[LOGO]
Medford Bancorp, Inc.
ANNUAL REPORT
1997
[LOGO]
Medford Bancorp, Inc.
ARLINGTON
ROUTE 60 & MYSTIC
VALLEY PARKWAY
781-393-6355
BELMONT
4 HILL ROAD, CORNER
OF BRIGHTON ST.
617-393-6320
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
WALTHAM
695 MAIN ST.
781-647-4848
WILMINGTON
240 MAIN ST.
978-658-9134
FINANCIAL HIGHLIGHTS
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(DOLLARS IN THOUSANDS) 1997 1996
TOTAL ASSETS $1,135,572 $1,039,098
INVESTMENTS 513,418 424,966
NET LOANS 570,844 560,855
DEPOSITS 821,706 792,141
BORROWINGS 205,779 148,464
NET INCOME 11,390 10,429
STOCKHOLDERS' EQUITY 101,510 92,521
SHARES OUTSTANDING 4,541,148 4,534,648
PER COMMON SHARE:
BASIC EARNINGS $ 2.51 $ 2.31
DILUTED EARNINGS 2.39 2.21
BOOK VALUE 22.35 20.40
CASH DIVIDENDS DECLARED .90 .83
FINANCIAL RATIOS:
RETURN ON AVERAGE ASSETS 1.05% 1.05%
RETURN ON AVERAGE EQUITY 11.81 11.72
STOCKHOLDERS' EQUITY TO ASSETS 8.94 8.90
NET INTEREST RATE SPREAD 2.84 3.00
NET YIELD ON AVERAGE EARNING ASSETS 3.26 3.39
EMPLOYEES (AT YEAR END), FULL-TIME EQUIVALENT 252 255
SHAREHOLDERS OF RECORD 1,187 1,221
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ANNUAL MEETING
The Annual Meeting of Shareholders will be held April 27, 1998 at 10 a.m. at
Medford Bank, 5 High Street, Suite 202, Medford, Massachusetts.
CORPORATE INFORMATION
Medford Bancorp, Inc.
Medford Bank
29 High Street, Medford, MA 02155
781-395-7700
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 of relevance by the SEC.
1997 ANNUAL REPORT [LOGO]
DEAR SHAREHOLDERS
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MEDFORD BANCORP'S STRONG FINANCIAL PERFORMANCE FOR 1997, WITH RECORD-LEVEL
EARNINGS FOR THE SEVENTH CONSECUTIVE YEAR, AFFIRMS OUR STRATEGIC DIRECTION TO
REMAIN AN INDEPENDENT COMMUNITY BANK AND DELIVER VALUE TO OUR SHAREHOLDERS.
[PHOTO OMITTED]
(FROM LEFT TO RIGHT)
(FIRST ROW)
PHILLIP W. WONG,
EXECUTIVE VICE PRESIDENT
CHIEF FINANCIAL OFFICER
ARTHUR H. MEEHAN,
CHAIRMAN, PRESIDENT AND CEO
GEORGE A. BARGAMIAN,
SENIOR VICE PRESIDENT
RETAIL BANKING
(SECOND ROW)
WILLIAM F. RIVERS,
SENIOR VICE PRESIDENT
ADMINISTRATION
MONA BISHLAWI,
SENIOR VICE PRESIDENT
CONTROLLER
ERIC B. LOTH,
SENIOR VICE PRESIDENT
SENIOR LENDING OFFICER
In 1997, we formed Medford Bancorp, Inc. as the holding company for Medford
Bank. The holding company affords us greater control in managing capital and
positions us well for possible business opportunities.
With assets in excess of $1 billion, our financial performance has continually
improved as evidenced in the financial statements of recent years. For the year
ended December 31, 1997, we reported consolidated net income of $11,390,000.
This represents an increase of $961,000 or 9.2% when compared to net income of
$10,429,000 for 1996. With continued earnings growth, our shareholders' equity
has exceeded $100 million. Dividends declared in 1997 totaled 90 cents per
share, which is an increase of 8.4% from 83 cents in 1996. Book value has
increased to $22.35 per share from a level of $20.40 in the prior year. Basic
earnings per share were $2.51 ($2.39 on a diluted basis), an increase of twenty
cents per share when compared to basic earnings per share of $2.31 ($2.21 on a
diluted basis) for the previous year. Return on stockholders' equity increased
to 11.81% and return on assets remained at 1.05%.
Effectively managing net interest income, the Bank's largest component of
operating income, is a crucial element to our success. Managing interest rates
and credit risks, as we grow the level of interest earning assets in all rate
environments, represents management's most integral challenge. Equally important
to our success is our vigorous emphasis on tight cost control. We have achieved
an efficiency ratio of 48.6% which gives us a distinct operating advantage over
most of our peer group.
We operate in an intensely competitive financial services industry. However,
there remain great opportunities and potential for a community bank given the
changing competitive landscape. We expect consolidation to continue throughout
1998, which will afford the Bank the opportunity to exploit the
disintermediation of customers from acquired or merged institutions. As an
independent community bank, we are well positioned to meet the financial needs
of these customers.
1
[LOGO] SHAREHOLDERS LETTER
PEOPLE YOU KNOW
EXPERIENCE YOU TRUST
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The driving force behind our balance sheet is not size, but profitability. We
critically assess all lines of business and carefully develop new business which
will favorably impact earnings while simultaneously providing good value and
service to our customers. During 1997, we were successful in growing core
deposit balances bolstered in part by the success of our packaged ComboPlus
account and our DDA accounts. We retained our dominant market share of 49.6% in
Medford and 42.3% in Malden, and continue to strengthen market share in other
Middlesex County communities.
We strive to maintain good credit quality in our loan portfolio. Non-performing
loans are at the lowest level in recent years at .15% of total assets. The
reserve for loan loss is $6.7 million, providing a coverage ratio of 390% to
non-performing loans. Over time, the prudent guidelines used in growing the loan
portfolio give us a position of strength and should produce more consistent
results during any future economic shifts.
Our strategic focus, guided by an alert management team with attention to
interest risk management, credit quality and low operating expenses, will serve
the Bank well and continue to make us a leading community bank in Middlesex
County. We also continue to look for new branch opportunities in our market
areas to strengthen our franchise.
During 1997, Phillip Wong was promoted to executive vice president and Mona
Bishlawi was promoted to senior vice president. We also recognized the talents
and contributions of many of our employees with a number of promotions during
the year, including eight new officers.
In closing, the hard work and dedication given by all employees is greatly
appreciated. Our achievements and the successes that we have enjoyed as a
community bank are a direct result of their concerted efforts. I thank all
Medford Bank employees and thank you, our shareholders, for your continued
confidence and support.
/s/ Arthur H. Meehan
Arthur H. Meehan
Chairman of the Board
President and Chief Executive Officer
[The following tables were originally bar charts in the printed materials.]
STOCK PRICE (YEAR END)
1997 $39.25
1996 $25.75
1995 $21.50
BOOK VALUE (YEAR END)
1997 $22.35
1996 $20.40
1995 $19.46
BASIC EARNINGS PER SHARE
1997 $2.51
1996 $2.31
1995 $2.14
CASH DIVIDENDS DECLARED
1997 $0.90
1996 $0.83
1995 $0.71
2
1997 ANNUAL REPORT [LOGO]
THE YEAR IN REVIEW
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DEPOSIT MIX AS OF
DECEMBER 31, 1997
(IN THOUSANDS)
[PIE CHART OMITTED]
TERM CDS $392,802 47.80%
SAVINGS $254,741 31.00%
DEMAND &
OFFICIAL CHECKS $103,564 12.61%
MONEY MARKET $70,599 8.59%
COMMUNITY BANKING-BUILDING THE FUTURE
As a leading community bank, we remain focused on meeting the financial needs of
local residents and businesses. We understand that how we do business is just as
important as the products and services we offer; delivery of quality service is
a source of pride.
EMPHASIZING CUSTOMER SERVICE
We pay attention to the details that are important to customers. Whether it is a
significant investment as with our recent conversion to a new data processor, or
a smaller measure such as installing a new ATM for our Arlington branch
customers, our steadfast commitment to customer service is evident.
Our retail employee training program incorporates this philosophy by instilling
the importance of quality service. We continually monitor our service level with
the assistance of an outside firm. Consistently, we rate above peer institutions
on a direct comparison.
As mentioned, our computer conversion has firmly set the foundation to provide
greater enhancements to our service delivery system and has enabled us to
improve our product offerings. Throughout 1997, we experienced the benefits of
teller and platform automation with streamlined transaction processing. This
translates into faster, more efficient service for customers conducting business
at branch offices. We have also strengthened our non-branch banking options. Our
Call Center, with toll-free access, provides customers the opportunity to open
accounts without making a special trip to the bank. And usage of InfoLine, our
24-hour automated telephone banking system which enables customers to check
balances, transfer funds etc., has increased significantly, to more than 4,000
calls per week.
Venturing into cyberspace, we introduced our new web site and also advertised on
the Internet. Consumers now have the convenience of obtaining information with
just a few clicks of a mouse. Also available at our site, www.medfordbank.com,
are special product offerings.
Last year we announced plans to build our 17th branch office in Tewksbury. The
transfer of the property from the seller was delayed for a prolonged period of
time while the seller resolved administrative issues. We are pleased that
construction plans are now underway and we anticipate the grand opening in the
summer of 1998. The Tewksbury location complements our franchise well and we see
excellent potential to develop new retail and commercial business. We plan to
seek other opportunities to open new branches and to further extend our network
in markets with growth potential.
RETAIL PRODUCT OFFERINGS
The popularity of our Freedom 55 mature market program and our Club For Kids is
a testament to our strength as a community bank. The Freedom 55 program rewards
our high balance deposit customers who qualify with free membership. Membership
benefits include a package of free and discounted bank services, group-rate
travel opportunities and free seminars on a variety of topics. Members eagerly
await the planned cruise to Hawaii in the fall of 1998. Our Club For Kids
program is available to all children when they open their first savings account
with as little as one dollar. We have continued our partnership with the State's
Savings Makes Cents program bringing our Club For Kids and savings education
into six elementary schools.
Meeting the financial needs of our customers keeps new product development in
the forefront. Recent new product introductions include our
3
[LOGO] THE YEAR IN REVIEW
WE WILL CONTINUE TO EXPLORE SERVICE AND PRODUCT ENHANCEMENTS WHICH WILL ENABLE
US TO MEET FUTURE CUSTOMER NEEDS AND WE WILL BUILD UPON OUR SUCCESS WHILE
PRESERVING OUR HERITAGE AS A COMMUNITY-FOCUSED INSTITUTION.
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Workplace Partner Program, a packaged account with exceptional value which is
offered as a banking benefit to employees of local businesses. In addition, our
recently introduced debit card offers customers more convenience.
LENDING ACTIVITIES
Investing in our communities in the form of mortgage and business loans is good
for the local economy.
The growth of our residential mortgage portfolio represents our success as a top
mortgage provider. We hold dominant mortgage market share, ranking number one in
total dollar volume, in the cities of Medford and Malden and number two overall
in our defined primary market area. We originated $104.6 million in one to four
family mortgage loans including refinanced loans and loans originated for sale,
surpassing the 1996 origination volume of $86.8 million.
We introduced a successful preapproval program in 1997, expanding our product
offering. Our first-time home buyer program and our selection of fixed and
variable rate products are also well-received. With the addition of three new
originators, we now have eight representatives serving our lending territory.
Many new families now enjoy the rewards of home ownership made possible with a
Medford Bank loan.
The potential to generate new business through our commercial lending division
remains strong. One of our strengths in the marketplace is our responsiveness to
local businesses. We are a financial partner that is committed to providing a
high level of service to small and medium sized businesses. We are ideally
positioned to meet the needs of these businesses by providing commercial and
industrial, commercial real estate and asset-based loans.
During 1997, we maintained high credit quality and achieved modest growth in the
commercial loan portfolio. This growth is due in part to our new asset-based
lending activities and our commercial real estate division. Asset-based lending,
established in 1996, gives us greater capacity to serve this segment of the
business market by providing $1 to $4 million asset-based lines of credit. With
a favorable climate for commercial real estate, new construction is more robust.
We provided construction financing for a range of projects including many single
family residential sub-divisions and much larger scale projects such as Eagle's
Landing, an age 55 and older community with 176 residential units, a club house
and golf course in Tewksbury.
LOOKING AHEAD
We acquired the property situated between our Main Office and Loan Center
buildings on High Street in Medford. We are currently considering options for
this property that will enable us to enhance our headquarters. Our Medford
Square real estate holdings now extend from Bradlee Road to the start of Forest
Street, giving us a substantial presence.
As the year 2000 approaches, we are diligent in addressing computer and systems
issues. We formed a task force in 1997 with key members from operations,
systems, compliance, auditing and senior management. We developed an action
plan, with testing scheduled to begin later this year, to ensure that all
systems will function properly for the year 2000.
We will continue to explore service and product enhancements which will enable
us to meet future customer needs and we will build upon our success while
preserving our heritage as a community-focused institution.
LOAN MIX AS OF
DECEMBER 31, 1997
(IN THOUSANDS)
[PIE CHART OMITTED]
RESIDENTIAL MORTGAGES $390,608 67.63%
COMMERCIAL MORTGAGES $124,094 21.49%
SECOND MORTGAGES/
EQUITY LINES $23,714 4.10%
COMMERCIAL LOANS $14,952 2.59%
CONSUMER LOANS $12,931 2.24%
CONSTRUCTION MORTGAGES $11,278 1.95%
4
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
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 Associates
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)
*Member of Executive Committee
OFFICERS OF
MEDFORD BANK
Arthur H. Meehan**
Chairman, President and
Chief Executive Officer
Vincent Gargano
Vice President,
Strategic Planning
and Risk Management
Paula M. McNabb
Assistant Vice President,
CRA/Compliance Officer
**Officer of Medford Bancorp, Inc.
ADMINISTRATION
William F. Rivers
Senior Vice President
Joan P. Cronholm
Vice President,
Loan Operations Officer
Jane M. Griffin
Vice President,
Director of Human Resources
David L. Korp
Vice President,
Operations Officer
J. Thomas Mitchell
Deposit Operations Officer
Charles E. Samour
Security Officer
Joanne Teixeira
Checking Operations Officer
FINANCE
Phillip W. Wong**
Executive Vice President,
Chief Financial Officer
Mona Bishlawi
Senior Vice President,
Controller
Jane E. Cybulski
Vice President,
Investment/ALCO Officer
Mary E. Auterio
Assistant Vice President,
Assistant Controller
Martin J. Heneghan
Senior Audit Officer
Christine Panno-West
Finance Officer
**Officer of Medford Bancorp, Inc.
LENDING
Eric B. Loth
Senior Vice President
David E. Boudreau
Vice President,
Commercial Loan Officer
Robert S. Kaminer
Vice President,
Commercial Real Estate Loans
Richard P. Lane
Vice President,
Commercial Loan Officer
Anthony R. Visco
Vice President,
Residential Lending
Anne M. Barry
Assistant Vice President,
Mortgage Representative
Donald L. Cullen
Assistant Vice President,
Collections Officer
Mary Ann Devlin
Assistant Vice President,
Real Estate Officer
Kim S. Foster
Assistant Vice President,
Commercial Loan Officer
Joanne M. Franco
Assistant Vice President,
Senior Credit Officer
Harold L. Goldsmith
Assistant Vice President,
Mortgage Representative
Charles M. Byron
Education Loan Officer
Judith A. Cogan
Credit Officer
RETAIL
George A. Bargamian
Senior Vice President
Anne M. Gelineau McGann
Vice President,
Pension Officer
Kenneth E. Peterson
Vice President,
Branch Administrator
Elizabeth J. Stodolski
Vice President,
Marketing Director
Anna Beaudoin
Assistant Vice President,
Retail Systems Administrator
Cheryl A. Cannon
Assistant Vice President,
Regional Manager
Linda A. Iacono
Assistant Vice President,
Regional Manager
Kathleen M. Beasley
Branch Officer,
Regional Manager
Michael W. Chabre
Branch Officer
Judith A. Gilligan
Branch Officer
Stephanie M. Tiernan
Branch Officer
Rosanna Natola
Officer,
Retail Systems & Training
[LOGO]
Medford Bancorp, Inc.
[LOGO]
Medford Bancorp, Inc.
PEOPLE YOU KNOW.
EXPERIENCE YOU TRUST.
781-395-7700
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 1,187 shareholders of record as of December 31,
1997.
QUARTERLY STOCK PERFORMANCE
The following tabulation shows the range of price quotations per share as
reported by Nasdaq for the periods indicated:
1997 High Low
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First Quarter $29.75 $24.50
Second Quarter $30.50 $24.75
Third Quarter $36.00 $29.25
Fourth Quarter $42.00 $34.00
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