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 March 31, 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
incorporation or organization) Identification Number)
100 Slade's Ferry Avenue 02726
Somerset, Massachusetts (Zip Code)
(Address of principal executive offices)
(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) 2,797,473.722 shares as of March 31, 1997.
Traditional Small Business Disclosure Format:
Yes X No __
PART I
ITEM 1
Financial Statements
SLADE'S FERRY BANCORP
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
-------------- -----------------
<S> <C> <C>
ASSETS:
Cash and due from banks $ 15,364,874 $ 11,128,724
Federal funds sold 8,500,000 13,000,000
Interest bearing time deposits 149,598 149,598
Investment securities(1) 19,395,691 19,586,678
Securities available for sale(2) 36,453,096 37,255,163
Federal Home Loan Bank Stock 890,600 890,600
Loans (net) 195,953,254 194,934,845
Premises and equipment 5,888,295 5,970,874
Other real estate owned 386,380 307,591
Accrued interest receivable 2,012,910 1,853,783
Goodwill 3,250,668 3,307,368
Other assets 2,556,590 2,957,251
--------------------------------
TOTAL ASSETS $290,801,956 $291,342,475
================================
LIABILITIES & STOCKHOLDERS' EQUITY:
Deposits $266,513,822 $267,791,009
Short term borrowings 1,697,941 1,200,000
Notes Payable 1,025,000 1,042,626
Other liabilities 1,386,333 1,461,515
--------------------------------
TOTAL LIABILITIES $270,623,096 $271,495,150
STOCKHOLDERS' EQUITY:
Common stock 27,975 27,891
Paid in capital 14,682,921 14,607,299
Retained earnings 5,709,055 5,214,763
Net unrealized gain (loss) on investments
in available for sale securities (241,091) (2,628)
--------------------------------
TOTAL STOCKHOLDERS' EQUITY $ 20,178,860 $ 19,847,325
--------------------------------
TOTAL LIABILITIES &
STOCKHOLDERS' EQUITY $290,801,956 $291,342,475
================================
<F1> Investment securities are to be held to maturity and have a fair
market value of $19,271,324 as of March 31, 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)
3 MONTHS ENDING MARCH 31,
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
INTEREST AND DIVIDEND INCOME:
Interest and fees on loans $4,509,123 $3,466,793
Interest and dividends on investments 881,092 821,134
Other interest 163,934 161,537
----------------------------
Total interest and dividend income 5,554,149 4,449,464
----------------------------
INTEREST EXPENSE:
Interest on deposits 2,503,775 2,142,373
Interest on other borrowed funds 36,933 13,143
----------------------------
Total interest expense 2,540,708 2,155,516
----------------------------
Net interest and dividend income 3,013,441 2,293,948
----------------------------
PROVISION FOR LOAN LOSSES 150,000 150,000
Net interest and dividend income
after provision for loan losses 2,863,441 2,143,948
----------------------------
OTHER INCOME:
Service charges on deposit accounts 238,743 202,545
Security gains (losses) net 106,251 50,795
Other income 92,294 68,828
----------------------------
Total other income 437,288 322,168
----------------------------
OTHER EXPENSE:
Salaries and employee benefits 1,326,013 973,747
Occupancy expense 169,709 135,226
Equipment expense 154,671 104,693
Gain on sale of other real estate owned (2,830) (657)
Writedown of other real estate owned 0 30,000
Other expense 598,201 363,699
----------------------------
Total other expense 2,245,764 1,606,708
----------------------------
Income before income taxes 1,054,965 859,408
Income taxes 420,800 323,648
----------------------------
NET INCOME $ 634,165 $ 535,760
============================
Earnings per share $ 0.23 $ 0.19
============================
Average shares outstanding 2,795,502 2,753,224
============================
</TABLE>
SLADE'S FERRY BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31
(Unaudited)
<TABLE>
<CAPTION>
Reconciliation of net income to net cash used in operating activities: 1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 634,165 $ 535,760
Adjustments to reconcile net income to net cash used in operating
activities:
Accretion, net of amortization of fair market value adjustments (1,429) -0-
Amortization of goodwill 56,700 -0-
Depreciation and amortization 164,294 100,578
Securities available for sale (gains) losses, net (106,251) (50,795)
Provision for loan losses 150,000 150,000
Increase in taxes payable 251,110 211,998
(Increase) decrease in interest receivable (159,127) 166,871
Increase (decrease) in interest payable (5,452) 1,178
Increase (decrease) in accrued expenses 17,113 (50,797)
(Increase) decrease in prepaid expenses (2,489) (9,043)
Accretion of securities, net of amortization (53,857) (42,409)
Accretion of securities available for sale, net of amortization (21,063) (20,473)
Gain on sale of other real estate owned (2,830) (657)
Writedown of other real estate owned -0- 30,000
Change in unearned income (114,600) (94,523)
Decrease in other assets 557,043 85,048
Increase (decrease) in other liabilities (339,374) 488,810
-----------------------------
Net cash provided by operating activities $ 1,023,953 $ 1,501,546
-----------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of securities available for sale (1,372,533) (141,257)
Maturities of securities available for sale 1,583,820 7,904,129
Sales of securities available for sale 325,738 185,954
Proceeds from sale of other real estate owned 89,830 254,124
Proceeds from maturities of investment securities 4,222,134 5,445,264
Purchases of investment securities (3,977,290) (2,935,536)
Net increase in loans (1,224,818) (3,229,132)
Capital expenditures (81,714) (62,585)
Purchases of Federal Home Loan Bank Stock -0- (204,700)
Recoveries of previously charged-off loans 8,069 5,967
-----------------------------
Net cash provided by (used in) investing activities $ (426,764) $ 7,222,228
-----------------------------
</TABLE>
SLADE'S FERRY BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31
(Unaudited)
(Continued)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of stock $ 75,705 $ 62,460
Net decrease in demand deposits, NOW, money market
and savings accounts (4,363,451) (3,906,369)
Net increase in time deposits 3,086,264 285,692
Net increase in short-term borrowing 497,941 651,009
Dividends paid (139,872) (113,538)
Decrease in notes payable (17,626) -0-
-----------------------------
Net cash used in financing activities (861,039) (3,020,746)
-----------------------------
Net increase (decrease) in cash and cash equivalents (263,850) 5,703,028
Cash and cash equivalents at beginning of period 24,128,724 18,539,970
-----------------------------
Cash and cash equivalents at end of period $23,864,874 $24,242,998
=============================
SUPPLEMENTAL DISCLOSURES:
Loans originating from sales of Other Real Estate
Owned $ 93,600 $ 110,000
Interest paid $ 2,546,160 $ 2,154,338
Income taxes paid $ 169,690 $ 111,650
Loans transferred to Other Real Estate Owned $ 165,789 $ -0-
</TABLE>
SLADE'S FERRY BANCORP AND SUBSIDIARY, SLADE'S FERRY TRUST COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 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 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 Slade's Ferry Bancorp, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three months
ended March 31, 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
Assets decreased slightly during the first three months in 1997 by $0.5
Million to $290.8 Million at March 31, 1997 from $291.3 Million reported at
December 31, 1996. Net loans increased by $1.0 Million as loan demand
continues to improve in the region. There was a slight decrease in
deposits of $1.3 Million to $266.5 Million from the $267.8 Million at year
end 1996. In spite of the Bank paying competitive rates on deposit
accounts, and an increase in customer base, deposit levels have remained
relatively stagnant. Bank management attributes this to the attraction of
investment funds into non banking investment products.
The combined investment portfolio which consists of Investment Securities
and Securities Available for Sale totaled $55.8 Million, down slightly from
$56.8 Million reported at year end 1996.
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 March 31, 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 $12,130 $ 23 $ 64 $12,089
Debt securities issued by states of the
United States and political
subdivisions of the states 7,026 151 186 6,991
Mortgage-backed securities 239 --- 49 190
Other debt securities 1 --- --- 1
---------------------------------------------------
$19,396 $174 $299 $19,271
===================================================
</TABLE>
Investments in Available for Sale securities are carried at fair value on
the balance sheet and are summarized as follows as of March 31, 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 $31,302 $ 18 $499 $30,821
Marketable Equity 1,905 202 50 2,057
Mortgage-backed securities 3,423 --- 92 3,331
Asset-backed securities 244 --- --- 244
---------------------------------------------------
$36,874 $220 $641 $36,453
===================================================
Deduction to Stockholders' Equity:
(In Whole Dollars)
Unrealized loss on Available for Sale Securities $420,308
Less tax effect 179,217
--------
Net unrealized loss on Available for Sale Securities $241,091
========
</TABLE>
At March 31, 1997, securities classified as Available for Sale had net
unrealized losses of $241,091 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 various securities, and reinvesting the proceeds into higher
yielding investments.
Federal Funds Sold at March 31, 1997 decreased to $8.5 Million from $13.0
Million reported at year end 1996. This decrease was due to a combination
of funds used to offset the slight decrease in deposits and also funding of
new loans that were recently transacted at end of first quarter 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 by $1.6 Million to $6.4 Million on
March 31, 1997 from $4.8 Million reported at year end 1996. The increase
was primarily due to a commercial real estate loan of $1.6 Million being
classified as nonaccrual in March 1997. Based on a current appraisal
obtained at that time, the collateral is valued at $2.8 Million. The
business is dependant on seasonal cash flows which generally peak during the
spring-summer period. The borrower has agreed to accelerate cash payments
to become current within the July-August time frame on the assumption that
the incoming cash flows will occur as predicted. In addition, due to the
excess collateral values, the Bank does not anticipate any loss on this
loan.
The combination of this loan, along with several other loans totaling
$800,000 that became past due 90 days or more but still accruing, was offset
by loans totaling $407,000 that were resolved, payments made on other
nonaccruing loans of $55,000, charge offs of $114,000, and transfers to
Other Real Estate Owned of $222,000, resulting in a net increase in
nonperforming assets of $1.6 Million, from $4.8 Million reported on December
31, 1996.
The percentages of nonaccrual loans to total loans increased to 2.60% at
March 31, 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 increased to 1.92% from 1.88% reported at year
end, also attributable to the aforementioned loan. The percentage of the
Allowance for Possible Loan Losses to Nonaccrual Loans decreased to 64% at
March 31, 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 PAST DUE LOANS
AT MARCH 31, 1997 AND 1996 AND DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
(Dollars in Thousands)
At March 31 At December 31
---------------- ----------------
1997 1996 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Nonaccrual Loans $5,205 $2,751 $4,352 $2,695
Loans 90 days or more past due and still accruing 836 517 112 23
Real estate acquired by foreclosure
or substantively repossessed 386 350 308 633
Percentage of nonaccrual loans to total loans 2.60% 1.78% 2.19% 1.78%
Percentage of nonaccrual loans and real estate
acquired by foreclosure or substantively
repossessed to total assets 1.92% 1.34% 1.88% 1.42%
Percentage of allowance for possible loan losses
to nonaccrual loans 63.84% 96.36% 77.07% 92.69%
</TABLE>
The $5.2 Million in nonaccrual loans consists of $4.9 Million of real estate
mortgages and $.3 Million attributed to commercial loans. Of the total
nonaccrual loans outstanding, $275,588 are restructured at March 31, 1997.
INFORMATION WITH RESPECT TO NONACCRUAL AND RESTRUCTURED LOANS
AT MARCH 31, 1997 AND 1996 AND DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
(Dollars in Thousands)
At March 31 At December 31
------------------ ------------------
1997 1996 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Nonaccrual Loans $5,205 $2,751 $4,352 $2,695
Interest income that would have been recorded
under original terms 125 62 361 243
Interest income recorded during the period 50 3 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 $5,205,321 in nonaccrual loans are $4,920,509 which the
Company has determined to be impaired, for which $2,156,090 have a related
allowance for credit losses of $520,519 and $2,764,419 have no related
allowance for credit losses.
The Company has $500,000 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 March 31,
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)
Three Months Years Ended
At March 31 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 8 --- 276 184
Real Estate - Construction --- --- --- ---
Real Estate - Mortgage 146 --- 4 79
Installment/Consumer 35 2 159 134
--------------------------------------------
189 2 439 397
Recoveries:
Commercial 2 1 332 1
Real Estate - Construction --- --- --- ---
Real Estate - Mortgage --- --- --- 16
Installment/Consumer 6 5 107 22
--------------------------------------------
8 6 439 39
--------------------------------------------
Net Charge Offs 181 (4) 0 358
--------------------------------------------
Additions Charged to Operations 150 150 400 550
Allowance attributable to acquisition --- --- 456 ---
Balance at End of Period $3,323 $2,652 $3,354 $2,498
============================================
Ratio of Net Charge Offs to
Average Loans Outstanding 0.090% (0.003%) 0.00% 0.25%
</TABLE>
The Allowance for Possible Loan Losses at March 31, 1997 was $3,323,262,
compared to $3,354,311 at year end 1996. The Allowance for Possible Loan
Losses as a percent of outstanding loans was 1.66% at March 31, 1997, and
1.69% at December 31, 1996.
The Bank provided $400,000 in 1996, $550,000 in 1995, and $150,000 as of
March 31, 1997 to the Allowance for Possible Loan Losses. Loans charged off
were $439,229 in 1996, $396,639 in 1995, and $189,118 as of March 31, 1997.
Recoveries on loans previously charged off were $439,788 in 1996, $39,553 in
1995, and $8,069 as of March 31, 1997. Management believes that the
Allowance for Loan Losses of $3,323,262 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>
March 31, 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 $ 789(1) 17.02% $ 789(1) 15.70% $ 597(1) 11.35%
Real estate - Construction 37 2.89% 41 3.46% 40 4.55%
Real estate - mortgage 2,160(2) 76.84% 2,150(2) 77.42% 1,581(2) 80.04%
Consumer(3) 337 3.25% 374 3.42% 280 4.06%
-------------------------------------------------------------------------------
$3,323 100.00% $3,354 100.00% $2,498 100.00%
===============================================================================
<F1> Includes specifically reserved for impaired loans of $.00 as of March
31, 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 specifically reserved for impaired loans of $520,519 as of
March 31, 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> Percent of loans in each category to total loans includes consumer,
obligations of states and political subdivisions and other.
</TABLE>
The loan portfolio's largest segment of loans is commercial real estate
loans, which represent 50% of gross loans. Residential real estate, which
is the second largest segment of the loan portfolio, represents 27% 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 17% of the loan portfolio.
Consumer loans are generally unsecured credits and represent 3% 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
Income and expenses during the first quarter of 1997 compared to the same
period of the previous year reflect certain significant variances primarily
due to the acquisition of the National Bank of Fairhaven which took place
during the third quarter of 1996.
Net interest income increased by $719,493 to $3,013,441 on March 31, 1997
when compared to $2,293,948 recorded during the same period in 1996.
Interest income was up by $1,104,685 mostly due to the acquired loan and
investment portfolios as well as the increase in new loans that were booked
throughout 1996. Interest expense increased by $385,192 primarily due to
the deposits that were assumed through the merger.
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 three months ending March 31, 1997 was $150,000, the same provision as
recorded during the same period in 1996.
Other income was up by $115,120 to $437,288 on March 31, 1997, when compared
to $322,168 earned during the same period in the previous year. Service
charges on deposit accounts increased by $36,198 due to the customer base
now being serviced in the Fairhaven and New Bedford communities as well as
the increase in accounts attracted to the new drive-up facility at the
Brayton Avenue office. Gains realized on Sale of Securities for the three
months amounted to $106,251 compared to gains of $50,795 realized during the
same three months of the prior year. The Bank sold various marketable
equity securities due to the increase in values as a result of market
conditions. Other income reflected an increase of $23,466 of which $10,974
came from income derived from the rental of safe deposit boxes acquired
through the merger, $7,458 interest earned on escrowed funds during the
stock tendering process affiliated with the National Bank of Fairhaven
acquisition, and the remaining $5,034 due to normal business operations.
Other expense increased by $639,056 for the first three months in 1997 to
$2,245,764 from $1,606,708 reported for the same period in 1996. Salaries
and employee benefits increased by $352,266 which is attributable to general
wage adjustments and increases in employee benefits as well as the addition
of 29 new officers and employees of the National Bank of Fairhaven who were
retained as employees of Slade's Ferry Trust Company. Occupancy and
equipment expense combined, increased by $84,461 due to increases in
depreciation attributed to the new tellers equipment, equipment at the new
drive-up facility at the Brayton Avenue office, and the building acquired
from the National Bank of Fairhaven. In addition, lease expense also
increased due to the facilities rented at the New Bedford branch. The Bank
also realized a gain of $2,830 on sale of Other Real Estate Owned during the
current period compared to a gain of $657 realized in the previous year.
Due to the few parcels of properties in Other Real Estate Owned, and the
value of the appraisals obtained, the Bank did not have to writedown any
values in the properties owned compared to a $30,000 writedown incurred in
the prior year.
The table below illustrates the line item other expense, which reflects an
increase of $234,502 for the first three months in 1997 compared to the same
period reported in 1996.
<TABLE>
<CAPTION>
March 31, 1997 March 31, 1996 Variance
-----------------------------------------------
<S> <C> <C> <C>
Amortization of Goodwill $ 56,700 -0- $ 56,700
Advertising 77,991 28,648 49,343
Stationery & Supplies 92,724 58,433 34,291
Postage 50,479 32,667 17,812
Legal 13,000 3,750 9,250
Collection and Repossessions 32,741 24,319 8,422
FDIC Insurance 8,040 1,000 7,040
Computer Services 20,000 13,294 6,706
Fleet Loan Fee 4,500 -0- 4,500
Other 242,026 201,588 40,438
-----------------------------------------------
Other Expense $598,201 $363,699 $234,502
===============================================
</TABLE>
Amortization of Goodwill is a new expense item. Goodwill was a result of
the premium paid above the book value to the stockholders of Fairbank Inc.,
parent company of the National Bank of Fairhaven. Goodwill is to be
amortized over a fifteen year period. Advertising expenses have increased
significantly when compared to March 31, 1996, due to the ongoing process of
promoting the name recognition of Slade's Ferry Trust Company in the
Fairhaven-New Bedford market area. In addition, stationery & supplies
expense has increased due to the additional branches maintained while
postage expense increased as a result of the larger customer base due to the
acquisition of the National Bank of Fairhaven. Other listed expenses have
increased through normal business transactions due to the increased asset
base after the acquisition.
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 1996 and in 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 March 31, 1997, the Bank's liquidity ratio stood at 30.0% 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 three months ending March 31, 1997 and 1996
indicates that cash flows, as a result of operating activities, decreased by
$477,593 during the current period compared to the same period in the
previous year. There were increases in interest and dividends received of
$746,572, service charges and other income of $59,664, income taxes paid of
$58,040, interest paid of $391,822 and cash paid to suppliers and employees
of $477,778. These were offset by an increase in other assets of $471,995
and a decrease in other liabilities of $828,184.
Net cash provided by investing activities as of March 31, 1997 decreased by
$7.6 Million when compared to March 31, 1996. There was an increase in
securities purchased of $2.1 Million, offset by decreases in securities
matured or sold of $7.4 Million, net loans of $2.0 Million and proceeds from
sales of other real estate owned of $.2 Million.
Cash used in financing activities during the period ending March 31, 1997
was $.9 Million, a decrease of $2.2 Million when compared to March 31, 1996.
There was a net increase in time deposits of $2.8 Million over the same
period in 1996. This was offset by a net decrease in demand, NOW, Money
Market and Savings Accounts of $.5 Million over the same period in the prior
year.
Capital
As of March 31, 1997, the Company had total capital of $20,178,860. This
represents an increase of $331,535 from $19,847,325 reported on December 31,
1996. The increase in capital was a combination of several factors.
Additions consisted of three months earnings of $634,165, transactions
originating through the Dividend Reinvestment Program whereby 2,586.305
shares were issued for cash contributions of $24,000 and 5,745.075 shares
were issued for $51,705 in lieu of cash dividend payments. These additions
were offset by dividends paid of $139,872.
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, 1996 the Available for Sale portfolio had unrealized losses,
net of taxes, of $2,628, and on March 31, 1997, as a result of current
market values, the portfolio reflects unrealized losses, net of taxes, of
$241,091 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 March 31, 1997 the actual Risk Based Capital of the Bank was $17,053,000
for Tier 1 Capital, exceeding the minimum requirements of $8,023,000 by
$9,030,000. Total Capital of $19,560,000 exceeded the minimum requirements
of $15,981,000 by $3,579,000 and Leverage Capital of $17,053,000 exceeded
the minimum requirements of $11,541,000 by $5,512,000.
In addition to the "minimum capital" requirements, "well capitalized"
requirements have also been established by Federal Banking regulators. At
December 31, 1995, the capital ratios for the Bank exceeded the "well
capitalized" requirements of 10% for Total Capital, 6% for Tier I Capital,
and 5% for Leverage Capital. As a result of the merger and the acquisition
of $65.1 Million in assets, the capital ratios at December 31, 1996 and at
March 31, 1997 did not meet the "well capitalized" standard for Total
Capital. On December 31, 1996, the Bank's Total Capital was $18,935,000,
$983,000 below the $19,918,000 needed to be considered "well capitalized".
Total Capital on March 31, 1997 was $19,560,000, $416,000 below the required
$19,976,000. On April 14, 1997, the Company filed a registration statement
with the Securities and Exchange Commission relative to a proposed public
offering to increase the capital of the Bank and to assist in meeting the
requirements of a "well capitalized" bank.
The proposed offering consists of 325,000 shares of Common Stock par value
$.01 per share ("Common Stock"). The Company, at its option, may offer up
to an additional 225,000 shares of Common Stock, thereby increasing the
amount of Common Stock offered to 550,000 shares. All of the shares offered
are being sold by the Company. Assuming that all of the Common Stock
offered is sold in the initial offering, and the optional offering, the
Company will receive approximately $5,225,000. The Company will contribute
60% of such proceeds to the Bank. The remaining 40% will remain at the
Company until such time as the growth of the Bank should need additional
capital, or the possibility of acquiring another financial institution
should avail itself.
ITEM 4
Submission of Matters to a Vote of Security Holders
The Annual Meeting of the stockholders of the Slade's Ferry Bancorp was held
on April 14, 1997.
Proposal One - Election of Clerk/Secretary
The following individual, was reelected by the stockholders to serve as
Clerk/Secretary until the next annual meeting of the stockholders, and until
his successor is elected and qualified.
<TABLE>
<CAPTION>
Votes
--------------------------
Nominee For Against
------- --- -------
<S> <C> <C>
Attorney Peter G. Collias 2,112,776.877 5,765.270
</TABLE>
Proposal Two - Election of Class One Directors
The following four individuals were re-elected to serve as directors of the
Company until the 2000 Annual Meeting of stockholders and until their
successors are elected or qualified.
<TABLE>
<CAPTION>
Votes
--------------------------
Nominee For Against
------- --- -------
<S> <C> <C>
Thomas B. Almy 2,100,203.877 18,338.270
Peter G. Collias 2,104,354.877 14,187.270
Edward S. Machado 2,083,029.318 35,512.829
William Sullivan 2,104,354.877 14,187.270
</TABLE>
The following additional directors continued their terms in office after the
meeting:
James D. Carey Peter Paskowski
Donald T. Corrigan Kenneth R. Rezendes
Francis A. Macomber Bernard T. Shuman
Majed M. Mouded Charles Veloza
ITEM 5
NONE
ITEM 6
Exhibits and Reports on Form 8-K
(a) Exhibits: See exhibit index.
(b) 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, thereunto duly authorized.
SLADE'S FERRY BANCORP
(Registrant)
May 08, 1997 /s/ Kenneth R. Rezendes
(Date) (Signature) Kenneth R. Rezendes
President
May 08, 1997 /s/ James D. Carey
(Date) (Signature) James D. Carey
Executive Vice President
May 08, 1997 /s/ Ralph S. Borges
(Date) (Signature) Ralph S. Borges
Treasurer
Chief Financial Officer
Chief Accounting Officer
EXHIBIT INDEX
Exhibit No. Description Page
- ----------- ----------- ----
3.1 Articles of Incorporation of Slade's Ferry *
Bancorp as amended
<F*> Incorporated by reference to the Registrant's Registration Statement on
Form SB-2 filed with the Commission on April 14, 1997.
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 15,364,874
<INT-BEARING-DEPOSITS> 149,598
<FED-FUNDS-SOLD> 8,500,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 36,453,096
<INVESTMENTS-CARRYING> 19,395,691
<INVESTMENTS-MARKET> 19,271,324
<LOANS> 199,856,122
<ALLOWANCE> 3,323,262
<TOTAL-ASSETS> 290,801,956
<DEPOSITS> 266,513,822
<SHORT-TERM> 1,697,941
<LIABILITIES-OTHER> 1,386,333
<LONG-TERM> 1,025,000
0
0
<COMMON> 27,975
<OTHER-SE> 20,150,885
<TOTAL-LIABILITIES-AND-EQUITY> 290,801,956
<INTEREST-LOAN> 4,509,123
<INTEREST-INVEST> 881,092
<INTEREST-OTHER> 163,934
<INTEREST-TOTAL> 5,554,149
<INTEREST-DEPOSIT> 2,503,775
<INTEREST-EXPENSE> 2,540,708
<INTEREST-INCOME-NET> 3,013,441
<LOAN-LOSSES> 150,000
<SECURITIES-GAINS> 106,251
<EXPENSE-OTHER> 2,245,764
<INCOME-PRETAX> 1,054,965
<INCOME-PRE-EXTRAORDINARY> 1,054,965
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 634,165
<EPS-PRIMARY> 0.23
<EPS-DILUTED> 0.23
<YIELD-ACTUAL> 4.38
<LOANS-NON> 5,205,321
<LOANS-PAST> 835,942
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 500,000
<ALLOWANCE-OPEN> 3,354,311
<CHARGE-OFFS> 189,118
<RECOVERIES> 8,069
<ALLOWANCE-CLOSE> 3,323,262
<ALLOWANCE-DOMESTIC> 3,323,262
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
