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 June 30, 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) 3,826,824.754 shares as of June 30, 2001.
- -----------------------------------------------------------------------
PART I
ITEM 1
Financial Statements
- --------------------
SLADE'S FERRY BANCORP
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, 2001 December 31, 2000
------------- -----------------
<s> <c> <c>
ASSETS:
Cash and due from banks $ 15,260,705 $ 15,947,182
Money market mutual funds 89,629 113,527
Federal funds sold 28,500,000 12,000,000
-------------------------------
Cash and Cash Equivalents 43,850,334 28,060,709
Investment securities(1) 17,506,096 19,102,496
Securities available for sale(2) 71,563,360 67,993,096
Federal Home Loan Bank stock 1,013,400 1,013,400
Loans (net) 246,778,229 250,848,831
Premises and equipment 6,666,875 6,765,689
Accrued interest receivable 1,994,051 2,351,926
Goodwill 2,286,768 2,400,168
Cash surrender value of life insurance 7,263,105 6,830,918
Other assets 3,305,492 3,252,123
-------------------------------
TOTAL ASSETS $402,227,710 $388,619,356
===============================
LIABILITIES & STOCKHOLDERS' EQUITY:
Deposits $346,277,239 $337,000,901
Advances from Federal Home Loan Bank 15,719,510 12,725,908
Other borrowed funds 1,011,887 1,200,000
Other liabilities 1,797,472 1,965,174
-------------------------------
TOTAL LIABILITIES 364,806,108 352,891,983
Preferred stockholders' equity in a
Subsidiary company 53,000 53,000
-------------------------------
STOCKHOLDERS' EQUITY:
Common stock 38,268 37,895
Paid in capital 26,234,620 25,885,220
Retained earnings 11,306,747 10,371,944
Accumulated other comprehensive loss (211,033) (620,686)
-------------------------------
TOTAL STOCKHOLDERS' EQUITY 37,368,602 35,674,373
-------------------------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $402,227,710 $388,619,356
===============================
- --------------------
<FN>
<F1> Investment securities are to be held to maturity and have a fair
market value of $17,732,209 as of June 30, 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, net of tax.
</FN>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND EXPENSE
(UNAUDITED)
6 MONTHS ENDING JUNE 30,
2001 2000
---- ----
<s> <c> <c>
INTEREST AND DIVIDEND INCOME:
Interest and fees on loans $11,215,838 $10,786,626
Interest and dividends on investments 2,461,663 2,566,733
Other interest 474,088 279,428
--------------------------
Total interest and dividend income 14,151,589 13,632,787
--------------------------
INTEREST EXPENSE:
Interest on deposits 6,146,620 5,739,977
Interest on other borrowed funds 429,769 373,749
--------------------------
Total interest expense 6,576,389 6,113,726
--------------------------
Net interest and dividend income 7,575,200 7,519,061
PROVISION FOR LOAN LOSSES 375,000 1,050,000
--------------------------
Net interest and dividend income
after provision for loan losses 7,200,200 6,469,061
--------------------------
OTHER INCOME:
Service charges on deposit accounts 414,343 409,772
Security losses, net 0 (4,757)
Other income 401,700 401,872
--------------------------
Total other income 816,043 806,887
--------------------------
OTHER EXPENSE:
Salaries and employee benefits 3,544,121 3,028,302
Occupancy expense 467,022 435,495
Equipment expense 290,033 277,921
Gain on sales of other real estate owned 0 (49,758)
Other expense 1,454,130 1,385,778
--------------------------
Total other expense 5,755,306 5,077,738
--------------------------
Income before income taxes 2,260,937 2,198,210
Income taxes 676,994 678,367
--------------------------
NET INCOME $ 1,583,943 $ 1,519,843
==========================
Basic earnings per share $ 0.42 $ 0.41
==========================
Diluted earnings per share $ 0.42 $ 0.41
==========================
Basic average shares outstanding 3,803,755 3,724,698
==========================
Diluted average shares outstanding 3,806,017 3,728,066
==========================
Dividends per share $ .17 $ .16
==========================
Comprehensive Income (1) $ 1,993,596 $ 1,326,999
==========================
<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.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND EXPENSE
(UNAUDITED)
3 MONTHS ENDING JUNE 30,
2001 2000
---- ----
<s> <c> <c>
INTEREST AND DIVIDEND INCOME:
Interest and fees on loans $ 5,449,339 $ 5,469,246
Interest and dividends on investments 1,210,047 1,291,751
Other interest 279,446 172,610
--------------------------
Total interest and dividend income 6,938,832 6,933,607
--------------------------
INTEREST EXPENSE:
Interest on deposits 3,041,649 2,942,284
Interest on other borrowed funds 219,455 192,354
--------------------------
Total interest expense 3,261,104 3,134,638
--------------------------
Net interest and dividend income 3,677,728 3,798,969
PROVISION FOR LOAN LOSSES 187,500 900,000
--------------------------
Net interest and dividend income
after provision for loan losses 3,490,228 2,898,969
--------------------------
OTHER INCOME:
Service charges on deposit accounts 209,365 210,720
Other income 200,556 174,308
--------------------------
Total other income 409,921 385,028
--------------------------
OTHER EXPENSE:
Salaries and employee benefits 1,761,019 1,529,839
Occupancy expense 218,231 211,213
Equipment expense 146,491 140,549
Other expense 772,316 690,601
--------------------------
Total other expense 2,898,057 2,572,202
--------------------------
Income before income taxes 1,002,092 711,795
Income taxes 287,514 199,952
--------------------------
NET INCOME $ 714,578 $ 511,843
==========================
Basic earnings per share $ 0.19 $ 0.14
==========================
Diluted earnings per share $ 0.19 $ 0.14
==========================
Basic average shares outstanding 3,822,745 3,734,844
==========================
Diluted average shares outstanding 3,826,484 3,738,350
==========================
Dividends per share $ .09 $ .08
==========================
Comprehensive Income (1) $ 855,800 $ 713,542
==========================
<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
Six Months Ended June 30
(Unaudited)
2001 2000
---- ----
<s> <c> <c>
Reconciliation of net income to net cash
provided by operating activities:
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,583,943 $ 1,519,843
Adjustments to reconcile net income to net
cash provided by operating activities:
Accretion, net of amortization of fair
market value adjustments (5,700) (5,700)
Amortization of goodwill 113,400 113,400
Depreciation and amortization 365,727 345,189
Securities losses, net -0- 4,757
Provision for loan losses 375,000 1,050,000
Decrease in taxes payable (499,866) (278,289)
(Increase) decrease in interest receivable 357,875 (237,844)
Increase (decrease) in interest payable (34,911) 15,912
Increase (decrease) in accrued expenses 52,595 (317,092)
Increase in prepaid expenses (35,928) (49,050)
Accretion of securities, net of amortization 15 (27,748)
Accretion of securities available for sale,
net of amortization 62,291 18,689
Gain on sales of other real estate owned -0- (49,758)
Change in unearned income (67,249) (51,997)
(Increase) decrease in other assets 4,636 (307,408)
Increase (decrease) in other liabilities (185,386) 46,436
----------------------------
Net cash provided by operating activities 2,086,442 1,789,340
----------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of securities available for sale (33,526,390) (8,945,231)
Investment in life insurance policies (259,000) (4,918,838)
Maturities of securities available for sale 30,608,090 2,111,057
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 3,734,518 4,645,973
Purchases of investment securities (2,138,133) (5,118,830)
Net (increase) decrease in loans 3,755,388 (5,047,676)
Capital expenditures (266,913) (107,225)
Recoveries of previously charged-off loans 13,163 146,864
----------------------------
Net cash provided by (used in) investing activities 1,920,723 (14,716,973)
----------------------------
SLADE'S FERRY BANCORP AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30
------------------------
(Unaudited)
(Continued)
2001 2000
---- ----
<s> <c> <c>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of stock 349,773 424,660
Net increase in demand deposits, NOW, money market
and savings accounts 6,742,122 12,360,141
Net increase (decrease) in time deposits 2,534,216 (136,160)
Net decrease in other borrowed funds (188,113) (35,008)
Dividends paid (649,140) (598,802)
Advances (payments) on Federal Home Loan Bank, net 2,993,602 4,935,577
----------------------------
Net cash provided by financing activities 11,782,460 16,950,408
----------------------------
Net decrease in cash and cash equivalents 15,789,625 4,022,775
Cash and cash equivalents at beginning of period 28,060,709 21,108,966
----------------------------
Cash and cash equivalents at end of period $ 43,850,334 $ 25,131,741
============================
SUPPLEMENTAL DISCLOSURES:
Loans originating from sales of Other Real Estate Owned $ -0- $ 259,000
Interest paid $ 6,611,300 $ 6,097,814
Income taxes paid $ 1,176,860 $ 956,656
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)
June 30, 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 in the United States of America
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 six months ended June 30, 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 was derived from audited financial
statements, but does not include all disclosures required by generally
accepted accounting principles in the United States of America.
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,
Slade's Ferry Realty Trust, 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.
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.
Statement of Financial Accounting Standards No. 141 improves the consistency
of the accounting and reporting for business combinations by requiring that
all business combinations be accounted for under a single method - the
purchase method. Use of the pooling-of-interests method is no longer
permitted. Statement No. 141 requires that the purchase method be used for
business combinations initiated after June 30, 2001. Management is
currently evaluating the impact of adopting this Statement on the
consolidated financial statements, but does not anticipate that it will have
a material impact.
Statement of Financial Accounting Standards No. 142 requires that goodwill
no longer be amortized to earnings, but instead be reviewed for impairment.
The amortization of goodwill ceases upon adoption of the Statement, which
for most companies, will be January 1, 2002. Management is currently
evaluating the impact of adopting this Statement on the consolidated
financial statements, but does not anticipate that it will have a material
impact.
ITEM 2
Management's Discussion and Analysis
- ------------------------------------
Financial Condition
- -------------------
Assets as of June 30, 2001 increased by $13.6 Million to $402.2 Million from
$388.6 Million reported as of year end 2000. During the six months ending
June 30, 2001, Net Loans decreased by $4.1 Million due to refinancing,
prepayments and a general slowdown in loan demand due to the uncertainty of
the economic environment. Total Investments grew by $2.0 Million and
Federal Funds Sold increased substantially by $16.5 Million. The funding
sources for the increase in Investments and Federal Funds Sold was provided
by growth in deposits of $9.3 Million, borrowings from the Federal Home Loan
Bank of $3.0 Million and amortization and prepayments derived from the loan
portfolio.
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 the
U.S. Treasury, U.S. Government corporations 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 June 30, 2001.
Gross Gross
Net Carrying Unrecognized Unrecognized
(Dollars in Thousands) Amount Holding Gains Holding Losses Fair Value
- ---------------------- ------------ ------------- -------------- ----------
<s> <c> <c> <c> <c>
Debt securities issued by the U. S.
Treasury and other U. S. Government
corporations and agencies $ 5,148 $ 55 $ --- $ 5,203
Debt securities issued by states of
the United States and political
subdivisions of the states 12,312 190 19 12,483
Mortgage-backed securities 45 --- --- 45
Other debt securities 1 --- --- 1
---------------------------------------------------------
$17,506 $245 $ 19 $17,732
=========================================================
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.
Investments in Available for Sale securities are carried at fair value on
the balance sheet and are summarized as follows as of June 30, 2001.
Gains in Losses in
Accumulated Accumulated
Other Other
Amortized Comprehensive Comprehensive
(Dollars in Thousands) Cost Basis Income Income Fair Value
- ---------------------- ---------- ------------- ------------- ----------
<s> <c> <c> <c> <c>
Debt securities issued by the U. S.
Treasury and other U. S. Government
corporations and agencies $31,933 $269 $ 25 $32,177
Corporate Bonds 2,756 47 5 2,798
Marketable Equities 4,619 350 1,080 3,889
Mortgage-backed securities 32,512 263 76 32,699
-------------------------------------------------------
$71,820 $929 $1,186 $71,563
=======================================================
<s> <c>
Decrease to Stockholders' Equity as of June 30, 2001:
(In Whole Dollars)
Unrealized loss on Available for Sale securities $257,089
Less tax effect (70,199)
--------
Net unrealized loss on Available for Sale securities $186,890
========
The Available For Sale category at June 30, 2001 had net unrealized losses,
net of taxes of $186,890, of which $285,236 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 $472,126 are net unrealized losses (net of tax) attributable to market
equity securities.
Securities of the 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 June 30, 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 JUNE 30, 2001 AND 2000 AND DECEMBER 31, 2000 AND 1999
At June 30, At December 31,
- --------------------------------------------------------------------------------------
(Dollars in Thousands) 2001 2000 2000 1999
- --------------------------------------------------------------------------------------
<s> <c> <c> <c> <c>
Nonaccrual Loans $2,332 $2,932 $2,415 $1,777
Loans 90 days or more past due and still
accruing 19 41 335 248
Real estate acquired by foreclosure
or substantively repossessed 0 0 0 353
Percentage of nonaccrual loans to total loans 0.93% 1.19% 0.94% 0.73%
Percentage of nonaccrual loans and real estate
acquired by foreclosure or substantively
repossessed to total assets 0.58% 0.78% 0.64% 0.74%
Percentage of allowance for possible loan
losses to nonaccrual loans 219.55% 164.42% 197.76% 211.92%
The $2.3 Million in nonaccrual loans consists of $1.7 Million of real estate
mortgages and $.6 Million attributed to commercial loans. Of the total
nonaccrual loans outstanding, there are no loans restructured at June 30,
2001.
The Company's nonperforming assets which consist of nonaccrual loans, loans
90 days or more past due and still accruing, and real estate acquired by
foreclosure or substantively repossessed, decreased by $0.4 Million to $2.4
Million at June 30, 2001 from $2.8 Million reported on December 31, 2000.
Nonaccrual loans, which is the largest component of nonperforming assets,
decreased by $0.1 Million compared to year end 2000. The decrease was a
combination of loans totaling $1.5 Million that became nonaccrual during the
past six months offset by $1.6 Million of payments on previously classified
nonaccrual loans. Loans past due 90 days or more but still accruing
decreased by $316,000 during this six month period.
The percentage of nonaccrual loans to total loans decreased from 0.94%
reported at year end 2000 to 0.93% at June 30, 2001.
INFORMATION WITH RESPECT TO NONACCRUAL AND RESTRUCTURED LOANS
AT JUNE 30, 2001 AND 2000 AND DECEMBER 31, 2000 AND 1999
At June 30, At December 31,
- --------------------------------------------------------------------------------------
(Dollars in Thousands) 2001 2000 2000 1999
- --------------------------------------------------------------------------------------
<s> <c> <c> <c> <c>
Nonaccrual Loans $2,332 $2,932 $2,415 $1,777
Interest income that would have been
recorded under original terms 122 117 228 146
Interest income recorded during the period 22 10 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 $2,332,121 of nonaccrual loans are $2,308,698 which the
Company has determined to be impaired, for which there is a related
allowance for credit losses of $316,790. 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 June 30,
2001 that management reasonably expects will materially impact future
operating results, liquidity or capital resources.
ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES
Six Months Years Ended
Ended June 30, December 31,
- -----------------------------------------------------------------------------
(Dollars in Thousands) 2001 2000 2000 1999
- -----------------------------------------------------------------------------
<s> <c> <c> <c> <c>
Balance at January 1 $4,776 $3,766 $3,766 $3,569
- -----------------------------------------------------------------------------
Charge-offs:
Commercial (30) (87) (194) (221)
Real estate - construction 0 0 0 0
Real estate - mortgage 0 (3) (23) (23)
Installment/consumer (14) (52) (138) (158)
- -----------------------------------------------------------------------------
(44) (142) (355) (402)
- -----------------------------------------------------------------------------
Recoveries:
Commercial 7 41 50 11
Real estate - construction 0 0 0 0
Real estate - mortgage 0 87 92 24
Installment/consumer 6 19 23 14
- -----------------------------------------------------------------------------
13 147 165 49
- -----------------------------------------------------------------------------
Net (Charge-offs) Recoveries (31) 5 (190) (353)
- -----------------------------------------------------------------------------
Additions charged to operations 375 1,050 1,200 550
- -----------------------------------------------------------------------------
Balance at end of period $5,120 $4,821 $4,776 $3,766
=============================================================================
Ratio of net (charge-offs) recoveries
to average loans outstanding (0.012%) 0.002% (0.08%) (0.15%)
The Allowance for Loan Losses at June 30, 2001 was $5,120,144, compared to
$4,776,360 at year end 2000. The Allowance for Loan Losses as a percentage
of outstanding loans was 2.03% at June 30, 2001, and 1.86% at December 31,
2000.
The Bank provided $1,200,000 in 2000, $550,000 in 1999, and $375,000 as of
June 30, 2001 to the Allowance for Loan Losses. Loans charged off were
$355,000 in 2000, $402,000 in 1999, and $44,000 as of June 30, 2001.
Recoveries on loans previously charged off were $165,000 in 2000, $49,000 in
1999, and $13,000 as of June 30, 2001. Management believes that the
Allowance for Loan Losses of $5,120,144 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.
June 30, 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)
<s> <c> <c> <c> <c> <c> <c>
Domestic:
Commercial(5) $1,462(1) 18.59% $1,466(1) 19.66% $1,356(1) 19.52%
Real Estate - Construction 66 4.63 47 3.36 34 2.07
Real Estate - Mortgage 3,305(2) 72.06 2,970(2) 71.91 1,924(2) 74.48
Consumer(3) 287(4) 4.72 293(4) 5.07 452(4) 3.93
- -------------------------------------------------------------------------------------------------------------
$5,120 100.00% $4,776 100.00% $3,766 100.00%
=============================================================================================================
<FN>
- --------------------
<F1> Includes amounts specifically reserved for impaired loans of $627,578
as of June 30, 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 $587,572
as of June 30, 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 $3,247 as
of June 30, 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 represents 57% 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 18.6% of the loan
portfolio.
Consumer loans are generally unsecured credits and represent 4.7% of the
total loan portfolio. These loans have a higher degree of risk than
residential mortgage loans. The underlying collateral of a secured consumer
loan tends to depreciate in value. Consumer loans are typically made based
on the borrower's ability to repay the loan through continued financial
stability. The Company endeavors to minimize risk by reviewing the
borrower's repayment history on past debts, and assessing the borrower's
ability to meet existing obligations on the proposed loans.
The allocation of the Allowance for Loan Losses is based on management's
judgement of potential 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 six months ending June 30, 2001
increased by $56,139 to $7,575,200 when compared to $7,519,061 recorded
during the same period in 2000. Total interest and dividend income
increased by $518,802. This was offset by an increase in interest expense of
$462,663. The national economic slowdown continues to prompt aggressive
action by the Federal Reserve Bank to reduce short-term interest rates in an
attempt to avoid a recession and stimulate growth in our economy. This
easing action has impacted our net interest margin as a result of loan and
investment repricing at lower interest rates due to refinancing and
prepayments.
The Provision for Loan Losses for the six months ending June 30, 2001
decreased by $675,000, from $1,050,000 reported as of June 30, 2000 to
$375,000. As previously disclosed in our June 30, 2000 quarterly report,
management felt it prudent to change the methodology used in calculating the
adequate level of reserves to absorb any risk inherent in the Bank's loan
portfolio. This action resulted in an additional $750,000 Provision for
Loan Losses recorded as of June 30, 2000.
Total Other Income increased by $9,156 for the first six months in 2001 when
compared to the same period in 2000. Service charges on deposit accounts
increased by $4,571. There were no sales of securities during the first six
months of 2001. The Bank realized losses on sales of securities of $4,757
during the first six months of 2000.
The line item Other Income decreased by $172 when compared to the first six
months of 2000. There was an increase of $57,961 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 six months
of 2001.
The category Other Expense increased by $677,568 to $5,755,306 during the
first six months ending June 30, 2001 compared to $5,077,738 reported for
the same period in 2000. Salaries and employee benefits increased by
$515,819 due to general wage adjustments occurring at year end 2000 in
addition to staff increases in the lending, marketing, and new customer
investment areas of the Bank. Occupancy and equipment expenses combined
increased by $43,639. The Bank had no gains on sales of real estate
acquired through foreclosure in 2001, compared to gains 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. This table reflects an increase of $81,715 to $772,316 from
$690,601 for the three month period ending June 30, 2001 and an increase of
$68,352 to $1,454,130 from $1,385,778 for the six month period ending June
30, 2001 when compared to June 30, 2000.
Three Months Six Months
- ----------------------------------------------------------------------------------------------
(Dollars in Thousands) 2001 2000 Variance 2001 2000 Variance
- ----------------------------------------------------------------------------------------------
<s> <c> <c> <c> <c> <c> <c>
Amortization of Goodwill $ 57 $ 57 0 $ 113 $ 113 0
Advertising & Public Relations 120 140 (20) 221 228 (7)
Stationery & Supplies 63 77 (14) 126 159 (33)
Communications 83 77 6 166 159 7
Professional Fees & Other Services 233 157 76 438 338 100
Other Real Estate Owned 0 0 0 0 38 (38)
Committee Fees 47 48 (1) 88 90 (2)
Other Miscellaneous Expenses 169 134 35 302 261 41
- -------------------------------------------------------------------------------------------
Other Expense $772 $690 $ 82 $1,454 $1,386 $ 68
===========================================================================================
Advertising and Public Relations expense decreased by $6,804 for six months
ending June 30, 2001 when compared to 2000. Stationery and Supplies also
decreased by $32,969. Communication expense increased slightly by $7,015.
Professional Fees and Other Services increased by $99,666 during the six
month period ending June 30, 2001 when compared to the same period in 2000.
This increase is due to an increase in collection and repossession expense
of $22,000, state assessment increase of $25,817, computer services of
$14,578 and outside fees of $19,489 which include general appraisals of
properties securing loans. Other Real Estate Owned expense decreased by
$38,000. As of June 30, 2000, all OREO properties had been sold. Other
Miscellaneous Expenses increased by $41,284 primarily attributed to a
$48,302 increase in the FDIC assessment.
Income before income taxes, totaled $2,260,937 at June 30, 2001, up by
$62,727 when compared to $2,198,210 reported on June 30, 2000. Applicable
taxes decreased by $1,373 to $676,994 when compared to $678,367 reported in
the prior year.
Net income of $1,583,943 reflects an increase of 4.2% when compared to
earnings of $1,519,843 reported at June 30, 2000. Diluted earnings per
share were $0.42 for six months ending June 30, 2001 compared to $0.41 for
the same period in 2000.
The results of operation for the second quarter in 2001 indicates that the
net interest and dividend income decreased by $121,241 to $3,677,728 from
$3,798,969 earned during the same period in the previous year. Total Other
Income increased by $24,893. The line item Other Income increased by
$26,248 due to recognition of increased cash surrender values in life
insurance associated with the Director and Executive life insurance
programs, and income related to the debit card program introduced by the
Bank in late 2000, offset by a decrease in miscellaneous income.
The line item Other Expense increased by $81,715. Salaries and benefits
increased by $231,180 related to staff additions, salary adjustments, and
general wage increases due to performance evaluations. Occupancy and
equipment expense combined increased by $12,960.
Variances in Advertising and Public Relations of $20,438 were attributed to
direct residential flyer mailing advertising in the Greater New Bedford
market area during the second quarter of 2000. No mailing was done in 2001.
There was a decrease of $14,272 in stationery and supplies expense.
Communications also decreased slightly by $6,049. Professional fees
increased by $76,129 due to an increase in collection and repossession cost,
the state assessment and computer services. Other Miscellaneous Expense
increased by $35,147, primarily due to an increase in the FDIC assessment of
$24,597.
Income before taxes for the second quarter in 2001 increased by $290,297 to
$1,002,092 from $711,795 reported for the same period in the prior year.
Applicable taxes also increased by $87,562 to $287,514 when compared to
$199,952 reported in the second quarter in 2000.
The net income for the three month period ending June 30, 2001 was $714,578,
or an increase of 39.6%, when compared to $511,843 earned in the second
quarter in 2000. Diluted earnings per share were $0.19 compared to $0.14
per share for the same period 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, drawdowns 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 second
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 June 30, 2001, there is also
$15,719,510 in advances from the Federal Home Loan Bank representing
$9,719,510 in the match funding program that is available to qualified
borrowers and $6,000,000 in leverage borrowings.
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 June 30, 2001, the Bank's liquidity ratio stood at 36.2% as compared to
32.0% 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 six months ending June 30, 2001 and 2000
shows a slight increase in net cash provided by operating activities of $0.3
Million. There was an increase in net interest and dividend income of $0.7
Million offset by an increase in cash paid to suppliers of $0.2 Million and
an increase in taxes paid of $0.2 Million.
Cash flows from investing activities show a net decrease in cash used in
investing activities of $16.6 Million when compared to 2000. Purchases of
securities increased by $21.6 Million offset by a net increase in maturities
and sales of $25.5 Million for a net decrease of $3.9 Million in cash used
in investing activities. There was a decrease in cash used in loan activity
of $8.8 Million, a decrease in life insurance policies purchased of $4.7
Million, offset by a decrease in sales of other real estate owned of $0.4
Million and an increase in capital expenditures of $0.2 Million.
Cash flows provided by financing activities decreased by $5.2 Million when
compared to the first six months of 2000. There was a net decrease in cash
provided by demand deposits, NOW, money market and savings accounts of $5.6
Million, a decrease in Federal Home Loan Bank borrowings of $1.9 Million
offset by an increase in time deposits of $2.7 Million.
Capital
- -------
As of June 30, 2001, the Company had total capital of $37,368,602. This
represents an increase of $1,649,229 from $35,674,373 reported on December
31, 2000. The increase in capital was a combination of several factors.
Additions consisted of six months earnings of $1,583,943, transactions
originating through the Dividend Reinvestment Program whereby 5,477.974
shares were issued for cash contributions of $50,998 and 31,843.820 shares
were issued for $298,775 in lieu of cash dividend payments. These additions
were offset by dividends paid of $649,140.
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 June 30, 2001, as a
result of current market values, the portfolio reflects unrealized losses,
net of taxes, of $186,890. 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 June 30, 2001 the actual Risk Based Capital of the Bank was $30,519,000
for Tier 1 Capital, exceeding the minimum requirements of $10,843,680 by
$19,675,320. Total Capital of $33,929,000 exceeded the minimum requirements
of $21,687,360 by $12,241,640 and Leverage Capital of $30,519,000 exceeded
the minimum requirements of $15,567,200 by $14,951,800. 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 June 30, 2001 and at December 31, 2000.
Well June 30, 2001 December 31, 2000
Capitalized --------------------------------------
Requirement Bancorp Bank Bancorp Bank
- -------------------------------------------------------------------------------------------------
<s> <c> <c> <c> <c> <c>
Total Capital (to Risk Weighted Assets) 10% 14.20% 12.52% 13.24% 11.76%
Tier I Capital (to Risk Weighted Assets) 6% 12.95% 11.26% 11.98% 10.50%
Leverage Capital (to Average Assets) 5% 8.98% 7.84% 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 June 30, 2001, these ratios were 7.84% and
11.26%, 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 effect 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) June 30, 2001
- ----------------------------------------------------------
<s> <c>
+200 1.50%
-200 (6.42%)
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 4
The Annual Meeting of the Company's stockholders was held on April 9, 2001
with the following matters being voted upon and with the indicated results.
Proposal One - Election of Class Three Directors
- ------------------------------------------------
The following five individuals were re-elected to serve as directors of the
Company until the 2004 Annual Meeting of stockholders, and until their
successors are elected and qualified.
VOTES
- -------------------------------------------------
Nominee For Against
- -------------------------------------------------
<s> <c> <c>
James D. Carey 2,859,874 24,250
William Q. MacLean Jr. 2,805,403 78,721
Francis A. Macomber 2,855,299 28,825
Majed Mouded MD 2,859,869 24,255
David F. Westgate 2,841,190 42,934
Proposal Two - Election of Clerk/Secretary
- ------------------------------------------
The following individual was reelected by the stockholders to serve as
Clerk/Secretary until the next annual meeting of the stockholders, and until
his successor is elected and qualified.
VOTES
- -------------------------------------------------
Nominee For Against
- -------------------------------------------------
<s> <c> <c>
Attorney Peter G. Collias 2,790,927 93,197
The following additional directors continued their terms in office after the
meeting.
Thomas B. Almy Donald T. Corrigan
Peter G. Collias Lawrence J. Oliveira DDS
Melvyn A. Holland Peter Paskowski
Shaun O'Hearn Sr. Kenneth R. Rezendes
William J. Sullivan Charles Veloza
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
- ----------- ----------- ----
<s> <c> <c>
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 Slade's Ferry (formerly Weetamoe) Bancorp 1996 Stock Option Plan (3)
(as amended)
10.2 Noncompetition Agreement between Slade's Ferry Trust Company and (4)
Edward S. Machado (A substantially identical contract exists
with Peter Paskowski)
10.3 Supplemental Executive Retirement Agreement between Slade's Ferry (5)
(formerly Weetamoe) Bancorp and Donald T. Corrigan
10.4 Supplemental Executive Retirement Agreement between Slade's Ferry (2)
(formerly Weetamoe) Bancorp and James D. Carey
10.5 Supplemental Executive Retirement Agreement between Slade's Ferry (2)
(formerly Weetamoe) Bancorp and Manuel J. Tavares
10.6 Swansea Mall Lease (4)
10.7 Form of Director Supplemental Retirement Program Director Agreement, (6)
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)
10.8 Form of Directors' Paid-up Insurance Policy for Thomas B. Almy (part (7)
of the Director Supplemental Retirement Program). (Similar forms of
policy entered into by Company for other directors).
10.9 Form of Officers' Paid-up Endorsement Method Split Dollar Plan (8)
Agreement and Insurance Policies for Janice Partridge (Similar
forms of policies entered into by Company for its President
and other Vice Presidents)
<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-Q for the quarter
ended June 30, 1999.
<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)
August 9, 2001 /s/ Kenneth R. Rezendes
-------------------------------------
(Date) (Signature) Kenneth R. Rezendes
President/Chief Executive Officer/Director
August 9, 2001 /s/ James D. Carey
-------------------------------------
(Date) (Signature) James D. Carey
Executive Vice President/Director
August 9, 2001 /s/ Edward Bernardo Jr.
-------------------------------------
(Date) (Signature) Edward Bernardo Jr.
Vice President/Treasurer
Chief Financial Officer/Chief Accounting Officer