SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
---------------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____ to ___________
Commission file number 000-29343
Port Financial Corp.
(Exact name of registrant as specified in its charter)
Massachusetts 04-1145480
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
689 Massachusetts Avenue, Cambridge, Massachusetts 02139
(Address of principal executive offices)
(Zip Code)
(617) 661-4900
(Registrant's telephone number including area code)
N/A
-----------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed from last Report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve 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 practicable date.
Outstanding at
Class April 14, 2000
- --------------------------------------------------------------------------------
Common Stock,
Par value $.01 7,442,818
TABLE OF CONTENTS
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements of Port Financial Corp.
Consolidated Balance Sheets (Unaudited) - March 31, 2000 and December
31, 1999
Consolidated Statements of Income (Unaudited) - Three months ended
March 31, 2000 and March 31, 1999
Consolidated Statements of Changes in Stockholders' Equity (Unaudited)
Three months ended March 31, 2000 and March 31, 1999
Consolidated Statements of Cash Flows (Unaudited) - Three months ended
March 31, 2000 and March 31, 1999
Notes to Unaudited Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
PART II-- OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
Exhibit 27 - Financial Data Schedule
1
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
Cambridgeport Mutual Holding Company *
Consolidated Balance Sheet
(Unaudited)
March 31, December 31,
2000 1999
-------------- ---------------
(In Thousands)
ASSETS
Cash and due from banks $ 9,231 $ 16,594
Federal funds sold 63,735 -
Other cash equivalents 4,014 2,835
-------------- ---------------
Total cash and cash equivalents 76,980 19,429
Certificates of deposit 2,353 5,149
Investment securities held to maturity 17,853
-
Investment securities available-for-sale at fair value 126,714 131,647
Loans held-for-sale 230 -
Loans, net 597,855 577,029
Federal Home Loan Bank Stock, at cost 4,951 4,452
Savings Bank Life Insurance Stock, at cost 1,934 1,934
Banking premises and equipment, net 19,125 11,782
Accrued interest receivable 4,916 4,054
Other assets 7,908 7,265
-------------- ---------------
Total assets $ 860,819 $ 762,741
============== ===============
LIABILITIES AND RETAINED EARNINGS
Deposits $ 724,480 $ 618,288
Federal Home Loan Bank advances 45,697 55,891
Mortgagors' escrow payments 3,654 3,031
Accrued expenses and other liabilities 7,003 6,401
-------------- ---------------
Total liabilities 780,834 683,611
-------------- ---------------
Commitments and contingencies
Retained earnings 78,348 77,221
Accumulated other comprehensive income 1,637 1,909
-------------- ---------------
Total retained earnings 79,985 79,130
-------------- ---------------
Total liabilities and retained earnings $ 860,819 $ 762,741
============== ===============
* Cambridgeport Mutual Holding Company changed its name to Port Financial Corp.
in connection with its conversion and common stock offering.
See the accompanying notes to unaudited consolidated financial statements.
2
Cambridgeport Mutual Holding Company
Consolidated Statement of Operations
(Unaudited)
Three Months Ended
March 31, March 31,
-----------------------------
2000 1999
----------- -----------
(In Thousands)
Interest and dividend income:
Interest on loans $ 11,140 $ 9,942
Interest and dividends on investment securities 2,264 2,138
Interest on other cash equivalents 206 182
Interest on certificates of deposit 87 101
---------- ----------
Total interest and dividend income 13,697 12,363
---------- ----------
Interest expense:
Interest on deposits 6,531 5,770
Interest on borrowed funds 668 526
---------- ----------
Total interest expense 7,199 6,296
---------- ----------
Net interest income 6,498 6,067
Provision for possible loan losses 166 140
---------- ----------
Net interest income after provision for
possible loan losses 6,332 5,927
---------- ----------
Noninterest income:
Customer service fees 226 194
Net gain on sale of investment securities, net
Gain on sale of loans, net 22 243
Loan servicing fee income 130 129
Increase (decrease) in cash surrender value (135) -
Other income 143 131
---------- ----------
Total noninterest income 386 697
---------- ----------
Noninterest expense:
Salaries and employee benefits 2,722 2,343
Occupancy and equipment expense 752 813
Data processing service fees 380 323
Marketing 302 224
Other noninterest expense 773 754
---------- ----------
Total noninterest expenses 4,929 4,457
---------- ----------
Income before provision for income taxes 1,789 2,167
Provision for income taxes 662 787
---------- ----------
Net income $ 1,127 $ 1,380
========== ==========
See the accompanying notes to unaudited consolidated financial statements.
3
CAMBRIDGEPORT MUTUAL HOLDING COMPANY
Consolidated Statements of Changes in Retained Earnings
For The Periods Ending March 31, 2000 and 1999
(Unaudited)
Accumulated
Other Total
Comprehensive Retained Comprehensive Retained
Income Earnings Income Earnings
------ -------- ------ --------
(In Thousands)
Balance at December 31, 1998 $ 72,447 $ 3,641 $ 76,088
Net income $ 1,380 1,380 - 1,380
Unrealized securities losses, net of $161 tax benefit (279)
Less-reclassification of securities gains included in
net income, net of $0 tax expense 0
----------
Total other comprehensive income (279) - (279) (279)
--------------------------------------------------------
Total comprehensive income $ 1,101
==========
Balance at March 31, 1999 $ 73,827 $ 3,362 $ 77,189
===========================================
Balance at December 31, 1999 $ 77,221 $ 1,909 $ 79,130
Net income $ 1,127 1,127 - 1,127
Unrealized securities losses, net of $153 tax benefit (272)
Less-reclassification of securities gains included in
net income, net of $0 tax expense 0
----------
Total other comprehensive income (272) - (272) (272)
--------------------------------------------------------
Total comprehensive income $ 855
==========
Balance at March 31, 2000 $ 78,348 $ 1,637 $ 79,985
===========================================
4
Cambridgeport Mutual Holding Company
Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)
Three Months Ended Three Months
March 31 Ended March 31
2000 1999
---- ----
Cash flows from operating activities:
Net income $ 1,127 $ 1,380
Adjustments to reconcile net income to net cash
Provided by operating activities-
Provision for possible loan losses 166 140
Depreciation and amortization 243 329
Net gain from sales of investment securities - -
Amortization (accretion) of premiums on investment securities, net (38) 106
Gain on loan sales, net (22) (243)
Gain on sales of other real estate owned, net - -
Decrease in cash surrender value of life insurance policies 135 -
Proceeds from sale of loans 2,885 18,769
Loans originated for sale (3,093) (16,898)
(Increase) decrease in other assets (778) 1,419
(Increase) decrease in accrued interest receivable (862) (652)
(Decrease) increase in deferred loan fees (139) (71)
(Decrease) increase in accrued expenses and other liabilities 602 (495)
--------- ----------
Net cash provided by (used in) operating activities 226 3,784
--------- ----------
Cash flows from investing activities:
Proceeds from sales, maturities and principal repayments
Of securities available-for-sale 4,462 10,023
Purchases of securities available-for-sale - (5,849)
Proceeds from sales, maturities and principal repayments
Of held to maturity securities 117 -
Purchases of held to maturity securities (17,969) -
Proceeds from maturities of certificates of deposit 2,876 -
Purchase of certificates of deposit (79) (92)
Net decrease in short-term investments - -
Purchase of FHLB stock (499) (573)
Proceeds from sales of other real estate owned - -
Purchase of premises and equipment (7,586) (108)
Loans originations, net (20,635) (20,916)
Recoveries of loans previously charged-off 17 108
--------- ----------
Net cash used in investing activities (39,296) (17,407)
--------- ----------
5
Cambridgeport Mutual Holding Company
Consolidated Statements of Cash Flows-(Continued)
(In Thousands)
(Unaudited)
Three Months Three Months
Ended March 31, Ended March 31,
2000 1999
---- ----
Cash flows from financing activities:
Increase (decrease) in certificates of deposits (5,107) 19,803
Increase in demand deposits, NOW accounts and saving accts 111,299 3,925
Increase (decrease) in mortgagor's escrow payments 623 553
Additions to borrowings - 7,407
Repayment of borrowings (10,194) -
--------- ---------
Net cash provided by financing activities 96,621 31,688
--------- ---------
Net increase in cash and cash equivalents 57,551 18,065
Cash and cash equivalents, beginning of year 19,429 10,047
--------- ---------
Cash and cash equivalents, end of period $ 76,980 $ 28,112
========= =========
Supplemental disclosures of cash flow information:
Cash paid for interest $ 7,227 $ 6,252
========= =========
Cash paid for income taxes $ 277 $ 496
========= =========
See the accompanying notes to unaudited consolidated financial statements
6
Cambridgeport Mutual Holding Company
Notes to Unaudited Consolidated Financial Statements
1) Basis of Presentation
The unaudited consolidated financial statements of Port Financial Corp. ("Port"
or the "Company") include the accounts of the Company and its two wholly owned
subsidiaries, Cambridgeport Bank (the "Bank") and Brighton Investment
Corporation. Brighton Investment Corporation engages in the investment of
securities. Cambridgeport Bank is a Massachusetts-chartered savings bank with
its headquarters located in Cambridge, Massachusetts. The Bank has two wholly
owned subsidiaries, Temple Investment Corporation and River Investment
Corporation. Temple Investment Corporation and River Investment Corporation both
engage in the investment of securities. In addition, Cambridgeport Bank is the
sole member of Temple Realty LLC, which was formed to own the land and the
building of the Company's new administrative center.
The unaudited consolidated financial statements of Port presented herein, should
be read in conjunction with the consolidated financial statements of
Cambridgeport Mutual Holding Company as of and for the year ended December 31,
1999, and the notes thereto. The accompanying unaudited consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. The preparation of financial
statements in conformity with generally accepted accounting principle requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosures of contingent asset and liabilities at
the date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates. In the opinion of management, the unaudited consolidated financial
statements presented herein reflect all adjustments (consisting only of normal
adjustments) necessary for a fair presentation. Interim results are not
necessarily indicative of results to be expected for the entire year.
2) Conversion
On April 11, 2000, the Company received regulatory approval to complete its
offering of common stock in connection with the conversion of Cambridgeport
Mutual Holding Company to a stock holding company. The Company's common stock
began trading on the NASDAQ National Market on April 12, 2000. The Company sold
7,442,818 shares of common stock at a price of $10 per share to eligible
depositors of the Bank, management and employees, and the Bank's employee stock
ownership plan ("ESOP") in the stock offering.
7
3) New Administrative Center
On March 1, 2000, Temple Realty LLC purchased a parcel of land and an office
building located in the Brighton section of Boston, approximately two miles from
the Bank's headquarters in Cambridge. This facility will house certain
administrative departments and all lending operations. Occupancy of the building
should occur by the end of the second quarter of 2000. The Company will occupy
approximately 55% of the 74,000 square foot building, and the remaining space
will be leased to tenants. The cost of the building is approximately $16.5
million, of which $14.5 million has been funded by borrowings from the Federal
Home Loan Bank of Boston.
4) Arlington Branch
The Bank has received all regulatory approvals in its application to open a
branch office in Arlington, MA, a town adjacent to Cambridge. The Bank will
lease a branch bank building in Arlington that was formerly occupied by a major
Boston-based bank. The Bank expects the branch to opened by the end of the June
2000.
(5) Loans
The loan portfolio consisted of the following (in thousands):
(Unaudited)
March 31, December 31,
2000 1999
---- ----
Real estate loans-
Residential $ 321,885 $ 297,709
Commercial 206,602 212,833
Home equity lines of credit 64,541 62,458
Construction 5,340 3,716
--------- -----------
Total real estate loans 598,368 576,716
Commercial 954 1,348
Consumer 5,783 6,046
--------- -----------
Total loans 605,105 584,110
Less-
Allowance for possible loan losses 7,250 7,081
--------- -----------
Total loans, net $ 597,855 $ 577,029
========= ===========
8
(6) Deposits
A summary of deposit balances, by type, is as follows (in thousands):
(Unaudited)
March 31, December 31,
2000 1999
---- ----
Demand deposit accounts $ 35,524 $ 29,777
Custodial account - IPO proceeds 67,465 -
NOW accounts 48,487 44,429
Regular savings accounts 56,788 53,346
Money market accounts 192,891 162,304
--------- ---------
Total noncertificate accounts 401,155 289,856
--------- ---------
Term certificates-
Term certificates less than $100,000 265,107 267,327
Term certificates of $100,000 and over 58,218 61,105
--------- ---------
Total term certificate accounts 323,325 328,432
--------- ---------
Total deposits $ 724,480 $ 618,288
========= =========
(7) Business Segments:
Reportable segments and reconciliation to consolidated financial
information is as follows:
Community Consolidated
Banking Other Adjustments Consolidated
------- ----- ----------- ------------
(In Thousands)
March 31, 2000:
- --------------
Investment securities available
for sale and held to maturity $ 117,489 $ 27,078 $ - $ 144,567
Loans, net 597,855 - - 597,855
Total assets 832,328 81,678 (53,187) 860,819
Total deposits (1) 728,134 - - 728,134
Total liabilities 780,787 1,693 (1,646) 780,834
Total retained earnings 51,541 79,985 (51,541) 79,985
Total interest and dividend income 13,288 409 - 13,697
Total interest expense 7,199 - - 7,199
Net interest income 6,089 409 - 6,498
Provision for possible loan losses 166 - - 166
Total noninterest income 386 - - 386
Total noninterest expense 4,925 4 - 4,929
Net income 857 270 - 1,127
9
(7) Business Segments: (continued)
Community Consolidation
Banking Other Adjustments Consolidated
------- ----- ----------- ------------
(In Thousands)
March 31, 1999:
- --------------
Investment securities available
for sale and held to maturity $ 114,210 $ 25,900 $ - $ 140,110
Loans, net 513,449 - - 513,449
Total assets 682,842 78,921 (51,380) 710,383
Total deposits (1) 592,357 - - 592,357
Total liabilities 633,073 1,732 (1,612) 633,193
Total retained earnings 49,769 77,189 (49,768) 77,190
Total interest and dividend income 11,980 383 - 12,363
Total interest expense 6,296 - - 6,296
Net interest income 5,684 383 - 6,067
Provision for possible loan losses 140 - - 140
Total noninterest income 697 - - 697
Total noninterest expense 4,448 9 - 4,457
Net income 1,128 252 - 1,380
10
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Forward Looking Statements
This Quarterly Report on Form 10-Q contains certain statements that may be
considered forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. The Company's actual results could differ materially
from those projected in the forward-looking statements. Important factors that
might cause such a difference include, among other factors, changes in national
or regional economic conditions, changes in loan default and charge-off rates,
reductions in deposit levels necessitating increased borrowing to fund loans and
investments, changes in interest rates, changes in the size and the nature of
the Company's competition, and changes in the assumptions used in making such
forward-looking statements.
The following discussion and analysis should be read in conjunction with the
unaudited consolidated financial statements and related notes included in this
report.
General
Port Financial Corp. (the "Company") is a Massachusetts-chartered stock holding
company, which owns all of the capital stock of Cambridgeport Bank (the "Bank").
As part of its conversion, the Company converted from a Massachusetts-chartered
mutual holding company, Cambridgeport Mutual Holding Company, to a
Massachusetts-chartered stock holding company and changed its name to Port
Financial Corp. and sold 7,442,818 shares of the Company's common stock to the
Bank's eligible depositors and to the Company's Employee Stock Ownership Plan
("ESOP"). Net proceeds of the stock offering were approximately $72.0 million.
The conversion and stock offering was completed on April 11, 2000. Because the
conversion was not completed until April 11, 2000, the financial statements
included in this report are for Cambridgeport Mutual Holding Company and not for
the Company.
The Company's principle business is its investment of the Bank, which is a
Massachusetts-chartered stock savings bank, chartered in 1853. The Bank is a
community-oriented bank providing retail and business customers with
value-driven products and services to meet customer needs. It provides a wide
variety of deposit products, residential mortgage loans, commercial real estate
loans, commercial loans and consumer loans to its customers in the cities and
towns around Cambridge, Massachusetts. Over the past five years, the Bank has
more than doubled its branch network from four full service bank offices to ten
full service bank offices and one Telebanking Center. The Bank has strategically
located its branch offices in cities and towns with a strong base for real
estate lending and deposit growth and where community bank competition has been
reduced by a consolidating banking industry. Its branch expansion has increased
its customer base and allowed the Bank to increase its profitability by shifting
its mix of assets more towards higher yielding loans relative to investment
securities.
The Bank's revenues are derived principally from interest on its loans and
mortgage-backed securities and interest and dividends on its
11
investment securities. The Bank's primary sources of funds are deposits,
scheduled amortization and prepayments of loan principal and mortgage-backed
securities, maturities and calls of investment securities, funds provided by
operations and borrowings. The Bank also uses borrowings from the Federal Home
Loan Bank as a source of funds for loans, investments and other assets. The
largest component of the Bank's expenses is the interest that it pays on
deposits.
Comparison of Financial Condition at March 31, 2000 and December 31, 1999
Total assets increased by $98.1 million from $762.7 million at December 31, 1999
to $860.8 million at March 31, 2000. This growth included $63.7 million of
federal funds sold, representing most of the proceeds from the Company's sale of
stock. These proceeds were held in an escrow account at March 31 pending final
regulatory approval of the Company's stock conversion.
Securities and certificates of deposit increased $10.1 million to $146.9 million
at March 31, 2000 from $136.8 million at December 31, 1999. This increase was
funded by deposit growth.
Total gross loans outstanding at March 31, 2000 increased $21.0 million to
$605.1 million when compared to the December 31, 1999 level. This growth
primarily reflects activity in the residential mortgage portfolio, which grew by
$24.2 million during the three months ended March 31, 2000. Home Equity credit
lines outstanding increased $2.1 million during the three months ended March 31,
2000. The Company has actively promoted its Home Equity Credit Line product both
through advertising and in-branch promotions. Commercial real estate loans
decreased $6.2 million from the December 31, 1999 level because of scheduled
amortization in the portfolio and payoffs of loans resulting from property
sales. These effects were partially offset by a $1.6 million increase in
commercial construction loans. Changes in the other loan categories during the
three months ended March 31, 2000 reflect net activity in new loan originations,
amortization and payoffs.
Total non-performing assets were $115,000 and $128,000 at March 31, 2000 and
December 31, 1999, respectively. There were no foreclosed real estate properties
added during the three months ended March 31, 2000. It is the Company's general
policy to place loans on a non-accrual basis when payments on such loans become
90 days delinquent or when the collectibility of principal or interest payments
becomes doubtful. When a loan is placed on non-accrual status, the interest
income accrual ceases and income previously accrued but unpaid is reversed.
The allowance for loan losses was $7.3 million at March 31, 2000, or 1.20% of
total loans. At December 31, 1999, the allowance for loan losses was $7.1
million, representing 1.21% of total loans. Management believes that the
allowance for loan losses is adequate to cover any known losses, and any losses
reasonably expected in the loan portfolio. While management estimates loan
losses using the best available
12
information, no assurance can be made that future additions to the allowance
will not be necessary.
Deposits at March 31, 2000 totaled $724.5 million, including $67.5 million
received in connection with the Company's stock offering. These funds were held
in an escrow account at March 31, 2000 pending final regulatory approval of the
stock sale transaction. Total deposits, net of the stock subscription funds,
were $657.0 million at March 31, 2000 an increase of $38.7 million, or 6.26%,
compared with December 31, 1999. This increase resulted primarily from the
implementation of the Company's strategy to build deposits by expanding the
number of core deposit relationships. As part of this strategy, the Company has
actively promoted its Treasury Index account, a tiered money market account
paying interest on the highest tier at a rate based on the three-month U.S.
Treasury bill. The Treasury Index account grew $30.6 million in the first three
months of 2000. Other core deposit balances also grew. Demand deposits, NOW
accounts and savings accounts increased to $5.7 million, $4.1 million, and $3.4
million, respectively, compared with the balances at December 31, 1999. Time
deposit balances ended the quarter at $323.3 million, down $5.1 million from the
end of 1999. This reduction reflects movement of customer funds from time
deposits into the Treasury Index account, as well as the high level of
competition among area financial institutions.
At March 31, 2000, the Company's FHLB borrowings declined by $10.2 million to
$45.7 million from $55.9 million at December 31, 1999. The reduction includes
amortization and payoffs of maturing borrowings totaling $10.1 million, and
scheduled amortization of the 20-year loan totaling $95,000. The Bank
occasionally borrows from the Federal Home Loan Bank of Boston (FHLB) to fund
loans and investment securities purchases. During 1999 the Company also took out
a $14.5 million, 20-year loan from the FHLB to finance the construction and
acquisition of its new administrative center.
Retained Earnings increased $855,000, ending the quarter at $80.0 million
compared with $79.1 million at December 31, 1999. Retained earnings grew by $1.1
million, the Company's net income for the quarter, while the market value of
investment securities available for sale declined $272,000. The Company's
capital to assets ratio was 9.29% and 10.37% at March 31, 2000 and December 31,
1999, respectively.
Comparison of Operating Results for the Three Months Ended March 31, 2000 and
March 31, 1999
Net income was $1.1 million for the three months ended March 31, 2000, compared
to $1.4 million for the comparable prior year period. The results of operations
for these periods do no reflect the company's conversion and stock offering
which were completed on April 11, 2000. Non-recurring items affected earnings in
each period. In the 1999 first quarter, interest income was increased by
$355,000, reflecting prepayment penalty fees on commercial real estate loans and
a loan recovery. In the current period, non-interest income was reduced by
$135,000 because of a change in the cash surrender value of life insurance
policies that occurred when the underlying assets were
13
converted from equity investments to long term fixed return investments.
Interest Income
Interest and dividend income from loans and investments increased $1.3 million
or 10.8% to $13.7 million for the 2000 first quarter when compared to the same
quarter in 1999. For the 2000 first quarter, average earning assets totaled
$745.3 million, an increase of $77.1 million or 11.5% over the comparable
average for 1999. The average loans outstanding increased $78.6 million, while
the combined average balances of short-term investments, certificates of deposit
and investment securities declined by $1.5 million.
The annualized yields on earning assets were 7.28% and 7.37% for the three
months ended March 31, in 2000 and 1999, respectively. The primary reason for
the decline in the yield on earning assets was a 24 basis point decline in the
loan portfolio yield. The lower interest rate environment during 1999 provided
borrowers an opportunity to refinance loans at lower interest rates. Despite the
lower yield, the higher volume of loans resulted in a $1.2 million increase in
interest income on loans.
The yield on investment securities was 6.31% for the first quarter 2000 as
compared to 6.12% for first quarter 1999. Short-term investments, certificates
of deposit and investment securities contributed $136,000 of additional interest
and dividend income when comparing the first quarter of 2000 to the first
quarter of 1999.
Interest expense
Total interest expense for the three months ended March 31, 2000 was $7.2
million, an increase of $903,000 or 14.3% over the same period in 1999. At March
31, 2000, average interest bearing liabilities were $658.5 million, an increase
of $76.2 million over the comparable 1999 period. Deposits accounted for $59.1
million, and borrowings $17.1 million, of this increase in average interest
bearing liabilities. Interest expense on deposits increased $761,000 as
increases in average deposit balances were accompanied by a 5 basis point
increase in the average rate paid on deposits. The increase in the average rate
paid on deposits resulted from an increase in short term US Treasury bill yields
during the first quarter of 2000, which are the index used for the Treasury
Index money market account.
As discussed above, the Bank borrowed $14.5 million from the Federal Home Loan
Bank in June 1999, to fund construction and acquisition of its new
administration center building. During the first quarter of 2000, $151,760 of
interest paid on this loan was capitalized as part of the cost of the building.
Net interest income
Net interest income increased 7.1% or $431,000, as the growth in average earning
assets offset the decrease in net interest margin by 20 basis points. The
interest rate spread of 2.98% in the first quarter of 1999 declined by 13 basis
points to 2.85% in this year's first quarter. The primary reasons for this
decline were the lower yield on the loan portfolio and the higher cost of the
Treasury Index money market account.
14
Provision for Possible Loan Losses
The Company recorded a provision for loan losses of $166,000 in the first
quarter of 2000 and $140,000 in the first quarter of 1999. This increase in the
provision for possible loan losses reflects continued growth in our real estate
loan portfolio. Net loan recoveries for the three months ended March 31, 2000
were $3,000 compared to net recoveries of $107,000 for the same period in 1999.
Non-Interest Income
Non-interest income, including customer service fees and gains and losses on
sales of assets, equaled $386,000 in the first quarter of 2000 as compared to
$697,000 in the first quarter of 1999, representing a decrease of $311,000 or
44.6%. The decrease reflects primarily a decline of $221,000 in loan sale gains
and a $135,000 reduction in the cash surrender value of life insurance policies.
Loan sale gains are generated when the Bank sells fixed rate residential
mortgages. The low interest rate environment that prevailed in the first quarter
of 1999 produced a high level of fixed rate mortgage activity, which in turn
resulted in loan sale gains. As interest rates rose, the number of fixed rate
mortgage applications declined in late 1999 and 2000, which has reduced the
opportunity for loan sale gains.
The reduction in the cash surrender value of life insurance policies occurred
when the Bank moved the underlying investments of these policies from equities
to more stable fixed return investments.
Customer service fees rose 16.5% to $226,000 in the first quarter of 2000, as a
result of the Bank's strategy to increase the number of customers with checking
and other transaction accounts.
Non-Interest Expense
Non-interest expense increased $472,000, or 10.6%, to $4.9 million for the three
months ended March 31, 2000 as compared to the same period in 1999. Salary and
benefit costs rose $379,000, reflecting the additional staff for business
banking and other new business initiatives, as well as annual wage adjustments.
Marketing expense rose $78,000 as the Company expanded its marketing programs to
attract customers who have been displaced by bank mergers in the region. Data
processing expense increased $57,000 as a result of higher loan and deposit
activity. The Company's annualized expense ratio, which is the ratio of non-
interest expense to average assets, was 2.53% for the three months ended March
31, 2000, as compared to 2.61% for the 1999 period.
Provision for Income Taxes
The Company's effective tax rate for the three months ended March 31, 2000 was
34.4% as compared to 36.3% for the period ended March 31, 1999. The impact of
state taxation has been reduced as a result of investment activity in the Bank's
and the Company's security corporations. The lower effective tax rate for March
31, 2000 also includes the affect of the decrease in cash surrender value of
life insurance policies.
15
Cambridgeport Mutual Holding Company
Average Balance Sheet
For Three Months Ending March 31,
(Unaudited)
2000 1999
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
-------------------------------------------------------------------------
(Dollars in thousands)
Assets:
Interest earning assets:
Short term investments(1) $ 11,626 $ 206 7.13% $ 12,589 $ 182 5.86%
Certificates of Deposit 4,800 87 7.29% 5,901 101 6.94%
Investment securities(2) 143,578 2,264 6.31% 143,041 2,138 6.12%
Loans(3) 585,279 11,140 7.52% 506,698 9,942 7.76%
--------- ------- --------- -------
Total interest earning assets 745,283 13,697 7.28% 668,229 12,363 7.37%
------- -------
Total non-interest earning assets 38,947 25,088
--------- ---------
Total assets $ 784,230 $ 693,317
========= =========
Liabilities and Equity:
Interest bearing liabilities:
NOW accounts $ 45,034 $ 154 1.38% $ 38,106 $ 134 1.43%
Savings accounts 53,756 268 2.01% 53,298 280 2.13%
Money market deposit accounts 177,230 2,008 4.56% 135,325 1,249 3.74%
Certificate of deposit accounts 328,608 4,101 5.02% 318,827 4,107 5.22%
--------- ------- --------- -------
Total interest-bearing deposits 604,628 6,531 4.34% 545,556 5,770 4.29%
Borrowed funds 53,855 668 4.91% 36,741 526 5.73%
--------- ------- --------- -------
Total interest-bearing liabilities 658,483 7,199 4.43% 582,297 6,296 4.39%
Noninterest-bearing deposits 40,949 29,061
Other noninterest-bearing liabilities 6,782 6,177
--------- ---------
Total noninterest bearing liabilities 47,731 35,238
Total liabilities 706,214 617,535
Total retained earnings 78,016 75,782
--------- ---------
Total liabilities and retained earnings $ 784,230 $ 693,317
========= =========
Net interest income $ 6,498 $ 6,067
=======
Net Interest rate spread (4) 2.85% 2.98%
Net interest margin (5) 3.47% 3.67%
Ratio of average interest-earning assets
to average interest-bearing liabilities 114.24 X 115.24 X
(1) Short term investments includes federal funds sold.
(2) All investments securities are considered available-for-sale and carried at
market value.
(3) Loans are net of deferred loan origination costs (fees), allowance for
possible loan losses and unadvanced funds.
(4) Net interest rate spread represents the difference between the weighted
average yield on interest earning assets and the weighted average cost of
interest bearing liabilities.
(5) Net interest margin represents net interest income as a percentage of
average interest earning assets.
16
Cambridgeport Mutual Holding Company
Rate/Volume Analysis
Three Months Ended March 31, 2000
Compared to Three Months Ended
March 31, 1999
Increase/(Decrease)
Due to
Volume Rate Net
-------------- ------------ ---------------
(In Thousands)
Interest earning assets:
Short term investments $ (13) $ 37 $ 24
Certificates of Deposit (19) 5 (14)
Investment securities 58 68 126
Loans 2,046 (848) 1,198
------------- ------------ ----------
Total interest-earning assets $ 2,072 $ (738) $ 1,334
============= ============ ==========
Interest bearing liabilities:
NOW accounts 40 (20) 20
Savings accounts 2 (14) (12)
Money market deposit accounts 785 (26) 759
Certificate of deposit accounts 3 (9) (6)
Borrowed funds 174 (32) 142
------------- ------------ ----------
Total interest bearing liabilities $ 1,004 $ (101) $ 903
============= ============ ==========
Change in net interest income $ 1,068 $ (637) $ 431
============= ============ ==========
Liquidity and Capital Resources
The term "liquidity" refers to the Bank's ability to generate adequate amounts
of cash to fund loan originations, loan purchases, withdrawals of deposits and
operating expenses. The Bank's primary sources of liquidity are deposits,
scheduled amortization and prepayments of loan principal and mortgage backed
securities, maturities and calls of investment securities and funds provided by
operations. The Bank also can borrow funds from the FHLB based on eligible
collateral of loans and securities. The Bank's maximum borrowing capacity from
the FHLB at March 31, 2000 was approximately $236.0 million, net of borrowings
that are already outstanding. In addition, the Bank can enter into reverse
repurchase agreements with approved broker-dealers. Reverse repurchase
agreements are agreements that allow the Bank to borrow money using securities
as collateral.
Liquidity management is both a daily and long term function of business
management. The measure of a bank's liquidity is its ability to meet its cash
commitments at all times with available cash or by conversion of
17
other assets to cash at a reasonable price. Loan repayments and maturing
investment securities are a relatively predictable source of funds. However,
deposit flows, calls of investment securities and prepayments of loans and
mortgage-backed securities are strongly influenced by interest rates, general
and local economic conditions and competition in the marketplace. These factors
reduce the predictability of the timing of these sources of funds.
At March 31, 2000, the Bank exceeded each of the applicable regulatory capital
requirements. The Company's leverage Tier 1 capital was $78.3 million, or 16.5%
of risk-weighted assets, and 9.99% of average assets. The Bank had a risk-based
total capital of $86.6 million and a risk-based capital ratio of 18.2%.
See the "Consolidated Statements of Cash Flows" in the Unaudited Consolidated
Financial Statements included in this Form 10-Q for the sources and uses of cash
flows for operating activities and financing activities for the three months
ended March 31, 2000 and March 31, 1999.
Impact of Enactment of the Gramm-Leach-Bliley Act
On November 12, 1999, President Clinton signed the Gramm-Leach Bliley Act (the
"Act"), which among other things, establishes a comprehensive framework to
permit affiliations among commercial banks, insurance companies and securities
firms. Generally, the Act (i) repeals the historical restrictions and eliminates
many federal and state law barriers to affiliations among banks and securities
firms, insurance companies and other financial service providers, (ii) provides
a uniform framework for the activities of banks, savings institutions and their
holding companies, (iii) broadens the activities that may be conducted by
subsidiaries of national banks and state banks, (iv) provides an enhanced
framework for protecting the privacy of information gathered by financial
institutions regarding their customers and consumers, (v) adopts a number of
provisions related to the capitalization, membership, corporate governance and
other measures designed to modernize the Federal Home Loan Bank System, (vi)
requires public disclosure of certain agreements relating to funds expended in
connection with an institution's compliance with the Community Reinvestment Act,
(vii) addresses a variety of other legal and regulatory issues affecting both
day-to-day operations and long-term activities of financial institutions,
including the functional regulation of bank securities and insurance activities.
The Act also requires financial institutions to disclose, on ATM machines, any
non-customer fees and to disclose to their customers upon the issuance of an ATM
card any fees that may be imposed by the institutions on ATM users. For older
ATMs, financial institutions will have until December 31, 2004 to provide such
notices.
The FDIC has recently proposed regulations implementing the privacy protection
provisions of the Act. The proposed regulations would require each financial
institution to adopt procedures to protect customers' and consumers' "nonpublic
personal information" by November 13, 2000. We would be required to disclose our
privacy policy, including identifying with whom we share "nonpublic personal
information," to customers at the time of establishing the customer
18
relationship and annually thereafter. In addition, we would be required to
provide our customers with the ability to "opt-out" of having us share their
personal information with unaffiliated third parties. We currently have a
privacy protection policy in place and intend to review and amend that policy,
if necessary, for compliance with the regulations when they are adopted in final
form. The Act also provides for the ability of each state to enact legislation
that is more protective of consumers' personal information.
We do not believe that the Act will have a material adverse affect upon our
operations in the near term. However, to the extent the Act permits banks,
securities firms and insurance companies to affiliate, the financial services
industry may experience further consolidation. This could result in a growing
number of larger financial institutions that offer a wider variety of financial
services than we currently offer and that can aggressively compete in the
markets we currently serve.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
There has been no material change in market risk since disclosed in Item 7A of
the Company's Annual Report on Form 10-K for the year ended December 31, 1999.
Part II -- OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds
(d) Use of Proceeds
Port Financial's Registration Statement on Form S-1 (File No.
333-91549) (the "Registration Statement") was declared effective by the United
States Securities and Exchange Commission (the "SEC") on February 14, 2000.
7,442,818 shares of common stock, par value of $.01 per share (the "Common
Stock"), registered in the Registration Statement and offered in Port
Financial's Subscription Offering (the "Offering") were sold at a price of
$10.00 per share. The Offering closed on April 11, 2000 and raised gross
proceeds of $74,428,180 for the Company. Ryan, Beck & Co., Inc. of Livingston,
New Jersey served as Sales Agent for the Offering.
No Offering expenses were paid, either directly or indirectly, to
directors or officers of Port Financial or their associates, to persons owning
ten percent or more of Port Financial's Common Stock or to any other affiliates
of Port Financial Corp.
The net proceeds of the Offering for Port Financial, after deducting
the expenses of the Offering (including sales agency commissions and expenses)
were $71,900,433. Of such
19
proceeds, $35,900,000 were distributed to the Bank, Port Financial's wholly
owned subsidiary, which will use the proceeds for the following:
. to fund new loans;
. to establish or acquire new branches;
. to diversify products offered by Port Financial or Cambridgeport Bank;
. to increase delivery systems, including the introduction of internet
banking
. to invest in securities; and
. general corporate purposes.
Port Financial Corp. intends to use the proceeds it has retained from
the Offering for the following purposes:
. to finance possible acquisitions of financial institutions or other
businesses related to banking;
. to pay dividends to stockholders;
. to repurchase shares of common stock issued in the conversion;
. to invest in securities;
. a loan issued to the Employee Stock Ownership Plan of Port Financial
Corp. to fund its purchase of shares of the Common Stock of Port
Financial Corp.; and for general corporate purposes.
The use of proceeds does not represent a material change from the use
of proceeds described in Port Financial's prospectus.
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27.1-- Financial Data Schedule (Filed in electronic
format only)
(b) Reports on Form 8-K
None
20
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.
Port Financial Corp
-----------------------------------------
(Registrant)
/s/ James B. Keegan
By:______________________________________
James B. Keegan
President and Chief Executive
Officer
/s/ Charles Jeffrey
By:______________________________________
Charles Jeffrey
Senior Vice President and
Chief Financial Officer
May 9, 2000
21