FORM 10-KSB
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Annual Report
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended: December 31, l997
-----------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________________to__________________
Commission file number 33-22224-B
-----------------
Beverly National Corporation
----------------------------
(Name of small business in its charter)
A Massachusetts Corporation 04-2832201
-----------
(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification No.)
240 Cabot Street Beverly, Massachusetts 0l9l5
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code (978) 922-2l00
--------------
Securities registered pursuant to Section l2 (b) of the Act:
Title of each class Name of each exchange on which registered
None
- ------------------- -----------------------------------------
Securities registered pursuant to l2(g) of the Act:
None
- ------------------- -----------------------------------------
(Title of class)
<PAGE>
Check whether the issuer (l) filed all reports required to be filed by Section
l3 or l5 (d) of the Securities Exchange Act during the past l2 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes X No
------ ------
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB.[ ]. N/A
State issuer's revenues for its most recent fiscal year. $16,513,549
-----------
State the aggregate market value of the voting and non-voting common equity
held by non-affiliates computed by reference to the price at which the common
equity was sold, or the average bid and asked prices of such common equity, as
of a specified date with in the past 60 days. (See definition of affiliate in
Rule 12b-2 of the Exchange Act). $24,332,256
-----------
Note: If determining whether a person is an affiliate will involve an
unreasonable effort and expense, the issuer may calculate the aggregate market
value of the common equity held by non-affiliates on the basis of reasonable
assumptions, if the assumptions are stated.
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date. 765,537
-------
DOCUMENTS INCORPORATED BY REFERENCE
NONE
<PAGE>
TABLE OF CONTENTS
-----------------
PART I
- ------
ITEM 1 - DESCRIPTION OF BUSINESS 4
ITEM 2 - DESCRIPTION OF PROPERTIES 20
ITEM 3 - LEGAL PROCEEDINGS 20
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS 21
PART II
- -------
ITEM 5 - MARKET FOR COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS 21
ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS 22
ITEM 7 - FINANCIAL STATEMENTS 31
ITEM 8 - CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE 68
PART III
- --------
ITEM 9 - DIRECTORS, EXECUTIVE OFFICERS 68
ITEM 10 - EXECUTIVE COMPENSATION 69
ITEM 11 - SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT 76
ITEM 12 - CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS 79
ITEM 13 - EXHIBITS, LISTS AND REPORTS ON
FORM 8-K 82
SIGNATURES 79
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(d) OF THE EXCHANGE ACT BY NON-REPORTING ISSUERS
<PAGE>
PART I
------
ITEM l. DESCRIPTION OF BUSINESS
Beverly National Corporation, a Massachusetts corporation ("Corporation" or
"Holding Company"), is a registered bank holding company under the Bank
Holding Company Act of l956, as amended. The Holding Company has one banking
subsidiary, Beverly National Bank ("Bank"), and also owns l00% of a
Massachusetts Business Trust, Cabot Street Realty Trust. The principal
executive office of the Corporation is located at 240 Cabot Street, Beverly,
Massachusetts 0l9l5, and the telephone number is (978) 922-2100. The Holding
Company owns all outstanding shares of the Bank and Cabot Street Realty Trust.
The Bank is engaged in substantially all of the business operations customarily
conducted by an independent commercial bank in Massachusetts. Banking services
offered include acceptance of checking, savings and time deposits and the
making of commercial, real estate, installment and other loans. The Bank also
offers a full range of trust services, financial planning, official checks,
traveler's checks, safe deposit boxes, automatic teller machines and customary
banking services to its customers.
The business of the Bank is not significantly effected by seasonal factors.
In the last five years the Bank derived its operating income from the following
sources:
% of Operating Income
----------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
Interest and fees on loans 69% 68% 63% 58% 60%
Interest and dividends on
Securities and Federal Funds
Sold and Certificate of Deposit 18 18 23 28 26
Charges, fees and other sources 13 14 14 14 14
---- ---- ---- ---- ----
100% 100% 100% 100% 100%
==== ==== ==== ==== ====
Competition
- -----------
In Massachusetts generally, and in the Bank's primary service area, there is
intense competition in the commercial banking industry. In addition to
commercial banks, the Bank competes with other financial institutions such as
savings banks, savings and loan associations and credit unions in obtaining
lendable funds and in making loans. In the Bank's primary service area there
are two national banks, one Massachusetts trust company, five savings banks,
two co-operative banks and one finance company. Included among those financial
institutions are regional banks such as Bank Boston and Fleet Bank
Massachusetts.
<PAGE>
Regulation of the Corporation
- -----------------------------
The Corporation is a registered bank holding company under the Bank Holding
Company Act of l956, as amended. It is subject to the supervision and
examination of the Board of Governors of the Federal Reserve System (the
"Federal Reserve Board") and files with the Federal Reserve Board the reports
as required under the Bank Holding Company Act.
The Bank Holding Company Act generally requires prior approval by the Federal
Reserve Board of the acquisition by the Corporation of substantially all the
assets or more than five percent of the voting stock of any bank. The Bank
Holding Company Act also allows the Federal Reserve Board to determine (by
order or by regulation) what activities are so closely related to banking as to
be a proper incident of banking, and thus, whether the Corporation can engage
in such activities. The Bank Holding Company Act prohibits the Corporation and
the Bank from engaging in certain tie-in arrangements in connection with any
extension of credit, sale of property or furnishing of services.
Recently adopted Federal legislation will soon permit adequately capitalized
bank holding companies to venture across state lines to offer banking services
through bank subsidiaries to a wider geographic market. In light of this
change in the law, it will be possible for large super-regional organizations
to enter many new markets including the market served by the Bank. It is not
possible to assess what impact these changes in the regulatory scheme will have
on the Corporation or the Bank.
The Federal Reserve Act imposes certain restrictions on loans by the Bank to
the Corporation and certain other activities, on investments, in their stock or
securities, and on the taking by the Bank of such stock or securities as
collateral security for loans to any borrower.
Under the Bank Holding Company Act of l956, as amended and the regulations of
the Federal Reserve System promulgated thereunder, no corporation may become a
bank holding company as defined therein, without prior approval of the Board of
Governors of the Federal Reserve System. The Corporation received the approval
of the Board of Governors to become a bank holding company on May 29, l984.
The Corporation will also have to secure prior approval of the Board of
Governors of the Federal Reserve System if it wishes to acquire voting shares
of any other bank, if after such acquisition it would own or control more than
5% of the voting shares of such bank. The Corporation is also limited under the
Bank Holding Company Act of l956, as amended, as to the types of business in
which it may engage.
The Corporation, as a bank holding company, is subject to the Massachusetts
Bank Holding Company laws.
<PAGE>
The regulations of the Federal Reserve System, promulgated pursuant to Bank
Holding Company Act require bank holding companies to provide the Federal
Reserve Board with written notice before purchasing or redeeming equity
securities if the gross consideration for the purchase or redemption, when
aggregated with the net consideration paid by the Company for all such
purchases or redemptions during the preceding twelve months, is equal to 10% or
more of the company's consolidated net worth. For purposes of Regulation Y,
"net consideration" is the gross consideration paid by a company for all of its
equity securities purchased or redeemed during the period, minus the gross
consideration received for all of its equity securities sold during the period
other than as part of a new issue. However, a bank holding company need not
obtain Federal Reserve Board approval of any equity security redemption when:
(i) the bank holding company's capital ratios exceed the threshold established
for "well-capitalized" state member banks before and immediately after the
redemption; (ii) the bank holding company is well-managed; and (iii) the bank
holding company is not the subject of any unresolved supervisory issues.
Regulation of the Bank
- ----------------------
The Bank is subject to regulation by the Office of the Comptroller of the
Currency, the Board of Governors of the Federal Reserve System and the Federal
Deposit Insurance Corporation. The business of the Bank is subject in certain
areas to state laws applicable to banks.
Employees
- ---------
The Corporation and the Bank employ 101 officers and employees, of which 79%
are full time.
<PAGE>
Distribution of Assets, Liabilities and Stockholders' Equity:
- -------------------------------------------------------------
Interest Rates and Interest Differential
- ----------------------------------------
The following tables present the condensed average balance sheets and the
components of net interest differential for the two years ended December 31,
1997 and 1996. The total dollar amount of interest income from earning assets
and the resultant yields are calculated on a tax equivalent basis.
1997
-----------------------------------
Average Interest Yield/
Balance Inc./Exp. Rate
-----------------------------------
ASSETS
Federal funds Sold $ 10,470,822 $ 564,714 5.39%
Investment securities 19,994,670 1,233,482 6.17%
Securities available for sale 19,428,034 1,164,927 6.00%
Loans, net of unearned income 124,367,629 11,428,985 9.19%
------------ ----------- -----
Total earning assets 174,261,155 14,392,108 8.26%
------------ ----------- -----
Other non interest-earning assets $ 14,715,058
------------
Total average assets $188,976,213
============
LIABILITIES
Savings deposits $ 37,641,284 $ 1,133,582 3.01%
NOW accounts 29,496,018 471,221 1.60%
Money market accounts 20,671,361 653,027 3.16%
Time deposits $100,000 and over 4,611,490 261,092 5.66%
Other time deposits 44,172,508 2,479,397 5.61%
Short-term borrowings 0 0 0%
Notes payable 690,627 34,998 5.07%
------------ ----------- -----
Total interest-bearing liabilites 137,283,288 5,033,317 3.67%
------------ ----------- -----
Non interest-bearing deposits 34,375,951
Other non interest-bearing
liabilites 1,441,323
Stockholders' equity 15,875,651
------------
Total average liabilities and
stockholders' equity $188,976,213
============
Net interest income 9,358,791
=========
Net yield on interest-earning assets 5.37%
=====
<PAGE>
(1) Interest income and yield are stated on a fully tax-equivalent basis. The
total amount of adjustment is $18,902. A federal tax rate of 34% was
used in performing this calculation.
(2) Includes loan fees of $258,451.
(3) Includes non-accruing loan balances and interest received on non-accruing
loans.
<PAGE>
Distribution of Assets, Liabilities and Stockholders' Equity:
- -------------------------------------------------------------
Interest Rates and Interest Differential(Continued)
- ---------------------------------------------------
1996
-----------------------------------
Average Interest Yield/
Balance Inc./Exp. Rate
-----------------------------------
ASSETS
Federal funds Sold $ 9,530,601 $ 497,253 5.22%
Investment securities 27,728,937 1,572,490 5.67%
Securities available for sale 12,435,572 706,134 5.68%
Loans, net of unearned income 110,537,761 10,204,645 9.23%
------------ ----------- -----
Total earning assets 160,232,871 12,980,522 8.10%
------------ ----------- -----
Other non interest-earning assets $ 13,148,160
------------
Total average assets $173,381,031
============
LIABILITIES
Savings deposits $ 36,518,157 $ 1,102,811 3.02%
NOW accounts 28,586,728 468,296 1.64%
Money market accounts 21,302,347 670,187 3.15%
Time deposits $100,000 and over 4,198,562 235,271 5.60%
Other time deposits 35,359,559 1,967,671 5.56%
Short-term borrowings 0 0 0%
Notes payable 660,227 59,338 8.99%
------------ ----------- -----
Total interest-bearing liabilites 126,625,580 4,503,574 3.56%
------------ ----------- -----
Non interest-bearing deposits 31,040,004
Other non interest-bearing
liabilites 1,517,004
Stockholders' equity 14,197,745
------------
Total average liabilities and
stockholders' equity $173,381,031
============
Net interest income 8,476,948
=========
Net yield on interest-earning assets 5.29%
=====
<PAGE>
Distribution of Assets, Liabilities and Stockholders' Equity:
- -------------------------------------------------------------
Interest Rates and Interest Differential (Continued)
- ----------------------------------------------------
(1) Interest income and yield are stated on a fully tax-equivalent basis.
The total amount of adjustment is $14,197. A federal tax rate of 34% was
used in performing this calculation.
(2) Includes loan fees of $215,954.
(3) Includes non-accruing loan balances and interest received on non-accruing
loans.
<PAGE>
The following table shows, for the periods indicated, the dollar amount of
changes in interest income and interest expense resulting from changes in
volume and interest rates.
1997 as compared to 1996
----------------------------------
Due to a change in:
Volume(1) Rate(1) Total
----------------------------------
Interest income from:
Federal funds sold $ 50,718 $ 16,743 $ 67,461
Investment securities (468,256) 129,248 (339,008)
Securities available for sale 417,011 41,782 458,793
Loans, net of unearned interest 1,268,821 (44,481) 1,224,340
---------- -------- ----------
Total $1,268,294 $143,292 $1,411,586
---------- -------- ----------
Interest expense on:
Savings deposits $ 30,891 $ (120) $ 30,771
NOW accounts 14,600 (11,675) 2,925
Money market accounts (19,347) 2,187 (17,160)
Time deposits $100,000 and over 23,285 2,536 25,821
Other time 494,620 17,106 511,726
Notes payable 2,619 (26,959) (24,340)
---------- -------- ----------
Total $ 546,668 $(16,925) $ 529,743
---------- -------- ----------
Net interest income $ 721,626 $160,217 $ 881,843
========== ======== ==========
(1) The change in interest attributed to both rate and volume has been
allocated to the changes in the rate and the volume on a pro rated basis.
<PAGE>
1996 as compared to 1995
----------------------------------
Due to a change in:
Volume(1) Rate(1) Total
----------------------------------
Interest income from:
Federal funds sold $ 216,416 $(36,195) $ 180,221
Investment securities (772,855) 106,943 (665,912)
Securities available for sale 116,217 (1,039) 115,178
Loans, net of unearned interest 1,597,849 101,990 1,699,839
---------- -------- ----------
Total $1,157,627 $171,699 $1,329,326
---------- -------- ----------
Interest expense on:
Savings deposits $ 12,996 $(22,878) $ (9,882)
NOW accounts (14,734) 75,360 60,626
Money market accounts (8,909) (35,638) (44,547)
Time deposits $100,000 and over 50,820 6,281 57,101
Other time 328,705 (5,872) 322,833
Short term borrowings (923) 0 (923)
Notes payable (33,852) (2,944) (36,796)
---------- -------- ----------
Total $ 344,103 $ 14,309 $ 348,412
---------- -------- ----------
Net interest income $ 823,524 $157,390 $ 980,914
========== ======== ==========
(1) The change in interest attributed to both rate and volume has been
allocated to the changes in the rate and the volume on a pro rated basis.
<PAGE>
Investment Portfolio
- --------------------
The following table indicates the carrying value of the Corporation's
consolidated investment portfolio at December 31, l997 and 1996:
1997 Carrying Value 1996 Carrying Value
------------------- -------------------
Investments Held to Maturity:
U.S. Treasury securities and
obligations of U.S. Government
corporations and agencies $16,435,914 $22,407,095
Investments Held to Maturity:
Obligations of states and
political subdivisions 449,274 227,373
Investments Held to Maturity:
Other debt securities 300,000 300,000
----------- -----------
$17,185,188 $22,934,468
=========== ===========
Federal Reserve Bank Stock $ 97,500 $ 97,500
=========== ===========
Investments Available for Sale $20,796,287 $17,608,128
=========== ===========
The following table shows the maturities, amortized cost basis and weighted
average yields of the Corporation's consolidated investment in held to
maturity and available for sale securities at December 31, l997. The yields on
state and municipal securities are presented on a tax equivalent basis. A
federal tax rate of 34% was used in performing this calculation.*
After one After five
(In Thousands) Within but within but within After
one year five years ten years ten years
Maturing: Amount Yield Amount Yield Amount Yield Amount Yield
- -------- ------ ----- ------ ----- ------ ----- ------ -----
U.S. Govt.
& Agency
obligations $10,481 5.35% $24,401 6.08% $1,976 6.30%
State and
Political
subdivisions 142 7.85% 42 5.16% 265 6.10% 100 4.62%
Other
securities 300 8.10%
------- ----- ------- ----- ------ ----- ---- -----
$10,623 5.38% $24,443 6.08% $2,541 6.55% $100 4.62%
======= ===== ======= ===== ====== ===== ==== =====
* Federal Reserve Bank Stock not included.
<PAGE>
Non-Accrual, Past Due and Restructured Loans
- --------------------------------------------
It is the policy of the Bank to discontinue the accrual of interest on loans
when, in management's judgment, the collection of the full amount of interest
is considered doubtful. This will generally occur once a loan has become 90
days past due, unless the loan is well secured and in the process of
collection. Restructured loans generally may have a reduced interest rate, an
extension of loan maturity, future benefits for current concessions and a
partial forgiveness of principal or interest. The following table sets forth
information on non-accrual, past due and restructured loans as of December 31,
for each of the years indicated:
(In Thousands) 1997 1996
---- ----
Loans, non-accrual $341 $346
Loans past due 90 days or
more and still accruing 168 0
---- ----
Total $509 $346
==== ====
The amount of interest income recorded during 1997 and 1996 on non-accrual
loans and restructured loans outstanding at December 31, 1997 and 1996
amounted to $1,737 and $16,235, respectively. Had these loans performed in
accordance with their original terms, the amount recorded would have been
$40,929 in 1997 and $37,617 in 1996.
As of December 31, 1997, there were no loans which are not now included above
but where known information about possible credit problems of borrowers which
caused management to have serious doubts as to the ability of such borrowers to
comply with the present loan repayment terms.
There are no industry concentrations in the Bank's loan portfolio, however,
there is a geographical concentration as the Bank's market area is
northeastern Massachusetts.
<PAGE>
Loan Portfolio
- --------------
The following table summarizes the distribution of the Bank's loan portfolio
and mortgages held for sale as of December 31 for the years indicated:
(In Thousands) 1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
Commercial, financial
& agricultural $ 22,184 $ 16,947 $ 16,486 $ 16,323 $ 16,689
Real estate-construction
and land development 6,507 5,847 4,649 3,807 1,622
Real estate-residential 49,517 40,983 34,217 26,037 27,345
Real estate-commericial 44,242 46,150 42,588 35,702 32,591
Consumer 7,652 6,538 5,594 6,481 7,028
Municipal tax-exempt
obligations 2,750 452 465 146 0
Loans to depository
institutions 0 0 0 0 0
Other 513 583 787 176 166
-------- -------- -------- -------- --------
133,365 117,500 104,786 88,672 85,441
Allowance for possible
loan losses (2,163) (2,197) (2,073) (2,075) (2,764)
Deferred loan fees net 19 (86) (97) (40) (13)
Unearned income 0 0 0 (1) (8)
-------- -------- -------- -------- --------
Net Loans $131,221 $115,217 $102,616 $ 86,556 $ 82,656
======== ======== ======== ======== ========
Loan maturities for commercial, financial and agricultural at December 31, l997
were as follows: $15,809,521 due in one year or less; $6,034,708 due after one
year through five years; $340,001 due after five years. Of the Bank's
commercial, financial and agricultural loans due after one year, $3,651,875
have floating or adjustable rates and $2,722,834 have fixed rates.
Loan maturities for real estate construction and land development at December
31, 1997 were as follows: $2,653,610 due in one year or less, $2,222,505 due
after one year through five years and $1,630,602 due after five years. Of
the Bank's real estate construction and land development loans due after one
year, $2,385,491 have adjustable rates and $1,467,616 have fixed rates.
<PAGE>
Summary of Loan Loss Experience
- -------------------------------
The following table summarizes historical data with respect to loans
outstanding, loan losses and recoveries, and the allowance for possible loan
losses at December 31 for each of the years indicated:
(In Thousands) 1997 1996 1995 1994 1993
Average loans outstanding
net of unearned income $124,368 $110,538 $93,227 $82,154 $84,721
======== ======== ======= ======= =======
Allowance for possible loan losses
- ----------------------------------
Balance at beginning of period 2,198 2,073 2,075 2,764 2,555
Charge-offs:
Real estate-Construction 0 0 0 0 0
Real estate-Residential (25) 0 0 (64) 0
Real estate-Commercial (14) (670) (28) (322) (5)
Commercial, Financial &
Agricultural (10) (76) (20) (741) (591)
Consumer (5) (9) (30) (22) (35)
Municpal Tax Exempt Loans 0 0 0 0 0
Loans to Depository Inst. 0 0 0 0 0
Other Loans 0 0 0 0 0
Recoveries:
Real estate-Construction 0 0 0 0 0
Real estate-Residential 0 209 50 0 0
Real estate-Commercial 14 265 10 0 6
Commercial, Financial &
Agricultural 3 385 10 234 156
Consumer 2 21 6 11 28
Municpal Tax Exempt Loans 0 0 0 0 0
Loans to Depository Inst. 0 0 0 0 0
Other Loans 0 0 0 0 0
------- -------- ------- ------- -------
Net charge-offs (35) 125 (2) (904) (441)
------- -------- ------- ------- -------
Provision for loan losses 0 0 0 215 650
------- -------- ------- ------- -------
Balance at period end $ 2,163 $ 2,198 $ 2,073 $ 2,075 $ 2,764
======= ======== ======= ======= =======
Ratio of net charge-offs to
average loans .03% .11% .00% 1.10% .52%
------- -------- ------- ------- -------
<PAGE>
Allowance for Possible Loan Losses:
- ----------------------------------
An allowance is available for losses which may be incurred in the future on
loans in the current portfolio. The allowance is increased by provisions
charged to current operations and is decreased by loan losses, net of
recoveries. The provision for loan losses is based on management's evaluation
of current and anticipated economic conditions, changes in the character and
size of the loan portfolio, and other indicators. The balance in the
allowance for possible loan losses is considered adequate by management to
absorb any reasonably foreseeable loan losses.
The following table reflects the allocation of the allowance for possible loan
losses and the percentage of loans in each category to total outstanding
loans as of December 31 for each of the years indicated:
1997 1996
------------------------ -------------------------
Percent of Percent of
loans in loans in
category to category to
Amount total loans Amount total loans
---------- ------------ ----------- -----------
Commercial
Financial &
Agricultural $ 808,813 16.7% $ 397,064 14.6%
Real Estate-
Construction 34,634 4.8% 40,968 5.0%
Real Estate-
Residential 153,189 35.7% 309,374 34.3%
Real Estate-
Commercial 447,532 34.6% 606,220 39.6%
Consumer 28,290 5.7% 9,208 5.6%
Municipal Tax
Exempt Loans 0 2.1% 0 .4%
Other 0 .4% 0 .5%
Unallocated 690,891 0% 834,860 0%
---------- ----- ---------- -----
Total $2,163,349 100.0% $2,197,694 100.0%
========== ====== ========== =====
<PAGE>
Deposits
- --------
The following table shows the average deposits and average interest rate paid
for the last two years:
1997 1996
------------------------- -------------------------
Average Average Average Average
Balance Rate Balance Rate
------------ ------- ------------ --------
Demand Deposits $ 34,375,951 0.00% $ 31,040,004 0.00%
NOW Accounts 29,496,018 1.60% 28,586,728 1.64%
Money Market Accounts 20,671,361 3.16% 21,302,347 3.15%
Savings Deposits 37,641,284 3.01% 36,518,157 3.02%
Time Deposits $100,000
and Over 4,611,490 5.66% 4,198,562 5.60%
Other Time Deposits 44,172,508 5.61% 35,359,559 5.56%
------------ ---- ------------ ----
Total $170,968,612 2.92% $157,005,357 2.83%
============ ==== ============ ====
As of December 31, 1997, the Bank had certificates of deposit in amounts of
$100,000 and over aggregating $5,168,863. These certificates of deposit
mature as follows:
Maturity Amount
-------- ----------
3 months or less $2,462,715
Over 3 months through 6 months 1,621,036
Over 6 months through 12 months 224,785
Over 12 months 860,327
----------
Total $5,168,863
==========
<PAGE>
Return on Equity and Assets
- ---------------------------
The following table summarizes various financial ratios of the Corporation for
each of the last two years:
Year ended December 31,
1997 1996
-------- --------
Return on average total
assets (net income divided
by average total assets) 1.15% 1.16%
Return on average
stockholders' equity
(net income divided by
average stockholders' equity) 13.67% 14.22%
Dividend payout ratio
(total declared dividends
divided by net income) 22.95% 21.66%
Equity to assets ratio
(average stockholders' equity
as a percentage of average
total assets) 8.40% 8.19%
Short-Term Borrowings
- ---------------------
The Bank engages in certain borrowing agreements throughout the year. These
are in the ordinary course of the Bank's business. Federal funds purchased
represent daily transactions which the Bank uses to manage its funds and
liquidity position to comply with regulatory requirements. Interest rates
fluctuate daily reflecting existing market conditions. There were no
short-term borrowings during 1997 or 1996. The following table summarizes such
borrowings at December 31 for each of the years indicated:
Weighted
average
Maximum interest
Balance, outstanding Average rate
end of at any amount during
Year Ended period month-end outstanding period
- ---------- -------- ---------- ----------- --------
1997 -0- -0- -0- -0-
1996 -0- -0- -0- -0-
1995 -0- -0- $15,068 6.13%
<PAGE>
ITEM 2. DESCRIPTION OF PROPERTIES
The Bank's main office (15,000 square feet) at 240 Cabot Street, Beverly,
Massachusetts is owned by the Bank. The Bank completed renovations in 1988
which has enhanced the Bank's ability to effectively serve its customer base.
The Bank's Operation Center (12,000 square feet) is located at 246 Cabot
Street, immediately adjacent to the Bank's main office, and is owned by Cabot
Street Realty Trust. The Operations Center provides a loan center and an
on-site item processing facility for the Bank. It is encumbered by a mortgage
securing an industrial revenue bond with an outstanding balance as of December
31, 1997 of $385,627.
The Bank's South Hamilton office, built in 1991 (2,388 square feet) at 25
Railroad Avenue, South Hamilton, Massachusetts is owned by the Corporation.
The office is part of a four-unit condominium. The three other units are
owned by third parties.
The Bank's Topsfield office (2,109 square feet) at 15 Main Street, Topsfield,
Massachusetts is leased by the Bank from a third party with a term that expires
February 2000 and a current annual rent of $39,280.
The Bank's North Beverly Plaza office (5,127 square feet) at 63 Dodge Street,
Beverly, Massachusetts is leased by the Bank from a third party with a term
that expires October 2001 and a current annual rent of $40,500.
The Bank has two stand-alone, automatic teller machines ("ATMs") which are
located at Beverly Hospital, Herrick Street, Beverly, Massachusetts and
Crosby's Market, Manchester by the Sea.
The Bank, in 1997, established a high school branch located at Hamilton-Wenham
Regional High School (340 square feet) at Bay Road, Hamilton, Massachusetts.
The Bank also established, in 1997, a high school branch at Beverly High School
(491 square feet) at Sohier Road, Beverly, Massachusetts.
The Bank also, in 1997, established a stand-alone ATM which is located at
Cummings Center Parking Lot, 100 Cummings Center, Beverly, Massachusetts.
The Bank, in 1997, established a full-service Branch Office, at Cummings Center
(3,502 square feet), Cummings Center, 100 Cummings Center-Suites 101M and 101N,
Beverly, Massachusetts. The current annual rent for Cummings is $63,599.76
with a term that expires September 2001.
In Management's opinion, all properties occupied by the Bank are in good
condition, and are adequate at present and for the foreseeable future for
the purposes for which they are being used and are properly insured.
ITEM 3. LEGAL PROCEEDINGS
There are no pending material legal proceedings other than ordinary routine
litigation incidental to normal business to which the Corporation or the Bank
is a party or to which any of their properties are subject.
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
quarter ended December 31, 1997.
PART II
-------
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
There is no established public trading market for the Corporation's common
stock which is not actively traded and is not listed on any public exchange
or the National Association of Securities Dealer's Automatic Quotation System
("NASDAQ"). Shares are traded on a sporadic workout basis between
individuals.
The following table sets forth, to the best knowledge of Management the
representative prices, for each quarterly period during the last two years.
These prices are based on private transactions that management is aware of and
transactions brokered through Advest, First Albany and Bear Sterns.
1997 1996
------ ------
Quarter ended March 31, $27.00 $18.50
Quarter ended June 30, 27.50 19.75
Quarter ended Sept. 30, 29.50 20.25
Quarter ended Dec. 31, 33.25 20.30
Capital
- -------
The Beverly National Corporation Employee Stock Ownership Plan (ESOP)
established a $400,000 loan with Andover Bank for the purpose of purchasing
Beverly National Corporation Stock. As of December 31, 1997, the ESOP had an
outstanding balance of $300,000 of Beverly National Corporation stock.
The Corporation's ability to pay dividends is limited by the prudent banking
principles applicable to all bank holding companies. As a practical matter,
the Corporation's ability to pay dividends is generally limited by the Bank's
ability to dividend funds to the Corporation.
For restrictions on the ability of the Bank to pay dividends to the Corporation
(see Note 15) of the financial satements.
The number of record holders of the Corporation's common stock was 382 as of
March 1, 1998. The Corporation declared quarterly cash dividends on its
outstanding common stock, which amounted to an aggregate dividend per share of
$.66 for the year, per share during 1997 and a $.46 dividend per share and $.12
special dividend per share during 1996.
<PAGE>
ITEM 6. Management's Discussion and Analysis 1997 as Compared to 1996
The total assets of the Corporation as of December 31, 1997, amounted to
$195,379,513 as compared to $188,017,011 in 1996. This increase amounted to
$7,362,502 or 3.9%.
The economy of the Corporation's market area is considered stable.
Investment Portfolio
- --------------------
As of January 1, 1994, the Corporation adopted statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt
and Equity Securities." This resulted in new classifications of investment
securities; Securities-Held-to-Maturity, and Investments Available-for-Sale.
The securities reported in Available-for-Sale are carried at fair value on the
balance sheet. Unrealized holding gains and losses are not included in
earnings, but are reported as a net amount (less expected tax) in a separate
component of capital until realized. The securities reported in Securities-
Held-to-Maturity are carried at amortized cost.
Securities-Held-to-Maturity
- ---------------------------
The investments in Securities-Held-to-Maturity totaled $17,185,188 at December
31, 1997 as compared to $22,934,468 at December 31, 1996. This is a decrease
of $5,749,280 or 25.1%. U.S. Treasury and U.S. Agency obligations totaled
$16,435,914 at December 3 1, 1997 as compared to $22,407,095 at December 31,
1996, a decrease of $5,971,181 or 26.6%. The decrease in U.S. Treasury and
Agency securities funded loan growth. The majority of investment purchases
were made in the 24 to 60-month maturity range. State and municipal
obligations held to maturity totaled $449,274 at December 31, 1997, as compared
to $227,373 at December 31, 1996. This increase totaled $221,901 or 97.6%.
The increase in the state and municipal portfolio is attributed to an
additional purchase of municipal securities. Management continues the
investment focus on short to medium term U.S. Treasury Notes and Government
agencies.
It is management's intent to hold those securities designated as held-to-
maturity in the investment securities portfolio until maturity. The strategic
maturity spread of the portfolio includes consideration for foreseeable events
and liquidity conditions.
Securities-Available-for-Sale
- -----------------------------
The balance of Investments in Available-for-Sale totaled $20,796,287 as of
December 31, 1997 as compared to the balance of Securities-Available-for-Sale,
which totaled $17,608,128 as of December 31, 1996, an increase of $3,188,159
or 18.1%. These investments are primarily comprised of short to medium term
U.S. Treasury and U.S. Government Agency Securities. These securities may be
used to meet the liquidity needs of the Bank or Corporation. This increase is
designed to give the Bank additional flexibility in managing liquidity needs.
<PAGE>
Federal Funds Sold
- ------------------
These short-term liquidity loans to other commercial banks totaled $9,100,000
at December 31, 1997 in comparison to $14,100,000 at December 31, 1996. The
Bank's liquidity position is adequate to cover the increased loan demand or
reduction of deposits.
Loans
- -----
Net Loans at December 31, 1997, totaled $130,844,145 as compared to
$114,252,890 at December 31, 1996. This increase was $16,591,255 or 14.5%.
Commercial Loans totaled $22,184,382 at December 31, 1997, as compared to
$16,946,508 at December 31, 1996. This is an increase of $5,237,874 or 30.9%.
This is attributed to increased competition for small business credit. The
growth in the Bank's loan portfolio has been primarily in the residential real
estate portfolio and commercial loan portfolio. Real estate construction loans
totaled $6,506,718 at December 31, 1997, as compared to $5,847,491 at December
31, 1996. This is an increase of $659,227 or 11.3%, which can be attributed to
both increased commercial and residential real estate construction activity.
Real estate residential loans, excluding mortgage held for sale, totaled
$49,140,474 at December 31, 1997, as compared to $40,019,022 at December 31,
1996. This is an increase of $9,121,452 or 22.8%. The increased residential
mortgage loan balances can be attributed to an aggressive marketing, a strong
economy and favorable interest rate environment. Real estate commercial loans
totaled $44,241,896 at December 31, 1997 as compared to $46,150,365 at December
31, 1996, representing a decrease of $1,908,469 or 4.1%. The strong local
reputation of the Bank's commercial lending team has allowed the Bank's
portfolio to maintain the current loan balances. There has been severe
competition for commercial loans during 1997. Consumer loans totaled
$7,651,660 at December 31, 1997, as compared to $6,538,122 at December 31,
1996. This is an increase of $1,113,538 or 17.0%. This positive trend can be
attributed to increased activity in the home equity portfolio.
There are no industry concentrations in the Bank's loan portfolio. The
Corporation is however exposed to geographic concentrations as the majority
of the Bank's loan portfolio is compiled of loans collateralized by real estate
located in the Commonwealth of Massachusetts.
Premises and Equipment
- ----------------------
Premises and equipment totaled $4,819,606 at December 31, 1997, as compared to
$4,433,529 at December 31, 1996. This increase of $386,077 or 8.7% can be
attributed to the establishment of construction at the following locations:
Beverly High School Branch, Hamilton-Wenham Regional High School Branch,
Cummings Center Branch and Cummings Center ATM kiosk. All projects were
completed during the first quarter of 1997.
<PAGE>
Deposits
- --------
Deposits totaled $176,291,010 at December 31, 1997, as compared to $170,738,228
at December 31, 1996. The increase of $5,552,782 or 3.3% can be attributed to
deposit products being priced competitively to increase market share. Deposit
growth can be attributed to the continued growth of core deposits. The
continued growth of the core deposits is attributable to the ongoing effort to
develop and maintain relationship banking with our customers.
Notes Payable
- -------------
Notes payable totaled $385,627 at December 31, 1997, as compared to $385,627 at
December 31, 1996. The balance outstanding of notes payable reflects the
$385,627 balance of an industrial revenue bond issued for Cabot Street Realty
Trust. The Corporation expects cash flow from Cabot Street Realty Trust and
dividends from the Bank to fund the repayment of the loan.
Other Liabilities
- -----------------
Other liabilities were virtually unchanged increasing only $21,571 or 1.6%.
Capital
- -------
The primary increase in capital of $1,848,149 can be attributed to internal
capital growth of $1,672,087, a net reduction of the leveraged ESOP of $60,000
and exercised stock options from Treasury stock.
Consolidated Statements of Income
- ---------------------------------
Net interest and dividend income totaled $9,339,889 for the year ended December
31, 1997, as compared to $8,462,751 for the year ended December 31, 1996.
This increase was $877,138 or 10.4%. The interest income and interest expense
described below created this occurrence.
Loan Income
- -----------
Interest and fees on loans totaled $11,414,506 for the year ended December 31,
1997, as compared to $10,198,532 for 1996. This is an increase of $1,215,974
or 11.9%. The loan portfolio continued to change in composition during the
year. Unsecured consumer loans continued to decline. There was a significant
increase in residential real estate loans and commercial loans in 1997. The
growth of residential mortgages can be primarily attributed to the growth of
mortgage loans, due to favorable economic factors. The growth of loan income
can be based on the increased volume of loans throughout the year.
<PAGE>
Investment Securities Income
- ----------------------------
Taxable investment securities income for the 12 months ended December 31, 1997,
totaled $2,380,978 as compared to $2,246,765 for the same time period in 1996.
This is a increase of $134,213 or 6.0%. The average balance of taxable
investments of U.S. Treasury notes and government agencies continued to
decrease in 1997, however, the investments purchased during the year were
reinvested at a higher rate.
Other Interest Income
- ---------------------
Other interest income totaled $564,714 for the 12 months ended December 31,
1997, as compared to $497,253 for the same time period in 1996, an increase of
$67,461 or 13.6%. The increase is attributed to higher volumes of federal
funds sold.
Interest Expense
- ----------------
Interest expense on deposits totaled $4,998,319 for the year ended December 31,
1997, as compared to $4,444,236 for the year ended December 31, 1996. This is
an increase of $554,083 or 12.5%. The increase of certificates of deposit
along with other core deposit growth created this additional expense. There
were no short-term borrowings for the 12 months ending December 31, 1997 or
December 31, 1996. Interest on notes payable totaled $34,998 for the year ended
December 31, 1997, as compared to $59,338 for the year ended December 31, 1996,
a decrease of $24,340 or 41.0%. This situation was created by a lower average
balance outstanding in 1997 as compared to 1996 for borrowings of the parent
company.
Loan Loss Provision
- -------------------
There were no provisions to the allowance for possible loan losses ("ALLL")
during 1997 and 1996. No provisions were warranted because of improved
collateral values and improved quality throughout most of the loan portfolio.
At December 31, 1997 the Corporation's allowance for possible loan losses was
$2,163,349 representing 1.6% of gross loans at December 31, 1997, as compared
to $2,197,694, representing a ratio of 1.9% of total loans at December 31,
1996. The decrease in this ratio reflects the continued growth in the loan
portfolio during 1997. However, such growth was primarily in well
collateralized loans, which do not warrant substantial allocations within the
ALLL.
<PAGE>
Additional factors warranting the reduced provisions during 1997 included
management's evaluation of economic conditions including the stabilization and
improvement of the local economy. The Corporation's non-accrual loans totaled
to $341,366 at December 3 1, 1997, as compared to $345,755 at December 31,
1996. Similarly, combined non-accrual loans and past due loans 90 days or more
remained low and amounted to $509,066 at December 31, 1997, as compared to
$345,755 at December 31, 1996.
The ratio of non-performing assets to total loans, mortgages held for sale and
other real estate owned ("OREO") was 0.38% for December 31, 1997, as compared
to 0.29% as of December 31, 1996. The ratio of allowance for loan losses to
non-performing assets equaled 424.9% at December 31, 1997, as compared to
635.6% at December 31, 1996.
A total of $54,521 loans were charged off by the Corporation during 1997 as
compared to $754,032 charged off during the corresponding period in 1996.
These charge-offs consisted primarily of loans to small businesses. Recoveries
of loans previously charged off totaled $20,176 during 1997 as compared to
$879,203 during the corresponding period in 1996.
Non-Interest Income
- -------------------
Non-interest income totaled $2,140,343 in 1997 as compared to $2,095,204 in
1996. Other income included a non recurring settlement in 1996 with the
Commonwealth of Massachusetts in the amount of $208,991, relating to tax
treatment of municipal amortization . Income from fiduciary activities totaled
$1,107,938 for the 12 months ended December 31, 1997, as compared to $874,385
for the same time period in 1996, an increase of $233,553 or 26.7%. Core
earnings from recurring fiduciary income increased. Service charges and other
deposit fees remained stable. Net loss on sales of OREO totaled $8,275 in 1997
as compared to -0- in 1996, as there were no OREO sales in 1996.
Other Expense
- -------------
The total non-interest expense totaled $7,917,918 for 1997 as compared to
$7,128,039 in 1996. This is an increase of $789,879 or 11.1%. Salaries and
benefits expense increased $513,095 or 12.1%, because of additional personnel
in the retail expansion, trust department, and financial planning. Occupancy
expense increased $108,166 or 17.2%. This increase represents the development
of the two educational branch facilities, Cummings Center Branch and a stand-
alone ATM facility at the Cummings Center. Equipment costs totaled $415,409
for the 12 months ending December 31, 1997 as compared to $401,660 for the same
period in 1996. This increase of $13,749 or 3.4% can be attributed to the
branch expansion and continued upgrades of computer equipment to support the
technology upgrades of both the Bank and Trust Department operating systems.
The FDIC insurance premium increased $18,225, which represents the Banks
portion of the FICO assessment levied by the FDIC. The variance of increased
other expenses in the amount of $77,586 or 5.3% can be attributed to increased
legal expenses.
<PAGE>
Income Taxes
- ------------
Income tax expense totaled $1,392,301 for the year ended December 31, 1997 as
compared to $1,410,305 in 1996. This decrease reflects the increase of tax
exempt income and a lower state tax rate.
Net Income
- ----------
Net income was $2,170,013 for 1997 as compared to $2,019,611 for 1996, which is
an increase of $150,402 or 7.4%.
Capital Resources
- -----------------
As of December 31, 1997, the Corporation had total capital in the amount of
$16,990,710 as compared with $15,142,561 at December 31, 1996, which represents
an increase of $1,848,149 or 12.2% (see Note 15). The capital ratios of the
Corporation and the Bank exceed applicable regulatory requirements.
Banks and bank holding companies are generally required to maintain a Tier 1
capital at a level equal to or greater than 4.0% to their adjusted total
assets. As of December 31, 1997, the Bank's Tier 1 capital amounted to 7.78%
as compared to 7.34% of total assets as compared to December 31, 1996.
Similarly, the Corporation's Tier 1 capital amounted to 8.68% at December 31,
1997 as compared to 8.2% at December 31, 1996 (see Note 15). Banks and holding
companies must maintain minimum levels of risk-based capital equal to risk
weighted assets of 8.00%. At December 31, 1997, the Bank's ratio of risk based
capital to risk weighted assets amounted to 11.78% for Tier 1 and 13.09% for
total capital, which satisfies the applicable risk-based capital requirements.
At December 31, 1996, the Bank's ratio of risk-based capital to risk-weighted
assets amounted to 11.38% for Tier 1 and 12.71% for total capital. Similarly,
the Corporation's ratio of risk-based capital to risk-weighted assets, at
December 31, 1997, amounted to 13.08% for Tier I and 14.39% for total capital
which exceeds all applicable regulatory requirements.
On March 17, 1998, the Board of Directors of Beverly National Corporation
declared a 2 for 1 split. Listed below are the pertinent dates relating to
this stock split:
Date declared March 17, 1998
Date of record March 31, 1998
The shares outstanding and the per share information have not adjusted to
reflect this split.
<PAGE>
Liquidity
- ---------
The primary function of asset/liability management is to assure adequate
liquidity and maintain an appropriate balance between interest-sensitive
earning assets and interest-bearing liabilities. Liquidity management involves
the ability to meet the cash flow requirements of customers who may be either
depositors wanting to withdraw funds or borrowers needing assurance that
sufficient funds will be available to meet their credit needs. Interest rate
sensitivity management seeks to avoid fluctuating net interest margins and to
enhance consistent growth of net interest income through periods of changing
interest rates.
Marketable investment securities, particularly those of shorter maturities, are
the principal source of asset liquidity. The Corporation maintains a
Securities-Available-for-Sale account as a liquidity resource. Total
securities maturing in one year or less amounted to approximately $10,605,238
or 27.9% at December 31, 1997 of the investment securities portfolio, and
$7,534,983 at December 31, 1996, representing 18.6% of the investment
securities portfolio. Assets such as federal funds sold, mortgages held for
sale, as well as maturing loans are also sources of liquidity.
The Corporation's goal is to be interest rate sensitive neutral, and maintain a
net cumulative gap at one year, of less than 10% of total earning assets. The
Corporation believes that it is successfully managing its interest
rate risk. Listed below is a gap analysis by repricing date or maturity.
<PAGE>
Gap Analysis
- ------------
(In Thousands) 0-31 1-3 3-6 6-12 1-5 Over 5
Days Months Months Months Years Years
-------- -------- -------- -------- -------- --------
ASSETS
Investments $ 2,000 $ 3,034 $ 2,100 $ 3,500 $ 5,889 $ 662
Invesments-
Available for
Sale 2,345 995 2,004 5,970 8,471 981
Fed Funds Sold 9,100 0 0 0 0 0
Total Loans 19,754 5,204 5,300 8,410 41,519 52,726
Mortgages
Held for Sale 377 0 0 0 0 0
-------- -------- -------- -------- -------- --------
Total Earning
Assets 33,576 9,233 9,404 17,880 55,879 54,369
-------- -------- -------- -------- -------- --------
LIABILITIES
Non-Interest
bearing deposits 0 0 0 0 0 39,096
Savings 0 0 12,922 0 26,215 0
NOW Accounts 0 0 10,572 0 21,464 0
Money Market
Accounts 5,271 0 0 0 5,271 5,271
Time Deposits
$100,000 and
over 573 2,030 1,480 225 601 0
Other time
deposits 3,806 14,862 8,228 7,452 10,947 5
-------- -------- -------- -------- -------- --------
Total Deposits 9,650 16,892 33,202 7,677 64,498 44,372
Borrowings 0 0 0 0 386 300
Total Deposits &
Borrowings 9,650 16,892 33,202 7,677 64,884 44,672
-------- -------- -------- -------- -------- --------
Net Asset
(Liability) Gap 23,926 (7,659) (23,879) 10,203 (9,005) 9,697
Cummulative Gap $ 23,926 $ 16,267 $ (7,531) $ 2,672 $ (6,333) $ 3,364
% Cummalative Gap 13.14% 9.01% (4.18%) (1.48%) (3.51%) 1.86%
The assumptions used to develop this analysis include the following:
- Investments were accumulated by maturity or call dates.
- Loans were accumulated by earliest repricing date or maturity.
- Deposits or borrowings were accumulated by earliest repricing date or
maturity.
<PAGE>
Historically, the overall liquidity of the Corporation has been enhanced by a
high-level of core deposits. Maintaining an ability to acquire time deposits,
money market certificates, and money market fund accounts are a key to assuring
liquidity. This involves maintenance of an appropriate maturity distribution of
purchased funds as well as diversification of sources through various money
markets. Management believes that the liquidity of the Bank is sufficient to
meet future needs. In addition, the Bank is subject to Regulation D of the
Federal Reserve Board which requires depository institutions to maintain
reserve balances on deposit with the Federal Reserve Bank based on certain
average depositor balances. The Bank is in compliance with such requirement.
Disclosure relating to the "Year 2000"
- --------------------------------------
Addressing issues relating to the "Year 2000" is a challenge faced by all banks
and every organization which utilizes technology and computers, because
historically the majority of computer operating systems and programs have
utilized a two digit field for referencing each year. For example, the year
"1998" would be referenced "98". The "Year 2000" creates potential data
processing challenges such as those relating to calculations based upon data
utilizing a two digit field for referencing a year. As a result, all banks are
required by the federal bank supervisory agencies to formulate plans to address
these issues and ensure that their vendors, servicers and customers are
adequately addressing such issues in advance of the Millennium. Additionally,
the banks must take adequate steps to ensure that critical operations will
continue should outside servicers be unable to adequately address the "Year
2000" problems. The Bank is actively involved in addressing the "Year 2000"
issues with its outside vendors of hardware, software and data processing
functions, as well as within its internal systems. The Bank is also working
collaboratively with third party vendors and customers to assure the smooth
implementation of the "Year 2000" issues.
Expenditures related to "Year 2000" issues have not had, and are not expected
to have, a material impact on the Bank's earnings or operations. The Bank
anticipates that during the next two years, such expenditures are not likely
to exceed an aggregate of $ 85,000 per year. The adequacy of planning and
preparation by banks for "Year 2000" issues is being examined by the federal
bank supervisory agencies in connection with their examination of all banks.
Management is pleased with the Bank's progress in addressing and preparing for
"Year 2000" issues.
Forward Looking Statements
- --------------------------
Certain statements contained in this Annual Report, including those contained
in Management's Discussion and Analysis of Financial Condition and Results of
Operations and elsewhere, are forward looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995 and are thus prospective.
Such forward looking statements are subject to risks, uncertainties and other
factors which could cause actual results to differ materially from future
results expressed or implied by such statements . Such factors include, but
are not limited to changes in interest rates, regulation, competition and the
local and regional economy.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
Index to Consolidated Financial Statement Schedules
Description Page Reference
----------- --------------
Consolidated Balance Sheets at
December 31, 1997 and 1996 FS 2-3
Consolidated Statements of Income for the years
ended December 31, 1997, 1996 and 1995 FS 4-5
Consolidated Statements of Changes in Stockholders'
Equity for the years ended December 31, 1997, 1996
and 1995 FS 6
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995 FS 7-9
Notes to Consolidated Financial Statements for the years
ended 1997, 1996 and 1995 including: FS 10-32
Parent Company Only Balance Sheets at December 31, 1997
and 1996 FS 33
Parent Company Only Statements of Income for the years
ended December 31, 1997, 1996 and 1995 FS 34
Parent Company Only Statements of Cash Flows for the
years ended December 31, 1997, 1996 and 1995 FS 35-36
<PAGE>
The Board of Directors and Stockholders
Beverly National Corporation
Beverly, Massachusetts
INDEPENDENT AUDITORS' REPORT
----------------------------
We have audited the accompanying consolidated balance sheets of Beverly
National Corporation and Subsidiaries as of December 31, 1997 and 1996 and
the related consolidated statements of income, changes in stockholders'
equity and cash flows for each of the years in the three-year period ended
December 31,1997. These consolidated financial statements are the
responsibility of the Corporation'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 consolidated financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall consolidated 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 consolidated financial
position of Beverly National Corporation and Subsidiaries as of December 31,
1997 and 1996, and the consolidated results of their operations and their
cash flows for each of the years in the three-year period ended December 31,
1997, in conformity with generally accepted accounting principles.
As discussed in Note 2 to the consolidated financial statements,
the Corporation adopted the provisions of the Financial Accounting Standards
Board's Statement of Financial Accounting Standards No. 123 "Accounting for
Stock-Based Compensation," effective January 1, 1996.
/s/SHATSWELL, MacLEOD &COMPANY, P.C.
SHATSWELL, MacLEOD & COMPANY, P.C.
West Peabody, Massachusetts
January 12, 1998
FS 1
<PAGE>
BEVERLY NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1997 and 1996
ASSETS
1997 1996
------------ ------------
Cash and due from banks $ 9,587,570 $ 11,263,278
Federal funds sold 9,100,000 14,100,000
------------ ------------
Cash and cash equivalents 18,687,570 25,363,278
Investments in available-for-sale
securities (at fair value) 20,796,287 17,608,128
Investments in held-to-maturity
securities (fair values of
$17,225,063 as of December 31,
1997 and $22,990,284 as of
December 31, 1996) 17,185,188 22,934,468
Federal Reserve Bank stock, at cost 97,500 97,500
Loans, net of the allowance for
possible loan losses of $2,163,349
and $2,197,694, respectively 130,844,145 114,252,890
Mortgages held-for-sale 376,533 964,377
Premises and equipment 4,819,606 4,433,529
Accrued interest receivable 1,162,497 1,081,467
Other assets 1,410,187 1,281,374
------------ ------------
Total assets $195,379,513 $188,017,011
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Demand deposits $ 39,083,761 $ 34,897,850
Savings and NOW deposits 87,036,870 88,411,447
Time deposits 50,170,379 47,428,931
------------ ------------
Total deposits 176,291,010 170,738,228
Notes payable 385,627 385,627
Employee Stock Ownership Plan loan 300,000 360,000
Other liabilities 1,412,166 1,390,595
------------ ------------
Total liabilities 178,388,803 172,874,450
------------ ------------
FS 2
<PAGE>
Stockholders' equity:
Preferred stock, $2.50 par value per
share; 300,000 shares authorized;
issued and outstanding none
Common stock, par value $2.50 per
share; authorized 2,500,000 shares;
issued 791,349 shares as of
December 31, 1997 and 1996;
outstanding, 760,482 shares as
of December 31, 1997 and 754,382
shares as of December 31, 1996 1,978,373 1,978,373
Paid-in capital 4,319,092 4,358,926
Retained earnings 11,558,988 9,886,901
Treasury stock, at cost (30,867
shares as of December 31, 1997
and 36,967 shares as of December
31, 1996) (572,093) (685,127)
Unearned Compensation - Employee
Stock Ownership Plan (300,000) (360,000)
Net unrealized holding gain (loss)
on available-for-sale securities 6,350 (36,512)
------------ ------------
Total stockholders' equity 16,990,710 15,142,561
------------ ------------
Total liabilities and
stockholders equity $195,379,513 $188,017,011
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
FS 3
<PAGE>
BEVERLY NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 1997, 1996 and 1995
INTEREST AND DIVIDEND INCOME: 1997 1996 1995
----------- ----------- -----------
Interest and fees on loans $11,414,506 $10,198,532 $ 8,504,806
Interest and dividends on
securities:
Taxable 2,380,978 2,246,765 2,772,065
Tax-exempt 13,008 23,775 42,756
Other interest 564,714 497,253 317,032
----------- ----------- -----------
Total interest and dividend
income 14,373,206 12,966,325 11,636,659
----------- ----------- -----------
INTEREST EXPENSE:
Interest on deposits 4,998,319 4,444,236 4,058,105
Interest on notes payable 34,998 59,338 96,134
Interest on other borrowed funds 923
----------- ----------- -----------
Total interest expense 5,033,317 4,503,574 4,155,162
----------- ----------- -----------
Net interest and dividend
income 9,339,889 8,462,751 7,481,497
Provision for loan losses
----------- ----------- -----------
Net interest and dividend
income after provision
for loan losses 9,339,889 8,462,751 7,481,497
----------- ----------- -----------
OTHER INCOME:
Income from fiduciary
activities 1,107,938 874,385 918,471
Service charges on deposit
accounts 443,848 427,309 416,149
Other deposit fees 227,850 226,202 242,489
Gain (loss) on sales of other
real estate owned, net (8,275) 58,155
Other income 368,982 567,308 324,063
----------- ----------- -----------
Total other income 2,140,343 2,095,204 1,959,327
FS 4
<PAGE>
OTHER EXPENSE:
Salaries and employee
benefits 4,755,237 4,242,142 4,004,874
Occupancy expense 738,772 630,606 606,840
Equipment expense 415,409 401,660 374,483
Data processing fees 258,767 214,597 320,409
Securities losses, net 6,811
F.D.I.C. insurance premium 20,225 2,000 194,495
Stationery and supplies 182,722 167,834 141,943
Other expense 1,546,786 1,469,200 1,331,997
----------- ----------- -----------
Total other expense 7,917,918 7,128,039 6,981,852
----------- ----------- -----------
Income before income taxes 3,562,314 3,429,916 2,458,972
Income taxes 1,392,301 1,410,305 1,026,700
----------- ----------- -----------
Net income $ 2,170,013 $ 2,019,611 $ 1,432,272
=========== =========== ===========
Earnings per common share $ 2.94 $ 2.76 $ 1.94
=========== =========== ===========
Earnings per common share,
assuming dilution $ 2.64 $ 2.61 $ 1.89
=========== =========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
FS 5
<PAGE>
BEVERLY NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Net Unrealized
Holding Gain
Unearned (Loss) On
Common Paid-in Retained Treasury Compensation Available-For
Stock Capital Earnings Stock ESOP Sale Securities Total
---------- ---------- ----------- ---------- ------------ ---------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 $1,978,373 $4,380,219 $ 7,294,056 $(695,119) $ (125,000) $ (331,713) $12,500,816
Net income 1,432,272 1,432,272
Unearned compensation
payment 40,000 40,000
Unearned compensation
increase (309,354) (309,354)
Dividends declared ($.56
per share) (421,497) (421,497)
Purchase of treasury stock (49,500) (49,500)
Net change in unrealized
holding loss on available
for-sale securities 278,015 278,015
--------- --------- ---------- ---------- ----------- ------------ ------------
Balance, December 31, 1995 1,978,373 4,380,219 8,304,831 (744,619) (394,354) (53,698) 13,470,752
Net income 2,019,611 2,019,611
Unearned compensation
payment 60,000 60,000
Unearned compensation
increase (25,646) (25,646)
Dividends declared ($.58
per share) (437,541) (437,541)
Sale of treasury stock on
exercise of stock options (21,293) 59,492 38,199
Net change in unrealized
holding loss on available
for-sale securities 17,186 17,186
--------- --------- ---------- ---------- ----------- ------------ ------------
Balance, December 31, 1996 1,978,373 4,358,926 9,886,901 (685,127) (360,000) (36,512) 15,142,561
Net income 2,170,013 2,170,013
Unearned compensation
payment 60,000 60,000
Dividends declared ($.66
per share) (497,926) (497,926)
Sale of treasury stock on
exercise of stock options (39,834) 113,034 73,200
Net change in unrealized
holding loss on available
for-sale securities 42,862 42,862
---------- ---------- ----------- ---------- ----------- ------------ ------------
Balance, December 31, 1997 $1,978,373 $4,319,092 $11,558,988 $(572,093) $ (300,000) $ 6,350 $16,990,710
========== ========== =========== ========== =========== ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
FS 6
<PAGE>
BEVERLY NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1997, 1996 and 1995
1997 1996 1995
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITES:
Net income $ 2,170,013 $ 2,019,611 $ 1,432,272
Adjustments to reconcile net income to
net cash provided by operating activities:
Net (increase) decrease in mortgages
held-for-sale 596,231 (847,000) 3,776
Provision (benefit) for mortgages
held-for-sale (8,387) 6,286
(Gain) loss on sales of other real
estate owned, net 8,275 (58,155)
Write down of other real estate owned 17,808
Write down of fixed assets 7,404
Disposal of fixed asset 285
Change in prepaid interest 3,933 3,933 3,933
Depreciation and amortization 426,219 381,784 394,450
Deferred tax expense (benefit) (30,537) 15,983 (35,081)
Increase (decrease) in taxes payable (38,209) 74,773 149,637
(Increase) decrease in interest
receivable (81,030) 123,115 183,414
Increase in interest payable 21,464 66,590 126,244
Increase in accrued expenses 54,247 236,132 135,417
(Increase) decrease in prepaid
expenses (66,857) 118,935 (208,453)
Increase in other liabilities 439 7,692 24,466
Increase in other assets (37,824) (32,885) (34,192)
Amortization (accretion) of
investment securities, net (23,800) (48,035) (104,077)
Gain on sales of assets, net (8,489) (8,367) (400)
Amortization of organization
expenses 724
Investment securities losses, net 6,811
Change in deferred loan costs (105,838) (10,950) 56,853
Change in unearned income (4) (245)
----------- ----------- -----------
Net cash provided by operating
activities 2,880,574 2,107,878 2,101,882
----------- ----------- -----------
FS 7
<PAGE>
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of available-for-sale
securities (14,215,924)(10,643,436) (5,283,781)
Proceeds from sales of available
-for-sale securities 199,000 5,204,906
Proceeds from maturities of
available-for-sale securities 11,085,135 4,000,000 1,000,000
Purchases of held-to-maturity
securities (3,243,125) (8,462,589) (8,009,063)
Proceeds from maturities of
held-to-maturity securities 9,032,338 18,752,000 22,368,720
Proceeds from sales of other
real estate owned 74,658 329,157
Net increase in loans (17,088,486)(13,086,291)(16,252,244)
Capital expenditures (812,296) (438,563) (379,225)
Recoveries of previously charged-
off loans 20,176 879,203 75,704
Proceeds from sales of assets 508,449 465,333 440
------------ ----------- -----------
Net cash used in investing activities (14,639,075) (8,335,343) (945,386)
------------ ----------- -----------
BEVERLY NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1997, 1996 and 1995 (continued)
1997 1996 1995
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sales of treasury stock 73,200 38,199
Purchases of treasury stock (49,500)
Net increase (decrease) in demand
deposits, NOW and savings accounts 2,811,334 4,919,999 (2,811,633)
Net increase in time deposits 2,741,448 12,320,004 7,449,115
Repayment of notes payable (300,000) (450,000)
Proceeds from notes payable 100,000
Dividends paid (543,189) (482,418) (331,356)
------------ ----------- -----------
Net cash provided by financing
activities 5,082,793 16,495,784 3,906,626
------------ ----------- -----------
Net increase (decrease) in cash and
cash equivalents (6,675,708) 10,268,319 5,063,122
Cash and cash equivalents at beginning
of year 25,363,278 15,094,959 10,031,837
------------ ----------- -----------
Cash and cash equivalents at end of
year $18,687,570 $25,363,278 $15,094,959
=========== =========== ===========
FS 8
<PAGE>
Supplemental disclosures:
Loans transferred to other real
estate owned $ 82,933 $ $ 616,810
Loans originated for sales of
other real estate owned 560,000
Mortgages held-for-sale transferred
to loans 768,292 50,380
Held-to-maturity securities
transferred to available-for-sale 100,000
Interest paid 5,011,853 4,436,984 4,028,918
Income taxes paid 1,461,047 1,319,549 912,144
The accompanying notes are an integral part of these consolidated financial
statements.
FS 9
<PAGE>
BEVERLY NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1997, 1996 and 1995
NOTE 1 - NATURE OF OPERATIONS
Beverly National Corporation (Corporation) is a state chartered corporation that
was organized in 1984 to become the holding company of Beverly National Bank
(Bank). The Corporation's primary activity is to act as the holding company
for the Bank. The Bank is a federally chartered bank, which was incorporated
in 1802 and is headquartered in Beverly, Massachusetts. The Bank operates its
business from five full service branches and two educational banking offices
located in Massachusetts. The Bank is engaged principally in the business of
attracting deposits from the general public and investing those deposits in
residential and real estate loans, and in consumer and small business loans.
The Bank also operates a trust department that offers fiduciary and investment
services.
NOTE 2 - ACCOUNTING POLICIES
The accounting and reporting policies of the Corporation and its subsidiaries
conform to generally accepted accounting principles and predominant practices
within the banking industry. The consolidated financial statements of the
Corporation were prepared using the accrual basis of accounting with the
exception of fiduciary activities and certain minor sources of income which are
reflected on a cash basis. The results of these activities do not differ
materially from those which would result using the accrual method. The
significant accounting policies of the Corporation and its subsidiaries are
summarized below to assist the reader in better understanding the consolidated
financial statements and other data contained herein.
PERVASIVENESS OF ESTIMATES:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from the estimates.
BASIS OF PRESENTATION:
The consolidated financial statements include the accounts of the Corporation
and its wholly-owned subsidiaries, the Bank, Cabot Street Realty Trust and 86
Bay Road Realty Trust. The Bank includes the accounts of its wholly-owned
subsidiary, Beverly Community Development Corporation. On December 30, 1996,
86 Bay Road Realty Trust was merged with and into Beverly National Corporation.
All significant intercompany accounts and transactions have been eliminated
in the consolidation.
CASH AND CASH EQUIVALENTS:
For purposes of reporting cash flows, cash and cash equivalents include cash on
hand, cash items, due from banks and federal funds sold.
FS 10
<PAGE>
SECURITIES:
Investments in debt securities are adjusted for amortization of premiums and
accretion of discounts. Gains or losses on sales of investment securities are
computed on a specific identification basis.
The Corporation classifies debt and equity securities into one of three
categories: held-to-maturity, available-for-sale, or trading. This security
classification may be modified after acquisition only under certain specified
conditions. In general, securities may be classified as held-to-maturity only
if the Corporation has the positive intent and ability to hold them to
maturity. Trading securities are defined as those bought and held principally
for the purpose of selling them in the near term. All other securities must be
classified as available-for-sale.
-Held-to-maturity securities are measured at amortized cost in the balance
sheet. Unrealized holding gains and losses are not included in earnings or in
a separate component of capital. They are merely disclosed in the notes to the
consolidated financial statements.
-Available-for-sale securities are carried at fair value on the balance
sheet. Unrealized holding gains and losses are not included in earnings, but
are reported as a net amount (less expected tax) in a separate component of
capital until realized.
-Trading securities are carried at fair value on the balance sheet.
Unrealized holding gains and losses for trading securities are included in
earnings.
LOANS:
Loans receivable that management has the intent and ability to hold for the
foreseeable future or until maturity or payoff are reported at their
outstanding principal balances reduced by amounts due to borrowers on
unadvanced loans, any charge-offs, the allowance for loan losses, and any
deferred fees or costs on originated loans, or unamortized premiums or
discounts on purchased loans.
Interest on loans is recognized on a simple interest basis.
Loan origination and commitment fees and certain direct origination costs are
deferred, and the net amount amortized as an adjustment of the related loan's
yield. The Corporation is amortizing these amounts over the contractual life
of the related loans.
Cash receipts of interest income on impaired loans is credited to principal to
the extent necessary to eliminate doubt as to the collectibility of the net
carrying amount of the loan. Some or all of the cash receipts of interest
income on impaired loans is recognized as interest income if the remaining net
carrying amount of the loan is deemed to be fully collectible. When
recognition of interest income on an impaired loan on a cash basis is
appropriate, the amount of income that is recognized is limited to that which
would have been accrued on the net carrying amount of the loan at the
contractual interest rate. Any cash interest payments received in excess of
the limit and not applied to reduce the net carrying amount of the loan are
recorded as recoveries of charge-offs until the charge-offs are fully
recovered.
FS 11
<PAGE>
ALLOWANCE FOR POSSIBLE LOAN LOSSES:
An allowance is available for losses which may be incurred in the future on
loans in the current portfolio. The allowance is increased by provisions
charged to current operations and is decreased by loan losses, net of
recoveries. The provision for loan losses is based on management's evaluation
of current and anticipated economic conditions, changes in the character and
size of the loan portfolio, and other indicators. The balance in the allowance
for possible loan losses is considered adequate by management to absorb any
reasonably foreseeable loan losses.
The Corporation considers a loan to be impaired when, based on current
information and events, it is probable that a creditor will be unable to
collect all amounts due according to the contractual terms of the loan
agreement. The Corporation measures impaired loans on a loan by loan basis by
either the present value of expected future cash flows discounted at the loan's
effective interest rate, the loan's observable market price, or the fair value
of the collateral if the loan is collateral dependent.
The Corporation considers for impairment all loans, except large groups of
smaller balance homogeneous loans that are collectively evaluated for
impairment, loans that are measured at fair value or at the lower of cost or
fair value, leases, and convertible or nonconvertible debentures and bonds and
other debt securities. The Corporation considers its residential real estate
loans and consumer loans that are not individually significant to be large
groups of smaller balance homogeneous loans.
Factors considered by management in determining impairment include payment
status, net worth and collateral value. An insignificant payment delay or an
insignificant shortfall in payment does not in itself result in the review of
a loan for impairment. The Corporation reviews its loans for impairment on a
loan-by-loan basis. The Corporation does not apply impairment to aggregations
of loans that have risk characteristics in common with other impaired loans.
Interest on a loan is not generally accrued when the loan becomes ninety or
more days overdue. The Corporation may place a loan on nonaccrual status but
not classify it as impaired, if (i) it is probable that the Corporation will
collect all amounts due in accordance with the contractual terms of the loan
or (ii) the loan is an individually insignificant residential mortgage loan
or consumer loan. Impaired loans are charged-off when management believes that
the collectibility of the loan's principal is remote. Substantially all of the
Corporation's loans that have been identified as impaired have been measured by
the fair value of existing collateral.
PREMISES AND EQUIPMENT:
Premises and equipment are stated at cost, less accumulated depreciation and
amortization. Cost and related allowances for depreciation and amortization of
premises and equipment retired or otherwise disposed of are removed from the
respective accounts with any gain or loss included in income or expense.
Depreciation and amortization are calculated principally on the straight-line
method over the estimated useful lives of the assets.
MORTGAGES:
Mortgages held-for-sale in the secondary market are carried at the lower of
cost or estimated fair value in the aggregate. Fair value is estimated based
on outstanding investor commitments or, in the absence of such commitments,
based on current investor yield requirements. Net unrealized losses are
provided for in a valuation allowance by charges to operations.
FS 12
<PAGE>
Interest income on mortgages held-for-sale is accrued currently and classified
as interest on loans.
OTHER REAL ESTATE OWNED AND IN-SUBSTANCE FORECLOSURES:
Other real estate owned includes properties acquired through foreclosure and
properties classified as in-substance foreclosures in accordance with Financial
Accounting Standards Board Statement No. 15, "Accounting by Debtors and
Creditors for Troubled Debt Restructuring." These properties are carried at
the lower of cost or fair value less estimated costs to sell. Any write down
from cost to fair value required at the time of foreclosure or classification
as in-substance foreclosure is charged to the allowance for possible loan
losses. Expenses incurred in connection with maintaining these assets,
subsequent write downs and gains or losses recognized upon sale are included in
other expense.
Beginning in 1995, in accordance with Statement of Financial Accounting
Standards No. 114 "Accounting by Creditors for Impairment of a Loan," the
Corporation classifies loans as in-substance repossessed or foreclosed if the
Corporation receives physical possession of the debtor's assets regardless of
whether formal foreclosure proceedings take place.
FAIR VALUES OF FINANCIAL INSTRUMENTS:
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments," requires that the Corporation disclose
estimated fair values for its financial instruments. Fair value methods and
assumptions used by the Corporation in estimating its fair value disclosures
are as follows:
Cash and cash equivalents: The carrying amounts reported in the balance sheet
for cash and federal funds sold approximate those assets' fair values.
Securities: Fair values for securities are based on quoted market prices,
where available. If quoted market prices are not available, fair values are
based on quoted market prices of comparable instruments.
Loans receivable: For variable-rate loans that reprice frequently and with no
significant change in credit risk, fair values are based on carrying values.
The fair values for other loans are estimated by discounting the future cash
flows, using interest rates currently being offered for loans with similar
terms to borrowers of similar credit quality. The carrying amount of accrued
interest approximates its fair value.
Deposit liabilities: The fair values disclosed for demand deposits, regular
savings, NOW accounts, and money market accounts are equal to the amount
payable on demand at the reporting date (i.e., their carrying amounts). Fair
values for certificates of deposit are estimated using a discounted cash flow
calculation that applies interest rates currently being offered on certificates
to a schedule of aggregated expected monthly maturities on time deposits.
FS 13
<PAGE>
Off-balance sheet instruments: The fair value of commitments to originate
loans is estimated using the fees currently charged to enter similar
agreements, taking into account the remaining terms of the agreements and the
present creditworthiness of the counterparties. For fixed-rate loan
commitments and the unadvanced portion of loans, fair value also considers the
difference between current levels of interest rates and the committed rates.
The fair value of letters of credit is based on fees currently charged for
similar agreements or on the estimated cost to terminate them or otherwise
settle the obligation with the counterparties at the reporting date.
INCOME TAXES:
The Corporation recognizes income taxes under the asset and liability method.
Under this method, deferred tax assets and liabilities are established for the
temporary differences between the accounting basis and the tax basis of the
Corporation's assets and liabilities at enacted tax rates expected to be in
effect when the amounts related to such temporary differences are realized or
settled.
STOCK BASED COMPENSATION:
Prior to 1996, the Corporation recognized stock-based compensation using the
intrinsic value approach set forth in APB Opinion No. 25. As of January 1,
1996, the Corporation had the option, under SFAS No. 123, of changing its
accounting method for stockbased compensation from the APB No. 25 method to
the fair value method introduced in SFAS No. 123. The Corporation elected to
continue using the APB No. 25 method. Entities electing to continue to
follow the provisions of APB No. 25 must make pro forma disclosure of net
income and earnings per share, as if the fair value method of accounting
defined in SFAS No. 123 had been applied. The Corporation has made the pro
forma disclosures required by SFAS No. 123.
EARNINGS PER SHARE:
Statement of Financial Accounting Standards No. 128 (SFAS No. 128), "Earnings
per Share" is effective for periods ending after December 15, 1997. SFAS
No. 128 simplifies the standards of computing earnings per share (EPS)
previously found in APB Opinion No. 15. It replaces the presentation of
primary EPS with a presentation of basic EPS. It also requires dual
presentation of basic and diluted EPS on the face of the income statement for
all entities with complex capital structures and requires a reconciliation of
the numerator and denominator of the basic EPS computation to the numerator and
denominator of the diluted EPS computation.
Basic EPS excludes dilution and is computed by dividing income available to
common stockholders 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 shared in the earnings of the entity. Diluted EPS is computed similarly
to fully diluted EPS pursuant to APB Opinion No. 15.
The Corporation has computed and/presented EPS for the year ended December 31,
1997 in accordance with SFAS No. 128. EPS as so computed does not differ
materially from EPS that would have resulted if APB Opinion No. 15 had been
applied. In accordance with SFAS No. 128 all prior-period EPS data presented
has been restated. EPS so restated does not differ materially from EPS
previously presented.
FS 14
<PAGE>
NOTE 3 - INVESTMENTS IN SECURITIES
Debt and equity securities have been classified in the consolidated balance
sheets according to management's intent. The carrying amount of
securities and their approximate fair values are as follows as of December 31:
Gross Gross
Amortized Unrealized Unrealized
Cost Holding Holding Fair
Basis Gains Losses Value
----------- ---------- ---------- ----------
Available-for-sale securities:
December 31, 1997:
Debt securities issued by
the U.S. Treasury and other
U.S. government corporations
and agencies $20,422,224 $ 55,177 $ 25,114 $20,452,287
Debt securities issued by
states of the United States
and political subdivisions
of the states 100,000 100,000
Marketable equity securities 244,000 244,000
----------- ---------- ---------- -----------
$20,766,224 $ 55,177 $ 25,114 $20,796,287
=========== ========== ========== ===========
December 31, 1996:
Debt securities issued by
the U.S. Treasury and other
U.S. government corporations
and agencies $17,475,622 $ 58,444 $ 73,438 $17,460,628
Debt securities issued by
states of the United States
and political subdivisions
of the states 100,000 100,000
Marketable equity securities 47,500 47,500
----------- ---------- ---------- -----------
$17,623,122 $ 58,444 $ 73,438 $17,608,128
=========== ========== ========== ===========
FS 15
<PAGE>
Gross Gross
Amortized Unrealized Unrealized
Cost Holding Holding Fair
Basis Gains Losses Value
----------- ---------- ---------- -----------
Held-to-maturity securities:
December 31, 1997:
Debt securities issued by
the U.S. Treasury and other
U.S. government corporation
and agencies $16,435,914 $ 39,938 $ 29,539 $16,446,313
Debt securities issued by
states of the United States
and political subdivisions
of the states 449,274 3,226 452,500
Debt securities issued by
foreign governments 300,000 26,250 326,250
----------- ---------- ---------- -----------
$17,185,188 $ 69,414 $ 29,539 $17,225,063
=========== ========== ========== ===========
December 31, 1996:
Debt securities issued by the
U.S. Treasury and other
U.S. government corporations
and agencies $22,407,095 $ 96,704 $ 65,515 $22,438,284
Debt securities issued by
states of the United States
and political subdivisions
of the states 227,373 2,127 229,500
Debt securities issued by
foreign governments 300,000 22,500 322,500
----------- ---------- ---------- -----------
$22,934,468 $ 121,331 $ 65,515 $22,990,284
=========== ========== ========== ===========
The scheduled maturities of held-to-maturity securities and available-for-sale
securities (other than equity securities) were as follows as of December 31,
1997:
Held-to-maturity Available-for-sale
securities: securities:
------------------------ ------------------------
Amortized Amortized
Cost Fair Cost Fair
Basis Value Basis Value
----------- ----------- ----------- -----------
Due within one year $ 7,623,050 $ 7,629,565 $ 3,000,000 $ 2,982,188
Due after one year
through five years 8,997,138 9,004,248 15,446,351 15,491,035
Due after five years
through ten years 565,000 591,250 1,975,873 1,979,064
Due after ten years 100,000 100,000
----------- ----------- ----------- -----------
$17,185,188 $17,225,063 $20,522,224 $20,552,287
=========== =========== =========== ===========
FS 16
<PAGE>
During 1997, there were no sales of available-for-sale securities. During 1996,
proceeds from sales of available-for-sale securities amounted to $199,000.
There was no gain or loss realized from those sales. During 1995, proceeds
from sales of available-for-sale securities amounted to $5,204,906. Gross
realized gains and gross realized losses on those sales amounted to $5,358 and
$8,927, respectively.
In 1995, the Corporation transferred, at fair value, a municipal debt security
classified as held-to-maturity to a security classified as available-for-sale.
There was no unrealized holding gain or loss at the date of transfer. The
transfer was a result of a reassessment of the appropriateness of the
classification of all securities held as of December 31, 1995. In accordance
with a special report of the Financial Accounting Standards Board regarding
SFAS No. 115 this transfer will not call into question the intent of the
Corporation to hold other debt securities to maturity in the future.
There were no securities of issuers whose aggregate carrying amount exceeded
10% of stockholders' equity as of December 31, 1997.
A total par value of $14,860,000 and $15,860,000 was pledged to secure treasury
tax and loan, trust funds and public funds on deposit as of December 31, 1997
and 1996, respectively.
NOTE 4 LOANS
Loans consisted of the following as of December 31:
1997 1996
------------- ------------
Commercial, financial and agricultural $ 23,184,382 $ 16,946,508
Real estate - construction and land development 6,506,718 5,847,491
Real estate residential 49,140,474 40,019,022
Real estate commercial 44,241,896 46,150,365
Consumer 7,651,660 6,538,122
Other 2,262,516 1,035,066
------------- ------------
132,987,646 116,536,574
Allowance for possible loan losses (2,163,349) (2,197,694)
Deferred loan fees, net 19,848 (85,990)
------------ ------------
Net loans $130,844,145 $114,252,890
============ ============
Certain directors and executive officers of the Corporation and companies in
which they have significant ownership interest were customers of the
Corporation during 1997. Total loans to such persons and their companies
amounted to $855,267 as of December 31, 1997. During 1997 principal payments
and advances totaled $391,369 and $85,000, respectively.
FS 17
<PAGE>
Changes in the allowance for possible loan losses were as follows for the years
ended December 31:
1997 1996 1995
---------- ---------- ----------
Balance at beginning of period $2,197,694 $2,072,523 $2,075,316
Loans charged off (54,521) (754,032) (78,497)
Recoveries of loans previously
charged off 20,176 879,203 75,704
---------- ---------- ----------
Balance at end of period $2,163,349 $2,197,694 $2,072,523
========== ========== ==========
Information about loans that meet the definition of an impaired loan in
Statement of Financial Accounting Standards No. 114 is as follows as of
December 31:
1997 1996
----------------------- ------------------------
Recorded Related Recorded Related
Investment Allowance Investment Allowance
In Impaired For Credit In Impaired For Credit
----------- ---------- ----------- ----------
Loans for which there is a
related allowance for credit
losses $ 244,778 $ 49,000 $ 38,743 $ 19,371
Loans for which there is no
related allowance for Credit
losses 35,512 18,026
----------- --------- ----------- ----------
Totals $ 280,290 $ 49,000 $ 56,769 $ 19,371
=========== ========= =========== ==========
Average recorded investment in
impaired loans during the year
ended December 31 $ 241,942 $1,448,955
========= ==========
Related amount of interest income recognized during the time, in the year ended
December 31, that the loans were impaired
Total recognized $ 1,737 $ 16,235
========== ===========
Amount recognized using a cash-basis
method of accounting $ 504 $ 0
========== ===========
FS 18
<PAGE>
NOTE 5 PREMISES AND EQUIPMENT
The following is a summary of premises and equipment as of December 31:
1997 1996
----------- -----------
Land $ 421,077 $ 421,077
Land improvements 4,550 4,550
Buildings 4,365,256 4,358,091
Furniture and equipment 1,979,863 1,573,120
Leasehold improvements 1,163,276 526,039
Construction in progress 4,680 265,426
----------- -----------
7,938,702 7,148,303
Accumulated depreciation and amortization (3,119,096) (2,714,774)
----------- -----------
$ 4,819,606 $ 4,433,529
=========== ===========
NOTE 6 - DEPOSITS
The aggregate amount of time deposit accounts (including CDs), each with a
minimum denomination of $100,000, was approximately $5,168,863 and $4,434,744
as of December 31, 1997 and 1996, respectively.
For time deposits as of December 31, 1997, the aggregate amount of maturities
for each of the following five years ended December 31, are:
1998 $38,682,658
1999 8,576,138
2000 1,531,794
2001 1,083,664
2002 296,125
-----------
$50,170,379
===========
NOTE 7 NOTES PAYABLE
Notes payable consisted of the following as of December 31:
1997 1996
-------- --------
Industrial Revenue Bond, due in a balloon payment
on June 30, 2000. Interest payable at 94.11% of
the Bank of Boston prime rate $385,627 $385,627
======== ========
The Industrial Revenue Bond was issued to Cabot Street Realty Trust on August
1, 1985 in order to purchase property and finance renovations.
A term loan was issued to Beverly National Corporation on December 29, 1994.
The loan was granted by First & Ocean National Bank. The loan was paid in full
during 1996.
FS 19
<PAGE>
NOTE 8 INCOME TAXES
The components of the income tax expense are as follows for the years ended
December 31:
1997 1996 1995
---------- ---------- ----------
Current:
Federal $ 950,484 $ 991,183 $ 731,021
State 472,354 403,139 330,760
---------- ---------- ----------
1,422,838 1,394,322 1,061,781
---------- ---------- ----------
Deferred:
Federal (7,304) 13,317 (14,160)
State (23,233) 2,666 (20,921)
---------- ---------- ----------
(30,537) 15,983 (35,081)
---------- ---------- ----------
Total income tax expense $1,392,301 $1,410,305 $1,026,700
========== ========== ==========
The reasons for the differences between the statutory federal income tax rates
and the effective tax rates are summarized as follows for the years ended
December 31:
1997 1996 1995
% of % of % of
Income Income Income
------ ------ ------
Federal income tax at statutory rate 34.0% 34.0% 34.0%
Increase (decrease) in tax resulting from:
Tax-exempt income (.3) (.4) (.8)
Dividends paid to ESOP (.3) (.3) (.3)
Unallowable expenses .2 .2 .3
Other (2.8) (.2)
State tax, net of federal tax benefit 8.3 7.8 8.5
------ ------ ------
39.1% 41.1% 41.7%
====== ====== ======
FS 20
<PAGE>
The Corporation had gross deferred tax assets and gross deferred tax
liabilities as follows as of December 31:
1997 1996
-------- --------
Deferred tax assets:
Allowance for loan losses $590,136 $607,419
Loan origination fees and cost, net 39,670
Accrued retirement benefits 73,853 66,354
Accrued interest on nonperforming loans 16,864 7,965
Unrealized loss on mortgages held-for-sale 2,657
Accrued pension expense 49,309 23,640
Net unrealized holding loss on securities 26,153
-------- --------
Gross deferred tax assets 730,162 773,858
-------- --------
Deferred tax liabilities:
Accelerated depreciation 197,878 240,162
Loan origination fees and costs, net 1,129
Net unrealized holding gain on securities 4,488
Unrealized gain on mortgages held-for-sale 865
Other adjustments 18,476 26,265
-------- --------
Gross deferred tax liabilities 222,836 266,427
-------- --------
Net deferred tax assets $507,326 $507,431
======== ========
Deferred tax assets as of December 31, 1997 and 1996 have not been reduced by
a valuation allowance because management believes that it is more likely than
not that the full amount of deferred tax assets will be realized.
As of December 31, 1997, the Corporation had no operating loss and tax credit
carryovers for tax purposes.
NOTE 9 - STOCK COMPENSATION PLANS
As of December 31, 1997, the Corporation has three fixed option, stock-based
compensation plans, which are described below. The Corporation applies APB
Opinion 25 and related Interpretations in accounting for its plans.
Accordingly, no compensation cost has been recognized for its fixed stock
option plans. Had compensation cost for the Corporation's stock-based
compensation plans been determined based on the fair value at the grant dates
for awards under those plans consistent with the method of FASB Statement 123,
the Corporation's net income and earnings per share would have been reduced
to the pro forma amounts indicated below as of December 31:
1997 1996
---------- ----------
Net income As reported $2,170,013 $2,019,611
Pro forma $2,125,921 $1,989,469
Earnings per share As reported $2.94 $2.76
Pro forma $2.88 $2.72
Earnings per share,
assuming dilution As reported $2.64 $2.61
Pro forma $2.58 $2.57
FS 21
<PAGE>
Under the 1993 Incentive Stock Option Plan, the Corporation has
granted options to key employees to purchase up to 56,100 shares of common
stock. Under the Directors' Stock Option Plan, the Corporation may grant
options to its present and future Directors for up to 108,000 shares of
common stock. Under the Incentive plan, options are granted at fair market
value. Under the Directors plan, stock options are granted at no less than
85% of fair market value.
In 1996, the Corporation adopted the 1996 Incentive Stock Option
Plan for key employees. Under the 1996 plan, up to 35,900 shares of common
stock may be granted, at fair value, to one director and other participants
who will be selected from key employees.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1997 and 1996: dividend yield of 3 percent,
expected volatility of 12 percent, risk-free interest rate of 6.60 percent
in 1997 and 5.65 percent and expected lives of 8 years.
A summary of the status of the Corporation's fixed stock option plans as of
December 31, 1997, 1996 and 1995 and changes during the years ending on those
dates is presented below:
1997 1996 1995
---------------- ----------------- -----------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Fixed Options Shares Price Shares Price Shares Price
- ------------- ------- -------- ------- -------- ------- --------
Outstanding at
beginning of
year 154,950 $14.05 100,500 $12.87 100,500 $12.87
Granted 27,850 19.65 60,600 15.78 0
Exercised (6,100) 12.00 (3,210) 11.90 0
Forfeited (900) 18.00 (2,940) 11.90 0
------- ------- -------
Outstanding
at end of
year 175,800 $14.99 154,950 $14.05 100,500 $12.87
======= ======= =======
Options
exercisable
at year-end 91,805 79,110 59,737
Weighted-average
fair value
of options
granted during
the year $4.76 $2.95 N/A
FS 22
<PAGE>
The following table summarizes information about fixed stock options
outstanding as of December 31, 1997:
Options Outstanding Options Exercisable
------------------------------------ ----------------------
Weighted-
Number Average Weighted- Number Weighted-
Range of Outstanding Remaining Average Exercise Average
Exercise as of Contractual Exercise as of Exercise
Prices 12/31/97 Life Price 12/31/97 Price
- ------------ ------------ ----------- --------- -------- --------
$11.90 41,850 5.6 years $11.90 24,450 $11.90
14.00 46,500 5.6 14.00 37,650 14.00
15.30 48,000 8.1 15.30 19,200 15.30
16.36-18.00 17,540 8.5 17.47 3,805 17.45
20.30 21,910 9.0 20.30 6,700 20.30
------- ------
11.90-20.30 175,800 7.0 14.99 91,805 14.32
======= ======
NOTE 10 - EMPLOYEE BENEFITS OTHER THAN POSTRETIREMENT, MEDICAL AND
LIFE INSURANCE BENEFITS
The Bank has a defined benefit pension plan covering substantially all of
its full time employees who meet certain eligibility requirements. The
benefits paid are based on 2 1/2% of the final average salary for each of the
first 20 years of service plus an additional 1% for each of the next 10 years
of service less 1 2/3% of the member's social security benefit for each year of
service (maximum 30 years), up to a maximum of 60% of the final average salary
less 50% of the member's social security benefit.
The following table sets forth the funded status of the plan and amounts
recognized in the Corporation's balance sheet as of December 31:
1997 1996
----------- -----------
Actuarial present value of benefit obligations:
Accumulated benefit obligation
(including vested benefits of $3,375,343 and
$3,151,235, respectively) $ 3,443,699 $ 3,229,528
=========== ===========
FS 23
<PAGE>
Projected benefit obligation for services rendered
to date $(4,925,921) $(4,534,804)
Plan assets at fair value, primarily invested in
U.S. Treasury Notes, common stocks and bonds 5,015,207 4,049,583
----------- -----------
Plan assets less than projected benefit obligation 89,286 (485,221)
Prior service benefit not yet recognized in net
periodic pension cost 35,168 37,680
Unrecognized net (gain) loss from past experience
different from that assumed and effects of
changes in assumptions (94,675) 567,782
Unrecognized net obligation at January 1, 1987,
being amortized over 16.631 years (149,459) (176,005)
----------- -----------
Accrued pension cost included in the balance sheet $ (119,680) $ (55,764)
=========== ===========
Net periodic pension cost included the following components for the years
ended December 31:
1997 1996 1995
-------- -------- --------
Service cost-benefits earned during
the period $235,313 $207,837 $162,172
Interest cost on projected benefit
obligation 311,773 282,903 251,055
Expected return on plan assets (358,512) (484,920) (686,633)
Net amortization and deferral (17,469) 153,716 410,887
-------- -------- --------
Net periodic pension cost $171,105 $159,536 $137,481
======== ======== ========
The weighted-average discount rate and rate of increase in future
compensation levels used in determining the actuarial present value of the
projected benefit obligation were 7.0% and 5.0%, respectively. The expected
long-term rate of return on assets was 9.0%.
In addition to the defined benefit pension plan, the Corporation also offers
a number of benefit programs to its key officers and employees.
On December 24, 1996 the Corporation adopted a Supplemental Retirement Plan
for two executive officers. This plan provides nonfunded retirement benefits
designed to supplement benefits available through the Corporation
retirement plan for employees. The amount charged to expense for these
benefits was $131,116 in 1997 and $136,751 in 1996.
FS 24
<PAGE>
The financial status of the plan is as follows as of December 31, 1997:
Projected benefit obligation $326,932
Unrecognized net gains 12,120
--------
339,052
Assets of the Bank, consisting of U.S.
Government obligations, equity instruments
and life insurance policies, which are
used to assist in the administration
of the plan 292,554
--------
Pension liability $ 46,498
========
The discount rate and estimated pay increases used in determining the projected
benefit obligation were 7% and 5%, respectively.
The Corporation has a defined contribution profit sharing plan. Contributions
by the Corporation were $15,067 in 1997, $0 in 1996 and $13,447 in 1995.
The Corporation contributed $76,479, $73,969 and $70,171 to a 401K plan in
1997, 1996 and 1995, respectively.
The Corporation established an Employee Stock Ownership Plan (ESOP) effective
January 1, 1988. This plan is offered to employees who have attained age 21
and who have been employed by the Corporation and completed a minimum of
1,000 hours of employment. The plan entitles Corporation employees to common
stock or cash upon retirement, disability, death or separation from service
from the Corporation based on a vesting schedule. Benefits become 25% vested
after two years of vesting service and increase to 100% vested after five
years of vesting service.
FS 25
<PAGE>
The Corporation makes annual contributions to the ESOP in amounts determined
by the board of directors, subject to a limitation based on earnings and
capital of the Corporation. Such contributions are first made to permit
required payments of amounts due under acquisition loans. Dividends received
by the ESOP on shares of the Corporation owned by the ESOP are used to repay
acquisition loans or are credited to the accounts of allocated shares. The
ESOP borrows money to purchase shares of the Corporation. The shares are
pledged as collateral for its debt. As the debt is repaid, shares are
released from collateral and allocated to active employees, based on the
proportion of debt service paid in the year. The debt of the ESOP is recorded
as debt and the shares pledged as collateral are reported as unearned ESOP
shares in the statement of financial position. ESOP compensation expense
was $148,600 in 1997, $149,881 for 1996 and $90,000 for 1995. The ESOP
shares were as follows as of December 31:
1997 1996
-------- --------
Allocated shares 32,470 26,966
Shares released for allocation 3,780 2,823
Unreleased shares 13,402 19,863
-------- --------
Total ESOP shares 49,652 49,652
======== ========
Estimated fair value of unreleased shares
as of December 31 $445,617 $403,219
======== ========
Any shares of the Corporation purchased by the ESOP after December 31, 1992
are subject to the accounting specified by the American Institute of
CPAs Statement of Position 93-6. The only such shares were 1,410 shares
purchased on February 2, 1996 and 3,378 shares purchased on October 31, 1994.
As of December 31, 1996 none of these shares had been released from
collateral. As they are released, the Corporation will report compensation
expense equal to the current market price of the shares and the shares will
become outstanding for earnings-per-share computations. Also, as the shares
are released, the related dividends will be recorded as a reduction of
retained earnings, and dividends on the unallocated shares will be recorded
as a reduction of debt and accrued interest.
Loans payable by the ESOP, with repayment guaranteed by the
Corporation, consist of the following as of December 31, 1997:
1995 loan payable at Wall Street Journal prime rate,
due March 31, 2005 $300,000
========
The Severance Compensation Plan was adopted for employees, in the event of a
Hostile Takeover, who have completed at least two years of continuous
service with the Corporation. A participant in this plan is entitled to
payments ranging from a lump sum payment equal to the employee's annual
compensation during the preceding twelve months to a lump sum payment equal
to two-and-one-half times such annual compensation if the employee is
terminated for any reason set forth in the plan within two years after the
takeover.
FS 26
<PAGE>
NOTE 11 - POSTRETIREMENT BENEFITS OTHER THAN PENSION
The Corporation provides postretirement medical and life insurance benefits
for retired employees. During 1993 the Corporation adopted SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pension." The
Corporation elected to amortize the cumulative effect of the change in
accounting for postretirement benefits of $859,500 which represents the
accumulated postretirement benefit obligation (APBO) existing as of January
1, 1993. The APBO is being amortized on a straight-line basis over a twenty
year period. The Corporation continues to fund medical and life insurance
benefit costs on a pay-as-you-go basis.
Summary information on the Corporation's plan is as follows as of December 31:
1997 1996
-------- --------
Financial status of plan:
APBO:
Retirees $456,760 $479,215
Fully eligible active employees 130,425 119,944
Other active employees 26,723 24,575
-------- --------
613,908 623,734
Unrecognized transition obligation (645,000) (687,900)
Unrecognized net gain 199,533 214,621
-------- --------
Accrued postretirement benefit cost
included in other liabilities on
the balance sheet $168,441 $150,455
======== ========
The components of net periodic postretirement benefit cost are as follows
for the years ended December 31:
1997 1996 1995
-------- -------- --------
Service Cost (benefits attributed to
employee services during the year) $ 2,390 $ 2,348 $ 2,340
Interest cost (on the APBO) 43,661 42,912 54,071
Amortization cost (of APBO over 20
years) 42,900 42,900 42,900
Amortization of net gain (15,225) (14,775) (8,612)
------- ------- -------
Net periodic postretirement
benefit cost $73,726 $73,385 $90,699
======= ======= =======
FS 27
<PAGE>
The discount rate used in determining the APBO as of December 31, 1997, 1996
and 1995 was 7.0%. Estimated pay increases were 5.0%. The assumed
healthcare cost trend rate used in measuring the APBO was frozen at 7% in
1997 and each year thereafter, and was 8% for 1996 and 10% for 1995. If the
healthcare cost trend rate assumptions were increased by 1%, the APBO, as of
December 31, 1997, 1996 and 1995 would increase by approximately $5,325,
$5,591 and $15,624, respectively. The effect of this change on the sum of
the service cost and interest cost components of the net periodic
postretirement benefit cost for 1997, 1996 and 1995 would be increases of
approximately $352, $368 and $1,044, respectively. The pay-as-you-go
expenditures for postretirement benefits were $55,740 for 1997, $56,183 for
1996 and $65,447 for 1995.
Changes in the accrued postretirement benefit cost were as follows for the
years ended December 31:
1997 1996
-------- --------
Accrued postretirement benefit at
beginning of period $150,455 $133,253
Plus postretirement benefit expense 73,726 73,385
Less postretirement benefit cash expenditures (55,740) (56,183)
-------- --------
Accrued postretirement benefit cost at end
of period $168,441 $150,455
======== ========
NOTE 12 - COMMITMENTS AND CONTINGENT LIABILITIES
The Corporation is obligated under various lease agreements covering
branch offices and equipment. These agreements are considered to
be operating leases. The terms expire between 1998 and 2001. Options to
renew for additional terms are included under the branch office lease
agreements. The total minimum rental due in future periods under these
existing agreements is as follows as of December 31, 1997:
1998 $150,277
1999 145,902
2000 110,044
2001 80,998
--------
Total minimum lease payments $487,221
========
Certain leases contain provisions for escalation of minimum lease payments
contingent upon increases in real estate taxes and percentage increases in
the consumer price index. The total rental expense amounted to $164,083 for
1997, $93,893 for 1996 and $83,497 for 1995.
FS 28
<PAGE>
NOTE 13 FINANCIAL INSTRUMENTS
The Corporation 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, standby letters of credit and unadvanced funds on loans. The
instruments involve, to varying degrees, elements of credit risk in excess
of the amount recognized in the balance sheets. The contract amounts of
those instruments reflect the extent of involvement the Corporation has in
particular classes of financial instruments.
The Corporation's exposure to credit loss in the event of nonperformance by
the other party to the financial instrument for loan commitments and
standby letters of credit is represented by the contractual amounts of those
instruments. The Corporation uses the same credit policies in making
commitments and conditional obligations as it does for on-balance sheet
instruments.
Commitments to originate loans 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 many of the commitments are
expected to expire without being drawn upon, the total commitment amounts do
not necessarily represent future cash requirements. The Corporation evaluates
each customer's creditworthiness on a case-by-case basis. The amount of
collateral obtained, if deemed necessary by the Corporation upon extension
of credit, is based on management's credit evaluation of the borrower.
Standby letters of credit are conditional commitments issued by the
Corporation 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. Of the total
standby letters of credit outstanding as of December 31, 1997, $10,000 are
secured by deposit accounts held at the Bank.
The estimated fair values of the Corporation's financial instruments, all of
which are held or issued for purposes other than trading, are as follows as
of December 31:
FS 29
<PAGE>
1997 1996
Carrying Fair Carrying Fair
Amount Value Amount Value
------------- ----------- ----------- -----------
Financial assets:
Cash and cash equivalents $ 18,687,570 $18,687,570 $25,363,278 $25,363,278
Available-for-sale
securities 20,796,287 20,796,287 17,608,128 17,608,128
Held-to-maturity
securities 17,185,188 17,225,063 22,934,468 22,990,284
Federal Reserve Bank 97,500 97,500 97,500 97,500
Loans 130,844,145 131,136,867 114,252,890 113,866,162
Mortgages held-for-sale 376,533 376,533 964,377 964,377
Accrued interest receivable 1,162,497 1,162,497 1,081,467 1,081,467
Financial liabilities:
Deposits 176,291,010 176,499,864 170,738,228 170,972,510
Notes payable 385,627 385,627 385,627 385,627
Employee Stock Ownership
Plan loan 300,000 300,000 360,000 360,000
The carrying amounts of financial instruments shown in the above table are
included in the consolidated balance sheets under the indicated captions.
Accounting policies related to financial instruments are described in Note 2.
1997 1996
----------- -----------
Commitments to originate loans $ 25,000 $ 1,682,000
Standby letters of credit 1,436,381 2,230,370
Unadvanced portions of loans:
Consumer 799,583 654,709
Home equity 5,115,806 4,464,655
Commercial lines of credit 12,753,660 12,318,287
Commercial construction 506,564 1,606,254
Residential construction 610,849 145,310
----------- -----------
$21,247,843 $23,101,585
=========== ===========
There is no material difference between the notional amounts and the
estimated fair values of the off-balance sheet liabilities.
The Company has no derivative financial instruments subject to
the provisions of SFAS No. 119 "Disclosure About Derivative Financial
Instruments and Fair Value of Financial Instruments."
NOTE 14 - SIGNIFICANT GROUP CONCENTRATIONS OF CREDIT RISK
Most of the Bank's business activity is with customers located within the
state. There are no concentrations of credit to borrowers that have
similar economic characteristics. The majority of the Bank's loan portfolio
is comprised of loans collateralized by real estate located in the state of
Massachusetts.
FS 29
<PAGE>
NOTE 15- REGULATORY MATTERS
The Bank, as a National Bank is subject to the dividend restrictions set
forth by the Comptroller of the Currency. Under such restrictions, the Bank
may not, without the prior approval of the Comptroller of the Currency,
declare dividends in excess of the sum of the current year's earnings (as
defined) plus the retained earnings (as defined) from the prior two years.
As of December 31, 1997 the Bank could declare dividends up to $3,940,828,
without the approval of the Comptroller of the Currency.
The Corporation and its subsidiary the Bank are subject to various regulatory
capital requirements administered by the federal banking agencies.
Failure to meet minimum capital requirements can initiate certain mandatory -
and possibly additional discretionary - actions by regulators that, if
undertaken, could have a direct material effect on the Corporation's and the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Corporation and the
Bank must meet specific capital guidelines that involve quantitative measures
of their assets, liabilities, and certain off-balance-sheet items as
calculated under regulatory accounting practices. Their capital amounts and
classification are also subject to qualitative judgments by the regulators
about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Corporation and the Bank to maintain minimum amounts and ratios
(set forth in the table below) of total and Tier 1 capital (as defined in the
regulations) to risk-weighted assets (as defined), and of Tier 1 capital (as
defined) to average assets (as defined). Management believes, as of December
31, 1996, that the Corporation and the Bank meet all capital adequacy
requirements to which they are subject.
As of December 31, 1997, the most recent notification from the Office of the
Comptroller of the Currency categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized the Bank must maintain minimum total risk-based, Tier 1 risk-
based and Tier 1 leverage ratios as set forth in the table. There are no
conditions or events since that notification that management believes have
changed the institution's category.
FS 30
<PAGE>
The Corporation's and the Bank's actual capital amounts and ratios are also
presented in the table.
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes: Action Provisions:
------------- ------------------ ------------------
Amount Ratio Amount Ratio Amount Ratio
(Dollar amounts in thousands)
As of December 31, 1997:
Total Capital (to Risk Weighted Assets):
Consolidate $18,608 14.39% $10,346 >8.0% N/A
Beverly National 16,588 13.09 10,136 >8.0 $12,670 >10.0%
Bank
Tier 1 Capital (to Risk Weighted Assets):
Consolidated 16,985 13.08 5,195 >4.0 N/A
Beverly National 14,997 11.78 5,091 >4.0 7,636 >6.0%
Bank
Tier 1 Capital (to Average Assets):
Consolidated 16,985 8.68 7,830 >4.0 N/A
Beverly National 14,997 7.78 7,707 >4.0 9,634 >5.0%
Bank
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes: Action Provisions:
-------------- ------------------ ------------------
Amount Ratio Amount Ratio Amount Ratio
(Dollar Amounts in Thousands)
As of December 31, 1996:
Total Capital (to Risk Weighted Assets):
Consolidated $16,691 13.92% $9,594 >8% N/A
Beverly National 14,773 12.71 9,298 >8 $11,622 >10%
Bank
Tier 1 Capital (to Risk Weighted Assets):
Consolidated 15,179 12.58 4,825 >4 N/A
Beverly National 13,312 11.38 4,678 >4 7,017 >6%
Bank
Tier 1 Capital (to Average Assets):
Consolidated 15,179 8.26 7,354 >4 N/A
Beverly National 13,312 7.34 7,253 >4 9,067 >5%
Bank
FS 31
<PAGE>
NOTE 16 - EARNINGS PER SHARE (EPS)
In the earnings-per-share computations, the average number of shares
outstanding does not include 16,633 shares for 1997, 22,348 shares for 1996
and 15,722 shares for 1995 which was the average number of shares not
committed to be released under the Bank's ESOP plan for those years.
Reconciliation of the numerators and the denominators of the basic and
diluted per share computations for net income are as follows:
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
Year ended December 31, 1997
Basic EPS
Net income and income
available to common
stockholders $2,170,013 738,316 $2.94
Effect of dilutive
securities options
and warrants 84,100
---------- ------- -----
Diluted EPS
Income available to common
stockholders and assumed
conversions $2,170,013 822,416 $2.64
========== ======= =====
Year ended December 31, 1996 - As restated
Basic EPS
Net income and income
available to common
stockholders $2,019,611 731,841 $2.76
Effect of dilutive
securities options 41,972
---------- ------- -----
Diluted EPS
Income available to
common stockholders
and assumed conversion $2,019,611 773,813 $2.61
========== ======= =====
Year ended December 31, 1995 - As restated
Basic EPS
Net income and income
available to common
stockholders $1,432,272 737,187 $1.94
Effect of dilutive
securities options 20,697
---------- ------- -----
Diluted EPS
Income available to
common stockholders
and assumed
conversions $1,432,272 757,884 $1.89
========== ======= =====
FS 32
<PAGE>
NOTE 17 - PARENT COMPANY ONLY FINANCIAL STATEMENTS
The following financial statements presented are for the Beverly National
Corporation (Parent Company Only) and should be read in conjunction with the
consolidated financial statements.
BEVERLY NATIONAL CORPORATION (Parent Company Only)
BALANCE SHEETS
December 31, 1997 and 1996
ASSETS 1997 1996
--------------- --------------
Cash $ 2,934 $ 1,199
Investment in Beverly National Bank 15,002,609 13,275,434
Investment in Cabot Street Realty Trust 548,347 574,624
Investment in available-for-sale securities 244,000 47,500
Loans 35,000 35,000
Premises and equipment 570,666 587,407
Accounts receivable from subsidiaries 865,000 960,000
Interest receivable 1,002 936
Other assets 45,263
Prepaid and deferred taxes 31,139 32,829
--------------- --------------
$ 17,300,697 $ 15,560,192
=============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Employee Stock Ownership Plan loan $ 300,000 $ 360,000
Accrued audit expense 2,940 6,910
Other liabilities 7,047 50,721
--------------- --------------
Total liabilities 309,987 417,631
--------------- --------------
Stockholders' equity:
Preferred stock, $2.50 par value per share;
300,000 shares authorized; issued
and outstanding none
Common stock, par value $2.50 per share;
authorized 2,500,000 shares; issued 791,349
shares as of December 31, 1997 and 1996;
outstanding, 760,482 as of December 31, 1997
and 754,382 shares as of December 31, 1996 1,978,373 1,978,373
Paid-in capital 4,319,092 4,358,926
Retained earnings 11,558,988 9,886,901
Treasury stock, at cost(30,867 shares as of
December 31, 1997 and 36,967 shares as
of December 31, 1996) (572,093) (685,127)
Unearned Compensation - Employee Stock
Ownership Plan (300,000) (360,000)
Net unrealized holding gain (loss) on
available-for-sale securities 6,350 (36,512)
--------------- --------------
Total stockholders' equity 16,990,710 15,142,561
--------------- --------------
$ 17,300,697 $ 15,560,192
=============== ==============
FS 33
<PAGE>
BEVERLY NATIONAL CORPORATION (Parent Company Only)
STATEMENTS OF INCOME
Years Ended December 31, 1997, 1996 and 1995
1997 1996 1995
---------- ---------- ----------
Interest and dividend income:
Interest on taxable investment securities $ 5,801 $ 6,577 $ 6,146
Interest on loans and receivables from
subsidiaries 67,022 72,796 75,188
Dividends from Beverly National Bank 497,926 612,156 721,496
---------- ---------- ----------
Total interest and dividend income 570,749 691,529 802,830
---------- ---------- ----------
Other Income:
Rental income 36,000 36,000 36,000
Other income 395
---------- ---------- ----------
Total other income 36,000 36,000 36,395
---------- ---------- ----------
Expenses:
Occupancy expense 16,742 16,912 16,927
Equipment expense 624 2,145 1,906
Interest on notes payable 24,887 59,532
Other expense 83,971 133,754 116,343
---------- ---------- ----------
Total expenses 101,337 177,698 194,708
---------- ---------- ----------
Income before income tax benefit and
equity in undistributed net income (loss)
of subsidiaries 505,412 549,831 644,517
Income tax benefit (6,536) (31,071) (33,600)
---------- ---------- ----------
Income before equity in undistributed
net income (loss) of subsidiaries 511,948 580,902 678,117
---------- ---------- ----------
Equity in undistributed net income (loss)
of subsidiaries:
Beverly National Bank 1,684,342 1,468,702 787,784
Cabot Street Realty Trust (26,277) (29,993) (35,476)
86 Bay Road Realty Trust 1,847
---------- ---------- ----------
Total equity in undistributed net income
of subsidiaries 1,658,065 1,438,709 754,155
---------- ---------- ----------
Net income $2,170,013 $2,019,611 $1,432,272
========== ========== ==========
FS 34
<PAGE>
BEVERLY NATIONAL CORPORATION (Parent Company Only)
STATEMENTS OF CASH FLOWS
Years Ended December 31, 1997, 1996 and 1995
1997 1996 1995
---------- ---------- ----------
Cash flows from operating activities:
Net income $2,170,013 $2,019,611 $1,432,272
Adjustments to reconcile net income to
net cash provided by operating
activities:
Loss of merged subsidiary 196
Undistributed net income of
subsidiaries (1,658,065) (1,438,709) (754,155)
Increase (decrease) in accrued expenses (3,941) (7,738) 850
Depreciation expense 16,742 16,912 16,928
Increase in taxes payable 3,830 950 82,696
Change in prepaid and deferred taxes (552) 1,758
(Increase) decrease in interest
receivable (66) 3,053 13,608
Decrease in interest payable (138) (252)
(Increase) decrease in other assets 45,263 (43,822) (1,441)
---------- ---------- ----------
Net cash provided by operating activities 573,224 552,073 790,506
---------- ---------- ----------
Cash flows from investing activities:
Capital expenditures (4,550)
Purchases of available-for-sale securities (281,500) (173,000) (230,000)
Proceeds from sales of available-for-sale
securities 132,000 236,000
Proceeds from maturities of available-for-
sale securities 85,000
Decrease in due from subsidiaries 95,000 69,000 9,000
Increase (decrease) in due to subsidiaries 65,000 (86,886)
Cash received from merger of subsidiary 142
---------- ---------- ----------
Net cash provided by (used in)
investing activities (101,500) 88,592 (71,886)
---------- ---------- ----------
Cash flows from financing activities:
Repayment of notes payable (300,000) (350,000)
Proceeds from notes payable 100,000
Proceeds from sales of treasury stock 73,200 38,199
Purchases of treasury stock (49,500)
Dividends paid (543,189) (482,418) (331,356)
---------- ---------- ----------
Net cash used in financing activities (469,989) (744,219) (630,856)
---------- ---------- ----------
Net increase (decrease) in cash and
cash equivalents 1,735 (103,554) 87,764
Cash and cash equivalents at beginning
of year 1,199 104,753 16,989
---------- ---------- ----------
Cash and cash equivalents at end of year $ 2,934 $ 1,199 $ 104,753
========== ========== ==========
FS 35
<PAGE>
BEVERLY NATIONAL CORPORATION (Parent Company Only)
STATEMENTS OF CASH FLOWS
Years Ended December 31, 1997, 1996 and 1995
1997 1996 1995
Supplemental disclosure:
Income taxes received $ (9,814) $ (33,779) $ (116,296)
The following transactions were a result
of the merger of 86 Bay Road Realty
Trust into Beverly National Corporation:
Assets acquired, exclusive of cash $ 28,244
Cash acquired in the merger 142
Liabilities assumed (960)
Elimination of due to subsidiary 65,000
Elimination of investment in subsidiary (92,426)
----------
Cash acquired in the merger $ 0
==========
The Parent Only Statements of Changes in Stockholders' Equity are identical to
the Consolidated Statements of Changes in Stockholders' Equity for the years
ended December 31, 1997, 1996 and 1995, and therefore are not reprinted here.
FS 36
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
NONE
PART III
--------
9. DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth each of the Directors and Executive Officers of
the Corporation and of the Bank. Except as follows, all Directors and
Executive Officers of the Corporation have served as such since 1992. Mr.
Booth and Mr. Wiltshire have been Directors since 1993. Mr. Clark R. Smith has
been a Director since 1994. Mr. Glovsky has been a Director since 1996. Each
Executive Officer holds office until the first Directors' meeting following the
annual meeting of stockholders and thereafter until his or her successor is
elected and qualified. Each Director of the Corporation is also a Director of
the Bank.
Expiration Business
Date for Experience
Term of During Past
Name Age Position Office Five Years
- ---------------- --- -------- ----------- -------------------
Richard H. Booth 63 Director 2001 Retired Stockbroker
Neiland J.
Douglas, Jr. 62 Director 1999 President, Morgan
and Douglas (Real
Estate Services)
John N. Fisher 57 Director 2000 President, Fisher &
George Electrical
Co., Inc.
Mark B. Glovsky 50 Director 1999 Attorney, Partner,
Glovsky & Glovsky
Attorneys at Law
John L. Good, III 53 Director 2001 Vice President,
Community Relations
& Development,
Beverly Hospital
Alice B. Griffin 60 Director 2000 President,
Griffin Pension
Services, Inc.
Julia L. Robichau 60 Vice Pres. Vice Pres. & Clerk of
& Clerk of Corporation:
Corporation; Vice President,
Vice President, & Chief Operations
Chief Operations Officer &
Officer & Cashier of Bank
Cashier of Bank
<PAGE>
Peter E. Simonsen 47 Treasurer of Treasurer of
Corporation; Corporation;
Vice President Vice President
and Chief and Chief
Financial Financial
Officer of Bank Officer of Bank
Clark R. Smith 59 Director 2001 Attorney
Lawrence M. Smith 56 President & 1999 President & CEO,
Chief Beverly
Executive National
Officer of Corporation and
Corporation Beverly
and Bank, National Bank,
Director Director
James D. Wiltshire 66 Director 2000 Consultant
No Director holds a directorship in any corporation (other than Beverly
National Corporation) with a class of securities registered pursuant to Section
12, of the Securities Exchange Act of 1934 or subject to the requirements
of Section 15(d), of such Act or any corporation registered as an investment
company under the Investment Company Act of 1940.
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
The following table provides certain information regarding the compensation
paid to Executive Officers for services rendered in capacities to the
Corporation and the Bank during the fiscal year ended December 31, 1997, 1996,
and 1995, respectively. No other Executive Officer of the Corporation or the
Bank received cash compensation in excess of $100,000.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION
ANNUAL COMPENSATION AWARDS PAYOUTS
Other Annual Restricted Options/ LTIP All Other
Compensation Stock Award(s) SARs Payouts Compensation
Name and Principal Position Year Salary($) Bonus($) ($)(1) ($) (#) ($) (2)(3)($)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Lawrence M. Smith 1997 178,300 45,000 7,324 4,000 119,106
President of the Corporation 1996 171,500 37,500 4,756 12,000 134,074
and President, Chief 1995 166,075 23,400 5,563 41,434
Executive Officer of the Bank
Julia L. Robichau 1997 88,300 19,000 436 2,000 29,411
Vice President and Clerk of 1996 85,000 15,000 303 31,949
the Corporation and 1995 76,600 11,300 169 5,973
Vice President and Cashier,
Chief Operations Officer of
the Bank
Peter E. Simonsen 1997 91,720 19,000 297 2,000 4,291
Treasurer of the Corporation 1996 88,370 15,425 280 8,002
and Vice President and 1995 85,720 11,300 198 6,713
Chief Financial Officer of the
Bank
James E. Rich 1997 96,275 12,000 370 2,000 4,313
Vice President and Senior 1996 93,275 15,925 125 8,482
Trust Officer of the Bank 1995 90,475 10,100 116 7,040
<FN>
<F1>
(1) Included in other annual compensation is an automobile allowance
for Lawrence M. Smith and Excess Group Life Insurance for Lawrence
M. Smith, Julia L. Robichau, Peter E. Simonsen and James E. Rich.
<F2>
(2) Included in all other compensation is profit sharing, ESOP, life
insurance for Lawrence M. Smith, Julia L. Robichau, Peter E.
Simonsen and James E. Rich; SERPS for Lawrence M.Smith, $115,712
and Julia L. Robichau, $24,265; and key man insurance for Lawrence
M. Smith.
<F3>
(3) Information concerning allocations under the Corporation's Employee
Stock Ownership Plan is unavailable, at date of filing.
</FN>
</TABLE>
<PAGE>
Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End
- --------------------------------------------------------------
Option/SAR Values
- -----------------
The table below sets forth information regarding stock options that were
exercised, if any, during the last fiscal year, and unexercised stock options
held by the President of the Corporation and the President and Chief Executive
Officer of the Bank:
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options/SARS In-The Money Options/SARS
Shares At FY-/End (#) At FY-/End ($)
Acquired on Value Exerciseable(E)/ Exerciseable(E)/
Name and Principal Position Exercise(#) Realized($) Unexerciseable(U) Unexerciseable(U)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Lawrence M. Smith 6,000 $128,100 34,000 (E)(1)(3) $629,320 (1)(E)
President of the Corporation 0 (U)
and President, Chief
Executive Officer of the Bank
Julia L. Robichau 0 0 8,000 (E)(2)(3) $141,400 (E)
Vice President and Clerk of 0 (U)
the Corporation and
Vice President and Cashier,
Chier Operations Officer of
the Bank
Peter E. Simonsen 0 0 3,200 (E)(2)(3) $ 60,340 (E)
Treasurer of the Corporation 4,800 (U) $ 81,060 (U)
and Vice President and
Chief Financial Officer of the
Bank
James E. Rich 0 0 4,775 (E)(2)(3) $ 90,659 (E)
Vice President and Senior 3,225 (U) $ 50,741 (U)
Trust Officer of the Bank
<PAGE>
<FN>
<F1>
(1) As of December 31, 1997, the market value of Beverly National Corporation
common stock was $33.25 per share. As the option exercise price for the
options previously granted to Mr. Smith equals 6,000 shares @ $11.90 per
share 3010 shares @ $20.30 per share and 990 shares @ $17.25 per share
which amounts to less than the December 31, 1997 market value of $33.25,
the options were "in-the-money" on December 31, 1997. Options are
"in-the-money" if the fair value of the underlying securities exceeds the
exercise price of the option.
<F2>
(2) The option exercise price for the options granted to Mrs. Robichau, Mr.
Simonsen, and Mr. Rich in 1993 was 6000 shares @ $14.00 per share, and in
1997 2,000 shares @ $20.30 per share, which amount is less than $33.25 per
share as of December 31, 1997. Accordingly, the options of 8,000 were
"in-the-money" on December 31, 1997.
<F3>
(3) In 1996, the Corporation adopted the 1996 Incentive Stock Option Plan for
key employees. Under the 1996 plan, up to 35,900 shares of common stock
may be granted, at fair value, to participants who will be selected from
key employees. No options were granted under this plan in 1996. However,
in 1997, 21,910 options were granted to certain employees of the
Corporation and the Bank. With the exception of options granted to Mr.
Smith to purchase 3,010 shares of common stock and Mrs Robichau to
purchase 2,000 shares of common stock which vested immediately, all
options vested over a ten year period. The options may be exercised at a
price of $20.30 per share. Included in these grants were options to
Messrs. Simonsen and Rich to enable each to purchase 2,000 shares of the
Corporation's common stock.
</FN>
</TABLE>
Option/SAR Grants in Last Fiscal Year
- -------------------------------------
With the exception of the individuals set forth in the table below, no other
executive officer of the Corporation was granted options to purchase shares of
common stock. All shares purchased upon the exercise of any option must be
paid in full at the time of the purchase.
<PAGE>
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
Number of Percent of
Securities Total Options/ Fair Market
Underlying SARs Granted Exercise or Value on
Option/SARs to Employees Base Price Date of Date of Date of Expiration
Name and Principal Position Granted(#) in Fiscal Year(1) ($/Sh) Grant Grant Exercise Date
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Lawrence M. Smith 990 4.5% $17.25 $20.30 01/07/97 N/A 01/07/07
President of the Corporation 3,010 13.7% $20.30 $20.30 01/07/97 N/A 01/07/07
and President, Chief
Executive Officer of the Bank
Julia L. Robichau 2,000 9.1% $20.30 $20.30 01/07/97 N/A 01/07/07
Vice President and Clerk of
the Corporation and
Vice President and Cashier,
Chief Financial Officer of
the Bank
Peter E. Simonsen 2,000 9.1% $20.30 $20.30 01/07/97 N/A 01/07/07
Treasurer of the Corporation
and Vice President and
Chief Financial Officer of the
Bank
James E. Rich 2,000 9.1% $20.30 $20.30 01/07/97 N/A 01/07/07
Vice President and Senior
Trust Officer of the Bank
<FN>
<F1>
(1) The options/SARs granted to employees in 1997 totaled 21,910 shares.
<F2>
(2) In 1996, the Corporation adopted the 1996 Incentive Stock Option Plan for
key employees. Under the 1996 Plan, up to 35,900 shares of common stock
may be granted, at fair value, to participants who will be selected from
key employees. No options were granted under this plan in 1996. However,
in 1997, 21,910 options were granted to certain employees of the
Corporation and the Bank. With the exception of options granted to Mr.
Smith to purchase 3,010 shares of common stock and Mrs. Robichau to
purchase 2,000 shares of common stock which vested immediately, all
options vest over a ten year period. The options may be exercised at a
price of $20.30 per share. Included in these grants were options to
Messrs. Simonsen and Rich to enable each to purchase 2,000 shares of the
Corporation's common stock.
</FN>
</TABLE>
<PAGE>
Directors
- ---------
The Corporation pays no cash compensation to its Directors for their services
as a Director. As a Director of the Bank, Directors are paid a quarterly fee
of $1,500.00. In addition, for each semimonthly meeting attended, a Director
receives $300.00. Any Director serving on a subcommittee is compensated at
the rate of $100.00 per hour for committee meetings.
All non-employee directors were granted options during 1997 pursuant to the
Corporation's non-qualified Director Stock Option Plan. Specifically, the
Corporation granted options to purchase 4,950 shares of the Corporation's
Common Stock to Messrs. Good, Douglas, Fisher, Booth, Smith, Glovsky,
and Mrs. Griffin. The Corporation granted options to purchase 990 shares of
the Corporation's Common Stock to Lawrence M. Smith pursuant to the
non-qualified Director Stock Option Plan. Except as discussed below, the
options may be exercised in 10 installments, commencing on August 1, 1997, at a
price of $17.25 per share.
Employment and Severance Agreements
- -----------------------------------
The Corporation has entered into an Employment Agreement and Severance
Agreement with Lawrence M. Smith. The Employment Agreement provided Mr. Smith
with a minimum compensation until May 31, 1991. At that time the contract was
extended to continue through May 29, 1996; provided, however, that commencing
on May 31, 1996 the term of the Employment Agreement shall automatically be
extended for one additional year unless, not later than November 30, 1995,
either party notifies the other by written notice of its intent not to extend.
Also this agreement provides that during the Employment Agreement and for one
year afterward, Mr. Smith cannot compete with the Corporation and its
subsidiaries within their market area. The Severance Agreement allows that in
the event of a change in control of the Corporation, if Mr. Smith's employment
is terminated other than for cause as defined in the agreement, disability or
retirement within three years after the change in control, then he shall be
entitled to a lump sum payment from the Corporation approximately equal to
three times his average annual compensation for the previous five years.
The Corporation adopted, in 1987, a Plan for Severance Compensation After
Hostile Takeover ("Severance Compensation Plan") which provides for certain
payments to be made in the event that employees participating in such Plan are
terminated following a "hostile change in control" of the Corporation as
defined in such Plan. Any employee (other than Mr. Smith and Mrs. Robichau) may
participate in the Severance Compensation Plan as soon as the employee has
completed two years of continuous service with the Corporation or a
subsidiary. A participant is entitled to payments under the Severance
Compensation Plan in the event that, within two years after a hostile change in
control, the individual is terminated for any reason specified in the plan.
Such reasons include, among others, change in the employee's duties or
compensation, or termination of the employee other than for "just cause" as
defined in the Severance Compensation Plan. The amount of the payment under
the Severance Compensation Plan is determined by the length of the
participant's service, and ranges generally from a lump sum payment equal to
the employee's annual compensation during the preceding twelve months to a lump
sum payment equal to two-and-one-half times such annual compensation.
<PAGE>
Supplemental Executive Retirement Plans
- ---------------------------------------
In December 1996, the Corporation entered into a Supplemental Executive
Retirement Plan Agreement ("SERP") with Lawrence M. Smith. The purpose of the
SERP is to provide Mr. Smith with increased retirement benefits at age 60,
such that his total retirement payment pursuant to the SERP will approximate
70% of his annual compensation for the previous three (3) fiscal years.
In December 1996, the Corporation entered into a SERP with Julia L. Robichau.
The purpose of the SERP is to provide Mrs. Robichau with increased retirement
benefits at age 65, such that her total retirement payment pursuant to the
SERP will approximate 60% of her annual compensation for the three (3) previous
years.
Robichau Employment Agreement
- -----------------------------
The Corporation entered into an employment agreement with Julia L. Robichau in
December 1996 (the "Robichau Employment Agreement"). The Robichau Employment
Agreement provides for Mrs. Robichau's employment as Vice President and Clerk
of the Corporation and Vice President, Cashier and Chief Operations Officer of
the Bank. In connection with her employment, the Corporation will pay to Mrs.
Robichau an annual base salary of $88,300 per year, which annual base salary
shall be adjusted upward from time to time in the sole discretion of the
Corporation.
Pursuant to the Robichau Employment Agreement, the Corporation has agreed to
provide to Mrs. Robichau fringe benefits consistent with those provided for
all senior officers of the Corporation and the Bank.
The Robichau Employment Agreement contains a non-compete clause pursuant to
which Mrs. Robichau has agreed that while employed by the Corporation and for
a period of one year thereafter, Mrs. Robichau will not, in any capacity,
compete with the Corporation or the Bank.
The term of the Robichau Employment Agreement continues in effect through June
30, 1999, which is Mrs. Robichau's scheduled retirement date, unless the
agreement is terminated due to Mrs. Robichau's resignation, death, disability,
or if Mrs. Robichau is terminated for cause, as defined therein. If Mrs.
Robichau dies during the employment period, her estate will receive three (3)
months salary, and all other benefits to which she or her personal
representatives may be entitled. If Mrs. Robichau becomes disabled at any
time during the term of the agreement, Mrs. Robichau shall be entitled to
receive all benefits payable to her under the Bank's long-term disability
income plan. If Mrs. Robichau is terminated for cause, as defined in the
Robichau Employment Agreement, she will receive in addition to all accrued and
unpaid compensation through the date of such termination, a lump sum equal to
her base salary for the remaining term of the agreement, at an annual rate in
effect as of the date of such termination, plus Sixty Thousand Dollars
($60,000). The Corporation will maintain, at the Corporation's sole expense,
all group insurance and other employment benefit plans, programs or
arrangements (other than the Bank's retirement plan, the Bank's profit sharing
plan, 401k plan and the Corporation's employee stock option plan in which the
employee was participating at any time of the twelve (12) months proceeding the
date of such termination), provided that Mrs. Robichau will be entitled to
benefits under the Bank's retiree medical policy regardless of whether such
policy is subsequently changed.
<PAGE>
Change in Control Agreement
- ---------------------------
The Corporation entered into a change in control agreement (the "Change in
Control Agreement") with Mrs. Robichau in December 1996, which provides that
in the event of a Change in Control of the Corporation, if Mrs. Robichau's
employment is terminated other than for cause defined in the Change in Control
Agreement, disability or retirement within three (3) years after the change in
control, then she shall be entitled to a lump sum payment from the Corporation
approximately equal to three (3) times her average annual compensation for the
previous five (5) years.
Consulting Agreement
- --------------------
In December 1996, the Corporation entered into a consulting agreement (the
"Consulting Agreement") with Mrs. Robichau, pursuant to which the Corporation
will retain Mrs. Robichau as a consultant after Mrs. Robichau's retirement from
the Corporation. Mrs. Robichau is scheduled to retire as an officer and
employee of the Corporation on June 30, 1999. The term of the Consulting
Agreement will continue in effect through June 23, 2002. Pursuant to the
Consulting Agreement, Mrs. Robichau will be paid a consulting fee of $20,000
per year. The Consulting Agreement contains a non-compete clause and shall
terminate upon the expiration of the term of the Robichau Employment Agreement,
Mrs. Robichau's death or if the Corporation elects to terminate the Consulting
Agreement for cause. Should the Consulting Agreement be terminated, the
Corporation has agreed to pay Mrs. Robichau through the term thereof.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table and related notes set forth information regarding stock
owned by each of the Directors of the Corporation and Bank and by all officers
and Directors of the Corporation and Bank as a group at March 1, 1998. The
percentage is based upon 765,537 shares of common stock outstanding.
Number of Shares Percent of
Beneficially Outstanding
Name of Owner (9) Owned (1)(2) Shares
- ----------------- ---------------- ------------
Richard H. Booth 3,855 (3,4) .50%
Neiland J. Douglas, Jr. 8,326 (3,5) 1.08%
John N. Fisher 6,770 (3,6) .88%
Mark B. Glovsky 905 (3) .12%
John L. Good, III 5,721 (3) .74%
Alice B. Griffin 4,442 (3) .58%
Clark R. Smith 3,648 (3) .48%
Lawrence M. Smith 40,035 (3,7) 5.00%
James D. Wiltshire 3,905 (3) .51%
All Directors and officers
as a group (14 persons) 102,706 (8) 12.15%
<PAGE>
(1) Based upon information provided to the Corporation by the indicated
persons. The number of shares which each individual has the option to
purchase has been added to the number of shares actually outstanding for
the purpose of calculating the percentage of such person's ownership.
(2) Under regulations of the Securities and Exchange Commission, a person is
treated as the beneficial owner of a security if the person, directly or
indirectly (through contract, arrangement, understanding, relationship
or otherwise) has or shares (a) voting power, including the power to vote
or to direct the voting, of such security, or (b) investment power with
respect to such security, including the power to dispose or direct the
disposition of such security. A person is also deemed to have beneficial
ownership of any security that such person has the right to acquire within
60 days. Unless indicated in another footnote to this tabulation, a person
has sole voting and investment power with respect to the shares set forth
opposite his or her name. The table does not reflect the 15,000 shares
held in the Beverly National Bank Retirement Plan or the 2,300 shares held
in the Beverly National Bank Profit Sharing Plan, or the 49,652 shares
held by the Corporation's Employee Stock Ownership Plan, as to which
Messrs. Smith, Good and Douglas serve as trustees.
(3) Includes stock options to purchase shares which were exercisable as of
March 1, 1998, or within 60 days thereafter, as listed: Richard H. Booth,
2,755, Neiland J. Douglas, Jr., 6,230, John N. Fisher, 3,205, Mark B.
Glovsky, 655, John L. Good, III, 5,155, Alice B. Griffin, 3205, Clark R
Smith, 655, Lawrence M. Smith, 35,207, James D. Wiltshire, 3,205,
Officers (as a group), 19,745.
(4) Includes 65 shares owned jointly by Mr. Booth and Mr. Booth's spouse.
(5) Includes 59 shares owned by Mr. Douglas' spouse.
(6) Includes 1,519 shares owned jointly by Mr. Fisher and Mr. Fisher's spouse.
(7) Includes 2,335 shares owned jointly by Mr. Smith and Mr. Smith's spouse;
and 1,115 shares owned by Mr. Smith's spouse.
(8) Includes stock options owned by all Directors and Officers as a group to
purchase 80,037 shares which were exercisable, as of March 1, 1998 or
within 60 days thereafter.
(9) The individuals listed can be contacted through the Corporation (Beverly
National Corporation, 240 Cabot Street, Beverly, MA 01915).
<PAGE>
The following table and related notes set forth certain information as of March
1, 1998 with respect to all persons known to the Corporation to be the
beneficial owner of more than 5% of the Corporation's outstanding common stock:
Number of Shares
Directly and Percentage of
Name and Address Beneficially Outstanding
of Owner Owned Shares(1)
- ---------------- ------------------ -------------
Beverly National Bank 54,143 (2) 7.07%
Trust Department
240 Cabot Street
Beverly, MA 01915
Harold C. Booth 60,891 (3) 7.95%
P.O. Box 729
Center Harbor, NH 03226
Beverly National Corporation 49,652 6.49%
Employee Stock Ownership Plan
240 Cabot Street
Beverly, MA 01915
John Sheldon Clark 45,375 (4) 5.93%
430 Park Avenue
Suite 1800
New York, NY 10022
Nathalie D. Rothblatt 38,562 5.04%
11 Sunnycrest Avenue
Beverly, MA 01915
(1) The percentages above are based on 765,537 shares of common stock
outstanding as of March 1, 1998.
(2) These shares include shares held as trustee and under agency agreements.
As trustee, the Bank has sole investment and voting power over 19,774
shares, and shared investment and voting power over 34,369 shares. In
addition to these shares, the Bank holds as trustee the 60,891 shares
beneficially owned by Harold C. Booth and his spouse.
(3) Includes 49,652 shares owned by Mr. Booth's trust and 14,673 owned by Mr.
Booth's spouse's trust, of which the Bank is a trustee and shares
investment and voting power.
(4) These shares include shares held in trust for "Trust under the Will of
Charles M. Clark, Jr. for the benefit of Valer C. Austin" and "Trust
under the Will of Charles M. Clark, Jr. for the benefit of John Sheldon
Clark" (14,606 shares). Mr. Clark acts as trustee for both trusts and has
investment authority. This includes 7,490 shares owned by Mr. Clark's
spouse.
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Corporation, through its wholly-owned subsidiary, the Bank, has had,
currently has, and expects to continue to have in the future, banking
(including loans and extensions of credit) transactions in the ordinary course
of its business with its Directors, Executive Officers, members of their
family, and their associates. Such banking transactions have been and are on
substantially the same terms, including interest rates, collateral and
repayment conditions, as those prevailing at the same time for comparable
transactions with others and did not involve more than the normal risk of
collectability or present other unfavorable features.
As of December 31, 1997, the Bank had outstanding $855,267 in loans to
Directors, Executive Officers, members of their family and their associates,
which represents 5.03% of capital. Federal banking laws and regulations limit
the aggregate amount of indebtedness which banks may extend to bank insiders.
Pursuant to such laws, the Bank may extend credit to Executive Officers,
Directors, Principal Shareholders or any related interest of su ch persons, if
the extension of credit to such person is in the amount that, when aggregated
with the amount of all outstanding extensions of credit to such individuals,
does not exceed the Bank's unimpaired capital and unimpaired surplus. As of
December 31, 1997, the aggregate amount of extensions of credit to insiders
was well below this limit.
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
BEVERLY NATIONAL CORPORATION
Date: 3/24/98 By:/s/ Lawrence M. Smith
-------- -------------------------
President & CEO and
Director, Principal Executive
Officer
Date: 3/24/98 By:/s/ Peter E. Simonsen
-------- -------------------------
Treasurer, Principal Financial &
Accounting Officer
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date Name and Capacity
------- -----------------
3/24/98 /s/ Lawrence M. Smith
------- ---------------------
Lawrence M. Smith,
President & CEO &
Director, Principal Executive Officer
3/24/98 /s/ Richard H. Booth
------- ---------------------
Richard H. Booth - Director
3/24/98 /s/ Neiland J. Douglas, Jr.
------- ---------------------------
Neiland J.Douglas,Jr. - Director
3/13/98 /s/ John N. Fisher
------- ------------------
John N. Fisher - Director
3/24/98 /s/ Mark B. Glovsky
------- -------------------
Mark B. Glovsky -Director
3/24/98 /s/ John L. Good, III
------- ---------------------
John L. Good, III - Director
3/24/98 /s/ Alice B. Griffin
------- --------------------
Alice B. Griffin - Director
3/24/98 /s/ Clark R. Smith
------- ------------------
Clark R. Smith - Director
3/24/98 /s/ James D. Wiltshire
------- ----------------------
James D. Wiltshire - Director
<PAGE>
SUPPLEMENTAL INFORMATION
------------------------
Copies of the Notice of Annual Meeting of Shareholders, Proxy Statement and
Proxy for Annual Meeting of Shareholders for the Registrant's 1998 Annual
Meeting of Shareholders, which was held on March 24, 1998, are furnished
herein. Such material is not deemed to be filed with the commission or
otherwise subject to the liabilities of Section 18 of the Securities Exchange
Act, unless specifically incorporated by reference in their reports.
<PAGE>
ITEM 13. EXHIBITS, LISTS AND REPORTS ON FORM 8-K
(a)
EXHIBIT INDEX
3.1 Articles of Organization of Corporation, as Amended. . . . . . (1)
3.2 By-Laws of Corporation, as Amended. . . . . . . . . . . . . . .(2)
10.1 Indenture dated as of January 21, 1976 between Benjamin
Brown and Virgil C. Brink, Trustees of Y & M Trust, and
Beverly National Bank. . . . . . . . . . . . . . . . . . . . .(3)
10.2 1987 Incentive Stock Option Plan for Key Employees . . . . . .(4)
10.3 1987 Directors' Plan, as amended. . . . . . . . . . . . . . . (5)
10.4 Employment Agreement dated May 31, 1991 between Beverly
National Corporation and Lawrence M. Smith. . . . . . . . . . (2)
10.5 Severance Agreement dated July 8, 1987 between Beverly
National Corporation and Lawrence M. Smith. . . . . . . . . . (3)
10.6 Beverly National Corporation Plan for Severance
Compensation After Hostile Takeover. . . . . . . . . . . . . .(3)
10.7 Employment Agreement between Beverly National Corporation
and Julia L. Robichau dated December 24, 1996 . . . . . . . . (6)
10.8 Change in Control Agreement between Beverly National
Corporation and Julie L. Robichau dated December 24, 1996 . . (7)
10.9 Consulting Agreement between Beverly National Corporation
and Julia L. Robichau dated December 24, 1996 . . . . . . . . (8)
10.10 Supplemental Executive Retirement Agreement between
Beverly National Corporation and Lawrence M. Smith dated
December 24, 1996. . . . . . . . . . . . . . . . . . . . . . . (9)
10.11 Supplemental Executive Retirement Agreement between Julia
L. Robichau dated December 24, 1996. . . . . . . . . . . . . (10)
10.12 1996 Incentive Stock Option Plan For Key Employees. . . . . .(11)
20. 1998 Proxy Statement. . . . . . . . . . . . . . . . .. . Page 84
21. Subsidiaries of Corporation. . . . . . . . . . . . . . .Page 90
23. Consent of Shatswell, MacLeod & Company, P.C. . . . . . Page 91
<PAGE>
(b) The Corporation did not file a Form 8-K during the quarter ended
December 31, 1997.
27. Financial Data Schedule
(1) Incorporated herein by reference to the identically numbered exhibits
to the Annual Report Form 10-KSB for December 31, 1994.
(2) Incorporated herein by reference to identically numbered exhibits to
the Annual Report Form 10-KSB for December 31, 1993.
(3) Incorporated herein by reference to identically numbered exhibits
filed as part of Corporation's Registration Statement on Form S-18
(File No. 33-22224-B) filed with the Commission on July 9, 1988.
(4) Incorporated herein by reference to Exhibit 4(a) to the Corporation's
Registration Statement on Form S-8 (File No. 33-347) filed on January
22, 1996.
(5) Incorporated herein by reference to Exhibit 4(b) to the Corporation's
Registration Statement on Form S-8 (File No. 33-347) filed on January
22, 1996.
(6) Incorporated herein by reference to Exhibit 10.8 to the Annual Report
Form 10-KSB for December 31, 1996.
(7) Incorporated herein by reference to Exhibit 10.9 to the Annual Report
Form 10-KSB for December 31, 1996.
(8) Incorporated herein by reference to Exhibit 10.10 to the Annual Report
Form 10-KSB for December 31, 1996.
(9) Incorporated herein by reference to Exhibit 10.11 to the Annual Report
Form 10-KSB for December 31, 1996.
(10) Incorporated herein by reference to Exhibit 10.12 to the Annual Report
Form 10-KSB for December 31, 1996.
(11) Incorporated herein by reference to Exhibit 10.13 to the Annual Report
Form 10-KSB for December 31, 1996.
<PAGE>
BEVERLY NATIONAL CORPORATION
NOTICE OF
ANNUAL MEETING OF SHAREHOLDERS
MARCH 24, 1998
-----------------------------
NOTICE IS HEREBY GIVEN that the 1998 Annual Meeting of Shareholders of Beverly
National Corporation ("Corporation") will be held at the main office of the
Corporation at 240 Cabot Street, Beverly, Massachusetts, on March 24, 1998, at
3 o'clock P.M., for the purpose of considering and voting upon the following
matters:
(1) Fixing the number of directors who shall constitute the full Board of
Directors at nine.
(2) Election as director of the individuals listed as nominee in the Proxy
Statement accompanying this notice of meeting, who together with the
directors whose terms of office do not expire at this meeting, will
constitute the full Board of Directors.
(3) Such other matters as may properly be brought before the meeting and
any adjournment thereof.
The record date and hour for the determining shareholders entitled to notice
of, and to vote at, this meeting, has been fixed at 5 o'clock P.M., February
17, 1998.
By order of the Board of Directors,
/s/ Julia L. Robichau
------------------------
Julia L. Robichau, Clerk
February 23, 1998
- -------------------------------------------------------------------------------
PLEASE SIGN THE ENCLOSED FORM OF PROXY AND RETURN IT PROMPTLY IN THE ENVELOPE
PROVIDED FOR THAT PURPOSE. YOU MAY NEVERTHELESS VOTE IN PERSON IF YOU DO
ATTEND THE MEETING.
- -------------------------------------------------------------------------------
<PAGE>
BEVERLY NATIONAL CORPORATION
PROXY STATEMENT
1998 ANNUAL MEETING OF SHAREHOLDERS
MARCH 24, 1998
The following information is furnished in connection with the solicitation
of proxies by the management of Beverly National Corporation ("Corporation),
whose principal executive office is located at 240 Cabot Street, Beverly,
Massachusetts, (Telephone 978-922-2100) for use at the 1998 Annual Meeting of
Shareholders of the Corporation to be held on March 24, 1998.
As of February 17, 1998, 765,537 shares of common stock, $2.50 par value
("Common Stock"), of the Corporation were outstanding and entitled to be voted.
The record date and hour for determining shareholders entitled to vote has
been fixed at 5 o'clock P.M., February 17, 1998. Only shareholders of record
at such time will be entitled to notice of, and to vote at, the meeting.
Shareholders are urged to sign the enclosed form of proxy solicited on behalf
of the management of the Corporation and return it at once in the envelope
enclosed for that purpose. Proxies will be voted in accordance with the
shareholder's directions. If no directions are given, proxies will be voted to
fix the number of directors at nine and to elect the nominees listed below.
The affirmative vote of the holders of a majority of Common Stock of the
Corporation present or represented and voting at the meeting is required to fix
the number of directors at nine. The affirmative vote of a plurality of the
votes cast by shareholders is required to elect directors.
The 1997 Annual Report of the Corporation containing financial statements
for 1997 is being mailed to the shareholders with the mailing of this Notice
and Proxy Statement.
The cost of the solicitation of proxies is being paid by the Corporation.
The Proxy Statement will be mailed to the shareholders of the Corporation on or
about February 23, 1998.
DETERMINATION OF NUMBER OF DIRECTORS
AND ELECTION OF DIRECTORS
-------------------------
The persons named as proxies intend to vote to fix the number of directors
for the ensuing year at nine and vote for election of the individuals named
below as nominees for election as director, to hold office until the 2000
annual meeting in the case of one nominee, and the 2001 annual meeting in the
case of three nominees, as described below. If any nominee should not be
available for election at the time of the meeting, the persons named as proxies
may vote for another person in their discretion or may vote to fix the number
of directors at less than nine. The management does not anticipate that any
nominee will be unavailable.
<PAGE>
The By-Laws of the Corporation provide in substance that the Board of
Directors shall be divided into three classes as nearly equal in number as
possible, and that the term of office of one class shall expire and a successor
class be elected at each annual meeting of shareholders.
The present number of directors is nine. The Board was reduced from ten
to nine in December, 1997 by the resignation of Barry A. Sullivan, which was
accepted by the Board with deep regret. It is proposed by the Board that at
the meeting, the number of directors who shall constitute the full Board of
Directors until the next annual meeting be fixed at nine, with one of the
nominees, Mr. Wiltshire, elected to serve until 2000, and the other three
nominees, Messrs. Booth, Good and Clark Smith, be elected to serve until 2001,
as listed below.
Opposite the name of the nominees for election at this meeting and each
director continuing in office in the following tables are shown: (1) the
number of shares of stock of the Corporation owned beneficially by the
individual, including exercisable stock options; (2) The date on which the
individual's term of office as director began; (3) the term of office for which
the individual will serve; (4) the individual's current principal occupation or
employment.
Nominees for election at this Meeting
-------------------------------------
Shares of On Board of
Stock owned Directors of
Beneficially the Corporation
as of or Its Term
February 17, Predecessor of Principal
Name 1998 (1)(2) Since Office Occupation
- ------------------- ------------ --------------- ------- ----------
James D. Wiltshire 3,456 1993 2000 Consultant
Richard H. Booth 3,800 1993 2001 Stockbroker-Retired
John L. Good, III 5,721 1987 2001 Vice President
Community Relations
& Development-
Beverly Hospital
Clark R. Smith 3,648 1994 2001 Attorney, Family
Foundation
<PAGE>
Directors Continuing in Office
------------------------------
Shares of On Board of
Stock owned Directors of
Beneficially the Corporation
as of or Its Term
February 17, Predecessor of Principal
Name 1998 (1)(2) Since Office Occupation
- ------------------- ------------ --------------- -------- ---------
Neiland J. Douglas,Jr. 7,251 1977 1999 President-Morgan
and Douglas
Planning and
Research
John N. Fisher 6,770 1989 2000 President,
Fisher & George
Electrical Co.,
Inc.
Mark B. Glovsky, Esq. 905 1996 1999 Attorney, Member
of the Law Firm
of Glovsky &
Glovsky
Alice B. Griffin 4,442 1992 2000 Consultant
Lawrence M. Smith 40,118 1981 1999 President,
Beverly National
Corporation and
Beverly National
Bank
NOTE
- ----
(1) Beneficial ownership of stock for the purpose of this statement
includes securities owned by the spouse and minor children and any relative
with the same address. Certain directors may disclaim beneficial ownership of
certain of the shares listed beside their names.
(2) Includes stock options to purchase shares which were exercisable as
of February 17, 1998 or within 60 days thereafter, as listed: Richard H.
Booth, 2,700; Neiland J. Douglas, Jr., 5,155; John N. Fisher, 3,205; Mark B.
Glovsky, 655, John L. Good, III, 5,155; Alice B. Griffin, 3,205; Clark R.
Smith, 655; Lawrence M. Smith, 35,290; and James D. Wiltshire, 2,756.
<PAGE>
OTHER MATTERS
- -------------
The management knows of no business which will be presented for
consideration at the meeting other than that set forth in this Proxy Statement.
However, if any such business comes before the meeting, the persons named as
proxies will vote thereon according to their best judgment.
By order of the Board of Directors
/s/ Lawrence M. Smith
-------------------------------
Lawrence M. Smith
President
Beverly, Massachusetts
February 23, 1998
<PAGE>
BEVERLY NATIONAL CORPORATION
PROXY FOR
ANNUAL MEETING OF SHAREHOLDERS
March 24, 1998
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned shareholder of
BEVERLY NATIONAL CORPORATION hereby nominates, constitutes and appoints Richard
F. Mooney and Kevin M. Dalton, Esq. and each of them (with full power to act
alone). true and lawful attorneys, agents and proxies, with power of said
Corporation to be held at the main office of the Corporation at 240 Cabot
Street, Beverly, Massachusetts on March 24, 1998, at 3 o'clock P.M., and any
adjournments thereof and thereat to vote or otherwise act in respect of all the
shares of capital stock of said Corporation that the undersigned shall be
entitled to vote, with all powers there undersigned would possess if
personally present, upon the following matters:
A. 1. Fixing the number of directors who For Against Abstain
shall constitute the full Board of
Directors at nine. ( ) ( ) ( )
2. Election as directors of the
individuals listed as nominees in the
Proxy Statement accompanying this Proxy,
who, together with the directors whose ( ) ( ) ( )
terms of office do not expire at this
meeting, will constitute the full
Board of Directors.
3. Whatever other business may be brought
before said meeting or any ( ) ( ) ( )
adjournment thereof.
B. IF ANY OF THE INDIVIDUALS LISTED AS A NOMINEES FOR DIRECTOR IN THE PROXY
STATEMENT DATED FEBRUARY 23, 1998 AND THE ACCOMPANYING NOTICE OF SAID MEETING
IS UNAVAILABLE AS A CANDIDATE OR ANY OTHER NOMINATION IS MADE OR IF ANY OTHER
BUSINESS IS PRESENTED AT SAID MEETING, THIS PROXY SHALL BE VOTED IN
ACCORDANCE WITH THE JUDGMENT OF THE PERSON OR PERSONS ACTING HEREUNDER UNLESS
EITHER "AGAINST" OR "ABSTAIN" IS INDICATED IN RESPONSE TO ITEM A.3 ABOVE.
THIS PROXY IS SOLICITED ON BEHALF OF MANAGEMENT.
Dated: February 23, 1998
---------------------------------
(Signature of Shareholder)
---------------------------------
(Signature of Shareholder)
No. of Shares__________________
When signing as attorney, executor, administrator, trustee or guardian, please
give full title. If more than one trustee, all should sign.
EXHIBIT 21
21. Subsidiaries of the Corporation at December 31, 1997:
Incorporate in Percent Owned
Subsidiary the State of by the Corporation
- ---------- --------------- ------------------
Beverly National Bank Massachusetts 100%
Cabot Street Realty Trust Massachusetts 100%
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in this Annual Report on Form
10-KSB of Beverly National Corporation of our report dated January 12, 1998.
/s/ Shatswell, MacLeod & Company, P.C.
------------------------------------
Shatswell, MacLeod & Company, P.C.
West Peabody, Massachusetts
March 20, 1998
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 9,587,570
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 9,100,000
<TRADING-ASSETS> 376,533
<INVESTMENTS-HELD-FOR-SALE> 17,185,188
<INVESTMENTS-CARRYING> 20,766,224
<INVESTMENTS-MARKET> 20,796,287
<LOANS> 133,007,494
<ALLOWANCE> 2,163,349
<TOTAL-ASSETS> 195,379,513
<DEPOSITS> 176,291,010
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,412,166
<LONG-TERM> 385,627
0
0
<COMMON> 1,978,373
<OTHER-SE> 15,012,337
<TOTAL-LIABILITIES-AND-EQUITY> 195,379,513
<INTEREST-LOAN> 11,414,506
<INTEREST-INVEST> 2,393,986
<INTEREST-OTHER> 564,714
<INTEREST-TOTAL> 14,373,206
<INTEREST-DEPOSIT> 5,033,317
<INTEREST-EXPENSE> 34,998
<INTEREST-INCOME-NET> 9,339,889
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 7,917,918
<INCOME-PRETAX> 3,562,314
<INCOME-PRE-EXTRAORDINARY> 3,562,314
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,170,013
<EPS-PRIMARY> 2.94
<EPS-DILUTED> 2.64
<YIELD-ACTUAL> 7.89
<LOANS-NON> 341,366
<LOANS-PAST> 167,700
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,197,694
<CHARGE-OFFS> 54,521
<RECOVERIES> 20,176
<ALLOWANCE-CLOSE> 2,163,349
<ALLOWANCE-DOMESTIC> 1,471,604
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 691,745
