SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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 June 30, 2000
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 0-23435
Medford Bancorp, Inc.
(Exact name of registrant as specified in its charter)
Massachusetts 04-3384928
------------- ----------
(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification No.)
29 High Street
Medford, Massachusetts 02155
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (781) 395-7700
-----------------
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 |_|
The number of shares outstanding of Medford Bancorp, Inc.'s common stock, $0.50
par value per share, as of June 30, 2000 was 8,076,428.
<PAGE>
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS PAGE
Consolidated Balance Sheets 1
Consolidated Statements of Income 2-5
Consolidated Statements of Changes in Stockholders'
Equity 6
Consolidated Statements of Cash Flows 7-8
Notes to Consolidated Financial Statements 9
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 10-25
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK 25
PART II OTHER INFORMATION
ITEM 1 - Legal Proceedings 26
ITEM 2 - Changes in Securities and Use of Proceeds 26
ITEM 3 - Defaults Upon Senior Securities 26
ITEM 4 - Submission of Matters to a Vote of Security Holders 26
ITEM 5 - Other Information 26
ITEM 6 - Exhibits and Reports on Form 8-K 27
SIGNATURES 28
Exhibit Index 29
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1 Financial Statements
MEDFORD BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------------- -------------
(In thousands)
<S> <C> <C>
ASSETS
Cash and due from banks $ 20,045 $ 17,043
Interest-bearing deposits 4,942 3,867
------------- -------------
Cash and cash equivalents 24,987 20,910
Investment securities available for sale 536,355 520,030
Investment securities held to maturity 14,447 5,000
Restricted equity securities 11,351 10,828
Loans 658,154 633,530
Less allowance for loan losses (6,816) (6,779)
------------- -------------
Loans, net 651,338 626,751
------------- -------------
Banking premises and equipment, net 11,099 11,566
Accrued interest receivable 9,754 9,162
Goodwill and deposit-based intangibles 3,129 3,679
Other assets 17,328 16,986
------------- -------------
Total assets $ 1,279,788 $ 1,224,912
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 971,118 $ 911,328
Short-term borrowings 40,326 67,071
Long-term debt 172,117 148,653
Accrued taxes and expenses 3,300 3,920
Other liabilities 2,490 3,070
------------- -------------
Total liabilities 1,189,351 1,134,042
------------- -------------
Stockholders' equity:
Serial preferred stock, $.50 par value, 5,000,000 shares
authorized; none issued -- --
Common stock, 15,000,000 shares authorized; $.50 par value,
9,122,596 shares issued 4,561 4,561
Additional paid-in capital 24,041 24,839
Retained earnings 90,032 85,153
Accumulated other comprehensive income (loss) (9,451) (9,405)
Treasury stock at cost (1,046,168 and 739,344 shares, respectively) (18,746) (14,278)
------------- -------------
Total stockholders' equity 90,437 90,870
------------- -------------
Total liabilities and stockholders' equity $ 1,279,788 $ 1,224,912
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE>
MEDFORD BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended
June 30,
---------------------------------
2000 1999
--------------- ---------------
(Dollars in thousands, except per share data)
<S> <C> <C>
Interest and dividend income:
Interest and fees on loans $ 12,374 $ 11,016
Interest on debt securities 8,503 7,946
Dividends on equity securities 207 151
Interest on short-term investments 95 137
--------------- ---------------
Total interest and dividend income 21,179 19,250
--------------- ---------------
Interest expense:
Interest on deposits 8,890 8,312
Interest on short-term borrowings 598 319
Interest on long-term debt 2,599 2,127
--------------- ---------------
Total interest expense 12,087 10,758
--------------- ---------------
Net interest income 9,092 8,492
Provision for loan losses -- --
--------------- ---------------
Net interest income, after provision for loan losses 9,092 8,492
--------------- ---------------
Other income:
Customer service fees 494 474
Gain on sales of investment securities, net -- 285
Miscellaneous 251 231
--------------- ---------------
Total other income 745 990
--------------- ---------------
Operating expenses:
Salaries and employee benefits 2,787 2,638
Occupancy and equipment 631 603
Data processing 376 384
Professional fees 113 130
Amortization of intangibles 273 282
Advertising and marketing 168 148
Other general and administrative 610 567
--------------- ---------------
Total operating expenses 4,958 4,752
--------------- ---------------
Income before income taxes 4,879 4,730
Provision for income taxes 1,749 1,728
--------------- ---------------
Net income $ 3,130 $ 3,002
=============== ===============
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
MEDFORD BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME (Continued)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
---------------------------------
2000 1999
--------------- ---------------
(Dollars in thousands, except per share data)
<S> <C> <C>
Earnings per share:
Basic $ 0.39 $ 0.36
Diluted $ 0.37 $ 0.34
Cash dividends declared per share $ 0.12 $ 0.11
Weighted averages shares outstanding:
Basic 8,122,241 8,328,104
Diluted 8,404,267 8,712,725
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
MEDFORD BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME (Continued)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
----------------------------------
2000 1999
--------------- ---------------
(Dollars in thousands, except per share data)
<S> <C> <C>
Interest and dividend income:
Interest and fees on loans $ 24,354 $ 22,079
Interest on debt securities 16,751 15,644
Dividends on equity securities 400 292
Interest on short-term investments 190 187
--------------- ---------------
Total interest and dividend income 41,695 38,202
--------------- ---------------
Interest expense:
Interest on deposits 17,308 16,373
Interest on short-term borrowings 1,382 688
Interest on long-term debt 4,943 4,026
--------------- ---------------
Total interest expense 23,633 21,087
--------------- ---------------
Net interest income 18,062 17,115
Provision for loan losses 75 --
--------------- ---------------
Net interest income, after provision for loan losses 17,987 17,115
--------------- ---------------
Other income:
Customer service fees 957 919
Gain (loss) on sales of investment securities, net (74) 1,528
Gain on sale of loans -- 3
Pension plan curtailment gain 1,195 --
Miscellaneous 553 430
--------------- ---------------
Total other income 2,631 2,880
--------------- ---------------
Operating expenses:
Salaries and employee benefits 5,513 5,229
Occupancy and equipment 1,300 1,248
Data processing 747 758
Professional fees 220 267
Amortization of intangibles 550 569
Advertising and marketing 318 289
Other general and administrative 1,210 1,055
--------------- ---------------
Total operating expenses 9,858 9,415
--------------- ---------------
Income before income taxes 10,760 10,580
Provision for income taxes 3,923 3,880
--------------- ---------------
Net income $ 6,837 $ 6,700
=============== ===============
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
MEDFORD BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME (Concluded)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
----------------------------------
2000 1999
--------------- ---------------
(Dollars in thousands, except per share data)
<S> <C> <C>
Earnings per share:
Basic $ 0.83 $ 0.80
Diluted $ 0.81 $ 0.76
Cash dividends declared per share $ 0.24 $ 0.22
Weighted averages shares outstanding:
Basic 8,192,440 8,407,941
Diluted 8,483,334 8,815,531
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
MEDFORD BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Six Months Ended June 30, 2000 and 1999
<TABLE>
<CAPTION>
Common Stock Additional
---------------------------------- Paid-In Retained
Shares Dollars Capital Earnings
--------------- --------------- --------------- ---------------
(In thousands)
<S> <C> <C> <C> <C>
Balance at December 31, 1999 9,122,596 $ 4,561 $ 24,839 $ 85,153
Comprehensive income:
Net income -- -- -- 6,837
Change in net unrealized gain (loss) on securities
available for sale, net of reclassification
adjustment and tax effects -- -- -- --
Total comprehensive income
Cash dividends declared ($.24 per share) -- -- -- (1,958)
Repurchase of treasury stock -- -- -- --
Issuance of common stock under stock
option plan -- -- (798) --
--------------- --------------- --------------- ---------------
Balance at June 30, 2000 9,122,596 $ 4,561 $ 24,041 $ 90,032
=============== =============== =============== ===============
Balance at December 31, 1998 9,122,596 $ 4,561 $ 26,389 $ 76,770
Comprehensive loss:
Net income -- -- -- 6,700
Change in net unrealized gain (loss) on securities
available for sale, net of reclassification
adjustment and tax effects -- -- -- --
Total comprehensive loss
Cash dividends declared ($.22 per share) -- -- -- (1,837)
Repurchase of treasury stock -- -- -- --
Issuance of common stock under stock
option plan -- -- (1,425) --
--------------- --------------- --------------- ---------------
Balance at June 30, 1999 9,122,596 $ 4,561 $ 24,964 $ 81,633
=============== =============== =============== ===============
<CAPTION>
Accumulated
Treasury Stock Other
---------------------------------- Comprehensive
Shares Dollars Income (Loss) Total
--------------- --------------- --------------- ---------------
(In thousands)
<S> <C> <C> <C> <C>
Balance at December 31, 1999 (739,344) $ (14,278) $ (9,405) $ 90,870
---------------
Comprehensive income:
Net income -- -- -- 6,837
Change in net unrealized gain (loss) on securities
available for sale, net of reclassification
adjustment and tax effects -- -- (46) (46)
---------------
Total comprehensive income 6,791
---------------
Cash dividends declared ($.24 per share) -- -- -- (1,958)
Repurchase of treasury stock (358,000) (5,419) -- (5,419)
Issuance of common stock under stock
option plan 51,176 951 -- 153
--------------- --------------- --------------- ---------------
Balance at June 30, 2000 (1,046,168) $ (18,746) $ (9,451) $ 90,437
=============== =============== =============== ===============
Balance at December 31, 1998 (412,768) $ (8,511) $ 3,058 $ 102,267
---------------
Comprehensive loss:
Net income -- -- -- 6,700
Change in net unrealized gain (loss) on securities
available for sale, net of reclassification
adjustment and tax effects -- -- (8,397) (8,397)
---------------
Total comprehensive loss (1,697)
---------------
Cash dividends declared ($.22 per share) -- -- -- (1,837)
Repurchase of treasury stock (425,796) (7,689) -- (7,689)
Issuance of common stock under stock
option plan 91,720 1,777 -- 352
--------------- --------------- --------------- ---------------
Balance at June 30, 1999 (746,844) $ (14,423) $ (5,339) $ 91,396
=============== =============== =============== ===============
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
MEDFORD BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
June 30,
------------------------------
2000 1999
------------- -------------
(In thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 6,837 $ 6,700
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 75 --
Depreciation and amortization, net 1,307 1,563
Loss (gain) on sales of investment securities, net 74 (1,528)
Gain on sale of loans -- (3)
Decrease (increase) in accrued interest receivable and other assets (910) 1,564
Decrease in accrued taxes and expenses and other liabilities (663) (386)
------------- -------------
Net cash provided by operating activities 6,720 7,910
------------- -------------
Cashflows from investing activities:
Activity in investment securities available for sale:
Maturities 44,324 15,250
Sales 5,964 102,812
Purchases (80,971) (203,766)
Principal amortization of mortgage-backed securities 14,172 31,511
Activity in investment securities held to maturity:
Maturities 4,997 15,639
Purchases (15,119) (1,264)
Proceeds from sale of loans, net -- 82
Loans originated and purchased, net of amortization
and payoffs (24,629) (12,954)
Purchases of banking premises and equipment, net (128) (363)
Proceeds from sale of foreclosed real estate -- 116
------------- -------------
Net cash used in investing activities (51,390) (52,937)
------------- -------------
</TABLE>
(continued)
See accompanying notes to consolidated financial statements.
7
<PAGE>
MEDFORD BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Concluded)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
------------------------------
2000 1999
------------- -------------
(In thousands)
<S> <C> <C>
Cash flows from financing activities:
Net increase in deposits 59,790 29,879
Net decrease in borrowings with maturities of
three months or less (26,745) 16,651
Proceeds from long-term debt 23,464 12,000
Issuance of common stock 153 352
Payments to acquire treasury stock (5,419) (7,689)
Cash dividends paid (2,496) (2,658)
------------- -------------
Net cash provided by financing activities 48,747 48,535
------------- -------------
Net change in cash and cash equivalents 4,077 3,508
Cash and cash equivalents at beginning of period 20,910 22,002
------------- -------------
Cash and cash equivalents at end of period $ 24,987 $ 25,510
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
8
<PAGE>
MEDFORD BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999
Note 1. Basis of Presentation
The consolidated interim financial statements of Medford Bancorp, Inc. (the
"Company") and its wholly-owned subsidiary, Medford Savings Bank (the "Bank")
presented herein are intended to be read in conjunction with the consolidated
financial statements presented in the Company's annual report for the year ended
December 31, 1999.
The consolidated financial information for the three and six months ended June
30, 2000 is unaudited. In the opinion of management, however, the consolidated
financial information reflects all adjustments (consisting solely of normal
recurring accruals) necessary for a fair presentation in accordance with
generally accepted accounting principles. Interim results are not necessarily
indicative of results to be expected for the entire year.
Note 2. Commitments
At June 30, 2000, the Company had outstanding commitments to originate new
residential and commercial real estate mortgage loans totaling approximately
$22.0 million, which are not reflected on the consolidated balance sheet.
Unadvanced funds on equity lines were $25.2 million, unadvanced construction
loan funds were $12.1 million, and unadvanced funds on commercial lines of
credit were $10.5 million at June 30, 2000.
Note 3. Earnings per Share
Basic earnings per share represents income available to common stockholders
divided by the weighted-average number of common shares outstanding during the
period. Diluted earnings per share reflects additional common shares that would
have been outstanding if dilutive potential common shares had been issued, as
well as any adjustment to income that would result from the assumed conversion.
Potential common shares that may be issued by the Company relate solely to
outstanding stock options, and are determined using the treasury stock method.
The assumed conversion of outstanding dilutive stock options would increase the
shares outstanding but would not require an adjustment to income as a result of
the conversion.
Note 4. Defined Benefit Plan Termination
On January 26, 2000 the Board of Directors of the Bank voted to amend its
employee benefit programs to provide for the cessation of pension benefit
accruals effective February 29, 2000 in conjunction with its termination of the
Defined Benefit Pension Plan ("Plan") effective March 31, 2000. Final Plan
termination is subject to IRS approval.
During the first quarter of 2000, the Bank recorded an after-tax gain of
$700,000 from the curtailment of its Plan. It is anticipated that the Bank will
record an after-tax gain of approximately $1.2 million upon settlement and
distribution of the Plan assets during the second half of 2000. On an on-going
basis, a portion of the cost of providing the Plan will be reallocated to
enhance 401(k) benefits for employees.
9
<PAGE>
ITEM 2 Management's Discussion and Analysis of Financial Condition and
Results of Operation
GENERAL
This form 10-Q contains certain statements that may be considered
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. The Company's actual results could differ materially from those
projected in the forward-looking statements as a result, among other factors, of
changes in general national or regional economic conditions, changes in loan
default and charge-off rates, reductions in deposit levels necessitating
increased borrowing to fund loans and investments, changes in interest rates,
changes in the size and nature of the Company's competition, and changes in the
assumptions used in making such forward-looking statements.
Consolidated net income was $3,130,000, or basic earnings per share of $0.39
($0.37 diluted basis), for the three months ended June 30, 2000, compared to
$3,002,000, or basic earnings per share of $0.36 ($0.34 diluted basis), for the
comparable prior year period.
Net interest income was $9,092,000 for the quarter ended June 30, 2000, up
$600,000 or 7.1% from the comparable 1999 period, and represented a net interest
margin of 2.97% which compared to 2.97% for the comparable 1999 period. Net
gains on sales of assets were zero for the 2000 second quarter compared to a
gain of $285,000 for the same quarter in 1999.
Total operating expenses were $4,958,000 for the quarter ended June 30, 2000, up
$206,000 or 4.3% from $4,752,000 during the comparable period in 1999. There was
no provision for loan losses recorded for the three-month periods ended June 30,
2000 and 1999.
For the second quarter of 2000, the annualized return on assets was 1.01% and
the annualized return on equity was 14.40%, compared to 1.02% and 12.89%,
respectively, for the comparable period in 1999.
Consolidated net income was $6,837,000, or basic earnings per share of $0.83
($0.81 diluted basis), for the six months ended June 30, 2000, compared to
$6,700,000, or basic earnings per share of $0.80 ($0.76 diluted basis), for the
comparable prior year period. Basic and diluted earnings per share have
increased 3.7% and 6.6%, respectively, while consolidated net income increased
$137,000 or 2.0% for the six months comparative period.
Net interest income was $18,062,000 for the six months ended June 30, 2000, up
$947,000 or 5.5% from the comparable 1999 period, and represented a net interest
margin of 2.97% compared to 3.02% for the six months ended June 30, 1999. The
net loss on sales of assets totaled $74,000 for the first six months of 2000
compared to a gain of $1,528,000 for the same six-month period in 1999. During
the six months ended June 30, 2000 there was a $1.2 million pre-tax curtailment
gain from the termination of the Company's defined benefit pension plan.
10
<PAGE>
Total operating expenses were $9,858,000 for the six months ended June 30, 2000,
up $443,000 or 4.7% from $9,415,000 during the comparable period in 1999. The
provision for loan losses recorded for the six months ended June 30, 2000 was
$75,000 compared to zero for the same prior year period.
For the first six months of 2000, the annualized return on assets was 1.11% and
the annualized return on equity was 15.66%, compared to 1.16% and 14.11%,
respectively, for the comparable period in 1999.
Total non-performing assets were $1,562,000 or 0.12% of total assets at June 30,
2000, compared to $2,500,000 or 0.20%, respectively, at December 31, 1999. The
allowance for loan losses at June 30, 2000 was $6,816,000, representing 1.04% of
total loans. At December 31, 1999, the allowance for loan losses was $6,779,000,
representing 1.07% of total loans. The Company had no foreclosed real estate at
June 30, 2000 or December 31, 1999.
The Company had total assets of $1.28 billion and capital of $90.4 million at
June 30, 2000, representing a capital to assets ratio of 7.07%, exceeding all
regulatory requirements. When compared to December 31, 1999, investment
securities increased $26.3 million or 4.9% to $562.1 million, total gross loans
increased $24.6 million or 3.9% to $658.1 million, deposits increased $59.8
million or 6.6% to $971.1 million, and borrowings decreased $3.3 million or 1.5%
to $212.4 million.
A more detailed discussion and analysis of the Company's financial condition and
results of operations follows.
INVESMENT SECURITIES
Investment securities consist of the following:
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
--------------- ---------------
(In thousands)
<S> <C> <C>
Securities available for sale, at fair value $ 536,355 $ 520,030
Securities held to maturity, at amortized cost 14,447 5,000
Restricted equity securities:
Federal Home Loan Bank stock 10,206 9,683
Northeast Retirement Services 31 31
Massachusetts Savings Bank Life Insurance stock 1,114 1,114
--------------- ---------------
$ 562,153 $ 535,858
=============== ===============
</TABLE>
11
<PAGE>
The amortized cost and fair value of investment securities, excluding restricted
equity securities, at June 30, 2000 and December 31, 1999 with gross unrealized
gains and losses, follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
June 30, 2000 Cost Gains Losses Value
------------------------------------------------------- -------------- -------------- -------------- --------------
(In thousands)
<S> <C> <C> <C> <C>
Securities Available for Sale
Debt securities:
Corporate bonds $ 277,363 $ 224 $ (3,652) $ 273,935
Mortgage-backed 218,958 -- (9,883) 209,075
U.S. Government and federal agency obligations 53,170 -- (1,676) 51,494
-------------- -------------- -------------- --------------
Total debt securities 549,491 224 (15,211) 534,504
Marketable equity securities 2,305 44 (498) 1,851
-------------- -------------- -------------- --------------
Total securities available for sale $ 551,796 $ 268 $ (15,709) $ 536,355
============== ============== ============== ==============
Securities Held to Maturity
Debt securities:
Mortgage-backed $ 9,676 $ 104 $ -- 9,780
U.S. Government and federal agency obligations 4,771 58 -- 4,829
-------------- -------------- -------------- --------------
Total securities held to maturity $ 14,447 $ 162 $ -- $ 14,609
============== ============== ============== ==============
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
December 31, 1999 Cost Gains Losses Value
------------------------------------------------------- -------------- -------------- -------------- --------------
(In thousands)
<S> <C> <C> <C> <C>
Securities Available for Sale
Debt securities:
Corporate bonds $ 250,078 $ 42 $ (3,353) $ 246,767
Mortgage-backed 224,083 -- (9,627) 214,456
U.S. Government and federal agency obligations 59,144 -- (2,017) 57,127
-------------- -------------- -------------- --------------
Total debt securities 533,305 42 (14,997) 518,350
Marketable equity securities 2,097 6 (423) 1,680
-------------- -------------- -------------- --------------
Total securities available for sale $ 535,402 $ 48 $ (15,420) $ 520,030
============== ============== ============== ==============
Securities Held to Maturity
U.S. Government obligations $ 5,000 $ 6 $ -- $ 5,006
============== ============== ============== ==============
</TABLE>
12
<PAGE>
The amortized cost and fair value of debt securities by contractual maturity at
June 30, 2000 are as follows:
<TABLE>
<CAPTION>
Available for Sale Held to Maturity
------------------------------- -------------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
-------------- -------------- -------------- --------------
(In thousands)
<S> <C> <C> <C> <C>
Within 1 year $ 85,874 $ 85,272 $ -- $ --
After 1 year through 5 years 239,303 235,335 4,771 4,829
After 5 years through 10 years 5,356 4,822 -- --
-------------- -------------- -------------- --------------
330,533 325,429 4,771 4,829
Mortgage-backed securities 218,958 209,075 9,676 9,780
-------------- -------------- -------------- --------------
$ 549,491 $ 534,504 $ 14,447 $ 14,609
============== ============== ============== ==============
</TABLE>
The amortized cost and fair value of debt securities by contractual maturity at
December 31, 1999 are as follows:
<TABLE>
<CAPTION>
Available for Sale Held to Maturity
------------------------------- -------------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
-------------- -------------- -------------- --------------
(In thousands)
<S> <C> <C> <C> <C>
Within 1 year $ 64,996 $ 64,987 $ 5,000 $ 5,006
After 1 year through 5 years 238,848 234,204 -- --
After 5 years through 10 years 5,378 4,703 -- --
-------------- -------------- -------------- --------------
309,222 303,894 5,000 5,006
Mortgage-backed securities 224,083 214,456 -- --
-------------- -------------- -------------- --------------
$ 533,305 $ 518,350 $ 5,000 $ 5,006
============== ============== ============== ==============
</TABLE>
Investment securities increased $26.3 million from $535.8 million at December
31, 1999 to $562.1 million at June 30, 2000. At June 30, 2000 the securities
portfolio classified as "available for sale" reflected a net unrealized pre-tax
loss of $15.7 million as a result of the ongoing rise in market rates as
compared to an unrealized pre-tax loss of $15.4 million at December 31, 1999. In
accordance with the Company's asset-liability strategies, purchases of
mortgage-backed securities are primarily in fifteen year mortgages with
weighted-average lives of six years and other investment securities are
generally short-term with maturities of five years or less.
Sales of debt securities produced no losses during the 2000 second quarter and a
loss of $64,000 for the six months ended June 30, 2000 compared to gains of
$250,000 and $1,489,000 for the second quarter and six months ended June 30,
1999, respectively. Sales of equities produced no losses during the 2000 second
quarter and $10,000 for the six months ended June 30, 2000 compared to gains of
$35,000 and $39,000 for the second quarter and six months ended June 30, 1999,
respectively.
13
<PAGE>
LOANS
A summary of the Company's outstanding loan balances as of the dates indicated
as follows:
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
--------------- ---------------
(In thousands)
<S> <C> <C>
Mortgage loans on real estate:
Residential 1 - 4 family $ 482,437 $ 465,420
Commercial 117,556 112,050
Construction 27,732 25,239
Second mortgages 740 774
Equity lines of credit 20,485 19,394
--------------- ---------------
648,950 622,877
Less: Unadvanced loan funds (12,137) (11,735)
--------------- ---------------
636,813 611,142
--------------- ---------------
Other loans:
Commercial 17,266 18,124
Personal 1,956 2,071
Other 780 841
--------------- ---------------
20,002 21,036
--------------- ---------------
Add: Net premium on loans acquired 171 198
Net deferred loan origination costs 1,168 1,154
--------------- ---------------
Total loans 658,154 633,530
Less allowance for loan losses (6,816) (6,779)
--------------- ---------------
Loans, net $ 651,338 $ 626,751
=============== ===============
</TABLE>
Total gross loans outstanding at June 30, 2000 increased $24.6 million to $658.1
million when compared to the December 31, 1999 level. The $24.6 million increase
in gross loans can be principally explained by the growth in residential 1-4
family real estate mortgage loans of $17.0 million, commercial real estate loans
of $5.5 million and construction real estate loans of $2.5 million from the
December 31, 1999 levels. Changes in all other loan categories during the three
months ended June 30, 2000 are representative of net activity in new loan
originations and amortization and payoffs.
NON-PERFORMING ASSETS
Total non-performing assets were $1.5 million and $2.5 million at June 30, 2000
and December 31, 1999, respectively. There were no foreclosed assets at June 30,
2000 or December 31, 1999. As a percentage of total assets, nonperforming assets
equaled 0.12% and 0.20% at June 30, 2000 and December 31, 1999, respectively.
Fluctuations in total nonperforming assets occur from quarter to quarter but
remain at historically low levels. It is the Company's general policy to place
loans on a non-accrual status when such loans become 90 days contractually
delinquent or when the collectibility of principal or interest payments becomes
doubtful. When a loan is placed on non-accrual status, its interest income
accrual ceases and all income previously accrued but unpaid is reversed.
14
<PAGE>
In accordance with SFAS No. 114, a loan is considered impaired when, based on
current information and events, it is probable that the borrower will be unable
to meet principal or interest payments as agreed in the original loan contract.
The principal balance of impaired loans at June 30, 2000 was $1.5 million, all
of which were included in the $1.5 million non-performing assets referenced in
the preceding paragraph. The loan loss allowance allocated to these impaired
loans was $108,000 at June 30, 2000.
ALLOWANCE FOR LOAN LOSSES
A summary of the activity in the allowance for loan losses follows:
Six Months Ended
June 30,
--------------------------------
2000 1999
-------------- --------------
(In thousands)
Balance at beginning of period $ 6,779 $ 6,876
Provision for loan losses 75 --
Recoveries 12 38
Loans charged-off (50) (67)
-------------- --------------
Balance at end of period $ 6,816 $ 6,847
============== ==============
The allowance for loan losses is established through a provision for loan losses
charged to earnings. Loan losses are charged against the allowance when
management believes the collectibility of the loan balance is unlikely.
Subsequent recoveries, if any, are credited to the allowance.
The allowance for loan losses is evaluated on a regular basis by management and
is based upon management's periodic review of the collectibility of the loans in
light of historical experience, known inherent risks in the nature and volume of
the loan portfolio, levels of non-performing loans, adverse situations that may
affect the borrowers' ability to repay, trends in delinquencies and charge-offs,
estimated value of any underlying collateral, and prevailing economic
conditions. This evaluation is inherently subjective, as it requires estimates
that are susceptible to significant revision, as more information becomes
available. Ultimate losses may vary from current estimates and future additions
to the allowance may be necessary.
The allowance for loan losses was $6.8 million at June 30, 2000, a reserve
coverage of 1.04% of total loans. At December 31, 1999, the allowance for loan
losses was $6.8 million, representing 1.07% of total loans.
15
<PAGE>
DEPOSITS
Total deposits increased $59.8 million from December 31, 1999 to $971.1 million
at June 30, 2000. Generally, the Company's strategy is to maintain stable
deposit rates and to increase deposit levels through selective core deposit and
term deposit promotions. To retain core deposits, the Company continues to
promote its "ComboPlus" account, which combines a statement savings and a demand
account. This "ComboPlus" account has contributed to an increase in both its
related savings and demand deposits. The following table indicates the balances
in various deposit accounts at the dates indicated.
June 30, December 31,
2000 1999
-------------- --------------
(In thousands)
Demand $ 63,265 $ 51,202
NOW 63,443 60,811
Savings and money market accounts 395,042 382,970
Term certificates 449,368 416,345
-------------- --------------
Total deposits $ 971,118 $ 911,328
============== ==============
BORROWED FUNDS
Historically, the Company has a selectively engaged a long-term borrowings to
fund loans and has entered into short-term repurchase agreements to fund
investment securities purchases. At June 30, 2000, the Company's long-term
borrowings increased by $23.5 million to $172.1 million from $148.6 million at
December 31, 1999 while its short-term borrowings decreased by $26.8 million to
$40.3 million from $67.1 million at year-end. At June 30, 2000, borrowed funds
totaled $212.4 million, decreasing $3.3 million from the $215.7 million reported
at December 31, 1999.
STOCKHOLDERS' EQUITY
The Company's capital to assets ratio was 7.07% and 7.42% at June 30, 2000 and
December 31, 1999, respectively.
The Company (on a consolidated basis) and Bank are subject to various regulatory
capital requirements administered by the federal banking agencies. Failure to
meet minimum capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken, could have a
direct material effect on the Company's and Bank's financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt corrective
action, the Company and/or the Bank must meet specific capital guidelines that
involve quantitative measures of their assets, liabilities and certain
off-balance-sheet items as calculated under regulatory accounting practices.
Holding companies, such as the Company, are not subject to prompt corrective
action provisions. The capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weightings, and
other factors.
16
<PAGE>
Quantitative measures established by regulation to ensure capital adequacy
require the Company and the Bank to maintain minimum amounts and ratios of total
and Tier 1 capital (as defined) to average assets (as defined). As of December
31, 1999, the Company and the Bank met all capital adequacy requirements to be
categorized as well capitalized. No conditions or events occurred during the
first six months of 2000 that management believes have changed the Company's or
the Bank's category. Therefore, management believes as of June 30, 2000 that the
Company and the Bank met all capital adequacy requirements to continue to be
categorized as well capitalized.
The Company's book value at June 30, 2000 was $11.20 per share, compared with
$10.84 per share at December 31, 1999.
17
<PAGE>
RESULTS OF OPERATIONS
QUARTER ENDED JUNE 30, 2000 VS QUARTER ENDED JUNE 30, 1999
NET INTEREST INCOME
Interest and dividend income from loans and investments increased $1.9 million
or 10.0% to $21.2 million for the 2000 second quarter when compared to the same
quarter in 1999. For the 2000 second quarter, average earning assets totaled
$1.223 billion, an increase of $78.8 million or 6.9% over the comparable average
for 1999, with $18.2 million of that increase attributed to short and long-term
investment securities and $60.6 million attributed to loans. The annualized
yields on earning assets were 6.93% and 6.73% for the second quarters in 2000
and 1999, respectively. The yield on investment securities was 6.17% for the
second quarter 2000 as compared 5.99% for the second quarter 1999. Short and
long-term investments contributed $571,000 of additional interest and dividend
income when comparing the second quarter of 2000 to the second quarter of 1999,
primarily as a result of higher average balances. The increase in the average
balance on loans and an increase in the yield, from 7.44% to 7.58%, caused
interest income on loans to increase by $1,358,000 from its 1999 second quarter
level.
Total interest expense for the three months ended June 30, 2000 was $12.1
million, reflecting an increase of $1.3 million or 12.4% over the same period in
1999. At June 30, 2000 average interest-bearing liabilities were $1.10 billion,
an increase of $64.3 million or 6.2% over the comparable prior year period. This
period-to-period increase can be attributed to average deposit growth of $28.7
million and average borrowed funds increasing $35.5 million. Deposit growth
occurred as rates paid increased from 3.87% to 4.02% for the quarters ended June
30, 1999 and 2000, respectively. Overall, interest expense on deposits increased
$578,000 to $8.9 million as a result of the increase in average deposits and in
rates paid. Interest expense on borrowed funds increased $751,000 as the average
balances increased and the rates paid on borrowed funds increased 47 basis
points to 5.93% in the second quarter of 2000 compared to the second quarter in
1999. The overall cost of interest bearing liabilities increased to 4.39% from
4.15% when comparing the two quarters.
Net interest income increased 7.1% or $600,000 to $9.1 million when comparing
the second quarter in 2000 to the same quarter in 1999, as the weighted average
rate spread decreased by 4 basis points to 2.54% while the net interest margin
remained at 2.97%. The yield on earning assets increased 20 basis points to
6.93% in the second quarter 2000 as compared to the same quarter in 1999, while
the cost of interest bearing liabilities increased by 24 basis points to 4.39%.
This resulted in an interest rate spread and a net interest margin of 2.54% and
2.97%, respectively, for the three months ended June 30, 2000.
18
<PAGE>
MEDFORD BANCORP, INC.
INTEREST RATE SPREAD
Three Months Ended
June 30,
--------------------------------
2000 1999
-------------- --------------
Weighted average yield earned on:
Short-term investments 6.15% 4.66%
Investment securities 6.17 5.99
Loans 7.58 7.44
-------------- --------------
All earning assets 6.93% 6.73%
-------------- --------------
Weighted average rate paid on:
Deposits 4.02% 3.87%
Borrowed funds 5.93 5.46
-------------- --------------
All interest-bearing liabilities 4.39% 4.15%
-------------- --------------
Weighted average rate spread 2.54% 2.58%
============== ==============
Net interest margin 2.97% 2.97%
============== ==============
19
<PAGE>
PROVISION FOR LOAN LOSSES
The provision for loan losses represents a charge against current earnings and
an addition to the allowance for loan losses. The provision is determined by
management on the basis of many factors, including the quality of specific
loans, risk characteristics of the loan portfolio generally, the level of non
performing loans, current economic conditions, trends in delinquency and
charge-offs, and value of the underlying collateral. Management considers the
allowance for loan losses to be adequate at June 30, 2000, although there can be
no assurance that the allowance is adequate or that additional provisions to the
allowance for loan losses will not be necessary.
Although there was growth in the loan portfolio, partially offset by the reduced
allocation associated with non-performing loans, the Company recorded no
provision for loan losses for the second quarter of 2000 and 1999. The Company
recorded net loan charge-offs of $12,000 for the three months ended June 30,
2000 compared to net loan recoveries of $22,000 for the same period in 1999.
OTHER INCOME
Other income, including customer service fees and gains and losses on sales of
assets equaled $745,000 in the second quarter of 2000 as compared to $990,000 in
the second quarter of 1999, representing a decrease of $245,000 or 24.7%. The
$285,000 decrease in gains on sales of securities when comparing the second
quarters of 2000 to 1999 principally accounts for the decrease in other income.
See related discussions under "Investment Securities" included in "Management's
Discussion and Analysis" in Item 2 of Part 1 of this report.
OPERATING EXPENSES
Operating expenses increased $206,000 or 4.3% to $4,958,000 for the three months
ended June 30, 2000 when compared to the same period in 1999. Salaries and
employee benefits increased $149,000, when comparing the second quarter of 2000
to 1999, reflecting combined effects of increased staffing and wage pressures in
a tight labor market. Other general and administrative expenses increased
$43,000 when comparing the three months ended June 30, 2000 and the same period
in 1999. The Company's annualized expense ratio, which is the ratio of
non-interest expense to average assets, was 1.59% for the three months ended
June 30, 2000, as compared to 1.66% for the prior year comparable period. The
Company continues to focus on cost containment with the intent to be a low cost
provider of high quality banking products and services.
PROVISION FOR INCOME TAXES
The Bank's effective tax rate for three months ended June 30, 2000 was 35.85% as
compared to 36.53% for the period ended June 30, 1999.
20
<PAGE>
SIX MONTHS ENDED JUNE 30, 2000 VS SIX MONTHS ENDED JUNE 30, 1999
NET INTEREST INCOME
Interest and dividend income from loans and investments increased $3.5 million
or 9.1% to $41.7 million for the first six months of 2000 when compared to 1999.
Over the first half of 2000 average earning assets totaled $1.2 billion, an
increase of $88.3 million or 7.8% over the comparable average for 1999, with
$30.6 million of that increase attributed to short and long-term investment
securities and $57.7 million attributed to loans. The annualized yields on
earning assets were 6.87% and 6.79% for the six months ended June 30, 2000 and
1999, respectively. The yield on investment securities was 6.12% for the first
half of 2000, an increase of 9 basis points from 6.03% for the same period in
1999. Short and long-term investments contributed $1,215,000 of additional
interest and dividend income when comparing the first six months of 2000 to the
first six months of 1999, primarily as a result of higher average balances. The
increase in the average balance on loans and yield from 7.51% to 7.54% caused
interest income on loans to increase by $2,274,000 from the 1999 six-month
period.
Total interest expense for the six months ended June 30, 2000 was $23.6 million,
reflecting an increase of $2.5 million or 12.1% over the same period in 1999. At
June 30, 2000 average interest-bearing liabilities were $1.094 billion, an
increase of $76.3 million or 7.5% over the comparable prior year period. This
period-to-period increase can be attributed to average deposit growth of $33.7
million and average borrowed funds increasing $42.6 million. Deposit growth
occurred as rates paid increased from 3.91% to 3.96% for the six months ended
June 30, 2000 and 1999, respectively. Overall, interest expense on deposits
increased $935,000 to $17.3 million due to increases in both average deposits
and rates paid. Interest expense on borrowed funds increased $1,611,000 as the
average balances increased and the rates paid on borrowed funds increased 38
basis points to 5.81% in the first six months of 2000 compared to the first six
months of 1999. The overall cost of interest bearing liabilities increased to
4.32% from 4.16% when comparing the two periods.
Net interest income increased 5.5% or $947,000 to $18.1 million when comparing
the six months in 2000 to the same period in 1999 even as the weighted average
rate spread and the net interest margin decreased by 8 and 5 basis points,
respectively. The increase in net interest income is primarily due to increased
levels of earning assets while the basis points declines in spread and margin
reflect the changing mix of earning assets and interest bearing liabilities. The
yield on earning assets increased 8 basis points to 6.87% in the first six
months of 2000 as compared to the first six months of 1999, while the cost of
interest bearing liabilities increased by 16 basis points to 4.32%. This
resulted in an interest rate spread and a net interest margin of 2.55% and
2.97%, respectively, for the six months ended June 30, 2000.
21
<PAGE>
MEDFORD BANCORP, INC.
INTEREST RATE SPREAD
Six Months Ended
June 30,
--------------------------------
2000 1999
-------------- --------------
Weighted average yield earned on:
Short-term investments 5.82% 4.66%
Investment securities 6.12 6.03
Loans 7.54 7.51
-------------- --------------
All earning assets 6.87% 6.79%
-------------- --------------
Weighted average rate paid on:
Deposits 3.96% 3.91%
Borrowed funds 5.81 5.43
-------------- --------------
All interest-bearing liabilities 4.32% 4.16%
-------------- --------------
Weighted average rate spread 2.55% 2.63%
============== ==============
Net interest margin 2.97% 3.02%
============== ==============
22
<PAGE>
PROVISION FOR LOAN LOSSES
The provision for loan losses represents a charge against current earnings and
an addition to the allowance for loan losses. The provision is determined by
management on the basis of many factors, including the quality of specific
loans, risk characteristics of the loan portfolio generally, the level f non
performing loans, current economic conditions, trends in delinquency and
charge-offs, and value of the underlying collateral. Management considers the
allowance for loan losses to be adequate at June 30, 2000, although there can be
no assurance that the allowance is adequate or that additional provisions to the
allowance for loan losses will not be necessary.
Due to growth in the loan portfolio, the Company recorded a $75,000 provision
for loan losses for the first six months of 2000. No provision for loan losses
was recorded for the first six months of 1999. The Company recorded net loan
charge-offs of $38,000 for the six months ended June 30, 2000 compared to net
loan charge-offs of $29,000 for the same period in 1999.
OTHER INCOME
Other income, including customer service fees and gains and losses on sales of
assets equaled $2.6 million in the first six months of 2000 as compared to $2.9
million in the first six months of 1999, representing a decrease of $249,000 or
8.6%. The $1.6 million decrease in combined gains on sales of securities and
loans, when comparing the first six months of 2000 to 1999, was partially offset
by a $1.2 million pre-tax curtailment of the Company's defined benefit pension
plan. See related discussions under "Investment Securities" included in
"Management's Discussion and Analysis" in Item 2 of Part I and "Note 4. Defined
Benefit Pension Plan Termination" in Item 1 of Part I of this report.
OPERATING EXPENSES
Operating expenses increased $443,000 or 4.7% to $9,858,000 for the six months
ended June 30, 2000 when compared to the same period in 1999. Salaries and
employee benefits rose $284,000 during the first half of 2000 when compared
1999, reflecting combined effects of increased staffing and wage pressures in a
tight labor market. Other general and administrative expenses increased $155,000
when comparing the six months ended June 30, 2000 and the same period in 1999.
The Company's annualized expense ratio, which is the ratio of non-interest
expense to average assets, was 1.60% for the six months ended June 30, 2000, as
compared to 1.63% for the prior year comparable period. The Company continues to
focus on cost containment with the intent to be a low cost provider of high
quality banking products and services.
PROVISION FOR INCOME TAXES
The Bark's effective tax rate for six months ended June 30, 2000 was 36.46% as
compared to 36.67% for the period ended June 30, 1999.
23
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of funds are customer deposits, amortization and
payoff of existing loan principal and sales or maturities of various investment
securities. The Company is a voluntary member of the Federal Home Loan Bank of
Boston ("FHLBB"), and as such may take advantage of the FHLBB's borrowing
programs to enhance liquidity and leverage its favorable capital position. The
Company also may draw on lines of credit at the FHLBB and a large commercial
bank, and it may pledge U.S. Government securities to borrow from certain
investment firms and the Mutual Savings Central Fund of Massachusetts. These
various sources of liquidity are used to fund withdrawals, new loans, and
investments.
Management seeks to promote deposit growth while controlling the Company's cost
of funds. Sales oriented programs to attract new depositors and the
cross-selling of various products to its existing customer base are currently in
place. Management reviews, on an ongoing basis, possible new products, with
particular attention to products and services that will assist retention of the
Company's base of lower-costing deposits.
Maturities and sales of investment securities provide significant liquidity to
the Company. The Company's policy of purchasing shorter-term debt securities
reduces market risk in the bond portfolio while providing significant cash flow.
For the six months ended June 30, 2000 cash flow from maturities and sales of
securities was $55.3 million compared to $133.7 million for the six months ended
June 30, 1999. Principal payments received on mortgage-backed investments during
the six months ended June 30, 2000 and 1999 totaled $14.1 million and $31.5
million, respectively. During periods of high interest rates, maturities in the
bond portfolio have provided significant liquidity at a lower cost than
borrowings.
Amortization and payoffs of the loan portfolio also contribute significant
liquidity to the Company. Traditionally, the amortization and payoffs have been
reinvested into loans. When payoff rates exceed origination rates, excess
liquidity from loan payoffs is shifted into the investment portfolio.
The Company also uses borrowed funds as a source of liquidity. These borrowings
generally contribute toward funding over-all loan growth. At June 30, 2000 the
Company's outstanding borrowings from the FHLBB were $192.1 million, as compared
to $193.6 million at December 31, 1999. The Company also utilizes repurchase
agreements as a source of funding when management deems market conditions to be
conducive to such activities. Repurchase agreements totaled $19.2 million at
June 30, 2000 as compared to $21.2 million at December 31, 1999.
Commitments to originate residential and commercial real estate mortgage loans
at June 30, 2000, excluding unadvanced construction funds of $12.1 million, were
$22.0 million. Management believes that adequate liquidity is available to fund
loan commitments utilizing deposits, loan amortization, maturities of
securities, or borrowings.
Purchases of securities during the six months ended June 30, 2000 totaled $96.1
million, consisting of debt instruments generally maturing in less than five
years and equities. This compares with purchases of $205.0 million for the six
months ended June 30, 1999.
Residential and commercial real estate mortgage loan originations for the six
months ended June 30, 2000 totaled $77.9 million, compared with $67.5 million
for the six months ended June 30, 1999.
The Company's capital position (total stockholders' equity) was $90.4 million or
7.07% of total assets at June 30, 2000 compared with $90.8 million or 7.42% of
total assets at December 31, 1999. During the six months ended June 30, 2000 the
Company purchased 358,000 shares of its common stock in accordance with a
previously announced stock purchase program. The Company's capital position
exceeds all regulatory requirements
24
<PAGE>
ASSET-LIABILITY MANAGEMENT
Through the Company's Asset-Liability Management Committee ("ALCO"), which is
comprised of certain senior and middle management personnel, the Company
monitors the level and general mix of interest rate-sensitive assets and
liabilities. The primary objective of the Company's ALCO program is to manage
the assets and liabilities of the Company to provide for optimum profitability
and capital at prudent levels of liquidity and interest rate, credit, and market
risk.
It is ALCO's general policy to closely match the maturity or rate sensitivity of
its assets and liabilities. In accordance with this policy, certain strategies
have been implemented to improve the match between interest rate sensitive
assets and liabilities. These strategies include, but are not limited to: daily
monitoring of the Company's changing cash requirements, with particular
concentration on investment in short term securities; originating adjustable and
fixed rate mortgage loans for the Company's own portfolio; managing the cost and
structure of deposits; and generally using matched borrowings to fund specific
purchases of loan packages and large loan origination. Occasionally, management
may choose to deviate from specific matching of maturities of assets and
liabilities, if an attractive opportunity to enhance yields becomes available.
The Company actively manages its liability portfolio in order to effectively
plan and manage growth and maturities of deposits. Management recognizes the
need for strict attention to all deposits. Accordingly, plans for growth of all
deposit types are reviewed regularly. Programs are in place which are designed
to build multiple relationships with customers and to enhance the Company's
ability to retain deposits at controlled rates of interest, and management has
adopted a policy of reviewing interest rates on an ongoing basis on all deposit
accounts in order to control deposit growth and interest costs.
In addition to attracting deposits, the Company has selectively borrowed funds
using advances from the FHLBB and, upon occasion, reverse repurchase agreements.
These funds have generally been used to purchase loans typically having a
matched repricing date.
IMPACT OF INFLATION
The consolidated financial statements and related consolidated financial data
presented herein have been prepared in accordance with generally accepted
accounting principles, which require the measurement of financial position and
results of operations in terms of historical dollars without considering changes
in the relative purchasing power of money over time due to inflation. The
primary effect of inflation on the operations of the Company is reflected in
increased operating costs. Unlike most industrial companies, virtually all
assets of a financial institution are monetary in nature. As a result, interest
rates have a more significant effect on a financial institution's performance
than the effect of general levels of inflation. Interest rates do not
necessarily move in the same direction or in the same magnitude as the prices of
goods and services.
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
For a discussion of the Company's management of market risk exposure, see
"Asset-Liability Management" in Item 2 of Part I of this report and Item 7A of
Part II of the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1999 (the "1999 Annual Report").
For quantitative information about market risk, see Item 7A of Part II of the
Company's 1999 Annual Report.
There have been no material changes in the quantitative and qualitative
disclosures about market risk as of June 30, 2000 from those presented in the
Company's 1999 Annual Report.
25
<PAGE>
PART II - OTHER INFORMATION
ITEM 1 - Legal Proceedings
There are no material legal proceedings to which the Company is a
party or to which any of its property is subject, although the
Company is a party to ordinary routine litigation incidental to its
business.
ITEM 2 - Changes in Securities and Use of Proceeds
Not applicable.
ITEM 3 - Defaults Upon Senior Securities
Not applicable.
ITEM 4 - Submission of Matters to a Vote of Security Holders
The Company's annual meeting of stockholders was held on April 24,
2000 (the "Annual Meeting"). The presence, in person or by proxy, of
at least a majority of the total number of issued and outstanding
shares of the Company's common stock, $.50 par value per share (the
"Common Stock") was necessary to constitute a quorum for the
transaction of business at the Annual Meeting. There were 8,227,200
shares of Common Stock issued, outstanding and eligible to vote as
of March 1, 2000. A total of 7,255,010.540 shares of Common Stock
were present in person or by proxy at the Annual Meeting,
constituting a quorum.
At the Annual Meeting, the stockholders elected the following four
individuals as Directors of the Company to serve until the 2003
annual meting of stockholders, with the following votes cast:
<TABLE>
<CAPTION>
Broker Non-Votes
Nominee For Withheld And Abstentions
<S> <C> <C> <C>
Edward D. Brickley 7,141,860.065 113,150.475 0
Robert A. Havern III 7,135,875.833 119,134.707 0
Francis D. Pizzella 7,129,659.200 125,351.340 0
Deborah A. Burke-Santoro 7,129,961.502 125,049.038 0
</TABLE>
The following additional Directors of the Company continued as
Directors after the Annual Meeting: David L. Burke, Paul J. Crowley,
Mary Lou Doherty, Edward J. Gaffey, Andrew D. Guthrie, Jr., M.D.,
Arthur H. Meehan and Eugene R. Murray.
ITEM 5 - Other Information
None.
26
<PAGE>
ITEM 6 - Exhibits and Reports on Form 8-K
(a) Exhibit Description
------- -----------
Exhibit
-------
27 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the
three month period ended June 30, 2000.
27
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MEDFORD BANCORP, INC.
Date: August 14, 2000
/s/ Arthur H. Meehan
---------------------------------------------------------------
Arthur H. Meehan
Chairman, President and Chief Executive Officer
Date: August 14, 2000
/s/ Phillip W. Wong
---------------------------------------------------------------
Phillip W. Wong
Executive Vice President, Treasurer and Chief Financial Officer
28
