UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934
For the quarter ended March 31, 1999
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- --- SECURITIES EXCHANGE ACT OF 1934
For the transition period from To
----------- -----------
Commission file number 0-23533
MYSTIC FINANCIAL, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 04-3401049
- -------- ----------
(State or other jurisdiction I.R.S. Employer
of incorporation or organization) Identification No.)
60 HIGH STREET
MEDFORD, MASSACHUSETTS 02155
- ---------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (781) 395-2800
--------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES X NO
---- ----
As of April 30, 1999, 2,573,555 shares of the registrant's common stock were
outstanding
MYSTIC FINANCIAL, INC. AND SUBSIDIARY
INDEX
PART I FINANCIAL INFORMATION Page
--------------------- ----
Item 1 Financial Statements:
Consolidated Balance Sheets - March 31, 1999
and June 30, 1998 1
Consolidated Statements of Income - Three and Nine Months
Months Ended March 31, 1999 and 1998 2
Consolidated Statement of Changes in Stockholders'
Equity-Nine Months Ended March 31, 1999 3
and 1998
Consolidated Statements of Cash Flows - Nine Months
Ended March 31, 1999 and 1998 4
Notes to Unaudited Consolidated Financial Statements -
March 31, 1999 5
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
Item 3 Quantitative and Qualitative Disclosures About
Market Risk 25
PART II OTHER INFORMATION
-----------------
Item 4 Submission of Matters to a Vote of Security Holders 25
Item 6 Exhibits and Reports on Form 8-K 25
SIGNATURES 26
----------
Mystic Financial, Inc. and Subsidiary
Part I - Financial Information
Item 1 - Financial Statements
Consolidated Balance Sheets
(In Thousands)
<TABLE>
<CAPTION>
March 31, 1999 June 30, 1998
-------------- -------------
(Unaudited)
<S> <C> <C>
Assets
Cash and due from banks $ 6,458 $ 7,626
Federal funds sold 9,849 16,773
Short-term investments 10,328 1,580
-------------------------
Total cash and cash equivalents 26,635 25,979
Securities available for sale, at fair value 24,247 14,749
Securities held to maturity, at amortized cost 3,501 12,006
Federal Home Loan Bank stock, at cost 1,080 997
Loans, net of allowance for loan losses of $1,308 and $1,236,
respectively 149,740 138,593
Mortgage loans held for sale 314 80
Bank premises and equipment, net 2,728 2,559
Real estate held for investment, net 1,743 1,785
Accrued interest receivable 1,196 1,099
Due from Co-operative Central Bank 929 929
Other assets 136 273
-------------------------
$212,249 $199,049
=========================
Liabilities and Stockholders' Equity
Deposits $155,485 $144,766
Federal Home Loan Bank borrowings 20,085 16,505
Mortgagors' escrow accounts 637 481
Accrued interest payable 357 288
Accrued expenses and other liabilities 105 882
-------------------------
Total liabilities 176,669 162,922
-------------------------
Stockholders' equity:
Preferred stock, $.01 par value, 1,000,000 shares authorized
none issued - -
Common stock $.01 par value, 5,000,000 shares authorized,
2,711,125 shares issued 27 27
Additional paid-in capital 25,710 25,710
Retained earnings 13,998 13,173
-------------------------
39,735 38,910
Treasury stock, at cost - 137,570 and 2,120 shares at
March 31, 1999 and June 30, 1998, respectively (1,988) (21)
Accumulated other comprehensive income 628 432
Unearned compensation - ESOP (2,795) (3,194)
--------------------------
Total stockholders' equity 35,580 36,127
-------------------------
$212,249 $199,049
=========================
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
Mystic Financial, Inc. and Subsidiary
Part I - Financial Information
Item 1 - Financial Statements
Consolidated Statements of Income
(In Thousands, Except Per Share Data )
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
-------------------- ------------------
March March March March
31, 1999 31, 1998 31,1999 31,1998
-------- -------- ------- -------
(Unaudited)
<S> <C> <C> <C> <C>
Interest and dividend income:
Interest and fees on loans $2,845 $2,574 $ 8,429 $7,460
Interest and dividends on investment securities 332 288 974 858
Other interest 333 309 780 575
----------------------------------------
Total interest and dividend income 3,510 3,171 10,183 8,893
Interest expense:
Deposits 1,317 1,223 3,765 3,711
Federal Home Loan Bank borrowings 292 167 822 502
----------------------------------------
Total interest expense 1,609 1,390 4,587 4,213
----------------------------------------
Net interest income 1,901 1,781 5,596 4,680
Provision for loan losses - 65 90 215
----------------------------------------
Net interest income, after provision for loan losses 1,901 1,716 5,506 4,465
----------------------------------------
Other income:
Customer service fees 127 128 396 390
Gain on sales of mortgage loans 9 12 98 35
Gain on sales of securities available for sale, net 39 46 100 184
Co-operative Central Bank Share Insurance
Fund Special Dividend - - 51 49
Miscellaneous 59 66 152 142
----------------------------------------
Total other income 234 252 797 800
----------------------------------------
Operating expenses:
Salaries and employee benefits 861 743 2,507 2,165
Occupancy and equipment expenses 194 120 427 366
Data processing expenses 91 66 240 190
Other general and administrative expenses 358 264 1,132 775
----------------------------------------
Total operating expenses 1,504 1,193 4,306 3,496
----------------------------------------
Income before income taxes 631 775 1,997 1769
Provision for income taxes 237 308 779 711
----------------------------------------
Net income $ 394 $ 467 $ 1,218 $1,058
========================================
Earnings per share - basic and diluted $ .17 N/A $ .51 N/A
======= =======
Weighted average shares outstanding 2,380 N/A 2,393 N/A
====== =======
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
Mystic Financial, Inc. and Subsidiary
Part I - Financial Information
Item 1 - Financial Statements
Consolidated Statements of Changes in Stockholders' Equity
Nine Months Ended March 31, 1999 and 1998
(In Thousands)
<TABLE>
<CAPTION>
Accumulated
Additional Other Unearned Total
Comprehensive Common Paid-in Retained Treasury Comprehensive Compensation Stockholders'
Income Stock Capital Earnings Stock Income ESOP Equity
------------- ------ ---------- -------- -------- ------------- ------------ -------------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
June 30, 1998 $27 $25,710 $13,173 $ (21) $432 $(3,194) $36,127
Net income $1,218 - - 1,218 - - - 1,218
Change in net
Unrealized gain on
Securities available
for sale, net of tax
effects 196 - - - - 196 - 196
------
Comprehensive income $1,414
======
Dividend paid
($.15 per share). - - (393) - - - (393)
Purchase of treasury
stock - - - (1,967) - - (1,967)
Decrease in unearned
compensation - ESOP - - - - - 399 399
------------------------------------------------------------------------------------
Balance at
March 31, 1999 $27 $25,710 $13,998 $(1,988) $628 $(2,795) $35,580
====================================================================================
Balance at
June 30, 1997 $ - $ - $11,761 $ - $179 $ - $11,940
Net income $1,058 - - 1,058 1,058
Change in net
unrealized gain on
securities available
for sale, net of tax
effects 233 - - - - 233 - 233
------
Comprehensive income $1,291
======
Net proceeds from sale
of common stock 27 25,733 - - - - 25,760
Increase in unearned
compensation - ESOP - - - - - (3,194) (3,194)
------------------------------------------------------------------------------------
Balance at
March 31, 1998 $27 $25,733 $12,819 $ - $412 $(3,194) $35,797
====================================================================================
</TABLE>
See accompanying notes to unaudited consolidated financial statements
Mystic Financial, Inc. and Subsidiary
Part I - Financial Information
Item 1 - Financial Statements
Consolidated Statements of Cash Flows
(In Thousands)
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
March 31, 1999 March 31, 1998
-------------- --------------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,218 $ 1,058
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 90 215
Net amortization of securities (32) -
Gain on sales of securities available for sale (100) (184)
Gain on sale of loans (89) -
Amortization of unearned compensation - ESOP 399 -
Depreciation expense 255 251
Net change in mortgage loans held for sale (234) (50)
(Increase) in accrued interest receivable (97) (159)
Decrease in other assets 137 50
Increase (decrease) in accrued expenses and
other liabilities (814) 228
---------------------------
Net cash provided by operating
activities 733 1,409
---------------------------
Cash flows from investing activities:
Maturities of securities held to maturity 8,500 5,001
Purchase of securities held to maturity - (1,503)
Sales of securities available for sale 3,725 5,390
Maturity of securities available for sale 500 -
Purchase of securities available for sale (13,284) (13,155)
Purchase of Federal Home Loan Bank Stock (83) (139)
Loans originated, net of payments received (18,968) (16,287)
Proceeds from sale of loans 7,820 -
Purchases of banking premises and equipment (382) (110)
---------------------------
Net cash used by investing activities (12,172) (20,803)
---------------------------
Cash flows from financing activities:
Net increase in deposits 10,719 7,925
Proceeds from borrowings 3,600 27,055
Repayment of borrowings (20) (21,076)
Net increase in mortgagors' escrow accounts 156 146
Purchase of ESOP stock - (3,194)
Dividends paid (393) -
Purchase of treasury stock (1,967) -
Proceeds from sale of common stock - 25,760
---------------------------
Net cash provided by financing activities 12,095 36,616
---------------------------
Net change in cash and cash equivalents 656 17,222
Cash and cash equivalents at beginning of period 25,979 6,225
---------------------------
Cash and cash equivalents at end of period $ 26,635 $ 23,447
===========================
Supplemental cash flow information:
Interest paid $ 4,526 $ 4,182
Income taxes paid 1,032 659
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
Mystic Financial, Inc. and Subsidiary
Part I - Financial Information
Item 1 - Financial Statements
Notes to Unaudited Consolidated Financial Statements
March 31, 1999
1) Basis of Presentation and Consolidation
The unaudited consolidated interim financial statements of Mystic Financial,
Inc. and subsidiary ("Mystic" or the "Company") presented herein should be
read in conjunction with the consolidated financial statements for the year
ended June 30, 1998, included in the Annual Report on Form 10-K of Mystic
Financial, Inc., the holding company for Medford Co-operative Bank (the
"Bank"). The operating results for the period ended March 31, 1999 are
those of the Bank and Company. Mystic had not issued any stock and had not
conducted any business other than that of an organizational nature until
January 8, 1998 when Mystic became the Bank's holding company in connection
with the Bank's conversion from mutual to stock form. Operating results
prior to January 8, 1998 include only the Bank and not the Company.
The unaudited consolidated interim financial statements herein have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
In the opinion of management, the consolidated financial statements reflect
all adjustments (consisting solely of normal recurring accruals) necessary
for a fair presentation of such information. Interim results are not
necessarily indicative of results to be expected for the entire year.
2) Commitments and Contingencies
At March 31, 1999, the Bank had outstanding commitments to originate loans
amounting to approximately $7.6 million, and unadvanced funds on
construction loans and lines of credit amounting to approximately $1.0 and
$7.8 million, respectively.
3) Stock Conversion
The Bank is a Massachusetts chartered stock co-operative bank founded in
1886. The Bank converted from a mutual institution on January 8, 1998.
Mystic Financial, Inc. ("Mystic" or the "Company") has been organized at the
direction of the Board of Directors of the Bank and has acquired all of the
capital stock of the Bank. The simultaneous conversion of the Bank to stock
form, the issuance of the Bank's stock to the Company and the offer and sale
of the common stock by the Company are herein referred to as the
"Conversion."
The Company issued 2,711,125 shares at an initial offering price of $10.00
per share on January 8, 1998 raising gross proceeds of $27,111,250 and
began trading on the Nasdaq National Market under the symbol "MYST" on
January 9, 1998. Net proceeds of the initial offering were approximately
$25.7 million. On January 8, 1998, the Company loaned approximately $3.2
million to the Company's Employee Stock Ownership Plan (the "ESOP") to fund
its purchase of 216,890 shares of common stock of the Company in open-market
purchases following completion of the Conversion.
4) Earnings Per Share
Earnings per share for the three and nine months ended March 31, 1999 were
$.17 and $.51, respectively, on a basic and diluted basis. Earnings per
share data is not presented for the three and nine months ended March 31,
1998 since there were no outstanding shares of common stock until the
Conversion on January 8, 1998. In calculating earnings per share, the number
of shares of common stock outstanding is reduced by the number of shares
held by the ESOP that have not been allocated or are not committed to be
released to participants' individual accounts.
5) Book Value Per Share
Book value per share was $14.93 as of March 31, 1999. In calculating book
value per share, the number of shares of common stock outstanding is reduced
by the number of shares held by the ESOP that have not been allocated or are
not committed to be released to participants' individual accounts. There
were 2,383,473 shares of common stock outstanding as of March 31, 1999 for
purposes of calculating the Company's book value per share.
6) Stock Repurchase Programs
On July 30, 1998, the Company's Board of Directors adopted a stock
repurchase program authorizing the Company to repurchase up to 135,450 or 5%
of its outstanding shares of common stock. On August 6, 1998, the Company
completed the repurchase program acquiring 135,450 shares at a cost of
approximately $1,967,000. On April 14,1999, the Company's Board of
Directors approved a second stock repurchase program. The Company intends
to repurchase up to 128,677 shares or 5% of its outstanding common stock.
7) 1999 Stock Option Plan
On March 24, 1999, the stockholders approved the Mystic Financial, Inc. 1999
Stock Option Plan (the "Option Plan") that the Company had adopted. The
purpose of the Option Plan is to enable the Company to grant certain
officers, employees and outside directors a right, known as an option
("Option"), to purchase shares of the Common Stock of the Company at a
stated price during a specified period or term. The Option Plan must be
approved by the Commissioner of Banks of the Commonwealth of Massachusetts
to be effective. As of May 14, 1999, the Commissioner of Banks has not yet
approved the Option Plan. Until such approval is obtained, the Option Plan
will not become effective. The Company has reserved a total of 257,355
shares of Common Stock for use under the Option Plan.
8) 1999 Recognition and Retention Plan
On March 24, 1999, the stockholders approved the Mystic Financial, Inc. 1999
Recognition and Retention Plan (the "RRP") that the Company had adopted.
The RRP allows the Company to grant restricted stock awards ("Awards") to
certain officers, employees and outside directors. A "restricted stock
award" constitutes a right to receive a certain number of shares of Common
Stock upon the Award holder's satisfaction of certain requirements, such as
completion of five years of service with the Company. As a general rule, if
the Award holder fails to fulfill the requirements contained in the
restricted stock award, it will not vest. Instead, the Award will be
forfeited and canceled. The RRP must be approved by the Commissioner of
Banks of the Commonwealth of Massachusetts to be effective. As of May 14,
1999, the Commissioner of Banks has not yet approved the RRP. Until such
approval is obtained, the RRP will not become effective. The Company will
establish a trust ("Trust") and will contribute, or cause to be contributed,
to the Trust, from time to time, such amounts of money or property as the
Board may determine, in its discretion. A trustee will be appointed by the
Company and will not be authorized to purchase more than 102,942 shares of
Common Stock for the RRP.
9) Recent Accounting Pronouncement
In June 1997, FASB issued SFAS No. 130, "Reporting Comprehensive Income,"
effective for fiscal years beginning after December 15, 1997. Accounting
principles generally require that recognized revenue, expenses, gains and
losses be included in net income. Certain FASB statements, however, require
entities to report specific changes in assets and liabilities, such as
unrealized gains and losses on available-for-sale securities, as a separate
component of the equity section of the consolidated balance sheet. Such
items, along with net income, are components of comprehensive income. SFAS
No. 130 requires that all items of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. Additionally, SFAS No. 130 requires that the
accumulated balance of other comprehensive income be displayed separately
from retained earnings and additional paid-in capital in the equity section
of the consolidated balance sheet. The Company adopted these disclosure
requirements in the quarter ending September 30, 1998.
10) Investment Securities
The following table sets forth the Company's investment securities at the
dates indicated.
<TABLE>
<CAPTION>
March 31, 1999 June 30, 1998
--------------------- ---------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
--------- ----- --------- -----
(In Thousands)
<S> <C> <C> <C> <C>
Securities Available for Sale:
U.S. Government & Federal
Agency Obligations $20,868 $20,803 $11,540 $11,527
Marketable equity securities 2,412 3,444 2,544 3,222
----------------------------------------------
Total $23,280 $24,247 $14,084 $14,749
==============================================
Securities held to maturity:
U.S. Government & Federal
Agency Obligations $ 1,500 $ 1,504 $ 9,498 $ 9,510
Other bonds & obligations 2,001 2,007 2,508 2,520
----------------------------------------------
Total $ 3,501 $ 3,511 $12,006 $12,030
==============================================
</TABLE>
11) Loans
The following table presents selected data relating to the composition of
the Company's loan portfolio by type of loan on the dates indicated.
<TABLE>
<CAPTION>
March 31, 1999 June 30, 1998
-------------------- --------------------
Amount Percent Amount Percent
------ ------- ------ -------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Residential mortgage loans $108,193 72.3% $106,412 76.8%
Commercial real estate loans 31,786 21.2 24,475 17.7
Commercial loans 5,405 3.6 4,579 3.3
Consumer loans 1,619 1.1 1,787 1.3
Home equity loans 1,804 1.2 1,716 1.2
Construction loans 3,310 2.2 1,260 0.9
-------------------------------------------
Total loans 152,117 101.6 140,229 101.2
Less:
Deferred loan origination fees 36 - 17 -
Unadvanced principal 1,033 0.7 383 0.3
Allowance for loan
losses 1,308 0.9 1,236 0.9
-------------------------------------------
$149,740 100.0% $138,593 100.0%
===========================================
</TABLE>
12) Allowance for Loan Losses
The following table analyzes activity in the Company's allowance for loan
losses for the periods indicated.
<TABLE>
<CAPTION>
Nine Nine
Months Ended Months Ended
March 31, 1999 March 31, 1998
-------------- --------------
(Dollars in Thousands)
<S> <C> <C>
Average loans, net $142,526 $121,752
===========================
Period-end net loans $149,740 $130,640
===========================
Allowance for loan losses at beginning of period $ 1,236 $ 977
Provision for loan losses 90 215
Plus recoveries 2 14
Loans charged-off (20) (2)
---------------------------
Allowance for loan losses at end of period $ 1,308 $ 1,204
===========================
Non-performing loans $ 151 $ 473
===========================
Ratios:
Allowance for loan losses to period end net loans 0.87% 0.91%
Allowance for loan losses to non-performing loans 866.23% 254.55%
Net charge-offs (recoveries) to average loans, net 0.02% (0.01)%
</TABLE>
13) Deposits and Borrowed Funds
The following tables set forth the various types of deposit accounts at the
Company and the balances in these accounts as well as the borrowings of the
Company at the dates indicated.
<TABLE>
<CAPTION>
March 31, 1999 June 30, 1998
-------------------- --------------------
Amount Percent Amount Percent
------ ------- ------ -------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Deposits:
Savings deposits $ 40,305 25.9% $ 40,460 28.0%
NOW accounts 24,685 15.9 34,208 23.6
Money market deposits 6,827 4.4 6,256 4.3
Demand deposits 8,970 5.8 6,603 4.6
Certificates of deposits 74,698 48.0 57,239 39.5
-------------------------------------------
Total deposits $155,485 100.0% $144,766 100.0%
===========================================
Borrowed Funds:
Advances from Federal Home Loan Bank of Boston:
Maturities less than one year $ 2,400 11.9% $ 1,125 6.8%
Maturities greater than one year 17,685 88.1 15,380 93.2
-------------------------------------------
Total borrowed funds $ 20,085 100.0% $ 16,505 100.0%
===========================================
</TABLE>
Mystic Financial, Inc. and Subsidiary
Part I - Financial Information
Item 2 - Management's Discussion and Analysis of Financial Condition
And Results of Operations
March 31, 1999
General
Medford Co-operative Bank (the "Bank") completed its conversion from a
mutual to a stock institution and was simultaneously acquired by Mystic
Financial, Inc. ("Mystic" or the "Company") on January 8, 1998. The
following discussion and analysis should be read in conjunction with the
consolidated financial statements and related notes thereto included within
this report.
The Private Securities Litigation Reform Act of 1995 contains safe
harbor provisions regarding forward-looking statements. When used in this
discussion, the words "believes", "anticipates", "contemplates", "expects",
and similar expressions are intended to identify forward-looking statements.
Such statements are subject to certain risks and uncertainties which could
cause actual results to differ materially from those projected. Those risks
and uncertainties include changes in interest rates generally and changes in
real estate values and other economic conditions in eastern Massachusetts,
the Bank's principal market area. The Company undertakes no obligation to
publicly release the results of any revisions to those forward-looking
statements which may be made to reflect events or circumstances after the
date hereof or to reflect the occurrence of unanticipated events.
Additional information on potential factors which could affect the Company's
financial results are included in the Annual Report on Form 10-K of Mystic.
The Company's profitability depends primarily on its net interest
income, which is the difference between the interest income it earns on its
loans and investment portfolio and its cost of funds, which consists mainly
of interest paid on deposits and on borrowings from the Federal Home Loan
Bank of Boston. Net interest income is affected by the relative amounts of
interest-earning assets and interest-bearing liabilities and the interest
rates earned or paid on these balances. When interest-earning assets
approximate or exceed interest-bearing liabilities, any positive interest
rate spread will generate net interest income.
The Company's profitability is also affected by the level of other
income and operating expenses. Other income consists primarily of service
fees, loan servicing and other loan fees, and gains on sales of investment
securities available for sale. Operating expenses consist of salaries and
benefits, occupancy related expenses, and other general operating expenses.
The operations of the Company, and banking institutions in general,
are significantly influenced by general economic conditions and related
monetary and fiscal policies of the financial institution's regulatory
agencies. Deposit flows and the cost of funds are influenced by interest
rates on competing investments and general market rates of interest.
Lending activities are affected by the demand for real estate financing and
other types of loans, which in turn are affected by the interest rates at
which such financing may be offered and other factors affecting loan demand
and the availability of funds.
In addition to those factors previously disclosed by the Company and
Bank and those factors identified elsewhere herein, the following factors
could cause actual results to differ materially from such forward-looking
statements: continued pricing pressures on loan and deposit products,
actions of competitors, changes in economic conditions, the extent and
timing of actions of the Federal Reserve Board, customer disintermediation,
customers' acceptance of the Bank's products and services, the extent and
timing of legislative and regulatory actions and reforms, and the ability of
the Company and Bank to effectively deploy the capital it raised in its
initial offering.
Average Balances, Interest and Average Yields
The following tables set forth certain information relating to the
Company's average balance sheet and reflect the interest earned on assets
and interest cost of liabilities for the periods indicated and the average
yields earned and rates paid for the periods indicated. Such yields and
costs are derived by dividing income or expense by the average monthly
balances of assets and liabilities, respectively, for the periods presented.
Average balances are derived from daily balances. Loans on nonaccrual
status are included in the average balances of loans shown in the tables.
The investment securities in the following tables are presented at amortized
cost.
MYSTIC FINANCIAL, INC. AND SUBSIDIARY
AVERAGE BALANCES, INTEREST AND AVERAGE YIELDS
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
<TABLE>
<CAPTION>
Three Months Ended March 31, 1999 Three Months Ended March 31, 1998
---------------------------------- ----------------------------------
Average Interest Yield/ Average Interest Yield/
Balance Income/Expense Rate Balance Income/Expense Rate
------- -------------- ------ ------- -------------- ------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Total loans, net $145,760 $2,845 7.81% $126,501 $2,574 8.14%
Investments 23,686 332 5.61% 21,114 288 5.46%
Other earning assets 28,078 333 4.74% 24,703 309 5.00%
--------------------- ---------------------
Total interest-earning assets 197,524 3,510 7.11% 172,318 3,171 7.36%
------ ------
Cash and due from banks 4,097 2,492
Other assets 6,632 6,421
-------- --------
Total assets $208,253 $181,231
======== ========
INTEREST-BEARING LIABILITIES:
Regular and other deposits $ 40,062 232 2.32% $ 44,669 310 2.78%
Now accounts 23,368 93 1.59% 22,968 89 1.55%
Money market deposits 7,074 43 2.43% 6,795 45 2.65%
Certificates of deposit 73,593 949 5.16% 57,381 779 5.43%
--------------------- ---------------------
Total interest-bearing deposits 144,097 1,317 3.66% 131,813 1,223 3.71%
FHLB borrowings 20,090 292 5.81% 10,969 167 6.09%
--------------------- ---------------------
Total interest-bearing liabilities 164,187 1,609 3.92% 142,782 1,390 3.89%
------ ------
Demand deposit accounts 7,643 5,711
Other liabilities 1,041 2,841
-------- --------
Total liabilities 172,871 151,334
Stockholders' equity 35,382 29,897
-------- --------
Total liabilities and stockholders' equity $208,253 $181,231
======== ========
Net interest income $1,901 $1,781
====== ======
Interest rate spread 3.19% 3.47%
Net interest margin 3.85% 4.13%
Interest earning assets/interest-bearing liabilities 1.20x 1.21x
</TABLE>
MYSTIC FINANCIAL, INC. AND SUBSIDIARY
AVERAGE BALANCES, INTEREST AND AVERAGE YIELDS
NINE MONTHS ENDED MARCH 31, 1999 AND 1998
<TABLE>
<CAPTION>
Nine Months Ended March 31, 1999 Nine Months Ended March 31, 1998
---------------------------------- ----------------------------------
Average Interest Yield/ Average Interest Yield/
Balance Income/Expense Rate Balance Income/Expense Rate
------- -------------- ------ ------- -------------- ------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Total loans, net $142,526 $ 8,429 7.89% $121,752 $7,460 8.17%
Investments 23,479 974 5.53% 20,554 858 5.57%
Other earning assets 21,154 780 4.92% 14,708 575 5.21%
--------------------- ---------------------
Total interest-earning assets 187,159 10,183 7.25% 157,014 8,893 7.55%
------- ------
Cash and due from banks 3,877 2,780
Other assets 6,352 6,135
-------- --------
Total assets $197,388 $165,929
======== ========
INTEREST-BEARING LIABILITIES:
Regular and other deposits $ 40,629 757 2.48% $ 44,100 847 2.56%
Now accounts 23,212 277 1.59% 20,920 259 1.65%
Money market deposits 6,642 125 2.51% 6,661 132 2.97%
Certificates of deposit 64,878 2,606 5.36% 58,249 2,473 5.66%
--------------------- ---------------------
Total interest-bearing deposits 135,361 3,765 3.71% 129,930 3,711 3.81%
FHLB borrowings 18,438 822 5.94% 10,797 502 6.20%
--------------------- ---------------------
Total interest-bearing liabilities 153,799 4,587 3.98% 140,727 4,213 3.99%
------- ------
Demand deposit accounts 7,302 5,592
Other liabilities 1,121 398
-------- --------
Total liabilities 162,222 146,717
Stockholders' equity 35,166 19,212
-------- --------
Total liabilities and stockholders' equity $197,388 $165,929
======== ========
Net interest income $ 5,596 $4,680
======= ======
Interest rate spread 3.27% 3.56%
Net interest margin 3.99% 3.97%
Interest earning assets/interest-bearing liabilities 1.22x 1.12x
</TABLE>
Rate/Volume Analysis
The following table sets forth certain information regarding changes
in interest income and interest expense of the Company for the periods
indicated. For each category of interest-earning asset and interest-bearing
liability, information is provided on changes attributable to: (i) changes
in volume (changes in volume multiplied by old rate); and (ii) changes in
rates (change in rate multiplied by old volume). Changes in rate-volume
(changes in rate multiplied by the changes in volume) are allocated between
changes in rate and changes in volume.
<TABLE>
<CAPTION>
Three Months Ended March 31,
1999 vs 1998
Increase (decrease)
----------------------------
Due to
-----------------
Rate Volume Total
---- ------ -----
(In Thousands)
<S> <C> <C> <C>
Interest and dividend income:
Loans, net $(108) $379 $271
Investments 8 36 44
Other earning assets (16) 40 24
--------------------------
Total (116) 455 339
--------------------------
Interest expense:
Deposits (18) 112 94
Borrowed funds (8) 133 125
--------------------------
Total (26) 245 219
--------------------------
Change in net interest income $ (90) $210 $120
==========================
<CAPTION>
Nine Months Ended March 31,
1999 vs 1998
Increase (decrease)
---------------------------
Due to
-----------------
Rate Volume Total
---- ------ -----
(In Thousands)
<S> <C> <C> <C>
Interest and dividend income:
Loans, net $(263) $1,232 $ 969
Investments (6) 122 116
Other earning assets (34) 239 205
----------------------------
Total (303) 1,593 1,290
----------------------------
Interest expense:
Deposits (99) 153 54
Borrowed funds (22) 342 320
----------------------------
Total (121) 495 374
----------------------------
Change in net interest income $(182) $1,098 $ 916
============================
</TABLE>
Financial Condition and Results of Operations
Comparison of Financial Condition at March 31, 1999 and June 30, 1998
The Company's total assets amounted to $212.2 million at March 31,
1999 compared to $199.0 million at June 30, 1998, an increase of $13.2
million or 6.6%. The increase in total assets is a result of an increase in
cash and cash equivalents and continued loan growth. The increase in total
assets is principally due to an increase in deposit accounts and Federal
Home Loan Bank borrowings.
Cash and cash equivalents increased to $26.6 million at March 31, 1999
from $26.0 million at June 30, 1998, an increase of $656,000 or 2.5%. Cash
and cash equivalents are volatile due to the Company's large deposit
relationship with a law firm which maintains short-term deposits in real
estate conveyancing accounts and has significant fluctuations in its deposit
account balances. Investment securities increased to $27.7 million at March
31, 1999 from $26.8 million at June 30, 1998, an increase of $1.0 million or
3.7%. Cash and cash equivalents and investment securities have remained
stable due to the Company's efforts to maintain liquidity and to improve its
interest rate sensitivity.
Net loans increased by $11.1 million or 8.0% to $149.7 million or
70.6% of total assets at March 31, 1999 as compared to $138.6 million or
69.6% of total assets at June 30, 1998 as the Company continued its emphasis
on originating and retaining residential mortgage loans and commercial and
commercial real estate loans.
Total deposits increased by $10.7 million or 7.4% to $155.5 million
at March 31, 1999 from $144.8 million at June 30, 1998 as a result of an
increase in certificates of deposit due to a promotion associated with the
opening of a new branch office in late November 1998 in Lexington,
Massachusetts, partially offset by a decrease in NOW accounts attributable
to volatile balances in mortgage conveyancing escrow accounts maintained by
law firms.
Total borrowings increased by $3.6 million to $20.1 million at March
31, 1999 from $16.5 million at June 30, 1998. The Company's continued use
of borrowed funds reflects additional funding used to fund larger commercial
real estate loans, generally those exceeding $1.0 million, with matching
funds from the Federal Home Loan Bank of Boston ("FHLBB") to reduce interest
rate risk. In addition, the Company has match-funded $5.0 million of 30-
year fixed-rate residential mortgage loans held for portfolio. The
retention of these loans is helping the Company leverage the capital it
raised in the conversion.
Stockholders' equity decreased by $547,000 to $35.6 million at March
31, 1999 from $36.1 million at June 30, 1998 as a result of the repurchase
of 135,450 shares of common stock held in treasury at a cost of $2.0 million
and dividends paid of $393,000, offset by net income of $1.2 million, a
decrease in unearned compensation - ESOP of $399,000, and an increase in the
net unrealized gain on securities available for sale of $196,000.
Comparison of the Operating Results for the Three and Nine Months Ended
March 31, 1999 and 1998
Net Income. Net income was $394,000 and $1,218,000 for the three and
nine months ended March 31, 1999, respectively, compared to $467,000 and
$1,058,000 for the three and nine months ended March 31, 1998, respectively.
Return on average assets was .76% and .82% for the three and nine months
ended March 31, 1999, respectively, compared to 1.03% and .85% for the three
and nine months ended March 31, 1998, respectively. Return on average
equity was 4.45% and 4.62% for the three and nine months ended March 31,
1999, respectively, compared to 6.25% and 7.34% for the three and nine
months ended March 31, 1998, respectively. The decrease in the return on
average assets for the three months ended March 31, 1999 compared to the
same period a year ago was primarily due to higher operating expenses
resulting from the opening of the new branch in Lexington, new employee
benefit plans and the increased cost of operating as a public company. The
decrease in the return on average equity for the three and nine months ended
March 31, 1999 was primarily due to the additional capital from the
Conversion.
The decrease in net income for the three months ended March 31, 1999
compared to the three months ended March 31, 1998 was attributable to an
increase in net interest income of $120,000, a decrease of $65,000 in
provision for loan losses, and a decrease in the provision for income taxes
of $71,000, which were offset by a decrease in other income of $18,000, and
an increase in operating expenses of $311,000. The increase in net income
for the nine months ended March 31, 1999 compared to the nine months ended
March 31, 1998 was attributable to an increase in net interest income of
$916,000 and a decrease of $125,000 in provision for loan losses, which were
partially offset by a decrease in other income of $3,000, an increase in
operating expenses of $810,000, and an increase in the provision for income
taxes of $68,000.
Interest and Dividend Income. Total interest and dividend income
increased by $339,000 or 10.7% to $3.5 million for the three months ended
March 31, 1999 from $3.2 million for the three months ended March 31, 1998.
The increase in interest income was a result of a higher level of loans,
investment securities, and other earning assets resulting from the
deployment of proceeds of the Conversion and general asset growth. The
average balance of net loans for the three months ended March 31, 1999 was
$145.8 million compared to $126.5 million for the three months ended March
31, 1998. The average yield on net loans was 7.81% for the three months
ended March 31, 1999 compared to 8.14% for the three months ended March 31,
1998.
The average balance of investment securities for the three months
ended March 31, 1999 was $23.7 million compared to $21.1 million for the
three months ended March 31, 1998. The average yield on investment
securities was 5.61% for the three months ended March 31, 1999 compared to
5.46% for the three months ended March 31, 1998. The average balance of
other earning assets for the three months ended March 31, 1999 was $28.1
million compared to $24.7 million for the three months ended March 31, 1998.
The average yield on other earning assets was 4.74% for the three months
ended March 31, 1999 compared to 5.00% for the three months ended March 31,
1998. The decrease in the average yield on net loans and other earning
assets reflects the general decline in market interest rates since the prior
period.
Total interest and dividend income increased by $1.3 million or 14.5%
to $10.2 million for the nine months ended March 31, 1999 from $8.9 million
for the nine months ended March 31, 1998. The increase in interest income
was a result of a higher level of loans, investment securities, and other
earning assets resulting from the deployment of proceeds of the Conversion
and general asset growth. The average balance of net loans for the nine
months ended March 31, 1999 was $142.5 million compared to $121.8 million
for the nine months ended March 31, 1998. The average yield on net loans
was 7.89% for the nine months ended March 31, 1999 compared to 8.17% for the
nine months ended March 31, 1998.
The average balance of investment securities for the nine months ended
March 31, 1999 was $23.5 million compared to $20.6 million for the nine
months ended March 31, 1998. The average yield on investment securities was
5.53% for the nine months ended March 31, 1999 compared to 5.57% for the
nine months ended March 31, 1998. The average balance of other earning
assets for the nine months ended March 31, 1999 was $21.2 million compared
to $14.7 million for the nine months ended March 31, 1998. The average
yield on other earning assets was 4.92% for the nine months ended March 31,
1999 compared to 5.21% for the nine months ended March 31, 1998. The
decrease in the average yield on net loans, investment securities, and other
earning assets reflects the general decline in market interest rates since
the prior period.
Interest Expense. Total interest expense increased by $219,000 or
15.8% to $1.6 million for the three months ended March 31, 1999 from $1.4
million for the three months ended March 31, 1998. Interest expense
increased primarily due to the increase in FHLBB borrowings. The Company's
continued use of borrowed funds reflects additional funding used to fund
larger commercial real estate loans, generally those exceeding $1.0 million,
with matching funds from the FHLBB to reduce interest rate risk. In
addition, the Company has match-funded $5.0 million of 30-year fixed-rate
residential mortgage loans held for portfolio with borrowings of various
maturities.
Average interest-bearing deposits increased by $12.3 million or 9.3%
to $144.1 million while the average rate decreased five basis points to
3.66% from 3.71% for the three months ended March 31, 1999. Average
borrowings increased by $9.1 million to $20.1 million for the three months
ended March 31, 1999 from $11.0 million while the average rate decreased 26
basis points to 5.81% from 6.09% for the three months ended March 31, 1998.
Total interest expense increased by $374,000 or 8.9% to $4.6 million
for the nine months ended March 31, 1999 from $4.2 million for the nine
months ended March 31, 1998. Interest expense increased primarily due to
the increase in FHLBB borrowings. The Company's continued use of borrowed
funds reflects additional funding used to fund larger commercial real estate
loans, generally those exceeding $1.0 million, with matching funds from the
FHLBB to reduce interest rate risk. In addition, the Company has match-
funded $5.0 million of 30-year fixed-rate residential mortgage loans held
for portfolio with borrowings of various maturities.
Average interest-bearing deposits increased by $5.4 million or 4.2% to
$135.4 million while the average rate decreased 10 basis points to 3.71%
from 3.81% for the nine months ended March 31, 1999. Average borrowings
increased by $7.6 million to $18.4 million for the nine months ended March
31, 1999 from $10.8 million while the average rate decreased 26 basis points
to 5.94% from 6.20% for the nine months ended March 31, 1998.
Net Interest Income. Net interest income for the three months ended
March 31, 1999 was $1.9 million as compared to $1.8 million for the three
months ended March 31, 1998. The $120,000 or 6.7% increase can be
attributed to a combination of the $339,000 increase in interest and
dividend income and the $219,000 increase in interest expense on deposits
and borrowed funds. The average yield on interest earning assets decreased
25 basis points to 7.11% for the three months ended March 31, 1999 from
7.36% for the three months ended March 31, 1998, while the average cost on
interest-bearing liabilities increased by three basis points to 3.92% for
the three months ended March 31, 1999 from 3.89% for the three months ended
March 31, 1998. As a result, the interest rate spread decreased to 3.19%
for the three months ended March 31, 1999 from 3.47% for the three months
ended March 31, 1998.
Net interest income for the nine months ended March 31, 1999 was $5.6
million as compared to $4.7 million for the nine months ended March 31,
1998. The $916,000 or 19.6 % increase can be attributed to a combination of
the $1.3 million increase in interest and dividend income and the $374,000
increase in interest expense on deposits and borrowed funds. The average
yield on interest earning assets decreased 30 basis points to 7.25 % for the
nine months ended March 31, 1999 from 7.55% for the nine months ended March
31, 1998, while the average cost on interest-bearing liabilities decreased
by one basis point to 3.98% for the nine months ended March 31, 1999 from
3.99% for the nine months ended March 31, 1998. As a result, the interest
rate spread decreased to 3.27% for the nine months ended March 31, 1999 from
3.56% for the nine months ended March 31, 1998.
Provision for Loan Losses. The provision for loan losses for the
three and nine months ended March 31, 1999 was $0 and $90,000, respectively,
compared to $65,000 and $215,000 for the three and nine months ended March
31, 1998, respectively. This decrease reflects the decrease in non-
performing loans at March 31, 1999 compared to March 31, 1998. At March 31,
1999, the balance of the allowance for loan losses was $1,308,000 or .87%
of net loans. During the nine months ended March 31, 1999, $20,000 was
charged against the allowance for loan losses while $2,000 in recoveries was
credited to the allowance for loan losses. At March 31, 1998, the balance
of the allowance for loan losses was $1,204,000 or .91% of net loans.
During the nine months ended March 31, 1998, $2,000 was charged against the
allowance for loan losses while $14,000 in recoveries was credited to the
allowance for loan losses.
Other Income. Other income was $234,000 for the three months ended
March 31, 1999 compared to $252,000 for the three months ended March 31,
1998. The $18,000 decrease was primarily the result of a $3,000 decrease in
the gain on the sales of mortgage loans and decrease in the sale on the
sales of investment securities of $7,000. Other income was $797,000 for the
nine months ended March 31, 1999 compared to $800,000 for the nine months
ended March 31, 1998. The $3,000 decrease was primarily the result of a
$63,000 increase in the gain on the sales of mortgage loans, offset by a
decrease in the gain on the sales of investment securities of $84,000.
Operating Expenses. Operating expenses increased by $311,000 or 26.1%
to $1.5 million for the three months ended March 31, 1999 from $1.2 million
for the three months ended March 31, 1998. Salaries and employee benefits
increased by $118,000 due to staff hired for the opening of a new branch
office in Lexington, Massachusetts, in November 1998, expense accruals for
the Company's Recognition and Retention Plan, and normal salary increases.
Salary and employee benefits also increased because of higher commission
payments to residential loan originators as a result of higher volumes of
lending activity. Occupancy and equipment expenses increased by $74,000,
primarily due to the opening of the Lexington branch. An increase in other
general and administrative expenses of $94,000 was caused by higher
professional fees, liability insurance costs, and additional operating costs
from operating as a publicly held stock institution, and promotional costs
associated with the Lexington office opening.
Operating expenses increased by $810,000 or 23.2% to $4.3 million for
the nine months ended March 31, 1999 from $3.5 million for the nine months
ended March 31, 1998. Salaries and employee benefits increased by
$342,000, of which $124,000 is attributable to the Company's adoption of an
Employee Stock Ownership Plan ("ESOP"). Salaries and employee benefits also
increased by $72,000 due to expense accruals for supplemental retirement
benefits and a Benefit Restoration Plan for the Company's Chief Executive
Officer, and $24,000 due to expense accruals for the Company's Recognition
and Retention Plan. Salary and employee benefits also increased because of
higher commission payments to residential loan originators as a result of
higher volumes of lending activity. The remainder of the increase is due to
staff hired for the opening of a new branch office in Lexington,
Massachusetts, in November 1998 and normal salary increases. An increase
in other general and administrative expenses of $357,000 was caused by
higher professional fees, liability insurance costs and additional operating
costs from operating as a publicly held stock institution, and promotional
costs associated with the Lexington office opening. Annual operating
expenses are also expected to increase in future periods due to the
increased cost of operating as a publicly held stock institution and the
ongoing operating costs of the new Lexington office.
Asset/Liability Management
A principal operating objective of the Company is to produce stable
earnings by achieving a favorable interest rate spread that can be sustained
during fluctuations in prevailing interest rates. Since the Company's
principal interest-earning assets have longer terms to maturity than its
primary source of funds, i.e. deposit liabilities, increases in general
interest rates will generally result in an increase in the Company's cost of
funds before the yield on its asset portfolio adjusts upward. Banking
institutions have generally sought to reduce their exposure to adverse
changes in interest rates by attempting to achieve a closer match between
the periods in which their interest-bearing liabilities and interest-earning
assets can be expected to reprice through the origination of adjustable-rate
mortgages and loans with shorter terms and the purchase of other shorter
term interest-earning assets.
The term "interest rate sensitivity" refers to those assets and
liabilities which mature and reprice periodically in response to
fluctuations in market rates and yields. Thrift institutions have
historically operated in a mismatched position with interest-sensitive
liabilities exceeding interest-sensitive assets in the short-term time
periods. As noted above, one of the principal goals of the Bank's
asset/liability program is to more closely match the interest rate
sensitivity characteristics of the asset and liability portfolios.
In order to properly manage interest rate risk, the Board of Directors
has established an Asset/Liability Management Committee ("ALCO") made up of
members of management to monitor the difference between the Company's
maturing and repricing assets and liabilities and to develop and implement
strategies to decrease the "negative gap" between the two. The primary
responsibilities of the committee are to assess the Company's
asset/liability mix, recommend strategies to the Board that will enhance
income while managing the Company's vulnerability to changes in interest
rates and report to the Board the results of the strategies used.
Since the early 1980s, the Bank has stressed the origination of
adjustable-rate residential mortgage loans and adjustable-rate home equity
loans. Historically, the Bank attempts to sell fixed rate loans with terms
in excess of 15 years. Since 1995, the Bank has also emphasized commercial
loans with short-term maturities or repricing intervals as well as
commercial real estate mortgages with short-term repricing intervals. In
addition, the Company has used borrowings from the FHLBB to match-fund the
maturity or repricing interval of several larger commercial real estate
mortgages.
In the future, in managing its interest rate sensitivity, the Company
intends to continue to stress the origination of adjustable-rate mortgages
and loans with shorter maturities and the maintenance of a consistent level
of short-term securities.
Liquidity and Capital Resources
The Company's primary sources of funds consist of deposits,
borrowings, repayment and prepayment of loans, sales and participations of
loans, maturities of investments and interest-bearing deposits, and funds
provided from operations. While scheduled repayments of loans and
maturities of investment securities are predictable sources of funds,
deposit flows and loan prepayments are greatly influenced by the general
level of interest rates, economic conditions, and competition. The Company
uses its liquidity resources primarily to fund existing and future loan
commitments, to fund net deposit outflows, to invest in other interest-
earning assets, to maintain liquidity, and to meet operating expenses.
The Company is required to maintain adequate levels of liquid assets.
This guideline, which may be varied depending upon economic conditions and
deposit flows, is based upon a percentage of deposits and short-term
borrowings. The Company has historically maintained a level of liquid
assets in excess of regulatory requirements. The Company's liquidity ratio
at March 31, 1999 was 34.8%.
A major portion of the Company's liquidity consists of cash and cash
equivalents, short-term U.S. Government and Federal Agency obligations, and
corporate bonds. The level of these assets is dependent upon the Company's
operating, investing, lending and financing activities during any given
period.
Liquidity management is both a daily and long-term function of
management. If the Company requires funds beyond its ability to generate
them internally, the Company believes it could borrow additional funds from
the FHLBB. At March 31, 1999, the Company had borrowings of $20.1 million
from the FHLBB.
At March 31, 1999, the Company had $7.6 million in outstanding
commitments to originate loans. The Company anticipates that it will have
sufficient funds available to meet its current loan origination commitments.
Certificates of deposit which are scheduled to mature in one year or less
totaled $60.4 million at March 31, 1999. Based upon historical experience,
management believes that a significant portion of such deposits will remain
with the Bank.
At March 31, 1999, the Company and the Bank exceeded all of their
regulatory capital requirements.
Year 2000
The "Year 2000 Problem" centers on the inability of computer systems
to recognize the Year 2000. Many existing computer programs and systems
were originally programmed with six digit dates that provided only two
digits to identify the calendar year in the date field, without considering
the upcoming change in the century. With the impending millennium, these
programs and computers will recognize "00" as the year 1900 rather than the
year 2000. Like most financial service providers, the Bank and its
operations may be significantly affected by the Year 2000 Problem due to the
nature of financial information. Software, hardware, and equipment both
within and outside the Bank's direct control and with whom the Bank
electronically or operationally interfaces (e.g. third party vendors
providing data processing, information system management, maintenance of
computer systems, and credit bureau information) are likely to be affected.
Furthermore, if computer systems are not adequately changed to identify the
Year 2000, many computer applications could fail or create erroneous
results. As a result, many calculations which rely on the date field
information, such as interest, payment or due dates and other operating
functions, will generate results which could be significantly misstated, and
the Bank could experience a temporary inability to process transactions,
send invoices or engage in similar normal business activities.
The Company and the Bank are utilizing both internal and external
resources to identify, correct or reprogram, and test the systems for the
year 2000 compliance. All significant reprogramming efforts were complete
by December 31, 1998, allowing adequate time for testing. To date,
confirmations have been received from the Company's and the Bank's primary
data processing vendors that plans are being developed to address processing
of transactions in the year 2000. Although the Company cannot currently
estimate the extent to which any failure to process date information
correctly could have a material adverse effect on the Company's business,
operations or financial condition, management believes that, if not
adequately addressed, such delays, errors or failures could have a
significant adverse impact on the financial condition and results of
operation of the Company.
In addition, monitoring and managing the year 2000 project will
result in additional direct and indirect costs to the Company and the Bank.
Direct costs include potential charges by third party software vendors for
product enhancements, costs involved in testing software products for
year 2000 compliance, and any resulting costs for developing and
implementing contingency plans for critical software products which are not
enhanced. Indirect costs will principally consist of the time devoted by
existing employees in monitoring software vendor progress, testing
enhanced software products and implementing any necessary contingency plans.
The Company has spent approximately $78,000 on Year 2000 related costs to
date and estimates that it will spend an additional $75,000 for Year 2000
compliance. Both direct and indirect costs of addressing the Year 2000
Problem will be charged to earnings as incurred. The Company does not
believe that such costs will have a material effect on results of
operations. However, there can be no guarantee that the systems of other
companies on which the Company's systems rely will be timely converted, or
that a failure to convert by another company or a conversion that is
incompatible with the Company's systems, would not have material adverse
effect on the Company. Although no independent analysis of the Company's
potential exposure has been obtained, the Company believes it has no
exposure to contingencies related to the Year 2000 Problem for the products
it has sold.
The costs of the project and the date on which the Company plans to
complete the Year 2000 modifications are based on management's best
estimates, which were derived utilizing numerous assumptions of future
events including the continued availability of certain resources, third
party modification plans and other factors. However, there can be no
guarantee that these estimates will be achieved and actual results could
differ materially from those plans. Specific factors that might cause such
material differences include, but are not limited to, the availability and
cost of personnel trained in this area, the ability to locate and correct
all relevant computer codes, and similar uncertainties. The Company has not
developed a contingency plan which would be implemented in the unlikely
event that it is not Year 2000 compliant. The Company will continue to
closely monitor the progress of its Year 2000 compliance plan and is in the
process of developing a Year 2000 contingency plan.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There has been no material change in market risk since June 30, 1998.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Company held a Special Meeting of Stockholders (the "Special
Meeting") on March 24, 1999. All of the proposals submitted to the
stockholders were approved. The proposals submitted to stockholders and the
tabulation of votes for each proposal is as follows:
1. Approval of the Mystic Financial, Inc. 1999 Stock Option Plan
For: 1,395,433
Against: 147,337
Abstained: 18,560
There were no broker held non-voted shares represented at the Special
Meeting with respect to this matter.
2. Approval of the Mystic Financial, Inc. 1999 Recognition and
Retention Plan
For: 1,309,784
Against: 226,616
Abstained: 24,930
There were no broker held non-voted shares represented at the Special
Meeting with respect to this matter.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MYSTIC FINANCIAL, INC.
Date: May 14,1999 By: /s/ Robert H. Surabian
----------------- -------------------------------------
Robert H. Surabian
President and Chief Executive Officer
Date: May 14, 1999 By: /s/ Ralph W. Dunham
----------------- -------------------------------------
Ralph W. Dunham
Executive Vice-President, Chief
Financial Officer, and Treasurer
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 6,458
<INT-BEARING-DEPOSITS> 10,328
<FED-FUNDS-SOLD> 9,849
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 24,247
<INVESTMENTS-CARRYING> 3,501
<INVESTMENTS-MARKET> 3,511
<LOANS> 151,048
<ALLOWANCE> 1,308
<TOTAL-ASSETS> 212,249
<DEPOSITS> 155,485
<SHORT-TERM> 2,400
<LIABILITIES-OTHER> 1,099
<LONG-TERM> 17,685
0
0
<COMMON> 27
<OTHER-SE> 35,553
<TOTAL-LIABILITIES-AND-EQUITY> 212,249
<INTEREST-LOAN> 8,429
<INTEREST-INVEST> 974
<INTEREST-OTHER> 780
<INTEREST-TOTAL> 10,183
<INTEREST-DEPOSIT> 3,765
<INTEREST-EXPENSE> 4,587
<INTEREST-INCOME-NET> 5,596
<LOAN-LOSSES> 90
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<EXPENSE-OTHER> 4,306
<INCOME-PRETAX> 1,997
<INCOME-PRE-EXTRAORDINARY> 1,997
<EXTRAORDINARY> 0
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<NET-INCOME> 1,218
<EPS-PRIMARY> 0
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<LOANS-NON> 151
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,236
<CHARGE-OFFS> 20
<RECOVERIES> 2
<ALLOWANCE-CLOSE> 1,308
<ALLOWANCE-DOMESTIC> 1,308
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
