- ------- -------- ------- --------- ------
<S> <C> <C> <C> <C> <C> <C>
As of September 30, 1997:
Tier I Capital (to Average Assets)
Company $102,169 7.1% $ 57,412 4.0% N/A
Bank $100,047 7.0% $ 57,346 4.0% $ 71,682 5.0%
Tier I Capital (to Risk Weighted Assets)
Company $102,169 11.8% $ 34,592 4.0% $ 51,888 6.0%
Bank $100,047 11.6% $ 34,545 4.0% $ 51,818 6.0%
Total Capital (to Risk Weighted Assets)
Company $113,058 13.1% $ 69,184 8.0% $ 86,480 10.0%
Bank $110,936 12.9% $ 69,090 8.0% $ 86,363 10.0%
As of December 31, 1996:
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>
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 $14.1 million or 0.97% of total assets at September 30,
1997. The following table sets forth the amounts of assets and liabilities
outstanding at September 30, 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.
25
<PAGE>
<TABLE>
<CAPTION>
GAP Position
At September 30, 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 $ 6,692 $ -- $ -- $ -- $ 6,692
Investment securities 315,171 146,524 200,693 22,800 685,188
Residential real estate loans 63,010 52,043 108,204 13,020 236,277
Commercial real estate loans 28,350 17,607 65,985 8,537 120,479
Commercial loans 74,112 9,423 91,791 13,226 188,552
Home equity loans 103,788 1,696 17,260 11,513 134,257
Consumer loans 4,443 35 125 223 4,826
Other assets -- -- -- 76,746 76,746
---------- ---------- ---------- ---------- ----------
Total assets $ 595,566 $ 227,328 $ 484,058 $ 146,065 $1,453,017
========== ========== ========== ========== ==========
Liabilities & stockholders' equity:
Savings accounts $ 30,598 $ 30,598 142,790 $ -- $ 203,986
NOW accounts 9,518 9,518 44,418 -- 63,454
Money market accounts 62,652 61,064 81,419 -- 205,135
Time deposits 249,620 104,311 75,887 -- 429,818
Borrowed funds 167,487 64,018 54,350 -- 285,855
Other liabilities & stockholders' equity 23,818 23,818 71,452 145,681 264,769
---------- ---------- ---------- ---------- ----------
Total liabilities & stockholders' equity $ 543,693 $ 293,327 $ 470,316 $ 145,681 $1,453,017
========== ========== ========== ========== ==========
Period GAP position $ 51,873 $ (65,999) $ 13,742 $ 384
Net period GAP as a percentage of total assets 3.57% (4.54%) (0.95%) 0.03%
Cumulative GAP $ 51,873 $ (14,126) $ (384) -
Cumulative GAP as a percentage of total assets 3.57% (0.97%) (0.03%) -
Cumulative GAP as a percentage of total
interest-earning assets 3.77% (1.03%) (0.03%) -
Cumulative interest-earning assets as a
percentage of cumulative interest-bearing 114.56% 104.25% 109.99% -
liabilities
</TABLE>
For purposes of the above interest sensitivity analysis:
Residential loans held for sale at September 30, 1997 totaling $9.4
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 $4.1 million.
Loans do not include the allowance for loan loss of $18.4 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 $119.2 million are
included in other liabilities and are assumed to
decay at an annual rate of 40%.
26
<PAGE>
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 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.
The Company also utilizes income simulation modeling in measuring its interest
rate risk and managing its interest rate sensitivity. Income simulation not only
considers the impact of changing market interest rates on forecasted net
interest income, but also takes into consideration other factors such as yield
curve relationships, the volume and mix of assets and liabilities, customer
preferences and general market conditions.
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.
27
<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. Default upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable
Item 5. Other Information
The Company has filed a Form S-3 registration statement with the Securities and
Exchange Commission ("SEC") relating to the proposed sale of up to 146,400
shares out of treasury stock. This sale would occur prior to the acquisition of
Glastonbury Bank & Trust Company ("GBT") and is meant to reduce the treasury
shares to a level that will qualify the acquisition for pooling treatment under
applicable accounting rules. The Company has also filed a Form S-4 registration
statement relating to its contemplated issuance of up to 1,354,141 shares of
stock to GBT shareholders in connection with the pending acquisition of GBT.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit No. Exhibit Location
(2.1) Agreement and Plan of Reorganization dated August 18, 1997 (i)
relating to the acquisition by the Company of
Glastonbury Bank & Trust Company
(2.2) Agreement and Plan of Merger dated September 12, 1997 (ii)
relating to the acquisition by the Company of
Glastonbury Bank & Trust Company
Locations of Exhibits if not attached hereto:
(i) Incorporated by reference to Exhibit 2.1 to Form S-4 registration
statement filed with the SEC on October 28, 1997.
(ii) Incorporated by reference to Exhibit 2.2 to Form S-4 registration
statement filed with the SEC on October 28, 1997.
(b) Reports on Form 8-K
(1) On August 18, 1997, a Form 8-K was filed with the SEC by the
Company relating to (i) an Agreement and Plan of Reorganization entered
into by the Company and Glastonbury Bank & Trust Company, which
provides for the acquisition of GBT by the Company and (ii) the
rescinding of the Company's stock repurchase program which had
originally been authorized in January of 1997.
(2) On October 22, 1997, a Form 8-K was filed with the SEC by the
Company relating to the Company's 10/22/97 press release containing
unaudited financial information and announcing a cash dividend for the
quarter ending 9/30/97 along with information relating to the Company's
previously announced acquisition of Glastonbury Bank & Trust Company.
28
<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)
November 14, 1997 /s/ F. William Marshall, Jr.
Date F. William Marshall, Jr.
President and Chief Executive Officer
November 14, 1997 /s/ John F. Treanor
Date John F. Treanor
Executive Vice President
and Chief Financial Officer
<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
September 30, 1997 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-Mos
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-START> Jan-01-1997
<PERIOD-END> Sep-30-1997
<CASH> 34,464
<INT-BEARING-DEPOSITS> 6,692
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 502,868
<INVESTMENTS-CARRYING> 182,320
<INVESTMENTS-MARKET> 182,537
<LOANS> 670,056
<ALLOWANCE> 18,393
<TOTAL-ASSETS> 1,453,017
<DEPOSITS> 1,021,613
<SHORT-TERM> 283,185
<LIABILITIES-OTHER> 38,591
<LONG-TERM> 2,670
0
0
<COMMON> 57
<OTHER-SE> 106,901
<TOTAL-LIABILITIES-AND-EQUITY> 1,453,017
<INTEREST-LOAN> 40,285
<INTEREST-INVEST> 33,954
<INTEREST-OTHER> 716
<INTEREST-TOTAL> 74,955
<INTEREST-DEPOSIT> 25,614
<INTEREST-EXPENSE> 37,396
<INTEREST-INCOME-NET> 37,559
<LOAN-LOSSES> 1,203
<SECURITIES-GAINS> 21
<EXPENSE-OTHER> 10,992
<INCOME-PRETAX> 14,660
<INCOME-PRE-EXTRAORDINARY> 14,660
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,929
<EPS-PRIMARY> 1.60
<EPS-DILUTED> 1.58
<YIELD-ACTUAL> 3.79
<LOANS-NON> 4,058
<LOANS-PAST> 121
<LOANS-TROUBLED> 475
<LOANS-PROBLEM> 9,060
<ALLOWANCE-OPEN> 15,597
<CHARGE-OFFS> 1,612
<RECOVERIES> 3,205
<ALLOWANCE-CLOSE> 18,393
<ALLOWANCE-DOMESTIC> 18,393
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
