-----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, G6AJT+uf/rFyKKuVXRA3Awneyqbfw24SHzEnng5ML587+FzUJACRrNUu7X+WUa7U gt86BL6h83ZjcXRDsIBfgQ== 0000912057-96-006361.txt : 19960416 0000912057-96-006361.hdr.sgml : 19960416 ACCESSION NUMBER: 0000912057-96-006361 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19960209 ITEM INFORMATION: Other events ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19960412 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: CFX CORP CENTRAL INDEX KEY: 0000800042 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTION, FEDERALLY CHARTERED [6035] IRS NUMBER: 020402421 STATE OF INCORPORATION: NH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-10633 FILM NUMBER: 96546523 BUSINESS ADDRESS: STREET 1: 102 MAIN ST CITY: KEENE STATE: NH ZIP: 03431 BUSINESS PHONE: 6033522502 MAIL ADDRESS: STREET 1: 194 WEST STREET STREET 2: P O BOX 429 CITY: KEENE STATE: NH ZIP: 03431 FORMER COMPANY: FORMER CONFORMED NAME: CHESHIRE FINANCIAL CORP DATE OF NAME CHANGE: 19920703 8-K 1 FORM 8K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): February 9, 1996 CFX CORPORATION - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) New Hampshire 1-10633 02-0402421 - ---------------------------- -------------- -------------------- (State or other jurisdiction (Commission (I.R.S. employer of incorporation) file number) identification no.) 102 Main Street, Keene, New Hampshire 03431 - ---------------------------------------- ---------- (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code: (603) 352-2502 -------------- Not Applicable - -------------------------------------------------------------------------------- (Former name or former address, if changed since last report) Item 5. OTHER EVENTS On February 9, 1996, Registrant filed a Current Report on Form 8-K disclosing that Registrant and its principal subsidiary bank, CFX Bank, had entered into an Agreement and Plan of Merger and an Agreement and Plan of Reorganization with Milford Co-operative Bank ("Milford"), and that Registrant and Milford had entered into a Stock Option Agreement. Attached hereto as Exhibits and incorporated herein by reference are (1) Milford's audited financial statements as of June 30, 1995 and for the twelve months then ended; (2) Milford's unaudited financial statements as of December 31, 1995 and for the six months then ended; (3) certain additional information required by Items III and IV of Guide 3 as presented in Milford's Revised Annual Report on Form 10-KSBA for the year ended June 30, 1995; (4) a consent of Shatsell, MacLeod & Co.; and (5) a consent of Coopers & Lybrand L.L.P. Also attached hereto as an Exhibit and incorporated herein by reference is a press release dated April 10, 1996 announcing Registrant's earnings for the first quarter of 1996. On January 16, 1996, Registrant filed a Current Report on Form 8-K disclosing that Registrant had entered into an Agreement and Plan of Merger ("Merger Agreement") with The Safety Fund Corporation ("Safety Fund"). Pursuant to Section 1.4(b) of the Merger Agreement, four directors of Safety Fund to be designated by Registrant after consultation with Safety Fund shall be elected to the Board of Directors of Registrant if the transaction is consummated. Registrant, after consultation with Safety Fund, has designated the following four directors of Safety Fund to be elected to Registrant's Board of Directors, and Registrant's Board of Directors intends to nominate such persons for re-election and support their re-election at the annual meeting of Registrant's shareholders to be held in 1997 as required by Section 1.4(b) of the Merger Agreement: Christopher W. Bramley, age 54, Director of Safety Fund since 1994, currently President and CEO of Safety Fund and President and CEO of SFNB, previously an Executive Vice President, Shawmut Bank, N.A., and President and CEO of Shawmut Worchester County Bank. Mr. Bramley beneficially owns 24,877 shares of Safety Fund Common Stock. P. Kevin Condron, age 50, Director of Safety Fund since 1984, currently President and CEO of Central Supply Company, Inc. (wholesale plumbing and heating). Mr. Condron beneficially owns 23,140 shares of Safety Fund Common Stock. William E. Aubuchon, III, age 51, Director of Safety Fund since 1974, currently Chairman of the Board and CEO of W.E. Aubuchon Co., Inc. (retail hardware). Mr. Aubuchon beneficially owns 11,869 shares of Safety Fund Common Stock. David R. Grenon, age 56, Director of Safety Fund since 1979, currently Chairman of Advisory Board and Assistant Clerk, The Protector Group Insurance Agency, Inc. (property and casualty insurance agency), previously President and CEO of The Protector Group Insurance Agency, Inc., Director and shareholder, The Protector Insurance Agency, Inc. (financial services insurance agency) and Director of Commerce Holdings, Inc. and Commerce Group, Inc. Mr. Grenon beneficially owns 41,364 shares of Safety Fund Common Stock. - 2 - Item 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS. (c) EXHIBITS. 99.1 Milford's audited financial statements as of June 30, 1995 and for the three years then ended and unaudited financial statements as of December 31, 1995 and December 31, 1994 and for the six months then ended. 99.2 Certain additional information required by Items III and IV of Guide 3 as presented in Milford's Revised Annual Report on Form 10-KSBA for the year ended June 30, 1995. 99.3 Consent of Shatswell, MacLeod & Co. 99.4 Consent of Coopers & Lybrand L.L.P. 99.5 Press Release dated April 10, 1996. - 3 - SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CFX CORPORATION Date: April 12, 1996 By: /s/ Mark A. Gavin ----------------------------- Mark A. Gavin, Chief Financial Officer - 4 - EXHIBIT INDEX Location in Sequentially Numbered Copy ------------- Exhibit 99.1 Milford's audited financial statements as of Page June 30, 1995 and for the three years then ---- ended and unaudited financial statements as of December 31, 1995 and December 31, 1994 and for the six months then ended. Exhibit 99.2 Certain additional information required by Page Items III and IV of Guide 3 as presented in ---- Milford's Revised Annual Report on Form 10-KSBA for the year ended June 30, 1995. Exhibit 99.3 Consent of Shatswell, MacLeod & Co. Page ---- Exhibit 99.4 Consent of Coopers & Lybrand L.L.P. Page ---- Exhibit 99.5 Press Release Dated April 10, 1996. Page ---- EX-99.1 2 EXHIBIT 99.1 [ SHATSWELL, MacLEOD & CO. LETTERHEAD ] The Board of Directors and Stockholders Milford Co/operative Bank INDEPENDENT AUDITORS' REPORT We have audited the accompanying balance sheet of Milford Co/operative Bank as of June 30, 1995 and the related statements of income, changes in stockholders' equity, and cash flows for the year then ended. These financial statements are the responsibility of the Bank's management. Our responsibility is to express an opinion on these financial statements based on our audit. The financial statements of Milford Co/operative Bank as of June 30, 1994 and 1993 were audited by other auditors whose report dated August 4, 1994 expressed an unqualified opinion on those statements. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the 1995 financial statements referred to above present fairly, in all material respects, the financial position of Milford Co/operative Bank as of June 30, 1995 and the results of its operations and its cash flows for the year then ended, in conformity with generally accepted accounting principles. As discussed in Notes 1 and 11 to the financial statements, the Bank adopted the provisions of the Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes", effective July 1, 1993. As discussed in Note 1 to the financial statements, the Bank adopted the provisions of the Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 115 "Accounting for Certain Investments in Debt and Equity Securities" as of July 1, 1994. SHATSWELL, MacLEOD & COMPANY, P.C. West Peabody, Massachusetts July 20, 1995 F-2 REPORT OF INDEPENDENT ACCOUNTANTS The Board of Directors Milford Co/operative Bank: We have audited the accompanying statements of financial condition of Milford Co/operative Bank as of June 30, 1994 and 1993 and the related statements of operations, changes in stockholders' equity and cash flows for each of the three years in the period ended June 30, 1994. These financial statements are the responsibility of the Bank's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Milford Co/operative Bank at June 30, 1994 and 1993 and the results of its operations and cash flows for each of the three years in the period ended June 30, 1994 in conformity with generally accepted accounting principles. As discussed in Note 1 to the financial statements, Milford Co/operative Bank has adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," effective July 1, 1993. /s/ COOPERS & LYBRAND, L.L.P. Boston, Massachusetts August 4, 1994 F-3 MILFORD CO/OPERATIVE BANK BALANCE SHEETS
JUNE 30, DECEMBER 31, ---------------------------- 1995 1995 1994 ------------- ------------- ------------- (UNAUDITED) ASSETS: Cash and due from banks......................... $ 2,320,741 $ 1,605,747 $ 1,893,484 Interest bearing deposits....................... 13,148,094 16,967,728 17,329,095 ------------- ------------- ------------- Total cash and cash equivalents............. 15,468,835 18,573,475 19,222,579 Investments in securities (fair values of $68,692,837, $69,739,867 and $67,697,186 at December 31, 1995, June 30, 1995 and 1994, respectively) (Note 2)......................... 68,858,713 70,305,364 69,456,296 Loans receivable, net (Notes 7, 10 and 17)...... 68,145,461 60,818,640 58,168,010 Accrued interest receivable: Loans......................................... 484,048 434,212 371,921 Investment securities......................... 624,382 726,971 590,446 Mortgage-backed securities.................... 145,995 150,378 141,033 Stock in Federal Home Loan Bank of Boston, at cost (Note 10)................................. 655,100 655,100 626,200 Premises and equipment, net (Note 9)............ 2,066,070 2,138,750 2,167,156 Deferred federal income tax benefit (Note 11)... 171,552 228,748 238,569 Other assets.................................... 228,146 320,199 136,024 ------------- ------------- ------------- $ 156,848,302 $ 154,351,837 $ 151,118,234 ------------- ------------- ------------- ------------- ------------- ------------- LIABILITIES: Deposit accounts (Note 8)....................... $ 138,312,611 $ 135,746,914 $ 133,221,464 Advances from Federal Home Loan Bank of Boston (Note 10)...................................... 2,000,000 2,000,000 3,000,000 Advance payments by borrowers for taxes and insurance...................................... 133,125 305,008 240,656 Accrued expenses and other liabilities.......... 710,544 1,257,343 783,048 ------------- ------------- ------------- Total liabilities........................... 141,156,280 139,309,265 137,245,168 ------------- ------------- ------------- Commitments and contingent liabilities (Notes 14 and 18) STOCKHOLDERS' EQUITY: Common stock, par value $1.00 per share; authorized 1,800,000 shares; issued and outstanding 657,717 shares in 1995 and 656,217 shares in 1994....................... 659,917 657,717 656,217 Paid-in capital............................... 6,636,132 6,613,032 6,597,282 Retained earnings (subject to restrictions)... 8,250,809 7,765,928 6,619,567 Net unrealized holding gain on securities available-for-sale........................... 145,164 5,895 ------------- ------------- ------------- Total stockholders' equity.................... 15,692,022 15,042,572 13,873,066 ------------- ------------- ------------- $ 156,848,302 $ 154,351,837 $ 151,118,234 ------------- ------------- ------------- ------------- ------------- -------------
The accompanying notes are an integral part of these financial statements. F-4 MILFORD CO/OPERATIVE BANK STATEMENTS OF INCOME
SIX MONTHS ENDED DECEMBER 31, YEARS ENDED JUNE 30, ---------------------- ---------------------------------- 1995 1994 1995 1994 1993 ---------- ---------- ---------- ---------- ---------- (UNAUDITED) (UNAUDITED) Interest and dividend income: Mortgage loan................................ $2,540,373 $2,276,803 $4,721,642 $4,423,566 $4,923,667 Other loans.................................. 190,146 150,437 328,990 252,571 266,186 Investment securities........................ 1,346,581 1,142,487 2,364,812 1,869,254 1,488,005 Mortgage-backed securities................... 840,343 745,601 1,531,025 1,611,972 2,412,558 Other........................................ 377,897 387,662 816,995 515,419 409,087 ---------- ---------- ---------- ---------- ---------- Total interest and dividend income....... 5,295,340 4,702,990 9,763,464 8,672,782 9,499,503 ---------- ---------- ---------- ---------- ---------- Interest expense: Deposit accounts (Note 8).................... 2,582,519 2,088,459 4,392,218 4,069,153 4,785,298 Borrowings................................... 70,526 96,104 167,529 190,602 262,617 ---------- ---------- ---------- ---------- ---------- Total interest expense................... 2,653,045 2,184,563 4,559,747 4,259,755 5,047,915 ---------- ---------- ---------- ---------- ---------- Net interest income...................... 2,642,295 2,518,427 5,203,717 4,413,027 4,451,588 Provision for probable loan losses (Note 7).... 60,000 40,000 93,000 95,000 400,000 ---------- ---------- ---------- ---------- ---------- Net interest income after provision for probable loan losses.................... 2,582,295 2,478,427 5,110,717 4,318,027 4,051,588 ---------- ---------- ---------- ---------- ---------- Other income: Customer service charges..................... 211,162 209,398 412,803 380,197 330,257 Gain (loss) on sales of investment securities, net............................. 51,166 (4,455) (10,470) 108,389 332,838 Other........................................ 163,175 142,506 351,304 366,527 410,936 ---------- ---------- ---------- ---------- ---------- Total other income....................... 425,503 347,449 753,637 855,113 1,074,031 ---------- ---------- ---------- ---------- ---------- Other expense: Compensation and fringe benefits (Note 12)... 911,370 848,524 1,736,587 1,634,366 1,487,599 Occupancy and equipment...................... 233,229 220,402 473,363 470,911 481,137 Advertising.................................. 33,584 26,851 61,751 70,760 50,260 Data processing service fees................. 178,630 163,709 333,538 316,276 277,337 Federal insurance premium.................... 152,851 150,156 300,844 301,060 287,525 Other........................................ 382,492 332,161 731,402 724,181 754,181 ---------- ---------- ---------- ---------- ---------- Total other expense...................... 1,892,156 1,741,803 3,637,485 3,517,554 3,338,039 ---------- ---------- ---------- ---------- ---------- Income before income taxes and cumulative effect of change in accounting principle...... 1,115,642 1,084,073 2,226,869 1,655,586 1,787,580 Income taxes (Note 11)......................... 367,190 368,000 719,589 630,747 756,278 ---------- ---------- ---------- ---------- ---------- Income before cumulative effect of change in accounting principle........................ 748,452 716,073 1,507,280 1,024,839 1,031,302 Cumulative effect of change in accounting principle (Notes 1 and 11).................... 169,926 ---------- ---------- ---------- ---------- ---------- Net income............................... $ 748,452 $ 716,073 $1,507,280 $1,194,765 $1,031,302 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Earnings and dividends per share (Note 1) Income before cumulative effect of change in accounting principle........................ $ 1.13 $ 1.09 $ 2.29 $ 1.56 $ 1.57 Cumulative effect of change in accounting principle................................... .26 ---------- ---------- ---------- ---------- ---------- Net income............................... $ 1.13 $ 1.09 $ 2.29 $ 1.82 $ 1.57 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Cash dividends........................... $ .40 $ .30 $ .55 $ .50 $ .45
The accompanying notes are an integral part of these financial statements. F-5 MILFORD CO/OPERATIVE BANK STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY YEARS ENDED JUNE 30, 1995, 1994 AND 1993
NET UNREALIZED NUMBER OF HOLDING GAIN (LOSS) TOTAL COMMON COMMON PAID-IN RETAINED ON SECURITIES STOCKHOLDERS' SHARES STOCK CAPITAL EARNINGS AVAILABLE-FOR-SALE EQUITY --------- -------- ---------- ---------- ------------------- ------------- Balance, June 30, 1992.......................... 656,217 $656,217 $6,597,282 $5,016,906 $ $ 12,270,405 Dividends paid.................................. (295,297) (295,297) Net income...................................... 1,031,302 1,031,302 --------- -------- ---------- ---------- ---------- ------------- Balance, June 30, 1993.......................... 656,217 656,217 6,597,282 5,752,911 13,006,410 Dividends paid.................................. (328,109) (328,109) Net income...................................... 1,194,765 1,194,765 --------- -------- ---------- ---------- ---------- ------------- Balance, June 30, 1994.......................... 656,217 656,217 6,597,282 6,619,567 13,873,066 Issuance of common stock........................ 1,500 1,500 15,750 17,250 Net unrealized holding loss on adoption of SFAS No. 115 as of July 1, 1994 (Notes 1 and 3)..... (210,197) (210,197) Net change in unrealized holding loss on securities available-for-sale............................. 216,092 216,092 Dividends paid.................................. (360,919) (360,919) Net income...................................... 1,507,280 1,507,280 --------- -------- ---------- ---------- ---------- ------------- Balance, June 30, 1995.......................... 657,717 $657,717 $6,613,032 $7,765,928 $ 5,895 $ 15,042,572 --------- -------- ---------- ---------- ---------- ------------- --------- -------- ---------- ---------- ---------- -------------
F-6 MILFORD CO/OPERATIVE BANK STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (CONTINUED)
SIX MONTHS ENDED DECEMBER 31, 1994 --------------------------------------------------------------------------------- (UNAUDITED) NET UNREALIZED NUMBER OF HOLDING GAIN (LOSS) TOTAL COMMON COMMON PAID-IN RETAINED ON SECURITIES STOCKHOLDERS' SHARES STOCK CAPITAL EARNINGS AVAILABLE-FOR-SALE EQUITY --------- -------- ---------- ---------- ------------------- ------------- Balance, June 30, 1994.......................... 656,217 $656,217 $6,597,282 $6,619,567 $ $ 13,873,066 Net unrealized holding loss on adoption of SFAS No. 115 as of July 1, 1994..................... (210,197) (210,197) Net change in unrealized holding loss on securities available-for-sale, net of taxes............... (355,806) (355,806) Net income...................................... 716,073 716,073 Dividends paid.................................. (196,865) (196,865) --------- -------- ---------- ---------- ---------- ------------- Balance, December 31, 1994...................... 656,217 $656,217 $6,597,282 $7,138,775 $(566,003) $ 13,826,271 --------- -------- ---------- ---------- ---------- ------------- --------- -------- ---------- ---------- ---------- ------------- SIX MONTHS ENDED DECEMBER 31, 1995 --------------------------------------------------------------------------------- (UNAUDITED) NET UNREALIZED NUMBER OF HOLDING GAIN (LOSS) TOTAL COMMON COMMON PAID-IN RETAINED ON SECURITIES STOCKHOLDERS' SHARES STOCK CAPITAL EARNINGS AVAILABLE-FOR-SALE EQUITY --------- -------- ---------- ---------- ------------------- ------------- Balance, June 30, 1995.......................... 657,717 $657,717 $6,613,032 $7,765,928 $ 5,895 $ 15,042,572 Issuance of common stock........................ 2,200 2,200 23,100 25,300 Net change in unrealized holding gain on securities available-for-sale, net of taxes............... 139,269 139,269 Net income...................................... 748,452 748,452 Dividends paid.................................. (263,571) (263,571) --------- -------- ---------- ---------- ---------- ------------- Balance, December 31, 1995...................... 659,917 $659,917 $6,636,132 $8,250,809 $ 145,164 $ 15,692,022 --------- -------- ---------- ---------- ---------- ------------- --------- -------- ---------- ---------- ---------- -------------
The accompanying notes are an integral part of these financial statements. F-7 MILFORD CO/OPERATIVE BANK STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED DECEMBER 31, YEARS ENDED JUNE 30, ------------------------- ---------------------------------------- 1995 1994 1995 1994 1993 ------------ ----------- ------------ ------------ ------------ (UNAUDITED) (UNAUDITED) Cash flows provided by (used in) operating activities: Net income................................................ $ 748,452 $ 716,073 $ 1,507,280 $ 1,194,765 $ 1,031,302 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization........................... 124,666 82,986 207,779 128,398 135,055 Provision for probable loan losses...................... 60,000 40,000 93,000 95,000 400,000 Securities losses....................................... 4,455 58,830 55,899 33,840 Securities gains........................................ (51,166) (48,360) (164,288) (366,678) Gross receipts associated with loans originated for resale................................................. 49,771 87,799 181,073 10,832,368 9,703,031 Gross payments associated with loans originated for resale................................................. (50,000) (88,000) (179,000) (10,807,540) (9,612,169) (Gain) loss on loan sales............................... 229 201 (2,073) (24,828) (90,862) Gain on sale of other real estate owned................. (7,954) Writedown of other real estate owned.................... 20,000 Changes in assets and liabilities: Accrued and deferred income taxes....................... 57,196 (4,355) 6,785 (157,726) 525 Accrued interest receivable............................. 57,136 17,893 (208,161) (187,504) 269,321 Other assets............................................ 62,834 (49,780) (148,120) 119,732 (28,203) Accrued expenses and other liabilities.................. (546,799) (27,855) 474,295 (120,953) 270,926 ------------ ----------- ------------ ------------ ------------ Net cash provided by operating activities................... 524,365 779,417 1,943,328 963,323 1,746,088 ------------ ----------- ------------ ------------ ------------ Cash flows provided by (used in) investing activities: Purchases of securities available-for-sale................ (13,592,796) (1,125,570) (16,379,936) Proceeds from maturities of securities available-for-sale....................................... 6,500,000 5,689,758 Proceeds from sales of securities available-for-sale....................................... 10,594,552 3,500,000 9,491,900 Purchases of securities held-to-maturity.................. (7,664,765) (1,998,367) (5,879,883) Proceeds from maturities of securities held-to-maturity......................................... 2,500,000 5,000,000 6,227,554 Proceeds from the sales and maturities of investment securities............................................... 41,599,657 14,100,769 Purchases of investment securities........................ (50,753,724) (27,750,000) Redemption (purchase) of stock in Federal Home Loan Bank of Boston................................................ (28,900) 105,900 Net increase in loans receivable.......................... (7,490,108) (2,337,056) (2,866,573) (64,489) (1,578,328) Purchases of mortgage-backed securities................... (12,005,098) (4,244,007) Proceeds from sales/paydowns of mortgage-backed securities............................... 3,300,095 891,355 9,162,868 5,472,841 Purchases of collateralized mortgage obligations.......... (1,000,000) (13,235,000) Proceeds from sales/paydowns of collateralized mortgage obligations.............................................. 241,654 13,679,770 11,846,000 Capital expenditures...................................... (51,986) (140,127) (179,373) (193,367) (125,407) Proceeds from sales of other real estate owned............ 120,459 131,096 Capitalization of other real estate owned................. (44,208) Change in other real estate owned......................... (80,642) 363,979 159,064 ------------ ----------- ------------ ------------ ------------ Net cash provided by (used in) investing activities......... (5,784,549) 3,951,247 (3,838,565) 895,496 (15,354,068) ------------ ----------- ------------ ------------ ------------
F-8 MILFORD CO/OPERATIVE BANK STATEMENTS OF CASH FLOWS (CONTINUED)
SIX MONTHS ENDED DECEMBER 31, YEARS ENDED JUNE 30, ------------------------- ---------------------------------------- 1995 1994 1995 1994 1993 ------------ ----------- ------------ ------------ ------------ (UNAUDITED) (UNAUDITED) Cash flows provided by (used in) financing activities: Net increase (decrease) in deposit accounts............... 2,565,697 (833,561) 2,525,450 (7,351) 7,981,346 Proceeds from Federal Home Loan Bank of Boston advance.... 2,000,000 Repayment of Federal Home Loan Bank of Boston advance..... (3,000,000) (2,000,000) (Decrease) increase in advanced payments by borrowers for taxes and insurance...................................... (171,882) (9,850) 64,352 493 58,345 Dividends paid............................................ (263,571) (196,865) (360,919) (328,109) (295,297) Issuance of common stock.................................. 25,300 17,250 ------------ ----------- ------------ ------------ ------------ Net cash provided by (used in) financing activities......... 2,155,544 (1,040,276) 1,246,133 (334,967) 5,744,394 ------------ ----------- ------------ ------------ ------------ Net increase (decrease) in cash and cash equivalents........ (3,104,640) 3,690,388 (649,104) 1,523,852 (7,863,586) Cash and cash equivalents at beginning of period............ 18,573,475 19,222,579 19,222,579 17,698,727 25,562,313 ------------ ----------- ------------ ------------ ------------ Cash and cash equivalents at end of period.................. $ 15,468,835 $22,912,967 $ 18,573,475 $ 19,222,579 $ 17,698,727 ------------ ----------- ------------ ------------ ------------ ------------ ----------- ------------ ------------ ------------ Supplemental cash flow information: Cash paid during period for: Interest................................................ $ 2,653,045 $ 2,184,563 $ 4,559,747 $ 4,259,755 $ 5,047,915 Taxes................................................... 394,495 325,539 710,230 605,000 655,000 Loans transferred to other real estate owned.............. 122,943
The accompanying notes are an integral part of these financial statements. F-9 MILFORD CO/OPERATIVE BANK NOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 1995, 1994 AND 1993 NOTE 1 -- ACCOUNTING POLICIES The accounting and reporting policies of Milford Co/operative Bank conform to generally accepted accounting principles and predominant practices within the banking industry. The financial statements of the Bank were prepared using the accrual basis of accounting. The significant accounting policies of the Bank are summarized below to assist the reader in better understanding the financial statements and other data herein. CASH EQUIVALENTS: Cash equivalents consist of cash on hand and in banks and interest bearing deposits. INVESTMENT SECURITIES, AFTER THE ADOPTION OF SFAS NO. 115: As of July 1, 1994, the Bank adopted Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" (SFAS No. 115). The Statement establishes standards of financial accounting and reporting for investments in equity securities that have readily determinable fair values and all investments in debt securities. SFAS No. 115 requires that the Bank classify debt and equity securities into one of three categories: held-to-maturity, available-for-sale, or trading. This security classification may be modified after acquisition only under certain specified conditions. In general, securities may be classified as held-to-maturity only if the Bank has the positive intent and ability to hold them to maturity. Trading securities are defined as those bought and held principally for the purpose of selling them in the near term. All other securities must be classified as available-for-sale. - Held-to-maturity securities are measured at amortized cost in the balance sheet. Unrealized holding gains and losses are not included in earnings or in a separate component of capital. They are merely disclosed in the notes to the financial statements. - Available-for-sale securities are carried at fair value on the balance sheet. Unrealized holding gains and losses are not included in earnings, but are reported as a net amount (less expected tax) in a separate component of capital until realized. - Trading securities are carried at fair value on the balance sheet. Unrealized holding gains and losses for trading securities are included in earnings. INVESTMENT SECURITIES, PRIOR TO THE ADOPTION OF SFAS NO. 115: Investment securities are carried at cost, adjusted for amortization of premium and accretion of discount over the term of the security. Gains or losses on sales of investment securities are recognized when realized using the specific identification method. Investments in mortgage-backed securities consist principally of mortgage pass-through certificates with agencies of the federal government and are carried at cost, adjusted for amortization of premium and accretion of discount over the life of the security. Gains and losses on the sale of such securities are recognized when realized and shown net in the statement of income. Collateralized mortgage obligations are also carried at cost. The principal value of the investment is reduced as payments on the obligation are received, with the balance due upon maturity. LOAN ORIGINATION FEES: Loan origination fees and related direct loan origination costs are amortized to interest income over the life of the associated loan as an adjustment of the loan yield. F-10 MILFORD CO/OPERATIVE BANK NOTES TO FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED JUNE 30, 1995, 1994 AND 1993 NOTE 1 -- ACCOUNTING POLICIES (CONTINUED) PROVISION FOR LOSSES ON LOANS: The allowance for loan losses is established through a provision for loan losses charged to operations and is maintained at a level considered adequate by management to provide for reasonably foreseeable loan losses. Realized losses, net of recoveries, are charged directly to the allowance. The provision and the level of the allowance are evaluated on a regular basis by management and are based upon management's periodic review of the collectability of the loans in light of historical experience, known and inherent risks in the loan portfolio, adverse situations that may affect the borrower's ability to repay, estimated value of any underlying collateral, and prevailing economic conditions. OTHER REAL ESTATE OWNED: Other real estate owned includes properties acquired through foreclosure and consists principally of single family residences and condominiums. These properties are carried at the lower of the carrying amount or the estimated fair value less estimated selling costs. Valuations are periodically performed by management, and an allowance for losses is established by a charge to operations if the carrying value of a property exceeds its estimated fair value. PREMISES AND EQUIPMENT: Assets are recorded at cost and depreciated using the straight-line method over the estimated useful lives of the assets. Buildings and improvements are being depreciated over their estimated useful life of 5 to 50 years and furniture, fixtures and equipment are being amortized over their estimated useful life of 1 to 10 years. Expenditures for maintenance and repairs are charged to expense as incurred. Upon retirement or disposition the cost and accumulated depreciation are eliminated from the respective accounts and any resulting gain or loss is credited or charged to income. INCOME TAXES: Effective July 1, 1993, the Bank adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," which requires the use of the asset and liability method of accounting for income taxes. The cumulative effect of this accounting change totaling $169,926 has been reported separately in the 1994 statement of income. Under this method, deferred tax assets and liabilities are established for the temporary differences between the accounting basis and the tax basis of the Bank's assets and liabilities at the legislated tax rates which are expected to be in effect when the temporary differences reverse. The Bank's deferred tax assets and liabilities are reviewed regularly and adjustments are recognized as deferred income tax expense or benefit based on management's judgement regarding their realizability. Deferred income taxes arise from differences in the timing of the recognition of certain expenses for financial statement and income tax reporting purposes. The principal sources of these differences are in the cost for book and tax purposes of fixed assets, the allowance for loan losses, deferred origination fees, loss carryforward and certain other nondeductible accruals. EARNINGS PER SHARE: Earnings per share is computed based on the weighted average number of shares outstanding. For the periods presented, outstanding stock options were not entered into the calculation of primary earnings per share since the impact is not dilutive. F-11 MILFORD CO/OPERATIVE BANK NOTES TO FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED JUNE 30, 1995, 1994 AND 1993 NOTE 2 -- INVESTMENTS IN SECURITIES The aggregate carrying amounts and fair values of investments in securities at June 30 were:
1995 1994 ------------------------------ ------------------------------ CARRYING CARRYING AMOUNT FAIR VALUE AMOUNT FAIR VALUE -------------- -------------- -------------- -------------- Available-for-sale (Note 3)............ $ 31,681,762 $ 31,681,762 $ $ Held-to-maturity (Note 4).............. 38,623,602 38,058,105 Investment securities before the adoption of SFAS No. 115 (Note 5)..... 44,973,669 44,143,837 Mortgage-backed securities and collateralized mortgage obligations before the adoption of SFAS No. 115 (Note 6).............................. 24,482,627 23,553,349 -------------- -------------- -------------- -------------- $ 70,305,364 $ 69,739,867 $ 69,456,296 $ 67,697,186 -------------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
There were no securities of issuers which exceeded 10% of stockholders' equity at June 30, 1995. A total par value of $3,700,000 and $4,000,000 of debt securities was pledged to secure treasury tax and loan and public funds on deposit at June 30, 1995 and 1994, respectively. NOTE 3 -- INVESTMENTS IN SECURITIES AVAILABLE-FOR-SALE Investments in securities available-for-sale at June 30, 1995 are carried at fair value on the balance sheet and are summarized as follows:
GROSS GROSS AMORTIZED UNREALIZED UNREALIZED COST HOLDING HOLDING FAIR BASIS GAINS LOSSES VALUE -------------- ----------- ----------- -------------- Marketable equity securities................. $ 2,165,216 $ 1,006 $ 33,609 $ 2,132,613 Debt securities issued by the U.S. Treasury and other U.S. government corporations and agencies.................................... 18,795,597 167,215 136,974 18,825,838 Mortgage-backed securities................... 10,712,017 54,593 43,299 10,723,311 -------------- ----------- ----------- -------------- $ 31,672,830 $ 222,814 $ 213,882 $ 31,681,762 -------------- ----------- ----------- -------------- -------------- ----------- ----------- --------------
Information about the contractual maturities of investments in debt securities classified as available-for-sale at June 30, 1995 is summarized as follows:
AMORTIZED COST FAIR BASIS VALUE -------------- -------------- Debt securities other than mortgage-backed securities: Due within one year.................................................. $ 1,002,857 $ 997,955 Due after one year through five years................................ 10,600,000 10,591,024 Due after five years through ten years............................... 7,192,740 7,236,859 Mortgage-backed securities............................................. 10,712,017 10,723,311 -------------- -------------- $ 29,507,614 $ 29,549,149 -------------- -------------- -------------- --------------
F-12 MILFORD CO/OPERATIVE BANK NOTES TO FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED JUNE 30, 1995, 1994 AND 1993 NOTE 3 -- INVESTMENTS IN SECURITIES AVAILABLE-FOR-SALE (CONTINUED) The adoption of SFAS No. 115 as of July 1, 1994 had the following effect on the financial statements: Reduction of stockholders' equity: Net unrealized holding loss on securities available-for-sale........... $ 318,480 Less tax effect........................................................ 108,283 --------- $ 210,197 --------- ---------
For the year ended June 30, 1995, proceeds from sales of securities available-for-sale amounted to $9,491,900. Gross realized gains and gross realized losses on those sales amounted to $48,360 and $58,830, respectively. NOTE 4 -- INVESTMENTS IN SECURITIES HELD-TO-MATURITY Investments in securities held-to-maturity at June 30, 1995 are carried at amortized cost on the balance sheet and are summarized as follows:
GROSS GROSS AMORTIZED UNREALIZED UNREALIZED COST HOLDING HOLDING FAIR BASIS GAINS LOSSES VALUE -------------- ----------- ----------- -------------- Debt securities issued by the U.S. Treasury and other U.S. government corporations and agencies..................................... $ 22,005,870 $ 46,157 $ 290,133 $ 21,761,894 Mortgage-backed securities.................... 16,617,732 49,709 371,230 16,296,211 -------------- ----------- ----------- -------------- $ 38,623,602 $ 95,866 $ 661,363 $ 38,058,105 -------------- ----------- ----------- --------------
Information about the contractual maturities of investments in debt securities classified as held-to-maturity at June 30, 1995 is summarized as follows:
AMORTIZED COST FAIR BASIS VALUE -------------- -------------- Debt securities other than mortgage-backed securities: Due within one year.................................................. $ 4,997,754 $ 4,963,154 Due after one year through five years................................ 16,008,116 15,835,091 Due after five years through ten years............................... 1,000,000 963,649 Mortgage-backed securities............................................. 16,617,732 16,296,211 -------------- -------------- $ 38,623,602 $ 38,058,105 -------------- -------------- -------------- --------------
NOTE 5 -- INVESTMENT SECURITIES BEFORE THE ADOPTION OF SFAS NO. 115 The carrying value and approximate fair value of investment securities were as follows as of June 30, 1994:
CARRYING FAIR VALUE VALUE -------------- -------------- U.S. government and related obligations................................ $ 21,725,024 $ 21,391,867 Federal bonds and notes................................................ 23,248,645 22,751,970 -------------- -------------- $ 44,973,669 $ 44,143,837 -------------- -------------- -------------- --------------
F-13 MILFORD CO/OPERATIVE BANK NOTES TO FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED JUNE 30, 1995, 1994 AND 1993 NOTE 5 -- INVESTMENT SECURITIES BEFORE THE ADOPTION OF SFAS NO. 115 (CONTINUED) Proceeds from the sales and maturities of investment securities amounted to $41,599,657 and $14,100,769 for the years ended June 30, 1994 and 1993, respectively. Realized gains on the sales of investment securities for the years ended June 30, 1994 and 1993 amounted to $164,288 and $366,678, respectively, while net realized losses on sales of investment securities for the same period amounted to $55,899 and $33,840, respectively. At June 30, 1994, gross unrealized gains on U.S. Government and related obligations amounted to $55,211, while gross unrealized losses amounted to $388,368. Additionally, gross unrealized gains on federal bonds and notes amounted to $39,105 at June 30, 1994, while gross unrealized losses amounted to $535,780. NOTE 6 -- MORTGAGE-BACKED SECURITIES AND COLLATERALIZED MORTGAGE OBLIGATIONS BEFORE THE ADOPTION OF SFAS NO. 115 The carrying value and approximate fair value of investments in mortgage-backed securities and collateralized mortgage obligations were as follows as of June 30, 1994:
CARRYING FAIR VALUE VALUE -------------- -------------- Mortgage pass-through certificates with agencies of the U.S. Government............................................................ $ 12,767,915 $ 12,005,131 Collateralized mortgage obligations.................................... 11,714,712 11,548,218 -------------- -------------- $ 24,482,627 $ 23,553,349 -------------- -------------- -------------- --------------
Gross unrealized gains on mortgage pass through certificates amounted to $19,645 at June 30, 1994, while gross unrealized losses amounted to $782,425. Gross unrealized gains on collateralized mortgage obligations amounted to $39,791 at June 30, 1994, while gross unrealized losses amounted to $206,285. F-14 MILFORD CO/OPERATIVE BANK NOTES TO FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED JUNE 30, 1995, 1994 AND 1993 NOTE 7 -- LOANS Loans receivable are summarized as follows as of June 30:
1995 1994 -------------- -------------- Mortgage loans: Conventional......................................................... $ 48,757,179 $ 45,658,237 Construction......................................................... 916,700 1,010,914 Commercial........................................................... 3,063,994 3,790,542 Home equity loans.................................................... 5,555,485 6,305,564 -------------- -------------- 58,293,358 56,765,257 -------------- -------------- Other loans: Home improvement..................................................... 85,138 59,889 Municipalities....................................................... 667,784 250,000 Consumer and other................................................... 2,856,834 2,147,624 -------------- -------------- 3,609,756 2,457,513 -------------- -------------- 61,903,114 59,222,770 -------------- -------------- Deferred loan fees..................................................... (206,344) (176,591) Unadvanced portion of loans in process................................. (440,273) (387,112) Allowance for estimated loan losses.................................... (437,857) (491,057) -------------- -------------- (1,084,474) (1,054,760) -------------- -------------- Loans receivable, net.............................................. $ 60,818,640 $ 58,168,010 -------------- -------------- -------------- --------------
Included in mortgage loans at June 30, 1995 and 1994 are approximately $734,000 and $706,000, respectively, of second mortgage loans. Certain of the Bank's mortgage loans are pledged as collateral for advances from the Federal Home Loan Bank of Boston, as set forth in Note 10. The Bank is servicing mortgage loans for other investors of approximately $26,000,000, $28,000,000 and $24,000,000 at June 30, 1995, 1994, 1993, respectively. At June 30, 1995 and 1994 the Bank had approximately $1,854,000 and $1,601,000, respectively in overdue loans, of which approximately $227,000 and $424,000, respectively were overdue greater than 90 days including $20,000 and $152,000, respectively that are on non-accrual status. An analysis of the activity in the allowance for probable loan losses is as follows for the years ended June 30:
1995 1994 1993 ------------ ------------ ------------ Balance, beginning of year.................................... $ 491,057 $ 524,639 $ 391,676 Provision for probable loan losses............................ 93,000 95,000 400,000 Recoveries.................................................... 1,026 Loans charged off............................................. (146,200) (129,608) (267,037) ------------ ------------ ------------ Balance, end of year.......................................... $ 437,857 $ 491,057 $ 524,639 ------------ ------------ ------------ ------------ ------------ ------------
F-15 MILFORD CO/OPERATIVE BANK NOTES TO FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED JUNE 30, 1995, 1994 AND 1993 NOTE 8 -- DEPOSITS Deposit account balances and weighted average interest rates at June 30 are summarized as follows:
1995 1994 ----------------------------- ----------------------------- WEIGHTED WEIGHTED AVERAGE AVERAGE AMOUNT RATE AMOUNT RATE ---------------- ----------- ---------------- ----------- Savings and club accounts............................... $ 21,142,878 2.23% $ 22,526,872 2.24% N.O.W................................................... 31,127,622 1.83 28,687,511 1.45 Money market investment accounts........................ 20,647,866 2.93 26,484,849 2.55 Certificates: Investment Accounts: Jumbo............................................... 51,450 5.49 8,928 3.44 91 day.............................................. 1,369,301 5.00 1,183,169 2.50 6 month............................................. 6,199,644 5.02 7,933,198 3.20 1 year.............................................. 19,965,343 5.50 13,190,178 3.51 2 year.............................................. 7,427,789 5.30 6,000,376 4.31 3 year.............................................. 12,917,201 5.15 13,237,268 5.14 IRA fixed rate...................................... 14,897,820 6.22 13,969,115 5.95 ---------------- ---------------- Total certificate accounts........................ 62,828,548 55,522,232 ---------------- ---------------- $ 135,746,914 $ 133,221,464 ---------------- ---------------- Weighted average rate of deposit accounts............... 3.77% 3.09% Contractual maturity of certificate accounts: Within one year....................................... $ 40,155,614 63.9% $ 30,512,289 54.9% From one to two years................................. 12,985,172 20.7 12,428,694 22.4 Over two years........................................ 9,687,762 15.4 12,581,249 22.7 ---------------- ----- ---------------- ----- $ 62,828,548 100.0% $ 55,522,232 100.0% ---------------- ----- ---------------- ----- ---------------- ----- ---------------- -----
Interest on deposit accounts classified by type is as follows for the years ended June 30:
1995 1994 1993 ------------- ------------- ------------- Savings and club accounts.................................. $ 502,011 $ 466,560 $ 625,854 N.O.W. and money market investment accounts................ 1,076,542 1,049,573 1,284,148 Certificates............................................... 2,813,665 2,553,020 2,875,296 ------------- ------------- ------------- $ 4,392,218 $ 4,069,153 $ 4,785,298 ------------- ------------- ------------- ------------- ------------- -------------
F-16 MILFORD CO/OPERATIVE BANK NOTES TO FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED JUNE 30, 1995, 1994 AND 1993 NOTE 9 -- PREMISES AND EQUIPMENT A summary of premises and equipment follows as of June 30:
1995 1994 -------------- -------------- Land.................................................................... $ 516,684 $ 516,684 Buildings and improvements.............................................. 2,132,595 2,074,408 Furniture, fixtures and equipment....................................... 1,086,311 1,025,130 -------------- -------------- 3,735,590 3,616,222 Accumulated depreciation................................................ (1,596,840) (1,449,066) -------------- -------------- $ 2,138,750 $ 2,167,156 -------------- -------------- -------------- --------------
NOTE 10 -- ADVANCES FROM FEDERAL HOME LOAN BANK OF BOSTON Advances from Federal Home Loan Bank of Boston consist of the following as of June 30,:
1995 INTEREST ---------------------- RATE DUE DATE AMOUNT - ----------- ---------------------- ------------- 6.87% February 26, 1996 $2,000,000 1994 INTEREST ---------------------- RATE DUE DATE AMOUNT - ----------- ---------------------- ------------- 6.26% February 14, 1995 $3,000,000
First mortgage loans on residential property with unpaid principal amounts of approximately 150% of the above advances and all stock in the Federal Home Loan Bank of Boston are pledged as collateral for the advances. NOTE 11 -- INCOME TAXES The Bank prospectively adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," as of July 1, 1993. The cumulative effect of this change in accounting for income taxes as of July 1, 1993 was to increase net income by $169,926 and is reported separately in the statement of income for the year ended June 30, 1994. The fourth quarter of 1994 includes a revision to the amount of the accounting change previously reported. The new standard requires that a valuation reserve be established if it is more likely than not that all or portion of the deferred tax asset will not be realized. At June 30, 1995 and 1994 the Bank has a $42,836 valuation reserve for the capital loss carryfoward which may not be fully utilized. The capital loss carryforward amounts to $111,298 and will expire on June 30, 1997. F-17 MILFORD CO/OPERATIVE BANK NOTES TO FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED JUNE 30, 1995, 1994 AND 1993 NOTE 11 -- INCOME TAXES (CONTINUED) The components of income tax expense (benefit) are as follows for the years ended June 30:
1995 1994 1993 ----------- ----------- ----------- Current: Federal........................................................ $ 712,805 $ 613,956 $ 645,086 State.......................................................... 47,701 100,753 ----------- ----------- ----------- 712,805 661,657 745,839 ----------- ----------- ----------- Deferred: Federal........................................................ 6,784 (24,810) 10,439 State.......................................................... (6,100) ----------- ----------- ----------- 6,784 (30,910) 10,439 ----------- ----------- ----------- Total income tax expense..................................... $ 719,589 $ 630,747 $ 756,278 ----------- ----------- ----------- ----------- ----------- -----------
Federal income tax expense for the periods presented was different from the amounts computed by applying the statutory federal income tax rate to income before federal income taxes due to the following for the years ended June 30:
PERCENT OF INCOME BEFORE FEDERAL INCOME TAXES ------------------------------------- 1995 1994 1993 ----------- ----------- ----------- Statutory federal income tax rate.................................... 34.0% 34.0% 34.0% Increase in federal income taxes resulting from: Federal bad debt deduction allowable............................... 2.4 3.1 Other.............................................................. (1.7) 1.6 1.8 --- --- --- Effective federal income tax rate.................................... 32.3% 38.0% 38.9% --- --- --- --- --- ---
Deferred income tax expense results from timing differences in the recognition of income and expenses for tax and financial statement purposes. The components of the net deferred tax asset at June 30, are as follows:
1995 1994 ----------- ----------- Deferred tax assets: Allowance for loan losses................................................... $ 115,802 $ 146,143 Deferred origination fees................................................... 79,659 69,543 Capital loss carryforward................................................... 42,836 42,836 Deferred compensation....................................................... 26,690 14,658 Banking premises and equipment.............................................. 9,634 8,225 ----------- ----------- Gross deferred tax asset...................................................... 274,621 281,405 Valuation reserve........................................................... (42,836) (42,836) ----------- ----------- 231,785 238,569 ----------- ----------- Deferred tax liability: Unrealized gain on securities available-for-sale............................ (3,037) ----------- ----------- Gross deferred tax liability.................................................. (3,037) ----------- ----------- Net deferred tax asset........................................................ $ 228,748 $ 238,569 ----------- ----------- ----------- -----------
F-18 MILFORD CO/OPERATIVE BANK NOTES TO FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED JUNE 30, 1995, 1994 AND 1993 NOTE 11 -- INCOME TAXES (CONTINUED) A summary of changes in the net deferred tax asset for the years ended June 30, is as follows:
1995 1994 ----------- ----------- Balance at beginning of year.................................................. $ 238,569 $ 31,407 Cumulative effect of change in accounting principle........................... 169,926 Deferred tax benefit.......................................................... 30,910 Allowance for loan losses..................................................... (30,341) Deferred origination fees..................................................... 10,116 Deferred compensation......................................................... 12,032 Banking premises and equipment................................................ 1,409 Unrealized gain on securities available-for-sale.............................. (3,037) Adjustment resulting from amended federal and state income tax returns........ 6,326 ----------- ----------- Balance at end of year........................................................ $ 228,748 $ 238,569 ----------- ----------- ----------- -----------
$6,326 of the other assets previously reported for June 30, 1994 have been reclassified to deferred tax assets to reflect an adjustment resulting from the filing of amended federal and state income tax returns for 1994 and 1993. The nature and tax effect of the change in each type of income and expense item that gives rise to deferred taxes for the year ended June 30, 1993 are as follows: Deferred director's compensation.......................................... $ (1,292) Deferred origination fees................................................. 9,644 Other..................................................................... 2,087 --------- Total deferred provision................................................ $ 10,439 --------- ---------
NOTE 12 -- EMPLOYEE BENEFIT PLAN The Bank currently has a defined contribution retirement plan ("the Plan") for all eligible officers and employees. Under the Plan, the Bank contributes a percentage of a participant's salary, determined annually by the Board of Directors, up to a maximum of fifteen percent. Retirement expense was approximately $105,150, $96,000 and $87,000 for the years ended June 30, 1995, 1994 and 1993, respectively. NOTE 13 -- STOCKHOLDERS' EQUITY In October 1986, pursuant to a Plan of Conversion adopted by the Board of Directors, the Bank converted from a state-chartered mutual co-operative bank to a state-chartered stock co-operative bank through the issuance of 653,217 shares of common stock at a price of $11.50 per share. Net proceeds were $7,218,999. Under OTS regulations implementing capital standards established by the Financial Institutions Reform Recovery and Enforcement Act ("FIRREA"), in addition to meeting the 3% leverage ratio of core capital to total assets requirement and the 1.5% tangible capital to total assets requirement, savings institutions must achieve and maintain a minimum ratio of total capital to total risk-weighted assets of 8%. Management anticipates that the Bank will continue to meet all capital regulations. Risk-based capital includes $421,000 for a portion of the allowance for loan losses. The capital for financial statement purposes does not include the $421,000. F-19 MILFORD CO/OPERATIVE BANK NOTES TO FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED JUNE 30, 1995, 1994 AND 1993 NOTE 13 -- STOCKHOLDERS' EQUITY (CONTINUED) At June 30, the Bank had the following approximate amounts and percentages of assets and risk-based assets of required and actual regulatory capital under the new standards:
1995 ---------------------------------------------- REQUIRED ACTUAL ---------------------- ---------------------- (IN THOUSANDS) (IN THOUSANDS) Tangible.............................................. 1.5% $ 2,317 9.7% $ 15,019 Core leverage......................................... 3.0 4,634 9.7 15,019 Risk-based............................................ 8.0 4,561 27.1 15,440
At June 30, 1995, retained earnings includes approximately $1,534,000 of tax bad debt reserves for which no provision for federal income taxes had been made. If in the future this amount is used for any purpose other than to absorb loan losses, federal income taxes will be imposed at the then applicable rates. In accordance with the Plan of conversion, Eligible Deposit Account Holders of the Bank on September 30, 1985 were granted a priority in the event of a complete liquidation to receive a liquidation account established for that purpose equal to the net worth of the Bank prior to the conversion. The total amount of the liquidation account will be reduced to the extent that the balances of eligible accounts are reduced subsequent to conversion. After the conversion, no dividends may be paid to stockholders if such dividends reduce the retained earnings of the Bank below the amount required for the liquidation account. The regulations of the FDIC impose additional restrictions on the payment of dividends to stockholders. NOTE 14 -- COMMITMENTS AND CONTINGENCIES On June 27, 1995, the Board of Directors of the Bank declared a $.40 per share dividend to be paid to shareholders of record as of July 28, 1995 payable on September 1, 1995. The Bank has entered into several operating leases for the rental of certain office space, expiring in December, 1997 through May 2002. Minimum annual lease payments under these leases are as follows as of June 30: 1996............................................. $ 22,200 1997............................................. 22,800 1998............................................. 23,700 1999............................................. 21,600 2000............................................. 21,600 Thereafter....................................... 39,600 --------- $ 151,500 --------- ---------
Rent expense for the years ended June 30, 1995, 1994 and 1993 was approximately $22,200, $22,200 and $27,600, respectively. NOTE 15 -- STOCK OPTION PLAN At a special meeting of stockholders on March 17, 1987, the stockholders approved a stock option plan for employees and officers of the Bank. Under the plan, the number of shares of authorized but unissued shares of common stock reserved for option grants equals 10% of the total number of shares issued in the conversion or 65,322. At that time, 38,500 options were granted to officers and employees at an exercise price of $11.50 per share. At June 30, 1995 there were 31,750 options outstanding and at F-20 MILFORD CO/OPERATIVE BANK NOTES TO FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED JUNE 30, 1995, 1994 AND 1993 NOTE 15 -- STOCK OPTION PLAN (CONTINUED) June 30, 1994 there were 33,250 options outstanding. During the year ended June 30, 1995 1,500 options were exercised. All options outstanding are currently exercisable and expire within 10 years from date of issuance. NOTE 16 -- SIGNIFICANT CONCENTRATIONS OF CREDIT RISK All of the Bank's business is with customers in southern New Hampshire. The Bank writes primarily real estate mortgages for one to four family residential real estate. At June 30, 1995, approximately 89% of the Bank's portfolio consisted of loans collateralized by residential real estate. The Bank's policy for extending credit is based upon the appraised value of collateral along with the borrower's ability to meet income requirements established by the Bank. All of the Bank's interest bearing deposits are maintained at the Federal Home Loan Bank of Boston. NOTE 17 -- RELATED PARTY TRANSACTIONS A law firm associated with a director of the Bank was paid approximately $197,000, $136,000 and $288,000 in legal fees for the years ended June 30, 1995, 1994 and 1993, respectively, in conjunction with the closing of loans, foreclosure proceedings and other legal work. Certain directors have outstanding loans with the Bank. The outstanding balances range from $5,000 to $79,796. Interest rates on these loans range from 8.125% to 11.00%. The outstanding balance of such loans totaled approximately $314,000 at June 30, 1995 and $297,000 at June 30, 1994. Certain directors have overdraft protection on their accounts in the amounts of $2,000, $25,000 or $50,000. None of the amounts available are currently being used. In the event the overdraft protection is used, interest on the drawn amounts are either 18% or 19%. NOTE 18 -- FAIR VALUE OF FINANCIAL INSTRUMENTS The Bank is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and lines of credit. The Bank's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and lines of credit is represented by the contractual notional amount of those instruments. The Bank uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since commitments may expire without being drawn upon the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer's credit worthiness on an individual case basis. The amount of collateral obtained by the Bank upon extension of credit is based upon management's credit evaluation. Collateral held varies but it is primarily comprised of mortgages on one to four family residential properties In December 1991, the Financial Accounting Standards Board issued Statement No. 107, "Disclosures about Fair Value of Financial Instruments". This Statement requires disclosures of the estimated fair values of essentially all financial instruments. F-21 MILFORD CO/OPERATIVE BANK NOTES TO FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED JUNE 30, 1995, 1994 AND 1993 NOTE 18 -- FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED) Many of the Bank's assets and liabilities have immediate or short-term (generally 90 days or less) contractual maturities. For these financial instruments the difference between contractual rates and current rates of interest would produce only minimal differences between recorded book value and estimated fair value. Therefore, for purposes of the disclosure, estimated fair value of financial instruments with immediate and short term maturities is assumed to be the same as the recorded book value. These instruments include the balance sheet lines Cash and Due from Banks, Interest Bearing Deposits, Accrued Interest Receivable and Advance Payments by Borrowers for Taxes and Insurance. The estimated fair values do not purport to represent the underlying value of the Bank or the value of the financial instruments at any future date. Furthermore, the methods used to derive some of the estimated fair values necessitated the use of assumptions, including expected future cash flows, current rates of interest, and the existence of an active market which, for many of these instruments, does not exist. The estimated fair values also exclude the value of intangible assets (such as customer relationships and servicing rights) which are inseparable from the financial instruments and which would in an active market, be expected to have value. Estimated fair market values were determined as follows: INVESTMENT SECURITIES, MORTGAGE-BACKED SECURITIES AND COLLATERALIZED MORTGAGE OBLIGATIONS The fair values are based on quoted market prices. LOANS RECEIVABLE The estimated fair value is determined by discounting contractual cash flows from the loans using current lending rates for new loans with similar remaining maturities. The resulting value is reduced by an estimate of losses inherent in the portfolio. STOCK IN FEDERAL HOME LOAN BANK OF BOSTON Stock in the Federal Home Loan Bank of Boston is valued at cost, which represents redemption value and approximate fair value. DEPOSIT ACCOUNTS The fair value of Demand, Savings, and Money Market Deposits with no defined maturity, by Statement No. 107 definition, is the amount payable on demand at the reporting date. The fair value of fixed rate time deposits is estimated by discounting the future cash flows to be paid, using the current rates at which similar deposits with similar remaining maturities would be issued. ADVANCES FROM FEDERAL HOME LOAN BANK OF BOSTON The fair value of the Bank's borrowings are estimated using discounted cash flow analysis, based on the Bank's current incremental borrowing rates for similar types of borrowing arrangements. F-22 MILFORD CO/OPERATIVE BANK NOTES TO FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED JUNE 30, 1995, 1994 AND 1993 NOTE 18 -- FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED) At June 30, the carrying amounts and estimated fair values of financial instruments is as follows:
1995 1994 ------------------------ ------------------------ CARRYING ESTIMATED CARRYING ESTIMATED AMOUNT FAIR VALUE AMOUNT FAIR VALUE ----------- ----------- ----------- ----------- (IN THOUSANDS) (IN THOUSANDS) Financial assets: Cash and due from banks................. $ 1,606 $ 1,606 $ 1,893 $ 1,893 Interest bearing deposits............... 16,968 16,968 17,329 17,329 Investments in securities............... 70,305 69,740 69,456 67,697 Loans receivable........................ 60,819 60,666 58,168 57,905 Accrued interest receivable............. 1,312 1,312 1,103 1,103 Federal Home Loan Bank stock............ 655 655 626 626 Financial liabilities: Deposit accounts........................ 135,747 135,698 133,221 133,372 Advances from Federal Home Loan Bank of Boston................................. 2,000 2,002 3,000 3,019 Off-balance-sheet assets (liabilities)
NOTIONAL AMOUNT -------------------- 1995 1994 --------- --------- (IN THOUSANDS) Commitments to originate loans Fixed rate............................................................ $ (701) $ (118) Variable rate......................................................... (78) (605) Letters of credit....................................................... (489) Unadvanced portions of loans: In process............................................................ (440) (387) Commercial lines of credit............................................ (12) (3) Home equity........................................................... (4,653) (4,332)
There is no material difference between the notional amount and the estimated fair value of the above off-balance sheet liabilities. NOTE 19 -- RECLASSIFICATION Certain amounts in the prior years have been reclassified to be consistent with the current year's statement presentation. F-23 MILFORD CO/OPERATIVE BANK NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 1995 (UNAUDITED) (1) ACCOUNTING PRINCIPLES The financial information as of December 31, 1995, the results of operations for the three and six months ended December 31, 1995 and 1994, the cash flows for the six months ended December 31, 1995 and 1994, and the statement of changes in stockholders' equity for the six months ended December 31, 1995, are unaudited, but in the opinion of management reflect all adjustments (none of which were other than normal recurring accruals) necessary for a fair presentation of such information. Interim results are not necessarily indicative of the results to be expected for the entire year. (2) INCOME TAXES The provision for income taxes differs from the statutory rate due primarily to differences in the loan loss provision for book and tax purposes. (3) CUMULATIVE EFFECT ON PRIOR YEARS FROM A CHANGE IN ACCOUNTING PRINCIPLE The bank has adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" which requires a change from the deferred method to the asset and liability method of accounting for income taxes. The Bank has included the cumulative effect of this change in the method of accounting for income taxes as of the beginning of the 1994 fiscal year in the statement of income. (4) ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES As of July 1, 1994, the Bank adopted Statement of Financial Accounting Standard No. 115, "Accounting for Certain Investments in Debt and Equity Securities" which classifies securities as either held-to-maturity, available-for-sale or trading. Securities held-to-maturity are reported at amortized cost. Trading securities are reported at fair value, with unrealized gains and losses included in earnings. The Bank did not have any securities reported as trading securities as of September 30, 1995. Securities which are available-for-sale are reported at fair value, with unrealized gains and losses excluded from earnings and reported as a separate component of stockholders' equity (net of taxes). On July 1, 1994, in conjunction with the adoption of SFAS No. 115, the Bank classified $27,716,866 of securities as available-for-sale and recorded an unrealized loss of $155,399 (net of taxes) as a separate component of stockholders' equity. During the six months ended December 31, 1995, the amount was an unrealized gain (net of taxes) of $145,184. Securities available-for-sale consist of the following at December 31, 1994:
GROSS GROSS AMORTIZED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE -------------- ----------- ------------ -------------- Marketable equity securities.......................... $ 2,232,604 $ 4,129 $ (28,832) $ 2,207,901 Investment securities................................. $ 19,307,791 $ 261,901 $ (69,826) $ 19,499,866 Mortgage-backed securities............................ $ 9,658,085 $ 58,882 $ (6,309) $ 9,710,658 -------------- ----------- ------------ -------------- $ 31,198,480 $ 324,912 $ (104,967) $ 31,418,425 -------------- ----------- ------------ -------------- -------------- ----------- ------------ --------------
Securities held-to-maturity consist of the following at December 31, 1995:
GROSS GROSS AMORTIZED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE -------------- ----------- ------------ -------------- Investment securities.................................. $ 21,005,437 $ 36,943 $ (86,440) $ 20,955,940 Mortgage-backed securities............................. $ 16,434,851 $ 53,601 $ (169,980) $ 16,318,472 -------------- ----------- ------------ -------------- $ 37,440,288 $ 90,544 $ (256,420) $ 37,274,412 -------------- ----------- ------------ -------------- -------------- ----------- ------------ --------------
F-24 EX-99.2 3 EXHIBIT 99.2 [ADDED MATERIAL] activities and purposes, the FHLB System seeks to provide a portion of the funds necessary through advances to its members. Historically, the Bank has relied on advances from FHLB of Boston rather than other sources. The Bank has used advances from the FHLB of Boston as an alternative to deposits and as a source of lendable funds. At June 30, 1995, the Bank had $2.0 million in advances from the FHLB of Boston at a rate of 6.87%, a decrease of $1.0 million from fiscal year ended June 30, 1994. THE MAXIMUM AMOUNT OF BORROWINGS FROM THE FHLB OF BOSTON AT THE END OF EACH MONTH FOR FISCAL YEARS ENDING JUNE, 1995 AND 1994 WAS $3,000,000. THE AVERAGE AMOUNT OUTSTANDING FOR FISCAL YEARS 1995 AND 1994 WAS $2,591,743 AND $3,000,000 RESPECTIVELY. The Bank intends to continue to fund its mortgage commitments with borrowed funds during periods when the supply of other lendable funds is insufficient or more costly. Under its current credit policies, the FHLB System limits advances based on a member's assets, total borrowings and regulatory capital and expects members to maintain a reserve position for unanticipated needs. In addition, an insured institution's eligibility to receive FHLB advances may be reduced unless the institution is a "qualified thrift lender." In the event its percentage of qualified thrift investments to tangible assets falls below 65%, the institution's borrowing authority is reduced to the applicable percentage of the borrowings to which it would otherwise be entitled. YIELDS EARNED AND RATES PAID The Bank's net earnings depend primarily upon the spread between the income it receives from its loan and investment portfolio and its cost of funds, consisting principally of the interest paid by it on its deposit accounts and borrowings. The following tables present the Bank's AVERAGE BALANCES, yields, costs and spreads for the periods indicated.
SIX MONTHS ENDED JUNE 30, YEARS ENDED JUNE 30, -------------------------------------------------------- 1995 1995 1994 1993 -------------------------------------------------------- Average balance on total loans outstanding $61,903,144 $61,335,841 $60,538,027 $60,667,376 Average balance on investments $42,966,683 $43,173,813 $38,826,572 $28,691,791 Average balance on mortgage-backed securities $14,383,313 $11,965,241 $11,226,793 $7,725,506 Average balance on collateralized mortgage obligations $12,946,436 $11,831,653 $15,839,006 $28,034,098 Average balance on other investments $16,967,728 $15,726,564 $16,582,958 $15,207,793 Combined average balance on interest earning assets $149,167,304 $144,033,122 $143,013,356 $140,326,564 Average balance on interest bearing deposit accounts $133,627,367 $128,999,752 $130,222,570 $130,520,846 Average balance on non-interest bearing deposit accounts $2,119,547 $3,293,549 $756,385 $351,109 Average balance on FHLB advances $2,000,000 $2,591,743 $3,000,000 $3,881,866 Average balance on deposit accounts and FHLB borrowings $135,627,367 $131,591,495 $133,222,570 $134,402,712
SIX MONTHS ENDED JUNE 30, YEARS ENDED JUNE 30 -------------------------------------------------------- 1995 1995 1994 1993 -------------------------------------------------------- Weighted average yield on total loans outstanding 8.56% 8.23% 7.72% 8.55% Weighted average yield on investments 6.12% 5.48% 4.81% 5.19% Weighted average yield on mortgage-backed securities 6.38% 5.96% 5.75% 6.59% Collateralized mortgage obligations 6.90% 6.93% 6.11% 6.79% Weighted average yield on other investments 6.09% 5.20% 3.11% 2.69% Combined weighted average yield on interest earning assets 7.25% 6.93% 6.03% 6.72% Weighted average rate paid on deposit accounts 3.77% 3.41% 3.12% 3.66%
ALLOWANCE FOR LOAN LOSSES. The allowance for loan losses is maintained by a provision charged against income at a level that management considers adequate to provide for potential losses. The amount of the provision is based upon management's evaluation of individual loans, past loss experience, current economic conditions, the inherent risk in the loan portfolio and other relevant factors. An analysis of activity in the allowance for loan losses for the years ended June 30, is provided below.
1995 1994 1993 ---- ---- ---- Balance, beginning of year $491,057 $524,639 $391,676 Provision for probable loan losses 93,000 95,000 400,000 Charge-offs Real estate-mortgage 143,838 106,962 266,288 Commercial 2,362 - - Consumer - 22,646 749 -------- -------- -------- 146,200 129,608 267,037 Recoveries: Consumer - 1,026 - Net charge-offs $146,200 $128,582 $267,037 -------- -------- -------- Balance, end of year $437,857 $491,057 $524,639 -------- -------- -------- -------- -------- --------
Management analyzes the adequacy of the allowance for loan losses at least quarterly. Management measures the adequacy of its allowance for loan losses by assigning loans into risk categories based on a loan classification system modeled after the bank regulatory classification system. While management believes that its allowance for loan losses is adequate to cover potential losses, there are uncertainties regarding future events, particularly in the currently weakened New England real estate market and economy. Further deterioration in the real estate market or economy may result in additional nonaccrual loans, charge-offs and a need for provisions for loan losses to maintain an adequate allowance. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Bank's allowance for loan losses. Such agencies may require the Bank to recognize additions to the allowance based upon their judgments about information available to them at the time of their examination. Allocation of the allowance for loan losses to the various categories of the portfolio is also made periodically, based on management's judgment in weighing various factors, including the quality of specific loans, the level of nonaccrual loans in the various categories, current economic conditions, trends in delinquencies and prior charge-offs, and the collateral value of the underlying security. Because the allowance for loan losses is based on various estimates, including loan collectibility and real estate values, and includes a high degree of judgement, subsequent changes in the general economic prospects of the borrowers may require changes in those estimates. A breakdown of the allowance for loan losses is shown below.
AT JUNE 30, -------------------------------------------------------------------------------------- 1995 1994 1993 -------------------------------------------------------------------------------------- PERCENT OF PERCENT OF PERCENT OF LOANS TO LOANS TO LOANS TO AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS -------------------------------------------------------------------------------------- Mortgage loans $ 12,000 94.2 $ 12,000 95.9 $ 54,000 95.5 Consumer and other loans 5,000 5.8 5,000 4.1 70,000 4.5 Unallocated 420,857 N/A 474,057 N/A 400,639 N/A -------- ----- -------- ----- -------- ----- $437,857 100.0% $491,057 100.0% $524,639 100.0% -------- -------- -------- -------- -------- --------
INVESTMENT ACTIVITIES GENERAL. As a member of the FHLB System, the Bank is required to maintain liquid assets at minimum levels which vary from time to time. See "Regulation - Federal Home Loan Bank System." The Bank's investment portfolio, cash, U.S. Government and Agency securities and FHLB deposits provide not only a source of income but also a source of liquidity to meet lending demands, fluctuations in deposit flows and required liquidity levels. At June 30, 1995, the Bank's liquidity ratio was 35.3%. Liquidity levels may be increased or decreased depending upon the yields on investment alternatives, management's judgment as to the attractiveness of the yields then available in relation to other opportunities, management's expectations of the level of yield that will be available in the future and management's projections as to the short-term demand for funds to be used in the Bank's loan origination and other activities. Interest income from investments in various types of liquid assets provides a significant EX-99.3 4 EXHIBIT 99.3 [SHATSWELL, MacLEOD & COMPANY, P.C. LETTERHEAD] CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the inclusion in the Current Report on Form 8-K of CFX of our report dated July 20, 1995 on our audit of the financial statements of Milford Co/operative Bank as of June 30, 1995 and for the year then ended. /s/ Shatswell, MacLeod & Company, P.C. Shatswell, MacLeod & Company, P.C. W. Peabody, Massachusetts April 5, 1996 EX-99.4 5 EXHIBIT 99.4 Exhibit 99.4 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the inclusion in this Current Report on Form 8-K of CFX Corporation of our report (which contains an explanatory paragraph regarding a change in 1994 in the method of accounting for income taxes) dated August 4, 1994 on our audit of the statement of financial condition of Milford Co/operative Bank as of June 30, 1994 and the related statements of operations, changes in stockholders' equity and cash flows for the two years then ended. /s/ COOPERS & LYBRAND, L.L.P. Coopers and Lybrand, L.L.P. Boston, Massachusetts April 11, 1996 EX-99.5 6 EXHIBIT 99.5 [CFX CORPORATION LETTERHEAD] FOR ADDITIONAL INFORMATION CONTACT: --------------------------------------------- MARK A. GAVIN, CHIEF FINANCIAL OFFICER --------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- CFX CORPORATION ANNOUNCES RECORD EARNINGS Keene, N.H., April 10, 1996 -- CFX CORPORATION (AMEX: CFX) today announced earnings of $2,328,000, or $.31 per share, for the quarter ended March 31, 1996, compared to earnings of $1,489,000, or $.21 per share, for the corresponding period a year ago, a per share increase of $.10, or 48%. Company spokesman and Chief Financial Officer, Mark A. Gavin, said, "We are pleased to announce record earnings for the fourth consecutive quarter. The Company's focus on revenue growth through expansion into new lines of business and increasing interest earning assets, coupled with gains from mortgage banking activities and the reduction of FDIC premiums, has yielded a significant improvement in the Company's overall financial performance over the corresponding period a year ago." The financial highlights for the first quarter of 1996 are as follows: * Return on average assets and return on average shareholders' equity was 1.00% and 10.29%,respectively, for the first quarter of 1996, compared to .70% and 7.16%, respectively, for the first quarter of 1995. * Net interest and dividend income increased by $930,000, or 12%, during the first quarter of 1996 over the year ago quarter, due principally to higher loan volumes. Average interest earning assets were $875,556,000,compared to $795,352,000 during the same period a year ago. The net interest margin was 4.11% during the first quarter of 1996 compared to 4.11% for the quarter ended March 31, 1995. * Total loans and leases grew by $80,418,000, or 12%, over the last twelve months, to $725,703,000, as of March 31, 1996. * In recognition of the loan growth and a modest increase in nonperforming loans experienced in the first quarter of 1996,the Company provided $800,000 for loan and lease losses, compared to $150,000 for the first quarter of 1995. * Non-interest income increased by $549,000, or 27%, for the first quarter of 1996, compared to the year ago quarter. The revenues from mortgage banking and leasing activities increased by 89% and 47%, respectively. * The Company's efficiency ratio significantly improved in the first quarter of 1996 compared to the first quarter of 1995, declining from 73.40% to 63.77%. -More- Page 1 of 4 CFX Corporation is a multi-bank holding company with total assets of $958 million as of March 31, 1996. The Company's two banking subsidiaries are CFX Bank, headquartered in Keene, New Hampshire, and Orange Savings Bank, headquartered in Orange, Massachusetts. CFX Mortgage, Inc., CFX Bank's mortgage banking subsidiary, services approximately $686 million in mortgage loans for others. The Company operates 23 full service offices, 2 loan production offices, and 50 automated teller and remote service banking locations in New Hampshire and north central Massachusetts. Upon completion of CFX's pending acquisitions of The Milford Co/operative Bank and The Safety Fund Corporation, CFX will have $1.4 billion in assets with 41 full service banking offices, 2 loan production offices, and 61 automated teller and remote service locations in New Hampshire and Massachusetts. The Safety Fund Corporation, a bank holding company headquartered in Fitchburg, Massachusetts, has 12 branches, $297 million in assets and a trust division with $349 million in assets under management. The Milford Co/operative Bank, headquartered in Milford, New Hampshire has six branches and total assets of $160 million.
SELECTED FINANCIAL HIGHLIGHTS AT OR FOR THE THREE MONTHS ENDED MARCH 31 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 1996 1995 OPERATING AND PERFORMANCE RATIOS: Return on average assets (1) 1.00% .70% Return on average common equity (1) 10.29 7.16 Other income/average assets (1) 1.12 .97 Other expense/average assets (1) 3.12 3.44 Efficiency ratio 63.77 73.40 Tier 1 leverage capital 8.62 9.04 ASSET QUALITY: Nonperforming assets/total assets 1.09 1.03 Nonperforming loans as a percent of total loans and leases 1.28 1.22 Allowance for loan and lease losses/nonperforming loans 85.35 95.83 Allowance for loan and lease losses/total loans and leases 1.09 1.16 Net charge offs/average loans and leases (1) .31 .12 STOCK PERFORMANCE INDICATORS: Common shares outstanding 7,561 7,056 Closing price $14.75 $11.75 Earnings per common share $.31 $.21 Book value per common share $11.99 $11.85 Tangible book value per common share $10.70 $10.39 Price/book value per common share 123% 99% Price/tangible book value per common share 138% 113% Dividend per common share $.18 $.15 Dividend payout ratio 58% 71% Price/earnings ratio (1) 12 14
(1) Annualized -More- Page 2 of 4 CONSOLIDATED BALANCE SHEETS
MARCH 31, DECEMBER 31, MARCH 31, (DOLLARS IN THOUSANDS) 1996 1995 1995 ASSETS Cash and interest bearing deposits with other banks $ 24,595 $ 29,093 $ 24,963 Federal Home Loan Bank of Boston stock 7,496 7,388 7,388 Trading securities 24,400 - 16,410 Investment securities 120,713 117,776 117,109 Mortgage loans held for sale 7,794 6,554 8,059 Nonperforming loans 9,298 7,844 7,843 Other loans and leases 716,405 691,128 637,442 Allowance for loan and lease losses (7,936) (7,689) (7,516) Premises and equipment 13,513 13,548 14,260 Mortgage servicing rights 4,473 4,373 4,129 Goodwill and deposit base intangibles 9,720 9,884 10,287 Foreclosed real estate 1,141 1,129 1,060 Other assets 26,677 19,521 23,281 -------- -------- -------- TOTAL ASSETS $958,289 $900,549 $864,715 -------- -------- -------- -------- -------- -------- LIABILITIES AND SHAREHOLDERS' EQUITY Deposits $724,978 $665,723 $680,702 Borrowed funds 125,256 132,549 82,602 Other liabilities 17,422 12,323 14,245 -------- -------- -------- TOTAL LIABILITIES 867,656 810,595 777,549 -------- -------- -------- SHAREHOLDERS' EQUITY Preferred stock - - 193 Common stock 5,041 5,007 5,058 Paid-in capital 66,150 65,763 65,773 Retained earnings 20,389 19,422 23,737 Net unrealized losses on securities available for sale, after tax effects (947) (238) (397) Cost of 865,898 shares of common stock in treasury - - (7,198) -------- -------- -------- TOTAL SHAREHOLDERS'EQUITY 90,633 89,954 87,166 -------- -------- -------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $958,289 $900,549 $864,715 -------- -------- -------- -------- -------- -------- Common shares outstanding 7,561 7,510 7,056 -------- -------- -------- -------- -------- -------- Common shareholders' equity per share $ 11.99 $ 11.98 $ 11.85 -------- -------- -------- -------- -------- --------
CONSOLIDATED INCOME STATEMENTS THREE MONTHS ENDED MARCH 31,(DOLLARS IN THOUSANDS) 1996 1995 - ------------------------------------------------------------------------------------------ Interest and dividend income $ 17,550 $ 15,266 Interest expense 8,729 7,375 -------- -------- NET INTEREST AND DIVIDEND INCOME 8,821 7,891 Provision for loan and lease losses 800 150 -------- -------- NET INTEREST AND DIVIDEND INCOME AFTER PROVISION FOR LOAN AND LEASE LOSSES 8,021 7,741 -------- -------- Other income: Service charges on deposit accounts 565 552 Loan servicing fees 400 427 Net gains on trading and investment securities 210 224 Net gains on sales of loans 430 12 Leasing activities 748 510 Other 260 339 -------- -------- 2,613 2,064 -------- -------- Other expense: Salaries and employee benefits 3,522 3,546 Occupancy and equipment expense 1,061 974 Advertising and marketing expense 355 187 Professional fees 366 385 Operation of foreclosed real estate 56 33 FDIC deposit insurance 1 362 Goodwill and deposit base intangible amortization 167 189 Other 1,763 1,631 -------- -------- 7,291 7,307 -------- -------- INCOME BEFORE INCOME TAXES 3,343 2,498 Income Taxes 1,015 942 -------- -------- NET INCOME 2,328 1,556 Preferred stock dividends - 67 -------- -------- NET INCOME AVAILABLE TO COMMON STOCK $ 2,328 $ 1,489 -------- -------- -------- -------- Weighted average common shares outstanding 7,540 7,056 -------- -------- -------- -------- Earnings per common share $ .31 $ .21 -------- -------- -------- --------
-More- Page 3 of 4 - --------------------------------------------------------------------------------------------------------------------------- CONSOLIDATED AVERAGE BALANCE SHEETS - ---------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED MARCH 31, 1996 1995 - --------------------------------------------------------------------------------------------------------------------------- INTEREST INTEREST AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/ (DOLLARS IN THOUSANDS) BALANCE EXPENSE(1) RATE BALANCE EXPENSE(1) RATE - --------------------------------------------------------------------------------------------------------------------------- ASSETS INTEREST EARNING ASSETS Loans and leases $722,311 $15,677 8.73% $648,412 $13,306 8.32% Taxable securities 125,420 1,531 4.91 110,098 1,493 5.50 Tax-exempt securities 19,008 342 7.24 23,690 415 7.10 Other 8,817 132 6.02 13,152 212 6.54 -------- ------ -------- ------- Total interest earning assets 875,556 17,682 8.12 795,352 15,426 7.87 ------ ------- Noninterest earning assets 63,114 66,397 -------- -------- TOTAL $938,670 $861,749 -------- -------- -------- -------- LIABILITIES AND SHAREHOLDERS' EQUITY Interest bearing liabilities: Savings deposits $282,956 1,648 2.34 $308,971 1,905 2.50 Time deposits 376,556 5,332 5.70 313,554 4,081 5.28 Advances from Federal Home Loan Bank of Boston 91,207 1,350 5.95 63,477 978 6.25 Other borrowed funds 33,456 399 4.80 28,929 410 5.75 -------- ------- -------- ------- Total interest bearing liabilities 784,175 8,729 4.48 714,931 7,374 4.18 ------- ------- Noninterest bearing liabilities: Demand deposits 51,106 45,665 Other 12,379 13,280 Shareholders' equity 91,010 87,873 -------- -------- TOTAL $938,670 $861,749 -------- -------- -------- -------- Net interest and dividend income $ 8,953 $ 8,052 ------- ------- ------- ------- Interest rate spread 3.64% 3.69% Net interest margin 4.11% 4.11%
(1) Income from tax-exempt securities has been restated to a tax-equivalent basis using a 38.62% tax rate. -End- Page 4 of 4 -----END PRIVACY-ENHANCED MESSAGE-----