UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
Commission file number 000-23904
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SLADE'S FERRY BANCORP
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(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-3061936
- ------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
100 Slade's Ferry Avenue
Somerset, Massachusetts 02726
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (508) 675-2121
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
$.01 par value
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 and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-K contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this form 10-K. [ ]
The aggregate market value of the voting stock of Slade's Ferry Bancorp,
held by nonaffiliates of the registrant as of February 23, 2001 was
approximately $27,470,462. On that date, there were 3,806,806.479 shares of
Slade's Ferry Bancorp Common Stock, $.01 par value outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement for Annual Meeting of Stockholders April 09, 2001
incorporated by reference into Part III.
PART I
ITEM 1
BUSINESS
Description of Business
Business of Slade's Ferry Bancorp
- ---------------------------------
Slade's Ferry Bancorp ("the Company") is a business corporation that
was organized under the laws of the Commonwealth of Massachusetts on June
13, 1989 as Weetamoe Bancorp. The name Weetamoe Bancorp was changed to
Slade's Ferry Bancorp effective January 1, 1997. The office of Slade's
Ferry Bancorp is located at the office of the Bank at 100 Slade's Ferry
Avenue, Somerset, Massachusetts, 02726, and its telephone number is the same
as the Bank's: (508)675-2121.
The Company was organized for the purpose of becoming the holding
company of the Bank. The Company's acquisition of the Bank was completed on
April 1, 1990. The Bank (Slade's Ferry Trust Company) is a wholly-owned
subsidiary of Slade's Ferry Bancorp.
Competition
- -----------
The primary business of Slade's Ferry Bancorp is the ongoing business
of the Bank. The competitive conditions to be faced by Slade's Ferry
Bancorp will be the same as those faced by the Bank. It is likely that, as
a holding company, it may compete with other holding companies engaged in
bank-related activities. Thus, the Company will face competition in
undertaking to acquire other banks, financial institutions or companies
engaged in bank-related activities, and in operating subsequent to any such
acquisitions.
While the Company investigates opportunities to acquire other banks or
bank facilities when they occur and may in the future acquire other banks,
financial institutions, or bank facilities, it is not currently engaged in
any such acquisition.
Employees
- ---------
At present there are three employees of the Bank and the Company whose
compensation is paid by the Company. Although the Company has no current
plans to do so, if the Company should acquire other financial institutions
or pursue other lines of business, it may at such time hire additional
employees.
Business of Slade's Ferry Trust Company
- ---------------------------------------
On September 30, 1959, the Slade's Ferry Trust Company opened for
business as a state chartered trust company incorporated under the laws of
the Commonwealth of Massachusetts and as a member of the Federal Deposit
Insurance Corporation (FDIC). The founders were a group of individuals from
Somerset, Swansea, Fall River and Seekonk, Massachusetts who recognized the
need for a local bank committed to personalized services.
During the past three years, assets of the Bank increased by $48.3
Million. In January 1999, the Bank opened a branch banking facility at 1601
South Main Street, Fall River, and in March 1999, a branch banking facility
was opened at 833 Ashley Boulevard, New Bedford, Massachusetts. The Bank
currently has twelve banking facilities extending east from Seekonk,
Massachusetts to Fairhaven, Massachusetts. The Bank also provides limited
banking services at the Somerset High School. In addition, the Bank in 1999
received regulatory approval to establish a loan production office in Rhode
Island. The office is named the Slade's Ferry Loan Company and is a
subsidiary of Slade's Ferry Trust Company. The purpose for the loan
production office is to solicit commercial and consumer borrowers in the
Rhode Island area. The office is prohibited from accepting deposits and
payments.
In June 1999, the Bank implemented certain state tax planning
strategies by establishing a Real Estate Investment Trust (REIT) as a
subsidiary of Slade's Ferry Trust Company. The REIT, named the Slade's
Ferry Preferred Capital Corporation, provides the means for the Bank to
invest into the REIT certain designated, bank-owned real estate mortgage
loans. The income derived on these loans is taxed at a reduced state tax
rate.
The Bank currently services numerous communities in Southeastern
Massachusetts and contiguous areas of Rhode Island through its twelve
facilities in Fall River, Somerset, Swansea, Seekonk, New Bedford and
Fairhaven, and its loan production office in Warwick, Rhode Island.
The Bank's major customer base consists of almost 31,000 personal
savings, checking and money market accounts and 9,000 personal certificates
of deposit and individual retirement accounts. Its commercial base consists
of over 3,200 checking, money market, corporate, and certificate of deposit
accounts.
The Bank does not have any major target accounts, nor does it derive a
material portion of its deposits from any single depositor. It is a retail
bank that services the needs of the local communities, and its loans are not
concentrated within any single industry or group of related industries that
would have any possible adverse effect on the business of the Bank. The
Bank's business is not seasonal and its loan demand is well diversified. As
of December 31, 2000, commitments under standby letters of credit aggregate
approximately $1,231,573.
Services
- --------
The Bank engages actively in a broad range of banking activities,
including demand, savings, time deposits, related personal and commercial
checking account services, real estate mortgages, commercial and installment
lending, payroll services, money orders, travelers checks, Visa, MasterCard,
safe deposit rentals, automatic teller machines and cash management
services. The Bank offers a full range of commercial, installment, student,
and real estate loans. The service area of the Bank is approximately 300
square miles, including the southern geographic area of Bristol County,
Massachusetts and extends over to the towns of Tiverton, Warren, Bristol and
Barrington in the state of Rhode Island.
Competition
- -----------
The banking business in the market area served by the Bank is highly
competitive. The Bank actively competes with other banks, financial
institutions, and credit unions, including major banks and bank holding
companies which have numerous offices and affiliates operating over wide
geographic areas. The Bank competes for deposits, loans, and other business
with these institutions.
Many of the major commercial banks, or other affiliates in the service
areas of the Bank, offer services such as international banking, and
investment and trust services which are not offered directly by the Bank.
Supervision and Regulation
Holding Company Regulation
- --------------------------
Under the Federal Bank Holding Company Act ("BHCA"), the prior
approval of the Federal Reserve Board ("FRB") is required before a
corporation may acquire control of a bank. FRB approval must also be
obtained before a bank holding company acquires all or substantially all of
the assets of a bank, or merges or consolidates with another bank holding
company. In considering any applications for approval of an acquisition or
merger, the FRB is required to consider the financial and managerial
resources of the companies and banks concerned, and the convenience and
needs of the communities to be served.
As a registered bank holding company, the Company is required to file
with the FRB annual and periodic reports and such other additional
information as the Board may require. The Company and its subsidiaries are
also subject to continuing regulation, supervision and examinations by the
FRB.
A bank holding company, with certain exceptions, may not acquire more
than 5% of the voting shares of any company that is not a bank and may not
engage, directly or through subsidiaries, in any activity other than
banking, managing or controlling banks, or furnishing services to or
performing services for its subsidiaries, without prior approval of the FRB.
The FRB is authorized to approve the ownership by a bank holding company of
voting shares of any company whose activities the FRB determines to be so
closely related to banking or managing or controlling banks as to be a
proper incident thereof. Under the FRB's current regulations, and subject
to certain restrictions and limitations specified therein, bank holding
companies and their subsidiaries may be permitted by the FRB to engage in
such non-banking activities as: (1) making, acquiring, or servicing loans
or other extensions of credit such as would be made by a mortgage, finance,
credit card, or factoring company; (2) operating an industrial bank or
industrial loan company; (3) performing the functions of a trust company;
(4) acting as an investment or financial advisor; (5) leasing real or
personal property or acting as an agent or broker in leasing such property
or acting as an agent or broker in leasing property in certain situations;
(6) making investments to promote community welfare; (7) providing certain
data processing and transmission services; (8) acting as principal, agent,
or broker with respect to insurance directly related to extensions of credit
by the bank holding company or its subsidiaries, and engaging in certain
other insurance activities subject to specified conditions and limitations;
(9) providing courier services for checks and certain other instrument
exchanges among banks, and for audit and accounting media of a banking or
financial nature; (10) providing management consulting advice under
specified conditions to banks not affiliated with the bank holding company;
(11) issuing and selling retail money orders having a face value of not more
than $1,000 and travelers checks and selling U.S. Savings Bonds; (12)
performing appraisals of real and personal property; (13) arranging
commercial real estate equity financing under certain circumstances; (14)
providing securities brokerage services as agent for the accounts of
customers; (15) underwriting and dealing in certain government obligations
and money market instruments; (16) providing foreign exchange advisory and
transactional services; (17) acting as a futures commission merchant in
specified capacities or providing investment advice as a futures commission
merchant or commodity trading advisor with respect to certain financial
futures contracts and options; (18) providing consumer financial counseling
services; (19) providing tax planning and preparation services; (20)
providing check guaranty services to subscribing merchants; (21) operating a
collection agency; and (22) operating a credit bureau. In addition, a bank
holding company may file an application for FRB approval to engage, directly
or through subsidiaries, in other nonbank activities that the holding
company reasonably believes are so closely related to banking as to be a
proper incident thereto.
In addition, pursuant to the Bank Export Services Act of 1982, a bank
holding company may invest up to 5% of its consolidated capital and surplus
in shares of an export trading company unless such investment is disapproved
by the FRB after notice as provided in that Act.
As a bank holding company, the Company will be required to give the
FRB prior written notice of any purchase or redemption of its outstanding
equity securities if the gross consideration for the purchase or redemption,
when combined with the net consideration paid for all such purchases or
redemptions during the preceding 12 months, is equal to 10% or more of
Bancorp's consolidated net worth. The FRB may disapprove such a purchase or
redemption if it determines that the proposal would violate any law,
regulation, FRB order, directive, or any condition imposed by, or written
agreement with, the FRB.
The status of the Company as a registered bank holding company under
the BHCA does not exempt it from certain federal and state laws and
regulations applicable to corporations generally, including, without
limitation, certain provisions of the federal securities laws.
Under Massachusetts law, Board of Bank Incorporation approval is
required before any company may become a bank holding company by directly or
indirectly owning, controlling or holding the power to vote 25% or more of
the voting stock of two or more banks. Further, such approval is required
prior to a bank holding company's (i) acquiring voting stock of another bank
institution if, as a result of the acquisition, such acquirer would,
directly or indirectly, own or control more than 5% of the voting stock of
such institution, or (ii) engaging in certain other transactions. The
Company is not considered a bank holding company under Massachusetts's law
since it does not control two or more banks. The activities of the Company,
however, will be limited under Massachusetts's law to activities described
above which would be permissible for a bank holding company registered under
the BHCA. In addition, the acquisition by the Company of 25% or more of the
voting stock or the power to elect a majority of the directors of
another commercial bank, savings bank, cooperative bank, or savings and loan
association would subject the Company to regulation as a bank holding
company under applicable Massachusetts law and would require the approval of
the Massachusetts Board of Bank Incorporation.
Bank Regulation
- ---------------
As a Massachusetts-chartered, FDIC-insured trust company, the Bank is
subject to regulation and supervision by the Commissioner of Banks, the FDIC
and the FRB.
The Massachusetts statutes and regulations govern, among other things,
investment powers, deposit activities, borrowings, maintenance of surplus
and reserve accounts, distribution of earnings, and payment of dividends.
The Bank is also subject to state regulatory provisions covering such
matters as issuance of capital stock, branching, and mergers and
acquisitions.
Deposit accounts at the Bank are insured by the FDIC, generally up to
a maximum of $100,000 per insured depositor. As an insurer of deposits of
certain thrift institutions and commercial banks, the FDIC issues
regulations, conducts examinations, requires the filing of reports, and
generally supervises the operations of institutions to which it provides
deposit insurance. The approval of the FDIC is required prior to any merger
or consolidation with another financial institution, or the establishment or
relocation of an office facility. This supervision is intended primarily
for the protection of depositors.
As an FDIC-insured bank, the Bank is subject to certain FDIC
requirements designed to maintain the safety and soundness of individual
banks and the banking system. The FDIC periodically conducts examinations
of insured institutions and, based upon appraisals, may revalue assets of an
insured institution and require establishment of specific reserves in
amounts equal to the difference between such revaluation and the book value
of the assets. In addition, the FDIC has a regulation which defines and
sets minimum requirements for capital adequacy.
Bank regulators have implemented risk based capital guidelines that
require a bank to maintain certain minimum capital as a percent of such
bank's assets and certain off-balance sheet items adjusted for predefined
credit risk factors (risk adjusted assets). Under the requirements a
minimum level of capital will vary among banks on safety and soundness of
operation. At December 31, 2000 the minimum regulatory capital level of
Risk Based Capital was 4% for Tier 1 Capital, 8% for Total Capital and
Leverage Capital was 4%.
The Company, the Bank, the Slade's Ferry Realty Trust, the Slade's
Ferry Securities Corporation, the Slade's Ferry Preferred Capital
Corporation, and the Slade's Ferry Loan Company are "affiliates" within the
meaning of the Federal Reserve Act. Certain provisions of the Federal
Reserve Act, made applicable to the Bank by Section 18(j) of the Federal
Deposit Insurance Act and administered with respect to the Bank by the FDIC,
limit the amounts of and establish collateral requirements with respect to
the Bank's loans or extensions of credit to and investments in affiliates.
In addition, related provisions of the Federal Reserve Act and FRB
regulations also administered with respect to the Bank by the FDIC limit the
amounts of and establish required procedures and credit standards with
respect to loans and other extensions of credit to officers, directors and
principal stockholders of the Bank, of the Company, and of any subsidiaries
of the Company, and to related interests of such persons.
Recent Regulatory Examinations
- ------------------------------
Following the most recent regulatory examinations in 2000, the Bank
entered into an informal agreement with the Massachusetts Commissioner of
Banks and the Federal Deposit Insurance Corporation effective December 1,
2000.
The agreement contains various provisions which the Bank must address
and implement plans and policies to comply. Specifically, the provisions
require the Bank to evaluate and assess Bank management and staffing needs;
to formulate, adopt, and implement a multi-year strategic plan; to develop
and adopt new and revise existing policies relating to loan and credit
administration; and review and change methodology in calculating and
maintaining adequate reserves for possible loan losses in accordance with
prevailing requirements.
An additional provision requires the Bank, during the life of the
agreement, to maintain a seven (7) percent Tier 1 Leverage Capital ratio and
a nine (9) percent Tier 1 Risk Based Capital ratio. As of December 31,
2000, the Bank is and has since 1997 consistently been above these ratios.
Bank management and the Board of Directors have taken immediate action
to comply with all the provisions required by the informal agreement. With
the assistance of independent consultants, the assessment of Bank management
and staffing needs has been completed with findings and conclusions being
addressed, a multi-year strategic plan has been formalized and adopted, and
policies have been implemented to address various loan and credit
administration issues. Also, a comprehensive policy using revised
methodology has been established for determining, calculating and
maintaining an allowance for loan losses that is adequate to absorb
estimated credit losses associated with our loan portfolio.
Statistical Information
- -----------------------
The following supplementary information required under Guide 3
(Statistical Disclosure by Bank Holding Companies) should be read in
conjunction with the related financial statements and notes thereto, which
are a part of this report.
DISTRIBUTION OF ASSETS, LIABILITIES, AND STOCKHOLDERS' EQUITY; INTEREST
RATES AND INTEREST DIFFERENTIAL
The following table sets forth the Company's average assets,
liabilities, and stockholders' equity, interest income earned and interest
paid, average rates earned and paid, and the net interest margin for the
periods ending December 31, 2000, December 31, 1999, and December 31, 1998.
Averages are daily averages.
2000 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------------
Average Interest(1) Avg. Int. Average Interest(1) Avg. Int. Average Interest(1) Avg. Int.
(Dollars in Thousands) Balance Inc/Exp Rate Balance Inc/Exp Rate Balance Inc/Exp Rate
- -----------------------------------------------------------------------------------------------------------------------------------
ASSETS:
Earning Assets (2)
Commercial Loans $ 48,445 $ 4,504 9.30% $ 47,386 $ 4,218 8.90% 42,244 $3,953 9.36%
Commercial Real Estate 152,580 14,194 9.30% 136,648 12,876 9.42% 118,939 11,630 9.78%
Residential Real Estate 36,558 2,877 7.87% 37,523 2,778 7.40% 45,781 3,520 7.69%
Consumer Loans 11,216 911 8.12% 7,678 657 8.56% 6,767 652 9.63%
- -----------------------------------------------------------------------------------------------------------------------------------
Total Loans 248,799 22,486 9.04% 229,235 20,529 8.96% 213,731 19,755 9.24%
Federal Funds Sold 9,558 583 6.10% 5,563 259 4.66% 12,214 630 5.16%
U.S. Treas/Govt Agencies 68,606 4,421 6.44% 68,523 4,114 6.00% 54,842 3,366 6.14%
States & Political
Subdivisions 11,889 787 6.62% 11,505 748 6.50% 9,763 649 6.65%
Mutual Funds 55 3 5.45% 71 3 4.23% 209 14 6.70%
Marketable Equity
Securities 4,241 89 2.10% 3,470 78 2.25% 2,761 105 3.80%
Other Investments 1,066 79 7.41% 1,102 71 6.44% 6 0 0.00%
- ---------------------------------------------------------------------------------------------------------------------------------
Total Earning Assets 344,214 28,448 8.26% 319,469 25,802 8.08% 293,526 24,519 8.35%
- ---------------------------------------------------------------------------------------------------------------------------------
Allowance for Loan Losses (4,202) (3,814) (3,602)
Unearned Income (552) (640) (715)
Cash and Due From Banks 12,883 14,320 12,186
Other Assets 20,938 17,371 15,376
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Total Assets $373,281 $346,706 $316,771
=================================================================================================================================
LIABILITIES & STOCKHOLDERS' EQUITY:
Savings $ 50,210 1,006 2.00% $ 48,442 $ 1,022 2.11% $ 43,885 $1,075 2.45%
NOW's 37,785 1,183 3.13% 38,404 994 2.59% 38,764 1,196 3.09%
Money Market Accounts 10,607 174 1.64% 12,188 215 1.76% 13,777 273 1.98%
CD's > $100M 31,689 1,537 4.85% 26,857 1,325 4.93% 22,945 1,266 5.52%
Other Time Deposits 138,637 8,019 5.78% 130,393 6,778 5.20% 119,118 6,700 5.62%
Other Borrowings 12,402 780 6.29% 6,413 420 6.55% 2,933 201 6.85%
- ---------------------------------------------------------------------------------------------------------------------------------
Total Interest-bearing
Liabilities 281,330 12,699 4.51% 262,697 10,754 4.09% 241,422 10,711 4.44%
- ---------------------------------------------------------------------------------------------------------------------------------
Demand Deposits 58,588 52,261 46,217
Other Liabilities 1,836 1,057 1,063
Total Liabilities 341,754 316,015 288,702
Common Stock 37 35 34
Paid-in Capital 25,109 22,646 21,448
Retained Earnings 7,648 8,492 6,395
Accumulated Other
Comprehensive Income (Loss) (1,267) (482) 192
- ---------------------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 31,527 30,691 28,069
- ---------------------------------------------------------------------------------------------------------------------------------
Total Liabilities &
Stockholders' Equity $373,281 $346,706 $316,771
=================================================================================================================================
Net Interest Income $15,749 $15,048 $ 13,808
=================================================================================================================================
Net Interest Spread 3.75% 3.99% 3.91%
=================================================================================================================================
Net Yield on Earning Assets 4.58% 4.71% 4.70%
=================================================================================================================================
<FN>
<F1> On a fully taxable equivalent basis based on tax rate of 33.33%. Interest income on investments and net
interest income includes a fully taxable equivalent adjustment of $262,000 in 2000, $249,000 in 1999, and
$212,000 in 1998.
<F2> Average balance includes non-accruing loans. The effect of including such loans is to reduce the average rate
earned on the Company's loans.
</FN>
NET INTEREST INCOME - CHANGES DUE TO VOLUME AND RATE)
2000 vs. 1999 1999 vs. 1998
Increase Increase
(Decrease) (Decrease)
- ------------------------------------------------------------------------------------------------------
Total Due to Due to Total Due to Due to
(Dollars in Thousands) Change(2) Volume Rate Change(2) Volume Rate
- ------------------------------------------------------------------------------------------------------
Interest Income:
Federal Funds Sold $ 324 $ 215 $ 109 $ (371) $ (326) $ (45)
US Treas/Govt Agencies 307 5 302 748 830 (82)
States & Political Subdivisions 39 25 14 99 115 (16)
Mutual Funds -0- (1) 1 (11) (8) (3)
Marketable Securities 11 15 (4) (27) 21 (48)
Other Investments 8 (2) 10 71 71 -0-
Commercial Loans 286 96 190 265 469 (204)
Commercial Real Estate 1,318 1,492 (174) 1,246 1,700 (454)
Residential Real Estate 99 (74) 173 (742) (623) (119)
Consumer Loans 254 295 (41) 5 83 (78)
- ------------------------------------------------------------------------------------------------------
Total Interest Income 2,646 2,066 580 1,283 2,332 (1,049)
- ------------------------------------------------------------------------------------------------------
Interest Expense:
Savings Accounts (16) 36 (52) (53) 104 (157)
NOW Accounts 189 (18) 207 (202) (10) (192)
Money Market Accounts (41) (27) (14) (58) (30) (28)
CD's > 100 M 212 236 (24) 59 204 (145)
Other Time Deposits 1,241 453 788 78 610 (532)
Other Borrowings 360 384 (24) 219 233 (14)
- ------------------------------------------------------------------------------------------------------
Total Interest Expense 1,945 1,064 881 43 1,111 (1,068)
- ------------------------------------------------------------------------------------------------------
Net Interest Income $ 701 $1,002 $ (301) $ 1,240 $ 1,221 $ 19
======================================================================================================
<FN>
<F1> Changes in interest income and interest expense attributable to
changes in both volume and rate have been allocated equally to changes
due to volume and changes due to rate.
<F2> The change in interest income on investments and net interest income
includes interest on a fully taxable equivalent basis based on a tax
rate of 33.33%.
</FN>
Interest Rate Risk
- ------------------
The Company considers interest rate risk to be a significant market
risk as it could potentially have an effect on the Company's financial
condition and results of operation. The definition of interest rate risk is
the exposure of the Company's earnings to adverse movements in interest
rates. Volatility in interest rates requires the Company to manage interest
rate risk, which arises from the differences in the timing of repricing of
assets and liabilities.
The Company's Asset-Liability Management Committee, comprised of the
Bank's Executive Management team, has the responsibility of managing
interest rate risk, and monitoring and evaluating the difference between
interest-sensitive assets and interest-sensitive liabilities within various
time periods.
The Company's objective is to reduce and control the volatility of its
net interest income by managing the relationship of interest-earning assets
and interest-bearing liabilities. In order to manage this relationship, the
Committee utilizes a monthly GAP report.
The GAP report provides a static analysis of repricing opportunities
of rate-sensitive assets and rate-sensitive liabilities. It is prepared by
categorizing these assets and liabilities into time periods based upon
either their contractual or anticipated maturity or repricing. The analysis
determines the net dollar amount of assets less liabilities that are
repricing in various time frames. This, in conjunction with certain
assumptions and other related factors, such as anticipated changes in
interest rates, projected cash flows from loans, investments and deposits,
provides a means of evaluating interest rate risk. Management also takes
into consideration that certain assets and liabilities react differently to
changes in interest rates.
The interest sensitivity gap is determined by subtracting the amount
of liabilities from the amount of assets that reprice in a particular time
period. When more liabilities than assets reprice or mature within a given
time frame, a liability sensitive position results (negative gap). A
negative gap position would tend to increase net interest income when
interest rates are falling, and decrease net interest income when rates are
rising. Conversely, an asset sensitive position (positive gap) results when
more assets than liabilities reprice within a given period. In this
scenario, net interest income would increase when interest rates rise and
decrease when rates fall.
At December 31, 2000, the following GAP report indicates the Company's
interest rate risk to have a reliance on short term liabilities. This
position would have an adverse effect on earnings in a rising rate
environment and a positive effect on earnings in a decreasing rate
environment.
INTEREST RATE - SENSITIVITY GAPS
- --------------------------------
Repricing Period at December 31, 2000
- -------------------------------------
Within 1-2 2-3 3-5 Over 5
(Dollars in Thousands) 1 Year Years Years Years Years Total
- ---------------------------------------------------------------------------------------------------
Interest-Earning Assets:
Federal Funds Sold $ 12,000 $ --- $ --- $ --- $ --- $ 12,000
Investment Securities(1) 15,257 6,327 11,477 35,141 20,878 89,080
Loans 139,907 34,928 32,527 14,493 34,298 256,153
-----------------------------------------------------------------
Total Earning Assets $167,164 $ 41,255 $44,004 $49,634 $55,176 $357,233
-----------------------------------------------------------------
Interest Bearing Liabilities:
NOW Checking and Savings
Deposits $ 38,000 $ 10,796 $10,796 $28,788 $ --- $ 88,380
Money Market Deposits 2,396 1,198 1,198 3,193 --- 7,985
Term Deposits 138,544 26,355 11,463 --- --- 176,362
Borrowed Funds 2,000 --- --- --- 10,726 12,726
Other Interest-bearing
Liabilities 1,200 --- --- --- --- 1,200
-----------------------------------------------------------------
Total Interest-bearing
Liabilities $182,140 $ 38,349 $23,457 $31,981 $10,726 $286,653
-----------------------------------------------------------------
Net Interest Sensitivity Gap $(14,976) $ 2,906 $20,547 $17,653 $44,450 $ 70,580
Cumulative Gap $(14,976) $(12,070) $ 8,477 $26,130 $70,580 ---
Cumulative Gap as a Percent of
Total Assets 3.85% 3.10% 2.18% 6.72% 18.16% ---
=================================================================
<FN>
<F1> Excludes money market mutual funds which are carried in cash and cash
equivalents.
</FN>
In addition to the GAP report, the Company also uses an analysis to
measure the exposure of net interest income to changes in interest rates
over a relatively short time period (i.e. 12 months). This analysis
involves projecting future interest income and expenses from the Company's
earning assets and interest-bearing liabilities. Depending on the GAP
position, the Company's policy limit on interest rate risk specifies that if
interest rates were to change immediately up or down 200 basis points, the
effect on estimated net interest income for the next 12 months that would be
tolerated would be not more than a ten percent (10%) decrease. The
following table reflects the Company's estimated exposure as a percentage of
estimated net interest income for the next 12 months, assuming an immediate
change in interest rates:
Rate Change Estimated Exposure as a
(Basis Points) Percentage of Net Interest Income Dollar Impact
- -------------------------------------------------------------------------
+200 (3.59%) $(577,000)
-200 (3.46%) $(556,000)
The model used to monitor earnings-at-risk provides management a
measurement tool to assess the effect of changes in interest rates on the
Company's current and future earnings. The Company's 10% limit establishes
an internal tolerance level to control the Company's interest rate risk
exposure and is monitored on a quarterly basis.
II. INVESTMENT PORTFOLIO
The following table shows the book value of the major categories of
investment securities Held-to-Maturity for the years indicated:
At December 31,
- ---------------------------------------------------------------
(Dollars in Thousands) 2000 1999 1998
- ---------------------------------------------------------------
US Treasury Securities and
Obligations of US Government
Corporations and Agencies $ 6,948 $ 7,975 $ 8,810
Obligations of States and
Political Subdivisions 12,094 11,439 11,997
Mortgage-backed securities 59 74 114
Other Debt Securities 1 1 -0-
- ---------------------------------------------------------------
Total $19,102 $19,489 $20,921
===============================================================
In the following table, the carrying value of Held-to-Maturity
securities maturing within stated periods as of December 31, 2000, is shown
with the weighted average interest yield from securities falling within the
range of maturities:
US Treasury Obligations
& Government of States& Mortgage- Other
Corporations Political Backed Debt
(Dollars in Thousands) Agencies Subdivisions(1) Securities(2) Securities Total
- ---------------------------------------------------------------------------------------------------
Due in 1 year or less:
Amount$ $4,200 $ 2,211 $ 55 $ 1 $ 6,467
Yield 6.04% 6.98% 6.74% 7.50% 6.36%
Due in 1 to 5 years:
Amount 2,498 5,859 4 --- 8,361
Yield 6.47% 6.61% 7.88% --- 6.57%
Due in 5 to 10 years:
Amount 250 3,322 --- --- 3,572
Yield 7.00% 6.64% --- --- 6.66%
Due after 10 years:
Amount --- 702 --- --- 702
Yield --- 7.57% --- --- 7.57%
- ---------------------------------------------------------------------------------------------------
Amount $6,948 $12,094 $ 59 $ 1 $19,102
- ---------------------------------------------------------------------------------------------------
Yield 6.23% 6.74% 6.82% 7.50% 6.55%
- ---------------------------------------------------------------------------------------------------
<FN>
<F1> Rates of tax exempt securities are shown assuming a 33.33% tax rate.
<F2>) Mortgage-backed securities stated using average life.
</FN>
The following table shows the amortized cost basis of the major
categories of Available-for-Sale securities for the years indicated:
At December 31,
- -------------------------------------------------------------------
(Dollars in Thousands) 2000 1999 1998
- -------------------------------------------------------------------
US Treasury Securities and
Obligations of US Government
Corporations and Agencies $40,934 $41,801 $42,944
Mortgage-backed Securities 22,089 16,939 12,538
Asset-backed Securities --- --- 222
Corporate Debt Securities 1,473 720 ---
Marketable Equity Securities (net) 4,582 3,808 1,918
- -------------------------------------------------------------------
Total $69,078 $63,268 $57,622
===================================================================
In the following table, the amortized cost basis of Available-for-Sale
securities (other than equity securities) maturing within stated periods as
of December 31, 2000, is shown with the weighted average interest yield from
securities falling within the range of maturities:
US Treasury
& Government Mortgage- Corporate
Corporations Backed Debt
(Dollars in Thousands) Agencies Securities(1) Securities Total
- --------------------------------------------------------------------------------
Due in 1 year or less:
Amount $ 2,898 $ 1,259 $ --- $ 4,157
Yield 5.47% 6.06% --- 5.65%
Due in 1 to 5 years:
Amount 27,356% 15,755 1,473 44,584
Yield 5.96% 6.58% 6.41% 6.19%
Due in 5 to 10 years:
Amount 10,680 4,152 --- 14,832
Yield 6.30% 5.80% --- 6.16%
Due after 10 years:
Amount --- 923 --- 923
Yield --- 6.76% --- 6.76%
- --------------------------------------------------------------------------------
Amount $ 40,934 $ 22,089 $1,473 $64,496
================================================================================
Yield 6.01% 6.41% 6.41% 6.16%
================================================================================
<FN>
<F1> Mortgage-backed securities stated using average life.
</FN>
The following table shows the amortized cost basis and fair value of
the major categories of Held-to-Maturity securities as of December 31, 2000:
Gross Gross
Amortized Unrealized Unrealized
(Dollars in Thousands) Cost Basis Holding Gains Holding Losses Fair Value
- --------------------------------------------------------------------------------------------------
Debt securities issued by the U.S.
Treasury and other U.S. Government
corporations and agencies $ 6,948 $27 $ 5 $ 6,970
Debt securities issued by states of
the United States and political
subdivisions of the states 12,094 41 77 12,058
Mortgage-backed securities 59 --- --- 59
Other debt securities 1 --- --- 1
- -------------------------------------------------------------------------------------------------
Total $19,102 $68 $82 $19,088
=================================================================================================
Investments in Available-for-Sale securities are carried at fair value
on the balance sheet and are summarized as follows as of December 31, 2000.
Gross Gross
Amortized Unrealized Unrealized
(Dollars in Thousands) Cost Basis Holding Gains Holding Losses Fair Value
- -------------------------------------------------------------------------------------------------
Debt securities issued by the U.S.
Treasury and other U.S. Government
corporations and agencies $40,934 $ 53 $ 558 $40,429
Marketable Equity 4,582 468 880 4,170
Mortgage-backed securities 22,089 136 180 22,045
Corporate debt securities 1,473 2 12 1,463
- ------------------------------------------------------------------------------------------------
Total $69,078 $659 $1,630 $68,107
================================================================================================
Decrease in Stockholder's Equity:
(In Whole Dollars)
Net unrealized loss on Available-for-Sale Securities $971,344
Less tax effect (374,801)
-------
$596,543
========
III. LOAN PORTFOLIO
The following table shows the Company's amount of loans by category at
the end of each of the last five years.
At December 31,
- ----------------------------------------------------------------------------------------------------------
(Dollars in Thousands) 2000 1999 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------
Commercial, financial and agricultural $ 49,331 $ 46,354 $ 43,777 $ 36,641 $ 31,244
Real estate - construction and land development 8,601 5,014 3,773 6,678 6,891
Real estate - residential 55,871 52,330 51,220 55,477 59,500
Real estate - commercial 128,327 127,938 112,913 108,008 94,545
Consumer 12,872 9,393 6,477 6,747 6,681
Non Profit 1,036 904 0 0 0
Obligations of states and political subdivisions 61 0 3 9 16
Other 54 116 67 176 109
- ------------------------------------------------------------------------------------------------------------
256,153 242,049 218,230 213,736 198,986
Allowance for Loan Losses (4,776) (3,766) (3,569) (3,694) (3,354)
Unamortized adjustment to fair value (9) (20) (32) (42) (54)
Unearned Income (519) (594) (691) (690) (643)
- ------------------------------------------------------------------------------------------------------------
Net Loans $250,849 $237,669 $213,938 $209,310 $194,935
============================================================================================================
The following table shows the maturity distributions and interest rate
sensitivity of selected loan categories at December 31, 2000.
Within One One to Five After Five
(Dollars in Thousands) Year Years Years Total
- --------------------------------------------------------------------------------------------
Commercial, financial, and agricultural $29,992 $11,281 $ 8,058 $49,331
Real Estate - construction 23 112 8,466 8,601
- --------------------------------------------------------------------------------------------
Total $30,015 $11,393 $16,524 $57,932
============================================================================================
The following table shows the amounts, included in the table above,
which are due after one year and which have fixed interest rates and
adjustable rates:
Total Due After One Year
- ----------------------------------------------------------------------------------
(Dollars in Thousands) Fixed Rate Adjustable Rate Total
- ----------------------------------------------------------------------------------
Commercial, financial, and agricultural $3,742 $15,597 $19,339
Real Estate - construction 5,073 3,505 8,578
- -----------------------------------------------------------------------------------
Total $8,815 $19,102 $27,917
===================================================================================
NONACCRUAL, PAST DUE AND RESTRUCTURED LOANS
December 31,
- --------------------------------------------------------------------------------------
(Dollars in Thousands) 2000 1999 1998 1997 1996
- --------------------------------------------------------------------------------------
Nonaccrual loans $2,415 $ 1,777 $ 3,331 $4,597 $4,352
Loans 90 days or more past due
and still accruing 335 248 317 147 112
Real estate acquired by foreclosure
or substantively repossessed -0- 353 1,026 159 308
- ---------------------------------------------------------------------------------------
Total nonperforming assets $2,750 $ 2,378 $ 4,674 $4,903 $4,772
=======================================================================================
Restructured debt performing in
accordance with amended terms,
not included above $ 53 $ 518 $ 867 $1,265 $ 819
- ---------------------------------------------------------------------------------------
Percentage of nonaccrual loans
to total loans 0.94% 0.73% 1.53% 2.15% 2.19%
Percentage of nonaccrual loans,
restructured loans and real estate
acquired by foreclosure
or substantively repossessed to
total assets 0.64% 0.74% 1.54% 2.00% 1.88%
Percentage of allowance for loan
losses to nonaccrual loans 197.76% 211.92% 107.15% 80.36% 77.07%
Nonaccrual loans include restructured loans of $153,000 at December
31, 2000; $0 at December 31, 1999; $0 at December 31, 1998; $263,000 at
December 31, 1997; and $398,000 at December 31, 1996.
Information with respect to nonaccrual and restructured loans for the
past five years ending December 31 is as follows:
December 31,
- ------------------------------------------------------------------------------------
(Dollars in Thousands) 2000 1999 1998 1997 1996
- ------------------------------------------------------------------------------------
Nonaccrual loans $2,415 $1,777 $3,331 $4,597 $4,352
Interest income that would have been
recorded under original terms $ 228 $ 146 $ 318 $ 394 $ 361
Interest income recorded during
the period $ 22 $ 37 $ 37 $ 58 $ 62
Nonperforming assets include nonaccrual loans, loans past due 90 days
or more and still accruing, restructured loans not performing in accordance
with amended terms, and other real estate acquired through foreclosure.
Nonperforming assets as a total increased to $2.8 Million at year end 2000,
from $2.4 Million reported at year end 1999.
Nonaccrual loans is the largest component of nonperforming assets, and
at December 31, 2000, this category increased to $2.4 Million. There are no
loans greater than $1.3 in this category, which is comprised of $0.4 Million
of residential mortgages, $0.3 Million of commercial real estate loans, and
$1.7 Million of other types of loans.
Loans that became nonaccrual during the current year amounted to
$1,898,224. Offsetting this increase were receipts of loan payments of
$875,709 and loans of $316,754 that were deemed uncollectible and charged
off to the Allowance for Loan Losses. There was a transfer to accrual
status of loans totaling $67,392.
The Company places a loan on nonaccrual status when, in the opinion of
management, the collectibility of the principal and interest becomes
doubtful. Generally, when a commercial loan, commercial real estate loan or
a residential real estate loan becomes past due 90 days or more, the Company
discontinues the accrual of interest and reverses previously accrued
interest. The loan remains in the nonaccrual status until the loan is
current and six consecutive months of payments are made, then it is
reclassified as an accruing loan. When it is determined that the
collectibility of the loan no longer exists, it is charged off to the
Allowance for Loan Losses or, if applicable, any real estate that is
collateralizing the loan is acquired through foreclosure, at which time it
is categorized as Other Real Estate Owned.
There was no real estate acquired by foreclosure at December 31, 2000
compared to $353,095 reported at year end 1999.
IV. SUMMARY OF LOAN LOSS EXPERIENCE
The table below illustrates the changes in the Allowance for Loan
Losses for the periods indicated.
(Dollars in Thousands) 2000 1999 1998 1997 1996
- ---------------------------------------------------------------------------------------
Balance at January 1 $3,766 $3,569 $3,694 $3,354 $2,498
- ---------------------------------------------------------------------------------------
Charge-offs:
Commercial (194) (221) (0) (40) (144)
Real estate-construction 0 (0) (0) (0) (0)
Real estate-mortgage (23) (23) (716) (147) (136)
Installment/Consumer (138) (158) (76) (68) (159)
- ---------------------------------------------------------------------------------------
(355) (402) (792) (255) (439)
- ---------------------------------------------------------------------------------------
Recoveries:
Commercial 50 11 8 41 59
Real estate-construction 0 0 0 0 0
Real estate-mortgage 92 24 43 16 333
Installment/Consumer 23 14 16 38 47
- ---------------------------------------------------------------------------------------
165 49 67 95 439
- ---------------------------------------------------------------------------------------
Net Charge-offs (190) (353) (725) (160) 0
- ---------------------------------------------------------------------------------------
Additions charged to operations 1,200 550 600 500 400
Allowance attributable to acquisition 0 0 0 0 456
- ---------------------------------------------------------------------------------------
Balance at December 31: $4,776 $3,766 $3,569 $3,694 $3,354
=======================================================================================
Allowance for Loan Losses as a
percent of year end loans 1.86% 1.56% 1.64% 1.73% 1.69%
Ratio of net charge-offs to
average loans outstanding (0.08%) (0.15%) (0.34%) (0.08%) (0.00%)
The Allowance for Loan Losses at year end December 31, 2000 was
$4,776,360; and $3,765,872, $3,569,282, $3,693,865, and $3,354,311 for years
ending 1999, 1998, 1997, and 1996 respectively. The Allowance for Loan
Losses as a percent of year end loans was 1.86% in 2000, 1.56% in 1999,
1.64% in 1998, 1.73% in 1997, and 1.69% in 1996.
The level of the Allowance for Loan Losses is evaluated by management
and encompasses several factors. These factors include but are not limited
to recent trends in the nonperforming loans, the adequacy of the assets
which collateralize the nonperforming loans, the level of nonaccrual loans,
current economic conditions in the market area and various other external
and internal factors. During 2000, management made the decision to change
the methodology and guidelines used in calculating the adequate level of
loan loss reserves. Increasing credit risk due to a higher commercial real
estate loan portfolio and a rising interest rate environment are responsible
for the review and change in the methodology and guidelines. Management's
assessment of the adequacy of the Allowance for Loan Losses is reviewed by
regulators and by the Company's independent accountants.
The Company's provision for loan losses, which is a deduction from
earnings, in 2000 was $1,200,000. Prior years' provisions were $550,000,
$600,000, $500,000, and $400,000 for years ending 1999, 1998, 1997, and 1996
respectively. In 2000, the Company realized recoveries of previously
charged-off loans of $165,000. Recoveries recorded in previous years were
$49,000, $67,000, $95,000, and $439,000 in 1999, 1998, 1997, and 1996
respectively.
The amount provided to the Allowance for Loan Losses was deemed
appropriate by management after full consideration of the value of the
assets securing the nonaccrual loans.
The table below shows an allocation of the allowance for loan losses
as of the end of each of the last five years.
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
December 31, 2000 December 31, 1999 December 31, 1998 December 31, 1997 December 31, 1996
- ----------------------------------------------------------------------------------------------------------------------------
Percent of Percent of Percent of Percent of Percent of
Loans in Loans in Loans in Loans in Loans in
Each Each Each Each Each
Category to Category to Category to Category to Category to
Amount Total Loans Amount Total Loans Amount Total Loans Amount Total Loans Amount Total Loans
- ----------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
Commercial(5) $1,466(1) 19.66% $1,356(1) 19.52% $1,249(1) 20.06% $ 984(1) 17.14% $ 789(1) 15.70%
Real estate
Construction 47 3.36% 34 2.07% 27 1.73 44 3.12 41 3.46
Real estate
Mortgage 2,970(2) 71.91% 1,924(2) 74.48% 1,964(2) 75.21 2,311(2) 76.50 2,150(2) 77.42
Consumer(3) 293(4) 5.07% 452(4) 3.93% 329(4) 3.00 355(4) 3.24 374(4) 3.42
- --------------------------------------------------------------------------------------------------------------------------
$4,776 100.00% $3,766 100.00% $3,569 100.00% $3,694 100.00% $3,354 100.00%
==========================================================================================================================
<FN>
<F1> Includes amounts specifically reserved for impaired loans of $281,248
as of December 31, 2000, $234,205 as of December 31, 1999, $128,207 as
of December 31, 1998, $42,937 as of December 31, 1997 and $0 as of
December 31, 1996, as required by Financial Accounting Standard No.
114, Accounting for Impairment of Loans.
<F2> Includes amounts specifically reserved for impaired loans of $132,911
as of December 31, 2000, $147,884 as of December 31, 1999, $187,554 as
of December 31, 1998, $566,220 as of December 31, 1997, and $838,290 as
of December 31, 1996, as required by Financial Accounting Standard No.
114, Accounting for Impairment of Loans.
<F3> Includes consumer, obligations of states and political subdivisions and
other.
<F4> Includes amounts specifically reserved for impaired loans of $10,398 as
of December 31, 2000, $39,241 as of December 31, 1999, $9,126 as of
December 31, 1998, $14,413 as of December 31, 1997 and $0.00 as of
December 31, 1996 as required by Financial Accounting Standard No. 114,
Accounting for Impairment of Loans.
<F5> Includes commercial, financial, agricultural and non profit.
</FN>
The loan portfolio's largest segment of loans is commercial real
estate loans, which represent 50% of gross loans. Residential real estate
loans represent 22% of gross loans. The Company requires a loan to value
ratio of 80% in both commercial and residential mortgages. These mortgages
are secured by real properties which have a readily ascertainable value.
Generally, commercial real estate loans have a higher degree of credit
risk than residential real estate loans because they depend primarily on the
success of the business. When granting these loans, the Company evaluates
the financial statements of the borrower(s), the location of the real
estate, the quality of management, and general economic and competitive
conditions. When granting a residential mortgage, the Company reviews the
borrower(s) repayment history on past debts, and assesses the borrower(s)
ability to meet existing obligations and payments on the proposed loans.
Commercial loans consist of loans predominantly collateralized by
inventory, furniture and fixtures, and accounts receivable. In assessing
the collateral for this type of loan, management applies a 40% liquidation
value to inventories; 25% to furniture, fixtures and equipment; and 60% to
accounts receivable. Commercial loans represent 20% of the loan portfolio.
Consumer loans are generally unsecured borrowings and represent 5% of
the total loan portfolio. These loans have a higher degree of risk than
residential mortgage loans. The underlying collateral of a secured consumer
loan tends to depreciate in value. Consumer loans are typically made based
on the borrower's ability to repay the loan through continued financial
stability. The Company endeavors to minimize risk by reviewing the
borrower's repayment history on past debts, and assessing the borrower's
ability to meet existing obligations on the proposed loans.
Total losses in 2000 amounted to $355,000, when compared to losses of
$402,000 in 1999, $792,000 in 1998, $255,000 in 1997, and $439,000 in 1996.
The real estate-mortgage category incurred losses of $23,000 in 2000
compared to $23,000 in 1999, $716,000 in 1998, $147,000 in 1997, and
$136,000 in 1996.
V. DEPOSITS
Deposits are obtained from individuals and from small and medium sized
businesses in the local market area. The Bank also attracts deposits from
municipalities and other government agencies. The Bank does not solicit or
accept brokered deposits.
The following table sets forth the average amount and the average rate
paid on deposits for the periods indicated.
2000 1999 1998
- ------------------------------------------------------------------------------------------------------
(Dollars in Thousands) Average Average Average Average Average Average
Balance Rate Balance Rate Balance Rate
- ------------------------------------------------------------------------------------------------------
Noninterest-bearing Demand Deposits $ 58,588 0.00% $ 52,261 0.00% $ 46,217 0.00%
Interest-bearing Demand Deposits 37,785 3.13 38,404 2.59 38,764 3.09
Savings Deposits 50,210 2.00 48,442 2.11 43,885 2.45
Money Market Deposits 10,607 1.64 12,188 1.76 13,777 1.98
Time Deposits $100,000 or More 31,689 4.85 26,857 4.93 22,945 5.52
Other Time Deposits 138,637 5.78 130,393 5.20 119,118 5.62
- -----------------------------------------------------------------------------------------------------
Totals $327,516 3.64% $308,545 3.35% $284,706 3.69%
====================================================================================================
As of December 31, 2000, time certificates of deposit in amounts of
$100,000 or more had the following maturities:
(Dollars in Thousands)
Three months or less $14,287
Over three months through six months 7,154
Over six months through twelve months 8,389
Twelve months and over 5,465
-------
$35,295
=======
VI. RETURNS ON EQUITY AND ASSETS
The following table shows consolidated operating and capital ratios of
the Company for each of the last three years:
Year Ended December 31,
-------------------------
2000 1999 1998
-------------------------
Return on Assets 1.09% 1.11% 1.06%
Return on Equity 12.92% 12.56% 11.98%
Dividend Payout Ratio 36.84% 34.36% 28.54%
Equity to Assets Ratio 8.45% 8.85% 8.86%
VII. SHORT TERM BORROWINGS
The following table shows the Company's short-term borrowings at the
end of each of the last three years, the maximum amount of borrowings and
the average amounts outstanding as well as weighted average interest rates
for the last three years.
(Dollars in Thousands) 2000 1999 1998
- -----------------------------------------------------------------------------
Balance at December 31 $1,200 $1,248 $ 42
Maximum Amount Outstanding at Any Month's End $1,220 $4,000 $1,365
Average Amount Outstanding During the Year $ 723 $ 889 $ 813
Weighted Average Interest Rate During the Year 7.07% 5.93% 5.65%
The Bank has the ability to borrow funds from correspondent banks and
the Federal Home Loan Bank, as well as the Federal Reserve Bank of Boston,
by pledging various investment securities as collateral. The Company did
not borrow during 2000 to meet short term liquidity needs. During 1999,
there were thirty-five various days when the Company borrowed to meet these
needs. There were no borrowings during 1998. Tax payments made by our
customers, which are owed to the Federal Reserve Bank Treasury Tax and Loan
account, are classified as borrowed funds. The Company had a note payable
of $847,990 due to Fleet Bank which was paid in full in November 1999. This
note was assumed from Fairbank, Inc. at the time of the acquisition.
Because of the term of the note, including applicable prepayment fees,
management determined it advantageous for the Bank not to pay off the note
until its final maturity date of November 25, 1999. There is also
$12,725,908 in borrowings from the Federal Home Loan Bank as of December 31,
2000 which represent the match funding program that is available to
qualified borrowers. These borrowings totaled $6,756,767 at year end 1999.
Accounting for Deferred Income Taxes
- ------------------------------------
The net deferred tax asset at year end 2000 was $2,312,202. The
amount of taxable income required to be generated to fully realize such net
deferred tax asset will be approximately $7.4 Million. The taxable income
earned by the Company in 2000 was $5,938,228.
ITEM 2
PROPERTIES
The main office of the Bank is located at 100 Slade's Ferry Avenue,
Somerset, Massachusetts at the junctions of U.S. Routes 6, 138, and 103.
The Bank has twelve additional branches located in Fairhaven, Fall River,
New Bedford, Seekonk, Somerset and Swansea, Massachusetts. As of December
31, 2000, the following Bank properties are owned either directly by the
Bank or through its subsidiary, the Slade's Ferry Realty Trust:
Location Sq. Footage
- ------------------------------------------------------------------------------------
Main Office 100 Slade's Ferry Avenue Somerset, MA 41,000
North Somerset 2722 County Street Somerset, MA 3,025
Linden Street 244-253 Linden Street Fall River, MA 1,750
Brayton Avenue 855 Brayton Avenue Fall River, MA 3,325
North Swansea 2388 G.A.R. Highway Swansea, MA 2,960
Seekonk 1400 Fall River Avenue Seekonk, MA 2,300
Fairhaven 75 Huttleston Avenue Fairhaven, MA 13,000
South Main Street 1601 South Main Street Fall River, MA 6,604
Ashley Boulevard 833 Ashley Boulevard New Bedford, MA 2,655
Offices listed below are leased properties with the indicated lease expiration
dates.
Swansea Mall
(expires 2003) Rt. 118 Swansea, MA 2,250
Brayton Avenue
Drive Up Complex 16 Stevens St. Fall River, MA 549
(expires 2005)
Walgreen's Drug Store 838 Pleasant St. New Bedford, MA 835
(expires 2004)
Loan Production Office 188 Airport Road Warwick, RI 600
(Expires 2002)
The main office building contains approximately 42,000 square feet of
usable space, of which the Bank occupies approximately 41,000 square feet
and the remainder is rented to local businesses as warehouse and office
space. The Bank also has a school banking facility located in the Somerset
High School, Grandview Avenue, Somerset, Massachusetts that consists of 200
square feet which provides basic banking services to students and school
staff. The Seekonk office is an 8,800 square foot building of which the
Bank is utilizing 2,300 square feet and leasing out the remainder.
ITEM 3
LEGAL PROCEEDINGS
The Company is not a party to any material pending legal proceedings
ITEM 4
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of 2000, no matters were submitted to a vote
of stockholders of the Company.
PART II
ITEM 5
MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
The Company's common stock is listed in the NASDAQ Small Cap Market
under the symbol SFBC. The following table sets forth the range of high and
low bids as reported for the NASDAQ Small Cap Market by quarters for the
two-year period ended December 31, 2000.
2000 1999
- -----------------------------------------------
High Low High Low
- -----------------------------------------------
1st Quarter 10.88 9.25 $14.70 $13.25
2nd Quarter 10.63 9.25 13.50 12.25
3rd Quarter 10.00 8.88 12.13 10.00
4th Quarter 10.00 8.63 11.88 10.00
================================================
Dividends - History and Policy
The Company, since its inception in 1990 and prior thereto the Bank,
has consistently paid dividends to stockholders since 1961. In February
2000, the Company issued a 5% stock dividend on the Company's common stock,
resulting in a distribution of 176,793 shares. The Company also paid four
quarterly cash dividends of $.08 per share. In addition, an extra cash
dividend of $.08 per share was paid in December 2000 for a total of $.40 per
share paid in 2000. The Company paid a quarterly cash dividend of $.06 per
share in the first quarter of 1999 and then increased the cash dividends to
$.08 per share for the remaining quarters. In addition, an extra cash
dividend was paid in December 1999 of $.08 per share for a total of $.36(1)
per share paid in 1999.
The declaration of cash dividends is dependent on a number of factors,
including regulatory limitations, and the Bank's operating results and
financial condition. The stockholders of the Company will be entitled to
dividends only when, and if, declared by the Company's Board of Directors
out of funds legally available. Under the Massachusetts Business
Corporation Law, a dividend may not be declared if the corporation is
insolvent or if the declaration of the dividend would render the corporation
insolvent.
Chapter 172 Section 28 of the Massachusetts Statutes on Bank and
Banking provides that a bank's Board of Directors may, subject to the
restriction contained in the section, declare and pay dividends on capital
stock out of net profits from time to time and to such extent as they deem
advisable. However, under this provision, no cash dividend shall be paid
unless, following the payment of such dividend, the capital stock and
retained earnings account will be unimpaired.
[FN]
<F1> Reflects the effect of the 5% stock dividend issued on February 9, 2000.
</FN>
ITEM6
SELECTED FINANCIAL DATA
The following table sets forth selected financial data for the last five
years.
Year Ended December 31,
- ---------------------------------------------------------------------------------------------------------------
(Dollars in Thousands Except per Share Data) 2000 1999 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------
EARNINGS DATA
Interest Income $ 28,186 $ 25,553 $ 24,306 $ 23,150 $ 19,495
Interest Expense 12,699 10,754 10,711 10,412 9,078
Net Interest Income 15,487 14,799 13,595 12,738 10,417
Provision for Loan Losses 1,200 550 600 500 400
Noninterest Income 1,857 2,087 1,568 1,562 1,305
Noninterest Expense 10,206 10,557 8,984 9,033 7,380
Income Before Income Taxes 5,938 5,779 5,579 4,767 3,942
Applicable Income Taxes 1,864 1,923 2,216 1,921 1,564
Net Income 4,074 3,856 3,363 2,846 2,378
PER SHARE DATA (1)
Net Income-Basic$ 1.09 $ 1.060 $ 0.940 $ 0.850 $ 0.780
Net Income-Diluted(2) $ 1.09 $ 1.050 $ 0.940 $ 0.850 $ ---
Cash Dividends $ 0.40 $ 0.358 $ 0.265 $ 0.230 $ 0.216
Book Value (at end of period) $ 9.41 $ 8.567 $ 8.200 $ 7.746 $ 6.69
Avg. Shs. Outstanding 3,743,138 3,650,275 3,572,329 3,344,100 3,048,288
Shares Outstanding Year End 3,789,503 3,520,409 3,446,413 3,236,713 2,789,142
BALANCE SHEET DATA
Assets $ 388,619 $ 358,121 $ 340,355 $ 301,571 $ 291,342
Loans 256,153 242,049 218,230 213,736 198,986
Unearned Discount 519 594 691 690 643
Allowance for Loan Losses 4,776 3,766 3,569 3,694 3,354
Loans, Net 250,849 237,669 213,938 209,310 194,935
Goodwill 2,400 2,627 2,854 3,081 3,307
Investments 88,109 81,806 79,978 58,668 57,732
Deposits 337,001 316,431 303,786 271,322 267,791
Stockholders' Equity 35,674 31,664 29,707 26,436 19,847
FINANCIAL RATIOS
Net Yield on Interest Earning
Assets (3) 4.58% 4.71% 4.70% 4.66% 4.44%
Net Interest Spread (3) 3.75 3.99 3.91 3.88 3.72
Net Income as a Percentage of
Average Assets 1.09 1.11 1.06 0.96 0.94
Average Equity 12.92 12.56 11.98 12.27 12.69
Dividend Payout Ratio 36.84 34.36 28.54 27.57 27.95
Average Equity to
Average Assets 8.45 8.85 8.86 7.79 7.40
<FN>
<F1> Earnings per share are computed based on the average number of shares of common stock outstanding during the year. On
January 8, 1996, the Company declared a 5% stock dividend mailed to stockholders on January 31, 1996. On January 12,
1998, the Company declared a 5% stock dividend mailed to stockholders on February 11, 1998. On January 10, 2000, the
Company declared a 5% stock dividend mailed to stockholders on February 9, 2000. Per share data has been restated to
reflect the effect of the stock splits and the stock dividends.
<F2> There were no stock options outstanding in years prior to 1997.
<F3> Calculated on a fully taxable equivalent basis.
</FN>
ITEM 7
MANAGEMENT'S DISCUSSION AND ANALYSIS
The purpose of Management's Discussion and Analysis is to focus on
certain significant factors which have affected the Company's operating
results and financial condition, and to provide stockholders a more
comprehensive review of the figures contained in the financial data of this
report.
2000 Highlights
* In 2000, Slade's Ferry Bancorp recorded net income of $4,074,439 or
$1.09 per share on a diluted basis compared to $3,856,488 or $1.05 per
share on a diluted basis in 1999. This represents an increase of
$217,951 or 5.65% in net income and $0.04 or 3.81% per share on a
diluted basis between 2000 and 1999.
* Return on average equity for 2000 was 12.92%, up by 0.36% when
compared to 12.56% reported in 1999. Return on average assets for
2000 was 1.09% down by .02% when compared to 1.11% reported in 1999.
* Book value of the Company's common stock increased to $9.41 in 2000
from $8.57 reported in 1999 and $8.20 reported in 1998.
RESULTS OF OPERATIONS
Net interest income, which is the difference between interest and
dividend income earned on earning assets and interest expense paid on
interest-bearing liabilities, is the dominate contributor to net income.
Increases or decreases in interest rates affect the yields earned on loans
and investments and rates paid on deposits and other borrowings. On a fully
taxable basis, net interest income was $15.7 Million in 2000, $15.0 Million
in 1999 and $13.8 Million in 1998. The increase in net interest income in
2000 is primarily a result of growth in average earning assets of 7.75% from
prior years. Growth in earning assets is due to a general increase in
business volumes. The average earning assets produced a 8.26% yield in
2000, compared to 8.08% in 1999 and 8.35% in 1998.
The loan portfolio, which generally produces higher yields than the
investment portfolio, represents 66.65% of average assets in 2000, compared
to 66.12% in 1999, and 67.5% in 1998.
Cost of funds increased to 4.51% in 2000 primarily due to the rates
paid on other time deposits, which is the largest component of interest
bearing liabilities. Cost of funds in 1999 was 4.09% and 4.44% in 1998.
During 2000, the average balances in interest-bearing liabilities increased
to $281.3 Million, compared to $262.7 Million in 1999 and $241.4 Million in
1998.
The net interest spread, which represents the difference between the
weighted average yield on interest-bearing assets and the weighted average
cost of interest-bearing liabilities decreased to 3.75% in 2000 from 3.99%
in 1999 and 3.91% reported in 1998.
Net yield on earning assets, which represents net interest income as a
percentage of average earning assets decreased to 4.58% from 4.71% in 1999
and 4.70% in 1998.
The Provision for Loan Losses is a charge against earnings and funds
the Allowance for Loan Losses. It is management's desire to maintain an
appropriate ratio of the Allowance for Loan Losses to total outstanding
loans. The Bank's provision for 2000 was $1,200,000, an increase of
$650,000 from $550,000 recorded in 1999. The provision for 1998 was
$600,000. This increase is attributed to management's decision to change
the methodology and guidelines used in calculating the adequate level of
loan loss reserves for our loan portfolio. Increasing credit risk due to a
higher commercial real estate loan portfolio and a rising interest rate
environment is responsible for the review and change in the methodology and
guidelines. This additional provision will provide an appropriate level of
loan loss reserve to adequately absorb any unanticipated losses from our
loan portfolio.
Total Other Income for 2000 decreased by $230,109 or 11.03% to
$1,856,435 from $2,086,544 recorded in 1999. Service charges on deposit
accounts decreased slightly in 2000 to $564,444 when compared to $618,303 in
1999 and $634,129 in 1998. These decreases are primarily due to a decrease
in fees earned on overdraft accounts and a lower amount of service charges
being realized on demand deposit accounts as a result of higher levels of
compensating balances carried in the business checking account category.
During 2000, $2.0 Million of investment securities in the Available-
for-Sale category were sold at a loss of $94,866. This was a strategic move
to provide additional liquidity needed to fund loan growth. In addition,
due to favorable market conditions, the Bank also sold various marketable
corporate equities totaling $0.5 Million throughout the year to realize
gains on sales of $428,447 resulting in a total net pre-tax gain of
$333,581. Pre-tax gains on sales of securities in 1999 were $666,898 and
$382,370 in 1998.
The line item Other Income represents income earned on safe deposit
box rentals, checkbook printing revenue, recoveries on previously recorded
losses relating to check fraud, exchange and commission fees, and other
miscellaneous income. This line item increased by $176,121 to $707,956 when
compared to $531,835 for 1999 and $303,778 for 1998. This increase includes
recognition of an increase in the cash surrender value of life insurance
policies associated with both the Directors' Life Insurance and the
Executive Officers' Life Insurance Programs totaling $72,271 and $169,920,
respectively, and $59,000 of prior years expense accrual that did not
materialize. In 1999, $163,901 of additional income was recorded when one
of the insurance carriers which provides a portion of the directors' life
insurance demutualized and issued shares of the company.
Total Other Expense decreased by $350,687 to $10,205,882, down by
3.32% when compared to $10,556,569 recorded in 1999. Salaries and Employees
Benefits, which is the largest component of Other Expense, increased by
$289,881 to $6,070,057, up from $5,780,176 recorded in 1999. In 1998,
Salaries and Employees Benefits were $5,480,191. The increase is associated
with general wage adjustments and increased cost in employees benefits.
Occupancy and Equipment Expense combined totaled $1,390,355 in 2000, up by
$31,940 when compared to $1,358,415 reported in 1999. Combined Occupancy
and Equipment Expense in 1998 totaled $1,254,630.
Gains and Losses on Sales of Other Real Estate Owned is a result of
sales of real estate acquired through the foreclosure process. In 2000, the
Bank realized gains in this category totaling $49,758 compared to a loss
recognized in 1999 of $29,069 and a gain in 1998 amounting to $54,590.
Writedown on Other Real Estate Owned occurs when Bank held property is
adjusted to the current appraised value, if the appraisal is less than the
amount carried by the Bank. Further adjustments are made, if necessary,
should future appraisals warrant them. In 2000, the Bank incurred no
writedown compared to a $57,024 charge in 1999 and no writedown charge in
1998.
The following table sets forth the components of the line item Other
Expense.
2000 1999 1998
- ----------------------------------------------------------------------------
Amortization of Goodwill $ 226,800 $ 226,800 $ 226,800
Advertising and Public Relations 556,966 615,271 405,737
Communications 308,636 317,993 290,253
Professional Fees & Other Services 726,492 729,263 571,952
Other Real Estate Owned Expense 38,000 161,632 46,426
Committee Fees 189,350 183,900 121,500
Other Various Expense 460,799 807,135 379,585
- ----------------------------------------------------------------------------
Other Expense Total $2,507,043 $3,041,994 $2,042,253
============================================================================
Advertising and Public Relations expense decreased by $58,305 from
$615,271 reported in 1999 to $556,966 in 2000. This expense was $405,737 in
1998. There was an increase in television advertising during 2000 offset by
a decrease of $60,000 in the amount contributed to the Slade's Ferry
Charitable Foundation established in 1999. Communications expense has
remained relatively stable over the past three years. The increase in 1999
reflects the addition of two branches to the branch system: South Main
Street, Fall River, Massachusetts and Ashley Boulevard, New Bedford,
Massachusetts.
Other Real Estate Owned Expense are costs associated with the
maintenance and selling of properties acquired through foreclosure. In
1999, the Bank incurred additional clean-up and repair costs at these
properties to improve their marketability that did not reoccur in 2000. The
increase in Committee Fees reflects a general adjustment made in January
1999 to the director's fee structure for attendance at meetings.
The line item Other Various Expenses includes a one-time charge in
1999 of $277,643 set aside to cover a court judgement resulting from the
civil suit brought on by a former employee of the National Bank of
Fairhaven.
Income tax for 2000 decreased to $1,863,789, down by $58,968 or 3.07%
from $1,922,757 reported in 1999. In 1998, tax expenses totaled $2,216,160.
The reduction in total tax expense in 1999 and 2000 is a direct result of
the establishment in 1999 of a Real Estate Investment Trust (REIT). The
REIT, named the Slade's Ferry Preferred Capital Corporation, enabled the
Bank to utilize certain state tax savings strategies.
The Company's net earnings were $4,074,439, $3,856,488, and $3,363,042
for 2000, 1999, and 1998 respectively.
Unaudited Quarterly Financial Summary
(Dollars in Thousands) March 31 June 30 September 30 December 31
- ----------------------------------------------------------------------------------
2000:
Revenues $7,104 $7,301 $7,467 $8,170
Operating Income 1,486 712 1,730 2,010
Net Income 1,008 512 1,187 1,367
Earnings per share - Diluted $ 0.27 $ 0.14 $ 0.32 $ 0.36
Earnings per share - Basic $ 0.27 $ 0.14 $ 0.32 $ 0.36
1999:
Revenues $6,682 $6,791 $7,170 $6,996
Operating Income 1,409 1,501 1,551 1,318
Net Income 873 922 1,112 949
Earnings per share - Diluted $ 0.24 $ 0.25 $ 0.30 $ 0.26
Earnings per share - Basic $ 0.25 $ 0.25 $ 0.30 $ 0.26
FINANCIAL CONDITION
Loans
Loan demand remained constant throughout 2000 resulting in a 5.8%
increase from year end 1999. The loan portfolio expanded by $14.1 Million to
$256.1 Million when compared to $242.0 Million reported at December 31,
1999. The largest segment of the loan portfolio is commercial real estate
loans which represents 50% of total loans. These loans are collateralized
by various types of commercial properties without any predominate type of
property nor concentration of credit in any one industry. The properties
consist of apartment complexes, medical centers, strip malls, factories with
multiple tenants, and retail office units located in the Bank's market area
extending throughout Southeastern Massachusetts and nearby cities and towns
in Rhode Island. Commercial real estate loans generally have a higher
degree of credit risk than residential real estate loans because they are
predominately dependant on the success of the business. The Bank adheres to
a credit criteria policy that strives to maintain the quality of the loan
portfolio. The process of granting a commercial loan consists of an
independent analysis of the financial condition of the borrower and the
business entity by the Bank's credit analysis division. In turn, the
borrowing request is further evaluated by the Loan Committee and all loans
in excess of $100,000 are submitted to the Executive Committee of the Board
of Directors for final approval before the loan is granted. Periodically,
during the life of the loan, analysis of financial statements of the
business is performed to determine if there are any weaknesses or negative
trends developing, and if so, contact with the borrower is made to ascertain
the cause and what remedial action is planned.
Another component in the loan portfolio is residential real estate
which accounts for 22% of the loan portfolio and is comprised of mortgages
on one to four family properties. Credit is granted based on income to debt
ratio, a satisfactory credit report and the appraised value of the property.
The Bank also provides a "minimum down-payment" program to encourage home
ownership for first-time home buyers. This enables prospective homeowners
the opportunity to purchase a home without having to save over an extended
period of time for the normally required 20% down payment.
Other types of loans total 28% of the portfolio and are comprised of
commercial loans which are generally short term loans to finance business
inventory, consumer credit installment loans, automobile financing and
credit card loans.
Investments
The investment portfolio represents the second largest component of
the Company's assets and consists of securities in the Available-for-Sale
category and securities in the Held-to-Maturity category. The designation
of which category the security is to be classified as is determined at the
time of the purchase of the investment instrument. Securities in the
Available-for-Sale category are securities that the Company intends to hold
for an indefinite period of time, but not necessarily to maturity. These
securities may be sold in response to interest rate changes, liquidity needs
or other factors. Any unrecognized gains or losses, net of taxes, is
reflected in Stockholders Equity as a separate component.
The Available-for-Sale category at December 31, 2000 had net
unrecognized losses of $971,344 of which $559,580 in unrecognized losses are
attributed to securities of U.S. Treasury, other U.S. Government
corporations and agencies, mortgage-backed securities and corporate debt
securities, and $411,764 in unrecognized losses are attributable to
marketable equity securities.
Securities of U.S. Treasury, U.S. Government corporations and
agencies, and mortgage-backed securities have little or no credit risk,
other than being sensitive to changes in interest rates; and if held to
maturity, these securities will mature at par. The Company amortizes
premiums and accretes discounts over the life of the security.
Marketable equity securities, however, have a greater risk as they are
subject to rapid market fluctuations. These securities are constantly
monitored and evaluated to determine their suitability for sale or retention
in the portfolio. Management minimizes its risk by limiting the total
amount invested into marketable equity securities to 6% of the total
investment portfolio. At December 31, 2000, the amount invested in
marketable equity securities at amortized cost was 5.2% of the total
investment portfolio distributed over various business sectors.
The Held-to-Maturity category consists predominately of securities of
U.S. Treasury, U.S. Government corporation and agencies, and securities
issued by states of the United States and political subdivisions of states.
The Company has the positive intent and ability to hold these securities to
maturity. In managing the Held-to-Maturity portfolio, the Company seeks to
maximize its return and maintain consistency to meet short and long term
liquidity forecasts by purchasing securities with maturities laddered within
a short-term period of 1-3 years, a mid-term period of 3-5 years, and some
securities extending out to 10 years. The Company does not purchase
investments with off-balance sheet characteristics, such as swaps, options,
futures, and other hedging activities that are called derivatives. The main
objective of the investment policy is to provide adequate liquidity to meet
reasonable declines in deposits and any anticipated increases in the loan
portfolio, to provide safety of principal and interest, to generate earnings
adequate to provide a stable income and to fit within the overall
asset/liability management objectives of the Company.
Deposits and Other Liabilities
Deposits increased to $337.0 Million at December 31, 2000 from $316.4
Million at year end 1999 and $303.8 Million in 1998. The opening of two new
branch facilities in 1999 attributed to an increase in the Bank's customer
base. Certificates of deposit (term deposits) is the largest component of
deposits with maturities extending out to a maximum of three years.
The Bank is a member of the Federal Home Loan Bank (FHLB) and borrows
funds secured by residential mortgage loans and other assets. This
borrowing mechanism enables the Bank to match-fund loans to commercial
borrowers who meet certain credit and deposit requirements. At December 31,
2000, the Bank had $12.7 Million of loans match-funded with FHLB compared to
$6.8 Million at year end 1999.
Asset/Liability Management and Interest Rate Risk
The Company's Asset-Liability Management Committee, comprised of the
Bank's Executive Management team, monitors and evaluates the interest rate
sensitivity of the Company's assets and liabilities.
Management's objective is to reduce and control the volatility of its
net interest margin by managing the relationship of interest-earning assets
and interest-bearing liabilities. In order to manage this relationship, the
committee utilizes a GAP report prepared on a monthly basis which indicates
the differences or gap between interest-earning assets and interest-bearing
liabilities in various maturity or repricing time periods. This, in
conjunction with certain assumptions, and other related factors, such as
anticipated changes in interest rates and projected cash flows from loans,
investments and deposits, provides management a means of evaluating interest
rate risk.
Management also considers that certain assets and liabilities react
differently to changes in interest rates. Some assets may have rate caps or
prepayment fees attached to the instrument, and some liabilities have early
withdrawal penalties.
A positive gap results when more assets than liabilities are expected
to reprice within a certain time frame, and a negative gap reflects an
excess of liabilities repricing in that period. A positive gap would tend
to increase net interest income when rates are rising and decrease net
interest income when rates are falling. A negative gap position would tend
to produce the opposite effect. At December 31, 2000, for the period from 0
days to 2 years, the Company has a cumulative negative gap position of $12.1
Million. This equates to a percentage of total assets of 3.10% which is
within the specific target for interest rate sensitivity established by the
Company. The negative gap occurs as a result of the amount of deposits that
are subject to repricing during this time period.
In addition to the GAP report, the Company also uses an analysis to
measure the exposure of net interest income to changes in interest rates
over a relatively short (i.e., 12 months) time frame. The analysis projects
future interest income and interest expense from the Company's interest-
earning assets and interest-bearing liabilities. Depending on the GAP
position, the Company's policy limit on interest rate risk specifies that if
interest rates were to change immediately up or down 200 basis points,
estimated net interest income for the next twelve months would not decline
by more than ten percent.
The following table reflects the Company's estimated exposure as a
percentage and the dollar impact of estimated net interest income for the
next twelve months, assuming an immediate change in interest rates:
Estimated Exposure as a Percentage
Rate Change of Net Interest Income
(Basis Points) December 31, 2000 Dollar Impact
- ---------------------------------------------------------------------------
+200 (3.59%) $(577,000)
-200 (3.46%) $(556,000)
The model used to monitor earnings-at-risk provides management a
measurement tool to assess the effect of changes in interest rates on the
Company's current and future earnings. The 10% limit established by the
Company provides an internal tolerance level to control interest rate risk
exposure.
Nonperforming Assets
The Company considers nonaccrual loans, loans past due 90 days or more
but still accruing, restructured loans not performing in accordance with
amended terms, and real estate acquired through foreclosure as nonperforming
assets. Nonperforming assets as a total increased to $2.8 Million at year
end 2000, from $2.4 Million reported at year end 1999. At year end 1998,
nonperforming assets totaled $4.7 Million. Nonaccrual loans is the
largest component of nonperforming assets, and at December 31, 2000, this
category increased to $2.4 Million from $1.8 Million reported at end of
previous year.
The Company places a loan on nonaccrual status when, in the opinion of
management, the collectability of the principal and interest becomes
doubtful. Generally, when a commercial loan, commercial real estate loan or
a residential real estate loan becomes past due 90 days or more, the Company
discontinues the accrual of interest and reverses previously accrued
interest. The loan remains in the nonaccrual status until the loan is
current and six months of payments are made. Then it is reclassified as an
accruing loan.
If it is determined that collectibility of the loan no longer exists,
the loan is charged-off to the Allowance for Loan Losses, or if applicable,
any real estate collateralizing the loan is acquired through foreclosure and
categorized as Other Real Estate Owned.
Loans 90 days or more past due but still accruing increased to
$335,000 from $248,000 reported at year end 1999. Management continues to
accrue on these loans due to the excess values of collateral securing these
loans compared to their outstanding balances.
There was no real estate acquired by foreclosure or substantively
repossessed at December 31, 2000 compared to $353,000 reported at the end of
the prior year.
The percentage of nonaccrual loans to total loans increased from the
prior year due to the increase of loans in the nonaccrual category and the
growth of the loan portfolio. In addition, the percentage of nonaccrual
loans, restructured loans and real estate acquired by foreclosure to total
assets decreased as a result of increased asset levels. The $53,000 of
restructured loans represents one borrower where the original loan term was
amended and payments are current under the amended terms.
Statement of Financial Accounting Standards No. 114 "Accounting by
Creditors for Impairment of a Loan" applies to all loans except large groups
of smaller-balance homogeneous loans that are collectively evaluated for
impairment, loans measured at fair value or at a lower of cost or fair
value, leases, and debt securities as defined in Statement 115. Statement
114 requires that impaired loans be valued at the present value of expected
future cash flows discounted at the loan's effective interest rate or as a
practical expedient, at the loan's observable market value of the collateral
if the loan is collateral dependent. Smaller-balance homogeneous loans are
considered by the Company to include consumer installment loans and credit
card loans.
At December 31, 2000, there were $3,178,869 of loans which the Company
has determined to be impaired, of which $3,178,869 has a related allowance
for credit losses of $424,557. Management is not aware of any other loans
that pose a potential credit risk or where the loans are current but the
borrowers are experiencing financial difficulty.
Allowance for Loan Losses
The table below illustrates the changes in the Allowance for Loan
Losses for the periods indicated.
(Dollars In Thousands) 2000 1999 1998 1997 1996
- --------------------------------------------------------------------------------
Balance at January 1 $3,766 $3,569 $3,694 $3,354 $2,498
----------------------------------------------
Charge Offs:
Commercial (194) (221) (0) (40) (144)
Real estate construction 0 (0) (0) (0) (0)
Real estate mortgage (23) (23) (716) (147) (136)
Installment/Consumer (138) (158) (76) (68) (159)
----------------------------------------------
(355) (402) (792) (255) (439)
----------------------------------------------
Recoveries:
Commercial 50 11 8 41 59
Real estate construction 0 0 0 0 0
Real estate mortgage 92 24 43 16 333
Installment/Consumer 23 14 16 38 47
----------------------------------------------
165 49 67 95 439
----------------------------------------------
Net charge offs (190) (353) (725) (160) (0)
----------------------------------------------
Additions charged to
operations 1,200 550 600 500 400
Allowance attributable to
acquisition 0 0 0 0 456
----------------------------------------------
Balance at end of period $4,776 $3,766 $3,569 $3,694 $3,354
==============================================
Allowance for Loan Losses as a
percent of year end loans 1.86% 1.56% 1.64% 1.73% 1.69%
Ratio of net charge offs to
average loans outstanding (0.08%) (0.15%) (0.34%) (0.08%) (0.00%)
The Allowance for Loan Losses is available to absorb losses on loans
deemed by management as uncollectible. In assessing the adequacy of the
level of the allowance, management considers the status of nonaccrual loans
and specific borrower situations, the current and anticipated economic
climate of the area, including national credit trends and the historical
credit experiences within the region. Additions to the allowance are
provided by charges to earnings and recoveries on previously charged-off
loans. Deductions from the Allowance are transacted as a charge-off when a
loan is deemed uncollectible. The Allowance for Loan Losses as a percentage
of outstanding loans at December 31, 2000, was 1.86% compared to 1.56%
reported at year end 1999. The ratios at years ending 1998, 1997, and 1996
were 1.64%, 1.73% and 1.69% respectively. In 2000, the Company provided
$1,200,000 to the Allowance and recovered $165,300 from previously charged-
off loans.
Loans charged-off during 2000 totaled $354,812 resulting in net
charge-offs of $189,512. Net charge-offs for prior years were $353,410,
$724,583, $160,446, and -0- for 1999, 1998, 1997 and 1996 respectively.
In addition to management's assessment of the Allowance for Loan
Losses, the Allowance is also evaluated by regulatory agencies and
independent accountants as part of their examination and audit procedures.
Liquidity
Liquidity represents the ability of the Bank to meet its funding
requirements. In assessing the appropriate level of liquidity, the Bank
considers deposit levels, lending requirements and investment maturities in
light of prevailing economic conditions. Through this assessment, the Bank
manages its liquidity level to optimize earnings and respond to fluctuations
in customer borrowing needs.
The Company's principle sources of funds are customer deposits, loan
amortization, loan payoffs, and the maturities of investment securities.
Through these sources, funds are provided for customer withdrawals from
deposit accounts, loan origination, draw-downs on loan commitments,
acquisitions of investment securities, and other normal business activities.
Investors' capital also provides a source of funding.
The largest source of funds is provided by depositors. The largest
component of the Company's deposit base is term certificates which extend
out to a maximum of three years. The Company does not participate in
brokered deposits. Deposits are obtained from consumers and commercial
customers within the Bank's community reinvestment area, being Bristol
County, Massachusetts and several abutting towns in Rhode Island.
The Company also has the ability to borrow funds for liquidity
purposes from correspondent banks, the Federal Home Loan Bank, as well as
the Federal Reserve Bank of Boston by pledging various investment securities
as collateral. Tax payments made by our customers which are owed to the
Federal Reserve Bank's Treasury Tax and Loan account are classified as Other
Borrowed Funds.
Excess available funds are invested on a daily basis into Federal
Funds Sold. An appropriate level of Federal Funds Sold is maintained to
meet loan commitments, anticipated loan growth and deposit forecasts. Funds
exceeding this level are then used to purchase investment securities that
are suitable in yields and maturities for the investment portfolio.
Liquidity in 2000 was primarily provided by the maturity and sales of
securities totaling $13.5 Million, a net increase in deposits of $20.6
Million, and advances, net of payments, from the Federal Home Loan Bank of
$6.0 Million. These were offset by an increase in loans of $14.2 Million,
purchases of securities of $18.5 Million, and purchase of life insurance
policies for Executive Officers of $4.9 Million. Other factors affecting
liquidity included cash provided by operating activities and financing
activities as indicated in the cash flow statements.
Capital
As of December 31, 2000, the Company had total capital of $35,674,373.
This represents an increase of $4,010,127 from $31,664,246 reported on
December 31, 1999. The increase in capital was a combination of several
factors. Additions consisted of twelve months earnings of $4,074,439 and
transactions originating through the Dividend Reinvestment Program whereby
15,718.806 shares were issued for cash contributions of $151,281 and
74,977.323 shares were issued for $740,554 in lieu of cash dividend payments
and stock options exercised amounting to $14,026. These additions were
offset by dividends paid of $1,501,080 and cash dividends paid in lieu of
fractional shares of $2,025 as a result of the 5% stock dividend issued
February, 2000.
Also, affecting capital is the line item Accumulated other
comprehensive income (loss) which reflects net unrealized gains or losses,
net of taxes, on securities classified as Available-for-Sale and the minimum
pension liability adjustment. On December 31, 1999, the Available-for-Sale
portfolio had unrealized losses, net of taxes, of $1,150,594, and on
December 31, 2000, as a result of current market values, the portfolio
reflects unrealized losses, net of taxes, of $596,543. There was an
increase in the minimum pension liability adjustment of $3,024, net of
taxes, recorded December 31, 1999 to $24,143 as of December 31, 2000.
Under the requirements for Risk Based and Leverage Capital of the
federal banking agencies, a minimum level of capital will vary among banks
based on safety and soundness of operations. Risk Based Capital ratios are
calculated with reference to risk-weighted assets, which include both on and
off balance sheet exposure.
Under the informal agreement entered into with the Massachusetts
Commissioner of Banks and the Federal Deposit Insurance Corporation,
effective December 1, 2000, the Bank is required to maintain a seven (7)
percent Tier I Leverage Capital ratio and a nine (9) percent Tier I Risk
Based Capital ratio. As of December 31, 2000, these ratios were 7.69% and
10.50%, respectively.
In addition to meeting the required levels, the Company and the Bank's
Capital ratios meet the criteria of the "well capitalized" category
established by the federal banking agencies as of December 31, 2000.
The following table illustrates the capital position of Slade's Ferry
Bancorp and Slade's Ferry Trust Company for years ending December 31, 2000
and 1999.
Slade's Ferry Bancorp 2000 1999
- --------------------------------------------------------------------------------------------
(Dollars in Thousands) Amount Ratio Amount Ratio
- --------------------------------------------------------------------------------------------
Total Capital (to Risk Weighted Assets) $ 36,994 13.24% $ 33,475 12.98%
Minimum required 22,360 8.00 20,625 8.00
Excess 14,634 5.24 12,850 4.98
Tier I Capital (to Risk Weighted Assets) 33,484 11.98 30,246 11.73
Minimum required 11,180 4.00 10,312 4.00
Excess 22,304 7.98 19,934 7.73
Risk Adjusted Assets, net of goodwill,
nonqualifying intangibles, excess allowance
and excess deferred tax assets 279,499 257,852
Tier I Capital (Leverage Ratio) 33,484 8.74 30,246 8.60
Minimum required 15,323 4.00 4,060 4.00
Excess 18,161 4.74 16,186 4.60
Quarterly average total assets, net of goodwill,
nonqualifying intangibles and excess deferred
tax assets 383,112 351,698
Slade's Ferry Trust Company 2000 1999
- --------------------------------------------------------------------------------------------
(Dollars in Thousands) Amount Ratio Amount Ratio
- --------------------------------------------------------------------------------------------
Total Capital (to Risk Weighted Assets) $ 32,703 11.76% $ 29,979 11.67%
Minimum required 22,253 8.00 20,548 8.00
Excess 10,450 3.76 9,431 3.67
Tier I Capital (to Risk Weighted Assets) 29,210 10.50 26,762 10.42
Minimum required (1) 11,126 4.00 10,274 4.00
Excess 18,084 6.50 16,488 6.42
Risk Adjusted Assets, net of goodwill,
nonqualifying intangibles, excess allowance
and excess deferred tax assets 278,190 256,833
Tier I Capital (Leverage Ratio) 29,210 7.69 26,762 7.68
Minimum required (1) 15,186 4.00 13,936 4.00
Excess 14,024 3.69 12,826 3.68
Quarterly average total assets, net of goodwill,
nonqualifying intangibles and excess deferred
tax assets 379,844 348,464
<FN>
<F1> The Bank is required to maintain a 9% Tier I Risk Based Capital ratio
and a 7% Tier 1 Leverage Capital ratio under the informal agreement with
the Massachusetts Commissioner of Banks and the Federal Deposit Insurance
Corporation, effective December 1, 2000.
</FN>
ITEM 7A
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The most significant market risk factor affecting the financial
condition and operating results of Slade's Ferry Bancorp is interest rate
risk. Reference is hereby made to this Form 10-K, pages 9 & 10, under the
headings "Interest Rate Risk" and "Interest Sensitivity GAP Report" for a
discussion of market risk.
ITEM 8
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's financial statements, together with the independent
auditors' report, appear beginning on page F-1 of the Annual Report on Form
10-K.
ITEM 9
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
The Company had no disagreements with its independent accountants on
accounting and financial disclosure matters.
PART III
ITEM 10
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Reference is hereby made to the Company's definitive Proxy Statement
for the Annual Meeting of Stockholders April 09, 2001. The information set
forth under the heading "Directors and Executive Officers" and under the
heading "Section 16(a) Beneficial Ownership Reporting Compliance" of such
Proxy Statement is incorporated herein by reference.
ITEM 11
EXECUTIVE COMPENSATION
Reference is hereby made to the Company's definitive Proxy Statement
for the Annual Meeting of Stockholders April 09, 2001. The information set
forth under the heading "Executive Compensation Tables and Information" of
such Proxy Statement is incorporated herein by reference.
ITEM 12
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Reference is hereby made to the Company's definitive Proxy Statement
for the Annual Meeting of Stockholders April 09, 2001. The information set
forth under this heading of such Proxy Statement is incorporated herein by
reference.
ITEM 13
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Reference is hereby made to the Company's definitive Proxy Statement
for the Annual Meeting of Stockholders April 09, 2001. The information set
forth under this heading of such Proxy Statement is incorporated herein by
reference.
ITEM 14
EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
(1) Consolidated Financial Statements
Page
Independent Auditors' Report F-2
Consolidated Balance Sheets F-3
Consolidated Statements of Income F-4
Consolidated Statements of Changes in
Stockholders' Equity F-5
Consolidated Statements of Cash Flows F-7
Notes to Consolidated Financial Statements F-9
(2) Financial Statement Schedules
All financial statement schedules required by Item 14(a)(2)
have been omitted because they are inapplicable or because the
required information has been included in the Consolidated
Financial Statements or Notes thereto.
(3) Exhibits: see attached Exhibits Index Page X-1
(b) Reports on Form 8-K: None
Slade's Ferry Bancorp and Subsidiary
Shatswell, MacLeod & Company, P.C.
83 PINE STREET
WESTPEABODY, MASSACHUSETTS 01960-3635
Telephone (978) 535-0206
Facsimile (978) 535-9908
The Board of Directors and Stockholders
Slade's Ferry Bancorp
Somerset, Massachusetts
INDEPENDENT AUDITORS' REPORT
----------------------------
We have audited the accompanying consolidated balance sheets of Slade's
Ferry Bancorp and Subsidiary as of December 31, 2000 and 1999 and the
related consolidated statements of income, changes in stockholders' equity
and cash flows for each of the years in the three-year period ended December
31, 2000. These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall consolidated financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of Slade's Ferry Bancorp and Subsidiary as of December 31, 2000 and
1999, and the consolidated results of their operations and their cash flows
for each of the years in the three-year period ended December 31, 2000, in
conformity with generally accepted accounting principles.
/s/ Shatswell, MacLeod & Company, P.C.
SHATSWELL, MacLEOD & COMPANY, P.C.
West Peabody, Massachusetts
January 23, 2001
SLADE'S FERRY BANCORP AND SUBSIDIARY
------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
December 31, 2000 and 1999
--------------------------
2000 1999
----------------------------
ASSETS
Cash and due from banks $ 15,947,182 $ 16,061,445
Money market mutual funds 113,527 47,521
Federal funds sold 12,000,000 5,000,000
----------------------------
Cash and cash equivalents 28,060,709 21,108,966
Investments in available-for-sale securities (at fair value) 67,993,096 61,303,505
Investments in held-to-maturity securities (fair values of $19,088,080
as of December 31, 2000 and $19,259,657 as of December 31, 1999) 19,102,496 19,488,603
Federal Home Loan Bank stock 1,013,400 1,013,400
Loans, net 250,848,831 237,668,852
Premises and equipment 6,765,689 7,062,906
Goodwill 2,400,168 2,626,968
Other real estate owned 353,095
Accrued interest receivable 2,351,926 1,942,751
Cash surrender value of life insurance 6,830,918 1,629,225
Other assets 3,252,123 3,922,306
----------------------------
Total assets $388,619,356 $358,120,577
============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing $ 64,273,911 $ 52,215,433
Interest-bearing 272,726,990 264,215,754
----------------------------
Total deposits 337,000,901 316,431,187
Federal Home Loan Bank advances 12,725,908 6,756,767
Other borrowed funds 1,200,000 1,248,461
Other liabilities 1,965,174 1,966,916
----------------------------
Total liabilities 352,891,983 326,403,331
----------------------------
Preferred stockholders' equity in a subsidiary company 53,000 53,000
----------------------------
Stockholders' equity:
Common stock, par value $.01 per share; authorized 10,000,000 shares
in 2000 and 5,000,000 in 1999; issued and outstanding 3,789,503.5
shares in 2000 and 3,520,409.4 shares in 1999 37,895 35,204
Paid-in capital 25,885,220 23,147,447
Retained earnings 10,371,944 9,635,213
Accumulated other comprehensive loss (620,686) (1,153,618)
----------------------------
Total stockholders' equity 35,674,373 31,664,246
----------------------------
Total liabilities and stockholders' equity $388,619,356 $358,120,577
============================
The accompanying notes are an integral part of these consolidated financial
statements.
SLADE'S FERRY BANCORP AND SUBSIDIARY
------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
Years Ended December 31, 2000, 1999 and 1998
--------------------------------------------
2000 1999 1998
-----------------------------------------
Interest and dividend income:
Interest and fees on loans $22,486,187 $20,529,165 $19,754,777
Interest and dividends on securities:
Taxable 4,588,612 4,265,369 3,491,479
Tax-exempt 524,652 499,384 424,661
Other interest 586,895 258,983 635,699
-----------------------------------------
Total interest and dividend income 28,186,346 25,552,901 24,306,616
-----------------------------------------
Interest expense:
Interest on deposits 11,918,906 10,333,314 10,509,873
Interest on Federal Home Loan Bank advances 728,622 303,341 72,213
Interest on other borrowed funds 51,143 116,976 129,259
-----------------------------------------
Total interest expense 12,698,671 10,753,631 10,711,345
-----------------------------------------
Net interest and dividend income 15,487,675 14,799,270 13,595,271
Provision for loan losses 1,200,000 550,000 600,000
-----------------------------------------
Net interest and dividend income after
provision for loan losses 14,287,675 14,249,270 12,995,271
-----------------------------------------
Other income:
Service charges on deposit accounts 564,444 618,303 634,129
Overdraft service charges 250,454 269,508 247,835
Gain on sales of available-for-sale securities, net 333,581 666,898 382,370
Other income 707,956 531,835 303,778
-----------------------------------------
Total other income 1,856,435 2,086,544 1,568,112
-----------------------------------------
Other expense:
Salaries and employee benefits 6,070,057 5,780,176 5,480,191
Occupancy expense 822,890 795,705 684,112
Equipment expense 567,465 562,710 570,518
Stationary and supplies 224,501 255,665 229,344
FDIC deposit insurance premium 63,684 34,226 32,353
(Gain) loss on sales of other real estate owned, net (49,758) 29,069 (54,590)
Writedown of other real estate owned 57,024
Other expense 2,507,043 3,041,994 2,042,253
-----------------------------------------
Total other expense 10,205,882 10,556,569 8,984,181
-----------------------------------------
Income before income taxes 5,938,228 5,779,245 5,579,202
Income taxes 1,863,789 1,922,757 2,216,160
-----------------------------------------
Net income $ 4,074,439 $ 3,856,488 $ 3,363,042
=========================================
Earnings per common share $ 1.09 $ 1.06 $ .94
=========================================
Earnings per common share assuming dilution $ 1.09 $ 1.05 $ .94
=========================================
The accompanying notes are an integral part of these consolidated financial
statements.
SLADE'S FERRY BANCORP AND SUBSIDIARY
------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
----------------------------------------------------------
Years Ended December 31, 2000, 1999 and 1998
--------------------------------------------
Accumulated
Other
Comprehensive
Common Paid-in Retained Income
Stock Capital Earnings (Loss) Total
------ ------- -------- ------------- ------
Balance, December 31, 1997 $32,367 $18,978,598 $ 7,276,174 $ 149,287 $26,436,426
Comprehensive income:
Net income 3,363,042
Other comprehensive income 134,772
Comprehensive income 3,497,814
Issuance of 5% common stock dividend 1,617 2,566,147 (2,575,881) (8,117)
Issuance of common stock from dividend
reinvestment plan 304 472,938 473,242
Stock issuance relating to optional
cash contribution plan 134 215,790 215,924
Stock options exercised 42 37,772 37,814
Tax benefit from exercise of stock options 13,975 13,975
Dividends declared ($.27 per share) (959,693) (959,693)
---------------------------------------------------------------------
Balance, December 31, 1998 34,464 22,285,220 7,103,642 284,059 29,707,385
Comprehensive income:
Net income 3,856,488
Other comprehensive income (1,437,677)
Comprehensive income 2,418,811
Issuance of common stock from dividend
reinvestment plan 554 639,344 639,898
Stock issuance relating to optional
cash contribution plan 186 222,883 223,069
Dividends declared ($.36 per share) (1,324,917) (1,324,917)
---------------------------------------------------------------------
Balance, December 31, 1999 35,204 23,147,447 9,635,213 (1,153,618) 31,664,246
Comprehensive income:
Net income 4,074,439
Other comprehensive income 532,932
Comprehensive income 4,607,371
Issuance of common stock from dividend
reinvestment plan 749 739,805 740,554
Stock issuance relating to optional
cash contribution plan 157 151,124 151,281
Stock options exercised 17 14,009 14,026
Issuance of 5% common stock dividend 1,768 1,832,835 (1,836,628) (2,025)
Dividends declared ($.40 per share) (1,501,080) (1,501,080)
---------------------------------------------------------------------
Balance, December 31, 2000 $37,895 $25,885,220 $10,371,944 $ (620,686) $35,674,373
=====================================================================
Other comprehensive income and reclassification disclosure for the years ended
December 3:
2000 1999 1998
---------------------------------------
Unrealized gains (losses) on securities
Net unrealized gain (loss) on
available-for-sale securities $1,279,547 $(1,827,534) $ 731,683
Reclassification adjustment for realized
gains in net income (333,581) (666,898) (382,370)
---------------------------------------
945,966 (2,494,432) 349,313
Income tax (expense) benefit (391,915) 978,894 (133,656)
---------------------------------------
554,051 (1,515,538) 215,657
---------------------------------------
Minimum pension liability adjustment (35,752) 141,705 (146,825)
Income tax (expense) benefit 14,633 (63,844) 65,940
---------------------------------------
(21,119) 77,861 (80,885)
---------------------------------------
Other comprehensive income (loss), net of tax $ 532,932 $(1,437,677) $ 134,772
=======================================
Accumulated other comprehensive income (loss) consists of the following
as of December 31:
2000 1999 1998
--------------------------------------
Net unrealized gains (losses) on available-for-sale
securities, net of taxes $(596,543) $(1,150,594) $364,944
Minimum pension liability adjustment, net of taxes (24,143) (3,024) (80,885)
--------------------------------------
Accumulated other comprehensive income (loss) $(620,686) $(1,153,618) $284,059
======================================
The accompanying notes are an integral part of these consolidated financial
statements.
SLADE'S FERRY BANCORP AND SUBSIDIARY
------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
Years Ended December 31, 2000, 1999 and 1998
--------------------------------------------
2000 1999 1998
-----------------------------------------
Cash flows from operating activities:
Net income $ 4,074,439 $ 3,856,488 $ 3,363,042
Adjustments to reconcile net income to net cash
provided by operating activities:
Accretion, net of amortization of securities 2,929 (35,079) (96,783)
Receipt of shares of stock from demutualized
insurance company (163,901)
Gain on sales of available-for-sale securities, net (333,581) (666,898) (382,370)
Change in unearned income (75,141) (96,745) 1,080
Provision for loan losses 1,200,000 550,000 600,000
Depreciation and amortization 709,152 692,397 668,354
Gain on sale of fixed assets (2,700)
(Gain) loss on sales of other real estate owned, net (49,758) 29,069 (54,590)
Writedown of other real estate owned 57,024
(Increase) decrease in cash surrender value of life
insurance policies (282,855) (15,708) 11,483
Amortization of goodwill 226,800 226,800 226,800
Accretion, net of amortization of fair market value
adjustments (11,400) (7,140) (5,718)
(Increase) decrease in other assets (2,114) (4,132) 19,892
(Increase) decrease in prepaid expenses 52,580 (200,106) (7,401)
(Increase) decrease in interest receivable (409,175) (344,469) 198,185
Increase (decrease) in other liabilities 61,352 (3,482) (221,286)
Increase (decrease) in accrued expenses (344,061) 394,978 192,315
Increase (decrease) in interest payable 76,045 5,697 (13,901)
Deferred tax (benefit) expense (260,758) 11,331 204,267
Increase (decrease) in taxes payable 644,456 (248,502) (189,796)
Minority interest in subsidiary 53,000
-----------------------------------------
Net cash provided by operating activities 5,278,910 4,090,622 4,510,873
-----------------------------------------
Cash flows from investing activities:
Net decrease in interest bearing time deposits
with other banks 106,688
Purchases of available-for-sale securities (13,211,935) (22,923,708) (50,678,610)
Proceeds from sales of available-for-sale securities 2,884,051 5,728,160 1,098,937
Proceeds from maturities of available-for-sale securities 4,880,762 12,335,599 32,210,430
Purchases of held-to-maturity securities (5,317,668) (7,946,052) (13,283,524)
Proceeds from maturities of held-to-maturity securities 5,737,924 9,463,368 10,094,867
Purchases of Federal Home Loan Bank stock (113,500) (9,300)
Net increase in loans (14,199,738) (24,102,273) (6,234,254)
Recoveries of loans previously charged off 165,300 48,798 67,724
Capital expenditures (405,533) (1,061,630) (1,630,689)
Proceeds from sales of fixed assets 2,700
Proceeds from sales of other real estate owned 143,853 467,952 136,281
Investment in life insurance policies (4,918,838) (1,625,000)
-----------------------------------------
Net cash used in investing activities (24,241,822) (28,103,286) (29,743,750)
-----------------------------------------
Cash flows from financing activities:
Net increase (decrease) in demand deposits, NOW and
savings accounts 13,929,857 (2,250,591) 9,687,926
Net increase in time deposits 6,639,857 14,893,663 22,772,689
Payment on notes payable (850,000) (100,000)
Long-term advances from Federal Home Loan Bank 8,100,000
Payments on Federal Home Loan Bank long-term advances (2,130,859)
Advances from Federal Home Loan Bank 2,381,000 4,071,600
Payments on Federal Home Loan Bank advances (99,687) (26,146)
Net increase (decrease) in other borrowed funds (48,461) 1,206,132 (1,157,671)
Proceeds from issuance of common stock 905,861 862,967 726,980
Fractional shares paid in cash (2,025) (8,117)
Dividends paid (1,479,575) (1,250,891) (914,943)
-----------------------------------------
Net cash provided by financing activities 25,914,655 14,892,593 35,052,318
-----------------------------------------
Net increase (decrease) in cash and cash equivalents 6,951,743 (9,120,071) 9,819,441
Cash and cash equivalents at beginning of year 21,108,966 30,229,037 20,409,596
-----------------------------------------
Cash and cash equivalents at end of year $28,060,709 $21,108,966 $30,229,037
=========================================
Supplemental disclosures:
Loans transferred to other real estate owned $ $ 218,045 $ 1,107,063
Loans originating from the sales of
other real estate owned 259,000 337,000 158,650
Interest paid 12,622,626 10,747,934 10,725,246
Income taxes paid 1,480,091 2,159,928 2,201,689
The accompanying notes are an integral part of these consolidated financial
statements.
SLADE'S FERRY BANCORP AND SUBSIDIARY
------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
Years Ended December 31, 2000, 1999 and 1998
--------------------------------------------
NOTE 1 - NATURE OF OPERATIONS
- -----------------------------
Slade's Ferry Bancorp (Company) is a Massachusetts corporation that was
organized in 1990 to become the holding company of Slade's Ferry Trust
Company (Bank). The Company's primary activity is to act as the holding
company for the Bank. The Bank is a state chartered bank, which was
incorporated in 1959 and is headquartered in Somerset, Massachusetts. The
Bank operates its business from twelve banking offices located in
Massachusetts and a loan company in Rhode Island. The Bank is engaged
principally in the business of attracting deposits from the general public
and investing those deposits in residential and commercial real estate
loans, and in commercial, consumer and small business loans.
NOTE 2 - ACCOUNTING POLICIES
- ----------------------------
The accounting and reporting policies of the Company and its subsidiary
conform to generally accepted accounting principles and predominant
practices within the banking industry. The consolidated financial statements
were prepared using the accrual basis of accounting. The significant
accounting policies are summarized below to assist the reader in better
understanding the consolidated financial statements and other data contained
herein.
PERVASIVENESS OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from the estimates.
BASIS OF PRESENTATION:
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiary, the Bank and the Bank's
wholly-owned subsidiaries, Slade's Ferry Realty Trust, Slade's Ferry
Securities Corporation, Slade's Ferry Loan Company and Slade's Ferry
Preferred Capital Corporation. Slade's Ferry Realty Trust was formed
to hold ownership of real estate, Slade's Ferry Securities Corporation
was formed to hold securities for tax benefits in Massachusetts,
Slade's Ferry Loan Company provides the opportunity to solicit
commercial and consumer borrowers in the Rhode Island area and Slade's
Ferry Preferred Capital Corporation, a real estate investment trust,
was formed to hold real estate mortgage loans, reducing applicable
state taxes. All significant intercompany accounts and transactions
have been eliminated in the consolidation.
CASH AND CASH EQUIVALENTS:
For purposes of reporting cash flows, cash and cash equivalents
include cash on hand, cash items, due from banks, federal funds sold
and money market mutual funds.
Cash and due from banks as of December 31, 2000 includes $1,847,000
which is subject to withdrawals and usage restrictions to satisfy the
reserve requirements of the Federal Reserve Bank.
SECURITIES:
Investments in debt securities are adjusted for amortization of
premiums and accretion of discounts. Gains or losses on sales of
investment securities are computed on a specific identification basis.
The Company classifies debt and equity securities into one of three
categories: held-to-maturity, available-for-sale, or trading. This
security classification may be modified after acquisition only under
certain specified conditions. In general, securities may be classified
as held-to-maturity only if the Company has the positive intent and
ability to hold them to maturity. Trading securities are defined as
those bought and held principally for the purpose of selling them in
the near term. All other securities must be classified as available-
for-sale.
-- Held-to-maturity securities are measured at amortized cost in
the balance sheet. Unrealized holding gains and losses are not
included in earnings or in a separate component of capital. They
are merely disclosed in the notes to the consolidated financial
statements.
-- Available-for-sale securities are carried at fair value on the
balance sheet. Unrealized holding gains and losses are not
included in earnings, but are reported as a net amount (less
expected tax) in a separate component of capital until realized.
-- Trading securities are carried at fair value on the balance
sheet. Unrealized holding gains and losses for trading
securities are included in earnings.
LOANS:
Loans receivable that management has the intent and ability to hold
until maturity or payoff are reported at their outstanding principal
balances reduced by amounts due to borrowers on unadvanced loans, by
any charge-offs, the allowance for loan losses and any deferred fees
or costs on originated loans, or unamortized premiums or discounts on
purchased loans.
Interest on loans is recognized on a simple interest basis.
Loan origination and commitment fees and certain direct origination
costs are deferred, and the net amount amortized as an adjustment of
the related loan's yield. The Company is amortizing these amounts over
the contractual life of the related loans.
Cash receipts of interest income on impaired loans is credited to
principal to the extent necessary to eliminate doubt as to the
collectibility of the net carrying amount of the loan. Some or all of
the cash receipts of interest income on impaired loans is recognized
as interest income if the remaining net carrying amount of the loan is
deemed to be fully collectible. When recognition of interest income on
an impaired loan on a cash basis is appropriate, the amount of income
that is recognized is limited to that which would have been accrued on
the net carrying amount of the loan at the contractual interest rate.
Any cash interest payments received in excess of the limit and not
applied to reduce the net carrying amount of the loan are recorded as
recoveries of charge-offs until the charge-offs are fully recovered.
ALLOWANCE FOR LOAN LOSSES:
The allowance is increased by provisions charged to current operations
and is decreased by loan losses, net of recoveries. The provision for
loan losses is based on management's evaluation of current and
anticipated economic conditions, changes in the character and size of
the loan portfolio, and other indicators.
The Company considers a loan to be impaired when, based on current
information and events, it is probable that the Company will be unable
to collect all amounts due according to the contractual terms of the
loan agreement. The Company measures impaired loans by either the
present value of expected future cash flows discounted at the loan's
effective interest rate, the loan's observable market price, or the
fair value of the collateral if the loan is collateral dependent.
The Company considers for impairment all loans, except large groups of
smaller balance homogeneous loans that are collectively evaluated for
impairment, loans that are measured at fair value or at the lower of
cost or fair value, leases, and convertible or nonconvertible
debentures and bonds and other debt securities. The Company considers
its residential real estate loans and consumer loans that are not
individually significant to be large groups of smaller balance
homogeneous loans.
Factors considered by management in determining impairment include
payment status, net worth and collateral value. An insignificant
payment delay or an insignificant shortfall in payment does not in
itself result in the review of a loan for impairment. The Company
reviews its loans for impairment on a loan-by-loan basis. The Company
does not apply impairment to aggregations of loans that have risk
characteristics in common with other impaired loans. Interest on a
loan is not generally accrued when the loan becomes ninety or more
days overdue. The Company may place a loan on nonaccrual status but
not classify it as impaired, if (i) it is probable that the Company
will collect all amounts due in accordance with the contractual terms
of the loan or (ii) the loan is an individually insignificant
residential mortgage loan or consumer loan. Impaired loans are
charged-off when management believes that the collectibility of the
loan's principal is remote. Substantially all of the Company's loans
that have been identified as impaired have been measured by the fair
value of existing collateral.
PREMISES AND EQUIPMENT:
Premises and equipment are stated at cost, less accumulated
depreciation and amortization. Cost and related allowances for
depreciation and amortization of premises and equipment retired or
otherwise disposed of are removed from the respective accounts with
any gain or loss included in income or expense. Depreciation and
amortization are calculated principally on the straight-line method
over the estimated useful lives of the assets.
GOODWILL:
Goodwill arising from the acquisition of Fairbank, Inc. is reported
net of accumulated amortization. Goodwill is being amortized on a
straight-line basis over a period of fifteen years.
OTHER REAL ESTATE OWNED AND IN-SUBSTANCE FORECLOSURES:
Other real estate owned includes properties acquired through
foreclosure and properties classified as in-substance foreclosures in
accordance with Financial Accounting Standards Board Statement No. 15,
"Accounting by Debtors and Creditors for Troubled Debt Restructuring."
These properties are carried at the lower of cost or estimated fair
value less estimated cost to sell. Any writedown from cost to
estimated fair value required at the time of foreclosure or
classification as in-substance foreclosure is charged to the allowance
for loan losses. Expenses incurred in connection with maintaining
these assets, subsequent writedowns and gains or losses recognized
upon sale are included in other expense.
In accordance with Statement of Financial Accounting Standards No. 114
"Accounting by Creditors for Impairment of a Loan," the Company
classifies loans as in-substance repossessed or foreclosed if the
Company receives physical possession of the debtor's assets regardless
of whether formal foreclosure proceedings take place.
INCOME TAXES:
The Company recognizes income taxes under the asset and liability
method. Under this method, deferred tax assets and liabilities are
established for the temporary differences between the accounting basis
and the tax basis of the Company's assets and liabilities at enacted
tax rates expected to be in effect when the amounts related to such
temporary differences are realized or settled.
FAIR VALUES OF FINANCIAL INSTRUMENTS:
Statement of Financial Accounting Standards No. 107, "Disclosures
about Fair Value of Financial Instruments," requires that the Company
disclose estimated fair value for its financial instruments. Fair
value methods and assumptions used by the Company in estimating its
fair value disclosures are as follows:
Cash and cash equivalents: The carrying amounts reported in the
balance sheet for cash and cash equivalents approximate those assets'
fair values.
Securities (including mortgage-backed securities): Fair values for
securities are based on quoted market prices, where available. If
quoted market prices are not available, fair values are based on
quoted market prices of comparable instruments.
Loans receivable: For variable-rate loans that reprice frequently and
with no significant change in credit risk, fair values are based on
carrying values. The fair values for other loans are estimated using
discounted cash flow analyses, using interest rates currently being
offered for loans with similar terms to borrowers of similar credit
quality.
Accrued interest receivable: The carrying amount of accrued interest
receivable approximates its fair value.
Deposit liabilities: The fair values disclosed for demand deposits
(e.g., interest and non-interest checking, passbook savings, and money
market accounts) are, by definition, equal to the amount payable on
demand at the reporting date (i.e., their carrying amounts). Fair
values for fixed-rate certificates of deposit are estimated using a
discounted cash flow calculation that applies interest rates currently
being offered on certificates to a schedule of aggregated expected
monthly maturities on time deposits.
Federal Home Loan Bank Advances: Fair values for Federal Home Loan
Bank advances are estimated using a discounted cash flow technique
that applies interest rates currently being offered on advances to a
schedule of aggregated expected monthly maturities on Federal Home
Loan Bank advances.
Other borrowed funds: Fair values for other borrowed funds are
estimated using discounted cash flow analyses based on the Company's
current incremental borrowing rates for similar borrowings.
Off-balance sheet instruments: The fair value of commitments to
originate loans is estimated using the fees currently charged to enter
similar agreements, taking into account the remaining terms of the
agreements and the present creditworthiness of the counterparties. For
fixed-rate loan commitments and the unadvanced portion of loans, fair
value also considers the difference between current levels of interest
rates and the committed rates. The fair value of letters of credit is
based on fees currently charged for similar agreements or on the
estimated cost to terminate them or otherwise settle the obligation
with the counterparties at the reporting date.
EARNINGS PER SHARE:
Statement of Financial Accounting Standards No. 128 (SFAS No. 128),
"Earnings per Share" is effective for periods ending after December
15, 1997. SFAS No. 128 simplifies the standards of computing earnings
per share (EPS) previously found in APB Opinion No. 15. It replaces
the presentation of primary EPS with a presentation of basic EPS. It
also requires dual presentation of basic and diluted EPS on the face
of the income statement for all entities with complex capital
structures and requires a reconciliation of the numerator and
denominator of the basic EPS computation to the numerator and
denominator of the diluted EPS computation.
Basic EPS 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 EPS reflects the
potential dilution that could occur if securities or other contracts
to issue common stock were exercised or converted into common stock or
resulted in the issuance of common stock that then shared in the
earnings of the entity. Diluted EPS is computed similarly to fully
diluted EPS pursuant to APB Opinion No. 15.
The Company has computed and presented EPS for the years ended
December 31, 2000, 1999 and 1998 in accordance with SFAS No. 128. EPS
as so computed does not differ materially from EPS that would have
resulted if APB Opinion No. 15 had been applied. EPS so restated does
not differ materially from EPS previously presented.
STOCK BASED COMPENSATION:
Prior to 1997, the Company did not make stock-based compensation
awards. In 1997, the Company began making such awards and had the
option, under SFAS No. 123, of accounting for stock-based compensation
using the intrinsic value approach in APB No. 25 and the fair value
method introduced in SFAS No. 123. The Company elected to use the APB
No. 25 method. Entities electing to follow the provisions of APB
No. 25 must make pro forma disclosure of net income and earnings per
share, as if the fair value method of accounting defined in SFAS No.
123 had been applied. The Company has made the pro forma disclosures
required by SFAS No. 123.
RECENT ACCOUNTING PRONOUNCEMENTS:
In June 1998, the FASB issued Statement No. 133, Accounting for
Derivative Instruments and Hedging Activities, effective for fiscal
years beginning after June 15, 2000. This Statement establishes
accounting and reporting standards for derivative instruments and
hedging activities, including certain derivative instruments embedded
in other contracts, and requires that an entity recognize all
derivatives as assets or liabilities in the balance sheet and measure
them at fair value. If certain conditions are met, an entity may elect
to designate a derivative as follows: (a) a hedge of the exposure to
changes in the fair value of a recognized asset or liability or an
unrecognized firm commitment, (b) a hedge of the exposure to variable
cash flows of a forecasted transaction, or (c) a hedge of the foreign
currency exposure of an unrecognized firm commitment, an available-
for-sale security, a foreign currency denominated forecasted
transaction, or a net investment in a foreign operation. The Statement
generally provides for matching the timing of the recognition of the
gain or loss on derivatives designated as hedging instruments with the
recognition of the changes in the fair value of the item being hedged.
Depending on the type of hedge, such recognition will be in either net
income or other comprehensive income. For a derivative not designated
as a hedging instrument, changes in fair value will be recognized in
net income in the period of change. Management is currently evaluating
the impact of adopting this Statement on the consolidated financial
statements, but does not anticipate that it will have a material
impact.
NOTE 3 - INVESTMENTS IN SECURITIES
- ----------------------------------
Debt and equity securities have been classified in the consolidated balance
sheets according to management's intent. The carrying amount of securities
and their approximate fair values are as follows as of December 31:
Gross Gross
Amortized Unrealized Unrealized
Cost Holding Holding Fair
Basis Gains Losses Value
--------- ---------- ---------- -----
Available-for-sale securities:
December 31, 2000:
Debt securities issued by the U.S. Treasury and other
U.S. government corporations and agencies $40,934,467 $ 53,125 $ 558,570 $40,429,022
Mortgage-backed securities 22,089,178 135,490 179,741 22,044,927
Corporate debt securities 1,472,754 2,051 11,935 1,462,870
Marketable equity securities 4,581,568 468,674 880,438 4,169,804
------------------------------------------------------
69,077,967 659,340 1,630,684 68,106,623
Money market mutual funds included in cash
and cash equivalents (113,527) (113,527)
------------------------------------------------------
$68,964,440 $659,340 $1,630,684 $67,993,096
======================================================
December 31, 1999:
Debt securities issued by the U.S. Treasury and other
U.S. government corporations and agencies $41,801,374 $ $1,482,728 $40,318,646
Mortgage-backed securities 16,939,459 521,322 16,418,137
Corporate debt securities 719,562 26,421 693,141
Marketable equity securities 3,807,944 504,966 391,808 3,921,102
------------------------------------------------------
63,268,339 504,966 2,422,279 61,351,026
Money market mutual funds included in cash
and cash equivalents (47,521) (47,521)
------------------------------------------------------
$63,220,818 $504,966 $2,422,279 $61,303,505
======================================================
Held-to-maturity securities:
December 31, 2000:
Debt securities issued by the U.S. Treasury and other
U.S. government corporations and agencies $ 6,948,231 $ 26,941 $ 5,125 $ 6,970,047
Debt securities issued by states of the United States
and political subdivisions of the states 12,094,549 41,349 77,687 12,058,211
Mortgage-backed securities 58,716 106 58,822
Other debt securities 1,000 1,000
------------------------------------------------------
$19,102,496 $ 68,396 $ 82,812 $19,088,080
======================================================
December 31, 1999:
Debt securities issued by the U.S. Treasury and other
U.S. government corporations and agencies $ 7,974,457 $ 9,535 $ 27,468 $ 7,956,524
Debt securities issued by states of the United States
and political subdivisions of the states 11,439,417 9,151 220,349 11,228,219
Mortgage-backed securities 73,729 185 73,914
Other debt securities 1,000 1,000
------------------------------------------------------
$19,488,603 $ 18,871 $ 247,817 $19,259,657
======================================================
The scheduled maturities of held-to-maturity securities and available-for-
sale securities (other than equity securities) were as follows as of
December 31, 2000:
Held-to-maturity Available-for-sale
securities: securities:
-------------------------- --------------------------
Amortized Amortized
Cost Fair Cost Fair
Basis Value Basis Value
--------------------------------------------------------
Debt securities other than mortgage-backed securities:
Due within one year $ 6,412,154 $ 6,415,463 $ 2,898,650 $ 2,881,723
Due after one year through five years 8,357,008 8,368,946 28,828,517 28,526,060
Due after five years through ten years 3,572,264 3,554,989 10,680,054 10,484,109
Due after ten years 702,354 689,860
Mortgage-backed securities 58,716 58,822 22,089,178 22,044,927
--------------------------------------------------------
$19,102,496 $19,088,080 $64,496,399 $63,936,819
========================================================
During 2000, proceeds from sales of available-for-sale securities amounted
to $2,884,051. Gross realized gains and gross realized losses on those sales
amounted to $428,447 and $94,866, respectively. During 1999, proceeds from
sales of available-for-sale securities amounted to $5,728,160. Gross
realized gains and gross realized losses on those sales amounted to $739,508
and $72,610, respectively. During 1998, proceeds from sales of available-
for-sale securities amounted to $1,098,937. Gross realized gains on those
sales amounted to $382,370. There were no gross realized losses during the
period. The tax (provision) applicable to these net realized gains and
losses amounted to $(136,534), $(272,962) and $(157,536) for the years ended
December 31, 2000, 1999 and 1998, respectively
There were no securities of issuers whose aggregate carrying amount exceeded
10% of stockholders' equity as of December 31, 2000.
Total carrying amounts of $4,747,057 and $5,363,090 of debt securities were
pledged to secure treasury tax and loan, trust department and public funds
on deposit as of December 31, 2000 and 1999, respectively.
NOTE 4 - LOANS
- --------------
Loans consisted of the following as of December 31:
2000 1999
----------------------------
Commercial, financial and agricultural $ 49,330,628 $ 46,354,437
Real estate - construction and land development 8,601,224 5,014,490
Real estate - residential 55,871,388 52,329,665
Real estate - commercial 128,327,133 127,938,107
Consumer 12,871,448 9,392,990
Nonprofit 1,036,350 903,565
Obligations of states and political subdivisions 61,200
Other 53,612 115,803
----------------------------
256,152,983 242,049,057
Allowance for loan losses (4,776,360) (3,765,872)
Unearned income (519,242) (594,383)
Unamortized adjustment to fair value (8,550) (19,950)
----------------------------
Net loans, carrying amount $250,848,831 $237,668,852
============================
Certain directors and executive officers of the Company and companies in
which they have significant ownership interest were customers of the Bank
during 2000. Total loans to such persons and their companies amounted to
$3,353,014 as of December 31, 2000. During the year ended December 31, 2000,
$5,242,311 of advances were made and repayments totaled $6,262,715.
Changes in the allowance for loan losses were as follows for the years ended
December 31:
2000 1999 1998
--------------------------------------
Balance at beginning of period $3,765,872 $3,569,282 $3,693,865
Loans charged off (354,812) (402,208) (792,307)
Provision for loan losses 1,200,000 550,000 600,000
Recoveries of loans previously charged off 165,300 48,798 67,724
--------------------------------------
Balance at end of period $4,776,360 $3,765,872 $3,569,282
======================================
Information about loans that meet the definition of an impaired loan in
Statement of Financial Accounting Standards No. 114 is as follows as of
December 31:
2000 1999
------------------------- -------------------------
Recorded Related Recorded Related
Investment Allowance Investment Allowance
In Impaired For Credit In Impaired For Credit
Loans Losses Loans Losses
------------------------------------------------------
Loans for which there is a related allowance for credit losses $3,178,869 $424,557 $1,019,110 $421,330
Loans for which there is no related allowance for credit losses 0 1,582,498
---------------------------------------------------
Totals $3,178,869 $424,557 $2,601,608 $421,330
===================================================
Average recorded investment in impaired loans
during the year ended December 31 $3,261,772 $3,829,850
========== ==========
Related amount of interest income recognized during the
time, in the year ended December 31, that the loans
were impaired
Total recognized $ 77,787 $ 244,313
========== ==========
Amount recognized using a cash-basis method
of accounting $ 0 $ 0
========== ==========
NOTE 5 - PREMISES AND EQUIPMENT
- -------------------------------
The following is a summary of premises and equipment as of December 31:
2000 1999
--------------------------
Land $ 1,805,368 $ 1,805,368
Buildings 6,746,917 6,656,205
Furniture and equipment 4,179,010 3,866,390
Leasehold improvements 383,436 381,235
--------------------------
13,114,731 12,709,198
Accumulated depreciation and amortization (6,349,042) (5,646,292)
--------------------------
$ 6,765,689 $ 7,062,906
==========================
NOTE 6 - DEPOSITS
- -----------------
The aggregate amount of time deposit accounts in denominations of $100,000
or more as of December 31, 2000 and 1999 was $35,294,948 and $28,531,891,
respectively.
For time deposits as of December 31, 2000, the scheduled maturities for each
of the following three years ended December 31, are:
2001 $138,545,223
2002 26,354,890
2003 11,462,019
------------
$176,362,132
============
NOTE 7 - FEDERAL HOME LOAN BANK ADVANCES
- ----------------------------------------
Advances consist of funds borrowed from the Federal Home Loan Bank (FHLB).
Maturities of advances from the FHLB for the five fiscal years ending after
December 31, 2000 and thereafter are summarized as follows:
INTEREST RATE RANGE AMOUNT
------------------- ------
2001 5.89% - 7.71% $ 2,147,286
2002 5.89% - 7.71% 160,747
2003 5.89% - 7.71% 170,914
2004 5.89% - 7.71% 179,357
2005 5.89% - 7.71% 192,161
Thereafter 5.66% - 7.71% 9,875,443
-----------
$12,725,908
===========
As of December 31, 2000, a $3,000,000 advance from the FHLB due after 2005
is redeemable at par at the option of the FHLB on April 9, 2001 and each
calendar quarter thereafter.
Amortizing advances are being repaid in equal monthly payments and are being
amortized from the date of the advance to the maturity date on a direct
reduction basis.
Advances are secured by the Company's stock in that institution, its
residential real estate mortgage portfolio and the remaining U.S. government
and agencies obligation not otherwise pledged.
NOTE 8 - OTHER BORROWED FUNDS
- -----------------------------
Other borrowed funds consist of treasury tax and loan deposits and generally
are repaid within one to 120 days from the transaction date.
NOTE 9 - INCOME TAXES
- ---------------------
The components of income tax expense are as follows for the years ended
December 31:
2000 1999 1998
--------------------------------------
Current:
Federal $2,086,337 $1,917,807 $1,544,874
State 38,210 57,463 467,019
--------------------------------------
2,124,547 1,975,270 2,011,893
--------------------------------------
Deferred:
Federal (253,043) (37,739) 120,677
State (87,440) (14,774) 83,590
Change in the valuation allowance 79,725
--------------------------------------
(260,758) (52,513) 204,267
--------------------------------------
Total income tax expense $1,863,789 $1,922,757 $2,216,160
======================================
The reasons for the differences between the statutory federal income tax
rates and the effective tax rates are summarized as follows for the years
ended December 31:
2000 1999 1998
% of % of % of
Income Income Income
Federal income tax at statutory rate 34.0% 34.0% 34.0%
Increase (decrease) in tax resulting from:
Tax-exempt income (4.6) (3.0) (2.9)
Dividends received deduction (.3) (.3)
Unallowable expenses .2 .8 .7
Amortization of goodwill 1.3 1.3 1.4
State tax, net of federal tax benefit (.6) .5 6.5
Change in valuation allowance 1.4
------------------------
Effective tax rates 31.4% 33.3% 39.7%
========================
The Company had gross deferred tax assets and gross deferred tax liabilities
as follows as of December 31:
2000 1999
----------------------
Deferred tax assets:
Allowance for loan losses $1,821,703 $1,408,110
Deferred loan fees 185,300 189,109
Interest on non-performing loans 122,470 124,655
Accrued employee benefits 243,852 287,594
Minimum pension liability adjustment 16,729 2,096
Deferred lawsuit loss 113,640
Net unrealized holding loss on available-for-sale securities 374,801 766,719
Other adjustments 1,522 10,323
------------------------
Gross deferred tax assets 2,766,377 2,902,246
Valuation allowance (79,725)
------------------------
2,686,652 2,902,246
------------------------
Deferred tax liabilities:
Accelerated depreciation (222,589) (248,762)
Prepaid pensions (147,647) (156,388)
Discount accretion (1,897) (1,282)
Deferred gain on stock conversion (2,317) (67,085)
------------------------
Gross deferred tax liabilities (374,450) (473,517)
------------------------
Net deferred tax assets $2,312,202 $2,428,729
========================
Deferred tax assets as of December 31, 1999 were not reduced by a valuation
allowance because management believed that it was more likely than not that
the full amount of deferred tax assets would be realized.
NOTE 10 - EMPLOYEE BENEFITS
- ---------------------------
The Company has a defined benefit pension plan (plan) covering substantially
all of its full time employees who meet certain eligibility requirements. On
January 1, 1998 the Bank suspended the plan so that employees no longer earn
additional defined benefits for future service. Employees were eligible
under the plan upon attaining age 21 and completing one year of service. The
benefits paid are based on 1.5% of total salary plus .5% of compensation in
excess of integration level per year of service. The integration level was
the first $750 of monthly compensation. The accrued benefit is based on
years of service.
The following tables set forth information about the plan as of December 31
and the years then ended:
2000 1999
------------------------
Change in projected benefit obligation:
Benefit obligation at beginning of year $1,414,912 $1,610,715
Interest cost 86,948 97,807
Actuarial loss (gain) 95,400 (28,173)
Benefits paid (397,810) (265,437)
------------------------
Benefit obligation at end of year 1,199,450 1,414,912
------------------------
Change in plan assets:
Plan assets at estimated fair value at beginning of year 1,304,569 1,363,836
Actual return on plan assets 141,427 66,170
Employer contribution 140,000
Benefits paid (397,810) (265,437)
------------------------
Fair value of plan assets at end of year 1,048,186 1,304,569
------------------------
Funded status (151,264) (110,343)
Unrecognized net actuarial loss 401,597 387,200
Unrecognized prior service cost 8,013 (5,163)
Unamortized net obligation existing at date of adoption of SFAS No. 87 102,379 110,386
------------------------
Net amount recognized $ 360,725 $ 382,080
========================
Amounts recognized in the balance sheet consist of:
Prepaid benefit cost $ 360,725 $ 382,080
Accrued benefit liability (151,264) (110,343)
Intangible asset 110,392 105,223
Accumulated other comprehensive loss 40,872 5,120
------------------------
Net amount recognized $ 360,725 $ 382,080
========================
The weighted-average discount rate used in determining the actuarial present
value of the projected benefit obligation was 7.0% for 2000, 1999 and 1998.
The weighted-average expected long-term rate of return on assets was 7.0%
for 2000, 1999 and 1998.
Components of net periodic benefit cost:
2000 1999 1998
--------------------------------
Service cost $ $ $ 3,150
Interest cost on benefit obligation 86,948 97,807 148,243
Expected return on assets (75,177) (88,652) (90,331)
Amortization of net transition obligation 8,007 8,007 8,007
Amortization of prior service cost (13,176) (13,176) (13,176)
Recognized actuarial loss 14,753 11,151 29,913
--------------------------------
Net periodic benefit cost $ 21,355 $ 15,137 $ 85,806
================================
Securities of the Company included in plan assets as of December 31, 2000
and 1999 consist of 3,730 shares of Slade's Ferry Bancorp common stock.
The Company has a 401K plan for eligible employees who attain age 21 and
complete one year of service. The Company contributes a discretionary amount
to be allocated to eligible participants. Current contributions vest fully
after seven years of continuous service. The amount that may be deferred by
the employees is limited by the amount that will not cause the plan to
exceed IRS limitations. Contributions made by the Company charged to
employee benefit expense amounted to $15,000, $11,000 and $9,750 for the
years ended December 31, 2000, 1999 and 1998, respectively.
The Company adopted a profit-sharing plan, ("Plan") effective October 1,
1998. The Company contributes amounts to the plan at the Company's
discretion. Cost recognized by the Company for the profit-sharing plan
amounted to $150,000, $111,750 and $80,000 for the years ended December 31,
2000, 1999 and 1998, respectively.
NOTE 11 - COMMITMENTS AND CONTINGENT LIABILITIES
- ------------------------------------------------
The Company is obligated under certain agreements issued during the normal
course of business which are not reflected in the accompanying consolidated
financial statements.
The Company is obligated under various lease agreements covering branch
offices and equipment. These agreements are considered to be operating
leases. The total minimum rental due in future periods under these
agreements is as follows as of December 31, 2000:
2001 $115,271
2002 97,689
2003 79,915
2004 30,315
2005 20,000
--------
Total minimum lease payments $343,190
========
Certain leases contain provisions for escalation of minimum lease payments
contingent upon increases in real estate taxes and percentage increases in
the consumer price index. The total rental expense amounted to $123,316 for
2000, $123,234 for 1999 and $114,848 for 1998.
NOTE 12 - FINANCIAL INSTRUMENTS
- -------------------------------
The Company is party to financial instruments with off-balance sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to originate loans, standby
letters of credit and unadvanced funds on loans. The instruments involve, to
varying degrees, elements of credit risk in excess of the amount recognized
in the balance sheets. The contract amounts of those instruments reflect the
extent of involvement the Company has in particular classes of financial
instruments.
The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for loan commitments and standby
letters of credit is represented by the contractual amounts of those
instruments. The Company uses the same credit policies in making commitments
and conditional obligations as it does for on-balance sheet instruments.
Commitments to originate loans are agreements to lend to a customer provided
there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since many of the commitments are
expected to expire without being drawn upon, the total commitment amounts do
not necessarily represent future cash requirements. The Company evaluates
each customer's creditworthiness on a case-by-case basis. The amount of
collateral obtained, if deemed necessary by the Company upon extension of
credit, is based on management's credit evaluation of the borrower.
Collateral held varies, but may include secured interests in mortgages,
accounts receivable, inventory, property, plant and equipment and income-
producing properties.
Standby letters of credit are conditional commitments issued by the Company
to guarantee the performance by a customer to a third party. The credit risk
involved in issuing letters of credit is essentially the same as that
involved in extending loan facilities to customers. Of the total standby
letters of credit outstanding as of
December 31, 2000, $115,475 are secured by deposits at the Bank.
The estimated fair values of the Company's financial instruments, all of
which are held or issued for purposes other than trading, are as follows as
of December 31:
2000 1999
---------------------------- ----------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------------------------------------------------------------
Financial assets:
Cash and cash equivalents $ 28,060,709 $ 28,060,709 $ 21,108,966 $ 21,108,966
Available-for-sale securities 67,993,096 67,993,096 61,303,505 61,303,505
Held-to-maturity securities 19,102,496 19,088,080 19,488,603 19,259,657
Federal Home Loan Bank stock 1,013,400 1,013,400 1,013,400 1,013,400
Loans 250,848,831 249,381,000 237,668,852 237,451,000
Accrued interest receivable 2,351,926 2,351,926 1,942,751 1,942,751
Financial liabilities:
Deposits 337,000,901 337,670,000 316,431,187 316,703,000
FHLB advances 12,725,908 12,967,000 6,756,767 6,177,000
Other borrowed funds 1,200,000 1,200,000 1,248,461 1,248,461
The carrying amounts of financial instruments shown in the above table are
included in the consolidated balance sheet under the indicated captions.
Accounting policies related to financial instruments are described in Note
2.
The notional amounts of financial instrument liabilities with off-balance
sheet credit risk are as follows as of December 31:
2000 1999
--------------------------
Commitments to originate loans $ 4,434,613 $ 5,589,878
Standby letters of credit 1,231,573 2,050,559
Unadvanced portions of loans:
Consumer loans (including credit card loans and student loans) 1,809,646 1,863,018
Commercial real estate loans 691,723 278,350
Home equity loans 1,264,103 1,090,765
Commercial loans 14,511,260 18,138,350
Construction loans 5,183,061 6,395,276
--------------------------
$29,125,979 $35,406,196
==========================
There is no material difference between the notional amounts and the
estimated fair values of the off-balance sheet liabilities.
The Company has no derivative financial instruments subject to the
provisions of SFAS No. 119 "Disclosure About Derivative Financial
Instruments and Fair Value of Financial Instruments. "
NOTE 13 - SIGNIFICANT GROUP CONCENTRATIONS OF CREDIT RISK
- ---------------------------------------------------------
Most of the Bank's business activity is with customers located within the
state. There are no concentrations of credit to borrowers that have similar
economic characteristics. The majority of the Bank's loan portfolio is
comprised of loans collateralized by real estate located in the state of
Massachusetts.
NOTE 14 - EARNINGS PER SHARE (EPS)
- ----------------------------------
Earnings per share were calculated using the weighted average number of
common shares outstanding.
The weighted average number of shares outstanding includes the effect of a
5% stock dividend payable February 9, 2000.
Reconciliation of the numerators and the denominators of the basic and
diluted per share computations for net income are as follows:
Income Shares Per-Share
(Numerator) (Denominator) Amount
-----------------------------------------
Year ended December 31, 2000
Basic EPS
Net income and income available to common stockholders $4,074,439 3,743,138 $1.09
Effect of dilutive securities, options 3,112
------------------------
Diluted EPS
Income available to common stockholders
and assumed conversions $4,074,439 3,746,250 $1.09
========================
Year ended December 31, 1999
Basic EPS
Net income and income available to common stockholders $3,856,488 3,650,275 $1.06
Effect of dilutive securities, options 8,336
------------------------
Diluted EPS
Income available to common stockholders
and assumed conversions $3,856,488 3,658,611 $1.05
========================
Year ended December 31, 1998
Basic EPS
Net income and income available to common stockholders $3,363,042 3,572,329 $ .94
Effect of dilutive securities, options 14,707
------------------------
Diluted EPS
Income available to common stockholders
and assumed conversions $3,363,042 3,587,036 $ .94
========================
NOTE 15 - REGULATORY MATTERS
- ----------------------------
The Company and its subsidiary the Bank are subject to various regulatory
capital requirements administered by the federal banking agencies. Failure
to meet minimum capital requirements can initiate certain mandatory - and
possibly additional discretionary - actions by regulators that, if
undertaken, could have a direct material effect on the Company's and the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Company and the Bank
must meet specific capital guidelines that involve quantitative measures of
their assets, liabilities, and certain off-balance-sheet items as calculated
under regulatory accounting practices. Their capital amounts and
classification are also subject to qualitative judgments by the regulators
about components, risk weightings and other factors.
In 2000, the Bank, as a result of an examination by the FDIC entered into a
Memorandum of Understanding with the FDIC and the Massachusetts Division of
Banks which provides, among other things, that the Bank (1) maintain a Tier
I leverage capital ratio of not less than seven percent and a Tier I Risk-
Based capital ratio of not less than nine percent and (2) develop specific
plans and proposals for the reduction and improvement of lines of credit
which are subject to adverse classification or special mention in the amount
of $1,000,000 or more.
Quantitative measures established by regulation to ensure capital adequacy
require the Company and the Bank to maintain minimum amounts and ratios (set
forth in the table below) of total and Tier 1 capital (as defined in the
regulations) to risk-weighted assets (as defined), and of Tier 1 capital (as
defined) to average assets (as defined). Management believes, as of December
31, 2000, that the Company and the Bank meet all capital adequacy
requirements to which they are subject.
As of December 31, 2000, the most recent notification from the Federal
Deposit Insurance Corporation categorized the Bank as well capitalized under
the regulatory framework for prompt corrective action. To be categorized as
well capitalized the Bank must maintain minimum total risk-based, Tier 1
risk-based and Tier 1 leverage ratios as set forth in the table. There are
no conditions or events since that notification that management believes
have changed the Bank's category.
The Company's and the Bank's actual capital amounts and ratios are also
presented in the table.
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes: Action Provisions:
----------------- ------------------ ------------------
Amount Ratio Amount Ratio Amount Ratio
-------------------------------------------------------------
(Dollar amounts in thousands)
As of December 31, 2000:
Total Capital (to Risk Weighted Assets):
Consolidated $36,994 13.24% $22,360 >=8.0% N/A
Slade's Ferry Trust Company 32,703 11.76 22,253 >=8.0 $27,816 >=10.0%
Tier 1 Capital (to Risk Weighted Assets):
Consolidated 33,484 11.98 11,180 >=4.0 N/A
Slade's Ferry Trust Company 29,210 10.50 11,126 >=4.0 16,689 >= 6.0
Tier 1 Capital (to Average Assets):
Consolidated 33,484 8.74 15,323 >=4.0 N/A
Slade's Ferry Trust Company 29,210 7.69 15,186 >=4.0 18,983 >= 5.0
As of December 31, 1999:
Total Capital (to Risk Weighted Assets):
Consolidated 33,475 12.98 20,625 >=8.0 N/A
Slade's Ferry Trust Company 29,979 11.67 20,548 >=8.0 25,685 >=10.0
Tier 1 Capital (to Risk Weighted Assets):
Consolidated 30,246 11.73 10,312 >=4.0 N/A
Slade's Ferry Trust Company 26,762 10.42 10,274 >=4.0 15,411 >= 6.0
Tier 1 Capital (to Average Assets):
Consolidated 30,246 8.60 14,060 >=4.0 N/A
Slade's Ferry Trust Company 26,762 7.68 13,936 >=4.0 17,420 >= 5.0
The declaration of cash dividends is dependent on a number of factors,
including regulatory limitations, and the Company's operating results and
financial condition. The stockholders of the Company will be entitled to
dividends only when, and if, declared by the Company's Board of Directors
out of funds legally available therefor. Under the Massachusetts Business
Corporation Law, a dividend may not be declared if the corporation is
insolvent or if the declaration of the dividend would render the corporation
insolvent. The declaration of future dividends, whether by the Board of
Directors of the Company or the Bank, will be subject to favorable operating
results, financial conditions, tax considerations, and other factors.
As of December 31, 2000 the Company would be restricted from declaring
dividends in an amount greater than $35,674,373 as such declaration would
render the corporation insolvent. As of December 31, 2000 the Bank would be
restricted from declaring dividends in an amount greater than approximately
$2,634,000 as such declaration would decrease capital below the Bank's
required minimum level of regulatory capital.
NOTE 16 - STOCK OPTION PLAN
- ---------------------------
As of December 31, 2000 the Company has a stock option plan (Plan). The Plan
is divided into two separate equity incentive programs, a Discretionary
Grant Program and an Automatic Grant Program. The maximum number of shares
of common stock issuable over the term of the Plan may not exceed 275,625
shares and the maximum aggregate number of shares issuable under both
programs in any plan year may not exceed 55,125 shares. Unless sooner
terminated by the Board, the Plan will in all events terminate on March 11,
2006.
Under the Discretionary Grant Program, key employees, including officers,
may be granted incentive stock options to purchase shares of common stock of
the Company. The option exercise price per share may not be less than one
hundred percent of the fair market value of common stock at grant date and
generally become exercisable in periodic installments over the optionee's
period of service. Two types of stock appreciation rights are authorized for
issuance: (1) tandem rights, which require the option holder to elect
between the exercise of the underlying option for shares of common stock and
the surrender of such option for appreciation distribution and (2) limited
rights, which are automatically exercised upon the occurance of a hostile
takeover.
Eligibility for participation in the Automatic Grant Program is limited to
non-employee directors of the Company or its subsidiary. Under the Automatic
Grant Program a nonstatutory option for 2,000 shares of common stock is
granted each plan year to eligible directors. The exercise price per share
is equal to one hundred percent of the fair market value per share of common
stock at grant date and each option has a maximum five year term. Each
option under the Automatic Grant Program is immediately vested.
The Company applies APB Opinion 25 and related Interpretations in accounting
for its plan. Accordingly, no compensation cost has been recognized for its
stock option plan. Had compensation cost for the Company's stock-based
compensation plan been determined based on the fair value at the grant dates
for awards under those plans consistent with the method of FASB Statement
123, the Company's net income and earnings per share would have been reduced
to the pro forma amounts indicated below for the years ended December 31:
2000 1999 1998
--------------------------------------
Net income As reported $4,074,439 $3,856,488 $3,363,042
Pro forma 3,993,789 $3,790,009 $3,298,016
Basic earnings per share As reported $ 1.09 $ 1.06 $ .94
Pro forma $ 1.07 $ 1.04 $ .92
Diluted earnings per share As reported $ 1.09 $ 1.05 $ .94
Pro forma $ 1.07 $ 1.04 $ .92
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in the years ended December 31, 2000, 1999 and
1998: dividend yield of 2 percent; expected volatility of 23 percent in 2000
and 32 percent in 1999 and 13 in 1998; risk-free interest rate of 6.37
percent in 2000, 5.2 percent in 1999 and 5.7 percent in 1998; and expected
lives of 5 years in 2000 and 4 years in 1999 and 1998.
A summary of the status of the Company's stock option plan as of December 31
and changes during the years then ending are presented below:
2000 1999 1998
--------------------------- --------------------------- ---------------------------
Weighted-Average Weighted-Average Weighted-Average
Options Shares Exercise Price Shares Exercise Price Shares Exercise Price
- -----------------------------------------------------------------------------------------------------------------------------
Outstanding at beginning of year 102,954 $12.64 63,579 $12.58 34,179 $ 8.48
Granted 41,500 10.00 40,950 12.86 33,863 16.19
Exercised (1,654) 8.48 0 (4,463) 8.48
Forfeited (7,455) 13.21 (1,575) 16.19 0
------- ------- -------
Outstanding at end of year 135,345 $11.85 102,954 $12.64 63,579 $12.58
======= ======= =======
Options exercisable at year-end 135,345 102,954 63,579
Weighted-average fair value of
options granted during the year $ 2.76 $ 3.53 $ 2.65
The following table summarizes information about fixed stock options
outstanding as of December 31, 2000:
Options Outstanding and Exercisable
---------------------------------------------------------------------
Weighted-Average
Number Remaining Weighted-Average
Exercise Price Outstanding Contractual Life Exercise Price
-------------- ----------- ---------------- ----------------
$ 8.48 25,857 1.3 years $ 8.48
16.19 28,613 2.3 years 16.19
12.86 39,375 3.3 years 12.86
10.00 41,500 4.3 years 10.00
135,345 3.0 years 11.85
NOTE 17 - MINORITY INTEREST FOR SUBSIDIARY
- ------------------------------------------
In 1999 the Bank formed a subsidiary, Slade's Ferry Preferred Capital
Corporation (SFPCC) which issued to the Bank 1,000 shares of SFPCC common
stock. No other shares of SFPCC common stock have been issued. SFPCC also
issued to the Bank 1,000 shares of SFPCC 8% Cumulative Non-Convertible
Preferred Stock (the "Preferred Stock"). No other shares of SFPCC preferred
stock have been issued. Minority interest in subsidiary consists of 106
shares, at a stated value of $500 per share, of the preferred stock owned by
the Bank. These shares were issued in 1999 to directors and employees of the
Bank. All voting rights of SFPCC vest exclusively with its common
stockholder, the Bank. The preferred stock has a liquidation value of $500
per share. The holders of the preferred stock are entitled to receive
dividends, when, as and if declared by the Board of Directors of the SFPCC.
Such dividends declared accumulate and are paid on such date as determined
by the Board of Directors of the Bank.
NOTE 18 - RECLASSIFICATION
- --------------------------
Certain amounts in the prior year have been reclassified to be consistent
with the current year's statement presentation.
NOTE 19 - PARENT COMPANY ONLY CONDENSED FINANCIAL STATEMENTS
- ------------------------------------------------------------
The following condensed financial statements are for Slade's Ferry Bancorp
(Parent Company Only) and should be read in conjunction with the
consolidated financial statements of Slade's Ferry Bancorp and Subsidiary.
SLADE'S FERRY BANCORP
---------------------
(Parent Company Only)
CONDENSED FINANCIAL STATEMENTS
------------------------------
Balance sheets December 31,
2000 1999
ASSETS
- ------
Cash $ 1,205,307 $ 671,676
Money market mutual fund 27,553 5,425
--------------------------
Cash and cash equivalents 1,232,860 677,101
Investments in available-for-sale securities (at fair value) 3,264,445 2,498,219
Investments in held-to-maturity securities (fair value
of $494,244 as of December 31, 1999) 495,221
Investment in subsidiary, Slade's Ferry Trust Company 31,348,720 28,199,195
Premises and equipment 13,261 17,808
Due from subsidiary 217,987
Accrued interest receivable 47,800 26,285
Other assets 62,040 37,391
--------------------------
Total assets $36,187,113 $31,951,220
==========================
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Other liabilities $ 512,740 $ 286,974
--------------------------
Total liabilities 512,740 286,974
--------------------------
Stockholders' equity:
Common stock, par value $.01 per share; authorized 10,000,000 shares
in 2000 and 5,000,000 shares in 1999; issued and outstanding
3,789,503.5 shares in 2000 and 3,520,409.4 shares in 1999 37,895 35,204
Paid-in capital 25,885,220 23,147,447
Retained earnings 10,371,944 9,635,213
Accumulated other comprehensive income (loss) (620,686) (1,153,618)
--------------------------
Total stockholders' equity 35,674,373 31,664,246
--------------------------
Total liabilities and stockholders' equity $36,187,113 $31,951,220
==========================
Statements of income
Years Ended December 31,
2000 1999 1998
--------------------------------------
Dividends from subsidiary $1,500,000 $1,310,000 $ 950,000
Interest and dividends on securities:
Taxable 180,766 137,867 111,127
Other interest income 9,537 5,718 6,111
Management fee income from subsidiary 441,750 443,664 432,002
--------------------------------------
Total income 2,132,053 1,897,249 1,499,240
--------------------------------------
Salaries and employee benefits 394,654 393,666 376,940
Equipment expense 4,547 4,547 379
Loss on sale of available-for-sale security 647
Other expense 175,411 161,396 146,641
--------------------------------------
Total expense 574,612 560,256 523,960
--------------------------------------
Income before income taxes and equity in
undistributed net income of subsidiary 1,557,441 1,336,993 975,280
Income taxes 24,635 11,407 20,384
--------------------------------------
Income before equity in undistributed net income of subsidiary 1,532,806 1,325,586 954,896
Equity in undistributed net income of subsidiary 2,541,633 2,530,902 2,408,146
--------------------------------------
Net income $4,074,439 $3,856,488 $3,363,042
======================================
SLADE'S FERRY BANCORP
---------------------
(Parent Company Only)
Years Ended December 31, 2000, 1999 and 1998
--------------------------------------------
Statements of cash flows
2000 1999 1998
--------------------------------------
Cash flows from operating activities:
Net income $4,074,439 $3,856,488 $3,363,042
Adjustments to reconcile net income to net cash
provided by operating activities:
Undistributed net income of subsidiary (2,541,633) (2,530,902) (2,408,146)
Accretion, net of amortization of securities (9,490) (8,529) (8,159)
Loss on sales of available-for-sale securities 647
Depreciation and amortization 4,547 4,547 379
Increase in due from subsidiary (217,987)
(Increase) decrease in interest receivable (21,515) 2,072 (22,380)
Decrease in prepaid expenses 9,599 1,019 4,748
(Increase) decrease in other assets (406) 8,155 (7,450)
Deferred tax benefit (106)
Increase (decrease) in taxes payable 222,274 (5,000) 12,686
Increase (decrease) in accrued expenses 244 (140) 2,888
Decrease in other liabilities (50) (600) (7,750)
--------------------------------------
Net cash provided by operating activities 1,519,916 1,327,757 929,858
--------------------------------------
Cash flows from investing activities:
Purchases of available-for-sale securities (888,418) (1,939,353) (2,850,461)
Proceeds from maturities of available-for-sale securities 950,000 2,350,000
Proceeds from sales of available-for-sale securities 427,486
Purchases of held-to-maturity securities (814,768) (590,583)
Proceeds from maturities of held-to-maturity securities 500,000 624,466 550,000
Capital expenditures (22,734)
--------------------------------------
Net cash used in investing activities (388,418) (752,169) (563,778)
--------------------------------------
Cash flows from financing activities:
Net proceeds from issuance of common stock 905,861 862,967 726,980
Dividends paid (1,479,575) (1,250,891) (914,943)
Fractional shares paid in cash (2,025) (8,117)
--------------------------------------
Net cash used in financing activities (575,739) (387,924) (196,080)
--------------------------------------
Net increase in cash and cash equivalents 555,759 187,664 170,000
Cash and cash equivalents at beginning of year 677,101 489,437 319,437
--------------------------------------
Cash and cash equivalents at end of year $1,232,860 $ 677,101 $ 489,437
======================================
Supplemental disclosure:
Income taxes paid (received) $ (197,533) $ 16,407 $ 7,698
The Parent Company Only Statements of Changes in Stockholders' Equity are
identical to the Consolidated Statements of Changes in Stockholders' Equity
for the years ended December 31, 2000, 1999 and 1998, and therefore are not
reprinted here.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized on March 05, 2001.
Slade's Ferry Bancorp
By /s/ Kenneth R. Rezendes
Kenneth R. Rezendes, President/
Chief Executive Officer and Director
In accordance with the requirements of the Exchange Act, this report has
been signed by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
/s/ Thomas B. Almy 03/05/01 /s/ Edward Bernardo Jr. 03/05/01
Thomas B. Almy Edward Bernardo Jr.
Director Treasurer/Chief Financial Officer/
Chief Accounting Officer
/s/ James D. Carey 03/05/01 /s/ Peter G. Collias 03/05/01
James D. Carey Peter G. Collias
Executive Vice President and Director Director
/s/ Donald T. Corrigan 03/05/01 /s/ Melvyn A. Holland 03/05/01
Donald T. Corrigan Melvyn A. Holland
Chairman of the Board and Director Director
/s/ William Q. MacLean Jr. 03/05/01 /s/ Francis A. Macomber 03/05/01
William Q. MacLean Jr. Francis A. Macomber
Director Director
/s/ Majed Mouded, MD 03/05/01 /s/ Shaun O'Hearn Sr. 03/05/01
Majed Mouded, MD Shaun O'Hearn Sr.
Director Director
/s/ Lawrence J. Oliveira, DDS 03/05/01 /s/ Peter Paskowski 03/05/01
Lawrence J. Oliveira, DDS Peter Paskowski
Director Director
/s/ Kenneth R. Rezendes 03/05/01 /s/ William J. Sullivan 03/05/01
Kenneth R. Rezendes William J. Sullivan
President, Chief Executive Director
Officer and Director
/s/ Charles Veloza 03/05/01 /s/ David F. Westgate 03/05/01
Charles Veloza David F. Westgate
Director Director
Exhibit Index
Exhibit
No. Description Page
- ------- ----------- ----
3.1 Articles of Incorporation of Slade's Ferry (1)
Bancorp as amended
3.2 By-laws of Slade's Ferry Bancorp as amended (2)
10.1 Agreement and Plan of Merger by and between (3)
Slade's Ferry (formerly Weetamoe) Bancorp and
Fairbank, Inc.
10.2 Slade's Ferry (formerly Weetamoe) Bancorp (3)
1996 Stock Option Plan as amended
10.3 Noncompetition Agreement between Slade's (4)
Ferry Trust Company and Edward S. Machado
(A substantially identical contract exists
with Peter Paskowski)
10.4 Supplemental Executive Retirement Agreement (5)
between Slade's Ferry (formerly Weetamoe)
Bancorp and Donald T. Corrigan
10.5 Supplemental Executive Retirement Agreement between (2)
Slade's Ferry (formerly Weetamoe) Bancorp
and James D. Carey
10.6 Supplemental Executive Retirement Agreement between (2)
Slade's Ferry (formerly Weetamoe) Bancorp and
Manuel J. Tavares
10.7 Swansea Mall Lease (4)
10.8 Form of Director Supplemental Retirement Program (6)
Director Agreement, Exhibit 1 thereto
(Slade's Ferry Trust Company Director Supplemental
Retirement Program Plan) and Endorsement Method
Split Dollar Plan Agreement thereunder for
Thomas B. Almy. (Similar forms of agreement entered
into between Slade's Ferry Trust Company and the
other directors)
10.9 Form of Directors' Paid-up Insurance Policy for (7)
Thomas B. Almy (part of the Director supplemental
Retirement Program). (Similar forms of policy
entered into by Company for other directors).
10.10 Form of Officers' Paid-up Endorsement Method Split (8)
Dollar Plan Agreement and Insurance Policies for
Janice Partridge (Similar forms of policies entered
into by Company for its President and other Vice
Presidents)
21 List of subsidiaries of Slade's Ferry Bancorp (9)
23 Consent of Independent Public Accounts
27 Financial Data Schedule
<FN>
<F1> Incorporated by reference to the Registrant's Registration Statement
on Form SB-2 filed with the Commission on April 14, 1997.
<F2> Incorporated by reference to the Registrant's Form 10-KSB for the
fiscal year ended December 31, 1996.
<F3> Incorporated by reference to the Registrant's Form 10-QSB for the
quarter ended March 31, 1996.
<F4> Incorporated by reference to the Registrant's Registration Statement
on Form S-4 File No. 33-32131.
<F5> Incorporated by reference to the Registrant's Form 10-KSB for the
fiscal year ended December 31, 1994.
<F6> Incorporated by reference to the Registrant's Form 10-Q for the
quarter ended March 31, 1999.
<F7> Incorporated by reference to the Registrant's Form 10-QSB for the
quarter ended June 30, 1998.
<F8> Incorporated by reference to the Registrant's Form 10-Q for the
quarter ended June 30, 2000.
<F9> Incorporated by reference to the Registrant's Form 10-K for the
fiscal year ended December 31, 1999