<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): February 9, 1996
CFX CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
New Hampshire 1-10633 02-0402421
- ---------------------------- -------------- --------------------
(State or other jurisdiction (Commission (I.R.S. employer
of incorporation) file number) identification no.)
102 Main Street, Keene, New Hampshire 03431
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (603) 352-2502
--------------
Not Applicable
- --------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE>
Item 5. OTHER EVENTS
On February 9, 1996, Registrant filed a Current Report on Form 8-K
disclosing that Registrant and its principal subsidiary bank, CFX Bank, had
entered into an Agreement and Plan of Merger and an Agreement and Plan of
Reorganization with Milford Co-operative Bank ("Milford"), and that Registrant
and Milford had entered into a Stock Option Agreement.
Attached hereto as Exhibits and incorporated herein by reference are (1)
Milford's audited financial statements as of June 30, 1995 and for the twelve
months then ended; (2) Milford's unaudited financial statements as of December
31, 1995 and for the six months then ended; (3) certain additional information
required by Items III and IV of Guide 3 as presented in Milford's Revised Annual
Report on Form 10-KSBA for the year ended June 30, 1995; (4) a consent of
Shatsell, MacLeod & Co.; and (5) a consent of Coopers & Lybrand L.L.P.
Also attached hereto as an Exhibit and incorporated herein by reference
is a press release dated April 10, 1996 announcing Registrant's earnings for
the first quarter of 1996.
On January 16, 1996, Registrant filed a Current Report on Form 8-K
disclosing that Registrant had entered into an Agreement and Plan of Merger
("Merger Agreement") with The Safety Fund Corporation ("Safety Fund").
Pursuant to Section 1.4(b) of the Merger Agreement, four directors of Safety
Fund to be designated by Registrant after consultation with Safety Fund shall
be elected to the Board of Directors of Registrant if the transaction is
consummated. Registrant, after consultation with Safety Fund, has designated
the following four directors of Safety Fund to be elected to Registrant's
Board of Directors, and Registrant's Board of Directors intends to nominate
such persons for re-election and support their re-election at the annual
meeting of Registrant's shareholders to be held in 1997 as required by
Section 1.4(b) of the Merger Agreement:
Christopher W. Bramley, age 54, Director of Safety Fund since 1994,
currently President and CEO of Safety Fund and President and CEO of SFNB,
previously an Executive Vice President, Shawmut Bank, N.A., and President and
CEO of Shawmut Worchester County Bank. Mr. Bramley beneficially owns 24,877
shares of Safety Fund Common Stock.
P. Kevin Condron, age 50, Director of Safety Fund since 1984, currently
President and CEO of Central Supply Company, Inc. (wholesale plumbing and
heating). Mr. Condron beneficially owns 23,140 shares of Safety Fund Common
Stock.
William E. Aubuchon, III, age 51, Director of Safety Fund since 1974,
currently Chairman of the Board and CEO of W.E. Aubuchon Co., Inc. (retail
hardware). Mr. Aubuchon beneficially owns 11,869 shares of Safety Fund
Common Stock.
David R. Grenon, age 56, Director of Safety Fund since 1979, currently
Chairman of Advisory Board and Assistant Clerk, The Protector Group Insurance
Agency, Inc. (property and casualty insurance agency), previously President
and CEO of The Protector Group Insurance Agency, Inc., Director and
shareholder, The Protector Insurance Agency, Inc. (financial services
insurance agency) and Director of Commerce Holdings, Inc. and Commerce Group,
Inc. Mr. Grenon beneficially owns 41,364 shares of Safety Fund Common Stock.
- 2 -
<PAGE>
Item 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL
INFORMATION AND EXHIBITS.
(c) EXHIBITS.
99.1 Milford's audited financial statements as of June 30, 1995
and for the three years then ended and unaudited financial
statements as of December 31, 1995 and December 31, 1994 and
for the six months then ended.
99.2 Certain additional information required by Items III and IV of
Guide 3 as presented in Milford's Revised Annual Report on
Form 10-KSBA for the year ended June 30, 1995.
99.3 Consent of Shatswell, MacLeod & Co.
99.4 Consent of Coopers & Lybrand L.L.P.
99.5 Press Release dated April 10, 1996.
- 3 -
<PAGE>
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.
CFX CORPORATION
Date: April 12, 1996 By: /s/ Mark A. Gavin
-----------------------------
Mark A. Gavin,
Chief Financial Officer
- 4 -
<PAGE>
EXHIBIT INDEX
Location in
Sequentially
Numbered Copy
-------------
Exhibit 99.1 Milford's audited financial statements as of Page
June 30, 1995 and for the three years then ----
ended and unaudited financial statements as of
December 31, 1995 and December 31, 1994 and for
the six months then ended.
Exhibit 99.2 Certain additional information required by Page
Items III and IV of Guide 3 as presented in ----
Milford's Revised Annual Report on Form 10-KSBA
for the year ended June 30, 1995.
Exhibit 99.3 Consent of Shatswell, MacLeod & Co. Page
----
Exhibit 99.4 Consent of Coopers & Lybrand L.L.P. Page
----
Exhibit 99.5 Press Release Dated April 10, 1996. Page
----
<PAGE>
[ SHATSWELL, MacLEOD & CO. LETTERHEAD ]
The Board of Directors and Stockholders
Milford Co/operative Bank
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying balance sheet of Milford Co/operative Bank as
of June 30, 1995 and the related statements of income, changes in stockholders'
equity, and cash flows for the year then ended. These financial statements are
the responsibility of the Bank's management. Our responsibility is to express an
opinion on these financial statements based on our audit. The financial
statements of Milford Co/operative Bank as of June 30, 1994 and 1993 were
audited by other auditors whose report dated August 4, 1994 expressed an
unqualified opinion on those statements.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the 1995 financial statements referred to above present fairly,
in all material respects, the financial position of Milford Co/operative Bank as
of June 30, 1995 and the results of its operations and its cash flows for the
year then ended, in conformity with generally accepted accounting principles.
As discussed in Notes 1 and 11 to the financial statements, the Bank adopted the
provisions of the Financial Accounting Standards Board's Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes", effective July 1,
1993.
As discussed in Note 1 to the financial statements, the Bank adopted the
provisions of the Financial Accounting Standards Board's Statement of Financial
Accounting Standards No. 115 "Accounting for Certain Investments in Debt and
Equity Securities" as of July 1, 1994.
SHATSWELL, MacLEOD & COMPANY, P.C.
West Peabody, Massachusetts
July 20, 1995
F-2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Milford Co/operative Bank:
We have audited the accompanying statements of financial condition of
Milford Co/operative Bank as of June 30, 1994 and 1993 and the related
statements of operations, changes in stockholders' equity and cash flows for
each of the three years in the period ended June 30, 1994. These financial
statements are the responsibility of the Bank's management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Milford Co/operative Bank at
June 30, 1994 and 1993 and the results of its operations and cash flows for each
of the three years in the period ended June 30, 1994 in conformity with
generally accepted accounting principles.
As discussed in Note 1 to the financial statements, Milford Co/operative
Bank has adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," effective July 1, 1993.
/s/ COOPERS & LYBRAND, L.L.P.
Boston, Massachusetts
August 4, 1994
F-3
<PAGE>
MILFORD CO/OPERATIVE BANK
BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,
DECEMBER 31, ----------------------------
1995 1995 1994
------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS:
Cash and due from banks......................... $ 2,320,741 $ 1,605,747 $ 1,893,484
Interest bearing deposits....................... 13,148,094 16,967,728 17,329,095
------------- ------------- -------------
Total cash and cash equivalents............. 15,468,835 18,573,475 19,222,579
Investments in securities (fair values of
$68,692,837, $69,739,867 and $67,697,186 at
December 31, 1995, June 30, 1995 and 1994,
respectively) (Note 2)......................... 68,858,713 70,305,364 69,456,296
Loans receivable, net (Notes 7, 10 and 17)...... 68,145,461 60,818,640 58,168,010
Accrued interest receivable:
Loans......................................... 484,048 434,212 371,921
Investment securities......................... 624,382 726,971 590,446
Mortgage-backed securities.................... 145,995 150,378 141,033
Stock in Federal Home Loan Bank of Boston, at
cost (Note 10)................................. 655,100 655,100 626,200
Premises and equipment, net (Note 9)............ 2,066,070 2,138,750 2,167,156
Deferred federal income tax benefit (Note 11)... 171,552 228,748 238,569
Other assets.................................... 228,146 320,199 136,024
------------- ------------- -------------
$ 156,848,302 $ 154,351,837 $ 151,118,234
------------- ------------- -------------
------------- ------------- -------------
LIABILITIES:
Deposit accounts (Note 8)....................... $ 138,312,611 $ 135,746,914 $ 133,221,464
Advances from Federal Home Loan Bank of Boston
(Note 10)...................................... 2,000,000 2,000,000 3,000,000
Advance payments by borrowers for taxes and
insurance...................................... 133,125 305,008 240,656
Accrued expenses and other liabilities.......... 710,544 1,257,343 783,048
------------- ------------- -------------
Total liabilities........................... 141,156,280 139,309,265 137,245,168
------------- ------------- -------------
Commitments and contingent liabilities (Notes 14
and 18)
STOCKHOLDERS' EQUITY:
Common stock, par value $1.00 per share;
authorized 1,800,000 shares; issued and
outstanding 657,717 shares in 1995 and
656,217 shares in 1994....................... 659,917 657,717 656,217
Paid-in capital............................... 6,636,132 6,613,032 6,597,282
Retained earnings (subject to restrictions)... 8,250,809 7,765,928 6,619,567
Net unrealized holding gain on securities
available-for-sale........................... 145,164 5,895
------------- ------------- -------------
Total stockholders' equity.................... 15,692,022 15,042,572 13,873,066
------------- ------------- -------------
$ 156,848,302 $ 154,351,837 $ 151,118,234
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
MILFORD CO/OPERATIVE BANK
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31, YEARS ENDED JUNE 30,
---------------------- ----------------------------------
1995 1994 1995 1994 1993
---------- ---------- ---------- ---------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Interest and dividend income:
Mortgage loan................................ $2,540,373 $2,276,803 $4,721,642 $4,423,566 $4,923,667
Other loans.................................. 190,146 150,437 328,990 252,571 266,186
Investment securities........................ 1,346,581 1,142,487 2,364,812 1,869,254 1,488,005
Mortgage-backed securities................... 840,343 745,601 1,531,025 1,611,972 2,412,558
Other........................................ 377,897 387,662 816,995 515,419 409,087
---------- ---------- ---------- ---------- ----------
Total interest and dividend income....... 5,295,340 4,702,990 9,763,464 8,672,782 9,499,503
---------- ---------- ---------- ---------- ----------
Interest expense:
Deposit accounts (Note 8).................... 2,582,519 2,088,459 4,392,218 4,069,153 4,785,298
Borrowings................................... 70,526 96,104 167,529 190,602 262,617
---------- ---------- ---------- ---------- ----------
Total interest expense................... 2,653,045 2,184,563 4,559,747 4,259,755 5,047,915
---------- ---------- ---------- ---------- ----------
Net interest income...................... 2,642,295 2,518,427 5,203,717 4,413,027 4,451,588
Provision for probable loan losses (Note 7).... 60,000 40,000 93,000 95,000 400,000
---------- ---------- ---------- ---------- ----------
Net interest income after provision for
probable loan losses.................... 2,582,295 2,478,427 5,110,717 4,318,027 4,051,588
---------- ---------- ---------- ---------- ----------
Other income:
Customer service charges..................... 211,162 209,398 412,803 380,197 330,257
Gain (loss) on sales of investment
securities, net............................. 51,166 (4,455) (10,470) 108,389 332,838
Other........................................ 163,175 142,506 351,304 366,527 410,936
---------- ---------- ---------- ---------- ----------
Total other income....................... 425,503 347,449 753,637 855,113 1,074,031
---------- ---------- ---------- ---------- ----------
Other expense:
Compensation and fringe benefits (Note 12)... 911,370 848,524 1,736,587 1,634,366 1,487,599
Occupancy and equipment...................... 233,229 220,402 473,363 470,911 481,137
Advertising.................................. 33,584 26,851 61,751 70,760 50,260
Data processing service fees................. 178,630 163,709 333,538 316,276 277,337
Federal insurance premium.................... 152,851 150,156 300,844 301,060 287,525
Other........................................ 382,492 332,161 731,402 724,181 754,181
---------- ---------- ---------- ---------- ----------
Total other expense...................... 1,892,156 1,741,803 3,637,485 3,517,554 3,338,039
---------- ---------- ---------- ---------- ----------
Income before income taxes and cumulative
effect of change in accounting principle...... 1,115,642 1,084,073 2,226,869 1,655,586 1,787,580
Income taxes (Note 11)......................... 367,190 368,000 719,589 630,747 756,278
---------- ---------- ---------- ---------- ----------
Income before cumulative effect of change in
accounting principle........................ 748,452 716,073 1,507,280 1,024,839 1,031,302
Cumulative effect of change in accounting
principle (Notes 1 and 11).................... 169,926
---------- ---------- ---------- ---------- ----------
Net income............................... $ 748,452 $ 716,073 $1,507,280 $1,194,765 $1,031,302
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Earnings and dividends per share (Note 1)
Income before cumulative effect of change in
accounting principle........................ $ 1.13 $ 1.09 $ 2.29 $ 1.56 $ 1.57
Cumulative effect of change in accounting
principle................................... .26
---------- ---------- ---------- ---------- ----------
Net income............................... $ 1.13 $ 1.09 $ 2.29 $ 1.82 $ 1.57
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Cash dividends........................... $ .40 $ .30 $ .55 $ .50 $ .45
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
MILFORD CO/OPERATIVE BANK
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
NET UNREALIZED
NUMBER OF HOLDING GAIN (LOSS) TOTAL
COMMON COMMON PAID-IN RETAINED ON SECURITIES STOCKHOLDERS'
SHARES STOCK CAPITAL EARNINGS AVAILABLE-FOR-SALE EQUITY
--------- -------- ---------- ---------- ------------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1992.......................... 656,217 $656,217 $6,597,282 $5,016,906 $ $ 12,270,405
Dividends paid.................................. (295,297) (295,297)
Net income...................................... 1,031,302 1,031,302
--------- -------- ---------- ---------- ---------- -------------
Balance, June 30, 1993.......................... 656,217 656,217 6,597,282 5,752,911 13,006,410
Dividends paid.................................. (328,109) (328,109)
Net income...................................... 1,194,765 1,194,765
--------- -------- ---------- ---------- ---------- -------------
Balance, June 30, 1994.......................... 656,217 656,217 6,597,282 6,619,567 13,873,066
Issuance of common stock........................ 1,500 1,500 15,750 17,250
Net unrealized holding loss on adoption of SFAS
No. 115 as of July 1, 1994 (Notes 1 and 3)..... (210,197) (210,197)
Net change in unrealized
holding loss on securities
available-for-sale............................. 216,092 216,092
Dividends paid.................................. (360,919) (360,919)
Net income...................................... 1,507,280 1,507,280
--------- -------- ---------- ---------- ---------- -------------
Balance, June 30, 1995.......................... 657,717 $657,717 $6,613,032 $7,765,928 $ 5,895 $ 15,042,572
--------- -------- ---------- ---------- ---------- -------------
--------- -------- ---------- ---------- ---------- -------------
</TABLE>
F-6
<PAGE>
MILFORD CO/OPERATIVE BANK
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(CONTINUED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED DECEMBER 31, 1994
---------------------------------------------------------------------------------
(UNAUDITED)
NET UNREALIZED
NUMBER OF HOLDING GAIN (LOSS) TOTAL
COMMON COMMON PAID-IN RETAINED ON SECURITIES STOCKHOLDERS'
SHARES STOCK CAPITAL EARNINGS AVAILABLE-FOR-SALE EQUITY
--------- -------- ---------- ---------- ------------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1994.......................... 656,217 $656,217 $6,597,282 $6,619,567 $ $ 13,873,066
Net unrealized holding loss on adoption of SFAS
No. 115 as of July 1, 1994..................... (210,197) (210,197)
Net change in unrealized
holding loss on securities
available-for-sale, net of taxes............... (355,806) (355,806)
Net income...................................... 716,073 716,073
Dividends paid.................................. (196,865) (196,865)
--------- -------- ---------- ---------- ---------- -------------
Balance, December 31, 1994...................... 656,217 $656,217 $6,597,282 $7,138,775 $(566,003) $ 13,826,271
--------- -------- ---------- ---------- ---------- -------------
--------- -------- ---------- ---------- ---------- -------------
<CAPTION>
SIX MONTHS ENDED DECEMBER 31, 1995
---------------------------------------------------------------------------------
(UNAUDITED)
NET UNREALIZED
NUMBER OF HOLDING GAIN (LOSS) TOTAL
COMMON COMMON PAID-IN RETAINED ON SECURITIES STOCKHOLDERS'
SHARES STOCK CAPITAL EARNINGS AVAILABLE-FOR-SALE EQUITY
--------- -------- ---------- ---------- ------------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1995.......................... 657,717 $657,717 $6,613,032 $7,765,928 $ 5,895 $ 15,042,572
Issuance of common stock........................ 2,200 2,200 23,100 25,300
Net change in unrealized
holding gain on securities
available-for-sale, net of taxes............... 139,269 139,269
Net income...................................... 748,452 748,452
Dividends paid.................................. (263,571) (263,571)
--------- -------- ---------- ---------- ---------- -------------
Balance, December 31, 1995...................... 659,917 $659,917 $6,636,132 $8,250,809 $ 145,164 $ 15,692,022
--------- -------- ---------- ---------- ---------- -------------
--------- -------- ---------- ---------- ---------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
MILFORD CO/OPERATIVE BANK
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31, YEARS ENDED JUNE 30,
------------------------- ----------------------------------------
1995 1994 1995 1994 1993
------------ ----------- ------------ ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows provided by (used in) operating activities:
Net income................................................ $ 748,452 $ 716,073 $ 1,507,280 $ 1,194,765 $ 1,031,302
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization........................... 124,666 82,986 207,779 128,398 135,055
Provision for probable loan losses...................... 60,000 40,000 93,000 95,000 400,000
Securities losses....................................... 4,455 58,830 55,899 33,840
Securities gains........................................ (51,166) (48,360) (164,288) (366,678)
Gross receipts associated with loans originated for
resale................................................. 49,771 87,799 181,073 10,832,368 9,703,031
Gross payments associated with loans originated for
resale................................................. (50,000) (88,000) (179,000) (10,807,540) (9,612,169)
(Gain) loss on loan sales............................... 229 201 (2,073) (24,828) (90,862)
Gain on sale of other real estate owned................. (7,954)
Writedown of other real estate owned.................... 20,000
Changes in assets and liabilities:
Accrued and deferred income taxes....................... 57,196 (4,355) 6,785 (157,726) 525
Accrued interest receivable............................. 57,136 17,893 (208,161) (187,504) 269,321
Other assets............................................ 62,834 (49,780) (148,120) 119,732 (28,203)
Accrued expenses and other liabilities.................. (546,799) (27,855) 474,295 (120,953) 270,926
------------ ----------- ------------ ------------ ------------
Net cash provided by operating activities................... 524,365 779,417 1,943,328 963,323 1,746,088
------------ ----------- ------------ ------------ ------------
Cash flows provided by (used in) investing activities:
Purchases of securities available-for-sale................ (13,592,796) (1,125,570) (16,379,936)
Proceeds from maturities of securities
available-for-sale....................................... 6,500,000 5,689,758
Proceeds from sales of securities
available-for-sale....................................... 10,594,552 3,500,000 9,491,900
Purchases of securities held-to-maturity.................. (7,664,765) (1,998,367) (5,879,883)
Proceeds from maturities of securities
held-to-maturity......................................... 2,500,000 5,000,000 6,227,554
Proceeds from the sales and maturities of investment
securities............................................... 41,599,657 14,100,769
Purchases of investment securities........................ (50,753,724) (27,750,000)
Redemption (purchase) of stock in Federal Home Loan Bank
of Boston................................................ (28,900) 105,900
Net increase in loans receivable.......................... (7,490,108) (2,337,056) (2,866,573) (64,489) (1,578,328)
Purchases of mortgage-backed securities................... (12,005,098) (4,244,007)
Proceeds from sales/paydowns of
mortgage-backed securities............................... 3,300,095 891,355 9,162,868 5,472,841
Purchases of collateralized mortgage obligations.......... (1,000,000) (13,235,000)
Proceeds from sales/paydowns of collateralized mortgage
obligations.............................................. 241,654 13,679,770 11,846,000
Capital expenditures...................................... (51,986) (140,127) (179,373) (193,367) (125,407)
Proceeds from sales of other real estate owned............ 120,459 131,096
Capitalization of other real estate owned................. (44,208)
Change in other real estate owned......................... (80,642) 363,979 159,064
------------ ----------- ------------ ------------ ------------
Net cash provided by (used in) investing activities......... (5,784,549) 3,951,247 (3,838,565) 895,496 (15,354,068)
------------ ----------- ------------ ------------ ------------
</TABLE>
F-8
<PAGE>
MILFORD CO/OPERATIVE BANK
STATEMENTS OF CASH FLOWS
(CONTINUED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31, YEARS ENDED JUNE 30,
------------------------- ----------------------------------------
1995 1994 1995 1994 1993
------------ ----------- ------------ ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows provided by (used in) financing activities:
Net increase (decrease) in deposit accounts............... 2,565,697 (833,561) 2,525,450 (7,351) 7,981,346
Proceeds from Federal Home Loan Bank of Boston advance.... 2,000,000
Repayment of Federal Home Loan Bank of Boston advance..... (3,000,000) (2,000,000)
(Decrease) increase in advanced payments by borrowers for
taxes and insurance...................................... (171,882) (9,850) 64,352 493 58,345
Dividends paid............................................ (263,571) (196,865) (360,919) (328,109) (295,297)
Issuance of common stock.................................. 25,300 17,250
------------ ----------- ------------ ------------ ------------
Net cash provided by (used in) financing activities......... 2,155,544 (1,040,276) 1,246,133 (334,967) 5,744,394
------------ ----------- ------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents........ (3,104,640) 3,690,388 (649,104) 1,523,852 (7,863,586)
Cash and cash equivalents at beginning of period............ 18,573,475 19,222,579 19,222,579 17,698,727 25,562,313
------------ ----------- ------------ ------------ ------------
Cash and cash equivalents at end of period.................. $ 15,468,835 $22,912,967 $ 18,573,475 $ 19,222,579 $ 17,698,727
------------ ----------- ------------ ------------ ------------
------------ ----------- ------------ ------------ ------------
Supplemental cash flow information:
Cash paid during period for:
Interest................................................ $ 2,653,045 $ 2,184,563 $ 4,559,747 $ 4,259,755 $ 5,047,915
Taxes................................................... 394,495 325,539 710,230 605,000 655,000
Loans transferred to other real estate owned.............. 122,943
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-9
<PAGE>
MILFORD CO/OPERATIVE BANK
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1995, 1994 AND 1993
NOTE 1 -- ACCOUNTING POLICIES
The accounting and reporting policies of Milford Co/operative Bank conform
to generally accepted accounting principles and predominant practices within the
banking industry. The financial statements of the Bank were prepared using the
accrual basis of accounting. The significant accounting policies of the Bank are
summarized below to assist the reader in better understanding the financial
statements and other data herein.
CASH EQUIVALENTS:
Cash equivalents consist of cash on hand and in banks and interest bearing
deposits.
INVESTMENT SECURITIES, AFTER THE ADOPTION OF SFAS NO. 115:
As of July 1, 1994, the Bank adopted Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" (SFAS No. 115). The Statement establishes standards of financial
accounting and reporting for investments in equity securities that have readily
determinable fair values and all investments in debt securities. SFAS No. 115
requires that the Bank classify 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 Bank 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 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.
INVESTMENT SECURITIES, PRIOR TO THE ADOPTION OF SFAS NO. 115:
Investment securities are carried at cost, adjusted for amortization of
premium and accretion of discount over the term of the security.
Gains or losses on sales of investment securities are recognized when
realized using the specific identification method.
Investments in mortgage-backed securities consist principally of mortgage
pass-through certificates with agencies of the federal government and are
carried at cost, adjusted for amortization of premium and accretion of discount
over the life of the security. Gains and losses on the sale of such securities
are recognized when realized and shown net in the statement of income.
Collateralized mortgage obligations are also carried at cost. The principal
value of the investment is reduced as payments on the obligation are received,
with the balance due upon maturity.
LOAN ORIGINATION FEES:
Loan origination fees and related direct loan origination costs are
amortized to interest income over the life of the associated loan as an
adjustment of the loan yield.
F-10
<PAGE>
MILFORD CO/OPERATIVE BANK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1995, 1994 AND 1993
NOTE 1 -- ACCOUNTING POLICIES (CONTINUED)
PROVISION FOR LOSSES ON LOANS:
The allowance for loan losses is established through a provision for loan
losses charged to operations and is maintained at a level considered adequate by
management to provide for reasonably foreseeable loan losses. Realized losses,
net of recoveries, are charged directly to the allowance.
The provision and the level of the allowance are evaluated on a regular
basis by management and are based upon management's periodic review of the
collectability of the loans in light of historical experience, known and
inherent risks in the loan portfolio, adverse situations that may affect the
borrower's ability to repay, estimated value of any underlying collateral, and
prevailing economic conditions.
OTHER REAL ESTATE OWNED:
Other real estate owned includes properties acquired through foreclosure and
consists principally of single family residences and condominiums. These
properties are carried at the lower of the carrying amount or the estimated fair
value less estimated selling costs. Valuations are periodically performed by
management, and an allowance for losses is established by a charge to operations
if the carrying value of a property exceeds its estimated fair value.
PREMISES AND EQUIPMENT:
Assets are recorded at cost and depreciated using the straight-line method
over the estimated useful lives of the assets. Buildings and improvements are
being depreciated over their estimated useful life of 5 to 50 years and
furniture, fixtures and equipment are being amortized over their estimated
useful life of 1 to 10 years. Expenditures for maintenance and repairs are
charged to expense as incurred. Upon retirement or disposition the cost and
accumulated depreciation are eliminated from the respective accounts and any
resulting gain or loss is credited or charged to income.
INCOME TAXES:
Effective July 1, 1993, the Bank adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes," which requires the use of the
asset and liability method of accounting for income taxes. The cumulative effect
of this accounting change totaling $169,926 has been reported separately in the
1994 statement of income. Under this method, deferred tax assets and liabilities
are established for the temporary differences between the accounting basis and
the tax basis of the Bank's assets and liabilities at the legislated tax rates
which are expected to be in effect when the temporary differences reverse. The
Bank's deferred tax assets and liabilities are reviewed regularly and
adjustments are recognized as deferred income tax expense or benefit based on
management's judgement regarding their realizability.
Deferred income taxes arise from differences in the timing of the
recognition of certain expenses for financial statement and income tax reporting
purposes. The principal sources of these differences are in the cost for book
and tax purposes of fixed assets, the allowance for loan losses, deferred
origination fees, loss carryforward and certain other nondeductible accruals.
EARNINGS PER SHARE:
Earnings per share is computed based on the weighted average number of
shares outstanding. For the periods presented, outstanding stock options were
not entered into the calculation of primary earnings per share since the impact
is not dilutive.
F-11
<PAGE>
MILFORD CO/OPERATIVE BANK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1995, 1994 AND 1993
NOTE 2 -- INVESTMENTS IN SECURITIES
The aggregate carrying amounts and fair values of investments in securities
at June 30 were:
<TABLE>
<CAPTION>
1995 1994
------------------------------ ------------------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Available-for-sale (Note 3)............ $ 31,681,762 $ 31,681,762 $ $
Held-to-maturity (Note 4).............. 38,623,602 38,058,105
Investment securities before the
adoption of SFAS No. 115 (Note 5)..... 44,973,669 44,143,837
Mortgage-backed securities and
collateralized mortgage obligations
before the adoption of SFAS No. 115
(Note 6).............................. 24,482,627 23,553,349
-------------- -------------- -------------- --------------
$ 70,305,364 $ 69,739,867 $ 69,456,296 $ 67,697,186
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
</TABLE>
There were no securities of issuers which exceeded 10% of stockholders'
equity at June 30, 1995.
A total par value of $3,700,000 and $4,000,000 of debt securities was
pledged to secure treasury tax and loan and public funds on deposit at June 30,
1995 and 1994, respectively.
NOTE 3 -- INVESTMENTS IN SECURITIES AVAILABLE-FOR-SALE
Investments in securities available-for-sale at June 30, 1995 are carried at
fair value on the balance sheet and are summarized as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST HOLDING HOLDING FAIR
BASIS GAINS LOSSES VALUE
-------------- ----------- ----------- --------------
<S> <C> <C> <C> <C>
Marketable equity securities................. $ 2,165,216 $ 1,006 $ 33,609 $ 2,132,613
Debt securities issued by the U.S. Treasury
and other U.S. government corporations and
agencies.................................... 18,795,597 167,215 136,974 18,825,838
Mortgage-backed securities................... 10,712,017 54,593 43,299 10,723,311
-------------- ----------- ----------- --------------
$ 31,672,830 $ 222,814 $ 213,882 $ 31,681,762
-------------- ----------- ----------- --------------
-------------- ----------- ----------- --------------
</TABLE>
Information about the contractual maturities of investments in debt
securities classified as available-for-sale at June 30, 1995 is summarized as
follows:
<TABLE>
<CAPTION>
AMORTIZED
COST FAIR
BASIS VALUE
-------------- --------------
<S> <C> <C>
Debt securities other than mortgage-backed securities:
Due within one year.................................................. $ 1,002,857 $ 997,955
Due after one year through five years................................ 10,600,000 10,591,024
Due after five years through ten years............................... 7,192,740 7,236,859
Mortgage-backed securities............................................. 10,712,017 10,723,311
-------------- --------------
$ 29,507,614 $ 29,549,149
-------------- --------------
-------------- --------------
</TABLE>
F-12
<PAGE>
MILFORD CO/OPERATIVE BANK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1995, 1994 AND 1993
NOTE 3 -- INVESTMENTS IN SECURITIES AVAILABLE-FOR-SALE (CONTINUED)
The adoption of SFAS No. 115 as of July 1, 1994 had the following effect on
the financial statements:
<TABLE>
<S> <C>
Reduction of stockholders' equity:
Net unrealized holding loss on securities available-for-sale........... $ 318,480
Less tax effect........................................................ 108,283
---------
$ 210,197
---------
---------
</TABLE>
For the year ended June 30, 1995, proceeds from sales of securities
available-for-sale amounted to $9,491,900. Gross realized gains and gross
realized losses on those sales amounted to $48,360 and $58,830, respectively.
NOTE 4 -- INVESTMENTS IN SECURITIES HELD-TO-MATURITY
Investments in securities held-to-maturity at June 30, 1995 are carried at
amortized cost on the balance sheet and are summarized as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST HOLDING HOLDING FAIR
BASIS GAINS LOSSES VALUE
-------------- ----------- ----------- --------------
<S> <C> <C> <C> <C>
Debt securities issued by the U.S. Treasury
and other U.S. government corporations and
agencies..................................... $ 22,005,870 $ 46,157 $ 290,133 $ 21,761,894
Mortgage-backed securities.................... 16,617,732 49,709 371,230 16,296,211
-------------- ----------- ----------- --------------
$ 38,623,602 $ 95,866 $ 661,363 $ 38,058,105
-------------- ----------- ----------- --------------
</TABLE>
Information about the contractual maturities of investments in debt
securities classified as held-to-maturity at June 30, 1995 is summarized as
follows:
<TABLE>
<CAPTION>
AMORTIZED
COST FAIR
BASIS VALUE
-------------- --------------
<S> <C> <C>
Debt securities other than mortgage-backed securities:
Due within one year.................................................. $ 4,997,754 $ 4,963,154
Due after one year through five years................................ 16,008,116 15,835,091
Due after five years through ten years............................... 1,000,000 963,649
Mortgage-backed securities............................................. 16,617,732 16,296,211
-------------- --------------
$ 38,623,602 $ 38,058,105
-------------- --------------
-------------- --------------
</TABLE>
NOTE 5 -- INVESTMENT SECURITIES BEFORE THE ADOPTION OF SFAS NO. 115
The carrying value and approximate fair value of investment securities were
as follows as of June 30, 1994:
<TABLE>
<CAPTION>
CARRYING FAIR
VALUE VALUE
-------------- --------------
<S> <C> <C>
U.S. government and related obligations................................ $ 21,725,024 $ 21,391,867
Federal bonds and notes................................................ 23,248,645 22,751,970
-------------- --------------
$ 44,973,669 $ 44,143,837
-------------- --------------
-------------- --------------
</TABLE>
F-13
<PAGE>
MILFORD CO/OPERATIVE BANK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1995, 1994 AND 1993
NOTE 5 -- INVESTMENT SECURITIES BEFORE THE ADOPTION OF SFAS NO. 115 (CONTINUED)
Proceeds from the sales and maturities of investment securities amounted to
$41,599,657 and $14,100,769 for the years ended June 30, 1994 and 1993,
respectively.
Realized gains on the sales of investment securities for the years ended
June 30, 1994 and 1993 amounted to $164,288 and $366,678, respectively, while
net realized losses on sales of investment securities for the same period
amounted to $55,899 and $33,840, respectively.
At June 30, 1994, gross unrealized gains on U.S. Government and related
obligations amounted to $55,211, while gross unrealized losses amounted to
$388,368.
Additionally, gross unrealized gains on federal bonds and notes amounted to
$39,105 at June 30, 1994, while gross unrealized losses amounted to $535,780.
NOTE 6 -- MORTGAGE-BACKED SECURITIES AND COLLATERALIZED MORTGAGE OBLIGATIONS
BEFORE THE ADOPTION OF SFAS NO. 115
The carrying value and approximate fair value of investments in
mortgage-backed securities and collateralized mortgage obligations were as
follows as of June 30, 1994:
<TABLE>
<CAPTION>
CARRYING FAIR
VALUE VALUE
-------------- --------------
<S> <C> <C>
Mortgage pass-through certificates with agencies of the U.S.
Government............................................................ $ 12,767,915 $ 12,005,131
Collateralized mortgage obligations.................................... 11,714,712 11,548,218
-------------- --------------
$ 24,482,627 $ 23,553,349
-------------- --------------
-------------- --------------
</TABLE>
Gross unrealized gains on mortgage pass through certificates amounted to
$19,645 at June 30, 1994, while gross unrealized losses amounted to $782,425.
Gross unrealized gains on collateralized mortgage obligations amounted to
$39,791 at June 30, 1994, while gross unrealized losses amounted to $206,285.
F-14
<PAGE>
MILFORD CO/OPERATIVE BANK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1995, 1994 AND 1993
NOTE 7 -- LOANS
Loans receivable are summarized as follows as of June 30:
<TABLE>
<CAPTION>
1995 1994
-------------- --------------
<S> <C> <C>
Mortgage loans:
Conventional......................................................... $ 48,757,179 $ 45,658,237
Construction......................................................... 916,700 1,010,914
Commercial........................................................... 3,063,994 3,790,542
Home equity loans.................................................... 5,555,485 6,305,564
-------------- --------------
58,293,358 56,765,257
-------------- --------------
Other loans:
Home improvement..................................................... 85,138 59,889
Municipalities....................................................... 667,784 250,000
Consumer and other................................................... 2,856,834 2,147,624
-------------- --------------
3,609,756 2,457,513
-------------- --------------
61,903,114 59,222,770
-------------- --------------
Deferred loan fees..................................................... (206,344) (176,591)
Unadvanced portion of loans in process................................. (440,273) (387,112)
Allowance for estimated loan losses.................................... (437,857) (491,057)
-------------- --------------
(1,084,474) (1,054,760)
-------------- --------------
Loans receivable, net.............................................. $ 60,818,640 $ 58,168,010
-------------- --------------
-------------- --------------
</TABLE>
Included in mortgage loans at June 30, 1995 and 1994 are approximately
$734,000 and $706,000, respectively, of second mortgage loans.
Certain of the Bank's mortgage loans are pledged as collateral for advances
from the Federal Home Loan Bank of Boston, as set forth in Note 10.
The Bank is servicing mortgage loans for other investors of approximately
$26,000,000, $28,000,000 and $24,000,000 at June 30, 1995, 1994, 1993,
respectively.
At June 30, 1995 and 1994 the Bank had approximately $1,854,000 and
$1,601,000, respectively in overdue loans, of which approximately $227,000 and
$424,000, respectively were overdue greater than 90 days including $20,000 and
$152,000, respectively that are on non-accrual status.
An analysis of the activity in the allowance for probable loan losses is as
follows for the years ended June 30:
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Balance, beginning of year.................................... $ 491,057 $ 524,639 $ 391,676
Provision for probable loan losses............................ 93,000 95,000 400,000
Recoveries.................................................... 1,026
Loans charged off............................................. (146,200) (129,608) (267,037)
------------ ------------ ------------
Balance, end of year.......................................... $ 437,857 $ 491,057 $ 524,639
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
F-15
<PAGE>
MILFORD CO/OPERATIVE BANK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1995, 1994 AND 1993
NOTE 8 -- DEPOSITS
Deposit account balances and weighted average interest rates at June 30 are
summarized as follows:
<TABLE>
<CAPTION>
1995 1994
----------------------------- -----------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
AMOUNT RATE AMOUNT RATE
---------------- ----------- ---------------- -----------
<S> <C> <C> <C> <C>
Savings and club accounts............................... $ 21,142,878 2.23% $ 22,526,872 2.24%
N.O.W................................................... 31,127,622 1.83 28,687,511 1.45
Money market investment accounts........................ 20,647,866 2.93 26,484,849 2.55
Certificates:
Investment Accounts:
Jumbo............................................... 51,450 5.49 8,928 3.44
91 day.............................................. 1,369,301 5.00 1,183,169 2.50
6 month............................................. 6,199,644 5.02 7,933,198 3.20
1 year.............................................. 19,965,343 5.50 13,190,178 3.51
2 year.............................................. 7,427,789 5.30 6,000,376 4.31
3 year.............................................. 12,917,201 5.15 13,237,268 5.14
IRA fixed rate...................................... 14,897,820 6.22 13,969,115 5.95
---------------- ----------------
Total certificate accounts........................ 62,828,548 55,522,232
---------------- ----------------
$ 135,746,914 $ 133,221,464
---------------- ----------------
Weighted average rate of deposit accounts............... 3.77% 3.09%
Contractual maturity of certificate accounts:
Within one year....................................... $ 40,155,614 63.9% $ 30,512,289 54.9%
From one to two years................................. 12,985,172 20.7 12,428,694 22.4
Over two years........................................ 9,687,762 15.4 12,581,249 22.7
---------------- ----- ---------------- -----
$ 62,828,548 100.0% $ 55,522,232 100.0%
---------------- ----- ---------------- -----
---------------- ----- ---------------- -----
</TABLE>
Interest on deposit accounts classified by type is as follows for the years
ended June 30:
<TABLE>
<CAPTION>
1995 1994 1993
------------- ------------- -------------
<S> <C> <C> <C>
Savings and club accounts.................................. $ 502,011 $ 466,560 $ 625,854
N.O.W. and money market investment accounts................ 1,076,542 1,049,573 1,284,148
Certificates............................................... 2,813,665 2,553,020 2,875,296
------------- ------------- -------------
$ 4,392,218 $ 4,069,153 $ 4,785,298
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
F-16
<PAGE>
MILFORD CO/OPERATIVE BANK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1995, 1994 AND 1993
NOTE 9 -- PREMISES AND EQUIPMENT
A summary of premises and equipment follows as of June 30:
<TABLE>
<CAPTION>
1995 1994
-------------- --------------
<S> <C> <C>
Land.................................................................... $ 516,684 $ 516,684
Buildings and improvements.............................................. 2,132,595 2,074,408
Furniture, fixtures and equipment....................................... 1,086,311 1,025,130
-------------- --------------
3,735,590 3,616,222
Accumulated depreciation................................................ (1,596,840) (1,449,066)
-------------- --------------
$ 2,138,750 $ 2,167,156
-------------- --------------
-------------- --------------
</TABLE>
NOTE 10 -- ADVANCES FROM FEDERAL HOME LOAN BANK OF BOSTON
Advances from Federal Home Loan Bank of Boston consist of the following as
of June 30,:
<TABLE>
<CAPTION>
1995
INTEREST ----------------------
RATE DUE DATE AMOUNT
- ----------- ---------------------- -------------
<S> <C> <C>
6.87% February 26, 1996 $2,000,000
<CAPTION>
1994
INTEREST ----------------------
RATE DUE DATE AMOUNT
- ----------- ---------------------- -------------
<S> <C> <C>
6.26% February 14, 1995 $3,000,000
</TABLE>
First mortgage loans on residential property with unpaid principal amounts
of approximately 150% of the above advances and all stock in the Federal Home
Loan Bank of Boston are pledged as collateral for the advances.
NOTE 11 -- INCOME TAXES
The Bank prospectively adopted Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes," as of July 1, 1993. The cumulative
effect of this change in accounting for income taxes as of July 1, 1993 was to
increase net income by $169,926 and is reported separately in the statement of
income for the year ended June 30, 1994. The fourth quarter of 1994 includes a
revision to the amount of the accounting change previously reported.
The new standard requires that a valuation reserve be established if it is
more likely than not that all or portion of the deferred tax asset will not be
realized. At June 30, 1995 and 1994 the Bank has a $42,836 valuation reserve for
the capital loss carryfoward which may not be fully utilized. The capital loss
carryforward amounts to $111,298 and will expire on June 30, 1997.
F-17
<PAGE>
MILFORD CO/OPERATIVE BANK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1995, 1994 AND 1993
NOTE 11 -- INCOME TAXES (CONTINUED)
The components of income tax expense (benefit) are as follows for the years
ended June 30:
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Current:
Federal........................................................ $ 712,805 $ 613,956 $ 645,086
State.......................................................... 47,701 100,753
----------- ----------- -----------
712,805 661,657 745,839
----------- ----------- -----------
Deferred:
Federal........................................................ 6,784 (24,810) 10,439
State.......................................................... (6,100)
----------- ----------- -----------
6,784 (30,910) 10,439
----------- ----------- -----------
Total income tax expense..................................... $ 719,589 $ 630,747 $ 756,278
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
Federal income tax expense for the periods presented was different from the
amounts computed by applying the statutory federal income tax rate to income
before federal income taxes due to the following for the years ended June 30:
<TABLE>
<CAPTION>
PERCENT OF INCOME BEFORE
FEDERAL INCOME TAXES
-------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Statutory federal income tax rate.................................... 34.0% 34.0% 34.0%
Increase in federal income taxes resulting from:
Federal bad debt deduction allowable............................... 2.4 3.1
Other.............................................................. (1.7) 1.6 1.8
--- --- ---
Effective federal income tax rate.................................... 32.3% 38.0% 38.9%
--- --- ---
--- --- ---
</TABLE>
Deferred income tax expense results from timing differences in the
recognition of income and expenses for tax and financial statement purposes. The
components of the net deferred tax asset at June 30, are as follows:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses................................................... $ 115,802 $ 146,143
Deferred origination fees................................................... 79,659 69,543
Capital loss carryforward................................................... 42,836 42,836
Deferred compensation....................................................... 26,690 14,658
Banking premises and equipment.............................................. 9,634 8,225
----------- -----------
Gross deferred tax asset...................................................... 274,621 281,405
Valuation reserve........................................................... (42,836) (42,836)
----------- -----------
231,785 238,569
----------- -----------
Deferred tax liability:
Unrealized gain on securities available-for-sale............................ (3,037)
----------- -----------
Gross deferred tax liability.................................................. (3,037)
----------- -----------
Net deferred tax asset........................................................ $ 228,748 $ 238,569
----------- -----------
----------- -----------
</TABLE>
F-18
<PAGE>
MILFORD CO/OPERATIVE BANK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1995, 1994 AND 1993
NOTE 11 -- INCOME TAXES (CONTINUED)
A summary of changes in the net deferred tax asset for the years ended June
30, is as follows:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Balance at beginning of year.................................................. $ 238,569 $ 31,407
Cumulative effect of change in accounting principle........................... 169,926
Deferred tax benefit.......................................................... 30,910
Allowance for loan losses..................................................... (30,341)
Deferred origination fees..................................................... 10,116
Deferred compensation......................................................... 12,032
Banking premises and equipment................................................ 1,409
Unrealized gain on securities available-for-sale.............................. (3,037)
Adjustment resulting from amended federal and state income tax returns........ 6,326
----------- -----------
Balance at end of year........................................................ $ 228,748 $ 238,569
----------- -----------
----------- -----------
</TABLE>
$6,326 of the other assets previously reported for June 30, 1994 have been
reclassified to deferred tax assets to reflect an adjustment resulting from the
filing of amended federal and state income tax returns for 1994 and 1993.
The nature and tax effect of the change in each type of income and expense
item that gives rise to deferred taxes for the year ended June 30, 1993 are as
follows:
<TABLE>
<S> <C>
Deferred director's compensation.......................................... $ (1,292)
Deferred origination fees................................................. 9,644
Other..................................................................... 2,087
---------
Total deferred provision................................................ $ 10,439
---------
---------
</TABLE>
NOTE 12 -- EMPLOYEE BENEFIT PLAN
The Bank currently has a defined contribution retirement plan ("the Plan")
for all eligible officers and employees. Under the Plan, the Bank contributes a
percentage of a participant's salary, determined annually by the Board of
Directors, up to a maximum of fifteen percent. Retirement expense was
approximately $105,150, $96,000 and $87,000 for the years ended June 30, 1995,
1994 and 1993, respectively.
NOTE 13 -- STOCKHOLDERS' EQUITY
In October 1986, pursuant to a Plan of Conversion adopted by the Board of
Directors, the Bank converted from a state-chartered mutual co-operative bank to
a state-chartered stock co-operative bank through the issuance of 653,217 shares
of common stock at a price of $11.50 per share. Net proceeds were $7,218,999.
Under OTS regulations implementing capital standards established by the
Financial Institutions Reform Recovery and Enforcement Act ("FIRREA"), in
addition to meeting the 3% leverage ratio of core capital to total assets
requirement and the 1.5% tangible capital to total assets requirement, savings
institutions must achieve and maintain a minimum ratio of total capital to total
risk-weighted assets of 8%. Management anticipates that the Bank will continue
to meet all capital regulations.
Risk-based capital includes $421,000 for a portion of the allowance for loan
losses. The capital for financial statement purposes does not include the
$421,000.
F-19
<PAGE>
MILFORD CO/OPERATIVE BANK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1995, 1994 AND 1993
NOTE 13 -- STOCKHOLDERS' EQUITY (CONTINUED)
At June 30, the Bank had the following approximate amounts and percentages
of assets and risk-based assets of required and actual regulatory capital under
the new standards:
<TABLE>
<CAPTION>
1995
----------------------------------------------
REQUIRED ACTUAL
---------------------- ----------------------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C>
Tangible.............................................. 1.5% $ 2,317 9.7% $ 15,019
Core leverage......................................... 3.0 4,634 9.7 15,019
Risk-based............................................ 8.0 4,561 27.1 15,440
</TABLE>
At June 30, 1995, retained earnings includes approximately $1,534,000 of tax
bad debt reserves for which no provision for federal income taxes had been made.
If in the future this amount is used for any purpose other than to absorb loan
losses, federal income taxes will be imposed at the then applicable rates.
In accordance with the Plan of conversion, Eligible Deposit Account Holders
of the Bank on September 30, 1985 were granted a priority in the event of a
complete liquidation to receive a liquidation account established for that
purpose equal to the net worth of the Bank prior to the conversion. The total
amount of the liquidation account will be reduced to the extent that the
balances of eligible accounts are reduced subsequent to conversion. After the
conversion, no dividends may be paid to stockholders if such dividends reduce
the retained earnings of the Bank below the amount required for the liquidation
account. The regulations of the FDIC impose additional restrictions on the
payment of dividends to stockholders.
NOTE 14 -- COMMITMENTS AND CONTINGENCIES
On June 27, 1995, the Board of Directors of the Bank declared a $.40 per
share dividend to be paid to shareholders of record as of July 28, 1995 payable
on September 1, 1995.
The Bank has entered into several operating leases for the rental of certain
office space, expiring in December, 1997 through May 2002. Minimum annual lease
payments under these leases are as follows as of June 30:
<TABLE>
<S> <C>
1996............................................. $ 22,200
1997............................................. 22,800
1998............................................. 23,700
1999............................................. 21,600
2000............................................. 21,600
Thereafter....................................... 39,600
---------
$ 151,500
---------
---------
</TABLE>
Rent expense for the years ended June 30, 1995, 1994 and 1993 was
approximately $22,200, $22,200 and $27,600, respectively.
NOTE 15 -- STOCK OPTION PLAN
At a special meeting of stockholders on March 17, 1987, the stockholders
approved a stock option plan for employees and officers of the Bank. Under the
plan, the number of shares of authorized but unissued shares of common stock
reserved for option grants equals 10% of the total number of shares issued in
the conversion or 65,322. At that time, 38,500 options were granted to officers
and employees at an exercise price of $11.50 per share. At June 30, 1995 there
were 31,750 options outstanding and at
F-20
<PAGE>
MILFORD CO/OPERATIVE BANK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1995, 1994 AND 1993
NOTE 15 -- STOCK OPTION PLAN (CONTINUED)
June 30, 1994 there were 33,250 options outstanding. During the year ended June
30, 1995 1,500 options were exercised. All options outstanding are currently
exercisable and expire within 10 years from date of issuance.
NOTE 16 -- SIGNIFICANT CONCENTRATIONS OF CREDIT RISK
All of the Bank's business is with customers in southern New Hampshire. The
Bank writes primarily real estate mortgages for one to four family residential
real estate. At June 30, 1995, approximately 89% of the Bank's portfolio
consisted of loans collateralized by residential real estate. The Bank's policy
for extending credit is based upon the appraised value of collateral along with
the borrower's ability to meet income requirements established by the Bank.
All of the Bank's interest bearing deposits are maintained at the Federal
Home Loan Bank of Boston.
NOTE 17 -- RELATED PARTY TRANSACTIONS
A law firm associated with a director of the Bank was paid approximately
$197,000, $136,000 and $288,000 in legal fees for the years ended June 30, 1995,
1994 and 1993, respectively, in conjunction with the closing of loans,
foreclosure proceedings and other legal work. Certain directors have outstanding
loans with the Bank. The outstanding balances range from $5,000 to $79,796.
Interest rates on these loans range from 8.125% to 11.00%. The outstanding
balance of such loans totaled approximately $314,000 at June 30, 1995 and
$297,000 at June 30, 1994.
Certain directors have overdraft protection on their accounts in the amounts
of $2,000, $25,000 or $50,000. None of the amounts available are currently being
used. In the event the overdraft protection is used, interest on the drawn
amounts are either 18% or 19%.
NOTE 18 -- FAIR VALUE OF FINANCIAL INSTRUMENTS
The Bank is a 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 extend credit and lines of
credit.
The Bank's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit and
lines of credit is represented by the contractual notional amount of those
instruments. The Bank uses the same credit policies in making commitments and
conditional obligations as it does for on-balance sheet instruments.
Commitments to extend credit are agreements to lend to a customer as long as
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 commitments may expire without being drawn upon
the total commitment amounts do not necessarily represent future cash
requirements.
The Bank evaluates each customer's credit worthiness on an individual case
basis. The amount of collateral obtained by the Bank upon extension of credit is
based upon management's credit evaluation. Collateral held varies but it is
primarily comprised of mortgages on one to four family residential properties
In December 1991, the Financial Accounting Standards Board issued Statement
No. 107, "Disclosures about Fair Value of Financial Instruments". This Statement
requires disclosures of the estimated fair values of essentially all financial
instruments.
F-21
<PAGE>
MILFORD CO/OPERATIVE BANK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1995, 1994 AND 1993
NOTE 18 -- FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
Many of the Bank's assets and liabilities have immediate or short-term
(generally 90 days or less) contractual maturities. For these financial
instruments the difference between contractual rates and current rates of
interest would produce only minimal differences between recorded book value and
estimated fair value. Therefore, for purposes of the disclosure, estimated fair
value of financial instruments with immediate and short term maturities is
assumed to be the same as the recorded book value. These instruments include the
balance sheet lines Cash and Due from Banks, Interest Bearing Deposits, Accrued
Interest Receivable and Advance Payments by Borrowers for Taxes and Insurance.
The estimated fair values do not purport to represent the underlying value
of the Bank or the value of the financial instruments at any future date.
Furthermore, the methods used to derive some of the estimated fair values
necessitated the use of assumptions, including expected future cash flows,
current rates of interest, and the existence of an active market which, for many
of these instruments, does not exist. The estimated fair values also exclude the
value of intangible assets (such as customer relationships and servicing rights)
which are inseparable from the financial instruments and which would in an
active market, be expected to have value. Estimated fair market values were
determined as follows:
INVESTMENT SECURITIES, MORTGAGE-BACKED SECURITIES AND COLLATERALIZED
MORTGAGE OBLIGATIONS
The fair values are based on quoted market prices.
LOANS RECEIVABLE
The estimated fair value is determined by discounting contractual cash flows
from the loans using current lending rates for new loans with similar remaining
maturities. The resulting value is reduced by an estimate of losses inherent in
the portfolio.
STOCK IN FEDERAL HOME LOAN BANK OF BOSTON
Stock in the Federal Home Loan Bank of Boston is valued at cost, which
represents redemption value and approximate fair value.
DEPOSIT ACCOUNTS
The fair value of Demand, Savings, and Money Market Deposits with no defined
maturity, by Statement No. 107 definition, is the amount payable on demand at
the reporting date. The fair value of fixed rate time deposits is estimated by
discounting the future cash flows to be paid, using the current rates at which
similar deposits with similar remaining maturities would be issued.
ADVANCES FROM FEDERAL HOME LOAN BANK OF BOSTON
The fair value of the Bank's borrowings are estimated using discounted cash
flow analysis, based on the Bank's current incremental borrowing rates for
similar types of borrowing arrangements.
F-22
<PAGE>
MILFORD CO/OPERATIVE BANK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1995, 1994 AND 1993
NOTE 18 -- FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
At June 30, the carrying amounts and estimated fair values of financial
instruments is as follows:
<TABLE>
<CAPTION>
1995 1994
------------------------ ------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
----------- ----------- ----------- -----------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C>
Financial assets:
Cash and due from banks................. $ 1,606 $ 1,606 $ 1,893 $ 1,893
Interest bearing deposits............... 16,968 16,968 17,329 17,329
Investments in securities............... 70,305 69,740 69,456 67,697
Loans receivable........................ 60,819 60,666 58,168 57,905
Accrued interest receivable............. 1,312 1,312 1,103 1,103
Federal Home Loan Bank stock............ 655 655 626 626
Financial liabilities:
Deposit accounts........................ 135,747 135,698 133,221 133,372
Advances from Federal Home Loan Bank of
Boston................................. 2,000 2,002 3,000 3,019
Off-balance-sheet assets (liabilities)
</TABLE>
<TABLE>
<CAPTION>
NOTIONAL AMOUNT
--------------------
1995 1994
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Commitments to originate loans
Fixed rate............................................................ $ (701) $ (118)
Variable rate......................................................... (78) (605)
Letters of credit....................................................... (489)
Unadvanced portions of loans:
In process............................................................ (440) (387)
Commercial lines of credit............................................ (12) (3)
Home equity........................................................... (4,653) (4,332)
</TABLE>
There is no material difference between the notional amount and the
estimated fair value of the above off-balance sheet liabilities.
NOTE 19 -- RECLASSIFICATION
Certain amounts in the prior years have been reclassified to be consistent
with the current year's statement presentation.
F-23
<PAGE>
MILFORD CO/OPERATIVE BANK
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1995 (UNAUDITED)
(1) ACCOUNTING PRINCIPLES
The financial information as of December 31, 1995, the results of operations
for the three and six months ended December 31, 1995 and 1994, the cash flows
for the six months ended December 31, 1995 and 1994, and the statement of
changes in stockholders' equity for the six months ended December 31, 1995, are
unaudited, but in the opinion of management reflect all adjustments (none of
which were other than normal recurring accruals) necessary for a fair
presentation of such information. Interim results are not necessarily indicative
of the results to be expected for the entire year.
(2) INCOME TAXES
The provision for income taxes differs from the statutory rate due primarily
to differences in the loan loss provision for book and tax purposes.
(3) CUMULATIVE EFFECT ON PRIOR YEARS FROM A CHANGE IN ACCOUNTING PRINCIPLE
The bank has adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" which requires a change from the deferred method
to the asset and liability method of accounting for income taxes. The Bank has
included the cumulative effect of this change in the method of accounting for
income taxes as of the beginning of the 1994 fiscal year in the statement of
income.
(4) ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES
As of July 1, 1994, the Bank adopted Statement of Financial Accounting
Standard No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" which classifies securities as either held-to-maturity,
available-for-sale or trading. Securities held-to-maturity are reported at
amortized cost. Trading securities are reported at fair value, with unrealized
gains and losses included in earnings. The Bank did not have any securities
reported as trading securities as of September 30, 1995. Securities which are
available-for-sale are reported at fair value, with unrealized gains and losses
excluded from earnings and reported as a separate component of stockholders'
equity (net of taxes). On July 1, 1994, in conjunction with the adoption of SFAS
No. 115, the Bank classified $27,716,866 of securities as available-for-sale and
recorded an unrealized loss of $155,399 (net of taxes) as a separate component
of stockholders' equity. During the six months ended December 31, 1995, the
amount was an unrealized gain (net of taxes) of $145,184.
Securities available-for-sale consist of the following at December 31, 1994:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
-------------- ----------- ------------ --------------
<S> <C> <C> <C> <C>
Marketable equity securities.......................... $ 2,232,604 $ 4,129 $ (28,832) $ 2,207,901
Investment securities................................. $ 19,307,791 $ 261,901 $ (69,826) $ 19,499,866
Mortgage-backed securities............................ $ 9,658,085 $ 58,882 $ (6,309) $ 9,710,658
-------------- ----------- ------------ --------------
$ 31,198,480 $ 324,912 $ (104,967) $ 31,418,425
-------------- ----------- ------------ --------------
-------------- ----------- ------------ --------------
</TABLE>
Securities held-to-maturity consist of the following at December 31, 1995:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
-------------- ----------- ------------ --------------
<S> <C> <C> <C> <C>
Investment securities.................................. $ 21,005,437 $ 36,943 $ (86,440) $ 20,955,940
Mortgage-backed securities............................. $ 16,434,851 $ 53,601 $ (169,980) $ 16,318,472
-------------- ----------- ------------ --------------
$ 37,440,288 $ 90,544 $ (256,420) $ 37,274,412
-------------- ----------- ------------ --------------
-------------- ----------- ------------ --------------
</TABLE>
F-24
<PAGE>
[ADDED MATERIAL]
activities and purposes, the FHLB System seeks to provide a portion of the funds
necessary through advances to its members. Historically, the Bank has relied on
advances from FHLB of Boston rather than other sources. The Bank has used
advances from the FHLB of Boston as an alternative to deposits and as a source
of lendable funds. At June 30, 1995, the Bank had $2.0 million in advances from
the FHLB of Boston at a rate of 6.87%, a decrease of $1.0 million from fiscal
year ended June 30, 1994.
THE MAXIMUM AMOUNT OF BORROWINGS FROM THE FHLB OF BOSTON AT THE END OF
EACH MONTH FOR FISCAL YEARS ENDING JUNE, 1995 AND 1994 WAS $3,000,000. THE
AVERAGE AMOUNT OUTSTANDING FOR FISCAL YEARS 1995 AND 1994 WAS $2,591,743 AND
$3,000,000 RESPECTIVELY.
The Bank intends to continue to fund its mortgage commitments with
borrowed funds during periods when the supply of other lendable funds is
insufficient or more costly.
Under its current credit policies, the FHLB System limits advances
based on a member's assets, total borrowings and regulatory capital and expects
members to maintain a reserve position for unanticipated needs. In addition, an
insured institution's eligibility to receive FHLB advances may be reduced unless
the institution is a "qualified thrift lender." In the event its percentage of
qualified thrift investments to tangible assets falls below 65%, the
institution's borrowing authority is reduced to the applicable percentage of the
borrowings to which it would otherwise be entitled.
YIELDS EARNED AND RATES PAID
The Bank's net earnings depend primarily upon the spread between the
income it receives from its loan and investment portfolio and its cost of funds,
consisting principally of the interest paid by it on its deposit accounts and
borrowings. The following tables present the Bank's AVERAGE BALANCES, yields,
costs and spreads for the periods indicated.
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, YEARS ENDED JUNE 30,
--------------------------------------------------------
1995 1995 1994 1993
--------------------------------------------------------
<S> <C> <C> <C> <C>
Average balance on total loans outstanding $61,903,144 $61,335,841 $60,538,027 $60,667,376
Average balance on investments $42,966,683 $43,173,813 $38,826,572 $28,691,791
Average balance on mortgage-backed
securities $14,383,313 $11,965,241 $11,226,793 $7,725,506
Average balance on collateralized mortgage obligations $12,946,436 $11,831,653 $15,839,006 $28,034,098
Average balance on other investments $16,967,728 $15,726,564 $16,582,958 $15,207,793
Combined average balance on interest earning assets $149,167,304 $144,033,122 $143,013,356 $140,326,564
Average balance on interest bearing deposit
accounts $133,627,367 $128,999,752 $130,222,570 $130,520,846
Average balance on non-interest bearing
deposit accounts $2,119,547 $3,293,549 $756,385 $351,109
Average balance on FHLB advances $2,000,000 $2,591,743 $3,000,000 $3,881,866
Average balance on deposit accounts and
FHLB borrowings $135,627,367 $131,591,495 $133,222,570 $134,402,712
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, YEARS ENDED JUNE 30
--------------------------------------------------------
1995 1995 1994 1993
--------------------------------------------------------
<S> <C> <C> <C> <C>
Weighted average yield on total
loans outstanding 8.56% 8.23% 7.72% 8.55%
Weighted average yield on
investments 6.12% 5.48% 4.81% 5.19%
Weighted average yield on
mortgage-backed securities 6.38% 5.96% 5.75% 6.59%
Collateralized mortgage obligations 6.90% 6.93% 6.11% 6.79%
Weighted average yield on other
investments 6.09% 5.20% 3.11% 2.69%
Combined weighted average yield on
interest earning assets 7.25% 6.93% 6.03% 6.72%
Weighted average rate paid on
deposit accounts 3.77% 3.41% 3.12% 3.66%
</TABLE>
<PAGE>
ALLOWANCE FOR LOAN LOSSES. The allowance for loan losses is
maintained by a provision charged against income at a level that management
considers adequate to provide for potential losses. The amount of the provision
is based upon management's evaluation of individual loans, past loss experience,
current economic conditions, the inherent risk in the loan portfolio and other
relevant factors.
An analysis of activity in the allowance for loan losses for the years
ended June 30, is provided below.
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Balance, beginning of year $491,057 $524,639 $391,676
Provision for probable loan losses 93,000 95,000 400,000
Charge-offs
Real estate-mortgage 143,838 106,962 266,288
Commercial 2,362 - -
Consumer - 22,646 749
-------- -------- --------
146,200 129,608 267,037
Recoveries:
Consumer - 1,026 -
Net charge-offs $146,200 $128,582 $267,037
-------- -------- --------
Balance, end of year $437,857 $491,057 $524,639
-------- -------- --------
-------- -------- --------
</TABLE>
Management analyzes the adequacy of the allowance for loan losses at
least quarterly. Management measures the adequacy of its allowance for loan
losses by assigning loans into risk categories based on a loan classification
system modeled after the bank regulatory classification system. While
management believes that its allowance for loan losses is adequate to cover
potential losses, there are uncertainties regarding future events, particularly
in the currently weakened New England real estate market and economy. Further
deterioration in the real estate market or economy may result in additional
nonaccrual loans, charge-offs and a need for provisions for loan losses to
maintain an adequate allowance. In addition, various regulatory agencies, as an
integral part of their examination process, periodically review the Bank's
allowance for loan losses. Such agencies may require the Bank to recognize
additions to the allowance based upon their judgments about information
available to them at the time of their examination. Allocation of the allowance
for loan losses to the various categories of the portfolio is also made
periodically, based on management's judgment in weighing various factors,
including the quality of specific loans, the level of nonaccrual loans in the
various categories, current economic conditions, trends in delinquencies and
prior charge-offs, and the collateral value of the underlying security. Because
<PAGE>
the allowance for loan losses is based on various estimates, including loan
collectibility and real estate values, and includes a high degree of judgement,
subsequent changes in the general economic prospects of the borrowers may
require changes in those estimates.
A breakdown of the allowance for loan losses is shown below.
<TABLE>
<CAPTION>
AT JUNE 30,
--------------------------------------------------------------------------------------
1995 1994 1993
--------------------------------------------------------------------------------------
PERCENT OF PERCENT OF PERCENT OF
LOANS TO LOANS TO LOANS TO
AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Mortgage loans $ 12,000 94.2 $ 12,000 95.9 $ 54,000 95.5
Consumer and other
loans 5,000 5.8 5,000 4.1 70,000 4.5
Unallocated 420,857 N/A 474,057 N/A 400,639 N/A
-------- ----- -------- ----- -------- -----
$437,857 100.0% $491,057 100.0% $524,639 100.0%
-------- -------- --------
-------- -------- --------
</TABLE>
INVESTMENT ACTIVITIES
GENERAL. As a member of the FHLB System, the Bank is required to
maintain liquid assets at minimum levels which vary from time to time. See
"Regulation - Federal Home Loan Bank System." The Bank's investment portfolio,
cash, U.S. Government and Agency securities and FHLB deposits provide not only a
source of income but also a source of liquidity to meet lending demands,
fluctuations in deposit flows and required liquidity levels. At June 30, 1995,
the Bank's liquidity ratio was 35.3%. Liquidity levels may be increased or
decreased depending upon the yields on investment alternatives, management's
judgment as to the attractiveness of the yields then available in relation to
other opportunities, management's expectations of the level of yield that will
be available in the future and management's projections as to the short-term
demand for funds to be used in the Bank's loan origination and other activities.
Interest income from investments in various types of liquid assets
provides a significant
<PAGE>
[SHATSWELL, MacLEOD & COMPANY, P.C. LETTERHEAD]
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in the Current Report on Form 8-K of CFX of our
report dated July 20, 1995 on our audit of the financial statements of Milford
Co/operative Bank as of June 30, 1995 and for the year then ended.
/s/ Shatswell, MacLeod & Company, P.C.
Shatswell, MacLeod & Company, P.C.
W. Peabody, Massachusetts
April 5, 1996
<PAGE>
Exhibit 99.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Current Report on Form 8-K of CFX
Corporation of our report (which contains an explanatory paragraph regarding
a change in 1994 in the method of accounting for income taxes) dated August 4,
1994 on our audit of the statement of financial condition of Milford
Co/operative Bank as of June 30, 1994 and the related statements of
operations, changes in stockholders' equity and cash flows for the two years
then ended.
/s/ COOPERS & LYBRAND, L.L.P.
Coopers and Lybrand, L.L.P.
Boston, Massachusetts
April 11, 1996
<PAGE>
[CFX CORPORATION LETTERHEAD]
FOR ADDITIONAL INFORMATION CONTACT:
---------------------------------------------
MARK A. GAVIN, CHIEF FINANCIAL OFFICER
---------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CFX CORPORATION
ANNOUNCES RECORD EARNINGS
Keene, N.H., April 10, 1996 -- CFX CORPORATION (AMEX: CFX) today announced
earnings of $2,328,000, or $.31 per share, for the quarter ended March 31,
1996, compared to earnings of $1,489,000, or $.21 per share, for the
corresponding period a year ago, a per share increase of $.10, or 48%.
Company spokesman and Chief Financial Officer, Mark A. Gavin, said, "We are
pleased to announce record earnings for the fourth consecutive quarter. The
Company's focus on revenue growth through expansion into new lines of business
and increasing interest earning assets, coupled with gains from mortgage banking
activities and the reduction of FDIC premiums, has yielded a significant
improvement in the Company's overall financial performance over the
corresponding period a year ago."
The financial highlights for the first quarter of 1996 are as follows:
* Return on average assets and return on average shareholders' equity was
1.00% and 10.29%,respectively, for the first quarter of 1996, compared to
.70% and 7.16%, respectively, for the first quarter of 1995.
* Net interest and dividend income increased by $930,000, or 12%, during the
first quarter of 1996 over the year ago quarter, due principally to higher
loan volumes. Average interest earning assets were $875,556,000,compared to
$795,352,000 during the same period a year ago. The net interest margin was
4.11% during the first quarter of 1996 compared to 4.11% for the quarter
ended March 31, 1995.
* Total loans and leases grew by $80,418,000, or 12%, over the last twelve
months, to $725,703,000, as of March 31, 1996.
* In recognition of the loan growth and a modest increase in nonperforming
loans experienced in the first quarter of 1996,the Company provided $800,000
for loan and lease losses, compared to $150,000 for the first quarter of
1995.
* Non-interest income increased by $549,000, or 27%, for the first quarter of
1996, compared to the year ago quarter. The revenues from mortgage banking
and leasing activities increased by 89% and 47%, respectively.
* The Company's efficiency ratio significantly improved in the first quarter
of 1996 compared to the first quarter of 1995, declining from 73.40% to
63.77%.
-More-
Page 1 of 4
<PAGE>
CFX Corporation is a multi-bank holding company with total assets of $958
million as of March 31, 1996. The Company's two banking subsidiaries are CFX
Bank, headquartered in Keene, New Hampshire, and Orange Savings Bank,
headquartered in Orange, Massachusetts. CFX Mortgage, Inc., CFX Bank's mortgage
banking subsidiary, services approximately $686 million in mortgage loans for
others. The Company operates 23 full service offices, 2 loan production
offices, and 50 automated teller and remote service banking locations in New
Hampshire and north central Massachusetts.
Upon completion of CFX's pending acquisitions of The Milford Co/operative Bank
and The Safety Fund Corporation, CFX will have $1.4 billion in assets with 41
full service banking offices, 2 loan production offices, and 61 automated
teller and remote service locations in New Hampshire and Massachusetts.
The Safety Fund Corporation, a bank holding company headquartered in Fitchburg,
Massachusetts, has 12 branches, $297 million in assets and a trust division
with $349 million in assets under management. The Milford Co/operative Bank,
headquartered in Milford, New Hampshire has six branches and total assets of
$160 million.
<TABLE>
<CAPTION>
SELECTED FINANCIAL HIGHLIGHTS
AT OR FOR THE THREE MONTHS ENDED MARCH 31 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 1996 1995
<S> <C> <C>
OPERATING AND PERFORMANCE RATIOS:
Return on average assets (1) 1.00% .70%
Return on average common equity (1) 10.29 7.16
Other income/average assets (1) 1.12 .97
Other expense/average assets (1) 3.12 3.44
Efficiency ratio 63.77 73.40
Tier 1 leverage capital 8.62 9.04
ASSET QUALITY:
Nonperforming assets/total assets 1.09 1.03
Nonperforming loans as a percent of total loans and leases 1.28 1.22
Allowance for loan and lease losses/nonperforming loans 85.35 95.83
Allowance for loan and lease losses/total loans and leases 1.09 1.16
Net charge offs/average loans and leases (1) .31 .12
STOCK PERFORMANCE INDICATORS:
Common shares outstanding 7,561 7,056
Closing price $14.75 $11.75
Earnings per common share $.31 $.21
Book value per common share $11.99 $11.85
Tangible book value per common share $10.70 $10.39
Price/book value per common share 123% 99%
Price/tangible book value per common share 138% 113%
Dividend per common share $.18 $.15
Dividend payout ratio 58% 71%
Price/earnings ratio (1) 12 14
</TABLE>
(1) Annualized
-More-
Page 2 of 4
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31, MARCH 31,
(DOLLARS IN THOUSANDS) 1996 1995 1995
<S> <C> <C> <C>
ASSETS
Cash and interest bearing deposits with other banks $ 24,595 $ 29,093 $ 24,963
Federal Home Loan Bank of Boston stock 7,496 7,388 7,388
Trading securities 24,400 - 16,410
Investment securities 120,713 117,776 117,109
Mortgage loans held for sale 7,794 6,554 8,059
Nonperforming loans 9,298 7,844 7,843
Other loans and leases 716,405 691,128 637,442
Allowance for loan and lease losses (7,936) (7,689) (7,516)
Premises and equipment 13,513 13,548 14,260
Mortgage servicing rights 4,473 4,373 4,129
Goodwill and deposit base intangibles 9,720 9,884 10,287
Foreclosed real estate 1,141 1,129 1,060
Other assets 26,677 19,521 23,281
-------- -------- --------
TOTAL ASSETS $958,289 $900,549 $864,715
-------- -------- --------
-------- -------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $724,978 $665,723 $680,702
Borrowed funds 125,256 132,549 82,602
Other liabilities 17,422 12,323 14,245
-------- -------- --------
TOTAL LIABILITIES 867,656 810,595 777,549
-------- -------- --------
SHAREHOLDERS' EQUITY
Preferred stock - - 193
Common stock 5,041 5,007 5,058
Paid-in capital 66,150 65,763 65,773
Retained earnings 20,389 19,422 23,737
Net unrealized losses on securities available
for sale, after tax effects (947) (238) (397)
Cost of 865,898 shares of common stock in treasury - - (7,198)
-------- -------- --------
TOTAL SHAREHOLDERS'EQUITY 90,633 89,954 87,166
-------- -------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $958,289 $900,549 $864,715
-------- -------- --------
-------- -------- --------
Common shares outstanding 7,561 7,510 7,056
-------- -------- --------
-------- -------- --------
Common shareholders' equity per share $ 11.99 $ 11.98 $ 11.85
-------- -------- --------
-------- -------- --------
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED INCOME STATEMENTS
THREE MONTHS ENDED MARCH 31,(DOLLARS IN THOUSANDS) 1996 1995
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Interest and dividend income $ 17,550 $ 15,266
Interest expense 8,729 7,375
-------- --------
NET INTEREST AND DIVIDEND INCOME 8,821 7,891
Provision for loan and lease losses 800 150
-------- --------
NET INTEREST AND DIVIDEND INCOME AFTER
PROVISION FOR LOAN AND LEASE LOSSES 8,021 7,741
-------- --------
Other income:
Service charges on deposit accounts 565 552
Loan servicing fees 400 427
Net gains on trading and investment securities 210 224
Net gains on sales of loans 430 12
Leasing activities 748 510
Other 260 339
-------- --------
2,613 2,064
-------- --------
Other expense:
Salaries and employee benefits 3,522 3,546
Occupancy and equipment expense 1,061 974
Advertising and marketing expense 355 187
Professional fees 366 385
Operation of foreclosed real estate 56 33
FDIC deposit insurance 1 362
Goodwill and deposit base intangible amortization 167 189
Other 1,763 1,631
-------- --------
7,291 7,307
-------- --------
INCOME BEFORE INCOME TAXES 3,343 2,498
Income Taxes 1,015 942
-------- --------
NET INCOME 2,328 1,556
Preferred stock dividends - 67
-------- --------
NET INCOME AVAILABLE TO COMMON STOCK $ 2,328 $ 1,489
-------- --------
-------- --------
Weighted average common shares outstanding 7,540 7,056
-------- --------
-------- --------
Earnings per common share $ .31 $ .21
-------- --------
-------- --------
</TABLE>
-More-
Page 3 of 4
<PAGE>
<TABLE>
- ---------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED AVERAGE BALANCE SHEETS
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
INTEREST INTEREST
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
(DOLLARS IN THOUSANDS) BALANCE EXPENSE(1) RATE BALANCE EXPENSE(1) RATE
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
INTEREST EARNING ASSETS
Loans and leases $722,311 $15,677 8.73% $648,412 $13,306 8.32%
Taxable securities 125,420 1,531 4.91 110,098 1,493 5.50
Tax-exempt securities 19,008 342 7.24 23,690 415 7.10
Other 8,817 132 6.02 13,152 212 6.54
-------- ------ -------- -------
Total interest earning assets 875,556 17,682 8.12 795,352 15,426 7.87
------ -------
Noninterest earning assets 63,114 66,397
-------- --------
TOTAL $938,670 $861,749
-------- --------
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest bearing liabilities:
Savings deposits $282,956 1,648 2.34 $308,971 1,905 2.50
Time deposits 376,556 5,332 5.70 313,554 4,081 5.28
Advances from Federal Home Loan Bank of Boston 91,207 1,350 5.95 63,477 978 6.25
Other borrowed funds 33,456 399 4.80 28,929 410 5.75
-------- ------- -------- -------
Total interest bearing liabilities 784,175 8,729 4.48 714,931 7,374 4.18
------- -------
Noninterest bearing liabilities:
Demand deposits 51,106 45,665
Other 12,379 13,280
Shareholders' equity 91,010 87,873
-------- --------
TOTAL $938,670 $861,749
-------- --------
-------- --------
Net interest and dividend income $ 8,953 $ 8,052
------- -------
------- -------
Interest rate spread 3.64% 3.69%
Net interest margin 4.11% 4.11%
</TABLE>
(1) Income from tax-exempt securities has been restated to a tax-equivalent
basis using a 38.62% tax rate.
-End-
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