<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X} QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______ TO _______
Commission file number 0-7449
PEOPLE'S BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-3272233
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
545 PLEASANT STREET
NEW BEDFORD, MASSACHUSETTS 02740
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (508) 991-2601
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
The number of shares of Registrant's Common Stock, $0.10 par value, outstanding
as of June 30, 1998 was 3,316,218.
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PEOPLE'S BANCSHARES, INC.
FORM 10-Q
QUARTERLY REPORT
--------------------
TABLE OF CONTENTS
Facing Page 1
Table of Contents 2
PART I. FINANCIAL INFORMATION (*)
Item 1. Financial Statements:
Consolidated Balance Sheets 3
Consolidated Statements of Income 4
Consolidated Statements of Changes in Stockholders' Equity 5
Consolidated Statements of Cash Flows 6
Notes to Unaudited Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures about Market Risk 12
PART II OTHER INFORMATION 13
SIGNATURES 14
EXHIBITS 15
(*) The financial information at December 31, 1997 has been derived from the
audited financial statements at that date and should be read in conjunction
therewith. All other financial statements are unaudited.
2
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PEOPLE'S BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
-------- ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 13,514 $ 30,693
Investment securities 318,990 304,713
Loans held for sale 43,946 24,735
Loans 460,715 386,698
Less allowance for loan losses (4,493) (4,291)
-------- --------
Loans, net 456,222 382,407
Other real estate owned, net 35 111
Banking premises and equipment, net 13,626 12,940
Accrued interest receivable 5,053 4,435
Intangible assets 1,368 1,148
Other assets 5,623 1,728
-------- --------
Total assets $858,377 $762,910
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $393,274 $355,083
Borrowed funds 412,600 356,550
Mortgagors' escrow accounts 1,076 1,114
Accrued expenses and other liabilities 5,164 6,227
Subordinated debentures 13,800 13,800
-------- --------
Total liabilities 825,914 732,774
-------- --------
Stockholders' equity:
Serial preferred stock - par value $0.10 per share;
authorized 10,000,000 shares, none issued -- --
Common stock - par value $0.10 per share;
authorized 20,000,000 shares;
issued and outstanding 3,671,218 and 3,643,686 shares 367 364
Additional paid-in capital 23,635 23,400
Retained earnings 14,397 12,253
-------- --------
38,399 36,017
Treasury stock, at cost - 355,000 shares (6,213) (6,213)
Net unrealized gain on securities available
for sale, after tax effects 277 332
-------- --------
Total stockholders' equity 32,463 30,136
-------- --------
Total liabilities and stockholders' equity $858,377 $762,910
======== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
3
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PEOPLE'S BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars and shares in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ --------------------
1998 1997 1998 1997
------- ------- -------- --------
<S> <C> <C> <C> <C>
Interest and dividend income:
Interest and fees on loans $ 9,036 $ 5,551 $ 17,012 $ 11,150
Interest and dividends on investment securities 5,507 4,717 11,156 8,808
Interest on short-term investments 126 19 234 58
------- ------- -------- --------
Total interest and dividend income 14,669 10,287 28,402 20,016
------- ------- -------- --------
Interest expense:
Interest on deposits 3,805 2,873 7,133 5,709
Interest on borrowed funds 5,645 2,795 11,222 5,274
------- ------- -------- --------
Total interest expense 9,450 5,668 18,355 10,983
------- ------- -------- --------
Net interest income 5,219 4,619 10,047 9,033
Provision for loan losses 150 - 300 -
------- ------- -------- --------
Net interest income, after provision for loan losses 5,069 4,619 9,747 9,033
------- ------- -------- --------
Other income:
Customer service fees 348 399 698 744
Gains (losses) on sales of securities
and purchased loans, net 252 8 182 (3)
Gains on sales of loans, net 1,447 881 2,762 1,794
Miscellaneous 45 47 137 82
------- ------- -------- --------
Total other income 2,092 1,335 3,779 2,617
------- ------- -------- --------
Operating expenses:
Salaries and employee benefits 2,464 2,120 4,736 4,179
Occupancy and equipment 530 486 1,044 895
Data processing 333 284 649 589
Professional fees 245 215 409 356
Other real estate owned, net 11 38 (23) 91
Other general and administrative 1,174 797 2,042 1,477
------- ------- -------- --------
Total operating expenses 4,757 3,940 8,857 7,587
------- ------- -------- --------
Income before income taxes 2,404 2,014 4,669 4,063
Provision for income taxes 876 738 1,701 1,479
------- ------- -------- --------
Net income $ 1,528 $ 1,276 $ 2,968 $ 2,584
======= ======= ======== ========
Net income per share:
Diluted earnings per share $ 0.45 $ 0.35 $ 0.88 $ 0.71
Basic earnings per share 0.46 0.36 0.90 0.72
Weighted average shares outstanding -
assuming dilution for stock options 3,392 3,663 3,387 3,657
Weighted average shares outstanding 3,309 3,592 3,304 3,585
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
4
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PEOPLE'S BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Accumulated
Additional Other
Comprehensive Common Paid-in Retained Treasury Comprehensive
Income Stock Capital Earnings Stock Income Total
------------- ------ ---------- -------- -------- ------------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 $364 $23,400 $12,253 $(6,213) $ 332 $30,136
Comprehensive income:
Net income $2,968 -- -- 2,968 -- -- 2,968
Change in net unrealized gain (loss)
on securities available for sale,
after tax effects (55) -- -- -- -- (55) (55)
------
Comprehensive income $2,913
======
Cash dividends paid -- -- (824) -- -- (824)
Exercise of stock options 3 235 -- -- -- 238
---- ------- ------- ------- ----- -------
Balance at June 30, 1998 $367 $23,635 $14,397 $(6,213) $ 277 $32,463
==== ======= ======= ======= ===== =======
Balance at December 31, 1996 $356 $22,967 $ 8,562 $ -- $(821) $31,064
Comprehensive income:
Net income $2,584 -- -- 2,584 -- -- 2,584
Change in net unrealized gain (loss)
on securities available for sale,
after tax effects 378 -- -- -- -- 378 378
------
Comprehensive income $2,962
======
Cash dividends paid -- -- (716) -- -- (716)
Exercise of stock options 4 156 -- -- -- 160
---- ------- ------- ------- ----- -------
Balance at June 30, 1997 $360 $23,123 $10,430 $ -- $(443) $33,470
==== ======= ======= ======= ===== =======
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
5
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PEOPLE'S BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-------------------------
1998 1997
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,968 $ 2,584
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Provision for loan losses 300 --
Depreciation and amortization 637 523
Net amortization (accretion) on securities and purchased loans (745) 329
(Gains) losses on sales of securities and purchased loans, net (182) 3
Loans originated for sale (254,818) (110,228)
Principal balance of loans sold 235,607 113,299
Gain on sale of other real estate owned (56) (19)
Other, net (1,605) 444
--------- ---------
Net cash provided (used) by operating activities (17,894) 6,935
--------- ---------
Cash flows from investing activities:
Proceeds from sales of securities available for sale 130,132 71,266
Proceeds from maturities of securities available for sale 20,400 --
Proceeds from amortization of mortgage-backed securities 32,362 10,550
Purchase of securities available for sale (199,064) (158,485)
Proceeds from sales of purchased loans 8,268 --
Loan (originations and purchases) amortization and payoffs, net (84,044) (4,830)
Proceeds from sales of other real estate owned 227 507
Additions to banking premises and equipment (1,183) (369)
--------- ---------
Net cash used in investing activities (92,902) (81,361)
--------- ---------
Cash flows from financing activities:
Net (decrease) increase in deposits 38,191 (670)
Net increase in borrowings with maturities of three months or less 7,850 50,300
Proceeds from issuance of borrowings with maturities in excess of three months 210,700 93,200
Repayment of borrowings with maturities in excess of three months (162,500) (70,520)
Decrease in mortgagors' escrow accounts (38) (71)
Proceeds from exercise of stock options 238 160
Proceeds from issuance of subordinated debentures -- 12,881
Cash dividends (824) (716)
--------- ---------
Net cash provided by financing activities 93,617 84,564
--------- ---------
Net change in cash and cash equivalents (17,179) 10,138
Cash and cash equivalents at beginning of period 30,693 12,478
--------- ---------
Cash and cash equivalents at end of period $ 13,514 $ 22,616
========= =========
Supplementary information:
Interest paid $ 18,412 $ 10,454
Income taxes paid 2,504 622
Transfer from loans to other real estate owned, net 95 583
Change in due to/from brokers, net 3,739 84
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
6
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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Consolidated Balance Sheet as of June 30, 1998, and the Consolidated
Statements of Income, Consolidated Statements of Changes in Stockholders'
Equity, and Consolidated Statements of Cash Flows for the periods ended
June 30, 1998 and 1997 of People's Bancshares, Inc. and Subsidiaries (the
"Company") furnished in this report are unaudited; however, these interim
consolidated financial statements reflect all adjustments that are, in the
opinion of management, necessary for a fair statement of the results for
the interim periods presented. Interim results are not necessarily
indicative of results to be expected for the year.
The unaudited consolidated interim financial statements furnished in this
report are intended to be read in conjunction with the consolidated
financial statements of the Company presented in its Annual Report for the
year ended December 31, 1997.
(2) SHAREHOLDERS' EQUITY AND EARNINGS PER SHARE
In June 1997, FASB issued SFAS No. 130, "Reporting Comprehensive Income,"
effective for fiscal years beginning after December 15, 1997. Accounting
principles generally require that recognized revenue, expenses, gains and
losses be included in net income. Certain FASB statements, however, require
entities to report specific changes in assets and liabilities, such as
unrealized gains and losses on available-for-sale securities, as a separate
component of the equity section of the balance sheet. Such items, along
with net income, are components of comprehensive income. SFAS No. 130
requires that all items of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements. Additionally, SFAS No. 130 requires that the accumulated
balance of other comprehensive income be displayed separately from retained
earnings and additional paid-in capital in the equity section of the
balance sheet. The Company has adopted these disclosure requirements as of
the quarter ended March 31, 1998.
Basic earnings per share represents income available to common stock
divided by the weighted-average number of common shares outstanding during
the period. Diluted earnings per share reflects additional common shares
that would have been outstanding if dilutive potential common shares had
been issued, as well as any adjustment to income that would result from the
assumed conversion. Potential common shares that may be issued by the
Company relate solely to outstanding stock options, and are determined
using the treasury stock method. The assumed conversion of outstanding
dilutive stock options would increase the shares outstanding but would not
require an adjustment to income as a result of the conversion.
(3) RECENT ACCOUNTING PRONOUCEMENT
In April 1998, the Accounting Standards Executive Committee (AcSEC) issued
Statement of Position ("SOP") 98-5, "Reporting on the Costs of Start-Up
Activities" effective for fiscal years beginning after December 15, 1998.
The SOP requires start-up activities to be expensed as incurred instead of
being capitalized and amortized. The SOP broadly defines start-up
activities as those one-time activities that relate to organization costs,
the opening of a new facility, introduction of a new product or service,
doing business in a new territory, initiating a new process at an existing
facility, doing business with a new class of customer or commencing some
new operation. If adopted as of June 30, 1998, the Company has determined
that the adoption of SOP 98-5 will result in a charge of approximately
$340,000 or $0.06 per diluted share. Management has not determined if it
will adopt SOP 98-5 early. Initial application of this SOP will be reported
as the cumulative effect of a change in accounting principle.
7
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
unaudited consolidated financial statements and related notes included in this
report.
ASSETS
The Company's total assets at June 30, 1998 were $858.4 million, an increase of
$95.5 million from December 31, 1997. This increase includes an increase of
$14.3 million in investment securities consisting primarily of mortgage-backed
securities and an increase of $74.0 million in loans as a result of the purchase
of $151.2 million in 1-4 family residential mortgage loans. These transactions
were funded with a $56.1 million increase in borrowed funds and a $38.2 million
increase in deposits.
LOANS
Total loans and loans held for sale increased $93.2 million primarily as a
result of the purchase of residential mortgage loans, offset by a sale of a
purchased residential mortgage loan pool and principal paydowns on the purchased
residential loan portfolio.
The Company's loans and loans held for sale were as follows:
June 30, December 31,
1998 1997
-------- ------------
(in millions)
Residential mortgage loans, including
home equity loans $380,808 $328,176
Commercial, commercial real estate
and construction loans 117,986 78,104
Consumer loans 5,867 5,153
-------- --------
Total $504,661 $411,433
======== ========
DEPOSITS
Total deposits increased $38.2 million to $393.3 million at June 30, 1998 from
$355.1 million at December 31, 1997. The increase in deposits reflects a
$9.1 million increase in IRAs and time certificates of deposit, a $27.2 million
increase in municipal deposits and a $1.9 million increase in savings and demand
deposits.
NON-PERFORMING ASSETS AND ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses has been established to absorb foreseeable losses
inherent in the loan portfolio. The provision for loan losses and the level of
the allowance are evaluated periodically by management and the Board of
Directors. These provisions are the results of the Company's internal loan
review, historical loan loss experience, trends in delinquent and non-accrual
loans, known and inherent risks in the nature and volume of the loan portfolio,
adverse situations that may affect the borrower's ability to repay, collateral
values, an estimate of potential loss exposure on significant credits,
concentrations of credit, and present and
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prospective economic conditions based on facts then known.
Periodically, management reviews the portfolio, classifying each loan into
categories by assessing the degree of risk involved. Considering this review,
the Company establishes the adequacy of its allowance and necessary additions
are charged to operations through the provision for loan losses. Loan losses are
charged against the allowance when management believes the collectibility of the
loan balance is unlikely.
The allowance is an estimate. Ultimate losses may vary from current estimates
and future additions to the allowance may become necessary. In addition,
regulatory agencies, as an integral part of their examination process, review
the Company's allowance and may require the Company to provide additions to the
allowance based on their assessment, which may differ from management's.
At June 30, 1998, the Company's allowance for loan losses totaled $4.5 million
or 0.98% of total loans and 153% of non-performing loans compared to
$4.3 million or 1.11% of total loans and 110% of non-performing loans at
December 31, 1997, and compared to $4.4 million or 1.71% of total loans and 109%
of non-performing loans at June 30, 1997. Management recorded a provision for
loan losses of $150,000 and $300,000 for the three and six month periods ended
June 30, 1998 and no provision for the same periods in 1997. Net recoveries for
the three months ended June 30, 1998, were $27,000 and net charge-offs were
$98,000 for the six month period ended June 30, 1998 compared to net charge-offs
of $23,000 and $361,000 for the same periods in 1997.
Non-performing assets were $3.0 million or 0.35% of total assets at June 30,
1998 compared to $4.0 million or 0.52% of total assets at December 31, 1997 and
$4.6 million or 0.78% of total assets at June 30, 1997.
RESULTS OF OPERATIONS
OVERVIEW
Comparisons of year to year operating results have been significantly affected
by the growth of the Bank and its mortgage banking subsidiary, People's Mortgage
Corporation ("PMC") that have resulted in the Company increasing its asset size
from $496.1 million at December 31, 1996 to $858.4 million at June 30, 1998.
Operating results have been significantly affected by the Company increasing its
average loans and average investments to $458.3 million and $307.9 million
during the first half of 1998, compared to $267.5 million and $250.0 million
during the first half of 1997. This growth in earning assets was funded by the
Company increasing its average deposits and average borrowings to $348.4 million
and $386.5 million in the first half of 1998, compared to $294.0 million and
$184.8 million in the first half of 1997. Secondly, operating results have also
been significantly affected by the growth of PMC which is reflected in gains on
sales of loans of $2.8 million, interest and other income of $1.2 million, PMC
operating expenses of $2.9 million, and income before income taxes of
$1.1 million from PMC operations in the first half of 1998 compared to
$1.8 million, $988,000, $2.3 million and $487,000, respectively, in the
corresponding period of 1997.
In addition, operating results have been affected by mortgage refinancings.
These refinancings have adversely affected the Company's net interest margin due
to the resulting write-offs of purchase premiums associated with mortgage-backed
securities and purchased residential
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mortgage loans. The amortization and write-offs of such premiums amounted to a
$0.20 and a $0.39 charge against earnings for the three and six month periods
ended June 30, 1998, compared to $0.03 and $0.05 for the same periods in 1997.
Conversely, this heightened refinancing activity resulted in PMC increasing its
earnings per share contribution to $0.09 and $0.20 for the three and six month
periods ended June 30, 1998 from $0.03 and $0.09 for the same periods in 1997.
Return on average assets was 0.74% and 0.74%, and return on average equity was
19.01% and 18.95% for the three and six months ended June 30, 1998. Return on
average assets was 0.95% and 0.91% and return on average equity was 16.23% and
16.37% for the same periods in 1997. Net income amounted to $1.5 million and
$3.0 million or $0.45 and $0.88 per diluted share for the three and six months
ended June 30, 1998 compared to net income of $1.3 million and $2.6 million or
$0.35 and $0.71 per diluted share for the same period in 1997. Basic earnings
per share were $0.46 and $0.90 per share for the three and six months ended June
30, 1998, compared to $0.36 and $0.72 per share for the same periods in 1997.
NET INTEREST INCOME
Net interest income increased $600,000 and $1.0 million for the three and six
months ended June 30, 1998 compared to the same periods in 1997. This change
resulted mostly from increased average earning assets. For the first six months
of 1998, average earning assets increased 49% compared to the same period in
1997.
Interest and dividend income increased to $14.7 million and $28.4 million for
the three and six months ended June 30, 1998 from $10.3 million and
$20.0 million for the same periods in 1997. The yield on average earning assets
decreased to 7.38% and 7.33% for the three and six months ended June 30, 1998
from 7.75% and 7.69% for the same periods in 1997. Yields on loans decreased
from 8.35% and 8.34% for the three and six months ended June 30, 1997 to 7.50%
and 7.42% for the same periods in 1998. The decrease in the loan yields is
primarily attributable to the Company's growth in consumer mortgages. Yields on
investments increased to 7.24% and 7.25% for the three and six months ended
June 30, 1998 compared to 7.17% and 7.05% for the same periods in 1997.
Interest expense increased to $9.5 million and $18.4 million for the three and
six months ended June 30, 1998 from $5.7 million and $11.0 million for the same
periods in 1997. This increase was due to a $2.9 million and $5.9 million
increase in interest expense on borrowed funds for the three and six months
ended June 30, 1998. Interest expense on deposits increased $932,000 and
$1.4 million for the three and six months ended June 30, 1998, compared to the
same periods in 1997.
During the first half of 1998, average borrowed funds amounted to $386.5 million
compared to $184.8 million during the same period of 1997. The Company has
increased its use of borrowed funds to fund purchases of mortgage-backed
securities and loans. Rates paid on average borrowed funds were 5.78% and 5.81%
for the three and six months ended June 30, 1998 compared to 5.74%and 5.71% for
the same periods in 1997.
Deposit interest expense increased due to an increase in average deposits to
$348.4 million for the six month period ended June 30, 1998 compared to
$294.0 million for the same period in 1997. The increase in deposit interest
expense was due to the increase in average deposits and an increase in the
average cost of deposits to 4.17% and 4.09% for the three and six month periods
ended June 30, 1998 from 3.90% and 3.88% for the same periods in 1997.
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PROVISION FOR LOAN LOSSES
A provision for loan losses of $150,000 and $300,000 was made for the three and
six months ended June 30, 1998. No provision for loan losses was made for the
same periods in 1997.
OTHER INCOME
Other income was $2.1 million and $3.8 million for the three and six months
ended June 30, 1998 compared to $1.3 million and $2.6 million for the same
periods in 1997. The year to date increase is attributable to a $968,000
increase in gains from sales of loans. The increase in loan sale gains reflects
the growth of People's Mortgage Corporation.
OPERATING EXPENSES
Total operating expenses amounted to $4.8 million and $8.9 million for the three
and six months ended June 30, 1998 compared to $3.9 million and $7.6 million for
the same periods in 1997.
Salaries and benefits expense increased $344,000 and $557,000 for the three and
six months ended June 30, 1998 compared to the same periods in 1997. The
increase in salaries and benefits reflects general salary increases and added
lending and PMC staffing.
Occupancy and equipment expense increased $44,000 and $149,000 for the three and
six months ended June 30, 1998 compared to the same periods in 1997. Other real
estate owned expenses decreased $27,000 and $114,000 for the three and six
months ended June 30, 1998 compared to the same periods in 1997. Other general
and administrative expenses increased $377,000 and $565,000 for the three and
six months ended June 30, 1998 compared to the same periods in 1997. The
efficiency ratio for the Company for the three and six month periods ended June
30, 1998, was 62.55% and 60.65%, respectively. For the same periods in 1997, the
ratios were 65.38% and 64.21%, respectively. The efficiency ratio for the
Company, excluding PMC was 56.64% and 56.07% for the three and six months ended
June 30, 1998, respectively. For the same periods 1997, the ratios were 56.82%
and 57.18%, respectively. The efficiency ratio for PMC for the three and six
month periods ended June 30, 1998, was 77.46% and 72.79%, respectively and for
the same period in 1997 the ratios were 87.99% and 84.07%, respectively. All
increases in operating expense, other than OREO related expenses, are primarily
due to additional costs associated with the growth of PMC.
PROVISION FOR INCOME TAXES
The Company recognized income tax expense of $876,000 and $1.7 million in the
three and six months ended June 30, 1998 compared to income tax expense of
$738,000 and $1.5 million for the same periods in 1997. The effective tax rate
for the three and six months ended June 30, 1998 was 36.4%, compared to 36.6%
and 36.4% for the same periods in 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity management focuses upon the Company's ability to provide
the cash reserves and cash equivalents necessary to honor contractual
liabilities and commitments, meet depositors' withdrawal demands, fund
operations and provide customers with adequate available credit. The Company's
primary sources of liquidity are customer deposits, principal and interest
payments on loans, interest and dividends on investments and proceeds from the
maturity or sale of investments. The Company also has the ability to borrow from
the Federal Home Loan Bank of Boston on a collateralized basis. The Company
believes that it has adequate liquidity to meet
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its current needs.
At June 30, 1998, the Company's capital exceeded all regulatory requirements.
The Company's Tier 1 leverage capital ratio at June 30, 1998 was 5.03%, compared
to 5.25% at December 31, 1997. Federal Reserve guidelines for the calculation of
the Tier 1 leverage capital ratio limit the amount of subordinated debt included
in Tier 1 capital to 25% of total Tier 1 capital. All $13.8 million of the total
proceeds of the Company's subordinated debentures is included in total
risk-based capital. At June 30, 1998, the Company's risk-based capital ratio was
12.83%. The Company's book value per share was $9.79 at June 30, 1998, $9.16 at
December 31, 1997, and $9.31 at June 30, 1997.
OTHER INFORMATION
On April 29, 1998, the Company received regulatory approval to close its East
Taunton, Massachusetts branch.
On May 19, 1998, the Company held its Annual Meeting. During the meeting four
directors were reelected and Wolf & Company, P.C. was re-appointed as the
independent certified public accountants of the Company. Both proposals carried
over 85% of voting shares.
On August 6, 1998, the Company declared a $0.14 dividend to be paid on
September 9, 1998 to shareholders of record on August 26, 1998.
The Company is utilizing both internal and external resources to identify,
correct, or reprogram and test the systems and software for Year 2000
compliance. The Company has initiated formal communications with all of its
significant processing vendors to determine the extent to which the Company is
vulnerable to those third parties' failure to remediate their own Year 2000
Issue and monitors their progress on an on-going basis. It is anticipated that
all reprogramming efforts will be completed by December 31, 1998, allowing
adequate time for testing. Management is developing contingency plans for any
critical systems which may not be effectively remediated Management expects
the cost of achieving Year 2000 compliance to be immaterial, if as expected, the
Company's third party data service provider is able to achieve Year 2000
compliance. Actual costs are charged to earnings as incurred. Such costs
amounted to $28,000 for the six months ended June 30, 1998.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For quantitative information about market risk, see Management's Discussion and
Analysis of Financial Condition and Results of Operations - Asset/Liability
Management in the Company's Annual Report.
There has been no material change in the quantitative and qualitative
disclosures about market risk as of June 30, 1998 from those presented in the
Company's Annual Report.
12
<PAGE> 13
PART II - OTHER INFORMATION
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit Description
- ------- -----------
3.1 Restated Articles of Organization of the Company (filed as
Exhibit 3.1 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1995 and incorporated herein by
reference)
3.2 By-laws of the Company, as amended and restated (filed as
Exhibit 3.2 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1995 and incorporated herein by
reference)
4.1 Specimen certificate for shares of Common Stock of the
Company (filed as Exhibit 4.1 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995
and incorporated herein by reference)
4.2 Articles IV and VI(I)-(K) of Restated Articles of
Organization of the Company (see Exhibit 3.1)
4.3 Articles I and IV of By-laws of the Company (see Exhibit 3.2)
27 Financial Data Schedule (Filed herewith).
(b) Reports on Form 8-K. No reports on Form 8-K were filed during
the quarter ended June 30, 1998.
13
<PAGE> 14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PEOPLE'S BANCSHARES, INC.
8/14/98 By: /s/ Richard S. Straczynski
- ------- -------------------------------------
Date Richard S. Straczynski
President and Chief Executive Officer
8/14/98 By: /s/ Colin C. Blair
- ------- -------------------------------------
Date Colin C. Blair
Chief Financial Officer
14
<PAGE> 15
EXHIBIT INDEX
Exhibit Description
- ------- -----------
3.1 Restated Articles of Organization of the Company (filed as Exhibit 3.1
to the Company's Annual Report on Form 10-K for the year ended
December 31, 1995 and incorporated herein by reference)
3.2 By-laws of the Company, as amended and restated (filed as Exhibit 3.2
to the Company's Annual Report on Form 10-K for the year ended
December 31, 1995 and incorporated herein by reference)
4.1 Specimen certificate for shares of Common Stock of the Company (filed
as Exhibit 4.1 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1995 and incorporated herein by reference)
4.2 Articles IV and VI(I)-(K) of Restated Articles of Organization of the
Company (see Exhibit 3.1)
4.3 Articles I and IV of By-laws of the Company (see Exhibit 3.2)
27 Financial Data Schedule (Filed herewith).
15
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PEOPLE'S
BANCSHARES, INC. AND SUBSIDIARIES QUARTERLY FINANCIAL STATEMENTS FOR THE SIX
MONTHS ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS CONTAINED IN SUCH FORM 10-Q.
</LEGEND>
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