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, 1998
-------------
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 (I.R.S. Employer
of 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) 3,418,631.874 shares as of June 30, 1998.
- -----------------------------------------------------------------------
Traditional Small Business Disclosure Format:
Yes X No
----- -----
PART I
ITEM 1
Financial Statements
- --------------------
SLADE'S FERRY BANCORP
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
-----------------------------------
<S> <C> <C>
ASSETS:
Cash and due from banks $ 10,384,055 $ 13,323,501
Federal funds sold 7,500,000 7,000,000
Interest bearing time deposits 0 106,688
Investment securities(1) 19,725,745 17,601,536
Securities available for sale(2) 51,097,645 40,176,218
Federal Home Loan Bank stock 899,900 890,600
Loans (net) 210,169,111 209,309,840
Premises and equipment 5,470,216 5,718,534
Other real estate owned 340,468 159,373
Accrued interest receivable 1,885,402 1,796,467
Goodwill 2,967,168 3,080,568
Other assets 4,138,910 2,407,260
--------------------------------
TOTAL ASSETS $314,578,620 $301,570,585
================================
LIABILITIES & STOCKHOLDERS' EQUITY:
Deposits $281,369,813 $271,322,250
Short term borrowings 1,258,275 1,200,000
Notes payable 2,648,249 1,375,308
Other liabilities 1,231,091 1,236,601
--------------------------------
TOTAL LIABILITIES $286,507,428 $275,134,159
STOCKHOLDERS' EQUITY:
Common stock 34,186 32,367
Paid in capital 21,868,251 18,978,598
Retained earnings 5,968,356 7,276,174
Net unrealized gain on investments
in available for sale securities 200,399 149,287
--------------------------------
TOTAL STOCKHOLDERS' EQUITY $ 28,071,192 $ 26,436,426
--------------------------------
TOTAL LIABILITIES &
STOCKHOLDERS' EQUITY $314,578,620 $301,570,585
================================
- --------------------
<F1> Investment securities are to be held to maturity and have a fair
market value of $19,863,632 as of June 30, 1998 and $17,748,500 as of
December 31, 1997.
<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>
1998 1997
--------------------------
<S> <C> <C>
INTEREST AND DIVIDEND INCOME:
Interest and fees on loans $ 9,751,293 $ 9,132,947
Interest and dividends on investments 1,845,215 1,746,044
Other interest 335,647 366,462
--------------------------
Total interest and dividend income 11,932,155 11,245,453
--------------------------
INTEREST EXPENSE:
Interest on deposits 5,231,751 5,051,211
Interest on other borrowed funds 84,178 73,991
--------------------------
Total interest expense 5,315,929 5,125,202
--------------------------
Net interest and dividend income 6,616,226 6,120,251
--------------------------
PROVISION FOR LOAN LOSSES 300,000 300,000
Net interest and dividend income
after provision for loan losses 6,316,226 5,820,251
--------------------------
OTHER INCOME:
Service charges on deposit accounts 459,706 479,827
Security gains, net 184,469 229,550
Other income 140,926 167,303
--------------------------
Total other income 785,101 876,680
--------------------------
OTHER EXPENSE:
Salaries and employee benefits 2,653,819 2,689,894
Occupancy expense 344,851 337,972
Equipment expense 291,617 311,336
Loss (gain) on sale of other real estate owned 4,236 (6,325)
Writedown of other real estate owned 0 0
Other expense 1,143,844 1,135,395
--------------------------
Total other expense 4,438,367 4,468,272
--------------------------
Income before income taxes 2,662,960 2,228,659
Income taxes 1,053,553 894,118
--------------------------
NET INCOME $ 1,609,407 $ 1,334,541
==========================
Basic earnings per share $ 0.48 $ 0.45
==========================
Diluted earnings per share $ 0.48 $ 0.45
==========================
Average shares outstanding 3,373,842 3,001,438
==========================
</TABLE>
CONSOLIDATED STATEMENT OF INCOME AND EXPENSE
(UNAUDITED)
3 MONTHS ENDING JUNE 30,
<TABLE>
<CAPTION>
1998 1997
-------------------------
<S> <C> <C>
INTEREST AND DIVIDEND INCOME:
Interest and fees on loans $4,865,934 $4,623,824
Interest and dividends on investments 992,578 864,952
Other interest 215,530 202,528
-------------------------
Total interest and dividend income 6,074,042 5,691,304
-------------------------
INTEREST EXPENSE:
Interest on deposits 2,660,322 2,547,436
Interest on other borrowed funds 43,944 37,058
-------------------------
Total interest expense 2,704,266 2,584,494
-------------------------
Net interest and dividend income 3,369,776 3,106,810
-------------------------
PROVISION FOR LOAN LOSSES 150,000 150,000
Net interest and dividend income
after provision for loan losses 3,219,776 2,956,810
-------------------------
OTHER INCOME:
Service charges on deposit accounts 233,729 241,084
Security gains, net 128,189 123,299
Other income 63,610 75,009
-------------------------
Total other income 425,528 439,392
-------------------------
OTHER EXPENSE:
Salaries and employee benefits 1,335,703 1,363,881
Occupancy expense 166,017 168,263
Equipment expense 141,544 156,665
Loss (gain) on sale of other real estate owned 0 (3,495)
Writedown of other real estate owned 0 0
Other expense 576,281 537,194
-------------------------
Total other expense 2,219,545 2,222,508
-------------------------
Income before income taxes 1,425,759 1,173,694
Income taxes 561,700 473,318
-------------------------
NET INCOME $ 864,059 $ 700,376
=========================
Basic earnings per share $ 0.25 $ 0.23
=========================
Diluted earnings per share $ 0.25 $ 0.23
=========================
Average shares outstanding 3,415,284 3,045,190
=========================
</TABLE>
SLADE'S FERRY BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30
------------------------
(Unaudited)
<TABLE>
<CAPTION>
Reconciliation of net income to net cash used in operating activities: 1998 1997
----------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,609,407 $ 1,334,541
Adjustments to reconcile net income to net cash used in operating
activities:
Accretion, net of amortization of fair market value adjustments (4,359) (2,859)
Amortization of goodwill 113,400 113,400
Depreciation and amortization 330,860 328,207
Gain on sale of fixed assets (2,700) 0
Securities available for sale gains, net (184,469) (229,550)
Provision for loan losses 300,000 300,000
Increase (decrease) in taxes payable 100,101 (10,370)
Increase in interest receivable (88,935) (121,240)
Decrease in interest payable (8,456) (20,607)
Increase (decrease) in accrued expenses 153,313 (23,480)
(Increase) decrease in prepaid expenses 41,762 (109,945)
Accretion of securities, net of amortization (70,230) (89,070)
Accretion of securities available for sale, net of amortization 12,658 (28,446)
Loss (gain) on sale of other real estate owned 4,236 (6,325)
Writedown of other real estate owned 0 0
Change in unearned income 17,376 (3,938)
(Increase) decrease in other assets (1,898,843) 344,003
Decrease in other liabilities (151,708) (400,528)
----------------------------
Net cash provided by operating activities 273,413 1,373,793
----------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of securities available for sale (20,241,024) (5,631,667)
Maturities of interest bearing time deposits 106,688 42,910
Maturities of securities available for sale 9,053,434 2,923,250
Sales of securities available for sale 514,416 690,031
Proceeds from sale of other real estate owned 62,764 241,825
Proceeds from maturities of investment securities 5,096,059 7,632,410
Purchases of investment securities (7,150,038) (9,795,931)
Net increase in loans (1,435,675) (7,816,013)
Capital expenditures (82,542) (186,783)
Proceeds from sale of fixed assets 2,700 0
Purchases of Federal Home Loan Bank Stock (9,300) 0
Recoveries of previously charged-off loans 16,633 18,303
----------------------------
Net cash used in investing activities (14,065,885) (11,881,665)
----------------------------
</TABLE>
SLADE'S FERRY BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30
(Unaudited)
(Continued)
<TABLE>
<CAPTION>
1998 1997
----------------------------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of stock $ 323,709 $ 4,014,183
Net increase (decrease) in demand deposits, NOW, money market
and savings accounts 1,641,404 (298,208)
Net increase in time deposits 8,406,159 4,357,968
Net increase in short-term borrowing 58,275 525,211
Dividends paid (349,462) (300,280)
Increase (decrease) in notes payable 1,272,941 (42,626)
----------------------------
Net cash provided by financing activities 11,353,026 8,256,248
----------------------------
Net decrease in cash and cash equivalents (2,439,446) (2,251,624)
Cash and cash equivalents at beginning of period 20,323,501 24,128,724
----------------------------
Cash and cash equivalents at end of period $ 17,884,055 $ 21,877,100
============================
SUPPLEMENTAL DISCLOSURES:
Loans originating from sales of Other Real Estate Owned $ 60,800 $ 93,600
Interest paid $ 5,324,385 $ 5,145,809
Income taxes paid $ 953,452 $ 904,488
Loans transferred to Other Real Estate Owned $ 248,095 $ 287,239
</TABLE>
SLADE'S FERRY BANCORP AND SUBSIDIARY, SLADE'S FERRY TRUST COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
June 30, 1998
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, 1998 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1998.
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 1997.
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
- -------------------
At June 30, 1998 the Company had total assets of $314.6 Million compared to
$301.6 Million reported at December 31, 1997. The increase in assets of $13
Million occurred predominately in investment securities of $2.1 Million and
securities available for sale of $10.9 Million. Funding for the purchases
of these investment products was provided by the increase in deposit levels.
Deposits at June 30, 1998 totaled $281.4, up by $10.1 Million from $271.3
Million reported at year end 1997. Certificates of deposits is the largest
deposit component and represents $140.4 Million reflecting a growth of $8.3
Million during the first six months of 1998 from $132.1 Million at the end
of 1997. The remaining increase of $1.8 Million occurred in the demand
deposit and savings categories. Certificates of deposits do not extend out
beyond three years.
The loan portfolio which generally averages monthly paydowns of $2.5
Million, had a gross increase of $0.6 Million since December 31, 1997. The
bank also financed $1.4 Million in loans to qualified commercial borrowers
through a match funding program offered by the Federal Home Loan Bank. The
interest earned on these types of loans generally yields less than
conventional financing. This product is offered only to borrowers that meet
certain credit and deposit requirements.
Other assets increased by $1.7 Million during the past six months, of which
$1.6 Million was used to purchase single premium life insurance policies,
which provide each member of the Board of Directors with a supplementary
life insurance benefit. The Bank also provided $50,000 as a down payment to
purchase a plot of land located at 833 Ashley Boulevard, New Bedford,
Massachusetts for the purpose of constructing a single story branch banking
facility. It is anticipated that construction will commence in September
1998.
At June 30, 1998, securities classified as Available for Sale had net
unrealized gains of $200,399 as a result of current market conditions,
compared to net unrealized gains of $149,287 reported on December 31, 1997.
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, 1998.
<TABLE>
<CAPTION>
Gross
Gross Unrealized
Amortized Unrealized Holding
(Dollars in Thousands) Cost Basis Holding Gains Losses Fair Value
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Debt securities issued by the U. S.
Treasury and other U. S. $ 9,708 $ 51 $ 1 $ 9,758
Government corporations and
agencies
Debt securities issued by states of the
United States and political
subdivisions of the states 9,860 98 12 9,946
Mortgage-backed securities 157 1 --- 158
Other debt securities 1 --- --- 1
- -------------------------------------------------------------------------------------------------
$19,726 $150 $13 $19,863
=================================================================================================
</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, 1998.
<TABLE>
<CAPTION>
Gross
Gross Unrealized
Amortized Unrealized Holding
(Dollars in Thousands) Cost Basis Holding Gains Losses Fair Value
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Debt securities issued by the U. S.
Treasury and other U. S. $40,107 $ 81 $101 $40,087
Government corporations and
agencies
Marketable Equities 1,811 421 94 2,138
Mortgage-backed securities 8,647 20 23 8,644
Asset-backed securities 228 --- --- 228
- -------------------------------------------------------------------------------------------------
$50,793 $522 $218 $51,097
=================================================================================================
<S> <C>
Increase to Stockholders' Equity:
(In Whole Dollars)
Unrealized gain on Available for Sale Securities $304,249
Less tax effect 103,850
--------
Net unrealized gain on Available for Sale Securities $200,399
========
</TABLE>
INFORMATION WITH RESPECT TO NONACCRUAL AND PAST DUE LOANS
AT JUNE 30, 1998 AND 1997 AND DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
At June 30 At December 31
- -----------------------------------------------------------------------------------------
(Dollars in Thousands) 1998 1997 1997 1996
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Nonaccrual Loans $4,047 $4,970 $4,597 $4,352
Loans 90 days or more past due and still accruing 705 280 147 112
Real estate acquired by foreclosure
or substantively repossessed 340 359 159 308
Percentage of nonaccrual loans to total loans 1.89% 2.41% 2.15% 2.19%
Percentage of nonaccrual loans and real estate
acquired by foreclosure or substantively
repossessed to total assets 1.39% 1.77% 2.00% 1.88%
Percentage of allowance for possible loan losses
to nonaccrual loans 85.05% 69.16% 80.36% 77.07%
</TABLE>
The $4.0 Million in nonaccrual loans consists of $3.7 Million of real estate
mortgages and $.3 Million attributed to commercial loans. Of the total
nonaccrual loans outstanding, $253,035 are restructured at June 30, 1998.
The Company's nonperforming assets as a total increased to $5.1 Million at
June 30, 1998 from $4.9 Million reported on December 31, 1997. The Company
considers nonaccrual loans, loans past due 90 days or more but still
accruing, and real estate acquired by foreclosure or substantively
repossessed as nonperforming assets. Nonaccrual loans which is the largest
component of nonperforming assets decreased by $550,000 during this six
month period. The decrease consists of $681,000 of loans placed into the
nonaccrual status, offset by $1,231,000 representing payments and loans
resolved or charged off. A $1.5 Million commercial real estate loan that
had been previously classified as nonaccrual in March 1997 remains in the
nonaccrual category despite payments being made by the borrower which are
applied directly to principal. Pursuant to the Company's normal policy,
this loan will remain in the nonaccrual status until the loan becomes
current and the borrower can demonstrate a regular consistent schedule of
payments. The real estate collateralizing this loan has an appraised value
of $2.7 Million obtained in December 1997. Loans past due 90 days or more
but still accruing increased to $705,000 from $147,000 reported at the end
of 1997. This amount represents six separate loans that have residential
properties with substantial values collateralizing each loan. Therefore,
the Company has elected to continue to accrue income on these loans.
Real estate acquired through foreclosure or substantively repossessed
increased to $340,000 at June 30, 1998 and consists of two parcels of real
estate.
The percentage of nonaccrual loans to total loans decreased from 2.15%
reported at year end 1997 to 1.89% at June 30, 1998 primarily due to the
decrease in the nonaccrual category and the slight increase in the total
loan portfolio.
INFORMATION WITH RESPECT TO NONACCRUAL AND RESTRUCTURED LOANS
AT JUNE 30, 1998 AND 1997 AND DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
At June 30 At December 31
- -----------------------------------------------------------------------------------------
(Dollars in Thousands) 1998 1997 1997 1996
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Nonaccrual Loans $4,047 $4,970 $4,597 $4,352
Interest income that would have been recorded
under original terms $ 176 $ 202 $ 394 $ 361
Interest income recorded during the period $ 13 $ 28 $ 58 $ 62
</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" 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 $4,046,540 in nonaccrual loans are $3,851,348 which the
Company has determined to be impaired, for which $836,984 have a related
allowance for credit losses of $253,127 and $3,014,364 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 June 30,
1998 that management reasonably expects will materially impact future
operating results, liquidity or capital resources.
ANALYSIS OF THE ALLOWANCE FOR POSSIBLE LOAN LOSSES
<TABLE>
<CAPTION>
Six Months Years Ended
At June 30 At December 31
- ---------------------------------------------------------------------------------
(Dollars in Thousands) 1998 1997 1997 1996
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at January 1 $3,694 $3,354 $3,354 $2,498
- ---------------------------------------------------------------------------------
Charge-offs:
Commercial (549) (51) (40) (276)
Real estate - construction --- --- --- ---
Real estate - mortgage --- (146) (147) (4)
Installment/consumer (20) (38) (68) (159)
- ---------------------------------------------------------------------------------
(569) (235) (255) (439)
- ---------------------------------------------------------------------------------
Recoveries:
Commercial 4 8 41 332
Real estate - construction --- --- --- ---
Real estate - mortgage 2 --- 16 ---
Installment/consumer 11 10 38 107
- ---------------------------------------------------------------------------------
17 18 95 439
- ---------------------------------------------------------------------------------
Net Charge-offs (552) (217) (160) ---
- ---------------------------------------------------------------------------------
Additions charged to operations 300 300 500 400
Allowance attributable to acquisition --- --- --- 456
- ---------------------------------------------------------------------------------
Balance at end of period $3,442 $3,437 $3,694 $3,354
=================================================================================
Ratio of net charge-offs to
average loans outstanding 0.259% 0.108% 0.080% 0.000%
</TABLE>
The Allowance for Possible Loan Losses at June 30, 1998 was $3,441,693,
compared to $3,693,865 at year end 1997. The decrease is due to the amount
of loans charged off during the second quarter totaling $559,000 which
occurred in the Commercial loan category. The Allowance for Possible Loan
Losses as a percentage to outstanding loans decreased by 0.12% during the
six month period to 1.61% from 1.73% reported at year end 1997.
The Bank provided $500,000 in 1997, $400,000 in 1996, and $300,000 as of
June 30, 1998 to the Allowance for Possible Loan Losses. Loans charged off
were $255,000 in 1997, $439,000 in 1996, and $569,000 as of June 30, 1998.
Despite the amount of charge-offs that occurred during the second quarter in
1998, management believes that the current level of the Allowance for Loan
Losses is adequate to absorb any losses in the foreseeable future due to the
value of assets collateralizing the loan portfolio.
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, 1998 December 31, 1997 December 31, 1996
--------------------------------------------------------------------------------
Percent of Percent of Percent of
Loans in Loans in Loans in
Each Each Each
Category to Category to Category to
Amount Total Loans Amount Total Loans Amount Total Loans
--------------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Domestic:
Commercial $1,108(1) 19.92% $ 984(1) 17.14% $ 789(1) 15.70%
Real estate - Construction 60 4.23 44 3.12 41 3.46
Real estate - mortgage 1,919(2) 72.65 2,311(2) 76.50 2,150(2) 77.42
Consumer(3) 355(4) 3.20 355(4) 3.24 374(4) 3.42
-----------------------------------------------------------------------------
$3,442 100.00% $3,694 100.00% $3,354 100.00%
=============================================================================
- --------------------
<F1> Includes amounts specifically reserved for impaired loans of $1,659 as
of June 30, 1998, $42,937 as of December 31, 1997 and $0.00 as of
December 31, 1996 as required by Financial Accounting Standard No.
114, Accounting for Impairment of Loans.
<F2> Includes amounts specifically reserved for impaired loans of $235,777
as of June 30, 1998, $566,220 as of December 31, 1997 and $838,290 as
of December 31, 1996 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 amounts specifically reserved for impaired loans of $15,691
as of June 30, 1998, $14,413 as of December 31, 1997, and $0.00 as of
December 31, 1996, 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 52% of gross loans. Residential real estate, which
is the second largest segment of the loan portfolio, represents 21% 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 appraised 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 20% 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
- ---------------------
Net interest income for the six months ending June 30, 1998 increased by
$495,975 to $6,616,226, when compared to $6,120,251 recorded during the same
period in 1997. Total interest and dividend income increased by $686,702
primarily due to a larger loan base. This was offset by an increase of
$190,727 in interest expense, due to higher deposit levels being serviced
during the current six month period compared to the same period in the
previous year.
The Provision for Loan Losses is a charge against earnings and funds the
Allowance for Possible Loan Losses. The Bank's provision during the six
month period ending June 30, 1998 was $300,000, the same amount that was
provided during the same period in the prior year.
Total Other Income decreased by $91,579 for the first six months in 1998,
compared to the same period in 1997. Service charges on deposit accounts
were down by $20,121 due to customers switching to no fee checking accounts,
which are provided in order to remain competitive with other area banks and
credit unions. The Company realized $184,469 of gains on sales of
securities due to the sale of various corporate equities, compared to
$229,550 realized in the same period of the previous year. The line item
Other Income was down by $26,377 compared to the same period in 1997.
During the first quarter in 1997, non-recurring income totaling $18,432
associated with the acquisition of the National Bank of Fairhaven was
recognized. The remaining variances in the line item Other Income were due
to normal business conditions and certain recoveries in early 1997 of
previously booked losses.
Total Other Expense for the first six months in 1998 was down by $29,905 to
$4,438,367, from $4,468,272 recorded for the same period in 1997. Salaries
and employees benefits were down by $36,075, despite general wage increases
and increased cost of benefits, primarily due to the nonreplacement of
individuals whose services with the Bank have been terminated. Occupancy
and Equipment Expenses combined were down by $12,840 primarily due to a net
reduction in depreciation costs realized on equipment that became fully
depreciated during the latter part of 1997, which offset depreciation costs
of newly obtained equipment.
A loss of $4,236 was incurred in the sale of real estate that was acquired
by foreclosure, whereas during the same period in the prior year, the Bank
realized a gain on sale of other real estate of $6,325.
The following table sets forth the components of the line item Other
Expense. This table reflects an increase of $39,087 to $576,281 from
$537,194 for the three month period ending June 30, 1998, and an increase of
$8,449 to $1,143,844 from $1,135,395 for the six month period ending June
30, 1998.
<TABLE>
<CAPTION>
Second Quarter Six Months
- ----------------------------------------------------------------------------------------------
1998 1997 Variance 1998 1997 Variance
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Amortization of Goodwill $ 57 $ 57 0 $ 113 $ 113 0
Advertising & Public Relations 100 98 2 199 198 1
Stationery & Supplies 62 83 (21) 116 176 (60)
Communications 66 56 10 151 137 14
Professional fees &
Other Services 73 58 15 137 138 (1)
Other Miscellaneous Expenses 218 185 33 428 373 55
- --------------------------------------------------------------------------------------------
Other Expense $576 $537 $ 39 $1,144 $1,135 $ 9
============================================================================================
</TABLE>
Stationery and Supplies had material decreases of $21,000 during the second
quarter and $60,000 during the first six months of 1998 compared to the
previous year. These decreases are the result of bulk purchasing at
discounted prices of supplies that will not become outdated, and an overall
reduction of supply usage.
Other Miscellaneous Expenses were up by $33,000 during the second quarter
and $55,000 for the six month period in 1998, when compared to the prior
year. The most noted increases were attributable to directors fees, due to
the expansion of the Board of Directors that occurred in the last quarter of
1997; and the expense associated with the purchase of the single premium
life insurance policies that occurred in January 1998, which provide each
member of the Board of Directors with a supplementary life insurance
benefit. This cost will decrease annually until policy year 2000, when the
cash surrender value of the policies is expected to realize income.
Committee fees were up by $3,000 and $10,000 for three and six months
respectively, when compared to the previous year; and life insurance expense
incurred costs of $17,000 and $42,500 respectively, for the three month
period and six month period ending June 30, 1998.
Income before income taxes for the six month period ending June 30, 1998 was
$2,662,960, up by $434,301 from $2,228,659 reported as of June 30, 1997.
Applicable income taxes for the six month period ending June 30, 1998 were
$1,053,553, an increase of $159,435 when compared to $894,118 expensed in
the prior year. Net earnings were $1,609,407, up by $274,866 or 20.6%, when
compared to $1,334,541 reported for six months in the previous year.
Earnings per share on a fully diluted basis was $0.48 for six months ending
June 30, 1998 compared to $0.45 reported at June 30, 1997.
The results of operation for the second quarter in 1998 indicate that the
net interest income was up by $262,966 to $3,369,776 from $3,106,810 earned
during the same period in the previous year. The provision for loan losses
remained the same as incurred during the second quarter in 1997. Total
Other Income decreased by $13,864 of which a decrease of $7,355 occurred in
service charges on deposit accounts as a result of customers switching to no
fee checking accounts. Various corporate equities were sold during the
second quarter realizing gains of $128,189. During the same period in the
prior year, gains on sales of securities totaled $123,299.
Other Income was down by $11,399 for the second quarter in 1998 when
compared to the second quarter in 1997. There were decreases in safe
deposit rental income of $4,750, miscellaneous income of $2,700 and food
coupon income of $2,220. The remaining decrease of $1,729 is attributable
to various other income accounts.
Total Other Expense decreased slightly by $2,963 to $2,219,545 for the three
month period ending June 30, 1998 compared to $2,222,508 reported for the
second quarter in 1997.
A decrease of $28,178 occurred in Salaries and Employee Benefits primarily
due to a smaller employee base. Occupancy and Equipment Expense combined
decreased by $17,367 due to equipment still being utilized which became
fully depreciated during 1997 and the first quarter of 1998. A gain on sale
of foreclosed property of $3,495 occurred during the second quarter in 1997.
There were no losses or gains on sales of other real estate owned during the
second quarter in the current year.
The line item Other Expense is detailed in the preceding table and, as
noted, significant variances occurred in stationery and supplies, and other
miscellaneous expenses which reflect fees and insurance costs relating to
the directors.
Income before taxes for the second quarter in 1998 was up by $252,065 to
$1,425,759 from $1,173,694 reported for the same period in the prior year.
Applicable income taxes increased by $88,382 to $561,700 when compared to
$473,318 reported in the second quarter in 1997.
The net income for the three month period ending June 30, 1998 was $864,059,
up by $163,683 or 23.4%, when compared to $700,376 earned in the second
quarter in 1997. Diluted earnings per share for the second quarter in 1998
were $0.25 compared to $0.23 for the same period in 1997.
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 for liquidity purposes 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 for liquidity
purposes in 1997 nor during the first six months 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. and was assumed at the time of the merger. It 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.
There is also a $1,751,600 borrowing from the Federal Home Loan Bank
included in Notes Payable representing the match funding program that is
available to qualified borrowers.
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, 1998, the Bank's liquidity ratio stood at 27.7% as compared to
24.5% at December 31, 1997. 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 the six months ending June 30, 1998 and
1997 shows a decrease in the net cash provided by operating activities of
$1.1 Million. This is largely attributable to the increase in other assets
which includes the aforementioned $1.6 Million of single premium life
insurance policies.
Cash flows from investing activities show a net increase in cash used in
investing activities of $2.2 Million when compared to 1997. Purchases of
securities increased by $12.0 Million offset by maturities of securities of
$3.6 Million when compared to the same six months in 1997. The remaining
$6.2 Million is attributable to the decrease in cash used in loan activity.
Cash provided by financing activities increased $3.1 Million during the
first six months of 1998 when compared to the same period in 1997. The
change in cash provided by time deposits represented $4.0 Million of the
increase. There were also increases in cash provided by demand, NOW, money
market and savings accounts of $1.9 Million and notes payable of $1.3
Million. These were offset by decreases of $3.7 Million in proceeds from
issuance of stock and $.6 Million in short term borrowings. There was a new
offering of common stock from mid May to mid June 1997 which resulted in
$3.9 Million in cash proceeds from issuance of that stock for the first six
months of 1997. There was no new stock offering in the first six months of
1998.
Capital
- -------
As of June 30, 1998, the Company had total capital of $28,071,192. This
represents an increase of $1,634,766 from $26,436,426 reported on December
31, 1997. The increase in capital was a combination of several factors.
Additions consisted of six months earnings of $1,609,407 and transactions
originating through the Dividend Reinvestment Program whereby 8,137.851
shares were issued for cash contributions of $136,673 and 10,083.365 shares
were issued for $168,355 in lieu of cash dividend payments. Stock options
were exercised for proceeds of $18,680. These additions were offset by
dividends paid of $349,461.
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, 1997 the Available for Sale portfolio had unrealized gains,
net of taxes, of $149,287, and on June 30, 1998, as a result of current
market values, the portfolio reflects unrealized gains, net of taxes, of
$200,399.
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, 1998 the actual Risk Based Capital of the Bank was $22,707,000
for Tier 1 Capital, exceeding the minimum requirements of $8,789,400 by
$13,917,600. Total Capital of $25,462,000 exceeded the minimum requirements
of $17,578,800 by $7,883,200 and Leverage Capital of $22,707,000 exceeded
the minimum requirements of $12,513,400 by $10,193,600. In addition to the
"minimum" capital requirements, "well capitalized" standards have also been
established by the Federal Banking Regulators.
The table below illustrates the capital ratios of the Company and the Bank
on June 30, 1998 and at December 31, 1997.
<TABLE>
<CAPTION>
Well June 30, 1998 December 31, 1997
Capitalized -----------------------------------------
Requirement Bancorp Bank Bancorp Bank
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total Capital (to Risk
Weighted Assets) 10% 12.56% 11.59% 12.04% 11.18%
- -------------------------------------------------------------------------------------
Tier I Capital (to Risk
Weighted Assets) 6% 11.31% 10.33% 10.74% 9.88%
- -------------------------------------------------------------------------------------
Leverage Capital (to
Average Assets) 5% 7.91% 7.26% 7.79% 7.18%
- -------------------------------------------------------------------------------------
</TABLE>
PART II
OTHER INFORMATION
ITEM 4
Submission of Matters to a Vote of Security Holders
The Annual Meeting of the stockholders of Slade's Ferry Bancorp was held on
April 13, 1998.
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 2,437,509 4,727
</TABLE>
Proposal Two - Election of Class Three Directors
The following five individuals were re-elected to serve as directors of the
Company until the 2001 Annual Meeting of stockholders, and until their
successors are elected or qualified.
<TABLE>
<CAPTION>
VOTES
- ---------------------------------------------------------
Nominee For Against
- ---------------------------------------------------------
<S> <C> <C>
James D. Carey 2,431,585 10,545
William Q. MacLean Jr. 2,358,901 83,229
Francis A. Macomber 2,414,408 27,722
Majed Mouded, MD 2,435,915 6,215
David F. Westgate 2,419,031 23,099
The following additional directors continued their terms in office after the
meeting.
Thomas B. Almy Lawrence J. Oliveira DDS
Peter G. Collias Peter Paskowski
Donald T. Corrigan Kenneth R. Rezendes
Melvyn A. Holland William J. Sullivan
Shaun O'Hearn Sr. Charles Veloza
ITEM 6
Exhibits and Reports on Form 8-K
(a) Exhibits: See exhibit index
(b) Reports on Form 8-K: None
EXHIBIT INDEX
Exhibit No. Description Page
- ----------- ----------- ----
10 Form of Directors' Paid-up Insurance Policy for Thomas B. Almy
(Similar forms of policy entered into by Company for other Directors)
27 Financial Data Schedule
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 14, 1998 /s/ Kenneth R. Rezendes
- ------------------------------ ----------------------------------------
(Date) (Signature) Kenneth R. Rezendes
President/CEO
August 14, 1998 /s/ James D. Carey
- ------------------------------ ----------------------------------------
(Date) (Signature) James D. Carey
Executive Vice President
August 14, 1998 /s/ Ralph S. Borges
- ------------------------------ ----------------------------------------
(Date) (Signature) Ralph S. Borges
Treasurer
Chief Financial Officer
Chief Accounting Officer
</TABLE>
EXHIBIT 10
POLICY NUMBER: 2650 747
INSURED: THOMAS B. ALMY
THE CANADA LIFE ASSURANCE COMPANY
A MUTUAL LIFE COMPANY
HOME OFFICE
330 UNIVERSITY AVENUE
TORONTO, ONTARIO, CANADA M5G 1R8
TELEPHONE: 1-800-333-2542
We agree to pay the proceeds to the beneficiary on the death of the
insured. This agreement is subject to all the terms of this policy.
TEN DAY RIGHT TO EXAMINE POLICY
You have ten days after you receive this policy to decide if it meets
your needs. If it does not, return it to our Home Office or to the agent
from whom you bought it. We will cancel the policy from the policy date and
give you a full premium refund.
Please Read This Policy Carefully
Secretary President
WHOLE LIFE INSURANCE
Insurance payable on the death of the insured.
Premiums payable for period shown on Page 3.
Eligible for dividends.
TABLE OF CONTENTS
PROVISION PAGE
Policy Details 3
Table of Guaranteed Values 4
Definitions 5
Payment of Proceeds
Death Benefit 7
Cash Surrender 7
Premiums
Payment of Premiums 8
Grace Period 8
Reinstatement 8
Dividend Options 9
Loans
Policy Loans 10
Automatic Premium Loans 11
Policy Values
Cash Value 11
Paid-Up Insurance 13
Extended Insurance 12
Basis of Calculation 12
General Provisions
Assignment 13
Beneficiary 13
Currency 13
Entire Contract 13
Incontestability 14
Misstatement of Age or Sex 14
Our Consent 14
Owner 14
Policy Date 14
Suicide Exclusion 14
Payment Options
Description of Options 15
Excess Interest 16
Payment Dates 16
Choosing an Option 16
Age and Survival of Payee 16
Death of Payee 16
Maturity Guarantee 16
POLICY DETAILS
POLICY
NUMBER 2650 747 COLI NUMBER: C0203
INSURED THOMAS B. ALMY
AGE 64
FACE AMOUNT $108,252
POLICY DATE FEBRUARY 10, 1998
POLICY CLASS RATED NON-TOBACCO
DESCRIPTION OF BENEFITS AND PREMIUMS
YEARLY PREMIUM
BENEFIT PREMIUM PERIOD
BASIC POLICY $9,090.95 31 YEARS
THE DATE OF ISSUE OF THIS POLICY IS MARCH 9, 1998
DESCRIPTIONS OF BENEFITS AND PREMIUMS
YEARLY PREMIUM
BENEFITS PREMIUM PERIOD
OPTION TO PURCHASE PAID-UP INSURANCE
SINGLE PREMIUM OF $90,909.05
NET SINGLE PREMIUM OF $76,605.84
POLICY NUMBER 2650747
TABLE OF GUARANTEED VALUES
FOR
POLICY NO. 2650 747
CASH OR PAID-UP EXTENDED
AT END OF LOAN LIFE INSURANCE
POLICY YEAR VALUE INSURANCE FOR FACE AMOUNT
$ $ YEARS DAYS
1 3,680 6,170 1 18
2 7,144 11,582 1 310
3 10,716 16,995 2 197
4 14,289 22,191 3 42
5 17,861 27,171 3 211
6 21,325 31,826 3 335
7 24,897 36,372 4 71
8 28,362 40,594 4 142
9 31,826 44,708 4 195
10 35,181 48,496 4 233
11 38,429 52,069 4 259
12 41,568 55,425 4 276
13 44,599 58,564 4 283
14 47,630 61,595 4 285
15 50,553 64,409 4 275
16 53,476 67,224 4 258
17 56,291 69,822 4 232
18 58,997 72,204 4 198
19 61,703 74,585 4 164
20 64,301 76,858 4 128
21 66,791 78,915 4 92
22 69,173 80,864 4 55
23 71,554 82,921 4 23
24 73,936 84,869 3 361
25 76,317 86,818 3 343
26 78,807 88,874 3 328
27 81,622 91,256 3 320
28 84,869 94,070 3 315
29 88,766 97,535 3 310
30 93,854 102,081 3 312
THE VALUES IN THE ABOVE TABLE WILL APPLY AT THE END OF EACH POLICY YEAR AS
SHOWN, ASSUMING ALL PREMIUMS HAVE BEEN PAID TO THE END OF THE POLICY YEAR.
PAID-UP ADDITIONS AND CASH ACCUMULATIONS WILL INCREASE THE VALUES SHOWN AND
AMOUNTS OWED ON THE POLICY WILL DECREASE THE VALUES.
DEFINITIONS
ATTAINED AGE
The age shown in the Policy Details plus the number of policy years elapsed.
BENEFICIARY
The beneficiary is the person designated by you to receive the proceeds
payable on the death of the insured.
CASH SURRENDER VALUE
The amount of money that you would receive as a refund if you canceled the
coverage and returned the policy. It is equal to:
1. the basic policy cash value; plus
2. the cash value provided by riders; plus
3. any accumulations at interest; plus
4. the cash value of any paid-up additions; minus
5. any amounts owed on the policy.
DATE OF ISSUE
The date of issue is the date on which this policy was issued at our Home
Office.
DIVIDEND AND DIVISIBLE SURPLUS
A dividend is a share of the divisible surplus, which is the portion of the
company's earnings that is available for distribution to the owners of our
participating policies.
EXTENDED INSURANCE
Insurance bought at the date of an unpaid premium if the policy has cash
surrender value. It is paid-up term insurance and is not eligible for
dividends.
FACE AMOUNT
The amount payable on the death of the insured. The face amount is shown in
the Policy Details.
LAPSE
Termination of the policy, without value, due to non-payment of renewal
premiums or loan interest.
LOAN VALUE
The loan value is the maximum amount you may borrow. It is the amount which,
with interest, will equal the cash surrender value on the next policy
anniversary or the next premium due date, if sooner.
PAID-UP ADDITIONS
Additional amounts of insurance purchased using dividends. These insurance
amounts require no further premium payments. Paid-up additions have cash
surrender value and are eligible for dividends.
PAID-UP INSURANCE
Insurance bought at the date of an unpaid premium if the policy has a cash
surrender value. It is of the same type and for the same duration as the
original policy. However, the amount of insurance purchased with this option
will be smaller than the face amount of the policy.
PAYEE
The term "payee" means a person who is entitled to receive payment under the
Payment Options section.
PAYMENT OPTION
Any proceeds are payable in a lump sum. Payment options provide for payment
of proceeds in other than a lump sum.
"YOU" AND "YOUR"
You and your mean the owner of this policy.
"WE", "OUR" AND "US"
We, our and us mean The Canada Life Assurance Company.
WRITTEN REQUEST
A request in writing, signed by you, dated, and submitted to our Home
Office. The request must be of a form and content acceptable to us.
PAYMENT OF PROCEEDS
DEATH BENEFIT
We will pay the amount owed to the beneficiary when due proof is filed with
our Home Office that the death of the insured occurred while the policy was
in force. Payment is subject to the terms and conditions of this policy. We
request that this policy be returned to us at the time of settlement.
Please refer to the Policy Values section for the amount payable on the
death of the insured if this policy is in force as paid-up or extended
insurance.
If the policy is in force, but not as paid-up or extended insurance, the
amount payable on the death of the insured equals:
1. the face amount shown in the Policy Details; plus
2. any additional amounts payable provided by riders which have been
added to this policy; plus
3. the amount of any paid-up additions or accumulations at
interest which have been credited to this policy (refer to the
Dividends Options section); plus
4. any refund of premium paid beyond the policy month of the death of
the insured; minus
5. any outstanding amounts owed on a policy loan or the amount of any
unpaid premium if the death occurs during the grace period.
We will pay interest on the amount due from the date of death of the insured
to the date of payment. The rate of interest will be the greater of:
1. the rate we are using under Option 1 of the Payment Options
section on the date of the death of the insured; or
2. the rate required by law.
CASH SURRENDER
This policy may be surrendered for its cash surrender value at any time. We
must receive, at our Home Office, your written request and this policy.
Surrender will be effective on the date the policy is terminated by us. Our
liability will terminate on the date we issue a check for the cash surrender
value.
Normally, we will make payment of the cash surrender value within a few days
of your request. However, we have the right to defer payment for up to 6
months from the date we receive your written request. If we defer payment
for thirty days or more, interest will be paid from the date of surrender to
the date of payment. The rate of interest will be the greater of:
1. not less than 3% per year; or
2. the rate required by law.
PREMIUMS
PAYMENT OF PERMIUMS
You will find the policy date, premium amount ad premium period in the
Policy Details. The first premium is payable on or before the policy date.
All premiums after the first must be paid in advance. Premiums are payable
annually, but if we give our consent you may pay them at 1, 3 or 6 month
intervals. We will set the amount of each such premium.
Premiums must be paid to our Home Office or to an agent who is authorized to
receive such payment for us. A receipt will be issued if requested.
If any check, draft, or other such instrument that you use to pay premiums
is not paid when presented for payment in due course of business, the
premium will be considered unpaid.
GRACE PERIOD
There is no grace period for the first premium. For each premium after the
first, if you do not pay a premium on or before its due date, we will keep
this policy in force for 31 days beyond the due date. This is the grace
period. If you do not pay the premium by the end of the grace period, this
policy will then lapse unless it has cash surrender value. If it has a cash
surrender value, it may be kept in force as set out in the Automatic Premium
Loans provisions or the Policy Values section.
REINSTATEMENT
You may not reinstate this policy if you have surrendered it for its cash
surrender value.
You may reinstate this policy if it has lapsed or is in force as paid-up or
extended insurance within 3 years after the first unpaid premium was due if
you:
1. submit proof of insurability, satisfactory to us, on the insured;
2. pay all overdue premiums with compound interest;
3. pay or reinstate all amounts owed on the policy, as of the date of
the first unpaid premium, with compound interest. See the Loans
section for the amounts owed.
The rate of interest applicable to overdue premiums and amounts owed on
policy loans will be the policy loan interest rate. Interest will be
calculated from the due date of the unpaid premium to the date of
reinstatement.
The election to reinstate this policy must be made by written request. The
request, and the payment of all amounts owed in 2. And 3. Above, must be
received at our Home Office. The reinstatement will be effective on the date
we approve the request.
DIVIDEND OPTIONS
You will share, through dividends, in our divisible surplus while this
policy is in force. Your share, if any, will be determined by us each year
and will be paid at the end of the policy year. Any amounts owed on the
policy during the policy year will affect your share, if any, of the
divisible surplus. We will pay the first annual dividend, if any, at the end
of the second policy year.
The following options describe how the dividends may be used. If you did not
choose an option on the application, dividends will be used to buy paid-up
additions, unless prohibited by law. You may change the option at any time
by written request. The change will be effective as of the date it was
signed, subject to any payment or action taken by us before it was received.
PAID-UP ADDITIONS
Dividends will be used to buy paid-up insurance additions. The purchase rate
will be the net single premium based on the insured's sex and attained age
at the time the dividend is paid. The net single premium will be based on
the Commissioners 1980 Standard Ordinary Mortality Table at 4% interest. A
higher interest rate may be used, but not more than permitted by state law.
If the interest rate used is higher, the result is a lower purchase rate.
The net single premium is calculated assuming that the death benefit is
payable at the date of death. Paid-up additions are eligible for dividends
and will be paid as part of the policy proceeds.
The purchase price may be lowered or raised, with the following results:
1. If we lower the purchase rate (increase the interest rate), the
amount of any existing paid-up insurance increases. This is done
by using the cash value of the existing paid-up additions to
purchase a greater amount of paid-up insurance by using the new
purchase rate. The purchase rate will be based on the insured's
sex and attained age. The cash value of paid-up additions at the
time of the increase will not change.
2. If we raise the purchase rate, no change will be made in the face
amount or cash value of insurance purchased previously. The new
purchase rate will apply to paid-up additions being bought from
then on.
You may surrender these paid-up additions for their cash value at any time.
The cash value of paid up additions is the net single premium for the
insurance based on the insured's sex and attained age. The net single
premium will use the same interest rate that was used at the time the
purchase was made.
ACCUMULATE AT INTEREST
Dividends will be held on deposit with us to accumulate at interest. The
interest rate is determined by us but will never be less than 3% per year.
These cash accumulations will be paid as part of the policy proceeds or you
may withdraw them for their cash value at any time.
REDUCE PREMIUMS
Dividends will be used to pay or reduce the premium due for the current
policy year. If the dividend is insufficient to pay the entire premium, the
balance of any premium must be paid when due.
CASH
Dividends will be paid to you in cash.
LOANS
POLICY LOANS
You may obtain a loan from us on the sole security of this policy whenever
it has a cash surrender value. Extended insurance has no loan value. You may
borrow all or a part of the loan value. We will notify you of the initial
rate of interest at the time the loan is made. Any amounts owed on the
policy will affect dividends under the Dividend Options provision.
On each policy anniversary, we will set the interest rate for new and
existing loans for that policy year. We will give you written notice of any
change in the rate at least 30 days prior to the change. Each year there is
a maximum limit on the interest rate we can set. The limit is based on:
1. Moody's Corporate Bond Yield Average-Monthly Average Corporates as
published by Moody's Investors Service, Inc. or any successor to
that service; or
2. If that Monthly Average is no longer published, a substantially
similar average, set by regulation issued by the insurance
supervisory official of the state whose law governs the policy.
The loan interest rate will not exceed the higher of:
1. the Published Monthly Average for the calendar month ending 2
months before the date on which the rate is determined; or
2. the interest rate used to compute the cash surrender value of this
policy for that year plus 1%.
The loan interest rate will not exceed 4 1/2% on or after the later of:
1. the fifth policy anniversary; or
2. the policy anniversary nearest the insured's 62nd birthday.
In no event will the rate exceed that permitted by law.
We will increase the rate if the rate for that policy year is at least 1/2%
higher than the rate for the prior policy year. We will decrease the rate if
the rate for that policy year is at least 1/2% lower than the rate for the
prior policy year.
Interest will accrue from day to day. If the accrued interest is not paid at
the end of the policy year it will be added to the amount of the loan. The
amount of the loan and the accrued interest are the amounts owed on the
policy.
The policy will lapse on the later of the following:
1. the date on which amounts owed on the policy exceed the loan
value; or
2. 31 days after we have mailed notice of the lapse to you and to any
assignee at the last address we have on record.
You may repay all or part of the amounts owed on the policy at any time,
subject to a minimum payment amount which we may set.
Normally we will make the loan within a few days of your request. However,
we may defer making the loan for up to 6 months unless it is to be used to
pay premiums or amount owed to us.
AUTOMATIC PREMIUM LOANS
You must request this provision in order for it to be in effect. If you did
not request it in the application, you may start it at any time by written
request. You may cancel it at any time by written request. The change will
be effective as of the date the request was signed, subject to any action
taken by us before it was received.
While this provision is in effect, if the cash surrender value is
sufficient, we will automatically make a loan at the end of the grace period
to pay any unpaid premium.
If the cash surrender value is insufficient to pay the unpaid premium, we
will change the premium frequency, if possible, so that a smaller premium is
due. If we cannot change the premium frequency, or if once changed, the cash
surrender value is still insufficient to pay the premium, no loan will be
made and the Policy Values section will apply.
Any loan created as a result of this provision is subject to the terms and
conditions of the Policy Loans provision.
POLICY VALUES
TABLE OF GUARANTEED VALUES
The Table of Guaranteed Values shows the cash or loan value, paid-up life
insurance and extended insurance as of the end of the policy year indicated.
The values are based on the assumption that all premiums have been paid for
the number of years shown. They do not reflect amounts provided by riders,
paid-up additions, accumulations at interest or amounts owed on this policy.
The values at any other time during the policy year will be adjusted for any
premium paid and time elapsed during the year. Values for any policy year
not shown in the table will be provided upon request.
CASH VALUE
The cash value at the end of the policy year shown in the Table of
Guaranteed Values assumes all due premiums have been paid. The cash value at
the end of a policy year which is not shown in the Table is equal to the net
level premium reserve, on the basis described in the Basis of Calculation
provision for calculations of cash values.
The cash value within 60 days after the due date of an unpaid premium will
not be less than the cash value at the due date.
At any time, you may surrender this policy for its cash surrender value.
Within 90 days following the due date of a premium which is not paid, you
may change this policy into paid-up or extended insurance. If, at the end of
the grace period, the premium is unpaid and an Automatic Premium Loan is not
made to pay it, this policy will be automatically changed to paid-up
insurance. However, if you have elected extended insurance and if extended
insurance is available, we will change this policy to extended insurance. If
an Automatic Premium Loan is made, you still have two months after the end
of the grace period to change this policy to paid-up or extended insurance.
The cash value of paid-up or extended insurance is equal to the net single
premium for the insurance that is in effect based on the insured's sex and
attained age. If the policy is being continued as paid-up insurance or
extended insurance, it may be surrendered for its cash surrender value. The
cash value of any paid-up or extended insurance within 31 days after the end
of a policy year will not be less than the cash value at the end of the
year.
PAID-UP INSURANCE
If this policy has a cash surrender value, you may stop paying premiums and
continue the policy as paid-up insurance. The amount of paid-up insurance
will be that amount which will be bought by using the cash surrender value
excluding the cash value of paid-up additions as a net single premium as of
the date of the unpaid premium. If you elect paid-up insurance, the amount
of insurance bought at such time will not exceed the face amount of the
policy. Any cash surrender value in excess of the net single premium for
this amount will be held in the form of accumulations at interest. Paid-up
additions, provided by dividends, which are at the credit of this policy
will remain as paid-up additions.
The paid-up insurance will be payable on the death of the insured. It will
be eligible for dividends. It will have loan value and may be surrendered
for its cash surrender value.
At any time, we will tell you the amounts of paid-up insurance which are not
shown in the Table of Guaranteed Values.
EXTENDED INSURANCE
Extended insurance is not available if the Policy Class is shown as Rated in
the Policy Details. It is not available if the cash surrender value exceeds
the amount needed to provide term coverage to the maturity of this policy.
If will not be eligible for dividends.
Extended insurance is paid-up term insurance payable on the insured's death
during the term. The amount of extended insurance will be equal to the face
amount plus any paid-up additions less any amount owed on the policy. The
insurance will commence as of the due date of the unpaid premium. It will
continue for a period which will be determined by using the cash surrender
value of this policy as a net single premium.
BASIS OF CALCULATION
Except for extended insurance, the cash values and the net single premiums
for this policy are based on the Commissioners 1980 Standard Ordinary
Mortality Table. Extended insurance is based on the Commissioners 1980
Extended Insurance Table. Our calculations are based on the assumptions that
premiums are paid at the beginning of the policy year, the death benefit is
payable at the date of death, and an interest rate of 4% is used.
We have filed a detailed statement of the method used to compute the values
in this policy with the insurance supervisory official of the state in which
this policy is delivered. The guaranteed values of this policy are not less
than those required by law.
GENERAL PROVISIONS
ASSIGNMENT
An assignment is a transfer of all or some of the policy rights and
privileges to someone else. If you assign this policy, your rights, and the
rights of anyone who is to receive payment, are subject to the terms of that
assignment. If the beneficiary appointment in effect is irrevocable, the
written consent of such a beneficiary is required. A change of owner is an
absolute assignment.
An assignment of this policy or an interest in it will not be binding on us
until the assignment or a copy of it is filed with our Home Office. We are
not responsible for the validity or effect of any assignment.
BENEFICIARY
While the insured is living, you may appoint one or more beneficiaries and
may revoke an appointment unless you made it irrevocable. If you have
reserved the right to change the beneficiary, you may do so by written
request. You must revoke any previous appointments and designate the new
person or persons to be beneficiary(ies).
No appointment or change in appointment will take effect unless we receive
the request. When received, the request will take effect as of the date it
was signed, subject to payment or other action taken by us before it was
received.
The beneficiary(ies) of this policy shall be as stated in the application
unless later changed. We will pay the amount due at the death of the insured
under the beneficiary appointment in effect at the date of death. If more
than one beneficiary has been appointed and one or more dies, the proceeds
will be paid to the surviving beneficiaries equally, unless otherwise
designated. If no beneficiary is alive at the death of the insured, or if
none has been appointed, we will pay the proceeds to you or to your estate.
CURRENCY
All amounts payable under this policy shall be paid in United States
currency.
ENTIRE CONTRACT
The entire contract is made up of this policy, which includes the Policy
Details page(s), the attached copy of the application, any supplementary
applications, and any riders or endorsements added to this policy.
All statements made in an application shall be deemed representations and
not warranties. We cannot use any statement to avoid this policy or to deny
a claim unless it is contained in a written application that is made a part
of this policy by attachment or endorsement.
Only our President, Secretary, or Chief Actuary may modify this policy or
waive any of our rights or requirements. Any change in this policy must:
1. be made in writing; and
2. bear the signature or a reproduction of the signature of at least
one of the above officers.
INCONTESTABILITY
Except for failure to pay premiums, we will not contest this policy after it
has been in force during the insured's lifetime for two years from its date of
issue. This provision does not apply to any disability waiver of premium rider
that has its own incontestability clause.
MISSTATEMENT OF AGE OR SEX
If the insured's date of birth or sex has been misstated, the amounts payable
under the policy will be the amounts which the premiums paid would have
purchased for the correct date of birth and sex.
OUR CONSENT
If our consent is required it must be given in writing. It must bear the
signature or a reproduction of the signature of our President, Secretary, or
Chief Actuary.
OWNER
The owner of this policy is as stated in the application unless later changed.
While the insured is living, as owner you may exercise all rights and
privileges granted by this policy subject to the terms of any beneficiary
appointment or assignment. All rights as owner expire at the death of the
insured.
These are your principal rights as owner:
1. to appoint our change beneficiaries; and
2. to receive amounts payable prior to the death of the insured; and
3. to assign this policy.
POLICY DATE
The policy date is shown in the Policy Details. It is the date this policy
goes into effect. Policy years, months, and anniversaries are measured form
the policy date. The first day of each policy year is the policy anniversary.
SUICIDE EXCLUSION
We will not pay the face amount if the insured commits suicide (while sane or
insane) within two years from the date of issue of this policy. Instead, we
will be liable only for the amount of the premiums paid.
PAYMENT OPTIONS
DESCRIPTION OF OPTIONS
As described below, we will credit the amounts left on deposit with us with
a guaranteed rate of interest or make periodic payments of the proceeds and
provide for interest at a guaranteed rate. The Settlement Options are based
upon the UP-1984 Mortality Table with Age Setback Three Years at 3%
Interest.
OPTION 1: INTEREST
To leave the proceeds with us for any period of time to which we may
consent. We will pay interest on the amount remaining with us at a rate of
3% per year. The payee may choose to have interest paid at 1, 3, 6 or 12
month intervals. In addition, on the anniversary of the date on which
proceeds became payable, we may increase the interest then payable of excess
interest (see the Excess Interest provision).
OPTION 2: PAYMENTS OF A FIXED AMOUNT
To have the proceeds paid in equal amounts at 1, 3, 6 or 12 month intervals.
The amount of each payment will be stated in the election of this option.
The payments will be made until the proceeds, with interest at a rate of 3%
per year plus any excess interest are exhausted.
OPTION 3: PAYMENTS FOR A FIXED PERIOD
To have the proceeds paid in equal amounts at 1, 3, 6 or 12 month intervals
for a fixed number of years. The amount of each payment will be determined
with interest at a rate of 3% per year. We may increase the amount of the
payment with excess interest.
OPTION 4: LIFE INCOME
To have the proceeds paid in equal amounts each month, in advance, during
the payee's lifetime. The following plans may be chosen:
1. Life: payments ceasing on death; or
2. Life with 10 years Certain: payments for a minimum guaranteed
period of 10 years; or
3. Life Refund: payments made at least until the sum of the payments
is equal to the amount of the proceeds being paid under this
option.
The amount of each payment will be determined from the Tables which apply to
Option 4 using the payee's age and sex. During any refund or certain period,
we may increase the amount with the payment of excess interest. Age will be
determined from the nearest birthday at the due date of the first payment.
OPTION 5: JOINT LIFE INCOME WITH 10 YEARS CERTAIN
To have the proceeds paid in equal amounts each month, in advance, for as
long as one of the payees is alive. Payments will be made for at least 10
years. The amount of each payment will be determined from the Table which
applies to Option 5 using the age and sex of each of the two payees. During
the certain period, we may increase the amount with the payment of excess
interest. Age will be determined from the nearest birthday at the due date
of the first payment.
OPTION 6: MUTUAL AGREEMENT
To have the proceeds paid according to other terms upon mutual agreement.
EXCESS INTEREST
As described in the above options, we may pay excess interest in addition to
the amounts guaranteed under the options. Excess interest represents the
payee's share of our divisible surplus. It reflects additional interest
earnings which have been credited to the proceeds left on deposit with us.
PAYMENT DATES
The interest periods and payment dates of the options will be calculated
from the date on which the proceeds become payable.
CHOOSING AN OPTION
You may choose, change or revoke an option, by written request, at any time
while at the insured is living. However, if the beneficiary appointment in
effect is irrevocable, the written consent of such a beneficiary is
required.
If an option is not in effect at the death of the insured or if payment is
to be made in a lump sum, the beneficiary may choose an option. The choice
must be made within one year after the proceeds are payable and before any
payment has been made.
An option may not be chosen if either of the following conditions exist:
1. The amount to be applied under the option is less than $1,000.00.
2. Any periodic payment under the option would be less than $20.00.
AGE AND SURVIVAL OF PAYEE
We have the right to require proof of the age(s) of the payee(s) before
payments begin. If payment depends on the survival of the payee(s), from
time to time we may require satisfactory proof that the payee(s) is alive.
DEATH OF PAYEE
If the payee, or the last surviving payee, dies before all the guaranteed
payments have been made, we will make a lump sum payment to the estate of
the last surviving payee.
The lump sum payment will equal:
1. the balance of any proceeds, with accrued interest, remaining
unpaid under Option 1 and 2; or
2. the commuted value of any guaranteed payments remaining unpaid
under Options 3, 4 and 5.
Commutation is the payment of a lump sum equal to the present value of any
remaining payments. Commuted values are calculated at an interest rate of 3%
per year.
MATURITY GUARANTEE
If Option 4 or 5 is chosen but an immediate annuity without dividends, based
on our premium rates in effect on the due date of the first payment, would
produce a greater payment, such an annuity contract will be issued in place
of this policy. This is known as a supplementary contract.
TABLES OF PAYMENTS ON BASIS OF $1,000 NET PROCEEDS
OPTION 3 OPTION 4(2)
Payments for Life Income with Payments
Fixed Period for 10 Years Certain
No. of
Years Monthly Annual Age Male Female Age Male Female
1 $84.46 - 25 $3.12 $3.02 62 $5.70 $5.19
2 42.86 $507.39 30 3.27 3.14 63 5.85 5.33
3 28.99 343.23 35 3.45 3.28 64 6.01 5.47
4 22.06 261.19 40 3.68 3.47 65 6.18 5.63
5 17.91 212.00 41 3.73 3.51 66 6.35 5.79
6 15.14 179.22 42 3.79 3.55 67 6.53 5.96
7 13.16 155.83 43 3.85 3.60 68 6.71 6.14
8 11.68 138.31 44 3.91 3.65 69 6.90 6.33
9 10.53 124.69 45 3.97 3.70 70 7.10 6.52
10 9.61 113.82 46 4.04 3.76 71 7.29 6.73
11 8.86 104.93 47 4.11 3.81 72 7.49 6.93
12 8.24 97.54 48 4.19 3.87 73 7.69 7.14
13 7.71 91.29 49 4.26 3.94 74 7.88 7.36
14 7.26 85.95 50 4.35 4.00 75 8.08 7.57
15 6.87 81.33 51 4.43 4.07 76 8.26 7.78
16 6.53 77.29 52 4.52 4.15 77 8.43 7.99
17 6.23 73.74 53 4.61 4.23 78 8.60 8.19
18 5.96 70.59 54 4.71 4.31 79 8.75 8.39
19 5.72 67.78 55 4.81 4.40 80 8.89 8.57
20 5.51 65.26 56 4.92 4.49 81 9.01 8.73
21 5.32 62.98 57 5.04 4.59 82 9.12 8.89
22 5.15 60.92 58 5.16 4.70 83 9.22 9.03
23 4.99 59.04 59 5.28 4.81 84 9,30 9.15
24 4.84 57.33 60 5.41 4.93 85& 9.37 9.25
25 4.71 55.76 61 5.55 5.05 OVER
The monthly payment for ages not shown in these Tables or in the Tables on
the next page will be calculated on the same basis as those shown and will
be quoted on request.
OPTION 4(1) AND 4(3)-Life Income
<TABLE>
<CAPTION>
Straight Life Refund Straight Life Refund
Age Male Female Male Female Age Male Female Male Female
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
25 $3.13 $3.03 $3.10 $3.01 64 $6.36 $5.03 $5.62 $5.19
30 3.27 3.14 3.24 3.23 65 6.58 5.81 5.77 5.33
35 3.45 3.28 3.40 3.26 66 6.82 6.01 5.94 5.47
40 3.69 3.47 3.60 3.43 67 7.07 6.22 6.11 5.62
45 4.00 3.71 3.86 3.64 68 7.35 6.45 6.29 5.78
46 4.07 3.77 3.92 3.69 69 7.65 6.70 6.48 5.96
47 4.15 3.83 3.98 3.74 70 7.97 6.97 6.68 6.14
48 4.23 3.89 4.04 3.80 71 8.32 7.26 6.90 6.33
49 4.31 3.95 4.11 3.86 72 8.69 7.58 7.13 6.54
50 4.40 4.02 4.18 3.92 73 9.10 7.92 7.37 6.76
51 4.49 4.10 4.25 3.98 74 9.54 8.29 7.63 7.00
52 4.59 4.17 4.32 4.04 75 10.01 8.69 7.91 7.25
53 4.69 4.26 4.40 4.11 76 10.53 9.13 8.20 7.51
54 4.80 4.35 4.49 4.19 77 11.09 9.60 8.51 7.80
55 4.92 4.44 4.58 4.27 78 11.69 10.12 8.84 8.10
56 5.04 4.54 4.67 4.35 79 12.35 10.68 9.19 8.42
57 5.17 4.84 4.77 4.43 80 13.05 11.28 9.56 8.78
58 5.31 4.76 4.87 4.52 81 13.82 11.94 9.95 9.13
59 5.45 4.88 4.98 4.62 82 14.64 12.65 10.38 9.52
60 5.61 5.01 5.09 4.72 83 15.53 13.42 10.81 9.94
61 5.78 5.15 5.22 4.83 84 16.47 14.25 11.28 10.40
62 5.96 5.30 5.34 4.94 85 & 17.48 15.14 11.78 10.86
63 6.15 5.46 5.48 5.08 over
</TABLE>
OPTION 5-Joint and Survivor Life Income with Payments for 10 Years Certain
<TABLE>
<CAPTION>
Age of Female
Age 65 &
of 45 50 55 60 61 62 63 64 65 70 75 80 Over
Male $ $ $ $ $ $ $ $ $ $ $ $ $
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
50 3.54 3.71 3.87 4.01 4.04 4.07 4.09 4.11 4.13 4.22 4.29 4.32 4.34
55 3.59 3.80 4.03 4.25 4.29 4.33 4.37 4.40 4.44 4.60 4.71 4.77 4.80
56 3.60 3.82 4.06 4.29 4.34 4.38 4.42 4.46 4.50 4.68 4.80 4.87 4.91
57 3.61 3.84 4.08 4.34 4.38 4.43 4.48 4.52 4.57 4.76 4.90 4.98 5.02
58 3.62 3.85 4.11 4.36 4.43 4.48 4.53 4.58 4.63 4.84 5.00 5.09 5.14
59 3.63 3.87 4.14 4.42 4.48 4.53 4.59 4.64 4.70 4.93 5.10 5.21 5.26
60 3.64 3.88 4.16 4.46 4.52 4.58 4.64 4.70 4.76 5.02 5.21 5.33 5.39
61 3.64 3.89 4.18 4.50 4.57 4.63 4.70 4.76 4.82 5.11 5.32 5.46 5.53
62 3.65 3.90 4.20 4.54 4.61 4.68 4.75 4.82 4.88 5.20 5.44 5.59 5.67
63 3.65 3.91 4.22 4.57 4.65 4.72 4.80 4.87 4.94 5.28 5.56 5.73 5.82
64 3.66 3.92 4.24 4.61 4.69 4.77 4.84 4.92 5.00 5.37 5.67 5.87 5.97
65 3.66 3.93 4.26 4.64 4.72 4.81 4.89 4.97 5.06 5.46 5.80 6.02 6.13
66 3.67 3.94 4.27 4.67 4.75 4.84 4.93 5.02 5.11 5.55 5.92 6.17 6.30
67 3.67 3.95 4.29 4.70 4.79 4.88 4.97 5.07 5.16 5.63 6.04 6.32 6.47
68 3.67 3.95 4.30 4.73 4.82 4.92 5.01 5.11 5.21 5.72 6.15 6.48 6.64
69 3.66 3.96 4.31 4.75 4.85 4.95 5.05 5.15 5.26 5.80 6.29 6.64 6.82
70 3.68 3.97 4.33 4.77 4.87 4.98 5.08 5.19 5.30 5.88 6.41 6.80 7.01
75 3.69 3.99 4.37 4.86 4.97 5.09 5.21 5.34 5.47 6.20 6.94 7.55 7.91
80 & 3.70 4.00 4.39 4.90 5.02 5.15 5.28 5.42 5.57 6.40 7.31 8.12 8.63
over
</TABLE>
ACCELARATION OF DEATH BENEFITS
This rider is attached to and is part of the entire policy. Please read
carefully.
NOTICE: The benefits paid under this rider may effect eligibility for
Medicaid or other public assistance programs. The benefits paid may be
taxable. If so, you or your beneficiary may incur a tax obligation. As with
all tax matters you should consult your personal tax advisor to access the
impact of this benefit.
The benefit paid under this rider will reduce the death benefit or amount
due upon the death of the insured and other values in your policy.
This rider is non-participating.
DEFINITIONS
"Eligible amount" is the total of the following:
1. the face amount of the policy; plus
2. any one-year term insurance and paid-up additions purchased by
dividends; plus
3. any insurance on the life of the insured provided by riders,
excluding any accidental death benefit and any level term life
insurance rider which is no longer in the conversion period.
"Accelerated amount" is the portion of the eligible amount you request:
1. The accelerated amount may not be more than the lesser of:
(a) 75% of the eligible amount; or
(b) $250,000.
2. The accelerated amount may never be less than $10,000.
"Accelerated death benefit" is the amount we pay under this rider. This
amount is the accelerated amount for the following:
1. An interest discount factor will be applied to the accelerated
amount based on the insured's reduced life expectancy not to
exceed 12 months. The interest rate will be the rate used by us
and will not exceed the greater of:
(a) the then current yield on 90 day United States Treasury
bills available at the date of application for an
accelerated payment.
(b) the then current maximum adjustable policy loan interest
rate based on Moody's Corporate Bond Yield Averages -
Monthly Average Corporates - published by Moody's Investors
Service, Inc., or any successor thereto, for the calendar
month ending two months before the date of application for
an accelerated amount.
(c) 1% above the interest rate used for the guaranteed cash
value of this policy.
2. Future premiums for the accelerated amount based on the insured's
life expectancy.
3. Any future expected dividends corresponding to the accelerated
amount at the then current dividend scale.
4. A portion of any outstanding policy loan balance will be deducted.
This portion will be the outstanding policy loan balance multiplied by the
ratio of the accelerated amount to the eligible amount.
5. The administrative fee in use by us on the date we receive your
written request to pay an accelerated benefit. The administrative
fee will not exceed $500.00.
However, the accelerated death benefit will never by less than the cash
surrender value of the policy, if any, multiplied by the ratio of the
accelerated amount to the eligible amount.
The "effective date" is the Policy Date unless a later date is shown for
this rider in the Policy Details.
The "insured" is the primary insured named in the Policy Details.
"Qualified Physician" is a person who is duly qualified, legally licensed in
the United States and practicing with in the scope of the license who is:
1. a physician or surgeon practicing medicine and surgery, and
authorized to and uses the designated M.D. (Doctor of Medicine);
or
2. a physician of osteopathy who used the designation D.O. (Doctor of
Osteopathy).
A qualified physician must be someone other than you or the insured, or a
spouse, or step or adoptive or natural brother, sister, parent, grandparent,
mother-in-law, father-in-law, or child of yours or the insured's or
insured's spouse.
"you, your" is the Owner of this policy.
"we, us" is Canada Life Assurance Company.
"terminally ill" means having a life expectancy of 12 months or less as
determined by a Qualified Physician.
BENEFIT
Subject to the provisions of this rider and the policy, we will pay the
accelerated death benefit to you if the insured is terminally ill. The
eligible amount is determined as of the date we pay the accelerated death
benefit.
EFFECT ON POLICY
If an accelerated death benefit is paid under this rider, the policy will
stay in force according to the policy provisions. The following will be
reduced in the same proportion as the ratio of the accelerated amount to the
eligible amount:
1. The face amount of the policy;
2. the guaranteed cash value of the policy;
3. any one-year term insurance and paid-up additions purchased by
dividends;
4. any insurance on the life of the insured provided by riders,
excluding any accidental death benefit and any level term life
insurance rider which is no longer in the conversion period.
The premiums for the policy will be reduced to the premiums which would have
been payable had the schedule of reduced death benefits been originally
issued. Cash values and any future dividends will be those corresponding to
the reduced death benefits.
The outstanding policy loan balance will be reduced by the portion deducted
from the accelerated amount as described in the Benefit section of this
rider.
New Policy Details pages reflecting the accelerated benefit payment will be
issued and become part of the policy.
GENERAL PROVISIONS AND CONDITIONS
Your right to be paid under this rider is subject to the following:
1. you must submit a written request for the accelerated amount.
2. The accelerated amount is requested while the policy and this
rider are in force other than as extended insurance or reduced
paid-up insurance.
3. The accelerated amount is requested after the incontestability
period of the policy.
4. You provide evidence that satisfies us in a written statement
signed by a qualified physician that:
(a) the insured is terminally ill; and
(b) the insured's life expectancy is not more than 12 months
due to the severity and nature of the terminal illness; and
(c) the diagnosis of the terminal illness was made after the
effective date of this rider.
5. We receive consent that the benefit may be paid to you from any
irrevocable beneficiary or assignee.
6. The policy must not be assigned except to us as a security for a
loan.
7. The main purpose of life insurance is to meet your estate planning
needs. This rider provides for the accelerated payment of life
insurance proceeds. It is not meant to cause you to involuntarily
invade proceeds ultimately payable to the named beneficiary.
Accelerated death benefits will be made available to you on a
voluntary basis only. Therefore, you are not eligible for the
benefit provided by this rider if you are required:
(a) by law to use this option to meet the claims of creditors,
whether in bankruptcy or otherwise; or
(b) by a government agency to use this option in order to apply
for, obtain, or keep a government benefit or entitlement.
8. We have the right to have the insured examined at our expense by a
physician we chose.
9. This rider does not apply if the insured's illness is the result
of an attempt to commit suicide, while any policy suicide
exclusion provision is in effect.
10. The payment provided by this rider will be made only once under
this policy.
11. The payment will be made in one lump sum to you. The total
accelerated amounts under all policies issued by The Canada Life
Assurance Company or its subsidiaries or affiliates on the life of
the insured will not exceed $250,000.
12. If the death of the insured occurs before approval of the benefit
or before the approved benefit is paid, no benefit will be payable
under this rider. Our liability will be discharged to the extent
of any payment made or action taken prior to receipt of proof of
the death of the insured.
13. This rider is subject to the terms of the policy incontestability
provision.
14. This rider is subject to all the conditions and provisions of the
policy, except at otherwise provided in this rider.
15. Only the insured under the base policy is covered by this rider.
No coverage is provided for any other person covered by riders
attached to the base policy.
16. Any refund of premiums payable as a result of the insured's
suicide will not include the premiums for any accelerated amount
paid under this rider.
TERMINATION
This rider will terminate if and when any of the following takes place:
1. the policy terminates; or
2. the policy lapses at the end of the grace period; or
3. any nonforfeiture option is exercised under the policy; or
4. a benefit is paid under this rider; or
5. we receive a written request to cancel this rider.
THE CANADA LIFE ASSURANCE COMPANY
Secretary
OPTION TO PURCHASE PAID-UP LIFE INSURANCE RIDER - ANNUAL PREMIUM
This Rider is attached to and is a part of the entire policy.
BENEFIT
This rider provides paid-up participating life insurance, payable at the
death of the insured which will be paid as part of the policy proceeds. The
proceeds will not include any refund of unearned rider premiums beyond the
end of the month of death.
The net annual premium for this rider will be used to purchase paid-up life
insurance at the beginning of each year. The purchase rate will be the net
single premium based on the insured's attained age and the same mortality
table and interest rate as the Basis of Calculation for the policy and
assuming the death benefit is payable at the date of death.
At the beginning of each policy year you may change the annual premium for
this rider. We may require proof of insurability.
CASH VALUES
The paid-up insurance purchased under this rider has cash value and loan
value, and is eligible for dividends. The cash value is the net single
premium for the insurance based on the insured's attained age and the same
mortality table and interest rate as the Basis of Calculation for the policy
and assuming the death benefit is payable at the date of death. The cash
will be included with the cash value of the policy when:
1. the policy is cash surrendered; or
2. the policy is continued as paid-up or extended insurance; or
3. policy loans or automatic premium loans are processed.
If the policy is being continued as Extended Insurance, the amount of
extended term insurance will be increased by the amount of insurance in
force under this rider.
DIVIDENDS
We will credit the first annual dividend, if any, to this rider at the
policy anniversary following the rider Effective Date. Any dividends
credited to this rider will be subject to the Dividends provision of this
policy.
RIDER PAID-UP
This rider will become paid-up and no further premiums will be accepted:
1. after the end of the premium period for this rider shown in the
Policy Details; or
2. when we receive a written request.
If a premium due for this rider is not paid within the grace period, no
further premiums for this rider may be paid before the policy anniversary
next following the due date of the unpaid premium, unless the rider is
reinstated. The amount of any paid-up life insurance purchased by the most
recent net annual premium will be adjusted for any unpaid premium for this
rider.
NO WAIVER OF PREMIUM
Premiums for this rider will not be waived if the insured is disabled in the
Disability of Waiver of Premium rider.
EFFECTIVE DATE
If this rider is issued at the same time as the basic policy, the effective
date is the Policy Date, The Policy Date is shown in the Policy Details.
If this rider is added to a policy which is already in effect, the effective
date is the day following the date on which we approve your applications for
this rider, subject to payment of any required premium. The Effective Date
will be shown in the endorsement which will be issued to you.
INCONTESTABILITY
This policy provision also applies to the insured under this rider. However,
when applied to this rider the time period is measured from the effective
date of this rider.
We may contest any increase in death benefit resulting from an increase in
premium for this rider for which we require proof of insurability within 2
years from the date we approved the increase in premium.
REINSTATEMENT
This rider may be reinstated with the policy according to the Reinstatement
provision of the policy.
SUICIDE EXCLUSION
We will not pay the amount of insurance in effect under this option if the
insured commits suicide within two years from the effective date of this
option. We will be liable only for refund of the premiums paid for this
option.
A new two year period will apply to each increase beginning on the date we
approved the increase. If this exclusion is exercised by us with respect to
an increase, the death benefit will be reduced by the amount of that
increase and our liability with respect to the increase will be limited to
the premium paid for the increase.
TERMINATION
This rider will terminate when the first of any of the following events
occurs:
1. the policy terminates; or
2. the policy is changed to paid-up or extended insurance; or
3. we receive a written request to terminate this rider; or
4. this rider is surrendered for cash:
a) as the result of a single transaction; or
b) as the result of a series of partial surrenders.
THE CANADA LIFE ASSURANCE COMPANY
Secretary
THE CANADA LIFE ASSURANCE COMPANY
Policy No. 2650747
COLI NO: C0203
I/We agree that the following answers be substituted for the answers to the
corresponding questions in the application for this policy and that these
corrections and amendments be made in the said application.
BASE PLAN: CL/1 BASE AMOUNT: $108,252.00
POLICY ISSUED WITH SINGLE PREMIUM PAID UP ADDITIONS RIDERS.
SINGLE PREMIUM AMOUNT $90,909.05
POLICY ISSUED WITH A RATING OF SPECIAL CLASS TABLE D.
Dated at Somerset, MA this 11th day of May, 1998
/s/Robert Karon /s/
Witness Applicant
Witness Applicant
Witness Proposed Life Insured or Annuitant
(if other than Applicant)
IMPORTANT: Two copies of this form must be signed at the time of policy
delivery. One copy is to remain attached to the policy, and one
copy is to be returned to Atlanta Home Office.
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 10,384,055
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 7,500,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 51,097,645
<INVESTMENTS-CARRYING> 19,725,745
<INVESTMENTS-MARKET> 19,863,632
<LOANS> 214,318,228
<ALLOWANCE> 3,441,693
<TOTAL-ASSETS> 314,578,620
<DEPOSITS> 281,369,813
<SHORT-TERM> 1,258,275
<LIABILITIES-OTHER> 1,231,091
<LONG-TERM> 2,648,249
0
0
<COMMON> 34,186
<OTHER-SE> 28,037,006
<TOTAL-LIABILITIES-AND-EQUITY> 314,578,620
<INTEREST-LOAN> 9,751,293
<INTEREST-INVEST> 1,845,215
<INTEREST-OTHER> 335,647
<INTEREST-TOTAL> 11,932,155
<INTEREST-DEPOSIT> 5,231,751
<INTEREST-EXPENSE> 5,315,929
<INTEREST-INCOME-NET> 6,616,226
<LOAN-LOSSES> 300,000
<SECURITIES-GAINS> 184,469
<EXPENSE-OTHER> 4,438,367
<INCOME-PRETAX> 2,662,960
<INCOME-PRE-EXTRAORDINARY> 2,662,960
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,609,407
<EPS-PRIMARY> .48
<EPS-DILUTED> .48
<YIELD-ACTUAL> 4.51
<LOANS-NON> 4,046,540
<LOANS-PAST> 705,037
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 500,000
<ALLOWANCE-OPEN> 3,693,865
<CHARGE-OFFS> 568,805
<RECOVERIES> 16,633
<ALLOWANCE-CLOSE> 3,441,693
<ALLOWANCE-DOMESTIC> 3,441,693
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
