1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the period ended 6/30/96
/ / 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 0-17252
FAMILY BANCORP
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Massachusetts 04-2987118
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
153 Merrimack Street, Haverhill, MA 01830
- ---------------------------------------- ---------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 508-374-1911
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----------------------
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 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
4,215,211 shares of the registrant's common stock were outstanding on
June 30, 1996.
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Family Bancorp and Subsidiary
Index
Page
Part I. Financial Information
Item 1. Financial Statements
Consolidated balance sheets at June 30, 1996, 3
December 31, 1995 and June 30, 1995
Consolidated statements of operations for the three 4
months and six months ended June 30, 1996 and June 30,
1995
Consolidated statements of changes in stockholders' 5
equity for the six months ended June 30, 1996 and June
30, 1995
Consolidated statements of cash flows for the six 6-7
months ended June 30, 1996 and June 30, 1995
Notes to consolidated financial statements 8
Item 2. Management's discussion and analysis of financial 9-16
condition and results of operations
Part II. Other Information
Item 1. Legal Proceedings 17
Item 2. Changes in Securities 17
Item 3. Defaults upon Senior Securities 17
Item 4. Submission of Matters to a Vote of 17
Security Holders
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
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3
ITEM 1: FINANCIAL STATEMENTS
FAMILY BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
(Unaudited)
June 30, December 31, June 30,
1996 1995 1995
---------- ------------ ----------
ASSETS
Cash and due from banks $ 38,866 $ 28,449 $ 25,010
Short-term investments 0 15,825 1,045
Investment securities 394,571 351,437 297,140
Loans held for sale 10,863 8,056 4,072
Loans, net 446,675 451,199 462,811
Investments in R/E and limited partnerships, net 1,216 1,405 1,656
Other real estate owned, net 3,659 3,430 3,815
Banking premises and equipment 12,298 12,417 12,460
Accrued interest receivable 5,974 5,647 5,632
Goodwill 5,658 6,073 6,403
Other assets 5,459 8,229 8,147
---------- ---------- ----------
TOTAL ASSETS $ 925,239 $892,167 $ 828,191
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 761,551 $ 734,017 $ 707,829
Federal Home Loan Bank advances 69,932 72,195 39,953
Repurchase agreements 3,799 3,338 3,424
Funds held in escrow 3,273 2,883 3,155
Accrued interest payable 1,382 1,523 1,256
Accrued taxes and expenses 1,915 5,205 3,572
Other liabilities 13,435 4,310 5,845
---------- ---------- ----------
TOTAL LIABILITIES 855,287 823,471 765,034
---------- ---------- ----------
Serial preferred stock ($.10 par value;
10,000,000 shares authorized; none issued) - - -
Common stock ($.10 par value; 20,000,000
shares authorized; 5,615,805 shares issued) 562 562 374
Additional paid-in capital 30,009 30,018 30,065
Retained earnings 50,043 47,153 43,843
---------- ---------- ----------
80,614 77,733 74,282
Net unrealized gain (loss) on securities
available for sale, after tax effects (1,574) 954 (884)
Less: Treasury stock, at cost (1,400,594 shares
June 30, 1996; 1,534,007 shares
at December 31, 1995 and 1,566,458
shares at June 30, 1995) (9,055) (9,917) (10,126)
Unearned compensation- ESOP (33) (74) (115)
---------- ---------- ----------
TOTAL STOCKHOLDERS' EQUITY 69,952 68,696 63,157
---------- ---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 925,239 $ 892,167 $ 828,191
========== ========== ==========
SHARES OUTSTANDING 4,215,211 4,081,798 4,049,543
BOOK VALUE PER SHARE $ 16.60 $ 16.83 $ 15.60
TANGIBLE BOOK VALUE PER SHARE $ 15.25 $ 15.34 $ 14.01
See accompanying notes to unaudited financial statements.
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4
FAMILY BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
(Unaudited)
Three months ended Six months ended
June 30, June 30,
------------------------- -------------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
Interest and dividend income:
Interest and fees on loans $ 9,818 $ 10,172 $ 19,805 $ 19,886
Interest on securities 5,964 4,279 11,327 8,595
Dividends on securities 135 244 264 439
Interest on short-term investments 36 141 210 275
---------- ---------- ---------- ----------
TOTAL INTEREST AND DIVIDEND INCOME 15,953 14,836 31,606 29,195
---------- ---------- ---------- ----------
Interest expense:
Interest on deposits 6,346 6,104 12,911 11,668
Interest on borrowings 1,031 590 2,039 1,247
---------- ---------- ---------- ----------
TOTAL INTEREST EXPENSE 7,377 6,694 14,950 12,915
---------- ---------- ---------- ----------
Net interest income 8,576 8,142 16,656 16,280
Provision for loan losses 250 250 500 500
---------- ---------- ---------- ----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 8,326 7,892 16,156 15,780
---------- ---------- ---------- ----------
Other income:
Loan fees and charges 290 259 544 543
Gain (loss) on mortgage loans, net (76) 71 (81) 99
Gain (loss) on securities, net 21 149 223 135
All other income 1,380 995 2,426 1,992
---------- ---------- ---------- ----------
TOTAL OTHER INCOME 1,615 1,474 3,112 2,769
---------- ---------- ---------- ----------
Operating expenses:
Salaries and employee benefits 3,072 2,681 5,895 5,423
Occupancy and equipment 1,005 916 1,958 1,808
Advertising 400 205 700 342
Data processing 261 246 511 538
Losses on real estate and limited partnerships, net 209 12 313 189
Property management expenses 92 68 145 226
Regulatory assessments 106 399 212 798
Amortization of goodwill 208 184 415 365
Merger related expenses 533 0 533 0
Other general & administrative 1,262 1,328 2,346 2,378
---------- ---------- ---------- ----------
TOTAL OPERATING EXPENSES 7,148 6,039 13,028 12,067
---------- ---------- ---------- ----------
Income before taxes 2,793 3,327 6,240 6,482
Provision for income taxes 1,115 1,364 2,450 2,608
---------- ---------- ---------- ----------
NET INCOME $ 1,678 $ 1,963 $ 3,790 $ 3,874
========== ========== ========== ==========
Average number of common shares outstanding- primary 4,241,917 4,201,715 4,208,888 4,184,472
Average number of common shares outstanding- fully-diluted 4,247,010 4,201,481 4,216,606 4,190,067
Net income per share:
Primary $ 0.40 $ 0.47 $ 0.90 $ 0.93
Fully-diluted $ 0.40 $ 0.47 $ 0.90 $ 0.93
Dividends paid per share $ 0.12 $ 0.10 $ 0.22 $ 0.183
See accompanying notes to unaudited financial statements.
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FAMILY BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the six months ended June 30, 1996 and 1995
(Dollars in thousands)
(unaudited)
Net
Unrealized
Gain (Loss)
Additional on Securites Unearned
Common Paid-in Retained Available Treasury Compensation-
Stock Capital Earnings for Sale Stock ESOP Total
------ --------- -------- ------------ -------- ------------- -------
Balance at December 31, 1995 $562 $30,018 $47,153 $ 954 ($ 9,917) ($ 74) $68,696
Net income - - 3,790 - - - 3,790
Dividends declared - - (900) - - - (900)
Derease in unearned compensation- ESOP - - - - - 41 41
Stock options exercised - (9) - - 862 - 853
Change in net unrealized gain (loss) on
securities available for sale, after tax effects - - - (2,528) - - (2,528)
---- ------- ------- ------ ------- ---- -------
Balance at June 30, 1996 $562 $30,009 $50,043 ($1,574) ($ 9,055) ($ 33) $69,952
==== ======= ======= ====== ======= ==== =======
Balance at December 31, 1994 $374 $30,079 $40,707 ($7,084) ($10,374) ($155) $53,547
Net income - - 3,874 - - - 3,874
Dividends declared - - (738) - - - (738)
Derease in unearned compensation- ESOP - - - - - 40 40
Stock options exercised - (14) - - 248 - 234
Change in net unrealized gain (loss) on
securities available for sale, after tax effects - - - 6,200 - - 6,200
---- ------- ------- ------ ------- ---- -------
Balance at June 30, 1995 $374 $30,065 $43,843 ($ 884) ($10,126) ($115) $63,157
==== ======= ======= ====== ======= ==== =======
See accompanying notes to consolidated financial statements.
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CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands, except per share data)
(Unaudited)
Six months ended
June 30,
----------------------
1996 1995
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,790 $ 3,874
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 500 500
Loss on real estate and limited partnerships 313 189
Net amortization of securities 852 87
Amortization of net deferred loan (fees) costs 20 12
Depreciation expense 938 772
(Gain) loss on securities (223) (135)
Decrease (increase) in accrued interest receivable (327) (40)
Increase (decrease) in accrued income taxes and expenses (1,411) 275
Increase (decrease) in accrued interest payable (141) 178
Amortization of deferred premium on sold loans 79 93
Amortization of intangible assets 415 364
Purchase of trading securities (15,633) -
Proceeds from sales of trading securities 15,598 -
Loans originated for sale (20,476) (8,187)
Principal balance of loans sold 17,669 6,349
Other, net (201) 1,496
--------- ---------
Net cash provided (used) by operating activities 1,762 5,827
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of investment securities 3,698 2,700
Proceeds from sales of investment securities 270,164 113,733
Purchase of investment securities (338,685) (126,493)
Principal payments received on asset-backed securities 28,833 15,005
Loans originated, net of principal payments received 2,961 (13,657)
Proceeds from sales of other real estate owned 588 2,243
Purchase of banking premises and equipment (804) (1,123)
--------- ---------
Net cash provided (used) by investing activities (33,245) (7,592)
--------- ---------
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CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued from previous page)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits 27,534 (1,868)
Net increase (decrease) in repurchase agreements 461 978
Proceeds from Federal Home Loan Bank advances - 1,025
Maturities of Federal Home Loan Bank advances (12,263) (3,552)
Net increase of short-term borrowing 10,000 (1,235)
Proceeds from stock options exercised 853 234
Net increase (decrease) in funds held in escrow 390 1,011
Cash dividends paid on common stock (900) (738)
--------- ---------
Net cash provided (used) by financing activities 26,075 (4,145)
--------- ---------
Net increase (decrease) in cash and cash equivalents (5,408) (5,910)
Cash and cash equivalents, beginning balance 44,274 31,965
--------- ---------
Cash and cash equivalents, ending balance $ 38,866 $ 26,055
========= =========
Supplemental Financial Data:
Transfers from loans to other real estate owned $ 1,043 $ 204
Transfers from banking premises and equipment to real estate investments - 624
Cash paid for interest on borrowings 2,109 1,253
Cash paid for interest on deposits 13,008 11,746
Income taxes paid 3,452 2,832
See accompanying notes to unaudited consolidated financial statements.
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Family Bancorp and Subsidiary
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996
----------------------------------------------------
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The unaudited consolidated interim financial statements of Family Bancorp
and Subsidiary presented herein should be read in conjunction with the
consolidated financial statements of Family Bancorp and Subsidiary for the
year ended December 31, 1995.
Consolidated financial information as of June 30, 1996 and the results of
operations and the statement of cash flows for the interim periods ended
June 30, 1996 and 1995 are unaudited, and in the opinion of management,
reflect all adjustments, consisting of normal recurring adjustments,
necessary for a fair presentation of such information. Interim results are
not necessarily indicative of results to be expected for the entire year.
(2) ACCOUNTING FOR CAPITALIZED MORTGAGE SERVICING RIGHTS
On January 1, 1996, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 122, "Accounting For Mortgage Servicing Rights."
SFAS No. 122 requires rights to service mortgage loans for others to be
capitalized as separate assets, whether acquired through purchase or
origination, if such loans are sold or securitized with servicing rights
retained. Prior to the issuance of SFAS No. 122, the capitalization of
originated mortgage servicing rights was not allowed under generally
accepted accounting principles.
Capitalized mortgage servicing rights are to be amortized to servicing
revenue in proportion to, and over the period of, estimated net servicing
revenues. Impairment of mortgage servicing rights is to be assessed based
on the fair value of those rights. As of June 30, 1996, the Company had
recorded capitalized mortgage servicing rights of $83,000.
(3) COMMITMENTS
At June 30, 1996, the Company had the following commitments which are not
reflected in the balance sheet:
Firm commitments to grant loans $24,345
Standby letters of credit 6,295
Unadvanced home equity lines of credit 37,215
Unadvanced commercial and construction lines of credit 22,929
(4) RECLASSIFICATIONS
Certain amounts in the 1995 financial statements have been reclassified to
conform to the 1996 presentation.
On October 23, 1995, the Board of Directors declared a three-for-two stock
split in the form of a 50% stock dividend on the Company's common stock
payable on November 27, 1995 to stockholders of record on November 10,
1995. All applicable share and per share data have been adjusted to reflect
the effect of the three-for-two split.
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL. The Company had net income of $1.7 million, equivalent to $.40 per
share, as compared with earnings of $2.0 million, equivalent to $.47 per share
during the same quarter in 1995. Included in the most recent quarter's results
were merger related expenses net of taxes of $447,000 or $.11 per share. For the
six months year-to-date period in 1996, net income was $3.8 million, or $.90 per
share, versus $3.9 million or $.93 per share for the 1995 period.
Following the close of business on May 30, 1996, Peoples Heritage Financial
Group, Inc. ("Peoples Heritage"), a Maine based corporation, and the Company
entered into an Agreement and Plan of Merger (the "Agreement") which sets forth
the terms and conditions under which the Company will merge with and into
Peoples Heritage (the "Merger"). The Agreement provides that upon consummation
of the Merger, each outstanding share of the Company's common stock will be
converted into the right to receive 1.26 shares of common stock of Peoples
Heritage. The transaction will be accounted for under the purchase method of
accounting. Consummation of the Merger is subject to the approval of the
shareholders of Peoples Heritage and the Company and the receipt of all required
regulatory approvals, as well as other customary conditions. It is anticipated
that the Merger will be completed before year-end 1996.
Net interest income was $8.6 million for the second quarter 1996, up $434,000
from the same period in 1995. Net interest income for the six-month period was
also up slightly from $16.3 million in 1995 to $16.7 million in 1996. Non
interest income was up for the second quarter and year-to-date for 1996 versus
1995, by $141,000 and $343,000 respectively. This was primarily due to an
increase in deposit account fees.
Operating expenses increased from $6.0 million during the second quarter of 1995
to $7.1 million in 1996. Operating expenses for the six month period increased
$961,000 for 1996 versus 1995. Included in the quarter's results were merger
related expenses of $533,000.
Loans outstanding at June 30, 1996 were $454.3 million, down $4.3 million from
$458.6 million at year end 1995. This primarily resulted from a decrease in
consumer loans of $7.5 million due to the Company's decision to no longer
originate indirect automobile loans; a decline in residential mortgages of $6.8
million due to a decrease in the origination of adjustable-rate mortgages, and a
decline in home equity lines of credit of $3.8 million. Commercial loans however
increased $13.9 million, or 8.3%, from December 31, 1995 to June 30, 1996.
Non-performing loans were 0.75% of total loans at June 30, 1996, down from 0.95%
at December 31, 1995. Non-performing assets were 0.78% of total assets at June
30, 1996.
The Company classified 100% of its investment portfolio as "available for sale"
in the fourth quarter of 1995. Due to rising interest rates over the first half
of 1996 the market value of this portfolio was reduced from a net unrealized
gain of $1.7 million at December 31, 1995 to an unrealized loss of $2.7 million
at June 30, 1996.
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The following table presents average balances (including non-accrual loans),
interest income/expense and yield/rate for interest-earning assets and
interest-bearing liabilities for the periods indicated.
For the Three Months Ended
-------------------------------------------------------------------------
June 30, 1996 June 30, 1995
--------------------------------- ----------------------------------
Interest Interest
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
--------------------------------- ----------------------------------
Loans $460,152 $ 9,818 8.53% $474,204 $10,172 7.73%
Investment securities 383,393 6,099 6.36 287,723 4,523 5.94
Short-term investments 2,633 36 5.47 9,816 141 3.93
------------------- -------------------
Average earning assets 846,178 15,953 7.54 771,743 14,836 6.91
Other assets 55,182 49,390
-------- --------
$901,360 $821,133
======== ========
Interest-bearing deposits $665,131 6,345 3.82 $637,757 6,104 2.97
Borrowed funds 75,933 1,032 5.44 43,817 590 5.09
------------------- -------------------
Average interest-bearing liabilities 741,064 7,377 3.98 681,574 6,694 3.18
Demand deposits 78,776 65,085
Other liabilities 13,125 13,657
Stockholders' equity 68,395 60,817
-------- --------
$901,360 $821,133
======== ========
Net interest income $ 8,576 $ 8,142
======= =======
Average interest-rate spread 3.56 3.73
Net yield on interest-earning assets 4.05% 4.07%
For the Six Months Ended
-------------------------------------------------------------------------
June 30, 1996 June 30, 1995
--------------------------------- ----------------------------------
Interest Interest
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
--------------------------------- ----------------------------------
Loans $462,284 $19,805 8.57% $470,156 $19,886 7.72%
Investment securities 367,140 11,591 6.31 289,298 9,034 5.95
Short-term investments 7,970 210 5.27 9,335 275 3.69
------------------- -------------------
Average earning assets 837,394 31,606 7.55 768,789 29,195 6.92
Other assets 56,408 47,177
-------- --------
$893,802 $815,966
======== ========
Interest-bearing deposits $661,152 12,910 3.91 $634,167 11,668 2.97
Borrowed funds 73,692 2,040 5.54 46,014 1,247 5.25
------------------- -------------------
Average interest-bearing liabilities 734,844 14,950 4.07 680,181 12,915 3.18
Demand deposits 76,012 63,758
Other liabilities 14,205 13,495
Stockholders' equity 68,741 58,532
-------- --------
$893,802 $815,966
======== ========
Net interest income $16,656 $16,280
======= =======
Average interest-rate spread 3.48 3.74
Net yield on interest-earning assets 3.98% 4.09%
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RESULTS OF OPERATIONS
---------------------
NET INCOME. The Company had net income of $1.7 million, or $.40 per share, for
the quarter ended June 30, 1996 versus net income of $2.0 million, or $.47 per
share, for the quarter ended June 30, 1995. Included in the 1996 results are
merger related expenses net of taxes of $447,000, equivalent to $.11 per share.
The merger related expenses pertain to the previously announced acquisition of
the Company by Portland, Maine based Peoples Heritage Financial Group. Net
income for the first six months of 1996 was $3.8 million, or $.90 per share as
compared with earnings of $3.9 million, or $.93 per share during the same period
in 1995.
INTEREST AND DIVIDEND INCOME. Interest and dividend income was $16.0 million in
the second quarter of 1996 versus $14.8 million in 1995's second quarter, an
increase of 7.5%. Interest on securities increased $1.6 million from $4.5
million in 1995 to $6.1 million in 1996. This resulted from a $95.7 million
increase in the average balance outstanding, coupled with an average yield
increase of 42 basis points from the second quarter of 1995 to 1996's second
quarter. Interest and fees on loans decreased $354,000 primarily due to a
decrease in the average balance outstanding of $14.1 million. The average yield
increased 80 basis points from 7.73% in 1995 to 8.53% in 1996. Interest on short
term securities dropped $105,000 as the average balance outstanding declined
$7.2 million from $9.8 million in 1995 to $2.6 million in 1996. The average
yield on these investments increased from 3.93% in 1995 to 5.47% in 1996.
Interest and dividend income increased $2.4 million for the first six months of
1996 compared to the same period in 1995. This is attributable to a growth in
average earning assets of $68.6 million from year-to-year and an increase in the
average yield on these assets of 63 basis points. Interest on securities
increased by $2.6 million from $9.0 million in 1995 to $11.6 million in 1996.
This resulted from an increase in the average balance outstanding from $289.3
million in 1995 to $367.1 million in 1996 an increase of $77.8 million. Interest
and fees on loans remained relatively the same year-to-year as the average loans
outstanding declined $7.9 million, but the average yield on these loans
increased by 85 basis points.
INTEREST EXPENSE. Interest expense increased $683,000 from $6.7 million for the
second quarter of 1995 to $7.4 million for the second quarter of 1996. This
resulted from an increase of $59.5 million in the average balance outstanding of
interest-bearing liabilities from $681.6 million in 1995 to $741.1 million for
the second quarter of 1996. The average rate on these liabilities increased 80
basis points over the same periods. The average balance outstanding on
interest-bearing deposits rose $27.4 million period-to-period and the average
rate paid on these deposits increased from 2.97% in 1995 to 3.82% in 1996. The
average balance outstanding on borrowed funds also increased by $32.1 million
and the rate on these funds increased by 0.35%.
Interest expense for the comparable six month period was up $2.1 million, from
$12.9 million for 1995 to $15.0 million for 1996, primarily due to an increase
in volume. Average interest-bearing liabilities outstanding rose $54.7 million
from $680.1 million in 1995 to $734.8 in 1996. Average interest-bearing deposits
outstanding increased $27.0 million year-to-year and the rate paid on these
deposits increased from 2.97% in 1995 to 3.91% in 1996. Average borrowed funds
outstanding increased from period-to-period by $27.7 million. The rate paid on
these funds increased by 0.29%.
PROVISION FOR LOAN LOSSES. Management considers many factors when assessing the
adequacy of the allowance for loan losses and thus the amount of any provision
for losses. These may include the collectibility of specific loans in light of
historical experience, known and inherent risks in the nature and volume of the
loan portfolio, adverse situations that may affect the borrower's ability to
repay, the estimated value of any underlying collateral and prevailing economic
conditions. Ultimate loan losses may vary significantly from current estimates.
The Company made a provision for loan losses of $250,000 in the second quarter
of 1996 and 1995. The level of non-performing loans declined to $3.4 million at
June 30, 1996 from $5.7 million at June 30, 1995. Non-performing loans to total
loans were 0.75% at June 30, 1996 versus 1.21% at June 30, 1995. A provision of
$500,000 was made for the first six months of 1996 and 1995. Net charge-offs on
loans decreased from $929,000 in 1995 to $167,000 in the 1996 period.
The Company's allowance for loan losses was $6.8 million at June 30, 1996, which
represents 197.37% of non-performing loans and 1.49% of total loans, versus an
allowance for loan losses of $6.3 million or 110.92% of non-performing loans and
1.34% of total loans at June 30, 1995.
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OTHER INCOME (CHARGES). Other income increased from $1.5 million in the second
quarter of 1995 to $1.6 million in 1996. Deposit fee income increased $382,000
or 40.7% period-to-period. This was mainly attributable to the continued success
of the Company's new retail checking account program initiated in the first
quarter of 1996. Mortgage and security sales resulted in a net loss of $55,000
in 1996 versus a net gain of $220,000 in the 1995 period.
Other income for the first six months of 1996 was $3.1 million, up $343,000 from
$2.8 million in the prior year period. This was mainly due to the increase in
deposit fee income of $443,000 or 23.5% resulting from the new checking program.
Mortgage and security gains were down $92,000 period-to-period.
PROVISION FOR INCOME TAX. The provision for income taxes was calculated assuming
an effective tax rate of 39.9% for the second quarter of 1996 and 41.0% for the
second quarter of 1995. The provision for the first six months of 1996 was 39.3%
versus 40.2% for the 1995 period. The Company has reduced its state tax
liability through the use of tax-advantaged securities corporations as allowed
by Massachusetts law. The securities corporations are subsidiaries of the
Company's bank subsidiary.
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FINANCIAL CONDITION
-------------------
GENERAL. Total assets were $925.2 million at June 30, 1996, up from $892.2
million at December 31, 1995 and $828.8 million at June 30, 1995. Investment
securities increased $43.1 million from year-end 1995 to $394.6 million at June
30, 1996. Loans decreased by $4.3 million from year-end 1995 to June 30, 1996
due to a decline in consumer loans of $7.5 million, a decline in residential
real estate of $6.8 million and a decline in home equity lines of credit of $3.8
million, partially offset by an increase in commercial loans of $13.9 million.
Total deposits increased $27.6 million from $734.0 million at year-end 1995 to
$761.6 million at June 30, 1996. The balance in transaction accounts increased
$16.6 million for the period.
LOANS. Total loans outstanding at June 30, 1996 were $454.3 million as compared
to $458.6 million at December 31, 1995. Commercial loans rose to $181.1 million
at June 30, 1996, up $13.9 million from year-end 1995. In particular, non-real
estate commercial loans rose $10.4 million during the six month period.
Residential real estate has declined over the 6 month period due to a decrease
in the origination of adjustable-rate mortgages. Adjustable-rate mortgages and
fixed-rate mortgages having final maturities of ten years or less are typically
originated for the Company's loan portfolio. Consumer loans have decreased due
to the Company's decision to no longer originate any indirect automobile loans.
The Company determined that such loans presented higher risks and lower yields
than alternative investment options.
The following table presents the composition of the Company's loan portfolio at
the dates indicated:
June 30, 1996 December 31, 1995
------------- -----------------
Real Estate:
Residential $189,581 $196,404
Commercial 130,051 127,457
Construction 5,154 4,291
Home Equity Line of Credit 39,790 43,605
Commercial Loans 45,878 35,441
Consumer 43,884 51,380
-------- --------
Total Loans 454,338 458,578
Less:Deferred income on loans (903) (952)
Allowance for loan losses (6,760) (6,427)
-------- --------
Loans, net $446,675 $451,199
======== ========
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ALLOWANCE FOR LOAN LOSSES. Funds provided for possible loan losses for both the
second quarter of 1996 and 1995 were $250,000. Net recoveries in the second
quarter of 1996 totaled $4,000 compared to net charge-offs of $646,000 for the
prior year period. This favorable net recovery position in the second quarter of
1996 was mainly the result of commercial loan recoveries totalling $218,000.
The allowance for loan losses is maintained at a level determined by management
to be adequate to provide for probable losses inherent in the loan portfolio,
including commitments to extend credit. The allowance is established through a
provision for loan losses which is a charge to operations. The determination of
the adequacy of the allowance involves substantial uncertainties and is based
upon management's periodic assessment of risk elements in the portfolio, factors
affecting loan quality and assumptions about the economic environment. In
addition, management analyzes current levels and trends in charge-off,
delinquency and nonaccruing loan data, as well as, forecasted economic
conditions and the overall banking environment.
The following table analyzes changes in the allowance for loan losses over the
past five quarters:
For the Quarter Ended
----------------------------------------------------
6/30/96 3/31/96 12/31/95 9/30/95 6/30/95
------- ------- -------- ------- -------
(In Thousands)
Allowance, beginning of period $6,506 $6,427 $6,536 $6,285 $6,681
Provision 250 250 400 250 250
------ ------ ------ ------ ------
6,756 6,677 6,936 6,535 6,931
------ ------ ------ ------ ------
Charge-offs:
Commercial 19 39 397 - 486
Residential 119 69 27 94 13
Consumer 106 170 189 119 179
------ ------ ------ ------ ------
Total charge-offs 244 278 613 213 678
------ ------ ------ ------ ------
Recoveries:
Commercial 218 82 90 167 27
Residential 9 - - 8 3
Consumer 21 25 14 39 2
------ ------ ------ ------ ------
Total recoveries 248 107 104 214 32
------ ------ ------ ------ ------
Net charge-offs (recoveries) (4) 171 509 (1) 646
------ ------ ------ ------ ------
Allowance, end of period $6,760 $6,506 $6,427 $6,536 $6,285
====== ====== ====== ====== ======
Allowance as a percentage of:
Total loans 1.5% 1.4% 1.4% 1.4% 1.3%
Non-performing loans 197.4% 187.3% 146.8% 114.0% 110.9%
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NON-PERFORMING ASSETS. Non-performing assets totaled $7.2 million at June 30,
1996, a decrease of $625,000 from $7.8 million at December 31, 1995. This
decrease was mainly due to a reduction in the balance of nonaccruing loans.
It is the Company's policy to discontinue the accrual of interest and reverse
any unpaid accrued amounts when a loan is past due 90 days or more, or when, in
the judgement of management, the collectibility of principal or interest becomes
doubtful. The Company may continue to accrue interest on loans past due 90 days
or more if the loans are well secured and in the process of collection.
Impaired loans amounting to $2.7 million at June 30, 1996 are included in
various categories in the table below and the allowance for losses on impaired
loans was $408,000 at June 30, 1996. An impaired loan is a loan for which it is
probable that the lender will not be able to collect all amounts due according
to the contractual terms of the loan agreement. An impaired loan is required to
be measured on a loan by loan basis either by the present value of expected
future cash flows discounted at the loan's effective interest rate, the loan's
obtainable market price, or the fair value of the collateral if the loan is
collateral dependent. Substantially all of the Company's loans which have been
impaired have been measured by the fair value of existing collateral.
Restructured loans have generally been modified to provide the borrower a below
market rate or more favorable repayment terms as a result of a change in the
borrower's financial condition. The Bank could also require that the modified
loan be secured by additional collateral if available. Restructured loans
typically remain on non-accrual status until adequate performance, under the
restructuring agreement, is demonstrated.
Other real estate owned is real estate acquired through foreclosure or by deed
in lieu of foreclosure. At June 30, 1996, 78.7%, or $3.0 million of other real
estate owned was comprised of three commercial properties.
The following table sets forth the principal balance of: (a) loans on a
nonaccrual basis, (b) other real estate owned, (c) accruing, restructured loans,
and (d) other impaired loans not included in categories (a) through (c).
6/30/96 3/31/96 12/31/95 9/30/95 6/30/95
------- ------- -------- ------- -------
(In Thousands)
Nonaccruing loans $3,425 $ 3,474 $ 4,379 $ 5,733 $ 5,666
Other real estate owned 3,759 4,057 3,430 3,840 3,815
------ ------- ------- ------- -------
Total non-performing assets 7,184 7,531 7,809 9,573 9,481
Accruing, restructured loans 831 3,042 3,722 1,459 814
Other impaired loans 305 443 1,202 - -
------ ------- ------- ------- -------
Total $8,320 $11,016 $12,733 $11,032 $10,295
====== ======= ======= ======= =======
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INVESTMENTS. Investment securities represent a significant portion of the
Company's earning assets. Investment securities totaled $394.6 million, or 42.6%
of total assets, at June 30, 1996 and $351.4 million, or 39.4% of total assets,
at December 31, 1995. The Company classified 100% of its investment portfolio as
"available for sale" in the fourth quarter of 1995. The Company had an
unrealized gain on its "available for sale" securities of $1.7 million at
December 31, 1995, but due to a rising interest rate environment during the
first half of 1996 the Company had an unrealized loss of $2.7 million at June
30, 1996. The following table presents the amortized cost of investment
securities at the dates indicated:
June 30, 1996 December 31, 1995
------------- -----------------
(In Thousands)
U.S. Treasury and government agencies $ 44,924 $ 51,987
State and municipal obligations 4,190 790
Other bonds and obligations 20,887 36,022
Mortgage-backed securities 120,357 141,643
REMICs and CMOs 188,901 98,205
Other asset-backed securities 5,388 8,277
Marketable equity securities 6,063 7,603
Restricted equity securities 6,591 5,231
Unrealized gain (loss) on securities
available for sale (2,728) 1,679
------- --------
$394,573 $351,437
======== ========
FIXED ASSETS. The Company's fixed assets are little changed from December 31,
1995 to June 30, 1996. The Company has no plans for major cash outlays for fixed
assets in the immediate future.
DEPOSITS. Deposits represent the major source of funding for earning assets.
Deposit flows vary in response to prevailing rates, economic conditions and
competition. The Company's deposit mix shifted somewhat in 1996 and 1995 as more
consumers opted to invest in certificates of deposit and out of savings deposits
in response to higher interest rates.
The Company initiated a program in the first quarter of 1996 to increase its
base of transaction accounts in an effort to build customer relationships and
reduce it interest cost of funds. The balance in transaction accounts increased
$16.6 million to $179.0 million at June 30, 1996 from $162.4 million at year-end
1995, primarily as a result of this program.
FEDERAL HOME LOAN BANK ADVANCES. Advances from the Federal Home Loan Bank (FHLB)
of Boston are utilized from time to time to fund long-term, fixed-rate loan
commitments and liquidity needs. At June 30, 1996, these advances totaled $69.9
million as compared to $72.2 million at December 31, 1995.
LIQUIDITY AND CAPITAL RESOURCES. The Company's principal sources of liquidity
are payments of loan principal, maturities of investment securities principal
payments on asset-backed securities, retail deposits and advances from the FHLB.
These sources of liquidity are used to fund new loans and investments and other
capital requirements which arise in the normal course of the Company's business
activities.
The objective of liquidity management is to assess and provide for the Company's
funding requirements for loans and deposits while striving to allocate available
assets for optimum investment.
The Company's banking subsidiary must meet minimum capital adequacy standards
set by its regulator, the Office of Thrift Supervision. Banks are required by
the OTS to maintain a minimum core capital ratio of 3.00%, and a minimum capital
to risk-weighted assets ratio of 8.00%. At June 30, 1996, Family Bank maintained
a core capital ratio of 6.41%, and a risk-based capital ratio of 11.55%. The
after tax effect of SFAS No. 115 on stockholders' equity, goodwill and certain
real estate investments are not included in capital when calculating these
regulatory capital to asset ratios.
The Company's capital to asset ratio as defined by generally accepted accounting
principles (GAAP) was 7.56% at June 30, 1996.
IMPACT OF INFLATION. The consolidated financial statements and related
consolidated financial data present herein have been prepared in accordance with
generally accepted accounting principles which require the measurement of
financial positions and operating results in terms of historical dollars and
without considering change in the relative purchasing power of money over time
due to inflation. The primary impact of inflation on operations of the Company
is reflected in increased operating costs. Unlike most industrial companies,
virtually all of the assets and liabilities of a financial institution are
monetary in nature. As a result, interest rates have a more significant impact
on a financial institution's performance than the effects of general levels of
inflation. Interest rates do not necessarily move in the same direction or at
the same magnitude as the price of goods and services.
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17
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders of Family Bancorp was held on
April 30, 1996. The number of shares eligible to vote were
4,087,048. Quorum was 3,534,017 or 86.4 percent of eligible
voting shares tabulated. The results of the matters submitted to
a vote of Security Holders were as follows:
1. To elect two (2) Group C Directors, each for a three-year
term, and one (1) Group B Director for a two-year term.
Number of Shares
----------------
Group C Directors: For Against Withheld
--- ------- --------
Charles George, Jr. 3,481,778 52,239 -
Kenneth L. Paul 3,481,778 52,239 -
Group B Director:
Elkin B. McCallum 3,481,778 52,239 -
The following directors continue their terms in office:
John E. Veasey
David D. Hindle
2. To ratify the appointment of Wolf & Company, P.C. as the
Company's independent certified public accountants for the
current fiscal year.
Number of Shares
----------------
For 3,360,025
Against 97,722
Withheld 76,270
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
Form 8-K relative to the Agreement and Plan of Merger, dated as
of May 30, 1996 among Peoples Heritage Financial Group Inc. and
Family Bancorp was filed on June 7, 1996.
17
18
SIGNATURES
Under the requirements of the Securities Exchange Act of 1934, the Company has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
Family Bancorp and Subsidiary
-----------------------------
Date: August 8 , 1996 By: /s/ David D. Hindle
----------------------- ---- -----------------------
David D. Hindle
Chief Executive Officer
Date: August 8 , 1996 By: /s/ George E. Fahey
----------------------- ---- -----------------------
George E. Fahey
Principal Financial
and Acctg Officer
18