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, l998
___________________
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 issuer 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 Exchange Act:
Title of each class Name of each exchange on which registered
None
__________________ _________________________________________
Securities registered pursuant to l2(g) of the Act:
None
- ------------------ -----------------------------------------
<PAGE>
(Title of class)
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.[ ]. NA
State issuer's revenues for its most recent fiscal year. $17,457,004
_____________
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 price of such common equity, as
of a specified date within the past 60 days. (See definition of affiliate in
Rule 12b-2 of the Exchange Act). $23,165,781
_____________
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. 1,566,574
___________
Transitional Small Business Disclosure format (check one):
Yes No X
_____ _____
DOCUMENTS INCORPORATED BY REFERENCE
<PAGE>
TABLE OF CONTENTS
_________________
PART I
______
ITEM 1 - DESCRIPTION OF BUSINESS 4
____
ITEM 2 - DESCRIPTION OF PROPERTIES 23
____
ITEM 3 - LEGAL PROCEEDINGS 24
____
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS 24
____
PART II
_______
ITEM 5 - MARKET FOR COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS 24
____
ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS 25
____
ITEM 7 - FINANCIAL STATEMENTS 35
____
ITEM 8 - CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE 80
____
PART III
________
ITEM 9 - DIRECTORS AND EXECUTIVE OFFICERS 80
____
ITEM 10 - EXECUTIVE COMPENSATION 82
____
ITEM 11 - SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT 89
____
ITEM 12 - CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS 91
____
ITEM 13 - EXHIBITS, LISTS AND REPORTS ON
FORM 8-K 96
____
SIGNATURES 93
____
<PAGE>
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH
REPORTS FILED PURSUANT TO SECTION 15(d) OF THE
EXCHANGE ACT BY NON-REPORTING ISSUERS
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
------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Interest and fees on loans 67% 69% 68% 63% 58%
Interest and dividends on
Securities and Federal Funds
Sold and Certificates of Deposit 20 18 18 23 28
Charges, fees and other sources 13 13 14 14 14
____ ____ ____ ____ ____
100% 100% 100% 100% 100%
==== ==== ==== ==== ====
<PAGE>
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 three 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.
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.
Federal legislation permits adequately capitalized bank holding companies to
venture across state lines to offer banking services through bank subsidiaries
to a wide geographic market. It is 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 this 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.
<PAGE>
The Corporation, as a bank holding company, is subject to the Massachusetts
Bank Holding Company laws.
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 Corporation for all such
purchases or redemptions during the preceding twelve months, is equal to 10%
or more of the Corporation'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 77%
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 three years ended
December 31, 1998, 1997 and 1996. The total dollar amount of interest income
from earning assets and the resultant yields are calculated on a tax
equivalent basis.
1998
________________________________________
Average Interest Yield/
Balance Inc./Exp. Rate
________________________________________
ASSETS
Federal funds sold $ 18,006,162 $ 933,750 5.19%
Investment securities (1) 12,587,791 887,199 7.05%
Securities available for sale (1) 29,155,874 1,687,359 5.79%
Loans, net of unearned income (1,2,3) 130,398,095 11,809,845 9.06%
____________ ___________ _____
Total earning asssets 190,147,922 15,318,153 8.06%
____________ ___________ _____
Other non interest-earning assets 16,793,656
____________
Total average assets $206,941,578
============
LIABILITIES
Savings deposits $ 39,710,542 $ 1,199,268 3.02%
NOW accounts 31,705,859 508,683 1.60%
Money market accounts 23,307,456 743,957 3.19%
Time deposits $100,000 and over 5,149,262 288,513 5.60%
Other time deposits 49,986,897 2,830,595 5.66%
Short-term borrowings 0 0 0%
Notes payable 385,627 34,680 8.99%
____________ ___________ _____
Total interest-bearing liabilities $150,245,643 $ 5,605,696 3.73%
____________ ___________ _____
Non interest-bearing deposits 37,064,657
Other non interest-bearing liabilities 1,785,918
Stockholder's equity 17,845,360
___________
Total average liabilities and
stockholder's equity $206,941,578
============
Net interest income $ 9,712,457
===========
Net yield on interest-bearning assets 5.11%
=====
<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 adjustment is $72,377. A federal tax rate of 34% was used in
performing this calculation.
(2) Includes loan fees of $283,304.
(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)
- ----------------------------------------------------
1997
______________________________________
Average Interest Yield/
Balance Inc./Exp. Rate
______________________________________
ASSETS
Federal funds sold $ 10,470,822 $ 564,714 5.39%
Investment securities (1) 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 (1,2,3) 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%
Notes payable 385,627 34,998 9.08%
_____________ ___________ _____
Total interest-bearing liabilities 136,978,288 5,033,317 3.67%
_____________ ___________ _____
Non interest-bearing deposits 34,375,951
Other non interst-bearing liabilities 1,746,323
Stockholder's equity 15,875,651
_____________
Total average liabilities and
stockholder's equity $ 188,976,213
=============
Net interest income $ 9,358,791
===========
Net yeild on interest-earning assets 5.37%
=====
<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 $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 (1,2,3) 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 0.00%
Notes payable 660,227 59,338 8.99%
____________ ___________ _____
Total interest-bearning liabilities 126,625,580 4,503,571 3.56%
____________ ___________ _____
Non interest-bearning deposits 31,040,004
Other non interest-bearning liabilities 1,517,702
Stockholder's equity 14,197,745
____________
Total Average liabilities and
stockholder's 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.
1998 as compared to 1997
___________________________________
Due to a change in:
Volume(1) Rate(1) Total
___________________________________
Interest income from:
Federal funds sold $ 390,771 $ (21,735) $ 369,036
Investment securities (504,102) 157,819 (346,283)
Securities available for sale 564,566 (42,134) 522,432
Loans, net of unearned interst 545,172 (164,312) 380,860
_________ _________ __________
Total $ 996,407 $ (70,362) $ 926,045
_________ _________ __________
Interest expense on:
Savings deposits $ 61,943 $ 3,743 $ 65,686
NOW accounts 37,462 0 37,462
Money market accounts 84,630 6,300 90,930
Time deposits $100,000 and over 30,209 (2,788) 27,421
Other time 328,927 22,271 351,198
Notes payable 0 (318) (318)
_________ _________ __________
Total $ 543,171 $ 29,208 $ 572,379
_________ _________ __________
Net interst income $ 453,236 $ (99,570) $ 353,666
========= ========= ==========
(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>
1997 as compared to l996
------------------------------------
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 (24,928) 588 (24,340)
__________ _________ __________
Total $ 519,121 $ 10,622 $ 529,743
__________ _________ __________
Net interest income $ 749,173 $ 132,670 $ 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>
Investment Portfolio
____________________
The following table indicates the carrying value of the Corporation's
consolidated investment portfolio at December 31, l998, 1997 and 1996:
1998 Carrying 1997 Carrying 1996 Carrying
Value Value Value
_____________ _____________ ____________
Investments Held to Maturity:
U.S. Treasury securities and
obligations of U.S. Government
corporations and agencies $ 15,003,624 $ 16,435,914 $ 22,407,095
Investments Held to Maturity:
Obligations of states and
political subdivisions 849,000 449,274 227,373
Investments Held to Maturity:
Other debt securities 300,000 300,000 300,000
____________ ____________ ____________
$ 16,152,624 $ 17,185,188 $ 22,934,468
============ ============ ============
Federal Reserve Bank Stock $ 97,500 $ 97,500 $ 97,500
============ ============ ============
Investments Available for Sale $ 31,879,320 $ 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, l998. 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.*
<PAGE>
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 $ 8,037 5.70% $37,104 5.76% $ 1,000 6.00%
State and
Political
subdivisions 154 5.33% 430 5.39% 265 6.10%
Other
securities 300 8.01%
_______ _____ _______ _____ _______ _____ _______ _____
$ 8,191 5.69% $37,534 5.76% $ 1,565 6.40% $ 0 0
_______ _____ _______ _____ _______ _____ _______ _____
* Federal Reserve Bank Stock not included.
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) 1998 1997 1996
______ ______ ______
Loans, non-accruals $ 297 $ 341 $ 346
Loans past due 90 days or
more and still accruing 173 168 0
______ ______ ______
Total $ 470 $ 509 $ 346
====== ====== ======
The amount of interest income recorded during 1998, 1997 and 1996 on
non-accrual loans and restructured loans outstanding at December 31, 1998
amounted to $234, in 1997 $1,737, and in 1996 $16,235. Had these loans
performed in accordance with their original terms, the amount recorded would
have been $36,165 in 1998, $40,929 in 1997, and $37,617 in 1996.
<PAGE>
As of December 31, 1998, there were no loans which are not now included above
but where known information about possible credit problems of borrowers 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.
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) 1998 1997 1996 1995 1994
______ ______ ______ ______ ______
Commercial, financial
& agricultural $ 24,987 $ 22,180 $ 16,947 $16,486 $ 16,323
Real estate-construction
and land development 2,926 6,507 5,847 4,649 3,807
Real estate-residential 51,256 49,517 40,983 34,217 26,037
Real estate-commercial 44,223 44,242 46,150 42,588 35,702
Consumer 8,242 7,652 6,538 5,594 6,481
Municipal tax-exempt obligations 2,670 2,750 452 465 146
Loans to depository institutions 0 0 0 0 0
Other 1,318 517 583 787 176
________ ________ ________ ________ ________
135,622 133,365 117,500 104,786 88,672
Allowance for possible loan
lossed (1,935) (2,163) (2,197) (2,073) (2,075)
Deferred loan fees net 137 19 (86) (97) (40)
Unearned income 0 0 0 (0) (1)
________ ________ ________ ________ ________
Net loans $133,824 $131,221 $115,217 $102,616 $ 86,556
======== ======== ======== ======== ========
<PAGE>
Loan maturities for commercial, financial and agricultural at December 31, l998
were as follows: $16,021,816 due in one year or less; $8,521,570 due after
one year through five years; $444,126 due after five years. Of the Bank's
commercial, financial and agricultural loans due after one year, $1,162,776
have floating or adjustable rates and $7,802,920 have fixed rates.
Loan maturities for real estate construction and land development at
December 31, 1998 were as follows: $874,127 due in one year or less,
$1,477,604 due after one year through five years and $574,427 due after five
years. Of the Bank's real estate construction and land development loans due
after one year, $2,052,031 have adjustable rates and none 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) 1998 1997 1996 1995 1994
______ ______ ______ ______ ______
Average loans outstanding,
net of unearned income $130,398 $124,368 $110,538 $ 93,227 $ 82,154
Allowance for possible loan losses
__________________________________
Balance at beginning of period 2,163 2,198 2,073 2,075 2,764
______ ______ ______ ______ _____
Charge-offs:
Real Estate-Construction 0 0 0 0 0
Real Estate-Residential (97) (25) 0 0 (63)
Real Estate-Commercial 0 (14) (669) (28) (322)
Commercial, Financial & Agric. (172) (10) (76) (20) (741)
Consumer (13) (5) (9) (30) (22)
Municipal 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 5 0 208 50 0
Real Estate-Commercial 43 14 265 10 0
Commercial, Financial & Agric. 5 3 385 10 233
Consumer 1 2 21 6 11
Municipal 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 (228) (35) 125 (2) (904)
______ ______ ______ _____ ______
Provision for loan losses 0 0 0 0 215
______ ______ ______ ______ ______
Balance at period end $1,935 $2,163 $2,198 $2,073 $2,075
====== ====== ====== ====== ======
Ratio of net charge-offs to average
loans 0.17% 0.03% 0.11% 0.00% 1.10%
<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:
<TABLE>
<CAPTION>
(In Thousands)
1998 1997 1996 1995 1994
____________________ ____________________ ___________________ ___________________ ___________________
Percent of Percent of Percent of Percent of Percent of
loans in loans in loans in loans in loans in
category to category to category to category to category to
Amount total loans Amount total loans Amount total loans Amount total loans Amount total loans
______ ___________ ______ ___________ ______ ___________ ______ ___________ ______ ___________
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial Financial
& Agricultural $1,079 18.4% $ 809 16.7% $ 397 14.6% $ 649 15.7% $1,150 18.3%
Real Estate-Construction 13 2.2% 35 4.8% 41 5.0% 72 4.4% 13 4.3%
Real Estate-Residential 203 37.7% 153 35.7% 309 34.3% 102 32.7% 93 29.4%
Real Estate-Commercial 372 32.6% 448 34.6% 606 39.6% 689 40.6% 769 40.3%
Consumer 29 6.2% 28 5.7% 9 5.6% 20 5.4% 47 7.3%
Municipal Tax Exempt
Loans 0 1.9% 0 2.1% 0 0.4% 0 0.4% 0 0.2%
Other 0 1.0% 0 0.4% 0 0.5% 0 0.8% 0 0.2%
Unallocated 239 0.0% 690 0.0% 836 0.0% 532 0.0% 3 0.0%
______ ___________ ______ ___________ ______ ___________ ______ ___________ ______ ___________
Total $1,935 100.00% $2,163 100.0% $2,198 100.0% $2,073 100.0% $2,075 100.0%
====== =========== ====== =========== ====== =========== ====== =========== ====== ===========
</TABLE>
<PAGE>
Deposits
________
The following table shows the average deposits and average interest rate paid
for the last three years:
1998 1997 1996
_____________________________________________________________
Average Average Average Average Average Average
Balance Rate Balance Rate Balance Rate
----------- ------- ------------ ------- ------------ ------
Demand Deposits $31,064,657 0.00% $ 34,375,951 0.00% $ 31,040,004 0.00%
NOW Accounts 31,705,859 1.57% 29,496,018 1.60% 28,586,728 1.64%
Money Market
Accounts 23,307,456 3.19% 20,671,361 3.16% 21,302,347 3.15%
Savings Deposits 39,710,542 3.02% 37,641,284 3.01% 36,518,157 3.02%
Time Deposits
$100,000 and over 5,149,262 5.60% 4,611,490 5.66% 4,198,562 5.60%
Other Time
Deposits 49,986,897 5.66% 44,172,508 5.61% 35,359,559 5.56%
____________ _____ ____________ _____ ____________ _____
Total $186,924,673 2.98% $170,968,612 2.92% $157,005,357 2.83%
============ ===== ============ ===== ============ =====
As of December 31, 1998, the Bank had certificates of deposit in amounts of
$100,000 and over aggregating $5,929,306. These certificates of deposit
mature as follows:
Maturity Amount
________ ______
3 months or less $ 951,141
Over 3 months through 6 months 1,930,443
Over 6 months through 12 months 2,504,142
Over 12 months 543,580
___________
Total $ 5,929,306
===========
<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,
_______________________
1998 1997
Return on average total
assets (net income divided
by average total assets) 1.03% 1.15%
Return on average
stockholders' equity
(net income divided by
average stockholders' equity) 11.99% 13.67%
Dividend payout ratio
(total declared dividends
divided by net income) 32.21% 22.95%
Equity to assets ratio
(average stockholders' equity
as a percentage of average
total assets) 8.62% 8.40%
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 1998, 1997 or 1996.
<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
ecember 31, 1998 of $385,627.
The Bank's South Hamilton office, built in 1991 (2,382 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 (2,310 square feet) at 15 Main Street, Topsfield,
Massachusetts is leased by the Bank from a third party with a term that expires
February 2000 with additional (3) five-year renewals and a current annual rent
of $39,280.
The Bank's North Beverly Plaza office (5,126 square feet) at 63 Dodge Street,
Beverly, Massachusetts is leased by the Bank from a third party with a term
that expires October 2001 with one five-year renewal and a current annual rent
of $40,500.
The Bank has three stand-alone, automated teller machines ("ATMs") which are
located at Beverly Hospital, Herrick Street, Beverly, Massachusetts, Crosby's
Market, Manchester by the Sea, and Cummings Center parking lot, 100 Cummings
Center, Beverly, Massachusetts.
The Bank maintains two high school branches; one located at Hamilton-Wenham
Regional High School (340 square feet) at Bay Road, Hamilton, Massachusetts
and the second one at Beverly High School (491 square feet) at Sohier Road,
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 1998 annual rent for Cummings is $62,997.05 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.
<PAGE>
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.
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, 1998.
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, Ryan Beck & Co., Winslow,
Evans & Crocker, Inc. and Bear Sterns.
1998 1997
______ ______
Quarter ended March 31, $19.00* $13.50*
Quarter ended June 30, 20.00 13.75*
Quarter ended Sept. 30, 19.75 14.75*
Quarter ended Dec. 31, 18.50 16.67*
* Per share information has been adjusted to reflect the 2-for-1 stock
split of common stock effective April 7, 1998.
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, 1998, the ESOP had an
outstanding balance of $200,000.
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.
<PAGE>
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 364 as of
March 1, 1999. The Corporation declared quarterly cash dividends on its
outstanding common stock, which amounted to an aggregate dividend per share of
$.45 for the year, per share during 1998 and a $.33 dividend per share during
1997.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS 1997 AS COMPARED TO 1996
The total assets of the Corporation as of December 31, 1998, amounted to
$215,030,304 as compared to $195,379,513 in 1997. This increase amounted to
$19,650,791 or 10.06%.
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 $16,152,624 at
December 31, 1998 as compared to $17,185,188 at December 31, 1997. This is a
decrease of $1,032,564 or 6.0%. U.S. Treasury and U.S. Agency obligations
totaled $15,003,624 at December 31, 1998 as compared to $16,435,914 at
December 31, 1997, a decrease of $1,432,290 or 8.7%. The decrease in U.S.
Treasury and Agency securities funded growth in Available forsale securities.
The majority of investment purchases were madein the 24 to 60-month maturity
range. State and municipal obligations held to maturity totaled $849,000 at
December 31, 1998, as compared to $449,274 at December 31, 1997. This increase
totaled $399,726 or 89.0%. The increase in the state and municipal portfolio
is attributed to purchases of municipal securities of local municipalities.
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 $31,879,320 as of
December 31, 1998 as compared to the balance of Securities-Available-for-Sale,
which totaled $20,796,287 as of December 31, 1997, an increase of $11,083,033
or 53.3%. 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 $14,500,000
at December 31, 1998 in comparison to $9,100,000 at December 31, 1997. The
Bank's liquidity position is considered to be adequate to cover the increased
loan demand or reduction of deposits.
Loans
_____
Net Loans at December 31, 1998, totaled $132,246,638 as compared to
$130,844,145 at December 31, 1997. This increase was $1,402,493 or 1.1%.
Commercial Loans totaled $24,987,512 at December 31, 1998, as compared to
$22,180,229 at December 31, 1997. This is an increase of $2,807,283 or 12.7%.
This is attributed to increased competition for small business credit. The
growth in the Bank's loan portfolio has been primarily in the commercial loan
and Consumer portfolios. Real estate construction loans totaled $2,926,158 at
December 31, 1998, as compared to $6,506,718 at December 31, 1997. This is a
decrease of $3,580,560 or 55.0%, which can be attributed to a reduction of
commercial real estate construction activity. Real estate residential loans,
excluding mortgage loans held for sale, totaled $49,678,024 at December 31,
1998, as compared to $49,140,474 at December 31,1997. This is an increase of
$537,550 or 1.1%. The limited increase of residential mortgage loan balances
can be attributed to aggressive marketing, a strong economy and favorable
interest rate environment and a high turnover of mortgages at lower rates.
Real estate commercial loans totaled $44,223,264 at December 31, 1998 as
compared to $44,241,896 at December 31, 1997, representing a decrease of
$18,632 or 0.04%. There has been severe competition for commercial loans
during both 1998 and 1997. Consumer loans totaled $8,241,229 at December 31,
1998, as compared to $7,651,660 at December 31, 1997. This is an increase of
$589,569 or 7.7%. 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 composed of loans collateralized by real estate
located in the Commonwealth of Massachusetts.
<PAGE>
Premises and Equipment
______________________
Premises and equipment totaled $4,561,232 at December 31, 1998, as compared to
$4,819,606 at December 31, 1997. This is a decrease of $258,374 or 5.4%, this
can be attributed to no significant expansion in 1998.
Deposits
________
Deposits totaled $193,549,414 at December 31, 1998, as compared to $176,291,010
at December 31, 1997. The increase of $17,258,404 or 9.8% 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, 1998, as compared to $385,627 at
December 31, 1997. The balance outstanding of notes payable reflects the
$385,627 balance of an industrial revenue bond issued for Cabot Street Realty
Trust. Cabot Street Realty Trust has given notice to the Trustee to prepay
the loan effective March 31, 1999.
Capital
_______
The primary increase in capital of $1,948,903 can be attributed to internal
capital growth of $1,450,697, a net reduction of the leveraged ESOP of
$100,000 and exercised stock options.
Consolidated Statements of Income
_________________________________
Net interest and dividend income totaled $9,640,079 for the year ended
December 31, 1998, as compared to $9,339,889 for the year ended December 31,
1997. This increase was $300,190 or 3.2%. The interest income and interest
expense described below created this occurrence.
Loan Income
___________
Interest and fees on loans totaled $11,748,027 for the year ended December 31,
1998, as compared to $11,414,506 for 1997. This is an increase of $333,521 or
2.9%. The loan portfolio continued to change in composition during the year.
Unsecured consumer loans continued to decline. There was an increase in
commercial loans in 1998. Although the net growth of loans was limited, there
was a high level of refinanced 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, 1998,
totaled $2,533,214 as compared to $2,380,978 for the same time period in 1997.
This is an increase of $152,236 or 6.4%. The average balance of taxable
investments of U.S. Treasury notes and government agencies increased in 1998,
however, the investments purchased during the year were reinvested at lower
rates.
Other Interest Income
_____________________
Other interest income totaled $933,750 for the 12 months ended December 31,
1998, as compared to $564,714 for the same time period in 1997, an increase of
$369,036 or 65.3%. The increase is attributed to higher volumes of federal
funds sold.
Interest Expense
________________
Interest expense on deposits totaled $5,571,016 for the year ended December 31,
1998, as compared to $4,998,319 for the year ended December 31, 1997. This is
an increase of $572,697 or 11.5%. 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, 1998 or
December 31, 1997. Interest on notes payable totaled $34,680 for the year
ended December 31, 1998, as compared to $34,998 for the year ended December 31,
1997, a decrease of $318 or 0.9%. This situation was created by a lower
interest rate environment in 1998.
Loan Loss Provision
___________________
There were no provisions to the allowance for possible loan losses ("ALLL")
during 1998 and 1997. No provisions were warranted because of improved
collateral values and improved quality throughout most of the loan portfolio.
At December 31, 1998 the Corporation's allowance for possible loan losses was
$1,934,541 representing 1.4% of gross loans at December 31, 1998, as compared
to $2,163,349, representing a ratio of 1.6% of total loans at December 31,
1997. The decrease in this ratio reflects the continued growth in the loan
portfolio during 1998. However, such growth was primarily in well
collateralized loans, which do not warrant substantial allocations within the
ALLL.
Additional factors warranting the reduced provisions during 1998 included
management's evaluation of economic conditions including the stabilization and
improvement of the local economy. The Corporation's non-accrual loans totaled
to $297,375 at December 31, 1998, as compared to $341,366 at December 31, 1997.
Similarly, combined non-accrual loans and past due loans 90 days or more
remained low and amounted to $469,747 at December 31, 1998, as compared to
$509,066 at December 31, 1997.
<PAGE>
The ratio of non-performing assets to total loans, mortgages held for sale and
other real estate owned ("OREO") was 0.35% for December 31, 1998, as compared
to 0.38% as of December 31, 1997. The ratio of allowance for loan losses to
non-performing assets equaled 411.8% at December 31, 1998, as compared to
424.9% at December 31, 1997.
A total of $282,762 loans were charged off by the Corporation during 1998 as
compared to $54,521 charged off during the corresponding period in 1997. These
charge-offs consisted primarily of loans to small businesses. Recoveries of
loans previously charged off totaled $53,954 during 1998 as compared to
$20,176 during the corresponding period in 1997.
Non-Interest Income
___________________
Non-interest income totaled $2,211,229 in 1998 as compared to $2,148,618 in
1997. Income from fiduciary activities totaled $1,228,191 for the 12 months
ended December 31, 1998, as compared to $1,107,938 for the same time period in
1997, an increase of $120,253 or 10.9%. Core earnings from recurring
fiduciary income increased. Service charges and other deposit fees remained
stable. Net loss on sales of OREO totaled -0- in 1998 as compared to $8,275
in 1997. There were no OREO sales in 1998.
Other Expense
_____________
The total non-interest expense totaled $8,473,991 for 1998 as compared to
$7,926,193 in 1997. This is an increase of $547,798 or 6.9%. Salaries and
benefits expense increased $159,367 or 3.4%, because of additional personnel
in the retail expansion. Occupancy expense increased $49,533 or 6.7%. This
increase represents additional repairs and maintenance. Equipment costs
totaled $434,668 for the 12 months ending December 31, 1998 as compared to
$415,409 for the same period in 1997. This increase of $19,259 or 4.6% can be
attributed to continued upgrades of computer equipment to support the
technology upgrades of both the Bank and Trust Department operating systems.
Other expenses totaled $1,892,571 for 1998 as compared to $1,567,011 in 1997, a
variance of $325,560 or 20.8% which can be attributed to increased legal
expenses, training consultants, public relations, communication, and
electronic banking expense.
Income Taxes
____________
Income tax expense totaled $1,237,406 for the year ended December 31, 1998 as
compared to $1,392,301 in 1997. This decrease reflects the increase of tax
exempt income and a lowerstate tax rate.
<PAGE>
Net Income
__________
Net income was $2,139,911 for 1998 as compared to $2,170,013 for 1997, which
is a decrease of $30,102 or 1.4%.
Capital Resources
_________________
As of December 31, 1998, the Corporation had total capital in the amount of
$18,939,613 as compared with $16,990,710 at December 31, 1997, which represents
an increase of $1,948,903 or 11.5% (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 Tier 1
capital at a level equal to or greater than 4.0% to their adjusted total
assets. As of December 31, 1998, the Bank's Tier 1 capital amounted to 7.83%
as compared to 7.78% of total assets at December 31, 1997. Similarly, the
Corporation's Tier I capital amounted to 8.86% at December 31, 1998 as
compared to 8.68% at December 31, 1997 (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, 1998, the Bank's ratio of risk
based capital to risk weighted assets amounted to 12.56% for Tier 1 and 13.81%
for total capital, which satisfies the applicable risk-based capital
requirements. 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. Similarly, the Corporation's ratio of risk-based capital to
risk-weighted assets, at December 31, 1998, amounted to 14.03% for Tier I and
15.29% for total capital which exceeds all applicable regulatory requirements.
At December 31, 1997, the Corporation's ratio of risk-based capital to
risk-weighted assets amounted to 13.08% for Tier 1 and 14.39% of total capital.
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.
<PAGE>
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 $8,223,310 or
17.1% at December 31, 1998 of the investment securities portfolio, and
$10,605,238 at December 31, 1997, representing 27.9% 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 as of December 31, 1998 by repricing date
or maturity.
<PAGE>
Gap Analysis
- ------------
(In Thousands) 0-31 1-3 3-6 6-12 1-5 0ver 5
Days Months Months Months Years Years
------- ------- ------- -------- ------ --------
ASSETS
Investments $ 2,000 $ 7,035 $ 1,112 $ 4,011 $1,430 $ 663
Investments-
Available
for Sale 1,676 10,099 7,001 7,003 5,994 0
Fed Funds
Sold 14,500 0 0 0 0 0
Total Loans 18,432 3,135 5,633 8,077 46,207 52,560
Mortgages
Held for
Sale 1,577 0 0 0 0 0
------- ------- ------- ------- ------- -------
Total Earning
Assets 38,185 20,269 13,746 19,091 53,631 53,223
------- ------- ------- ------- ------- -------
LIABILITIES
Non-interest
bearing
Deposits 0 0 0 0 0 41,721
Savings 0 0 27,236 0 13,415 0
NOW Accounts 0 0 11,858 0 24,076 0
Money Market
Accounts 17,884 0 0 0 0 0
Time Deposits
$100,000
and over 234 306 1,461 3,400 528 0
Other time
deposits 3,409 6,076 8,419 24,393 9,104 29
------- ------- ------- ------- ------- -------
Total Deposits 21,527 6,382 48,974 27,793 47,123 41,750
Borrowings 0 0 0 0 386 200
Total Deposits &
Borrowings 21,527 6,382 48,974 27,793 47,509 41,950
------- ------- ------- ------- ------- -------
Net Asset
(Liability) Gap 16,658 13,887 (35,228) (8,702) 6,122 11,273
Cumulative Gap $ 16,658 $30,545 $(4,683) $(13,385) $(7,263) $4,010
% Cumulative Gap 8.41% 15.42% (2.36%) (6.76%) (3.67%) 2.02%
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 demand
deposits, time deposits, and certificates of deposit, are a key to assuring
liquidity. This involves maintenance of our core deposits. 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.
Year 2000 Preparedness
- -----------------------
There is worldwide concern over the ability of computers to function when the
Year 2000 arrives. Historically, many computer programs used the last two
digits to refer to the year. This may cause errors in computer programs that
are date oriented and do not recognize the difference between a year that
begins with "20" instead of the current "19" or that ends in "00" instead of
"99".
A critical part of the Bank's service is provided through computer operations.
The Bank has implemented a comprehensive program to develop an operating
strategy to properly assess and address all Year 2000 issues. The Year 2000
operational team was formed during the second quarter, 1997. This operational
team assessed all critical systems and operational programs relating to Year
2000. All computer hardware has been tested and non-compliant computers have
been identified for remediation. All software have been categorized and are
currently being tested. It is expected that all systems will be verified and
remediated by the second quarter, 1999.
The Bank's primary vendors have been identified and testing of the Bank's core
processing systems are underway. The testing of these systems will be
completed by second quarter, 1999. Contingency plans are in the process of
being completed in the event these critical systems do not meet testing
requirements.
In addition, the Bank has taken a proactive stance in working with both loan
and deposit customers in preparing for Year 2000 because borrowers who do not
address the Year 2000 issue may not have the resources to service the debts of
their company if their operations, vendors, or customers are impacted by Year
2000. Seminars have been presented for the largest borrowers and depositors
to help prepare them for Year 2000. The Trust Division has also communicated
with all their customers. Loan and deposit customers have been provided with
notice of the Year 2000 initiatives of the Bank.
The costs associated with upgrading the software and hardware to achieve Year
2000 compliance is estimated to be $85,000 for 1998 and $115,000 for 1999.
Failure to resolve a material Year 2000 issue could result in the interruption
in normal business activities or operations such as servicing depositors,
processing transactions or servicing loans.
<PAGE>
The Corporation plans to continue to work with third party service providers
to ascertain their Year 2000 compliance status and to coordinate testing
efforts. However, there can be no assurance that the computer systems of
others on which the Corporation relies will be Year 2000 ready on a timely
basis, or that a failure to resolve Year 2000 issues by another party, or
remediation or conversion that is incompatible with the Corporation's computer
systems, will not have a material adverse effect on the Corporation.
The Corporation has assessed its exposure to the risk of a liquidity crisis
or financial losses stemming from the withdrawal of significant deposits or
other sources of funds as the millennium date change approaches. The
Corporation has developed liquidity contingency plans to define and prioritize
sources of liquidity. Based on the Corporation's analysis and strong earnings
records, high liquidity and strong capital position, it is the opinion of
management that Y2K liquidity risk should not have a significant impact on
the Corporation.
The Corporation and the Bank are subject to examination and supervision by the
Board of Governors of the Federal Reserve System, and the Office of the
Comptroller of the Currency, respectively. These agencies are actively
examining the status of preparation of the institutions which they supervise
for compliance with applicable laws and prudent industry practices, including
those associated with preparation for the Year 2000. As regulated
institutions, the Corporation and the Bank could become subject to formal or
informal supervisory actions if their preparation for the Year 2000 failed to
satisfy regulatory requirements or prudent industry standards. As regulated
institutions, banks and bank holding companies face greater regulatory and
litigation risks for failure to adequately prepare for the Year 2000 than many
companies in other industries. However, such risks are not considered by
Management to be probable based upon the current level of preparation for the
Year 2000 and the Corporation's plans to fully prepare for the Year 2000.
The Company has assessed the risks presented by its reliance upon computer
based products outside of information technology processing (such as HVAC,
elevators, telephone and security systems). The Company believes that the
risks associated with these areas are being adequately addressed in the
Company's Y2K preparations.
The Corporation is developing contingency plans for its mission critical
systems and will refine and test these plans in 1999. However, there can be no
assurance that the Corporation's remediation efforts and contingency plans
will be sufficient to avoid unforeseen business disruptions or other problems
resulting from the Year 2000 issues.
<PAGE>
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, 1998 and 1997 FS 2-3
Consolidated Statements of Income for the years
ended December 31, 1998, 1997 and 1996 FS 4-5
Consolidated Statements of Changes in Stockholders
Equity for the years ended December 31, 1998, 1997 and
1996 FS 5-8
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996 FS 9-11
Notes to Consolidated Financial Statements for the years
ended 1998, 1997 and 1996 including FS 10-37
Parent Company Only Balance Sheets at December 31, 1998 and
1997 FS 38-39
Parent Company Only Statements of Income for the years ended
December 31, 1998, 1997 and 1996 FS 40-41
Parent Company Only Statements of Cash Flows for the years
ended December 31, 1998, 1997 and 1996 FS 42-44
<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, 1998 and 1997 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,
1998. These consolidated financial statements are the responsibility of the
Corporation's management. Our responsibility 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 signifigant 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, 1998 and 1997,
and the consolidated results of their operations and their cash flows for each
of the years in the three-year period ended December 31, 1998, 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 11, 1999
<PAGE>
BEVERLY NATIONAL CORPORATION AND SUBSIDIARIES
---------------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
DECEMBER 31, 1998 AND 1997
--------------------------
ASSETS 1998 1997
- ------ ------------ ------------
Cash and due from banks $ 10,971,822 $ 9,587,570
Federal funds sold 14,500,000 9,100,000
------------ ------------
Cash and cash equivalents 25,471,822 18,687,570
Investments in available-for-sale
securities (at fair value) 31,879,320 20,796,287
Investments in held-to-maturity
securities (fair values of $16,162,284
as of December 31, 1998 and $17,225,063
as of December 31, 1997) 16,152,624 17,185,188
Federal Reserve Bank stock, at cost 97,500 97,500
Loans, net of the allowence for loan losses
of $1,934,541 and $2,163,349, respectively 132,246,638 130,844,145
Mortgages held-for-sale 1,576,925 376,533
Premises and equipment 4,561,232 4,819,606
Accrued interest receivable 1,224,462 1,162,497
Other assets 1,819,781 1,410,187
------------ ------------
Total assets $215,030,304 $195,379,513
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Demand deposits $ 41,721,322 $ 39,083,761
Savings and NOW deposits 94,468,757 87,036,870
Time deposits 57,359,335 50,170,379
------------ ------------
Total deposits 193,549,414 176,291,010
Notes payable 385,627 385,627
Employee Stock Ownership Plan loan 200,000 300,000
Other liabilities 1,955,650 1,412,166
------------ ------------
Total liabilities 196,090,691 178,388,803
------------ ------------
<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 1,609,698
shares as of December 31, 1998 and 791,349
shares as of December 31, 1997; outstanding,
1,563,574 shares as of December 31, 1998 and
760,482 shares as of December 31, 1997 4,024,245 1,978,373
Paid-in capital 2,470,673 4,319,092
Retained earnings 13,009,685 11,558,988
Treasury stock, at cost (46,124 shares as of
December 31, 1998 and 30,867 shares as of
December 31, 1997) (427,467) (572,093)
Unearned Compensation - Employee Stock
Ownership Plan (200,000) (300,000)
Accumulated other comprehensive income 62,477 6,350
------------ ------------
Total stockholders' equity 18,939,613 16,990,710
------------ ------------
Total liabilities and stockholders'
equity $215,030,304 $195,379,513
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
BEVERLY NATIONAL CORPORATION AND SUBSIDIARIES
---------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
Years Ended December 31, 1998, 1997 and 1996
--------------------------------------------
1998 1997 1996
----------- ----------- -----------
Interest and dividend income:
Interest and fees on loans $11,748,027 $11,414,506 $10,198,532
Interest and dividends on
securities:
Taxable 2,533,214 2,380,978 2,246,765
Tax-exempt 30,784 13,008 23,775
Other interest 933,750 564,714 497,253
----------- ----------- -----------
Total interest and
dividend income 15,245,775 14,373,206 12,966,325
----------- ----------- -----------
Interest expense:
Interest on deposits 5,571,016 4,998,319 4,444,236
Interest on notes payable 34,680 34,998 59,338
----------- ----------- -----------
Total interest expense 5,605,696 5,033,317 4,503,574
----------- ----------- -----------
Net interest and
dividend income 9,640,079 9,339,889 8,462,751
Provision for loan losses ----------- ----------- -----------
Net interest and
dividend income
after provision
for loan losses 9,640,079 9,339,889 8,462,751
----------- ----------- -----------
Other income:
Income from fiduciary activities 1,228,191 1,107,938 874,385
Service charges on deposit
accounts 387,608 443,848 427,309
Other deposit fees 223,968 227,850 226,202
Other income 371,462 368,982 567,308
----------- ----------- -----------
Total other income 2,211,229 2,148,618 2,095,204
----------- ----------- -----------
Other expense:
Salaries and employee benefits 4,914,604 4,755,237 4,242,142
Occupancy expense 788,305 738,772 630,606
Equipment expense 434,668 415,409 401,660
Data processing fees 269,142 258,767 214,597
Stationery and supplies 174,701 182,722 167,834
Loss on sales of other real
estate owned, net 8,275
Other expense 1,892,571 1,567,011 1,471,200
----------- ----------- -----------
Total other expense 8,473,991 7,926,193 7,128,039
----------- ----------- -----------
<PAGE>
Income before income
taxes 3,377,317 3,562,314 3,429,916
Income taxes 1,237,406 1,392,301 1,410,305
----------- ----------- -----------
Net income $ 2,139,911 $ 2,170,013 $ 2,019,611
=========== =========== ===========
Earnings per common share $ 1.39 $ 1.47 $ 1.38
=========== =========== ===========
Earnings per common share,
assuming dilution $ 1.24 $ 1.32 $ 1.30
=========== =========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
<TABLE>
BEVERLY NATIONAL CORPORATION AND SUBSIDIARIES
---------------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
----------------------------------------------------------
Years Ended December 31, 1998, 1997 and 1996
--------------------------------------------
<CAPTION>
Accumulated
Other
Unearned Comprehensive
Common Paid-in Retained Treasury Compensation Income
Stock Capital Earnings Stock ESOP (Loss) Total
---------- ---------- ----------- --------- ------------ ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 $1,978,373 $4,380,219 $ 8,304,831 $(744,619) $ (394,354) $ (53,698) $13,470,752
Comprehensive income:
Net income 2,019,611
Net change in unrealized
holding loss on available-
for-sale securities, net of
tax effect of $13,053 17,186
Comprehensive income 2,036,797
Unearned compensation
payment 60,000 60,000
Unearned compensation
increase (25,646) (25,646)
Dividends declared ($.29
per share) (437,541) (437,541)
Sale of treasury stock on
exercise of stock options (21,293) 59,492 38,199
---------- ---------- ----------- --------- ------------ ------------- -----------
Balance, December 31, 1996 1,978,373 4,358,926 9,886,901 (685,127) (360,000) (36,512) 15,142,561
Comprehensive income:
Net income 2,170,013
Net change in unrealized
holding loss on available-
for-sale securities, net of
tax effect 42,862
Comprehensive income 2,212,875
Unearned compensation
payment 60,000 60,000
Dividends declared ($.33
per share) (497,926) (497,926)
Sale of treasury stock on
exercise of stock options (39,834) 113,034 73,200
---------- ---------- ----------- --------- ------------- ------------- -----------
<PAGE>
Balance, December 31, 1997 1,978,373 4,319,092 11,558,988 (572,093) (300,000) 6,350 16,990,710
Comprehensive income:
Net income 2,139,911
Net change in unrealized
holding gain on available-
for-sale securities, net of
tax effect 56,127
Comprehensive income 2,196,038
Stock split (2 for 1) 1,978,372 (1,978,372)
Tax benefit for stock options 12,357 12,357
Unearned compensation
payment 100,000 100,000
Dividends declared ($.45
per share) (689,214) (689,214)
Sale of stock on exercise of
stock options 67,500 117,596 144,626 329,722
---------- ---------- ----------- --------- ------------- ------------- -----------
Balance, December 31, 1998 $4,024,245 $2,470,673 $13,009,685 $(427,467) $ (200,000) $ 62,477 $18,939,613
========== ========== =========== ========= ============= ============= ===========
</TABLE>
<PAGE>
BEVERLY NATIONAL CORPORATION AND SUBSIDIARIES
---------------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
----------------------------------------------------------
Years Ended December 31, 1998, 1997 and 1996
--------------------------------------------
(continued)
Reclassification disclosure for the year ended December 31, 1998:
Net unrealized gains on available-for-sale securities $76,335
Less reclassification adjustment for realized gains or losses
in net income 0
-------
Other comprehensive income before income tax effect 76,335
Income tax expense (20,208)
-------
Other comprehensive income, net of tax $56,127
=======
Accumulated other comprehensive income as of December 31, 1998, 1997 and 1996
consists of net unrealized holding gains (losses) on available-for-sale
securities, net of taxes.
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
BEVERLY NATIONAL CORPORATION AND SUBSIDIARIES
---------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
Years Ended December 31, 1998, 1997 and 1996
--------------------------------------------
1998 1997 1996
----------- ----------- -----------
Cash flows from operating activities:
Net income $ 2,139,911 $ 2,170,013 $ 2,019,611
Adjustments to reconcile net income
to net cash provided by operating
activities:
Net (increase) decrease in
mortgages held-for-sale (1,199,213) 596,231 (847,000)
Provision (benefit) for
mortgages held-for-sale (1,179) (8,387) 6,286
Loss on sales of other real estate
owned, net 8,275
Disposal of fixed asset 5,280 285
Change in prepaid interest 3,933 3,933 3,933
Depreciation and amortization 450,891 426,219 381,784
Deferred tax expense (benefit) (205,379) (30,537) 15,983
Increase (decrease) in taxes payable 250,704 (38,209) 74,773
(Increase) decrease in interest
recievable (61,965) (81,030) 123,115
Increase in interest payable 42,205 21,464 66,590
Increase in accrued expenses 27,947 54,247 236,132
(Increase) decrease in prepaid expenses 951 (66,857) 118,935
Increase in other liabilities 5,275 439 7,692
Increase in other assets (321) (37,824) (32,885)
Accretion of investment securities,
net of amortization (129,916) (23,800) (48,035)
Gain on sales of assets, net (9,579) (8,489) (8,367)
Amortization of organization
expenses 724 724
Change in deferred loan costs,net (116,911) (105,838) (10,954)
----------- ----------- -----------
Net cash provided by operating
activities 1,203,358 2,880,574 2,107,878
----------- ----------- -----------
<PAGE>
Cash flows from investing activities:
Purchases of available-for-sale
securities (34,608,372) (14,215,924) (10,643,436)
Proceeds from sales of available
-for-sale securities 169,657 199,000
Proceeds from maturities of
available-for-sale securities 23,499,497 11,085,135 4,000,000
Purchases of held-to-maturity
securities (16,547,000) (3,243,125) (8,462,589)
Proceeds from maturities of
held-to-maturity securities 17,642,000 9,032,338 18,752,000
Proceeds from sales of other real
estate owned 74,658
Net increase in loans (1,842,919) (17,088,486) (13,086,291)
Capital expenditures (197,797) (812,296) (438,563)
Recoveries of loans previously
charged-off 53,954 20,176 879,203
Proceeds from sales of assets 512,962 508,449 465,333
------------ ----------- -----------
Net cash used in investing activities (11,318,018) (14,639,075) (8,335,343)
----------- ----------- -----------
<PAGE>
BEVERLY NATIONAL CORPORATION AND SUBSIDIARIES
---------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
Years Ended December 31, 1998, 1997 and 1996
--------------------------------------------
1998 1997 1996
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from sales of treasury stock 329,722 73,200 38,199
Net increase in demand deposits, NOW
and savings accounts 10,069,448 2,811,334 4,919,999
Net increase in time deposits 7,188,956 2,741,448 12,320,004
Repayment of notes payable (300,000)
Dividends paid (689,214) (543,189) (482,418)
----------- ----------- -----------
Net cash provided by financing
activities 16,898,912 5,082,793 16,495,784
----------- ----------- -----------
Net increase (decrease) in cash
and cash equivalents 6,784,252 (6,675,708) 10,268,319
Cash and cash equivalents at
beginning of year 18,687,570 25,363,278 15,094,959
----------- ----------- -----------
Cash and cash equivalents at end
of year $25,471,822 $18,687,570 $25,363,278
=========== =========== ===========
Supplemental disclosures:
Loans transferred to other real
estate owned $ $ 82,933 $
Mortgages held-for-sale transferred
to loans 950,938 768,292
Interest paid 5,563,491 5,011,853 4,436,984
Income taxes paid 1,192,081 1,461,047 1,319,549
Donation of other real estate owned 255,000
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
BEVERLY NATIONAL CORPORATION AND SUBSIDIARIES
---------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
Years Ended December 31, 1998, 1997 and 1996
--------------------------------------------
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 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 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. Cabot Street Realty Trust
was formed for the purpose of real estate development. The Bank includes
the accounts of its wholly-owned subsidiary, Beverly Community Development
Corporation. Beverly Community Development Corporation was formed to
provide loans to small businesses in low income census tracts. 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.
<PAGE>
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.
Cash and due from banks at December 31, 1998 and 1997 includes $4,166,000
and $3,186,000, respectively, which is subject to withdrawals and usage
restrictions to satisfy the reserve requirements of the Federal Reserve
Bank.
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 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.
<PAGE>
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.
ALLOWANCE FOR LOAN LOSSES:
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 Corporation considers a loan to be
impaired when, based on current information and events, it is probable
that the Corporation will be unable to collect all amounts due according
to the contractual terms of the loan agreement. The Corporation measures
impaired loans 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 loans principal is remote. Substantially
all of the Corporations loans that have been identified as impaired have
been measured by the fair value of existing collateral.
<PAGE>
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 HELD-FOR-SALE:
Mortgages held-for-sale in the secondary market are carried at the lower
of cost or estimated fair value in the aggregate. Net unrealized losses
are provided for in a valuation allowance by charges to operations.
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 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.
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 cash equivalents 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.
<PAGE>
Mortgages held-for-sale: Fair values for mortgages held-for-sale are
estimated based on outstanding investor commitments, or in the absence
of such commitments, are based on current investor yield requirements.
Accrued interest receivable: The carrying amount of accrued interest
receivable 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.
Notes payable and Employee Stock Ownership Plan loan: The carrying
amounts of notes payable and Employee Stock Ownership Plan loan
approximate their fair values.
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 difference 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 stock-based 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.
<PAGE>
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 years ended
December 31, 1998 and 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 EPS
data presented for the year ended December 31, 1996 has been restated.
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, 1998:
Debt securities issued by
the U.S. Treasury and other
U.S. government corporations
and agencies $31,136,922 $ 127,869 $ 21,471 $31,243,320
Marketable equity securities 636,000 636,000
----------- ---------- ---------- -----------
$31,772,922 $ 127,869 $ 21,471 $31,879,320
=========== ========== ========== ===========
<PAGE>
Gross Gross
Amortized Unrealizd Unrealized
Cost Holding Holding Fair
Basis Gains Losses Value
----------- ---------- ---------- -----------
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
=========== ========== ========== ===========
Held-to-maturity securities:
December 31, 1998:
Debt securities issued by
the U.S. Treasury and other
U.S. government corporations
and agencies $15,003,624 $ 6,380 $ 23,064 $14,986,940
Debt securities issued by
states of the United States
and political subdivisions
of the states 849,000 849,000
Debt securities issued by
foreign governments 300,000 26,344 326,344
----------- ---------- ---------- -----------
$16,152,624 $ 32,724 $ 23,064 $16,162,284
=========== ========== ========== ===========
December 31, 1997:
Debt securities issued by
the U.S. Treasury and other
U.S. government corporations
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
=========== ========== ========== ===========
<PAGE>
The scheduled maturities of held-to-maturity securities and available-for-sale
securities (other than equity securities) were as follows as of December 31,
1998:
Held-to-maturity Available-for-sale
securities: securities:
-------------------------- --------------------------
Amortized Amortized
Cost Fair Cost Fair
Basis Value Basis Value
------------ ------------ ------------ ------------
Due within one year $ 3,153,027 $ 3,153,688 $ 5,037,789 $ 5,070,283
Due after one year
through five years 11,434,597 11,418,189 26,099,133 26,173,037
Due after five years
through ten years 1,565,000 1,590,407
------------ ------------ ------------ ------------
$ 16,152,624 $ 16,162,284 $ 31,136,922 $ 31,243,320
============ ============ ============ ============
During 1998, proceeds from sales of available-for-sale securities amounted to
$169,657. There was no gain or loss realized from these sales. 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.
There were no securities of issuers whose aggregate carrying amount exceeded
10% of stockholders' equity as of December 31, 1998.
A total carrying amount of $15,555,710 of securities was pledged to secure
treasury tax and loan, trust funds and public funds on deposit as of
December 31, 1998.
NOTE 4 - LOANS
- --------------
Loans consisted of the following as of December 31:
1998 1997
------------ ------------
Commercial, financial and agricultural $ 24,987,512 $ 22,180,229
Real estate - construction and land
development 2,926,158 6,506,718
Real estate - residential 49,678,024 49,140,474
Real estate - commercial 44,223,264 44,241,896
Consumer 8,241,229 7,651,660
Other 3,988,233 3,266,669
------------ ------------
134,044,420 132,987,646
Allowance for loan losses (1,934,541) (2,163,349)
Deferred loan costs, net 136,759 19,848
------------ ------------
Net loans $132,246,638 $130,844,145
============ ============
<PAGE>
Statement of Financial Accounting Standards No. 122, "Accounting for Mortgage
Servicing Rights," SFAS No. 122, became effective for the Corporation on
April 1, 1996. As of April 1, 1997, SFAS No. 122 was superceded by Statement
of Financial Accounting Standards No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities" (SFAS No.
125). In the years ending December 31, 1998 and 1997 the Corporation sold
mortgage loans totalling $13,060,682 and $2,304,714, respectively and
retained the servicing rights. The fair value of those rights under SFAS
No. 122 and SFAS No. 125 is not material and has not been recognized in the
consolidated financial statements for the years ended December 31, 1998
and 1997.
Certain directors and executive officers of the Corporation and companies in
which they have significant ownership interest were customers of the Bank
during 1998. Total loans to such persons and their companies amounted to
$969,527 as of December 31, 1998. During 1998 principal payments and advances
totaled $174,740 and $289,000, respectively.
Changes in the allowance for loan losses were as follows for the years ended
December 31:
1998 1997 1996
---------- ---------- ----------
Balance at beginning of period $2,163,349 $2,197,694 $2,072,523
Loans charged off (282,762) (54,521) (754,032)
Recoveries of loans
previously charged off 53,954 20,176 879,203
---------- ---------- ----------
Balance at end of period $1,934,541 $2,163,349 $2,197,694
========== ========== ==========
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:
1998 1997
----------------------- -----------------------
Recorded Related Recorded Related
Investment Allowance Investment Allowance
In Impaired For Credit In Impaired For Credit
Loans Losses Loans Losses
----------- ---------- ----------- ----------
Loans for which there is a
related allowance for credit
losses $ 42,504 $ 19,000 $ 244,778 $ 49,000
Loans for which there is no
related allowance for credit
losses 132,500 35,512
----------- ---------- ----------- ----------
Totals $ 175,004 $ 19,000 $ 280,290 $ 49,000
=========== ========== =========== ==========
Average recorded investment in
impaired loans during the
year ended December 31 $ 259,312 $ 241,942
=========== ===========
<PAGE>
Related amount of interest
income recognized during the
time, in the year ended
December 31, that the loans
were impaired
Total recognized $ 234 $ 1,737
=========== ===========
Amount recognized
using a cash-basis
method of accounting $ 234 $ 504
=========== ===========
NOTE 5 - PREMISES AND EQUIPMENT
- -------------------------------
The following is a summary of premises and equipment as of December 31:
1998 1997
----------- -----------
Land $ 421,077 $ 421,077
Land improvements 4,550 4,550
Buildings 4,409,490 4,366,513
Furniture and equipment 2,116,576 1,979,863
Leasehold improvements 1,177,796 1,163,276
Construction in progress 2,987 4,680
----------- -----------
8,132,476 7,939,959
Accumulated depreciation and amortization (3,571,244) (3,120,353)
----------- -----------
$ 4,561,232 $ 4,819,606
=========== ===========
NOTE 6 - DEPOSITS
- -----------------
The aggregate amount of time deposit accounts (including CDs), each with a
minimum denomination of $100,000, was approximately $5,929,306 and $5,168,863
as of December 31, 1998 and 1997, respectively.
For time deposits as of December 31, 1998, the aggregate amount of maturities
for each of the following five years ended December 31, are:
1999 $47,645,198
2000 6,034,526
2001 2,306,009
2002 1,202,411
2003 and thereafter 171,191
-----------
$57,359,335
===========
<PAGE>
NOTE 7 - NOTES PAYABLE
- ----------------------
Notes payable consisted of the following as of December 31:
1998 1997
-------- --------
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.
NOTE 8 - INCOME TAXES
- ---------------------
The components of the income tax expense are as follows for the
years ended December 31:
1998 1997 1996
---------- ---------- ----------
Current:
Federal $1,033,042 $ 950,484 $ 991,183
State 409,743 472,354 403,139
---------- ---------- ----------
1,442,785 1,422,838 1,394,322
---------- ---------- ----------
Deferred:
Federal (152,692) (7,304) 13,317
State (52,687) (23,233) 2,666
---------- ---------- ----------
(205,379) (30,537) 15,983
---------- ---------- ----------
Total income tax expense $1,237,406 $1,392,301 $1,410,305
========== ========== ==========
<PAGE>
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:
1998 1997 1996
------ ------ ------
% 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 (2.1) (.3) (.4)
Dividends paid to ESOP (.3) (.3) (.3)
Unallowable expenses .7 .2 .2
Other (2.7) (2.8) (.2)
State tax, net of federal tax benefit 7.0 8.3 7.8
------ ------ ------
36.6% 39.1% 41.1%
====== ====== ======
The Corporation had gross deferred tax assets and gross deferred tax
liabilities as follows as of December 31:
1998 1997
-------- --------
Deferred tax assets:
Allowance for loan losses $590,136 $590,136
Deferred compensation 188,075
Accrued retirement benefits 82,694 73,853
Accrued interest on nonperforming loans 23,386 16,864
Accrued pension expense 103,559 49,309
-------- --------
Gross deferred tax assets 987,850 730,162
-------- --------
Deferred tax liabilities:
Accelerated depreciation 194,429 197,878
Loan origination fees and costs, net 53,870 1,129
Net unrealized holding gain on securities 43,921 4,488
Unrealized gain on mortgages held-for-sale 1,349 865
Other adjustments 21,009 18,476
-------- --------
Gross deferred tax liabilities 314,578 222,836
-------- --------
Net deferred tax assets $673,272 $507,326
======== ========
Deferred tax assets as of December 31, 1998 and 1997 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, 1998, the Corporation had no operating loss and tax credit
carryovers for tax purposes.
<PAGE>
NOTE 9 - STOCK COMPENSATION PLANS
- ---------------------------------
As of December 31, 1998, 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 Corporations 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 Corporations net income and earnings per share would have been reduced
to the pro forma amounts indicated below as of December 31:
1998 1997 1996
---------- ---------- ----------
Net income As reported $2,139,911 $2,170,013 $2,019,611
Pro forma $2,095,148 $2,125,921 $1,989,469
Earnings per share As reported $ 1.39 $ 1.47 $ 1.38
Pro forma $ 1.36 $ 1.44 $ 1.36
Earnings per share,
assuming dilution As reported $ 1.24 $ 1.32 $ 1.31
Pro forma $ 1.22 $ 1.29 $ 1.29
Under the 1993 Incentive Stock Option Plan, the Corporation has granted
options to key employees to purchase up to 112,200 shares of common stock.
Under the Directors Stock Option Plan, the Corporation may grant options to
its present and future Directors for up to 216,000 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 71,800 shares of common stock may be
granted, at fair value, to one director and other participants selected from
key employees.
In 1998, the Corporation adopted the 1998 Directors' Plan for present and
future Directors for up to 30,000 shares of common stock. Under the 1998
Directors' Plan, stock options are granted at prices and exercise terms as
determined by the Board of Directors and expire ten years after grant date.
In 1998, the Board of Directors approved the 1998 Incentive Stock Option Plan
for key employees, which is subject to shareholder approval in 1999. Under
this plan the Corporation may grant up to 60,000 shares of common stock, at
fair value, to present and future 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 1998, 1997 and 1996: dividend yield of 3% for
all years, expected volatility of 16% for 1998 and 12% for 1997 and 1996,
risk-free interest rate of 5.53% for 1998 and 6.60% for 1997 and 1996 and
expected lives of 8 years for all years.
<PAGE>
A summary of the status of the Corporation's fixed stock option plans as of
December 31, 1998, 1997 and 1996 and changes during the years ending on those
dates is presented below:
1998 1997 1996
------------------ ------------------ -----------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Fixed Options Shares Price Shares Price Shares Price
- ------------- ------- --------- ------- -------- ------- ---------
Outstanding at
beginning of year 351,600 $ 7.50 309,900 $ 7.03 201,000 $ 6.44
Granted 34,580 16.47 55,700 9.83 121,200 7.89
Exercised (42,610) 7.74 (12,200) 6.00 (6,420) 5.95
Forfeited (17,490) 7.41 (1,800) 9.00 (5,880) 5.95
------- ------- -------
Outstanding at end
of year 326,080 $ 8.42 351,600 $ 7.50 309,900 $ 7.03
======= ======= =======
Options exercisable
at year-end 171,980 183,610 158,220
Weighted-average fair
value of options
granted during the
year $3.47 $2.38 $1.48
The following table summarizes information about fixed stock options
outstanding as of December 31, 1998:
Options Outstanding Options Exercisable
---------------------------------- ---------------------
Weighted
Number Average Weighted Number Weighted
Range of Outstanding Remaining Average Exercisable Average
Exercise as of Contractual Exercise as of Exercise
Prices 12/31/98 Life Price 12/31/98 Price
- ------------ ----------- ----------- -------- ----------- --------
$5.95 70,200 4.50 years $ 5.95 45,480 $ 5.95
7.00 - 7.65 154,100 5.96 7.37 98,240 7.28
8.18 - 9.00 32,180 7.47 8.72 8,900 8.68
10.15 37,220 8.00 10.15 11,780 10.15
16.47 32,380 9.13 16.47 7,580 16.47
------- -------
326,080 171,980
======= =======
Earnings per share, the numbers of stock options and exercise prices above
have been adjusted to reflect the two-for-one stock split. See Note 16.
<PAGE>
NOTE 10 - EMPLOYEE BENEFITS OTHER THAN POSTRETIREMENT, MEDICAL AND LIFE
- -----------------------------------------------------------------------
INSURANCE BENEFITS
- ------------------
Defined benefit pension plan
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 tables set forth information about the plan as of December 31
and the years then ended:
1998 1997
---------- ----------
Change in projected benefit obligation:
Benefit obligation at beginning of year $4,881,819 $4,524,519
Service cost 265,088 235,313
Interest cost 336,617 311,773
Actuarial gain (loss) 224,464 (44,102)
Benefits paid (148,870) (145,684)
---------- ----------
Benefit obligation at end of year 5,559,118 4,881,819
---------- ----------
Change in plan assets:
Plan assets at estimated fair
value at beginning of year 5,018,844 4,049,583
Actual return on plan assets 1,008,831 1,004,119
Addition of pooled real estate 3,637
Employer contribution 107,189
Benefits paid (148,870) (145,684)
---------- ----------
Fair value of plan assets at end of year 5,878,805 5,018,844
---------- ----------
Funded status 319,687 137,025
Unrecognized net loss (481,654) (142,414)
Unrecognized prior service cost 32,656 35,168
Unamortized net asset existing at date
of adoption of SFAS No. 87 (122,913) (149,459)
---------- ----------
Accrued benefit cost included in
other liabilities $ (252,224) $ (119,680)
========== ==========
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 6.75% and 5.0% for 1998 and 7.0% and 5.0% for 1997 and
1996, respectively. The weighted-average expected long-term rate of return on
assets was 9.0% for 1998, 1997 and 1996.
<PAGE>
Components of net periodic benefit cost:
1998 1997 1996
-------- -------- --------
Service cost $265,088 $235,313 $207,837
Interest cost on benefit obligation 336,617 311,773 282,903
Expected return on assets (445,126) (358,512) (321,984)
Amortization of prior service cost 2,512 2,512 (1,973)
Recognized net actuarial cost (26,547) (19,981) (7,247)
-------- -------- --------
Net periodic benefit cost $132,544 $171,105 $159,536
======== ======== ========
The amounts and types of securities of the Corporation and related parties
included in plan assets as of December 31, 1998 and 1997 consists of 30,000
and 15,000 shares of Beverly National Corporation Stock, respectively.
Supplemental Retirement Plan
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's retirement
plan for employees. The amount charged to expense for these benefits was
$156,039 in 1998, $131,116 in 1997 and $136,751 in 1996.
The financial status of the plan is as follows as of December 31:
1998 1997
-------- --------
Projected benefit obligation $500,849 $326,932
Unrecognized net gains 11,263 12,120
-------- --------
512,112 339,052
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 457,429 292,554
--------- ---------
Pension liability $ 54,683 $ 46,498
========= =========
The discount rate and estimated pay increases used in determining the
projected benefit obligation were 6.75% and 5.00% for 1998 and 7.00% and
5.00% for 1997, respectively.
Defined contribution profit sharing plan
The Corporation has a defined contribution profit sharing plan. Contributions
by the Corporation were $14,754 in 1998, $15,067 in 1997, $0 in 1996.
<PAGE>
401K plan
The Corporation contributed $82,732, $76,479 and $73,969 to a 401K plan
in 1998, 1997 and 1996, respectively.
Employee Stock Ownership Plan
The Corporation sponsors an Employee Stock Ownership Plan (ESOP). 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.
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 $144,000 in 1998,
$148,600 in 1997 and $149,881 for 1996.
The ESOP shares were as follows as of December 31:
1998 1997
-------- --------
Allocated shares 64,231 64,940
Shares released for allocation 17,216 7,560
Unreleased shares 17,146 26,804
-------- --------
Total ESOP shares 98,593 99,304
======== ========
Estimated fair value of unreleased
shares as of December 31 $317,201 $445,617
======== ========
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 2,820 shares purchased
on February 2, 1996 and 6,756 shares purchased on October 31, 1994. As of
December 31, 1998 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. All shares above have been restated to reflect the two
for one stock split in 1998.
<PAGE>
Loans payable by the ESOP, with repayment guaranteed by the Corporation,
consist of the following as of December 31, 1998:
1995 loan payable at Wall Street Journal prime rate,
due March 31, 2005 $200,000
========
Severance Compensation Plan
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.
Change in Control
Two of the Corporation's executive officers have change in control agreements
(agreements) with the Corporation. Under the agreements, if either of the
executive officers employment is terminated subsequent to a change in control
as defined in the agreement, then the officer is entitled to a lump sum equal
to the product of the average sum of annual base compensation, including salary
and bonus, for the five preceding years multiplied by three.
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.
<PAGE>
The following tables set forth information about the plan as of December 31
and the years then ended:
1998 1997
-------- --------
Change in accumulated postretirement
benefit obligation:
Benefit obligation at beginning of year $613,908 $623,734
Service cost 2,468 2,390
Interest cost 42,974 43,661
Actuarial (gain) loss 22,478 (137)
Benefits paid (50,267) (55,740)
--------- ---------
Benefit obligation at end of year 631,561 613,908
--------- ---------
Fair value of plan assets at end of year 0 0
--------- ---------
Funded status (631,561) (613,908)
Unrecognized net gain (163,241) (199,533)
Unamortized net asset existing at date
of adoption of SFAS No. 87 602,100 645,000
--------- ---------
Accrued benefit cost included in
other liabilities $(192,702) $(168,441)
========= =========
The weighted-average discount rate and rate of increase in future compensation
levels used in determining the actuarial present value of the accumulated
postretirement benefit obligation were 6.75% and 5.00% for 1998 and 7.00% and
5.00% for 1997 and 1996, respectively. The weighted-average expected long-term
rate of return on assets was 7.0% for 1998 and 1997 and 8.0% for 1996.
Components of net periodic benefit cost:
1998 1997 1996
------- ------- --------
Service cost $2,468 $2,390 $2,348
Interest cost on benefit obligation 42,974 43,661 42,912
Amortization of prior service cost 42,900 42,900 42,900
Recognized net actuarial cost (13,814) (15,225) (14,775)
------- ------- -------
Net periodic benefit cost $74,528 $73,726 $73,385
======= ======= =======
Assumed health care cost trend rates have a significant effect on the amounts
reported for the health care plan. A one-percentage-point change in assumed
health care cost trend rates would have the following effects in the year ended
December 31, 1999.
1-Percentage- 1-Percentage-
Point Increase Point Decrease
-------------- --------------
Effect on total of service and
interest cost components $ 366 $ 363
Effect on postretirement benefit obligation 5,533 5,484
<PAGE>
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 2001 and 2029. 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, 1998:
1999 $ 183,350
2000 150,492
2001 124,084
2002 48,000
2003 51,000
Years thereafter 1,620,000
----------
Total minimum lease payments $2,176,926
==========
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 $150,672 for 1998,
$164,083 for 1997 and $93,893 for 1996.
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.
<PAGE>
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:
1998 1997
------------------------- ------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
----------- ----------- ----------- -----------
Financial assets:
Cash and cash
equivalents $25,471,822 $25,471,822 $18,687,570 $18,687,570
Available-for-sale
securities 31,879,320 31,879,320 20,796,287 20,796,287
Held-to-maturity
securities 16,152,624 16,162,284 17,185,188 17,225,063
Federal Reserve
Bank stock 97,500 97,500 97,500 97,500
Loans 132,246,638 133,027,000 130,844,145 131,136,867
Mortgages held-
for-sale 1,576,925 1,576,925 376,533 376,533
Accrued interest
receivable 1,224,462 1,224,462 1,162,497 1,162,497
Financial liabilities:
Deposits 193,549,414 194,043,000 176,291,010 176,499,864
Notes payable 385,627 385,627 385,627 385,627
Employee Stock
Ownership Plan
loan 200,000 200,000 300,000 300,000
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.
1998 1997
----------- -----------
Commitments to originate loans $ 847,000 $ 25,000
Standby letters of credit 247,529 1,436,381
Commercial letters of credit 712,348 404,754
Unadvanced portions of loans:
Consumer 1,844,086 799,583
Home equity 5,719,057 5,115,806
Commercial lines of credit 10,008,924 12,753,660
Commercial construction 138,550 506,564
Residential construction 425,810 610,849
----------- -----------
$19,943,304 $21,652,597
=========== ===========
There is no material difference between the notional amounts and the estimated
fair values of the off-balance sheet liabilities.
<PAGE>
The Corporation 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.
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,
1998 the Bank could declare dividends up to $4,600,380, 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, 1998, that the Corporation and the Bank meet all capital adequacy
requirements to which they are subject.
As of December 31, 1998, 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.
<PAGE>
The Corporation's and the Bank's actual capital amounts and ratios are also
presented in the table.
To Be Well
Capitalized
Under Prompt
For Capital Corrective
Adequacy Action
Actual Purposes Provisions:
--------------- -------------- --------------
Amount Ratio Amount Ratio Amount Ratio
------- ----- ------- ----- ------- -----
(Dollar amounts in thousands)
As of December 31, 1998:
Total Capital
(to Risk Weighted Assets):
Consolidated $ 20,563 15.29% $10,762 >8.0% N/A
Beverly National Bank 18,084 13.81 10,476 >8.0 $13,095 >10.0%
Tier 1 Capital
(to Risk Weighted Assets):
Consolidated 18,878 14.03 5,381 >4.0 N/A
Beverly National Bank 16,443 12.56 5,238 >4.0 7,857 >6.0
Tier 1 Capital
(to Average Assets):
Consolidated 18,878 8.86 8,519 >4.0 N/A
Beverly National Bank 16,443 7.83 8,399 >4.0 10,499 >5.0
<PAGE>
To Be Well
Capitalized
Under Prompt
For Capital Corrective
Adequacy Action
Actual Purposes: Provisions:
-------------- -------------- --------------
Amount Ratio Amount Ratio Amount Ratio
------- ----- ------- ----- ------- -----
(Dollar amounts in thousands)
As of December 31, 1997:
Total Capital
(to Risk Weighted Assets):
Consolidated $18,608 14.39% $10,346 >8.0% N/A
Beverly National Bank 16,588 13.09 10,136 >8.0 $12,670 >10.0%
Tier 1 Capital
(to Risk Weighted Assets):
Consolidated 16,985 13.08 5,195 >4.0 N/A
Beverly National Bank 14,997 11.78 5,091 >4.0 7,636 >6.0
Tier 1 Capital
(to Average Assets):
Consolidated 16,985 8.68 7,830 >4.0 N/A
Beverly National Bank 14,997 7.78 7,707 >4.0 9,634 >5.0
<PAGE>
NOTE 16 - EARNINGS PER SHARE (EPS)
- ----------------------------------
In the earnings-per-share computations, the average number of shares
outstanding does not include 21,975 shares for 1998, 16,633 shares for 1997 and
22,348 shares for 1996 which were the average number of shares not committed to
be released under the Bank's ESOP plan for those years.
On April 7, 1998 the Corporation effected a two-for-one stock split of its
common stock. The earnings per share computations for 1997 and 1996 have been
restated to reflect the two-for-one stock split. The earnings per share has
been reduced $1.47 and $1.38 per share in 1997 and 1996, respectively.
Reconciliation of the numerators and the denominators of the basic and diluted
per share computations for net income are as follows:
Per
Income Shares Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
Year ended December 31, 1998
Basic EPS
Net income and income available to
common stockholders $2,139,911 1,540,943 $1.39
Effect of dilutive securities, options 180,234
---------- ---------
Diluted EPS
Income available to common stockholders
and assumed conversions $2,139,911 1,721,177 $1.24
========== =========
Year ended December 31, 1997
Basic EPS
Net income and income available to
common stockholders $2,170,013 1,476,632 $1.47
Effect of dilutive securities options
and warrants 168,200
---------- ---------
Diluted EPS
Income available to common stockholders
and assumed conversions $2,170,013 1,644,832 $1.32
========== =========
<PAGE>
Year ended December 31, 1996
Basic EPS
Net income and income available to
common stockholders $2,019,611 1,463,682 $1.38
Effect of dilutive securities, options 83,944
---------- ---------
Diluted EPS
Income available to common stockholders
and assumed conversion $2,019,611 1,547,626 $1.30
========== =========
NOTE 17 - RECLASSIFICATION
- --------------------------
Certain amounts in the prior year have been reclassified to be consistent with
the current year's statement presentation.
<PAGE>
NOTE 18 - 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, 1998 and 1997
--------------------------
ASSETS 1998 1997
- ------ ----------- -----------
Cash $ 1,186 $ 2,934
Investment in Beverly National Bank 16,506,277 15,002,609
Investment in Cabot Street Realty Trust 525,418 548,347
Investment in available-for-sale securities 675,657 244,000
Loans 35,000 35,000
Premises and equipment 549,374 570,666
Accounts receivable from subsidiaries 828,357 865,000
Interest receivable 2,290 1,002
Prepaid and deferred taxes 28,782 31,139
----------- -----------
$19,152,341 $17,300,697
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Employee Stock Ownership Plan loan $ 200,000 $ 300,000
Accrued audit expense 3,140 2,940
Other liabilities 9,588 7,047
----------- -----------
Total liabilities 212,728 309,987
----------- -----------
<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 1,609,698
shares as of December 31, 1998 and 791,349
shares as of December 31, 1997; outstanding,
1,563,574 shares as of December 31, 1998 and
760,482 as of December 31, 1997 4,024,245 1,978,373
Paid-in capital 2,470,673 4,319,092
Retained earnings 13,009,685 11,558,988
Treasury stock, at cost (46,124 shares as of
December 31, 1998 and 30,867 shares as of
December 31, 1997) (427,467) (572,093)
Unearned Compensation - Employee Stock
Ownership Plan (200,000) (300,000)
Accumulated other comprehensive income 62,477 6,350
------------ ------------
Total stockholder's equity 18,939,613 16,990,710
------------ ------------
$ 19,152,341 $ 17,300,697
============ ============
<PAGE>
BEVERLY NATIONAL CORPORATION
----------------------------
(Parent Company Only)
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
---------------------------------------------
Years Ended December 31, 1998, 1997 and 1996
--------------------------------------------
1998 1997 1996
----------- ------------ ------------
Interest and dividend income:
Interest on taxable
investment securities $ 23,186 $ 5,801 $ 6,577
Interest on loans and
receivables from subsidiaries 63,224 67,022 72,796
Dividends from Beverly
National Bank 687,536 497,926 612,156
----------- ------------ ------------
Total interest and
dividend income 773,946 570,749 691,529
----------- ------------ ------------
Other income:
Rental income 36,000 36,000 36,000
----------- ------------ ------------
Total other income 36,000 36,000 36,000
----------- ------------ ------------
Expenses:
Occupancy expense 21,292 16,742 16,912
Equipment expense 119 624 2,145
Interest on notes payable 24,887
Other expense 76,431 83,971 133,754
----------- ------------ ------------
Total expenses 97,842 101,337 177,698
----------- ------------ ------------
Income before income tax benefit
and equity in undistributed net
income (loss) of subsidiaries 712,104 505,412 549,831
Income tax benefit (3,400) (6,536) (31,071)
----------- ------------ ------------
Income before equity in
undistributed net income
(loss) of subsidiaries 715,504 511,948 580,902
----------- ------------ ------------
Equity in undistributed net income
(loss) of subsidiaries:
Beverly National Bank 1,447,336 1,684,342 1,468,702
Cabot Street Realty Trust (22,929) (26,277) (29,993)
----------- ------------ ------------
<PAGE>
Total equity in
undistributed net
income of subsidiaries 1,424,407 1,658,065 1,438,709
----------- ------------ ------------
Net income 2,139,911 2,170,013 2,019,611
----------- ------------ ------------
Other comprehensive income, net of
taxes
Unrealized holding losses on
available-for-sale
securities, parent company
only (205)
Unrealized holding gains on
available-for-sale
securities, Beverly National
Bank 56,332 42,862 17,186
----------- ----------- -----------
Total other comprehensive
income, net of taxes 56,127 42,862 17,186
----------- ----------- -----------
Comprehensive income $ 2,196,038 $ 2,212,875 $ 2,036,797
=========== =========== ===========
<PAGE>
BEVERLY NATIONAL CORPORATION
----------------------------
(Parent Company Only)
STATEMENTS OF CASH FLOWS
------------------------
Years Ended December 31, 1998, 1997 and 1996
--------------------------------------------
1998 1997 1996
------------ ------------ ------------
Cash flows from operating activity:
Net income $ 2,139,911 $ 2,170,013 $ 2,019,611
Adjustments to reconcile net income
to net cash provided by operating
activities:
Loss of merged subsidiary 196
Undistributed net income of
subsidiaries (1,424,407) (1,658,065) (1,438,709)
Increase (decrease) in accrued
expenses 200 (3,941) (7,738)
Depreciation expense 21,292 16,742 16,912
Increase in taxes payable 2,541 3,830 950
Change in prepaid and deferred
taxes 2,357 (552) 1,758
Accretion of securities (205)
(Increase) decrease in interest
receivable (1,288) (66) 3,053
Decrease in interest payable (138)
(Increase) decrease in other
assets 45,263 (43,822)
------------ ------------ ------------
Net cash provided by operating
activities 740,401 573,224 552,073
------------ ------------ ------------
Cash flows from investing activities:
Capital expenditures (4,550)
Purchases of available-for-sale
securities (501,313) (281,500) (173,000)
Proceeds from sales of available-
for-sale securities 69,656 132,000
Proceeds from maturities of
available-for-sale securities 85,000
Decrease in due from subsidiaries 49,000 95,000 69,000
Increase in due to subsidiaries 65,000
Cash received from merger of
subsidiary 142
------------ ------------ ------------
<PAGE>
Net cash provided by (used in)
investing activities (382,657) (101,500) 88,592
------------ ------------ ------------
Cash flows from financing activities:
Repayment of notes payable (300,000)
Proceeds from sales of treasury
stock 329,722 73,200 38,199
Dividends paid (689,214) (543,189) (482,418)
------------ ------------ ------------
Net cash used in financing
activities (359,492) (469,989) (744,219)
------------ ------------ ------------
Net increase (decrease) in cash and
cash equivalents (1,748) 1,735 (103,554)
Cash and cash equivalents at
beginning of year 2,934 1,199 104,753
------------ ------------ ------------
Cash and cash equivalents at end
of year $ 1,186 $ 2,934 $ 1,199
============ ============ ============
<PAGE>
BEVERLY NATIONAL CORPORATION
----------------------------
(Parent Company Only)
STATEMENTS OF CASH FLOWS
------------------------
Years Ended December 31, 1998, 1997 and 1996
--------------------------------------------
(continued)
Supplemental disclosure: 1998 1997 1996
------------ ------------ ------------
Income taxes received $ (8,298) $ (9,814) $ (33,779)
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, 1998, 1997 and 1996, and therefore are not reprinted here.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
NONE
PART III
ITEM 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 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 64 Director 2001 Retired Stockbroker
Neiland J. Douglas, Jr. 63 Director 2002 President, Morgan
and Douglas(Real
Estate Services)
John N. Fisher 58 Director 2000 President, Fisher &
George Electrical
Co., Inc.
Mark B. Glovsky 51 Director 2002 Attorney, Partner,
Glovsky & Glovsky
Attorneys at Law
John L. Good, III 54 Director 2001 Vice President,
Community Relations
&Development,
Northeast Health
Systems, Inc.
Alice B. Griffin 61 Director 2000 Consultant
<PAGE>
Julia L. Robichau 61 Vice Pres. Vice Pres. & Clerk of
& Clerk of Corporation;
Corporation; Vice President,
Vice &Chief Operations
President, Officer &
Chief Cashier of Bank
Operations
Officer &
Cashier of
Bank
Peter E. Simonsen 48 Treasurer of Treasurer of
Corporation; Corporation;
Vice President Vice President
and Chief and Chief
Financial Financial
Officer of Officer of Bank
Bank
Clark R. Smith 60 Director 2001 Attorney
Lawrence M. Smith 57 President & 2002 President & CEO,
Chief Beverly
Executive National
Officer of Corporation and
Corporation Beverly
and Bank, National Bank,
Director Director
James D. Wiltshire 67 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, 1998, 1997,
and 1996, respectively. No other Executive Officer of the Corporation or the
Bank received cash compensation in excess of $100,000.
<TABLE>
<CAPTION>
SUMMARY COMPENSTION TABLE
LONG TERM COMPENSATION
___________________________________________________________________________________________
ANNUAL COMPENSATION AWARDS PAYOUTS
Other Annual Restricted Options/ LTIP All Other
Compensation Stock Awards SARs Payouts Compensation
Name and Principal Position Year Salary($) Bonus($) ($) (1) ($) (#) ($) (2) (3) ($)
__________________________________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Lawrence M. Smith 1998 185,075 49,825 5,377 120,480
President of the Corporation 1997 178,300 45,000 7,324 4,000 139,810
and President, Chief 1996 171,500 37,500 4,756 12,000 134,190
Executive Officer of the Bank
Julie L. Robichau 1998 91,650 20,000 586 27,857
Vice President and Clerk of 1997 88,300 19,000 436 2,000 40,844
the Corporation and 1996 85,000 15,000 303 31,949
Vice President and Cashier,
Chief Operations Officer of
the Bank
Peter E. Simonsen 1998 95,000 19,900 316 3,778
Treasurer of the Corporation 1997 91,720 19,000 297 2,000 16,001
and Vice President and 1996 88,370 15,425 280 8,002
Chief Financial Officer of the
Bank
James E. Rich 1998 99,775 20,500 425 3,997
Vice President and Senior 1997 96,275 12,000 370 2,000 16,680
Trust Officer of the Bank 1996 93,275 15,925 125 8,482
Deborah A. Rosser 1998 85,100 18,000 108 3,456
Vice President and 1997 73,000 15,275 80 12,740
Senior Loan Officer 1996 65,000 10,700 59 5,833
<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, $133,514 and Julia L.
Robichau, $39,546; and key man insurance for Lawrence M. Smith.
<PAGE>
<F3>
(3) Information concerning allocations under the Corporation's Employee
Stock Ownership Plan and Profit Sharing for 1998 are unavailable, at
date of filing.
</FN>
</TABLE>
<PAGE>
Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End
- --------------------------------------------------------------
Option/SAR Values
- -----------------
The table below sets forth information regarding stock options that were
exercised, if any, during the last fiscal year, and unexercised stock options
held:
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options/SARS In-The-Money Options/SARS
Shares At FY/End (#) At FY/End (#)
Acquired on Value Exercisable (E)/ Exercisable (E)/
Name and Principal Position Exercise (#) Realized ($) Unexercisable (U) Unexercisable (U)
_______________________________________________________________________________________________________________
<S> <C> <C> <C> <C>
Lawrence M. Smith 3,000 $ 39,000 67,580 (E) (1) $522,662 (1) (E)
President of the Corporation 0 (U)
and President, Chief
Executive Officer of the Bank
Julia L. Robichau 18,000 $185,000 0 0
Vice President and Clerk of
the Corporation and
Vice President and Cashier,
Chief Operations Officer of
the Bank
Peter E. Simonsen 2,500 $ 28,750 5,700 (E) $ 44,314 (E)
Treasurer of the Corporation 9,800 (U) $128,626 (U)
and Vice President and
Chief Financial Officer of the
Bank
James E. Rich 0 0 10,720 (E) $ 79,454 (E)
Vice President and Senior 7,280 (U) $ 78,086 (U)
Trust Officer of the Bank
Deborah A. Rossser 600 $ 9,526 0 (E) 0 (E)
Vice President and 6,600 (U) $ 78,366 (U)
Senior Loan Officer
<PAGE>
<FN>
<F1>
(1) As of December 31, 1998, the market value of Beverly National
Corporation common stock was $18.50 per share. As the option
exercise price for the options previously granted to Mr. Smith
equals 12,000 shares @ $5.95 per share, 24,000 shares @ $7.00 per
share, 21,000 shares @ $7.65 per share, 6,020 shares @ $10.15 per
share, 1,980 shares @ $8.63 per share, and 2,580 shares @ $16.47
per share which amounts to less than the December 31, 1998 market
value of $18.50, the options were "in-the-money" on December 31,
1998. 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 Mr. Simonsen in
1993 was 9,500 shares @ $7.00 per share, in 1997 4,000 @ $10.15, and
in 1998 2,000 @ $16.47, which amnount is less than $18.50 per share
as of December 31, 1998. Accordingly, the options of 15,500 were
"in-the-money" on December 31, 1998.
<F3>
(3) The option exercise price for the options granted to Mr. Rich in 1993
was 12,000 shares @ $7.00 per share, in 1997 4,000 shares @ $10.15
per share. and in 1998 2,000 @ $16.47 per share, which amount is less
than $18.50 per share as of December 31, 1998. Accordingly, the
options of 18,000 were "in-the-money" on December 31, 1998.
<F4>
(4) The option exercise price for the options granted to Mrs. Rosser in
1997 was 4,800 sharesas $10.15, and in 1998 1,800 @ $16.47, which
amount is less than $18.50 per share on December 31, 1998.
Accordingly, the options of 6,600 were "in-the-money" on December 31,
1998.
</FN>
</TABLE>
<PAGE>
Option/SAR Grants in Last Fiscal Year
- -------------------------------------
With the exception of the individuals set forth in the table below, no other
executive officer of the Corporation was granted options to purchase shares of
common stock. All shares purchased upon the exercise of any option must be
paid in full at the time of the purchase.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
Number of Percent of
Securities Total Options/ Fair Market
Underlying SARs Granted Exercise or Value on
Option/SARs to Employees Base Price Date of Date of Date of Expiration
Name and Principal Position Granted (#) in Fiscal Year (1) ($/Sh) Grant Grant Exercisability Date
______________________________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C> <C>
Lawrence M. Smith 2,580 7.5% $16.47 $16.47 02/07/98 (2) 08/01/08
President of the Corporation
and President, Chief
Executive Officer of the Bank
Julia L. Robichau 2,000 5.8% $16.47 $16.47 02/07/98 (2) 08/01/08
Vice President and Clerk of
the Corporation and
Vice President and Cashier,
Chief Operations Officer of
the Bank
Peter E. Simonsen 2,000 5.8% $16.47 $16.47 02/07/98 (2) 08/01/08
Treasurer of the Corporation
and Vice President and
Chief Financial Officer of
the Bank
James E. Rich 2,000 5.8% $16.47 $16.47 02/07/98 (2) 08/01/08
Vice President and Senior
Trust Officer of the Bank
<FN>
<F1>
(1) The options/SARs granted to employees in 1998 totaled 34,580 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. In 1998, the following grants were
issued: 2,580 to Mr. Smith and 2,000 to Mrs. Robichau vested
immediately, 2,000 to Messrs. Simonsen and Rich vested at 10% over
10 years.
</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.
Beverly National Corporation 1998 Directors Plan
- ------------------------------------------------
The purpose of the 1998 Directors Plan is to provide incentives to present and
future directors of Beverly National Corporation. The aggregate number of
shares of stock for options which may be granted under this plan is 30,000
shares. The effective date of this plan is as of December 22, 1998. Each
option shall expire 10 years after the date of such grant or no later than
three months after termination of appointee's services. No options of the 1998
Directors Plan were granted.
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, and on December 22, 1998, the contract was further extended to
continue through May 31, 1999; provided, however, that commencing on May 31,
1999 the term of the Employment Agreement shall automatically be extended for
one additional year unless, not later than November 30, 1998, 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 $91,600 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.
<PAGE>
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.
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 30, 2002. Pursuant to the
Consulting Agreement, Mrs. Robichau will be paid a consulting fee of $30,000
per year as amended in October 1998. The Consulting Agreement contains a non-
compete clause and shall commence upon the expiration of the term of the
Robichau Employment Agreement. Should the Consulting Agreement be terminated,
the Corporation has agreed to pay Mrs. Robichau through the term thereof.
<PAGE>
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 4, 1999. The
percentage is based upon 1,566,574 shares of common stock outstanding.
Number of Shares Percent of
Beneficially Outstanding
Name of Owner (9) Owned (1)(2) Shares
----------------- ---------------- -----------
Richard H. Booth 9,620 (3,4) .61%
Neiland J. Douglas, Jr. 16,652 (3,5) 1.05%
John N. Fisher 15,450 (3,6) .98%
Mark B. Glovsky 2,520 (3) .16%
John L. Good, III 13,592 (3) .86%
Alice B. Griffin 10,794 (3) .69%
Clark R. Smith 8,006 (3) .51%
Lawrence M. Smith 75,586 (3,7) 4.63%
James D. Wiltshire 9,420 (3) .60%
All Directors and officers
as a group (14 persons) 218,318 (8) 12.74%
(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 30,000 shares
held in the Beverly National Bank Retirement Plan or the 4,600 shares held
in the Beverly National Bank Profit Sharing Plan, or the 98,593 shares
held by the Corporation's Employee Stock Ownership Plan, as to which
Messrs. Smith, Good and Douglas serve as trustees.
<PAGE>
(3) Includes stock options to purchase shares which were exercisable as of
March 4, 1999, or within 60 days thereafter, as listed: Richard H. Booth,
7,420, Neiland J. Douglas, Jr., 12,460, John N. Fisher, 8,320, Mark B.
Glovsky, 2,020, John L. Good, III, 12,460, Alice B. Griffin, 3,820, Clark
R Smith, 2,020, Lawrence M. Smith, 67,580, James D. Wiltshire, 7,420,
Officers (as a group), 24,110.
(4) Includes 130 shares owned jointly by Mr. Booth and Mr. Booth's spouse.
(5) Includes 118 shares owned by Mr. Douglas' spouse.
(6) Includes 3,038 shares owned jointly by Mr. Fisher and Mr. Fisher's spouse.
(7) Includes 2,170 shares owned jointly by Mr. Smith and Mr. Smith's spouse;
and 2,080 shares owned by Mr. Smith's spouse.
(8) Includes stock options owned by all Directors and Officers as a group to
purchase 147,630 shares which were exercisable, as of March 4, 1999 or
within 60 days thereafter.
(9) The individuals listed can be contacted through the Corporation (Beverly
National Corporation, 240 Cabot Street, Beverly, MA 01915).
The following table and related notes set forth certain information as of
March 4, 1999 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:
<PAGE>
Number of Shares
Directly and
Name and Address Beneficially Outstanding
of Owner Owned Shares (1)
- ----------------- ---------------- -------------
Harold C. Booth 121,782 (2) 7.77%
P.O. Box 729
Center Harbor, NH 03226
Beverly National Corporation 98,593 6.29%
Employee Stock Ownership Plan
240 Cabot Street
Beverly, MA 01915
John Sheldon Clark 90,750 (3) 5.79%
430 Park Avenue
Suite 1800
New York, NY 10022
(1) The percentages above are based on 1,566,574 shares of common stock
outstanding as of March 4, 1999.
(2) Includes 92,436 shares owned by Mr. Booth's trust and 29,346 owned by Mr.
Booth's spouse's trust, of which the Bank is a trustee and shares
investment and voting power.
(3) 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" (29,212 shares). Mr. Clark acts as trustee for both trusts and
has investment authority. This includes 14,980 shares owned by Mr.
Clark's spouse.
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.
<PAGE>
As of December 31, 1998, the Bank had outstanding $969,527 in loans to
Directors, Executive Officers, members of their family and their associates,
which represents 5.12% 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 such 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, 1998, the aggregate amount of extensions of credit to
insiders was well below this limit.
<PAGE>
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: 3/23/99 By:/s/Lawrence M. Smith
_______ _____________________________________
President & CEO and
Director, Principal Executive Officer
Date: 3/23/99 By:/s/Peter E. Simonsen
_______ ____________________________________
Treasurer,Principal Financial &
Accounting Officer
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
____ _________________
3/23/99 /s/Lawrence M. Smith
_______ ___________________________________
Lawrence M. Smith,
President & CEO &
Director, Principal Executive Officer
3/23/99 /s/Richard H. Booth
_______ ___________________________________
Richard H. Booth - Director
3/23/99 /s/Neiland J. Douglas, Jr.
_______ ___________________________________
Neiland J. Douglas,Jr. - Director
3/23/99 /s/John N. Fisher
_______ ___________________________________
John N. Fisher - Director
3/23/99 /s/ Mark B. Glovsky
_______ ___________________________________
Mark B. Glovsky -Director
3/23/99 /s/John L. Good, III
_______ ___________________________________
John L. Good, III - Director
<PAGE>
3/23/99 /s/Alice B. Griffin
_______ ___________________________________
Alice B. Griffin - Director
3/23/99 /s/Clark R. Smith
_______ ___________________________________
Clark R. Smith - Director
3/23/99 /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 1999 Annual
Meeting of Shareholders, which was held on March 23, 1999, are furnished
herein. Such material is not deemed to be filed with the Commission of
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)
10.13 1998 Incentive Stock Option Plan for Key Employees. . . . . . . . . (12)
10.14 1998 Directors Plan . . . . . . . . . . . . . . . . . . . . . . . . (13)
10.15 Lawrence M. Smith Contract Extension . . . . . . . . . . . . . . . .(14)
10.16 Julia L. Robichau Amendment to Consulting Agreement . . . . . . . . (15)
10.17 Julia L. Robichau Amendment to Supplemental Executive
Retirment Agreement . . . . . . . . . . . . . . . . . . . . . . . . (16)
<PAGE>
20. 1998 Proxy Statement. . . . . . . . . . . . . . . . . . . . . . Page 104
21. Subsidiaries of Corporation . . . . . . . . . . . . . . . . . . Page 113
23. Consent of Shatswell, MacLeod & Company, P.C. . . . . . . . . . Page 114
27. Financial Data Schedule
(b) the Corporation did not file a Form 8-K during the quarter ended
December 31, 1998.
(1) Incorporated herein by reference to the identically numbered exhibits to
the Annual Report 10-KSB for December 31, 1994.
(2) Incorporated herein by reference to identically numbered exhibits to the
Annual Report 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 (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 (No. 33-347) filed on January 22, 1996.
(6) Incorporated herein by reference to Exhibit 10.8 to the Annual Report
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>
EXHIBIT A
---------
BEVERLY NATIONAL CORPORATION
l998 Incentive Stock Option Plan for Key Employees
l. PURPOSE.
1.1 The purpose of the Beverly National Corporation l998 Incentive
Stock Option Plan for Key Employees (hereinafter referred to as the "Plan") is
to provide incentives to present and future employees of Beverly National
Corporation, a Massachusetts corporation (this "Corporation"), and any of its
present and future subsidiaries at least fifty percent (50%) owned by this
Corporation ("Subsidiaries") (such employees being hereinafter referred to as
"Employees" and each of them individually as an "Employee") in order that they
may provide exceptional services to this Corporation and its Subsidiaries, and
to offer inducements to Employees to accept and continue employment with this
Corporation and its Subsidiaries by offering Employees options to purchase
shares of this Corporation's common stock which may qualify for treatment as
incentive stock options under the Internal Revenue Code of 1986, as amended
(the "Code") upon the approval of the Plan by the shareholders of this
Corporation and upon the satisfaction by such Employees of the requirements for
such qualification. This Plan is an "incentive stock option plan" described in
Section 422 of the Code.
2. ADMINISTRATION OF THE PLAN.
2.1 The Plan shall be administered by the Board of Directors of this
Corporation (the "Board of Directors") which shall: (l) determine which
Employees shall be granted options to purchase shares of this Corporation's
Common Stock ($2.50 par value) ("Stock") pursuant to the Plan (which options
shall hereinafter be referred to as "Options," or in the singular as an
"Option"); (2) determine the time or times when Options shall be granted and
the number of shares of Stock to be subject to each Option; (3) determine the
option price at which the shares of Stock subject to each Option may be
purchased pursuant to the Plan and the forms of the instruments evidencing any
Options granted under the Plan or any other instrument to be used in connection
with the Plan; (4) adopt, amend and rescind, in its discretion, rules and
regulations for the administration of the Plan; (5) interpret the Plan and
decide all questions and settle all controversies and disputes which may arise
in connection with the Plan, which decisions and interpretations shall be
binding upon all persons; and (6) exercise such other powers as may be
necessary or desirable to implement the provisions of this Plan.
2.2 Members of the Board of Directors who are Employees shall be
eligible to receive Options pursuant to the Plan. The grant of an Option to an
Employee who is also a director of this Corporation shall not be affected or
invalidated by reason of the fact that such director voted to approve the grant
of such Option.
2.3 No member of the Board of Directors shall be liable for any
action taken or determination made in good faith and in a manner reasonably
believed to be in the best interests of this Corporation with respect to the
Plan or any Option granted pursuant thereto. The Board of Directors may
indemnify any person against expenses reasonably incurred or the amount of any
damages, fine, or settlement assessed against or agreed to by such person, in
connection with any action, suit or proceeding in which such person may be
involved in connection with any Option or this Plan to the same extent that
the Board of Directors may indemnify such person under the By-laws of this
Corporation.
<PAGE>
3. AUTHORITY TO GRANT.
3.l Subject to the terms and conditions of this Plan, the Board of
Directors may from time to time grant to such Employees as it may determine to
be capable of making substantial contributions to the management or development
of this Corporation and its Subsidiaries Options, upon such terms and
conditions as it may deem appropriate, subject to applicable provisions of this
Plan.
3.2 The Board of Directors may authorize the grant of Options to
Employees by action taken with or without a meeting. The effective date of the
grant of an Option pursuant hereto shall be the date specified by the Board of
Directors in the Stock Option Agreement, as hereinafter defined.
3.3 The number of shares of Stock subject to an Option shall in each
case be determined by the Board of Directors, subject to the applicable
provisions of this Plan. More than one Option may be granted to the same
Employee.
3.4 Nothing contained in this Plan or in any resolution adopted by
the Board of Directors or the shareholders of this Corporation shall constitute
the grant of an Option hereunder, and no Employee shall be entitled to the
grant of an Option unless action granting an Option to such Employee shall have
been taken by the Board of Directors and unless the recipient of an Option
shall have executed an agreement in form and substance satisfactory to the
Board of Directors containing terms, restrictions and conditions imposed upon
the exercise of the Option and the transfer of any Stock pursuant thereto
("Stock Option Agreement").
3.5 Any purported disposition of shares of Stock acquired pursuant
to an Option which shall be in contravention of the terms, restrictions and
conditions contained in the Stock Option Agreement executed in connection with
such Option shall be ineffective, and such disposition shall not be registered
upon the stock transfer books of this Corporation.
3.6 The aggregate fair market value of Stock with respect to which
Options issued hereunder are exercisable for the first time during any calendar
year, when aggregated with the fair market value of stock subject to other
incentive stock options then outstanding under all plans of this Corporation
and its parent and subsidiary corporations and exercisable for the first time
during such calendar year, shall not exceed $l00,000 or such other amount as
shall be permitted for options intended to qualify for incentive stock option
treatment. For purposes of this section the fair market value of Stock subject
to Options shall be determined at the time the Options are issued.
4. STOCK SUBJECT TO THE PLAN.
4.l Stock to be issued upon the exercise of an Option shall be made
available, in the discretion of the Board of Directors, from authorized but
unissued shares of Stock or from shares of Stock held in the treasury of this
Corporation, however acquired.
4.2 The aggregate number of shares of Stock for which Options may be
granted under the Plan shall be 60,000. If an Option shall expire, terminate,
or be canceled or surrendered in whole or in part prior to the exercise
thereof, the number of shares of Stock subject to the unexercised portion of
such Option shall be subject to other Options granted theretofore or thereafter
pursuant to the Plan.
4.3 Appropriate adjustments in the number of shares of Stock subject
to Options previously issued hereunder and in the number of shares of Stock for
which Options have not yet been granted under this Plan shall be made by the
Board of Directors if at any time after the effective date of this Plan this
Corporation shall increase or decrease the number of outstanding shares of
Stock, whether by stock split, combination, stock dividend or reclassification,
or merger, consolidation, recapitalization, or reorganization.
<PAGE>
4.4 No provision of this Plan, nor any Option granted pursuant
hereto or Stock Option Agreement entered into in connection therewith shall
confer upon any Employee or any other person any preemptive right to acquire
any stock of this Corporation.
5. ELIGIBILITY.
5.l The Board of Directors may grant Options pursuant hereto to
such Employees as it may designate from time to time pursuant to Section 3.l
hereof regardless of whether such Employees are also officers or directors of
this Corporation.
5.2 No officer or director of this Corporation shall be eligible to
receive any Option pursuant to this Plan unless such officer or director is
also an Employee.
5.3 No Employee may exercise any part of an Option unless he or she
has been continuously employed by this Corporation from the date the Option was
granted until no more than three (3) months prior to the time of such exercise,
provided, that in the case of a deceased employee or an employee whose
employment terminates for reason of permanent and total disability, no Option
may be exercised unless the optionee was continuously employed by this
Corporation from the date the Option was granted until no more than l2 months
prior to the time of such exercise.
5.4 If an Employee or former Employee eligible to exercise an Option
granted pursuant to this Plan dies prior to such exercise, such Option may be
exercised to the extent permitted herein by his estate or a person who acquires
the right to exercise such Option by bequest or inheritance.
5.5 No Option granted pursuant to this Plan may be transferred by
the holder thereof other than by will or the laws of descent and distribution
of the state in which such holder is domiciled at the time of his death.
6. TERMS OF OPTIONS.
6.l The price at which shares of Stock may be purchased pursuant to
an Option shall be the fair market value of the Stock on the date of the grant
of such Option (as determined pursuant to Section 3.2 hereof), provided, that
in the case of Options granted to an Employee who at the date of the grant of
such Option owns l0% or more of the combined voting stock of the Corporation
(a "l0% Employee"), such price shall be equal to 110% of the fair market value
of the Stock on the date of the grant of such Option. For purposes of
determining the percentage of stock of the Corporation owned by an Employee,
attribution rules made applicable by the Code and related regulations shall
apply. The fair market value of any Stock shall be determined by the Board of
Directors in good faith.
6.2 Each Option granted under this Plan shall expire, and may not be
exercised to any extent, upon the earliest to occur of the following:
(a) Each Option shall expire ten years after the date of grant of
such Option (as determined pursuant to Section 3.2 hereof), or on such date
prior thereto as may be fixed by the Board of Directors, provided, however,
that each Option granted to a l0% Employee shall expire five years after the
date of grant of such Option, or such date prior thereto as may be fixed by the
Board of Directors.
<PAGE>
(b) Each Option shall expire not later than three months after
termination of the optionee's employment with this Corporation or any of its
Subsidiaries (with or without cause, voluntary or involuntary) for reasons
other than death or total and permanent disability, during which three-month
period the Option may be exercised only to the extent that it was exercisable
upon termination. If the optionee's employment with this Corporation or any
of its Subsidiaries terminates for reasons of death or total and permanent
disability, then the Option shall expire l2 months after such termination of
employment, and during that 12-month period the Option may be exercised only
to the extent it was exercisable upon termination. If an optionee whose
employment terminates for reasons other than death or disability dies during
the three-month period described above, such optionee's Options shall expire
one year from the date of termination of employment, during which time they
may be exercised to the extent exercisable on the date of termination.
7. EXERCISE OF OPTIONS.
7.l Each Option granted hereunder shall be exercisable in such
installment or installments as may be determined by the Board of Directors at
the time of the grant. The right to purchase shares shall be cumulative so
that when the right to purchase any shares has accrued such shares or any part
thereof may be purchased at any time thereafter until the expiration or
termination of the Option.
7.2 A person entitled to exercise an Option may, subject to the
terms and conditions of the Stock Option Agreement executed in connection
therewith, exercise such Option from time to time by delivery to this
Corporation at its principal office of written notice of his or her intention
to exercise such Option setting forth the number of shares with respect to
which the Option is to be exercised and accompanied by (l) payment in full of
the purchase price of the shares to be purchased, (2) payment in full of all
local, state or federal taxes due on account of the exercise of such Option,
and (3) such other documents and materials as may be required by this
Corporation under the terms of this Plan, the Stock Option Agreement, or
otherwise. As promptly as practicable thereafter, this Corporation shall
deliver to the purchaser certificates for the number of shares purchased.
7.3 The date of actual receipt by this Corporation of notice of
intention to exercise an Option shall be deemed the date of exercise of the
Option with respect to the shares then purchased. Delivery of shares purchased
shall be deemed effective when a stock transfer agent shall have deposited
certificates therefor with the United States mail for delivery to the purchaser
at the address specified in the notice of exercise provided to this
Corporation.
7.4 During the life of a holder of an Option issued pursuant to
this Plan, such Option may be exercised only by the holder.
7.5 No person, estate or other entity shall have any of the rights
of a shareholder of this Corporation with respect to shares subject to an
Option until a certificate or certificates for such shares shall have been
delivered by this Corporation to such person or entity. Upon delivery of such
a certificate to the purchaser thereof for the number of shares of Stock
purchased, the owner thereof shall have all the rights of a shareholder of
such shares of Stock, including the right to vote the same and receive
dividends thereon, subject, however, to the terms, conditions and restrictions
contained in this Plan and in the Stock Option Agreement executed in connection
with the Option exercised with respect to such shares.
<PAGE>
8. MISCELLANEOUS.
8.l The grant of an Option to an Employee pursuant hereto shall not
confer upon such Employee a right to continued employment, nor shall it limit
the right of this Corporation or any Subsidiary to terminate the employment of
any such Employee.
8.2 The Board of Directors may modify, amend or terminate this Plan
or any provision thereof at any time and from time to time; provided, however,
that no amendment to this Plan shall be made which shall: (l) increase the
total number of shares of Stock for which Options under this Plan may be
issued, except as provided in Section 4.3 hereof, (2) increase the total number
of shares of Stock which may be acquired by an Employee pursuant to Options
issued under this Plan except as provided in Section 4.3 hereof, (3) extend the
maximum period during which any Option may be exercised as set forth in
Section 6.2 hereof, (4) change the class of employees entitled to receive
awards, (5) reduce the purchase price of Stock subject to any Option, or
(6) extend the termination date of this Plan, without in each case the prior
approval of the holders of at least a majority of the Stock of this
Corporation of all classes voting together. No amendment to this Plan shall
alter or impair any Option previously granted pursuant hereto without the
consent of the holder thereof.
8.3 The effective date of this Plan shall be December 22, 1998. No
Option may be granted pursuant hereto subsequent to the date which is ten years
after the date on which the Plan shall be adopted by the Board of Directors.
8.4 This Plan, and all rights and obligations hereunder, including
matters of construction, validity and performance, shall be governed by the
laws of the Commonwealth of Massachusetts.
8.5 Notice to this Corporation pursuant to Sections 7.2 or 8.5
hereof or for any other purpose may be given by delivery in hand or first class
mail, postage prepaid, and addressed as follows:
Beverly National Corporation
240 Cabot Street
Beverly, Massachusetts 01915
Notice to an Employee to whom an Option shall be granted hereunder may be
given by delivery in hand or first class mail, postage prepaid, to the address
listed by such Employee in the Stock Option Agreement executed by such
Employee.
BEVERLY NATIONAL CORPORATION
1998 Directors' Plan
1. Purpose
1.1 The purpose of the Beverly National Corporation 1998 Directors' Plan
(hereinafter referred to as the "Plan" is to provide incentives to present
and future directors of Beverly National Corporation, a Massachusetts
corporation (this "Corporation")and any of its present and future subsidiaries
at least fifty percent (50%) owned by this Corporation ("Subsidiaries") (such
directors being hereinafter referred to as "Optionees" and each of them
individually as an "Optionee"), in order that they may provide exceptional
services to this Corporation and its Subsidiaries, and to offer inducements
to Optionees to accept and continue service on its or their boards of
directors, as applicable, by offering Optionees options to purchase shares of
this Corporation's common stock.
2.Administration of Plan
2.l The Plan shall be administered by the Board of Directors of this
Corporation (the "Board of Directors") which shall: (1) determine which
Optionees shall be granted options to purchase shares of this Corporation's
Common Stock ($2.50 par value) ("Stock") pursuant to the Plan (which options
shall hereinafter be referred to as "Options," or in the singular as an
"Option"); (2) determine the time or times when Options shall be granted and
the number of shares of Stock to be subject to each Option; (3) determine the
option price at which the shares of Stock subject to each Option may be
purchased pursuant to the Plan and the forms of the instruments evidencing any
Options granted under the Plan or any other instrument to be used in
connection with the Plan; (4) adopt, amend and rescind, in its discretion,
rules and regulations for the administration of the Plan; (5) interpret the
Plan and decide all questions and settle all controversies and disputes which
may arise in connection with the Plan, which decisions and interpretations
shall be binding upon all persons; and (6) exercise such other powers as may
be necessary or desirable to implement the provisions of this Plan.
2.2 The grant of an Option to an Optionee shall not be affected or
invalidated by reason of the fact that such director voted to approve the grant
of such Option.
2.3 No member of the Board of Directors shall be liable for any action
taken or determination made in good faith and in a manner reasonably believed
to be in the best interests of this Corporation with respect to the Plan or any
Option granted pursuant thereto. The Board of Directors may indemnify any
person against expenses reasonably incurred or the amount of any damages, fine,
or settlement assessed against or agreed to by such person, in connection with
any action, suit or proceeding in which such person may be involved in
connection with any Option or this Plan to the same extent that the Board of
Directors may indemnify such person under the By-laws of this Corporation.
<PAGE>
3. Authority to Grant Options.
3.l Subject to the terms and conditions of this Plan, the Board of
Directors may from time to time grant to such Optionees as it may determine
Options upon such terms and conditions as it may deem appropriate, subject to
applicable provisions of this Plan. The Board of Directors may rely upon the
advice of a Compensation Committee or such other person or persons as they
determine appropriate in making determinations to award Options hereunder.
3.2 The Board of Directors may authorize the grant of Options to
Optionees by action taken with or without a meeting. The effective date of the
grant of an Option pursuant hereto shall be the date specified by the Board of
Directors in the Stock Option Agreement, as hereinafter defined.
3.3 The number of shares of Stock subject to an Option shall in each case
be determined by the Board of Directors, subject to the applicable provisions
of this Plan. More than one Option may be granted to the same Optionee.
3.4 Nothing contained in this Plan or in any resolution adopted by the
Board of Directors or the shareholders of this Corporation shall constitute the
grant of an Option hereunder, and no Optionee shall be entitled to the grant of
an Option unless action granting an Option to such Optionee shall have been
taken by the Board of Directors and unless the recipient of an Option shall
have executed an agreement in form and substance satisfactory to the Board of
Directors containing terms, restrictions and conditions imposed upon the
exercise of the Option and the transfer of any Stock pursuant thereto ("Stock
Option Agreement").
4. Stock Subject to the Plan.
4.l Stock to be issued upon the exercise of an Option shall be made
available, in the discretion of the Board of Directors, from authorized but
unissued shares of Stock or from shares of Stock held in the treasury of this
Corporation, however acquired.
4.2 The aggregate number of shares of Stock for which Options may be
granted under the Plan shall be 30,000. If an Option shall expire, terminate,
or be canceled or surrendered in whole or in part prior to the exercise
thereof, the number of shares of Stock subject to the unexercised portion of
such Option shall be subject to other Options granted theretofore or thereafter
pursuant to the Plan.
4.3 Appropriate adjustments in the number of shares of Stock subject to
Options previously issued hereunder and in the number of shares of Stock for
which Options have not yet been granted under this Plan shall be made by the
Board of Directors if at any time after the effective date of this Plan this
Corporation shall increase or decrease the number of outstanding shares of
Stock, whether by stock split, combination, stock dividend or reclassification,
or merger, consolidation, recapitalization, or reorganization.
<PAGE>
4.4 No provision of this Plan, nor any Option granted pursuant hereto or
Stock Option Agreement entered into in connection therewith shall confer upon
any Optionee or any other person any preemptive right to acquire any stock of
this Corporation.
5. Eligibility.
5.1 The Board of Directors may grant Options pursuant hereto to such
Optionees as it may designate from time to time pursuant to Section 3.1 hereof.
5.2 If an Optionee or former Optionee eligible to exercise an Option
granted pursuant to this Plan dies prior to such exercise, such Option may be
exercised to the extent permitted herein by his estate or a person who acquires
the right to exercise such Option by bequest or inheritance.
5.3 No Option granted pursuant to this Plan may be transferred by the
holder thereof other than by will or the laws of descent and distribution of
the state in which such holder is domiciled at the time of his death.
6. Terms of Options.
6.1 The price at which shares of Stock may be purchased pursuant to an
Option shall be that price established by the Board of Directors on the date of
the grant of such Option (as determined pursuant to Section 3.2 hereof).
6.2 Each Option granted under this Plan shall expire, and may not be
exercised to any extent, upon the earliest to occur of the following:
(a) Each Option shall expire ten years after the date of grant
of such Option (as determined pursuant to Section 3.2 hereof), or on such date
prior thereto as may be fixed by the Board of Directors.
(b) Each Option shall expire not later than three months after
termination of the Optionee's service with this Corporation or any of
its Subsidiaries (with or without cause, voluntary or involuntary) for reasons
other than death, retirement or total and permanent disability, during which
three-month period the Option may be exercised only to the extent that it was
exercisable upon termination. If the Optionee's service with this Corporation
or any of its Subsidiaries terminates for reasons of death, retirement or
total and permanent disability, then the Option shall expire 12 months after
such termination of service, and during that 12-month period the Option may be
exercised only to the extent it was exercisable upon termination. If an
Optionee whose service terminates for reasons other than death, retirement or
disability dies during the three-month period described above, such Optionee's
Options shall expire one year from the date of termination of service, during
which time they may be exercised to the extent exercisable on the date of
termination.
<PAGE>
7. Exercise of Options.
7.1 Each Option granted hereunder shall be exercisable in such
installment or installments as may be determined by the Board of Directors.
The right to purchase shares shall be cumulative so that when the right to
purchase any shares has accrued such shares or any part thereof may be
purchased at any time thereafter until the expiration or termination of the
Option.
7.2 A person entitled to exercise an Option may, subject to the terms and
conditions of the Stock Option Agreement executed in connection therewith,
exercise such Option from time to time by delivery to this Corporation at its
principal office of written notice of his or her intention to exercise such
Option setting forth the number of shares with respect to which the Option is
to be exercised and accompanied by (1) payment in full of the purchase price
of the shares to be purchased, (2) payment in full of all local, state or
federal taxes due on account of the exercise of such Option, and (3) such
other documents and materials as may be required by this Corporation under the
terms of this Plan, the Stock Option Agreement, or otherwise. As promptly as
practicable thereafter, this Corporation shall deliver to the purchaser
certificates for the number of shares purchased.
7.3 The date of actual receipt by this Corporation of notice of intention
to exercise an Option shall be deemed the date of exercise of the Option with
respect to the shares then purchased. Delivery of shares purchased shall be
deemed effective when a stock transfer agent shall have deposited certificates
therefor with the United States mail for delivery to the purchaser at the
address specified in the notice of exercise provided to this Corporation.
7.4 During the life of a holder of an Option issued pursuant to this
Plan, such Option may be exercised only by the holder, or, if legally
incapacitated, his personal representative.
7.5 No person, estate or other entity shall have any of the rights of a
shareholder of this Corporation with respect to shares subject to an Option
until a certificate or certificates for such shares shall have been delivered
by this Corporation to such person or entity. Upon delivery of such a
certificate to the purchaser thereof for the number of shares of Stock
purchased, the owner thereof shall have all the rights of a shareholder of
such shares of Stock, including the right to vote the same and receive
dividends thereon, subject, however, to the terms, conditions and restrictions
contained in this Plan and in the Stock Option Agreement executed in connection
with the Option exercised with respect to such shares.
8. Miscellaneous.
8.1 The grant of an Option pursuant hereto to an employee of this
Corporation or any Subsidiary shall not confer upon such Optionee a right to
continued employment, nor shall it limit the right of this Corporation or any
Subsidiary to terminate the employment of any such Optionee.
<PAGE>
8.2 The Board of Directors may modify, amend or terminate this Plan or
any provision thereof at any time and from time to time. No amendment to this
Plan shall alter or impair any Option previously granted pursuant hereto
without the consent of the holder thereof.
8.3 The effective date of this Plan shall be the date of adoption by the
Board of Directors. No Option may be granted pursuant hereto subsequent to
the date which is ten years after the date on which the Plan shall be adopted
by the Board of Directors.
8.4 This Plan, and all rights and obligations hereunder, including
matters of construction, validity and performance, shall be governed by the
laws of the Commonwealth of Massachusetts.
8.5 Notice to this Corporation pursuant to Sections 7.2 or 8.5 hereof or
for any other purpose may be given by delivery in hand or first class mail,
postage prepaid, and addressed as follows:
Beverly National Corporation
240 Cabot Street
Beverly, Massachusetts 01915
Attention: President
Notice to an Optionee to whom an Option shall be granted hereunder may be given
by delivery in hand or first class mail, postage prepaid, to the address listed
by such Optionee in the Stock Option Agreement executed by such Optionee.
FIRST AMENDMENT TO
SUPPLEMENTAL EXECUTIVE RETIREMENT AGREEMENT
BETWEEN BEVERLY NATIONAL CORPORATION AND LAWRENCE M. SMITH
----------------------------------------------------------
THIS AGREEMENT, made and entered into this 7th day of July 1998 by and
between Beverly National Corporation, its subsidiaries and affiliates
(hereinafter called the "Corporation") and Lawrence M. Smith (hereinafter
called the "Executive") is the First Amendment to a Supplemental Executive
Retirement Agreement dated December 24, 1996, by and between the Corporation
and Executive. In order to clarify the intended operation of other Agreement,
2.01(a)(3), is hereby amended to read in its entirety as follows:
" The annual amount of benefits payable under the Amended and Restated
Supplemental Executive Agreement entered into December 24, 1996 by and
between the Corporation and the Executive, as from time to time amended."
All other terms and conditions of the Agreement continue in full force
and effect.
Attest: BEVERLY NATIONAL CORPORATION
/s/Peter E. Simonsen By:/s/Julia L. Robichau
- ----------------------------- ------------------------
/s/Peter E. Simonsen By:/s/Lawrence M. Smith
- ----------------------------- ------------------------
Witness Lawrence M. Smith
<PAGE>
CONFIRMATORY
FIRST AMENDMENT TO SUPPLEMENTAL EXECUTIVE RETIREMENT AGREEMENT
BETWEEN BEVERLY NATIONAL CORPORATION AND LAWRENCE M. SMITH
----------------------------------------------------------
THIS AGREEMENT, made and entered into the 27th day of October 1998 by and
between Beverly National Corporation, its subsidiaries and affiliates
(hereinafter called the "Corporation") and Lawrence M. Smith (hereinafter
called the "Executive") is the First Amendment to a Supplemental Executive
Retirement Agreement dated December 24, 1996, by and between the Corporation
and Executive. It confirms and amplifies the language of the First Amendment
dated July 7, 1998. In order to clarify the intended operation of other
Agreement, 2.01(a)(3), is hereby amended to read in its entirety as follows:
"In any year the annual amount of benefits paid under the Amended and
Restated Supplemental Executive Retirement Agreement entered into December
24, 1996 by and between the Corporation and the Executive, as from time to
time amended, provided, such amount shall be an offset to amounts otherwise
payable hereunder only in the year(s) and to the extent actually paid under
such Amended and Restated Agreement."
All other terms and conditions of the Agreement continue in full force
and effect.
Attest: BEVERLY NATIONAL CORPORATION
/s/ Peter E. Simonsen By:/s/Julia L. Robichau
- --------------------------- -------------------------
Julia L. Robichau
/s/ Peter E. Simonsen By:/s/Lawrence M. Smith
- --------------------------- -------------------------
Witness Lawrence M. Smith
<PAGE>
SECOND AMENDMENT TO SUPPLEMENTAL EXECUTIVE RETIREMENT AGREEMENT BETWEEN
BEVERLY NATIONAL CORPORATION AND LAWRENCE M. SMITH
THIS AGREEMENT, made and entered into this 22nd day of December, 1998 by
and between Beverly National Corporation, its subsidiaries and affiliates
(hereinafter called the "Corporation") and Lawrence M. Smith (hereinafter
called the "Executive") is the Second Amendment to a Supplemental Executive
Retirement Agreement dated December 24, 1996, by and between the Corporation
and Executive. In consideration of the premises and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Executive and Corporation hereby agree to amend the Agreement as follows:
1. The phrase "a single life annuity basis from" in 2.01(a)(2) shall be
deleted and the following inserted in its place: "the optional benefit
payment elected under".
2. The phrase "thirty-six (36) consecutive calendar months" in 2.02 shall
be deleted and the following inserted in its place:
"three (3) calendar years, whether or not consecutive".
3. The following shall be inserted at the end of 2.02:
"In the event that the Executive works less than an entire calendar
year, the Executive's salary shall be annualized for that calendar
year for the purposes of this section."
4. The phrase "calculated on a single life annuity basis" appearing in
Section 2.01(a)(2) shall be deleted and the following inserted at the end of
Section 2.01(a)(2):
"the annual amount of such benefits to be calculated on the basis of
an optional form of benefit under such plan selected by the
Executive."
All other terms and conditions of the Agreement continue in full force
and effect.
Attest: BEVERLY NATIONAL CORPORATION
/s/Peter E. Simonsen By:/s/Julia L Robichau
__________________________________ _________________________
Julia L. Robichau
/s/ Peter E. Simonsen By:/s/Lawrence M. Smith
__________________________________ _________________________
(Witness) Lawrence M. Smith
FIRST AMENDMENT TO CONSULTING AGREEMENT
BETWEEN BEVERLY NATIONAL CORPORATION AND JULIA L. ROBICHAU
THIS AGREEMENT, made and entered into this 22nd day of December, 1998
by and between Beverly National Corporation, its subsidiaries and affiliates
(hereinafter called the "Corporation") and Julia L. Robichau (hereinafter
called the "Executive") is the First Amendment to a Consulting Agreement dated
December 24, 1996, by and between the Corporation and Executive. Executive and
Corporation hereby agree to amend the Agreement by amending the first sentence
of 3 to read "Consultant shall be paid a consulting fee of $30,000 per annum
(the "Consulting Fee"), prorated for portions of a year, payable monthly or as
otherwise agreed by Consultant and the Corporation."
All other terms and conditions of the Agreement continue in full force and
effect.
Attest: BEVERLY NATIONAL BANK
/s/Paul Germano By:/s/Lawrence M. Smith
___________________________________ __________________________________
Lawrence M. Smith
/s/Peter E. Simonsen By:/s/Julia L Robichau
___________________________________ __________________________________
(Witness) Julia L. Robichau
FIRST AMENDMENT TO
SUPPLEMENTAL EXECUTIVE RETIREMENT AGREEMENT
BETWEEN BEVERLY NATIONAL CORPORATION AND JULIA L. ROBICHAU
----------------------------------------------------------
THIS AGREEMENT, made and entered into this 7th day of July, 1998 by and
between Beverly National Corporation, its subsidiaries and affiliates
(herinafter called the "Corporation") and Julia L. Robichau (hereinafter called
the "Executive") is the First Amendment to a Supplemental Executive Retirement
Agreement dated December 24, 1996, by and between the Corporation and
Executive.
Executive and Corporation hereby agree to amend the Agreement by deleting
2.01(a)(1), re-numbering 2.01(a)(2) and (3) as 2.01(a)(1) and (2), and by
changing the last phrase of 2.01(a) to read "reduced by the sum of (1) and (2)
below."
All other terms and conditions of the Agreement continue in full force
and effect.
BEVERLY NATIONAL CORPORATION
Attest: /s/Peter E. Simonsen By:/s/Lawrence M. Smith
- -------------------------------- --------------------------
/s/Peter E. Simonsen /s/Julia L. Robichau
________________________________ __________________________
Witness Julia L. Robichau
<PAGE>
SECOND AMENDMENT TO SUPPLEMENTAL EXECUTIVE RETIREMENT AGREEMENT
BETWEEN BEVERLY NATIONAL CORPORATION AND JULIA L. ROBICHAU
THIS AGREEMENT, made and entered into this 22nd day of December, 1998 by and
between Beverly National Corporation, its subsidiaries and affiliates
(hereinafter called the "Corporation") and Julia L. Robichau (hereinafter
called the "Executive") is the Second Amendment to a Supplemental Executive
Retirement Agreement dated December 24, 1996, by and between the Corporation
and Executive.
In consideration of the premises and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, Executive and
Corporation hereby agree to amend the Agreement as follows:
1. The phrase "thirty-six (36) consecutive calendar months" in
2.02 shall be deleted and the following inserted in its place:
"three (3) calendar years, whether or not consecutive".
2. The following shall be inserted at the end of 2.02:
"In the event that the Executive works less than an entire calendar
year, the Executive's salary shall be annualized for that calendar year
for the purposes of this section."
All other terms and conditions of the Agreement continue in full force and
effect.
Attest: BEVERLY NATIONAL CORPORATION
/s/Peter E. Simonsen By:/s/Lawrence M. Smith
___________________________________ __________________________________
/s/Peter E. Simonsen /s/Julia L. Robichau
___________________________________ _________________________________
(Witness) Julia L. Robichau
BEVERLY NATIONAL CORPORATION
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
MARCH 23, 1999
----------------------------------------
NOTICE IS HEREBY GIVEN that the 1999 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 23,
1999, 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 nominees 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) Approval of the "1998 Incentive Stock Option Plan" (the "Plan"),
established for granting options to purchase shares of common stock
of the Corporation, designed to qualify as "incentive stock options"
within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended.
(4) 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 19, 1999.
By Order of the Board of Directors.
/s/ Julia L. Robichau
Julia L. Robichau, Clerk
February 22, 1999
- -----------------------------------------------------------------------------
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
1999 ANNUAL MEETING OF SHAREHOLDERS
MARCH 23, 1999
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 1999 Annual Meeting of
Shareholders of the Corporation to be held on March 23, 1999.
As of February 19, 1999, 1,563,674 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 19, 1999. 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 and to approve the 1998 Incentive Stock Option Plan (the "Plan").
The affirmative vote of the holders of a majority of the Common Stock of
the Corporation present or represented and voting at the meeting is required
to fix the number of directors at nine and to approve the Plan. The
affirmative vote of a plurality of the votes cast by shareholders is required
to elect directors.
The 1998 Annual Report of the Corporation containing financial statements
for 1998 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 shareholders of the Corporation on or
about February 23, 1999.
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 the election of the individuals named
below as nominees for election as director, to hold office until the 2002
annual meeting 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 the shareholders.
The present number of directors is nine. 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, and the three
nominees, Messrs. Douglas, Jr ., Glovsky, and Smith, be elected to serve until
2002, 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; and (4) the individual's current principal
occupation or employment.
Nominees For Election at This Meeting
-------------------------------------
Shares of On Board of
Stock Own Directors of
Beneficially the Corporation
as of or Its Term
February 19, Predecessor of Principal
Name 1999(1)(2) Since Office Occupation
- ---------------------- ------------ --------------- ------ ---------------
Neiland J. Douglas,Jr. 16,652 1977 2002 President,
Morgan and
Douglas Planning
and Research
Mark B. Glovsky, Esq. 2,520 1996 2002 Attorney, Member
of the Law Firm
of Glovsky &
Glovsky
Lawrence M. Smith 75,586 1981 2002 President and
Chief Executive
Officer, Beverly
National
Corporation
and Beverly
National Bank
<PAGE>
Directors Continuing in Office
------------------------------
Shares of On Board of
Stock Owned Directors of
Beneficially the Corporation
as of or Its Term
February 19, Predecessor of Principal
Name 1999 (1)(2) Since Office Occupation
- ---------------- ------------- ---------------- ------ ----------
Richard H. Booth 9,620 1993 2001 Stockbroker-
Retired
John N. Fisher 15,450 1989 2000 President,
Fisher & George
Electrical Co., Inc.
John L. Good, III 13,592 1987 2001 Vice President of
Community Relations
& Development, -
NE Health Systems,
Inc.
Alice B. Griffin 10,794 1992 2000 Consultant
Clark R. Smith 8,006 1994 2001 Attorney,
Family Foundation
James D. Wiltshire 9,420 1993 2000 Consultant
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 19, 1999 or within 60 days there after, as listed: Richard
H. Booth, 7,420; Neiland J. Douglas, Jr., 12,460; John N. Fisher,
8,320; Mark B. Glovsky, 2,020; John L. Good, III, 12,460; Alice B.
Griffin, 3,820; Clark R. Smith, 2,020; Lawrence M. Smith, 67,580; and
James D. Wiltshire, 7,420.
<PAGE>
APPROVAL OF 1998 INCENTIVE STOCK OPTION
PLAN FOR KEY EMPLOYEES
----------------------
The Board of Directors of the Corporation has unanimously adopted the
Plan and recommended its approval by the shareholders. The Plan is intended
to supplement the 1996 Incentive Stock Option Plan, which expires in 2006.
The purpose of the Plan is to provide an incentive to certain employees of the
Corporation and subsidiaries at least 50% owned by the Corporation, including
The Beverly National Bank ("Subsidiaries"), to perform exceptional services
and to devote their full abilities and industry to improve the operations of
the Corporation and its Subsidiaries, and to offer inducement to such
employees to accept and continue employment with the Corporation and its
Subsidiaries. The Plan is designed to reward such key employees on a
long-term basis by granting them options to purchase shares of the
Corporation's common stock. The maximum number of shares of the Corporation
which may be issued under the Plan is 60,000 shares, subject to adjustments in
the event of stock splits, stock dividend or reclassification, recapitalization
or other possible future changes.
The following is a summary of the other principal features of the
Plan. This summary is qualified in its entirety by the complete text of the
Plan as set forth in Exhibit A of this Proxy Statement.
Administration.
---------------
The Plan will be administered by the Board of Directors. Only one director
is eligible for awards under the Plan.
Participants.
-------------
Participants will be selected from key employees of the Corporation and
its Subsidiaries who the Board may determine to be capable of making
substantial contributions to the management or development of the Corporation
or its Subsidiaries.
Grant of Options.
-----------------
Stock options awarded under the Plan are intended to qualify for
treatment as incentive stock options under the Internal Revenue Code of 1986.
The Board of Directors will determine the option price, term, manner and
effective date of the exercise of each option granted except that the option
price of incentive stock options may not be less than the fair market value of
the common stock of the Corporation on the date of the grant, and no option
may have a term greater than 10 years. Each option will be exercisable in
such installment or installments as may be determined by the Board of
Directors at the time of the grant. The right to purchase shares will be
cumulative so that when the right to purchase shares has accrued such shares
or any part thereof may be purchased at any time thereafter until the
expiration or termination of the option. An option may be exercised by the
payment in full of the option price for the shares to be purchased. If an
option expires or terminates for any reason without having been exercised, the
shares represented by the option will again be available for grant under the
Plan. The fair market value, at the date of grant, of options exercisable
for the first time in any year may not, when aggregated with the value of all
other incentive stock options issued by the Corporation or any affiliate that
are likewise exercisable for the first time in such year, exceed $100,000.
<PAGE>
Termination of Employment.
--------------------------
Each option granted will be exercisable only if the employee remains
in the employ of the Corporation or any Subsidiary from the date of grant of
his option until a date not more than 3 months prior to exercise. In general,
if an optionee's employment with the Corporation terminates by reason of
death or permanent and total disability, the optionee, or his legal
representative, may exercise outstanding options within twelve months from the
date of such termination of employment. If an optionee's employment terminates
for any other reason, including retirement, the optionee may exercise
outstanding options within three months from the date of such termination. In
no event may an optionee exercise an option at a date later than the expiration
date of such option.
Amendment or Termination.
-------------------------
The Plan will terminate on the earliest of December 22, 2008, or such
other date as the Board of Directors may determine. The Board of Directors may
at any time modify, amend or terminate the Plan, except that approval of the
holders of at least a majority of the stock of the Corporation is required in
certain circumstances described in Section 8.2 of the Plan.
Federal Tax Aspects.
--------------------
The following is a brief description of the principal Federal income
tax consideration of incentive stock options under present law:
Optionees do not realize income at the time of grant or exercise of
an incentive stock option. Recognition of such income is ordinarily postponed
until the optionee disposes of the shares of common stock. The tax
consequences to the optionee upon disposition of such shares is dependent upon
the option price, the sale price and the holding period. The difference
between the exercise price of stock purchased on exercise of an option and the
fair market value of the Corporation's stock is an item of tax preference for
purposes of the applicability, if any, of the alternative minimum tax for the
year in which the option is exercised.
The Corporation is entitled to a deduction for Federal income tax
purposes only to the extent that ordinary income is realized by the optionee
as a result of a disposition prior to termination of any requisite holding
period required to qualify the option for incentive stock option treatment.
The affirmative vote of the holders of a majority of the shares of
common stock of the Corporation present or represented and voting at the
meeting is required for approval of the Plan.
The Board of Directors recommends a vote FOR adoption of the Plan, and
unless otherwise directed, proxies will be voted in favor of such adoption.
<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 22, 1999
<PAGE>
BEVERLY NATIONAL CORPORATION
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS
MARCH 23,1999
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
substitution to each, to attend the 1999 Annual Metting of the Shareholders of
said Corporation to be held at the main office of the Corporation at 240 Cabot
Street, Beverly, Massachusetts on March 23, 1999 at 3 o'clock P.M., and any
adjournments thereof, and thereat to vote or otherwise act in respect of all
powers the undersigned would possess if personally present, upon the following
matters:
FOR AGAINST ABSTAIN
A. 1. Fixing the number of directors who
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. To approve the "1998 Incentive
Stock Option Plan" (the "Plan"),
established for granting options to
purchase shares of common stock of
the Corporation and designed to
qualify as "incentive stock options"
within the meaning of Section 422 of
the Internal Revenue Code of 1986, as
amended. ( ) ( ) ( )
4. Whatever other business may be brought
before said meeting or any adjournment
thereof. ( ) ( ) ( )
<PAGE>
B. IF ANY OF THE INDIVIDUALS LISTED AS A NOMINEE FOR DIRECTOR IN THE PROXY
STATEMENT DATED FEBRUARY 22, 1999 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 JUDGEMENT OF THE PERSON OR PERSONS ACTING
HEREUNDER UNLESS EITHER "AGAINST" OR "ABSTAIN" IS INDICATED IN RESPONSE TO
ITEM A.4 ABOVE.
THIS PROXY IS SOLICITED ON BEHALF OF MANAGEMENT.
Dated:February 22, 1999
------------------------------
(Signature of Shareholder)
When signing as attorney, executor ------------------------------
administrator, trustee or guardian (Signature of Shareholder)
please give full title. If more
than one trustee, all should sign. No. of Shares:
---------
EXHIBIT 21
21. Subsidiaries of the Corporation at December 31, 1998:
Incorporated 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 11, 1999.
/s/Shatswell, MacLeod & Company, P.C.
Shatswell, MacLeod & Company, P.C.
West Peabody, Massachusetts
March 23, 1999
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