SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-KSB/A
AMENDMENT NO. 1
[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>
Form 10-KSB for KSB Bancorp, Inc. for fiscal year ended December 31, 1996, filed
originally on March 28, 1997, is amended as follows:
SIGNATURES
The Signature page, pursuant to the requirements of Section 13 or 15 (d) of the
Securities Exchange Act of 1934, is hereby included in its entirety.
EXHIBIT 13
Exhibit 13 is amended in its entirety to include the addition of pages 1 through
6 and pages 13 through 28 of the 1996 Annual Report to Shareholders. These pages
include the Letter to Shareholders, Management's Discussion and Analysis, Notes
to Consolidated Financial Statements, and Corporate Information, as was included
in the 1996 Annual Report to Shareholders mailed on or about April 4, 1997 to
shareholders.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
KSB BANCORP
By: /s/John C. Witherspoon Dated: March 28, 1997
----------------------
John C. Witherspoon
President/CEO
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of Registrant and in their
capacities as directors and/or officers on the date indicated.
Dated: March 28, 1997 By: /s/Winfield F. Robinson
-----------------------
Winfield F. Robinson
Chairman
Dated: March 28, 1997 By: /s/William P. Dubord
--------------------
William P. Dubord
Dated: March 28, 1997 By: /s/G. Norton Luce
------------------
G. Norton Luce
Dated: March 28, 1997 By: /s/Roger G. Spear
-----------------
Roger G. Spear
Dated: March 28, 1997 By: /s/ Theodore C. Johanson
------------------------
Theodore C. Johanson
1996
Annual
Report
KSB BANCORP
<PAGE>
LETTER TO SHAREHOLDERS
April 1, 1997
Dear Shareholder:
I am pleased to report to you the results of your Company's operations
this past year. 1996 proved to be a true milestone in the history of the
Bank as earnings topped the million dollar level for the first time in our
102 year history. 1996's net operating income of $1.2 million, or $3.20
per share, was over fifty percent ahead of our record earnings of last
year. The continued growth in earnings was reflected in an increase in the
market value of the Company's stock to $23 per share, a 30% increase over
last year's value and a 150% increase over our initial offering price in
June 1993 of $9.09 per share (restated to reflect stock dividend).
We achieved these results through our ongoing strategies of growing the
loan portfolio of the Bank while striving to gain efficiencies in our
operations. Our success in these efforts has been realized through the
dedicated efforts of the staff at the Bank. Our employees have taken on
the challenge of improving efficiencies throughout the Bank with
remarkable results. The Bank's core operating expenses were reduced
throughout the year; annual operating expenses (before FDIC special
assessment) decreased by $272,000 or 5.9% from 1995.
Our commitment to our communities' economic growth was evident in the
$50.6 million in loans originated in 1996. This loan growth helped to
increase the total assets of the Bank to $134.4 million. The success of
the Bank's lending continues to hinge on the personalized approach of our
lending staff and their philosophy of being partners with their customers
in meeting their financial objectives.
Unfortunately, 1996 was not without its losses. In June of 1996 the Bank
lost a dedicated director, advisor, and friend when Emil E. (Jay) Winter
Jr. passed away. In memory of Jay and his late wife, Katherine (Kay), the
Bank has established a fund at the Kingfield Elementary School for the
purchase of books for their library.
The banking environment continues to change rapidly due to regulatory and
technological changes as well as competition from both bank and non-bank
financial service providers. At Kingfield Bank we are meeting these
challenges by maintaining our strategic vision of the Bank as a provider
of high quality, personalized financial services delivered at a reasonable
return to our shareholders. The following are several initiatives we have
undertaken to support these strategies:
o In 1996 we began originating Home Equity Loans via the telephone.
o Early in 1997 we will introduce Peak Phone, a telephone banking
service allowing customers 24-hour access to our banking services.
o In the second quarter of 1997 the Bank will install new computer
software that will allow mortgage applicants to be approved for
loans in less than 5 minutes in their homes!
o In the first quarter of 1997 we are implementing an intensive
ongoing training program to assure that our customer service
delivery is second to none.
<PAGE>
These initiatives along with a planned review of our strategic plan will
help assure that we continue to meet our mission of building the long-term
value of the Bank to you our shareholders, our customers, our employees
and the communities we serve. The board and our staff join me in thanking
you for your continued support as we pursue these objectives.
Sincerely,
/s/John C. Witherspoon
----------------------
John C. Witherspoon
President/CEO
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
GENERAL
KSB Bancorp , Inc's wholly-owned subsidiary, "Kingfield Bank", is a
community Bank providing quality, personalized Banking services to
individuals and businesses. In 1996 the Bank operated eight retail branch
offices located in Franklin, Somerset and Androscoggin counties, Maine.
The Bank's stated mission is "to continuously improve the Bank's long-term
value to shareholders, customers, employees and the communities it
serves". Since converting to a stock company in 1993, the Bank has pursued
its mission by utilizing the capital raised in the offering to fund
growth. A total of $61.7 million in deposits were acquired in acquisitions
of The First Federal Savings Association in March 1994, and the purchase
of four branches of Fleet Bank of Maine in March 1995 (two of which were
subsequently consolidated into existing Kingfield Bank branches). This
growth has provided a solid base for earnings and proved to be an
effective use of the Bank's capital. It has also diversified the Bank's
markets, reducing its dependence on a predominantly rural geography and an
economy based primarily on forest products and tourism. Since 1994, when
the rapid growth in deposits without corresponding loan growth put
pressure on the Bank's interest margins, the Bank has pursued a strategy
of increasing loan volumes in order to increase the margins of the Bank.
In 1996 the Bank originated $50.6 million in new loans which resulted in
an increase of $12.6 million in loan balances. In addition to the growth
strategies implemented, the Bank has focused on reducing operating
expenses and gaining efficiencies. The result of these efforts was a
$272,000 reduction in operating expenses in 1996 (before a one time FDIC
assessment of $155,000) and an improvement in the Bank's efficiency ratio
from 76% in 1995 to 67% for 1996 (efficiency ratio is defined as operating
expenses as a percent of net interest income plus non-interest income).
Although the Bank does not intend to continue the rapid growth of the past
few years, we will continue to use available capital to fund growth in
order to generate the best return to our shareholders. In 1997 we plan to
continue to control expense levels in order to improve on efficiencies,
while emphasizing improved quality service in both our personalized and
electronic delivery systems.
MORTGAGE BANKING ACTIVITIES
Mortgage Banking activities involve the origination of mortgage loans for
sale, either as whole loans or as loans packaged into securities through
the Federal Home Loan Mortgage Corporation (FHLMC) or Federal National
Mortgage association (FNMA). For the years ended December 31, 1996 and
December 31, 1995, the Bank originated $19.2 million and $21.2 million,
respectively, in one- to four-family mortgage loans. Of these amounts $5.2
million in 1996 and $7.3 million in 1995 were sold. The decrease in loan
volume is related to a soft real estate market, and the Bank's decision to
exit the Kennebec County market where it had a salesperson in 1995. The
Bank earns fees and recognizes gains and losses related to the origination
and sale of mortgage loans. These fees and net gains totaled $70,000 for
the year-ended 1996 and $89,000 for the year-ended 1995. The 1996 figure
includes $28,000 of net gains recognized pursuant to Financial Accounting
Standard 122 (FAS 122) which requires mortgage originators to recognize as
gains the present value of future servicing rights on loans sold. This
rule was adopted by the Bank in 1996. In addition to income earned on the
<PAGE>
origination and sale of loans, the Bank earns fees for the servicing of
loans sold. On December 31, 1996, $78.3 million in loans were serviced for
others, which generated $321,000 in fee income. As of December 31, 1995,
$81.2 million in loans were serviced, earning $328,000. There was no
significant effect of FAS 122 on servicing income for 1996. Mortgage
banking activities expose the Bank to interest rate risk between the date
that loan rates are committed to a borrower and the date the loan is
closed and sold. Attempts are made to mitigate this risk through pricing
of loan rates, managing the volume of loans held for sale and utilizing
forward commitments to sell loans.
COMMERCIAL LENDING ACTIVITIES
The Bank's commercial loan portfolio continued to grow in 1996. The Bank
originated $22.8 million in commercial loans in the year ending December
31, 1996 resulting in an increase in commercial loan balances of $7.2
million or 24.5% over the levels at year-end 1995. This growth was the
result of an increased awareness of the Bank's personalized commercial
loan services in the Androscoggin and Somerset county markets as well as
the southern Franklin county area. The vast majority of these loans were
short-term or adjustable-rate loans indexed to the wall Street Journal
prime rate. However, as part of the Bank's asset/liability management
strategies, the Bank originated some fixed-rate commercial loans
(generally at higher rates than the adjustable loans). Loan guarantees
available from the Small Business Administration (SBA) and the Finance
Authority of Maine (FAME) are utilized when appropriate to insure up to
90% of the risk associated with a portion of the small business loans.
ASSET LIABILITY MANAGEMENT
Asset/Liability management is the process used to measure and manage
exposure to interest rate risk (the effect that a change in interest rates
will have on the interest rate spread of the Bank). Adjustable-rate
mortgages and commercial loans are originated in order to shorten the
repricing of Bank assets. As of December 31, 1996 these loans totaled
$45.3 million or 46% of gross loans due after December 31, 1996 (excluding
loans held for sale). The Bank's one-year interest sensitivity gap as a
percentage of total assets was a negative 14.4% at December 31, 1996. This
measurement is based on an internal analysis by Bank management which
includes a subjective evaluation of the rate sensitivity of the Bank's
money market and other short-term deposit accounts. Generally, a negative
gap results in a decrease of net interest income in a rising rate
environment. In such a rate environment, however, the interest rates paid
on the Bank's passbook savings and NOW checking accounts ($35.1 million)
may not be increased as much as rising rates might indicate, resulting in
higher net interest income. Conversely, in a falling interest rate
environment, rates paid on passbook savings and NOW checking accounts may
not be lowered as much as a rate decline might indicate, resulting in
lower net interest income.
RESULTS OF OPERATIONS
Net income for 1996 was $1,244,000 or $3.20 per share compared to $823,000
in 1995 or $2.15 per share. 1996 income was positively impacted by the
effects of a full 12 months operation of the Fleet Bank of Maine branches
acquired in March, 1995, the first full year's effect of the closure of
the Bank's Waterville, Maine branch and the restructuring of the seasonal
branch at Sugarloaf/USA. Total assets of the company grew by $9.1 million
or 7.3% from $125.2 million at December 31, 1995 to $134.4 million at
<PAGE>
December 31, 1996. Total loans increased by $12.6 million or 14.9% over
December 31, 1995. This loan growth contributed to an increase in the
Bank's margin from 4.14% in 1995 to 4.38% in 1996, which resulted in a
12.4% or $609,000 increase in net interest income before provision for
loan losses. Non-interest income increased by $17,000 from 1995 ($96,000
net of the effect of security gains and losses). Service charges and other
fees were up by $103,000 reflecting the continued growth of the Bank and
use of its services. Income related to the fees on origination and sale of
mortgage loans which was down $19,000 ($42,000 before the effect of FAS
122 on net gains on sales.) The decline is due in part to the Bank's
decision to continue to hold more loans in the portfolio of the Bank, thus
reducing the volume of sales and income derived from such sales. In
addition mortgage loan volume was down from 1995 levels. Non-interest
expense decreased by $117,000 from 1995. However, the Bank incurred a net
one-time special assessment from the Federal Deposit Insurance Corporation
("FDIC") related to the recapitalization of the Savings Association
Insurance Fund("SAIF") of $155,000, without which expenses would have been
reduced by $272,000 or 5.9% from the previous year. This assessment was
placed on deposits acquired from the Resolution Trust Corporation and
considered to be "SAIF" deposits. The net effect of the assessment will be
to lower deposit insurance premiums in future years.
FINANCIAL CONDITION
Total assets of the Bank grew by $9.1 million or 7.3% from December 31,
1995 to December 31, 1996. Of the asset growth, $12.6 million was in loans
while investments in mortgage-backed and other securities declined by $1.5
million and interest-bearing deposits declined by $2.5 million. Of the
increase in loan volume, $5.0 million was attributable to an increase in
residential mortgage loans, $7.2 million was attributable to an increase
in commercial loans, and $0.5 million was attributable to an increase in
consumer and other loans. The decline in investments was due to investment
maturities and principal pay downs on mortgage-backed securities. Total
deposits grew by $5.7 million or 5.5% during 1996. Borrowings increased by
$2.2 million or 20.4% over 1995 in order to meet funding needs of the
Bank's loan growth. The Bank's borrowings consist of advances of various
maturities from the Federal Home Loan Bank. The Bank's non-accrual loans
increased from $ 1,645,000 at December 31, 1995 to $1,895,000 at December
31, 1996. This represents 1.92% and 1.91% of net loans, respectively. The
dollar increase can be attributed to the overall increase in loan volumes
in 1996. During 1996, the Bank incurred loan losses net of recoveries of
$364,000. In response to the net losses and the increased loan volumes,
the Bank charged $390,000 to loan loss provision during 1996, resulting in
an increase in the reserve balance from $867,000 at December 31, 1995 to
$893,000 at December 31, 1996. In June 1996 the Board of Directors voted
to issue a 10% stock dividend in addition to the semi-annual cash dividend
of $0.10 per share. This stock dividend had the effect of increasing the
number of shares outstanding by 37,305 to a total of 411,055.
<PAGE>
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1996, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 125, "Accounting for Transfers
Servicing of Financial Assets and Extinguishment of Liabilities",
effective for financial statements for the fiscal year beginning after
December 31, 1996 (excluding those sections identified in SFAS No. 127,
"Deferral of the Effective Date of Certain Provisions of Sfas No. 125").
SFAS No. 125 provides consistent standards for distinguishing transfers of
financial assets that are sales from transfers that are secured
borrowings. The Company expects the impact of adopting SFAS No. 125 will
be immaterial to the financial statements.
<PAGE>
<TABLE>
<CAPTION>
Selected Consolidated Financial and Other Data of the Bank
(in 000's)
Selected Financial Data: 1996 1995(4) 1994(4) 1993 1992
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total assets $134,357 $125,233 $113,003 $65,514 $50,093
Loans receivable, net (1) 99,197 85,889 68,634 46,661 34,365
Investment securities available for sale (2) 7,452 8,377 -- -- 0
Investment securities to be held to maturity 18,517 19,102 36,207 14,255 12,572
Excess of cost over fair value
of assets acquired 620 723 716 322 366
Deposits (3) 110,282 104,702 81,040 46,406 40,648
Borrowed funds 13,186 10,952 23,367 11,220 5,167
Total equity, substantially restricted 9,792 8,498 7,621 7,365 3,732
AVERAGE INTEREST EARNING ASSETS $124,331 $116,915 $88,884 $55,149 $44,648
AVERAGE ASSETS 130,742 122,899 92,459 58,526 47,450
AVERAGE INTEREST BEARING LIABILITIES 111,580 106,129 79,337 46,468 38,759
AVERAGE EQUITY 9,134 7,961 7,502 5,685 3,508
Selected Operating Data:
Interest and dividend income $10,705 $9,955 $6,942 $4,679 $4,161
Interest expense 5,166 5,025 3,267 1,720 1,852
- ----------------------------------------------------------------------------------------------------------------------------
Net interest income 5,539 4,930 3,675 2,959 2,309
Less provision for loan losses 390 315 140 120 222
- ----------------------------------------------------------------------------------------------------------------------------
Net interest income after
provision for loan losses 5,149 4,615 3,535 2,839 2,087
- ----------------------------------------------------------------------------------------------------------------------------
Non-interest income
Net security gains (losses) (47) 32 -- -- 188
Fees on sold loans 20 53 93 111 228
Net gains (losses) on sold loans 50 36 41 203 57
Mortgage servicing 321 328 306 307 274
Service charges and fees 700 568 440 337 254
Other 95 105 77 13 16
- -----------------------------------------------------------------------------------------------------------------------------
Total non-interest income 1,139 1,122 957 971 1,017
- ----------------------------------------------------------------------------------------------------------------------------
Non-interest expense
Salaries and benefits 2,051 2,100 2,015 1,312 926
Occupancy 299 312 270 162 129
Equipment 629 625 634 367 265
BIF premium 236 137 151 95 90
Other 1,246 1,404 1,178 881 674
- ----------------------------------------------------------------------------------------------------------------------------
Total non-interest expense 4,461 4,578 4,248 2,817 2,084
- ----------------------------------------------------------------------------------------------------------------------------
Income before income taxes 1,827 1,159 244 993 1,020
Income tax expense 583 336 22 270 369
- ----------------------------------------------------------------------------------------------------------------------------
Net income before accounting change 1,244 823 222 723 651
Change of accounting for income taxes -- -- -- -- 59
- ----------------------------------------------------------------------------------------------------------------------------
Net income 1,244 823 222 723 710
============================================================================================================================
<PAGE>
Selected Consolidated Financial and Other Data of the Bank
Selected Financial Data: 1996 1995(4) 1994(4) 1993 1992
- ----------------------------------------------------------------------------------------------------------------------------
Return on average assets % 0.95% 0.67% 0.24% 1.24% 1.50%
Return on average equity 13.62 10.34 2.95 12.72 20.24
Average equity to average assets 6.99 6.48 8.11 9.71 7.39
Equity to total assets 7.29 6.79 6.74 11.24 7.45
Tangible equity to tangible assets 6.86 6.24 6.15 10.80 6.77
Interest rate spread during period 3.91 3.70 3.54 4.52 4.23
Net interest margin (5) 4.38 4.14 3.99 5.10 4.86
Operating expenses to average assets (6) 3.33 3.73 4.59 4.70 4.25
Non-accruing loans to net loans (7)(1) 1.91 1.92 1.99 1.78 1.47
Non-performing assets to total assets(8)(7) 1.50 1.35 1.22 1.28 1.07
Allowance for loan losses to
non-performing loans 47.12 52.71 44.95 60.80 84.17
Allowance for loan losses to total loans (1) 0.89 1.00 0.89 1.08 1.20
Average interest-earning assets to
average interest-bearing liabilities 1.11x 1.10x 1.12x 1.19x 1.15x
Earnings per Share, restated to reflect 10%
stock dividend August, 1996 $3.20 $2.15 $0.59 $1.95 N/A
(1) Includes loans held for sale
(2) At market.
(3) Includes escrows and trustee accounts for sold loans.
(4) In March, 1994 the Bank acquired one branch with deposits of $42.3 million.
In March, 1995, the Bank acquired four branches with deposits of $19.4
million.
(5) Calculation is based upon net interest income before provision for loan
losses and before certain loan fees and net income on interest rate swaps
divided by average interest-earning assets.
(6) For purposes of calculating this ratio, operating expenses equal
non-interest expense less amortization of excess of cost over net assets
acquired.
(7) Includes restructured loans that are performing in accordance with their
restructured terms but whose interest is recognized on a cash basis only.
Amounts are $501,000, $765,000, $672,000, $486,000 and $292,000 at December
31, 1996, 1995, 1994, 1993 and 1992, respectively.
(8) Non-performing assets consist of non-accruing loans and real estate owned.
</TABLE>
<PAGE>
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 that 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.
/s/Berry, Dunn, McNeil & Parker
-------------------------------
Berry, Dunn, McNeil & Parker
Portland, Maine
January 17, 1997
<PAGE>
<TABLE>
<CAPTION>
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
=================================================================================================================
<PAGE>
<CAPTION>
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 in 1996 and 1995, 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
=================================================================================================================
<PAGE>
<CAPTION>
Consolidated Statements of Income
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------------------------------------------
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
<PAGE>
<CAPTION>
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 $5,000 -- -- -- -- -- (9,532) (9,532)
- ------------------------------------------------------------------------------------------------------------------------------------
Balances, December 31, 1995 3,738 3,474,940 5,360,257 (222,966) (108,206) (9,532) 8,498,231
Net income -- -- 1,244,328 -- -- -- 1,244,328
Cash dividends declared
($.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.
<PAGE>
<CAPTION>
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)
- -----------------------------------------------------------------------------------------------------------------
<PAGE>
<CAPTION>
Consolidated Statements of Cash Flows (Continued)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1996 1995 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
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
Nature of Business
KSB Bancorp, Inc. (the Company) provides a full range of banking services
to individual and corporate customers through its subsidiary and branches
located in Franklin, Kennebec, and Androscoggin counties. The Company is
subject to the regulations of certain state and federal agencies and
undergoes periodic examination by those regulatory authorities.
1. Summary of Significant Accounting Policies
Use of Estimates
Material estimates that are particularly susceptible to significant change
in the near term relate to the determination of the allowance for loan
losses and the valuation of real estate acquired in connection with
foreclosures or in satisfaction of loans. In connection with the
determination of the allowance for loan losses and the carrying value of
real estate owned, management obtains independent appraisals for
significant properties.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
KSB Bancorp, Inc. and its wholly-owned subsidiary, Kingfield Savings Bank
(the Bank). All significant intercompany balances and transactions have
been eliminated in the accompanying consolidated financial statements.
Cash and Cash Equivalents
For the purpose of presentation in the consolidated statements of cash
flows, cash and cash equivalents include cash on hand and amounts due from
banks.
Securities
The Bank's investment accounting policies are as follows:
Securities Available for Sale: Securities available for sale consist of
securities that the Bank anticipates could be made available for sale in
response to changes in market interest rates, liquidity needs, changes in
funding sources and other similar factors. These assets are specifically
identified and are carried at fair value. Amortization of premiums and
accretion of discounts are recognized in interest income using the
interest method over the period to maturity. Unrealized holding gains and
losses for these assets, net of related income taxes, are excluded from
earnings and are reported as a net amount in a separate component of
stockholders' equity. When decline in market value is considered other
than temporary, the loss is recognized in the consolidated statements of
<PAGE>
1. Summary of Significant Accounting Policies (Continued)
income, resulting in the establishment of a new cost basis for the
security. Securities Held to Maturity: Securities held to maturity consist
of securities purchased for which the Bank has the positive intent and
ability to hold such securities until maturity. Securities classified as
held to maturity are carried at cost, adjusted for amortization of
premiums and accretion of discounts. When decline in market value is
considered other than temporary, the loss is recognized in the
consolidated statements of income, resulting in the establishment of a new
cost basis for the security. Market values of securities are determined by
prices obtained from independent market sources.
Loans Held for Sale
Mortgage loans originated and intended for sale in the secondary market
are carried at the lower of cost or estimated market value in the
aggregate. Net unrealized losses are recognized in a valuation allowance
by charges to income.
Loan Servicing
SFAS No. 122, "Accounting for Mortgage Servicing Rights", was adopted at
January 1, 1996. The cost of mortgage servicing rights is amortized in
proportion to, and over the period of, estimated net servicing revenues.
Impairment of mortgage servicing rights is assessed based on the fair
value of those rights. Fair values are estimated using discounted cash
flows based on a current market interest rate. For purposes of measuring
impairment, the rights are stratified based on the following predominant
risk characteristics of the underlying loans: interest rate, fixed versus
variable rate and period of origination. The amount of impairment
recognized is the amount by which the capitalized mortgage servicing
rights for a stratum exceed their fair value. The amortized cost
approximates fair value at December 31, 1996. The impact of adopting SFAS
No. 122 was immaterial to the financial statements.
Loans Receivable
Loans receivable that management has the intent and ability to hold for
the foreseeable future or until maturity or pay-off are reported at their
outstanding principal balance adjusted for any charge-offs, the allowance
for loan losses, and any deferred fees or costs on originated loans. The
allowance for loan losses is increased by charges to income and decreased
by charge-offs, net of recoveries. Management's periodic evaluation of the
adequacy of the allowance is based on the Bank's past loan loss
experience, known and inherent risks in the portfolio, adverse situations
that may affect the borrower's ability to repay, the estimated value of
any underlying collateral, and current economic conditions. Management
believes that the allowance for loan losses is adequate. While management
uses available information to recognize losses on loans, changing economic
conditions and the economic prospects of the borrowers may necessitate
future additions to the allowance. SFAS No. 114, "Accounting by Creditors
for Impairment of a Loan," as amended by SFAS No. 118, "Accounting by
Creditors for Impairment of a Loan - Income Recognition and Disclosures,"
was adopted at January 1, 1995. Under this Standard, loans considered to
be impaired are reduced to the present value of expected future cash flows
or to the fair value of collateral, by allocating a portion of the
<PAGE>
1. Summary of Significant Accounting Policies (Continued)
allowance for loan losses to such loans. If these allocations cause the
allowance for loan losses to require an increase, such increase is
reported as loan loss provision. There was no effect on the financial
statements in adopting this Standard for 1995. The carrying values of
impaired loans are periodically adjusted to reflect cash payments, revised
estimates of future cash flows, and increases in the present value of
expected cash flows due to the passage of time. Cash payments representing
interest income are reported as such. Other cash payments are reported as
reductions in carrying value. Increases due to changes in estimates of
future payments are reported as loan loss provision and decreases are
reported as reductions in loan loss provision. Uncollectible interest on
loans that are contractually past due is charged off. The loan is returned
to accrual status when, in management's judgment, the borrower's ability
to make periodic interest and principal payments is back to normal. Until
the loan is returned to accrual status, all payments are applied to
principal.
Loan Origination Fees and Related Costs
Loan fees and certain direct loan origination costs are deferred, and the
net fee or cost is recognized as an adjustment to interest income using
the interest method over the contractual life of the loans, adjusted for
estimated prepayments based on the Bank's historical prepayment
experience.
Real Estate Owned
Real estate properties acquired through, or in lieu of, loan foreclosure
are initially recorded at the lower of cost or fair value at the date of
foreclosure. Costs relating to improvement of property are capitalized,
whereas costs relating to the holding of property are expensed. Valuations
are periodically performed by management, and an allowance for losses is
established by a charge to operations if the carrying value of a property
exceeds its fair market value less estimated costs to sell.
Premises and Equipment
Premises and equipment and related improvements are stated at cost, less
accumulated depreciation and amortization. Premises and equipment are
depreciated by the straight-line and accelerated methods over the assets'
estimated useful lives. Leasehold improvements are amortized by the
straight-line method over the lease terms.
Goodwill
The excess of cost over fair value of net assets acquired in branch
acquisitions is amortized to expense using the straight-line method over
ten years. On an ongoing basis, management reviews the valuation and
amortization of goodwill to determine possible impairment.
<PAGE>
1. Summary of Significant Accounting Policies (Concluded)
Income Taxes
Deferred tax assets and liabilities are determined based on the
differences between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse. Principal timing differences include
depreciation, provision for loan losses, and the deferral of loan
origination fees.
Financial Instruments with Off-Balance Sheet Risk
The Company uses off-balance sheet financial instruments as part of its
asset/liability management activities. The Company does not intend to sell
any of these instruments. Interest rate swap agreements are accounted for
using the accrual method. Net interest income (expense) resulting from the
differential between exchanging floating and fixed-rate interest payments
is recorded on a current basis. Interest rate floors are contracts in
which a floor is established at a specified rate and period of time. The
premium paid for the contract is amortized over its life. Any cash
payments received are recorded as an adjustment to net interest income. In
the ordinary course of business the Company has entered into off-balance
sheet financial instruments consisting of commitments to extend credit,
commitments under credit card arrangements, commercial letters of credit,
and standby letters of credit. Such financial instruments are recorded in
the financial statements when they are funded or related fees are incurred
or received.
Earnings Per Share
The earnings per share computation is based upon the weighted average
number of shares of stock outstanding during the period. Only ESOP shares
that have been committed to be released are considered outstanding. In
1996, the Company declared a 10% stock dividend. Earnings and cash
dividends per share have been retroactively restated for 1995 and 1994 to
reflect the stock dividend.
<PAGE>
2. Securities
Debt and equity securities have been classified in the consolidated
statements of financial condition according to management's intent. The
carrying amount of securities and their approximate fair values at
December 31 follow:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for Sale:
1996
U.S. Government agency securities
and obligations $ 3,999,921 $ 1,594 $ 2,452 $ 3,999,063
Mortgage-backed securities 3,509,581 -- 56,303 3,453,278
- ------------------------------------------------------------------------------------------------------------------------------
$ 7,509,502 $ 1,594 $ 58,755 $ 7,452,341
==============================================================================================================================
1995
U.S. Government agency securities
and obligations $ 3,999,048 $ 3,497 $ 9,264 $ 3,993,281
Mortgage-backed securities 4,392,763 -- 8,765 4,383,998
- ------------------------------------------------------------------------------------------------------------------------------
$ 8,391,811 $ 3,497 $ 18,029 $ 8,377,279
==============================================================================================================================
Held to Maturity:
1996
Corporate bonds $ 21,611 $ 54 $ -- $ 21,665
Mortgage-backed securities 16,728,785 160,288 108,438 16,780,635
REMIC 1,766,354 18,592 -- 1,784,946
- ------------------------------------------------------------------------------------------------------------------------------
$ 18,516,750 $ 178,934 $ 108,438 $18,587,246
==============================================================================================================================
1995
Corporate bonds $ 95,421 $ 1,135 $ -- $ 96,556
Mortgage-backed securities 16,967,991 236,186 95,625 17,108,552
REMIC 2,039,057 29,069 -- 2,068,126
- ------------------------------------------------------------------------------------------------------------------------------
$ 19,102,469 $ 266,390 $ 95,625 $19,273,234
==============================================================================================================================
</TABLE>
Mortgage-backed securities are subject to risk of prepayment which can
affect the yields realized on the securities by increasing or decreasing
the period over which premiums and discounts are recognized in interest
income.
<PAGE>
2. Securities (concluded)
The scheduled maturities of securities at December 31, 1996, are as
follows:
<TABLE>
<CAPTION>
Held to Maturity Available for Sale
- ------------------------------------------------------------------------------------------------------------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Due in one year or less $ -- $ -- $1,499,921 $1,497,500
Due from one to five years 3,120,769 3,091,671 2,500,000 2,501,563
Due from five to ten years 7,097,461 7,104,536 3,509,581 3,453,278
Due after ten years 8,298,520 8,391,039 -- --
- ------------------------------------------------------------------------------------------------------------------------------
$18,516,750 $18,587,246 $7,509,502 $7,452,341
==============================================================================================================================
</TABLE>
Expected maturities will differ from contractual maturities as borrowers
may have the right to call or prepay obligations with or without call or
prepayment penalties. The FASB Implementation Guide for SFAS No. 115
allowed an entity to change the classification of its securities from held
to maturity to available for sale from November 15, 1995 to December 31,
1995. The Bank reclassified investments with a cost of $12,529,371 and an
unrealized loss of $26,236 to available for sale for asset/liability
management reasons. Gross realized gains on sale of securities available
for sale were $32,025 for 1995. No securities available for sale were sold
in 1996. The Bank realized a loss of $46,617 on the default of a security
held to maturity in 1996. The Bank has pledged $6,550,000 of its FHLMC
mortgage-backed securities against public unit deposits.
3. Loans Receivable
Activity in the allowance for loan losses is summarized as follows for the
years ended December 31:
<TABLE>
<CAPTION>
1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $ 866,770 $ 613,600 $ 504,200
Provision charged to income 390,000 315,000 140,000
Loans charged off (400,684) (95,742) (35,112)
Recoveries on loans previously charged off 37,370 33,912 4,512
- ------------------------------------------------------------------------------------------------------------------
Balance at end of year $ 893,456 $ 866,770 $ 613,600
==================================================================================================================
</TABLE>
<PAGE>
3. Loans Receivable (concluded)
Information regarding impaired loans is as follows:
<TABLE>
<CAPTION>
1996 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Average investment in impaired loans $1,126,828 $ 964,342
Interest income recognized on impaired loans including
interest income recognized on cash basis 105,397 83,924
Interest income recognized on impaired loans on cash basis 99,637 81,573
Information regarding allowance for loan losses allocated to impaired
loans at December 31, is as follows:
Balance of impaired loans $ 945,107 $1,204,645
Less portion for which no allowance for loan losses
is allocated (779,036) (839,353)
- ------------------------------------------------------------------------------------------------------------------
Portion of impaired loan balance for which an allowance
for loan losses is allocated $ 166,071 $ 365,292
==================================================================================================================
Portion of allowance for loan losses allocated to the
impaired loan balances $ 92,542 $ 173,923
==================================================================================================================
</TABLE>
Loans placed on nonaccrual status amounted to $1,894,503, $1,645,262, and
$1,364,720, at December 31, 1996, 1995 and 1994, respectively. Gross
interest income that would have been recorded under the original terms of
such loans and the interest income actually recognized for the years ended
December 31 are summarized below:
<TABLE>
<CAPTION>
1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income that would have been recorded $203,800 $198,247 $120,568
Interest income recognized 135,178 129,730 80,566
- ------------------------------------------------------------------------------------------------------------------
Interest income foregone $ 68,622 $ 68,517 $ 40,002
==================================================================================================================
</TABLE>
<PAGE>
4. Loan Servicing
Mortgage loans serviced for others are not included in the accompanying
statement of financial condition. The unpaid principal balance of these
loans is $78,287,014 and $81,219,879 at December 31, 1996 and 1995,
respectively. The Bank recognizes a loan servicing fee for the difference
between the principal and interest payment collected on the loan and the
payment remitted to the investor. Custodial escrow balances maintained in
connection with the foregoing loan servicing were $460,166 and $648,627 at
December 31, 1996 and 1995, respectively. Mortgage servicing rights of
$28,615 were capitalized in 1996 and are included in other assets.
Amortization of mortgage servicing rights was $903 in 1996.
5. Premises and Equipment
Premises and equipment at December 31 consist of the following:
<TABLE>
<CAPTION>
1996 1995
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Land and improvements $ 310,889 $ 310,889
Bank buildings and leasehold improvements 1,552,031 1,540,365
Furniture and fixtures 2,187,846 1,905,114
- ----------------------------------------------------------------------------------------------------------------
4,050,766 3,756,368
Less accumulated depreciation 1,846,351 1,501,960
- ----------------------------------------------------------------------------------------------------------------
$2,204,415 $2,254,408
================================================================================================================
</TABLE>
Depreciation expense was $368,556, $375,994, and $239,867, in 1996, 1995,
and 1994, respectively. The Bank is committed under a noncancellable
operating lease with a term greater than one year at one of its branches.
Future minimum rental commitments under this operating lease through the
year 2000 are approximately $4,000 per year. The related rent expense, net
of sublease income, was $1,226, $21,025, and $50,737, in 1996, 1995, and
1994, respectively.
6. Branch Acquisitions
On March 10, 1995, the Bank acquired four western Maine branches of Fleet
Bank of Maine. The acquisition was accounted for under the purchase method
of accounting for business combinations. The following is a summary of the
transaction:
<TABLE>
<CAPTION>
<S> <C>
Loans acquired, net of premium $ 6,688,629
Fixed assets 393,321
Other assets 168,356
Deposits and accrued interest assumed (19,447,282)
Other liabilities (117,485)
- ---------------------------------------------------------------
Net cash received $(12,314,461)
===============================================================
</TABLE>
<PAGE>
6. Branch Acquisitions (concluded)
On March 18, 1994, the Bank acquired a branch office in Lewiston, Maine,
from the Resolution Trust Corporation. The acquisition was accounted for
under the purchase method of accounting for business combinations.
Earnings of the acquired branch, from the date of acquisition through
December 31, 1994, are included in the consolidated statement of income.
The following is a summary of the transaction:
<TABLE>
<CAPTION>
<S> <C>
Loans acquired $ 93,082
Goodwill 478,000
Deposits and accrued interest assumed (42,322,425)
- ---------------------------------------------------------------
Net cash and cash equivalents received $(41,751,343)
===============================================================
</TABLE>
Goodwill for branches acquired in 1995 and in prior years is being
amortized using the straight-line method over ten years. Amortization
charged to operations was $103,047, $101,240, and $104,790 in 1996, 1995,
and 1994, respectively.
7. Deposits
At December 31, 1996, the scheduled maturities of time deposits are as
follows:
<TABLE>
<CAPTION>
<S> <C>
1997 $40,688,965
1998 5,689,187
1999 4,414,030
2000 7,645,966
2001 and thereafter 898,539
- --------------------------------------------------------------
$59,336,687
==============================================================
</TABLE>
The aggregate amount of short-term jumbo certificates of deposit, each
with a minimum denomination of $100,000, was $6,644,804 and $3,968,476 at
December 31, 1996 and 1995, respectively.
8. Advances from Federal Home Loan Bank
Advances from Federal Home Loan Bank (FHLB) are summarized as follows:
<TABLE>
<CAPTION>
Interest Rates
at December 31, 1996 1996 1995
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed advances 5.30 - 6.11% $10,952,000 $10,952,000
Variable advance 7.32 2,234,000 --
- -------------------------------------------------------------------------------------------------------
$13,186,000 $10,952,000
=======================================================================================================
</TABLE>
<PAGE>
8. Advances from Federal Home Loan Bank (concluded)
Pursuant to collateral agreements with the FHLB, advances are
collateralized by all stock in the FHLB, qualifying first mortgage loans
and securities available for sale.
Advances at December 31, 1996, mature as follows:
<TABLE>
<CAPTION>
<S> <C>
1997 $9,734,000
1998 1,000,000
2000 1,000,000
2001 1,452,000
</TABLE>
9. Income Taxes
Actual tax expense differs from the expected tax expense computed at the
federal statutory tax rate for the following reasons:
<TABLE>
<CAPTION>
1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Provision for income taxes at statutory rates (34%) $621,100 $394,000 $ 82,600
Add (deduct)
Pass-through tax credit from investment (82,700) (82,700) (82,700)
State income tax, net of federal taxes 15,400 12,120 7,340
Nontaxable income (12,200) (16,700) (16,000)
Nondeductible expenses 41,000 32,500 26,600
Dividends received deduction -- -- (1,900)
Other (147) (3,256) 5,563
- -----------------------------------------------------------------------------------------------------------------
$582,453 $335,964 $ 21,503
=================================================================================================================
</TABLE>
<PAGE>
9. Income Taxes (concluded)
The components of income tax expense are:
<TABLE>
<CAPTION>
Federal State Total
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1996
Current $ 580,994 $ 23,316 $ 604,310
Deferred (21,857) -- (21,857)
- ---------------------------------------------------------------------------------------------------------------------------
Total $ 559,137 $ 23,316 $ 582,453
- ---------------------------------------------------------------------------------------------------------------------------
1995
Current $ 408,639 $ 18,370 $ 427,009
Deferred (91,045) -- (91,045)
- ---------------------------------------------------------------------------------------------------------------------------
Total $ 317,594 $ 18,370 $ 335,964
- ---------------------------------------------------------------------------------------------------------------------------
1994
Current $ 62,217 $ 11,093 $ 73,310
Deferred (51,807) -- (51,807)
- ---------------------------------------------------------------------------------------------------------------------------
Total $ 10,410 $ 11,093 $ 21,503
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The tax effect of temporary differences which give rise to the deferred
income tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
Asset Liability Asset Liability
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Accrued liabilities and
unearned income $ 97,278 $ -- $105,150 $ --
Allowance for possible
loan losses 303,775 65,790 294,700 57,200
Interest on nonaccrual loans 21,260 -- 16,350 --
Goodwill, amortization,
and depreciation 17,600 815 10,976 3,274
Loans held for sale 5,590 -- 2,600 --
Change in method of
accounting for tax from
cash basis to accrual basis -- 55,580 -- 74,100
Unrealized loss on securities
available for sale 19,400 -- 5,000 --
Other -- 32,659 -- 26,400
- ---------------------------------------------------------------------------------------------------------------------------
$464,903 $154,844 $434,776 $ 160,974
===========================================================================================================================
</TABLE>
<PAGE>
No valuation allowance is deemed necessary for the deferred tax asset.
The Bank is allowed a special bad debt deduction based on specified
experience formulas and subject to certain limitations based on aggregate
loans and savings account balances at the end of the year. If the amounts
that qualify as deductions for federal income tax purposes are later used
for purposes other than bad debt losses or the Bank fails to maintain
certain loan and savings account levels, the amounts become subject to
federal income tax at the then current corporate rate. Retained earnings
at December 31, 1996 and 1995, includes $222,000 for which federal income
tax has not been provided.
10. Related Parties
The Bank has entered into transactions with its directors and principal
officers and their affiliates (related parties). The aggregate amount of
loans to such related parties at December 31, 1996, was $145,740. During
1996, new loans to such related parties amounted to $19,652 and repayments
amounted to $53,801.
11. Regulatory Matters
The Bank is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory--and possibly
additional discretionary--actions by regulators that, if undertaken, could
have a direct material effect on the Bank's financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Bank must meet specific capital guidelines that
involve quantitative measures of the Bank's assets, liabilities, and
certain off-balance-sheet items as calculated under regulatory accounting
practices. The Bank's capital amounts and classification are also subject
to qualitative judgments by the regulators about components, risk
weightings, and other factors. Quantitative measures established by
regulation to ensure capital adequacy require the Bank to maintain minimum
amounts and ratios (set forth in the table below) of total and Tier I
capital (as defined in the regulations) to risk-weighted assets (as
defined), and of Tier I capital (as defined) to average assets (as
defined). Management believes, as of December 31, 1996, that the Bank
meets all capital adequacy requirements to which it is subject. As of
December 31, 1996, the most recent notification from the Federal Deposit
Insurance Corporation categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as
well capitalized, the Bank must maintain minimum total risk-based, Tier I
risk-based, and Tier I leverage ratios as set forth in the table. There
are no conditions or events since that notification that management
believes have changed the institution's category. The Bank's actual
capital amounts and ratios are also presented in the table.
<PAGE>
11. Regulatory Matters (concluded)
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1996:
Total Capital to Risk Weighted Assets
Consolidated $10,065,793 11.5% <179>$6,982,720 <179>8.0% N/A
Bank 9,851,000 11.3% <179> 6,982,720 <179>8.0% <179>$8,728,400<179>10.0%
Tier I Capital to Risk Weighted Assets
Consolidated 9,172,337 10.4% <179> 3,491,360 <179>4.0% N/A
Bank 8,958,000 10.2% <179> 3,491,360 <179>4.0% <179> 5,237,040<179> 6.0%
Tier I Capital to Average Assets
Consolidated 9,172,337 6.8% <179> 5,359,480 <179>4.0% N/A
Bank 8,958,000 6.7% <179> 5,359,480 <179>4.0% <179> 6,699,350<179> 5.0%
As of December 31, 1995:
Total Capital to Risk Weighted Assets
Consolidated $ 8,642,000 11.2% <179>$6,173,760 <179>8.0% N/A
Bank 8,456,000 11.0% <179> 6,173,760 <179>8.0% <179>$7,717,200<179>10.0%
Tier I Capital to Risk Weighted Assets
Consolidated 7,775,358 10.1% <179> 3,086,880 <179>4.0% N/A
Bank 7,589,000 9.8% <179> 3,086,880 <179>4.0% <179> 4,630,320<179> 6.0%
Tier I Capital to Average Assets
Consolidated 7,775,358 6.1% <179> 5,066,560 <179>4.0% N/A
Bank 7,589,000 6.0% <179> 5,066,560 <179>4.0% <179> 6,333,200<179> 5.0%
</TABLE>
The ability of the bank to pay dividends to the parent is also subject to
the minimum regulatory capital requirements. At December 31, 1996, the
amount available for dividends by the bank was approximately $1,937,000.
On September 30, 1996, federal legislation was passed relating to a
special deposit insurance assessment on deposits insured by the Savings
Association Insurance Fund (SAIF). Although deposits in the Bank are
insured by the Bank Insurance Fund, the Bank had acquired deposits in a
1994 branch acquisition which are still considered SAIF deposits. As a
result of the legislation, the Bank was charged approximately $155,000 for
the special assessment on SAIF deposits in 1996.
12. Employee Benefit Plans
Number of shares and per share conversion price have been restated for a
10% stock dividend in 1996.
401(k) Plan
The Bank has a 401(k) defined contribution plan for employees meeting
certain service requirements. The Bank makes contributions based on wages
of the qualified employees. Total 401(k) contribution expense was $50,494,
$43,693, and $38,705, in 1996, 1995, and 1994, respectively.
<PAGE>
Employee Stock Ownership Plan
The Bank established an employee stock ownership plan and trust (ESOP) for
employees meeting certain service requirements. The ESOP purchased 9.9% or
40,694 shares of the common stock issued during 1993 using funds loaned by
the Company. Interest earned on the loan amounted to $13,114, $16,246, and
$19,418 in 1996, 1995, and 1994, respectively. The shares purchased by the
ESOP are held in a suspense account and released annually in an amount
proportionate to the annual repayment of the loan. Contributions to the
ESOP and shares released from the suspense account are allocated to
eligible employees on the basis of compensation in the year of allocation.
The Bank's contributions to the ESOP are not fixed, so benefits payable
under the ESOP cannot be estimated. Commencing January 1, 1994, ESOP
expense is recognized using the average fair value of the shares committed
to be released during the period. The difference between the average fair
value and the cost of the shares is recorded to additional paid-in
capital. Total ESOP expense was $121,653, $96,045, and $88,532 for 1996,
1995, and 1994, respectively. As of December 31, 1996, 22,125 shares have
been allocated and the remaining 18,569 shares are suspense shares held by
the ESOP. The fair value of unearned ESOP shares at December 31, 1996, is
$429,876. Dividends paid on allocated shares are recorded against retained
earnings.
Bank Recognition and Retention Plan
The Bank also established Bank Recognition and Retention Plans (BRRPs) as
a method of providing officers and other employees of the Bank with a
proprietary interest in the Company. The Bank contributed funds to the
recognition plans to enable them to acquire, in aggregate, approximately
4.0% of the shares of common stock. The Bank recognizes expense related to
the plan based on the vesting schedule. The plan awarded 3,844 shares in
1995 and 9,865 shares to officers in 1994. In addition, 2,733 shares
covered by the recognition plans have been reserved for future awards.
Participants are vested at a rate of 20% per year commencing one year from
the date of the award. Total expenses related to these plans was $28,644,
$32,664, and $20,616 for 1996, 1995, and 1994, respectively.
Stock Option Plan
The Board of Directors of the Bank adopted the 1993 Incentive Stock Option
Plan and has reserved 27,957 shares for issuance thereunder. All employees
are eligible to participate in the stock option plan. The Board of
Directors granted options to officers to purchase a total of 23,513 shares
at an exercise price equal to the per share conversion purchase price of
$9.09. An additional 4,444 shares have been reserved for grants to other
employees. Options are exercisable on a cumulative basis in equal
installments at a rate of 20% per year commencing one year from the date
of the grant. No options were granted or exercised in 1996 and 1995. The
Board of Directors of the Bank adopted the 1993 Stock Option Plan for
Outside Directors and has reserved 13,200 shares for issuance thereunder.
Under the Directors' Plan, each outside director was granted an option to
purchase 1,650 shares of common stock, except the chairman of the Board of
Directors, who was granted an option to purchase 3,300 shares. The
exercise price is equal to the per share conversion purchase price of
$9.09. Options for the remaining 1,650 shares have been reserved for
future grants. Options are immediately exercisable upon the date of the
grant. No options were granted or exercised in 1996 and 1995.
<PAGE>
13. Other Noninterest Expense
Other noninterest expense amounts are summarized as follows for the years
ended December 31:
<TABLE>
<CAPTION>
1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Printing, postage, stationery and supplies $ 239,749 $ 264,209 $ 200,991
Advertising and promotion 117,806 140,931 158,890
Data processing 145,324 169,682 190,667
Professional fees 136,556 194,597 166,482
Meetings and training 63,172 52,737 72,489
Insurance 24,872 26,480 30,465
Amortization 103,047 101,241 104,791
Loss on disposal of equipment -- 33,250 53,930
Other 415,795 420,734 199,690
- ----------------------------------------------------------------------------------------------------------------
$1,246,321 $1,403,861 $1,178,395
================================================================================================================
</TABLE>
14. Financial Instruments With Off-Balance-Sheet Risk
The Bank is a party to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of its
customers. These financial instruments are commitments to originate loans,
interest rate swaps and floors. The instruments involve, to varying
degrees, elements of credit risk in excess of the amount recognized in the
consolidated statement of financial condition. The Bank's exposure to
credit loss in the event of nonperformance by the other party for
commitments to extend credit is represented by the contractual notional
amount of those instruments. The Bank's exposure to credit loss in the
event of nonperformance by the other party to interest rate swaps and
floors is limited to the other party's obligation to pay the Bank interest
based on the notional amount of the instrument. The Bank follows the same
credit policies in making commitments and conditional obligations as it
does for on-balance-sheet instruments, including requiring collateral or
other security to support financial instruments with credit risk.
<PAGE>
Loan Commitments
Commitments to extend credit are agreements to lend to a customer provided
there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since many of the commitments
are expected to expire without being drawn upon, the total commitment
amounts do not necessarily represent future cash requirements. The Bank
evaluates each customer's creditworthiness on an individual basis. The
amount of collateral obtained is based on management's credit evaluation
of the borrower. Collateral held varies but may include accounts
receivable, inventory, property and equipment and income-producing
commercial properties. Loan commitments on undisbursed loans and letters
of credit to originate loans at December 31, 1996, are as follows:
<TABLE>
<CAPTION>
<S> <C>
Real estate lines of credit $ 7,344,392
Commercial lines of credit 4,168,213
Construction loans 776,216
Consumer lines of credit 730,161
Commercial letters of credit 166,400
- --------------------------------------------------------------
$13,185,382
==============================================================
</TABLE>
Commitments to originate loans at December 31, 1996, are as follows:
<TABLE>
<CAPTION>
<S> <C>
First mortgage fixed rate loans $ 165,050
Variable rate commercial loans 864,000
- --------------------------------------------------------------
$1,029,050
==============================================================
</TABLE>
Interest Rate Swap
The Bank is party to interest rate swap agreements with the Federal Home
Loan Bank totaling a notional amount of $7,000,000 on which it is
obligated to pay interest based on the three-month LIBOR rate, adjusted
quarterly, and receives a fixed-rate payment. A $2,000,000 contract
matures November 1997. The variable rate was 5.50% at December 31, 1996,
and the Bank receives payments based on a fixed rate of 4.91%. The
remaining contract dated June 1996 is for $5,000,000 maturing June 1999,
on which the Bank receives payments based on a fixed rate of 6.63%. The
variable rate was 5.563% at December 31, 1996. The Bank has utilized
interest rate swaps to partially protect its net interest income stream
against the effects of falling rates on prime-based loans. The notional
amount is a figure used to calculate settlement payments and does not
represent exposure to credit loss. Interest is paid to the Bank on the
interest rate swaps and the Bank pays interest quarterly. The Bank is
exposed to loss of net interest receivable should the counter-party
default. Net interest expense on the swaps was $24,822 in 1995. Net
interest income earned on the swaps was $9,047 and $40,655 in 1996 and
1994, respectively.
<PAGE>
Interest Rate Floor
The Company has an interest rate floor contract in the notional amount of
$5,000,000 on which it receives the excess of the strike rate, 6%, over
the three-month LIBOR rate, adjusted quarterly. The floor matures in June
1998.
Other
The Bank services approximately $45 million of Federal Home Loan Mortgage
Corporation (FHLMC) loans. The Bank is liable to FHLMC for any interest
which becomes delinquent.
15. Significant Group Concentrations of Credit Risk
Most of the Bank's business activity is in rural areas of Maine, where the
resort and logging industries predominate. Accordingly, the Bank is
dependent on the health of these industries for continued profitable
operations. However, the Bank has diversified into the central Maine
regions. In addition, the Bank services approximately $78 million of loans
previously originated and sold by the Bank. The Bank's policy for
requiring collateral is to obtain security in excess of the amount
borrowed. The amount of collateral obtained is based on management's
credit evaluation of the borrower. The Bank requires appraisals of real
property held as collateral. For consumer loans, the Bank will accept
security which has a title certificate. Collateral held for commercial
loans may include accounts receivable, inventory, property and equipment
and income-producing properties. The contractual amounts of credit-related
financial instruments such as commitments to extend credit and letters of
credit represent the amounts of potential accounting loss should the
contract be fully drawn upon, the customer default, and the value of any
existing collateral become worthless.
16. Fair Value Disclosures of Financial Instruments
The following disclosures are made in accordance with the provisions of
SFAS No. 107 "Disclosures About Fair Value of Financial Instruments,"
which requires the disclosure of fair value information about both on- and
off-balance sheet financial instruments where it is practicable to
estimate that value. Fair value is defined in SFAS No. 107 as the amount
at which an instrument could be exchanged in a current transaction between
willing parties, other than in a forced or liquidation sale. In accordance
with the provisions of SFAS No. 107, the estimated fair values of
deposits, credit card loans and residential real estate mortgage loans do
not take into account the fair values of long-term relationships, which
are integral parts of the related financial instruments. The disclosed
estimated fair values of such instruments would increase significantly if
the fair values of the long-term relationships were considered. The use of
different assumptions (e.g., discount rates and cash flow estimates) and
estimation methods could also have a significant effect on fair value
amounts. Accordingly, the estimates presented herein are not necessarily
indicative of the amounts the Company could realize in a current market
exchange. Because SFAS No. 107 excludes certain financial instruments and
all nonfinancial instruments from its disclosure requirements, any
aggregation of the fair value amounts presented would not represent the
underlying value of the Company. A summary of the carrying values of the
Company's significant on-balance sheet financial instruments at December
31, 1996, is as follows:
<PAGE>
16. Fair Value Disclosures of Financial Instruments (concluded)
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
Carrying Fair Carrying Fair
Value Value Value Value
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets
Cash and due from banks1 $ 2,480,923 $ 2,480,923 $ 4,960,329 $ 4,960,329
Securities available for sale(1) 7,452,341 7,452,341 8,377,279 8,377,279
Securities to be held to maturity(2) 18,516,750 18,587,246 19,102,469 19,273,234
Loans receivable, net of allowance
and discounts(3) 97,376,787 98,631,000 84,763,464 86,200,000
Loans held for sale(2) 1,819,209 1,835,648 1,126,452 1,139,555
Federal Home Loan Bank stock(1) 1,320,550 1,320,550 1,320,550 1,320,550
Accrued interest receivable1 767,602 767,602 815,254 815,254
Liabilities
Deposits4 109,362,559 109,879,022 103,685,054 104,517,352
Advances from Federal Home
Loan Bank5 13,186,000 13,161,429 10,952,000 10,986,000
Escrows and trustee accounts for
sold loans1 919,254 919,254 1,016,254 1,016,254
Accrued interest payable(1) 62,518 62,518 76,511 76,511
</TABLE>
Valuation Methods and Assumptions
(1) Fair value equals or approximates carrying value.
(2) Based on quoted market prices of similar instruments.
(3) Fair values of commercial term loans were estimated using a
discounted cash flow model. Certain residential real estate loans
were valued based on quoted market prices of similar loans, with
adjustments for differences in loan characteristics. For consumer
loans, whose current weighted - average coupons and remaining term
to maturity approximate the current market conditions, carrying
values were used as an approximation of fair value. For loans with
interest rates which change within six months (such as, lines of
credit and time notes), carrying values were used as an
approximation of fair values.
(4) Fair values of certificates of deposit were estimated based on
discounted cash flows using current rates for certificates of
similar remaining maturity. For all other deposits, carrying values
were used as an approximation of their fair values.
(5) Fair values of advances were estimated based on discounted cash
flows using current rates for advances of similar remaining
maturity.
<PAGE>
16. Fair Value Disclosures of Financial Instruments (concluded)
The estimated fair values of the Company's off-balance sheet financial
instruments are as follows:
<TABLE>
<CAPTION>
Notional Maturity Market
Principal Contract Date Date Value
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest Rate Swaps
December 31, 1996
$2,000,000 November 15, 1993 November 15, 1997 $ (16,254)
5,000,000 June 21, 1996 June 21, 1999 55,600
- ---------------------------------------------------------------------------------------------------------------------------
$7,000,000 $ 39,346
===========================================================================================================================
December 31, 1995
$2,000,000 November 15, 1993 November 15, 1997 $ (21,623)
December 31, 1994
$2,000,000 February 21, 1992 February 21, 1995 $(183,084)
2,000,000 November 15, 1993 November 15, 1997 15,734
- ---------------------------------------------------------------------------------------------------------------------------
$4,000,000 $(167,350)
===========================================================================================================================
Interest Rate Floor
December 31, 1996
$5,000,000 June 20, 1996 June 24, 1998 $ 30,828
===========================================================================================================================
</TABLE>
17. Recent Accounting Developments
In June 1996, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishment of Liabilities,"
effective for financial statements for the fiscal year beginning after
December 31, 1996 (excluding those sections identified in SFAS No. 127,
"Deferral of the Effective Date of Certain Provisions of SFAS No. 125").
SFAS No. 125 provides consistent standards for distinguishing transfers of
financial assets that are sales from transfers that are secured
borrowings. The Company expects the impact of adopting SFAS No. 125 will
be immaterial to the financial statements.
<PAGE>
Information
Board of Directors
Winfield F. Robinson, Chairman
Vice President of United Timber Corp.
John C. Witherspoon
President/CEO
Kingfield Bank
William P. Dubord
Attorney
G. Norton Luce
Retired Gas Company Owner
Roger G. Spear
CFO, University of Maine at Farmington
Theodore C. Johanson
President, Falcon Shoe Company
Annual Meeting
The Annual Meeting is scheduled for Wednesday,
May 7, 1997, 5:30 p.m., at the
Winters Inn, Kingfield, Maine.
Stock Listing
The common stock is traded over-the-counter on
the NASDAQ Small Cap Market System under
the ticker symbol KSBK.
Officers of the Bank
Gerard Belanger, Vice President
Gordon A. Flint, Vice President
Robert D. Stone, Vice President
John E. Thien, Vice President/Treasurer
<PAGE>
Price Range of Stock
Set forth below is the quarterly high and low bid
price for the common stock
since the beginning of the year.
Quarter Ending:
March 31, 1996 High: $20.75/Low: $18.13
June 30, 1996 High: $22.25/Low: $19.38
September 30, 1996 High $22.50/Low $21.00
December 31, 1996 High: $26.00/Low $21.25
Number of Shares Outstanding and Shareholders
At March 1, 1997, KSB Bancorp, Inc. had 411,055 shares
of $.01 par value common stock outstanding, owned
by approximately 356 shareholders of record, including
brokerage firms, banks and registered clearing agencies
acting as nominees for an indeterminate number of
beneficial owners. KSB Bancorp, Inc. pays a semi-annual
cash dividend of $0.10 per share.
Inquiries
Shareholder Information
Attn: Jennifer L. Piekart
KSB Bancorp, Inc.
P.O. Box 105
Kingfield, ME 04947
207-265-2181
The Annual Report on Form 10-KSB,
filed with the Securities and Exchange
Commission, is available to shareholders
without charge upon written request.
Auditors
Berry, Dunn, McNeil & Parker
P.O. Box 1100, Portland, ME 04101
Transfer Agent & Registrar
Registrar and Transfer Company
10 Commerce Drive, Cranford, NJ 07016
Corporate Securities Counsel
John J. Gorman, Esq.
Luse Lehman Gorman Pomerenk & Schick
5335 Wisconsin Avenue, N.W., Suite 400
Washington, DC 20015
<PAGE>
The Board of Directors would like to thank
the employees of Kingfield Bank
Kingfield Office
Donna Chase
Cynthia Gilmore
Susan Haines
Donna Pelletier
Debra Sills
Brenda Thompson
Stratton Office
Debora Dudley
Bette Meyer
Linda Shane
Wendy Wyman
Bingham Office
Kathleen Barrett
Mary Brown
Phebe Durgin
Todd Marlowe
Retail/Commercial Lending
Carla Allen
Gerard Belanger
Charles Bergman
Jenni Brown
Sally Dwyer
Gordon Flint
Shelly Henderson
Wendy Hinkley
Marcelle Labbe
Mary Miller
Cindy Spencer
Rangeley Office
Justine Amerault
M. Rachel Lee
Gillian Trapp
Sheila Waldeck
Phillips Office
Shelly Abbott
Elizabeth Cram
Dawn Field
Linda Toothaker
<PAGE>
Strong Office
Crystal Cook
Sandy Cavanagh
Loretta Deming
Lynn Vashaw
Farmington Office
Kathleen Mason
Laurie Maxim
Nancy Richard
Nancy Richardson
Marcus Rowe
Administration/Finance
Linda Manning
Jennifer Piekart
John Thien
John Witherspoon
Lewiston Office
Nancy Brown
Katherine Fales
Cynthia Hoyt
Elizabeth Lyons
Mary McKinley
Roger Roy
Melissa Saucier
Operations
Mark Brooks
Darcy Evans
Linda Frost
Jacqueline Garey
Michelle Mason
Jeannine McGraw
Karen Moore
Pauline Nadeau
Anne Parent
Karen Stewart
Robert Stone
Timothy Thompson
<PAGE>
Kingfield Bank Locations
Bingham 207-672-5541
Farmington 207-778-0302
Kingfield 207-265-2181
Lewiston 207-784-7376
Phillips 207-639-2851
Rangeley 207-864-3321
Stratton 207-246-2181
Strong 207-684-5501
1-800-962-0070
