Form 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the Quarterly Period Ended September 30, 1999.
OR
[ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
Commission File Number: 0-26663
IPSWICH BANCSHARES, INC.
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(Exact name of Registrant as specified in its charter)
Massachusetts 04-3459169
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State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
23 Market Street, Ipswich, Massachusetts 01938
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(Address of principal executive offices) (Zip Code)
(978) 356-7777
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(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 [ ]
The number of shares outstanding of the Registrant's common stock as of November
5, 1999 is:
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Common stock, par value $.10 per share 2,525,427
(Class) (Outstanding)
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IPSWICH BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Dollars in thousands, except per share data)
September 30, December 31, September 30,
1999 1998 1998
---------- ---------- ----------
Assets (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C>
Cash and due from banks 6,743 7,079 7,373
Interest-bearing deposits and federal funds sold 7,929 5,016 1,987
Investment securities available for sale 35,844 29,085 21,031
Investment securities held to maturity 21,395 10,196 17,168
Loans held for sale 0 24,000 5,045
Loans:
Residential 163,135 161,840 162,221
Home equity 21,993 19,772 19,302
Commercial 4,969 6,191 6,310
Consumer 1,090 1,188 1,143
---------- ---------- ----------
Total gross loans 191,187 188,991 188,976
Allowance for possible loan losses (1,819) (1,742) (1,757)
---------- ---------- ----------
Net loans 189,368 187,249 187,219
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Stock in FHLB of Boston 3,977 2,905 2,905
Savings Bank Life Insurance Company stock 253 253 253
Banking premises and equipment, net 3,201 3,298 3,096
Other real estate owned, net 718 718 765
Accrued interest receivable 1,301 1,053 1,195
Deferred premium on loans sold/mortgage servicing rights, net 1,326 229 1,310
Other assets 214 247 87
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Total assets 272,269 271,328 249,434
========== ========== ==========
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<S> <C> <C> <C>
Liabilities and Stockholders' Equity
Liabilities:
Deposits:
Non-interest-bearing checking accounts 19,034 18,656 16,733
Interest-bearing checking accounts 25,360 22,954 19,349
Savings accounts 36,398 37,768 35,521
Money market accounts 58,167 55,418 52,714
Certificates of deposit 64,064 64,961 67,092
---------- ---------- ----------
Total deposits 203,023 199,757 191,409
Borrowed funds 48,000 53,000 40,000
Mortgagors' escrow accounts 1,047 1,043 1,074
Deferred income tax liability, accrued expenses and other liabilities 3,760 3,305 3,213
---------- ---------- ----------
Total liabilities 255,830 257,105 235,696
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Equity capital 16,305 14,038 13,532
Unrealized gain on investment securities available for sale, net 134 185 206
---------- ---------- ----------
Total stockholders' equity 16,439 14,223 13,738
---------- ---------- ----------
Total liabilities and stockholders' equity 272,269 271,328 249,434
========== ========== ==========
Shares outstanding 2,525,427 2,392,286 2,392,286
Selected data (end of period):
Equity to assets (in %) 6.04 5.24 5.51
Total non-performing assets, net 809 1,186 1,774
Loans serviced for investors 91,573 18,848 108,997
Book value per share 6.51 5.95 5.74
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IPSWICH BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(Dollars in thousands, except per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
--------- --------- --------- ---------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Interest and dividend income:
Loans 3,587 3,442 10,816 10,345
Investment securities available for sale 540 262 1,613 677
Investment securities held to maturity 344 311 803 1,138
Interest-bearing deposits and federal funds sold 65 38 137 84
--------- --------- --------- ---------
Total interest and dividend income 4,536 4,053 13,369 12,244
--------- --------- --------- ---------
Interest expense:
Deposits 1,623 1,686 4,844 4,741
Borrowed funds 634 566 2,081 1,934
--------- --------- --------- ---------
Total interest expense 2,257 2,252 6,925 6,675
--------- --------- --------- ---------
Net interest and dividend income 2,279 1,801 6,444 5,569
Provision for possible loan losses 10 45 100 135
--------- --------- --------- ---------
Net interest and dividend income after
provision for possible loan losses 2,269 1,756 6,344 5,434
--------- --------- --------- ---------
Non-interest income:
Mortgage banking revenues, net 437 309 1,199 991
Retail banking fees 341 306 1,064 849
Net gain on sales of securities 0 0 65 16
Other 41 7 47 11
--------- --------- --------- ---------
Total non-interest income 819 622 2,375 1,867
--------- --------- --------- ---------
Net interest, dividend and non-interest income 3,088 2,378 8,719 7,301
--------- --------- --------- ---------
Non-interest expenses:
Salaries and employee benefits 834 664 2,396 1,933
Occupancy and equipment expenses 226 181 676 483
Data processing services 205 215 564 481
Marketing expense 102 158 368 448
Professsional fees 71 45 231 185
Office expense 100 85 294 265
Other 80 91 409 354
--------- --------- --------- ---------
Total non-interest expenses 1,618 1,439 4,938 4,149
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<S> <C> <C> <C> <C>
Expenses from Holding Company & REIT formation 0 0 380 0
Income before income taxes 1,470 939 3,401 3,152
Income tax expense 441 338 1,020 1,135
--------- --------- --------- ---------
Net income 1,029 601 2,381 2,017
========= ========= ========= =========
Basic earnings per share 0.41 0.25 0.97 0.84
Diluted earnings per share 0.40 0.24 0.94 0.79
Weighted average common shares outstanding (basic) 2,525,227 2,391,614 2,460,572 2,389,704
Weighted average common shares outstanding (diluted) 2,550,416 2,555,866 2,539,232 2,561,337
Dividends per share 0.05 0.04 0.15 0.12
Selected performance data:
(Expense ratios exclude one time charges)
Return on average equity (in %) 25.74 17.96 20.78 20.97
Return on average assets (in %) 1.52 1.00 1.18 1.14
Net interest margin (in %) 3.51 3.09 3.33 3.30
Expenses to average assets (in %) 2.40 2.40 2.44 2.34
Efficiency ratio (in %) 53.35 62.53 56.84 57.82
Mortgage and equity loan production 23,076 47,405 96,189 152,509
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<CAPTION>
IPSWICH BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
Nine Months Ended September 30, 1999 and 1998
(Dollars in thousands, except for share data)
(unaudited)
Accumulated
Additional other Total
Shares Common paid-in Retained comprehensive stockholders'
outstanding stock capital earnings income equity
----------- ----- ------- -------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 2,385,076 239 1,969 9,559 66 11,833
Comprehensive income:
Net income 0 0 0 2,017 0 2,017
Change in net unrealized gain/
(loss) on investment securities
available for sale 0 0 0 0 140 140
--------- --------- --------- --------- --------- ---------
Total comprehensive income 0 0 0 2,017 140 2,157
Cash dividends ($.12 per share) 0 0 0 (286) 0 (286)
Stock options exercised 7,210 0 18 0 0 18
Issuance of stock rights 0 0 16 0 0 16
--------- --------- --------- --------- --------- ---------
Balance at September 30, 1998 2,392,286 239 2,003 11,290 206 13,738
Comprehensive income:
Net income 0 0 0 621 0 621
Change in net unrealized gain/
(loss) on investment securities
available for sale 0 0 0 0 (21) (21)
--------- --------- --------- --------- --------- ---------
Total comprehensive income 0 0 0 621 (21) 600
Cash dividends ($.05 per share) 0 0 0 (121) 0 (121)
Stock options exercised 0 0 0 0 0 0
Issuance of stock rights 0 0 6 0 0 6
--------- --------- --------- --------- --------- ---------
Balance at December 31, 1998 2,392,286 239 2,009 11,790 185 14,223
Comprehensive income:
Net income 0 0 0 2,381 0 2,381
Change in net unrealized gain/
(loss) on investment securities
available for sale 0 0 0 0 (51) (51)
--------- --------- --------- --------- --------- ---------
Total comprehensive income 0 0 0 2,381 (51) 2,330
Cash dividends ($.15 per share) 0 0 0 (373) 0 (373)
Issuance of stock rights 0 0 18 0 0 18
--------- --------- --------- --------- --------- ---------
Balance September 30, 1999 2,525,427 253 2,254 13,798 134 16,439
========= ========= ========= ========= ========= =========
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IPSWICH BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1999 and 1998
(Dollars in thousands)
(unaudited)
1999 1998
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<S> <C> <C>
Net cash flows from operating activities:
Net income 2,381 2,017
Adjustments to reconcile net income to net cash provided (used)
by operating activities:
Provision for possible loan losses 100 135
Deferred income tax expense 0 (94)
Depreciation expense 252 167
Amortization of premiums on investment securities, net 129 55
(Gain) on sale of loans, net (977) (1,218)
(Gain) on sale of real estate acquired by foreclosure 0 (153)
(Gain) on investment securities available for sale, net (65) (16)
Origination of loans held for sale (72,592) (117,560)
Proceeds from sale of loans 11,544 22,059
Proceeds from sale of securitized loans 76,954 87,470
(Increase) decrease in loan origination fees (170) 214
(Decrease) in loan discounts (2) (39)
(Increase) in deferred premium on loans sold and mortgage
servicing rights (1,097) (824)
(Increase) in accrued interest receivable (248) (59)
Decrease in other assets, net 33 75
Increase in accrued expenses and other liabilities 489 126
-------- --------
Net cash provided (used) by operating activities 16,731 (7,645)
Net cash flows from investing activities:
Purchase of investment securities available for sale (13,380) (10,619)
Principal paydowns on investment securities available for sale 10,674 5,678
Proceeds from the sale of investment securities available for sale 4,860 1,474
Purchase of investment securities held to maturity (13,926) (4,067)
Principal paydowns on investment securities held to maturity 736 3,211
Principal from the call of investment securities held to maturity 2,000 7,000
Purchases of stock in FHLB of Boston (1,072) (861)
Net (increase) in loans (2,047) (11,072)
Proceeds from sale of real estate acquired by foreclosure 0 160
Purchases of equipment, net (155) (604)
-------- --------
Net cash (used) provided by investing activities (12,310) (9,700)
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<S> <C> <C>
Cash flows from financing activities:
Net proceeds from the issuance of common stock 259 35
Cash dividends (373) (287)
Net increase in deposits 3,266 20,168
Proceeds from Federal Home Loan Bank advances 69,500 108,649
Repayment of Federal Home Loan Bank advances (74,500) (109,009)
Increase in mortgagors' escrow accounts 4 376
-------- --------
Net cash (used) provided by financing activities (1,844) 19,932
-------- --------
Net increase in cash and cash equivalents 2,577 2,587
Cash and cash equivalents at beginning of year 12,095 6,798
-------- --------
Cash and cash equivalents at end of year 14,672 9,385
======== ========
Supplemental disclosure of cash flow information:
Cash paid for:
Interest on deposit accounts 4,844 4,741
Interest on borrowed funds 2,081 1,934
Income tax expense, net 1,020 1,135
Supplemental schedule of non-cash investing and financing activities:
Conversion of residential real estate loans to mortgage-
backed securities 87,520 86,417
Transfer of real estate acquired by foreclosure to loans 0 422
Net (decrease) required by Statement of Financial Accounting
Standards No. 115:
Investment securities (11) 234
Deferred income tax liability 40 94
Net unrealized gain (loss) on investment securities available
for sale (51) 140
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IPSWICH BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
September 30, 1999 and 1998
Basis of Presentation
The consolidated financial statements include the accounts of Ipswich
Bancshares, Inc. and its wholly owned subsidiary, Ipswich Savings Bank (the
"Bank") and the Bank's wholly owned subsidiaries, Ipswich Preferred Capital
Corporation, Ipswich Securities Corporation, Historic Ipswich, Inc., North Shore
Financial Services, Inc. and Rowley Investment Corporation (Ipswich Bancshares,
Inc. and its subsidiaries are sometimes collectively referred to as the
Company). All significant intercompany accounts and transactions have been
eliminated in consolidation.
Ipswich Preferred Capital Corporation was formed as a mortgage real estate
investment trust to hold residential mortgages as a subsidiary of the Bank.
Ipswich Securities Corporation was formed to exclusively transact in securities
on its own behalf as a wholly-owned subsidiary of the Bank. Historic Ipswich,
Inc. and North Shore Financial Services, Inc. were incorporated for the purpose
of holding direct investments in real estate and foreclosed real estate,
respectively. Rowley Investment Corporation was incorporated to facilitate the
holding and permitting of certain bank-owned real estate.
The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles. In preparing the financial statements,
management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities as of the date of the balance sheet
and revenues and expenses for the period. Actual results could differ
significantly from those estimates.
Material estimates that are particularly susceptible to significant change in
the near-term relate to the determination of the allowance for possible loan
losses, the valuation of real estate acquired by foreclosure, and the valuation
of originated mortgage servicing rights.
A substantial portion of the Company's loans are secured by real estate in Essex
County in Massachusetts. In addition, other real estate owned is located in that
market. Accordingly, the ultimate collectibility of a substantial portion of the
Company's loan portfolio and the recovery of the carrying amount of other real
estate owned are susceptible to changes in market conditions in its geographic
area.
Earnings Per Share
The computation of basic earnings per share is based on the weighted average
number of shares of common stock outstanding during each period. The computation
of diluted earnings per share is based on the weighted average number of shares
of common stock outstanding and dilutive potential common stock equivalents
outstanding during each period. Stock option grants are included only in periods
when the results are dilutive.
Components of Accumulated Other Comprehensive Income
Accumulated other comprehensive income consists solely of unrealized
appreciation on investment securities available for sale, net of taxes.
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ITEM 2
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
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AND RESULTS OF OPERATIONS
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Certain statements in this Form 10-Q constitute "forward looking statements", as
that term is defined under the Private Securities Litigation Reform Act of 1995.
The words "believe", "expect", "anticipate", "intend", "plan", "assume", and
other similar expressions which are predictions of or indicate future events and
trends and which do not relate to historical matters identify forward looking
statements. Reliance should not be placed on forward looking statements because
they involve known and unknown risks, uncertainties and other factors, which are
in some cases beyond the control of the Company and may cause the actual
results, performance, or achievements of the Company to differ materially from
anticipated future results, performance or achievements expressed or implied by
such forward looking statements.
Certain factors that may cause such differences include, but are not limited to
the following: interest rates may increase, adversely affecting the ability of
borrowers to repay adjustable rate loans and the Company's earnings and income
which derive in significant part from loans to borrowers; unemployment in the
Company's market area may increase, adversely affecting the ability of
individual borrowers to re-pay loans; property values may decline, adversely
affecting the ability of borrowers to re-pay loans and the value of real estate
securing repayment of loans; general economic and market conditions in the
Company's market area may decline, adversely affecting the ability of borrowers
to re-pay loans, the value of real estate securing payment of loans and the
Company's ability to make profitable loans; adverse legislation or regulatory
requirements may be adopted; competitive pressure among depository institutions
may increase; and the impact of the Year 2000 issue may be more significant than
currently anticipated. Any of the above may also result in lower interest
income, increased loan losses, additional charge-offs and write-downs and higher
operating expenses. The Company disclaims any intent or obligation to update
publicly any of the forward looking statements herein, whether in response to
new information, future events or otherwise.
GENERAL
Ipswich Bancshares, Inc. (the "Company") is a Massachusetts corporation whose
primary business is serving as the holding company for Ipswich Savings Bank (the
"Bank"). On July 1, 1999, in connection with the formation of the Company as the
holding company for the Bank, each share of the Bank's common stock previously
outstanding was converted automatically into one share of common stock of the
Company, and the Bank became a wholly owned subsidiary of the Company. The
reorganization had no impact on the consolidated financial statements.
The Company's operating results for the three and nine months ended September
30, 1999 reflect the operations of the Company and its direct and indirect
subsidiaries, Ipswich Savings Bank, Ipswich Preferred Capital Corporation
("IPCC"), Ipswich Securities Corporation, North Shore Financial Services, Rowley
Investment Corporation and Historic Ipswich, Inc. The Company is in the business
of making residential mortgage loans, while attracting deposits from the general
public to fund those loans. The Company operates out of its main office located
at 23 Market Street, Ipswich, Essex County, Massachusetts, and its seven
full-service retail branch offices, located in Beverly, Essex, Marblehead, North
<PAGE>
Andover, Rowley, Reading and Salem, Massachusetts. The Company operates
Automatic Teller Machines at its Main Office and each of its full-service retail
branch offices. As a bank holding company, the Company is subject to regulation,
supervision and examination by the Board of Governors of the Federal Reserve
(Federal Reserve) and the Bank is subject to regulation, supervision and
examination by the Federal Deposit Insurance Corporation (the FDIC) and the
Massachusetts Commissioner of Banks (the Commissioner).
ASSET / LIABILITY MANAGEMENT
A primary objective of the Asset/Liability Management Policy is to manage
interest rate risk over time to achieve a prudent level of net interest income
in changing interest rate environments. Management's strategies are intended to
be responsive to changes in interest rates and to recognize market demands for
particular types of deposit and loan products. The strategies are overseen by an
internal Asset/Liability Management Committee.
Assets and liabilities are classified as interest rate sensitive if they have a
remaining term to maturity of 0-12 months, or are subject to interest rate
adjustment in those time periods. Adjustable rate loans and mortgage backed
securities are shown as if the entire balance came due on the repricing date.
Estimates of fixed rate loan amortization prepayments are included with rate
sensitive assets. Because regular savings, demand deposits, money market
accounts and NOW accounts may be withdrawn at any time and are subject to
interest rate adjustments at any time, they are presented based upon assumed
maturity structures. As a results of this analysis, the static GAP position in
the 0 to 12 months range is a negative $46.6 million at September 30, 1999.
Interest rate sensitivity statistics are static measures that do not necessarily
take into consideration external factors which may affect the sensitivity of
assets and liabilities, and consequently can not be used alone to predict the
operating results of a financial institution in a changing environment. However,
these measurements do reflect major trends and thus the Company's sensitivity to
interest rate changes over time.
LIQUIDITY
The Company seeks to ensure that sufficient liquidity is available to meet cash
requirements while earning a return on liquid assets. The Company uses its
liquidity primarily to fund loans and investment commitments, to supplement
deposit flows and to meet operating expenses. The primary sources of liquidity
are interest and amortization from loans, mortgage backed securities and
investments, sales and maturities of investments, loan sales, deposits, and
Federal Home Loan Bank of Boston (FHLBB) advances, which includes a $3.2 million
overnight line of credit. The Company also uses longer term borrowed facilities
within its total available credit line with the FHLBB. Advances from the FHLBB
were $48.0 million at September 30, 1999.
During 1999 the primary sources of liquidity were $88.5 million in loan sales,
principal amortization from mortgage backed securities of $11.4 million and the
sale of a fixed rate mortgage backed security of $4.9 million. The primary uses
of funds were $96.2 million in residential mortgage loan originations and $27.3
million in investment purchases.
<PAGE>
CAPITAL ADEQUACY
Total stockholders' equity at September 30, 1999 was $16.4 million, an increase
of $2.2 million from $14.2 million at the end of 1998. Included in stockholders'
equity at September 30, 1999 is an unrealized gain on marketable securities
available for sale, net of taxes, of $134,000, a decrease of $51,000 as compared
to $185,000 at December 31, 1998. At September 30, 1999, neither the Federal
Reserve Board nor the FDIC permitted the unrealized gain or loss to be used in
the calculation of the Tier 1 leverage capital (see below). Future interest rate
increases could reduce the market value of these securities and reduce
stockholders' equity. Tier 1 leverage capital was 5.57% at September 30, 1999,
compared to 5.24% at December 31, 1998. The Company's Tier 1 capital is reduced
as a result of its holding, in a Bank subsidiary, a parcel of land taken as
OREO. The land is currently being marketed for sale (see Real Estate Acquired by
Foreclosure).
The Federal Reserve's and the FDIC's capital guidelines require the Company and
the Bank, respectively, generally to maintain a minimum Tier 1 leverage capital
ratio of at least 4% (5% for a bank to be classified as "well-capitalized"). At
September 30, 1999, the Bank's Tier 1 leverage capital ratio was 5.56% (compared
to 5.50% at December 31, 1998).
The Federal Reserve and the FDIC have also imposed risk-based capital
requirements on the Company and the Bank, respectively, which give different
risk weightings to assets and to off balance sheet assets, such as loan
commitments. The Federal Reserve's and the FDIC's risk-based capital guidelines
require the Company and the Bank, respectively, to maintain a minimum total
risk-based capital ratio of 8% (10% to be classified as "well-capitalized") and
a Tier 1 risk-based capital ratio of 4% (6% to be classified as
"well-capitalized"). At September 30, 1999, the Bank's total and Tier 1
risk-based capital ratios were 12.79% and 11.53% (compared to 11.70% and 10.45%
at December 31, 1998).
As of September 30, 1999, the Bank was considered "well-capitalized" under
applicable regulatory capital guidelines.
YEAR 2000
The Year 2000 issue (commonly referred to as "Y2K"), is the result of computer
programs being written using two digits, rather than four digits, to define the
applicable year. The Y2K issue, which is common to most corporations, including
banks, concerns the inability of information systems, primarily (but not
exclusively) computer software programs, to properly recognize and process
date-sensitive information as the Year 2000 approaches. The following
constitutes the Company's Y2K readiness disclosure under the Year 2000
Information and Readiness Disclosure Act.
Since the Company's information system functions are either outsourced to
service bureaus or processed in-house using programs developed by third-party
vendors, the direct effort to correct Y2K issues will be undertaken largely by
third parties and will therefore not be within the company's direct control. The
Company expects to bring its mission critical operating systems into compliance
with Y2K requirements through installation of updated or replacement programs
developed by third parties.
<PAGE>
Bank regulators have recently issued additional guidance under which they are
assessing Year 2000 readiness. The failure of a financial institution, such as
the Company, to address deficiencies in the Year 2000 management process could
result in (I) enforcement actions that could have a material adverse effect on
the institution; (ii) the imposition of civil money penalties; or (iii) the
delay of receipt of regulatory approval for certain activities or acquisitions.
Awareness Phase
This phase consists of defining the Y2K problem; developing the resources
necessary to perform compliance work, establishing a Y2K program committee and
developing an overall strategy that encompasses in-house systems, service
bureaus for systems that are outsourced, vendors, auditors, customers, and
suppliers (including correspondents). Currently all of the Company's major
computer processing functions are outsourced to third party vendors. This phase
has been completed by the Company's Y2K committee (see below).
Assessment Phase
The Company has organized a Y2K committee, comprised of senior officers, staff
employees and a consultant, to research, develop and implement a plan that will
correct the issue within the time lines established by the Company's regulators.
The committee has substantially completed an assessment, identified mission
critical systems, and created a formal tracking system identifying all third
party vendors and their Y2K compliant version of systems. Mission critical
systems include hardware, software, program interfaces, operating systems as
well as other mechanical systems. Based upon the results of the assessment, the
Company has established internal time frames to upgrade or replace its existing
hardware and software systems. During 1998, the Company replaced its teller
system hardware and software in its retail branch network.
The assessment phase has been materially completed but is considered an ongoing
phase for the Company. The Company is in the process of developing its
contingency plan. The Company has currently estimated the total costs associated
with the Y2K issues to be $140,000. As of September 30, 1999, the Company has
incurred approximately $100,000 of Y2K expenses. The Company continues to
evaluate the estimated costs associated with achieving Y2K readiness based upon
its experience to date. However, no assurances can be given that the Company or
the third party vendors to whom the Company outsources it information systems
will solve all the issues in a successful and timely fashion or that the costs
of such efforts will not exceed current estimates.
Renovation Phase
This phase includes hardware and software upgrades, system replacements, vendor
certification, and other associated changes. Work has been prioritized based on
information gathered during the assessment phase. The Company relies on outside
servicers for its data processing and third party vendors for certain in-house
processing functions. Each servicer and vendor has been contacted and has or
will provide information to the Company concerning their efforts to comply with
the Y2K issue.
Validation Phase
Testing is a multifaceted process that is critical to the Y2K project and
inherent in each phase of the project management plan. This process includes the
testing of incremental changes to hardware and software components. In addition
to testing upgraded components, connections with other systems must be verified,
<PAGE>
and all changes should be accepted by internal and external users. Management
will work with its service bureau and third-party software vendors to establish
controls to assure the effective and timely completion of all hardware and
software testing prior to final implementation. As with the renovation phase,
the Company will be in ongoing discussions with its vendors on the success of
their validation efforts.
Implementation Phase
In this phase, systems should be validated as Y2K compliant and be accepted by
the Company. For any system failing certification, the business effect must be
assessed clearly and the organization's Y2K contingency plans should be
implemented. Any potentially noncompliant mission-critical system should be
brought to the attention of executive management immediately for resolution. In
addition, this phase must ensure that any new systems or subsequent changes to
verified systems are compliant with Y2K requirements.
In summary, the Company recognizes Y2K as a global issue with potentially
catastrophic results if not addressed. The Company has and will continue to
undertake all the necessary steps to protect itself and its customers concerning
the Y2K issue. If the Company does not solve such issues, or does not do so in a
timely manner, the Y2K issue could have a material adverse impact on the
Company's business, future operating results and financial condition.
FINANCIAL CONDITION
The Company's total assets increased to $272.3 million at September 30, 1999
from $271.3 million at December 31, 1998. The Company added $18 million in
investment securities offset by a decline of $24 million in mortgages held for
sale.
Investment and Mortgage-Backed Securities
Investments and mortgage backed securities available for sale increased by $6.8
million to $35.8 million at September 30, 1999 primarily as a result of the
securitization of $9.1 million of adjustable rate mortgage loans from the loan
portfolio, offset by the sale of $4.9 million of securities and amortization of
$10.7 million. The portfolio of investment and mortgage-backed securities held
to maturity increased to $21.4 million, an increase of $11.2 million, as a
result of the purchase of $13.9 million of mortgage-backed securities and
callable agency securities. Future increases in interest rates could reduce the
value of these investments.
Loans and Loans Held for Sale
Loans held for sale decreased by $24 million during the first nine months of
1999, as a result of the decrease in fixed rate loan production and the delivery
of loans held for sale into forward mortgage-backed security commitments. Total
mortgage loan production for the first nine months of 1999 totaled $96.2
million.
The permanent loan portfolio increased by $2.2 million to $191.2 million at
September 30, 1999. The increase was primarily in adjustable rate residential
first mortgage loans.
<PAGE>
CREDIT QUALITY
Non-Performing Loans
Non-accrual loans were $91,000 at September 30, 1999. Accrual of interest on
loans is discontinued either when a reasonable doubt exists as to the full,
timely collection of principal and interest or when a loan becomes contractually
past due by ninety (90) days or more, unless the loan is adequately secured and
is in the process of collection.
When a loan is placed on non-accrual status, all interest previously accrued,
but not collected is reversed against current period interest income. Income on
such loans is recognized to the extent that cash is received and the ultimate
collection of principal and interest is probable. Following collection
procedures the Company generally institutes appropriate action to foreclose the
property.
Real Estate Acquired by Foreclosure
Real estate acquired by foreclosure totaled $718,000 at September 30, 1999, the
same as at December 31, 1998. Real estate acquired by foreclosure is reflected
at the lower of the net carrying value or fair value of the property less
estimated costs of disposition. These properties consist mainly of land and
single family and multi-family dwellings. The Company currently has one piece of
property totaling $650,000, which is a 98 acre parcel of land in Rowley,
Massachusetts, which has been permitted to create a 40-lot detached single
family residential subdivision and 10 commercial building lots. There remains
outstanding a title claim to a portion of the property. The claim is being
defended by the Company's title insurance company on behalf of Historic Ipswich,
Inc.; the ultimate resolution cannot be predicted. Subsequent to quarter-end,
the property was placed under a Purchase and Sale Agreement for more than the
$650,000 carrying value. The sale is scheduled to close in the fourth quarter
pending resolution of negotiated issues.
Allowance for Loan Loss
The allowance for loan loss was $1.8 million at September 30, 1999 and $1.7
million at December 31, 1998. The entire allowance for loan losses is available
to absorb charge-offs in any category of loans. Loan losses are charged against
the allowance when management believes that the collectibility of the loan
principal is unlikely. The allowance for possible loan losses is established by
management to absorb future charge-offs of loans deemed uncollectible. This
allowance is increased by provisions charged to operating expense and by
recoveries on loans previously charged off. In evaluating current information
and events regarding borrowers' ability to repay their obligations, management
considers commercial loans over $200,000 to be impaired when it is probable that
the Company will be unable to collect all amount due according to the
contractual terms of the note agreement; other loans are evaluated collectively
for impairment. When a loan is considered to be impaired, the amount of the
impairment is measured based on the present value of expected future cash flows
discounted at the loan's effective interest rate or the fair value of
collateral, if the loan is collateral-dependent. Impairment losses are included
in the allowance for loan losses through a charge to the provision for loan
losses. Management believes that the allowance for possible loan losses is
adequate. While management uses available information to recognize losses on
loans, future additions to the allowance may be necessary.
<PAGE>
Liabilities
Deposits increased by $3.3 million to $203.0 million at September 30, 1999 from
$199.8 million at December 31, 1998. The increase was primarily in
interest-bearing checking accounts as a result of the Company's continuing
program to attract transaction account balances.
Federal Home Loan Bank of Boston advances decreased by $5.0 million to $48.0
million at September 30, 1999 from $53.0 million at December 31, 1998 as a
function of cash and liquidity management.
Equity Capital
Equity capital increased by $2.2 million to $16.4 million of September 30, 1999.
Equity was principally impacted by the nine month earnings of $2.4 million
offset by dividend payments of $373,000 in 1999.
<PAGE>
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 1999 COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 1998
General
The Company reported net income of $1.0 million or $.40 per fully diluted share
for the third quarter of 1999. This compares with $601,000 or $.24 per fully
diluted share for the third quarter of 1998. This represents a 71% increase in
net income compared to the same period last year.
The third quarter return on equity was 25.74% which compared to 17.96% in the
third quarter of 1998. The third quarter return on assets was 1.52% which
compares to 1.00% for the same period in 1998.
Net Interest and Dividend Income
Compared to the third quarter of 1998, net interest income grew $478,000 or
26.5% as a result of a $31.1 million growth in average earning assets. For the
third quarter of 1999, net interest margin was 3.51% compared to 3.09% for the
third quarter of 1998.
Non-interest Income
The third quarter non-interest income of $819,000 is an increase of $197,000, or
31.7% from the third quarter of 1998. This increase is principally due to the
growth in retail banking fees as a result of the Company's effort to attract
transaction accounts. This growth was realized from opening two new Bank
branches in the second half of 1998 and the corresponding deposit balances
generated from those openings. Net mortgage banking revenues increased by
$128,000 in the third quarter of 1999 versus the same quarter of 1998. The
increase in mortgage banking revenues was due to the recapture of a reserve
established in the first half of 1999 of $153,000 for the valuation of its
mortgage servicing rights. The recapture was the result of an agreement to sell
the rights to service approximately $90 million in mortgages. The sale is
scheduled to close in the fourth quarter.
Non-interest Expense
Total non-interest expenses were $1.6 million for the third quarter of 1999
versus $1.4 million for the same quarter in 1998. This represents a 12% increase
in expenses. The increase is principally the result of the addition of two new
branches in the second half of 1998 which resulted in a higher level of salary
and benefit costs and occupancy and equipment costs. Additionally, the Company
added support level operational staff in the second half of 1998 as a means to
support potential future expansion.
Income Tax Expense
The third quarter effective tax rate was 30% compared to 36% for the third
quarter of 1998. The lower tax rate for 1999 was due primarily to the formation
of a residential mortgage REIT which resulted in the Company realizing a lower
state tax expense.
<PAGE>
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1999
COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1998
General
The Company reported net income for the nine months ended September 30, 1999 of
$2.4 million, or $.94 per fully diluted share compared to $2.0 million, or $.79
per fully diluted share for the same period last year. Return on equity was
20.78% and 20.97% for the nine months ended September 30, 1999 and 1998
respectively. Return on average assets was 1.18% and 1.14% for the nine months
ended September 30, 1999 and 1998, respectively.
Net Interest and Dividend Income
Total net interest and dividend income was $6.4 million for the nine months
ended September 30, 1999 versus $5.6 million for the same time frame in 1998.
This reflects the Company's growth in its average earning assets of $32.6
million for the first nine months of 1999 versus the same time frame in 1998.
The 1999 net interest margin was 3.33% compared to 3.30% for the same time frame
in 1998.
Non-Interest Income
Non-interest income for the first nine months of 1999 was $2.4 million, versus
$1.9 million for the same time frame in 1998. The Company continued to realize
strong growth in its retail banking fees, which increased by 25% in 1999 versus
1998. This was a result of the Company's continuing efforts to generated
transaction accounts and corresponding fees generated from those accounts.
Mortgage banking revenues increased by $208,000, or 21% in 1999 versus 1998. In
the first nine months of 1998, the Company created a reserve for a write-down on
its mortgage servicing rights of $140,000 as a result of declining interest
rates which impacted 1998 revenues.
Non-Interest Expenses
Non-interest expenses for the first nine months of 1999, excluding the one-time
charge for the holding company and REIT formations, was $4.9 million versus $4.1
million for the first nine months of 1998. The increase in expenses reflects the
addition of two new branches which were added in the second half of 1998. The
line items affected by these branches were salary and benefits, occupancy and
data processing costs. Additionally, the Company realized an increase in
operating expenses as a result of the addition of support staff to manage
potential future expansion.
Income Tax Expense
The nine-month 1999 effective tax rate was 30% compared to 36% for the
nine-month time frame ended September 30, 1998. The lower rate for 1999 was due
primarily to the establishment of the REIT, which will allow the Company to
realize a lower state tax expense.
<PAGE>
ITEM 3
- ------
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- ----------------------------------------------------------
Market risk is the risk of loss in a financial instrument arising from adverse
changes in market rates/prices such as interest rates, foreign currency exchange
rates, commodity prices, and equity prices. The Company's primary market risk
exposure is interest rate risk. The ongoing monitoring and management of this
risk is an important component of the Company's asset/liability management
process which is governed by policies of the Asset/Liability Committees (ALCO).
In this capacity ALCO develops guidelines and strategies impacting the Company's
asset/liability management related activities based upon estimated market risk
sensitivity, policy limits and overall market interest rate levels/trends.
Interest Rate Risk
Interest rate risk represents the sensitivity of earnings to changes in market
interest rates. As interest rates change, the interest income and expense
streams associated with the Company's financial instruments also change thereby
impacting net interest income (NII), the primary component of the Company's
earnings. ALCO utilizes the results of a simulation model and static GAP reports
to quantify the estimated exposure of NII to sustained interest rate changes.
ALCO monitors simulated NII sensitivity over a rolling two-year horizon to gauge
its interest rate risk.
The simulation model captures the impact of changing interest rates on the
interest income received and interest expense paid on all assets and liabilities
reflected on the Company's balance sheet. A parallel and pro forma shift in
rates of 200 basis points (bp) upward and downward on a static balance sheet
over a 12 month period is assumed. The following reflects the Company's NII
sensitivity analysis as of the most recently reviewed time frame, September 30,
1999 versus June 30, 1999.
Rate Change Estimated NII Sensitivity
----------- -------------------------
September 30, 1999 June 30, 1999
------------------ -------------
+200pb (4.70%) (6.08%)
-200pb 5.18% 5.03%
The preceding sensitivity analysis does not represent the Company's forecast and
should not be relied upon as being indicative of expected operating results.
These hypothetical estimates are based upon numerous assumptions including: the
nature and timing of interest rate levels including yield curve shape,
prepayments on loans and securities, deposit decay rates, pricing decisions on
loans and deposits, investment/ replacement of asset and liability cash-flows,
and others. While assumptions are developed based upon current economic and
local market conditions, the Company cannot make any assurances as to the
predictive nature of these assumptions including how customer preferences or
competitor influences might change.
Also, as market conditions vary from those assumed in the sensitivity analysis,
actual results will also differ due to: prepayment/refinancing levels likely
deviating from those assumed, the varying impact of interest rate change caps or
floors on adjustable rate assets, the potential effect of changing debt service
levels on customers with adjustable rate loans, depositor early withdrawals and
product preference changes, and other internal/external variables. Furthermore,
the sensitivity analysis does not reflect actions that ALCO might take in
responding to or anticipating changes in interest rates.
<PAGE>
IPSWICH BANCSHARES, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
- ------- -----------------
None
Item 2. Changes in Securities
- ------- ---------------------
None
Item 3. Defaults Upon Senior Securities
- ------- -------------------------------
None
Item 4. Submission of Matters to a Vote of Security Holders
- ------- ---------------------------------------------------
None
Item 5. Other Information
- ------- -----------------
None
Item 6. Exhibits and Reports on Form 8-K
- ------- --------------------------------
a. Exhibits
b. Reports on Form 8-K
1. No reports on Form 8-K were filed during the third quarter of 1999.
c. Exhibits
2.1 Plan of Reorganization and Acquisition dated as of February 17,
1999 between the Company and Ipswich Savings Bank incorporated by reference to
the Company's Form 8-K filed on July 9, 1999.
3.1 Articles of Organization of the Company dated February 12, 1999 is
incorporated by reference herein from the Company's June 30, 1999 Form 10-Q.
3.2 By-laws of the Company is incorporated by reference herein from the
Company's June 30, 1999 Form 10-Q.
4.1 Specimen stock certificate for the Company's Common Stock is
incorporated by reference herein from the Company's June 30, 1999 Form 10-Q.
10.1 Lease dated August 10, 1992 for premises located at Route 133 and
Route 1, Rowley, Massachusetts is incorporated by reference herein from the
Company's June 30, 1999 Form 10-Q.
<PAGE>
10.2 Lease dated April 25, 1994 for premises located at 451 Andover
Street, North Andover, Massachusetts is incorporated by reference herein from
the Company's June 30, 1999 Form 10-Q.
10.3 Lease dated March 4, 1996 for premises located at 588 Cabot
Street, Beverly, Massachusetts is incorporated by reference herein from the
Company's June 30, 1999 Form 10-Q.
10.4 Lease dated July 27, 1997 for premises located at 600 Loring
Avenue, Salem, Massachusetts is incorporated by reference herein from the
Company's June 30, 1999 Form 10-Q.
10.5 Lease dated February 27, 1998 for premises located at 89 Pleasant
Street, Marblehead, Massachusetts is incorporated by reference herein from the
Company's June 30, 1999 Form 10-Q.
10.6 Lease dated June 12, 1998 for premises located at 470 Main Street,
Reading, Massachusetts is incorporated by reference herein from the Company's
June 30, 1999 Form 10-Q.
10.7* Incentive Compensation Plan for Senior Management and certain
other officers dated September 15, 1995 is incorporated by reference herein from
the Company's June 30, 1999 Form 10-Q.
10.8* Director Recognition and Retirement Plan adopted as of May 18,
1999 is incorporated by reference herein from the Company's June 30, 1999 Form
10-Q.
10.9* Merger and Severance Benefits Program dated February 18, 1998 is
incorporated by reference herein from the Company's June 30, 1999 Form 10-Q.
10.10* Amended and Restated Employment and Severance Agreement dated
May 18, 1999 between Ipswich Savings Bank and David L. Grey is incorporated by
reference herein from the Company's June 30, 1999 Form 10-Q.
10.11* Amended and Restated Employment and Severance Agreement dated
May 18, 1999 between Ipswich Savings Bank and Francis Kenney is incorporated by
reference herein from the Company's June 30, 1999 Form 10-Q.
10.12* Amended and Restated Severance Agreement dated May 18, 1999
between Ipswich Savings Bank and Thomas R. Girard is incorporated by reference
herein from the Company's June 30, 1999 Form 10-Q.
10.13* Employment Agreement dated June 18, 1998 between Ipswich Savings
Bank and Richard P. Duffett is incorporated by reference herein from the
Company's June 30, 1999 Form 10-Q.
10.14(a)*Amended and Restated Split Dollar Agreement dated May 18, 1999
among Ipswich Savings Bank, Eastern Bank and David L. Grey is incorporated by
reference herein from the Company's June 30, 1999 Form 10-Q.
10.14(b)*Amended and Restated Ipswich Irrevocable Insurance Trust dated
as of May 18, 1999 by and between Ipswich Savings Bank and Eastern Bank is
incorporated by reference herein from the Company's June 30, 1999 Form 10-Q.
10.15 Contract with Bank's data processor dated February 14, 1997 is
incorporated by reference herein from the Company's June 30, 1999 Form 10-Q.
<PAGE>
10.16* 1992 Incentive and Non-qualified Stock Option Plan incorporated
by reference to the Company's Registration Statement on Form S-8 filed on July
22, 1999.
10.17* 1996 Stock Incentive Plan incorporated by reference to the
Company's Registration Statement on Form S-8 filed on July 22, 1999.
10.18* 1998 Stock Incentive Plan incorporated by reference to the
Company's Registration Statement on Form S-8 filed on July 22, 1999.
10.19* Deferred Compensation Plan for Directors incorporated by
reference to the Company's Form S-8 filed on July 22, 1999.
10.20*Severance Agreement dated August 18, 1999 between Ipswich Savings
Bank and Keirsten Scanlon.
11. A statement regarding the computation of earnings per share is
included in the Notes to Consolidated Financial Statements.
12. Not applicable.
27. Financial Data Schedule.
- -------------
* Denotes Management Contract or Compensation Plan.
<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.
IPSWICH BANCSHARES, INC.
By: /s/ David L. Grey Date: November 9, 1999
-----------------
David L. Grey
President and Chief Executive Officer
By: /s/Francis Kenney Date: November 9, 1999
-----------------
Francis Kenney
Treasurer
(Principal Financial Officer and Principal Accounting Officer)
SEVERANCE AGREEMENT
This Agreement is entered into by and between Keirsten Scanlon, Vice
President/Retail Banking of Ipswich Savings Bank (the "Executive") and Ipswich
Savings Bank (the "Bank") and shall be effective as of the 18th day of August,
1999 (the "Effective Date").
WHEREAS, the Board of Directors of the Bank desires to assure that the
Executive, in the Executive's capacity as an officer of the Bank, will consider
the prospect of a "Change in Control" (as defined in Section 1(a) below) of the
Bank or of Ipswich Bancshares, Inc. (the "Company"), the holding company for the
Bank, in an objective manner; and
WHEREAS, the Executive desires to commit herself to serve the Bank to the best
of her ability;
NOW, THEREFORE, in consideration of the foregoing and the agreements of the
parties herein contained, the parties hereto agree as follows:
I. Consequences of Termination of the Executive's Employment Following Change in
Control. If there is a "Change in Control" (as defined in subsection (a) below)
during the "Term" (as defined in Section 3 below), the provisions of this
Section shall apply and shall continue to apply throughout the remainder of the
Term. If, within one year following a "Change in Control" (as defined in
subsection (a) below), the Executive's employment is terminated by the Executive
following a reduction of the Executive's annual compensation (other than a
reduction which is based on the Bank's financial performance and is similar to
the reduction made to the compensation provided to each other officer of the
Bank), the Executive (or the Executive's estate, if applicable) shall receive
such compensation as is provided to the Executive pursuant to subsection (c)
below. Similarly, if the Executive's employment is terminated without "cause"
(as defined in subsection (b) below) by the Bank within one year following a
"Change in Control" (as defined in subsection (a) below), the Executive (or the
Executive's estate, if applicable) shall receive such compensation as is
provided to the Executive pursuant to subsection (c) below.
(a) For the purposes of this Section "Change in Control" shall mean the
occurrence of any one or more of the following events: (i) after the Effective
Date, any "person" (as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934), other than the Company or the Bank, becomes a
"beneficial owner" (as such term is defined in Rule 13d-3 as promulgated under
the Securities Exchange Act of 1934) directly or indirectly of securities
representing 25% or more of the total number of votes that may be cast for the
election of Directors of the Company or the Bank and two thirds of the Board of
Directors of the Company or the Bank (the "Board") has not consented to such
event prior to its occurrence or within sixty (60) days thereafter, provided
that if the consent occurs after the event, it shall only be valid for the
purposes of this paragraph (i) if a majority of the consenting Board of
theCompany or the Bank is comprised of Directors of the Company or the Bank who
were Directors of the Company or the Bank immediately prior to the event;
(ii) within two years after a merger, consolidation or sale of assets involving
the Company or the Bank, or a contested election of a Company or a Bank
Director, or any combination of the foregoing, the individuals who were
Directors of the Company or the Bank immediately prior thereto shall cease to
constitute a majority of the Board; or
<PAGE>
(iii) within two years after a tender offer or exchange offer for voting
securities of the Company or the Bank (other than by the Company), the
individuals who were Directors of the Company or the Bank immediately prior
thereto shall cease to constitute a majority of the Board.
(b) For purposes of this Section 1, "cause" shall mean activities which have had
an adverse effect on the financial strength or stability of the Company or the
Bank; neglect of duties for which employed (other than on account of a medically
determinable disability which renders the Executive incapable of performing such
services); committing fraud, misappropriation or embezzlement in the performance
of duties as an employee of the Company or the Bank; conviction of a felony
involving a crime of moral turpitude; or willfully engaging in conduct injurious
to the Company or the Bank.
(c) If the Executive becomes entitled to receive compensation pursuant to this
Section, she shall receive a lump-sum payment from the Bank within 30 days of
the termination of her employment in the amount of one (1) year's salary of the
Executive (at the then applicable annual base salary rate of the Executive,
exclusive of bonuses).
I. Employment Status. This Agreement is not an agreement for the employment of
the Executive and shall confer no rights on the Executive except as herein
expressly provided.
I. Term and One-Year Extension. The term of this Agreement shall be one year
commencing with the Effective Date hereof (the "Term"). The Term of this
Agreement will, however, be automatically extended for additional periods of one
year commencing on the first anniversary of the Effective Date and on each
subsequent anniversary thereafter, unless either party notifies the other in
writing at least three months prior to the date of such anniversary of the
Effective Date that the Agreement is not to be extended.
I. Exclusivity Covenant; Non-Competition.
(a) Except with the prior written consent of the Board, the Executive will not
while in the employ of the Bank, undertake or engage in any other employment
occupation or business enterprise. Further, the Executive agrees not to acquire,
assume or participate in, directly or indirectly, any position, investment or
interest, in the areas where the Bank maintains banking offices, adverse or
antagonistic to the Bank, its business or prospects, financial or otherwise, or
take any action towards any of the foregoing, except for any investment
representing less than one percent (1%) of the voting shares of any
publicly-held corporation.
(b) During the Executive's employment by the Bank hereunder and during a period
of one year following the date of termination of her employment with the Bank
for any reason, the Executive will not, directly or indirectly whether as owner,
partner, shareholder, consultant, agent, employee, co-venturer or otherwise, or
through any Person (as defined below), compete in the Bank's market area
(defined as Essex County, Massachusetts) with the banking or any other business
conducted by the Bank or any Subsidiary during the period of her employment
hereunder, nor will she attempt to hire any employee of the Bank, assist in such
hiring by any other Person, encourage any such employee to terminate his or her
relationship with the Bank or encourage any customer to conduct with any other
Person any business or activity which such customer conducts or could conduct
with the Bank.
<PAGE>
For purposes of this subsection, (i) the Executive shall not be deemed
to be competing with the Bank if she is employed outside of the Bank's market
area for a bank or corporation which has its headquarters outside of the Bank's
market area, even if such bank or corporation has a branch or office in the
Bank's market area and (ii) the term "Person" shall mean an individual, a
corporation, an association, a partnership, an estate, a trust and any other
entity or organization.
I. Assignment. This Agreement and the rights and obligations of the parties
hereto shall bind and inure to the benefit of each of the parties hereto and
shall also bind and inure to the benefit of any successor or successors of the
Bank by reorganization, merger or consolidation and any assignee of all or
substantially all of its business and properties, but, except as to any such
successor or assignee of the Company or the Bank, neither this Agreement nor any
rights or benefits hereunder may be assigned by the Company or the Bank or by
the Executive.
I. Withholding. All payments made by the Bank under this Agreement shall be net
of any tax or other amounts required to be withheld by the Bank under applicable
Federal and state law.
I. Governing Law. This Agreement shall be construed in accordance with, and
governed for all purposes by, the laws of The Commonwealth of Massachusetts,
without regard to its principles of conflicts of laws.
I. Interpretation. In case any one or more of the provisions contained in this
Agreement shall, for any reason, be held to be invalid, illegal or unenforceable
in any respect, such invalidity, illegality or unenforceability shall not affect
any other provisions of this Agreement, but this Agreement shall be construed as
if such invalid, illegal or unenforceable provision had never been contained
herein.
I. Enforcement. Any legal expenses incurred by the Executive in enforcing her
rights hereunder (regardless of whether the provisions of this Agreement have
terminated) shall be paid by the Bank, provided that both the Executive prevails
on the merits of her claim or claims and the Bank's rights of appeal with
respect to such claim or claims have been exhausted or have otherwise expired.
The Bank shall pay such legal expenses (or reimburse the Executive, if
appropriate) within thirty (30) days after the later of the date on which the
conditions specified inthe previous sentence are fulfilled or the date on which
the Executive submits evidence of such legal expenses to the Board.
I. Amendment and Waiver. This Agreement may not be amended, supplemented or
waived except by a writing signed by the party against which such amendment or
waiver is to be enforced. The waiver by any party of a breach of any provision
of this Agreement shall not operate to, or be construed as a waiver of, any
other breach of that provision nor as a waiver of any breach of another
provision.
<PAGE>
I. Binding Effect. Subject to the provisions of Section 5 hereof, this Agreement
shall be binding on the successors and assigns of the parties hereto.
I. Notices. Any notices, requests, demands and other communications provided for
by the Agreement shall be sufficient if in writing and delivered in person or
sent by registered or certified mail, postage prepaid, in the case of the
Executive, at the last address the Executive has filed in writing with the Bank
or, in the case of the Bank, at its main office, attention of the President
(with a copy to Carol Hempfling Pratt, Foley, Hoag & Eliot, llp, One Post Office
Square, Boston, Massachusetts 02109).
I. Counterparts. This Agreement may be executed in any number of counterparts,
each of which is an original but which shall together constitute one and the
same instrument.
IN WITNESS WHEREOF, the Company, the Bank and the Executive have executed this
Agreement under seal as of the date first set forth above.
IPSWICH SAVINGS BANK EXECUTIVE
By: /s/ David L. Grey /s/ Keirsten Scanlon
----------------- --------------------
David L. Grey, President Keirsten Scanlon
The undersigned hereby guarantees the
obligations of Ipswich Savings Bank under
the foregoing agreement.
IPSWICH BANCSHARES, INC.
By: /s/ David L. Grey
-----------------
David L. Grey, President
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 6,743
<INT-BEARING-DEPOSITS> 7,929
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 35,844
<INVESTMENTS-CARRYING> 21,395
<INVESTMENTS-MARKET> 20,820
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<ALLOWANCE> 1,819
<TOTAL-ASSETS> 272,269
<DEPOSITS> 203,023
<SHORT-TERM> 48,000
<LIABILITIES-OTHER> 4,807
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0
0
<COMMON> 253
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<TOTAL-LIABILITIES-AND-EQUITY> 272,269
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