UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1993
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
Commission File No. 1-10396
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NBB BANCORP, INC.
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(Exact name of registrant as specified in its charter)
Delaware 04-2997971
- ------------------------------- ---------------------
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification Number)
174 Union Street, New Bedford, Massachusetts 02740
- ---------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (508) 996-5000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
- ------------------- -----------------------------------------
COMMON STOCK NEW YORK STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrants's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
Based upon the closing sale price of the Registrant's common stock on March
11, 1994, the aggregate market value of the voting stock held by
non-affiliates of the Registrant was $340,991,395.
As of March 11, 1994, there were 8,657,844 shares of the Registrant's common
stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Stockholders for the fiscal year
ended December 31, 1993 are incorporated by reference into Part I and Part II,
and portions of the Registrant's notice of annual meeting and definitive proxy
statement for the 1994 Annual Meeting of Stockholders are incorporated by
reference into Part III.
PART I
Item 1. Business
The Bancorp. NBB Bancorp, Inc. (Bancorp) is a corporation, formed at the
direction of New Bedford Institution for Savings (the Bank) under the laws of
the State of Delaware. Bancorp became the holding company for the Bank on
December 1, 1988, and is a one-bank holding company registered with the
Federal Reserve Board under the Bank Holding Company Act of 1956. The only
office of Bancorp, and its principal place of business, is located at the main
office of the Bank at 174 Union Street, New Bedford, MA 02740, and its
telephone number is (508) 996-5000.
Bancorp's principal business consists of the business of the Bank.
Bancorp is a legal entity separate from the Bank, and its principal source of
revenue on an unconsolidated basis is dividends transferred from the Bank from
time to time. Bancorp's assets on an unconsolidated basis at December
31, 1993 were represented by its investment in the Bank of $254.2 million and
other assets of $1.2 million. At December 31, 1993, Bancorp on a consolidated
basis had total assets of $2.5 billion, deposits of $2.2 billion, and
stockholders' equity of $255.0 million which represents 10.40% of total
assets. Book value per share at December 31, 1993 was $29.45.
The Bank. New Bedford Institution for Savings is a
Massachusetts-chartered savings bank organized in 1825. It is headquartered
in New Bedford, Massachusetts, approximately 60 miles south of Boston and 30
miles east of Providence, Rhode Island. The Bank's market area includes a
significant portion of Southeastern Massachusetts, Cape Cod and eastern Rhode
Island and is served by a network of 52 offices, 10 of which are located in
the eastern part of Rhode Island, 30 in the southeastern area of
Massachusetts, and 12 throughout Cape Cod.
The Bank is a franchisee of an ATM network which provides customers
access to their accounts from automated teller machines located throughout the
United States, Canada and many other foreign countries. The Bank is a member
of the Federal Home Loan Bank of Boston which qualifies it to borrow funds
when needed to finance lending activities.
The Bank's deposits are insured by the Federal Deposit Insurance
Corporation (FDIC) up to $100,000 per separately insured account and deposits
in excess of $100,000 are insured by the Deposit Insurance Fund of the Mutual
Savings Central Fund, Inc. (the Central Fund).
The Bank is engaged principally in the business of attracting deposits
from the general public, originating residential and commercial real estate
mortgages, construction, commercial and consumer loans, and investing in
various securities.
Acquisitions
In August 1992, the Bank acquired all deposits and certain assets of
Attleboro Pawtucket Savings Bank from the FDIC. The Bank received
approximately $12.3 million for the acquisition. Deposits and loans acquired
totaled $559.3 million and $378.5 million, respectively. In order to realize
some of the cost savings that result from acquisitions, the operating
departments of the Bank and those of Attleboro Pawtucket Savings Bank have
been consolidated. There has been a consolidation of management in all areas.
In addition, the overlap of certain branch locations and markets has caused
deposit and loan business to be serviced at branch locations other than where
it may have originated. All of these factors impact the income generated by
the business acquired, and, as a result, there is not a practical method to
meaningfully determine the income generated by this acquisition.
In July 1991, the Bank acquired the insured deposits and certain of the
assets of Sentry Savings Bank, FSB from the Resolution Trust Corporation (RTC)
for a bid price of $13.1 million. Deposits and loans acquired totaled $397.7
million and $153.9 million, respectively. Both acquisitions were accounted
for by the purchase method of accounting.
Core deposit intangibles of $5.2 million and $2.8 million were recorded
as a result of the Attleboro Pawtucket and Sentry Savings Bank, FSB
acquisitions, respectively, with both being amortized over ten years using the
interest method.
Regulation
General. Both Bancorp and the Bank are regulated extensively under
federal and state statutes and regulations. The following summaries of the
statutes and regulations affecting banks and bank holding companies are
qualified in their entirety by reference to such statutes and regulations.
Federal Reserve Board. Bancorp is registered as a bank holding company
under the federal Bank Holding Company Act of 1956, as amended (BHCA), and is
required to file annual and periodic reports and such other information as the
Federal Reserve may require. Bancorp and the Bank's nonbanking subsidiaries
are subject to limitations on the scope of their activities and to continuing
regulation, supervision and examination by the Federal Reserve Board under the
BHCA and related federal statutes.
Bancorp is subject to capital standards based on Tier 1 capital and on
risk weighting of assets. The minimum Tier 1 capital ratio (adjusted
stockholders' equity divided by risk-weighted assets) required for bank
holding companies with the highest regulatory rating is 4.00%. Bancorp must
also have a minimum risk-based capital ratio of 8.00%. In addition, leverage
capital standards (Tier 1 capital to adjusted total assets) require a minimum
of 3.0% for the most highly rated companies. All others will need to meet a
minimum leverage ratio that is at least 100 to 200 basis points above the
minimum requirement. At December 31, 1993, the capital ratios of Bancorp
substantially exceeded the minimum requirements for these capital standards.
Delaware Corporate Law. As a Delaware corporation, Bancorp must comply
with the General Corporation Laws of Delaware.
Federal Deposit Insurance Corporation. As a Massachusetts-
chartered, FDIC-insured savings bank, the Bank is subject to regulation,
examination and supervision by the FDIC. The FDIC insures the Bank's deposit
accounts up to a maximum of $100,000 per separately insured account;
therefore, the Bank is subject to regulation, supervision and reporting
requirements of the FDIC. The FDIC has adopted a regulation that defines and
sets the minimum requirements for capital adequacy. Under this regulation,
insured state banks, such as the Bank, are required to maintain Tier 1,
risk-based and leverage capital ratios that are substantially the same as the
Federal Reserve guidelines discussed above.
The Federal Deposit Insurance Corporation Improvement Act of 1991
(FDICIA) makes significant changes in the federal laws governing depository
institutions and the FDIC. Among other changes, FDICIA requires federal bank
regulatory agencies to take prompt corrective action to address the problems
of undercapitalized banks. With certain exceptions, FDICIA prohibits banks
from engaging, as principals, in activities that are not permissible for
national banks, such as equity investments and insurance underwriting. In
addition, FDICIA amends federal statutes governing extensions of credit to
directors, executive officers and principal shareholders of banks, savings
associations and their holding companies, limits the aggregate amount of a
depository institution's loans to insiders to the amount of the institution's
unimpaired capital and surplus, restricts depository institutions that are not
well capitalized from accepting brokered deposits without an express waiver
from the FDIC and imposes certain advance notice requirements before closing a
branch. FDICIA also requires a system of risk-based deposit insurance
assessments that takes into account different categories and concentrations of
bank assets and liabilities.
Massachusetts Commissioner of Banks. The Bank is subject to regulation
and examination by the Commissioner of Banks of the Commonwealth of
Massachusetts (the Commissioner). Massachusetts statutes and regulations
govern, among other things, investment powers, lending powers, deposit
activities, borrowings, maintenance of surplus reserve accounts, distribution
of earnings and payment of dividends. The Bank is also subject to regulatory
provisions covering such matters as issuance of capital stock, branching, and
mergers and consolidations.
Mutual Savings Central Fund, Inc. Deposit accounts that are not covered
by federal insurance are insured by the Central Fund, a corporation created by
the Massachusetts Legislature for the purpose of insuring the deposits of
savings banks not covered by federal deposit insurance. All
Massachusetts-chartered savings banks, including the Bank, are required to be
members of the Central Fund.
Lending Activities
General. The Bank offers various types of real estate loans, commercial
loans and consumer loans. The Bank is a major originator of residential loans
in its market area and has traditionally focused its lending activities on the
origination of first mortgage loans for the purchase, refinancing and
construction of residential properties in its market area. For a fuller
description of current conditions in the Bank's primary lending market area,
see "Management's Discussion and Analysis of Financial Condition and Results
of Operations" in the Annual Report to Stockholders for the year ended
December 31, 1993 attached as an exhibit hereto. Total loans at December 31,
1993 were $1.3 billion or 53.8% of total assets. An analysis of the loan
portfolio by type of loan is presented in Section III. A. and a percentage
distribution of the loan portfolio is presented in Section IV.
The following discussion and analysis should be read in light of the fact
that the Bank's operating results are dependent upon the real estate market in
Massachusetts and the economy which has been in a recession. The Bank's
operating results are adversely affected by the loss of interest income from
nonaccruing loans and real estate owned. Since the economy of the region
continues to be troubled and there is evidence that certain sectors of the
real estate market have not yet improved, additional loan loss provisions and
provisions for losses on other real estate owned may become necessary. Loans
currently nonperforming and OREO property may give rise to additional
charge-offs and provisions.
Residential Mortgage Lending. The Bank makes both conventional fixed and
adjustable-rate loans on one-to-four family residential properties as well as
second mortgages and home equity loans within its primary market area. The
Bank retains the loans it originates for its own portfolio.
Substantially all of the loans in the Bank's residential loan portfolio
are secured by houses located in southeastern Massachusetts, Cape Cod, and
eastern Rhode Island. The Bank makes residential construction loans primarily
to homeowners. Construction loans are offered with fixed or variable rates
for a term of fifteen to thirty years and become the homeowner's permanent
mortgage.
The ability and willingness of residential borrowers to honor their
repayment commitments is generally dependent on the level of overall economic
activity within the borrowers' geographic areas and real estate values.
Commercial Lending. The Bank's commercial loan department originates
construction and permanent mortgage loans on commercial real estate for its
commercial loan portfolio which may include multi-family housing, strip
shopping centers, office buildings, retail buildings, and industrial
buildings. Commercial real estate loans are written primarily on a floating
rate basis for terms of five years or less, although the amortization period
may be longer.
The Bank's commercial loan department also provides commercial services
and corporate banking relationships with smaller and middle market companies
with annual sales of $1 million to $50 million. The commercial loan
department offers lines of credit, letters of credit, secured and unsecured
loans, equipment loans, term loans for business expansion, commercial
construction and project development loans. Aggregate extensions of credit to
commercial borrowers are maintained at levels below statutory limits.
Compared with residential mortgage lending on owner-occupied homes,
commercial, commercial real estate and construction lending entail additional
risks. These loans are affected, to a greater extent than residential
mortgage loans, by adverse conditions in the economy generally and in the
local real estate market. The repayment of loans secured by income-producing
properties is often dependent on the successful completion and operation of
the real estate project or development. Moreover, the cost of labor and
material or the amount of time necessary to sell the project and carry the
debt may vary from projections, or other contingencies may arise, that change
the total amount of funds necessary to complete the project. Such lending
also typically involves larger loan balances to single borrowers or groups of
related borrowers. The ability and willingness of commercial real estate, and
commercial and construction loan borrowers to honor their repayment
commitments is generally dependent on the health of the real estate sector in
the borrowers' geographic areas and the general economy. While non-performing
assets have improved in 1993, charge-offs and provisions for OREO losses
reflect the problems in the New England economy. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations" in the Annual
Report to Stockholders for the year ended December 31, 1993 attached as an
exhibit hereto.
Consumer Loans. The Bank originates both secured and unsecured consumer
loans which include home improvement loans, automobile loans, boat loans,
personal loans, and guaranteed educational loans. Consumer loans are
generally offered at a fixed rate for terms not exceeding five years.
Investment Activities
The Bank invests in U. S. Government and Agency obligations, investment
grade corporate securities, money instruments, corporate equities and other
authorized investments. The Bank's investment portfolio is managed with the
assistance of an independent investment advisor. The Board of Directors has
adopted an investment policy to govern the Bank's investment activities.
Management believes it is prudent to maintain an investment portfolio
that provides income and a source of liquidity to meet lending demand and
deposit flow. The investment policy of the Bank calls for staggered
maturities while maintaining an average portfolio maturity of five years,
depending on the outlook for interest rates.
Effective December 31, 1993, the Bancorp adopted Statement of Financial
Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in
Dept and Equity Securities." Under SFAS No. 115, debt securities that the
Bancorp has the positive intent and ability to hold to maturity are classified
as held-to-maturity and reported at amortized cost; debt and equity securities
that are bought and held principally for the purpose of selling them in the
near term are classified as trading and reported at fair value, with
unrealized gains and losses included in earnings; and debt and equity
securities not classified as either held-to-maturity or trading are classified
as available-for-sale and reported at fair value, with unrealized gains and
losses excluded from earnings and reported in a separate component of
stockholders' equity. The Bancorp classifies its securities based on its
intention at the time of purchase. The Bancorp has no securities held for
trading. As a result of adoption, as of December 31, 1993, stockholders'
equity was increased by approximately $6.8 million, representing the net
unrealized gain on securities available-for-sale, less applicable income
taxes.
At December 31, 1993, $588.4 million of the Bancorp's securities were
considered to be available-for-sale. Securities available-for-sale provide
liquidity, facilitate interest rate sensitivity management, and enhance the
Bank's ability to respond quickly to the needs of customers should economic
conditions result in an increase in loan demand. Securities held-to-maturity
totaled $399.5 million at December 31, 1993.
Sources of Funds
General. Deposit accounts of all types have historically constituted the
primary source of funds for the Bank's lending and investment activities.
Other sources of funds include interest payments on loans and securities, loan
principal payments and sales and maturities of securities. The availability
of funds is influenced by prevailing interest rates, competition, and other
market conditions.
Deposits. The Bank's deposits are primarily attracted from customers in
the Bank's market area. It has been the Bank's practice not to solicit
deposits outside of its market area, accept deposits from brokers, or use
premiums to attract deposits.
In recent years, the Bank has attracted substantial deposits into
short-term certificates and money market accounts. These accounts may be more
responsive to changes in market rates of interest than passbook accounts and
longer maturity, fixed-rate, fixed-term certificates, which are also deposit
products offered by the Bank.
Borrowings. The Bank is a member of the Federal Home Loan Bank of Boston
and has access to a pre-approved line of credit up to 2% of total assets and
the capacity to borrow an amount up to 30% of total assets, less other
borrowings.
Subsidiaries/Other Activities
The Bank has four wholly-owned subsidiary corporations: NBB Investment
Corporation, NBIS Securities Corporation, NBIS Development Corp. and Knotty
Walk, Inc. In addition, Fairhaven Development Corp. is a wholly-owned
subsidiary of NBIS Development Corp. and Rope Walk Condominium, Inc. is a
wholly-owned subsidiary of Knotty Walk, Inc.
NBB Investment Corporation and NBIS Securities Corporation, established
in December 1993 for the purpose of managing portions of the Bank's investment
portfolio, had no assets at December 31, 1993.
NBIS Development Corp. and Knotty Walk, Inc. own real estate which is
leased to the Bank and nonrelated parties. Assets of NBIS Development Corp.
and Knotty Walk, Inc. totaled $4.3 million and $4.1 million, respectively at
December 31, 1993.
Fairhaven Development Corp. and Rope Walk Condominium, Inc. were
incorporated for the purpose of real estate development. Assets of Fairhaven
Development Corp. and Rope Walk Condominium, Inc. totaled $143,000 and $1.6
million, at December 31, 1993, respectively.
The consolidated financial statements of the Bancorp appearing in this
Form 10-K include the accounts of the Bank and its subsidiaries described
above.
Savings Bank Life Insurance
The Bank had been an issuing bank for Savings Bank Life Insurance (SBLI).
On December 31, 1991, SBLI was demutualized by legislation enacted in December
1990. Based on an appraisal of the value of the new company, SBLI determined
the value of the stock distributed to the Bank was $1.0 million. For purposes
of conservatism, the stock received was recorded at $500,000 which increased
net income by $290,000 after providing for income taxes.
Competition
The Bank faces strong competition in all aspects of its deposit and loan
business. The Bank competes by providing a full range of deposit and loan
products, offering competitive rates, providing quality service, and by
supporting a strong network of conveniently located branches with extended
banking hours.
The Bank attracts deposits through its network of branch offices,
primarily from the communities in which those offices are located.
Competition for deposits has traditionally come from other thrift
institutions, commercial banks, money market mutual funds and credit unions
located in its market area. The Bank is recognized in its market area as a
leading provider of mortgage funds but faces strong competition from savings
banks, mortgage banking companies, credit unions, and commercial banks.
Competition for consumer and commercial loans comes from commercial banks,
savings banks, and other financial services companies.
Employees
Bancorp utilizes the support staff of the Bank from time to time without
the payment of any fees. No separate compensation is being paid to the
executive officers of the Bancorp, all of whom are executive officers of the
Bank and receive compensation as such.
As of December 31, 1993, the Bank had 524 full-time employees and 89
part-time employees. Full-time employees receive a comprehensive range of
employee benefit programs. None of the Bank's employees is represented by a
union or other labor organization, and management believes that its employee
relations are good.
NOTE: The headings and sub-headings on the following pages correspond to SEC
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Guide 3 - Statistical Disclosure by Bank Holding Companies
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I. DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY;
-------------------------------------------------------------
INTEREST RATES AND INTEREST DIFFERENTIAL
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I.A. & I.B. Average Balance Sheets, and Analysis of Net Interest
Earnings
Reference is hereby made to Bancorp's Annual Report to Stockholders for
the year ended December 31, 1993 attached as an
exhibit hereto. The information required under I.A. (average
balance sheets) and I.B.1. through I.B.5. (analysis of net interest
earnings) is set forth on page 33 of such Annual Report and is
incorporated herein by reference.
I.C. Rate/Volume Analysis. Reference is hereby made to Bancorp's Annual
Report to Stockholders for the year ended December 31, 1993 attached as
an exhibit hereto. The information set forth on page 34 of such Annual
Report entitled "Rate/Volume Analysis" is incorporated herein by
reference.
The following table sets forth maturity and repricing information
relating to interest-sensitive assets and liabilities at December 31, 1993.
Fixed-rate loans and pass-through certificates are shown in the table in the
time periods corresponding to principal amortization which has been computed
based on their respective weighted average maturities and weighted average
rates. Adjustable-rate loans and securities are allocated to the period in
which the rates would be next adjusted. The table does not reflect partial
or full prepayment of loans and certain securities prior to final contractual
maturity. Analysis of the Bank's non-certificate deposit accounts in 1993
shows that only a portion of savings, money market deposit and NOW accounts
are rate-sensitive. Deposit balances have been distributed accordingly in the
0 to 5-year time bands. In accordance with the proposed Federal Reserve
guidelines for risk-based capital standards which account for interest rate
risk, no amounts related to such deposit accounts are placed beyond five
years. A deficiency of rate-sensitive assets over rate-sensitive liabilities
will generally result in increased net interest income during a period of
falling interest rates and in decreased net interest income during a period of
rising interest rates.
<TABLE>
<CAPTION>
UP TO 1-3 3-5 5-10
1 YEAR YEARS YEARS YEARS THEREAFTER TOTAL
-------- ------- ------ ------- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
Interest sensitive assets:
Federal funds sold $ 11,000 $ - $ - $ - $ - $ 11,000
U. S. Government, U. S.
agency and other bond
obligations 140,080 345,323 374,435 33,287 377 893,502
Mortgage-backedsecurities 5,370 7,596 8,612 20,664 24,114 66,356
Residential Mortgageloans:
Adjustable-rate loans 223,310 85,913 559 - 95 309,877
Fixed-rate loan
amortization 17,075 37,316 42,464 129,509 447,242 673,606
Construction mortgage
loans:
Adjustable-rate loans 975 557 - - - 1,532
Fixed-rate loan
amortization 151 337 390 1,261 10,394 12,533
Homeequity loans 47,619 - - - - 47,619
Second mortgage loans 3,295 2,392 1,986 3,969 1,825 13,467
Consumer loans 16,767 4,952 1,266 1,140 8 24,133
Commercial loans:
Adjustable-rate loans 194,947 7,791 280 - 202 203,220
Fixed-rate loan
amortization 19,081 7,208 1,825 3,488 931 32,533
Commercial construction
loans:
Adjustable-rate loans 2,765 - - - - 2,765
Fixed-rate loan
amortization 3,867 - - - - 3,867
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Total 686,302 499,385 431,817 193,318 485,188 2,296,010
- --------------------------------------------------------------------------------------------
Interest sensitive liabilities:
Money market deposits 125,669 192,750 171,456 - - 489,875
Time certificates 802,381 236,088 7,240 40 288 1,046,037
NOW 20,038 79,954 63,595 - - 163,587
Other savings 135,115 96,511 154,419 - - 386,045
- --------------------------------------------------------------------------------------------
Total 1,083,203 605,303 396,710 40 288 2,085,544
- --------------------------------------------------------------------------------------------
Excess (deficiency) of rate-
sensitive assets over rate-
sensitive liabilities $ (396,901) $(105,918) $ 35,107 $193,278 $484,900 $ 210,466
- ---------------------------------------------------------------------------------------------
Cumulative excess (deficiency) of
rate sensitive assets over rate
sensitive liabilities $ (396,901) $(502,819) $(467,712) $(274,434) $210,466
Cumulative excess (deficiency)
as a percentage of total
assets (16.2)% (20.5)% (19.1)% (11.2)% 8.6%
</TABLE>
II. INVESTMENT PORTFOLIO
A. The following table shows the aggregate market value for 1993 and book
value for 1992 and 1991 of the major categories of securities
available-for-sale for the years indicated:
(In Thousands) At December 31, 1993 1992 1991
- -------------------------------------------------------------------------------
Securities available-for-sale:
U. S. Government obligations $438,079 $322,619 $146,647
U. S. Agency obligations 75,977 84,008 157,396
Mortgage-backed securities 41,220 - -
Marketable equity securities 16,056 - -
Other equity securities 12,031 8,970 7,723
Other debt securities 5,079
- -------------------------------------------------------------------------------
Total securities held-for-sale $588,442 $415,597 $311,766
- -------------------------------------------------------------------------------
The following table shows the book value of the major categories of
securities held-to-maturity for the years indicated:
(In Thousands) At December 31, 1993 1992 1991
- -------------------------------------------------------------------------------
Securities held-to-maturity:
U. S. Government obligations - $47,198 -
U. S. Agency obligations 2,575 - -
Corporate debt securities 121,749 118,640 108,004
Other debt securities 249,993 213,386 126,780
Mortgage-backed securities 25,136 37,646 11,992
Marketable equity securities - 16,107 13,185
-----------------------------------------------------------------------------
Total securities held-to-maturity $399,453 $432,977 $259,961
-----------------------------------------------------------------------------
B. The following tables present the carrying value of debt securities
available-for-sale and held-to-maturity at December 31, 1993 maturing within
stated periods with the weighted average interest yield from securities
falling within the range of maturities:
Debt Securities Available-for-Sale
----------------------------------------------------------
U. S. U. S. Mortgage-
Government Agency Backed Other Debt
Obligations Obligations Securities Securities Total
----------------------------------------------------------
(Dollars in Thousands)
Due in 1 year or less:
Amount $24,195 $12,193 $9 $1,000 $37,397
Yield 5.4% 5.8% 8.9% 6.0% 5.5%
Due from 1 to 5 years:
Amount 403,539 47,725 1,682 3,005 455,951
Yield 5.6% 4.0% 8.8% 5.3% 5.5%
Due from 5 to 10 years:
Amount 10,345 16,059 4,236 1,000 31,640
Yield 5.0% 5.5% 8.0% 7.5% 5.7%
Due after 10 years:
Amount - - 35,293 74 35,367
Yield - - 6.9% 18.7% 6.9%
- --------------------------------------------------------------------------------
TOTAL:
Amount $438,079 $75,977 $41,220 $5,079 $560,355
Yield 5.6% 4.6% 7.1% 6.5% 5.6%
- --------------------------------------------------------------------------------
Securities Held-to-Maturity
---------------------------------------------
U. S. Mortgage-
Agency Backed Other Debt
Obligations Securities Securities Total
--------------------------------------------
(Dollars in Thousands)
Due in 1 year or less:
Amount $ $ $100,642 $100,642
Yield - - 6.5% 6.5%
Due from 1 to 5 years:
Amount - - 266,489 266,489
Yield - - 6.4% 6.4%
Due from 5 to 10 years:
Amount 2,575 - 4,308 6,883
Yield 8.4% - 9.1% 8.8%
Due after 10 years:
Amount - 25,136 303 25,439
Yield - 6.5% 8.0% 6.5%
- -------------------------------------------------------------------------------
TOTAL:
Amount $2,575 $25,136 $371,742 $399,453
Yield 8.4% 6.5% 6.5% 6.5%
- --------------------------------------------------------------------------------
Yields on securities shown above represent the annual coupon income, net of
amortization and accretion, divided by the carrying value of securities.
C. The book and market values of other bonds and obligations of a single
issuer exceeding 10% of stockholders' equity at December 31, 1993 were as
follows:
Market
Issuer Book Value Value
- --------------------------------------------------------------------
Ford Motor Company $34,200 $35,896
Sears Roebuck & Co. 30,010 31,873
There were no other marketable securities from a single issuer, excluding the
U. S. Government or its agencies, exceeding 10% of stockholders' equity.
III. LOAN PORTFOLIO
A. The following table shows Bancorp's amount of loans by category as of the
end of the reported period for the past five years ended December 31:
<TABLE>
<CAPTION>
(In Thousands) December 31, 1993 1992 1991 1990 1989
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Residential loans:
Residential real estate 983,483 $959,781 $817,145 $743,252 $740,535
Construction loans
to individuals 23,622 18,782 4,982 5,605 10,695
- --------------------------------------------------------------------------------
1,007,105 978,563 822,127 748,857 751,230
Less:
Unadvanced loan proceeds (9,557) (7,272) (2,253) (1,970) (4,977)
Deferred loan origination
fees, net (5,598) (5,057) (5,805) (6,704) (6,722)
- --------------------------------------------------------------------------------
Total residential loans 991,950 966,234 814,069 740,183 739,531
- --------------------------------------------------------------------------------
Commercial Loans:
Real estate 218,901 232,953 139,002 95,759 97,374
Construction 9,284 19,048 7,339 33,826 54,720
- --------------------------------------------------------------------------------
228,185 252,001 146,341 129,585 152,094
- --------------------------------------------------------------------------------
Commercial and industrial 16,852 35,169 3,607 1,259 1,544
- --------------------------------------------------------------------------------
245,037 287,170 149,948 130,844 153,638
Less:
Unadvanced loan proceeds (2,652) (2,836) (430) (3,675) (8,491)
Deferred loan origination
fees, net (267) (274) (314) (389) (540)
- --------------------------------------------------------------------------------
Total commercial loans 242,118 284,060 149,204 126,780 144,607
- --------------------------------------------------------------------------------
Consumer:
Second mortgages and home
equity lines of credit 61,086 71,832 48,405 37,921 32,518
Other consumer 24,133 32,912 21,328 21,938 24,420
- --------------------------------------------------------------------------------
Total consumer loans 85,219 104,744 69,733 59,859 56,938
- --------------------------------------------------------------------------------
Total loans 1,319,287 1,355,038 1,033,006 926,822 941,076
Less allowance for
loan losses (29,596) (34,588) (16,988) (9,391) (6,260)
- --------------------------------------------------------------------------------
Loans, net $1,289,691 $1,320,450 $1,016,018 $917,431 $934,816
- --------------------------------------------------------------------------------
</TABLE>
Second mortgage and home equity lines of credit were reclassified from
residential loans to consumer for the years prior to 1993 to conform to
current classifications. The increases in total loans from December 31, 1990
to December 31, 1991 and December 31, 1991 to December 31, 1992 were primarily
attributable to loans acquired as part of the acquisition of Sentry Savings
Bank, FSB in 1991 and Attleboro Pawtucket Savings Bank in 1992.
B. The following table shows the maturity distribution and interest rate
sensitivity of selected loan categories at December 31, 1993:
Maturity/Scheduled Payments
--------------------------------------------
Within One to After
one year five years five years Total
--------- ----------- ---------- -------
(In Thousands)
Loan Category
- -------------
Commercial/commercial
real estate $60,879 $75,662 $99,212 $235,753
Real estate - construction 6,806 1,638 12,253 20,697
------- ------- --------- --------
$67,685 $77,300 $111,465 $256,450
------- -------- --------- --------
The following table shows the amounts, included in the table above, which are
due after one year and which have fixed interest rates and adjustable rates:
Total Due After One Year
---------------------------------
Fixed Adjustable
Rate Rate Total
----------- ---------- ---------
(In Thousands)
Loan Category
- -------------
Commercial/commercial real estate $13,452 $161,422 $174,874
Real estate - construction 12,382 1,509 13,891
------- -------- --------
$25,834 $162,931 $188,765
------- -------- --------
C.1.
Nonperforming assets.
(Dollars in Thousands)December 31, 1993 1992 1991 1990 1989
- -----------------------------------------------------------------------------
Nonaccrual loans $15,470 $28,495 $26,376 $28,349 $8,771
Loans 90 days or more
delinquent and still accruing - - - - -
Troubled debt restructurings $6,182 $10,064 $11,343 $9,491 -
Real estate acquired by
foreclosure or
substantively repossessed $20,236 $25,834 $21,166 $14,677 $1,020
Percentage of nonaccrual
loans to total loans 1.2% 2.1% 2.6% 3.1% 0.9%
Percentage of nonaccrual
loans and real estate acquired
by foreclosure or substantively
repossessed to total assets 1.5% 2.3% 2.7% 3.5% 0.8%
Nonaccrual and restructured loans at December 31, 1993 had gross interest
income of $1,254,000 and $352,000, respectively, that would have been recorded
in 1993 if the loans had been current in accordance with their original terms
and had been outstanding throughout the period or since origination. The
amount of interest income included in net income from nonaccrual and
restructured loans at December 31, 1993 totaled $392,000 and $169,000,
respectively, for the year then ended.
In-substance foreclosures totaling $2.4 million, $12.5 million, $10.0 million
and $3.6 million at December 31,1993, 1992, 1991 and 1990, respectively, are
included in real estate acquired by foreclosure or substantively repossessed.
There were no in-substance foreclosures at December 31, 1989.
It is the Bank's general policy to place loans on nonaccrual status when
either principal or interest has not been received within 90 days of the
loan's contractual due date and, thereafter, to characterize such loans
interchangeably as both "nonaccrual" and "nonperforming." Other loans are
placed on nonaccrual when there exists serious doubt as to their
collectibility.
C.2.
At December 31, 1993 no material loans were excluded from the nonperforming
categories reflected above where serious doubts existed at the time as to the
ability of borrowers to comply with contractual terms. Management is
continuing to monitor developments in the Bank's market area and will provide
for future loan losses as necessary.
C.3.
Bancorp does not have any loans outstanding to foreign countries.
C.4.
Bancorp did not have a concentration of loans at December 31, 1993 where
concentration is defined as exceeding 10% of total loans, which are not
otherwise disclosed as a category under Item III A.
The Bank's lending activities are conducted principally in Massachusetts and
Rhode Island. The Bank grants single-family residential loans, commercial
real estate loans, commercial loans and a variety of consumer loans. In
addition, the Bank grants loans for the construction of residential homes,
multi-family properties, commercial real estate properties and for land
development. Most loans granted by the Bank are collateralized by real
estate.
D.
Segregated Assets. As discussed in the Business Section above under the title
"Acquisitions", the insured deposits and certain assets of Attleboro Pawtucket
Savings Bank were acquired in 1992 from the FDIC. A key element of the APSB
acquisition is the loss-sharing agreement with the FDIC. Under the agreement,
the FDIC will, for a three-year period, absorb 80% of the net losses on all
loans other than consumer loans. Because of this agreement, nonperforming
assets covered by the agreement are classified as segregated assets and are
shown on the consolidated balance sheets, net of allocated allowance for loan
losses. Further information on segregated assets is contained in footnote 7
on page 53 of Bancorp's Annual Report to Stockholders attached as Exhibit 13
hereto.
There are no other interest-bearing assets that would require to be disclosed
under Item III C.1. or C.2. as of December 31, 1993.
IV. SUMMARY OF LOAN LOSS EXPERIENCE
Reference is hereby made to Bancorp's Annual Report to Stockholders for the
year ended December 31, 1993 annexed as an exhibit hereto. The information
required under IV.A. (Analysis of the Allowance for Loan Losses) for the
five-year period ended December 31, 1993 is set forth on page 39 of such
Annual Report and is incorporated herein by reference.
In determining the amount to provide for loan losses, the key factor is the
adequacy of the allowance for loan losses. The allowance is established, in
part, as a result of an analysis of the risk elements of the various parts of
the portfolio. The Bancorp's methodology for determining the adequacy of the
allowance for loan losses is based on recurring evaluations of a number of
factors, including the composition of the portfolio, historic loan loss
experience for categories of loans, current and anticipated economic
conditions, nonperforming loan levels and trends, specific credit reviews, and
the results of regulatory examinations, as well as subjective factors. The
review of the adequacy of the allowance for loan losses includes the general
allowance on all loans in the loan portfolio based on percentages established
for each loan category. The review also includes allocations applicable to
nonaccrual loans or loans classified as substandard when the risk of loss is
considered possible and overall loan performance indicates that an allowance
is prudent. Nonaccrual and substandard loans are reviewed individually in
order to determine whether an increase in the allowance for loan losses is
necessary.
The provision for loan losses in 1993 was $3.3 million compared to $6.2
million for 1992. Net charge-offs in 1993 totaled $8.1 million. During 1993
the Bancorp experienced a substantial decrease in nonperforming loans. This,
coupled with the overall decrease in the loan portfolio, allowed the Bancorp
to reduce its provision for loan losses and still maintain asset-quality
ratios that were strong.
Nonperforming loans decreased from $28.5 million at December 31, 1992 to $15.5
million at December 31, 1993, a 46% decrease. The commercial real estate
component of nonperforming loans was reduced to $9.1 million at December 31,
1993, a decrease of 54% or $10.6 million from the same date last year.
Nonperforming residential loans, which tend to have smaller balances and
somewhat lower risk, also decreased by $2.1 million or 25% since December 31,
1992 and totaled $6.3 million at December 31, 1993.
The allowance for loan losses at December 31, 1993 represented 2.24% of total
loans compared to 2.55% at the same date last year and 191% of nonaccrual
loans compared to 121% for those same dates, respectively.
An analysis of the allocation of the allowance for loan losses is set forth on
page 39 of the Annual Report to Stockholders for the year ended December 31,
1993 and is incorporated herein by reference. In 1993 management changed the
method of allocation in order to better differentiate between the allocated
and the unallocated portion of the allowance. Prior to 1993 the Company
assigned all of the allowance, including an unallocated portion, to specific
loan categories.
The provision for loan losses for 1992 totaled $6.2 million compared to $9.5
million for 1991. The provision in 1992 was necessary due to the increase in
the level of nonperforming loans during 1992, which totaled $28.5 million at
December 31, 1992 compared to $26.4 million at December 31, 1991, and net
charge-offs of $4.9 million during 1992. The increase in nonperforming loans
from December 31, 1991 to December 31, 1992 occurred in spite of additional
foreclosures and transfers of loans to in-substance foreclosed status.
Increases in nonperforming loans occurred in all major categories.
Nonperforming commercial real estate loans, residential real estate and
consumer loans increased by $1.1 million, $908,000 and $294,000, respectively,
while nonperforming commercial business loans decreased by $139,000. A
significant factor in these increases relates to loans acquired as part of the
Sentry and APSB acquisitions which have since become nonperforming. Loans
which were acquired as part of the Sentry acquisition which have become
nonperforming totaled $1.6 million and consumer loans not covered by the
loss-sharing agreement with the FDIC from the APSB acquisition totaled
$317,000. Allowances established at the time of the acquisitions reflect the
increase in credit risk perceived in the acquired portfolios.
The allowance for loans losses at December 31, 1992 represented 2.55% of the
total loan portfolio compared to 1.64% at December 31, 1991 and 121.4% of
nonaccrual loans compared to 64.4% for those same dates. Due to the
acquisition in 1992, $18.0 million was added to the allowance for loan losses
as the initial allowance on the loans acquired.
The provision for loan losses for 1991 totaled $9.5 million compared to $10.7
million for 1990. The provision in 1991 was necessary due to the level of
nonperforming loans during 1991, which totaled $26.4 million at December 31,
1991 compared to $28.3 million at December 31, 1990, and net charge-offs of
$6.1 million during 1991. The decrease in nonperforming loans from December
31, 1990 to December 31, 1991 was the net result of charge-offs and the
transfer of certain nonperforming loans to in-substance foreclosed status
offset by loans becoming nonperforming in 1991. Nonperforming commercial real
estate loans and residential real estate loans increased by $2.9 million and
$374,000, respectively, while nonperforming commercial construction loans
decreased by $4.6 million. The allowance for loans losses at December 31,
1991 represented 1.64% of the total loan portfolio and 64.4% of nonaccrual
loans. Due to the acquisition in 1991, $4.2 million was added to the
allowance for loan losses as the initial allowance on the loans acquired.
As a result of the increase in delinquent loans, nonperforming loans, and
foreclosures that were experienced during 1990, the allowance was
substantially increased during 1990. Nonperforming loans totaled $28.3
million at December 31, 1990 compared to $8.8 million at December 31, 1989.
The largest increase in nonperforming loans occurred in the commercial real
estate loan category due to the addition of $13.2 million of loans that were
performing in accordance with contractual terms but were perceived to have a
collateral weakness. Nonperforming residential real estate loans also
increased to $7.1 million at December 31, 1990 from $3.7 million at December
31, 1989. Loans charged off during 1990 totaled $7.6 million compared to
$265,000 during 1989.
The provision for loan losses for 1990 and 1989 totaled $10.7 and $4.4
million, respectively. The allowance represented 1.01% of the total loan
portfolio and 33.1% of nonaccrual loans at December 31, 1990.
The allowance for loan losses was also substantially increased during 1989 due
to the increase in nonperforming loans and foreclosures and in response to the
recessionary economic conditions and depressed real estate markets. The
allowance for loan losses of $6.3 million at December 31, 1989 represented
.66% of the total loan portfolio and 71.4% of nonaccrual loans.
Net loan charge-offs during the year ended December 31, 1989 were $261,000 or
.03% of average loans outstanding during 1989.
The percentage mix of outstanding loans to total loans for the five years
ended December 31, follows:
1993 1992 1991 1990 1989
---- ---- ---- ---- ----
Residential 74.1% 70.5% 78.5% 79.5% 77.2%
Commercial real estate 16.6 17.2 13.5 10.3 11.2
Commercial 1.3 2.6 .3 .1 .1
Consumer 6.5 7.7 6.8 6.5 6.0
Commercial construction .5 1.2 .6 3.2 4.9
Residential construction 1.0 .8 .3 .4 .6
----- ----- ----- ----- -----
100.0% 100.0% 100.0% 100.0% 100.0%
----- ----- ----- ------ -----
V. DEPOSITS
In the following table, the average amount of deposits and average rate is
shown for each of the years indicated.
1993 1992 1991
----------------- ------------------ ----------------
Average Average Average Average Average Average
Balance Rate Balance Rate Balance Rate
----------------- ------------------ ----------------
(Dollars in Thousands)
NOW and super NOW $160,738 2.2% $123,742 3.2% $73,785 5.2%
Demand (non-
interest-bearing) 72,261 - 37,976 - 29,046 -
Money market 498,653 3.0 390,317 4.0 262,845 5.8
Regular and
special notice 387,105 2.7 313,404 3.5 176,711 5.3
Certificates of
deposit 1,027,617 4.4 856,824 5.4 709,197 7.0
--------- ---------- ---------
$2,146,374 $1,722,263 $l,251,584
--------- ---------- ----------
Bancorp has no foreign offices and no material deposits from outside of the
United States.
As of December 31, 1993, Bancorp had no negotiable rate time certificates of
deposit in amounts of $100,000.
As of December 31, 1993, six month and other time certificates of deposit in
amounts of $100,000 or more had the following maturities:
Over Over
3 months 3 to 6 6 to 12 Over 12
or less months months months Total
--------------------------------------------------
(In Thousands)
$27,160 $19,924 $18,267 $22,757 $88,108
VI. RETURN ON EQUITY AND ASSETS
The following table reflects the return on average assets, return on average
equity, dividend payout ratio, and average equity to average assets ratio for
each of the years in the three-year period ended
December 31.
1993 1992 1991
---- ---- ----
Return on average assets 1.17% 1.42% .88%
Return on average equity 11.91 12.88 6.42
Dividend payout ratio 31.90 25.77 42.38
Average equity to average
assets ratio 9.80 11.04 13.65
VII. SHORT-TERM BORROWINGS
During the years ended December 31, 1993, 1992 and 1991, Bancorp had no
short-term borrowings
Item 2. Properties
The headquarters for Bancorp, as well as the main office for the
Bank, are located at 174 Union Street, New Bedford, Massachusetts. The
building is owned by the Bank. As of December 31, 1993, there were 51
additional offices, 34 of which were owned and 17 were under lease agreements.
The offices are located in significant portions of southeastern Massachusetts,
Cape Cod, and eastern Rhode Island.
The properties occupied by the Bancorp and the Bank are considered to be in
good condition and adequate for the purposes for which they are used.
Item 3. Legal Proceedings
There are no material pending legal proceedings to which the
Bancorp is a party or to which any of its properties is subject.
Item 4. Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5. Market for Bancorp's Common Stock and Related Stockholder Matters
Reference is hereby made to Bancorp's Annual Report to Stockholders
for the year ended December 31, 1993, attached as an exhibit hereto. The
information set forth on page 66 of such Annual Report entitled "Common Stock"
is incorporated herein by reference.
Item 6. Selected Financial Data
Reference is hereby made to Bancorp's Annual Report to Stockholders
for the year ended December 31, 1993, attached as an exhibit hereto. The
information set forth on page 31 of such Annual Report entitled "Selected
Consolidated Financial Data" is incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Reference is hereby made to Bancorp's Annual Report to Stockholders
for the year ended December 31, 1993, attached as an exhibit hereto. The
information set forth on pages 32 through 41 of such Annual Report entitled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
Reference is hereby made to Bancorp's Annual Report to Stockholders
for the year ended December 31, 1993 attached as an exhibit hereto. The
consolidated balance sheets at December 31, 1993 and 1992, and the
consolidated statements of income, changes in stockholders' equity and cash
flows for each of the years in the three-year period ended December 31, 1993
and the related notes with the report thereon of KPMG Peat Marwick,
independent auditors, as of and for the years ended December 31, 1993, 1992
and 1991, which appear on pages 42 through 65 of such Annual Report to
Stockholders, are incorporated herein by reference. The unaudited quarterly
financial data set forth on page 64 of such Annual Report is incorporated
herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The information required by this Item appears under the headings
"ELECTION OF A CLASS OF DIRECTORS (Item 1 on Proxy)" on pages 3 and 4, and
"Executive Officers of the Company and the Bank" on page 6 of Bancorp's
Definitive Proxy Statement dated March 30, 1994, which information is
incorporated herein by reference.
Item 11. Executive Compensation
The information required by this Item appears under the heading
"Compensation Committee Report on Executive Compensation" on pages 6 through
13 of Bancorp's Definitive Proxy Statement dated March 30, 1994, which
information is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this Item appears under the heading
"ELECTION OF A CLASS OF DIRECTORS (Item 1 on Proxy)" appearing on pages 4 and
5 of Bancorp's Definitive Proxy Statement dated March 30, 1994, which
information is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
The information required by this Item appears under the heading
"Certain Relationships and Related Transactions" on pages 14 and 15 of
Bancorp's Definitive Proxy Statement dated March 30, 1994, which information
is incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. Financial Statements
--------------------
Included in Part II of this report, incorporated by reference
from the Annual Report to Stockholders:
Independent Auditors' Report
Consolidated Balance Sheets at December 31, 1993 and 1992
Consolidated Statements of Income for each of the years in the
three-year period ended December 31, 1993
Consolidated Statements of Stockholders' Equity for each of
the years in the three-year period ended December 31, 1993
Consolidated Statements of Cash Flows for each of the years in
the three-year period ended December 31, 1993
Notes to Consolidated Financial Statements
2. Financial Statement Schedules
-----------------------------
Schedules are omitted as they are either not material or not
applicable.
3. Exhibits
--------
(3) Articles of Incorporation and By-laws:
-------------------------------------
(i) The Certificate of Incorporation of Bancorp is
incorporated by reference to Appendix C to Bancorp's
Registration Statement, registration number 33-20219, filed
with the Securities and Exchange Commission on February 19,
1988.
(ii) The By-laws of Bancorp are incorporated by reference to
Exhibit 3.2 to Bancorp's Registration Statement, registration
number 33-20219, on Form S-4.
(4) Instruments Defining the Rights of Security Holders
---------------------------------------------------
(a) The Certificate of Incorporation of Bancorp is
incorporated by reference to Appendix C to Bancorp's
Registration Statement, registration number 33-20219,
filed with the Securities and Exchange Commission on
February 19, 1988.
(b) The By-laws of Bancorp are incorporated by reference to
Exhibit 3.2 to Bancorp's Registration Statement,
registration number 33-20219, on Form S-4.
(c) Plan of Reorganization and Acquisition dated February 17,
1988 between Bancorp and the Bank is incorporated by
reference to Appendix A to Bancorp's Registration
Statement, registration number 33-20219 on Form S-4.
(d) Bancorp's specimen certificate for shares of Common Stock
is incorporated by reference to Exhibit 4(d) to Bancorp's
1988 Annual Report on Form 10-K.
(e) Shareholder Rights Plan dated November 14, 1989 is
incorporated by reference to Report on Form 8-K filing
dated November 22, 1989.
(10) Material Contracts
------------------
(a) Bancorp's Stock Option Plan is incorporated by reference
to Appendix B to Bancorp's Registration Statement,
registration number 33-28482, on Form S-8.
(b) Taunton Savings Bank 1986 Incentive and Nonqualified
Stock Option Plan is incorporated by reference to
Appendix C to Bancorp's Registration Statement,
registration number 33-28482 on Form S-8.
(c) Amendment dated April 17, 1991 to the Employment
Agreement between the Bancorp, the Bank, and Robert
McCarter dated September 20, 1989 is incorporated by
reference to Exhibit 10(c) to Bancorp's 1991 Annual
Report on Form 10-K.
(d) Employment Agreement between the Bancorp, the Bank, and
Irving J. Goss dated December 22, 1992 incorporated by
reference to Exhibit 10(l) to Bancorp's 1992 Annual
Report on Form 10-K.
(e) Amendment dated April 17, 1991 to the Executive
Supplemental Retirement Agreement between the Bank and
Robert McCarter dated September 4, 1986 is incorporated
by reference to Exhibit 10(e) to Bancorp's 1991 Annual
Report on Form 10-K.
(f) Special Termination Agreement between the Bancorp, the
Bank, and Robert McCarter dated October 31, 1989 is
incorporated by reference to Exhibit 10(f) to Bancorp's
1989 Annual Report on Form 10-K.
(g) Special Termination Agreement between the the Bank and
Frederick D. Healey dated October 31, 1993 is attached as
Exhibit 10(n) to this Annual Report on Form 10-K.
(h) Special Termination Agreement between the Bank and Paul
A. Lamoureux dated October 31, 1989 is incorporated by
reference to Exhibit 10(h) to Bancorp's 1989 Annual
Report on Form 10-K.
(i) Special Termination Agreement between Bancorp, the Bank,
and George J. Charette III dated October 31, 1989 is
incorporated by reference to Exhibit 10(i) to Bancorp's
1989 Annual Report on Form 10-K.
(j) Special Termination Agreement between the Bank and Gayle
A. Johnston dated October 31, 1989 is incorporated by
reference to Exhibit 10(j) to Bancorp's 1989 Annual
Report on Form 10-K.
(k) Special Termination Agreement between the Bank and
William A. Flaherty dated October 31, 1989 is
incorporated by reference to Exhibit 10(k) to Bancorp's
1989 Annual Report on Form 10-K.
(l) Special Termination Agreement between Bancorp, the Bank,
and Irving J. Goss dated December 22, 1992 incorporated
by reference to Exhibit 10(m) to Bancorp's 1992 Annual
Report on Form 10-K.
(m) Purchase and Assumption Agreement between the Resolution
Trust Corporation and the Bank dated July 26, 1991 is
incorporated by reference to Exhibit 2.1 to Bancorp's
Current Report on Form 8-K dated August 9, 1991.
(n) Purchase and Assumption Agreement between the Federal
Deposit Insurance Corporation and the Bank dated August
21, 1992 is incorporated by reference to Exhibit 2.1 to
Bancorp's Current Report on Form 8-K dated September 4,
1992.
(o) Agreement and Plan of Merger dated November 23, 1987
between the Bank and Taunton Savings Bank is incorporated
by reference to Exhibit 10.11 to Bancorp's Registration
Statement, registration number 33-20219, on Form S-4.
(p) Agreement for the Purchase and Sale of Assets and
Assumption of Liabilities between the Bank and the First
National Bank of Boston is incorporated by reference to
Bancorp's Registration Statement, registration number
33-20219, on Form S-4.
(q) Salary Incentive Plan: A written description thereof is
incorporated by reference to the Section headed
"Performance Cash Incentive Plan" on pages 7 and 8 of
Bancorp's Definitive Proxy Statement dated March 30,
1994.
(11) Computation of Per Share Earnings: Computation of
----------------------------------
primary and fully diluted earnings per share is attached
hereto as Exhibit 11 to this Annual Report on Form 10-K.
(12) Statement re Computation of Ratios: Not applicable, as
-----------------------------------
Bancorp does not have any debt securities registered
under Section 12 of the Securities Exchange Act of 1934.
(13) Annual Report to Security Holders: The Bancorp's 1993
----------------------------------
Annual Report to Stockholders is attached hereto as
Exhibit 13 to this Annual Report on Form 10-K.
(16) Letter re Change in Certifying Accountant: None.
------------------------------------------
(18) Letter re Change in Accounting Principles: Not
------------------------------------------
applicable.
(19) Previously Unfiled Documents: None.
-----------------------------
(21) Subsidiaries of Registrant: A list of the subsidiaries
--------------------------
of the Registrant is attached hereto as Exhibit 21 to
this Annual Report on Form 10-K.
(23) Consents of Experts and Counsel:
--------------------------------
(b) Consent of KPMG Peat Marwick.
(b) Reports on Form 8-K:
--------------------
None
(c) Index to Exhibits
-----------------
Upon request directed to: NBB Bancorp, Inc., Stockholder
Relations, Post Office Box 5000, New Bedford, Massachusetts
02742-5000, copies of the individual exhibits to this Annual
Report on Form 10-K will be furnished upon payment of a
reasonable fee.
Exhibit 10(n) Special Termination Agreement
Exhibit 11 Computation of Per Share Earnings
Exhibit 13 Annual Report to Security Holders
Exhibit 21 Subsidiaries of Registrant
Exhibit 23(b) Consent of KPMG Peat Marwick re registration
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
NBB BANCORP, INC.
Date: March 16, 1994 /s/ Robert McCarter
-----------------------------------
Robert McCarter, President,
Chief Executive Office and
Chairman of the Board
Date: March 16, 1994 /s/ Irving J. Goss
-----------------------------------
Irving J. Goss, Senior Vice
President, CFO and Treasurer
(Principal Financial and Accounting Officer)
Date: March 16, 1994 /s/ Alan Ades
-----------------------------------
Alan Ades, Director
Date: March 16, 1994 /s/ Maurice F. Downey
-----------------------------------
Maurice F. Downey, Director
Date: March 16, 1994 /s/John K. Stanton
-----------------------------------
John K. Stanton, Director
Date: March 16, 1994 /s/Charles T.Toomey
-----------------------------------
Charles T. Toomey, Director
Date: March 16, 1994 /s/Clifford H. Tuttle, Jr.
-----------------------------------
Clifford H. Tuttle, Jr., Director
<PAGE>
Exhibit 10(n)
- -------------
SPECIAL TERMINATION AGREEMENT
-----------------------------
AGREEMENT made as of the 31st day of October 1993 between and among NBB
Bancorp, Inc., a Delaware corporation (the "Company") and its subsidiary, New
Bedford Institution for Savings, a Massachusetts savings bank with its main
office in New Bedford, Massachusetts (the "Bank") (the Bank and the Company
shall be hereinafter collectively referred to as the "Employers") and
Frederick D. Healey, an individual presently serving in the position of Senior
Vice President of the Bank (the "Executive").
WHEREAS, the Employers wish to provide the Executive with certain
severance benefits under certain conditions as set forth herein.
NOW, THEREFORE, in consideration of services performed and to be
performed in the future as well as of the mutual promises and covenants herein
contained, it is agreed as follows:
1.Purpose. In order to allow the Executive to consider the prospect of
-------
a Change in Control (as defined in Section 2) in an objective manner and in
consideration of the services rendered and to be rendered by the Executive to
the Employers and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged by the Employers, the Employers
are willing to provide, subject to the terms of this Agreement, certain
severance benefits to protect the Executive from the consequences of a
Terminating Event (as defined in Section 3) occurring subsequent to a Change
in Control.
2.Change in Control. A "Change in Control" shall be deemed to have
-----------------
occurred in any of the following events:
(i) if there has occurred a change in control which the Company would
be required to report in response to Item 6(e) of Schedule 14A of the Rules
and Regulations of the Securities and Exchange Commission promulgated under
the Securities Exchange Act of 1934, as amended (the "1934 Act"), or, if such
regulation is no longer in effect, any regulations promulgated by the
Securities and Exchange Commission pursuant to the 1934 Act which are intended
to serve similar purposes; or
(ii) when any "person" (as such term is used in Sections 13(d) and
14(d)(2) of the 1934 Act) becomes a "beneficial owner" (as such term is
defined in Rule 13d-3 promulgated under the 1934 Act), directly or indirectly,
of securities of the Company or the Bank representing twenty-five percent
(25%) or more of the total number of votes that may be cast for the election
of directors of the Company or the Bank (other than in the case of the Bank,
the Company's ownership of the capital stock of the Bank); or
(iii) during any period of thirty consecutive months (not including any
period prior to the execution of this Agreement), individuals who at the
beginning of such period constitute the Board of Directors of the Company, and
any new director whose election by the Board or nomination for election by the
Company's stockholders was approved by a vote of at least two-thirds (2/3) of
the directors then still in office who either were directors at the beginning
of the period or whose election or nomination for election was previously so
approved, cease for any reason, including without limitation as a result of a
tender offer, proxy contest, merger or similar transaction, to constitute at
least a majority of the Board of Directors of the Company; or
(iv) the stockholders of the Company approve a merger or consolidation
of the Company with any other corporation, other than a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) more than 50% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding immediately
after such merger or consolidation; or
(v) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by the
Company of all or substantially all of the Company's assets.
3.Terminating Event. A "Terminating Event" shall mean
-----------------
(a) termination by either of the Employers of the employment of the
Executive with either of the Employers for any reason, other than (i) death,
(ii) deliberate dishonesty of the Executive with respect to either of the
Employers or any subsidiary or affiliate thereof, or (iii) conviction of the
Executive of a crime involving moral turpitude, or
(b) resignation of the Executive from the employ of either of the
Employers, subsequent to the occurrence of any of the following events:
(i) a significant change in the nature or scope of the Executive's
responsibilities, authorities, powers, functions or duties from the
responsibilities, authorities, powers, functions or duties exercised by the
Executive immediately prior to the Change in Control; or
(ii) a determination by the Executive that, as a result of a Change in
Control, he is unable to exercise the responsibilities, authorities, powers,
functions or duties exercised by the Executive immediately prior to such
Change in Control; or
(iii) a reduction in the Executive's annual base salary as in effect on
the date hereof or as the same may be increased from time to time; or
(iv) the relocation of either of the Employers' offices at which the
Executive is principally employed immediately prior to the date of the Change
in Control to a location more than 25 miles from New Bedford, Massachusetts,
or either of the Employers' requiring the Executive to be based anywhere other
than the Employers' offices at such location; or
(v) the failure by either of the Employers to pay to the Executive any
portion of his current compensation or to pay to the Executive any portion of
an installment of deferred compensation under any deferred compensation
program of either of the Employers within seven (7) days of the date such
compensation is due; or
(vi) the failure by either of the Employers to continue in effect any
material compensation, incentive, bonus or benefit plan in which the Executive
participates immediately prior to the Change in Control, unless an equitable
arrangement (embodied in an ongoing substitute or alternative plan) has been
made with respect to such plan, or the failure by either of the Employers to
continue the Executive's participation therein (or in such substitute or
alternative plan) on a basis not materially less favorable, both in terms of
the amount of benefits provided and the level of the Executive's participation
relative to other participants, as existed at the time of the Change in
Control; or
(vii) the failure by either of the Employers to continue to provide the
Executive with benefits substantially similar to those available to the
Executive under any of either of the Employers' life insurance, medical,
health and accident, or disability plans or any other material benefit plans
in which the Executive was participating at the time of the Change in Control,
the taking of any action by either of the Employers which would directly or
indirectly materially reduce any of such benefits, or the failure by either of
the Employers to provide the Executive with the number of paid vacation days
to which the Executive is entitled on the basis of years of service with
either of the Employers in accordance with their normal vacation policy in
effect at the time of the Change in Control; or
(viii) the failure of the Employers to obtain a satisfactory agreement
from any successor to assume and agree to perform this Agreement.
4. Severance Payment. Subject to the provisions of Section 5 below,
-----------------
in the event a Terminating Event occurs within three (3) years after a Change
in Control, the Employers shall pay to the Executive an aggregate amount equal
to (x) three times the "base amount" (as defined in Section 280G(b)(3) of the
Internal Revenue Code of 1986, as amended (the "Code")) applicable to the
Executive, less (y) One Dollar ($1.00), payable in one lump-sum payment on the
date of such termination or resignation.
5. Limitation on Benefits.
----------------------
(a) It is the intention of the Executive and of the Employers
that no payments by the Employers to or for the benefit of the Executive under
this Agreement when combined with any other payments under any other agreement
or plan pursuant to which the Executive is entitled to receive payments or
benefits shall be non-deductible to either Employer which is to pay such
amount by reason of the operation of Section 280G of the Code or any successor
provision relating to parachute payments. Accordingly, and notwithstanding
any other provision of this Agreement or any such agreement or plan, if by
reason of the operation of said Section 280G, any such payments exceed the
amount which can be deducted by either Employer, the payments made pursuant to
this Agreement shall be reduced to the maximum amount which can be deducted by
the Employers. To the extent that payments exceeding such maximum deductible
amount have been made pursuant to this Agreement to or for the benefit of the
Executive, such excess payments shall be refunded to the Employers with
interest thereon at the applicable Federal Rate determined under Section
1274(d) of the Code, compounded annually, or at such other rate as may be
required in order that no such payments shall be non-deductible to the
Employers by reason of the operation of said Section 280G. To the extent that
there is more than one method of reducing the payments to bring them within
the limitations of said Section 280G, the Executive shall determine which
method shall be followed, provided that if the Executive fails to make such
determination within forty-five days after the Employers have sent the
Executive written notice of the need for such reduction, the Employers may
determine the method of such reduction in its sole discretion.
(b) If any dispute between the Employers and the Executive as to
any of the amounts to be determined under this Section 5, or the method of
calculating such amounts, cannot be resolved by the Employers and the
Executive, either the Employers or the Executive after giving three days'
written notice to the other, may refer the dispute to a partner in the Boston
office of a firm of independent certified public accountants selected jointly
by the Employers and the Executive. The determination of such partner as to
the amount to be determined under Section 5(a) and the method of calculating
such amounts shall be final and binding on both the Employers and the
Executive. The Employers shall pay, as they are incurred, the costs of any
such determination.
6. Employment Status. This Agreement is not an agreement for the
-----------------
employment of the Executive and shall confer no rights on the Executive except
as herein expressly provided.
7. Term. This Agreement shall take effect on the day first above
----
written, and shall terminate upon the earlier of (a) the termination by the
Employers of the employment of the Executive because of death, deliberate
dishonesty of the Executive with respect to either of the Employers or any
subsidiary or affiliate thereof, or conviction of the Executive of a crime
involving moral turpitude, (b) the resignation or termination of the Executive
for any reason prior to a Change in Control, or (c) the resignation of the
Executive after a Change in Control for any reason other than the occurrence
of any of the events enumerated in Section 3(b)(i)-(viii) of this Agreement.
8. Withholding. All payments made by either of the Employers under
-----------
this Agreement shall be net of any tax or other amounts required to be
withheld by either of the Employers under applicable law.
9. Arbitration of Disputes. Any controversy or claim arising out of
-----------------------
or relating to this Agreement or the breach thereof shall be settled by
arbitration in accordance with the laws of the Commonwealth of Massachusetts
by three arbitrators, one of whom shall be appointed by the Employers, one by
the Executive and the third by the first two arbitrators. If the first two
arbitrators cannot agree on the appointment of a third arbitrator, then the
third arbitrator shall be appointed by the American Arbitration Association in
the City of Boston. Such arbitration shall be conducted in the City of Boston
in accordance with the rules of the American Arbitration Association, except
with respect to the selection of arbitrators which shall be as provided in
this Section 9. Judgment upon the award rendered by the arbitrators may be
entered in any court having jurisdiction thereof. In the event that it shall
be necessary or desirable for the Executive to retain legal counsel and/or
incur other costs and expenses in connection with the enforcement of any or
all of the Executive's rights under this Agreement, the Employers shall pay,
as they are incurred, the Executive's reasonable attorneys' fees and other
reasonable costs and expenses in connection with the enforcement of said
rights (including the enforcement of any arbitration award in court)
regardless of the final outcome, unless and to the extent the arbitrators
shall determine that under the circumstances recovery by the Executive of all
or a part of any such fees and costs and expenses would be unjust. This
arbitration provision shall not be used for matters of the type referred to in
Section 5(b), except to settle the selection of the accounting partner
described in said Section in the event that the Employers and the Executive
cannot agree on the selection.
10. Assignment. Neither the Employers nor the Executive may make any
----------
assignment of this Agreement or any interest herein, by operation of law or
otherwise, without the prior written consent of the other party. This
Agreement shall inure to the benefit of and be binding upon the Employers and
the Executive, their respective successors, executors, administrators, heirs
and permitted assigns. In the event of the Executive's death prior to the
payment by the Employers of all payments due to the Executive under this
Agreement, the Employers shall make such payments to the Executive's
beneficiary designated in writing to the Employers prior to his death (or to
his estate, if the Executive fails to make such designation).
11. Enforceability. If any portion or provision of this Agreement
--------------
shall to any extent be declared illegal or unenforceable by a court of
competent jurisdiction, then the remainder of this Agreement, or the
application of such portion or provision in circumstances other than those as
to which it is so declared illegal or unenforceable, shall not be affected
thereby, and each portion and provision of this Agreement shall be valid and
enforceable to the fullest extent permitted by law.
12. Waiver. No waiver of any provision hereof shall be effective
------
unless made in writing and signed by the waiving party. The failure of any
party to require the performance of any term or obligation of this Agreement,
or the waiver by any party of any breach of this Agreement, shall not prevent
any subsequent enforcement of such term or obligation or be deemed a waiver of
any subsequent breach.
13. Notices. Any notices, requests, demands and other communications
-------
provided for by this Agreement shall be sufficient if in writing and delivered
in person or sent by registered or certified mail, postage prepaid, to the
Executive at the last address the Executive has filed in writing with the
Employers or, in the case of the Bank, at its main office, attention of the
Clerk or, in the case of the Company, at its main office, attention of the
Secretary.
14. Election of Remedies. An election by the Executive to resign
--------------------
after a Change in Control under the provisions of this Agreement shall not
constitute a breach by the Executive of any employment agreement between the
Employers and the Executive or a breach of any of the Executive's obligations
as an employee of the Employers. Nothing in this Agreement shall be construed
to limit the rights of the Executive under any employment agreement he may
then have with the Employers.
15. Amendment. This Agreement may be amended or modified only by a
---------
written instrument signed by the Executive and by a duly authorized
representative of each of the Employers.
16. Allocation of Obligations Between Employers. The obligations of
-------------------------------------------
the Employers under this Agreement are intended to be the joint and several
obligations of the Bank and the Company and the Employers shall, as between
themselves, allocate these obligations in a manner agreed upon by them.
17. Governing Law. This is a Massachusetts contract and shall be
-------------
construed under and be governed in all respects by the laws of the
Commonwealth of Massachusetts.
18. Special Provisions Relating to Regulatory Matters.
--------------------------------------------------
Notwithstanding anything to the contrary elsewhere herein contained:
(a) If the Executive is suspended and/or temporarily prohibited
from participating in the conduct of the Bank's affairs by a notice served
under Section 8(e)(3) of the Federal Deposit Insurance Act or Section 12A of
Chapter 167 of the Massachusetts General Laws, the Employers' obligations
under this Agreement shall be suspended as of the date of service, unless
stayed by appropriate proceedings. If the charges in the notice are
dismissed, the Bank may in its discretion (i) pay the Executive all or part of
the compensation withheld while its contract obligations were suspended and
(ii) reinstate (in whole or in part) any of its obligations which were
suspended.
(b) If the Executive is removed and/or permanently prohibited
from participating in the conduct of the Bank's affairs by an order issued
under Section 8(e)(1) or (2) of the Federal Deposit Insurance Act and/or
Section 12 of Chapter 167 of the Massachusetts General Laws, all obligations
of the Employers under this Agreement shall terminate as of the effective date
of the order.
(c) All obligations under this Agreement shall be terminated,
(i) in the event that the Federal Deposit Insurance Corporation (the "FDIC")
is appointed as a conservator or receiver of the Bank pursuant to the
provisions of Section 11 of the Federal Deposit Insurance Act, as amended, or
(ii) in the event that the Commissioner of Banks, Commonwealth of
Massachusetts, takes possession of the Bank under the provisions of Section 22
of Massachusetts General Laws, Chapter 167.
(d) No payments will be made under this Agreement if such
payments are prohibited by the FDIC either by regulation or order. To the
extent that the Bank is prohibited from paying the amounts but the Holding
Company would be able to pay, the payments will be made by the Holding
Company.
IN WITNESS WHEREOF, this Agreement has been executed as a sealed
instrument by the Employers, by their duly authorized officers, and by the
Executive, as of the date first above written.
ATTEST: NBB BANCORP, INC.
/s/ CAROL E. CORREIA By: /s/ ROBERT McCARTER
- --------------------------- -------------------------------
Carol E. Correia, Secretary
Title:CHAIRMAN, PRESIDENT, AND CEO
----------------------------
ATTEST: NEW BEDFORD INSTITUTION FOR
SAVINGS
/s/ CAROL E. CORREIA By: /s/ ROBERT McCARTER
- -------------------------- -------------------------------
Carol E. Correia, Clerk
Title:CHAIRMAN, PRESIDENT, AND CEO
----------------------------
WITNESS:
/s/ IRVING J. GOSS /s/ IRVING J. GOSS
- -------------------------- ----------------------------------
<PAGE>
Exhibit 11
- ----------
COMPUTATION OF PRIMARY AND FULLY DILUTED EARNINGS PER SHARE
For the Year Ended December 31, 1993
(Dollars in thousands except per share amounts)
The information below is presented to comply with Regulation S-K Item 601.
The computation is not used or required in the consolidated statements of
income as its dilutive effect on simple earnings per share is less than 3%.
Primary EPS Fully Diluted EPS
----------- -----------------
Weighted average shares 8,615,399 8,615,399
Common Stock Equivalents (CSE)
Stock options 142,753 142,753
---------- ----------
Primary weighted average shares 8,758,152 8,758,152
----------
Additional CSE 20,656
----------
Fully diluted weighted average shares 8,778,808
----------
Net Income $ 28,092 $ 28,092
---------- ----------
Earnings Per Share $ 3.21 $ 3.20
---------- ----------
<PAGE>
Exhibit 21 Subsidiaries of Bancorp
- ---------- -----------------------
Bancorp has one subsidiary, New Bedford Institution for Savings, which is
incorporated in the Commonwealth of Massachusetts. New Bedford Institution
for Savings is the name under which the subsidiary does business.
<PAGE>
Exhibit 23(b)
- -------------
To the Board of Directors and
Stockholders of NBB Bancorp, Inc.:
We consent to the incorporation by reference in the registration statement
(No. 33-28482) on Form S-8 of NBB Bancorp, Inc. of our report dated January
19, 1994, relating to the consolidated balance sheets of NBB Bancorp, Inc. and
subsidiary as of December 31, 1993 and 1992, and the related consolidated
statements of income, stockholders' equity and cash flows for each of the
years in the three-year period ended December 31, 1993, which report is
incorporated by reference in the December 31, 1993 annual report on Form 10-K
of NBB Bancorp, Inc.
KPMG PEAT MARWICK
Providence, Rhode Island
March 23, 1994
<PAGE>
Exhibit 13
Selected Consolidated Financial Data
The following consolidated financial information for Bancorp does not purport to
be complete and is qualified in its entirety by the more detailed information
contained elsewhere herein.
<TABLE>
<CAPTION>
(In Thousands) December 31, 1993 1992(1) 1991(2) 1990 1989
BALANCE SHEET DATA:
Loans, net of unadvanced funds and deferred fees:
<S> <C> <C> <C> <C> <C>
Mortgage $ 991,950 $ 966,234 $ 814,069 $ 740,183 $ 739,531
Commercial 242,118 284,060 149,204 126,780 144,607
Consumer 85,219 104,744 69,733 59,859 56,938
- ------------------------------------------------------------------------------------------------------------------------------------
Total loans 1,319,287 1,355,038 1,033,006 926,822 941,076
Allowance for loan losses 29,596 34,588 16,988 9,391 6,260
- ------------------------------------------------------------------------------------------------------------------------------------
Loans, net 1,289,691 1,320,450 1,016,018 917,431 934,816
Investments 998,895 865,836 592,016 229,262 190,389
Other real estate owned 21,236 28,333 23,953 18,207 5,789
Goodwill, core deposit and other intangibles 15,451 18,622 15,978 14,753 16,147
Total assets 2,450,736 2,348,553 1,741,939 1,230,334 1,203,132
- ------------------------------------------------------------------------------------------------------------------------------------
Deposits 2,169,256 2,094,611 1,513,071 1,017,252 964,076
- ------------------------------------------------------------------------------------------------------------------------------------
Stockholders' equity 254,950 227,794 206,373 197,959 214,053
- ------------------------------------------------------------------------------------------------------------------------------------
(In Thousands, Except Per Share Data) 1993 1992 1991 1990 1989
Operating Data:
Interest and dividend income $ 170,344 $ 151,340 $ 126,994 $ 112,300 $ 110,173
Interest expense 73,733 76,595 78,568 72,553 69,001
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income 96,611 74,745 48,426 39,747 41,172
Provision for loan losses 3,300 6,215 9,496 10,659 4,385
Gain on sales of securities, net 3,859 5,377 9,647 1,594 1,833
Non-interest income 7,469 5,184 4,025 2,152 2,278
Operating expenses 48,962 36,220 25,501 21,018 20,320
Provisions/write-down of OREO 3,685 977 3,754 3,999 847
Other real estate owned expense 1,614 619 955 179 19
Equity in loss (income) of unconsolidated subsidiary (519) 211 86 170 --
- ------------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 50,897 41,064 22,306 7,468 19,712
Provision for income taxes 22,805 18,136 9,415 5,155 8,025
Change in accounting principle -- 5,000 -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 28,092 $ 27,928 $ 12,891 $ 2,313 $ 11,687
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings per share-- operations $3.26 $2.68 $1.51 $0.26 $1.24
Earnings per share-- net income 3.26 3.26 0.51 0.26 1.24
Dividends declared per share 1.04 0.84 0.64 0.92 0.89
- ------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL RATIOS AND OTHER DATA:
Return on average assets 1.17% 1.42% 0.88% 0.19% 1.00%
Return on average equity 11.91 12.88 6.42 1.11 5.48
Equity to assets ratio at year-end 10.40 9.70 11.85 16.09 17.79
Interest rate spread 3.92 3.63 2.86 2.42 2.60
Net interest margin 4.24 4.03 3.53 3.47 3.75
Operating expenses to average assets 2.03 1.84 1.73 1.73 1.74
Dividend payout ratio 31.90 25.77 42.38 353.85 71.77
Book value per share-- excluding SFASNo. 115 $28.67 $26.52 $24.11 $23.13 $22.69
Book value per share-- including SFASNo. 115 29.45 26.52 24.11 23.13 22.69
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
- --------------
(1) Reflects the acquisition of deposits and certain assets from the Federal
Deposit Insurance Corporation during 1992.
(2) Reflects the acquisition of deposits and certain assets from the Resolution
Trust Corporation during 1991.
</FN>
</TABLE>
31
<PAGE>
<PAGE>
Management's Discussion and Analysis
of Financial Condition and Results of Operations
OVERVIEW
Income from operations in 1993 was $28.1 million, 23% greater than the $22.9
million earned in 1992. The significant increase in operating results was due
primarily to the combination of a low interest rate environment, a reflection of
the low inflation rate and the slow economic recovery, the reduction in
nonperforming loans and overall improvement in asset quality. In the first
quarter of 1992, the Company recognized a nonrecurring after- tax gain of $5.0
million from the implementation of Statement of Financial Accounting Standards
(SFAS)No. 109 which resulted in net income of $27.9 million that year. Income
from operations and net income were the same in 1993.
The net interest margin in 1993 was 4.24%, a 21 basis point increase from 1992.
At the same time, average earning assets increased $426 million, reflecting the
full year impact of the acquisition of the Attleboro Pawtucket Savings Bank
(APSB) in August of 1992.
Provisions for loan losses were reduced from $6.2 million in 1992 to $3.3
million in 1993 due to improved asset quality, as evidenced by a 35% decrease in
nonperforming assets during the year.
Non-interest income, which also reflected the impact of the APSB acquisition for
a full year, increased from $10.6 million to $11.3 million, despite a decrease
of $1.5 million in securities gains.
Operating expenses were significantly higher as a result of the larger branch
network and certain nonrecurring expenses associated with the acquisition, such
as branch consolidations and centralization of several services and functions.
OREO expense increased by $3.7 million due to increased sales efforts to reduce
the amount and number of properties held and the continuing weakness in the
southeastern New England real estate market.
During 1993, Data Management Systems, Inc. (DMS), a 45% owned subsidiary of
NBIS, sold the item processing portion of its business, which resulted in an
after-tax gain of $540 thousand in NBB's 1993 earnings.
Attleboro Pawtucket Acquisition
In August 1992, NBIS acquired the insured deposits and certain assets of APSB
from the FDIC. The acquisition was a significant event for the corporation, both
in terms of size and geographic expansion. Total assets grew by 35% and branch
offices by 50%, including the first NBIS offices in Rhode Island. Because the
former APSB was owned for less than five months in 1992, the acquisition will
have a significant impact on comparisons between 1992 and 1993. A key element of
the APSB acquisition is the loss-sharing agreement with the FDIC. Under the
agreement, the FDIC will, for a three-year period, absorb 80% of the net losses
on all loans other than consumer loans. Because of this agreement, nonperforming
assets covered by the agreement are classified as segregated assets and are
shown on the consolidated balance sheets, net of allocated allowance for loan
losses. Further information on this acquisition is contained in footnote 7 on
page 53. Sections below on Asset Quality and Segregated Assets provide further
information on the risk elements of the acquired portfolio.
Net Interest Income
Net interest income is the difference between interest and fees earned on the
Bank's loan and investment portfolios and the interest paid on deposits and
borrowed funds. The following discussion, and all related data, is presented on
a fully taxable equivalent basis (FTE), which presents interest income on
tax-exempt loans and securities as if they were taxed at statutory rates.
An increase of $21.9 million in net interest income, 29% above 1992's level, was
due to an acquisition-related increase of $426 million in average earning assets
and a net interest margin that was 21 basis points above the previous year. The
increase in the margin was the result of greater spreads, as the Bank's large
base of core deposits repriced more quickly in the falling rate environment of
1993 than did the fixed rate mortgages that are a substantial part of the Bank's
portfolio. The Bank continued in 1993 to closely monitor its deposit pricing and
aggressively reduce costs, consistent with the rate environment and the need to
remain competitive. The Bank's strategy of retaining mortgage loans in its
portfolio and its large base of core deposits result in an interest rate
sensitivity GAP in which interest-sensitive liabilities exceed
interest-sensitive assets by approximately 16% within a one-year time horizon.
This resulted in a favorable impact on net interest income in the rate
environment experienced in 1993, but contains some risk in a rising rate
environment. A discussion of asset/liability management follows under the
Financial Condition section.
In analyzing the net interest margin, another important factor is the change in
the balance sheet mix. The ratio of loans to total earning assets has been
impacted by a number of circumstances in recent years, including the
32<PAGE>
<PAGE>
severity of the recession in southeastern New England which has hampered loan
growth. However, NBIS' ratio has also been affected by acquisitions. In
particular, the nature of the loss-sharing agreement with the FDIC is such that
there is a natural attrition of loans, either to segregated assets in the case
of nonperforming loans, or out of NBIS in the case of loans that mature and are
not renewed for reasons of risk control or avoiding industry concentrations. As
a result, the ratio of loans to earning assets averaged 58% in 1993 compared to
62% in 1992. While disappointing, the rate of decrease in the ratio of average
loans had slowed since 1991 when the average was 71%. This change in the balance
sheet mix, combined with the relatively short-term maturity and duration of the
securities portfolio results in lower average yields on earning assets than
would have been achieved if there had been a greater concentration of loans.
The following table presents an analysis of average balances of interest-earning
assets and interest-bearing liabilities, income and yields earned, and interest
and rates paid:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Years Ended December 31, 1993 1992 1991
(Dollars In Thousands) Interest Interest Interest
Average Earned Yield/ Average Earned Yield/ Average Earned Yield/
Balance or Paid Rate Balance or Paid Rate Balance or Paid Rate
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Interest-earning assets:
Loans (1) $ 1,332,974 $ 113,184 8.49% $1,144,565 $105,074 9.18% $ 979,805 $ 97,247 9.93%
Securities 932,352 56,693 6.08 692,854 45,682 6.59 356,686 27,774 7.79
Federal funds
sold and
overnight deposits 15,378 467 3.04 17,051 584 3.43 35,793 1,973 5.51
- ---------------------------------------------- ---------------------- ---------------------
Total interest-
earning assets 2,280,704 170,344 7.47 1,854,470 151,340 8.16 1,372,284 126,994 9.25
--------- -------- --------
Allowance for
loan losses (33,133) (21,588) (10,087)
Noninterest-
earning assets 160,061 131,555 109,942
- -------------------------------- ----------- ----------
Total assets $ 2,407,632 $ 1,964,437 $1,472,139
================================ =========== ==========
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Savings
deposits(2) $ 1,052,096 28,836 2.74 $ 831,864 30,785 3.70 $ 518,782 28,580 5.51
Time certificates
of deposit 1,027,617 44,897 4.37 856,824 45,803 5.35 709,197 49,960 7.04
Long-term debt 236 -- -- 519 7 1.35 825 28 3.39
- ---------------------------------------------- ---------------------- ---------------------
Total interest-
bearing
liabilities 2,079,949 73,733 3.55 1,689,207 76,595 4.53 1,228,804 78,568 6.39
---------- -------- --------
Noninterest-
bearing liabilities 91,817 58,351 42,432
- -------------------------------- ----------- ----------
Total liabilities 2,171,766 1,747,558 1,271,236
Stockholders'
equity 235,866 216,879 200,903
- -------------------------------- ----------- ----------
Total liabilities and
stockholders'
equity $ 2,407,632 $ 1,964,437 $1,472,139
================================ =========== ==========
Net interest income $ 96,611 $ 74,745 $ 48,426
================================ =========== ========== ==========
Interest rate spread(3) 3.92% 3.63% 2.86%
Net interest margin(4) 4.24% 4.03% 3.53%
Notes on following page.
</TABLE>
33
<PAGE>
<PAGE>
(1) Nonaccrual loans are included in the average loan balances. The variances
due to rate in the table below include the effect of such loans because no
interest or less than contractual rates are earned on such loans.
(2) Includes mortgagors' escrow payments.
(3) Represents the weighted average yield on all interest-earning assets during
the period less the weighted average rate paid on all interest-bearing
liabilities.
(4) Determined by dividing net interest income by total interest-earning assets.
Rate/Volume Analysis
The following table shows the change in interest and dividend income, and
interest expense, for each major category of interest-earning assets and
interest-bearing liabilities. The amount of the change due to volume and rate
has been allocated proportionately to volume and rate for the years indicated.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
(In Thousands) Years Ended December 31, 1993 Compared to 1992 1992 Compared to 1991
Increase Increase Increase Increase
(Decrease) (Decrease) (Decrease) (Decrease)
Due to Due to Due to Due to
Volume Rate Total Volume Rate Total
<S> <C> <C> <C> <C> <C> <C>
Interest, fees and dividend income:
Loans $16,490 $ (8,380) $ 8,110 $14,994 $ (7,167) $ 7,827
Securities 13,005 (3,540) 9,465 22,105 (4,530) 17,575
Other 1,792 (363) 1,429 (234) (822) (1,056)
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest and dividend income 31,287 (12,283) 19,004 36,865 (12,519) 24,346
- ------------------------------------------------------------------------------------------------------------------------------------
Interest expense:
Savings deposits 7,083 (9,032) (1,949) 13,579 (11,374) 2,205
Time certificates of deposit 8,262 (9,168) (906) 9,238 (13,395) (4,157)
Long-term debt (2) (5) (7) (8) (13) (21)
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest expense 15,343 (18,205) (2,862) 22,809 (24,782) (1,973)
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income $15,944 $ 5,922 $21,866 $14,056 $ 12,263 $26,319
====================================================================================================================================
</TABLE>
Provision for Loan Losses
The provision for loan losses in 1993 was $3.3 million, a $2.9 million decrease
from the amount provided in 1992. In determining the amount to provide for loan
losses, the key factor is the adequacy of the allowance for loan losses. In
making the decision, management considers a number of factors, including prior
experience relative to the loan portfolio mix, economic conditions, especially
regional economic trends, internal analysis, and the results of examinations
conducted by bank regulatory authorities. During 1993 the bank experienced a
substantial decrease in nonperforming loans. This, coupled with the overall
decrease in the loan portfolio, allowed the Company to reduce its provision for
loan losses and still maintain asset-quality ratios that were strong, reflecting
the risk inherent in a slow economic recovery. The fact that a relatively large
portion of the portfolio had been acquired created an additional consideration
in determining the allowance level. At December 31, 1993, the allowance for loan
losses was $29.6 million or 2.24% of total loans compared to $34.6 million or
2.55% of total loans at December 31, 1992. Nonperforming loans at December 31st
represented 1.17% and 2.10% of the portfolio in 1993 and 1992, respectively.
Non-Interest Income
An analysis of non-interest income is presented below:
- --------------------------------------------------------------------------------
(In Thousands) .......................... 1993 1992 1991
Deposit related fees .................... $ 5,210 $ 3,445 $ 2,461
Mortgage-servicing ...................... 670 301 94
Gain on sales of securities ............. 3,859 5,377 9,647
Acquisition-related
settlement items ..................... -- 428 860
Gain on sales of OREO ................... 468 5 2
Rental income from
non-bank real estate ................. 312 188 186
Other ................................... 809 817 422
- --------------------------------------------------------------------------------
$11,328 $10,561 $13,672
================================================================================
Excluding securities gains, non-interest income increased 44% from 1992 to 1993.
A significant portion of this gain was due to the full-year impact of the APSB
acquisition. However, an increase in deposits, as well as an increase in charges
for certain services, contributed to the $1.8 million or 51% increase in
deposit-related fees. Another factor in the increase from 1992 to 1993 was
greater activity in the sale of OREO property, which
34
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resulted in a $463 thousand increase in non-interest income. Mortgage servicing
revenue increased due to the fact that APSB had a significantly larger servicing
portfolio than did NBIS. Securities gains were $1.5 million less in 1993 than
they were in 1992, reflecting a somewhat more stable rate environment, as well
as the fact that most of the repositioning required by the acquisitions had been
accomplished prior to 1993.
Operating Expenses
An analysis of operating expenses is presented below:
- ------------------------------------------------------------------------------
(Dollars In Thousand)
Years ended December 31, 1993 1992 1991
Compensation:
Salaries $16,387 $11,128 $ 8,466
Benefits 4,962 3,809 2,926
Temporary Help 523 1,635 137
- ------------------------------------------------------------------------------
Subtotal 21,872 16,572 11,529
- ------------------------------------------------------------------------------
Occupancy and equipment 5,717 4,357 3,259
Deposit insurance 4,879 3,505 2,241
Data processing 3,189 2,341 1,856
Amortization of goodwill
and other intangibles 3,171 2,521 1,628
Office supplies, postage
and telephone 2,212 1,294 1,047
Banking fees 1,652 1,088 717
Credit and collection fees 982 689 486
Other professional fees 811 793 448
Advertising and marketing 810 593 483
Legal and accounting fees 797 610 653
Insurance 791 617 456
Contributions 218 162 77
Other 1,861 1,078 621
- ------------------------------------------------------------------------------
Total $48,962 $36,220 $25,501
==============================================================================
Overhead/Average Assets 2.03% 1.84% 1.73%
==============================================================================
Staff (full time equivalents)
Regular 580 559 382
Temporary 8 47 35
- ------------------------------------------------------------------------------
Total 588 606 417
==============================================================================
Branches 52 56 39
==============================================================================
Operating expenses increased $12.7 million to $49.0 million. In addition to the
anticipated impact of a full year of APSB operating expenses, 1993's expenses
were affected by costs associated with several nonrecurring items, including the
finalization of some outstanding issues with the FDIC relative to the APSB
branch offices, closing of four branches, consolidation of NBIS' loan servicing
functions at one site, and upgrading communications and loan processing systems.
In total, these nonrecurring items account for approximately $750 thousand of
expenses in 1993. In addition, some duplicative expenses were incurred until the
consolidation of data processing systems was completed during the first quarter
of 1993. As a result, the ratio of operating expenses to average assets
increased from 1.84% to 2.03% for the year. However, excluding nonrecurring
expenses, that ratio had been reduced to 1.94% for the fourth quarter of 1993,
an indication that the Company was returning to more normal expense levels after
absorbing the impact of growth through acquisitions in the last several years.
Compensation, including temporary help, increased by $5.3 million, clearly the
result of the APSB acquisition. Because former APSB employees were initially
hired as temporary employees through a third party, a common occurrence in these
transactions, this category must be combined with salaries and benefits in any
analysis of overhead at NBB during this period. Thus, the decrease of $1.1
million in temporary help is offset by some additional compensation. However, as
can be seen from the table above, total employee count, including temporary
employees, has been reduced since 1992. In addition to compensation expense,
increases in deposit insurance, data processing, amortization of intangibles,
banking fees, credit and collection, legal and accounting, and advertising and
marketing all reflect the increased size and complexity of the organization.
Marketing expenses increased 37% as a result of both the expansion of the
franchise geographically, as well as a recognition of the need to expand our
marketing efforts in view of increased competition for both loans and deposits.
NBIS' effort to control and reduce nonperforming assets resulted in an increase
of $293 thousand in credit and collection expense. In addition, while the
Company strongly believes that the loss-sharing process is one that
35
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benefits both the banks and the regulators, there are certain costs to
administering these transactions, which is reflected to some extent in increased
overhead, especially in compensation and professional fees.
Other Expense
OREO consists of properties acquired through foreclosure or substantively
foreclosed, as well as an investment in a condominium project from a previous
acquisition. OREO expense increased from $1.6 million in 1992 to $5.3 million in
1993. Of the $5.3 million in OREO expense, $3.7 million was due to provisions,
while $1.6 million represented operating costs. The increase in OREO expense
reflects both the continuing softness in the southeastern New England real
estate market and the effort made by the Company to aggressively sell OREO
properties. At December 31, 1993, the balance of OREO property was $21.2
million, a decrease of $7.1 million or 25% from the level at December 31, 1992.
The Company owns 45% of DMS, a data processing company located in Hyannis,
Massachusetts. During 1993, DMS sold a portion of its business, item processing,
to another company. The after-tax gain from this sale was approximately $540
thousand which is included in the $519 thousand of equity in loss (income) of
unconsolidated subsidiary.
Income Tax Expense
The fully taxable equivalent rate of 44.8% in 1993 was slightly above the 44.2%
rate in 1992, reflecting changes in federal and state tax laws. The effect of
the $5.0 million benefit that resulted from the adoption of SFAS No.109,
"Accounting for Income Taxes," in 1992 is not reflected in the 1992 percentage.
1992 Results Compared to 1991
Income from operations in 1992 was $22.9 million, a 78% increase over the $12.9
million earned in 1991. In addition to the benefit derived from the regulatory
assisted acquisitions of APSB in August 1992 and Sentry Savings Bank (Sentry) in
July 1991, operating results were favorably impacted by a 50 basis point
increase in the net interest margin, as the Bank's large base of core deposits
repriced more quickly in the falling rate environment than did the fixed rate
mortgage loans that make up a substantial part of the Bank's portfolio. Net
income in 1992 was $27.9 million as a result of the previously mentioned
implementation of SFAS No. 109.
During 1992 the Bank benefited from having a full year of results from the
Sentry acquisition, as well as more than four months of operations which
included APSB. As a result, average earning assets increased $482 million
compared to 1991. The Bank's loss-sharing agreement with the FDIC is an
important element of the APSB acquisition and is discussed in greater detail in
footnote 7 on page 53.
The provision for loan losses at $6.2 million in 1992 was $3.3 million lower
than in 1991 as significant improvement in asset quality ratios, due to
acquisition-related allowances, and improved performance and stability in
several major problem credits allowed the Bank to lower the provision while
maintaining an adequate allowance.
A 29% increase in other income, excluding securities gains, was due to the
increased size and activity that resulted from the acquisitions. Increases in
deposit-related fees ($1.0 million) and mortgage servicing income ($207
thousand) accounted for the gain.
Operating expenses increased $10.7 million or 42% as a result of the expanded
operation. Certain of the expenses were nonrecurring or duplicative in nature
since systems conversions and resolution of issues with the FDIC on APSB were
not finalized until 1993. OREO expense was lower in 1992 than 1991, $1.6 million
compared to $4.7 million, as the real estate market began to stabilize. However,
total OREO properties increased from $24.0 million to $28.3 million, as the
effect of the recession continued to be felt in southeastern Massachusetts.
Nonperforming loans also increased $2.1 million, due in part to the nature of
the Sentry acquisition, where the Bank received a discount on loans acquired,
but agreed to take the risk should they become nonperforming. Management feels
that the results since that acquisition indicate that the combination of
discount and the allowance established have allowed for adequate returns and
protection for the risks.
Financial Condition
Total assets increased by $102 million to $2.5 billion, while deposits grew by
$75 million to $2.2 billion as the Company continued to take advantage of the
increase in size and geographic diversity that resulted from acquisitions made
in 1991 and 1992. The lack of loan demand, the previously anticipated runoff of
shared-loss assets from the APSB acquisition and the substantial improvement in
nonperforming assets resulted in a very strong, highly liquid balance sheet as
of December 31, 1993.
36
<PAGE>
<PAGE>
An analysis of the components of earning assets as a percentage of total earning
assets follows:
(In Thousands) December 31, 1993 1992 1991
Federal funds sold and overnight deposits 0.5% 0.8% 1.2%
Securities available-for-sale 25.4 18.7 18.7
Securities held-to-maturity 17.2 19.5 16.5
Loans, net 56.9 61.0 63.6
- -----------------------------------------------------------------------
Total 100.0% 100.0% 100.0%
=======================================================================
Total securities increased $139 million and comprised 43% of earning assets at
December 31, 1993 compared to 38% at December 31, 1992. The Company adopted SFAS
No. 115, "Accounting for Certain Investments in Debt and Equity Securities," as
of December 31, 1993. In conjunction with this, the Company reevaluated the
classification of its securities with the result that securities available for
sale now total $588 million or 60% of securities compared to $416 million or 49%
of securities as of December 31, 1992. For additional discussion of SFAS No.115,
see footnote 1 on page 46.
Securities available for sale provide liquidity, facilitate interest rate
sensitivity management, and enhance the Bank's ability to respond to customers'
needs should loan demand increase and/or deposit growth slow. Securities
held-to-maturity, which totaled $399 million or 40% of securities at December
31, 1993, are those securities which the Company has the positive intent and
ability to hold to maturity. Except in a limited number of specific
circumstances, SFASNo. 115 does not allow for the transfer or sale of securities
classified as held-to-maturity. Additional information on securities can be
found in footnote 2 on page 49.
Loans
Total loans, as well as loans as a percentage of earning assets, decreased
during the year. This was due in large part to the dynamics of the APSB
portfolio. Since the acquisition of APSB, there has been an inherent loss of
loans outstanding which impacts the overall potential for loan growth at NBIS.
Former APSB loans which become nonperforming are reclassified as segregated
assets until they are resolved, thus immediately reducing the appropriate loan
category. In addition, APSB was lending to certain lines of business which NBIS
had chosen not to enter, or, in some cases, to reduce total exposure, which
meant that certain segments of the portfolio were intentionally not being
replaced. These circumstances, coupled with slow economic recovery, have
resulted in a decrease in loans outstanding that was greater than might be
expected under normal conditions. The change in the loan portfolio as a result
of the APSB acquisition and the impact of the factors mentioned above can be
most clearly seen in the schedule below which shows the composition of the
portfolio at December 31st for the last three years.
An analysis of the loan portfolio's composition as of December 31 follows:
- --------------------------------------------------------------------------------
1993 1992 1991
Residential loans 74.1% 70.5% 78.5%
Commercial real estate loans 16.6 17.2 13.5
Consumer loans 6.5 7.7 6.8
Construction loans, net of
unadvanced loan proceeds 1.5 2.0 .9
Commercial loans 1.3 2.6 .3
- --------------------------------------------------------------------------------
Total 100.0% 100.0% 100.0%
================================================================================
As seen above, the Company had a substantial increase in its
commercial/commercial real estate and consumer loan portfolios as a result of
the APSB acquisition in 1992. The commercial/commercial real estate portfolio,
in particular, decreased during 1993 for the reasons mentioned above. That,
along with the decrease in the consumer portfolio, was partially offset by a $26
million increase in residential lending. The Company remains committed to
maintaining a commercial lending presence in our marketplace, but it will be
difficult to show a net increase in that portfolio until the runoff of the
higher risk elements in the APSB portfolio is absorbed. The increase in
residential mortgages can be attributed to the continuation of the low interest
rate environment, an aggressive marketing campaign, and NBIS' reputation as a
high quality, local servicer of loans.
Asset Quality
As previously mentioned, an important aspect of the acquisition of APSB was the
loss-sharing agreement between the FDIC and NBIS. Because of some of the unique
elements of this agreement as it pertains to asset quality, there are two parts
to the discussion of asset quality. The first pertains to NBIS and includes,
where applicable, performing loans from that portfolio and related reserves. It
excludes, however, any APSB nonperforming loans covered by the loss-sharing
agreement. As a result of this, certain ratios related to nonperforming
37
<PAGE>
<PAGE>
assets and loans have been favorably impacted. APSB nonperforming loans which
fall under the loss-sharing agreement have been designated as Segregated Assets
throughout the consolidated financial statements and are, along with associated
allowances, charge-offs and recoveries, discussed separately under that caption.
Because of the structure of the agreement, there have been very few APSB
nonperforming assets that were not covered by the agreement ($38 thousand as of
December 31, 1993), so for discussion purposes the term "shared-loss" will not
be used when discussing APSB nonperforming loans or segregated assets.
Under the terms of the loss-sharing agreement, the FDIC reimburses NBIS for 80%
of any losses, net of recoveries, associated with any commercial, commercial
real estate, residential mortgage and home equity loans that occur during the
three years following the acquisition. Effectively, only consumer loans are
excluded from the loss sharing. The agreement also provides for the
reimbursement of carrying costs on nonperforming assets at a previously agreed
upon rate of interest, as well as 80% of direct collection costs for
nonperforming assets.
During the fourth and fifth years following the acquisition, the Bank will pay
to the FDIC an amount equal to 80% of the gross amount of recoveries during such
period which pertain to amounts charged-off during the three years following the
acquisition. If at the end of the five year period, total net charge-offs exceed
$49 million, the FDIC will pay the Bank an amount equal to 15% of the difference
between net charge-offs and $49 million. Through December 31, 1993, net
charge-offs amounted to $7.9 million.
Nonperforming Assets
Nonperforming assets decreased 35% to $36.7 million, the lowest year-end level
since December 31, 1989. While, as evident in the table below, all major
categories achieved decreases, the reductions in commercial/commercial real
estate and other real estate owned represent significant achievements for the
Company. The softness of the regional economy and the slow recovery from the
recession is apparent in the slower rate of improvement in nonperforming
residential real estate loans. However, since these loans tend to be smaller
individually and represent a broader diversification of risk, the fact that they
account for a greater percentage of nonperforming loans at December 31, 1993
than the prior year is additional evidence of the improvement in asset quality.
Included in nonperforming assets are assets acquired when NBIS purchased Sentry
in 1991. In that transaction, the Bank received a significant discount on assets
purchased as part of the transaction, but retained the credit risk. Former
Sentry assets included in nonperforming assets were $3.1 million, $3.5 million
and $1.2 million at December 31, 1993, 1992 and 1991, respectively. However,
with more than two years having passed since the acquisition, management
believes that the discount received was more than adequate to provide an
acceptable return as well as protection for the risks associated with the
assets.
The following table shows the composition of nonperforming assets
as of December 31:
- --------------------------------------------------------------------------------
(In Thousands) 1993 1992 1991
Nonperforming Loans:
Residential real estate $ 6,307 $ 8,365 $ 7,457
Commercial real estate 9,096 19,742 18,686
Commercial -- 11 150
Consumer 67 377 83
- --------------------------------------------------------------------------------
Total nonperforming loans 15,470 28,495 26,376
- --------------------------------------------------------------------------------
Other real estate owned:
Real estate acquired by foreclosure 17,861 13,320 11,161
Real estate substantively foreclosed 2,375 12,514 10,005
Investment in condominium project 1,000 2,499 2,787
- --------------------------------------------------------------------------------
Total other real estate owned 21,236 28,333 23,953
- --------------------------------------------------------------------------------
Total nonperforming assets $36,706 $56,828 $50,329
================================================================================
Total nonperforming assets as a
percentage of total assets 1.5% 2.4% 2.9%
Allowance for loan losses as a percentage of total
nonperforming loans 191% 121% 64%
Restructured loans that are performing and
not included above $6,182 $10,064 $11,343
Of the $15.5 million in nonperforming loans as of December 31, 1993, $2.8
million are being paid in accordance with contractual terms and are included
with nonperforming loans because of a perceived collateral weakness. These loans
will be candidates to return to accrual status if this positive trend continues
during 1994.
One disappointment amidst the positive developments in 1993 was the continuation
of high levels of OREO provisions and operating expenses. This was due in part
38
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<PAGE>
to a concerted effort on the part of the Company to sell these properties, an
effort which resulted in a decrease of $7.1 million in OREO balances during the
year. It was also due to the depth of the economic recession in the region,
which impacted both the commercial and residential real estate markets. While
the economy of the region continues to be troubled, and there is evidence that
certain sectors of the real estate market have not yet improved, management
feels that the aggressive actions taken in 1993 have positioned the Company to
withstand the negative trends and be well-positioned to take advantage of any
improvement that might occur in 1994. Notwithstanding that, it is possible that
additional provisions will be required in the future.
Allowance for Loan Losses
The Company's methodology for determining the adequacy of the allowance for loan
losses is based on recurring evaluations of a number of factors, including the
composition of the portfolio, historic loan loss experience for categories of
loans, current and anticipated economic conditions, nonperforming loan levels
and trends, specific credit reviews, and the results of regulatory examinations,
as well as subjective factors. Since the allowance is established, in part, as a
result of an analysis of the risk elements of the various parts of the
portfolio, an allocation of the allowance to various loan categories results
from the process. However, while that allocation represents management's best
judgement as to risk, it should be understood that the allowance itself is
available as a single unallocated allowance to address any problems that may
occur in the portfolio. In 1993 management changed the method of allocation in
order to better differentiate between the allocated and the unallocated portion
of the allowance. Prior to 1993 the Company assigned all of the allowance,
including an unallocated portion, to specific loan categories.
The following tables show average loans, an analysis of the allowance for loan
losses, including charge-offs and recoveries, and the allocation of the
allowance for the past five years:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
(In Thousands) 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C>
Average loans outstanding during the year $1,332,974 $1,144,565 $979,805 $942,797 $917,763
====================================================================================================================================
Loans outstanding at year-end $1,319,287 $1,355,038 $1,033,006 $926,822 $941,076
====================================================================================================================================
Allowance for loan losses, beginning of year $34,588 $16,988 $ 9,391 $ 6,260 $2,136
Loans charged off:
Commercial (7,199) (3,137) (1,132) (2,443) (235)
Real estate-construction -- -- (3,626) (4,196) --
Real estate-residential (1,811) (1,613) (1,440) (830) --
Consumer (342) (255) (64) (91) (30)
- ------------------------------------------------------------------------------------------------------------------------------------
Total (9,352) (5,005) (6,262) (7,560) (265)
- ------------------------------------------------------------------------------------------------------------------------------------
Recoveries:
Commercial 909 7 2 2 --
Real estate-construction -- -- 5 3 --
Real estate-residential 275 127 166 25 --
Consumer 91 8 4 2 4
- ------------------------------------------------------------------------------------------------------------------------------------
Total 1,275 142 177 32 4
- ------------------------------------------------------------------------------------------------------------------------------------
Net loans charged off (8,077) (4,863) (6,085) (7,528) (261)
Transfer to segregated assets (215) (1,752) -- -- --
Provision for loan losses charged to operations 3,300 6,215 9,496 10,659 4,385
Allowance attributable to acquisitions -- 18,000 4,186 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Allowance for loan losses, at year-end $29,596 $34,588 $16,988 $ 9,391 $6,260
====================================================================================================================================
Net loans charged off as a percentage of average
loans outstanding .61% .42% .62% .80% .03%
====================================================================================================================================
The allowance for loan losses was allocated to the categories of loans as of December 31, as follows:
- ------------------------------------------------------------------------------------------------------------------------------------
(In Thousands) 1993 1992 1991 1990 1989
Commercial/commercial real estate $12,920 $20,808 $12,459 $4,448 $1,573
Real estate-residential 7,579 7,245 3,984 1,785 1,251
Consumer 1,690 5,950 345 170 193
Real estate-construction 182 585 200 2,988 3,243
Unallocated 7,225 -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
$29,596 $34,588 $16,988 $9,391 $6,260
====================================================================================================================================
</TABLE>
39
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Notwithstanding the foregoing allocations, the entire allowance for loan losses
is available to absorb charge-offs in any category of loans.
The decline in nonperforming loans, coupled with the decline in commercial loans
as a percentage of the loan portfolio, allowed the Company to decrease the total
allowance from $34.6 million to $29.6 million while maintaining strong asset
quality ratios. The allowance totaled 2.24% of total loans at December 31, 1993
compared to 2.55% the prior year, while the allowance equaled 191% of
nonperforming loans compared to 121% at the respective year ends. Net
charge-offs as a percentage of loans increased from .42% of average loans
outstanding in 1992 to .61% in 1993. Included in the net charge-offs was a $1.4
million charge-off related to the return to accrual of a large shared national
credit. Excluding that amount, the net charge-off percentage would have been
.50%, lower than 1990 and 1991, though higher than the 1992 percentage. Net
charge-offs remained high in 1993, reflecting the continuing problems in the
economy; however, the Company was able to reduce the provision for losses to the
lowest level since 1988 as a result of the improvement in asset quality
mentioned above.
Segregated Assets
Because of the loss-sharing agreement with the FDIC, nonperforming APSB assets
that are covered by the loss- sharing agreement are disclosed separately on the
consolidated balance sheets under the caption, "Segregated Assets." Included in
this amount are nonperforming loans and OREO and in-substance foreclosures, net
of an allowance for losses which is deemed adequate to cover NBIS' potential
losses from the current balance in the category.
An analysis of segregated assets follows:
- --------------------------------------------------------------------------------
(In Thousands) December 31, 1993 1992
Nonperforming loans $ 5,954 $ 7,398
In-substance foreclosures 3,168 3,559
Acquired by foreclosure 1,132 --
Deferred income (340) --
- --------------------------------------------------------------------------------
9,914 10,957
Allowance for losses (992) (1,096)
- --------------------------------------------------------------------------------
Total $ 8,922 $ 9,861
================================================================================
At December 31, 1993, $9.9 million of segregated assets represented an exposure
to NBIS of $2.0 million. An allowance of $1.0 million or 50% of the exposure was
considered adequate by management. During the year, $215 thousand of allowance
was transferred to segregated assets and $319 thousand of charge-offs were
taken, representing NBIS' 20% share of the losses. Since the acquisition of APSB
in August 1992, $2.0 million of allowances have been transferred and $975
thousand of charge-offs taken. While management remains cautious because of the
lack of historic experience with the APSB portfolio, credit loss experience to
date has been satisfactory. The allowance established as part of the transaction
appears to be adequate to cover both shared losses and NBIS' exposure after the
agreement expires.
Other Assets
Decreases in goodwill, core deposits and other intangibles ($3.2 million) and
deferred income taxes ($4.7 million) were partially offset by increases in
premises and equipment as the Bank upgraded its telephone and mortgage
processing systems during the year. The Bank established a $5.2 million core
deposit intangible for the APSB acquisition which is being amortized over 10
years on an accelerated basis. See footnote 6 on page 53 for details on
intangibles.
Deposits
Growth in average savings deposits ($220.2 million), certificates of deposit
($170.8 million) and demand deposits ($33.5 million) primarily represents the
full-year impact of APSB. However, from December 31, 1992 to December 31, 1993,
total deposits grew $74.6 million or 3.6%. While relatively low on an historic
basis, this was a noteworthy achievement in the current environment in which
many banks have been experiencing significant deposit outflows to nonbank
competitors such as mutual funds. NBIS achieved this through a combination of
competitive pricing, increased marketing, and the convenience and service
offered to our very loyal customer base. Management has been especially pleased
with the continued deposit growth experienced in Rhode Island since the APSB
acquisition.
Liquidity and Capital Resources
Liquidity refers to a bank's ability to meet funding needs for operations,
deposit outflows, loan growth and other commitments on a timely and cost
effective basis. The Bank's principal sources of liquidity are deposits, loan
40
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<PAGE>
payments and income, and investment maturities and sales. In addition, the Bank
is a member of the Federal Home Loan Bank (FHLB), where it has access to a
pre-approved line of credit, as well as additional borrowing capacity. The Bank
has had no borrowings from the FHLB since 1990. The marketability of certain
assets, such as loans, that can be sold or securitized provides another
potential source of liquidity. During the last three years, through a
combination of acquisitions, limited loan growth due to the recession, and
run-off of higher risk loans that were acquired, the Bank has become
increasingly liquid. At December 31, 1993, the ratio of loans to deposits was
61% compared to 65% a year earlier and 68% at December 31, 1991. The Bancorp's
source of liquidity is dividends from the Bank.
The cornerstone of NBIS' liquidity position is a large and stable base of core
deposits. In addition, the relatively short maturity and duration of the Bank's
securities portfolio, of which almost 60% is classified as available-for- sale,
provides a significant liquidity reserve. While the current economic environment
has created a situation where the Bank is very liquid, management of liquidity
remains an important element of managing risk in the Bank.
The Company and the Bank continued to maintain strong capital positions during
1993, far exceeding regulatory requirements. A strong capital position not only
allows the organization to withstand adverse developments which may occur
unexpectedly, but also provides a means of taking advantage of profitable
investment opportunities that may arise. During 1993 stockholders' equity
increased from $227.8 million to $254.9 million. While this was primarily the
result of retained earnings, stockholders' equity in 1993 includes $6.8 million
(after-tax) of unrealized gains on securities available-for-sale. The inclusion
of these gains in stockholders' equity in 1993 is the result of the Company's
adoption of SFASNo. 115. In recognition of the record net income and the strong
capital position, the Board of Directors increased the dividend to stockholders
twice during 1993 and four times between the fourth quarter of 1992 and first
quarter of 1994. In 1993 dividends paid totaled $1.04 per share, 24% higher than
the $.84 paid in 1992. The table below shows the regulatory capital ratios for
both the Bancorp and the Bank. For regulatory capital purposes, the impact of
SFASNo. 115 has not yet been authorized.
- --------------------------------------------------------------------------------
Minimum
Regulatory
Bancorp Bank Requirement
Tier 1 capital to risk-weighted assets 19.2% 19.2% 4.0%
Total risk-based capital ratio 20.3% 20.2% 8.0%
Leverage capital ratio 10.2% 10.0% 3.0 to 5.0%
Asset/Liability Management
A major source of earnings for the Bank is net interest income, the difference
in interest received from interest- bearing assets and interest paid on interest
bearing liabilities. Financial institutions are subject to interest rate risk
when their interest-bearing liabilities mature or reprice more or less rapidly
than their interest-earning assets. The objective of asset/liability management
is to achieve an acceptable level of net interest income while prudently
managing the risk inherent in the balance sheet. NBIS has an Asset/Liability
Management Committee whose primary function is to monitor the Bank's interest
sensitivity position or risk, and insure that the level of risk and options
available to adjust the risk are communicated to management and the board. Among
the factors that are considered in determining an acceptable level of risk are
lending strategies, capital adequacy, the stability of the deposit base, the
maturity and duration of the securities portfolio, particularly securities
available-for-sale, and the economic outlook. At December 31, 1993, the Company
had a one-year liability-sensitive gap of $397 million or 16.2%. This compares
with a liability-sensitive gap of $1.2 billion or 50.0% at December 31, 1992.
Analysis of the Bank's non-certificate deposit accounts in 1993 shows that only
a portion of regular savings, money market deposit and NOW accounts are
rate-sensitive. Deposit balances have been distributed accordingly in the 0 to
5-year time bands, which was not the case in 1992. In accordance with the
proposed Federal Reserve guidelines for risk-based capital standards which
account for interest rate risk, no amounts related to such deposit accounts are
placed beyond five years.
The Company does not try to manage to a zero GAP, believing that some interest
rate risk is acceptable as part of the Bank's overall strategy for growth and
profitability. One factor which affected the Bank's GAP position in 1993 was the
fact that those APSB loans which matured, or were not renewed for risk
considerations, were primarily adjustable rate commercial/commercial real estate
loans, which represented lower interest rate risk, but which were, in the
opinion of management, greater credit risks. Thus, in evaluating the interaction
of the various risk elements of the consolidated balance sheets, this is a case
where management sought to lower credit risk while retaining a little more
interest rate risk than they might otherwise have.
Recent Accounting Developments
For further information on recent accounting developments, refer to footnotes 1,
2, 9, and 14 to the consolidated financial statements contained elsewhere
herein.
41
<PAGE>
<PAGE>
NBB Bancorp, Inc. and Subsidiary
Consolidated Balance Sheets
<TABLE>
<CAPTION>
(In Thousands, Except Share Data) December 31, 1993 1992
ASSETS:
<S> <C> <C>
Cash and due from banks $ 65,876 $ 56,373
Federal funds sold and overnight deposits 11,000 17,262
- ------------------------------------------------------------------------------------------------------------------------------------
Total cash and cash equivalents 76,876 73,635
- ------------------------------------------------------------------------------------------------------------------------------------
Securities available-for-sale: at fair value in 1993 and lower of cost or market
in 1992 (cost of $576,790 in 1993; market value of $417,910 in 1992) 588,442 415,597
Securities held-to-maturity: market value of $409,713 and $443,264 399,453 432,977
Loans 1,319,287 1,355,038
Allowance for loan losses (29,596) (34,588)
- ------------------------------------------------------------------------------------------------------------------------------------
Loans, net 1,289,691 1,320,450
- ------------------------------------------------------------------------------------------------------------------------------------
Banking premises and equipment, net 22,794 18,370
Accrued interest receivable 18,949 18,742
Other real estate owned 21,236 28,333
Goodwill, core deposit and other intangibles 15,451 18,622
Deferred income tax asset, net 3,915 8,621
Segregated assets 8,922 9,861
Other assets 5,007 3,345
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets $ 2,450,736 $ 2,348,553
====================================================================================================================================
Liabilities and Stockholders' Equity:
Deposits $ 2,169,256 $ 2,094,611
Mortgagors' escrow payments 5,621 5,343
Accrued interest payable 5,946 5,139
Accrued income taxes payable 7,202 5,297
Long-term debt -- 283
Due to Federal Deposit Insurance Corporation -- 2,889
Accrued expenses and other liabilities 7,761 7,197
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities 2,195,786 2,120,759
- ------------------------------------------------------------------------------------------------------------------------------------
Stockholders' equity:
Serial preferred stock, $0.10 par value, 10,000,000 shares authorized; none issued -- --
Common stock, $0.10 par value, 40,000,000 shares authorized; 9,529,430 and
9,463,827 shares issued and outstanding 953 946
Additional paid-in capital 134,240 133,274
Retained earnings 122,926 103,798
Treasury stock, at cost, 873,433 shares (9,941) (9,941)
- ------------------------------------------------------------------------------------------------------------------------------------
248,178 228,077
Unrealized appreciation on securities available-for-sale, net 6,772 --
Unearned compensation--ESOP -- (283)
- ------------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 254,950 227,794
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 2,450,736 $ 2,348,553
====================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
42
<PAGE>
<PAGE>
NBB Bancorp, Inc. and Subsidiary
Consolidated Statements of Income
<TABLE>
<CAPTION>
(In Thousands, Except Share Data) Years Ended December 31, 1993 1992 1991
<S> <C> <C> <C>
Interest and Dividend Income:
Interest and fees on loans $113,184 $105,074 $ 97,247
Interest and dividends on securities 53,402 43,937 26,362
Other interest 3,758 2,329 3,385
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest and dividend income 170,344 151,340 126,994
- ------------------------------------------------------------------------------------------------------------------------------------
Interest Expense:
Interest on deposits 73,733 76,588 78,540
Interest on long-term debt -- 7 28
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest expense 73,733 76,595 78,568
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income 96,611 74,745 48,426
Provision for loan losses 3,300 6,215 9,496
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 93,311 68,530 38,930
- ------------------------------------------------------------------------------------------------------------------------------------
Non-Interest Income:
Deposit and other banking fees 5,827 3,724 2,504
Gain on sales of securities, net 3,859 5,377 9,647
Other income 1,642 1,460 1,521
- ------------------------------------------------------------------------------------------------------------------------------------
Total non-interest income 11,328 10,561 13,672
- ------------------------------------------------------------------------------------------------------------------------------------
Operating Expenses:
Salaries and employee benefits 21,349 14,937 11,392
Temporary help 523 1,635 137
Occupancy and equipment 5,717 4,357 3,259
Deposit insurance 4,879 3,505 2,241
Data processing 3,189 2,341 1,856
Amortization of goodwill, core deposit and other intangibles 3,171 2,521 1,628
Professional fees 2,932 2,406 1,744
Office supplies, postage and telephone 2,212 1,294 1,047
Customer account servicing 1,310 774 561
Marketing 810 593 483
Insurance 791 617 456
Other 2,079 1,240 697
- ------------------------------------------------------------------------------------------------------------------------------------
Total operating expenses 48,962 36,220 25,501
- ------------------------------------------------------------------------------------------------------------------------------------
Other Expenses:
OREO expense 5,299 1,596 4,709
Equity in loss (income) of unconsolidated subsidiary (519) 211 86
- ------------------------------------------------------------------------------------------------------------------------------------
Total other expenses 4,780 1,807 4,795
- ------------------------------------------------------------------------------------------------------------------------------------
Total expenses 53,742 38,027 30,296
- ------------------------------------------------------------------------------------------------------------------------------------
Income before income taxes and cumulative effect
of a change in accounting principle 50,897 41,064 22,306
Provision for income taxes 22,805 18,136 9,415
- ------------------------------------------------------------------------------------------------------------------------------------
Income from operations 28,092 22,928 12,891
Cumulative effect of change in accounting for income taxes -- 5,000 --
Net income $ 28,092 $ 27,928 $ 12,891
====================================================================================================================================
Earnings Per Share:
Income from operations $3.26 $2.68 $1.51
Cumulative effect of change in accounting for income taxes -- 0.58 --
Net income per share 3.26 3.26 1.51
Dividends per common share 1.04 0.84 0.64
Weighted average common shares outstanding 8,615,399 8,565,279 8,559,995
====================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
43
<PAGE>
<PAGE>
NBB Bancorp, Inc. and Subsidiary
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
(In Thousands, Except Share Data) Net
Net Unrealized
Unrealized Appre-
Years Ended Loss on ciation on Unearned
December 31, Additional Marketable Securities Compen-
1993, 1992, Common Paid-in Retained Treasury Equity Available- sation--
and 1991 Stock Capital Earnings Stock Securities for-Sale ESOP Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1990 $943 $132,871 $ 75,652 $(9,941) $(717) $ -- $(849) $197,959
Net income -- -- 12,891 -- -- -- -- 12,891
Cash dividends
declared ($.64
per share) -- -- (5,478) -- -- -- -- (5,478)
Decrease in net
unrealized loss on
marketable equity
securities, net of
deferred income tax
benefit of $388 -- -- -- -- 717 -- -- 717
Decrease in unearned
compensation--ESOP -- -- -- -- -- -- 284 284
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at
December 31, 1991 943 132,871 83,065 (9,941) -- -- (565) 206,373
Net income -- -- 27,928 -- -- -- -- 27,928
Issuance of common
stock under stock
option plan
(30,399 shares) 3 403 -- -- -- -- -- 406
Cash dividends
declared ($.84
per share) -- -- (7,195) -- -- -- -- (7,195)
Decrease in unearned
compensation--ESOP -- -- -- -- -- -- 282 282
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at
December 31, 1992 946 133,274 103,798 (9,941) -- -- (283) 227,794
Net income -- -- 28,092 -- -- -- -- 28,092
Issuance of common
stock under stock option
plan (65,603 shares) 7 966 -- -- -- -- -- 973
Cash dividends declared
($1.04 per share) -- -- (8,964) -- -- -- -- (8,964)
Unrealized appreciation
on securities available-
for-sale, net of deferred
income tax expense
of $4,880 -- -- -- -- -- 6,772 -- 6,772
Decrease in unearned
compensation--ESOP -- -- -- -- -- -- 283 283
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at
December 31, 1993 $953 $134,240 $122,926 $(9,941) $ -- $6,772 $ -- $254,950
====================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
44
<PAGE>
<PAGE>
NBB Bancorp, Inc. and Subsidiary
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
(In Thousands) Years Ended December 31, 1993 1992 1991
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $ 28,092 $ 27,928 $ 12,891
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses 3,300 6,215 9,496
Provision for OREOlosses 3,685 977 3,754
Gain on sales of securities, net (3,859) (5,377) (9,647)
Net accretion of investments, loans and deposits (532) (1,599) (1,531)
Accretion of deferred loan fees (2,457) (2,448) (1,961)
Amortization of goodwill, core deposit and other intangibles 3,171 2,521 1,628
Savings Bank Life Insurance stock distribution -- (500) --
Depreciation expense 1,260 1,124 943
Increase in deferred income taxes (174) (4,825) (1,264)
Decrease (increase) in accrued interest receivable, due from
RTC and other assets, net (930) 21,453 (3,926)
Increase (decrease) in mortgagors' escrow payments 278 240 (1,540)
Increase (decrease) in accrued interest and income taxes payable,
due to FDIC and other liabilities, net 672 606 5,699
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 32,506 46,315 14,542
- ------------------------------------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities:
Purchase of securities available-for-sale (330,300) (669,670) (846,922)
Proceeds from sales of securities available-for-sale 248,572 489,152 655,730
Proceeds from maturities, calls and paydowns of securities
available-for-sale 32,166 77,066 3,000
Purchase of securities held-to-maturity (133,301) (128,285) (223,578)
Proceeds from sales of securities held-to-maturity 9,363 19,564 48,460
Proceeds from maturities, calls and paydowns of securities
held-to-maturity 49,494 48,078 3,500
Acquisitions of assets and assumption of liabilities
from the FDIC and RTC, net -- 87,700 222,651
Decrease in loans, net 27,301 40,574 15,057
Proceeds from loans sold 2,150 4,283 6,331
Additions to banking premises and equipment (5,684) (4,199) (632)
Decrease (increase) in other real estate owned 3,412 (3,669) 12,893
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (96,827) (39,406) (103,510)
- ------------------------------------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities:
Net increase in deposits 75,836 23,652 99,288
Principal payment on long-term debt (283) (282) --
Proceeds from issuance of common stock 973 406 --
Dividends paid on common stock (8,964) (7,195) (5,478)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 67,562 16,581 93,810
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 3,241 23,490 4,842
Cash and cash equivalents at beginning of year 73,635 50,145 45,303
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 76,876 $ 73,635 $ 50,145
====================================================================================================================================
Supplementary Cash Flow Information:
Interest paid $ 74,044 $ 78,920 $ 77,388
Income taxes paid, net 21,384 15,891 8,739
Securities available-for-sale and held-to-maturity
acquired from the FDIC -- 105,380 --
Loans acquired from the FDIC and RTC -- 375,322 153,716
Deposits assumed from the FDIC and RTC -- 557,263 394,507
Non-cash investing activities:
Foreclosures and in-substance foreclosures 17,805 10,070 22,405
Securities held-to-maturity transferred to available-for-sale 18,375 8,970 --
Adoption of Statement of Accounting Standards No. 115 6,772 -- --
====================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
45
<PAGE>
Notes to Consolidated Financial Statements
Years Ended December 31, 1993, 1992 and 1991
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Consolidation
The consolidated financial statements include the accounts of NBB Bancorp, Inc.
(the Bancorp) and its wholly-owned subsidiary, New Bedford Institution for
Savings (the Bank). The Bank has four wholly-owned subsidiaries; two engage in
leasing and development of real estate and two were established in 1993 for the
purpose of managing portions of the Bank's investment portfolio. All significant
intercompany balances and transactions have been eliminated in consolidation.
Certain prior year amounts have been reclassified so as to conform with the
presentation for the current year.
The accounting and reporting policies of the Bancorp conform to generally
accepted accounting principles and prevailing practices within the banking
industry. In preparing the consolidated financial statements, management is
required to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the consolidated balance sheet date and income and
expense for the year. Actual results could differ from those estimates. The
estimates that are particularly susceptible to change in the near-term relate to
the allowance for loan losses and valuation of other real estate owned.
Acquisitions
Pursuant to a Purchase and Assumption Agreement between the Federal Deposit
Insurance Corporation (FDIC) and the Bank, effective August 21, 1992, the Bank
acquired from the FDIC selected assets and assumed all deposits of Attleboro
Pawtucket Savings Bank (APSB).
In addition, pursuant to a Deposit Insurance Transfer and Asset Purchase
Agreement between the Resolution Trust Corporation (RTC) and the Bank, effective
July 26, 1991, the Bank acquired from the RTC selected assets and assumed the
federally insured deposits of Sentry Savings Bank, FSB (Sentry).
The acquisitions have been accounted for under the purchase method of
accounting, whereby the purchase price has been allocated to the underlying
assets acquired and liabilities assumed based on their respective fair values at
the date of acquisition. Premiums and discounts on loans acquired are amortized
and accreted as adjustments to interest income over the estimated remaining
lives of the related loans using the interest method.
Premiums and discounts on deposits assumed are amortized and accreted as
adjustments to interest expense over the remaining contractual terms of the
related deposit accounts using the straight-line method, the results of which do
not differ materially from those which would be recognized using the interest
method.
Securities
Effective December 31, 1993, the Bank adopted Statement of Financial Accounting
Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." Under SFAS No. 115, debt securities that the Bank has the positive
intent and ability to hold to maturity are classified as held-to-maturity and
reported at amortized cost; debt and equity securities that are bought and held
principally for the purpose of selling them in the near term are classified as
trading and reported at fair value, with unrealized gains and losses included in
earnings; and debt and equity securities not classified as either
held-to-maturity or trading are classified as available-for-sale and reported at
fair value, with unrealized gains and losses excluded from earnings and reported
in a separate component of stockholders' equity. The Bank classifies its
securities based on the Bank's intention at the time of purchase. The Bank has
no securities held for trading. As a result of adoption, as of December 31,
1993, stockholders' equity was increased by approximately $6,772,000,
representing the net unrealized gain on securities available-for-sale, less
applicable income taxes.
In 1992 and prior periods, debt securities intended to be held to maturity were
carried at amortized cost; marketable equity securities were carried at the
lower of aggregate cost or market value; and securities available-for-sale were
carried at the lower of cost or market value.
Premiums and discounts on debt securities are amortized or accreted to income by
use of the level-yield method. If a decline in fair value below the amortized
cost basis of a security is judged to be other than temporary, the cost basis of
the investment is written down to fair value as a new cost basis and the amount
of the write-down is included in earnings. Gains and losses on the sale of
securities are recognized at the time of sale on a specific identification
basis.
46
<PAGE>
<PAGE>
Loans
Loans are stated at the principal amount outstanding, net of deferred loan
origination fees and unadvanced loan proceeds. Loan origination fees and related
direct loan origination costs are offset and the resultant net amounts are
amortized by the level-yield method. When loans are sold or paid off, the
unamortized fees are transferred to income.
Interest is not accrued on loans which are 90 days or more past due or on other
loans which are identified as problem loans. Any interest that has been accrued
on such loans is reversed against interest income and amortization of deferred
loan fees is discontinued.
Nonperforming loans are returned to performing status when there no longer
exists concern over collectability and the borrower has demonstrated, over time,
both the intent and ability to service the loan.
Allowance for Loan Losses
The adequacy of the allowance for loan losses is evaluated on a regular basis by
management. Some of the factors considered are the composition of the loan
portfolio, previous loss experience, current economic conditions, and realizable
value of the collateral. The provision for loan losses is based upon
management's judgement of the amount necessary to maintain the allowance at a
level adequate to absorb loan losses. Loan losses are charged against the
allowance when management believes the collectability of the principal is
unlikely.
While management uses available information to evaluate the allowance for loan
losses, future additions to the allowance may be necessary based on changes in
economic conditions. 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 on their judgements of information available to them at the time
of their examination.
Banking Premises and Equipment
Buildings, improvements and equipment are stated at cost, less accumulated
depreciation, computed on the straight-line method over the estimated useful
lives of the assets or the terms of the leases, if shorter. Land is carried at
cost.
Other Real Estate Owned
Other real estate owned (OREO) includes real estate acquired by foreclosure and
real estate substantively repossessed. Real estate acquired by foreclosure is
comprised of properties acquired through foreclosure proceedings or acceptance
of a deed in lieu of foreclosure. When there is indication that a borrower no
longer has equity in the property collateralizing a loan and it is doubtful that
equity will be rebuilt in the foreseeable future, the property is considered
repossessed in substance. Both in-substance foreclosures and real estate
formally acquired in settlement of loans are recorded at the lower of the
carrying value of the loan or the market value of the property constructively or
actually received, less estimated costs to sell the property following
foreclosures. Loan losses arising from the acquisition of OREO properties are
charged against the allowance for loan losses.
After foreclosure, if the fair value of the property, less estimated costs to
sell, is less than the cost of the asset, then this amount is recognized as a
valuation allowance. If the fair value of the asset, less estimated costs to
sell, subsequently increases, and this amount is more than the asset's current
carrying value, then the valuation allowance is reversed.
Operating expenses and any subsequent provisions to reduce the carrying value to
fair market value less costs to sell in 1993, and to net realizable value prior
to 1993, are charged to current period earnings. Gains upon disposition are
reflected in earnings as realized. Realized losses are charged to the valuation
allowance.
Goodwill, Core Deposit and Other Intangibles
Costs in excess of net assets acquired or goodwill, core deposit intangibles,
and organization costs for the Bancorp are reported net of accumulated
amortization. Goodwill is amortized on a straight-line basis over a period of up
to 15 years. The excess of the purchase price over the fair value of the
tangible net assets acquired from the FDIC and RTC has been allocated to core
deposits and is amortized over a period of ten years using an accelerated
method. Organization costs are amortized on a straight-line basis over a
five-year period.
47
<PAGE>
<PAGE>
Income Taxes
Effective January 1, 1992, the Bancorp recognizes income taxes under the asset
and liability method. Under this method, deferred tax assets and liabilities are
established for the temporary differences between the accounting basis and the
tax basis of the Bancorp's assets and liabilities at enacted tax rates expected
to be in effect when the amounts related to such temporary differences are
realized or settled. The adoption of this method as of January 1, 1992, resulted
in the recognition of additional deferred income tax benefit of $5,000,000,
which has been reported as the cumulative effect of an accounting change.
Prior to January 1, 1992, the Bancorp recognized income taxes under the deferred
method. Under this method, annual income tax expense was matched with pretax
accounting income by providing deferred taxes at current tax rates for timing
differences between income reported for accounting purposes and that reported
for tax purposes.
Pension Benefits
The Bank provides pension benefits to its employees under a non-contributory
defined benefit plan which is funded on a current basis in compliance with the
requirements of the Employee Retirement Income Security Act of 1974.
Earnings Per Share
Per share calculations are based on the weighted average number of common and
common equivalent shares outstanding. Stock options, when dilutive, are included
as common stock equivalents using the treasury stock method.
48
<PAGE>
<PAGE>
2. Securities Available-for-Sale and Held-to-Maturity
As discussed in Note 1, effective December 31, 1993, the Bancorp adopted SFAS
No. 115, "Accounting for Certain Investments in Debt and Equity Securities." The
amortized cost and estimated market values of securities available-for-sale and
securities held-to-maturity are as follows:
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(In Thousands) December 31, 1993 1992
Gross Gross Estimated Gross Gross Estimated
Amortized Unrealized Unrealized Market Amortized Unrealized Unrealized Market
Cost Gains Losses Value Cost Gains Losses Value
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Securities available-for-sale:
U.S. Government
and Federal agency
obligations $503,559 $11,629 $(1,132) $514,056 $406,627 $ 3,899 $(1,586) $408,940
Debt securities
issued by foreign
governments 5,000 5 -- 5,005 -- -- -- --
Corporate debt
securities 60 14 -- 74 -- -- -- --
Mortgage-backed
securities 40,826 711 (317) 41,220 -- -- -- --
Marketable
equity securities 15,314 1,514 (772) 16,056 -- -- -- --
Other equity
securities 12,031 -- -- 12,031 8,970 -- -- 8,970
- ---------------------------------------------------------------------------------------------------------------
Total securities
available-for-sale $576,790 $13,873 $(2,221) $588,442 $415,597 $ 3,899 $(1,586) $417,910
===============================================================================================================
Securities held-to-maturity:
U.S. Government
and Federal agency
obligations $ 2,575 $ -- $ (7) $ 2,568 $ 47,198 $ 2,480 $ (12) $ 49,666
Debt securities
issued by political
subdivisions of states 160 -- -- 160 -- -- -- --
Debt securities issued
by foreign governments -- -- -- -- 3,000 -- -- 3,000
Corporate debt
securities 121,749 5,600 (27) 127,322 118,640 4,210 (117) 122,733
Mortgage-backed
securities 25,136 193 (18) 25,311 37,646 464 (304) 37,806
Other debt
securities 249,833 4,963 (444) 254,352 210,386 4,071 (902) 213,555
Marketable
equity securities -- -- -- -- 16,107 1,226 (829) 16,504
- ---------------------------------------------------------------------------------------------------------------
Total securities
held-to-maturity $399,453 $10,756 $(496) $409,713 $432,977 $12,451 $(2,164) $443,264
===============================================================================================================
</TABLE>
The amortized cost and estimated market value of debt securities at December 31,
1993, by contractual maturity, are shown below. Expected maturities may differ
from contractual maturities because of prepayments on mortgage-backed securities
and certain obligors have the right to call obligations without prepayment
penalties.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
(In Thousands) Securities Available-for-Sale Securities Held-to-Maturity
Amortized Estimated Amortized Estimated
Cost Market Value Cost Market Value
<S> <C> <C> <C> <C>
Due in one year or less $ 37,080 $ 37,397 $100,642 $101,904
Due after one year through five years 446,232 455,951 266,489 274,855
Due after five years through ten years 31,247 31,640 6,883 7,340
Due after ten years 34,886 35,367 25,439 25,614
- ---------------------------------------------------------------------------------------------------------------
Total $549,445 $560,355 $399,453 $409,713
===============================================================================================================
</TABLE>
49
<PAGE>
<PAGE>
Proceeds from sales of securities available-for-sale during 1993, 1992 and 1991
were $248,572,000, $489,152,000 and $655,730,000, respectively. Gross gains of
$2,857,000, $6,402,000 and $8,689,000 and gross losses of $40,000, $1,605,000
and $55,000 were realized on those sales.
Proceeds from sales of debt securities held-to-maturity during 1992 and 1991
were $8,217,000 and $30,595,000, respectively. Gross gains of $59,000 and
$382,000 and gross losses of $148,000 and $73,000 were realized on those sales.
There were no sales of debt securities held-to-maturity in 1993. Proceeds from
the sales of equity securities during 1993, 1992 and 1991 were $9,363,000,
$11,347,000 and $17,934,000, respectively. Gross gains of $1,586,000, $1,268,000
and $2,282,000 and gross losses of $192,000, $599,000 and $853,000 were realized
on those sales. Included in net realized gains for the years ended December 31,
1993 and 1991 are write-downs of $352,000 and $254,000, respectively, in certain
equity securities and $471,000 in 1991 in certain debt securities, which
represented other than temporary declines in value.
As a member of the Federal Home Loan Bank of Boston (FHLB), the Bank is required
to invest in $100 par value stock of the FHLB in an amount equal to 1% of its
outstanding residential mortgage loans or 5% of the Bank's advances from the
FHLB, whichever is higher. If redeemed, the Bank will receive an amount equal to
the par value of the stock. The Bank's investment in FHLB stock is included in
other equity securities.
At December 31, 1993 and 1992, securities with a book value of $4,000,000 and
$6,000,000, respectively, were pledged as collateral for the Bank's treasury tax
and loan account at the Federal Reserve Bank of Boston.
3. Loans, Net
A summary of the balances of loans follows:
- -------------------------------------------------------------------------------
(In Thousands) December 31, 1993 1992
Residential:
Residential real estate $ 983,483 $ 959,781
Residential construction to individuals 23,622 18,782
- ------------------------------------------------------------------------------
1,007,105 978,563
Less:
Unadvanced loan proceeds (9,557) (7,272)
Deferred loan origination fees, net (5,598) (5,057)
- ------------------------------------------------------------------------------
Total residential loans 991,950 966,234
- ------------------------------------------------------------------------------
Commercial:
Real estate 218,901 232,953
Construction 9,284 19,048
- ------------------------------------------------------------------------------
228,185 252,001
- ------------------------------------------------------------------------------
Commercial and industrial 16,852 35,169
- ------------------------------------------------------------------------------
245,037 287,170
Less:
Unadvanced loan proceeds (2,652) (2,836)
Deferred loan origination fees, net (267) (274)
- ------------------------------------------------------------------------------
Total commercial loans 242,118 284,060
- ------------------------------------------------------------------------------
Consumer:
Home equity and second mortgages 61,086 71,832
Other consumer 24,133 32,912
- ------------------------------------------------------------------------------
Total consumer loans 85,219 104,744
- ------------------------------------------------------------------------------
Total loans 1,319,287 1,355,038
Less allowance for loan losses (29,596) (34,588)
- ------------------------------------------------------------------------------
Loans, net $ 1,289,691 $ 1,320,450
==============================================================================
The Bank's lending activities are conducted principally in Massachusetts and
Rhode Island. The Bank grants single-family and multi-family residential loans,
commercial real estate loans, commercial loans and a variety of consumer loans.
In addition, the Bank grants loans for the construction of residential homes,
multi-family properties, commercial real estate properties and for land
development. Most loans granted by the Bank are collateralized by real estate.
The ability and willingness of the single-family residential and consumer
borrowers to honor their repayment commitments is generally dependent on the
level of overall economic activity within the borrowers' geographic areas and
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real estate values. The ability and willingness of commercial real estate, and
commercial and construction loan borrowers to honor their repayment commitments
is generally dependent on the health of the real estate sector in the borrowers'
geographic areas and the general economy.
Certain directors and executive officers of the Bank (including their immediate
families), and companies in which they are principal owners, are borrowers of
the Bank. Such loans are made in the ordinary course of business at the Bank's
normal credit terms, including interest rates and collateralization.
An analysis of aggregate loan activity to these related parties for the year
ended December 31, 1993 follows:
- -------------------------------------------------------------------------------
(In Thousands)
Balance at beginning of year $ 1,549
New loans granted during the year 337
Repayments (335)
- -------------------------------------------------------------------------------
Balance at end of year $ 1,551
===============================================================================
As of December 31, 1993, all loans to related parties were performing in
accordance with their contractual terms.
An analysis of the allowance for loan losses follows:
- -----------------------------------------------------------------------------
(In Thousands) Years Ended December 31, 1993 1992 1991
Balance at beginning of year $ 34,588 $ 16,988 $ 9,391
Provision for loan losses 3,300 6,215 9,496
Allowance on acquired loans -- 18,000 4,186
Recoveries 1,275 142 177
- -----------------------------------------------------------------------------
39,163 41,345 23,250
Transfers to segregated assets (215) (1,752) --
Charge-offs (9,352) (5,005) (6,262)
- -----------------------------------------------------------------------------
Balance at end of year $ 29,596 $ 34,588 $ 16,988
=============================================================================
Nonaccrual loans at December 31, 1993 and 1992 totaled $15,470,000 and
$28,495,000, respectively. Restructured loans at December 31, 1993 and 1992
totaled $6,182,000 and $10,064,000, respectively. An analysis of the reduction
in interest income due to nonaccrual and restructured loans follows:
- -----------------------------------------------------------------------------
(In Thousands) Years Ended December 31, 1993 1992 1991
Income in accordance with original loan terms $1,606 $4,553 $8,345
Income recognized 561 1,271 4,458
- -----------------------------------------------------------------------------
Reduction in interest income $1,045 $3,282 $3,887
=============================================================================
The Bank serviced loans for others totaling $120.8 million, $156.3 million and
$28.5 million at December 31, 1993, 1992 and 1991, respectively.
In May 1993 the FASB issued SFAS No. 114, "Accounting by Creditors for
Impairment of a Loan," which is effective for the Bancorp on January 1, 1995.
This statement provides guidance on identifying impaired loans and measuring the
impairment of those loans. Generally, the quantification of the impairment of a
loan under this statement requires the discounting of expected future cash flows
at the loan's original effective rate as opposed to the utilization of a market
rate. In addition, the criteria for classifying a loan as an in-substance
foreclosure was modified so that such classification applies only when a
creditor has possession of the loan collateral. The effect of adopting this
statement has not been fully determined but is not expected to have a material
adverse impact on the Bancorp's consolidated financial statements.
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4. Banking Premises and Equipment, Net
A summary of the cost and accumulated depreciation of banking premises and
equipment, and their estimated useful lives follows:
- ------------------------------------------------------------------------------
Estimated
(In Thousands) December 31, 1993 1992 Useful Lives
Land $ 3,828 $ 3,878 --
Buildings 19,413 14,597 10-50 years
Furniture and equipment 8,499 7,646 3-20 years
- ------------------------------------------------------------------------------
31,740 26,121
Less accumulated depreciation (8,946) (7,751)
- ------------------------------------------------------------------------------
Balance at end of year $ 22,794 $ 18,370
==============================================================================
Total depreciation expense for the years ended December 31, 1993, 1992, and 1991
amounted to $1,206,000, $1,075,000 and $875,000, respectively.
5. Other Real Estate Owned
A summary of other real estate owned follows:
- ------------------------------------------------------------------------------
(In Thousands) December 31, 1993 1992
Real estate acquired by foreclosure $17,861 $13,320
Real estate substantively repossessed 2,375 12,514
Investment in condominium project held for sale 1,000 2,499
- ------------------------------------------------------------------------------
Balance at end of year $21,236 $28,333
==============================================================================
The carrying value of other real estate owned was written down by a charge to
earnings of $977,000 and $3,101,000 in 1992 and 1991, respectively. The
condominium project was written down by $800,000 and $653,000, during 1993 and
1991, respectively. There was no write-down of this investment in 1992. During
the years ended December 31, 1993, 1992, and 1991, proceeds from the sales of
condominium units were applied to the carrying value of the project.
An analysis of properties held in real estate acquired by foreclosure or
substantively repossessed follows:
- ------------------------------------------------------------------------------
(In Thousands) December 31, 1993 1992
Commercial buildings $ 8,469 $ 10,912
Land--residential 5,758 5,908
Residential property, primarily 1 to 4 family 4,173 5,247
Residential condominiums 1,248 2,196
Land--commercial 1,149 1,571
- ------------------------------------------------------------------------------
20,797 25,834
Valuation allowance (561) --
- ------------------------------------------------------------------------------
Total $ 20,236 $ 25,834
==============================================================================
In 1993, a valuation allowance was established. Provisions are charged to
expense as they are made. The provisions for 1993 totaled $2,885,000 while
write-downs charged to the allowance totaled $2,324,000.
An analysis of OREO expense follows:
- ------------------------------------------------------------------------------
(In Thousands) Years Ended December 31, 1993 1992 1991
Provision for losses $2,885 $ -- $ --
OREOoperating expenses 1,614 619 955
Write-down of condominium project held for sale 800 -- 653
OREO write-downs -- 977 3,101
- ------------------------------------------------------------------------------
$5,299 $1,596 $4,709
==============================================================================
Included in other non-interest income for 1993, 1992 and 1991 are gains on sales
of OREO of $468,000, $5,000 and $2,000, respectively. Rental income from
OREOproperty included in other non-interest income for 1993 was $330,000. Rental
income for OREO property in 1992 and 1991 was a component of OREO operating
expenses and is considered to be immaterial.
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6. Goodwill, Core Deposit and Other Intangibles
A summary of the components of goodwill, core deposit and other intangibles with
remaining amortization years follows:
- ------------------------------------------------------------------------------
Years to
(Dollars in Thousands) December 31, 1993 1992 Amortize
Goodwill:
Acquisition of Taunton Savings Bank $ 9,090 $ 10,039 10
Acquisition of branch offices 1,425 1,784 5
Other 21 28 3
Core deposit resulting from acquisition from FDIC 3,164 4,531 9
Core deposit resulting from acquisition from RTC 1,751 2,174 8
Organization costs -- 66 --
- ------------------------------------------------------------------------------
Total goodwill, core deposit and other intangibles $ 15,451 $ 18,622
==============================================================================
7. Segregated Assets
Segregated assets are those APSB loans acquired by the Bank that were or have
become nonaccrual, a foreclosed property, or an in-substance foreclosure. All
such loans and other real estate owned are subject to the loss-sharing
provisions of the Purchase and Assumption Agreement.
A summary of the balances of segregated assets follows:
- ------------------------------------------------------------------------------
(In Thousands) December 31, 1993 1992
Non-performing loans $ 5,954 $ 7,398
Acquired by foreclosure 1,132 --
Substantively repossessed 3,168 3,559
- ------------------------------------------------------------------------------
10,254 10,957
Less deferred income (340) --
- ------------------------------------------------------------------------------
Total segregated assets 9,914 10,957
Less allowance for losses (992) (1,096)
- ------------------------------------------------------------------------------
Segregated assets, net $ 8,922 $ 9,861
==============================================================================
An analysis of the allowance for losses on segregated assets follows:
- ------------------------------------------------------------------------------
(In Thousands) December 31, 1993 1992
Balance at beginning of year $ 1,096 $ --
Transfer from allowance for loan losses 215 1,752
Charge-offs (319) (656)
- ------------------------------------------------------------------------------
Balance at end of year $ 992 $ 1,096
==============================================================================
Under the loss-sharing provisions of the Purchase and Assumption Agreement, the
FDIC will pay to the Bank, on a quarterly basis, 80% of all net charge-offs on
APSB-acquired commercial, mortgage and home equity loans during the three-year
period commencing with August 21, 1992. Such charge-offs include losses on sales
of assets and foreclosed properties and accrued interest for up to 90 days. In
addition, the FDIC will reimburse the Bank for 80% of the aggregate amount of
the actual direct expenses incurred with respect to collection and other costs
related to shared-loss assets as defined in the Agreement.
If, at the end of the five-year period, total net charge-offs exceed
$49,034,000, the FDIC will pay the Bank an amount equal to 15% of the difference
between total net charge-offs and $49,034,000.
During the fourth and fifth years following the acquisition, the Bank will pay
to the FDIC an amount equal to 80% of the gross amount of recoveries during such
period on charge-offs of commercial, mortgage and home equity loans that
occurred during the three years following the acquisition.
During the five-year period following the acquisition, the Bank will pay to the
FDIC an amount equal to 80% of any recoveries on charge-offs of consumer loans
charged off prior to the acquisition.
The Bank is required to administer assets entitled to loss-sharing protection in
the same manner as assets for which no loss sharing exists.
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8. Deposits
The following table shows deposits at December 31, 1993 and 1992:
- ------------------------------------------------------------------------------
(In Thousands) 1993 1992
Non-certificate deposits:
Noninterest-bearing demand $ 82,253 $ 74,542
NOW 163,587 166,283
Money market 489,875 429,642
Regular and special notice 386,045 432,720
- ------------------------------------------------------------------------------
Total non-certificate deposits 1,121,760 1,103,187
- ------------------------------------------------------------------------------
Time certificates in denominations:
Less than $100,000 957,929 914,544
$100,000 or more 88,108 74,231
- ------------------------------------------------------------------------------
Total time certificates 1,046,037 988,775
- ------------------------------------------------------------------------------
Discount on deposits 1,459 2,649
- ------------------------------------------------------------------------------
Total deposits $2,169,256 $2,094,611
==============================================================================
A summary of time certificates, by maturity, is as follows:
- ------------------------------------------------------------------------------
(Dollars In Thousands) December 31, 1993 1992
Weighted Weighted
Average Average
Amount Rate Amount Rate
Within 1 year $ 800,699 3.95% $786,076 4.56%
Over 1 year to 2 years 124,940 5.05 114,662 6.09
Over 2 years to 3 years 113,056 4.97 68,585 5.74
Over 3 years 7,342 6.04 19,452 6.38
- ------------------------------------------------------------------------------
$1,046,037 4.21% $988,775 4.86%
==============================================================================
Interest expense on deposits is summarized as follows:
- ------------------------------------------------------------------------------
(In Thousands) Years Ended December 31, 1993 1992 1991
NOW $ 3,509 $ 3,979 $ 3,807
Money market 14,858 15,750 15,158
Regular and special notice 10,469 11,056 9,615
Time certificates 44,897 45,803 49,960
- ------------------------------------------------------------------------------
Total $73,733 $76,588 $78,540
==============================================================================
54
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9. Income Taxes
As discussed in note 1, effective January 1, 1992, the Bank adopted SFAS No.
109, "Accounting for Income Taxes."
The components of income tax expense (benefit) are as follows:
- ------------------------------------------------------------------------------
(In Thousands) Years Ended December 31, 1993 1992 1991
Current:
Federal $ 16,135 $ 12,634 $ 7,332
State 6,816 5,327 3,347
- ------------------------------------------------------------------------------
Total current income tax expense 22,951 17,961 10,679
- ------------------------------------------------------------------------------
Deferred:
Federal (290) 157 (910)
State 144 18 (354)
- ------------------------------------------------------------------------------
Total deferred income tax expense (benefit) (146) 175 (1,264)
- ------------------------------------------------------------------------------
Total provision $ 22,805 $ 18,136 $ 9,415
==============================================================================
The difference between the effective income tax rate computed by applying the
statutory federal income tax rate of 35% (34% for 1992 and 1991) to income
before income taxes and cumulative effect of a change in accounting principle
and the actual effective income tax rate is summarized as follows:
- -------------------------------------------------------------------------------
Years Ended December 31, 1993 1992 1991
Statutory rate 35.0% 34.0% 34.0%
Increase (decrease) resulting from:
State taxes, net of federal tax benefit 8.9 8.7 8.8
Bad debt deduction -- -- (.1)
Goodwill amortization .9 2.0 2.4
Effect of change in tax law (.4) -- --
Other purchase accounting adjustments -- (.9) (2.4)
Change in valuation reserve (.2) .3 --
Other, net .6 .1 (.5)
- -------------------------------------------------------------------------------
Effective income tax rates 44.8% 44.2% 42.2%
===============================================================================
Prior to January 1, 1992, deferred income taxes resulted from timing differences
in the recognition of revenues and expenses for tax and financial statement
purposes. The sources of these differences for the year ended December 31, 1991,
and the tax effects of each were as follows:
- -------------------------------------------------------------------------------
(In Thousands) Year Ended December 31, 1991
Cash basis accounting for tax purposes $ (506)
Write-down of other real estate owned (275)
Deferred loan revenue 410
Deferred loan income (245)
Pension liability (724)
Other, net 76
- -------------------------------------------------------------------------------
Total deferred income tax benefit (1,264)
Deferred income tax benefit decrease not affecting operations:
Net unrealized loss on marketable equity securities 388
- -------------------------------------------------------------------------------
Net change in deferred income taxes $ (876)
===============================================================================
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At December 31, 1993 and 1992, the Bank had gross deferred income tax assets and
gross deferred income tax liabilities as follows:
- ------------------------------------------------------------------------------
(In Thousands)December 31, 1993 1992
Deferred income tax asset:
Allowance for loan losses $13,003 $ 16,111
Deferred loan revenue 2,657 2,624
Pension liability 1,343 940
Valuation adjustment of other
real estate owned 1,554 666
Other 245 542
- ------------------------------------------------------------------------------
Gross deferred income tax asset 18,802 20,883
Valuation allowance (197) (320)
- ------------------------------------------------------------------------------
Deferred income tax asset 18,605 20,563
- ------------------------------------------------------------------------------
Deferred income tax liability:
Purchase accounting adjustments 8,273 10,473
Unrealized appreciation on securities
available for sale 4,880 --
Depreciation 1,117 1,181
Other 420 288
- ------------------------------------------------------------------------------
Gross deferred income tax liability 14,690 11,942
- ------------------------------------------------------------------------------
Net deferred income tax asset $ 3,915 $ 8,621
===============================================================================
A valuation reserve is provided when it is more likely than not that some
portion of the gross deferred tax asset will not be realized. Management has
established a valuation reserve for the state tax effect of subsidiary losses.
The change in the beginning of the year allowance was a reduction of $123,000.
The gross deferred federal income tax asset ($13,686,000) is supported by the
potential recovery of taxes previously paid by the Bancorp in the carryback
period and the scheduled reversal of deferred tax liabilities. Since there is no
carryback provision for state tax purposes, management believes the existing net
deductible temporary differences which give rise to the gross deferred state
income tax asset ($5,116,000) will reverse during periods in which the Bancorp
generates taxable income.
At October 31, 1993, the date as of which the Bancorp's most recent federal
income tax return is to be filed, the total reserve for loan losses for federal
income tax purposes amounted to $23,079,000. If any portion thereof is used for
purposes other than to absorb the losses for which established, such amount must
be included in gross income for federal income tax purposes in the fiscal year
in which it is used. As the Bancorp does not intend to use the reserves for
purposes other than to absorb loan losses, deferred income taxes of
approximately $10,339,000 have not been provided on this amount.
Additionally, under certain circumstances, most notably if qualifying assets
(principally residential mortgage loans, U.S. Government securities, and cash)
fall below 60% of total assets, cumulative excess bad debt deductions would be
recaptured over a four-year period for income tax purposes. The full effect of
this recapture would be recognized immediately in the consolidated financial
statements. At December 31, 1993, the Bank's qualifying assets exceeded 60% of
total assets.
10. Long-Term Debt
Long-term debt is the outstanding balance of funds borrowed by the Employees'
Stock Ownership Plan (ESOP) of the Bank amounting to $283,000 at December 31,
1992. Interest is payable monthly at a rate equal to 83% of the prime rate of
the lending institution. The rate payable was 4.98% at December 31, 1992. The
final principal payment of $283,000 was made in November 1993.
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11. Commitments and Contingencies
Reserve Requirements
Cash and due from banks at December 31, 1993 and 1992 includes $20,200,000 and
$13,000,000, respectively, which is subject to withdrawal and usage restrictions
to satisfy the reserve requirements of the Federal Reserve Bank.
Lease Commitments
Pursuant to the terms of noncancelable operating lease agreements in effect at
December 31, 1993, future minimum rent commitments are as follows:
- --------------------------------------------------------------------------------
(In Thousands) 1994 1995 1996 1997 1998 Thereafter Total
$557 $522 $479 $430 $396 $2,741 $5,125
Rent expense for the years ended December 31, 1993, 1992 and 1991, amounted to
$889,000, $693,000, and $461,000, respectively.
Certain subsidiaries of the Bank own and lease real property to unrelated
parties. Future minimum rents receivable applicable to those properties for
leases in effect at December 31, 1993, are as follows:
- --------------------------------------------------------------------------------
(In Thousands) 1994 1995 1996 1997 1998 Thereafter Total
$171 $140 $ 54 $41 $ 9 -- $415
Sublease income for the years ended December 31, 1993, 1992 and 1991, amounted
to $312,000, $188,000 and $186,000, respectively.
Certain leases contain options to extend for periods from two to ten years.
Income and expense from these options is not included in the amounts under
commitment.
Employment and Special Termination Agreements
The Bancorp has employment agreements with its Chairman and Chief Financial
Officer which expire May 1994 and December 1994, respectively. The Chief
Financial Officer's agreement will be automatically renewed for successive
one-year terms at the expiration date unless written notice is given as defined
in the agreement. These agreements provide for a specified minimum compensation
and the continuation of benefits in accordance with the Bank and Bancorp's
general policies. The Bank and Bancorp have also entered into special
termination agreements with these senior executives and certain other officers
which provide for certain lump-sum severance payments within a three-year period
following a "change in control," as defined in the special termination
agreements.
Litigation
In the ordinary course of business, the Bancorp is involved in routine
litigation. Based on its review of such litigation, management does not foresee
any material effect on the Bancorp's consolidated financial position.
12. Financial Instruments with Off-Balance-Sheet Risk
The Bancorp 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. The
financial instruments include commitments to extend credit and standby letters
of credit. Those instruments involve, to varying degrees, elements of credit and
interest rate risk in excess of the amount recognized in the consolidated
balance sheet. The amounts of those instruments reflect the extent of
involvement the Bank has in particular classes of financial instruments.
The Bancorp's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit and
standby letters of credit is represented by the contractual amount of those
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instruments. The Bank uses the same credit policies in making commitments and
conditional obligations as it does for on-balance-sheet instruments.The contract
amounts of financial instruments with off-balance sheet risk are as follows:
- --------------------------------------------------------------------------------
(In Thousands) December 31, 1993 1992
Commitments to grant fixed rate loans $41,477 $39,703
Commitments to grant variable rate loans 5,792 12,329
Performance standby letters of credit 45 150
Financial standby letters of credit 71 368
Unused lines of credit-- Commercial 1,149 1,636
Unused lines of credit-- Home equity 28,055 34,484
Unadvanced funds on construction loans 12,209 10,108
Commitments to sell loans -- 217
Commitments to grant loans 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. Some commitments are expected to expire without being
drawn upon; therefore, the total commitment amounts do not necessarily represent
future cash requirements. The Bank evaluates each customer's creditworthiness on
a case-by-case basis. The amount of collateral obtained, upon extension of
credit, is based on management's credit evaluation of the borrower. The
collateral for commitments to grant fixed and variable rate loans, as well as
unadvanced funds on home equity lines of credit, is primarily residential real
estate. Certain commercial commitments included in commitments to grant loans,
as well as commercial lines of credit, are collateralized by cash or other
non-real estate assets.
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. The credit risk
involved in issuing letters of credit is essentially the same as that for
commitments to grant loans. Standby letters of credit are primarily
collateralized by funds on deposit.
13. Stockholders' Equity
In accordance with Massachusetts law, when the Bank converted to stock form in
1987, a liquidation account was established for the benefit of eligible account
holders who continue to maintain their accounts in the Bank after the
conversion. In the event of a complete liquidation, each eligible account holder
would be entitled to receive a distribution in an amount equal to the current
adjusted liquidation account balances to the extent that funds are available.
According to the Bancorp's records, the balance of the liquidation account at
December 31, 1993, was $10.8 million (unaudited).
On November 14, 1989, the Board of Directors adopted a Shareholder Rights Plan
and declared a dividend of one preferred stock purchase right for each
outstanding share of common stock. Such rights only become exercisable, or
transferable apart from the common stock, ten business days after a person or
group (Acquiring Person) acquires beneficial ownership of, or commences a tender
or exchange offer for, 20% or more of the Bancorp's common stock, or the
declaration by the Board of Directors that any person is an Adverse Person. Each
right then may be exercised to acquire one one-hundredth of a share of a newly
authorized Series A Junior Participating Preferred Stock at an exercise price of
$60, subject to adjustment. If the Bancorp is acquired in a merger or other
business combination transaction, or 50% of the Bancorp's assets or earning
power is sold, the rights entitle holders to acquire common stock of the
Acquiring Person having a value twice the exercise price of the rights. The
rights may be redeemed in whole by the Bancorp at $.02 per right at any time
prior to (i) the declaration of a person as an Adverse Person, (ii) the tenth
day following public announcement that a 20% position has been acquired, or
(iii) the occurrence of a merger or other business combination transaction. The
rights expire on November 14, 1999.
Federal and state banking regulations place certain restrictions on dividends
paid by the Bank to the Bancorp. In addition, if dividends from the Bank to the
Bancorp exceed accumulated earnings and profits, an amount up to approximately
one and one half times the amount actually used must be included in gross income
for federal income tax purposes in the fiscal year in which it is used. At
December 31, 1993, the unrestricted amount available for dividends totaled
$132,621,000.
The Bancorp and the Bank are subject to regulatory capital standards based on
Tier 1 capital, total capital and on risk weighting of assets. The minimum Tier
1 capital ratio required is 4.00%. The Bancorp and the Bank must have a minimum
total risk-based capital ratio of 8.00% (of which 4.00% must be Tier 1 capital
consisting of stockholders' equity). Leverage capital standards (Tier 1 capital
to adjusted total assets) require a minimum of 3.0% for the most highly rated
58
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<PAGE>
banks. All others will need to meet a minimum leverage ratio that is at least
100 to 200 basis points above the minimum requirement.
At December 31, 1993, the capital ratios of both the Bancorp and the Bank
significantly exceeded minimum applicable regulatory requirements. These ratios
at December 31, 1993, were as follows (unaudited):
- --------------------------------------------------------------------------------
Bancorp Bank
Tier 1 capital to risk-weighted assets 19.2% 19.2%
Total risk-based capital ratio 20.3% 20.2%
Leverage capital ratio 10.2% 10.0%
14. Pension Plan and Employee Benefit Plans
The Bank has a noncontributory, qualified, defined pension plan covering
eligible employees through the Savings Banks Employees Retirement Association
(SBERA) Pension Plan. Each employee reaching the age of 21 and having completed
1,000 hours of service in a 12-month period beginning with such employee's date
of employment automatically becomes a participant in the retirement plan.
Participants become 100% vested when credited with five years of service.
Net pension expense for the plan years ended October 31, 1993, 1992, and 1991
consisted of the following:
- --------------------------------------------------------------------------------
(In Thousands) 1993 1992 1991
Service cost $ 751 $ 673 $ 528
Interest cost on projected benefits 602 514 481
Actual return on plan assets (965) (504) (1,078)
Net amortization and deferral 485 122 678
- --------------------------------------------------------------------------------
$ 873 $ 805 $ 609
================================================================================
Total pension expense for the years ended December 31, 1993, 1992, and 1991
amounted to $969,000, $847,000 and $652,000, respectively.
A reconciliation of the funded status of the plan at October 31, 1993 and 1992,
according to SBERA, follows:
- --------------------------------------------------------------------------------
(In Thousands) 1993 1992
Plan assets at fair value $ 7,557 $ 6,700
Projected benefit obligation (9,814) (8,592)
- --------------------------------------------------------------------------------
Projected benefit obligation in excess of plan assets (2,257) (1,892)
Unrecognized net asset at adoption (470) (492)
Unrecognized experience loss (gain) (237) 293
- --------------------------------------------------------------------------------
Accrued pension cost $(2,964) $(2,091)
================================================================================
Plan assets are primarily invested in bonds and equity securities.
The unrecognized net asset and the unrecognized experience loss are being
amortized over 21 and 25 years, respectively.
The accumulated benefit obligation at October 31, 1993 and 1992 amounted to
$5,461,000 and $5,022,000, respectively, of which $5,255,000 and $4,842,000,
respectively, was vested.
For the plan years ended October 31, 1993, 1992, and 1991, actuarial assumptions
include an assumed discount rate on benefit obligations of 7.00%, 7.00% and
6.75%, respectively, and an expected long-term rate of return on plan assets of
7.00%, 6.75% and 7.75%, respectively. An annual salary increase of 6.00% was
utilized for all years.
The Bank has a salary incentive plan (Incentive Plan) for the purpose of
rewarding the Bank's officers and employees for meeting or exceeding certain of
the Bank's financial goals. All officers and employees with a full calendar year
of service are eligible for participation in the Incentive Plan. Each officer
and employee is eligible to receive an incentive award proportionate to his or
her respective salary at the discretion of the Compensation Committee. The
amounts expensed under the plan for the years ended December 31, 1993, 1992 and
1991 amounted to $990,000, $684,000 and $350,000, respectively.
An executive supplemental retirement agreement formerly existed for the Chief
Executive Officer which provided for an additional retirement benefit for his
lifetime of $80,000 a year and a benefit for his surviving spouse for her
lifetime of $40,000 a year. In 1992 the Chief Executive Officer elected to
receive a lump sum payment of $815,000 in lieu of these lifetime payments. Total
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<PAGE>
expense applicable to the agreement for the year ended December 31, 1991,
amounted to $320,000. No expense for the plan was incurred in 1993 or 1992.
In December 1990 the FASB issued SFASNo. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions." Under SFASNo. 106, the cost of
postretirement benefits other than pensions must be recognized on an accrual
basis compared to the current method of a pay-as-you-go basis, as employees
perform services to earn the benefits. The Bank adopted the provisions of
SFASNo. 106 and its adoption on January 1, 1993, did not have a material impact
on the Bank's consolidated financial statements.
In November 1992 the FASB issued SFAS No. 112, "Employers' Accounting for
Postemployment Benefits." This new accounting standard will be effective for the
Bank on January 1, 1994, and requires accrual for postemployment benefits during
either employees' service lives or at the time a liability is incurred.
Postemployment benefits include salary continuation, supplemental unemployment
benefits, severance benefits, disability-related benefits, job training and
counseling, and continuation of benefits such as health care and life insurance.
Management does not believe the provisions of SFAS No. 112 will have a material
impact on the Bancorp's consolidated financial statements.
15. Stock Option Plan
The Bancorp has a stock option plan for the benefit of directors and officers.
Up to 820,000 shares of common stock have been reserved for issuance pursuant to
options granted under the plan. Both incentive stock options and non-qualified
stock options may be granted under the plan. The maximum option term is ten
years.
All stock options granted, as determined appropriate by the Board of Directors,
have an exercise price equal to the fair market value of a share of common stock
of the Bancorp on the date the option is granted.
An analysis of shares under option follows:
- --------------------------------------------------------------------------------
Years Ended December 31, 1993 1992 1991
Number Average Number Average Number Average
of Option of Option of Option
Shares Price Shares Price Shares Price
Beginning of year 342,601 $17.25 299,000 $14.07 276,500 $14.24
Granted 100,100 36.88 74,000 28.53 22,500 11.88
Exercised 65,603 14.82 30,399 13.37 -- --
Expired 2,000 14.38 -- -- -- --
- --------------------------------------------------------------------------------
End of year 375,098 $22.93 342,601 $17.25 299,000 $14.07
================================================================================
Allocated as follows:
Non-qualified 153,117 120,420 141,920
Incentive 221,981 222,181 157,080
- --------------------------------------------------------------------------------
375,098 342,601 299,000
================================================================================
16. Employees' Stock Ownership Plan
The Bank has an Employees' Stock Ownership Plan (ESOP) in which all employees
who have reached the age of 21 and who have completed 1,000 hours of service in
a 12-month period beginning with such employee's date of employment may
participate.
An analysis of the Bank's contribution to the ESOP follows:
- --------------------------------------------------------------------------------
(In Thousands) Years ended December 31, 1993 1992 1991
Compensation expense $254 $298 $294
Interest expense -- 7 28
- --------------------------------------------------------------------------------
Total expense $254 $305 $322
================================================================================
60
<PAGE>
<PAGE>
17. Acquisitions
On August 21, 1992, the Bancorp, through the Bank, acquired all deposits and
certain assets of Attleboro Pawtucket Savings Bank from the FDIC. The Bank
received approximately $12.3 million for the acquisition. The FDIC paid
approximately $44.6 million in cash to fund the difference between assets
acquired and liabilities assumed, and the discount received by the Bank.
On July 26, 1991, the Bancorp, through the Bank, acquired the federally insured
deposits and certain assets of Sentry Savings Bank, FSB from the RTC. The Bank
paid approximately $13.1 million for the acquisition. The RTC paid approximately
$218.9 million in cash to fund the difference between the assets acquired and
liabilities assumed, and the purchase price paid by the Bank.
The fair value of assets acquired and liabilities assumed on August 21, 1992 and
July 26, 1991, using the purchase method of accounting is as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
(In Thousands) 1992 1991
<S> <C> <C>
Assets
Cash and due from banks $ 20,324 $ 8,028
Federal funds sold and overnight deposits 23,022 20,423
Due from Federal Deposit Insurance Corporation/Resolution Trust Corporation 44,575 218,895
Securities available-for-sale, at market value 40,218 --
Securities held-to-maturity, at market value 34,942 10
Mortgage-backed securities, at market value 30,220 --
Loans 378,488 153,850
Allowance for loan losses (18,000) (4,186)
- ---------------------------------------------------------------------------------------------------
Loans, net 360,488 149,664
- ---------------------------------------------------------------------------------------------------
Accrued interest receivable 2,417 1,256
Core deposit intangible 5,165 2,817
Other assets 1,344 134
- ---------------------------------------------------------------------------------------------------
Total assets $ 562,715 $ 401,227
===================================================================================================
Liabilities
Deposits:
Non-certificate accounts 297,064 143,043
Certificates of deposit 262,280 254,687
- ---------------------------------------------------------------------------------------------------
Total deposits 559,344 397,730
Mortgagors' escrow payments 912 1,350
Accrued interest payable 1,156 960
Other liabilities 1,303 1,187
- ---------------------------------------------------------------------------------------------------
Total liabilities $ 562,715 $ 401,227
===================================================================================================
</TABLE>
61
<PAGE>
<PAGE>
18. Disclosures about Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value:
Cash and Cash Equivalents, Accrued Interest Receivable and Payable
For these short-term instruments, the carrying amount is a reasonable estimate
of fair value.
Securities Available - for - Sale and Securities Held - to - Maturity
The fair values of securities available-for-sale and securities held-to-maturity
are based on quoted market prices or dealer quotes.
Loans
For all categories of loans, fair value is estimated by discounting the future
cash flows using the current rates at which similar loans would be made to
borrowers with similar credit ratings and for the same remaining maturities.
Deposit Liabilities
The fair value of demand deposits, NOW accounts, regular and special notice
accounts, and money market deposits is the amount payable on demand at the
reporting date. The fair value of fixed-maturity certificates of deposit is
estimated by discounting the future cash flow using the rates currently offered
for deposits of similar remaining maturities.
Long -Term Debt
Rates currently available to the Bancorp for debt with similar terms and
remaining maturities are used to estimate fair value of existing debt.
Commitments to Extend Credit and Letters of Credit
The fair value of the Bancorp's commitments to originate loans of $47,269,000,
unused lines of credit of $29,204,000 and standby letters of credit of $116,000
are estimated using the fees currently charged to enter into similar agreements,
taking into account the remaining terms of the agreements and the
counterparties' credit standing. At December 31, 1993 and 1992, the Bank
estimates the fair value of these financial investments to be immaterial.
The estimated fair values of the Bancorp's financial instruments at December 31,
1993 and 1992, are as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
1993 1992
Carrying Fair Carrying Fair
Amount Value Amount Value
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 76,876 $ 76,876 $ 73,635 $ 73,635
Securities available-for-sale 588,442 588,442 415,597 417,910
Securities held-to-maturity 399,453 409,713 432,977 443,264
Loans, net of allowance for loan losses 1,289,691 1,303,975 1,320,450 1,341,613
Financial liabilities:
Deposits 2,169,256 2,177,477 2,094,611 2,101,460
Long-term debt -- -- 283 283
===============================================================================================================
</TABLE>
Limitations
Fair value estimates are made at a specific point in time, based on relevant
market information and information about each financial instrument. These
estimates do not reflect any premium or discount that could result from offering
for sale at one time the Bancorp's entire holdings of a particular financial
instrument. Because no market exists for some of the Bancorp's financial
instruments, fair value estimates are based on judgements regarding future
expected loss experience, cash flows, current economic conditions, risk
characteristics, and other factors. These estimates are subjective in nature and
involve uncertainties and matters of significant judgement and therefore cannot
be determined with precision. Changes in assumptions and changes in the loan,
debt and interest rate markets could significantly affect the estimates.
Further, the income tax ramifications related to the realization of the
unrealized gains and losses can have a significant effect on fair value
estimates and have not been considered.
62
<PAGE>
<PAGE>
19. Condensed Financial Information of Parent Company
Parent company only financial information is as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Condensed Balance Sheets
(In Thousands) December 31, 1993 1992
<S> <C> <C> <C>
Assets
Cash and due from banks $ 716 $ 643
Investment in Bank subsidiary 254,174 227,314
Other assets 487 268
- ---------------------------------------------------------------------------------------------------------------
Total assets $255,377 $228,225
===============================================================================================================
Liabilities
Other liabilities $ 427 $ 431
- ---------------------------------------------------------------------------------------------------------------
Stockholders' Equity
Preferred stock -- --
Common stock 953 946
Additional paid-in capital 134,240 133,274
Retained earnings 122,926 103,515
Treasury stock, at cost (9,941) (9,941)
Unrealized appreciation on securities available-for-sale, net 6,772 --
- ---------------------------------------------------------------------------------------------------------------
Total stockholders' equity 254,950 227,794
- ---------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $255,377 $228,225
===============================================================================================================
Condensed Statements of Income
(In Thousands) Years Ended December 31, 1993 1992 1991
Dividends from Bank subsidiary $ 8,914 $ 7,241 $ 6,370
Operating expenses 836 799 674
- ---------------------------------------------------------------------------------------------------------------
Income before income taxes and equity in
undistributed net income of Bank subsidiary 8,078 6,442 5,696
Income tax benefit 209 117 93
Equity in undistributed net income of Bank subsidiary 19,805 21,369 7,102
- ---------------------------------------------------------------------------------------------------------------
Net income $ 28,092 $ 27,928 $12,891
===============================================================================================================
Condensed Statements of Cash Flows
(In Thousands) Years Ended December 31, 1993 1992 1991
Cash flow from operating activities:
Net income $ 28,092 $ 27,928 $12,891
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in net income of Bank subsidiary (19,805) (21,369) (7,102)
Decrease (increase) in other assets (219) (100) 265
Increase (decrease) in other liabilities (4) 63 30
- ---------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 8,064 6,522 6,084
- ---------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Dividends paid on common stock (8,964) (7,195) (5,478)
Proceeds from issuance of common stock 973 406 --
- ---------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (7,991) (6,789) (5,478)
- ---------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 73 (267) 606
Cash and cash equivalents at beginning of year 643 910 304
- ---------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 716 $ 643 $ 910
===============================================================================================================
Supplemental cash flow information:
Income taxes received, net $ -- $ 750 $ 526
===============================================================================================================
</TABLE>
The Statements of Changes in Stockholders' Equity for the Parent Company are
identical to the Consolidated Statements of Changes in Stockholders' Equity and
are, therefore, not presented here.
63
<PAGE>
<PAGE>
20. Quarterly Data (Unaudited)
Summaries of consolidated operating results on a quarterly basis for the years
ended December 31, 1993 and 1992, are as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
(In Thousands, Except Per Share Data) 1993 1992
Fourth Third Second First Fourth Third Second First
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest and
dividend income $ 41,562 $ 42,864 $ 42,963 $ 42,955 $ 42,641 $ 38,627 $ 34,802 $ 35,270
Interest expense 17,581 18,108 18,784 19,260 20,698 18,709 17,808 19,380
- ----------------------------------------------------------------------------------------------------------------------
Net interest income 23,981 24,756 24,179 23,695 21,943 19,918 16,994 15,890
Provision for
loan losses 500 600 900 1,300 1,300 1,315 1,530 2,070
- ----------------------------------------------------------------------------------------------------------------------
Net interest income
after provision for
loan losses 23,481 24,156 23,279 22,395 20,643 18,603 15,464 13,820
- ----------------------------------------------------------------------------------------------------------------------
Other income:
Deposit account and
other fees 1,497 1,485 1,478 1,367 835 788 788 618
Savings Bank
Life Insurance
common stock
distribution -- -- -- -- -- -- -- 500
Gain on sales of
securities, net 1,579 753 697 830 756 1,505 1,420 1,696
Miscellaneous 748 477 227 190 657 355 254 389
- ----------------------------------------------------------------------------------------------------------------------
Total other income 3,824 2,715 2,402 2,387 2,248 2,648 2,462 3,203
- ----------------------------------------------------------------------------------------------------------------------
Operating expenses 12,259 12,170 12,377 12,156 11,352 9,139 8,124 7,605
OREO expense 1,537 1,582 1,163 1,017 731 393 171 301
Other loss (income) (399) (8) (128) 16 (18) (5) 190 44
- ----------------------------------------------------------------------------------------------------------------------
Total expenses 13,397 13,744 13,412 13,189 12,065 9,527 8,485 7,950
- ----------------------------------------------------------------------------------------------------------------------
Income before
income taxes and
accounting change 13,908 13,127 12,269 11,593 10,826 11,724 9,441 9,073
Provision for
income taxes 6,322 5,822 5,466 5,195 4,797 5,117 4,171 4,051
- ----------------------------------------------------------------------------------------------------------------------
Income from
operations 7,586 7,305 6,803 6,398 6,029 6,607 5,270 5,022
Accounting change -- -- -- -- -- -- -- 5,000
- ----------------------------------------------------------------------------------------------------------------------
Net income $ 7,586 $ 7,305 $ 6,803 $ 6,398 $ 6,029 $ 6,607 $ 5,270 $ 10,022
======================================================================================================================
Earnings per share:
Income from
operations $0.88 $0.85 $0.79 $0.74 $0.70 $0.77 $0.62 $0.59
Change in method
of accounting for
income taxes -- -- -- -- -- -- -- 0.58
Net income
per share 0.88 0.85 0.79 0.74 0.70 0.77 0.62 1.17
Dividends
declared per share 0.28 0.26 0.26 0.24 0.24 0.21 0.21 0.18
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
64
<PAGE>
<PAGE>
Independent Auditors' Report
To the Board of Directors and Stockholders of NBB Bancorp, Inc.
We have audited the accompanying consolidated balance sheets of NBB Bancorp,
Inc. and subsidiary as of December 31, 1993 and 1992, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the years in the three-year period ended December 31, 1993. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of NBB Bancorp, Inc.
and subsidiary as of December 31, 1993 and 1992, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1993 in conformity with generally accepted accounting
principles.
As discussed in Notes 1 and 2 to the consolidated financial statements, the
Company changed its method of accounting for securities in 1993. As discussed in
Notes 1 and 9, the Company changed its method of accounting for income taxes in
1992.
[KPMG Peat Marwick Signature]
Providence, Rhode Island
January 19, 1994
65
<PAGE>
<PAGE>
Stockholder Information
Annual Meeting
The Annual Meeting of the stockholders of NBB Bancorp, Inc. will be held at
10:00 a.m. on Wednesday, May 18, 1994, at the Hawthorne Country Club, 970 Tucker
Road, North Dartmouth, Massachusetts.
Stockholder Relations
NBB Bancorp, Inc., Post Office Box 5000, New Bedford, MA 02742-5000. Toll-free
within Massachusetts and Rhode Island (800) 338-3001
Transfer Agent
First National Bank of Boston, Shareholder Services Division, Post Office Box
644, Mail Stop: 45-02-09, Boston, MA 02102-0644 (617) 575-2900
Independent Auditors
KPMG Peat Marwick, 50 Kennedy Plaza, Providence, RI 02903
General Counsel
Goodwin, Procter & Hoar, Exchange Place, Boston, MA 02109
Form 10-K
Copies of this Annual Report, the Annual Report on Form 10-K, and quarterly
reports on Form 10-Q are available without charge upon written request to: NBB
Bancorp, Inc., Stockholder Relations, Post Office Box 5000, New Bedford, MA
02742-5000
Stock Listing
The Bancorp's common stock is traded on the New York Stock Exchange under the
symbol NBB. The stock is listed as NBB Bcp in the New York Stock Exchange
section of The Wall Street Journal. There may be variations of this abbreviation
in other newspapers in which the stock quotation appears.
Common Stock
The following table sets forth the high and low price per share and the
dividends paid in the calendar quarters indicated for the Bancorp's common stock
on the New York Stock Exchange:
High Low Dividends
1992
1st Quarter $19 1/8 $14 3/8 $.18
2nd Quarter 20 3/8 17 5/8 .21
3rd Quarter 21 5/8 18 1/4 .21
4th Quarter 29 1/2 19 1/2 .24
1993
1st Quarter $31 3/4 $25 1/4 $.24
2nd Quarter 31 25 3/4 .26
3rd Quarter 38 5/8 28 7/8 .26
4th Quarter 41 1/4 33 1/2 .28
Dividends were paid to stockholders on February 11, 1994 at $.30 per share, an
annual rate of $1.20.
Additional Stock Information at February 24, 1994:
Closing sale price: $37 5/8. Number of shares outstanding: 8,656,844.
Approximate number of stockholders of record: 4,800.
66
