UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
Commission file number 000-23904
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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-K 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-K or any
amendment to this form 10-K. [ ]
The aggregate market value of the voting stock of Slade's Ferry Bancorp, held
by nonaffiliates of the registrant as of February 29, 2000 was approximately
$29,008,125. On that date, there were 3,718,020.5 shares of Slade's Ferry
Bancorp Common Stock, $.01 par value outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
ANNUAL REPORT to security holders for fiscal year ended December 31, 1999
incorporated by reference into Parts I and II. Proxy Statement for Annual
Meeting of Stockholders April 10, 2000 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 four 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 $66.8
Million. In January 1999, the Bank opened a branch banking facility at 1601
South Main Street, Fall River, and in March 1999, a branch banking facility
was opened at 833 Ashley Boulevard, New Bedford, Massachusetts. The Bank
currently has twelve banking facilities extending east from Seekonk,
Massachusetts to Fairhaven, Massachusetts. The Bank also provides limited
banking services at the Somerset High School. In addition, the Bank in 1999
received regulatory approval to establish a loan production office in Rhode
Island. The office is named the Slade's Ferry Loan Company and is a subsidiary
of Slade's Ferry Trust Company. The purpose for the loan production office is
to solicit commercial and consumer borrowers in the Rhode Island area. The
office is prohibited from accepting deposits and payments.
In June 1999, the Bank implemented certain state tax planning strategies
by establishing a Real Estate Investment Trust (REIT) as a subsidiary of
Slade's Ferry Trust Company. The REIT, named the Slade's Ferry Preferred
Capital Corporation, provides the means for the Bank to invest into the REIT
certain designated, bank-owned real estate mortgage loans. The income derived
on these loans is taxed at a reduced state tax rate.
The Bank currently services numerous communities in Southeastern
Massachusetts and contiguous areas of Rhode Island through its twelve
facilities in Fall River, Somerset, Swansea, Seekonk, New Bedford and
Fairhaven, and its loan production office in Warwick, Rhode Island.
The Bank's major customer base consists of almost 31,000 personal
savings, checking and money market accounts and 8,481 personal certificates of
deposit and individual retirement accounts. Its commercial base consists of
over 3,485 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, 1999, commitments under standby letters of credit aggregate
approximately $2,050,559.
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, 1999 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, the Slade's Ferry
Securities Corporation, the Slade's Ferry Preferred Capital Corporation, and
the Slade's Ferry Loan Company 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 1998 and three months ending March 31, 1999, 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.
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, 1999, December 31, 1998, and December 31, 1997.
Averages are daily averages.
<TABLE>
<CAPTION>
1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------------------
Average Interest(1) Avg. Int. Average Interest(1) Avg. Int. Average Interest(1) Avg. 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 $ 47,386 $ 4,218 8.90% $ 42,244 $ 3,953 9.36% $ 36,195 $ 3,466 9.58%
Commercial Real Estate 136,648 12,876 9.42 118,939 11,630 9.78 110,093 10,740 9.76
Residential Real Estate 37,523 2,778 7.40 45,781 3,520 7.69 52,894 4,116 7.78
Consumer Loans 7,678 657 8.56 6,767 652 9.63 6,503 659 10.13
- --------------------------------------------------------------------------------------------------------------------------------
Total Loans 229,235 20,529 8.96 213,731 19,755 9.24 205,685 18,981 9.23
Federal Funds Sold 5,563 259 4.66 12,214 630 5.16 11,309 607 5.37
U.S. Treas/Govt Agencies 68,523 4,114 6.00 54,842 3,366 6.14 49,682 3,099 6.24
States & Political
Subdivisions 11,505 748 6.50 9,763 649 6.65 6,948 477 6.87
Mutual Funds 71 3 4.23 209 14 6.70 301 15 4.98
Marketable Equity
Securities 3,470 78 2.25 2,761 105 3.80 2,518 120 4.77
Other Investments 1,102 71 6.44 6 0 0.00 126 8 6.35
- --------------------------------------------------------------------------------------------------------------------------------
Total Earning Assets 319,469 $25,802 8.08% 293,526 $24,519 8.35% 276,569 $23,307 8.43%
- --------------------------------------------------------------------------------------------------------------------------------
Allowance for Loan Losses (3,814) (3,602) (3,474)
Unearned Income (640) (715) (665)
Cash and Due From Banks 14,320 12,186 11,366
Other Assets 17,371 15,376 14,022
- --------------------------------------------------------------------------------------------------------------------------------
Total Assets $346,706 $316,771 $297,818
================================================================================================================================
LIABILITIES & STOCKHOLDERS' EQUITY:
Savings $ 48,442 $ 1,022 2.11% $ 43,885 $ 1,075 2.45% $ 42,642 $ 1,067 2.50%
NOW's 38,404 994 2.59 38,764 1,196 3.09 37,739 1,202 3.19
Money Market Accounts 12,188 215 1.76 13,777 273 1.98 14,116 281 1.99
CD's > $100M 26,857 1,325 4.93 22,945 1,266 5.52 23,162 1,256 5.42
Other Time Deposits 130,393 6,778 5.20 119,118 6,700 5.62 109,278 6,460 5.91
Other Borrowings 6,413 420 6.55 2,933 201 6.85 2,114 146 6.91
- --------------------------------------------------------------------------------------------------------------------------------
Total Interest-bearing
Liabilities 262,697 $10,754 4.09% 241,422 $10,711 4.44% 229,051 $10,412 4.55%
- --------------------------------------------------------------------------------------------------------------------------------
Demand Deposits 52,261 46,217 43,724
Other Liabilities 1,057 1,063 1,847
- --------------------------------------------------------------------------------------------------------------------------------
Total Liabilities 316,015 288,702 274,622
- --------------------------------------------------------------------------------------------------------------------------------
Common Stock 35 34 30
Paid-in Capital 22,646 21,448 16,899
Retained Earnings 8,492 6,395 6,308
Net Unrealized Gain (Loss)
on Available-for-Sale
Securities (482) 192 (41)
- --------------------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 30,691 28,069 23,196
- --------------------------------------------------------------------------------------------------------------------------------
Total Liabilities &
Stockholders' Equity $346,706 $316,771 $297,818
================================================================================================================================
Net Interest Income $15,048 $13,808 $12,895
================================================================================================================================
Net Interest Spread 3.99% 3.91% 3.88%
================================================================================================================================
Net Yield on Earning Assets 4.71% 4.70% 4.66%
================================================================================================================================
<FN>
<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 $249,000 in 1999, $212,000 in 1998, and
$157,000 in 1997.
<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.
</FN>
</TABLE>
NET INTEREST INCOME - CHANGES DUE TO VOLUME AND RATE (1)
<TABLE>
<CAPTION>
1999 vs 1998 1998 vs 1997
Increase Increase
(Decrease) (Decrease)
- ---------------------------------------------------------------------------------------------------------
Total Due to Due to Total Due to Due to
(Dollars in Thousands) Change(2) Volume Rate Change(2) Volume Rate
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest Income:
Federal Funds Sold $ (371) $ (326) $ (45) $ 23 $ 48 $ (25)
US Treas/Govt Agencies 748 830 (82) 267 320 (53)
States & Political Subdivisions 99 115 (16) 172 190 (18)
Mutual Funds (11) (8) (3) (1) (5) 4
Marketable Securities (27) 21 (48) (15) 10 (25)
Other Investments 71 71 -0- (8) (4) (4)
Commercial Loans 265 469 (204) 487 574 (87)
Commercial Real Estate 1,246 1,700 (454) 890 864 26
Residential Real Estate (742) (623) (119) (596) (550) (46)
Consumer Loans 5 83 (78) (7) 26 (33)
- ---------------------------------------------------------------------------------------------------------
Total Interest Income 1,283 2,332 (1,049) 1,212 1,473 (261)
- ---------------------------------------------------------------------------------------------------------
Interest Expense:
Savings Accounts (53) 104 (157) 8 31 (23)
NOW Accounts (202) (10) (192) (6) 32 (38)
Money Market Accounts (58) (30) (28) (8) (7) (1)
CD's > 100 M 59 204 (145) 10 (12) 22
Other Time Deposits 78 610 (532) 240 568 (328)
Other Borrowings 219 233 (14) 55 56 (1)
- ---------------------------------------------------------------------------------------------------------
Total Interest Expense 43 1,111 (1,068) 299 668 (369)
- ---------------------------------------------------------------------------------------------------------
Net Interest Income $1,240 $1,221 $ 19 $ 913 $ 805 $ 108
=========================================================================================================
<FN>
<F1> Changes in interest income and interest expense attributable to change
in both volume and rate have been allocated equally to changes due to
volume and changes due to rate.
<F2> The change in interest income on investments and net interest income
includes interest on a fully taxable equivalent basis based on a tax
rate of 34%.
</FN>
</TABLE>
Interest Rate Risk
- ------------------
The Company considers interest rate risk to be a significant market risk
as it could potentially have an effect on the Company's financial condition
and results of operation. The definition of interest rate risk is the exposure
of the Company's earnings to adverse movements in interest rates. Volatility
in interest rates requires the Company to manage interest rate risk which
arises from the differences in the timing of repricing of assets and
liabilities.
The Company's Asset-Liability Management Committee, comprised of the
Bank's Executive Management team, has the responsibility of managing interest
rate risk, and monitoring and evaluating the difference between interest-
sensitive assets and interest-sensitive liabilities within various time
periods.
The Company's objective is to reduce and control the volatility of its
net interest income by managing the relationship of interest-earning assets
and interest-bearing liabilities. In order to manage this relationship, the
Committee utilizes a monthly GAP report. This report for the period ending
December 31, 1999 is set forth below.
The GAP report provides a static analysis of repricing opportunities of
rate-sensitive assets and rate-sensitive liabilities. It is prepared by
categorizing these assets and liabilities into time periods based upon either
their contractual or anticipated maturity or repricing. The analysis
determines the net dollar amount of assets less liabilities that are repricing
in various time frames. This, in conjunction with certain assumptions and
other related factors, such as anticipated changes in interest rates,
projected cash flows from loans, investments and deposits, provides a means of
evaluating interest rate risk. Management also takes into consideration that
certain assets and liabilities react differently to changes in interest rates.
The interest sensitivity gap is determined by subtracting the amount of
liabilities from the amount of assets that reprice in a particular time
period. When more liabilities than assets reprice or mature within a given
time frame, a liability sensitive position results (negative gap). A negative
gap position would tend to increase net interest income when interest rates
are falling, and decrease net interest income when rates are rising.
Conversely, an asset sensitive position (positive gap) results when more
assets than liabilities reprice within a given period. In this scenario, net
interest income would increase when interest rates rise and decrease when
rates fall.
At December 31, 1999, the GAP report shown below indicates the Company's
interest rate risk to have a reliance on short term liabilities. This position
would have an adverse effect on earnings in a rising rate environment and a
positive effect on earnings in a decreasing rate environment.
INTEREST RATE - SENSITIVITY GAPS
- --------------------------------
Repricing Period at December 31, 1999
- -------------------------------------
<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 $ 5,000 $ --- $ --- $ --- $ --- $ 5,000
Investment Securities 10,797 7,726 4,679 21,327 39,194 83,723
Residential Mortgages 21,345 8,135 6,476 1,418 14,221 51,595
Commercial Mortgages 76,841 12,075 19,127 9,566 14,807 132,416
Other Loans 46,202 3,358 4,132 2,477 92 56,261
- --------------------------------------------------------------------------------------------------------
Total Earning Assets $160,185 $ 31,294 $34,414 $34,788 $68,314 $328,995
- --------------------------------------------------------------------------------------------------------
Interest Bearing Liabilities:
NOW Checking and Savings
Deposits $ 35,253 $ 9,922 $ 9,922 $26,455 $ --- $ 81,552
Money Market Deposits 3,415 2,042 2,042 5,443 --- 12,942
Term Deposits 141,262 23,499 4,961 --- --- 169,722
Borrowed Funds --- --- --- --- 6,757 6,757
Other Interest-bearing
Liabilities 1,248 --- --- --- --- 1,248
- --------------------------------------------------------------------------------------------------------
Total Interest-bearing
Liabilities $181,178 $ 35,463 $16,925 $31,898 $ 6,757 $272,221
- --------------------------------------------------------------------------------------------------------
Net Interest Sensitivity Gap $(20,993) $ (4,169) $17,489 $ 2,890 $61,557 $ 56,774
Cumulative Gap $(20,993) $(25,162) $(7,673) $(4,783) $56,774 $ ---
Cumulative Gap as a Percent of
Total Assets 5.86% 7.03% 2.14% 1.34% 15.85% ---
========================================================================================================
<FN>
<F1> Nonaccrual loans amounting to $1.8 Million have been eliminated from the
loan balances.
</FN>
</TABLE>
In addition to the GAP report, the Company also uses an analysis to
measure the exposure of net interest income to changes in interest rates over
a relatively short time period (i.e. 12 months). This analysis involves
projecting future interest income and expenses from the Company's earning
assets and interest-bearing liabilities. Depending on the GAP position, the
Company's policy limit on interest rate risk specifies that if interest rates
were to change immediately up or down 200 basis points, the effect on
estimated net interest income for the next 12 months that would be tolerated
would be not more than a ten percent (10%) decrease. The following table
reflects the Company's estimated exposure as a percentage of estimated net
interest income for the next 12 months, assuming an immediate change in
interest rates:
<TABLE>
<CAPTION>
Rate Change Estimated Exposure as a
(Basis Points) Percentage of Net Interest Income Dollar Impact
- -------------------------------------------------------------------------
<S> <C> <C>
+200 (1.90%) $(280,000)
-200 .52% $ 77,000
</TABLE>
The model used to monitor earnings-at-risk provides management a
measurement tool to assess the effect of changes in interest rates on the
Company's current and future earnings. The Company's 10% limit establishes an
internal tolerance level to control the Company's interest rate risk exposure
and is monitored on a quarterly basis.
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) 1999 1998 1997
- --------------------------------------------------------------
<S> <C> <C> <C>
US Treasury Securities and
Obligations of US Government
Corporations and Agencies $ 7,975 $ 8,810 $ 9,415
Obligations of States and
Political Subdivisions 11,439 11,997 7,976
Mortgage-backed securities 74 114 209
Other Debt Securities 1 -0- 1
- --------------------------------------------------------------
Total $19,489 $20,921 $17,601
==============================================================
</TABLE>
In the following table, the carrying value of Held-to-Maturity
securities maturing within stated periods as of December 31, 1999, 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 $4,230 $ 863 --- $ 1 $ 5,094
Yield 5.43% 6.40% --- 7.50% 5.59%
Due in 1 to 5 years:
Amount 3,495 $ 5,182 $ 74 --- $ 8,751
Yield 5.97% 6.62% 6.80% --- 6.36%
Due in 5 to 10 years:
Amount 250 $ 4,690 --- --- $ 4,940
Yield 7.00% 6.58% --- --- 6.60%
Due after 10 years:
Amount --- $ 704 --- --- $ 704
Yield --- 7.57% --- --- 7.57%
- ---------------------------------------------------------------------------------------------------
Amount $7,975 $11,439 $ 74 $ 1 $19,489
===================================================================================================
Yield 5.72% 6.65% 6.80% 7.50% 6.27%
===================================================================================================
<FN>
<F1> Rates of tax exempt securities are shown assuming a 34% tax rate.
<F2> Mortgage-backed securities stated using average life.
</FN>
</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) 1999 1998 1997
- -------------------------------------------------------------------
<S> <C> <C> <C>
US Treasury Securities and
Obligations of US Government
Corporations and Agencies $41,801 $42,944 $30,402
Mortgage-backed Securities 16,939 12,538 7,747
Asset-backed Securities --- 222 234
Corporate Debt Securities 720 --- ---
Marketable Equity Securities (net) 3,808 1,918 1,565
- -------------------------------------------------------------------
Total $63,268 $57,622 $39,948
===================================================================
</TABLE>
In the following table, the amortized cost basis of Available-for-Sale
securities (other than equity securities) maturing within stated periods as of
December 31, 1999, is shown with the weighted average interest yield from
securities falling within the range of maturities:
<TABLE>
<CAPTION>
US Treasury
& Government Mortgage- Corporate
Corporations Backed Debt
(Dollars in Thousands) Agencies Securities(1) Securities Total
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Due in 1 year or less:
Amount $ 500 $ 1,331 $ --- $ 1,831
Yield 4.50% 6.10% --- 5.66%
Due in 1 to 5 years:
Amount $22,648 $ 8,627 $ 720 $31,995
Yield 5.77% 6.01% 5.96% 5.84%
Due in 5 to 10 years:
Amount $18,653 $ 6,617 --- $25,270
Yield 6.15% 6.03% --- 6.12%
Due after 10 years:
Amount --- $ 364 --- $ 364
Yield --- 7.28% --- 7.28%
- ---------------------------------------------------------------------------------
Amount $41,801 $16,939 $ 720 $59,460
=================================================================================
Yield 5.92% 6.05% 5.96% 5.96%
=================================================================================
<FN>
<F1> Mortgage backed securities stated using average life.
</FN>
</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, 1999:
<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 $ 7,975 $ 10 $ 28 $ 7,957
Debt securities issued by states of
the United States and political
subdivisions of the states 11,439 9 220 11,228
Mortgage-backed securities 74 --- --- 74
Other debt securities 1 --- --- 1
- --------------------------------------------------------------------------------------------
Total $19,489 $ 19 $248 $19,260
============================================================================================
</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, 1999.
<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 $41,801 $--- $1,482 $40,319
Marketable Equity 3,808 505 392 3,921
Mortgage-backed securities 16,939 --- 521 16,418
Corporate debt securities 720 --- 27 693
- --------------------------------------------------------------------------------------------
Total $63,268 $505 $2,422 $61,351
============================================================================================
</TABLE>
Decrease in Stockholder's Equity:
(In Whole Dollars)
<TABLE>
<S> <C>
Net unrealized loss on Available-for-Sale Securities $1,917,311
Less tax effect 766,717
----------
$1,150,594
==========
</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) 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Commercial, financial and agricultural $ 47,258 $ 43,777 $ 36,641 $ 31,244 $ 16,744
Real estate - construction and land development $ 5,014 3,773 6,678 6,891 6,865
Real estate - residential 52,330 51,220 55,477 59,500 50,472
Real estate - commercial 127,938 112,913 108,008 94,545 70,749
Consumer 9,393 6,477 6,747 6,681 6,149
Obligations of states and political subdivisions 3 9 16 23
Other 116 67 176 109 85
- ------------------------------------------------------------------------------------------------------------
242,049 218,230 213,736 198,986 151,087
Allowance for Loan Losses (3,766) (3,569) (3,694) (3,354) (2,498)
Unamortized adjustment to fair value (20) (32) (42) (54) 0
Unearned Income (594) (691) (690) (643) (520)
- ------------------------------------------------------------------------------------------------------------
Net Loans $237,669 $213,938 $209,310 $194,935 $148,069
============================================================================================================
</TABLE>
The following table shows the maturity distributions and interest rate
sensitivity of selected loan categories at December 31, 1999.
<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 $28,947 $11,255 $ 7,056 $47,258
Real Estate - construction 140 571 4,303 5,014
- ---------------------------------------------------------------------------------------------
Total $29,087 $11,826 $11,359 $52,272
=============================================================================================
</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 $4,515 $13,796 $18,311
Real Estate - construction 291 4,583 4,874
- -----------------------------------------------------------------------------------
Total $4,806 $18,379 $23,185
===================================================================================
</TABLE>
NONACCRUAL, PAST DUE AND RESTRUCTURED LOANS
<TABLE>
<CAPTION>
December 31
- -------------------------------------------------------------------------------------
(Dollars in Thousands) 1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $1,777 $3,331 $4,597 $4,352 $2,695
Loans 90 days or more past due
and still accruing 248 317 147 112 23
Real estate acquired by foreclosure
or substantively repossessed 353 1,026 159 308 633
- -------------------------------------------------------------------------------------
Total nonperforming assets $2,378 $4,674 $4,903 $4,772 $3,351
=====================================================================================
Percentage of nonaccrual loans
to total loans 0.73% 1.53% 2.15% 2.19% 1.78%
Percentage of nonaccrual loans,
restructured loans and real estate
acquired by foreclosure
or substantively repossessed to
total assets 0.74% 1.54% 2.00% 1.88% 1.62%
Percentage of Allowance for Loan
Losses to Nonaccrual Loans 211.92% 107.15% 80.36% 77.07% 92.69%
</TABLE>
Nonaccrual loans include restructured loans of $0 at December 31, 1999;
$0 at December 31, 1998; $263,000 at December 31, 1997; $398,000 at December
31, 1996; and $425,000 at December 31, 1995.
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) 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $1,777 $3,331 $4,597 $4,352 $2,695
Interest income that would have been
recorded under original terms $ 146 $ 318 $ 394 $ 361 $ 243
Interest income recorded during
the period $ 37 $ 37 $ 58 $ 62 $ 21
</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 decreased to $2.4 Million at year end 1999,
from $4.7 Million reported at year end 1998.
Nonaccrual loans is the largest component of nonperforming assets, and
at December 31, 1999, this category decreased to $1.8 Million. The decrease is
attributed to the Bank's collection efforts and the overall strengthening of
the economy. There are no loans greater than $250,000 in this category, which
is comprised of $735,000 of residential mortgages, $536,000 of commercial real
estate loans, and $506,000 of other types of loans.
Loans that became nonaccrual during the current year amounted to
$1,390,000. Offsetting this increase were receipts of loan payments of
$969,000 and loans of $258,000 that were deemed uncollectible and charged off
to the Allowance for Loan Losses. There was a transfer to accrual status of
loans totaling $1,520,000 and a transfer to Other Real Estate Owned of
$197,000.
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.
Real Estate acquired by foreclosure decreased to $353,095 at December
31, 1999 compared to $1,026,095 reported at year end 1998. This amount
consists of two separate parcels of property. Annual appraisals are performed
on these properties and if the appraised value 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. As of March 2, 2000,
both properties have been sold resulting in a net gain on sale of $49,758.
IV. SUMMARY OF LOAN LOSS EXPERIENCE
The table below illustrates the changes in the Allowance for Loan Losses
for the periods indicated.
<TABLE>
<CAPTION>
(Dollars in Thousands) 1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at January 1 $3,569 $3,694 $3,354 $2,498 $2,306
- ---------------------------------------------------------------------------------------
Charge-offs:
Commercial (221) (0) (40) (144) (184)
Real estate-construction (0) (0) (0) (0) (0)
Real estate-mortgage (23) (716) (147) (136) (79)
Installment/Consumer (158) (76) (68) (159) (134)
- ---------------------------------------------------------------------------------------
(402) (792) (255) (439) (397)
- ---------------------------------------------------------------------------------------
Recoveries:
Commercial 11 8 41 59 1
Real estate-construction 0 0 0 0 0
Real estate-mortgage 24 43 16 333 16
Installment/Consumer 14 16 38 47 22
- ---------------------------------------------------------------------------------------
49 67 95 439 39
- ---------------------------------------------------------------------------------------
Net Charge-offs (353) (725) (160) 0 (358)
- ---------------------------------------------------------------------------------------
Additions charged to operations 550 600 500 400 550
Allowance attributable to acquisition 0 0 0 456 0
- ---------------------------------------------------------------------------------------
Balance at December 31: $3,766 $3,569 $3,694 $3,354 $2,498
=======================================================================================
Allowance for Loan Losses as a
percent of year end loans 1.56% 1.64% 1.73% 1.69% 1.65%
Ratio of net charge-offs to
average loans outstanding 0.15% 0.34% 0.08% 0.00% 0.25%
</TABLE>
The Allowance for Loan Losses at year end December 31, 1999 was
$3,765,872; and $3,569,282, $3,693,865, $3,354,311, and $2,497,774 for years
ending 1998, 1997, 1996, and 1995 respectively. The Allowance for Loan Losses
as a percent of year end loans was 1.56% in 1999, 1.64% in 1998, 1.73% in
1997, 1.69% in 1996, and 1.65% in 1995.
The level of the Allowance for 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, the level of nonaccrual 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 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 1999 was $550,000. Prior years' provisions were $600,000,
$500,000, $400,000, and $550,000 for years ending 1998, 1997, 1996, and 1995
respectively. In 1999, the Company realized recoveries of previously charged-
off loans of $49,000. Recoveries recorded in previous years were $67,000,
$95,000, $439,000, and $39,000 in 1998, 1997, 1996, and 1995 respectively.
The amount provided to the Allowance for Loan Losses was deemed
appropriate by management after full consideration of the value of the assets
securing the nonaccrual loans.
The table below 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, 1999 December 31, 1998 December 31, 1997 December 31, 1996 December 31, 1995
- ----------------------------------------------------------------------------------------------------------------------------
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 to Category to Category to Category to Category to
Amount Total Loans Amount Total Loans Amount Total Loans Amount Total Loans Amount Total Loans
- ----------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial $1,356(1) 19.52% $1,249(1) 20.06% $ 984(1) 17.14% $ 789(1) 15.70% $ 597(1) 11.08%
Real estate
Construction 34 2.07% 27 1.73 44 3.12 41 3.46 40 4.55
Real estate
Mortgage 1,924(2) 74.48% 1,964(2) 75.21 2,311(2) 76.50 2,150(2) 77.42 1,581(2) 80.23
Consumer(3) 452(4) 3.93% 329(4) 3.00 355(4) 3.24 374(4) 3.42 280(4) 4.14
- --------------------------------------------------------------------------------------------------------------------------
$3,766 100.00% $3,569 100.00% $3,694 100.00% $3,354 100.00% $2,498 100.00%
==========================================================================================================================
<FN>
<F1> Includes amounts specifically reserved for impaired loans of $234,205 as
of December 31, 1999, $128,207 as of December 31, 1998, $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 $147,884 as
of December 31, 1999, $187,554 as of December 31, 1998, $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 amounts specifically reserved for impaired loans of $39,241 as
of December 31, 1999, $9,126 as of December 31, 1998, $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.
</FN>
</TABLE>
The loan portfolio's largest segment of loans is commercial real estate
loans, which represent 52.86% of gross loans. Residential real estate, which
is the second largest segment of the loan portfolio, represents 21.62% 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 19.5% of the loan portfolio.
Consumer loans are generally unsecured borrowings and represent 3.9% 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.
Total losses in 1999 amounted to $402,000, when compared to losses of
$792,000 in 1998, $255,000 in 1997, $439,000 in 1996, and $397,000 in 1995.
The real estate-mortgage category incurred losses of $23,000 compared to
$716,000 in 1998, $147,000 in 1997, $136,000 in 1996, and $79,000 in 1995.
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>
1999 1998 1997
- --------------------------------------------------------------------------------------------------------
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 $ 52,261 0.00% $ 46,217 0.00% $ 43,724 0.00%
Interest-bearing Demand Deposits 38,404 2.59 38,764 3.09 37,739 3.19
Savings Deposits 48,442 2.11 43,885 2.45 42,642 2.50
Money Market Deposits 12,188 1.76 13,777 1.98 14,116 1.99
Time Deposits $100,000 or More 26,857 4.93 22,945 5.52 23,162 5.42
Other Time Deposits 130,393 5.20 119,118 5.62 109,278 5.91
- ------------------------------------------------------------------------------------------------------
Totals $308,545 3.35% $284,706 3.69% $270,661 3.79%
======================================================================================================
</TABLE>
As of December 31, 1999, 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 $ 7,481
Over three months through six months 7,167
Over six months through twelve months 10,349
Twelve months and over 3,535
-------
$28,532
=======
</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,
--------------------------
1999 1998 1997
--------------------------
<S> <C> <C> <C>
Return on Assets 1.11% 1.06% 0.96%
Return on Equity 12.56% 11.98% 12.27%
Dividend Payout Ratio 34.36% 28.54% 27.57%
Equity to Assets Ratio 8.85% 8.86% 7.79%
</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, the maximum amount of borrowings and the
average amounts outstanding as well as weighted average interest rates for the
last three years.
<TABLE>
<CAPTION>
(Dollars in Thousands) 1999 1998 1997
- --------------------------------------------------------
<S> <C> <C> <C>
Balance at December 31 $1,248 $ 42 $1,200
Maximum Amount Outstanding
at Any Month's End $4,000 $1,365 $1,725
Average Amount Outstanding
During the Year $ 889 $ 813 $1,067
Weighted Average Interest
Rate During the Year 5.93% 5.65% 4.91%
</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. During 1999, there were
thirty-five various days when the Company borrowed to meet short term
liquidity needs. The Company did not borrow during 1998 and 1997. 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 had a note
payable of $847,990 due to Fleet Bank which was paid in full 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
until its final maturity date of November 25, 1999. There is also $6,756,767
in borrowings from the Federal Home Loan Bank which represent the match
funding program that is available to qualified borrowers.
Accounting for Deferred Income Taxes
- ------------------------------------
The net deferred tax at year end 1999 was $2,428,729. The amount of
taxable income required to be generated to fully realize such net deferred tax
asset will be approximately $7.3 Million. The taxable income earned by the
Company in 1999 was $5,779,245.
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 twelve additional branches located in Fairhaven, Fall River, New
Bedford, Seekonk, Somerset and Swansea, Massachusetts. As of December 31,
1999, 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 Avenue 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 Avenue Seekonk, MA 2,300
Fairhaven 75 Huttleston Avenue Fairhaven, MA 13,000
South Main Street 1601 South Main Street Fall River, MA 6,604
Ashley Boulevard 833 Ashley Boulevard New Bedford, MA 2,655
Offices listed below are leased properties with the indicated lease expiration
dates.
Swansea Mall
(expires 2003) Rt 118 Swansea, MA 2,250
Brayton Avenue
Drive Up Complex 16 Stevens St. Fall River, MA
(expires 2000)
Walgreens Drug Store 838 Pleasant St. New Bedford, MA 835
(expires 2004)
Loan Production Office 188 Airport Road Warwick, RI 600
(Expires 2002)
</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 Company is not a party to any pending legal proceedings. The civil
suit brought in Plymouth Superior Court by a former employee of the National
Bank of Fairhaven was settled.
ITEM 4
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of 1999, 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 the Company's Annual Report to Stockholders
for the year ended December 31, 1999, attached as an exhibit hereto. The
information set forth on page 5 of such Annual Report under the heading
"Market for Registrant's Common Equity and Related Stockholder Matters" is
incorporated herein by reference.
ITEM 6
SELECTED FINANCIAL DATA
Reference is hereby made to the Company's Annual Report to Stockholders
for the year ended December 31, 1999, attached as an exhibit hereto. The
information set forth on page 6 of such Annual Report under this heading is
incorporated herein by reference.
ITEM 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Reference is hereby made to the Company's Annual Report to Stockholders
for the year ended December 31, 1999, attached as an exhibit hereto. The
information under the heading "Management's Discussion and Analysis" and set
forth on pages 7 through 16 of such Annual Report is incorporated herein by
reference.
ITEM 7A
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The most significant market risk factor affecting the financial
condition and operating results of Slade's Ferry Bancorp is interest rate
risk. Reference is hereby made to this Form 10-K, pages 10 & 11, under the
headings "Interest Rate Risk" and "Interest Sensitivity GAP Report" for a
discussion of market risk.
ITEM 8
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is hereby made to the Company's Annual Report to Stockholders
for the year ended December 31, 1999, attached as an exhibit hereto. The
consolidated balance sheets at December 31, 1999 and 1998, 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, 1999
and the related notes with the report of Shatswell, MacLeod and Company, P.C.,
independent auditors, which appear on pages 17 through 39 of such Annual
Report to Stockholders, are incorporated herein by reference.
ITEM 9
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 10
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Reference is hereby made to the Company's definitive Proxy Statement for
the Annual Meeting of Stockholders April 10, 2000. The information set forth
under the heading "Directors and Executive Officers" on pages 11 through 14
and under the heading "Section 16(a) Beneficial Ownership Reporting
Compliance" on page 16 of such Proxy Statement is incorporated herein by
reference.
ITEM 11
EXECUTIVE COMPENSATION
Reference is hereby made to the Company's definitive Proxy Statement for
the Annual Meeting of Stockholders April 10, 2000. The information set forth
under the heading "Executive Compensation Tables and Information" on pages 18
through 22 of such Proxy Statement is incorporated herein by reference.
ITEM 12
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 10, 2000. The information set forth
under this heading on pages 14 through 16 of such Proxy Statement is
incorporated herein by reference.
ITEM 13
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Reference is hereby made to the Company's definitive Proxy Statement for
the Annual Meeting of Stockholders April 10, 2000. The information set forth
under this heading on page 24 of such Proxy Statement is incorporated herein
by reference.
ITEM 14
EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of the Company's Annual Report
to stockholders for the year ended December 31, 1999, attached as an exhibit
hereto.
(1) Consolidated Financial Statements
Page
Report of Independent Auditors 17
Consolidated Balance Sheets 18
Consolidated Statements of Income 19
Consolidated Statements of Changes in
Stockholders' Equity 20
Consolidated Statements of Cash Flows 21
Notes to Consolidated Financial Statements 23
(2) Financial Statement Schedules
All financial statement schedules required by Item 14(a)(2) have
been omitted because they are inapplicable or because the
required information has been included in the Consolidated
Financial Statements or Notes thereto.
(3) Exhibits: see attached 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 20, 2000.
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/ Thomas B. Almy 3/20/00 /s/ Ralph S. Borges 3/20/00
Thomas B. Almy Ralph S. Borges
Director Treasurer/Chief Financial Officer/
Chief Accounting Officer
/s/ James D. Carey 3/20/00 /s/ Peter G. Collias 3/20/00
James D. Carey Peter G. Collias
Executive Vice President and Director Director
/s/ Donald T. Corrigan 3/20/00 /s/ Melvyn A. Holland 3/20/00
Donald T. Corrigan Melvyn A. Holland
Chairman of the Board and Director Director
/s/ William Q. MacLean Jr. 3/20/00 /s/ Francis A. Macomber 3/20/00
William Q. MacLean Jr. Francis A. Macomber
Director Director
/s/ Majed Mouded, MD 3/20/00 /s/ Shaun O'Hearn Sr. 3/20/00
Majed Mouded, MD Shaun O'Hearn Sr.
Director Director
/s/ Lawrence J. Oliveira, DDS 3/20/00 /s/ Peter Paskowski 3/20/00
Lawrence J. Oliveira, DDS Peter Paskowski
Director Director
/s/ Kenneth R. Rezendes 3/20/00 /s/ William J. Sullivan 3/20/00
Kenneth R. Rezendes William J. Sullivan
President and Chief Executive Officer Director
/s/ Charles Veloza 3/20/00 /s/ David F. Westgate 3/20/00
Charles Veloza David F. Westgate
Director Director
</TABLE>
Exhibit Index
<TABLE>
<CAPTION>
Exhibit
No. Description Page
- ------- ----------- ----
<S> <C> <C>
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 Stock Option Plan (3)
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, 1999
21 List of subsidiaries of Slade's Ferry Bancorp.
23 Consent of Independent Public Accountants
27 Financial Data Schedule
<FN>
<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.
</FN>
</TABLE>
Modern Banking Services with
Traditional Values
Slade's Ferry Bancorp
Annual Report 1999
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 Company, 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 twelve 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. An Equal
Opportunity/Affirmative Action Employer (M/F/D/V), Slade's Ferry Trust
Company employed a total of 137 full-time and 48 part-time employees as of
December 31, 1999. 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.
Corporate offices are located at 100 Slade's Ferry Avenue, Somerset, MA.
To Our Shareholders:
As the fireworks and worldwide celebrations of the new millennium began,
Slade's Ferry Bancorp closed out the most profitable year of its existence.
Net income for the year ended December 31, 1999, increased by 14.7% or
$493,446, reaching $3,856,488 compared to $3,363,042 for the year ended
1998. Diluted earnings per share were $1.05 compared to $.94 in 1998, an
increase of $.11 or 11.7%.
These record earnings were accompanied by a 33% increase in quarterly
dividends to you, the shareholders, from $.06 per share in the first quarter
of 1999 to $.08 per share for the remaining quarters of the year. In
addition, an extra cash dividend was paid in December, 1999, of $.08 per
share.
Our balance sheet reflects steady growth, with assets at year end 1999 at
$358.1 million, an increase of $17.7 million or 5.2% above 1998. Loan demand
was strong throughout the year, particularly in the commercial sector,
showing an increase of $23.8 million or 10.9% when compared to 1998.
More importantly, but less noticeable, was the dramatic reduction in
nonperforming assets from $4.7 million in 1998 to $2.4 million by year end
1999. This improvement is the result of a much-improved economy, as well as
our continuing efforts to assist customers that have experienced difficult
financial periods.
Deposit levels increased to $316.4 million at year end 1999, when compared
to $303.8 million at the end of 1998. This increase occurred predominately
in the time deposit category, due to the Bank's market-leading rates on
certificates of deposit during the last quarter of 1999.
In an effort to improve on market penetration and our delivery system, we
opened a newly refurbished branch on South Main Street in Fall River in
early January, 1999. By year end, this branch had grown to $4,000,000. In
late March, 1999, our newest branch on Ashley Boulevard in New Bedford was
opened and has since steadily grown to $5,700,000 by year end. This branch
offers us the opportunity to expand our visibility in the New Bedford market
area. Both branches are a great addition to our branch network and, we feel,
will enhance our future growth and profitability.
In July, we established a loan production office in Warwick, Rhode Island,
which is the source of many new small business customers and provides a
means to expand in this marketplace. We are very pleased with the
opportunities this office has afforded us during 1999.
During the early part of 1999, a Real Estate Investment Trust (the Slade's
Ferry Preferred Capital Corporation) was formed which has allowed us to use
certain state tax planning strategies to reduce our overall tax liability
and enhance our earnings. Some of these tax savings were used to form the
Slade's Ferry Charitable Foundation.
The Slade's Ferry Charitable Foundation was established with Fidelity
Investments to help us better manage our resources and serve our expanding
community. This fund allows the bank to carefully control the disbursement
of charitable funds without incurring administrative costs and expenses.
Since our inception, Slade's Ferry Bank has carried on a proud, quiet
tradition of community-based charitable giving. As we have grown, so too
have the number and size of the requests we receive. While small donations
will continue to be handled directly from the Main Office, our larger
contributions, still directed by Slade's Ferry, will now be dispersed
through this newly established Foundation.
As the end of the year approached, we focused our attention on the
changeover to Y2K, which came and went virtually unnoticed by our customers.
The only disappointment for 1999 was the performance of community bank
stocks versus the rest of the market. Over the last two years, bank stocks
(Nasdaq Bank Index) are down 21.54%, while the S & P 500 stocks are up
43.80%. Although banks are enjoying their most profitable period in years,
community banks are seeing the stock price decline due to liquidity concerns
and small volumes of shares traded. We expect an improvement in the
performance of community bank stocks, as many are presently undervalued, but
we do not expect a large run-up in price as we saw in early 1998.
The new millennium is off to a great start! With solid earnings, continued
growth and a commitment to you, the shareholders, to provide value and
reward for your continued support, we thank you.
Sincerely,
/s/ James D. Carey
James D. Carey
Executive Vice President, Bancorp
President, Chief Executive Officer, Slade's Ferry Bank
January 28, 2000
A Progressive Future Founded
on a Proud Past
PRESERVING THE VALUES OF OUR PAST - Slade's Ferry Bank is the proud owner of
an authentically restored 1925 Model T Ford. Our neighbors and friends will
frequently see this vehicle participating in various community events we
support including Fall River Celebrates America and New Bedford's
Summerfest. As we ride proudly into this next millennium, this Model T
symbolizes our commitment to traditional values and the spirit of the past .
. . a time when quality craftsmanship and an uncompromising commitment to
excellence were focused on one single-minded consideration: the satisfaction
of the customer.
As we turn the page on the 20th century and enter the Third Millennium, we
at Slade's Ferry Bank are absolutely confident that we can meet and exceed
your ever-changing banking needs.
Simply because today's tools and technologies are constantly changing
doesn't mean that our commitment to personal service has to change, too. In
the years ahead, computers will keep getting smarter. Businesses will keep
moving faster. And Slade's Ferry Bank will continue to make it our business
to offer you the best, most modern banking services available anywhere -
while maintaining our commitment to personal service and old world values -
because some things should never change.
We believe that technology is merely a tool that enables us to achieve our
first priority: serving every banking need of every banking customer. So
we'll continue to work towards delivering a full array of banking services.
And we'll deliver these services with a personal touch that assures you're
banking with people who care about you and understand your needs. A computer
will never look you in the eye, shake your hand and reassure you that it
shares your values and cares about your business. Slade's Ferry bankers
will. This is the foundation of our proud tradition.
A Year of Branching Out and
Building for Tomorrow
What is an investment but a decision you make today based on what you
believe you will need tomorrow?
In 1999, Slade's Ferry Bank made several forward-thinking investments - each
one a purposeful step toward ensuring we continue to meet and exceed the
needs of all our customers throughout Southeastern Massachusetts and, now,
Rhode Island.
We opened two new branches - one on South Main Street in Fall River and one
on Ashley Boulevard in New Bedford - each staffed with friendly,
knowledgeable Slade's Ferry professionals eager to help our customers get
what they want and need.
Also in 1999, we opened our first Commercial Loan Production Office in Rhode
Island - further solidifying our leadership position in regional business
banking. This Office functions as part of the Slade's Ferry Loan Company -
and serves to extend the reach of our unique banker-to-business
relationships.
It's all part of a practical, manageable strategy aimed at meeting - and
exceeding - all the needs of all our customers - past, present and future.
Our Commitment to
Keeping the Right Balance
Your personal and business finances are extremely important to you. And to
us. We know it is critical for you to find your perfect balance between risk
and reward, short-term and long-term gain, and your lifestyle today versus
your dreams for tomorrow.
As we enter the unprecedented new millennium, finding - and keeping - the
right balance is vital in all facets of your financial life. So, while we
work diligently on your behalf to outpace the pace of change - we will never
lose sight of the qualities that make us so very different from other
banking institutions.
We're big enough to help you build your business yet small enough to care
about your passbook savings account. We're experienced and understand the
meaning of genuine customer service yet we're innovative enough to offer you
the most modern banking conveniences.
We understand where you're coming from - because that's where we're from,
too.
Here at Slade's Ferry Bank, our commitment to you is that we will always
pursue the perfect balance for you - because the balance of our success
rests on the balance of your satisfaction.
We are proud to be your bank -yesterday, today and into the new millennium.
Financial Table of Contents
Selected Financial Data 6
Management's Discussion and Analysis 7
Results of Operations 7
Financial Condition 10
Independent Auditors' Report 17
Consolidated Balance Sheets 18
Consolidated Statements of Income 19
Consolidated Statements of Changes in
Stockholders' Equity 20
Consolidated Statements of Cash Flows 21
Notes to Consolidated Financial Statements 23
Board of Directors and Officers 40
Market for Registrant's Common Equity and Related Stockholder Matters
Market Information
The Company's common stock is listed in the NASDAQ Small Cap Market under
the symbol SFBC. The following table sets forth the range of high and low
bids as reported for the NASDAQ Small Cap Market by quarters for the two-
year period ended December 31, 1999.
<TABLE>
<CAPTION>
1999 1998
- ---------------------------------------------------
High Low High Low
- ---------------------------------------------------
<S> <C> <C> <C> <C>
1st Quarter $14.70 $13.25 $17.00 $15.50
2nd Quarter 13.50 12.25 19.13 17.50
3rd Quarter 12.13 10.00 18.75 16.38
4th Quarter 11.88 10.00 15.88 13.00
===================================================
</TABLE>
Dividends - History and Policy
The Company, since its inception in 1990 and prior thereto the Bank, has
consistently paid dividends to stockholders since 1961. The Company paid a
quarterly cash dividend of $.06 per share in the first quarter of 1999 and
then increased the cash dividends to $.08 per share for the remaining
quarters. In addition, an extra cash dividend was paid in December 1999 of
$.08 per share for a total of $.36(1) per share paid in 1999.
In January 1998, the Company issued a 5% stock dividend on the Company's
common stock, resulting in a distribution of 161,698 shares. The Company
also paid two quarterly cash dividends of $.05 per share and then increased
its dividend to $.06 per share for the third and fourth quarter in 1998. In
addition, an extra cash dividend of $.06 per share was paid in December 1998
for a total of $.27(1) per share paid in 1998.
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 the 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.
<F1> Reflects the effect of the 5% stock dividend issued on February 9, 2000.
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) 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
EARNINGS DATA
Interest Income $ 25,553 $ 24,306 $ 23,150 $ 19,495 $ 16,541
Interest Expense 10,754 10,711 10,412 9,078 7,764
Net Interest Income 14,799 13,595 12,738 10,417 8,777
Provision for Loan Losses 550 600 500 400 550
Noninterest Income 2,087 1,568 1,562 1,305 1,056
Noninterest Expense 10,557 8,984 9,033 7,380 6,632
Income Before Income Taxes 5,779 5,579 4,767 3,942 2,651
Applicable Income Taxes 1,923 2,216 1,921 1,564 1,005
Net Income 3,856 3,363 2,846 2,378 1,646
PER SHARE DATA(1)
Net Income-Basic $ 1.06 $ 0.940 $ 0.850 $ 0.772 $ 0.589
Net Income-Diluted(2) $ 1.05 $ 0.940 $ 0.850 $ -- $ --
Cash Dividends $ 0.358 $ 0.265 $ 0.230 $ 0.216 $ 0.156
Book Value (at end of period) $ 8.567 $ 8.200 $ 7.746 $ 6.693 $ 6.382
Avg. Shs. Outstanding 3,476,451 3,402,218 3,184,857 2,903,131 2,875,162
Shares Outstanding Year End 3,520,409 3,446,413 3,236,713 2,789,142 2,617,181
BALANCE SHEET DATA
Assets $ 358,121 $ 340,355 $ 301,571 $ 291,342 $ 233,422
Loans 242,049 218,230 213,736 198,986 151,094
Unearned Discount 594 691 690 643 527
Allowance for Loan Losses 3,766 3,569 3,694 3,354 2,498
Loans, Net 237,669 213,938 209,310 194,935 148,069
Goodwill 2,627 2,854 3,081 3,307 --
Investments 81,806 79,978 58,668 57,732 58,757
Deposits 316,431 303,786 271,322 267,791 214,221
Stockholders' Equity 31,664 29,707 26,436 19,847 17,827
FINANCIAL RATIOS
Net Yield on Interest
Earning Assets(3) 4.71% 4.70% 4.66% 4.44% 4.36%
Net Interest Spread(3) 3.99 3.91 3.88 3.72 3.72
Net Income as a Percentage of
Average Assets 1.11 1.06 0.96 0.94 0.75
Average Equity 12.56 11.98 12.27 12.69 9.99
Dividend Payout Ratio 34.36 28.54 27.57 27.95 29.03
Average Equity to Average Assets 8.85 8.86 7.79 7.40 7.55
- --------------------
<F1> Earnings per share are computed based on the average number of shares
of common stock outstanding during the year. 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. On January 12, 1998, the Company declared a 5% stock
dividend mailed to stockholders on February 11, 1998. Per share data
has been restated to reflect the effect of the stock splits and the
stock dividends, including the 5% stock dividend issued on February 9,
2000.
<F2> There were no stock options outstanding in years prior to 1997.
<F3> Calculated on a fully taxable equivalent basis.
</TABLE>
Slade's Ferry Bancorp
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.
1999 Highlights
* In 1999, Slade's Ferry Bancorp recorded net income of $3,856,488 or $1.05
per share on a diluted basis compared to $3,363,042 or $.94 per share on a
diluted basis in 1998. This represents an increase of $493,446 or 14.67% in
net income and $.11 or 11.70% per share on a diluted basis between 1999 and
1998.
* Return on average equity for 1999 was 12.56%, up by 0.58% when compared
to 11.98% reported in 1998. Return on average assets for 1999 was 1.11% up
by .05% when compared to 1.06% reported in 1998.
* Book value of the Company's common stock increased to $8.57 in 1999 from
$8.20 reported in 1998, and $7.75 reported in 1997.
* The Company increased its cash dividend during the second quarter from
$.06 per share to $.08 per share, and paid an extra cash dividend in
December 1999 to reflect total dividend payments of $.38 per share, up by
$.10 per share when compared to $.28 per share paid in 1998.
* The Bank opened two branch banking facilities in 1999:
1601 South Main Street, Fall River, Massachusetts
833 Ashley Boulevard, New Bedford, Massachusetts
* Certain state tax planning strategies were implemented in 1999 through
the formation of the Slade's Ferry Preferred Capital Corporation, a Real
Estate Investment Trust, as a subsidiary of the Bank.
* A loan production office was established in Rhode Island, known as the
Slade's Ferry Loan Company, located at 188 Airport Road, Warwick, Rhode
Island. The office provides the opportunity to solicit commercial and
consumer borrowers in the Rhode Island area.
* A charitable gift fund known as the Slade's Ferry Charitable Foundation
was established with Fidelity Investments, Boston, Massachusetts, to act as
the administrator. This provides the Bank control over its governance
without incurring administrative tasks and expense associated with a
charitable fund. Income earned remains with the fund and charity
disbursements are solely governed by Slade's Ferry Bank.
Results of Operations
Net interest income, which is the difference between interest and dividend
income earned on earning-assets and interest expense paid on interest-
bearing liabilities, is the dominant contributor to net income. Increases or
decreases in interest rates affect the yields earned on loans and
investments and rates paid on deposits and other borrowings. On a fully
taxable basis, net interest income was $15.0 Million in 1999, $13.8 Million
in 1998 and $12.9 Million in 1997. The increase in net interest income in
1999 is primarily a result of growth in average earning assets of 8.84% from
prior years. Growth in earning assets is due to a general increase in
business volumes. The average earning assets produced an 8.08% yield, down
when compared to 8.35% in 1998 and 8.43% in 1997.
The downturn in yields is due to a lower prime rate environment that
occurred in late 1998 as new loans were booked and some existing loans were
repriced or rewritten at lower rates.
The loan portfolio, which generally produces higher yields than the
investment portfolio, represents 66.12% of average assets in 1999, compared
to 67.5% in 1998, and 69.06% in 1997.
Cost of funds decreased to 4.09% in 1999 primarily due to the lowering of
rates paid on other time deposits, which is the largest component of
interestbearing liabilities. Cost of funds in 1998 was 4.44% and 4.55% in
1997. During 1999 the average balances in interest-bearing liabilities
increased to $262.7 Million, compared to $241.4 Million in 1998 and $229.1
Million in 1997.
The net interest spread, which represents the difference between the
weighted average yield on interest-bearing assets and the weighted average
cost of interest-bearing liabilities increased to 3.99% in 1999 from 3.91%
in 1998 and 3.88% reported in 1997.
Net yield on earning assets, which represents net interest income as a
percentage of average earning assets increased slightly to 4.71% from 4.70%
in 1998 and 4.66% in 1997.
The Provision to the Allowance for Loan Losses in 1999 decreased to $550,000
compared to $600,000 recorded in 1998. The provision in 1997 was $500,000.
The decrease in the provision for 1999 was based upon management's desire to
maintain an appropriate ratio of the Allowance for Loan Losses to
outstanding loans while recognizing the growth in the loan portfolio, the
amount of charge-offs that occurred in 1999, and the level of non accrual
loans compared to prior years.
Total Other Income for 1999 increased by $518,432 or 33.06% to $2,086,544
from $1,568,112 recorded in 1998. Service charges on deposit accounts
decreased slightly in 1999 to $618,303 when compared to $634,129 in 1998 and
$654,749 in 1997. These decreases are due to small business checking
accounts converting from a higher fee based account structure to a lower fee
structure in lieu of receiving canceled checks. This procedure, in turn,
reduces postage expense since monthly statements are mailed to the small
business entity without the canceled checks.
During 1999, $3.2 Million of investment securities in the Available-for-Sale
category were sold at a loss of $25,026. This was a strategic move to
provide additional liquidity needed to fund loan growth. In addition, due to
favorable market conditions, the Bank also sold various marketable corporate
equities totaling $1.4 Million throughout the year to realize gains on sales
of $691,924 resulting in a total net pre-tax gain of $666,898. Pre-tax gains
on sales of securities in 1998 were $382,370 and $313,844 in 1997.
The line item Other Income represents income earned on safe deposit box
rentals, checkbook printing revenue, recoveries on previously recorded
losses relating to check fraud, exchange and commission fees, and other
miscellaneous income. The increase in this category, when compared to 1998
and 1997, is primarily due to overall business growth, but also reflects
recognition of income associated with the director's life insurance program
adopted in 1998. Through the demutualization of the insurance carrier that
provides a portion of the director's life insurance, shares of the company
were issued which resulted in additional income of $163,901. In addition, an
increase of $27,080 was also recorded as miscellaneous income due to
increases in the cash surrender values of the policies.
Total Other Expense increased by $1,572,388 to $10,556,569, up by 17.50%
when compared to $8,984,181 recorded in 1998. Salaries and Employees
Benefits, which is the largest component of Other Expense, increased by
$299,985 to $5,780,176, up from $5,480,191 recorded in 1998. In 1997
Salaries and Employees Benefits were $5,317,620. The increase is associated
with general wage adjustments and increased cost in employees benefits.
Occupancy and Equipment Expense combined totaled $1,358,415 in 1999, up by
$103,785 when compared to $1,254,630 reported in 1998. The increase is
primarily attributable to the costs related to the new branch offices opened
in early 1999. Combined Occupancy and Equipment Expense in 1997 totaled
$1,285,867.
Gains and Losses on Sales of Other Real Estate Owned is a result of sales of
real estate acquired through the foreclosure process. In 1999, the Bank
realized losses in this category totaling $29,069 compared to a gain
recognized in 1998 of $54,590 and losses in 1997 amounting to $42,457.
Writedown on Other Real Estate Owned occurs when Bank held property is
adjusted to the current appraised value, if the appraisal is less than the
amount carried by the Bank. Further adjustments are made, if necessary,
should future appraisals warrant them. In 1999, the Bank incurred a
writedown of $57,024 compared to no writedown in 1998 and a $67,480 charge
in 1997.
The following table sets forth the components of the line item Other
Expense.
<TABLE>
<CAPTION>
1999 1998 1997
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Amortization of Goodwill $ 226,800 $ 226,800 $ 226,800
Advertising and Public Relations 465,271 405,737 400,502
Communications 317,993 290,253 269,239
Professional Fees & Other Services 729,263 571,952 536,710
Other Real Estate Owned Expense 161,632 46,426 49,670
Committee Fees 169,650 109,900 104,455
Other Various Expense 971,385 391,185 349,281
- ----------------------------------------------------------------------------
Other Expense Total $3,041,994 $2,042,253 $1,936,657
- ----------------------------------------------------------------------------
</TABLE>
In 1999, Other Expense increased by $999,741 to $3,041,994 when compared to
$2,042,253 reported in 1998. In 1997, the Bank reported $1,936,657 for this
category. Increases in the line item Other Expense are generally associated
with normal business growth, however, in 1999 Professional Fees and Other
Services includes charges totaling $178,000 consisting of legal and
professional costs in establishing the Slade's Ferry Preferred Capital
Corporation, the Slade's Ferry Loan Company and costs relating to the Y2K
preparedness.
Other Real Estate Owned Expense are costs associated with the maintenance
and selling of properties acquired through foreclosure. In 1999, the Bank
incurred additional clean-up and repair costs at these properties to improve
their marketability. The increase in Committee Fees reflects a general
adjustment made in January 1999 to the director's fee structure for
attendance at meetings.
The line item Other Various Expenses includes a one-time charge of $277,643
set aside to cover a court judgement resulting from the civil suit brought
on by a former employee of the National Bank of Fairhaven, and a $150,000
payment to the Slade's Ferry Charitable Foundation for future charitable
donations.
Income tax for 1999 decreased to $1,922,757, down by $293,403 or 13.24% from
$2,216,160 reported in 1998. Federal Income Tax for 1999 totaled $1,880,068
compared to $1,665,551 reported in 1998. The increase in Federal Income Tax
was attributed to an increase in pre-tax earnings. Whereas State Income Tax
for 1999 amounted to $42,689, significantly less than the $550,609 in taxes
paid in 1998 due to the establishment of a Real Estate Investment Trust
(REIT). The REIT, named the Slade's Ferry Preferred Capital Corporation,
enabled the Bank to utilize certain state tax savings strategies. In 1997,
Federal and State Income Tax expenses totaled $1,920,741 of which $1,391,553
was Federal Income Tax and $529,188 was State Income Tax.
The Company's net earnings were $3,856,488, $3,363,042 and $2,845,990 for
1999, 1998, and 1997 respectively.
<TABLE>
<CAPTION>
Unaudited Quarterly Financial Summary
- ---------------------------------------------------------------------------------
(Dollars in Thousands) March 31 June 30 September 30 December 31
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1999:
Revenues $6,682 $6,791 $7,170 $6,996
Operating Income 1,409 1,501 1,552 1,319
Net Income 873 922 1,112(1) 949(1)
Earnings per share - Diluted $ 0.24 $ 0.25 $ 0.30 $ 0.26
Earnings per share - Basic $ 0.25 $ 0.25 $ 0.30 $ 0.26
1998:
Revenues $6,217 $6,500 $6,749 $6,409
Operating Income 1,236 1,426 1,655 1,262
Net Income 745 864 1,000 754
Earnings per share - Diluted $ 0.21 $ 0.24 $ 0.28 $ 0.21
Earnings per share - Basic $ 0.21 $ 0.24 $ 0.28 $ 0.21
- --------------------
<F1> Reflects effect of decrease in state tax attributed to the
establishment of a real estate investment trust in July 1999. The
aggregate effect of the tax savings resulted in additional net income
of $312,000 for the year 1999.
</TABLE>
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, 1999, December 31, 1998, and December 31, 1997. Averages are
daily averages.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
Average Interest(1) Avg. Average Interest(1) Avg. Average Interest (1) Avg.
(Dollars in Thousands) Balance Inc/Exp Int. Rate Balance Inc/Exp Int. Rate Balance Inc/Exp Int. Rate
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Earning Assets(2)
Commercial Loans $ 47,386 $ 4,218 8.90% $ 42,244 $ 3,953 9.36% $ 36,195 $ 3,466 9.58%
Commercial Real Estate 136,648 12,876 9.42 118,939 11,630 9.78 110,093 10,740 9.76
Residential Real Estate 37,523 2,778 7.40 45,781 3,520 7.69 52,894 4,116 7.78
Consumer Loans 7,678 657 8.56 6,767 652 9.63 6,503 659 10.13
- -----------------------------------------------------------------------------------------------------------------------------------
Total Loans 229,235 20,529 8.96 213,731 19,755 9.24 205,685 18,981 9.23
Federal Funds Sold 5,563 259 4.66 12,214 630 5.16 11,309 607 5.37
U.S. Treasury/Govern-
ment Agencies 68,523 4,114 6.00 54,842 3,366 6.14 49,682 3,099 6.24
States & Political
Subdivisions 11,505 748 6.50 9,763 649 6.65 6,948 477 6.87
Mutual Funds 71 3 4.23 209 14 6.70 301 15 4.98
Marketable Equity
Securities 3,470 78 2.25 2,761 105 3.80 2,518 120 4.77
Other Investments 1,102 71 6.44 6 0 0.00 126 8 6.35
- -----------------------------------------------------------------------------------------------------------------------------------
Total Earning Assets 319,469 $25,802 8.08% 293,526 $24,519 8.35% 276,569 $23,307 8.43%
===================================================================================================================================
Allowance for Loan
Losses (3,814) (3,602) (3,474)
Unearned Income (640) (715) (665)
Cash and Due From Banks 14,320 12,186 11,366
Other Assets 17,371 15,376 14,022
- -----------------------------------------------------------------------------------------------------------------------------------
Total Assets $346,706 $316,771 $297,818
===================================================================================================================================
LIABILITIES & STOCKHOLDERS'
EQUITY:
Savings $ 48,442 $ 1,022 2.11% $ 43,885 $ 1,075 2.45% $ 42,642 $ 1,067 2.50%
NOW's 38,404 994 2.59 38,764 1,196 3.09 37,739 1,202 3.19
Money Market Accounts 12,188 215 1.76 13,777 273 1.98 14,116 281 1.99
CD's > $100M 26,857 1,325 4.93 22,945 1,266 5.52 23,162 1,256 5.42
Other Time Deposits 130,393 6,778 5.20 119,118 6,700 5.62 109,278 6,460 5.91
Other Borrowings 6,413 420 6.55 2,933 201 6.85 2,114 146 6.91
- -----------------------------------------------------------------------------------------------------------------------------------
Total Interest-bearing
Liabilities 262,697 $10,754 4.09% 241,422 $10,711 4.44% 229,051 $10,412 4.55%
===================================================================================================================================
Demand Deposits 52,261 46,217 43,724
Other Liabilities 1,057 1,063 1,847
- -----------------------------------------------------------------------------------------------------------------------------------
Total Liabilities 316,015 288,702 274,622
- -----------------------------------------------------------------------------------------------------------------------------------
Common Stock 35 34 30
Paid-in Capital 22,646 21,448 16,899
Retained Earnings 8,492 6,395 6,308
Net Unrealized Gain
(Loss) on Available-
for-Sale Securities (482) 192 (41)
- -----------------------------------------------------------------------------------------------------------------------------------
Total Stockholders'
Equity 30,691 28,069 23,196
- -----------------------------------------------------------------------------------------------------------------------------------
Total Liabilities &
Stockholders' Equity $346,706 $316,771 $297,818
===================================================================================================================================
Net Interest Income $15,048 $13,808 $12,895
===================================================================================================================================
Net Interest Spread 3.99% 3.91% 3.88%
===================================================================================================================================
Net Yield on Earning Assets 4.71% 4.70% 4.66%
===================================================================================================================================
- --------------------
<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 $249,000 in 1999, $212,000 in 1998, and
$157,000 in 1997. (2) 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
Loan demand remained constant throughout 1999 resulting in a 10.9% increase
from year end 1998. The loan portfolio expanded by $23.8 Million to $242.0
Million when compared to $218.2 Million reported at December 31, 1998. The
largest segment of the loan portfolio is commercial real estate loans which
represents 52.86% of total loans. These loans are collateralized by various
types of commercial properties without any predominate type of property nor
concentration of credit in any one industry. The properties consist of
apartment complexes, medical centers, strip malls, factories with multiple
tenants, and retail office units located in the Bank's market area extending
throughout Southeastern Massachusetts and nearby cities and towns in Rhode
Island. Commercial real estate loans generally have a higher degree of
credit risk than residential real estate loans because they are
predominately dependant on the success of the business. The Bank adheres to
a credit criteria policy that strives to maintain the quality of the loan
portfolio. The process of granting a commercial loan consists of an
independent analysis of the financial condition of the borrower and the
business entity by the Bank's credit analysis division. In turn, the
borrowing request is further evaluated by Executive Management and all loans
in excess of $100,000 are submitted to the Executive Committee of the Board
of Directors for final approval before the loan is granted. Periodically,
during the life of the loan, analysis of financial statements of the
business is performed to determine if there are any weaknesses or negative
trends developing, and if so, contact with the borrower is made to ascertain
the cause and what remedial action is planned.
The second largest component in the loan portfolio is residential real
estate which accounts for 21.62% of the loan portfolio and comprises of
mortgages on one to four family 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 for the normally required 20% down
payment.
Other types of loans total 25.52% of the portfolio and 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 investment portfolio represents the second largest component of the
Company's assets and consists of securities in the Available-for-Sale
category and securities in the Held-to-Maturity category. The designation of
which category the security is to be classified as is determined at the time
of the purchase of the investment instrument. Securities in the Available-
for-Sale category are securities that 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 or other
factors. Any unrecognized gains or losses, net of taxes, is reflected in
Stockholders' Equity as a separate component.
The Available-for-Sale category at December 31, 1999 had net unrecognized
losses, net of taxes of $1,150,594 of which $1,220,284 in unrecognized
losses are attributed to securities of U.S. Treasury, other U.S. Government
corporations and agencies, and mortgage-backed securities, and $69,690 in
unrecognized gains are attributable to marketable equity securities.
Securities of U.S. Treasury, U.S. Government corporations and agencies, and
mortgage-backed securities 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. The Company amortizes premiums and accretes
discounts over the life of the security.
Marketable equity securities, however, have a greater risk as they are
subject to rapid market fluctuations. These securities are constantly
monitored and evaluated to determine their suitability for sale or retention
in the portfolio. Management minimizes its risk by limiting the total amount
invested into marketable equity securities to 5% of the total investment
portfolio. At December 31, 1999, the amount invested in marketable equity
securities was 4.7% of the total investment portfolio distributed over
various business sectors.
The Held-to-Maturity category consists predominately of securities of U.S.
Treasury, U.S. Government corporation 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 managing the Held-to-Maturity portfolio, the Company seeks to
maximize its return and maintain consistency to meet short and long term
liquidity forecasts by purchasing securities with maturities laddered within
a short-term period of 1-3 years, a mid-term period of 3-5 years, and some
securities extending out to 10 years. 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
reasonable declines in deposits and any anticipated increases in the loan
portfolio, to provide safety of principal and interest, to generate earnings
adequate to provide a stable income and to fit within the overall
asset/liability management objectives of the Company.
Deposits and other Liabilities
Deposit levels remained relatively flat during the first nine months in 1999
increasing significantly in the fourth quarter as the Bank increased paying
rates on term certificates of deposit. In addition to attracting new
depositors by the offering of competitive rates, the opening of two new
branch facilities attributed to an increase in the Bank's customer base.
Certificates of deposit (term deposits) is the largest component of deposits
extending out to a maximum of three years.
The Bank is a member of the Federal Home Loan Bank (FHLB) and borrows funds
secured by residential mortgage loans and other assets. This borrowing
mechanism enables the Bank to match-fund loans to commercial borrowers who
meet certain credit and deposit requirements. At December 31, 1999, the Bank
had $6.8 Million of loans match-funded with FHLB.
Year 2000 Compliance
In 1998 an assessment of the computer systems and all other technology
functions was made, and a plan was established to assure that all systems at
year end 1999 would properly interpret the calendar year digits for Year
2000, including ongoing operations and calculations. Through a series of
tests and implementations of changes during the past two years, the Company
was Y2K ready, and the conversion to Year 2000 posed no problems, glitches
or delays. In addition, the Company is not aware of any of its commercial
borrowers, whose businesses had a dependency on computers, incurring any
business interruptions associated with the Year 2000 event.
Asset/Liability Management and Interest Rate Risk
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.
Management's objective is to reduce and control the volatility of its net
interest margin by managing the relationship of interest-earning assets and
interest-bearing liabilities. In order to manage this relationship, the
committee utilizes a GAP report prepared on a monthly basis which indicates
the differences or gap between interest-earning assets and interest-bearing
liabilities in various maturity or repricing time periods. This, in
conjunction with certain assumptions, and other related factors, such as
anticipated changes in interest rates and projected cash flows from loans,
investments and deposits, provides management 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 of
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 effect. At December 31, 1999, for the period from 0 days to 2
years, the Company has a cumulative negative gap position of $25.2 Million.
This equates to a percentage of total assets of 7.03% which is within the
specific target for interest rate sensitivity established by the Company.
The negative gap occurs as a result of the amount of deposits that are
subject to repricing during this time period.
In addition to the GAP report, the Company also uses an analysis to measure
the exposure of net interest income to changes in interest rates over a
relatively short (i.e., 12 months) time frame. The analysis projects future
interest income and interest expense from the Company's interest-earning
assets and interest-bearing liabilities. Depending on the GAP position, the
Company's policy limit on interest rate risk specifies that if interest
rates were to change immediately up or down 200 basis points, estimated net
interest income for the next twelve months would not decline by more than
ten percent.
The following table reflects the Company's estimated exposure as a
percentage and the dollar impact of estimated net interest income for the
next twelve months, assuming an immediate change in interest rates:
<TABLE>
<CAPTION>
Estimated Exposure
as a Percentage of
Rate Change Net Interest Income
(Basis Points) December 31, 1999 Dollar Impact
- ----------------------------------------------------------------------
<S> <C> <C>
+200 (1.90%) $(280,000)
-200 .52% $ 77,000
</TABLE>
The model used to monitor earnings-at-risk provides management a measurement
tool to assess the effect of changes in interest rates on the Company's
current and future earnings. The 10% limit established by the Company
provides an internal tolerance level to control interest rate risk exposure.
Interest Rate - Sensitivity Gaps
Repricing Period at December 31, 1999
<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 $ 5,000 $ -- $ -- $ -- $ -- $ 5,000
Investment Securities 10,797 7,726 4,679 21,327 39,194 83,723
Residential Mortgages 21,345 8,135 6,476 1,418 14,221 51,595
Commercial Mortgages 76,841 12,075 19,127 9,566 14,807 132,416
Other Loans 46,202 3,358 4,132 2,477 92 56,261
- ----------------------------------------------------------------------------------------------------------------
Total Earning Assets $160,185 $ 31,294 $34,414 $34,788 $68,314 $328,995
- ----------------------------------------------------------------------------------------------------------------
Interest-Bearing Liabilities:
NOW Checking and Savings Deposits $ 35,253 $ 9,922 $ 9,922 $26,455 $ -- $ 81,552
Money Market Deposits 3,415 2,042 2,042 5,443 -- 12,942
Term Deposits 141,262 23,499 4,961 -- -- 169,722
Borrowed Funds -- -- -- -- 6,757 6,757
Other Interest-Bearing Liabilities 1,248 -- -- -- -- 1,248
- ----------------------------------------------------------------------------------------------------------------
Total Interest-Bearing Liabilities $181,178 $ 35,463 $16,925 $31,898 $ 6,757 $272,221
- ----------------------------------------------------------------------------------------------------------------
Net Interest Sensitivity Gap $(20,993) $ (4,169) $17,489 $ 2,890 $61,557 $ 56,774
Cumulative Gap $(20,993) $(25,162) $(7,673) $(4,783) $56,774 $ --
Cumulative Gap as a Percent of Total Assets 5.86% 7.03% 2.14% 1.34% 15.85% --
================================================================================================================
- --------------------
<F1> Nonaccrual loans amounting to $1.8 Million have been eliminated from
the loan balances.
</TABLE>
Nonperforming Assets
<TABLE>
<CAPTION>
Year Ended December 31
- ---------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands) 1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $ 1,777 $ 3,331 $4,597 $4,352 $2,695
Loans 90 days or more past due and still accruing 248 317 147 112 23
Real estate acquired by foreclosure or substantively repossessed 353 1,026 159 308 633
- ---------------------------------------------------------------------------------------------------------------------------
Total nonperforming assets $ 2,378 $ 4,674 $4,903 $4,772 $3,351
===========================================================================================================================
Restructured debt performing in accordance with
amended terms, not included above $ 518 $ 867 $1,265 $ 819 $ 459
===========================================================================================================================
Percentage of nonaccrual loans to total loans 0.73% 1.53% 2.15% 2.19% 1.78%
Percentage of nonaccrual loans, restructured loans, and real estate
acquired by foreclosure or substantively repossessed to total assets 0.74% 1.54% 2.00% 1.88% 1.62%
Percentage of allowance for loan losses to nonaccrual loans 211.92% 107.15% 80.36% 77.07% 92.69%
</TABLE>
The Company considers nonaccrual loans, loans past due 90 days or more but
still accruing, restructured loans not performing in accordance with amended
terms, and real estate acquired through foreclosure as nonperforming assets.
Nonperforming assets as a total decreased to $2.4 Million at year end 1999
from $4.7 Million reported at year end 1998.
Nonaccrual loans is the largest component of nonperforming assets, and at
December 31, 1999, this category decreased to $1.8 Million from $3.3 Million
reported at end of previous year.
The Company places a loan on nonaccrual status when, in the opinion of
management, the collectability of the principals 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.
If it is determined that the collectibility of the loan no longer exists,
the loan 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.
Loans 90 days or more past due but still accruing decreased to $248,000 from
$317,000 reported at year end 1998. Management continues to accrue on these
loans due to the excess values of collateral securing these loans compared
to their outstanding balances.
Real estate acquired by foreclosure or substantively repossessed decreased
to $353,000 at December 31, 1999 compared to $1,026,000 reported at end of
the prior year. This amount represents two separate parcels of real estate.
The percentage of nonaccrual loans to total loans decreased substantially
from prior years due to the reduction of loans in the nonaccrual category
and the growth of the loan portfolio. In addition, the percentage of
nonaccrual loans, restructured loans and real estate acquired by foreclosure
to total assets also decreased as a result of increased asset levels. The
$518,000 of restructured loans represent several borrowers where original
loan terms were amended and are current in their payments under the amended
terms.
Statement of Financial Accounting Standards No. 114 "Accounting by Creditors
for Impairment of a Loan" applies to all loans except large groups of
smaller-balance homogeneous loans that are collectively evaluated for
impairment, loans measured at fair value or at a lower of cost or fair
value, leases, and debt securities as defined in Statement 115. Statement
114 requires that impaired loans be valued at the present value of expected
future cash flows discounted at the loan's effective interest rate or as a
practical expedient, at the loan's observable market value of the collateral
if the loan is collateral dependent. Smaller-balance homogeneous loans are
considered by the Company to include consumer installment loans and credit
card loans.
At December 31, 1999, there were $2,601,608 of loans which the Company has
determined to be impaired, of which $1,019,110 has a related allowance for
credit losses of $421,330 and $1,582,498 has no related allowance for credit
losses. Management is not aware of any other loans that pose a potential
credit risk or where the loans are current but the borrowers are
experiencing financial difficulty.
Allowance for Loan Losses
The table below illustrates the changes in the Allowance for Loan Losses for
the periods indicated.
<TABLE>
<CAPTION>
Year Ended December 31
- ---------------------------------------------------------------------------------------------------------------
(Dollars in Thousands) 1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at January 1 $ 3,569 $ 3,694 $ 3,354 $ 2,498 $ 2,306
- ---------------------------------------------------------------------------------------------------------------
Charge-offs:
Commercial (221) (0) (40) (144) (184)
Real estate construction (0) (0) (0) (0) (0)
Real estate mortgage (23) (716) (147) (136) (79)
Installment/Consumer (158) (76) (68) (159) (134)
- ---------------------------------------------------------------------------------------------------------------
(402) (792) (255) (439) (397)
- ---------------------------------------------------------------------------------------------------------------
Recoveries:
Commercial 11 8 41 59 1
Real estate construction 0 0 0 0 0
Real estate mortgage 24 43 16 333 16
Installment/Consumer 14 16 38 47 22
- ---------------------------------------------------------------------------------------------------------------
49 67 95 439 39
- ---------------------------------------------------------------------------------------------------------------
Net charge-offs (353) (725) (160) (0) (358)
- ---------------------------------------------------------------------------------------------------------------
Additions charged to operations 550 600 500 400 550
Allowance attributable to acquisition 0 0 0 456 0
- ---------------------------------------------------------------------------------------------------------------
Balance at end of period $ 3,766 $ 3,569 $ 3,694 $ 3,354 $ 2,498
===============================================================================================================
Allowance for Loan Losses as a percent of year end loans 1.56% 1.64% 1.73% 1.69% 1.65%
Ratio of net charge-offs to average loans outstanding 0.15% 0.34% 0.08% 0.00% 0.25%
</TABLE>
The Allowance for Loan Losses is available to absorb losses on loans deemed
by management as uncollectible. In assessing the adequacy of the level of
the allowance, management considers the status of nonaccrual loans and
specific borrower situations, the current and anticipated economic climate
of the area, including national credit trends and the historical credit
experiences within the region. Additions to the allowance are provided by
charges to earnings and recoveries on previously charged-off loans.
Deductions from the Allowance are transacted as a charge-off when a loan is
deemed uncollectible.
The Allowance for Loan Losses as a percentage of outstanding loans at
December 31, 1999, was 1.56% compared to 1.64% reported at year end 1998.
The ratios at years ending 1997, 1996, and 1995 were 1.73%, 1.69% and 1.65%
respectively. The decrease in the ratio of the Allowance for Loan Losses as
a percentage of outstanding loans for 1999, when compared to prior years, is
determined by management as adequate, due to the significant reduction in
loans classified as nonaccrual at year end 1999. In 1999, the Company
provided $550,000 to the Allowance and recovered $48,798 from previously
charged-off loans. Loans charged-off during 1999 totaled $402,208 resulting
in net charge-offs of $353,410. Net charge-offs for prior years were
$724,583, $160,446, -0-, and $358,085 for 1998, 1997, 1996 and 1995
respectively.
In addition to management's assessment of the Allowance for Loan Losses, the
Allowance is also evaluated by regulatory agencies and independent
accountants as part of their examination and audit procedures.
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 principle 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 origination, 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 three 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 for liquidity purposes from
correspondent banks, the Federal Home Loan Bank, as well as the Federal
Reserve Bank of Boston by pledging various investment securities as
collateral. Tax payments made by our customers which are owed to the Federal
Reserve Bank's Treasury Tax and Loan account are classified as Other
Borrowed Funds.
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.
Liquidity in 1999 was primarily provided by the maturity and sales of
securities totaling $27.5 Million, a net increase in deposits of $12.6
Million, and advances from the Federal Home Loan Bank of $2.4 Million. These
were offset by an increase in loans of $24.1 Million, purchases of
securities of $30.9 Million, and capital expenditures of $1.1 Million. Other
factors affecting liquidity included cash provided by operating activities
and financing activities as indicated in the cash flow statements.
Capital
As of December 31, 1999, the Company had total capital of $31,664,246. This
represents an increase of $1,956,861 from $29,707,385 reported on December
31, 1998. The increase in capital was a combination of several factors.
Additions consisted of twelve months earnings of $3,856,488 and transactions
originating through the Dividend Reinvestment Program whereby 18,619.019
shares were issued for cash contributions of $223,068 and 55,376.513 shares
were issued for $639,898 in lieu of cash dividend payments. These additions
were offset by dividends paid of $1,324,918.
Also affecting capital is the line item Accumulated other comprehensive
income (loss) which reflects net unrealized gains or losses, net of taxes,
on securities classified as Available-for-Sale and the minimum pension
liability adjustment. On December 31, 1998, the Available-for-Sale portfolio
had unrealized gains, net of taxes, of $364,944, and on December 31, 1999,
as a result of current market values, the portfolio reflects unrealized
losses, net of taxes of $1,150,594. There was a decrease in the minimum
pension liability adjustment of $80,885, net of taxes, recorded December 31,
1998 to $3,024 as of December 31, 1999.
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 criteria of the "well capitalized" category
established by the federal banking agencies as of December 31, 1999.
The following table illustrates the capital position of Slade's Ferry
Bancorp and Slade's Ferry Trust Company for years ending December 31, 1999
and 1998.
<TABLE>
<CAPTION>
Slade's Ferry Bancorp 1999 1998
- -------------------------------------------------------------------------------------------------------------
(Dollars in Thousands) Amount Ratio Amount Ratio
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total Capital (to Risk Weighted Assets) $ 33,475 12.98% $ 29,647 12.80%
Minimum required 20,625 8.00 18,536 8.00
Excess 12,850 4.98 11,111 4.80
Tier 1 Capital (to Risk Weighted Assets) 30,246 11.73 26,569 11.47
Minimum required 10,312 4.00 9,268 4.00
Excess 19,934 7.73 17,301 7.47
Risk Adjusted Assets, net of goodwill, nonqualifying intangibles,
excess allowance and excess deferred tax assets 257,852 231,700
Tier 1 Capital (Leverage Ratio) 30,246 8.60 26,569 8.12
Minimum required 14,060 4.00 13,081 4.00
Excess 16,186 4.60 13,488 4.12
Quarterly average total assets, net of goodwill, nonqualifying
intangibles and excess deferred tax assets 351,698 327,025
<CAPTION>
Slade's Ferry Trust Company 1999 1998
- -------------------------------------------------------------------------------------------------------------
(Dollars in Thousands) Amount Ratio Amount Ratio
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total Capital (to Risk Weighted Assets) $ 29,979 11.67% $ 27,034 11.69%
Minimum required 20,548 8.00 18,500 8.00
Excess 9,431 3.67 8,534 3.69
Tier 1 Capital (to Risk Weighted Assets) 26,762 10.42 23,961 10.36
Minimum required 10,274 4.00 9,250 4.00
Excess 16,488 6.42 14,711 6.36
Risk Adjusted Assets, net of goodwill, nonqualifying intangibles,
excess allowance and excess deferred tax assets 256,833 231,250
Tier 1 Capital (Leverage Ratio) 26,762 7.68 23,961 7.38
Minimum required 13,936 4.00 12,989 4.00
Excess 12,826 3.68 10,972 3.38
Quarterly average total assets, net of goodwill, nonqualifying
intangibles and excess deferred tax assets 348,464 324,725
</TABLE>
Slade's Ferry Bancorp and Subsidiary
CERTIFIED PUBLIC ACCOUNTANTS
Shatswell, MacLeod & Company, P.C.
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, 1999 and 1998 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, 1999. 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, 1999 and
1998, and the consolidated results of their operations and their cash flows
for each of the years in the three-year period ended December 31, 1999, in
conformity with generally accepted accounting principles.
/s/ Shatswell, MacLeod & Company, P.C.
SHATSWELL, MacLEOD & COMPANY, P.C.
West Peabody, Massachusetts
January 14, 2000
Consolidated Balance Sheets | December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and due from banks $ 16,061,445 $ 15,686,520
Money market mutual funds 47,521 42,517
Federal funds sold 5,000,000 14,500,000
- -----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents 21,108,966 30,229,037
Investments in available-for-sale securities (at fair value) 61,303,505 58,156,775
Investments in held-to-maturity securities (fair values of $19,259,657 as of
December 31, 1999 and $21,282,941 as of December 31, 1998) 19,488,603 20,921,254
Federal Home Loan Bank stock 1,013,400 899,900
Loans, net 237,668,852 213,938,277
Premises and equipment 7,062,906 6,687,271
Goodwill 2,626,968 2,853,768
Other real estate owned 353,095 1,026,095
Accrued interest receivable 1,942,751 1,598,282
Cash surrender value of life insurance 1,629,225 1,613,517
Other assets 3,922,306 2,430,544
- -----------------------------------------------------------------------------------------------------------------
Total assets $358,120,577 $340,354,720
=================================================================================================================
Liabilities and Stockholders' Equity
Deposits:
Noninterest-bearing $ 52,215,433 $ 48,281,278
Interest-bearing 264,215,754 255,504,587
- -----------------------------------------------------------------------------------------------------------------
Total deposits 316,431,187 303,785,865
- -----------------------------------------------------------------------------------------------------------------
Note Payable 847,990
Advances from Federal Home Loan Bank 6,756,767 4,475,454
Other borrowed funds 1,248,461 42,329
Other liabilities 1,966,916 1,495,697
- -----------------------------------------------------------------------------------------------------------------
Total liabilities 326,403,331 310,647,335
- -----------------------------------------------------------------------------------------------------------------
Preferred stockholders' equity in a subsidiary company 53,000
- -----------------------------------------------------------------------------------------------------------------
Stockholders' equity:
Common stock, par value $.01 per share; authorized 5,000,000 shares; issued and
outstanding 3,520,409.4 shares in 1999 and 3,446,413.8 shares in 1998 35,204 34,464
Paid-in capital 23,147,447 22,285,220
Retained earnings 9,635,213 7,103,642
Accumulated other comprehensive income (loss) (1,153,618) 284,059
- -----------------------------------------------------------------------------------------------------------------
Total stockholders' equity 31,664,246 29,707,385
- -----------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $358,120,577 $340,354,720
=================================================================================================================
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
Consolidated Statements of Income | years ended
December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest and dividend income:
Interest and fees on loans $20,529,165 $19,754,777 $18,981,050
Interest and dividends on securities:
Taxable 4,265,404 3,491,490 3,251,526
Tax-exempt 499,384 424,661 302,616
Other interest 258,948 635,688 615,267
- -------------------------------------------------------------------------------------------------------------------
Total interest and dividend income 25,552,901 24,306,616 23,150,459
- -------------------------------------------------------------------------------------------------------------------
Interest expense:
Interest on deposits 10,333,314 10,509,873 10,266,135
Interest on Federal Home Loan Bank advances 303,341 72,213 1,555
Interest on other borrowed funds 116,976 129,259 52,318
Interest on notes payable 92,470
- -------------------------------------------------------------------------------------------------------------------
Total interest expense 10,753,631 10,711,345 10,412,478
- -------------------------------------------------------------------------------------------------------------------
Net interest and dividend income 14,799,270 13,595,271 12,737,981
Provision for loan losses 550,000 600,000 500,000
- -------------------------------------------------------------------------------------------------------------------
Net interest and dividend income after provision for loan losses 14,249,270 12,995,271 12,237,981
- -------------------------------------------------------------------------------------------------------------------
Other income:
Service charges on deposit accounts 618,303 634,129 654,749
Overdraft service charges 269,508 247,835 247,330
Gain on sales of available-for-sale securities, net 666,898 382,370 313,844
Other income 531,835 303,778 346,334
- -------------------------------------------------------------------------------------------------------------------
Total other income 2,086,544 1,568,112 1,562,257
- -------------------------------------------------------------------------------------------------------------------
Other expense:
Salaries and employee benefits 5,780,176 5,480,191 5,317,620
Occupancy expense 795,705 684,112 715,094
Equipment expense 562,710 570,518 570,773
Stationery and supplies 255,665 229,344 311,546
FDIC deposit insurance premium 34,226 32,353 71,880
(Gain) loss on sales of other real estate owned, net 29,069 (54,590) 42,457
Writedown of other real estate owned 57,024 67,480
Other expense 3,041,994 2,042,253 1,936,657
- -------------------------------------------------------------------------------------------------------------------
Total other expense 10,556,569 8,984,181 9,033,507
- -------------------------------------------------------------------------------------------------------------------
Income before income taxes 5,779,245 5,579,202 4,766,731
Income taxes 1,922,757 2,216,160 1,920,741
- -------------------------------------------------------------------------------------------------------------------
Net income $ 3,856,488 $ 3,363,042 $ 2,845,990
===================================================================================================================
Earnings per common share $ 1.06 $ .94 $ .85
===================================================================================================================
Earnings per common share assuming dilution $ 1.05 $ .94 $ .85
===================================================================================================================
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
Consolidated Statements of Changes in Stockholders' Equity | years
ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
Accumulated
Other
Common Paid-in Retained Comprehensive
Stock Capital Earnings Income (Loss) Total
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996 $27,891 $14,607,299 $ 5,214,763 $ (2,628) $19,847,325
Comprehensive income:
Net income 2,845,990
Net change in unrealized holding loss on available-
for-sale securities, net of tax effect of $103,844 151,915
Comprehensive income 2,997,905
Issuance of common stock from dividend
reinvestment plan 308 351,141 351,449
Stock issuance relating to optional cash contribution plan 138 158,017 158,155
Net proceeds from stock offering 4,030 3,862,141 3,866,171
Dividends declared ($.23 per share) (784,579) (784,579)
- --------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 32,367 18,978,598 7,276,174 149,287 26,436,426
Comprehensive income:
Net income 3,363,042
Other comprehensive income 134,772
Comprehensive income 3,497,814
Issuance of 5% common stock dividend 1,617 2,566,147 (2,575,881) (8,117)
Issuance of common stock from dividend
reinvestment plan 304 472,938 473,242
Stock issuance relating to optional cash contribution plan 134 215,790 215,924
Stock options exercised 42 37,772 37,814
Tax benefit from exercise of stock options 13,975 13,975
Dividends declared ($.27 per share) (959,693) (959,693)
- --------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 34,464 22,285,220 7,103,642 284,059 29,707,385
Comprehensive income:
Net income 3,856,488
Other comprehensive income (1,437,677)
Comprehensive income 2,418,811
Issuance of common stock from dividend
reinvestment plan 554 639,344 639,898
Stock issuance relating to optional cash contribution plan 186 222,883 223,069
Dividends declared ($.36 per share) (1,324,917) (1,324,917)
- --------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 $35,204 $23,147,447 $ 9,635,213 $(1,153,618) $31,664,246
================================================================================================================================
</TABLE>
Other comprehensive income and reclassification disclosure for the years ended
December 31:
<TABLE>
<CAPTION>
<S> <C> <C>
1999 1998
- -------------------------------------------------------------------------------------------
Unrealized gains (losses) on securities
Net unrealized gain (loss) on available-for-sale securities $(1,827,534) $ 731,683
Reclassification adjustment for realized gains in net income (666,898) (382,370)
- -------------------------------------------------------------------------------------------
(2,494,432) 349,313
Income tax (expense) benefit 978,894 (133,656)
- -------------------------------------------------------------------------------------------
(1,515,538) 215,657
- -------------------------------------------------------------------------------------------
Minimum pension liability adjustment 141,705 (146,825)
Income tax (expense) benefit (63,844) 65,940
- -------------------------------------------------------------------------------------------
77,861 (80,885)
- -------------------------------------------------------------------------------------------
Other comprehensive income (loss), net of tax $(1,437,677) $ 134,772
===========================================================================================
</TABLE>
Accumulated other comprehensive income (loss) consists
of the following as of December 31:
<TABLE>
<CAPTION>
1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net unrealized gains (losses) on available-for-sale securities, net of taxes $(1,150,594) $ 364,944 $149,287
Minimum pension liability adjustment, net of taxes (3,024) (80,885)
- -----------------------------------------------------------------------------------------------------------------------
Accumulated other comprehensive income (loss) $(1,153,618) $ 284,059 $149,287
=======================================================================================================================
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
Consolidated Statements of Cash Flows | years ended
December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 3,856,488 $ 3,363,042 $ 2,845,990
Adjustments to reconcile net income to net cash provided by operating activities:
Accretion, net of amortization of securities (35,079) (96,783) (220,167)
Receipt of shares of stock from demutualized insurance company (163,901)
Gain on sales of available-for-sale securities, net (666,898) (382,370) (313,844)
Change in unearned income (96,745) 1,080 47,142
Provision for loan losses 550,000 600,000 500,000
Depreciation and amortization 692,397 668,354 653,344
Gain on sale of fixed assets (2,700) (4,000)
(Gain) loss on sales of other real estate owned, net 29,069 (54,590) 42,457
Writedown of other real estate owned 57,024 67,480
(Increase) decrease in cash surrender value of life insurance policies (15,708) 11,483
Amortization of goodwill 226,800 226,800 226,800
Accretion, net of amortization of fair market value adjustments (7,140) (5,718) (5,718)
(Increase) decrease in other assets (4,132) 19,892 345,234
Increase in prepaid expenses (200,106) (7,401) (78,662)
(Increase) decrease in interest receivable (344,469) 198,185 57,316
Increase (decrease) in other liabilities (3,482) (221,286) 29
Increase in accrued expenses 394,978 192,315 60,838
Increase (decrease) in interest payable 5,697 (13,901) (12,184)
Deferred tax (benefit) expense 11,331 204,267 (90,885)
Increase (decrease) in taxes payable (248,502) (189,796) 184,331
Minority interest in subsidiary 53,000
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 4,090,622 4,510,873 4,305,501
- ----------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Net decrease in interest bearing time deposits with other banks 106,688 42,910
Purchases of available-for-sale securities (22,923,708) (50,678,610) (18,762,051)
Proceeds from sales of available-for-sale securities 5,728,160 1,098,937 1,171,136
Proceeds from maturities of available-for-sale securities 12,335,599 32,210,430 14,605,076
Purchases of held-to-maturity securities (7,946,052) (13,283,524) (14,714,192)
Proceeds from maturities of held-to-maturity securities 9,463,368 10,094,867 17,142,658
Purchases of Federal Home Loan Bank stock (113,500) (9,300)
Net increase in loans (24,102,273) (6,234,254) (15,258,154)
Recoveries of loans previously charged off 48,798 67,724 94,405
Capital expenditures (1,061,630) (1,630,689) (394,602)
Proceeds from sales of fixed assets 2,700 4,000
Proceeds from sales of other real estate owned 467,952 136,281 291,293
Investment in life insurance policies (1,625,000)
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (28,103,286) (29,743,750) (15,777,521)
- ----------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net increase (decrease) in demand deposits, NOW and
savings accounts (2,250,591) 9,687,926 (1,230)
Net increase in time deposits 14,893,663 22,772,689 3,529,471
Payment on notes payable (850,000) (100,000) (100,000)
Advances from Federal Home Loan Bank 2,381,000 4,071,600 430,000
Payments on Federal Home Loan Bank advances (99,687) (26,146)
Net increase (decrease) in other borrowed funds 1,206,132 (1,157,671)
Proceeds from issuance of common stock 862,967 726,980 4,438,376
Cost of stock issuance (62,601)
Fractional shares paid in cash (8,117)
Dividends paid (1,250,891) (914,943) (734,073)
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 14,892,593 35,052,318 7,499,943
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (9,120,071) 9,819,441 (3,972,077)
Cash and cash equivalents at beginning of year 30,229,037 20,409,596 24,381,673
- ----------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 21,108,966 $ 30,229,037 $ 20,409,596
==================================================================================================================================
Supplemental disclosures:
Loans transferred to other real estate owned $ 218,045 $ 1,107,063 $ 446,612
Loans originating from the sales of other real estate owned 337,000 158,650 193,600
Interest paid 10,747,934 10,725,246 10,424,662
Income taxes paid 2,159,928 2,201,689 1,827,295
==================================================================================================================================
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
Notes to Consolidated Financial Statements | years ended
December 31, 1999, 1998 and 1997
Note 1 | Nature of Operations
Slade's Ferry Bancorp (Company) is a Massachusetts corporation that was
organized in 1990 to become the holding company of Slade's Ferry Trust
Company (Bank). 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 twelve banking offices located in
Massachusetts and a loan company in Rhode Island. The Bank is engaged
principally in the business of attracting deposits from the general public
and investing those deposits in residential and commercial 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
were prepared using the accrual basis of accounting. The significant
accounting policies 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, Slade's Ferry Securities
Corporation, Slade's Ferry Loan Company and Slade's Ferry Preferred Capital
Corporation. Slade's Ferry Realty Trust was formed to hold ownership of
real estate, Slade's Ferry Securities Corporation was formed to hold
securities for tax benefits in Massachusetts, Slade's Ferry Loan Company
provides the opportunity to solicit commercial and consumer borrowers in the
Rhode Island area and Slade's Ferry Preferred Capital Corporation, a real
estate investment trust, was formed to hold real estate mortgage loans,
reducing applicable state taxes. 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, federal funds sold and money market
mutual funds.
Cash and due from banks as of December 31, 1999 includes $5,168,000 which is
subject to withdrawals and usage restrictions to satisfy the reserve
requirements of the Federal Reserve Bank.
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 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 Loan Losses:
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 Company considers a loan to be impaired when, based on current
information and events, it is probable that the Company will be unable to
collect all amounts due according to the contractual terms of the loan
agreement. The Company measures impaired loans 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 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 Value 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 cash equivalents 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.
Accrued interest receivable: The carrying amount of accrued
interest receivable 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.
Federal Home Loan Bank Advances: Fair values for Federal Home Loan Bank
advances are estimated using a discounted cash flow technique that applies
interest rates currently being offered on advances to a schedule of
aggregated expected monthly maturities on Federal Home Loan Bank advances.
Note payable and other borrowed funds: Fair values for the note payable and
other borrowed funds are estimated using discounted cash flow analyses based
on the Company's current incremental borrowing rates for similar borrowings.
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 years ended December 31,
1999 and 1998 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. 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 | Investments in 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
Amortized Unrealized Unrealized
Cost Basis Holding Gains Holding Losses Fair Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available-for-sale securities:
December 31, 1999:
Debt securities issued by the U.S. Treasury and other
U.S. government corporations and agencies $41,801,374 $ $1,482,728 $40,318,646
Mortgage-backed securities 16,939,459 521,322 16,418,137
Corporate debt securities 719,562 26,421 693,141
Marketable equity securities 3,807,944 504,966 391,808 3,921,102
- -----------------------------------------------------------------------------------------------------------------------------------
63,268,339 504,966 2,422,279 61,351,026
- -----------------------------------------------------------------------------------------------------------------------------------
Money market mutual funds included in cash and cash equivalents (47,521) (47,521)
- -----------------------------------------------------------------------------------------------------------------------------------
$63,220,818 $504,966 $2,422,279 $61,303,505
==================================================================================================================================
December 31, 1998:
Debt securities issued by the U.S. Treasury and other
U.S. government corporations and agencies $42,943,720 $201,405 $ 54,380 $43,090,745
Mortgage-backed securities 12,537,845 62,497 22,877 12,577,465
Asset-backed securities 222,479 1,021 223,500
Marketable equity securities 1,918,129 550,951 161,498 2,307,582
- -----------------------------------------------------------------------------------------------------------------------------------
57,622,173 815,874 238,755 58,199,292
- -----------------------------------------------------------------------------------------------------------------------------------
Money market mutual funds included in cash and cash equivalents (42,517) (42,517)
- -----------------------------------------------------------------------------------------------------------------------------------
$57,579,656 $815,874 $ 238,755 $58,156,775
==================================================================================================================================
Held-to-maturity securities:
December 31, 1999:
Debt securities issued by the U.S. Treasury and other
U.S. government corporations and agencies $ 7,974,457 $ 9,535 $ 27,468 $ 7,956,524
Debt securities issued by states of the United States and
political subdivisions of the states 11,439,417 9,151 220,349 11,228,219
Mortgage-backed securities 73,729 185 73,914
Other debt securities 1,000 1,000
- -----------------------------------------------------------------------------------------------------------------------------------
$19,488,603 $ 18,871 $ 247,817 $19,259,657
==================================================================================================================================
December 31, 1998:
Debt securities issued by the U.S. Treasury and other
U.S. government corporations and agencies $ 8,810,623 $116,949 $ 12 $ 8,927,560
Debt securities issued by states of the United States and
political subdivisions of the states 11,996,833 256,936 13,334 12,240,435
Mortgage-backed securities 113,798 1,148 114,946
- -----------------------------------------------------------------------------------------------------------------------------------
$20,921,254 $375,033 $ 13,346 $21,282,941
==================================================================================================================================
</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, 1999:
<TABLE>
<CAPTION>
Held-to-maturity securities: Available-for-sale securities:
- ----------------------------------------------------------------------------------------------------------------------------------
Amortized Cost Basis Fair Value Amortized Cost Basis Fair Value
<S> <C> <C> <C> <C>
Debt securities other than mortgage-backed securities:
Due within one year $ 5,093,570 $ 5,084,967 $ 500,000 $ 497,344
Due after one year through five years 8,677,368 8,639,916 23,368,138 22,709,703
Due after five years through ten years 4,939,743 4,798,037 18,652,798 17,804,740
Due after ten years 704,193 662,823
Mortgage-backed securities 73,729 73,914 16,939,459 16,418,137
- ----------------------------------------------------------------------------------------------------------------------------------
$19,488,603 $19,259,657 $59,460,395 $57,429,924
==================================================================================================================================
</TABLE>
During 1999, proceeds from sales of available-for-sale securities amounted
to $5,728,160. Gross realized gains and gross realized losses on those sales
amounted to $739,508 and $72,610, respectively. During 1998, proceeds from
sales of available-for-sale securities amounted to $1,098,937. Gross
realized gains on those sales amounted to $382,370. There were no gross
realized losses during the period. 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.
There were no securities of issuers whose aggregate carrying amount exceeded
10% of stockholders' equity as of December 31, 1999.
Total carrying amounts of $5,363,090 and $6,139,687 of debt securities were
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, 1999 and
1998, respectively.
Note 4 | Loans
Loans consisted of the following as of December 31:
<TABLE>
<CAPTION>
1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Commercial, financial and agricultural $ 47,258,002 $ 43,776,923
Real estate - construction and land development 5,014,490 3,773,286
Real estate - residential 52,329,665 51,219,684
Real estate - commercial 127,938,107 112,912,865
Consumer 9,392,990 6,476,963
Obligations of states and political subdivisions 2,700
Other 115,803 67,616
- --------------------------------------------------------------------------------
242,049,057 218,230,037
Allowance for loan losses (3,765,872) (3,569,282)
Unearned income (594,383) (691,128)
Unamortized adjustment to fair value (19,950) (31,350)
- --------------------------------------------------------------------------------
Net loans, carrying amount $237,668,852 $213,938,277
================================================================================
</TABLE>
Certain directors and executive officers of the Company and companies in
which they have significant ownership interest were customers of the Bank
during 1999. Total loans to such persons and their companies amounted to
$4,458,616 as of December 31, 1999. During the year ended December 31, 1999,
$5,005,775 of advances were made and repayments totaled $4,246,098.
Changes in the allowance for loan losses were as follows for the years ended
December 31:
<TABLE>
<CAPTION>
1999 1998 1997
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of period $3,569,282 $3,693,865 $3,354,311
Loans charged off (402,208) (792,307) (254,851)
Provision for loan losses 550,000 600,000 500,000
Recoveries of loans previously charged off 48,798 67,724 94,405
- ------------------------------------------------------------------------------------
Balance at end of period $3,765,872 $3,569,282 $3,693,865
====================================================================================
</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>
1999 1998
- ------------------------------------------------------------------------------------------------------------------------
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 $1,019,110 $421,330 $1,284,340 $324,887
Loans for which there is no related allowance for credit losses 1,582,498 3,875,975
- ------------------------------------------------------------------------------------------------------------------------
Totals $2,601,608 $421,330 $5,160,315 $324,887
=======================================================================================================================
Average recorded investment in impaired loans during
the year ended December 31 $3,829,850 $5,773,697
========================================================================================================================
Related amount of interest income recognized during the time,
in the year ended December 31, that the loans were impaired
Total recognized $ 244,313 $ 97,448
========================================================================================================================
Amount recognized using a cash-basis method of accounting $ 0 $ 0
========================================================================================================================
</TABLE>
Note 5 | Premises and Equipment
The following is a summary of premises and equipment as of December 31:
<TABLE>
<CAPTION>
1999 1998
--------------------------
<S> <C> <C>
Land $ 1,805,368 $ 1,760,948
Buildings 6,656,205 6,102,599
Furniture and equipment 3,821,608 3,405,848
Leasehold improvements 381,235 378,172
- -----------------------------------------------------------------------
12,664,416 11,647,567
Accumulated depreciation and amortization (5,601,510) (4,960,296)
- -----------------------------------------------------------------------
$ 7,062,906 $ 6,687,271
=======================================================================
</TABLE>
Note 6 | Deposits
The aggregate amount of time deposit accounts in denomination of $100,000 or
more as of December 31, 1999 and 1998 was $28,531,891 and $26,007,313,
respectively.
For time deposits as of December 31, 1999, the scheduled maturities for each
of the following three years ended December 31, are:
<TABLE>
<S> <C>
2000 $141,261,432
2001 23,499,727
2002 4,961,116
--------------------------------
$169,722,275
================================
</TABLE>
Note 7 | 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 8 | note payable
Note payable consisted of the following as of December 31, 1998:
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 were payable on the last business day of each
calendar quarter. The interest rate on the loan was 3 month LIBOR plus 1.2%
floating, which was swapped to yield a 9.01% fixed rate. This note was paid
in full in 1999.
Note 9 | Advances from Federal Home Loan Bank of Boston
Advances consist of funds borrowed from the Federal Home Loan Bank of Boston
(FHLB).
Maturities of advances from the FHLB for the five fiscal years ending after
December 31, 1999 and thereafter are summarized as follows:
<TABLE>
<CAPTION>
Interest Rate Range Amount
- -------------------------------------------------------------
<S> <C> <C>
2000 5.89% - 6.26% $ 130,897
2001 5.89% - 6.26% 139,872
2002 5.89% - 6.26% 150,653
2003 5.89% - 6.26% 159,238
2004 5.89% - 6.26% 169,624
Thereafter 5.66% - 6.26% 6,006,483
- -------------------------------------------------------------
$ 6,756,767
=============================================================
</TABLE>
Amortizing advances are being repaid in equal monthly payments and are being
amortized from the date of the advance to the maturity date on a direct
reduction basis.
Advances are secured by the Company's stock in that institution, its
residential real estate mortgage portfolio and the remaining U.S. government
and agencies obligation not otherwise pledged.
Note 10 | Income Taxes
The components of income tax expense are as follows for the years ended
December 31:
<TABLE>
<CAPTION>
1999 1998 1997
- ------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $1,917,807 $1,544,874 $1,463,401
State 57,463 467,019 548,225
- ------------------------------------------------------------------
1,975,270 2,011,893 2,011,626
- ------------------------------------------------------------------
Deferred:
Federal (37,739) 120,677 (71,848)
State (14,774) 83,590 (19,037)
- ------------------------------------------------------------------
(52,513) 204,267 (90,885)
- ------------------------------------------------------------------
Total income tax expense $1,922,757 $2,216,160 $1,920,741
==================================================================
</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>
1999 1998 1997
% of Income % of Income % of 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 (3.0) (2.9) (2.2)
Dividends received deduction (.3) (.2)
Unallowable expenses .8 .7 .5
Amortization of goodwill 1.3 1.4 1.6
State tax, net of federal tax benefit .5 6.5 6.6
- ----------------------------------------------------------------------------------------
Effective tax rates 33.3% 39.7% 40.3%
========================================================================================
</TABLE>
The Company had gross deferred tax assets and gross deferred tax liabilities
as follows as of December 31:
<TABLE>
<CAPTION>
1999 1998
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Operating loss carryover $ $ 4,884
Allowance for loan losses 1,408,110 1,226,287
Deferred loan fees 189,109 224,960
Interest on non-performing loans 124,655 225,480
Accrued employee benefits 287,594 220,626
Minimum pension liability adjustment 2,096 65,940
Deferred lawsuit loss 113,640
Net unrealized holding loss on available-for-sale securities 766,719
Other adjustments 10,323 17,573
- ------------------------------------------------------------------------------------------
Gross deferred tax assets 2,902,246 1,985,750
- ------------------------------------------------------------------------------------------
Deferred tax liabilities:
Accelerated depreciation (248,762) (242,049)
Prepaid pensions (156,388) (68,269)
Discount accretion (1,282) (2,091)
Deferred gain on stock conversion (67,085)
Net unrealized holding gain on available-for-sale securities (212,175)
- ------------------------------------------------------------------------------------------
Gross deferred tax liabilities (473,517) (524,584)
- ------------------------------------------------------------------------------------------
Net deferred tax assets $2,428,729 $1,461,166
==========================================================================================
</TABLE>
Deferred tax assets as of December 31, 1999 and 1998 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.
Note 11 | 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. On January 1, 1998 the Bank
suspended the plan so that employees no longer earn additional defined
benefits for future service.
The following tables set forth information about the plan as of December 31
and the years then ended:
<TABLE>
<CAPTION>
1999 1998
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Change in projected benefit obligation:
Benefit obligation at beginning of year $1,610,715 $1,424,299
Service cost 3,150
Interest cost 97,807 148,243
Change in assumptions 307,199
Actuarial loss (gain) (28,173) 193,463
Benefits paid (265,437) (82,847)
Effect of plan curtailment (382,792)
- ----------------------------------------------------------------------------------------------------
Benefit obligation at end of year 1,414,912 1,610,715
- ----------------------------------------------------------------------------------------------------
Change in plan assets:
Plan assets at estimated fair value at beginning of year 1,363,836 1,131,394
Actual return on plan assets 66,170 159,422
Expense paid from plan assets (35,805)
Employer contribution 140,000 191,672
Benefits paid (265,437) (82,847)
- ----------------------------------------------------------------------------------------------------
Fair value of plan assets at end of year 1,304,569 1,363,836
- ----------------------------------------------------------------------------------------------------
Funded status (110,343) (246,879)
Unrecognized net actuarial loss 387,200 404,042
Unrecognized prior service cost (5,163) (18,339)
Unamortized net obligation existing at date of adoption of SFAS No. 87 110,386 118,393
- ----------------------------------------------------------------------------------------------------
Net amount recognized $ 382,080 $ 257,217
- ----------------------------------------------------------------------------------------------------
Amounts recognized in the balance sheet consist of:
Prepaid benefit cost $ 382,080 $ 257,217
Accrued benefit liability (110,343) (246,879)
Intangible asset 105,223 100,054
Accumulated other comprehensive loss 5,120 146,825
- ----------------------------------------------------------------------------------------------------
Net amount recognized $ 382,080 $ 257,217
====================================================================================================
</TABLE>
The weighted-average discount rate used in determining the actuarial present
value of the projected benefit obligation was 7.0% for 1999, 7.0% for 1998
and 8.5% for 1997. The weighted-average expected long-term rate of return on
assets was 7.0% for 1999, 7.0% for 1998 and 8.5% for 1997.
<TABLE>
<CAPTION>
Components of net periodic benefit cost: 1999 1998 1997
--------------------------------
<S> <C> <C> <C>
Service cost $ $ 3,150 $ 97,214
Interest cost on benefit obligation 97,807 148,243 104,822
Expected return on assets (88,652) (90,331) (83,382)
Amortization of net transition obligation 8,007 8,007 8,007
Amortization of prior service cost (13,176) (13,176) (27,002)
Recognized actuarial loss 11,151 29,913 52,188
- -----------------------------------------------------------------------------
Net periodic benefit cost $ 15,137 $ 85,806 $151,847
=============================================================================
</TABLE>
Securities of the Company included in plan assets as of December 31, 1999
and 1998 consist of 3,553 shares of Slade's Ferry Bancorp stock.
The Company has a 401K plan for eligible employees who attain age 21 and
complete one year of service. The Company 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 Company charged to
employee benefit expense amounted to $11,000, $9,750 and $9,500 for the
years ended December 31, 1999, 1998 and 1997, respectively.
The Company adopted a profit-sharing plan, ("Plan") effective October 1,
1998. The Company contributes amounts to the plan at the Company's
discretion. Cost recognized by the Company for the profit-sharing plan
amounted to $111,750 and $80,000 for the years ended December 31, 1999 and
1998, respectively.
Note 12 | 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 consolidated
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, 1999:
<TABLE>
<S> <C>
2000 $116,547
2001 109,271
2002 95,689
2003 79,915
2004 30,315
Thereafter 20,000
- ---------------------------------------------
Total minimum lease payments $451,737
=============================================
</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 $123,234 for
1999, $114,848 for 1998 and $90,210 for 1997.
Note 13 | 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, 1999, $165,994 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>
1999 1998
------------------------------------------------------------------
Carrying Amount Fair Value Carrying Amount Fair Value
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 21,108,966 $ 21,108,966 $ 30,229,037 $ 30,229,037
Available-for-sale securities 61,303,505 61,303,505 58,156,775 58,156,775
Held-to-maturity securities 19,488,603 19,259,657 20,921,254 21,282,941
Federal Home Loan Bank stock 1,013,400 1,013,400 899,900 899,900
Loans 237,668,852 237,451,000 213,938,277 214,366,000
Accrued interest receivable 1,942,751 1,942,751 1,598,282 1,598,282
Financial liabilities:
Deposits 316,431,187 316,703,000 303,785,865 304,672,000
Note payable 847,990 847,990
Advances from FHLB 6,756,767 6,177,000 4,475,454 4,558,000
Other borrowed funds 1,248,461 1,248,461 42,329 42,329
</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>
1999 1998
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Commitments to originate loans $ 5,589,878 $ 5,379,456
Standby letters of credit 2,050,559 2,307,880
Unadvanced portions of loans:
Consumer loans (including credit card loans and student loans) 1,863,018 2,924,220
Commercial real estate loans 278,350 145,251
Home equity loans 1,090,765 1,235,275
Commercial loans 18,138,350 15,273,024
Construction loans 6,395,276 6,428,943
- ------------------------------------------------------------------------------------------------
$35,406,196 $33,694,049
================================================================================================
</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 8.
Note 14 | Significant Group Concentrations of Credit Risk
Most of the Bank'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 Bank's loan portfolio is
comprised of loans collateralized by real estate located in the state of
Massachusetts.
Note 15 | Earnings Per Share (EPS)
Earnings per share were calculated using the weighted average number of
shares outstanding.
The weighted average number of shares outstanding includes the effect of a
5% stock dividend payable February 9, 2000.
Earnings per common share and dividends per share as previously reported in
the 1998 financial statements has been reduced to reflect the issuance of
the 5% stock dividend payable on February 9, 2000 as follows: EPS in 1998
was reduced by $.05 and EPS in 1997 was reduced by $.04. Dividends per
share was reduced by $.01 for both 1998 and 1997.
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, 1999
Basic EPS
Net income and income available to common stockholders $3,856,488 3,650,275 $1.06
Effect of dilutive securities, options 8,336
- ----------------------------------------------------------------------------------------------------------------
Diluted EPS
Income available to common stockholders and assumed conversions $3,856,488 3,658,611 $1.05
================================================================================================================
Year ended December 31, 1998
Basic EPS
Net income and income available to common stockholders $3,363,042 3,572,329 $ .94
Effect of dilutive securities, options 14,707
- ----------------------------------------------------------------------------------------------------------------
Diluted EPS
Income available to common stockholders and assumed conversions $3,363,042 3,587,036 $ .94
================================================================================================================
Year ended December 31, 1997
Basic EPS
Net income and income available to common stockholders $2,845,990 3,344,100 $ .85
Effect of dilutive securities, options 5,491
- ----------------------------------------------------------------------------------------------------------------
Diluted EPS
Income available to common stockholders and assumed conversion $2,845,990 3,349,591 $ .85
================================================================================================================
</TABLE>
Note 16 | 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, 1999, that the Company and the Bank meet all capital adequacy
requirements to which they are subject.
As of December 31, 1999, 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, 1999:
Total Capital (to Risk Weighted Assets):
Consolidated $33,475 12.98% $20,625 >=8.0% N/A
Slade's Ferry Trust Company 29,979 11.67 20,548 >=8.0 $25,685 >=10.0%
Tier 1 Capital (to Risk Weighted Assets):
Consolidated 30,246 11.73 10,312 >=4.0 N/A
Slade's Ferry Trust Company 26,762 10.42 10,274 >=4.0 15,411 >= 6.0
Tier 1 Capital (to Average Assets):
Consolidated 30,246 8.60 14,060 >=4.0 N/A
Slade's Ferry Trust Company 26,762 7.68 13,936 >=4.0 17,420 >= 5.0
As of December 31, 1998:
Total Capital (to Risk Weighted Assets):
Consolidated $29,647 12.80% $18,536 >=8.0% N/A
Slade's Ferry Trust Company 27,034 11.69 18,500 >=8.0 $23,124 >=10.0%
Tier 1 Capital (to Risk Weighted Assets):
Consolidated 26,569 11.47 9,268 >=4.0 N/A
Slade's Ferry Trust Company 23,961 10.36 9,250 >=4.0 13,875 >= 6.0
Tier 1 Capital (to Average Assets):
Consolidated 26,569 8.12 13,081 >=4.0 N/A
Slade's Ferry Trust Company 23,961 7.38 12,989 >=4.0 16,236 >= 5.0
</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, 1999 the Company would be restricted from declaring
dividends in an amount greater than $31,664,246 as such declaration would
render the corporation insolvent. As of December 31, 1999 the Bank would be
restricted from declaring dividends in an amount greater than approximately
$9,431,000 as such declaration would decrease capital below the Bank's
required minimum level of regulatory capital.
Note 17 | Stock Option Plan
At December 31, 1999 the Company has a stock option plan (Plan). 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 262,500
shares and the maximum aggregate number of shares issuable under both
programs in any plan year may not exceed 52,500 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 occurance of a hostile takeover.
Eligibility for participation in the Automatic Grant Program is limited to
non-employee directors of the Company or its subsidiary. 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
sharewill 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. Each option under the Automatic Grant Program will be immediately
vested.
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 would have been reduced
to the pro forma amounts indicated below for the years ended December 31:
<TABLE>
<CAPTION>
1999 1998 1997
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income As reported $3,856,488 $3,363,042 $2,845,990
Pro forma $3,790,009 $3,298,016 $2,807,466
Basic earnings per share As reported $ 1.06 $ .94 $ .85
Pro forma $ 1.04 $ .92 $ .84
Diluted earnings per share As reported $ 1.05 $ .94 $ .85
Pro forma $ 1.04 $ .92 $ .84
</TABLE>
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 years ended December 31, 1999, 1998 and
1997: dividend yield of 2 percent; expected volatility of 32 percent in 1999
and 13 percent in 1998 and 1997; risk-free interest rate of 5.2 percent in
1999, 5.7 percent in 1998 and 6.7 percent in 1997; and expected lives of 4
years.
A summary of the status of the Company's stock option plan as of December 31
and changes during the years then ending are presented below:
<TABLE>
<CAPTION>
1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------
Weighted-Average Weighted-Average Weighted-Average
Options Shares Exercise Price Shares Exercise Price Shares Exercise Price
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 60,550 $13.21 32,550 $ 8.90 0
Granted 39,000 13.50 32,250 17.00 32,550 $8.90
Exercised 0 (4,250) 8.90 0
Forfeited (1,500) 17.00 0 0
- -----------------------------------------------------------------------------------------------------------------------------
Outstanding at end of year 98,050 $13.27 60,550 $13.21 32,550 $8.90
=============================================================================================================================
Options exercisable at year-end 98,050 60,550 32,550
Weighted-average fair value of
options granted during the year $ 3.71 $ 2.78 $ 1.65
</TABLE>
The following table summarizes information about fixed stock options
outstanding at December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding and Exercisable
---------------------------------------------------------------------
Weighted-Average
Number Remaining Weighted-Average
Exercise Price Outstanding Contractual Life Exercise Price
---------------------------------------------------------------------
<S> <C> <C> <C>
$ 8.90 28,300 2.4 years $ 8.90
17.00 30,750 3.4 years 17.00
13.50 39,000 4.4 years 13.50
---------------------------------------------------------------------
98,050 3.5 years $13.27
===========================================================================
</TABLE>
Note 18 | Minority Interest for Subsidiary
In 1999 the Bank formed a subsidiary, Slade's Ferry Preferred Capital
Corporation (SFPCC) which issued to the Bank 1,000 shares of SFPCC common
stock. No other shares of SFPCC common stock have been issued. SFPCC also
issued to the Bank 1,000 shares of SFPCC 8% Cumulative Non-Convertible
Preferred Stock (the "Preferred Stock"). No other shares of SFPCC preferred
stock have been issued. Minority interest in subsidiary consists of 106
shares, at a stated value of $500 per share, of the preferred stock owned by
the Bank. These shares were issued in 1999 to directors and employees of the
Bank. All voting rights of SFPCC vest exclusively with its common
stockholder, the Bank. The preferred stock has a liquidation value of $500
per share. The holders of the preferred stock are entitled to receive
dividends, when, as and if declared by the Board of Directors of the SFPCC.
Such dividends declared accumulate and are paid on such date as determined
by the Board of Directors of the Bank.
Note 19 | Reclassification
Certain amounts in the prior year have been reclassified to be consistent
with the current year's statement presentation.
Note 20 | 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,
1999 1998
--------------------------
<S> <C> <C>
Assets
Cash $ 671,676 $ 489,437
Money market mutual fund 5,425
- -----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents 677,101 489,437
Investments in available-for-sale securities (at fair value) 2,498,219 1,949,984
Investments in held-to-maturity securities (fair value of
$494,244 as of December 31, 1999 and $295,873 as of December 31,1998) 495,221 295,763
Investment in subsidiary, Slade's Ferry Trust Company 28,199,195 27,098,674
Premises and equipment 17,808 22,355
Accrued interest receivable 26,285 28,357
Other assets 37,391 38,003
- -----------------------------------------------------------------------------------------------------------------
Total assets $31,951,220 $29,922,573
=================================================================================================================
Liabilities and Stockholders' Equity
Other liabilities $ 286,974 $ 215,188
- -----------------------------------------------------------------------------------------------------------------
Total liabilities 286,974 215,188
- -----------------------------------------------------------------------------------------------------------------
Stockholders' equity:
Common stock, par value $.01 per share; authorized 5,000,000 shares;
issued and outstanding 3,520,409.4 shares in 1999 and 3,446,413.8 shares in 1998 35,204 34,464
Paid-in capital 23,147,447 22,285,220
Retained earnings 9,635,213 7,103,642
Accumulated other comprehensive income (loss) (1,153,618) 284,059
- -----------------------------------------------------------------------------------------------------------------
Total stockholders' equity 31,664,246 29,707,385
- -----------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $31,951,220 $29,922,573
=================================================================================================================
</TABLE>
Statements of Income and comprehensive income
<TABLE>
<CAPTION>
Years Ended December 31,
1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Dividends from subsidiary $1,310,000 $ 950,000 $ 475,000
Interest and dividends on securities:
Taxable 137,867 111,127 40,199
Other interest income 5,718 6,111 4,267
Management fee income from subsidiary 443,664 432,002 438,479
Other income 4,000
- -------------------------------------------------------------------------------------------------------------------------
Total income 1,897,249 1,499,240 961,945
- -------------------------------------------------------------------------------------------------------------------------
Salaries and employee benefits 393,666 376,940 333,410
Equipment expense 4,547 379 4,449
Loss on sale of available-for-sale security 647
Other expense 161,396 146,641 124,676
- -------------------------------------------------------------------------------------------------------------------------
Total expense 560,256 523,960 462,535
- -------------------------------------------------------------------------------------------------------------------------
Income before income taxes and equity in undistributed net income of subsidiary 1,336,993 975,280 499,410
Income taxes 11,407 20,384 16,754
- -------------------------------------------------------------------------------------------------------------------------
Income before equity in undistributed net income of subsidiary 1,325,586 954,896 482,656
Equity in undistributed net income of subsidiary 2,530,902 2,408,146 2,363,334
- -------------------------------------------------------------------------------------------------------------------------
Net income $3,856,488 $3,363,042 $2,845,990
=========================================================================================================================
</TABLE>
Slade's Ferry Bancorp - Parent Company Only
Statements of Cash Flows | years ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net Income $ 3,856,488 $ 3,363,042 $ 2,845,990
Adjustments to reconcile net income to net cash
provided by operating activities:
Undistributed net income of subsidiary (2,530,902) (2,408,146) (2,363,334)
Accretion, net of amortization of securities (8,529) (8,159) (34,220)
Loss on sales of available-for-sale securities 647
Depreciation and amortization 4,547 379 4,448
Increase (decrease) in taxes payable (5,000) 12,686 5,007
Increase (decrease) in accrued expenses (140) 2,888 775
(Increase) decrease in prepaid expenses 1,019 4,748 (13,223)
Increase (decrease) in interest receivable 2,072 (22,380) (5,977)
(Increase) decrease in other assets 8,155 (7,450) 13,639
Increase (decrease) in other liabilities (600) (7,750) 6,988
Net cash provided by operating activities 1,327,757 929,858 460,093
Cash flows from investing activities:
Purchases of held-to-maturity securities (814,768) (590,583) (2,613,316)
Proceeds from maturities of held-to-maturity securities 624,466 550,000 2,400,000
Purchases of available-for-sale securities (1,939,353) (2,850,461) (1,449,649)
Proceeds from maturities of available-for-sale securities 950,000 2,350,000
Proceeds from sales of available-for-sale securities 427,486
Additional investment in subsidiary bank (2,300,000)
Capital expenditures (22,734)
Net cash used in investing activities (752,169) (563,778) (3,962,965)
Cash flows from financing activities:
Net proceeds from issuance of common stock 862,967 726,980 4,375,775
Dividends paid (1,250,891) (914,943) (734,073)
Fractional shares paid in cash (8,117)
Net cash provided by (used in) financing activities (387,924) (196,080) 3,641,702
Net increase in cash and cash equivalents 187,664 170,000 138,830
Cash and cash equivalents at beginning of year 489,437 319,437 180,607
Cash and cash equivalents at end of year $ 677,101 $ 489,437 $ 319,437
Supplemental disclosure:
Income taxes paid $ 16,407 $ 7,698 $ 11,747
</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, 1999, 1998 and 1997, and therefore are not
reprinted here.
Slade's Ferry Bancorp and Subsidiary
<TABLE>
<S> <C> <C>
Board of Directors Officers Sandra Curtis
Slade's Ferry Bancorp- Slade's Ferry Bancorp Compliance Review Officer
Slade's Ferry Trust Company ---------------------
- ---------------------------
Donald T. Corrigan Luisa DiManno
Thomas B. Almy Chairman of the Board Assistant Treasurer
Architect
Kenneth R. Rezendes William E. Diskin
James D. Carey President Vice President
Executive Vice President of Bancorp Chief Executive Officer
President of Bank Joseph J. Ganem
Chief Executive Officer of Bank James D. Carey Vice President
Executive Vice President
Peter G. Collias, Esquire Joseph Gesualdo
Clerk/Secretary of Bancorp and Bank Ralph S. Borges Vice President
Treasurer
Donald T. Corrigan Russell F. Godin
Chairman of the Board of Bancorp Executive Management Vice President
Chairman of the Board of Bank Slade's Ferry Trust Company
--------------------------- Elaine M. Guillemette
Melvyn A. Holland James D. Carey Assistant Vice President
Managing Partner President
Rosenfield, Holland & Raymon PC Chief Executive Officer Raymond C. Harris
Certified Public Accountants Vice President
Ralph S. Borges
William Q. MacLean, Jr. Executive Vice President/Treasurer Robert C. Howard Jr.
Vice President Vice President
Cornish & Co. Inc. Insurance Susan R. Hajder
Senior Vice President Charlotte C. Nadeau
Francis A. Macomber Assistant Vice President
President - LeComtes All Star Dairy Inc. Charlene J. Jarest
Vice President Cecelia M. Machado
Vice President
Majed Mouded MD Carol A. Martin
Physician Senior Vice President Jeannine M. Paliotti
Vice President
Shaun O'Hearn, Sr. Manuel J. Tavares
President - Bolger & O'Hearn Inc. Senior Vice President Janice R. Partridge
Vice President
Lawrence J. Oliveira DDS Officers
Orthodontist Slade's Ferry Trust Company Fatima M. Rapoza
--------------------------- Assistant Vice President
Peter Paskowski James H. Amidon
Past President of Bank Vice President Michelle Rivera
Assistant Treasurer
Kenneth R. Rezendes Isola A. Anctil
President/CEO of Bancorp Assistant Vice President Joanne Sandner
President - K.R. Rezendes, Inc. Assistant Clerk/Secretary Assistant Treasurer
William J. Sullivan Cherie Ashton Deborah A. Silvia
President - Sullivan Funeral Homes Assistant Vice President Assistant Treasurer
Charles Veloza Maria C. Barbosa Eduardo F. Sousa
President - Charlie's Oil Co., Inc. Vice President Assistant Treasurer
David F. Westgate Edward Bernardo Jr. Nancy E. Stokes
President Vice President Vice President
Quequechan Management Corp.
Catherine Blakey Mary M. Sullivan
Honorary Directors Assistant Vice President Vice President
- ------------------
Bernard T. Shuman Noelia M. Brum Doreen Teixeira
Past President/Treasurer Assistant Treasurer Assistant Treasurer
Priscilla Dress Corp.
Michelle Caron Richard Van Blarcom
Assistant Treasurer Vice President
Peter G. Collias
Corporate Secretary
Corporate Headquarters General Counsels Shareholder Services
Slade's Ferry Bancorp Atty. Peter G. Collias Slade's Ferry Bancorp
100 Slade's Ferry Avenue 84 North Main Street 100 Slade's Ferry Avenue
Somerset, Massachusetts 02726 Fall River, Massachusetts 02720 Somerset, Massachusetts 02726
Tel. (508) 675-2121 Tel. (508) 675-7894 Tel. (508) 675-2121
Fax (508) 675-1751
Thomas H. Tucker, Esq. Annual Meeting
459 Washington St., Suite 27 The Annual Meeting of Stockholders
BRANCH LOCATIONS Duxbury, MA 02332 of Slade's Ferry Bancorp will be
Tel. (781) 934-8200 held at 7:30 p.m. on April 10, 2000
Fairhaven, MA at the Venus de Milo Restaurant,
75 Huttleston Avenue Independent Certified 75 GAR Highway
Public Accountants Swansea, Massachusetts.
Fall River, MA Shatswell MacLeod & Company PC
249 Linden Street Certified Public Accountants Dividend Reinvestment Plan
855 Brayton Avenue 83 Pine Street The Plan provides for:
1601 South Main Street West Peabody, Massachusetts 01960 * Reinvestment of all of the
Tel. (978) 535-0206 dividends
New Bedford, MA * Voluntary cash contributions
838 Pleasant Street Form 10-KSB of up to $5,000 annually,
833 Ashley Boulevard A copy of the Annual Report on minimum $100.
Form 10-K for Slade's Ferry * No service fees or
Seekonk, MA Bancorp as filed with the commissions
1400 Fall River Avenue (Rte.6) Securities and Exchange
Commission will be forwarded Information may be obtained by
Somerset, MA without charge to any stockholder contacting Shareholder Services
100 Slade's Ferry Avenue upon written request to: at (508) 675-2121
2722 County Street
Somerset High School Ralph S. Borges, Treasurer Stock Trading
Slade's Ferry Bancorp The common stock of Slade's
Swansea, MA 100 Slade's Ferry Avenue Ferry Bancorp is listed on the
Swansea Mall Somerset, MA 02726 NASDAQ Small Cap Market
2388 G.A.R. Highway under the symbol SFBC.
Loan Production Office
Slade's Ferry Loan Co.
188 Airport Road
Warwick, RI 02889
401-732-3222
Design: MediaConcepts Corporation, Assonet, MA
</TABLE>
Slade's Ferry Bancorp
Corporate Headquarters
100 Slade's Ferry Avenue, Somerset, MA 02726
Tel. (508) 675-2121 Fax (508) 675-1751
EXHIBIT 21
<TABLE>
<C> <C> <C> <C>
SLADE'S FERRY BANCORP
LIST OF SUBSIDIARIES
=========================
| |
| SLADE'S FERRY BANCORP |-------100% OWNER OF SLADE'S FERRY
| | TRUST COMPANY
=========================
|
|
|
==============================
| |
| SLADE'S FERRY TRUST COMPANY |-------100% OWNER OF ALL SUBSIDIARIES
| |
==============================
|
|
|
----------------------------------------------------------------------------
| | | |
| | | |
-------------- ---------------------- ----------------------------- -------------
|SLADE'S FERRY | | SLADE'S FERRY | | SLADE'S FERRY | |SLADE'S FERRY|
|REALTY TRUST | |SECURITIES CORPORATION| |PREFERRED CAPITAL CORPORATION| |LOAN COMPANY |
-------------- ---------------------- ---------------------------- -------------
</TABLE>
Exhibit 23
SHATSWELL, MacLEOD & COMPANY, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
63 PINE STREET
WEST PEABODY, MASSACHUSETTS 01960-3635
TELEPHONE (978) 535-0206
FACSIMILE (978) 535-9908
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in this Annual Report on
Form 10-K of Slade's Ferry Bancorp of our report dated January 14, 2000.
/s/ SHATSWELL, MacLEOD & COMPANY, P.C.
SHATSWELL, MacLEOD & COMPANY, P.C.
West Peabody, Massachusetts
March 21, 2000
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 16,108,966
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 5,000,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 61,303,505
<INVESTMENTS-CARRYING> 19,488,603
<INVESTMENTS-MARKET> 19,259,657
<LOANS> 241,434,724
<ALLOWANCE> 3,765,872
<TOTAL-ASSETS> 358,120,577
<DEPOSITS> 316,431,187
<SHORT-TERM> 1,248,461
<LIABILITIES-OTHER> 2,019,916
<LONG-TERM> 6,756,767
0
0
<COMMON> 35,204
<OTHER-SE> 31,629,042
<TOTAL-LIABILITIES-AND-EQUITY> 358,120,577
<INTEREST-LOAN> 20,529,165
<INTEREST-INVEST> 4,764,788
<INTEREST-OTHER> 258,948
<INTEREST-TOTAL> 25,552,901
<INTEREST-DEPOSIT> 10,333,314
<INTEREST-EXPENSE> 10,753,631
<INTEREST-INCOME-NET> 14,799,270
<LOAN-LOSSES> 550,000
<SECURITIES-GAINS> 666,898
<EXPENSE-OTHER> 10,556,569
<INCOME-PRETAX> 5,779,245
<INCOME-PRE-EXTRAORDINARY> 5,779,245
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,856,488
<EPS-BASIC> 1.06
<EPS-DILUTED> 1.05
<YIELD-ACTUAL> 4.71
<LOANS-NON> 1,777,136
<LOANS-PAST> 247,922
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,569,282
<CHARGE-OFFS> 402,208
<RECOVERIES> 48,798
<ALLOWANCE-CLOSE> 3,765,872
<ALLOWANCE-DOMESTIC> 3,765,872
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
