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FACTORY POINT BANCORP, INC.
AND SUBSIDIARY
Consolidated Balance Sheets
June 30, 2007 and December 31, 2006
(unaudited)
Assets
6/30/2007 12/31/2006
-------------- ---------------
Cash and due from banks $ 7,572,922 $ 9,143,850
Other short-term investments 67,617 194,862
-------------- ---------------
Cash and cash equivalents 7,640,539 9,338,712
Loans held for sale 96,476 601,987
Securities available for sale, at fair value 80,248,494 89,090,111
Net loans receivable 231,799,721 225,533,774
Bank premises and equipment, net 5,351,798 5,561,245
Accrued interest receivable 1,896,300 1,912,376
Goodwill 2,298,707 2,298,707
Bank owned life insurance 3,869,643 3,708,996
Other assets 2,877,838 2,453,205
-------------- ---------------
Total assets $ 336,079,516 $ 340,499,113
============== ===============
Liabilities and Shareholders' Equity
Liabilities:
Deposits:
Demand deposits $ 43,725,516 $ 50,631,815
Savings, N.O.W., and money market 134,037,336 135,391,290
Time deposits under $100,000 55,621,794 58,458,891
Time deposits $100,000 and greater 27,210,173 25,484,924
-------------- ---------------
Total deposits 260,594,819 269,966,920
-------------- ---------------
Short-term borrowings:
Securities sold under agreements to repurchase 22,193,599 19,872,086
Borrowings from FHLB Boston 14,750,000 17,500,000
Borrowings from U.S. Treasury 1,027,653 1,305,078
-------------- ---------------
Total short-term borrowings 37,971,252 38,677,164
-------------- ---------------
Accrued expenses and other liabilities 2,639,153 2,677,828
Long-term borrowings:
Borrowings from FHLB Boston 5,347,911 353,286
-------------- ---------------
Total liabilities 306,553,135 311,675,198
-------------- ---------------
Shareholders' equity:
Common stock, $1.00 par value; 6,000,000 shares authorized at June 30, 2007
and December 31, 2006, respectively; 4,102,610 shares issued at June 30, 2007
and December 31, 2006, respectively 4,105,765 4,102,610
Paid-in capital 18,793,109 18,734,232
Retained earnings 7,221,458 6,698,736
Accumulated other comprehensive loss (581,350) (292,387)
Treasury stock, at cost (9,199 and 28,698 shares at June 30, 2007 and December
31, 2006, respectively) (12,601) (419,276)
-------------- ---------------
Total shareholders' equity 29,526,381 28,823,915
-------------- ---------------
Total liabilities and shareholders' equity $ 336,079,516 $ 340,499,113
============== ===============
See accompanying notes to unaudited consolidated interim financial statements.
2
FACTORY POINT BANCORP, INC.
AND SUBSIDIARY
Consolidated Statements of Income
Six months ended June 30, 2007 and 2006
(unaudited)
2007 2006
--------------- -----------------
Interest and dividend income:
Interest and fees on loans $ 8,595,744 $ 7,723,724
Securities available for sale 1,901,274 1,900,481
Other short-term investments 13,717 3,064
--------------- -----------------
Total interest and dividend income 10,510,735 9,627,269
--------------- -----------------
Interest expense:
Deposits 3,134,275 2,222,005
Short-term borrowings 861,597 810,729
Long-term debt 82,558 4,544
--------------- -----------------
Total interest expense 4,078,430 3,037,278
--------------- -----------------
Net interest income 6,432,305 6,589,991
Provision for loan losses -- 390,000
--------------- -----------------
Net interest income after provision after
loan losses 6,432,30 6,199,991
--------------- -----------------
Noninterest income:
Trust service fees 656,338 596,525
Service charges on deposit accounts 670,495 525,151
Other service charges 241,727 220,233
Net gain on sale of loans 67,877 46,665
Other 138,772 102,418
--------------- -----------------
Total noninterest income 1,775,209 1,490,992
--------------- -----------------
Noninterest expenses:
Salaries and wages 2,026,924 1,894,384
Employee benefits 742,356 641,208
Occupancy expenses 364,102 318,174
Equipment expenses 561,364 502,806
Other 1,540,125 1,500,121
--------------- -----------------
Total noninterest expenses 5,234,871 4,856,693
--------------- -----------------
Income before income taxes 2,972,643 2,834,290
Income tax expense 755,100 732,500
--------------- -----------------
Net income $ 2,217,543 $ 2,101,790
=============== =================
Basic earnings per share $ 0.54 $ 0.52
Diluted earnings per share $ 0.53 $ 0.51
3
FACTORY POINT BANCORP, INC.
AND SUBSIDIARY
Consolidated Statements of Cash Flows
Six months ended June 30, 2007, and 2006
(unaudited)
2007 2006
------------- -------------
Increase in cash and cash equivalents:
Cash flows from operating activities:
Net income $ 2,217,543 $ 2,101,790
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation of bank premises and equipment 412,353 281,215
Stock based compensation 80,630 25,340
Provision for loan losses - 390,000
Net amortization of premiums and on securities 69,132 101,203
Net gain on sale of loans (71,620) (50,553)
Loans originated for sale (4,670,490) (3,860,843)
Proceeds from sale of loans held for sale 5,247,621 4,255,381
Net gain on sale of other real estate owned - (59,020)
Net (increase) decrease in cash surrender value of bank-owned life insurance (160,647) 14,128
Net decrease in other assets 8,812 649,275
Net decrease in accrued expenses and other liabilities (22,599) (462,857)
------------- -------------
Net cash provided by operating activities 3,110,735 3,385,059
------------- -------------
Cash flows from investing activities:
Proceeds from maturity and paydowns of securities available for sale 8,115,977 5,274,486
Proceeds from sales of securities available for sale 175,100 325,000
Purchases of securities available for sale (241,000) (9,625,178)
Net loans made to customers (6,265,947) (7,434,802)
Capital expenditures (202,906) (1,569,057)
Proceeds from sale on other real estate owned - 151,954
------------- -------------
Net cash provided by (used in) investing activities 1,581,224 (12,877,597)
------------- -------------
Cash flows from financing activities:
Net decrease in deposits $ (9,372,101) $ (17,500,591)
Net (decrease) increase in short-term borrowings (705,912) 25,620,638
Repayments of long-term borrowings from FHLB Boston (5,375) (5,243)
Proceeds from long-term borrowings from FHLB Boston 5,000,000 -
Dividends (1,388,932) (1,205,427)
Purchase of treasury stock (305,010) (477,411)
Issuance of treasury stock related to exercise of stock options 387,198 242,601
------------- -------------
Net cash (used in) provided by financing activities (6,390,132) 6,674,567
------------- -------------
Net decrease in cash and cash equivalents (1,698,173) (2,817,971)
Cash and cash equivalents at beginning of period 9,338,712 12,635,890
------------- -------------
Cash and cash equivalents at end of period $ 7,640,539 9,817,919
============= =============
Additional disclosures relative to cash flows:
Interest paid $ 3,981,930 $ 3,008,213
Taxes paid 875,000 1,035,000
Supplemental schedule of noncash investing and financing activities:
Adjustment of securities available for sale to fair value, net of tax (433,455) (1,224,182)
See accompanying notes to unaudited consolidated interim financial statements.
4
FACTORY POINT BANCORP, INC.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - ORGANIZATION
Factory Point Bancorp, Inc. is a publicly-held, one-bank holding company
whose wholly-owned subsidiary, The Factory Point National Bank of Manchester
Center ("Factory Point National Bank"), maintains its corporate offices in
Manchester Center, Vermont. Factory Point Bancorp, Inc. is incorporated in
the state of Delaware. Its subsidiary, Factory Point National Bank, is
regulated by the Office of the Comptroller of the Currency. Factory Point
National Bank operates seven full-service community banking offices in
Arlington, Dorset, Ludlow, Manchester, and Rutland, Vermont. Factory Point
Bancorp, Inc.'s primary product lines include residential real estate lending
(for portfolio and sale in the secondary market), small business loan and
deposit services as well as a variety of consumer loan and deposit services.
Factory Point National Bank is chartered with trust powers and offers trust
and investment services in the markets it serves.
NOTE 2 - BASIS OF PRESENTATION
The accompanying unaudited consolidated interim financial statements of
Factory Point Bancorp, Inc. and subsidiary (the "Company") conform to
accounting principles generally accepted in the United States of America and
general practices within the banking industry. The Company utilizes the
accrual method of accounting for financial reporting purposes. The results
of operations for the interim periods presented are not necessarily
indicative of the results that may be expected for the full year.
The preparation of the unaudited consolidated interim financial statements in
conformity with accounting principles generally accepted in the United States
of America requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities, revenue and expenses, and
disclosure of contingent assets and liabilities. Actual results could differ
from those estimates.
The unaudited consolidated interim financial statements include the accounts
of Factory Point Bancorp, Inc. and Factory Point National Bank, its wholly
owned subsidiary. All significant intercompany accounts and transactions have
been eliminated. All adjustments are of a normal recurring nature. Prior
period amounts are reclassified whenever necessary to conform to the current
period presentation.
NOTE 3 - EARNINGS PER SHARE
Basic earnings per share excludes dilution and is computed by dividing income
available to common stockholders by the weighted average number of common
shares outstanding for the period. Diluted earnings per share reflects the
potential dilution that could occur if securities or other contracts to issue
common stock (such as the Company's stock options) were exercised or
converted into common stock or resulted in the issuance of common stock that
then shared in the earnings of the entity.
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<Table>
<Caption>
Quarter Ended
--------------------------
30-June-07 30-June-06
---------- ----------
<s> <c> <c>
Net income $2,217,544 2,101,790
========== ==========
Weighted average common shares outstanding 4,089,004 4,075,075
Dilutive effect of potential common shares related to
stock based compensation plans 59,420 78,564
---------- ----------
Weighted average common shares including potential
dilution 4,148,429 4,153,639
========== ==========
Basic earnings per share $ 0.54 0.52
Diluted earnings per share 0.53 0.51
</Table>
There were 8,045 and 183 anti-dilutive stock options outstanding at June 30,
2007 and 2006, respectively.
NOTE 4 - ACCUMULATED OTHER COMPREHENSIVE LOSS (IN THOUSANDS)
Comprehensive (loss) income represents the sum of net income and items of
"other comprehensive (loss) income" which are reported directly in
shareholders' equity, such as the net unrealized gain or loss on securities
available for sale.
The Company's accumulated other comprehensive gain (loss), which is included
in shareholders' equity, represents the after-tax net unrealized (loss) gain
on securities available for sale at the consolidated balance sheet date. The
Company's other comprehensive (loss) income, which is attributable to
unrealized gains and losses on securities available for sale during the
respective periods, consisted of the following amounts for the six months
ended June 30, 2007 and 2006:
<Table>
<Caption>
2007 2006
---------- ----------
<s> <c> <c>
Net unrealized holding losses arising during
the period, net of taxes of ($192,642) in
2007 and ($544,081) in 2006 $(288,963) $(816,121)
========== ==========
</Table>
Total comprehensive income for the six-months ended June 30, 2007 and 2006
was $1,928,581 and $1,285,669 respectively.
NOTE 5 - GUARANTEES
Factory Point National Bank does not issue any guarantees that would require
liability-recognition or disclosure, other than its standby letters of
credit. Standby and other letters of credit are conditional commitments
issued by the Bank to guarantee the performance of a customer to a third
party. Those guarantees are primarily issued to support public or private
borrowing arrangements, including bond financing and similar transactions.
The credit risk involved in issuing letters of credit is essentially the same
as that involved in extending loan facilities to customers. Typically, these
instruments have terms of twelve months or less. Some expire unused, and
therefore, the total amounts do not necessarily represent future cash
requirements.
For letters of credit, the amount of the collateral obtained, if any, is
based on management's credit evaluation of the counter-party. Factory Point
National Bank had approximately $1,049,000 of standby letters of credit on
June 30, 2007 and $557,000 on December 31, 2006, most of which will expire
within one year. All the letters of credit were for private borrowing
arrangements. The fair value of standby letters of credit at June 30, 2007
and December 31, 2006 was not significant.
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NOTE 6 - ACCOUNTING FOR UNCERTAINTY IN INCOME TAXES
On January 1, 2007, the Company adopted FASB Interpretation No. 48,
"Accounting for Uncertainty in Income Taxes - an Interpretation of FASB
Statement No. 109" (FIN 48). The adoption of FIN 48 did not result in an
increase or decrease to the Company's income tax liability. The Company's
accounting policy calls for any interest expense and/or penalties related to
any underpayment of income taxes to be recorded as a component of the
provision for income taxes. There was no accrual for interest expense or
penalties at December 31, 2006 or at June 30, 2007.
NOTE 7 - RECENT ACCOUNTING PRONOUNCEMENTS
FASB Statement No. 157, "Fair Value Measurements" (FAS No. 157) issued in
September 2006, defines fair value, establishes a framework for measuring
fair value in United States generally accepted accounting principles (GAAP),
and expands disclosures about fair value measurements. FAS No. 157 applies
under other accounting pronouncements that require or permit fair value
measurements, the Board having previously concluded in those accounting
pronouncements that fair value is the relevant measurement attribute. The
provisions of FAS No. 157 are effective for financial statements issued for
fiscal years beginning after November 15, 2007. The adoption of this standard
is not expected to have a material effect on the Company's results of
operations or financial position.
FASB Statement No. 159, "The Fair Value Option for Financial Assets and
Financial Liabilities" (FAS No. 159) issued in February 2007, permits
entities to choose to measure eligible items at fair value at specified
election dates. A business entity shall report unrealized gains and losses
on items for which the fair value option has been elected in earnings (or
another performance indicator if the business entity does not report
earnings) at each subsequent reporting date. The fair value option may be
applied instrument by instrument, with a few exceptions, such as investments
otherwise accounted for by the equity method. The election is irrevocable
(unless a new election date occurs) and is applied only to entire instruments
and not to portions of instruments. FAS No. 159 is effective for fiscal
years beginning after November 15, 2007. The adoption of this standard is
not expected to have a material effect on the Company's results of operations
or financial position.
NOTE 8 - DEFINITIVE MERGER AGREEMENT
On May 15, 2007, the Company entered into a definitive merger agreement in
which the Company will be acquired by Berkshire Hills Bancorp, Inc.
(Berkshire Hills) in exchange for cash and common stock of Berkshire Hills.
Berkshire Hills is a corporation based in Pittsfield, Massachusetts and is
the holding company for Berkshire Bank in Pittsfield, Massachusetts. At the
effective time of the merger, the separate corporate existence of the Company
shall cease, and Factory Point National Bank will be merged into Berkshire
Bank. The transaction is subject to the approval of the shareholders of both
companies, as well as state and federal regulatory agencies.