UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
Commission file number 33-47248
SLADE'S FERRY BANCORP
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-3061936
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
100 Slade's Ferry Avenue
Somerset, Massachusetts 02726
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (508) 675-2121
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
$.01 par value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No ___
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this form 10-KSB. [X]
Registrant's revenues for fiscal year ended December 31, 1997: $24,712,716.
The aggregate market value of the voting stock of Slade's Ferry Bancorp,
held by nonaffiliates of the registrant as of December 31, 1997 was
approximately $41,551,766.09. On that date, there were 3,236,712.658 shares
of Slade's Ferry Bancorp Common Stock, $.01 par value $.01, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
ANNUAL REPORT to security holders for fiscal year ended December 31, 1997
incorporated by reference into Part II. Proxy Statement for Annual Meeting
of Stockholders April 13, 1998 incorporated by reference into Part III.
PART I
ITEM 1
BUSINESS
Description of Business
Business of Slade's Ferry Bancorp
Slade's Ferry Bancorp ("the Company") is a business corporation that
was organized under the laws of the Commonwealth of Massachusetts on June
13, 1989 as Weetamoe Bancorp. The name Weetamoe Bancorp was changed to
Slade's Ferry Bancorp effective January 1, 1997. The office of Slade's
Ferry Bancorp is located at the office of the Bank at 100 Slade's Ferry
Avenue, Somerset, Massachusetts, 02726, and its telephone number is the same
as the Bank's: (508)675-2121.
The Company was organized for the purpose of becoming the holding
company of the Bank. The Company's acquisition of the Bank was completed on
April 1, 1990. The Bank (Slade's Ferry Trust Company) is a wholly-owned
subsidiary of Slade's Ferry Bancorp.
Competition
The primary business of Slade's Ferry Bancorp is the ongoing business
of the Bank. The competitive conditions to be faced by Slade's Ferry
Bancorp will be the same as those faced by the Bank. It is likely that, as
a holding company, it may compete with other holding companies engaged in
bank-related activities. Thus, the Company will face competition in
undertaking to acquire other banks, financial institutions or companies
engaged in bank-related activities, and in operating subsequent to any such
acquisitions.
While the Company investigates opportunities to acquire other banks or
bank facilities when they occur and may in the future acquire other banks,
financial institutions, or bank facilities, it is not currently engaged in
any such acquisition.
Employees
At present there are three employees of the Bank and the Company whose
compensation is paid by the Company. Although the Company has no current
plans to do so, if the Company should acquire other financial institutions
or pursue other lines of business, it may at such time hire additional
employees.
Business of Slade's Ferry Trust Company
On September 30, 1959, the Slade's Ferry Trust Company opened for
business as a state chartered trust company incorporated under the laws of
the Commonwealth of Massachusetts and as a member of the Federal Deposit
Insurance Corporation (FDIC). The founders were a group of individuals from
Somerset, Swansea, Fall River and Seekonk, Massachusetts who recognized the
need for a local bank committed to personalized services.
During the past three years, assets of the Bank increased by $108
Million of which $50 Million is attributed to overall growth and $58 Million
attributed to the acquisition of the National Bank of Fairhaven, which
occurred in August 1996. The Bank currently has 10 banking facilities
extending east from Seekonk, Massachusetts to Fairhaven, Massachusetts. The
Bank also provides limited banking services at the Somerset High School.
The Bank employs 129 full-time employees and 56 part-time employees.
The Bank currently services numerous communities in Southeastern
Massachusetts and contiguous areas of Rhode Island through its ten
facilities in Fall River, Somerset, Swansea, Seekonk, New Bedford and
Fairhaven.
The Bank's major customer base consists of over 30,000 personal
savings, checking and money market accounts and 7,200 personal certificates
of deposit and individual retirement accounts. Its commercial base consists
of over 3,200 checking, money market, corporate, and certificate of deposit
accounts.
The Bank does not have any major target accounts, nor does it derive a
material portion of its deposits from any single depositor. It is a retail
bank that services the needs of the local communities, and its loans are not
concentrated within any single industry or group of related industries that
would have any possible adverse effect on the business of the Bank. The
Bank's business is not seasonal and its loan demand is well diversified. As
of December 31, 1997, commitments under standby letters of credit aggregate
approximately $2,356,380.
Services
The Bank engages actively in a broad range of banking activities,
including demand, savings, time deposits, related personal and commercial
checking account services, real estate mortgages, commercial and installment
lending, payroll services, money orders, travelers checks, Visa, Mastercard,
safe deposit rentals, automatic teller machines and cash management
services. The Bank offers a full range of commercial, installment, student,
and real estate loans. The service area of the Bank is approximately 300
square miles, including the southern geographic area of Bristol County,
Massachusetts and extends over to the towns of Tiverton, Warren, Bristol and
Barrington in the state of Rhode Island.
Competition
The banking business in the market area served by the Bank is highly
competitive. The Bank actively competes with other banks, financial
institutions, and credit unions, including major banks and bank holding
companies which have numerous offices and affiliates operating over wide
geographic areas. The Bank competes for deposits, loans, and other business
with these institutions.
Many of the major commercial banks, or other affiliates in the service
areas of the Bank, offer services such as international banking, and
investment and trust services which are not offered directly by the Bank.
Supervision and Regulation
Holding Company Regulation
Under the Federal Bank Holding Company Act ("BHCA"), the prior
approval of the Federal Reserve Board ("FRB") is required before a
corporation may acquire control of a bank. FRB approval must also be
obtained before a bank holding company acquires all or substantially all of
the assets of a bank, or merges or consolidates with another bank holding
company. In considering any applications for approval of an acquisition or
merger, the FRB is required to consider the financial and managerial
resources of the companies and banks concerned, and the convenience and
needs of the communities to be served.
As a registered bank holding company, the Company is required to file
with the FRB annual and periodic reports and such other additional
information as the Board may require. The Company and its subsidiaries are
also subject to continuing regulation, supervision and examinations by the
FRB.
A bank holding company, with certain exceptions, may not acquire more
than 5% of the voting shares of any company that is not a bank and may not
engage, directly or through subsidiaries, in any activity other than
banking, managing or controlling banks, or furnishing services to or
performing services for its subsidiaries, without prior approval of the FRB.
The FRB is authorized to approve the ownership by a bank holding company of
voting shares of any company whose activities the FRB determines to be so
closely related to banking or managing or controlling banks as to be a
proper incident thereof. Under the FRB's current regulations, and subject
to certain restrictions and limitations specified therein, bank holding
companies and their subsidiaries may be permitted by the FRB to engage in
such non-banking activities as: (1) making, acquiring, or servicing loans
or other extensions of credit such as would be made by a mortgage, finance,
credit card, or factoring company; (2) operating an industrial bank or
industrial loan company; (3) performing the functions of a trust company;
(4) acting as an investment or financial advisor; (5) leasing real or
personal property or acting as an agent or broker in leasing such property
or acting as an agent or broker in leasing property in certain situations;
(6) making investments to promote community welfare; (7) providing certain
data processing and transmission services; (8) acting as principal, agent,
or broker with respect to insurance directly related to extensions of credit
by the bank holding company or its subsidiaries, and engaging in certain
other insurance activities subject to specified conditions and limitations;
(9) providing courier services for checks and certain other instrument
exchanges among banks, and for audit and accounting media of a banking or
financial nature; (10) providing management consulting advice under
specified conditions to banks not affiliated with the bank holding company;
(11) issuing and selling retail money orders having a face value of not more
than $1,000 and travelers checks and selling U.S. Savings Bonds; (12)
performing appraisals of real and personal property; (13) arranging
commercial real estate equity financing under certain circumstances; (14)
providing securities brokerage services as agent for the accounts of
customers; (15) underwriting and dealing in certain government obligations
and money market instruments; (16) providing foreign exchange advisory and
transactional services; (17) acting as a futures commission merchant in
specified capacities or providing investment advice as a futures commission
merchant or commodity trading advisor with respect to certain financial
futures contracts and options; (18) providing consumer financial counseling
services; (19) providing tax planning and preparation services; (20)
providing check guaranty services to subscribing merchants; (21) operating a
collection agency; and (22) operating a credit bureau. In addition, a bank
holding company may file an application for FRB approval to engage, directly
or through subsidiaries, in other nonbank activities that the holding
company reasonably believes are so closely related to banking as to be a
proper incident thereto.
In addition, pursuant to the Bank Export Services Act of 1982, a bank
holding company may invest up to 5% of its consolidated capital and surplus
in shares of an export trading company unless such investment is disapproved
by the FRB after notice as provided in that Act.
As a bank holding company, the Company will be required to give the
FRB prior written notice of any purchase or redemption of its outstanding
equity securities if the gross consideration for the purchase or redemption,
when combined with the net consideration paid for all such purchases or
redemptions during the preceding 12 months, is equal to 10% or more of
Bancorp's consolidated net worth. The FRB may disapprove such a purchase or
redemption if it determines that the proposal would violate any law,
regulation, FRB order, directive, or any condition imposed by, or written
agreement with, the FRB.
The status of the Company as a registered bank holding company under
the BHCA does not exempt it from certain federal and state laws and
regulations applicable to corporations generally, including, without
limitation, certain provisions of the federal securities laws.
Under Massachusetts law, Board of Bank Incorporation approval is
required before any company may become a bank holding company by directly or
indirectly owning, controlling or holding the power to vote 25% or more of
the voting stock of two or more banks. Further, such approval is required
prior to a bank holding company's (i) acquiring voting stock of another bank
institution if, as a result of the acquisition, such acquirer would,
directly or indirectly, own or control more than 5% of the voting stock of
such institution, or (ii) engaging in certain other transactions. The
Company is not considered a bank holding company under Massachusetts law
since it does not control two or more banks. The activities of the Company,
however, will be limited under Massachusetts law to activities described
above which would be permissible for a bank holding company registered under
the BHCA. In addition, the acquisition by the Company of 25% or more of the
voting stock or the power to elect a majority of the directors of another
commercial bank, savings bank, cooperative bank, or savings and loan
association would subject the Company to regulation as a bank holding
company under applicable Massachusetts law and would require the approval of
the Massachusetts Board of Bank Incorporation.
Bank Regulation
As a Massachusetts-chartered, FDIC-insured trust company, the Bank is
subject to regulation and supervision by the Commissioner of Banks, the FDIC
and the FRB.
The Massachusetts statutes and regulations govern, among other things,
investment powers, deposit activities, borrowings, maintenance of surplus
and reserve accounts, distribution of earnings, and payment of dividends.
The Bank is also subject to state regulatory provisions covering such
matters as issuance of capital stock, branching, and mergers and
acquisitions.
Deposit accounts at the Bank are insured by the FDIC, generally up to
a maximum of $100,000 per insured depositor. As an insurer of deposits of
certain thrift institutions and commercial banks, the FDIC issues
regulations, conducts examinations, requires the filing of reports, and
generally supervises the operations of institutions to which it provides
deposit insurance. The approval of the FDIC is required prior to any merger
or consolidation with another financial institution, or the establishment or
relocation of an office facility. This supervision is intended primarily
for the protection of depositors.
As an FDIC-insured bank, the Bank is subject to certain FDIC
requirements designed to maintain the safety and soundness of individual
banks and the banking system. The FDIC periodically conducts examinations
of insured institutions and, based upon appraisals, may revalue assets of an
insured institution and require establishment of specific reserves in
amounts equal to the difference between such revaluation and the book value
of the assets. In addition, the FDIC has a regulation which defines and
sets minimum requirements for capital adequacy.
Bank regulators have implemented risk based capital guidelines that
require a bank to maintain certain minimum capital as a percent of such
bank's assets and certain off-balance sheet items adjusted for predefined
credit risk factors (risk adjusted assets). Under the requirements a
minimum level of capital will vary among banks on safety and soundness of
operation. At December 31, 1997 the minimum regulatory capital level of
Risk Based Capital was 4% for Tier 1 Capital, 8% for Total Capital and
Leverage Capital was 4%.
The Company, the Bank, the Slade's Ferry Realty Trust, and the Slade's
Ferry Securities Corporation are "affiliates" within the meaning of the
Federal Reserve Act. Certain provisions of the Federal Reserve Act, made
applicable to the Bank by Section 18(j) of the Federal Deposit Insurance Act
and administered with respect to the Bank by the FDIC, limit the amounts of
and establish collateral requirements with respect to the Bank's loans or
extensions of credit to and investments in affiliates. In addition, related
provisions of the Federal Reserve Act and FRB regulations also administered
with respect to the Bank by the FDIC limit the amounts of and establish
required procedures and credit standards with respect to loans and other
extensions of credit to officers, directors and principal stockholders of
the Bank, of the Company, and of any subsidiaries of the Company, and to
related interests of such persons.
Recent Regulatory Examinations
During the most recent regulatory examinations of the Company and the
Bank encompassing year end 1995 and nine months ending September 30, 1996,
no major or consequential violations were found.
Statistical Information
The following supplementary information required under Guide 3
(Statistical Disclosure by Bank Holding Companies) should be read in
conjunction with the related financial statements and notes thereto, which
are a part of this report.
I. DISTRIBUTION OF ASSETS, LIABILITIES, AND STOCKHOLDERS' EQUITY;
INTEREST RATES AND INTEREST DIFFERENTIAL
The following table sets forth the Company's average assets,
liabilities, and stockholders' equity, interest income earned and interest
paid, average rates earned and paid, and the net interest margin for the
periods ending December 31, 1997, December 31, 1996, and December 31, 1995.
Averages are daily averages.
<TABLE>
<CAPTION>
1997 1996 1995
-------------------------------- ------------------------------- -------------------------------
Average Interest(1) Avg. Int. Average Interest(1) Avg. Int. Average Interest(1) Avg. Int.
(Dollars in Thousands) Balance Rate Rate Balance Rate Rate Balance Rate Rate
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Earning Assets(1)
Commercial Loans $ 36,195 $ 3,466 9.58% $ 23,440 $ 2,191 9.35% $ 17,478 $ 1,705 9.75%
Commercial Real Estate 110,093 10,740 9.76 90,576 9,035 9.98 70,060 6,703 9.57
Residential Real Estate 52,894 4,116 7.78 50,486 3,788 7.50 48,901 3,706 7.58
Consumer Loans 6,503 659 10.13 6,094 613 10.06 5,630 628 11.15
- -------------------------------------------------------------------------------------------------------------------------------
Total Loans 205,685 18,981 9.23 170,596 15,627 9.16 142,069 12,742 8.97
Federal Funds Sold 11,309 607 5.37 14,994 783 5.22 10,361 598 5.77
U.S. Treas/Govt Agencies 49,682 3,099 6.24 43,871 2,715 6.19 45,300 2,924 6.45
States & Political
Subdivisions 6,948 477 6.87 5,959 400 6.71 4,753 339 7.13
Mutual Funds 301 15 4.98 241 13 5.39 170 8 4.71
Marketable Equity Securities 2,518 120 4.77 1,946 75 3.85 1,098 39 3.55
Other Investments 126 8 6.35 197 15 7.61 55 4 7.27
- -------------------------------------------------------------------------------------------------------------------------------
Total Earning Assets 276,569 $23,307 8.43% 237,804 $19,628 8.25% 203,806 $16,654 8.17%
- -------------------------------------------------------------------------------------------------------------------------------
Allowance for Possible Loan
Losses (3,474) (2,958) (2,450)
Unearned Income (665) (597) (434)
Cash and Due From Banks 11,366 9,565 8,387
Other Assets 14,022 9,489 9,016
- -------------------------------------------------------------------------------------------------------------------------------
Total Assets $297,818 $253,303 $218,325
===============================================================================================================================
LIABILITIES & STOCKHOLDERS' EQUITY:
Savings $ 42,642 $ 1,067 2.50% $ 40,246 $ 1,006 2.50% $ 37,790 $ 955 2.53%
NOW's 37,739 1,202 3.19 28,788 858 2.98 21,568 757 3.51
Money Market Accounts 14,116 281 1.99 13,326 272 2.04 16,355 332 2.03
CD's > $100M 23,162 1,256 5.42 18,813 1,104 5.87 15,403 856 5.56
Other Time Deposits 109,278 6,460 5.91 97,957 5,754 5.87 82,290 4,801 5.83
Other Borrowings 2,114 146 6.91 1,374 86 6.26 1,179 63 5.34
- -------------------------------------------------------------------------------------------------------------------------------
Total Interest-bearing
Liabilities 229,051 $10,412 4.55% 200,504 $ 9,080 4.53% 174,585 $ 7,764 4.45%
- -------------------------------------------------------------------------------------------------------------------------------
Demand Deposits 43,724 33,572 26,674
Other Liabilities 1,847 493 91
- -------------------------------------------------------------------------------------------------------------------------------
Total Liabilities 274,622 234,569 201,850
- -------------------------------------------------------------------------------------------------------------------------------
Common Stock 30 28 26
Paid-in Capital 16,899 14,393 12,871
Retained Earnings 6,308 4,486 4,227
Net Unrealized Loss on
Available-for-Sale
Securities (41) (173) (649)
- -------------------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 23,196 18,734 16,475
- -------------------------------------------------------------------------------------------------------------------------------
Total Liabilities &
Stockholders' Equity $297,818 $253,303 $218,325
===============================================================================================================================
Net Interest Income $12,895 $10,548 $ 8,890
===============================================================================================================================
Net Interest Spread 3.88% 3.72% 3.72%
===============================================================================================================================
Net Yield on Earning Assets 4.66% 4.44% 4.36%
===============================================================================================================================
<F1> On a fully taxable equivalent basis based on tax rate of 34%. Interest
income on investments and net interest income includes a fully taxable
equivalent adjustment of $157,000 in 1997, $133,000 in 1996, and
$113,000 in 1995.
<F2> Average balance includes non-accruing loans. The effect of including
such loans is to reduce the average rate earned on the Company's
loans.
</TABLE>
NET INTEREST INCOME - CHANGES DUE TO VOLUME AND RATE(1)
<TABLE>
<CAPTION>
1997 vs 1996 1996 vs 1995
Increase Increase
(Decrease) (Decrease)
-------------------------------- --------------------------------
Total Due to Due to Total Due to Due to
(Dollars in Thousands) Change(1) Volume Rate Change(1) Volume Rate
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest Income:
Federal Funds Sold $ (176) $ (195) $ 19 $ 185 $ 255 $ (70)
US Treas/Govt Agencies 384 361 23 (209) (90) (119)
States & Political Subdivisions 77 67 10 61 83 (22)
Mutual Funds 2 3 (1) 5 4 1
Marketable Securities 45 24 21 36 11 (3)
Other Investments (7) (5) (2) 11 33 6
Commercial Loans 1,275 1,207 68 486 569 (83)
Commercial Real Estate 1,705 1,926 (221) 2,332 2,005 327
Residential Real Estate 328 184 144 82 119 (37)
Consumer Loans 46 41 5 (15) 50 (65)
- ----------------------------------------------------------------------------------------------------------
Total Interest Income 3,679 3,613 66 2,974 3,039 (65)
- ----------------------------------------------------------------------------------------------------------
Interest Expense:
Savings Accounts 61 61 -0- 51 62 (11)
NOW Accounts 344 275 69 101 234 (133)
Money Market Accounts 9 16 (7) (60) (62) 2
CD's > 100 M 152 246 (94) 248 195 53
Other Time Deposits 706 667 39 953 917 36
Other Borrowings 60 49 11 23 11 12
- ----------------------------------------------------------------------------------------------------------
Total Interest Expense 1,332 1,314 18 1,316 1,357 (41)
- ----------------------------------------------------------------------------------------------------------
Net Interest Income $2,347 $2,299 $ 48 $1,658 $1,682 $ (24)
==========================================================================================================
<F1> Changes in interest income and interest expense attributable to changes
in both volume and rate have been allocated equally to changes due to
volume and changes due to rate.
<F2> The change in interest on investments and not interest income includes
interest on a fully taxable equivalent basis based on a tax rate of 34$.
</TABLE>
Interest Rate Sensitivity
A formal measurement that is incorporated in the Asset/Liability
management process is the monthly analysis of the interest rate (Gap) table.
The table for the period ending December 31, 1997 is set forth below. This
measurement provides a static analysis of repricing opportunities of the
balance sheet. It is prepared by categorizing assets and liabilities into
time periods based on the next repricing opportunity. The analysis determines
the net dollar amount of assets less liabilities that are repricing at various
time periods.
The Company has an Asset/Liability Committee that reports to the Board
of Directors. Its objective is to monitor the exposure of planned net
interest margins to unexpected changes due to interest rate fluctuations.
These efforts also affect loan pricing, deposit interest rate strategies,
asset mix and volume guidelines, liquidity and capital planning.
At December 31, 1997, the analysis indicates the Company's interest rate
risk to have a reliance on short term liabilities. This position would have
an adverse effect on the Company's earnings in a rising rate environment and
conversely a positive effect on earnings in a decreasing rate environment.
<TABLE>
<CAPTION>
Repricing period at December 31, 1997
- -------------------------------------
3 Months 4 Months 1 Year to 2 Year to 5 Years
(Dollars in Thousands) or Less to 1 Year 2 Years 5 Years & Over Total
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS
Loans $ 65,735 $ 75,467 $ 24,415 $ 30,265 $ 13,214 $209,096
Investments 3,527 11,689 6,308 19,299 17,062 57,885
Federal Funds Sold 7,000 0 0 0 0 7,000
- -------------------------------------------------------------------------------------------------------------------------
Total Interest-Earning Assets $ 76,262 $ 87,156 $ 30,723 $ 49,564 $ 30,276 $273,981
=========================================================================================================================
Cumulative RSA $ 76,262 $163,418 $194,141 $243,705 $273,981
=========================================================================================================================
INTEREST-BEARING LIABILITIES
Regular Savings $ 41,909 --- --- --- --- $ 41,909
NOW Accounts 39,194 --- --- --- --- 39,194
Money Market Accounts 13,940 --- --- --- --- 13,940
Time Deposits $100,000 & Over 5,897 14,140 3,074 --- --- 23,111
Other Time Deposits 35,127 56,579 9,142 8,092 --- 108,940
- -------------------------------------------------------------------------------------------------------------------------
Total Deposits 136,067 70,719 12,216 8,092 --- 227,094
Federal Funds Purchased --- --- --- --- --- ---
Other Interest-Bearing Liabilities 1,200 --- 945 --- 430 2,575
- -------------------------------------------------------------------------------------------------------------------------
Total Interest-Bearing Liabilities $137,267 $ 70,719 $ 13,161 $ 8,092 $ 430 $229,669
=========================================================================================================================
Cumulative RSL $137,267 $207,986 $221,147 $229,239 $229,669
=========================================================================================================================
Gap (61,005) 16,437 17,562 41,472 29,846 44,312
Cumulative Gap (61,005) (44,568) (27,006) 14,466 44,312
RSA/RSL (.56) 1.23 2.33 6.13 70.41
Cumulative RSA/RSL (.56) (.79) (.88) 1.06 1.19
</TABLE>
II. INVESTMENT PORTFOLIO
The following table shows the book value of the major categories of
investment securities Held-to-Maturity for the years indicated:
<TABLE>
<CAPTION>
At December 31,
---------------------------------
(Dollars in Thousands) 1997 1996 1995
- ----------------------------------------------------------------------
<S> <C> <C> <C>
US Treasury Securities and
Obligations of US Government
Corporations and Agencies $ 9,415 $13,193 $15,690
Obligations of States and
Political Subdivisions 7,976 6,131 6,024
Mortgage-backed securities 209 257 17
Other Debt Securities 1 6 105
- ----------------------------------------------------------------------
Total $17,601 $19,587 $21,836
======================================================================
</TABLE>
In the following table, the carrying value of Held-to-Maturity securities
maturing within stated periods as of December 31, 1997, is shown with the
weighted average interest yield from securities falling within the range of
maturities:
<TABLE>
<CAPTION>
US Treasury Obligations
& Government of States & Mortgage- Other
Corporations Political Backed Debt
(Dollars in Thousands) Agencies Subdivisions(1) Securities(1) Securities Total
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Due in 1 year or less:
Amount $4,567 $ 689 $ 11 $ 1 $ 5,268
Yield 5.82% 5.97% 8.00% 7.50% 5.84%
Due in 1 to 5 years:
Amount $4,098 $3,192 $ 198 $ --- $ 7,488
Yield 6.38% 6.84% 6.97% --- 6.59%
Due in 5 to 10 years:
Amount $ 750 $3,964 $ --- --- $ 4,714
Yield 7.19% 6.95% --- --- 6.99%
Due after 10 years:
Amount --- $ 131 --- --- $ 131
Yield --- 6.11% --- --- 6.11%
- --------------------------------------------------------------------------------------------------------
Amount $9,415 $7,976 $ 209 $ 1 $17,601
========================================================================================================
Yield 6.17% 6.81% 7.02% 7.50% 6.47%
========================================================================================================
</TABLE>
The following table shows the amortized cost basis of the major
categories of Available-for-Sale securities for the years indicated:
<TABLE>
<CAPTION>
At December 31,
---------------------------------
(Dollars in Thousands) 1997 1996 1995
- -------------------------------------------------------------------------
<S> <C> <C> <C>
US Treasury Securities and
Obligations of US Government
Corporations and Agencies $30,402 $32,793 $31,678
Mortgage-backed Securities 7,747 2,469 3,618
Asset-backed Securities 234 246 -0-
Marketable Equity Securities (net) 1,565 1,775 1,397
- -------------------------------------------------------------------------
Total $39,948 $37,283 $36,693
=========================================================================
</TABLE>
In the following table, the amortized cost basis of Available-for-Sale
securities maturing within stated periods as of December 31, 1997, is shown
with the weighted average interest yield from securities falling within the
range of maturities:
<TABLE>
<CAPTION>
US Treasury
& Government Mortgage- Asset-
Corporations Backed Backed
(Dollars in Thousands) Agencies Securities(1) Securities Total
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Due in 1 year or less:
Amount $ 5,049 $ 654 $--- $ 5,703
Yield 5.10% 6.03% --- 5.21%
Due in 1 to 5 years:
Amount 18,057 5,487 --- 23,544
Yield 6.37% 6.71% --- 6.45%
Due in 5 to 10 years:
Amount 7,296 1,606 --- 8,902
Yield 6.84% 7.17% --- 6.90%
Due after 10 years:
Amount 234 234
Yield 6.67% 6.67%
- -------------------------------------------------------------------------------------
Amount $30,402 $7,747 $234 $38,383
=====================================================================================
Yield 6.27% 6.75% 6.67% 6.37%
=====================================================================================
</TABLE>
The following table shows the amortized cost basis and fair value of the
major categories of Held-to-Maturity securities as of December 31, 1997:
<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.
Government corporations and agencies $ 9,415 $ 56 $ 4 $ 9,467
Debt securities issued by
states of the United States
and political subdivisions of
the states 7,976 106 13 8,069
Mortgage-backed securities 209 3 0 212
Other debt securities 1 0 0 1
- ---------------------------------------------------------------------------------------------------
Total $17,601 $165 $17 $17,749
===================================================================================================
</TABLE>
Investments in Available-for-Sale securities are carried at fair value
on the balance sheet and are summarized as follows as of December 31, 1997.
<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. Government
corporations and agencies $30,402 $ 84 $ 91 $30,395
Marketable Equity 1,565 302 71 1,796
Mortgage-backed securities 7,747 24 20 7,751
Asset-backed securities 234 0 0 234
- --------------------------------------------------------------------------------------------------
Total $39,948 $410 $182 $40,176
==================================================================================================
</TABLE>
<TABLE>
<S> <C>
Increase in Stockholder's Equity:
(In Whole Dollars)
Net unrealized gain on
Available-for-Sale Securities $227,807
Less tax effect 78,520
--------
$149,287
========
</TABLE>
III. LOAN PORTFOLIO
The following table shows the Company's amount of loans by category at
the end of each of the last five years.
<TABLE>
<CAPTION>
At December 31
--------------------------------------------------------------------
(Dollars in Thousands) 1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial, financial and agricultural $ 36,641 $ 31,244 $ 16,744 $ 17,123 $ 16,309
Real estate - construction and land development 6,678 6,891 6,865 2,290 4,651
Real estate - residential 55,477 59,500 50,472 50,938 48,088
Real estate - commercial 108,008 94,545 70,749 59,625 50,310
Consumer 6,747 6,681 6,149 6,097 6,550
Obligations of states and political subdivisions 9 16 23 29 136
Other 176 109 85 89 34
- -----------------------------------------------------------------------------------------------------------------------
$213,736 $198,986 $151,087 $136,191 $126,078
Allowance for Possible Loan Losses (3,694) (3,354) (2,498) (2,306) (1,954)
Unamortized adjustment to fair value (42) (54) 0 0 0
Unearned Income (690) (643) (520) (403) (313)
- -----------------------------------------------------------------------------------------------------------------------
Net Loans $209,310 $194,935 $148,069 $133,482 $123,811
=======================================================================================================================
</TABLE>
The following table shows the maturity distributions and interest rate
sensitivity of selected loan categories at December 31, 1997.
<TABLE>
<CAPTION>
Within One One to Five After Five
(Dollars in Thousands) Year Years Years Total
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial, financial, and agricultural $19,311 $11,961 $5,369 $36,641
Real Estate - construction 1,671 479 4,528 6,678
- -------------------------------------------------------------------------------------------------
Total $20,982 $12,440 $9,897 $43,319
=================================================================================================
</TABLE>
The following table shows the amounts, included in the table above,
which are due after one year and which have fixed interest rates and
adjustable rates:
<TABLE>
<CAPTION>
Total Due After One Year
------------------------------------------
(Dollars in Thousands) Fixed Rate Adjustable Rate Total
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Commercial, financial, and agricultural $4,762 $12,568 $17,330
Real Estate - construction 273 4,734 5,007
- -----------------------------------------------------------------------------------------
Total $5,035 $17,302 $22,337
=========================================================================================
</TABLE>
NONACCRUAL, PAST DUE AND RESTRUCTURED LOANS
<TABLE>
<CAPTION>
December 31
----------------------------------------------------
(Dollars in Thousands) 1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $4,597 $4,352 $2,695 $3,238 $4,084
Loans 90 days or more past due
and still accruing 147 112 23 204 427
Real estate acquired by foreclosure
or substantively repossessed 159 308 633 888 2,160
- -------------------------------------------------------------------------------------------------
Total nonperforming assets $4,903 $4,772 $3,351 $4,330 $6,671
=================================================================================================
Percentage of nonaccrual loans to total
loans 2.15% 2.19% 1.78% 2.38% 3.24%
Percentage of nonaccrual loans,
restructured loans and real estate
acquired by foreclosure or
substantively repossessed to total
assets 2.00% 1.88% 1.62% 2.20% 3.18%
Percentage of Allowance for Possible
Loan Losses to Nonaccrual Loans 80.36% 77.07% 92.69% 71.22% 47.85%
</TABLE>
Nonaccrual loans include restructured loans of $263,000 at December
31, 1997; $398,000 at December 31, 1996; $425,000 at December 31, 1995; and
$286,000 at December 31, 1994.
Information with respect to nonaccrual and restructured loans for the
past five years ending December 31 is as follows:
<TABLE>
<CAPTION>
December 31
----------------------------------------------------
(Dollars in Thousands) 1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $4,597 $4,352 $2,695 $3,238 $4,084
Interest income that would have been
recorded under original terms $ 394 $ 361 $ 243 $ 242 $ 443
Interest income recorded during the period $ 58 $ 62 $ 21 $ 19 $ 115
</TABLE>
Nonperforming assets include nonaccrual loans, loans past due 90 days
or more and still accruing, restructured loans not performing in accordance
with amended terms, and other real estate acquired through foreclosure.
Nonperforming assets as a total increased to $4.9 Million at year end 1997,
from $4.8 Million reported at year end 1996. Nonaccrual loans at December
31, 1997 were up by $0.2 Million to $4.6 Million from $4.4 Million reported
on December 31, 1996. Included in the $4.6 Million of nonaccrual loans is a
$1.5 Million commercial real estate loan that was classified as nonaccrual
in March 1997. The real estate collateralizing this loan was appraised in
December 1997 at $2.7 Million. Due to the excess collateral value, the Bank
does not anticipate any loss on this loan. Loans that became nonaccrual
during the current year, amounted to $2,534,304 including the aforementioned
$1.5 Million commercial real estate loan. Offsetting this increase were
receipts of loan payments of $1,137,278 and loans of $51,571 that were
deemed uncollectible and charged off to the Allowance for Possible Loan
Losses. There was a transfer to Other Real Estate Owned of $519,403,
property sold at auction of $57,049 and a transfer to accrual status of
loans totaling $524,619.
The Company places a loan on nonaccrual status when, in the opinion of
management, the collectibility of the principal and interest becomes
doubtful. Generally, when a commercial loan, commercial real estate loan or
a residential real estate loan becomes past due 90 days or more, the Company
discontinues the accrual of interest and reverses previously accrued
interest. The loan remains in the nonaccrual status until the loan is
current and six consecutive months of payments are made, then it is
reclassified as an accruing loan. When it is determined that the
collectibility of the loan no longer exists, it is charged off to the
Allowance for Loan Losses or, if applicable, any real estate that is
collateralizing the loan is acquired through foreclosure, at which time it
is categorized as Other Real Estate Owned. The nonaccrual category is
comprised of $1,125,452 of residential real estate loans, $3,234,861 of
commercial real estate loans, $211,111 of commercial loans and $25,108 of
other types of loans.
Other Real Estate Owned, which are properties acquired through
foreclosure, consists of 2 parcels totaling $159,373 at year end 1997.
Annual appraisals are performed on these properties and if the appraisal is
less than the carrying value of the property, the carrying value is written
down by a charge to the Writedown on Other Real Estate Owned expense
account.
The Company has $500,000 of potential problem loans for which payments
are presently current but are identified as a possible risk. This
assessment is based on an objective review of the borrower's financial
statements. In addition, the past experience with the borrower, the
borrower's background, and the applicable value of the assets
collateralizing these loans provide a degree of assurance that the loan will
continue to be paid as per the loan agreement. These issues are monitored
carefully to determine if there is any change in status that would cause
management to reclassify the loan from the accrual category to nonaccrual.
IV. SUMMARY OF LOAN LOSS EXPERIENCE
The table below illustrates the changes in the Allowance for Possible
Loan Losses for the periods indicated.
<TABLE>
<CAPTION>
December 31
--------------------------------------------------------
(Dollars in Thousands) 1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at January 1 $3,354 $2,498 $2,306 $1,954 $1,967
Charge-offs:
Commercial (40) (276) (184) (22) (963)
Real estate-construction (0) (0) (0) (0) (0)
Real estate-mortgage (147) (4) (79) (246) (451)
Installment/Consumer (68) (159) (134) (93) (85)
- ----------------------------------------------------------------------------------------------------
(255) (439) (397) (361) (1,499)
- ----------------------------------------------------------------------------------------------------
Recoveries:
Commercial 41 332 1 51 0
Real estate-construction 0 0 0 0 0
Real estate-mortgage 16 0 16 2 2
Installment/Consumer 38 107 22 15 29
- ----------------------------------------------------------------------------------------------------
95 439 39 68 31
- ----------------------------------------------------------------------------------------------------
Net Charge-offs (160) 0 (358) (293) (1,468)
- ----------------------------------------------------------------------------------------------------
Additions charged to operations 500 400 550 645 1,455
Allowance attributable to acquisition 0 456 0 0 0
- ----------------------------------------------------------------------------------------------------
Balance at December 31: $3,694 $3,354 $2,498 $2,306 $1,954
====================================================================================================
Allowance for Loan Losses as a
percent of year end loans 1.73% 1.69% 1.65% 1.70% 1.55%
Ratio of net charge-offs to average
loans outstanding 0.08% 0.00% 0.25% 0.23% 1.18%
</TABLE>
The Allowance for Possible Loan Losses at year end December 31, 1997
was $3,693,865; and $3,354,311, $2,497,774, $2,305,860 and $1,953,863, for
years ending 1996, 1995, 1994 and 1993 respectively. The Allowance for
Possible Loan Losses as a percent of year end loans was 1.73% in 1997, 1.69%
in 1996, 1.65% in 1995, 1.70% in 1994 and 1.55% in 1993.
The level of the Allowance for Possible Loan Losses is evaluated by
management and encompasses several factors. These factors 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. Management's assessment of the adequacy of the Allowance for
Possible Loan Losses is reviewed by regulators and by the Company's
independent accountants.
The Company's provision for loan losses, which is a deduction from
earnings, in 1997 was $500,000. Prior years' provisions were $400,000,
$550,000, $645,000 and $1,455,000 for years ending 1996, 1995, 1994 and 1993
respectively. In 1997, the Company realized recoveries of previously
charged-off loans of $95,000. Recoveries recorded in previous years were
$439,000, $39,000, $68,000 and $31,000 in 1996, 1995, 1994 and 1993
respectively.
Although nonaccrual loans increased in 1997, the amount provided to
the Allowance for Possible Loan Losses was deemed appropriate by management
after full consideration of the value of the assets securing these loans.
This table shows an allocation of the allowance for loan losses as of
the end of each of the last five years.
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996 December 31, 1995 December 31, 1994 December 31, 1993
-------------------- -------------------- --------------------- --------------------- ---------------------
Percent of Percent of Percent of Percent of Percent of
Loans in Loans in Loans in Loans in Loans in
Each Each Each Each Each
Category Category Category Category Category
to Total to Total to Total to Total to Total
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
- -----------------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial $ 984(1) 17.14% $ 789(1) 15.70% $ 597(1) 11.35% $ 588 12.82% $ 317 13.51%
Real estate
Construction 44 3.12 41 3.46 40 4.55 14 1.68 29 3.69
Real estate
Mortgage 2,311(2) 76.50 2,150(2) 77.42 1,581(2) 80.04 1,374 81.03 1,320 77.66
Consumer(3) 355(4) 3.24 374(4) 3.42 280 4.06 330 4.47 288 5.14
- -------------------------------------------------------------------------------------------------------------------------------
$3,694 100.00% $3,354 100.00% $2,498 100.00% $2,306 100.00% $1,954 100.00%
===============================================================================================================================
<F1> Includes amounts specifically reserved for impaired loans of $42,937 as of
December 31, 1997, $0.00 as of December 31, 1996 and $214,542 as of December
31, 1995, as required by Financial Accounting Standard No. 114, Accounting
for Impairment of Loans.
<F2> Includes amounts specifically reserved for impaired loans of $566,220 as of
December 31, 1997, $838,290 as of December 31, 1996 and $240,500 as of
December 31, 1995, as required by Financial Accounting Standard No. 114,
Accounting for Impairment of Loans.
<F3> Includes consumer, obligations of states and political subdivisions and
other.
<F4> Includes the following amounts specifically reserved for impaired loans:
$14,413 as of December 31, 1997, $0.00 as of December 31, 1996 and $0.00
as of December 31, 1995 as required by Financial Accounting Standard No.
114, Accounting for Impairment of Loans.
</TABLE>
The loan portfolio's largest segment of loans is commercial real
estate loans, which represent 50.5% of gross loans. Residential real
estate, which is the second largest segment of the loan portfolio,
represents 26% of gross loans. The Company requires a loan to value ratio
of 80% in both commercial and residential mortgages. These mortgages are
secured by real properties which have a readily ascertainable value.
Generally, commercial real estate loans have a higher degree of credit
risk than residential real estate loans because they depend primarily on the
success of the business. When granting these loans, the Company evaluates
the financial statements of the borrower(s), the location of the real
estate, the quality of management, and general economic and competitive
conditions. When granting a residential mortgage, the Company reviews the
borrower(s) repayment history on past debts, and assesses the borrower(s)
ability to meet existing obligations and payments on the proposed loans.
Commercial loans consist of loans predominantly collateralized by
inventory, furniture and fixtures, and accounts receivable. In assessing
the collateral for this type of loan, management applies a 40% liquidation
value to inventories; 25% to furniture, fixtures and equipment; and 60% to
accounts receivable. Commercial loans represent 17.1% of the loan
portfolio.
Consumer loans are generally unsecured borrowings and represent 3.2%
of the total loan portfolio. These loans have a higher degree of risk than
residential mortgage loans. The underlying collateral of a secured consumer
loan tends to depreciate in value. Consumer loans are typically made based
on the borrower's ability to repay the loan through continued financial
stability. The Company endeavors to minimize risk by reviewing the
borrower's repayment history on past debts, and assessing the borrower's
ability to meet existing obligations on the proposed loans.
Charge-offs in 1997 amounted to $255,000, down by $184,000 when
compared to losses incurred in 1996 of $439,000. The Company had charge-
offs of $397,000 in 1995, $361,000 in 1994 and $1,499,000 in 1993. The
commercial loan category incurred losses of $40,000 in 1997 compared to
$144,000 in 1996, $184,000 in 1995, $22,000 in 1994 and $963,000 in 1993.
The loss in 1993 was mostly attributable to one unusually large loan that
resulted in a $932,000 loss.
V. DEPOSITS
Deposits are obtained from individuals and from small and medium sized
businesses in the local market area. The Bank also attracts deposits from
municipalities and other government agencies. The Bank does not solicit or
accept brokered deposits.
The following table sets forth the average amount and the average rate
paid on deposits for the periods indicated.
<TABLE>
<CAPTION>
1997 1996 1995
---------------------- ---------------------- -----------------------
Average Average Average Average Average Average
(Dollars in Thousands) Balance Rate Balance Rate Balance Rate
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Noninterest-bearing
Demand Deposits $ 43,724 0.00% $ 33,572 0.00% $ 26,674 0.00%
Interest-bearing
Demand Deposits 37,739 3.19 28,788 2.98 21,568 3.51
Savings Deposits 42,642 2.50 40,246 2.50 37,790 2.53
Money Market Deposits 14,116 1.99 13,326 2.04 16,355 2.03
Time Deposits
$100,000 or More 23,162 5.42 18,813 5.87 15,403 5.56
Other Time Deposits 109,278 5.91 97,957 5.87 82,290 5.83
- ----------------------------------------------------------------------------------------------
Totals $270,661 3.79% $232,702 3.87% $200,080 3.85%
==============================================================================================
</TABLE>
As of December 31, 1997, time certificates of deposit in amounts of
$100,000 or more had the following maturities:
<TABLE>
<CAPTION>
(Dollars in Thousands)
<S> <C>
Three months or less $ 5,898
Over three months through six months 8,998
Over six months through twelve months 5,142
Twelve months and over 3,073
-------
$23,111
=======
</TABLE>
VI. RETURNS ON EQUITY AND ASSETS
The following table shows consolidated operating and capital ratios of
the Company for each of the last three years:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------
1997 1996 1995
- ------------------------------------------------------------------
<S> <C> <C> <C>
Return on Assets 0.96% 0.94% 0.75%
Return on Equity 12.27% 12.69% 9.99%
Dividend Payout Ratio 27.57% 27.95% 29.03%
Equity to Assets Ratio 7.79% 7.40% 7.55%
</TABLE>
VII. SHORT TERM BORROWINGS
The following table shows the Company's short-term borrowings at the
end of each of the last three years along with the maximum amount of
borrowings and average amounts outstanding as well as weighted average
interest rates for the last three years.
<TABLE>
<CAPTION>
(Dollars in Thousands) 1997 1996 1995
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at December 31 $1,200 $1,200 $ 742
Maximum Amount Outstanding at Any Month's End $1,725 $2,141 $3,700
Average Amount Outstanding During the Year $1,067 $ 987 $1,179
Weighted Average Interest Rate During the Year 4.91% 5.71% 5.34%
</TABLE>
The Bank has the ability to borrow funds from correspondent banks and
the Federal Home Loan Bank, as well as the Federal Reserve Bank of Boston,
by pledging various investment securities as collateral. The Company did
not borrow during 1997 and 1996. Tax payments made by our customers, which
are owed to the Federal Reserve Bank Treasury Tax and Loan account, are
classified as borrowed funds. The Company has notes payable of $950,000 due
to Fleet Bank with a final maturity in November 1999. This note was assumed
from Fairbank, Inc. at the time of the acquisition. Because of the term of
the note, including applicable prepayment fees, management determined it
advantageous for the Bank not to pay off the note. There is also a $430,000
borrowing from the Federal Home Loan Bank.
Accounting for Deferred Income Taxes
The net deferred tax asset at year end 1997 was $1,733,148. The
amount of taxable income required to be generated to fully realize such net
deferred tax asset will be approximately $4.3 Million. The taxable income
earned by the Company in 1997 was $4,766,731.
ITEM 2
PROPERTIES
The main office of the Bank is located at 100 Slade's Ferry Avenue,
Somerset, Massachusetts at the junctions of U.S. Routes 6, 138, and 103.
The Bank has nine additional branches located in Fairhaven, Fall River, New
Bedford, Seekonk, Somerset and Swansea, Massachusetts. As of December 31,
1997, the following Bank properties are owned either directly by the Bank or
through its subsidiary, the Slade's Ferry Realty Trust:
<TABLE>
<CAPTION>
Location Sq. Footage
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Main Office 100 Slade's Ferry Ave. Somerset, MA 37,000
North Somerset 2722 County Street Somerset, MA 3,025
Linden Street 244-253 Linden Street Fall River, MA 1,750
Brayton Avenue 855 Brayton Avenue Fall River, MA 3,325
North Swansea 2388 G.A.R. Highway Swansea, MA 2,960
Seekonk 1400 Fall River Ave. Seekonk, MA 2,300
Fairhaven 75 Huttleston Ave. Fairhaven, MA 13,000
</TABLE>
Offices listed below are leased properties which indicate the
applicable lease expiration date.
<TABLE>
<C> <C> <C> <C>
Swansea Mall
(expires 2003) Rt 118 Swansea, MA 2,250
Brayton Avenue
Drive Up Complex
(expires 2000) 16 Stevens St. Fall River, MA 549
Walgreens Drug Store 838 Pleasant St. New Bedford, MA 835
(expires 2004)
</TABLE>
The main office building contains approximately 42,000 square feet of
usable space, of which the Bank occupies approximately 37,000 square feet
and the remainder is rented to local businesses as warehouse and office
space. The Bank also has a school banking facility located in the Somerset
High School, Grandview Avenue, Somerset, Massachusetts that consists of 200
square feet which provides basic banking services to students and school
staff. The Seekonk office is an 8,800 square foot building of which the
Bank is utilizing 2,300 square feet and leasing out the remainder.
ITEM 3
LEGAL PROCEEDINGS
The Bank is involved in a civil suit brought in Plymouth Superior
Court by a former employee of the National Bank of Fairhaven, which
primarily alleged a breach of contract. The demand by the plaintiff was
$550,000 to settle the case. However, a partial summary judgement was
granted on defendant's motion dismissing all claims except the basic claim
for breach of contract. The case is still in the pretrial phase and a
motion is pending to amend the complaint to add a new count of intentional
infliction of emotional distress. The Company believes there are
meritorious defenses to the remaining claim and to the motion to amend, and
it intends to vigorously defend the suit. The Company believes that the
suit will not have a material adverse effect on the Company's financial
condition, results of operation or liquidity, and no reserves have been
accrued to cover the potential liability.
ITEM 4
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of 1997, no matters were submitted to a vote
of stockholders of the Company.
PART II
ITEM 5
MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Reference is hereby made to Company's Annual Report to Stockholders
for the year ended December 31, 1997, attached as an exhibit hereto. The
information set forth on page 10 of such Annual Report with respect to the
Market for the Registrant's Common Stock and Related Stockholder Matters is
incorporated herein by reference.
ITEM 6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Reference is hereby made to Company's Annual Report to Stockholders
for the year ended December 31, 1997, attached as an exhibit hereto. The
information entitled "Management's Discussion and Analysis" and set forth on
pages 12 through 19 of such Annual Report is incorporated herein by
reference.
ITEM 7
FINANCIAL STATEMENTS
Reference is hereby made to Company's Annual Report to Stockholders
for the year ended December 31, 1997, attached as an exhibit hereto. The
consolidated balance sheets at December 31, 1997 and 1996, and the
consolidated statements of income, changes in stockholders' equity and cash
flows for each of the years in the three-year period ended December 31, 1997
and the related notes with the report of Shatswell, MacLeod and Company,
independent auditors, which appear on pages 20 through 39 of such Annual
Report to Stockholders, are incorporated herein by reference.
ITEM 8
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
The Company had no disagreements with its independent accountants on
accounting and financial disclosure matters.
PART III
ITEM 9
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT
Reference is hereby made to the Company's definitive Proxy Statement
for the Annual Meeting of Stockholders April 13, 1998. The information set
forth under the heading "Directors and Executive Officer" on pages 8
through 10 and under the heading "Section 16(a) Beneficial Ownership
Reporting Compliance" on page 13 of such Proxy Statement is incorporated
herein by reference.
ITEM 10
EXECUTIVE COMPENSATION
Reference is hereby made to the Company's definitive Proxy Statement
for the Annual Meeting of Stockholders April 13, 1998. The information set
forth under this heading on pages 15 through 17 of such Proxy Statement is
incorporated herein by reference.
ITEM 11
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Reference is hereby made to the Company's definitive Proxy Statement
for the Annual Meeting of Stockholders April 13, 1998. The information set
forth under this heading on pages 11 through 13 of such Proxy Statement is
incorporated herein by reference.
ITEM 12
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Reference is hereby made to the Company's definitive Proxy Statement
for the Annual Meeting of Stockholders April 13, 1998. The information set
forth under this heading on page 18 of such Proxy Statement is incorporated
herein by reference.
ITEM 13
EXHIBITS, LIST, AND REPORTS ON FORM 8-K
(a) Exhibits.
See Exhibits Index
(b) Reports on Form 8-K.
None
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized on March 31, 1998.
Slade's Ferry Bancorp
By /s/ Kenneth R. Rezendes
Kenneth R. Rezendes, President/
Chief Executive Officer and Director
In accordance with the requirements of the Exchange Act, this report
has been signed by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
<TABLE>
<S> <C> <C> <C>
s/s Thomas B. Almy 3/31/98 s/s Ralph S. Borges 3/31/98
- ----------------------------- ------- ---------------------------------- -------
Thomas B. Almy Ralph S. Borges
Director Treasurer/Chief Financial Officer/
Chief Accounting Officer
s/s James D. Carey 3/31/98 s/s Peter G. Collias 3/31/98
- ----------------------------- ------- ---------------------------------- -------
James D. Carey Peter G. Collias
Executive Vice President and Director
Director
s/s Donald T. Corrigan 3/31/98 s/s Melvyn A. Holland 3/31/98
- ----------------------------- ------- ---------------------------------- -------
Donald T. Corrigan Melvyn A. Holland
Chairman of the Board and Director
Director
s/s William Q. MacLean Jr. 3/31/98 s/s Francis A. Macomber 3/31/98
- ----------------------------- ------- ---------------------------------- -------
William Q. MacLean Jr. Francis A. Macomber
Director Director
s/s Majed Mouded, MD 3/31/98 s/s Shaun O'Hearn Sr. 3/31/98
- ----------------------------- ------- ---------------------------------- -------
Majed Mouded, MD Shaun O'Hearn Sr.
Director Director
s/s Lawrence J. Oliveira, DDS 3/31/98 s/s Peter Paskowski 3/31/98
- ----------------------------- ------- ---------------------------------- -------
Lawrence J. Oliveira, DDS Peter Paskowski
Director Director
s/s Kenneth R. Rezendes 3/31/98 s/s William J. Sullivan 3/31/98
- ----------------------------- ------- ---------------------------------- -------
Kenneth R. Rezendes William J. Sullivan
President and Chief Executive Director
Officer
s/s Charles Veloza 3/31/98 s/s David F. Westgate 3/31/98
- ----------------------------- ------- ---------------------------------- -------
Charles Veloza David F. Westgate
Director Director
</TABLE>
Exhibit Index
<TABLE>
<CAPTION>
Exhibit No. Description Page
- ------------------------------------------------------------------------
<C> <S>
3.1 Articles of Incorporation of Slade's Ferry (1)
Bancorp as amended
3.2 By-laws of Slade's Ferry Bancorp as amended (2)
10.1 Agreement and Plan of Merger by and between (3)
Slade's Ferry (formerly Weetamoe) Bancorp and
Fairbank, Inc.
10.2 Slade's Ferry (formerly Weetamoe) Bancorp 1996 (3)
Stock Option Plan
10.3 Noncompetition Agreement between Slade's (4)
Ferry Trust Company and Edward S.
Machado (A substantially identical contract
exists with Peter Paskowski)
10.4 Supplemental Executive Retirement Agreement (5)
between Slade's Ferry (formerly Weetamoe)
Bancorp and Donald T. Corrigan
10.5 Supplemental Executive Retirement Agreement (2)
between Slade's Ferry (formerly Weetamoe)
Bancorp and James D. Carey
10.6 Supplemental Executive Retirement Agreement (2)
between Slade's Ferry (formerly Weetamoe)
Bancorp and Manuel J. Tavares
10.7 Swansea Mall Lease (4)
13 Annual report to security-holders for fiscal
year ended December 31, 1997
21 List of subsidiaries of Slade's Ferry Bancorp. (2)
23 Consent of Independent Public Accountants
27.1 Financial Data Schedule for the year ended 12/31/97
27.2 Financial Data Schedule for the years ended 12/31/96 and
12/31/95 and quarters ended 9/30, 6/30 and 3/31/96
27.3 Financial Data Schedule for the quarters ended 9/30, 6/30
and 3/31/97
- -------------------
<F1> Incorporated by reference to the Registrant's Registration Statement
on Form SB-2 filed with the Commission on April 14, 1997.
<F2> Incorporated by reference to the Registrant's Form 10-KSB for the
fiscal year ended December 31, 1996.
<F3> Incorporated by reference to the Registrant's Form 10-QSB for the
quarter ended March 31, 1996.
<F4> Incorporated by reference to the Registrant's Registration Statement
on Form S-4 File No. 33-32131.
<F5> Incorporated by reference to the Registrant's Form 10-KSB for the
fiscal year ended December 31, 1994.
</TABLE>
Slade's Ferry Bank
Your Partner in Life's Journey.
Annual Report
1997
Description of Business
Slade's Ferry Bancorp, originally incorporated as Weetamoe Bancorp in
June of 1989 under the laws of the Commonwealth of Massachusetts, is a one
bank holding company which owns and controls 100% of the assets of Slade's
Ferry Trust Company and its subsidiaries.
The primary business of Bancorp is the ongoing business of Slade's
Ferry Trust, a state chartered trust company incorporated in Massachusetts
in 1959. The Trust Company is a member of the Federal Deposit Insurance
Corporation and serves as a retail bank.
Slade's Ferry provides multiple deposit products and a wide range of
financial services, including consumer installment loans, residential and
commercial mortgages; as well as other forms of commercial lending. It
serves a broad customer base derived from southeastern Massachusetts and
nearby Rhode Island, currently operating ten strategically located retail
facilities and multiple ATM's in the towns of Fairhaven, Somerset, Swansea
and Seekonk, and the cities of Fall River and New Bedford, MA. The Bank
keeps convenient business hours, including Saturdays.
The Bank actively competes with a variety of other financial
institutions - major banks, bank holding companies and credit unions - for
deposits, loans and additional forms of business by offering competitive
rates. The Bank adheres to an established philosophy of providing
professional, highly personal service throughout its marketplace.
An Equal Opportunity / Affirmative Action Employer (M/F/D/V),
Slade's Ferry Trust Company employed a total of 129 full-time and 56 part-
time employees as of December 31, 1997.
Corporate offices are located at 100 Slade's Ferry Avenue, Somerset,
MA.
EQUAL HOUSING MEMBER
LENDER FDIC
In Appreciation
The Slade's Ferry family salutes Edward S. Machado and Bernard T.
Shuman as they retire from active service to the Slade's Ferry Bancorp Board
of Directors. Mr. Machado has guided Slade's Ferry for thirty years, as both
a Director and as President of the Bank. Mr. Shuman's steadfast service
dates from the Bank's incorporation in 1959. Together, their vision and
personal integrity have shaped Slade's Ferry as a solid financial
institution and a responsible corporate neighbor.
We reflect with gratitude on their many years of service and look
forward to the privilege of their continued counsel as Honorary Directors.
[Photo of Edward S. Machado] [Photo of Bernard T. Shuman]
Edward S. Machado Bernard T. Shuman
Shareholders Letter
In 1997, we successfully accomplished our financial objectives and
priorities. Due to our cash purchase of the National Bank of Fairhaven in
1996, the bank's capital status was reduced to "adequately capitalized".
Our first priority in 1997 was to return the bank to the "well
capitalized" status through earnings and a public offering.
The public offering at $9.75 per share generated 402,951 new shares,
and the addition of $3,866,171 to capital after related expenses. The
public offering plus record earnings of $2,845,990 brought our capital to
$26,436,426 after dividends or 10.74%, well over the threshold of 6% for
well capitalized status.
[Photo of James D. Carey]
Our earnings increased $467,795 or 19.67% over 1996 due to the full
year effect of the acquisition of the National Bank of Fairhaven in August
of 1996, growth of $14.7 Million in loans and stable interest margins.
We also welcomed to our Board of Directors five members to provide
counsel, wisdom and support as we prepare for the new century: Melvyn A.
Holland, Managing Partner in the CPA firm of Rosenfield, Holland and
Raymon PC; William Q. MacLean Jr., Vice President of Cornish & Company
Insurance and President of MacLean Consulting, Inc.; Shaun O'Hearn Sr.,
President of Bolger & O'Hearn, Inc.; Lawrence J. Oliveira DDS,
Orthodontist; and David F. Westgate, President of Quequechan Management
Corp. These directors bring additional experience, perspective and
influence to our board, as well as valuable assistance in developing the
Greater New Bedford marketplace.
As mentioned on the dedication page, two directors retired from
active board service and became honorary directors. Bernard (Bert) T.
Shuman, whose service extends back to the origin of the bank in 1959, and
Edward S. Machado, who served as President of Slade's Ferry Bank for years
and as a director of the bank since 1968. Both of them dedicated years of
service to forging the character, principles and ideals of the bank, and
they have been major contributors to Slade's Ferry's success.
Our stock, along with the rest of the market, enjoyed a very strong
year, rising from an average market price of $9.00 per share at the
beginning of 1997 to approximately $16.00 per share by year end. Our
strong earnings allowed us to distribute an extra cash dividend at year
end and a 5% stock dividend in February of 1998.
We are pleased to advise you that we are now listed on the NASDAQ
Small Cap Market with the symbol SFBC, which greatly enhances our
visibility and liquidity. Our stock is presently trading at record
multiples of book value or earnings, but is priced consistently with other
banks in New England.
As we look ahead into 1998, we will continue to focus our efforts on
expanding our presence in the Greater New Bedford market area. We remain
intent on preserving our independence and increasing shareholder value as
your bank continues to grow and prosper.
Your continued support of the bank, as displayed by the success of
our public offering and the fact that our dividend reinvestment program
has grown to almost 50% participation, is extremely gratifying and very
much appreciated.
Sincerely,
/s/ JAMES D. CAREY
James D. Carey
Executive Vice President
February 11, 1998
"Our life is frittered away by detail... Simplify, simplify."
-- Henry David Thoreau
Partners in Life's Journey
Throughout the ages, many different philosophers -- from Plato to Mick
Jagger -- have had something to say about how best to live life. What's
important. What brings happiness.
We hear that life should be a journey, not a race. Savor today's
precious moments, rather than rushing to pass the next milestone. Stop
and smell the roses.
Still, reality tells us that tomorrow won't take care of itself.
Each stage of life calls us to new opportunities and new challenges. We
must plan for the future, for ourselves, our business, and for our family.
Striking balance in life is a noble pursuit. But we often find it's
more of a process than a product. A process that's made a little easier
with help from the right people. Their guidance lets us focus on the big
picture, not be daunted by the details. So we're free to focus on the
relationships and the pastimes that give our lives meaning.
When it comes to the details of banking and financial planning, no
one understands a customer's quest for simplicity better than a Slade's
Ferry Banker. We recognize that we have an opportunity to make our
customers' lives less harried. That every financial transaction -- from
buying a first car to planning for retirement -- can be made easier for
you if we really listen to your needs, and deliver truly personal,
individualized service.
As a locally-owned, hometown bank, our fundamental service
commitment is based on the notion that our neighbors needn't sacrifice
financial clout and know-how to get the simplicity that comes from one-on-
one attention. That's why we offer accessible expertise for the
financial decisions that accompany every step along life's journey.
Such a commitment requires time -- time invested by your Slade's
Ferry Banker in you, in your business and in your future. And when you're
choosing a lifetime banking partner, can you really afford to accept
anything less?
Embarking on New Challenges.
When a young, newlywed couple starts their life together, they may be
challenged by their very first independent financial decisions. It's an
important step in becoming an adult. But being "grown up" doesn't have to
mean going it alone. We're here to help.
We'll get you started with the right checking accounts to handle
your household expenses. Arrange for direct deposit of your paycheck or
other income. We'll even secure that new marriage certificate in a Safe
Deposit Box at the branch nearest you.
Slade's Ferry offers MasterCard and Visa credit cards for young
borrowers who want to establish a good track record -- plus, the annual
fee is on us for the first year. And when you find yourself with extra
expenses, your Slade's Ferry Banker can tailor a loan to meet your special
needs. Like automobile loans when you need a second car. Consumer loans
to help you furnish your new apartment -- or a baby nursery. And mortgage
loans for first-time homebuyers who find they need more space for their
growing families.
"Well, we all need someone we can lean on ..." -- Mick Jagger
"It is thrifty to prepare today for the wants of tomorrow."
-- Aesop, 550 B.C.
Time has a funny way of building steam with each passing year. At
Slade's Ferry, your banker will help you plan ahead. Get your children
started with a preferred-rate First Mate savings account and U.S. Savings
Bonds. Set you up with a savings and investment plan that fits your goals,
from statement savings accounts to Certificates of Deposit. Even start you
on the road to a secure retirement with Individual Retirement Accounts.
We know our customers can find financial products like these at most
any bank. But a Slade's Ferry Banking relationship means more than
products. It means people. Experts who know you, and can anticipate your
financial needs. People who are proud that their genuine interest in you
sets them apart from just any other banker. And distinguishes Slade's
Ferry as an accessible financial partner, not just another bank.
Offering Strength for Every Walk of Life
For years, you've held a dream to start your own business. Now the
time is finally right. You gather your determination and your skill, and
put the wheels in motion to fulfill that dream.
Now's the time to find a financial ally who believes in you as much
as you believe in yourself. A banker who knows the communities, and the
customers, your business serves. And can put that confidence and
knowledge to work for your new company.
Your partners at Slade's Ferry also offer the kind of fiscal
resources and competitiveness you may have thought were only available
from out-of-town megabanks. Your business needn't endure the frustration
of dealing with a distant institution that's out of touch with your
markets and your needs. The tools to help you achieve your success are
right here in your own backyard.
At Slade's Ferry, we offer a full range of commercial checking,
savings and investment services to fit the way your firm does business.
Our lending capabilities are diverse and flexible. Short-, medium- and
long-term loans. Lines of credit. Letters of credit. Even loans secured
by receivables or inventory.
When it's time to build, expand or invest in better equipment, your
Slade's Ferry Banker will offer a variety of financing packages that meet
your company's objectives. Slade's Ferry can also arrange Small Business
Administration loans (low DOC, 7A and 504 programs), that are
Massachusetts and Rhode Island approved.
And our everyday commercial services -- from automatic transfers and
electronic payroll tax payments, to employee savings plans through payroll
deduction -- will free you up to focus on your customers. Or simply give
you time to savor your success.
Because when your company succeeds, Slade's Ferry -- and the
communities we serve together -- succeed too. With a Slade's Ferry
partnership, your banker won't disappear after the ribbon-cutting
ceremony. Call us. We'll be right over.
"Focus on making things better, not bigger."
-- Life's Little Instruction Book
"The secret of success is constancy to purpose." -- Benjamin Disraeli
Sustaining a Lifetime of Trust
We've been with you through hardship and accomplishment. Now it's time
to reap the rewards of your hard work. One of those rewards is in knowing
that the financial partners you've trusted for years are still with you as
your priorities change.
If your children are ready for college, we're here with special
loans for education. Or maybe it's time to buy that second home, hoist
the sails of your own boat, or take the trip of a lifetime. Your Slade's
Ferry Banker can help those cherished dreams become a reality.
And perhaps you're wondering how to lay a foundation of financial
security for your grandchildren. We can provide the answers through our
affiliation with the Trust Services Department at State Street Bank.
It's a simple matter of looking to the friends at Slade's Ferry
whose reward is your lifetime of satisfaction and success.
A well-spent life is the ultimate endeavor. And, as with any
endeavor, making life well spent is a matter of choosing teammates whose
priorities match your own. At every stage of life.
A Slade's Ferry Banking partnership is one way to bring the big
picture into focus. Let us help you enjoy the view.
"Leave everything a little better than you found it."
-- Life's Little Instruction Book
Financial Table of Contents
Selected Financial Data 11
Management's Discussion and Analysis 12
Results of Operation 12
Financial Condition 15
Independent Auditors' Report 20
Consolidated Balance Sheets 21
Consolidated Statements of Income 22
Consolidated Statements of Changes in Stockholders' Equity 23
Consolidated Statements of Cash Flows 24
Notes to Consolidated Financial Statements 26
Board of Directors and Officers 40
Slade's Ferry Bancorp
Market for Registrant's Common Equity and Related Stockholder Matters
Market Information
On January 7, 1998, the Company's common stock became listed and
began trading on the NASDAQ Small Cap Market under the symbol SFBC. Prior
thereto, the Company's common stock was listed in the "pink sheets" of the
over-the-counter market. The following table sets forth the range of high
and low bid quotations as reported in the "pink sheets" by quarters for
the two most recent years.
<TABLE>
<CAPTION>
1997 1996
- ----------------------------------------------------
High Low High Low
- ----------------------------------------------------
<S> <C> <C> <C> <C>
1st quarter $ 9.75 $ 8.25 $ 8.75 $ 8.00
2nd quarter 10.50 8.88 8.50 7.88
3rd quarter 13.00 9.50 8.50 7.55
4th quarter 16.63 13.13 9.00 8.63
</TABLE>
These quotations reflect interdealer prices, without mark-up, mark-
down, or commission and may not necessarily represent actual transactions.
During the period May 16, 1997 to June 15, 1997, the Company,
through a public offering, issued 402,951 shares of common stock at $9.75
per share.
As of December 31, 1997, there were 1,402 stockholders of record
of the Company's common stock.
Dividends - History and Policy
The Company since its inception in 1990, and prior thereto the Bank,
has consistently paid dividends to the stockholders since 1961.
In 1997, the Company paid quarterly cash dividends of $.05 per share
and an extra cash dividend of $.05 per share, for a total of $.25 per
share.
In 1996, the Company issued a 5% stock dividend on the Company's
common stock, resulting in a distribution of 130,469 shares. The Company
also paid quarterly cash dividends totaling $.16 per share, plus an extra
cash dividend in December 1996 of $.08 per share, for a total of $.24 per
share in 1996.
The declaration of cash dividends is dependent on a number of
factors, including regulatory limitations, and the Bank's operating
results and financial condition. The stockholders of the Company will be
entitled to dividends only when, and if, declared by the Company's Board
of Directors out of funds legally available. Under the Massachusetts
Business Corporation Law, a dividend may not be declared if the
corporation is insolvent or if the declaration of the dividend would
render the corporation insolvent.
Furthermore, the directors may be liable for authorization of a
dividend if such dividend is in violation of the Articles of Organization,
or if the corporation is then or is thereby rendered insolvent. The
Company will be considered insolvent when it is unable to pay debts as
they fall due in the usual course of business, or when its liabilities are
in excess of the reasonable market value of assets held.
Chapter 172 Section 28 of the Massachusetts Statutes on Bank and
Banking provides that a bank's Board of Directors may, subject to the
restriction contained in the section, declare and pay dividends on capital
stock out of net profits from time to time and to such extent as they deem
advisable. However, under this provision, no cash dividend shall be paid
unless, following the payment of such dividend, the capital stock and
retained earnings account will be unimpaired.
Selected Financial Data
The following table sets forth selected financial data for the last
five years.
<TABLE>
<CAPTION>
Year Ended December 31
- ------------------------------------------------------------------------------------------------------------
(Dollars in Thousands Except per Share Data) 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
EARNINGS DATA
Interest Income $ 23,150 $ 19,495 $ 16,541 $ 13,546 $ 13,247
Interest Expense 10,412 9,078 7,764 4,944 5,214
Net Interest Income 12,738 10,417 8,777 8,602 8,033
Provision for Loan Losses 500 400 550 645 1,455
Noninterest Income 1,562 1,305 1,056 1,099 1,226
Noninterest Expense 9,033 7,380 6,632 6,701 5,853
Income Before Income Taxes 4,767 3,942 2,651 2,355 1,951
Applicable Income Taxes 1,921 1,564 1,005 888 723
FASB 109 Adjustment -- -- -- -- 40
Net Income 2,846 2,378 1,646 1,467 1,268
PER SHARE DATA(1)
Net Income-Basic $ 0.940 $ 0.860 $ 0.601 $ 0.567 $ 0.494
Net Income-Diluted(2) $ 0.940 $ -- $ -- $ -- $ --
Cash Dividends $ 0.250 $ 0.240 $ 0.174 $ 0.151 $ 0.092
Book Value (at end of period) $ 8.168 $ 7.116 $ 6.811 $ 9.023 $ 9.904
Avg. Shs. Outstanding 3,033,197 2,764,887 2,738,250 2,587,816 2,568,909
Shares Outstanding Year End 3,236,713 2,789,142 2,617,181 1,645,492 1,552,820
BALANCE SHEET DATA
Assets $ 301,571 $ 291,342 $ 233,422 $ 193,909 $ 196,476
Loans 213,736 198,986 151,094 136,191 126,078
Unearned Discount 690 643 527 403 313
Allowance for Possible Loan Losses 3,694 3,354 2,498 2,306 1,954
Loans, Net 209,310 194,935 148,069 133,482 123,811
Goodwill 3,081 3,307 -- -- --
Investments 58,668 57,732 58,757 43,537 50,187
Deposits 271,322 267,791 214,221 177,315 179,567
Stockholders' Equity 26,436 19,847 17,827 14,848 15,380
FINANCIAL RATIOS
Net Yield on Interest Earning Assets(3) 4.66% 4.44% 4.36% 4.78% 4.59%
Interest Rate Margins(3) 3.88 3.72 3.72 4.33 4.19
Net Income as a Percentage of
Average Assets 0.96 0.94 0.75 0.75 0.66
Average Equity 12.27 12.69 9.99 9.71 8.68
Dividend Payout Ratio 27.57 27.95 29.03 27.93 19.55
Average Equity to
Average Assets 7.79 7.40 7.55 7.71 7.64
<F1> Earnings per share are computed based on the average number of
shares of common stock outstanding during the year. On January 19,
1994, the Company declared a 5% stock dividend mailed to
stockholders on February 1, 1994. On February 24, 1995, the
Company declared a 5% stock dividend mailed to stockholders on March
1, 1995 and on March 13, 1995, the Company announced a 3 for 2 stock
split mailed to stockholders on April 18, 1995. On January 8, 1996,
the Company declared a 5% stock dividend mailed to stockholders on
January 31, 1996. Per share data has been restated to reflect the
effect of the stock splits and the stock dividends.
<F2> There were no stock options outstanding in years prior to 1997.
<F3> Calculated on a fully taxable equivalent basis.
</TABLE>
Management's Discussion and Analysis
The purpose of Management's Discussion and Analysis is to focus on
certain significant factors which have affected the Company's operating
results and financial condition, and to provide stockholders a more
comprehensive review of the figures contained in the financial data of
this report.
On May 16, 1997, the Company offered 550,000 shares of its Common
Stock, par value of $.01 per share, at an offering price of $9.75 per
share to the general public. The offering, which was not underwritten,
was scheduled to expire on May 31, 1997, but at the option of the Company,
was extended to June 13, 1997. The offering resulted in 402,951 shares
being issued for total proceeds of $3,928,772. The net proceeds were used
to increase the capital of the Bank and to assist in meeting the
requirements of a "well capitalized" bank. As a result of the merger and
the acquisition of $65.1 Million in assets from the National Bank of
Fairhaven, which occurred in August 1996, the capital ratio of the Bank
and the Company had decreased to an "adequately capitalized" status from
the "well capitalized" status that was previously maintained. On June 30,
1997 the Company, through its current year to date earnings level,
returned to a "well capitalized" status. The capital ratios were further
enhanced by the additional capital obtained from the public offering.
After deducting total expenses pertaining to the offering of $62,601, the
Company contributed $2,300,000 to the Bank as an infusion of capital. The
remaining $1,566,171 was retained by the Company until such time as growth
of the Bank should warrant additional capital, or the possibility of
acquiring another institution should avail itself.
In July, 1997, the Board of Directors voted to increase the optional
cash contribution in the Dividend Reinvestment Plan from $1,000 to $5,000
annually, and a registration statement under the Securities Act of 1933
was submitted to the Securities and Exchange Commission for registration
of 100,000 shares in the Dividend Reinvestment Plan. Under the plan,
participating stockholders purchase additional shares in lieu of receiving
cash dividends, and may contribute up to $5,000 annually for additional
shares of the Company's common stock without incurring any service fees or
commissions.
Results of Operation
The Company's principal source of earnings is net interest and
dividend income, which is the difference between the interest earned on
loans and investments and interest paid on deposits and borrowings. Net
interest income is affected by interest rate spread, the difference
between the yield earned on earning assets and the rates paid on interest
bearing liabilities. The results of operations are dependent on net
interest income and also affected by the level of deposit service fees,
operating expenses, the provision for possible loan losses, and the impact
of federal and state taxes.
For the year ended December 31, 1997, the Company recorded earnings
of $2,845,990 or $.94 per share, compared to earnings of $2,378,195 or
$.86 per share in 1996, and $1,645,587 or $.60 per share in 1995. The
increase of $467,795 or 19.67% in 1997 is attributed to a larger asset
base derived from normal growth and the acquisition of assets from the
National Bank of Fairhaven in late August, 1996. Increased loan demand
throughout 1997 has resulted in new loan originations generating income at
higher yields than other earning assets which in turn improved our net
interest margin. Return on average assets increased to .96% in 1997 from
.94% in 1996 and .75% in 1995. Return on average equity for 1997, 1996,
and 1995 was 12.27%, 12.69% and 9.99% respectively. The return on average
equity decreased from 1996 to 1997 due to the addition to equity of
$3,866,171 of net proceeds associated with the public offering of the
Company's common stock in June, 1997.
On a fully tax-equivalent basis, net interest income was $12.9
Million in 1997, $10.5 Million in 1996, and $8.9 Million in 1995. Growth
in net interest income in 1997 when compared with 1996 is primarily the
result of an increase of 16.3% in average earning assets, with the largest
increase in the loan portfolio. This increase in earning assets was
funded with cash flow from earnings, higher levels of customer deposits,
and net proceeds associated with the public offering. Yields on earning
assets increased to 8.43% in 1997 compared to 8.25% in 1996 and 8.17% in
1995. This is primarily due to a combination of higher interest rates on
loans and a change in the mix of earning assets. In 1997, the loan
portfolio made up 74.4% of earning assets, compared to 71.7% in 1996, and
69.7% in 1995.
Cost of funds increased slightly to 4.55% in 1997, from 4.53% in
1996 and 4.45% in 1995. During 1997, the average balance of interest-
bearing liabilities increased by $28.6 Million, from $200.5 Million in
1996 to $229.1 Million in 1997, of which the largest volume of increase
was in the time deposit category. This deposit category pays higher rates
than the lower cost interest-bearing core deposits, such as savings and
NOW accounts.
Net interest spread, which represents the difference between the
weighted average yield on interest-earning assets and the weighted average
cost of interest-bearing liabilities, increased to 3.88% in 1997 from
3.72% reported in 1996 and 1995.
Net yield on earning assets, which represents net interest income as
a percent of average earning assets, increased to 4.66% from 4.44% in
1996, and 4.36% in 1995.
In 1997, the Company provided $500,000 to the Allowance for Loan
Losses, an increase of $100,000 when compared to 1996, due to the increase
in the loan portfolio. The provision for 1995 was $550,000.
Total other income increased by $256,760 to $1,562,257 in 1997 from
$1,305,497 in 1996. Total other income in 1995 was $1,055,959. Service
charges on deposit accounts, the largest component of Other Income,
increased by $25,752 from $628,997 in 1996 to $654,749 in 1997. This
increase is attributable to recording twelve months of service charge
income in 1997 on merger related deposit accounts and a larger deposit
base. Since the acquisition occurred in late August, 1996, only four
months of merger related service fees were earned in 1996. Service
charges on deposit accounts increased by $54,572 from 1995 to 1996.
Overdraft service charges increased in 1997 by $26,902 from $220,428 to
$247,330. In 1995, the Bank earned $152,855 in overdraft charges. Gains
on sales of securities for 1997, 1996, and 1995 were $313,844, $112,631
and $64,810 respectively. As a result of favorable market conditions in
1997, various marketable equity securities were sold realizing gains. The
market trends of these types of investments are continuously monitored and
acted upon when management feels it advantageous to respond to these
market opportunities.
The line item Other Income was $346,334, $343,441 and $263,869 for
1997, 1996 and 1995 respectively. A slight increase of $2,893 occurred in
1997 when compared with 1996, and an increase of $79,572 occurred from
1995 to 1996. The largest item in this category is safe deposit rental
fees which increased in 1997 by $26,503. This increase was partially
offset by a $21,000 decrease in interest earned on funds placed in escrow
in 1996 and deposited with an independent depositor, who acted as Exchange
and Paying Agent for the acquisition of Fairbank, Inc. common stock during
the stock tendering process. This account was closed in April, 1997.
Various other miscellaneous and fee income decreased by $2,610 in 1997.
The increase of $79,572 in Other Income from 1995 to 1996 was comprised of
$30,000 of interest earned on the above mentioned escrow account,
additional revenue of $20,342 on safe deposit rentals and other
miscellaneous and fee income of $20,230.
Total Other Expense for 1997 increased by $1,653,346 or 22.40% to
$9,033,507 from $7,380,161 reported in 1996. Total Other Expense in 1996
increased by $748,634 or 11.29% from $6,631,527 reported in 1995.
Salaries and employee benefits, the largest component of Other Expense,
increased by $989,218 from $4,328,402 reported in 1996 to $5,317,620 in
1997. The increase from 1995 to 1996 was $365,419. In addition to
general annual wage adjustments and increases in employee benefits, the
increase is attributable to the retention of the officers and employees of
the National Bank of Fairhaven acquired by Slade's Ferry Bank in late
August, 1996. Personnel costs associated with these new employees were
expensed for twelve months in 1997, compared to four months in 1996.
Occupancy and equipment expense combined increased to $1,285,867 in
1997, up by $213,920 from $1,071,947 reported in 1996. In 1995, occupancy
and equipment expense reported was $881,122. The increases in this area
are primarily due to the additional expense in maintaining the banking
facilities acquired through the merger, additional depreciation of the
Brayton Avenue drive-up facility opened in August, 1996, and increased
depreciation attributed to new equipment.
In 1997, the Bank realized a net loss of $42,457 on the sale of
Other Real Estate Owned properties, compared to a net loss of $21,008
realized in 1996, and a net gain of $26,728 in 1995. The writedown
expense to adjust Other Real Estate Owned book values to recently
appraised values totalled $67,480 in 1997, compared to $30,000 in 1996,
and $104,578 in 1995.
Federal Deposit Insurance Corporation (FDIC) deposit insurance
premiums in 1997 were $71,880, compared to $6,278 recorded in 1996, and
$204,477 in 1995. Effective in June, 1995, the FDIC lowered deposit
insurance premium rates for the FDIC Bank Insurance Fund (BIF) and further
reduced the premiums in 1996. In 1997, under federal legislation enacted
in 1996, BIF deposits were assessed to finance annual interest costs on
government bonds issued to assist in recapitalizing certain thrift
institutions in prior years. In addition to this assessment, an increased
deposit base due to the merger caused 1997 premiums to increase.
Stationery and supplies expense in 1997 increased by $67,893, from
$243,653 in 1996 to $311,546 in 1997. This expense in 1995 was $197,392.
The increase in 1997 and 1996 is attributed to additional supplies needed
to stock the Fairhaven and New Bedford branches acquired in August, 1996.
The following table sets forth the components of the line item Other
Expense, which reflects an increase of $257,784 in 1997 from $1,678,873 in
1996 to $1,936,657 in 1997. This item was $1,307,703 in 1995.
<TABLE>
<CAPTION>
1997 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Amortization of Goodwill $ 226,800 $ 98,000 $ --
Advertising & Public Relations 334,025 289,029 178,501
Communications 269,239 257,575 199,588
Professional Fees & Other Services 630,953 586,078 489,452
Other 475,640 448,191 440,162
- -------------------------------------------------------------------------------
Total Other Expense $1,936,657 $1,678,873 $1,307,703
===============================================================================
</TABLE>
Amortization of Goodwill, a new expense item in 1996, was the result
of the premium paid above book value to the stockholders of Fairbank, Inc.
Goodwill is amortized over a fifteen year period. In 1997, the
amortization of goodwill reflects a full year of amortization totaling
$226,800, compared to four months in 1996. Advertising and Public
Relations increased in 1997 compared to 1996 by $44,996, primarily due to
the continuing emphasis on promoting the Bank in the Fairhaven-New Bedford
area. Communications increased by $11,664 in 1997, from $257,575 in 1996
to $269,239. This increase is a result of the larger customer base now
being serviced due to the acquisition. Professional Fees and Other
Services increased in 1997 by $44,875 from $586,078 in 1996 to $630,953.
The material expenditures in this category include an increase for various
legal fees of $28,482, and an increase in computer fees of $15,437. Other
Expenses have increased through normal business transactions due to the
increased asset base after the acquisition. These various expenditures
increased by $27,449 in 1997, from $448,191 in 1996, to $475,640 in 1997.
Income Tax Expense for 1997 increased to $1,920,741 up by $356,740
when compared to $1,564,001 in 1996 and up by $914,969 when compared to
$1,005,772 in 1995.
The following table sets forth the Company's average assets,
liabilities, and stockholders' equity, interest income earned and interest
paid, average rates earned and paid, and the net interest margin for the
periods ending December 31, 1997, December 31, 1996, and December 31,
1995. Averages are daily averages.
<TABLE>
<CAPTION>
1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
Avg. Avg. Avg.
Average Interest(1) Int. Average Interest(1) Int Average Interest(1) Int.
(Dollars in Thousands) Balance Inc/Exp Rate Balance Inc/Exp Rate Balance Inc/Exp Rate
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Earning Assets(2)
Commercial Loans $ 36,195 $ 3,466 9.58% $ 23,440 $ 2,191 9.35% $ 17,478 $ 1,705 9.75%
Commercial Real Estate 110,093 10,740 9.76 90,576 9,035 9.98 70,060 6,703 9.57
Residential Real Estate 52,894 4,116 7.78 50,486 3,788 7.50 48,901 3,706 7.58
Consumer Loans 6,503 659 10.13 6,094 613 10.06 5,630 628 11.15
- -----------------------------------------------------------------------------------------------------------------------------------
Total Loans 205,685 18,981 9.23 170,596 15,627 9.16 142,069 12,742 8.97
Federal Funds Sold 11,309 607 5.37 14,994 783 5.22 10,361 598 5.77
U.S. Treasury/Government Agencies 49,682 3,099 6.24 43,871 2,715 6.19 45,300 2,924 6.45
States & Political Subdivisions 6,948 477 6.87 5,959 400 6.71 4,753 339 7.13
Mutual Funds 301 15 4.98 241 13 5.39 170 8 4.71
Marketable Equity Securities 2,518 120 4.77 1,946 75 3.85 1,098 39 3.55
Other Investments 126 8 6.35 197 15 7.61 55 4 7.27
Total Earning Assets 276,569 $23,307 8.43% 237,804 $19,628 8.25% 203,806 $16,654 8.17%
Allowance for Possible Loan Losses (3,474) (2,958) (2,450)
Unearned Income (665) (597) (434)
Cash and Due From Banks 11,366 9,565 8,387
Other Assets 14,022 9,489 9,016
- -----------------------------------------------------------------------------------------------------------------------------------
Total Assets $297,818 $253,303 $218,325
===================================================================================================================================
LIABILITIES & STOCKHOLDERS' EQUITY:
Savings $ 42,642 $ 1,067 2.50% $ 40,246 $ 1,006 2.50% $ 37,790 $ 955 2.53%
NOW's 37,739 1,202 3.19 28,788 858 2.98 21,568 757 3.51
Money Market Accounts 14,116 281 1.99 13,326 272 2.04 16,355 332 2.03
CD's > $100M 23,162 1,256 5.42 18,813 1,104 5.87 15,403 856 5.56
Other Time Deposits 109,278 6,460 5.91 97,957 5,754 5.87 82,290 4,801 5.83
Other Borrowings 2,114 146 6.91 1,374 86 6.26 1,179 63 5.34
- -----------------------------------------------------------------------------------------------------------------------------------
Total Interest-bearing Liabilities 229,051 $10,412 4.55% 200,504 $ 9,080 4.53% 174,585 $ 7,764 4.45%
===================================================================================================================================
Demand Deposits 43,724 33,572 26,674
Other Liabilities 1,847 493 591
- -----------------------------------------------------------------------------------------------------------------------------------
Total Liabilities 274,622 234,569 201,850
- -----------------------------------------------------------------------------------------------------------------------------------
Common Stock 30 28 26
Paid-in Capital 16,899 14,393 12,871
Retained Earnings 6,308 4,486 4,227
Net Unrealized Loss on Available-
for-Sale Securities (41) (173) (649)
- -----------------------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 23,196 18,734 16,475
- -----------------------------------------------------------------------------------------------------------------------------------
Total Liabilities & Stockholders'
Equity $297,818 $253,303 $218,325
===================================================================================================================================
Net Interest Income $12,895 $10,548 $ 8,890
===================================================================================================================================
Net Interest Spread 3.88% 3.72% 3.72%
===================================================================================================================================
Net Yield on Earning Assets 4.66% 4.44% 4.36%
===================================================================================================================================
<F1> On a fully taxable equivalent basis based on tax rate of 34%.
Interest income on investments and net interest income includes a
fully taxable equivalent adjustment of $157,000 in 1997, $133,000 in
1996, and $113,000 in 1995.
<F2> Average balance includes non-accruing loans. The effect of
including such loans is to reduce the average rate earned on the
Company's loans.
</TABLE>
Financial Condition
Loans
Loans at year end 1997 totaled $213.7 Million, which is an increase
of $14.7 Million or 7.39% from $199.0 Million reported at the end of 1996.
Management attributes this increase to a very active business development
program and enhanced recognition of the Bank's name in the Fairhaven and
New Bedford communities. Also contributing to loan growth is an overall
improvement in the economy of southeastern Massachusetts and the abutting
state of Rhode Island.
The largest segment of the portfolio is commercial real estate
loans, which represents 50.5% of the total loan portfolio. Residential
real estate loans account for 26.0% and the remaining 23.5% is commercial,
consumer, and other type loans. Commercial real estate loans generally
have a higher degree of credit risk than residential real estate loans
because they are predominately dependent on the success of the business.
Various types of commercial property collateralize these loans, which are
primarily located in Southeastern Massachusetts and nearby cities and
towns in Rhode Island. There is no specific type of property nor
concentration of credit in any one industry.
The Bank manages its credit granting program for commercial loans
through a credit department which analyzes the financial condition and
business status of a prospective borrower. In turn, the borrowing request
is then further evaluated by Executive Management and submitted to the
Executive Committee of the Board of Directors for final approval before
the loan is granted.
In 1997, the Bank received special recognition from Southeastern
Development Corporation (SEED) for its participation in small business
loans. SEED is a nonprofit organization which works in conjunction with
the Small Business Administration (SBA) and provides assistance to small
businesses. Loans are generally in the $5,000 to $50,000 range, and are
used to develop these small businesses and create new jobs in the
community. The Bank also participates in larger loans with the SBA.
Residential real estate, which is the second largest component of
the loan portfolio, is comprised of mortgages on one-to-four family
residential properties. Credit is granted based on income to debt ratio,
a satisfactory credit report and the appraised value of the property. The
Bank also provides a "minimum down payment" program to encourage home
ownership for first time home buyers. This enables prospective homeowners
the opportunity to purchase a home without having to save, over an
extended period of time, the normally required 20% down payment. The Bank
retains the mortgages that it originates and does not sell them to the
secondary market. Management believes that this practice enhances and
strengthens continued customer relationships.
Other type loans are comprised of commercial loans, which are
generally short term loans to finance business inventory, consumer credit
installment loans, automobile financing, and credit card loans.
Investments
The Company manages its investment portfolio by maintaining a
suitable composition of securities with various scheduled maturities
laddered within a short term period of 1-3 years; a midterm period of 3-5
years; and some securities extending out to 10 years. Upon the purchase
of a security, it is classified into one of two categories: Available-
for-Sale or Held-to-Maturity.
The Available-for-Sale category is securities which the Company
intends to hold for an indefinite period of time, but not necessarily to
maturity. These securities may be sold in response to interest rate
changes, liquidity needs and other factors. Any unrecognized gains or
losses, net of taxes, on securities classified as Available-for-Sale are
reflected in Stockholders' Equity as a separate component.
Investments in the Available-for-Sale category consist predominately
of securities of U.S. Treasury and other U. S. Government corporations and
agencies, and marketable equity securities. Securities of U.S. Treasury
and U. S. Government corporations and agencies have little or no credit
risk, other than being sensitive to changes in interest rates; and if held
to maturity, these securities will mature at par. However, marketable
equity securities have a greater risk as they are subject to rapid market
fluctuations.
The Company minimizes its risk by limiting the total amount invested
into marketable equity securities to 5% of the total investment portfolio.
These securities are monitored and evaluated frequently to determine
whether to sell or to retain them in the portfolio.
The Available-for-Sale category had unrecognized gains, net of
taxes, of $149,287 at December 31, 1997 and unrecognized losses, net of
taxes, of $2,628 at December 31, 1996.
The Held-to-Maturity category consists of securities of U.S.
Treasury, U.S. government corporations and agencies, and securities issued
by states of the United States and political subdivisions of states. The
Company has the positive intent and ability to hold these securities to
maturity.
In management of the portfolio, the Company seeks to maximize its
return and maintain consistency to meet short and long term liquidity
forecasts. The Company does not purchase investments with off-balance
sheet characteristics, such as swaps, options, futures and other hedging
activities that are called derivatives. The main objective of the
investment policy is to provide adequate liquidity to meet any reasonable
decline in deposits and any anticipated increase in the loan portfolio, to
provide safety of principal and interest, to generate earnings adequate to
provide a significant stable income, and to fit within the overall
asset/liability management of the objectives of the Company.
Nonperforming Assets
The Company's nonperforming assets are nonaccrual loans, loans past
due 90 days or more but still accruing, restructured loans not performing
in accordance with amended terms, and other real estate acquired through
foreclosure. Nonperforming assets as a total increased to $4.9 Million at
year end 1997, from $4.8 Million reported at year end 1996.
The Company places a loan on nonaccrual status when, in the opinion
of management, the collectibility of the principal and interest becomes
doubtful. Generally, when a commercial loan, commercial real estate loan
or a residential real estate loan becomes past due 90 days or more, the
Company discontinues the accrual of interest and reverses previously
accrued interest. The loan remains in the nonaccrual status until the
loan is current and six months of payments are made. Then it is
reclassified as an accruing loan. When it is determined that the
collectibility of the loan no longer exists, it is charged off to the
Allowance for Loan Losses or, if applicable, any real estate
collateralizing the loan is acquired through foreclosure, and categorized
as Other Real Estate Owned.
Nonperforming Assets
<TABLE>
<CAPTION>
December 31
- ------------------------------------------------------------------------------------------------
(Dollars In Thousands) 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $4,597 $4,352 $2,695 $3,238 $4,084
Loans 90 days or more past due and still
accruing 147 112 23 204 427
Real estate acquired by foreclosure or
substantively repossessed 159 308 633 888 2,160
- ------------------------------------------------------------------------------------------------
Total nonperforming assets $4,903 $4,772 $3,351 $4,330 $6,671
================================================================================================
Restructured debt performing in accordance
with amended terms, not included above $1,265 $ 819 $ 459 $ 139 $ --
================================================================================================
Percentage of nonaccrual loans to total loans 2.15% 2.19% 1.78% 2.38% 3.24%
Percentage of nonaccrual loans, restructured
loans, and real estate acquired by foreclosure
or substantively repossessed to total assets 2.00% 1.88% 1.62% 2.20% 3.18%
Percentage of allowance for possible loan
losses to nonaccrual loans 80.36% 77.07% 92.69% 71.22% 47.85%
</TABLE>
The largest segment of nonperforming assets is nonaccrual loans. At
December 31, 1997, this category had increased to $4.6 Million from $4.4
Million reported at end of previous year. Included in the nonaccrual
loans is a $1.5 Million commercial real estate loan that was classified as
nonaccrual in March, 1997. As with all other nonaccrual loans, payments
received on this loan are applied to principal, and until the borrower can
demonstrate a consistent payment pattern and the loan becomes current,
this loan will remain as nonaccrual. The real estate collateralizing this
loan was appraised in December, 1997 at $2.7 Million. Due to the excess
collateral values, the Bank does not anticipate any loss on this loan.
The remaining $3.1 Million of nonaccrual loans represents 29 separate
relationships.
Loans 90 days or more past due and still accruing increased slightly
by $35,000 to $147,000 from $112,000 reported at year end 1996.
Management continues to accrue on these loans, due to the excess of values
of collateral securing these loans compared to their outstanding balances.
Real estate acquired by foreclosure or substantively repossessed
decreased from $308,000 at year end 1996 to $159,000 at year end 1997.
Annual appraisals are performed on all properties acquired through
foreclosure, and if the appraised value is less than the carrying value,
the carrying value is written down by a charge to the Writedown on Other
Real Estate Owned expense account.
The percentage of nonaccrual loans, restructured loans, and real
estate acquired by foreclosure to total assets increased from 1.88%,
reported at year end 1996, to 2.00% at year end 1997, primarily due to the
increase in the nonaccrual category and the increase in restructured
loans. The $1.3 Million of restructured loans represent several borrowers
whose original loan terms were amended. These borrowers are current in
their payments under the amended terms.
Statement of Financial Accounting Standards No. 114, "Accounting by
Creditors for Impairment of a Loan", was adopted by the Company as of
January 1, 1995. Statement 114 applies to all loans except large groups
of smaller balance homogeneous loans that are collectively evaluated for
impairment, loans measured at fair value or at a lower of cost or fair
value, leases, and debt securities 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. At December 31, 1997, there were
$5.6 Million of loans which the Company has determined to be impaired, of
which $1.8 Million has a related allowance for credit losses of $0.6
Million, and $3.8 Million has no related allowance for credit losses.
The Company has $500,000 of potential problem loans for which
payments are presently current but are identified as a possible risk.
This assessment is based on an objective review of the borrower's
financial statements. In addition, the past experience with the borrower,
the borrower's background, and the applicable value of the assets
collateralizing these loans provide a degree of assurance that the loan
will continue to be paid as per the loan agreement. These issues are
monitored carefully to determine if there is any change in status that
would cause management to reclassify the loan from the accrual category to
nonaccrual.
The Allowance for Possible Loan Losses is available to absorb losses
on loans deemed by management as uncollectible. The level of the
allowance is determined to be adequate based upon management's assessment
of the entire loan portfolio, the level of nonaccrual loans, the overall
status of certain loans and specific borrower situations and the current
and anticipated economic climate. Additions to the allowance are provided
by charges to earnings. The Allowance for Possible Loan Losses at
December 31, 1997 as a percentage of outstanding loans was 1.73%, compared
to 1.69% reported at year end 1996. The ratios at years ending 1995, 1994
and 1993 were 1.65%, 1.70%, and 1.55% respectively. In 1997, the Company
provided $500,000 to the allowance and recovered $94,405 from previously
charged off loans. Loans charged off during 1997 totaled $254,851. This
resulted in net charge offs of $160,446. Net charge offs for prior years
were $-0-, $358,085, $293,003, and $1,468,300 for 1996, 1995, 1994 and
1993 respectively. Recoveries are a result of continued collection
efforts and improvement in business conditions on accounts that were
previously deemed as uncollectible.
In addition to management's assessment of the Allowance for Possible
Loan Losses, the allowance is also evaluated by regulatory agencies and
independent public accountants as part of their examination and audit
procedures.
The table below illustrates the changes in the Allowance for
Possible Loan Losses for the periods indicated.
<TABLE>
<CAPTION>
December 31
- ----------------------------------------------------------------------------------------------
(Dollars In Thousands) 1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at January 1 $3,354 $2,498 $2,306 $1,954 $1,967
Charge offs:
Commercial (40) (144) (184) (22) (963)
Real estate construction (0) (0) (0) (0) (0)
Real estate mortgage (147) (136) (79) (246) (451)
Installment/Consumer (68) (159) (134) (93) (85)
- ----------------------------------------------------------------------------------------------
(255) (439) (397) (361) (1,499)
- ----------------------------------------------------------------------------------------------
Recoveries:
Commercial 41 59 1 51 0
Real estate construction 0 0 0 0 0
Real estate mortgage 16 333 16 2 2
Installment/Consumer 38 47 22 15 29
- ----------------------------------------------------------------------------------------------
95 439 39 68 31
- ----------------------------------------------------------------------------------------------
Net charge offs (160) (0) (358) (293) (1,468)
- ----------------------------------------------------------------------------------------------
Additions charged to operations 500 400 550 645 1,455
Allowance attributable to acquisition 0 456 0 0 0
Balance at end of period $3,694 $3,354 $2,498 $2,306 $1,954
==============================================================================================
Allowance for Loan Losses as a percent of
year end loans 1.73% 1.69% 1.65% 1.70% 1.55%
Ratio of net charge offs to average loans
outstanding 0.08% 0.00% 0.25% 0.23% 1.18%
==============================================================================================
</TABLE>
Deposits
Deposits at December 31, 1997 were $271.3 Million up by $3.5 Million
or 1.31% when compared to $267.8 Million reported at year end 1996.
Demand deposits and NOW accounts combined were up by 2.13%. Savings
account balances decreased by 1.01%. The overall total number of accounts
being serviced in the checking and savings categories has increased
particularly at the outlying branches. Money market accounts were down by
8.61% from year end 1996, primarily due to outflow of funds to non-banking
products. This trend is also occurring nationwide as consumers seek
higher returns on their investable funds. The time deposit products grew
by 2.75%. The deposit components consist of 16.30% in demand deposits,
35.03% in savings and NOW deposits, and 48.67% in time deposits.
The Company, cognizant of interest rate risk, continues to offer
competitive rates on time deposits to maintain its customer base and to
attract new customers into long-term banking relationships. Through the
deposit accounts, customers may engage in other banking services, thereby
enhancing our customer base.
Interest Rate - Sensitivity Gaps
Repricing Period at December 31, 1997
<TABLE>
<CAPTION>
Within 1-2 2-3 3-5 Over 5
(Dollars in Thousands) 1 Year Years Years Years Years Total
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest Earning Assets:(1)
Federal Funds Sold $ 7,000 $ -- $ -- $ -- $ -- $ 7,000
Investment Securities 15,216 6,308 6,506 12,793 17,062 57,885
Residential Mortgages 18,992 8,823 8,801 1,232 11,434 49,282
Commercial Mortgages 86,094 12,415 11,052 5,218 1,094 115,873
Other Loans 36,160 3,177 2,038 1,924 686 43,985
- ---------------------------------------------------------------------------------------------------------------------
Total Earning Assets $163,462 $ 30,723 $ 28,397 $ 21,167 $ 30,276 $274,025
- ---------------------------------------------------------------------------------------------------------------------
Interest Bearing Liabilities:
NOW Checking and Savings Deposits $ 38,358 $ 9,160 $ 9,160 $ 24,426 $ -- $ 81,104
Money Market Deposits 4,182 2,091 2,091 5,576 -- 13,940
Term Deposits 111,743 12,216 8,052 40 -- 132,051
Borrowed Funds -- 945 -- -- 430 1,375
Other Interest Bearing Liabilities 1,200 -- -- -- -- 1,200
- ---------------------------------------------------------------------------------------------------------------------
Total Interest Bearing Liabilities $155,483 $ 24,412 $ 19,303 $ 30,042 $ 430 $229,670
- ---------------------------------------------------------------------------------------------------------------------
Net Interest Sensitivity Gap $ 7,979 $ 6,311 $ 9,094 $ (8,875) $ 29,846 $ 44,355
Cumulative Gap $ 7,979 $ 14,290 $ 23,384 $ 14,509 $ 44,355 --
Cumulative Gap as a Percent of Total Assets 2.65% 4.74% 7.75% 4.81% 14.71% --
=====================================================================================================================
<F1> Nonaccrual loans amounting to $4.6 Million have been eliminated
from the loan balances.
</TABLE>
The Company's Asset-Liability Management Committee, comprised of the
Bank's executive management team, monitors and evaluates the interest rate
sensitivity of the Company's assets and liabilities. The committee
utilizes a GAP report (as summarized on page 17) which indicates the
differences or gap between interest-earning assets and interest-bearing
liabilities in various maturity time periods. This, in conjunction with
certain assumptions and other related factors, such as anticipated changes
in interest rates and anticipated cash flows from loans, investments and
deposits, provides a means of evaluating interest rate risk. Management
also considers that certain assets and liabilities react differently to
changes in interest rates. Some assets may have rate caps or prepayment
fees attached to the instrument, and some liabilities have early
withdrawal penalties.
A positive gap results when more assets than liabilities are
expected to reprice within a certain time frame and a negative gap
reflects an excess of liabilities repricing in that period. A positive
gap would tend to increase net interest income when rates are rising and
decrease net interest income when rates are falling. A negative gap
position would tend to produce the opposite effects. At December 31,
1997, the cumulative gap up to two years indicates that the Company has an
excess of assets of $14.2 million that could effect its interest income
negatively if interest rates declined.
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.
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
deposit accounts, loan originations, draw-downs on loan commitments,
acquisitions 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 term certificates which extend
out to a maximum of five years. The Company does not participate in
brokered deposits. Deposits are obtained from consumers and commercial
customers within the Bank's community reinvestment area, being Bristol
County, Massachusetts and several abutting towns in Rhode Island.
The Company also has the ability to borrow funds from correspondent
banks, the Federal Home Loan Bank and the Federal Reserve Bank of Boston
by pledging various investment securities.
Excess available funds are invested on a daily basis into Federal
Funds Sold. An appropriate level of Federal Funds Sold is maintained to
meet loan commitments, anticipated loan growth and deposit forecasts.
Funds exceeding this level are then used to purchase investment securities
that are suitable in yields and maturities for the investment portfolio.
The investment portfolio has securities maturing at strategic time periods
and is comprised of U.S. Treasury Securities, securities of U.S.
Government Agencies, and obligations of state and political subdivisions.
Liquidity in 1997 was primarily provided by the maturity and sales
of securities totaling $33.1 Million, offset by the purchasing of
additional securities of $33.5 Million and the net increase in loans
totaling $15.3 Million. Other events that affected liquidity were the net
proceeds derived from the sale of the Company's common stock totaling $4.4
Million, the increase in time deposits of $3.5 Million and other factors
including cash provided by operating activities and financing activities
as indicated in the statements of cash flows.
Capital
At December 31, 1997, the Company had total capital of $26,436,426.
This represents an increase of $6,589,101 from $19,847,325 reported at
year end 1996. This increase is a combination of several factors.
Additions consisted of $3,866,171 of the net proceeds associated with the
public offering of the Company's common stock, current year's earnings of
$2,845,990 and $509,604 of stock issued through the Dividend Reinvestment
Plan and the Optional Cash Contribution Plan. Offsetting these increases
were cash dividends paid to stockholders of $784,579. Also affecting
capital is the adjustment of $151,915 on securities classified as
Available-for-Sale.
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.
In addition to meeting the minimum requirements, the Company and the
Bank's capital ratios meet the levels of the well capitalized category at
December 31, 1997.
The following table illustrates the capital position of Slade's
Ferry Bancorp and Slade's Ferry Trust Company at December 31, 1997 and
1996.
Slade's Ferry Bancorp
<TABLE>
<CAPTION>
1997 1996
- -------------------------------------------------------------------------------------------------
(Dollars in Thousands) Amount Ratio Amount Ratio
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total Capital (to Risk Weighted Assets) $ 25,907 12.04% $ 19,044 9.56%
Minimum required 17,210 8.00 15,938 8.00
Excess 8,697 4.04 3,106 1.56
Tier 1 Capital (to Risk Weighted Assets) 23,206 10.74 16,543 8.27
Minimum required 8,645 4.00 8,003 4.00
Excess 14,561 6.74 8,540 4.27
Risk Adjusted Assets, net of goodwill, nonqualifying
intangibles, excess allowance and excess deferred
tax assets $215,174 $199,183
Tier 1 Capital (Leverage Ratio) $ 23,206 7.79% $ 16,543 5.70%
Minimum required 11,910 4.00 11,617 4.00
Excess 11,296 3.79 4,926 1.70
Quarterly average total assets, net of goodwill,
nonqualifying intangibles and excess deferred tax
assets $297,895 $290,429
<CAPTION>
Slade's Ferry Trust Company
1997 1996
- -------------------------------------------------------------------------------------------------
(Dollars in Thousands) Amount Ratio Amount Ratio
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total Capital (to Risk Weighted Assets) $ 24,022 11.18% $ 18,935 9.51%
Minimum required 17,183 8.00 15,934 8.00
Excess 6,839 3.18 3,001 1.51
Tier 1 Capital (to Risk Weighted Assets) 21,325 9.88 16,435 8.22
Minimum required 8,631 4.00 8,001 4.00
Excess 12,694 5.88 8,434 4.22
Risk Adjusted Assets, net of goodwill, nonqualifying
intangibles, excess allowance and excess deferred tax
assets $214,865 $199,085
Tier 1 Capital (Leverage Ratio) $ 21,325 7.18% $ 16,435 5.66%
Minimum required 11,876 4.00 11,615 4.00
Excess 9,449 3.18 4,820 1.66
Quarterly average total assets, net of goodwill,
nonqualifying intangibles and excess deferred tax
assets $297,005 $290,386
</TABLE>
Other Matters
The Company has established a program to ensure that, at the turn of
the century, its computer and operational systems will be capable of
processing without any impact arising from the conversion of the calendar
year to the year 2000. Computer systems have generally provided two
digits to identify a calendar year and in turn serve as the basis for
reports, transaction processing and calculations. The program adopted
provides a series of tests and vendor assurances that the Company's
computer system will meet Year 2000 compliance.
The Company does not currently expect that the cost of its Year 2000
compliance program will be material to its financial condition and
believes that it will satisfy such compliance program by the end of 1998
without material disruption of its operations. In the event that the
Company's significant suppliers do not successfully and timely achieve
Year 2000 compliance, the Company's business or operations could be
adversely affected. However, management believes that the Company's own
internal system, networks and resources would allow the Company to
effectively operate and service its customers in the event its significant
vendors do not achieve satisfactory Year 2000 compliance. In addition, if
significant vendors failed to meet Year 2000 operating requirements, the
Company intends to engage alternative vendors and suppliers. While the
Company cannot estimate the costs and expenses associated with hiring new
vendors and suppliers, management believes that such costs would not have
a material impact in the Company's earnings or results of operations.
The Bank is involved in a civil suit brought in Plymouth Superior
Court by a former employee of the National Bank of Fairhaven, which
primarily alleged a breach of contract. The demand by the plaintiff was
$550,000 to settle the case. However, a partial summary judgment was
granted on defendant's motion dismissing all claims except the basic claim
for breach of contract. The case is still in the pretrial phase and a
motion is pending to amend the complaint to add a new count of intentional
infliction of emotional distress. The Company believes there are
meritorious defenses to the remaining claim and to the motion to amend,
and it intends to vigorously defend the suit. The Company believes that
the suit will not have a material adverse effect on the Company's
financial condition, results of operation or liquidity, and no reserves
have been accrued to cover the potential liability.
SHATSWELL, MacLEOD & COMPANY, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
83 PINE STREET
WEST PEABODY, MASSACHUSETTS 01960-3635
Telephone (978) 535-0206
Facsimile (978) 535-9908
The Board of Directors
and Stockholders
Slade's Ferry Bancorp
Somerset, Massachusetts
INDEPENDENT AUDITORS' REPORT
----------------------------
We have audited the accompanying consolidated balance sheets of
Slade's Ferry Bancorp and Subsidiary as of December 31, 1997 and 1996 and
the related consolidated statements of income, changes in stockholders'
equity and cash flows for each of the years in the three-year period ended
December 31, 1997. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of Slade's Ferry Bancorp and Subsidiary as of December
31, 1997 and 1996, and the consolidated results of their operations and
their cash flows for each of the years in the three-year period ended
December 31, 1997, in conformity with generally accepted accounting
principles.
/s/ SHATSWELL, MacLEOD & COMPANY, P.C.
SHATSWELL, MacLEOD & COMPANY, P.C.
West Peabody, Massachusetts
January 23, 1998
Slade's Ferry Bancorp and Subsidiary
Consolidated Balance Sheets
December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and due from banks $ 13,323,501 $ 11,128,724
Federal funds sold 7,000,000 13,000,000
- -------------------------------------------------------------------------------------------------
Cash and cash equivalents 20,323,501 24,128,724
Interest bearing time deposits with other banks 106,688 149,598
Investments in available-for-sale securities (at fair value) 40,176,218 37,255,163
Investments in held-to-maturity securities (fair values of
$17,748,500 as of December 31, 1997 and $19,544,811 as of
December 31, 1996) 17,601,536 19,586,678
Federal Home Loan Bank stock 890,600 890,600
Loans, net 209,309,840 194,934,845
Premises and equipment 5,718,534 5,970,874
Goodwill 3,080,568 3,307,368
Other real estate owned 159,373 307,591
Accrued interest receivable 1,796,467 1,853,783
Other assets 2,407,260 2,957,251
- -------------------------------------------------------------------------------------------------
Total assets $301,570,585 $291,342,475
=================================================================================================
Liabilities and Stockholders' Equity
Demand Deposits $ 44,228,157 $ 44,458,040
Savings and NOW Deposits 95,043,420 94,814,767
Time Deposits 132,050,673 128,518,202
- -------------------------------------------------------------------------------------------------
Total deposits 271,322,250 267,791,009
- -------------------------------------------------------------------------------------------------
Note Payable 945,308 1,042,626
Advances from Federal Home Loan Bank 430,000
Other borrowed funds 1,200,000 1,200,000
Due to brokers 255,000 499,375
Other liabilities 981,601 962,140
- -------------------------------------------------------------------------------------------------
Total liabilities 275,134,159 271,495,150
- -------------------------------------------------------------------------------------------------
Stockholders' equity:
Common stock, par value $.01 per share; authorized
5,000,000 shares; issued and outstanding 3,236,712.7 in
1997 and 2,789,142.3 shares in 1996 32,367 27,891
Paid-in capital 18,978,598 14,607,299
Retained earnings 7,276,174 5,214,763
Net unrealized holding gain (loss) on available-for-sale
securities 149,287 (2,628)
- -------------------------------------------------------------------------------------------------
Total stockholders' equity 26,436,426 19,847,325
- -------------------------------------------------------------------------------------------------
Total liabilities and stockholder's equity $301,570,585 $291,342,475
=================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
Consolidated Statements Of Income
Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest and dividend income:
Interest and fees on loans $18,981,050 $15,626,903 $12,741,564
Interest and dividends on securities:
Taxable 3,251,526 2,810,656 2,972,484
Tax-exempt 302,616 266,866 225,942
Other interest 615,267 790,506 601,210
- --------------------------------------------------------------------------------------------------------
Total interest and dividend income 23,150,459 19,494,931 16,541,200
- --------------------------------------------------------------------------------------------------------
Interest expense:
Interest on deposits 10,266,135 8,992,244 7,700,901
Interest on securities sold under agreements to repurchase 556
Interest on Federal Home Loan Bank advances 1,555
Interest on other borrowed funds 52,318 59,688 62,816
Interest on notes payable 92,470 26,139
- --------------------------------------------------------------------------------------------------------
Total interest expense 10,412,478 9,078,071 7,764,273
- --------------------------------------------------------------------------------------------------------
Net interest and dividend income 12,737,981 10,416,860 8,776,927
Provision for loan losses 500,000 400,000 550,000
- --------------------------------------------------------------------------------------------------------
Net interest and dividend income after provision for
loan losses 12,237,981 10,016,860 8,226,927
- --------------------------------------------------------------------------------------------------------
Other income:
Service charges on deposit accounts 654,749 628,997 574,425
Overdraft service charges 247,330 220,428 152,855
Securities gains, net 313,844 112,631 64,810
Other income 346,334 343,441 263,869
- --------------------------------------------------------------------------------------------------------
Total other income 1,562,257 1,305,497 1,055,959
- --------------------------------------------------------------------------------------------------------
Other expense:
Salaries and employee benefits 5,317,620 4,328,402 3,962,983
Occupancy expense 715,094 567,458 448,383
Equipment expense 570,773 504,489 432,739
Stationery and supplies 311,546 243,653 197,392
FDIC deposit insurance premium 71,880 6,278 204,477
(Gain) loss on sales of other real estate owned, net 42,457 21,008 (26,728)
Writedown of other real estate owned 67,480 30,000 104,578
Other expense 1,936,657 1,678,873 1,307,703
- --------------------------------------------------------------------------------------------------------
Total other expense 9,033,507 7,380,161 6,631,527
- --------------------------------------------------------------------------------------------------------
Income before income taxes 4,766,731 3,942,196 2,651,359
Income taxes 1,920,741 1,564,001 1,005,772
========================================================================================================
Net income $ 2,845,990 $ 2,378,195 $ 1,645,587
========================================================================================================
Earnings per common share and earnings per common share,
assuming dilution $ .94 $ .86 $ .60
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
Consolidated Statements of Changes in Stockholders' Equity
Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Net Unrealized
Holding Gain
(Loss) On
Available-
Common Paid-in Retained For-Sale
Stock Capital Earnings Securities Total
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1994 $16,455 $11,784,662 $4,586,951 $(1,540,384) $14,847,684
Net change in unrealized holding loss on
available-for-sale securities 1,573,406 1,573,406
Net income 1,645,587 1,645,587
Stock split (3 for 2) 8,654 (11,041) (2,387)
Issuance of 5% common stock dividend 821 1,107,542 (1,113,162) (4,799)
Issuance of common stock from dividend
reinvestment plan 209 209,683 209,892
Stock issuance relating to optional cash
contribution plan 33 35,036 35,069
Dividends declared ($.18 per share) (477,727) (477,727)
- ---------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 26,172 13,136,923 4,630,608 33,022 17,826,725
Net change in unrealized holding gain on
available-for-sale securities (35,650) (35,650)
Net income 2,378,195 2,378,195
Issuance of 5% common stock dividend 1,304 1,124,644 (1,129,308) (3,360)
Issuance of common stock from dividend
reinvestment plan 375 312,572 312,947
Stock issuance relating to optional cash
contribution plan 40 33,160 33,200
Dividends declared ($.24 per share) (664,732) (664,732)
- ---------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 27,891 14,607,299 5,214,763 (2,628) 19,847,325
Net change in unrealized holding loss
on available-for-sale securities 151,915 151,915
Net income 2,845,990 2,845,990
Issuance of common stock from dividend
reinvestment plan 308 351,141 351,449
Stock issuance relating to optional cash
contribution plan 138 158,017 158,155
Net proceeds from stock offering 4,030 3,862,141 3,866,171
Dividends declared ($.25 per share) (784,579) (784,579)
- ---------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 $32,367 $18,978,598 $7,276,174 $ 149,287 $26,436,426
=====================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
Consolidated Statements of Cash Flows
Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 2,845,990 $ 2,378,195 $ 1,645,587
Adjustments to reconcile net income to net cash provided by operating
activities:
Amortization of goodwill 226,800 98,000
Accretion, net of amortization of fair market value adjustments (5,718) (1,429)
Amortization of organization cost 3,440
Gain on sale of fixed assets (4,000) (8,702)
Securities gains, net (313,844) (112,631) (64,810)
Disposal of fixed assets 11,229
Depreciation and amortization 653,344 500,378 421,344
Provision for loan losses 500,000 400,000 550,000
Deferred tax benefit (90,885) (92,207) (147,018)
Increase (decrease) in taxes payable 184,331 (103,889) (130,854)
(Increase) decrease in interest receivable 57,316 384,435 (377,291)
Increase (decrease) in interest payable (12,184) (49,768) 46,544
Increase in accrued expenses 60,838 88,631 78,916
(Increase) decrease in prepaid expenses (78,662) (130,768) 29,878
Increase (decrease) in other liabilities 29 (139,617) 60,975
(Increase) decrease in other assets 345,234 (322,275) 468,150
Accretion, net of amortization of securities (220,167) (430,515) (131,441)
Change in unearned income 47,142 115,825 123,639
(Gain) loss on sales of other real estate owned, net 42,457 21,008 (26,728)
Writedown of other real estate owned 67,480 30,000 104,578
- -------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 4,305,501 2,624,671 2,666,138
- -------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchases of available-for-sale securities (18,776,994) (10,128,087) (11,242,820)
Proceeds from sales of available-for-sale securities 1,171,136 661,644 1,677,568
Proceeds from maturities of available-for-sale securities 14,786,873 14,859,193 6,340,942
Purchases of held-to-maturity securities (14,714,192) (16,141,095) (25,375,641)
Proceeds from maturities of held-to-maturity securities 17,142,658 19,514,788 16,421,213
Net (increase) decrease in interest bearing time deposits with other
banks 42,910 (7,519)
Purchases of Federal Home Loan Bank stock (409,400) (290,700)
Redemption of Federal Home Loan Bank stock 93,600
Proceeds from sales of fixed assets 4,000 8,702
Proceeds from sales of other real estate owned 291,293 147,458 1,219,832
Net increase in loans (15,258,154) (14,971,481) (16,343,674)
Cash and cash equivalents of $19,936,591 acquired in the purchase of
Fairbank, Inc., less cash of $8,575,284 paid for the common stock of
Fairbank, Inc. 11,361,307
Capital expenditures (394,602) (1,085,521) (126,146)
Recoveries of previously charged-off loans 94,405 439,788 38,553
- -------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities (15,610,667) 4,343,377 (27,680,873)
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
Consolidated Statements of Cash Flows (continued)
Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from financing activities:
Fractional shares paid in cash (3,360) (7,186)
Proceeds from issuance of common stock 4,438,376 346,147 244,961
Cost of stock issuance (62,601)
Net increase (decrease) in demand deposits, NOW and savings accounts (1,230) 1,912,803 (4,318,602)
Net increase (decrease) in time deposits 3,529,471 (3,191,933) 41,224,488
Net decrease in securities sold under agreements to repurchase (113,551)
Net increase (decrease) in other borrowed funds 458,227 (458,227)
Advances from Federal Home Loan Bank 430,000
Dividends paid (734,073) (658,165) (455,345)
Payment on notes payable (100,000) (243,013)
- -------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 7,499,943 (1,379,294) 36,116,538
- -------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (3,805,223) 5,588,754 11,101,803
Cash and cash equivalents at beginning of year 24,128,724 18,539,970 7,438,167
- -------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 20,323,501 $ 24,128,724 $ 18,539,970
=========================================================================================================================
Supplemental disclosures:
Loans transferred to other real estate owned $ 446,612 $ 144,741 $ 1,581,571
Loans originating from the sale of other real estate owned 193,600 435,000 205,000
Interest paid 10,424,662 9,127,839 7,717,729
Income taxes paid 1,827,295 1,760,097 1,283,644
Other real estate owned transferred to loans 333,000
In 1996 the Company purchased all of the common stock of Fairbank,
Inc. for $8,575,284. In conjunction with the acquisition,
liabilities were assumed as follows:
Fair value of assets acquired $ 65,141,843
Cash paid for the common stock 8,575,284
- -------------------------------------------------------------------------------------------------------------------------
Liabilities assumed $ 56,566,559
=========================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
Slade's Ferry Bancorp and Subsidiary
Notes to Consolidated Financial Statements
Years Ended December 31, 1997, 1996 and 1995
NOTE 1 - Nature of Operations
Slade's Ferry Bancorp (Company) (formerly known as Weetamoe Bancorp)
is a Massachusetts corporation that was organized in 1990 to become the
holding company of Slade's Ferry Trust Company (Bank).
In December of 1996 the stockholders of the Company approved the
change of the name of the Company to Slade's Ferry Bancorp effective
January 1, 1997. The Company's primary activity is to act as the holding
company for the Bank. The Bank is a state chartered bank, which was
incorporated in 1959 and is headquartered in Somerset, Massachusetts. The
Bank operates its business from ten banking offices located in
Massachusetts. The Bank is engaged principally in the business of
attracting deposits from the general public and investing those deposits
in residential and real estate loans, and in commercial, consumer and
small business loans.
NOTE 2 - Accounting Policies
The accounting and reporting policies of the Company and its
Subsidiary conform to generally accepted accounting principles and
predominant practices within the banking industry. The consolidated
financial statements of the Company were prepared using the accrual basis
of accounting. The significant accounting policies of the Company and its
subsidiary are summarized below to assist the reader in better
understanding the consolidated financial statements and other data
contained herein.
Pervasiveness of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from the
estimates.
Basis of Presentation:
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiary, the Bank and the Bank's wholly-
owned subsidiaries, Slade's Ferry Realty Trust and Slade's Ferry
Securities Corporation. All significant intercompany accounts and
transactions have been eliminated in the consolidation.
Cash and Cash Equivalents:
For purposes of reporting cash flows, cash and cash equivalents
include cash on hand, cash items, due from banks, interest bearing
deposits with other banks and federal funds sold.
Securities:
Investments in debt securities are adjusted for amortization of
premiums and accretion of discounts. Gains or losses on sales of
investment securities are computed on a specific identification basis.
The Company classifies debt and equity securities into one of three
categories: held-to-maturity, available-for-sale, or trading. This
security classification may be modified after acquisition only under
certain specified conditions. In general, securities may be classified as
held-to-maturity only if the Company has the positive intent and ability
to hold them to maturity. Trading securities are defined as those bought
and held principally for the purpose of selling them in the near term.
All other securities must be classified as available-for-sale.
* Held-to-maturity securities are measured at amortized cost in the
balance sheet. Unrealized holding gains and losses are not included
in earnings or in a separate component of capital. They are merely
disclosed in the notes to the consolidated financial statements.
* Available-for-sale securities are carried at fair value on the
balance sheet. Unrealized holding gains and losses are not included
in earnings, but are reported as a net amount (less expected tax) in
a separate component of capital until realized.
* Trading securities are carried at fair value on the balance sheet.
Unrealized holding gains and losses for trading securities are
included in earnings.
Loans:
Loans receivable that management has the intent and ability to hold
for the foreseeable future or until maturity or payoff are reported at
their outstanding principal balances reduced by amounts due to borrowers
on unadvanced loans, by any charge-offs, the allowance for loan losses and
any deferred fees or costs on originated loans, or unamortized premiums or
discounts on purchased loans.
Interest on loans is recognized on a simple interest basis.
Loan origination and commitment fees and certain direct origination
costs are deferred, and the net amount amortized as an adjustment of the
related loan's yield. The Company is amortizing these amounts over the
contractual life of the related loans.
Cash receipts of interest income on impaired loans is credited to
principal to the extent necessary to eliminate doubt as to the
collectibility of the net carrying amount of the loan. Some or all of the
cash receipts of interest income on impaired loans is recognized as
interest income if the remaining net carrying amount of the loan is deemed
to be fully collectible. When recognition of interest income on an
impaired loan on a cash basis is appropriate, the amount of income that is
recognized is limited to that which would have been accrued on the net
carrying amount of the loan at the contractual interest rate. Any cash
interest payments received in excess of the limit and not applied to
reduce the net carrying amount of the loan are recorded as recoveries of
charge-offs until the charge-offs are fully recovered.
Allowance for Possible Loan Losses:
An allowance is available for losses which may be incurred in the
future on loans in the current portfolio. The allowance is increased by
provisions charged to current operations and is decreased by loan losses,
net of recoveries. The provision for loan losses is based on management's
evaluation of current and anticipated economic conditions, changes in the
character and size of the loan portfolio, and other indicators. The
balance in the allowance for possible loan losses is considered adequate
by management to absorb any reasonably foreseeable loan losses.
The Company considers a loan to be impaired when, based on current
information and events, it is probable that a creditor will be unable to
collect all amounts due according to the contractual terms of the loan
agreement. The Company measures impaired loans on a loan by loan basis by
either the present value of expected future cash flows discounted at the
loan's effective interest rate, the loan's observable market price, or the
fair value of the collateral if the loan is collateral dependent.
The Company considers for impairment all loans, except large groups
of smaller balance homogeneous loans that are collectively evaluated for
impairment, loans that are measured at fair value or at the lower of cost
or fair value, leases, and convertible or nonconvertible debentures and
bonds and other debt securities. The Company considers its residential
real estate loans and consumer loans that are not individually significant
to be large groups of smaller balance homogeneous loans.
Factors considered by management in determining impairment include
payment status, net worth and collateral value. An insignificant payment
delay or an insignificant shortfall in payment does not in itself result
in the review of a loan for impairment. The Company reviews its loans for
impairment on a loan-by-loan basis. The Company does not apply impairment
to aggregations of loans that have risk characteristics in common with
other impaired loans. Interest on a loan is not generally accrued when
the loan becomes ninety or more days overdue. The Company may place a
loan on nonaccrual status but not classify it as impaired, if (i) it is
probable that the Company will collect all amounts due in accordance with
the contractual terms of the loan or (ii) the loan is an individually
insignificant residential mortgage loan or consumer loan. Impaired loans
are charged-off when management believes that the collectibility of the
loan's principal is remote. Substantially all of the Company's loans that
have been identified as impaired have been measured by the fair value of
existing collateral.
Premises and Equipment:
Premises and equipment are stated at cost, less accumulated
depreciation and amortization. Cost and related allowances for
depreciation and amortization of premises and equipment retired or
otherwise disposed of are removed from the respective accounts with any
gain or loss included in income or expense. Depreciation and amortization
are calculated principally on the straight-line method over the estimated
useful lives of the assets.
Goodwill:
Goodwill arising from the acquisition of Fairbank, Inc. is reported
net of accumulated amortization. Goodwill is being amortized on a
straight-line basis over a period of fifteen years.
Other Real Estate Owned and In-Substance Foreclosures:
Other real estate owned includes properties acquired through
foreclosure and properties classified as in-substance foreclosures in
accordance with Financial Accounting Standards Board Statement No. 15,
"Accounting by Debtors and Creditors for Troubled Debt Restructuring."
These properties are carried at the lower of cost or estimated fair value
less estimated cost to sell. Any writedown from cost to estimated fair
value required at the time of foreclosure or classification as in-
substance foreclosure is charged to the allowance for possible loan
losses. Expenses incurred in connection with maintaining these assets,
subsequent writedowns and gains or losses recognized upon sale are
included in other expense.
In accordance with Statement of Financial Accounting Standards No.
114 "Accounting by Creditors for Impairment of a Loan," the Company
classifies loans as in-substance repossessed or foreclosed if the Company
receives physical possession of the debtor's assets regardless of whether
formal foreclosure proceedings take place.
Income Taxes:
The Company recognizes income taxes under the asset and liability
method. Under this method, deferred tax assets and liabilities are
established for the temporary differences between the accounting basis and
the tax basis of the Company's assets and liabilities at enacted tax rates
expected to be in effect when the amounts related to such temporary
differences are realized or settled.
Fair Values of Financial Instruments:
Statement of Financial Accounting Standards No. 107, "Disclosures
about Fair Value of Financial Instruments," requires that the Company
disclose estimated fair value for its financial instruments. Fair value
methods and assumptions used by the Company in estimating its fair value
disclosures are as follows:
Cash and cash equivalents: The carrying amounts reported in the balance
sheet for cash and federal funds sold approximate those assets' fair
values.
Securities (including mortgage-backed securities): Fair values for
securities are based on quoted market prices, where available. If quoted
market prices are not available, fair values are based on quoted market
prices of comparable instruments.
Loans receivable: For variable-rate loans that reprice frequently and
with no significant change in credit risk, fair values are based on
carrying values. The fair values for other loans are estimated using
discounted cash flow analyses, using interest rates currently being
offered for loans with similar terms to borrowers of similar credit
quality. The carrying amount of accrued interest approximates its fair
value.
Deposit liabilities: The fair values disclosed for demand deposits (e.g.,
interest and non-interest checking, passbook savings, and money market
accounts) are, by definition, equal to the amount payable on demand at the
reporting date (i.e., their carrying amounts). Fair values for fixed-rate
certificates of deposit are estimated using a discounted cash flow
calculation that applies interest rates currently being offered on
certificates to a schedule of aggregated expected monthly maturities on
time deposits.
Off-balance sheet instruments: The fair value of commitments to originate
loans is estimated using the fees currently charged to enter similar
agreements, taking into account the remaining terms of the agreements and
the present creditworthiness of the counterparties. For fixed-rate loan
commitments and the unadvanced portion of loans, fair value also considers
the difference between current levels of interest rates and the committed
rates. The fair value of letters of credit is based on fees currently
charged for similar agreements or on the estimated cost to terminate them
or otherwise settle the obligation with the counterparties at the
reporting date.
Earnings Per Share:
Statement of Financial Accounting Standards No. 128 (SFAS No. 128),
"Earnings per Share" is effective for periods ending after December 15,
1997. SFAS No. 128 simplifies the standards of computing earnings per
share (EPS) previously found in APB Opinion No. 15. It replaces the
presentation of primary EPS with a presentation of basic EPS. It also
requires dual presentation of basic and diluted EPS on the face of the
income statement for all entities with complex capital structures and
requires a reconciliation of the numerator and denominator of the basic
EPS computation to the numerator and denominator of the diluted EPS
computation.
Basic EPS excludes dilution and is computed by dividing income
available to common stockholders by the weighted-average number of common
shares outstanding for the period. Diluted EPS reflects the potential
dilution that could occur if securities or other contracts to issue common
stock were exercised or converted into common stock or resulted in the
issuance of common stock that then shared in the earnings of the entity.
Diluted EPS is computed similarly to fully diluted EPS pursuant to APB
Opinion No. 15.
The Company has computed and/presented EPS for the year ended
December 31, 1997 in accordance with SFAS No. 128. EPS as so computed
does not differ materially from EPS that would have resulted if APB
Opinion No. 15 had been applied. In accordance with SFAS No. 128 all
prior-period EPS data presented has been restated. EPS so restated does
not differ materially from EPS previously presented.
Stock Based Compensation:
Prior to 1997, the Company did not make stock-based compensation
awards. In 1997, the Company began making such awards and had the option,
under SFAS No. 123, of accounting for stock-based compensation using the
intrinsic value approach in APB No. 25 and the fair value method
introduced in SFAS No. 123. The Company elected to use the APB No. 25
method. Entities electing to follow the provisions of APB No. 25 must
make pro forma disclosure of net income and earnings per share, as if the
fair value method of accounting defined in SFAS No. 123 had been applied.
The Company has made the pro forma disclosures required by SFAS No. 123.
NOTE 3 - Acquisition of Fairbank, Inc.
On August 23, 1996 the Company effected its acquisition of Fairbank,
Inc., a Massachusetts corporation, and its wholly owned subsidiary, the
National Bank of Fairhaven, through the Company's wholly owned subsidiary,
Slade's Ferry Trust Company. The acquisition was accomplished by the
payment by Slade's Ferry Trust Company of $8,575,284 in cash from its
capital funds for all of the outstanding shares of the common stock of
Fairbank, Inc. As a result of the acquisition, Fairbank, Inc. was
dissolved, and the National Bank of Fairhaven was merged into Slade's
Ferry Trust Company. The National Bank of Fairhaven's two banking offices
in Fairhaven and New Bedford, Massachusetts have become branches of
Slade's Ferry Trust Company.
The acquisition has been accounted for as a purchase, and the
results of operations of Fairbank, Inc. since the date of the acquisition
are included in the consolidated financial statements. Goodwill reflected
by the purchase accounting amounted to $3,405,368 and is being amortized
over 15 years on a straight-line basis.
The following summary, prepared on an unaudited pro forma basis
presents the results of operations as though the Company and Fairbank,
Inc. had been merged as of the beginning of the years ended December 31:
<TABLE>
<CAPTION>
1996 1995
- ------------------------------------------------------------------------------------
<S> <C> <C>
Net interest income after provision for loan losses $12,077,046 $11,023,354
Noninterest income 1,349,224 1,375,517
- ------------------------------------------------------------------------------------
Total 13,426,270 12,398,871
Noninterest expense 9,251,100 9,376,107
- ------------------------------------------------------------------------------------
Income before income taxes 4,175,170 3,022,764
Income taxes 1,543,200 1,034,117
- ------------------------------------------------------------------------------------
Net income $ 2,631,970 $ 1,988,647
====================================================================================
</TABLE>
The pro forma results are not necessarily indicative of what
actually would have occurred if the acquisition had been in effect for the
entire years of 1996 and 1995. In addition, they are not intended to be a
projection of future results and do not reflect any effects that might be
achieved from combined operations.
NOTE 4 - Securities
Debt and equity securities have been classified in the consolidated
balance sheets according to management's intent. The carrying amount of
securities and their approximate fair values are as follows as of December
31:
<TABLE>
<CAPTION>
Gross Gross
Unrealized Unrealized
Amortized Holding Holding
Cost Basis Gains Losses Fair Value
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available-for-sale securities:
December 31, 1997:
Debt securities issued by the U.S. Treasury and other
U.S. government corporations and agencies $30,401,644 $ 84,683 $ 91,311 $30,395,016
Mortgage-backed securities 7,747,509 23,504 19,934 7,751,079
Asset-backed securities 234,136 279 233,857
Marketable equity securities 1,565,123 301,666 70,523 1,796,266
- --------------------------------------------------------------------------------------------------------------------
$39,948,412 $409,853 $182,047 $40,176,218
====================================================================================================================
December 31, 1996:
Debt securities issued by the U.S. Treasury and other
U.S. government corporations and agencies $32,792,636 $ 80,150 $281,010 $32,591,776
Mortgage-backed securities 2,469,385 90 38,367 2,431,108
Asset-backed securities 245,806 377 245,429
Marketable equity securities 1,775,288 267,778 56,216 1,986,850
- --------------------------------------------------------------------------------------------------------------------
$37,283,115 $348,018 $375,970 $37,255,163
====================================================================================================================
Held-to-maturity securities:
December 31, 1997:
Debt securities issued by the U.S. Treasury and other
U.S. government corporations and agencies $ 9,415,554 $ 55,276 $ 3,871 $ 9,466,959
Debt securities issued by states of the United States
and political subdivisions of the states 7,975,728 106,237 13,079 8,068,886
Mortgage-backed securities 209,254 2,384 211,638
Other debt securities 1,000 17 1,017
- --------------------------------------------------------------------------------------------------------------------
$17,601,536 $163,914 $ 16,950 $17,748,500
====================================================================================================================
December 31, 1996:
Debt securities issued by the U.S. Treasury and other
U.S. government corporations and agencies $13,192,933 $ 30,164 $ 7,784 $13,215,313
Debt securities issued by states of the United States
and political subdivisions of the states 6,130,922 37,952 67,043 6,101,831
Mortgage-backed securities 256,823 35,178 221,645
Debt securities issued by foreign governments 6,000 28 6 6,022
- --------------------------------------------------------------------------------------------------------------------
$19,586,678 $ 68,144 $110,011 $19,544,811
====================================================================================================================
</TABLE>
The scheduled maturities of held-to-maturity securities and
available-for-sale securities (other than equity securities) were as
follows as of December 31, 1997:
<TABLE>
<CAPTION>
Held-to-maturity Available-for-sale
securities: securities:
- -------------------------------------------------------------------------------------------------------------
Debt securities other than mortgage-backed and Amortized Amortized
asset-backed securities: Cost Basis Fair Value Cost Basis Fair Value
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Due within one year $ 5,257,100 $ 5,257,259 $ 5,048,467 $ 5,031,429
Due after one year through five years 7,290,512 7,365,732 18,057,224 18,051,285
Due after five years through ten years 4,714,146 4,783,085 7,295,953 7,312,302
Due after ten years 130,524 130,786
Mortgage-backed securities 209,254 211,638 7,747,509 7,751,079
Asset-backed securities 234,136 233,857
- -------------------------------------------------------------------------------------------------------------
$17,601,536 $17,748,500 $38,383,289 $38,379,952
=============================================================================================================
</TABLE>
During 1997, proceeds from sales of available-for-sale securities
amounted to $1,171,136. Gross realized gains and gross realized losses on
those sales amounted to $315,281 and $1,437, respectively. During 1996,
proceeds from sales of available-for-sale securities amounted to $661,644.
Gross realized gains and gross realized losses on those sales amounted to
$117,911 and $5,280, respectively. During 1995, proceeds from sales of
available-for-sale securities amounted to $1,677,568. Gross realized
gains and gross realized losses on those sales amounted to $125,954 and
$61,144, respectively.
There were no securities of issuers whose aggregate carrying amount
exceeded 10% of stockholders' equity as of December 31, 1997.
A total par value of $9,696,228 and $8,685,000 of debt securities
was pledged to secure treasury tax and loan, trust department and public
funds on deposit and the loan from Fleet National Bank as of December 31,
1997 and 1996, respectively.
NOTE 5 - Loans
Loans consisted of the following as of December 31:
<TABLE>
<CAPTION>
1997 1996
- ----------------------------------------------------------------------------------
<S> <C> <C>
Commercial, financial and agricultural $ 36,640,703 $ 31,243,643
Real estate - construction and land development 6,677,684 6,891,200
Real estate - residential 55,477,271 59,499,876
Real estate - commercial 108,007,972 94,545,028
Consumer 6,746,866 6,681,825
Obligations of states and political subdivisions 9,372 16,044
Other 176,635 108,596
- ----------------------------------------------------------------------------------
213,736,503 198,986,212
Allowance for possible loan losses (3,693,865) (3,354,311)
Unearned income (690,048) (642,906)
Unamortized adjustment to fair value (42,750) (54,150)
- ----------------------------------------------------------------------------------
Net loans, carrying amount $209,309,840 $194,934,845
==================================================================================
</TABLE>
Certain directors and executive officers of the Company and
companies in which they have significant ownership interest were customers
of the Bank during 1997. Total loans to such persons and their companies
amounted to $4,794,166 as of December 31, 1997. During the year ended
December 31, 1997, $2,545,129 of new loans were made and repayments
totaled $3,562,088.
Changes in the allowance for possible loan losses were as follows
for the years ended December 31:
<TABLE>
<CAPTION>
1997 1996 1995
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of period $3,354,311 $2,497,774 $2,305,860
Loans charged off (254,851) (439,229) (396,639)
Provision for loan losses 500,000 400,000 550,000
Recoveries of loans previously charged off 94,405 439,788 38,553
Transfer of Fairbank, Inc.'s allowance to Slade's
Ferry Trust Company 455,978
- -------------------------------------------------------------------------------------------
Balance at end of period $3,693,865 $3,354,311 $2,497,774
===========================================================================================
</TABLE>
Information about loans that meet the definition of an impaired loan
in Statement of Financial Accounting Standards No. 114 is as follows as of
December 31:
<TABLE>
<CAPTION>
1997 1996
- -------------------------------------------------------------------------------------------------------------------------
Recorded Related Recorded Related
Investment Allowance Investment Allowance
In Impaired For Credit In Impaired For Credit
Loans Losses Loans Losses
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Loans for which there is a related allowance for credit losses $1,776,557 $623,570 $3,763,977 $838,290
Loans for which there is no related allowance for credit losses 3,792,560 1,907,942
- -------------------------------------------------------------------------------------------------------------------------
Totals $5,569,117 $623,570 $5,671,919 $838,290
=========================================================================================================================
Average recorded investment in impaired loans during the year
ended December 31 $6,173,640 $4,618,045
=========================================================================================================================
Related amount of interest income recognized during the time, in
the year ended December 31, that the loans were impaired
Total recognized $ 79,340 $ 148,102
=========================================================================================================================
Amount recognized using a cash-basis method of accounting $ 0 $ 148,102
=========================================================================================================================
</TABLE>
NOTE 6 - Premises and Equipment
The following is a summary of premises and equipment as of December 31:
<TABLE>
<CAPTION>
1997 1996
- -------------------------------------------------------------------------
<S> <C> <C>
Land $ 1,145,368 $ 1,145,368
Buildings 3,920,080 3,505,679
Furniture and equipment 2,831,566 2,559,912
Leasehold improvements 1,376,689 1,376,689
Renovations in process 323,481
- -------------------------------------------------------------------------
9,273,703 8,911,129
Accumulated depreciation and amortization (3,555,169) (2,940,255)
- -------------------------------------------------------------------------
$ 5,718,534 $ 5,970,874
=========================================================================
</TABLE>
NOTE 7 - Deposits
The aggregate amount of time deposit accounts (including CDs), each
with a minimum denomination of $100,000, was approximately $23,111,663 and
$21,473,151 as of December 31, 1997 and 1996, respectively.
For time deposits as of December 31, 1997, the aggregate amount of
maturities for each of the following four years ended December 31, are:
<TABLE>
<S> <C>
1998 $111,683,774
1999 12,678,703
2000 7,653,181
2001 40,265
Less: Unamortized adjustment to fair value (5,250)
-------------------------------------------------------------
$132,050,673
=============================================================
</TABLE>
NOTE 8 - Securities Sold Under Agreements to Repurchase
Securities sold under agreements to repurchase generally matured
within one to four days from the transaction date.
There were no agreements outstanding as of December 31, 1997 and
1996. There were no securities sold under agreements to repurchase during
1997 and 1996.
Information concerning securities sold under agreements to
repurchase is summarized as follows for the year ended December 31, 1995:
Average balance during the year $14,622
Average interest rate during the year 3.80%
Maximum month-end balance during the year $ 0
NOTE 9 - Other Borrowed Funds
Other borrowed funds consist of treasury tax and loan deposits and
generally are repaid within one to 120 days from the transaction date.
NOTE 10 - Note Payable
Note payable consisted of the following as of December 31, 1997:
Note payable by the Bank to Fleet National Bank. The note payable
was assumed by the Bank in the acquisition of Fairbank, Inc. Minimum
quarterly principal payments of $25,000 are payable on the last business
day of each calendar quarter. The interest rate on the loan is 3 month
LIBOR plus 1.2% floating, which has been swapped to yield a 9.01% fixed
rate. Interest payments are due quarterly and the maturity of the loan is
November 25, 1999. Collateral for the loan consists of U. S. Treasury or
agency securities owned by the Bank.
The maturity requirements of the note payable are as follows based
on minimum quarterly principal payments of $25,000 as described above as
of December 31, 1997:
<TABLE>
<S> <C>
1998 $100,000
1999 850,000
Less: Unamortized adjustment to fair value (4,692)
---------------------------------------------------------
$945,308
=========================================================
</TABLE>
NOTE 11 - Advances from Federal Home Loan Bank of Boston
Advances consist of funds borrowed from the Federal Home Loan Bank
of Boston (FHLB). The components of these borrowings are as follows as of
December 31, 1997:
<TABLE>
<CAPTION>
Amount Maturity Date Rate
-------- ---------------- -----
<S> <C> <C>
$430,000 December 9, 2017 5.66%
========
</TABLE>
Advances are secured by the Bank's stock in that institution, its
residential real estate mortgage portfolio and the remaining U.S.
government and agencies obligations not otherwise pledged.
NOTE 12 - Income Taxes
The components of income tax expense are as follows for the years
ended December 31:
<TABLE>
<CAPTION>
1997 1996 1995
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $1,463,401 $1,204,212 $ 866,336
State 548,225 451,996 286,454
- ------------------------------------------------------------------------
2,011,626 1,656,208 1,152,790
- ------------------------------------------------------------------------
Deferred:
Federal (71,848) (51,722) (105,334)
State (19,037) (40,485) (41,684)
- ------------------------------------------------------------------------
(90,885) (92,207) (147,018)
- ------------------------------------------------------------------------
Total income tax expense $1,920,741 $1,564,001 $1,005,772
========================================================================
</TABLE>
The reasons for the differences between the statutory federal income
tax rates and the effective tax rates are summarized as follows for the
years ended December 31:
<TABLE>
<CAPTION>
1997 1996 1995
- --------------------------------------------------------------------------------
% of % of % of
Income Income Income
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal income tax at statutory rate 34.0% 34.0% 34.0%
Increase (decrease) in tax resulting from:
Tax-exempt income (2.2) (2.3) (2.9)
Dividends received deduction (.2) (.3) (.3)
Unallowable expenses .5 .6 1.0
Amortization of goodwill 1.6 .8
State tax, net of federal tax benefit 6.6 6.9 6.1
- --------------------------------------------------------------------------------
40.3% 39.7% 37.9%
- --------------------------------------------------------------------------------
</TABLE>
The Company had gross deferred tax assets and gross deferred tax
liabilities as follows as of December 31:
<TABLE>
<CAPTION>
1997 1996
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Operating loss carryover $ 173,663 $ 342,442
Allowance for loan losses 1,309,659 1,127,190
Deferred loan fees 256,635 227,354
Interest on non-performing loans 211,491 137,931
Accrued employee benefits 153,011 118,464
Other real estate owned valuation 985 43,246
Other adjustments 3,317 3,365
Net unrealized holding loss on available-for-sale securities 25,324
- -------------------------------------------------------------------------------------------
Gross deferred tax assets 2,108,761 2,025,316
===========================================================================================
Deferred tax liabilities:
Accelerated depreciation (232,613) (223,344)
Prepaid pensions (63,341) (53,531)
Discount accretion (1,139) (2,334)
Net unrealized holding gain on available-for-sale securities (78,520)
- -------------------------------------------------------------------------------------------
Gross deferred tax liabilities (375,613) (279,209)
- -------------------------------------------------------------------------------------------
Net deferred tax assets $1,733,148 $1,746,107
===========================================================================================
</TABLE>
Deferred tax assets as of December 31, 1997 and 1996 have not been
reduced by a valuation allowance because management believes that it is
more likely than not that the full amount of deferred tax assets will be
realized.
As of December 31, 1997, the Company had approximately $511,000 in
operating loss carryovers for tax purposes which expire in 2010.
NOTE 13 - Employee Benefits
The Company has a defined benefit pension plan (plan) covering
substantially all of its full time employees who meet certain eligibility
requirements. Employees are eligible under the plan upon attaining age 21
and completing one year of service. The benefits paid are based on 1.5%
of total salary plus .5% of compensation in excess of integration level
per year of service. The integration level is the first $750 of monthly
compensation. The accrued benefit is based on years of service.
The following table sets forth the funded status of the plan and
amounts recognized in the Company's consolidated balance sheet as of
December 31:
<TABLE>
<CAPTION>
1997 1996
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation (including vested benefits
of $1,038,366, and $532,732, respectively) $ 1,059,333 $ 536,848
=========================================================================================
Projected benefit obligation for services rendered to date $(1,424,299) $ (875,343)
Plan assets at fair value, primarily invested in corporate
stocks, U.S. government securities and cash and cash
equivalents 1,131,394 916,360
- -----------------------------------------------------------------------------------------
Plan assets greater (less) than projected benefit obligation (292,905) 41,017
Unrecognized net gain from past experience different from
that assumed and effect of changes in assumptions 656,570 318,010
Unrecognized prior service cost (338,714) (365,736)
Unrecognized net obligation from 1988 transition date being
amortized over 25.78 years 126,400 134,407
- -----------------------------------------------------------------------------------------
Prepaid pension cost included on the balance sheet $ 151,351 $ 127,698
=========================================================================================
</TABLE>
Net periodic pension cost included the following components for the
years ended December 31:
<TABLE>
<CAPTION>
1997 1996 1995
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost-benefits earned during the period $ 97,214 $ 92,434 $115,008
Interest cost on projected benefit obligation 104,822 65,745 171,702
Actual return on plan assets (95,773) (70,423) (176,649)
Net amortization and deferral 45,584 (5,699) 59,332
- --------------------------------------------------------------------------------------
Net periodic pension cost $151,847 $ 82,057 $169,393
======================================================================================
</TABLE>
The weighted-average discount rate and rate of increase in future
compensation levels used in determining the actuarial present value of the
projected benefit obligation were 8.5% and 2.0%, respectively. The
expected long-term rate of return on assets was 8.5%.
The Bank has a 401K plan for eligible employees who attain age 21
and complete one year of service. The Bank contributes a discretionary
amount to be allocated to eligible participants. Current contributions
vest fully after seven years of continuous service. The amount that may
be deferred by the employees is limited by the amount that will not cause
the plan to exceed IRS limitations. Contributions made by the Bank
charged to employee benefit expense amounted to $9,500, $7,000 and $6,000
for the years ended December 31, 1997, 1996 and 1995, respectively.
NOTE 14 - Commitments and Contingent Liabilities
The Company is obligated under certain agreements issued during the
normal course of business which are not reflected in the accompanying
financial statements.
The Company is obligated under various lease agreements covering
branch offices and equipment. These agreements are considered to be
operating leases. The total minimum rental due in future periods under
these agreements is as follows as of December 31, 1997:
<TABLE>
<S> <C>
1998 $ 70,662
1999 70,662
2000 70,662
2001 70,662
2002 70,662
Thereafter 309,725
--------------------------------------------
Total minimum lease payments $663,035
============================================
</TABLE>
Certain leases contain provisions for escalation of minimum lease
payments contingent upon increases in real estate taxes and percentage
increases in the consumer price index. The total rental expense amounted
to $90,210 for 1997, $66,223 for 1996 and $46,592 for 1995.
NOTE 15 - Financial Instruments
The Company is party to financial instruments with off-balance sheet
risk in the normal course of business to meet the financing needs of its
customers. These financial instruments include commitments to originate
loans, standby letters of credit and unadvanced funds on loans. The
instruments involve, to varying degrees, elements of credit risk in excess
of the amount recognized in the balance sheets. The contract amounts of
those instruments reflect the extent of involvement the Company has in
particular classes of financial instruments.
The Company's exposure to credit loss in the event of nonperformance
by the other party to the financial instrument for loan commitments and
standby letters of credit is represented by the contractual amounts of
those instruments. The Company uses the same credit policies in making
commitments and conditional obligations as it does for on-balance sheet
instruments.
Commitments to originate loans are agreements to lend to a customer
provided there is no violation of any condition established in the
contract. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Since many of the
commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements.
The Company evaluates each customer's creditworthiness on a case-by-case
basis. The amount of collateral obtained, if deemed necessary by the
Company upon extension of credit, is based on management's credit
evaluation of the borrower. Collateral held varies, but may include
secured interests in mortgages, accounts receivable, inventory, property,
plant and equipment and income-producing properties.
Standby letters of credit are conditional commitments issued by the
Company to guarantee the performance by a customer to a third party. The
credit risk involved in issuing letters of credit is essentially the same
as that involved in extending loan facilities to customers. Of the total
standby letters of credit outstanding as of December 31, 1997, $797,842
are secured by deposits at the Bank.
The estimated fair values of the Company's financial instruments,
all of which are held or issued for purposes other than trading, are as
follows as of December 31:
<TABLE>
<CAPTION>
1997 1996
- --------------------------------------------------------------------------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 20,323,501 $ 20,323,501 $ 24,128,724 $ 24,128,724
Interest bearing time deposits with other banks 106,688 106,688 149,598 149,598
Available-for-sale securities 40,176,218 40,176,218 37,255,163 37,255,163
Held-to-maturity securities 17,601,536 17,748,500 19,586,678 19,544,811
Federal Home Loan Bank stock 890,600 890,600 890,600 890,600
Loans 209,309,840 209,036,000 194,934,845 195,498,000
Accrued interest receivable 1,796,467 1,796,467 1,853,783 1,853,783
Financial liabilities:
Note payable 945,308 945,340 1,042,626 1,047,220
Other borrowed funds 1,200,000 1,200,000 1,200,000 1,200,000
Advances from Federal Home Loan Bank 430,000 396,000
Deposits 271,322,250 271,637,000 267,791,009 268,344,000
</TABLE>
The carrying amounts of financial instruments shown in the above
table are included in the consolidated balance sheet under the indicated
captions. Accounting policies related to financial instruments are
described in Note 2.
The notional amounts of financial instrument liabilities with off-
balance sheet credit risk are as follows as of December 31:
<TABLE>
<CAPTION>
1997 1996
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Commitments to originate loans $10,148,013 $ 9,402,290
Standby letters of credit 2,356,380 1,176,936
Unadvanced portions of loans:
Consumer loans (including credit card loans and student loans) 3,545,582 2,805,679
Commercial real estate loans 851,935 223,000
Home equity loans 1,501,126 1,755,198
Commercial lines of credit 14,032,988 9,744,425
Construction loans 2,768,196 1,641,700
- ----------------------------------------------------------------------------------------------
$35,204,220 $26,749,228
==============================================================================================
</TABLE>
There is no material difference between the notional amounts and the
estimated fair values of the off-balance sheet liabilities.
The Company has no derivative financial instruments subject to the
provisions of SFAS No. 119 "Disclosure About Derivative Financial
Instruments and Fair Value of Financial Instruments" other than the
interest rate swap described in Note 10.
NOTE 16 - Significant Group Concentrations of Credit Risk
Most of the Company's business activity is with customers located
within the state. There are no concentrations of credit to borrowers that
have similar economic characteristics. The majority of the Company's loan
portfolio is comprised of loans collateralized by real estate located in
the state of Massachusetts.
NOTE 17 - Earnings per Share (EPS)
Earnings per share were calculated using the weighted average number
of shares outstanding.
Reconciliation of the numerators and the denominators of the basic
and diluted per share computations for net income are as follows:
<TABLE>
<CAPTION>
Income Shares Per-Share
(Numerator) (Denominator) Amount
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Year ended December 31, 1997
Basic EPS
Net income and income available to common stockholders $2,845,990 3,033,197 $.94
Effect of dilutive securities, options 4,981
--------------------------------------
Diluted EPS
Income available to common stockholders and assumed
conversions $2,845,990 3,038,178 $.94
======================================
Year ended December 31, 1996 - As restated
Basic EPS
Net income and income available to common stockholders $2,378,195 2,764,887 $.86
Effect of dilutive securities, options 0
--------------------------------------
Diluted EPS
Income available to common stockholders and assumed
conversion $2,378,195 2,764,887 $.86
======================================
Year ended December 31, 1995 - As restated
Basic EPS
Net income and income available to common stockholders $1,645,587 2,738,250 $.60
Effect of dilutive securities, options 0
--------------------------------------
Diluted EPS
Income available to common stockholders and assumed
conversions $1,645,587 2,738,250 $.60
======================================
</TABLE>
NOTE 18 - Regulatory Matters
The Company and its subsidiary the Bank are subject to various
regulatory capital requirements administered by the federal banking
agencies. Failure to meet minimum capital requirements can initiate
certain mandatory - and possibly additional discretionary - actions by
regulators that, if undertaken, could have a direct material effect on the
Company's and the Bank's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the
Company and the Bank must meet specific capital guidelines that involve
quantitative measures of their assets, liabilities, and certain off-
balance-sheet items as calculated under regulatory accounting practices.
Their capital amounts and classification are also subject to qualitative
judgments by the regulators about components, risk weightings and other
factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Company and the Bank to maintain minimum amounts and
ratios (set forth in the table below) of total and Tier 1 capital (as
defined in the regulations) to risk-weighted assets (as defined), and of
Tier 1 capital (as defined) to average assets (as defined). Management
believes, as of December 31, 1997, that the Company and the Bank meet all
capital adequacy requirements to which they are subject.
As of December 31, 1997, the most recent notification from the
Federal Deposit Insurance Corporation categorized the Bank as well
capitalized under the regulatory framework for prompt corrective action.
To be categorized as well capitalized the Bank must maintain minimum total
risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth in
the table. There are no conditions or events since that notification that
management believes have changed the Bank's category.
The Company's and the Bank's actual capital amounts and ratios are
also presented in the table.
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes: Action Provisions:
----------------- ------------------ ------------------
(Dollar Amounts in Thousands) Amount Ratio Amount Ratio Amount Ratio
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1997:
Total Capital (to Risk Weighted Assets):
Consolidated $25,907 12.04% $17,210 >=8% N/A
Slade's Ferry Trust Company 24,022 11.18 17,183 >=8 $21,479 >=10%
Tier 1 Capital (to Risk Weighted Assets):
Consolidated 23,206 10.74 8,645 >=4 N/A
Slade's Ferry Trust Company 21,325 9.88 8,631 >=4 12,947 >=6
Tier 1 Capital (to Average Assets):
Consolidated 23,206 7.79 11,910 >=4 N/A
Slade's Ferry Trust Company 21,325 7.18 11,876 >=4 14,845 >=5
As of December 31, 1996:
Total Capital (to Risk Weighted Assets):
Consolidated $19,044 9.56% $15,938 >=8% N/A
Slade's Ferry Trust Company 18,935 9.51 15,934 >=8 $19,918 >=10%
Tier 1 Capital (to Risk Weighted Assets):
Consolidated 16,543 8.27 8,003 >=4 N/A
Slade's Ferry Trust Company 16,435 8.22 8,001 >=4 12,002 >=6
Tier 1 Capital (to Average Assets):
Consolidated 16,543 5.70 11,617 >=4 N/A
Slade's Ferry Trust Company 16,435 5.66 11,615 >=4 14,519 >=5
</TABLE>
The declaration of cash dividends is dependent on a number of
factors, including regulatory limitations, and the Company's operating
results and financial condition. The stockholders of the Company will be
entitled to dividends only when, and if, declared by the Company's Board
of Directors out of funds legally available therefore. Under the
Massachusetts Business Corporation Law, a dividend may not be declared if
the corporation is insolvent or if the declaration of the dividend would
render the corporation insolvent. The declaration of future dividends,
whether by the Board of Directors of the Company or the Bank, will be
subject to favorable operating results, financial conditions, tax
considerations, and other factors.
As of December 31, 1997 the Company would be restricted from
declaring dividends in an amount greater than $26,436,426 as such
declaration would render the corporation insolvent. As of December 31,
1997 the Bank would be restricted from declaring dividends in an amount
greater than approximately $6,839,000 as such declaration would decrease
capital below the Bank's required minimum level of regulatory capital.
NOTE 19 - Stock Option Plan
At the 1996 annual meeting stockholders approved a 1996 stock option
plan (Plan). No options were granted in 1996. A summary of the Plan is
as follows.
The Plan is divided into two separate equity incentive programs, a
Discretionary Grant Program and an Automatic Grant Program. The maximum
number of shares of common stock issuable over the term of the Plan may
not exceed 250,000 shares and the maximum aggregate number of shares
issuable under both programs in any plan year may not exceed 50,000
shares. Unless sooner terminated by the Board, the Plan will in all
events terminate on March 11, 2006.
Under the Discretionary Grant Program, key employees, including
officers, may be granted incentive stock options to purchase shares of
common stock. The option exercise price per share may not be less than
one hundred percent of the fair market value of common stock at grant date
and generally become exercisable in periodic installments over the
optionee's period of service. Two types of stock appreciation rights are
authorized for issuance: (1) tandem rights, which require the option
holder to elect between the exercise of the underlying option for shares
of common stock and the surrender of such option for appreciation
distribution and (2) limited rights, which are automatically exercised
upon the occurrence of a hostile takeover.
Eligibility for participation in the Automatic Grant Program is
limited to non-employee directors of the Company or its subsidiary who
have completed three full years of service as directors. Under the
Automatic Grant Program a nonstatutory option for 2,000 shares of common
stock shall be granted each plan year to eligible directors. The exercise
price per share will be equal to one hundred percent of the fair market
value per share of common stock at grant date and each option will have a
maximum five year term. Any purchased shares will be subject to
repurchase by the Company, at the exercise price paid per share, upon the
director's cessation of Board service prior to vesting in such shares.
The shares subject to each grant will vest (and the Company's repurchase
rights will lapse) in three equal annual installments over the director's
period of Board service measured from the grant date.
The Company applies APB Opinion 25 and related Interpretations in
accounting for its plan. Accordingly, no compensation cost has been
recognized for its stock option plan. Had compensation cost for the
Company's stock-based compensation plan been determined based on the fair
value at the grant dates for awards under those plans consistent with the
method of FASB Statement 123, the Company's net income and earnings per
share for the year ended December 31, 1997 would have been reduced to the
pro forma amounts indicated below:
Net income As reported $2,845,990
Pro forma $2,807,466
Basic earnings per share As reported $.94
Pro forma $.93
Diluted earnings per share As reported $.94
Pro forma $.92
The fair value of each option grant is estimated on the date of
grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants in the year ended December
31, 1997: dividend yield of 2 percent; expected volatility of 13 percent,
risk-free interest rate of 6.7 percent; and expected lives of 4 years.
A summary of the status of the Company's stock option plan as of
December 31, 1997 and changes during the year ending on that date is
presented below:
<TABLE>
<CAPTION>
Weighted-Average
Options Shares Exercise Price
--------------------------------------------------------------------
<S> <C> <C>
Outstanding at beginning of year 0
Granted 31,000 $9.34
Exercised 0
Forfeited 0
------
Outstanding at end of year 31,000 $9.34
======
Options exercisable at year-end 31,000
Weighted-average fair value of options
granted during the year $ 1.74
</TABLE>
The following table summarizes information about fixed stock options
outstanding at December 31, 1997:
<TABLE>
<CAPTION>
Options Outstanding and Exercisable
---------------------------------------------------------------------
Weighted-Average
Number Remaining Weighted-Average
Exercise Price Outstanding Contractual Life Exercise Price
---------------------------------------------------------------------
<S> <C> <C> <C>
$9.34 31,000 4.5 Years $9.34
</TABLE>
NOTE 20 - Litigation
The Bank is involved in a civil suit brought by a former employee of
the National Bank of Fairhaven, which primarily alleges a breach of
contract and other related claims. The demand by the plaintiff was
$550,000 to settle the case. However, a partial summary judgment was
granted on a defendant's motion dismissing all claims except the basic
claim for breach of contract. The case is still in the pretrial phase and
a motion is pending to amend the complaint to add a count of intentional
infliction of emotional distress. The Company estimates its potential
liability to be less than $550,000 and it believes it has meritorious
defenses to the claim. The Company believes that the suit will not have a
material adverse effect on the Company's financial condition, results of
operations or liquidity.
Slade's Ferry Bancorp
Parent company only
NOTE 21 - Parent Company Only Condensed Financial Statements
The following condensed financial statements are for Slade's Ferry
Bancorp (Parent Company Only) and should be read in conjunction with the
consolidated financial statements of Slade's Ferry Bancorp and Subsidiary.
Condensed Financial Statements
Balance Sheets
<TABLE>
<CAPTION>
December 31,
- --------------------------------------------------------------------------------------------
1997 1996
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash $ 319,437 $ 180,607
Investments in available-for-sale securities (at fair value) 1,446,722
Investments in held-to-maturity securities (fair value of
$246,917 as of December 31, 1997) 247,465
Investment in subsidiary, Slade's Ferry Trust Company 24,557,163 19,740,124
Premises and equipment 4,448
Accrued interest receivable 5,977
Other assets 38,539 37,713
- --------------------------------------------------------------------------------------------
$26,615,303 $19,962,892
============================================================================================
Liabilities and Stockholders' Equity
Other liabilities $ 178,877 $ 115,567
- --------------------------------------------------------------------------------------------
Total liabilities 178,877 115,567
- --------------------------------------------------------------------------------------------
Stockholders' equity:
Common stock, par value $.01 per share; authorized 5,000,000
shares; issued and outstanding 3,236,712.7 shares in 1997
and 2,789,142.3 shares in 1996 32,367 27,891
Paid-in capital 18,978,598 14,607,299
Retained earnings 7,276,174 5,214,763
Net unrealized holding gain (loss) on available-for-sale
securities 149,287 (2,628)
- --------------------------------------------------------------------------------------------
Total stockholders' equity 26,436,426 19,847,325
- --------------------------------------------------------------------------------------------
$26,615,303 $19,962,892
============================================================================================
</TABLE>
Statements of Income
<TABLE>
<CAPTION>
Years Ended December 31,
- -----------------------------------------------------------------------------------------------------------
1997 1996 1995
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Dividends from subsidiary $ 475,000 $ 360,000 $ 267,000
Interest and dividends on securities:
Taxable 40,199
Other Interest Income 4,267 2,474 1,827
Management fee income from subsidiary 438,479 415,904 546,028
Other income 4,000
- -----------------------------------------------------------------------------------------------------------
Total income 961,945 778,378 814,855
- -----------------------------------------------------------------------------------------------------------
Salaries and employee benefits 333,410 311,038 433,766
Equipment expense 4,449 20,596 33,605
Other expense 124,676 96,872 98,281
- -----------------------------------------------------------------------------------------------------------
Total expense 462,535 428,506 565,652
- -----------------------------------------------------------------------------------------------------------
Income before income taxes (benefit) and equity in undistributed
net income of subsidiary 499,410 349,872 249,203
Income taxes (benefit) 16,754 (2,400) 11,688
- -----------------------------------------------------------------------------------------------------------
Income before equity in undistributed net income of subsidiary 482,656 352,272 237,515
Equity in undistributed net income of subsidiary 2,363,334 2,025,923 1,408,072
- -----------------------------------------------------------------------------------------------------------
Net income $2,845,990 $2,378,195 $1,645,587
===========================================================================================================
</TABLE>
Statements of Cash Flows
Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net Income $ 2,845,990 $ 2,378,195 $ 1,645,587
Adjustments to reconcile net income to net cash provided
by operating activities:
Undistributed net income of subsidiary (2,363,334) (2,025,923) (1,408,072)
Amortization of organization cost 3,440
Accretion, net of amortization of securities (34,220)
Depreciation and amortization 4,448 10,677 21,039
Disposal of fixed assets 11,229
Increase (decrease) in taxes payable 5,007 (5,668) 1,659
Increase in accrued expenses 775 910 989
Increase in prepaid expenses (13,223) (210) (1,394)
Increase in interest receivable (5,977)
(Increase) decrease in other assets 13,639 (14,785) 5,313
Increase (decrease) in other liabilities 6,988 (636)
- ----------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 460,093 342,560 279,790
- ----------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Additional investment in subsidiary bank (2,300,000)
Purchases of held-to-maturity securities (2,613,316)
Proceeds from maturities of held-to-maturity securities 2,400,000
Purchases of available-for-sale securities (1,449,649)
- ----------------------------------------------------------------------------------------------------------
Net cash used in investing activities (3,962,965)
- ----------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Fractional shares paid in cash (3,360) (7,186)
Dividends paid (734,073) (658,165) (455,345)
Proceeds from issuance of common stock 4,375,775 346,147 244,961
- ----------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 3,641,702 (315,378) (217,570)
- ----------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 138,830 27,182 62,220
Cash and cash equivalents at beginning of year 180,607 153,425 91,205
- ----------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 319,437 $ 180,607 $ 153,425
==========================================================================================================
Supplemental disclosure:
Income taxes paid $ 11,747 $ 3,268 $ 10,029
</TABLE>
The Parent Company Only Statements of Changes in Stockholders'
Equity are identical to the Consolidated Statements of Changes in
Stockholders' Equity for the years ended December 31, 1997, 1996 and 1995,
and therefore are not reprinted here.
Slade's Ferry Bancorp and Subsidiary
Board of Directors
Slade's Ferry Bancorp -
Slade's Ferry Trust Company
Thomas B. Almy
Architect - I.T. Almy Associates
James D. Carey
Executive Vice President of Bancorp
President of Bank
Chief Executive Officer of Bank
Peter G. Collias, Esquire
Clerk/Secretary of Bancorp and Bank
Donald T. Corrigan
Chairman of the Board of Bancorp
Chairman of the Board of Bank
Melvyn A. Holland
Managing Partner
Rosenfield, Holland & Raymon PC
Certified Public Accountants
William Q. MacLean, Jr.
Vice President
Cornish & Co. Inc. Insurance
Francis A. Macomber
President - LeComtes All Star Dairy Inc.
Majed Mouded MD
Physician
Shaun O'Hearn, Sr.
President - Bolger & O'Hearn Inc.
Lawrence J. Oliveira DDS
Orthodontist
Peter Paskowski
Past President of Bank
Kenneth R. Rezendes
President/CEO of Bancorp
President - K.R. Rezendes, Inc.
William J. Sullivan
President - Sullivan Funeral Homes
Charles Veloza
President - Charlie's Oil Co., Inc.
David F. Westgate
President
Quequechan Management Corp.
Honorary Directors
Edward S. Machado
Past President of Bank
Bernard T. Shuman
Past President/Treasurer
Priscilla Dress Corp.
Officers
Slade's Ferry Bancorp
Donald T. Corrigan
Chairman of the Board
Kenneth R. Rezendes
President
Chief Executive Officer
James D. Carey
Executive Vice President
Ralph S. Borges
Treasurer
Executive Management
Slade's Ferry Trust Company
James D. Carey
President
Chief Executive Officer
Ralph S. Borges
Senior Vice President/Treasurer
Susan R. Hajder
Senior Vice President
Charlene J. Jarest
Vice President
Carol A. Martin
Senior Vice President
Manuel J. Tavares
Senior Vice President
Officers
Slade's Ferry Trust Company
James H. Amidon
Vice President
Isola A. Anctil
Assistant Vice President
Assistant Clerk/Secretary
Cherie Ashton
Assistant Vice President
Maria C. Barbosa
Vice President
Edward Bernardo Jr.
Vice President
Catherine Blakey
Assistant Vice President
Noelia M. Brum
Assistant Treasurer
Peter G. Collias
Corporate Secretary
Daniel B. Costa
Assistant Treasurer
Sandra Curtis
Compliance Auditor
Luisa DiManno
Assistant Treasurer
William E. Diskin
Vice President
Sergio do Rego
Assistant Treasurer
Raymond L. Foster
Vice President
Joseph J. Ganem
Vice President
Joseph Gesualdo
Vice President
Russell F. Godin
Vice President
Elaine M. Guillemette
Assistant Vice President
Raymond J. Harris
Vice President
Sandra Medeiros
Assistant Treasurer
Charlotte C. Nadeau
Loan Operations Officer
Cecelia M. Machado
Vice President
Ann Padula
Assistant Vice President
Jeannine M. Paliotti
Assistant Vice President
Janice R. Partridge
Vice President
Fatima M. Rapoza
Assistant Vice President
Michelle Rivera
Assistant Treasurer
Deborah A. Silvia
Assistant Treasurer
Eduardo F. Sousa
Assistant Treasurer
Mary M. Sullivan
Vice President
Corporate Headquarters
Slade's Ferry Bancorp
100 Slade's Ferry Avenue
Somerset, Massachusetts 02726
Tel. (508) 675-2121
Fax (508) 675-1751
Branch Locations
Fairhaven, MA
75 Huttleston Avenue
Fall River, MA
249 Linden Street
855 Brayton Avenue
New Bedford, MA
838 Pleasant Street
Seekonk, MA
1400 Fall River Avenue (Rte.6)
Somerset, MA
100 Slade's Ferry Avenue
2722 County Street
Somerset High School
Swansea, MA
Swansea Mall
2388 G.A.R. Highway
General Counsels
Atty. Peter G. Collias
84 North Main Street
Fall River, Massachusetts 02720
Tel. (508) 675-7894
Atty. Thomas H. Tucker
High Street Tower
125 High Street
Suite 2601
Boston, Massachusetts 02110
Tel. (617) 951-0047
Independent Certified Public Accountants
Shatswell, MacLeod and Company, P.C.
Certified Public Accountants
83 Pine Street
West Peabody, Massachusetts 01960
Tel. (978) 535-0206
Form 10-KSB
A copy of the Annual Report on Form 10-KSB for Slade's Ferry Bancorp as
filed with the Securities and Exchange Commission will be forwarded
without charge to any stockholder upon written request to:
Ralph S. Borges, Treasurer
Slade's Ferry Bancorp
100 Slade's Ferry Avenue
Somerset, MA 02726
Shareholder Services
Slade's Ferry Bancorp
100 Slade's Ferry Avenue
Somerset, Massachusetts 02726
Tel. (508) 675-2121
Annual Meeting
The Annual Meeting of Stockholders of
Slade's Ferry Bancorp will be held at 7:30 p.m. on April 13, 1998 at the
Venus de Milo Restaurant, 75 G.A.R. Highway, Swansea, Massachusetts.
Dividend Reinvestment Plan
The Plan provides for:
* Reinvestment of all of the dividends
* Voluntary cash contributions of up to $5,000 annually, minimum $100.
* No service fees or commissions
Information may be obtained by contacting Shareholder Services at (508) 675-2121
Stock Trading
The common stock of Slade's Ferry Bancorp
is listed on the NASDAQ Small Cap Market under the symbol SFBC.
Design: MediaConcepts Corporation, Assonet, MA
Slade's Ferry Bancorp
Corporate Headquarters 100 Slade's Ferry Avenue Somerset, MA 02726
Tel. (508) 675-2121 Fax (508) 675-1751
EXHIBIT 23
SHATSWELL, MacLEOD & COMPANY, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
83 PINE STREET
WEST PEABODY, MASSACHUSETTS 01980-0206
TELEPHONE (978)535-0206
FACSIMILE (978) 535-9906
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in this Annual Report on
Form 10-KSB of Slade's Ferry Bancorp of our report dated January 23, 1998.
/s/ SHATSWELL, MacLEOD & COMPANY, P.C.
SHATSWELL, MacLEOD & COMPANY, P.C.
West Peabody, Massachusetts
March 30, 1998
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 13,323,501
<INT-BEARING-DEPOSITS> 106,688
<FED-FUNDS-SOLD> 7,000,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 40,176,218
<INVESTMENTS-CARRYING> 17,601,536
<INVESTMENTS-MARKET> 17,748,500
<LOANS> 213,736,503
<ALLOWANCE> 3,693,865
<TOTAL-ASSETS> 301,570,585
<DEPOSITS> 271,322,250
<SHORT-TERM> 1,200,000
<LIABILITIES-OTHER> 1,236,601
<LONG-TERM> 1,375,308
0
0
<COMMON> 32,367
<OTHER-SE> 26,404,059
<TOTAL-LIABILITIES-AND-EQUITY> 301,570,585
<INTEREST-LOAN> 18,981,050
<INTEREST-INVEST> 3,554,142
<INTEREST-OTHER> 615,267
<INTEREST-TOTAL> 23,150,459
<INTEREST-DEPOSIT> 10,266,135
<INTEREST-EXPENSE> 10,412,478
<INTEREST-INCOME-NET> 12,737,981
<LOAN-LOSSES> 500,000
<SECURITIES-GAINS> 313,844
<EXPENSE-OTHER> 9,033,507
<INCOME-PRETAX> 4,766,731
<INCOME-PRE-EXTRAORDINARY> 4,766,731
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,845,990
<EPS-PRIMARY> 0.94
<EPS-DILUTED> 0.94
<YIELD-ACTUAL> 4.66
<LOANS-NON> 4,596,532
<LOANS-PAST> 146,820
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 500,000
<ALLOWANCE-OPEN> 3,354,311
<CHARGE-OFFS> 254,851
<RECOVERIES> 94,405
<ALLOWANCE-CLOSE> 3,693,865
<ALLOWANCE-DOMESTIC> 3,693,865
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<RESTATED>
<S> <C> <C> <C> <C> <C>
<PERIOD-TYPE> 12-MOS 9-MOS 6-MOS 3-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996 DEC-31-1996 DEC-31-1996 DEC-31-1995
<PERIOD-END> DEC-31-1996 SEP-30-1996 JUN-30-1996 MAR-31-1996 DEC-31-1995
<CASH> 10,979,126 15,995,402 8,101,808 7,242,998 9,039,970
<INT-BEARING-DEPOSITS> 149,598 0 0 0 0
<FED-FUNDS-SOLD> 13,000,000 16,300,000 13,000,000 17,000,000 9,500,000
<TRADING-ASSETS> 0 0 0 0 0
<INVESTMENTS-HELD-FOR-SALE> 37,255,163 35,156,293 28,159,522 28,715,110 36,730,660
<INVESTMENTS-CARRYING> 19,586,678 17,450,671 18,839,576 19,269,613 21,835,682
<INVESTMENTS-MARKET> 19,544,811 17,292,034 18,351,709 18,716,711 21,973,518
<LOANS> 198,986,212 198,594,353 157,517,134 154,314,258 151,087,366
<ALLOWANCE> 3,354,311 3,540,053 2,706,318 2,651,500 2,497,774
<TOTAL-ASSETS> 291,342,475 294,110,971 231,945,900 231,431,198 233,421,654
<DEPOSITS> 267,791,009 271,510,548 210,980,336 210,600,012 214,220,689
<SHORT-TERM> 1,200,000 1,416,441 1,558,299 1,392,782 741,773
<LIABILITIES-OTHER> 1,461,515 1,079,961 1,073,667 1,268,231 632,467
<LONG-TERM> 1,042,626 1,075,000 0 0 0
0 0 0 0 0
0 0 0 0 0
<COMMON> 27,891 27,703 27,627 27,549 26,172
<OTHER-SE> 19,819,434 19,001,318 18,305,971 18,142,624 17,800,553
<TOTAL-LIABILITIES-AND-EQUITY> 291,342,475 294,110,971 231,945,900 231,431,198 233,421,654
<INTEREST-LOAN> 15,626,903 11,113,571 6,975,018 3,466,793 12,741,564
<INTEREST-INVEST> 3,077,522 2,168,643 1,531,425 821,134 3,198,426
<INTEREST-OTHER> 790,506 568,837 366,030 161,537 601,210
<INTEREST-TOTAL> 19,494,931 13,851,051 8,872,473 4,449,464 16,541,200
<INTEREST-DEPOSIT> 8,992,244 6,478,735 4,227,961 2,142,373 7,700,901
<INTEREST-EXPENSE> 9,078,071 6,525,547 4,251,713 2,155,516 7,764,273
<INTEREST-INCOME-NET> 10,416,860 7,325,504 4,620,760 2,293,948 8,776,927
<LOAN-LOSSES> 400,000 400,000 300,000 150,000 550,000
<SECURITIES-GAINS> 112,631 101,248 92,560 50,795 64,810
<EXPENSE-OTHER> 7,380,161 5,216,383 3,237,058 1,606,708 6,631,527
<INCOME-PRETAX> 3,942,196 2,653,790 1,725,218 859,408 2,651,359
<INCOME-PRE-EXTRAORDINARY> 3,942,196 2,653,790 1,725,218 859,408 2,651,359
<EXTRAORDINARY> 0 0 0 0 0
<CHANGES> 0 0 0 0 0
<NET-INCOME> 2,378,195 1,621,390 1,074,554 535,760 1,645,587
<EPS-PRIMARY> 0.86 0.59 0.39 0.19 0.63
<EPS-DILUTED> 0.86 0.59 0.39 0.19 0.63
<YIELD-ACTUAL> 4.44 4.36 4.23 4.21 4.36
<LOANS-NON> 4,352,147 4,517,556 2,819,305 2,751,460 2,695,113
<LOANS-PAST> 110,672 283,000 82,094 517,186 23,128
<LOANS-TROUBLED> 0 0 0 0 0
<LOANS-PROBLEM> 500,000 500,000 800,000 800,000 0
<ALLOWANCE-OPEN> 2,497,774 2,497,774 2,497,774 2,497,774 2,305,860
<CHARGE-OFFS> 439,229 222,640 171,641 2,240 396,639
<RECOVERIES> 439,788 408,942 80,185 5,966 38,553
<ALLOWANCE-CLOSE> 3,354,311 3,540,052 2,706,318 2,651,500 2,497,774
<ALLOWANCE-DOMESTIC> 3,354,311 3,540,052 2,706,318 2,651,500 2,497,774
<ALLOWANCE-FOREIGN> 0 0 0 0 0
<ALLOWANCE-UNALLOCATED> 0 0 0 0 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<RESTATED>
<S> <C> <C> <C>
<PERIOD-TYPE> 9-MOS 6-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1997
<PERIOD-END> SEP-30-1997 JUN-30-1997 MAR-31-1997
<CASH> 11,951,115 15,377,100 15,364,874
<INT-BEARING-DEPOSITS> 106,688 106,688 149,598
<FED-FUNDS-SOLD> 1,000,000 6,500,000 8,500,000
<TRADING-ASSETS> 0 0 0
<INVESTMENTS-HELD-FOR-SALE> 39,461,881 39,474,364 36,453,096
<INVESTMENTS-CARRYING> 20,816,211 21,839,269 19,395,691
<INVESTMENTS-MARKET> 20,941,657 21,880,356 19,271,324
<LOANS> 213,121,867 206,279,861 199,856,122
<ALLOWANCE> 3,609,073 3,437,489 3,323,262
<TOTAL-ASSETS> 296,816,402 300,456,068 290,801,956
<DEPOSITS> 267,565,028 271,850,769 266,513,822
<SHORT-TERM> 1,319,690 1,725,211 1,697,941
<LIABILITIES-OTHER> 1,284,184 1,019,740 1,386,333
<LONG-TERM> 975,000 1,000,000 1,025,000
0 0 0
0 0 0
<COMMON> 32,226 32,082 27,975
<OTHER-SE> 25,640,274 24,828,266 20,150,885
<TOTAL-LIABILITIES-AND-EQUITY> 296,816,402 300,456,068 290,801,956
<INTEREST-LOAN> 14,105,859 9,132,947 4,509,123
<INTEREST-INVEST> 2,655,885 1,746,044 881,092
<INTEREST-OTHER> 497,129 366,462 163,934
<INTEREST-TOTAL> 17,258,873 11,245,453 5,554,149
<INTEREST-DEPOSIT> 7,661,261 5,051,211 2,503,775
<INTEREST-EXPENSE> 7,770,223 5,125,202 2,540,708
<INTEREST-INCOME-NET> 9,488,650 6,120,251 3,013,441
<LOAN-LOSSES> 450,000 300,000 150,000
<SECURITIES-GAINS> 312,865 229,500 106,251
<EXPENSE-OTHER> 6,843,404 4,468,272 2,245,764
<INCOME-PRETAX> 3,443,459 2,228,659 1,054,965
<INCOME-PRE-EXTRAORDINARY> 3,443,459 2,228,659 1,054,965
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 2,062,956 1,334,541 634,165
<EPS-PRIMARY> 0.70 0.47 0.23
<EPS-DILUTED> 0.70 0.47 0.23
<YIELD-ACTUAL> 4.62 4.49 4.38
<LOANS-NON> 4,719,252 4,970,325 5,205,321
<LOANS-PAST> 706,929 279,942 835,942
<LOANS-TROUBLED> 0 0 0
<LOANS-PROBLEM> 200,000 300,000 500,000
<ALLOWANCE-OPEN> 3,354,311 3,354,311 3,354,311
<CHARGE-OFFS> 242,850 235,125 189,118
<RECOVERIES> 47,612 18,303 8,069
<ALLOWANCE-CLOSE> 3,609,073 3,437,489 3,323,262
<ALLOWANCE-DOMESTIC> 3,609,073 3,437,489 3,323,262
<ALLOWANCE-FOREIGN> 0 0 0
<ALLOWANCE-UNALLOCATED> 0 0 0
</TABLE>
