SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10 - Q
X Quarterly report pursuant to Section 13 or 15 (d) of the Securities
______Exchange Act of 1934
For the quarter ended September 30, 1995
__________________
or
_____Transition report persuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the transition period from ___________________ to ________________
Commission File Number 0 - 16123
______________
Bethel Bancorp
______________________
(Exact name of registrant as specified in its charter)
Maine 01 - 0425066
________________________________ ___________________________________
(State or other jurisdiction of
incorporation or organization) (I.R.S. Employer Identification No.)
489 Congress Street, Portland, Maine 04101
________________________________________ ___________
(Address of principal executive offices) (Zip Code)
(207) 772 - 8587
___________________________________________________________
Registrant's telephone number, including area code
Not Applicable
_____________________________________________________________________________
Former name, former address and former fiscal year,
if changed since last report.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter periods that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
___________ _________
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15 (d) of the
Securities Exchange Act of 1934 subsequent to the distribution of securities
under a plan confirmed by a court.
Not Applicable
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Shares outstanding as of October 31, 1995: 597,625 of common stock,
$1.00 par value per share.
- ------------------------------------------------------------------------------
BETHEL BANCORP AND SUBSIDIARIES
Table of Contents
Part I. Financial Information
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheets
September 30, 1995 and June 30, 1995
Consolidated Statements of Income
Three Months ended September 30, 1995 and 1994
Consolidated Statements of Changes in Shareholders' Equity
Three Months ended September 30, 1995 and 1994
Consolidated Statements of Cash Flows
Three Months ended September 30, 1995 and 1994
Notes to Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operation
Part II. Other Information
Items 1 - 6.
Signature Page
Index to Exhibits
<TABLE>
<CAPTION>
BETHEL BANCORP AND SUBSIDIARIES
Consolidated Balance Sheets
September 30, June 30,
1995 1995
_______________ ______________
<S> <C> <C>
Assets
Cash and due from banks $ 4,761,715 $ 3,855,648
Interest bearing deposits in other banks 422,542 367,423
Federal Home Loan Bank overnight deposits 11,985,284 10,517,000
Trading account securities at market -- 1,375
Available for sale securities 10,174,285 10,148,251
Federal Home Loan Bank stock 2,150,000 2,150,000
Loans held for sale 1,144,910 528,839
Due from broker -- 941,407
Loans 168,193,097 170,442,082
Less deferred loan origination fees 313,161 302,178
Less allowance for loan losses 2,494,000 2,396,000
_______________ ______________
Net loans 165,385,936 167,439,672
Bank premises and equipment, net 3,844,077 3,873,278
Real estate held for investment 488,982 452,479
Other real estate owned 1,100,915 1,068,454
Goodwill (net of accumulated amortization
of $705,481 at 9/30/95 and
$631,146 at 6/30/95) 2,792,491 2,866,826
Other assets 3,021,581 2,994,253
_______________ ______________
Total Assets 207,272,718 207,509,137
=============== ==============
Liabilities and Shareholders' Equity
Liabilities
Deposits $ 147,771,292 $ 147,119,870
Repurchase Agreements 3,790,036 2,585,387
Advances from Federal Home Loan Bank 33,700,000 35,700,000
Notes payable 1,882,408 2,010,091
Due to broker -- 989,062
Other Liabilities 1,835,950 1,829,449
_______________ _____________
Total Liabilities 188,979,686 190,233,859
Shareholders' Equity
Preferred stock, Series A,
45,454 shares issued and outstanding 999,988 999,988
Preferred stock, Series B,
71,428 shares issued and outstanding 999,992 999,992
Common stock, par value $ 1, issued
and outstanding, 597,625 shares at
9/30/95 and 547,502 at 6/30/95 597,625 547,502
Additional paid in capital 5,295,580 4,643,059
Retained earnings 10,523,071 10,180,244
_______________ ______________
18,416,256 17,370,785
Net unrealized loss on available
for sale securities (123,224) (95,507)
_______________ ______________
Total Shareholders' Equity 18,293,032 17,275,278
Total Liabilities and Shareholders'
Equity $ 207,272,718 $ 207,509,137
=============== ==============
BETHEL BANCORP AND SUBSIDIARIES
Consolidated Statements of Income
Three Months Ended
September 30,
1995 1994
_______________ ______________
Interest and Dividend Income
Interest on FHLB overnight deposits $ 181,565 $ 92,286
Interest on loans & loans held for sale 4,098,163 3,577,983
Interest on investment securities &
available for sale securities 160,580 172,626
Dividends on Federal Home Loan Bank stock 36,850 49,403
Other Interest Income 5,498 6,903
_______________ ______________
Total Interest Income 4,482,656 3,899,201
Interest Expense
Deposits 1,635,482 1,152,639
Repurchase agreements 33,913 --
Other borrowings 599,959 635,636
_______________ ______________
Total Interest Expense 2,269,354 1,788,275
_______________ ______________
Net Interest Income 2,213,302 2,110,926
Provision for loan losses 147,855 180,317
_______________ ______________
Net Interest Income after
Provision for Loan Losses 2,065,447 1,930,609
Other Income
Service charges 281,609 219,693
Available for sale securities gains (losses) 120,593 3,945
Gain (Loss) on trading account -- 13,147
Other 212,091 159,821
_______________ ______________
Total Other Income 614,293 396,606
Other Expenses
Salaries and employee benefits 1,043,248 928,641
Net occupancy expense 121,896 103,403
Equipment expense 168,288 142,222
Goodwill amortization 74,335 31,264
Other 608,156 486,728
_______________ ______________
Total Other Expenses 2,015,923 1,692,258
_______________ ______________
Income Before Income Taxes 663,817 634,957
Income tax expense 242,180 229,245
_______________ ______________
Net Income $ 421,637 $ 405,712
=============== ==============
Earnings Per Share
Primary $ 0.64 $ 0.60
Fully Diluted $ 0.58 $ 0.55
</TABLE>
<TABLE>
<CAPTION>
BETHEL BANCORP AND SUBSIDIARIES
Consolidated Statements of Changes in Shareholders' Equity
Three Months Ended September 30, 1995 and 1994
Net
Unrealized
Gains(Losses)
Additional on Available
Common Preferred Paid - In Retained for Sale
Stock Stock Capital Earnings Securities Total
____________ ____________ ____________ ____________ ____________ ____________
<S> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1994 $ 547,400 $ 1,999,980 $ 4,640,968 $ 9,006,038 $ (438,023) $15,756,363
Net income for three months
ended September 30,1994 -- -- -- 405,712 -- 405,712
Dividends paid on common
stock -- -- -- (43,792) -- (43,792)
Dividends paid on preferred
stock -- -- -- (35,000) -- (35,000)
Net change in unrealized
losses on securities
available for sale -- -- -- -- (5,570) (5,570)
____________ ____________ ____________ ____________ ____________ ____________
Balance September 30, 1994 $ 547,400 $ 1,999,980 $ 4,640,968 $ 9,332,958 $ (443,593) $16,077,713
============ ============ ============ ============ ============ ============
Balance at June 30, 1995 $ 547,502 $ 1,999,980 $ 4,643,059 $10,180,244 $ (95,507) $17,275,278
Net income for three months
ended September 30, 1995 -- -- -- 421,637 -- 421,637
Dividends paid on common
stock -- -- -- (43,810) -- (43,810)
Dividends paid on preferred
stock -- -- -- (35,000) -- (35,000)
Issuance of common stock 123 -- 2,522 -- -- 2,645
Common stock warrants
exercised 50,000 -- 650,000 -- -- 700,000
Net change in unrealized
losses on securities
available for sale -- -- -- -- (27,717) (27,717)
____________ ____________ ____________ ____________ ____________ ____________
Balance September 30, 1995 $ 597,625 $ 1,999,980 $ 5,295,581 $10,523,071 $ (123,224) $18,293,033
============ ============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
BETHEL BANCORP AND SUBSIDIARIES
Consolidated Statements of Cash Flow
Three Months Ended
September 30,
1995 1994
_______________ ______________
<S> <C> <C>
Cash provided by operating activities $ 6,862 $ 93,112
Cash flows from investing activities:
Held to maturity securities purchased -- (165,000)
Held to maturity securities matured -- 56,271
Available for sale securities purchased (8,572,245) (20,389)
Available for sale securities principal
reductions 154,533 63,527
Available for sale securities sold 8,467,522 --
New loans, net of repayments & charge offs 2,146,169 (3,468,900)
Net capital expenditures (107,654) (89,381)
Real estate owned sold 8,157 251,220
Real estate held for investment purchased (56,096) (21,905)
Real estate held for investment sold 30,000 --
_______________ _______________
Net cash provided by (used in)
investing activities 2,070,386 (3,394,557)
Cash flows from financing activities:
Net change in deposits 651,422 2,142,828
Net change in repurchase agreements 1,204,649 --
Dividends paid (78,810) (78,792)
Proceeds from stock issuance 702,645 --
Net (decrease) increase in advances
from Federal Home Loan Bank of Boston (2,000,000) 1,300,000
Net change in notes payable (127,683) (252,462)
_______________ _______________
Net cash provided by financing
activities 352,223 3,111,574
_______________ _______________
Net (decrease) increase in cash
and cash equivalents 2,429,471 (189,871)
Cash and cash equivalents,
beginning of period 14,740,070 11,336,505
_______________ ______________
Cash and cash equivalents,
end of period $17,169,541 $11,146,634
=============== ==============
Cash and cash equivalents include cash
on hand, amounts due from banks, interest
bearing deposits and federal funds sold
Supplemental schedule of noncash
investing activities:
Net increase (decrease) in valuation
for unrealized market value adjustments
on available for sale securities (27,717) (5,570)
Net transfer (to) from Loans to
Other Real Estate Owned (251,771) 481,829
Supplemental disclosure of cash paid during
the period for:
Income taxes paid, net of refunds 1,500 27,500
Interest paid 2,278,724 1,787,528
BETHEL BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1995
1. Basis of Presentation
_____________________
The accompanying unaudited condensed and consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary
for a fair presentation have been included. Operating results for the
three month period ended September 30, 1995 are not necessarily indicative of
the results that may be expected for the year ending June 30, 1996. For
further information, refer to the audited consolidated financial statements
and footnotes thereto for the fiscal year ended June 30, 1995 included in the
Company's annual report on Form 10-K.
2. Securities
__________
Securities available for sale at the carrying and approximate market values are
summarized below.
</TABLE>
<TABLE>
<CAPTION>
September 30, 1995 June 30, 1995
_________________________ _________________________
Market Market
Cost Value Cost Value
____________ ____________ ____________ ____________
<S> <C> <C> <C> <C>
Debt securities issued
by the U.S. Treasury
and other U.S.
Government corporations
and agencies $ 250,000 $ 239,225 $ 250,000 $ 239,225
Corporate bonds 149,611 142,308 149,599 141,436
Mortgage-backed
securities 9,405,703 9,326,846 9,315,419 9,297,505
Equity securities 555,675 465,906 577,939 470,085
____________ ____________ ____________ ____________
$10,360,989 $10,174,285 $10,292,957 $10,148,251
============ ============ ============ ============
September 30, 1995 June 30, 1995
_________________________ _________________________
Market Market
Cost Value Cost Value
____________ ____________ ____________ ____________
Due in one year
or less -- -- -- --
Due after one year
through five years -- -- -- --
Due after five years
through ten years 399,611 381,533 399,599 380,661
Due after ten years -- -- -- --
Mortgage-backed
securities (including
securities with interest
rates ranging from
5.15% to 8.5% maturing
December 2007 to
November 2024) 9,405,703 9,326,846 9,315,419 9,297,505
Equity securities 555,675 465,906 577,939 470,085
____________ ____________ ____________ ____________
$10,360,989 $10,174,285 $10,292,957 $10,148,251
============ ============ ============ ============
</TABLE>
3. Allowance for Loan Losses
_________________________
The following is an analysis of transactions in the allowance for loan losses:
<TABLE>
<CAPTION>
Three Months Ended
September 30,
___________________________________
1995 1994
_______________ ______________
<S> <C> <C>
Balance at beginning of year $ 2,396,000 $ 2,463,000
Add provision charged to operations 147,855 180,317
Recoveries on loans previously charged off 6,842 12,897
_______________ ______________
2,550,697 2,656,214
Less loans charged off 56,697 14,214
______________ ______________
Balance at end of period $ 2,494,000 $ 2,642,000
============== ==============
</TABLE>
4. Advances from Federal Home Loan Bank
____________________________________
A summary of borrowings from the Federal Home Loan Bank is as follows:
<TABLE>
<CAPTION>
September 30, 1995
_______________________________________________________
Principal Interest Maturity
Amounts Rates Dates
<C> <C> <C>
_____________ _______________________ _____________
$ 23,700,000 3.98% - 7.65% 1996
6,000,000 5.17% - 8.30% 1997
3,000,000 4.97% - 5.08% 1998
1,000,000 5.75% 1999
_____________
$ 33,700,000
=============
June 30, 1995
_________________________________________________________
Principal Interest Maturity
Amounts Rates Dates
_____________ _______________________ _______________
$ 25,400,000 4.41% - 7.65% 1996
5,300,000 5.17% - 8.30% 1997
4,000,000 4.97% - 6.35% 1998
1,000,000 5.75% 1999
_____________
$ 35,700,000
=============
5. Acquisition
___________
The subsidiaries of Bethel Bancorp, Bethel Savings Bank, F.S.B. and Brunswick
Federal Savings, F.A., acquired four branches from Key Bank of Maine on
October 28, 1994. Bethel Savings Bank, F.S.B. acquired the Buckfield and
Mechanic Falls branches from Key Bank. Brunswick Federal Savings, F.A.
acquired the Lisbon Falls and Richmond branches from Key Bank. The total
deposits and repurchase agreements acquired from the four branches were
$27,749,000. The premium paid to Key Bank for these deposits was
$1,590,228. The cost of the real estate, buildings, and equipment purchased
from Key Bank was $498,500.
6. Reserve for Credit Losses
_________________________
Effective July 1, 1995, the Company adopted Financial Accounting Standards
Board (FASB) Statement No. 114,"Accounting by Creditors for Impairment of a
Loan"(SFAS No. 114) as amended by SFAS No. 118,"Accounting by Creditors for
Impairment of a Loan-Income Recognition and Disclosures"(SFAS No. 118). SFAS
114 and 118, taken together, require the Company to identify impaired loans
and generally value them at the lower of (i) the present value of expected cash
flows discounted at the loan's effective interest rate or (ii) the loan's
observable market price or (iii) fair value of the loan's collateral, if the
loan is collateral dependent. The two statements, in connection with recent
regulatory guidance, require the Company to reclassify its in-substance
foreclosures to loans and disclose them as impaired loans.
Commercial and commercial real estate loans, with balances to one borrower
greater than $25,000, are considered impaired when it is probable that the
Company will not collect all amounts due in accordance with the contractual
terms of the loan. Except for certain restructured loans, impaired loans are
loans on non-accrual status. Residential mortgage loans and consumer
installment loans are considered homogenous loans that will be reserved for
under the Company's general reserve analysis. The Company's policy for charging
off loans to the reserve is 120 days delinquent for consumer installment loans
and for all other loans when a loss has been determined. The Company policy for
an insignificant delay in payments is when the contractual payment is up to 60
days delinquent and considers an immaterial shortfall in payments to be 10% or
less of the contractual payment amount due. Upon adoption of SFAS 114 and 118,
the Company did not change its method of recognizing interest income on
impaired loans. When a loan is placed on non-accrual status, all interest
previously accrued, but not collected, is reversed against interest income.
Subsequent cash receipts are amortized and applied to principal and interest
based on the contractual terms of the non-accrual loan. Impaired loans are
returned to accrual status and are no longer considered impaired when they
become current, as to principal and interest, and demonstrate a period of
performance under the contractual terms, and, in management's opinion, are
fully collectable. Residential and consumer installment loans are returned to
accrual status when the contractual payments are less than 90 days delinquent
and in management's opinion are fully collectable.
Loans which were restructured prior to the adoption of SFAS No. 114, and which
are performing in accordance with the renegotiated terms are not required to be
reported as impaired. Loans restructured subsequent to the adoption of SFAS
No. 114 are required to be reported as impaired in the year of restructuring.
Thereafter, such loans can be removed from the impaired loan disclosure if the
loans were paying a market rate of interest at the time of restructuring and
are performing in accordance with their renegotiated terms.
In accordance with SFAS No. 114, a loan is classified as an in-substance
foreclosure when the Company has taken possession of the collateral regardless
of whether formal foreclosure proceedings have taken place. Loans classified as
in-substance foreclosures prior to adoption of SFAS No. 114, but for which the
Company had not taken possession of the collateral was $304,232 at
September 30, 1995 and at June 30, 1995. This balance was reclassified from
real state owned to loans for the comparable periods on the consolidated
balance sheets and did not have a significant effect on the financial position,
liquidity or results of operations of the Company.
At September 30, 1995, the recorded investment in impaired loans was $411,027
of commercial loans and $1,486,541 of commercial real estate loans, for a total
of $1,897,568, all of which were on non-accrual status. Included in this amount
is $1,269,493 of impaired loans for which the related impairment reserve is
$578,529, and $628,075 of impaired loans which do not require an impairment
reserve. The average recorded investment in impaired loans during the quarter
was $1,404,402. The amount of interest income recognized on impaired loans
during the quarter was $28,991. The allowance for loan losses contains
$1,915,000 for homogenous loans as deemed necessary to maintain reserves at
levels considered adequate by management.
7. Subsequent Events
_________________
The Company announced at its annual meeting, held on October 18, 1995, a 100%
stock dividend for all shareholders of record on December 1, 1995, to be paid
as of December 15, 1995. Based on the 597,625 shares of common stock
outstanding, reported as of September 30, 1995, the effect of the stock
dividend would increase the outstanding shares to 1,195,250 common. The
Company anticipates continuing the annual dividend of $.32 per share, resulting
in an increase in yield to shareholders. The Company has the ability to pay
dividends from the subsidiaries to the holding company. Due to this ability,
the effect of increasing the dividend payout to common stock shareholders will
not have a significant effect on the financial position, liquidity or results
of operations of the Company. If the stock dividend had occured during the
current period, earnings per share would have been reported as $.32 per share
primary and $.29 fully diluted at September 30, 1995 versus $.30 per share
primary and $.28 fully diluted at September 30, 1994.
BETHEL BANCORP AND SUBSIDIARIES
Part I.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
_______________________________________________________________________
of Operation
____________
Financial Condition
___________________
Total consolidated assets were $207,272,718, which was a decrease of
$236,419 for the three months ended September 30, 1995, when compared to
June 30, 1995. Total loans decreased by $2,248,985, while loans held for
sale and cash equivalents increased by $616,071 and $2,429,470, respectively
during the same period. Total deposits increased by $651,422, total repurchase
agreements increased by $1,204,649, and total borrowings from the Federal
Home Loan Bank (FHLB) decreased by $2,000,000 from June 30, 1995 to
September 30, 1995.
Cash and due from banks has increased by $906,067, from fiscal year end, due
to large cash items clearing through the Federal Reserve Bank and the Maine
clearing house on September 30, 1995. FHLB overnight deposits increased by
$1,468,284 due to the cash provided by increased deposits and repurchase
agreements as well as the principal reduction in the loan portfolio.
Total loans decreased by $2,248,985 for the three months ended September 30,
1995. The total principal decrease was primarily due to regular principal
payments on the loan portfolio as well as principal reductions from portfolio
loan pay-offs. The Company's local market as well as the secondary market has
become very competitive for loan volume. The local competitive environment and
customers response to favorable secondary market rates has effected the
Company's ability to increase the loan portfolio. In the effort to increase
loan volume, the Company's offering rates for its loan products has been
reduced to compete in the various markets. The decrease in loan rates will
result in some margin compression to the Company. Loans held for sale
increased by $616,071 due to the increased volume of mortgage loans sold and
still pending closure to Freddie Mac and Fannie Mae. The increased volume
was due to favorable secondary market rates during the Company's first
quarter. The loan portfolio contains elements of credit and interest rate
risk. The Company primarily lends within its local market areas, which
management believes helps them to better evaluate credit risk. The Company
also maintains a well collateralized position in real estate mortgages.
Residential real estate mortgages make up 69% of the total loan portfolio, in
which 48% of the residential loans are variable rate products. It is
management's intent to increase the volume in variable rate residential
loans, by selling fixed rate loans to the secondary market and marketing
portfolio variable rate loans, to reduce the interest rate risk in this area.
Fourteen percent of the Company's total loan portfolio balance is commercial
real estate mortgages. Similar to the residential mortgages, the Company
tries to mitigate credit risk by lending in its local market area as well as
maintaining a well collateralized position in the real estate. The commercial
real estate loans have minimal interest rate risk as 87% of the portfolio
consists of variable rate products. Commercial loans make up 7 % of the total
loan portfolio, in which 91% of its balance are variable rate instruments.
The credit loss exposure on commercial loans is highly dependent on the cash
flow of the customer's business. The Bank's attempt to mitigate losses in
commercial loans through lending in accordance to the Company's credit
policies. Consumer and other loans make up 10% of the loan portfolio. Since
these loans are primarily fixed rate products, they have interest rate risk
when market rates increase. These loans also have credit risk with, at times,
minimal collateral security. Management attempts to mitigate these risks by
keeping the products offered short-term, receiving a rate of return equal to
the measured risks, and lending to individuals in the Company's known market
areas.
Other real estate owned has increased by $32,461 from June 30, 1995 to
September 30,1995. On July 1, 1995 the Company adopted FASB Statement of
Financial Accounting Standards Nos. 114 and 118. The adoption resulted in the
reclassification of in-substance foreclosure loans to impaired loans. SFAS 114
and 118, taken together, require the Company to identify impaired loans and
generally value them at the lower of (i) the present value of expected future
cash flows discounted at the loan's original effective interest rate or (ii)
the loan's observable market price or (iii) fair value of the loan's
collateral, if the loan is collateral dependent. The two statements, in
connection with recent regulatory guidance, require the Company to reclassify
its in-substance foreclosures to loans and disclose them as impaired loans.
The effect of SFAS 114 and 118 did not have a significant effect on the
financial position, liquidity or results of operations of the Company and is
more fully discussed in footnote 6 to the financial statements.
Both Banks continue to attract new deposit relationships. Total deposits were
$147,771,292 and securities sold under repurchase agreements were $3,790,036 as
of September 30, 1995. These amounts represent increases of $651,422 and
$1,204,649, respectively, when compared to June 30, 1995. Brokered deposits
represented $8,301,214 of the total deposits for the quarter ended September
30, 1995 and decreased by $486,487 when compared to June 30, 1995's
$8,787,701 balance. The Company utilizes, as alternative sources of funds,
brokered CD's when the national brokered CD interest rates are less than the
interest rates on local market deposits. Brokered deposits are similar to
local deposits, in that both are interest rate sensitive with the respect to
the Company's ability to retain the funds. Total advances from the Federal
Home Loan Bank were $33,700,000 as of September 30, 1995, for a decrease of
$2,000,000 when compared to June 30, 1995. The cash received from loan
principal repayments as well as the increase in deposits and repurchase
agreements was utilized to reduce FHLB advances. The Company's current advance
availability, subject to the satisfaction of certain conditions, is
approximately $57,700,000 over and above the September 30, 1995 advances
reported. Mortgages, free of liens, pledges and encumbrances are required to be
pledged to secure FHLB advances. The Company utilizes Federal Home Loan Bank
advances, as alternative sources of funds, when the interest rates of the
advances are less than market deposit interest rates and to fund short-term
liquidity demands for loan volume. With the borrowing capacity at the Federal
Home Loan Bank and the continued growth in bank deposits and repurchase
agreements, management believes that the Company's available liquidity
resources are sufficient to support future loan growth.
Notes payable has decreased by $127,683 due to principal payments.
Total equity of the Company was at $18,293,032 as of September 30, 1995 versus
$17,275,278 at June 30, 1995. On September 8, 1995 Square Lake Holding
Corporation exercised 50,000 warrants at an aggregate price of $700,000,
to be utilized as general working capital. The exercise of these warrants
contributed to the growth of the Company's total equity in the September 30,
1995 quarter. Warrants outstanding were 66,882 as of September 30, 1995. Book
value per common share was $27.26 as of September 30, 1995 versus $27.90 at
June 30, 1995. Total equity to total assets of the Company as of September 30,
1995 was 8.83%.
At September 30, 1995, the Banks' regulatory capital was in compliance with
regulatory capital requirements as follows:
</TABLE>
<TABLE>
<CAPTION>
Brunswick
Bethel Savings Federal Savings,
Bank, F.S.B. F.A.
______________ ______________
<S> <C> <C>
Capital Requirements:
Tangible capital $ 1,568,000 $ 1,487,000
Percent of tangible assets 1.50% 1.50%
Core capital $ 3,137,000 $ 2,975,000
Percent of adjusted tangible assets 3.00% 3.00%
Leverage capital $ 4,182,000 $ 3,966,000
Percent of adjusted leverage assets 4.00% 4.00%
Risk-based capital $ 5,716,000 $ 4,547,000
Percent of risk-weighted assets 8.00% 8.00%
Actual:
Tangible capital $ 8,103,000 $ 7,619,000
Percent of adjusted total assets 7.75% 7.68%
Excess of requirement $ 6,535,000 $ 6,132,000
Core capital $ 8,103,000 $ 7,619,000
Percent of adjusted tangible assets 7.75% 7.68%
Excess of requirement $ 4,966,000 $ 4,644,000
Leverage capital $ 8,103,000 $ 7,619,000
Percent of adjusted leverage assets 7.75% 7.68%
Excess of requirement $ 3,921,000 $ 3,653,000
Risk-based capital $ 8,530,000 $ 8,332,000
Percent of risk-weighted assets 11.94% 14.66%
Excess of requirement $ 2,814,000 $ 3,785,000
</TABLE>
The carrying value of securities available for sale of the Company was
$10,174,285, which is $186,704 less than the cost of the underlying securities,
at September 30, 1995. The difference from the cost and the carrying value of
the securities was primarily due to the change in current market rates from
the rates at the time of purchase. The Company has primarily invested in
mortgage-backed securities. Primarily, all of the mortgage-backed securities
are high grade government backed securities. Management believes that the
yields currently received on this portfolio are satisfactory. As in any long
term earning asset in which its earning rate is fixed, mortgage-backed
securities have a risk in its market value declining when market interest rates
increase from the time of purchase. Since these mortgage-backed securities
are backed by the U.S. government, there is little or no risk in loss of
principal. Therefore, management believes that during adverse market
fluctuations it would be advantageous to hold these securities until the
market values recover.
The Company's allowance for loan losses was $2,494,000 as of September 30,
1995 versus $2,396,000 as of June 30, 1995, representing 1.48% and 1.41% of
total loans, respectively. The Company had non-performing loans totaling
$2,825,000 at September 30, 1995 as compared to $2,266,000 at June 30, 1995.
Non-performing loans represented 1.36% and 1.09% of total assets at September
30 and June 30, 1995, respectively. The Company's allowance for loan losses
was equal to 88% and 106% of the total non-performing loans at September 30,
1995 and June 30, 1995, respectively. At September 30, 1995, the Company had
approximately $3,093,000 of loans classified substandard, exclusive of the
non-performing loans stated above, that could potentially become non-performing
due to delinquencies or marginal cash flows. The loans classified substandard,
as of September 30, 1995, have decreased from the June 30, 1995 amount of
$3,623,000. Even though substandard loans decreased, there is a continuation
of economic weakness in the Oxford county region. Along with non-performing
and delinquent loans, management takes an aggressive posture in reviewing its
loan portfolio to classify loans substandard. The following table represents
the Company's non-performing loans as of September 30 and June 30, 1995,
respectively:
<TABLE>
<CAPTION>
September 30, June 30,
Description 1995 1995
_________________________ ______________ _______________
<S> <C> <C>
1-4 Family Mortgages $681,000 637,000
Commercial Mortgages 1,573,000 1,223,000
Commercial Installment 433,000 375,000
Consumer Installment 138,000 31,000
_______________ ______________
Total non-performing $2,825,000 2,266,000
=============== ==============
</TABLE>
The majority of the non-performing loans are seasoned loans located in the
Oxford county area. This geographic area continues to have a depressed
economy resulting in high unemployment and a soft real estate market.
Management has allocated substantial resources to the collection area in an
effort to control the growth in non-performing, delinquent and substandard
loans in this area. The Company has decreased its total delinquent accounts
during the September 30, 1995 quarter. The reduction was largely due to the
collection efforts of the 30 and 60 day delinquent accounts.
The following table reflects the quarterly trend of total delinquencies 30 days
or more past due, including non-performing loans, for the Company as a
percentage of total loans:
<TABLE>
<C> <C> <C> <C>
12-31-94 3-31-95 6-30-95 9-30-95
1.96% 2.27% 2.46% 2.15%
</TABLE>
The level of the allowance for loan losses as a percentage of non-performing
loans at September 30, 1995 decreased in comparison to the same percentage at
June 30, 1995. However, the level of the allowance for loan losses as a
percentage of total loans and total delinquencies as a percentage of total
loans improved in the September 30, 1995 quarter. Loans classified substandard
decreased in the September 30, 1995 quarter, when compared to June 30, 1995.
Classified assets are also considered in management's analysis in the
adequacy of allowance for loan losses. Based on reviewing the credit risk and
collateral of these classified loans, management has considered the risks of
the classified portfolio and believes the allowance for loan losses is
adequate. Management at each Bank primarily lends within their local market
areas which management believes helps them to better evaluate credit risk.
The Company also maintains a well collateralized position in real estate
mortgage loans. On a regular and ongoing basis, Company management evaluates
the adequacy of the allowance for loan losses. The process to evaluate the
allowance involves a high degree of management judgement. The methods employed
to evaluate the allowance for loan losses are quantitative in nature and
consider such factors as the loan mix, the level of non-performing loans,
delinquency trends, past charge-off history, loan reviews and classifications,
collateral, and the current economic climate. Management believes that the
allowance for loan losses is adequate considering the level of risk in the
loan portfolio. While management uses its best judgement in recognizing loan
losses in light of available information, there can be no assurance that the
Company will not have to increase its provision for loan losses in the future
as a result of changing economic conditions, adverse markets for real estate
or other factors. In addition, various regulatory agencies, as an integral
part of their examination process, periodically review the Company's
allowance for loan losses. Such agencies may require the Company to recognize
additions to the allowance for loan losses based on their judgements about
information available to them at the time of their examination. The Company's
most recent examination by the OTS was on May 15, 1995. At the time of the
exam the regulators proposed no additions to the allowance for loan losses.
The state of Maine's economy appears to be stable with moderate or flat growth.
However, the weakness in the Oxford county economy, which has resulted in
high unemployment and a soft real estate market, must be considered a risk to
the overall credit quality of the loan portfolio of Bethel Savings Bank.
Bethel Savings Bank has expanded its market beyond the Oxford county with the
acquisition of the Key Bank branches. The Company will continue to monitor
loans within these portfolios and increase the levels of allowance for loan
losses when necessary.
Results of Operations
_____________________
Net income for the quarter ended September 30, 1995 was $421,637. The primary
earnings per share was $.64 and the fully diluted earnings per share was $.58
for the quarter ended September 30, 1995. This compares to earnings of
$405,712, or a primary earnings per share of $.60 per share and a fully diluted
earnings per share of $.55, for the quarter ended September 30, 1994.
The Company's net interest income was $2,213,302 for the quarter ended
September 30, 1995, versus $2,110,926 for the quarter ended September 30, 1994,
for an increase of $102,376. Total interest income increased $583,455 during
the three months ended September 30, 1995 when compared to the three months
ended September 30, 1994, resulting from the following items. Interest income
on loans and loans held for sale increased by $520,180 for the three months
ended September 30, 1995 resulting from a $278,769 increase due to an increase
in the volume of loans as well as an increase of $241,411 due to increased
rates on loans. Interest income on investment securities decreased by $24,599
resulting from a $50,503 decrease due to a decrease in volume offset by an
increase of $25,904 due to increased rates on investments. Interest income on
short term liquid funds increased by $87,874 resulting from a $71,268 increase
due to an increase in volume as well as an increase of $16,606 due to increased
rates on FHLB overnight deposits. The increase in total interest expense of
$481,079 for the three months ended September 30, 1995 resulted from the
following items. Interest expense on deposits increased by $482,843 for the
three months ended September 30, 1995 resulting from a $244,431 increase due
to an increase in the volume of deposits as well as an increase of $238,412
due to increasing deposit rates. Interest expense on repurchase agreements
increased by $33,913 due to the new volume acquired from Key Bank. Interest
expense on borrowings decreased $35,677 for the three months ended September
30, 1995 resulting from an decrease of $895,526 due to an decrease in the
volume of borrowings offset by an increase of $859,849 due to a change in the
mix of interest rates on borrowings. The changes in net interest income, as
explained above, are also presented in the schedule below.
<TABLE>
<CAPTION>
Bethel Bancorp
Rate/Volume Analysis for the three months ended
September 30, 1995 versus September 30, 1994
Difference Due to
Volume Rate Total
____________ ____________ ____________
<S> <C> <C> <C>
Investments $ (50,503) $ 25,904 $ (24,599)
Loans 278,769 241,411 520,180
FHLB & Other Deposits 71,268 16,606 87,874
____________ ____________ ____________
Total 299,534 283,921 583,455
Deposits 244,431 238,412 482,843
Repurchase Agreements 33,913 0 33,913
Borrowings (895,526) 859,849 35,677
____________ ____________ ____________
Total 617,182 1,098,261 481,079
____________ ____________ ____________
Net Interest Inc $ (317,648) $ (814,340) $ 102,376
============ ============ ============
</TABLE>
Rate/Volume amounts spread proportionately between volume and rate.
Since October 1993, actions by the Federal Reserve Board have resulted in
increases in prime lending rates. Approximately 20% of the Company's loan
portfolio is comprised of floating rate loans based on a prime rate index.
Interest income on these existing loans will increase as the prime rate
increases, as well as on approximately 21% of other loans in the Company's
portfolio that are based on short-term rate indices such as the one-year
treasury bill. An increase in short-term interest rates will also increase
deposit and Federal Home Loan Bank advance rates, increasing the Company's
interest expense. The Company is experiencing and anticipates additional net
interest margin compression due to fluctuating rates. The impact on net
interest income will depend on, among other things, actual rates charged on
the Company's loan portfolio, deposit and advance rates paid by the Company
and loan volume.
Total non-interest income was $614,293 for the three months ended September
30, 1995 versus $396,606 for the three months ended September 30, 1994.
Service fee income was $281,609 for the three months ended September 30, 1995
versus $219,693 for the quarter ended September 30, 1994. The $61,916 increase
was primarily due to the deposit fee income generated from the acquisition of
the Key Bank branches. Income from available for sale securities gains was
$120,593 for the three months ended September 30, 1995 versus $3,945 for the
three months ended September 30, 1994. Gains from the sale of securities have
increased due to the Company selling some of its available for sale securities,
taking advantage of the fluctuation in market prices in the mortgage-backed
security portfolio. Income from trading account securities was $0 versus
$13,147 for the three months ended September 30, 1995 and 1994, respectively.
The gain on trading account, in the September 30, 1994 quarter, was due to the
sale and appreciation in the market values of the securities classified as
trading. Currently, all of the trading account portfolio has been liquidated.
Other income was $212,091 for the three months ended September 30, 1995, which
was a $52,270 increase from the September 30, 1994 $159,821 balance. Gains on
the sale of loans held for sale amounted to $82,815 for the three months ended
September 30, 1995 versus $59,902 for the three months ended September 30,
1994. Gains from the sale of loans have increased as a result of increased
originations due to secondary market loan demand from the Company's customers
due to current low rates. Gross income for ASI Data Services amounted to
$6,938 versus $4,479 for the three months ended September 30, 1995 and 1994,
respectively. Gross income for First New England Benefits was $78,323 for the
three months ended September 30, 1995 versus $66,015 for the three months ended
September 30, 1994. The amounts discussed in this paragraph are reflected in
other income.
Total operating expense, or non-interest expense, for the Company was
$2,015,923 for the three months ended September 30, 1995 versus $1,692,258 for
the three months ended September 30, 1994.
Compensation expense increased by $114,607 for the three months ended September
30, 1995 as a result of the addition of officers and administrative employees
at Bethel Bancorp and its subsidiaries, the addition of the four new branches,
as well as annual salary increases. Net occupancy expenses increased by
$18,493 for the three months ended September 30, 1995 primarily due to the four
new branches acquired from Key Bank. Equipment expense increased by $26,066
for the three months ended September 30, 1995 due to the expenses associated
with the new acquisitions as well as the general needs at the subsidiaries.
Goodwill expense increased by $43,071 for the three months ended September 30,
1995 due to the premium paid for the four Key Bank branches. Other expenses
have increased by $121,428 for the three months ended September 30, 1995 versus
the three months ended September 30, 1994. Other expenses increased during the
three months ended September 30, 1995 primarily due to the increased expenses
from the four new branches as well as increased costs in legal and consulting
expenses. In September 1995, the Company received a rebate from the FDIC for
its BIF insured deposits. This rebate reduced other expenses by approximately
$56,000. The FDIC has proposed a one time assessment on all SAIF insured
deposits in a range of $.85 to $.90 per $100 of domestic deposits held as of
March 31, 1995. This one time assessment is intended to recapitalize the SAIF
to the required level of 1.25% of insured deposits and could be payable in the
fourth quarter of 1995 or ealy 1996. If the assessment is made at the proposed
rates, the effect on the Company would be an after tax charge of approximately
$320,000 (assuming an income tax rate of 36%). The one time charge asssumes
a .85% charge on Brunswick Federal Savings, F.A. deposits of approximately
$60,000,000 at March 31, 1995, which does not include the BIF insured deposits
of the newly acquired Key Bank branches. Subsequent to the proposed payment of
the one time assessment, the ongoing risk based assessment schedule for the
newly capitalized SAIF would be similar to the schedule of BIF (the current
FDIC board proposal has rates ranging from 4 to 31 basis points). The Company
anticipates that it would be assessed at the lowest BIF rate as it currently is
assessed at the lowest SAIF rate due to its regulatory standing. If the
Company's premium is reduced to 4 basis points, the Company would have future
after tax annual savings of approximately $180,000 (assuming an income tax rate
of 36%). The annual savings assumes a .04% insurance premium charge compared
to the current .23% insurance premium paid on the Company's total deposit base
of $147,000,000.
Impact of Inflation
___________________
The consolidated financial statements and related notes herein have been
presented in terms of historic dollars without considering changes in the
relative purchasing power of money over time due to inflation. Unlike many
industrial companies, substantially all of the assets and virtually all of the
liabilities of the Company are monetary in nature. As a result, interest rates
have a more significant impact on the Company's performance than the general
level of inflation. Over short periods of time, interest rates may not
necessarily move in the same direction or in the same magnitude as inflation.
BETHEL BANCORP AND SUBSIDIARIES
Part II - Other Information
Item 1. Legal Proceedings
_________________
Not Applicable.
Item 2. Changes in Securities
_____________________
Not Applicable.
Item 3. Defaults Upon Senior Securities
_______________________________
Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders
___________________________________________________
SUMMARY OF VOTING AT 10/18/95 ANNUAL SHAREHOLDERS' MEETING
__________________________________________________________
At the Annual Meeting of Shareholders held in South Portland, Maine on October
18, 1995, the following proposals were approved, each proposal receiving the
vote of the Company's outstanding common and preferred shares, voting as one
class, as follows:
<TABLE>
<CAPTION>
Proposal 1 - Election of Officers:
Votes For Votes Withheld Broker Non-Votes
_________ ______________ ________________
<S> <C> <C> <C>
John B. Bouchard 583,428 7 0
Judith W. Hayes 583,428 7 0
Stephen Wight 580,528 2,907 0
Dennis Wilson 583,328 107 0
</TABLE>
Ms. Hayes and Messrs. Bouchard, Wight and Wilson were elected to serve until
the 1998 Annual Meeting. The terms of the following Directors continued after
the meeting: Messrs. Brown, Goguen, Trinward, Vachon, Delamater, Jackson,
Morrell, and Kendall. There was no solicitation in opposition to management's
nominees, and all nominees were elected without contest.
<TABLE>
<CAPTION>
Proposal 2 - Appointment of Baker Newman & Noyes, Limited Liability Company as
auditors for fiscal year 1996.
Votes For Votes Against Votes Abstaining Broker Non-Votes
_________ _____________ ________________ ________________
<C> <C> <C> <C>
582,885 0 550 0
</TABLE>
Item 5. Other Information
_________________
Not Applicable.
Item 6. Exhibits and Reports on Form 8 - K
__________________________________
(a) Exhibits
________
10.1 Employment agreement between Bethel Savings Bank, F.S.B. and James D.
Delamater, incorporated by reference to Bethel Bancorp's Registration
Statement Form S-1 (No. 33-12815), filed with the Securities and Exchange
Commission. This employement agreement was terminated by the parties
thereto on September 19, 1995.
11 Statement regarding computation of per share earnings.
27 Financial data schedule
(b) Reports on Form 8 - K
_____________________
Not Applicable.
BETHEL BANCORP AND SUBSIDIARIES
Signatures
Pursuant to the requirements of the Securities Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
BETHEL BANCORP
______________
(Registrant)
/s/ James D. Delamater
________________________
James D. Delamater
President and CEO
/s/ Richard Wyman
________________________
Richard Wyman
Chief Financial Officer
Date: November 14, 1995
BETHEL BANCORP AND SUBSIDIARIES
Index to Exhibits
EXHIBIT NUMBER DESCRIPTION
10.1 Employment agreement between Bethel Savings Bank, F.S.B. and
James D. Delamater, incorporated by reference to Bethel
Bancorp's Registration Statement on Form S-1 (No. 33-12815),
filed with the Securities and Exchange Commission. This
employment agreement was terminated by the parties thereto
on September 19, 1995.
11 Statement regarding computation of per share earnings
27 Finanacial Data Schedule
BETHEL BANCORP AND SUBSIDIARIES
Exhibit 11. Statement Regarding Computation of Per Share Earnings
Three Months Ended Three Months Ended
September 30,1995 September 30, 1994
---------------------- ---------------------
EQUIVALENT SHARES:
Average Shares Outstanding 560,125 547,400
Total Equivalent Shares 560,125 547,400
Total Primary Shares 608,261 617,816
Total Fully Diluted Shares 725,785 734,698
Net Income $ 421,637 $ 405,712
Less Preferred Stock Dividend 35,000 35,000
------------------- ---------------------
Net Income after Preferred
Dividend $ 386,637 $ 370,712
=================== =====================
Primary Earnings Per Share $ 0.64 $ 0.60
Fully Diluted Earnings Per Share $ 0.58 $ 0.55
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000811831
<NAME> BETHEL BANCORP
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 4,761,715
<INT-BEARING-DEPOSITS> 12,407,826
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 10,174,285
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 167,879,936
<ALLOWANCE> 2,494,000
<TOTAL-ASSETS> 207,272,718
<DEPOSITS> 147,771,292
<SHORT-TERM> 24,207,408
<LIABILITIES-OTHER> 1,835,950
<LONG-TERM> 11,375,000
<COMMON> 597,625
0
1,999,980
<OTHER-SE> 15,818,651
<TOTAL-LIABILITIES-AND-EQUITY> 207,272,718
<INTEREST-LOAN> 4,098,163
<INTEREST-INVEST> 197,430
<INTEREST-OTHER> 187,063
<INTEREST-TOTAL> 4,482,656
<INTEREST-DEPOSIT> 1,635,482
<INTEREST-EXPENSE> 2,269,354
<INTEREST-INCOME-NET> 2,213,302
<LOAN-LOSSES> 147,855
<SECURITIES-GAINS> 120,593
<EXPENSE-OTHER> 2,015,923
<INCOME-PRETAX> 633,817
<INCOME-PRE-EXTRAORDINARY> 633,817
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 421,637
<EPS-PRIMARY> .64
<EPS-DILUTED> .58
<YIELD-ACTUAL> 4.569
<LOANS-NON> 2,825,000
<LOANS-PAST> 0
<LOANS-TROUBLED> 2,016,000
<LOANS-PROBLEM> 3,093,000
<ALLOWANCE-OPEN> 2,396,000
<CHARGE-OFFS> 56,697
<RECOVERIES> 6,842
<ALLOWANCE-CLOSE> 2,494,000
<ALLOWANCE-DOMESTIC> 630,529
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,863,471
</TABLE>
