<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934
For the quarterly period ended June 30, 1996 Commission file number 33-95530
WALDEN BANCORP, INC.
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-29100071
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
125 NAGOG PARK, ACTON, MASSACHUSETTS 01720
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (508) 635-5000
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (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.[X] Yes No [_]
The number of shares of common stock outstanding of each of the issuer's classes
of common stock, as of August 9, 1996 was 5,319,700.
<PAGE>
WALDEN BANCORP, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<S> <C>
PART I - FINANCIAL INFORMATION ...................................................... 3
Item 1 - Financial Statements ..................................................... 3
Consolidated Balance Sheets .................................................... 3
Consolidated Statements of Operations .......................................... 4
Consolidated Statements of Cash Flows .......................................... 5
Consolidated Statements of Changes in Stockholders' Equity ..................... 6
Notes to Consolidated Financial Statements for the Period Ended June 30, 1996 .. 7
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations ....................................................... 8
PART II - OTHER INFORMATION ......................................................... 21
Item 1 - Legal Proceedings ........................................................ 21
Item 2 - Changes in Securities .................................................... 21
Item 3 - Defaults Upon Senior Securities .......................................... 21
Item 4 - Submission of Matters to a Vote of Security Holders ...................... 21
Item 5 - Other Information ........................................................ 22
Item 6 - Exhibits and Reports on Form 8-K ......................................... 22
SIGNATURES ........................................................................ 23
EXHIBITS ..........................................................................
Computation of per share earnings - Exhibit 11 ..................................
Selected Financial Data - Exhibit 99 ............................................
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
Walden Bancorp, Inc. and Subsidiaries
Consolidated Balance Sheets
(In thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
---------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and due from banks $ 27,940 $ 36,316
Short-term investments 28,315 42,673
Investment and mortgage-backed securities
Available for sale (amortized cost of $146,782 and $125,190) 145,469 125,337
Held to maturity (market value of $163,947 and $130,293) 167,200 131,230
Loans receivable 623,036 636,174
Accrued interest receivable 6,617 5,944
Stock in Federal Home Loan Bank of Boston 11,304 7,527
Co-operative Central Bank Reserve Fund 3,207 3,207
Premises and equipment, net 12,603 12,849
Other real estate owned 1,750 679
Prepaid expenses and other assets 4,945 4,196
Deferred tax asset 5,853 4,539
Goodwill 13,504 14,060
---------- ----------
$1,051,743 $1,024,731
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $ 768,229 $ 769,564
Borrowed funds 173,645 147,324
Advance payments by borrowers for taxes and insurance 3,455 4,185
Accrued expenses and other liabilities 4,493 5,650
Subordinated debenture 4,666 4,619
---------- ----------
Total liabilities 954,488 931,342
---------- ----------
Stockholders' equity:
Common stock, par value $1.00 per share, issued
and outstanding 5,319,700 and 5,261,449 shares 5,320 5,261
Additional paid-in capital 38,569 37,944
Retained income 54,301 50,077
Net unrealized (loss) gain on investments
available for sale, net of tax (935) 107
---------- ----------
Total stockholders' equity 97,255 93,389
---------- ----------
$1,051,743 $1,024,731
========== ==========
Equity-to-asset ratio 9.25% 9.11%
Book value per share $18.28 $17.75
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Page 3
<PAGE>
Walden Bancorp, Inc. and Subsidiaries
Consolidated Statements of Operations
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
--------------- ----------------
1996 1995 1996 1995
-------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Interest income: (Unaudited)
Mortgage loans $ 11,664 $ 11,995 $ 23,402 $ 23,641
Other loans 1,983 1,386 3,938 2,618
Investments 4,899 4,371 9,354 8,630
---------- ---------- ---------- ----------
Total interest income 18,546 17,752 36,694 34,889
---------- ---------- ---------- ----------
Interest expense:
Deposits 6,572 6,738 13,287 12,733
Borrowed funds 2,107 1,605 3,965 3,352
---------- ---------- ---------- ----------
Total interest expense 8,679 8,343 17,252 16,085
---------- ---------- ---------- ----------
Net interest income before provision for possible loan losses 9,867 9,409 19,442 18,804
Provision for possible loan losses 252 250 625 525
---------- ---------- ---------- ----------
Net interest income after provision for possible loan losses 9,615 9,159 18,817 18,279
---------- ---------- ---------- ----------
Non-interest income:
Fees and charges 888 817 1,727 1,617
Mortgage loan servicing fees 603 703 1,249 1,388
Income from real estate operations 49 14 80 29
Gain on sale of loans 12 126 15 149
Gain on sale of securities -- 262 40 314
Gain (loss) on sale of other real estate owned 15 (9) 15 25
Provision for market value decline on other real estate owned -- -- -- (10)
Miscellaneous 107 74 150 108
---------- ---------- ---------- ----------
Total non-interest income 1,674 1,987 3,276 3,620
---------- ---------- ---------- ----------
Income before non-interest expense and income taxes 11,289 11,146 22,093 21,899
---------- ---------- ---------- ----------
Non-interest expense:
Salaries and benefits 3,409 3,322 6,698 6,671
Occupancy and equipment 981 1,045 2,076 2,069
Amortization of goodwill and other intangibles 279 278 556 556
Deposit insurance premium 1 474 1 938
Other real estate owned expense 17 30 39 81
Other 1,817 2,075 3,418 3,822
---------- ---------- ---------- ----------
Total non-interest expense 6,504 7,224 12,788 14,137
---------- ---------- ---------- ----------
Income before income taxes 4,785 3,922 9,305 7,762
Income tax expense 1,817 1,446 3,488 2,935
---------- ---------- ---------- ----------
Net income $ 2,968 $ 2,476 $ 5,817 $ 4,827
========== ========== ========== ==========
Earnings per share $ 0.55 $ 0.47 $ 1.07 $ 0.91
========== ========== ========== ==========
Dividends per share $ 0.16 $ 0.11 $ 0.30 $ 0.21
========== ========== ========== ==========
Average shares outstanding (fully diluted) 5,444,122 5,323,870 5,427,536 5,307,620
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Page 4
<PAGE>
Walden Bancorp, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Six months ended June 30,
--------------------------
1996 1995
-------- --------
(Unaudited)
<S> <C> <C>
Net cash flows from operating activities:
Net income $ 5,817 $ 4,827
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for possible loan losses 625 525
Provision for other real estate owned -- 10
Provision for depreciation and amortization 658 706
Amortization of goodwill 556 556
Amortization of investment securities discounts and premiums, net 159 168
Amortization of loan fees and discounts (495) (18)
Amortization of discount on subordinated debenture 47 44
(Gain) loss on sale of securities (40) (314)
Equity in limited partnership losses 84 84
Loans originated for sale (2,400) (8,423)
Loans sold 2,503 9,820
(Gain) loss on sale of loans (15) (149)
(Gain) loss on sale of other real estate owned (15) (25)
(Gain) loss on real estate held for sale -- --
Decrease (increase) in accrued interest receivable (673) (156)
Decrease (increase) in prepaid expense and other assets (833) (1,036)
Decrease (increase) in deferred income tax asset excluding (SFAS 115) (896) 577
Increase (decrease) in accrued taxes, payments due from borrowers and other liabilities (1,887) (424)
-------- --------
Net cash provided (used) by operating activities 3,195 6,772
-------- --------
Net cash flows from investing activities:
Maturities and principal repayments on investments held to maturity 23,972 10,239
Maturities and principal repayments on investments available for sale 19,899 4,182
Proceeds from sale of investments available for sale 3,000 33,558
Purchase of investments held to maturity (65,930) (3,243)
Purchase of investments available for sale (38,622) (25,063)
Purchase of FHLB of Boston Stock (3,777) --
Loans originated and principal payments, net 11,309 (18,903)
Capital expenditures (412) (1,518)
Proceeds from sales of real estate held for sale -- 62
Proceeds from sales of and receipts on other real estate owned 555 322
-------- --------
Net cash provided (used) for investing activities (50,006) (364)
-------- --------
Net cash flows from financing activities:
Net deposit activity (1,335) 19,157
Proceeds from borrowings 154,542 202,516
Repayment of borrowings (128,221) (229,693)
Cash dividends paid on common stock (1,593) (1,100)
Proceeds from exercise of stock options 684 507
-------- --------
Net cash provided (used) by financing activities 24,077 (8,613)
-------- --------
Net increase (decrease) in cash and cash equivalents: (22,734) (2,205)
Cash and cash equivalents at beginning of period 78,989 38,085
-------- --------
Cash and cash equivalents at end of period $ 56,255 $ 35,880
======== ========
Supplemental disclosure of cash flow information:
Cash paid during period for:
Interest 17,051 15,997
Income taxes 3,562 1,593
Supplemental disclosure of non-cash investing and financing:
Foreclosures 1,611 1,762
Loans transferred to performing status from foreclosure -- 1,003
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Page 5
<PAGE>
Walden Bancorp, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders' Equity
(In thousands)
<TABLE>
<CAPTION>
Additional Net Total
Common Paid-in Retained Unrealized Stockholders'
Stock Capital Income Gain/(Loss) Equity
------ --------- -------- ------------- --------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994 $ 5,128 $ 36,884 $ 43,140 $ (3,622) $ 81,530
Net income -- -- 9,299 -- 9,299
Proceeds from sale of stock under
stock purchase and option plans 133 961 -- -- 1,094
Cash dividend ($0.45 per share) -- -- (2,362) -- (2,362)
Tax benefit from exercise of
stock options -- 99 -- -- 99
Change in net unrealized loss on
investments available for sale -- -- -- 3,729 3,729
------ ------- ------- ------- -------
Balance at December 31, 1995 5,261 37,944 50,077 107 93,389
Net income -- -- 5,817 -- 5,817
Proceeds from sale of stock under
stock purchase and option plans 59 625 -- -- 684
Cash dividend ($0.14 per share) -- -- (1,593) -- (1,593)
Tax benefit from exercise of
stock options -- -- -- -- --
Change in net unrealized loss on
investments available for sale -- -- -- (1,042) (1,042)
------ ------- ------- ------- -------
Balance at June 30, 1996 (Unaudited) $ 5,320 $38,569 $54,301 $ (935) $97,255
====== ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Page 6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED JUNE 30, 1996
(1) Organization
------------
Walden Bancorp, Inc. ("Company" or "Walden") was incorporated under the
laws of the Commonwealth of Massachusetts in June 1995 for the purpose of
serving as the holding company of The Co-operative Bank of Concord ("Concord")
and Braintree Savings Bank ("Braintree") upon the consummation of the
acquisitions of Braintree and Concord (the "Acquisition")(Concord and Braintree
together referred to as "Banks"). The Acquisition, completed as of the close of
business December 8, 1995, was on a one for one share exchange basis and was
accounted for as a pooling of interests in accordance with APB No. 16. Prior to
the Acquisition, Walden had not engaged in any material operations. Walden has
no significant assets or liabilities other than the outstanding capital stock of
the Banks and the proceeds of any dividends paid by the Banks. Walden's
principal business is performing support functions for Concord and Braintree and
their respective subsidiaries.
(2) Accounting Principles
---------------------
The accompanying unaudited consolidated financial statements of Walden
Bancorp, Inc. have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, the
financial statements do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting solely of
recurring adjustments) considered necessary for a fair presentation have been
included. Operating results for the three months and six months ended June 30,
1996 are not necessarily indicative of the results that may be expected for the
current fiscal year.
For further information, refer to the consolidated financial statements
included in the Company's annual report and Form 10-K for the period ended
December 31, 1995, and Form 10-Q for the period ended March 31, 1996, filed with
the Securities and Exchange Commission.
As a result of the pooling of interests discussed in Note 1, these
consolidated financial statements reflect the Banks' consolidated operations as
if the pooling occurred on January 1, 1995.
(3) Recent Pronouncements
---------------------
On January 1, 1996 the Company adopted the Financial Accounting Standards
Board ("FASB") Statement of Financial Accounting Standard ("SFAS") 121,
Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of. This statement requires that certain long-lived assets and
identifiable intangibles to be disposed of be reported at the lower of the
carrying amount or fair value less cost to sell. The adoption of the statement
had no material impact on the reported results of operations for the period
ended June 30, 1996.
On January 1, 1996 the Company adopted the Financial Accounting Standards
Board ("FASB") SFAS 122 Accounting for Mortgage Servicing Rights. This statement
requires that a mortgage banking enterprise recognize, as separate assets,
rights to service mortgage loans for others regardless of the manner in which
the servicing rights are acquired. In addition, capitalized mortgage servicing
rights are required to be assessed periodically for impairment based on the fair
value of those rights.
Page 7
<PAGE>
The adoption of the statement had no material impact on the reported results of
operations for the period ended June 30, 1996.
(4) Stock Repurchase Program
------------------------
On June 24, 1996, Walden announced the commencement of a stock repurchase
program to acquire up to 219,900 shares of the Company's common stock, which
represents approximately 4.13 percent of the outstanding common stock. Walden
will hold the repurchased shares as treasury stock which will be available for
general corporate purposes, including issuance under the Company's employee
stock option plans. The repurchase program is intended to be completed by
December 31, 1996 and will be dependent upon market conditions and the
availability of shares. There is no guarantee as to the exact number of shares
to be repurchased by the Company. As of June 30, 1996 no shares were repurchased
under this program.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
General
- - -------
Walden Bancorp, Inc., a bank holding company registered with the Board of
Governors of the Federal Reserve System (the "Federal Reserve Board"), was
organized as a Massachusetts business corporation in June 1995 for the purpose
of serving as the holding company of The Co-operative Bank of Concord, a
Massachusetts chartered co-operative bank, and The Braintree Savings Bank, a
Massachusetts chartered savings bank.
Concord has eight full service retail banking offices located in Middlesex
county. Braintree has eight full service offices and one limited service office
in Norfolk and Plymouth counties. Through these offices, the Banks offer a full
range of commercial and retail banking products and services and conduct other
business as allowable for Massachusetts banks. The Banks' lending operations
focus on commercial and small business lending, commercial real estate loans,
residential construction loans, residential first mortgages, home equity lines
of credit, and consumer loans.
Concord has three active subsidiaries: Walden Financial Corporation,
Builders Collaborative Inc., and Walden Securities Corporation, Inc.. Braintree
has three active subsidiaries: Braintree Savings Corporation, Bra-Prop
Corporation, and Braintree Securities Corporation. Builders Collaborative Inc.'s
primary line of business is the ownership and management of real properties
owned by the Banks. Walden Financial operates as a leasing company, leasing
depreciable equipment and buildings to the Banks. Walden Securities Corporation,
Inc. and Braintree Securities Corporation are established to act solely for the
purpose of acquiring and holding security investments which are permissible for
banks under Massachusetts' law.
The Banks' business activities are concentrated in Eastern Massachusetts.
All retail banking activity is conducted through the banking offices. Lending
Page 8
<PAGE>
operations, particularly loan originations, are conducted from the retail
offices and at the point of sale. Neither Bank nor any of their subsidiaries
conduct business on a national or international basis.
The consolidated operating results of the Company depend primarily on its
net interest and dividend income, which is the difference between (i) interest
and dividend income on earnings assets, primarily loans and investment
securities, and (ii) interest expense on interest bearing liabilities, which
consist of deposits and borrowings. Results of operations are also affected by
the provision for loan and lease losses, the level of non-interest income,
including deposit and loan fees, and gains on sales of assets, operating
expenses, and income taxes.
Page 9
<PAGE>
FINANCIAL CONDITION
Investments
The table below sets forth the composition of the Company's short-term
investments as of the dates presented:
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995
------------- -----------------
(In thousands)
<S> <C> <C>
Federal Home Loan Bank overnight deposits $20,464 $20,171
Interest bearing deposits in banks 5,800 6,400
Regulated investment funds 2,051 16,102
------- -------
$28,315 $42,673
======= =======
</TABLE>
As a result of the increase in interest rates since the first of the year,
and the corresponding decrease in the market value of the investments classified
as available for sale, a $935,000 net unrealized loss is included as a separate
component of stockholders' equity at June 30, 1996, compared to an unrealized
gain of $107,000 at December 31, 1995.
The tables below show the investment and mortgage-backed securities
portfolios as of the dates presented:
The amortized cost and estimated market values of investments available for
sale were:
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995
----------------- ---------------------
Estimated Estimated
Amortized market Amortized market
cost value cost value
--------- ----------- --------- ---------
<S> <C> <C> <C> <C>
Investment securities (In thousands)
Common and preferred stocks $ 6,330 $ 6,262 $ 5,177 $ 5,178
U.S. Treasuries 37,111 37,152 27,301 27,523
Government agencies - fixed 12,970 12,905 -- --
Corporate bonds and notes 23,180 22,990 19,061 19,117
-------- -------- -------- --------
79,591 79,309 51,539 51,818
-------- -------- -------- --------
Mortgage-backed securities
Adjustable rate 21,163 21,354 24,100 24,152
Fixed rate 17,193 16,973 19,292 19,495
Collateralized mortgage obligations - fixed 5,902 5,420 6,327 6,001
Collateralized mortgage obligations - adjustable 11,560 11,329 11,804 11,689
SBA mortgage-backed obligations - adjustable 11,373 11,084 12,128 12,182
-------- -------- -------- --------
67,191 66,160 73,651 73,519
-------- -------- -------- --------
$146,782 $145,469 $125,190 $125,337
======== ======== ======== ========
</TABLE>
Page 10
<PAGE>
The amortized cost and estimated market values of investments held to
maturity were:
<TABLE>
<CAPTION>
June 30. 1996 December 31, 1995
----------------- ---------------------
Estimated Estimated
Amortized market Amortized market
cost value cost value
--------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Investment securities (In thousands)
Municipal bonds and notes $ 7,181 $ 7,203 $ 6,045 $ 6,088
Government agencies - fixed 17,282 16,958 20,592 20,470
Government agencies - adjustable 13,122 12,863 13,113 12,869
-------- -------- -------- --------
37,585 37,024 39,750 39,427
-------- -------- -------- --------
Mortgage-backed securities
Adjustable rate -- -- -- --
Fixed rate 56,113 54,197 56,410 56,012
Collateralized mortgage obligations - fixed 60,137 59,315 27,898 27,666
Collateralized mortgage obligations - adjustable 13,365 13,411 7,172 7,188
-------- -------- -------- --------
129,615 126,923 91,480 90,866
-------- -------- -------- --------
$167,200 $163,947 $131,230 $130,293
======== ======== ======== ========
</TABLE>
Loans and leases
Since December 31, 1995, loans receivable decreased by $13,138,000,
or 2.07%, as detailed below:
<TABLE>
<CAPTION>
June 30, % of total December 31, % of total
1996 loans 1995 loans
-------- ----- -------- ---------
<S> <C> <C> <C> <C>
Mortgage loans: (Dollars in thousands)
Residential $361,876 56.87% $376,896 57.99%
Commercial real estate 138,317 21.74 155,339 23.90
Construction and land 34,461 5.42 32,880 5.06
Second mortgage and home equity 23,661 3.72 25,176 3.88
-------- -------- -------- --------
Total mortgage loans 558,315 87.75 590,291 90.83
-------- -------- -------- --------
Commercial loans 69,695 10.95 50,451 7.76
Other loans 8,251 1.30 9,157 1.41
-------- -------- -------- --------
Total loans 636,261 100.00% 649,899 100.00%
-------- ======== -------- ========
Deduct:
Allowance for loan loss 11,700 12,091
Unearned discount 603 953
Deferred loan fees 922 681
-------- --------
Net loans receivable $623,036 $636,174
======== ========
</TABLE>
The Banks' primary lending focus is commercial and small business lending.
At June 30, 1996, commercial real estate, construction and land, and commercial
loans increased and represented 38.11% of total loans, compared to 36.72% at
December 31, 1995.
Page 11
<PAGE>
Residential mortgage loans decreased as a result of the lower origination
levels from the reduction of mortgage banking activities. The net reduction in
loans has come primarily from the decline in residential first mortgage loans.
At June 30, 1996 loans serviced for investors decreased to $617,625,000 from
$672,154,000 at December 31, 1995. With the elimination of the mortgage banking
activities, it is expected that the level of residential mortgage loans and
loans serviced for others will continue to decline in future periods.
Asset Quality
During the period from December 31, 1995 to June 30, 1996, non-performing
assets increased from $5,860,000 to $9,537,000. Non-performing assets increased
$2,279,000 from June 30, 1995 to June 30, 1996. At June 30, 1996, non-performing
assets represented 0.91% of total assets and 1.53% of total loans receivable and
other real estate owned, compared to 0.57% and 0.92%, respectively, at December
31, 1995. The increase in non-performing assets was primarily in other real
estate owned and commercial loans past due over 90 days.
While the level of non-performing loans has increased from prior period
levels, management is comfortable that the current levels are manageable and are
not indicative of any negative trends in asset quality. Even with the increase
in non-performing assets, the loan loss coverage ratios remain strong at 122.68%
of non-performing assets, 161.07% of non-accrual loans, and 1.84% of total
loans.
Page 12
<PAGE>
The composition of non-performing assets for the periods presented was:
<TABLE>
<CAPTION>
June 30, December 31,
-------------------- ------------
1996 1995 1995
---------- -------- ----------
(Dollars in thousands)
<S> <C> <C> <C>
Loans past due over 90 days:
Residential $3,580 $2,545 $4,354
Commercial real estate 2,430 2,277 1,416
Commercial 1,353 512 226
Other 112 48 120
------ ------ ------
$7,475 $5,382 $6,116
====== ====== ======
Loans past due over 90 days as a percentage of:
Loans receivable 1.20% 0.85% 0.96%
Total assets 0.71 0.55 0.60
Non-performing assets:
Non-accrual loans $7,264 $4,594 $5,181
Renegotiated loans 523 -- --
------- ------ ------
Total non-performing loans 7,787 4,594 5,181
------- ------ ------
Other real estate owned 1,750 2,664 679
------- ------ ------
Total non-performing assets $ 9,537 $7,258 $5,860
======= ====== ======
Total non-performing loans as a
percentage of total loans 1.22% 0.71% 0.80%
Total non-performing assets as a percentage of:
Loans receivable and other real estate owned 1.53% 1.15% 0.92%
Total assets 0.91 0.74 0.57
Loan loss reserve coverage ratios:
Non-performing assets 122.68% 151.49% 206.33%
Non-accrual loans 161.07 239.33 233.37
Total loans 1.84 1.71 1.86
</TABLE>
The following represents the activity in the allowance for loan losses the
six months ended June 30, 1996:
<TABLE>
<CAPTION>
(In thousands)
<S> <C>
Balance at December 31, 1995 $ 12,091
Provision for possible loan losses 625
Losses charged to allowance (1,087)
Recoveries 71
--------
Balance at June 30, 1996 $ 11,700
========
</TABLE>
The Banks continually review their delinquency position, underwriting and
appraisal procedures, charge-off experience, and current real estate market
conditions with respect to their entire loan portfolios. While management uses
the best information available in establishing the allowance, future adjustments
may be necessary if economic conditions differ substantially from the
assumptions used in making the evaluation.
Page 13
<PAGE>
Deposits and Borrowed Funds
Deposits decreased slightly during the six month period as detailed below:
<TABLE>
<CAPTION>
June 30, % of total December 31, % of total
1996 deposits 1995 deposits
-------- ------------ ----------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Regular savings accounts $191,782 24.96% $191,080 24.83%
NOW accounts 101,741 13.24 105,846 13.75
Advantage Accounts 28,081 3.66 30,215 3.93
Money market accounts 68,236 8.88 64,899 8.43
Non-interest bearing deposits 55,059 7.17 51,858 6.74
-------- ------ -------- ------
444,899 57.91 443,898 57.68
Term deposits 323,330 42.09 325,666 42.32
-------- ------ -------- ------
Total deposits $768,229 100.00% $769,564 100.00%
======== ====== ======== ======
</TABLE>
During the period, borrowed funds increased $26,321,000, or 17.87%, as the
Banks used these funds from the Federal Home Loan Bank of Boston to match fund
certain loans and increase the level of the investment portfolio.
COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 1996 AND 1995
Results of Operations
Consolidated net income for the three months ended June 30, 1996 totaled
$2,968,000, or $0.55 per share, compared to $2,476,000, or $0.47 per share, for
the same period last year. This represents an increase of 19.87% in earnings and
an increase of 17.02% in earnings per share. The increase in earnings was
directly attributable to an increase in net interest income, a decrease in non-
interest income, and lower operating expenses, as compared to the same period
last year.
Page 14
<PAGE>
Net interest income
The table below shows the average balance sheet, the interest earned and
paid on interest earning assets and interest-bearing liabilities, and the
resulting net interest spread and margin for the periods presented.
<TABLE>
<CAPTION>
For the three months ended June 30,
--------------------------------------------------------------------
1996 1995
-------------------------------- ---------------------------------
Interest Interest
Average income/ Yield/ Average income/ Yield/
balance expense rate balance expense rate
---------- -------- -------- -------- ------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Assets
Interest-earning assets:
Mortgage loans $ 552,134 $11,664 8.45% $578,072 $11,995 8.30%
Other loans 86,020 1,983 9.25 56,629 1,386 9.79
Investments (a) 327,298 4,899 6.00 285,220 4,371 6.22
---------- ------- -------- ---------
Total interest-earning assets 965,452 18,546 7.71 919,921 17,752 7.71
Non interest-earning assets 64,751 60,673
---------- --------
Total $1,030,203 $980,594
========== ========
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Deposits $ 709,963 $ 6,572 3.71 $730,407 $ 6,738 3.69
Borrowed funds 154,261 2,107 5.48 108,998 1,605 5.89
---------- ------- -------- ---------
Total interest-bearing liabilities 864,224 8,679 4.03 839,405 8,343 3.99
Non interest-bearing liabilities:
Demand deposits 54,255 42,351
Total cost of funds 3.79 3.78
Other liabilities 15,509 11,501
Stockholders' equity 96,215 87,337
---------- --------
Total $1,030,203 $980,594
========== ========
Net interest income $ 9,867 $ 9,409
======= =========
Interest rate spread 3.92% 3.93%
Net interest margin 4.09% 4.09%
</TABLE>
- - ---------------------------
(a) Excludes the effect of SFAS 115.
Page 15
<PAGE>
The increase of $458,000 in net interest income is analyzed as follows:
<TABLE>
<CAPTION>
Quarters ended June 30, 1996 vs. 1995 Change due to Increase (Decrease)
- - ------------------------------------- ---------------------------------
Total Volume Rate Rate/Volume
----- ------ ---- -----------
<S> <C> <C> <C> <C>
Interest income: (In thousands)
Loans $ 266 $ 291 $ 769 $ (794)
Investment securities 528 2,579 (407) (1,644)
------- ------ ------ -------
Total 794 2,870 362 (2,438)
------- ------ ------ -------
Interest expense:
Deposits (166) (299) (370) 503
Borrowings 502 2,666 (465) (1,699)
------- ------ ------ -------
Total 336 2,367 (835) (1,196)
------- ------ ------ -------
Net interest income $ 458 $ 503 $1,197 $(1,242)
======= ====== ====== =======
</TABLE>
The provision for possible loan losses totaled $252,000 for the quarter,
compared to $250,000 for the same period last year. The provision reflects the
risks associated with the Banks' primary lending objective to increase the level
of commercial loans.
Non-interest income
Total non-interest income decreased $313,000, or 15.75%, to $1,674,000.
Fees and charges increased $71,000 due to increased volumes in transaction
accounts and the increase in fees charged on certain transactions. Mortgage loan
service fees decreased $100,000 as a result of the lower level of loans serviced
for investors. During the same period last year the Banks recognized $126,000
from the gain on sale of loans, compared to $12,000 in 1996, as a result in the
reduced level of loan sales. In addition, in 1995 $262,000 in gains were
recognized from the sale of securities; there were no such sales of securities
in 1996.
Non-interest expense
Salaries and benefits increased $87,000, the net result of the decrease in
employees in the residential lending area, an increase in employees in the
commercial lending and support areas, and a decline in the cost of medical and
retirement benefits. Occupancy and equipment expenses decreased $64,000 as a
result of the reduction in costs associated with maintaining the Company's
facilities and the elimination of two branch offices. Other real estate owned
expense decreased $13,000 as a result of decreased levels of other real estate
owned. FDIC deposit insurance premium decreased $473,000, from the reduction in
premiums paid on deposits. Other expenses decreased $258,000 due to the
Company's focus on reducing costs in 1995 and from the costs eliminated in the
acquisition of Braintree and the formation of the holding company to provide
support services to both Banks.
Page 16
<PAGE>
Income taxes
Income taxes for the three months ended June 30, 1996 were 37.97% of pretax
income, compared to 36.87% for 1995. The higher effective tax rate was the
result of increased utilization of available tax credits in 1995.
COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
Results of Operations
Consolidated net income for the six months ended June 30, 1996 totaled
$5,817,000, or $1.07 per share, compared to $4,827,000, or $0.91 per share, for
the same period last year. This represents an increase of 20.51% in earnings and
an increase of 17.58% in earnings per share. The increase in earnings was
directly attributable to an increase in net interest income, a decrease in non-
interest income, and lower operating expenses, as compared to the same period
last year.
Page 17
<PAGE>
Net interest income
The table below shows the average balance sheet, the interest earned and
paid on interest earning assets and interest-bearing liabilities, and the
resulting net interest spread and margin for the periods presented.
<TABLE>
<CAPTION>
For the six months ended June 30,
-----------------------------------------------------------------
1996 1995
------------------------------ --------------------------------
Interest Interest
Average income/ Yield/ Average income/ Yield/
balance expense rate balance expense rate
---------- -------- ------ ------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Assets
Interest-earning assets:
Mortgage loans $ 558,184 $23,402 8.39% $577,314 $23,641 8.19%
Other loans 81,900 3,938 9.62 53,758 2,618 9.74
Investments 316,360 9,354 5.93 284,818 8,630 6.06
---------- ------- -------- -------
Total interest-earning assets 956,444 36,694 7.69 915,890 34,889 7.60
Non interest-earning assets 62,724 59,262
---------- --------
Total $1,019,168 $975,152
========== ========
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Deposits $ 710,489 13,287 3.75 $724,435 12,733 3.52
Borrowed funds 147,996 3,965 5.37 115,189 3,352 5.82
---------- ------- -------- -------
Total interest-bearing liabilities 858,485 17,252 4.05 839,624 16,085 3.86
Non interest-bearing liabilities:
Demand deposits 51,615 41,027
Total cost of funds 3.80 3.68
Other liabilities 13,406 8,992
Stockholders' equity 95,662 85,509
---------- --------
Total $1,019,168 $975,152
========== ========
Net interest income $19,442 $18,804
======= =======
Interest rate spread 3.89% 3.92%
Net interest margin 4.07% 4.10%
</TABLE>
___________________________
(a) Excludes the effect of SFAS 115.
Page 18
<PAGE>
The increase of $638,000 in net interest income is analyzed as follows:
<TABLE>
<CAPTION>
Six months ended June 30,
1996 vs. 1995 Change due to Increase (Decrease)
- - ------------------------- --------------------------------
Total Volume Rate Rate/Volume
----- ------ ---- -----------
(In thousands)
<S> <C> <C> <C> <C>
Interest income:
Loans $ 1,081 $ 750 $ 1,392 $(1,061)
Investment securities 724 1,911 (371) (816)
------ ------ ------- -------
Total 1,805 2,661 1,021 (1,877)
------ ------ ------- -------
Interest expense:
Deposits 554 (113) 1,225 (558)
Borrowings 613 1,537 (544) (380)
------ ------ ------- -------
Total 1,167 1,424 681 (938)
------ ------ ------- -------
Net interest income $ 638 $1,237 $ 340 $ (939)
======= ====== ======= =======
</TABLE>
The provision for possible loan and lease losses totaled $625,000 for the
six month period, compared to $525,000 for the same period last year. The
increased level of the provision reflects the risks associated with the Banks'
primary lending objective to increase the level of commercial loans.
Non-interest income
Total non-interest income decreased $344,000, or 9.50%, to $3,276,000. Fees
and charges increased $110,000 due to increased volumes in transaction accounts
and the increase in fees charged on certain transactions. Mortgage loan
servicing fees decreased $139,000 as a result of the lower level of loans
serviced for investors. In 1995, the Banks recognized $149,000 from the gain on
sale of loans, compared to $15,000 in 1996, reflecting the reduced level of loan
originations and sales. In addition, in 1995 $314,000 in gains were recognized
from the sale of securities, compared to $40,000 in 1996.
Non-interest expense
Total non-interest expense declined $1,349,000, or 9.54%. FDIC deposit
insurance premium decreased $937,000, a result of the reduction in premiums paid
on deposits. Other expenses decreased $404,000 due to the Company's focus on
reducing costs in 1995 and from the costs eliminated in the acquisition of
Braintree and the formation of the holding company to provide support services
to both Banks. Other real estate owned expense decreased $42,000 as a result of
decreased levels of other real estate owned. Salaries and benefits increased
$27,000, the net result of the decrease in employees in the residential lending
area, an increase in employees in the commercial lending and support areas, and
a decline in the cost of medical and retirement benefits. Occupancy and
equipment expenses remained relatively flat from the previous year's level.
Page 19
<PAGE>
Income taxes
Income taxes for the six months ended June 30, 1996 were 37.49% of pretax
income, compared to 37.81% for 1995. The slightly lower effective tax rate
resulted from the increased utilization of the Massachusetts securities
corporation subsidiaries of the Banks, higher income from tax exempt municipal
bonds, and the utilization of available tax credits.
Capital Adequacy
At June 30, 1996 the Company's capital ratios were total capital of 9.25%
of total assets, tier 1 risk-based capital ratio of 14.25%, and total risk-based
capital of 15.97% (unaudited).
The FDIC sets minimum leverage ratios for each insured institution
depending upon its CAMEL rating. Banks with the highest ratings are required to
carry a 3.0% leverage ratio, with less highly rated institutions required to
have minimum ratios at least 1.0% to 2.0% greater. Additionally, the FDIC has
risk-based capital regulations. Under these requirements, banks must have a
minimum risk-based capital rate of 8.00%.
At June 30, 1996 the Banks met all the capital requirements of a "well
capitalized" institution as defined by the FDIC. At June 30, 1996, the Banks'
regulatory capital ratios (unaudited) were:
<TABLE>
<CAPTION>
Concord Braintree
------- ---------
<S> <C> <C>
Total equity to total assets 8.81% 8.79%
Tier 1 capital 8.59 6.63
Tier 1 risk-based capital 15.75 11.28
Total risk-based capital 17.99 12.61
</TABLE>
Asset/Liability Management
The Company's objective with respect to asset/liability management is to
position the Company so that changes in interest rates do not have a material
impact on net interest income. The primary objective is to manage the assets and
liabilities to provide for profitability and capital at prudent levels of
liquidity and interest rate, credit, and market risk.
The Company uses a static gap measurement as well as a modeling approach to
review its level of interest rate risk. The internal targets established by the
Company are to maintain a static gap of no more than a positive or negative 10%
of total assets at the one year time frame. At June 30, 1996, the Company's one
year static gap was a negative $36,962,000, or (3.51)% of total assets.
Page 20
<PAGE>
Liquidity
Deposits and borrowings are the principal sources of funds for use in
lending and for general business purposes. Loan and investment amortization and
prepayments provide additional significant cash flows. The Company currently has
$173,784,000, or 16.52%, of assets in short-term investments and investment and
mortgage-backed securities classified available for sale. The Banks are members
of the Federal Home Loan Bank of Boston, and as such have access to a combined
credit line of $35,000,000 and the ability and capacity to borrow additional
funds if needed.
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
Neither the Company nor any of its subsidiaries is party to any pending
legal proceedings which are material other than routine litigation incidental to
their business activities.
ITEM 2 - CHANGES IN SECURITIES
Not applicable.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On April 30, 1996 the Company held its Annual Meeting of Stockholders. The
meeting was held for the purpose of the election of two directors.
At the meeting the following directors were elected to a three year term to
expire in 1999. The votes cast totaled 4,675,234; the disposition was as
follows:
<TABLE>
<CAPTION>
For Withheld
-------- ----------
<S> <C> <C>
David E. Bradbury 4,629,448 32,808
G. Robert Tod 4,625,252 37,004
</TABLE>
Page 21
<PAGE>
In addition, upon completion of the meeting the directors' terms continue
as follows:
<TABLE>
<CAPTION>
Name Term to expire in:
---- ------------------
<S> <C>
Robert J. Cutler 1997
Carroll P. Griffith, Jr. 1997
Albert D. Ehrenfried 1997
Chester G. Atkins 1998
John C. Doody 1998
Leon E. Lombard 1998
</TABLE>
ITEM 5 - OTHER INFORMATION
Not applicable.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
11 Computation of Per Share Earnings
27 Financial Data Schedule
99 Selected Financial Data
(b) Reports on Form 8-K
(I) During the second quarter of 1996, the Company filed a Form 8-K
dated June 28, 1996 concerning the Company's stock repurchase
program. The Form 8-K was filed with and accepted by the SEC on
July 1, 1996.
Page 22
<PAGE>
SIGNATURES
Under the requirements of the Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
Walden Bancorp, Inc.
August 9, 1996 \s\ David E. Bradbury
- - ------------------------------ ------------------------------
Date David E. Bradbury
Chairman, President, and
Chief Executive Officer
August 9, 1996 \s\ Michael O. Gilles
- - ------------------------------ ------------------------------
Date Michael O. Gilles
Executive Vice President, Treasurer
and Chief Financial Officer
Page 23
<PAGE>
EXHIBITS
Computation of per share earnings - Exhibit 11
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
----------------------- -----------------
1996 1995 1996 1995
---------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Average shares outstanding 5,319,263 5,180,948 5,302,716 5,158,608
Average dilutive option shares 124,859 142,922 124,820 149,012
---------- ---------- ---------- ----------
Total average shares 5,444,122 5,323,870 5,427,536 5,307,620
========== ========== ========== ==========
Net income $2,968,000 $2,476,000 $5,817,000 $4,827,000
========== ========== ========== ==========
Earnings per share $ 0.55 $ 0.47 $ 1.07 $ 0.91
========== ========== ========== ==========
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM WALDEN
BANCORP, INC. AND SUBSIDIARIES AND IS QUALIFIED IN ITS ENTIRETY BY REFERERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 27,940
<INT-BEARING-DEPOSITS> 5,800
<FED-FUNDS-SOLD> 20,464
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 167,200
<INVESTMENTS-MARKET> 145,469
<LOANS> 623,036
<ALLOWANCE> 11,700
<TOTAL-ASSETS> 1,051,743
<DEPOSITS> 768,229
<SHORT-TERM> 82,573
<LIABILITIES-OTHER> 4,493
<LONG-TERM> 91,072
0
0
<COMMON> 5,320
<OTHER-SE> 91,935
<TOTAL-LIABILITIES-AND-EQUITY> 1,051,743
<INTEREST-LOAN> 27,340
<INTEREST-INVEST> 9,354
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 36,694
<INTEREST-DEPOSIT> 13,287
<INTEREST-EXPENSE> 17,252
<INTEREST-INCOME-NET> 19,442
<LOAN-LOSSES> 625
<SECURITIES-GAINS> 40
<EXPENSE-OTHER> 3,418
<INCOME-PRETAX> 9,305
<INCOME-PRE-EXTRAORDINARY> 9,305
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,817
<EPS-PRIMARY> 1.07
<EPS-DILUTED> 1.07
<YIELD-ACTUAL> 4.07
<LOANS-NON> 7,264
<LOANS-PAST> 211
<LOANS-TROUBLED> 523
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 12,091
<CHARGE-OFFS> (1,087)
<RECOVERIES> 71
<ALLOWANCE-CLOSE> 11,700
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 11,700
</TABLE>
<PAGE>
Selected Financial Data - Exhibit 99
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
----------------------- -----------------
1996 1995 1996 1995
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
Return on average assets (annualized) 1.15% 1.01% 1.14% .99%
Return on average equity (annualized) 12.34 11.34 12.16 11.29
</TABLE>
