U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [Fee Required]
For the fiscal year ended December 31, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [No Fee Required]
For the transition period from _____________ to _______________
Commission file number 0-21021
Enterprise Bancorp, Inc.
(Exact name of small business issuer as specified in its charter)
Massachusetts 04-3318902
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
222 Merrimack Street, Lowell, Massachusetts, 01852
(Address of principal executive offices) (Zip code)
(508) 459-9000
(Issuer's telephone number, including area code)
Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
None
- ---------------------------------- -----------------------------------------
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $0.01 par value per share
- -------------------------------------------------------------------
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes ..X.... No......
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ X ]
State issuer's revenues for its most recent fiscal year. $21,075,137
State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of a specified date within the past 60
days.
$18,843,599, as of February 28, 1997
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: February 28, 1997, Common Stock - Par
Value $0.01: 1,576,192 shares outstanding
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the issuer's proxy statement for its annual meeting of
stockholders to be held on May 6, 1997 are incorporated by reference
in Part III of this Form 10-KSB.
Transitional Small Business Disclosure Format (check one): Yes .......... No X
<PAGE>
ENTERPRISE BANCORP, INC.
TABLE OF CONTENTS
Page Number
PART I
Item 1 Description of Business 3
Item 2 Description of Property 14
Item 3 Legal Proceedings 14
Item 4 Submission of Matters to a Vote of Security Holders 14
PART II
Item 5 Market for Common Equity and Related Stockholder Matters 15
Item 6 Management Discussion and Analysis or Plan of Operation 16
Item 7 Financial Statements 23
Item 8 Changes In and Disagreements with Accountants on Accounting
and Financial Disclosure 48
Part III
Item 9 Directors, Executive Officers, Promoters and Control Persons:
Compliance with Section 16(a) of the Exchange Act 48
Item 10 Executive Compensation 48
Item 11 Security Ownership of Certain Beneficial Owners and Management 48
Item 12 Certain Relationships and Related Transactions 48
Item 13 Exhibits List and Reports on Form 8-K 48
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
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. Enterprise
Bancorp, Inc. (the "company") wishes to caution readers that the following
important factors, among others, may have affected and could in the future
affect the company's results and could cause the company's results for
subsequent periods to differ materially from those expressed in any
forward-looking statement made herein: (i) the effect of changes in laws and
regulations, including federal and state banking laws and regulations, with
which the company or its subsidiaries 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 competition from larger regional and out-of-state
banking organizations as well as non-bank 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.
2
<PAGE>
PART I
Item 1. Description of Business
THE COMPANY
General
Enterprise Bancorp, Inc. (the "company") is a Massachusetts corporation, which
was organized on February 29, 1996, at the direction of Enterprise Bank and
Trust Company, a Massachusetts trust company (the "bank"), for the purpose of
becoming the holding company for the bank. On July 26, 1996, the bank became the
wholly owned subsidiary of the company and the former shareholders of the bank
became shareholders of the company (the "reorganization"). The business and
operations of the company are subject to the regulatory oversight of the Board
of Governors of the Federal Reserve System. To the extent that this report
contains information as of a date or for a period prior to July 26, 1996, such
information pertains to the bank. The company had no material assets or
operations prior to completion of the reorganization on July 26, 1996.
Substantially all of the company's operations are conducted through the bank.
The bank is a Massachusetts trust company which commenced banking operations on
January 3, 1989. The bank's deposit accounts are insured by the Bank Insurance
Fund of the Federal Deposit Insurance Corporation (the "FDIC") up to the maximum
amount provided by law. The FDIC and the Massachusetts Commissioner of Banks
(the "Commissioner") have regulatory authority over the bank.
The company's headquarters and the bank's main office are at 222 Merrimack
Street in Lowell, Massachusetts. A branch office was opened at 185 Littleton
Road, Chelmsford, Massachusetts, in June of 1993. The bank opened a branch
office in Leominster, Massachusetts, in May of 1995, a branch office in
Billerica, Massachusetts in June of 1995, and a branch office in Tewksbury,
Massachusetts in October of 1996. The bank's deposit-gathering and lending
activities are conducted primarily in the city of Lowell and the surrounding
Massachusetts towns of Andover, Billerica, Chelmsford, Dracut, Tewksbury,
Tyngsboro, and Westford and in the cities of Leominster and Fitchburg. The bank
offers a range of commercial, consumer and trust services with a goal of
satisfying the needs of consumers, small and medium-sized businesses and
professionals.
Lending
The bank specializes in lending to small and medium-sized businesses,
corporations, partnerships and individuals. Loans made by the bank to businesses
include commercial mortgage loans, loans guaranteed by the Small Business
Association (SBA), construction loans, revolving lines of credit, working
capital loans, equipment financing and letters of credit. Loans made by the bank
to individuals include residential mortgage loans, home equity loans,
residential construction loans, unsecured and secured personal lines of credit
and mortgage loans on investment and vacation properties.
At December 31, 1996, the bank had gross loans outstanding of $145.3 million,
which represented approximately 51.3% of the company's total assets. The
interest rates charged on these loans vary with the degree of risk, maturity and
amount, and are further subject to competitive pressures, market rates, the
availability of funds and legal and regulatory requirements.
At December 31, 1996, the bank's statutory lending limit, based on 20% of
capital, to any single borrower was approximately $4.1 million, subject to
certain exceptions provided under applicable law. At December 31, 1996, the bank
had no outstanding lending relationships or commitments in excess of the legal
lending limit.
3
<PAGE>
The following table sets forth the loan balances for certain loan categories at
the dates indicated and the percentage of each category to total gross loans.
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
------------------- ------------------- ------------------- -------------------- -------------------
($ in thousands) Amount %age Amount %age Amount %age Amount %age Amount %age
----------- ------ ----------- ------ ----------- ------ ----------- ------ ----------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Comm'l Real Estate $ 52,378 36.1% $ 42,514 36.0% $ 40,267 34.9% $ 37,375 41.8% $ 35,622 40.4%
Commercial 38,202 26.3% 28,353 24.0% 25,980 22.5% 19,242 21.5% 23,314 26.4%
Residential Mortgage 35,918 24.7% 32,872 27.8% 33,748 29.3% 18,119 20.2% 16,726 19.0%
Home Equity 8,255 5.7% 5,250 4.4% 5,877 5.1% 6,276 7.0% 6,199 7.0%
Construction 6,474 4.4% 5,844 4.9% 5,930 5.1% 4,860 5.4% 1,856 2.1%
Other 4,043 2.8% 3,379 2.9% 3,543 3.1% 3,677 4.1% 4,538 5.1%
----------- ----------- ----------- --------- ---------
Gross Loans 145,270 100.0% 118,212 100.0% 115,345 100.0% 89,549 100.0% 88,255 100.0%
Less:
Deferred fees 950 549 555 518 394
Allowance for
loan losses 3,895 4,107 4,341 4,133 4,209
----------- ----------- ----------- --------- ---------
Net loans $ 140,425 $ 113,556 $ 110,449 $ 84,898 $ 83,652
=========== =========== =========== =========== ===========
</TABLE>
Commercial, Commercial Real Estate and Construction Loans
The following table sets forth scheduled maturities of commercial, construction
and commercial real estate loans in the bank's portfolio at December 31, 1996.
Loans having no stated maturity are reported as due in one year or less. The
following table also sets forth the dollar amount of loans which are scheduled
to mature after one year which have fixed or adjustable rates.
<TABLE>
<CAPTION>
Commercial
($ in thousands) Commercial Construction Real Estate
----------------- ------------------ -------------------
<S> <C> <C> <C>
Amounts due:
One year or less $ 17,849 $ 4,730 $ 1,412
After one year through five years 12,764 489 1,409
Beyond five years 7,589 1,255 49,557
----------------- ------------------ ------------------
$ 38,202 $ 6,474 $ 52,378
================= ================== ==================
Interest rate terms on amounts due after one year:
Fixed 4,384 327 6,474
Adjustable 15,969 1,417 44,492
</TABLE>
Scheduled contractual maturities may not reflect the actual maturities of loans.
The average maturity of loans is likely to be substantially shorter than their
contractual terms principally due to prepayments.
Commercial loans include working capital loans, equipment financing, standby
letters of credit, term loans and revolving lines of credit. Construction loans
include construction loans to both individuals and businesses. Included in
commercial loans are loans under various Small Business Administration programs
amounting to $3.9 million, $3.1 million, and $2.7 million as of December 31,
1996, 1995 and 1994, respectively.
Commercial, commercial real estate and construction loans secured by apartment
buildings, office facilities, shopping malls, raw land and other commercial
property, were $97.1 million at December 31, 1996, representing an increase of
$20.3 million, or 26.5%, from the previous year. This compares to an increase of
$4.5 million or 6.3% from 1994 to 1995. The growth in 1996 reflects the bank's
aggressive customer-call efforts, additional lenders hired during the year, an
increase in marketing and advertising and increased penetration in the markets
surrounding the bank's newer branches.
Commercial real estate lending may entail significant additional risks compared
to residential mortgage lending. Loan size is typically larger and payment
experience on such loans can be more easily influenced by adverse conditions in
the real estate market or in the economy in general. Construction financing
involves a higher degree of risk than long term financing on improved occupied
real estate. Property values at completion of construction or development can be
influenced by underestimation of the construction costs that are actually
expended to complete the project. Thus, the bank may be required to advance
funds beyond the original commitment in order to finish the development. If
projected cash flows to be derived from the loan collateral or the values of the
collateral prove to be inaccurate, for example because of unprojected additional
costs or
4
<PAGE>
slow unit sales, the collateral may have a value which is insufficient to assure
full repayment. Funds for construction projects are disbursed as pre-specified
stages of construction are completed.
Approximately 35.5% of loans in this category are at fixed rates while 64.5%
have adjustable features. Rates generally adjust based on changes in the prime
rate at various times during the loan's life.
The bank has an independent loan review function that assesses the compliance of
loan originations with the bank's internal policies and underwriting guidelines.
The bank also contracts with an external loan review company to review loans in
the loan portfolio, on a pre-determined schedule, based on the type, size,
rating, and overall risk of the loan. In addition, a loan review committee,
consisting of senior lending officers and loan review personnel, meets on a
periodic basis to discuss loans on the internal "watch list" and classified loan
report.
Residential Loans
The bank makes conventional mortgage loans on single family residential
properties with original loan-to-value ratios generally up to 95% of the
appraised value of the property securing the loan. These residential properties
serve as the primary or secondary homes of the borrowers. The bank also
originates loans on one to four family dwellings and loans for the construction
of residential housing for owner occupying borrowers, also with original
loan-to-value ratios generally up to 80% of the property's appraised value.
Residential mortgage loans made by the bank have traditionally been long-term
loans made for periods of up to 30 years at either fixed or adjustable rates of
interest. The bank generally sells all fixed rate residential mortgage loans
with maturities greater than 15 years. The bank may retain or sell the servicing
when selling the loans. The bank may sell or hold in its portfolio fixed rate
residential mortgage loans of 15 years or less. The decision to hold or sell new
loan production is made in conjunction with the overall asset/liability
management program of the bank. All long-term fixed rate residential mortgage
loans are originated using underwriting standards and standard documentation
allowing their sale in the secondary market. All loans sold are currently sold
without recourse.
Residential mortgage loans were $35.9 million at December 31, 1996, representing
an increase of $3.0 million, or 9.3%, from the previous year. This compares to a
decline of $.9 million, or 2.6%, in 1995, from the previous year. The growth in
1996 reflects an increase in loan volume combined with the decision of the bank
to hold in its portfolio a portion of the residential mortgage loans originated
with not more than a fifteen year original maturity.
Home Equity Loans
Home equity loans are originated for the bank's portfolio for single family
residential properties with maximum original loan-to-value ratios generally up
to 80% of the appraised value of the property securing the loan. Home equity
loans generally have fixed interest rates for a period of one year and
subsequently adjust monthly based on changes in the prime rate.
Home equity loans were $8.3 million at December 31, 1996, representing an
increase of $3.0 million, or 57.2%, from the previous year. This compares to a
decline of $.6 million, or 10.7%, in the previous year. The growth in 1996 is a
reflection of strong acceptance by consumers of a competitive equity loan
product introduced by the bank during the year.
Other Loans
Other loans consists of secured or unsecured personal loans, credit cards and
overdraft protection lines extended to individual customers.
Other loans were $4.0 million at December 31, 1996, representing an increase of
$.7 million, or 19.7%, from the previous year. This compares to a decline of $.2
million, or 4.6%, in 1995 compared to the previous year. The growth in 1996 is a
result of the increased penetration in the markets surrounding the newer
branches and the general increase in relationships in more established markets.
5
<PAGE>
Risk Elements
Non-performing assets consist of nonaccruing loans, loans past due greater than
90 days and still accruing and other real estate owned ("OREO").
Loans on which the accrual of interest has been discontinued, including impaired
loans, are designated as non-accrual loans. Accrual of interest on loans is
discontinued either when reasonable doubt exists as to the full and timely
collection of interest or principal, or generally when a loan becomes
contractually past due by 60 days or a mortgage loan becomes contractually past
due by 90 days with respect to interest or principal. In certain instances,
loans that have become 90 days past due may remain on accrual status if the
value of the collateral securing the loan is sufficient to cover principal and
interest and the loan is in the process of collection or if the principal and
interest is guaranteed by the federal government or an agency thereof. Other
real estate owned consists of real estate acquired through foreclosure
proceedings and real estate acquired through acceptance of a deed in lieu of
foreclosure. Non-performing loans include both non-accrual loans and loans past
due 90 days or more but still accruing. Loans in which management considers it
probable that not all contractual principal and interest will be collected are
designated as impaired loans.
There were no restructured loans outstanding as of December 31, 1996 or 1995.
Additional information regarding these risk elements is contained in Item 6,
Management Discussion and Analysis, and Item 7, Financial Statements, contained
in this report and the "Allowance for Loan Losses and OREO Activity" below.
Allowance for Loan Losses and OREO Activity
The following table summarizes the activity in the allowance for loan losses for
the periods indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------------
($ in thousands) 1996 1995 1994 1993 1992
------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Average loans outstanding $ 128,572 $ 118,248 $ 98,033 $ 86,636 $ 86,337
============ ============ ============ ============ =============
Balance at beginning of year $ 4,107 $ 4,341 $ 4,133 $ 4,209 $ 2,915
Charged-off loans:
Commercial 60 87 - 496 315
Commercial Real Estate 112 265 7 558 706
Construction - - - - -
Residential Mortgage - 33 - 57 15
Home Equity 55 - 41 - -
Other 17 20 8 21 38
------------ ------------ ------------ ------------ -------------
Total charged off 244 405 56 1,132 1,074
------------ ------------ ------------ ------------ -------------
Recoveries on loans previously charged-off:
Commercial 2 24 54 8 3
Commercial Real Estate 21 39 - 3 9
Construction - 1 185 - -
Residential Mortgage 1 100 5 3 -
Home Equity 4 3 1 - -
Other 4 4 19 12 6
------------ ------------ ------------ ------------ -------------
Total recoveries 32 171 264 26 18
------------ ------------ ------------ ------------ -------------
Net loans charged-off (recovered) 212 234 (208) 1,106 1,056
Provision charged to income - - - 1,030 2,350
------------ ------------ ------------ ------------ -------------
Balance at December 31 $ 3,895 $ 4,107 $ 4,341 $ 4,133 $ 4,209
============ ============ ============ ============ =============
Net loans charged-off/(recovered) to
average loans .16% .20% (.21%) 1.28% 1.22%
Net loans charged-off (recovered) to
allowance for loan losses 5.44% 5.70% (4.79%) 26.76% 25.09%
Allowance for loan losses to
ending gross loans 2.68% 3.47% 3.76% 4.62% 4.77%
Allowance for loan losses to
non-performing loans 165.25% 202.02% 231.64% 217.99% 237.93%
Recoveries to charge-offs 13.11% 42.22% 471.43% 2.30% 1.68%
</TABLE>
6
<PAGE>
The following table represents the allocation of the bank's allowance for loan
losses and the percentage of loans in each category to total loans for the
periods ending as indicated:
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
------------------- ------------------- ------------------- -------------------- -------------------
($ in thousands) Amount %age Amount %age Amount %age Amount %age Amount %age
----------- ----- ----------- ----- ----------- ----- ----------- ----- ----------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial $ 723 26.3% $ 908 24.0% $ 1,067 22.5% $ 771 21.5% $ 439 26.4%
Comm'l Real Estate 2,171 36.1% 2,371 36.0% 2,411 34.9% 2,722 41.8% 3,303 40.4%
Construction 209 4.4% 143 4.9% 187 5.1% 194 5.4% 74 2.1%
Residential Mortgage 372 24.7% 364 27.8% 365 29.3% 191 20.2% 179 19.0%
Consumer 244 8.5% 162 7.3% 138 8.2% 118 11.1% 130 12.1%
Unallocated 176 159 173 137 84
----------- ----------- ----------- ----------- -----------
Total $ 3,895 100.0% $ 4,107 100.0% $ 4,341 100.0% $ 4,133 100.0% $ 4,209 100.0%
=========== =========== =========== =========== ===========
</TABLE>
The allocation of the allowance for loan losses above reflects management's
judgment of the relative risks of the various categories of the bank's loan
portfolio. This allocation should not be considered an indication of the future
amounts or types of possible loan charge-offs.
The following table sets forth information regarding non-performing assets,
restructured loans and delinquent loans 30-89 days past due as to interest or
principal, held by the bank at the dates indicated:
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------------------
($ in thousands) 1996 1995 1994 1993 1992
------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Loans accounted for on a non-accrual basis* $ 2,237 $ 2,021 $ 1,871 $ 1,895 $ 1,767
Loans past due 90 days, still accruing 120 12 3 1 2
------------ ------------ ------------ ------------ -------------
Total non-performing loans 2,357 2,033 1,874 1,896 1,769
Other real estate owned 83 417 390 525 125
------------ ------------ ------------ ------------ -------------
Total non-performing assets $ 2,440 $ 2,450 $ 2,264 $ 2,421 $ 1,894
============ ============ ============ ============ =============
Restructured loans $ - $ - $ 742 $ 779 $ 1,524
Delinquent loans 30-89 days past due 2,280 2,356 534 680 538
Non-performing loans : Gross loans 1.62% 1.72% 1.62% 2.12% 2.00%
Non-performing assets : Total assets 0.86% 1.09% 1.32% 1.65% 1.32%
Delinquent loans 30-89 past due :
Gross loans 1.57% 1.99% 0.46% 0.76% 0.61%
<FN>
* Impaired loans included in non-performing loans as of December 31, 1996
and 1995 were $1.3 million and $.5 million, respectively.
</FN>
</TABLE>
Investment Activities
The investment activity of the bank is an integral part of the overall
asset/liability management program of the bank. The investment function provides
readily available funds to support loan growth as well as to meet deposit
withdrawals and maturities and attempts to provide maximum return consistent
with liquidity constraints and general prudence, including diversity and safety
of investments. The securities in which the bank may invest are subject to
regulation and are limited to securities which are considered "investment grade"
securities. In addition, the bank has an internal investment policy which
restricts investments to the following categories: U.S. treasury securities,
U.S. government agencies, U.S. Agency mortgage-backed securities("MBSs") and
collateralized mortgage obligations ("CMOs"), Federal Home Loan Bank of Boston
("FHLB") stock, federal funds, and state, county, and municipal securities
(Municipals), all of which must be considered investment grade by a recognized
rating service. The bank's CMO investments primarily consist of investments in
planned amortization classes(PACs). The yield and maturity of such PAC CMOs are
less susceptible to change, as opposed to non PAC CMOs, due to increasing or
decreasing market rates. The credit rating of each security or obligation in the
portfolio is closely monitored and reviewed at least annually by the bank's
investment committee. See note 2 to the consolidated financial statements in
Item 7 for further information.
7
<PAGE>
At December 31, 1996, 1995, and 1994 all investment securities were classified
as available for sale and were carried at fair value. The net unrealized losses
at December 31, 1996, net of tax effects, are shown as a separate component of
stockholders' equity in the amount of $.1 million. The following table
summarizes the fair value of investments at the dates indicated:
<TABLE>
<CAPTION>
December 31,
------------------------------------------------------------
($ in thousands) 1996 1995 1994
------------------ ------------------ ----------------
<S> <C> <C> <C>
U.S. Treasuries and Agencies $ 92,184 $ 53,647 $ 22,542
CMOs and MBSs 11,760 10,972 10,688
Municipals 12,490 9,999 8,974
collateralized by BSs
U.S. Agency Mortgage-Backed Obligations - 1,232 1,449
FHLB Stock 2,962 2,962 2,087
------------ ------------ ------------
Total investments available for sale $ 119,396 $ 78,812 $ 45,740
============ ============ ============
</TABLE>
The contractual maturity distribution, as of December 31, 1996, of the total
bonds and obligations above with the weighted average yield for each category is
as follows:
<TABLE>
<CAPTION>
Under 1 Year 1 - 3 Years 3 - 5 Years 5 - 10 Years Over 10 Years
---------------- ----------------- ---------------- ------------------ -----------------
($ in thousands) Balance Yield Balance Yield Balance Yield Balance Yield Balance Yield
-------- ----- --------- ----- -------- ----- --------- ----- --------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasuries
and Agencies $ - - $ 23,672 5.55% $ 29,646 6.23% $ 30,057 6.96% $ 8,809 7.27%
CMOs and MBSs - - 280 5.38% - - 4,956 6.91% 6,524 6.64%
Municipals* 153 6.73% 1,989 6.83% 3,442 7.39% 5,704 7.44% 1,202 6.70%
-------- --------- --------- --------- ---------
$ 153 6.73% $ 25,941 5.65% $ 33,088 6.35% $ 40,717 7.02% $ 16,535 6.98%
======== ========= ========= ========= =========
<FN>
* Municipal security yields and total yields are shown on a tax
equivalent basis.
</FN>
</TABLE>
Scheduled contractual maturities may not reflect the actual maturities of the
investments. MBSs/CMOs are shown at their final maturity, however, due to
prepayments and normal amortization the actual cash flows are expected to be
faster than presented above. Similarly, included in the U.S. Treasuries and
Agencies category is $48.8 million in securities (including step-up bonds) which
can be "called" before maturity. Actual maturity of these callable securities
will be faster in a falling rate environment versus a rising rate environment.
Management considers these factors when evaluating the net interest margin in
the asset/liability management program.
See "Interest Margin Sensitivity Analysis" below for additional information
regarding the bank's callable bonds.
Interest Margin Sensitivity Analysis
One of the principal factors in maintaining planned levels of net interest
income is the ability to design effective strategies to cope with the impact on
future net interest income because of changes in interest rates. The balancing
of the changes in interest income from interest earning assets and the interest
expense of interest bearing liabilities is done through the asset/liability
management program. The bank's simulation model analyzes various interest rate
scenarios. Varying future interest rate environments affect prepayment speeds,
maturities of investments due to call provisions, changes in interest rates on
various asset and liability accounts based on different indexes, and other
factors which vary under the different scenarios. The bank's asset/liability
policy is designed to limit the impact on net interest income to 7.5% in the 24
month period, following the date of the analysis, in a rising and falling rate
shock analysis of 200 basis points. As of December 31, 1996, analysis indicated
that the bank was in compliance with the policy.
Management believes that simulation provides a more reliable estimate of future
net interest income than traditional GAP analysis, a summary of interest
sensitive assets and liabilities by date of anticipated repricing. There are
significant assumptions and limitations in GAP analysis that make it of little
value in the opinion of the bank's management. GAP analysis does not consider
the relative sensitivity of different assets and liabilities or whether the
assets or liabilities reprice up or down. GAP analysis only considers when the
assets or liabilities reprice. Also, GAP analysis allows for significantly
different assumptions for core deposits which can dramatically impact the
results.
8
<PAGE>
Maturity information of the loan portfolio, investment portfolio, certificates
of deposit, and short-term borrowings are contained in Part I, Item I and Notes
7 and 8 of the financial statements in Part II, Item 7. Management uses this
information in the simulation model along with other information about the
bank's assets and liabilities. Management makes certain assumptions regarding
how the factors discussed above will affect the assets and liabilities of the
bank as rates change. One of the more significant changes, not discussed
elsewhere in this report, occurs in the investment portfolio, specifically how
the bank's callable securities will react as rates change. The following table
reflects management's estimates of when the principal, shown at fair value, of
the bank's callable securities will be repaid and the securities' weighted
average interest rates as of December 31, 1996 under three scenarios: interest
rates up 200 basis points (BP), down 200 basis points and no change.
<TABLE>
<CAPTION>
($ in thousands) Up 200 BP No Change Down 200 BP
------------------------ ------------------------ -----------------------
Fair Fair Fair
Value Yield Value Yield Value Yield
------------- ------- ------------- ------- ------------- -------
<S> <C> <C> <C> <C> <C> <C>
0 - 12 Months $ - - $ 3,998 7.00% $ 33,433 6.83%
13 - 24 Months 3,461 5.98% 8,511 6.34% 9,003 6.82%
25 - 36 Months 995 5.77% 995 5.77% - -
37 - 48 Months 4,506 6.44% 1,800 6.92% 2,299 7.18%
Over 48 Months 39,859 7.03% 33,517 7.02% 4,086 7.16%
------------- ------------- -------------
Total $ 48,821 6.87% $ 48,821 6.87% $ 48,821 6.87%
============= ============= =============
</TABLE>
Management's primary focus is to limit the fluctuation in the net interest
margin over time as interest rates change. However, management also assesses
sensitivity of the change in the net value of assets and liabilities (MVPE)
under different scenarios. As interest rates rise, the value of interest-bearing
assets generally declines while the value of interest-bearing liabilities
increases. Management monitors the MVPE on a quarterly basis. Although
management does consider the effect on the MVPE when making asset/liability
strategy decisions, the primary focus is on managing the effect on the net
interest margin under changing rates.
The asset/liability strategies are reviewed continually by management and
presented and discussed with the investment committee on at least a quarterly
basis. The investment committee is comprised of various members of the board of
directors. An asset/liability policy sets forth certain criteria from which
management can operate (i.e. capital ratio, liquidity ratio, loan to deposit
ratio, sensitivity of net interest margin to changing rates). The
asset/liability strategies are revised continually based on changes in interest
rate levels, general economic conditions, competition in the marketplace, the
current position of the bank, anticipated growth of the bank and other factors.
Source of Funds
Deposits
Deposits have traditionally been the principal source of the bank's funds. The
bank offers a broad selection of deposit products to the general public,
including NOW accounts, savings accounts, money market accounts, individual
retirement accounts (IRA) and certificates of deposit. The bank also offers
commercial checking, money market, Keogh retirement and business IRA accounts
and repurchase agreements to its commercial business customers. The bank does
not currently use brokered deposits. The bank has from time to time offered
premium rates on specially designated products in order to promote new branches
and to attract customers and longer term deposits.
Management determines the interest rates offered on deposit accounts based on
current and expected economic conditions, competition, liquidity needs, the
volatility of the existing deposits, the asset/liability position of the bank
and the overall objectives of the bank regarding the growth of relationships.
9
<PAGE>
The table below shows the comparison of the bank's average deposits and average
rate paid for the periods indicated. Interest rates have been annualized to
reflect average rates paid during the year. The annualized average rate on total
deposits reflects only interest bearing deposits.
<TABLE>
<CAPTION>
December 31,
1996 1995 1994
------------------------------------ ------------------------------------- -----------------------------------
Average % of Average % of Average % of
Amount Rate Deposits Amount Rate Deposits Amount Rate Deposits
----------- ------- ----------- ----------- ------- ----------- ----------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Demand $ 34,884 - 15.86% $ 28,215 - 18.15% $ 24,126 - 19.15%
Savings 17,037 2.22% 7.75% 15,100 2.22% 9.71% 15,595 2.18% 12.38%
NOW 43,929 2.09% 19.97% 31,128 2.11% 20.02% 31,159 1.91% 24.73%
Money Market 24,402 2.56% 11.09% 24,104 2.90% 15.51% 21,954 2.25% 17.42%
----------- ----------- ----------- ----------- ----------- -----------
85,368 2.25% 38.81% 70,332 2.42% 45.24% 68,708 2.08% 54.53%
Time deposits 99,696 5.63% 45.33% 56,904 5.47% 36.61% 33,161 3.53% 26.32%
----------- ----------- ----------- ----------- ----------- -----------
Total $ 219,948 4.07% 100.00% $ 155,451 3.78% 100.00% $ 125,995 2.55% 100.00%
=========== =========== =========== =========== =========== ===========
</TABLE>
See note 7 to the consolidated financial statements in Item 7 for further
information.
Borrowings
The bank is a member of the Federal Home Loan Bank of Boston (FHLB). This
membership enables the bank to borrow funds from the FHLB. The bank utilizes
borrowings from the FHLB to fund short term liquidity needs and is an integral
component of the bank's asset/liability management program. At December 31,
1996, the bank had the capacity to borrow up to approximately $107.6 million
from the FHLB with actual outstanding balances of $4.9 million at a rate of
7.32%.
The bank also borrows funds from customers secured by the bank's investment
securities. These repurchase agreements represent a cost competitive funding
source for the bank. Interest rates paid by the bank on these transactions are
based on market conditions and the bank's need for additional funds at the time
of the transaction. As of December 31, 1996 the bank had $11.8 million in
repurchase agreements outstanding with an average interest rate of 3.81%.
See note 8 to the consolidated financial statements in Item 7 for further
information.
Trust
The bank began offering trust services in June of 1992. The bank provides a
range of investment management services to individuals, family groups, trusts,
foundations and retirement plans. These services include management of equity,
fixed income, balanced and strategic cash management portfolios. Portfolios are
managed based on the investment objectives of each client. At December 31, 1996,
the bank had $126.3 million in assets under management.
Competition
The bank faces strong competition to attract deposits and to generate loans.
Several major commercial banks are headquartered in neighboring Boston, and
numerous other commercial banks, savings banks, cooperative banks, credit unions
and savings and loan associations have one or more offices in the City of Lowell
or its surrounding communities and in the Leominster/Fitchburg, Massachusetts
area. The major commercial banks have several competitive advantages over the
bank, including the ability to make larger loans to a single borrower than is
possible for the bank. The greater financial resources of these banks also
allows them to offer a broad range of automated banking services, to maintain
numerous branch offices and to mount extensive advertising and promotional
campaigns. Competition for loans and deposits also comes from other businesses
which provide financial services, including consumer finance companies, credit
unions, factors, mortgage brokers, insurance companies, securities brokerage
firms, money market mutual funds and private lenders. Advances in and the
increased use of technology, such as internet banking and PC banking, is
expected to have a significant impact on the competitive landscape of financial
institutions going forward.
10
<PAGE>
As a general matter, banking regulations continue to undergo significant
changes, including changes in the products and services banks are permitted to
offer, the nature and degree of involvement in non-banking activities, directly
or indirectly, by bank holding companies and other contemplated legislative and
regulatory proposals that could, if adopted, alter the structure, regulation and
competitive relationships of financial institutions. To the extent that changes
in banking regulations may further increase competition, any such changes could
result in the bank paying increased interest rates to obtain deposits while
receiving lower interest rates on its loans. Under such circumstances, the
bank's net interest margin would decline. In addition, any increase in the
extent of regulation imposed upon the banking industry generally could result in
the bank incurring additional operating costs which could impede profitability.
Notwithstanding the substantial competition with which the bank is faced, the
bank believes that it has established a market niche in Greater Lowell and the
Leominster/Fitchburg area which has been enhanced in recent years by the
acquisition of other independent banks by major bank holding companies, and the
resultant consolidation of competitors' banking operations and services within
the bank's market area.
The bank's officers and directors have substantial business and personal ties in
the cities and towns in which the bank operates. The bank believes that it has
established a market niche by providing its customers, particularly consumers,
smaller and privately held businesses and professionals, with prompt and
personal service based on management's familiarity and understanding of such
customers' banking needs. The bank's past and continuing emphasis is to provide
responsive personal and professional service.
Supervision and Regulation
General
Bank holding companies and banks are subject to extensive government regulation
through federal and state statutes, which are subject to changes that can
significantly affect the way in which the entities conduct business. Legislation
enacted in recent years has substantially increased the level of competition
among commercial banks, thrift institutions and non-banking financial service
companies, including brokerage firms, investment banks, insurance companies and
mutual funds. In addition, the enactment of the federal Riegle-Neal Interstate
Banking and Branching Efficiency Act of 1994 has affected the banking industry
by, among other things, enabling banks and bank holding companies to expand the
geographic area in which they may provide banking services. To the extent that
the following information describes statutory or regulatory provisions, it is
qualified in its entirety by reference to the particular statutory and
regulatory provisions. Any changes in applicable law or regulation may have a
material effect on the business and prospects of the bank and the company.
See note 9 in Item 7 for further information regarding regulatory capital
requirements for both the company and the bank.
Regulation of the Holding Company
The company is a registered bank holding company under the federal Bank Holding
Company Act of 1956, as amended (the "Bank Holding Company Act"). It is subject
to the supervision and examination of the Board of Governors of the Federal
Reserve System (Federal Reserve Board) and files reports with the Federal
Reserve Board as required under the Bank Holding Company Act. Under applicable
Massachusetts law, the company is also subject to the supervisory jurisdiction
of the Commissioner.
The Bank Holding Company Act requires prior approval by the Federal Reserve
Board of the acquisition by the holding company of substantially all the assets
or more than five percent of the voting stock of any bank. The Bank Holding
Company Act also allows the Federal Reserve Board to determine (by order or by
regulation) what activities are so closely related to banking as to be a proper
incident of banking, and thus, whether the company, either directly or
indirectly through non-bank subsidiaries, can engage in such activities. The
Bank Holding Company Act prohibits the company and the bank from engaging in
certain tie-in arrangements in connection with any extension of credit, sale of
property or furnishing of services. There are also restrictions on extensions of
credit and other transactions between the bank, on the one hand, and the company
or other affiliates of the bank, on the other hand.
11
<PAGE>
Regulation of the Bank
As a trust company organized under Chapter 172 of the Massachusetts General
Laws, the deposits of which are insured by the FDIC, the bank is subject to
regulation, supervision and examination by the Commissioner and the FDIC.
The regulations of these agencies govern many aspects of the bank's business,
including permitted investments, the opening and closing of branches, the amount
of loans which can be made to a single borrower, mergers, appointment and
conduct of officers and directors, capital levels and terms of deposits. The
Federal Reserve Board also requires the bank to maintain minimum reserves on its
deposits. Federal and state regulators can impose sanctions on the bank and its
management if the bank engages in unsafe or unsound practices or otherwise fails
to comply with regulatory standards. Various other federal and state laws and
regulations, such as truth-in-lending statutes, the Equal Credit Opportunity
Act, the Real Estate Settlement Procedures Act and the Community Reinvestment
Act, also govern the bank's activities.
Under Massachusetts law, the company's board of directors is generally empowered
to pay dividends on the company's capital stock out of its net profits to the
extent that the board of directors considers such payment advisable.
Massachusetts banking law also imposes various specific restrictions upon the
payment of dividends by the bank, including the requirement that the bank's
capital and surplus must equal at least 10% of its deposit liability or a
sufficient amount must be transferred from net profits to surplus prior to
payment of such dividend. The Federal Deposit Insurance Act of 1991 ("FDICIA")
also prohibits a bank from paying any dividends on its capital stock in the
event that the bank is in default on the payment of any assessment to the FDIC
or if the payment of any such dividend would otherwise cause the bank to become
undercapitalized.
Capital Resources
Capital planning by the company and the bank considers current needs and
anticipated future growth. Other than the sale of common stock in 1988 and 1989,
the primary source of additional capital has been retention of earnings since
the bank commenced operations.
See note 9 in Item 7 for further information regarding regulatory capital
requirements for both the company and the bank.
The Company
The Federal Reserve Board has adopted capital adequacy guidelines that generally
require bank holding companies to maintain total capital equal to 8% of total
risk-weighted assets, with at least one-half of that amount consisting of core
or Tier 1 capital. Tier 1 capital for the company consists of common
stockholders' equity. Total capital for the company consists of Tier 1 capital
and supplementary or Tier 2 capital. Supplementary capital for the company
includes a portion of the general allowance for loan losses. Assets are adjusted
under the risk-based capital guidelines to take into account different levels of
credit risk, with the categories ranging from 0% (requiring no additional
capital) for assets such as cash, to 100% for assets that, by their nature in
the ordinary course of business, pose a direct credit risk to a bank holding
company, including commercial real estate loans, commercial business loans and
consumer loans.
In addition to the risk-based capital requirement, the Federal Reserve Board
requires bank holding companies to maintain a minimum "leverage" ratio of Tier 1
capital to total assets of 3%, with most bank holding companies required to
maintain at least a 4% ratio.
The Bank
The bank is subject to separate capital adequacy requirements of the FDIC, which
are substantially similar to the requirements of the Federal Reserve Board
applicable to the company. Under the FDIC requirements, the minimum total
risk-based capital requirement is 8% of assets and certain off-balance sheet
items, weighted by risk. For example, cash and government securities are placed
in a 0% risk category, most home mortgage loans are placed in a 50% risk
category and commercial loans are placed in a 100% risk category. At least 4% of
the total 8% ratio must consist of Tier 1 capital (primarily common equity
including retained earnings) and the remainder may consist of subordinated debt,
cumulative preferred stock and a limited amount of loan loss reserves.
12
<PAGE>
Under the applicable FDIC capital requirements, the bank is also required to
maintain a minimum leverage ratio. The ratio is determined using Tier 1 capital
divided by quarterly average total assets, less intangible assets and other
adjustments. FDIC rules require a minimum of 3% for the highest rated banks.
Banks experiencing high growth rates are expected to maintain capital positions
well above minimum levels.
Depository institutions, such as the bank, are also subject to the prompt
corrective action framework for capital adequacy established by FDICIA. Under
FDICIA, the federal banking regulators are required to take prompt supervisory
and regulatory actions against undercapitalized depository institutions. FDICIA
establishes five capital categories: "well capitalized", "adequately
capitalized", "undercapitalized", "significantly undercapitalized", and
"critically capitalized". A "well capitalized" institution has a total capital
to total risk-based based assets ratio of at least ten percent, a Tier 1 capital
to total risk-based assets ratio of at least six percent, a leverage ratio of at
least five percent and is not subject to any written order, agreement or
directive; an "adequately capitalized" institution has a total capital to total
risk-based assets ratio of at least eight percent, a Tier 1 capital to total
risk-based assets ratio of at least four percent, and a leverage ratio of at
least four percent (three percent if given the highest regulatory rating and not
experiencing significant growth), but does qualify as "well capitalized". An
"undercapitalized" institution fails to meet one of the three minimum capital
requirements. A "significantly undercapitalized" institution has a total capital
to total risk-based assets ratio of less than six percent, a Tier 1 capital to
total risk-based ratio of less than three percent, and a Tier 1 leverage ratio
of less than three percent. A "critically capitalized" institution has a ratio
of tangible equity to assets of two percent or less. Under certain
circumstances, a "well capitalized", "adequately capitalized" or
"undercapitalized" institution may be required to comply with supervisory
actions as if the institution was in the next lowest category.
Failure to meet applicable minimum capital requirements, including a depository
institution being classified as less than "adequately capitalized" within
FDICIA's prompt corrective action framework, may subject a bank holding company
or its subsidiary depository institution(s) to various enforcement actions,
including substantial restrictions on operations and activities, dividend
limitations, issuance of a directive to increase capital and, for a depository
institution, termination of deposit insurance and the appointment of a
conservator or receiver.
Patents, Trademarks, etc.
The company holds no patents, registered trademarks, licenses (other than
licenses required to be obtained from appropriate banking regulatory agencies),
franchises or concessions.
Employees
As of December 31, 1996, the bank employed 113 persons (108 full-time and 5
part-time), including 43 officers. None of the bank's employees are presently
represented by a union or covered by a collective bargaining agreement.
Management believes its employee relations to be excellent.
Impact of Inflation and Changing Prices
A bank's asset and liability structure is substantially different from that of
an industrial company in that virtually all assets and liabilities of a bank are
monetary in nature. Management believes the impact of inflation on financial
results depends upon the bank's ability to react to changes in interest rates
and by such reaction, reduce the inflationary impact on performance. Interest
rates do not necessarily move in the same direction, or at the same magnitude,
as the prices of other goods and services. As discussed previously, management
seeks to manage the relationship between interest-sensitive assets and
liabilities in order to protect against wide net interest income fluctuations,
including those resulting from inflation.
Various information shown elsewhere in this annual report will assist in the
understanding of how well the bank is positioned to react to changing interest
rates and inflationary trends. In particular, the Interest Margin Sensitivity
Analysis contained in Item 1 and other maturity and repricing information of the
bank's assets and liabilities in this report contain additional information.
13
<PAGE>
Item 2. Description of Property
The company's and the bank's main office is in a building located at 222
Merrimack Street, Lowell, Massachusetts. The building provides approximately
12,415 square feet of interior space and has private customer parking along with
off-street parking facilities.
The bank also leases space at 170 Merrimack Street, Lowell, Massachusetts. The
building provides approximately 1,458 square feet of interior space and houses
three departments of the bank. The bank also leases space occupied by the
mortgage center at 21-27 Palmer Street (approximately 4,375 square feet).
In April, 1993, the bank purchased the branch building at 185 Littleton Road,
Chelmsford, Massachusetts. The first floor of the building contains
approximately 3,552 square feet of space with a full basement and a canopy area
of 945 square feet. The facility was purchased at a cost of approximately 20% of
what it would have cost to build a similar facility.
In March, 1995, the bank purchased a branch building at 674 Boston Road,
Billerica, Massachusetts. The building previously served as a bank branch and
contains approximately 3,700 square feet of above-grade space and is constructed
on a cement slab. It is handicapped accessible. The building was purchased for
approximately 40% of its replacement value.
The bank leases branch space at 2-6 Central Street, Leominster, Massachusetts.
The building provides approximately 3,960 square feet of interior space and has
seven private customer parking spaces. The bank has the option to purchase the
premises on the last day of the basic term or at any time during any extended
term at the price of $550,000 as adjusted for increases in the producer's price
index.
The bank leases space at 910 Andover Street, Tewksbury, Massachusetts. The
branch office provides approximately 4,800 square feet of interior space and has
ample parking that is shared with other tenants of the building.
Item 3. Legal Proceedings
The company is involved in various routine legal proceedings incidental to its
business. Management does not believe resolution of any present litigation will
have a material effect on the financial condition of the company.
Various other legal claims may arise from time to time against the company or
the bank in the course of business, none of which are expected to have a
material adverse effect on the financial condition of either the company or the
bank.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders during the quarter
ended December 31, 1996.
14
<PAGE>
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
Market for Common Stock
There is no active trading market for the company's common stock. Although there
have been some private trades of the company's common stock, the company cannot
state with certainty the sales price at which all such transactions occurred.
The following table sets forth sales volume and price information, to the best
of management's knowledge, for the common stock of the company for the periods
indicated.
Trading Share Price Share Price
Fiscal year Volume High Low
----------- ------- ------------- ------------
1996:
1st Quarter 1,525 $ 14.00 $ 14.00
2nd Quarter - - -
3rd Quarter 2,000 15.00 14.00
4th Quarter - - -
1995:
1st Quarter 5,000 12.00 12.00
2nd Quarter 3,000 14.00 12.00
3rd Quarter 550 13.00 13.00
4th Quarter 282 14.00 14.00
Based on a value of $17.00 per share, the most recent trade, in February of
1997, the aggregate market value on December 31, 1996, of the company's common
stock was $26,795,264.
The number of shares outstanding of the company's common stock and number of
shareholders of record as of March 1, 1997, were 1,576,192 and 594,
respectively.
Dividends
The bank declared and paid annual cash dividends of $.30 per share and $.275 per
share in 1996 and 1995, respectively. Although the company intends to continue
to pay an annual dividend, the amount and timing of any declaration of dividends
by the board of directors will depend on a number of factors, including capital
requirements, regulatory limitations, the company's operating results and
financial condition, anticipated growth of the bank and general economic
conditions. As the principal asset of the company, the bank currently provides
the only source of payment of dividends by the company. Under Massachusetts law,
trust companies such as the bank may pay dividends only out of "net profits" and
only to the extent that such payments will not impair the bank's capital stock
and surplus account. These restrictions on the ability of the bank to pay
dividends to the company may restrict the ability of the company to pay
dividends to the holders of its common stock.
Although Massachusetts law does not define what constitutes "net profits", it is
generally assumed that the term includes a bank's undivided profits account
(retained earnings) and does not include its surplus account (additional paid in
capital). At December 31, 1996, the bank's undivided profits account had a
balance of $10.5 million and its surplus account had a balance of $8.6 million.
15
<PAGE>
Item 6. Management Discussion and Analysis or Plan of Operation
Management's discussion and analysis should be read in conjunction with the
company's consolidated financial statements and notes thereto contained in Item
7, and other financial and statistical information contained in this Form
10-KSB. In addition, prevailing economic conditions, as well as government
policies and regulations concerning, among other things, monetary and fiscal
affairs, could significantly affect the operations of the company. The
reorganization of the bank as a subsidiary of the company was completed July 26,
1996. The company had no material assets or operations prior to completion of
the reorganization.
Information at a date on or from a period prior to July 26, 1996 pertains to the
bank.
COMPARISON OF YEARS ENDED DECEMBER 31, 1996 AND 1995
Financial Condition
Total Assets
Total assets increased $58.7 million, or 26.2%, to $283.0 million at December
31, 1996 from $224.3 million at December 31, 1995. The increase, largely funded
by deposit growth and increased borrowings, was primarily from an increase in
gross loans of $27.1 million, or 22.9%, and an increase in investments and
federal funds sold of $27.0 million, or 29.2%.
Loans
Total gross loans were $145.3 million, or 51.3% of total assets, at December 31,
1996, compared with $118.2 million, or 52.7% of total assets, at December 31,
1995. The increase of $27.1 million was attributed to customer call efforts, as
well as increased marketing and advertising, and increased penetration in newer
markets. During 1996, commercial real estate loans increased $9.9 million, or
23.2%, other loans secured by real estate increased by $3.7 million, or 9.5%,
commercial loans increased by $9.8 million, or 34.7%, home equity loans
increased $3.0 million, or 57.2%, and consumer loans increased $.7 million, or
19.7%.
Asset Quality
The non-performing asset balance remains consistent from the previous year and
has declined as a percentage of gross loans. Delinquencies in the 30-89 day
category have improved from 1.99% at December 31, 1995 to 1.57% at December 31,
1996. Delinquencies in the 30-89 day category increased from $.5 million at
December 31, 1994 to $2.4 million at December 31, 1995 due to several commercial
relationships becoming delinquent.
The balance of other real estate owned ("OREO") at December 31, 1996 of $83,000
consisted of commercial real estate properties and represents a decrease of
$334,000 or 80.1% compared to the prior year. The decrease represented a
transfer of real estate owned to loans, by the bank during 1996. The transfer
was a result of sufficient subsequent payments received to qualify as a sale on
real estate owned that was sold with 100% financing. See "Management Discussion
and Analysis of Financial Condition and Results of Operations -Financial
Condition - Asset Quality" and Note 6 to the consolidated financial statements
contained in Item 7.
The bank uses an internal asset classification system which classifies loans
depending on risk of loss characteristics. The most severe classifications are
"substandard" and "doubtful". At December 31, 1996, the bank classified $2.8
million and $0 as substandard and doubtful loans, respectively. Included in the
substandard category is $2.2 million in non-performing loans. The balance of
substandard loans that are performing possess potential weaknesses, and as a
result could become non-performing loans in the future.
Allowance for Loan Losses
Inherent to the lending process is the risk of loss. While the bank endeavors to
minimize this risk, management recognizes that loan losses will occur and that
the amount of these losses will fluctuate depending on the risk characteristics
of the loan portfolio, which in turn depends on current and expected economic
conditions, the financial condition of borrowers, the ability of the borrowers
to adapt to changing technology, the continuity of the borrowers management
teams and the credit management process.
16
<PAGE>
The allowance for loan losses is maintained through the provision for loan
losses, which is a charge to earnings. The adequacy of the provision and the
resulting allowance for loan losses is determined after a continuing review of
the loan portfolio, including identification and review of individual problem
situations that may affect the borrower's ability to repay, review of overall
portfolio quality through an analysis of current charge-offs, delinquency and
non-performing loan data, review of regulatory authority examinations and
evaluations of loans, review of reports prepared by an independent loan review
firm hired by the bank, comparisons to peer group ratios, an assessment of
current and expected economic conditions, and review of changes in the size and
character of the loan portfolio. Thus, the allowance level reflects identified
loss potential and perceived risk in the portfolio.
The bank regularly monitors the real estate market and the bank's asset quality
to determine the adequacy of its allowance for loan losses through ongoing
credit reviews by members of senior management, the overdue loan review
committee, the executive committee and the board of directors.
The bank determines the adequacy of its allowance for loan losses by assigning
loans to risk categories based on the type of loan and its classification. Each
category is assessed for risk of loss based on historical experience and
management's evaluation of the loans making up the category, including the level
of loans on non-accrual and other delinquency factors including general economic
conditions. The bank adjusts its analysis periodically to reflect changes in
historical loss experience and the state of the current economy. The bank also
determines the adequacy of its allowance for loan losses by comparison to peer
group ratios. Otherwise, in conducting its analysis, the bank applies consistent
criteria to the facts and circumstances then existing, as understood by the
bank.
The ratio of the reserve to total loans outstanding was 2.68% at December 31,
1996 versus 3.47% at December 31, 1995. At year-end 1996, the allowance for loan
losses represented 165.25% of non-performing loans compared to 202.02% at
December 31, 1995. The allowance for loan losses, as a percentage of loans, was
intentionally allowed to decline due to favorable national, regional and local
economic trends as well as favorable charge-off history during the previous
years. While the bank believes that its allowance for loan losses is adequate to
cover losses in its loan portfolio, there are uncertainties regarding the future
of the national, New England, greater Lowell and Leominster economies and real
estate markets. The loan portfolio, particularly the real estate portion, could
be negatively impacted by economic conditions as well as the real estate market
throughout the region. As a result, there is no assurance that the level of
non-accrual loans, restructured loans and real estate acquired by foreclosure
will not increase.
The classification of a loan or other asset as non-performing does not
necessarily indicate that loan principal and interest will be ultimately
uncollectible. However, management recognizes the greater risk characteristics
of these assets and therefore considers the potential risk of loss on assets
included in this category in evaluating the adequacy of the allowance for loan
losses.
Based on the foregoing, as well as management's judgment as to the risks
inherent in the loan portfolio, the bank's allowance for loan losses is deemed
adequate to absorb all reasonably anticipated losses on specifically known and
other credit risks associated with the portfolio as of December 31, 1996.
Investments
Total investments (including federal funds sold) totaled $119.4 million, or
42.2% of total assets, at December 31, 1996, compared to $92.4 million, or 41.2%
of total assets, at December 31, 1995. The increase in the balance was
attributed to deposit growth exceeding loan growth during the year. As of
December 31, 1996, the unrealized loss in the investment portfolio was $.2
million compared to an unrealized gain of $.3 million at December 31, 1995. The
unrealized gain/loss in the portfolio fluctuates as interest rates rise and
fall. Due to the fixed rate nature of the bank's investment portfolio, as rates
rise the value of the portfolio declines, and as rates fall the value of the
portfolio rises.
17
<PAGE>
Liquidity
Liquidity is the ability to meet cash needs arising, among other things, from
fluctuations in loans, investments, deposits and borrowings. Liquidity
management is the coordination of activities so that cash needs are anticipated
and met easily and efficiently. Liquidity policies are set and monitored by the
bank's investment and asset/liability committee. The bank's liquidity is
maintained by projecting cash needs, by balancing maturing assets with maturing
liabilities, by the monitoring of various liquidity ratios, by monitoring
deposit flows, and by maintaining liquidity within the investment portfolio.
The bank's liability management objectives are to maintain liquidity, provide
and enhance access to a diverse and stable source of funds, provide
competitively priced and attractive products to customers, conduct funding at a
low cost relative to current market conditions and to engage in sound balance
sheet management strategies. Funds gathered are used to support current asset
levels and to take advantage of selected leverage opportunities. The bank funds
earning assets with deposits, short-term borrowings and stockholders' equity.
The bank does not have any brokered deposits. The bank has the ability to borrow
funds from the Federal Home Loan Bank of Boston. Management believes that the
bank has adequate liquidity to meet its commitments.
The company's primary source of funds is dividends from the bank.
Deposits and Borrowings
Deposits increased $47.4 million, or 24.2%, to $243.8 million, at December 31,
1996, from $196.4 million, at December 31, 1995. The increase was largely
attributed to increases in deposits in the Leominster and Billerica offices
which were opened in 1995 and the Tewksbury office which was opened in October
of 1996.
Total borrowings consisting of securities sold under agreements to repurchase
(repurchase agreements) and FHLB borrowings increased $9.8 million, or 139.7%.
The increase was attributed to an increase in FHLB borrowings of $4.9 million
and an increase in repurchase agreements of $4.8 million. Management from time
to time will take advantage of opportunities to fund asset growth with
borrowings, but on a long-term basis, the bank intends to replace a portion of
its borrowings with lower cost core deposits.
Capital Adequacy
The company is subject to various regulatory capital requirements administered
by the federal banking agencies. Failure to meet minimum capital requirements
can result in certain mandatory, and possible additional discretionary,
supervisory actions by regulators, which, if undertaken, could have a material
adverse effect on the company's consolidated financial statements. At December
31, 1996 the capital levels of each of the company and the bank complied with
all applicable minimum capital requirements of the Federal Reserve Board and the
FDIC, respectively, and the bank qualified as a "well-capitalized" institution
under applicable FDIC prompt correct action regulations. For additional
information regarding the capital requirements applicable to the company and the
bank and their respective capital levels at December 31, 1996, see note 9,
"Stockholders' Equity", in the notes to the accompanying consolidated financial
statements of the company.
Results of Operations
The company's results of operations depend primarily on the results of
operations of the bank. The bank's results of operations depend primarily on the
bank's net interest income, the difference between income earned on its loan and
investment portfolios and the interest paid on its deposits and borrowed funds,
and the size of the provision for loan losses. Net interest income is primarily
affected in the short-term by the level of earning assets as a percentage of
total assets, the level of interest-bearing and non-interest-bearing deposits,
yields earned on assets, rates paid on liabilities, the level of non-accrual
loans and changes in interest rates. The provision for loan losses is primarily
affected by individual problem loan situations, overall loan portfolio quality,
the level of charge-offs, regulatory examinations, an assessment of current and
expected economic conditions, and changes in the character and size of the loan
portfolio. Earnings are also affected by the bank's non-interest income, which
consists primarily of deposit account fees, trust fees, and gains and losses on
sales of securities, and the bank's level of non-interest expense and income
taxes.
18
<PAGE>
<TABLE>
<CAPTION>
AVERAGE BALANCES, INTEREST AND AVERAGE INTEREST RATES
Year Ended December 31, 1996 Year Ended December 31, 1995 Year Ended December 31, 1994
------------------------------- ---------------------------- ------------------------------
Average Average Average
Average Interest Average Interest Average Interest
Balance Interest Rate (4) Balance Interest Rate (4) Balance Interest Rate ( 4)
-------- -------- ---------- ------- -------- --------- ------- -------- ---------
($ in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Loans and loans held for sale(1)(2) $128,572 $ 12,466 9.70% $118,248 $ 11,292 9.55% $ 98,033 $ 8,451 8.62%
Investment securities (4) 110,338 6,753 6.41 55,140 3,325 6.43 45,774 2,631 6.28
Federal funds sold 2,476 138 5.57 8,918 503 5.64 1,126 42 3.73
-------- -------- -------- -------- -------- --------
Total interest earnings assets 241,386 19,357 8.15% 182,306 15,120 8.41% 144,933 11,124 7.84%
-------- -------- --------
Other assets (3) 14,367 9,255 9,299
-------- -------- --------
Total assets $255,753 $191,561 $154,232
======== ======== ========
Liabilities and stockholders' equity:
Savings, NOW and money market $ 85,368 1,921 2.25% $ 70,332 1,704 2.42% $ 68,708 1,426 2.08%
Certificate of deposit 99,696 5,611 5.63 56,904 3,111 5.47 33,161 1,171 3.53
Short-term borrowings 14,392 645 4.48 16,125 847 5.25 10,045 373 3.71
-------- -------- -------- -------- -------- --------
Total deposits and borrowings 199,456 8,177 4.10% 143,361 5,662 3.95% 111,914 2,970 2.65%
-------- -------- --------
Non-interest bearing deposits 34,884 28,215 24,126
Other liabilities 1,766 1,792 1,293
-------- -------- --------
Total liabilities 236,106 173,368 137,333
Stockholders' equity 19,647 18,193 16,899
-------- -------- --------
Total liabilities and
stockholders' equity $255,753 $191,561 $154,232
======== ======== ========
Net interest rate spread 4.05% 4.46% 5.19%
Net interest income $ 11,180 $ 9,458 $ 8,154
======== ======== ========
Net yield on average earning assets 4.76% 5.31% 5.76%
<FN>
(1) Average loans include non-accrual loans.
(2) Average loans are net of average deferred loan fees.
(3) Other assets include cash and due from banks, accrued interest receivable, allowance for loan losses, real estate acquired
by foreclosure, deferred income taxes and other miscellaneous assets.
(4) Average balances are presented at average amortized cost and average interest rates are presented on a tax-equivalent basis.
</FN>
</TABLE>
The bank manages its earning assets by fully using available capital resources
within what management believes are prudent credit and leverage parameters.
Loans, investment securities, and short-term investments comprise the bank's
earning assets.
19
<PAGE>
General
The company had net income during fiscal 1996 of $2.4 million or $1.53 per
share, compared with net income for fiscal 1995 of $1.8 million, or $1.12 per
share. The increase of net income of $.6 million, or 36.5%, was primarily a
result of an increase in the net interest income of $1.7 million caused by an
increase in interest earning assets. The increase in the net interest income was
partially offset by increases in non-interest expenses of $.8 million which was
primarily due to the increased costs associated with operating the Leominster
and Billerica branches for a full year and the start up of the Tewksbury branch
in October of 1996.
Net Interest Income
The table on the preceding page presents the bank's average balance sheet, net
interest income and average rates for the years ended December 31, 1996, 1995
and 1994.
The following table sets forth, among other things, the extent to which changes
in interest rates and changes in the average balances of interest-earning assets
and interest-bearing liabilities have affected interest income and expense
during the year ended December 31, 1996, and 1995. For each category of
interest-earning assets and interest-bearing liabilities, information is
provided on changes attributable to (1) changes in volume (change in average
portfolio balance multiplied by prior year average rate); (2) changes in
interest rates (change in average interest rate multiplied by prior year average
balance); and (3) changes in rate and volume (the remaining difference).
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------------------------------------------------------
1996 1995
-------------------------------------------------- -------------------------------------------------
Rate/ Rate/
($ in thousands) Volume Rate Volume Total Volume Rate Volume Total
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest Income:
Loans $ 986 $ 173 $ 15 $ 1,174 $ 1,743 $ 911 $ 187 $ 2,841
Investments 3,549 (13) (108) 3,428 589 66 39 694
Federal Funds (363) (6) 4 (365) 291 22 148 461
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
Total 4,172 154 (89) 4,237 2,623 999 374 3,996
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
Interest Expense:
Savings/NOW/MM 364 (121) (26) 217 34 239 5 278
Time Deposits 2,339 92 69 2,500 838 642 460 1,940
Other Borrowings (91) (124) 13 (202) 226 155 93 474
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
Total 2,612 (153) 56 2,515 1,098 1,036 558 2,692
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
Net change in net
interest income $ 1,560 $ 307 $ (145) $ 1,722 $ 1,525 $ (37) $ (184) $ 1,304
=========== =========== =========== =========== =========== =========== =========== ==========
</TABLE>
The bank's net interest income was $11.2 million for the year ended December 31,
1996, an increase of $1.7 or 18.2% from $9.5 million in the year ended December
31, 1995, primarily a result of an increase in the bank's asset size and an
increase in interest rates earned on loans. These increases were partially
offset by increased interest expense from an increase in certificate of deposit
balances and savings, NOW and money market account balances.
Interest income on loans increased in the year ended December 31, 1996 to $12.5
million from $11.3 million for the year ended December 31, 1995. The increase
was primarily due to an increase in the average balance from $118.2 million in
fiscal 1995 to $128.6 million in fiscal 1996. Also contributing to the increase
was an increase in the average interest rate earned on the loan balances from
9.55% in 1995 to 9.70% in 1996. The increase in the interest rate earned was
attributed to both an improvement in the mix of loans as well as indexed loans
adjusting upward during the year.
Interest income on investments increased for the year ended December 31, 1996 to
$6.8 million from $3.3 million for the year ended December 31, 1995. The
increase was entirely due to an increase in the average balance from $55.1
million in fiscal 1995 to $110.3 million in fiscal 1996. Partially offsetting
the increase was a decrease in the average interest rate earned on the
investment balances from 6.43% in 1995 to 6.41% in 1996, both on a tax
equivalent basis. This decline in rate had a minimal impact of approximately
$13,000.
Interest expense on savings, NOW and money market accounts increased to $1.9
million for the year ended December 31, 1996 compared to $1.7 million for the
year ended December 31, 1995. The increase was due to the increase in average
balance from $70.3 million in fiscal 1995 to $85.4 million in fiscal 1996. This
increase in balance was partially offset by a decrease in the average interest
rate paid from 2.42% in 1995 to 2.25% in 1996. The decrease in rate was due to a
reduction in the interest rates paid on these accounts.
20
<PAGE>
Interest expense on time deposits increased to $5.6 million for the year ended
December 31, 1996 compared to $3.1 million for the year ended December 31, 1995.
The increase was due to both an increase in the average balance and rates paid
on the deposits. The increase in balance from $56.9 million in fiscal 1995 to
$99.7 million in fiscal 1996 was a result of a full year of certificates of
deposit that were generated in a special program in 1995 as well as increased
volume generated from a special program offered at two of our branch locations
in 1996. The increase in rate from 5.47% in 1995 to 5.63% in 1996 was also
attributed to the special programs referred to above. Management will, from time
to time, offer special programs with interest rates slightly higher than market
on certificates of deposit to generate market share and penetration at the newer
branches.
Interest expense on short term borrowings, including borrowings from the Federal
Home Loan Bank and repurchase agreements, decreased to $645,000 in fiscal 1996
from $847,000 in fiscal 1995. The decrease was primarily due to a decline in
interest rates paid on these instruments and a lower average balance. Interest
rates paid on these accounts are driven by changing rates due to economic
conditions as well as competition in the marketplace.
The net interest spread and net yield on average earning assets both declined to
4.05% and 4.76%, respectively, for the year ended December 31, 1996, from 4.46%
and 5.31%, respectively, for the year ended December 31, 1995. The decline in
these rates was a result of the increase in higher cost deposits, certificates
of deposit and short-term borrowings, a decline in the loan to deposit ratio and
increased competition. Management considered the impact on these ratios when
making the decision to increase the leverage of the bank. It is expected that
due to increasing competition for loans and increased price pressure on deposits
that the bank will have a lower net interest rate spread in 1997 as compared to
1996.
Provision for Loan Losses
The provision for loan losses amounted to $0 in 1996 and 1995. The provision
reflects management's assessment of real estate values and economic conditions
in New England and in Greater Lowell, in particular, the level of non-accrual
loans, levels of charge-offs and recoveries, levels of outstanding loans, known
and inherent risks in the nature of the loan portfolio and management's
assessment of current risk. It is a significant factor in the bank's operating
results. The bank's allowance for loan losses was $3.9 million at December 31,
1996. Also see discussion under "Financial Condition - Allowance for Loan
Losses".
Non-Interest Income
Non-interest income, exclusive of security gains, increased by $77,000 to $1.7
million for the year ended December 31, 1996, compared to $1.6 million for the
year ended December 31, 1995. This increase was a result of an increase in
deposit service fees, trust fees and other income. The increase was partially
offset by a decline in gains on sales of loans of $184,000.
Deposit fees increased approximately 26.6% in the year ended December 31, 1996,
compared to the year ended December 31, 1995. The 1996 growth was primarily the
result of an increase in transaction deposit accounts, activity volume and
increased fees.
Trust fees increased due to an increase in trust assets under management.
Other income for the year ended December 31, 1996, was $311,000, an increase of
36.0% or $82,000 from $229,000 in the year ended December 31, 1995, due
primarily to increases in letter of credit fees, safe deposit fees and check
printing fees on new and existing accounts.
Gains on Sales of Securities
Gains from the sales of investment securities totaled $1,909 in 1996 versus $0
in 1995. The net gain was from gains recognized on agency securities that were
called and from sales of securities principally maturing within approximately 31
months.
Non-Interest Expenses
Salaries and benefits expense totaled $5.2 million in the year ended December
31, 1996, compared with $4.5 million in 1995 an increase of $681,000, or 15.0%.
This increase was primarily the result of the addition of staffing for the
Leominster and Billerica branches in the second quarter of 1995, the addition of
staffing for the Tewksbury branch in the fourth quarter of 1996, an increase in
benefit expenses and annual salary increases.
21
<PAGE>
Occupancy expense was $1.3 million for the year ended December 31, 1996,
compared with $1.2 million in 1995, an increase of $143,000 or 12.1% primarily
due to the opening of the two branches in 1995 and one new branch in 1996.
FDIC insurance expense decreased by $149,000 in 1996. The decrease was due to a
reduction in the bank's assessment rate.
Office and data processing supplies expense decreased by $142,000, or 33.4%, in
the year ended December 31, 1996, primarily due to various cost saving
initiatives and additional costs incurred in 1995 relating to the opening of the
two new branches.
Trust professional and custodial expenses increased by $40,000, or 22.0%, due to
an increase in trust assets under management. Audit, legal and other
professional expenses decreased by $46,000, or 13.9%, in 1996 primarily due to
the extra costs in 1995 of a consultant hired by the bank to review its
operating procedures.
Postage increased by $59,000, or 53.8%, as a result of increased volume in
deposit accounts, increased bankwide direct mail, and direct mail associated
with the opening of the Tewksbury branch.
Advertising and public relations increased to $482,000 for the year ended
December 31, 1996 from $304,000 in 1995. The increase was primarily due to
various marketing studies performed by an independent agency and an overall
increase in bankwide advertising.
Other operating expenses remained consistent from the previous year.
22
<PAGE>
Item 7. Financial Statements
Index to Consolidated Financial Statements
Page
Independent Auditors' Report 24
Consolidated Balance Sheet as of December 31, 1996 and 1995 25
Consolidated Statement of Income for the years ended
December 31, 1996, 1995 and 1994 26
Consolidated Statement of Changes in Stockholders' Equity
for the years ended December 31, 1996, 1995, and 1994 27
Consolidated Statement of Cash Flows for the years ended
December 31, 1996, 1995, and 1994 28
Notes to the consolidated financial statements 30
23
<PAGE>
Independent Auditors' Report
The Board of Directors
Enterprise Bancorp, Inc.
We have audited the accompanying consolidated balance sheets of Enterprise
Bancorp, Inc. and subsidiary ( the "Company") as of December 31, 1996 and 1995,
and the related consolidated statements of income, changes in stockholders'
equity and cash flows for each of the years in the three-year period ended
December 31, 1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Enterprise Bancorp,
Inc. and subsidiary at December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1996 in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick LLP
January 8, 1997
Boston, Massachusetts
24
<PAGE>
<TABLE>
<CAPTION>
ENTERPRISE BANCORP, INC.
Consolidated Balance Sheets
December 31, 1996 and 1995
Assets 1996 1995
------ ------------- -------------
<S> <C> <C>
Cash and cash equivalents:
Cash and due from banks (Note 14) $ 14,507,497 11,562,392
Daily federal funds sold -- 13,600,000
------------- -------------
Total cash and cash equivalents 14,507,497 25,162,392
------------- -------------
Investment securities at fair value (Notes 2 and 8) 119,395,742 78,812,489
Loans held for sale at lower of cost or market value 74,020 1,855,340
Loans, less allowance for loan losses of $3,894,520
in 1996 and $4,106,659 in 1995 (Notes 3 and 8) 140,351,073 111,700,213
Premises and equipment (Note 4) 3,388,736 2,463,592
Accrued interest receivable (Note 5) 2,699,833 1,823,079
Prepaid expenses and other assets 491,277 291,097
Income taxes receivable (Note 12) 140,396 --
Real estate acquired by foreclosure (Note 6) 82,721 417,172
Deferred income taxes, net (Note 12) 1,884,283 1,740,270
------------- -------------
Total assets $ 283,015,578 224,265,644
============= =============
Liabilities and Stockholders' Equity
Deposits (Note 7) $ 243,428,800 196,016,743
Short-term borrowings (Notes 2 and 8) 16,737,249 6,981,783
Escrow deposits of borrowers 411,050 377,824
Accrued expenses and other liabilities 1,297,699 1,200,561
Income taxes payable (Note 12) -- 173,346
Accrued interest payable 493,276 549,673
------------- -------------
Total liabilities 262,368,074 205,299,930
------------- -------------
Commitments and contingencies (Notes 4, 8, 13 and 14)
Stockholders' equity (Notes 1, 9 and 10):
Common stock, $1.00 par value; 3,000,000 shares
authorized, 1,575,892 shares issued and out-
standing at December 31, 1995 -- 1,575,892
Common stock $.01 par value; 5,000,000 shares
authorized 1,576,192 shares issued and out-
standing at December 31, 1996 15,762 --
Preferred stock, $.01 par value; 1,000,000 shares
authorized no shares issued at December 31, 1996 -- --
Additional paid-in capital 15,476,857 13,913,325
Retained earnings 5,263,074 3,324,225
Net unrealized gain (loss) on investment
securities, net of applicable income taxes (108,189) 152,272
------------- -------------
Total stockholders' equity 20,647,504 18,965,714
------------- -------------
Total liabilities and stockholders' equity $ 283,015,578 224,265,644
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
25
<PAGE>
<TABLE>
<CAPTION>
ENTERPRISE BANCORP, INC.
Consolidated Statements of Income
Years ended December 31, 1996, 1995 and 1994
1996 1995 1994
------------ ----------- -----------
<S> <C> <C> <C>
Interest and dividend income:
Loans $12,466,758 11,291,928 8,450,634
Investment securities 6,752,789 3,324,539 2,631,285
Federal funds sold 137,913 502,928 42,137
----------- ----------- -----------
Total interest income 19,357,460 15,119,395 11,124,056
----------- ----------- -----------
Interest expense:
Deposits 7,531,590 4,814,334 2,596,602
Borrowed funds 645,383 846,964 373,130
----------- ----------- -----------
Total interest expense 8,176,973 5,661,298 2,969,732
----------- ----------- -----------
Net interest income 11,180,487 9,458,097 8,154,324
Provision for loan losses (Note 3) -- -- --
----------- ----------- -----------
Net interest income after provision for
loan losses 11,180,487 9,458,097 8,154,324
----------- ----------- -----------
Non-interest income:
Deposit service fees 708,259 559,338 489,906
Trust fees 631,069 601,716 571,128
Net gains on sales of investment securities(Note 2) 1,909 -- 47,927
Gains on sales of loans 67,506 251,169 84,197
Other income 310,843 228,619 235,287
----------- ----------- -----------
Total non-interest income 1,719,586 1,640,842 1,428,445
----------- ----------- -----------
Non-interest expense:
Salaries and employee benefits (Note 11) 5,218,519 4,537,601 4,099,963
Occupancy expenses (Note 4 and 13) 1,327,071 1,184,135 929,854
Advertising and public relations 481,700 304,016 130,791
Office and data processing supplies 283,303 425,242 396,120
Audit, legal and other professional fees 282,371 327,964 236,966
Trust professional and custodial expenses 223,486 183,121 181,734
Postage 167,786 109,063 151,460
FDIC insurance 2,000 151,419 272,666
Other operating expenses 1,055,550 1,025,264 851,186
----------- ----------- -----------
Total non-interest expense 9,041,786 8,247,825 7,250,740
----------- ----------- -----------
Income before income taxes 3,858,287 2,851,114 2,332,029
Income tax expense (Note 12) 1,446,632 1,084,878 823,814
----------- ----------- -----------
Net income $ 2,411,655 1,766,236 1,508,215
=========== =========== ===========
Net income per average common share outstanding $ 1.53 1.12 .96
=========== =========== ===========
Weighted average common shares outstanding 1,576,023 1,575,109 1,574,792
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
26
<PAGE>
<TABLE>
<CAPTION>
ENTERPRISE BANCORP, INC.
Consolidated Statements of Changes in Stockholders' Equity
Years ended December 31, 1996, 1995 and 1994
Net Unrealized Gain
(Loss) on Investment
Additional Securities, Net of Total
Common Stock Paid-in Retained Applicable Stockholders'
Shares Amount Capital Earnings Income Taxes Equity
----------- ------------ ------------ --------- ---------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993 1,574,792 $ 1,574,792 $ 13,902,325 $ 876,540 $ 573,582 $ 16,927,239
Net income -- -- -- 1,508,215 -- 1,508,215
Common Stock dividend declared ($.25 per share) -- -- -- (393,698) -- (393,698)
Change in net unrealized gain (loss) on investment
securities, net of applicable income taxes -- -- -- -- (2,180,831) (2,180,831)
---------- ----------- ------------ ---------- ----------- -----------
Balance at December 31, 1994 1,574,792 1,574,792 13,902,325 1,991,057 (1,607,249) 15,860,925
Net income -- -- -- 1,766,236 -- 1,766,236
Common Stock dividend declared ($.275 per share) -- -- -- (433,068) -- (433,068)
Stock options exercised (Note 10) 1,100 1,100 11,000 -- -- 12,100
Change in net unrealized gain (loss) on investment
securities, net of applicable income taxes -- -- -- -- 1,759,521 1,759,521
---------- ----------- ------------ ---------- ----------- -----------
Balance at December 31, 1995 1,575,892 1,575,892 13,913,325 3,324,225 152,272 18,965,714
Net income -- -- -- 2,411,655 -- 2,411,655
Common Stock dividend declared ($.30 per share) -- -- -- (472,806) -- (472,806)
Stock options exercised before reorganization
(Note 10) 125 125 1,277 -- -- 1,402
Exchange of Enterprise Bank and Trust stock for
Enterprise Bancorp, Inc. stock (Note 1) (1,576,017) (1,576,017) (13,914,602) -- -- (15,490,619)
Issuance of $.01 par Enterprise Bancorp, Inc.
stock (Note 1) 1,576,017 15,760 15,474,859 -- -- 15,490,619
Stock options exercised after reorganization
(Note 10) 175 2 1,998 -- -- 2,000
Change in net unrealized gain (loss) on investment
securities, net of applicable income taxes -- -- -- -- (260,461) (260,461)
---------- ----------- ------------ ---------- ----------- -----------
Balance at December 31, 1996 1,576,192 $ 15,762 $ 15,476,857 $5,263,074 $ (108,189) $20,647,504
========== =========== ============ ========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
27
<PAGE>
<TABLE>
<CAPTION>
ENTERPRISE BANCORP, INC.
Consolidated Statements of Cash Flows
Years ended December 31, 1996, 1995 and 1994
1996 1995 1994
-------------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 2,411,655 1,766,236 1,508,215
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 873,509 658,388 638,060
Gain on sale of investments (1,909) -- (47,927)
Gain on sale of loans (67,506) (251,169) (84,197)
Decrease in loans held for sale, net of gain 1,848,826 114,791 2,061,950
Increase in accrued interest receivable (876,754) (555,447) (293,586)
(Increase) decrease in prepaid expenses and
other assets (200,180) (82,801) 4,015
Provision (benefit) for deferred income
taxes 46,775 88,698 (47,117)
Increase in accrued expenses and other
liabilities 97,138 100,267 410,846
Increase (decrease) in accrued interest
payable (56,397) 306,754 66,288
Change in income taxes payable/receivable (313,742) 106,180 134,133
------------ ------------ ------------
Net cash provided by operating
activities 3,761,415 2,251,897 4,350,680
------------ ------------ ------------
Cash flows from investing activities:
Proceeds from sales of investment securities 5,919,844 -- 5,054,803
Proceeds from maturities, calls and paydowns
of investment securities 9,236,691 11,487,957 3,286,563
Purchase of investment securities (56,306,353) (41,523,131) (11,465,093)
Proceeds from sales of real estate acquired
by foreclosure 27,701 50,336 135,214
Net increase in loans (28,344,110) (3,047,442) (27,529,059)
Additions to premises and equipment, net (1,681,428) (1,561,532) (298,822)
------------ ------------ ------------
Net cash used in investing
activities (71,147,655) (34,593,812) (30,816,394)
------------ ------------ ------------
Cash flows from financing activities:
Net increase in deposits 47,412,057 62,138,110 12,811,110
Net increase (decrease) in short-term borrowings 9,755,466 (12,637,247) 12,393,325
Net increase (decrease) in escrow deposits
of borrowers 33,226 (16,621) 160,898
Cash dividends declared on common stock (472,806) (433,068) (393,698)
Net proceeds from exercise of stock options 3,402 12,100 --
------------ ------------ ------------
Net cash provided by financing
activities 56,731,345 49,063,274 24,971,635
------------ ------------ ------------
Net increase (decrease) in cash and cash
equivalents (10,654,895) 16,721,359 (1,494,079)
Cash and cash equivalents at beginning of year 25,162,392 8,441,033 9,935,112
------------ ------------ ------------
Cash and cash equivalents at end of year $ 14,507,497 25,162,392 8,441,033
============ ============ ============
(Continued)
28
<PAGE>
<CAPTION>
ENTERPRISE BANCORP, INC.
Consolidated Statements of Cash Flows
(Continued)
Years ended December 31, 1996, 1995 and 1994
1996 1995 1994
-------------- ----------- -----------
<S> <C> <C> <C>
Supplemental financial data:
Cash paid for:
Interest on deposits and short-term
borrowings $8,233,370 5,354,544 2,903,444
Income taxes 1,713,599 890,000 736,599
Transfers from real estate acquired by
foreclosure to loans 311,750 -- --
Transfers from loans to real estate acquired
by foreclosure 5,000 77,721 --
</TABLE>
See accompanying notes to consolidated financial statements.
29
<PAGE>
ENTERPRISE BANCORP, INC.
Notes to Consolidated Financial Statements
Years ended December 31, 1996, 1995 and 1994
(1) Summary of Significant Accounting Policies
(a) Holding Company Formation - Agreement and Plan of Reorganization
Enterprise Bancorp, Inc. (the "company") was organized on February 29,
1996 at the direction of Enterprise Bank and Trust Company (the
"bank") for the purpose of becoming the holding company of the bank.
The company entered into an Agreement and Plan of Reorganization with
the bank dated as of February 29, 1996 (the "Plan of
Reorganization"). On July 26, 1996, pursuant to the Reorganization
the company acquired all of the outstanding common stock, $1.00 par
value, of the bank in a share-for-share exchange for common stock of
the company (the "Reorganization"). Upon the effectiveness of
Reorganization, the bank became the wholly owned subsidiary of the
company and the former shareholders of the bank became the
shareholders of the company.
At the time of its organization the company's Articles of Organization
provided for $500,000 shares of common stock, $.01 par value, and
10,000 shares of preferred stock, $.01 par value. On July 17, 1996,
the Articles of Organization of the company were amended to increase
the company's authorized capital to 1,000,000 shares of preferred
stock, $.01 par value, and 5,000,000 shares of common stock, $.01 par
value.
(b) Basis of Presentation
The consolidated financial statements of Enterprise Bancorp, Inc. include
the accounts of the company and its wholly owned subsidiary, the
bank, Enterprise Bank and Trust Company including its wholly owned
subsidiary, Enterprise Securities Corporation, Inc., which was
incorporated on March 1, 1991. All significant intercompany accounts
and transactions have been eliminated in consolidation. The
accounting and reporting policies of the company conform to generally
accepted accounting principles and to prevailing practices within the
banking industry.
The business and operations of the company are subject to the regulatory
oversight of the Board of Governors of the Federal Reserve System.
The Massachusetts Commissioner of Banks also retains supervisory
jurisdiction over the company. To the extent that the accompanying
financial statements contain information as of a date or for a period
prior to July 26, 1996, such information pertains to the bank. The
company had no material assets or operations prior to completion of
the Reorganization on July 26, 1996.
Enterprise Bank and Trust Company is a Massachusetts trust company which
commenced banking operations on January 3, 1989. The bank's main
office is at 222 Merrimack Street in Lowell, Massachusetts. The bank
began offering trust services in June of 1992. A branch office was
opened in Chelmsford, Massachusetts in June of 1993. A branch office
was opened in Leominster, Massachusetts in May of 1995, a branch
office was opened in Billerica, Massachusetts in June of 1995, and a
branch office was opened in Tewksbury, Massachusetts in October of
1996. The bank's deposit-gathering and lending activities are
conducted primarily in Lowell and the surrounding Massachusetts towns
of Andover, Billerica, Chelmsford, Dracut, Tewksbury, Tyngsboro,
Westford and Leominster and Fitchburg. The bank offers a range of
commercial and consumer services with a goal of satisfying the needs
of consumers, small and medium-sized businesses and professionals.
The bank's deposit accounts are insured by the Bank Insurance Fund of the
Federal Deposit Insurance Corporation (the "FDIC") up to the maximum
amount provided by law. The FDIC and the Massachusetts Commissioner
of Banks (the "Commissioner") have regulatory authority over the
bank.
In preparing the financial statements, management is required to make
estimates and assumptions that affect the reported values of assets
and liabilities at the balance sheet date and income and expenses for
the years. Actual results, particularly regarding the estimate of the
allowance for loan losses may differ significantly from these
estimates.
(Continued)
30
<PAGE>
ENTERPRISE BANCORP, INC.
Notes to Consolidated Financial Statements
(c) Investment Securities
Investment securities that are intended to be held for indefinite periods
of time but which may not be held to maturity or on a long-term basis
are considered to be "available for sale" and are carried at fair
value. Net unrealized gains and losses on investments available for
sale, net of applicable income taxes, are reflected as a component of
stockholders' equity. Included as available for sale are securities
that are purchased in connection with the company's asset/liability
risk management strategy and that may be sold in response to changes
in interest rates, resultant prepayment risk and other related
factors. In instances where the company has the positive intent to
hold to maturity, investment securities will be classified as held to
maturity and carried at amortized cost. At December 31, 1996 and
1995, all of the company's investment securities were classified as
available for sale and carried at fair value.
Investment securities' discounts are accreted and premiums are amortized
over the period of estimated principal repayment using methods which
approximate the interest method.
Gains or losses on the sale of investment securities are recognized at
the time of sale on a specific identification basis.
(d) Loans
The company grants single family and multi-family residential loans,
commercial real estate loans, commercial loans and a variety of
consumer loans. In addition, the company grants loans for the
construction of residential homes, multi-family properties,
commercial real estate properties and for land development. Most
loans granted by the company are collateralized by real estate or
equipment and/or are guaranteed by the borrower. The ability and
willingness of the single family residential and consumer borrowers
to honor their repayment commitments is generally dependent on the
level of overall economic activity and real estate values within the
borrowers' geographic areas. The ability and willingness of
commercial real estate, commercial and construction loan borrowers to
honor their repayment commitments is generally dependent on the
health of the real estate sector in the borrowers' geographic areas
and the general economy.
Loans are reported at the principal amount outstanding, net of deferred
origination fees and costs. Loan origination fees received are offset
with direct loan origination costs and are deferred and amortized
over the life of the related loans using the level-yield method or,
are recognized in income when the related loans are sold or paid-off.
Loans on which the accrual of interest has been discontinued, including
impaired loans, are designated as non-accrual loans. Accrual of
interest on loans is discontinued either when reasonable doubt exists
as to the full and timely collection of interest or principal, or
generally when a loan becomes contractually past due by 60 days or a
mortgage loan becomes contractually past due by 90 days with respect
to interest or principal. When a loan is placed on non-accrual
status, all interest previously accrued but not collected is reversed
against current period interest income. Interest accruals are resumed
on such loans only when payments are brought current and when, in the
judgment of management, the collectibility of both principal and
interest is reasonably assured. Payments received on loans in a
non-accrual status are generally applied to principal.
Loans held for sale are carried at the lower of aggregate amortized cost
or market value, giving consideration to commitments to originate
additional loans and commitments to sell loans. When loans are sold,
a gain or loss is recognized to the extent that the sales proceeds
exceed or are less than the carrying value of the loans. Gains and
losses are determined using the specific identification method.
(Continued)
31
<PAGE>
ENTERPRISE BANCORP, INC.
Notes to Consolidated Financial Statements
The company has adopted SFAS No. 122, "Accounting for Mortgage Servicing
Rights", which amends SFAS No. 65, "Accounting for Certain Mortgage
Banking Activities". The Statement was effective for the company on
January 1, 1996. The Statement requires that a mortgage banking
enterprise recognize as separate assets, rights to service mortgage
loans for others, regardless of how those servicing rights are
acquired. Additionally, the Statement requires that the capitalized
mortgage servicing rights be assessed for impairment based on the
fair value of those rights, and that impairment be recognized through
a valuation allowance. The adoption of the Statement has not had a
significant impact on the company's financial statements because the
company generally sells its loans with servicing released.
Effective January 1, 1997, the company will adopt SFAS No. 125,
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities." This Statement is effective for
transfers and servicing of financial assets and extinguishments of
liabilities occurring after December 31, 1996 and is to be applied
prospectively. However, SFAS No. 127, "Deferral of the Effective Date
of Certain Provisions of SFAS No. 125", requires the deferral of
implementation as it relates to repurchase agreements, dollar-rolls,
securities lending and similar transactions until years beginning
after December 31, 1997. Earlier or retrospective application of this
Statement is not permitted. SFAS No. 125 provides accounting and
reporting standards for transfers and servicing of financial assets
and extinguishments of liabilities. Those standards are based on an
approach that focuses on control, whereby 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. This Statement provides consistent
standards for distinguishing transfers of financial assets that are
sales from transfers that are secured borrowings. The adoption of
this pronouncement is not expected to have a significant effect on
the company's financial position or results of operations.
(e) Allowance for Loan Losses
The allowance for loan losses is established through a provision for loan
losses charged to operations. Loan losses are charged against the
allowance when management believes that the collectibility of the
loan principal is unlikely. Recoveries on loans previously
charged-off are credited to the allowance.
The determination of the adequacy of the allowance is based upon
management's assessment of risk elements in the portfolio, factors
affecting loan quality, and assumptions about the economic
environment in which the bank operates. The process includes
identification and analysis of loss potential in various portfolio
segments utilizing a credit risk grading process and specific reviews
and evaluations of significant individual problem loans. In addition,
management reviews overall portfolio quality through an analysis of
current levels and trends in charge-offs, delinquency and
non-performing loan data, peer group data, forecasts of economic
conditions and the overall banking environment. These reviews are
dependent upon estimates, appraisals, and judgments, which can change
quickly because of changing economic conditions and the bank's
perception as to how these conditions affect the debtors' economic
prospects.
Management believes that the allowance for loan losses is adequate. While
management uses available information to recognize losses on loans,
future additions to the allowance may be necessary. In addition,
various regulatory agencies, as an integral part of their examination
process, periodically review the company's allowance for loan losses.
Such agencies may require the company to recognize additions to the
allowance based on judgments different from those of management.
(Continued)
32
<PAGE>
ENTERPRISE BANCORP, INC.
Notes to Consolidated Financial Statements
Impaired loans are individually significant commercial and commercial
real estate loans for which it is probable that the company will not
be able to collect all amounts due in accordance with contractual
terms. Impaired loans are accounted for, except those loans that are
accounted for at fair value or at lower of cost or fair value, at the
present value of the expected future cash flows discounted at the
loan's effective interest rate or, as a practical expedient, in the
case of collateralized loans, the difference between the fair value
of the collateral and the recorded amount of the loans. Impaired
loans exclude large groups of smaller-balance homogeneous loans that
are collectively evaluated for impairment, loans that are measured at
fair value and leases and debt securities as defined in SFAS No. 115.
Management considers the payment status, net worth and earnings
potential of the borrower, and the value and cash flow of the
collateral as factors to determine if a loan will be paid in
accordance with its contractual terms. Management does not set any
minimum delay of payments as a factor in reviewing for impaired
classification. Impaired loans are charged-off when management
believes that the collectibility of the loan's principal is remote.
In addition, criteria for classification of a loan as in-substance
foreclosure has been modified so that such classification need be
made only when a lender is in possession of the collateral. Troubled
debt restructurings are measured for impairment using the
pre-modification rate of interest.
(f) Premises and Equipment
Land is carried at cost. Premises and equipment are stated at cost less
accumulated depreciation and amortization. Depreciation and
amortization are computed on a straight-line basis over the estimated
useful lives of the related asset categories as follows:
Leasehold improvements 10 years
Computer software and equipment 3 to 5 years
Furniture, fixtures and equipment 3 to 5 years
(g) Real Estate Acquired by Foreclosure
Real estate acquired by foreclosure is comprised of properties acquired
through foreclosure proceedings or acceptance of a deed in lieu of
foreclosure. Real estate formally acquired in settlement of loans is
initially recorded at the lower of the carrying value of the loan or
the fair value of the property constructively or actually received
less estimated selling costs. Loan losses arising from the
acquisition of such properties are charged against the allowance for
loan losses. Operating expenses and any subsequent provisions to
reduce the carrying value to net fair value are charged to real
estate operations in the current period. Gains and losses upon
disposition are reflected in earnings as realized.
(h) Income Taxes
The company uses the asset and liability method of accounting for income
taxes. Under this method deferred tax assets and liabilities are
reflected at currently enacted income tax rates applicable to the
period in which the deferred tax assets or liabilities are expected
to be realized or settled. As changes in tax laws or rates are
enacted, deferred tax assets and liabilities will be adjusted
accordingly through the provision for income taxes.
(i) Stock Options
In October 1995, the Financial Accounting Standards Board issued SFAS
No. 123, "Accounting for Stock Based Compensation," which became
effective on January 1, 1996. This Statement establishes a fair value
based method of accounting for stock-based compensation plans under
which compensation cost is measured at the grant date based on the
value of the award and is recognized over the service period.
However, the Statement allows a company to continue to measure
compensation cost for such plans under Accounting Principles Board
(APB) Opinion No. 25, "Accounting for Stock Issued to Employees."
Under APB No. 25, no compensation cost is recorded if, at the grant
date, the exercise price of the options is equal to the fair market
value of the company's common stock.
(Continued)
33
<PAGE>
ENTERPRISE BANCORP, INC.
Notes to Consolidated Financial Statements
(k) Trust Assets
Securities and other property held in a fiduciary or agency capacity are
not included in the consolidated balance sheets because they are not
assets of the company. Trust assets under management at December 31,
1996 and 1995 totaled $126,283,554 and $106,342,490, respectively.
Income from trust activities is reported on an accrual basis.
(l) Earnings Per Share
Earnings per share is calculated based upon the weighted average number
of common shares outstanding during the year. Stock options did not
have a dilutive effect.
(2) Investment Securities
The amortized cost and estimated fair values of investment securities at
December 31, are summarized as follows:
<TABLE>
<CAPTION>
1996
--------------------------------------------------------
Amortized Unrealized Unrealized Fair
cost gains losses value
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
U.S. agency obligations $ 61,156,303 436,828 638,300 60,954,831
U.S. treasury obligations 31,231,401 156,024 158,050 31,229,375
U.S. agency mortgage-backed
securities 11,853,837 80,037 173,928 11,759,946
Municipal obligations 12,380,339 165,149 55,198 12,490,290
------------ ------------ ------------ ------------
Total bonds and obligations 116,621,880 838,038 1,025,476 116,434,442
Federal Home Loan Bank stock,
at cost 2,961,300 -- -- 2,961,300
------------ ------------ ------------ ------------
Total investment securities $119,583,180 838,038 1,025,476 119,395,742
============ ============ ============ ============
<CAPTION>
1995
--------------------------------------------------------
Amortized Unrealized Unrealized Fair
cost gains losses value
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
U.S. agency obligations $37,322,750 253,678 296,351 37,280,077
U.S. treasury obligations 16,151,314 215,674 -- 16,366,988
U.S. agency mortgage-backed
securities 11,042,750 81,690 151,974 10,972,466
Municipal obligations 9,809,137 223,716 33,528 9,999,325
Privately-issued mortgage-backed
securities collateralized by U.S.
agency mortgage-backed obliga-
tions 1,261,427 -- 29,094 1,232,333
----------- ----------- ----------- -----------
Total bonds and obligations 75,587,378 774,758 510,947 75,851,189
Federal Home Loan Bank stock,
at cost 2,961,300 -- -- 2,961,300
----------- ----------- ----------- -----------
Total investment securities $78,548,678 774,758 510,947 78,812,489
=========== =========== =========== ===========
</TABLE>
(Continued)
34
<PAGE>
ENTERPRISE BANCORP, INC.
Notes to Consolidated Financial Statements
Included in U.S. agency securities are investments with callable features
that can be called prior to final maturity with fair values of
$48,820,856 and $28,076,640, at December 31, 1996 and 1995,
respectively. Included in U.S. agency mortgage-backed securities are
collateralized mortgage-backed obligations with fair values of
$11,139,237 and $11,413,729 at December 31, 1996 and 1995,
respectively.
At December 31, 1996, securities with a fair value of $15,739,765 were
pledged as collateral for short-term borrowings (Note 8) and
securities with a fair value of $2,007,240 were pledged as collateral
for treasury, tax and loan deposits. At December 31, 1995, securities
with a fair value of $8,383,258 were pledged as collateral for
short-term borrowings (Note 8) and securities with a fair value of
$1,988,615 were pledged as collateral for treasury, tax and loan
deposits.
The contractual maturity distribution of total bonds and obligations at
December 31, 1996 is as follows:
<TABLE>
<CAPTION>
Amortized Fair
Cost Percent Value Percent
------------ ---------- ------------ ---------
<S> <C> <C> <C> <C>
Within one year $ 151,860 1% 153,055 1%
After one but within three years 26,108,527 22 25,940,697 22
After three but within five years 32,952,486 28 33,088,496 28
After five but within ten years 40,554,781 35 40,717,325 35
After ten years 16,854,226 14 16,534,869 14
------------ -------- ------------ ---------
$116,621,880 100% 116,434,442 100%
============ ======== ============ =========
</TABLE>
Mortgage-backed securities are shown at their final maturity but are
expected to have shorter average lives due to principal repayments.
U.S. agency obligations are shown at their final maturity but are
expected to have shorter lives because issuers of certain bonds
reserve the right to call or prepay the obligations without call or
prepayment penalties and certain U.S. agency lives may be shorter
based on mortgage prepayment rates.
Sales and calls of investment securities for the years ended December 31,
1996, 1995, and 1994 are summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------------ ----------- ----------
<S> <C> <C> <C>
Book value of securities sold or called $ 11,059,425 - 5,006,876
Gross realized gains on sales/calls 50,453 - 97,201
Gross realized losses on sales/calls (48,544) - (49,274)
------------ ----------- ---------
Total proceeds from sales or
calls of investment securities $ 11,061,334 - 5,054,803
============ =========== =========
</TABLE>
35
<PAGE>
ENTERPRISE BANCORP, INC.
Notes to Consolidated Financial Statements
(3) Loans and Loans Held for Sale
Major classifications of loans and loans held for sale at December 31,
are as follows:
1996 1995
-------------- -------------
Real estate:
Commercial $ 52,378,232 42,513,631
Construction 6,474,244 5,843,646
Residential 35,843,387 31,017,230
Residential loans held for sale 74,020 1,855,340
------------- -------------
Total real estate 94,769,883 81,229,847
Commercial 38,201,762 28,353,099
Consumer 4,043,250 3,378,891
Home equity 8,255,112 5,249,773
Total loans 145,270,007 118,211,610
Deferred loan origination fees (950,394) (549,398)
Allowance for loan losses (3,894,520) (4,106,659)
------------- -------------
Net loans and loans held for sale $ 140,425,093 113,555,553
============= =============
Directors, officers, principal stockholders and their associates are
credit customers of the company in the normal course of business. All
loans and commitments included in such transactions are made on
substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable
transactions with unaffiliated persons and do not involve more than a
normal risk of collectibility or present other unfavorable features.
As of December 31, 1996, and 1995, the aggregate total of all lines
of credit and outstanding loan balances to directors and officers of
the company and their associates was $2,664,568 and $2,934,907,
respectively. Unadvanced portions of lines of credit available to
directors and officers were $849,895 and $588,661, as of December 31,
1996 and 1995, respectively. During 1996, new loans and net increases
in loan balances on lines of credit under existing commitments of
$554,920 were made and principal paydowns of $825,259 were received.
All loans to these related parties are current.
At December 31, 1996, 1995 and 1994, the company was not accruing
interest on loans having an outstanding balance of $2,237,183,
$2,021,484, and $1,870,665, respectively. There were no commitments
to lend additional funds to those borrowers whose loans were
classified as non-accrual at December 31, 1996, 1995 and 1994. The
reduction in interest income for the years ended December 31,
associated with non-accruing loans is summarized as follows:
1996 1995 1994
-------- -------- --------
Income in accordance with original loan terms $427,925 316,462 328,897
Income recognized 121,963 90,371 162,581
-------- -------- --------
Reduction in interest income $305,962 226,091 166,316
======== ======== ========
Non-accrual loans at December 31, are summarized as follows:
1996 1995
---------- ----------
Non-accrual:
Real estate $1,258,533 889,263
Commercial 490,611 586,442
Consumer, including home equity 488,039 545,779
---------- ----------
Total non-accrual $2,237,183 2,021,484
========== ==========
(Continued)
36
<PAGE>
ENTERPRISE BANCORP, INC.
Notes to Consolidated Financial Statements
At December 31, 1996 and 1995, total impaired loans were $1,295,548 and
$473,325, respectively. In the opinion of management, impaired loans
with a book value of $210,963 required allocated reserves of $50,000
at December 31, 1996, and impaired loans with a book value $205,676
required allocated reserves of $25,676, at December 31, 1995. All of
the $1,295,548 of impaired loans have been measured using the fair
value of the collateral method. During the year ended December 31,
1996 and 1995, the average recorded value of impaired loans was
$1,197,441 and $529,968, respectively. No interest income was
recognized on the loans once they were deemed impaired. Included in
the reduction in interest income in the table above is $141,203 and
$75,254 of interest income that was not recognized on loans that were
deemed impaired as of December 31, 1996 and 1995, respectively. All
payments received on impaired loans are applied to principal. The
company is not committed to lend additional funds on any loans that
are considered impaired.
Changes in the allowance for loan losses for the years ended December 31,
are summarized as follows:
1996 1995 1994
------------ ------------ -----------
Balance at beginning of year $ 4,106,659 4,341,204 4,132,507
Provision charged to operations -- -- --
Loan recoveries 31,804 170,468 264,312
Loans charged-off (243,943) (405,013) (55,615)
----------- ----------- ----------
Balance at end of year $ 3,894,520 4,106,659 4,341,204
=========== =========== ==========
At December 31, 1996, 1995 and 1994, the bank was servicing mortgage
loans sold to investors amounting to $29,426,888, $32,013,054
and $28,431,684, respectively.
(4) Premises and Equipment
Premises and equipment at December 31, are summarized as follows:
1996 1995
------------ ------------
Land $ 270,226 170,906
Buildings and leasehold improvements 2,830,423 2,214,988
Computer software and equipment 2,548,148 1,701,590
Furniture, fixtures and equipment 1,486,416 1,366,301
7,135,213 5,453,785
Less accumulated depreciation and amortization (3,746,477) (2,990,193)
----------- -----------
$ 3,388,736 2,463,592
=========== ===========
The company is obligated under various non-cancellable operating leases
some of which provide for periodic adjustments. At December 31, 1996
minimum lease payments for these operating leases were as follows:
Payable in
1997 $ 254,547
1998 227,476
1999 177,940
2000 34,746
----------
Total minimum lease payments $ 694,709
==========
Total rent expense for the years ended December 31, 1996, 1995 and 1994
amounted to $239,916, $197,532, and $179,560, respectively.
37
<PAGE>
ENTERPRISE BANCORP, INC.
Notes to Consolidated Financial Statements
(5) Accrued Interest Receivable
Accrued interest receivable consists of the following at December 31:
1996 1995
----------- ----------
Investments $1,801,760 1,006,950
Loans and loans held for sale 898,073 816,129
---------- ----------
$2,699,833 1,823,079
========== ==========
(6) Real Estate Acquired by Foreclosure
Real estate acquired by foreclosure is comprised of commercial real
estate properties of $82,721 and $417,172 at December 31, 1996
and 1995, respectively.
An analysis of real estate acquired by foreclosure for the years ended
December 31, is as follows:
1996 1995
----------- -----------
Balance at beginning of year $ 417,172 389,787
Foreclosures 5,000 77,721
Sales proceeds and principal repayments,
net of gains/loss on sale (27,701) (50,336)
Transfer to loans (311,750) --
--------- ---------
Balance at end of year $ 82,721 417,172
========= =========
(7) Deposits
Deposits at December 31, are summarized as follows:
1996 1995
------------ ------------
Demand deposits $ 42,528,277 32,754,037
Savings 18,435,649 15,320,337
NOW accounts 51,943,576 40,777,416
Money market accounts 26,290,398 21,197,102
Time deposits less than $100,000 75,498,617 59,717,943
Time deposits of $100,000 or more 28,732,283 26,249,908
------------ ------------
$243,428,800 196,016,743
============ ============
Interest expense on time deposits with balances of $100,000 or more
amounted to $1,559,728 in 1996, $912,651 in 1995, and $251,154
in 1994.
The following table shows the scheduled maturities of time deposits
with balances less than $100,000 and greater than $100,000 at
December 31, 1996:
<TABLE>
<CAPTION>
Less than Greater than
$100,000 $100,000 Total
-------------- -------------- ------------
<S> <C> <C> <C>
Due in less than three months $16,184,636 14,654,065 30,838,701
Due in over three through twelve months 50,046,414 12,125,638 62,172,052
Due in twelve months through thirty months 9,267,567 1,952,580 11,220,147
----------- ----------- -----------
$75,498,617 28,732,283 104,230,900
=========== =========== ===========
</TABLE>
38
<PAGE>
ENTERPRISE BANCORP, INC.
Notes to Consolidated Financial Statements
(8) Short-Term Borrowings
Borrowed funds at December 31, are summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------------------------ --------------------- -----------------------
Average Average Average
Amount Rate Amount Rate Amount Rate
------------- --------- ----------- ------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Securities sold under agreements to
repurchase, due on demand $ 11,824,249 3.81% 6,981,783 3.70% 6,386,030 3.52%
Federal Home Loan Bank of Boston
borrowings 4,913,000 7.32 - - 13,233,000 6.33
----------- ----------- ------------
$ 16,737,249 4.84% 6,981,783 3.70% 19,619,030 5.43%
=========== =========== ============
</TABLE>
Securities sold under agreement to repurchase averaged $7,854,723,
$6,762,721, and $5,946,644 during 1996, 1995 and 1994, respectively.
Maximum amounts outstanding at any month end during 1996, 1995, and
1994 were $11,824,249, $9,450,641, and $8,717,055, respectively. The
average cost of repurchase agreements was 3.54%, 3.70%, and 2.58%
during fiscal 1996, 1995, and 1994, respectively.
The bank became a member of the Federal Home Loan Bank of Boston ("FHLB")
in March 1994. FHLB borrowing averaged $6,537,008, $9,362,668, and
$4,053,986 during 1996, 1995, and 1994, respectively. Maximum amounts
outstanding at any month end during 1996, 1995, and 1994 were
$13,043,000, $20,958,000, and $13,233,000, respectively. The average
cost of FHLB borrowing was 5.62%, 6.37%, and 5.39% during fiscal
1996, 1995, and 1994, respectively. Borrowings from the FHLB are
secured by the FHLB stock, 1-4 family owner-occupied residential
loans and the company's investment portfolio not otherwise pledged.
As a member of the FHLB, the bank has access to a pre-approved overnight
line of credit for up to 5% of its total assets and the capacity to
borrow an amount up to the value of its qualified collateral, as
defined by the FHLB. At December 31, 1996, the bank had the capacity
to borrow up to approximately $107,573,520 from the FHLB.
Borrowings outstanding at December 31, 1996 consisted entirely of
overnight borrowings.
(9) Stockholders' Equity
Holders of Common Stock are entitled to one vote per share, and are
entitled to receive dividends if and when declared by the board of
directors. Dividend and liquidation rights of the Common Stock may be
subject to the rights of any outstanding Preferred Stock.
Applicable regulatory requirements require the company to maintain Tier 1
capital (which in the case of the company is composed of common
equity) equal to 4.00% of assets (leverage capital), risk-based
capital equal to 8.00% of risk-weighted assets and Tier 1 risk-based
capital equal to 4.00% of risk-weighted assets. Total risk-based
capital includes Tier 1 capital plus Tier 2 capital (which in the
case of the company is composed of the general valuation allowances
up to 1.25% of risk-weighted assets). The company met all regulatory
capital requirements at December 31, 1996.
The company is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum
capital requirements can initiate or result in certain mandatory, and
possibly additional discretionary, actions by regulators that, if
undertaken, could have a direct material effect on the company's
financial statements. Under applicable capital adequacy requirements
and the regulatory framework for prompt corrective action applicable
to the bank, the company must meet specific capital guidelines 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
classifications are also subject to qualitative judgments by the
regulators about components, risk weightings, and other factors.
(Continued)
39
<PAGE>
ENTERPRISE BANCORP, INC.
Notes to Consolidated Financial Statements
Quantitative measures established by regulation to ensure capital
adequacy require the company to maintain the minimum capital amounts
and ratios set forth in the table below. Management believes, as of
December 31, 1996, that the company meets all capital adequacy
requirements to which it is subject.
As of December 31, 1996, the most recent notification from the FDIC
categorized the bank as well capitalized under the regulatory
framework for prompt corrective action. To be categorized as well
capitalized, the bank must maintain minimum total risk-based, Tier 1
risk-based and Tier 1 leverage ratios as set forth in the table.
There are no conditions or events since the notification that
management believes have changed the bank's category.
The company's actual capital amounts and ratios are presented in the
table below. The bank's capital amounts and ratios do not differ
materially from the amounts and ratios presented.
<TABLE>
<CAPTION>
For Bank To Be Well
Capitalized under
For Capital Prompt Correction
Actual Adequacy Purposes Action Provisions
($ in Thousands) Amount Ratio Amount Ratio Amount Ratio
---------- -------- --------- ------- --------- ---------
As of December 31, 1996:
<S> <C> <C> <C> <C> <C> <C>
Total Capital
(to risk weighted assets) $24,591 15.41% 12,763 8.0% 15,954 >10.0%
Tier 1 Capital
(to risk weighted assets) 20,696 12.97% 6,375 4.0% 9,563 >6.0%
Tier 1 Capital
(to average assets) 20,696 7.42% 11,155 4.0% 13,944 >5.0%
<CAPTION>
For Bank To Be Well
Capitalized under
For Capital Prompt Correction
Actual Adequacy Purposes Action Provisions
($ in Thousands) Amount Ratio Amount Ratio Amount Ratio
---------- -------- --------- ------- --------- ---------
As of December 31, 1995:
<S> <C> <C> <C> <C> <C> <C>
Total Capital
(to risk weighted assets) $22,698 17.85% 10,172 8.0% 12,716 >10.0%
Tier 1 Capital
(to risk weighted assets) 18,591 14.62% 5,086 4.0% 7,629 >6.0%
Tier 1 Capital
(to average assets) 18,591 9.71% 7,662 4.0% 9,578 >5.0%
</TABLE>
Neither the company nor the bank may declare or pay dividends on its
stock if the effect thereof would cause stockholders' equity to be
reduced below applicable regulatory capital requirements or if such
declaration and payment would otherwise violate regulatory
requirements.
(10) Stock Option Plan
The board of directors of the bank adopted a 1988 Stock Option Plan (the
"1988 plan"), which was approved by the shareholders of the bank in
1989. The 1988 plan permits the board of directors to grant both
incentive and non-qualified stock options to officers and full-time
employees for the purchase of up to 153,902 shares of common stock.
Any shares of common stock issued pursuant to the 1988 plan which are
returned to the company will be available for future issuance. The
1988 plan was assumed by the company upon the completion of the
Reorganization discussed in Note 1.
(Continued)
40
<PAGE>
ENTERPRISE BANCORP, INC.
Notes to Consolidated Financial Statements
Under the terms of the 1988 plan, incentive stock options may not be
granted at less than 100% of the fair market value of the shares on
the date of grant and may not have a term of more than ten years. For
participants owning 10% or more of the company's outstanding common
stock, such options may not be granted at less than 110% of the fair
market value of the shares on the date of grant. Fair market value is
considered to be the price of the most recent stock trade. Common
stock reserved for issuance of shares under the 1988 plan is 153,902
shares.
All options granted thus far are exercisable at the rate of 25% a year
and all such options expire 10 years from the date of grant. All
options granted thus far are categorized as incentive stock options.
Stock option transactions are summarized as follows:
Number Weighted average option
of options price per share
---------- -----------------------
Options outstanding at December 31, 1994 78,100 $ 11.04
Granted in 1995 25,650 13.50
Expired in 1995 (600) 12.00
Exercised in 1995 (1,100) 11.00
-------
Options outstanding at December 31, 1995 102,050 11.65
Granted in 1996 26,300 14.00
Expired in 1996 (400) 12.00
Exercised in 1996 (300) 11.50
-------
Options outstanding at December 31, 1996 127,650 $ 12.13
=======
At December 31, 1996, 81,562 shares were exercisable and 24,852 shares
remained available for future grants.
(11) Employee Benefit Plans
401(k) Defined Contribution Plan
The company has a 401(k) defined-contribution employee benefit plan. The
401(k) plan allows eligible employees to contribute a base
percentage, plus a supplemental percentage, of their pre-tax earnings
to the plan. A portion of the base percentage, as determined by the
board of directors, is matched by the company. No company
contributions are made for supplemental contributions made by
participants. The percentage for the 1996, 1995 and 1994 calendar
years was 50% up to the first 6% contributed by the employee. The
company's expense for the 401(k) plan match for the years ended
December 31, 1996, 1995 and 1994 was $86,964, $91,806 and $81,719,
respectively.
Employees working a minimum of 20 hours per week and at least 21 years of
age are immediately eligible to participate. Vesting for the bank's
401(k) plan contribution is based on years of service with
participants becoming 20% vested after 3 years of service, increasing
pro-rata to 100% vesting after 7 years of service. Amounts not
distributable to an employee following termination of employment are
returned to the bank.
Employee Bonus Program
The company maintains a bonus program, which includes all employees.
Bonuses are paid to the employees based on the accomplishment of
certain goals and objectives that are determined at the beginning of
the fiscal year and approved by the compensation committee of the
board of directors. The goals and objectives include certain ratios
such as return on assets, return on equity, net interest margin,
non-interest expense and income to assets, non-accrual loans to total
loans and the overall growth of the bank's loan and deposit balances.
Participants are paid a share of the bonus pool, based on a
pre-determined allocation depending on which group the employee falls
including: vice presidents and above, officers, and other non-officer
employees. In 1996, 1995 and 1994, $464,000, $413,000 and $277,000,
respectively, was charged to salaries and benefits under this plan.
(Continued)
41
<PAGE>
ENTERPRISE BANCORP, INC.
Notes to Consolidated Financial Statements
Supplemental Cash Bonus Plan
The company maintains a supplemental cash bonus plan for certain
executive officers. The goals, objectives and pay-out schedule of
this plan were approved by the compensation committee. The plan
provides for payment of cash bonuses based on the achievement of a
bonus pay-out to all employees in the employee bonus program
discussed in the previous paragraph and the achievement of certain
earnings per share goals. In 1996 and 1995, $52,000 and $38,000,
respectively, was charged to salaries and benefits under this plan.
Split-Dollar Plan
The company adopted a Split-Dollar Plan for the company's chief executive
officer in 1996. This plan provides for the company to fund the
purchase of cash value life insurance policies owned by the
executive. The company accounts for the premiums paid as an interest
free loan. Annual premiums are paid by the company until the
executive retires. At the time of retirement of an executive, annuity
payments are made to the executive. The aggregate amount of the
premiums funded is returned to the company at the time of the
executive's death. Annual premiums of $143,800 are due until 2004
under the current plan. The amount charged to expense for these
benefits was $11,518 in 1996.
(12) Income Taxes
The components of income tax expense for the years ended December 31
calculated using the liability method is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Current tax expense:
Federal $1,032,581 733,331 649,122
State 367,276 262,849 221,809
---------- ---------- ----------
Total current tax expense 1,399,857 996,180 870,931
---------- ---------- ----------
Deferred tax expense (benefit):
Federal 34,777 (11,839) (33,141)
State 11,998 100,537 (13,976)
---------- ---------- ----------
Total deferred tax expense (benefit) 46,775 88,698 (47,117)
---------- ---------- ----------
Total income tax expense $1,446,632 1,084,878 823,814
========== ========== ==========
</TABLE>
The components of income taxes receivable/(payable) and deferred income
taxes receivable, net at December 31, are as follows:
1996 1995
----------- ------------
Income taxes receivable/(payable):
Federal $ 54,417 (149,660)
State 85,979 (23,686)
----------- -----------
$ 140,396 (173,346)
=========== ===========
Deferred income taxes receivable, net:
Federal $ 1,397,722 1,298,297
State 486,561 441,973
----------- -----------
$ 1,884,283 1,740,270
=========== ===========
(Continued)
42
<PAGE>
ENTERPRISE BANCORP, INC.
Notes to Consolidated Financial Statements
The provision for income taxes differs from the amount computed by
applying the statutory federal income tax rate (34%) as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------------------- ---------------------- ---------------------
Amount % Amount % Amount %
------------ ------- ------------ ------ ----------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Computed income tax expense
at statutory rate $ 1,311,818 34.0% 969,379 34.0% 792,890 34.0%
State income taxes, net of
federal tax benefit 250,321 6.5 239,835 8.4 138,175 5.9
Municipal bond interest (195,040) (5.1) (138,790) (4.8) (140,338) (6.0)
Other 79,533 2.1 14,454 0.5 33,087 1.4
----------- ---- --------- ---- --------- ----
Income tax expense $ 1,446,632 37.5% 1,084,878 38.1% 823,814 35.3%
=========== ==== ========= ==== ========= ====
</TABLE>
Income tax expense was increased for 1995 to reflect the adjustment to
the deferred tax asset for the tax impact of the Massachusetts tax
rate reduction as part of the Bank Tax Reform Act signed by the
Governor of Massachusetts on July 27, 1995.
At December 31, 1996 and December 31, 1995, the tax effects of each
type of income and expense item that give rise to deferred taxes are:
December 31, December 31,
1996 1995
------------ -------------
Deferred tax asset:
Allowance for loan losses $1,472,866 1,451,580
Depreciation 242,029 199,278
Deferred loan fees 60,707 39,975
Net unrealized loss on investment securities 79,249 --
Other 29,432 160,976
---------- ----------
Total 1,884,283 1,851,809
Deferred tax liability:
Net unrealized gain on investment securities -- 111,539
---------- ----------
Net deferred tax asset $1,884,283 1,740,270
========== ==========
At December 31, 1996, the net Federal deferred tax asset of $1,397,722
is supported by recoverable income taxes of approximately $2,454,866.
The company needs to generate approximately $4,633,895 of future net
taxable income to realize the state deferred tax asset of $486,561 as
of December 31, 1996. There was no valuation allowance for the
deferred tax asset at December 31, 1996 and 1995. Management believes
that the net deferred income tax asset at December 31, 1996 is an
amount that will more likely than not be realized.
(13) Related Party Transactions
The company's offices in Lowell, Massachusetts, are leased from realty
trusts, the beneficiaries of which are various bank officers and
directors. The maximum remaining term of the leases including options
is for 13 years.
Total amounts paid to the realty trusts for the years ended December 31,
1996, 1995 and 1994, were $169,761, $221,383 and $203,348,
respectively.
43
<PAGE>
ENTERPRISE BANCORP, INC.
Notes to Consolidated Financial Statements
(14) Commitments, Contingencies and Financial Instruments with Off-Balance Sheet
Risk and Concentrations of Credit Risk
The company is party to financial instruments with off-balance sheet risk
in the normal course of business to meet the financing needs of its
customers. These financial instruments include commitments to
originate loans, standby letters of credit and unadvanced lines of
credit.
The instruments involve, to varying degrees, elements of credit risk in
excess of the amount recognized in the balance sheets. The contract
amounts of those instruments reflect the extent of involvement the
company has in the particular classes of financial instruments.
The company's exposure to credit loss in the event of nonperformance by
the other party to the financial instrument for loan commitments and
standby letters of credit is represented by the contractual amounts
of those instruments. The company uses the same credit policies in
making commitments and conditional obligations as it does for
on-balance sheet instruments.
Financial instruments with off-balance sheet credit risk at December 31,
1996 and 1995, are as follows:
1996 1995
------------ -----------
Commitments to originate loans $12,640,200 7,946,570
Standby letters of credit 3,709,313 3,341,927
Unadvanced portions of consumer loans
(including credit card loans) 3,974,781 2,902,842
Unadvanced portions of construction loans 2,363,026 2,863,282
Unadvanced portions of home equity loans 6,624,488 3,715,526
Unadvanced portions of commercial lines of credit 18,036,284 14,387,535
Commitments to originate loans are agreements to lend to a customer
provided there is no violation of any condition established in the
contract. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Since many of
the commitments are expected to expire without being drawn upon, the
total commitment amounts do not necessarily represent future cash
requirements. The company evaluates each customer's creditworthiness
on a case-by-case basis. The amount of collateral obtained, if deemed
necessary by the company upon extension of credit, is based on
management's credit evaluation of the borrower. Collateral held
varies, but may include secured interests in mortgages, accounts
receivable, inventory, property, plant and equipment and
income-producing properties.
Standby letters of credit are conditional commitments issued by the
company to guarantee the performance by a customer to a third party.
The credit risk involved in issuing letters of credit is essentially
the same as that involved in extending loan facilities to customers.
The company originates residential mortgage loans under agreements to
sell such loans, generally with servicing released. At December 31,
1996 and 1995, the company had commitments to sell loans totaling
$492,300 and $984,150, respectively.
The company manages its loan portfolio to avoid concentration by industry
or loan size to minimize its credit exposure. Commercial loans may be
collateralized by the assets underlying the borrower's business such
as accounts receivable, equipment, inventory and real property.
Residential mortgage and home equity loans are secured by the real
property financed. Consumer loans such as installment loans are
generally secured by the personal property financed. Credit card
loans are generally unsecured. Commercial real estate loans are
generally secured by the underlying real property and rental
agreements.
(Continued)
44
<PAGE>
ENTERPRISE BANCORP, INC.
Notes to Consolidated Financial Statements
As a nonmember of the Federal Reserve System, the bank is required to
maintain in reserve certain amounts of vault cash and/or deposits
with the Federal Reserve Bank of Boston. The amount of this reserve
requirement, included in "Cash and Due from Banks," was approximately
$2,861,000 at December 31, 1996, and approximately $2,686,000 at
December 31, 1995.
The company is involved in various legal proceedings incidental to its
business. After review with legal counsel, management does not
believe resolution of any present litigation will have a material
adverse effect on the financial condition or results of operations of
the company.
(15) Fair Values of Financial Instruments
The following methods and assumptions were used by the company in
estimating fair values of its financial instruments:
The respective carrying values of certain financial instruments
approximated their fair value as they were short-term in nature or
payable on demand. These include cash and due from banks, daily
federal funds sold, accrued interest receivable, repurchase
agreements, accrued interest payable and non-certificate deposit
accounts.
Investments: Fair values for investments were based on quoted market
prices, where available. If quoted market prices were not available,
fair values were based on quoted market prices of comparable
instruments. The carrying amount of FHLB stock reported approximates
fair value. If the FHLB stock is redeemed, the company will receive
an amount equal to the par value of the stock.
Loans: The fair values of loans was determined using discounted cash flow
analysis, using interest rates currently being offered by the
company. The incremental credit risk for nonaccrual loans was
considered in the determination of the fair value of the loans.
The fair values of the unused portion of lines of credit and letters of
credit were based on fees currently charged to enter into similar
agreements and were estimated to be the fees charged. Commitments to
originate non-mortgage loans were short-term and were at current
market rates and estimated to have no fair value.
Financial liabilities: The fair values of certificates of deposit were
estimated using discounted cash flow analysis using rates offered by
the bank on December 31, 1996 for similar instruments.
Limitations: The estimates of fair value of financial instruments were
based on information available at December 31, 1996 and 1995 and are
not indicative of the fair market value of those instruments at the
date this report is published. These estimates do not reflect any
premium or discount that could result from offering for sale at one
time the bank's entire holdings of a particular financial instrument.
Because no market exists for a portion of the bank's financial
instruments, fair value estimates were based on judgments regarding
future expected loss experience, current economic conditions, risk
characteristics of various financial instruments, and other factors.
These estimates are subjective in nature and involve uncertainties
and matters of significant judgment and therefore cannot be
determined with precision. Changes in assumptions could significantly
affect the estimates.
Fairvalue estimates were based on existing on and off-balance-sheet
financial instruments without an attempt to estimate the value of
anticipated future business and the value of assets and liabilities
that are not considered financial instruments. Significant assets and
liabilities that are not considered financial assets or liabilities
include premises and equipment and foreclosed real estate. In
addition, the tax ramifications related to the realization of the
unrealized gains and losses can have a significant effect on fair
value estimates and have not been considered in any of the estimates.
Accordingly, the aggregate fair value amounts presented do not
represent the underlying value of the company.
(Continued)
45
<PAGE>
ENTERPRISE BANCORP, INC.
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
1996 1995
---------------------------- ----------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 14,507,497 14,507,497 25,162,392 25,162,392
Investment securities 119,395,742 119,395,742 78,812,489 78,812,489
Loans, net 140,425,093 143,801,510 113,555,553 117,030,813
Accrued interest receivable 2,699,833 2,699,833 1,823,079 1,823,079
Financial liabilities:
Non-interest bearing demand deposits 42,528,277 42,528,277 32,754,037 32,754,037
Savings, NOW and money market 96,669,623 96,669,623 77,294,855 77,294,855
Time certificates of deposit 104,230,900 104,757,922 85,967,851 86,474,481
Short-term borrowings 16,737,249 16,737,249 6,981,783 6,981,783
Escrow deposit of borrowers 411,050 411,050 377,824 377,824
Accrued interest payable 493,276 493,276 549,673 549,673
</TABLE>
(16) Parent Company Only Financial Statements
A parent company only balance sheet for 1995, and the statement of
income and statement of cash flows for 1995 and 1994 are not
presented as the company was formed on July 26, 1996.
Balance Sheet
-------------
Assets December 31, 1996
-----------------
Cash and due from subsidiary $ 51,999
Investment in subsidiary 20,595,505
-----------
$20,647,504
===========
Liabilities and Stockholders' Equity
Preferred stock, par value $.01 per share, 1,000,000 shares
authorized. No shares issued $ -
Common stock, par value $.01 per share, 5,000,000 shares
authorized, 1,576,192 shares issued and outstanding 15,762
Additional paid-in capital 15,476,857
Retained earnings 5,263,074
Net unrealized gain on investment securities available
for sale, net (108,189)
-----------
$20,647,504
===========
Statement of Income
-------------------
For the year ended
December 31, 1996
------------------
Income $ -
Undistributed equity in net income of subsidiary 2,411,655
---------
Net income $ 2,411,655
=========
46
<PAGE>
ENTERPRISE BANCORP, INC.
Notes to Consolidated Financial Statements
Statement of Cash Flows
-----------------------
For the year ended
December 31, 1996
------------------
Cash flows from operating activities:
Net income $ 2,411,655
Undistributed equity in net income of subsidiary (2,411,655)
-----------
Net cash provided by operating activities -
-----------
Cash flows from financing activities:
Net proceeds from exercise of stock options 2,000
Initial capitalization of holding company from the bank 49,999
Net cash provided by financing activities 51,999
-----------
Net increase in cash and cash equivalents 51,999
Cash and cash equivalents, beginning of period -
-----------
Cash and cash equivalents, end of period $ 51,999
===========
Cash and cash equivalents includes cash and due from subsidiary.
47
<PAGE>
Item 8. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure
None
Part III
The information required in Items 9, 10, 11 and 12 of this part is incorporated
herein by reference from the company's definitive proxy statement for its annual
meeting of stockholders to be held May 6, 1997, which it expects to file with
the Securities and Exchange Commission within 120 days of the end of the fiscal
year covered by this report.
Item 13. Exhibits, List and Reports on Form 8-K
(a) Exhibits
Exhibit # Exhibit Description
3.1a Articles of Incorporation of the company dated February 29, 1996, filed
as an exhibit to the company's registration statement on Form 8-A
relating to its common stock.
3.1b Amendment to Articles of Incorporation of the company dated July 17,
1996 incorporated by reference to the form thereof filed as an exhibit
to the company's registration statement of Form 8-A relating to its
common stock.
3.2 Bylaws of the company filed as an exhibit to the company's registration
statement on Form 8-A relating to its common stock.
10.1 Lease agreement dated July 22, 1988, between the bank and First Holding
Trust relating to the premises at 222 Merrimack Street, Lowell,
Massachusetts filed with the company's 10-QSB for the quarter ended
June 30, 1996.
10.2 Amendment to lease dated December 28, 1990, between the bank and First
Holding Trust for and relating to the premises at 222 Merrimack Street,
Lowell, Massachusetts filed with the company's 10-QSB for the quarter
ended June 30, 1996.
10.3 Amendment to lease dated August 15, 1991, between the bank and First
Holding Trust for 851 square feet relating to the premises at 222
Merrimack Street, Lowell, Massachusetts filed with the company's 10-QSB
for the quarter ended June 30, 1996.
10.4 Lease agreement dated May 26, 1992, between the bank and Shawmut Bank,
N.A., for 1,458 square feet relating to the premises at 170 Merrimack
Street, Lowell, Massachusetts filed with the company's 10-QSB for the
quarter ended June 30, 1996.
10.5 Lease agreement dated April 7, 1993, between the bank and Merrimack
Realty Trust for 4,375 square feet relating to the premises at 27
Palmer Street, Lowell, Massachusetts filed with the company's 10-QSB
for the quarter ended June 30, 1996.
10.6 Lease agreement dated March 14, 1995, between the bank and North
Central Investment Limited Partnership for 3,960 square feet related to
the premises at 2-6 Central Street, Leominster, Massachusetts filed
with the company's 10-QSB for the quarter ended June 30, 1996.
10.7 Employment agreement between the bank and George L. Duncan dated
November 15, 1988 filed with the company's 10-QSB for the quarter ended
June 30, 1996.
10.8 Amended employment agreement between the bank and George L. Duncan
dated December 31, 1995 filed with the company's 10-QSB for the quarter
ended June 30, 1996.
48
<PAGE>
10.9 Employment agreement between the bank and Richard W. Main dated
December 13, 1995 filed with the company's 10-QSB for the quarter ended
June 30, 1996.
10.10 Lease agreement dated June 20, 1996 between the bank and Kevin C.
Sullivan and Margaret A. Sullivan for 4,800 square feet related to the
premises at 910 Andover Street, Tewksbury, Massachusetts.
10.11 Amendment to employment agreement between the bank and George L. Duncan
dated December 4, 1996.
10.12 Amendment to employment agreement between the bank and Richard W. Main
dated December 4, 1996.
10.13 Split Dollar Agreement for George L. Duncan.
21.0 Subsidiaries of the Registrant.
(b)Reports on Form 8-K
The company did not file any reports on Form 8-K during the
last quarter of the period covered by this report.
49
<PAGE>
SIGNATURES
In accordance with Section 15(d) of the Exchange Act, the registrant has caused
this report to be signed on its behalf by the undersigned thereunto duly
authorized.
Date: March 18, 1997 /s/ John P. Clancy, Jr.
John P. Clancy, Jr.
Treasurer
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities on the dates
indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ George L. Duncan Chairman, Chief Executive Officer March 18, 1997
George L. Duncan and Director
/s/ Richard W. Main President, Chief Operating Officer March 18, 1997
Richard W. Main and Director
/s/ John P. Clancy, Jr. Treasurer March 18, 1997
John. P. Clancy Jr. (Principal Financial Officer)
/s/ Todd A. Klibansky (Principal Accounting Officer) March 18, 1997
Todd A. Klibansky
/s/ Kenneth S. Ansin Director March 18, 1997
Kenneth S. Ansin
/s/ Walter L. Armstrong Director March 18, 1997
Walter L. Armstrong
/s/ Gerald G. Bousquet, M.D. Director March 18, 1997
Gerald G. Bousquet, M.D.
/s/ Kathleen M. Bradley Director March 18, 1997
Kathleen M. Bradley
/s/ James F. Conway, III Director March 18, 1997
James F. Conway, III
/s/ Nancy L. Donahue Director March 18, 1997
Nancy L. Donahue
/s/ Eric W. Hanson Director March 18, 1997
Eric W. Hanson
/s/ John P. Harrington Director March 18, 1997
John P. Harrington
/s/ Arnold S. Lerner Director, Vice Chairman and Clerk March 18, 1997
Arnold S. Lerner
/s/ Charles P. Sarantos Director March 18, 1997
Charles P. Sarantos
/s/ Michael A. Spinelli Director March 18, 1997
Michael A. Spinelli
</TABLE>
LEASE
SECTION 1. BASIC LEASE PROVISIONS
1.01 Date and Parties. This lease (Lease) is made the day of June 1996, between,
Kevin C. Sullivan and Margaret A. Sullivan (Landlord) and Enterprise Bank and
Trust Company (Tenant). Landlord is an individual with a principal office at
1360 Main Street, Tewksbury, Massachusetts 01876. Tenant is a Massachusetts
corporation with a principal office at 222 Merrimack Street, Lowell,
Massachusetts 01852.
1.02 Premises. The Landlord leases to the Tenant, and the Tenant leases from the
Landlord, upon and subject to the terms and provisions on this lease, a one
story building with two drive-up facilities. The building and the drive up area
containing approximately 4800 square feet are located at 910 Andover Street in
Tewksbury, Massachusetts 01876 are referred to as the ("Leased Premises." or the
"Premises") The leased premises are shown as Exhibit A hereto annexed and made a
part hereof. The leased premises is located on a parcel of land in Tewksbury,
County of Middlesex, Massachusetts and is part of 133 Shopping Center ("the
Shopping Center"). The shopping center is located at 910 Andover Street in
Tewksbury in said County and is more fully described in Exhibit B, hereto
annexed and made a part hereof.
1.03 Use. The Tenant shall use the premises for the operation of a commercial
bank and trust company and for financial services business.
1.04 Term. The initial term of this lease shall commence on the earlier to occur
of (commencement date):
(a) October 1, 1996 or
(b) The day the Tenant receives all approvals to operate a commercial
banking business at the leased premises. The term shall end on the last day of
the 24th calender month (exclusive of any partial month) after the commencement
date.
1.05 Prior to the commencement date, the Tenant may occupy the leased premises,
and during such occupancy the Tenant shall pay the pro-rata share of base rent
and the additional rent and a pro-rata share of the real estate taxes until the
commencement date. The occupancy date shall be August 1, 1996 (occupancy date)
unless an earlier date is agreed to between Landlord and Tenant.
1.06 Extended Term. The Tenant shall have the right to extend the term of this
lease for up to ten (10) consecutive periods of
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two (2) years each (Extended Terms). The initial term and the extended terms, if
any, shall automatically be extended for each extended term unless Tenant shall
notify Landlord of its intention to terminate this lease at least ninety days
(90) prior to the expiration of the then existing term, or sixty days after a
section 6 event, whichever is earlier. (Notice Date).
1.07 Right to Terminate. At any time prior to the commencement date, the Tenant
shall have the right to terminate this lease provided Tenant notifies Landlord
of its intention to terminate, delivered in writing, to landlord at least forty
eight hours (48) prior to the date of termination. In the event this lease is
terminated, all deposits given to the landlord under an agreement to lease dated
May 24, 1996 shall be retained by the Landlord and all rights and obligations of
the parties under this Lease and under the agreement to lease shall be
terminated.
1.08 Confirmation of Commencement. Within thirty (30) days after the
commencement date, the parties shall confirm in writing the Lease's commencement
date and termination date.
SECTION 2. RENT.
2.01. Beginning on the occupancy date, and on the first day of each succeeding
month until the commencement date of the lease the Tenant shall pay to the
Landlord the base rent in the amount of $4800.00. (pro-rated for any partial
month)
2.02. Base Rent. Beginning on the commencement date, the Tenant shall pay to the
Landlord an annual rental (" Base Rent" ) at the rate of $57,600.00 per annum in
equal monthly payments of $4800.00 on the first day of the month in advance. At
the end of the second lease year, and at the end of the second year of each
extended lease term thereafter, the base rent shall be adjusted upwards or
downwards in the manner set forth below, but the base rent shall never be less
than $57,600.00 per annum.
2.03. Renewal Rent-first extended terms. In the event the Tenant exercises its
option to extend the term of this lease, the base rent which the Tenant shall
pay during each year of the first extended term shall be $57,600.00 plus any
adjustment as determined in accordance with the provisions of section 2.05 or
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three per cent (3%) whichever amount shall be greater.
2.04 Renewal Rent -subsequent extended terms. In the event the Tenant exercises
its option to extend the term of this lease, after the first extended term, the
annual base rent which the Tenant shall pay during each subsequent extended term
or terms shall be the base rent paid during the last month of the immediately
prior two year term plus any adjustment as shown on Exhibit C attached hereto
and made a part hereof.
2.05. Rent Adjustment. The amount of base rent for each extended term shall be
determined by Using the Revised Consumer Price Index--All Urban consumers
(CPI-U) U.S. City Average (1982- 84 = 100) published by the Bureau of Labor
Statistics of the United States Department of Labor (the "Index"), and as shown
of Exhibit C attached hereto and made a part hereof. In the event the Consumer
price index of the United States is discontinued, comparable statistics, as
published by the United States Government shall be used for making such
computation.
2.06 The monthly base rent to be paid by Tenant to Landlord, all in the manner
as determined in section 2.05 during each extended term provided for in this
lease shall be the amount of base Monthly Rent paid during the last month of the
then current term plus any adjustment as determined in accordance with the
provisions of this section 2.
2.07 All rent shall be paid by the Tenant to Landlord on or before the first day
of every calendar month in advance, pro-rated for any partial month. Until
further notice from landlord, all rent is to be payable to Landlord and mailed
to 1360 Main Street in Tewksbury, Massachusetts 01876.
2.08 The initial base rate is arrived at on the basis of $12.00 a square foot of
floor area of the leased premises times 4800 square feet or such higher or
lesser amount depending upon the exact number of square feet in the leased
premises. Prior to occupancy date, a representative of the Landlord and the
Tenant shall take an accurate measurement of the leased premises. If the area is
not 4800 square feet then the base rent and the monthly rent shall be adjusted
accordingly by the use of the following formula: total square feet of the leased
premises times $12.00.
SECTION 3. AFFIRMATIVE OBLIGATIONS
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3.01 Utilities. Tenant shall pay to the proper authority charged with the
collection thereof, all charges for the consumption of electricity, gas,
telephone and other such services separately metered or billed to Tenant for the
leased Premises. All such charges shall be paid as the same from time to time
become due. The Landlord acknowledges that it has brought all utilities which
are to service the Leased Premises directly to the premises and to the Leased
Premises, and that the Tenant shall only need to make arrangements to turn on
such utilities and arrangements for billing for any such services. The Tenant
shall make its own arrangements for such utility billing. The Landlord shall not
be liable for any interruption or failure in the supply of utilities to the
premises unless any such interruption or failure in the supply of utilities to
the premises was caused by the negligence of the landlord. The Landlord shall be
responsible for and shall pay all water and sewer charges used on the leased
premises. The Tenant shall be responsible for and shall pay all costs of rubbish
removal from the leased premises.
3.02 Repairs and Maintenance. Tenant Obligations. Tenant shall keep the premises
in good order; make repairs to the premises needed because of the tenant's use
of the premises; repair and replace special equipment installed by or at
Tenant's request, except to the extent the repairs or replacement are needed
because of Landlord's misuse or primary negligence or Landlord's replacement
obligations in paragraph 3.04. Prior to the commencement date of the lease.
Tenant shall be permitted to inspect the building's heating, air conditioning
and ventilation system.("HVAC System" or "HVAC") If the HVAC system is in good
operating order, Tenant will be responsible for its repair and replacement
during any and all term or terms of the lease. If the HVAC system is in poor
operating order or does not adequately distribute throughout the leased premises
as reasonably determined by the Tenant, the Landlord shall replace the same and
after such replacement, the Tenant then shall be responsible for the repair and
maintenance of the system and all warranties which accompany any replacement
shall be available to the Tenant.
3.03 The Landlord shall be responsible for repair, and general maintenance of
the roof, foundation, exterior walls, interior walls, all structural components,
and all systems such as mechanical, electrical, HVAC, and plumbing, except as
set forth in the prior paragraph 3.02
3.04 Landlord Repairs and Replacements. The Landlord shall be
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responsible to replace the roof, foundation, exterior walls, interior structural
walls, all structural components, and all systems such as mechanical,
electrical, HVAC, and plumbing. Except for repairs or replacements that Tenant
must make under section 3.02, Landlord shall pay for and make all other repairs
and replacements to the Premises. Landlord shall make such repairs and
replacements to maintain the Leased Premises in a first class condition.
3.05 Time for Repairs and Replacement. Repairs or replacements required under
section 3 shall be made within a reasonable time after receiving notice or
having actual knowledge for the need for repair or replacement.
3.06 Tenant's Obligation on Surrender.
a. Upon the ending date of the initial term or the date of the last
extension term, if any, whichever is later, Tenant shall surrender the Premises
to the Landlord in the same condition that the premises were in at the
beginning, except for ordinary wear and tear; damage by the elements, fire, and
other casualty, condemnation, and damages arising from any cause not required to
be repaired by the Tenant.
b. On surrender, Tenant shall remove from the Premises, its personal
property, trade fixtures and repair any damage to the Premises caused by the
removal. Any items not removed by Tenant as required above, shall be considered
abandoned. Landlord may dispose of abandoned items as Landlord chooses and bill
Tenant for the cost of disposal, minus any revenues received by Landlord for the
disposal. It is understood that all personal property and trade fixtures brought
onto the premises or which are on the premises and which were acquired from the
Landlord as set forth in paragraph 11.03 of this Lease by the Tenant even if
affixed to the Leased Premises, including but not limited to vaults and vault
components, security systems, ATM machines, night deposit systems, drive-up
teller components, teller counter and under- counter equipment furniture,
furnishings and the like, shall be considered personal property for which the
Tenant shall have the absolute right to remove same, subject to its obligations
to repair in paragraph 3.02. Prior to the commencement date the Landlord and the
holder of all mortgages shall execute a landlord's waiver of lien or rights to
the equipment, fixtures and Tenant's operating equipment which are on the
premises whether or not affixed thereto acknowledging and consenting to the
contents of this paragraph 3.06 b.
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3.07 Assignment Subleasing. The Tenant shall have no right to assign or sublet
the whole or any part of the premises without Landlord's prior written consent,
which consent shall not be unreasonably withheld or delayed. Notwithstanding
such assignment or subleasing, Tenant shall remain liable to Landlord for the
payment of all rent and for the full performance of the covenants and conditions
of this lease.
3.08 Compliance With Law. Tenant's use of the Premises shall, at its own
expense, conform to and comply with all zoning, building, environmental, fire,
health, and other codes, regulations, ordinances, or laws which are applicable
to the use made of the premises by the Tenant.
3.09 Landlord Access. The Landlord or agents of Landlord, may at reasonable
times, enter to view the Premises. No visit of the Landlord or its agents shall
take place at times other than normal business hours of the Tenant.
3.10 Signs. The Tenant shall be permitted signage on the Premises subject to the
prior consent of the Landlord which consent shall not be unreasonably withheld
or delayed provided the same are placed and constructed in accordance with any
sign or zoning by-law of the Town of Tewksbury. The Tenant shall be allowed to
place a large sign (at least as large as the former sign of Fleet Bank) at the
Top on the Shopping Mall Sign Board located on the Andover Street side of the
shopping center. Tenant shall pay for the cost of erecting and maintaining any
and all such signs. Tenant shall remove the same upon the termination of this
lease. The landlord will cooperate with and assist the Tenant in obtaining
approvals for such signage.
SECTION 4. COMMON AREA
4.01 Landlord agrees that Tenant shall, during the term hereof, with others,
have the non-exclusive right to use the parking facilities of the Shopping
Center for the accommodation and parking of such automobiles of Tenant, its
officers, agents and employees, and its customers while shopping in the Shopping
Center. Tenant shall have continuous and uninterrupted access to and from the
drive up area.
4.02 Landlord shall cause all existing parking facilities, including lighting
thereof, to be maintained in reasonably good repair and in reasonably clean
condition at all times during the
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term of this lease. The parking areas and buildings in the shopping center shall
be maintained by the Landlord in a reasonably clean and painted condition at all
times during all terms of this Lease.The Landlord, at no cost to the Tenant,
shall re-line the entire parking area which services the shopping center prior
to the commencement date of the lease. Beginning in the summer of 1999, and
every three years thereafter, during the term of this lease, the Landlord, at no
cost to the Tenant, shall reline the parking spaces in the entire parking area
which services the shopping center. Beginning in the summer of 1999 and every
five (5) years thereafter, the Landlord, at no cost to the Tenant, shall paint
the exterior of all buildings which are located in the shopping center.
4.03 If the Landlord erects additional buildings or structures on the shopping
center premises, the landlord agrees and covenants that no structure or
building(s) shall be built on the portion of the center which is currently hot
topped and is occupied by buildings. The landlord agrees that in the event of
any future development of the shopping center that the current parking spaces
and sizes will not be reduced and that all future parking will comply with the
zoning regulations regarding the amount of spaces and the size of spaces without
variance or exception. Landlord further covenants and agrees that any future
buildings or structures will not block the visibility of the leased premises
from Andover Street and from River Road.
4.04 Accumulations of snow will be removed by the Landlord from existing parking
areas and other existing common areas of the shopping center and from the
drive-up teller area of the leased premises including all exits and entrances to
the shopping area and all exits and entrances from the drive up teller area. All
snow accumulations and will be deposited in such locations as are feasible so as
to permit unimpeded use of the drive up teller area and of the shopping center
parking areas. If the Landlord fails to commence clearing the snow within one
hour after the snow ceases or prior to 7:30 a.m. on the morning after the snow
storm, the Tenant is granted permission to remove the snow at the expense of the
Landlord and the Landlord shall pay such bill less the pro-rata share of the
Tenant. The Tenant shall be responsible to pay to the landlord an amount equal
to 40% of the cost of such snow plowing.
4.05 The Landlord shall pay all costs and expenses of every kind and nature in
operating, managing, equipping, policing,
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lighting, repairing, replacing and maintaining, landscaping and gardening in all
parking area of the shopping center (including any future parking subsequently
installed in the Shopping Center for the common use of customers and employees
of the Shopping Center), and all other common areas of the Shopping Center
including, furnishing receptacles for trash storage for the Tenants, and
providing daily cleaning of the common areas. Landlord shall pay the electricity
cost of all outside lighting and the cost of water and sewer services for the
shopping center and the leased premises. All services listed in this paragraph
4.05 shall be referred to as common area maintenance expenses. The Tenant shall
pay to the Landlord as its pro-rata share of the common area maintenances the
monthly sum of $325.00 during the term or terms of this lease. Such monthly sum
shall be adjusted every two years according to increases or decreases in the
consumer price index in the same manner as adjustments of rent as described in
Section 2 of this lease, but the monthly amount shall never be less than $325.00
per month. Such payment shall be made in the same manner as monthly rent.
4.06 The Town of Tewksbury, Massachusetts separately assesses the land and the
building of the Leased Premises. and other improvements on the other. The taxes
so assessed are shown in Exhibit D attached hereto and made a part hereof. The
Landlord represents that the present real estate tax for the leased premises is
$6700.00. The Tenant shall pay when due directly to the Town of Tewksbury all
real estate taxes which are assessed against the leased premises as the same may
be subsequently reduced or abated, less the costs of securing said reductions or
abatements. If Landlord shall make application for a tax abatement but shall be
unsuccessful in said endeavor or the costs involved in pursuing such application
shall exceed the abatement received, then and in that event the reasonable costs
expended by Landlord in the attempt to secure such abatement, or the excess of
such costs over the amount of the tax abatement, shall be a proper charge by
Landlord to Tenant, with Tenant obligated to pay its proportionate share thereof
based upon a fraction , the numerator of which shall be the number of square
feet of ground floor area of the leased premises and the denominator shall be
the total square footage of leasable ground floor area of all buildings located
on the shopping center premises. Except as set forth in this paragraph, the
Landlord shall be responsible to promptly pay when due all real estate and other
municipal charges assessed against the shopping center.
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SECTION 5. NEGATIVE OBLIGATIONS
5.01 Overloading and Nuisance. The Tenant shall not injure, overload, deface or
permit to be injured, overloaded of defaced, the Premises and the Tenant shall
not permit, allow or suffer any waste or any unlawful, improper or offensive use
of the Premises or any occupancy thereof that would be injurious to any person,
property, or invalidate or increase the premiums for any insurance on the Leased
Premises.
5.02. Payment of Landlord's Expenses. The Tenant agrees to pay on demand any
Landlord's cost and expenses including any reasonable legal expenses of any
third party attorney employed by the Landlord and incurred by Landlord in
enforcing through any court or arbitration proceeding brought to enforce the
terms of this lease, provided it is determined during or after such court or
arbitration proceeding that the Tenant was in violation of this lease. In the
event there is a finding for the Tenant or against the landlord, then the
Landlord shall be responsible for all of the legal expenses, including
reasonable legal costs of the Tenant.
SECTION 6 INSURANCE
6.01 Fire Insurance. Landlord shall be required to keep the Leased Premises and
Tenant shall be responsible to keep its personal property and trade fixtures
insured with "all risks" insurance in an amount to cover one hundred (100)
percent of the replacement cost of the Leased Premises and fixtures. Tenant
shall also keep any non-Leased Premises-standard improvements made to the
premises at Tenant's request insured to the same degree as Tenant's personal
property. Landlord's policy shall include an endorsement that the insurance will
cover damage to the Leased Premises caused by the negligence of the Tenant, its
officers, and employees in the amount of-the full replacement cost of the Leased
Premises, as the cost may increase from time to time.
6.02 Liability Insurance. Each party shall maintain contractual and
comprehensive general liability insurance, including public liability and
property damage, with a minimum combined single limit of liability of two
million dollars ($2,000,000.00) for personal injuries or deaths of persons
occurring in or about the Leased Premises and the shopping area. The Tenant
shall pay for its own liability insurance.
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6.03 Waiver of Subrogation. All insurance which is carried by either party with
respect to the premises and the shopping area or to furniture, furnishings,
fixtures or equipment therein or alterations or improvements thereto, whether or
not required, if either party so requests and it can be so written, and it does
not result in additional premium, or if the requesting party agrees to pay any
additional premium, shall include provisions which either designate the
requesting party as one of the insured or deny to the insurer acquisition by
subrogation rights of recovery against the requesting party. Each party waives
all rights of recovery against the other for loss or injury against which the
waiving party is protected by insurance containing said provisions, reserving
however, any rights with respect to any excess of loss or injury over the amount
recovered by such insurance. The policies of insurance required under section
6.01 and 6.02 to be maintained by Landlord shall name as insured parties
Landlord and Tenant, as their respective interests may appear, and they may be
carried under blanket policies maintained by Landlord if such policies comply
with the provisions of section 6.01 and 6.02. The Landlord shall pay in full for
the fire insurance coverage on the leased premises and policies and proof of
payment of same shall be furnished the Tenant on request. The Tenant shall be
responsible for and shall pay for the insurance on its personal property.
6.04 Evidence of Insurance. By the Beginning Date and upon each renewal of its
insurance policies, each party shall give certificates of insurance to the other
party. The certificate shall specify amounts, types of coverage, the waiver of
subrogation, and the insurance criteria listed in the lease. The policies shall
be renewed or replaced and maintained by the party responsible for that policy.
If either party fails to give the required certificate within thirty (30) days
after notice for demand for it, the other party may obtain and pay for that
insurance and receive reimbursement from the party required to have the
insurance. Each policy shall contain a provision that no policy may be
terminated or amended without at least 30 days written notice to the other
party.
SECTION 7. LOSS OF PREMISES
7.01. FIRE AND CASUALTY LOSS - REBUILD If the entire Premises or any substantial
part thereof shall be damaged by fire or other insured casualty, then, Landlord
shall proceed with diligence, subject to the then applicable statutes, building
codes, zoning
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by-laws, and regulation to rebuild or repair in accordance or cause to be
repaired such damages. The repair or restoration will not commence until plans
and specifications are reviewed by Tenant and Landlord which review shall not be
unreasonably delayed. The lease may be terminated 180 days after such damage, by
the Tenant, if construction has not commenced.
7.02 Abatement of Rent. If the Premises, or any part thereof shall have been
rendered unfit for use and occupation hereunder by reason of such damage the
fixed Rent or a just and proportionate part thereof, according to the nature and
extent to which the Premises shall have been so rendered unfit, shall be
suspended or abated until the Premises shall have been restored as nearly as
practicable to the condition in which they were immediately prior to such fire
or other casualty.
7.03 Rebuild Last 24 Months . If the Premises are so damaged by fire or other
casualty (whether or not insured) at any time during 9th extended term and the
cost to repair such damage is reasonably estimated to exceed one-half of the
total Annual Fixed Rent payable hereunder for the period from the estimated
completion date of repair until the end of the Term, and Landlord determines not
to repair such damage , then and in any event, this Lease and the term thereof
may be terminated at the election of Landlord by a notice from the Landlord to
Tenant within sixty (60) days following such fire or other casualty. In the
event of any termination, this Lease and the Term hereof shall expire as of such
effective termination date as though that were the date originally stipulated in
Section 1.06 for the end of the Term and the fixed Rent shall be apportioned as
of such date. Except for the final extended term, the Tenant, unless the lease
is terminated, may extend the term if the loss occurs during any term but the
final term so as to require Landlord to rebuild according to this Section 7.
SECTION 8 EMINENT DOMAIN AWARD
8.01 Landlord reserves to itself and Tenant assigns to Landlord, all rights to
damages accruing on account of any taking under the power of eminent domain or
by reason of any act of any public or quasi public authority for which damages
are payable. Tenant agrees to execute such instruments of assignment as may be
reasonably required by Landlord in any proceeding for the recovery of such
damages if requested by Landlord, and to turn over to Landlord any damages that
may be recovered in such proceeding. It
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is agreed and understood, however, that Landlord does not reserve to itself, and
Tenant does not assign to part thereof, in the name of the whole, and repossess
the same as of Landlord's former estate or (ii) mail a notice of termination
addressed to Tenant and upon such entry or mailing this Lease shall terminate.
In the event that this Lease is terminated under any of the foregoing
provisions, or otherwise for breach of Tenant's obligations hereunder, then at
Landlord's option, Tenant covenants to pay forthwith to Landlord as compensation
the total rent and additional rent reserved for the residue of the Term, and pay
on demand all Landlord's costs and expenses, including reasonable attorney's
fees, incurred by Landlord in enforcing any obligation of Tenant under this
Lease, or in connection with any request by Tenant for Landlord's consent or
approval under this Lease.
8.02 In calculating the amounts to be paid by Tenant under the foregoing
covenant, Tenant shall be credited with any amount actually paid to Landlord as
compensation as herein before provided and also with any additional rent
actually obtained by Landlord by reletting the Premises, after deducting the
expenses of collecting the same. And Tenant further covenants, as an alternative
obligation, at Landlord's election, after any such termination or entry, to pay
punctually to Landlord all the sums and perform all the obligations which Tenant
covenants in this Lease to pay and to perform in the same manner and to the same
extent and at the same times as if this Lease had not been terminated.
8.03 Nothing herein contained shall, however, limit or prejudice the right of
Landlord to obtain in proceedings for bankruptcy or insolvency or reorganization
or arrangement with creditors as liquidated damages by reason of such
determination an amount equal to the maximum allowed by any statute or rule of
law in effect at the time when, and governing the proceedings in which, such
damages are to be proved, whether or not such amount be greater than, equal to,
or less than the amounts referred to above.
8.04 If only a part of the demised premises shall be taken under the power of
eminent domain and if the term of this lease shall not be terminated as
aforesaid, then the term of this lease shall continue in full force and effect
and Landlord shall, within a reasonable time after possession is required for
public use, repair and rebuild what may remain of the demised premises so as to
put the same into condition for use and occupancy by Tenant,
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and a just proportion of the minimum rent according to the nature and extent of
the injury to the demised premises shall be suspended or abated until what may
remain of the demised premises shall be put into such condition by Landlord, and
thereafter a just proportion of the minimum rent according to the nature and
extent of the part so taken shall be abated for the balance of the term of this
lease. Landlord shall not be required to spend an amount for such repairing and
released Premises in excess of the amount received by Landlord as damages for
such taking.
SECTION 9. DEFAULTS - REMEDIES
9.01 If, (a) Tenant shall default in the performance of any such of its monetary
obligations under this Lease, and if such default shall continue for ten (10)
days after written notice from Landlord to Tenant (provided that Landlord shall
not be required to give such notice more than twice during the Term, the third
such non-payment constituting an Event of Default without the requirement of
notice) or (b) if within thirty (30) business days after written notice from
Landlord to Tenant specifying another default or defaults, Tenant has not
commenced diligently to correct such default or has not thereafter diligently
pursued such correction to completion, or (c) if any assignment shall be made by
Tenant for the benefit of creditors, or if a petition is filed by or against
Tenant under any provision of the Bankruptcy Code and, in the case of
involuntary petition, such petition is not dismissed with ninety (90) days, or
(d) if the Tenant's leasehold interest shall be taken on execution or by other
process of law, attached or subjected to any other involuntary encumbrances,
then and in any such cases Landlord and its agents and servants may lawfully,
immediately or at any time thereafter, and without further notice or demand, and
without prejudice to any other remedies available to Landlord for arrearages of
rent or otherwise, either (i) enter into and upon the Premises or any part
thereof, in the name of the whole, and repossess the same as of Landlord's
former estate or (ii) mail a notice of termination addressed to Tenant and upon
such entry or mailing this Lease shall terminate. In the event that this Lease
is terminated under any of the foregoing provisions, or otherwise for breach of
Tenant's obligations hereunder, then at Landlord's option, Tenant covenants to
pay forthwith to Landlord as compensation the total rent and additional rent
reserved for the residue of the Term, and pay on demand all Landlord's costs and
expenses, including reasonable attorney's fees, incurred by Landlord in
enforcing any
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obligation of tenant under this Lease, or in connection with any request by
Tenant for Landlord's consent or approval under this Lease.
In calculating the amounts to be paid by Tenant under the foregoing
covenants, Tenant shall be credited with any amount actually paid to Landlord as
compensation as herein before provided and also with any additional rent
actually obtained by Landlord by reletting the Premises, after deducting the
expenses of collecting the same. And Tenant further covenants, as an alternative
obligation, at Landlord's election, after any such termination or entry, to pay
punctually to Landlord all the sums and perform all the obligations which Tenant
covenants in this Lease to pay and to perform in the same manner and to the same
extent and at the same times as if this Lease had not been terminated.
Nothing herein contained shall, however, limit or prejudice the right
of Landlord to obtain in proceedings for bankruptcy insolvency or reorganization
or arrangement with creditors as liquidated damages by reason of such
dtermination an amount equal to the maximum allowed by any statute or rule of
law in effect at the time when, and governing the proceedings in which, such
damages are to be proved, whether or not such amount be greater than, equal to,
or less than the amounts referred to above.
9.02. Landlord's Defaults. If the Landlord fails to pay any liens or
encumbrances affecting the property and to which this lease may be subordinate
when any of the same may be due or in any other respects fails to perform any
covenant or agreement in this lease contained on the part of the Landlord, to be
performed, then and in such event, after the continuance of any such failure or
default for thirty (30) days after notice has been given by the Tenant to the
Landlord, Tenant may pay said lien or encumbrance and cure such defaults.
Tenant, after such thirty (30) day period, may make all necessary payments in
connection therein, including but not limited to the payment of any reasonable
attorneys fees, costs and charges incurred, in connection with any legal action
which may have been brought. If all such indebtedness of Landlord is not fully
paid within thirty (30) days after Tenant has paid the same and Landlord has
been given notice same has been paid, Tenant may elect (1) to deduct such amount
from rent subsequently becoming due hereunder, or (2) extend this lease on the
same covenants and conditions as herein provided until such indebtedness is
fully paid by application to rents.
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Encumbrance shall include mortgage payments where an uncured default exists.
9.03. Tenant Defaults. If Tenant shall fail to make or perform any payment or
act required by this lease, then Landlord may, make such payment or perform such
act for the account of the Tenant. All amounts so paid by Landlord and all
incidental costs and expenses including attorneys fees and expenses incurred in
connection with such payments or performance, together with interest thereon at
the maximum legal rate, or if no such rate is established at the rate of
eighteen (18) percent per annum from the date of the making of such payment or
of the incurring of such costs and expenses, shall be paid by Tenant to Landlord
on demand. This is an additional remedy of Landlord.
9.04 Should the Tenant fail to operate or conduct the Tenant business for a
period of 4 continuous months then the Landlord at its sole option after written
notice is given to Tenant, and if Tenant has not commenced to operate and
conduct its business in the normal course, then the Landlord may cause this
lease to be terminated.
SECTION 10. NON DISTURBANCE
10.01 SUBORDINATION AND NON-DISTURBANCE. This Lease and all rights of the Tenant
hereunder are and shall be subject and subordinate to the lien of any and all
mortgages which may now or hereafter affect the property or any part thereof and
to all renewals, modifications, consolidations, replacements and extensions
thereof, provided that any such mortgage placed upon the property shall provide
that so long as there shall be outstanding no continuing event of default in any
of the terms, conditions, covenants or agreements of this lease on the part of
the Tenant to be performed, the Leasehold estate of the Tenant created by this
Lease and Tenant's peaceful and quiet possession of the property shall be
undisturbed by any foreclosure of any such mortgage and the mortgagee shall
recognize this lease and all its terms and conditions including but not limited
to any rights to extend this lease and any and all rights of first refusal to
lease or to purchase which are set forth in this lease. The mortgagee shall
consent to the use of all insurance proceeds for the restoration of the Leased
Premises in the event of fire or other casualty as herein set forth. This
subordination and non-disturbance document shall be executed prior to the
commencement date, in a form set out in Exhibit G.
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10.02 Estoppel Certificate. Either party shall from time to time, within ten
(10) business days after receiving a written request by the other party, execute
and deliver to the Asking Party a written statement in recordable form. This
written statement, which may be relied upon by the Asking Party and any third
party with whom the Asking Party is dealing shall certify:
(i) the accuracy of the Lease document;
(ii) the Beginning and Ending Dates of the Lease;
(iii) that the Lease is unmodified and in full effect or in
full effect as modified stating the date and nature of
the modification;
(iv) whether to the Answering Party's knowledge the Asking Party is
in default or whether the Answering Party has any claims or
demands against the Asking Party, and if so, specifying the
Default, claim, or demand; and
(v) to other correct any reasonably ascertainable facts that
are covered by the Lease terms
10.03 Right of First Refusal Purchase. If at any time during any term of this
lease, Landlord shall receive and be willing to accept the bone fide offer from
a third party to purchase the shopping center or if Landlord shall offer to sell
the property to any third party, Landlord shall, if there is no event of
default, promptly transmit to Tenant its offer to sell the property to Tenant
upon same terms and conditions as those offered by or to the third party,
together with a true copy of such original offer. If Tenant shall not accept
such offer within forty-five (45) days after it is made, Landlord may, after the
expiration of such forty-five (45) day period, sell such interest to a third
party upon terms and conditions as those offered to the Tenant. If Tenant
accepts such offer by notice to Landlord within the time permitted, the offer
and acceptance shall constitute a contract for the sale by Landlord and the
purchase by Tenant of the property at a closing to be held within thirty (30)
days following the receipt by Landlord by Tenants notice of acceptance. On the
date of such purchase, the Landlord shall convey the premises in consideration
of the payment of the purchase price, by quitclaim deed, conveying good clear
record and marketable title to the premises free of all liens and encumbrances
except this lease and except for easements and restrictions of record which are
listed on Exhibit E attached hereto. The Landlord may use the purchase price to
pay off mortgage liens and like encumbrances. If Landlord shall be unable to
give title, the Landlord shall use reasonable efforts to remove such defects in
title. All remaining conditions of sale shall be as found in the current Greater
Boston
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Real Estate Board form purchase and sale agreement as reasonably adjusted
for this transaction.
10.04. Right of First Refusal- Adjacent Property - Lease. (a.) If at any time
during any term of this lease, the Landlord shall receive and be willing to
accept the bona fide offer from a third party to lease any other building or
portion of a building located in the shopping center, or if Landlord shall offer
to lease the property to any third party, Landlord shall, if there is no event
of default, promptly transmit to Tenant its offer to lease the property to
Tenant upon terms and conditions as those offered by or to the third party,
together with a true copy of such original offer. If Tenant shall not accept
such offer within sixty(60) days after it is made, Landlord may, after the
expiration such sixty (60) day period, lease such interest to a third party upon
terms and conditions as those offered to the Tenant.
b.) If Tenant accepts such offer by notice to Landlord within the time
permitted, the offer and acceptance shall constitute a contract for lease by
Landlord and by Tenant of the property to be executed within thirty (30) days
following the receipt by Landlord by Tenants notice of acceptance. On the date
of such leasing, Landlord shall lease the premises free of all tenants and
occupants. The Landlord shall have a continuing obligation to offer the same for
lease to the Tenant throughout any term of this lease before it enters into a
lease for same with any other person.
SECTION 11 MISCELLANEOUS
11.01 Notices. Unless a Lease provision expressly authorizes verbal notice, all
notices under this Lease shall be in writing and sent by registered or certified
mail, postage prepaid, or by federal express or other such carrier as follows:
To Tenant:
at 222 Merrimack Street, Lowell, Massachusetts 01852
To Landlord:
at 1360 Main Street in Tewksbury, Massachusetts 01876
Either party may change the addresses by giving notice as provided
above.
11.02 Broker Warranty. Each party warrants that there has
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been no real estate broker involved in connection with this lease. The party who
breaches this warranty shall defend, hold harmless and indemnify the
non-breaching party from any claims or liability arising from the breach.
11.03 Partial Invalidity. If any Lease provision is invalid or unenforceable to
any extent, then that provision shall be excised from the agreement and the
remainder of this Lease shall continue in effect and be enforceable to the
fullest extent permitted by law.
11.04 Waiver. The failure of either party to exercise any of its rights is not a
waiver of those rights. A party waives only those rights specified in writing
signed by the party waiving its rights.
11.05 Binding on Successors. This Lease shall bind the parties, their
successors, representatives, and permitted assigns.
11.06 Governing Law. This lease shall be governed by the laws of the
Commonwealth of Massachusetts .
11.07 Recording. Prior to the commencement date of this lease, the parties shall
execute a Notice of Lease in a form suitable for recording in the Registry of
Deeds where the property lies in a form as shown on Exhibit H. The parties agree
that the lease shall not be recorded.
11.08 Survival of Remedies. The parties' remedies shall survive the ending of
this lease when the ending is caused by the Default of the other party.
11.09 Authority of Parties.. Each party warrants that it is authorized to enter
into the Lease, that the person signing on its behalf is duly authorized to
execute the Lease, that no other signatures are necessary.
11.10 Entire Agreement. This Lease contains the entire agreement between the
parties about the Premises. This Lease shall be modified only by a writing
signed by both parties.
11.11 Quiet Enjoyment Landlord agrees that upon Tenant's paying the rent and
performing and observing the agreements,
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conditions and other provisions on its part to be performed and observed, Tenant
shall and may peaceably and quietly have, hold and enjoy the demised premises
during the term of this Lease without any manner of hindrance or molestation
from Landlord or anyone claiming under Landlord, subject, however, to the terms
of this Lease and the encumbrances listed in Exhibit E.
11.12 Hazardous Waste: Landlord agrees to indemnify and hold harmless the Tenant
of and from any damages, including but not limited to reimbursement for mandated
clean-up, costs of litigation and the like, arising from any hazardous waste
which may exist on the premises, either at the time of the commencement date of
the lease or subsequently, unless such release or threat of release is due to or
caused by Tenant activities or persons or entities under its control.
11.13 In the event the Landlord shall lease any portion of the shopping center
to another financial services company during the first ten(10) years of this
lease as it may be extended, then the base rent due to the Landlord shall be
reduced by fifty percent (50%) commencing the commencement date of the other
such financial services lease. Financial services shall include commercial bank,
savings bank, mortgage company, credit union, or any financial services business
which are licensed or regulated by the Federal Deposit Insurance Corporation,
the Massachusetts Banking Commissioner or the Federal Reserve or any like
Federal Agency.
11.14 Landlord's Title to Premises. Landlord represents and warrants that the
Landlord has good and clear record and marketable title to the premises in fee
simple, and has the full right and lawful authority to enter into this Lease for
the full Initial Term and all Extended Terms hereof; that the Premises are free
from any encumbrance, easement or restriction under which Tenant's rights to
possession and use of the Premises may be affected, disturbed or terminated; and
that there is presently no mortgage or deed of trust encumbering the Premises,
except as set forth in Exhibit E hereto.
SECTION 12. CONTINGENCIES
12.01 Tenant's Contingency. The Tenant's obligations under this lease shall be
contingent upon its obtaining all approvals from the Commissioner of Banks of
the Commonwealth of Massachusetts and the Federal Deposit Insurance Corporation
so as to enable the Tenant to operate a commercial bank and trust
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company in and upon the premises. The Tenant agrees to make all the necessary
applications as soon as this lease is executed and to proceed with such
application in a good faith manner. If such approvals are not obtained by
September 30,1996, Landlord at its option may terminate this lease. If there is
a termination hereunder, Tenant at its sole cost and expense shall remove any
items of personal property from the premises and shall repair and restore the
premises to their previous condition prior to Tenant fit up, in a timely and
expeditious manner.
12.02 The Tenant will pay the Landlord on the lease commencement date as defined
by section 1.04 of this lease the sum of Four Hundred Thousand Dollars
($400,000.00) less a deposit of $10,000 paid on May 24, 1996 to the Tenant and
the Landlord will deliver to Tenant, a bill of sale, for the personal property
and leasehold improvements ("personalty") listed in Exhibit F, conveying the
personalty to Tenant free of all liens and encumbrances. The personalty will be
acquired from Fleet Bank by the Landlord. The purchase from Fleet will contain
enforceable assurances that the ATM and the Drive-Up equipment were in good
working order when premises were surrendered by Fleet to Landlord. If either the
ATM or the Drive-Up equipment are not in good working order, when delivered to
the Tenant, Tenant will repair the same and will deduct an amount not to exceed
$5000.00 for each of the ATM and the Drive-Up equipment to be deducted from the
$400,000.00 to be paid the Landlord. The Landlord shall also assign to Tenant
its assurance of workability received from Fleet to the Tenant. Landlord will
afford tenant the opportunity to review and approve the language of landlord's
to be signed agreement with Fleet not later than July 12, 1996 to assure that
tenant will be protected as to the workability issue. If the language of the
termination agreement between the Landlord and Fleet is not acceptable to the
Tenant, or if the condition of the equipment is not in accordance with this
Section 12, then the Tenant in its sole option may terminate this lease prior to
July 30,1996, the Landlord will return the deposit and the obligations of the
parties shall be at an end. If the Tenant has not been able to thoroughly test
the said equipment by the occupancy date, then the Tenant in its sole option may
terminate this lease prior to occupancy date, the Landlord will return the
deposit and the obligations of the parties shall be at an end.
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SECTION 13. ARBITRATION
13.01 Any disagreement between the parties with respect to the interpretation or
application of this lease or the obligations of the parties hereunder shall be
determined by arbitration. Such arbitration shall be conducted, upon request of
either the Landlord or the Tenant, before three arbitrators (unless the Landlord
or the Tenant agree to one arbitrator) designated by the American Arbitration
Association and in accordance with the rules of such Association. The
arbitrators designated and acting under this lease shall make their award in
strict conformity with such rules and shall have no power to depart from or
change any of the provisions thereof. The expense of arbitration proceedings
conducted hereunder shall be borne equally by the parties. All arbitration
proceedings hereunder shall be conducted in the county in which the leased
property is located.
13.02 It is agreed that if at any time a dispute shall arise as to any amount or
sum of money to be paid by one party to the other under the provisions hereof,
the party against whom the obligation to pay the money is asserted shall have
the right to make payment "under protest" and such payment shall not be regarded
as a voluntary payment and there shall survive the right on the part of said
party to institute suit for the recovery of such sum, and if it shall be
adjudged that there was no legal obligation on the part of said party to pay
such sum or any part thereof, said party shall be entitled to recover such sum
or so much thereof as it was not legally required to pay under the provisions of
this lease; and if at any time a dispute shall arise between the parties hereto
as to any work to be performed by either of them under the provisions hereof,
the party against whom the obligation to perform the work is asserted may
perform such work and pay the cost thereof "under protest" and the performance
of such work shall in no event be regarded as a voluntary performance, and there
shall survive the right on the part of said party to institute suit for the
recovery of the cost of such work, and, if it shall be adjudged that there was
no legal obligation on the part of such party to perform the same or any part
thereof, said party shall be entitled to recover the cost of such work or the
cost of so much thereof as said party was not legally required to perform under
the provisions of this lease.
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LANDLORD:
Kevin C. Sullivan &
Margaret A. Sullivan
________________________________ By _______________________
Witness to Kevin C. Sullivan Kevin C. Sullivan
________________________________ By _______________________
Witness to Margaret A. Sullivan Margaret A. Sullivan
TENANT:
Enterprise Bank and Trust Company
________________________ By _______________________
Witness to Robert R. Gilman Robert R. Gilman
Its Senior Vice-President
22
AGREEMENT entered into as of the _____ day of December 1996 by and
between Enterprise Bank and Trust Company, a Massachusetts corporation
(hereinafter referred to as the "Corporation") and George L. Duncan of Lowell,
Massachusetts, (hereinafter referred to as "Duncan").
W I T N E S S E T H
WHEREAS, Duncan is a highly regarded expert in the field of bank
management;
WHEREAS, the Corporation acknowledges that Duncan's abilities and services
are unique and essential to the future prospects of the Corporation;
WHEREAS, in light of the foregoing, the Corporation desires to employ
Duncan as its Chief Executive Officer and Duncan desires to accept such
employment
NOW, THEREFORE, the parties hereto, each in consideration of the
premises and of the joinder of the other herein, hereby agree as follows:
1. The Corporation hereby employs Duncan and Duncan hereby agrees to be
employed by the Corporation upon the terms and conditions hereinafter set forth.
2. This agreement shall commence on January l, 1997 and shall be
extended from year to year according to the provisions hereinafter set forth.
The minimum term and any extended term(s) of this agreement shall at all times
be three (3) years unless otherwise specifically set forth. This agreement shall
be reviewed annually by the Board of Directors of the Corporation or its
designated committee.
3. Duncan agrees to serve during the term or terms of this agreement as
the Chief Executive Officer of the Corporation for so long as he may be elected
by the Board of Directors of the Corporation and he agrees to devote his full
time and best efforts to the performance of his designated duties to the
furtherance of the business of the Corporation.
<PAGE>
4. All services which Duncan shall perform for the Corporation and its
subsidiaries while this Agreement is in effect shall be deemed to be services
covered by this Agreement and by the compensation herein provided for, and
Duncan shall not be entitled to any additional compensation thereof for such
additional duties.
5. During the term or any extensions of the term of this agreement,
nothing herein shall preclude Duncan from remaining involved in any business,
including any limited or general partnership, in which he currently
participates, or any future like venture in which he may participate, as a
passive investor. Any future business involvement such as a general partnership
for real estate purposes or other like active investment must be first approved
by the Board of Directors. The Board shall act within a reasonable time
regarding a request for approval of an investment when such request is made of
it by Duncan.
6. While Duncan shall be employed hereunder, he shall be paid a minimum
base salary at the rate of One Hundred Fifty-Six Thousand Two Hundred Fifty
Dollars($156,250) per annum, to be paid in equal weekly installments, which
shall be subject to periodic upward adjustments as determined by the Board of
Directors of the Corporation. (hereafter referred to as "Base Salary").
7. (a) In addition to his base salary, Duncan shall be entitled (i) to
participate in the Corporation's Benefit Plans, Stock Option Plans, 401k Plans,
Employee Stock Ownership Plan, Bonus Plans, and any other incentive plans of the
Corporation for the benefit of its officers or employees from time to time in
effect (subject to the terms of such plans and subject to the applicable votes
of the Board of Directors in effect from time to time), and (ii) to receive all
such other fringe benefits and perquisites as the Corporation shall from time to
time make available to its officers. For the purposes of this agreement any
payments made to or payable to Duncan
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under paragraph 6 and paragraph 7 of this agreement shall at all times be
hereafter defined as his "Annual Earnings."
7. (b) In addition to his base salary, Duncan shall be further entitled
to receive the benefits as set out and defined in a SPLIT DOLLAR AGREEMENT
entered into between the Corporation and Duncan and dated October 15, 1996, as
the same shall from time to time be amended. The payments under the Split Dollar
Agreement shall continue to be made during the time periods set out in
paragraphs 8, 9, and 10 of this Employment Agreement.
7 (c) In addition, in the event of the death of Duncan while this
agreement is in effect, the Corporation agrees that Carol Duncan the wife of
Duncan and his children (the "beneficiaries") shall remain covered by the health
plan of the Corporation and the premium payment shall be made by the
Corporation. The obligation of the Corporation shall terminate for the children
upon their emancipation; and for the wife when she shall remarry or die,
whichever shall first occur. A child who is a full time student and who has not
attained age 25 years shall not be deemed emancipated.
8. (a) During the term or any extended term of this Agreement, if
Duncan is unable to perform the services required of him hereunder because of
sickness or other disability (hereafter called the "Disability Period"), the
Corporation may elect to be relieved of the obligation to pay Duncan his annual
earnings and, upon notice to Duncan, to pay Duncan during the period of his
disability at the rate equal to seventy-five (75%) percent of the highest annual
earnings paid him during the term of this Agreement which occurred prior to his
disability less any amounts payable to him under any group disability plan.
(b) The existence of a disability shall not entitle the Corporation to
terminate this agreement for cause as that term is defined in paragraph 16 of
this agreement, nor to terminate his status as an employee of the Corporation.
If Duncan is replaced as Chief Executive Officer
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of the Corporation during the disability period according to paragraph 10(a) of
this agreement, then the obligations of the parties under paragraph 8(a) of this
Agreement shall control and not those under said paragraph 10(a).
(c) For purposes of this Agreement, Duncan shall be deemed to be
disabled if he shall qualify to receive disability benefits under the group long
term disability policy then in force and effect at the Corporation and if there
is no such policy in force and effect, Duncan shall be deemed to be disabled if
he shall, in the judgment of the Board of Directors, be unable to perform his
duties hereunder, and he shall be deemed to have recovered from any such
disability when he is no longer eligible to receive disability benefits under
the aforementioned long term disability policy; and if there is no such policy
in force and effect, Duncan shall be deemed t~ have recovered from any such
disability if he shall, in the judgment of the Board of Directors, be able to
perform such duties. Any such determination(s) by the Board of Directors shall
be binding upon Duncan. To assist the Board in making such a decision Duncan
agrees that he will submit to a physical examination, at any reasonable time or
times, by any qualified physician designated by the Board.
9. If, during the term or any extended term of this Agreement, there is
a "Business Combination" as defined in the Articles of Organization as from time
to time amended, then, beginning on the effective date of the business
combination, Duncan shall have the option, exercisable by him at any time during
the term or any extended term of this Agreement, upon 60 days advance written
notice to the Corporation, to terminate this Agreement, in which event the
Corporation shall pay Duncan within 60 days following the receipt by it of the
said notice of termination a lump sum of money equal to 2.99 times Duncan's
previous highest annual earnings. In addition, Duncan shall be entitled to
receive any additional benefits referred to in paragraph 7 of this agreement
which are not included in annual earnings but which are due him
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<PAGE>
under the terms and conditions of the provisions of any Corporate plan or plans.
Duncan, if he exercises the option to terminate as set forth in this paragraph
9, notwithstanding the obligation to compensate him under this paragraph, shall
be relieved of any restrictions with respect to competition as set forth in
paragraph 12 and paragraph 13 of this agreement.
10. (a) If, during the term or any extended term of this Agreement and
prior to any change in ownership, Duncan shall cease to be elected by the Board
of Directors to serve the Corporation as the Chief Executive Officer, other than
for disability under the provisions of paragraph 8, then, beginning on the date
on which Duncan ceased to be so elected, Duncan shall have the options,
exercisable by him at any time during the remainder of the term or any extended
term of this Agreement, upon 60 days advance written notice to the Corporation
to (I) remain as a full-time employee of the Corporation under the terms of this
Agreement; or (ii) terminate this Agreement; or (iii) serve the Corporation as a
consultant for the remainder of the term, or any extended term in lieu of
serving in another capacity.
(b) In the event Duncan elects to terminate this Agreement in
accordance with paragraph 10 (a)(ii), Duncan shall receive salary payments from
the Corporation for two (2) years from the date the Corporation is notified of
his election to terminate. The salary payments shall equal the highest annual
earnings paid to Duncan during any year of the term or extended term of this
Agreement. These salary payments shall be made in equal weekly installments. In
addition, Duncan shall be entitled to receive all other benefits referred to in
paragraph 7 of this Agreement. Duncan agrees that during the period he is
receiving payments under this paragraph 10(b), and in consideration of the
compensation to be paid to him hereunder, that he will not compete, directly or
indirectly, with the business of the Corporation (including any parent or
subsidiary entity thereof) or of that of its successors or assigns. The phrase
"compete, directly or indirectly, with the business of the Corporation or of
that of its successors or assigns", as used
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<PAGE>
herein, shall be deemed to include (without thereby limiting the generality of
the same) engaging or having any interest directly or indirectly as an employee
through the rendering of services or otherwise either alone or in association
with others in the operation of any financial institution with a branch office
in Lowell or any town contiguous to Lowell, which shall include Billerica,
Chelmsford, Dracut, Tewksbury, and Tyngsboro and engaging or having any interest
directly or indirectly as an employee through the rendering of services or
otherwise either alone or in association with others in the operation of any
financial institution in any City or Town in which Enterprise Bank and Trust
Company has a branch. Duncan further agrees, during the payment period of this
paragraph 10(b), not to own an interest exceeding one percent (1%), directly or
indirectly as an owner, partner through stock ownership, investment of capital,
lending of money or property, in any financial institution with a branch in
Lowell or any town contiguous to Lowell, which shall include Billerica,
Chelmsford, Dracut, Tewksbury, and Tyngsboro or in any City or Town in which
Enterprise Bank and Trust Company has a branch. The restrictions as to non
competition in this paragraph 10(b) shall be in lieu of any restrictions set
forth in paragraph 12 and paragraph 13.
(c) In the event Duncan so elects to serve as a consultant, he shall
render such services of an advisory or consultative nature as the Corporation
may require of him from time to time and to assist the Corporation in its
relations with its employees and its customers in order that the Corporation may
have the benefit of his experience and knowledge of its business, his reputation
and contacts in the industry, and his general business experience. During such
time (hereinafter referred to as the "Consultation Period"), Duncan shall devote
approximately half his time to the business and affairs of the Corporation, and
shall receive as compensation therefor a salary at the rate which shall be equal
to fifty (50%) of the highest annual earnings paid to him during the period in
which he served the Corporation in the capacity of Chief
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<PAGE>
Executive Officer. During the Consultation Period, Duncan shall be deemed to be
an employee of the Corporation and, as such, Duncan shall participate in the
plans and receive the fringe benefits and perquisites referred to in Paragraph 7
above subject to the provisions of said paragraph. Upon the termination of the
consultation period, Duncan shall be restricted in his activities according to
paragraph 12, and paragraph 13. During each year of the non-compete period
following the termination of the consultation period, Duncan shall receive
salary payments equal to fifty (50%) percent of the highest annual earnings paid
to him during any year of the term or extended term of this Agreement,
notwithstanding the salary payment provisions set forth in paragraph 12.
If the provisions of this paragraph become operable there shall be no
obligation on the part of Duncan to serve or to continue to serve as a member of
the Board of Directors of the Corporation.
11. Duncan agrees that he will not, without the express prior written
consent of the Corporation, whether during the term or any extended term of this
Agreement or thereafter, divulge, communicate or utilize for the benefit of any
other party or person any marketing research, account information or any other
information pertaining to the business or affairs of the Corporation or of any
of its clients, customers, consultants or collaborators, except to such extent
as may be necessary in the ordinary course of performing his duties as to the
Corporation or to comply with legal process. The foregoing notwithstanding,
there is nothing in this Agreement which prohibits Duncan from communicating
directly with all Federal and/or State regulatory authorities concerning the
activities of the Corporation.
12. Duncan agrees not to compete with the Corporation during a two year
non-compete period as defined in this paragraph 12 and in paragraph 13. During
each year of the two-year non-compete period, as further detailed below, Duncan
shall receive salary payments at least
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<PAGE>
equal to seventy percent of the highest annual earnings paid to him during any
year of the term of this Agreement or any year of any extended term of this
agreement. If Duncan is employed during the two-year non-compete period, by
another employer outside of the non-compete area, or by an employer approved by
the Corporation within the non-compete area, Duncan shall receive salary
payments from the Corporation equal to one-hundred percent of the highest annual
earnings ~aid to him during the term of this Agreement less any enumeration paid
by his new employer. For a period of two (2) years from the date this agreement
is terminated,(The "Non Compete Period") and subject to the provisions of this
agreement which specifically set forth a contrary intent, Duncan further agrees,
in consideration of the compensation to be paid to him hereunder that, during
any non compete period he will not compete, directly or indirectly, with the
business of the Corporation or of that of its successors or assigns. The phrase
"compete, directly or indirectly, with the business of the Corporation or of
that of its successors or assigns", as used herein, shall be deemed to include
(without thereby limiting the generality of the same) engaging or having any
interest, directly or indirectly, as an employee, through the rendering of
services, or otherwise, either alone or in association with others, in the
operation of any financial institution engaging or having any interest directly
or indirectly as an employee through the rendering of services or otherwise
either alone or in association with others in the operation of any financial
institution with a branch office in Lowell or any town contiguous to Lowell,
which shall include Billerica, Chelmsford, Dracut, Tewksbury, and Tyngsboro and
engaging or having any interest directly or indirectly as an employee through
the rendering of services or otherwise either alone or in association with
others in the operation of any financial institution in any City or Town in
which Enterprise Bank and Trust Company has a branch.
13. During the term or any extended term of this Agreement and during
the non compete period defined in paragraph 12, Duncan agrees not to own an
interest exceeding one percent
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<PAGE>
(1%), directly or indirectly as an owner, partner through stock ownership,
investment of capital, lending of money or property, in any financial
institution with a branch office in Lowell or any town contiguous to Lowell,
which shall include Billerica, Chelmsford, Dracut, Tewksbury, and Tyngsboro or
in any City or Town in which Enterprise Bank and Trust Company has a branch.
14. The parties hereto agree that the services of Duncan are of a
personal, special, unique and extraordinary nature and cannot be replaced by the
Corporation and that the violation by Duncan of any of his covenants hereunder
will cause the Corporation irreparable harm which could not reasonably or
adequately be compensated in damages in an action at law, and that the covenants
of Duncan hereunder shall therefore be enforceable both at law and in equity, by
injunction and otherwise. The remedies of the Corporation hereunder, and at law
and in equity, shall be cumulative and not alternative, and shall not be
exhausted by any one or more uses thereof.
15. Upon the expiration of this agreement or other termination in
accordance with the provisions of this Agreement, all obligations of the
Corporation to Duncan hereunder shall forthwith terminate, except for any
obligation to pay any sum or sums of money to Duncan which may have accrued and
are due and payable under this contract and except for any obligation to pay any
sum or sums of money to Duncan which may have accrued and are due and payable
under any corporate benefit plan or plans but the obligations of Duncan shall
not be so terminated except and unless set forth specifically in this agreement.
16. Termination for Cause. Duncan's employment hereunder may be
terminated for cause without further liability on the part of the Corporation by
written notice to Duncan setting forth in reasonable detail the nature of such
cause. The following shall constitute "cause" for such termination: (i) a
willful breach of this contract; or (ii) dishonesty or fraud committed by Duncan
with respect to the Corporation or any subsidiary or affiliate thereof; or (iii)
conviction
-9-
<PAGE>
of a felony by Duncan; or (iv) an order from a regulatory body directing the
corporation to terminate Duncan for cause. For the purpose of this Section, any
action taken by the Corporation shall first require a two-thirds vote of all the
members of the Board of Directors. In the event Duncan shall be terminated for
cause under this paragraph of the agreement, the Corporation shall be relieved
of its obligations to make any payments to Duncan under paragraph 12 of this
agreement and Duncan shall be relieved of any obligations not to compete under
said paragraph 12 and paragraph 13.
17. Any notice hereunder shall be effective when mailed by registered
or certified mail, postage and other charges prepaid, in the case of Duncan,
addressed to him at 710 Andover Street, Lowell, Massachusetts 01852, and in the
case of the Corporation, addressed to it c/o Vice Chairman at 222 Merrimack
Street, Lowell, Massachusetts 01852 or at such other address as either of the
parties shall have last designated by notice given in like manner to the other
of them.
18. No provision of this Agreement shall be modified or amended except
by an instrument in writing duly executed by the parties hereto, and no custom,
act, payment, favor or indulgence shall grant any additional right to Duncan or
be deemed a waiver by the Corporation of any of Duncan's obligations hereunder
or release Duncan therefrom or impose any additional obligations upon the
Corporation, nor shall any assent, express or implied, by the Corporation to,
waiver by the Corporation of, any breach by Duncan of any term or provision
hereof be deemed to be an assent or waiver by the Corporation to or of any
succeeding breach of the same or any other term or provision. Every term and
provision of this Agreement shall be deemed to be of the essence hereof and
every breach thereof material. This Agreement is personal to and shall not be
assignable by Duncan, but its economic benefits shall inure to the benefit of
Duncan, or his respective heirs, successors and legal representatives.
-10-
<PAGE>
19. If any term or provision of this Agreement or the application
thereof to any person or circumstance shall to any extent be invalid or
unenforceable, the remainder of this Agreement or the application of such term
or provision to persons or circumstances other than those to which it is invalid
or unenforceable shall not be affected thereby, and each term and provision of
this Agreement shall be valid and be enforced to the fullest extent permitted by
law; provided, however, that if the provisions of Paragraph 10 shall be held to
be unenforceable and if Duncan shall not voluntarily abide by said provisions in
all respects, then this Agreement shall ipso facto terminate.
20. This agreement shall terminate as of the earlier of:
a. Thirty-six (36) months after notice is given by the
corporation to Duncan that it no longer desires to extend
this agreement;
b. the death of Duncan;
c. the termination of Duncan by the corporation for cause under
paragraph 16 of this agreement;
d. sixty (60) days after notice is given by Duncan to the
Corporation after the existence of a "Business Combination"
under paragraph 9 of this agreement;
e. sixty (60) days after notice is given by Duncan to the
Corporation in the event of the failure of the Corporation
to elect Duncan as the Chief Executive Officer of the
Corporation under paragraph 10(b) of this agreement.
21. This Agreement shall be construed and enforced in all respects in
accordance with the laws of the Commonwealth of Massachusetts.
-11-
<PAGE>
22. The phrase Corporation shall include Enterprise Bank and Trust
Company and any parent or subsidiary thereof and any successors and assigns.
WITNESS the execution hereof as an instrument under seal as of the day
and year first above written.
Enterprise Bank and Trust Company
By:_________________________________
Its:_________________________________
------------------------------------
George L. Duncan
------------------------------------
Philip S. Nyman
Witness to all
-12-
AGREEMENT entered into as of the day of December, 1996 by and between
Enterprise Bank and Trust Company, Massachusetts corporation (hereinafter
referred to as the "Corporation") and Richard W. Main of Lowell, Massachusetts,
(hereinafter referred to as "Main").
WITNESSETH
WHEREAS, Main is a highly regarded expert in the field of bank
management;
WHEREAS, the Corporation acknowledges that Main's abilities and
services are unique and essential to the future prospects of the Corporation;
WHEREAS, in light of the foregoing, the Corporation desires to employ
Main as its President and Main desires to accept such employment
NOW, THEREFORE, the parties hereto, each in consideration of the
premises and of the joinder of the other herein, hereby agree as follows:
1. The Corporation hereby employs Main and Main hereby agrees to be
employed by the Corporation upon the terms and conditions hereinafter set forth.
2. This agreement shall commence on January 1, 1997 and shall be
extended from year to year according to the provisions hereinafter set forth.
The minimum term and any extended term(s) of this agreement shall at all times
be two (2) years unless otherwise specifically set forth. This agreement shall
be reviewed annually by the Board of Directors of the Corporation or its
designated committee.
3. Main agrees to serve during the term or terms of this agreement as
the President of the Corporation for so long as he may be elected by the Board
of Directors of the Corporation and he agrees to devote his full time and best
efforts to the performance of his designated duties to the furtherance of the
business of the Corporation.
<PAGE>
-2-
4. All services which Main shall perform for the Corporation and its
subsidiaries while this Agreement is in effect shall be deemed to be services
covered by this Agreement and by the compensation herein provided for, and Main
shall not be entitled to any additional compensation thereof for such additional
duties.
5. During the term or any extensions of the term of this agreement,
nothing herein shall preclude Main from remaining involved in any business,
including any limited or general partnership, in which he currently
participates, or any future like venture in which he may participate, as a
passive investor. Any future business involvement such as a general partnership
for real estate purposes or other like active investment must be first approved
by the Board of Directors. The Board shall act within a reasonable time
regarding a request for approval of an investment when such request is made of
it by Main.
6. While Main shall be employed hereunder, he shall be paid a minimum
base salary at the rate of One Hundred Twenty-Four Thousand Three Hundred Forty
Five Dollars ($124,345.00) per annum, to be paid in equal weekly installments,
which shall be subject to periodic upward adjustments as determined by the Board
of Directors of the Corporation. (hereafter referred to as "Base Salary").
7. In addition to his base salary Main shall be entitled to (I)
participate in the Corporation's Benefit Plans. Stock Option Plans. 401k Plans,
Employee Stock Ownership Plan, Bonus Plans, and any other incentive plans of the
Corporation for the benefit of its officers or employees from time to time in
effect (subject to the terms of such plans and subject to the applicable votes
of the Board of Directors in effect from time to time), and (ii) to receive all
such other fringe benefits and perquisites as the Corporation shall from time to
time make available to its officers. For the purposes of this agreement any
payments made to or payable to Main under paragraph 6 and paragraph 7 of this
agreement shall at all times be hereafter defined as his "Annual Earnings."
<PAGE>
-3-
In addition, in the event of the death of Main while this agreement is
in effect, the Corporation agrees that Donna Main the wife of Main and his
children (the "beneficiaries") shall remain covered by the health plan of the
Corporation and the premium payment shall be made by the Corporation. The
obligation of the Corporation shall terminate for the children upon their
emancipation; and for the wife when she shall remarry or die, whichever shall
first occur. A child who is a full time student and who has not attained age 25
years shall not be deemed emancipated.
8. (a) During the term or any extended term of this Agreement, if Main
is unable to perform the services required of him hereunder because of sickness
or other disability (hereafter called the "Disability Period"), the Corporation
may elect to be relieved of the obligation to pay Main his annual earnings and,
upon notice to Main, to pay Main during the period of his disability at the rate
equal to seventy-five (75%) percent of the highest annual earnings paid him
during the term of this Agreement which occurred prior to his disability, less
any amounts payable to him under any group disability plan.
8.b. The existence of a disability shall not entitle the corporation to
terminate this agreement for cause as that term is defined in paragraph 16 of
this agreement, nor to terminate his status as an employee of the Corporation.
If Main is replaced as President of the Corporation during the disability period
according to paragraph 10a of this agreement, then the obligations of the
parties under paragraph 8a shall control and not those under said paragraph l0a.
8.c. For purposes of this Agreement, Main shall be deemed to be
disabled if he shall qualify to receive disability benefits under the group long
term disability policy then in force and effect at the Corporation and if there
is no such policy in force and effect, Main shall be deemed to be disabled if he
shall, in the judgment of the Board of Directors, be unable to perform his
duties hereunder, and he shall be deemed to have recovered from any such
disability when he is no longer eligible to receive disability benefits under
the aforementioned long term disability policy; and if
<PAGE>
-4-
there is no such policy in force and effect, Main shall be deemed to have
recovered from any such disability if he shall, in the judgment of the Board of
Directors, be able to perform such duties. Any such determination(s) by the
Board of Directors shall be binding upon Main. To assist the Board in making
such a decision Main agrees that he will submit to a physical examination, at
any reasonable time or times, by any qualified physician designated by the
Board.
9. If, during the term or any extended term of this Agreement, there is
a "Business Combination" as defined in the Articles of Organization as from time
to time amended, then, beginning on the effective date of the business
combination, Main shall have the option, exercisable by him at any time during
the term or any extended term of this Agreement, upon 60 days' advance written
notice to the Corporation, to terminate this Agreement, in which event the
Corporation shall pay Main within 60 days following the receipt by it of the
said notice of termination a lump sum of money equal to two (2) times Main's
previous highest annual earnings. In addition, Main shall be entitled to receive
any additional benefits referred to in paragraph 7 of this agreement which are
not included in annual earnings but which are due him under the terms and
conditions of the provisions of any Corporate plan or plans. Main, if he
exercises the option to terminate as set forth in this paragraph 9,
notwithstanding the obligation to compensate him under this paragraph, shall be
relieved of any restrictions with respect to competition as set forth in
paragraph 12 and paragraph 13 of this agreement.
10. a. If, during the term or any extended term of this Agreement and
prior to any change in ownership, Main shall cease to be elected by the Board of
Directors to serve the Corporation as the President, other than for disability
under the provisions of paragraph 8, then, beginning on the date on which Main
ceased to be so elected, Main shall have the options, exercisable by him at any
time during the remainder of the term or any extended term of this Agreement.
upon 60 days advance written notice to the Corporation to (I) remain as a
full-time employee of the Corporation
<PAGE>
-5-
under terms of this Agreement; or (ii) terminate this Agreement; or (iii) serve
the Corporation as a consultant for the remainder of the term, or any extended
term in lieu of serving in another capacity.
10. b. In the event Main elects to terminate this Agreement in
accordance with paragraph l0 (a)(ii), Main shall receive, salary payments from
the Corporation for two (2) years from the date the Corporation is notified of
his election to terminate. The salary payments shall equal the highest annual
earnings paid to Main during any year of the term or extended term of this
Agreement. These salary payments shall be made in equal weekly installments. In
addition. Main shall be entitled to receive all other benefits referred to in
paragraph 7 of this Agreement. Main agrees that during the period he is
receiving payments under this paragraph 10 b, and in consideration of the
compensation to be paid to him hereunder, that he will not compete, directly or
indirectly, with the business of the Corporation (including any parent or
subsidiary entity thereof) or of that of its successors or assigns. The phrase
"compete, directly or indirectly, with the business of the Corporation or of
that of its successors or assigns", as used herein, shall be deemed to include
(without thereby limiting the generality of the same) engaging or having any
interest directly or indirectly as an employee through the rendering of services
or otherwise either alone or in association with others in the operation of any
financial institution with a branch office in Lowell or any town contiguous to
Lowell, which shall include Billerica, Chelmsford, Dracut, Tewksbury, and
Tyngsboro and engaging or having any interest directly or indirectly as an
employee through the rendering of services or otherwise either alone or in
association with others in the operation of any financial institution in any
City or Town in which Enterprise Bank and Trust Company has a branch. Main
further agrees, during the payment period of this paragraph l0b, not to own an
interest exceeding one percent (1%), directly or indirectly as an owner, partner
through stock ownership, investment of capital, lending of money or property, in
any financial institution with a branch in Lowell or any town contiguous to
Lowell, which shall include Billerica, Chelmsford, Dracut,
<PAGE>
-6-
Tewksbury, and Tyngsboro or in any City or Town in which Enterprise Bank and
Trust Company has a branch. The restrictions as to non competition in this
paragraph 10b shall be in lieu of any restrictions set forth in paragraph 12 and
paragraph 13.
10. c. In the event Main so elects to serve as a consultant, he shall
render such services of an advisory or consultative nature as the Corporation
may require of him from time to time and to assist the Corporation in its
relations with its employees and its customers in order that the Corporation may
have the benefit of his experience and knowledge of its business. his reputation
and contacts in the industry, and his general business experience. During such
time (hereinafter referred to as the "Consultation Period"), Main shall devote
approximately half his time to the business and affairs of the Corporation, and
shall receive as compensation therefor a salary at the rate which shall be equal
to fifty (50?) of the highest annual earnings paid to him during the period in
which he served the Corporation in the capacity of President. During the
Consultation Period, Main shall be deemed to be an employee of the Corporation
and, as such, Main shall participate in the plans and receive the fringe
benefits and perquisites referred to in Paragraph 7 above, subject to the
provisions of said paragraph. Upon the termination of the consultation period,
Main shall be restricted in his activities according to paragraph 12 and
paragraph 13. During each year of the non-compete period following the
termination of the consultation period, Main shall receive salary payments equal
to fifty (50%) percent of the highest annual earnings paid to him during any
year of the term or extended term of this Agreement, notwithstanding the salary
payment provisions set forth in paragraph 12.
If the provisions of this paragraph become operable there shall be no
obligation on the part of Main to serve or to continue to serve as a member of
the Board of Directors of the Corporation.
11. Main agrees that he will not, without the express prior written
consent of the Corporation, whether during the term or any extended term of this
Agreement or thereafter, divulge,
<PAGE>
-7-
communicate or utilize for the benefit of any other party or person any
marketing research, account information or any other information pertaining to
the business or affairs of the Corporation or of any of its clients, customers,
consultants or collaborators, except to such extent as may be necessary in the
ordinary course of performing his duties as to the Corporation or to comply with
legal process. The foregoing notwithstanding, there is nothing in this Agreement
which prohibits Main from communicating directly with all Federal and/or State
regulatory authorities concerning the activities of the Corporation.
12. Main agrees not to compete with the Corporation during a two year
non-compete period as defined in this paragraph 12 and in paragraph 13. During
each year-of the two-year non-compete period, as further detailed below, Main
shall receive salary payments at least equal to seventy percent of the highest
annual earnings paid to him during any year of the term of this Agreement or any
year of any extended term of this agreement. If Main is employed during the
two-year non-compete period, by another employer outside of the non-compete
area, or by an employer approved by the Corporation within the non-compete area,
Main shall receive salary payments from the Corporation equal to one-hundred
percent of the highest annual earnings paid to him during the term of this
Agreement less any renumeration paid by his new employer. For a period of two
(2) years from the date this Agreement is terminated,(The "Non Compete Period")
and subject to the provisions of this agreement which specifically set forth a
contrary intent, Main further agrees, in consideration of the compensation to be
paid to him hereunder that, during any non compete period he will not compete,
directly or indirectly, with the business of the Corporation or of that of its
successors or assigns. The phrase "compete, directly or indirectly, with the
business of the Corporation or of that of its successors or assigns", as used
herein, shall be deemed to include (without thereby limiting the generality of
the same) engaging or having any interest, directly or indirectly as an
employee, through the rendering of services, or otherwise, either alone or in
<PAGE>
-8-
association with others, in the operation of any financial institution engaging
or having any interest directly or indirectly as an employee through the
rendering of services or otherwise either alone or in association with others in
the operation of any financial institution with a branch office in Lowell or any
town contiguous to Lowell, which shall include Billerica, Chelmsford, Dracut,
Tewksbury, and Tyngsboro and engaging or having any interest directly or
indirectly as an employee through the rendering of services or otherwise either
alone or in association with others in the operation of any financial
institution in any City or Town in which Enterprise Bank and Trust Company has a
branch.
13. During the term or any extended term of this Agreement and during
the non compete period defined in paragraph 12, Main agrees not to own an
interest exceeding one percent (1%), directly or indirectly as an owner, partner
through stock ownership, investment of capital, lending of money or property, in
any financial institution with a branch office in Lowell or any town contiguous
to Lowell, which shall include Billerica, Chelmsford, Dracut, Tewksbury, and
Tyngsboro or in any City or Town in which Enterprise Bank and Trust Company has
a branch.
14. The parties hereto agree that the services of Main are of a
personal. special, unique and extraordinary nature and cannot be replaced by the
Corporation, that the violation by Main of any of his covenants hereunder will
cause the Corporation irreparable harm which could not reasonably or adequately
be compensated in damages in an action at law, and that the covenants of Main
hereunder shall therefore be enforceable both at law and in equity, by
injunction and otherwise. The remedies of the Corporation hereunder, and at law
and in equity, shall be cumulative and not alternative, and shall not be
exhausted by any one or more uses thereof.
15. Upon the expiration of this agreement or other termination in
accordance with the provisions of this Agreement, all obligations of the
Corporation to Main hereunder shall forthwith terminate, except for any
obligation to pay any sum or sums of money to Main which may have
<PAGE>
-9-
accrued and are due and payable under this contract and except for any
obligation to pay any sum or sums of money to Main which may have accrued and
are due and payable under any corporate benefit plan or plans but the
obligations of Main shall not be so terminated except and unless set forth
specifically in this agreement.
16. Termination for Cause. Main's employment hereunder may be
terminated for cause without further liability on the part of the Corporation by
written notice to Main setting forth in reasonable detail the nature of such
cause. The following shall constitute "cause" for such termination: (I) a
willful breach of this contract; or, (ii) dishonesty or fraud committed by Main
with respect to the Corporation or any subsidiary or affiliate thereof; or,
(iii) conviction of a felony by Main; or, (iv) an order from a regulatory body
directing the corporation to terminate Main for cause. For the purpose of this
Section, any action taken by the Corporation shall first require a two-thirds
vote of all the members of the Board of Directors. In the event Main shall be
terminated for cause-under this paragraph of the agreement, the Corporation
shall be relieved of its obligations to make any payments to Main under
paragraph 12 of this agreement and Main shall be relieved of any obligations not
to compete under said paragraph 12 and paragraph 13.
17. Any notice hereunder shall be effective when mailed by registered
or certified mail, postage and other charges prepaid, in the case of Main,
addressed to him at 1 Overlook Drive, Chelmsford, Massachusetts 01824, and in
the case of the Corporation, addressed to it c/o Chairman at 222 Merrimack
Street, Lowell, Massachusetts 01852 or at such other address as either of the
parties shall have last designated by notice given in like manner to the other
of them.
18. No provision of this Agreement shall be modified or amended except
by an instrument in writing duly executed by the parties hereto, and no custom,
act, payment, favor or indulgence shall grant any additional right to Main or be
deemed a waiver by the Corporation of any of Main's obligations hereunder or
release Main therefrom or impose any additional obligations upon the
<PAGE>
-10-
Corporation, nor shall any assent, express or implied, by the Corporation to,
waiver by the Corporation of, any breach by Main of any term or provision hereof
be deemed to be an assent or waiver by the Corporation to or of any succeeding
breach of the same or any other term or provision. Every term and provision of
this Agreement shall be deemed to be of the essence hereof and every breach
thereof material. This Agreement is personal to and shall not be assignable by
Main, but its economic benefits shall inure to the benefit of Main, his
respective heirs, successors and legal representatives.
19. If any term or provision of this Agreement or the application
thereof to any person or circumstance shall to any extent be invalid or
unenforceable, the remainder of this Agreement or the application of such term
or provision to persons or circumstances other than those to which it is invalid
or unenforceable shall not be affected thereby, and each term and provision of
this Agreement shall be valid and be enforced to the fullest extent permitted by
law; provided, however, that if the provisions of Paragraph 10 shall be held to
be unenforceable and if Main shall not voluntarily abide by said provisions in
all respects, then this Agreement shall ipso facto terminate.
20. This agreement shall terminate as of the earlier of:
a. twenty-four (24) months after notice is given by the
corporation to Main that it no longer desires to extend this
agreement;
b. the death of Main;
c. the termination of Main by the corporation for cause under
paragraph 16 of this agreement;
d. sixty (60) days after notice is given by Main to the
Corporation after the existence of a "Business Combination"
under paragraph 9 of this agreement;
<PAGE>
-11-
e. sixty (60) days after notice is given by Main to the
Corporation in the event of the failure of the Corporation
to elect Main as the President of the Corporation under
paragraph 10b of this agreement.
21. This Agreement shall be construed and enforced in all respects in
accordance with the laws of the Commonwealth of Massachusetts. 22. The phrase
Corporation shall include Enterprise Bank and Trust Company and any parent or
subsidiary thereof and their successors and assigns. WITNESS the execution
hereof as an instrument under seal as of the day and year first above written.
Enterprise Bank and Trust Company
By________________________________
Its________________________________
----------------------------------
Richard W. Main
----------------------------------
Philip S. Nyman
Witness to all
SPLIT-DOLLAR AGREEMENT
THIS AGREEMENT, made as of the 15th day of October, 1996 by and between
ENTERPRISE BANK & TRUST COMPANY, a Massachusetts corporation (hereinafter
referred to as the "Employer"), and GEORGE L. DUNCAN of Lowell, Massachusetts
(hereinafter referred to as the "Employee").
WITNESSETH THAT:
WHEREAS, the Employee is employed by the Employer; and
WHEREAS, the Employer is desirous of retaining the services of the Employee and
of assisting the Employee in paying for life insurance on his own life; and
WHEREAS, the Employer has determined that this assistance can be provided under
a split dollar life insurance arrangement; and
WHEREAS, the Employee has applied for, and is the owner of the insurance policy
or policies listed in the attached schedule hereto, hereinafter referred to as
the "Policy"; and
WHEREAS, the Employer and the Employee agree to make the Policy subject to this
Agreement; and
WHEREAS, the Employee has assigned the Policy to the Employer as collateral for
amounts to be advanced by the Employer under this Agreement by an instrument of
assignment filed with the Insurer (hereinafter referred to as the "Assignment");
<PAGE>
NOW, THEREFORE, in consideration of the promises and of the mutual covenants
herein contained, the Parties hereto hereby agree as follows:
1. The Parties hereto agree that the Policy shall be subject to the terms
and conditions of this Agreement and of the Assignment filed with the
Insurer relating to the Policy. The Employee shall be the sole and
absolute owner of the Policy and may exercise all ownership rights
granted to the owner thereof by the terms of the Policy, except as may
be otherwise provided herein and in the Assignment.
2. The premium for the Policy will be paid by the Employer during the
Employee's employment and for any period of time that it may have an
obligation to provide continuing fringe benefits thereafter. The
premium will be allocated between the Employee and the Employer. The
Employee's share of the premium (term insurance allocation) shall be
paid by the Employer as agent for the Employee and shall be charged to
the Employee as cash compensation, and for all purposes, including the
Assignment, shall be deemed cash compensation and not Employer paid
premium.
3. The Assignment shall not be terminated, altered or amended by the
Employee without the express written consent of the Employer. The
Parties hereto agree to take reasonable action to cause such Assignment
to conform to the provisions of this Agreement.
4. a. Except as otherwise provided herein, the Employee shall not sell,
assign, transfer, borrow against, surrender or cancel the Policy,
change the beneficiary designation provision thereof, in any such case,
without the express written consent of the Employer. Consent to change
the beneficiary designation shall not be unreasonably withheld.
Notwithstanding the forgoing, the Employee may borrow or withdraw cash
value of the Policy in excess of the collaterally assigned values of
the Employer without action of the Board of Trustees. However, Policy
loan interest, if any, that may accrue on any such transaction shall
not reduce the collaterally assigned values of the Employer, or if such
may be the case, Employee will pay such Policy loan interest in cash to
the Insurer.
b. The Employer shall not borrow against the Policy without the express
written consent of the Employee.
c. Upon the Employee's termination of employment, the Employee shall
have the right to take any action with regard to the cash value of the
policy in excess of the collaterally assigned interest of the Employer.
5. a. Upon the death of the Employee, the Employer shall promptly take all
action necessary to obtain its share of the death benefit provided
under the Policy.
b. The Employer shall have the unqualified right to receive a portion
of such Death Benefit equal to the total amount of its share of the
premiums paid by it hereunder, (hereinafter referred to as the "Net
Premium"). The balance of the Death Benefit provided under the Policy,
if any, shall be paid directly by the Insurer to the beneficiary or
beneficiaries and in the manner designated by the Employee. No amount
shall be paid from such death benefit to the beneficiary or
beneficiaries designated by the Employee until the Employer or Insurer
acknowledges in writing that the full amount due to the Employer
hereunder has been paid. The Parties hereto agree that the beneficiary
designation provision of the Policy shall conform to the provisions
hereof.
6. The Employer shall not merge or consolidate into or with another
organization, or reorganize, or sell substantially all of its assets to
another organization, firm or person unless and until such succeeding
or continuing organization, firm or person agrees to assume and
discharge the obligations of the Employer under this Agreement. Upon
the occurrence of such event, the term "Employer" as used in this
Agreement shall be deemed to refer to such successor or survivor
organization.
7. This Agreement shall terminate upon the Employee's death and the
payment of proceeds pursuant to Section 5 of this Agreement.
8. a. If the Employee ceases to be employed by the Employer for whatever
reason, the Employee has the right to continue to keep the Policy in
force either individually or through a subsequent Employer, subject to
the requirement that the Policy cash value not be reduced through
loans, premium payment options, or in any other manner below the amount
needed to repay the Employer the Net Premiums paid by it hereunder.
b. If the Employee continues to keep the Policy in force, termination
of this Agreement shall be pursuant to Section 7 of this Agreement.
c. If the Employee does not continue to keep the Policy in force, this
Agreement will terminate immediately and the Employer will be repaid an
amount equal to the lesser of Net Premiums paid by the Employer or the
cash surrender value as of the date of the Employee's termination of
Employment.
9. The Parties hereto agree that this Agreement shall take precedence over
any provisions of the Assignment. The Employer agrees not to exercise
any right possessed by it under the Assignment except in conformity
with this Agreement.
10. This Agreement may not be amended, altered or modified except by a
written instrument signed by both of the Parties hereto and may not be
otherwise terminated except as provided herein.
11. a. The split-dollar arrangement contemplated herein is an exempt
welfare plan under regulations promulgated under Title I of the
Employee Retirement Income Security Act of 1974 ("ERISA").
b. For purposes of ERISA, the Employer will be the "named fiduciary"
and "plan administrator" of the split-dollar arrangement contemplated
herein, and this Agreement is hereby designated as the written plan
instrument.
c. The Employee or any beneficiary of his may file a request for
benefits with the plan administrator. If a claim request is wholly or
partially denied, the plan administrator will furnish to the claimant a
notice of its decision within ninety (90) days in writing, and in a
manner to be understood by the claimant, which notice will contain the
following information:
(i) the specific reason or reasons for the denial;
(ii) specific reference to pertinent plan provisions upon
which the denial is based;
(iii) a description of any additional material or information
necessary for the claimant to perfect the claim and an
explanation as to why such material or information is
necessary.
(iv) an explanation of the plan's claim-review procedure
describing the steps to be taken by a claimant who wishes to
submit his claim for review.
d. A claimant or his authorized representative may, with respect to any
denied claim,
(i) request a review upon written application filed within
sixty (60) days after receipt by the claimant of written
notice of the denial of his claim;
(ii) review pertinent documents; and
(iii) submit issues and comments in writing.
Any request or submission will be in writing and will be
directed to the plan administrator. The plan administrator will have
the sole responsibility for the review of any denied claim and will
take all appropriate steps in light of its findings. The plan
administrator will render a decision upon review of a denied claim
within sixty (60) days after receipt of a request for review. If
special circumstances warrant additional time, the decision will be
rendered as soon as possible, but not later than one hundred twenty
(120) days after receipt of request for review. Written notice of any
such extension will be furnished to the claimant prior to the
commencement of the extension. The decision on review will be in
writing and will include specific reasons for the decision written in a
manner to be understood by the claimant, as well as the specific
references of the pertinent provisions of the plan on which the
decision is based. If the decision on review is not furnished to the
claimant within the time limits described above, the claim will be
deemed denied on review.
12. This Agreement shall be binding upon and inure to the benefit of the
Employer and its successors and assignees and the Employee and his
successors, assignees, heirs, executors, administrators and
beneficiaries.
13. Except as may be preempted by ERISA, this Agreement, and the rights of
the Parties hereunder, shall be governed by and construed in accordance
with the laws of the Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the Employer has caused this Agreement to be executed by its
officer thereunto duly authorized and the Employee has hereunto set his hand
and seal, all as of the day and year first above written.
ENTERPRISE BANK & TRUST COMPANY
By:______________________________
Title:_____________________________
----------------------------------
George L. Duncan
<PAGE>
SCHEDULE A
Insurance Carrier Policy No. Face Amount
- ----------------- ---------- -----------
Nationwide Life Insurance Company N100189570 $2,172,584
Enterprise Bancorp, Inc.
Exhibit 21
Name of Subsidiary State Organized
- ------------------ ---------------
Enterprise Bank and Trust Massachusetts
Enterprise Security Corporation Massachusetts
(Subsidiary of Enterprise Bank and Trust)
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 14,507,497
<INT-BEARING-DEPOSITS> 200,900,523
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 119,395,742
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 145,270,007
<ALLOWANCE> 3,894,520
<TOTAL-ASSETS> 283,015,578
<DEPOSITS> 243,839,850
<SHORT-TERM> 16,737,249
<LIABILITIES-OTHER> 1,790,975
<LONG-TERM> 0
0
0
<COMMON> 15,762
<OTHER-SE> 20,631,742
<TOTAL-LIABILITIES-AND-EQUITY> 283,015,578
<INTEREST-LOAN> 12,466,758
<INTEREST-INVEST> 6,890,702
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 19,357,460
<INTEREST-DEPOSIT> 7,531,590
<INTEREST-EXPENSE> 8,176,973
<INTEREST-INCOME-NET> 11,180,487
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 1,909
<EXPENSE-OTHER> 9,041,786
<INCOME-PRETAX> 3,858,287
<INCOME-PRE-EXTRAORDINARY> 3,858,287
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,411,655
<EPS-PRIMARY> 1.53
<EPS-DILUTED> 1.53
<YIELD-ACTUAL> 4.63
<LOANS-NON> 2,237,183
<LOANS-PAST> 119,890
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 648,191
<ALLOWANCE-OPEN> 4,106,659
<CHARGE-OFFS> 243,943
<RECOVERIES> 31,804
<ALLOWANCE-CLOSE> 3,894,520
<ALLOWANCE-DOMESTIC> 3,894,520
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 175,653
</TABLE>
