[LOGO] Medford Bancorp, Inc. 1999 Annual Report [GRAPHIC: Cover Photo] [LOGO] Medford Bancorp, Inc. FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- (Dollars in Thousands) 1999 1998 Total Assets $ 1,224,912 $ 1,151,188 Investment Securities 535,858 512,648 Net Loans 626,751 580,665 Deposits 911,328 871,702 Total Borrowings 215,724 170,116 Net Income 12,651 12,252 Stockholders' Equity 90,870 102,267 Shares Outstanding 8,383,252 8,709,828 Per Common Share: Basic Earnings $ 1.51 $ 1.38 Diluted Earnings 1.44 1.31 Book Value 10.84 11.74 Cash Dividends Declared 0.51 0.50 Financial Ratios: Return on Average Assets 1.07% 1.09% Return on Average Equity 13.52 11.99 Stockholders' Equity to Assets 7.42 8.88 Net Interest Rate Spread 2.63 2.72 Net Yield on Average Earning Assets 3.03 3.16 Employees (at year end), Full-Time Equivalent 254 252 Shareholders of Record 1,126 1,158 - -------------------------------------------------------------------------------- Annual Meeting The Annual Meeting of Shareholders will be held April 24, 2000 at 9 a.m. at Anthony's of Malden, 105 Canal Street, Malden, Massachusetts. Corporate Information Medford Bancorp, Inc. Medford Bank 29 High Street Medford, MA 02155 781.395.7700 www.medfordbank.com Accessing Information Additional copies of this Annual Report and Form 10-K may be obtained without charge by writing to the Company's Shareholder Relations Department. These reports are also available to the public on request as required by the Securities and Exchange Commission (SEC). These statements have not been reviewed or confirmed for accuracy or relevance by the SEC. Featured on the cover is a collection of coins dating back to 1869, the year Medford Bank was established. Rare coin collection courtesy of Gerard A.J. Stodolski, Inc. Twenty dollar gold coin, dated 1869, provided by Rare Coins of New Hampshire, Inc. During 1999, Medford Bancorp, Inc. celebrated 130 years of community banking. Founded in 1869, Medford Bank continues to meet the financial needs of area families and businesses. Today we look not only to provide a range of banking services, but to create value for customers and shareholders alike. [PHOTO] - -------------------------------------------------------------------------------- DEAR SHAREHOLDERS: I am pleased to report that we continued to increase earnings per share during 1999. During the last two years, basic earnings per share grew at a compound average growth rate of 10%, increasing from $1.25 in 1997 to $1.51 in 1999. Our success was achieved through sound management of capital resources, firm control of operating expenses and focused growth in the balance sheet. Noteworthy for 1999, we increased dividends 10% from the prior year's level of $.40 per share to $.44 per share and declared our seventh consecutive special dividend in December 1999. We also successfully completed a 5% stock repurchase program, acquiring 425,796 shares. We recently announced an additional stock repurchase program of up to 5% of outstanding shares for year 2000. This represents our third repurchase program in as many years. We continue to explore opportunities to enhance the franchise. We were disappointed that the divested branches from the FleetBoston transaction were not allocated to community banks in this area. We submitted a bid on several of these branches which, if successful, would have expanded our branch network. With our Tewksbury office celebrating its first anniversary and contributing to our balance sheet growth, we have filed an application to open a new branch office on Massachusetts Avenue in Arlington. Construction is planned for later this year and we anticipate opening the branch by early 2001. Our strategic plan for profitable expansion remains in the forefront as customers look more toward community banks to fill their financial needs. We plan to identify and evaluate potential branch sites in the coming year. As an independent community bank, we rely heavily on the branch network for our delivery system. The heart of community banking is the branch office and the connection to the customer. Our voice response system, Call Center, and web site are growing in popularity and complement the branch delivery system well. Medford Bank has consistently earned a Five-Star rating from Bauer Financial Reports, Inc. and Blue Ribbon status from VERIBANC, Inc. in recognition of financial strength and performance. We are proud that our reputation as a leading community bank is enhanced with these ratings. Moreover, our product offerings, such as our combined checking and savings account, ComboPlus, enabled us to effectively gather deposits. ComboPlus deposits grew by $46 million during 1999. In addition, our municipal calling program generated $15 million in deposits for the year. Asset generation has been given renewed emphasis. Residential lending remains a strength of the Company. The active sales efforts of the loan originators generated $134.5 million in residential first mortgages during 1999. A portion of this volume, $7.18 million, was committed to low cost, affordable housing mortgages. By hiring William Marshall as Director of Commercial Real Estate, along with an additional lender, the commercial real estate lending team is focused on growth. Bill's energy and expertise in developing new business is showing early signs of success. Our commercial lending division is also actively developing new business, specializing in serving small to mid-size companies, with commercial and industrial and asset-based loans. It is my honor to welcome Deborah A. Burke-Santoro who joined the Board of Directors in May. Ms. Burke-Santoro is the Marketing and Communications Director for the Office of the Mayor in Malden. She has been professionally dedicated to the betterment of Malden and its residents for more than two decades. She brings a fresh perspective to our Board. I also congratulate George A. Bargamian who was promoted to executive vice president in 1999. During 1999 many employees were actively involved in the preparation of our successful Y2K transition while simultaneously handling normal operations. I thank each and every employee for their dedication and hard work over the past year. It is through their collective efforts that Medford Bank retains its rich heritage and is a leading community bank today. Sincerely, /s/ Arthur H. Meehan Arthur H. Meehan Chairman of the Board, President and Chief Executive Officer [The following information was depicted as bar charts in the printed material.] Basic Earnings Per Share 1997 ....... $1.25 1998 ....... $1.38 1999 ....... $1.51 Return on Equity 1997 ....... 11.81% 1998 ....... 11.99% 1999 ....... 13.52% Return on Assets 1997 ....... 1.05% 1998 ....... 1.09% 1999 ....... 1.07% Regular Cash Dividends 1997 ....... $0.36 1998 ....... $0.40 1999 ....... $0.44 2. COMMERCIAL LENDING - -------------------------------------------------------------------------------- We offer a range of commercial services and are well positioned to meet the needs of the small and medium size businesses. We concentrate on businesses with annual sales up to $10 million, as this market can often be under-served by the Boston-based banks. Our strength in this market resides in providing high level service to the business owner or manager. Our lenders have extensive knowledge of the local market and try to be very responsive in addressing customer needs. With Commercial Real Estate, Commercial and Industrial and Asset-based loans, we support many businesses with lines of credit, construction loans, equipment loans, funding for expansion, and more. We are also an approved SBA lender. Through our lending activities, we are investing in the local economy and helping our customers build their businesses and operate more effectively. [PHOTO] Keith Ohmart, President, and Helen Chen, majority owner, of the successful cookware distribution business Joyce Chen, Inc., look to Medford Bank for their commercial banking needs. Helen Chen is the daughter of the late Joyce Chen and she and her husband work together selling several specialty cookware brands through the company's two divisions. The company's China Village, Italian Villa, Mexican Fiesta and Taco Bell Kitchen originals brand cookware and accessories are sold directly to major retailers nationwide such as Target, Wal-Mart and other discount retailers. Through the Joyce Chen products division, the company markets its authentic, high-end Asian cookware at fine retailers such as Macy's. In recent years, the Joyce Chen company has enjoyed tremendous growth and success. Kim Foster, Vice President, Asset-based Lending, has been instrumental in helping the company manage its cash flow through accounts receivable and inventory financing. This is just one example of how Medford Bank is a financial partner committed to helping local businesses succeed. [PHOTO] Our team of commercial lenders from left to right: Mary Ann Devlin, Vice President, Commercial Real Estate; Laurence J. Packenham, Vice President, Commercial Real Estate; William L. Marshall, Director, Commercial Real Estate; Kim S. Foster, Vice President, Asset-based Lending; Eric B. Loth, Senior Vice President, Lending Division; Richard P. Lane, Vice President, Commercial Loan Officer; Michael D. MacDonald, Vice President, Commercial Loan Officer. 3. CUSTOMER SERVICE - -------------------------------------------------------------------------------- With the customer as our top priority, we continually strive to provide the best in service and product offerings. We look to build long-term relationships with customers by meeting their financial needs throughout life. Starting with a child's first bank account as a member of our Club For Kids to our range of retirement services, we are there every step of the way. In addition, our convenient banking options, such as our debit card, web site, automated telephone banking system, and Call Center give customers choices and make banking easier while saving time. And for those customers who prefer traditional in-branch banking, we constantly look for ways to make improvements. With the addition of new parking lots, our Main Office, Malden Center and South Medford branch offices allow easier access. To help ensure that we provide a high level of service to all customers, employees receive service quality training and we have an outside firm monitor and rate service throughout the year. Our customer service representatives and Call Center specialists advise customers about all their options and help them select the best accounts and services for their needs. [GRPAHIC: ATM Card] Medford Bank's MasterMoney(TM) and ATM Card, also known as a debit card, is a convenient way for customers to make purchases with direct access to their checking accounts. It's faster than writing a check. Our debit card enables customers to take advantage of checking account conveniences around town or around the world, wherever the Mastercard(R) symbol is displayed. With a 72% activation rate, our card base continues to grow. [PHOTO] Tess Cunha, Call Center Officer Our Customer Call Center routinely opens accounts, explains services and provides other assistance for customers who prefer the convenience of a telephone call instead of making a trip to a branch office. Call volumes into our Call Center continue to increase as more people dial 1-888-medford for their banking needs. Tess Cunha, a valued employee since 1987, has managed the Call Center since it was introduced in 1997. She has been recognized for providing excellent service and is responsible for training other Call Center specialists to the same high standard. 4. OFFICE LOCATIONS - -------------------------------------------------------------------------------- [GRAPHIC: Office Locations Map] Arlington Route 60 & Mystic Valley Parkway 781.393.6355 Belmont 4 Hill Road, Corner of Brighton St. 781.393.6320 Burlington 258 Cambridge St. 781.272.5700 Malden Malden Center 399 Main St. 781.393.6386 Broadway 44 Broadway 781.393.6334 Maplewood 28 Lebanon St. 781.393.6329 Oak Grove 876 Main St. 781.393.6326 West Side 443 Charles St. 781.393.6337 Medford Main Office 29 High St. 781.395.7700 Loan Center 5 High St. 781.395.7700 Haines Square 257 Spring St. 781.393.6380 South Medford 448 Main St. 781.393.6340 Wellington 499 Riverside Ave. 781.393.6350 West Medford 501 High St. 781.393.6344 North Reading 80 Main St. 978.664.5581 Tewksbury 295 Main St. 978.851.0841 Waltham 695 Main St. 781.647.4848 Wilmington 240 Main St. 978.658.9134 [The following information was depicted as a pie chart in the printed material.] Deposit Mix as of December 31, 1999 (in thousands) - -------------------------------------------------------------------------------- Term CDs 45.69% $416,345 Demand & Official Checks 12.29% $112,013 Savings 34.49% $314,353 Money Market 7.53% $68,617 [The following information was depicted as a pie chart in the printed material.] Loan Mix as of December 31, 1999 (in thousands) - -------------------------------------------------------------------------------- Residential Mortgages 73.68% $466,740 Commercial Mortgages 17.69% $112,050 Second Mortgages/ Equity Lines 3.18% $20,175 Consumer Loans 0.46% $2,912 Commercial Loans 2.86% $18,149 Construction Mortgages 2.13% $13,504 5. RESIDENTIAL LENDING - -------------------------------------------------------------------------------- A top mortgage provider, we originated $134.5 million in one to four family mortgage loans in 1999. With a net gain of $44 million to the portfolio after adjusting for amortizations, sales and prepayments, our residential loan portfolio has grown to $466.7 million. Our experienced team of mortgage originators was very active reaching out to home buyers. Our 1999 series of home buying seminars, held in the spring and fall, helped many families with the purchase of their first home and provided assistance for those ready to trade up to their next home. The success of our pre-approval program contributes to our overall success in closing loans. Pre-approval allows the home buyer to obtain a mortgage commitment before finding a home and allows the option to lock in an interest rate at application or closing, depending upon the mortgage selected. Whether taking advantage of our pre-approval or affordable housing program, or choosing one of our fixed or adjustable rate mortgage options, many families now enjoy the rewards of home ownership through a Medford Bank mortgage. [PHOTO] Eagles Landing is an age 55 and older community with 176 residential units and a club house in Tewksbury. Through our Commercial Real Estate division, Medford Bank provided construction financing to the developers of this project in 1998. The successful development also included the construction of Tewksbury Country Club, a nine-hole golf course. In 1999, nearly all residential units were sold. In addition, Medford Bank provided residential mortgage loans to many of the owners. [PHOTO] Left to right: Anne Barry, John and Cheryl Trainor with their children. John and Cheryl Trainor and children, John and Nicole, are longtime Medford Bank customers. As owner of Accurate Paving, John Trainor has found Medford Bank's commercial lending team extremely helpful in providing assistance and the financing needed for his business. The family banking needs of the Trainors are also expertly handled. Anne Barry, assistant vice president and mortgage representative, meets with the Trainor family at their home. The Trainors are contemplating home ownership and are learning how Medford Bank's pre-approval program will be advantageous while house-hunting. 6. Directors Arthur H. Meehan* Chairman of the Board, President and Chief Executive Officer Medford Bank Edward D. Brickley Manager of Corporate International Accounting at Polaroid Corporation Cambridge, MA (Retired) David L. Burke President and Treasurer, Boston Steel & Manufacturing Co. Malden, MA Deborah A. Burke-Santoro Marketing and Communications Director Office of the Mayor City of Malden Paul J. Crowley* President, CSC Consulting Group Cambridge, MA (Retired) Mary Lou Doherty Assistant Principal, Medford School System (Retired) Edward J. Gaffey* President, Country Way Trust Belmont, MA Andrew D. Guthrie, Jr., M.D. Physician, President of Mistick Pediatrics Associates (Retired) Robert A. Havern, III Attorney, Arlington, MA Member of State Legislature of Commonwealth of Massachusetts Eugene R. Murray* Underwriting Manager of the Boston Office of Cigna Special Risk Facility (Retired) Francis D. Pizzella* Attorney and President of The Savings Bank Life Insurance Company of Massachusetts, President of The Savings Bank Employees Retirement Association (Retired) Officers of Medford Bank Arthur H. Meehan** Chairman, President and Chief Executive Officer Vincent Gargano Senior Vice President, Strategic Planning and Risk Management Paula M. McNabb Vice President, CRA/Compliance Officer Administration William F. Rivers Senior Vice President David L. Korp Senior Vice President, Operations Officer Joan P. Cronholm Vice President, Loan Operations Officer Jane M. Griffin Vice President, Director of Human Resources Charles E. Samour Assistant Vice President, Security Officer Lorraine Lucia EFT Services Officer Joanne Teixeira Deposit Operations Officer Alan Collopy Systems Officer Finance Phillip W. Wong** Executive Vice President, Chief Financial Officer Mary E. Auterio Vice President, Controller Jane E. Cybulski Vice President, Investment/ALCO Officer Martin J. Heneghan Assistant Vice President, Senior Audit Officer Christine Panno-West Assistant Vice President, Assistant Controller Lending Eric B. Loth Senior Vice President Anthony R. Visco Senior Vice President, Residential Lending William L. Marshall, III Director of Commercial Real Estate Donald L. Cullen Vice President, Collections Officer Mary Ann Devlin Vice President, Commercial Real Estate Kim S. Foster Vice President, Commercial Loan Officer Joanne M. Franco Vice President, Senior Credit Officer Richard P. Lane Vice President, Commercial Loan Officer Laurence J. Packenham Vice President, Commercial Real Estate Michael D. MacDonald Vice President, Commercial Loan Officer Anne M. Barry Assistant VicePresident, Mortgage Representative Harold L. Goldsmith Assistant Vice President, Mortgage Representative Deborah Sousa Assistant Vice President, Mortgage and Loan Origination Manager Charles M. Byron Mortgage Loan Officer Retail George A. Bargamian Executive Vice President Anna Beaudoin Vice President, Retail Systems Administrator Kenneth E. Peterson Vice President, Branch Administrator Elizabeth J. Stodolski Vice President, Marketing Director Theresa Barile Assistant Vice President, Pension Officer Kathleen M. Beasley Assistant Vice President, Regional Manager Cheryl A. Cannon Assistant Vice President, Regional Manager Linda A. Iacono Assistant Vice President, Regional Manager Dana Mann Assistant Vice President, Municipal Officer Rosanna Natola Assistant Vice President, Retail Training/Support Andree Brulhart Branch Officer Teresa Cunha Branch Officer Judith A. Gilligan Branch Officer Lea Hamel Branch Officer Kelly A. Hannify Branch Officer Kathleen Pasquale Branch Officer Barbara Purcell Branch Officer Christine Santapaola Branch Officer Stephanie M. Tiernan Branch Officer *Member of Executive Committee **Officer of Medford Bancorp, Inc. Celebrating a 130 year history 1869-1999 People you know. Experience you trust. 781-395-7700 www.medfordbank.com Shareholder Information The Company's common stock trades on the Nasdaq Stock Market under the symbol MDBK. The stock is listed under various abbreviations in the Wall Street Journal and other newspapers. There were 1,126 shareholders of record as of December 31, 1999. Quarterly Stock Performance The following tabulation shows the range of price quotations per share as reported by Nasdaq for the periods indicated: (Adjusted for stock split). 1999 High Low - ------------------------------------------ First Quarter $ 18.81 $ 17.00 Second Quarter $ 18.44 $ 15.25 Third Quarter $ 19.25 $ 15.00 Fourth Quarter $ 17.63 $ 15.75 Dividend Reinvestment And Stock Purchase Plan Stockholders may obtain a detailed brochure of the plan by writing to the Company's Shareholder Relations Department. Transfer Agent Contact our stock transfer agent directly for assistance regarding: change of address; transfer of stock certificates; replacement of lost, stolen, or destroyed certificates or dividend checks; elimination of duplicate mailing. Boston EquiServe P.O. Box 8200 Boston, MA 02266-8200 800.426.5523 Legal Counsel Goodwin, Procter & Hoar Exchange Place Boston, MA 02109 617.570.1000 Independent Certified Public Accountant Wolf & Company, P.C. One International Place Boston, MA 02110 617.439.9700