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 June 30, 1997
---------------
Commission file number 33-47248
----------
SLADE'S FERRY 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) 3,208,143.865 shares as of June 30, 1997.
Traditional Small Business Disclosure Format:
Yes [X] No [ ]
PART I
FINANCIAL INFORMATION
ITEM 1
Financial Statements
- --------------------
SLADE'S FERRY BANCORP
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
------------- -----------------
<S> <C> <C>
ASSETS:
Cash and due from banks $ 15,377,100 $ 11,128,724
Federal funds sold 6,500,000 13,000,000
Interest bearing time deposits 106,688 149,598
Investment securities(1) 21,839,269 19,586,678
Securities available for sale(2) 39,474,364 37,255,163
Federal Home Loan Bank Stock 890,600 890,600
Loans (net) 202,154,953 194,934,845
Premises and equipment 5,829,450 5,970,874
Other real estate owned 359,329 307,591
Accrued interest receivable 1,975,023 1,853,783
Goodwill 3,193,968 3,307,368
Other assets 2,755,324 2,957,251
-------------------------------
TOTAL ASSETS $ 300,456,068 $ 291,342,475
===============================
LIABILITIES & STOCKHOLDERS' EQUITY:
Deposits $ 271,850,769 $ 267,791,009
Short term borrowings 1,725,211 1,200,000
Notes payable 1,000,000 1,042,626
Other liabilities 1,019,740 1,461,515
-------------------------------
TOTAL LIABILITIES 275,595,720 271,495,150
STOCKHOLDERS' EQUITY:
Common stock 32,082 27,891
Paid in capital 18,617,291 14,607,299
Retained earnings 6,249,024 5,214,763
Net unrealized gain (loss) on investments in
available for sale securities (38,049) (2,628)
-------------------------------
TOTAL STOCKHOLDERS' EQUITY 24,860,348 19,847,325
-------------------------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 300,456,068 $ 291,342,475
===============================
- --------------------
<F1> Investment securities are to be held to maturity and have a fair market
value of $21,880,356 as of June 30, 1997 and $19,544,811 as of December
31, 1996.
<F2> Securities classified as Available for Sale are stated at fair value with
any unrealized gains or losses reflected as an adjustment in
Stockholders' Equity.
</TABLE>
CONSOLIDATED STATEMENT OF INCOME AND EXPENSE
(UNAUDITED)
6 MONTHS ENDING JUNE 30,
<TABLE>
<CAPTION>
1997 1996
------------ -----------
<S> <C> <C>
INTEREST AND DIVIDEND INCOME:
Interest and fees on loans $ 9,132,947 $ 6,975,018
Interest and dividends on investments 1,746,044 1,531,425
Other interest 366,462 366,030
---------------------------
Total interest and dividend income 11,245,453 8,872,473
---------------------------
INTEREST EXPENSE:
Interest on deposits 5,051,211 4,227,961
Interest on other borrowed funds 73,991 23,752
---------------------------
Total interest expense 5,125,202 4,251,713
---------------------------
Net interest and dividend income 6,120,251 4,620,760
---------------------------
PROVISION FOR LOAN LOSSES 300,000 300,000
Net interest and dividend income after
provision for loan losses 5,820,251 4,320,760
---------------------------
OTHER INCOME:
Service charges on deposit accounts 479,827 414,952
Security gains, net 229,550 92,560
Other income 167,303 134,004
---------------------------
Total other income 876,680 641,516
---------------------------
OTHER EXPENSE:
Salaries and employee benefits 2,689,894 1,977,462
Occupancy expense 337,972 254,015
Equipment expense 311,336 208,767
Gain on sale of other real estate owned (6,325) (657)
Write down of other real estate owned 0 30,000
Other expense 1,135,395 767,471
---------------------------
Total other expense 4,468,272 3,237,058
---------------------------
Income before income taxes 2,228,659 1,725,218
Income taxes 894,118 650,664
---------------------------
NET INCOME $ 1,334,541 $ 1,074,554
===========================
Earnings per share $ 0.47 $ 0.39
===========================
Average shares outstanding 2,839,740 2,757,051
===========================
</TABLE>
CONSOLIDATED STATEMENT OF INCOME AND EXPENSE
(UNAUDITED)
3 MONTHS ENDING JUNE 30,
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
INTEREST AND DIVIDEND INCOME:
Interest and fees on loans $ 4,623,824 $ 3,508,225
Interest and dividends on investments 864,952 710,291
Other interest 202,528 204,493
--------------------------
Total interest and dividend income 5,691,304 4,423,009
--------------------------
INTEREST EXPENSE:
Interest on deposits 2,547,436 2,085,588
Interest on other borrowed funds 37,058 10,609
--------------------------
Total interest expense 2,584,494 2,096,197
--------------------------
Net interest and dividend income 3,106,810 2,326,812
--------------------------
PROVISION FOR LOAN LOSSES 150,000 150,000
Net interest and dividend income after
provision for loan losses 2,956,810 2,176,812
--------------------------
OTHER INCOME:
Service charges on deposit accounts 241,084 212,407
Security gains, net 123,299 41,765
Other income 75,009 65,176
--------------------------
Total other income 439,392 319,348
--------------------------
OTHER EXPENSE:
Salaries and employee benefits 1,363,881 1,003,715
Occupancy expense 168,263 118,789
Equipment expense 156,665 104,074
Gain on sale of other real estate owned (3,495) 0
Write down of other real estate owned 0 0
Other expense 537,194 403,772
--------------------------
Total other expense 2,222,508 1,630,350
--------------------------
Income before income taxes 1,173,694 865,810
Income taxes 473,318 327,016
--------------------------
NET INCOME $ 700,376 $ 538,794
==========================
Earnings per share $ 0.24 $ 0.20
==========================
Average shares outstanding 2,883,492 2,760,878
==========================
</TABLE>
SLADE'S FERRY BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30,
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
------------- ------------
<S> <C> <C>
Reconciliation of net income to net cash used in
operating activities:
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,334,541 $ 1,074,554
Adjustments to reconcile net income to net cash used
in operating activities:
Accretion, net of amortization of fair market value
adjustments (2,859) 0
Amortization of goodwill 113,400 0
Depreciation and amortization 328,207 201,845
Securities available for sale gains, net (229,550) (92,560)
Provision for loan losses 300,000 300,000
Decrease in taxes payable (10,370) (200,441)
(Increase) decrease in interest receivable (121,240) 221,017
Increase (decrease) in interest payable (20,607) (15,376)
Increase (decrease) in accrued expenses (23,480) 45,624
Increase in prepaid expenses (109,945) (24,293)
Accretion of securities, net of amortization (89,070) (86,402)
Accretion of securities available for sale, net of
amortization (28,446) (166,206)
Gain on sale of other real estate owned (6,325) (657)
Writedown of other real estate owned 0 30,000
Change in unearned income (3,938) (83,206)
Decrease in other assets 344,003 467,230
Increase (decrease) in other liabilities (400,528) (451,514)
------------------------------
Net cash provided by operating activities $ 1,373,793 $ 1,219,615
------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of securities available for sale (5,631,667) (1,019,636)
Maturities of interest bearing time deposits 42,910 0
Maturities of securities available for sale 2,923,250 8,415,982
Sales of securities available for sale 690,031 651,693
Proceeds from sale of other real estate owned 241,825 254,124
Proceeds from maturities of investment securities 7,632,410 10,285,528
Purchases of investment securities (9,795,931) (7,203,019)
Net increase in loans (7,816,013) (7,299,615)
Capital expenditures (186,783) (97,675)
Purchases of Federal Home Loan Bank Stock 0 (204,700)
Recoveries of previously charged-off loans 18,303 80,185
------------------------------
Net cash provided by (used in) investing activities $ (11,881,665) $ 3,862,867
------------------------------
</TABLE>
SLADE'S FERRY BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30,
(Unaudited)
(Continued)
<TABLE>
<CAPTION>
1997 1996
------------- ------------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of stock $ 4,014,183 $ 127,227
Net decrease in demand deposits, NOW, money market and
savings accounts (298,208) (1,466,440)
Net increase (decrease) in time deposits 4,357,968 (1,773,913)
Net increase in short-term borrowing 525,211 816,526
Dividends paid (300,280) (224,044)
Decrease in notes payable (42,626) 0
------------------------------
Net cash provided by (used in) financing activities 8,256,248 (2,520,644)
------------------------------
Net increase (decrease) in cash and cash equivalents (2,251,624) 2,561,838
Cash and cash equivalents at beginning of period 24,128,724 18,539,970
------------------------------
Cash and cash equivalents at end of period $ 21,877,100 $ 21,101,808
==============================
SUPPLEMENTAL DISCLOSURES:
Loans originating from sales of Other Real Estate Owned $ 93,600 $ 110,000
Interest paid $ 5,145,809 $ 4,267,089
Income taxes paid $ 904,488 $ 851,105
Loans transferred to Other Real Estate Owned $ 287,239 $ 0
</TABLE>
SLADE'S FERRY BANCORP AND SUBSIDIARY, SLADE'S FERRY TRUST COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
June 30, 1997
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 10-QSB 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 Slade's Ferry Bancorp, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the six months ended June 30, 1997 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1997.
Note B - Accounting Policies
- ----------------------------
The accounting principles followed by Slade's Ferry 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 1996.
The consolidated financial statements of Slade's Ferry 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
- -------------------
On May 16, 1997, the Company offered up to 550,000 shares of its Common Stock,
par value $.01 per share, at an offering price of $9.75 per share to the
general public. The offering, which was not underwritten, was scheduled to
expire on May 31, 1997, but at the option of the Company, was extended to June
13, 1997. The offering resulted in 402,951 shares being issued for total
proceeds of $3,928,772.25. The net proceeds were used to increase the capital
of the Bank and to assist in meeting the requirements of a "well capitalized"
bank. After deducting total expenses pertaining to the offering of $62,601,
consisting of $27,652 legal and accounting fees, $1,625 registration fees,
$2,500 state fees, $14,024 printing costs, and $16,800 mailing and advertising
expenses, the net proceeds amounted to $3,866,171. The Company contributed
$2,300,000 to the Bank as a capital infusion. The remaining $1,566,171 is being
retained by the Company until such time as growth of the Bank should warrant
additional capital or the possibility of acquiring another institution should
avail itself. At June 30, 1997, as a result of the additional capital realized
from the offering and six months of earnings, the Company and the Bank met the
capital requirements of "well capitalized".
Assets at June 30, 1997 were up by $9.2 Million to $300.5 Million from $291.3
Million reported at year end 1996. The increase is primarily due to a
combination of the net proceeds from the sale of common stock of $3.8 Million,
an increase in deposits of $4.1 Million and six months of earnings, net of
dividends, of $1.0 Million.
The loan portfolio continues to expand, predominately in the commercial loan
area. Loans at June 30, 1997 grew by $7.3 Million to $206.2 Million from $198.9
Million reported at year end 1996. The loan growth was funded primarily from
the Federal Funds Sold category.
Federal Funds Sold decreased on June 30, 1997 by $6.5 Million from $13.0
Million reported at December 31, 1996.
Investment Securities and Securities Available for Sale combined increased to
$61.3 Million on June 30, 1997 from $56.8 Million reported at December 31,
1996.
At June 30, 1997, securities classified as Available for Sale had net
unrealized losses of $38,049 as a result of current market conditions, compared
to net unrealized losses of $2,628 reported on December 31, 1996. The current
unrealized losses, in the opinion of management, does not have a material
effect upon future income. Securities in the Available for Sale category may be
sold if it becomes desirable to improve liquidity, or when management feels it
would be appropriate to improve interest rate risk by selling securities and
reinvesting the proceeds into higher yielding investments.
Investment Securities are securities that the Company will hold to maturity and
are carried at amortized cost on the balance sheet, and are summarized as
follows as of June 30, 1997.
<TABLE>
<CAPTION>
Gross
Gross Unrealized
Amortized Unrealized Holding
Cost Basis Holding Gains Losses Fair Value
---------- ------------- ---------- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Debt securities issued by the U. S. Treasury and other
U. S. Government corporations and agencies $ 14,632 $ 20 $ 8 $ 14,644
Debt securities issued by states of the United States
and political subdivisions of the states 6,961 51 22 6,990
Mortgage-backed securities 245 -- -- 245
Other debt securities 1 -- -- 1
--------------------------------------------------
$ 21,839 $ 71 $ 30 $ 21,880
==================================================
</TABLE>
Investments in Available for Sale securities are carried at fair value on the
balance sheet and are summarized as follows as of June 30, 1997.
<TABLE>
<CAPTION>
Gross
Gross Unrealized
Amortized Unrealized Holding
Cost Basis Holding Gains Losses Fair Value
---------- ------------- ---------- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Debt securities issued by the U. S. Treasury and other
U. S. Government corporations and agencies $ 35,328 $ 35 $ 282 $ 35,081
Marketable equity securities 1,668 247 43 1,872
Mortgage-backed securities 2,322 -- 42 2,280
Asset-backed securities 241 -- -- 241
--------------------------------------------------
$ 39,559 $ 282 $ 367 $ 39,474
==================================================
</TABLE>
<TABLE>
<S> <C>
Deduction to Stockholders' Equity:
(In Whole Dollars)
Unrealized loss on Available for Sale Securities $ 85,134
Less tax effect 47,085
--------
Net unrealized loss on Available for Sale Securities $ 38,049
========
</TABLE>
INFORMATION WITH RESPECT TO NONACCRUAL AND PAST DUE LOANS
AT JUNE 30, 1997 AND 1996 AND DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
(Dollars in Thousands)
At June 30 At December 31
------------------- -------------------
1997 1996 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Nonaccrual Loans $ 4,970 $ 2,819 $ 4,352 $ 2,695
Loans 90 days or more past due and still accruing 280 82 112 23
Real estate acquired by foreclosure or substantively
repossessed 359 350 308 633
Percentage of nonaccrual loans to total loans 2.41% 1.78% 2.19% 1.78%
Percentage of nonaccrual loans and real estate acquired
by foreclosure or substantively repossessed to total assets 1.77% 1.37% 1.88% 1.42%
Percentage of allowance for possible loan losses to
nonaccrual loans 69.16% 95.99% 77.07% 92.69%
</TABLE>
The $5.0 Million in nonaccrual loans consists of $4.8 Million of real estate
mortgages and $0.2 Million attributed to commercial loans. Of the total
nonaccrual loans outstanding, $275,588 are restructured at June 30, 1997.
Nonperforming assets which consist of nonaccrual loans, loans past due 90 days
or more but still accruing, and real estate acquired by foreclosure or
substantively repossessed, increased to $5.6 Million on June 30, 1997 from $4.8
Million reported at year end 1996. The increase is predominately attributable
to a commercial real estate loan of $1.6 Million that was classified into the
nonaccrual status in March 1997. Based on an appraisal obtained in March 1997,
the collateral value of this loan is $2.8 Million and the Bank does not
anticipate any loss. The borrower has been making weekly cash payments in an
effort to become current.
The combination of this loan, along with several other loans totaling $525,000
that became classified as nonaccrual along with loans totaling $169,270 that
became past due 90 days or more but still accruing, was offset by loans that
were resolved of $735,291, payments made on other nonaccrual loans of $361,530,
charge offs of $44,115 and transfers to Other Real Estate Owned of $359,205.
The percentages of nonaccrual loans to total loans increased to 2.41% at June
30, 1997 from 2.19% reported at December 31, 1996. This increase is
predominately associated with the aforementioned loan. The percentage of
nonaccrual loans and real estate acquired by foreclosure or substantively
repossessed to total assets decreased to 1.77% from 1.88% reported at year end,
primarily due to the increase in assets. The percentage of the Allowance for
Possible Loan Losses to Nonaccrual Loans decreased to 69% at June 30, 1997 when
compared to 77% reported at year end 1996 and 92% at year end 1995. The Company
did not make any special provision to the Allowance on the aforementioned loan
due to the excess in collateral values of approximately 43%.
INFORMATION WITH RESPECT TO NONACCRUAL AND RESTRUCTURED LOANS
AT JUNE 30, 1997 AND 1996 AND DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
(Dollars in Thousands)
At June 30 At December 31
----------------- -----------------
1997 1996 1996 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
Nonaccrual Loans $ 4,970 $ 2,819 $ 4,352 $ 2,695
Interest income that would have been recorded
under original terms 202 118 361 243
Interest income recorded during the period 28 15 62 21
</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
homogeneous 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. Smaller balance homogeneous loans are considered by the Company to
include consumer installment loans and credit card loans.
Included in the $4,970,325 in nonaccrual loans are $4,840,026 which the Company
has determined to be impaired, for which $1,921,201 have a related allowance
for credit losses of $507,967 and $2,918,825 have no related allowance for
credit losses.
The Company has $300,000 of potential problem loans for which payments are
presently current. However, the borrowers are experiencing financial
difficulty. These loans are subject to management's attention and their
classification is reviewed monthly. If these loans should become nonperforming,
the effect will be immaterial, due to the asset values of their collateral.
There were no other loans classified for regulatory purposes at June 30, 1997
that management reasonably expects will materially impact future operating
results, liquidity or capital resources.
ANALYSIS OF THE ALLOWANCE FOR POSSIBLE LOAN LOSSES
<TABLE>
<CAPTION>
(Dollars in Thousands)
Six Months Years Ended
At June 30 At December 31
---------------- ---------------
1997 1996 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
Balance at January 1 $3,354 $2,498 $2,498 $2,306
Charge Offs:
Commercial 51 30 276 184
Real Estate - Construction -- -- -- --
Real Estate - Mortgage 146 --- 4 79
Installment/Consumer 38 142 159 134
--------------------------------------
235 172 439 397
Recoveries:
Commercial 8 21 332 1
Real Estate - Construction -- -- -- --
Real Estate - Mortgage -- 22 -- 16
Installment/Consumer 10 37 107 22
--------------------------------------
18 80 439 39
--------------------------------------
Net Charge Offs 217 92 0 358
--------------------------------------
Additions Charged to Operations 300 300 400 550
Allowance Attributable to Acquisition -- --- 456 ---
Balance at End of Period $3,437 $2,706 $3,354 $2,498
======================================
Ratio of Net Charge Offs to Average Loans
Outstanding 0.108% (0.060%) 0.00% 0.25%
</TABLE>
The Allowance for Possible Loan Losses at June 30, 1997 was $3,437,489,
compared to $3,354,311 at year end 1996. The Allowance for Possible Loan Losses
as a percent of outstanding loans was 1.67% at June 30, 1997 and 1.69% at
December 31, 1996.
The Bank provided $400,000 in 1996, $550,000 in 1995, and $300,000 as of June
30, 1997 to the Allowance for Possible Loan Losses. Loans charged off were
$439,229 in 1996, $396,639 in 1995, and $235,125 as of June 30, 1997.
Recoveries on loans previously charged off were $439,788 in 1996, $39,553 in
1995, and $18,303 as of June 30, 1997. Management believes that the Allowance
for Loan Losses of $3,437,489 is adequate to absorb any losses in the
foreseeable future, due to the Bank's strong collateral position and the
current asset quality.
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>
June 30, 1997 December 31, 1996 December 31, 1995
-------------------------------------------------------------------------
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 $ 883(1) 18.20% $ 789(1) 15.70% $ 597(1) 11.35%
Real estate - Construction 29 2.29% 41 3.46% 40 4.55%
Real estate - mortgage 2,202(2) 76.42% 2,150(2) 77.42% 1,581(2) 80.04%
Consumer 323(4) 3.09%(3) 374(4) 3.42%(3) 280(4) 4.06%(3)
---------------------------------------------------------------------
$3,437 100.00% $3,354 100.00% $2,498 100.00%
=====================================================================
- --------------------
<F1> Includes the following amounts specifically reserved for impaired loans:
$0.00 as of June 30, 1997, $0.00 as of December 31, 1996 and $214,542 as
of December 31, 1995 as required by Financial Accounting Standard No.
114, Accounting for Impairment of Loans.
<F2> Includes the following amounts specifically reserved for impaired loans:
$499,972 as of June 30, 1997, $838,290 as of December 31, 1996 and
$240,500 as of December 31, 1995 as required by Financial Accounting
Standard No. 114, Accounting for Impairment of Loans.
<F3> Includes consumer, obligations of states and political subdivisions and
other.
<F4> Includes the following amounts specifically reserved for impaired loans:
$7,995 as of June 30, 1997, $0.00 as of December 31, 1996 and $0.00 as of
December 31, 1995 as required by Financial Accounting Standard No. 114,
Accounting for Impairment of Loans.
</TABLE>
The loan portfolio's largest segment of loans is commercial real estate loans,
which represent 50.6% of gross loans. Residential real estate, which is the
second largest segment of the loan portfolio, represents 25.8% 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 18.2% of the loan portfolio.
Consumer loans are generally unsecured credits and represent 3.1% of the total
loan portfolio. These loans have a higher degree of risk than 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
During the first six months of 1997, income and expenses reflect certain
significant variances when compared to the same period of the previous year.
These variances are primarily due to the acquisition of the National Bank of
Fairhaven in the third quarter of 1996.
Net interest and dividend income increased by $1,499,491 to $6,120,251 as of
June 30, 1997, when compared to $4,620,760 earned during the same period in
1996. Total interest and dividend income was up by $2,372,980 during the six
month period, primarily due to the acquired loan and investment portfolios as
well as the origination of new loans throughout 1997. This increase in interest
and dividend income was offset by an increase in interest expense of $873,489,
which is attributable to a larger deposit base due to the acquisition.
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 six
months ending June 30, 1997 was $300,000. During the same period in the prior
year, the provision was also $300,000.
Total Other Income was up by $235,164 to $876,680 as of June 30, 1997, when
compared to $641,516 earned in the same period of the previous year. Service
charges on deposit accounts increased by $64,875 due to a larger customer base
resulting from the expansion of our market area to the Fairhaven and New
Bedford communities, and also from the new drive-up facility at the Brayton
Avenue office, which has attracted new deposit relationships. Gains realized on
the sale of securities for the six months amounted to $229,550, compared to
realized gains of $92,560 during the same six months of the previous year. As a
result of market conditions, the Bank sold various marketable equity securities
that had appreciated in value. Other Income increased by $33,299, of which
$20,349 of income was derived from safe deposit box rentals at the Fairhaven
location acquired in August 1996. Interest earned on escrowed funds during the
stock tendering process affiliated with the acquisition of the National Bank of
Fairhaven was $10,131, and the remaining $2,819 was due to normal business
operations.
Total Other Expense increased by $1,231,214 to $4,468,272 reported during the
first six months of 1997, compared to $3,237,058 reported for the same period
in 1996. Salaries and employee benefits increased by $712,432 due to general
wage adjustments, increases in employee benefits, and the retention of 29
officers and employees from the National Bank of Fairhaven who are now
permanent employees of Slade's Ferry Trust Company. Occupancy and equipment
expense combined increased by $186,526 due to increases in depreciation
attributed to the new tellers equipment, equipment at the Brayton Avenue
office's new drive-up facility, and fixed assets acquired from the National
Bank of Fairhaven. Lease expense also increased due to the facilities rented at
the New Bedford office. The Bank realized a gain of $6,325 resulting from the
sale of Other Real Estate Owned during the current period, compared to a gain
of $657 in the previous year. Due to the reduction of properties in Other Real
Estate Owned and the fair value appraisals obtained, the Bank did not have to
write down any values of properties owned, compared to a $30,000 writedown in
the previous year.
The following table sets forth the components of the line item Other Expense,
which reflects an increase of $133,000 for the three month period ending June
30, 1997 and an increase of $368,000 for the first six months in 1997.
<TABLE>
<CAPTION>
Second Quarter Six Months
------------------------------------------------
1997 1996 Change 1997 1996 Change
------------------------------------------------
(In Thousands)
---------------
<S> <C> <C> <C> <C> <C> <C>
Amortization of Goodwill $ 57 $ 0 $ 57 $ 113 $ 0 $113
Advertising & Public Relations 60 38 22 147 71 76
Stationery & Supplies 83 53 30 176 111 65
Communications 56 53 3 137 109 28
FDIC Insurance Premiums 17 1 16 25 2 23
Professional Fees &
Other Services 120 140 (20) 255 229 26
Other 144 119 25 282 245 37
-----------------------------------------------
Other Expense $537 $404 $133 $1,135 $767 $368
===============================================
</TABLE>
Amortization of Goodwill is a new expense item due to the premium paid above
the book value of Fairbank, Inc. Goodwill is to be amortized over a fifteen
year period. Advertising and public relations expenses have increased
significantly when compared to six months ending June 30, 1996 due to the
ongoing process of promoting the Slade's Ferry Trust Company name in the
Fairhaven-New Bedford market area. Also, expenses for stationery and supplies
has increased due to the additional branches maintained, while communication
expense increased as a result of the larger customer base due to the
acquisition of the National Bank of Fairhaven. FDIC Insurance has increased due
to our increased deposit base as a result of the merger, and also a change in
the Bank's risk classification used to determine the deposit insurance
assessment rate.
Other listed expenses have increased through normal business transactions due
to the increased asset base after the acquisition.
Income before income taxes for the six month period ending June 30, 1997 was
$2,228,659, up by $503,441 from $1,725,218 reported as of June 30, 1996.
Applicable income taxes for the six month period ending June 30, 1997 were
$894,118, an increase of $243,454 when compared to $650,664 expensed in the
prior year. Net earnings were $1,334,541 or $0.47 per share for the first six
months in 1997. For the same period in 1996, net earnings were $1,076,554 or
$0.39 per share.
The results of operation for the second quarter in 1997 indicates that net
interest and dividend income was up by $779,998 to $3,106,810 from $2,326,812
earned during the second quarter of 1996. The Provision for Loan Losses during
the period remained at $150,000, the same provision booked for the second
quarter in the prior year.
Other Income was up by $120,044, of which $28,677 is attributable to an
increase in service charges due to a greater number of accounts being serviced,
$81,534 is attributable to realized gains on sale of equity securities due to
market conditions, and the remaining $9,833 represents miscellaneous other
income.
Total Other Expenses for the three month period ending June 30, 1997 were
$2,222,508, up by $592,158 from $1,630,350 reported for the same quarter in
1996. Salaries and employee benefits were up by $360,166, due to the additional
staff acquired with the National Bank of Fairhaven and general wage
adjustments. Occupancy and equipment expense combined increased by $102,065 for
the second quarter in 1997, when compared to the same period in 1996. This
increase is due to the additional depreciation expense, lease payments of the
New Bedford office, and general repairs and maintenance.
The Bank did not incur any expenses associated with the writedown of Other Real
Estate Owned during the current quarter. During the same quarter in the prior
year, there was also no writedown.
The Bank realized a gain of $3,495 resulting from the sale of Other Real Estate
Owned during the second quarter of 1997. No gain was realized in the same
quarter of the previous year.
The line item Other Expense for the second quarter in 1997 increased by
$133,422 to $537,194 from $403,772 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 $56,700, which represents
three months of amortization. In addition, advertising and public relations
expense was up by $22,000. Other items showing increases were communication
expense, computer services, legal, stationery and supplies and other various
expenses totaling $74,000. Professional fees for the three months ending June
30, 1997 decreased by $20,000, when compared with the same period in 1996. This
decrease was primarily due to a reduction in our examination assessment billed
by the Commonwealth of Massachusetts, Division of Banks. A new law changed the
method of calculating the assessments from a per diem cost basis to a risk
based method.
Income before taxes for the second quarter in 1997 was up by $307,884 to
$1,173,694 from $865,810 reported for the same period in the prior year.
Applicable income taxes increased by $146,302 to $473,318 when compared to
$327,016 reported in the second quarter in 1996.
The net income for the three month period ending June 30, 1997 was $700,376 or
$0.24 per share, up by $161,582 or $0.04 per share, when compared to $538,794
or $0.20 per share earned in the same period in 1996.
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 originations, 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 have
the need to borrow in either 1996 or the current year. Tax payments made by our
customers which are owed to the Federal Reserve Bank Treasury Tax and Loan
account are classified as Short Term borrowings. The Notes Payable represents a
note due Fleet Bank. The note is attributable to Fairbank, Inc. which was
assumed at the time of the merger and has a final maturity in November, 1999.
Due to the applicable prepayment fees, it is advantageous for the Bank to
continue with the applicable terms of the note.
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 June 30, 1997, the Bank's liquidity ratio stood at 30.6% as compared to
30.3% at December 31, 1996. 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.
The comparison of cash flows for six months ending June 30, 1997 and 1996
indicates that cash flows, as a result of operating activities, increased by
$154,178 during the current period compared to the same period in the previous
year. There were increases in interest and dividends received of $2,245,083,
service charges and other income of $94,174, income taxes paid of $53,383,
interest paid of $878,720 and cash paid to suppliers and employees of
$1,184,735. These were offset by decreases in other assets and other
liabilities of $344,003 and $400,528, respectively.
Cash flows from investing activities showed an increase in cash used of
$15,744,532 when compared to 1996. Purchases of securities as of June 30, 1997
increased by $7,000,243 when compared to the same six months in 1996 and
maturities of securities decreased by $8,145,850. Cash used to fund loan
activity increased by $516,398. The purchases of securities was funded by the
decrease in cash and cash equivalents, primarily the Federal Funds Sold
category, and the increase in time deposits.
Cash provided by financing activities for the first six months in 1997, when
compared to the same period in 1996, increased by $10,776,892, of which
$3,886,956 was attributable to the issuance of common stock from the new
offering that was in effect from mid May to mid June 1997, combined with
transactions resulting from the Dividend Reinvestment Plan. Also adding to the
increase in cash flows attributable to financing activities was an increase in
time deposits of $6,131,881 offset by the change in cash used in demand
deposits, NOW's, money market and savings accounts of $1,168,332.
Capital
At June 30, 1997, the Company had total capital of $24,860,348. This represents
an increase of $5,013,023 from $19,847,325 reported on December 31, 1996. The
increase in capital was a combination of several factors. Additions consisted
of $3,866,171 of the net proceeds derived from the recent public offering of
the Company's common stock and six months earnings of $1,334,541. Other
additions to capital were transactions originating through the Dividend
Reinvestment Program whereby 3,118.265 shares were issued for cash
contributions of $29,850 and 12,860.465 shares were issued for $118,162 in lieu
of cash dividend payments. These additions were offset by dividends paid of
$300,280.
Also, affecting capital is the adjustment for net unrealized gains or losses,
net of taxes, on securities classified as Available for Sale. On December 31,
1996 the Available for Sale portfolio had unrealized losses, net of taxes, of
$2,628, and on June 30, 1997, as a result of current market values, the
portfolio reflects unrealized losses, net of taxes, of $38,049 which is an
adjustment from capital.
Under the requirements for Risk Based and Leverage Capital of the federal
banking agencies, 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, 1993, 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 June 30, 1997 the actual Risk Based Capital of the Bank was $20,118,000 for
Tier 1 Capital, exceeding the minimum requirements of $8,288,000 by
$11,830,000. Total Capital of $22,719,000 exceeded the minimum requirements of
$16,577,000 by $6,142,000 and Leverage Capital of $20,118,000 exceeded the
minimum requirements of $11,809,000 by $8,309,000.
The table below illustrates the capital ratios of the Company and the Bank on
June 30, 1997 and at December 31, 1996.
<TABLE>
<CAPTION>
Well June 30, 1997 December 31, 1996
Capitalized --------------- -----------------
Requirement Bancorp Bank Bancorp Bank
--------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total Capital (to Risk
Weighted Assets) 10% 11.72% 10.96% 9.56% 9.51%
Tier I Capital (to Risk
Weighted Assets) 6% 10.46% 9.71% 8.27% 8.22%
Leverage Capital (to
Average Assets) 5% 7.35% 6.81% 5.70% 5.66%
</TABLE>
In addition to the "minimum" capital requirements, "well capitalized" standards
have also been established by Federal Banking Regulators. As a result of the
merger and acquisition of $65.1 Million in assets from the National Bank of
Fairhaven that occurred in August 1996, the Bank's Total Capital ratio did not
meet the "well capitalized" standard at December 31, 1996. Due to the recently
held public offering which effected a $2.3 Million capital infusion to the
Bank, combined with the current year-to-date earnings, the Bank now meets the
requirements of a "well capitalized" bank.
PART II
OTHER INFORMATION
ITEMS 1-6
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, thereunto duly authorized.
SLADE'S FERRY BANCORP
(Registrant)
August 4, 1997 /s/ Kenneth R. Rezendes
- ----------------------------- ---------------------------------------
(Date) (Signature) Kenneth R. Rezendes
President
August 4, 1997 /s/ James D. Carey
- ----------------------------- ---------------------------------------
(Date) (Signature) James D. Carey
Executive Vice President
August 4, 1997 /s/ Ralph S. Borges
- ----------------------------- ---------------------------------------
(Date) (Signature) Ralph S. Borges
Treasurer
Chief Financial Officer
Chief Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 15,377,100
<INT-BEARING-DEPOSITS> 106,688
<FED-FUNDS-SOLD> 6,500,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 39,474,364
<INVESTMENTS-CARRYING> 21,839,269
<INVESTMENTS-MARKET> 21,880,356
<LOANS> 206,279,861
<ALLOWANCE> 3,437,489
<TOTAL-ASSETS> 300,456,068
<DEPOSITS> 271,850,769
<SHORT-TERM> 1,725,211
<LIABILITIES-OTHER> 1,019,740
<LONG-TERM> 1,000,000
0
0
<COMMON> 32,082
<OTHER-SE> 24,828,266
<TOTAL-LIABILITIES-AND-EQUITY> 300,456,068
<INTEREST-LOAN> 9,132,947
<INTEREST-INVEST> 1,746,044
<INTEREST-OTHER> 366,462
<INTEREST-TOTAL> 11,245,453
<INTEREST-DEPOSIT> 5,051,211
<INTEREST-EXPENSE> 5,125,202
<INTEREST-INCOME-NET> 6,120,251
<LOAN-LOSSES> 300,000
<SECURITIES-GAINS> 229,550
<EXPENSE-OTHER> 4,468,272
<INCOME-PRETAX> 2,228,659
<INCOME-PRE-EXTRAORDINARY> 2,228,659
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,334,541
<EPS-PRIMARY> 0.47
<EPS-DILUTED> 0.47
<YIELD-ACTUAL> 4.49
<LOANS-NON> 4,970,325
<LOANS-PAST> 279,942
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 300,000
<ALLOWANCE-OPEN> 3,354,311
<CHARGE-OFFS> 235,125
<RECOVERIES> 18,303
<ALLOWANCE-CLOSE> 3,437,489
<ALLOWANCE-DOMESTIC> 3,437,489
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
