UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For quarter ended March 31, 2001
--------------
Commission file number 000-23904
---------
SLADE'S FERRY BANCORP
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Massachusetts 04-3061936
- ------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
100 Slade's Ferry Avenue 02726
Somerset, Massachusetts ----------
- ---------------------------------------- (Zip Code)
(Address of principal executive offices)
(508)675-2121
----------------------------------------------------
(Registrant's telephone number, including area code)
Check whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
past 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practical date:
Common stock ($.01 par value) 3,809,078.056 shares as of March 31, 2001.
- ------------------------------------------------------------------------
PART I
ITEM 1
Financial Statements
- --------------------
SLADE'S FERRY BANCORP
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, 2001 December 31, 2000
------------------------------------
(Unaudited)
ASSETS:
Cash and due from banks $ 12,767,644 $ 15,947,182
Money market mutual funds 67,348 113,527
Federal funds sold 14,800,000 12,000,000
--------------------------------
Cash and Cash Equivalents 27,634,992 28,060,709
Investment securities(1) 19,215,498 19,102,496
Securities available for sale(2) 66,678,606 67,993,096
Federal Home Loan Bank stock 1,013,400 1,013,400
Loans (net) 244,952,997 250,848,831
Premises and equipment 6,724,162 6,765,689
Accrued interest receivable 2,266,113 2,351,926
Goodwill 2,343,468 2,400,168
Cash surrender value of life insurance 6,923,785 6,830,918
Other assets 3,072,202 3,252,123
--------------------------------
TOTAL ASSETS $380,825,223 $388,619,356
================================
LIABILITIES & STOCKHOLDERS' EQUITY:
Deposits $329,309,883 $337,000,901
Advances from Federal Home Loan Bank 12,687,725 12,725,908
Other borrowed funds 178,812 1,200,000
Other liabilities 1,901,734 1,965,174
--------------------------------
TOTAL LIABILITIES 344,078,154 352,891,983
--------------------------------
Preferred stockholders' equity in a
subsidiary company 53,000 53,000
--------------------------------
STOCKHOLDERS' EQUITY:
Common stock 38,091 37,895
Paid in capital 26,071,650 25,885,220
Retained earnings 10,936,583 10,371,944
Accumulated other comprehensive loss (352,255) (620,686)
--------------------------------
TOTAL STOCKHOLDERS' EQUITY 36,694,069 35,674,373
--------------------------------
TOTAL LIABILITIES &
STOCKHOLDERS' EQUITY $380,825,223 $388,619,356
================================
<FN>
- --------------------
<F1> Investment securities are to be held to maturity and have a fair
market value of $19,461,228 as of March 31, 2001 and $19,088,080 as
of December 31, 2000.
<F2> Securities classified as Available for Sale are stated at fair value
with any unrealized gains or losses reflected as an adjustment in
Stockholders' Equity.
</FN>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND EXPENSE
(UNAUDITED)
3 MONTHS ENDING MARCH 31,
2001 2000
-------------------------
INTEREST AND DIVIDEND INCOME:
Interest and fees on loans $5,766,499 $5,317,380
Interest and dividends on investments 1,251,616 1,274,982
Other interest 194,642 106,818
-------------------------
Total interest and dividend income 7,212,757 6,699,180
-------------------------
INTEREST EXPENSE:
Interest on deposits 3,104,971 2,797,693
Interest on other borrowed funds 210,314 181,395
-------------------------
Total interest expense 3,315,285 2,979,088
-------------------------
Net interest and dividend income 3,897,472 3,720,092
PROVISION FOR LOAN LOSSES 187,500 150,000
-------------------------
Net interest and dividend income
after provision for loan losses 3,709,972 3,570,092
-------------------------
OTHER INCOME:
Service charges on deposit accounts 204,978 199,052
Security losses, net 0 (4,757)
Other income 201,144 227,564
-------------------------
Total other income 406,122 421,859
-------------------------
OTHER EXPENSE:
Salaries and employee benefits 1,783,102 1,498,463
Occupancy expense 248,791 224,282
Equipment expense 143,542 137,372
Gain on sales of other real estate owned 0 (49,758)
Other expense 681,814 695,177
-------------------------
Total other expense 2,857,249 2,505,536
-------------------------
Income before income taxes 1,258,845 1,486,415
Income taxes 389,480 478,415
-------------------------
NET INCOME $ 869,365 $1,008,000
=========================
Basic earnings per share $ 0.23 $ 0.27
=========================
Diluted earnings per share $ 0.23 $ 0.27
=========================
Basic average shares outstanding 3,803,755 3,714,552
=========================
Diluted average shares outstanding 3,805,580 3,718,012
=========================
Dividends Per Share $ .08 $ .08
=========================
Comprehensive Income(1) $1,137,796 $ 613,457
=========================
<FN>
- --------------------
<F1> Calculated using the change in accumulated other comprehensive
income (loss) for the period and net income for the period.
</FN>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
SLADE'S FERRY BANCORP AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31,
----------------------------
(Unaudited)
Reconciliation of net income to net cash
provided by operating activities: 2001 2000
-----------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 869,365 $ 1,008,000
Adjustments to reconcile net income to
net cash used in operating activities:
Accretion, net of amortization of fair market
value adjustments (2,850) (2,850)
Amortization of goodwill 56,700 56,700
Depreciation and amortization 182,666 171,958
Security losses, net 0 4,757
Provision for loan losses 187,500 150,000
Increase in taxes payable 155,228 512,460
(Increase) decrease in interest receivable 85,813 (272,132)
Increase (decrease) in interest payable (1,157) 26,578
Decrease in accrued expenses (187,112) (472,931)
(Increase) decrease in prepaid expenses 11,370 (13,551)
Accretion of investment securities, net of
amortization (620) (17,285)
Amortization of securities available for sale, net
of accretion 9,783 9,927
Gain on sales of other real estate owned 0 (49,758)
Change in unearned income (46,341) (24,701)
Decrease in other assets (145,250) (161,422)
Increase (decrease) in other liabilities (30,399) 87,660
-----------------------------
Net cash provided by operating activities 1,144,696 1,013,410
-----------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of securities available for sale (13,431,233) (7,652,856)
Maturities of securities available for sale 15,225,305 1,090,963
Sales of securities available for sale 0 2,114,080
Proceeds from sale of other real estate owned 0 402,853
Proceeds from maturities of investment securities 981,617 1,512,853
Purchases of investment securities (1,094,000) (2,890,063)
Net (increase) decrease in loans 5,751,042 (4,777,957)
Capital expenditures (141,138) (38,476)
Recoveries of previously charged-off loans 6,483 104,337
-----------------------------
Net cash provided by (used in) investing
activities 7,298,076 (10,134,266)
-----------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of stock 186,625 227,657
Net increase (decrease) in demand deposits, NOW, money
market and savings accounts (8,600,472) 2,707,176
Net increase in time deposits 909,454 1,542,023
Decrease in other borrowed funds (1,021,188) (179,635)
Dividends paid (304,725) (299,653)
Advances (payments) on Federal Home Loan Bank, net (38,183) 4,967,506
-----------------------------
Net cash provided by (used in) financing activities (8,868,489) 8,965,074
-----------------------------
Net decrease in cash and cash equivalents (425,717) (155,782)
Cash and cash equivalents at beginning of period 28,060,709 21,108,966
-----------------------------
Cash and cash equivalents at end of period $ 27,634,992 $ 20,953,184
=============================
SUPPLEMENTAL DISCLOSURES:
Loans originating from sales of Other Real
Estate Owned $ 0 $ 259,000
Interest paid $ 3,316, 442 $ 2,952,510
Income taxes paid $ 234,252 $ 34,045
Loans transferred to Other Real Estate Owned $ 0 $ 0
The accompanying notes are an integral part of these condensed
consolidated financial statements.
SLADE'S FERRY BANCORP AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2001
Note A - Basis of Presentation
- ------------------------------
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information and the instructions to Form 10-Q and,
accordingly, do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial
statements. In the opinion of the management of Slade's Ferry Bancorp (the
"Company"), all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three months ended March 31, 2001 are not necessarily
indicative of the results that may be expected for the year ending December
31, 2001.
The year-end condensed balance sheet data was derived from audited
financial statements, but does not include all disclosures required by
generally accepted accounting principles.
Note B - Accounting Policies
- ----------------------------
The accounting principles followed by Slade's Ferry Bancorp and subsidiary
and the methods of applying these principles which materially affect the
determination of financial position, results of operations, or changes in
financial position are consistent with those used at year end 2000.
The consolidated financial statements of Slade's Ferry Bancorp include its
wholly-owned subsidiary, Slade's Ferry Trust Company, and its subsidiaries,
the Slade's Ferry Realty Trust, the Slade's Ferry Securities Corporation,
Slade's Ferry Preferred Capital Corporation, and Slade's Ferry Loan
Company. All significant intercompany balances have been eliminated.
Note C - Impact of New Accounting Standard
- ------------------------------------------
In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities". Statement No. 133, as amended by SFAS
No. 138, establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts and for hedging activities. The Statement is effective for all
fiscal quarters of fiscal years beginning after June 15, 2000. The Company
adopted this Statement as of January 1, 2001. In management's opinion, the
adoption of SFAS No. 133 did not have a material effect on the Company's
consolidated financial statements.
Note D - Accounting for Transfers and Servicing of Financial Assets and
- -----------------------------------------------------------------------
Extinguishments of Liabilities
- ------------------------------
FASB has 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 Statement 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; however, the disclosure
provisions are effective for fiscal years ending after December 15, 2000.
The Company has not yet quantified the remaining provisions effective in
2001; however, the Company does not expect that the adoption of this
statement will have a material impact on its financial position or results
of operations.
ITEM 2
Management's Discussion and Analysis
- ------------------------------------
Financial Condition
- -------------------
Assets at March 31, 2001 decreased by $7.8 Million to $380.8 Million from
$388.6 Million reported at December 31, 2000. During the first quarter of
2001, loan demand slowed as a result of the economic downturn. This
combined with amortization of the existing loan portfolio during the three
months ending March 31, 2001, resulted in a decrease in our net loans of
$5.9 Million. The combined investment portfolio decreased by $1.2 Million
from $87.1 Million reported as of December 31, 2000 to $85.9 Million at
March 31, 2001. The decrease in our loan and investment portfolios
combined with the use of available cash and cash equivalents provided the
liquidity to fund the withdrawals in our deposits of $7.7 Million. The
decrease in deposits from $337.0 Million at December 31, 2000 to $329.3
Million reported as of March 31, 2001 was a result of normal seasonal
changes in our transaction accounts, combined with higher deposit balances
maintained by our local municipalities, due to collection of tax revenues
during the fourth quarter of 2000. These funds which are generally utilized
by the municipalities and runoff prior to year end, remained on deposit
through December 31, 2000, and were withdrawn during the first quarter of
2001.
The investment portfolio represents the second largest component of the
Company's assets and consists of securities in the Available-for-Sale
category and securities in the Held-to-Maturity category. The designation
of which category the security is to be classified as is determined at the
time of the purchase of the investment instrument.
The Held-to-Maturity category consists predominately of securities of U.S.
Treasury, U.S. Government corporation and agencies, and securities issued
by states of the United States and political subdivisions of states. The
Company has the positive intent and ability to hold these securities to
maturity. In managing the Held-to-Maturity portfolio, the Company seeks to
maximize its return and maintain consistency to meet short and long term
liquidity forecasts by purchasing securities with maturities laddered
within a short-term period of 1-3 years, a mid-term period of 3-5 years,
and some securities extending out to 10 years. The Company does not
purchase investments with off-balance sheet characteristics, such as swaps,
options, futures, and other hedging activities that are called derivatives.
The main objective of the investment policy is to provide adequate
liquidity to meet reasonable declines in deposits and any anticipated
increases in the loan portfolio, to provide safety of principal and
interest, to generate earnings adequate to provide a stable income and to
fit within the overall asset/liability management objectives of the
Company.
Investment Securities are securities that the Company will hold to maturity
and are carried at amortized cost on the balance sheet, and are summarized
as follows as of March 31, 2001.
Gross Gross
Amortized Unrealized Unrealized
(Dollars in Thousands) Cost Basis Holding Gains Holding Losses Fair Value
- ----------------------------------------------------------------------------------------------------------
Debt securities issued by the U. S.
Treasury and other U. S.
Government corporations and
agencies $ 6,746 $ 77 $--- $ 6,823
Debt securities issued by states of the
United States and political
subdivisions of the states 12,411 183 14 12,580
Mortgage-backed securities 57 --- --- 57
Other debt securities 1 --- --- 1
- ----------------------------------------------------------------------------------------------------------
$19,215 $260 $ 14 $19,461
==========================================================================================================
Securities in the Available-for-Sale category are securities that the
Company intends to hold for an indefinite period of time, but not
necessarily to maturity. These securities may be sold in response to
interest rate changes, liquidity needs or other factors. Any unrealized
gains or losses, net of taxes, are reflected in Stockholders' Equity as a
separate component.
Investment in Available-for-Sale securities are carried at fair value on
the balance sheet and are summarized as follows as of March 31, 2001.
Gross Gross
Amortized Unrealized Unrealized
(Dollars in Thousands) Cost Basis Holding Gains Holding Losses Fair Value
- ------------------------------------------------------------------------------------------------------
Debt securities issued by the U. S.
Treasury and other U. S.
Government corporations and
agencies $31,646 $213 $ 35 $31,824
Corporate Bonds 1,992 42 --- 2,034
Marketable Equity 4,468 236 1,171 3,533
Mortgage-backed securities 29,055 264 31 29,288
- ------------------------------------------------------------------------------------------------------
$67,161 $755 $1,237 $66,679
======================================================================================================
Decrease to Stockholders' Equity:
(In Whole Dollars)
Unrealized loss on Available-for-Sale Securities $481,978
Less tax effect 153,866
--------
Net unrealized loss on Available-for-Sale Securities $328,112
========
The Available-for-Sale category at March 31, 2001 had net unrealized
losses, net of taxes of $328,112 of which $272,957 are net unrealized gains
(net of tax) attributed to securities of U.S. Treasury, other U.S.
Government corporations and agencies, corporate bonds, and mortgage-backed
securities and $601,069 are net unrealized losses (net of tax) attributable
to marketable equity securities.
Securities of U.S. Treasury, U.S. Government corporations and agencies, and
mortgage-backed securities have little or no credit risk, other than being
sensitive to changes in interest rates; and if held-to-maturity, these
securities will mature at par. The Company amortizes premiums and accretes
discounts over the life of the security.
Marketable equity securities, however, have a greater risk as they are
subject to rapid market fluctuations. These securities are constantly
monitored and evaluated to determine their suitability for sale or
retention in the portfolio. Management minimizes its risk by limiting the
total amount invested into marketable equity securities to 6% of the total
investment portfolio. At March 31, 2001, the amount invested in marketable
equity securities was 5.2% of the total investment portfolio distributed
over various business sectors.
INFORMATION WITH RESPECT TO NONACCRUAL AND PAST DUE LOANS
AT MARCH 31, 2001 AND 2000 AND DECEMBER 31, 2000 AND 1999
At March 31, At December 31,
- -----------------------------------------------------------------------------------------------
(Dollars in Thousands) 2001 2000 2000 1999
- -----------------------------------------------------------------------------------------------
Nonaccrual Loans $ 2,263 $ 1,481 $ 2,415 $ 1,777
Loans 90 days or more past due and still
accruing 181 162 335 248
Real estate acquired by foreclosure
or substantively repossessed 0 0 0 353
Percentage of nonaccrual loans to total loans 0.90% 0.60% 0.94% 0.73%
Percentage of nonaccrual loans and real estate
acquired by foreclosure or substantively
repossessed to total assets 0.59% 0.40% 0.64% 0.74%
Percentage of allowance for loan losses
to nonaccrual loans 218.02% 266.45% 197.76% 211.92%
The $2.3 Million in nonaccrual loans consists of $1.8 Million of real
estate mortgages and $.5 Million attributed to commercial loans. There are
no restructured loans included in nonaccrual loans as of March 31, 2001.
The Company's nonperforming assets as a total decreased to $2.4 Million at
March 31, 2001, from $2.8 Million reported on December 31, 2000. The
Company considers nonaccrual loans, loans past due 90 days or more but
still accruing, and real estate acquired by foreclosure or substantively
repossessed as nonperforming assets. Nonaccrual loans which is the largest
component of nonperforming assets decreased by $152,000 during the first
quarter. Loans 90 day or more but still accruing decreased by $154,000
during the current quarter.
The percentage of nonaccrual loans to total loans decreased from 0.94%
reported at year end to 0.90% at March 31, 2001 due to a decrease in the
nonaccrual category. The percentage of nonaccrual loans and real estate
acquired by foreclosure or substantively repossessed to total assets
decreased due to the decrease in nonaccrual loans.
INFORMATION WITH RESPECT TO INTEREST ON NONACCRUAL AND PAST DUE
LOANS AT MARCH 31, 2001 AND 2000 AND DECEMBER 31, 2000 AND 1999
At March 31, At December 31,
- -----------------------------------------------------------------------------------------
(Dollars in Thousands) 2001 2000 2000 1999
- -----------------------------------------------------------------------------------------
Nonaccrual Loans $2,263 $1,481 $2,415 $1,777
Interest income that would have been recorded
under original terms 60 31 228 146
Interest income recorded during the period 14 3 22 37
The Company stops accruing interest on a loan once it becomes past due 90
days or more unless there is adequate collateral and the financial
condition of the borrower is sufficient. When a loan is placed on a
nonaccrual status, all previously accrued but unpaid interest is reversed
and charged against current income. Interest is thereafter recognized only
when payments are received and the loan becomes current.
Loans in the nonaccrual category will remain until the possibility of
collection no longer exists, the loan is paid off or becomes current. When
a loan is determined to be uncollectible, it is then charged off against
the Allowance for Loan Losses.
Statement of Financial Accounting Standards No. 114 "Accounting by
Creditors for Impairment of a Loan" applies to all loans except large
groups of smaller-balance homogeneous loans that are collectively evaluated
for impairment, loans measured at fair value or at a lower of cost or fair
value, leases, and debt securities as defined in Statement 115. Statement
114 requires that impaired loans be valued at the present value of expected
future cash flows discounted at the loan's effective interest rate or as a
practical expedient, at the loan's observable market value of the
collateral if the loan is collateral dependent. Smaller balance
homogeneous loans are considered by the Company to include consumer
installment loans and credit card loans.
Included in the $2,263,140 in nonaccrual loans are $2,245,915 which the
Company has determined to be impaired, for which there is a related
allowance for credit losses of $304,857. Management is not aware of any
other loans that pose a potential credit risk or where the loans are
current but the borrowers are experiencing financial difficulty.
There were no other loans classified for regulatory purposes at March 31,
2001 that management reasonably expects will materially impact future
operating results, liquidity or capital resources.
ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES
Three Months Years Ended
At March 31, At December 31,
- ------------------------------------------------------------------------------------
(Dollars in Thousands) 2001 2000 2000 1999
- ------------------------------------------------------------------------------------
Balance at January 1 $4,776 $3,766 $3,766 $3,569
- ------------------------------------------------------------------------------------
Charge-offs:
Commercial (30) (73) (194) (221)
Real estate - construction 0 0 0 (0)
Real estate - mortgage 0 0 (23) (23)
Installment/consumer (6) (2) (138) (158)
- ------------------------------------------------------------------------------------
(36) (75) (355) (402)
- ------------------------------------------------------------------------------------
Recoveries:
Commercial 4 78 50 11
Real estate - construction 0 0 0 0
Real estate - mortgage 0 16 92 24
Installment/consumer 2 10 23 14
- ------------------------------------------------------------------------------------
6 104 165 49
- ------------------------------------------------------------------------------------
Net (Charge-offs) Recoveries (30) 29 (190) (353)
- ------------------------------------------------------------------------------------
Additions charged to operations 188 150 1,200 550
- ------------------------------------------------------------------------------------
Balance at end of period $4,934 $3,945 $4,776 $3,766
====================================================================================
Ratio of net (charge-offs) recoveries to
average loans outstanding (.012%) .012% (0.08%) (0.15%)
The Allowance for Loan Losses at March 31, 2001 was $4,933,702, compared to
$4,776,360 at year end 2000. The Allowance for Loan Losses as a percentage
of outstanding loans was 1.97% at March 31, 2001, and 1.86% at December 31,
2000.
The Bank provided $1,200,000 in 2000, $550,000 in 1999, and $187,500 as of
March 31, 2001 to the Allowance for Loan Losses. Loans charged off were
$355,000 in 2000, $402,000 in 1999, and $36,000 as of March 31, 2001.
Recoveries on loans previously charged off were $165,000 in 2000, $49,000
in 1999, and $6,000 as of March 31, 2001. Management believes that the
Allowance for Loan Losses of $4,933,702 is adequate to absorb any losses
that are estimated to occur, due to the Bank's strong collateral position
and the current asset quality.
The level of the Allowance for Loan Losses is evaluated by management and
encompasses several factors, which include but are not limited to, recent
trends in the nonperforming loans, the adequacy of the assets which
collateralize the nonperforming loans, current economic conditions in the
market area, and various other external and internal factors.
This table shows an allocation of the allowance for loan losses as of the
end of each of the periods indicated.
March 31, 2001 December 31, 2000 December 31, 1999
-------------------------------------------------------------------------------------
Percent of Percent of Percent of
Loans in Loans in Loans in
Each Each Each
Category to Category to Category to
Amount Total Loans Amount Total Loans Amount Total Loans
-------------------------------------------------------------------------------------
(Dollars in Thousands)
Domestic:
Commercial(5) $1,320(1) 18.63% $1,466(1) 19.66% $1,356(1) 19.52%
Real estate - Construction 47 3.45 47 3.36 34 2.07
Real estate - mortgage 3,287(2) 72.79 2,970(2) 71.91 1,924(2) 74.48
Consumer(3) 280(4) 5.13 293(4) 5.07 452(4) 3.93
-------------------------------------------------------------------------------------
$4,934 100.00% $4,776 100.00% $3,766 100.00%
=====================================================================================
<FN>
- --------------------
<F1> Includes amounts specifically reserved for impaired loans of $233,923
as of March 31, 2001, $281,248 as of December 31, 2000, and $234,205
as of December 31, 1999 as required by Financial Accounting Standard
No. 114, Accounting for Impairment of Loans.
<F2> Includes amounts specifically reserved for impaired loans of $368,404
as of March 31, 2001, $132,911 as of December 31, 2000, and $147,884
as of December 31, 1999 as required by Financial Accounting Standard
No. 114, Accounting for Impairment of Loans.
<F3> Includes consumer, obligations of states and political subdivisions
and other.
<F4> Includes amounts specifically reserved for impaired loans of $1,403
as of March 31, 2001, $10,398 as of December 31, 2000, and $39,241 as
of December 31, 1999 as required by Financial Accounting Standard No.
114, Accounting for Impairment of Loans.
<F5> Includes commercial, financial, agricultural and nonprofit loans.
</FN>
The loan portfolio's largest segment of loans is commercial real estate
loans, which represent 58% of gross loans. Residential real estate,
represents 15% of gross loans. The Company requires a loan to value ratio
of 80% in both commercial and residential mortgages. These mortgages are
secured by real properties which have a readily ascertainable appraised
value.
Generally, commercial real estate loans have a higher degree of credit risk
than residential real estate loans because they depend primarily on the
success of the business. When granting these loans, the Company evaluates
the financial statements of the borrower(s), the location of the real
estate, the quality of management, and general economic and competitive
conditions. When granting a residential mortgage, the Company reviews the
borrower(s) repayment history on past debts, and assesses the borrower(s)
ability to meet existing obligations and payments on the proposed loans.
Commercial loans consist of loans predominantly collateralized by
inventory, furniture and fixtures, and accounts receivable. In assessing
the collateral for this type of loan, management applies a 40% liquidation
value to inventories, 25% to furniture, fixtures and equipment; and 60% to
accounts receivable. Commercial loans represent 19% of the loan portfolio.
Consumer loans are generally unsecured credits and represent 5% of the
total loan portfolio. These loans have a higher degree of risk then
residential mortgage loans. The underlying collateral of a secured
consumer loan tends to depreciate in value. Consumer loans are typically
made based on the borrower's ability to repay the loan through continued
financial stability. The Company endeavors to minimize risk by reviewing
the borrower's repayment history on past debts, and assessing the
borrower's ability to meet existing obligations on the proposed loans.
The allocation of the Allowance for Loan Losses is based on management's
judgement of estimated to occur losses in the respective portfolios. While
management has allocated reserves to various portfolio segments, the
Allowance is general in nature and is available for the portfolio in its
entirety.
Results of Operations
- ---------------------
The Company's largest source of earnings is net interest and dividend
income, which is the difference between interest income earned on loans and
investments and interest expense paid on deposits and borrowed funds. Net
interest and dividend income for the three months ending March 31, 2001
increased by $177,380 to $3,897,472 when compared to $3,720,092 recorded
during the same period in 2000. Total interest and dividend income
increased by $513,577. This was offset by an increase in interest expense
of $336,197.
The Provision for Loan Losses is a charge against earnings and funds the
Allowance for Loan Losses. It is management's desire to maintain an
appropriate ratio of the Allowance for Loan Losses to total outstanding
loans. The Bank's provision during the three month period ending March 31,
2001 was $187,500, an increase of $37,500 when compared to $150,000
provided for the first three months of 2000.
Total Other Income decreased by $15,737 for the first quarter in 2001 when
compared to the same period in 2000. Service charges on deposit accounts
increased by $5,926. The Bank realized losses on sale of securities of
$4,757 during the first three months of 2000. There were no sales of
securities during the first three months of 2001.
The line item Other Income decreased by $26,420 when compared to the first
three months of 2000. There was an increase of $40,216 in the cash
surrender value of life insurance policies associated with the Directors
and Executive life insurance programs. In 2000, the Bank recorded $59,000
in miscellaneous income as a reversal of prior years expense accrual that
did not materialize. There were no such reversals during the first three
months of 2001.
The category Other Expense was up by $351,713 to $2,857,249 during the
first three months ending March 31, 2001 compared to $2,505,536 reported
for the same period in 2000. Salaries and employee benefits increased by
$289,639 due to general wage adjustments occurring at year end 2000.
Occupancy and equipment expenses combined increased slightly by $30,679.
The Bank had no sales of real estate acquired through foreclosure in 2001,
compared to losses of $49,758 realized during the same period in the
previous year.
The following table sets forth the components of the line item Other
Expense, which reflects a decrease of $13,363 for the first quarter in 2001
compared to the same period reported in 2000.
March 31, 2001 March 31, 2000 Variance
----------------------------------------------
Amortization of Goodwill $ 56,700 $ 56,700 $ ---
Advertising & Public Relations 101,598 87,964 13,634
Stationery & Supplies 63,303 82,000 (18,697)
Communications 82,913 81,947 966
Professional Fees & Other Services 204,341 180,803 23,538
Other Real Estate Owned Expense 0 38,000 (38,000)
Committee Fees 40,910 41,850 (940)
Other Miscellaneous Expenses 132,049 125,913 6,136
----------------------------------------------
$681,814 $695,177 $(13,363)
==============================================
Amortization of Goodwill represents the continuous amortizing of the
premiums paid above the book value to shareholders of Fairbank, Inc.,
parent company of the National Bank of Fairhaven, due to the merger
acquisition which occurred in August 1996. This amortization expense will
continue to the year 2011. Advertising and Public Relations expense
increased by $13,634. Stationery and Supplies decreased by $18,697.
Professional Fees and Other Services were up by $23,538 primarily due to
collection and repossession expense. Other Real Estate Owned Expense
decreased by $38,000. Committee Fees were down by $940. Other
Miscellaneous Expense increased by $6,136.
Income before income taxes was $1,258,845 for the three month period ending
March 31, 2001 compared to $1,486,415 reported for the same period in the
prior year. Taxes totaled $389,480 down by $88,935 when compared to
$478,415 reported for the first quarter in 2000. Net Income of $869,365
was down by 13.75% or $138,635 for the first quarter in 2001 compared to
$1,008,000 in the same period in 2000. Diluted earnings per share for the
first quarter in 2001 was $0.23 compared to $0.27 reported in 2000.
Liquidity
- ---------
The Company's principal sources of funds are customer deposits, loan
amortization, loan payoffs, and the maturities of investment securities.
Through these sources, funds are provided for customer withdrawals from
their deposit accounts, loan originations, draw-downs on loan commitments,
acquisition of investment securities and other normal business activities.
Investors' capital also provides a source of funding.
The largest source of funds is provided by depositors. The largest
component of the Company's deposit base is reflected in the Time Deposit
category. The Company does not participate in brokered deposits. Deposits
are obtained from consumers and commercial customers within the Bank's
community reinvestment area, being Bristol County, Massachusetts and
several abutting towns in Rhode Island.
The Company also has the ability to borrow funds from correspondent banks,
the Federal Home Loan Bank, as well as the Federal Reserve Bank of Boston
by pledging various investment securities as collateral. During the first
quarter in 2000 and 2001, the Bank was not required to borrow short-term
funds to meet current liquidity needs. Tax payments made by our customers
which are owed to the Federal Reserve Bank Treasury Tax and Loan account
are classified as short-term borrowings. As of March 31, 2001, there is
also $12,687,725 in advances from the Federal Home Loan Bank representing
the match funding program that is available to qualified borrowers and an
investment growth strategy transaction.
Excess available funds are invested on a daily basis as Federal Funds Sold
and can be withdrawn daily. The Bank attempts through its cash management
strategies to maintain a minimum level of Federal Funds Sold to further
enhance its liquidity.
Liquidity represents the ability of the Bank to meet its funding
requirements. In assessing the appropriate level of liquidity, the Bank
considers deposit levels, lending requirements, and investment maturities
in light of prevailing economic conditions. Through this assessment, the
Bank manages its liquidity level to optimize earnings and respond to
fluctuations in customer borrowing needs.
At March 31, 2001, the Bank's liquidity ratio stood at 32.0%, the same
level reported at December 31, 2000. The liquidity ratio is determined by
dividing the Bank's short term assets (cash and due from banks, interest
bearing deposits due from other banks, securities, and federal funds sold)
by the Bank's total deposits. Management believes the Bank's liquidity to
be adequate to meet the current and presently foreseeable needs of the
Bank.
The comparison of cash flows for three months ending March 31, 2001 and
2000 shows a slight increase in the net cash provided by operating
activities of $0.1 Million. There was an increase in interest and dividend
income of $0.5 Million, offset by a decrease in taxes paid of $0.1 Million
and an increase in interest paid of $0.3 Million.
Cash flows from investing activities show a net increase in cash provided
by investing activities of $17.4 Million when compared to 2000. Purchases
of securities increased by $4.0 Million and maturities and sales increased
by $11.5 Million for a total increase of $7.5 Million attributed to the
investment portfolio. There was also a decrease in cash used in loan
activity of $10.5 Million. Proceeds from the sale of Other Real Estate
Owned decreased $0.4 Million, and capital expenditures increased by $0.1
Million.
Cash flows provided by financing activities decreased by $17.8 Million when
compared to the same period in 2000. There was a decrease in cash provided
by demand deposits, NOW, money market and savings accounts of $11.3
Million, along with decreases in Federal Home Loan Bank borrowings of $5.0
Million, other borrowed funds of $0.8 Million and $0.6 Million in time
deposits.
Capital
- -------
As of March 31, 2001, the Company had total capital of $36,694,069. This
represents an increase of $1,019,696 from $35,674,373 reported on December
31, 2000. The increase in capital was a combination of several factors.
Additions consisted of three months earnings of $869,365 and transactions
originating through the Dividend Reinvestment Program whereby 4,136.078
shares were issued for cash contributions of $37,950 and 15,438.516 shares
were issued for $148,675 in lieu of cash dividend payments. These
additions were offset by dividends paid of $304,725.
Also, affecting capital is accumulated other comprehensive income (loss)
which reflects net unrealized gains or losses, net of taxes, on securities
classified as Available-for-Sale and the minimum pension liability
adjustment. On December 31, 2000 the Available-for-Sale portfolio had
unrealized losses, net of taxes, of $596,543, and on March 31, 2001, as a
result of current market values, the portfolio reflects unrealized losses,
net of taxes, of $328,112. There was no change in the minimum pension
liability adjustment of $24,143, net of taxes, recorded December 31, 2000.
Under the requirements for Risk Based and Leverage Capital of the federal
banking agencies, a minimum level of capital will vary among banks based on
safety and soundness of operations. Risk Based Capital ratios are
calculated with reference to risk-weighted assets, which include both on
and off balance sheet exposure.
At March 31, 2001 the actual Risk Based Capital of the Bank was $28,599,000
for Tier 1 Capital, exceeding the minimum requirements of $11,001,160 by
$17,597,840. Total Capital of $32,055,000 exceeded the minimum
requirements of $22,002,320 by $10,052,680 and Leverage Capital of
$28,599,000 exceeded the minimum requirements of $15,055,560 by
$13,543,440. In addition to the "minimum" capital requirements, "well
capitalized" standards have also been established by the Federal Banking
Regulators.
The table below illustrates the capital ratios of the Company and the Bank
on March 31, 2001 and at December 31, 2000.
Well March 31, 2001 December 31, 2000
Capitalized ------------------ ------------------
Requirement Bancorp Bank Bancorp Bank
- -------------------------------------------------------------------------------------
Total Capital (to Risk
Weighted Assets) 10% 13.81% 11.66% 13.24% 11.76%
- -------------------------------------------------------------------------------------
Tier 1 Capital (to Risk
Weighted Assets) 6% 12.56% 10.40% 11.98% 10.50%
- -------------------------------------------------------------------------------------
Leverage Capital (to
Average Assets) 5% 9.13% 7.60% 8.74% 7.69%
- -------------------------------------------------------------------------------------
Under the informal agreement entered into with the Massachusetts
Commissioner of Banks and the Federal Deposit Insurance Corporation,
effective December 1, 2000, the Bank is required to maintain a seven (7)
percent Tier I Leverage Capital ratio and a nine (9) percent Tier I Risk
Based Capital ratio. As of March 31, 2001, these ratios were 7.60% and
10.40%, respectively.
ITEM 3
Quantitative and Qualitative Disclosure of Market Risk
- ------------------------------------------------------
Interest Rate Risk
- ------------------
Volatility in interest rates requires the Company to manage interest rate
risk that arises from the differences in the timing of repricing of assets
and liabilities. The Company considers interest rate risk, the exposure of
earnings to adverse movements in interest rates, to be a significant market
risk as it could potentially have an affect on the Company's financial
condition and results of operation.
The Company's Asset-Liability Management Committee, comprised of the Bank's
Executive Management team, has the responsibility of managing interest rate
risk, and monitoring and adjusting the difference between interest-
sensitive assets and interest-sensitive liabilities ("GAP" position) within
various time periods.
Management's objective is to reduce and control the volatility of its net
interest margin by managing the relationship of interest-earning assets and
interest-bearing liabilities. In order to manage this relationship, the
committee utilizes a GAP report prepared on a monthly basis. The GAP
report indicates the differences or gap between interest-earning assets and
interest-bearing liabilities in various maturity or repricing time periods.
This, in conjunction with certain assumptions, and other related factors,
such as anticipated changes in interest rates and projected cash flows from
loans, investments and deposits, provides management a means of evaluating
interest rate risk.
In addition to the GAP report, the Company also uses an analysis to measure
the exposure of net interest income to changes in interest rates over a
relatively short (i.e., 12 months) time frame. The analysis projects
future interest income and expenses from the Company's earning assets and
interest-bearing liabilities. Depending on the GAP position, the Company's
policy limit on interest rate risk specifies that if interest rates were to
change immediately up or down 200 basis points, estimated net interest
income for the next twelve months should not decline by more than ten
percent. The following table reflects the Company's estimated exposure as
a percentage of estimated net interest income for the next twelve months,
assuming an immediate change in interest rates:
Estimated Exposure as a
Rate Change Percentage of Net Interest Income
(Basis Points) March 31, 2001
----------------------------------------------------------
+200 0.83%
-200 (6.37)%
The model used to monitor earnings-at-risk provides management a
measurement tool to assess the effect of changes in interest rates on the
Company's current and future earnings. The 10% limit established by the
Company provides an internal tolerance level to control interest rate risk
exposure.
Part II
Other Information
ITEM 6
Exhibits and Reports on Form 8-K
- --------------------------------
(a) Exhibits: See exhibit index.
(b) Reports on Form 8-K: NONE
EXHIBIT INDEX
Exhibit No. Description Page
- ----------- ----------- ----
3.1 Articles of Incorporation of Slade's Ferry Bancorp
as amended (1)
3.2 By-laws of Slade's Ferry Bancorp as amended (2)
10.1 Agreement and Plan of Merger by and between Slade's
Ferry (formerly Weetamoe) Bancorp and Fairbank, Inc. (3)
10.2 Slade's Ferry (formerly Weetamoe) Bancorp 1996 Stock
Option Plan (as amended) (3)
10.3 Noncompetition Agreement between Slade's Ferry Trust
Company and Edward S. Machado (A substantially
identical contract exists with Peter Paskowski) (4)
10.4 Supplemental Executive Retirement Agreement between
Slade's Ferry (formerly Weetamoe) Bancorp and Donald
T. Corrigan (5)
10.5 Supplemental Executive Retirement Agreement between
Slade's Ferry (formerly Weetamoe) Bancorp and James
D. Carey (2)
10.6 Supplemental Executive Retirement Agreement between
Slade's Ferry (formerly Weetamoe) Bancorp and Manuel
J. Tavares (2)
10.7 Swansea Mall Lease (4)
10.8 Form of Director Supplemental Retirement Program
Director Agreement, Exhibit I thereto (Slade's
Ferry Trust Company Director Supplemental Retirement
Program Plan) and Endorsement Method Split Dollar
Plan Agreement thereunder for Thomas B. Almy.
(Similar forms of agreement entered into between
Slade's Ferry Trust Company and the other directors) (6)
10.9 Form of Directors' Paid-up Insurance Policy for
Thomas B. Almy (part of the Director Supplemental
Retirement Program). (Similar forms of policy
entered into by Company for other directors). (7)
10.10 Form of Officers' Paid-up Endorsement Method Split
Dollar Plan Agreement and Insurance Policies for
Janice Partridge (Similar forms of policies entered
into by Company for its President and other Vice
Presidents) (8)
[FN]
- --------------------
<F1> Incorporated by reference to the Registrant's Registration Statement
on Form SB-2 filed with the Commission on April 14, 1997.
<F2> Incorporated by reference to the Registrant's Form 10-KSB for the
fiscal year ended December 31, 1996.
<F3> Incorporated by reference to the Registrant's Form 10-QSB for the
quarter ended March 31, 1996.
<F4> Incorporated by reference to the Registrant's Registration Statement
on Form S-4 File No. 33-32131
<F5> Incorporated by reference to the Registrant's Form 10-KSB for the
fiscal year ended December 31, 1994.
<F6> Incorporated by reference to the Registrant's Form 10-Q for the
quarter ended March 31,1999
<F7> Incorporated by reference to the Registrant's Form 10-QSB for the
quarter ended June 30, 1998.
<F8> Incorporated by reference to the Registrant's Form 10-Q for the
quarter ended June 30, 2000.
</FN>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SLADE'S FERRY BANCORP
----------------------------------------
(Registrant)
May 10, 2001 /s/ Kenneth R. Rezendes
- -------------------- ----------------------------------------
(Date) (Signature) Kenneth R. Rezendes
Chief Executive Officer/
Director
May 10, 2001 /s/ James D. Carey
- -------------------- ----------------------------------------
(Date) (Signature) James D. Carey
Executive Vice President
Director
May 10, 2001 /s/ Edward Bernardo Jr.
- -------------------- ----------------------------------------
(Date) (Signature) Edward Bernardo Jr.
Treasurer/Chief Financial Officer/
Chief Accounting Officer