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EXHIBIT 99.3
FEDERAL DEPOSIT INSURANCE CORPORATION
Washington, DC 20429
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the quarterly period ended March 31, 2001
[ ] Transition Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the transition period from _____ to _____
FDIC Certificate No. 23288
LAWRENCE SAVINGS BANK
(Exact name of registrant as specified in its Charter)
MASSACHUSETTS 04-1528790
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
30 MASSACHUSETTS AVENUE, NORTH ANDOVER, MA 01845
(Address of principal executive offices) (Zip Code)
(978) 725-7500
(Registrant's telephone number, including area code)
Indicated 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 12 months (or for such shorter period that the
registrant was required to file such report), 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.
Class Outstanding as of March 31, 2001
- ----- --------------------------------
Common Stock, par value $.10 per share 4,371,500 shares
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PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LAWRENCE SAVINGS BANK AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
March 31, December 31,
2001 2000
---- ----
(In Thousands)
ASSETS
Assets:
Cash and due from banks $ 9,795 $ 7,086
Federal funds sold 17,296 15,427
--------- ---------
Total cash and cash equivalents 27,091 22,513
Investment securities held to maturity (market value
of $145,238 in 2001 and $118,393 in 2000) 143,277 117,806
Investment securities available for sale (amortized cost
of $25,820 in 2001 and $32,840 in 2000 26,288 33,027
Federal Home Loan Bank stock, at cost 5,950 5,950
Loans, net of allowance for loan losses (Notes 2 and 6) 216,640 218,360
Bank premises and equipment 3,357 3,337
Accrued interest receivable 2,703 2,969
Other real estate owned 29 32
Deferred income tax asset 6,984 7,511
Other assets 1,489 1,585
--------- ---------
Total assets $ 433,808 $ 413,090
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Interest bearing deposits (Note 3) $ 270,581 $ 259,325
Non-interest bearing deposits 10,410 11,223
Federal Home Loan Bank advances 91,898 82,283
Other borrowed funds 3,704 3,878
Advance payments by borrowers for taxes and insurance 620 513
Other liabilities 3,711 3,555
--------- ---------
Total liabilities 380,924 360,777
--------- ---------
Stockholders' equity:
Preferred stock, $.10 par value per share;
5,000,000 shares authorized, none issued -- --
Common stock, $.10 par value per share;
20,000,000 shares authorized;
4,371,500 and 4,364,800 shares issued and outstanding
at March 31, 2001 and December 31, 2000, respectively 437 436
Additional paid-in capital 57,740 57,711
Accumulated deficit (5,602) (5,956)
Accumulated other comprehensive income 309 122
--------- ---------
Total stockholders' equity 52,884 52,313
--------- ---------
Total liabilities and stockholders' equity $ 433,808 $ 413,090
========= =========
The accompanying notes are an integral part of these unaudited financial
statements.
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LAWRENCE SAVINGS BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three months
ended
March 31,
-----------------------------------
2001 2000
---------- ----------
(In Thousands, except per share data)
Interest and dividend income:
Loans (Note 4) $ 4,528 $ 4,036
Investment securities held to maturity 2,042 2,019
Investment securities available for sale 439 829
Federal Home Loan Bank stock 106 104
Other interest and dividend income 283 27
---------- ----------
Total interest and dividend income 7,398 7,015
---------- ----------
Interest expense:
Deposits (Note 5) 2,766 2,211
Borrowed funds 1,341 1,115
Securities sold under agreements to repurchase and
other borrowed funds 89 452
---------- ----------
Total interest expense 4,196 3,778
---------- ----------
Net interest income 3,202 3,237
Provision for loan losses -- --
---------- ----------
Net interest income after provision for loan losses 3,202 3,237
---------- ----------
Non-interest income:
Loan servicing fees 58 82
Deposit account fees 132 124
Gains on sales of mortgage loans 4 10
Other income 87 72
---------- ----------
Total non-interest income 281 288
---------- ----------
Non-interest expense:
Salaries and employee benefits 1,295 1,242
Occupancy and equipment expenses 214 195
Professional expenses 167 123
Data processing expenses 158 155
Other expenses 374 413
---------- ----------
Total non-interest expenses 2,208 2,128
---------- ----------
Income before income tax benefit 1,275 1,397
Income tax expense 484 497
---------- ----------
Net income $ 791 $ 900
========== ==========
Average shares outstanding 4,369,546 4,356,800
Average diluted shares outstanding 4,516,683 4,426,668
========== ==========
Basic earnings per share $ 0.18 $ 0.21
Diluted earnings per share $ 0.18 $ 0.20
========== ==========
The accompanying notes are an integral part of these unaudited financial
statements.
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LAWRENCE SAVINGS BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
Accumulated
Additional Other Total
Common Paid-In (Accumulated Comprehensive Stockholders'
Stock Capital Deficit) Income (Loss) Equity
----- ------- -------- ------------- ------
(In Thousands)
Balance at December 31, 1999 $ 436 $ 57,668 $ (9,145) $ (551) $ 48,408
Net income -- -- 900 -- 900
Other comprehensive income:
Unrealized loss on securities
available for sale (tax effect $48) -- -- -- (91) (91)
--------
Total comprehensive income 809
Dividends declared and paid
($0.05 per share) -- -- (218) -- (218)
-------- -------- -------- -------- --------
Balance at March 31, 2000 $ 436 $ 57,668 $ (8,463) $ (642) $ 48,999
======== ======== ======== ======== ========
Balance at December 31, 2000 $ 436 $ 57,711 $ (5,956) $ 122 $ 52,313
Net income -- -- 791 -- 791
Other comprehensive income:
Unrealized gain on securities
available for sale (tax effect $94) -- -- -- 187 187
--------
Total comprehensive income 978
Exercise of stock options 1 29 -- -- 30
Dividends declared and paid
($0.10 per share) -- -- (437) -- (437)
-------- -------- -------- -------- --------
Balance at March 31, 2001 $ 437 $ 57,740 $ (5,602) $ 309 $ 52,884
======== ======== ======== ======== ========
The accompanying notes are an integral part of these unaudited financial
statements.
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LAWRENCE SAVINGS BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three months
ended
March 31,
---------------------------
2001 2000
--------- ---------
(In Thousands)
Cash flow from operating activities:
Net income $ 791 $ 900
Adjustments to reconcile net income to net cash provided by operating activities:
Gains on sales of mortgage loans (4) (10)
Depreciation and amortization of premises and equipment, investments and
other assets 25 191
Loans originated for sale (1,006) (421)
Proceeds from sales of mortgage loans and mortgage-backed securities 411 431
Decrease (increase) in accrued interest receivable 266 (226)
Decrease in deferred income tax asset 433 449
Decrease (increase) in other assets 96 (13)
Increase in advance payments by borrowers 107 84
Increase in other liabilities 156 29
--------- ---------
Net cash provided by operating activities 1,275 1,414
--------- ---------
Cash flows from investing activities:
Proceeds from maturities of investment securities held to maturity 84,872 2,308
Proceeds from sales of investment securities available for sale 6,118 --
Purchases of investment securities held to maturity (113,777) (16,430)
Principal payments of securities held to maturity 3,497 2,372
Principal payments of securities available for sale 933 828
Decrease in loans, net 2,319 2,559
Proceeds from payments on OREO 3 6
Purchases of Bank premises and equipment (139) (99)
--------- ---------
Net cash used in investing activities (16,174) (8,456)
--------- ---------
Cash flows from financing activities:
Net increase in deposits 10,443 3,377
Additions to Federal Home Loan Bank advances 10,000 354,000
Payments on Federal Home Loan Bank advances (385) (357,688)
Increase in securities sold under agreement to repurchase -- 38,630
Decrease in other borrowed funds (174) (31,228)
Dividends paid (437) (218)
Proceeds from exercise of stock options 30 --
--------- ---------
Net cash provided by financing activities 19,477 6,873
--------- ---------
Net increase (decrease) in cash and cash equivalents 4,578 (169)
Cash and cash equivalents, beginning of period 22,513 7,597
--------- ---------
Cash and equivalents, end of period $ 27,091 $ 7,428
========= =========
Cash paid during the year for:
Interest on deposits $ 2,767 $ 2,210
Interest on borrowed funds 1,390 1,419
Supplemental Schedule of non-cash activities:
Net change in valuation of investment securities available for sale 281 (139)
========= =========
The accompanying notes are an integral part of these unaudited financial
statements.
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LAWRENCE SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001
(UNAUDITED)
1. BASIS OF PRESENTATION
The unaudited consolidated financial statements of Lawrence Savings
Bank (the "Bank") and subsidiaries presented herein should be read in
conjunction with the consolidated financial statements of the Bank as of and for
the year ended December 31, 2000. In the opinion of management, the unaudited
financial statements reflect all adjustments necessary for a fair presentation.
Interim results are not necessarily indicative of results to be expected for the
entire year.
2. The following table reflects the loan portfolio at March 31, 2001 and
December 31, 2000:
3/31/01 12/31/00
------- --------
(In Thousands)
Residential mortgage loans $ 78,085 $ 77,926
Loans held for sale 599 --
Equity loans 15,041 15,997
Construction loans 17,114 17,148
Commercial real estate loans 88,265 87,129
Commercial loans 20,051 22,602
Consumer loans 1,215 1,243
--------- ---------
Total loans 220,370 222,045
Allowance for loan losses (3,730) (3,685)
--------- ---------
Total loans, net $ 216,640 $ 218,360
========= =========
3. The following table reflects the components of interest bearing
deposits at March 31, 2001 and December 31, 2000:
3/31/01 12/31/00
------- --------
(In Thousands)
NOW and Super NOW accounts $ 33,154 $ 29,731
Savings accounts 39,754 38,813
Money market investment accounts 54,693 51,344
Certificates of deposit 115,513 112,239
Retirement accounts 27,467 27,198
-------- --------
Total interest bearing deposits $270,581 $259,325
======== ========
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4. The following table lists the components of loan interest income for
the three month periods ended March 31, 2001 and 2000:
Three months ended
----------------------------
3/31/01 3/31/00
------- -------
(In Thousands)
Residential mortgage loans $1,441 $1,431
Loans held for sale 2 3
Equity loans 300 242
Construction loans 386 266
Commercial real estate loans 1,925 1,800
Commercial loans 445 267
Consumer loans 29 27
------ ------
Total loan interest income $4,528 $4,036
====== ======
5. The following table lists the components of deposit interest expense
for the three month periods ended March 31, 2001 and 2000:
Three months ended
---------------------------
3/31/01 3/31/00
(In Thousands)
NOW and Super NOW accounts $ 38 $ 32
Savings deposit accounts 189 192
Money market investment accounts 493 384
Certificates of deposit 1,660 1,251
Retirement accounts 386 352
------ ------
Total deposit interest expense $2,766 $2,211
====== ======
6. The following table summarizes changes in the allowance for loan losses
for the three month period ended March 31, 2001 and 2000.
Three months ended
----------------------------
3/31/01 3/31/00
------- -------
(In Thousands)
Beginning balance $3,685 $3,381
Provision charged to operations -- --
Recoveries on loans previously charged-off 45 12
Loans charged-off -- --
------ ------
Ending balance $3,730 $3,393
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Bank has made forward-looking statements (within the meaning of Section 27A
of the Securities Act of 1933 and Section 21E of the Securities and Exchange Act
of 1934 as amended) in this document that are subject to risks and
uncertainties. Forward-looking statements include information concerning
possible or assumed future results of operations of the Bank. Also, when words
such as "believes," "expects," "anticipates" or similar expressions are used,
forward-looking statements are being made. Stockholders should note that many
factors, some of which are discussed elsewhere in this document and in the
documents which we incorporate by reference, could affect the future financial
results of the Bank and could cause results to differ materially from those
expressed in or incorporated by reference in this document. Those factors
include fluctuations in interest rates, inflation, government regulations and
economic conditions and competition in the geographic and business areas in
which the Bank conducts its operations.
Risk Assets
Risk assets consist of non-performing loans and other real estate owned.
Non-performing loans consist of both a) loans 90 days or more past due and b)
loans placed on non-accrual because full collection of the principal balance is
in doubt. Other real estate owned (OREO) is comprised of foreclosed properties
where the Bank has formally received title or has possession of the collateral.
Properties are carried at the lower of the investment in the related loan or the
estimated fair value of the property or collateral less selling costs. Fair
value of such property or collateral is determined based on independent
appraisals and other relevant factors. Management periodically reviews property
values and makes adjustments as required. Gains from sales of properties, net
operating expenses and any subsequent provisions to increase the allowance for
losses on real estate acquired by foreclosure are charged to other real estate
owned expenses. Losses are charged to the allowance.
Total risk assets were $39 thousand at March 31, 2001. This represents a
decrease of $3 thousand from December 31, 2000.
The following table summarizes the Bank's risk assets for the past quarters:
3/31/01 12/31/00 3/31/00
------- -------- -------
(In thousands)
Non-performing loans $ 10 $ 10 $ 10
Other real estate owned 29 32 513
---- ---- ----
Total risk assets $ 39 $ 42 $523
==== ==== ====
Risk assets as a percent of total assets 0.01% 0.01% 0.13%
==== ==== ====
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Liquidity and Capital Resources
The Bank's primary sources of funds include collections of principal payments
and prepayments on outstanding loans, increases in deposits, advances from the
Federal Home Loan Bank of Boston (FHLB) and securities sold under agreements to
repurchase. The Bank has a line of credit of $6.8 million with the FHLB. The
Bank also has a $5 million unsecured Federal Funds line of credit.
At March 31, 2001 the Bank's stockholders' equity was $52.9 million as compared
to $52.3 million at December 31, 2000. The increase during the first quarter of
2001 occurred due to net income of $0.8 million offset by $0.4 million dividends
paid and an increase in market value of $0.2 million on securities available for
sale. The Bank's leverage ratio at March 31, 2001 and December 31, 2000 was
11.87% and 11.71%. The Bank exceeds all regulatory minimum capital ratios
requirements as defined by the FDIC.
Three Months Ended March 31, 2001 and 2000
Overview
The Bank has maintained risk assets below 1% for the past year. Lawrence Savings
Bank maintains its commitment to servicing the needs of the local communities in
the Merrimack Valley area of Massachusetts. The investment securities portfolio
increased by $18.7 million as of March 31, 2001 from December 31, 2000 funded by
deposits and borrowings. Total deposits increased by $10.4 million at March 31,
2001 to $281.0 million from $270.5 million at December 31, 2000 with the growth
primarily in money market, NOW and certificate of deposit accounts.
The Bank reported net income of $0.8 million and $0.9 million for the three
months ended March 31, 2001 and 2000, respectively. The decrease is primarily
due to expenses associated with the establishment of a bank holding company as
part of the reorganization of the bank, which were included in non-interest
expense. The establishment of the holding company will require stockholder and
regulatory approval. The holding company reorganization is expected to be
completed at the end of the second quarter or beginning of the third quarter
2001.
Net Interest Income From Operations
Net interest income remained fairly level at $3.2 million for the quarters ended
March 31, 2001 and 2000. The net interest rate spread decreased to 2.63% from
2.82%. This decrease occurred because the average rate paid on interest bearing
liabilities increased to 4.83% in 2001 from 4.41% in 2000. The following table
presents the components of net interest income and net interest spread:
Income/Expense Yield/Rate
------------------------ ----------------------
Quarter Ended
-------------------------------------------------------
3/31/01 3/31/00 3/31/01 3/31/00
------- ------- ------- -------
(In Thousands)
Interest income and average yield:
Loans $4,528 $4,036 8.39% 8.25%
Investments, mortgage-backed securities
and other earning assets 2,870 2,979 6.35 6.19
------ ------
Total 7,398 7,015 7.46 7.23
------ ------ ---- ----
Interest expense and average rate paid:
Deposits 2,766 2,211 4.27 3.75
Federal Home Loan Bank advances 1,341 1,115 6.34 5.78
Securities sold under agreements to
repurchase and other borrowed funds 89 452 9.67 6.03
------ ------
Total 4,196 3,778 4.83 4.41
------ ------ ---- ----
Net interest income $3,202 $3,237
====== ======
Net interest rate spread 2.63% 2.82%
==== ====
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Interest and Dividend Income
Interest income for the first quarter of 2001 and 2000 was $7.4 million and $7.0
million, respectively. The increase of $0.4 million was due to higher average
balances and higher yields on interest earning assets. The impact to interest
income due to higher average balances was $0.3 million and higher yields was
$0.1 million in the first quarter in 2001 from 2000.
Although the Bank had higher average balances for total interest earning assets,
the Bank had lower average balances for investments. Higher average loan
balances of $218.8 million versus $196.7 million for the quarters ended March
31, 2001 and 2000, respectively, resulted in a $0.5 million increase to interest
income. Lower average investment balances of $183.4 million versus $193.6
million for the same quarters resulted in an $0.2 million decrease of interest
income.
Yields on loans were 8.39% and 8.25% for the quarters ended March 31, 2001 and
2000, which had a minimal impact to interest income. Yields on investment
securities and other earning assets were 6.35% and 6.19% for the same periods in
2001 and 2000, which resulted in a $0.1 million increase in interest income.
Interest Expense
Interest expense for the first quarter of 2001 was $4.2 million. This is an
increase of $0.4 million from the same quarter of 2000. Average rates paid on
interest bearing liabilities increased resulting in $0.6 million increase in
interest expense and changes in average balances resulted in a decline of $0.2
million in interest expense.
Higher cost of deposits had a $0.3 million impact to interest expense while
higher cost of borrowed funds also had an impact of $0.3 million. The average
rate paid on deposits were 4.27% and 3.75% for the quarters ended March 31, 2001
and 2000, respectively.
Lower average balances for borrowed funds resulted in $0.5 million decrease in
interest expense. Average balances of Federal Home Loan Bank advances increased
to $85.8 million versus $77.6 million for the quarters ended March 31, 2001 and
2000, respectively. Other borrowed funds decreased to $3.7 million in 2001 from
$30.1 million for the same quarter in 2000. Higher average deposit balances of
$262.9 million versus $237.2 million resulted in an increase of interest expense
of $0.3 million.
Provision and Allowance for Loan Losses
The provision for loan losses was zero for the quarters ended March 31, 2001 and
2000, respectively.
The following table shows the allowance for loan losses information:
3/31/01 12/31/00 3/31/00
--------- ---------- ---------
(In thousands)
Non-performing loans $ 10 $ 10 $ 10
Allowance for loan losses $ 3,730 $ 3,685 $ 3,393
Allowance for loan losses as a
percent of total loans 1.69% 1.66% 1.74%
The allowance for the loan losses balance reflects management's assessment of
losses and is based on a review of the risk characteristics of the loan
portfolio. The Bank considers many factors in determining the adequacy of the
allowance for loan losses. Collateral value on a loan by loan basis, trends of
loan delinquencies on a portfolio segment level, risk classification identified
in the Bank's regular review of individual loans, and economic conditions are
primary factors in establishing allowance levels. The allowance level is
adequate to absorb estimated credit losses associated with loan and lease
portfolio, including all binding commitments to lend and off-balance sheet
credit instruments. The allowance for loan losses reflects all information
available at the end of each period.
Non-Interest Income
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Non-interest income remained level at $0.3 for the quarters ended March 31, 2001
and 2000, respectively. Loan servicing fees decreased slightly to $58,000 at
March 31, 2001 from $82 thousand at March 31, 2000. This was offset by increases
in deposit account fees and debit card fees.
Non-Interest Expense
Non-interest expense was $2.2 million and $2.1 million for the first quarter of
2001 and 2000, respectively. The slight increase in non-interest expense is due
to expenses associated with the establishment of a bank holding company as part
of a reorganization of the Bank.
Income Taxes
The Bank reported an income tax expense of $0.5 million for the quarters ended
March 31, 2001 and 2000 representing an effective tax rate of 38.0% and 35.6%,
respectively.
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Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The response is incorporated herein by reference from the discussion
under the subcaption "Interest Rate Sensitivity" of the caption "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" on
pages 13 and 14 of the Annual Report which is incorporated herein by reference.
Part II - Other Information
ITEM 1. LEGAL PROCEEDINGS
The response is incorporated herein by reference from the discussion
under the caption "CONTINGENCIES" on page 34 of the Annual Report which is
incorporated herein by reference.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
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
None.
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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.
LAWRENCE SAVINGS BANK AND SUBSIDIARIES
May 14, 2001 /s/ PAUL A. MILLER
-----------------------
Paul A. Miller
President and
Chief Executive Officer
May 14, 2001 /s/ JOHN E. SHARLAND
-----------------------
John E. Sharland
Senior Vice President
Chief Financial Officer
Treasurer