-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, C2YqPlfkGCfN8MWFdNhdZ7kPclf0SwGeiO7qt3yTonw/zk0p7MSn9+y7q2cqnGkL XycJRln2xCHcNbQUSo601Q== 0000950135-98-004440.txt : 19980803 0000950135-98-004440.hdr.sgml : 19980803 ACCESSION NUMBER: 0000950135-98-004440 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980730 ITEM INFORMATION: ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19980731 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: UST CORP /MA/ CENTRAL INDEX KEY: 0000316901 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 042436093 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 000-09623 FILM NUMBER: 98675445 BUSINESS ADDRESS: STREET 1: 40 COURT ST CITY: BOSTON STATE: MA ZIP: 02108 BUSINESS PHONE: 6177267000 MAIL ADDRESS: STREET 1: 40 COURT ST CITY: BOSTON STATE: MA ZIP: 02108 8-K 1 FORM 8-K 1 - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------------------------------- FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 DATE OF REPORT: JULY 31, 1998 UST CORP. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) MASSACHUSETTS 0-9623 04-2436093 (STATE OR OTHER (COMMISSION FILE NO.) (IRS EMPLOYER JURISDICTION OF INCORPORATION) IDENTIFICATION NO.) 40 COURT STREET (617) 726-7000 02108 BOSTON, MASSACHUSETTS (REGISTRANT'S TELEPHONE NUMBER, (ZIP CODE) (ADDRESS OF PRINCIPAL INCLUDING AREA CODE) EXECUTIVE OFFICES) - -------------------------------------------------------------------------------- 2 ITEM 2. ACQUISITION OF ASSETS. Acquisition of Somerset Savings Bank On December 9, 1997, UST Corp., (the "Company") executed an agreement with Somerset Savings Bank ("Somerset") of Somerville, Massachusetts, pursuant to which the Company agreed to acquire Somerset and merge Somerset with and into USTrust, the Company's largest banking subsidiary (the "Somerset Merger"). On July 20, 1998, the Company consummated the Somerset merger. Somerset, a Massachusetts savings bank, operated a total of six branch offices located in the communities of Somerville and Burlington. The transaction was structured as a tax-free exchange of 0.19 shares of the Company's common stock for each share of Somerset common stock and accounted for as a pooling of interests. As of the closing date, the transaction was valued at approximately $88.9 million. A total of 3.2 million shares of UST common stock were issued in exchange for the 16.9 million Somerset shares outstanding at the closing date. The Company hereby files its Unaudited Pro Forma Combined Financial Statements and Notes thereto in connection with the Somerset Merger, as of March 31, 1998: ITEM 5. OTHER EVENTS In connection with the acquisition of Somerset and pursuant to the terms of the Affiliation Agreement related to the transaction, the Company named a former Director of Somerset to the Board of Directors of UST Corp. The individual so elected is James F. Drew. Mr. Drew is a Senior Partner in the accounting firm of O'Connor and Drew of Quincy, Massachusetts. ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS. (a) Historical financial statements of Somerset for the year ended December 31, 1997 (Incorporated by reference to UST Corp. and Somerset`s Registration Statement on Form S-4 (Registration No. 333-45809) filed with the Securities and Exchange Commission on April 27, 1998. (b) Unaudited Pro Forma Condensed Combined Statements of Income for the year ended December 31, 1997 (Incorporated by reference to UST Corp. and Somerset's Registration Statement on Form S-4 (Registration No. 333-45809) filed with the Securities and Exchange Commission on April 27, 1998. (c) Unaudited financial statements of Somerset for the three months ended March 31, 1998 (Exhibit 99.2) (d) Unaudited Pro Forma Combined Financial Statements and Notes thereto (Exhibit 99.1) (e) Exhibits 99.1 Unaudited Pro Forma Combined Financial Statements and Notes thereto 99.2 Unaudited financial statements of Somerset for its three months ended March 31, 1998. 99.3 Consent of Wolf & Company, P.C. Independent Auditors of Somerset 3 SIGNATURES Pursuant to 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 hereunto duly authorized. UST Corp. --------------------------------------- James K. Hunt Executive Vice President, Treasurer and Chief Financial Officer Dated: July 31, 1998 EX-99.1 2 UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS 1 UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION UST CORP. AND SUBSIDIARIES UNAUDITED PRO FORMA CONDENSED COMBINING BALANCE SHEET March 31, 1998 The following Unaudited Pro Forma Condensed Combining Balance Sheet presents the combined financial position of UST Corp. ("UST") and subsidiaries and Somerset Savings Bank and its subsidiaries ("Somerset") as of March 31, 1998, assuming the combination, which was consummated on July 20, 1998, had occurred as of March 31, 1998. The accompanying pro forma information is based on historical balance sheet data of UST and Somerset as of March 31, 1998, giving effect to the combination of UST and Somerset under the pooling of interests method of accounting. The combination of Somerset with UST reflects the issuance of 0.19 shares of UST Common Stock in exchange for, and in cancellation of, each outstanding share of Somerset Common Stock. The difference between the par value of the UST Common Stock issued and the par value of the Somerset Common Stock acquired ($14,741,000) has been recorded to Additional paid-in capital. The Unaudited Pro Forma Condensed Combining Balance Sheet reflects an after-tax charge for estimated merger and reorganization expenses of $5.3 million ($7.5 million pre-tax). The Unaudited Pro Forma Condensed Combining Balance Sheet should be read in conjunction with the Unaudited Pro Forma Condensed Combined Statements of Income contained herein and the unaudited financial statements and notes thereto of each of UST and Somerset. The unaudited financial statements of UST are incorporated by reference in this Form 8-K. The unaudited statements of Somerset are included as Exhibit 99.2 in this Form 8-K. The Unaudited Pro Forma Condensed Combining Balance Sheet is presented for informational purposes only and is not necessarily indicative of the combined financial position that would have occurred if the combination of UST and Somerset had been consummated on March 31, 1998, or at the beginning of the periods indicated or which may be obtained in the near future. 2
UST Corp. and Subsidiaries Unaudited Pro Forma Condensed Combining Balance Sheet March 31, 1998 (In thousands) Historical Historical Adjustments Pro Forma UST Somerset (Notes 1 & 2) Combined Cash and due from banks, and interest-bearing deposits $ 101,914 $ 8,417 $ 110,331 Federal funds sold and other short-term investments 28,821 7,490 36,311 Securities: Available-for-sale.......... 689,605 689,605 Held-to-maturity............ 84,663 84,663 ---------- --------- ---------- Total................... 689,605 84,663 774,268 Loans, net of reserve for possible loan losses........ 2,839,129 408,427 3,247,556 Premises, furniture and equipment, net.............. 63,947 12,372 76,319 Intangible assets, net......... 55,987 55,987 Other property owned, net...... 1,370 4,402 5,772 Other assets................... 54,082 7,249 61,331 ---------- --------- ---------- Total assets.......... $3,834,855 $ 533,020 $ - $4,367,875 ========== ========= ======== ========== Deposits: Noninterest bearing......... 657,672 22,748 680,420 Interest bearing: NOW...................... 56,391 30,452 86,843 Money market............. 678,470 48,909 727,379 Regular savings.......... 703,330 69,838 773,168 Time deposits............ 862,215 280,530 1,142,745 ---------- --------- ---------- Total deposits........ 2,958,078 452,477 3,410,555 Borrowings..................... 474,679 38,447 513,126 Other liabilities.............. 51,497 3,446 5,300 60,243 ---------- --------- ----------- ---------- Total liabilities..... 3,484,254 494,370 5,300 3,983,924 Stockholders' investment: Common stock................ 18,636 16,727 (14,741) 20,622 Additional paid-in capital.. 118,767 18,692 14,741 152,200 Retained earnings........... 210,633 3,231 (5,300) 208,564 Accumulated Other Comprehensive Income..... 2,326 2,326 Deferred compensation and other.................... 239 239 ---------- --------- --------- ---------- Stockholders' investment.... 350,601 38,650 (5,300) 383,951 ---------- --------- --------- ---------- Total liabilities and stockholders' investment........ $3,834,855 $ 533,020 $ - $4,367,875 ========== ========= =========== ========== See accompanying Notes to Unaudited Pro Forma Condensed Financial Information.
3 UST CORP. AND SUBSIDIARIES UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME SUMMARY The following Unaudited Pro Forma Condensed Combined Statements of Income give effect to UST's acquisition of Somerset by combining the results of operations of UST for the three months ended March 31, 1998, with the results of operations of Somerset for the three months ended March 31, 1998, on a pooling of interests basis, assuming the combination, which was consummated on July 20, 1998, had occurred as of January 1, 1998. Income per weighted average common share outstanding is based on the exchange ratio of 0.19 shares of UST for each share of Somerset as specified in the Affiliation Agreement. The Unaudited Pro Forma Condensed Combined Statements of Income should be read in conjunction with the Unaudited Pro Forma Condensed Combining Balance Sheet appearing elsewhere in this Form 8-K. The Unaudited Pro Forma Condensed Combining Balance Sheet reflects an after-tax charge for estimated merger and reorganization expenses of $5.3 million ($7.5 million pre-tax) for Somerset; however, since these expenses are nonrecurring, they have not been reflected in the Unaudited Pro Forma Condensed Combined Statements of Income. The pro forma combined statements of income do not give effect to any anticipated cost savings in connection with the combination. The Unaudited Pro Forma Condensed Combined Statements of Income are presented for information purposes only and are not necessarily indicative of the combined results of operations that would have occurred if the combination of UST and Somerset had been consummated on January 1, 1998, or at the beginning of the period indicated or which may be obtained in the future. 4
UST CORP. AND SUBSIDIARIES UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME FOR THE THREE MONTHS ENDED MARCH 31, 1998 (IN THOUSANDS, EXCEPT SHARE DATA) Historical Historical Pro Forma UST Somerset Combined Interest income: Interest and fees on loans........... $ 62,421 $ 9,945 $ 72,366 Interest and dividends on securities 10,729 1,432 12,161 Interest on federal funds sold and other................................ 966 55 1,021 -------- -------- -------- Total interest income............. 74,116 11,432 85,548 -------- -------- -------- Interest expense: Interest on deposits................. 20,543 5,057 25,600 Interest on borrowings............... 5,945 600 6,545 -------- -------- -------- Total interest expense............ 26,488 5,657 32,145 -------- -------- -------- Net interest income.................... 47,628 5,775 53,403 Provision for possible loan losses..... 975 975 -------- -------- -------- Noninterest income..................... 46,653 5,775 52,428 -------- -------- -------- Asset management fees................ 3,728 3,728 Fees and charges..................... 3,952 143 4,095 Gain on sale of assets............... 9 9 Securities gains, net................ 1,441 1,441 Other................................ 2,200 246 2,446 -------- -------- -------- Total noninterest income.......... 11,321 398 11,719 -------- -------- -------- Noninterest expense: Salary and employee benefits......... 19,279 1,827 21,106 Occupancy and equipment.............. 5,682 404 6,086 Data processing services ............ 1,378 152 1,530 Professional and consulting.......... 966 110 1,076 Foreclosed asset and workout expense. 156 343 499 Other................................ 9,696 653 10,349 -------- -------- -------- Total noninterest expense......... 37,157 3,489 40,646 -------- -------- -------- Income before income taxes............. 20,817 2,684 23,501 Income taxes........................... 7,961 19 7,980 -------- -------- -------- Net income............................. $ 12,856 $ 2,665 $ 15,521 ======== ======== ======== Per share data: Basic earnings per share............. $ 0.43 $ 0.16 $ 0.47 Diluted earnings per share........... $ 0.42 $ 0.16 $ 0.46 Basic weighted average shares 29,800,873 16,665,406 32,967,300 Diluted weighted average shares...... 30,369,848 16,964,174 33,593,041 See accompanying Notes to Unaudited Pro Forma Condensed Financial Information.
5 NOTES TO UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION NOTE 1: The combination has been accounted for as a pooling of interests. Accordingly, pro forma financial information assumes that the combination was consummated as of the beginning of the periods indicated herein. Certain reclassifications have been made to the accounts of Somerset in the accompanying Unaudited Pro Forma Condensed Combining Balance Sheet and Unaudited Pro Forma Condensed Combined Statements of Income to conform to UST presentation. Pro forma results of operations do not reflect nonrecurring items of income and expense relating directly from the combination. The effect of estimated one-time, after-tax charges of $5.3 million ($7.5 million pre-tax) recorded in connection with the combination has been reflected in the accompanying Unaudited Pro Forma Condensed Combining Balance Sheet as a reduction in retained earnings, and an increase in other liabilities, net of a 40 percent tax benefit of $2.2 million, after excluding $2.1 million of nondeductible expense. These changes have not been reflected in the Unaudited Pro Forma Condensed Combined Statements of Income since they are nonrecurring. The pro forma financial information does not give effect to any cost savings in connection with the combination. NOTE 2: The pro forma stockholders' investment accounts of UST and Somerset have been adjusted in the accompanying Unaudited Pro Forma Condensed Combining Balance Sheet to reflect the issuance of shares of UST Common Stock in exchange for all of the outstanding shares of Somerset Common Stock. The number of shares of UST Common Stock issued pursuant to the acquisition of Somerset were based upon the number of Somerset shares outstanding as of July 20, 1998 for Somerset. The exchange ratio of 0.19 shares of UST Common Stock for each share of Somerset Common Stock is specified in the Affiliation Agreement. The differences between the par value of the UST Common Stock issued ($0.625 per share) and the par value of the Somerset Common Stock acquired ($1.00 per share) has been recorded to Additional paid-in capital. NOTE 3: Pro forma earnings per share amounts in the accompanying Unaudited Pro Forma Condensed Combined Statements of Income are based on the weighted average number of common shares of the constituent companies outstanding during each period assuming an exchange ratio of 0.19 shares of UST Common Stock for each share of Somerset Common Stock. EX-99.2 3 UNAUDITED FINANCIAL STATEMENTS OF SOMERSET 1
EXHIBIT 99.2 SOMERSET SAVINGS BANK AND SUBSIDIARIES Consolidated Balance Sheets MARCH 31, DECEMBER 31, 1998 1997 -------------- ------------ (Unaudited) (In Thousands) ASSETS Cash, due from banks........................................................... $ 8,240 $ 7,731 Federal Home Loan Bank overnight deposits...................................... 7,490 2,805 Interest-bearing deposits in other banks....................................... 177 177 ---------- ---------- Total cash and cash equivalents..................................... 15,907 10,713 ---------- ---------- Investment securities-fair value $82,705,000 and $89,410,000................... 82,150 89,143 Loans, net of unearned income.................................................. 416,322 419,845 Allowance for loan losses...................................................... (7,895) (7,668) ---------- ---------- Loans, net.......................................................... 408,427 412,177 ---------- ---------- Other real estate owned, net................................................... 4,402 5,711 Land, buildings and equipment, net............................................. 12,372 12,538 Accrued interest receivable ................................................... 2,921 2,994 Federal Home Loan Bank of Boston stock, at cost................................ 2,513 2,273 Deferred income taxes.......................................................... 2,700 2,700 Other assets................................................................... 1,628 1,423 ---------- ---------- $ 533,020 $ 539,672 ========== ========== LIABILITIES AND STOCKHOLDERS' INVESTMENT Deposits....................................................................... $ 452,477 $ 455,886 Borrowed funds................................................................. 38,447 43,376 Other liabilities.............................................................. 3,446 4,533 ---------- ---------- Total liabilities................................................... 494,370 503,795 ---------- ---------- Commitments and contingencies (Note 2) Stockholders' equity: Serial preferred stock $1 par value; 5,000,000 shares authorized, none issued and outstanding..................................................... Common stock, $1.00 par value; 20,000,000 shares authorized, 16,726,856 and 16,659,356 shares issued and outstanding............................... 16,727 16,659 Additional paid-in capital..................................................... 18,692 18,652 Retained earnings.............................................................. 3,231 566 ---------- ---------- Total stockholders' equity.......................................... 38,650 35,877 ---------- ---------- $ 533,020 $ 539,672 ========== ========== See accompanying notes to unaudited consolidated financial statements.
2
SOMERSET SAVINGS BANK AND SUBSIDIARIES Consolidated Statements of Income THREE MONTHS ENDED MARCH 31, 1998 1997 ---- ---- (In Thousands, Except Per Share Data) (Unaudited) Interest and dividend income: Loans...................................................... $ 9,945 $ 8,843 Mortgage-backed securities................................. 1,370 1,333 Other debt securities...................................... 25 84 Equity securities.......................................... 37 68 Short-term investments..................................... 55 56 ------- ------- Total interest and dividend income........... 11,432 10,384 ------- ------- Interest expense: Deposits................................................... 5,057 4,993 Borrowed funds............................................. 600 583 ------- ------ Total interest expense....................... 5,657 5,576 ------- ------ Net interest income.......................................... 5,775 4,808 Provision for loan losses.................................... 300 ------- ------ Net interest income after provision for loan losses........ 5,775 4,508 ------- ------ Other income: Net gain on sales of loans................................. 9 6 Gain on sale of interest rate exchange agreement........... 158 Service charges on deposit accounts........................ 143 154 Miscellaneous income....................................... 88 122 ------- ------ Total other income......................................... 398 282 ------- ------ Operating expenses: Salary and employee benefits............................... 1,827 1,710 Occupancy and equipment.................................... 404 390 Data processing............................................ 152 137 Legal and professional fees................................ 110 191 FDIC insurance assessments................................. 48 273 Costs associated with problem assets....................... 309 390 Net loss on other real estate owned........................ 34 63 Other general and administrative........................... 605 648 ------- ------ Total operating expenses..................... 3,489 3,802 ------- ------ Income before income taxes................................... 2,684 988 Income taxes................................................. 19 ------- ------ Net income.................................. $ 2,665 $ 988 ======== ======== Weighted average shares outstanding.......................... 16,665 16,652 ======== ======== Weighted average shares outstanding outstanding-assuming dilution..................................................... 16,964 16,832 ======== ======== Basic earnings per share..................................... $ 0.16 $ 0.06 ======== ======== Diluted earnings per share................................... $ 0.16 $ 0.06 ======== ======== See accompanying notes to unaudited consolidated financial statements.
3
SOMERSET SAVINGS BANK AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY THREE MONTHS ENDED MARCH 31, 1998 AND 1997 ACCUMULATED ADDITIONAL RETAINED OTHER COMPREHENSIVE COMMON PAID-IN EARNINGS COMPREHENSIVE INCOME STOCK CAPITAL (DEFICIT) INCOME TOTAL ------------- -------- ---------- --------- ------------- -------- (IN THOUSANDS, UNAUDITED) Balance at December 31, 1997..... $ 16,659 $ 18,652 $ 566 $ 35,877 Comprehensive income: Net income..................... $ 2,665 2,665 2,665 ======== Compensation recognized on stock option grants 15 15 Exercise of stock options 68 25 93 -------- -------- -------- -------- Balance March 31, 1998........... $ 16,727 $ 18,692 $ 3,231 $ - $ 38,650 ======== ======== ======== =========== ======== Balance December 31, 1996........ $ 16,652 $ 18,597 $ (5,401) $ 29,848 Comprehensive income: Net income..................... $ 988 988 988 ======== -------- -------- Balance March 31, 1997........... $ 16,652 $ 18,597 $ (4,413) $ - $ 30,836 ======== ======== ======== =========== ======== The accompanying notes are an integral part of these consolidated financial statements.
4
SOMERSET SAVINGS BANK AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS THREE MONTHS ENDED MARCH 31, 1998 1997 ---- ---- (IN THOUSANDS, UNAUDITED) Cash flows from operating activities: Net income.............................................................................. $ 2,665 $ 988 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses.............................................................. 300 Loans originated for sale.............................................................. (5,334) (1,483) Principal balance of loans sold........................................................ 5,334 1,483 Net amortization of premiums and discounts on investment securities.................... 17 7 Amortization of net deferred loan fees and unearned income............................. (744) (215) Compensation recognized on stock option grants......................................... 15 Depreciation and amortization expense.................................................. 180 168 Net loss on other real estate owned.................................................... 34 63 (Increase) decrease in accrued interest receivable...................................... 73 (116) (Increase) decrease in other assets..................................................... (205) 337 Decrease in other liabilities.......................................................... (1,087) (363) ------- -------- Net cash provided by operating activities....................................... 948 1,169 Cash flows from investing activities: Proceeds from calls and maturities of investment securities.............................. 2,000 3,000 Purchase of investment securities........................................................ (3,951) Principal payments received on mortgage-backed securities................................ 4,976 1,918 Purchase of Federal Home Loan Bank stock................................................. (240) Redemption of Federal Home Loan Bank stock.............................................. 2,149 Loans purchased.......................................................................... (5,738) Net (increase) decrease in loans......................................................... 9,630 (447) Proceeds from sales and principal reductions of other real estate owned.................. 1,892 998 Improvements to other real estate owned.................................................. (15) Purchase of equipment.................................................................... (14) (340) ------- -------- Net cash provided by investing activities....................................... 12,491 3,327 Cash flows from financing activities: Net increase (decrease) in deposits..................................................... (3,409) 4,183 Net decrease in borrowings with maturities of less than three months.................... (5,929) Proceeds from issuance of borrowings with maturities in excess of three months.......... 26,000 Repayment of borrowings with maturities in excess of three months....................... (25,000) Exercise of stock options............................................................... 93 ------- -------- Net cash provided by (used by) financing activities............................. (8,245) 4,183 ------- -------- Net increase in cash and cash equivalents................................................ 5,194 8,679 Cash and cash equivalents at beginning of period........................................ 10,713 8,219 ------- -------- Cash and cash equivalents at end of period.............................................. $ 15,907 $ 16,898 ======== ======== Supplementary Cash Flow Information: Interest paid on deposits............................................................. $ 5,025 $ 4,945 ======== ======== Interest paid on borrowed funds....................................................... $ 669 $ 582 ======== ======== Property acquired in settlement of loans.............................................. $ 602 $ 1,035 ======== ======== The accompanying notes are an integral part of these consolidated financial statements.
5 SOMERSET SAVINGS BANK AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1998 NOTE 1: BASIS OF PRESENTATION AND CONSOLIDATION The consolidated interim financial statements of Somerset Savings Bank and subsidiaries presented herein should be read in conjunction with the consolidated financial statements of Somerset Savings Bank in the annual report on Form 10-K for the year ended December 31, 1997. In the opinion of management, the financial statements reflect all adjustments (consisting solely normal recurring accruals) necessary for a fair presentation of such information. Interim results are not necessarily indicative of results to be expected for the entire year. NOTE 2: COMMITMENTS AND CONTINGENCIES At March 31, 1998, the Bank had outstanding commitments to originate loans amounting to approximately $13.7 million, unadvanced funds on construction loans and lines of credit amounting to approximately $9.4 million and $17.0 million, respectively, and standby letters of credit amounting to $364,000. NOTE 3: COMPREHENSIVE INCOME In June 1997, FASB issued SFAS No. 130, "Reporting Comprehensive Income," effective for fiscal years beginning after December 15, 1997. Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income. Certain FASB statements, however, require entities to report specific changes in assets and liabilities, such as unrealized gains and losses on available-for-sale securities, as a separate component of the equity section of the balance sheet. Such items, along with net income, are components of comprehensive income. SFAS No. 130 requires that all items of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. Additionally, SFAS No. 130 requires that the accumulated balance of other comprehensive income be displayed separately from retained earnings and additional paid-in capital in the equity section of the balance sheet. The Bank adopted these disclosure requirements in the first quarter of 1998 and has presented comparative disclosure for the quarter ended March 31, 1997. The Bank had no other components of comprehensive income other than net income. NOTE 4: SEGMENTS AND RELATED INFORMATION In June 1997, FASB issued SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information," effective for fiscal years beginning after December 15, 1997. SFAS No. 131 establishes standards for the way that public business enterprises report information about operating segments in annual and interim financial statements. It also establishes standards for related disclosures about products and services, geographic areas and major customers. Generally, financial information is required to be reported on the basis that it is used internally for evaluating segment performance and deciding how to allocate resources to segments. The Statement also requires descriptive information about the way that the operating segments were determined, the products and services provided by the operating segments, differences 6 between the measurements used in reporting segment information and those used by the enterprise in its general purpose financial statements, and changes in the measurement of segment amounts from period to period. The Bank has determined that its business is comprised of a single segment and that SFAS No. 131, therefore, has no impact on the consolidated financial statements. NOTE 5: EARNINGS PER SHARE In February 1997, FASB issued SFAS No. 128, "Earnings Per Share," which requires that earnings per share be calculated on a basic and a dilutive basis. Basic earnings per share represents income available to common stock divided by the weighted average number of common shares outstanding during the period. Diluted earnings per share reflects additional common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to income that would result from the assumed conversion. Potential common shares that may be issued by the Bank relate solely to outstanding stock options and are determined using the treasury stock method. The assumed conversion of outstanding dilutive stock options would increase shares outstanding but would not require an adjustment to income as a result of the conversion. SFAS No. 128 is effective for interim and annual periods ending after December 15, 1997, and requires the restatement of all prior-period earnings per share data presented. EX-99.3 4 CONSENT OF INDEPENDENT AUDITORS 1 EXHIBIT 99.3 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference in this Form 8-K of our report dated January 23, 1998 included in Registration Statement File No. 90278. It should be noted that we have not audited any financial statements of the Company subsequent to December 31, 1997 or performed any audit procedures subsequent to the date of our report. Wolf & Company, P.C. Boston, Massachusetts July 30, 1998 -----END PRIVACY-ENHANCED MESSAGE-----