1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the period ended 9/30/96
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[ ] 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
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FAMILY BANCORP
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(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
----- -----
4,309,709 shares of the registrant's common stock were outstanding on
SEPTEMBER 30, 1996.
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Family Bancorp and Subsidiary
Index
Page
Part I. Financial Information
Item 1. Financial Statements
Consolidated balance sheets at September 30, 1996, 3
December 31, 1995 and September 30, 1995
Consolidated statements of operations for the three 4
months and nine months ended September 30, 1996 and
September 30, 1995
Consolidated statements of changes in stockholders' 5
equity for the nine months ended September 30, 1996
and September 30, 1995
Consolidated statements of cash flows for the nine 6-7
months ended September 30, 1996 and September 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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ITEM 1: FINANCIAL STATEMENTS
FAMILY BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
(Unaudited)
September 30, December 31, September 30,
1996 1995 1995
------------- ------------ -------------
ASSETS
Cash and due from banks $ 31,942 $ 28,449 $ 30,110
Short-term investments 2,990 15,825 4,150
Investment securities 380,943 351,437 316,870
Loans held for sale 6,937 8,056 9,795
Loans, net 457,440 451,199 457,619
Investments in R/E and limited partnerships, net 1,145 1,405 1,586
Other real estate owned, net 2,161 3,430 3,840
Banking premises and equipment 11,954 12,417 12,311
Accrued interest receivable 5,764 5,647 5,856
Goodwill 5,450 6,073 6,340
Other assets 11,071 8,229 6,170
---------- ---------- ----------
TOTAL ASSETS $ 917,797 $ 892,167 $ 854,647
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 762,562 $ 734,017 $ 726,506
Federal Home Loan Bank advances 64,544 72,195 44,673
Repurchase agreements 3,833 3,338 1,789
Funds held in escrow 4,367 2,883 5,768
Accrued interest payable 1,400 1,523 1,344
Accrued taxes and expenses 3,314 5,205 3,953
Other liabilities 4,867 4,310 5,235
---------- ---------- ----------
TOTAL LIABILITIES 844,887 823,471 789,268
---------- ---------- ----------
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 30,676 30,018 30,153
Retained earnings 51,444 47,153 45,575
---------- ---------- ----------
82,682 77,733 76,102
Net unrealized gain (loss) on securities
available for sale, after tax effects (1,314) 954 (657)
Less: Treasury stock, at cost (1,306,096 shares
September 30, 1996; 1,534,007 shares
at December 31, 1995 and 1,542,457
shares at September 30, 1995) (8,444) (9,917) (9,971)
Unearned compensation- ESOP (14) (74) (95)
---------- ---------- ----------
TOTAL STOCKHOLDERS' EQUITY 72,910 68,696 65,379
---------- ---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 917,797 $ 892,167 $ 854,647
========== ========== ==========
SHARES OUTSTANDING 4,309,709 4,081,798 4,073,542
BOOK VALUE PER SHARE $ 16.92 $ 16.83 $ 16.05
TANGIBLE BOOK VALUE PER SHARE $ 15.65 $ 15.34 $ 14.49
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 Nine months ended
September 30, September 30,
--------------------------- ---------------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
Interest and dividend income:
Interest and fees on loans $ 10,140 $ 10,230 $ 29,945 $ 30,116
Interest on securities 6,251 4,575 17,564 13,170
Dividends on securities 200 196 464 635
Interest on short-term investments 31 108 255 383
---------- ---------- ---------- ---------
TOTAL INTEREST AND DIVIDEND INCOME 16,622 15,109 48,228 44,304
---------- ---------- ---------- ---------
Interest expense:
Interest on deposits 6,364 6,468 19,275 18,136
Interest on borrowings 1,134 629 3,173 1,876
---------- ---------- ---------- ---------
TOTAL INTEREST EXPENSE 7,498 7,097 22,448 20,012
---------- ---------- ---------- ---------
Net interest income 9,124 8,012 25,780 24,292
Provision for loan losses 250 250 750 750
---------- ---------- ---------- ---------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 8,874 7,762 25,030 23,542
---------- ---------- ---------- ---------
Other income:
Loan fees and charges 241 224 785 767
Gain (loss) on mortgage loans, net (30) 14 (111) 113
Gain (loss) on securities, net 119 103 342 238
All other income 1,413 1,004 3,839 2,996
---------- ---------- ---------- ---------
TOTAL OTHER INCOME 1,743 1,345 4,855 4,114
---------- ---------- ---------- ---------
Operating expenses:
Salaries and employee benefits 3,055 2,717 8,950 8,140
Occupancy and equipment 1,025 973 2,983 2,781
Advertising 383 156 1,083 498
Data processing 252 237 763 775
Losses on real estate and limited
partnerships, net 237 (27) 550 162
Property management expenses 138 98 283 324
Regulatory assessments (21) (31) 191 767
Amortization of goodwill 207 193 622 558
Merger related expenses 832 0 1,365 0
Other general & administrative 1,221 1,111 3,567 3,489
---------- ---------- ---------- ---------
TOTAL OPERATING EXPENSES 7,329 5,427 20,357 17,494
---------- ---------- ---------- ---------
Income before taxes 3,288 3,680 9,528 10,162
Provision for income taxes 1,376 1,541 3,826 4,149
---------- ---------- ---------- ---------
NET INCOME $ 1,912 $ 2,139 $ 5,702 $ 6,013
========== ========== ========== =========
Average number of common shares
outstanding- primary 4,304,929 4,227,850 4,211,320 4,192,314
Average number of common shares
outstanding- fully-diluted 4,306,886 4,231,618 4,216,415 4,204,954
Net income per share:
Primary $ 0.44 $ 0.51 $ 1.35 $ 1.43
Fully-diluted $ 0.44 $ 0.51 $ 1.35 $ 1.43
Dividends paid per share $ 0.12 $ 0.10 $ 0.34 $ 0.283
See accompanying notes to unaudited financial statements.
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FAMILY BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the nine months ended September 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 -- -- 5,702 -- -- -- 5,702
Dividends declared -- -- (1,410) -- -- -- (1,410)
Decrease in unearned compensation - ESOP -- -- -- -- -- 60 60
Stock options exercised -- 658 -- -- 1,473 -- 2,131
Increase (decrease) in net unrealized
gain (loss) on securities available
for sale -- -- -- (2,269) -- -- (2,269)
---- ------- -------- ------- -------- ----- --------
Balance at September 30, 1996 $562 $30,676 $ 51,445 ($1,315) ($ 8,444) ($ 14) $ 72,910
==== ======= ======== ======= ======== ===== ========
Balance at December 31, 1994 $374 $30,079 $ 40,707 ($7,084) ($10,374) ($155) $ 53,547
Net income -- -- 6,013 -- -- -- 6,013
Dividends declared -- -- (1,145) -- -- -- (1,145)
Decrease in unearned compensation - ESOP -- -- -- -- -- 60 60
Stock options exercised -- 74 -- -- 403 -- 477
Increase (decrease) in net unrealized
gain (loss) on securities available
for sale -- -- -- 6,427 -- -- 6,427
---- ------- -------- ------- -------- ----- --------
Balance at September 30, 1995 $374 $30,153 $ 45,575 ($ 657) ($ 9,971) ($ 95) $ 65,379
==== ======= ======== ======= ======== ===== ========
See accompanying notes to unaudited financial statements.
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CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands, except per share data)
(Unaudited)
Nine months ended
September 30,
------------------------
1996 1995
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,702 $ 6,013
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 750 750
Loss on real estate and limited partnerships 550 162
Net amortization of securities 1,337 231
Amortization of net deferred loan (fees) costs 21 30
Amortization of deferred discount -- (153)
Depreciation expense 1,431 1,219
(Gain) loss on securities (342) (238)
Decrease (increase) in accrued interest receivable (537) (264)
Increase (decrease) in accrued income taxes and expenses (1,697) 656
Increase (decrease) in accrued interest payable (123) 266
Amortization of deferred premium on sold loans 117 135
Amortization of intangible assets 623 558
Purchase of trading securities (26,837) --
Proceeds from sales of trading securities 26,793 --
Loans originated for sale (23,880) (20,277)
Principal balance of loans sold 23,576 12,716
Other, net (10,975) 2,515
--------- ---------
Net cash provided (used) by operating activities (3,491) 4,319
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of investment securities 5,948 2,700
Proceeds from sales of investment securities 331,906 162,146
Purchase of investment securities (405,102) (203,256)
Principal payments received on asset-backed securities 41,864 24,116
Loans originated, net of principal payments received (8,098) (9,106)
Proceeds from sales of other real estate owned 1,993 2,437
Advances to other real estate owned -- (130)
Proceeds from sales of real estate investments -- 419
Purchase of banking premises and equipment (947) (1,416)
--------- ---------
Net cash provided (used) by investing activities (32,436) (22,090)
--------- ---------
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CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued from previous page)
Nine months ended
September 30,
-----------------------
1996 1995
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits $ 28,545 $ 16,809
Net increase (decrease) in repurchase agreements 495 (657)
Proceeds from Federal Home Loan Bank advances 10,000 6,025
Maturities of Federal Home Loan Bank advances (17,650) (3,832)
Net increase of short-term borrowing -- (1,235)
Proceeds from stock options exercised 2,131 477
Net increase (decrease) in funds held in escrow 1,484 3,624
Cash dividends paid on common stock (1,410) (1,145)
-------- --------
Net cash provided (used) by financing activities 23,595 20,066
-------- --------
Net increase (decrease) in cash and cash equivalents (12,332) 2,295
Cash and cash equivalents, beginning balance 44,274 31,965
-------- --------
Cash and cash equivalents, ending balance $ 31,942 $ 34,260
======== ========
Supplemental Financial Data:
Transfers from loans to other real estate owned $ 1,086 $ 620
Transfers from banking premises and equipment to real
estate investments -- 624
Cash paid for interest on borrowings 3,231 1,859
Cash paid for interest on deposits 19,368 18,149
Income taxes paid 4,823 4,044
See accompanying notes to unaudited consolidated financial statements.
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Family Bancorp and Subsidiary
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 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 September 30, 1996 and the
results of operations and the statement of cash flows for the interim
periods ended September 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 September 30, 1996, the Company
had recorded capitalized mortgage servicing rights of $83,000.
(3) COMMITMENTS
At September 30, 1996, the Company had the following commitments which are
not reflected in the balance sheet:
Firm commitments to grant loans $15,397
Standby letters of credit 9,158
Unadvanced home equity lines of credit 29,693
Unadvanced commercial and construction lines of credit 20,205
(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 $1.9 million for the quarter ended
September 30, 1996, equivalent to $.44 per share, as compared with earnings of
$2.1 million, equivalent to $.51 per share during the same quarter in 1995.
Included in the most recent quarter's results were merger related expenses net
of taxes of $680,000 or $.16 per share. For the nine months year-to-date period
in 1996, net income was $5.7 million, or $1.35 per share, versus $6.0 million or
$1.43 per share for the 1995 period.
Following the close of business on May 30, 1996, the Company and Peoples
Heritage Financial Group, Inc. ("Peoples Heritage"), a Maine based corporation,
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 $9.1 million for the third quarter 1996, up $1.1 million
from the same period in 1995. Net interest income for the nine-month period was
also up from $24.3 million in 1995 to $25.8 million in 1996, a $1.5 million
increase. Non interest income was up for the third quarter and year-to-date for
1996 versus 1995, by $398,000 and $741,000 respectively. This was primarily due
to an increase in deposit account fees.
Operating expenses increased from $5.4 million during the third quarter of 1995
to $7.3 million in the same quarter in 1996. Operating expenses for the nine
month period increased $2.9 million for 1996 versus 1995. Included in the nine
months results were merger related expenses of $1.4 million.
Loans outstanding at September 30, 1996 were $465.4 million, up $6.8 million
from $458.6 million at year end 1995. This primarily resulted from an increase
in commercial real estate loans of $13.5 million and an increase of $13.6
million in commercial loans. These increases were partially offset by a decline
of $11.0 million in consumer loans due to the Company's decision to no longer
originate indirect automobile loans; a decline in residential mortgages of $7.2
million due to a decrease in the origination of adjustable-rate mortgages, and a
decline in home equity lines of credit of $2.0 million. Non-performing loans
were 0.60% of total loans at September 30, 1996, down from 0.95% at December 31,
1995. Non-performing assets were 0.54% of total assets at September 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 nine
months 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
$2.3 million at September 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
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September 30, 1996 September 30, 1995
-------------------------------- ---------------------------------
Interest Interest
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
-------------------------------- ---------------------------------
Loans $467,023 $10,140 8.68% $472,599 $10,230 8.66%
Investment securities 396,734 6,451 6.50 305,943 4,771 6.24
Short-term investments 2,438 31 5.09 7,570 108 5.71
-------------------- ---------------------
Average earning assets 866,195 16,622 7.67 786,112 15,109 7.69
Other assets 57,429 51,537
-------- --------
$923,624 $837,649
======== ========
Interest-bearing deposits $676,051 6,364 3.77 $643,948 6,468 4.02
Borrowed funds 79,689 1,134 5.69 46,817 629 5.37
-------------------- ---------------------
Average interest-bearing liabilities 755,740 7,498 3.97 690,765 7,097 4.11
Demand deposits 82,277 68,004
Other liabilities 14,628 14,801
Stockholders' equity 70,979 64,079
-------- --------
$923,624 $837,649
======== ========
Net interest income $ 9,124 $ 8,012
======= =======
Average interest-rate spread 3.70 3.58
Net yield on interest-earning assets 4.21% 4.08%
For the Nine Months Ended
---------------------------------------------------------------------
September 30, 1996 September 30, 1995
-------------------------------- ---------------------------------
Interest Interest
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
-------------------------------- ---------------------------------
Loans $463,863 $29,945 8.61% $470,970 $30,116 8.53%
Investment securities 377,005 18,042 6.38 294,846 13,805 6.24
Short-term investments 6,126 241 5.25 8,746 383 5.84
-------------------- ---------------------
Average earning assets 846,994 48,228 7.59 774,562 44,304 7.63
Other assets 55,594 48,855
-------- --------
$902,588 $823,417
======== ========
Interest-bearing deposits $666,118 19,274 3.86 $637,427 18,136 3.79
Borrowed funds 75,691 3,174 5.59 46,281 1,876 5.40
-------------------- ---------------------
Average interest-bearing liabilities 741,809 22,448 4.03 683,708 20,012 3.90
Demand deposits 78,100 65,174
Other liabilities 13,164 10,456
Stockholders' equity 69,515 64,079
-------- --------
$902,588 $823,417
======== ========
Net interest income $25,780 $24,292
======= =======
Average interest-rate spread 3.56 3.73
Net yield on interest-earning assets 4.06% 4.18%
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RESULTS OF OPERATIONS
NET INCOME. The Company had net income of $1.9 million, or $.44 per share, for
the quarter ended September 30, 1996 versus net income of $2.1 million, or $.51
per share, for the quarter ended September 30, 1995. Included in the 1996
results are merger related expenses net of taxes of $680,000, equivalent to $.16
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 nine months of 1996 was $5.7 million, or $1.35
per share as compared with earnings of $6.0 million, or $1.43 per share during
the same period in 1995. Merger related expenses for the first nine months of
1996 totaled $1.1 million net of taxes, equivalent to $.27 per share. Excluding
merger related expenses, earnings for the quarter would have been 21.2% greater
than for the third quarter last year and earnings for the first nine months of
1996 would have been 13.4% greater than for the same period in 1995.
INTEREST AND DIVIDEND INCOME. Interest and dividend income was $16.6 million in
the third quarter of 1996 versus $15.1 million in 1995's third quarter, an
increase of 9.9%. Interest and dividends on securities increased $1.7 million
from $4.8 million in 1995 to $6.5 million in 1996. This resulted from a $90.8
million increase in the average balance outstanding, coupled with an average
yield increase of 26 basis points from the third quarter of 1995 to 1996's third
quarter. Interest and fees on loans decreased $90,000 primarily due to a
decrease in the average balance outstanding of $5.6 million. The average yield
on loans was basically the same for both the third quarter 1996 and 1995.
Interest on short term securities dropped $77,000 as the average balance
outstanding declined $5.2 million from $7.6 million in 1995 to $2.4 million in
1996. The average yield on these investments decreased from 5.71% in 1995 to
5.09% in 1996.
Interest and dividend income increased $3.9 million for the first nine months of
1996 compared to the same period in 1995. This is attributable to a growth in
average earning assets of $72.4 million from year-to-year, partially offset by a
slight decrease in the average yield on these assets of 4 basis points. Interest
and dividends on securities increased by $4.2 million from $13.8 million in 1995
to $18.0 million in 1996. This resulted from an increase in the average balance
outstanding from $294.8 million in 1995 to $377.0 million in 1996 an increase of
$82.2 million. Interest and fees on loans remained relatively the same
year-to-year as the average loans outstanding for the period declined $7.1
million, but the average yield on these loans increased from 8.53% in 1995 to
8.61% in 1996.
INTEREST EXPENSE. Interest expense increased $401,000 from $7.1 million for the
third quarter of 1995 to $7.5 million for the third quarter of 1996. This
resulted from an increase of $64.9 million in the average balance outstanding of
interest-bearing liabilities from $690.8 million in 1995 to $755.7 million for
the third quarter of 1996. The average rate on these liabilities decreased 14
basis points over the same periods. The average balance outstanding on
interest-bearing deposits rose $32.2 million period-to-period and the average
rate paid on these deposits decreased from 4.02% in 1995 to 3.77% in 1996. The
average balance outstanding on borrowed funds also increased by $32.9 million
and the rate on these funds increased by 0.32%.
Interest expense for the comparable nine month period was up $2.4 million, from
$20.0 million for 1995 to $22.4 million for 1996, primarily due to an increase
in volume. Average interest-bearing liabilities outstanding rose $58.1 million
from $683.7 million in 1995 to $741.8 in 1996. Average interest-bearing deposits
outstanding increased $28.7 million year-to-year and the rate paid on these
deposits increased from 3.79% in 1995 to 3.86% in 1996. Average borrowed funds
outstanding increased from period-to-period by $29.4 million. The rate paid on
these funds increased by 0.19%.
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 third quarter of
1996 and 1995. The level of non-performing loans declined to $2.8 million at
September 30, 1996 from $5.7 million at September 30, 1995. Non-performing loans
to total loans were 0.60% at September 30, 1996 versus 1.23% at September 30,
1995. A provision of $750,000 was made for the first nine months of 1996 and
1995. Net charge-offs on loans decreased from $928,000 in 1995 to $201,000 in
the 1996 period.
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The Company's allowance for loan losses was $7.0 million at September 30, 1996,
which represents 251.39% of non-performing loans and 1.50% of total loans,
versus an allowance for loan losses at September 30, 1995 of $6.5 million or
114.01% of non-performing loans and 1.41% of total loans.
OTHER INCOME (CHARGES). Other income increased from $1.3 million in the third
quarter of 1995 to $1.7 million in 1996. Deposit fee income increased $404,000
or 41.8% period-to-period. This was mainly attributable to the continued success
of the Company's retail checking account program which was initiated in the
first quarter of 1996. Mortgage and security sales resulted in a net gain of
$89,000 in the third quarter of 1996 versus a net gain of $117,000 in the 1995
period.
Other income for the first nine months of 1996 was $4.9 million, up $800,000
from $4.1 million in the prior year period. This was mainly due to the increase
in deposit fee income of $847,000 or 29.7% resulting from the new checking
program. Mortgage and security gains were down $120,000 period-to-period.
PROVISION FOR INCOME TAX. The provision for income taxes was calculated assuming
an effective tax rate of 41.8% for the third quarter of 1996 and 41.9% for the
third quarter of 1995. The provision for the first nine months of 1996 was 40.2%
versus 40.8% for the 1995 period. Excluding merger related expenses, some of
which are not tax deductible, the Company's effective tax rate for the nine
months of 1996 would have been 37.5%. 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 $917.8 million at September 30, 1996, up from $892.2
million at December 31, 1995 and $854.6 million at September 30, 1995.
Investment securities increased $29.5 million from year-end 1995 to $380.9
million at September 30, 1996. Loans increased by $6.8 million from year-end
1995 to September 30, 1996 due to an increase in commercial mortgage loans of
$13.5 million and other commercial loans of $13.6 million, partially offset by a
decline in consumer loans of $11.0 million, a decline in residential real estate
of $7.2 million and a decline in home equity lines of credit of $2.0 million.
Total deposits increased $28.6 million from $734.0 million at year-end 1995 to
$762.6 million at September 30, 1996. The balance in transaction accounts
increased $13.5 million for the period.
LOANS. Total loans outstanding at September 30, 1996 were $465.4 million as
compared to $458.6 million at December 31, 1995. Commercial loans rose to $194.2
million at September 30, 1996, up $27.0 million from year-end 1995. In
particular, non-real estate commercial loans rose $13.9 million during the nine
month period. Residential real estate has declined over the nine 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 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:
September 30, 1996 December 31, 1995
------------------ -----------------
Real Estate:
Residential $189,233 $196,404
Commercial 140,999 127,457
Construction 4,142 4,291
Home Equity Line of Credit 41,515 43,605
Commercial Loans 49,079 35,441
Consumer 40,419 51,380
-------- --------
Total Loans 465,387 458,578
Less:Deferred income on loans (971) (952)
Allowance for loan losses (6,976) (6,427)
-------- --------
Loans, net $457,440 $451,199
======== ========
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ALLOWANCE FOR LOAN LOSSES. Funds provided for possible loan losses for both the
third quarter of 1996 and 1995 were $250,000. Net charge-offs in the third
quarter of 1996 totaled $34,000 compared to net recoveries of $1,000 for the
prior year period.
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
-----------------------------------------------------
9/30/96 6/30/96 3/31/96 12/31/95 9/30/95
------- ------- ------- -------- -------
(In Thousands)
Allowance, beginning of period $6,760 6,506 $6,427 $6,536 $6,285
Provision 250 250 250 400 250
------ ------ ------ ------ ------
7,010 6,756 6,677 6,936 6,535
------ ------ ------ ------ ------
Charge-offs:
Commercial 9 19 39 397 --
Residential 71 119 69 27 94
Consumer 90 106 170 189 119
------ ------ ------ ------ -------
Total charge-offs 170 244 278 613 213
------ ------ ------ ------ -------
Recoveries:
Commercial 115 218 82 90 167
Residential -- 9 -- -- 8
Consumer 21 21 25 14 39
------ ------ ------ ------ ------
Total recoveries 136 248 107 104 214
------ ------ ------ ------ ------
Net charge-offs (recoveries) 34 (4) 171 509 (1)
------ ------ ------ ------ ------
Allowance, end of period $6,976 $6,760 $6,506 $6,427 $6,536
====== ====== ====== ====== ======
Allowance as a percentage of:
Total loans 1.50% 1.49% 1.44% 1.40% 1.41%
Non-performing loans 251.39% 197.37% 187.27% 146.77% 114.01%
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NON-PERFORMING ASSETS. Non-performing assets totaled $4.9 million at September
30, 1996, a decrease of $2.9 million from $7.8 million at December 31, 1995.
This decrease was mainly due to a reduction of $1.6 million in the balance of
nonaccruing loans and a decline in other real estate owned of $1.3 million.
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 $1.1 million at September 30, 1996 are included in
various categories in the table below and the allowance for losses on impaired
loans was $282,000 at September 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 September 30, 1996, 71.7%, or $1.6 million of other
real estate owned was comprised of one commercial property.
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).
9/30/96 6/30/96 3/31/96 12/31/95 9/30/95
------- ------- ------- -------- -------
(In Thousands)
Nonaccruing loans $2,775 $ 3,425 $ 3,474 $ 4,379 $ 5,733
Other real estate owned 2,161 3,659 4,057 3,430 3,840
------ ------ ------ ------- -------
Total non-performing assets 4,936 7,084 7,531 7,809 9,573
Accruing, restructured loans 967 831 3,042 3,722 1,459
Other impaired loans 315 305 443 1,202 --
------ ------ ------- ------- -------
Total $6,218 $8,220 $11,016 $12,733 $11,032
====== ====== ======= ======= =======
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INVESTMENTS. Investment securities represent a significant portion of the
Company's earning assets. Investment securities totaled $380.9 million, or 41.5%
of total assets, at September 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 nine months of 1996 the Company had an unrealized loss of $2.3 million at
September 30, 1996. The following table presents the amortized cost of
investment securities at the dates indicated:
September 30, 1996 December 31, 1995
------------------ -----------------
(In Thousands)
U.S. Treasury and government agencies $ 54,485 $ 51,987
State and municipal obligations 5,540 790
Other bonds and obligations 22,609 36,022
Mortgage-backed securities 106,899 141,643
REMICs and CMOs 180,748 98,205
Other asset-backed securities 1,498 8,277
Marketable equity securities 4,874 7,603
Restricted equity securities 6,591 5,231
Unrealized gain (loss) on securities
available for sale (2,301) 1,679
------- --------
$380,943 $351,437
======== ========
FIXED ASSETS. The Company's fixed assets are little changed from December 31,
1995 to September 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 from 1995 and
transaction accounts rose from 22% of total deposits at December 31, 1995 to 23%
of September 1996.
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
$13.5 million to $175.9 million at September 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 September 30, 1996, these advances totaled
$64.5 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 September 30, 1996, Family Bank
maintained a core capital ratio of 6.53%, and a risk-based capital ratio of
10.61%. 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 7.94% at September 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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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
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
None
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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: November 12, 1996 By: /s/ David D. Hindle
----------------- ------------------------------
David D. Hindle
Chief Executive Officer
Date: November 12, 1996 By: /s/ MaryAnn Soursourian
----------------- ------------------------------
MaryAnn Soursourian
Principal Financial
and Acctg Officer
18