<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 5, 2000
REGISTRATION NO. 333-33182
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
PRE-EFFECTIVE
AMENDMENT NO. 1 TO
FORM S-4/A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------
BANCORP RHODE ISLAND, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
RHODE ISLAND 6021 05-0509802
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
ORGANIZATION)
</TABLE>
ONE TURKS HEAD PLACE, PROVIDENCE, RHODE ISLAND, 02903
(401) 456-5000
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES)
ONE TURKS HEAD PLACE, PROVIDENCE, RHODE ISLAND, 02903
(ADDRESS OF PRINCIPAL PLACE OF BUSINESS)
MERRILL W. SHERMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
ONE TURKS HEAD PLACE, PROVIDENCE, RHODE ISLAND, 02903
(401) 456-5060
(NAME, ADDRESS AND TELEPHONE OF AGENT FOR SERVICE)
------------------------
COPY TO:
MARGARET D. FARRELL, ESQ., HINCKLEY, ALLEN & SNYDER LLP
1500 FLEET CENTER, PROVIDENCE, RHODE ISLAND, 02903
(401) 274-2000
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after the effective date.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]_______________
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]_________________
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
Part I of Registration Statement No. 333-33182 filed on March 23, 2000 on
Form S-4 (the "Registration Statement") is incorporated herein by reference.
On March 23, 2000, Bancorp Rhode Island, Inc. filed the Registration
Statement for the registration of 3,728,550 shares of its Common Stock relating
to the merger described in the Registration Statement. This Pre-Effective
Amendment No. 1 to the Registration Statement is filed pursuant to Rule 475a
solely for the purpose of submitting additional Exhibits to the Registration
Statement. No material changes to the Prospectus have been made.
<PAGE> 3
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Articles of Incorporation and By-laws of the Registrant provide for the
indemnification of the Registrant's directors and permit the indemnification of
the Registrant's officers and employees to the fullest extent permitted by, and
subject to the conditions set forth in, the Rhode Island Business Corporation
Act (the "RIBCA"). The indemnification provided under the Articles of
Incorporation and By-laws includes the right to be paid by the Registrant the
expenses (including attorneys' fees) in advance of any proceeding for which
indemnification may be obtained in advance of its final disposition, provided
that the payment of these expenses (including attorneys' fees) incurred by a
director or officer in advance of the final disposition of a proceeding may be
made only upon delivery to the Registrant of an undertaking by or on behalf of
the director or officer to repay all amounts so paid in advance if it is
ultimately determined that the director or officer is not entitled to be
indemnified.
The By-laws provide that the indemnification set forth in the Articles of
Incorporation and By-laws shall apply if such person acted in good faith and in
a manner reasonably believed to be in or not opposed to the best interests of
the Registrant. With respect to any criminal action or proceeding, such person
must have had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, does not, of
itself, create a presumption that such person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the Registrant, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that such person's conduct was
unlawful.
No indemnification shall be made in respect of any claim, issue or matter
as to which such person shall have been finally adjudged to be liable to the
Registrant, unless and only to the extent that the court in which such action or
suit was brought shall determine upon application that, despite the adjudication
of liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses such court shall
deem proper.
Under the By-laws, the Registrant has the power, by a vote of a majority of
the full Board of Directors, to purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the Registrant,
or is or was serving at the request of the Registrant as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him and incurred by him
in any such capacity, or arising out of his status as such, whether or not the
Registrant would have the power to indemnify him against such liability under
the provisions of the By-laws.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------
<C> <S>
2. Plan of Reorganization and Agreement of Merger dated
February 15, 2000 by and among Bank Rhode Island, Bancorp
Rhode Island, Inc. and BKRI Interim Bank attached as Annex A
to the Proxy Statement/Prospectus contained in Part I of
this Registration Statement.**
3.1 Articles of Incorporation of Registrant**
3.2 By-laws of Registrant**
4.1 Specimen form of certificate for Bancorp Common Stock*
4.2 Specimen form of certificate for Bancorp Non-Voting Common
Stock*
5. Opinion re: legality*
10.1 Employment Agreement of Merrill W. Sherman, as amended**
10.2 Employment Agreement of Albert R. Rietheimer, as amended**
10.3 Employment Agreement of Donald C. McQueen, as amended**
10.4 Employment Agreement of James V. DeRentis**
10.5 Bank Rhode Island's 1996 Incentive and Nonqualified Stock
Option Plan, as amended**
10.6 Bank Rhode Island's Non-Employee Director Stock Plan**
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------
<C> <S>
10.7 Bank Rhode Island's Supplemental Executive Retirement Plan,
as amended**
10.8 Bank Rhode Island's Nonqualified Deferred Compensation Plan,
as amended**
10.9 Warrant for 136,315 shares of Common Stock Issued to Fleet
Financial Group, Inc.**
13. Bank Rhode Island's Annual Report to shareholders for 1999,
portions of which have been incorporated by reference herein
are filed with the Commission. Those portions which have not
been incorporated by reference herein are provided for
information purposes only.*
21. Sole Subsidiary of the Registrant is Bank Rhode Island
23.1 Consent of Counsel is included with the opinion re: legality
as Exhibit 5 to this Registration Statement*
23.2 Consent of KPMG LLP, as accountants for the Registrant*
99.1 Form of Proxy for Common Stock to be utilized in connection
with the annual meeting of Bank Rhode Island**
99.2 Form of Proxy for Non-Voting Common Stock to be utilized in
connection with the annual meeting of Bank Rhode Island**
</TABLE>
- ---------------
* Filed herewith pursuant to Rule 475a.
** Previously filed as Exhibits to Registration Statement No. 333-33182.
ITEM 22. UNDERTAKINGS
(a)(1) The undersigned Registrant hereby undertakes to deliver or cause to
be delivered with the Proxy Statement/Prospectus, to each person to whom the
Proxy Statement/Prospectus is sent or given, the latest annual report to
security holders that is incorporated by reference in the Proxy
Statement/Prospectus furnished pursuant to and annual meeting the requirements
of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of 1934; and,
where interim financial information required to be presented by Article 3 of
Regulation S-X are not set forth in the Proxy Statement/Prospectus, to deliver,
or cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide interim financial information.
(a)(2) The undersigned Registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other Items of the applicable form.
(a)(3) The Registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (g)(1) of Rule 145, or (ii) that purports to meet the
requirements of section 10(a)(3) of the Securities Act and is used in connection
with an offering of securities subject to Rule 415, will be filed as a part of
an amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(b) The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the Proxy Statement/Proxy
Statement/Prospectus pursuant to Items 4, 10(b), 11 or 13 of this Form, within
one business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date of the
registration statement through the date of responding to the request.
(c) The undersigned Registrant hereby undertakes to supply by means of
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-2
<PAGE> 5
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 1 to its Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Providence, State of Rhode Island on April 3, 2000.
BANCORP RHODE ISLAND, INC.
/s/ MERRILL W. SHERMAN
--------------------------------------
By: Merrill W. Sherman
Its: President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ MERRILL W. SHERMAN President and Chief Executive April 3, 2000
- --------------------------------------------------- Officer; Director
Merrill W. Sherman
/s/ ALBERT R. RIETHEIMER Chief Financial Officer and April 3, 2000
- --------------------------------------------------- Treasurer (Principal Financial
Albert R. Rietheimer and Accounting Officer)
* Director April 3,, 2000
- ---------------------------------------------------
Anthony F. Andrade
* Director April 3,, 2000
- ---------------------------------------------------
John R. Berger
* Director April 3,, 2000
- ---------------------------------------------------
Malcolm G. Chace
* Director April 3, 2000
- ---------------------------------------------------
Ernest J. Chornyei, Jr.
* Director April 3, 2000
- ---------------------------------------------------
Karl F. Ericson
/s/ MARGARET D. FARRELL Director April 3, 2000
- ---------------------------------------------------
Margaret D. Farrell
* Director April 3, 2000
- ---------------------------------------------------
Mark R. Feinstein
</TABLE>
II-3
<PAGE> 6
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Director April 3, 2000
- ---------------------------------------------------
Donald J. Reaves
* Director April 3, 2000
- ---------------------------------------------------
Frederick James Hodges, Jr.
* Director April 3, 2000
- ---------------------------------------------------
Cheryl L. Watkins
Director April , 2000
- ---------------------------------------------------
John A. Yena
</TABLE>
By: /s/ MARGARET D. FARRELL
----------------------------------
Attorney-in-fact, pursuant to
power
of attorney previously filed as
part of this Registration
Statement
II-4
<PAGE> 7
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION PAGE
- ------- ----------- ----
<C> <S> <C>
2. Plan of Reorganization and Agreement of Merger dated
February 15, 2000 by and among Bank Rhode Island, Bancorp
Rhode Island, Inc. and BKRI Interim Bank attached as Annex A
to the Proxy Statement/Prospectus contained in Part I of
this Registration Statement**...............................
3.1 Articles of Incorporation of Registrant**...................
3.2 By-laws of Registrant**.....................................
4.1 Specimen form of certificate for Bancorp Common Stock*......
4.2 Specimen form of certificate for Bancorp Non-Voting Common
Stock*......................................................
5. Opinion re: legality*.......................................
10.1 Employment Agreement of Merrill W. Sherman, as amended**....
10.2 Employment Agreement of Albert R. Rietheimer, as
amended**...................................................
10.3 Employment Agreement of Donald C. McQueen, as amended**.....
10.4 Employment Agreement of James V. DeRentis**.................
10.5 Bank Rhode Island's 1996 Incentive and Nonqualified Stock
Option Plan, as amended**...................................
10.6 Bank Rhode Island's Non-Employee Director Stock Plan**......
10.7 Bank Rhode Island's Supplemental Executive Retirement Plan,
as amended**................................................
10.8 Bank Rhode Island's Nonqualified Deferred Compensation Plan,
as amended**................................................
10.9 Warrant for 136,315 shares of Common Stock Issued to Fleet
Financial Group, Inc.**.....................................
13. Bank Rhode Island's Annual Report to shareholders for 1999,
portions of which have been incorporated by reference herein
are filed with the Commission. Those portions which have not
been incorporated by reference herein are provided for
information purposes only.*.................................
21. Sole Subsidiary of the Registrant is Bank Rhode Island......
23.1 Consent of Counsel is included with the opinion re: legality
as Exhibit 5 to this Registration Statement*................
23.2 Consent of KPMG LLP, as accountants for the Registrant*
99.1 Form of Proxy for Common Stock to be utilized in connection
with the annual meeting of Bank Rhode Island**..............
99.2 Form of Proxy for Non-Voting Common Stock to be utilized in
connection with the annual meeting of Bank Rhode Island**...
</TABLE>
- ---------------
* Filed herewith pursuant to Rule 475a.
** Previously filed as Exhibit to Registration Statement No. 333-33182.
<PAGE> 1
Exhibit 4.1
[NUMBER SEAL] [SHARES SEAL]
BANCORP RHODE ISLAND, INC.
CHARTERED UNDER THE LAWS OF THE STATE OF RHODE ISLAND
PAR VALUE $0.01 PER SHARE
CUSIP
SEE REVERSE FOR CERTAIN DEFINITIONS
THIS CERTIFIES that is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK OF
BANCORP RHODE ISLAND, INC.
transferable only on the books of the Corporation in person or by duly
authorized Attorney upon surrender of this Certificate properly endorsed.
This Certificate is not valid unless countersigned and registered by the
Transfer Agent and Registrar.
IN WITNESS WHEREOF, BANCORP RHODE ISLAND, INC. has caused the facsimile
signatures of its duly authorized officers and a facsimile of its corporate seal
to be hereunto affixed.
DATED:
[BANCORP RHODE ISLAND, INC. SEAL]
/S/ Albert R. Rietheimer /S/ Merrill W. Shermann
ALBERT R. RIETHEIMER MERRILL W. SHERMANN
Treasurer President
COUNTERSIGNED AND REGISTERED:
REGISTRAR AND TRANSFER COMPANY
(CRANFORD, NEW JERSEY)
TRANSFER AGENT
AND REGISTRAR
BY
AUTHORIZED SIGNATURE
<PAGE> 2
The securities represented by this certificate are issued subject to all
the provisions of the Articles of Incorporation and By-laws of Bancorp Rhode
Island, Inc. (the "Corporation") as from time to time amended (copies of which
are on file at the main office of the Corporation), to all of which the holder
by acceptance hereof assents.
The Corporation is authorized to issue more than one class or series of
capital stock. The Corporation will furnish to any stockholder, upon request and
without charge, a full statement of the designations, preferences, limitations,
and relative rights of the shares of each class or series authorized to be
issued.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<CAPTION>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT................Custodian.........under
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants, with right Uniform Gifts to Minors Act.........................
of survivorship and not (State)
as tenants in common
</TABLE>
Additional abbreviations may also be used though not in the above list.
For Value Received,__________________ do hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
-----------------------
/ /
- -----------------------
________________________________________________________________________________
________________________________________________________________________________
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE OF ASSIGNEE
________________________________________________________________________________
________________________________________________________________________________
_________________________________________________________________________ Shares
of the Common Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
________________________________________________________________________________
________________________________________________________________________________
Attorney to transfer the said Shares on the books of the within named
Corporation with full power of substitution in the premises.
Dated:_________________
In presence of _______________________________________
_________________________________________
NOTICE: The signature to this assignment must correspond with the name as
written upon the face of the Certificate, in every particular, without
alteration or enlargement, or any change whatever.
The signature(s) of the assignor(s) must be guaranteed hereon by a participant
in either the Securities Transfer Agent's Medallion Program (STAMP), the Stock
Exchange Medallion Program (SEMP), or the New York Stock Exchange Medallion
Program (MSP).
<PAGE> 1
EXHIBIT 4.2
NUMBER SHARES
BANCORP RHODE ISLAND, INC.
NON-VOTING COMMON STOCK--$.01 PAR VALUE
This Certifies that SPECIMEN is the owner of ____________________________
Bancorp Rhode Island, Inc.
Shares of the Capital Stock of transferable only on the books of the
Corporation by the holder hereof in person or by Attorney upon surrender of
this Certificate property endorsed.
IN WITNESS WHEREOF, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and its Corporate Seal to be hereunto
affixed this _____________day of _____________ A.D.________________
SEAL
______________________________ ______________________________
President Treasurer
<PAGE> 2
The securities represented by this certificate are issued subject to all the
provisions of the Articles of Incorporation and By-laws of Bancorp Rhode
Island, Inc. (the "Corporation") as from time to time amended (copies of which
are on file at the main office of the Corporation), to all of which the holder
by acceptance hereof assents.
The Corporation is authorized to issue more than one class of series of capital
stock. The Corporation will furnished to any stockholder, upon request and
without charge, a full statement of the designations, preferences, limitations,
and relative rights of the shares of each class or series authorized to be
issued.
The shares represented by the certificate have been acquired for investment
and have not been registered under the Securities Act of 1933, as amended, and
may not be offered, sold or otherwise transferred pledged or hypothecated
unless and until such shares are registered under such Act or an opinion of
counsel satisfactory to the Corporation is obtained to the effect that such
registration is not required.
Bancorp Rhode Island, Inc.
Certificate
FOR
SHARES
CAPITAL STOCK
ISSUED TO
SPECIMEN
DATED
For Value Received, ________ hereby sell, assign and transfer unto
_________________________________________________________________________
__________________________________________________________________ Shares
of the Capital Stock represented by the within Certificate, and do
hereby irrevocably constitute and appoint
_________________________________________________________________________
to transfer the said Stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated _______________________________
In presence of
____________________________________
<PAGE> 1
1500 FLEET CENTER
PROVIDENCE, RHODE ISLAND 02903
401 274-2000
FAX: 401 277-9600
HINCKLEY, ALLEN & SNYDER LLP
- --------------------------------------------------------------------------------
ATTORNEYS AT LAW
April 3, 2000
Bancorp Rhode Island, Inc.
Bank Rhode Island
One Turks Head Place
Providence, RI 02903
Ladies and Gentlemen:
We have acted as counsel for Bank Rhode Island, a Rhode Island
financial institution ("Bank RI") and its wholly-owned subsidiary, Bancorp Rhode
Island, Inc., a Rhode Island corporation ("Bancorp") in connection with the
Registration Statement on Form S-4 (the "Registration Statement") filed by
Bancorp with the Securities and Exchange Commission (the "Commission") under the
Securities Act of 1933, as amended, relating to the registration by Bancorp of
3,728,550 shares of Common Stock, as defined in the Articles of Incorporation of
Bancorp, par value $.01 per share, which includes 280,000 shares which are
issuable upon conversion of shares of Non-Voting Common Stock, as defined in the
Articles of Incorporation of Bancorp, par value $.01 per share (the Common Stock
and Non-Voting Common Stock is sometimes collectively referenced herein as the
"Bancorp's Stock"). If approved by the shareholders of Bank RI and applicable
regulatory authorities, under the terms of a Plan of Reorganization and Merger
Agreement (the "Merger Agreement"), Bank RI will reorganize to become a
wholly-owned subsidiary of Bancorp, and current holders of common and non-voting
common stock of Bank RI ("Bank RI's Stock") will exchange their shares of Bank
RI's Stock for Bancorp's Stock on a one for one basis.
We have examined the Registration Statement as well as the Merger
Agreement, the Articles of Incorporation of Bancorp, and the By-laws of Bancorp
which have been filed with the Commission as exhibits to the Registration
Statement. In addition, we have examined the Agreement to Form and the By-laws
of Bank RI. We also have examined the applications for regulatory approval of
the transactions contemplated by the Merger Agreement as submitted by Bank RI
and Bancorp to the Board of Governors of the Federal Reserve System, the Federal
Deposit Insurance Corporation, and the Department of Business Regulation of the
State of Rhode Island. Further, we have reviewed, and have relied as to matters
of fact upon, the originals or copies, certified or otherwise identified to our
satisfaction, of such corporate records, agreements, documents and other
instruments and such certificates or comparable documents of public officials
and of officers and representatives of Bank RI and Bancorp, and have made such
other and further investigations, as we have deemed relevant and necessary as a
basis for the opinion hereinafter set forth.
28 STATE STREET * BOSTON, MASSACHUSETTS 02109-1775 * 617-345-9020
<PAGE> 2
HINCKLEY, ALLEN & SNYDER LLP
Bancorp Rhode Island, Inc.
Bank Rhode Island
April 3, 2000
Page 2
In such examination, we have assumed the genuineness of all signatures,
the legal capacity of natural persons, the authenticity of all documents
submitted to us as originals, the conformity to original documents of all
documents submitted to us as certified or photostatic copies, and the
authenticity of the originals of such latter documents.
Based upon and subject to the foregoing, we are of the opinion that
Bancorp's Stock which may be issued under the Merger Agreement has been duly
authorized and when issued in accordance with the terms of the Merger Agreement
will be validly issued, fully paid and non-assessable.
We hereby consent to the use of this opinion as an exhibit to the
Registration Statement and to the reference to our firm under the caption "Legal
Matters" in the Prospectus included therein. This opinion is rendered to you in
connection with the Registration Statement and, except as consented to in the
preceding sentence, may not be relied upon or furnished to any other person in
any context. In giving such consent, we do not thereby admit that we are within
the category of persons whose consent is required under Section 7 of the
Securities Act or the rules and regulations of the Securities and Exchange
Commission thereunder.
Very truly yours,
Hinckley, Allen & Snyder LLP
/S/ HINCKLEY, ALLEN & SNYDER LLP
<PAGE> 1
EXHIBIT 13
BankRI
1999 Annual Report
<PAGE> 2
Our Mission
BANK RHODE ISLAND WILL BE THE PREMIER COMMUNITY BANK IN THE MARKETS WE SERVE. WE
WILL PROVIDE EXCELLENT SERVICE AND A BROAD RANGE OF COMPETITIVE FINANCIAL
PRODUCTS TO OUR CUSTOMERS THROUGH A TEAM OF WELL-TRAINED PROFESSIONAL EMPLOYEES.
WE WILL BE A CIVIC LEADER THROUGH DIRECT INVOLVEMENT IN LOCAL ORGANIZATIONS AND
ACTIVITIES.
ALL OF THESE ENDEAVORS WILL RESULT IN A STRONG PERFORMANCE FOR OUR SHAREHOLDERS,
A REWARDING WORK ENVIRONMENT FOR OUR EMPLOYEES, AND A VALUABLE RESOURCE FOR OUR
CUSTOMERS AND COMMUNITY.
Selected Consolidated Financial Data
The table on the following page represents selected consolidated financial data
as of and for the years ended December 31, 1999, 1998, 1997 and 1996. The
selected consolidated financial data is derived from the Bank's Consolidated
Financial Statements which have been audited by KPMG LLP. The selected
consolidated financial data of the Bank set forth on the following page does not
purport to be complete and should be read in conjunction with, and are qualified
in their entirety by, the more detailed information, including the Consolidated
Financial Statements and related Notes, and "Management's Discussion and
Analysis of Financial Condition and Results of Operations," appearing elsewhere
herein.
(a) The Bank commenced operations on March 22, 1996.
(b) Calculated by dividing total noninterest expenses by net interest income
plus noninterest income.
(c) Excludes amortization of intangibles and any related income taxes.
(d) Excludes cumulative effect of change in accounting principle, net of taxes.
This report contains forward-looking statements that involve risks and
uncertainties. The Bank's actual results could differ materially from those
discussed herein. Factors that could cause or contribute to such differences
include, but are not limited to, those discussed in the Bank's Form 10-K for the
year ended December 31, 1999.
<PAGE> 3
Financial Highlights
<TABLE>
<CAPTION>
AS OF AND FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1999 1998 1997 1996 (a)
----------- ----------- ----------- -----------
(Dollars in thousands, except Per Share Data)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Interest income $ 41,651 $ 40,034 $ 37,269 $ 26,514
Interest expense 19,600 19,845 17,478 11,778
Net interest income 22,051 20,189 19,791 14,736
Provision for loan losses 1,000 1,017 1,000 837
Noninterest income 3,222 2,727 1,916 1,237
Noninterest expense 17,354 16,043 15,273 12,718
----------- ----------- ----------- -----------
Income before taxes and change in accounting principle 6,919 5,856 5,434 2,418
Income taxes 2,448 2,022 1,924 846
----------- ----------- ----------- -----------
Income before change in accounting principle 4,471 3,834 3,510 1,572
Cumulative effect of change in accounting principle, net of taxes 109 -- -- --
----------- ----------- ----------- -----------
Net income 4,362 3,834 3,510 1,572
Dividends on preferred stock 88 793 1,413 720
----------- ----------- ----------- -----------
Net income available to common shareholders $ 4,274 $ 3,041 $ 2,097 $ 852
=========== =========== =========== ===========
PER SHARE DATA:
Basic earnings per common share:
Income before change in accounting principle $ 1.18 $ 0.87 $ 0.75 $ 0.30
Cumulative effect of change in accounting principle (0.03) -- -- --
----------- ----------- ----------- -----------
Net income $ 1.15 $ 0.87 $ 0.75 $ 0.30
=========== =========== =========== ===========
Basic cash earnings per common share (c) $ 1.35 $ 1.10 $ 1.03 $ 0.52
Diluted earnings per common share:
Income before change in accounting principle $ 1.17 $ 0.85 $ 0.75 $ 0.30
Cumulative effect of change in accounting principle (0.03) -- -- --
----------- ----------- ----------- -----------
Net income $ 1.14 $ 0.85 $ 0.75 $ 0.30
=========== =========== =========== ===========
Diluted cash earnings per common share (c) $ 1.34 $ 1.07 $ 1.03 $ 0.52
Dividends per common share $ 0.10 -- -- --
Dividend pay-out ratio 8.8% NA NA NA
Book value per common share $ 12.79 $ 12.31 $ 10.77 $ 9.92
Tangible book value per common share $ 9.27 $ 8.44 $ 5.18 $ 3.89
Average common shares outstanding - Basic 3,727,010 3,506,573 2,800,061 2,800,000
Average common shares outstanding - Diluted 3,741,778 3,584,820 2,805,688 2,800,000
BALANCE SHEET DATA:
Total assets $ 631,977 $ 595,964 $ 533,025 $ 472,417
Investment securities 50,503 39,703 48,319 45,120
Mortgage-backed securities 74,793 79,924 43,078 --
Total loans receivable 458,958 431,402 405,819 383,039
Allowance for loan losses 5,681 5,018 4,340 4,024
Excess of costs over net assets acquired 13,094 14,424 15,658 16,892
Deposits 513,416 500,713 464,907 424,817
Borrowings 67,911 45,512 19,754 1,303
Common shareholders' equity 47,675 45,835 30,165 27,785
Total shareholders' equity 47,675 47,687 44,707 43,627
OPERATING RATIOS:
Interest rate spread 3.25% 3.20% 3.68% 3.86%
Net interest margin 3.80% 3.78% 4.22% 4.36%
Efficiency ratio (b) 68.67% 70.01% 70.36% 79.63%
Cash basis efficiency ratio (b) (c) 64.06% 64.62% 64.67% 73.91%
Return on average assets (d) 0.73% 0.68% 0.70% 0.43%
Cash basis return on average assets (c) (d) 0.87% 0.84% 0.89% 0.62%
Return on average equity (d) 9.59% 8.33% 8.13% 4.76%
Cash basis return on average equity (c) (d) 11.20% 10.08% 9.97% 6.55%
ASSET QUALITY RATIOS:
Nonperforming loans to total loans 0.24% 0.36% 0.41% 0.35%
Nonperforming assets to total assets 0.18% 0.33% 0.38% 0.28%
Allowance for loan losses to nonperforming loans 510.88% 321.05% 258.49% 301.88%
Allowance for loan losses to total loans 1.24% 1.16% 1.07% 1.05%
Net loans charged-off to average loans outstanding 0.08% 0.08% 0.17% 0.06%
CAPITAL RATIOS:
Average shareholders' equity to average total assets 7.54% 8.14% 8.64% 9.11%
Tier I leverage ratio 5.88% 5.72% 5.62% 5.92%
Tier I risk-based capital ratio 9.70% 9.60% 9.41% 9.05%
Total risk-based capital ratio 10.96% 10.85% 10.66% 10.30%
</TABLE>
BankRI 1999 Annual Report 1
<PAGE> 4
[PHOTO OF MALCOLM G. CHACE]
"WE WORK VERY HARD TO PROVIDE OUR CUSTOMERS WITH UNMATCHED SERVICE IN A FRIENDLY
ENVIRONMENT."
MALCOLM G. CHACE
CHAIRMAN OF THE BOARD
NET INCOME
($ in Millions)
[BAR GRAPH]
<TABLE>
1996(A) 1997 1998 1999
<S> <C> <C> <C>
$1.6 $3.5 $3.8 $4.4
</TABLE>
(A) Partial year
Letter to our shareholders:
By all accounts, 1999 was a very good year for Bank Rhode Island.
We clearly established ourselves as a premier commercial lender in the State. We
launched key strategic initiatives which brought the Bank increased visibility
and name recognition. And we saw record earnings, a marked increase in our
earnings per share and our first ever common dividend.
Earnings for the year reached a record $4.4 million in 1999, a 14 percent rise
over the previous year. That was coupled with a 34 percent jump in our earnings
per share, which reached $1.14. On a cash basis (excluding amortization of
goodwill, net of taxes) EPS reached $1.34, compared to $1.07 the previous year.
2 BankRI 1999 Annual Report
<PAGE> 5
The EPS growth was a result of our strong earnings and the capital restructuring
we undertook in March of 1998. That restructuring resulted in all of the
preferred shares of the Bank being redeemed. The strong EPS performance led the
Board of Directors to declare the first ever common dividend in July of 1999.
The Board then doubled the dividend to $.10 a share after the fourth quarter.
The dividends reflect our confidence in the Bank's financial performance and
also stem from our desire to share some of our prosperity with the people who
helped make it happen, our shareholders.
The strong financial performance was evident across all of our key measures.
Total assets increased to $632.0 million, a $36.0 million increase since
year-end 1998. The Bank's core deposits (checking and savings) grew $18.9
million or 7 percent. Core deposit growth is a key measure for the Bank because
it represents customers who have established relationships with us. It is a
clear indication of the success we've had in establishing Bank Rhode Island as
the community bank of choice.
In 1999 we also reached a significant milestone in our total loan portfolio,
which reached $459.0 million. For the first time in the Bank's history, its
commercial, consumer and originated residential mortgage portfolios made up
greater than 50 percent of its total loan portfolio. This is significant because
the more loans we generate and service the stronger our profitability and the
stronger our ties to our customers.
Our reputation as a commercial lender continued to grow, as did our commercial
portfolio. Our commercial lending portfolio has more than doubled since the
Bank opened. The portfolio exceeded $174.5 million at the end of 1999, up an
impressive 30 percent since year-end 1998. And we are particularly proud that we
have been able to sustain this level of growth without sacrificing credit
quality.
Clearly, commercial lending has been and will continue to be a focus of the
Bank. Strategically, we have identified commercial lending as an area where Bank
Rhode Island can distinguish itself in the marketplace.
Increasingly, home mortgages and other banking products are being sold almost
exclusively on price. And while we continue to be competitive in those products,
as evidenced by our strong consumer lending growth in 1999, we believe our
strength is in the expertise and flexibility we can offer commercial customers.
At Bank Rhode Island, we go beyond lending formulas. We look at what has made a
company successful in the past and, more than likely, what will continue to make
it successful in the future. Our flexibility, willingness
BankRI 1999 Annual Report 3
<PAGE> 6
to take time to review the unique circumstances behind every business and our
top quality lending professionals, set us apart in our marketplace. It has made
us the third largest SBA lender in the state, helped us grow our commercial
portfolio by $40 million last year and has brought us a well deserved reputation
in the business community.
And our reputation as a service oriented bank does not stop there. Through our
13 branches in Providence and Kent counties we work very hard to provide our
customers with unmatched service in a friendly environment.
To that end, Bank Rhode Island made significant investments in its retail
network in 1999. Several branches were renovated, an ATM was added at the Rhode
Island Convention Center and we announced plans to open a new branch in the
Buttonwoods section of Warwick.
We continued to increase our market presence in 1999. We signed a three-year
advertising and cross marketing agreement with the Pawtucket Red Sox and began
sponsoring a business resource center on OSO.com, a local web site and search
engine.
We also moved our headquarters to downtown Providence. The move gives Bank Rhode
Island a prominent presence in the heart of the Rhode Island financial district.
It also allowed us to accommodate the Bank's growth by relocating our operations
area to our 999 South Broadway offices.
And all this occurred in the midst of changes in the marketplace which should
present even more opportunities in 2000 and beyond.
In March, Fleet and BankBoston announced they would merge, significantly
changing the banking landscape in New England. In order to gain regulatory
approval of the merger, Fleet was required to divest more than 300 branches
across New England. As a result, a large, out-of-state bank purchased 278 of
those branches, including 50 in Rhode Island.
This creates a significant opportunity for Bank Rhode Island. As a responsive,
service oriented alternative to large banks, we can readily differentiate
ourselves from the new competition. And as the conversion process unfolds
throughout 2000, we believe many customers, especially those who have been
through conversions in the past, will reexamine their banking relationships. We
believe our growing reputation will lead many of these customers to Bank Rhode
Island.
Our success stems from the dedication to the community and commitment to service
of our employees. Without them, we would be just another bank. It is their
efforts
4 BankRI 1999 Annual Report
<PAGE> 7
and the continued support of our shareholders which has made Bank Rhode Island
what it is today.
1999 was a very good year for Bank Rhode Island. And we believe we have built a
solid foundation for success in the years to come.
Thank you,
/s/ Malcolm G. Chace
Malcolm G. Chace, Chairman of the Board
/s/ Merrill W. Sherman
Merrill W. Sherman, President and CEO
[PHOTO OF MERRILL W. SHERMAN]
"STRATEGICALLY, WE HAVE IDENTIFIED COMMERCIAL LENDING AS AN AREA WHERE BANK
RHODE ISLAND CAN DISTINGUISH ITSELF IN THE MARKETPLACE."
MERRILL W. SHERMAN
PRESIDENT AND CEO
EARNINGS PER SHARE
(GAAP)
[BAR GRAPH]
<TABLE>
<CAPTION>
1996(A) 1997 1998 1999
<S> <C> <C> <C>
$0.30 $0.75 $0.85 $1.14
</TABLE>
(A) Partial year
BankRI 1999 Annual Report 5
<PAGE> 8
[PHOTO OF DIAMOND JEWELER]
ALLISON REED GROUP, A MAJOR RHODE ISLAND MANUFACTURER OF GOLD JEWELRY, WAS AMONG
BANK RHODE ISLAND'S NEW CUSTOMERS IN 1999. BANK RHODE ISLAND PROVIDED THE
ALLISON REED GROUP WITH AN ASSET-BASED WORKING CAPITAL LINE OF CREDIT AND
MORTGAGE FINANCING.
COMMERCIAL LOANS
($ in Millions)
[BAR GRAPH]
<TABLE>
<CAPTION>
12/31/96 12/31/97 12/31/98 12/31/99
<S> <C> <C> <C>
$93 $115 $134 $175
</TABLE>
Commercial Lending
Commercial lending continued its phenomenal growth during 1999, posting a 30
percent increase in outstandings. The growth was strong across the board in
business lending, commercial real estate and small business lending. The Bank's
commercial loan portfolio has more than doubled in the past four years, reaching
$174.5 million at the end of 1999. Much of this growth is attributed to Bank
Rhode Island's increasingly favorable image within the business community as a
responsive and flexible alternative to the large banks in the area.
Business Lending
Whether it's financing for working capital, business expansion, equipment needs
or physical plant improvements, Bank Rhode Island has the experience and depth
to meet the financial needs of the State's small and mid-sized businesses.
Focusing its efforts on Rhode Island and nearby Massachusetts, the Bank provides
the local business community with commercial financing for virtually any
6 BankRI 1999 Annual Report
<PAGE> 9
business purpose. Through a strong group of senior lenders with big bank
experience, Bank Rhode Island provides quality service and flexible financing
with quick turnaround.
The Bank's strong commercial reputation is reflected by both the number and size
of its portfolio loans, which range from $250,000 to $4 million. Much of the
growth in Business Lending is the result of new customer relationships. For
example, during 1999 Bank Rhode Island provided a $1.8 million construction and
permanent mortgage loan to an expanding skilled nursing facility and a $1.0
million term debt and revolving credit package to a direct mail and fulfillment
service company. The Bank also added many prominent local businesses to its
customer list, including Johnson & Wales University and the Newport Creamery.
Many businesses like these have found it advantageous to deal with Bank Rhode
Island and its local focus rather than the larger regional banks whose efforts
are spread across New England.
To make its lending services more effective and efficient, the Bank realigned
its senior lenders with dedicated portfolio management and administrative staff.
Now, customers not only have a senior officer representative to meet their
needs, but they also have a direct line of communication with analytical and
administrative staff members who are also familiar with their daily operating
needs. This way, the Bank can provide consistent and seamless service to its
commercial borrowers.
Bank Rhode Island also began a business advertising campaign which not only
highlighted the Bank's capabilities, but also the successes of its customers.
During the year, the Bank purchased advertising to congratulate several
customers for their accomplishments, including Lighthouse Medical Management,
which was named one of the country's fastest growing companies by Inc. Magazine.
Through its marketing alliance with OSO.com, many of the Bank's customers were
highlighted on this local web site.
The Bank also piloted its internet banking product in 1999 and rolled it out to
all its business customers in early 2000. The product gives customers access to
one of the best online cash management systems available. Through its
partnership with Digital Insights, the Bank's Online Business Banking also
allows businesses to pay federal taxes or make payroll disbursements via
BankRI 1999 Annual Report 7
<PAGE> 10
Automated Clearinghouse (ACH) transfers, process trade and vendor bill payments
and make wire transfers.
During 2000, the Bank intends to broaden its products and services, including
the addition of international trade services and equipment leasing, to further
enhance its value added relationship with its customers and prospects.
Commercial Real Estate
Commercial real estate lending also saw tremendous growth in 1999, with total
outstandings jumping 21 percent during 1999. The group has established itself as
a valuable source of long-term mortgage financing, commercial real estate
construction and development financing, as well as residential subdivision
loans.
The group provided financing for several major commercial projects in 1999,
including a $5.2 million multi-tenant office complex and a $4.0 million retail
development. The group was also a major lender in residential properties,
financing a $2.0 million new condominium development and a $1.0 million
residential subdivision development.
Commercial Real Estate also provided more than $10.0 million in residential
construction mortgages for contractors. Working with some of the largest
residential builders in the State, Bank Rhode Island provides construction
financing for new homes under purchase contract. The Bank has developed account
relationships with many of the contractors, and, in many cases, has retained the
end-loan financing through its retail lending group.
Small Business Lending
Small business lending was a major growth area at Bank Rhode Island in 1999 as
more and more businesses recognized the Bank's capabilities in loans under
$250,000. The Small Business Lending Group offers small businesses term loans,
lines of credit, owner-occupied commercial real estate loans and Small Business
Administration (SBA) guaranteed loans.
The Bank's small business portfolio nearly doubled during the year, reaching
$13.3 million. By the end of 1999, the small business portfolio made up 8
percent of the Bank's total commercial loan portfolio, up from 2 percent three
years ago.
8 BankRI 1999 Annual Report
<PAGE> 11
The tremendous small business growth helped make Bank Rhode Island the No. 3
provider of SBA loans and the No. 1 SBA Export Lender in the State. The Bank
became a preferred SBA lender at the beginning of the year and also became an
SBA 7a Guaranteed Loan Program lender in Massachusetts.
A small business lending campaign targeted to accountants, attorneys and other
business network referral sources helped increase awareness of Bank Rhode
Island's small business capabilities. New products, including a Prime Line offer
in May, helped attract new customers. The Prime Line offered new customers a
prime interest rate for one year on lines of credit over $100,000 with balances
over $50,000.
The Small Business Lending Group also began offering fixed-rate, owner occupied
commercial real estate loans, investment real estate loans and two-year lines of
credit through the SBA Express.
[PHOTO OF COMMUNITY]
BANK RHODE ISLAND PROVIDED FINANCING FOR SPENCER HILL CONDOMINIUMS, A 50 HOME
COMMUNITY IN WARWICK, RHODE ISLAND. CONSTRUCTED BY F. PAOLINO HOMES, THE 20 ACRE
SITE OFFERS ELEGANT HOMES JUST MINUTES FROM SHOPPING AND MAJOR HIGHWAYS.
BankRI 1999 Annual Report 9
<PAGE> 12
[PHOTO OF BANKRI]
DEPOSITS AT BANK RHODE ISLAND'S NEWEST BRANCH IN WOONSOCKET EXCEEDED $22 MILLION
BY THE END OF 1999 - LESS THAN TWO YEARS AFTER THE BRANCH OPENED.
BANKRI - A GROWTH STORY
(Growth Since Inception -- March 1996)
- ASSETS Up 36%
- DEPOSITS Up 22%
- CORE LIABILITIES Up 35%
- COMMERCIAL LOANS Up 105%
Retail Banking
During 1999, Bank Rhode Island continued to improve and expand its branch
network.
The Bank completed a major renovation of its Johnston office and a full exterior
renovation of its Centerville Road branch. It also began a major renovation of
its Turks Head location and began upgrading all its ATM machines.
In October, Bank Rhode Island announced plans to open a new branch in the
Buttonwoods section of Warwick. The new branch will give the Bank four service
locations in Warwick, the second largest city in the state, and bridge the gap
between the Bank's existing locations. The new branch is in keeping with Bank
Rhode Island's retail strategy to build depth in markets the Bank currently
serves.
The Bank also announced the consolidation of its Coventry and Centerville Road
locations. The move will allow Bank Rhode Island to consolidate two of its
smallest branches while continuing to
10 BankRI 1999 Annual Report
<PAGE> 13
serve the Coventry area with a full-service ATM, which will replace the Coventry
branch location.
1999 also saw significant growth as a result of investments made the previous
year. Deposits at the Bank's Woonsocket office, opened in April of 1998, grew by
more than 37 percent in 1999. The Bank's East Side branch, relocated in
September of 1998, saw a 27 percent increase in deposits and is now one of the
Bank's largest branches.
The growth of those two branches, along with the downtown Providence branch and
the Park Avenue branch, helped the Bank post a 7 percent increase
in core deposits. The growth also contributed to a significant shift in the
Bank's deposit mix toward relationship accounts (checking and savings) and away
from Certificates of Deposit.
The increase in relationship accounts and the growth in both consumer and small
business lending has resulted in more traffic in the branches and a nearly $100
million increase in deposits since the Bank opened.
The growth of the Bank can also be seen in the Bank Rhode Island Customer
Service Center. The Center's Voice Response Unit, where customers can check
balances and determine which checks have cleared, is averaging 36,000 calls a
month, up from 29,000 calls a month last year. Nearly 7,000 customers call the
Center each month and ask to speak to a customer service representative. That is
up from 4,000 calls a month in 1998.
Retail Lending
The Bank's consumer loan portfolio grew more than 22 percent since year-end
1998, reaching $47.1 million. The growth was fueled by a strong home equity
campaign in the spring which pushed up home equity outstandings 24 percent.
Bank Rhode Island's residential portfolio mortgages reached $28.0 million in
outstandings, more than double the previous year. The Bank closed $17.7 million
in new portfolio mortgages in 1999, up 35 percent from the previous year.
At the end of 1999, the Bank added a 24-hour home equity loan and line of credit
hotline. By providing some basic financial information, customers can get a
conditional equity loan approval over the phone in about 10 minutes,
24-hours-a-day, 7-days-a-week.
The Bank also added low down payment options to its product offering. Customers
can now apply for a mortgage with as little as 3 percent down. In 1999, Bank
Rhode Island also became an approved lender for the Rhode Island Housing
Mortgage Corporation. Rhode Island Housing assists in lending to residents of
low-to-moderate income neighborhoods, as well as first time home buyers.
BankRI 1999 Annual Report 11
<PAGE> 14
[PHOTO OF WATERFIRE PROVIDENCE]
BANK RHODE ISLAND IS PROUD TO SUPPORT MANY OF THE EVENTS THAT HELP MAKE RHODE
ISLAND GREAT, INCLUDING WATERFIRE PROVIDENCE.
Community Involvement
In 1999, Bank Rhode Island continued its tradition of active community
involvement. The Bank supported more than 120 organizations in 1999, not only
through contributions of money, but also contributions of time. Bank Rhode
Island employees donated their time to dozens of non-profit organizations in the
State. And they generously gave up their Saturdays in support of causes like the
American Heart Associations' Heart Walk and Christmas in April Providence.
In 1999, Bank Rhode Island helped Keep Providence Beautiful through the
organization's Adopt-a-Spot program. The Bank funded free Saturdays at a local
museum and sponsored festivals in Woonsocket and Cranston. Throughout the year,
the Bank supported the ballet, the theater, the zoo and public radio.
Bank Rhode Island looks to support local agencies that provide needed services
in the communities where we work and live. Whether it's through purchasing books
for an after school reading program at the Providence Public Library or donating
Pawtucket
12 BankRI 1999 Annual Report
<PAGE> 15
Red Sox tickets to kids in local community programs, Bank Rhode Island tries to
make its contributions where they will have the greatest impact.
While the Bank supports some of the largest non-profit organizations in the
State like the United Way of Southeastern New England, and the Rhode Island
Community Food Bank, Bank Rhode Island is always happy to help out by sponsoring
a softball team or a local high school hockey tournament.
Here are just a few examples of how Bank Rhode Island helped in 1999.
CHRISTMAS IN APRIL PROVIDENCE
In April, more than 20 volunteers from the Bank worked to clean, paint and
repair the home of a local Providence woman and her two children through
Christmas in April. Over the past 6 years, Christmas in April has brought
together local businesses to rehabilitate homes throughout the City of
Providence. The program has attracted more than 4,600 volunteers who have helped
restore 130 properties. Through grants and volunteers, Bank Rhode Island has
been an avid supporter of the program.
SOJOURNER HOUSE MOTHER'S DAY CARD SALE
For the third year in a row, Sojourner House Mother's Day cards were on sale at
all 13 Bank Rhode Island branches. Proceeds from the sale supported Sojourner
House, a Providence based non-profit organization that helps victims of domestic
violence.
ARTBEAT
In September, Bank Rhode Island was the primary sponsor of ArtBeat, providing
monetary support and volunteers for the annual fundraiser to benefit AIDS Care
Ocean State. Each year, more than 20 notable figures in the Rhode Island art
community open their studios to raise money for one of the largest providers of
services to those suffering from HIV and AIDS in the State of Rhode Island.
HOLIDAY CENTRAL PROGRAM
In December, the Bank teamed up with a local radio station and the United Way to
brighten the holidays of those less fortunate. With the help of its customers,
Bank Rhode Island collected more than 400 gifts for needy children and adults
through Holiday Central Giving Trees at each of its 13 branches.
BankRI 1999 Annual Report 17
<PAGE> 16
[PHOTO OF BOARD OF DIRECTORS]
BANK RHODE ISLAND BOARD OF DIRECTORS. (L-R) FRONT ROW:
KARL F. ERICSON,
MARGARET D. FARRELL, ESQ.,
MALCOLM G. CHACE,
MERRILL W. SHERMAN,
ANTHONY F. ANDRADE AND
CHERYL L. WATKINS.
BACK ROW: DONALD J. REAVES,
F. JAMES HODGES,
MARK R. FEINSTEIN AND
ERNEST J. CHORNYEI, JR.
MISSING FROM PHOTO:
JOHN R. BERGER AND JOHN A. YENA.
Board of Directors/Officer listing
BOARD OF DIRECTORS
Malcolm G. Chace
Chairman of the Board
Bank Rhode Island
Providence, RI
Chairman
Mossberg Industries
Cumberland, RI
Chairman
SENESCO
North Kingstown, RI
Anthony F. Andrade
President
A & H Printing
East Providence, RI
John R. Berger
Consultant
West Hartford, CT
Ernest J. Chornyei, Jr.
Consultant
Watch Hill, RI
Karl F. Ericson
Consultant
Providence, RI
Margaret D. Farrell, Esq.
Partner
Hinckley, Allen & Snyder
Providence, RI
Mark R. Feinstein
President
Northeast Management, Inc.
Lincoln, RI
F. James Hodges
Chairman
Hodges Badge Company
Portsmouth, RI
Donald J. Reaves
Executive Vice President/Finance
and Administration and
Chief Financial Officer
Brown University
Providence, RI
Merrill W. Sherman
President and CEO
Bank Rhode Island
Providence, RI
Cheryl L. Watkins
President and CEO
Banneker Industries, Inc.
Lincoln, RI
John A. Yena
President
Johnson & Wales University
Providence, RI
14 BankRI 1999 Annual Report
<PAGE> 17
EXECUTIVE OFFICERS
Merrill W. Sherman
President and CEO
Albert R. Rietheimer, CPA
Chief Financial Officer and Treasurer
Donald C. McQueen
Executive Vice President,
Chief Lending Officer
James V. DeRentis
Senior Vice President,
Retail Banking
OFFICERS
ACCOUNTING AND FINANCE
Mona E. Blais
Vice President,
Accounting
Joan E. Rivelli
Accounting Officer
John E. Westwood
Vice President,
Controller
ADMINISTRATION
Elizabeth M. Carroll
Senior Vice President,
Administrative Services & Security Officer
Gisele M. Golembeski
Assistant Vice President,
Administrative Services
Daniel A. Patenaude
Assistant Vice President,
Facilities Manager & Assistant Security Officer
Debra S. Regan
Assistant Vice President,
Human Resources Director
Stephen M. Turgeon
Vice President,
Corporate Communications
AUDIT
Kenneth L. Senus
Chief Auditor
Melissa A. Ogg
Assistant Audit Officer
RETAIL BANKING
Kathleen C. Anter
Vice President,
Regional Manager
Madeleine G. Dickie
Retail Banking Officer,
Branch Manager
Tanya S. Fandino
Retail Banking Officer
Internet Banking Manager
Linda A. Geremia
Vice President,
Regional Manager
Diane Y. Goyette
Assistant Vice President,
Branch Manager
Elizabeth A. Hart
Vice President,
Marketing
Suzanne D. Joyal
Retail Banking Officer,
Branch Manger
Kathleen M. Morgan
Retail Banking Officer,
Branch Manager
Lori A. Oliveira
Retail Banking Officer
Nancy A. Palermo
Assistant Vice President,
Branch Manager
Lucia S. Palumbo
Retail Banking Officer,
Branch Manager
Lisia E. Quinlivan
Marketing Officer
Michael J. Roy
Vice President,
Retail Banking
Paula J. Salcone
Retail Banking Officer,
Branch Manager
Doreen M. Sousa
Retail Banking Officer
Kathryn E. Taylor
Vice President,
Regional Manager
Eileen F. Tweedie
Retail Banking Officer,
Assistant Branch Manager
COMMERCIAL LENDING
Melinda L. Ailes
Senior Vice President,
Head of Small Business Lending
Donald L. DiBlasi
Vice President,
Business Development Officer
Stephen J. Gibbons
Senior Vice President,
Real Estate Lending
Daniel J. Hagerty
Senior Vice President,
Business Lending
Joseph P. Hindle
Assistant Vice President,
Small Business Lending
Kevin R. Kelly
Senior Vice President,
Head of Business Lending
James C. Kelshaw
Assistant Vice President,
Business Lending
Michael J. Kerr
Senior Vice President,
Business Lending
Gregory E. Kwiatkowski
Assistant Vice President,
Portfolio Manager
Kyle A. Macdonald
Senior Vice President,
Head of Real Estate Lending
Rosa C. Medeiros
Commercial Real Estate Officer
Lori J. Webber
Senior Vice President,
Business Lending
CONSUMER LENDING
Joseph M. D'Amico
Retail Lending Officer
David L. Goolgasian
Assistant Vice President,
Consumer Underwriter
Abigail T. Moore
Retail Lending Officer,
Mortgage Underwriter
Peter Walsh
Senior Vice President,
Retail Lending & CRA Officer
CREDIT ADMINISTRATION
Maureen F. Snell
Loan Operations Officer
Paul G. Wielgus
Vice President,
Senior Credit & Compliance Officer
Brenda B. Wilkinson
Assistant Vice President,
Loan Review
OPERATIONS/MIS
Tonia R. Ryan
Vice President,
Operations Manager
Arlene N. Stinson
Senior Vice President,
Director of Operations & MIS
Deniece L. Schreiber
Assistant Vice President,
MIS Manager
Karen J. Talbot
Operations Officer
STOCK TRANSFER
AGENT
Registrar and Transfer Company
10 Commerce Way
Cranford, NJ 07016
AUDITORS
KPMG Peat Marwick LLP
Providence, RI
COUNSEL
Hinckley, Allen & Snyder LLP
Providence, RI
BankRI 1999 Annual Report 15
<PAGE> 18
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16 BankRI 1999 Annual Report
<PAGE> 19
Contents
- --------------------------------------------------------------------------------
Management's Discussion and Analysis of
Financial Condition and Results of Operations (MD&A) ................... 2-20
Management's Report .................................................... 21
Independent Auditors' Report ........................................... 22
Consolidated Financial Statements ...................................... 23-26
Notes to Consolidated Financial Statements ............................. 27-47
BankRI 1999 1
<PAGE> 20
Management's Discussion and Analysis of Financial Condition and Results of
Operations
CAUTIONARY STATEMENT
Certain statements contained herein are "Forward Looking Statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. Forward Looking
Statements may be identified by reference to a future period or periods or by
the use of forward looking terminology such as "may," "believes," "intends,"
"expects," and "anticipates" or similar terms or variations of these terms.
Actual results may differ materially from those set forth in Forward Looking
Statements as a result of certain risks and uncertainties, including but not
limited to, changes in political and economic conditions, interest rate
fluctuations, competitive product and pricing pressures, equity and bond market
fluctuations, credit risk, inflation, as well as other risks and uncertainties
detailed from time to time in filings with the Federal Deposit Insurance
Corporation ("FDIC").
GENERAL
Bank Rhode Island (the "Bank") is a commercial bank chartered as a financial
institution in the State of Rhode Island. The Bank pursues a community banking
mission and is principally engaged in providing banking products and services to
individuals and businesses in Providence and Kent counties. The Bank is subject
to competition from a variety of traditional and nontraditional financial
service providers both within and outside of Rhode Island. The Bank offers its
customers a wide range of deposit products, nondeposit investment products,
commercial, residential and consumer loans, and other traditional banking
products and services, designed to meet the needs of individuals and small to
middle market businesses. The Bank is subject to regulation by certain federal
and state agencies and undergoes periodic examinations by those regulatory
authorities. The Bank's deposits are insured by the FDIC, subject to regulatory
limits, and the Bank is also a member of the Federal Home Loan Bank of Boston
("FHLB").
On March 26, 1998, the Bank completed a public offering of 920,000 shares of its
Common Stock. The net proceeds from this offering were $12.7 million. The Bank
used these net proceeds, along with retained earnings, to redeem all of the
outstanding shares of its Preferred Stock. These redemptions began on March 26,
1998 and were completed on April 1, 1999. The aggregate redemption price of the
shares of Preferred Stock redeemed totaled $14.3 million, plus dividends accrued
through the applicable redemption dates.
NON-GAAP MEASURES OF FINANCIAL PERFORMANCE
Contained within this document are various measures of financial performance
that have been calculated excluding the amortization of intangibles and any
related income taxes. These measures are identified as "cash" or "cash basis"
and have been provided to assist the reader in evaluating the core performance
of the Bank. This presentation is not in accordance with Generally Accepted
Accounting Principles ("GAAP"), but management believes it to be beneficial to
gaining an understanding of the financial performance of the Bank.
In conjunction with the Bank's formation in 1996, the Bank acquired certain
assets and assumed certain liabilities from Fleet National Bank of Connecticut,
formerly known as Shawmut Bank Connecticut, N.A., and other related entities.
The assets acquired and liabilities assumed included $421.1 million of deposits,
$393.9 million of loans and 12 branch locations. This acquisition was accounted
for as a purchase transaction and resulted in the generation of $17.5 million of
goodwill, which is being amortized over a 15 year period. The amortization of
this intangible asset reduces the Bank's pre-tax income by $1.2 million
annually. Because of the impact of this amortization, we have presented certain
information on a cash basis.
RESULTS OF OPERATIONS
Net Interest Income
The Bank's operating results depend primarily on its "net interest income", or
the difference between its interest income and its cost of money, and on the
quality of its assets. Interest income depends on the amount of interest-earning
assets outstanding during the year and the interest rates earned thereon. The
Bank's cost of money is a function of the average amount of deposits and
borrowed money outstanding during the year and the interest rates paid thereon.
The quality of assets further influences the amount of interest income lost on
nonaccrual loans and the amount of additions to the allowance for loan losses.
Like many other banking institutions, the Bank saw a significant drop in its net
interest margin in 1998. The decline in market interest rates that occurred
during 1998 resulted in accelerated prepayments on residential
2 BankRI 1999
<PAGE> 21
mortgage loans and mortgage-backed securities. These faster prepayments
negatively impacted the yield on loans and securities purchased at a premium, in
addition to causing more dollars to be reinvested at lower market rates during
1998 and early 1999. Fortunately, these trends did not continue throughout 1999.
As market interest rates began to rise in 1999, prepayment speeds slowed and by
the end of 1999 had returned to levels approximating those in 1997 and early
1998. Also during 1999, the Bank's net interest margin benefited from a rational
and orderly local deposit marketplace that allowed the Bank to reduce the cost
of its deposit products. Although in the short run the Bank could increase its
margin by taking greater interest rate risk, or greater credit risk, we do not
intend to do so. We are committed to a longer term view and believe that over
time, we can continue to improve the performance of the Bank without exposing it
to inappropriate levels of risk.
Net interest income for 1999 was $22.1 million, compared to $20.2 million for
1998 and $19.8 million for 1997. This increase of $1.9 million, or 9.2%, during
1999 was primarily attributable to the overall growth of the Bank coupled with
changes in its asset and liability mix towards commercial loans, consumer loans,
checking, deposit and savings deposits, and away from residential loans and
certificates of deposit. The Bank's net interest margin for 1999 was 3.80%,
compared to a net interest margin of 3.78% for 1998 and 4.22% for 1997. Average
earning assets were $45.3 million, or 8.5%, and average interest-bearing
liabilities were $35.6 million, or 7.7%, higher during 1999 than during the
previous year.
Average Balances, Yields and Costs
The following table sets forth certain information relating to the Bank's
average balance sheet and reflects the average yield on assets and average cost
of liabilities for the years indicated. Such yields and costs are derived by
dividing income or expense by the average balance of assets or liabilities.
Average balances are derived from daily balances and include nonperforming
loans.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
1999 1998
----------------------------- ------------------------------
INTEREST INTEREST
AVERAGE EARNED/ AVERAGE AVERAGE EARNED/ AVERAGE
BALANCE PAID YIELD BALANCE PAID YIELD
-------- -------- ------- --------- -------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Earning assets:
Federal funds sold $ 10,051 $ 482 4.80% $ 7,806 $ 400 5.12%
Investment securities 47,348 2,814 5.94% 44,040 2,744 6.23%
Mortgage-backed securities 79,463 4,835 6.08% 57,627 3,521 6.11%
Stock in the FHLB 3,622 237 6.54% 3,248 208 6.40%
Loans receivable:
Residential mortgage loans 244,698 16,997 6.95% 266,917 19,205 7.20%
Commercial loans 151,725 12,795 8.43% 118,941 10,812 9.09%
Consumer and other loans 42,676 3,491 8.18% 35,696 3,144 8.81%
-------- -------- --------- -------
Total earning assets 579,583 41,651 7.19% 534,275 40,034 7.49%
-------- -------
Cash and due from banks 18,268 11,628
Allowance for loan losses (5,358) (4,799)
Premises and equipment 5,283 4,855
Other real estate owned 226 502
Excess of cost over net assets acquired, net 13,720 15,077
Accrued interest receivable 3,704 3,967
Prepaid expenses and other assets 1,000 254
-------- ---------
Total assets $616,426 $ 565,759
======== =========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Interest-bearing liabilities:
Deposits:
NOW accounts $ 27,082 175 0.65% $ 22,176 175 0.79%
Money market accounts 17,284 473 2.74% 13,327 401 3.01%
Savings accounts 172,073 4,742 2.76% 155,420 4,670 3.00%
Certificate of deposit accounts 230,901 11,396 4.94% 231,392 12,360 5.34%
Overnight and short-term borrowings 7,329 335 4.57% 4,555 225 4.94%
FHLB and other borrowings 43,167 2,479 5.74% 35,389 2,014 5.69%
-------- -------- --------- -------
Total interest-bearing liabilities 497,836 19,600 3.94% 462,259 19,845 4.29%
-------- -------
Noninterest-bearing deposits 69,270 53,912
Other liabilities 2,689 3,547
-------- ---------
Total liabilities 569,795 519,718
Shareholders' equity 46,631 46,041
-------- ---------
Total liabilities and shareholders' equity $616,426 $ 565,759
======== =========
Net interest income $ 22,051 $20,189
======== =======
Net interest rate spread 3.25% 3.20%
Net interest rate margin 3.80% 3.78%
</TABLE>
<TABLE>
<CAPTION>
------------------------------
1997
------------------------------
INTEREST
AVERAGE EARNED/ AVERAGE
BALANCE PAID YIELD
--------- -------- -------
<S> <C> <C> <C>
ASSETS:
Earning assets:
Federal funds sold $ 7,342 $ 391 5.33%
Investment securities 47,242 2,967 6.28%
Mortgage-backed securities 15,689 1,037 6.61%
Stock in the FHLB 2,889 187 6.47%
Loans receivable:
Residential mortgage loans 261,618 20,201 7.72%
Commercial loans 101,859 9,519 9.35%
Consumer and other loans 32,207 2,967 9.21%
--------- -------
Total earning assets 468,846 37,269 7.95%
-------
Cash and due from banks 9,377
Allowance for loan losses (4,210)
Premises and equipment 4,537
Other real estate owned 334
Excess of cost over net assets acquired, net 16,318
Accrued interest receivable 3,906
Prepaid expenses and other assets 274
---------
Total assets $ 499,382
=========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Interest-bearing liabilities:
Deposits:
NOW accounts $ 21,385 187 0.87%
Money market accounts 12,811 362 2.83%
Savings accounts 142,152 4,338 3.05%
Certificate of deposit accounts 221,814 11,976 5.40%
Overnight and short-term borrowings 780 41 5.25%
FHLB and other borrowings 10,043 574 5.71%
--------- -------
Total interest-bearing liabilities 408,985 17,478 4.27%
-------
Noninterest-bearing deposits 44,442
Other liabilities 2,759
---------
Total liabilities 456,186
Shareholders' equity 43,196
---------
Total liabilities and shareholders' equity $ 499,382
=========
Net interest income $19,791
=======
Net interest rate spread 3.68%
Net interest rate margin 4.22%
</TABLE>
BankRI 1999 3
<PAGE> 22
Rate/Volume Analysis
The following table sets forth certain information regarding changes in the
Bank's interest income and interest expense for the periods indicated. For each
category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to (i) changes in rate (changes
in rate multiplied by old average balance) and (ii) changes in volume (changes
in average balances multiplied by old rate). The net change attributable to the
combined impact of rate and volume was allocated to the individual rate and
volume changes.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1999 VS 1998 1998 VS 1997
INCREASE/(DECREASE) DUE TO INCREASE/(DECREASE) DUE TO
RATE VOLUME TOTAL RATE VOLUME TOTAL
------- ------- ------- ------- ------- -------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME:
Federal funds sold $ (24) $ 106 $ 82 $ (14) $ 23 $ 9
Investment securities (110) 180 70 (23) (200) (223)
Mortgage-backed securities (14) 1,328 1,314 (72) 2,556 2,484
Stock in the FHLB 5 25 30 (2) 23 21
Residential mortgage loans (649) (1,560) (2,209) (1,417) 421 (996)
Commercial loans (706) 2,689 1,983 (251) 1,544 1,292
Consumer and other loans (199) 546 347 (120) 297 177
------- ------- ------- ------- ------- -------
Total interest income (1,697) 3,314 1,617 (1,899) 4,664 2,765
------- ------- ------- ------- ------- -------
INTEREST EXPENSE:
NOW accounts -- -- -- (20) 8 (12)
Money market accounts (31) 103 72 24 15 39
Savings accounts (247) 319 72 (66) 398 332
Certificate of deposit accounts (938) (26) (964) (126) 510 384
Overnight & short-term borrowings (16) 126 110 (2) 186 184
FHLB and other borrowings 18 447 465 (2) 1,442 1,440
------- ------- ------- ------- ------- -------
Total interest expense (1,214) 969 (245) (192) 2,559 2,367
------- ------- ------- ------- ------- -------
Net interest income $ (483) $ 2,345 $ 1,862 $(1,707) $ 2,105 $ 398
======= ======= ======= ======= ======= =======
</TABLE>
Comparison of Years Ended December 31, 1999 and December 31, 1998
General
Net income for 1999 increased $528,000, or 13.8%, to $4.4 million, or $1.14 per
diluted common share, from $3.8 million, or $0.85 per diluted common share, for
1998. Net income for 1999 was reduced by a one-time charge of $109,000 resulting
from a change in accounting principle which required remaining unamortized
organizational costs to be charged against earnings. Operating income, which
excludes this one-time charge, was $4.5 million for 1999, compared to $3.8
million for last year, an increase of $637,000, or 16.6%. Diluted earnings per
common share, excluding the one-time charge, were $1.17 in 1999, compared to
$0.85 in 1998.
This operating performance represented a return on average assets of 0.73% and a
return on average equity of 9.59% for 1999, as compared to a return on average
assets of 0.68% and a return on average equity of 8.33% for 1998. Diluted cash
earnings per common share were $1.34 for 1999, compared to $1.07 for 1998. Cash
basis return on average assets and cash basis return on average equity were
0.87% and 11.20% for 1999, and 0.84% and 10.08% for 1998, respectively.
Interest Income - Investments
Total investment income (consisting of interest or dividends on federal funds
sold, investment securities, mortgage-backed securities, and FHLB stock) was
$8.4 million for 1999, compared to $6.9 million for 1998. This increase in total
investment income of $1.5 million, or 21.8%, was primarily attributable to a
$21.8 million increase in the average balance of mortgage-backed securities,
partially offset by a decrease of 14 basis points, to 5.96%, in the overall
yield on investments. The growth in mortgage-backed securities is related to the
Bank's establishment of a Rhode Island passive investment company and its
efforts to leverage its capital. As a result of the declining interest rate
environment present for the end of 1998 and the beginning of 1999, purchases of
mortgage-backed securities were at lower yields than those already in the
portfolio and caused the overall yield on the mortgage-backed securities
portfolio to decline.
4 BankRI 1999
<PAGE> 23
Interest Income - Loans
Interest from loans was $33.3 million for 1999, and represented a yield on total
loans of 7.58%. This compares to $33.2 million of interest, and a yield of
7.87%, for 1998. This increase of $122,000, or 0.4%, in interest on loans was
due primarily to an increase in commercial loan average balances, (up $32.8
million, or 27.6%) offset by the decrease in the overall yield of the portfolio
resulting from reinvestment of repayments at lower rates. The Bank has continued
to change the mix of its loan portfolio away from residential mortgage loans and
toward commercial loans by concentrating its origination efforts on commercial
and consumer loan opportunities. Nonetheless, the Bank also originated
residential mortgage loans on a limited basis. The yields on the various
components of the loan portfolio changed as follows: commercial loans decreased
66 basis points, to 8.43%; consumer and other loans decreased 63 basis points,
to 8.18%; and residential mortgage loans decreased 25 basis points, to 6.95%.
Partially offsetting these decreases, the average balance of commercial and
consumer loans changed as follows: commercial loans increased $32.8 million, or
27.6%, and consumer and other loans increased $7.0 million, or 19.6%.
Interest Expense - Deposits & Borrowings
Interest paid on deposits and borrowings decreased $245,000, or 1.2%, to $19.6
million for 1999, from $19.8 million in 1998. The overall average cost for
interest-bearing liabilities decreased 35 basis points from 4.29% for 1998, to
3.94% for 1999. The Bank has concentrated its deposit gathering efforts on
checking and savings deposits ("core deposit accounts") and has utilized FHLB
borrowings as necessary to fund asset growth in an effort to decrease its
overall cost of money. Deposit costs are dependent on a number of factors
including general economic conditions, national and local interest rates,
competition in the local marketplace, interest rate tiers offered and the Bank's
cash flow needs. The average balance of interest-bearing liabilities increased
$35.6 million, from $462.3 million in 1998 to $497.8 million in 1999. This
growth in average balances of interest-bearing liabilities was centered in core
accounts, specifically NOW and money market accounts (up $8.9 million, or 25.0%)
and savings accounts (up $16.7 million, or 10.7%). In addition, the Bank
increased its utilization of borrowed funds (up $10.6 million, or 26.4%).
Provision for Loan Losses
The provision for loan losses was $1.0 million for 1999, similar to the amount
provided in the prior year. The Bank experienced net charge-offs during 1999 of
$337,000, similar to the $339,000 of net charge-offs experienced in 1998.
Management evaluates several factors including new loan originations, actual and
estimated charge-offs, and the risk characteristics of the loan portfolio when
determining the provision for the period. Also see discussion under "Financial
Condition -- Allowance for Loan Losses."
Noninterest Income
Total noninterest income increased $495,000, or 18.2%, to $3.2 million for 1999,
from $2.7 million for 1998. Excluding non-recurring items ($84,000 of loan
prepayment penalties and a $43,000 deposit tax refund received in 1999, and a
$272,000 settlement on a bifurcated loan received in May 1998), total
noninterest income increased $640,000, or 26.1%, year to year. Service Charges
on Deposit Accounts, which represents the largest source of noninterest income
for the Bank, rose $481,000, or 27.7%, from $1.7 million for 1998, to $2.2
million for 1999. Additionally, Other Income (exclusive of the deposit tax
refund and loan settlement) increased $137,000, or 31.3%, from $438,000 to
$575,000, for the comparable periods, and resulted primarily from the
introduction of ATM access fees for non-customers in September 1998.
BankRI 1999 5
<PAGE> 24
The following table sets forth the components of noninterest income:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1999 1998
----- ------
(In thousands)
<S> <C> <C>
Loan related fees $ 306 $ 137
Service charges on deposit accounts 2,215 1,734
Gain on sales of investment securities -- 5
Commissions on loans originated for others 83 141
Other income 618 710
------ ------
Total noninterest income $3,222 $2,727
====== ======
</TABLE>
Noninterest Expense
Noninterest expenses for 1999 increased a total of $1.3 million, or 8.2%, to
$17.4 million from $16.0 million in 1998. This increase occurred primarily as a
result of the overall growth of the Bank, including its de novo Woonsocket
office (April 1998), its relocated and expanded Providence East Side office
(August 1998) and relocated headquarters (June 1999), and was centered in the
following areas: Salaries and Benefits (up $929,000, or 13.0%), Occupancy (up
$147,000, or 12.7%), Data Processing (up $211,000, or 18.6%) and Other Expenses
(up $102,000, or 5.4%). In addition to the overall growth of the Bank, its Year
2000 efforts contributed to the growth in Data Processing expense. Professional
Services increased $284,000, or 48.5%. A significant portion of the increase
resulted from the Bank engaging consultants to review the effectiveness of its
operations during 1999. Partially offsetting these increases were decreases in:
Equipment (down $144,000, or 16.2%) as initial equipment purchases became fully
depreciated; Loan Servicing (down $146,000, or 15.0%) as the purchased
residential mortgage portfolio decreased in outstandings; OREO (down $58,000, or
34.9%) as the level of foreclosures declined; and Amortization of Intangibles
(down $70,000, or 5.7%) as the Bank expensed any remaining capitalized
organizational costs in January 1999. The Bank's cash basis efficiency ratio
improved from 64.62% for the 1998, to 64.06% for 1999.
The following table sets forth the components of noninterest expense:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1999 1998
------- -------
(In thousands)
<S> <C> <C>
Salaries and employee benefits $ 8,065 $ 7,136
Occupancy 1,302 1,155
Equipment 744 888
Data processing 1,348 1,137
Marketing 883 829
Professional services 870 586
Loan servicing 825 971
Other real estate owned 108 166
Amortization of intangibles 1,164 1,234
Deposit tax and assessments 58 56
Other expenses 1,987 1,885
------- -------
Total noninterest expense $17,354 $16,043
======= =======
</TABLE>
Income Tax Expense
The Bank recorded income tax expense of $2.4 million for 1999, compared to $2.0
million for 1998. This represented total effective tax rates of 35.4% and 34.5%,
respectively. The Bank's tax-favored income from U.S. Treasury and Agency
securities and its establishment of a Rhode Island passive investment company
reduced its effective tax rate from the 39.9% combined statutory federal and
state tax rates.
6 BankRI 1999
<PAGE> 25
Comparison of Years Ended December 31, 1998 and December 31, 1997
General
Net income for 1998, increased $324,000, or 9.2%, to $3.8 million, or $.85 per
diluted share, from $3.5 million, or $.75 per diluted share, for 1997. This
represented a return on average assets of 0.68% and a return on average equity
of 8.33% for 1998, as compared to a return on average assets of 0.70% and a
return on average equity of 8.13% for 1997. Cash basis return on average assets
was 0.84% and cash basis return on average equity was 10.08% for 1998, as
compared to 0.89% and 9.97%, respectively, for 1997. Diluted cash earnings per
common share was $1.07 and $1.03 for 1998 and 1997, respectively.
Interest Income - Investments
Total investment income increased by $2.3 million, or 50.0%, to $6.9 million for
1998, from $4.6 million for 1997. The primary reason for this rise in investment
income was an increase in the average balance of investments of $39.6 million,
or 54.1%, when compared to 1997. Partially offsetting the increase in average
balance, the average yield on investments decreased to 6.10% in 1998, from 6.26%
in 1997. The Bank maintains a diversified investment portfolio and, at the end
of 1998, had approximately 30% of the portfolio in Treasury and Agency
securities with remaining maturities of less than five years, and approximately
48% of the portfolio in mortgage-backed securities with repricing periods of
less than five years. In addition to assisting in the Bank's overall balance
sheet management, the Bank believes that this diversification, along with a
structured maturity ladder, provides for more stable earnings and predictable
cash flows from the portfolio.
Interest Income - Loans
Income on loans was $33.2 million for 1998, and represented a yield on total
loans of 7.87%. This compares to income on loans of $32.7 million, and a yield
of 8.26%, for 1997. The increase of $474,000, or 1.5%, in interest income on
loans during 1998 was due primarily to growth in commercial loans. The average
balance of the various components of the loan portfolio changed from 1997 as
follows: commercial loans increased $17.1 million, or 16.8%, residential
mortgage loans increased $5.3 million, or 2.0%, and consumer and other loans
increased $3.5 million, or 10.8%. During 1998, the Bank continued to concentrate
its origination efforts on commercial and consumer loan opportunities, but also
introduced an originated residential mortgage product. Also during 1998, the
Bank purchased $108.6 million of residential mortgages, but increases in
prepayment speeds resulted in the overall residential mortgage portfolio only
increasing slightly. These faster prepayment speeds had a negative impact on the
yield of the portfolio as premiums paid on past loan purchases were being
amortized over shorter time periods. The yields on the various loan portfolio
components as compared to 1997 changed as follows: residential mortgage loans
decreased 52 basis points, to 7.20%, consumer and other loans decreased 40 basis
points, to 8.81%, and commercial loans decreased 26 basis points, to 9.09%.
Interest Expense - Deposits & Borrowings
Interest paid on deposits and borrowings increased $2.4 million, or 13.5%, to
$19.8 million for 1998, from $17.5 million for 1997. The overall average cost of
interest-bearing liabilities increased 2 basis points to 4.29% for 1998 from
4.27% for 1997. Deposit costs are dependent on a number of factors including
general economic conditions, national and local interest rates, competition in
the local marketplace and the Bank's cash flow needs. Average costs for the
various components of deposits changed from 1997 as follows: NOW accounts
decreased 8 basis points, to 0.79%, money market accounts increased 18 basis
points, to 3.01%, savings deposits decreased 5 basis points, to 3.01%, and
certificate of deposit accounts decreased 6 basis points, to 5.34%. Meanwhile,
the average balance of interest-bearing liabilities increased $53.3 million, or
13.0%, to $462.3 million in 1998 from $409.0 million in 1997, as the Bank sought
core deposits and utilized FHLB borrowings to fund its asset growth.
Provision for Loan Losses
The provision for loan losses was $1.0 million for 1998, compared to $1.0
million for 1997. The rate at which the Bank was providing for loan losses
slowed in the second half of 1998, as the Bank gained experience with the
portfolio and delinquencies remained minimal. Management evaluates several
factors including new loan originations, actual and estimated charge-offs, and
the risk characteristics of the loan portfolio when determining the provision
for the period. Also see discussion under "Financial Condition -- Allowance for
Loan Losses."
BankRI 1999 7
<PAGE> 26
Noninterest Income
Total noninterest income was $2.7 million for 1998. This represents an increase
of $811,000, or 42.3%, from the $1.9 million reported for 1997. Service charges
on deposit accounts, at $1.7 million, or 63.6% of total noninterest income for
1998, continue to comprise the largest portion of total noninterest income for
the Bank. The Bank did expand its other sources of noninterest income during
1998, earning $141,000 from secondary market activities, $120,000 from sales of
mutual funds and annuities, and $37,000 from ATM access fees. Also included in
1998, was a $272,000 settlement on a bifurcated loan acquired by the Bank at its
formation. Since the Bank was not the entity that originally charged off this
loan, the settlement was recognized as Other Income.
The following table sets forth the components of noninterest income:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1998 1997
------ ------
(In thousands)
<S> <C> <C>
Loan related fees $ 137 $ 56
Service charges on deposit accounts 1,734 1,499
Gain on sales of investment securities 5 3
Commissions on loans originated for others 141 43
Other income 710 315
------ ------
Total noninterest income $2,727 $1,916
====== ======
</TABLE>
Total noninterest expense increased $770,000, or 5.0%, to $16.0 million for
1998, from $15.3 million for 1997. The 1998 increases occurred primarily as a
result of the overall growth of the Bank, including its de novo Woonsocket
office which opened in March 1998, and the relocation and expansion of its
Providence East Side office which opened in August 1998. The Bank's efficiency
ratio, excluding goodwill amortization, for 1998 was 64.62%, which was virtually
flat as compared to the 64.67% reported for 1997.
The following table sets forth the components of noninterest expense:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1997
------- -------
(In thousands)
<S> <C> <C>
Salaries and employee benefits $ 7,136 $ 6,344
Occupancy 1,155 1,192
Equipment 888 783
Data processing 1,137 902
Marketing 829 750
Professional services 586 892
Loan servicing 971 1,030
Other real estate owned 166 86
Amortization of intangibles 1,234 1,234
Deposit tax and assessments 56 192
Other expenses 1,885 1,868
------- -------
Total noninterest expense $16,043 $15,273
======= =======
</TABLE>
Income Tax Expense
The Bank recorded income tax expense of $2.0 million for 1998, compared to $1.9
million for 1997. This represented a total effective tax rate of 34.5% and 35.4%
for 1998 and 1997, respectively. For both 1998 and 1997, the Bank's
establishment of a Rhode Island passive investment company helped reduce its
effective tax rate from the 39.9% combined statutory federal and state tax
rates.
8 BankRI 1999
<PAGE> 27
FINANCIAL CONDITION
Loans Receivable
Total loans were $459.0 million, or 72.6% of total assets, at December 31, 1999,
compared to $431.4 million, or 72.4% of total assets, at December 31, 1998, an
increase of $27.6 million, or 6.4%. Total loans as of December 31, 1999 may be
segmented in three broad categories: residential mortgages that aggregate $237.3
million, or 51.7% of the portfolio; commercial loans that aggregate $174.5
million, or 38.0% of the portfolio; and consumer and other loans that aggregate
$47.1 million, or 10.3% of the portfolio.
During the second quarter of 1998, the Bank completed a comprehensive project
begun in late 1997, to refine the classification of its individual commercial
loans. This project defined the classification of a loan based on its primary
purpose and collateral. As a result of this project, the Bank reclassified a
number of loans from the commercial & industrial category to the commercial real
estate or multi-family real estate categories. The amounts shown for December
31, 1997 and 1996 have not been restated to reflect this reclassification.
Included in the following table as commercial real estate loans at December 31,
1999 and 1998, are $34.0 million and $36.9 million of `owner occupied' loans,
many of which were originated in conjunction with a commercial & industrial loan
to the same borrower and previously classified as commercial & industrial loans.
This classification project did not affect the total outstanding for commercial
loans, only the breakdown by individual category within the total portfolio.
The Bank utilizes the term "small business loans" to describe its business
lending portfolio comprised of loans up to $250,000 in amount.
The following is a summary of loans receivable:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------------------
1999 1998 1997 1996
--------- --------- --------- ---------
(In thousands)
<S> <C> <C> <C> <C>
RESIDENTIAL MORTGAGE LOANS:
One- to four-family adjustable rate $ 196,863 $ 211,076 $ 205,020 $ 201,628
One- to four-family fixed rate 39,037 45,671 50,704 55,160
--------- --------- --------- ---------
Subtotal 235,900 256,747 255,724 256,788
Premium on loans acquired 1,446 2,110 2,045 2,589
Net deferred loan origination fees (26) -- -- --
--------- --------- --------- ---------
Total $ 237,320 $ 258,857 $ 257,769 $ 259,377
========= ========= ========= =========
COMMERCIAL LOANS:
Commercial real estate $ 90,149 $ 76,562 $ 49,412 $ 34,370
Commercial & industrial 40,109 30,655 47,440 52,638
Multi-family 16,270 13,221 6,874 3,969
Small business 13,322 6,804 3,775 1,460
Construction 6,379 3,482 4,683 244
Leases 8,499 3,370 2,600 --
--------- --------- --------- ---------
Subtotal 174,728 134,094 114,784 92,681
Net deferred loan origination fees (180) (61) (112) (34)
--------- --------- --------- ---------
Total $ 174,548 $ 134,033 $ 114,672 $ 92,647
========= ========= ========= =========
CONSUMER AND OTHER LOANS:
Home equity - lines of credit $ 24,166 $ 18,400 $ 11,515 $ 12,328
Home equity - term loans 19,710 16,996 18,758 15,130
Installment 1,279 1,010 888 1,387
Savings secured 1,005 935 1,261 1,101
Unsecured and other 590 972 956 1,069
--------- --------- --------- ---------
Subtotal 46,750 38,313 33,378 31,015
Net deferred loan origination costs 340 199 -- --
--------- --------- --------- ---------
Total $ 47,090 $ 38,512 $ 33,378 $ 31,015
========= ========= ========= =========
</TABLE>
BankRI 1999 9
<PAGE> 28
During 1999, residential mortgage loans decreased $21.5 million, or 8.3%, as
purchases of $53.7 million and originations of $17.7 million of residential
mortgage loans were offset by $91.8 million in repayments. The Bank has
concentrated its portfolio lending efforts on commercial and consumer lending
opportunities. During late 1997, the Bank began to originate mortgage loans for
its own portfolio and anticipates continuing to originate mortgage loans on a
limited basis for its customers. Until such time as the Bank can originate
sufficient commercial and consumer loans to utilize available cash flow, it
intends to continue purchasing residential mortgage loans as opportunities
develop.
The Bank's commercial loan portfolio (consisting of commercial real estate,
commercial & industrial, multi-family real estate, construction and small
business loans) increased $40.5 million, or 30.2%, during 1999. The Bank
believes it is well positioned for continued commercial loan growth. Particular
emphasis is placed on generation of small- to medium-sized commercial
relationships (those relationships with $4.0 million or less in loan
outstandings). The Bank is also active in small business lending in which it
utilizes credit scoring in conjunction with traditional review standards and
employs streamlined documentation. The Bank's small business portfolio increased
$6.5 million, or 95.8%, during 1999. The Bank is a participant in the U.S. Small
Business Administration ("SBA") Preferred Lender Program ("PLP") in Rhode Island
and the 7a Guarantee Loan Program in Massachusetts.
The consumer loan portfolio is comprised primarily of home equity loans and home
equity lines of credit. During 1999, consumer loan outstandings increased $8.6
million, or 22.3%, to $47.1 million at December 31, 1999, from $38.5 million at
December 31, 1998. The majority of this growth was in home equity lines of
credit.
The table below shows loan originations, purchases, sales and repayment
activities.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998 1997 1996
--------- --------- -------- --------
(In thousands)
<S> <C> <C> <C> <C>
ORIGINATIONS AND PRINCIPAL ADDITIONS:
Loans purchased:
Residential mortgage loans $ 53,747 $ 107,559 $ 58,271 $ 29,921
--------- --------- -------- --------
Total loans purchased 53,747 107,559 58,271 29,921
--------- --------- -------- --------
Loans originated:
Residential mortgage loans 17,659 13,093 200 --
Commercial loans 62,430 41,872 40,065 13,492
Consumer and other loans 18,704 16,837 12,526 8,416
--------- --------- -------- --------
Total loans originated 98,793 71,802 52,791 21,908
--------- --------- -------- --------
PRINCIPAL REDUCTIONS:
Charge-offs and transfers to OREO:
Residential mortgage loans (412) (950) (1,116) --
Commercial loans (176) (15) (145) (103)
Consumer and other loans (80) (163) (178) (110)
--------- --------- -------- --------
Total charge-offs and transfers to OREO (668) (1,128) (1,439) (213)
--------- --------- -------- --------
PRINCIPAL PAYMENTS:
Residential mortgage loans (91,841) (118,679) (58,419) (46,527)
Commercial loans (21,620) (22,547) (17,817) (6,105)
Consumer and other loans (10,187) (11,739) (9,985) (9,351)
--------- --------- -------- --------
Total principal payments (123,648) (152,965) (86,221) (61,983)
--------- --------- -------- --------
Change in loans receivable (before net items) $ 28,224 $ 25,268 $ 23,402 $(10,367)
========= ========= ======== ========
</TABLE>
10 BankRI 1999
<PAGE> 29
The following table sets forth certain information at December 31, 1999,
regarding the aggregate dollar amount of certain loans maturing in the Bank's
loan portfolio based on scheduled payments to maturity. Actual loan principal
payments may vary from this schedule due to refinancings, modifications and
other changes in loan terms. Demand loans and loans having no stated schedule of
repayments and no stated maturity are reported as due in one year or less.
<TABLE>
<CAPTION>
PRINCIPAL REPAYMENTS CONTRACTUALLY DUE
-------------------------------------------
AFTER ONE, BUT
ONE YEAR OR WITHIN FIVE AFTER FIVE
LESS YEARS YEARS
------------ ------- ------
(In thousands)
<S> <C> <C> <C>
Construction loans $ 6,379 $ -- $ --
Commercial and industrial loans (including leases) ,404 19,456 2,748
Small business loans 7,181 5,979 162
------- ------- ------
Total $39,964 $25,435 $2,910
======= ======= ======
</TABLE>
The following table sets forth as of December 31, 1999, the dollar amount of
certain loans of the Bank due after one year that have fixed interest rates or
floating or adjustable interest rates.
<TABLE>
<CAPTION>
LOANS DUE AFTER ONE YEAR
------------------------------
FLOATING OR
FIXED RATES ADJUSTABLE RATES
----------- ----------------
(In thousands)
<S> <C> <C>
Construction loans $ -- $ --
Commercial and industrial loans (including leases) 10,858 11,346
Small business loans 2,900 3,241
------- -------
Total $13,758 $14,587
======= =======
</TABLE>
Asset Quality
The definition of nonperforming assets includes nonperforming loans and OREO.
OREO consists of real estate acquired through foreclosure proceedings and real
estate acquired through acceptance of a deed in lieu of foreclosure.
Nonperforming loans are defined as nonaccrual loans, loans past due 90 days or
more, but still accruing and impaired loans. Under certain circumstances the
Bank may restructure the terms of a loan as a concession to a borrower. These
restructured loans are considered impaired loans. Included in nonaccrual loans
at December 31, 1999, were $329,000 of impaired loans. At December 31, 1998 and
1997, the Bank did not have any impaired loans.
Nonperforming Assets. At December 31, 1999, the Bank had nonperforming assets of
$1.2 million, or 0.18% of total assets. This compares to nonperforming assets of
$2.0 million, or 0.33% of total assets, at December 31, 1998 and nonperforming
assets of $2.0 million, or 0.38% of total assets, at December 31, 1997. The
Bank's nonperforming assets at December 31, 1999, consisted of residential
mortgage loans aggregating $602,000, commercial loans aggregating $510,000 and
OREO aggregating $49,000. Nonperforming assets at December 31, 1998 and 1997,
were primarily comprised of nonaccrual residential mortgage loans. The Bank
evaluates the underlying collateral of each nonperforming loan and continues to
pursue the collection of interest and principal. As the Bank's loan portfolio
continues to grow and mature, or if economic conditions worsen, management
believes it likely that the level of nonperforming assets will increase, as will
its level of charge-off loans.
BankRI 1999 11
<PAGE> 30
The following table sets forth information regarding nonperforming assets.
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1999 1998 1997
------ ------ ------
(In thousands)
<S> <C> <C> <C>
Nonaccrual loans $1,112 $1,563 $1,679
Loans past due 90 days or more, but still accruing -- -- --
Impaired loans (not included in nonaccrual loans) -- -- --
------ ------ ------
Total nonperforming loans 1,112 1,563 1,679
Other real estate owned 49 394 356
------ ------ ------
Total nonperforming assets $1,161 $1,957 $2,035
====== ====== ======
Nonperforming loans as a percent of total loans 0.24% 0.36% 0.41%
Nonperforming assets as a percent of total assets 0.18% 0.33% 0.38%
</TABLE>
Nonaccrual Loans. Accrual of interest income on all loans is discontinued when
concern exists as to the collectibility of principal or interest, or when a loan
becomes over ninety days delinquent. Additionally, when a loan is placed on
nonaccrual status, all interest previously accrued but not collected is reversed
against current period income. Loans are removed from nonaccrual when they
become less than ninety days past due and in the case of commercial and consumer
loans, when concern no longer exists as to the collectibility of principal or
interest. Interest collected on nonaccruing loans is either applied against
principal or reported as income according to management's judgment as to the
collectibility of principal. At December 31, 1999, nonaccrual loans totaled $1.1
million. Interest on nonaccrual loans that would have been recorded as
additional income for the year ended December 31, 1999, had the loans been
current in accordance with their original terms, totaled $66,000. This compares
with $117,000 and $65,000 of foregone interest income on nonaccrual loans for
the years ended December 31, 1998 and 1997, respectively.
The following table sets forth certain information regarding nonaccrual loans.
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------------------------------------
1999 1998 1997
---------------------- ---------------------- -----------------------
PERCENT PERCENT PERCENT
PRINCIPAL OF TOTAL PRINCIPAL OF TOTAL PRINCIPAL OF TOTAL
BALANCE LOANS BALANCE LOANS BALANCE LOANS
---------- --------- -------------- --------- --------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
NONACCRUAL LOANS:
Residential mortgage loans $ 602 0.13% $1,475 0.34% $1,540 0.38%
Commercial loans 510 0.11% 57 0.01% 84 0.02%
Consumer and other loans -- -- 31 0.01% 55 0.01%
------ ---- ------ ---- ------ ----
Total nonaccrual loans $1,112 0.24% $1,563 0.36% $1,679 0.41%
====== ==== ====== ==== ====== ====
</TABLE>
Delinquencies. At December 31, 1999, $811,000 of loans were 30 to 89 days past
due. This compares to $1.9 million and $1.4 million of loans 30 to 89 days past
due as of December 31, 1998 and 1997, respectively. The majority of these loans
at all three dates were residential mortgage loans and are secured.
Management reviews delinquent loans frequently to assess problem situations and
to quickly address these problems. In the case of consumer and commercial loans,
the Bank contacts the borrower when a loan becomes delinquent. When a payment is
not made, generally within 10-15 days of the due date, a late charge is
assessed. After 30 days of delinquency, a notice is sent to the borrower
advising that failure to cure the default may result in formal demand for
payment in full. In the event of further delinquency, the matter is generally
referred to legal counsel to commence civil proceedings to collect all amounts
owed. In the case of residential mortgage loans, delinquency and collection
proceedings are conducted by either the Bank or its mortgage servicers in
accordance with standard servicing guidelines. In any circumstance where the
Bank is secured by real property or other collateral, the Bank enforces its
rights to the collateral in accordance with applicable law.
12 BankRI 1999
<PAGE> 31
The following table sets forth information as to loans delinquent for 30 to 89
days.
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------------------------------
1999 1998 1997
--------------------- ----------------------- ---------------------
PERCENT PERCENT PERCENT
PRINCIPAL OF TOTAL PRINCIPAL OF TOTAL PRINCIPAL OF TOTAL
BALANCE LOANS BALANCE LOANS BALANCE LOANS
------- ----- ------- ----- ------- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Loans delinquent for 30 to 59 days:
Residential mortgage loans $378 0.08% $ 483 0.11% $ 866 0.21%
Commercial loans 334 0.08% 1,164 0.27% 56 0.02%
Consumer and other loans 6 0.00% 14 0.00% 67 0.02%
---- ---- ------ ---- ------ ----
Total loans delinquent 30 to 59 days 718 0.16% 1,661 0.38% 989 0.25%
---- ---- ------ ---- ------ ----
Loans delinquent for 60 to 89 days:
Residential mortgage loans 92 0.02% 258 0.06% 410 0.10%
Commercial loans -- -- -- -- -- --
Consumer and other loans 1 0.00% -- -- 7 0.00%
---- ---- ------ ---- ------ ----
Total loans delinquent 60 to 89 days 93 0.02% 258 0.06% 417 0.10%
---- ---- ------ ---- ------ ----
Total loans delinquent 30 to 89 days $811 0.18% $1,919 0.44% $1,406 0.35%
==== ==== ====== ==== ====== ====
</TABLE>
Adversely Classified Assets. The Bank's management adversely classifies certain
assets as "substandard," "doubtful" or "loss" based on criteria established
under banking regulations. An asset is considered substandard if inadequately
protected by the current net worth and paying capacity of the obligor or of the
collateral pledged, if any. Substandard assets include those characterized by
the "distinct possibility" that the insured institution will sustain "some loss"
if existing deficiencies are not corrected. Assets classified as doubtful have
all of the weaknesses inherent in those classified substandard with the added
characteristic that the weaknesses present make "collection or liquidation in
full," on the basis of currently existing facts, conditions, and values, "highly
questionable and improbable." Assets classified as loss are those considered
"uncollectible" and of such little value that their continuance as assets
without the establishment of a specific loss reserve is not warranted.
At December 31, 1999, the Bank had $1.2 million of loans that were classified as
substandard. This compares to $2.5 million and $3.5 million of loans that were
classified as substandard at December 31, 1998 and 1997, respectively. The Bank
had no loans which were classified as loss or doubtful at either date.
Delinquent loans may or may not be adversely classified depending upon
management's judgment with respect to each individual loan. At December 31,
1999, included in the $1.2 million of loans that were classified as substandard,
were $127,000 of performing loans. This compares to $916,000 and $1.8 million of
adversely classified performing loans as of December 31, 1998 and 1997,
respectively. These amounts constitute loans that, in the opinion of management,
could potentially migrate to nonperforming or doubtful status.
Allowance for Loan Losses
The allowance for loan losses is established through provisions charged to
operations and represents amounts available for future credit losses. Loans
deemed uncollectible are charged against the allowance, while recoveries of
amounts previously charged-off are added to the allowance. Amounts are
charged-off once the probability of loss has been established, with
consideration given to such factors as the customer's financial condition,
underlying collateral and guarantees, and general and industry economic
conditions.
When an insured institution classifies problem assets as either substandard or
doubtful, it is required to establish allowances for loan losses in an amount
deemed prudent by management. Additionally, general allowances represent loss
allowances that have been established to recognize the inherent risk associated
with lending activities, and have not been allocated to particular problem
assets.
BankRI 1999 13
<PAGE> 32
The following table represents the allocation of the allowance for loan losses
as of the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------------------------------------------------------
1999 1998 1997 1996
--------------------- ---------------------- ----------------------- -----------------------
PERCENT OF PERCENT OF PERCENT OF PERCENT OF
LOANS IN EACH LOANS IN EACH LOANS IN EACH LOANS IN EACH
CATEGORY TO CATEGORY TO CATEGORY TO CATEGORY TO
AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS
------ ------------- ------ ------------- ------ -------------- ------- -------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Residential mortgage loans $ 1,395 51.7% $1,558 60.0% $1,534 63.5% $1,532 67.7%
Commercial loans 2,007 38.0% 1,277 31.1% 1,040 28.3% 973 24.2%
Consumer and other loans 566 10.3% 456 8.9% 393 8.2% 363 8.1%
Unallocated 1,713 -- 1,727 -- 1,373 -- 1,156 --
------ ------ ------ ----- ------ ----- ------ -----
Total $ 5,681 100.0% $5,018 100.0% $4,340 100.0% $4,340 100.0%
======= ====== ====== ===== ====== ===== ====== =====
</TABLE>
Assessing the adequacy of the allowance for loan losses involves substantial
uncertainties and is based upon management's evaluation of the amounts required
to meet estimated charge-offs in the loan portfolio after weighing various
factors. Among these factors are the risk characteristics of the loan portfolio,
the quality of specific loans, the level of nonaccruing loans, current economic
conditions, trends in delinquencies and charge-offs, and the value of underlying
collateral, all of which can change frequently. Based on this evaluation, the
Bank believes that its year-end allowance for loan losses is adequate.
While management evaluates currently available information in establishing the
allowance for loan losses, future adjustments to the allowance may be necessary
if conditions differ substantially from the assumptions used in making the
evaluations. In addition, various regulatory agencies, as an integral part of
their examination process, periodically review a financial institution's
allowance for loan losses and carrying amounts of other real estate owned. Such
agencies may require the financial institution to recognize additions to the
allowance based on their judgments about information available to them at the
time of their examination.
During 1999, 1998 and 1997, the Bank made additions to the allowance of $1.0
million, $1.0 million and $1.0 million and experienced net charge-offs of
$337,000, $339,000 and $684,000, respectively. At December 31, 1999, the
allowance for loan losses stood at $5.7 million and represented 510.88% of
nonperforming loans and 1.24% of total loans outstanding. This compares to an
allowance for loan losses of $5.0 million, representing 321.05% of nonperforming
loans and 1.16% of total loans outstanding at December 31, 1998. The increase in
the allowance as a percent of total loans is reflective of the increase in
commercial and consumer loan outstandings.
14 BankRI 1999
<PAGE> 33
An analysis of the activity in the allowance for loan losses is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
1999 1998 1997 1996
------- ------- ------- -------
(In thousands)
<S> <C> <C> <C> <C>
Balance at beginning of year $ 5,018 $ 4,340 $ 4,024 $ --
Acquired reserves -- -- -- 3,400
Loans charged-off:
Residential mortgage loans (128) (174) (505) --
Commercial loans (176) (15) (71) (103)
Consumer and other loans (80) (163) (135) (110)
------- ------- ------- -------
Total loans charged-off (384) (352) (711) (213)
------- ------- ------- -------
Recoveries of loans previously charged-off:
Residential mortgage loans 29 0 8 --
Commercial loans 1 3 3 --
Consumer and other loans 17 10 16 --
------- ------- ------- -------
Total recoveries of loans previously charged off 47 13 27 --
------- ------- ------- -------
Net charge-offs (337) (339) (684) (213)
Provision for loan losses charged against income 1,000 1,017 1,000 837
------- ------- ------- -------
Balance at end of year $ 5,681 $ 5,018 $ 4,340 $ 4,024
======= ======= ======= =======
Net charge-offs to average loans outstanding 0.08% 0.08% 0.17% 0.06%
======= ======= ======= =======
</TABLE>
Investments
Total investments (consisting of federal funds sold, investment securities,
mortgage-backed securities, and FHLB stock) totaled $135.9 million, or 21.5% of
total assets, at December 31, 1999. This compares to total investments of $131.5
million, or 22.1% of total assets, as of December 31, 1998. The increase of $4.3
million, or 3.3%, was primarily in investment securities that were purchased to
provide collateral for the Bank's cash management activities with its commercial
customers.
The investment portfolio provides the Bank with a source of short-term liquidity
and acts as a counterbalance to loan and deposit flows. Investment and
mortgage-backed securities are primarily comprised of U.S. Government and Agency
securities. All investment and mortgage-backed securities at December 31, 1999
and 1998, were classified as securities available for sale. These securities
carried a total of $2.6 million in net unrealized losses at December 31, 1999
and $356,000 in net unrealized gains at December 31, 1998.
BankRI 1999 15
<PAGE> 34
A summary of investment and mortgage-backed securities available for sale
follows:
<TABLE>
<CAPTION>
UNREALIZED
--------------------------------------------------------
AMORTIZED MARKET
COST GAINS LOSSES VALUE
--------- ---- ------- --------
(In thousands)
<S> <C> <C> <C> <C>
AT DECEMBER 31, 1999:
U.S. Treasury obligations $ 10,023 $ 21 $ (36) $ 10,008
U.S. Agency obligations 39,256 5 (875) 38,386
Trust preferred securities 2,198 -- (89) 2,109
U.S. Agency mortgage-backed securities 62,101 -- (1,125) 60,976
Collateralized mortgage obligations 14,357 -- (540) 13,817
-------- ---- ------- --------
Total $127,935 $ 26 $(2,665) $125,296
======== ==== ======= ========
AT DECEMBER 31, 1998:
U.S. Treasury obligations $ 18,050 $245 $ (14) $ 18,281
U.S. Agency obligations 21,245 203 (26) 21,422
U.S. Agency mortgage-backed securities 62,814 72 (138) 62,748
Collateralized mortgage obligations 17,162 14 -- 17,176
-------- ---- ------- --------
Total $119,271 $534 $ (178) $119,627
======== ==== ======= ========
AT DECEMBER 31, 1997:
U.S. Treasury obligations $ 26,026 $197 $ -- $ 26,223
U.S. Agency obligations 21,955 141 -- 22,096
U.S. Agency mortgage-backed securities 42,878 200 -- 43,078
-------- ---- ------- --------
Total $ 90,859 $538 $ -- $ 91,397
======== ==== ======= ========
</TABLE>
The following table sets forth the maturities of investment and mortgage-backed
securities available for sale and the weighted average yields of such
securities:
<TABLE>
<CAPTION>
AFTER ONE, AFTER FIVE,
WITHIN BUT WITHIN BUT WITHIN
ONE YEAR FIVE YEARS TEN YEARS
------------------------- ------------------------- ------------------------
MARKET WEIGHTED MARKET WEIGHTED MARKET WEIGHTED
VALUE AVERAGE YIELD VALUE AVERAGE YIELD VALUE AVERAGE YIELD
------ ------------- ------ ------------- ------ -------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
AT DECEMBER 31, 1999:
U.S. Treasury obligations $ 9,007 6.39% $ 1,002 4.15% $ -- --
U.S. Agency obligations 3,991 5.80% 24,557 5.74% 9,838 7.10%
Trust preferred securities -- -- -- -- -- --
U.S. Agency mortgage-backed securities -- -- -- -- -- --
Collateralized mortgage obligations -- -- -- -- -- --
------- ------- -------
Total $12,998 6.21% $25,559 5.68% $ 9,838 7.10%
======= ==== ======= ==== ======= =======
AT DECEMBER 31, 1998:
U.S. Treasury obligations $ 8,040 6.10% $10,241 6.16% $ -- --
U.S. Agency obligations 2,039 6.57% 19,384 6.05% -- --
U.S. Agency mortgage-backed securities -- -- -- -- -- --
Collateralized mortgage obligations -- -- -- -- -- --
------- ------- -------
Total $10,079 6.19% $29,625 6.09% $ -- --
======= ==== ======= ==== ======= =======
AT DECEMBER 31, 1997:
U.S. Treasury obligations $ 7,010 5.98% $19,213 6.23% $ -- --
U.S. Agency obligations 2,007 6.34% 20,089 6.55% -- --
U.S. Agency mortgage-backed securities -- -- -- -- -- --
------- ------- -------
Total $ 9,017 6.06% $39,302 6.39% $ -- --
======= ==== ======= ==== ======= =======
</TABLE>
<TABLE>
<CAPTION>
AFTER
TEN YEARS
----------------------
MARKET WEIGHTED
VALUE AVERAGE YIELD
------ -------------
(Dollars in thousands)
<S> <C> <C>
AT DECEMBER 31, 1999:
U.S. Treasury obligations $ -- --
U.S. Agency obligations -- --
Trust preferred securities 2,108 8.16%
U.S. Agency mortgage-backed securities 60,976 5.98%
Collateralized mortgage obligations 13,817 6.48%
-------
Total $76,901 6.13%
======= ====
AT DECEMBER 31, 1998:
U.S. Treasury obligations $ -- --
U.S. Agency obligations -- --
U.S. Agency mortgage-backed securities 62,748 6.47%
Collateralized mortgage obligations 17,176 6.48%
-------
Total $79,924 6.48%
======= ====
AT DECEMBER 31, 1997:
U.S. Treasury obligations $ -- --
U.S. Agency obligations -- --
U.S. Agency mortgage-backed securities 43,078 6.74%
-------
Total $43,078 6.74%
======= ====
</TABLE>
16 BankRI 1999
<PAGE> 35
Deposits and Borrowings
The Bank has devoted considerable time and resources to its deposit gathering
network. The Bank experienced a net increase in total deposits during 1999, to
$513.4 million, or 81.2% of total assets, at December 31, 1999, from $500.7
million, or 84.0% of total assets, at December 31, 1998. This increase of $12.7
million, or 2.5%, in total deposits was centered in core accounts and broken
down as follows: Demand deposit and NOW accounts up $7.8 million, or 9.0%; money
market accounts up $474,000, or 3.0%; and savings accounts up $10.6 million, or
6.5%. Certificate of deposit accounts ended 1999 down $6.2 million, or 2.6%, as
the Bank focused its deposit gathering efforts on core accounts.
The following table sets forth certain information regarding deposits:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------------------------
1999 1998
---------------------------------- ----------------------------------
PERCENT WEIGHTED PERCENT WEIGHTED
AMOUNT OF TOTAL AVERAGE RATE AMOUNT OF TOTAL AVERAGE RATE
------ -------- ------------ ------ -------- ------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
NOW accounts $ 27,456 5.4% 0.64% $ 26,899 5.4% 0.65%
Money market accounts 16,073 3.1% 2.70% 15,599 3.1% 2.78%
Savings accounts 173,692 33.8% 2.78% 163,118 32.6% 2.74%
Certificate of deposit accounts 228,351 44.5% 4.95% 234,541 46.8% 5.14%
-------- ----- -------- -----
Total interest bearing deposits 445,572 86.8% 3.76% 440,157 87.9% 3.89%
Noninterest bearing accounts 67,844 13.2% -- 60,556 12.1% --
-------- ----- -------- -----
Total deposits $513,416 100.0% 3.26% $500,713 100.0% 3.42%
======== ===== ==== ======== ===== ====
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1997
------------------------------------
PERCENT WEIGHTED
AMOUNT OF TOTAL AVERAGE RATE
------ -------- ------------
(Dollars in thousands)
<S> <C> <C> <C>
NOW accounts $ 22,452 4.8% 0.83%
Money market accounts 12,217 2.6% 2.86%
Savings accounts 145,805 31.4% 3.12%
Certificate of deposit accounts 233,955 50.3% 5.50%
-------- ----- ----
Total interest bearing deposits 414,429 89.1% 4.33%
Noninterest bearing accounts 50,478 10.9% --
-------- ----- ----
Total deposits $464,907 100.0% 3.86%
======== ===== ====
</TABLE>
At December 31, 1999, certificate of deposit accounts with balances greater than
$100,000 aggregated $25.3 million, compared to $23.1 million and $19.0 million
at December 31, 1998 and 1997, respectively.
Total borrowings (consisting of overnight and short-term borrowings, FHLB and
other borrowings) increased $22.4 million during 1999, to $67.9 million, from
$45.5 million at December 31, 1998. The Bank had $19.8 million of overnight and
short-term borrowing outstanding at the end of 1997. The increases during these
years were primarily attributable to the Bank utilizing borrowings from the FHLB
(up $11.7 million, or 32.0%, in 1999) to partially fund its asset growth,
coupled with repurchase agreement growth (up $8.5 million, or 248.1%, in 1999)
resulting from growth of the Bank's overnight cash management product for its
commercial customers. The Bank, through its membership in the FHLB, has access
to a variety of borrowing alternatives, and management will from time to time
take advantage of these opportunities to fund asset growth. However, on a
long-term basis, the Bank intends to concentrate on increasing its core
deposits.
ASSET AND LIABILITY MANAGEMENT
The principal objective of the Bank's asset and liability management process is
to maximize profit potential while minimizing the vulnerability of its
operations to changes in interest rates by means of managing the ratio of
interest rate sensitive assets to interest rate sensitive liabilities within
specified maturity or repricing periods. The Bank's actions in this regard are
taken under the guidance of the Asset/Liability Committee ("ALCO") which is
comprised of members of senior management. The ALCO generally meets monthly and
is actively involved in formulating the economic assumptions that the Bank uses
in its financial planning and budgeting process and establishes policies which
control and monitor the sources, uses and pricing of funds. The Bank has not
engaged in any hedging activities.
The ALCO manages the Bank's interest rate risk position using both income
simulation and interest rate sensitivity "gap" analysis. The Bank has
established internal parameters for monitoring the income simulation and gap
analysis. These guidelines serve as benchmarks for evaluating actions to balance
the current position against overall strategic goals. The ALCO monitors current
exposures and reports these to the Board of Directors.
Simulation is used as the primary tool for measuring the interest rate risk
inherent in the Bank's balance sheet at a given point in time by showing the
effect on net interest income, over a twenty-four month period, of interest rate
ramps of up to 200 basis points. These simulations take into account repricing,
maturity and prepayment characteristics of individual products. The ALCO reviews
simulation results to determine whether the downside exposure resulting from
changes in market interest rates remains within established tolerance levels
over both a twelve month and twenty-four month horizon, and develops appropriate
strategies to
BankRI 1999 17
<PAGE> 36
manage this exposure. The Bank's limits on interest rate risk specify that if
interest rates were to shift up or down 200 basis points over a twelve month
period, estimated net interest income for those twelve months and the subsequent
twelve months, should decline by no more than 5.0% or 10.0%, respectively. As of
December 31, 1999, net interest income simulation indicated that the Bank's
exposure to changing interest rates was within these established tolerance
levels. The ALCO reviews the methodology utilized by the Bank for calculating
its interest rate risk exposure and may, from time to time, adopt modifications
to this methodology. While the ALCO reviews simulation assumptions and
methodology to ensure that they reflect historical experience, it should be
noted that income simulation may not always prove to be an accurate indicator of
interest rate risk because the actual repricing, maturity and prepayment
characteristics of individual products may differ from the estimates used in the
simulations.
The following table presents the estimated impact of interest rate ramps on
estimated net interest income over a twenty-four month period beginning January
1, 2000:
18
<TABLE>
<CAPTION>
ESTIMATED EXPOSURE
TO NET INTEREST INCOME
----------------------------------
DOLLAR CHANGE PERCENT CHANGE
------------- --------------
(Dollars in thousands)
<S> <C> <C>
INITIAL TWELVE MONTH PERIOD:
Up 200 basis point ramp $ (377) (1.60%)
Up 100 basis point ramp (155) (0.66%)
Down 100 basis point ramp 97 0.41%
Down 200 basis point ramp 177 0.75%
SUBSEQUENT TWELVE MONTH PERIOD:
Up 200 basis point ramp $(1,555) (6.58%)
Up 100 basis point ramp (690) (2.92%)
Down 100 basis point ramp 392 1.66%
Down 200 basis point ramp 608 2.57%
</TABLE>
The Bank also uses interest rate sensitivity "gap" analysis to provide a more
general overview of the Bank's interest rate risk profile. The effect of
interest rate changes on the assets and liabilities of a financial institution
such as the Bank may be analyzed by examining the extent to which such assets
and liabilities are "interest rate sensitive" and by monitoring an institution's
interest rate sensitivity gap. An asset or liability is said to be interest rate
sensitive within a specific time period if it will mature or reprice within that
time period. The interest rate sensitivity gap is defined as the difference
between interest-earning assets and interest-bearing liabilities maturing or
repricing within a given time period. A gap is considered positive when the
amount of interest rate sensitive assets exceeds the amount of interest rate
sensitive liabilities. A gap is considered negative when the amount of interest
rate sensitive liabilities exceeds interest rate sensitive assets. During a
period of falling interest rates, a positive gap would tend to adversely affect
net interest income, while a negative gap would tend to result in an increase in
net income. Conversely, during a period of rising interest rates, a positive gap
would tend to result in an increase in net interest income while a negative gap
would tend to affect net interest income adversely.
The Bank has sought to maintain a relatively narrow gap position and has, in
some instances, foregone investment in higher yielding assets when such
investment, in management's opinion, exposed the Bank to undue interest rate
risk. However, the Bank does not attempt to perfectly match interest rate
sensitive assets and liabilities and will selectively mismatch its assets and
liabilities to a controlled degree when it considers it both appropriate and
prudent to do so. There are a number of relevant time periods in which to
measure the gap position, such as at the 30, 60, 90, or 180 day points in the
maturity schedule. Management monitors the Bank's gap position at each of these
maturity points, while also focusing closely on the gap at the one year point in
making its principal funding decisions, such as with respect to the Bank's
commercial and residential mortgage loan portfolios. At December 31, 1999, the
Bank's cumulative one-year gap was a positive $14.0 million, or 2.2% of total
assets, compared to positive $13.0 million, or 2.2% of total assets, at the end
of 1998.
18 BankRI 1999
<PAGE> 37
The following table presents the repricing schedule for the Bank's
interest-earning assets and interest-bearing liabilities at December 31, 1999.
To the extent applicable, amounts of assets and liabilities which mature or
reprice within a particular period were determined in accordance with their
contractual terms. Loans have been allocated based upon expected amortization
and prepayment rates based on historical performance. Savings, NOW and money
market deposit accounts, which have no contractual term and are subject to
immediate repricing, are anticipated to behave more like core accounts and
therefore are presented as spread evenly over the first three years.
Nonetheless, this presentation does not reflect lags that may occur in the
actual repricing of these deposits.
<TABLE>
<CAPTION>
WITHIN OVER THREE OVER SIX OVER ONE
THREE TO SIX TO TWELVE YEAR TO OVER FIVE
MONTHS MONTHS MONTHS FIVE YEARS YEARS TOTAL
-------- -------- --------- ---------- ---------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Federal funds sold $ 6,850 $ -- $ -- $ -- $ -- $ 6,850
Investment securities 4,000 2,998 5,978 26,302 11,225 50,503
Mortgage-backed securities 4,838 5,155 10,933 49,648 4,219 74,793
FHLB Stock 3,704 -- -- -- -- 3,704
Residential mortgage loans 27,086 24,387 49,382 107,445 29,020 237,320
Commercial loans 70,623 10,009 15,060 69,276 9,580 174,548
Consumer and other loans 26,768 1,370 2,501 11,333 5,118 47,090
-------- -------- --------- -------- ------- --------
Total interest-earning assets 143,869 43,919 83,854 264,004 59,162 594,808
-------- -------- --------- -------- ------- --------
INTEREST-BEARING LIABILITIES:
NOW accounts 2,289 2,289 4,576 18,302 -- 27,456
Money market accounts 1,338 1,338 2,678 10,719 -- 16,073
Savings accounts 14,475 14,475 28,948 115,794 -- 173,692
Certificate of deposit accounts 46,523 42,276 63,496 75,686 370 228,351
Overnight & short-term borrowings 14,978 -- -- -- -- 14,978
FHLB borrowings 9,003 4,003 5,004 30,134 39 48,183
Other borrowings -- -- -- 4,750 -- 4,750
-------- -------- --------- -------- ------- --------
Total interest-bearing liabilities 88,606 64,381 104,702 255,385 409 513,483
-------- -------- --------- -------- ------- --------
Net interest sensitivity gap during
the period $ 55,263 $(20,462) $ (20,848) $ 8,619 $58,753 $ 81,325
======== ======== ========= ======== ======= ========
Cumulative gap $ 55,263 $ 34,801 $ 13,953 $ 22,572 $81,325
======== ======== ========= ======== =======
Cumulative gap -- 12/31/98 $ 91,990 $ 68,910 $ 13,004 $ 48,487 $77,281
======== ======== ========= ======== =======
Interest-sensitive assets as a percent of
interest-sensitive liabilities (cumulative) 162.37% 122.75% 105.41% 104.40% 115.84%
Cumulative gap as a percent of total assets 8.74% 5.51% 2.21% 3.57% 12.87%
</TABLE>
The preceding table does not necessarily indicate the impact of general interest
rate movements on the Bank's net interest income because the repricing of
various assets and liabilities is discretionary and is subject to competitive
and other factors. As a result, assets and liabilities indicated as repricing
within the same period may, in fact, reprice at different times and at different
rate levels.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
Liquidity is defined as the ability to meet current and future financial
obligations of a short-term nature. The Bank further defines liquidity as the
ability to respond to the needs of depositors and borrowers as well as to
earnings enhancement opportunities in a changing marketplace. Primary sources of
liquidity consist of deposit inflows, loan repayments, borrowed funds, maturity
of investment securities and sales of securities from the available for sale
portfolio. Secondary sources of liquidity consist of borrowing capacity with the
FHLB and with correspondent banks. These sources fund the Bank's lending and
investment activities.
Management is responsible for establishing and monitoring liquidity targets as
well as strategies and tactics to meet these targets. In general, the Bank
maintains a high degree of flexibility with a liquidity target of 10% to 25% of
total assets. At December 31, 1999, federal funds sold, investment securities
and mortgage-backed securities available for sale amounted to $132.1 million, or
20.9% of total assets. The Bank is a member of the FHLB, and as such has access
to both short- and long-term borrowings. In addition, the Bank maintains a line
of credit at the FHLB as well as lines of credit with two correspondent banks.
There have been no adverse trends in the Bank's liquidity or capital reserves.
Management believes that the Bank has adequate liquidity to meet its
commitments.
BankRI 1999 19
<PAGE> 38
Capital Resources
Total shareholders' equity of the Bank at December 31, 1999 was $47.7 million,
relatively unchanged from the $47.7 million reported at December 31, 1998. Major
activity in shareholders' equity during 1999 can be summarized as follows: net
income for the year was $4.4 million, redemptions of Preferred Stock were $2.0
million, dividends on Common and Preferred Stock totaled $461,000 and changes in
unrealized gains and losses on securities equaled $2.0 million.
The Bank is subject to a number of regulatory capital measures. At December 31,
1999, the Bank's Tier I leverage ratio stood at 5.88%. The Bank is also subject
to a risk-based capital measure. The risk-based capital guidelines include both
a definition of capital and a framework for calculating risk-weighted assets by
assigning balance sheet assets and off-balance sheet items to broad risk
categories. According to these standards, the Bank had a Tier I risk-weighted
capital ratio of 9.70% and a Total risk-weighted capital ratio of 10.96% at
December 31, 1999. The minimum Tier I leverage, Tier I risk-weighted, and Total
risk-weighted capital ratios necessary to be classified for regulatory purposes
as a "well capitalized" institution are 5.00%, 6.00% and 10.00%, respectively.
The Bank, therefore, is considered to be "well capitalized."
IMPACT OF INFLATION AND CHANGING PRICES
The consolidated financial statements and related notes thereto, included
elsewhere herein, have been prepared in accordance with GAAP, which require the
measurement of financial position and operating results in terms of historical
dollars, without considering changes in the relative purchasing power of money
over time due to inflation. Unlike many industrial companies, substantially all
of the assets and liabilities of the Bank are monetary in nature. As a result,
interest rates have a more significant impact on the Bank's performance than the
general level of inflation. Over short periods of time, interest rates may not
necessarily move in the same direction or in the same magnitude as inflation.
YEAR 2000 ISSUES
Prior to January 1, 2000, many computer experts had predicted wide-spread
problems related to computer programs' inability to process dates after December
31, 1999. In order to minimize or eliminate potential problems related to Year
2000, the Bank tested and upgraded or replaced, on an as needed basis, its
critical information technology systems and infrastructures with systems that
were Year 2000 compliant. Through December 31, 1999, the Bank's cumulative Year
2000 expenditures, exclusive of internal staff costs, totaled $218,000 ($135,000
for the year ended December 31, 1999). The Bank does not expect to incur any
significant further expenses specifically related to the Year 2000 issue. To
date, the Bank has not experienced any significant operating problems or product
failures as a result of Year 2000 issues with its vendors, service providers or
customers.
RECENT ACCOUNTING DEVELOPMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities on the statement of financial
position and measure those instruments at fair value. If certain conditions are
met, a derivative may be specifically designated as (a) a hedge of the exposure
to changes in the fair value of a recognized asset or liability or an
unrecognized firm commitment, (b) a hedge of the exposure to variable cash flows
of a forecasted transaction, or (c) a hedge of the foreign currency exposure of
a net investment in a foreign operation, an unrecognized firm commitment, an
available for sale security, or a foreign currency denominated forecasted
transaction. Under SFAS 133, an entity that elects to apply hedge accounting is
required to establish at the inception of the hedge the method it will use for
assessing the effectiveness of the hedging derivative and the measurement
approach for determining the ineffective aspect of the hedge. In June 1999, the
FASB issued SFAS 137 which defers the effective date of SFAS 133. SFAS 133 is
now effective for all fiscal quarters of all fiscal years beginning after June
15, 2000. The Bank does not expect SFAS 133 to have a material effect on the
Bank's financial position or results of operations.
20 BankRI 1999
<PAGE> 39
BANK RHODE ISLAND
MANAGEMENT'S REPORT
The management of Bank Rhode Island is responsible for the preparation,
integrity and fair presentation of the financial statements and other financial
information in this annual report. Management believes that the financial
statements have been prepared in conformity with generally accepted accounting
principles applied on a consistent basis in all material respects. In preparing
the financial statements and other financial information, management makes
certain judgments and estimates where appropriate.
The accounting systems, which record, summarize and report financial data, are
supported by a system of internal control. The Bank's system of internal control
is designed to provide reasonable assurance that assets are safeguarded, that
transactions are executed in accordance with management's authorizations and
that transactions are properly recorded in the financial statements. This system
is augmented by written policies and procedures, along with internal audits.
Management recognizes that estimates and judgments are required to assess and
balance the relative costs and expected benefits of the controls and that errors
or irregularities may nevertheless occur. However, management believes that the
Bank's internal control system provides reasonable assurance that errors or
irregularities that could be material to the financial statements are prevented
or would be detected on a timely basis and corrected in the normal course of
business.
The Board of Directors oversees the financial statements through an Audit
Committee comprised solely of outside directors who are not employees of the
Bank. The Audit Committee reviews the activities of the internal audit function
and meets regularly with representatives of KPMG LLP, the Bank's independent
auditors. KPMG LLP has been appointed by the Board of Directors to conduct an
independent audit and to express an opinion as to the fairness of the
presentation of the consolidated financial statements of Bank Rhode Island.
/s/ Merrill W. Sherman /s/ Albert R. Rietheimer
- -------------------------------- -------------------------------
Merrill W. Sherman Albert R. Rietheimer
President and Chief Financial Officer and
Chief Executive Officer Treasurer
Bank RI 1999 21
<PAGE> 40
BANK RHODE ISLAND
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Bank Rhode Island:
We have audited the accompanying consolidated balance sheets of Bank Rhode
Island and subsidiaries as of December 31, 1999 and 1998, and the related
consolidated statements of operations, changes in shareholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1999.
These consolidated financial statements are the responsibility of the Bank's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Bank Rhode Island
and subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1999, in conformity with generally accepted accounting
principles.
KPMG LLP
Providence, Rhode Island
January 19, 2000
22 Bank RI 1999
<PAGE> 41
BANK RHODE ISLAND
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1999 1998
---- ----
(In thousands)
<S> <C> <C>
ASSETS:
Cash and due from banks (Note 2) $ 17,636 $ 13,436
Federal funds sold 6,850 8,575
Investment securities available for sale (amortized cost of
$51,477 and $39,295, respectively) (Notes 3, 10, 11 and 12) 50,503 39,703
Mortgage-backed securities available for sale (amortized cost of
$76,458 and $79,976, respectively) (Notes 4 and 11) 74,793 79,924
Stock in the Federal Home Loan Bank of Boston (Note 11) 3,704 3,345
Loans receivable (Notes 5 and 11):
Residential mortgage loans 237,320 258,857
Commercial loans 174,548 134,033
Consumer and other loans 47,090 38,512
--------- ---------
Total loans receivable 458,958 431,402
Allowance for loan losses (Note 6) (5,681) (5,018)
--------- ---------
Net loans receivable 453,277 426,384
Premises and equipment, net (Note 7) 5,857 4,775
Other real estate owned (Note 8) 49 394
Excess of cost over net assets acquired, net (Note 2) 13,094 14,424
Accrued interest receivable 4,670 4,729
Prepaid expenses and other assets 1,544 275
--------- ---------
Total assets $ 631,977 $ 595,964
========= =========
LIABILITIES:
Deposits (Note 9):
Demand deposit accounts $ 67,844 $ 60,556
NOW accounts 27,456 26,899
Money market accounts 16,073 15,599
Savings accounts 173,692 163,118
Certificate of deposit accounts 228,351 234,541
--------- ---------
Total deposits 513,416 500,713
Overnight and short-term borrowings (Note 10) 14,978 4,262
Federal Home Loan Bank of Boston borrowings (Note 11) 48,183 36,500
Other borrowings (Note 12) 4,750 4,750
Other liabilities 2,975 2,052
--------- ---------
Total liabilities 584,302 548,277
--------- ---------
Commitments and contingencies (Notes 7, 16 and 20)
SHAREHOLDERS' EQUITY (NOTES 1 AND 18):
Preferred stock, par value $10.00 per share, authorized 1,000,000 shares:
Series A: Issued and outstanding 80,400 shares in 1998 -- 804
Common stock, par value $1.00 per share, authorized 10,000,000 shares:
Voting: Issued and outstanding 3,448,550 shares in 1999 and 3,443,600
shares in 1998 3,449 3,444
Non-voting: Issued and outstanding 280,000 shares 280 280
Additional paid-in capital 35,925 37,087
Retained earnings 9,763 5,862
Accumulated other comprehensive income (loss), net (Notes 3 and 4) (1,742) 210
--------- ---------
Total shareholders' equity 47,675 47,687
--------- ---------
Total liabilities and shareholders' equity $ 631,977 $ 595,964
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
BankRI 1999 23
<PAGE> 42
BANK RHODE ISLAND
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1999 1998 1997
---- ---- ----
(In thousands, except per share data)
<S> <C> <C> <C>
INTEREST AND DIVIDEND INCOME:
Residential mortgage loans $ 16,997 $ 19,205 $ 20,201
Commercial loans 12,795 10,812 9,519
Consumer and other loans 3,491 3,144 2,967
Investment securities 2,814 2,744 2,967
Mortgage-backed securities 4,835 3,521 1,037
Federal funds sold and other 482 400 391
Federal Home Loan Bank of Boston stock dividends 237 208 187
---------- ---------- ----------
Total interest and dividend income 41,651 40,034 37,269
---------- ---------- ----------
INTEREST EXPENSE:
NOW accounts 175 175 187
Money market accounts 473 401 362
Savings accounts 4,742 4,670 4,338
Certificate of deposit accounts 11,396 12,360 11,976
Overnight and short-term borrowings 335 225 41
Federal Home Loan Bank of Boston borrowings 2,198 1,871 574
Other borrowings 281 143 --
---------- ---------- ----------
Total interest expense 19,600 19,845 17,478
---------- ---------- ----------
Net interest income 22,051 20,189 19,791
Provision for loan losses (Note 6) 1,000 1,017 1,000
---------- ---------- ----------
Net interest income after provision for loan losses 21,051 19,172 18,791
---------- ---------- ----------
NONINTEREST INCOME:
Loan related fees 306 137 56
Service charges on deposit accounts 2,215 1,734 1,499
Gain on sales of investment securities -- 5 3
Commissions on loans originated for others 83 141 43
Other income 618 710 315
---------- ---------- ----------
Total noninterest income 3,222 2,727 1,916
---------- ---------- ----------
NONINTEREST EXPENSE:
Salaries and employee benefits (Note 14) 8,065 7,136 6,344
Occupancy (Note 7) 1,302 1,155 1,192
Equipment 744 888 783
Data processing 1,348 1,137 902
Marketing 883 829 750
Professional services 870 586 892
Loan servicing 825 971 1,030
Other real estate owned (Note 8) 108 166 86
Amortization of intangibles 1,164 1,234 1,234
Deposit tax and assessments 58 56 192
Other expenses (Note 15) 1,987 1,885 1,868
---------- ---------- ----------
Total noninterest expense 17,354 16,043 15,273
---------- ---------- ----------
Income before income taxes and change in accounting principle 6,919 5,856 5,434
Income tax expense (Note 13) 2,448 2,022 1,924
---------- ---------- ----------
Net income before change in accounting principle 4,471 3,834 3,510
Cumulative effect of change in accounting principle 109 -- --
---------- ---------- ----------
Net income 4,362 3,834 3,510
Dividends on preferred stock 88 793 1,413
---------- ---------- ----------
Net income available to common shareholders $ 4,274 $ 3,041 $ 2,097
========== ========== ==========
Basic earnings per common share (Notes 2 and 19):
Income per common share before change in accounting principle $ 1.18 $ 0.87 $ 0.75
Cumulative effect of change in accounting principle, net of tax (0.03) -- --
---------- ---------- ----------
Net income per common share $ 1.15 $ 0.87 $ 0.75
========== ========== ==========
Diluted earnings per common share (Notes 2 and 19):
Income per common share before change in accounting principle $ 1.17 $ 0.85 $ 0.75
Cumulative effect of change in accounting principle, net of tax (0.03) -- --
---------- ---------- ----------
Net income per common share $ 1.14 $ 0.85 $ 0.75
========== ========== ==========
Average common shares outstanding - basic 3,727,010 3,506,573 2,800,061
Average common shares outstanding - diluted 3,741,778 3,584,820 2,805,689
</TABLE>
See accompanying notes to consolidated financial statements.
24 BankRI 1999
<PAGE> 43
BANK RHODE ISLAND
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER
PREFERRED COMMON PAID-IN RETAINED COMPREHENSIVE
STOCK STOCK CAPITAL EARNINGS INCOME/(LOSS) TOTAL
----- ----- ------- -------- ------------- -----
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 $ 4,900 $ 2,800 $ 35,149 $ 724 $ 54 $ 43,627
Net income -- -- -- 3,510 -- 3,510
Other comprehensive income, net of tax:
Unrealized holding gains arising
during the period, net of taxes of $167 283 283
Gains included in net income, net of
taxes of $1 (2) (2)
--------
Comprehensive income 3,791
Exercise of stock options -- -- 2 -- -- 2
Redemption of preferred stock (130) -- (1,170) -- -- (1,300)
Dividends on preferred stock -- -- -- (1,413) -- (1,413)
-------- -------- -------- -------- -------- --------
Balance at December 31, 1997 4,770 2,800 33,981 2,821 335 44,707
Net income -- -- -- 3,834 -- 3,834
Other comprehensive income, net of tax:
Unrealized holding losses arising
during the period, net of taxes of $57 (122) (122)
Gains included in net income, net of
taxes of $2 (3) (3)
--------
Comprehensive income 3,709
Issuance of common stock -- 921 11,799 -- -- 12,720
Exercise of stock options -- 3 31 -- -- 34
Redemption of preferred stock (3,966) -- (8,724) -- -- (12,690)
Dividends on preferred stock -- -- -- (793) -- (793)
-------- -------- -------- -------- -------- --------
Balance at December 31, 1998 804 3,724 37,087 5,862 210 47,687
Net income -- -- -- 4,362 -- 4,362
Other comprehensive income, net of tax:
Unrealized holding losses arising
during the period, net of taxes of $1,002 (1,952) (1,952)
--------
Comprehensive income 2,410
Exercise of stock options -- 5 44 -- -- 49
Redemption of preferred stock (804) -- (1,206) -- -- (2,010)
Dividends on preferred stock -- -- -- (88) -- (88)
Dividends on common stock -- -- -- (373) -- (373)
-------- -------- -------- -------- -------- --------
Balance at December 31, 1999 $ -- $ 3,729 $ 35,925 $ 9,763 $ (1,742) $ 47,675
======== ======== ======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
BankRI 1999 25
<PAGE> 44
BANK RHODE ISLAND
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1999 1998 1997
---- ---- ----
(In thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,362 $ 3,834 $ 3,510
Adjustment to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 3,030 3,428 2,449
Provision for loan losses 1,000 1,017 1,000
Gain on sales of investments -- (5) (3)
Loss on other real estate owned 12 65 32
(Increase) decrease in accrued interest receivable 59 306 (361)
(Increase) decrease in prepaid expenses and other assets (225) 61 35
Increase (decrease) in other liabilities 923 (1,605) 987
Increase (decrease) in other, net 213 54 301
--------- --------- ---------
Net cash provided by operating activities 9,374 7,155 7,950
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Origination of:
Residential mortgage loans (17,630) (13,093) (200)
Commercial loans (62,281) (41,899) (39,944)
Consumer loans (18,909) (17,051) (12,526)
Purchase of:
Investment securities available for sale (35,168) (25,950) (47,590)
Mortgage-backed securities available for sale (17,947) (55,930) (44,200)
Residential mortgage loans (53,883) (108,591) (58,519)
Federal Home Loan Bank of Boston stock (359) (437) (74)
Principal payments on:
Investment securities available for sale 23,000 32,670 39,830
Mortgage-backed securities available for sale 21,256 18,648 1,301
Residential mortgage loans 91,841 118,679 58,419
Commercial loans 21,620 22,547 17,817
Consumer loans 10,187 11,739 9,985
Proceeds from sale of investment securities available for sale -- 2,001 5,010
Proceeds from disposition of other real estate owned 617 673 366
Proceeds from sale of premises and equipment -- 205 --
Capital expenditures for premises and equipment (1,923) (1,642) (664)
--------- --------- ---------
Net cash used in investing activities (39,579) (57,431) (70,989)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 12,703 35,806 40,140
Net increase in overnight and short-term borrowings 10,716 1,933 1,026
Proceeds from FHLB and other borrowings 70,300 70,000 39,425
Repayment of FHLB and other borrowings (58,617) (46,175) (22,000)
Proceeds from issuance of common stock, net 49 12,754 2
Redemption of preferred stock (2,010) (12,690) (1,300)
Dividends on preferred stock (88) (793) (1,413)
Dividends on common stock (373) -- --
--------- --------- ---------
Net cash provided by financing activities 32,680 60,835 55,880
--------- --------- ---------
Net increase (decrease) in cash and due from banks 2,475 10,559 (7,159)
Cash and cash equivalents at beginning of year 22,011 11,452 18,611
--------- --------- ---------
Cash and cash equivalents at end of year $ 24,486 $ 22,011 $ 11,452
========= ========= =========
SUPPLEMENTARY DISCLOSURES:
Cash paid for interest $ 19,604 $ 20,473 $ 16,527
Cash paid for income taxes 3,230 2,665 1,780
Non-cash transactions:
Additions to other real estate owned in settlement of loans 284 776 728
Change in other comprehensive income, net of taxes (1,952) (125) 281
</TABLE>
See accompanying notes to consolidated financial statements.
26 BankRI 1999
<PAGE> 45
BANK RHODE ISLAND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION
Bank Rhode Island is a commercial bank chartered as a financial institution in
the State of Rhode Island. The Bank pursues a community banking mission and is
principally engaged in providing banking products and services to individuals
and businesses in Providence and Kent counties. The Bank is subject to
competition from a variety of traditional and nontraditional financial service
providers both within and outside of Rhode Island. The Bank offers its customers
a broad range of basic deposit services, including checking, savings and
certificate of deposit accounts, along with access to their accounts through
automated teller machines ("ATMs") and through use of debit cards. The Bank also
offers a broad range of commercial, commercial real estate and consumer loans.
Additionally, the Bank provides IRA and Keogh accounts. The Bank is subject to
the regulations of certain state and federal agencies and undergoes periodic
examinations by those regulatory authorities. The Bank's deposits are insured by
the FDIC, subject to regulatory limits.
On March 26, 1998, the Bank completed a public offering of 920,000 shares of its
Common Stock. The net proceeds from this offering were $12.7 million. The Bank
used these net proceeds, along with retained earnings, to redeem all of the
outstanding shares of its Preferred Stock. These redemptions began on March 26,
1998 and were completed on April 1, 1999. The aggregate redemption price of the
shares of Preferred Stock redeemed totaled $14.3 million, plus dividends accrued
through the applicable redemption dates.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accounting and reporting policies of the Bank conform to generally accepted
accounting principles and to prevailing practices within the banking industry.
The Bank has one reportable operating segment. The following is a summary of the
significant accounting and reporting policies used by management in preparing
and presenting the consolidated financial statements.
In preparing the consolidated 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 from those estimates. Material estimates
that are particularly susceptible to change relate to the determination of the
allowance for loan losses.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of Bank
Rhode Island and its wholly-owned subsidiaries, EFC, Inc., until its dissolution
on October 20, 1997, BRI Investment Corp. (a Rhode Island passive investment
company) subsequent to its incorporation on June 17, 1997 and BRI Realty Corp.
(a Rhode Island real estate holding company) subsequent to its incorporation on
August 10, 1999. All significant intercompany accounts and transactions have
been eliminated in consolidation.
Reclassifications
Certain amounts in the prior year's financial statements have been reclassified
to conform with the current year's presentation.
Statement of Cash Flows
For purposes of reporting cash flows, the Bank considers cash, due from banks
and federal funds sold to be cash equivalents. Cash flows relating to deposits
are presented net in the statement of cash flows.
BankRI 1999 27
<PAGE> 46
BANK RHODE ISLAND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Comprehensive Income
Comprehensive Income is defined as all changes to equity except investments by
and distributions to shareholders. Net income is a component of comprehensive
income, with all other components referred to in the aggregate as 'other
comprehensive income.'
Cash and Due From Banks
The Bank is required to maintain average reserve balances in a noninterest
bearing account with the Federal Reserve Bank based upon a percentage of certain
deposits. As of December 31, 1999 and 1998, the average daily amount required to
be held was $5.4 million and $4.1 million, respectively. Additionally, in
connection with a line of credit from a correspondent bank, the Bank is required
to maintain a compensating balance in a noninterest bearing account. As of both
December 31, 1999 and 1998, the required compensating balance was $100,000.
Investment and Mortgage-Backed Securities
Debt securities are classified as held to maturity, available for sale, or
trading. Securities are classified as held to maturity and carried at amortized
cost only if the Bank has a positive intent and the ability to hold these
securities to maturity. Securities are classified as trading and carried at fair
value, with unrealized gains and losses included in earnings, if they are bought
and held principally for the purpose of selling in the near term. Securities not
classified as either held to maturity or trading are classified as available for
sale and reported at fair value, with unrealized gains and losses excluded from
earnings and reported as a separate component of shareholders' equity, net of
estimated income taxes.
Premiums and discounts on securities are amortized or accreted into income by
the level-yield method. If a decline in fair value below the amortized cost
basis of a security is judged to be other than temporary, the cost basis of the
security is written down to fair value. The amount of the writedown is included
as a charge against gain on sale of securities. Gains and losses on the sale of
securities are recognized at the time of sale on a specific identification
basis.
Loans
Loans held in portfolio are stated at the principal amount outstanding, net of
unamortized premiums, discounts, or deferred loan origination fees and costs.
Interest income is accrued on a level yield basis based on the principal amount
outstanding. Premiums, discounts, and deferred loan origination fees and costs
are amortized as an adjustment to yield over the life of the related loans. When
a loan is paid-off, the unamortized portion of premiums, discounts or net fees
is recognized into income.
Loans on which the accrual of interest has been discontinued are designated
nonaccrual loans. Accrual of interest income is discontinued when concern exists
as to the collectibility of principal or interest, or when a loan becomes over
ninety days delinquent. Additionally, when a loan is placed on nonaccrual
status, all interest previously accrued but not collected is reversed against
current period income. Loans are removed from nonaccrual when they become less
than ninety days past due and when concern no longer exists as to the
collectibility of principal or interest. Interest collected on nonaccruing loans
is either applied against principal or reported as income according to
management's judgment as to the collectibility of principal.
Impaired loans are loans for which it is probable that the Bank will not be able
to collect all amounts due according to the contractual terms of the loan
agreements. Impairment is measured on a discounted cash flow method, or at the
loan's observable market price, or at the fair value of the collateral if the
loan is collateral dependent. When foreclosure is probable, impairment is
measured based on the fair value of the collateral. In addition, the Bank
classifies a loan as an in-substance foreclosure only when the Bank is in
possession of the collateral.
28 BankRI 1999
<PAGE> 47
BANK RHODE ISLAND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Allowance for Loan Losses
The allowance for loan losses is established for future credit losses inherent
in the loan portfolio through a charge to earnings. When management believes
that the collectibility of a loan's principal balance, or portions thereof, is
unlikely, the principal amount is charged against the allowance. Recoveries on
loans which have been previously charged off are credited to the allowance as
received.
The allowance for loan losses is maintained at a level which reflects
management's assessment of many factors including the growth, composition and
quality of the loan portfolio, historical loss experience, general economic
conditions, and other pertinent factors. While management evaluates currently
available information in establishing the allowance for loan losses, future
adjustments to the allowance may be necessary if economic conditions differ
substantially from the assumptions used in making the evaluations. In addition,
various regulatory agencies, as an integral part of their examination process,
periodically review a financial institution's allowance for loan losses. Such
agencies may require the financial institution to recognize additions to the
allowance based on their judgments about information available to them at the
time of their examination.
Other Real Estate Owned
OREO consists of property acquired through foreclosure, real estate acquired
through acceptance of a deed in lieu of foreclosure and loans determined to be
substantively repossessed. Real estate loans that are substantively repossessed
include only those loans for which the Bank has taken possession of the
collateral, but has not completed legal foreclosure proceedings.
OREO, including real estate substantively repossessed, is stated at the lower of
cost or fair value, minus estimated costs to sell, at the date of acquisition or
classification to OREO status. Fair value of such assets is determined based on
independent appraisals and other relevant factors. Any write-down to fair value
at the time of foreclosure is charged to the allowance for loan losses. A
valuation allowance is maintained for known specific and potential market
declines and for estimated selling expenses. Increases to the valuation
allowance, expenses associated with ownership of these properties, and gains and
losses from their sale, are reflected in operations as incurred. Realized gains
upon disposal are recognized as income.
Management believes that the net carrying value of OREO reflects the lower of
its cost basis or net fair value. Factors similar to those considered in the
evaluation of the allowance for loan losses, including regulatory agency
requirements, are considered in the evaluation of the net fair value of OREO.
Transfers and Servicing of Assets and Extinguishments of Liabilities
The Bank accounts and reports for transfers and servicing of financial assets
and extinguishments of liabilities based on consistent application of a
financial components approach that focuses on control. This approach
distinguishes transfers of financial assets that are sales from transfers that
are secured borrowings. After a transfer of financial assets, the Bank
recognizes all financial and servicing assets it controls and liabilities it has
incurred and derecognizes financial assets it no longer controls and liabilities
that have been extinguished. This financial components approach focuses on the
assets and liabilities that exist after the transfer. Many of these assets and
liabilities are components of financial assets that existed prior to the
transfer. If a transfer does not meet the criteria for a sale, the Bank accounts
for a transfer as a secured borrowing with a pledge of collateral.
Premises and Equipment
Premises and equipment are carried at cost, less accumulated depreciation and
amortization. Depreciation and amortization are computed primarily by the
straight-line method over the estimated useful lives of the assets, or the terms
of the leases if shorter.
BankRI 1999 29
<PAGE> 48
BANK RHODE ISLAND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Intangible Assets
On March 22, 1996, the Bank acquired certain assets and assumed certain
liabilities from Fleet National Bank of Connecticut, formerly known as Shawmut
Bank Connecticut, N.A. and other related entities. This acquisition was
accounted for utilizing the purchase method of accounting and generated $17.5
million of excess costs over net assets acquired, commonly referred to as
"goodwill". This excess of costs over net assets acquired is being amortized to
expense using the straight-line method over 15 years and results in a annual
pre-tax charge to earnings of $1.2 million.
In April 1998, the FASB issued Statement of Position ("SOP") 98-5, "Accounting
for Costs of a Start-Up Entity." SOP 98-5 requires organizational costs, which
were being amortized, to be expensed as of the effective date of this statement,
January 1, 1999, and accounted for as a cumulative effect of a change in
accounting principle. On January 1, 1999, the Bank expensed $166,000 of
unamortized organizational costs resulting in a charge to earnings, net of
taxes, of $109,000.
On an ongoing basis, management reviews the valuation and amortization of its
intangible assets, taking into consideration any events and circumstances which
might have diminished their value.
Employee Benefits
The Bank maintains a Section 401(k) savings plan for employees of the Bank and
its subsidiaries. Under the plan, the Bank makes a matching contribution of the
amount contributed by each participating employee, up to 4% of the employee's
yearly salary. The Bank's contributions are charged against current operations
in the year made.
The Bank has adopted SFAS 123, "Accounting for Stock-Based Compensation." This
Statement establishes a fair value based method of accounting for stock-based
compensation plans under which compensation cost is measured at the grant date
based on the value of the award and is recognized over the service period.
However, the Statement allows a company to continue to measure compensation cost
for such plans under Accounting Principles Board Opinion ("APB") 25, "Accounting
for Stock Issued to Employees." Under APB 25, no compensation cost is recorded
if, at the grant date, the exercise price of the options is equal to the fair
market value of the Bank's common stock. The Bank has elected to continue to
follow the accounting in APB 25. SFAS 123 requires companies which elect to
continue to follow the accounting in APB 25 to disclose in the notes to their
financial statements pro forma net income and earnings per share as if the fair
value based method of accounting had been applied.
Income Taxes
The Bank recognizes income taxes under the asset and liability method. Under
this method, deferred tax assets and liabilities are established for the future
tax consequences attributable to temporary differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit carryforwards. Deferred
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income during the period
that includes the enactment date.
Earnings Per Share
Basic earnings per share ("EPS") excludes dilution and is computed by dividing
income available to common shareholders by the weighted average number of common
shares outstanding for the period. Diluted EPS reflects the potential dilution
that could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of common
stock that then share in the earnings of the entity.
30 BankRI 1999
<PAGE> 49
BANK RHODE ISLAND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(3) Investment Securities Available for Sale
A summary of investment securities available for sale follows:
<TABLE>
<CAPTION>
UNREALIZED
----------
AMORTIZED MARKET
COST GAINS LOSSES VALUE
---- ----- ------ -----
(In thousands)
<S> <C> <C> <C> <C>
AT DECEMBER 31, 1999:
U.S. Treasury obligations $10,023 $ 21 $ (35) $10,009
U.S. Agency obligations 39,256 5 (875) 38,386
Trust Preferred securities 2,197 -- (89) 2,108
------- ------- ------- -------
Total $51,476 $ 26 $ (999) $50,503
======= ======= ======= =======
AT DECEMBER 31, 1998:
U.S. Treasury obligations $18,050 $ 245 $ (14) $18,281
U.S. Agency obligations 21,245 203 (26) 21,422
------- ------- ------- -------
Total $39,295 $ 448 $ (40) $39,703
======= ======= ======= =======
</TABLE>
The following table sets forth the maturities of investment securities available
for sale and the weighted average yields of such securities:
<TABLE>
<CAPTION>
AFTER ONE, BUT
WITHIN ONE YEAR WITHIN FIVE YEARS
------------------------------------- -----------------------------------
WEIGHTED WEIGHTED
AMORTIZED MARKET AVERAGE AMORTIZED MARKET AVERAGE
COST VALUE YIELD COST VALUE YIELD
---- ----- ----- ---- ----- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
AT DECEMBER 31, 1999:
U.S. Treasury obligations $ 8,986 $ 9,007 6.39% $ 1,037 $ 1,002 4.15%
U.S. Agency obligations 3,991 3,991 5.80% 25,265 24,557 5.74%
Trust Preferred securities -- -- -- % -- -- -- %
------- ------- ------- --------
Total $12,977 $12,998 6.21% $26,302 $ 25,559 5.68%
======= ======= ==== ======= ======== ====
AT DECEMBER 31, 1998:
U.S. Treasury obligations $ 8,013 $ 8,040 6.10% $10,037 $10,241 6.16%
U.S. Agency obligations 1,980 2,038 6.57% 19,265 19,384 6.05%
------- ------- ------- --------
Total $ 9,993 $10,078 6.19% $29,302 $29,625 6.09%
======= ======= ==== ======= ======= ====
</TABLE>
<TABLE>
<CAPTION>
AFTER FIVE, BUT
WITHIN TEN YEARS AFTER TEN YEARS
-------------------------------------- ------------------------------------
WEIGHTED WEIGHTED
AMORTIZED MARKET AVERAGE AMORTIZED MARKET AVERAGE
COST VALUE YIELD COST VALUE YIELD
---- ----- ----- ---- ----- -----
<S> <C> <C> <C> <C> <C> <C>
AT DECEMBER 31, 1999:
U.S. Treasury obligations $ -- $ -- -- % $ -- $ -- -- %
U.S. Agency obligations 10,000 9,838 7.10% -- -- -- %
Trust Preferred securities -- -- -- % 2,197 2,108 8.16%
------- --------- ------- ---------
Total $10,000 $ 9,838 7.10% $ 2,197 $ 2,108 8.16%
======= ========= ==== ======= ========= ====
AT DECEMBER 31, 1998:
U.S. Treasury obligations $ -- $ -- -- % $ -- $ -- -- %
U.S. Agency obligations -- -- -- % -- -- -- %
------- --------- ------- ---------
Total $ -- $ -- -- % $ -- $ -- -- %
======= ========= ==== ======= ========= ====
</TABLE>
The weighted average remaining life of investment securities available for
sale at December 31, 1999 and 1998 was 3.9 years and 2.5 years, respectively.
Included in the weighted average remaining life calculation at December 31, 1999
and 1998, were $34.0 million and $15.0 million, respectively, of securities that
are callable at the discretion of the issuer. These call dates were not utilized
in computing the weighted average remaining life.
The following table presents the sale of investment securities available for
sale and the resulting gains from such sales:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1999 1998 1997
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Amortized cost of Investment Securities sold $ -- $1,996 $5,007
Gains realized on sales of Investment Securities -- 5 3
------ ------ ------
Net proceeds from sales of Investment Securities $ -- $2,001 $5,010
====== ====== ======
</TABLE>
BankRI 1999 31
<PAGE> 50
BANK RHODE ISLAND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(4) MORTGAGE-BACKED SECURITIES AVAILABLE FOR SALE
A summary of mortgage-backed securities available for sale by issuer follows:
<TABLE>
<CAPTION>
UNREALIZED
-------------------
AMORTIZED MARKET
COST GAINS LOSSES VALUE
---- ----- ------ -----
(In thousands)
<S> <C> <C> <C> <C>
AT DECEMBER 31, 1999:
Federal National Mortgage Association $57,911 $ -- $(1,106) $56,805
Federal Home Loan Mortgage Corporation 4,190 -- (19) 4,171
Collateralized Mortgage Obligations 14,357 -- (540) 13,817
------- ------- -------
Total $76,458 $ -- $(1,665) $74,793
======= ======= ======= =======
AT DECEMBER 31, 1998:
Federal National Mortgage Association $56,286 $ 30 $ (138) $56,178
Federal Home Loan Mortgage Corporation 6,528 42 -- 6,570
Collateralized Mortgage Obligations 17,162 14 -- 17,176
------- ------- -------
Total $79,976 $ 86 $ (138) $79,924
======= ======= ======= =======
</TABLE>
The following table sets forth the maturities of mortgage-backed securities
available for sale and the weighted average yields of such securities:
<TABLE>
<CAPTION>
WITHIN TEN YEARS AFTER TEN YEARS
--------------------------------- -----------------------------------
WEIGHTED WEIGHTED
AMORTIZED MARKET AVERAGE AMORTIZED MARKET AVERAGE
COST VALUE YIELD COST VALUE YIELD
---- ----- ----- ---- ----- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
AT DECEMBER 31, 1999:
Federal National Mortgage Association $ -- $ -- -- % $57,911 $56,805 5.93%
Federal Home Loan Mortgage Corporation -- -- -- % 4,190 4,171 6.67%
Collateralized Mortgage Obligations -- -- -- % 14,357 13,817 6.48%
----- ----- ------- -------
Total $ -- $ -- -- % $76,458 $74,793 6.07%
===== ===== ===== ======= ======= ====
AT DECEMBER 31, 1998:
Federal National Mortgage Association $ -- $ -- -- % $56,286 $56,178 6.45%
Federal Home Loan Mortgage Corporation -- -- -- % 6,528 6,570 6.70%
Collateralized Mortgage Obligations -- -- -- % 17,162 17,176 6.48%
----- ----- ------- -------
Total $ -- $ -- -- % $79,976 $79,924 6.48%
===== ===== ===== ======= ======= ====
</TABLE>
Maturities on mortgage-backed securities are based on contractual maturities and
do not take into consideration scheduled amortization or prepayments. Actual
maturities will differ from contractual maturities due to scheduled amortization
and prepayments. The weighted average remaining contractual term of
mortgage-backed securities available for sale at December 31, 1999 and 1998 was
25.9 years and 29.3 years, respectively. There were no sales of mortgage-backed
securities during 1999, 1998 or 1997.
32 BankRI 1999
<PAGE> 51
BANK RHODE ISLAND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(5) LOANS RECEIVABLE
The following is a summary of loans receivable:
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1999 1998
---- ----
(In thousands)
<S> <C> <C>
RESIDENTIAL MORTGAGE LOANS:
One-to four-family adjustable rate $ 196,863 $ 211,076
One-to four-family fixed rate 39,037 45,671
--------- ---------
Subtotal 235,900 256,747
Premium on loans acquired 1,446 2,110
Net deferred loan origination fees (26) --
--------- ---------
Total $ 237,320 $ 258,857
========= =========
COMMERCIAL LOANS:
Commercial real estate - nonowner occupied $ 56,181 $ 39,654
Commercial and industrial 40,109 30,655
Commercial real estate - owner occupied 33,968 36,908
Multi-family 16,270 13,221
Small business 13,322 6,804
Construction 6,379 3,482
Leases 8,499 3,370
--------- ---------
Subtotal 174,728 134,094
--------- ---------
Net deferred loan origination fees (180) (61)
Total $ 174,548 $ 134,033
========= =========
CONSUMER AND OTHER LOANS:
Home equity - lines of credit $ 24,166 $ 18,400
Home equity - term loans 19,710 16,996
Installment 1,279 1,010
Savings secured 1,005 935
Unsecured and other 590 972
--------- ---------
Subtotal 46,750 38,313
Net deferred loan origination costs 340 199
--------- ---------
Total $ 47,090 $ 38,512
========= =========
</TABLE>
The Bank's commercial and consumer lending activities are conducted principally
in the State of Rhode Island and, to a lesser extent, in nearby areas of
Massachusetts. The Bank originates commercial real estate loans, commercial and
industrial loans, multi-family residential loans and consumer loans (principally
home equity loans and lines of credit) for its portfolio. The Bank purchases
one- to four-family residential mortgage loans from third party originators.
These loans may have been originated from areas outside of New England. Most
loans made by the Bank are secured by borrowers' personal or business assets.
The ability of the Bank's residential and consumer borrowers to honor their
repayment commitments is generally dependent on the level of overall economic
activity within the area they reside in. Commercial borrowers' ability to repay
is generally dependent upon the general health of the economy and in cases of
real estate loans, the real estate sector in particular. Accordingly, the
ultimate collectibility of a substantial portion of the Bank's loan portfolio is
susceptible to changing conditions in the Rhode Island economy in particular,
and the New England and national economies, in general.
BankRI 1999 33
<PAGE> 52
BANK RHODE ISLAND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Bank's lending limit to any single borrower is limited by law to
approximately $8.0 million. The Bank had no outstanding balances with any
individual borrower at December 31, 1999 which were in excess of $4.0 million.
At December 31, 1999, the risk elements contained within the loan portfolio were
centered in $1.1 million of nonaccrual loans and $93,000 of loans past due 60 to
89 days. This compares to $1.6 million of nonaccrual loans and $258,000 of loans
past due 60 to 89 days as of December 31, 1998, and $1.7 million of nonaccrual
loans and $417,000 of loans past due 60 to 89 days as of December 31, 1997.
Included in the $1.1 million of nonaccrual loans as of December 31, 1999, were
$329,000 of impaired loans. No specific reserves were necessary at December 31,
1999 in conjunction with these impaired loans. The average balance of impaired
loans during 1999 was $304,000. As of December 31, 1998 and 1997, the Bank did
not have any loans that were considered impaired.
The reduction in interest income associated with nonaccrual loans was as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1999 1998 1997
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Income in accordance with original terms $ 130 $ 138 $ 146
Income recognized (64) (21) (81)
----- ----- -----
Foregone interest income $ 66 $ 117 $ 65
===== ===== =====
</TABLE>
Loans outstanding to executive officers and directors of the Bank, including
their immediate families and affiliated companies ("related parties"), are made
in the ordinary course of business under normal credit terms, including interest
rates and collateral, prevailing at the time of origination for comparable
transactions with other persons, and do not represent more than normal credit
risk. An analysis of the activity of these loans is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1999 1998
---- ----
(In thousands)
<S> <C> <C>
Balance at beginning of year $ 2,695 $ 2,010
Additions 4,962 2,220
Repayments (3,890) (1,535)
------- -------
Balance at end of year $ 3,767 $ 2,695
======= =======
</TABLE>
(6) ALLOWANCE FOR LOAN LOSSES
An analysis of the activity in the allowance for loan losses is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1999 1998
---- ----
(In thousands)
<S> <C> <C>
Balance at beginning of year $ 5,018 $ 4,340
Provision for loan losses charged against income 1,000 1,017
Loans charged-off (384) (352)
Recoveries of loans previously charged-off 47 13
------- -------
Balance at end of year $ 5,681 $ 5,018
======= =======
</TABLE>
34 BankRI 1999
<PAGE> 53
BANK RHODE ISLAND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table represents the allocation of the allowance for loan losses
as of the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1999 1998
---- ----
(In thousands)
<S> <C> <C>
LOAN CATEGORY:
Residential mortgage loans $1,395 $1,558
Commercial loans 2,007 1,277
Consumer and other loans 566 456
Unallocated 1,713 1,727
------ ------
Total $5,681 $5,018
====== ======
</TABLE>
(7) PREMISES AND EQUIPMENT
Premises and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1999 1998
---- ----
(In thousands)
<S> <C> <C>
Land $ 785 $ 785
Office buildings and improvements 1,727 1,638
Leasehold improvements 1,886 1,296
Data processing equipment and software 2,896 2,347
Furniture, fixtures and other equipment 2,094 1,399
------- -------
Subtotal 9,388 7,465
Less accumulated depreciation and amortization (3,531) (2,690)
------- -------
Total premises and equipment $ 5,857 $ 4,775
======= =======
</TABLE>
The Bank utilizes a useful life of 40 years for buildings and 15 years for
building improvements. Leasehold improvements are amortized over their
respective lease terms. Data processing equipment and software's useful life is
three years and furniture, fixtures and other equipment's useful life varies but
is primarily five years. Depreciation expense totaled $841,000, $1.1 million and
$993,000 for the years ended December 31, 1999, 1998 and 1997, respectively.
Rent expense for the years ended December 31, 1999, 1998 and 1997 was $531,000,
$417,000 and $408,000, respectively. In connection with the acquisition of
branches from Fleet National Bank of Connecticut, the Bank assumed the liability
for lease payments on seven banking offices previously occupied by Shawmut Bank
Connecticut, N.A. The Bank has renegotiated some of these leases and has also
entered into agreements to lease additional space. Under the terms of these
noncancellable operating leases for its banking offices, the Bank is currently
obligated to minimum annual rents as follows:
<TABLE>
<CAPTION>
MINIMUM
LEASE PAYMENTS
--------------
(In thousands)
<S> <C>
2000 $ 626
2001 618
2002 630
2003 576
2004 566
Thereafter 2,502
--------
$ 5,518
========
</TABLE>
BankRI 1999 35
<PAGE> 54
BANK RHODE ISLAND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(8) OTHER REAL ESTATE OWNED
The following table provides a summary of OREO:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1999 1998
----- -----
(In thousands)
<S> <C> <C>
One- to four-family residential property $ 84 $ 397
Five or more family residential property -- 46
Subtotal 84 443
Allowance for losses (35) (49)
----- -----
Total $ 49 $ 394
===== =====
</TABLE>
A summary of the activity in the allowance for losses on OREO follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1999 1998
---- ----
(In thousands)
<S> <C> <C>
Balance at beginning of year $ 49 $ 20
Provisions 12 75
Net charge-offs (26) (46)
---- ----
Balance at end of year $ 35 $ 49
==== ====
</TABLE>
The following summarizes the operating results from OREO excluding net gains
attributed to disposition:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1999 1998 1997
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Collection and repossession expenses $ 73 $ 46 $ 18
Net expenses of holding properties 23 55 35
Provision for losses 12 75 40
---- ---- ----
Total $108 $176 $ 93
==== ==== ====
</TABLE>
(9) DEPOSITS
Certificate of deposit accounts had the following schedule of maturities:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1999 1998
-------- --------
(In thousands)
<S> <C> <C>
1 year or less remaining $152,025 $188,586
More than 1 year to 2 years remaining 69,775 40,598
More than 2 years to 4 years remaining 4,943 3,927
More than 4 years remaining 1,608 1,430
-------- --------
Total $228,351 $234,541
======== ========
</TABLE>
At December 31, 1999, 1998 and 1997, certificate of deposit accounts with
balances $100,000 or more aggregated $25.3 million, $23.1 million, and $19.0
million, respectively.
36 BankRI 1999
<PAGE> 55
BANK RHODE ISLAND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(10) OVERNIGHT AND SHORT-TERM BORROWINGS
Overnight and short-term borrowings are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1999 1998
------- -------
(In thousands)
<S> <C> <C>
Treasury tax and loan notes $ 3,104 $ 851
Retail reverse repurchase agreements 11,874 3,411
------- -------
Total $14,978 $ 4,262
======= =======
</TABLE>
The Bank utilizes the Note Option for remitting Treasury Tax and Loan payments
to the Federal Reserve Bank. Under this option the U.S. Treasury invests in
obligations of the Bank, as evidenced by open-ended interest-bearing notes.
These notes are collateralized by U.S. Treasury securities owned by the Bank.
Information concerning these treasury tax and loan notes is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1999 1998
------ ------
(In thousands)
<S> <C> <C>
Outstanding at end of year $3,104 $ 851
Outstanding collateralized by
securities with:
Amortized cost 3,996 4,014
Market value 3,999 4,045
Average outstanding for the year 837 606
Maximum outstanding at any month end 3,104 1,990
Weighted average rate at end of year 4.52% 4.13%
Weighted average rate paid for the year 4.84% 5.18%
</TABLE>
The Bank utilizes retail reverse repurchase agreements in connection with a cash
management product that the Bank offers its commercial customers. Sales of
retail reverse repurchase agreements are treated as financings. The obligations
to repurchase the identical securities that were sold are reflected as
liabilities and the securities remain in the asset accounts. All of these
agreements are collateralized by U.S. Treasury or Agency securities owned by the
Bank. The securities underlying the agreements were held by the Bank in a
special custody account and remained under the Bank's control. Information
concerning these retail repurchase agreements is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1999 1998
------- -------
(In thousands)
<S> <C> <C>
Outstanding at end of year $11,874 $ 3,411
Maturity date 1/3/00 1/4/99
Outstanding collateralized by securities with:
Amortized cost 23,255 10,973
Market value 22,790 11,183
Average outstanding for the year 6,278 3,816
Maximum outstanding at any month end 12,361 6,789
Weighted average rate at end of year 2.88% 3.62%
Weighted average rate paid for the year 4.50% 4.87%
</TABLE>
Additionally, at December 31, 1999, the Bank had a total of $4.5 million in
lines of credit with correspondent banks to facilitate the issuance of letters
of credit by the Bank and the conducting of foreign exchange transactions for
the Bank's customers. Since inception, there have been no outstanding balances
under these lines of credit. The Bank is required to maintain a compensating
balance of $100,000 in conjunction with one of these lines of credit.
BankRI 1999 37
<PAGE> 56
BANK RHODE ISLAND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(11) FEDERAL HOME LOAN BANK OF BOSTON BORROWINGS
FHLB borrowings are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1999 1998
------- -------
(In thousands)
<S> <C> <C>
NOTES PAYABLE:
5.30% note due 03/24/99 $ -- $ 1,500
5.78% note due 06/29/99 -- 1,900
5.20% note due 09/23/99 -- 3,000
5.76% note due 03/08/00 5,000 --
5.82% note due 03/30/00 4,000 --
5.84% note due 05/01/00 4,000 --
5.71% note due 11/07/02 (callable 11/07/98) -- 1 5,000
5.87% note due 06/02/03 10,100 10,100
6.01% note due 11/08/04 (callable 11/08/01) 10,000 --
6.72% note due 12/03/04 10,000 --
4.99% note due 01/08/08 (callable 01/08/99) -- 5,000
5.25% note due 01/21/09 (amortizing) 83 --
5.35% note due 10/08/09 (callable 10/10/00) 5,000 --
------- -------
Total $48,183 $36,500
======= =======
</TABLE>
All borrowings from the FHLB are secured by the Bank's stock in the FHLB and a
blanket lien on "qualified collateral" defined principally as 90% of the market
value of U.S. Government and Agency obligations and 75% of the carrying value of
certain residential mortgage loans. Unused term borrowing capacity with the FHLB
at December 31, 1999, 1998 and 1997 was $221.0 million, $241.6 million and
$236.7 million, respectively. In addition, the Bank has a short-term line of
credit with the FHLB. Unused borrowing capacity under this line was $11.2
million, $11.2 million and $9.0 million at December 31, 1999, 1998 and 1997,
respectively. As one requirement of its borrowings, the Bank is required to
invest in the common stock of the FHLB in an amount at least equal to five
percent of its outstanding borrowings from the FHLB. As and when such stock is
redeemed, the Bank would receive from the FHLB an amount equal to the par value
of the stock. As of December 31, 1999, the Bank's FHLB stock holdings, recorded
at cost, were $3.7 million.
(12) OTHER BORROWINGS
The Bank utilizes term reverse repurchase agreements as an alternative source of
long-term funds. These agreements are treated as financings. The obligation to
repurchase the identical securities that were sold is reflected as a liability
and the securities remain as assets. The securities underlying this agreement
are U.S. Agency securities and are held by a third party custodian in a special
custody account. Information concerning this term repurchase agreement is as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1999 1998
------ ------
(In thousands)
<S> <C> <C>
Outstanding at end of year $4,750 $4,750
Maturity date 6/29/01 6/29/01
Outstanding collateralized by securities with:
Amortized cost 5,000 5,000
Market value 4,863 5,053
Average outstanding for the year 4,750 2,421
Maximum outstanding at any month end 4,750 4,750
Weighted average rate at end of year 5.83% 5.83%
Weighted average rate paid for the year 5.83% 5.83%
</TABLE>
38 BankRI 1999
<PAGE> 57
BANK RHODE ISLAND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(13) INCOME TAXES
The components of income tax expense are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1999 1998 1997
------- ------- -------
(In thousands)
<S> <C> <C> <C>
CURRENT EXPENSE:
Federal $ 3,011 $ 2,441 $ 1,452
State 96 173 67
------- ------- -------
Total current expense 3,107 2,614 1,519
======= ======= =======
DEFERRED EXPENSE (BENEFIT):
Federal (659) (460) 356
State -- (132) 49
Total deferred expense (benefit) (659) (592) 405
------- ------- -------
Total income tax expense $ 2,448 $ 2,022 $ 1,924
======= ======= =======
</TABLE>
The difference between the statutory federal income tax rate and the effective
federal income tax rate is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1999 1998 1997
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Statutory federal income tax rate 34.0% 34.0% 34.0%
Increase (decrease) resulting from:
State income tax, net of federal tax benefit 0.9% 0.5% 1.4%
Other, net 0.5% -- % -- %
---- ---- ----
Effective combined federal and state income tax rate 35.4% 34.5% 35.4%
==== ==== ====
</TABLE>
The components of gross deferred tax assets and gross deferred tax liabilities
are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1999 1998
------- -------
(In thousands)
<S> <C> <C>
GROSS DEFERRED TAX ASSETS:
Allowance for loan losses $ 1,537 $ 1,160
Organizational costs 61 68
Unrealized loss on securities available for sale 897 --
Other 223 250
------- -------
Total gross deferred tax assets 2,718 1,478
------- -------
GROSS DEFERRED TAX LIABILITIES:
Purchase accounting adjustments (1,143) (1,459)
Unrealized gain on securities available for sale -- (146)
------- -------
Total gross deferred tax liabilities (1,143) (1,605)
------- -------
Net deferred tax asset/(liability) $ 1,575 $ (127)
======= =======
</TABLE>
It is management's belief, that it is more likely than not, that the reversal of
deferred tax liabilities and results of future operations will generate
sufficient taxable income to realize the deferred tax assets. In addition, the
Bank's net deferred tax asset is supported by recoverable income taxes.
Therefore, no valuation allowance was necessary at December 31, 1999, 1998 or
1997 for the deferred tax assets. It should be noted, however, that factors
beyond management's control, such as the general state of the economy and real
estate values, can affect future levels of taxable income and that no assurance
can be given that sufficient taxable income will be generated to fully absorb
gross deductible temporary differences.
BankRI 1999 39
<PAGE> 58
BANK RHODE ISLAND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(14) EMPLOYEE BENEFITS
Employee 401(k) Plan
The Bank maintains a 401(k) Plan (the "Plan") which qualifies as a tax exempt
plan and trust under Sections 401 and 501 of the Internal Revenue Code.
Generally, Bank employees who are at least twenty-one (21) years of age and have
completed one year of service with the Bank, are eligible to participate in the
Plan. Expenses associated with the Plan were $164,000, $139,000 and $128,000 for
the years ended December 31, 1999, 1998 and 1997, respectively.
Nonqualified Deferred Compensation Plan
The Bank also maintains a Nonqualified Deferred Compensation Plan (the
"Nonqualified Plan") under which certain participants may contribute the amounts
they are precluded from contributing to the Bank's 401(k) Plan because of the
qualified plan limitations, and additional compensation deferrals which may be
advantageous for personal income tax or other planning reasons. Expenses
associated with the Nonqualified Plan were $20,000, $12,000 and $8,000 for the
years ended December 31, 1999, 1998 and 1997, respectively.
Supplemental Executive Retirement Plan
During 1999, the Bank established a Supplemental Executive Retirement Plan (the
"SERP") for certain of its senior executives under which participants designated
by the Board of Directors are entitled to an annual retirement benefit. Expenses
associated with the SERP were $40,000 for the year ended December 31, 1999.
Employee Stock Option Plan
The Bank maintains an Incentive and Nonqualified Stock Option Plan (the
"Employee Stock Option Plan") under which it may grant options on its common
stock to officers and key employees. At the Annual Meeting of Shareholders held
on May 20, 1998, an amendment to the Employee Stock Option Plan was adopted to
increase the number of shares available for issuance from 200,000 to 385,000.
Options are granted at an exercise price equal to the market value of the stock
on the date of the grant and vest over a three to five year period. Unless
exercised, options granted under the Employee Stock Option Plan expire ten years
from the date granted.
The following table summarizes changes in options outstandings under the
Employee Stock Option Plan during 1997, 1998 and 1999 and options exercisable at
December 31, 1999:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED
UNEXERCISED AVERAGE
OPTIONS OPTION PRICE
----------- ------------
<S> <C> <C>
Options outstanding at December 31, 1996 81,000 $ 10.00
Granted 94,650 10.00
Exercised (200) 10.00
Forfeited/Canceled (20,300) 10.00
-------
Options outstanding at December 31, 1997 155,150 10.00
-------
Granted 50,500 12.74
Exercised (3,400) 10.00
Forfeited/Canceled (16,300) 10.69
-------
Options outstanding at December 31, 1998 185,950 10.68
-------
Granted 85,000 10.63
Exercised (4,950) 10.00
Forfeited/Canceled (26,050) 10.60
-------
Options outstanding at December 31, 1999 239,950 10.69
======= =========
Options exercisable at December 31, 1999 134,942 $ 10.46
======= =========
</TABLE>
40 BankRI 1999
<PAGE> 59
BANK RHODE ISLAND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Director Stock Plan
During 1998, the Bank established a Non-Employee Director Stock Plan (the
"Director Stock Plan") under which it may grant up to 40,000 options on its
common stock to non-employee directors. Each non-employee director elected at
the 1998 shareholders meeting received an option for 1,500 shares and each new
non-employee director elected subsequently will receive an option for 1,000
shares. Non-employee directors will also receive an annual option grant for 500
shares as of the date of each annual meeting of shareholders. Options are
granted at an exercise price equal to the market value of the stock on the date
of the grant and vest six months after the grant date. Unless exercised, options
granted under the Director Stock Plan expire ten years from the date granted.
The following table summarizes changes in options outstanding under the Director
Stock Plan during 1998 and 1999 and options exercisable at December 31, 1999:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED
UNEXERCISED AVERAGE
OPTIONS OPTION PRICE
----------- ------------
<S> <C> <C>
Options at January 1, 1998 -- $ --
Granted 16,500 17.19
Exercised -- --
Forfeited/Canceled -- --
------
Options at December 31, 1998 16,500 17.19
------
Granted 5,500 10.88
Exercised -- --
Forfeited/Canceled -- --
------
Options at December 31, 1999 22,000 15.61
====== =======
Options exercisable at December 31, 1999 22,000 $ 15.61
====== =======
</TABLE>
APB 25 and related interpretations have been applied to account for these plans.
Accordingly, no compensation cost has been charged against income. Had
compensation cost been determined consistent with SFAS 123, the Bank's net
income and earnings per share would have been reduced to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1999 1998 1997
------- ------- --------
<S> <C> <C> <C>
NET INCOME (IN THOUSANDS):
As reported $ 4,362 $ 3,834 $ 3,510
Pro forma 4,228 3,678 3,411
EARNINGS PER COMMON SHARE:
Basic
As reported $ 1.15 $ 0.87 $ 0.75
Pro forma 1.11 0.82 0.71
Diluted
As reported $ 1.14 $ 0.85 $ 0.75
Pro forma 1.11 0.80 0.71
</TABLE>
The fair value of each option granted was estimated as of the date of the grant
using the Black-Scholes option-pricing model with the following weighted average
assumptions: expected life of 7 years; expected volatility of 25% in 1999 and
1998, 10% in 1997; average risk-free interest rates of 4.84% in 1999, 5.52% in
1998 and 6.51% in 1997 and a dividend rate of 3.78% in 1999. No dividends on
common stock were assumed during 1998 and 1997 for purposes of this analysis.
BankRI 1999 41
<PAGE> 60
BANK RHODE ISLAND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(15) OTHER OPERATING EXPENSES
Major components of other operating expenses are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1999 1998 1997
------ ------ ------
(In thousands)
<S> <C> <C> <C>
Forms and supplies $ 287 $ 327 $ 384
Telephone 424 422 396
Postage 207 206 209
Insurance 132 166 192
Other 937 764 687
------ ------ ------
Total $1,987 $1,885 $1,868
====== ====== ======
</TABLE>
(16) FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Bank is party to financial instruments with off-balance sheet risk in the
normal course of business to meet the financing needs of its customers. These
financial instruments include commitments to originate loans and letters of
credit. The instruments involve, to varying degrees, elements of credit and
interest rate risk in excess of the amount recognized in the balance sheet. The
contract or notional amounts of those instruments reflect the extent of
involvement the Bank has in particular classes of financial instruments.
The Bank's exposure to credit loss in the event of nonperformance by the other
party to the financial instrument for loan commitments and letters of credit is
represented by the contractual amount of those instruments. The Bank uses the
same credit policies in making commitments and conditional obligations as it
does for on-balance sheet instruments.
Financial instruments with off-balance sheet risk are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1999 1998
-------- --------
(In thousands)
<S> <C> <C>
Commitments to originate loans $ 12,403 $ 7,477
Unused lines of credit 107,552 74,571
Letters of credit 1,364 1,004
</TABLE>
Commitments to originate loans and unused lines of credit are agreements to lend
to a customer provided there is no violation of any condition established in the
contract. Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since certain commitments may expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Bank evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by the Bank upon extension of credit, is based on management's
credit evaluation of the borrower.
Letters of credit are conditional commitments issued by the Bank to guarantee
the performance by a customer to a third party. The credit risk involved in
issuing letters of credit is essentially the same as that involved in extending
loan facilities to customers.
42 BankRI 1999
<PAGE> 61
BANK RHODE ISLAND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(17) FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial instruments is
made in accordance with the requirements of SFAS 107, "Disclosures About Fair
Value of Financial Instruments." The estimated fair value amounts have been
determined by using available quoted market information or other appropriate
valuation methodologies. The aggregate fair value amounts presented are in
accordance with SFAS 107 guidelines but do not represent the underlying value of
the Bank taken as a whole.
The fair value estimates provided are made at a specific point in time, based on
relevant market information and the characteristics of the financial instrument.
The estimates do not provide for any premiums or discounts that could result
from concentrations of ownership of a financial instrument. Because no active
market exists for some of the Bank's financial instruments, certain fair value
estimates are based on subjective judgments regarding current economic
conditions, risk characteristics of the financial instruments, future expected
loss experience, prepayment assumptions and other factors. The resulting
estimates involve uncertainties and therefore cannot be determined with
precision. Changes made to any of the underlying assumptions could significantly
affect the estimates.
The book values and estimated fair values for the Bank's financial instruments
are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------------- -----------------------
BOOK ESTIMATED BOOK ESTIMATED
VALUE FAIR VALUE VALUE FAIR VALUE
-------- ---------- ---------- ---------
(In thousands)
<S> <C> <C> <C> <C>
ASSETS:
Cash and due from banks $ 17,636 $ 17,636 $ 13,436 $ 13,436
Federal funds sold 6,850 6,850 8,575 8,575
Investment securities 50,503 50,503 39,703 39,703
Mortgage-backed securities 74,793 74,793 79,924 79,924
Stock in the FHLB 3,704 3,704 3,345 3,345
Loans receivable, net of allowance for loan losses:
Residential mortgage loans 235,323 233,155 256,481 260,983
Commercial loans 171,674 173,459 132,086 136,516
Consumer and other loans 46,280 46,380 37,817 38,883
Accrued interest receivable 4,670 4,670 4,729 4,729
LIABILITIES:
Deposits:
Demand deposit accounts 67,844 67,844 60,556 60,556
NOW accounts 27,456 27,456 26,899 26,899
Money market accounts 16,073 16,073 15,599 15,599
Savings accounts 173,692 173,692 163,118 163,118
Certificate of deposit accounts 228,351 227,805 234,541 235,925
Overnight and short-term borrowings 14,978 14,978 4,262 4,262
FHLB borrowings 48,183 47,658 36,500 36,930
Other borrowings 4,750 4,673 4,750 4,799
Accrued interest payable 1,217 1,217 1,221 1,221
</TABLE>
Cash and due from banks
The carrying values reported in the balance sheet for cash and due from banks
approximates the fair value because of the short maturity of these instruments.
Federal funds sold
The carrying values reported in the balance sheet for federal funds sold
approximates the fair value because of the short maturity of these instruments.
BankRI 1999 43
<PAGE> 62
BANK RHODE ISLAND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Investment and mortgage-backed securities
The fair values presented for investment and mortgage-backed securities are
based on quoted bid prices received from securities dealers.
Stock in the Federal Home Loan Bank of Boston
The fair value of stock in the FHLB equals the carrying value reported in the
balance sheet. This stock is redeemable at full par value only by the FHLB.
Loans receivable
Fair value estimates are based on loans with similar financial characteristics.
Loans have been segregated by homogenous groups into residential mortgage,
commercial, and consumer and other loans. Fair values are estimated by
discounting contractual cash flows, adjusted for prepayment estimates, using
discount rates approximately equal to current market rates on loans with similar
characteristics and maturities. The incremental credit risk for nonperforming
loans has been considered in the determination of the fair value of loans.
Deposits
The fair values reported for demand deposit, NOW, money market, and savings
accounts are equal to their respective book values reported on the balance
sheet. The fair values disclosed are, by definition, equal to the amount payable
on demand at the reporting date. The fair values reported for certificate of
deposit accounts are based on the discounted value of contractual cash flows.
The discount rates used are representative of approximate rates currently
offered on certificate of deposit accounts with similar remaining maturities.
Overnight and short-term borrowings
The carrying values reported in the balance sheet for overnight and short-term
borrowings approximates the fair value because of the short maturity of these
instruments.
Federal Home Loan Bank of Boston borrowings
The fair values reported for FHLB borrowings are based on the discounted value
of contractual cash flows. The discount rates used are representative of
approximate rates currently offered on borrowings with similar remaining
maturities.
Other borrowings
The fair values reported for other borrowings are based on the discounted value
of contractual cash flows. The discount rates used are representative of
approximate rates currently offered on borrowings with similar remaining
maturities.
Accrued interest receivable and payable
The carrying values for accrued interest receivable and payable approximates
fair value because of the short-term nature of these financial instruments.
Financial instruments with off-balance sheet risk
Since the Bank's commitments to originate or purchase loans, and for unused
lines and outstanding letters of credit, are primarily at market interest rates,
there is no fair value adjustment.
44 BankRI 1999
<PAGE> 63
BANK RHODE ISLAND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(18) SHAREHOLDERS' EQUITY
Current FDIC regulations regarding capital requirements of FDIC-insured
institutions require banks to maintain a leverage capital ratio of at least 3% -
4% and a qualifying total capital to risk-weighted assets of at least 8%, of
which at least 4% must be Tier I capital. Tier I capital is defined as common
equity and retained earnings, less goodwill, and is compared to total
risk-weighted assets. Assets and off-balance-sheet items are assigned to four
risk categories, each with appropriate weights. The resulting capital ratio
represents Tier I capital as a percentage of risk-weighted assets and
off-balance sheet items. The risk-based capital rules are designed to make
regulatory capital more sensitive to differences in risk profiles among banks
and bank holding companies, to account for off-balance sheet exposure and to
minimize disincentives for holding liquid assets. At December 31, 1999 and 1998,
the Bank was in compliance with these regulatory capital regulations.
The Bank's actual and required capital amounts and ratios were as follows:
<TABLE>
<CAPTION>
TO BE CONSIDERED
FOR CAPITAL "WELL CAPITALIZED"
ACTUAL ADEQUACY PURPOSE BY THE FDIC
------------------ ------------------- --------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------- ----- ------- ----- ------- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
AT DECEMBER 31, 1999:
Tier I capital (to average assets) $36,323 5.88% $18,537 3.00% $30,896 5.00%
Tier I capital (to risk-weighted assets) 36,323 9.70% 14,974 4.00% 22,461 6.00%
Total capital (to risk-weighted assets) 41,015 10.96% 29,948 8.00% 37,435 10.00%
AT DECEMBER 31, 1998:
Tier I capital (to average assets) $33,053 5.72% $17,351 3.00% $28,918 5.00%
Tier I capital (to risk-weighted assets) 33,053 9.60% 13,775 4.00% 20,663 6.00%
Total capital (to risk-weighted assets) 37,367 10.85% 27,551 8.00% 34,439 10.00%
</TABLE>
Warrants. In connection with its acquisition of certain assets and assumption of
certain liabilities from Fleet National Bank of Connecticut in 1996, the Bank
issued to Fleet Financial Group, Inc. a warrant to acquire 136,315 shares of
Common Stock of the Bank. The per share exercise price of the warrant is $10.00.
The warrant expires on March 22, 2006, and may be exercised, in whole or in
part, at any time prior to its expiration. Upon the occurrence of a change of
control event the holders of the warrant may sell the warrant to the Bank for an
amount that is equal to the product of the number of shares represented by the
warrant being sold and the difference between the exercise price of the warrant
and the fair market value of the consideration per share received in the change
of control transaction.
BankRI 1999 45
<PAGE> 64
BANK RHODE ISLAND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(19) EARNINGS PER SHARE
The following table is a reconciliation of basic EPS and diluted EPS:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
BASIC EPS COMPUTATION:
Numerator (in thousands):
Net income $ 4,362 $ 3,834 $ 3,510
Preferred dividends (88) (793) (1,413)
----------- ----------- -----------
Net income available to common shareholders $ 4,274 $ 3,041 $ 2,097
=========== =========== ===========
Denominator:
Common shares outstanding 3,727,010 3,506,573 2,800,061
Stock options -- -- --
Warrants -- -- --
----------- ----------- -----------
Total shares 3,727,010 3,506,573 2,800,061
=========== =========== ===========
Basic EPS $ 1.15 $ 0.87 $ 0.75
=========== =========== ===========
DILUTED EPS COMPUTATION:
Numerator (in thousands):
Net income $ 4,362 $ 3,834 $ 3,510
Preferred dividends (88) (793) (1,413)
----------- ----------- -----------
Net income available to common shareholders $ 4,274 $ 3,041 $ 2,097
=========== =========== ===========
Denominator:
Common shares outstanding 3,727,010 3,506,573 2,800,061
Stock options 7,233 36,303 2,933
Warrants 7,535 41,944 2,695
----------- ----------- -----------
Total shares 3,741,778 3,584,820 2,805,689
=========== =========== ===========
Diluted EPS $ 1.14 $ 0.85 $ 0.75
=========== =========== ===========
</TABLE>
(20) REGULATION AND LITIGATION
The Bank is subject to extensive regulation and examination by the Rhode Island
Division of Banking and by the FDIC, which insures its deposits to the maximum
extent permitted by law, and also to certain requirements established by the
Federal Reserve Board. The federal and state laws and regulations which are
applicable to banks regulate, among other things, the scope of their business,
their investments, their reserves against deposits, the timing of the
availability of deposited funds and the nature and amount of and collateral for
certain loans. The laws and regulations governing the Bank generally have been
promulgated to protect depositors and not for the purpose of protecting
shareholders. Among other things, bank regulatory authorities have the right to
restrict the payment of dividends by banks to shareholders.
The Bank is involved in routine legal proceedings occurring in the ordinary
course of business. In the opinion of management, final disposition of these
lawsuits will not have a material adverse effect on the consolidated financial
condition or results of operations of the Bank.
46 BankRI 1999
<PAGE> 65
BANK RHODE ISLAND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(21) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
1999 QUARTER ENDED
-----------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Interest income $ 9,961 $10,226 $10,500 $10,964
Interest expense 4,854 4,887 4,858 5,001
------- ------- ------- -------
Net interest income 5,107 5,339 5,642 5,963
Provision for loan losses 225 225 225 325
------- ------- ------- -------
Net interest income after provision for loan losses 4,882 5,114 5,417 5,638
Noninterest income 654 744 921 903
Noninterest expense 3,995 4,242 4,615 4,502
------- ------- ------- -------
Income before taxes and accounting principle change 1,541 1,616 1,723 2,039
Income taxes 542 567 592 747
------- ------- ------- -------
Net income before accounting principle change 999 1,049 1,131 1,292
Cumulative effect of accounting principle change, net 109 -- -- --
------- ------- ------- -------
Net income 890 1,049 1,131 1,292
Preferred dividends 44 44 -- --
------- ------- ------- -------
Net income available to common shareholders $ 846 $ 1,005 $ 1,131 $ 1,292
======= ======= ======= =======
Basic EPS:
Income before accounting principle change $ 0.26 $ 0.27 $ 0.30 $ 0.35
Cumulative effect of accounting principle change, net (0.03) -- -- --
------- ------- ------- -------
Net income $ 0.23 $ 0.27 $ 0.30 $ 0.35
======= ======= ======= =======
Diluted EPS:
Income before accounting principle change $ 0.26 $ 0.27 $ 0.30 $ 0.35
Cumulative effect of accounting principle change, net (0.03) -- -- --
------- ------- ------- -------
Net income $ 0.23 $ 0.27 $ 0.30 $ 0.35
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
1998 QUARTER ENDED
----------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Interest income $ 9,800 $ 9,909 $10,276 $10,049
Interest expense 4,776 4,887 5,156 5,026
------- ------- ------- -------
Net interest income 5,024 5,022 5,120 5,023
Provision for loan losses 250 407 180 180
------- ------- ------- -------
Net interest income after provision for loan losses 4,774 4,615 4,940 4,843
Noninterest income 529 827 663 708
Noninterest expense 3,952 4,133 4,062 3,896
------- ------- ------- -------
Income before taxes 1,351 1,309 1,541 1,655
Income taxes 462 449 538 573
------- ------- ------- -------
Net income 889 860 1,003 1,082
Preferred dividends 455 232 62 44
------- ------- ------- -------
Net income available to common shareholders $ 434 $ 628 $ 941 $ 1,038
======= ======= ======= =======
Basis EPS $ 0.15 $ 0.17 $ 0.25 $ 0.28
Diluted EPS $ 0.15 $ 0.16 $ 0.25 $ 0.28
</TABLE>
BankRI 1999 47
<PAGE> 66
LOCATIONS
(Full Service Drive-up ATM)
Coventry Shoppers Park
Coventry, RI 02816
1047 Park Avenue
Cranston, RI 02910
383 Atwood Avenue
Cranston, RI 02910
195 Taunton Avenue
East Providence, RI 02914
999 South Broadway
East Providence, RI 02914
1440 Hartford Avenue
Johnston, RI 02919
One Turks Head Place
Providence, RI 02903
137 Pitman Street
Providence, RI 02906
445 Putnam Pike
Smithfield, RI 02917
1300 Warwick Avenue
Warwick, RI 02888
1062 Centerville Road
Warwick, RI 02886
233 Lambert Lind Highway
Warwick, RI 02886
2975 West Shore Road
Warwick, RI 02886
1175 Cumberland Hill Road
Woonsocket, RI 02895
INVESTOR INFORMATION
The Bank Rhode Island 1999 annual meeting will be held on Wednesday, May 17,
2000 at 10:00 a.m. at the Westin Hotel, Providence, RI.
Requests for information, including copies of the Bank's annual report, may be
obtained at no charge by writing to:
Investor Relations Department
Bank Rhode Island
One Turks Head Place
Providence, RI 02903
<PAGE> 67
BANKRI
One Turks Head Place
Providence, RI 02903
401-456-5000
<PAGE> 1
Exhibit 23.2
Independent Auditors Consent
The Board of Directors and Stockholders
Bank Rhode Island
We consent to incorporation by reference in Registration Statement on Form S-4
of Bank Rhode Island of our report dated January 19, 2000, relating to the
consolidated balance sheets of Bank Rhode Island and subsidiaries as of
December 31, 1999 and 1998, and the related consolidated statements of
operations, changes in shareholders' equity and cash flows for each of the
years in the three-year period ended December 31, 1999, which report appears
in the Annual Report.
/s/KPMG LLP
Boston, Massachusetts
March 30, 2000
