-----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, BKCDr7Lp2fdpE/NKRtGiop/yaRdWtYZOqvhFIBTh9dNvz6zmjQ9tvSn7Cf3g1zgL hjUpOELgJDVc+OcSag986w== 0000950135-96-004950.txt : 19961118 0000950135-96-004950.hdr.sgml : 19961118 ACCESSION NUMBER: 0000950135-96-004950 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961114 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: FAMILY BANCORP CENTRAL INDEX KEY: 0000825314 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTION, FEDERALLY CHARTERED [6035] IRS NUMBER: 042987118 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-17252 FILM NUMBER: 96664867 BUSINESS ADDRESS: STREET 1: 153 MERRIMACK ST STREET 2: P.O. BOX 431 CITY: HAVERHILL STATE: MA ZIP: 01830 BUSINESS PHONE: 5083741911 MAIL ADDRESS: STREET 1: 153 MERRIMACK ST STREET 2: PO BOX 431 CITY: HAVERHILL STATE: MA ZIP: 01830 10-Q 1 FAMILY BANCORP, FORM 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------------- FORM 10-Q |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the period ended 9/30/96 ------- [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the transition period from ________________ to _________________ Commission file number 0-17252 ------- FAMILY BANCORP ------------------------------------------------------ (Exact name of registrant as specified in its charter) Massachusetts 04-2987118 - -------------------------------- ------------------ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 153 Merrimack Street, Haverhill, MA 01830 - ---------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 508-374-1911 ------------ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- 4,309,709 shares of the registrant's common stock were outstanding on SEPTEMBER 30, 1996. 1 2 Family Bancorp and Subsidiary Index Page Part I. Financial Information Item 1. Financial Statements Consolidated balance sheets at September 30, 1996, 3 December 31, 1995 and September 30, 1995 Consolidated statements of operations for the three 4 months and nine months ended September 30, 1996 and September 30, 1995 Consolidated statements of changes in stockholders' 5 equity for the nine months ended September 30, 1996 and September 30, 1995 Consolidated statements of cash flows for the nine 6-7 months ended September 30, 1996 and September 30, 1995 Notes to consolidated financial statements 8 Item 2. Management's discussion and analysis of financial 9-16 condition and results of operations Part II. Other Information Item 1. Legal Proceedings 17 Item 2. Changes in Securities 17 Item 3. Defaults upon Senior Securities 17 Item 4. Submission of Matters to a Vote of 17 Security Holders Item 5. Other Information 17 Item 6. Exhibits and Reports on Form 8-K 17 2 3 ITEM 1: FINANCIAL STATEMENTS FAMILY BANCORP AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except per share data) (Unaudited)
September 30, December 31, September 30, 1996 1995 1995 ------------- ------------ ------------- ASSETS Cash and due from banks $ 31,942 $ 28,449 $ 30,110 Short-term investments 2,990 15,825 4,150 Investment securities 380,943 351,437 316,870 Loans held for sale 6,937 8,056 9,795 Loans, net 457,440 451,199 457,619 Investments in R/E and limited partnerships, net 1,145 1,405 1,586 Other real estate owned, net 2,161 3,430 3,840 Banking premises and equipment 11,954 12,417 12,311 Accrued interest receivable 5,764 5,647 5,856 Goodwill 5,450 6,073 6,340 Other assets 11,071 8,229 6,170 ---------- ---------- ---------- TOTAL ASSETS $ 917,797 $ 892,167 $ 854,647 ========== ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Deposits $ 762,562 $ 734,017 $ 726,506 Federal Home Loan Bank advances 64,544 72,195 44,673 Repurchase agreements 3,833 3,338 1,789 Funds held in escrow 4,367 2,883 5,768 Accrued interest payable 1,400 1,523 1,344 Accrued taxes and expenses 3,314 5,205 3,953 Other liabilities 4,867 4,310 5,235 ---------- ---------- ---------- TOTAL LIABILITIES 844,887 823,471 789,268 ---------- ---------- ---------- Serial preferred stock ($.10 par value; 10,000,000 shares authorized; none issued) -- -- -- Common stock ($.10 par value; 20,000,000 shares authorized; 5,615,805 shares issued) 562 562 374 Additional paid-in capital 30,676 30,018 30,153 Retained earnings 51,444 47,153 45,575 ---------- ---------- ---------- 82,682 77,733 76,102 Net unrealized gain (loss) on securities available for sale, after tax effects (1,314) 954 (657) Less: Treasury stock, at cost (1,306,096 shares September 30, 1996; 1,534,007 shares at December 31, 1995 and 1,542,457 shares at September 30, 1995) (8,444) (9,917) (9,971) Unearned compensation- ESOP (14) (74) (95) ---------- ---------- ---------- TOTAL STOCKHOLDERS' EQUITY 72,910 68,696 65,379 ---------- ---------- ---------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 917,797 $ 892,167 $ 854,647 ========== ========== ========== SHARES OUTSTANDING 4,309,709 4,081,798 4,073,542 BOOK VALUE PER SHARE $ 16.92 $ 16.83 $ 16.05 TANGIBLE BOOK VALUE PER SHARE $ 15.65 $ 15.34 $ 14.49
See accompanying notes to unaudited financial statements 3 4 FAMILY BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Dollars in thousands, except per share data) (Unaudited)
Three months ended Nine months ended September 30, September 30, --------------------------- --------------------------- 1996 1995 1996 1995 ---------- ---------- ---------- ---------- Interest and dividend income: Interest and fees on loans $ 10,140 $ 10,230 $ 29,945 $ 30,116 Interest on securities 6,251 4,575 17,564 13,170 Dividends on securities 200 196 464 635 Interest on short-term investments 31 108 255 383 ---------- ---------- ---------- --------- TOTAL INTEREST AND DIVIDEND INCOME 16,622 15,109 48,228 44,304 ---------- ---------- ---------- --------- Interest expense: Interest on deposits 6,364 6,468 19,275 18,136 Interest on borrowings 1,134 629 3,173 1,876 ---------- ---------- ---------- --------- TOTAL INTEREST EXPENSE 7,498 7,097 22,448 20,012 ---------- ---------- ---------- --------- Net interest income 9,124 8,012 25,780 24,292 Provision for loan losses 250 250 750 750 ---------- ---------- ---------- --------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 8,874 7,762 25,030 23,542 ---------- ---------- ---------- --------- Other income: Loan fees and charges 241 224 785 767 Gain (loss) on mortgage loans, net (30) 14 (111) 113 Gain (loss) on securities, net 119 103 342 238 All other income 1,413 1,004 3,839 2,996 ---------- ---------- ---------- --------- TOTAL OTHER INCOME 1,743 1,345 4,855 4,114 ---------- ---------- ---------- --------- Operating expenses: Salaries and employee benefits 3,055 2,717 8,950 8,140 Occupancy and equipment 1,025 973 2,983 2,781 Advertising 383 156 1,083 498 Data processing 252 237 763 775 Losses on real estate and limited partnerships, net 237 (27) 550 162 Property management expenses 138 98 283 324 Regulatory assessments (21) (31) 191 767 Amortization of goodwill 207 193 622 558 Merger related expenses 832 0 1,365 0 Other general & administrative 1,221 1,111 3,567 3,489 ---------- ---------- ---------- --------- TOTAL OPERATING EXPENSES 7,329 5,427 20,357 17,494 ---------- ---------- ---------- --------- Income before taxes 3,288 3,680 9,528 10,162 Provision for income taxes 1,376 1,541 3,826 4,149 ---------- ---------- ---------- --------- NET INCOME $ 1,912 $ 2,139 $ 5,702 $ 6,013 ========== ========== ========== ========= Average number of common shares outstanding- primary 4,304,929 4,227,850 4,211,320 4,192,314 Average number of common shares outstanding- fully-diluted 4,306,886 4,231,618 4,216,415 4,204,954 Net income per share: Primary $ 0.44 $ 0.51 $ 1.35 $ 1.43 Fully-diluted $ 0.44 $ 0.51 $ 1.35 $ 1.43 Dividends paid per share $ 0.12 $ 0.10 $ 0.34 $ 0.283
See accompanying notes to unaudited financial statements. 4 5 FAMILY BANCORP AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY For the nine months ended September 30, 1996 and 1995 (Dollars in thousands) (unaudited)
Net Unrealized Gain (Loss) Additional on Securites Unearned Common Paid-in Retained Available Treasury Compensation- Stock Capital Earnings for Sale Stock ESOP Total ---- ------- -------- ------- -------- ----- -------- Balance at December 31, 1995 $562 $30,018 $ 47,153 $ 954 ($ 9,917) ($ 74) $ 68,696 Net income -- -- 5,702 -- -- -- 5,702 Dividends declared -- -- (1,410) -- -- -- (1,410) Decrease in unearned compensation - ESOP -- -- -- -- -- 60 60 Stock options exercised -- 658 -- -- 1,473 -- 2,131 Increase (decrease) in net unrealized gain (loss) on securities available for sale -- -- -- (2,269) -- -- (2,269) ---- ------- -------- ------- -------- ----- -------- Balance at September 30, 1996 $562 $30,676 $ 51,445 ($1,315) ($ 8,444) ($ 14) $ 72,910 ==== ======= ======== ======= ======== ===== ======== Balance at December 31, 1994 $374 $30,079 $ 40,707 ($7,084) ($10,374) ($155) $ 53,547 Net income -- -- 6,013 -- -- -- 6,013 Dividends declared -- -- (1,145) -- -- -- (1,145) Decrease in unearned compensation - ESOP -- -- -- -- -- 60 60 Stock options exercised -- 74 -- -- 403 -- 477 Increase (decrease) in net unrealized gain (loss) on securities available for sale -- -- -- 6,427 -- -- 6,427 ---- ------- -------- ------- -------- ----- -------- Balance at September 30, 1995 $374 $30,153 $ 45,575 ($ 657) ($ 9,971) ($ 95) $ 65,379 ==== ======= ======== ======= ======== ===== ========
See accompanying notes to unaudited financial statements. 5 6 CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands, except per share data) (Unaudited)
Nine months ended September 30, ------------------------ 1996 1995 --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 5,702 $ 6,013 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 750 750 Loss on real estate and limited partnerships 550 162 Net amortization of securities 1,337 231 Amortization of net deferred loan (fees) costs 21 30 Amortization of deferred discount -- (153) Depreciation expense 1,431 1,219 (Gain) loss on securities (342) (238) Decrease (increase) in accrued interest receivable (537) (264) Increase (decrease) in accrued income taxes and expenses (1,697) 656 Increase (decrease) in accrued interest payable (123) 266 Amortization of deferred premium on sold loans 117 135 Amortization of intangible assets 623 558 Purchase of trading securities (26,837) -- Proceeds from sales of trading securities 26,793 -- Loans originated for sale (23,880) (20,277) Principal balance of loans sold 23,576 12,716 Other, net (10,975) 2,515 --------- --------- Net cash provided (used) by operating activities (3,491) 4,319 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from maturities of investment securities 5,948 2,700 Proceeds from sales of investment securities 331,906 162,146 Purchase of investment securities (405,102) (203,256) Principal payments received on asset-backed securities 41,864 24,116 Loans originated, net of principal payments received (8,098) (9,106) Proceeds from sales of other real estate owned 1,993 2,437 Advances to other real estate owned -- (130) Proceeds from sales of real estate investments -- 419 Purchase of banking premises and equipment (947) (1,416) --------- --------- Net cash provided (used) by investing activities (32,436) (22,090) --------- ---------
6 7 CONSOLIDATED STATEMENTS OF CASH FLOWS (continued from previous page)
Nine months ended September 30, ----------------------- 1996 1995 -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Net increase (decrease) in deposits $ 28,545 $ 16,809 Net increase (decrease) in repurchase agreements 495 (657) Proceeds from Federal Home Loan Bank advances 10,000 6,025 Maturities of Federal Home Loan Bank advances (17,650) (3,832) Net increase of short-term borrowing -- (1,235) Proceeds from stock options exercised 2,131 477 Net increase (decrease) in funds held in escrow 1,484 3,624 Cash dividends paid on common stock (1,410) (1,145) -------- -------- Net cash provided (used) by financing activities 23,595 20,066 -------- -------- Net increase (decrease) in cash and cash equivalents (12,332) 2,295 Cash and cash equivalents, beginning balance 44,274 31,965 -------- -------- Cash and cash equivalents, ending balance $ 31,942 $ 34,260 ======== ======== Supplemental Financial Data: Transfers from loans to other real estate owned $ 1,086 $ 620 Transfers from banking premises and equipment to real estate investments -- 624 Cash paid for interest on borrowings 3,231 1,859 Cash paid for interest on deposits 19,368 18,149 Income taxes paid 4,823 4,044
See accompanying notes to unaudited consolidated financial statements. 7 8 Family Bancorp and Subsidiary NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS September 30, 1996 ---------------------------------------------------- (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The unaudited consolidated interim financial statements of Family Bancorp and Subsidiary presented herein should be read in conjunction with the consolidated financial statements of Family Bancorp and Subsidiary for the year ended December 31, 1995. Consolidated financial information as of September 30, 1996 and the results of operations and the statement of cash flows for the interim periods ended September 30, 1996 and 1995 are unaudited, and in the opinion of management, reflect all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of such information. Interim results are not necessarily indicative of results to be expected for the entire year. (2) ACCOUNTING FOR CAPITALIZED MORTGAGE SERVICING RIGHTS On January 1, 1996, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 122, "Accounting For Mortgage Servicing Rights." SFAS No. 122 requires rights to service mortgage loans for others to be capitalized as separate assets, whether acquired through purchase or origination, if such loans are sold or securitized with servicing rights retained. Prior to the issuance of SFAS No. 122, the capitalization of originated mortgage servicing rights was not allowed under generally accepted accounting principles. Capitalized mortgage servicing rights are to be amortized to servicing revenue in proportion to, and over the period of, estimated net servicing revenues. Impairment of mortgage servicing rights is to be assessed based on the fair value of those rights. As of September 30, 1996, the Company had recorded capitalized mortgage servicing rights of $83,000. (3) COMMITMENTS At September 30, 1996, the Company had the following commitments which are not reflected in the balance sheet: Firm commitments to grant loans $15,397 Standby letters of credit 9,158 Unadvanced home equity lines of credit 29,693 Unadvanced commercial and construction lines of credit 20,205
(4) RECLASSIFICATIONS Certain amounts in the 1995 financial statements have been reclassified to conform to the 1996 presentation. On October 23, 1995, the Board of Directors declared a three-for-two stock split in the form of a 50% stock dividend on the Company's common stock payable on November 27, 1995 to stockholders of record on November 10, 1995. All applicable share and per share data have been adjusted to reflect the effect of the three-for-two split. 8 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL. The Company had net income of $1.9 million for the quarter ended September 30, 1996, equivalent to $.44 per share, as compared with earnings of $2.1 million, equivalent to $.51 per share during the same quarter in 1995. Included in the most recent quarter's results were merger related expenses net of taxes of $680,000 or $.16 per share. For the nine months year-to-date period in 1996, net income was $5.7 million, or $1.35 per share, versus $6.0 million or $1.43 per share for the 1995 period. Following the close of business on May 30, 1996, the Company and Peoples Heritage Financial Group, Inc. ("Peoples Heritage"), a Maine based corporation, entered into an Agreement and Plan of Merger (the "Agreement") which sets forth the terms and conditions under which the Company will merge with and into Peoples Heritage (the "Merger"). The Agreement provides that upon consummation of the Merger, each outstanding share of the Company's common stock will be converted into the right to receive 1.26 shares of common stock of Peoples Heritage. The transaction will be accounted for under the purchase method of accounting. Consummation of the Merger is subject to the approval of the shareholders of Peoples Heritage and the Company and the receipt of all required regulatory approvals, as well as other customary conditions. It is anticipated that the Merger will be completed before year-end 1996. Net interest income was $9.1 million for the third quarter 1996, up $1.1 million from the same period in 1995. Net interest income for the nine-month period was also up from $24.3 million in 1995 to $25.8 million in 1996, a $1.5 million increase. Non interest income was up for the third quarter and year-to-date for 1996 versus 1995, by $398,000 and $741,000 respectively. This was primarily due to an increase in deposit account fees. Operating expenses increased from $5.4 million during the third quarter of 1995 to $7.3 million in the same quarter in 1996. Operating expenses for the nine month period increased $2.9 million for 1996 versus 1995. Included in the nine months results were merger related expenses of $1.4 million. Loans outstanding at September 30, 1996 were $465.4 million, up $6.8 million from $458.6 million at year end 1995. This primarily resulted from an increase in commercial real estate loans of $13.5 million and an increase of $13.6 million in commercial loans. These increases were partially offset by a decline of $11.0 million in consumer loans due to the Company's decision to no longer originate indirect automobile loans; a decline in residential mortgages of $7.2 million due to a decrease in the origination of adjustable-rate mortgages, and a decline in home equity lines of credit of $2.0 million. Non-performing loans were 0.60% of total loans at September 30, 1996, down from 0.95% at December 31, 1995. Non-performing assets were 0.54% of total assets at September 30, 1996. The Company classified 100% of its investment portfolio as "available for sale" in the fourth quarter of 1995. Due to rising interest rates over the first nine months of 1996 the market value of this portfolio was reduced from a net unrealized gain of $1.7 million at December 31, 1995 to an unrealized loss of $2.3 million at September 30, 1996. 9 10 The following table presents average balances (including non-accrual loans), interest income/expense and yield/rate for interest-earning assets and interest-bearing liabilities for the periods indicated.
For the Three Months Ended --------------------------------------------------------------------- September 30, 1996 September 30, 1995 -------------------------------- --------------------------------- Interest Interest Average Income/ Yield/ Average Income/ Yield/ Balance Expense Rate Balance Expense Rate -------------------------------- --------------------------------- Loans $467,023 $10,140 8.68% $472,599 $10,230 8.66% Investment securities 396,734 6,451 6.50 305,943 4,771 6.24 Short-term investments 2,438 31 5.09 7,570 108 5.71 -------------------- --------------------- Average earning assets 866,195 16,622 7.67 786,112 15,109 7.69 Other assets 57,429 51,537 -------- -------- $923,624 $837,649 ======== ======== Interest-bearing deposits $676,051 6,364 3.77 $643,948 6,468 4.02 Borrowed funds 79,689 1,134 5.69 46,817 629 5.37 -------------------- --------------------- Average interest-bearing liabilities 755,740 7,498 3.97 690,765 7,097 4.11 Demand deposits 82,277 68,004 Other liabilities 14,628 14,801 Stockholders' equity 70,979 64,079 -------- -------- $923,624 $837,649 ======== ======== Net interest income $ 9,124 $ 8,012 ======= ======= Average interest-rate spread 3.70 3.58 Net yield on interest-earning assets 4.21% 4.08% For the Nine Months Ended --------------------------------------------------------------------- September 30, 1996 September 30, 1995 -------------------------------- --------------------------------- Interest Interest Average Income/ Yield/ Average Income/ Yield/ Balance Expense Rate Balance Expense Rate -------------------------------- --------------------------------- Loans $463,863 $29,945 8.61% $470,970 $30,116 8.53% Investment securities 377,005 18,042 6.38 294,846 13,805 6.24 Short-term investments 6,126 241 5.25 8,746 383 5.84 -------------------- --------------------- Average earning assets 846,994 48,228 7.59 774,562 44,304 7.63 Other assets 55,594 48,855 -------- -------- $902,588 $823,417 ======== ======== Interest-bearing deposits $666,118 19,274 3.86 $637,427 18,136 3.79 Borrowed funds 75,691 3,174 5.59 46,281 1,876 5.40 -------------------- --------------------- Average interest-bearing liabilities 741,809 22,448 4.03 683,708 20,012 3.90 Demand deposits 78,100 65,174 Other liabilities 13,164 10,456 Stockholders' equity 69,515 64,079 -------- -------- $902,588 $823,417 ======== ======== Net interest income $25,780 $24,292 ======= ======= Average interest-rate spread 3.56 3.73 Net yield on interest-earning assets 4.06% 4.18%
10 11 RESULTS OF OPERATIONS NET INCOME. The Company had net income of $1.9 million, or $.44 per share, for the quarter ended September 30, 1996 versus net income of $2.1 million, or $.51 per share, for the quarter ended September 30, 1995. Included in the 1996 results are merger related expenses net of taxes of $680,000, equivalent to $.16 per share. The merger related expenses pertain to the previously announced acquisition of the Company by Portland, Maine based Peoples Heritage Financial Group. Net income for the first nine months of 1996 was $5.7 million, or $1.35 per share as compared with earnings of $6.0 million, or $1.43 per share during the same period in 1995. Merger related expenses for the first nine months of 1996 totaled $1.1 million net of taxes, equivalent to $.27 per share. Excluding merger related expenses, earnings for the quarter would have been 21.2% greater than for the third quarter last year and earnings for the first nine months of 1996 would have been 13.4% greater than for the same period in 1995. INTEREST AND DIVIDEND INCOME. Interest and dividend income was $16.6 million in the third quarter of 1996 versus $15.1 million in 1995's third quarter, an increase of 9.9%. Interest and dividends on securities increased $1.7 million from $4.8 million in 1995 to $6.5 million in 1996. This resulted from a $90.8 million increase in the average balance outstanding, coupled with an average yield increase of 26 basis points from the third quarter of 1995 to 1996's third quarter. Interest and fees on loans decreased $90,000 primarily due to a decrease in the average balance outstanding of $5.6 million. The average yield on loans was basically the same for both the third quarter 1996 and 1995. Interest on short term securities dropped $77,000 as the average balance outstanding declined $5.2 million from $7.6 million in 1995 to $2.4 million in 1996. The average yield on these investments decreased from 5.71% in 1995 to 5.09% in 1996. Interest and dividend income increased $3.9 million for the first nine months of 1996 compared to the same period in 1995. This is attributable to a growth in average earning assets of $72.4 million from year-to-year, partially offset by a slight decrease in the average yield on these assets of 4 basis points. Interest and dividends on securities increased by $4.2 million from $13.8 million in 1995 to $18.0 million in 1996. This resulted from an increase in the average balance outstanding from $294.8 million in 1995 to $377.0 million in 1996 an increase of $82.2 million. Interest and fees on loans remained relatively the same year-to-year as the average loans outstanding for the period declined $7.1 million, but the average yield on these loans increased from 8.53% in 1995 to 8.61% in 1996. INTEREST EXPENSE. Interest expense increased $401,000 from $7.1 million for the third quarter of 1995 to $7.5 million for the third quarter of 1996. This resulted from an increase of $64.9 million in the average balance outstanding of interest-bearing liabilities from $690.8 million in 1995 to $755.7 million for the third quarter of 1996. The average rate on these liabilities decreased 14 basis points over the same periods. The average balance outstanding on interest-bearing deposits rose $32.2 million period-to-period and the average rate paid on these deposits decreased from 4.02% in 1995 to 3.77% in 1996. The average balance outstanding on borrowed funds also increased by $32.9 million and the rate on these funds increased by 0.32%. Interest expense for the comparable nine month period was up $2.4 million, from $20.0 million for 1995 to $22.4 million for 1996, primarily due to an increase in volume. Average interest-bearing liabilities outstanding rose $58.1 million from $683.7 million in 1995 to $741.8 in 1996. Average interest-bearing deposits outstanding increased $28.7 million year-to-year and the rate paid on these deposits increased from 3.79% in 1995 to 3.86% in 1996. Average borrowed funds outstanding increased from period-to-period by $29.4 million. The rate paid on these funds increased by 0.19%. PROVISION FOR LOAN LOSSES. Management considers many factors when assessing the adequacy of the allowance for loan losses and thus the amount of any provision for losses. These may include the collectibility of specific loans in light of historical experience, known and inherent risks in the nature and volume of the loan portfolio, adverse situations that may affect the borrower's ability to repay, the estimated value of any underlying collateral and prevailing economic conditions. Ultimate loan losses may vary significantly from current estimates. The Company made a provision for loan losses of $250,000 in the third quarter of 1996 and 1995. The level of non-performing loans declined to $2.8 million at September 30, 1996 from $5.7 million at September 30, 1995. Non-performing loans to total loans were 0.60% at September 30, 1996 versus 1.23% at September 30, 1995. A provision of $750,000 was made for the first nine months of 1996 and 1995. Net charge-offs on loans decreased from $928,000 in 1995 to $201,000 in the 1996 period. 11 12 The Company's allowance for loan losses was $7.0 million at September 30, 1996, which represents 251.39% of non-performing loans and 1.50% of total loans, versus an allowance for loan losses at September 30, 1995 of $6.5 million or 114.01% of non-performing loans and 1.41% of total loans. OTHER INCOME (CHARGES). Other income increased from $1.3 million in the third quarter of 1995 to $1.7 million in 1996. Deposit fee income increased $404,000 or 41.8% period-to-period. This was mainly attributable to the continued success of the Company's retail checking account program which was initiated in the first quarter of 1996. Mortgage and security sales resulted in a net gain of $89,000 in the third quarter of 1996 versus a net gain of $117,000 in the 1995 period. Other income for the first nine months of 1996 was $4.9 million, up $800,000 from $4.1 million in the prior year period. This was mainly due to the increase in deposit fee income of $847,000 or 29.7% resulting from the new checking program. Mortgage and security gains were down $120,000 period-to-period. PROVISION FOR INCOME TAX. The provision for income taxes was calculated assuming an effective tax rate of 41.8% for the third quarter of 1996 and 41.9% for the third quarter of 1995. The provision for the first nine months of 1996 was 40.2% versus 40.8% for the 1995 period. Excluding merger related expenses, some of which are not tax deductible, the Company's effective tax rate for the nine months of 1996 would have been 37.5%. The Company has reduced its state tax liability through the use of tax-advantaged securities corporations as allowed by Massachusetts law. The securities corporations are subsidiaries of the Company's bank subsidiary. 12 13 FINANCIAL CONDITION ------------------- GENERAL. Total assets were $917.8 million at September 30, 1996, up from $892.2 million at December 31, 1995 and $854.6 million at September 30, 1995. Investment securities increased $29.5 million from year-end 1995 to $380.9 million at September 30, 1996. Loans increased by $6.8 million from year-end 1995 to September 30, 1996 due to an increase in commercial mortgage loans of $13.5 million and other commercial loans of $13.6 million, partially offset by a decline in consumer loans of $11.0 million, a decline in residential real estate of $7.2 million and a decline in home equity lines of credit of $2.0 million. Total deposits increased $28.6 million from $734.0 million at year-end 1995 to $762.6 million at September 30, 1996. The balance in transaction accounts increased $13.5 million for the period. LOANS. Total loans outstanding at September 30, 1996 were $465.4 million as compared to $458.6 million at December 31, 1995. Commercial loans rose to $194.2 million at September 30, 1996, up $27.0 million from year-end 1995. In particular, non-real estate commercial loans rose $13.9 million during the nine month period. Residential real estate has declined over the nine month period due to a decrease in the origination of adjustable-rate mortgages. Adjustable-rate mortgages and fixed-rate mortgages having final maturities of ten years or less are typically originated for the Company's loan portfolio. Consumer loans have decreased due to the Company's decision to no longer originate indirect automobile loans. The Company determined that such loans presented higher risks and lower yields than alternative investment options. The following table presents the composition of the Company's loan portfolio at the dates indicated:
September 30, 1996 December 31, 1995 ------------------ ----------------- Real Estate: Residential $189,233 $196,404 Commercial 140,999 127,457 Construction 4,142 4,291 Home Equity Line of Credit 41,515 43,605 Commercial Loans 49,079 35,441 Consumer 40,419 51,380 -------- -------- Total Loans 465,387 458,578 Less:Deferred income on loans (971) (952) Allowance for loan losses (6,976) (6,427) -------- -------- Loans, net $457,440 $451,199 ======== ========
13 14 ALLOWANCE FOR LOAN LOSSES. Funds provided for possible loan losses for both the third quarter of 1996 and 1995 were $250,000. Net charge-offs in the third quarter of 1996 totaled $34,000 compared to net recoveries of $1,000 for the prior year period. The allowance for loan losses is maintained at a level determined by management to be adequate to provide for probable losses inherent in the loan portfolio, including commitments to extend credit. The allowance is established through a provision for loan losses which is a charge to operations. The determination of the adequacy of the allowance involves substantial uncertainties and is based upon management's periodic assessment of risk elements in the portfolio, factors affecting loan quality and assumptions about the economic environment. In addition, management analyzes current levels and trends in charge-off, delinquency and nonaccruing loan data, as well as, forecasted economic conditions and the overall banking environment. The following table analyzes changes in the allowance for loan losses over the past five quarters:
For the Quarter Ended ----------------------------------------------------- 9/30/96 6/30/96 3/31/96 12/31/95 9/30/95 ------- ------- ------- -------- ------- (In Thousands) Allowance, beginning of period $6,760 6,506 $6,427 $6,536 $6,285 Provision 250 250 250 400 250 ------ ------ ------ ------ ------ 7,010 6,756 6,677 6,936 6,535 ------ ------ ------ ------ ------ Charge-offs: Commercial 9 19 39 397 -- Residential 71 119 69 27 94 Consumer 90 106 170 189 119 ------ ------ ------ ------ ------- Total charge-offs 170 244 278 613 213 ------ ------ ------ ------ ------- Recoveries: Commercial 115 218 82 90 167 Residential -- 9 -- -- 8 Consumer 21 21 25 14 39 ------ ------ ------ ------ ------ Total recoveries 136 248 107 104 214 ------ ------ ------ ------ ------ Net charge-offs (recoveries) 34 (4) 171 509 (1) ------ ------ ------ ------ ------ Allowance, end of period $6,976 $6,760 $6,506 $6,427 $6,536 ====== ====== ====== ====== ====== Allowance as a percentage of: Total loans 1.50% 1.49% 1.44% 1.40% 1.41% Non-performing loans 251.39% 197.37% 187.27% 146.77% 114.01%
14 15 NON-PERFORMING ASSETS. Non-performing assets totaled $4.9 million at September 30, 1996, a decrease of $2.9 million from $7.8 million at December 31, 1995. This decrease was mainly due to a reduction of $1.6 million in the balance of nonaccruing loans and a decline in other real estate owned of $1.3 million. It is the Company's policy to discontinue the accrual of interest and reverse any unpaid accrued amounts when a loan is past due 90 days or more, or when, in the judgement of management, the collectibility of principal or interest becomes doubtful. The Company may continue to accrue interest on loans past due 90 days or more if the loans are well secured and in the process of collection. Impaired loans amounting to $1.1 million at September 30, 1996 are included in various categories in the table below and the allowance for losses on impaired loans was $282,000 at September 30, 1996. An impaired loan is a loan for which it is probable that the lender will not be able to collect all amounts due according to the contractual terms of the loan agreement. An impaired loan is required to be measured on a loan by loan basis either by the present value of expected future cash flows discounted at the loan's effective interest rate, the loan's obtainable market price, or the fair value of the collateral if the loan is collateral dependent. Substantially all of the Company's loans which have been impaired have been measured by the fair value of existing collateral. Restructured loans have generally been modified to provide the borrower a below market rate or more favorable repayment terms as a result of a change in the borrower's financial condition. The Bank could also require that the modified loan be secured by additional collateral if available. Restructured loans typically remain on non-accrual status until adequate performance, under the restructuring agreement, is demonstrated. Other real estate owned is real estate acquired through foreclosure or by deed in lieu of foreclosure. At September 30, 1996, 71.7%, or $1.6 million of other real estate owned was comprised of one commercial property. The following table sets forth the principal balance of: (a) loans on a nonaccrual basis, (b) other real estate owned, (c) accruing, restructured loans, and (d) other impaired loans not included in categories (a) through (c).
9/30/96 6/30/96 3/31/96 12/31/95 9/30/95 ------- ------- ------- -------- ------- (In Thousands) Nonaccruing loans $2,775 $ 3,425 $ 3,474 $ 4,379 $ 5,733 Other real estate owned 2,161 3,659 4,057 3,430 3,840 ------ ------ ------ ------- ------- Total non-performing assets 4,936 7,084 7,531 7,809 9,573 Accruing, restructured loans 967 831 3,042 3,722 1,459 Other impaired loans 315 305 443 1,202 -- ------ ------ ------- ------- ------- Total $6,218 $8,220 $11,016 $12,733 $11,032 ====== ====== ======= ======= =======
15 16 INVESTMENTS. Investment securities represent a significant portion of the Company's earning assets. Investment securities totaled $380.9 million, or 41.5% of total assets, at September 30, 1996 and $351.4 million, or 39.4% of total assets, at December 31, 1995. The Company classified 100% of its investment portfolio as "available for sale" in the fourth quarter of 1995. The Company had an unrealized gain on its "available for sale" securities of $1.7 million at December 31, 1995, but due to a rising interest rate environment during the first nine months of 1996 the Company had an unrealized loss of $2.3 million at September 30, 1996. The following table presents the amortized cost of investment securities at the dates indicated:
September 30, 1996 December 31, 1995 ------------------ ----------------- (In Thousands) U.S. Treasury and government agencies $ 54,485 $ 51,987 State and municipal obligations 5,540 790 Other bonds and obligations 22,609 36,022 Mortgage-backed securities 106,899 141,643 REMICs and CMOs 180,748 98,205 Other asset-backed securities 1,498 8,277 Marketable equity securities 4,874 7,603 Restricted equity securities 6,591 5,231 Unrealized gain (loss) on securities available for sale (2,301) 1,679 ------- -------- $380,943 $351,437 ======== ========
FIXED ASSETS. The Company's fixed assets are little changed from December 31, 1995 to September 30, 1996. The Company has no plans for major cash outlays for fixed assets in the immediate future. DEPOSITS. Deposits represent the major source of funding for earning assets. Deposit flows vary in response to prevailing rates, economic conditions and competition. The Company's deposit mix shifted somewhat in 1996 from 1995 and transaction accounts rose from 22% of total deposits at December 31, 1995 to 23% of September 1996. The Company initiated a program in the first quarter of 1996 to increase its base of transaction accounts in an effort to build customer relationships and reduce it interest cost of funds. The balance in transaction accounts increased $13.5 million to $175.9 million at September 30, 1996 from $162.4 million at year-end 1995, primarily as a result of this program. FEDERAL HOME LOAN BANK ADVANCES. Advances from the Federal Home Loan Bank (FHLB) of Boston are utilized from time to time to fund long-term, fixed-rate loan commitments and liquidity needs. At September 30, 1996, these advances totaled $64.5 million as compared to $72.2 million at December 31, 1995. LIQUIDITY AND CAPITAL RESOURCES. The Company's principal sources of liquidity are payments of loan principal, maturities of investment securities principal payments on asset-backed securities, retail deposits and advances from the FHLB. These sources of liquidity are used to fund new loans and investments and other capital requirements which arise in the normal course of the Company's business activities. The objective of liquidity management is to assess and provide for the Company's funding requirements for loans and deposits while striving to allocate available assets for optimum investment. The Company's banking subsidiary must meet minimum capital adequacy standards set by its regulator, the Office of Thrift Supervision. Banks are required by the OTS to maintain a minimum core capital ratio of 3.00%, and a minimum capital to risk-weighted assets ratio of 8.00%. At September 30, 1996, Family Bank maintained a core capital ratio of 6.53%, and a risk-based capital ratio of 10.61%. The after tax effect of SFAS No. 115 on stockholders' equity, goodwill and certain real estate investments are not included in capital when calculating these regulatory capital to asset ratios. The Company's capital to asset ratio as defined by generally accepted accounting principles (GAAP) was 7.94% at September 30, 1996. IMPACT OF INFLATION. The consolidated financial statements and related consolidated financial data present herein have been prepared in accordance with generally accepted accounting principles which require the measurement of financial positions and operating results in terms of historical dollars and without considering change in the relative purchasing power of money over time due to inflation. The primary impact of inflation on operations of the Company is reflected in increased operating costs. Unlike most industrial companies, virtually all of the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates have a more significant impact on a financial institution's performance than the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or at the same magnitude as the price of goods and services. 16 17 PART II - OTHER INFORMATION Item 1. Legal Proceedings None Item 2. Changes in Securities None Item 3. Defaults Upon Senior Securities None Item 4. Submission of Matters to a Vote of Security Holders Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K None 17 18 SIGNATURES Under the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Family Bancorp and Subsidiary ----------------------------- Date: November 12, 1996 By: /s/ David D. Hindle ----------------- ------------------------------ David D. Hindle Chief Executive Officer Date: November 12, 1996 By: /s/ MaryAnn Soursourian ----------------- ------------------------------ MaryAnn Soursourian Principal Financial and Acctg Officer 18 EX-27 2 FINANCIAL DATA SCHEDULE
9 1,000 U.S. DOLLARS 9-MOS DEC-31-1996 JAN-01-1996 SEP-30-1996 1 31,942 679,122 2,990 0 380,943 0 0 465,387 6,976 917,797 762,562 0 17,781 64,544 562 0 0 72,348 917,797 29,945 18,028 255 48,228 19,275 22,448 25,780 750 342 20,357 9,528 9,528 0 0 5,702 1.35 1.35 4.06 2,775 0 967 315 6,427 691 490 6,976 6,976 0 0
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