Exhibit 13
Picture of Main Office at 689 Massachusetts Avenue, Cambridge MA
Map with office locations: Lexington, Winchester, Arlington, Harvard
Square, Cambridge, Brighton, Wellesley, Natick, Newton, Needham, Quincy,
Westwood
Cover
Table of Content
Letter to Shareholders 2-3
Year in Review 4-5
Selected Consolidated Financial Data 6-7
Year in Review, Continued 8
Management's Discussion & Analysis 9
Financial Section F-1
Inside Cover
Boxed Introductory Text
It began in 1847 in a rented room on the second floor of a two-story
building in the heart of Cambridge. Today, Port Financial Corp., a $1
billion financial services corporation, is the bank of choice for almost
50,000 customers in what has been described as one of the best banking
areas in the country.
A strong focus on service, value and convenience has enabled the Company to
carve out a unique position in its marketplace, combining the personal
nature of a "community" institution with the versatility of a large
organization.
Our operating philosophy is simple: Recognize and exploit opportunities to
strengthen our presence in Eastern Massachusetts; build and expand core
customer relationships; expand fee-based financial services; and adhere to
our conservative lending policies. We are proud to highlight, in this first
Annual Report as a public company, our remarkable achievements in 2000.
List of 2000 Highlights
March
Introduced Internet Banking
April
Completed Conversion, Began Trading on NASDAQ
May
Moved into New Administrative Center
June
Launched Real Banking
September
Grand Opening of Arlington Office
December
Established Port Financial Services
Assets Reach $1 Billion
1
Picture: James B. Keegan, Chairman and Chief Executive Office and Jane L.
Lundquist, President
A Letter to Our Shareholders
It has been a year of great change and remarkable progress in the 147 year
history of your institution. We converted to a publicly-traded company,
expanded our branch network with a new branch in Arlington, completed the
construction of an Administrative Center and introduced innovative programs
designed to attract profitable customer relationships. We end the year with
unprecedented deposit growth, exceptional credit quality, an outstanding
CRA rating, a strong capital position and a stock price which increased
more than 75 percent during its first nine-month period of trading.
Total assets increased $242 million, or 32% to $1 billion, up from $763
million at year end 1999. Net income was $5.9 million compared to $4.8
million in1999. Deposits increased $188 million, a new record for year end
balances and deposit growth. A 55% increase in checking account balances,
also a new record, validated our strategy of building core banking
relationships during
2
a period of disruption in the region's banking environment. Loan balances
rose $111 million, or 19%, reflecting solid performance in residential and
commercial real estate lending.
On April 11, we completed our conversion to a publicly owned company. This
event marked a major milestone. The new capital raised through the sale of
Port Financial Corp. stock will provide funds to support increased lending,
branch expansion, product diversification, new delivery systems and quick
response to marketplace opportunities.
The foundation of our success in 2000 was the continuation of a solid
business plan that called for growth in our key business lines of personal
banking, mortgage lending, home equity lending, and commercial real estate
financing. The business plan also targeted two areas, business banking and
wealth management, for more aggressive growth.
During the year we launched the first phase of our new business banking
program which resulted in the establishment of over 700 new business
relationships. With the appeal of personal service, diverse checking and
investment account options, competitive business loan products, plus a
skilled group of relationship managers working in tandem with the branch
network, the Company is now well positioned to take greater advantage of
the growing small-business market in the Greater Boston area.
In the area of wealth management, we made significant progress with the
establishment of insurance powers through a new subsidiary, Cambridgeport
Insurance Services, Inc. and the formation of Port Financial Services, a
division of the Company to provide wealth management services. Of
particular note is the development of an alliance with LPL Financial
Services, Inc., the largest independent broker/dealer in the country.
Through this relationship, Port Financial Services will provide a
comprehensive array of investment and money management options and
services.
Our performance in 2000 demonstrates that our unique brand of small bank
personal service and big bank versatility is a powerful combination that
sets us apart from the competition. This was truly a remarkable year. Our
objectives were met and our accomplishments prove the point.
In closing, we would like to thank our shareholders for their confidence in
us, our Board of Directors for its guidance and counsel, our employees for
all their hard work and dedication to our success, and our customers who
have helped make the Company what it is today.
Sincerely, Sincerely,
James B. Keegan Jane L. Lundquist
Chairman and Chief Executive Officer President
Chart of Assets at 12/31/98 12/31/99 12/31/2000
$678,087 $762,741 $1,004,669
Chart of Share Price at
04/11/00....................$10.00
06/30/00....................$13.88
09/30/00....................$17.75
12/31/00....................$17.69
3
Year in Review
2000 marks another year of continued growth and accomplishments for the
Company. Only ten years ago, total assets stood at approximately $360
million. There were four branches...two in Cambridge, one in Lexington and
one in Winchester. During the past decade, new banking offices opened in
Newton Centre, Needham, Wellesley, Arlington and in three supermarkets.
Offices have been strategically situated in cities and towns that possess a
strong base for real estate lending and deposit growth, and where community
bank competition has been reduced by a consolidating banking industry.
Expansion and improvement continued unabated in 2000. Our newest office
opened in Arlington in late August. The branch's grand opening campaign
generated more than $10 million in deposits through year end. Also, this
year, renovations to the Winchester Office were completed. And, recognizing
the strategic importance of the Harvard Square Cambridge Office, plans were
finalized to modernize and more than double the space with completion
scheduled for 2001.
This year the Company moved into its new Administrative Center on Soldiers
Field Road in Brighton. Four years in the planning, and our first Boston
location, this facility consolidates approximately 150 employees under one
roof, stabilizes our long term real estate costs, provides room for growth
and generates rental income. It houses the Company's administrative and
operation support functions, computer center, call center, and executive
offices. Our positive experience in working with the City of Boston has
encouraged others to follow our lead. Several major businesses have since
submitted proposals for construction in the area, further enhancing local
economic development.
Through its subsidiary, Cambridgeport Bank, the Company offers a full array
of personal banking services including checking, savings, money market
accounts, certificates of deposit, home loans and special Real Banking
Relationship packages designed to provide exceptional value. Over the past
few years, the Company has refocused its efforts on building "multiple
relationship" core customers. These customers think of us as "their bank",
not just a place for a good rate. They use more products and services,
lowering deposit costs and enhancing fee income. Deposits have increased
from a December 31, 1998 base of $565 million to a year end 2000 total of
$806 million. Certificates of deposit have dropped from 53% of total
deposits at December 31, 1999 to 38% at year end 2000, reflecting a more
balanced blend of deposits.
In June, we responded quickly to consumer disenfranchisement caused by big
bank mergers and acquisitions, and launched Real Banking, an innovative
package of no fee checking, money market savings, a home equity line of
credit and convenience enhancing services. The results of this campaign
were remarkable. Between June and year end, we acquired almost 4,000 new
multi-service Real Banking customers.
4
As with the Company's deposit mix, real estate loan activity was very
balanced, demonstrating our effectiveness in commercial and residential
lending. Armed with a highly competitive group of products and strong
individual attention, residential and construction mortgages increased by
over $63 million. Spurred on by the Real Banking and product specific
promotions, home equity lines of credit increased to almost $83 million, up
over $20 million from 1999.
Another strength is providing financing for commercial real estate
including apartment and office buildings, shopping centers, mixed-use
properties and light industrial manufacturing/ distribution facilities. For
the year, we registered a solid gain...up almost $30 million to $241
million. The loan portfolio is extremely solid, with virtually no non-
performing assets as of December 31, 2000.
Our increased focus on business banking produced more than 700 new business
relationships during the year. We plan on an even more intense marketing
and sales effort in 2001. We expect our growth in business banking to
continue as customers tell us and tell others that they like our brand of
personal service and value.
In June, we formed Cambridgeport Insurance Services, Inc., through which we
can offer competitively priced life, accident and health insurance
products. In December, after an extensive review process, we entered into
an alliance with LPL Financial Services, Inc. and also formed Port
Financial Services. These steps will enable us to offer a wide selection of
wealth development and investment management services, supported by state-
of-the-art technology and up-to-the-minute research data.
Chart of Total Deposits at 12/31: 1998 1999 2000
$565,418 $618,288 $806,201
Chart of Deposit Mix at 12/31/00
(In thousands)
Demand $ 46,138
NOW 69,101
Regular Savings 51,864
Money Market 330,297
Certificates of Deposit 308,621
--------
Total Deposits $806,021
========
Chart of Real Estate Loan Mix at 12/31/00
(In thousands)
Residential $353,518
Commercial 241,325
Home equity lines 82,885
Construction 11,458
--------
Total Real Estate Loans $689,186
========
Picture of Cambridgeport Bank Web Site
5
SELECTED FINANCIAL AND OTHER DATA
The summary information presented below at or for each of the years
presented is derived in part from the consolidated financial statements of
Port Financial Corp. The following information is only a summary and
should be read in conjunction with the consolidated financial statements
and notes beginning on page F-1.
At December 31,
-----------------------------------------------------------------
2000 1999 1998 1997 1996
-----------------------------------------------------------------
(In thousands)
Selected Financial Data:
Total assets $1,004,669 $762,741 $678,087 $619,368 $574,817
Loans, net (1) 688,205 577,029 496,390 419,187 306,321
Investment securities available
for sale (2) 188,081 138,033 150,642 164,617 215,369
Investments securities held to maturity 22,332 - - - -
Deposits (3) 809,822 621,319 568,075 520,357 502,698
Federal Home Loan Bank advances 35,801 55,891 27,066 21,604 720
Stockholders' equity/retained earnings 152,053 79,130 76,088 71,072 66,845
Allowance for possible loan losses 8,059 7,081 6,633 4,907 4,269
Non-performing assets 134 128 963 789 903
For the Years Ended December 31,
----------------------------------------------------------
2000 1999 1998 1997 1996
----------------------------------------------------------
(In thousands)
Selected Operating Data:
Interest and dividend income $62,398 $49,971 $48,656 $43,961 $37,741
Interest expense 32,703 25,706 25,880 23,554 21,038
----------------------------------------------------------
Net interest income 29,695 24,265 22,776 20,407 16,703
Provision for possible loan losses 916 740 1,760 600 450
----------------------------------------------------------
Net interest income after provision for loan
losses 28,779 23,525 21,016 19,807 16,253
Total non-interest income 2,559 3,059 3,571 3,176 3,220
Total non-interest expenses 22,290 19,620 18,042 17,638 16,199
----------------------------------------------------------
Income before provision for income taxes 9,048 6,964 6,545 5,345 3,274
Provision for income taxes 3,147 2,190 2,357 1,679 787
----------------------------------------------------------
Net income $ 5,901 $ 4,774 $ 4,188 $ 3,666 $ 2,487
===========================================================
<FN>
___________________
<F1> Loans include loans held for sale and are shown net of deferred loan
fees and allowance for loan loss.
<F2> Includes Federal Home Loan Bank of Boston stock and Savings Bank Life
Insurance stock.
<F3> Includes mortgagor escrow payments.
</FN>
6
At or For the Years Ended December 31,
-------------------------------------------------------
2000 1999 1998 1997 1996
-------------------------------------------------------
Selected Financial Ratios and Other Data
Performance Ratios:
Return on average assets 0.67% 0.67% 0.63% 0.61% 0.46%
Return on average equity 4.60 6.34 5.93 5.50 3.89
Average equity to average assets 14.65 10.56 10.71 11.14 11.81
Equity to total assets at end of period 15.13 10.37 11.22 11.47 11.63
Average interest rate spread 2.77 2.98 2.94 2.91 2.58
Net interest margin (4) 3.56 3.53 3.56 3.52 3.19
Average interest-earning assets to average
interest-bearing liabilities 120.10 114.71 115.32 115.04 115.03
Total non-interest expense to average assets 2.55 2.76 2.73 2.95 2.99
Efficiency ratio(5) 69.11 71.81 68.64 77.17 83.72
Regulatory Capital Ratios:
Regulatory Tier 1 leverage capital 15.37% 10.42% 10.66% 11.04% 11.38%
Tier 1 risk-based capital 24.83 17.51 18.74 19.24 21.32
Total risk-based capital 26.50 19.29 20.54 20.51 22.57
Asset Quality Ratios:
Non-performing loans as a percent of total loans 0.02% 0.02% 0.19% 0.19% 0.29%
Non-performing assets as a percent of total assets 0.01 0.02 0.14 0.13 0.16
Allowance for loan losses as a percent of total loans 1.16 1.21 1.32 1.16 1.37
Number of:
Full-service offices 11 10 10 9 8
Telebanking Center 1 1 1 1 -
Full-time equivalent employees 196 193 179 169 155
<FN>
___________________
(4) Net interest margin represents net interest income as a percentage of
average interest-earning assets.
(5) The efficiency ratio represents the ratio of non-interest expenses
divided by the sum of net interest income and non-interest income
excluding gains or losses on sales of investments.
</FN>
7
Year in Review Continued
Convenience was also at the forefront of efforts during the year.
Emphasizing yet another way to "bank comfortably", the Company launched its
Internet address www.cambridgeport.com. Appropriately titled "The
Cambridgeport Connection", retail and business customers can access account
information 24-hours a day, 7-days a week. They can pay bills from their
checking account and keep track of loan balances anywhere, anytime.
Response to this new service has been excellent.
Our Telebanking Center, now in its fifth year, effectively extends service
convenience to wherever there is a phone - at home, in the office or on the
road. Employees field questions, solve problems and suggest appropriate
additional products and services. This year a special "center within the
center" was set up to address specific needs of business customers.
When it comes to "community", our tradition of involvement continued
strong in 2000. In fact, the latest CRA rating by the FDIC - the single
most direct measurement of how well we are meeting the needs of local
communities for lending, investment and banking services - was
"outstanding."
Our record of lending to borrowers of varying income levels is excellent.
In addition to community development loans for affordable housing projects,
we offer several innovative and flexible residential loan programs which
are available through our participation in CHAF (Cambridge Housing
Assistance Fund) and CBHA (Cambridge Banks Housing Associates).
In 2000, the Company introduced "Saving Makes Cents", to help teach
children at St. Anthony's School in Allston the ABC's of money management.
Generous donations help fund organizations like the Salvation Army, local
YMCAs, the Safe Haven Shelter for homeless women, the Cambridge Partnership
for Public Education and the United Way.
We are extremely proud of our employees for tirelessly investing their time
and effort in many civic and charitable endeavors. They mentor in the
schools, coach on the fields, participate in outreach programs, work in
youth and senior centers, serve as Salvation Army bell ringers, and quickly
respond whenever there's a neighborhood crisis.
The year 2000 was one of remarkable performance.
8
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward - Looking Statements
Port Financial Corp. ("Port" or the "Company") and Cambridgeport Bank
(the "Bank") may from time to time make written or oral "forward-looking
statements." These forward-looking statements may be contained in this
quarterly filing with the Securities and Exchange Commission (the "SEC"),
the Annual Report to Shareholders, other filings with the SEC, and in other
communications by the Company and the Bank, which are made in good faith
pursuant to the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995. The words "may," "could," "should," "would,"
"believe," "anticipate," "estimate," "expect," "intend," "plan" and similar
expressions are intended to identify forward-looking statements.
Forward-looking statements include statements with respect to the
Company's beliefs, plans, objectives, goals, expectations, anticipations,
estimates and intentions, that are subject to significant risks and
uncertainties. The following factors, many of which are subject to change
based on various other factors beyond the Company's control, and other
factors discussed in this Form 10-K, as well as other factors identified in
the Company's filings with the SEC and those presented elsewhere by
management from time to time, could cause its financial performance to
differ materially from the plans, objectives, expectations, estimates and
intentions expressed in such forward-looking statements:
* the strength of the United States economy in general and the
strength of the local economies in which the Company and the
Bank conduct operations;
* the effects of, and changes in, trade, monetary and fiscal
policies and laws, including interest rate policies of the
Federal Reserve Board;
* inflation, interest rate, market and monetary fluctuations;
* the timely development of and acceptance of new products and
services and the perceived overall value of these products and
services by users, including the features, pricing and quality
compared to competitors' products and services;
* the willingness of users to substitute competitors' products
and services for the Company's and the Bank's products and
services;
* the Company's and the Bank's success in gaining regulatory
approval of their products and services, when required;
* the impact of changes in financial services' laws and
regulations (including laws concerning taxes, banking,
securities and insurance);
* the impact of technological changes;
* acquisitions;
* changes in consumer spending and saving habits; and
* the Company's and the Bank's success at managing the risks
involved in their business.
This list of important factors is not exclusive. The Company or the
Bank does not undertake to update any forward-looking statement, whether
written or oral, that may be made from time to time by or on behalf of the
Company or the Bank.
9
General
Port's operating results reflect earnings on its investments and the
net income of its principal operating subsidiary, Cambridgeport.
Cambridgeport's results of operations depend primarily on net interest
income. Net interest income is the difference between the interest income
earned on our interest-earning assets and the interest paid on interest-
bearing liabilities. Interest-earning assets consist primarily of
residential mortgage loans including home equity loans, commercial mortgage
loans, consumer loans, mortgage-backed securities and investment
securities. Interest-bearing liabilities include certificates of deposit,
savings, money market and NOW account deposits, and borrowings from the
Federal Home Loan Bank of Boston. The Company's operating results also
depend on the provision for possible loan losses, non-interest income, and
non-interest expenses. Non-interest expense includes salaries and employee
benefits, occupancy expenses and other general and administrative expenses.
Non-interest income includes service fees and charges.
Port's results of operations may be affected significantly by
economic and competitive conditions in its market area and elsewhere,
including conditions that influence interest rates, government policies and
the actions of regulatory authorities. Future changes in applicable laws,
regulations or government policies may materially impact the Company and
the Bank. Furthermore, much of the Bank's loan portfolio is concentrated in
loans secured by real estate located in the Boston metropolitan area.
The Company's total assets increased $241.9 million, or 31.7%, to
$1.0 billion at December 31, 2000, from $762.7 million at December 31,
1999. This asset growth includes $111.2 million increase in net loans, all
of which are secured by residential or commercial real estate. Asset growth
also includes an increase of $72.4 million in investments and $50.8 million
increase in total cash and cash equivalents.
The growth in assets was funded by an increase in deposits, which
rose by $187.8 million, or 30.3%, to $809.8 million at December 31, 2000,
and by $71.8 million in proceeds realized from the conversion. The Company
also reduced Federal Home Loan Bank borrowings by $20.1 million since
December 31, 1999. During 2000, the Company focused its marketing efforts
on acquiring new core deposit and loan relationships. Its Real Banking
marketing campaign began in June, offering a premium-rate money market
account to checking account customers. This promotion was the primary
reason for the deposit growth during 2000.
Financial Condition for the Years Ended December 31, 2000, 1999 and 1998
Investment Portfolio
Port's investment policy provides that the investment portfolio be
used to limit the Company's exposure to interest rate changes, to generate
a favorable return without incurring undue credit risk and to maintain
adequate levels of liquidity. Therefore, short and intermediate term
government, government agency, and investment grade (rated "A" or better)
corporate securities comprise most of the portfolio. The Company believes
that the credit quality of the portfolio is high, with 63.2% of the
portfolio invested in securities issued or guaranteed by U.S. Government
Agencies. These include mortgage-backed securities that are predominately
of adjustable-rate securities and 5-year and 7-year balloon securities. The
entire principal balance of a balloon security is due prior to completing
the normal 30-year amortization of the underlying mortgages. Approximately
32.5% of the investment portfolio consists of corporate bonds with
maturities of less than five years. The amortized cost of the securities
that mature or reprice within five years is $120.3 million or 59.1% of the
total investment securities portfolio. The Company also owns stock of the
Federal Home Loan Bank, common stock of a local financial institution and
certain other equity securities. These stock holdings are classified as
available for sale.
During 2000, the Company's liquidity position grew significantly as a
result of conversion proceeds and deposit inflows. As previously mentioned,
these funds were used to fund loans and to pay off borrowings. They also
enabled the Company to increase holdings of investment securities, which
ended the year 2000 with a balance of $203.4 million compared to $135.2
million at December 31, 1999. The largest portion of this $68.2 million
increase was comprised of intermediate corporate bonds, which holdings rose
by $38.2 million. These bonds are non-callable, investment grade securities
and reflect the Company's strategy to reduce call exposure in the
portfolio. The Company also added $16.1 million of agency securities, $10.0
million of collateralized mortgage obligations and $2.9 million of
mortgage-backed securities.
10
The following table sets forth the composition of the investment
securities portfolio at the dates indicated.
At December 31,
-----------------------------------------------------------------------
2000 1999 1998
--------------------- --------------------- ---------------------
Amortized Fair Amortized Fair Amortized Fair
Cost Value Cost Value Cost Value
-----------------------------------------------------------------------
(Dollars in thousands)
Investment securities available for sale:
U.S. government securities $ - $ - $ - $ - $ - $ -
Federal agency securities 51,123 51,427 53,986 52,361 55,516 55,734
Other debt securities 66,112 66,859 27,887 27,705 34,156 34,419
Mortgage-backed securities 45,126 45,436 45,517 45,051 48,179 48,595
Asset-backed securities - - - - - -
Collateralized mortgage obligations 10,012 10,078 - - 116 117
-----------------------------------------------------------------------
172,373 173,800 127,390 125,117 137,967 138,865
-----------------------------------------------------------------------
Marketable equity securities 1,844 7,396 1,381 6,530 1,262 5,964
Total securities available for sale: 174,217 181,196 128,771 131,647 139,229 144,829
=======================================================================
Investment securities held to maturity:
Federal agency securities 19,000 19,019 - - - -
Mortgage-backed securities 3,332 3,423 - - - -
-----------------------------------------------------------------------
Total securities held to maturity: 22,332 22,442 - - - -
=======================================================================
Savings Bank Life Insurance stock 1,934 1,934 1,934 1,934 1,934 1,934
Federal Home Loan Bank stock 4,951 4,951 4,452 4,452 3,879 3,879
-----------------------------------------------------------------------
Total securities $203,434 $210,523 $135,157 $138,033 $145,042 $150,642
=======================================================================
At December 31,
----------------------------------------------
1997 1996
--------------------- ---------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
----------------------------------------------
(Dollars in thousands)
Investment securities available for sale:
U.S. government securities $ 2,004 $ 2,008 $ 70,596 $ 70,527
Federal agency securities 53,060 53,262 28,633 28,645
Other debt securities 43,037 43,218 57,176 57,222
Mortgage-backed securities 53,349 53,575 45,324 45,339
Asset-backed securities - - 778 781
Collateralized mortgage obligations 766 768 1,323 1,326
----------------------------------------------
152,216 152,831 203,830 203,840
----------------------------------------------
Marketable equity securities 3,069 6,790 3,048 6,533
Total securities available for sale: 155,285 159,621 206,878 210,373
==============================================
Investment securities held to maturity:
Federal agency securities - - - -
Mortgage-backed securities - - - -
----------------------------------------------
Total securities held to maturity: - - - -
==============================================
Savings Bank Life Insurance stock 1,934 1,934 1,934 1,934
Federal Home Loan Bank stock 3,062 3,062 3,062 3,062
----------------------------------------------
Total securities $160,281 $164,617 $211,874 $215,369
==============================================
11
The following table sets forth the amortized cost and fair value of
mortgage-backed and mortgage-related securities, which are classified as
available for sale or held to maturity as of the dates indicated.
At December 31,
---------------------------------------------------------------------------------------------------
2000 1999 1998
------------------------------- ------------------------------- -------------------------------
Amortized Percent of Fair Amortized Percent of Fair Amortized Percent of Fair
Cost Total Value Cost Total Value Cost Total Value
---------------------------------------------------------------------------------------------------
(Dollars in thousands)
Mortgage-backed and
mortgage-related securities
available for sale
Ginnie Mae $10,420 18.90% $10,351 $13,393 29.43% $13,251 $18,890 39.11% $18,836
Fannie Mae 24,032 43.59 24,263 18,417 40.46 18,221 16,516 34.20 16,755
Freddie Mac 10,674 19.36 10,822 13,707 30.11 13,579 12,773 26.45 13,004
Collateralized mortgage
obligations 10,012 18.15 10,078 - 0.00 - 116 0.24 117
--------------------------------------------------------------------------------------------------
Total mortgage-backed and
mortgage-related securities
available for sale $55,138 100.00% $55,514 $45,517 100.00% $45,051 $48,295 100.00% $48,712
--------------------------------------------------------------------------------------------------
Mortgage-backed and
mortgage-related securities
held to maturity
Fannie Mae $ 3,332 100.00% $ 3,423 - 0.00 - - 0.00 -
--------------------------------------------------------------------------------------------------
Total mortgage-backed and
mortgage-related securities
held to maturity .. $ 3,332 100.00% $ 3,423 - 0.00% - - 0.00% -
--------------------------------------------------------------------------------------------------
At December 31,
-----------------------------------------------------------------
1997 1996
------------------------------- -------------------------------
Amortized Percent of Fair Amortized Percent of Fair
Cost Total Value Cost Total Value
-----------------------------------------------------------------
(Dollars in thousands)
Mortgage-backed and
mortgage-related securities
available for sale
Ginnie Mae $16,762 30.97% $16,796 $11,764 25.22% $11,697
Fannie Mae 17,298 31.97 17,391 16,626 35.64 16,771
Freddie Mac 19,289 35.64 19,388 16,934 36.30 16,871
Other 766 1.42 768 1,323 2.84 1,326
-----------------------------------------------------------------
Total mortgage-backed and
mortgage-related securities
available for sale.. $54,115 100.00% $54,343 $46,647 100.00% $46,665
-----------------------------------------------------------------
12
The composition and maturities of the investment securities portfolio
(debt securities) and the mortgage-backed securities portfolio at December
31, 2000 are summarized in the following table. Maturities are based on the
final contractual payment dates, and do not reflect the impact of
prepayments or redemptions that may occur.
More than One Year More than Five Years
One Year or Less Through Five Years Through Ten Years
--------------------- --------------------- ---------------------
Weighted Weighted Weighted
Amortized Average Amortized Average Amortized Average
Cost Yield Cost Yield Cost Yield
----------------------------------------------------------------------
(Dollars in thousands)
Investment securities available for sale:
Federal agency securities $ 3,404 6.49% $ 30,281 6.88% $17,438 7.12%
Other debt securities 14,207 6.47 51,905 7.26 - -
Mortgage-backed securities 2,498 5.96 5,955 6.49 9,557 6.84
Collateralized mortgage obligations - - - - - -
--------------------------------------------------------------------
Total 20,109 6.41% 88,141 7.08% 26,995 7.02%
--------------------------------------------------------------------
Investment securities held to maturity:
Federal agency securities - - 12,000 7.03% 7,000 7.45%
Mortgage-backed securities - - - - - -
--------------------------------------------------------------------
Total securities held to maturity - - 12,000 7.03% 7,000 7.45%
--------------------------------------------------------------------
Total $20,109 6.41% $100,141 7.07% $33,995 7.11%
======= ======== =======
More than Ten Years Total Securities
--------------------- ---------------------------------
Weighted Weighted
Amortized Average Amortized Fair Average
Cost Yield Cost Value Yield
----------------------------------------------------------
(Dollars in thousands)
Investment securities available for sale:
Federal agency securities $ - -% $ 51,123 $ 51,427 6.94%
Other debt securities - - 66,112 66,859 7.09
Mortgage-backed securities 27,116 6.55 45,126 45,346 6.57
Collateralized mortgage obligations 10,012 6.74 10,102 10,078 6.74
------------------------------------------------------
Total 37,128 6.61% 172,373 173,800 6.89%
------------------------------------------------------
Investment securities held to maturity:
Federal agency securities - - 19,000 19,019 6.74%
Mortgage-backed securities 3,332 7.22% 3,332 3,423 7.22
------------------------------------------------------
Total securities held to maturity 3,332 7.22% 22,332 22,442 7.19%
------------------------------------------------------
Total $40,460 6.66% $194,705 $196,242 6.92%
======= ======== ========
13
Loan Portfolio
The Company provides one- to-four-family residential first mortgage
loans, home equity loans and credit lines, commercial real estate loans,
construction loans, consumer loans and commercial business loans. The
Company's loan policy establishes underwriting standards to address the
risks of these types of loans, including maximum loan-to-value ratios for
various collateral categories. The policy also contains lending authority
guidelines by loan type. All commercial real estate and commercial business
loans must be approved by the Credit Committee, which consists of the Chief
Executive Officer, the Executive Vice President, the Chief Financial
Officer and two outside members of the Board of Directors. Minutes of the
weekly Credit Committee meetings list all approved loans. At its monthly
meetings, the Bank's Board of Directors reviews summaries of all Credit
Committee loan approvals.
The Company has maintained a strategy that emphasizes its strengths
in real estate financing, and generally sells fixed rate residential real
estate loans that it originates. At the end of 2000, 86.3% of total loans
were scheduled to mature or reprice within five years.
At December 31, 2000, the gross loan portfolio totaled $696.5
million, up 19.2% from the 1999 year-end balance of $584.4 million.
Residential first mortgage loans of $353.6 million made up 50.8% of the
December 31, 2000 loan portfolio total. While the residential mortgage
portfolio increased $56.3 million from the balance at the end of 1999, the
percentage of the total portfolio declined by .09%. Commercial real estate
and commercial construction loan balances of $253.7 million were up $36.4
million over the year-end 1999 balance of $217.3 million. The percentage of
the gross loan portfolio represented by commercial real estate and
construction loans as of December 31, 2000 declined by .8%. At December 31,
2000 home equity credit lines were $82.9 million, an increase of 32.7% over
the 1999 year end balance of $62.5 million. Home equity credit lines
represent 11.9% of total gross loans as of December 31, 2000 compared to
10.7% at yearend 1999. The Company's strategy of building core
relationships with retail customers has included marketing programs
featuring home equity credit lines. Customers are eligible for rate
reductions on these lines if payments are made automatically from a
Cambridgeport checking account.
The remainder of the portfolio includes $5.2 million of consumer
loans, including $1.1 million of loans secured by deposits with the Bank,
$2.4 million of student loans and $1.7 million of various other loan types.
Commercial business loans totaled $1.1 million at year-end 2000, down
slightly from the 1999 year end balance of $1.3 million.
Loan portfolio balances at the end of 1999 were up $81.0 million, or
16.1%, from the end of 1998. Real estate loans represented 98.7% and 98.4%
of total loans at the end of 1999 and 1998 respectively.
14
The following table presents the composition of the loan portfolio in
dollar amounts and in percentages of the total portfolio at the dates
indicated.
At December 31,
------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
------------------ ------------------ ------------------ ------------------ ------------------
Percent Percent Percent Percent Percent
of of of of of
Amount Total Amount Total Amount Total Amount Total Amount Total
------------------------------------------------------------------------------------------------------
(Dollars in thousands)
Real estate loans:
Residential(1) $353,643 50.78% $297,313 50.87% $246,917 49.04% $208,124 49.04% $159,271 51.24%
Commercial 242,249 34.78 213,567 36.54 189,275 37.59 144,292 34.00 91,528 29.45
Home equity lines
of credit 82,885 11.90 62,458 10.69 56,502 11.22 60,875 14.34 46,745 15.04
Construction 11,458 1.64 3,716 0.64 2,741 0.55 1,940 0.46 2,692 0.86
-----------------------------------------------------------------------------------------------------
Total real estate loans $690,235 99.10% $577,054 98.74% $495,435 98.40% $415,231 97.84% $300,236 96.59%
-----------------------------------------------------------------------------------------------------
Other loans:
Commercial 1,083 0.16 1,348 0.23 724 0.15 581 0.14 807 0.26
Consumer 5,172 0.74 6,046 1.03 7,310 1.45 8,576 2.02 9,787 3.15
-----------------------------------------------------------------------------------------------------
Total other loans 6,255 0.90 7,394 1.26 8,034 1.60 9,157 2.16 10,594 3.41
-----------------------------------------------------------------------------------------------------
Total gross loans $696,490 100.00% $584,448 100.00% $503,469 100.00% $424,388 100.00% $310,830 100.00%
Less:
Net deferred loan fees 226 338 446 294 240
Allowance for loan losses 8,059 7,081 6,633 4,907 4,269
-------- -------- -------- -------- --------
Total loans, net $688,205 $577,029 $496,390 $419,187 $306,321
======== ======== ======== ======== ========
<FN>
- --------------------
<F1> Includes loans held for sale.
</FN>
15
The following table shows the repricing dates or contractual maturity
dates of the Bank's loans as of December 31, 2000. The table does not
reflect prepayments or scheduled principal amortization.
At December 31, 2000
-----------------------------------------------------------------------------------------------
Home Equity
Residential Line of Commercial Construction Commercial Consumer
Loans Credit Real Estate Loans Loans Loans Totals
-----------------------------------------------------------------------------------------------
(In thousands)
Amounts due:
Within one year $ 35,409 $82,885 $ 25,825 $11,458 $ 289 $3,554 $159,420
After one year:
One to three years 100,981 - 91,702 - 206 1,203 194,092
Three to five years 157,232 - 88,337 - 588 415 246,572
Five to ten years 46,507 - 35,969 - - - 82,476
Ten to twenty years 8,546 - 416 - - - 8,962
Over twenty years 4,968 - - - - - 4,968
----------------------------------------------------------------------------------------------
Total due after one year 318,234 - 216,424 - 794 1,618 537,070
----------------------------------------------------------------------------------------------
Total amount due: $353,643 $82,885 $242,249 $11,458 $1,083 $5,172 $696,490
=================================================================================
Less:
Net deferred loan
Origination costs 226
Allowance for loan losses 8,059
--------
Loans, net $688,205
========
The following table presents, as of December 31, 2000, the dollar
amount of all loans contractually due or scheduled to reprice after
December 31, 2001 and whether such loans have fixed interest rates or
adjustable interest rates.
Due After December 31, 2001
---------------------------------
Fixed Adjustable Total
---------------------------------
(In thousands)
Real Estate Loans
Residential $37,554 $280,680 $318,234
Home equity lines of credit - - -
Commercial real estate 27,699 188,725 216,424
Construction - - -
---------------------------------
Total real estate loans 65,253 469,405 534,658
---------------------------------
Other Loans
Commercial 794 - 794
Other consumer loans 1,618 - 1,618
---------------------------------
Total other loans 2,412 - 2,412
---------------------------------
Total loans $67,665 $469,405 $537,070
=================================
16
Loan Portfolio Quality
One of the Company's operating objectives is to maintain a high level
of asset quality. More than 99% of its loan portfolio is secured by
residential and commercial properties. The Company believes that it sets
sound credit standards for new loans and follows careful loan
administration procedures. These practices and relatively favorable
economic and real estate market conditions have resulted in low delinquency
ratios and, in recent years, a low level of non-performing assets. The
Company's policies require frequent monitoring of the status of the loan
portfolio and monthly reporting to the Board of Directors. These management
reports include information on delinquent loans and foreclosed real estate,
as well as management's plans to cure any delinquent loans and to dispose
of the foreclosed property.
The Company generally stops accruing income when interest or
principal payments are 90 days in arrears. It may stop accruing income on
certain loans earlier than 90 days, when the timely collection of interest
or principal appears to be doubtful. When a loan is designated non-accrual,
the Company reverses all outstanding interest that had previously been
credited. If the Company receives a payment on a non-accrual loan, it may
recognize the payment as interest income if the ultimate collectibility of
principal is no longer in doubt. However, such loans would remain on non-
accrual status. For a loan to return to accrual status the borrower must
have made all past due payments, and the full collection of principal and
interest must no longer be in doubt.
The Bank considers non accrual loans, except for smaller balance
homogenous residential and consumer loans, to be impaired. Impaired loans
are individually assessed to determine whether the carrying value exceeds
the fair value of the collateral, or the present value of the cash flow
generated from the underlying collateral. Smaller balance homogeneous loans
that have been designated as non-accrual, such as residential mortgage
loans and consumer loans, are evaluated collectively for impairment. At
December 31, 2000, 1999 and 1998, impaired loans totaled $134,000, $128,000
and $290,000 respectively.
17
The following table presents information regarding non-accrual real
estate loans, accruing loans delinquent 90 days or more, and foreclosed
real estate as of the dates indicated. At December 31, 2000, 1999 and 1998,
the Company had $134,000, $128,000 and $963,000, respectively, of non-
performing loans. If all non-performing loans had been performing in
accordance with their original terms and had been outstanding from the
earlier of the beginning of the period or origination, the Company would
have recorded interest income on these loans of approximately $7,000 for
2000, $7,000 in 1999 and $8,000 in 1998.
At December 31,
----------------------------------------
2000 1999 1998 1997 1996
----------------------------------------
(In thousands)
Non-accrual real estate loans
Residential $ - $ 32 $290 $201 $212
Home equity lines of credit - - - 14 -
Commercial real estate - - - - -
Construction loans - - - - -
----------------------------------------
Total non-accrual real estate loans - 32 290 215 212
========================================
Other loans:
Commercial - - - - -
Consumer 134 96 - - -
----------------------------------------
Total non-accrual other loans 134 96 - - -
========================================
Total non-accrual real estate and other loans 134 128 290 215 212
========================================
Accruing loans delinquent 90 days or more - - 673 574 597
========================================
Total non-performing loans 134 128 963 789 809
========================================
Foreclosed real estate, net - - - - 94
========================================
Total non-performing assets 134 128 963 789 903
========================================
Non-performing loans to total loans 0.02% 0.02% 0.19% 0.19% 0.29%
========================================
Non-performing assets to total assets 0.01% 0.02% 0.14% 0.13% 0.16%
========================================
The non-performing loan total of $134,000 at December 31, 2000 was
made up entirely of delinquent student loans. Non-performing loans at
December 31, 1999 and 1998 included $96,000 and $672,000 respectively of
student loans.
Allowance for Loan Losses
The Company maintains an allowance for possible loan losses through a
provision that is charged to income. Management determines the adequacy of
the allowance through regular monitoring of the loan portfolio. Although it
involves significant uncertainties, this review process takes into account
historical loan loss experience, known and inherent risks in the loan
portfolio, increases in categories with higher loss potential such as
commercial real estate loans and jumbo residential mortgage loans and the
estimated values of the underlying collateral. Management also considers
the effects on the portfolio from economic and market trends. Although the
Company believes that the allowance for loan losses is adequate, future
additions may be necessary if economic conditions, real estate values and
other factors differ substantially from the current operating environment.
For the fiscal year ended December 31, 2000, the Company increased
the allowance for loan losses through a $916,000 provision for loan losses
based on an evaluation of the items discussed above. The Company believes
that the current allowance for loan losses accurately reflects the level of
risk in the loan portfolio. The most significant trend influencing the
level of allowance over the last five years is the growth in the commercial
real estate and construction loan portfolio, which has risen from $94.2
million at the end of 1996 to $253.7 million at
18
December 31, 2000. The Company believes that, despite using prudent
underwriting standards, commercial real estate loans contain higher loss
potential than one-to-four-family residential mortgages.
The following table presents the activity in the allowance for loan
losses and other ratios at or for the dates indicated.
At or for Years Ended December 31,
------------------------------------------------------------
2000 1999 1998 1997 1996
------------------------------------------------------------
(Dollars in thousands)
Balance at beginning of year $ 7,081 $ 6,633 $ 4,907 $ 4,269 $ 4,074
Charge-offs:
Residential - - - - (136)
Commercial real estate - - - - (93)
Construction - - - - -
Home equity lines of credit - - - - -
Commercial - - - - -
Consumer (38) (407) (44) (16) (30)
------------------------------------------------------------
Total charge-offs (38) (407) (44) (16) (259)
------------------------------------------------------------
Recoveries:
Residential - 5 2 27 -
Commercial real estate - 107 3 27 -
Construction - - - - -
Home equity lines of credit - - - - -
Commercial loans - - - - -
Other consumer loans 100 3 5 - 4
------------------------------------------------------------
Total recoveries 100 115 10 54 4
------------------------------------------------------------
Net (charge-offs) recoveries 62 (292) (34) 38 (255)
Provision for possible loan losses 916 740 1,760 600 450
------------------------------------------------------------
Balance at end of year $ 8,059 $ 7,081 $ 6,633 $ 4,907 $ 4,269
============================================================
Total loans receivables (1) $694,527 $582,875 $498,194 $420,611 $306,388
============================================================
Average loans outstanding $638,438 $533,733 $462,528 $367,471 $285,406
============================================================
Allowance for loan losses as a
Percent of total loans receivable(1) 1.16% 1.21% 1.33% 1.17% 1.39%
============================================================
Net loans (charged off) recoveries as a
Percent of average loans outstanding 0.01% (0.05)% (0.01)% 0.01% (0.09)%
============================================================
<FN>
- --------------------
<F1> Does not include loans held for sale, passbook loans or deferred
fees.
</FN>
19
The following tables set forth the allowance for loan losses
allocated by loan category, the total loan balances by category, and the
percent of loans in each category to total loans indicated.
At December 31,
------------------------------------------------------------------------------------------------------------
2000 1999 1998
---------------------------------- ---------------------------------- ----------------------------------
Percent of Percent of Percent of
Loans in Loans in Loans in
Loan Each Loan Each Loan Each
Balances by Category to Balances by Category to Balances by Category to
Loan Category Amount Category Total Loans Amount Category Total Loans Amount Category Total Loans
- -----------------------------------------------------------------------------------------------------------------------------------
Real estate-mortgages:
Residential(1) $2,823 $435,705 62.73% $2,352 $359,773 61.72% $2,014 $298,485 59.91%
Commercial 3,552 253,707 36.53 3,042 217,283 37.28 2,103 193,046 38.75
Commercial loans 17 1,083 0.16 22 1,348 0.23 11 724 0.15
Consumer loans(2) 228 4,031 0.58 297 4,471 0.77 65 5,939 1.19
Unallocated 1,439 - - 1,368 - - 1,840 - -
---------------------------------------------------------------------------------------------------------
Total allowance for
loan losses $8,059 $694,526 100.00% $7,081 $582,875 100.00% $6,633 $498,194 100.00%
=========================================================================================================
At December 31,
-----------------------------------------------------------------------
1997 1996
---------------------------------- ----------------------------------
Percent of Percent of
Loans in Loans in
Loan Each Loan Each
Balances by Category to Balances by Category to
Loan Category Amount Category Total Loans Amount Category Total Loans
- ----------------------------------------------------------------------------------------------
Real estate-mortgages:
Residential(1) $1,780 $266,075 63.26% $1,515 $203,053 66.27%
Commercial 1,908 146,806 34.90 1,225 94,220 30.75
Commercial loans 9 581 0.14 12 807 0.27
Consumer loans(2) 79 7,149 1.70 90 8,308 2.71
Unallocated 1,131 - - 1,427 - -
--------------------------------------------------------------------
Total allowance for
loan losses $4,907 $420,611 100.00% $4,269 $306,388 100.00%
====================================================================
<FN>
- --------------------
<F1> Includes home equity lines of credit, excludes loans held for sale.
<F2> Excludes passbook loans.
</FN>
20
Deposits
Deposit flows are influenced by a number of factors including:
general and local economic conditions, the perceived strength of the stock
market, prevailing interest rates and competition from other financial
institutions. Most of the Company's deposits come from areas surrounding
its branch offices. To attract and retain deposits, it utilizes a strategy
that incorporates competitive pricing with high quality service and the
development of long-term relationships. It determines deposit rates by
evaluating competitors' pricing, the cost of obtaining funds from other
sources, rates on U.S. Treasury securities and other related financial
instruments.
As mentioned above, the Company's strategy has been to increase
deposits by attracting and retaining customers who maintain their primary
transaction account with the Bank. The Real Banking marketing campaign,
began in June, 2000 and offered a promotional rate money market account-the
Real Savings account-to checking account customers. The campaign was timed
to coincide with the large bank merger and branch divestiture activity
occurring in the region. The Real Savings promotional rate of 6.25% annual
percentage yield is guaranteed through March 31, 2001. Largely as a result
of this campaign, deposits increased $188.5 million during 2000, ending the
year 2000 at $809.8 million. Real Savings and other money market account
balances rose by $168.0 million, to $330.3 million at December 31, 2000.
Transaction account balances also rose significantly during the year.
Demand deposit and NOW account balances ended the year 2000 at $49.9
million and $69.1 million respectively compared to $32.8 million and $ 44.4
million respectively at December 31, 1999. This equated to a 54.1% increase
in combined balances of these two types of accounts.
The Company's cost of deposits also rose as a result of the
promotional rate money market account. See "Results of Operations" for
information relating to the average balances and costs of deposits for the
years ended December 31, 2000, 1999 and 1998.
Certificates of Deposit balances declined $19.8 million, to $308.6
million at December 31, 2000 from the year-end 1999 level of $328.4
million. During the year, other financial institutions promoted their high
rate CD products, which attracted some of Port's CD customers. In a falling
rate environment, Port focused its strategy on building deposits in money
market accounts rather than longer fixed maturity accounts.
Savings account balances fell $1.5 million, or 2.8%, to $51.9 million
at December 31, 2000. Balances in savings accounts have remained
relatively stable over the past three years, despite market rate
fluctuations and higher rate account promotions by Port and its
competitors.
Deposit totals at year-end 1999 totaled $621.3 million, an increase
of $53.2 million over the December 31, 1998 total of $568.1 million. The
growth included $30.1 million in money market account balances, most of
which was in the Treasury Index Account, which features a rate tied to the
3-month U.S. Treasury bills. Certificate of deposit balances rose $18.4
million during 1999, while transaction account balances grew $4.9 million.
21
The following table sets forth the distribution of deposit accounts,
by account type, at the dates indicated.
At December 31,
--------------------------------------------------------------------------------------------
2000 1999 1998
----------------------------- ----------------------------- ----------------------------
Weighted Weighted Weighted
Average Average Average
Amount Percent Rates Amount Percent Rates Amount Percent Rates
--------------------------------------------------------------------------------------------
(Dollars in thousands)
Demand deposits (1) $ 49,939 6.17% 0.00% $ 32,808 5.28% 0.00% $ 30,742 5.42% 0.00%
NOW deposits 69,101 8.53 0.96 44,429 7.15 1.43 41,546 7.31 1.50
Savings deposits 51,864 6.40 1.79 53,346 8.59 2.03 53,560 9.43 2.18
Money market deposits 330,297 40.79 5.44 162,304 26.12 4.33 132,219 23.27 3.71
----------------- ----------------- -----------------
Total non-certificated
accounts 501,201 61.89 3.90 292,887 47.14 2.99 258,067 45.43 2.60
Certificate of deposit
Due within 1 year 195,017 24.09 5.73 269,579 43.39 4.91 252,594 44.46 5.33
Over 1 year through
3 years 105,555 13.03 6.35 56,374 9.07 5.43 54,615 9.61 5.43
Over 3 years 8,049 0.99 6.31 2,479 0.40 5.40 2,799 0.50 5.38
----------------- ----------------- -----------------
Total certificate accounts 308,621 38.11 5.96 328,432 52.86 5.00 310,008 54.57 5.35
----------------- ----------------- -----------------
Total $809,822 100.00% 4.69% $621,319 100.00% 4.05% $568,075 100.00% 4.10%
================= ================= =================
<FN>
- --------------------
<F1> Includes mortgagor's escrow payments.
</FN>
22
The following table summarizes deposit activity for the periods
indicated.
At December 31,
--------------------------------
2000 1999 1998
--------------------------------
(Dollars in thousands)
Balance at beginning of year $621,319 $568,075 $520,357
Net increase (decrease) before interest credited (1) 157,766 29,824 23,400
Interest credited 30,737 23,420 24,318
--------------------------------
Balance at end of year $809,822 $621,319 $568,075
================================
Total increase in deposit accounts $188,503 $ 53,244 $ 47,718
================================
Percentage increase 30.34% 9.37% 9.17%
<FN>
- --------------------
<F1> Includes mortgage escrow payments.
</FN>
At December 31, 2000, the Bank had $57.9 million in certificates of
deposit with balances of over $100,000 and maturing as follows:
Weighted
Average
Maturity Period Amount Rate
- -----------------------------------------------------------
(In thousands)
Three months or less $ 9,197 5.36%
Over three months through six months 9,531 5.53%
Over six months through 12 months 17,505 6.02%
Over 12 months 21,726 6.41%
-------
Total $57,959 5.98%
=======
The following table sets forth, by interest rate ranges, information
concerning certificates of deposit at December 31, 2000:
At December 31, 2000
- --------------------------------------------------------------------------------------------------
Period to Maturity
- --------------------------------------------------------------------------------------------------
Interest Rate Less than One to Two Two to More than Percent of
Range One Year Years Three Years Three Years Total Total
- --------------------------------------------------------------------------------------------------
(Dollars in thousands)
4.00% and below $ 1,027 $ - $ - $ - $ 1,027 0.33%
4.01% to 5.00% 36,385 1,198 167 241 37,991 12.31
5.01% to 6.00% 65,859 15,748 672 688 82,967 26.88
6.01% to 7.00% 91,696 71,418 15,969 6,571 185,654 60.16
7.01% and above 50 383 - 549 982 0.32
-----------------------------------------------------------------------------
Total $195,017 $88,747 $16,808 $8,049 $308,621 100.00%
=============================================================================
23
Borrowings
The Company may use borrowings and other non-deposit sources of funds
in order to acquire specific assets, fund asset growth that exceeds the
level of deposits, and manage interest rate risk. During 2000, the
Company's successful deposit growth strategy enabled it to repay maturing
borrowings from the Federal Home Loan Bank. At December 31, 2000
outstanding borrowings of $35.8 million represented a decline of $20.1
million from $55.9 million at the end of 1999. Included in the 2000 and
1999 figures were $14.0 million and $14.3 million, representing the
outstanding balance of a $14.5 million, 20-year advance used to finance the
construction of the administrative center.
The following table sets forth information concerning balances and
interest rates on borrowings from the Federal Home Loan Bank at the dates
and for the periods indicated.
At or for the Year Ended
December 31,
-------------------------------
2000 1999 1998
-------------------------------
(Dollars in thousands)
Federal Home Loan Bank advances:
Average balance outstanding $37,992 $40,374 $25,097
Maximum amount outstanding
at any month-end during the period 59,266 55,891 31,902
Balance outstanding at end of the period 35,801 55,891 27,066
Weighted average interest rate
during the period 5.14% 5.53% 6.13%
Weighted average interest rate
at end of period 6.38% 6.00% 6.04%
Stockholders' Equity
The Company's equity increased from $79.1 million at the end of 1999
to $152.1 million at the end of 2000, largely because of the issuance of
common stock to the public in April, 2000. The capital to assets ratios at
the end of 2000 and 1999 were 15.13% and 10.37% respectively. Both exceeded
all regulatory requirements. On November 20, 2000, the Company paid a
dividend of $.05 per share to shareholders of record as of November 1,
2000. The total dividend of $ 372,000 did not have a material impact on
capital.
Results of Operations for the Years Ended December 31, 2000, 1999 and 1998
General
Port completed its first year as a public company with total assets
of $1.0 billion and stockholders equity of $152.1 million. The Company's
net income for 2000 totaled $5.9 million. Net income, prior to the
Company's conversion to a stock form of organization was $4.8 million in
1999, and $4.2 million in 1998. The return on average assets was .67% in
2000 compared to .67% in 1999 and .63% in 1998. The return on average
equity was 4.60% in 2000, 6.34% in 1999 and 5.93% in 1998.
The increased earnings in 2000 includes higher net interest income,
which rose $5.4 million to $29.7 million, from $24.3 million in 1999,
because of higher average earning asset balances and a 3 basis point
increase in the net interest margin. The margin increase reflected the
effects of the conversion capital and higher demand deposit balances. The
interest rate spread, the difference between the yield on interest-earning
assets and the cost of interest-bearing liabilities, declined from 2.98% in
1999 to 2.77% in 2000, largely because of the promotional rate on the Real
Savings account. The growth in net interest income was partially offset by a
24
$176,000 increase in the provision for loan losses, a $500,000 reduction
in non-interest income, and growth in operating expenses of $2.7 million
compared with 1999.
After-tax earnings in 1999 of $4.8 million were $586,000, or 14.0%,
higher than 1998 net income of $4.2 million. Contributing to this increase
was a $1.5 million improvement in net interest income, and a reduction of
$1.0 million in the loan loss provision. Partially offsetting these
factors, were a reduction in non-interest income of $512,000 and higher
operating expenses, which rose $1.6 million in 1999, or 8.7%, compared with
the prior year.
Mortgage rates influenced the non-interest income results. During
1998, market interest rates declined significantly, resulting in an active
mortgage refinancing market. Many borrowers took advantage of the low rate
environment to take out fixed rate mortgages. The Company's policy is to
sell fixed rate mortgages, service-released, and therefore in the active
1998 market, loan sales produced gains of $1.1 million. Refinancing
activity slowed in 1999, and loan sales resulted in gains of $599,000.
Net Interest Income
Net interest income in 2000 rose $5.4 million, or 22.2%, compared
with 1999. Average earning assets increased by $144.5 million in 2000 to
$827.9 million, from $683.4 million the year before. At the same time,
interest-bearing liabilities increased $95.4 million, to $695.4 million.
Therefore, the difference between earning assets and interest-bearing
liabilities was $49.1 million higher in 2000 than in 1999. Non-interest
bearing deposits and additional capital funded these additional assets--
their average balances were up $13.9 million and $52.0 million respectively
in 2000-and contributed to a 3 basis point increase in the net interest
margin, which was 3.56% in 2000.
Net interest income of $24.3 million in 1999 was up $1.5 million over
1998. Higher average balances of earning assets in 1999 as well as a shift
within this category from investment securities to higher yielding loans
were the main reasons for the increased net interest income. During 1999,
loans represented 77.1% of average earning assets compared with 71.6% the
year before.
25
Interest Income
Total interest and dividend income rose $12.4 million in 2000 to
$62.4 million, compared to $50.0 million in 1999. The growth in average
earning assets mentioned above was the main reason for the increase, but a
21 basis point increase in yield on those assets, from 7.26% in 1999 to
7.47% in 2000, was also a factor. See the "Average Balance Sheet" and
"Rate/Volume Analysis" tables below. The interest rate environment that
prevailed during 2000 enabled the Company to invest conversion funds,
deposits, and other cash flow into higher yielding loans and securities.
The average balances of loans and investments were $103.8 million and $40.7
million, respectively, higher in 2000 than in 1999. The higher yields on
these additional assets raised the average yields on the loan portfolio by
17 basis point and the investment securities by 42 basis point.
Total interest and dividend income in 1999 was $1.3 million above the
1998 level of $48.7 million. The positive income effect of earning asset
balances, which were $44.9 million higher in 1999 than the year before,
more than offset a 34 basis point decline in average yield on those assets.
Mortgage refinancing activity during the second half of 1998, mentioned
above, reduced the average yield on the loan portfolio. The full impact of
this was felt in 1999, as the loan portfolio yield declined 52 basis point
to 7.56%.
Interest Expense
Total interest expense increased by $7.0 million in 2000 to $32.7
million, compared to $25.7 million in 1999. The average balance of
interest-bearing deposits in 2000, at $657.2 million, was $97.8 million, or
17.5%, higher than in 1999. This deposit growth was concentrated in money
market accounts, where average balances rose $87.4 million to $229.5
million in 2000, up from $142.1 million the previous year. The promotional
rate of 6.25% on the Real Savings money market account resulted in a 128
basis point increase in the average cost of money market account balances,
and was the main reason for the 49 basis point increase in the average cost
of all interest-bearing deposits. This promotional rate is guaranteed
through March 31, 2001. The Real Savings promotion also generated new
checking accounts. Average NOW and demand deposit balances rose $13.8
million and $13.9 million respectively in 2000, a combined 39.5% increase
compared to 1999 average balances.
Total interest expense for 1999 was $25.7 million, a decrease of
$174,000, or .7%, from 1998, despite a higher average balance of interest-
bearing liabilities in 1999 of $600.0 million compared with $554.9 million
the year before. This growth in interest-bearing liabilities was offset by
a 38 basis point decrease in their average cost, to 4.28% in 1999 from
4.66% for 1998. This decrease reflects the lower interest rate environment
that prevailed during throughout 1999 compared to the 1998 period,
particularly during the first half of 1998. Interest expense on deposits
declined by $898,000 to $23.4 million in 1999 compared with $24.3 million
the year before. The average balance of deposits rose to $589.1 million in
1999, from $555.7 million in 1998, while their average cost declined from
4.38% in 1998 to 3.98% in 1999. Interest expense on borrowed funds
increased $724,000 as a result of a $15.2 million rise in the average
balance of borrowings used to fund the construction of new facilities and
to fund loan growth.
26
The following table shows how changes in interest rates and changes
in the volume of interest-earning assets and interest-bearing liabilities
have affected the Company's interest income and interest expense during the
periods indicated. Information is provided in each category with respect
to:
* Interest income changes attributable to changes in volume
(changes in volume multiplied by prior rate);
* Interest income changes attributable to changes in rate
(changes in rate multiplied by prior volume); and
* The net change.
The changes attributable to the combined impact of volume and rate
have been allocated proportionately to the changes due to volume and the
changes due to rate.
Year Ended December 31, 2000 Year Ended December 31, 1999
Compared to Year Ended Compared to Year Ended
December 31, 1999 December 31, 1998
Increase/(Decrease) Increase/(Decrease)
Due to Due to
-------------------------------------------------------------------
Volume Rate Net Volume Rate Net
-------------------------------------------------------------------
(In thousands)
Interest earning assets:
Short term investments $ 621 $ 67 $ 688 $ (28) $ (24) $ (52)
Certificates of deposit (315) 22 (293) (71) 7 (64)
Investment securities 2,408 635 3,043 (1,342) (219) (1,561)
Loans 8,065 924 8,989 5,169 (2,177) 2,992
-------------------------------------------------------------------
Total interest earning assets $10,779 $ 1,648 $12,427 $ 3,728 $(2,413) $ 1,315
===================================================================
Interest bearing liabilities:
NOW accounts 149 (59) 90 43 (35) 8
Savings accounts (7) (81) (88) 18 (76) (58)
Money market deposit accounts 4,110 2,206 6,316 742 (49) 693
Certificates of deposit (152) 1,151 999 340 (1,881) (1,541)
Borrowed funds (134) (186) (320) 845 (121) 724
-------------------------------------------------------------------
Total interest bearing liabilities $ 3,966 $ 3,031 $ 6,997 $ 1,988 $(2,162) $ (174)
===================================================================
Change in net interest income $ 6,813 $(1,383) $ 5,430 $ 1,740 $ (251) $ 1,489
===================================================================
28
The following tables set forth information relating to Port's
financial condition and net interest income at and for the fiscal years
ended December 31, 2000, 1999 and 1998, and reflect the average yield on
assets and average cost of liabilities for the periods indicated. Yields
and costs are derived by dividing interest income by the average balance of
interest-earning assets and interest expense by the average balance of
interest-bearing liabilities for the periods shown. Average balances are
derived from actual daily balances over the periods indicated. Interest
income includes fees earned from making changes in loan rates or terms, and
fees earned when commercial real estate loans were prepaid or refinanced.
For the Fiscal Year Ended December 31,
---------------------------------------------------------------------------------------------
2000 1999 1998
----------------------------- ----------------------------- -----------------------------
Average Average Average
Average Yield/ Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost Balance Interest Cost
---------------------------------------------------------------------------------------------
(Dollars in thousands)
Assets:
Interest earning assets:
Short term investments(1) $ 21,304 $ 1,423 6.68% $ 11,935 $ 735 6.16% $ 12,373 $ 787 6.36%
Certificates of deposit 1,539 115 7.47 5,737 408 7.11 6,736 472 7.01
Investment securities(2) 174,109 11,505 6.62 138,594 8,462 6.18 162,152 10,023 6.33
Loans(3) 630,919 49,355 7.73 527,142 40,366 7.56 457,271 37,374 8.08
---------------------------------------------------------------------------------------------
Total interest earning assets 827,871 62,398 7.47 683,408 49,971 7.26 638,532 48,656 7.60
----------------- ----------------- -----------------
Total noninterest earning assets 47,102 28,451 21,658
-------- -------- --------
Total assets 874,973 711,949 660,190
======== ======== ========
Liabilities and Equity:
Interest bearing liabilities:
NOW accounts 54,174 657 1.21 40,388 567 1.40 36,323 559 1.54
Savings accounts 53,724 1,048 1.95 54,058 1,136 2.10 53,283 1,194 2.24
Money market deposit accounts 229,520 11,834 5.16 142,148 5,518 3.88 123,020 4,825 3.92
Certificate of deposit accounts 319,817 17,198 5.38 322,872 16,199 5.02 316,937 17,740 5.60
---------------------------------------------------------------------------------------------
Total interest bearing deposits 657,235 30,737 4.68 559,466 23,420 4.19 529,563 24,318 4.59
Borrowed funds 38,135 1,966 5.16 40,576 2,286 5.63 25,352 1,562 6.16
---------------------------------------------------------------------------------------------
Total interest bearing
liabilities 695,370 32,703 4.70 600,042 25,706 4.28 554,915 25,880 4.66
------ ------ ------
Noninterest bearing deposits 43,486 29,607 26,134
Other noninterest bearing
liabilities 7,733 5,891 5,923
-------- -------- --------
Total noninterest bearing
liabilities 51,219 35,498 32,057
Total liabilities 746,589 635,540 586,972
Stockholders' equity/retained
earnings 128,384 76,409 73,218
-------- -------- --------
Total liabilities and
stockholders' equity/retained
earnings $874,973 $711,949 $660,190
======== ======== ========
Net interest income $29,695 $24,265 $22,776
======= ======= =======
Net interest rate spread(4) 2.77 2.98 2.94
Net interest margin(5) 3.56 3.53 3.56
Ratio of average interest earning
assets to average interest
bearing liabilities 120.10X 114.71X 115.32X
<FN>
- --------------------
<F1> Short-term investments include federal funds sold.
<F2> Investment securities that are considered available for sale are
carried at market value, while securities that are held to maturity
are carried at cost.
<F3> Loans are net of deferred loan origination costs (fees) and allowance
for loan losses.
<F4> Net interest rate spread represents the difference between the
weighted average yield on interest-earning assets and the weighted
average cost of interest-bearing liabilities.
<F5> Net interest margin represents net interest income as a percentage of
average interest-earning assets.
</FN>
29
Provision for Possible Loan Losses
The provision for possible loan losses totaled $916,000 in 2000,
compared to $740,000 in 1999. The higher provision in 2000 is consistent
with the growth in the Bank's loan portfolio and management does not
believe that the higher provision for loan losses indicates any
deterioration in credit quality.
In 1999, the Company provided $740,000 for possible loan losses,
compared to $1.8 million in 1998. The 1998 provision reflected not only the
strong loan growth during that period, but also the higher number of large
balance commercial real estate loans originated during 1998 compared to
prior periods. At the end of 1999 and 1998, the allowance for loan losses
was $7.1 million and $6.6 million, or 1.21% and 1.32% of total loans
outstanding.
Future provisions for loan losses will continue to be based upon the
Company's assessment of the overall loan portfolio and its underlying
collateral, the mix of loans within the portfolio, delinquency trends,
economic conditions, current and prospective trends in real estate values,
and other relevant factors. As the Company expands its commercial business
lending, management believes that additional increases to the provision for
possible loan losses are likely.
Non-interest Income
Non-interest income includes service fees and charges for bank
services, gains or losses from asset sales, and other income resulting from
miscellaneous transactions. Non-interest income totaled $2.6 million in
2000, compared with $3.1 million in 1999. Net losses on the sale of
investment securities totaled $603,000 in 2000. Loan sale gains of $274,000
in 2000 were $325,000 lower than the 1999 total of $599,000. Gains on loan
sales generally are a function of the volume of fixed rate mortgages
originated by the Company. In the 1999 period, there was a high level of
fixed rate mortgage activity, which declined as mortgage rates rose in late
1999 and 2000. Customer service fee income was $1.1 million in 2000, up
$200,000 over 1999. This growth resulted from an increase in the number of
checking accounts as well as higher volumes of ATM card transactions. Non-
interest income in 2000 also includes a gain of $448,000 resulting from the
curtailment of the Company's defined benefit pension plan. The 1999 period
included a $435,000 increase in the cash surrender value of life insurance
policies compared to $657,000 in 1998.
Non-interest income in 1999 was $3.1 million compared with $3.6
million for the prior year. The 1998 figure includes gains on fixed-rate
loan sales of $1.1 million. In 1999, as mortgage interest rates increased,
fixed-rate loan applications declined, and loan sale gains declined to
$599,000.
Non-interest Expense
Total non-interest expense rose $2.7 million, or 13.8%, to $22.3
million from the 1999 total of $19.6 million. Compensation and benefits
expense increased $1.6 million or 14.5% to $12.4 million from the 1999
total of $10.8 million. This increase was the result of annual wage
increases and the cost of new benefit plans. Occupancy expense increased
$349,000 due to the cost of the new administrative center building as well
as the new branch opening in Arlington, Massachusetts. The Company occupies
approximately 55% of the administrative center and two tenants under long-
term leases occupy the remainder. The first of the leases commenced on
October 1, 2000; the second on January 1, 2001. Non-interest expense also
increased as a result of additional professional service fees and marketing
expenses totaling $357,000. These expenses were attributable to new public
company activities.
Total non-interest expense in 1999 increased $1.6 million, or 8.9%,
to $19.6 million compared with $18.0 million for the prior year. The 1999
figure includes a one-time charge of $578,000, reflecting a curtailment
loss on a restructured executive non-qualified retirement plan. Salaries
and employee benefits increased 7.2%, or $681,000 compared with 1998. This
was attributable to: increased staffing levels in the areas of wealth
management and business banking, periodic salary adjustments for existing
staff, and increased personnel benefit costs. Advertising expense increased
$111,000, or 12.3%, over the 1998 level, primarily related to promotions of
home equity loan products and the Treasury Index money market account.
30
Other non-interest expense of $3.2 million in 1999 included $193,224
of expenses related to the Y2K date change project. Y2K expenses in 1998
totaled $50,767. Other non-interest expense also included professional
services expense of $695,000 in 1999, an increase of $155,000 over 1998.
This included $125,000 of fees paid in connection with leasing activity at
our new building.
Income Taxes
The Company's effective tax rate of 34.8% in 2000 represents an
increase from 31.5% in 1999. This is primarily due to the fact that the
1999 period included the increases in life insurance cash surrender values
mentioned above, which are not subject to federal or state tax.
Income tax expense was $2.2 million for 1999 compared to $2.4 million
in 1998, resulting in effective tax rates of 31.5% and 36.0% for the
respective periods. The lower effective tax rate in 1999 is primarily the
result of increased utilization of qualified securities investment
companies and non-taxable increases in cash surrender values of life
insurance policies.
Liquidity and Capital Resources
The term "liquidity" refers to the Company's ability to generate
adequate amounts of cash to fund loan originations, loan purchases, deposit
withdrawals and operating expenses. Primary sources of liquidity are
deposits, scheduled amortization and prepayments of loan principal and
mortgage-backed securities, maturities and calls of investment securities
and funds provided by operations. Loan repayment and maturing investment
securities are a relatively predictable source of funds. However, deposit
flows, calls of investment securities and prepayments of loans and
mortgage-backed securities are strongly influenced by interest rates,
general and local economic conditions and competition in the marketplace.
These factors reduce the predictability of the timing of these sources of
funds.
The Bank also can borrow funds from the Federal Home Loan Bank based
on eligible collateral of loans and securities. Its maximum borrowing
capacity from the Federal Home Loan Bank is approximately $300.0 million,
net of borrowings that are already outstanding. In addition, the Bank may
enter into reverse repurchase agreements with approved broker-dealers.
Reverse repurchase agreements are agreements that allow the Bank to borrow
using securities as collateral.
Total deposits increased $188.5 million and $53.2 million during the
2000 and 1999 fiscal years, respectively. Time deposit accounts scheduled
to mature within one year were $195.0 million at December 31, 2000. Based
on the Company's experience and current pricing strategy, it anticipates
that a significant portion of these certificates of deposit will remain on
deposit.
At December 31, 2000, outstanding borrowings from Federal Home Loan
Bank were $35.8 million, $20.1 million below the level at December 31,
1999. In June 1999, the Bank borrowed $14.5 million from the Federal Home
Loan Bank in order to fund the construction and acquisition of the
administrative center building. The Federal Home Loan Bank loan is to be
repaid in equal monthly payments over 20 years. The rate is fixed at 6.19%.
The Company's primary investing activities are the origination of
one- to four-family real estate, commercial real estate, commercial and
consumer loans, and the purchase of investment securities. During the 2000
fiscal year, it originated loans of approximately $256.0 million, and
during the 1999 fiscal year it originated loans of approximately $252.6
million. Purchases of investment securities totaled $138.3 million for the
2000 fiscal year and $43.3 million for 1999. At December 31, 2000,
Cambridgeport had loan commitments to borrowers of approximately $ 41.1
million, and available home equity and unadvanced lines of credit of
approximately $148.3 million.
The Company monitors its liquidity position daily and expects to have
sufficient funds to meet its current funding commitments.
At December 31, 2000, Port exceeded each of the applicable regulatory
capital requirements. Tier 1 leverage capital was $147.5 million, or 24.8%
of risk-weighed assets, and 15.4% of average assets. It had a risk-based
total capital of $157.5 million and a risk-based capital ratio of 26.5%.
The Company does not anticipate any material capital expenditures
during calendar year 2001. It does not have any balloon or other payments
due on any long-term obligations or any off-balance sheet items other than
the commitments and unused lines of credit noted above.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the risk of loss in a financial instrument arising
from adverse changes in market rates/prices such as interest rates, foreign
currency exchange rates, commodity prices, and equity prices. Port is
exposed to interest rate risk, which occurs from interest rate volatility.
Fluctuations in interest rates may impact both its level of income and
expense on a large portion of assets and liabilities, as well as the market
value of all interest-earning assets.
The ongoing monitoring and management of interest rate risk is an
important component of the Company's asset/liability management process.
This process is governed by policies established by the Board of Directors.
The Board reviews these policies annually. The Board of Directors delegates
responsibility for carrying out the asset/liability management policies to
the Asset/Liability Management Committee ("ALCO"), comprised of the Chief
Executive Officer, the President, the Chief Financial Officer and various
other members of management. ALCO develops strategies based upon estimated
market risk sensitivity, policy limits and overall market interest rate
levels and trends. The primary goal of the interest rate management
strategy is to limit fluctuations in net interest income as interest rates
vary up or down. ALCO seeks to coordinate asset and liability decisions so
that, under changing interest rate scenarios, the Company's net interest
income will remain within an acceptable range.
The Company's lending activities have emphasized one- to four-family
and commercial mortgage loans. Its largest source of funds has been
deposits, consisting of certificates of deposit, which have shorter terms
to maturity than the loan portfolio, savings and money market accounts, and
transaction accounts. Occasionally, the Company has funded loan growth with
Federal Home Loan Bank advances. It has employed several strategies to
manage the interest rate risk inherent in the asset/liability mix,
including but not limited to:
* Selling a majority of the 30 and 15-year fixed-rate mortgages to
the secondary market;
* Maintaining the diversity of the existing loan portfolio through
the origination of commercial real estate and consumer loans which
typically have variable rates and shorter terms than residential
mortgages; and
* Emphasizing investments with short- and intermediate-term
maturities of less than ten years, with most maturities or rate
resets currently under 5 years.
Loan repayment activity can be significantly impacted by changes in
market interest rates. Prepayment rates vary due to a number of other
factors, including regional economic conditions, demographic variables,
borrowers' refinancing opportunities, and competition. The Company monitors
interest rate sensitivity in order to make timely adjustments to its asset
and liability mix and minimize the negative effects of changing rates. The
Company uses a simulation model to monitor interest rate risk. This model
calculates the net interest income at risk under different interest rate
environments. It performs an analysis of changes in net interest income
assuming market interest rates rise or fall 200 basis points over a one-
year time period following the current financial statement. The Company
also uses the model to simulate other scenarios, altering the modeling
assumptions on interest rate changes to include a swing of 400 basis
points, and extending the analysis to include a four-year period. The
Company's policy objective is to maintain net interest income over a one-
year period within 10% of the current level, given a 200 basis point change
in market interest rates in either direction.
31
The table below sets forth the estimated changes in net interest
income that would result from a 200 basis point change in interest rates
over the applicable twelve-month period.
For the Fiscal Year Ended December 31, 2001
-------------------------------------------
(Dollars in thousands)
Changes in
Interest Rates Net Interest
(Basis Points) Income % Change
-------------- ------------ --------
200 29,149 -3.01%
0 30,054 -
-200 30,243 .63%
In addition to net interest income simulation, the Company uses gap
analysis to monitor interest rate risk. Gap analysis entails measuring the
extent to which such assets and liabilities are "interest rate sensitive".
An asset or liability is deemed to be interest rate sensitive within a
specific time period if it is scheduled to mature or reprice within that
time period. The interest rate sensitivity gap for a given time period is
defined as the difference between the amount of interest-earning assets and
the amount of interest-bearing liabilities maturing or repricing within
that time period.
A gap is considered positive when the amount of interest-earning
assets exceeds the amount of interest-bearing liabilities maturing or
repricing within a specific time period. A gap is considered negative when
the amount of interest-bearing liabilities exceeds the amount of interest-
earning assets maturing or repricing within the same period. When interest
rates rise, a financial institution with a negative gap position would be
expected, absent the effects of other factors, to experience a greater
increase in the costs of its liabilities relative to the yields of its
assets. Thus, net interest income would likely decrease. An institution
with a positive gap position would be expected, absent the effect of other
factors, to experience the opposite result. Conversely, during a period of
declining interest rates, a negative gap would tend to result in an
increase in net interest income. A positive gap would tend to reduce net
interest income.
At December 31, 2000, based on the assumptions outlined below, the
Company's interest-bearing liabilities maturing or repricing within one
year exceeded interest-earning assets maturing or repricing within the same
period by $ 101.0 million. This represented a negative cumulative one-year
interest rate sensitivity gap of 10.5% of total assets and a ratio of
cumulative interest-earning assets maturing or repricing within one year to
cumulative interest-bearing liabilities maturing or repricing within one
year of 81.0%. The negative gap position could more adversely impact net
interest income in a rising rate environment than a positive gap position.
The following table presents information as for December 31, 2000. It
shows the amounts of interest-earning assets and interest-bearing
liabilities that reprice or mature in each of the future time periods
shown. Except as stated below, the repricing/maturity schedule corresponds
with the earlier of the repricing date or the contractual maturity date.
The information is also based on the following assumptions:
* Various mortgage related products will prepay principal
balances depending on the interest rate environment, mortgage
product type, outstanding principal balances, average life to
maturity and other factors. The residential mortgage portfolio
is segregated based on these factors and prepayment speeds are
calculated using analytical historical data from the Office of
Thrift Supervision.
* 10% of commercial mortgages and home equity loans are assumed
to prepay annually.
* Federal agency securities with call features that are likely to
exercised were reported at the next call date. Other agency
securities were reported at the contractual maturity date.
* Higher earning savings accounts, money market accounts and the
Treasury index accounts are reported in the three-month
category. This classification is based on regulatory guidance,
as modified by historical analysis of deposit levels during
periods of changing market rates.
32
Deposit assumptions, prepayment rates and anticipated call dates can
have a significant impact on the estimated interest sensitivity gap. While
the Company believes that its assumptions are reasonable, they may not be
indicative of actual future deposit activity, mortgage and mortgage-backed
securities prepayments, and the actual timing of federal agency calls.
Amounts Maturing or Repricing as of December 31, 2000
-------------------------------------------------------------------------------------------
less than 3 3 to 6 6 months to 1 to 2 2 to 3 3 to 5
months months 1 year years years years > 5 yrs. Total
-------------------------------------------------------------------------------------------
(Dollars in thousands)
Interest earning Assets(1)
Short term investments $ 58,448 - - - - - - $ 55,448
Certificates of deposit - $ 104 - - - - - 104
Investment securities(2) 43,125 2,000 $ 19,589 $ 39,531 $ 28,002 $ 1,939 $ 10,778 144,964
Mortgage and assets backed
securities (2) 5,593 9,798 8,563 11,518 7,919 7,335 7,744 58,470
Loans(3) 147,612 50,385 86,045 135,137 135,447 122,272 19,592 696,490
------------------------------------------------------------------------------------------
Total interest earning assets 254,778 $ 62,287 $114,197 $186,186 $171,368 $131,546 $ 38,114 $958,476
==========================================================================================
Interest bearing liabilities
NOW accounts(4) - - - - - - $ 69,101 $ 69,101
Regular savings accounts - - - - - - 51,864 51,864
Money market accounts(5) $330,297 - - - - - - 330,297
Certificate of deposit accounts 55,843 $ 56,681 $ 82,493 $ 88,747 $ 16,808 $ 8,049 - 308,621
Borrowed funds 520 5,521 958 4,813 2,309 5,783 16,007 35,911
------------------------------------------------------------------------------------------
Total interest bearing liabilities $386,660 $ 62,202 $ 83,451 $ 93,560 $ 19,117 $ 13,832 $136,972 $795,794
==========================================================================================
Interest sensitivity gap (131,882) 85 30,746 92,626 152,251 117,714 (98,858)
Cumulative interest sensitivity gap (131,882) (131,797) (101,051) (8,425) 143,826 261,540 162,682
Cumulative interest sensitivity gap
as a percent of total assets -13.13% -13.12% -10.06% -0.84% 14.32% 26.03% 16.19%
Cumulative interest sensitivity gap
as a percent of total interest
earning assets -13.76% -13.75% -10.54% -0.88% 15.01% 27.29% 16.97%
Cumulative interest-earning assets
as a percentage 65.89% 70.64% 81.02% 98.65% 122.30% 139.70% 120.44%
<FN>
- --------------------
<F1> Interest-earning assets are included in the period in which the
balances are expected to be redeployed and/or repriced as a result of
anticipated prepayments, scheduled rate adjustments and contractual
maturities.
<F2> Debt securities are presented at amortized cost.
<F3> For the purposes of the gap analysis, allowances for loan losses and
deferred loan fees have been excluded.
<F4> NOW accounts also include appreciation checking and are included in
the over five year column.
<F5> Treasury Index and Real Savings accounts are included in 3 months or
less.
</FN>
33
MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
On April 11, 2000, Port Financial Corp. received regulatory approval
to complete its offering of common stock in connection with the conversion
of Cambridgeport Mutual Holding Company to a stock holding company. Port
Financial Corp.'s common stock began trading on the Nasdaq National Market
on April 12, 2000.
Port's common stock is traded under the symbol "PORT." At December
29, 2000, the last trading date in 2000's fiscal year, its common stock
closed at $17.6875. At March 9, 2001, there were 7,442,818 shares of Port
Financial Corp.'s common stock outstanding, which were held of record by
approximately 2,205 stockholders, not including persons or entities who
hold the stock in nominee or "street" name through various brokerage firms.
The Company's cash dividend payout policy is frequently reviewed by
management and the Board of Directors. The Board of Directors considers
paying dividends, dependent on the results of operations and financial
condition of Port, tax considerations, industry standards, economic
conditions, regulatory restrictions and other factors. Port's ability to
pay dividends also may depend on the dividends it receives from its
subsidiary, Cambridgeport Bank. Dividends from the Bank are subject to
regulations including the Bank's continued compliance with all regulatory
capital requirements and its overall financial health.
On October 17, 2000, the Board of Directors of Port Financial Corp.
declared a quarterly cash dividend of $.05 per share of common stock, which
was paid on November 20, 2000 to shareholders of record on November 1,
2000. On January 24, 2001, the Board of Directors of Port Financial Corp.
declared another quarterly cash dividend of $.05 per share of common stock,
which was paid on February 21, 2001 to shareholders of record on February
6, 2001.
The table below shows the high and low sales price during the periods
indicated as well as dividends declared per share. The information set
forth in the table below was provided by the Nasdaq Stock Market. Such
information reflects interdealer prices without retail mark-up or mark-
down, and may not represent actual transactions.
- ------------------------------------------------------------------------------
Price Range
-------------------
For the Fiscal Year Ended December 31, 2000 High Low Dividends
- ------------------------------------------------------------------------------
Fourth Quarter ended December 31, 2000 $17.6875 $15.75 $.05
- ------------------------------------------------------------------------------
Third Quarter ended September 30, 2000 18.25 13.375 N/A
- ------------------------------------------------------------------------------
Second Quarter ended June 30, 2000 (1) 13.875 10.75 N/A
- ------------------------------------------------------------------------------
<FN>
- --------------------
<F1> Second quarter data is for the period from April 12, 2000 to June 30,
2000.
</FN>
34
PORT FINANCIAL CORP. AND SUBSIDIARY
INDEX TO CONSOLIDATE FINANCIAL STATEMENTS
Page
Report of Independent Public Accountants F-1
Consolidated Balance Sheets as of
December 31, 2000 and 1999 F-2
Consolidated Statements of Operations for the
Years Ended December 31, 2000, 1999 and 1998 F-3
Consolidated Statements of Changes in stockholders' equity
For the Years Ended December 31, 2000, 1999 and 1998 F-4
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2000, 1999 and 1998 F-5
Notes to Consolidated Financial Statements F-6 - 35
All schedules are omitted because they are not required or applicable, or
the required information is shown in the financial statements or notes
thereto.
Report of Independent Public Accountants
To the Shareholders and Board of Directors of
Port Financial Corp:
We have audited the accompanying consolidated balance sheets of Port
Financial Corp. and subsidiaries (collectively, the Company) as of December
31, 2000 and 1999 and the related consolidated statements of operations,
changes in stockholders' equity and cash flows for each of the three years
in the 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 auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall 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 Port Financial Corp. and its subsidiaries as of December 31,
2000 and 1999 and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 2000, in conformity
with accounting principles generally accepted in the United States.
/s/ Arthur Andersen LLP
Boston, Massachusetts
January 22, 2001
F-1
PORT FINANCIAL CORP.
Consolidated Balance Sheets
(in thousands)
December 31,
--------------------------
Assets 2000 1999
--------------------------
Cash and Cash Equivalents:
Cash and due from banks $ 11,819 $ 16,594
Federal funds sold 36,680 -
Other cash equivalents 21,768 2,835
--------------------------
Total cash and cash equivalents 70,267 19,429
Certificates of Deposit 104 5,149
Investment Securities Held to Maturity,
at amortized cost (Note 2) 22,332 -
Investment Securities Available for Sale,
at fair value (Note 2) 181,196 131,647
Loans Held-for-Sale 823 -
Loans, net (Notes 1 and 3) 687,382 577,029
Federal Home Loan Bank Stock, at cost (Note 7) 4,951 4,452
Savings Bank Life Insurance Stock, at cost 1,934 1,934
Banking Premises and Equipment, net (Note 4) 23,649 11,782
Accrued Interest Receivable 6,131 4,054
Other Assets (Notes 5 and 11) 5,900 7,265
--------------------------
Total assets $1,004,669 $ 762,741
==========================
Liabilities and Stockholders' Equity
Liabilities:
Deposits (Note 6) $ 806,021 $ 618,288
Federal Home Loan Bank Advances (Note 7) 35,801 55,891
Mortgagors' Escrow Payments 3,801 3,031
Accrued Expenses and Other Liabilities
(Notes 8 and 11) 6,993 6,401
--------------------------
Total liabilities 852,616 683,611
--------------------------
Commitments and Contingencies
(Notes 8, 9 and 12)
Stockholders' Equity (Note 10):
Preferred stock, $0.01 par value-
Authorized-5,000,000 shares
Issued and outstanding-no shares - -
Common stock, $0.01 par value-
Authorized-30,000,000 shares
Issued and outstanding-7,725,553 shares
at December 31, 2000 77 -
Additional paid-in capital 76,281 -
Unearned compensation-Recognition and
retention plan (4,304) -
Unearned compensation-ESOP (7,277) -
Retained earnings 82,750 77,221
Accumulated other comprehensive income 4,526 1,909
--------------------------
Total stockholders' equity 152,053 79,130
--------------------------
Total liabilities and stockholders'
equity $1,004,669 $ 762,741
==========================
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
PORT FINANCIAL CORP.
Consolidated Statements of Operations
(in thousands)
Years Ended December 31,
---------------------------------
2000 1999 1998
---------------------------------
Interest and Dividend Income:
Interest on loans $49,355 $40,366 $37,374
Interest and dividends on investment securities 11,505 8,462 10,023
Interest on other cash equivalents 1,423 735 787
Interest on certificates of deposit 115 408 472
---------------------------------
Total interest and dividend income 62,398 49,971 48,656
---------------------------------
Interest Expense:
Interest on deposits 30,737 23,420 24,318
Interest on borrowed funds 1,966 2,286 1,562
---------------------------------
Total interest expense 32,703 25,706 25,880
---------------------------------
Net interest income 29,695 24,265 22,776
Provision for Possible Loan Losses (Note 3) 916 740 1,760
---------------------------------
Net interest income after provision for possible
loan losses 28,779 23,525 21,016
---------------------------------
Noninterest Income:
Customer service fees 1,062 862 726
(Loss) gain on sales of investment securities, net
(Note 2) (603) - 61
Gain on sales of loans, net 274 599 1,143
Loan servicing fee income 496 416 656
Other income 1,330 1,182 985
---------------------------------
Total noninterest income 2,559 3,059 3,571
---------------------------------
Noninterest Expenses:
Compensation and employee benefits (Note 11) 12,361 10,748 9,489
Occupancy and equipment expenses (Note 4 and Note 9) 3,554 3,205 3,507
Data processing service fees 1,588 1,435 1,279
Marketing and investor relations 1,124 1,014 903
Other noninterest expenses 3,663 3,218 2,864
---------------------------------
Total noninterest expenses 22,290 19,620 18,042
---------------------------------
Income before provision for income taxes 9,048 6,964 6,545
Provision for Income Taxes (Note 8) 3,147 2,190 2,357
---------------------------------
Net income $ 5,901 $ 4,774 $ 4,188
=================================
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
PORT FINANCIAL CORP.
Consolidated Statements of Changes in Stockholders' Equity
for the Years Ended December 31, 2000, 1999 and 1998
(in thousands)
Accumulated
Additional Other Unearned
Common Paid-In Retained Comprehensive Compensation Comprehensive
Stock Capital Earnings Income ESOP/RRP Total Income
--------------------------------------------------------------------------------------
Balance, December 31, 1997 $ $ $68,259 $ 2,813 $ $ 71,072 $
Net income 4,188 - 4,188 4,188
Change in unrealized gains on
securities available for sale,
net of taxes of $458 867 867 867
Less-Reclassification of securities
gains included in net income, net of
taxes of $22 - - - (39) - (39) (39)
------------------------------------------------------------------------------------
Balance, December 31, 1998 72,447 3,641 76,088 $ 5,016
=======
Net income 4,774 - 4,774 $ 4,774
Change in unrealized losses on
securities available for sale,
net of taxes of $992 - - - (1,732) - (1,732) (1,732)
------------------------------------------------------------------------------------
Balance, December 31, 1999 77,221 1,909 79,130 $ 3,042
=======
Net income 5,901 - 5,901 $ 5,901
Issuance of stock less stock
offering costs (of $2.6 million) 74 71,746 71,820
Change in unrealized gains on
securities available for sale,
net of taxes of $1,273 2,227 2,227 2,227
Reclassification of securities losses
included in net income, net of taxes
of $213 390 390 390
ESOP unearned compensation:
Acquisition of shares (7,514) (7,514)
Amortization of unearned compensation 50 237 287
RRP unearned compensation:
Grant of RRP stock awards 3 4,485 (4,488) -
Amortization of unearned compensation 184 184
Cash dividend-$0.05 per share - - (372) - - (372)
------------------------------------------------------------------------------------
Balance, December 31, 2000 $77 $76,281 $82,750 $ 4,526 $(11,581) $152,053 $ 8,518
====================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
PORT FINANCIAL CORP.
Consolidated Statements of Cash Flows
(in thousands)
Years Ended December 31,
---------------------------------------
2000 1999 1998
---------------------------------------
Cash Flows from Operating Activities:
Net income $ 5,901 $ 4,774 $ 4,188
Adjustments to reconcile net income to net cash
provided by operating activities-
Provision for possible loan losses 916 740 1,760
Depreciation and amortization 1,479 1,214 1,353
Amortization of premiums on investment securities, net 156 123 353
Net (gain) loss from sales of investment securities 603 - (61)
Gain on loan sales, net (274) (599) (1,143)
Gain on pension plan curtailment (448) - -
Increase in cash surrender value (10) (435) (657)
Proceeds from sale of loans 24,761 44,897 88,175
Loans originated for sale (25,310) (40,456) (90,629)
Decrease (increase) in other assets 1,375 (1,185) (523)
(Increase) decrease in accrued interest receivable (2,077) (22) 442
(Decrease) increase in deferred loan fees (112) (108) 152
Increase (decrease) in accrued expenses and other
liabilities 592 (643) (384)
---------------------------------------
Net cash provided by operating activities 7,552 8,300 3,026
---------------------------------------
Cash Flows from Investing Activities:
Proceeds from sales, maturities and principal repayment
of securities available for sale 53,642 53,600 85,825
Purchase of securities available for sale (99,863) (43,264) (68,484)
Proceeds from sales, maturities and principal repayment
of securities held to maturity 2,653 - -
Purchase of securities held to maturity (24,969) - -
Proceeds from maturities of certificates of deposit 5,228 5,107 6,603
Purchase of certificates of deposit (183) (4,356) (402)
Purchase of FHLB stock (499) (573) (817)
Purchase of premises and equipment (13,346) (7,381) (1,252)
Loan originations, net (111,824) (84,235) (76,836)
Recoveries of loans previously charged-off 100 115 10
---------------------------------------
Net cash used in investing activities (189,061) (80,987) (55,353)
---------------------------------------
Cash Flows from Financing Activities:
(Decrease) increase in certificates of deposit (19,811) 18,424 (3,695)
Increase in demand deposits, NOW accounts and savings
accounts 207,544 34,446 51,315
Increase in mortgagors' escrow payments 770 374 98
(Decrease) increase to borrowings (20,090) 28,825 5,462
Net proceeds on stock offering 71,820 - -
Cash dividends (372) - -
ESOP purchase (7,514) - -
---------------------------------------
Net cash provided by financing activities 232,347 82,069 53,180
---------------------------------------
Net Increase in Cash and Cash Equivalents (Note 1) 50,838 9,382 853
Cash and Cash Equivalents, beginning of year 19,429 10,047 9,194
---------------------------------------
Cash and Cash Equivalents, end of Year $ 70,267 $ 19,429 $ 10,047
=======================================
Supplemental Disclosures of Cash Flow Information:
Cash paid for interest $ 32,488 $ 25,511 $ 25,890
=======================================
Cash paid for income taxes $ 3,547 $ 3,070 $ 2,143
=======================================
Supplemental Noncash Investing Activities:
Loans securitized into mortgage-backed investments $ - $ - $ 1,584
=======================================
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
PORT FINANCIAL CORP.
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
(1) Summary of Significant Accounting Policies
Basis of Presentation
Port Financial Corp. (Port or the Company) is a Massachusetts-chartered
stockholding company, which owns all of the capital stock of Cambridgeport
Bank. As part of its conversion, the Company converted from a Massachusetts-
chartered mutual holding company, Cambridgeport Mutual Holding Company, to a
Massachusetts-chartered stockholding company and changed its name to Port
Financial Corp. Port sold 7,442,818 shares of its common stock to its
eligible depositors, management, employees and to the Company's Employee
Stock Ownership Plan (ESOP). Net proceeds of the stock offering were $71.8
million. The conversion and stock offering were completed on April 11, 2000.
The accompanying consolidated financial statements include the accounts of
the Company and its two wholly owned subsidiaries, Cambridgeport Bank
(collectively, the Bank) and Brighton Investment Corporation. Cambridgeport
Bank has three wholly owned subsidiaries, Temple Investment Corporation,
River Investment Corporation and Cambridgeport Insurance Services, Inc.
Temple Investment Corporation and River Investment Corporation both engage
in securities investment activities. Cambridgeport Insurance Services, Inc.
was established in April 2000 and intends to provide insurance. In addition,
Cambridgeport Bank is the sole member of Temple Realty, LLC, which was
formed to own the land and the building of Cambridgeport Bank's new
administrative center. Brighton Investment Corporation also engages in
securities investment activities. All significant intercompany balances and
transactions have been eliminated in the accompanying consolidated financial
statements.
Certain reclassifications have been made to the 1999 and 1998 consolidated
financial statements to conform to the 2000 presentation. Such
reclassifications have no effect on previously reported consolidated net
income.
Use 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
disclosures of contingent assets and liabilities as of the date of the
financial statements and the reported amounts of income and expenses during
the reporting periods. Actual results could differ from those estimates.
Statements of Cash Flows
For purposes of the consolidated statements of cash flows, cash and cash
equivalents include cash and due from banks, federal funds sold and
overnight deposits with maturities of one day and investments in the highly
liquid Bank Investment Fund.
F-6
Investment Securities
Debt securities that the Bank has the positive intent and ability to hold to
maturity are classified as held-to-maturity and are reported at cost,
adjusted for amortization of premiums and accretion of discounts, using the
effective-yield method. Debt and equity securities that are bought and held
principally for the purpose of selling in the near term are classified as
trading and reported at fair value, with unrealized gains and losses
included in earnings. The Bank has no securities classified as trading. Debt
and equity securities not classified as either held-to-maturity or trading
are classified as available-for-sale and reported at fair value, with
unrealized gains and losses excluded from earnings and reported as a
separate component of other comprehensive income, which is included in
retained earnings, net of the related taxes. The Bank classifies its
securities based on the Bank's intention at the time of purchase.
Unrealized losses that are determined to be other than temporary declines in
value are charged to operations. When securities are sold, the adjusted cost
of the specific security sold is used to compute gains or losses on the
sale.
Loans Held-for-Sale
Loans held-for-sale are carried at the lower of the recorded loan balance or
market value based on prevailing market conditions and commitments from
institutional investors to purchase such loans. The amount by which cost
exceeds market value is reflected in a valuation allowance, with subsequent
increases or decreases in market value charged or credited to the valuation
allowance and reflected in operations in the period in which they occur.
There were no adjustments required for unrealized losses at December 31,
2000 and 1999.
Loans, Deferred Fees and the Allowance for Possible Loan Losses
Loans are stated at the amount of unpaid principal, reduced by amounts due
to borrowers on unadvanced loans, net deferred loan fees and the allowance
for possible loan losses.
It is the policy of the Bank to discontinue the accrual of interest on loans
when, in the judgment of management, the ultimate collectibility of
principal or interest becomes doubtful. It is the general policy of the Bank
to discontinue the accrual of interest on loans delinquent in excess of 90
days. When a loan is placed on nonaccrual status, all interest previously
accrued is reversed against current-period interest income. Interest
received on nonaccrual loans is either applied against principal or reported
as income on the cash basis based on management's judgment as to the
collectibility of principal.
Deferred loan origination fees and certain deferred loan origination costs
are amortized over the contractual life of the related loan using the
interest method or taken into income at the time the loans are sold. At
December 31, 2000 and 1999, the Bank had net deferred loan fees of
approximately $226,000 and $338,000, respectively.
F-7
The allowance for possible loan losses is maintained at a level considered
adequate to provide for potential loan losses. The allowance is increased by
provisions charged to operations and realized losses, net of recoveries, are
charged directly to the allowance. The provision and the level of the
allowance are based on management's periodic review of the composition of
the loan portfolio in light of historical experience and prevailing economic
conditions. The allowance is an estimate, and ultimate losses may vary from
current estimates. As adjustments become necessary, they are reported in the
results of operations in the period in which they become known.
Loans are considered impaired when it is probable that the Bank will not be
able to collect principal, interest and fees according to the contractual
terms of the loan agreement. Management considers the payment status, net
worth and earnings potential of a borrower, as well as the value and related
cash flow derived from the collateral as factors to evaluate whether a loan
will be paid in accordance with its contractual terms. The amount judged to
be impaired is the difference between the present value of the expected
future cash flows discounted at the loan's original contractual effective
interest rate and the net carrying amount of the loan. If foreclosure on a
collateralized loan is probable, impairment is measured based on the fair
value of the collateral compared to the carrying value. If appropriate, a
valuation reserve is established to recognize the difference between the
carrying value and the fair value. Impaired loans are charged off when
management believes that the collectibility of the loan's principal is
doubtful. The Bank considers nonaccrual loans, except for smaller-balance
homogenous residential and consumer loans, to be impaired. All impaired
loans are classified as nonaccrual.
Loan Servicing
The Bank recognizes a servicing asset or a servicing liability upon the
purchase or origination of loans and the sale or securitization of those
loans with servicing retained. The amount capitalized is based on the
allocation of the total cost of the loans to the servicing rights and the
loans without the servicing rights based on their relative fair values. The
cost of mortgage servicing rights is amortized in proportion to, and over
the period of, estimated net servicing revenues. Impairment of mortgage
servicing rights is assessed based on the fair value of those rights. Fair
values are estimated using discounted cash flows based on a current market
interest rate. For purposes of measuring impairment, the rights are
stratified based on predominant risk characteristics including loan type,
maturity date and interest rate. The amount of impairment recognized is the
amount by which the capitalized mortgage servicing rights for a particular
stratum exceed their fair value.
Banking Premises and Equipment
Land is stated at cost. Banking premises, leasehold improvements and
furniture, fixtures and equipment are stated at cost, less accumulated
depreciation and amortization. Construction-in-progress represents
expenditures at cost and capitalized interest, which is calculated using the
average construction costs for the period and the Bank's average borrowing
rate. Depreciation and amortization are primarily computed by use of the
straight-line method over the estimated useful lives of the respective
assets or the terms of the respective leases, if shorter. The cost of
F-8
maintenance and repairs is charged to expense as incurred; major
expenditures for betterments are capitalized and depreciated.
Income Taxes
Deferred tax assets and liabilities are computed based on the difference
between the financial statement and income tax bases of assets and
liabilities using currently enacted tax rates. As changes in tax laws or
rates are enacted, deferred tax assets and liabilities are adjusted through
the provision for income taxes.
Earnings per Share
Earnings per share is not presented for the years ended December 31, 2000,
1999 and 1998 because the earnings per share calculation for the period
prior to April 11, 2000 (the date of conversion to a stock company) is not
meaningful. Prior to April 11, 2000, the Company was a mutual holding
company and no stock was outstanding.
Basic earnings per share is computed by dividing net income by the weighted
average number of shares of common stock outstanding during the period
presented. Diluted earnings per share is computed in a manner similar to
that of basic earnings per share except that the weighed average number of
common shares outstanding is increased to include the number of additional
common shares that would have been outstanding if contracts to issue common
stock for stock options and stock awards were exercised during the period
using the treasury stock method. ESOP shares committed to be released are
considered outstanding while unallocated common shares held by the ESOP are
not included in the weighted average number of common shares outstanding for
either basic or diluted earnings per share calculations.
Recent Accounting Developments
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities,
establishes accounting and reporting standards requiring that every
derivative instrument (including certain derivative instruments embedded in
other contracts) be recorded on the balance sheet as either an asset or a
liability measured at its fair value. The statement requires that changes in
the derivative's fair value be recorded currently in income unless specific
hedge accounting criteria is met. Special accounting for qualifying hedges
allows a derivative's gains or losses to offset related results of the
hedged item in the statement of income and requires that a company formally
document, designate and assess the effectiveness of transactions that
receive hedge accounting. SFAS No. 133, as amended by SFAS No. 137, Deferral
of the Effective Date of FASB Statement No. 133, and SFAS No. 138, An
Amendment of Statement 133, is effective for all fiscal quarters of all
fiscal years beginning after June 15, 2000.
As of December 31, 2000, the Bank had commitments outstanding to fund
mortgage loans, which will be sold to third parties subsequent to
origination as required under contracts. These commitments to fund mortgage
loans and the agreements to subsequently sell such loans to third parties
qualify as derivative instruments under SFAS No. 133. However, recognition
of these derivative instruments upon the
F-9
adoption of SFAS No. 133 did not have a material impact on the Company's
financial position or results of operations.
In September 2000, the FASB issued SFAS No. 140, Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities. This
statement replaces SFAS No. 125, Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities, and rescinds SFAS No.
127, Deferral of the Effective Date of Certain Provisions of FASB Statement
No. 125. SFAS No. 140 provides accounting and reporting standards for
transfers and servicing of financial assets and extinguishments of
liabilities. This statement provides consistent standards for distinguishing
transfers of financial assets that are sales from transfers that are secured
borrowings. This statement is effective for transfers and servicing of
financial assets and extinguishments of liabilities occurring after March
31, 2001 and is effective for recognition and reclassification of collateral
and for disclosures relating to securitization transactions and collateral
for fiscal years ending after December 15, 2000. The Bank has not yet
quantified the impact of adopting SFAS No. 140 on its consolidated financial
statements; however, the Bank does not expect that the adoption of this
statement will have a material impact on its consolidated financial position
or results of operations.
(2) Investment Securities
The amortized cost and fair value of securities classified as available-for-
sale at December 31, 2000 and 1999 are as follows (in thousands):
December 31, 2000
------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized
Cost Gains Losses Fair Value
------------------------------------------------
U.S. Treasury and agency obligations $ 51,123 $ 309 $ (5) $ 51,427
Other bonds and notes 66,112 750 (3) 66,859
Mortgage-backed securities 45,126 439 (129) 45,436
Collateralized mortgage obligations 10,012 66 - 10,078
-----------------------------------------------
Total debt securities 172,373 1,564 (137) 173,800
Marketable equity securities 1,844 5,593 (41) 7,396
-----------------------------------------------
Total securities available-for-sale $174,217 $7,157 $(178) $181,196
===============================================
F-10
December 31, 1999
------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized
Cost Gains Losses Fair Value
------------------------------------------------
U.S. Treasury and agency obligations $ 53,986 $ - $(1,625) $ 52,361
Other bonds and notes 27,887 15 (197) 27,705
Mortgage-backed securities 45,517 42 (508) 45,051
Collateralized mortgage obligations - - - -
------------------------------------------------
Total debt securities 127,390 57 (2,330) 125,117
Marketable equity securities 1,381 5,149 - 6,530
------------------------------------------------
Total securities available-for-sale $128,771 $5,206 $(2,330) $131,647
===============================================
A schedule of the maturity distribution of debt securities available-for-
sale at December 31, 2000 is as follows (dollars in thousands):
Amortized Percent of
Cost Total Fair Value
------------------------------------
One year or less $ 20,109 11.7% $ 20,115
Over 1 year to 5 years 88,141 51.1 89,001
Over 5 years to 10 years 26,995 15.7 27,361
Over 10 years 37,128 21.5 37,323
-----------------------------------
Total $172,373 100.0% $173,800
===================================
The amortized cost and fair value of securities classified as held to-
maturity at December 31, 2000 are as follows (in thousands):
December 31, 2000
------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized
Cost Gains Losses Fair Value
------------------------------------------------
U.S. Treasury and agency obligations $19,000 $ 30 $(11) $19,019
Mortgage-backed securities 3,332 91 - 3,423
----------------------------------------------
Total securities held-to-maturity $22,332 $121 $(11) $22,442
==============================================
F-11
A schedule of the maturity distribution of debt securities held-to-maturity
at December 31, 2000 is as follows (dollars in thousands):
Amortized Percent of
Cost Total Fair Value
------------------------------------
One year or less $ - 0.0% $ -
Over 1 year to 5 years 12,000 53.7 12,004
Over 5 years to 10 years 7,000 31.4 7,015
Over 10 years 3,332 14.9 3,423
----------------------------------
Total $22,332 100.0% $22,442
==================================
Actual maturities of mortgage-backed securities may differ from contractual
maturities presented because borrowers have the right to prepay obligations
without incurring prepayment penalties.
Proceeds from the sales of investment securities and related gross gains and
gross losses for the years ended December 31, 2000, 1999 and 1998 were as
follows (in thousands):
Year Ended December 31,
----------------------------
2000 1999 1998
----------------------------
Proceeds from sales $35,393 $ - $9,280
Gross gains 10 - 95
Gross losses 613 - 34
(3) Loans
The Bank's lending activities are conducted principally in Massachusetts.
The Bank grants single-family and multifamily residential loans, commercial
real estate loans, commercial loans and a variety of consumer loans. In
addition, the Bank grants loans for the construction of residential homes,
multifamily properties and commercial real estate properties. Most loans
granted by the Bank are collateralized by real estate. The ability and
willingness of the single-family residential and consumer borrowers to honor
their repayment commitments is generally dependent on the level of overall
economic activity within the borrowers' geographic areas and real estate
values. The ability and willingness of the commercial real estate,
commercial and construction loan borrowers to honor their repayment
commitments is generally dependent on the health of the real estate economic
sector in the borrowers' geographic areas and the general economy.
F-12
The Bank's loan portfolio consisted of the following (in thousands):
December 31,
----------------------
2000 1999
----------------------
Real estate loans-
Residential $353,518 $297,709
Commercial 241,325 212,833
Home equity lines of credit 82,885 62,458
Construction 11,458 3,716
----------------------
Total real estate loans 689,186 576,716
Commercial 1,083 1,348
Consumer 5,172 6,046
----------------------
Total loans 695,441 584,110
Less-Allowance for possible loan losses 8,059 7,081
----------------------
Total loans, net $687,382 $577,029
======================
F-13
An analysis of the allowance for possible loan losses is as follows (in
thousands):
2000 1999 1998
------------------------------
Balance, beginning of year $7,081 $6,633 $4,907
------------------------------
Provision for possible loan losses 916 740 1,760
------------------------------
Charge-offs-
Real estate - - -
Consumer (38) (407) (44)
------------------------------
(38) (407) (44)
------------------------------
Recoveries-
Real estate - 5 5
Commercial - 107 -
Consumer 100 3 5
------------------------------
100 115 10
------------------------------
Net (charge-offs) recoveries 62 (292) (34)
------------------------------
Balance, end of year $8,059 $7,081 $6,633
==============================
Nonaccrual loans consisted of the following (in thousands):
December 31,
--------------
2000 1999
--------------
Residential real estate $ - $ 32
Consumer loans 134 96
--------------
$134 $128
==============
If these loans had been paying in accordance with their original contractual
terms, approximately $7,000 and $7,000 of additional interest income would
have been recorded in 2000 and 1999, respectively. There are no commitments
to extend additional credit on these loans.
During 2000 and 1999, the average recorded investment in impaired loans was
$115,000 and $161,000, respectively, and no income was recognized related to
the impaired loans. At December 31, 2000 and 1999, the Bank classified
approximately $134,000 and $128,000, respectively, as impaired loans. These
impaired loans did not, in the opinion of the Bank's management, require a
related valuation reserve.
F-14
In the ordinary course of business, the Bank has granted loans to directors
and officers at substantially the same terms and conditions as those
prevailing at the time of origination for comparable transactions with other
borrowers. In the opinion of management, these loans do not involve more
than normal risk of collectibility. The aggregate amount of these loans was
approximately $976,000 and $659,000 at December 31, 2000 and 1999,
respectively. None of these loans were on nonaccrual status during 2000 and
1999.
(4) Banking Premises and Equipment
A summary of the cost and accumulated depreciation and amortization of
banking premises and equipment and their estimated useful lives is as
follows (in thousands):
December 31,
--------------------- Estimated
2000 1999 Useful Life
--------------------------------------
Land $ 2,847 $ 47
Banking premises and leasehold improvements 20,852 5,954 30-39 years
or lease term
Furniture, fixtures and equipment 4,250 2,457 3-10 years
Construction-in-Progress - 6,832
--------------------
27,949 15,290
Less-Accumulated depreciation and amortization 4,300 3,508
--------------------
$23,649 $11,782
====================
Depreciation and amortization expense of banking premises and equipment for
the years ended December 31, 2000, 1999 and 1998 amounted to approximately
$1,479,000, $1,214,000 and $1,353,000, respectively, and is included in
occupancy and equipment expenses in the accompanying consolidated statements
of operations.
In February 1999, the Bank entered into an agreement with a developer for
the construction of a new administrative center that was completed in May
2000. Port and certain administrative and operation departments of the Bank
are located in this new building. The cost of the land and building was
$17.4 million, of which $14.5 million was borrowed from the Federal Home
Loan Bank. The Bank occupies approximately 42,000 square feet of the 74,000-
square-foot building and tenants under long-term leases occupy the remainder
of the building.
For the years ended December 31, 2000 and 1999, the Bank capitalized
approximately $478,000 and $129,000, respectively, of interest associated
with the construction.
F-15
(5) Loan Servicing
Loans serviced for other investors amounted to approximately $180,401,000
and $192,363,000 at December 31, 2000 and 1999, respectively. There are no
formal recourse provisions related to these loans.
During 2000 and 1999, mortgage servicing rights capitalized amounted to
zero. Amortization of mortgage servicing rights for the years ended December
31, 2000, 1999 and 1998 were approximately $27,000, $158,000 and $203,000,
respectively. No adjustment was required in 2000, 1999 and 1998 to reduce
the mortgage servicing assets to fair value.
(6) Deposits
A summary of deposit balances, by type, is as follows (in thousands):
December 31,
----------------------
2000 1999
----------------------
Demand deposit accounts $ 46,138 $ 29,777
NOW accounts 69,101 44,429
Regular savings accounts 51,864 53,346
Money market accounts 330,297 162,304
----------------------
Total noncertificate accounts 497,400 289,856
----------------------
Term certificates-
Term certificates less than $100,000 250,662 267,327
Term certificates of $100,000 and over 57,959 61,105
----------------------
Total term certificate accounts 308,621 328,432
----------------------
Total deposits $806,021 $618,288
======================
F-16
A schedule of the maturity distribution of term certificates with weighted
average interest rates is as follows (dollars in thousands):
December 31,
---------------------------------------------
2000 1999
---------------------------------------------
Weighted Weighted
Average Average
Interest Interest
Amount Rate Amount Rate
---------------------------------------------
Within 1 year $195,017 5.73% $269,579 4.91%
Over 1 to 2 years 88,747 6.32% 46,420 5.41%
Over 2 to 3 years 16,808 6.54% 9,954 5.56%
Over 3 to 5 years 8,049 6.31% 2,479 5.40%
-------------------------------------------
$308,621 5.96% $328,432 5.00%
===========================================
(7) Federal Home Loan Bank Advances
Federal Home Loan Bank (FHLB) advances are collateralized by a blanket-type
pledge agreement on the Bank's FHLB stock, certain qualified investment
securities, deposits at the FHLB and first mortgages on residential
property. As a member of the FHLB, the Bank is required to invest in stock
of the FHLB at an amount equal to 1% of its outstanding first mortgage
residential loans, 0.3% of total assets or 5% of its outstanding advances
from the FHLB, whichever is higher. As and when such stock is redeemed, the
Bank will receive from the FHLB an amount equal to the par value of the
stock. The Bank also has access to a preapproved daily line of credit of
$11,003,000. Under this line of credit, there were no funds advanced as of
December 31, 2000 and December 31, 1999.
A schedule of the maturity distribution of FHLB advances with weighted
average interest rates is as follows (dollars in thousands):
December 31,
---------------------------------------------
2000 1999
---------------------------------------------
Weighted Weighted
Average Average
Interest Interest
Amount Rate Amount Rate
---------------------------------------------
Within 1 year $ 5,000 7.07% $36,900 5.83%
Over 1 to 5 years 3,320 7.00% - -
Over 5 to 10 years 13,515 6.17% 4,642 6.79%
10 years and over 13,966 6.19% 14,349 6.19%
------------------------------------------
$35,801 6.38% $55,891 6.00%
==========================================
The Bank may be subject to a substantial penalty upon prepayment of FHLB
advances.
F-17
(8) Income Taxes
The components of the provision for income taxes for the years ended
December 31 are as follows (in thousands):
2000 1999 1998
------------------------------
Current-
Federal $3,204 $2,187 $2,843
State 391 189 421
------------------------------
Total current 3,595 2,376 3,264
------------------------------
Prepaid-
Federal (384) (156) (679)
State (64) (30) (228)
------------------------------
Total prepaid (448) (186) (907)
------------------------------
Total $3,147 $2,190 $2,357
==============================
The difference between the income tax rate computed by applying the
statutory federal income tax rate of 34% to income before income taxes and
the actual effective income tax rate is summarized as follows:
2000 1999 1998
--------------------------
Statutory rate 34.0% 34.0% 34.0%
Increase (decrease) resulting from-
State taxes, net of federal benefit 2.4 1.5 2.7
Dividends-received deduction (0.7) (1.1) (1.0)
Tax credits (0.4) (0.5) (1.6)
Other, net (0.5) (2.4) 1.9
--------------------------
34.8% 31.5% 36.0%
==========================
The primary items giving rise to the temporary differences included in the
Bank's net deferred tax asset between year ends are the allowance for
possible loan losses, certain unfunded employee benefit accruals, unrealized
gains and losses on available-for-sale securities, deferred loan origination
fees and depreciation. A valuation allowance is provided when it is more
likely than not that some portion of the deferred tax asset will not be
realized.
F-18
At December 31, the Bank's net deferred tax asset consisted of the following
components (in thousands):
2000 1999
------------------
Deferred Tax Assets-
Allowance for possible loan losses $3,299 $2,898
Supplemental pension 794 781
Pension 517 620
Depreciation 539 534
Other 530 256
------------------
5,679 5,089
------------------
Deferred Tax Liabilities-
Net unrealized gain on securities available
for sale 2,456 967
Limited partnership 2,312 2,175
Other 27 22
------------------
4,795 3,164
------------------
Net deferred tax assets $ 884 $1,925
==================
In August 1996, Congress passed the Small Business Job Protection Act of
1996. Included in this bill was the repeal of Internal Revenue Code Section
593, which allowed thrift institutions special provisions in calculating bad
debt deductions for income tax purposes. Thrift institutions are viewed as
commercial banks for income tax purposes. The repeal is effective for tax
years beginning after December 31, 1995.
One effect of this legislative change is to suspend the Bank's bad debt
reserve for income tax purposes as of its base year (December 31, 1987). Any
bad debt reserve in excess of the base year amount is subject to recapture
over a six-year time period. The suspended (i.e., base year) amount is
subject to recapture upon the occurrence of certain events, such as a
complete or partial redemption of the Bank's stock or if the Bank ceases to
qualify as a bank for income tax purposes.
At December 31, 2000, the Bank's retained earnings include approximately
$4,420,000 of bad debt reserves, representing the base year amount, for
which income taxes have not been provided. Since the Bank does not intend to
use the suspended bad debt reserve for purposes other than to absorb the
losses for which it was established, deferred taxes in the amount of
$1,800,000 have not been recorded with respect to such reserve.
F-19
(9) Commitments and Contingencies
In the normal course of business, there are outstanding commitments and
contingencies that are not reflected in the consolidated financial
statements. On October 11, 2000, the Bank entered into a Master Commitment
to deliver or sell $10,000,000 in residential mortgage loans to a federal
agency on or before September 30, 2001. At December 31, 2000, the
unfulfilled portion that remained to be delivered under this commitment was
approximately $9,530,000.
The Bank acquired a portion of its furniture, fixtures and equipment under
various capital leases that expire through 2002. As of December 31, 2000,
capital lease obligations amounted to approximately $111,000 and are
included in accrued expenses and other liabilities.
The Bank operates branch offices and certain other operations under leases
that are classified as operating leases. The leases contain renewal options
that guarantee the Bank the right to extend the leases for additional
periods and also provide that the Bank shall pay, as additional rent, a
proportionate share of any increase in real estate taxes. At December 31,
2000, future minimum lease payments are as follows:
Year ending December 31,
2001 $ 938,000
2002 766,000
2003 684,000
2004 590,000
2005 435,000
Thereafter 1,867,000
----------
Total minimum lease payments $5,280,000
==========
The operating leases contain renewal options for periods ranging from one to
15 years, the cost of which is not included above. Rental expense amounted
to approximately $1,051,000, $1,116,000 and $1,061,000 for the years ended
December 31, 2000, 1999 and 1998, respectively, and is included in occupancy
and equipment expenses in the accompanying consolidated statements of
operations.
Aggregate reserves (in the form of deposits with the Federal Reserve Bank
and vault cash) of $3,795,000 and $13,379,000 were maintained to satisfy
regulatory requirements at December 31, 2000 and 1999, respectively.
In the ordinary course of business, the Bank is involved in litigation.
Based on its review of current litigation and discussion with legal counsel,
management does not expect that the resolution of such matters will have a
material adverse effect upon the Bank's consolidated financial condition or
results of operations.
(10) Regulatory Matters
The Bank is 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 Bank's financial statements.
F-20
Under capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Bank must meet specific capital guidelines that
involve quantitative measures of the Bank's assets, liabilities and certain
off-balance-sheet items, as calculated under regulatory accounting practices.
The Bank's capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weightings
and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the
table below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined) and Tier 1 capital (as defined) to average
assets (as defined). Management believes, as of December 31, 2000, that the
Company and the Bank met all capital adequacy requirements to which they are
subject.
As of December 31, 2000, the most recent notification from the Federal
Reserve Bank of Boston relating to the Company classified the Company's
capital as satisfactory, and the most recent notification from the FDIC
relating to the Bank categorized the Bank as well-capitalized under the
regulatory framework for prompt corrective action. To be categorized as
well-capitalized, an insured depository institution 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 as of
December 31, 2000 and 1999 are also presented in the table.
To Be Well Capitalized
Under Prompt
For Capital Corrective Action
Actual Adequacy Purposes Provisions
--------------------------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
--------------------------------------------------------------------------------
(dollars in thousands)
As of December 31, 2000:
Company (consolidated)-
Total capital (to risk-weighted assets) $157,451 26.50% > or = $47,538 > or = 8.0% N/A N/A
Tier 1 capital (to risk-weighted assets) $147,517 24.83% > or = $23,769 > or = 4.0% N/A N/A
Tier 1 capital (to average assets) $147,517 15.37% > or = $38,401 > or = 4.0% N/A N/A
Bank-
Total capital (to risk-weighted assets) $ 99,519 17.46% > or = $45,587 > or = 8.0% > or = $56,983 > or = 10.0%
Tier 1 capital (to risk-weighted assets) $ 92,385 16.21% > or = $22,793 > or = 4.0% > or = $34,190 > or = 6.0%
Tier 1 capital (to average assets) $ 92,385 10.13% > or = $36,489 > or = 4.0% > or = $45,611 > or = 5.0%
F-21
As of December 31, 1999:
Company (consolidated)-
Total capital (to risk-weighted assets) $ 85,057 19.29% > or = $35,279 > or = 8.0% N/A N/A
Tier 1 capital (to risk-weighted assets) $ 77,208 17.51% > or = $17,639 > or = 4.0% N/A N/A
Tier 1 capital (to average assets) $ 77,208 10.42% > or = $29,638 > or = 4.0% N/A N/A
Bank-
Total capital (to risk-weighted assets) $ 57,453 13.40% > or = $34,288 > or = 8.0% > or = $42,860 > or = 10.0%
Tier 1 capital (to risk-weighted assets) $ 52,074 12.15% > or = $17,144 > or = 4.0% > or = $25,716 > or = 6.0%
Tier 1 capital (to average assets) $ 52,074 7.28% > or = $28,626 > or = 4.0% > or = $35,782 > or = 5.0%
(11) Employee Benefits
Pension Plan
The Bank provides pension benefits for eligible employees through the
Savings Banks Employees' Retirement Association's (SBERA) Pension Plan (the
Plan). Each employee reaching the age of 21 and having completed one year of
service becomes a participant. All participants are fully vested after three
years of service.
According to the Plan's actuary, and in accordance with SFAS No. 132,
Employers' Disclosures About Pensions and Other Postretirement Benefits, the
following summary sets forth the Plan's funded status and amounts included
in the Bank's consolidated balance sheets as of October 31, 2000 and 1999
(latest available data):
2000 1999
--------------------
(in thousands)
Benefit obligation at beginning of year $ 4,130 $ 4,292
Service cost 413 420
Interest cost 320 290
Actuarial gain (446) (714)
Benefits paid (161) (158)
--------------------
Benefit obligation at end of year $ 4,256 $ 4,130
====================
F-22
Fair value of assets at beginning of year $ 5,265 $ 4,232
Actual return on plan assets 776 825
Contributions by employer 0 366
Benefits paid (161) (158)
--------------------
Fair value of assets at end of year $ 5,880 $ 5,265
====================
Fair value of assets at end of year $ 5,880 $ 5,265
Benefit obligation at end of year 4,256 4,130
--------------------
Funded status 1,624 1,135
Unrecognized net gain (2,666) (2,406)
Unrecognized net asset (222) (244)
--------------------
Net accrued benefit cost $(1,264) $(1,515)
====================
The accumulated benefit obligation (substantially all vested) at October 31,
2000 and 1999 amounts to approximately $4,256,000 and $3,003,000,
respectively. Plan assets are primarily invested in fixed-income and equity
securities.
Actuarial assumptions used in determining plan obligations and net pension
expense are as follows:
2000 1999 1998
--------------------------
Discount rate used to calculate projected
benefit obligation 7.75% 6.75% 7.3%
Expected long-term rate of return on plan
assets 8.0% 8.0% 8.0%
Annual salary increase 4.5% 4.5% 5.0%
The net pension cost for years ended 2000, 1999 and 1998 included the
following components (in thousands):
2000 1999 1998
---------------------------
Service cost benefit earned during the period $ 413 $ 420 $ 366
Interest cost on projected benefit obligation 320 290 279
Expected return on plan assets (421) (339) (302)
Amortization of transition asset (22) (22) (22)
Amortization of net gain (93) (46) (47)
---------------------------
Net pension cost $ 197 $ 303 $ 274
===========================
F-23
In September 2000, the Board of Directors voted to freeze benefits under the
SBERA Plan effective October 31, 2000 and to terminate the SBERA plan on or
about March 1, 2001. In connection with this decision, the SBERA Plan was
also amended to improve the benefit formula for current employees and permit
payment of lump sums.
As a result of the decision to terminate the SBERA Plan, the Bank
recognized, in non-interest income, a curtailment gain of $448,000 in 2000,
representing the difference between the estimated benefit obligation and the
accumulated benefit obligation at the effective date of termination. Upon
receipt of all necessary regulatory approvals and settlement of SBERA Plan
obligations that are expected to occur in the third quarter of 2001, the
Bank will also recognize a settlement gain of approximately $1,400,000 (net
of related taxes).
Effective December 1, 1987, the Bank adopted a nonqualified supplemental
pension plan (the Nonqualified Plan). Certain officers as of December 1,
1987 were eligible for enrollment. In addition, certain officers elected
after December 1, 1987 were eligible for enrollment after five years of
service. The present value of the future payments was accrued over the
estimated remaining terms of employment. Net expense for these supplemental
retirement benefits for the year ended December 31, 1998 was approximately
$126,000 and is included in compensation and employee benefits in the
accompanying consolidated statements of operations.
Effective May 4, 1999, the Bank terminated the Nonqualified Plan and paid
out the majority of participants. Included in noninterest expense for the
year ended December 31, 1999 is a $578,000 curtailment loss associated with
this Nonqualified Plan termination. Effective May 4, 1999, the Bank adopted
a 1999 Nonqualified Pension Plan (the 1999 Nonqualified Plan) for certain
executive officers. The accrued liability associated with this 1999
Nonqualified Plan for the periods ended December 31, 2000 and 1999 was
approximately $1,833,000 and $1,697,000, respectively. The net expense
associated with the 1999 Nonqualified Plan for the years ended December 31,
2000 and 1999 was approximately $136,000 and $145,000, respectively and is
included in compensation and employee benefits in the accompanying
consolidated statements of operations.
The Nonqualified Plan is being funded through a life insurance program, with
policy benefits accruing to the Bank. The cash surrender value of the
policies was approximately $4,052,000 and $4,042,000 at December 31, 2000
and 1999, respectively, and is included in other assets in the accompanying
consolidated balance sheets.
The Bank offers a SBERA 401(k) Plan (the 401(k) Plan) for employees. Each
employee reaching the age of 21 and having completed one year of service
with the Bank becomes a participant. Participants are 100% vested in their
accounts. Participating employees are able to contribute up to 15% of their
salary, and the Bank matches 100% of a participant's deferral contribution
of the first 3% of the deferral amount subject to the maximum allowable
under federal regulations. The Bank's matching contribution expense was
approximately $175,000, $78,000 and $77,000 for the years ended December 31,
2000, 1999 and 1998, respectively, and is included in compensation and
employee benefits in the accompanying consolidated statements of operations.
F-24
Employee Stock Ownership Plan
In connection with the Company's conversion from mutual to stock form and
initial public offering, the Company established an Employee Stock Ownership
Plan that acquired 8% or 595,425 shares at an average price of $12.62 per
share. The purchase of the shares by the ESOP was funded by a loan of
$7,514,000 from the Company. The loan is to be repaid over 30 years in equal
yearly installments of $645,754. Interest on the loan is fixed at 8.00%. The
loan is secured by the unallocated shares of the ESOP. The Company intends
to allocate shares annually over the term of the loan.
ESOP expense is recorded when shares are committed to be released for
allocation to the employees account and is based on the average market value
of the Company's common stock at the time, which may differ from the average
purchase price of those shares. Such changes in market value impact the
Bank's results of operations but have no impact on stockholders' equity.
At December 31, 2000, the ESOP held unallocated shares with an aggregate
cost of $7,277,000 and a market value of $9,137,000. For the year ended
December 31, 2000, $287,000 was charged to compensation and employee benefit
expense respectively, based on a commitment to release 19,848 shares to
employees.
The ESOP Restoration Plan
In 2000, the Company also implemented a plan to provide payments to certain
executives who are prevented from receiving the full benefits contemplated
by the ESOP's benefit formula. The payments consist of payments in lieu of
shares that cannot be allocated to participants under the ESOP due to the
limitations imposed on tax-qualified plans and, in the case of participants
who retire before the repayment in full of the ESOP's loan, payments in lieu
of the shares that would have been allocated if employment had continued
through the full term of the loan. For the year ended December 31, 2000 the
Company recognized expense of $128,000.
Stock Option Plan
The Company adopted the Stock Option Plan, which was approved by
shareholders in October 2000, for officers, key employees and directors. The
Stock Option plan is authorized to grant options to purchase up to 744,282
shares. As of December 31, 2000, 658,750 options have been granted with a
weighted average exercise price of $15.88, representing the fair market
values on the dates the options were granted. Stock options vest at a rate
of 20% per year and no option has a term that is longer than 10 years.
Recognition and Retention Plan
The Company adopted the Recognition and Retention Plan, which was approved
by shareholders' in October 2000. The Recognition and Retention Plan is
authorized to issue up to 297,713 shares of restricted stock of which
282,735 shares have been awarded. Each award will vest at a rate of 20% per
year. For the year ended December 31, 2000, the Company recognized
compensation expense of $184,000.
F-25
Compensation expense is based on the market price of $15.875 on the grant
date and the five-year vesting period.
(12) Financial Instruments with Off-Balance-Sheet Risk
and Concentration of Credit Risk
The Bank is party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its customers
and to reduce interest rate risk. These financial instruments primarily
include commitments to extend credit.
These instruments involve, to varying degrees, elements of credit and
interest rate risk in excess of the amounts recognized in the accompanying
consolidated balance sheets.
The contract amounts of those instruments reflect the extent of involvement
the Bank has in particular classes of financial instruments. The Bank's
exposure to credit loss in the event of nonperformance by the other party to
the financial instrument for commitments to extend credit is represented by
the contractual amount of those instruments. The Bank uses the same credit
policies in making commitments as it does for on-balance-sheet financial
instruments.
Off-balance-sheet financial instruments whose contract amounts present
credit risk include the following (in thousands):
December 31,
----------------------
2000 1999
----------------------
Commitments to originate loans-
Variable $ 14,235 $ 22,758
Fixed 6,813 4,061
Unadvanced home equity lines of credit 148,295 124,063
Unadvanced lines of credit 20,085 11,231
Commitments to originate loans and unadvanced lines of credit 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 Bank evaluates each customer's creditworthiness on a case-
by-case basis. The amount of collateral obtained, if deemed necessary by the
Bank upon extension of credit, is based on management's credit evaluation of
the borrower. The collateral supporting these commitments varies and may
include real property, accounts receivable or inventory. The Bank originates
primarily residential and commercial real estate loans and, to a lesser
extent, installment loans to customers primarily located in eastern
Massachusetts.
F-26
(13) Fair Values of Financial Instruments
The reported fair values of financial instruments are based on a variety of
valuation techniques. In some cases, fair values represent quoted market
prices for identical or comparable instruments. In other cases, fair values
have been estimated based on assumptions concerning the amount and timing of
estimated future cash flows, assumed discount rates reflecting varying
degrees of risk and future expected-loss assumptions.
Fair value estimates are made at a specific point in time based on relevant
market information and information about the financial instrument. These
estimates do not reflect any premium or discount that could result from
offering for sale at one time the Bank's entire holdings of a particular
financial instrument. Because a market may not readily exist for a
significant portion of the Bank's financial instruments, fair value
estimates are based on judgments regarding future expected loss experience,
current economic conditions, risk characteristics of various financial
instruments and other factors.
These estimates are subjective in nature and involve uncertainties and
matters of significant judgment and, therefore, cannot be determined with
precision. Changes in assumptions could significantly affect these
estimates.
Fair value estimates are based on existing on- and off-balance-sheet
financial instruments without attempting to estimate the value of
anticipated future business and the value of assets and liabilities that are
not considered financial instruments. In addition, the tax implications of
unrealized gains and losses can also have a significant effect on the fair
value of the financial instruments that could have been realized as of
December 31, 2000 and 1999 or that will be realized in the future.
The following methods and assumptions were used by the Bank in estimating
fair values of the Bank's financial instruments.
Cash and Cash Equivalents
The balance sheet carrying amounts for cash and cash equivalents approximate
fair value due to the short maturities of those instruments.
Certificates of Deposit and Investment Securities
Fair value for investment securities and certificates of deposit are based
on published market prices, if available. If published market prices are not
available, fair values are based on quotations received from securities
dealers for comparable securities.
Loans Held for Sale
For loans held for sale, fair value is based on prevailing market conditions
and commitments from institutional investors to purchase such loans.
F-27
Loans
The fair values of loans are estimated for loan portfolios of similar
characteristics. Loans are segregated by type, by fixed- and adjustable-rate
interest terms and by performing and nonperforming status.
For variable-rate loans tied to the Bank's prime rate, which reprice
frequently and entail no significant change in credit risk, fair values are
based on the carrying values. The estimated fair values of all other loans
are estimated based on discounted cash flow analyses using interest rates
currently offered for loans with similar terms to borrowers of similar
credit quality. The carrying amount of accrued interest approximates its
fair value.
FHLB and Savings Bank Life Insurance Stock
The carrying amount reported in the accompanying consolidated balance sheets
approximates fair value. If redeemed, the Company will receive an amount
equal to the par value of the stock.
Mortgage Servicing Rights
The fair value is estimated by discounting the future cash flows through the
estimated maturity of the underlying mortgage loans.
Deposit Liabilities
The fair value of deposits does not include the value of the Bank's long-
term relationships with its depositors nor do they reflect the value
associated with possessing this relatively inexpensive source of funds,
which may be available for a considerable length of time. The fair value of
noncertificate deposits is equal to the amount payable on demand at the
reporting date. The fair values of certificates of deposit are estimated by
discounting the contractual future cash flows at rates currently offered for
certificates of deposit with similar remaining maturities. No consideration
has been given to determine the deposit premium associated with a core
deposit intangible.
Borrowings
The fair value of the Bank's borrowings are estimated using discounted cash
flow analyses based on the Bank's current incremental borrowing rates for
similar types of borrowing arrangements.
Off-Balance-Sheet Instruments
The fair values of commitments are estimated using the fees charged to enter
into similar agreements, taking into account the remaining terms of the
agreements and the present creditworthiness of the counterparties. The
Bank's commitments for unused lines of credit are at floating rates, which
approximate current market rates. The fair value of the commitments to
extend credit and for unused lines of credit at December 31, 2000 and 1999
were deemed immaterial to the SFAS No. 107 disclosure and have been
excluded.
F-28
Certain assets are excluded from disclosure requirements, including banking
premises and equipment, the intangible value of the Bank's portfolio of
loans serviced for others and the intangible value inherent in the Bank's
deposit relationships among others. Accordingly, the aggregate fair value
amounts presented below do not represent the underlying value of the Bank.
The estimated fair values of the Bank's financial instruments at December
31, 2000 and 1999 are as follows:
2000 1999
---------------------------------------------------
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
---------------------------------------------------
(in thousands)
Financial assets-
Cash and cash equivalents $ 70,267 $ 70,267 $ 19,429 $ 19,429
Certificates of deposit 104 104 5,149 5,170
Investment securities 203,528 203,638 131,647 131,647
Loans held-for-sale 823 823 - -
Loans, net 687,382 690,336 577,029 571,050
Federal Home Loan Bank stock 4,951 4,951 4,452 4,452
Savings Bank Life Insurance stock 1,934 1,934 1,934 1,934
Mortgage servicing rights 99 99 126 126
Financial liabilities-
Noncertificate deposits 497,400 497,400 289,856 289,856
Certificate deposits 308,621 309,965 328,432 329,595
FHLB Advances 35,801 36,242 55,891 54,109
F-29
(14) Condensed Parent Company Financial Statements
The Balance Sheets of the Company are as follows (in thousands):
December 31,
----------------------
2000 1999
----------------------
Assets:
Cash and due from banks $ 12,516 $ 1,576
ESOP loan 7,206 -
Investment in subsidiary 139,578 77,037
Other assets 30 559
----------------------
Total assets $159,330 $ 79,172
======================
Liabilities and stockholders' equity:
Accrued expenses and other liabilities $ - $ 42
Stockholders' equity 159,330 79,130
----------------------
Total liabilities and stockholders' equity $159,330 $ 79,172
======================
F-30
The Statements of Operations of the Company are as follows (in thousands):
Years Ended December 31,
------------------------------
2000 1999 1998
------------------------------
Interest and Dividend Income:
Interest and dividends on investment securities $ 246 $1,565 $1,557
Interest on ESOP loan 339 - -
------------------------------
Total income 585 1,565 1,557
------------------------------
Noninterest Expense:
Other operating expenses 628 49 46
------------------------------
Total noninterest expense 628 49 46
------------------------------
(Loss) income before provision for income
taxes and equity in undistributed net
income of subsidiary (43) 1,516 1,511
------------------------------
(Benefit) provision for Income Taxes (15) 492 495
------------------------------
(Loss) income before equity in undistributed
net income of subsidiary (28) 1,024 1,016
Equity in Undistributed Net Income of Subsidiary 5,929 3,750 3,172
------------------------------
Net income $5,901 $4,774 $4,188
==============================
F-31
The Statements of Cash Flows of the Company are as follows (in thousands):
Years Ended December 31,
---------------------------------
2000 1999 1998
---------------------------------
Cash Flows from Operating Activities:
Net income $ 5,901 $ 4,774 $ 4,188
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities-
Net amortization of premiums on investment securities - 20 12
Equity in undistributed earnings of subsidiary (5,929) (3,750) (3,172)
Net (decrease) increase on other liabilities (42) 2 (3)
Net decrease (increase) in other assets 528 (454) 4
---------------------------------
Net cash provided by operating activities 458 592 1,029
---------------------------------
Cash Flows from Investing Activities:
Proceeds from sales, maturities and principal repayments
of securities available-for-sale - 10,050 8,500
Purchase of securities available-for-sale - (11,692) (8,389)
Investment in subsidiaries (53,760) - -
Net advance on ESOP loan (7,206) - -
---------------------------------
Net cash (used in) provided by investing activities (60,966) (1,642) 111
---------------------------------
Cash Flows from financing Activities:
Proceeds of stock offering, net 71,820 - -
Cash dividends (372) - -
---------------------------------
Net cash provided by financing activities 71,448 - -
---------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents 10,940 (1,050) 1,140
Cash and Cash Equivalents, beginning of year 1,576 2,626 1,486
---------------------------------
Cash and Cash Equivalents, end of year $12,516 $ 1,576 $ 2,626
=================================
F-32
(15) Business Segments
SFAS No. 131, Disclosures About Segments of an Enterprise and Related
Information, establishes standards for reporting segments of a business
enterprise. Operating segments are components of an enterprise, which are
evaluated regularly by the chief operating decision maker in deciding how to
allocate resources and in assessing performance. The Company's chief
operating decision maker is the President and Chief Executive Officer. The
adoption of SFAS No. 131 did not have a material effect on the Company's
primary financial statements, but did result in the disclosure of segment
information contained herein. The Company has identified its reportable
operating business segment as community banking based on products and
services provided to the customer. The Company's community banking business
segments consist of commercial banking and retail banking. The community
banking business segment derives its revenues from a wide range of banking
services, including lending activities, acceptance of demand, saving and
time deposits, mortgage lending and sales and servicing income from
investors. Nonreportable operating segments of the Company's operations that
do not have similar characteristics to the community banking operations and
do not meet the quantitative thresholds requiring disclosure are included in
the Other category in the disclosure of business segments below. These
nonreportable segments include Parent Company financial information.
Consolidation adjustments are included in the consolidation adjustments
category. The consolidated adjustments reflect certain eliminations of cash
and Parent Company investments in subsidiaries.
The accounting policies used in the disclosure of business segments are the
same as those described in the summary of significant accounting policies.
Community Consolidation
Banking Other Adjustments Consolidated
--------------------------------------------------------
dollars in thousands
December 31, 2000:
Investment securities available for sale
and held to maturity $167,482 $ 46,226 $ (10,180) $ 203,528
Loans, net 687,382 7,206 (7,206) 687,382
Total assets 954,555 162,990 (112,876) 1,004,669
Total deposits(1) 809,822 - - 809,822
Total liabilities 860,030 2,178 (9,592) 852,616
Total interest and dividend income 59,367 3,438 (407) 62,398
Total interest expense 33,110 - (407) 32,703
Net interest income 26,257 3,438 - 29,695
Provision for possible loan losses 916 - - 916
Total non-interest income 2,656 (97) - 2,559
Total non-interest expense 21,656 634 - 22,290
Net income 4,139 1,762 - 5,901
F-33
December 31, 1999:
Investment securities available for sale, at
fair value $104,176 $ 27,471 $ - $ 131,647
Loans, net 577,029 - - 577,029
Total assets 734,468 80,851 (52,578) 762,741
Total deposits(1) 621,319 - - 621,319
Total liabilities 683,566 1,721 (1,676) 683,611
Total interest and dividend income 48,398 1,573 - 49,971
Total interest expense 25,706 - - 25,706
Net interest income 22,692 1,573 - 24,265
Provision for possible loan losses 740 - - 740
Total non-interest income 3,059 - - 3,059
Total non-interest expense 19,571 49 - 19,620
Net income 3,745 1,029 - 4,774
December 31, 1998:
Investment securities available for sale, at
fair value $118,874 $ 25,955 $ - $ 144,829
Loans, net 492,548 - - 492,548
Total assets 650,658 77,768 (50,339) 678,087
Total deposits 568,075 - - 568,075
Total liabilities 601,792 1,680 (1,473) 601,999
Total interest and dividend income 47,099 1,557 - 48,656
Total interest expense 25,880 - - 25,880
Net interest income 21,219 1,557 - 22,776
Provision for possible loan losses 1,760 - - 1,760
Total non-interest income 3,571 - - 3,571
Total non-interest expense 17,996 46 - 18,042
Net income 3,172 1,016 - 4,188
<FN>
- -------------------
<F1> Includes mortgagors' escrow payments
</FN>
F-34
(16) Selected Quarterly Consolidated Financial Information
The following table presents quarterly unaudited financial information of
the Company for 2000 and 1999:
Fourth Third Second First
2000 Quarter Quarter Quarter Quarter
----------------------------------------------
(dollars in thousands)
Total interest and dividend income $17,387 $16,256 $15,057 $13,698
Total interest expense 9,570 8,594 7,339 7,200
Net interest income 7,817 7,662 7,718 6,498
Provision for possible loan losses 250 250 250 166
Net interest income after provision for loan losses 7,567 7,412 7,468 6,332
Total non-interest income 706 736 731 386
Total non-interest expense 6,332 5,593 5,436 4,929
Income before provision for income taxes 1,941 2,555 2,763 1,789
Provision for income taxes 643 875 967 662
Net income $ 1,298 $ 1,680 $ 1,796 $ 1,127
==============================================
Basic and diluted earnings per share $ 0.19 $ 0.24 $ 0.25 $ -
==============================================
Cash dividends per share $ 0.05 $ - $ - $ -
==============================================
Fourth Third Second First
1999 Quarter Quarter Quarter Quarter
----------------------------------------------
(dollars in thousands)
Total interest and dividend income $12,874 $12,321 $12,413 $12,363
Total interest expense 6,762 6,310 6,338 6,296
Net interest income 6,112 6,011 6,075 6,067
Provision for possible loan losses 178 290 132 140
Net interest income after provision for loan losses 5,934 5,721 5,943 5,927
Total non-interest income 736 975 651 697
Total non-interest expense 5,140 5,499 4,524 4,457
Income before provision for income taxes 1,530 1,197 2,070 2,167
Provision for income taxes 363 298 742 787
Net income $ 1,167 $ 899 $ 1,328 $ 1,380
==============================================
F-35
At Cambridgeport Bank
* Customers are our number one priority.
* Each and every employee contributes to the success of our team.
* Exercising financial responsibility is critical to our success.
* We strive to meet the ever-changing needs of the communities we serve.
* Every employee is committed to meeting the sales & service goals of
our organization.
Port Financial Corp.
Executive Officers
James B. Keegan
Chairman and Chief Executive Officer
Jane L. Lundquist
President
Charles Jeffrey
Senior Vice President
Chief Financial Officer and Treasurer
Directors
James B. Keegan
Jane L. Lundquist
Paul R. Corcoran, Jr.
Daniel C. Crane, Esq.
Samuel C. Fleming
William Goldberg, Esq.
Robert D. Happ
Joseph F. O'Connor
Rudolph R. Russo
Thomas H. Niles
Sandra J. Sucher
Lawrence Weber
Port Financial Corp
1380 Soldiers Field Road Brighton, MA 02135-9808
www.portfinancial.net
Inside Cover
PORT FINANCIAL CORP.
STOCKHOLDER INFORMATION
Executive Officers and Directors of the Company
Executive Officers
James B. Keegan Jane L. Lundquist Charles Jeffrey
Chairman and Chief Executive President and Clerk Senior Vice President,
Officer of Port Financial Corp. of Port Financial Corp. Treasurer and Chief Financial
Officer of Port Financial Corp.
Directors
Paul R. Corcoran, Jr. Daniel C. Crane, Esq. Samuel C. Fleming
Owner and President Chief Bar Counsel for Chairman of the Board and
of The Harvard Shop, Inc. the Board of Bar Overseers of Chief Executive Officer of
the Supreme Judicial Court of Decision Resources, Inc.
Massachusetts
William Goldberg, Esq. Thomas H. Niles Robert D. Happ
Attorney with Goldberg Law Director and President Retired as Managing Partner
Office of T.H. Niles Real Estate of KPMG Peat Marwick
Group, Inc.
Joseph F. O'Connor Rudolph R. Russo Sandra J. Sucher
Consultant to the Real Estate Developer and Professor with the Harvard
Charles Stark Draper Consultant Business School's Technology
Laboratory, Inc. and Operations Management
Department
Lawrence Weber
Chairman and Chief Executive
Officer of Allied Communications
Group
Annual Meeting
The annual meeting of shareholders will be held on Wednesday,
May 2, 2001, 9:00 a.m., local time. The meeting will take place at the main
office of Port Financial Corp., located at 1380 Soldiers Field Road,
Brighton, MA 02135.
Common Stock Information
On March 9, 2001, there were 7,442,818 shares of common stock issued
and outstanding and approximately 2,205 stockholders of record, not including
persons or entities holding stock in nominee or street name through brokers
or banks. Port Financial Corp. became a public trading company on
April 11, 2000. Our common stock trades on the Nasdaq National Market under
the symbol "PORT."
Annual Report on Form 10-K
A copy of the Form 10-K as filed with the Securities and Exchange
Commission will be furnished without charge to stockholders upon written
request. Please write to: Jane L. Lundquist, Clerk, Port Financial Corp.,
1380 Soldiers Field Road, Brighton, MA 02135.
Transfer Agent Independent Auditors
Registrar and Transfer Company Arthur Andersen LLP
10 Commerce Drive 225 Franklin Street
Cranford, NJ 07016 Boston, MA 02110
Shareholder Inquires: (800) 368-5948 (617) 330-4000
Counsel Investor Relations
Thacher Proffitt & Wood Port Financial Corp.
1700 Pennsylvania Avenue, NW 1380 Soldiers Field Road
Suite 800 Brighton, MA 02135
Washington, DC 20006 (800) 835-9094
(202) 347-8400
Cover