SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-KSB
[X] Annual report pursuant to Section 13 or 15 (d) of the Securities Exchange
Act of 1934
For the fiscal year ended: December 31, 1996
Commission file number: 0-21500
KSB Bancorp, Inc.
(Name of small business issuer in its charter)
Delaware 04-3189069
- --------------------------------------------------------------------------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
Main Street
Kingfield, Maine 04947
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Telephone Number: (207) 265-2181
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months-(or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ ] No [ ]
Securities Registered Pursuant to Section 12(g) of the Exchange Act:
Common Stock
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained to
the 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. [ X ]
The aggregate market value of the voting stock held by non-affiliates
of the registrant, computed by reference to the last reported sales price of
such stock on the NASDAQ National Market system on March 6, 1997 was
approximately $11,555,740.
The number of shares outstanding of the registrant's Common Stock, the
registrant's only class of outstanding capital stock, as of March 18, 1997, was
412,705.
Issuer's revenues for the year ended December 31, 1996: $11,843,451.
<PAGE>
Documents Incorporated by Reference
The following documents, in whole or in part are specifically
incorporated by reference in the indicated Part of this Annual Report Form
10-KSB:
I. Portions of the KSB Bancorp Inc. 1996 Annual Report are incorporated by
reference into certain items of Part I and Part II.
II. Portions of the KSB Bancorp Inc. Proxy Statement for the 1996 Annual
Meeting of Shareholders are incorporated by reference into certain items of
Part III.
<PAGE>
KSB BANCORP, INC.
FORM 10-KSB
INDEX
PART I.
Item 1. Description of Business
Item 2. Description of Property
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
Item 6. Management's Discussion and Analysis of Plan of Operation
Item 7. Financial Statements
Item 8. Change In and Disagreements With Accountants on
Accounting and Financial Disclosure
PART III
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange Act
Item 10. Executive Compensation
Item 11. Security Ownership of Certain Beneficial Owners and Management
Item 12. Certain Relationships and Related Transactions
PART IV
Item 13. Exhibits and Reports on Form 8-K
Signature page
<PAGE>
Item 1 - Description of Business.
General
KSB Bancorp (the "Company"), a Delaware Corporation, was organized in 1993 to
act as the holding Company for Kingfield Savings Bank (the "Bank") upon
completion of the Bank's conversion from a mutual to a stock form of ownership,
(the "Conversion"). The Company received approval from the Federal Reserve to
acquire all outstanding stock of the Bank upon completion of the conversion. The
Conversion was completed on June 24, 1993. The Bank is a Maine-chartered savings
Bank headquartered in Kingfield, Maine. Originally chartered in 1895, the Bank
is a community-oriented financial institution that conducts its business through
eight full-service retail banking offices, and one seasonal banking office
(Sugarloaf/USA), located in Franklin, Androscoggin and Somerset Counties, Maine
(see Market Area and Competition).
At December 31, 1996, the Company had total assets of $134.4 million, total
loans of $99.2 million, deposits of $109.4 million and tangible stockholders'
equity of $9.2 million.
The Bank is subject to regulation, examination and supervision by the
Superintendent of the Bureau of Banking of the State of Maine (the
"Superintendent) and the Federal Deposit Insurance Corporation (the "FDIC"). The
Company is subject to regulation by the Board of Governors of the Federal
Reserve System (the "FRB") and to a limited extent by the Superintendent and the
FDIC.
The Bank's principal business consists of attracting deposits from the general
public and investing those deposits, together with borrowings and funds
generated from operations, in mortgage loans secured by one-to-four family
residential real estate, commercial business loans, the majority of which are
secured by real estate, and mortgage-backed securities. At December 31, 1996,
the Bank had $52.7 million of loans (including loans held for sale), or 53.1% of
total loans receivable (including loans held for sale), secured by one-to-four
family, residential real property. An additional $29.9 million of loans, or
30.1% of total loans receivable (there were no commercial loans held for sale),
were commercial business loans secured by real estate. At December 31, 1996, the
Bank's mortgage-backed securities portfolio totaled $21.9 million, or 16.3% of
total assets at such date.
Market Area and Competition
The Bank's home office is located in Kingfield, Maine. Since 1988, the Bank has
expanded its market area within Franklin and into Kennebec, Androscoggin and
Somerset Counties, Maine. In 1988, the Bank opened a branch office in Stratton,
Maine. In 1990, a loan production office located in Waterville, Maine was
expanded to a full service branch and later closed in 1995 when loan production
decreased. In April 1991, the Bank purchased two branches located in Phillips
and Rangeley, Maine from Maine National Bank. In June 1993, the Bank opened its
Farmington, Maine office. In March 1994 the Bank purchased one branch located in
Lewiston, Maine from the Resolution Trust Corporation. In March 1995 the Bank
purchased four branches located in Kingfield, Stratton, Bingham and Strong,
Maine from Fleet Bank of Maine. In August 1995, the Bank closed its Waterville
branch, maintaining a mortgage lending presence through commissioned brokers in
the area. The Bank management believes that all of its offices are located in
communities that can generally be characterized as stable and, with the
exception of Lewiston, predominantly rural areas.
<PAGE>
The Bank faces significant competition both in lending and in attracting
deposits. The Bank's competition for loans comes principally from commercial
banks, savings banks, credit unions and mortgage banking companies. The most
direct competition for deposits has historically come from savings banks,
commercial banks and credit unions; however, additional competition from
short-term money market funds and other security funds offered by brokerage
firms and insurance companies is significant.
Certain Financial Information
Interest Rate Sensitivity Table
The following table sets forth the amounts of interest-earning assets
and interest-bearing liabilities outstanding at December 31, 1996 which are
anticipated by the Bank, based upon certain assumptions, to reprice or mature in
each of the future time periods shown. Except as stated below, the amount of
assets and liabilities shown which reprice or mature during a particular period
were determined in accordance with the earlier of term to repricing or the
contractual terms of the asset or liability. Fixed-rate Passbook Savings and NOW
accounts, which totaled $21.6 million at December 31, 1996 are assumed to be
withdrawn at the annual percentage rates of 17% and 37%, respectively. Money
market accounts are assumed to reprice in three months or less. Certificate
accounts are assumed to reprice at the date of contractual maturity. Fixed-rate
mortgages totaling $25.9 million (included in the "Mortgage Loans" category) are
amortized using a constant prepayment rate ("CPR") of 11.0 which approximates
the Bank's prior experience. Fixed-rate loans in "other loans" are amortized
with the assumption of no prepayment. Mortgage backed securities are amortized
using a CPR rate of 11.2.
<PAGE>
<TABLE>
<CAPTION>
At December 31, 1996
---------------------------------------------------------
Over Over
1 Year 1 Year- 3 Years- More Than
or Less 3 Years 5 Years 5 Years Total
--------- --------- --------- --------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Interest-earning assets:
Mortgage loans (1)(2) ................. $ 46,376 $ 10,240 $ 4,904 $ 11,010 $ 72,530
Other loans (1) ....................... 10,669 8,282 4,398 4,414 27,763
Interest-bearing deposits ............. 2 0 0 0 2
Mortgage-backed securities ............ 6,681 5,618 4,372 5,333 22,004
Investment securities (3) ............. 5,343 0 0 0 5,343
--------- --------- --------- --------- ---------
Total interest-earning assets ....... 69,070 24,140 13,674 20,757 127,642
--------- --------- --------- --------- ---------
Less:
Non-performing loans .................. (1,381) (136) (44) (331) (1,895)
Unearned discount and deferred fees ... (134) (30) (14) (32) (209)
--------- --------- --------- --------- ---------
Net interest-earning assets ......... 67,553 23,974 13,616 20,394 125,538
--------- --------- --------- --------- ---------
Interest-bearing liabilities:
Fixed- and variable-rate passbook
accounts (4) ........................ 15,538 1,949 1,342 2,973 21,802
NOW accounts .......................... 5,208 5,348 2,122 1,397 14,075
Money market accounts ................. 5,701 0 0 0 5,701
Certificate and club accounts ......... 40,689 10,105 8,543 0 59,337
Borrowings ............................ 9,734 2,000 1,452 0 13,186
--------- --------- --------- --------- ---------
Total interest-bearing liabilities .. $ 76,870 $ 19,402 $ 13,459 $ 4,370 $ 114,101
--------- --------- --------- --------- ---------
Effect of interest rate swaps (5) ..... (10,000) 10,000
--------- ---------
Interest sensitivity gap per period ... (19,317) (14,572) 157 16,024
========= ========= ========= =========
Cumulative interest sensitivity gap ... $ (19,317) $ (4,744) $ (4,587) $ 11,437
========= ========= ========= =========
Cumulative interest sensitivity gap as
a percentage of total assets ........ -14.4% -3.5% -3.4% 8.5%
Cumulative net interest-earning assets
as a percentage of interest-sensitive
liabilities ......................... 77.8% 95.1% 95.8% 110.0%
- ---------------------------------
</TABLE>
<PAGE>
(1)For purposes of the GAP analysis, mortgage and other loans are not reduced by
the allowance for loan losses.
(2)Includes Loans Held for Sale of $1,819,000 which are placed in the "1 Year or
less" repricing category.
(3)Includes Federal Home Loan Bank Stock of $1,321,000.
(4)Includes Interest-bearing escrow accounts.
(5)Includes $5,000,000 interest rate swap maturing June, 1999 and $5,000,000
floor maturing June, 1998.
Average Balance Sheet
The following table sets forth certain information relating to the
Bank's average balance sheet and reflects the average yield on assets and
average cost of liabilities for the periods indicated and the average yields
earned and rates paid. Such yields and costs are derived by dividing interest
income or expense by the average balance of assets or liabilities, respectively,
for the periods presented.
<PAGE>
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------------------------------------------------------
1996 1995 1994
----------------------------- ------------------------------- -----------------------------
Average Average Average
Average Yield/ Average Yield/ Average Yield/
Balance Interest(1) Cost Balance Interest(1) Cost Balance Interest(1) Cost
-----------------------------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets: (2)
Interest-earning assets:
Residential mortgage loans........ $ 50,396 $ 4,346 8.62% $ 44,490 $ 3,759 8.45% $29,790 $ 2,403 8.07%
Commercial loans (3).............. 33,144 3,309 9.98 27,251 2,752 10.10 18,330 1,630 8.89
Consumer loans.................... 9,992 1,020 10.21 9,559 1,027 10.74 5,963 562 9.42
Investments Available for Sale 7,915 467 5.90 1,071 60 5.60 0 0 0
Investments to be Held to Maturity 21,808 1,412 6.47 34,156 2,243 6.57 33,340 2,148 6.44
Interest-bearing deposits......... 1,076 61 5.67 388 20 5.15 1,461 68 4.65
--------- ------- ----- -------- -------- ----- ------- ------- ----
Total interest-earning assets 124,331 10,615 8.54 116,915 9,861 8.43 88,884 6,811 7.66
Non-interest-earning assets....... 6,411 5,984 3,575
--------- -------- -------
Total assets.................... $ 130,742 122,899 $92,459
========= ======== =======
Interest-bearing liabilities:
Regular savings................... $ 22,258 626 2.81 $ 23,097 689 2.98 $19,829 591 2.98
NOW accounts...................... 13,144 216 1.64 10,496 160 1.52 6,522 106 1.63
Money market accounts............. 5,681 211 3.71 4,085 143 3.50 3,364 100 2.97
Time deposits..................... 58,873 3,431 5.83 52,369 3,033 5.79 41,375 2,014 4.87
Borrowings........................ 11,624 682 5.87 16,082 999 6.21 8,247 456 5.53
--------- ------- ----- -------- -------- ----- ------- ------- ----
Total int. bearing liabilities...... 111,580 5,166 4.63 106,129 5,024 4.73 79,337 3,267 4.12
Non-interest-bearing liabilities.... 10,028 8,809 5,620
Stockholders equity............. 9,134 7,961 7,502
--------- -------- -------
Total liabilities and
Stockholders equity........... $130,742 $122,899 $92,459
======== ======== =======
Net interest income................. $5,449 $4,837 $3,544
====== ====== ======
Net interest rate spread (4)........ 3.91% 3.70% 3.54%
===== ==== ====
Net interest margin (5)............ 4.38% 4.14% 3.99%
===== ====
Ratio of average interest-earning
assets to average interest-bearing
liabilities....................... 1.11x 1.10x 1.12x
===== ==== ====
- --------------------
</TABLE>
<PAGE>
(1) Interest for purpose of yield calculations excludes $80, $119, and $90 of
loan fees in 1996, 1995 and 1994, respectively, and $9, $(-25) and $41 of
net interest rate swap income in 1996, 1995 and 1994, respectively.
(2) Loan balances include non-performing loans of $1,895, $1,645 and $1,365 in
1996, 1995 and 1994, respectively.
(3) Includes $26.8 million at December 31, 1996 of loans for commercial
business purposes secured by real estate and non-real estate (e.g.,
equipment) collateral.
(4) Interest rate spread represents the difference between the average rate on
interest-earning assets and the average cost of interest-bearing
liabilities.
(5) Net interest margin represents net interest income before the provision for
loan losses divided by average interest-earning assets.
<PAGE>
<TABLE>
<CAPTION>
Actual Balance Sheet
At December 31,
1996
----------------------------
Actual Yield/
Balance Cost
-------- -----
(Dollars in Thousands)
<S> <C> <C>
Assets: (1)
Interest-earning assets:
Residential mortgage loans .................. $ 52,693 8.71%
Commercial loans (2) ........................ 36,653 9.90
Consumer loans .............................. 10,953 10.16
Investments Available for Sale .............. 7,452 5.90
Investments to be Held to Maturity .......... 19,837 6.47
Interest-bearing deposits ................... 2 5.13
-------- -----
Total interest-earning assets ............. 127,590 8.66
Other noninterest-earning assets .............. 6,767
--------
Total assets .............................. $134,357
========
Interest-bearing liabilities:
Regular savings and clubs ................... $ 21,802 2.77
NOW accounts ................................ 14,075 1.76
Money market accounts ....................... 5,701 3.78
Time deposits ............................... 59,337 5.73
Borrowings .................................. 13,186 5.99
-------- -----
Total int.-bearing liabilities ............ 114,101 4.61
Noninterest-bearing liabilities ............... 10,464
--------
Total liabilities ......................... 124,565
Stockholders equity ........................... 9,792
-----
Total liabilities and
Stockholders equity ..................... $134,357
========
Interest rate spread (3) ...................... 4.05%
=====
Net interest margin (4) ....................... 4.38
=====
Ratio of average interest-earning
assets to average interest-bearing
liabilities ................................. 1.12x
=====
- --------------------
</TABLE>
<PAGE>
(1) Loan balances include non-performing loans of $1,895, $1,645 and $1,365 in
1996, 1995 and 1994, respectively.
(2) Includes $29.9 million at December 31, 1996 of loans for commercial
business purposes secured by real estate collateral.
(3) Interest rate spread represents the difference between the average rate on
interest-earning assets and the average cost of interest-bearing
liabilities.
(4) Net interest margin represents net interest income before the provision for
loan losses divided by average interest-earning assets.
<PAGE>
Rate/Volume Analysis
The table below sets forth certain information regarding changes in
interest income and interest expense of the Bank for the periods indicated. For
each category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to (i) changes in average volume
(changes in average volume multiplied by old rate); (ii) changes in rates
(changes in rate multiplied by old average volume); (iii) the net change.
Changes attributable to both rate and volume have been allocated proportionately
to the change due to volume and the change due to rate.
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------------------------------
1996 vs. 1995 1995 vs. 1994
----------------------------------- ---------------------------------
Increase/(Decrease) Total Increase/(Decrease) Total
Due To Increase Due to Increase
Volume Rate (Decrease) Volume Rate (Decrease)
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Residential mortgage loans, net . $ 499 $ 88 $ 587 $ 1,186 $ 170 $ 1,356
Commercial loans (3) ............ 595 (38) 557 793 329 1,122
Consumer loans .................. 47 (54) (7) 339 126 465
Investments Available for Sale .. 383 24 407 0 60 60
Investment to be Held to Maturity (811) (20) (831) 53 42 95
Interest-bearing deposits ....... 35 6 41 (50) 2 (48)
------- ------- ------- ------- ------- -------
Total interest-earning assets . $ 748 $ 6 $ 754 $ 2,321 $ 729 $ 3,050
======= ======= ======= ======= ======= =======
Interest expense:
Deposits ........................ $ 443 $ 16 $ 459 $ 750 $ 464 $ 1,214
Borrowings ...................... (277) (40) (317) 433 110 543
------- ------- ------- ------- ------- -------
Total int.-bearing liabilities $ 166 $ (24) $ 142 $ 1,183 $ 574 $ 1,757
======= ======= ======= ======= ======= =======
Net change in interest income ..... $ 582 $ 30 $ 612 $ 1,138 $ 155 $ 1,293
======= ======= ======= ======= ======= =======
</TABLE>
<PAGE>
Lending Activities
The amount and type of loans which may be originated by the Bank are
subject to certain limitations established by the laws of the State of Maine and
regulations promulgated thereunder. Under Maine law, the Bank has general
authority to originate and purchase loans secured by real estate located
anywhere in New England, or by property located anywhere if the loan is approved
by the Bank's Board of Directors, meets the provisions of Maine law governing
loans to one borrower and does not exceed 10% of the Bank's deposits. Moreover,
the Bank may originate and purchase any first mortgage loan permitted to
federally-chartered savings institutions, which currently have nationwide
lending authority, subject to the approval of the Superintendent.
Notwithstanding these authorities, all of the mortgage loans in the Bank's
portfolio are secured by properties located in the State of Maine. Moreover,
substantially all of the Bank's non-mortgage loan portfolio consists of loans
made to Maine residents and businesses. The Bank may invest in loans other than
loans secured by real estate, in an aggregate amount not in excess of 40% of its
assets.
Maine law also imposes various limitation on the amount of loans that
may be made by the Bank to any one borrower and related entities. In this
regard, Maine law limits loans to one borrower and related entities to 20% of
the Bank's total capital and surplus, and total loans to one borrower and
related entities in excess of 10% of surplus and capital must be approved by a
majority of the Board, or by the executive committee. In general, the typical
balance of a loan extended by the Bank is significantly below the applicable
loan limits imposed by Maine Law.
Loan Portfolio Composition
The Bank's loan portfolio totaled $99.2 million at December 31, 1996
(including loans held for sale). As of December 31, 1996, 53.1% of total loans
receivable consisted of one-to-four family residential loans. The remaining
loans consisted of commercial business loans secured by real estate ($29.9
million or 30.1%), commercial business loans secured by collateral other than
real estate (e.g. equipment) ($6.5 million or 6.6%), and consumer loans ($11.2
million or 11.3%), consisting of home equity loans, student loans, automobile
loans, and other collateralized and unsecured loans. At December 31, 1996, the
Bank had loans held for sale of $1.8 million or 1.8% of loans receivable.
In line with the Bank's asset/liability management strategy, the Bank
sells to the secondary mortgage market most of the 30-year, fixed-rate loans
that it originates which conform to secondary mortgage market standards. While
it may hold or sell shorter-term fixed-rate loans, including 10- and 15- year
first mortgages, the Bank has recently been holding these loans in portfolio,
along with adjustable-rate mortgage loans, short-term and adjustable-rate
commercial business loans and consumer loans. The Bank also had $21.9 million,
or 16.3% of its assets at December 31, 1996, invested in mortgage-backed
securities.
<PAGE>
The following table sets forth the composition of the Bank's loan
portfolio in dollar amounts and in percentages of the portfolio at the dates
indicated.
<TABLE>
<CAPTION>
At December 31,
1996 1995 1994
-------------------- --------------------- ---------------------
(Dollars in Thousand)
<S> <C> <C> <C> <C> <C> <C>
Residential mortgage loans:
One- to four-family (1) ........... $ 49,666 50.1% $ 44,950 52.3% 6 49.5%
Loans to be sold .................. 1,819 1.8 1,126 1.3 3,746 5.5
Construction ...................... 1,208 1.2 963 1.1 2,414 3.5
-------- ----- -------- ----- ------- -----
Total residential mortgage loans .. 52,693 53.1 47,039 54.7 40,176 58.5
-------- ----- -------- ----- ------- -----
Commercial loans
Commercial real estate ............ 29,902 30.1 24,313 28.3 19,068 27.8
Other commercial .................. 6,498 6.6 5,410 6.3 3,569 5.2
-------- ----- -------- ----- ------- -----
Total commercial loans ............ 36,400 36.7 29,723 34.6 22,637 33.0
-------- ----- -------- ----- ------- -----
Consumer
Home equity lines of credit ....... 6,042 6.1 5,189 6.1 4,132 6.0
Collateral loans .................. 4,401 4.4 3.596 4.2 1,392 2.0
Other ............................. 763 0.8 1,396 1.6 1,136 1.7
-------- ----- -------- ----- ------- -----
Total consumer loans .............. 11,206 11.3 10,181 11.9 6,660 9.7
-------- ----- -------- ----- ------- -----
Less:
Deferred loan fees and loan premium (209) (0.2) (186) (0.2) (226) (0.3)
Allowance for loan losses ......... (893) (0.9) (867) (1.0) (613) (0.9)
-------- ----- -------- ----- ------- -----
Loans receivable, net ............. $ 99,197 100.0% $ 85,890 100.0% $ 68,634 100.0%
======== ===== ======== ===== ======== =====
(1)Includes second mortgage loans of $3,247,000, $2,884,000 and $170,000 at
December 31, 1996, 1995 and 1994, respectively.
</TABLE>
<PAGE>
The following table sets forth the Bank's loan originations and loan
purchases, sales and principal repayments for the periods indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
-------- -------- --------
(In Thousands)
<S> <C> <C> <C>
Mortgage loans (gross):
At beginning of period (1) .............. $ 71,352 59,244 $ 37,556
Mortgage loans originated: (2)
One- to four-family .............. 19,242 21,173 28,452
Commercial real estate ........... 18,881 10,652 9,225
Construction ..................... 937 2,537 2,327
-------- -------- --------
Total mortgage loans originated 39,060 34,362 40,004
-------- -------- --------
Mortgage loans purchased:
One- to four-family (3) .......... 0 2,290 0
Commercial real estate (3) ....... 0 494 0
-------- -------- --------
Total mortgage loans purchased 0 2,784 0
-------- -------- --------
Total mortgage loans originated
and purchased .............. 39,060 37,146 40,004
Less:
Transfer of mortgage loans to
foreclosed real estate ...... 76 73 (23)
Principal repayments .......... 22,541 17,684 7,265
Sales of loans ................ 5,200 7,281 11,074
-------- -------- --------
At end of period (2) ............... $ 82,595 $ 71,352 $ 59,244
======== ======== ========
Other loans (gross):
At beginning of period ............. $ 15,591 $ 10,229 $ 9,846
Other loans originated ........... 11,574 8,043 7,722
Principal repayments ............. 9,461 6,237 7,339
Other loans purchased ............ 0 3,695 0
Other loans sold ................... 0 139 0
-------- -------- --------
At end of period ................... $ 17,704 $ 15,591 $ 10,229
======== ======== ========
- ------------------------
(1) Includes loans held for sale at beginning of 1996, 1995 and 1994 of $1.1
million, $3.7 million and $5.0 million, respectively.
(2) Includes loans held for sale at end of 1996, 1995 and 1994 of $1.8 million,
$1.1 million and $3.7 million, respectively.
(3) Includes loans acquired through branch acquisition.
</TABLE>
<PAGE>
Loan Maturity
The following table shows the maturity of the Bank's loan portfolio at
December 31, 1996. The table does not include prepayments or scheduled principal
amortization. Prepayments and scheduled principal amortization on mortgage loans
totaled $22.6 million, $17.7 million and $7.3 million for the years ended
December 31, 1996, 1995 and 1994, respectively.
<TABLE>
<CAPTION>
At December 31, 1996
-----------------------------------------------------------------------------------
One-to Total
Four Commercial Other Consumer Loans
Family Real Estate Construction Commercial & other Receivable
--------- --------- --------- --------- --------- ----------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Amounts due:
Within 1 year .................. $ 303 $ 5,236 $ 1,208 $ 487 $ 1,722 $ 8,956
--------- --------- --------- --------- --------- ---------
After 1 year:
1 to 3 years ................. 73 2,363 0 1,551 4,182 8,169
3 to 5 years ................. 878 5,730 0 3,588 4,841 15,037
5 to 10 ...................... 4,605 4,233 0 872 390 10,100
10 to 20 years ............... 24,229 12,080 0 0 71 36,380
Over 20 years ................ 21,397 260 0 0 0 21,657
--------- --------- --------- --------- --------- ---------
Total due after 1 year ....... 51,182(1) 24,666 0 6,011 9,484 91,343
--------- --------- --------- --------- --------- ---------
Total amounts due ............ 51,485 29,902 1,208 6,498 11,206 100,299
Plus (Less):
Unearned discounts, premiums and
deferred loan fees, net ...... 0 0 0 0 0 (209)
Allowance for possible loan
losses ....................... 0 0 0 0 0 (893)
--------- --------- --------- --------- --------- ---------
Loans receivable, net .......... $ 51,485 $ 29,902 $ 1,208 $ 6,498 $ 11,206 $ 99,197
========= ========= ========= ========= ========= =========
(1)Includes loans held for sale of $1.8 million.
</TABLE>
<PAGE>
The following table sets forth at December 31, 1996, the dollar amount of
all loans contractually due after December 31, 1997, and whether such loans have
fixed interest rates or adjustable interest rates.
<TABLE>
<CAPTION>
Contractually Due After December 31, 1997
-----------------------------------------
Fixed Adjustable Total
------- ------- -------
(In Thousands)
<S> <C> <C> <C>
Mortgage loans:
One- to four-family (1) ........... $27,303 $23,879 $51,182
Commercial real estate ........... 10,941 13,725 24,666
Construction ..................... 0 0 0
Commercial loans .................. 4,351 1,660 6,011
Consumer loans .................... 4,261 5,223 9,484
------- ------- -------
Total loans receivable ........... 46,856 44,487 91,343
======= ======= =======
- --------------
(1)Includes loans held for sale of $1.8 million.
</TABLE>
One- to Four- Family Mortgage Loans
The Bank offers first mortgage loans secured by one- to four-family, owner
occupied residences, including condominium units, in the Bank's lending area.
Loan originations are generally obtained from existing or past customers and
members of the local community located in the Bank's primary market area.
Substantially all of the 30-year one- to four- family residential mortgage loans
that conform to FHLMC, GNMA and FNMA guidelines are sold into the secondary
mortgage market. 10- and 15- year conforming mortgage loans may be held in
portfolio.
Upon receipt of a completed loan application from a prospective borrower
for a loan secured by one- to four-family residential real estate, a credit
report is ordered, income and certain other information is verified and, if
necessary, additional financial information is requested. An appraisal of the
real estate intended to secure the proposed loan is required. It is the Bank's
policy to obtain title insurance and/or title certification on all real estate
first mortgage loans. Borrowers must also obtain hazard insurance prior to
closing. Borrowers generally are required to advance funds on a monthly basis
together with each payment of principal and interest to a mortgage escrow
account from which the Bank makes disbursements for items such as real estate
taxes and hazard insurance premiums.
The Bank generally makes one- to four-family residential mortgage loans in
amounts up to 80% of the appraised value of the secured property. Originated
mortgage loans in the Bank's portfolio generally include due-on-sale clauses
which provide the Bank with the contractual right to deem the loan immediately
due and payable in the event that the borrower transfers ownership of the
property without the Bank's consent. It is the Bank's policy to enforce
due-on-sale provisions.
<PAGE>
Loan Authority Policy
The Bank maintains a Board Loan Committee consisting of the President, Vice
Presidents of Commercial and Retail Lending and one or more outside Directors.
The committee has the authority to approve loans that do not specifically
conform to loan policy and loans in excess of $250,000.
Construction Lending
Generally, the Bank's construction loans consist of loans to borrowers to
purchase land and build a primary residence or second home. The Bank requires an
appraisal of the property and the loan amount cannot exceed 80% of the appraised
value of the property to be built. The Bank also requires lien waivers prior to
disbursing funds on construction loans. Generally the same underwriting
requirements of one- to four-family loans are applied to construction loans.
Commercial Business Lending
The Bank offers loans to small businesses to finance the purchase or
expansion of, or to provide operating capital for, a business. Generally, these
loans are secured by real estate and/or other business assets. The borrower is
required to complete an application, which consists of a financial statement and
the two prior years' income statements on the business as well as the
individual. An analysis is done of the ability of the cash flow of the business
to repay the debt. Generally, the loan cannot exceed 80% of the appraised value
of the real estate assets securing the loan. The Bank also offers lines of
credit, both secured and unsecured, to businesses to finance receivables and
seasonal cash flow needs. These lines of credit are reviewed annually and
renewed based upon an analysis similar to that done when the loan was made.
Generally, the interest rate applicable to commercial business loans is a
prime-based rate, adjusting monthly or fixed for a period not exceeding five
years and adjusting thereafter.
Commercial business loans are generally viewed as exposing a lender to
greater risk than residential real estate loans. In particular, the repayment of
interest and principal, in accordance with the terms of the loan, is often
dependent on the generation by the business of sufficient operating income.
<PAGE>
Consumer Lending
The Bank offers loans to consumers to purchase automobiles, recreational
vehicles and finance other needs. These loans generally are one to four years in
length and are amortized over the term of the loan. The Bank requires borrowers
to complete an application and performs a credit analysis, which includes
obtaining a credit report and verifying the income of the borrower. The Bank
also offers second mortgage loans as well as home equity lines of credit secured
by a first or second mortgage on a principal or second residence. Generally,
these loans are originated in loan amounts up to 75% of the appraised value of
the home (less pre-existing liens). However, in instances where a borrower
qualifies, the Bank may loan up to 90% of the home's value. The home equity
lines of credit carry a variable interest rate, adjusting monthly, based on the
prime rate.
The Bank is also involved in other lending, such as loans to municipalities
and other municipal entities for tax anticipation notes, short-term construction
of infrastructure, and other needs.
Investments
The Bank invests in U.S. Government and government agency notes and bonds
as well as mortgage-backed securities. Certain of the Bank's mortgage-backed
securities have been converted from loans originated by the Bank as a way of
improving the liquidity and reducing the credit risk on these loans. As of
December 31, 1996, substantially all of the Bank's mortgage-backed securities
were guaranteed or insured by FNMA, GNMA or FHLMC. The market value of the
Bank's mortgage-backed securities was approximately $22.0 million as of December
31, 1996, and the recorded book value was $21.9 million.
Delinquencies and Classified Assets
Delinquent Loans. Delinquencies on all loans are reviewed monthly by the
Board of Directors. The Bank's collection procedures include sending a past due
notice to the borrower on the 17th day of non-payment, making telephone contact
with the borrower, and sending a letter when the loan is 30 days delinquent. A
Notice of Intent to Foreclose is sent by the 60th day of delinquency. When the
borrower is contacted, the Bank attempts to obtain full payment of the amount
past due. However, the Bank generally will seek to reach agreement with the
borrower on a forbearance plan to avoid foreclosure.
It is the policy of the Bank to discontinue the accrual of interest on any
loan that is 90 days or more past due. The Bank, historically, has not incurred
any significant losses on delinquent one- to four-family residential mortgage
loans.
<PAGE>
Most loan delinquencies are cured within 90 days and no legal action is taken.
In the case of a mortgage loan, if the delinquency exceeds 90 days, the Bank
institutes measures to enforce its remedies resulting from the default. As to
FHA and VA mortgage loans, the Bank follows notification and foreclosure
procedures prescribed by FHA and VA.
Classified Assets. The Bank is required to have a system of classification
of loans and other assets, such as debt and equity securities, considered to be
of lesser quality as "substandard", "doubtful" or "loss" by the paying capacity
and net worth of the obligor or the collateral pledged, if any. "Substandard"
assets include those characterized by the "distinct possibility" that the
insured institution will sustain "some loss" if the deficiencies are not
corrected. Assets classified as "doubtful" have all of the weaknesses inherent
in those classified "substandard", with the added characteristic that the
weaknesses present make "collection or liquidation in full," "highly
questionable and improbable," on the basis of currently existing facts,
conditions, and values. Assets classified as "loss" are those considered
"uncollectible" and of such little value that their continuance as assets
without the establishment of specific loss reserve is not warranted. Assets
which do not currently expose the insured institution to a sufficient degree of
risk to warrant classification in one of the aforementioned categories but
possess credit deficiencies or potential weaknesses are required to be
designated "special mention".
When an insured institution classifies problem assets as either
"substandard" or "doubtful," it is required to establish general allowances for
losses in an amount deemed prudent by management. General allowances represent
loss allowances which have been established to recognize the inherent risk
associated with lending activities, but which, unlike specific allowances, have
not been allocated to particular problem assets. When an insured institution
classifies problem assets as "loss," it is required either to establish a
specific allowance for losses equal to 100% of the amount of the asset so
classified or to charge-off such amount. An institutions's determination as to
the classification of its assets and the amount of its valuation allowances is
subject to review by the FDIC and the state, which can require the establishment
of additional general or specific loss allowances. The Bank regularly reviews
the assets in its portfolio to determine whether any assets require
classification in accordance with applicable regulations.
As of December 31, 1996 the Bank had total classified and special mention
assets of $1.5 million, of which $200,000 were classified "substandard" or
"doubtful." Special mention assets totaled $1.3 million at December 31, 1996,
which included $1.1 million of commercial business loans.
<PAGE>
At December 31, 1996, 1995 and 1994, delinquencies in the Bank's
portfolio were as follows:
<TABLE>
<CAPTION>
At December 31, 1996 At December 31, 1995
----------------------------------------- ---------------------------------------
60-89 Days 90 Days or More 60-89 Days 90 Days or More
------------------- ------------------- ------------------ -------------------
Number Principal Number Principal Number Principal Number Principal
of Balance of Balance of Balance of Balance
Loans of Loans Loans of Loans Loans of Loans Loans of Loans
----- -------- ----- -------- ----- -------- ----- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage:
One- to four-family .................... 6 $343 9 $301 14 $590 6 $232
Construction ........................... 0 0 0 0 0 0 0 0
Commercial ............................. 3 261 3 424 4 163 8 556
---- ---- ---- ---- ---- ---- ---- ----
Total mortgage loans ................... 9 604 12 725 18 753 14 788
Other commercial ........................ 2 5 0 00 5 42 2 59
Consumer ................................ 20 31 9 18 46 41 14 33
---- ---- ---- ---- ---- ---- ---- ----
Total all loans ........................ 31 $640 21 $743 69 $836 30 $880
==== ==== ==== ==== ==== ==== ---- ====
Delinquent loans to total loans ......... 0.64% 0.74% 0.99% 1.04%
<CAPTION>
At December 31, 1994
-------------------------------------
60-89 Days 90 Days or More
-------------------------------------
Number Principal Number Principal
of Balance of Balance
Loans of Loans Loans of Loans
----- -------- ----- --------
<S> <C> <C> <C> <C>
Mortgage:
One- to four-family............. 3 $148 12 $414
Construction.................... 0 0 0 0
Commercial...................... 1 17 9 162
--- ---- --- ----
Total mortgage loans............ 4 165 21 576
Other commercial................. 1 11 3 77
Consumer......................... 22 164 11 40
--- ---- --- ----
Total all loans................. 27 $340 35 $693
=== ==== === ====
Delinquent loans to total loans 0.50% 1.01%
</TABLE>
<PAGE>
The following table sets forth information regarding non-accrual loans. The
Bank discontinues accruing interest on loans ninety days or more past due, at
which time all accrued but uncollected interest is reversed. In addition, some
restructured loans which are now current continue as non-accrual loans until
such time as the borrower has demonstrated a continued capacity to keep the loan
current. Interest income under the original terms of non-accruing loans for the
year ended December 31, 1996 would have been $203,800. Interest income on loans
that were non-accruing at December 31, 1996 that was included in income during
1996 was $135,178.
<TABLE>
<CAPTION>
At December 31,
------------------------------
1996 1995 1994
------ ------ ------
(Dollars in Thousands)
<S> <C> <C> <C>
Non-accruing mortgage loans delinquent
more than 90 days ......................... $1,341 $ 788 $ 576
Non-accruing other loans delinquent more
than 90 days .............................. 53 92 117
Non-accruing loans other than loans
90 days or more delinquent ................ 501 765 672
------ ------ ------
Total non-performing loans ................ 1,895 1,645 1,365
Total foreclosed real estate, net of
related allowance for losses .............. 117 41 12
------ ------ ------
Total non-performing assets ............... $2,012 $1,686 $1,377
------ ------ ------
Non-performing loans to net loans .......... 1.91% 1.92% 1.99%
Total non-performing assets to total assets 1.50% 1.35% 1.22%
</TABLE>
Allowance for Loan Losses
The allowance for loan losses is established through a provision for loan
losses based on management's evaluation of the risk inherent in its loan
portfolio and the general economy. Such evaluation, which includes a review of
all loans on which full collectibility may not be reasonably assured, considers
among other matters, the estimated net realizable value of the underlying
collateral, economic conditions, historical loan loss experience and other
factors that warrant recognition in providing for an adequate loan loss
allowance.
<PAGE>
The following table sets forth certain information regarding the Bank's
allowance for possible loan losses at the dates indicated.
<TABLE>
<CAPTION>
At or for the year ended December 31,
-------------------------------------
1996 1995 1994
----- ----- -----
(Dollars in Thousands)
<S> <C> <C> <C>
Balance at beginning of period ............. $ 867 $ 613 $ 504
Gross charge-offs:
Commercial business ....................... (94) (2) (16)
Commercial real estate .................... (223) (36) (10)
Residential mortgage ...................... (19) (10) (2)
Consumer .................................. (65) (47) (8)
----- ----- -----
Total charge-offs ....................... (401) (95) (36)
----- ----- -----
Gross recoveries:
Commercial business ....................... 0 32 3
Commercial real estate .................... 27 0 0
Residential mortgage ...................... 0 0 0
Consumer .................................. 10 2 2
----- ----- -----
Total recoveries ........................ 37 34 5
----- ----- -----
Net charge-offs ............................ (364) (61) (31)
----- ----- -----
Provision for loan losses .................. 390 315 140
----- ----- -----
Balance at end of year ..................... $ 893 $ 867 $ 613
===== ===== =====
Ratio of net charge-offs during the
period to average loans outstanding
during the period ......................... 0.39% 0.08% 0.06%
===== ===== =====
Ratio of allowance for loan losses to
gross loans receivable at the end
of period ................................. 0.89% 1.00% 0.89%
===== ===== =====
Ratio of allowance for loan losses to
non-performing loans at end of
period .................................... 47.12% 52.71% 44.95%
===== ===== =====
</TABLE>
<PAGE>
The following table sets forth the allocation of the allowance for loan
losses by loan category at the dates indicated.
<TABLE>
<CAPTION>
At December 31,
-----------------------------------------------------------------------
1996 1995 1994
-------------------- -------------------- -------------------
% of Loans % of Loans % of Loans
In Each In Each In Each
Category to Category to Category to
Amount Total Loans Amount Total Loans Amount Total Loans
------ ----------- ------ ----------- ------ -----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Commercial business ........... $161 6.5 $120 6.2% $ 69 5.1%
Commercial real estate ........ 488 29.8 541 28.0 369 27.5
Residential mortgage .......... 207 52.5 150 54.1 140 57.8
Consumer ...................... 37 11.2 56 11.7 35 9.6
---- ----- ---- ----- ---- -----
Total allowance for loan losses $893 100.0% $867 100.0% $613 100.0%
==== ===== ==== ===== ==== =====
</TABLE>
When reviewing the adequacy of the allowance for loan losses, the amount of
impaired loans is also taken into consideration. The Bank adopted SFAS Statement
No. 114, "Accounting by Creditors for Impairment of a Loan" and SFAS Statement
No. 118, "Accounting by Creditors for Impairment of a Loan - Income Recognition
and Disclosures" as of January 1, 1995.
Within the context of SFAS 114 and 118, certain loan categories which
represent groups of smaller balance homogeneous loans are collectively evaluated
and excluded from the provision of the standards. The Bank has determined that
those categories include residential real estate loans, consumer loans and Visa
loans. The standards are applied to loans categorized as commercial and real
estate commercial.
Impaired Loans: December 31, 1996
Commercial 47,484 Based on fair value of collateral
R/E Commercial 897,623 Based on fair value of collateral
--------
Total 945,107
=======
When, during the term of a loan, it becomes apparent that the loan
principal or interest may not be repaid according to its original term or some
event impacts the sufficiency of the collateral, it is considered impaired and
is normally placed on non-accrual status. Criteria used when reviewing for
impairment include: a loan that is past due more than 90 days, a loan that must
be renegotiated as a result of the borrower's inability to meet the original
loan contract, or the loan officer is aware of other circumstances relating to
the individual borrower, the collateral, or economic circumstances which may
result in difficulty collecting the loan principal and interest. The risk
factors in an impaired loan situation vary based on the category of the loan and
the collateral involved. Loans in the commercial category vary in terms of
underlying collateral and therefore usually carry a higher degree of risk even
though policy guidelines may require a collateral position with an adequate loan
to value ratio. Real Estate commercial loans normally have real property as the
primary collateral, therefore risk of loss is minimized.
<PAGE>
It is the Bank's policy that accrual of interest on loans be discontinued
when, in the opinion of management, there is an indication that the borrower may
be unable to meet payments as they become due. Although interest income is not
accrued on loans reclassified to non-accrual status, interest income may be
recognized on a cash basis. A loan will generally be recognized as impaired if
it is 90 days past due and on non-accrual status. It should be noted, that the
adoption of Statement 114 has had no effect on Industry Guide 3 disclosures.
In determining whether or not an impaired loan should be charged-off
management will consider both the adequacy of the collateral and the other
resources of the borrower. If the collateral is insufficient and collectibility
is highly unlikely, the loan is charged-off.
Investment Activities
It is the Bank's policy to reinvest all available funds in a prudent manner
which will provide for the safety of the funds, the liquidity requirement of the
Bank, and the highest yield. Safety and liquidity standards are not compromised
in favor of increased rates of return. In determining its investments, the Bank
considers investment type, credit quality and maturity of investments, as well
as the maximum credit exposure to one obligor at any one time. Consideration is
also given to each investment's risk-weight as determined by regulatory
risk-based capital guidelines. Prior to 1991, the Bank had actively invested in
equity securities for the purpose of diversifying its portfolio and enhancing
yield. Due to the growth in assets related to the branch acquisitions and the
correspondent need to maintain adequate capital ratios, the Bank liquidated its
equity securities portfolio. The Bank has received approval from the FDIC to
retain its authority to invest in equity securities. See "Regulation and
Supervision - Federal Deposit Insurance Corporation Improvement Act of 1991 -
Restrictions Upon State-Chartered Banks."
The following table sets forth certain information regarding the carrying
and market values of the Bank's investment securities portfolio at the dates
indicated:
<TABLE>
<CAPTION>
At December 31,
--------------------------------------------------------------------
1996 1995 1994
-------------------- -------------------- --------------------
Carrying Market Carrying Market Carrying Market
Value Value Value Value Value Value
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning deposits:
Certificates of deposit ............. $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Overnight funds ..................... 2 2 2,461 2,461 20 20
------- ------- ------- ------- ------- -------
Total interest-bearing deposits $ 2 $ 2 $ 2,461 $ 2,461 $ 20 $ 20
======= ======= ======= ======= ======= =======
Investment securities:
Available for sale .................. $ 7,452 $ 7,452 $ 8,377 $ 8,377 $ 0 $ 0
To be Held to Maturity (1) .......... 19,837 19,908 20,423 20,594 37,360 35,496
------- ------- ------- ------- ------- -------
Total investment securities.... $27,289 $27,360 $28,800 $28,971 $37,360 $35,496
======= ======= ======= ======= ======= =======
(1) Includes stock in the FHLB of Boston of $1,320,550, $1,320,550 and
$1,153,350 at December 31, 1996, 1995 and 1994, respectively.
</TABLE>
<PAGE>
The table below sets forth certain information regarding the carrying
value, weighted average yields and maturities of the Bank's investment
securities at December 31, 1996.
Investment Securities Available for Sale
<TABLE>
<CAPTION>
Approximate Weighted
Carrying Market Average
Value Value Yield
----- ----- -----
<S> <C> <C> <C>
U.S. Government and agency obligations
Due in one year or less ................. $4,000 $3,999 5.78%
Due from one to five years .............. 0 0 0
Due from five to ten years .............. 3,510 3,453 6.05
Due after 10 years ...................... 0 0 0
----- -----
Total Investment Securites
Available for Sale.................... 7,510 7,452 5.90%
----- -----
</TABLE>
Investment Securities to be Held to Maturity
<TABLE>
<CAPTION>
Approximate Weighted
Carrying Market Average
Value Value Yield
----- ----- -----
<S> <C> <C> <C>
U.S. Government and agency obligations
Due in one year or less.......... $ 0 $ 0 0%
Due from one to five years 3,121 3,092 5.85
Due from five to ten years....... 6,250 6,286 6.62
Due after ten years.............. 8,277 8,369 6.73
------ ------
Total............................ 17,648 17,747 6.53%
------ ------
Other
Due in one year or less (1) 1,321 1,321 6.40%
Due from one to five years 0 0 0
Due from five to ten years....... 847 819 5.16
Due after ten years.............. 21 21 7.78
------ ------
Total............................ 2,189 2,161 5.93%
------ ------
Total Investment securities
to be Held to Maturity....... $19,837 $19,908 6.47
======= =======
- ---------------------------------------
(1) Represents stock in the FHLB of Boston
</TABLE>
There were no investment securities (exclusive of obligations of the U.S.
Government and agencies) issued by any one entity with a total carrying value in
excess of 10% of stockholders' equity at December 31, 1996.
<PAGE>
Source of Funds
General. Deposits, advances from the FHLB of Boston, loan repayments and
retained earnings are the primary source of the Bank's funds for use in lending,
investment and for other general purposes.
Deposits. The Bank offers a variety of deposit accounts having a range of
interest rates and terms. The Bank's deposits consist of passbook savings, NOW,
money market and certificate accounts. The flow of deposits is influenced
significantly by general economic conditions, changes in money market and
prevailing interest rates and competition. The Bank's deposits are obtained
primarily from the areas in which its branches are located. The Bank relies
primarily on customer service and long-standing relationships with customers to
attract and retain deposits. Certificate accounts in excess of $100,000 are not
actively solicited by the Bank.
<PAGE>
The following table sets forth the distribution of the Bank's deposit accounts
at the dates indicated and the weighted average nominal interest rates on each
category of deposits presented. Management does not believe that the use of
year-end balances resulted in any material difference in the information
presented.
<TABLE>
<CAPTION>
1994 1996 1994
---------------------------- -------------------------- -----------------------------
Weighted Weighted Weighted
Percent Average Percent Average Percent Average
Of Total Nominal of Total Nominal of Total Nominal
Amount Deposits Rate Amount Deposits Rate Amount Deposits Rate
------ -------- ---- ------ -------- ---- ------ -------- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Savings and transaction accounts:
Commercial NOW ............. $ 5,693 5.2% 2.64% $ 4,094 3.9% 2.34% $ 1,458 1.8% 1.74%
NOW ........................ 8,382 7.6 1.15 8,670 8.3 1.32 4,956 6.1 1.59
Regular Savings (1) ........ 21,802 19.8 2.77 22,548 21.5 3.00 21,352 26.3 2.98
Money market ............... 5,701 5.2 3.78 5,763 5.5 3.95 3,171 3.9 2.98
Demand deposits (1) ........ 9,367 8.4 0 8,111 7.7 0 6,201 7.7 0
-------- ----- -------- ----- -------- ----
Total ............. 50,945 46.2 2.57 49,186 47.0 2.71 37,138 45.8 2.70
-------- ----- -------- ----- -------- ----
Certificate accounts:
Three month ................ 944 0.9 4.30 1,498 1.4 5.23 166 0.2 3.26
Six month .................. 10,710 9.7 4.81 5,945 5.7 5.41 6,093 7.5 3.55
Twelve month ............... 12,166 11.0 5.09 12,577 12.0 5.77 7,738 9.5 4.26
Eighteen month ............. 3,765 3.4 5.59 3,635 3.5 5.23 0 0 0
Two to five years .......... 13,728 12.5 6.36 13,813 13.2 6.35 13,159 16.2 5.42
IRA ........................ 18,024 16.3 6.29 18,048 17.2 6.39 16,746 20.7 5.56
-------- ----- -------- ----- -------- ----
Total ............. 59,337 53.8 5.73 55,516 53.0 6.03 43,902 54.2 4.93
-------- ----- -------- ----- -------- ----
Total deposits (1)............... 110,282 100.0% 4.43% $104,702 100.0% 4.62% $81,040 100.0% 4.01%
======= ===== ======== ===== ======= =====
(1) Includes escrow and trustee accounts on sold loans.
</TABLE>
<PAGE>
At December 31, 1996, the Bank had outstanding $6.6 million in time deposit
accounts in amounts of $100,000 or more maturing as follows:
<TABLE>
<CAPTION>
Amount
(In thousands)
<S> <C>
Maturity Period
Three months or less.............................................. $2,359
Over three through six months..................................... 1,445
Over six through 12 months........................................ 1,576
Over 12 months.................................................... 1,265
-----
Total............................................................. $6,645
======
</TABLE>
Borrowings
The borrowings utilized by the Bank primarily have been advances from the
FHLB of Boston. In addition, the Bank has in the past utilized borrowings in the
form of repurchase agreements, secured by United States Government or agency
securities, through a nationally recognized investment firm.
The following table sets forth certain information regarding borrowed funds for
the dates indicated:
<TABLE>
<CAPTION>
At or for the year ended December 31,
-------------------------------------
1996 1995 1994
-------- -------- --------
(Dollars in Thousands)
<S> <C> <C> <C>
Total borrowings:
Average balance outstanding ............ $11,624 $16,082 $ 8,247
Maximum amount outstanding at any
month-end during the period .......... 13,186 26,037 23,367
Balance outstanding at end of period ... 13,186 10,952 23,367
Weighted average interest rate during
the period ........................... 5.87% 6.21% 5.53%
Weighted average interest rate at end
of period ............................ 5.99% 6.02% 6.26%
</TABLE>
Subsidiaries
The Bank is the only subsidiary of the Company. The Bank has no
subsidiaries.
REGULATION AND SUPERVISION
General
The Bank is a Maine-chartered savings bank and its deposit accounts are
insured up to applicable limits by the FDIC primarily under the Bank Insurance
Fund ("BIF"). The Bank is subject to extensive regulation by the FDIC, as the
<PAGE>
deposit insurer, and the State of Maine Bureau of Banking ("Bureau"). The Bank
must file reports with the Bureau and the FDIC concerning its activities and
financial condition, in addition to obtaining regulatory approvals prior to
entering into certain transactions such as mergers with or acquisitions of other
depository institutions. There are periodic examinations by the FDIC to test the
Bank's compliance with various regulatory requirements. This regulation and
supervision establishes a comprehensive framework of activities in which a
savings Bank can engage and is intended primarily for the protection of the
insurance fund and depositors. The regulatory structure also gives the
regulatory authorities extensive discretion in connection with their supervisory
and enforcement activities and examination policies, including policies with
respect to the classification of assets and the establishment of adequate loan
loss reserves for regulatory purposes. Any change in such regulation could have
material adverse impact on the Company and the Bank and their operations and
stockholders. The Company is also required to file certain reports with, and
otherwise comply with the rules and regulations of the Federal Reserve Board
(the "FRB"), the State of Maine Bureau of Banking, and the Securities and
Exchange Commission (the "SEC") under the federal securities laws.
Maine Law
The Superintendent of the Maine Bureau of Banking is vested with the authority
to regulate and supervise banks which are chartered under Maine law. The
Superintendent is required to examine each state chartered bank at least once
every thirty-six months. The Superintendent's approval is required for
establishing or closing branches, for merging with other banks and for
undertaking many other activities. Any Maine bank that does not operate in
accordance with the Superintendent's regulations, policies and directive may be
sanctioned for noncompliance.
Maine-chartered savings banks have lending, investment and other powers similar
to those authorized for federally-chartered savings institutions, including
commercial lending authority and the ability to offer personal and commercial
checking and NOW accounts, and have virtually the same powers as commercial
banks. To the extent authorized by the Superintendent, Maine-chartered savings
banks have all lending, investment and other powers possessed by
federally-chartered savings institutions based in Maine.
The Bureau of Consumer Credit Protection administers the Maine Consumer
Credit Code, which regulates broadly all consumer lending transactions in the
State of Maine, as well as home solicitation sales and the offering of consumer
credit insurance.
Federal Deposit Insurance Corporation Improvement Act of 1991
On December 19, 1991, the Federal Deposit Insurance Corporation Improvement
Act of 1991 ("FDICIA") became law. While FDICIA primarily addresses additional
sources of funding for the BIF, which insures the deposits of commercial banks
and savings banks, it also imposes a number of new mandatory supervisory
measures on commercial banks, savings banks and savings associations.
<PAGE>
FDICIA requires financial institutions to take certain actions relating to
their internal operations, including: providing annual reports on financial
condition and management to the appropriate federal banking regulators, having
an annual independent audit of financial statements performed by an independent
public accountant and establishing an independent audit committee comprised
solely of outside directors. FDICIA also imposes certain operational and
managerial standards on financial institutions relating to internal controls,
loan documentation, credit underwriting, interest rate exposure, asset growth,
compensation, fees and benefits. The federal banking agencies, including the
FDIC, have adopted guidelines implementing these standards.
Pursuant to FDICIA, the banking agencies have issued a regulation requiring
all financial institutions to adopt a written policy governing real estate
lending. The regulation requires that such policy address underwriting,
documentation, approval and reporting standards and portfolio diversification
and administration requirements for real estate loans, so as to provide for
prudent and sound lending practices. The policy also must take into account
guidelines issued by the banking agencies governing such policies. The
guidelines suggest maximum loan-to-value ratios for all real estate loans, other
than permanent financing on one- to four-family residences, and provide limits
and requirements on loans that exceed those limits.
Restrictions Upon State-Chartered Banks.
FDICIA added new Section 24 to the Federal Deposit Insurance Act (the "FDI
Act"), which generally limits the activities and equity investments of state
chartered, FDIC insured savings banks and their subsidiaries to those
permissible for national banks and their subsidiaries, unless such activities
and investments are specifically exempted by Section 24 or consented to by the
FDIC. In October 1992, the FDIC adopted final regulations governing the equity
investments of FDIC insured savings banks, effective on December 9, 1992, which
generally prohibit equity investments by such banks and require the divestiture
of such investments by December 19, 1996. Section 24 provides an exception for
investments in common and preferred stocks listed on a national securities
exchange or the shares of registered investment companies by a bank if (1) the
bank held such types of investments during the 14-month period from September
30, 1990 through November 26, 1991, (2) the state in which the bank is chartered
permitted such investments as of September 30, 1991, and (3) the bank notifies
the FDIC and obtains approval from the FDIC to make or retain such investments.
Upon receiving such FDIC approval, an institution's investment in such equity
securities will be subject to an aggregate limit up to its core capital. Section
24 also contains an exception for certain majority owned subsidiaries. Banks
holding impermissible investments that do not receive FDIC approval must submit
to the FDIC a plan for divestiture of such investments as quickly and prudently
as possible. The Bank applied for, and received, FDIC approval to invest in such
otherwise impermissible equity investments. The Bank currently has no equity
securities portfolio.
The FDIC has also adopted final regulations pertaining to the activity
restrictions imposed upon insured savings banks and their subsidiaries by
Section 24. The FDIC will not approve an activity that it determines to present
a significant risk to the FDIC insurance funds. Management believes that its
activities are of types permissible under FDICIA.
<PAGE>
Risk-Based Premiums
FDICIA required the FDIC to issue regulations, effective by no later than
January 1, 1994, which establish a system for setting deposit insurance premiums
based upon the risks a particular bank or savings association poses to the
deposit insurance funds.
The FDIC has adopted rules to implement a risk-based assessment system.
Under the rule, the FDIC assigns an institution to one of three capital
categories consisting of (1) well capitalized, (2) adequately capitalized or (3)
undercapitalized, and one of the three supervisory subcategories. An
institution's assessment rate depends on the capital category and supervisory
category to which it is assigned. Assessment rates currently range from 0% of
deposits for an institution in the highest category (i.e., well capitalized and
favorable supervisory rating) to 0.27% of deposits for institutions in the
lowest category (i.e., undercapitalized and substantial supervisory concern).
The Bank's deposit insurance assessment will depend upon the category and
subcategory to which the Bank is assigned by the FDIC. The supervisory subgroup
to which an institution is assigned by the FDIC is confidential and may not be
disclosed; the Bank qualifies as "well-capitalized" under the capital
categories. Any increase in insurance assessments could have an adverse effect
on the earnings of the Bank.
Prompt Corrective Action.
FDICIA also establishes a system of prompt corrective action to resolve the
problems of undercapitalized institutions. The FDIC, FRB, Office of the
Comptroller of the Currency ("COC") and the Office of Thrift Supervision ("OTS")
have adopted final rules, effective December 19, 1992, which require such
regulators to take certain supervisory actions against undercapitalized
institutions, the severity of which depends upon the institution's degree of
capitalization. The adopted rules create five categories consisting of
"well-capitalized," "adequately capitalized," "significantly undercapitalized"
and "critically-undercapitalized." Regulatory action taken will depend on the
level of capitalization of the institution and may range from restrictions on
capital distributions and dividends to seizure of the institution. Generally,
subject to a narrow exception, FDICIA requires the banking regulator to appoint
a receiver or conservator for an institution that is critically undercapitalized
within 90 days after becoming critically undercapitalized. FDICIA authorizes the
banking regulators to specify the ratio tangible equity to assets at which an
institution becomes critically-undercapitalized and requires that ratio be no
less than 2% of assets.
The final rule also allows the regulator to downgrade an institution that
meets certain minimum capital requirements but is otherwise in a "less than
satisfactory" condition, which may result in an otherwise "adequately
capitalized" institution with other problems being classified as
"undercapitalized."
The final rule adopted by the FDIC, on September 15, 1992, to implement the
prompt corrective action section of FDICIA, generally provides that an insured
institution that has risk-based capital of less than 8.0% or a leverage ratio
that is less than 4.0% would be considered to be "undercapitalized", an insured
institution that has risk-based capital less than 6.0% or a leverage ratio that
is less than 3.0% would be considered to be "significantly under-capitalized"
<PAGE>
and an insured institution that has a tangible capital to assets ratio equal to
or less than 2% would be deemed to be "critically undercapitalized." Generally,
under the rule, an insured institution that is "undercapitalized,"
"significantly under-capitalized," or "critically undercapitalized" becomes
immediately subject to certain regulatory restrictions, including, but not
limited to, restrictions on growth, investment activities, capital
distributions, and affiliate transactions. The filing of a capital restoration
plan, which must be guaranteed by the parent holding company, is also required.
In addition, "critically undercapitalized" institutions must receive prior
written approval from the FDIC to engage in any material transaction other than
in the normal course of business. The Bank's capital ratios (see "Capital
Maintenance") qualify it for "well-capitalized" status.
Insurance of Deposit Accounts
Under the current risk-based deposit insurance premium structure, insured
institutions will pay a premium ranging from 0.00% of deposits to 0.27% of
deposits depending on the institution's FDIC risk classification. See "Federal
Deposit Insurance Corporation Improvement Act of 1991 - Risk-Based Premiums."
The FDIC is authorized to raise premiums for BIF members if the BIF is expected
to be at levels less than its required reserve ratio. The FDIC has exercised
this authority several times in the past and may raise BIF insurance premiums
again in the near future. If such action is taken by the FDIC it could have an
adverse effect on the earnings of the Bank. Included in the 1996 amount was a
one-time assessment of $175,807 on the SAIF-attributed deposits acquired by the
Bank in 1994. This further resulted in a refund of the 4th quarter assessment of
$20,492.
During 1994 and until May 1995, the Bank paid insurance premiums under the
risk-based system of .23% of deposits. At that time the BIF was determined to be
adequately capitalized and assessments on BIF deposits were restructured to
range from 0.0% to 0.27%. As a well capitalized Bank, the Bank was assessed at
0% for the period from June through December 1995 on its BIF deposits. Pursuant
to the Bank acquisition of First Federal of Lewiston in 1994, an attributable
portion of those deposits are insured under the Savings Association Insurance
Fund ("SAIF"). Prior to May 1995, the Bank's SAIF-attributable deposits were
assessed at the same rate as its BIF deposits. The Bank's attributable deposits
totalled $33.4 million in 1995 and were assessed at 0.23%. The Bank paid the
SAIF assessment rate on these deposits through the 3rd quarter of 1996 when a
special FDIC assessment was levied. The Bank paid a total of $236,135 in federal
deposit insurance premiums to the BIF for the year ended December 31, 1996 as
compared to $137,100 in 1995. The SAIF-attributable deposit amount is adjusted
each year according to the Bank's overall deposits growth (not including growth
attributable to mergers or acquisitions). The Bank's attributable deposit amount
for 1996 was $35.1 million and for 1997 is $29.5 million. In 1997, under the
current schedule for "well-capitalized" banks, the Bank would pay a 0.00% FDIC
assessment rate on it's BIF and SAIF-attributed deposits, a 0.013% Financing
Corporation (FICO) assessment on BIF deposits and a 0.046% FICO assessment on
SAIF-attributed deposits.
Under the FDI Act, insurance of deposits may be terminated by the FDIC upon
a finding that the institution has engaged in unsafe or unsound condition to
continue operations, or has violated any applicable law, regulation, rule, order
or condition imposed by the FDIC. The management of the Bank does not know of
any practice, condition or violation that might lead to termination of deposit
insurance. At December 31, 1996, the Bank's capital exceeded the minimum capital
requirements imposed by the FDIC.
<PAGE>
Capital Maintenance
The Bank is subject to capital requirements imposed by the FDIC and the
Superintendent, which at the present time are substantially identical. The
failure to satisfy capital requirements can result in severe regulatory
sanctions. The Bank's capital currently is significantly in excess of federal
and state requirements.
The FDIC has issued regulations that require BIF-insured banks, such as the
Bank, to maintain minimum levels of capital. The regulations establish a minimum
leverage capital requirement of not less than 3% core capital to total assets
for banks in the strongest financial and managerial condition, with a CAMEL
Rating of 1 (the highest examination rating of the FDIC for banks). For all
other banks, the minimum leverage capital requirement is 3% plus an additional
cushion of at least 100 to 200 basis points. Core capital is comprised of the
sum of common stockholders' equity, non-cumulative perpetual preferred stock
(including any related surplus) and minority interests in consolidated
subsidiaries, minus all intangible assets (other than qualifying servicing
rights). At December 31, 1996, the Bank's ratio of core capital to total assets
equalled 6.7%, which exceeded the minimum leverage requirement.
The FDIC also requires that savings banks meet a risk-based capital
standard. The risk-based capital standard requires the maintenance of total
capital (which is defined as core capital and supplementary capital) to
risk-weighted assets of 8%. In determining the amount of risk-weighted assets,
all assets, including certain off-balance sheet assets, are multiplied by a
risk-weight of 0% to 100%, based on the risks the FDIC believes are inherent in
the type of asset. The components of core capital are equivalent to those
discussed earlier under the 3% leverage requirement. The components of
supplementary capital currently include cumulative perpetual preferred stock,
subordinated debt and intermediate preferred stock and allowance for loan and
lease losses. Allowance for loan and lease losses includable in supplementary
capital is limited to a maximum of 1.25% of gross risk-weighted assets. Overall,
the amount of capital counted toward supplementary capital cannot exceed 100% of
core capital.
At December 31, 1996, the Bank's total risk-based capital to risk-weighted
assets was 11.3%, which exceeded the FDIC risk-based capital requirements.
Loans-to-One-Borrower Limitations
With certain limited exceptions, a Maine chartered savings bank may not
make a loan or extend credit (including lease financing) to a single borrower,
together with their related interests, in excess of 20% of the bank's capital
and surplus, while loans to a single borrower, together with their related
entities, in excess of 10% of capital and surplus requires the prior approval of
the majority of the Board of Directors, or of the executive committee. The Bank
currently complies with all applicable loans-to-one-borrower limitations.
<PAGE>
Community Reinvestment Act
Under the Community Reinvestment Act ("CRA"), as implemented by FDIC
regulations, a savings institution has a continuing and affirmative obligation
consistent with its safe and sound operation to help meet the credit needs of
its entire community, including low and moderate income neighborhoods. The CRA
does not establish specific lending requirements or programs for financial
institutions nor does it limit an institution's discretion to develop the types
of products and services that it believes are best suited to its particular
community, consistent with the CRA. The CRA requires the FDIC, in connection
with its examination of a savings institution, to assess the institution's
record of meeting the credit needs of its community and to take such record into
account in its evaluation of certain applications by such institution. Effective
July 6, 1990, public disclosure of an institution's CRA rating is required. The
FDIC provides a written evaluation of an institution's CRA performance utilizing
a four-tiered descriptive rating system which replaced the five-tiered numerical
rating system. The Bank has an outstanding CRA rating.
Federal Reserve System
Under FRB regulations, the Bank is required to maintain noninterest-earning
reserves against its transaction accounts (primarily NOW and regular checking
accounts). The Federal Reserve Board regulations generally require that reserves
of 3% must be maintained against aggregate transaction accounts of $49.3 million
or less (subject to adjustment by the FRB), and a reserve of $1.5 million, plus
10% (subject to adjustment by the FRB between 8% and 14%) of that portion of
total transaction accounts in excess of $49.3 million. The first $4.4 million of
otherwise reservable balances (subject to adjustments by the FRB) are exempted
from the reserve requirements. The Bank is in compliance with the foregoing
requirements. Because required reserves must be maintained in the form of either
vault cash, a non-interest-bearing account at a Federal Reserve Bank or a
pass-through account as defined by the FRB, the effect of this reserve
requirement is to reduce the Bank's interest-earning assets.
Bank Holding Company Regulation
On May 7, 1993, the Company received approval from the FRB to become a
registered bank holding company pursuant to the Bank Holding Company Act of 1956
("BHCA") by acquiring all of the common stock of the Bank. The Company is
subject to examination, regulation and periodic reporting under the BHCA, as
administered by the FRB.
The Company is required to obtain the prior approval of the FRB to acquire
all, or substantially all, of the assets of any bank or bank holding company.
Prior FRB approval is required for the Company to acquire direct or indirect
ownership or control of any voting securities of any bank or bank holding
company if, after giving effect to such acquisition, it would, directly or
indirectly, own or control more than 5% or any voting shares of such bank or
bank holding company. The BHCA also prohibits the acquisition by the Company of
more than 5% of the voting shares, or substantially all the assets, of a bank
located outside the State of Maine unless such an acquisition is specifically
authorized by the laws of the state in which such bank is located. Maine banking
law permits the interstate acquisition of banking institutions by bank holding
companies on a nationwide basis. See "-Acquisition of the Company." In addition
to the approval of the FRB, before any bank acquisition can be completed, prior
approval thereof may also be required to be obtained from other agencies having
supervisory jurisdiction over the bank to be acquired, including the
Superintendent.
<PAGE>
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.
In addition, a bank holding company is generally prohibited from engaging
in, or acquiring direct or indirect control of, any Company engaged in,
non-banking activities. One of the principal exceptions to this prohibition is
for activities found by the FRB to be so closely related to banking or managing
or controlling banks as to be a proper incident thereto. Some of the principal
activities that the FRB has determined by regulation to be so closely related to
banking are; (i) making or servicing loans; (ii) performing certain data
processing services; (iii) providing discount brokerage services; (iv) acting as
fiduciary, investment or financial advisor; (v) leasing personal or real
property; (vi) making investments in corporations or projects designed primarily
to promote community welfare; and (vii) acquiring a savings and loan
association.
Subsidiary banks of a bank holding company are subject to certain
quantitative and qualitative restrictions imposed by the Federal Reserve Act on
any extension of credit to, or purchase of assets from, or provision of a letter
of credit on behalf of the bank holding company or its subsidiaries, and on the
investment in or acceptance of stocks or securities of such holding company or
its subsidiaries as collateral for loans. In addition, provisions of the Federal
Reserve Act and FRB regulations limit the amount of, and establish required
procedures and credit standards with respect to, loans and other extensions of
credit to officers, directors and principal shareholders of the Bank, the
Company, any subsidiary of the Company and related interests of such persons.
Moreover, subsidiaries of bank holding companies are prohibited from engaging in
certain tie-in arrangements ( with the Company or any of its subsidiaries) in
connection with any extension of credit, lease or sale of property or furnishing
of services.
The Company and its subsidiary, the Bank, are affected by the monetary and
fiscal policies of various agencies of the United States Government, including
the FRB. In view of changing conditions in the national economy and in the money
markets, it is impossible for management of the Company to accurately predict
future changes in monetary policy or the effect of such changes on the business
or financial condition of the Company or the Bank.
<PAGE>
Restrictions on the Acquisition of the Company
Under the Federal Change in Bank Control Act ("CIBCA"), a notice must be
submitted to the FRB if any person (including a company), or group acting in
concert, seeks to acquire 10% or more of the Company's shares of Common Stock
outstanding, unless the FRB finds that the acquisition will not result in a
change in control of the Company. Under the CIBCA, the FRB has 60 days within
which to act on such notices, taking into consideration certain factors,
including the financial and managerial resources of the acquiror, the
convenience and needs of the communities served by the Company and the Bank, and
the antitrust effects of the acquisition. Under the BHCA, any Company would also
be required to obtain prior approval from the FRB before it may obtain "control"
of the Company within the meaning of the BHCA. Control generally is defined to
mean the ownership or power to vote 25 percent or more of any class of voting
securities of the Company or the ability to control in any manner the election
of a majority of the Company's directors. See "-Bank Holding Company
Regulation."
Under Maine law, the Superintendent must approve the following transactions
prior to consummation: (1) the acquisition of control of a Maine financial
institution or Maine financial institution holding company by any person or
company; (2) the acquisition of more than 5% of the voting shares of a Maine
financial institution holding company by a financial institution or financial
institution holding company; and (3) the acquisition of more than 5% of the
voting shares of a financial institution, the operations of which are
principally conducted outside the State of Maine, by a Maine financial
institution or a Maine financial institution holding company. In addition to the
foregoing, any person or company which acquires directly or indirectly more than
5% of the voting shares of a Maine financial institution or a Maine financial
institution holding company must file with the Superintendent within five days
of the acquisition a statement containing information specified under Maine law,
which is comparable to that required to be set forth in a statement on Schedule
13D under the Exchange Act.
FEDERAL AND STATE TAXATION
Federal Taxation
General. The Company and the Bank will report their income on a fiscal year
basis using the accrual method of accounting and will be subject to federal
income taxation in the same manner as other corporations with some exceptions,
including particularly the Bank's addition to its reserve for bad debts
discussed below. The following discussion of tax matters is intended only as a
summary and does not purport to be a comprehensive description of the tax rules
applicable to the Bank or the Company.
Bad Debt Reserves. Savings institutions such as the Bank which meet certain
definitional tests primarily relating to their assets and the nature of their
business ("qualifying thrifts") are permitted to establish a reserve for bad
debts and to make annual additions thereto, which additions may, within
specified formula limits, be deducted in arriving at their taxable income. The
Bank's deduction with respect to "qualifying loans" (generally loans secured by
certain interests in real property), may be computed using a percentage based on
the Bank's actual loss experience.
<PAGE>
Distributions. To the extent that (i) the Bank's reserve for losses on
qualifying real property loans exceeds the amount that would have been allowed
under the experience method and (ii) the Bank makes "nondividend distributions"
to stockholders that are considered to result in distributions from the excess
bad debt reserve or the supplemental reserve for losses on loans ("Excess
Distributions"), then an amount based on the amount distributed will be included
in the Bank's taxable income. Non-dividend distributions include distributions
in excess of the Bank's current and accumulated earnings and profits,
distributions in redemption of stock, and distributions in partial or complete
liquidation. However, dividends paid out of the Bank's current or accumulated
earnings and profits, as calculated for federal income tax purposes, will not be
considered to result in a distribution from the Bank's bad debt reserve.
The amount of additional taxable income created from an Excess Distribution
is an amount that when reduced by the tax attributable to the income is equal to
the amount of the distribution. Thus, if, after the Conversion, certain portions
of the Bank's accumulated tax bad debt reserve are used for any purpose other
than to absorb qualified bad debt losses, such as for the payment of dividends
or other distributions with respect to the Bank's capital stock (including
distributions upon redemption or liquidation), approximately one and one-half
times the amount so used would be includable in gross income for federal income
tax purposes, assuming a 34% corporate income tax rate (exclusive of state
taxes). See "Regulation and Supervision" and "Dividend Policy" for limits on the
payment of dividends of the Bank. The Bank does not intend to pay dividends that
would result in a recapture of any portion of its bad debt reserves.
Corporate Alternative Minimum Tax. For taxable years beginning after
December 31, 1986, the Internal Revenue Code of 1986, as amended (the "Code")
imposes a tax on alternative minimum taxable income ("AMTI") at a rate of 20%.
The excess of the bad debt reserve deduction using the percentage of taxable
income method over the deduction that would have been allowable under the
experience method is treated as a preference item for purposes of computing the
AMTI. Only 90% of AMTI can be offset by net operating loss carryovers. For
taxable years beginning after December 31, 1989, the adjustment to AMTI based on
book income will be an amount equal to 75% of the amount by which a
corporation's adjusted current earnings exceeds its AMTI (determined without
regard to this adjustment and prior to reduction for net operating losses).
Dividends Received Deduction and Other Matters. The Company may exclude
from its income 100% of dividends received from the Bank as a member of the same
affiliated group of corporations. The corporate dividends received deduction is
generally 70% in the case of dividends received from unaffiliated corporations
with which the Company and the Bank will not file a consolidated tax return,
except that if the Company and the Bank own more than 20% of the stock of a
corporation distributing a dividend, 80% of any dividends received may be
deducted.
State and Local Taxation
The Bank and the Company are subject to a separate state franchise tax in
lieu of state corporate income tax. For tax years beginning on or after January
1, 1986, the amount of the tax is the sum of 1% of Maine net income and $.08 per
$1,000 of Maine assets as defined in Maine law. Maine assets are the
corporation's total end of the year assets as reported on the federal income tax
return. Maine net income is the corporation's net income or loss as reported on
the federal income tax return which is apportioned to Maine under Maine law. The
Bank is not currently under audit with respect to its Maine income tax returns.
<PAGE>
MANAGEMENT OF THE COMPANY
Senior Officers Who Are Not Directors
The following table sets forth certain information as of Dec. 31, 1996,
regarding the senior officers of the Bank who are not also Directors.
<TABLE>
<CAPTION>
Name Age Positions Held With the Bank
---- --- ----------------------------
<S> <C> <C>
John E. Thien 47 Vice President and Treasurer
Gordon A. Flint 50 Vice President-Commercial Lending
Robert D. Stone 48 Vice President-Operations
Gerard R. Belanger 52 Vice President-Commercial Lending
</TABLE>
Biographical Information of Senior Officers Who Are Not Directors
Set forth below is certain information with respect to the senior officers
of the Company and the Bank. Unless otherwise indicated, the principal
occupation listed for each person below has been his or her principal occupation
for the past five years.
Gordon A. Flint joined the Bank in September 1992 as Vice President of
Commercial Lending/Branch Administration. Prior to his association with the
Bank, Mr. Flint was vice president of Private Banking and regional executive
officer of the Western Maine region of Fleet Bank of Maine.
John E. Thien joined the Bank in May 1992 as Vice President and was
appointed Treasurer in January 1993. Prior to joining the Bank, Mr. Thien served
as treasurer from 1979-1992 at American Bank, FSB of Sanford ("American"),
located in Sanford, ME. In 1990, the OTS placed American in receivership and the
Resolution Trust Corporation (the "RTC") took control of the institution. Mr.
Thien remained with American through its resolution in March 1992, and served as
president of the Bank under the RTC.
Robert D. Stone joined the Bank in February 1994 as Vice President and
Regional Executive Officer, and is responsible for all activities conducted at
the Bank's Lewiston location, including Bank operations and data processing.
Prior to joining the Bank, Mr. Stone was a technology consultant from 1992-1994
and Senior Vice President, New England Operations, of Fleet Financial Group from
1972-1992.
Gerard R. Belanger joined the Bank in April 1994 as Vice President and
Commercial Lending Officer. Prior to joining the Bank, Mr. Belanger was Vice
President and Commercial Lending Officer for Fleet Bank and its predecessors
from 1963-1994.
<PAGE>
Item 2. Properties
The Bank conducts its business through eight branch locations and one
seasonal location, as indicated below:
<TABLE>
<CAPTION>
Net Book Value Leased or Lease
Location at 12/31/96 Owned Expiration
- -------- ----------- ----- ----------
<S> <C> <C> <C>
Main Street
Kingfield, ME $317,535 Owned
Main Street
Stratton, ME 64,284 Owned
Main Street
Phillips, ME 78,139 Owned
Main Street
Rangeley, ME 183,298 Owned
Sugarloaf/USA
Carrabassett
Valley, ME 31,920 Owned
Routes 2&4
Farmington, ME 146,573 Leased 2/28/03
Route 201
Bingham, ME 143,809 Owned
Main Street
Strong, ME 84,957 Owned
110 Canal Street
Lewiston, ME 382,437 Owned
----------
Total Net Book
Value $1,432,952
==========
</TABLE>
Item 3. Legal Proceedings
The Bank is not involved in any pending legal proceedings other than
routine legal proceedings occurring in the ordinary course of business, which in
the aggregate involve amounts which are believed by management to be immaterial
to the financial condition of the Bank.
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable.
<PAGE>
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
The inside back cover of the Company's 1996 Annual Report to Stockholders
is herein incorporated by reference.
Item 6. Management's Discussion and Analysis of Plan of Operation
Pages 2 through 6 of the Company's 1996 Annual Report to Stockholders is
herein incorporated by reference.
Item 7. Financial Statements
See Item 13.
Item 8. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure
There has been no current report on Form 8-K filed within 24 months prior
to the date of the most recent financial statements reporting a change in
accountants and/or reporting disagreements on any matter of accounting principle
or financial statement disclosure.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act
Information concerning directors, executive officers, promoters and control
persons of the Registrant is incorporated herein by reference from the Company's
definitive Proxy Statement for the Annual Meeting of Stockholders to be held on
May 7, 1997, a copy of which will be filed not later than 120 days after the
close of the fiscal year.
Item 10. Executive Compensation
Information concerning executive compensation is incorporated herein by
reference from the Company's definitive Proxy statement for the Annual Meeting
of Stockholders to be held on May 7, 1997, a copy of which will be filed not
later than 120 days after the close of the fiscal year.
Item 11. Security Ownership of Certain Beneficial Owners and Management
Information concerning security ownership of certain beneficial owners and
management is incorporated herein by reference from the Company's definitive
Proxy statement for the Annual Meeting of Stockholders to be held on May 7,
1997, a copy of which will be filed not later than 120 days after the close of
the fiscal year.
Item 12. Certain Relationships and Related Transactions
Information concerning certain relationships and related transactions is
incorporated herein by reference from the Company's definitive Proxy statement
for the Annual Meeting of Stockholders to be held on May 7, 1997, a copy of
which will be filed not later than 120 days after the close of the fiscal year.
<PAGE>
Item 13. Exhibits and Reports on Form 8-K
(a) The following documents are filed as a part of this report:
(1) Consolidated Financial Statements of the Company are incorporated by
reference to the following indicated pages of the 1996 Annual Report to
Stockholders.
Independent Auditors' Report
Consolidated Statements of Financial Condition as of
December 31, 1996 and 1995
Consolidated Statements of Income for the Years Ended
December 31, 1996, 1995 and 1994
Consolidated Statements of Stockholders' Equity for
the Years Ended December 31, 1996, 1995, and 1994
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements
<PAGE>
The remaining information appearing in the Annual Report to Stockholders is
not deemed to be filed as part of this report, except as expressly provided
herein.
(2) All schedules are omitted because they are not required or applicable,
or the required information is shown in the consolidated financial statements or
the notes thereto.
(3) Exhibits
(a) The following exhibits are filed as part of this report.
3.1 Certificate of Incorporation of KSB Bancorp, Inc.*
3.2 Bylaws of KSB Bancorp, Inc.*
4.0 Stock Certificate of KSB Bancorp, Inc.*
10.1 Form of Kingfield Savings Bank Recognition and Retention
Plan and Trust**
10.3 Form of KSB Bancorp, Inc. 1993 Incentive Stock Option
Plan.**
10.4 Form of KSB Bancorp, Inc. 1993 Stock Option Plan for
Outside Directors.**
11.0 Computation of earnings per share, incorporated herein by
reference to Note 1 to the Consolidated Financial
Statements on page 13 of the 1996 Annual Report to
Stockholders attached hereto as Exhibit 13.
13.0 1996 Annual Report to Stockholders (filed herewith).
21.0 Subsidiary information is incorporated herein by reference
to "Part I - Subsidiaries."
27.0 Financial Data Schedule.
- ---------------
* Incorporated herein by reference into this document from the Exhibits to
Form S-1, Registration Statement, initially filed on March 18, 1993,
Registration No. 33-59744.
** Incorporated herein by reference into this document from the Exhibits to
the 1994 Proxy Statement, filed on April 4, 1994.
(b) Reports on Form 8-K.
None
EXHIBIT 13
<PAGE>
[Graphic-Logo]
KSB BANCORP
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
KSB Bancorp, Inc. and Subsidiary
We have audited the accompanying consolidated statements of financial condition
of KSB Bancorp, Inc. and Subsidiary as of December 31, 1996 and 1995, and the
related consolidated statements of income, changes in stockholders' equity and
cash flows for each of the three years in the period ended December 31, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these 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 financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of KSB Bancorp, Inc.
and Subsidiary as of December 31, 1996 and 1995, and the consolidated results of
their operations, and their consolidated cash flows for each of the three years
in the period ended December 31, 1996, in conformity with generally accepted
accounting principles.
Portland, Maine
January 17, 1997
<PAGE>
<TABLE>
<CAPTION>
KSB BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Financial Condition
December 31, 1996 and 1995
ASSETS
1996 1995
------------- -------------
<S> <C> <C>
Cash and due from banks ............................. $ 2,479,367 $ 2,499,796
Interest-bearing deposits with banks ................ 1,556 2,460,533
Securities available for sale, at market value ...... 7,452,341 8,377,279
Securities held to maturity (market value $18,587,246
and $19,273,234 at 1996 and 1995, respectively) 18,516,750 19,102,469
Loans held for sale ................................. 1,819,209 1,126,452
Loans receivable
Real estate mortgage ........................... 50,873,593 45,912,570
Home equity .................................... 6,041,705 5,189,276
Installment .................................... 4,401,126 4,494,568
Commercial ..................................... 36,399,651 29,219,882
Other .......................................... 763,332 1,000,256
Deferred loan origination fees ................. (209,164) (186,318)
------------- -------------
98,270,243 85,630,234
Less allowance for possible loan losses ........ (893,456) (866,770)
------------- -------------
Total loans receivable, net ................ 97,376,787 84,763,464
------------- -------------
Accrued interest receivable ......................... 767,602 815,254
Other real estate owned..... ........................ 116,500 41,177
Federal Home Loan Bank stock ........................ 1,320,550 1,320,550
Premises and equipment, net ......................... 2,204,415 2,254,408
Goodwill ............................................ 619,825 722,873
Deferred tax asset .................................. 464,903 434,776
Cash surrender value of life insurance .............. 554,096 493,759
Other assets ................................ 663,036 820,387
------------- -------------
$ 134,356,937 $ 125,233,177
============= =============
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
KSB BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Financial Condition (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
1996 1995
------------- -------------
<S> <C> <C>
Liabilities
Deposit accounts
Regular savings ...................................... $ 21,043,376 $ 21,876,031
Money market accounts ................................ 5,700,866 5,762,671
Time ................................................. 59,336,687 55,516,230
NOW accounts ......................................... 14,075,564 12,763,500
Demand ............................................... 9,206,066 7,767,222
------------- -------------
Total deposits .................................. 109,362,559 103,685,654
Advances from Federal Home Loan Bank ..................... 13,186,000 10,952,000
Escrows and trustee accounts for sold loans .............. 919,254 1,016,254
Accrued expenses and other liabilities ................... 1,096,962 1,081,038
------------- -------------
Total liabilities ............................... 124,564,775 116,734,946
------------- -------------
Commitments (Note 14)
Stockholders' equity
Preferred stock, authorized 200,000 shares ............... -- --
Common stock, par value $.01; authorized 1,200,000 shares,
issued and outstanding 411,055 shares, restated ...... 4,111 3,738
Additional paid-in capital ............................... 4,325,499 3,474,940
Retained earnings ........................................ 5,748,714 5,360,257
Net unrealized loss on securities available for sale,
net of deferred tax asset of $19,400 and $5,000
at 1996 and 1995, respectively ....................... (37,760) (9,532)
------------- -------------
10,040,564 8,829,403
Less remaining obligation under:
Employee Stock Ownership Plan ........................ (168,840) (222,966)
Bank Recognition and Retention Plan .................. (79,562) (108,206)
------------- -------------
Total stockholders' equity ...................... 9,792,162 8,498,231
------------- -------------
$ 134,356,937 $ 125,233,177
============= =============
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
KSB BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Income
Years Ended December 31, 1996, 1995 and 1994
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Interest and dividend income
Interest and fees on loans .................... $ 8,756,148 $ 7,656,814 $ 4,684,718
Interest on securities available for sale ..... 466,560 2,146,754 --
Interest on securities held to maturity ....... 1,397,322 60,000 2,199,918
Dividends ..................................... 84,501 91,331 56,979
------------ ------------ ------------
Total interest and dividend income ... 10,704,531 9,954,899 6,941,615
------------ ------------ ------------
Interest expense
Interest on deposits .......................... 4,483,138 4,025,561 2,810,410
Interest on borrowed funds .................... 682,469 998,852 456,306
------------ ------------ ------------
Total interest expense ............... 5,165,607 5,024,413 3,266,716
------------ ------------ ------------
Net interest and dividend income...... 5,538,924 4,930,486 3,674,899
Provision for possible loan losses............. 390,000 315,000 140,000
------------ ------------ ------------
Net interest and dividend income after
provision for possible loan losses 5,148,924 4,615,486 3,534,899
------------ ------------ ------------
Noninterest income
Gain (loss) on disposition of securities ...... (46,617) 32,025 --
Mortgage servicing fees ....................... 320,522 328,038 306,352
Service charges and fees ...................... 699,747 567,836 439,810
Other ......................................... 165,268 193,928 210,395
------------ ------------ ------------
Total noninterest income ............. 1,138,920 1,121,827 956,557
------------ ------------ ------------
(Continued next page)
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
KSB BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Income (Concluded)
Years Ended December 31, 1996, 1995 and 1994
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Noninterest expense
Salaries and benefits ................... $2,050,381 $2,100,216 $2,014,575
Occupancy ............................... 298,835 311,975 270,490
Equipment ............................... 629,391 625,234 633,599
BIF Premium ............................. 236,135 137,100 151,394
Other ................................... 1,246,321 1,403,861 1,178,395
---------- ---------- ----------
Total noninterest expense ...... 4,461,063 4,578,386 4,248,453
---------- ---------- ----------
Income before income taxes ..... 1,826,781 1,158,927 243,003
Income tax expense ...................... 582,453 335,964 21,503
---------- ---------- ----------
Net income ..................... $1,244,328 $ 822,963 $ 221,500
========== ========== ==========
Net income, per common share, restated ....... $ 3.20 $ 2.15 $ 0.59
Weighted average number of shares outstanding,
restated ................................ 388,794 382,670 376,255
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
KSB BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Changes in Stockholders' Equity
Years Ended December 31, 1996, 1995 and 1994
Net
Bank Unrealized
Employee Recognition Loss on
Additional Stock and Securities
Common Paid-In Retained Ownership Retention Available
Stock Capital Earnings Plan Plan for Sale Total
------- ----------- ----------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1993 ........ $ 3,738 $ 3,410,978 $ 4,455,017 $(343,581) $ (161,486) $ -- $ 7,364,666
Net income .................... -- -- 221,500 -- -- -- 221,500
Cash dividends declared
($.18 per share)* ......... -- -- (74,750) -- -- -- (74,750)
Payment of obligation
under Employee Stock
Ownership Plan ............ -- 24,612 -- 63,920 -- -- 88,532
Bank Recognition and
Retention Plan ............ -- -- -- -- 20,616 -- 20,616
------- ----------- ----------- --------- ----------- --------- -----------
Balances, December 31, 1994 ........ 3,738 3,435,590 4,601,767 (279,661) (140,870) -- 7,620,564
Net income .................... -- -- 822,963 -- -- -- 822,963
Cash dividends declared
($.18 per share, net
of dividends on ESOP
shares)* .................. -- -- (64,473) -- -- -- (64,473)
Payment of obligation
under Employee Stock
Ownership Plan ............ -- 39,350 -- 56,695 -- -- 96,045
Bank Recognition and
Retention Plan ............ -- -- -- -- 32,664 -- 32,664
Change in net unrealized loss
on securities available for
sale, net of deferred taxes
of $5,000 ................. -- -- -- -- -- (9,532) (9,532)
------- ----------- ----------- --------- ----------- --------- -----------
Balances, December 31, 1995 ........ 3,738 3,474,940 5,360,257 (222,966) (108,206) (9,532) 8,498,231
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
KSB BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Changes in Stockholders' Equity
Years Ended December 31, 1996, 1995 and 1994 (continued)
Net
Bank Unrealized
Employee Recognition Loss on
Additional Stock and Securities
Common Paid-In Retained Ownership Retention Available
Stock Capital Earnings Plan Plan for Sale Total
------- ----------- ----------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1995 ........ 3,738 3,474,940 5,360,257 (222,966) (108,206) (9,532) 8,498,231
Net income .................... -- -- 1,244,328 -- -- -- 1,244,328
Cash dividends declared
($.19 per share, net
of dividends on ESOP
shares)* .................. -- -- (72,466) -- -- -- (72,466)
10% stock dividend ............ 373 783,032 (783,405) -- -- -- --
Payment of obligation
under Employee Stock
Ownership Plan ............ -- 67,527 -- 54,126 -- -- 121,653
Bank Recognition and
Retention Plan ............ -- -- -- -- 28,644 -- 28,644
Change in net unrealized loss
on securities available for
sale, net of deferred taxes
of $14,400 ................ -- -- -- -- -- (28,228) (28,228)
------- ----------- ----------- --------- ----------- --------- -----------
Balances, December 31, 1996 ........ $ 4,111 $ 4,325,499 $ 5,748,714 $(168,840) $ (79,562) $ (37,760) $ 9,792,162
======= =========== =========== ========= =========== ========= ===========
* Restated for a 10% stock dividend declared in 1996.
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
KSB BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years Ended December 31, 1996, 1995 and 1994
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income .................................................... $ 1,244,328 $ 822,963 $ 221,500
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization ........................ 745,293 675,561 447,621
Decrease in obligation under ESOP and BRP ............ 150,298 128,708 109,148
Provision for loan losses ............................ 390,000 315,000 140,000
Deferred income taxes ................................ (21,857) (91,045) (51,807)
Net gain on sale of loans held for sale .............. (49,738) (35,807) (40,679)
Net gain on sale of securities available for sale .... -- (32,025) --
Net loss on default of security held to maturity ..... 46,617 -- --
Net loss on disposal of equipment .................... -- 33,250 53,930
Loss on sale of other real estate owned .............. 14,204 5,653 3,351
Other ................................................ -- -- (9,047)
Originations of loans held for sale .................. (5,842,269) (4,626,130) (9,811,892)
Proceeds from loans held for sale .................... 5,199,250 7,281,107 11,073,800
Decrease (increase) in
Interest receivable .............................. 48,726 (81,228) (342,981)
Other receivables and prepaid expense ............ 9,119 116,071 (76,438)
Cash surrender value of life insurance ........... (60,337) (21,504) (472,255)
Increase (decrease) in
Accrued income taxes payable ..................... (15,690) 5,189 108,234
Deferred origination fees ........................ 22,846 (39,211) (32,123)
Accrued expenses and other liabilities ........... 37,745 9,923 182,043
------------ ------------ ------------
Net cash provided by operating activities ............ 1,918,535 4,466,475 1,502,405
------------ ------------ ------------
Cash flows from investing activities
Net decrease (increase) in interest-bearing deposits with banks 2,458,977 (2,440,068) (20,465)
Proceeds from maturities and principal payments on
securities held to maturity .............................. 5,730,367 4,343,000 6,545,192
Purchase of securities held to maturity ....................... (5,364,445) -- (28,599,749)
Proceeds from maturities and principal payments on
securities available for sale ............................. 860,627 227,549 --
Proceeds from sale of securities available for sale ........... -- 4,030,625 --
Net increase in loans ......................................... (13,142,669) (13,745,541) (23,278,090)
Capital expenditures .......................................... (318,563) (321,512) (1,005,071)
Purchase of FHLB stock ........................................ -- (167,200) (594,950)
Net decrease (increase) in other assets ....................... 68,330 18,236 (59,500)
Proceeds from sale of other real estate owned ................. 26,973 37,783 20,000
------------ ------------ ------------
Net cash used by investing activities ................ (9,680,403) (8,017,128) (46,992,633)
------------ ------------ ------------
(Continued next page)
<PAGE>
<CAPTION>
KSB BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows (Concluded)
Years Ended December 31, 1996, 1995 and 1994
<S> <C> <C> <C>
Cash flows from financing activities
Cash received through branch acquisition ...................... $ -- $ 12,314,461 $ 41,751,343
Net increase (decrease) in time deposit accounts .............. 3,820,457 5,348,492 (8,184,415)
Net increase (decrease) in other deposit accounts ............. 1,856,448 (1,364,578) 180,348
Net increase (decrease) in FHLB advances ...................... 2,234,000 (12,415,000) 12,147,000
Net increase (decrease) in escrow accounts .................... (97,000) 245,366 314,957
Cash dividends paid ........................................... (72,466) (64,473) (74,750)
------------ ------------ ------------
Net cash provided by financing activities ................. 7,741,439 4,064,268 46,134,483
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents ...... (20,429) 513,615 644,255
Cash and cash equivalents, beginning of year ....................... 2,499,796 1,986,181 1,341,926
------------ ------------ ------------
Cash and cash equivalents, end of year ............................. $ 2,479,367 $ 2,499,796 $ 1,986,181
============ ============ ============
Supplemental disclosures of cash flow information
Cash paid during the year for
Interest .................................................. $ 5,200,515 $ 5,058,469 $ 3,181,058
============ ============ ============
Income taxes, net of refunds ............................... $ 620,000 $ 333,610 $ (34,143)
============ ============ ============
The Company had the following noncash transactions
Cost of securities held to maturity transferred to
securities available for sale ............................. $ -- $ 12,529,371 $ --
Net increase (decrease) required by Statement of
Financial Accounting Standards 115
Unrealized loss on securities available for sale ..... (42,629) (14,532) --
Deferred income tax assets ........................... 14,400 5,000 --
Net unrealized loss on securities available for sale 28,229 9,532
Net transfer from loans to other real estate owned ... 116,500 72,913 23,351
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 2,479
<INT-BEARING-DEPOSITS> 2
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 7,452
<INVESTMENTS-CARRYING> 18,517
<INVESTMENTS-MARKET> 18,587
<LOANS> 98,270
<ALLOWANCE> 893
<TOTAL-ASSETS> 134,357
<DEPOSITS> 110,282
<SHORT-TERM> 9,734
<LIABILITIES-OTHER> 1,097
<LONG-TERM> 3,452
0
0
<COMMON> 4
<OTHER-SE> 9,788
<TOTAL-LIABILITIES-AND-EQUITY> 134,357
<INTEREST-LOAN> 8,756
<INTEREST-INVEST> 1,948
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 10,704
<INTEREST-DEPOSIT> 4,483
<INTEREST-EXPENSE> 5,166
<INTEREST-INCOME-NET> 5,539
<LOAN-LOSSES> 390
<SECURITIES-GAINS> (46)
<EXPENSE-OTHER> 4,461
<INCOME-PRETAX> 1,827
<INCOME-PRE-EXTRAORDINARY> 1,827
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,244
<EPS-PRIMARY> 3.20
<EPS-DILUTED> 3.20
<YIELD-ACTUAL> 8.54
<LOANS-NON> 1,895
<LOANS-PAST> 23
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 867
<CHARGE-OFFS> 401
<RECOVERIES> 27
<ALLOWANCE-CLOSE> 893
<ALLOWANCE-DOMESTIC> 893
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
