<PAGE> 1
16SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
or the quarterly period ended June 30, 1998 or
-------------
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the transition period from __________________ to ___________________
Commission File No. 0-17222
WARREN BANCORP, INC.
(Exact Name of registrant as specified in the charter)
MASSACHUSETTS 04-3024165
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10 MAIN STREET, PEABODY, MASSACHUSETTS 01960
(Address of principal executive offices) (Zip Code)
(978) 531-7400
(Registrant's telephone number, including area code)
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 report(s), and (2) has been subject to such
filing requirement for the past 90 days.
Yes [x] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at August 4, 1998
- --------------------------------------- -----------------------------
Common Stock, par value $.10 per share 7,909,874
<PAGE> 2
<TABLE>
<CAPTION>
WARREN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
JUNE 30, DECEMBER 31,
1998 1997
---- ----
<S> <C> <C>
ASSETS
Cash and due from banks (non-interest bearing) $ 7,232 $ 7,191
Money market funds and overnight investments 11,495 6,288
Investment and mortgage-backed securities available for sale (amortized cost of
of $95,696 at June 30, 1998 and $98,737 at December 31, 1997 ) 97,485 101,698
Other investments (fair value of $6,784 at June 30, 1998 and $6,534 at December 31, 1997) 6,544 6,294
Loans held for sale 1,699 1,031
Loans 245,910 240,763
Allowance for loan losses (4,023) (4,066)
-------- --------
Net loans 241,887 236,697
Banking premises and equipment, net 4,950 4,785
Accrued interest receivable 2,721 2,790
Real estate acquired by foreclosure 1,735 2,010
Other assets 2,389 2,209
-------- --------
Total assets $378,137 $370,993
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $330,294 $325,293
Borrowed funds 5,404 2,926
Escrow deposits of borrowers 928 1,005
Accrued interest payable 628 812
Accrued expenses and other liabilities 1,215 929
-------- --------
Total liabilities 338,469 330,965
-------- --------
Stockholders' equity:
Preferred stock, $.10 par value; Authorized - 10,000,000 shares;
Issued and outstanding - none -- --
Common stock, $.10 par value; Authorized - 20,000,000 shares;
Issued - 8,094,414 shares at June 30, 1998 and 7,808,194 shares
at December 31, 1997
Outstanding - 7,904,694 shares at June 30, 1998 and 7,612,194 shares at
December 31, 1997 809 780
Additional paid-in capital 35,710 34,724
Retained earnings 3,132 4,282
Treasury stock, at cost, 189,720 shares at June 30, 1998 and 196,000 at December 31, 1997 (1,136) (1,174)
-------- --------
38,515 38,612
Net unrealized gain on securities available for sale, net of taxes 1,153 1,416
-------- --------
Total stockholders' equity 39,668 40,028
-------- --------
Total liabilities and stockholders' equity $378,137 $370,993
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 3
<TABLE>
<CAPTION>
WARREN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- --------------------
1998 1997 1998 1997
---- ---- ---- ----
(Dollars in thousands, except per-share data)
<S> <C> <C> <C> <C>
Interest and dividend income:
Interest on loans $5,619 $5,331 $11,146 $10,398
Interest and dividends on investments 1,257 1,127 2,460 2,229
Interest on mortgage-backed securities 462 722 974 1,474
------ ------ ------- -------
Total interest and dividend income 7,338 7,180 14,580 14,101
------ ------ ------- -------
Interest expense:
Interest on deposits 2,887 2,759 5,766 5,514
Interest on borrowed funds 54 30 84 82
------ ------ ------- -------
Total interest expense 2,941 2,789 5,850 5,596
------ ------ ------- -------
Net interest income 4,397 4,391 8,730 8,505
Provision for (recovery of) loan losses (50) (198) (68) (238)
------ ------ ------- -------
Net interest income after provision for (recovery of)
loan losses 4,447 4,589 8,798 8,743
------ ------ ------- -------
Non-interest income:
Loan servicing fees 5 (4) 9 116
Customer service fees 229 260 417 476
Gains on sales of investment securities, net 179 -- 188 99
Gains on sales of mortgage loans 79 26 131 91
Gain on sale of mortgage-servicing rights -- (55) -- 1,407
Other 1 1 3 5
------ ------ ------- -------
Total non-interest income 493 228 748 2,194
------ ------ ------- -------
Income before non-interest expense and income taxes 4,940 4,817 9,546 10,937
------ ------ ------- -------
Non-interest expense:
Salaries and employee benefits 1,477 1,410 2,890 2,890
Office occupancy and equipment 296 284 601 572
Professional services 60 81 91 165
Marketing 87 50 127 88
Real estate operations 1 30 26 373
Outside data processing expense 125 121 250 233
Other 438 398 862 801
------ ------ ------- -------
Total non-interest expenses 2,484 2,374 4,847 5,122
------ ------ ------- -------
Income before income taxes 2,456 2,443 4,699 5,815
Income tax expense 837 819 1,602 1,727
------ ------ ------- -------
Net income $1,619 $1,624 $ 3,097 $ 4,088
====== ====== ======= =======
Basic earnings per share $ 0.21 $ 0.22 $ 0.40 $ 0.55
====== ====== ======= =======
Diluted earnings per share $ 0.20 $ 0.21 $ 0.38 $ 0.52
====== ====== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 4
<TABLE>
<CAPTION>
WARREN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 1997 AND 1998
ACCUMULATED
ADDITIONAL OTHER
COMPREHENSIVE COMMON PAID-IN RETAINED COMPREHENSIVE TREASURY
INCOME STOCK CAPITAL EARNINGS INCOME STOCK TOTAL
------------- ------ ---------- -------- ------------- --------- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 $752 $33,869 $ 260 $ 738 ($1,174) $34,445
Comprehensive income:
Net income $4,088 - - 4,088 - - 4,088
Other comprehensive income (loss):
Unrealized loss on securities available
for sale, net of taxes 240
Less: Reclassification adjustment for
securities gains, net tax expense of $34,
included in net income 65
------
' Total other comprehensive (loss) 305 - - - 305 - 305
------
Comprehensive income $4,393
======
Dividends paid - - (2,277) - - (2,277)
Issuance of 239,440 shares for exercise
of options 24 533 - - - 557
---- ------- ------ ------ ------- -------
Balance at June 30, 1997 776 34,402 2,071 1,043 (1,174) 37,118
Comprehensive income:
Net income $3,197 - - 3,197 - - 3,197
Other comprehensive income (loss):
Unrealized gain on securities available
for sale, net of taxes 346
Less: Reclassification adjustment for
securities gains, net tax expense of $14,
included in net income 27
------
Total other comprehensive income 373 - - - 373 - 373
------
Comprehensive income $3,570
======
Dividends paid - - (986) - - (986)
Tax benefit of stock options exercised - 144 - - - 144
Issuance of 49,620 shares for exercise
of options 4 178 - - - 182
---- ------- ------ ------ ------- -------
Balance at December 31, 1997 780 34,724 4,282 1,416 (1,174) 40,028
Comprehensive income:
Net income $3,097 - - 3,097 - - 3,097
Other comprehensive income (loss):
Unrealized loss on securities available
for sale, net of taxes (388)
Less: Reclassification adjustment for
securities gains, net tax expense of $63,
included in net income 125
------
Total other comprehensive (loss) (263) - - - (263) - (263)
------
Comprehensive income $2,834
======
Dividends paid - - (4,247) - - (4,247)
Tax benefit of stock options exercised - 61 - - - 61
Issuance of 260,405 common shares
and 6,280 shares of treasury stock
for exercise of options 29 925 - - 38 992
---- ------- ------ ------ ------- -------
Balance at June 30, 1998 $809 $35,710 $3,132 $1,153 ($1,136) $39,668
==== ======= ====== ====== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 5
<TABLE>
<CAPTION>
WARREN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30,
-------------------------
1998 1997
---- ----
(In thousands)
<S> <C> <C>
Cash flows from operating activities:
Net Income $ 3,097 $ 4,088
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for (recovery of) loan losses (68) (238)
Depreciation and amortization 306 296
Deferred income tax expense (benefit) 135 (154)
Amortization of premiums and discounts 136 70
(Gains) on sales of investment securities (188) (99)
(Gains) on sales of mortgage loans (131) (91)
Write-down of real estate acquired by foreclosure -- 208
(Gains) on sale of real estate acquired by foreclosure (17) (2)
(Increase) decrease in loans held for sale (668) 2,352
Decrease in accrued interest receivable 69 22
(Increase) decrease in other assets (104) 717
(Decrease) in accrued interest payable (184) (34)
Increase in other liabilities and escrow deposits 209 87
-------- --------
Net cash provided by operating activities 2,592 7,222
-------- --------
Cash flows from investing activities:
Net (increase) in money market funds and
overnight investments (5,207) (241)
Purchase of investment securities (23,486) (20,972)
Proceeds from sales of investment securities available for sale 2,525 1,100
Proceeds from maturities of investment securities 19,372 20,003
Proceeds from payments of mortgage-backed securities 5,191 3,585
Proceeds from sales of real estate acquired by foreclosure 450 549
Net (increase) in loans (5,149) (4,017)
Purchases of premises and equipment (471) (196)
-------- --------
Net cash (used in) investing activities ($6,775) ($189)
-------- --------
</TABLE>
<PAGE> 6
<TABLE>
<CAPTION>
WARREN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS-CONTINUED
SIX MONTHS ENDED JUNE 30,
-------------------------
1998 1997
---- ----
(In thousands)
<S> <C> <C>
Cash flows from financing activities:
Net increase (decrease) in deposits $ 5,001 $(2,066)
Proceeds from Federal Home Loan Bank advances 2,000 630
Principal payments on Federal Home Loan Bank advances -- (2,674)
Net increase in other borrowed funds 478 451
Dividends paid (4,247) (2,277)
Stock options exercised 992 557
------- -------
Net cash provided by (used in) financing activities 4,224 (5,379)
------- -------
Net increase in cash and due from banks 41 1,654
Cash and due from banks at beginning of period 7,191 5,855
------- -------
Cash and due from banks at end of period $ 7,232 $ 7,509
------- -------
Cash paid during the period for:
Interest $ 6,034 $ 5,630
Income taxes $ 1,725 $ 350
Supplemental noncash investing and financing activities:
Foreclosures on real estate $ 158 $ 129
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 7
WARREN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The consolidated financial statements of Warren Bancorp, Inc. (the
"Corporation") presented herein should be read in conjunction with the
consolidated financial statements of the Corporation as of and for the year
ended December 31, 1997. The accompanying consolidated financial statements have
been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in the annual financial statements prepared in accordance with
generally accepted accounting principles have been omitted pursuant to those
rules and regulations, but the Corporation believes that the disclosures are
adequate to make the information presented not misleading. In the opinion of
management, the consolidated financial statements reflect all adjustments
necessary for a fair presentation of the results for the interim periods
presented. Certain amounts have been reclassified to conform with the 1998
presentation. All share data reflect the effect of a 2-for-1 stock split which
occurred on May 12, 1998.
EARNINGS PER SHARE
In 1997, the Corporation adopted Statement of Financial Accounting
Standards ("SFAS") No. 128, "Earnings Per Share." Quarter and six months ended
June 30, 1997 earnings per share has been restated to conform to SFAS No. 128.
The components of basic and diluted EPS for the quarters and six months ended
June 30, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
QUARTER ENDED JUNE 30,
-------------------------------------------------------------------------
NET INCOME WEIGHTED AVERAGE SHARES NET INCOME PER SHARE
-------------------------------------------------------------------------
1998 1997 1998 1997 1998 1997
-------------------------------------------------------------------------
(In thousands, except per-share data)
<S> <C> <C> <C> <C> <C> <C>
Basic EPS $1,619 $1,624 7,856 7,488 $0.21 $0.22
Effect of dilutive
stock options -- -- 322 434 0.01 0.01
------ ------ ----- ----- ----- -----
Dilutive EPS $1,619 $1,624 8,178 7,922 $0.20 $0.21
====== ====== ===== ===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
--------------------------------------------------------------------------
NET INCOME WEIGHTED AVERAGE SHARES NET INCOME PER SHARE
--------------------------------------------------------------------------
1998 1997 1998 1997 1998 1997
--------------------------------------------------------------------------
(In thousands, except per-share data)
<S> <C> <C> <C> <C> <C> <C>
Basic EPS $3,097 $4,088 7,747 7,421 $0.40 $0.55
Effect of dilutive
stock options -- -- 425 446 0.02 0.03
------ ------ ----- ----- ----- -----
Dilutive EPS $3,097 $4,088 8,172 7,867 $0.38 $0.52
====== ====== ===== ===== ===== =====
</TABLE>
Basic EPS is computed by dividing net income by the weighted average number of
shares of common stock outstanding during the period. The effect of this
accounting change on previously reported EPS data is as follows:
<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTHS ENDED
JUNE 30, 1997 JUNE 30, 1997
------------- ----------------
<S> <C> <C>
Per Share Amounts:
Primary EPS as previously reported $0.21 $0.52
Effect of SFAS No. 128 0.01 0.03
----- -----
Basic EPS as restated $0.22 $0.55
===== =====
</TABLE>
<PAGE> 8
COMPREHENSIVE INCOME
SFAS No. 130, "Reporting Comprehensive Income," establishes standards for
reporting and display of comprehensive income and its components (revenues,
expenses, gains and losses) in a full set of a general-purpose financial
statements. This statement requires that all items that are required to be
recognized under accounting standards as components of comprehensive income to
be reported in a financial statement that is displayed with the same prominence
as other financial statements. This statement does not require a specific format
for that financial statement but requires that an enterprise display an amount
representing total comprehensive income for the period in that financial
statement. This statement requires that an enterprise (a) classify items of
other comprehensive income by their nature in a financial statement and (b)
display the accumulated balance of other comprehensive income separately from
retained earnings and additional paid-in capital in the equity section of a
statement of financial position. The Corporation adopted SFAS No. 130 on January
1, 1998, and the components of and accumulated balance of other comprehensive
income are displayed in the "Consolidated Statements of Changes in Stockholders'
Equity for the Six Months Ended June 30, 1997 and 1998." Reclassification of
financial statements for earlier periods provided for comparative purposes is
required.
2
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Certain statements in this Form 10-Q constitute "forward-looking
statements" as that term is defined under the Private Securities Litigation
Reform Act of 1995. The words "believe," "expect," "anticipate," "intend,"
"estimate," "plan," "assume" and other similar expressions which are predictions
of or indicate future events and trends and which do not relate to historical
matters identify forward-looking statements. Reliance should not be placed on
forward-looking statements because they involve known and unknown risks,
uncertainties and other factors, which are in some cases beyond the control of
the Corporation and may cause the actual results, performance or achievements of
the Corporation to differ materially from anticipated future results,
performance or achievements expressed or implied by such forward-looking
statements.
Certain factors that might cause such differences include, but are not
limited to, the following: interest rates may increase, adversely affecting the
ability of borrowers to repay adjustable-rate loans and the Corporation's
earnings and income which derive in significant part from loans to borrowers;
unemployment in the Corporation's market area may increase, adversely affecting
the ability of individual borrowers to repay loans; property values may decline,
adversely affecting the ability of borrowers to repay loans and the value of
real estate securing repayment of loans; and general economic and market
conditions in the Corporation's market area may decline, adversely affecting the
ability of borrowers to repay loans, the value of real estate securing repayment
of loans and the Corporation's ability to make profitable loans. Any of the
above may also result in lower interest income, increased loan losses,
additional charge-offs and writedowns and higher operating expenses. These and
other factors that might cause differences between actual and anticipated
results, performance and achievements are discussed in greater detail in this
Form 10-Q.
GENERAL
Warren Bancorp, Inc.'s operating results for the three and six months ended
June 30, 1998 (the "1998 quarter" and "1998 period", respectively) reflect the
operations of its only subsidiary, Warren Five Cents Savings Bank (the "Bank").
The Bank, which is wholly owned by the Corporation, operates as a community bank
and is in the business of making individual and commercial loans to customers in
its market area.
The Corporation recorded a decreased profit for the 1998 period as compared
to the six months ended June 30, 1997 (the "1997 period") primarily due to a
pre-tax gain of $1.4 million from the sale of rights to service residential
mortgage loans occurring in the 1997 period.
Real estate acquired by foreclosure decreased to $1.7 million at June 30,
1998 from $2.0 million at December 31, 1997. Nonperforming loans increased by
$361,000 to $708,000 during the 1998 period. (One loan amounting to $475,000 was
over 90 days past due but still accruing and is reflected in the total
nonperforming loans. There were no 90-day past due loans at December 31, 1997
that were still accruing.) Management continues to monitor these nonperforming
asset portfolios closely. If conditions in the Massachusetts' real estate market
become unstable and values deteriorate, the amount of nonaccrual loans and real
estate acquired through foreclosure would be expected to increase, resulting in
lower interest income and increased loan losses, which could require additional
loan loss provisions to be charged to operating income. Moreover, real estate
acquired through foreclosure may give rise to additional charge-offs and
writedowns and higher expenses for property taxes and other carrying costs.
On April 16, 1998, the Corporation declared an increase in the quarterly
dividend to 9 cents ($.09) per share from 7 cents ($0.7) per share and a special
dividend of 39 cents ($.39) per share. Both were paid May 11, 1998 to
stockholders of record on April 27, 1998.
In addition, the Corporation announced a 2-for-1 stock split in the form of
a stock dividend. Stockholders of records on April 27, 1998 received one
additional share for each share they owned as of that date. The additional
shares were issued on May 12, 1998.
3
<PAGE> 10
ASSET/LIABILITY MANAGEMENT
A primary objective of the Corporation's asset/liability management policy
is to manage interest-rate risk over time to achieve a prudent level of net
interest income in changing interest-rate environments. Management's strategies
are intended to be responsive to changes in interest rates and to recognize
market demands for particular types of deposit and loan products. These
strategies are overseen by an internal Asset/Liability Management Committee and
by the Bank's Board of Directors, and the risks are managed with techniques such
as simulation analysis, which measures the effect on net interest income of
possible changes in interest rates, and "gap" analysis, using models similar to
the one shown on the following page.
The Corporation uses simulation analysis to measure exposure of net
interest income to changes in interest rates over a one-year period. This period
is measured because the Corporation is most vulnerable to changes in short-term
(one year and under) rates. Simulation analysis involves projecting future
interest income and expense under various rate scenarios. The Corporation's
policy on interest-rate risk specifies that if short-term interest rates were to
shift immediately up or down 100 basis points, estimated net interest income for
the next 12 months should decline by less than 13%. This policy remained in
effect during the period, and in management's opinion there were no material
changes in interest rate risk since December 31, 1997, the date as of which the
simulation analysis was performed. Certain shortcomings are inherent in a
simulation analysis. Estimates of customer behavior to changing interest rates
may differ significantly from actual. Areas of these estimates include loan
prepayment speeds, shifting between adjustable-rate and fixed-rate loans, and
activity within different categories of deposit products. Also, the ability of
some borrowers to repay their adjustable-rate loans may decrease in the event of
interest-rate increases.
The following table summarizes the Corporation's interest-rate sensitivity
position as of June 30, 1998. Assets and liabilities are classified as
interest-rate sensitive if they have a remaining term to maturity of 0-12
months, or are subject to interest-rate adjustments within those time periods.
Adjustable-rate loans and mortgage-backed securities are shown as if the entire
balance came due on the repricing date. Nonaccruing loans are not included in
this analysis due to their status as non-earning assets. Estimates of fixed-rate
loan and fixed-rate mortgage-backed security amortization and prepayments are
included with rate sensitive assets. Because regular savings and N.O.W. accounts
may be withdrawn at any time and are subject to interest-rate adjustments at any
time, they are presented in the table below based on an assumed maturity of less
than six months. None of these assets is considered a trading asset.
4
<PAGE> 11
INTEREST-RATE SENSITIVITY POSITION
<TABLE>
<CAPTION>
JUNE 30, 1998
-------------
0-3 3-6 6-12 1-5 OVER 5
MONTHS MONTHS MONTHS YEARS YEARS
------ ------ ------ ----- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
INTEREST SENSITIVE ASSETS:
Investment securities ....................... $ 31,662 $ 9,903 $ 18,606 $ 27,339 $ --
Loans held for sale ......................... 1,699 -- -- -- --
Adjustable-rate loans ....................... 86,647 19,400 35,996 65,052 2,493
Fixed-rate loans ............................ 5,184 2,922 4,775 15,851 7,339
Mortgage-backed securities .................. 1,680 8,804 6,401 5,887 1,766
-------- --------- -------- -------- -------
Total interest sensitive assets .......... 126,872 41,029 65,778 114,029 11,598
-------- --------- -------- -------- -------
INTEREST SENSITIVE LIABILITIES:
Cash manager and passbook plus
accounts ................................... 18,160 13,314 -- -- --
Time deposits ............................... 31,314 21,718 42,353 50,071 --
Other deposits (a) .......................... 69,046 69,045 323 -- --
Borrowings .................................. 2,733 -- -- 33 2,638
-------- --------- -------- -------- -------
Total interest sensitive liabilities ..... 121,253 104,077 42,676 50,104 2,638
-------- --------- -------- -------- -------
Excess (deficiency) of interest
sensitive assets over interest
sensitive liabilities ...................... $ 5,619 $ (63,048) $ 23,102 $ 64,025 $ 8,960
======== ========= ======== ======== =======
Excess (deficiency) of cumulative
interest sensitive assets over cumu-
lative interest sensitive liabilities ...... $ 5,619 $ (57,429) $(34,327) $ 29,698 $38,698
======== ========= ======== ======== =======
Cumulative interest sensitive assets
as a percentage of cumulative
interest sensitive liabilities.............. 104.6% 74.5% 87.2% 109.3% 112.1%
======== ========= ======== ======== =======
Cumulative excess (deficiency) as a
percentage of total assets.................. 1.5% (15.2)% (9.1)% 7.9% 10.2%
======== ========= ======== ======== =======
</TABLE>
- ----------------
(a) Other deposits consist of regular savings, club and N.O.W. accounts.
Interest-rate sensitivity statistics are static measures that do not
necessarily take into consideration external factors which might affect the
sensitivity of assets and liabilities and consequently cannot be used alone to
predict the operating results of a financial institution in a changing
environment. However, these measurements do reflect major trends and thus the
Corporation's sensitivity to interest rates changes over time.
LIQUIDITY
The Bank seeks to ensure sufficient liquidity is available to meet cash
requirements while earning a return on liquid assets. The Bank uses its
liquidity primarily to fund loan and investment commitments, to supplement
deposit flows and to meet operating expenses. The primary sources of liquidity
are interest and amortization from loans, mortgage-backed securities and
investments, sales and maturities of investments, loan sales, deposits and
Federal Home Loan Bank of Boston ("FHLBB") advances, which include a $15 million
overnight line of credit. The Bank also has access to the Federal Reserve Bank's
discount window and may borrow from the Depositors Insurance Fund Liquidity
Fund. During the 1998 period, the Bank did not use the Federal Reserve Bank
discount window and did not borrow from the Depositors Insurance Fund Liquidity
Fund.
The Bank also uses the longer-term borrowings facilities within its total
available credit line with the FHLBB. Advances from the FHLBB, none of which
were from the overnight facility, were $2,671,000 at June 30, 1998.
5
<PAGE> 12
During 1998, the primary sources of liquidity were $17.2 million in loan
sales, proceeds from maturities of investment securities of $19.4 million,
proceeds from sales of investment securities of $2.5 million, $40.6 million in
payoffs and paydowns of loans and proceeds from paydowns of mortgage-backed
securities of $5.2 million. Primary uses of funds were $62.9 million in
residential, commercial real estate and commercial loan originations and $23.5
million to purchase investment securities. At June 30, 1998, the Bank had $7.1
million in overnight investments.
The primary source of liquidity for the Corporation is dividends from the
Bank. Dividends paid by the Corporation are the primary use of this liquidity.
From time to time, the Bank has obtained time deposits in denominations of
$100,000 and over. The following table summarizes maturities of time deposits of
$100,000 or more outstanding at June 30, 1998:
<TABLE>
<CAPTION>
Within One Year (IN THOUSANDS)
---------------
<S> <C>
Less than 3 months.................................... $ 7,041
3 to 6 months......................................... 2,215
6 to 12 months........................................ 4,924
-------
14,180
More than 12 months................................... 8,171
-------
$22,351
=======
</TABLE>
CAPITAL ADEQUACY
Total stockholders' equity at June 30, 1998 was $39.7 million, a decrease
of $360,000 from $40.0 million at December 31, 1997. Included in stockholders'
equity at June 30, 1998 is an unrealized gain on securities available for sale,
which increased stockholders' equity, of $1,153,000 as compared to an unrealized
gain at December 31, 1997 of $1,416,000. This change in unrealized gains on
securities available for sale was mainly due to securities gains of $188,000
realized during the period. Future interest-rate increases could reduce the fair
value of these securities and reduce stockholders' equity. As a percentage of
total assets, stockholders' equity was 10.49% at June 30, 1998 compared to
10.79% at December 31, 1997.
At June 30, 1998, neither the Federal Reserve Board ("FRB") nor the FDIC
permitted the unrealized gain or loss to be used in their calculation of Tier I
capital. In addition, they require the recognition of unrealized losses on
equity securities as a reduction of Tier I capital. At June 30, 1998, net of
applicable income taxes, the unrealized gain on securities available for sale
was $1,153,000, of which the unrealized loss on marketable equity securities was
zero.
The FRB's leverage capital-to-assets guidelines require the strongest and
most highly rated bank holding companies, such as the Corporation, to maintain
at least a 3.00% ratio of Tier I capital to average consolidated assets. All
other bank holding companies are required to maintain at least 4.00% to 5.00%,
depending on how the FRB evaluates their condition. The FRB may require a higher
capital ratio. At June 30, 1998, the FRB leverage capital ratio was 10.45%
compared to 10.58% at December 31, 1997.
The FDIC's leverage capital-to-assets ratio guidelines are substantially
similar to those adopted by the FRB and described above. At June 30, 1998, the
Bank's leverage capital ratio, under FDIC guidelines, was 9.63% compared to
9.22% at December 31, 1997.
The FRB and the FDIC have also imposed risk-based capital requirements on
the Corporation and the Bank, respectively, which give different risk weightings
to assets and to off-balance sheet assets such as loan commitments and loans
sold with recourse. Both the FRB and FDIC guidelines require the Corporation and
the Bank to have an 8.00% risk-based capital ratio. The Corporation's and the
Bank's risk-based capital ratios were 13.58% and 12.62%, respectively, at June
30, 1998 compared to 14.15% and 12.54% at December 31, 1997, thus exceeding
their risk-based capital requirements.
As of June 30, 1998, the Bank's total risk-based capital ratio, Tier I
risk-based capital ratio and leverage capital ratio were 12.62%, 11.37%, and
9.63%, respectively. Based on these capital ratios, the Bank is designated as
"well capitalized."
6
<PAGE> 13
YEAR 2000
The Corporation has developed plans to address the possible exposures
related to the impact on its computer systems and key service providers of the
year 2000.
In the third quarter of 1998, the Corporation will decide whether to renew
the contract with its current outside data processing service provider or to
convert to a new service provider. In either case, the data service provider
will contractually ensure year-2000 compliance, and the costs related to that
aspect of the year-2000 effort are the responsibility of the provider. In the
fourth quarter of 1998 and first quarter of 1999 the data servicing providers'
renovated system for year-2000 compliance will be tested. Test plans for systems
not provided by the data servicing provider will be developed and tested by the
Corporation during the third and fourth quarters of 1998. Management will ensure
that the service provider has the financial resources to complete the effort.
As part of its 1998 business plan, the Corporation is currently upgrading
its personal computers and related software, all of which will be year-2000
certified upon purchase. Because the Corporation is updating systems as part of
its ongoing operations and the hardware and software upgrades are a necessary
result of that effort, management estimates that the incremental costs incurred
by the Corporation for year-2000 compliance will not be material.
The ability of third parties, including the Corporation's borrowers, with
whom the Corporation transacts business to adequately address their year-2000
issues is outside of the Corporation's control. Failure of such third parties of
the Corporation to adequately address their respective year-2000 issues could
have a material adverse effect on the Corporation's financial condition and
results of operation.
FINANCIAL CONDITION
The Corporation's total assets increased to $378.1 million at June 30, 1998
from $371.0 million at December 31, 1997. Increases occurred in commercial real
estate and commercial loans and overnight investments and were partially offset
by decreases in investments available for sale, residential mortgage, commercial
construction and consumer loans.
INVESTMENTS AND MORTGAGE-BACKED SECURITIES
Investments, consisting of money market funds and overnight investments,
investment securities and mortgage-backed securities available for sale, and
other investments, increased to $115.5 million at June 30, 1998 from $114.3
million at December 31, 1997. This increase occurred in overnight investments
and was partially offset by decreases in U.S. Treasury and U.S. Government
Agency obligations and corporate notes. Mortgage-backed securities decreased to
$27.9 million at June 30, 1998 from $30.6 million at December 31, 1997 due to
principal paydowns. Future increases in interest rates could reduce the value of
these investments.
7
<PAGE> 14
INVESTMENTS AT JUNE 30, 1998 ARE AS FOLLOWS:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---- ----- ------ -----
(IN THOUSANDS)
<S> <C> <C> <C> <C>
OVERNIGHT
Money market funds and
overnight investments .................. $ 11,495 $ -- $ -- $ 11,495
-------- ------ ---- --------
11,495 $ -- $ -- 11,495
======== ====== ==== ========
AVAILABLE-FOR-SALE
Fixed income mutual funds ................ 20,787 486 -- 21,273
FNMA mortgage-backed securities .......... 18,129 644 -- 18,773
GNMA mortgage-backed securities .......... 6,411 -- (17) 6,394
U.S. Government and related
obligations ............................. 3,521 1 -- 3,522
Corporate notes .......................... 39,541 9 (24) 39,526
Preferred stock .......................... 7,307 690 -- 7,997
-------- ------ ---- --------
95,696 1,830 (41) 97,485
-------- ------ ---- --------
OTHER
Foreign government bonds and
notes .................................. 750 -- -- 750
Stock in Federal Home Loan Bank
of Boston .............................. 4,110 -- -- 4,110
Stock in Depositors Insurance Fund
Liquidity Fund ......................... 108 -- -- 108
Stock in Savings Bank Life Insurance
Company of Massachusetts ............... 1,576 240 -- 1,816
-------- ------ ---- --------
6,544 240 -- 6,784
-------- ------ ---- --------
$113,735 $2,070 $(41) $115,764
======== ====== ==== ========
</TABLE>
LOANS AND LOANS HELD FOR SALE
Loans and loans held for sale increased by $5.8 million during the 1998
period to $247.6 million at June 30, 1998. This increase is the result of
increases in commercial real estate and commercial loans partially offset by
paydowns and payoffs of residential mortgage and commercial construction loans.
Commercial real estate, commercial construction and commercial loans typically
earn higher yields than residential mortgage loans, but usually carry higher
risk due to loan size.
The following table sets forth the classification of the Corporation's
loans as of June 30, 1998 and December 31, 1997 (in thousands):
<TABLE>
<CAPTION>
JUNE 30, 1998 DECEMBER 31, 1997
------------- -----------------
<S> <C> <C>
Residential mortgages................................ $ 47,507 $ 52,707
Commercial real estate............................... 137,267 125,832
Commercial construction ............................. 17,236 19,739
Commercial loans..................................... 23,964 22,259
Consumer loans....................................... 19,936 20,226
-------- --------
$245,910 $240,763
======== ========
</TABLE>
8
<PAGE> 15
Residential mortgage loan originations during the 1998 period were $21.4
million compared to $14.6 million in the 1997 period. The Corporation originated
$19.7 million in fixed-rate loans during the 1998 period compared to $7.3
million during the 1997 period. Adjustable-rate loans totaling $1.7 million were
originated during the 1998 period compared to $7.3 million during the 1997
period. The Corporation sold loans totaling $17.2 million during the 1998 period
compared to $12.1 million sold in the 1997 period. At June 30, 1998, the
Corporation held $1.7 million of fixed-rate residential mortgage loans for sale
compared to $1.0 million at December 31, 1997.
CREDIT QUALITY
IMPAIRED AND NONPERFORMING LOANS
Loans are deemed by the Corporation to be impaired when, based on current
information and events, it is probable that the Corporation will be unable to
collect all amounts due according to the contractual terms of the original loan
agreement. Generally, nonaccruing loans are deemed impaired. Large groups of
homogeneous loans, such as smaller balance residential mortgage and consumer
installment loans are collectively evaluated for impairment. Typically, the
minimum delay in receiving payments according to the contractual terms of the
loan that can occur before a loan is considered impaired is ninety days.
Impaired loans are analyzed and categorized by level of credit risk and
collectibility in order to determine their related allowance for loan losses. At
June 30, 1998 there were five loans considered impaired and accruing totaling
$867,000 compared to four loans considered impaired and accruing totaling
$720,000 at December 31, 1997.
Loans past due 90 days or more, or past due less than 90 days but in
nonaccrual status were $708,000 at June 30, 1998 compared to $347,000 at
December 31, 1997. Included in nonperforming loans is one loan considered
impaired and nonaccruing in the amount of $148,000 at June 30, 1998 as compared
to two loans considered impaired and nonaccruing totaling $201,000 at December
31, 1997. Accrual of interest on loans is discontinued either when a reasonable
doubt exists as to that the full, timely collection of principal or interest or
when the loans become contractually past due by ninety days or more, unless they
are adequately secured and are in the process of collection.
When a loan is placed on nonaccrual status, all interest previously accrued
but not collected is reversed against current period interest income. Income on
such loans is recognized to the extent that cash is received and where the
ultimate collection of principal and interest is probable. Following collection
procedures, the Corporation generally institutes appropriate action to foreclose
the property or acquire it by deed in lieu of foreclosure.
The table below details nonperforming loans at:
<TABLE>
<CAPTION>
JUNE 30, 1998 DECEMBER 31, 1997
------------- -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Accruing loans 90 days or more in arrears........... $457 $ 0
Nonaccrual loans.................................... 251 347
---- ----
Total nonperforming loans........................... $708 $347
==== ====
Percentage of nonperforming loans to:
Total loans......................................... 0.29% 0.14%
==== ====
Total assets........................................ 0.19% 0.09%
==== ====
</TABLE>
REAL ESTATE ACQUIRED BY FORECLOSURE
Real estate acquired by foreclosure totaled $1.7 million at June 30, 1998
and $2.0 million at December 31, 1997. Real estate acquired by foreclosure is
reflected at the lower of the carrying value of the loans or the net carrying
value of the property less estimated cost of disposition. These properties
consist mainly of land and single-family dwellings. Unstable conditions in the
Massachusetts real estate market could result in losses and writedowns as the
Corporation reduces the book value of real estate to reflect likely realizable
values.
9
<PAGE> 16
In summary, nonperforming assets are as follows (dollars in thousands):
<TABLE>
<CAPTION>
JUNE 30, 1998 DECEMBER 31, 1997
------------- -----------------
<S> <C> <C>
Nonperforming loans ........................... $ 708 $ 347
Real estate acquired by foreclosure ........... 1,735 2,010
------ ------
Total nonperforming assets .................... $2,443 $2,357
====== ======
Total nonperforming assets as a
percentage of total assets ................. 0.6% 0.6%
</TABLE>
ALLOWANCE FOR LOAN LOSSES
The following table presents the activity in the allowance for loan losses
for the six months ended June 30, 1998 and June 30, 1997 (dollars in thousands):
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Balance at beginning of period $4,066 $4,533
------ ------
Losses charged to the allowance:
Residential mortgage -- 184
Commercial mortgage and construction -- 309
Commercial loans -- --
Consumer loans 57 --
3
------ ------
57 496
------ ------
Loan recoveries:
Residential mortgage 8 39
Commercial mortgage and construction 40 217
Commercial loans 20 4
Consumer loans 14 7
82 267
------ ------
Net (charge-offs) recoveries 25 (229)
------ ------
Provision for (recovery of) loan losses charged (credited) to income (68) (238)
------ ------
Balance at end of period $4,023 $4,066
====== ======
Allowance to total loans at end of period 1.64% 1.79%
====== ======
Allowance to nonperforming loans at end of period 568.2% 361.4%
====== ======
Allocation of ending balance:
Residential mortgage $ 695 $ 806
Commercial mortgage and construction 2,786 2,698
Commercial loans 311 248
Consumer loans 231 314
------ ------
$4,023 $4,066
====== ======
</TABLE>
Notwithstanding the foregoing allocations, the entire allowance for loan
losses is available to absorb charge-offs in any category of loans. Loan losses
are charged against the allowance when management believes that the
collectibility of the loan principal is doubtful.
Balances in the allowance for loan losses are determined on a periodic
basis by management and the Loan Committee of the Board of Directors with
assistance from an independent credit review consulting firm. Loan loss
allocations are based on the conditions of each loan, whether performing or
non-performing, including collectibility, collateral adequacy and the general
condition of the borrowers, economic conditions, delinquency statistics, market
area activity, the risk factors associated with each of the various loan
categories and the borrower's adherence to the original terms of the loan.
Individual loans, including loans
10
<PAGE> 17
considered impaired, are analyzed and categorized by level of credit risk and
collectibility. The associated provision for loan losses is the amount required
to bring the allowance for loan losses to the balance considered necessary by
management at the end of the period after accounting for the effect of loan
charge-offs (which decrease the allowance) and loan-loss recoveries (which
increase the allowance). The allowance for loan losses included above
attributable to $1,015,000 of impaired loans, of which $457,000 is measured
using the present value method and $558,000 using the fair value method, is
$224,000.
The required allowance for loan losses could increase in future periods if
the condition of the loan portfolio deteriorates or if the balance of the
portfolio increases. Such an increase in the allowance could require additional
provisions for loan losses to be charged to income.
LEGAL AND OFF-BALANCE SHEET RISKS
Various legal claims arise from time to time in the course of business of
the Corporation and its subsidiaries. At June 30, 1998, there were no legal
claims against the Corporation or its subsidiaries.
The Corporation is party to financial instruments with off-balance sheet
risk in the normal course of business to meet the financial needs of its
customers and to reduce its own exposure to fluctuations of interest rates.
These financial instruments include commitments to originate loans, unused lines
of credit, standby letters of credit, recourse arrangements on sold assets and
forward commitments to sell loans. The financial instruments involve, to varying
degrees, elements of credit and interest rate risk in excess of the amount
recognized in the consolidated balance sheets.
OTHER ASSETS
Included in other assets at June 30, 1998 and December 31, 1997 are
$1,429,000 and $742,000, respectively, of deferred income taxes receivable. Also
included in other assets at December 31, 1997 was a current income tax
receivable of $547,000.
LIABILITIES
Deposits increased to $330.3 million at June 30, 1998 from $325.3 million
at December 31, 1997. This increase took place primarily in NOW and demand
deposit accounts, and was partially offset by decreases in money market deposit
accounts.
Federal Home Loan Bank of Boston advances were $2,671,000 at June 30, 1998
and $671,000 at December 31, 1997. Securities sold under agreement to repurchase
were $2.7 million at June 30, 1998 and $2.2 million at December 31, 1997.
RESULTS OF OPERATIONS - FOR THE THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO THE
THREE MONTHS ENDED JUNE 30, 1997
GENERAL
The Corporation's profit for the 1998 and 1997 quarters, respectively
remained unchanged at $1.6 million. Income before taxes was $2.5 million in the
1998 quarter compared to $2.4 million in the 1997 quarter.
Net interest income for the 1998 and 1997 quarters was $4.4 million,
respectively. The weighted average interest rate spread for the 1998 quarter was
4.70% compared to 4.93% for the 1997 quarter. The net yield on average earning
assets was 4.99% for the 1998 quarter and 5.21% for the 1997 quarter. The
decrease in the weighted average interest rate spread and the net yield on
average earnings assets is mainly due to lower interest rates in a highly
competitive lending market. The return on average assets and the return on
average stockholders' equity were 1.75% and 16.33%, respectively, for the 1998
quarter compared to 1.83% and 17.88%, respectively, for the 1997 quarter.
11
<PAGE> 18
INTEREST AND DIVIDEND INCOME
Total interest and dividend income increased to $7.3 million for the 1998
quarter from $7.2 million for the 1997 quarter. Interest on loans increased to
$5.6 million for the 1998 quarter from $5.3 million for the 1997 quarter due to
an increase in the average loans outstanding in the 1998 quarter despite a
decrease in the average loan yield to 9.17% for the 1998 quarter compared to
9.42% for the 1997 quarter. Interest and dividends on investments was $1.2 and
$1.1 million for the 1998 and 1997 quarters, respectively. This increase is
attributed to an increase in the average investments held despite a decrease in
the average yield to 6.00% for the 1998 quarter from 6.07% for the 1997 quarter.
Mortgage-backed securities income decreased to $462,000 in the 1998 quarter from
$722,000 in the 1997 quarter primarily due to a decrease in the average amount
of mortgage-backed securities held due to paydowns and a decrease in the average
yield to 7.16% for the 1998 quarter compared to 7.25% in the 1997 quarter.
INTEREST EXPENSE
Interest on deposits increased to $2.9 million for the 1998 quarter from
$2.8 million for the 1997 quarter. This increase was primarily related to an
increase in the average cost of deposits to 3.58% for the 1998 quarter from
3.50% for the 1997 quarter and by an increase in average total deposits
outstanding. Interest on borrowed funds and escrow deposits of borrowers
increased to $54,000 in the 1998 quarter from $30,000 for the 1997 quarter. This
increase is related to an increase in borrowed funds and an increase in the
average cost of borrowings to 3.71% for the 1998 quarter from 2.95% for the 1997
quarter.
NON-INTEREST INCOME
Total non-interest income for the 1998 quarter was $493,000 compared to
$228,000 for the 1997 quarter. The gain from the sale of mortgage loans was
$79,000 in the 1998 quarter compared to $65,000 in the 1997 quarter. The gain
from the sale of investment securities was $179,000 for the 1998 quarter
compared to zero in the 1997 quarter.
NON-INTEREST EXPENSE
Total non-interest expense was $2.5 million in the 1998 quarter and $2.4
million in the 1997 quarter. Salary and employee benefits increased to $1.5
million in the 1998 quarter from $1.4 million in the 1997 quarter. Real estate
operations expense decreased to $1,000 in the 1998 quarter compared to $30,000
in the 1997 quarter mainly due to a writedown in the value of real estate owned
through foreclosure occurring in the 1997 quarter.
INCOME TAX EXPENSE
Income tax expense for the 1998 quarter was $837,000 compared to $819,000
for the 1997 quarter.
RESULTS OF OPERATIONS - FOR THE SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO THE
SIX MONTHS ENDED JUNE 30, 1997
GENERAL
The Corporation recorded a profit for the 1998 period of $3.1 million
compared to a profit for the 1997 quarter of $4.1 million. The decrease in the
1998 period profit is primarily due to a $1.4 million pre-tax gain from the sale
of rights to service residential mortgage loans in the 1997 period. Income
before taxes was $4.7 million in the 1998 period compared to $5.8 million in the
1997 period.
Net interest income for the 1998 and 1997 period were $8.7 million and $8.5
million, respectively. The weighted average interest rate spread for the 1998
period was 4.72% compared to 4.77% for the 1997 period. The net yield on average
earning assets was 4.97% for the 1998 period and 5.03% for the 1997 period. The
return on average assets and the return on average stockholders' equity were
1.67% and 15.53%, respectively, for the 1998 period compared to 2.29% and
22.71%, respectively, for the 1997 period.
12
<PAGE> 19
INTEREST AND DIVIDEND INCOME
Total interest and dividend income increased to $14.6 million for the 1998
period from $14.1 million for the 1997 period. Interest on loans increased to
$11.1 million for the 1998 period from $10.4 million for the 1997 period due to
average loans outstanding increasing in the 1998 period despite a decrease in
the average loan yield to 9.17% for the 1998 period compared to 9.24% for the
1997 period. Interest and dividends on investments was $2.5 and $2.2 million for
the 1998 and 1997 periods, respectively. This increase is attributed to an
increase in the average yield on investments to 6.10% for the 1998 period from
6.01% for the 1997 period partially offset by a decrease in the average amount
of investments held. Mortgage-backed securities income decreased to $974,000 in
the 1998 period from $1.5 million in the 1997 period primarily due to a decrease
in the average amount of mortgage-backed securities held due to paydowns and a
decrease in the average yield to 7.16% for the 1998 period compared to 7.25% in
the 1997 period.
INTEREST EXPENSE
Interest on deposits increased to $5.8 million for the 1998 period from
$5.5 million for the 1997 period. This increase was related to an increase in
the average cost of deposits to 3.58% for the 1998 period from 3.51% for the
1997 period and to an increase in average total deposits outstanding. Interest
on borrowed funds and escrow deposits of borrowers increased to $84,000 in the
1998 period from $82,000 for the 1997 period. This increase is primarily related
to an increase in borrowed funds despite the average cost of borrowings
decreasing to 3.32% for the 1998 period from 3.54% for the 1997 period.
NON-INTEREST INCOME
Total non-interest income for the 1998 period was $748,000 compared to $2.2
million for the 1997 period. The 1997 quarter included a pre-tax gain from the
sale of $209 million of mortgage servicing rights of $1.4 million. The gain from
the sale of mortgage loans was $131,000 in the 1998 period compared to $91,000
in the 1997 period. Loan servicing fees were $9,000 for the 1998 period compared
to $116,000 in the 1997 period. This decrease is mainly due to a reduction in
the amount of loans serviced for others as the result of the sale of the
above-mentioned mortgage servicing rights. The gain from the sale of investment
securities was $188,000 for the 1998 period compared to $99,000 in the 1997
period.
NON-INTEREST EXPENSE
Total non-interest expense was $4.8 million in the 1998 period and $5.1
million in the 1997 period. Salary and employee benefits remained at $2.9
million in the 1998 and 1997 periods, respectively. Real estate operations
expense decreased to $26,000 in the 1998 period compared to $373,000 in the 1997
period mainly due to a writedown in the value of real estate owned through
foreclosure occurring in the 1997 period.
INCOME TAX EXPENSE
Income tax expense for the 1998 period was $1.6 million compared to $1.7
million for the 1997 period. As a result of the capital gain generated from the
sale of mortgage-servicing rights in the 1997 period, the Corporation was able
to recognize a tax benefit in the amount of $279,000 from capital losses of
prior periods during that period which substantially lowered the effective tax
rate of the 1997 period.
13
<PAGE> 20
WARREN BANCORP, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
ANNUAL MEETING - MAY 6, 1998
A. ELECTION OF DIRECTORS*
TERM TO EXPIRE IN 2001
Total Vote for Total Vote Withheld
Each Director From Each Director
------------- ------------------
Francis L. Conway 3,121,394 7,193
Arthur E. Holden 3,123,569 5,018
Stephen G. Kasnet 3,124,194 4,393
Linda Lerner 3,110,394 18,193
Arthur J. Pappathanasi 3,110,694 17,893
George W. Phillips 3,124,694 3,893
John H. Womack 3,123,544 5,043
OTHER DIRECTORS
TERM TO EXPIRE IN 1999 TERM TO EXPIRE IN 2000
---------------------- ----------------------
Peter V. Bent Stephen J. Connolly, IV
Paul J. Curtin Robert R. Fanning, Jr.
Stephen R. Howe John C. Jeffers
Arthur E. McCarthy Paul M. Peduto
John D. Smidt John R. Putney
* Number of shares prior to May 12, 1998 stock split.
B. Approval of the Warren Bancorp, Inc. Incentive and Nonqualified Stock
Option Plan.
FOR-1,986,772 AGAINST-223,945 ABSTAIN-129,908 NON-VOTE-787,962
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS
27.1 Financial Data Schedule - 1998
27.2 Financial Data Schedule - 1997 Restated
REPORTS ON FORM 8-K - On June 9, 1998 the Corporation filed a current
report on Form 8-K regarding a 2-for-1 stock split which occurred on
May 12, 1998 and the effect of the split on prior periods' selected
financial data.
14
<PAGE> 21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WARREN BANCORP, INC.
DATE: August 13, 1998 By: /s/ John R. Putney
-------------------------------
John R. Putney
President and
Chief Executive Officer
DATE: August 13, 1998 By: /s/ Paul M. Peduto
-------------------------------
Paul M. Peduto
Treasurer
(Principal Financial Officer
and Principal Accounting
Officer)
15
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM JUNE 30,
1998 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<CASH> 7,232
<INT-BEARING-DEPOSITS> 11,495
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 97,485
<INVESTMENTS-CARRYING> 6,544
<INVESTMENTS-MARKET> 6,784
<LOANS> 247,609
<ALLOWANCE> 4,023
<TOTAL-ASSETS> 378,137
<DEPOSITS> 330,294
<SHORT-TERM> 2,733
<LIABILITIES-OTHER> 2,771
<LONG-TERM> 2,671
0
0
<COMMON> 809
<OTHER-SE> 38,859
<TOTAL-LIABILITIES-AND-EQUITY> 378,137
<INTEREST-LOAN> 5,619
<INTEREST-INVEST> 1,719
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 7,338
<INTEREST-DEPOSIT> 2,887
<INTEREST-EXPENSE> 2,941
<INTEREST-INCOME-NET> 4,397
<LOAN-LOSSES> (50)
<SECURITIES-GAINS> 179
<EXPENSE-OTHER> 2,484
<INCOME-PRETAX> 2,456
<INCOME-PRE-EXTRAORDINARY> 2,456
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,619
<EPS-PRIMARY> 0.21
<EPS-DILUTED> 0.20
<YIELD-ACTUAL> 4.99
<LOANS-NON> 233
<LOANS-PAST> 475
<LOANS-TROUBLED> 1,918
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 4,066
<CHARGE-OFFS> 57
<RECOVERIES> 82
<ALLOWANCE-CLOSE> 4,023
<ALLOWANCE-DOMESTIC> 4,023
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM JUNE 30,
1997 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 7,509
<INT-BEARING-DEPOSITS> 6,974
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 101,919
<INVESTMENTS-CARRYING> 6,475
<INVESTMENTS-MARKET> 6,715
<LOANS> 227,247
<ALLOWANCE> 4,066
<TOTAL-ASSETS> 358,021
<DEPOSITS> 314,300
<SHORT-TERM> 2,663
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<LONG-TERM> 671
0
0
<COMMON> 388
<OTHER-SE> 36,730
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<INTEREST-LOAN> 5,331
<INTEREST-INVEST> 1,849
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 7,180
<INTEREST-DEPOSIT> 2,759
<INTEREST-EXPENSE> 2,789
<INTEREST-INCOME-NET> 4,391
<LOAN-LOSSES> (198)
<SECURITIES-GAINS> 0
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<EXTRAORDINARY> 0
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<EPS-PRIMARY> 0.22
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<YIELD-ACTUAL> 5.16
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<ALLOWANCE-DOMESTIC> 4,066
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</TABLE>