UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K/A CURRENT REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of report (Date of earliest event reported) August 23, 1996 --------------- Commission file number 33-47248 -------- WEETAMOE 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) - ------------------------------------------------------------------------------- (Former Name or Former Address, if changed since last report) Item 7. Financial Statements and Exhibits - ----------------------------------------- (a) Financial Statements of business acquired. ------------------------------------------ (1) Fairbank, Inc. and Subsidiary Consolidated Balance Sheets as of June 30, 1996 and 1995 (Unaudited); (2) Fairbank, Inc. and Subsidiary Consolidated Statements of Income for the Periods Ended June 30, 1996 and 1995 (Unaudited); (3) Fairbank, Inc. and Subsidiary Consolidated Statements of Changes in Stockholders' Equity for the Periods Ended June 30, 1996 and 1995 (Unaudited); (4) Fairbank, Inc. and Subsidiary Consolidated Statements of Cash Flows for the Periods Ended June 30, 1996 and 1995 (Unaudited); (5) Fairbank, Inc. and Subsidiary Notes to Consolidated Financial Statements for Six Months Ended June 30, 1996 and 1995 (Unaudited); (6) Report of Independent Auditor; (7) Fairbank, Inc. and Subsidiary Consolidated Audited Financial Statements as of December 31, 1995 and 1994: * Consolidated Balance Sheets * Consolidated Statements of Income * Consolidated Statements of Changes in Stockholders' Equity * Consolidated Statements of Cash Flows * Notes to Consolidated Financial Statements (b) Pro Forma Financial Statements. (1) Weetamoe Bancorp Pro Forma Consolidated Balance Sheet as of June 30, 1996 (Unaudited); (2) Weetamoe Bancorp Pro Forma Condensed Combined Statement of Income for the Twelve Months Ended December 31, 1995 (Unaudited); (3) Weetamoe Bancorp Pro Forma Condensed Combined Statement of Income for the Six Months Ended June 30, 1996 (Unaudited). ITEM 7(a)1 FAIRBANK INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS JUNE 30, 1996 AND 1995 (Unaudited) 1996 1995 -------------------------- ASSETS: Cash and due from banks $ 3,635,207 $ 2,561,471 Interest bearing time deposits in banks 42,079 40,550 Federal funds sold 14,900,000 13,550,000 Investments in available-for-sale securities (at fair value) 8,574,806 6,094,416 Investments in held-to-maturity securities 1,802,632 2,878,254 Federal Home Loan Bank stock, at cost 171,100 0 Federal Reserve Bank stock, at cost 93,600 93,600 Loans, net 34,159,160 35,577,277 Premises and equipment 1,705,482 1,725,699 Goodwill 675,613 704,240 Other real estate owned 216,849 217,509 Other assets 677,344 756,981 -------------------------- Total Assets $66,653,872 $64,199,997 ========================== LIABILITIES AND STOCKHOLDERS' EQUITY: Deposits 59,486,399 57,323,812 Notes payable 1,293,013 1,447,000 Other liabilities 191,044 275,423 -------------------------- Total liabilities $60,970,456 $59,046,235 -------------------------- Stockholders' Equity: Preferred stock, no par value, 100 shs authorized; issued and outstanding 10 shs 1,000 1,000 Common stock, no par value, 70,000 shs authorized; issued and outstanding 44,275 shs 6,248,390 6,248,390 Accumulated deficit (465,309) (1,025,748) Net unrealized holding loss on available-for-sale securities (100,665) (69,880) -------------------------- Total Stockholders' Equity 5,683,416 5,153,762 -------------------------- Total Liabilities and Stockholders' Equity $66,653,872 $64,199,997 ========================== ITEM 7(a)2 FAIRBANK INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME PERIODS ENDED JUNE 30, 1996 AND 1995 (Unaudited) 1996 1995 ------------------------ Interest and dividend income: Interest and fees on loans $1,754,213 $1,754,996 Interest and dividends on securities: Taxable 286,095 284,898 Tax-exempt 2,074 3,286 Interest on federal funds sold 398,895 281,207 ------------------------ Total interest and dividend income $2,441,277 $2,324,387 ------------------------ Interest expense: Interest on deposits 913,963 852,347 Interest on notes payable 65,209 68,591 ------------------------ Total interest expense $ 979,172 $ 920,938 ------------------------ Net interest and dividend income 1,462,105 1,403,449 Provision for possible loan losses 70,000 10,000 ------------------------ Net interest and dividend income after provision for loan losses $1,392,105 $1,393,449 ------------------------ Other income: Service charges on deposit accounts 44,689 46,154 Gain on sale of other real estate owned, net 0 47,957 Other income 111,315 90,364 Securities gains (net) 0 526 ------------------------ Total other income $ 156,004 $ 185,001 ------------------------ Other expenses: Salaries and employee benefits 552,907 569,712 Occupancy expense 87,690 82,174 Equipment expense 79,891 111,481 Provision for loss on other real estate owned 20,000 0 Other expenses 532,393 445,046 ------------------------ Total other expenses $1,272,881 $1,208,413 ------------------------ Income before income taxes 275,228 370,037 Income taxes 55,000 161,008 ------------------------ Net Income $ 220,228 $ 209,029 ======================== ITEM 7(a)3 FAIRBANK INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY PERIODS ENDED JUNE 30, 1996 AND 1995 (Unaudited) Net Unrealized Gain (Loss) Preferred Common Accumulated on AFS Stock Stock Deficit Securities Total --------------------------------------------------- Balance, December 31, 1994 $ 2,000 $6,248,390 $(1,234,677) $(235,370) $4,780,343 Net income 209,029 209,029 Preferred stock cash dividend (100) 100 Net change in unrealized holding loss on available-for-sale securities 165,490 165,490 Retirement of preferred stock (1,000) (1,000) ---------------------------------------------------------------- Balance, June 30, 1995 1,000 6,248,390 (1,025,748) (69,880) 5,153,762 Net income 340,211 340,211 Net change in unrealized holding loss on available-for-sale securities 44,308 44,308 ---------------------------------------------------------------- Balance, December 31, 1995 1,000 6,248,390 (685,537) (25,572) 5,538,281 Net income 220,228 220,228 Net change in unrealized holding loss on available-for-sale securities (75,093) (75,093) ---------------------------------------------------------------- Balance, June 30, 1996 $ 1,000 $6,248,390 $ (465,309) $(100,665) $5,683,416 ================================================================ ITEM 7(a)4 FAIRBANK INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS Periods Ended June 30, 1996 and 1995 (Unaudited) 1996 1995 -------------------------- Cash flows from operating activities: Net income $ 220,228 $ 209,029 Adjustments to reconcile net income to net cash provided by operating activities: Securities gains, net 0 (526) Depreciation and amortization 100,434 113,480 Provision for loan losses 70,000 10,000 Provision for loss on other real estate owned 20,000 0 Gain on sales of other real estate owned, net 0 (47,957) Increase (decrease) in taxes payable (5,691) 59,559 (Increase) decrease in interest receivable (41,408) 41,019 Decrease in interest payable (19,098) (17,079) Increase (decrease) in accrued expenses (43,103) (18,304) (Increase) decrease in prepaid expenses 46,145 (11,218) (Decrease) increase in other liabilities 27,648 52,869 Amortization (accretion) of securities, net 5,589 7,188 Decrease (increase) in other assets 1,643 71,114 Change in unearned income (3,504) (2,540) -------------------------- Net cash provided by operating activities $ 378,883 $ 466,634 -------------------------- Cash flows from investment activities: (Increase) decrease in interest bearing time deposits in banks (767) (563) Purchases of available-for-sale securities (2,109,137) (1,449,352) Proceeds from sales of available-for-sale securities 0 432,160 Proceeds from maturities of available-for-sale securities 827,572 974,066 Purchases of held-to-maturity securities (775,193) (405,296) Proceeds from maturities of held-to-maturity securities 76,393 850,000 Net (increase) decrease in loans 2,377,554 (38,403) Capital expenditures (4,470) (16,225) Recoveries of previously charged-off loans 9,096 7,443 Increase in federal funds sold (2,600,000) (5,950,000) Proceeds from sales of other real estate owned 0 235,650 -------------------------- Net cash used in investing activities $(2,198,952) $(5,360,520) -------------------------- FAIRBANK INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS Periods Ended June 30, 1996 and 1995 (Continued) 1996 1995 ------------------------ Cash flows from financing activities: Dividends paid $ 0 $ (100) Net increase in demand deposits, NOW, money market and savings accounts 2,011,459 1,079,508 Net increase (decrease) in time deposits (665,964) 3,727,806 Repayment of notes payable (103,987) 0 Retirement of preferred stock 0 (1,000) ------------------------ Net cash provided by financing activities $1,241,508 $4,806,214 ------------------------ Net decrease in cash and cash equivalents (578,561) (87,672) Cash and cash equivalents at beginning of period 4,213,768 2,649,143 ------------------------ Cash and cash equivalents at end of period $3,635,207 $2,561,471 ======================== Supplemental disclosures: Loans originating from sales of other real estate owned $ 0 $ 0 Interest paid 998,270 938,017 Income taxes paid 60,691 101,449 ITEM 7(a)5 FAIRBANK INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For Six Months Ended June 30, 1996 and 1995 (Unaudited) Note A - Basis of Presentation - ------------------------------ The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and accordingly do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of the management of Fairbank, Inc. ("Company"), all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Note B - Accounting Policies - ---------------------------- The accounting principles followed by the Company and the methods of applying these principles which materially affect the determination of financial position, results of operations and changes in financial position are consistent throughout. ITEM 7(a)6 SHATSWELL, MacLEOD & COMPANY, P.C. CERTIFIED PUBLIC ACCOUNTANTS 83 PINE STREET WEST PEABODY, MASSACHUSETTS 01960-3635 (508) 535-0206 The Board of Directors Fairbank Inc. Fairhaven, Massachusetts INDEPENDENT AUDITORS' REPORT ---------------------------- We have audited the accompanying consolidated balance sheets of Fairbank Inc. and Subsidiary as of December 31, 1995 and 1994 and the related consolidated statements of income, changes in stockholders' equity and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the over-all consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Fairbank Inc. and Subsidiary as of December 31, 1995 and 1994, and the results of their operations and their cash flows for the years then ended, in conformity with generally accepted accounting principles. /s/ SHATSWELL, MacLEOD & COMPANY, P.C. SHATSWELL, MacLEOD & COMPANY, P.C. January 9, 1996 ITEM 7(a)7 FAIRBANK INC. AND SUBSIDIARY ---------------------------- CONSOLIDATED BALANCE SHEETS --------------------------- December 31, 1995 and 1994 -------------------------- 1995 1994 -------------------------- ASSETS Cash and due from banks $ 4,213,768 $ 2,649,143 Interest bearing time deposits in banks 41,312 39,987 Federal funds sold 12,300,000 7,600,000 Investments in available-for-sale securities (at fair value) (Note 3) 7,423,144 5,783,330 Investments in held-to-maturity securities (fair value of $1,076,533 as of December 31, 1995 and $3,164,650 as of December 31, 1994) (Note 3) 1,103,832 3,309,276 Federal Home Loan Bank stock, at cost 171,100 Federal Reserve Bank stock, at cost 93,600 93,600 Loans, net (Note 4) 36,612,306 35,553,777 Premises and equipment (Note 5) 1,787,135 1,926,580 Goodwill 689,925 718,555 Other real estate owned 236,849 405,202 Accrued interest receivable 315,903 344,899 Other assets 318,599 517,871 -------------------------- $65,307,473 $58,942,220 ========================== LIABILITIES AND STOCKHOLDERS' EQUITY Deposits (Note 6) $58,140,904 $52,516,499 Notes payable (Note 7) 1,397,000 1,447,000 Other liabilities 231,288 198,378 -------------------------- Total liabilities 59,769,192 54,161,877 -------------------------- Commitments and contingent liabilities (Notes 10 and 11) Stockholders' equity: Preferred stock, no par value, 100 shares authorized; issued and outstanding 10 shares in 1995 and 20 shares in 1994 1,000 2,000 Common stock, no par value, 70,000 shares authorized; issued and outstanding 44,275 shares 6,248,390 6,248,390 Accumulated deficit (685,537) (1,234,677) Net unrealized holding loss on available-for-sale securities (25,572) (235,370) -------------------------- Total stockholders' equity 5,538,281 4,780,343 -------------------------- $65,307,473 $58,942,220 ========================== The accompanying notes are an integral part of these consolidated financial statements. FAIRBANK INC. AND SUBSIDIARY ---------------------------- CONSOLIDATED STATEMENTS OF INCOME --------------------------------- Years Ended December 31, 1995 and 1994 -------------------------------------- 1995 1994 ------------------------ Interest and dividend income: Interest and fees on loans $3,590,790 $3,299,925 Interest and dividends on securities: Taxable 550,519 371,244 Tax-exempt 30,243 112,275 Other interest 633,441 301,887 ------------------------ Total interest and dividend income 4,804,993 4,085,331 ------------------------ Interest expense: Interest on deposits (Note 6) 1,802,031 1,220,589 Interest on notes payable (Note 7) 136,255 225,257 ------------------------ Total interest expense 1,938,286 1,445,846 ------------------------ Net interest and dividend income 2,866,707 2,639,485 Provision for loan losses (Note 4) 76,000 75,000 ------------------------ Net interest and dividend income after provision for loan losses 2,790,707 2,564,485 ------------------------ Other income: Service charges on deposit accounts 89,991 109,391 Gain on sales of other real estate owned, net 47,957 2,654 Return item fees 99,907 127,783 Gain on sale of fixed assets 2,903 189,065 Other income 78,800 79,760 ------------------------ Total other income 319,558 508,653 ------------------------ Other expense: Salaries and employee benefits (Note 9) 1,196,723 1,235,917 Occupancy expense 172,685 155,931 Equipment expense 187,198 271,110 Securities losses, net 2,491 232 Provision for loss on other real estate owned 20,659 50,000 Data processing expenses 98,288 98,244 Audit and tax service expense 50,204 57,310 FDIC insurance expense 75,092 126,913 Bank insurance expense 40,279 55,951 Publicity and advertising expense 67,489 80,989 Professional and consulting expense 72,926 35,985 Other expense 548,646 518,535 ------------------------ Total other expense 2,532,680 2,687,117 ------------------------ Income before income taxes (benefit) 577,585 386,021 Income taxes (benefit) (Note 8) 28,345 (43,115) ------------------------ Net income $ 549,240 $ 429,136 ======================== Earnings per share: Net income per share $ 12.41 $ 9.69 ======================== The accompanying notes are an integral part of these consolidated financial statements. FAIRBANK INC. AND SUBSIDIARY ---------------------------- CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY ---------------------------------------------------------- Years Ended December 31, 1995 and 1994 -------------------------------------- Net Unrealized Holding Gain (Loss) On Preferred Common Accumulated Available-For- Stock Stock Deficit Sale Securities Total -------------------------------------------------------------------- Balance, December 31, 1993 $ 2,000 $6,248,390 $(1,663,613) $ 41,680 $4,628,457 Net income 429,136 429,136 Preferred stock cash dividend (200) (200) Net change in unrealized holding gain on available- for-sale securities (277,050) (277,050) -------------------------------------------------------------------- Balance, December 31, 1994 2,000 6,248,390 (1,234,677) (235,370) 4,780,343 Net income 549,240 549,240 Preferred stock cash dividend (100) (100) Net change in unrealized holding loss on available- for-sale securities 209,798 209,798 Retirement of preferred stock (1,000) (1,000) -------------------------------------------------------------------- Balance, December 31, 1995 $ 1,000 $6,248,390 $ (685,537) $ (25,572) $5,538,281 ==================================================================== The accompanying notes are an integral part of these consolidated financial statements. FAIRBANK INC. AND SUBSIDIARY ---------------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS ------------------------------------- Years Ended December 31, 1995 and 1994 -------------------------------------- 1995 1994 -------------------------- Cash flows from operating activities: Net income $ 549,240 $ 429,136 Adjustments to reconcile net income to net cash provided by operating activities: Securities losses, net 2,491 232 Gain on sales of fixed assets (2,903) (189,065) Depreciation and amortization 218,744 252,700 Provision for loan losses 76,000 75,000 Provision for loss on other real estate owned 20,659 50,000 Gain on sales of other real estate owned, net (47,957) (2,654) Decrease in taxes payable (202,858) (254,037) Deferred tax benefit 213,973 154,698 Decrease in interest receivable 28,996 31,388 Decrease in interest payable (9,216) (11,020) Increase (decrease) in accrued expenses 82,924 (10,981) (Increase) decrease in prepaid expenses 1,134 (17,697) Amortization (accretion) of securities, net (32,616) 4,777 Change in unearned income (2,059) 24,337 -------------------------- Net cash provided by operating activities 896,552 536,814 -------------------------- Cash flows from investing activities: (Increase) decrease in interest bearing time deposits in banks (1,325) 536,350 Purchases of available-for-sale securities (5,245,211) (2,535,602) Proceeds from sales of available-for-sale securities 3,655,277 1,156,506 Proceeds from maturities of available-for-sale securities 1,801,062 3,082,505 Purchases of held-to-maturity securities (1,351,265) (3,328,176) Proceeds from maturities of held-to-maturity securities 2,102,734 25,360 Purchase of Federal Home Loan Bank stock (171,100) Net (increase) decrease in loans (1,254,695) 1,032,384 Capital expenditures (50,669) (253,724) Recoveries of previously charged-off loans 17,876 41,946 Increase (decrease) in other liabilities (5,559) 19,872 Increase in federal funds sold (4,700,000) (1,600,000) Decrease (increase) in other assets (5,260) 190,784 Proceeds from sales of fixed assets 2,903 762,893 Proceeds from sales of other real estate owned 300,000 241,525 Proceeds from paydowns on in-substance foreclosed assets 12,780 Rent received on other real estate owned 2,800 Other real estate owned expenditure capitalized (43,500) -------------------------- Net cash used in investing activities (4,905,232) (655,297) -------------------------- FAIRBANK INC. AND SUBSIDIARY ---------------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS ------------------------------------- Years Ended December 31, 1995 and 1994 -------------------------------------- (continued) 1995 1994 ------------------------- Cash flows from financing activities: Dividends paid (100) (200) Net increase (decrease) in demand deposits, NOW, money market and savings accounts 2,757,654 (909,355) Net increase in time deposits 2,866,751 2,590,702 Repayment of notes payable (50,000) (3,020,333) Proceeds from notes payable 1,447,000 Retirement of preferred stock (1,000) ------------------------- Net cash provided by financing activities 5,573,305 107,814 ------------------------- Net increase (decrease) in cash and cash equivalents 1,564,625 (10,669) Cash and cash equivalents at beginning of year 2,649,143 2,659,812 ------------------------- Cash and cash equivalents at end of year $4,213,768 $2,649,143 ========================= Supplemental disclosures: Loans originating from sales of other real estate owned $ $ 123,500 Interest paid 1,947,502 1,456,866 Income taxes paid 17,230 56,224 Held-to-maturity securities transferred to available-for-sale securities 1,504,470 Loans transferred to other real estate owned 104,349 The accompanying notes are an integral part of these consolidated financial statements. FAIRBANK INC. AND SUBSIDIARY ---------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ Years Ended December 31, 1995 and 1994 -------------------------------------- NOTE 1 - NATURE OF OPERATIONS - ----------------------------- Fairbank Inc. (Company) is a Massachusetts corporation that was organized in 1984 to become the holding company of National Bank of Fairhaven (Bank). The Company's primary activity is to act as the holding company for the Bank. The Bank is a federally chartered bank which was incorporated in 1831 and is headquartered in Fairhaven, Massachusetts. The Bank operates its business from two banking offices located in Massachusetts. The Bank is engaged principally in the business of attracting deposits from the general public and investing those deposits in residential and real estate loans, and in consumer and small business loans. NOTE 2 - ACCOUNTING POLICIES - ---------------------------- The accounting and reporting policies of the Company and its Subsidiary conform to generally accepted accounting principles and predominant practices within the banking industry. The consolidated financial statements of the Company and its Subsidiary were prepared using the accrual basis of accounting. The significant accounting policies of the Company and its Subsidiary are summarized below to assist the reader in better understanding the financial statements and other data contained herein. PERVASIVENESS OF ESTIMATES: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from the estimates. BASIS OF PRESENTATION: The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, the Bank. All significant intercompany accounts and transactions have been eliminated in the consolidation. CASH AND CASH EQUIVALENTS: For the purposes of reporting cash flows, cash and cash equivalents include cash on hand, cash items, and due from banks. SECURITIES: Investments in debt securities are adjusted for amortization of premiums and accretion of discounts computed on the straight-line method which has substantially the same effect as using the interest method. Gains or losses on sales of investment securities are computed on a specific identification basis. The Company classifies debt and equity securities into one of three categories: held-to-maturity, available-for-sale, or trading. This security classification may be modified after acquisition only under certain specified conditions. In general, securities may be classified as held-to-maturity only if the Company has the positive intent and ability to hold them to maturity. Trading securities are defined as those bought and held principally for the purpose of selling them in the near term. All other securities must be classified as available-for-sale. -- Held-to-maturity securities are measured at amortized cost in the balance sheet. Unrealized holding gains and losses are not included in earnings or in a separate component of capital. -- Available-for-sale securities are carried at fair value on the balance sheet. Unrealized holding gains and losses are not included in earnings, but are reported as a net amount (less expected tax) in a separate component of capital until realized. -- Trading securities are carried at fair value on the balance sheet. Unrealized holding gains and losses for trading securities are included in earnings. LOANS: Loans receivable that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at their outstanding principal balances reduced by amounts due to borrowers on unadvanced loans, any charge-offs, the allowance for loan losses and any deferred fees or costs on originated loans, or unamortized premiums or discounts on purchased loans. Interest on loans is generally recognized on a simple interest basis. Interest on loans is generally not accrued when loans become 90 days or more overdue. Loan origination and commitment fees and certain direct origination costs are deferred, and the net amount amortized as an adjustment of the related loan's yield. The Company is generally amortizing these amounts over the contractual life of the related loans. Cash receipts of interest income on impaired loans is credited to principal to the extent necessary to eliminate doubt as to the collectibility of the net carrying amount of the loan. Some or all of the cash receipts of interest income on impaired loans is recognized as interest income if the remaining net carrying amount of the loan is deemed to be fully collectible. When recognition of interest income on an impaired loan on a cash basis is appropriate, the amount of income that is recognized is limited to that which would have been accrued on the net carrying amount of the loan at the contractual interest rate. Any cash interest payments received in excess of the limit and not applied to reduce the net carrying amount of the loan are recorded as recoveries of charge-offs until the charge-offs are fully recovered. ALLOWANCE FOR POSSIBLE LOAN LOSSES: An allowance is available for losses which may be incurred in the future on loans in the current portfolio. The allowance is increased by provisions charged to current operations and is decreased by loan losses, net of recoveries. The provision for loan losses is based on management's evaluation of current and anticipated economic conditions, changes in the character and size of the loan portfolio, and other indicators. The balance in the allowance for possible loan losses is considered adequate by management to absorb any reasonably foreseeable loan losses. As of January 1, 1995, the Company adopted Statement of Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment of a Loan," as amended by SFAS No. 118. According to SFAS No. 114, a loan is impaired when, based on current information and events, it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. The Statement requires that impaired loans be measured on a loan by loan basis by either the present value of expected future cash flows discounted at the loan's effective interest rate, the loan's observable market price, or the fair value of the collateral if the loan is collateral dependent. The Statement is applicable to all loans, except large groups of smaller balance homogeneous loans that are collectively evaluated for impairment, loans that are measured at fair value or at the lower of cost or fair value, leases, and convertible or nonconvertible debentures and bonds and other debt securities. The financial statement impact of adopting the provisions of this Statement was not material. PREMISES AND EQUIPMENT: Premises and equipment are stated at cost, less accumulated depreciation and amortization. Cost and related allowances for depreciation and amortization of premises and equipment retired or otherwise disposed of are removed from the respective accounts with any gain or loss included in income or expense. Depreciation and amortization are calculated principally on the straight-line method over the estimated useful lives of the assets. OTHER REAL ESTATE OWNED AND IN-SUBSTANCE FORECLOSURES: Other real estate owned includes properties acquired through foreclosure and properties classified as in-substance foreclosures in accordance with Financial Accounting Standards Board Statement No. 15, "Accounting by Debtors and Creditors for Troubled Debt Restructuring." These properties are carried at the lower of cost or estimated fair value less estimated costs to sell. Any writedown from cost to estimated fair value required at the time of foreclosure or classification as in-substance foreclosure is charged to the allowance for possible loan losses. Expenses incurred in connection with maintaining these assets are included in other expense. Beginning in 1995, in accordance with Statement of Financial Accounting Standards No. 114 "Accounting by Creditors for Impairment of a Loan," the Company classifies loans as in-substance repossessed or foreclosed if the Company receives physical possession of the debtor's assets regardless of whether formal foreclosure proceedings take place. INCOME TAXES: The Company recognizes income taxes under the asset and liability method. Under this method, deferred tax assets and liabilities are established for the temporary differences between the accounting basis and the tax basis of the Company's assets and liabilities at enacted tax rates expected to be in effect when the amounts related to such temporary differences. GOODWILL: Goodwill arising from the aquisition of the Bank is reported net of accumulated amortization. Goodwill is being amortized on a straight- line basis over a period of forty years. FAIR VALUES OF FINANCIAL INSTRUMENTS: Statement of Financial Accounting Standards No. 107, "Disclosures about Fair Value of Financial Instruments," requires that the Company disclose estimated fair value for its financial instruments. Fair value methods and assumptions used by the Company in estimating its fair value disclosures are as follows: Cash and cash equivalents: The carrying amounts reported in the balance sheet for cash and federal funds sold approximate those assets' fair values. Securities (including mortgage-backed securities): Fair values for securities are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments. Loans receivable: For variable-rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values. The fair values for other loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. The carrying amount of accrued interest approximates its fair value. Deposit liabilities: The fair values disclosed for demand deposits (e.g., interest and non-interest checking, passbook savings, and money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits. Off-balance sheet instruments: The fair value of commitments to originate loans is estimated using the fees currently charged to enter similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed-rate loan commitments and the unadvanced portion of loans, fair value also considers the difference between current levels of interest rates and the committed rates. The fair value of letters of credit is based on fees currently charged for similar agreements or on the estimated cost to terminate them or otherwise settle the obligation with the counterparties at the reporting date. NOTE 3 - SECURITIES - ------------------- Investments in available-for-sale securities are carried at fair value on the balance sheet and are summarized as follows as of December 31, 1995: Gross Gross Amortized Unrealized Unrealized Cost Holding Holding Fair Basis Gains Losses Value -------------------------------------------------- Debt securities issued by the U.S. Treasury and other U.S. government corporations and agencies $4,880,969 $3,595 $39,512 $4,845,052 Debt securities issued by states of the United States and political subdivisions of the states 362,336 5,213 357,123 Debt securities issued by foreign governments 1,000 1,000 Mortgage-backed securities 2,222,300 4,460 6,791 2,219,969 -------------------------------------------------- $7,466,605 $8,055 $51,516 $7,423,144 ================================================== Information about the contractual maturities of investments in debt securities classified as available-for-sale is summarized as follows as of December 31, 1995: Amortized Cost Fair Basis Value ------------------------ Due within one year $ 300,909 $ 298,096 Due after one year through five years 3,713,740 3,683,699 Due after five years through ten years 952,971 943,813 Due after ten years 276,685 277,567 Mortgage-backed securities 2,222,300 2,219,969 ------------------------ $7,466,605 $7,423,144 ======================== In 1995, the Bank transferred at fair value certain debt securities classified as held-to-maturity to securities classified as available-for- sale. The unrealized holding gain of $1,032 ($1,788 less tax effect) at the date of transfer has been recognized as a separate component of stockholders' equity. The transfer was a result of a reassessment of the appropriateness of the classification of all securities held as of December 31, 1995. In accordance with a special report of the Financial Accounting Standards Board regarding SFAS No. 115 this transfer will not call into question the intent of the Bank to hold other debt securities to maturity in the future. During 1995, proceeds from sales of available-for-sale securities amounted to $3,655,277. Gross realized gains and gross realized losses on those sales amounted to $24,563 and $27,054, respectively. Investments in available-for-sale securities are carried at fair value on the balance sheet and are summarized as follows as of December 31, 1994: Gross Amortized Unrealized Cost Holding Fair Basis Losses Value -------------------------------------- Debt securities issued by the U.S. Treasury and other U.S. government corporations and agencies $4,925,750 $308,227 $4,617,523 Debt securities issued by states of the United States and political subdivisions of the states 788,814 37,276 751,538 Corporate debt securities 1,000 1,000 Mortgage-backed securities 475,518 62,249 413,269 -------------------------------------- $6,191,082 $407,752 $5,783,330 ====================================== During 1994, proceeds from sales of available-for-sale securities amounted to $1,156,506. Gross realized gains and gross realized losses on those sales amounted to $9,011 and $9,243, respectively. Investments in held-to-maturity securities are carried at amortized cost on the balance sheet and are summarized as follows as of December 31, 1995: Gross Gross Amortized Unrealized Unrealized Cost Holding Holding Fair Basis Gains Losses Value ---------------------------------------------------- Debt securities issued by the U.S. Treasury and other U.S. government corporations and agencies $ 347,703 $ $ 6,079 $ 341,624 Mortgage-backed securities 756,129 2,780 24,000 734,909 ---------------------------------------------------- $1,103,832 $2,780 $30,079 $1,076,533 ==================================================== Information about the contractual maturities of investments in debt securities classified as held-to-maturity is summarized as follows as of December 31, 1995: Amortized Cost Fair Basis Value ------------------------ Due after five years through ten years $ 169,575 $ 166,610 Due after ten years 178,128 175,014 Mortgage-backed securities 756,129 734,909 ------------------------ $1,103,832 $1,076,533 ======================== Investments in held-to-maturity securities are carried at amortized cost on the balance sheet and are summarized as follows as of December 31, 1994: Gross Gross Amortized Unrealized Unrealized Cost Holding Holding Fair Basis Gains Losses Value ---------------------------------------------------- Debt securities issued by the U.S. Treasury and other U.S. government corporations and agencies $2,250,447 $1,804 $ 40,179 $2,212,072 Debt securities issued by states of the United States and political subdivisions of the states 100,000 100,000 Mortgage-backed securities 958,829 106,251 852,578 ---------------------------------------------------- $3,309,276 $1,804 $146,430 $3,164,650 ==================================================== There were no securities of issuers whose aggregate carrying amount exceeded 10% of stockholders' equity as of December 31, 1995. A total par value of $2,985,000 and $3,085,000 of debt securities was pledged to secure treasury tax and loan, public funds on deposit and Bankruptcy court deposits of the U.S. District Court as of December 31, 1995 and 1994, respectively. NOTE 4 - LOANS - -------------- Loans consisted of the following as of December 31: 1995 1994 -------------------------- Commercial, financial and agricultural $16,031,622 $11,667,866 Real estate - construction and land development 209,018 256,869 Real estate - residential 11,405,671 12,840,674 Real estate - commercial 7,879,202 9,927,285 Consumer 1,299,679 1,343,669 Tax exempt obligations 308,648 371,868 Other 94,608 8,732 -------------------------- 37,228,448 36,416,963 Allowance for possible loan losses (503,570) (744,353) Unearned income (112,572) (118,833) -------------------------- Net loans $36,612,306 $35,553,777 ========================== Information with respect to nonaccrual and past due loans is as follows as of December 31: 1995 1994 ---------------------- Nonaccrual loans $1,227,496 $938,682 Accruing loans past due 90 days or more 15,420 2,295 ---------------------- $1,242,916 $940,977 ====================== The amount of interest income recorded during 1995 and 1994 on nonaccrual loans outstanding as of December 31, 1995 and 1994 amounted to $17,125 and $10,430, respectively. Had these loans performed under their original terms, the amount recorded would have been $137,532 and $125,958 in 1995 and 1994, respectively. Certain directors and executive officers of the Company and companies in which they have significant ownership interest were customers of the Bank during 1995. Total loans to such persons and their companies amounted to $3,456,045 as of December 31, 1995 and $2,507,702 as of December 31, 1994. During 1995, principal payments totaled $578,883 and principal advances amounted to $1,527,226. Changes in the allowance for possible loan losses were as follows for the years ended December 31: 1995 1994 ---------------------- Balance at beginning of period $ 744,353 $ 952,084 Loans charged off (334,659) (324,677) Provision for loan losses 76,000 75,000 Recoveries of loans previously charged off 17,876 41,946 ---------------------- Balance at end of period $ 503,570 $ 744,353 ====================== Information about loans that meet the definition of an impaired loan in Statement of Financial Accounting Standards No. 114 is as follows as of December 31, 1995: Recorded Related Investment Allowance In Impaired For Credit Loans Losses ------------------------ Loans for which there is a related allowance for credit losses $ 611,093 $114,922 Loans for which there is no related allowance for credit losses 418,759 ---------------------- Totals $1,029,852 $114,922 ---------------------- Average recorded investment in impaired loans during the year ended December 31, 1995 $1,142,552 ---------- Related amount of interest income recognized during the time, in the year ended December 31, 1995, that the loans were impaired Total recognized $ 0 ---------- Amount recognized using a cash-basis method of accounting $ 0 ---------- NOTE 5 - PREMISES AND EQUIPMENT - ------------------------------- The following is a summary of premises and equipment as of December 31: 1995 1994 --------------------------- Land $ 380,000 $ 380,000 Buildings 1,842,154 1,828,160 Furniture and equipment 1,057,793 1,028,171 --------------------------- 3,279,947 3,236,331 Accumulated depreciation and amortization (1,492,812) (1,309,751) --------------------------- $ 1,787,135 $ 1,926,580 =========================== Depreciation and amortization expense amounted to $190,114 and $218,572 for the years ended December 31, 1995 and 1994, respectively. NOTE 6 - DEPOSITS - ----------------- Deposits consisted of the following as of December 31: 1995 1994 -------------------------- Demand deposits $11,390,997 $10,425,503 Regular savings 4,978,497 5,294,947 NOW accounts 14,435,762 12,119,739 Money market accounts 5,632,731 5,840,144 Time deposits, $100,000 and over 6,496,564 6,721,365 Other time deposits 15,206,353 12,114,801 -------------------------- $58,140,904 $52,516,499 ========================== Interest on deposits classified by type is as follows for the years ended December 31: 1995 1994 ------------------------ Regular savings $ 143,472 $ 147,912 NOW accounts 276,462 272,837 Money market accounts 170,152 141,315 Time deposits 1,211,945 658,525 ------------------------ $1,802,031 $1,220,589 ======================== NOTE 7 - NOTES PAYABLE - ---------------------- Notes payable consisted of the following as of December 31: 1995 1994 ----------------------- Note payable by the Company to Fleet National Bank. Minimum quarterly principal payments of $25,000 are payable on the last business day of each calendar quarter beginning on September 30, 1995. The interest rate on $1,150,000 of the loan is fixed at 120 basis points over Fleet's 5-year cost of funds. The $25,000 principal payments are applied to the $1,150,000 fixed rate portion. Additional principal is required in accordance with a cash flow recapture clause and those payments are to be applied to the $247,000 floating rate portion of the loan until such time as it is paid in full. Interest on the floating rate portion is at Prime plus 1%. Under the cash flow recapture clause, the Bank has agreed to pay in the form of dividends 40% of its quarterly net income to the Company to service the loan. In the event that the dividend exceeds the minimum quarterly payment of principal and interest, the excess funds will be applied as an additional principal payment to the floating rate portion of the loan, subject to CFR-60 and Regulatory non- disturbance. Interest payments are due quarterly and the term of the loan is five years from the closing date of November 25, 1994. The purpose of the loan was to refinance a portion of a previously existing $2,847,000 loan. $1,397,000 $1,447,000 ======================== As of December 31, 1995 the Company has pledged to Fleet National Bank, as collateral for the $1,397,000 loan, 100% of the stock of the Bank. Violation by the Company of certain financial covenants constitute an event of default. The ability of the Company to repay the note payable in the amount of $1,397,000 is dependent on the ability of the Bank to pay dividends and pass tax benefits to the Company (see Notes 8 and 13). The maturity requirements of the note payable are as follows based on minimum quarterly principal payments of $25,000 as described above as of December 31, 1995: 1996 $ 100,000 1997 100,000 1998 100,000 1999 1,097,000 ---------- $1,397,000 ---------- Interest expense on notes payable for the years ended December 31, 1995 and 1994 totaled $136,255, and $225,257, respectively. NOTE 8 - INCOME TAXES (BENEFIT) - ------------------------------ The components of income taxes (benefit) are as follows for the years ended December 31: 1995 1994 ---------------------- Current: Federal $ 53,628 $ State 49,445 25,247 ---------------------- 103,073 25,247 ---------------------- Deferred: Federal 163,973 97,933 State 50,000 56,765 ---------------------- 213,973 154,698 ---------------------- Benefit of operating loss carryforward (53,628) ---------------------- Provision for income taxes before change in valuation allowance 263,418 179,945 Change in the valuation allowance (235,073) (223,060) ---------------------- Total income taxes (benefit) $ 28,345 $ (43,115) ====================== The following reconciles the income tax provision from the statutory rate to the amount reported in the consolidated statements of income for the years ended December 31: % of % of 1995 Income 1994 Income ------------------------------------------ Federal income tax at statutory rate $ 196,379 34.0% $ 131,092 34.0% Increase (decrease) in tax resulting from: Tax-exempt interest (8,446) (1.5) (9,273) (2.4) Change in valuation allowance (235,073) (40.7) (223,060) (57.8) Nondeductible goodwill 9,734 1.7 9,734 2.5 Other 1,816 .3 (5,737) (1.5) State tax, net of federal tax benefit 63,935 11.1 54,129 14.0 ------------------------------------------ $ 28,345 4.9% $ (43,115) (11.2)% ========================================== The major components of deferred income tax expense attributable to income are as follows for the years ended December 31: 1995 1994 --------------------- Allowance for loan losses $133,391 $219,408 Loan origination fees 2,647 (10,290) Loan interest applied to principal 28,005 16,867 Valuation of other real estate owned (8,624) 8,347 Net operating loss carryforwards 53,628 (36,672) Tax depreciation 4,805 (42,962) Other adjustments 121 --------------------- $213,973 $154,698 ===================== The Company had gross deferred tax assets and a gross deferred tax liability as follows as of December 31: 1995 1994 ------------------------ Deferred tax assets: Allowance for loan losses $ 43,850 $ 177,241 Loan origination fees 47,591 50,238 Loan interest applied to principal 56,229 84,234 Valuation of other real estate owned 36,308 27,684 Net operating loss carryforwards 539,023 592,651 Other adjustments 161 608 Net unrealized holding loss on available-for-sale securities 17,889 173,994 ------------------------ Gross deferred tax asset 741,053 1,106,650 Valuation allowance (370,437) (607,453) ------------------------ 370,616 499,197 ------------------------ Deferred tax liability: Excess tax depreciation (188,521) (183,716) ------------------------ Gross deferred tax liability (188,521) (183,716) ------------------------ Net deferred tax asset $ 182,095 $ 315,481 ======================== The Company had operating loss and tax credit carryovers for tax purposes as follows as of December 31, 1995: Expiration Amount Date ------------------------------- Operating loss carryovers: Generated year ending 12/31/87 $ 569,797 December 31, 2002 Generated year ending 12/31/89 19,528 December 31, 2004 Generated year ending 12/31/90 585,481 December 31, 2005 Generated year ending 12/31/91 377,948 December 31, 2006 ---------- $1,552,754 ========== Tax credit carryovers: Generated year ending 12/31/87 $ 4,826 December 31, 1999 Generated year ending 12/31/89 12,728 December 31, 2000 ---------- $ 17,554 ========== On December 10, 1991 the Company consummated a new stock offering which resulted in a cumulative change in the stock ownership of the Company as defined by Section 382 of the Internal Revenue Code. When there has been a cumulative change in ownership of more than 50 percentage points within a three year period, I.R.C. Sec. 382 places an annual limitation on the utilization of net operating loss carryforwards. For both regular tax and alternative minimum tax purposes, the unlimited portion of the net operating loss carryforwards available for use by the Company in 1996 is $698,919. The available carryforwards will increase by $186,268 each year. NOTE 9 - EMPLOYEE BENEFITS - -------------------------- The Company has a contributory 401K plan covering substantially all employees. Under the plan, the Company's contribution is five percent of the participant's salary for the previous year. Amounts charged to expense were $43,951 and $44,593 in 1995 and 1994, respectively. NOTE 10 - COMMITMENTS AND CONTINGENT LIABILITIES - ------------------------------------------------ The Company is obligated under various lease agreements covering a branch and equipment. These agreements are considered to be operating leases. The terms expire between 1998 and 2014. The total minimum rental due in future periods under these lease agreements is as follows as of December 31, 1995: 1996 $ 27,191 1997 27,191 1998 27,093 1999 21,743 2000 16,690 Years thereafter 228,214 -------- Total minimum lease payments $348,122 ======== The total rental expense amounted to $29,785 for 1995 and $5,864 for 1994. NOTE 11 - FINANCIAL INSTRUMENTS - ------------------------------- The Company is party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to originate loans, standby letters of credit and unadvanced funds on loans. The instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the balance sheets. The contract amounts of those instruments reflect the extent of involvement the Company has in particular classes of financial instruments. The Company's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for loan commitments and standby letters of credit is represented by the contractual amounts of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. Commitments to originate loans are agreements to lend to a customer provided there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management's credit evaluation of the borrower. Collateral held varies, but may include secured interests in mortgages, accounts receivable, inventory, property, plant and equipment and income- producing properties. Standby letters of credit are conditional commitments issued by the Company to guarantee the performance by a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. Of the total standby letters of credit outstanding as of December 31, 1995, $29,200 is secured by passbooks and certificates of deposit held by the Bank. The provisions of Statement of Financial Accounting Standards No. 107 "Disclosures about Fair Value of Financial Instruments," as amended by SFAS No. 119, became effective for the Company as of December 31, 1995. The new disclosures are the estimated fair values of the Company's financial instruments, all of which are held or issued for purposes other than trading, which are as follows as of December 31, 1995: Carrying Fair Amount Value -------------------------- Financial assets: Cash and cash equivalents $ 4,213,768 $ 4,213,768 Interest bearing time deposits 41,312 41,312 Federal funds sold 12,300,000 12,300,000 Available-for-sale securities 7,423,144 7,423,144 Held-to-maturity securities 1,103,832 1,076,533 Federal Home Loan Bank stock 171,100 171,100 Federal Reserve Bank stock 93,600 93,600 Loans 36,612,306 36,700,000 Accrued interest receivable 315,903 315,903 Financial liabilities: Deposits 58,140,904 58,213,000 Notes payable 1,397,000 1,504,000 The carrying amounts of financial instruments shown in the above table are included in the consolidated balance sheet under the indicated captions. Notional amounts of financial instrument liabilities with off-balance sheet credit risk are as follows as of December 31: 1995 1994 ------------------------ Commitments to originate loans $1,105,000 $1,350,000 Standby letters of credit 126,624 131,200 Unadvanced portions of consumer loans 490,553 440,383 Unadvanced portions of commercial real estate loans 389,889 468,393 Unadvanced portions of home equity loans 222,347 342,416 Unadvanced portions of commercial lines of credit 2,006,199 2,137,082 There is no material difference between the notional amount and the estimated fair value of the above off-balance sheet liabilities as of December 31, 1995. The Company has no derivative financial instruments subject to the provisions of SFAS No. 119, "Disclosure About Derivative Financial Instruments and Fair Value of Financial Instruments." NOTE 12 - SIGNIFICANT GROUP CONCENTRATIONS OF CREDIT RISK - --------------------------------------------------------- Most of the Company's business activity is with customers located within the state. There are no concentrations of credit to borrowers that have similar economic characteristics. The majority of the Company's loan portfolio is comprised of loans collateralized by real estate located in the state of Massachusetts. NOTE 13 - REGULATORY CAPITAL - ---------------------------- Bank regulators have established Risk Based and Leverage Capital requirements that establish the minimum level of capital. Under the requirements a minimum level of capital will vary among banks based on safety and soundness of operations. As of December 31, 1995 the minimum regulatory capital level for Risk Based Capital was 4% for Tier 1 capital, 8% for total capital and Leverage Capital was 4%. As of December 31, 1995 the actual Risk Based Capital of National Bank of Fairhaven was 13.28% for Tier 1 and 14.54% for total capital and the Leverage Capital was 8.08%. The Bank, as a National Bank is subject to the dividend restrictions set forth by the Comptroller of the Currency. Under such restrictions, the Bank may not, without the prior approval of the Comptroller of the Currency, declare dividends in excess of the sum of the current year's earnings plus the retained earnings from the prior two years. As of December 31, 1995 the amount of dividends the Bank could declare was $718,870. NOTE 14 - RECLASSIFICATION - -------------------------- Certain amounts in the prior year have been reclassified to be consistent with the current year's statement presentation. Item 7(b)1 WEETAMOE BANCORP PRO FORMA CONSOLIDATED BALANCE SHEET (UNAUDITED) ----------------------------------------------------------- JUNE 30, 1996 ----------------------------------------------------------- Weetamoe Fairbank Transaction Bancorp Inc. Adjustments Pro Forma ----------------------------------------------------------- Assets: Cash and due from banks $ 8,101,808 $ 3,677,286 $ 0 $ 11,779,094 Federal Funds Sold 13,000,000 14,900,000 (8,558,800)(G) 19,324,716 (16,484)(H) Investment in Held to Maturity Securities 18,839,576 1,802,632 20,642,208 Investment in Available for Sale Securities 28,159,522 8,574,806 36,734,328 Federal Home Loan Bank Stock 495,400 171,100 666,500 Federal Reserve Bank Stock 93,600 93,600 Loans, Net 155,072,051 34,159,160 (57,000)(B) 189,174,211 Premises and Equipment 3,595,884 1,705,482 5,301,366 Other Real Estate Owned 350,000 216,849 566,849 Accrued Interest Receivable 1,599,306 303,880 1,903,186 Goodwill 675,613 (675,613)(A) 3,607,436 3,607,436 (E) Other Assets 2,732,353 373,464 3,105,817 ----------------------------------------------------------- TOTAL ASSETS $231,945,900 $66,653,872 $(5,700,461) $292,899,311 =========================================================== Liabilities & Capital: Deposits $210,980,336 $59,486,399 $ (9,000)(C) $270,457,735 Notes Payable 1,293,013 (8,045)(D) 1,284,968 Short Term Borrowings 1,558,299 1,558,299 Other Liabilities 1,073,667 191,044 1,264,711 ----------------------------------------------------------- TOTAL LIABILITIES $213,612,302 $60,970,456 $ (17,045) $274,565,713 ----------------------------------------------------------- Stockholder's Equity: Preferred Stock 1,000 (1,000)(I) Common Stock 27,627 6,248,390 (6,248,390)(J) 27,627 Paid in Capital 14,388,643 14,388,643 Retained Earnings 4,355,170 (465,309) (16,484)(H) 4,355,170 8,615,239 (M) (39,955)(F) (8,558,800)(G) (675,613)(A) 1,140,922 (K) Net Unrealized Gain (Loss) on Investments in Available for Sale Securities (437,842) (100,665) 100,665 (L) (437,842) ----------------------------------------------------------- Total Stockholder's Equity $ 18,333,598 $ 5,683,416 $(5,683,416) $ 18,333,598 ----------------------------------------------------------- Total Liabilities and Stockholder's Equity $231,945,900 $66,653,872 $(5,700,461) $292,899,311 =========================================================== Shares Outstanding $ 2,757,051 $ 44,275 (44,275) $ 2,757,051 Book Value per share $ 6.65 $ 128.37 $ 6.65 Tangible Book Value/per share $ 6.65 $ 113.11 $ 5.34 Tangible Equity/Assets 7.90% 7.51% 5.03% NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET A) Represents elimination of goodwill to Fairbank's equity of $675,613. B) Represents a decrease to reflect fair value of Fairbank's loans acquired with a corresponding decrease to Fairbank's equity of $57,000. C) Represents a decrease to reflect fair value of Fairbank's deposits acquired with a corresponding increase to Fairbank's equity of $9,000. D) Represents a decrease to reflect fair value of Fairbank's note payable acquired with a corresponding increase to Fairbank's equity of $8,045. E) Represents excess purchase price over value of tangible net assets acquired after a cash payment of $8,558,800 for 44,275 shares outstanding of Fairbank, Inc. at $193.31 per share and $16,484 of fees and expenses related to the transaction for a total value of $8,575,284. Total purchase price $8,575,284 Net assets of Fairbank, Inc. $5,683,416 Fairbank, Inc.'s Goodwill (675,613) ---------- Net tangible assets of Fairbank, Inc. 5,007,803 Purchase accounting adjustments: Loans $(57,000) Deposits 9,000 Notes payable 8,045 (39,955) -------- ---------- Tangible assets after purchase accounting adjustments 4,967,848 ---------- Excess of purchase price over value of tangible net assets acquired $3,607,436 ========== F) Adjustments to Fairbank, Inc. equity reflecting fair value of assets and liabilities: Decrease in loans $(57,000) (B) Decrease in deposits 9,000 (C) Decrease in notes payable 8,045 (D) -------- $(39,955) ======== G) Represents payment of $8,558,800 for 44,275 shares of Fairbank, Inc. at $193.31 per share. H) Represents payment of $16,484 for fees and expenses related to the transaction. I) Represents elimination of preferred stock of Fairbank, Inc. of $1,000. J) Represents elimination of common stock of Fairbank, Inc. of $6,248,390. K) Represents elimination of retained earnings of Fairbank, Inc. of $(1,140,922) after elimination of Goodwill. L) Represents elimination of unrealized loss on investments in available for sale securities of Fairbank, Inc. of $(100,665). M) Represents additional paid in capital as shown: Elimination of net unrealized loss on available for sale securities $ (100,665) (L) Elimination of equity (1,140,922) (K) Elimination of preferred stock 1,000 (I) Elimination of common stock 6,248,390 (J) Excess of purchase price paid 3,607,436 (E) ----------- $ 8,615,239 =========== ITEM 7(b)2 WEETAMOE BANCORP PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME (UNAUDITED) TWELVE MONTHS ENDED DECEMBER 31, 1995 Weetamoe Bancorp & Fairbank Inc. Pro Forma Combined Subsidiary & Subsidiary Adjustments Pro Forma ----------------------------------------------------------- Interest income $16,541,200 $4,804,993 11,400 (B) $21,357,593 Interest expense 7,764,273 1,938,286 3,000 (C) 2,680 (D) 9,708,239 ----------------------------------------------------------- Net interest income 8,776,927 2,866,707 5,720 11,649,354 Provision for loan losses 550,000 76,000 626,000 ----------------------------------------------------------- Net interest income after provision for loan losses 8,226,927 2,790,707 5,720 11,023,354 Noninterest income 1,055,959 319,558 1,375,517 Noninterest expense 6,631,527 2,532,680 240,500 (A) 9,376,107 (28,600)(E) ----------------------------------------------------------- Income before taxes 2,651,359 577,585 (206,180) 3,022,764 Income taxes 1,005,772 28,345 1,034,117 ----------------------------------------------------------- Net income $ 1,645,587 $ 549,240 $(206,180) $ 1,988,647 =========================================================== Earnings per share: Average shares outstanding 2,607,781 44,275 (44,275) 2,607,781 Net income per share $ 0.63 $ 12.41 $ 0.76 Notes to Unaudited Pro Forma Condensed Statement of Income - ---------------------------------------------------------- A) Represents amortization of $240,500 related to the excess of purchase price over the value of net assets acquired of $3,607,436, using a life of 15 years. B) Represents accretion of $11,400 related to the loan value adjustment of $57,000, utilizing a weighted average expected life of five years. C) Represents amortization of $3,000 related to the premium on acquired deposits of $9,000, utilizing a weighted average contractual maturity of three years. D) Represents amortization of $2,680 related to the premium on acquired notes payable of $8,045, utilizing a weighted average contractual maturity of three years. E) Represents amortization of $28,600 related to Fairbank, Inc. intangible assets amortized using a life of 40 years, eliminated at merger. ITEM 7(b)3 WEETAMOE BANCORP PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME (UNAUDITED) SIX MONTHS ENDED JUNE 30, 1996 Weetamoe Bancorp & Fairbank Inc. Pro Forma Combined Subsidiary & Subsidiary Adjustments Pro Forma ----------------------------------------------------------- Interest income $8,872,473 $2,441,277 5,700 (B) $11,319,450 Interest expense 4,251,713 979,172 1,500 (C) 1,340 (D) 5,233,725 ----------------------------------------------------------- Net interest income 4,620,760 1,462,105 2,860 6,085,725 Provision for loan losses 300,000 70,000 370,000 ----------------------------------------------------------- Net interest income after provision for loan losses 4,320,760 1,392,105 2,860 5,715,725 Noninterest income 641,516 156,004 797,520 Noninterest expense 3,237,058 1,272,881 120,250 (A) 4,615,889 (14,300)(E) ----------------------------------------------------------- Income before taxes 1,725,218 275,228 (103,090) 1,897,356 Income taxes 650,664 55,000 705,664 ----------------------------------------------------------- Net income $1,074,554 $ 220,228 $(103,090) $ 1,191,692 =========================================================== Earnings per share: Average shares outstanding 2,757,051 44,275 (44,275) 2,757,051 Net income per share $ 0.39 $ 4.97 $ 0.43 Notes to Unaudited Pro Forma Condensed Statement of Income - ---------------------------------------------------------- A) Represents amortization of $120,250 related to the excess of purchase price over the value of net assets acquired of $3,607,436, using a life of 15 years. B) Represents accretion of $5,700 related to the loan value adjustment of $57,000, utilizing a weighted average expected life of five years. C) Represents amortization of $1,500 related to the premium on acquired deposits of $9,000, utilizing a weighted average contractual maturity of three years. D) Represents amortization of $1,340 related to the premium on acquired notes payable of $8,045, utilizing a weighted average contractual maturity of three years. E) Represents amortization of $14,300 related to Fairbank, Inc. intangible assets amortized using a life of 40 years, eliminated at merger. 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 hereto duly authorized. WEETAMOE BANCORP ---------------------------------------- (Registrant) November 6, 1996 By /s/ Ralph S. Borges - ---------------- -------------------------------------- (Date) (Signature) Ralph S. Borges, Treasurer