EXHIBIT 2.3
FEDERAL DEPOSIT INSURANCE CORPORATION
WASHINGTON, D.C. 20429
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FORM F-4
QUARTERLY REPORT
UNDER SECTION 13 OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED MARCH 31, 1997
FDIC INSURANCE CERTIFICATE NO. 26481
FALMOUTH CO-OPERATTVE BANK
MASSACHUSETTS
04-1299490
20 DAVIS STRAITS, FALMOUTH, MASSACHUSETTS 02540
(508) 548-3500
INDICATE BY CHECK MARK WHETHER THE BANK (1) HAS FILED ALL REPORTS BY SECTION 13
OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR
SUCH SHORTER PERIOD THAT THE BANK WAS REQUIRED TO FILE SUCH REPORTS).
Yes [X] No [ ]
AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS.
Yes [X] No [ ]
FALMOUTH CO-OPERATIVE BANK
BALANCE SHEETS
MARCH 31, SEPTEMBER 30,
1997 1996
(unaudited)
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ASSETS
Cash and due from banks $2,793,931 $1,171,761
Federal funds sold 2,358,220 1,583,437
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Total cash and cash equivalents 5,152,151 2,755,198
Investment securities 36,141,189 45,552,649
Federal Home Loan Bank stock, at cost 405,200 300,900
Loans, net 46,518,481 40,236,846
Premises and equipment 925,012 526,061
Accrued interest receivable 668,848 746,601
Cooperative Central Bank Reserve Fund Deposit 285,680 285,680
Other assets 170,936 112,173
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Total assets $90,267,497 $90,516,108
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LIABILITIES AND STOCKHOLDERS' EQUITY:
Liabilities:
Demand deposits $9,024,802 $8,713,244
Savings and NOW deposits 20,146,104 19,660,383
Time deposits 38,029,263 38,065,803
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Total deposits 67,200,169 66,439,430
Deferred income taxes 27,366 49,248
Other liabilities 152,833 123,608
Due to broker -- 1,000,000
Income taxes payable 30,127 156,027
Treasury tax and loan account 404 4,170
Employee Stock Ownership Plan loan 785,565 829,208
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Total liabilities 68,196,464 68,601,691
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Stockholders' equity:
Preferred stock, par value $.10 per share,
authorized 500,000 shares; none issued
Common stock, par value $.10 per share,
authorized 2,500,000 shares;
issued and outstanding 1,454,750 shares 145,475 145,475
Paid-in capital 13,601,883 13,598,174
Retained earnings 9,086,940 8,856,291
Employee Stock Ownership Plan loan (829,208) (829,208)
Net unrealized holding gain on available-for-sale securities 65,943 143,685
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Total stockholders' equity 22,071,033 21,914,417
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Total liabilities and stockholders' equity $90,267,497 $90,516,108
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FALMOUTH CO-OPERATIVE BANK
STATEMENTS OF INCOME
(Unaudited)
Three Months Ended March 31,
1997 1996
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INTEREST AND DIVIDEND INCOME:
Interest and fees on loans $ 910,882 $ 721,029
Interest and dividends on investment securities 584,779 540,305
Interest on short-term investments 26,224 39,950
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Total interest and dividend income 1,521,885 1,301,284
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INTEREST EXPENSE:
Interest expense on deposits 668,610 721,828
Interest expense on borrowings
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Total interest expense 668,610 721,828
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Net interest income 853,275 579,456
Provision for possible loan loss 9,000
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Net interest income after provision for possible
loan losses 853,275 570,456
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OTHER INCOME:
Service charges 12,367 11,992
Other fee income 11,166 10,431
Gain on sale of investment securities, net 33,591
Other non-interest income 8,971 5,846
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Total other income 66,095 28,269
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OTHER EXPENSE:
Salaries and employee benefits 331,974 291,116
Deposit insurance expense 1,621 500
Other real estate owned expense
Data processing expense 36,170 30,995
Directors' fees 21,930 20,350
Legal and professional fees 55,505 435
Loss on sales of investment securities, net
Other operating expenses 188,111 97,894
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Total other expense 635,311 411,290
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Income before income taxes 284,059 157,435
Income taxes 106,000 69,300
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Net income $ 178,059 88,135
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FALMOUTH CO-OPERATIVE BANK
STATEMENTS OF INCOME
(Unaudited)
Six Months Ended March 31,
1997 1996
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INTEREST AND DIVIDEND INCOME:
Interest and fees on loans $ 1,763,227 $ 1,432,813
Interest and dividends on investment securities 1,242,867 1,074,605
Interest on short-term investments 50,534 72,102
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Total interest and dividend income 3,056,628 2,579,520
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Interest expense:
Interest expense on deposits 1,360,288 1,427,800
Interest expense on borrowings
Total interest expense 1,360,288 1,427,800
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Net interest income 1,696,340 1,151,720
Provision for possible loan loss 18,000
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Net interest income after provision for possible
loan losses 1,696,340 1,133,720
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OTHER INCOME:
Service charges 24,669 24,831
Other fee income 20,301 19,097
Gain on sale of investment securities, net 33,590
Other non-interest income 41,082 30,135
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Total other income 119,642 74,063
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OTHER EXPENSE:
Salaries and employee benefits 662,632 558,681
Deposit insurance expense 2,121 6,666
Other real estate owned expense
Data processing expense 65,933 57,988
Directors' fees 40,780 39,820
Legal and professional fees 117,666 3,476
Loss on sales of investment securities, net 3,892
Other operating expenses 339,918 206,445
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Total other expense 1,229,050 876,968
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Income before income taxes 586,932 330,815
Income taxes 219,100 145,800
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Net income $ 367,832 185,015
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FALMOUTH CO-OPERATIVE BANK
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
Net
Unrealized Employee
Holding Stock
Gain on Ownership
Common Paid-in Retained Available-for Plan
Stock Capital Earnings Surplus Sale Securities Loan Total
------ -------- -------- ------- --------------- --------- -----
Balance, September 30, 1995 $ 0 $ 0 $ 8,286,070 $ 0 $149,216 $ 0 $ 8,435,286
Net Income 185,014 185,014
Issuance of 1,454,750 shares of
common stock, par value $0.10
per share (net of issuance costs) 145,475 13,629,142 13,774,617
Acquisition of common stock
by ESOP (872,850) (872,850)
Net change in unrealized
holding gain on available
for-sale securities 68,230 68,230
-------- ----------- ----------- --------- -------- --------- -------------
Balance, March 31, 1996 $145,475 $13,629,142 $ 8,471,084 $ 0 $217,446 $(872,850) $ 21,590,297
======== =========== =========== ========= ======== ========= =============
Balance, September 31, 1996 $145,475 $13,598,174 $ 8,856,291 $ 0 $143,685 $(829,208) $ 21,914,417
ESOP compensation expense 3,709 3,709
Dividends declared (137,183) (137,183)
Net Income 367,832 367,832
Net change in unrealized
holding gain on available
for-sale securities (77,742) (77,742)
-------- ----------- ----------- --------- -------- --------- -------------
Balance, March 31, 1997 $145,475 $13,601,883 $ 9,086,940 $ 0 $ 65,943 $(829,208) $ 22,071,033
======== =========== =========== ========= ======== ========= =============
FALMOUTH CO-OPERATIVE BANK
STATEMENTS OF CASH FLOWS
(unaudited)
Six months ended March 31,
1997 1996
---- ----
(in thousands)
------------
Operating Activities:
Net Income $ 368 $ 185
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for possible loan losses -- 18
Net amortization of investment securities 7 23
Amortization of net deferred loan fees 22 5
(Gain) on sales of investment securities, net (33) 4
Depreciation and amortization 30 28
Disposal of fixed assets 10 --
Decrease in other assets 20 159
Increase (Decrease) in other liabilities (145) 77
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Net cash provided by operating activities 279 499
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Investing activities:
Purchases available-for-sale securities (2,432) --
Proceeds from maturities of available-for-sale securities 4,589 --
Proceeds from sales of available-for-sale securities 1,509 --
Purchases of held-to-maturity securities (1,000) --
Proceeds from maturities of held-to-maturity securities 5,671 --
Purchase of FHLB stock (104) --
Proceeds from sale of and maturity of investment securities -- 8,708
Purchase of investment securities -- (20,305)
Proceeds from principal repayment on mortgage
backed investments -- 67
Purchase of unearned ESOP shares -- (873)
Decrease in:
Short-term investments (775) (2,813)
Loans (6,304) (2,496)
Bank premises and equipment (439) (16)
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Net cash provided by (used in) investing activities 715 (17,728)
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Financing activities:
Dividends Paid (137) --
ESOP compensation expense 4 --
Proceeds from sale of stock -- 13,774
Increase in borrowed funds -- 873
Net increase (decrease) in deposits, excluding certificate
accounts 797 (507)
FALMOUTH CO-OPERATIVE BANK
STATEMENTS OF CASH FLOWS
continued
(unaudited)
Six months ended March 31,
1997 1996
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(in thousands)
Net increase (decrease) in certificates of deposits (36) 550
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Net cash provided by (used in) financing activities 628 14,690
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Increase (decrease) in cash and due from banks 1,622 (2,539)
Cash and due from banks, beginning of period 1,172 3,598
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Cash and due from banks, end of period $ 2,794 $ 1,059
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Cash paid for:
Interest on deposits $ 1,360 $ 1,426
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Income taxes, net $ 345 $ 128
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Unrealized gain (loss) on securities available for sale,
net of tax $ 66 $ 68
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ITEM 1.
FINANCIAL STATEMENT
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997 AND 1996
BASIS OF PRESENTATION
The financial statements of the Falmouth Co-operative Bank (the "Bank")
presented herein should be read in conjunction with the financial statements of
the Bank as of and for the year ended September 30, 1996. In the opinion of
management, the interim financial statements reflect all adjustments (consisting
of normal recurring adjustments) necessary for a fair presentation of the three
months and six months ended March 31, 1997 and 1996. Interim results are not
necessarily indicative of results to be expected for the entire year. Management
is required to make estimates and assumptions that affect amounts reported in
the financial statements. Actual results could differ significantly from those
estimates.
FALMOUTH CO-OPERATIVE BANK
ITEM 2.
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
COMPARISON OF FINANCIAL CONDITION AT MARCH 31, 1997 AND SEPTEMBER 30, 1996.
The Bank's total assets decreased by $249,000 or .3% to $90.3 million for
the six months ended March 31, 1997 from $90.5 million at September 30, 1996.
Total net loans were $40.2 million or 60.6% of total deposits at September 30,
1996 as compared to $46.5 million or 69.22% of total deposits at March 31, 1997,
representing an increase of $6.3 million. Investment securities held by the Bank
decreased by $9.4 million from $45.6 million at September 30, 1996 to $36.1
million at March 31, 1997. The proceeds from maturing securities were in part
allocated to fund an increased volume of loan production, with the balance
redeployed into short-term securities investments. Total deposits at March 31,
1997 were $67.2 million and $66.4 million at September 30, 1996, an increase of
$761,000. The deposit increase was primarily the result of the Bank's new branch
opening on February 12, 1997 which had deposits of $671,000 at March 31, 1997.
Net worth was $21.9 million at September 30, 1996 as compared to stockholders'
equity of $22.1 million at March 31, 1997, an increase of $157,000 which was the
result of earnings from normal operations for the six month period less $145,476
in cash dividends paid stockholders during the last two quarters. Additionally,
the net unrealized gain on available-for-sale securities decreased $77,742, from
$143,685 at September 31, 1997 to $65,943 at March 31, 1997.
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COMPARISON OF OPERATING RESULTS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996.
Net Income. The Bank's net income for the three months ended March 31, 1997
was $178,000 as compared to $88,000 for the three months ended March 31, 1996.
The $90,000 increase in net income was primarily the result of the mutual to
stock conversion by the Bank on March 28, 1996. The $90,000 increase in net
income included a $283,000 increase in net interest income, a $38,000 increase
in other income, a $194,000 increase in operating expenses and an increase in
the provision for income taxes of $37,000.
Interest Income. Total interest and dividend income for the three months
ended March 31, 1997 was $1.5 million, an increase of $220,000 as compared to
$1.3 million for the three months ended March 31, 1996. The increase in interest
and dividend income was due primarily to a $189,000 increase in interest income
on loans.
Interest Expense. Interest expense for the three months ended March 31,
1997 was $669,000, a decrease of $53,000 as compared to $722,000 for the three
months ended March 31, 1996. The decrease in interest expense was due in part to
lower interest rates on deposits.
Net Interest Income. Net interest income for the three months ended March
31, 1997 was $853,000 as compared to $579,000 for the three months ended March
31, 1996. The $274,000 increase in net interest income was the result of
increased interest income on loans due to increased loan activity. Additionally,
interest paid on deposits decreased $53,000 as compared to the same period of
the previous year. The net interest margin for the three months ended March 31,
1997 was 3.86%, an increase of 1.14% as compared to the three months ended March
31, 1996. The annual return on average assets for the three months ended March
31, 1997 was .80%, an increase of .35% as compared to the same period of the
prior year. The primary reason for the increase in the return on average assets
was due to the increase in net interest income which was the result of the
management of capital received from the March 28, 1996 stock conversion.
Provisions for Possible Loan Losses. The provision for possible loan losses
for the three months ended March 31, 1997 was none as compared to $9,000 for the
three months ended March 31, 1996. With no problem loans, it was determined that
there was an adequate balance in the general reserve of the allowance for
possible loan losses and that the capital could be better utilized at this time.
Other Income. Non-interest income or other income for the three months
ended March 31, 1997 was $66,000 as compared to $28,000 for the three months
ended March 31, 1996. This increase was primarily due to $34,000 taken in gains
on the sale of securities.
Operating Expenses. Operating expenses increased from $441,000 for the
three months ended March 31, 1996 to $635,000 for the three months ended March
31, 1997. The increase of $194,000 was primarily due to a $41,000 increase in
salaries and employee benefits, a
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$55,000 increase in legal and professional fees, and an increase of $90,000 in
other operating expenses, primarily due to the opening of a new branch office
February 12, 1997.
COMPARISON OF OPERATING RESULTS
SIX MONTHS ENDED MARCH 31, 1997 AND 1996.
Net Income. The Bank's net income for the six months ended March 31, 1997
was $368,000 as compared to $185,000 for the six months ended March 31, 1996.
The $183,000 increase in net income was primarily the result of a $544,000
increase in net interest income, a $46,000 increase in other income that was
partially offset by a $352,000 increase in other operating expenses and an
increase in the income tax provision of $73,000.
Interest Income. Total interest and dividend income for the six months
ended March 31, 1997 was $3.1 million, an increase of $477,000 as compared to
$2.6 million for the six months ended March 31, 1996. The increase in interest
and dividend income was due in part to a greater volume of higher yielding loans
coupled with a increase in the interest on investment securities.
Interest Expense. Interest expense for the six months ended March 31, 1997
was $1.4 million, as compared to $1.4 million for the six months ended March 31,
1996. Total deposits were slightly higher for the period ended March 31, 1997
with interest rates slightly lower resulting in an interest expense that
remained relatively unchanged.
Net Interest Income. Net interest income for the six months ended March 31,
1997 was $1.7 million as compared to $1.1 million for the six months ended March
31, 1996. The net interest margin for the six months ended March 31, 1997 was
3.88%, a increase of .91% as compared to the six months ended March 31, 1996.
The annual return on average assets for the six months ended March 31, 1997 was
.83%, an increase of .49% as compared to the same period of the prior year. The
primary reason for the increase in the return on average assets was due to the
increase in net interest income which was the result of the management of
capital received as of the March 28, 1996 stock conversion.
Provisions for Possible Loan Losses, The provision for possible loan losses
for the six months ended March 31, 1997 was zero as compared to $18,000 for the
six months ended March 31, 1996. It was determined that there was an adequate
balance in the general reserve of the allowance for possible loan losses.
Other Income. Non-interest income or other income for the six months ended
March 31, 1997 was $120,000 as compared to $74,000 for the six months ended
March 31, 1996. The increase of $46,000 was primarily the result of the gain on
the sale of investment securities of $34,000 taken during the period,
Operating Expenses. Operating expense increased from $877,000 for the six
months
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ended March 31, 1996 to $1.2 million for the six months ended March 31, 1997,
The increase of $352,000 was primarily due to an increase in salaries and
employee benefits of $103.000, an increase in legal and professional fees of
$115,000. and an increase in other operating expenses of $134,000.
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SIGNATURES
Under the requirements of the Securities Exchange Act of 1934, the Bank has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
FALMOUTH CO-OPERATIVE BANK
Date: MAY 9, 1997 By:/s/ Santo P. Pasqualucci
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Santo P. Pasqualucci
President and Chief Executive Officer
Date: MAY 9, 1997 By:/s/ George E. Young, III
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George E. Young, III
Chief Financial Officer
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