<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 March 31, 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 [X] No
The number of shares of common stock outstanding of each of the issuer's classes
of common stock, as of May 9, 1996 was 5,319,700.
<PAGE>
WALDEN BANCORP, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
<S> <C>
PART I - FINANCIAL INFORMATION......................................................... 1
Item 1 - Financial Statements......................................................... 1
Consolidated Balance Sheets - March 31, 1996 and December 31, 1996.................. 1
Consolidated Statements of Operations - Three months ended March 31, 1996 and 1995.. 2
Consolidated Statements of Cash Flows - Three months ended March 31, 1996 and 1995.. 3
Consolidated Statements of Changes in Stockholders' Equity - Three months ended
March 31, 1996.................................................................... 4
Notes to Consolidated Financial Statements for the Period Ended March 31, 1996...... 5
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................................... 6
PART II - OTHER INFORMATION............................................................ 14
Item 1 - Legal Proceedings............................................................ 14
Item 2 - Changes in Securities........................................................ 14
Item 3 - Defaults Upon Senior Securities.............................................. 14
Item 4 - Submission of Matters to a Vote of Security Holders.......................... 14
Item 5 - Other Information............................................................ 15
Item 6 - Exhibits and Reports on Form 8-K............................................. 15
SIGNATURES............................................................................ 16
EXHIBITS.............................................................................. 17
Computation of per share earnings - Exhibit 11...................................... 17
Selected Financial Data - Exhibit 27................................................ 17
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
Walden Bancorp, Inc. and Subsidiaries
Consolidated Balance Sheets
(In thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
----------- -------------
<S> <C> <C>
(Unaudited)
ASSETS
Cash and due from banks $ 33,408 $ 36,316
Short-term investments 29,496 42,673
Investment and mortgage-backed
securities
Available for sale (amortized cost
of $138,999 and $125,190) 138,269 125,337
Held to maturity (market value of
$130,352 and $130,293) 133,027 131,230
Loans receivable 630,160 636,174
Accrued interest receivable 6,248 5,944
Stock in Federal Home Loan Bank of 9,696 7,527
Boston
Co-operative Central Bank Reserve Fund 3,207 3,207
Premises and equipment, net 12,820 12,849
Other real estate owned 1,148 679
Prepaid expenses and other assets 4,174 4,196
Deferred tax asset 3,853 4,539
Goodwill 13,782 14,060
---------- ----------
$1,019,288 $1,024,731
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $ 770,257 $ 769,564
Borrowed funds 139,095 147,324
Advance payments by borrowers for 4,333 4,185
taxes and insurance
Accrued expenses and other 5,467 5,650
liabilities
Subordinated debenture 4,642 4,619
---------- ----------
Total liabilities 923,794 931,342
---------- ----------
Stockholders' equity:
Common stock, par value $1.00 per
share, issued and outstanding
5,312,017 and 5,261,449 shares 5,312 5,261
Additional paid-in capital 38,508 37,944
Retained income 52,185 50,077
Net unrealized (loss) gain on
investments available for sale,
net of tax (511) 107
---------- ----------
Total stockholders' equity 95,494 93,389
---------- ----------
$1,019,288 $1,024,731
========== ==========
Equity-to-asset ratio 9.37% 9.11%
Book value per share $17.98 $17.75
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
1
<PAGE>
Walden Bancorp, Inc. and Subsidiaries
Consolidated Statements of Operations
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended
March 31,
--------------------------------
1996 1995
------------------- -----------
(Unaudited)
<S> <C> <C>
Interest income:
Mortgage loans $ 11,987 $ 11,646
Other loans 1,711 1,232
Investments 4,454 4,258
---------- ----------
Total interest income 18,152 17,136
---------- ----------
Interest expense:
Deposits 6,721 6,031
Borrowed funds 1,852 1,710
---------- ----------
Total interest expense 8,573 7,741
---------- ----------
Net interest income before
provision for possible loan
losses 9,579 9,395
Provision for possible loan losses 376 275
---------- ----------
Net interest income after
provision for possible loan
losses 9,203 9,120
---------- ----------
Non-interest income:
Fees and charges 848 698
Mortgage loan servicing fees 645 745
Income from real estate operations 40 57
Gain on sale of loans 3 18
Gain on sale of securities 38 57
Gain on sale of other real estate owned -- 34
Provision for market value decline
on other real estate owned -- (10)
Miscellaneous 24 48
---------- ----------
Total non-interest income 1,598 1,647
---------- ----------
Income before non-interest
expense and income taxes 10,801 10,767
---------- ----------
Non-interest expense:
Salaries and benefits 3,282 3,349
Occupancy and equipment 1,091 1,024
Amortization of goodwill and other
intangibles 279 278
Deposit insurance premium 1 474
Other real estate owned expense 21 51
Other 1,607 1,751
---------- ----------
Total non-interest expense 6,281 6,927
---------- ----------
Income before income taxes 4,520 3,840
Income tax expense 1,671 1,488
---------- ----------
Net income $ 2,849 $ 2,352
========== ==========
Earnings per share $0.53 $0.44
========== ==========
Dividends per share $0.14 $0.10
========== ==========
Weighted average common and common
equivalent shares outstanding 5,410,949 5,352,089
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
2
<PAGE>
Walden Bancorp, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Three months ended March 31,
-----------------------------
1996 1995
------------- -----------
(Unaudited)
<S> <C> <C>
Net cash flows from operating
activities:
Net income 2,849 2,352
Adjustments to reconcile net
income to net cash provided (used)
by operating activities:
Provision for possible loan losses 376 275
Provision for market value decline -- 10
Depreciation and amortization 423 350
Amortization of goodwill 279 278
Amortization of premiums, net 181 99
Amortization of loan fees and discounts (249) (28)
(Gain) loss on sale of securities (38) (57)
Equity in limited partnership losses 42 42
Loans originated for sale (1,469) (3,293)
Loans sold 941 4,759
(Gain) loss on sale of other real
estate owned -- (34)
Decrease (increase) in
accrued interest receivable (304) 8
Decrease (increase) in
prepaid expense and other
assets 22 (2,860)
Decrease (increase) in deferred
income tax asset, net 686 545
Increase (decrease) in accrued
taxes, payments due
from borrowers and other
liabilities (183) 868
-------- --------
Net cash provided (used) by
operating activities 3,556 3,314
-------- --------
Net cash flows from investing
activities:
Decrease (increase) in
regulated investment funds 14,057 (4,836)
Maturities and principal
repayments on investments
held to maturity 12,546 5,875
Maturities and principal repayments
on investments available for sale 7,607 1,341
Proceeds from sale of investments
available for sale 3,000 6,223
Purchase of investments
held to maturity (14,397) (1,291)
Purchase of investments available
for sale (24,225) (10,054)
Purchase of FHLB of Boston Stock (2,169) 0
Net decrease (increase) in
loans 5,602 (2,660)
Capital expenditures (348) (739)
Proceeds from sales of real
estate held for sale -- 62
Proceeds from sales of and
receipts on other real
estate owned 405 188
-------- --------
Net cash provided (used) for
investing activities 2,078 (5,891)
-------- --------
Net cash flows from financing
activities:
Net deposit activity 693 8,380
Proceeds of borrowings 58,514 114,037
Repayment of borrowings (66,743) (122,630)
Cash dividends (741) (513)
Proceeds from issuance of common
stock 615 290
-------- --------
Net cash provided by financing
activities (7,662) (436)
-------- --------
Net increase (decrease) in cash and
cash equivalents: (2,028) 250
Cash and cash equivalents at
beginning of period 62,887 37,972
-------- --------
Cash and cash equivalents at end of
period 60,859 38,222
======== ========
Supplemental disclosure of cash flow
information:
Cash paid during period for:
Interest 7,429 7,610
Income taxes 777 163
Supplemental disclosure of non-cash
investing and financing:
Foreclosures 874 922
Loans transferred to performing
status from foreclosure -- 1,003
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<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 -- -- -- 3,729 3,729
investments available for sale ------ ------- ------- ------- -------
Balance at December 31, 1995 5,261 37,944 50,077 107 93,389
Net income -- -- 2,849 -- 2,849
Proceeds from sale of stock under
stock purchase and option plans 51 564 -- -- 615
Cash dividend ($0.14 per share) -- -- (741) -- (741)
Tax benefit from exercise of stock
options -- -- -- -- --
Change in net unrealized loss on
investments available for sale -- -- -- (618) (618)
------ ------- ------- ------- -------
Balance at March 31, 1996 (Unaudited) $5,312 $38,508 $52,185 $ (511) $95,494
====== ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED MARCH 31, 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 Acquisitions, 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 of a
normal recurring nature) considered necessary for a fair presentation have been
included. Operating results for the three months ended March 31, 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, 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) Accounting for Mortgage Servicing Rights
----------------------------------------
On January 1, 1996 the Company adopted the Financial Accounting Standards
Board ("FASB") Statement of Financial Accounting Standard ("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. The adoption of the statement had no material impact on the reported
results of operations for the period ended March 31, 1996.
5
<PAGE>
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., all
Massachusetts corporations. Braintree has three active subsidiaries: Braintree
Savings Corporation, Bra-Prop Corporation, and Braintree Securities
Corporation. Their primary lines of business are the ownership and management
of real properties acquired by the Banks to expedite the completion of the
construction and marketing of the properties. 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 the banks under Massachusetts' law.
The Banks' business activities are concentrated in Eastern Massachusetts.
All retail banking activity is conducted through the banking offices. Lending
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 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.
6
<PAGE>
FINANCIAL CONDITION
Investments
The table below sets forth the composition of the Company's short-term
investments for the periods presented:
<TABLE>
<CAPTION>
March 31, 1996 December 31, 1995
--------------- -----------------
(In thousands)
<S> <C> <C>
Federal Home Loan Bank overnight
deposits $17,451 $20,171
Interest bearing deposits in banks 10,000 6,400
Regulated investment funds 2,045 16,102
------- -------
$29,496 $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 $511,000 net unrealized loss was recognized as a
reduction to equity at March 31, 1996, compared to an unrealized gain of
$107,000 at December 31, 1995.
The tables below show the investment and mortgage-backed securities
portfolios for the periods presented:
The amortized cost and estimated market values of investments available for
sale were:
<TABLE>
<CAPTION>
March 31, 1996 December 31, 1995
-------------------------------------- --------------------------------
Estimated Estimated
Amortized market Amortized market
cost value cost value
---------------------- --------------- ------------ ------------------
Investment securities (In thousands)
<S> <C> <C> <C> <C>
Common and preferred stocks $ 6,086 $ 6,028 $ 5,177 $ 5,178
U.S. Treasuries 28,728 28,839 27,301 27,523
Government agencies - fixed 5,000 4,978 -- --
Corporate bonds and notes 27,521 27,369 19,061 19,117
-------- -------- -------- --------
67,335 67,211 51,539 51,818
-------- -------- -------- --------
Mortgage-backed securities
Adjustable rate 22,824 23,081 24,100 24,152
Fixed rate 18,291 18,127 19,292 19,495
Collateralized mortgage obligations -
fixed 6,193 5,834 6,327 6,001
Collateralized mortgage obligations -
adjustable 12,521 12,157 11,804 11,689
SBA mortgage-backed obligations -
adjustable 11,835 11,859 12,128 12,182
-------- -------- -------- --------
71,664 71,058 73,651 73,519
-------- -------- -------- --------
$138,999 $138,269 $125,190 $125,337
======== ======== ======== ========
</TABLE>
7
<PAGE>
The amortized cost and estimated market values of investments held to
maturity were:
<TABLE>
<CAPTION>
March 31, 1996 December 31, 1995
------------------------------------- -------------------------------
Estimated Estimated
Amortized market Amortized market
cost value cost value
---------------------- -------------- ------------ -----------------
(In thousands)
<S> <C> <C> <C> <C>
Investment securities
Municipal bonds and notes $ 6,030 $ 6,058 $ 6,045 $ 6,088
Government agencies - fixed 15,130 14,892 20,592 20,470
Government agencies - adjustable 13,117 12,881 13,113 12,869
-------- -------- -------- --------
34,277 33,831 39,750 39,427
-------- -------- -------- --------
Mortgage-backed securities
Adjustable rate -- -- -- --
Fixed rate 59,181 57,587 56,410 56,012
Collateralized mortgage obligations -
fixed 32,773 32,141 27,898 27,666
Collateralized mortgage obligations -
adjustable 6,796 6,793 7,172 7,188
-------- -------- -------- --------
98,750 96,521 91,480 90,866
-------- -------- -------- --------
$133,027 $130,352 $131,230 $130,293
======== ======== ======== ========
</TABLE>
Loans and leases
During the first quarter, loans receivable decreased by $6,014,000, or
0.95%, as detailed below:
<TABLE>
<CAPTION>
March 31, % of total December 31, % of total
1996 loans 1995 loans
---------- ----------- ------------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Mortgage loans:
Residential $370,363 57.53% $376,896 57.99%
Commercial real estate 140,011 21.75 155,339 23.90
Construction and land 33,451 5.20 32,880 5.06
Second mortgage and home equity 23,626 3.67 25,176 3.87
-------- -------- -------- --------
Total mortgage loans 567,451 88.14 590,291 90.83
-------- -------- -------- --------
Commercial loans 67,233 10.44 50,451 7.76
Other loans 9,136 1.42 9,157 1.41
-------- -------- -------- --------
Total loans 643,820 100.00% 649,899 100.00%
-------- ======== -------- ========
Deduct:
Allowance for loan loss 12,171 12,091
Unearned discount 731 953
Deferred loan fees 758 681
-------- --------
Net loans receivable $630,160 $636,174
======== ========
</TABLE>
The Banks' primary lending focus is commercial and small business lending.
At March 31, 1996, commercial real estate, construction and land, and commercial
loans represented 37.39% of total loans, compared to 36.72% at December 31,
1995.
8
<PAGE>
Residential mortgage loans decreased as a result of the lower origination
levels and the elimination of mortgage banking activities. At March 31, 1995
loans serviced for investors decreased to $644,995,000 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 March 31, 1996, non-performing
assets increased from $5,860,000 to $7,414,000. Non-performing assets decreased
$1,897,000 from March 31, 1995 to March 31, 1996. At March 31, 1996, non-
performing assets represented 0.73% of total assets and 1.17% 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.
The composition of non-performing assets for the periods presented was:
<TABLE>
<CAPTION>
March 31,
--------------------------------------- December 31,
1996 1995 1995
----------------------- -------------- -------------
(Dollars in thousands)
<S> <C> <C> <C>
Loans past due over 90 days:
Residential $ 3,483 $ 3,207 $ 4,354
Commercial real estate 1,672 2,704 1,416
Commercial 1,201 503 226
Other 174 41 120
------- ------- -------
$ 6,530 $ 6,455 $ 6,116
======= ======= =======
Loans past due over 90 days as a
percentage of:
Loans receivable 1.04% 1.05% 0.96%
Total assets 0.64 0.66 0.60
Non-performing assets:
Non-accrual loans $ 6,266 $ 6,044 $ 5,181
Renegotiated loans -- 1,231 --
------- ------- -------
Total non-performing loans 6,266 7,275 5,181
------- ------- -------
Other real estate owned 1,148 2,036 679
------- ------- -------
Total non-performing assets $ 7,414 $ 9,311 $ 5,860
======= ======= =======
Total non-performing assets as a
percentage of total loans 0.97% 1.16% 0.80%
Total non-performing assets as a
percentage of:
Loans receivable and other real estate owned 1.17% 1.51% 0.92%
Total assets 0.73 0.95 0.57
Loan loss reserve coverage ratios:
Non-performing assets 164.16% 112.90% 206.33%
Non-accrual loans 194.24 144.49 233.37
Total loans 1.89 1.67 1.86
</TABLE>
9
<PAGE>
The following represents the activity in the allowance for loan losses for
the three months ended March 31, 1996:
<TABLE>
<CAPTION>
(In thousands)
<S> <C>
Balance at December 31, 1995 $12,091
Provision for possible loan losses 376
Losses charged to allowance (313)
Recoveries 17
-------
Balance at March 31, 1995 $12,171
=======
</TABLE>
The Banks continually review their delinquency position, underwriting and
appraisal procedures, charge-off experience, and current real estate market
conditions with respect to its entire loan portfolio. 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.
Deposits and Borrowed Funds
Deposits increased slightly during the three month period as detailed
below:
<TABLE>
<CAPTION>
March 31, % of total December 31, % of total
1996 deposits 1995 deposits
----------- ----------- ------------ -----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Regular savings accounts $193,769 25.16% $191,080 24.83%
NOW accounts 105,272 13.67 105,846 13.75
Advantage Accounts 30,916 4.01 30,215 3.93
Money market accounts 66,831 8.68 64,899 8.43
Non-interest bearing deposits 55,891 7.26 51,858 6.74
-------- ------ -------- ------
452,679 58.77 443,898 57.68
Term deposits 317,578 41.23 325,666 42.32
-------- -------- ------
Total deposits $770,257 100.00% $769,564 100.00%
======== ====== ======== ======
</TABLE>
While total deposits remained relatively flat for the period, there were
changes within the portfolio with an approximate $8 million change in mix from
term accounts to regular savings and non-interest bearing deposits.
During the period, borrowed funds decreased $8,229,000, or 5.59%, because
the Banks used available funds from maturities in the investment portfolio, the
increase in deposits, and reduction in loans receivable to reduce the level of
borrowings from the Federal Home Loan Bank of Boston.
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
Results of Operations
Consolidated net income for the three months ended March 31, 1996 totaled
$2,849,000, or $0.53 per share, compared to $2,352,000, or $0.44 per share, for
the same period last year.
10
<PAGE>
This represents an increase of 21.13% in earnings and an increase of 20.45% in
earnings per share. The increase in earnings was directly attributable to an
increase in net interest income, lower operating expenses, and a lower effective
tax rate, as compared to the same period last year.
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 March 31, 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 $ 571,490 $11,987 8.39% $575,111 $11,646 8.10%
Other loans 68,646 1,711 9.97 50,909 1,232 9.68
Investments 296,603 4,454 6.04 287,809 4,258 6.00
---------- ------- -------- -------
Total interest earning assets 936,739 18,152 7.77 913,829 17,136 7.49
Non interest earning assets 67,756 56,068
---------- --------
Total $1,004,495 $969,897
========== ========
Liabilities and Stockholders' Equity
Interest bearing liabilities:
Deposits $ 707,170 6,721 3.82 $715,055 6,031 3.42
Borrowed funds 135,461 1,852 5.50 121,588 1,710 5.76
---------- ------- -------- -------
Total interest bearing liabilities 842,631 8,573 836,643 7,741
Non interest bearing liabilities:
Demand deposits 48,714 39,698
Total cost of funds 3.86 3.57
Other liabilities 18,281 9,780
Stockholders' equity 94,869 83,776
---------- --------
Total $1,004,495 $969,897
========== ========
Net interest income $ 9,579 $ 9,395
======= =======
Interest rate spread 3.91 3.92
Net interest margin 4.09 4.11
</TABLE>
11
<PAGE>
The increase of $184,000 in net interest income is analyzed as follows:
<TABLE>
<CAPTION>
Quarters ended March 31,
1996 vs. 1995
-------------------------
Change due to Increase (Decrease)
----------------------------------
Total Volume Rate Rate/Volume
------- ------- -------- ------------
(In thousands)
<S> <C> <C> <C> <C>
Interest income:
Loans $ 820 $1,162 $2,072 $(2,413)
Investment securities 196 528 115 (447 )
------ ------ ------ -------
Total 1,016 1,688 2,187 (2,860)
------ ------ ------ -------
Interest expense:
Deposits 690 36 2,720 (2,065)
Borrowings 142 799 (316) (341)
------ ------ ------ -------
Total 832 835 2,404 (2,407)
------ ------ ------ -------
Net interest income $ 184 $ 853 $ (217) $ (454)
====== ====== ====== =======
</TABLE>
The provision for possible loan losses totaled $376,000 for the quarter,
compared to $275,000 for the same period last year. The increase in the
provision reflected the risks associated with the Banks' primary lending
objective to increase the level of commercial loans.
Non-interest income
Total non-interest income decreased $76,000, or 4.61%, to $1,598,000. Fees
and charges increased $150,000 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 decreased level of loans serviced
for investors.
Non-interest expense
Salaries and benefits decreased $67,000, 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
benefits. Occupancy and equipment expenses increased $67,000 as a result of the
additional costs associated with maintaining the Company's facilities. Other
real estate owned expense decreased $30,000 as a result of decreased levels of
other real estate owned. FDIC deposit insurance premium decreased $473,000, a
result of the reduction in premiums paid on deposits. Other expenses decreased
$144,000 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 providing support services to both Banks.
12
<PAGE>
Income taxes
Income taxes for the three months ended March 31, 1996 were 36.97% of
pretax income, compared to 38.75% for 1995. The lower effective tax rate was
the result of increased utilization of the Massachusetts securities corporation
subsidiaries of the Banks, higher income from municipal bonds, and the
utilization of available tax credits.
Capital Adequacy
At March 31, 1996 the Company's capital ratios were total capital of 9.37%
of total assets, risk-based capital ratio of 13.43%, and total risk-based
capital of 15.60% (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 March 31, 1996 the Banks met all the capital requirements of a "well
capitalized" institution as defined by the FDIC. At March 31, 1996, the Banks'
regulatory capital ratios (unaudited) were:
<TABLE>
<CAPTION>
Concord Braintree
-------- ----------
<S> <C> <C>
Total equity to total assets 8.99% 9.35%
Tier 1 capital 8.71 7.13
Risk-based capital 14.96 12.04
Total risk-based capital 18.04 13.39
</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 March 31, 1996, the Company's
one year static gap was a negative $32,139,000, or 3.15% of total assets.
13
<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 $167,765,000, or 16.46%, 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>
14
<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
(b) Reports on Form 8-K
(i) None
15
<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.
May 14, 1996 \s\ David E. Bradbury
- - - ---------------------------- ----------------------------------------------
Date David E. Bradbury Chairman, President, and
Chief Executive Officer
May 14, 1996 \s\ Michael O. Gilles
- - - ---------------------------- --------------------------------------------
Date Michael O. Gilles Executive Vice President, Treasurer
and Chief Financial Officer
16
<PAGE>
EXHIBITS
Computation of per share earnings - Exhibit 11
<TABLE>
<CAPTION>
Three months ended
March 31,
------------------
1996 1995
--------- ----------
<S> <C> <C>
Average shares outstanding 5,286,168 5,143,812
Average dilutive option shares 124,780 208,277
---------- ----------
Total average shares 5,410,949 5,352,089
========== ==========
Net income $2,849,000 $2,352,000
========== ==========
Earnings per share $ 0.53 $ 0.44
========== ==========
</TABLE>
Selected Financial Data - Exhibit 27
<TABLE>
<CAPTION>
Three months ended
March 31,
-------------------
1996 1995
------ ------
<S> <C> <C>
Return on average assets (annualized) 1.13% 0.97%
Return on average equity (annualized) 12.01 11.23
</TABLE>
17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
BALANCE SHEET, INCOME STATEMENT, AND TABLE OF NON-PERFORMING ASSETS AND
IS QUALIFIED IN ITS ENTIRETY BY REFERNCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-START> JAN-01-1996 JAN-01-1995
<PERIOD-END> MAR-31-1996 DEC-31-1995
<CASH> 33,408 36,316
<INT-BEARING-DEPOSITS> 19,496 36,273
<FED-FUNDS-SOLD> 10,000 6,400
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 138,269 125,337
<INVESTMENTS-CARRYING> 133,027 131,230
<INVESTMENTS-MARKET> 130,352 130,293
<LOANS> 643,820 649,899
<ALLOWANCE> 12,171 12,091
<TOTAL-ASSETS> 1,019,288 1,024,731
<DEPOSITS> 770,257 769,564
<SHORT-TERM> 139,095 147,324
<LIABILITIES-OTHER> 9,800 9,835
<LONG-TERM> 4,642 4,619
0 0
0 0
<COMMON> 5,312 5,261
<OTHER-SE> 90,182 88,128
<TOTAL-LIABILITIES-AND-EQUITY> 1,019,288 1,024,731
<INTEREST-LOAN> 13,698 0
<INTEREST-INVEST> 4,454 0
<INTEREST-OTHER> 0 0
<INTEREST-TOTAL> 18,152 0
<INTEREST-DEPOSIT> 6,721 0
<INTEREST-EXPENSE> 8,573 0
<INTEREST-INCOME-NET> 9,579 0
<LOAN-LOSSES> 376 0
<SECURITIES-GAINS> 38 0
<EXPENSE-OTHER> 6,281 0
<INCOME-PRETAX> 4,520 0
<INCOME-PRE-EXTRAORDINARY> 4,520 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 2,849 0
<EPS-PRIMARY> 0.53 0
<EPS-DILUTED> 0.53 0
<YIELD-ACTUAL> 4.09 0
<LOANS-NON> 6,266 5,181
<LOANS-PAST> 264 935
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 12,091 0
<CHARGE-OFFS> 313 0
<RECOVERIES> 17 0
<ALLOWANCE-CLOSE> 12,171 0
<ALLOWANCE-DOMESTIC> 12,171 0
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 0 0
</TABLE>
