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
or the quarterly period ended September 30, 1996 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 No. 0-17222
WARREN BANCORP, INC.
(Exact Name of registrant as specified in the charter)
MASSACHUSETTS 04-3024165
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10 MAIN STREET, PEABODY, MASSACHUSETTS 01960
(Address of principal executive offices) (Zip Code)
(508) 531-7400
(Registrant's telephone number, including area code)
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 report(s), and (2) has been subject to such
filing requirement for the past 90 days.
Yes /x/ No / /
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at November 8, 1996
- --------------------------------------- -------------------------------
Common Stock, par value $.10 per share 3,657,167
2
WARREN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
ASSETS (Unaudited)
Cash and due from banks (non-interest bearing) ........................................... $ 6,481 $ 8,869
Money market funds and overnight investments ............................................. 11,151 5,300
Investment and mortgage-backed securities available for sale (amortized cost of $97,386
at September 30, 1996 and $104,672 at December 31, 1995) .............................. 97,890 106,838
Other investments (market value of $6,943 at September 30, and December 31, 1995) ........ 6,703 6,703
Loans held for sale ...................................................................... 668 2,809
Loans .................................................................................... 222,367 216,692
Allowance for loan losses ................................................................ (4,533) (4,533)
-------- --------
Net loans ............................................................................. 217,834 212,159
Banking premises and equipment, net ...................................................... 4,544 4,757
Accrued interest receivable .............................................................. 2,610 2,399
Real estate acquired by foreclosure ...................................................... 2,255 3,092
Other assets ............................................................................. 3,799 2,928
-------- --------
Total assets .......................................................................... $353,935 $355,854
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits .............................................................................. $313,733 $314,850
Borrowed funds ........................................................................ 4,407 7,368
Escrow deposits of borrowers .......................................................... 1,179 767
Accrued interest payable .............................................................. 575 588
Accrued expenses and other liabilities ................................................ 1,601 1,043
-------- --------
Total liabilities ................................................................... 321,495 324,616
-------- --------
Stockholders' equity:
Preferred stock, $ 10 par value; Authorized - 10,000,000 shares;
Issued and outstanding - none ....................................................... - -
Common stock, $ 10 par value; Authorized - 20,000,000 shares;
Issued - 3,751,447 shares at September 30, 1996 and 3,637,542 shares at
December 31, 1995; Outstanding - 3,653,547 shares at September 30, 1996
and 3,637,542 shares at December 31, 1995 .......................................... 376 364
Additional paid-in capital ............................................................ 34,219 33,911
Accumulated deficit ................................................................... (1,301) (4,401)
Treasury stock, at cost, 98,000 shares at September 30, 1996 and none at
December 31, 1995 ................................................................. (1,174) -
-------- --------
32,120 29,874
Unrealized gain on marketable securities available for sale, net ...................... 320 1,364
-------- --------
Total stockholders' equity ......................................................... 32,440 31,238
-------- --------
Total liabilities and stockholders' equity ......................................... $353,935 $355,854
======== ========
See accompanying notes to consolidated financial statements.
3
WARREN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- ---------------------
1996 1995 1996 1995
------ ------ ------- -------
(Unaudited)
(Dollars in thousands, except per-share data)
Interest and dividend income:
Interest on loans ............................................ $5,125 $5,170 $15,125 $15,364
Interest and dividends on investments ........................ 990 921 3,253 2,598
Interest on mortgage-backed securities ....................... 799 936 2,464 2,745
------ ------ ------- -------
Total interest and dividend income ........................ 6,914 7,027 20,842 20,707
------ ------ ------- -------
Interest expense:
Interest on deposits ......................................... 2,767 2,880 8,331 8,189
Interest on borrowed funds ................................... 69 130 251 381
------ ------ ------- -------
Total interest expense .................................... 2,836 3,010 8,582 8,570
------ ------ ------- -------
Net interest income ....................................... 4,078 4,017 12,260 12,137
Provision for (recovery of) loan losses ......................... (141) (2) 17 (99)
------ ------ ------- -------
Net interest income after provision for or recovery of
loan losses ............................................ 4,219 4,019 12,243 12,236
------ ------ ------- -------
Non-interest income:
Loan servicing fees .......................................... 174 137 478 490
Customer service fees ........................................ 311 275 780 762
Gains (losses) on sales of investment securities, net ........ - (24) 241 (20)
Gains (losses) on sales of mortgage loans and mortgage-
servicing rights, net ....................................... 76 180 258 597
Other ........................................................ 2 46 5 125
------ ------ ------- -------
Total non-interest income ................................. 563 614 1,762 1,954
------ ------ ------- -------
Income before non-interest expense and income taxes ....... 4,782 4,633 14,005 14,190
------ ------ ------- -------
Non-interest expense:
Salaries and employee benefits ............................... 1,409 1,450 4,182 4,014
Office occupancy and equipment ............................... 264 262 807 808
Professional services ........................................ 71 96 234 365
Marketing .................................................... 53 34 132 96
Deposit insurance ............................................ 1 4 3 411
Real estate operations ....................................... 81 163 155 933
Outside data processing expense .............................. 102 108 329 322
Other ........................................................ 401 355 1,240 1,164
------ ------ ------- -------
Total non-interest expenses ............................... 2,382 2,472 7,082 8,113
------ ------ ------- -------
Income before income taxes ................................ 2,400 2,161 6,923 6,077
Income tax expense ............................................. 821 719 2,265 2,169
------ ------ ------- -------
Net income ................................................. $1,579 $1,442 $ 4,658 $ 3,908
====== ====== ======= =======
Net income per common and common equivalent share .......... $ 0.40 $ 0.37 $ 1.19 $ 1.02
====== ====== ======= =======
See accompanying notes to consolidated financial statements.
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WARREN BANCORP, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1996 1995
--------- ----------
(In thousands)
(Unaudited)
Cash flows from operating activities:
Net Income .................................................................. $ 4,658 $ 3,908
Adjustments to reconcile net income to net cash provided by operating
activities:
Provision for (recovery of) loan losses ................................... 17 (99)
Depreciation and amortization ............................................. 431 435
Deferred income taxes ..................................................... 1,153 735
Amortization (accretion) of premiums, fees and discounts .................. 22 (60)
(Gains) losses on sales of investment securities .......................... (241) 20
(Gains) on sales of mortgage loans and mortgage-servicing rights .......... (258) (597)
Provision for losses on real estate acquired by foreclosure ............... (32) 693
(Gains) on sale of real estate acquired by foreclosure .................... 48 (78)
(Increase) decrease in loans held for sale ................................ 2,141 (2,954)
(Increase) in accrued interest receivable ................................. (211) (269)
(Increase) in other assets ................................................ (1,059) (625)
Increase (decrease) in accrued interest payable ........................... (13) 16
Increase in other liabilities ............................................. 623 738
-------- --------
Net cash provided by operating activities ............................. 7,279 1,863
-------- --------
Cash flows from investing activities:
Net (increase) in money market funds and .................................... (5,851) (6,210)
Purchase of investment securities ........................................... (28,163) (20,425)
Proceeds from sales of investment securities available for sale ............. 12,351 13,274
Proceeds from maturities of investment securities ........................... 18,827 -
Proceeds from sales of real estate acquired by foreclosure .................. 1,209 3,236
Capital expenditures for real estate acquired by foreclosure ................ - (71)
Purchases of mortgage-backed securities ..................................... (1,911) -
Proceeds from payments of mortgage-backed securities ........................ 8,576 6,674
Net (increase) in loans ..................................................... (7,997) (52)
Purchases of premises and equipment ......................................... (218) (282)
-------- --------
Net cash used in investing activities .................................... $ (3,177) $ (3,856)
-------- --------
5
WARREN FIVE CENTS SAVINGS BANK
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1996 1995
---- ----
(In thousands)
(Unaudited)
Cash flows from financing activities:
Net increase (decrease) in deposits....................... $(1,117) $2,301
Proceeds from Federal Home Loan Bank advances............. 913 473
Principal payments on Federal Home Loan Bank advances..... (4,001) (420)
Net increase in other borrowed funds...................... 127 430
Purchase of treasury stock................................ (1,174) -
Dividends paid............................................ (1,558) (718)
Proceeds from issuance of common stock.................... 320 131
------- ------
Net cash provided by (used in) financing activities..... (6,490) 2,197
------- ------
Net increase (decrease) in cash and due from banks........ (2,388) 204
Cash and due from banks at beginning of period............ 8,869 8,231
------- ------
Cash and due from banks at end of period.................. $ 6,481 $8,435
======= ======
Cash paid during the period for:
Interest.................................................. $ 8,595 $8,554
Income taxes.............................................. $ 1,798 $1,231
Supplemental noncash investing and financing activities:
Rental estate foreclosures............................... $ 392 $ 664
Securitization of loans to mortgage-backed securities.... $ 2,171 $7,859
Decrease in unrealized gain on investment and mortgage-
backed securities available for sale, net of estimated
income taxes............................................. $(1,004) $2,661
See accompanying notes to consolidated financial statements.
6
WARREN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996
UNREALIZED
GAIN (LOSS) ON
RETAINED MARKETABLE
ADDITIONAL EARNINGS SECURITIES
COMMON PAID-IN (ACCUMULATED AVAILABLE FOR TREASURY
STOCK CAPITAL DEFICIT) SALE, NET STOCK TOTAL
------ ---------- ------------ --------------- --------- -------
(Unaudited)
(Dollars in thousands)
Balance at December 31, 1994 .................... $354 $33,759 $(8,702) $(1,616) - $23,795
Net income ................................... - - 3,908 - - 3,908
Dividends paid ............................... - - (718) - (718)
Change in unrealized gain
on marketable securities
available for sale, net ..................... - - - 2,661 - 2,661
Issuance of 84,797 shares for exercise
of options and 401K benefit plan ............ 9 122 - - - 131
---- ------- ------- ------- ------- -------
Balance at September 30, 1995 ................... $363 $33,881 $(5,512) $1,045 $ - $29,777
Net income ................................... - - 1,474 - - 1,474
Dividends paid ............................... - - (363) - - (363)
Change in unrealized loss
on marketable securities
available for sale, net ..................... - - - 319 - 319
Issuance of 8,000 shares for exercise
of options .................................. 1 30 - - - 31
---- ------- ------- ------- ------- -------
Balance at December 31, 1995 .................... $364 $33,911 $(4,401) $1,364 $ - $31,238
Net income ................................... - - 4,658 - - 4,658
Dividends paid ............................... - - (1,558) - - (1,558)
Purchase of treasury stock (98,000
shares) .................................... - - - - (1,174) (1,174)
Issuance of 113,905 shares for exercise
of options .................................. 12 308 - - - 320
Change in unrealized loss
on marketable securities
available for sale, net .................... - - - (1,044) - (1,044)
---- ------- ------- ------- ------- -------
Balance at September 30, 1996 ................... $376 $34,219 $(1,301) $ 320 $(1,174) $32,440
==== ======= ======= ======= ======= =======
See accompanying notes to consolidated financial statements.
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WARREN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
BASIS OF PRESENTATION
The consolidated financial statements of Warren Bancorp, Inc. (the
"Corporation") presented herein should be read in conjunction with the
consolidated financial statements of the Corporation as of and for the year
ended December 31, 1995. In the opinion of management, the financial statements
reflect all adjustments necessary for a fair presentation of the results for the
interim periods presented. Certain amounts have been reclassified to conform
with the 1996 presentation.
EARNINGS PER COMMON AND COMMON-EQUIVALENT SHARE
Earnings-per-share data are based upon the average daily number of shares
and share equivalents (options) outstanding, which was 3,911,000 and 3,916,000,
respectively, for the quarter and nine months ended September 30, 1996 and for
the quarter and nine months ended September 30, 1995 was 3,851,000 and
3,824,000, respectively.
OTHER
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation," which became effective for the Corporation on January
1, 1996. This statement established a fair-value-based method of accounting for
stock-based compensation plans under which compensation cost is measured at the
grant date based on the value of the award and is recognized over the service
period. However, the statement allows a company to continue to measure
compensation cost for such plans under Accounting Principles Board (APB) Opinion
No. 25, "Accounting for Stock Issued to Employees." Under APB Opinion No. 25, no
compensation cost is recorded if, at the grant date, the exercise price of
options granted is equal to the fair market value of the Corporation's stock.
The Corporation has elected to continue to follow the accounting method under
APB Opinion No. 25.
8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
GENERAL
Warren Bancorp, Inc.'s (the "Corporation") operating results for the
three and nine months ended September 30, 1996 (the "1996 quarter" and "1996
period," respectively) reflect the operations of its only subsidiary, Warren
Five Cents Savings Bank (the "Bank"). The Bank, which is wholly owned by the
Corporation, operates as a community bank and is in the business of making
individual and commercial loans to customers in its market area.
The Corporation recorded an increased profit for the 1996 period
primarily due to reduced real estate operations expense and professional
services expense compared to the period ended September 30, 1995 (the "1995
period"). In addition, deposit insurance expense decreased during the 1996
period due to the Federal Deposit Insurance Corporation (the "FDIC") reducing
the premium it charges banks for deposit insurance. Please see the "Results of
Operations for the Nine-Months Ended September 30, 1996," for further discussion
on these items.
Real estate acquired by foreclosure decreased by $800,000 during the 1996
period to $2.3 million at September 30, 1996, and nonperforming loans decreased
by $1.0 million to $3.2 million. Management continues to monitor these
non-performing asset portfolios closely with special attention being given to
residential and commercial real estate loans, properties and land which comprise
a substantial portion of the Corporation's nonperforming assets.
If conditions in the Massachusetts' real estate market become unstable
and values deteriorate, the amount of nonaccrual loans and real estate acquired
through foreclosure would be expected to increase, resulting in lower interest
income and increased loan losses, which could require additional loan loss
provisions to be charged to operating income. Moreover, real estate acquired
through foreclosure may give rise to additional charge-offs and writedowns and
higher expenses for property taxes and other carrying costs.
In addition, the Board of Directors of the Corporation has authorized
management to repurchase up to 225,000 shares of its common shares in the open
market. The repurchase program commenced on April 22, 1996 and may be
discontinued at anytime. The 225,000 authorized shares represents the repurchase
of approximately 6% of the outstanding shares at the repurchase program's
commencement date. At September 30, 1996, the Corporation purchased 98,000
shares at a total cost of $1.2 million.
SUBSEQUENT EVENTS
On October 17, 1996, the Corporation declared a quarterly dividend of
eleven cents ($.11) per share payable November 13, 1996 to stockholders of
record on October 28, 1996.
1995 REGULATORY PROCEEDINGS
On February 22, 1995, the FDIC and on February 28, 1995, the
Massachusetts Commissioner of Banks (the "Commissioner") terminated the Cease
and Desist Order (the "Order") which the Bank had consented to in December, 1991
and had been in effect since that time. The Order was replaced by informal
supervisory arrangements set forth in resolutions of the Bank's Board of
Directors adopted on February 15, 1995. Under this informal reporting
relationship, the Bank, among other things, continued to file with the FDIC and
the Commissioner a written plan for certain adversely classified credits. The
resolutions also specified that the Bank had to attain a leverage capital ratio
of 7.00% in order to pay a dividend which, in turn, could not exceed 33% of the
Bank's earnings for the period covered by the dividends.
In the fourth quarter of 1995, the Bank was informed by the FDIC and the
Commissioner that the Board resolutions were no longer necessary, and at its
December, 1995 meeting, the Bank's Board of Directors dissolved those
resolutions.
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ASSET/LIABILITY MANAGEMENT
A primary objective of the Corporation's asset/liability management
policy is to manage interest-rate risk over time to achieve a prudent level of
net interest income in changing interest-rate environments. Management's
strategies are intended to be responsive to changes in interest rates and to
recognize market demands for particular types of deposit and loan products.
These strategies are overseen by an internal Asset/Liability Management
Committee and by the Finance, Audit and Compliance Committee of the Board of
Directors.
The following table summarizes the Corporation's interest-rate
sensitivity position as of September 30, 1996. Assets and liabilities are
classified as interest-rate sensitive if they have a remaining term to maturity
of 0-12 months, or are subject to interest-rate adjustments within those time
periods. Adjustable-rate loans and mortgage-backed securities are shown as if
the entire balance came due on the repricing date. Nonaccruing loans are not
included in this analysis due to their status as non-earning assets. Estimates
of fixed-rate loan and fixed-rate mortgage-backed security amortization and
prepayments are included with rate sensitive assets. Because regular savings and
N.O.W. accounts may be withdrawn at any time and are subject to interest-rate
adjustments at any time, they are presented in the table below based on an
assumed maturity of less than six months.
INTEREST-RATE SENSITIVITY POSITION
SEPTEMBER 30, 1996
------------------
0-3 3-6 6-12 1-5 OVER 5
MONTHS MONTHS MONTHS YEARS YEARS
-------- -------- -------- ------- -------
(Dollars in Thousands)
INTEREST SENSITIVE ASSETS:
Investment securities ........................... $ 31,439 $ 6,779 $ 9,078 $21,795 $ -
Loans held for sale ............................. 668 - - - -
Adjustable-rate loans ........................... 61,713 24,544 73,018 28,962 -
Fixed-rate loans ................................ 4,393 396 4,259 12,462 9,385
Mortgage-backed securities ...................... 6,835 5,123 14,242 11,535 6,317
-------- -------- -------- ------- -------
Total interest sensitive assets .............. 105,048 36,842 100,597 74,754 15,702
-------- -------- -------- ------- -------
INTEREST SENSITIVE LIABILITIES:
Cash manager and passbook plus
accounts ....................................... 11,627 11,626 - - -
Time deposits ................................... 32,369 36,981 39,962 26,032 28
Other deposits (A) .............................. 69,689 69,208 - - -
Borrowings ...................................... 1,736 2,000 - 14 657
-------- -------- -------- ------- -------
Total interest sensitive liabilities ......... 115,421 119,815 39,962 26,046 685
-------- -------- -------- ------- -------
Excess (deficiency) of interest
sensitive assets over interest
sensitive liabilities .......................... $(10,373) $(82,973) $ 60,635 $48,708 $15,017
======== ======== ======== ======= =======
Excess (deficiency) of cumulative
interest sensitive assets over cumu-
lative interest sensitive liabilities .......... $(10,373) $(93,346) $(32,711) $15,997 $31,014
======== ======== ======== ======= =======
Cumulative interest sensitive assets
as a percentage of cumulative
interest sensitive liabilities ................. 91.0% 60.3% 88.1% 105.3% 110.3%
======== ======== ======== ======= =======
Cumulative excess (deficiency) as a
percentage of total assets ..................... (2.9)% (26.4)% (9.2)% 4.5% 8.8%
======== ======== ======== ======= =======
<FN>
- ----------
(a) Other deposits consist of regular savings, club and N.O.W. accounts.
Interest-rate sensitivity statistics are static measures that do not
necessarily take into consideration external factors which might affect the
sensitivity of assets and liabilities and consequently cannot be used
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alone to predict the operating results of a financial institution in a changing
environment. However, these measurements do reflect major trends and thus the
Corporation's sensitivity to interest rates changes over time.
LIQUIDITY
The Bank seeks to ensure sufficient liquidity is available to meet cash
requirements while earning a return on liquid assets. The Bank uses its
liquidity primarily to fund loan and investment commitments, to supplement
deposit flows and to meet operating expenses. The primary sources of liquidity
are interest and amortization from loans, mortgage-backed securities and
investments, sales and maturities of investments, loan sales, deposits and
Federal Home Loan Bank of Boston ("FHLBB") advances, which include a $15 million
overnight line of credit. The Bank also has access to the Federal Reserve Bank's
discount window and may borrow from the Massachusetts Mutual Savings Central
Fund, Inc. During the 1996 period, the Bank did not use the Federal Reserve Bank
discount window and did not borrow from the Mutual Savings Central Fund.
The Bank also uses the longer term borrowings facilities within its total
available credit line with the FHLBB. Advances from the FHLBB were $2.7 million
at September 30, 1996.
During 1996, the primary sources of liquidity were $24.3 million in loan
sales, proceeds from sale of investments of $12.4 million, proceeds from
maturities of investment securities of $18.8 million, and proceeds from paydowns
of mortgage-backed securities of $8.6 million. Primary uses of funds were $70.6
million in residential, commercial real estate and commercial loan originations
and $30.1 million to purchase investment and mortgage-backed securities. At
September 30, 1996, the Bank had $11.2 million in overnight investments.
The primary source of liquidity for the Corporation is dividends from the
Bank. Dividends paid by the Corporation are funded by dividends paid by the Bank
to the Corporation. In addition, shares purchased by the Corporation in the
stock repurchase plan also are funded primarily by dividends paid by the Bank to
the Corporation.
From time to time, the Bank has obtained time deposits in denominations
of $100,000 and over. The following table summarizes maturities of time deposits
of $100,000 or more outstanding at September 30, 1996:
(IN THOUSANDS)
Less than 3 months........................ $ 2,881
3 to 6 months............................. 4,841
6 to 12 months............................ 4,592
More than 12 months....................... 3,510
-------
$15,824
=======
CAPITAL ADEQUACY
Total stockholders' equity at September 30, 1996 was $32.4 million, an
increase of $1.2 million from $31.2 million at the end of 1995. Included in
stockholders' equity at September 30, 1996 is an unrealized gain on marketable
securities available for sale, which increases stockholders' equity, of $320,000
as compared to an unrealized gain at December 31, 1995 of $1.4 million. This
unfavorable change in the market value of marketable securities available for
sale was due to increased interest rates during the 1996 period. Future
interest-rate increases could further reduce the market value of these
securities and reduce stockholders' equity. As a percentage of total assets,
stockholders' equity was 9.17% at September 30, 1996 compared to 8.78% at
December 31, 1995.
At September 30, 1996, neither the Federal Reserve Board ("FRB") nor the
FDIC permitted the unrealized gain or loss to be used in their calculation of
Tier I capital. In addition, they require the recognition of unrealized losses
on marketable equity securities as a reduction of Tier I capital. At September
30, 1996, net of applicable income taxes, the unrealized gain on marketable
securities available for sale was $320,000, of which the unrealized loss on
marketable equity securities was zero.
The Federal Reserve Board's leverage capital-to-assets guidelines require
the strongest and most highly rated bank holding companies to maintain at least
a 3.00% ratio of Tier I capital to average consolidated assets. All other bank
holding companies, including the Corporation, are required to maintain at least
4.00% to 5.00%, depending on how the FRB evaluates their condition. The FRB may
require a higher capital ratio. At September 30, 1996, the FRB leverage capital
ratio was 9.19% compared to 8.47% at December 31, 1995.
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11
The FDIC's leverage capital-to-assets ratio guidelines are substantially
similar to those adopted by the FRB and described above. At September 30, 1996,
the Bank's leverage capital ratio, under FDIC guidelines, was 9.00% compared to
8.43% at December 31, 1995.
If the unrealized gain on marketable securities available for sale were
used in the calculation of Tier I capital, i.e. if GAAP were used in the
calculation, the Bank's leverage capital ratio would have been 9.09% at
September 30, 1996 for the FDIC and the Corporation's leverage capital ratio
would have been 9.28% for the FRB.
As noted in "Subsequent Events" above, the Corporation in October
declared a dividend totaling approximately $402,000. In addition, as noted in
"General" above, the Board of Directors of the Corporation has authorized
management to repurchase up to 225,000 shares of its common shares in the open
market. This repurchase program commenced on April 22, 1996. As of September 30,
1996, the Corporation purchased 98,000 shares at a total cost of $1.2 million.
The Corporation's dividends and the stock buyback program are funded by
dividends paid by the Bank to the Corporation, which reduce the Bank's capital,
and reduce the capital of the Corporation.
The FRB and the FDIC have also imposed risk-based capital requirements on
the Corporation and the Bank, respectively, which give different risk weightings
to assets and to off-balance sheet assets such as loan commitments and loans
sold with recourse. Both the FRB and FDIC guidelines require the Corporation and
the Bank to have an 8.00% risk-based capital ratio. The Corporation's and the
Bank's risk-based capital ratios were 14.44% and 14.17%, respectively, at
September 30, 1996 compared to 13.71% and 13.65% at December 31, 1995, thus
exceeding their risk-based capital requirements.
As of September 30, 1996, the Bank's total risk-based capital ratio, Tier
I risk-based capital ratio and leverage capital ratio were 14.17%, 12.92%, and
9.00%, respectively. Based on these capital ratios, the Bank is considered to be
"well capitalized."
FINANCIAL CONDITION
The Corporation's total assets decreased to $353.9 million at September
30, 1996 from $355.9 million at December 31, 1995. Decreases occurred in
residential mortgage loans, cash and due from banks, and investments and
mortgage-backed securities available for sale and was partially offset by
increases in commercial loans, commercial real estate loans and overnight
investments.
INVESTMENTS AND MORTGAGE-BACKED SECURITIES
Investments, consisting of overnight investments, investment securities
and mortgage-backed securities available for sale, and other investments,
decreased to $115.7 million at September 30, 1996 from $118.8 million at
December 31, 1995. A majority of this decrease was from the sale of fixed income
mutual funds, maturities of corporate notes and paydowns of mortgage-backed
securities. This decrease was partially offset by additional purchases of U.S.
Treasury and U.S. Government Agency obligations. Mortgage-backed securities
decreased to $44.4 million at September 30, 1996 from $48.6 million at December
31, 1995 due to paydowns of the underlying loans partially offset by the
securitization of $2.2 million of loans into mortgage-backed securities. The
decrease in the market value of these investments was due to the increase in
interest rates during 1996. Further increases in interest rates could reduce the
value of these investments.
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INVESTMENTS AT SEPTEMBER 30, 1996 ARE AS FOLLOWS:
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- --------
(IN THOUSANDS)
OVERNIGHT
Federal Home Loan Bank of Boston
overnight deposits................... $ 11,000 $ - $ - $ 11,000
Money market funds.................... 151 - - 151
-------- ------ ----- --------
11,151 - - 11,151
-------- ------ ----- --------
AVAILABLE-FOR-SALE
Fixed income mutual funds............. 18,990 421 - 19,411
FNMA mortgage-backed securities....... 28,539 903 - 29,442
GNMA mortgage-backed securities....... 15,514 - (592) 14,922
U.S. Government and related
obligations.......................... 20,135 9 (60) 20,084
Corporate notes....................... 6,236 - - 6,236
Common stock warrants................. - 19 - 19
Preferred stock....................... 7,972 59 (255) 7,776
-------- ------ ----- --------
97,386 1,411 (907) 97,890
-------- ------ ----- --------
OTHER
Foreign government bonds and
notes............................... 500 - - 500
Stock in Federal Home Loan Bank
of Boston........................... 4,110 - - 4,110
Stock in Mutual Savings Central
Fund, Inc........................... 108 - - 108
Advances to Thrift Institution Fund
for Economic Development............ 409 - - 409
Stock in Savings Bank Life Insurance
Company of Massachusetts ........... 1,576 240 - 1,816
-------- ------ ----- --------
6,703 240 - 6,943
-------- ------ ----- --------
$115,240 $1,651 $(907) $115,984
======== ====== ===== ========
LOANS AND LOANS HELD FOR SALE
Loans and loans held for sale increased by $3.5 million during the 1996
period to $223.0 million at September 30, 1996. This increase is primarily the
result of increased commercial, commercial construction and commercial real
estate loans partially offset by loan paydowns and payoffs in residential
mortgage loans and the securitization of $2.2 million of residential mortgage
loans into mortgage-backed securities. Commercial, commercial construction and
commercial loans typically earn higher yields than residential mortgage loans,
but usually carry higher credit risk.
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The following table sets forth the classification of the Corporation's
loans as of September 30, 1996 and December 31, 1995 (in thousands):
SEPTEMBER 30, 1996 DECEMBER 31, 1995
------------------ -----------------
Residential mortgages.................... $ 74,480 $ 85,276
Commercial real estate................... 102,342 94,341
Commercial construction ................. 9,910 6,254
Commercial loans......................... 14,166 8,490
Consumer loans........................... 21,469 22,331
-------- --------
$222,367 $216,692
======== ========
Residential mortgage loan originations during the 1996 period were $29.3
million compared to $26.6 million in the 1995 period. The Corporation sold or
securitized loans totaling $26.5 million during the 1996 period compared to
$28.9 million sold or securitized in the 1995 period. At September 30, 1996, the
Corporation held $668,000 of fixed rate residential mortgage loans for sale
compared to $2.8 million at December 31, 1995. These are reflected at the lower
of cost or aggregate market value.
Mortgage servicing rights are created as an asset separate from the
underlying loan when a loan is sold and servicing is retained . The total cost
of creating a mortgage loan is allocated between the loan and the servicing
right based on their respective fair values. The balance of mortgage-servicing
rights, net of a valuation allowance, at September 30, 1996 and December 31,
1995 was $620,000 and $338,000, respectively, and is included in other assets.
Gains on the sales of loans attributable to the allocation of cost to the
mortgage servicing rights was recognized in the amount of $261,000 in the 1996
period from the sale of $24.7 million of residential mortgage loans. This
compares to a gain of $171,000 in the 1995 period from the sale of $17.7 million
of residential mortgage loans. On a quarterly basis, mortgage servicing rights,
which are stratified by the underlying loans' origination dates and maturities,
are reviewed for impairment using the net present value method of estimated cash
flows and current market conditions. Based on this review at September 30, 1996,
the valuation allowance was reduced and credited to gain on sale of mortgage
loans and mortgage servicing rights, net, in the amount of $17,126 for the
individual strata that were deemed to be impaired, bringing the valuation
allowance to $6,700 at September 30, 1996 from $24,000 at December 31, 1995. The
aggregate fair value of each strata is estimated to be $650,000 at September 30,
1996. This value applies to the rights to service loans sold since January 1,
1995, the date generally accepted accounting principles required the recognition
of mortgage servicing rights. The principal balance of those loans at September
30, 1996 is $51.2 million. The principal balance of all loans serviced for
others at September 30, 1996 was $217.5 million. At September 30, 1996, the Bank
estimated the pre-tax value of the servicing rights of all loans serviced for
others to be approximately $2.3 million.
The following table summarizes the changes in the mortgage-servicing
rights balance at September 30, 1996 (dollars in thousands):
Balance at December 31, 1995 $362
Additions (income credited to gain or
loss on sales of mortgage loans and
mortgage servicing rights, net, or
discounts on loans securitized as
mortgage-backed securities 291
Less: amortization (charged to loan
servicing fee income) (26)
---
Balance at September 30, 1996 $627
====
An analysis of the mortgage-servicing rights valuation allowance for the
period ended September 30, 1996 is as follows (dollars in thousands):
Balance at December 31, 1995 $(24)
Recovery of allowance (credited to
gain or loss on sales of mortgage
loans and mortgage servicing rights, net) 17
--
Balance at September 30, 1996 $ (7)
====
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The Corporation is currently evaluating whether it should remain in the
residential mortgage-loan servicing business and continue to service loans owned
by others amounting to over $217 million. A decision is expected to be made
before the end of 1996. The impact of exiting the business, if the Corporation
decides to do so, mainly will be a one-time gain from the sale of the servicing
rights and decreased ongoing loan servicing fee revenue. The amount of the
impact if the Corporation decides to exit the business cannot be determined at
this time.
CREDIT QUALITY
IMPAIRED LOANS
The Corporation accounts for impaired loans at the present value of the
expected future cash flows discounted at the loan's effective interest rate or
the fair value of collateral for collateral-dependent loans. Loans are deemed by
the Corporation to be impaired when, based on current information and events, it
is probable that the Corporation will be unable to collect all amounts due
according to the contractual terms of the original loan agreement. Generally,
non-accruing loans are deemed impaired. The classification of impaired loans
does not apply to smaller balance, large groups of homogeneous loans such as
residential mortgage and consumer installment loans which are considered to be
collectively evaluated for impairment. Typically, the minimum delay in receiving
payments according to the contractual terms of the loan that can occur before a
loan is considered impaired is ninety days. Impaired loans are analyzed and
categorized by level of credit risk and collectibility in order to determine
their related allowance for loan losses. At September 30, 1996, there were three
loans considered impaired and accruing totaling $707,000 compared to four loans
considered impaired and accruing totaling $489,000 at December 31, 1995.
NONPERFORMING LOANS
Loans past due 90 days or more or past due less than 90 days but in a
nonaccrual status were $3.2 million at September 30, 1996 compared to $4.2
million at December 31, 1995. Included in non-performing loans are six loans
considered impaired in the amount of $1.8 million at September 30, 1996 as
compared to six loans totaling $2.6 million at December 31, 1995. Accrual of
interest on loans is discontinued either when a reasonable doubt exists as to
that the full, timely collection of principal or interest or when the loans
become contractually past due by ninety days or more, unless they are adequately
secured and are in the process of collection.
When a loan is placed on nonaccrual status, all interest previously
accrued but not collected is reversed against current period interest income.
Income on such loans is recognized to the extent that cash is received and where
the ultimate collection of principal and interest is probable. Following
collection procedures, the Corporation generally institutes appropriate action
to foreclose the property or acquire it by deed in lieu of foreclosure.
The table below details non-performing loans at:
SEPTEMBER 30, 1996 DECEMBER 31, 1995
------------------ -----------------
(DOLLARS IN THOUSANDS)
Accruing loans 90 days or more in arrears.............. $ 0 $ 155
Nonaccrual loans....................................... 3,235 4,084
------ ------
Total nonperforming loans.............................. $3,235 $4,239
====== ======
Percentage of nonperforming loans to:
Total loans............................................ 1.45% 1.96%
====== ======
Total assets........................................... 0.91% 1.19%
====== ======
REAL ESTATE ACQUIRED BY FORECLOSURE
Real estate acquired by foreclosure totaled $2.3 million at September 30,
1996 compared to $3.1 million at December 31, 1995. Real estate acquired by
foreclosure, net of an allowance for loss, is reflected at the lower of the net
carrying value or fair value of the property less estimated cost of disposition.
These properties consist mainly of land, one to four family houses, and
commercial real estate.
The Corporation had a provision for loss of $16,000 on real estate
acquired by foreclosure net of gains on sale in the 1996 period compared to a
provision for losses net of gains on sale of $615,000 in the 1995
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period. Unstable conditions in the Massachusetts real estate market could result
in losses and writedowns as the Corporation reduces the book value of real
estate to reflect likely realizable values.
Changes in the allowance for losses on real estate acquired by
foreclosure for the nine months ended September 30, 1996 are as follows:
(IN THOUSANDS)
Balance at December 31, 1995........................... $ 457
Provision charged (credited) to expense................ 56
Net charge-offs........................................ (246)
-----
Balance at September 30, 1996.......................... $ 267
=====
Gains on sale and recoveries on real estate acquired by foreclosure were
$40,000 in the 1996 period.
In summary, non-performing assets are as follows (in thousands):
SEPTEMBER 30, 1996 DECEMBER 31, 1995
------------------ -----------------
Non-performing loans........................ $3,235 $4,239
Real estate acquired by foreclosure......... 2,255 3,092
------ ------
Total nonperforming assets.................. $5,490 $7,331
====== ======
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ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses was $4.5 million at September 30, 1996 and
December 31, 1995. The following table presents the activity in the allowance
for loan losses for the nine months ended September 30, 1996 (dollars in
thousands):
Balance at beginning of period.................................. $4,533
------
Losses charged to the allowance:
Residential mortgage........................................ (202)
Commercial mortgage......................................... (93)
Commercial loans............................................ -
Consumer loans.............................................. (39)
------
(334)
------
Loan recoveries:
Residential mortgage........................................ 16
Commercial mortgage......................................... 221
Commercial loans............................................ 63
Consumer loans.............................................. 17
------
317
------
Net charge-offs................................................. (17)
------
Provision charged to income..................................... 17
------
Balance at end of period........................................ $4,533
======
Allowance to total loans at end of period....................... 2.04%
======
Allowance to nonperforming loans at end of period............... 140.1%
======
Allocation of ending balance:
Residential mortgage........................................ $ 986
Commercial mortgage......................................... 3,103
Commercial loans............................................ 179
Consumer loans.............................................. 265
------
$4,533
======
Notwithstanding the foregoing allocations, the entire allowance for loan
losses is available to absorb charge-offs in any category of loans. Loan losses
are charged against the allowance when management believes that the
collectibility of the loan principal is unlikely.
Balances in the allowance for loan losses are determined on a periodic
basis by management and the Loan Committee of the Board of Directors with
assistance from an independent credit review consulting firm. Loan loss
allocations are based on the conditions of each loan, whether performing or
non-performing, including collectibility, collateral adequacy and the general
condition of the borrowers, economic conditions, delinquency statistics, market
area activity, the risk factors associated with each of the various loan
categories and the borrower's adherence to the original terms of the loan.
Individual loans, including loans considered impaired, are analyzed and
categorized by level of credit risk and collectibility. The associated provision
for loan losses is the amount required to bring the allowance for loan losses to
the balance considered necessary by management at the end of the period after
accounting for the effect of loan charge-offs (which decrease the allowance) and
loan-loss recoveries (which increase the allowance). The allowance for loan
losses included above attributable to $2.5 million of impaired loans, of which
$706,000 is measured using the present value method and $2.0 million using the
fair value method, is $841,000.
LEGAL AND OFF-BALANCE SHEET RISKS
Various legal claims arise from time to time in the course of business of
the Corporation and its subsidiaries. At September 30, 1996, there were no legal
claims against the Corporation.
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The Corporation is party to financial instruments with off-balance sheet
risk in the normal course of business, to meet the financial needs of its
customers and to reduce its own exposure to fluctuations of interest rates.
These financial instruments include commitments to originate loans, unused
lines-of-credit, standby letters of credit, recourse arrangements on sold assets
and forward commitments to sell loans. The financial instruments involve, to
varying degrees, elements of credit and interest rate risk in excess of the
amount recognized in the consolidated balance sheets.
OTHER ASSETS
Included in other assets at September 30, 1996 and December 31, 1995 are
$1.0 million and $357,000, respectively, of current income taxes receivable.
Also included in other assets was a deferred income tax receivable of $357,000
at December 31, 1995.
LIABILITIES
Deposits decreased to $313.7 million at September 30, 1996 from $314.9
million at December 31, 1995. This decrease took place primarily in savings
deposits and N.O.W. accounts and was partially offset by increases in demand,
money market deposit accounts and time deposits.
Federal Home Loan Bank of Boston advances were $2.7 million at September
30, 1996 and $5.8 million at December 31, 1995. Securities sold under agreement
to repurchase were $1.7 million at September 30, 1996 compared to $1.6 million
at December 31, 1995. Also included in other liabilities at September 30, 1996
was a deferred income tax payable of $476,000.
RESULTS OF OPERATIONS - FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED
TO THE THREE MONTHS ENDED SEPTEMBER 30, 1995
GENERAL
The Corporation recorded a profit for the 1996 quarter of $1.6 million
compared to a profit for the 1995 quarter of $1.4 million. The increase in the
1996 quarter profit is primarily due to recovery of prior loan losses of
$141,000 in the 1996 quarter compared to a recovery of $2,000 in the 1995
quarter, and lower non-interest expenses in the 1996 quarter as compared to the
1995 quarter. Income before taxes was $2.4 million in the 1996 quarter compared
to $2.2 million in the 1995 quarter.
Net interest income for the 1996 and 1995 quarters was $4.1 million and
$4.0 million, respectively. The weighted average interest rate spread for the
1996 quarter was 4.67% for the 1996 and 1995 quarters. The net yield on average
earning assets was 4.86% for the 1996 quarter and 4.81% for the 1995 quarter.
INTEREST AND DIVIDEND INCOME
Total interest and dividend income was $6.9 million for the 1996 quarter
and $7.0 million for the 1995 quarter. Interest on loans decreased to $5.1
million for the 1996 quarter from $5.2 million for the 1995 quarter. This
decrease is primarily the result of a decrease in average loan yields to 9.14%
for the 1996 quarter from 9.25% for the 1995 quarter partially offset by an
increase in average loans outstanding for the 1996 quarter compared to the 1995
quarter. Interest and dividends on investments increased to $1.0 million from
$921,000 for the 1996 and 1995 quarters, respectively. This increase is
attributed to an increase in the average amount of investments held despite a
decrease in the average yield on investments to 6.21% for the 1996 quarter from
6.25% for the 1995 quarter. Mortgage-backed securities income decreased to
$799,000 in the 1996 quarter from $936,000 in the 1995 quarter primarily due to
a decrease in the average amount of mortgage-backed securities held. The average
yield was 7.15% in the 1996 quarter compared to 7.14% in the 1995 quarter.
INTEREST EXPENSE
Interest on deposits was $2.8 million for the 1996 quarter and $2.9
million for the 1995 quarter. The average cost of deposits decreased to 3.54%
for the 1996 quarter compared to 3.65% for the 1995 quarter, while average
interest-bearing deposits outstanding decreased during the 1996 quarter.
Interest on borrowed funds decreased to $69,000 from $130,000 for the 1996 and
1995 quarters, respectively. This decrease is primarily
10
18
related to a decrease in borrowings. The average cost of borrowings was 4.47%
for the 1996 quarter and 6.46% for the 1995 quarter.
NON-INTEREST INCOME
Total non-interest income for the 1996 quarter was $563,000 compared to
$614,000 for the 1995 quarter. The gain from the sale of mortgage loans and
mortgage-servicing rights, net, was $76,000 for the 1996 quarter compared to
$180,000 for the 1995 quarter. The gain from the sale of investment securities,
net was zero in the 1996 quarter compared to a loss of $24,000 in the 1995
quarter. Service fee income increased to $485,000 in the 1996 quarter from
$412,000 in the 1995 quarter.
NON-INTEREST EXPENSE
Total non-interest expense was $2.4 million in the 1996 quarter and $2.5
million in the 1995 quarter. Decreases in salaries and employee benefits,
professional services and real estate operations expenses were partially offset
by increases in marketing and other expense. Real estate operations expenses
decreased to $81,000 in the 1996 quarter compared to $163,000 in the 1995
quarter mainly due to a net provision for losses of $36,000 in the 1996 quarter
compared to a net provision for losses of $95,000 in the 1995 quarter and
decreased operating expenses related to the reduction of real estate owned. The
decrease in professional services is also related to this reduction.
INCOME TAX EXPENSE
The income tax expense for the 1996 quarter was $821,000 compared to
$719,000 for the 1995 quarter. This increase is due to higher taxable income.
The net deferred tax liability at June 30, 1996 is $474,000 compared to a net
deferred tax asset of $357,000 at December 31, 1995.
RESULTS OF OPERATIONS - FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO
THE NINE MONTHS ENDED SEPTEMBER 30, 1995
GENERAL
The Corporation recorded a profit for the 1996 period of $4.7 million
compared to a net profit for the 1995 period of $3.9 million, primarily due to
gains on sale of investment securities, lower deposit insurance and decreased
real estate operations expenses. Income before taxes was $6.9 million for the
1996 period compared to $6.1 million in the 1995 periods.
Net interest income for the 1996 period was $12.3 million compared to
$12.1 million for the 1995 period. The weighted average interest rate spread for
the 1996 period was 4.72% compared to 4.75% for the 1995 period. The net yield
on average earning assets was 4.91% for the 1996 period and 4.87% for the 1995
period.
INTEREST AND DIVIDEND INCOME
Total interest and dividend income increased to $20.8 million for the
1996 period from $20.7 million for the 1995 period. Interest on loans decreased
to $15.1 million for the 1996 period from $15.4 million for the 1995 period.
This decrease is primarily the result of a lower volume of loans outstanding
during the 1996 period despite an increase in average loan yield to 9.20% for
the 1996 period from 9.09% for the 1995 period. Interest and dividends on
investments increased to $3.3 million for the 1996 period compared to $2.6
million for the 1995 period due to an increase to the average amount of
investments held despite a decrease in the average yield on investments to 6.36%
for the 1996 period from 6.51% for the 1995 period. Mortgage-backed securities
income was $2.5 million for the 1996 period and $2.8 million for the 1995 period
primarily due to a decrease in the average amount of mortgage-backed securities
held.
INTEREST EXPENSE
Interest on deposits increased to $8.3 million in the 1996 period from
$8.2 million for the 1995 period. This increase was primarily related to an
increase in the average cost of deposits to 3.57% for the 1996 period from 3.52%
for the 1995 period offset by a decrease in average interest-bearing deposits
during 1996. This increase in deposit cost was related to generally higher
interest rates during the 1996 period and a shift from
11
19
lower-costing deposits into higher-costing time deposits. Interest on borrowed
funds decreased to $251,000 from $381,000 for the 1995 period. This decrease is
primarily related to a decrease in borrowed funds and a decrease in the average
cost of borrowings to 4.96% for the 1996 period from 6.40% for the 1995 period.
NON-INTEREST INCOME
Total non-interest income for the 1996 period was $1.8 million compared
to $2.0 million for the 1995 period. The gain from investment securities was
$241,000 for the 1996 period compared to a net loss of $20,000 for the 1995
period. The Corporation recorded a gain on sales of mortgage loans and mortgage
servicing rights, net, of $258,000 in the 1996 period compared to $597,000 in
the 1995 period. Included in the gain from sale of mortgage loans and mortgage
servicing rights, net, was a $359,000 gain from the sale of mortgage servicing
rights in the 1995 period, compared to zero in the 1996 period.
NON-INTEREST EXPENSE
Total non-interest expense decreased to $7.1 million in the 1996 period
from $8.1 million in the 1995 period. This decrease is primarily attributed to a
decrease in deposit insurance, professional services and real estate operations
expenses. These decreases were partially offset by increases in salaries and
employee benefits, marketing expenses and other expenses. Deposit insurance was
$3,000 in the 1996 period compared to $411,000 in the 1995 period due to the
FDIC's reduction of the premium it charges the Bank for deposit insurance. Real
estate operations expense decreased to $155,000 in the 1996 period from $933,000
in the 1995 period. This decrease included a net provision for losses of $16,000
in the 1996 period compared to a net provision for losses of $615,000 in the
1995 period and decreased operating expenses related to the reduction of Real
Estate Owned. The decrease in professional services is also related to this
reduction of Real Estate Owned.
INCOME TAX EXPENSE
Income tax expense for the 1996 and 1995 period was $2.3 million and $2.2
million, respectively. In connection with a recent audit by the IRS and a review
of certain tax and related matters, the Bank recorded a $400,000 income tax
credit which is included in income tax expense for the 1996 period. The credit
is mainly the result of two changes required by the audit. First, the IRS
required the Corporation to reduce its tax-return bad-debt deduction in prior
years due to loss carrybacks the Corporation had taken. Although that
requirement in itself had no financial statement effect on income, it enabled
the Corporation to increase its dividend-received deduction in the year of the
change, thus providing tax-return and financial statement benefit. Second, the
IRS required the Corporation to shift tax-return loan chargeoffs from one tax
period to other tax period., For federal-tax purposes, these shifts had no
financial statement effect on income. For state-tax purposes, the shift
sheltered income which had been taxed in prior years, thus providing tax-return
and financial-statement benefit.
Also due to certain tax-return adjustments based on the recent audit and
depending on the outcome of certain tax rulings by federal and state taxing
authorities over the next two-to-three years not specific to Warren Bancorp, and
depending upon the impact of certain federal legislation, the Corporation may
have the ability to record additional tax credits of up to an estimated $1.2
million in future periods.
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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.
WARREN BANCORP, INC.
DATE: November 8, 1996 By: /s/ GEORGE W. PHILLIPS
--------------------------
George W. Phillips
President and
Chief Executive Officer
DATE: November 8, 1996 By: /s/ PAUL M. PEDUTO
--------------------------
Paul M. Peduto
Treasurer
(Principal Financial Officer
and Principal Accounting
Officer)
13