SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1 TO
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to ___________.
Commission File number: 000-23149
----------------------------------
SANDWICH BANCORP, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Massachusetts 04-3394368
------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
100 Old Kings Highway
Sandwich, MA 02563
- --------------------------------------- ---------
(Address of principal executive office) (Zip Code)
(508) 888-0026
--------------------------------------------------
(Registrant's telephone number, including area code)
Not applicable
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
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.
Yes [ X ] No [ ]
The number of shares outstanding of each of the registrant's
classes of common stock as of March 31, 1998:
Common Stock: $1.00 par value 1,945,756
- ----------------------------- -------------------
(Title of class) (Shares outstanding)
SANDWICH BANCORP, INC.
INDEX
PART I - FINANCIAL INFORMATION
Consolidated Balance Sheets at March 31, 1998
and December 31, 1997 3
Consolidated Statements of Operations for the
three months ended March 31, 1998 and 1997 4
Consolidated Statements of Changes in Stockholders'
Equity at March 31, 1998 and 1997 5
Consolidated Statements of Cash Flows for the three
months ended March 31, 1998 and 1997 6
Notes to Consolidated Financial Statements 7
Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Quantitative and Qualitative Disclosures
about Market Risk 12
PART II - OTHER INFORMATION 14
Signatures
2
SANDWICH BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
March 31,
1998 December 31,
(Unaudited) 1997
----------- -------------
(In thousands)
ASSETS
Cash and due from banks $12,742 $ 9,949
Federal funds sold 16,814 6,018
------- -------
Total cash and cash equivalents 29,556 15,967
------- -------
Other short-term investments 2,120 101
Investment securities:
Available for sale 20,629 10,995
Held to maturity 84,157 99,577
------- -------
Total investment securities 104,786 110,572
------- -------
Loans:
Mortgage loans 346,064 346,062
Other loans 23,641 24,680
-------- --------
Total loans 369,705 370,742
Less allowance for loan losses 4,134 4,100
-------- --------
Net loans 365,571 366,642
-------- --------
Stock in Federal Home Loan Bank of Boston,
at cost 3,749 3,749
Accrued interest receivable 2,602 2,836
The Co-operative Central Bank Reserve Fund 965 965
Real estate held for sale 457 457
Real estate acquired by foreclosure 280 596
Office properties and equipment 4,562 4,641
Leased property under capital lease 1,730 1,738
Core deposit and other intangibles 1,347 1,459
Income taxes receivable, net - 103
Deferred income tax asset, net 2,951 2,948
Prepaid expenses and other assets 5,853 5,923
------- -------
Total assets $526,529 $518,697
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits $426,729 $423,014
Borrowed funds 47,601 45,601
Capital lease obligation 1,730 1,738
Escrow deposits of borrowers 1,857 1,604
Income taxes payable, net 583 -
Accrued expenses and other liabilities 5,467 4,726
-------- --------
Total liabilities 483,967 476,683
-------- --------
STOCKHOLDERS' EQUITY
Preferred stock, par value $1.00 per share;
authorized 5,000,000 shares; none issued
or outstanding -- --
Common stock, par value $1.00 per share;
authorized 15,000,000 shares; 1,945,756
and 1,942,159 issued and outstanding,
respectively 1,946 1,942
Additional paid-in capital 20,167 20,139
Retained earnings 20,347 19,848
Accumulated other comprehensive income 102 85
-------- --------
Total stockholders' equity 42,562 42,014
-------- --------
Total liabilities and stockholders'
equity $526,529 $518,697
======== ========
See accompanying notes to unaudited consolidated financial statements.
3
SANDWICH BANCORP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
March 31,
-------------------
1998 1997
------ ------
(In thousands, except
per share amounts)
INTEREST AND DIVIDEND INCOME
Interest on loans $ 7,344 $ 6,507
Interest and dividends on investment
securities available for sale 209 167
Interest on investment securities held
to maturity 1,514 1,618
Interest on short-term investments 117 33
------ ------
Total interest and dividend income 9,184 8,325
------ ------
INTEREST EXPENSE
Deposits 4,030 3,581
Borrowed funds 732 541
------ ------
Total interest expense 4,762 4,122
------ ------
Net interest and dividend income 4,422 4,203
Provision for loan losses 57 109
------ ------
Net interest and dividend income after
provision for loan losses 4,365 4,094
------ ------
NON-INTEREST INCOME
Service charges 402 406
Mortgage loan servicing fees 67 63
Gain on sale of loans, net 158 40
Other (21) 107
------ ------
Total non-interest income 606 616
------ ------
Income before non-interest expense and
income taxes 4,971 4,710
------ ------
NON-INTEREST EXPENSE
Salaries and employee benefits 1,598 1,528
Occupancy and equipment 362 372
FDIC deposit insurance 19 18
Advertising 118 101
Data processing service fees 162 156
Foreclosed property expense 16 16
Amortization of core deposit intangible 112 131
Other 646 683
------ ------
Total non-interest expense 3,033 3,005
------ ------
Income before income tax expense 1,938 1,705
Income tax expense 758 658
------ ------
Net income $1,180 $1,047
====== ======
Basic earnings per share $ 0.61 $ 0.55
====== ======
Diluted earnings per share $ 0.58 $ 0.53
====== ======
Average basic shares outstanding 1,945 1,904
Dilutive effect of outstanding stock options 95 84
------ ------
Average diluted shares outstanding 2,040 1,988
====== ======
See accompanying notes to unaudited financial statements.
4
SANDWICH BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
Accumulated
Additional other
Common paid-in Retained comprehensive
Stock capital earnings income Total
------ ---------- -------- ---------------- --------
(In thousands)
Balance at December 31, 1996 $1,902 $19,323 $17,381 $ 27 $38,633
Net income for three months -- -- 1,047 -- 1,047
Other comprehensive income, net of tax
Unrealized gains on securities, net
of reclassification adjustment 16 16
-------
Comprehensive income 1,063
Dividends declared ($0.30 per share) -- -- (572) -- (572)
Stock options exercised 4 43 -- -- 47
------ ------- ------- ----- -------
Balance at March 31, 1997 $1,906 $19,366 $17,856 $ 43 $39,171
====== ======= ======= ===== =======
Balance at December 31, 1997 $1,942 $20,139 $19,848 $ 85 $42,014
Comprehensive income:
Net income for three months -- -- 1,180 -- 1,180
Other comprehensive income, net of tax
Unrealized gains on securities, net
of reclassification adjustment 17 17
-------
Comprehensive income 1,197
Dividends declared ($0.35 per share) -- -- (681) -- (681)
Stock options exercised 4 28 -- -- 32
------ ------- ------- ----- -------
Balance at March 31, 1998 $1,946 $20,167 $20,347 $ 102 $42,562
====== ======= ======= ===== =======
DISCLOSURE OF RECLASSIFICATION AMOUNT:
Unrealized holding gains arising during
period $ 17
Less: reclassification adjustment for
gains included in net income --
-----
Net unrealized gains on securities $ 17
=====
See accompanying notes to consolidated financial statements.
5
SANDWICH BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
-----------------
1998 1997
---- ----
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,180 $ 1,047
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 57 109
Provision for loss and writedowns of real
estate acquired by foreclosure 13 11
Depreciation and amortization 272 161
(Increase) decrease in:
Accrued interest receivable 234 89
Deferred income tax asset, net (12) (30)
Other assets 70 1,216
Income taxes receivable 103 --
Core deposit intangible 112 131
Increase(decrease)in:
Escrow deposits of borrowers 253 600
Income tax payable 583 170
Accrued expenses and other liabilities 741 (1,678)
Gain on sales of loans, net (158) (40)
Principal balance of loans originated
for sale (17,660) (2,312)
Principal balance of loans sold 17,786 2,307
Loss on sales of investment securities, net -- 6
Gain on sales of real estate acquired by
foreclosure (25) --
------- -------
Total adjustments 2,369 740
------- -------
Net cash provided by operating activities 3,549 1,787
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of investment securities available
for sale (10,362) (13)
Purchases of investment securities held to
maturity -- (1,016)
Proceeds from sales of investment securities
available for sale -- 2,527
Proceeds from maturities and paydowns of
investment securities available for sale 739 2,460
Proceeds from maturities and paydowns of
investment securities held to maturity 15,325 9,195
(Increase) decrease in:
Short-term investments (2,019) (3,004)
Loans 916 (15,679)
Investments in real estate -- 3
Proceeds from sale of real estate acquired by
foreclosure 458 217
Purchase of office properties and equipment (83) (71)
------- -------
Net cash provided (used) by investing
activities 4,974 (5,381)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 3,715 (3,414)
Advances from the Federal Home Loan Bank
of Boston 16,000 53,000
Repayment of Federal Home Loan Bank advances (14,000) (38,526)
Cash dividends paid (681) (572)
Stock options exercised 32 47
------- -------
Net cash provided by financing activities 5,066 10,535
------- -------
Net increase in cash and federal funds sold 13,589 6,941
Cash and federal funds sold, beginning of
period 15,967 11,718
------- -------
Cash and federal funds sold, end of period $29,556 $18,659
======= =======
CASH PAID FOR
Interest on deposits $ 4,035 $ 3,581
======= =======
Interest on borrowed funds $ 730 $ 508
======= =======
Income taxes, net $ 94 $ 516
======= =======
OTHER NON-CASH ACTIVITIES
Deferred taxes on change in unrealized (gain)
loss on securities available for sale $ (9) $ (1)
======= =======
Additions to real estate acquired by
foreclosure $ 130 $ 524
======= =======
See accompanying notes to unaudited consolidated financial statements.
6
SANDWICH BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
March 31, 1998 and 1997
(1) BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
BASIS OF PRESENTATION
The unaudited consolidated financial statements of Sandwich
Bancorp, Inc.(the "Company") and its wholly owned subsidiary,
the Sandwich Co-operative Bank (the "Bank") presented herein
should be read in conjunction with the consolidated financial
statements of the Company as of and for the year ended December
31, 1997. In the opinion of management, the interim financial
statements reflect all adjustments (consisting of normal
recurring adjustments) necessary for a fair presentation of the
three months ended March 31, 1998 and 1997. Interim results are
not necessarily indicative of results to be expected for the
entire year. Certain reclassifications have been made to the
December 31, 1997 and the March 31, 1997 balances to conform
with March 31, 1998 presentation. Management is required to
make estimates and assumptions that effect amounts reported in
the financial statements. Actual results could differ
significantly from those estimates.
GENERAL
On September 30, 1997, the Registrant completed the acquisition
of the Sandwich Co-operative Bank (the "Bank") pursuant to a
Plan of Reorganization and Acquisition, dated January 27, 1997,
pursuant to which the Bank became a wholly owned subsidiary of
the Registrant, a newly formed holding bank incorporated by the
Bank for that purpose. Under the terms of the Plan of
Reorganization and Acquisition, each outstanding share of the
common stock, $1.00 par value per share, of the Bank (the
"Bank's Common Stock") was converted into one share of the
common stock, $1.00 par value per share, of the Registrant (the
"Common Stock") and the former holders of the Bank's Common
Stock became the holders of all the outstanding Common Stock.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued SFAS No. 130, "Reporting
Comprehensive Income." SFAS No. 130 establishes standards for
reporting and displaying comprehensive income, which is defined
as all changes to equity except investments by and distributions
to shareholders. Net income is a component of comprehensive
income, with all other components referred to in the aggregate
as other comprehensive income. This statement is effective for
1998 financial statements and is not expected to have a material
effect on the financial statements. This statement was adopted
in the first quarter of 1998 and did not have a material effect
on the financial statements.
RECENT EVENTS
On February 2, 1998, the Company and the Bank entered into a
definitive agreement under which Compass Bank of New Bedford,
Massachusetts will acquire Sandwich Bancorp, Inc. Prior to the
Company's consideration and approval of its definitive agreement
with Compass Bank, the Company had contacted and received
expressions of interest from three other parties who had an
interest in an acquisition of the Company.
On February 24, 1998, the Company announced that its Board of
Directors, consistent with the exercise of its fiduciary duties,
determined that it was appropriate to request additional
information and a clarification of the renewed expressions of
interest that it had recently received subsequent to February 2
from the three other parties.
7
Following a comprehensive review of the other expressions of
interests for the Company, the Company and Compass Bank jointly
announced on March 23, 1998, that they had signed an amendment
to their previously announced agreement of February 2, 1998 by
which Compass Bank would acquire Sandwich Bancorp, Inc. Under
the terms of the amended agreement, Compass Bank's parent
company, The 1855 Bancorp will convert to a 100% publicly owned
stock holding company and thereafter issue stock having a value
of $64.00 per share to Sandwich Bancorp shareholders in a tax-
free exchange of common stock. The value to be received by
Sandwich Bancorp shareholders is subject to adjustment pursuant
to a formula based on the value of the stock of The 1855 Bancorp
near the transaction date. Based on 1855 Bancorp's assumed
initial public offering price of $10.00 per share, each Sandwich
Bancorp share will be exchanged for 1855 Bancorp stock having a
value of $64.00 per share so long as 1855 Bancorp stock trades
at an average price of between $10.00 and $13.50 per share
during a designated trading period following the initial public
offering date. If this average price exceeds $13.50 per share,
the value to be received by Sandwich Bancorp shareholders will
increase proportionately up to a maximum value of $71.11 until
1855 Bancorp's average price reaches or exceeds $15.00 per
share. If this average price is equal to or less than $10.00 per
share, Sandwich Bancorp shares will be exchanged for 6.4 shares
of 1855 Bancorp stock.
Sandwich Bancorp and The 1855 Bancorp also entered into a Stock
Option Agreement, granting to The 1855 Bancorp an option to
acquire up to 19.9% of Sandwich's common stock under certain
circumstances. The transaction, which is subject to all
necessary regulatory and shareholder approvals, is expected to
close in the fourth quarter of 1998.
8
SANDWICH BANCORP, INC.
---------------------
Management's Discussion and Analysis of Financial
-------------------------------------------------
Condition and Results of Operations
-----------------------------------
FINANCIAL CONDITION
The following is a discussion of the major changes and trends in
financial condition as of March 31, 1998 as compared to December
31, 1997.
At March 31, 1998, the Company's total assets were $526,529,000
as compared to $518,697,000 at December 31, 1997, an increase of
$7,832,000 or 1.5%. The increase is largely attributable to
increases in cash and cash equivalents and other short-term
investments, partially offset by a decrease in investment
securities. Total cash and cash equivalents at March 31, 1998
totaled $29,556,000 compared to $15,967,000 at December 31,
1997, an increase of $13,589,000. The increase was the result of
cash flow from loan repayments reinvested into federal funds
sold. The Company's investment portfolio, including other
short-term investments, investment securities available for sale
and investment securities held to maturity decreased $3,767,000
or 3.4% to $106,906,000 at March 31, 1998 compared to
$110,673,000 at December 31, 1997. Maturities on investment
securities and cash flow from mortgage-backed securities were
reinvested into investment securities available for sale.
The major components of investment securities at March 31, 1998
and December 31, 1997 are as follows:
March 31, December 31,
1998 1997
------------- -----------
(In thousands)
Available-for-sale:
US Government obligations $ 1,000 $ --
Mortgage-backed securities 19,469 10,861
Common and preferred stocks 2 2
Unrealized gain on investment
securities available for sale 158 132
-------- --------
20,629 10,995
-------- --------
Held-to-maturity:
US Government obligations 12,985 15,480
Collateralized mortgage obligations 44,619 50,209
Mortgage-backed securities 26,553 33,888
-------- --------
84,157 99,577
-------- --------
Total $104,786 $110,572
======== ========
The New England and local real estate markets have been
positively impacted by a decline in market interest rates,
occurring late in the fourth quarter of 1997 and continuing
through the first quarter of 1998. The decline has created a
significant increase in fixed rate loan originations and loan
refinances. As evidence of this, the Company's loan portfolio,
net of allowance for loan losses, realized a slight decrease to
$365,571,000 at March 31, 1998 compared to $366,642,000 at
December 31, 1997, through early payoffs and principal
amortization. In addition, property acquired by the Company as
the result of foreclosure or repossession decreased to $280,000
at March 31, 1998 from $596,000 at December 31, 1997. Foreclosed
properties are classified as "real estate acquired by
foreclosure," representing the lower of the carrying value of
the loan or the fair value of the property less costs to sell
until such time as they are sold or otherwise disposed. During
the three months ended March 31, 1998, the Company acquired two
properties through foreclosure or repossession, of which one was
a land loan totaling $30,000 and one, a commercial mortgage loan
totaling $100,000. During the same period, the Company sold four
foreclosed residential properties totaling $458,000.
9
Management anticipates continued stability in the economy in
1998. However, the local real estate market continues to
represent a risk to the Company's loan portfolio and could
result in an increase in, and reduced values of, properties
acquired by foreclosure. Accordingly, higher provisions for loan
losses and foreclosed property expense may be required should
economic conditions worsen or the levels of the Company's non-
performing assets increase.
Deposits increased by $3,715,000 or 0.9% to $426,729,000 at
March 31, 1998 compared to $423,014,000 at December 31, 1997.
Substantially all of the increase was realized in money market
deposit accounts, passbook savings and checking accounts.
Borrowed funds increased by $2,000,000 to $47,601,000 at March
31, 1998 compared to $45,601,000 at December 31, 1997. Advances
from the Federal Home Loan Bank of Boston were utilized to fund
the purchase of investment securities.
Total stockholders' equity increased $548,000 or 1.3% since
December 31, 1997. Increases in stockholders' equity resulted
from net income of $1,180,000, stock options exercised of
$32,000 and an increase in net unrealized gains on investment
securities available for sale of $17,000, partially offset by
cash dividends paid of $0.35 per share or $681,000. The Company
is required to maintain certain levels of capital (stockholders'
equity) pursuant to FDIC regulations. At March 31, 1998, the
Company had a qualifying total capital to risk-weighted assets
ratio of 15.27%, of which 7.98% constituted Tier 1 leverage
capital, substantially exceeding the FDIC qualifying total
capital to risk-weighted assets requirement of at least 8.00%,
of which at least 4.00% must be Tier 1 leverage capital.
As a result of the amendment to the Merger Agreement of February
2, 1998, which was signed on March 23, 1998, the new terms,
being a stock-for-stock transaction, will allow the Company to
record the transaction under the pooling-of-interest method.
Under the pooling-of-interest method, the Company is allowed to
defer all merger-related expenses (versus expensing as
incurred). During the first quarter of 1998, the Company
incurred approximately $627,000 of merger-related expenses,
which have been deferred and will be recognized during the
quarter when the merger is complete.
RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED MARCH 31, 1998 AND 1997
GENERAL
Operations for the three months ended March 31, 1998 resulted in
net income of $1,180,000 compared with $1,047,000 for the three
months ended March 31, 1997. The principal reason for the
increase was improvement in net interest and dividend income
resulting from growth in the residential mortgage loan portfolio
from $214,708,000 at March 31, 1997 to $253,398,000 at March 31,
1998. Additionally, increases in net gains on the sale of loans
in the secondary market were realized for the three months ended
March 31, 1998. Market interest rates have remained low over the
three month period, a continuance from the initial decline
experienced late in the fourth quarter of 1997. The Company's
results of operations largely depend upon its net interest
margin which is the difference between the income earned on
loans and investments, and the interest expense paid on deposits
and borrowings divided by total interest earning average assets.
The net interest margin is affected by economic and market
factors which influence interest rate levels, loan demand and
deposit flows. The net interest margin decreased to 3.56% for
the three months ended March 31, 1998 from 3.78% for the three
months ended March 31, 1997.
Trends in the real estate market locally and in New England
impact the Company because of its real estate loan portfolio. If
the local and New England real estate markets should show signs
of weakness, additional provisions for loan losses and further
write downs of properties acquired by foreclosure or
repossession may be necessary in the future. In addition,
various regulatory agencies, as an integral part of their
examination process, periodically review the Company's allowance
for loan losses. Such agencies may require the Company to
recognize additions to the allowance based on information
available at the time of their review.
10
INTEREST AND DIVIDEND INCOME
Interest and dividend income increased by $859,000 or 10.3% to
$9,184,000 for the three months ended March 31, 1998 when
compared to three months ended March 31, 1997. Interest on loans
increased $837,000 or 12.9% as a result of an increase in the
average balance outstanding of $45,142,000, partially offset by
a decrease in the average rate earned on the portfolio from
7.97% in the first quarter of 1997 to 7.90% for the same period
in 1998. Interest and dividends on total investments increased
by $27,000 as a result of the increase in the average balance
outstanding of $5,980,000. The yield on the Company's investment
portfolio decreased to 5.99% for the March 31, 1998 period, as
compared to 6.20% for March 31, 1997.
INTEREST EXPENSE
Total interest expense increased $640,000 to $4,762,000 for the
three months ended March 31, 1998, from $4,122,000 for the three
months ended March 31, 1997. Interest expense on interest
bearing deposits increased by $449,000 or 12.5%. The increase
reflects an increase in the average balance outstanding of
$34,371,000 and an increase in interest rates over the three
month period, from 4.07% in 1997 to 4.17% in 1998. Interest
expense on borrowed funds increased $191,000 primarily due to an
increase in the average balance outstanding of $12,865,000,
along with a slight increase in interest rates over the three
month period from 5.74% in 1997 to 5.79% in 1998. Advances from
the Federal Home Loan Bank of Boston were used to fund the
purchase of investment securities. Interest rates on interest
bearing deposits and borrowed funds for the three months ended
March 31, 1998 increased to 4.39% from 4.26% when compared to
the same period in 1997.
PROVISION FOR LOAN LOSSES
The provision for loan losses charged to earnings for the three
months ended March 31, 1998 was $57,000, compared to $109,000
charged to earnings for the 1997 period. The decrease was the
result of a decline in non-performing assets for the three
months ended March 31, 1998. At March 31, 1998, total non-
performing assets were $3,141,000 representing 0.60% of total
assets, compared to $5,132,000 or 1.08% of total assets at March
31, 1997. Management's analysis of the loan portfolio considers
risk elements by loan category, and also the prevailing economic
climate and anticipated future uncertainties. Future adjustments
to the allowance for loan losses may be necessary if economic
conditions differ substantially from assumptions used in
performing the analysis, or the levels of the Company's non-
performing assets increase significantly.
Non-accrual loans as of March 31, 1998 decreased $1,510,000 to
$2,861,000 when compared to the March 31, 1997 balance of
$4,371,000. Substantially all of the decrease was attributed to
non-accrual residential mortgage loans. Restructured loans at
March 31, 1998 were $105,000 compared to $107,000 at March 31,
1997. Typically, restructured loans are modified to provide
either a reduction of the interest on the loan principal or an
extension of the loan maturity.
Non-performing assets and the percentage of such assets to total
loans and total assets are as follows:
(Dollars in thousands) March 31, December 31, March 31,
1998 1997 1997
------------ ----------- -------------
Non-performing assets:
Non-accrual loans:
Mortgage loans $2,631 $3,283 $3,786
Other loans 230 298 585
------ ------ ------
Total non-accrual loans 2,861 3,581 4,371
Real estate acquired by
foreclosure 280 596 761
------ ------ ------
Total non-performing assets $3,141 $4,177 $5,132
====== ====== ======
11
March 31, December 31, March 31,
1998 1997 1997
------------ ----------- -----------
Non-accrual loans as a
percentage of:
Total loans receivable 0.77% 0.97% 1.30%
==== ==== ====
Total assets 0.54% 0.69% 0.92%
==== ==== ====
Non-performing assets as a
percentage of:
Total assets 0.60% 0.81% 1.08%
==== ==== ====
NON-INTEREST INCOME
Non-interest income decreased $10,000 for the three months ended
March 31, 1998 when compared to the same period in 1997.
Substantially all of the decrease was due to a decline of
$128,000 in other non-interest income resulting from the write-
off of premium paid on ARM loan purchases and mortgage-backed
securities as a result of accelerated principal pre-payments.
The decline was partially offset by an increase of $118,000 in
net gains realized on the sale of fixed rate loans in the
secondary market resulting from increased fixed rate loan
originations due to a decline in market interest rates late in
the fourth quarter of 1997 and continuing through the first
quarter of 1998.
NON-INTEREST EXPENSE
Non-interest expense increased by $28,000 or 0.9% for the three
months ended March 31, 1998 compared to the three months ended
March 31, 1997. Increases in salaries and employee benefits were
incurred, partially offset by increases in deferred loan
origination costs and a reduction in non-accrual loan expenses.
INCOME TAX EXPENSE
The Company incurred income tax expense of $758,000 for the
three months ended March 31, 1998 compared with $658,000 in the
1997 period. Substantially all of the increase is due to the
increase in pre-tax earnings. Factors such as the Company's
earnings and equity securities gains or losses will affect
income taxes recorded in the financial statements.
LIQUIDITY AND CAPITAL RESOURCES
Substantially all of the Company's funds are generated through
its Company's subsidiary, the Sandwich Co-operative Bank. The
Bank's primary sources of liquidity are deposits, loan payments
and payoffs, investment income and maturities and principal
payments of investments, mortgage-backed securities and CMOs,
advances from the Federal Home Loan Bank of Boston, and other
borrowings. As a member of the Co-operative Central Bank's Share
Insurance Fund, the Company also has a right to borrow from the
Share Insurance Fund for short-term cash needs by pledging
certain assets, although it has never exercised this right. The
Company's liquidity management program is designed to assure
that sufficient funds are available to meet its daily needs.
The Company believes its capital resources, including deposits,
scheduled loan repayments, revenue generated from the sales of
loans and investment securities, unused borrowing capacity at
the Federal Home Loan Bank of Boston, and revenue from other
sources will be adequate to meet its funding commitments. At
March 31, 1998 and December 31, 1997 the Company's and the
Bank's capital ratios were in excess of regulatory requirements.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The response is incorporated herein by reference from the
discussion under the subcaption "Asset and Liability Management
and Market Risk" of the caption "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" in
the Annual Report, included as Part II, Item 7 of the Form 10-K,
which is incorporated herein by reference.
12
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
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The Company and its subsidiary are not involved in any
pending legal proceedings other than those involved in
the ordinary course of their businesses. Management
believes that the resolution of these matters will not
materially affect their businesses or the consolidated
financial condition of the Company and its subsidiary.
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.
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Not applicable.
ITEM 5. OTHER INFORMATION.
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A cash dividend of $0.35 per common share was declared
on January 26, 1998. The dividend was paid on February
25, 1998 to shareholders of record as of February 10,
1998.
Declaration of dividends by the Board of Directors
depends on a number of factors, including capital
requirements, regulatory limitations, the Company's
operating results and financial condition and general
economic conditions.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
--------------------------------
a. Exhibits - Exhibit 27 - Financial Data Schedule
b. On February 5, 1998, the Company filed a Form 8-K
announcing that the Company and the Bank had
entered into an Affiliation Merger Agreement with
The 1855 Bancorp, and its wholly-owned
subsidiary, Compass Bank for Savings. For more
information, reference is made to "Item 12(c) --
Change in Control" and the Form 8-K filed on
February 5, 1998.
SANDWICH BANCORP, INC.
Signatures
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In accordance with the requirements of the Securities
Exchange Act, the Registrant caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
SANDWICH BANCORP, INC.
----------------------
(Registrant)
May 8, 1998 /s/ Frederic D. Legate
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Frederic D. Legate
President and Chief Executive Officer
May 8, 1998 /s/ George L. Larson
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George L. Larson
Sr. Vice President /Chief Financial
Officer