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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period ____________ from to _____________
Commission file number 0-23695
Brookline Bancorp, Inc.
(Exact name of registrant as specified in its charter)
Massachusetts 04-3402944
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
160 Washington Street, Brookline, MA 02447-0469
(Address of principal executive offices) (Zip Code)
(617) 730-3500
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirement for the past 90 days.
YES X NO
--- ----
Indicate the number of shares outstanding of each of the issuer's classes
of stock, as of the latest practicable date.
Common Stock, $0.01 par value - 29,095,000 shares outstanding as of
October 31, 1998.
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<PAGE>
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
FORM 10-Q
Index
<TABLE>
<CAPTION>
Part I Financial Information Page
- ------ --------------------- ----
<S> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheets
as of September 30, 1998 and December 31, 1997 1
Consolidated Statements of Income for the three
months and nine months ended September 30, 1998 and 1997 2
Consolidated Statements of Comprehensive Income for
the three months and nine months ended September 30, 1998 and 1997 3
Consolidated Statements of Changes in Stockholders'
Equity for the nine months ended September 30, 1998 and 1997 4
Consolidated Statements of Cash Flows for the nine
months ended September 30, 1998 and 1997 5
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
Part II Other Information
- ------- -----------------
Item 1. Legal Proceedings 17
Item 2. Changes in Securities 17
Item 3. Defaults upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
Signature Page 19
</TABLE>
<PAGE>
Part I - Financial Information
Item 1. Financial Statements
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Dollars in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------- ------------
(unaudited)
<S> <C> <C>
Assets
------
Cash and due from banks............................................... $ 9,278 $ 8,843
Short-term investments................................................ 35,733 11,670
Securities available for sale......................................... 137,528 117,637
Securities held to maturity (market value of $118,292
and $65,600, respectively).......................................... 116,982 65,444
Restricted equity securities.......................................... 4,424 3,721
Loans................................................................. 537,051 496,412
Allowance for loan losses............................................. (12,854) (12,463)
--------- ----------
Net loans........................................................ 524,197 483,949
--------- ----------
Accrued interest receivable........................................... 6,536 5,240
Bank premises and equipment, net...................................... 1,206 1,361
Other real estate owned, net.......................................... 2,386 2,373
Other assets.......................................................... 239 881
--------- ----------
Total assets..................................................... $ 838,509 $ 701,119
========= ==========
Liabilities and Stockholders' Equity
------------------------------------
Deposits.............................................................. $ 470,078 $ 482,304
Borrowed funds........................................................ 78,415 69,265
Mortgagors' escrow accounts........................................... 3,428 2,896
Income taxes payable.................................................. 4,266 5,901
Deferred income tax liability, net.................................... 1,397 2,041
Accrued expenses and other liabilities................................ 5,144 5,955
--------- ----------
Total liabilities................................................ 562,728 568,362
--------- ----------
Stockholders' equity:
Preferred stock, $.01 par value; 5,000,000 shares authorized,
none issued....................................................... -- --
Common stock, $.01 par value; 45,000,000 shares authorized,
29,095,000 shares issued and outstanding.......................... 291 --
Additional paid-in capital.......................................... 134,492 --
Retained earnings, substantially restricted......................... 131,608 119,018
Accumulated other comprehensive income.............................. 12,957 13,739
Unallocated common stock held by ESOP - 264,796 shares
and none, respectively............................................ (3,567) --
--------- ----------
Total stockholders' equity....................................... 275,781 132,757
--------- ----------
Total liabilities and stockholders' equity....................... $ 838,509 $ 701,119
========= ==========
</TABLE>
See accompanying notes to the unaudited consolidated financial statements.
1
<PAGE>
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(In thousands)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------- -----------------
1998 1997 1998 1997
---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C>
Interest income:
Loans, excluding money market loan participations....... $ 11,510 $ 10,188 $ 32,622 $ 30,836
Money market loan participations........................ 339 588 1,664 2,083
Debt securities......................................... 3,257 2,305 8,817 6,538
Marketable equity securities............................ 192 189 544 540
Restricted equity securities............................ 67 54 182 157
Short-term investments.................................. 641 100 1,752 418
--------- --------- --------- ---------
Total interest income................................ 16,006 13,424 45,581 40,572
--------- --------- --------- ---------
Interest expense:
Deposits................................................ 5,181 5,478 15,955 16,248
Borrowed funds.......................................... 1,286 1,039 3,476 3,079
--------- --------- --------- ---------
Total interest expense .............................. 6,467 6,517 19,431 19,327
--------- --------- --------- ---------
Net interest income....................................... 9,539 6,907 26,150 21,245
Provision for loan losses................................. -- -- 100 --
Net interest income after provision for loan losses.. 9,539 6,907 26,050 21,245
--------- --------- --------- ---------
Non-interest income:
Fees and charges........................................ 235 197 822 585
Gains on sales of securities, net....................... 426 -- 1,672 74
Other real estate owned income, net..................... 64 69 165 189
Other income (loss), net................................ 2 (31) 10 38
--------- --------- --------- ---------
Total non-interest income............................ 727 235 2,669 886
--------- --------- --------- ---------
Non-interest expense:
Compensation and employee benefits...................... 1,465 1,352 4,206 3,922
Occupancy............................................... 163 186 521 529
Equipment and data processing........................... 283 288 879 874
Other................................................... 394 311 1,155 1,085
--------- --------- --------- ---------
Total non-interest expense........................... 2,305 2,137 6,761 6,410
--------- --------- --------- ---------
Income before income taxes................................ 7,961 5,005 21,958 15,721
Provision for income taxes................................ 2,836 1,698 7,920 5,451
--------- --------- --------- ---------
Net income........................................... $ 5,125 $ 3,307 $ 14,038 $ 10,270
========= ========= ========= =========
Weighted average common shares
outstanding during the period 28,917,276
==========
Earnings per common share $ 0.18
=======
</TABLE>
See accompanying notes to the unaudited consolidated financial statements.
2
<PAGE>
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
(In thousands)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------- -------------
1998 1997 1998 1997
---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C>
Net income................................................. $ 5,125 $ 3,307 $ 14,038 $ 10,270
--------- --------- --------- ---------
Other comprehensive income, net of taxes:
Unrealized holding gains (losses)........................ (2,149) 3,387 537 6,130
Income tax expense (benefit)............................. (692) 1,382 299 2,418
---------- --------- --------- ---------
Net unrealized holding gains (losses).............. (1,457) 2,005 238 3,712
--------- --------- --------- ---------
Less reclassification adjustment for gains
included in net income:
Realized gains........................................ 426 -- 1,672 74
Income tax expense.................................... 179 -- 652 26
--------- --------- --------- ---------
Net reclassification adjustment..................... 247 -- 1,020 48
--------- --------- --------- ---------
Total other comprehensive income.................... (1,704) 2,005 (782) 3,664
--------- --------- --------- ---------
Comprehensive income....................................... $ 3,421 $ 5,312 $ 13,256 $ 13,934
========= ========= ========= =========
</TABLE>
See accompanying notes to the unaudited consolidated financial statements.
3
<PAGE>
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity (Unaudited)
Nine months ended September 30, 1998 and 1997
(Dollars in thousands)
<TABLE>
<CAPTION>
Unallocated
Accumulated common
Additional other stock Total
Common paid-in Retained comprehensive held stockholders'
stock capital earnings income by ESOP equity
----- ------- -------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996......... $ -- $ -- $ 105,287 $ 8,660 $ -- $ 113,947
Net income........................... -- -- 10,270 -- -- 10,270
Unrealized gain on securities
available for sale, net of
reclassification adjustment....... -- -- -- 3,664 -- 3,664
------- ---------- ---------- --------- ---------- ---------
Balance at September 30, 1997........ $ -- $ -- $ 115,557 $ 12,324 $ -- $ 127,881
======= ========== ========== ========= ========== =========
Balance at December 31, 1997......... $ -- $ -- $ 119,018 $ 13,739 $ -- $ 132,757
Net income........................... -- -- 14,038 -- -- 14,038
Unrealized gain on securities
available for sale, net of
reclassification adjustment....... -- -- -- (782) -- (782)
Net proceeds of stock offering
and issuance of common
stock (29,095,000 shares)......... 291 134,499 -- -- -- 134,790
Common stock dividend
of $0.05 per share................ -- -- (1,448) -- -- (1,448)
Common stock acquired by
ESOP (278,500 shares)............. -- -- -- -- (3,777) (3,777)
Common stock held by ESOP
committed to be released
(13,704 shares)................... -- (7) -- -- 210 203
------- ---------- ---------- --------- --------- ---------
Balance at September 30, 1998........ $ 291 $ 134,492 $ 131,608 $ 12,957 $ (3,567) $ 275,781
======= ========== ========== ========= ========= =========
</TABLE>
See accompanying notes to the unaudited consolidated financial statements.
4
<PAGE>
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Nine months ended
September 30,
------------------------
1998 1997
-------- -------
(unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income........................................................... $ 14,038 $ 10,270
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses........................................ 100 --
Provision for losses on other real estate owned.................. -- --
Provision for ESOP............................................... 203 --
Depreciation and amortization.................................... 342 337
Amortization, net of accretion, of securities premiums
and discounts.................................................. 654 453
Accretion of deferred loan origination fees
and unearned discounts......................................... (372) (534)
Net gains from sales of securities available for sale............ (1,672) (74)
Net gains from sales of other real estate owned.................. (3) (12)
Deferred income taxes............................................ (291) (151)
(Increase) decrease in:
Accrued interest receivable.................................... (1,296) (461)
Other assets................................................... 642 306
Increase (decrease) in:
Income taxes payable........................................... (1,635) 2,989
Accrued expenses and other liabilities......................... (811) 430
-------- ----------
Net cash provided by operating activities.................... 9,899 13,553
-------- ----------
Cash flows from investing activities:
Proceeds from sales and calls of securities available for sale....... 3,033 752
Proceeds from redemptions and maturities of securities
available for sale................................................. 32,441 30,218
Proceeds from redemptions and maturities of securities
held to maturity................................................... 13,270 20,174
Purchase of securities available for sale............................ (55,003) (33,108)
Purchase of securities held to maturity.............................. (65,287) (35,383)
Purchase of Federal Home Loan Bank of Boston stock................... (703) (63)
Net increase in loans................................................ (55,267) (29,235)
Proceeds from sales of participation in loans........................ 1,691 1,198
Purchase of bank premises and equipment.............................. (162) (302)
Capital expenditures on other real estate owned...................... (90) (67)
Proceeds from sales of other real estate owned....................... 55 87
-------- ----------
Net cash used for investing activities....................... (126,022) (45,729)
-------- ----------
(Continued)
</TABLE>
5
<PAGE>
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows - (Continued)
(In thousands)
<TABLE>
<CAPTION>
Nine months ended
September 30,
------------------------
1998 1997
-------- -------
(unaudited)
<S> <C> <C>
Cash flows from financing activities:
Decrease in demand deposits and NOW, savings and
money market savings accounts...................................... $ (866) $ (4,069)
Decrease in certificates of deposit.................................. (11,360) (804)
Proceeds from Federal Home Loan Bank of Boston advances.............. 29,950 15,492
Repayment of Federal Home Loan Bank of Boston advances............... (20,800) (14,742)
Increase in mortgagors' escrow deposits.............................. 532 487
Net proceeds from issuance of common stock........................... 134,790 --
Purchase of common stock for ESOP.................................... (3,777) --
Payment of dividend on common stock.................................. (1,448) --
--------- ---------
Net cash provided by financing activities...................... 127,021 (3,636)
--------- ---------
Net increase (decrease) in cash and cash equivalents................... 10,898 (35,812)
Cash and cash equivalents at beginning of period....................... 44,513 79,285
--------- ---------
Cash and cash equivalents at end of period............................. $ 55,411 $ 43,473
========= =========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest on deposits and borrowed funds............................ $ 19,398 $ 19,346
Income taxes....................................................... 9,845 2,744
</TABLE>
See accompanying notes to the unaudited consolidated financial statements.
6
<PAGE>
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Nine Months Ended September 30, 1998 and 1997
(Unaudited)
(1) Basis of Presentation
---------------------
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles
("GAAP") for interim financial information and the instructions for Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by GAAP for complete
financial statements. In the opinion of management, all adjustments
(consisting only of normal recurring accruals) necessary for a fair
presentation have been included. Results for the nine months ended
September 30, 1998 are not necessarily indicative of the results that
may be expected for the year ending December 31, 1998.
(2) Reorganization and Stock Offering (Dollars in Thousands)
--------------------------------------------------------
Brookline Bancorp, Inc. (the "Company") is a Massachusetts corporation
that was organized in November 1997 at the direction of the Board of
Trustees of Brookline Savings Bank (the "Bank") for the purpose of
acquiring all of the capital stock of the Bank upon completion of the
Bank's reorganization from a mutual savings bank into a mutual holding
company structure. As part of the reorganization, the Company offered
for sale 47% of the shares of its common stock in an offering fully
subscribed for by eligible depositors of the Bank (the "Offering"). The
remaining 53% of the Company's shares of common stock were issued to
Brookline Bancorp, MHC (the "MHC"), a state-chartered mutual holding
company incorporated in Massachusetts. The reorganization and Offering
were completed on March 24, 1998. Prior to that date, the Company had no
assets or liabilities. The reorganization has been accounted for as an
"as if" pooling with assets and liabilities recorded at historical cost.
Completion of the Offering resulted in the issuance of 29,095,000 shares
of common stock, 15,420,350 shares (53%) of which were issued to the MHC
and 13,674,650 shares (47%) of which were sold to eligible depositors of
the Bank at $10.00 per share. Costs related to the Offering (primarily
marketing fees paid to an underwriting firm, professional fees,
registration fees, and printing and mailing costs) aggregated $1,957 and
have been deducted to arrive at net proceeds of $134,790 from the
Offering. The Company contributed 50% of the net proceeds of the
Offering to the Bank for general corporate use. Net Offering proceeds
retained by the Company were used to fund a loan to the Bank's employee
stock ownership plan and acquire short-term investments.
As part of the Offering, the Bank established a liquidation account
equal to $58,924 for the benefit of eligible account holders and
supplemental eligible account holders who maintain their deposit
accounts at the Bank after the Offering. The liquidation account is
reduced annually to the extent that such account holders have reduced
their qualifying deposits as of each anniversary date. Subsequent
increases in deposit account balances do not restore an account holder's
interest in the liquidation account. In the event of a complete
liquidation of the Bank, each eligible account holder and supplemental
eligible account holder would be entitled to receive balances for
qualifying deposits then held.
The Company and the Bank may not declare or pay dividends on and the
Company may not repurchase any of its shares of common stock if the
effect thereof would cause stockholders' equity to be reduced below the
required liquidation account balance or minimum regulatory capital
levels.
7
<PAGE>
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - (Continued)
Nine Months Ended September 30, 1998 and 1997
(Unaudited)
(3) Employee Stock Ownership Plan (Dollars in Thousands)
----------------------------------------------------
On March 24, 1998, the Board of Directors of the Bank approved an
employee stock ownership plan (the "ESOP"). All employees meeting age
and service requirements are eligible to participate in the ESOP. The
ESOP is authorized to purchase up to 4% of the common stock sold in the
Offering, or 546,986 shares, in the open market and to borrow up to
$7,500 from the Company to finance the purchase of such shares. The loan
is payable in quarterly installments over 30 years and bears interest at
8.50% per annum. The loan can be prepaid without penalty. Loan payments
are to be funded by cash contributions from the Bank and dividends on
Company stock held by the ESOP.
As of September 30, 1998, the ESOP borrowed $3,777 from the Company to
purchase 278,500 shares of common stock in the open market. ESOP expense
of $203 was provided for the nine months ended September 30, 1998 in
recognition of the 13,704 shares committed to be released as of that
date.
(4) Earnings per Share
------------------
Earnings per share is based on the weighted average number of shares
outstanding during the periods presented. The Company's "basic" and
"diluted" earnings per share computations are identical in the periods
presented, as there is no dilution effect. Earnings per share is not
presented for periods ended prior to April 1, 1998 since the Company
completed its Offering on March 24, 1998 and, accordingly, such data
would not be meaningful.
The weighted average shares outstanding for the three month period ended
September 30, 1998 was calculated as follows:
<TABLE>
<CAPTION>
Shares Fraction Weighted
Dates Outstanding Outstanding of period Average shares
----------------- ----------- --------- --------------
<S> <C> <C> <C>
July 1 through September 30, 1998 29,095,000 100% 29,095,000
Less unallocated ESOP shares:
At beginning of period (115,975) 100% (115,975)
Purchased during period (156,000) 42% (65,339)
ESOP shares committed to be
released during period 7,179 50% 3,590
========== ===
----------
Weighted average shares 28,917,276
==========
</TABLE>
(5) Other Comprehensive Income (Dollars in Thousands)
The Company adopted Financial Accounting Standards Board Statement No.
130, "Reporting Comprehensive Income" (SFAS No. 130), effective January
1, 1998. SFAS No. 130 establishes standards for reporting comprehensive
income and its components (revenues, expenses, gains and losses).
Components of comprehensive income are net income and all other
non-owner changes in equity. The Statement requires that an enterprise
(a) classify items of other comprehensive income by their nature in a
financial statement and (b) display the accumulated balance of other
comprehensive income separately from retained earnings and
8
<PAGE>
BROOKLINE BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - (Continued)
Nine Months Ended September 30, 1998 and 1997
(Unaudited)
additional paid-in capital in the equity section of a statement of
financial position. Reclassification of financial statements for earlier
periods provided for comparative purposes is required. The Company has
chosen to disclose comprehensive income in a separate financial
statement, in which the components of comprehensive income are displayed
net of income taxes.
Accumulated other comprehensive income is comprised entirely of
unrealized gains on securities available for sale, net of income taxes.
At September 30, 1998 and December 31, 1997, such taxes amounted to
$7,948 and $8,301, respectively.
(6) Operating Segments
------------------
The Company adopted Financial Accounting Standards Board Statement No.
131, "Disclosures About Segments of an Enterprise and Related
Information" (SFAS No. 131), effective January 1, 1998. This Statement
establishes standards for reporting information about segments in annual
and interim financial statements. SFAS No. 131 introduces a new model
for segment reporting called the "management approach". The management
approach is based on the way the chief operating decision-maker
organizes segments within the company for making operating decisions and
assessing performance. Reportable segments are based on products and
services, geography, legal structure, management structure and any other
in which management disaggregates a company. Based on the "management
approach" model, the Company has determined that its business is
comprised of a single operating segment and that SFAS No. 131 therefore
has no impact on its financial statements.
(7) Commitments and SWAP Agreement (Dollars in Thousands)
-----------------------------------------------------
At September 30, 1998, the Company had outstanding commitments to
originate loans of $54,025, $44,318 of which were commercial real estate
and multi-family mortgage loans. Unused lines of credit available to
customers were $8,905, $7,583 of which were equity lines of credit.
Effective April 14, 1998, the Bank entered into an interest-rate swap
agreement with a third-party that matures April 14, 2005. The notional
amount of the agreement is $5,000. Under this agreement, each quarter
the Bank pays interest on the notional amount at an annual fixed rate of
5.9375% and receives from the third-party interest on the notional
amount at the floating three month U.S. dollar LIBOR rate. The Bank
entered into this transaction to match more closely the repricing of its
assets and liabilities and to reduce its exposure to increases in
interest rates. The net interest expense paid was $3 and $6 for the
three months ended September 30, 1998 and the period from April 14, 1998
through September 30, 1998, respectively.
(8) Dividend Declaration
--------------------
On October 15, 1998, the Board of Directors of the Company approved and
declared a regular quarterly cash dividend of $.05 per share of common
stock to shareholders of record as of October 31, 1998 and payable on
November 13, 1998.
9
<PAGE>
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
General
Brookline Bancorp, Inc. (the "Company") was organized in November 1997 for
the purpose of acquiring all of the capital stock of Brookline Savings Bank (the
"Bank") upon completion of the Bank's reorganization from a mutual savings bank
into a mutual holding company structure. As part of the reorganization, the
Company offered for sale 47% of the shares of its common stock in an offering
fully subscribed for by eligible depositors of the Bank (the "Offering"). The
remaining 53% of the Company's shares of common stock were issued to Brookline
Bancorp, MHC, a state-chartered mutual holding company incorporated in
Massachusetts. The reorganization and Offering were completed on March 24, 1998.
See note 2 to the unaudited consolidated financial statements for further
information about the reorganization and the Offering.
Prior to March 24, 1998, the Company had no assets or liabilities. Its
principal activities since that date through September 30, 1998 have been to
complete the Offering, acquire all of the capital stock of the Bank, contribute
50% of the net proceeds of the Offering to the Bank and use the remaining 50% of
the net proceeds to acquire short-term investments and fund a loan to the Bank's
employee stock ownership plan.
The reorganization has been accounted for as an "as if" pooling with assets
and liabilities recorded at historical cost. The unaudited consolidated
financial statements include the accounts of the Company, the Bank and the
Bank's subsidiaries.
This quarterly report on Form 10-Q contains forward-looking statements. For
this purpose, any statements contained herein that are not statements of
historical fact may be deemed to be forward-looking statements. Without limiting
the foregoing, the words "believes", "anticipates", "plans", "expects" and
similar expressions are intended to identify forward-looking statements. There
are a number of important factors that could cause the Company's actual results
to differ materially from those contemplated by such forward-looking statements.
These important factors include, without limitation, the Bank's continued
ability to originate quality loans, fluctuation of interest rates, real estate
market conditions in the Bank's lending areas, general and local economic
conditions, the Bank's continued ability to attract and retain deposits, the
Company's ability to control costs, new accounting pronouncements and changing
regulatory requirements.
Comparison of Financial Condition at September 30, 1998 and December 31, 1997
Total assets increased by $137.4 million, or 19.6%, from $701.1 million at
December 31, 1997 to $838.5 million at September 30, 1998. The increase was
attributable primarily to the completion of the Company's Offering on March 24,
1998. Net proceeds from the Offering amounted to $134.8 million. Certain
subscribers to the Offering paid for their shares by authorizing withdrawals
from deposit accounts maintained at the Bank. This was the primary reason for
the $12.2 million decline in deposits from $482.3 million at December 31, 1997
to $470.1 million at September 30, 1998.
The net proceeds of the Offering were used primarily to acquire short-term
investments (including money market loan participations), debt obligations
maturing in two years or less and 278,500 shares of the Company's common stock
for the Bank's employee stock ownership plan at an aggregate cost of $3.8
million, or $13.56 per share. Money market loan participations represent
purchases of a portion of loans to national companies and organizations
originated and serviced by money center banks. The participations generally
mature between one day and three months. The Bank views such participations as
an alternative investment to slightly lower yielding short-term investments.
Money market loan participations amounted to $10.4 million at September 30, 1998
and $24.0 million at December 31, 1997.
Excluding money market loan participations, the loan portfolio increased by
$54.2 million, or 11.5%, from $472.4 million at December 31, 1997 to $526.6
million at September 30, 1998. Of this increase, $31.9 million took place
10
<PAGE>
during the three months ended September 30, 1998. The loan growth was primarily
in the commercial real estate and multi-family mortgage loan portfolios.
Commercial real estate mortgage loans increased by $27.7 million to $177.2
million and multi-family mortgage loans increased by $26.2 million to $246.1
million. Residential mortgage loans declined by $3.1 million to $65.8 million
during the nine month period.
In the past several weeks, certain major brokerage firms and money center
banks have incurred losses from investments in and lending to hedge funds. The
Company has no investments in or loans to hedge funds. Included in its
investment portfolio at September 30, 1998 are $12.0 million in corporate bonds
of major brokerage firms and money center banks with significant trading
activities. Of these bonds, $4.0 million mature within one year, $7.0 million
mature between one and two years and $1.0 million matures within five years. The
Company anticipates full payment of these bonds at maturity.
Stockholders' equity increased from $132.8 million, or 18.9% of total
assets, at December 31, 1997 to $275.8 million, or 32.9% of total assets, at
September 30, 1998. The increase resulted from receipt of the net proceeds from
the Offering, net income earned less a $0.05 per share dividend paid to
stockholders and changes in other comprehensive income during the nine months
ended September 30, 1998. Unrealized gains on securities available for sale are
reported as accumulated other comprehensive income. Such gains amounted to $20.9
million ($13.0 million on an after-tax basis) at September 30, 1998 and $22.0
million ($13.7 million on an after-tax basis) at December 31, 1997. The decline
is attributable to the realization of $1.7 million of pre-tax gains from the
sale of marketable equity securities and lower market prices for marketable
equity securities remaining in the portfolio.
Non-Performing Assets, Restructured Loans and Allowance for Loan Losses
The following table sets forth information regarding non-performing assets,
restructured loans and the allowance for loan losses:
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
----------- ----------
(Dollars in thousands)
<S> <C> <C>
Non-accrual loans:
Mortgage loans:
One-to-four family $ 29 $ 230
Commercial 300 522
Home equity 35 51
Consumer loans 1 --
--------- ---------
Total non-accrual loans 365 803
Other real estate owned, net of allowance
for losses of $186 and $186, respectively 2,386 2,373
--------- ---------
Total non-performing assets $ 2,751 $ 3,176
========= =========
Restructured loans $ -- $ 2,287
========= =========
Allowance for loan losses $ 12,854 $ 12,463
========= =========
Allowance for loan losses as a percent
of total loans 2.39% 2.51%
Allowance for loan losses as a percent
of total loans, excluding money market
participation loans 2.44 2.64
Non-accrual loans as a percent of total loans 0.07 0.16
Non-performing assets as a percent of
total assets 0.33 0.45
</TABLE>
11
<PAGE>
During the nine months ended September 30, 1998, there were no loan
charge-offs and $289,000 in recoveries of loans previously charged off, $288,000
of which was realized from payments on restructured loans during the three
months ended September 30, 1998. The remaining balance of the restructured loans
has been removed from that category since the loans earn market rates of
interest and have been performing in accordance with their restructured terms
for an ample period of time. As a result of the recoveries and the overall
status of the loan portfolio, no provision for loan losses was recorded for the
three months ended September 30, 1998.
While management believes that, based on information currently available,
the allowance for loan losses is sufficient to cover losses inherent in the
Bank's loan portfolio at this time, no assurances can be given that the level of
the allowance will be sufficient to cover future loan losses or that future
adjustments to the allowance will not be necessary if economic and/or other
conditions differ substantially from the economic and other conditions
considered by management in evaluating the adequacy of the current level of the
allowance.
Comparison of Operating Results for the Three Months Ended September 30, 1998
and 1997
General
Operating results are primarily dependent on the Bank's net interest
income, which is the difference between the interest earned on the Bank's loan
and investment securities portfolios and the interest paid on deposits and
borrowings. Operating results are also affected by provisions for loan losses,
the level of income from non-interest sources such as fees and sales of
investment securities and other assets, operating expenses and income taxes.
Operating results are also significantly affected by general economic
conditions, particularly changes in interest rates, as well as government
policies and actions of regulatory authorities.
Net income for the three months ended September 30, 1998 was $5.1 million
compared to $3.3 million for the three months ended September 30, 1997, an
increase of 55.0%. The 1998 period included $426,000 of gains from sales of
marketable equity securities ($247,000 on an after-tax basis) compared to none
in the 1997 period. The 1998 period also included $480,000 ($310,000 on an
after-tax basis) resulting from receipt of interest on restructured loans
pertaining primarily to periods prior to 1998. Excluding these amounts, the
increase in net income for the 1998 third quarter compared to the 1997 third
quarter would have been $1.3 million, or 38.1%. This level of increase resulted
primarily from investment of the net proceeds of the Offering and loan growth.
Interest rate spread (the difference between yields earned on assets and
rates paid on deposits and borrowings) declined from 3.08% for the three months
ended September 30, 1997 to 2.67% for the three months ended September 30, 1998.
The decline was attributable in part to having a greater percentage of earning
assets in short-term investments earning lower yields than in higher yielding
loans. Much of the net proceeds of the Offering were placed in short-term
investments and debt obligations maturing within two years. Also contributing to
the decline were lower yields on existing loans and new loan originations caused
by a falling interest rate environment. That environment has also resulted in
lower yields on short-term investments. If current market trends continue,
management believes that interest rate spread could decline further.
Earnings per share of common stock was $0.18 for the three months ended
September 30, 1998. Securities gains on an after-tax basis amounted to $.01 per
share in that three month period. Per share data is not presented for periods
prior to April 1, 1998 because the Company became a publicly owned stock
institution on March 24, 1998 and, accordingly, did not have shares outstanding
throughout the other periods presented.
Interest Income
Interest income on loans, excluding money market loan participations,
increased $1.3 million, or 13.0%, from $10.2 million for the three months ended
September 30, 1997 to $11.5 million for the three months ended September 30,
1998. Excluding $480,000 of interest collected on restructured loans in the 1998
period pertaining primarily to periods prior to 1998, the rate of increase was
8.3%. This adjusted rate of increase was less than the 13.5% rate of growth in
average loans outstanding (exclusive of money market loan participations)
because of a decline in the
12
<PAGE>
average yield on the loan portfolio from 9.03% in the 1997 quarter to 8.62% in
the 1998 quarter. The reduction in loan yield is a reflection of the falling
interest rate environment of the past year. Historically, much of the Bank's
loan portfolio has been priced at adjustable rates tied to a published prime
rate. Recent cuts in the prime rate will cause a decline in the yield on the
Bank's adjustable rate loans. The falling rate environment has prompted some
multi-family and commercial real estate borrowers to exercise their options to
convert their loans to fixed-rate pricing for several years. Additionally, a
significant part of new loan production ($31.9 million net growth in loans
during the third quarter of 1998) is being originated at prevailing market rates
for fixed periods averaging five to seven years. If interest rates increase
during the fixed rate phase of these new loans, net interest income could be
negatively affected. Management expects the overall yield on the loan portfolio
in the next few quarters to decline from the 8.62% average yield earned for the
three months ended September 30, 1998.
The average balances invested in money market loan participations in the
three months ended September 30, 1998 and 1997 were $23.4 million and $40.3
million, respectively, and the yields earned on those balances were 5.80% and
5.84%, respectively.
Interest income from investment securities and short-term investments
increased 57.0% from $2.6 million for the three months ended September 30, 1997
to $4.2 million for the three months ended September 30, 1998. The average
balance of the underlying assets increased $112.0 million, or 59.9%, during the
comparable quarters as most of the proceeds from the Offering were placed in
short-term investments and debt obligations maturing within two years. The
average yield on investments declined from 5.67% to 5.56% primarily as a result
of short-term investments comprising a greater portion of total investments.
Interest Expense
Interest expense on deposits was $5.2 million for the three months ended
September 30, 1998, a 5.4% decrease from the $5.5 million expended for the three
months ended September 30, 1997. The decrease resulted from a $13.4 million
(2.9%) reduction in average interest-bearing deposits outstanding during the
comparable quarters and a lower average rate paid on such deposits (4.65% in
1997 and 4.53% in 1998). The decline in deposit balances was due primarily to
withdrawals by eligible depositors for purchase of stock in the Offering.
Falling interest rates also affected deposit flows.
The Bank increased its use of borrowings from the Federal Home Loan Bank of
Boston (the "FHLB") as part of its management of interest rate risk. Total
advances outstanding were $78.4 million at September 30, 1998 compared to $69.3
million at December 31, 1997. The average rate paid on advances outstanding
during the three months ended September 30, 1997 and 1998 declined from 6.58% to
6.44%.
Non-Interest Income
Sales of marketable equity securities during the three months ended
September 30, 1998 and 1997 resulted in gains of $426,000 and none,
respectively. Marketable equity securities are held by the Company primarily for
capital appreciation and not for trading purposes. The increase in fees and
charges between the 1998 and 1997 three month periods resulted primarily from
loan prepayments.
Non-Interest Expense
Total non-interest expense increased 7.9% from $2.1 million for the three
months ended September 30, 1997 to $2.3 million for the three months ended
September 30, 1998. Most of the increase resulted from higher compensation and
employee benefits expense caused by the addition of a chief financial officer
and a loan officer in June 1997 and two additional loan officers in the second
quarter of 1998 and a $94,000 provision for ESOP expense. The ESOP went into
effect in the second quarter of 1998. Occupancy expense was $23,000 less in the
1998 quarter compared to the 1997 quarter primarily as a result of accrual
adjustments for rent and real estate taxes in 1997. Equipment and data
processing expense was lower in the 1998 period compared to the 1997 period
despite $35,000 of expenses relating to Year 2000 compliance in 1998. In 1997,
conversion to a new third party data processing service bureau resulted in
13
<PAGE>
higher expense than that incurred in 1998. The increase in other expenses was
due primarily to being a public company and higher costs for legal matters.
Income Taxes
The effective rate of income tax expense was 35.6% for the three months
ended September 30, 1998 compared to 33.9% for the three months ended September
30, 1997. The Company paid a lower federal rate in 1997 because its taxable
earnings for the year ended October 31, 1997 were below the threshold at which
the maximum federal rate must be applied. The rate of state income taxes was low
in both years because of the creation of a real estate investment trust
subsidiary in 1997 and utilization of investment security subsidiaries.
Comparison of Operating Results for the Nine Months Ended September 30, 1998 and
1997
General
Net income for the nine months ended September 30, 1998 was $14.0 million
compared to $10.3 million for the nine months ended September 30, 1997, an
increase of 36.7%. The 1998 period included $1.7 million of gains from sales of
securities ($1.0 million on an after-tax basis) compared to $74,000 of gains
($48,000 on an after-tax basis) in the 1997 period. Also, these nine month
periods include receipt of $444,000 ($287,000 on an after-tax basis) in 1998 and
$908,000 ($529,000 on an after-tax basis) in 1997 of interest income on
restructured and non-accrual loans earned in periods prior to 1998 and 1997,
respectively. Excluding such interest and the securities gains, the increase in
net income for the nine month periods would have been $3.0 million, or 31.3%.
Loan growth and investment of the net proceeds of the Offering were the primary
reasons for the earnings improvement.
Interest rate spread declined from 3.10% for the 1997 period to 2.83% for
the 1998 period primarily as a result of lower yields on loans without a
corresponding reduction in rates paid on deposits and borrowings. Regarding
expenses, the 1998 period included a $100,000 provision for loan losses,
$203,000 for the ESOP put into effect at the time of the Offering and $85,000
for Year 2000 compliance matters. There were no expenses for these items in the
1997 period.
Interest Income
Interest income on loans, excluding money market loan participations and
the $444,000 (in 1998) and $908,000 (in 1997) of interest referred to in the
preceding section, increased from $29.9 million for the 1997 period to $32.2
million for the 1998 period, an increase of 7.5%. The positive benefit derived
from a $48.7 million, or 11.0%, growth in average loans outstanding (exclusive
of money market loan participations) between the 1998 and 1997 periods was
offset in part by a decline in the average yield on such loans from 9.01% in the
1997 period to 8.73% in the 1998 period. The reduction in loan yield was due to
the falling interest rate environment of the past year.
Interest income on money market loan participations declined by 20.1% to
$1.7 million in the 1998 period as a result of a $10.2 million, or 20.7%,
decline in the average amount invested in such loans. The increase in income
from securities and short-term investments resulted substantially from
investment of the net proceeds of the Offering. The average yield on such
investments declined from 5.64% in the 1997 period to 5.52% in the 1998 period
as the percent of balances maintained in short-term investments was higher in
the 1998 period than in the 1997 period. Because of the flat yield curve in
existence for the past several months, management has restricted its investment
purchases primarily to securities with maturities of two years or less.
Interest Expense
The average balance of interest-bearing deposits declined by $8.6 million,
or 1.8%, to $464.5 million for the nine months ended September 30, 1998 as a
result of some of the subscribers in the Offering electing to pay for their
stock by withdrawal from their deposit accounts. The average rate paid on
deposits was 4.50% in the 1998 period compared
14
<PAGE>
to 4.58% in the 1997 period. In addition to interest paid on deposits, interest
of $275,000 was paid in the 1998 period on funds received from subscribers prior
to completion of the Offering. The rate paid on such funds was 2.50%.
The average balance of borrowings from the FHLB increased from $63.0
million in the 1997 period to $72.3 million in the 1998 period. Such borrowings
were made primarily in connection with management of the Bank's interest rate
risk. The average rate paid on the borrowings was 6.41% in the 1998 period
compared to 6.52% in the 1997 period.
Non-Interest Income
Gains from sales of marketable equity securities were $1.7 million in the
1998 period compared to $74,000 in the 1997 period. The increase in fees and
charges between the 1998 and 1997 periods resulted primarily from loan
repayments.
Non-Interest Expense
Total non-interest expense increased 5.5% from $6.4 million for the 1997
period to $6.8 million for the 1998 period. Compensation and employee benefits
increased by $284,000, or 7.2%. The ESOP, which went into effect in the second
quarter of 1998, accounted for $203,000 of the increase. The added expense
resulting from normal salary increases, the hiring of a chief financial officer,
a loan officer in June 1997 and two loan officers in the second quarter of 1998
and higher fees for Board meetings was significantly offset by a reduction in
expenses for supplemental executive and employee retirement benefits and
performance bonuses.
Equipment and data processing expense of $879,000 for the 1998 period
included a provision of $85,000 relating to the Company's efforts to comply with
Year 2000 requirements. Included in the 1997 period were expenses relating to
the Bank's conversion to a new computer system. The increase in other expenses
was due primarily to being a public company.
Income Taxes
The effective rate of income tax expense was 36.1% for the 1998 period
compared to 34.7% for the 1997 period. The Company paid a lower federal rate in
1997 because its taxable earnings for the tax year ended October 31, 1997 were
below the threshold at which the maximum federal rate must be applied. The rate
of state income taxes was low in both years because of the utilization of a real
estate investment trust subsidiary and investment security subsidiaries.
Asset/Liability Management
The Bank's Asset/Liability Committee is responsible for managing interest
rate risk and reviewing with the Board of Directors on a quarterly basis its
activities and strategies, the effect of those strategies on the Bank's
operating results, the Bank's interest rate risk position and the effect changes
in interest rates would have on the Bank's net interest income.
Generally, it is the Bank's policy to reasonably match the rate sensitivity
of its assets and liabilities. The interest rate sensitivity gap is defined as
the difference between the amount of interest-earning assets maturing or
repricing within a specific time period and the amount of interest-bearing
liabilities maturing or repricing within the same time period. Also taken into
consideration are interest rate swap agreements entered into by the Bank. At
September 30, 1998, interest-earning assets maturing or repricing within one
year amounted to $359.3 million and interest-bearing liabilities maturing or
repricing within one year amounted to $408.9 million resulting in a cumulative
one-year negative gap position of $49.6 million, or 5.9% of total assets.
15
<PAGE>
Liquidity and Capital Resources
The Bank's primary sources of funds are deposits, principal and interest
payments on loans and debt securities and borrowings from the FHLB. In March
1998, $134.8 million of net proceeds from the Offering added significantly to
the funds available to the Company for use in conducting its business. While
maturities and scheduled amortization of loans and investments are predictable
sources of funds, deposit flows and mortgage loan prepayments are greatly
influenced by interest rate trends, economic conditions and competition.
During the past few years, the combination of generally low interest rates
on deposit products and the attraction of alternative investments such as mutual
funds and annuities has resulted in little growth or a net decline in deposits
in certain time periods. Based on its monitoring of historic deposit trends and
its current pricing strategy for deposits, management believes the Bank will
retain a large portion of its existing deposit base.
From time to time, the Bank utilizes advances from the FHLB primarily in
connection with its management of the interest rate sensitivity of its assets
and liabilities. During the nine months ended September 30, 1998, the Bank
repaid advances of $20.8 million and obtained new advances of $30.0 million.
Total advances outstanding at September 30, 1998 amounted to $78.4 million.
The Bank's most liquid assets are cash and due from banks, short-term
investments, debt securities and money market loan participations that generally
mature within 90 days. At September 30, 1998, such assets amounted to $78.1
million, or 9.3% of total assets.
At September 30, 1998, the Company and the Bank exceeded all regulatory
capital requirements. The Bank's leverage capital was $199.4 million, or 26.5%
of adjusted assets. The minimum required leverage capital ratio is 3.00% to
5.00% depending on a bank's supervisory rating.
Year 2000 ("Y2K") Compliance
Changing from the year 1999 to 2000 has the potential to cause problems in
data processing and other date- sensitive systems, a problem known as the Year
2000 or Y2K dilemma. The Year 2000 date change can affect any system that uses
computer software programs or computer chips, including automated equipment and
machinery. For example, many software programs or computer chips store calender
dates as two-digit rather than four-digit numbers. These software programs
record the year 1998 as "98." This approach will work until the Year 2000 when
"00" may be read as 1900 instead of 2000.
Regarding the Company, computer systems are used to perform financial
calculations, track deposits and loan payments, transfer funds and make direct
deposits. The processing of the Company's loan and deposit transactions is
outsourced to a third-party data processing vendor. Computer software and
computer chips also are used to run security systems, communications networks
and other essential bank equipment. Because of its reliance on these systems
(including those used by its third-party data processing vendor), the Company is
following a comprehensive process to assure that such systems are ready for the
Year 2000 date change.
To become Y2K compliant, the Company is following a five-step process
suggested by federal bank regulatory agencies. A description of each of the
steps and the status of the Company's efforts in completing the steps is as
follows:
Step 1. Awareness and Understanding of the Problem. The Company has formed
a Year 2000 team that has investigated the problem and its potential impact on
the Company's systems. An independent consulting firm has been engaged to assist
the Company in development of its approach to becoming Y2K compliant. This phase
also includes education of the Company's employees and customers about Y2K
issues. The awareness and understanding phase of this step has been completed.
Training and communication has taken place and will continue in 1999.
16
<PAGE>
Step 2. Identification of All Potentially Affected Systems. This step has
included a review of all major information technology ("IT") and non-information
technology ("non-IT") systems to determine how they are impacted by Y2K issues.
An inventory has been prepared of all vendors who render IT and non-IT services
to the Company. This step is considered complete.
Step 3. Assessment and Planning. The Y2000 team has completed its
assessment of which systems and equipment are most prone to placing the Company
at risk if they are not Y2K compliant. The project team has developed an
inventory of its vendors, an inventory of actions to be taken, identification of
the team members responsible for completion of each action, a completion
timetable and a project tracking methodology. Significant vendors have been
requested to advise the Company in writing of their Y2K readiness, including
actions to become compliant if they are not already compliant. A plan has been
developed to repair or replace systems and equipment not currently Y2K
compliant. This step is substantially complete. Responses from certain vendors
have not yet been received.
Step 4. Correction and Testing. The Company's third party data processing
servicer as well as vendors who provide significant technology-related services
have modified their systems to become Y2K compliant. The Company has developed
scripts involving typical transactions to test the proper functioning of the
modified systems. It has also arranged for repair or replacement of equipment
programs affected by Y2K issues. Most of the testing and corrections has taken
place. This step is expected to be completed by the end of 1998. The monitoring
of certain non-IT vendors will continue into 1999.
Step 5. Implementation. This step includes repair or replacement of systems
and computer equipment and the development of contingency plans. The repair and
replacement phase is substantially completed. Contingency plans for how the
Company would resume business if unanticipated problems arise from
non-performance by IT and non-IT vendors is in the process of being addressed.
Such plans are expected to be completed in the first quarter of 1999.
The Company's efforts to become Y2K compliant are being monitored by its
federal banking regulators. Failure to be Y2K compliant could subject the
Company to formal supervisory or enforcement actions.
The Company expensed $85,000 during the nine months ended September 30,
1998 and expects to incur additional costs through 1998 and 1999 to become Y2K
compliant. It does not expect such costs to be material to the operating
expenses of the Company. Some of the costs are not expected to be incremental to
the Company, but rather represent new equipment and software that would
otherwise be purchased in the normal course of the Company's business. The
Company presently believes the Y2K issue will not pose significant operating
problems for the Company. However, if implementation and testing plans are not
completed in a satisfactory and timely manner, in particular by third parties on
which the Company is dependent, or other unforeseen problems arise, the Y2K
issue could have a material adverse effect on the operations of the Company.
Part II - Other Information
Item 1. Legal Proceedings
The Company and its subsidiaries are not involved in any litigation, nor is
the Company aware of any pending litigation, other than legal proceedings
incident to the business of the Company. Management believes the results of any
current pending litigation would be immaterial to the consolidated financial
condition or results of operations of the Company.
Item 2. Changes in Securities
The Company was organized in November 1997 at the direction of the Board of
Trustees of the Bank for the purpose of acquiring all of the capital stock of
the Bank upon completion of the Bank's reorganization from a mutual savings bank
into a mutual holding company structure. As part of the reorganization, the
Company offered for sale 47% of the shares of its common stock in an offering
fully subscribed for by eligible depositors of the Bank (the
17
<PAGE>
"Offering"). The remaining 53% of the Company's shares of common stock were
issued to Brookline Bancorp, MHC (the "MHC"), a state-chartered mutual holding
company incorporated in Massachusetts. The reorganization and Offering were
completed on March 24, 1998.
Completion of the Offering resulted in the issuance of 29,095,000 shares of
common stock, 15,420,350 shares (53%) of which were issued to the MHC and
13,674,650 shares (47%) of which were sold to eligible depositors of the Bank at
$10.00 per share. Costs related to the Offering (primarily marketing fees paid
to an underwriting firm, professional fees, registration fees, and printing and
mailing costs) aggregated $2.0 million and have been deducted to arrive at net
proceeds of $134.8 million from the Offering. The Company contributed 50% of the
net proceeds of the Offering to the Bank for general corporate use. Net Offering
proceeds retained by the Company were used to acquire short-term investments and
fund a loan to the Bank's employee stock ownership plan.
Item 3. Default Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
All required exhibits are included in Part I under Financial Statements
(Unaudited) and Management's Discussion and Analysis of Operations, and are
incorporated by reference, herein.
There were no reports filed on Form 8-K.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed by the undersigned thereunto
duly authorized.
BROOKLINE BANCORP, INC.
Date: November 2, 1998 By: /S/ Richard P. Chapman, Jr.
-----------------------------------------------
Richard P. Chapman, Jr.
President and Chief Executive Officer
Date: November 2, 1998 By: /S/ Paul R. Bechet
-----------------------------------------------
Paul R. Bechet
Senior Vice President and Chief Financial Officer
19
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 9,278
<INT-BEARING-DEPOSITS> 400
<FED-FUNDS-SOLD> 25,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 137,528
<INVESTMENTS-CARRYING> 116,982
<INVESTMENTS-MARKET> 118,292
<LOANS> 537,051
<ALLOWANCE> 12,854
<TOTAL-ASSETS> 838,509
<DEPOSITS> 470,078
<SHORT-TERM> 78,415
<LIABILITIES-OTHER> 14,235
<LONG-TERM> 0
0
0
<COMMON> 291
<OTHER-SE> 275,490
<TOTAL-LIABILITIES-AND-EQUITY> 838,509
<INTEREST-LOAN> 11,939
<INTEREST-INVEST> 4,157
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 16,096
<INTEREST-DEPOSIT> 5,181
<INTEREST-EXPENSE> 6,467
<INTEREST-INCOME-NET> 9,629
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 426
<EXPENSE-OTHER> 2,305
<INCOME-PRETAX> 7,961
<INCOME-PRE-EXTRAORDINARY> 5,125
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,125
<EPS-PRIMARY> 0.18
<EPS-DILUTED> 0.18
<YIELD-ACTUAL> 4.62
<LOANS-NON> 365
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 12,566
<CHARGE-OFFS> 0
<RECOVERIES> 288
<ALLOWANCE-CLOSE> 12,854
<ALLOWANCE-DOMESTIC> 8,521
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 4,333
</TABLE>
