<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, 2000
/ / 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
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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
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-----------------------------
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, 2000 was 3,221,734.
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PEOPLE'S BANCSHARES, INC.
FORM 10-Q
QUARTERLY REPORT
--------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
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 14
Item 4. Submission of Matters to a Vote of Security Holders 14
PART II. OTHER INFORMATION 15
SIGNATURES 16
EXHIBITS 17
</TABLE>
(*) The financial information at December 31, 1999 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,
2000 1999
------- ------------
ASSETS
<S> <C> <C>
Cash and due from banks $ 17,232 $ 11,875
Interest-bearing deposits 8,948 5,916
Securities available for sale 39,402 42,068
Securities held to maturity (fair value of $474,024 in 2000 and $481,018 in 1999) 527,936 524,581
Restricted equity securities, at cost 19,618 21,701
Loans held for sale 44,512 23,681
Loans, net of allowance for loans losses of $4,145 in 2000 and $4,096 in 1999 404,863 413,215
Other real estate owned, net 300 285
Banking premises and equipment, net 17,088 16,630
Accrued interest receivable 7,404 7,051
Intangible assets 1,400 1,460
Other assets 4,946 2,713
----------- ------------
Total assets $ 1,093,649 $ 1,071,176
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 637,664 $ 561,614
Borrowed funds 394,238 447,950
Mortgagors' escrow accounts 1,019 1,106
Accrued expenses and other liabilities 5,019 5,842
Subordinated debentures 13,800 13,800
------------ ------------
Total liabilities 1,051,740 1,030,312
------------ ------------
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 3,694,734 and 3,689,734 shares 369 369
Additional paid-in capital 23,834 23,776
Retained earnings 27,873 24,617
Treasury stock, at cost - 473,000 shares in 2000 and 358,000 shares in 1999 (8,364) (6,269)
Accumulated other comprehensive loss (1,803) (1,629)
------------ ------------
Total stockholders' equity 41,909 40,864
------------ ------------
Total liabilities and stockholders' equity $ 1,093,649 $ 1,071,176
============ ============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
3
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PEOPLE'S BANCSHARES, INC. AND SUBSIDIARIES
------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------- ---------------------------
2000 1999 2000 1999
--------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Interest and dividend income:
Interest and fees on loans $ 8,920 $ 8,697 $ 17,446 $ 17,102
Interest and dividends on securities 11,349 8,917 22,479 17,592
Interest on short-term investments 105 141 174 241
--------- ---------- --------- ---------
Total interest and dividend income 20,374 17,755 40,099 34,935
--------- ---------- --------- ---------
Interest expense:
Interest on deposits 6,881 4,811 12,858 9,141
Interest on borrowed funds and subordinated
debentures 6,130 6,157 12,698 12,380
--------- ---------- --------- ---------
Total interest expense 13,011 10,968 25,556 21,521
--------- ---------- --------- ---------
Net interest income 7,363 6,787 14,543 13,414
Credit for loan losses - (425) - (425)
--------- ---------- --------- ---------
Net interest income, after credit for loan losses 7,363 7,212 14,543 13,839
--------- ---------- --------- ---------
Other income:
Customer service fees 326 321 636 640
(Loss) gain on sales of securities available
for sale, net - (37) - 36
Gain on sales of loans, net 2,155 1,605 3,953 3,379
Miscellaneous 41 60 117 108
--------- ---------- --------- ---------
Total other income 2,522 1,949 4,706 4,163
--------- ---------- --------- ---------
Operating expenses:
Salaries and employee benefits 3,546 3,049 6,955 6,142
Occupancy and equipment 932 573 1,920 1,168
Data processing 347 321 675 625
Professional fees 402 190 633 524
Other real estate owned, net - 12 (14) 33
Other general and administrative 1,139 1,268 2,239 2,288
--------- ---------- --------- ---------
Total operating expenses 6,366 5,413 12,408 10,780
--------- ---------- --------- ---------
Income before income taxes 3,519 3,748 6,841 7,222
Provision for income taxes 1,120 1,311 2,220 2,524
--------- ---------- --------- ---------
Net income $ 2,399 $ 2,437 $ 4,621 $ 4,698
========= ========== ========= =========
Net income per share:
Diluted earnings per share $ 0.73 $ 0.72 $ 1.40 $ 1.39
Basic earnings per share 0.74 0.73 1.42 1.41
Weighted average shares outstanding -
assuming dilution for stock options 3,273 3,390 3,301 3,385
Weighted average shares outstanding 3,224 3,325 3,252 3,329
</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, 2000 and 1999
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Accumulated
Additional Other
Common Paid-in Retained Treasury Comprehensive
Stock Capital Earnings Stock Loss Total
------- ---------- ---------- ------- ------------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1999 $ 369 $ 23,776 $ 24,617 $(6,269) $(1,629) $ 40,864
--------
Comprehensive income:
Net income - - 4,621 - - 4,621
Change in net unrealized gain/loss
on securities available for sale,
after tax effects - - - - (174) (174)
--------
Comprehensive income 4,447
--------
Purchase of treasury stock - - - (2,095) - (2,095)
Cash dividends paid - - (1,365) - - (1,365)
Exercise of stock options - 58 - - - 58
-------- --------- --------- ------- ------- --------
Balance at June 30, 2000 $ 369 $ 23,834 $ 27,873 $(8,364) $(1,803) $ 41,909
======== ========= ========= ======= ======= ========
Balance at December 31, 1998 $ 368 $ 23,683 $ 17,948 $(6,213) $(1,119) $ 34,667
--------
Comprehensive income:
Net income - - 4,698 - - 4,698
Change in net unrealized gain/loss
on securities available for sale,
after tax effects and reclassification
adjustment - - - - (58) (58)
--------
Comprehensive income 4,640
--------
Purchase of treasury stock - - - (56) - (56)
Cash dividends paid - - (1,297) - - (1,297)
Exercise of stock options 1 93 - - - 94
-------- --------- --------- ------- ------- --------
Balance at June 30, 1999 $ 369 $ 23,776 $ 21,349 $(6,269) $(1,177) $ 38,048
======== ========= ========= ======= ======= ========
</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,
---------------------------
2000 1999
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 4,621 $ 4,698
Adjustments to reconcile net income to net cash provided (used) by
operating activities:
Credit for loan losses - (425)
Depreciation and amortization 946 975
Net accretion on securities and purchased loans (3,671) (1,222)
Gains on sales of securities available for sale, net - (36)
Loss (gain) on sale of other real estate owned (15) 10
Net change in:
Loans held for sale (20,831) 31,956
Other assets, net of other liabilities (3,326) (3,360)
--------- ---------
Net cash provided (used) by operating activities (22,276) 32,596
--------- ---------
Cash flows from investing activities:
Net change in interest bearing deposits (3,032) (1,584)
Activity in securities available for sale:
Sales - 70,527
Purchases - (71,207)
Amortization of mortgage-backed securities 2,342 -
Activity in securities held to maturity:
Purchases (15,040) (168,755)
Maturities, prepayments and calls - 11,369
Amortization of mortgage-backed securities 15,733 34,483
Redemption of restricted equity securities 2,083 -
Loan (originations and purchases) net of amortization and payoffs 7,975 (6,341)
Proceeds from sales of other real estate owned 50 195
Additions to banking premises and equipment (1,327) (1,777)
--------- ---------
Net cash provided (used) in investing activities 8,784 (133,090)
--------- ---------
Cash flows from financing activities:
Net increase in deposits 76,050 66,502
Net increase (decrease) in borrowings with maturities of three months or less (6,712) 27,600
Proceeds from issuance of borrowings with maturities in excess of three months 80,000 10,000
Repayment of borrowings with maturities in excess of three months (127,000) (25,700)
Decrease in mortgagors' escrow accounts (87) (556)
Proceeds from exercise of stock options 58 94
Payments to acquire treasury stock (2,095) (56)
Cash dividends (1,365) (1,297)
--------- ---------
Net cash provided by financing activities 18,849 76,587
--------- ---------
Net change in cash and cash equivalents 5,357 (23,907)
Cash and cash equivalents at beginning of period 11,875 35,810
--------- ---------
Cash and cash equivalents at end of period $ 17,232 $ 11,903
========= =========
Supplementary information:
Interest paid $ 25,938 $ 21,694
Income taxes paid 3,435 3,732
Transfer from loans to other real estate owned, net 50 135
Transfers from securities available for sale to securities held to maturity - 150,261
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
6
<PAGE> 7
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Consolidated Balance Sheet as of June 30, 2000, and the Consolidated
Statements of Income, Changes in Stockholders' Equity, and Cash Flows for
the periods ended June 30, 2000 and 1999 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, 1999.
(2) EARNINGS PER SHARE
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.
7
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PRELIMINARY NOTE IN REGARD TO FORWARD-LOOKING STATEMENTS. This quarterly report
on Form 10-Q contains forward-looking statements. For this purpose, any
statements contained herein that are not statements of historical fact may be
deemed to be forward-looking statements. Without limiting the foregoing, the
words "believes," "anticipates," "plans," "expects," "intends" and similar
expressions are intended to identify forward-looking statements. You should not
rely on forward-looking statements, because they involve known and unknown
risks, uncertainties and other factors, some of which are beyond the control of
the Company. These expressed or implied important risks, uncertainties and
other factors may cause the Company's actual results, performance or
achievements to differ materially from those expressed or implied by such
forward-looking statements. Some of the factors that could cause actual
results, performance or achievements to differ materially from those expressed
or implied by such forward-looking statements were disclosed in the Company's
1999 Annual Report on Form 10-K. The risk factors contained in that Form 10-K
may not be exhaustive. Therefore, the information in that Form 10-K should be
read together with other reports and documents that are filed by the Company
with the SEC from time to time, including quarterly report on Form 10-Q, which
may supplement, modify, supersede or update those risk factors.
The Company's unaudited consolidated financial statements and notes included in
this report and the audited financial statements for the year ended December
31, 1999 and the notes included in the Company's annual report on Form 10-K
should be read in conjunction with the following discussion.
ASSETS
The Company's total assets at June 30, 2000 were $1.094 billion, an increase of
$22.5 million from December 31, 1999. This increase includes an increase of $5.4
million in cash and due from banks and a $20.8 million increase in loans held
for sale, offset by an $8.3 million decrease in loans.
LOANS
Loans held for sale increased $20.8 million. The Company's loans were as
follows:
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
---------- --------------
(in thousands)
<S> <C> <C>
Residential mortgage loans, including
home equity loans $ 305,514 $ 317,393
Commercial, commercial real estate
and construction loans 96,884 94,508
Consumer loans 6,610 5,410
--------- ----------
Total $ 409,008 $ 417,311
========= ==========
</TABLE>
DEPOSITS
Total deposits increased $76.1 million to $637.7 million at June 30, 2000 from
$561.6 million at December 31, 1999. The increase in deposits reflects a $5.7
million increase in IRAs and time certificates of deposit, a $56.9 million
increase in municipal deposits, and a $13.9 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 estimated losses in
the loan portfolio. The provision (credit) for loan losses and the level of the
allowance are evaluated periodically by management and the Board of Directors.
These provisions (credits) 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 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 adjustments
are charged (credited) 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.
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<PAGE> 9
At June 30, 2000, the Company's allowance for loan losses totaled $4.1 million
or 1.01% of total loans and 678% of non-performing loans compared to $4.1
million or 0.98% of total loans and 814% of non-performing loans at December 31,
1999, and compared to $4.5 million or 1.04% of total loans and 571% of
non-performing loans at June 30, 1999. Net recoveries for the three and six
months ended June 30, 2000 were $21,000 and $49,000, compared to $27,000 and
$69,000 for the corresponding periods in 1999.
Non-performing assets were $911,000 or 0.08% of total assets at June 30, 2000
compared to $788,000 or 0.07% of total assets at December 31, 1999 and $825,000
or 0.08% of total assets at June 30, 1999.
RESULTS OF OPERATIONS
EARNINGS
People's Bancshares, Inc. recognized net income of $2.4 million or $0.73 diluted
earnings per share for the quarter ended June 30, 2000 compared to $2.4 million
or $0.72 diluted earnings per share for the quarter ended June 30, 1999. Basic
earnings per share were $0.74 for the three months ended June 30, 2000 compared
to $0.73 for the three months ended June 30, 1999.
In the three months ended June 30, 2000, there were no gains or losses on sales
of securities compared to a net loss of $37,000 or $0.01 per diluted share in
the three months ended June 30, 1999. Diluted earnings per share excluding
securities gains, losses and non-recurring items would have been $0.78 for the
three months ended June 30, 2000 compared to $0.69 for the three months ended
June 30, 1999. Non-recurring items for the three months ended June 30, 2000
were related to expenses associated with the shareholder proxy fight and
amounted to $0.05 per diluted share. Non-recurring items for the three months
ended June 30, 1999 were expenses related to branch restructuring charges that
amounted to $0.04 per diluted share and a credit to the allowance for loan
losses that amounted to $0.08 per diluted share.
OVERVIEW
Comparisons of year to year operating results have been significantly affected
by the growth of the Bank and of its mortgage banking subsidiary, People's
Mortgage Corporation ("PMC"), which has resulted in the Company increasing its
asset size from $944.6 million at December 31, 1998 to $1.094 billion at June
30, 2000. Operating results have been significantly affected by the Bank's
increasing average investments to $590.4 million during the first half of 2000,
compared to $477.0 million during the first half of 1999. This growth in earning
assets was primarily funded by the Bank increasing its average deposits to
$560.8 million in the first half of 2000, compared to $457.9 million in the
first half months of 1999. Operating results have also been significantly
affected by the growth of PMC, including the purchase of Allied Bancshares
Mortgage Group, LLC on September 1, 1999. Gains on sales of loans were $4.0
million, net interest and other income was $1.0 million, operating expenses were
$5.6 million, and net income (loss) was ($613,000) from PMC operations in the
first half of 2000 compared to $3.4 million, $791,000, $4.0 million, and
$182,000, respectively, in the corresponding period of 1999.
In addition, operating results have been affected by mortgage refinancings. The
Company uses mortgage-backed securities and purchased mortgages to provide a
macro hedge against PMC's operating results. Mortgage refinancings affect the
Bank's net interest margin due to the resulting write-offs of purchase premiums
associated with mortgage-backed securities and purchased residential mortgage
loans. The amortization and write-offs of such premiums amounted to a $0.06 and
$0.10 charge against earnings for the three and six months ended June 30, 2000,
compared to a $0.13 and $0.28 charge for the same periods in 1999. However,
reduced refinancing activity contributed to PMC's income (loss) of $0.01 and
($0.12) per diluted share for the three and six months ended June 30, 2000,
compared to earnings of $0.01 and $0.03 per diluted share for the same periods
in 1999.
Return on average assets was 0.90% and 0.87%, and return on average equity was
23.66% and 22.86% for the three and six months ended June 30, 2000. Return on
average assets was 0.99% and 0.98% and return on average equity was 26.46% and
26.20% for the same periods in 1999. Net income amounted to $2.4 million
9
<PAGE> 10
and $4.6 million or $0.73 and $1.40 per diluted share for the three and six
months ended June 30, 2000 compared to net income of $2.4 million and $4.7
million or $0.72 and $1.39 per diluted share for the same periods in 1999. Basic
earnings per share were $0.74 and $1.42 per share for the three and six months
ended June 30, 2000, compared to $0.73 and $1.41 per share for the same periods
in 1999.
NET INTEREST INCOME
Net interest income increased $576,000 and $1.1 million for the three and six
months ended June 30, 2000, compared to the same periods in 1999. This change
resulted mostly from increased average earning assets. For the first six months
of 2000, average earning assets increased 10% compared to the same period in
1999. Net interest margin was 2.83% for the six months ended June 30, 2000,
compared to 2.88% for the same period in 1999.
Interest and dividend income increased to $20.4 million and $40.1 million for
the three and six months ended June 30, 2000 from $17.8 million and $34.9
million for the same periods in 1999. The yield on average earning assets
increased to 7.89% and 7.79% for the three and six months ended June 30, 2000
from 7.44% and 7.49% for the same periods in 1999. Yields on loans were 8.14%
and 8.02% for the three and six months ended June 30, 2000, compared to 7.50%
and 7.53% for the same periods in 1999. Yields on investments increased to 7.73%
and 7.64% for the three and six months ended June 30, 2000, compared to 7.40%
and 7.44% for the same periods in 1999.
Interest expense increased to $13.0 million and $25.6 million for the three and
six months ended June 30, 2000 from $11.0 million and $21.5 million for the same
periods in 1999. Interest expense on deposits increased $2.1 million and $3.7
million for the three and six months ended June 30, 2000, compared to the same
periods in 1999. Interest expense on borrowings decreased $27,000 for the three
months ended June 30, 2000 and increased $318,000 for the six months ended June
30, 2000.
During the first half of 2000, average borrowed funds amounted to $425.9 million
compared to $437.1 million during the same period of 1999. Average borrowed
funds have decreased as the Company has experienced deposit growth. The average
rate paid on borrowed funds was 6.06% and 5.98% for the three and six months
ended June 30, 2000 compared to 5.69% and 5.71% for the same periods in 1999.
Deposit interest expense increased due to an increase in average deposits to
$560.8 million for the six month period ended June 30, 2000 compared to $457.9
million for the same period in 1999. The average cost of deposits increased to
4.72% and 4.60% for the three and six month periods ended June 30, 2000 from
4.03% and 4.03% for the same periods in 1999.
OTHER INCOME
Other income was $2.5 million and $4.7 million for the three and six months
ended June 30, 2000, compared to $1.9 million and $4.2 million for the same
periods in 1999. The increases were primarily due to increases in the gain on
sales of loans.
OPERATING EXPENSES
Total operating expenses amounted to $6.4 million and $12.4 million for the
three and six months ended June 30, 2000 compared to $5.4 million and $10.8
million for the same periods in 1999. Increases in consolidated operating
expenses are primarily due to additional costs associated with the acquisition
of Allied and general increases of salary and benefits.
Salaries and benefits expense increased $497,000 and $813,000 for the three and
six months ended June 30, 2000 compared to the same periods in 1999. The
increase in salaries and benefits reflects general salary increases and the
addition of Allied employees.
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<PAGE> 11
Occupancy and equipment expense increased $359,000 and $752,000 for the three
and six months ended June 30, 2000, compared to the same periods in 1999. The
increases in occupancy and equipment are due to the Allied purchase.
Professional fees increased $212,000 and $109,000 for the three and six months
ended June 30, 2000 compared to the same periods in 1999. This increase
primarily reflects costs associated with the shareholder proxy fight. Other
general and administrative expenses decreased $129,000 and $49,000 for the three
and six months ended June 30, 2000 compared to the same periods in 1999.
The efficiency ratio for the Company for the three and six month periods ended
June 30, 2000, was 59.89% and 61.10%. For the same periods in 1999, the ratio
was 56.70% and 57.68%. The efficiency ratio for the Company excluding PMC was
45.41% and 44.13% for the three and six months ended June 30, 2000. For the same
periods in 1999, the ratio was 45.51% and 46.43%.
PROVISION FOR INCOME TAXES
The Company recognized income tax expense of $1.1 million and $2.2 million in
the three and six months ended June 30, 2000 compared to income tax expense of
$1.3 million and $2.5 million for the same periods in 1999. The effective tax
rates for the three and six months ended June 30, 2000 and 1999 were 32% and
35%, respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity management strategy focuses upon maintaining 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 its current needs.
The Company announced in its earnings press release for the first quarter of
2000 that it expects to reduce its level of borrowed funds by a third by the end
of 2001. The Company expects to pay down borrowings with funds obtained from new
deposit growth. Such a goal is dependent on the Company's ability to attract
such deposits in a competitive market for such funds.
At June 30, 2000, the Company's capital exceeded all applicable requirements
imposed by statute or regulations. At June 30, 2000, the Company's risk-based
capital ratio was 10.33%. The Company's book value per share was $13.01 at June
30, 2000, $12.27 at December 31, 1999, and $11.42 at June 30, 1999.
People's Savings Bank, the primary subsidiary of the Company (the "Bank"), has
entered into an informal agreement with its regulators in which the Bank has
agreed, among other things, to develop plans to reduce over time the level of
investment in trust preferred securities to less than 100% of its Tier 1
Leveraged Capital. In addition, the Bank has agreed to achieve and maintain Tier
1 Leveraged Capital of not less than 6.5% of total assets: management expects
the Bank to be in compliance with this target at the end of 2000. Management of
the Company believes that any actions taken to comply with the agreement will
not have a material adverse effect on the Company's future financial condition
or results of operations.
OTHER INFORMATION
On August 1, 2000, the Company declared a $0.21 dividend to be paid on September
8, 2000 to shareholders of record on August 18, 2000.
In the first half of 2000 the Company repurchased 115,000 of its outstanding
common shares at an average cost of $18.21 in open market transactions under a
repurchase program announced on September 1, 1998.
People's maintains twelve banking locations in Southeastern Massachusetts and 12
loan production offices in Massachusetts, Connecticut, Maryland, and Virginia.
People's trades under the symbol "PBKB" and is quoted on the NASDAQ National
Market System.
11
<PAGE> 12
People's Bancshares, Inc.
Supplementary Financial Data
<TABLE>
<CAPTION>
--------------------------------------------------------------
1st 2nd 6 3rd 4th
Quarter Quarter months Quarter Quarter
1999 1999 1999 1999 1999 1999
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Bank net of premium amortization, security
gains and non-recurring items $0.79 $0.81 $1.60 $0.77 $0.76 $3.14
Premium amortization expense (1) ($0.15) ($0.13) ($0.28) ($0.09) ($0.07) ($0.45)
--------------------------------------------------------------
Bank net income, net of non-recurring item $0.64 $0.68 $1.32 $0.68 $0.69 $2.69
Mortgage subsidiary net income (loss), net
of non-recurring items $0.02 $0.01 $0.03 $0.01 - $0.04
--------------------------------------------------------------
Bancshares, net of security gains and
non-recurring items $0.66 $0.69 $1.35 $0.69 $0.69 $2.73
Security gains and non-recurring items, net $0.01 $0.03 $0.04 - - $0.04
--------------------------------------------------------------
Reported diluted earnings per share $0.67 $0.72 $1.39 $0.69 $0.69 $2.77
==============================================================
Return on average equity 25.91% 26.46% 26.20% 24.13% 23.00% 24.82%
Return on average assets 0.96% 0.99% 0.98% 0.91% 0.86% 0.93%
Bank efficiency ratio (2) 46.50% 45.51% 46.43% 48.84% 51.35% 48.32%
Company efficiency ratio (2) 58.66% 56.70% 57.68% 64.19% 65.49% 60.32%
Net interest margin 2.87% 2.85% 2.88% 2.82% 2.82% 2.84%
Mortgage company core income (loss) as a
percentage of Company core income 3.03% 1.45% 2.22% 1.45% - 1.44%
Gains on sales of loans (in thousands) $ 1,774 $1,605 $3,379 $1,643 $2,480 $7,502
Mortgage loan applications (in thousands) $209,795 $206,948 $416,643 $180,632 $205,373 $802,748
Mortgage backlog at end of quarter (in thousands) (3) $135,322 $141,482 $172,579 $135,009
</TABLE>
(1) Premiums are from purchases of investment securities, primarily
mortgage-backed securities, and loans, both purchased in the secondary
market and through past acquisitions. Such premiums are subject to faster
amortization in a mortgage refinancing market. The mortgage company has no
assets subject to prepayment risk as all gains are "cash" gains and are
recorded when investor payments are received.
(2) Equals non-interest expense divided by net interest income. Excludes
provisions for loan losses, OREO expenses, non-recurring expenses, gains and
losses on securities and purchased loan transactions, and interest expense
on subordinated debentures.
(3) Equals 80% of the Company's loan applications in process plus all loans held
for sale. Generally, this backlog will be sold in the following quarter.
12
<PAGE> 13
People's Bancshares, Inc.
Supplementary Financial Data
<TABLE>
<CAPTION>
1st 2nd 6
Quarter Quarter Months
2000 2000 2000
--------------------------------------
<S> <C> <C> <C>
Bank net of premium amortization, security gains and non-recurring items $0.84 $0.83 $1.67
Premium amortization expense (1) ($0.04) ($0.06) ($0.10)
--------------------------------------
Bank net income $0.80 $0.77 $1.57
Mortgage subsidiary net income, net of non-recurring items ($0.13) $0.01 ($0.12)
--------------------------------------
Bancshares, net of security gains and non-recurring items $0.67 $0.78 $1.45
Security gains and non-recurring items, net - ($0.05) ($0.05)
--------------------------------------
Reported diluted earnings per share $0.67 $0.73 $1.40
======================================
Return on average equity 22.05% 23.66% 22.86%
Return on average assets 0.84% 0.90% 0.87%
Bank efficiency ratio (2) 42.88% 45.41% 44.13%
Company efficiency ratio (2) 62.32% 59.89% 61.10%
Net interest margin 2.80% 2.85% 2.83%
Mortgage company core income (loss) as a percentage of Company core income (16.25%) 1.39% (7.89%)
Gains on sales of loans (in thousands) $1,798 $2,155 $3,953
Mortgage loan applications (in thousands) $272,364 $259,431 $531,795
Mortgage backlog at end of quarter (in thousands) (3) $200,187 $201,852
</TABLE>
(1) Premiums are from purchases of investment securities, primarily
mortgage-backed securities, and loans, both purchased in the secondary
market and through past acquisitions. Such premiums are subject to faster
amortization in a mortgage refinancing market. The mortgage company has no
assets subject to prepayment risk as all gains are "cash" gains and are
recorded when investor payments are received.
(2) Equals non-interest expense divided by net interest income. Excludes
provisions for loan losses, OREO expenses, non-recurring expenses, gains and
losses on securities and purchased loan transactions, and interest expense
on subordinated debentures.
(3) Equals 80% of the Company's loan applications in process plus all loans held
for sale. Generally, this backlog will be sold in the following quarter.
13
<PAGE> 14
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The objective of the Bank's asset/liability management is to prudently minimize
the interest rate risk of its assets and liabilities. Nonetheless, the Bank, by
its very nature, will always be in the business of taking on interest rate risk.
It is the responsibility of the Bank's Investment Committee, under the authority
of the Board of Directors, to oversee the Bank's management of interest rate
risk.
The primary objective of interest-rate risk management is to control the
Company's exposure to interest-rate risk within limits approved by the Board of
Directors. These limits reflect the Company's tolerance for interest rate risk
over both short-term and long-term horizons.
The Company quantifies and measures interest rate exposures using a model to
dynamically simulate net-interest income under various interest rate scenarios
over 12 months and to a lesser extent, gap analysis. The simulation analysis
involves projecting future interest income and expense from the Company's asset
and liability positions under various scenarios. Simulated scenarios include
deliberately extreme interest rate "shocks."
The Board's limits on interest-rate risk specify that if interest rates were to
shift up or down 200 basis points, estimated net interest income for the
subsequent 12 months should decline by less than 10%. The Company was in
compliance with this limit at June 30, 2000. The following table reflects the
estimated exposure of the Company's net interest income for the next 12 months
assuming a shift of 100 basis points over 12 months in market interest rates. As
of June 30, 2000 the simulation model projected a decrease of approximately
$0.06 per share based upon a 100 basis point increase in rates ratably over one
year compared to a flat rate scenario.
100 Basis Points 100 Basis Points
Rate Increase Rate Decrease
June 30, 2000 (1.14)% 4.29%
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On June 16, 2000, the Company held its annual meeting of stockholders. At this
meeting the stockholders of the Company elected John R. Eaton, Dr. Loring C.
Johnson, Scott W. Ramsay as the Class II Directors of the Company, to serve for
a term expiring at the 2003 annual meeting of stockholders and until their
successors are duly elected and qualified. The following sets forth the votes
cast in connection with these elections:
For Withheld
--------- --------
John R. Eaton 1,489,822 14,432
Dr. Loring C. Johnson 1,485,876 18,378
Scott W. Ramsay 1,486,891 17,363
William G. Foster, Jr. 1,264,874 1,561
John R. Kennedy 1,264,854 1,561
Vincent A. Smyth 1,264,874 1,561
14
<PAGE> 15
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, 2000.
15
<PAGE> 16
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.
8/14/2000 By: /s/ Richard S. Straczynski
--------------------- ----------------------------------
Date Richard S. Straczynski
President and Chief Executive Officer
8/14/2000 By: /s/ Colin C. Blair
--------------------- ---------------------------------
Date Colin C. Blair
Chief Financial Officer
16
<PAGE> 17
'
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).
17
