UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For quarter ended September 30, 1996
------------------
Commission file number 33-47248
--------
WEETAMOE BANCORP
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Massachusetts 04-3061936
- ------------------------------------ ---------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
100 Slade's Ferry Avenue
Somerset, Massachusetts 02726
- ---------------------------------------- --------------------------------
(Address of principal executive offices) (Zip Code)
(508) 675-2121
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Check 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 past 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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date:
Common stock ($.01 par value) 2,770,276.611 shares as of September 30, 1996.
Traditional Small Business Disclosure Format:
Yes [X] No [ ]
<PAGE> 1
PART I
ITEM 1
Financial Statements
WEETAMOE BANCORP
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, 1996 December 31, 1995
------------------ -----------------
<S> <C> <C>
ASSETS:
Cash and due from banks $ 15,995,402 $ 9,039,970
Federal funds sold 16,300,000 9,500,000
Investment securities(1) 17,450,671 21,835,682
Securities available for sale(2) 35,156,293 36,730,660
Federal Home Loan Bank Stock 890,600 290,700
Loans (net) 194,528,940 148,069,415
Premises and equipment 5,808,123 3,700,054
Other real estate owned 549,849 633,467
Accrued interest receivable 1,312,927 1,820,323
Goodwill 3,595,051 0
Other assets 2,523,115 1,801,383
------------------------------------
TOTAL ASSETS $ 294,110,971 $ 233,421,654
====================================
LIABILITIES & STOCKHOLDERS' EQUITY:
Deposits $ 271,510,548 $ 214,220,689
Short term borrowing 2,491,441 741,773
Other liabilities 1,079,961 632,467
------------------------------------
TOTAL LIABILITIES $ 275,081,950 $ 215,594,929
STOCKHOLDERS' EQUITY:
Common stock 27,703 26,172
Paid in capital 14,447,931 13,136,923
Retained earnings 4,791,195 4,630,608
Net unrealized gain (loss) on investments in
available for sale securities (237,808) 33,022
------------------------------------
TOTAL STOCKHOLDERS' EQUITY $ 19,029,021 $ 17,826,725
------------------------------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 294,110,971 $ 233,421,654
====================================
<FN>
- -------------------
<F1> Investment securities are to be held to maturity and have a fair market
value of $17,292,034 as of September 30, 1996 and $21,973,518 as of
December 31, 1995.
<F2> Securities classified as Available for Sale are stated at fair value with
any unrecognized gains or losses reflected as an adjustment in Stockholders
Equity.
</FN>
</TABLE>
<PAGE> 2
CONSOLIDATED STATEMENT OF INCOME AND EXPENSE
(UNAUDITED)
9 MONTHS ENDING SEPTEMBER 30,
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
INTEREST AND DIVIDEND INCOME:
Interest and fees on loans $ 11,113,571 $ 9,387,933
Interest and dividends on investments 2,168,643 2,258,995
Other interest 568,837 401,325
------------------------------
Total interest and dividend income 13,851,051 12,048,253
------------------------------
INTEREST EXPENSE:
Interest on deposits 6,478,735 5,484,422
Interest on other borrowed funds 46,812 50,173
------------------------------
Total interest expense 6,525,547 5,534,595
------------------------------
Net interest and dividend income 7,325,504 6,513,658
------------------------------
PROVISION FOR LOAN LOSSES 400,000 450,000
Net interest and dividend income after
provision for loan losses 6,925,504 6,063,658
------------------------------
OTHER INCOME:
Service charges on deposit accounts 641,830 563,842
Security gains (losses) net 101,248 (13,565)
Other income 201,591 184,104
------------------------------
Total other income 944,669 734,381
------------------------------
OTHER EXPENSE:
Salaries and employee benefits 3,136,818 3,003,739
Occupancy expense 405,079 357,545
Equipment expense 342,249 309,979
Loss (Gain) on sale of other real estate owned (657) 3,773
Write down of other real estate owned 30,000 54,578
Other expense 1,302,894 1,297,799
------------------------------
Total other expense 5,216,383 5,027,413
------------------------------
Income before income taxes 2,653,790 1,770,626
Income taxes 1,032,400 668,977
------------------------------
NET INCOME $ 1,621,390 $ 1,101,649
==============================
Earnings per share $ 0.59 $ 0.40
==============================
Average shares outstanding(3) 2,757,051 2,730,792
==============================
<FN>
- -------------------
<F3> Adjusted for 5% stock dividend issued in 1996.
</FN>
</TABLE>
<PAGE> 3
CONSOLIDATED STATEMENT OF INCOME AND EXPENSE
(UNAUDITED)
3 MONTHS ENDING SEPTEMBER 30,
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
INTEREST AND DIVIDEND INCOME:
Interest and fees on loans $ 4,138,553 $ 3,252,113
Interest and dividends on investments 637,218 847,807
Other interest 202,807 164,883
----------------------------
Total interest and dividend income 4,978,578 4,264,803
----------------------------
INTEREST EXPENSE:
Interest on deposits 2,250,774 2,142,824
Interest on other borrowed funds 23,060 16,646
----------------------------
Total interest expense 2,273,834 2,159,470
----------------------------
Net interest and dividend income 2,704,744 2,105,333
----------------------------
PROVISION FOR LOAN LOSSES 100,000 150,000
Net interest and dividend income
after provision for loan losses 2,604,744 1,955,333
----------------------------
OTHER INCOME:
Service charges on deposit accounts 226,878 187,667
Security gains (losses) net 8,688 1,564
Other income 67,587 59,339
----------------------------
Total other income 303,153 248,570
----------------------------
OTHER EXPENSE:
Salaries and employee benefits 1,159,356 1,030,038
Occupancy expense 151,064 123,387
Equipment expense 133,482 106,332
Loss on sale of other real estate owned 0 3,965
Write down of other real estate owned 0 40,000
Other expense 535,423 402,702
----------------------------
Total other expense 1,979,325 1,706,424
----------------------------
Income before income taxes 928,572 497,479
Income taxes 381,736 183,701
----------------------------
NET INCOME $ 546,836 $ 313,778
============================
Earnings per share $ 0.20 $ 0.11
============================
Average shares outstanding(1) 2,768,750 2,735,648
============================
<FN>
- -------------------
<F1> Adjusted for 5% stock dividend issued in 1996.
</FN>
</TABLE>
<PAGE> 4
WEETAMOE BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Reconciliation of net income to net cash used in
operating activities:
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,621,390 $ 1,101,649
Adjustments to reconcile net income to net cash
used in operating activities:
Amortization of organization cost 0 3,440
Amortization of goodwill 40,000 0
Depreciation and amortization 337,711 315,728
Securities available for sale (gains) losses, net (101,248) 13,565
Provision for loan losses 400,000 450,000
Decrease in taxes payable (640,292) (117,516)
(Increase) decrease in interest receivable 925,292 (155,177)
Increase (decrease) in interest payable (53,124) 39,791
Increase in accrued expenses 83,518 227,856
(Increase) decrease in prepaid expenses (12,832) 5,888
Accretion of securities, net of amortization (116,354) (43,386)
Accretion of securities available for sale,
net of amortization (200,556) (29,658)
Loss (gain) on sale of other real estate owned (657) 3,773
Writedown of other real estate owned 30,000 54,578
Change in unearned income (5,183) 54,850
(Increase) decrease in other assets 274,772 (169,506)
Increase in other liabilities 72,742 466,450
-----------------------------
Net cash provided by operating activities $ 2,655,179 $ 2,222,325
-----------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash and cash equivalents used in acquisition,
net of cash acquired (4,955,131) 0
Purchases of securities available for sale (4,577,091) (6,665,043)
Maturities of securities available for sale 10,482,738 2,293,079
Sales of securities available for sale 825,091 1,317,478
Proceeds from sale of other real estate owned 254,124 196,227
Proceeds from maturities of investment securities 15,777,672 10,555,752
Purchases of investment securities (10,315,755) (20,863,651)
Net increase in loans (14,764,692) (11,252,516)
Capital expenditures (756,527) (107,788)
Purchases of Federal Home Loan Bank Stock (409,400) 0
Recoveries of previously charged-off loans 408,942 24,592
Increase in time deposits 6,688 0
(Increase) decrease in federal funds sold 9,575,000 (11,500,000)
-----------------------------
Net cash provided by (used in) investing activities 1,551,659 (36,001,870)
-----------------------------
</TABLE>
<PAGE> 5
WEETAMOE BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30
(Unaudited)
(Continued)
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of stock 186,591 152,470
Net increase (decrease) in demand deposits, NOW,
money market and savings accounts 3,671,259 (8,351,538)
Net increase (decrease) in time deposits (1,239,101) 42,899,052
Net increase in short-term borrowing 674,668 194,310
Dividends paid (334,855) (302,355)
Decrease in notes payable (209,968) 0
-----------------------------
Net cash provided by (used in) financing activities 2,748,594 34,591,939
-----------------------------
Net increase (decrease) in cash and cash equivalents 6,955,432 812,394
Cash and cash equivalents at beginning of period 9,039,970 7,438,167
-----------------------------
Cash and cash equivalents at end of period $ 15,995,402 $ 8,250,561
=============================
SUPPLEMENTAL DISCLOSURES:
Loans originating from sales of Other Real Estate
Owned $ 110,000 $ 60,000
Interest paid 6,525,547 5,494,804
Income taxes paid 1,672,692 786,493
Loans transferred to Other Real Estate Owned 37,000 1,298,104
Assets and liabilities acquired in acquisition:
Investments 22,823,875
Loans 32,556,453
Fixed assets 1,689,253
Other assets 811,257
Deposits 54,848,701
Other liabilities 1,695,573
Goodwill 3,618,567
</TABLE>
<PAGE> 6
WEETAMOE BANCORP AND SUBSIDIARY, SLADE'S FERRY TRUST COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 1996
Note A - Basis of Presentation
- ------------------------------
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and the instructions to Form 10QSB and, accordingly, do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of the
management of Weetamoe Bancorp, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the nine months ended September 30, 1996 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1996.
Note B - Accounting Policies
- ----------------------------
The accounting principles followed by Weetamoe Bancorp and subsidiary and the
methods of applying these principles which materially affect the determination
of financial position, results of operations, or changes in financial position
are consistent with those used at year end 1995.
The consolidated financial statements of Weetamoe Bancorp include its
wholly-owned subsidiary, Slade's Ferry Trust Company, and its subsidiaries, the
Slade's Ferry Realty Trust and the Slade's Ferry Securities Corporation. All
significant intercompany balances have been eliminated.
ITEM 2
Management's Discussion and Analysis
- ------------------------------------
Financial Condition
- -------------------
The merger agreement previously entered into on May 15, 1996 between Weetamoe
Bancorp and its subsidiary, Slade's Ferry Trust Company, with Fairbank Inc. and
its wholly owned subsidiary, the National Bank of Fairhaven was consummated on
August 23, 1996. The agreement provided that Slade's Ferry Trust Company acquire
Fairbank Inc. and its wholly owned subsidiary, the National Bank of Fairhaven,
by a cash outlay paid by Slade's Ferry Trust Company, of $8,558,800 to
stockholders of Fairbank, Inc. without any issuance of Weetamoe Bancorp stock.
The cash payment resulted in a premium paid above the book value of Fairbank,
Inc. of $3.6 Million, which is classified as Goodwill. Also included in Goodwill
is the net adjustment of book values to market values of loans, investments,
buildings and equipment, deposits and notes payable. Goodwill is to be amortized
over a fifteen year period.
Assets acquired totaled $62.2 Million which comprised of loans totaling $33.1
Million, Allowance for Possible Loan Losses of $0.5 Million, investment
portfolio of $6.4 Million, cash and deposits at other banks totaling $20.0
Million, and other assets amounting to $3.2 Million.
Included in the $3.2 Million of other assets acquired is a main banking
facility, with 13,000 square feet of banking space, located on a 118,048 square
foot parcel of land in Fairhaven, Massachusetts. This facility has a current
market value of $1.4 Million. In addition, a leased branch facility located in
New Bedford was also retained. These two offices became branches of Slade's
Ferry Trust Company, which now totals nine banking sites located in southeastern
Massachusetts.
Consolidated assets at September 30, 1996 increased to $294.1 Million from
$233.4 Million reported on December 31, 1996. This increase was primarily
attributable to the acquisition.
The loan portfolio grew significantly apart from the $33.1 Million in loans
associated with the merger. Loans at end of the third quarter in 1996 were
$197.7 Million up by $46.7 Million from $151.1 Million reported on December 31,
1995. Growth in loans is a continued result of the Company's business
development efforts. Funding for the new loans was provided from the proceeds of
investment securities that had matured. These securities were previously
purchased as an alternative investment when loan demand was stagnant.
The loan portfolio that was acquired through the merger process from the
National Bank of Fairhaven was comprised of commercial real estate loans
totaling $15.7 Million, business time and demand loans of $8.0 Million,
residential real estate loans totaling $6.0 Million, business lines of credit of
$2.2 Million and $1.2 Million in business and personal installment loans.
The investment portfolio is comprised of investments Held to Maturity and
securities Available for Sale. The total portfolio, which includes $6.4 Million
acquired through the merger, decreased from $58.9 Million reported on December
31, 1995 to $53.3 Million on September 30, 1996. This net decrease of $5.6
Million was used for funding the new additional loans, as aforementioned.
Investments in Held-to-Maturity securities are carried at amortized cost on the
balance sheet and are summarized as follows as of September 30, 1996.
<TABLE>
<CAPTION>
Gross
Gross Unrealized
Amortized Unrealized Holding
Cost Basis Holding Gains Losses Fair Value
------------ ------------- ---------- ------------
<S> <C> <C> <C> <C>
Debt securities issued by the U. S. Treasury and
other U. S. Government corporations and agencies $ 11,573,992 $ 15,203 $ 78,539 $ 11,510,656
Debt securities issued by states of the United
States and political subdivisions of the states 5,605,871 18,029 75,052 5,548,848
Mortgage-backed securities 264,808 84 38,363 226,529
Other debt securities 6,000 1 0 6,001
--------------------------------------------------------------
$ 17,450,671 $ 33,317 $ 191,954 $ 17,292,034
==============================================================
</TABLE>
Investments in Available for Sale securities are carried at amortized cost on
the balance sheet and are summarized as follows as of September 30, 1996.
<TABLE>
<CAPTION>
Gross
Gross Unrealized
Amortized Unrealized Holding
Cost Basis Holding Gains Losses Fair Value
------------ ------------- ---------- ------------
<S> <C> <C> <C> <C>
Debt securities issued by the U. S. Treasury and
other U. S. Government corporations and agencies $ 29,964,344 $ 38,591 $ 451,788 $ 29,551,147
Marketable Equity 1,857,013 144,799 45,632 1,956,180
Mortgage-backed securities 3,747,479 8,896 107,409 3,648,966
----------------------------------------------------------------
$ 35,568,836 $ 192,286 $ 604,829 $ 35,156,293
================================================================
</TABLE>
Deduction to Stockholders Equity:
<TABLE>
<S> <C>
Net unrealized loss on Available for Sale Securities $ 412,543
Less tax effect 174,735
---------
$ 237,808
</TABLE>
At September 30, 1996 securities classified as Available for Sale had net
unrealized losses of $237,808 as a result of current market conditions, compared
to net unrealized gains of $33,022 reported on December 31, 1995. The current
unrealized losses in the opinion of management do not have a material effect
upon future income. Securities in the Available for Sale category may be sold if
it becomes suitable to improve liquidity status, or when management feels it
would be appropriate to improve interest rate risk by effecting such sale on
various securities, and reinvesting the proceeds into higher yielding
instruments.
Investments obtained from the National Bank of Fairhaven were recorded at their
fair market value and were comprised of $5.9 Million in securities of U.S.
Treasury and other U.S. Government agencies, $0.3 Million in securities issued
by states of the United States and political subdivisions of the states, and
$0.2 Million in stock of Federal Home Loan Bank.
Total deposits, including deposits acquired through the merger, increased by
$57.3 Million to $271.5 Million at September 30, 1996, from $214.2 Million
reported at year end 1995. The composition of deposits following the merger
remained relatively the same as prior to the merger, whereby interest-bearing
time deposits represented 48% of total deposits, followed by 19% in NOW and
Money Market accounts. Remaining deposits constitute 17% in demand deposits and
16% in savings accounts.
At the time of merger, Fairbank, Inc. had notes payable due to Fleet Bank
amounting to $1,293,013, with a final maturity in September of 1998. In
accordance with the terms of the note and applicable prepayment fees, it was
advantageous for Slade's Ferry Trust Company to assume the note payable. At
September 30, 1996, the current balance was $1,075,000.
Nonaccrual loans at September 30, 1996 were up by $1.8 Million to $4.5 Million
from $2.7 Million reported at year end 1995. This increase reflects $896,411 of
nonaccrual loans that are merger related. Loans that became nonaccrual during
the current year amounted to $1,531,748.
Offsetting the increase in nonaccrual loans were receipts of loan payments of
$263,086 and loans of $130,000 that were deemed uncollectible and charged off to
the Allowance for Possible Loan Losses. There was a transfer to Other Real
Estate Owned of $37,000 and a transfer to accrual status of a loan with a
balance of $175,630.
During the current year's third quarter, $760,000 of previously identified
potential problem loans became classified as nonaccrual loans. These loans
consist of commercial real estate and the properties are currently being
marketed for sale by the borrower. The bank does not anticipate any material
losses on these loans.
Loans past due 90 days or more but still accruing were $282,861 at September 30,
1996, and $659,170 at December 31, 1995. The company continues to accrue on
these loans, due to the value of the assets collateralizing such loans.
The percentage of nonaccrual loans to total loans increased from 1.78% reported
at year end 1995 to 2.27% on September 30, 1996. This increase is predominately
due to the reclassification into nonaccrual status of the previously identified
potential problem loans.
INFORMATION WITH RESPECT TO NONACCRUAL AND PAST DUE LOANS
AT SEPTEMBER 30, 1996 AND 1995 AND DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
(Dollars in Thousands)
At September 30 At December 31
------------------- ------------------
1996 1995 1995 1994
------- ------- ------- -------
<S> <C> <C> <C> <C>
Nonaccrual Loans $ 4,518 $ 3,151 $ 2,695 $ 3,238
Loans 90 days or more past due and still accruing 283 659 23 204
Real estate acquired by foreclosure
or substantively repossessed 550 1,598 633 888
Restructured loans $ $ $ 2 $ 300
Percentage of nonaccrual loans to total loans 2.27% 2.16% 1.78% 2.38%
Percentage of nonaccrual loans and real estate
acquired by foreclosure or substantively
repossessed to total assets 1.72% 2.05% 1.42% 2.13%
Percentage of allowance for possible loan losses .78% .79% .93% .71%
to nonaccrual loans
</TABLE>
At September 30, 1996, $4,227,992 of nonaccrual loans and $275,588 of
restructured loans are collateralized.
Restructured loans are those loans for which the interest rate was reduced due
to the borrower's inability to service the debt as provided for under the
original terms of the loan agreement. Nonaccrual loans include restructured
loans of $275,588 at September 30, 1996, $290,588 at September 30, 1995,
$284,588 at December 31, 1995 and $299,912 at December 31, 1994.
INFORMATION WITH RESPECT TO NONACCRUAL AND RESTRUCTURED LOANS
AT SEPTEMBER 30, 1996 AND 1995 AND DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
(Dollars in Thousands)
At September 30 At December 31
------------------- ------------------
1996 1995 1995 1994
------- ------- ------- -------
<S> <C> <C> <C> <C>
Nonaccrual Loans $ 4,518 $ 3,151 $ 2,695 $ 3,238
Interest income that would have been recorded 320 161 243 242
under original terms
Interest income recorded during the period 71 5 21 19
</TABLE>
The Company stops accruing interest on a loan once it becomes past due 90 days
or more unless there is adequate collateral and the financial condition of the
borrower is sufficient. When a loan is placed on a nonaccrual status, all
previously accrued but unpaid interest is reversed and charged against current
income. Interest is thereafter recognized only when payments are received and
the loan becomes current.
Loans in the nonaccrual category will remain until the possibility of collection
no longer exists, the loan is paid off or becomes current. When a loan is
determined to be uncollectible, it is then charged off against the Allowance for
Possible Loan Losses.
Statement of Financial Accounting Standards No. 114, "Accounting by Creditors
for Impairment of a Loan", was adopted by the Company as of January 1, 1995.
Statement 114 applies to all loans except large groups of smaller-balance
homogenous loans that are collectively evaluated for impairment, loans measured
at fair value or at a lower of cost or fair value, leases, and debt securities
as defined in Statement 115. Statement 114 requires that impaired loans be
valued at the present value of expected future cash flows discounted at the
loan's effective interest rate or as a practical expedient, at the loan's
observable market value of the collateral if the loan is collateral dependent.
Included in the $4,517,556 of nonaccrual loans are $2,609,115 which the Company
has determined to be impaired, of which $2,427,202 has a related allowance for
credit losses of $748,000 and $181,913 has no related allowance for credit
losses.
The Company has $500,000 of potential problem loans for which payments are
presently current but are identified as a possible risk. This assessment is
based on an objective review of the borrower's financial statements. The past
experience with the borrower, the borrower's background, and the applicable
value of the assets collateralizing these loans provides a degree of assurance
that the loan will continue to be paid as per loan agreement. These issues are
reviewed on a quarterly basis to determine if there is any change in status that
would cause management to reclassify the loan from the accrual category to
nonaccrual.
ANALYSIS OF THE ALLOWANCE FOR POSSIBLE LOAN LOSSES
<TABLE>
<CAPTION>
(Dollars in Thousands)
Three Months Years Ended
At September 30 At December 31
------------------- -------------------
1996 1995 1995 1994
------- ------- ------- -------
<S> <C> <C> <C> <C>
Balance at January 1 $ 2,498 $ 2,306 $ 2,306 $ 1,954
Charge Offs:
Commercial 73 184 184 22
Real Estate - Construction -- -- -- --
Real Estate - Mortgage 4 10 79 246
Installment/Consumer 145 112 134 93
--------------------------------------------
222 306 397 361
Recoveries:
Commercial 57 1 51
Real Estate - Construction -- -- -- --
Real Estate - Mortgage 309 15 16 2
Installment/Consumer 42 9 22 15
--------------------------------------------
408 24 39 68
--------------------------------------------
Net Charge Offs (186) 282 358 293
--------------------------------------------
Additions Charged to Operations 400 450 550 645
Allowance Attributable to Acquisition 456 -- -- --
--------------------------------------------
Balance at End of Period $ 3,540 $ 2,474 $ 2,498 $ 2,306
============================================
Ratio of Net Charge Offs to Average Loans
Outstanding (.11)% 0.20% 0.25% 0.23%
</TABLE>
The Allowance for Possible Loan Losses at September 30, 1996 was $3,540,052,
compared to $2,497,774 at year end 1995. The Allowance for Possible Loan Losses
as a percent of outstanding loans was 1.79% at September 30, 1996, and 1.65% at
December 31, 1995.
The Bank provided $550,000 in 1995, $645,000 in 1994, and $400,000 as of
September 30, 1996 to the Allowance for Possible Loan Losses. Also added to the
allowance was $455,977 that is attributed to the acquisition of the National
Bank of Fairhaven. Loans charged off were $396,639 in 1995, $361,811 in 1994,
and $222,640 as of September 30, 1996. Recoveries on loans previously charged
off were $39,553 in 1995, $68,808 in 1994, and $408,942 as of September 30,
1996. Management believes that the Allowance for Loan Losses is adequate to
absorb any losses in the foreseeable future, due to the Bank's strong collateral
position and the current asset quality.
The percentage of the Allowance for Possible Loan Losses to nonaccrual loans
decreased to .78% at September 30, 1996, from .93% and .71% reported at years
ending 1995 and 1994, respectively. The average ratio of peer group banks with
assets of $100-$300 Million for years ending 1995 and 1994 were 3.59% and 3.45%,
respectively.
The level of the Allowance for Possible Loan Losses is evaluated by management
and encompasses several factors which include, but are not limited to, recent
trends in the nonperforming loans, the adequacy of the assets which
collateralize the nonperforming loans, current economic conditions in the market
area, and various other external and internal factors.
This table shows an allocation of the allowance for loan losses as of the end of
each of the periods indicated.
<TABLE>
<CAPTION>
September 30, 1996 December 31, 1995 December 31, 1994
-------------------- ----------------------- ---------------------
Percent of Percent of Percent of
Loans in Loans in Loans in
Each Each Each
Category Category Category
to Total to Total to Total
Amount Loans Amount Loans Amount Loans
------- ---------- ---------- ---------- ------- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Domestic:
Commercial $ 1,129 16.32% $ 597(1) 11.35% $ 588 12.82%
Real estate - Construction 34 2.76% 40 4.55% 14 1.68%
Real estate - mortgage 2,011 77.86% 1,581(2) 80.04% 1,374 81.03%
Consumer 366 3.06% 280 4.06% 330 4.47%
--------------------------------------------------------------------
$ 3,540 100.00% $ 2,498 100.00% $ 2,306 100.00%
====================================================================
<FN>
- -------------------
<F1> Includes amounts specifically reserved for impaired loans of $186,762 as of
September 30, 1996 and $214,542 as of December 31, 1995 as required by
Financial Accounting Standard No. 114, Accounting for Impairment of Loans.
<F2> Includes amounts specifically reserved for impaired loans of $532,000 as of
September 30, 1996 and $240,500 as of December 31, 1995 as required by
Financial Accounting Standard No. 114, Accounting for Impairment of Loans.
</FN>
</TABLE>
The loan portfolio's largest segment of loans is commercial real estate loans,
which represent 49.34% of gross loans. Residential real estate, which is the
second largest segment of the loan portfolio, represents 28.52% of gross loans.
The Company requires a loan to value ratio of 80% in both commercial and
residential mortgages. These mortgages are secured by real properties which have
a readily ascertainable value.
Generally, commercial real estate loans have a higher degree of credit risk than
residential real estate loans because they depend primarily on the success of
the business. When granting these loans, the Company evaluates the financial
statements of the borrower(s), the location of the real estate, the quality of
management, and general economic and competitive conditions. When granting a
residential mortgage, the Company reviews the borrower(s) repayment history on
past debts, and assesses the borrower(s) ability to meet existing obligations
and payments on the proposed loans.
Commercial loans consist of loans predominantly collateralized by inventory,
furniture and fixtures, and accounts receivable. In assessing the collateral for
this type of loan, management applies a 40% liquidation value to inventories,
25% to furniture, fixtures and equipment; and 60% to accounts receivable.
Commercial loans represent 16.32% of the loan portfolio.
Consumer loans are generally unsecured credits and represent 3.06% of the total
loan portfolio. These loans have a higher degree of risk then residential
mortgage loans. The underlying collateral of a secured consumer loan tends to
depreciate in value. Consumer loans are typically made based on the borrower's
ability to repay the loan through continued financial stability. The Company
endeavors to minimize risk by reviewing the borrower's repayment history on past
debts, and assessing the borrower's ability to meet existing obligations on the
proposed loans.
The allocation of the Allowance for Loan Losses is based on management's
judgement of potential losses in the respective portfolios. While management has
allocated reserves to various portfolio segments, the Allowance is general in
nature and is available for the portfolio in its entirety.
Results of Operations
- ---------------------
Net interest income increased by $811,846 to $7,325,504 on September 30, 1996,
when compared to $6,513,658 earned during the same period in the previous year.
Interest earned was up by $1,802,798 primarily due to a larger loan base,
notwithstanding the earnings derived for approximately one month of the loan
portfolio attributed to the merger acquisition. Interest on loans generally
produced higher yields than other earning assets. This increase in interest
income was offset by an increase in interest expense of $990,952, which is
attributable to a deposit base that existed during the current nine months when
compared to the same period in the previous year.
The Provision for Loan Losses is a charge against earnings, which in turn funds
the Allowance for Possible Loan Losses. The Company's provision for the nine
months ending September 30, 1996 was $400,000. During the same period in the
prior year, the provision was $450,000.
Other income was up by $210,288 to $944,669 on September 30, 1996, when compared
to $734,381 earned in the same period in the prior year. Service charges on
deposit accounts increased by $77,988 due to a larger customer base. Gains
realized on sales of securities were $101,248, compared to a loss of $13,565
realized for the same period in the prior year. Other miscellaneous income
reflected an increase of $17,487 due to normal business operations.
Total Other Expense increased by $188,970 to $5,216,383 for the nine months
ending September 30, 1996, compared to $5,027,413 reported during the same
period in the prior year. Salaries and employee benefits were up by $133,079 due
to general wage adjustments, increases in benefits, and the retention of
employees from the National Bank of Fairhaven, who are now permanent officers
and employees of Slade's Ferry Trust Company.
During the nine month period ending September 30, 1996, the bank incurred a
write down expense of Other Real Estate Owned, compared to $54,578 incurred
during the same period in the previous year.
Occupancy and equipment expenses combined increased by $79,804, due to
additional depreciation incurred on assets acquired from Fairbank Inc., the
depreciation of a recently purchased teller system, and general increases in
repairs and maintenance.
The Bank also incurred a small gain of $657 on sale of Other Real Estate Owned
earned during the current nine month period, compared to a loss of $3,773
reported for the same period in the prior year.
The line item Other Expense increased slightly by $5,095 during the nine month
period ending September 30, 1996, compared to the same period in 1995. The net
increase in Other Expenses is attributable to a combination of increases and
decreases in various items. During the current nine month period increases were
noted in advertising, particularly in marketing the Bank's expansion into the
Fairhaven and New Bedford areas. Advertising and business development increased
by $46,673. Other increases occurred in stationery and supplies of $16,611,
examination fees $22,400, meetings and training of $14,796, automated clearing
house fees and automated teller machine fees of $13,401, and various other
expenses associated with outside professional services and merger related items
totaling $69,812. These increases were offset by a substantial reduction in FDIC
insurance premiums of $178,598.
Income before income taxes for the nine month period ending September 30, 1996
was $2,653,790, up by $883,164 from $1,770,626 reported at September 30, 1995.
Applicable taxes for three quarters in 1996 were $1,032,400, compared to
$668,977 for the same period in the prior year. This resulted in net earnings of
$1,621,390, or $0.59 per share for nine months ending September 30, 1996. Net
earnings for the same period in 1995 were $1,101,649 or $0.40 per share.
The results of operation for the third quarter in 1996 indicates that net
interest income was up by $599,411 to $2,704,744, from $2,105,333 earned during
the third quarter in 1995. The Provision for Loan Losses was reduced to $100,000
during the current year's third quarter, from the $150,000 provision booked
during the same period in the prior year. Management reduced its provisions
based on the current assessment of the Allowance for Possible Loan Losses,
including the year to date recoveries in excess of year to date charge offs of
$186,000.
Other Income increased by $54,583, of which $39,211 is associated with an
increase in service charges due to a greater number of accounts being serviced,
an increase of $7,124 over the prior year associated with gains on sale of
securities, and an increase in miscellaneous income of $8,248.
Total Other Expenses for the third quarter in 1996 were $1,979,325, up by
$272,901 from $1,706,424 reported for the same quarter in 1995. Salaries and
employee benefits were up by $129,318, due to the additional personnel as
aforementioned and extra wages paid as overtime due to the merger. Occupancy and
equipment expense combined increased by $54,827 for the third quarter in 1996,
when compared to the same period in 1995. This increase is due to the additional
depreciation and additional repairs incurred.
The Bank did not incur any expenses associated with the write down of Other Real
Estate Owned during the current quarter, compared to a $40,000 write down during
the same period in the previous year.
The line item Other Expense for the third quarter in 1996 increased by $132,721
to $535,423, from $402,702 reported for the same period in the previous year.
Amortization of Goodwill is a new item due to the premium paid above the book
value of Fairbank, Inc. Goodwill expense was $40,000, which represented two
months of amortization. In addition, advertising expense was up by $45,652.
Other items consisting of increases in telephone expense, computer services,
legal and professional fees and other various expenses totaled $47,069.
Income before taxes for the third quarter in 1996 was up by $431,093 to
$928,572, from $497,479 reported for the same period in the prior year.
Applicable taxes increased by $198,035 to $381,736 when compared to $183,701
reported in the prior year.
The net income for the three month period ending September 30, 1996 was
$546,836, up by $233,058 when compared to $313,778 reported for the same period
in 1995.
Liquidity
- ---------
The Company's principal sources of funds are customer deposits, loan
amortization, loan payoffs, and the maturities of investment securities. Through
these sources, funds are provided for customer withdrawals from their deposit
accounts, loan origination, draw-downs on loan commitments, acquisition of
investment securities and other normal business activities. Investors' capital
also provides a source of funding.
The largest source of funds is provided by depositors. The largest component of
the Company's deposit base is reflected in the Time Deposit category. The
Company does not participate in brokered deposits. Deposits are obtained from
consumers and commercial customers within the Bank's community reinvestment
area, being Bristol County, Massachusetts and several abutting towns in Rhode
Island.
The Company also has the ability to borrow funds from correspondent banks, the
Federal Home Loan Bank, as well as the Federal Reserve Bank of Boston by
pledging various investment securities as collateral. The Company did not borrow
during the first six months of the current year. During the first quarter of
1995, the Company borrowed for 25 days with an average borrowing of $2.0
Million. There were no other borrowing during 1995. However, tax payments made
by our customers which are owed to the Federal Reserve Bank Treasury Tax and
Loan account are classified as borrowed funds.
Excess available funds are invested on a daily basis as Federal Funds Sold and
can be withdrawn daily. The Bank attempts through its cash management strategies
to maintain a minimum level of Federal Funds Sold to further enhance its
liquidity.
Liquidity represents the ability of the Bank to meet its funding requirements.
In assessing the appropriate level of liquidity, the Bank considers deposit
levels, lending requirements, and investment maturities in light of prevailing
economic conditions. Through this assessment, the Bank manages its liquidity
level to optimize earnings and respond to fluctuations in customer borrowing
needs.
At September 30, 1996, the Bank's liquidity ratio stood at 31.3% as compared to
36.0% at December 31, 1995. The liquidity ratio is determined by dividing the
Bank's short term assets (cash and due from banks, interest bearing deposits due
from other banks, securities, and federal funds sold) by the Bank's total
deposits. Management believes the Bank's liquidity to be adequate to meet the
current and presently foreseeable needs of the Bank.
Cash flows provided by operating activities for the nine month period ending
September 30, 1996 indicates that adjustments to reconcile net income of
$1,621,390 to net cash used of $2,655,179 includes amortization of goodwill,
depreciation and write down on Other Real Estate Owned totaling $407,711,
provision for loan losses of $400,000, increase in interest receivable of
$925,292, increase in accrued expense of $83,518 and changes in other assets and
liabilities totaling $347,514. This was offset by gains realized on sale of
securities of $101,248, decrease in taxes payable of $640,292, changes to
interest payable and prepaid expense of 465,956, accretion of securities of
$316,910, and $5,840 of other changes.
Cash provided by investing activities during the nine month period ending
September 30, 1996 indicates a total net inflow of cash of $1,551,659. This was
comprised of incoming cash attributed to the maturities and sales of securities
of $27,085,501. Other increases in cash from investing activities were $254,124
of proceeds arising from sale of Other Real Estate Owned, $408,942 due to
recoveries of previously charged off loans and a decrease of $9,575,000 in
Federal Funds Sold. The offsetting outflow of cash was $14,892,846 for the
purchase of new securities, $14,764,692 due to a net increase in loans, $765,527
for capital expenditures which included a new teller system, and installation of
a five lane drive-up facility at the Brayton Avenue branch facility. In
addition, $409,400 was used for the purchase of Federal Home Loan Bank stock.
The net cash or cash equivalents used for the acquisition of Fairbank, Inc.
amounted to $4,955,131, which is net of the cash outlay of $8,558,800 to pay to
the stockholders of Fairbank, Inc. offset by the assets acquired and liabilities
assumed. This transaction resulted in a premium (Goodwill) of $3,618,567, which
is to be amortized over a 15 year period.
Cash flows attributed to financing activities indicate a net inflow of
$2,748,594 during the nine month period ending September 30, 1996 attributable
to a net increase in demand deposits, NOW, and money market accounts of
$3,671,259, increase in short term borrowings of $674,668 and $186,591 from
issuance of stock. This was offset by a decrease in time deposits of $1,239,101,
dividends paid of $334,855, and a decrease in notes payable of $209,968.
Capital
- -------
As of September 30, 1996, the Company had total capital of $19,029,021. This
represents an increase of $1,202,296 from $17,826,725 reported on December 31,
1995. The increase in capital was a combination of several factors. Additions
consisted of nine months earnings of $1,621,390, transactions originating
through the Dividend Reinvestment Program whereby 3,638.536 shares were issued
for cash contributions of $30,350 and 18,984.389 shares were issued for $156,241
in lieu of cash dividend payments. These additions were offset by dividends paid
of $331,495 and cash dividends paid in lieu of fractional shares of $3,360 as a
result of the 5% stock dividend issued in January of 1996.
Also affecting capital is the adjustment that reflects net unrealized gains or
losses, net of taxes, on securities classified as Available-for-Sale. On
December 31, 1995 the Available-for-Sale portfolio had unrealized gains, net of
taxes, of $33,022, and on September 30, 1996, as a result of current market
values, the portfolio reflects unrealized losses, net of taxes, of $270,830
which is an adjustment to capital.
Paid in Capital increased by $1,311,008 of which $1,124,643 was a transfer from
retained earnings representing a 5.0% stock dividend paid on January 1, 1996 and
$186,365 attributed to transactions resulting from cash contributions and
reinvestment of cash dividends associated with the Dividend Reinvestment
Program.
Federal Banking regulators have adopted Risk Based and Leverage Capital
requirements, which were phased in and fully implemented on December 31, 1992.
Under the requirements, a minimum level of capital will vary among banks based
on safety and soundness of operations.
Risk Based Capital ratios are calculated with reference to risk-weighted assets,
which include both on and off balance sheet exposure. At December 31, 1995, the
minimum regulatory capital level for Risk Based Capital was 4.0% for Tier 1
capital, 8.0% for total capital, and 4.0% for Leverage Capital (Tier 1 as a
percentage of total assets).
At September 30, 1996 the actual Risk Based Capital of the Bank was $15,573,000
for Tier 1 Capital, exceeding the minimum requirements of $8,004,920 by
$7,568,080. Total Capital of $18,074,000 exceeded the minimum requirements of
$16,009,840 by $2,064,160 and Leverage Capital of $15,573,000 exceeded the
minimum requirements of $11,605,440 by $3,967,560.
ITEM 4
Submission of Matters to a Vote of Security Holders
- ---------------------------------------------------
None.
ITEM 5
Other Matters
- -------------
Upon the retirement of President Donald T. Corrigan at December 31, 1995, Mr.
Corrigan was elected as Chairman of the Board, a previously unfilled position.
In addition, Mr. Kenneth R. Rezendes, a director was named as President of
Weetamoe Bancorp, Mr. James D. Carey as Executive Vice President, and Mr. Ralph
S. Borges as Treasurer.
ITEM 6
Exhibits and Reports on Form 8-K
- --------------------------------
None.
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 duly authorized.
WEETAMOE BANCORP
November 14, 1996 By /s/ Kenneth R. Rezendes
- ------------------------------ ------------------------
(Date) Kenneth R. Rezendes, President
November 14, 1996 By /s/ Ralph S. Borges
- ------------------------------ --------------------
(Date) Ralph S. Borges
Treasurer/Chief Financial Officer/
Chief Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 15,995,402
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 16,300,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 35,156,293
<INVESTMENTS-CARRYING> 17,450,671
<INVESTMENTS-MARKET> 17,292,034
<LOANS> 198,594,353
<ALLOWANCE> 3,540,053
<TOTAL-ASSETS> 294,110,971
<DEPOSITS> 271,510,548
<SHORT-TERM> 1,416,441
<LIABILITIES-OTHER> 1,079,961
<LONG-TERM> 1,075,000
0
0
<COMMON> 27,703
<OTHER-SE> 19,001,318
<TOTAL-LIABILITIES-AND-EQUITY> 294,110,971
<INTEREST-LOAN> 11,113,571
<INTEREST-INVEST> 2,168,643
<INTEREST-OTHER> 568,837
<INTEREST-TOTAL> 13,851,051
<INTEREST-DEPOSIT> 6,478,735
<INTEREST-EXPENSE> 6,525,547
<INTEREST-INCOME-NET> 7,325,504
<LOAN-LOSSES> 400,000
<SECURITIES-GAINS> 101,248
<EXPENSE-OTHER> 5,216,383
<INCOME-PRETAX> 2,653,790
<INCOME-PRE-EXTRAORDINARY> 2,653,790
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,621,390
<EPS-PRIMARY> 0.59
<EPS-DILUTED> 0.59
<YIELD-ACTUAL> 1.97
<LOANS-NON> 4,517,556
<LOANS-PAST> 283,000
<LOANS-TROUBLED> 275,588
<LOANS-PROBLEM> 500,000
<ALLOWANCE-OPEN> 2,497,774
<CHARGE-OFFS> 222,640
<RECOVERIES> 408,942
<ALLOWANCE-CLOSE> 3,540,052
<ALLOWANCE-DOMESTIC> 3,540,052
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
