-----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, HwkT5pictTMR8dvTPQWy3JKg2p0ijosdIZQZOiVb0ZfEJ4Hbkt2NbNWkVm6G9HEg 4lUd+B3wvxUFuiJCtAwI8Q== 0000910647-02-000050.txt : 20020415 0000910647-02-000050.hdr.sgml : 20020415 ACCESSION NUMBER: 0000910647-02-000050 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020314 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SLADES FERRY BANCORP CENTRAL INDEX KEY: 0000857499 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 043061936 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-23904 FILM NUMBER: 02575395 BUSINESS ADDRESS: STREET 1: 100 SLADES FERRY AVE STREET 2: PO BOX 390 CITY: SOMERSET STATE: MA ZIP: 02726 BUSINESS PHONE: 5086757894 MAIL ADDRESS: STREET 1: 100 SLADE FERRY AVE STREET 2: P O BOX 390 CITY: SOMERSET STATE: MA ZIP: 02726 FORMER COMPANY: FORMER CONFORMED NAME: WEETAMOE BANCORP DATE OF NAME CHANGE: 19940502 10-K 1 slad-10k.txt BODY OF FORM 10-K Slade's Ferry Bancorp is a one-bank holding company which owns and controls 100% of the assets of Slade's Ferry Trust Company and its subsidiaries. The primary business of Bancorp is the ongoing business of the Trust Company, a member of the Federal Deposit Insurance Corporation serving as a retail bank. The Bank provides multiple deposit products and a wide range of financial services - including consumer installment loans, residential and commercial mortgages, and other forms of commercial lending - and actively competes with a variety of other financial institutions by offering competitive rates. Adhering to an established philosophy of providing professional, highly personalized service throughout its marketplace, Slade's Ferry serves a broad customer base from southeastern Massachusetts and nearby Rhode Island. The Bank operates strategically located retail facilities and multiple ATMs in the towns and cities of Fairhaven, Fall River, New Bedford, Seekonk, Somerset and Swansea, MA. Slade's Ferry Trust Company is an Equal Opportunity/Affirmative Action Employer (M/F/D/V). Corporate offices are located at 100 Slade's Ferry Avenue, Somerset, MA. Dear Shareholders, As the tragic events of September 11th impacted all of us in 2001, so also did the actions of the Federal Open Market Committee impact all financial institutions. Eleven reductions in the prime rate and other related rates severely reduced our net interest margin, as deposit and loan rates dropped to levels last seen in the nineteen fifties. The assets of the bank grew by $6,141,207 to $394,760,563 or an increase of 1.58%, while net loans decreased from $250,848,831 to $248,017,635, a reduction of 1.13%. As a result of the prime rate reductions and the subsequent repricing of our assets, our net income earnings dropped by $864,186 to $3,210,253 from $4,074,439 in 2000, a decrease of 21.2%. As we begin 2002, our net interest spreads appear to be slowly improving, and the prospects for an economic recovery are improving. We anticipate little improvement in short term rates until the fourth quarter of 2002, and further improvement in 2003. The bank expanded its products and services in April with the addition of the Investors Marketplace, staffed by Christina King and Jessica DeMarco. Both are licensed to sell investment products such as stocks, bonds, mutual funds, and annuities. We also initiated our web site in the spring of 2002 and you can visit us at www.sladesferry.com. As I recently wrote to you, I have elected early retirement and will be finalizing my career on the 29th of March. It has been a true privilege and honor to serve as the President of your bank, and I want to express my sincere appreciation for your support and well wishes. ----------------------- James D. Carey UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001 Commission file number 000-23904 --------- SLADE'S FERRY BANCORP ------------------------------------------------------ (Exact name of registrant as specified in its charter) MASSACHUSETTS 04-3061936 - ------------------------------- ---------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 100 Slade's Ferry Avenue Somerset, Massachusetts 02726 - ---------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (508) 675-2121 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01 par value 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 and (2) has been subject to such filing requirements for the past 90 days. Yes X No Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-K contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this form 10-K. [ ] The aggregate market value of the voting stock of Slade's Ferry Bancorp, held by nonaffiliates of the registrant as of February 22, 2002 was approximately $45,028,961. On that date, there were 3,883,643.200 shares of Slade's Ferry Bancorp Common Stock, $.01 par value outstanding. DOCUMENTS INCORPORATED BY REFERENCE Proxy Statement for Annual Meeting of Stockholders April 08, 2002 incorporated by reference into Part III. PART I ITEM 1 BUSINESS Description of Business Business of Slade's Ferry Bancorp - --------------------------------- Slade's Ferry Bancorp ("the Company") is a business corporation that was organized under the laws of the Commonwealth of Massachusetts on June 13, 1989 as Weetamoe Bancorp. The name Weetamoe Bancorp was changed to Slade's Ferry Bancorp effective January 1, 1997. The office of Slade's Ferry Bancorp is located at the office of the Bank at 100 Slade's Ferry Avenue, Somerset, Massachusetts, 02726, and its telephone number is the same as the Bank's: (508)675-2121. The Company was organized for the purpose of becoming the holding company of the Bank. The Company's acquisition of the Bank was completed on April 1, 1990. The Bank (Slade's Ferry Trust Company) is a wholly-owned subsidiary of Slade's Ferry Bancorp. Competition - ----------- The primary business of Slade's Ferry Bancorp is the ongoing business of the Bank. The competitive conditions to be faced by Slade's Ferry Bancorp will be the same as those faced by the Bank. It is likely that, as a holding company, it may compete with other holding companies engaged in bank-related activities. Thus, the Company will face competition in undertaking to acquire other banks, financial institutions or companies engaged in bank- related activities, and in operating subsequent to any such acquisitions. While the Company investigates opportunities to acquire other banks or bank facilities when they occur and may in the future acquire other banks, financial institutions, or bank facilities, it is not currently engaged in any such acquisition. Employees - --------- At present there are three employees of the Bank and the Company whose compensation is paid by the Company. Although the Company has no current plans to do so, if the Company should acquire other financial institutions or pursue other lines of business, it may at such time hire additional employees. Business of Slade's Ferry Trust Company - --------------------------------------- On September 30, 1959, the Slade's Ferry Trust Company opened for business as a state chartered trust company incorporated under the laws of the Commonwealth of Massachusetts and as a member of the Federal Deposit Insurance Corporation (FDIC). The founders were a group of individuals from Somerset, Swansea, Fall River and Seekonk, Massachusetts who recognized the need for a local bank committed to personalized services. During the past three years, assets of the Bank increased by $36.6 Million. The Bank currently has twelve banking facilities extending east from Seekonk, Massachusetts to Fairhaven, Massachusetts. 2 The Bank also provides limited banking services at the Somerset High School. In addition, the Bank in 1999 received regulatory approval to establish a loan production office in Rhode Island. The office is named the Slade's Ferry Loan Company and is a subsidiary of Slade's Ferry Trust Company. The purpose for the loan production office is to solicit commercial and consumer borrowers in the Rhode Island area. The office is prohibited from accepting deposits and payments. In June 1999, the Bank implemented certain state tax planning strategies by establishing a Real Estate Investment Trust (REIT) as a subsidiary of Slade's Ferry Trust Company. The REIT, named the Slade's Ferry Preferred Capital Corporation, provides the means for the Bank to invest into the REIT certain designated, bank-owned real estate mortgage loans. The income derived on these loans is taxed at a reduced state tax rate. The Bank currently services numerous communities in Southeastern Massachusetts and contiguous areas of Rhode Island through its twelve facilities in Fall River, Somerset, Swansea, Seekonk, New Bedford and Fairhaven, and its loan production office in Warwick, Rhode Island. The Bank's major customer base consists of almost 31,500 personal savings, checking and money market accounts, and 10,300 personal certificates of deposit and individual retirement accounts. Its commercial base consists of over 3,000 checking, money market, corporate, and certificate of deposit accounts. The Bank does not have any major target accounts, nor does it derive a material portion of its deposits from any single depositor. It is a retail bank that services the needs of the local communities, and its loans are not concentrated within any single industry or group of related industries that would have any possible adverse effect on the business of the Bank. The Bank's business is not seasonal and its loan demand is well diversified. As of December 31, 2001, commitments under standby letters of credit aggregate approximately $638,371. Services - -------- The Bank engages actively in a broad range of banking activities, including demand, savings, time deposits, related personal and commercial checking account services, real estate mortgages, commercial and installment lending, payroll services, money orders, travelers checks, Visa, MasterCard, safe deposit rentals, automatic teller machines and cash management services. The Bank offers a full range of commercial, installment, student, and real estate loans. The service area of the Bank is approximately 300 square miles, including the southern geographic area of Bristol County, Massachusetts and extends over to the towns of Tiverton, Warren, Bristol and Barrington in the state of Rhode Island. Competition - ----------- The banking business in the market area served by the Bank is highly competitive. The Bank actively competes with other banks, financial institutions, and credit unions, including major banks and bank holding companies which have numerous offices and affiliates operating over wide geographic areas. The Bank competes for deposits, loans, and other business with these institutions. Many of the major commercial banks, or other affiliates in the service areas of the Bank, offer services such as international banking, internet banking, and trust services which are not offered directly by the Bank. 3 Supervision and Regulation Holding Company Regulation - -------------------------- Under the Federal Bank Holding Company Act ("BHCA"), the prior approval of the Federal Reserve Board ("FRB") is required before a corporation may acquire control of a bank. FRB approval must also be obtained before a bank holding company acquires all or substantially all of the assets of a bank, or merges or consolidates with another bank holding company. In considering any applications for approval of an acquisition or merger, the FRB is required to consider the financial and managerial resources of the companies and banks concerned, and the convenience and needs of the communities to be served. As a registered bank holding company, the Company is required to file with the FRB annual and periodic reports and such other additional information as the Board may require. The Company and its subsidiaries are also subject to continuing regulation, supervision and examinations by the FRB. A bank holding company, with certain exceptions, may not acquire more than 5% of the voting shares of any company that is not a bank and may not engage, directly or through subsidiaries, in any activity other than banking, managing or controlling banks, or furnishing services to or performing services for its subsidiaries, without prior approval of the FRB. The FRB is authorized to approve the ownership by a bank holding company of voting shares of any company whose activities the FRB determines to be so closely related to banking or managing or controlling banks as to be a proper incident thereof. Under the FRB's current regulations, and subject to certain restrictions and limitations specified therein, bank holding companies and their subsidiaries may be permitted by the FRB to engage in such non-banking activities as: (1) making, acquiring, or servicing loans or other extensions of credit such as would be made by a mortgage, finance, credit card, or factoring company; (2) operating an industrial bank or industrial loan company; (3) performing the functions of a trust company; (4) acting as an investment or financial advisor; (5) leasing real or personal property or acting as an agent or broker in leasing such property or acting as an agent or broker in leasing property in certain situations; (6) making investments to promote community welfare; (7) providing certain data processing and transmission services; (8) acting as principal, agent, or broker with respect to insurance directly related to extensions of credit by the bank holding company or its subsidiaries, and engaging in certain other insurance activities subject to specified conditions and limitations; (9) providing courier services for checks and certain other instrument exchanges among banks, and for audit and accounting media of a banking or financial nature; (10) providing management consulting advice under specified conditions to banks not affiliated with the bank holding company; (11) issuing and selling retail money orders having a face value of not more than $1,000 and travelers checks and selling U.S. Savings Bonds; (12) performing appraisals of real and personal property; (13) arranging commercial real estate equity financing under certain circumstances; (14) providing securities brokerage services as agent for the accounts of customers; (15) underwriting and dealing in certain government obligations and money market instruments; (16) providing foreign exchange advisory and transactional services; (17) acting as a futures commission merchant in spe cified capacities or providing investment advice as a futures commission merchant or commodity trading advisor with respect to certain financial futures contracts and options; (18) providing consumer financial counseling services; (19) providing tax planning and preparation services; (20) providing check guaranty services to sub scribing merchants; (21) operating a collection agency; and (22) operating a credit bureau. In addition, a bank holding company may file an application for FRB approval to engage, directly or through subsidiaries, in other nonbank activities that the holding company reasonably believes are so closely related to banking as to be a proper incident thereto. 4 In addition, pursuant to the Bank Export Services Act of 1982, a bank holding company may invest up to 5% of its consolidated capital and surplus in shares of an export trading company unless such investment is disapproved by the FRB after notice as provided in that Act. As a bank holding company, the Company will be required to give the FRB prior written notice of any purchase or redemption of its outstanding equity securities if the gross consideration for the purchase or redemption, when combined with the net consideration paid for all such purchases or redemptions during the preceding 12 months, is equal to 10% or more of Bancorp's consolidated net worth. The FRB may disapprove such a purchase or redemption if it determines that the proposal would violate any law, regulation, FRB order, directive, or any condition imposed by, or written agreement with, the FRB. The status of the Company as a registered bank holding company under the BHCA does not exempt it from certain federal and state laws and regulations applicable to corporations generally, including, without limitation, certain provisions of the federal securities laws. Under Massachusetts law, Board of Bank Incorporation approval is required before any company may become a bank holding company by directly or indirectly owning, controlling or holding the power to vote 25% or more of the voting stock of two or more banks. Further, such approval is required prior to a bank holding company's (i) acquiring voting stock of another bank institution if, as a result of the acquisition, such acquirer would, directly or indirectly, own or control more than 5% of the voting stock of such institution, or (ii) engaging in certain other transactions. The Company is not considered a bank holding company under Massachusetts's law since it does not control two or more banks. The activities of the Company, how ever, will be limited under Massachusetts's law to activities described above which would be permissible for a bank holding company registered under the BHCA. In addition, the acquisition by the Company of 25% or more of the voting stock or the power to elect a majority of the directors of another commercial bank, savings bank, cooperative bank, or savings and loan association would subject the Company to regulation as a bank holding company under applicable Massachusetts law and would require the approval of the Massachusetts Board of Bank Incorporation. Bank Regulation - --------------- As a Massachusetts-chartered, FDIC-insured trust company, the Bank is subject to regulation and supervision by the Commissioner of Banks, the FDIC and the FRB. The Massachusetts statutes and regulations govern, among other things, investment powers, deposit activities, borrowings, maintenance of surplus and reserve accounts, distribution of earnings, and payment of dividends. The Bank is also subject to state regulatory provisions covering such matters as issuance of capital stock, branching, and mergers and acquisitions. Deposit accounts at the Bank are insured by the FDIC, generally up to a maximum of $100,000 per insured depositor. As an insurer of deposits of certain thrift institutions and commercial banks, the FDIC issues regulations, conducts examinations, requires the filing of reports, and generally supervises the operations of institutions to which it provides deposit insurance. The approval of the FDIC is required prior to any merger or consolidation with another financial institution, or the establishment or relocation of an office facility. This supervision is intended primarily for the protection of depositors. As an FDIC-insured bank, the Bank is subject to certain FDIC requirements designed to maintain the safety and soundness of individual banks and the banking system. The FDIC periodically conducts 5 examinations of insured institutions and, based upon appraisals, may revalue assets of an insured institution and require establishment of specific reserves in amounts equal to the difference between such revaluation and the book value of the assets. In addition, the FDIC has a regulation which defines and sets minimum requirements for capital adequacy. Bank regulators have implemented risk based capital guidelines that require a bank to maintain certain minimum capital as a percent of such bank's assets and certain off-balance sheet items adjusted for predefined credit risk factors (risk adjusted assets). Under the requirements a minimum level of capital will vary among banks on safety and soundness of operation. At December 31, 2001 the minimum regulatory capital level of Risk Based Capital was 4% for Tier 1 Capital, 8% for Total Capital and Leverage Capital was 4%. The Company, the Bank, the Slade's Ferry Realty Trust, the Slade's Ferry Securities Corporation, the Slade's Ferry Preferred Capital Corporation, and the Slade's Ferry Loan Company are "affiliates" within the meaning of the Federal Reserve Act. Certain provisions of the Federal Reserve Act, made applicable to the Bank by Section 18(j) of the Federal Deposit Insurance Act and administered with respect to the Bank by the FDIC, limit the amounts of and establish collateral requirements with respect to the Bank's loans or extensions of credit to and investments in affiliates. In addition, related provisions of the Federal Reserve Act and FRB regulations also administered with respect to the Bank by the FDIC limit the amounts of and establish required procedures and credit standards with respect to loans and other extensions of credit to officers, directors and principal stockholders of the Bank, of the Company, and of any subsidiaries of the Company, and to related interests of such persons. Recent Regulatory Examinations - ------------------------------ During 2001, the Bank continued to operate under an informal agreement (Memorandum of Understanding) with the Federal Deposit Insurance Corporation and Massachusetts Commissioner of Banks. This agreement was originally entered into in December 2000. Following completion of the most recent joint examination in 2001, a revised Memorandum of Understanding was entered into to be implemented during the first and second quarters of 2002. Under the revised agreement, the Bank agreed to address and implement certain plans, procedures, and policies. These include performing an independent, thorough analysis and assessment of the Bank's management and staffing needs, and formalizing a written management plan. In addition, the Bank agrees to revise and implement loan and credit administration policies, including a written classified and criticized asset reduction plan, a loan risk and collection plan, and a revised loan policy providing for standards applicable to construction lending and concentrations. Other policies and procedures which are to be addressed and implemented relate to wire transfers, Code of Ethics and Conflicts of Interest, and strategic planning. During the life of the agreement, the Bank must maintain a seven (7) percent Tier 1 Leverage Capital ratio. Bank management and the Board of Directors have taken and are continuing to take action to comply with the provisions required by the informal agreement, and are committed to correcting and resolving all issues. 6 Statistical Information - ----------------------- The following supplementary information required under Guide 3 (Statistical Disclosure by Bank Holding Companies) should be read in conjunction with the related financial statements and notes thereto, which are a part of this report. 7 DISTRIBUTION OF ASSETS, LIABILITIES, AND STOCKHOLDERS' EQUITY; INTEREST RATES AND INTEREST DIFFERENTIAL The following table sets forth the Company's average assets, liabilities, and stockholders' equity, interest income earned and interest paid, average rates earned and paid, and the net interest margin for the periods ending December 31, 2001, December 31, 2000, and December 31, 1999. Averages are daily averages.
2001 2000 1999 - --------------------------------------------------------------------------------------------------------------------------------- Average Interest(1) Avg. Int. Average Interest(1) Avg. Int. Average Interest(1) Avg. Int. (Dollars in Thousands) Balance Inc/Exp Rate Balance Inc/Exp Rate Balance Inc/Exp Rate - --------------------------------------------------------------------------------------------------------------------------------- ASSETS: Earning Assets (2) Commercial Loans $ 47,036 $ 4,757 10.11% $ 48,445 $ 4,504 9.30% $ 47,386 $ 4,218 8.90% Commercial Real Estate 153,395 12,989 8.47% 152,580 14,194 9.30% 136,648 12,876 9.42% Residential Real Estate 38,819 2,868 7.39% 36,558 2,877 7.87% 37,523 2,778 7.40% Consumer Loans 12,093 940 7.77% 11,216 911 8.12% 7,678 657 8.56% - --------------------------------------------------------------------------------------------------------------------------------- Total Loans 251,343 21,554 8.57% 248,799 22,486 9.04% 229,235 20,529 8.96% Federal Funds Sold & FHLB Overnight Deposits 23,136 819 3.54% 9,558 583 6.10% 5,563 259 4.66% U.S. Treas/Govt Agencies 72,778 4,258 5.85% 68,606 4,421 6.44% 68,523 4,114 6.00% States & Political Subdivisions 12,498 777 6.22% 11,889 787 6.62% 11,505 748 6.50% Mutual Funds 45 2 4.44% 55 3 5.45% 71 3 4.23% Marketable Equity Securities 4,116 91 2.21% 4,241 89 2.10% 3,470 78 2.25% Other Investments 1,037 67 6.46% 1,066 79 7.41% 1,102 71 6.44% - --------------------------------------------------------------------------------------------------------------------------------- Total Earning Assets 364,953 27,568 7.55% 344,214 28,448 8.26% 319,469 25,802 8.08% - --------------------------------------------------------------------------------------------------------------------------------- Allowance for Loan Losses (5,109) (4,202) (3,814) Unearned Income (443) (552) (640) Cash and Due From Banks 13,351 12,883 14,320 Other Assets 21,837 20,938 17,371 - --------------------------------------------------------------------------------------------------------------------------------- Total Assets $394,589 $373,281 $346,706 ================================================================================================================================= LIABILITIES & STOCKHOLDERS' EQUITY: Savings $ 53,613 $ 878 1.64% $ 50,210 $ 1,006 2.00% $ 48,442 $ 1,022 2.11% NOW's 37,834 700 1.85% 37,785 1,183 3.13% 38,404 994 2.59% Money Market Accounts 9,415 120 1.27% 10,607 174 1.64% 12,188 215 1.76% CD's > $100M 34,483 1,796 5.21% 31,689 1,537 4.85% 26,857 1,325 4.93% Other Time Deposits 141,698 7,839 5.53% 138,637 8,019 5.78% 130,393 6,778 5.20% FHLB Advances & Other Borrowings 15,734 993 6.31% 12,402 780 6.29% 6,413 420 6.55% - --------------------------------------------------------------------------------------------------------------------------------- Total Interest-bearing Liabilities 292,777 12,326 4.21% 281,330 12,699 4.51% 262,697 10,754 4.09% - --------------------------------------------------------------------------------------------------------------------------------- Demand Deposits 64,549 58,588 52,261 Other Liabilities 1,738 1,836 1,057 - --------------------------------------------------------------------------------------------------------------------------------- Total Liabilities 359,064 341,754 316,015 - --------------------------------------------------------------------------------------------------------------------------------- Common Stock 38 37 35 Paid-in Capital 26,264 25,109 22,646 Retained Earnings 9,516 7,648 8,492 Accumulated Other Comprehensive Income (Loss) (293) (1,267) (482) - --------------------------------------------------------------------------------------------------------------------------------- Total Stockholders' Equity 35,525 31,527 30,691 - --------------------------------------------------------------------------------------------------------------------------------- Total Liabilities & Stockholders' Equity $394,589 $373,281 $346,706 ================================================================================================================================= Net Interest Income $15,242 $15,749 $15,048 ================================================================================================================================= Net Interest Spread 3.34% 3.75% 3.99% ================================================================================================================================= Net Yield on Earning Assets 4.18% 4.58% 4.71% ================================================================================================================================= On a fully taxable equivalent basis based on tax rate of 31.40%. Interest income on investments and net interest income includes a fully taxable equivalent adjustment of $244,000 in 2001, $262,000 in 2000, and $249,000 in 1999. Average balance includes non-accruing loans. The effect of including such loans is to reduce the average rate earned on the Company's loans.
8 NET INTEREST INCOME - CHANGES DUE TO VOLUME AND RATE(1)
2001 vs. 2000 2000 vs. 1999 Increase Increase (Decrease) (Decrease) - ----------------------------------------------------------------------------------------------------- Total Due to Due to Total Due to Due to (Dollars in Thousands) Change(2) Volume Rate Change(2) Volume Rate - ----------------------------------------------------------------------------------------------------- Interest Income: Federal Funds Sold & FHLB Overnight Deposit $ 236 $ 655 $ (419) $ 324 $ 215 $ 109 US Treas/Govt Agencies (163) 257 (420) 307 5 302 States & Political Subdivisions (10) 39 (49) 39 25 14 Mutual Funds (1) 0 (1) 0 (1) 1 Marketable Securities 2 (3) 5 11 15 (4) Other Investments (12) (2) (10) 8 (2) 10 Commercial Loans 253 (136) 389 286 96 190 Commercial Real Estate (1,205) 73 (1,278) 1,318 1,492 (174) Residential Real Estate (9) 173 (182) 99 (74) 173 Consumer Loans 29 70 (41) 254 295 (41) - ----------------------------------------------------------------------------------------------------- Total Interest Income (880) 1,126 (2,006) 2,646 2,066 580 - ----------------------------------------------------------------------------------------------------- Interest Expense: Savings Accounts (128) 62 (190) (16) 36 (52) NOW Accounts (483) 1 (484) 189 (18) 207 Money Market Accounts (54) (17) (37) (41) (27) (14) CD's > 100 M 259 141 118 212 236 (24) Other Time Deposits (180) 173 (353) 1,241 453 788 FHLB Advances & Other Borrowings 213 210 3 360 384 (24) - ----------------------------------------------------------------------------------------------------- Total Interest Expense (373) 570 (943) 1,945 1,064 881 - ----------------------------------------------------------------------------------------------------- Net Interest Income $ (507) $ 556 $(1,063) $ 701 $1,002 $ (301) ===================================================================================================== Changes in interest income and interest expense attributable to changes in both volume and rate have been allocated equally to changes due to volume and changes due to rate. The change in interest income on investments and net interest income includes interest on a fully taxable equivalent basis based on a tax rate of 31.40%.
9 Interest Rate Risk - ------------------ The Company considers interest rate risk to be a significant market risk as it could potentially have an effect on the Company's financial condition and results of operation. The definition of interest rate risk is the exposure of the Company's earnings to adverse movements in interest rates. Volatility in interest rates requires the Company to manage interest rate risk, which arises from the differences in the timing of repricing of assets and liabilities. The Company's Asset-Liability Management Committee, comprised of the Bank's Executive Management team, has the responsibility of managing interest rate risk, and monitoring and evaluating the difference between interest-sensitive assets and interest-sensitive liabilities within various time periods. The Company's objective is to reduce and control the volatility of its net interest income by managing the relationship of interest-earning assets and interest-bearing liabilities. In order to manage this relationship, the Committee utilizes a monthly GAP report. The GAP report provides a static analysis of repricing opportunities of rate-sensitive assets and rate-sensitive liabilities. It is prepared by categorizing these assets and liabilities into time periods based upon either their contractual or anticipated maturity or repricing. The analysis determines the net dollar amount of assets less liabilities that are repricing in various time frames. This, in conjunction with certain assumptions and other related factors, such as anticipated changes in interest rates, projected cash flows from loans, investments and deposits, provides a means of evaluating interest rate risk. Management also takes into consideration that certain assets and liabilities react differently to changes in interest rates. The interest sensitivity gap is determined by subtracting the amount of liabilities from the amount of assets that reprice in a particular time period. When more liabilities than assets reprice or mature within a given time frame, a liability sensitive position results (negative gap). A negative gap position would tend to increase net interest income when interest rates are falling, and decrease net interest income when rates are rising. Conversely, an asset sensitive position (positive gap) results when more assets than liabilities reprice within a given period. In this scenario, net interest income would increase when interest rates rise and decrease when rates fall. At December 31, 2001, the following GAP report indicates the Company's interest rate risk to have a reliance on short-term liabilities. This position would have an adverse effect on earnings in a rising rate environment and a positive effect on earnings in a decreasing rate environment. 10 INTEREST RATE - SENSITIVITY GAPS - -------------------------------- Repricing Period at December 31, 2001 - -------------------------------------
Within 1-2 2-3 3-5 Over 5 (Dollars in Thousands) 1 Year Years Years Years Years Total - --------------------------------------------------------------------------------------------------- Interest-Earning Assets: Federal Funds Sold & FHLB Overnight Deposit $ 14,700 $ 0 $ 0 $ 0 $ 0 $ 14,700 Investment Securities(1) 17,780 17,360 18,065 25,497 16,818 95,520 Loans 130,792 28,011 35,596 13,625 45,860 253,884 ----------------------------------------------------------------- Total Earning Assets $163,272 $ 45,371 $53,661 $39,122 $62,678 $364,104 ----------------------------------------------------------------- Interest Bearing Liabilities: NOW Checking and Savings Deposits $ 40,408 $ 11,631 $11,631 $31,015 $ 0 $ 94,685 Money Market Deposits 2,545 1,271 1,271 3,391 0 8,478 Term Deposits 143,172 20,555 4,860 0 0 168,587 FHLB Advances 1,000 0 1,000 0 14,983 16,983 Other Borrowings 465 0 0 0 0 465 ----------------------------------------------------------------- Total Interest-bearing Liabilities $187,590 $ 33,457 $18,762 $34,406 $14,983 $289,198 ----------------------------------------------------------------- Net Interest Sensitivity Gap $(24,318) $ 11,914 $34,899 $ 4,716 $47,695 $ 74,906 Cumulative Gap $(24,318) $(12,404) $22,495 $27,211 $74,906 Cumulative Gap as a Percent of Total Assets (6.16%) (3.14%) 5.70% 6.89% 18.97% ================================================================= Excludes money market mutual funds which are carried in cash and cash equivalents.
In addition to the GAP report, the Company also uses an analysis to measure the exposure of net interest income to changes in interest rates over a relatively short time period (i.e. 12 months). This analysis involves projecting future interest income and expenses from the Company's earning assets and interest-bearing liabilities. Depending on the GAP position, the Company's policy limit on interest rate risk specifies that if interest rates were to change immediately up or down 200 basis points, the effect on estimated net interest income for the next 12 months that would be tolerated would be not more than a ten percent (10%) decrease. The following table reflects the Company's estimated exposure as a percentage of estimated net interest income for the next 12 months, assuming an immediate change in interest rates:
Rate Change Estimated Exposure as a (Basis Points) Percentage of Net Interest Income Dollar Impact - --------------------------------------------------------------------------- +200 (0.72%) ($108,000) -200 (5.51%) ($820,000)
The model used to monitor earnings-at-risk provides management a measurement tool to assess the effect of changes in interest rates on the Company's current and future earnings. The Company's 10% limit establishes an internal tolerance level to control the Company's interest rate risk exposure and is monitored on a quarterly basis. 11 II. INVESTMENT PORTFOLIO The following table shows the book value of the major categories of investment securities Held-to-Maturity for the years indicated:
At December 31, - ---------------------------------------------------------------------- (Dollars in Thousands) 2001 2000 1999 - ---------------------------------------------------------------------- US Treasury Securities and Obligations of US Government Corporations and Agencies $ 2,750 $ 6,948 $ 7,975 Obligations of States and Political Subdivisions of the States 13,528 12,094 11,439 Mortgage-backed securities 3 59 74 Other Debt Securities 1 1 1 - ---------------------------------------------------------------------- Total $16,282 $19,102 $19,489 ======================================================================
In the following table, the carrying value of Held-to-Maturity securities maturing within stated periods as of December 31, 2001, is shown with the weighted average interest yield from securities falling within the range of maturities:
US Treasury Obligations & Government of States & Mortgage- Other Corporations Political Backed Debt (Dollars in Thousands) & Agencies Subdivisions(1) Securities(2) Securities Total - ---------------------------------------------------------------------------------------------------- Due in 1 year or less: Amount $ 2,500 $ 3,240 $ 0 $ 0 $ 5,740 Yield 6.32% 5.23% 0.00% 0.00% 5.70% Due in 1 to 5 years: Amount 0 7,235 3 1 7,239 Yield 0.00% 6.22% 7.83% 7.50% 6.22% Due in 5 to 10 years: Amount 250 1,960 0 0 2,210 Yield 7.00% 6.60% 0.00% 0.00% 6.65% Due after 10 years: Amount 0 1,093 0 0 1,093 Yield 0.00% 6.71% 0.00% 0.00% 6.71% - --------------------------------------------------------------------------------------------------- Amount $ 2,750 $13,528 $ 3 $ 1 $16,282 =================================================================================================== Yield 6.38% 6.08% 7.83% 7.50% 6.13% =================================================================================================== Rates of tax exempt securities are shown assuming a 31.40% tax rate. Mortgage-backed securities stated using average life.
12 The following table shows the amortized cost basis of the major categories of Available-for-Sale securities for the years indicated:
At December 31, - -------------------------------------------------------------- (Dollars in Thousands) 2001 2000 1999 - -------------------------------------------------------------- US Treasury Securities and Obligations of US Government Corporations and Agencies $34,240 $40,934 $41,801 Mortgage-backed Securities 36,129 22,089 16,939 Corporate Debt Securities 2,941 1,473 720 Marketable Equity Securities 6,015 4,582 3,808 - -------------------------------------------------------------- Total $79,325 $69,078 $63,268 ==============================================================
In the following table, the amortized cost basis of Available-for-Sale securities (other than equity securities) maturing within stated periods as of December 31, 2001, is shown with the weighted average interest yield from securities falling within the range of maturities:
US Treasury & Government Mortgage- Corporate Corporations Backed Debt (Dollars in Thousands) & Agencies Securities(1) Securities Total - --------------------------------------------------------------------------------- Due in 1 year or less: Amount $ 798 $ 635 $ 252 $ 1,685 Yield 6.53% 4.05% 5.51% 5.44% Due in 1 to 5 years: Amount 30,946 25,898 2,689 59,533 Yield 5.06% 5.89% 5.97% 5.46% Due in 5 to 10 years: Amount 2,496 7,773 0 10,269 Yield 6.18% 5.80% 0.00% 5.89% Due after 10 years: Amount 0 1,823 0 1,823 Yield 0.00% 5.86% 0.00% 5.86% - -------------------------------------------------------------------------------- Amount $34,240 $36,129 $2,941 $73,310 ================================================================================ Yield 5.17% 5.84% 5.93% 5.53% ================================================================================ Mortgage-backed securities stated using average life.
13 The following table shows the amortized cost basis and fair value of the major categories of Held-to-Maturity securities as of December 31, 2001:
Gross Gross Amortized Unrealized Unrealized (Dollars in Thousands) Cost Basis Holding Gains Holding Losses Fair Value - -------------------------------------------------------------------------------------------------- Debt securities issued by the U.S. Treasury and other U.S. Government corporations and agencies $ 2,750 $ 27 $ 0 $ 2,777 Debt securities issued by states of the United States and political subdivisions of the states 13,528 292 11 13,809 Mortgage-backed securities 3 0 0 3 Other debt securities 1 0 0 1 - ------------------------------------------------------------------------------------------------ Total $16,282 $319 $11 $16,590 ================================================================================================
Investments in Available-for-Sale securities are carried at fair value on the balance sheet and are summarized as follows as of December 31, 2001.
Gross Gross Amortized Unrealized Unrealized (Dollars in Thousands) Cost Basis Holding Gains Holding Losses Fair Value - -------------------------------------------------------------------------------------------------- Debt securities issued by the U.S. Treasury and other U.S. Government corporations and agencies $34,240 $ 508 $ 83 $34,665 Marketable Equity 6,015 297 1,158 5,154 Mortgage-backed securities 36,129 332 94 36,367 Corporate debt securities 2,941 70 5 3,006 - ------------------------------------------------------------------------------------------------ Total $79,325 $1,207 $1,340 $79,192 ================================================================================================
Decrease in Stockholder's Equity: (In Whole Dollars) Net unrealized loss on Available-for-Sale Securities $132,759 Less tax effect (11,816) -------- $120,943 ========
14 III. LOAN PORTFOLIO The following table shows the Company's amount of loans by category at the end of each of the last five years.
At December 31, - -------------------------------------------------------------------------------------------------------------- (Dollars in Thousands) 2001 2000 1999 1998 1997 - -------------------------------------------------------------------------------------------------------------- Commercial, financial and agricultural $ 45,238 $ 49,331 $ 46,354 $ 43,777 $ 36,641 Real estate - construction and land development 7,600 8,601 5,014 3,773 6,678 Real estate - residential 60,936 55,871 52,330 51,220 55,477 Real estate - commercial 128,888 128,327 127,938 112,913 108,008 Consumer 10,643 12,872 9,393 6,477 6,747 Nonprofit 236 1,036 904 0 0 Obligations of states and political subdivisions 21 61 0 3 9 Other 322 54 116 67 176 - -------------------------------------------------------------------------------------------------------------- 253,884 256,153 242,049 218,230 213,736 Allowance for Loan Losses (5,484) (4,776) (3,766) (3,569) (3,694) Unamortized adjustment to fair value (0) (9) (20) (32) (42) Unearned Income (382) (519) (594) (691) (690) - -------------------------------------------------------------------------------------------------------------- Net Loans $248,018 $250,849 $237,669 $213,938 $209,310 ==============================================================================================================
The following table shows the maturity distributions and interest rate sensitivity of selected loan categories at December 31, 2001.
Within One One to Five After Five (Dollars in Thousands) Year Years Years Total - --------------------------------------------------------------------------------------------------- Commercial, financial, and agricultural $39,494 $2,350 $3,394 $45,238 Real Estate - construction & land development 2,519 3,014 2,067 7,600 - --------------------------------------------------------------------------------------------------- Total $42,013 $5,364 $5,461 $52,838 ===================================================================================================
The following table shows the amounts, included in the table above, which are due after one year and which have fixed interest rates and adjustable rates:
Total Due After One Year - ----------------------------------------------------------------------------------------- (Dollars in Thousands) Fixed Rate Adjustable Rate Total Commercial, financial, and agricultural $5,090 $ 654 $ 5,744 Real Estate - construction & land development 1,675 3,406 5,081 - ----------------------------------------------------------------------------------------- Total $6,765 $4,060 $10,825 =========================================================================================
15 NONACCRUAL, PAST DUE AND RESTRUCTURED LOANS
December 31, - ----------------------------------------------------------------------------------------------------- (Dollars in Thousands) 2001 2000 1999 1998 1997 - ----------------------------------------------------------------------------------------------------- Nonaccrual loans $ 1,138 $ 2,415 $ 1,777 $ 3,331 $4,597 Loans 90 days or more past due and still accruing 444 335 248 317 147 Real estate acquired by foreclosure or substantively repossessed 0 0 353 1,026 159 - ----------------------------------------------------------------------------------------------------- Total nonperforming assets $ 1,582 $ 2,750 $ 2,378 $ 4,674 $4,903 - ----------------------------------------------------------------------------------------------------- Restructured debt performing in accordance with amended terms, not included above $ 186 $ 53 $ 518 $ 867 $1,265 - ----------------------------------------------------------------------------------------------------- Percentage of nonaccrual loans to total loans 0.45% 0.94% 0.73% 1.53% 2.15% Percentage of nonaccrual loans, restructured loans and real estate acquired by foreclosure or substantively repossessed to total assets 0.34% 0.64% 0.74% 1.54% 2.00% Percentage of allowance for loan losses to nonaccrual loans 481.90% 197.76% 211.92% 107.15% 80.36%
Nonaccrual loans include restructured loans of $137,000 at December 31, 2001; $153,000 at December 31, 2000; $0 at December 31, 1999; $0 at December 31, 1998; and $263,000 at December 31, 1997. Information with respect to nonaccrual and restructured loans for the past five years ending December 31 is as follows:
December 31, - ------------------------------------------------------------------------------------------------- (Dollars in Thousands) 2001 2000 1999 1998 1997 - ------------------------------------------------------------------------------------------------- Nonaccrual loans $1,138 $2,415 $1,777 $3,331 $4,597 Interest income that would have been recorded under original terms $ 109 $ 228 $ 146 $ 318 $ 394 Interest income recorded during the period $ 6 $ 22 $ 37 $ 37 $ 58
Nonperforming assets include nonaccrual loans, loans past due 90 days or more and still accruing, restructured loans not performing in accordance with amended terms, and other real estate acquired through foreclosure. Nonperforming assets as a total decreased to $1.6 Million at year end 2001, from $2.8 Million reported at year end 2000. Nonaccrual loans is the largest component of nonperforming assets, and at December 31, 2001, this category decreased by $1.3 Million from December 31, 2000. There are no loans greater than $0.3 Million in this category, which is comprised of $0.8 Million of residential mortgages, $0.2 Million of commercial real estate loans, and $0.1 Million of other types of loans. Loans that became nonaccrual during the current year amounted to $1,762,654. Offsetting this increase were receipts of loan payments of $2,939,823 and loans of $99,885 that were deemed uncollectible and charged off to the Allowance for Loan Losses. No loans on nonaccrual status were transferred to accrual status. 16 The Company places a loan on nonaccrual status when, in the opinion of management, the collectibility of the principal and interest becomes doubtful. Generally, when a commercial loan, commercial real estate loan or a residential real estate loan becomes past due 90 days or more, the Company discontinues the accrual of interest and reverses previously accrued interest. The loan remains in the nonaccrual status until the loan is current and six consecutive months of payments are made, then it is reclassified as an accruing loan. When it is determined that the collectibility of the loan no longer exists, it is charged off to the Allowance for Loan Losses or, if applicable, any real estate that is collateralizing the loan is acquired through foreclosure, at which time it is categorized as Other Real Estate Owned. IV. SUMMARY OF LOAN LOSS EXPERIENCE The table below illustrates the changes in the Allowance for Loan Losses for the periods indicated.
(Dollars in Thousands) 2001 2000 1999 1998 1997 - --------------------------------------------------------------------------------------- Balance at January 1 $4,776 $3,766 $3,569 $3,694 $3,354 - --------------------------------------------------------------------------------------- Charge-offs: Commercial (73) (194) (221) (0) (40) Real estate-construction (0) (0) (0) (0) (0) Real estate-mortgage (0) (23) (23) (716) (147) Installment/Consumer (28) (138) (158) (76) (68) - --------------------------------------------------------------------------------------- (101) (355) (402) (792) (255) - --------------------------------------------------------------------------------------- Recoveries: Commercial 14 50 11 8 41 Real estate-construction 0 0 0 0 0 Real estate-mortgage 29 92 24 43 16 Installment/Consumer 16 23 14 16 38 - --------------------------------------------------------------------------------------- 59 165 49 67 95 - --------------------------------------------------------------------------------------- Net Charge-offs (42) (190) (353) (725) (160) - --------------------------------------------------------------------------------------- Additions charged to operations 750 1,200 550 600 500 Allowance attributable to acquisition 0 0 0 0 0 - --------------------------------------------------------------------------------------- Balance at December 31: 5,484 $4,776 $3,766 $3,569 $3,694 ======================================================================================= Allowance for Loan Losses as a percent of year end loans 2.16% 1.86% 1.56% 1.64% 1.73% Ratio of net charge-offs to average loans outstanding (0.02%) (0.08%) (0.15%) (0.34%) (0.08%)
17 The Allowance for Loan Losses at year end December 31, 2001 was $5,484,519 and $4,776,360, $3,765,872, $3,569,282, and $3,693,865 for years ending 2000, 1999, 1998, and 1997 respectively. The Allowance for Loan Losses as a percent of year end loans was 2.16% in 2001, 1.86% in 2000, 1.56% in 1999, 1.64% in 1998, and 1.73% in 1997. The level of the Allowance for Loan Losses is evaluated by management and encompasses several factors. These factors include but are not limited to recent trends in the nonperforming loans, the adequacy of the assets which collateralize the nonperforming loans, the level of nonaccrual loans, current economic conditions in the market area and various other external and internal factors. During 2000, management made the decision to change the methodology and guidelines used in calculating the adequate level of loan loss reserves. Increasing credit risk due to a higher commercial real estate loan portfolio and a rising interest rate environment are responsible for the review and change in the methodology and guidelines. Management's assessment of the adequacy of the Allowance for Loan Losses is reviewed by regulators, the Company's independent accountants, and outside loan review consultants. The Company's provision for loan losses, which is a deduction from earnings, in 2001 was $750,000.. Prior years' provisions were $1,200,000, $550,000, $600,000 and $500,000 for years ending 2000, 1999, 1998, and 1997 respectively. In 2001, the Company realized recoveries of previously charged-off loans of $59,000. Recoveries recorded in previous years were $165,000, $49,000, $67,000, and $95,000 in 2000, 1999, 1998, and 1997 respectively. The amount provided to the Allowance for Loan Losses was deemed appropriate by management after full consideration of the value of the assets securing the nonaccrual loans. The table below shows an allocation of the allowance for loan losses as of the end of each of the last five years. ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
December 31, 2001 December 31, 2000 December 31, 1999 December 31, 1998 December 31, 1997 - --------------------------------------------------------------------------------------------------------------------------------- Percent of Percent of Percent of Percent of Percent of Loans in Loans in Loans in Loans in Loans in Each Each Each Each Each Category to Category to Category to Category to Category to Amount Total Loans Amount Total Loans Amount Total Loans Amount Total Loans Amount Total Loans - --------------------------------------------------------------------------------------------------------------------------------- (Dollars in Thousands) Commercial(5) $1,629(1) 17.91% $1,466(1) 19.66% $1,356(1) 19.52% $1,249(1) 20.06% $ 984(1) 17.14% Real estate Construction 41 2.99% 47 3.36% 34 2.07% 27 1.73% 44 3.12% Real estate Mortgage 3,585(2) 74.77% 2,970(2) 71.91% 1,924(2) 74.48% 1,964(2) 75.21% 2,311(2) 76.50% Consumer(3) 229(4) 4.33% 293(4) 5.07% 452(4) 3.93% 329(4) 3.00% 355(4) 3.24% - ------------------------------------------------------------------------------------------------------------------------------ $5,484 100.00% $4,776 100.00% $3,766 100.00% $ 3,569 100.00% $3,694 100.00% ============================================================================================================================== Includes amounts specifically reserved for impaired loans of $780,029 as of December 31, 2001, $281,248 as of December 31, 2000, $234,205 as of December 31, 1999, $128,207 as of December 31, 1998 and $42,937 as of December 31, 1997, as required by Financial Accounting Standard No. 114, Accounting for Impairment of Loans. Includes amounts specifically reserved for impaired loans of $413,663 as of December 31, 2001, $132,911 as of December 31, 2000, $147,884 as of December 31, 1999, $187,554 as of December 31, 1998, and $566,220 as of December 31, 1997, as required by Financial Accounting Standard No. 114, Accounting for Impairment of Loans. 18 Includes consumer, obligations of states and political subdivisions and other. Includes amounts specifically reserved for impaired loans of $1,632 as of December 31, 2001, $10,398 as of December 31, 2000, $39,241 as of December 31, 1999, $9,126 as of December 31, 1998 and $14,413 as of December 31, 1997 as required by Financial Accounting Standard No. 114, Accounting for Impairment of Loans. Includes commercial, financial, agricultural and nonprofit.
The loan portfolio's largest segment of loans is commercial real estate loans, which represent 51% of gross loans. Residential real estate loans represent 24% of gross loans. The Company requires a loan to value ratio of 80% in both commercial and residential mortgages. These mortgages are secured by real properties which have a readily ascertainable value. Generally, commercial real estate loans have a higher degree of credit risk than residential real estate loans because they depend primarily on the success of the business. When granting these loans, the Company evaluates the financial statements of the borrower(s), the location of the real estate, the quality of management, and general economic and competitive conditions. When granting a residential mortgage, the Company reviews the borrower(s) repayment history on past debts, and assesses the borrower(s) ability to meet existing obligations and payments on the proposed loans. Commercial loans consist of loans predominantly collateralized by inventory, furniture and fixtures, and accounts receivable. In assessing the collateral for this type of loan, management applies a 40% liquidation value to inventories; 25% to furniture, fixtures and equipment; and 60% to accounts receivable. Commercial loans represent 18% of the loan portfolio. Consumer loans are generally unsecured borrowings and represent only 4% of the total loan portfolio. These loans have a higher degree of risk than residential mortgage loans. The underlying collateral of a secured consumer loan tends to depreciate in value. Consumer loans are typically made based on the borrower's ability to repay the loan through continued financial stability. The Company endeavors to minimize risk by reviewing the borrower's repayment history on past debts, and assessing the borrower's ability to meet existing obligations on the proposed loans. Total losses in 2001 amounted to $101,000, when compared to losses of $355,000 in 2000, $402,000 in 1999, $792,000 in 1998, and $255,000 in 1997. The real estate-mortgage category incurred no losses in 2001 compared to $23,000 in 2000, $23,000 in 1999, $716,000 in 1998, and $147,000 in 1997. V. DEPOSITS Deposits are obtained from individuals and from small and medium sized businesses in the local market area. The Bank also attracts deposits from municipalities and other government agencies. The Bank does not solicit or accept brokered deposits. 19 The following table sets forth the average amount and the average rate paid on deposits for the periods indicated.
2001 2000 1999 - -------------------------------------------------------------------------------------------------------- Average Average Average Average Average Average (Dollars in Thousands) Balance Rate Balance Rate Balance Rate - -------------------------------------------------------------------------------------------------------- Noninterest-bearing Demand Deposits $ 64,549 0.00% $ 58,588 0.00% $ 52,261 0.00% Interest-bearing Demand Deposits 37,834 1.85 37,785 3.13 38,404 2.59 Savings Deposits 53,613 1.64 50,210 2.00 48,442 2.11 Money Market Deposits 9,415 1.27 10,607 1.64 12,188 1.76 Time Deposits $100,000 or More 34,483 5.21 31,689 4.85 26,857 4.93 Other Time Deposits 141,698 5.53 138,637 5.78 130,393 5.20 - -------------------------------------------------------------------------------------------------------- Totals $341,592 3.32% $327,516 3.64% $308,545 3.35% ========================================================================================================
As of December 31, 2001, time certificates of deposit in amounts of $100,000 or more had the following maturities:
(Dollars in Thousands) Three months or less $15,425 Over three months through six months 8,001 Over six months through twelve months 5,936 Twelve months and over 4,087 ------- $33,449 =======
VI. RETURNS ON EQUITY AND ASSETS The following table shows consolidated operating and capital ratios of the Company for each of the last three years:
Year Ended December 31, -------------------------- 2001 2000 1999 -------------------------- Return on Average Assets 0.81% 1.09% 1.11% Return on Average Equity 9.04% 12.92% 12.56% Dividend Payout Ratio 52.63% 36.84% 34.36% Equity to Assets Ratio 9.00% 8.45% 8.85%
20 VII. SHORT TERM BORROWINGS The following table shows the Company's short-term borrowings at the end of each of the last three years, the maximum amount of borrowings and the average amounts outstanding as well as weighted average interest rates for the last three years.
(Dollars in Thousands) 2001 2000 1999 - --------------------------------------------------------------------------- Balance at December 31 $ 465 $1,200 $1,248 Maximum Amount Outstanding at Any Month's End $1,237 $1,220 $4,000 Average Amount Outstanding During the Year $ 706 $ 723 $ 889 Weighted Average Interest Rate During the Year 4.03% 7.07% 5.93%
The Bank has the ability to borrow funds from correspondent banks and the Federal Home Loan Bank, as well as the Federal Reserve Bank of Boston, by pledging various investment securities as collateral. The Company did not borrow during 2001 or 2000 to meet short-term liquidity needs. During 1999, there were thirty-five various days when the Company borrowed to meet these needs. Tax payments made by our customers, which are owed to the Federal Reserve Bank Treasury Tax and Loan account, are classified as borrowed funds. The Company had a note payable of $847,990 due to Fleet Bank which was paid in full in November 1999. This note was assumed from Fairbank, Inc. at the time of the acquisition. Because of the term of the note, including applicable prepayment fees, management determined it advantageous for the Bank not to pay off the note until its final maturity date of November 25, 1999. There is also $16,983,087 in borrowings from the Federal Home Loan Bank as of December 31, 2001 which represent the match funding program that is available to qualified borrowers. These borrowings totaled $12,725,908 at year end 2000. Accounting for Deferred Income Taxes - ------------------------------------ The net deferred tax asset at year end 2001 was $2,202,139. The amount of taxable income required to be generated to fully realize such net deferred tax asset will be approximately $7.2 Million. The taxable income earned by the Company in 2001 was $4,608,285. 21 ITEM 2 PROPERTIES The main office of the Bank is located at 100 Slade's Ferry Avenue, Somerset, Massachusetts at the junctions of U.S. Routes 6, 138, and 103. The Bank has eleven additional branches located in Fairhaven, Fall River, New Bedford, Seekonk, Somerset and Swansea, Massachusetts, and a Loan Production Office in Warwick, Rhode Island. As of December 31, 2001, the following Bank properties are owned through the Bank's subsidiary, the Slade's Ferry Realty Trust:
Location Sq. Footage - ------------------------------------------------------------------------------------ Main Office 100 Slade's Ferry Avenue Somerset, MA 42,000 North Somerset 2722 County Street Somerset, MA 3,025 Linden Street 244-253 Linden Street Fall River, MA 1,750 Brayton Avenue 855 Brayton Avenue Fall River, MA 3,325 North Swansea 2388 G.A.R. Highway Swansea, MA 2,960 Seekonk 1400 Fall River Avenue Seekonk, MA 2,300 Fairhaven 75 Huttleston Avenue Fairhaven, MA 13,000 South Main Street 1601 South Main Street Fall River, MA 6,604 Ashley Boulevard 833 Ashley Boulevard New Bedford, MA 2,655 Offices listed below are leased by the Bank with the indicated lease expiration dates. Swansea Mall (expires 2003) Rt. 118 Swansea, MA 2,250 Brayton Avenue Drive Up Complex 16 Stevens St. Fall River, MA 549 (expires 2005) Walgreen's Drug Store 838 Pleasant St. New Bedford, MA 835 (expires 2004) Loan Production Office 188 Airport Road Warwick, RI 600 (Expires 2002)
The main office building contains approximately 42,000 square feet of usable space which the Bank occupies. The Bank also has a school banking facility located in the Somerset High School, Grandview Avenue, Somerset, Massachusetts that consists of 200 square feet which provides basic banking services to students and school staff. The Seekonk office is an 8,800 square foot building of which the Bank is utilizing 2,300 square feet and leasing out the remainder. 22 ITEM 3 LEGAL PROCEEDINGS The Company is not a party to any material pending legal proceedings ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS During the fourth quarter of 2001, no matters were submitted to a vote of stockholders of the Company. 23 PART II ITEM 5 MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Market Information The Company's common stock is listed in the NASDAQ Small Cap Market under the symbol SFBC. The following table sets forth the range of high and low bids as reported for the NASDAQ Small Cap Market by quarters for the two-year period ended December 31, 2001.
2001 2000 - ---------------------------------------------- High Low High Low - ---------------------------------------------- 1st Quarter 10.00 8.81 10.88 9.25 - ---------------------------------------------- 2nd Quarter 11.90 9.00 10.63 9.25 - ---------------------------------------------- 3rd Quarter 13.75 10.26 10.00 8.88 - ---------------------------------------------- 4th Quarter 14.00 11.10 10.00 8.63 - ----------------------------------------------
Dividends - History and Policy The Company, since its inception in 1990 and prior thereto the Bank, has consistently paid dividends to stockholders since 1961. The Company paid a quarterly cash dividend of $.08 per share in the first quarter of 2001, and then increased the cash dividend to $.09 per share for the remaining quarters. In addition, an extra cash dividend of $.09 per share was paid in December 2001 for a total of $.44 per share paid in 2001. In February 2000, the Company issued a 5% stock dividend on the Company's common stock, resulting in a distribution of 176,793 shares. The Company also paid four quarterly cash dividends of $.08 per share in 2000, and an extra cash dividend of $.08 per share was paid in December 2000 for a total of $.40 per share paid in 2000. The declaration of cash dividends is dependent on a number of factors, including regulatory limitations, and the Bank's operating results and financial condition. The stockholders of the Company will be entitled to dividends only when, and if, declared by the Company's Board of Directors out of funds legally available. Under the Massachusetts Business Corporation Law, a dividend may not be declared if the corporation is insolvent or if the declaration of the dividend would render the corporation insolvent. Chapter 172 Section 28 of the Massachusetts Statutes on Bank and Banking provides that a bank's Board of Directors may, subject to the restriction contained in the section, declare and pay dividends on capital stock out of net profits from time to time and to such extent as they deem advisable. However, under this provision, no cash dividend shall be paid unless, following the payment of such dividend, the capital stock and retained earnings account will be unimpaired. 24 ITEM 6 SELECTED FINANCIAL DATA The following table sets forth selected financial data for the last five years.
Year Ended December 31, - ------------------------------------------------------------------------------------------------------------------ (Dollars in Thousands Except per Share Data) 2001 2000 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------ EARNINGS DATA Interest Income $ 27,324 $ 28,186 $ 25,553 $ 24,306 $ 23,150 Interest Expense 12,327 12,699 10,754 10,711 10,412 Net Interest Income 14,997 15,487 14,799 13,595 12,738 Provision for Loan Losses 750 1,200 550 600 500 Noninterest Income 1,769 1,857 2,086 1,568 1,562 Noninterest Expense 11,408 10,206 10,556 8,984 9,033 Income Before Income Taxes 4,608 5,938 5,779 5,579 4,767 Applicable Income Taxes 1,398 1,864 1,923 2,216 1,921 Net Income 3,210 4,074 3,856 3,363 2,846 PER SHARE DATA(1) Net Income-Basic $ 0.84 $ 1.09 $ 1.060 $ 0.940 $ 0.850 Net Income-Diluted(2) $ 0.84 $ 1.09 $ 1.050 $ 0.940 $ 0.850 Cash Dividends $ 0.44 $ 0.40 $ 0.358 $ 0.265 $ 0.230 Book Value (at end of period) $ 9.94 $ 9.41 $ 8.567 $ 8.200 $ 7.746 Avg. Shs. Outstanding 3,830,575 3,743,138 3,650,275 3,572,329 3,344,100 Shares Outstanding Year End 3,869,924 3,789,503 3,520,409 3,446,413 3,236,713 BALANCE SHEET DATA Assets $ 394,761 $ 388,619 $ 358,121 $ 340,355 $ 301,571 Loans 253,884 256,153 242,049 218,230 213,736 Unearned Discount 382 519 594 691 690 Allowance for Loan Losses 5,484 4,776 3,766 3,569 3,694 Loans, Net 248,018 250,849 237,669 213,938 209,310 Goodwill 2,173 2,400 2,627 2,854 3,081 Investments 96,401 88,109 81,806 79,978 58,668 Deposits 337,043 337,001 316,431 303,786 271,322 Stockholders' Equity 38,466 35,674 31,664 29,707 26,436 FINANCIAL RATIOS Net Yield on Interest Earning Assets(3) 4.18% 4.58% 4.71% 4.70% 4.66% Net Interest Spread(3) 3.34 3.75 3.99 3.91 3.88 Net Income as a Percentage of Average Assets 0.81 1.09 1.11 1.06 0.96 Average Equity 9.04 12.92 12.56 11.98 12.27 Dividend Payout Ratio 52.63 36.84 34.36 28.54 27.57 Average Equity to Average Assets 9.00 8.45 8.85 8.86 7.79 Earnings per share are computed based on the average number of shares of common stock outstanding during the year. On January 12, 1998, the Company declared a 5% stock dividend mailed to stockholders on February 11, 1998. On January 10, 2000, the Company declared a 5% stock dividend mailed to stockholders on February 9, 2000. Per share data has been restated to reflect the effect of the stock splits and the stock dividends. There were no stock options outstanding in years prior to 1997. Calculated on a fully taxable equivalent basis.
25 ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS The purpose of Management's Discussion and Analysis is to focus on certain significant factors which have affected the Company's operating results and financial condition, and to provide stockholders a more comprehensive review of the figures contained in the financial data of this report. 2001 Items of Significance * In 2001, Slade's Ferry Bancorp recorded net income of $3,210,253 or $0.84 per share on a diluted basis compared to $4,074,439 or $1.09 per share on a diluted basis in 2000. This represents a decrease of $864,186 or 21.21% in net income and $0.25 or 22.93% per share on a diluted basis between 2001 and 2000. * Return on average equity for 2001 was 9.04%, down by 3.88% when compared to 12.92% reported in 2000. Return on average assets for 2001 was .81%, down by .28% when compared to 1.09% reported in 2000. * The Company increased its cash dividend during the second quarter from $.08 per share to $.09 per share, and paid an extra dividend in December, 2001 to reflect total dividend payments of $.44 per share, up by $.04 per share when compared to $.40 per share paid in 2000. * Book value of the Company's common stock increased to $9.94 in 2001 from $9.41 reported in 2000 and $8.57 reported in 1999. RESULTS OF OPERATIONS Net interest income, which is the difference between interest and dividend income earned on earning assets and interest expense paid on interest-bearing liabilities, is the main contributor to net income. Increases or decreases in interest rates affect the yields earned on loans and investments and the cost of deposits and borrowings needed to fund these earning assets. On a fully tax equivalent basis, our net interest income was $15.2 Million in 2001, $15.7 Million in 2000 and $15.0 Million in 1999. Although we saw growth of $20.8 Million in average earning assets from $344.2 Million in 2000 to $365.0 in 2001, the historical 475 basis-point reduction in interest rates during the year continued to compress our net interest margins. As our national economy slipped into a recession during the first quarter of 2001, the prompt aggressive action by the Federal Reserve Bank to reduce short-term interest rates in an attempt to stimulate growth in our economy impacted our net interest margin as a result of loan and investment repricing at lower interest rates due to refinancing opportunities and prepayments. Average earning assets produced a fully taxable equivalent yield of 7.55% in 2001, compared to 8.26% in 2000, and 8.08% in 1999. The loan portfolio, which generally produces higher interest yields than our investment portfolio, represented only 63.70% of average assets in 2001, compared to 66.65% in 2000, and 66.12% in 1999. Cost of funds decreased to 4.21% in 2001 compared to 4.51% in 2000 and 4.09% in 1999. During 2001, the average balances in interest-bearing liabilities increased to $292.8 Million, compared to $281.3 Million in 2000 and $262.7 Million in 1999. 26 The net interest spread, representing the difference between the weighted average yield earned on our assets and the weighted average cost of interest-bearing liabilities decreased to 3.34% in 2001 from 3.75% in 2000 and 3.99% reported in 1999. Net yield on earning assets, which represents net interest income as a percentage of average earning assets decreased to 4.18% in 2001 from 4.58% in 2000 and 4.71% in 1999. As our earning assets repriced to lower interest rates at a faster pace than our interest-bearing liabilities, our earnings were negatively impacted as a direct result of decreasing interest margins. The Provision for Loan Losses is a charge against earnings and funds the Allowance for Loan Losses. It is management's desire to maintain an appropriate ratio of the Allowance for Possible Loan Losses to total outstanding loans. The Bank's provision for 2001 was $750,000, a decrease of $450,000 from $1,200,000 recorded in 2000. The 1999 provision was $550,000. The increased provision in 2000 was attributed to management's decision to change the methodology and guidelines used in calculating the adequate level of loan loss reserves required to offset any possible unforeseeable loss exposure within our loan portfolio. Increasing credit risk due to a higher commercial real estate loan portfolio during 2000 is responsible for the review and change in the methodology and guidelines. Total Other Income for 2001 decreased by $86,903 or 4.6% to $1,769,532 from $1,856,435 recorded during 2000. Service charges on deposit accounts decreased slightly in 2001 to $561,370 when compared to $564,444 in 2000 and $618,303 in 1999. These decreases are primarily due to a lower amount of service charges being realized on demand deposit accounts, as a result of higher levels of compensating balances maintained in the business checking account category. During 2001, due to unfavorable stock market conditions as a result of the state of the economy, only $14,934 was realized as gains on sales of various marketable corporate equity securities, compared to $333,581 during 2000 and $666,898 in 1999. Increase in cash surrender value of life insurance policies associated with both the Directors' Life Insurance and Executive Officers' Life Insurance increased by $68,168 from $282,855 reported as of year end 2000 to $351,023 in 2001. This increase is due to an annual increase in the cash surrender value of these policies. Purchase of policies in 2001 for newly hired executives totaled $515,500, which generated additional earnings. The purchase of $1.7 Million in Bank Owned Life Insurance for Directors originated in 1998 and in 2000, approximately $5.0 Million was purchased for Executives. The line item Other Income represents income earned on safe deposit box rentals, checkbook printing revenue, exchange and commission fees, recoveries of previously recorded losses relating to check fraud, and customer investment commission fees. In addition, the Bank sold a vacant parcel of land at our Fairhaven branch location recognizing a gain of $105,000 in 2001. Total Other Expense increased by $1,202,505 to $11,408,387, when compared to $10,205,882 recorded in 2000 and $10,556,569 in 1999. Salaries and Employee Benefits, which is the largest component of this category, increased by $1,054,320 to $7,124,377, up from $6,070,057 recorded in 2000. In 1999, Salaries and Benefits were $5,780,176. These increased expenses were due to general wage adjustments and staff additions in the lending, marketing, training, and customer investment areas of the Bank. Also, our medical insurance premiums increased by approximately 20%. Occupancy and Equipment Expense combined totaled $1,426,855 in 2001, up by $36,500 when compared to $1,390,355 reported in 2000 and $1,358,415 in 1999. 27 Costs associated with stationery and supplies were $241,186 in 2001, a slight increase of $16,685 when compared to $224,501 in 2000. These same costs were $255,665 in 1999. Professional fees associated with legal, audit, collection and repossession, and consultant expenses decreased by $20,399, from $385,079 in 2000 to $364,680 in 2001. These expenses in 1999 were $410,753. Marketing Expenses attributed to advertising, business development, and public relations decreased by $135,480, from $556,960 in 2000 to $421,480 in 2001. Marketing Expense in 1999 was $428,534. There was an increase in television advertising during 2000. As we continue to promote and develop the Bank in our market areas, we attempt to control cost as much as possible. The assessment for F.D.I.C. deposit insurance increased by $96,621 in 2001, from $63,684 in 2000 to $160,305. In 1999, this cost was $34,226. This increase is related to the issuance of the Memorandum of Understanding, an informal agreement between the F.D.I.C. and the Bank. Gains and Losses on Sales of Other Real Estate Owned is a result of sales of real estate acquired through the foreclosure process. In 2001, the Bank had no Other Real Estate Owned. The Bank realized a gain of $49,758 in 2000 on the sale of OREO, and a loss of $29,069 recognized in 1999. Writedowns of Other Real Estate Owned occurs when bank owned property is adjusted to the current appraised value if the fair market value is less than the amount carried by the Bank. In 2001 and 2002, the Bank incurred no writedown compared to a $57,024 writedown charge in 1999. The following table sets forth the components of the line item Other Expense.
2001 2000 1999 - ------------------------------------------------------------------------- Amortization of Goodwill $ 226,800 $ 226,800 $ 226,800 Communications 326,234 308,636 317,993 Other Real Estate Owned Expense 0 38,000 161,632 Committee Fees 190,900 189,350 183,900 Other Various Expense 925,570 802,218 1,312,382 - ------------------------------------------------------------------------- Other Expense Total $1,669,504 $1,565,004 $2,202,707 =========================================================================
Goodwill arising from the acquisition of Fairbank, Inc. has been amortized on a straight-line basis over a period of fifteen years. The amortization of goodwill ceases upon the adoption of Statement of Financial Accounting Standards No. 142 effective January 1, 2002, which requires that goodwill no longer be amortized, but instead be reviewed and tested for impairment on an annual basis. Communications Expense increased by $17,598 in 2001 due to an increase in the postage rate. This expense was $308,636 and $317,993 respectively for 2000 and 1999. Since the Bank had no Other Real Estate Owned during 2001, no expenses relating to this property were incurred. OREO expenses for 2000 were $38,000 and $161,632 in 1999. 28 Other Various Expenses increased by $123,352 in 2001 from $802,218 reported in 2000 to $925,570. This expense in 1999 was $1,312,382. The 2001 increase is primarily attributed to an increase in ACH fees of $28,100, ATM charges of $66,400, and computer service fees of $19,000. The amount reported in 1999 includes a one-time charge of $277,643 to settle a court judgment resulting from a civil suit. Income before income taxes totaled $4,608,285 as of year-end 2001, a decrease of $1,329,943 when compared to $5,938,228 reported as of December 31, 2000. Applicable taxes decreased by $465,757 to $1,398,032 when compared to $1,863,789 reported in the prior year. The establishment in 1999 of Slade's Ferry Preferred Capital Corporation (REIT) to utilize certain state tax savings strategies continues to benefit the Bank. The Company's net earnings were $3,210,253, $4,074,439, and $3,856,488 for 2001, 2000, and 1999 respectively. Diluted earnings per share were $.84 for twelve months ending December 31, 2001 compared to $1.09 for the same period in 2000. Unaudited Quarterly Financial Summary
(Dollars in Thousands) March 31 June 30 September 30 December 31 - ---------------------------------------------------------------------------- 2001: Revenues $7,618 $7,348 $7,377 $6,750 Operating Income 1,259 1,002 1,214 1,133 Net Income 869 715 832 794 Earnings per share Diluted $ 0.22 $ 0.19 $ 0.22 $ 0.21 Basic $ 0.22 $ 0.19 $ 0.22 $ 0.21 2000: Revenues $7,104 $7,301 $7,467 $8,170 Operating Income 1,486 712 1,730 2,010 Net Income 1,008 512 1,187 1,367 Earnings per share Diluted $ 0.27 $ 0.14 $ 0.32 $ 0.36 Basic $ 0.27 $ 0.14 $ 0.32 $ 0.36
FINANCIAL CONDITION Loans Loan demand for residential real estate loans increased during 2001 as new and existing homeowners took advantage of much lower interest rates. New commercial loan commitments, the largest component of our loan portfolio, decreased due to the recession, as borrowers focused on refinancing existing debt to lower rates. As a result, total loans decreased slightly by 0.9% from year end 2000 to 2001. The loan portfolio decreased by $2.3 Million to $253.9 Million when compared to $256.2 Million reported at December 31, 2000. The largest segment of the loan portfolio is commercial real estate loans representing 51% of total loans. These loans are collateralized by various types of commercial properties, without any predominate type of property nor concentration of credit in any one industry. The properties consist of apartment complexes, medical centers, strip malls, factories with multiple tenants, and retail office units located in the Bank's market area extending throughout 29 Southeastern Massachusetts and nearby cities and towns in Rhode Island. Commercial real estate loans generally have a higher degree of credit risk than residential real estate loans because they are predominately dependant on the success of the business. The Bank adheres to a credit criteria policy that strives to maintain the quality of the loan portfolio. The process of granting a commercial loan consists of an independent analysis of the financial condition of the borrower and the business entity by the Bank's credit analysis division. In turn, the borrowing request is further evaluated by the Loan Committee and all loans in excess of $100,000 are submitted to the Executive Committee of the Board of Directors for final approval before the loan is granted. Periodically, during the life of the loan, analysis of financial statements of the business is performed to determine if there are any weaknesses or negative trends developing, and if so, contact with the borrower is made to ascertain the cause and what remedial action is planned. Another component in the loan portfolio is residential real estate which accounts for 24% of the loan portfolio and is comprised of mortgages on one to four family properties. Credit is granted based on income to debt ratio, a satisfactory credit report and the appraised value of the property. The Bank also provides a program to encourage home ownership for first-time homebuyers. Other types of loans total 25% of the portfolio and are comprised of commercial loans which are generally short-term loans to finance business inventory, consumer credit installment loans, automobile financing and credit card loans. Investments - ----------- The investment portfolio represents the second largest component of the Company's assets and consists of securities in the Available-for-Sale category and securities in the Held-to-Maturity category. The designation of which category the security is to be classified as is determined at the time of the purchase of the investment instrument. Securities in the Available- for-Sale category are securities that the Company intends to hold for an indefinite period of time, but not necessarily to maturity. These securities may be sold in response to interest rate changes, liquidity needs or other factors. Any unrecognized gains or losses, net of taxes, is reflected in Stockholders Equity as a separate component. The Available-for-Sale category at December 31, 2001 had net unrecognized losses of $132,759 of which $727,847 in unrecognized gains, net are attributed to securities of U.S. Treasury, other U.S. Government corporations and agencies, mortgage-backed securities and corporate debt securities, and $860,606 in unrecognized losses, net are attributable to marketable equity securities. Securities of U.S. Treasury, U.S. Government corporations and agencies, and mortgage-backed securities have little or no credit risk, other than being sensitive to changes in interest rates; and if held to maturity, these securities will mature at par. The Company amortizes premiums and accretes discounts over the life of the security. Marketable equity securities, however, have a greater risk as they are subject to rapid market fluctuations. These securities are constantly monitored and evaluated to determine their suitability for sale or retention in the portfolio. Management minimizes its risk by limiting the total amount invested into marketable equity securities to 6.5% of the total investment portfolio. At December 31, 2001, the amount invested in marketable equity securities at amortized cost was 6.3% of the total investment portfolio distributed over various business sectors. The Held-to-Maturity category consists predominately of securities of U.S. Treasury, U.S. 30 Government corporation and agencies, and securities issued by states of the United States and political subdivisions of states. The Company has the positive intent and ability to hold these securities to maturity. In managing the Held-to-Maturity portfolio, the Company seeks to maximize its return and maintain consistency to meet short and long term liquidity forecasts by purchasing securities with maturities laddered within a short- term period of 1-3 years, a mid-term period of 3-5 years, and some securities extending out to 10 years. The Company does not purchase investments with off-balance sheet characteristics, such as swaps, options, futures, and other hedging activities that are called derivatives. The main objective of the investment policy is to provide adequate liquidity to meet reasonable declines in deposits and any anticipated increases in the loan portfolio, to provide safety of principal and interest, to generate earnings adequate to provide a stable income and to fit within the overall asset/liability management objectives of the Company. Deposits and Other Liabilities Total deposits remained flat through most of 2001. Certificates of deposit (term deposits) is the largest component of interest-bearing deposits with maturities extending out to a maximum of three years. Total interest-bearing deposits decreased by approximately $1.0 Million from $272.7 Million to $271.7 Million. Due to the significant decrease in short- term rates over the last twelve months, customers are attempting to find better yielding alternative investments. Offsetting this decrease in interest-bearing deposits was an increase of $1.0 Million in noninterest bearing deposits. The Bank is a member of the Federal Home Loan Bank (FHLB) and borrows funds secured by residential mortgage loans and other assets. This borrowing mechanism enables the Bank to match-fund loans to commercial borrowers who meet certain credit and deposit requirements. At December 31, 2001, the Bank had $17.0 Million of loans match-funded with FHLB compared to $12.7 Million at year end 2000. Asset/Liability Management and Interest Rate Risk - ------------------------------------------------- The Company's Asset-Liability Management Committee, comprised of the Bank's Executive Management team, monitors and evaluates the interest rate sensitivity of the Company's assets and liabilities. Management's objective is to reduce and control the volatility of its net interest margin by managing the relationship of interest-earning assets and interest-bearing liabilities. In order to manage this relationship, the committee utilizes a GAP report prepared on a monthly basis which indicates the differences or gap between interest-earning assets and interest-bearing liabilities in various maturity or repricing time periods. This, in conjunction with certain assumptions, and other related factors, such as anticipated changes in interest rates and projected cash flows from loans, investments and deposits, provides management a means of evaluating interest rate risk. Management also considers that certain assets and liabilities react differently to changes in interest rates. Some assets may have rate caps or prepayment fees attached to the instrument, and some liabilities have early withdrawal penalties. A positive gap results when more assets than liabilities are expected to reprice within a certain time frame, and a negative gap reflects an excess of liabilities repricing in that period. A positive gap would tend to increase net interest income when rates are rising and decrease net interest income when rates are falling. A negative gap position would tend to produce the opposite effect. At December 31, 31 2001, for the period from 0 days to 2 years, the Company has a cumulative negative gap position of $12.4 Million. This equates to a percentage of total assets of a negative 3.14% which is within the specific target for interest rate sensitivity established by the Company. The negative gap occurs as a result of the amount of deposits that are subject to repricing during this time period. In addition to the GAP report, the Company also uses an analysis to measure the exposure of net interest income to changes in interest rates over a relatively short (i.e., 12 months) time frame. The analysis projects future interest income and interest expense from the Company's interest- earning assets and interest-bearing liabilities. Depending on the GAP position, the Company's policy limit on interest rate risk specifies that if interest rates were to change immediately up or down 200 basis points, estimated net interest income for the next twelve months would not decline by more than ten percent. The following table reflects the Company's estimated exposure as a percentage and the dollar impact of estimated net interest income for the next twelve months, assuming an immediate change in interest rates:
Estimated Exposure as a Percentage Rate Change of Net Interest Income (Basis Points) December 31, 2001 Dollar Impact - ----------------------------------------------------------------------------- +200 (0.72%) ($108,000) -200 (5.51%) ($820,000)
The model used to monitor earnings-at-risk provides management a measurement tool to assess the effect of changes in interest rates on the Company's current and future earnings. The 10% limit established by the Company provides an internal tolerance level to control interest rate risk exposure. Nonperforming Assets - -------------------- The Company considers nonaccrual loans, loans past due 90 days or more but still accruing, restructured loans not performing in accordance with amended terms, and real estate acquired through foreclosure as nonperforming assets. Nonperforming assets as a total decreased to $1.6 Million at year end 2001, from $2.8 Million reported at year end 2000. At year end 1999, nonperforming assets totaled $2.4 Million. Nonaccrual loans is the largest component of nonperforming assets, and at December 31, 2001, this category decreased to $1.1 Million from $2.4 Million reported at end of previous year. The Company places a loan on nonaccrual status when, in the opinion of management, the collectability of the principal and interest becomes doubtful. Generally, when a commercial loan, commercial real estate loan or a residential real estate loan becomes past due 90 days or more, the Company discontinues the accrual of interest and reverses previously accrued interest. The loan remains in the nonaccrual status until the loan is current and six months of payments are made. Then it is reclassified as an accruing loan. If it is determined that collectibility of the loan no longer exists, the loan is charged-off to the Allowance for Loan Losses, or if applicable, any real estate collateralizing the loan is acquired through foreclosure and categorized as Other Real Estate Owned. 32 Loans 90 days or more past due but still accruing increased to $444,000 at year end 2001 from $335,000 reported at year end 2000. Management continues to accrue on these loans due to the excess values of collateral securing these loans compared to their outstanding balances. There was no real estate acquired by foreclosure or substantively repossessed at December 31, 2001 and at the end of the prior year. The percentage of nonaccrual loans to total loans decreased from the prior year due to the decrease of loans in the nonaccrual category and the decline of the loan portfolio. In addition, the percentage of nonaccrual loans, restructured loans and real estate acquired by foreclosure to total assets decreased as result of increased asset levels. The $137,000 of restructured loans represents one borrower where the original loan term was amended and payments are current under the amended terms. Statement of Financial Accounting Standards No. 114 "Accounting by Creditors for Impairment of a Loan" applies to all loans except large groups of smaller-balance homogeneous loans that are collectively evaluated for impairment, loans measured at fair value or at a lower of cost or fair value, leases, and debt securities as defined in Statement 115. Statement 114 requires that impaired loans be valued at the present value of expected future cash flows discounted at the loan's effective interest rate or as a practical expedient, at the loan's observable market value of the collateral if the loan is collateral dependent. Smaller-balance homogeneous loans are considered by the Company to include consumer installment loans and credit card loans. At December 31, 2001, there were $7,521,689 of loans which the Company has determined to be impaired, of which $7,461,437 have a related allowance for credit losses of $1,195,324. As of December 31, 2000, the recorded investment in impaired loans was $3,178,869, with a related allowance for credit losses of $424,557. The increase during 2001 was primarily due to the addition to impairment of two loans totaling approximately $4,700,000, which have related credit loss allowances. Management is not aware of any other loans that pose a potential credit risk or where the loans are current but the borrowers are experiencing financial difficulty. 33 Allowance for Loan Losses - ------------------------- The table below illustrates the changes in the Allowance for Loan Losses for the periods indicated.
(Dollars In Thousands) 2001 2000 1999 1998 1997 - --------------------------------------------------------------------------------- Balance at January 1 $4,776 $3,766 $3,569 $3,694 $3,354 - --------------------------------------------------------------------------------- Charge Offs: Commercial (73) (194) (221) (0) (40) Real estate construction (0) (0) (0) (0) (0) Real estate mortgage (0) (23) (23) (716) (147) Installment/Consumer (28) (138) (158) (76) (68) - --------------------------------------------------------------------------------- (101) (355) (402) (792) (255) - --------------------------------------------------------------------------------- Recoveries: Commercial 14 50 11 8 41 Real estate construction 0 0 0 0 0 Real estate mortgage 29 92 24 43 16 Installment/Consumer 16 23 14 16 38 - --------------------------------------------------------------------------------- 59 165 49 67 95 - --------------------------------------------------------------------------------- Net charge offs (42) (190) (353) (725) (160) - --------------------------------------------------------------------------------- Additions charged to operations 750 1,200 550 600 500 Allowance attributable to acquisition 0 0 0 0 0 - --------------------------------------------------------------------------------- Balance at end of period $5,484 $4,776 $3,766 $3,569 $3,694 ================================================================================= Allowance for Loan Losses as a percent of year end loans 2.16% 1.86% 1.56% 1.64% 1.73% Ratio of net charge offs to average loans outstanding (0.02%) (0.08%) (0.15%) (0.34%) (0.08%)
The Allowance for Loan Losses is available to absorb losses on loans deemed by management as uncollectible. In assessing the adequacy of the level of the allowance, management considers the status of nonaccrual loans and specific borrower situations, the current and anticipated economic climate of the area, including national credit trends and the historical credit experiences within the region. Additions to the allowance are provided by charges to earnings and recoveries on previously charged-off loans. Deductions from the Allowance are transacted as a charge-off when a loan is deemed uncollectible. The Allowance for Loan Losses as a percentage of outstanding loans at December 31, 2001, was 2.16% compared to 1.86% reported at year end 2000. The ratios at years ending 1999, 1998, and 1997 were 1.56%, 1.64% and 1.73% respectively. In 2001, the Company provided $750,000 to the Allowance and recovered $58,821 from previously charged-off loans. Loans charged-off during 2001 totaled $100,662 resulting in net charge-offs of $41,841. Net charge-offs for prior years were $189,512, $353,410, $724,583, and $160,446 for 2000, 1999, 1998 and 1997 respectively. In addition to management's assessment of the Allowance for Loan Losses, the Allowance is also evaluated by regulatory agencies and independent accountants as part of their examination and audit procedures. 34 Liquidity - --------- Liquidity represents the ability of the Bank to meet its funding requirements. In assessing the appropriate level of liquidity, the Bank considers deposit levels, lending requirements and investment maturities in light of prevailing economic conditions. Through this assessment, the Bank manages its liquidity level to optimize earnings and respond to fluctuations in customer borrowing needs. The Company's principle sources of funds are customer deposits, loan amortization, loan payoffs, and the maturities of investment securities. Through these sources, funds are provided for customer withdrawals from deposit accounts, loan origination, draw-downs on loan commitments, acquisitions of investment securities, and other normal business activities. Investors' capital also provides a source of funding. The largest source of funds is provided by depositors. The largest component of the Company's deposit base is term certificates which extend out to a maximum of three years. The Company does not participate in brokered deposits. Deposits are obtained from consumers and commercial customers within the Bank's community reinvestment area, being Bristol County, Massachusetts and several abutting towns in Rhode Island. The Company also has the ability to borrow funds for liquidity purposes from correspondent banks, the Federal Home Loan Bank, as well as the Federal Reserve Bank of Boston by pledging various investment securities as collateral. Tax payments made by our customers which are owed to the Federal Reserve Bank's Treasury Tax and Loan account are classified as Other Borrowed Funds. Excess available funds are invested on a daily basis into Federal Funds Sold. An appropriate level of Federal Funds Sold is maintained to meet loan commitments, anticipated loan growth and deposit forecasts. Funds exceeding this level are then used to purchase investment securities that are suitable in yields and maturities for the investment portfolio. Liquidity in 2001 was primarily provided by the proceeds from the maturities and sales of securities totaling $57.6 Million, a decrease in loans of $2.2 Million, and advances, net of payments, from the Federal Home Loan Bank of $4.3 Million. These were offset by purchases of securities of $65.2 Million, and purchases of life insurance policies for Executive Officers of $.5 Million. Other factors affecting liquidity included cash provided by operating activities and financing activities as indicated in the cash flow statements. Capital - ------- As of December 31, 2001, the Company had total capital of $38,466,131. This represents an increase of $2,791,758 from $35,674,373 reported on December 31, 2000. The increase in capital was a combination of several factors. Additions consisted of twelve months earnings of $3,210,253 and transactions originating through the Dividend Reinvestment Program whereby 7,279.818 shares were issued for cash contributions of $73,649 and 73,142.144 shares were issued for $803,933 in lieu of cash dividend payments. These additions were offset by dividends paid of $1,689,574. Also, affecting capital is the line item Accumulated other comprehensive income (loss) which reflects net unrealized gains or losses, net of taxes, on securities classified as Available-for-Sale and the minimum pension liability adjustment. On December 31, 2000, the Available-for-Sale portfolio had unrealized losses, net of taxes, of $596,543, and on December 31, 2001, as a result of current market 35 values, the portfolio reflects unrealized losses, net of taxes, of $120,943. There was an increase in the minimum pension liability adjustment from $24,143, net of taxes, recorded December 31, 2000 to $106,246 as of December 31, 2001. Under the requirements for Risk Based and Leverage Capital of the federal banking agencies, a minimum level of capital will vary among banks based on safety and soundness of operations. Risk Based Capital ratios are calculated with reference to risk-weighted assets, which include both on and off balance sheet exposure. Under the revised informal agreement entered into with the Massachusetts Commissioner of Banks and the Federal Deposit Insurance Corporation, effective January 17, 2002, the Bank is required to maintain a seven (7) percent Tier I Leverage Capital. As of December 31, 2001, this ratio was 7.74%. In addition to meeting the required levels, the Company and the Bank's Capital ratios meet the criteria of the "well capitalized" category established by the federal banking agencies as of December 31, 2001. 36 The following table illustrates the capital position of Slade's Ferry Bancorp and Slade's Ferry Trust Company for years ending December 31, 2001 and 2000.
Slade's Ferry Bancorp 2001 2000 - -------------------------------------------------------------------------------------------- (Dollars in Thousands) Amount Ratio Amount Ratio - -------------------------------------------------------------------------------------------- Total Capital (to Risk Weighted Assets) $ 39,393 14.43% $ 36,994 13.24% Minimum required 21,832 8.00 22,360 8.00 Excess 17,561 6.43 14,634 5.24 Tier I Capital (to Risk Weighted Assets) 35,956 13.18 33,484 11.98 Minimum required 10,916 4.00 11,180 4.00 Excess 25,040 9.18 22,304 7.98 Risk Adjusted Assets, net of goodwill, nonqualifying intangibles, excess allowance and excess deferred tax assets 272,900 279,499 Tier I Capital (Leverage Ratio) 35,956 8.98 33,484 8.74 Minimum required 16,025 4.00 15,323 4.00 Excess 19,931 4.98 18,161 4.74 Quarterly average total assets, net of goodwill, nonqualifying intangibles and excess deferred tax assets 400,625 383,112 Slade's Ferry Trust Company 2001 2000 - -------------------------------------------------------------------------------------------- (Dollars in Thousands) Amount Ratio Amount Ratio - -------------------------------------------------------------------------------------------- Total Capital (to Risk Weighted Assets) $ 34,046 12.55% $32,703 11.76% Minimum required 21,697 8.00 22,253 8.00 Excess 12,349 4.55 10,450 3.76 Tier I Capital (to Risk Weighted Assets) 30,630 11.29 29,210 10.50 Minimum required 10,849 4.00 11,126 4.00 Excess 19,781 7.29 18,084 6.50 Risk Adjusted Assets, net of goodwill, nonqualifying intangibles, excess allowance and excess deferred tax assets 271,225 278,190 Tier I Capital (Leverage Ratio) 30,630 7.74 29,210 7.69 Minimum required(1) 15,834 4.00 15,186 4.00 Excess 14,796 3.74 14,024 3.69 Quarterly average total assets, net of goodwill, nonqualifying intangibles and excess deferred tax assets 395,850 379,844 The Bank is required to maintain a 7% Tier 1 Leverage Capital ratio under the revised informal agreement with the Massachusetts Commissioner of Banks and the Federal Deposit Insurance Corporation, effective January 17, 2002.
37 ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The most significant market risk factor affecting the financial condition and operating results of Slade's Ferry Bancorp is interest rate risk. Reference is hereby made to this Form 10-K, pages 10 and 11, under the headings "Interest Rate Risk" and "Interest Sensitivity GAP Report" for a discussion of market risk. ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Company's financial statements, together with the independent auditors' report, appear beginning on page F-1 of the Annual Report on Form 10-K. ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE The Company had no disagreements with its independent accountants on accounting and financial disclosure matters. 38 PART III ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Reference is hereby made to the Company's definitive Proxy Statement for the Annual Meeting of Stockholders April 08, 2002. The information set forth under the heading "Directors and Executive Officers" and under the heading "Section 16(a) Beneficial Ownership Reporting Compliance" of such Proxy Statement is incorporated herein by reference. ITEM 11 EXECUTIVE COMPENSATION Reference is hereby made to the Company's definitive Proxy Statement for the Annual Meeting of Stockholders April 08, 2002. The information set forth under the heading "Executive Compensation Tables and Information" of such Proxy Statement is incorporated herein by reference. ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Reference is hereby made to the Company's definitive Proxy Statement for the Annual Meeting of Stockholders April 08, 2002. The information set forth under this heading of such Proxy Statement is incorporated herein by reference. ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Reference is hereby made to the Company's definitive Proxy Statement for the Annual Meeting of Stockholders April 08, 2002. The information set forth under this heading of such Proxy Statement is incorporated herein by reference. 39 ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this report: (1) Consolidated Financial Statements Page ---- Independent Auditors' Report F-2 Consolidated Balance Sheets F-3 Consolidated Statements of Income F-4 Consolidated Statements of Changes in Stockholders' Equity F-5 Consolidated Statements of Cash Flows F-7 Notes to Consolidated Financial Statements F-9 (2) Financial Statement Schedules All financial statement schedules required by Item 14(a)(2) have been omitted because they are inapplicable or because the required information has been included in the Consolidated Financial Statements or Notes thereto. (3) Exhibits: see attached Exhibits Index Page X-1 (b) Reports on Form 8-K: A Form 8-K was filed on February 8, 2002 reporting the retirement and resignation from the Board of Directors of both the Bank and the Company as of March 29, 2002 of James D. Carey, the President and CEO of the Bank and Executive Vice President of the Company. 40 INDEX TO FINANCIAL STATEMENTS Slade's Ferry Bancorp and Subsidiaries Page ---- Independent Auditors' Report F-2 Consolidated Balance Sheets as of December 31, 2001 and December 31, 2000 F-3 Consolidated Statements of Income for the years ended December 31, 2001, December 31, 2000 and December 31, 1999 F-4 Consolidated Statements of Changes in Stockholders' Equity for the years ended December 31, 2001, December 31, 2000 and December 31, 1999 F-5 Consolidated Statements of Cash Flows for the years ended December 31, 2001, December 31, 2000 and December 31, 1999 F-7 Notes to Consolidated Financial Statements F-9 F-1 SHATSWELL, MACLEOD & COMPANY, P.C. CERTIFIED PUBLIC ACCOUNTANTS 83 PINE STREET WEST PEABODY, MASSACHUSETTS 01960-3635 TELEPHONE (978) 535-0206 FACSIMILE (978) 535-9908 The Board of Directors and Stockholders Slade's Ferry Bancorp Somerset, Massachusetts INDEPENDENT AUDITORS' REPORT ---------------------------- We have audited the accompanying consolidated balance sheets of Slade's Ferry Bancorp and Subsidiary as of December 31, 2001 and 2000 and the related consolidated statements of income, changes in stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 2001. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Slade's Ferry Bancorp and Subsidiary as of December 31, 2001 and 2000, and the consolidated results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States of America. /s/SHATSWELL, MacLEOD & COMPANY, P.C. SHATSWELL, MacLEOD & COMPANY, P.C. West Peabody, Massachusetts January 11, 2002 F-2 SLADE'S FERRY BANCORP AND SUBSIDIARY ------------------------------------ CONSOLIDATED BALANCE SHEETS --------------------------- December 31, 2001 and 2000 --------------------------
2001 2000 ----------------------------- ASSETS Cash and due from banks $ 13,730,752 $ 15,847,819 Interest bearing demand deposits with other banks 174,945 99,363 Money market mutual funds 86,613 113,527 Federal Home Loan Bank overnight deposit 6,000,000 Federal funds sold 8,700,000 12,000,000 ----------------------------- Cash and cash equivalents 28,692,310 28,060,709 Interest bearing time deposit with other bank 100,000 Investments in available-for-sale securities (at fair value) 79,105,537 67,993,096 Investments in held-to-maturity securities (fair values of $16,590,243 as of December 31, 2001 and $19,088,080 as of December 31, 2000) 16,281,712 19,102,496 Federal Home Loan Bank stock 1,013,400 1,013,400 Loans, net 248,017,635 250,848,831 Premises and equipment 6,455,837 6,765,689 Goodwill 2,173,368 2,400,168 Accrued interest receivable 1,953,989 2,351,926 Cash surrender value of life insurance 7,697,441 6,830,918 Other assets 3,269,334 3,252,123 ----------------------------- Total assets $394,760,563 $388,619,356 ============================= LIABILITIES AND STOCKHOLDERS' EQUITY Deposits: Noninterest-bearing $ 65,293,871 $ 64,273,911 Interest-bearing 271,749,471 272,726,990 ----------------------------- Total deposits 337,043,342 337,000,901 Federal Home Loan Bank advances 16,983,087 12,725,908 Other borrowed funds 465,216 1,200,000 Other liabilities 1,749,787 1,965,174 ----------------------------- Total liabilities 356,241,432 352,891,983 ----------------------------- Preferred stockholders' equity in a subsidiary company 53,000 53,000 ----------------------------- Stockholders' equity: Common stock, par value $.01 per share; authorized 10,000,000 shares; issued and outstanding 3,869,924.9 shares in 2001 and 3,789,503.5 shares in 2000 38,700 37,895 Paid-in capital 26,761,997 25,885,220 Retained earnings 11,892,623 10,371,944 Accumulated other comprehensive loss (227,189) (620,686) ----------------------------- Total stockholders' equity 38,466,131 35,674,373 ----------------------------- Total liabilities and stockholders' equity $394,760,563 $388,619,356 =============================
The accompanying notes are an integral part of these consolidated financial statements. F-3 SLADE'S FERRY BANCORP AND SUBSIDIARY ------------------------------------ CONSOLIDATED STATEMENTS OF INCOME --------------------------------- Years Ended December 31, 2001, 2000 and 1999 --------------------------------------------
2001 2000 1999 ----------------------------------------- Interest and dividend income: Interest and fees on loans $21,554,165 $22,486,187 $20,529,165 Interest and dividends on securities: Taxable 4,410,499 4,588,612 4,265,369 Tax-exempt 533,287 524,652 499,384 Interest on federal funds sold 598,934 509,738 218,772 Other interest 226,785 77,157 40,211 ----------------------------------------- Total interest and dividend income 27,323,670 28,186,346 25,552,901 ----------------------------------------- Interest expense: Interest on deposits 11,333,086 11,918,906 10,333,314 Interest on Federal Home Loan Bank advances 965,008 728,622 303,341 Interest on other borrowed funds 28,436 51,143 116,976 ----------------------------------------- Total interest expense 12,326,530 12,698,671 10,753,631 ----------------------------------------- Net interest and dividend income 14,997,140 15,487,675 14,799,270 Provision for loan losses 750,000 1,200,000 550,000 ----------------------------------------- Net interest and dividend income after provision for loan losses 14,247,140 14,287,675 14,249,270 ----------------------------------------- Other income: Service charges on deposit accounts 561,370 564,444 618,303 Overdraft service charges 257,586 250,454 269,508 Gain on sales of available-for-sale securities, net 14,934 333,581 666,898 Increae in cash surrender value of life insurance policies 351,023 282,855 40,664 Other income 584,619 425,101 491,171 ----------------------------------------- Total other income 1,769,532 1,856,435 2,086,544 ----------------------------------------- Other expense: Salaries and employee benefits 7,124,377 6,070,057 5,780,176 Occupancy expense 861,407 822,890 795,705 Equipment expense 565,448 567,465 562,710 Stationary and supplies 241,186 224,501 255,665 Professional fees 364,680 385,079 410,753 Marketing expense 421,480 556,960 428,534 FDIC deposit insurance premium 160,305 63,684 34,226 (Gain) loss on sales of other real estate owned, net (49,758) 29,069 Writedown of other real estate owned 57,024 Other expense 1,669,504 1,565,004 2,202,707 ----------------------------------------- Total other expense 11,408,387 10,205,882 10,556,569 ----------------------------------------- Income before income taxes 4,608,285 5,938,228 5,779,245 Income taxes 1,398,032 1,863,789 1,922,757 ----------------------------------------- Net income $ 3,210,253 $ 4,074,439 $ 3,856,488 ========================================= Earnings per common share $ .84 $ 1.09 $ 1.06 ========================================= Earnings per common share assuming dilution $ .84 $ 1.09 $ 1.05 =========================================
The accompanying notes are an integral part of these consolidated financial statements. F-4 SLADE'S FERRY BANCORP AND SUBSIDIARY ------------------------------------ CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY ---------------------------------------------------------- Years Ended December 31, 2001, 2000 and 1999 --------------------------------------------
Accumulated Other Comprehensive Common Paid-in Retained Income Stock Capital Earnings (Loss) Total ------ ------- -------- ------------- ----- Balance, December 31, 1998 $34,464 $22,285,220 $ 7,103,642 $ 284,059 $29,707,385 Comprehensive income: Net income 3,856,488 Other comprehensive loss (1,437,677) Comprehensive income 2,418,811 Issuance of common stock from dividend reinvestment plan 554 639,344 639,898 Stock issuance relating to optional cash contribution plan 186 222,883 223,069 Dividends declared ($.36 per share) (1,324,917) (1,324,917) --------------------------------------------------------------------- Balance, December 31, 1999 35,204 23,147,447 9,635,213 (1,153,618) 31,664,246 Comprehensive income: Net income 4,074,439 Other comprehensive income 532,932 Comprehensive income 4,607,371 Issuance of common stock from dividend reinvestment plan 749 739,805 740,554 Stock issuance relating to optional cash contribution plan 157 151,124 151,281 Stock options exercised 17 14,009 14,026 Issuance of 5% common stock dividend 1,768 1,832,835 (1,836,628) (2,025) Dividends declared ($.40 per share) (1,501,080) (1,501,080) --------------------------------------------------------------------- Balance, December 31, 2000 37,895 25,885,220 10,371,944 (620,686) 35,674,373 Comprehensive income: Net income 3,210,253 Other comprehensive income 393,497 Comprehensive income 3,603,750 Issuance of common stock from dividend reinvestment plan 732 803,201 803,933 Stock issuance relating to optional cash contribution plan 73 73,576 73,649 Dividends declared ($.44 per share) (1,689,574) (1,689,574) --------------------------------------------------------------------- Balance, December 31, 2001 $38,700 $26,761,997 $11,892,623 $ (227,189) $38,466,131 =====================================================================
F-5 SLADE'S FERRY BANCORP AND SUBSIDIARY ------------------------------------ CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY ---------------------------------------------------------- Years Ended December 31, 2001, 2000 and 1999 -------------------------------------------- (continued) Other comprehensive income and reclassification disclosure for the years ended December 31:
2001 2000 1999 --------------------------------------- Unrealized gains (losses) on securities Net unrealized gain (loss) on available-for-sale securities $853,519 $1,279,547 $(1,827,534) Reclassification adjustment for realized gains in net income (14,934) (333,581) (666,898) --------------------------------------- 838,585 945,966 (2,494,432) Income tax (expense) benefit (362,985) (391,915) 978,894 --------------------------------------- 475,600 554,051 (1,515,538) --------------------------------------- Minimum pension liability adjustment (138,992) (35,752) 141,705 Income tax (expense) benefit 56,889 14,633 (63,844) --------------------------------------- (82,103) (21,119) 77,861 --------------------------------------- Other comprehensive income (loss), net of tax $393,497 $ 532,932 $(1,437,677) =======================================
Accumulated other comprehensive loss consists of the following as of December 31:
2001 2000 1999 --------------------------------------- Net unrealized losses on available-for-sale securities, net of taxes $(120,943) $(596,543) $(1,150,594) Minimum pension liability adjustment, net of taxes (106,246) (24,143) (3,024) --------------------------------------- Accumulated other comprehensive loss $(227,189) $(620,686) $(1,153,618) =======================================
The accompanying notes are an integral part of these consolidated financial statements. F-6 SLADE'S FERRY BANCORP AND SUBSIDIARY ------------------------------------ CONSOLIDATED STATEMENTS OF CASH FLOWS ------------------------------------- Years Ended December 31, 2001, 2000 and 1999 --------------------------------------------
2001 2000 1999 ------------------------------------------- Cash flows from operating activities: Net income $ 3,210,253 $ 4,074,439 $ 3,856,488 Adjustments to reconcile net income to net cash provided by operating activities: Accretion, net of amortization of securities 152,995 2,929 (35,079) Receipt of shares of stock from demutualized insurance company (163,901) Gain on sales of available-for-sale securities, net (14,934) (333,581) (666,898) Change in unearned income (137,081) (75,141) (96,745) Provision for loan losses 750,000 1,200,000 550,000 Depreciation and amortization 685,577 709,152 692,397 Gain on sale of property (107,109) (Gain) loss on sales of other real estate owned, net (49,758) 29,069 Writedown of other real estate owned 57,024 Increase in cash surrender value of life insurance policies (351,023) (282,855) (40,664) Amortization of goodwill 226,800 226,800 226,800 Accretion, net of amortization of fair market value adjustments (8,550) (11,400) (7,140) (Increase) decrease in other assets 12,061 (2,114) (4,132) (Increase) decrease in prepaid expenses (28,262) 52,580 (200,106) Increase in income taxes receivable (120,379) (Increase) decrease in interest receivable 397,937 (409,175) (344,469) Increase (decrease) in other liabilities (4,085) 61,352 (3,482) Increase (decrease) in accrued expenses (158,468) (379,813) 394,978 Increase (decrease) in interest payable (53,826) 76,045 5,697 Deferred tax (benefit) expense (196,033) (260,758) 11,331 Increase (decrease) in taxes payable (180,512) 680,208 (248,502) Minority interest in subsidiary 53,000 ------------------------------------------- Net cash provided by operating activities 4,075,361 5,278,910 4,065,666 ------------------------------------------- Cash flows from investing activities: Increase in interest bearing time deposits with other banks (100,000) Purchases of available-for-sale securities (61,088,695) (13,211,935) (22,923,708) Proceeds from sales of available-for-sale securities 891,375 2,884,051 5,728,160 Proceeds from maturities of available-for-sale securities 49,790,967 4,880,762 12,335,599 Purchases of held-to-maturity securities (4,156,673) (5,317,668) (7,946,052) Proceeds from maturities of held-to-maturity securities 6,971,893 5,737,924 9,463,368 Purchases of Federal Home Loan Bank stock (113,500) Loan originations and principal collections, net 19,935,261 (9,609,846) (22,744,310) Purchases of loans (17,767,255) (4,589,892) (1,357,963) Recoveries of loans previously charged off 58,821 165,300 48,798 Capital expenditures (464,323) (405,533) (1,061,630) Proceeds from sale of property 202,109 Proceeds from sales of other real estate owned 143,853 467,952 Investment in life insurance policies (515,500) (4,918,838) 24,956 ------------------------------------------- Net cash used in investing activities (6,242,020) (24,241,822) (28,078,330) -------------------------------------------
F-7 SLADE'S FERRY BANCORP AND SUBSIDIARY ------------------------------------ CONSOLIDATED STATEMENTS OF CASH FLOWS ------------------------------------- Years Ended December 31, 2001, 2000 and 1999 -------------------------------------------- (continued)
2001 2000 1999 ------------------------------------------- Cash flows from financing activities: Net increase (decrease) in demand deposits, NOW and savings accounts 7,818,060 13,929,857 (2,250,591) Net increase (decrease) in time deposits (7,775,619) 6,639,857 14,893,663 Payment on notes payable (850,000) Long-term advances from Federal Home Loan Bank 6,428,000 8,100,000 Payments on Federal Home Loan Bank long-term advances (2,170,821) (2,130,859) Advances from Federal Home Loan Bank 2,381,000 Payments on Federal Home Loan Bank advances (99,687) Net increase (decrease) in other borrowed funds (734,784) (48,461) 1,206,132 Proceeds from issuance of common stock 877,582 905,861 862,967 Fractional shares paid in cash (2,025) Dividends paid (1,644,158) (1,479,575) (1,250,891) ------------------------------------------- Net cash provided by financing activities 2,798,260 25,914,655 14,892,593 ------------------------------------------- Net increase (decrease) in cash and cash equivalents 631,601 6,951,743 (9,120,071) Cash and cash equivalents at beginning of year 28,060,709 21,108,966 30,229,037 ------------------------------------------- Cash and cash equivalents at end of year $28,692,310 $28,060,709 $21,108,966 =========================================== Supplemental disclosures: Loans transferred to other real estate owned $ $ $ 218,045 Loans originating from the sales of other real estate owned 259,000 337,000 Interest paid 12,380,356 12,622,626 10,747,934 Income taxes paid 1,894,956 1,444,339 2,159,928
The accompanying notes are an integral part of these consolidated financial statements. F-8 SLADE'S FERRY BANCORP AND SUBSIDIARY ------------------------------------ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ Years Ended December 31, 2001, 2000 and 1999 -------------------------------------------- NOTE 1 - NATURE OF OPERATIONS - ----------------------------- Slade's Ferry Bancorp (Company) is a Massachusetts corporation that was organized in 1990 to become the holding company of Slade's Ferry Trust Company (Bank). The Company's primary activity is to act as the holding company for the Bank. The Bank is a state chartered bank, which was incorporated in 1959 and is headquartered in Somerset, Massachusetts. The Bank operates its business from twelve banking offices located in Massachusetts and a loan company in Rhode Island. The Bank is engaged principally in the business of attracting deposits from the general public and investing those deposits in residential and commercial real estate loans, and in commercial, consumer and small business loans. NOTE 2 - ACCOUNTING POLICIES - ---------------------------- The accounting and reporting policies of the Company and its subsidiary conform to accounting principles generally accepted in the United States of America and predominant practices within the banking industry. The consolidated financial statements were prepared using the accrual basis of accounting. The significant accounting policies are summarized below to assist the reader in better understanding the consolidated financial statements and other data contained herein. USE OF ESTIMATES: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from the estimates. BASIS OF PRESENTATION: The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, the Bank and the Bank's wholly-owned subsidiaries, Slade's Ferry Realty Trust, Slade's Ferry Securities Corporation, Slade's Ferry Loan Company and Slade's Ferry Preferred Capital Corporation. Slade's Ferry Realty Trust was formed to hold ownership of real estate, Slade's Ferry Securities Corporation was formed to hold securities for tax benefits in Massachusetts, Slade's Ferry Loan Company provides the opportunity to solicit commercial and consumer borrowers in the Rhode Island area and Slade's Ferry Preferred Capital Corporation, a real estate investment trust, was formed to hold real estate mortgage loans, reducing applicable state taxes. All significant intercompany accounts and transactions have been eliminated in the consolidation. CASH AND CASH EQUIVALENTS: For purposes of reporting cash flows, cash and cash equivalents include cash on hand, cash items, due from banks, money market mutual funds, Federal Home Loan Bank overnight deposit and federal funds sold. Cash and due from banks as of December 31, 2001 includes $1,983,000 which is subject to withdrawals and usage restrictions to satisfy the reserve requirements of the Federal Reserve Bank. SECURITIES: Investments in debt securities are adjusted for amortization of premiums and accretion of discounts. Gains or losses on sales of investment securities are computed on a specific identification basis. F-9 The Company classifies 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 Company 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 consolidated financial statements. -- Available-for-sale securities are carried at fair value on the consolidated 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 consolidated balance sheet. Unrealized holding gains and losses for trading securities are included in earnings. -- Declines in the fair value of held-to-maturity and available- for-sale securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses. LOANS: Loans receivable that management has the intent and ability to hold until maturity or payoff are reported at their outstanding principal balances reduced by amounts due to borrowers on unadvanced loans, by any charge-offs, the allowance for loan losses and any deferred fees or costs on originated loans, or unamortized premiums or discounts on purchased loans. Interest on loans is recognized on a simple interest basis. Loan origination and commitment fees and certain direct origination costs are deferred, and the net amount amortized as an adjustment of the related loan's yield. The Company is amortizing these amounts over the contractual life of the related loans. Cash receipts of interest income on impaired loans is credited to principal to the extent necessary to eliminate doubt as to the collectibility of the net carrying amount of the loan. Some or all of the cash receipts of interest income on impaired loans is recognized as interest income if the remaining net carrying amount of the loan is deemed to be fully collectible. When recognition of interest income on an impaired loan on a cash basis is appropriate, the amount of income that is recognized is limited to that which would have been accrued on the net carrying amount of the loan at the contractual interest rate. Any cash interest payments received in excess of the limit and not applied to reduce the net carrying amount of the loan are recorded as recoveries of charge-offs until the charge-offs are fully recovered. ALLOWANCE FOR LOAN LOSSES: The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to earnings. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. The allowance for loan losses is evaluated on a regular basis by management and is based upon management's periodic review of the collectibility of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower's ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available. F-10 A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower's prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis for commercial and construction loans by either 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. Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Company does not separately identify individual consumer and residential loans for impairment disclosures. PREMISES AND EQUIPMENT: Premises and equipment are stated at cost, less accumulated depreciation and amortization. Cost and related allowances for depreciation and amortization of premises and equipment retired or otherwise disposed of are removed from the respective accounts with any gain or loss included in income or expense. Depreciation and amortization are calculated principally on the straight-line method over the estimated useful lives of the assets. OTHER REAL ESTATE OWNED AND IN-SUBSTANCE FORECLOSURES: Other real estate owned includes properties acquired through foreclosure and properties classified as in-substance foreclosures in accordance with Financial Accounting Standards Board Statement No. 15, "Accounting by Debtors and Creditors for Troubled Debt Restructuring." These properties are carried at the lower of cost or estimated fair value less estimated cost to sell. Any writedown from cost to estimated fair value required at the time of foreclosure or classification as in-substance foreclosure is charged to the allowance for loan losses. Expenses incurred in connection with maintaining these assets, subsequent writedowns and gains or losses recognized upon sale are included in other expense. In accordance with Statement of Financial Accounting Standards No. 114 "Accounting by Creditors for Impairment of a Loan," the Company classifies loans as in-substance repossessed or foreclosed if the Company receives physical possession of the debtor's assets regardless of whether formal foreclosure proceedings take place. ADVERTISING: The Company directly expenses costs associated with advertising as they are incurred. INCOME TAXES: The Company recognizes income taxes under the asset and liability method. Under this method, deferred tax assets and liabilities are established for the temporary differences between the accounting basis and the tax basis of the Company's assets and liabilities at enacted tax rates expected to be in effect when the amounts related to such temporary differences are realized or settled. FAIR VALUES OF FINANCIAL INSTRUMENTS: Statement of Financial Accounting Standards No. 107, "Disclosures about Fair Value of Financial Instruments," requires that the Company disclose estimated fair value for its financial instruments. Fair value methods and assumptions used by the Company in estimating its fair value disclosures are as follows: F-11 Cash and cash equivalents: The carrying amounts reported in the balance sheet for cash and cash equivalents approximate those assets' fair values. Securities (including mortgage-backed securities): Fair values for securities are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments. Loans receivable: For variable-rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values. The fair values for other loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. Accrued interest receivable: The carrying amount of accrued interest receivable approximates its fair value. Deposit liabilities: The fair values disclosed for demand deposits (e.g., interest and non-interest checking, passbook savings, and money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits. Federal Home Loan Bank Advances: Fair values for Federal Home Loan Bank advances are estimated using a discounted cash flow technique that applies interest rates currently being offered on advances to a schedule of aggregated expected monthly maturities on Federal Home Loan Bank advances. Other borrowed funds: Fair values for other borrowed funds are estimated using discounted cash flow analyses based on the Company's current incremental borrowing rates for similar borrowings. Off-balance sheet instruments: The fair value of commitments to originate loans is estimated using the fees currently charged to enter similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed-rate loan commitments and the unadvanced portion of loans, fair value also considers the difference between current levels of interest rates and the committed rates. The fair value of letters of credit is based on fees currently charged for similar agreements or on the estimated cost to terminate them or otherwise settle the obligation with the counterparties at the reporting date. EARNINGS PER SHARE: Basic EPS excludes dilution and is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. Diluted EPS is computed similarly to fully diluted EPS pursuant to APB Opinion No. 15. STOCK BASED COMPENSATION: Under SFAS No. 123 the Company has the option of accounting for stock- based compensation using the intrinsic value approach in APB No. 25 or the fair value method introduced in SFAS No. 123. The Company elected to use the APB No. 25 method. Entities electing to follow the provisions of APB No. 25 must make pro forma disclosure of net income and earnings per share, as if the fair value method of accounting defined in SFAS No. 123 had been applied. The Company has made the pro forma disclosures required by SFAS No. 123. F-12 RECENT ACCOUNTING PRONOUNCEMENTS: In June 1998, the FASB issued Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, effective for fiscal years beginning after June 15, 2000. This Statement establishes accounting and reporting standards for derivative instruments and hedging activities, including certain derivative instruments embedded in other contracts, and requires that an entity recognize all derivatives as assets or liabilities in the balance sheet and measure them at fair value. If certain conditions are met, an entity may elect to designate a derivative as follows: (a) a hedge of the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment, (b) a hedge of the exposure to variable cash flows of a forecasted transaction, or (c) a hedge of the foreign currency exposure of an unrecognized firm commitment, an available- for-sale security, a foreign currency denominated forecasted transaction, or a net investment in a foreign operation. The Statement generally provides for matching the timing of the recognition of the gain or loss on derivatives designated as hedging instruments with the recognition of the changes in the fair value of the item being hedged. Depending on the type of hedge, such recognition will be in either net income or other comprehensive income. For a derivative not designated as a hedging instrument, changes in fair value will be recognized in net income in the period of change. The adoption of this Statement did not have a material impact on the consolidated financial statements. FASB has issued SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities". This Statement replaces SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities" and rescinds SFAS Statement No. 127, "Deferral of the Effective Date of Certain Provisions of FASB Statement No. 125". SFAS No. 140 provides accounting and reporting standards for transfers and servicing of financial assets and extinguishments of liabilities. This statement provides consistent standards for distinguishing transfers of financial assets that are sales from transfers that are secured borrowings. This statement is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after March 31, 2001; however, the disclosure provisions are effective for fiscal years ending after December 15, 2000. The adoption of this Statement did not have a material impact on the Company's financial position or results of operations. In June 2001, the FASB issued SFAS No. 141, "Business Combinations". This statement addresses financial accounting and reporting for business combinations and supercedes APB Opinion No. 16, "Business Combinations", and SFAS No. 38, "Accounting for Preacquisition Contingencies of Purchased Enterprises". Under Opinion 16, business combinations were accounted for using one of two methods, the pooling- of-interests method or the purchase method. All business combinations in the scope of SFAS No. 141 are to be accounted for using one method - the purchase method. The provisions of SFAS No. 141 apply to all business combinations initiated after June 30, 2001 and to all business combinations accounted for using the purchase method for which the date of acquisition is July 1, 2001, or later. The adoption of SFAS No. 141 will have no immediate effect on the Company's consolidated financial statements since it had no pending business combinations as of December 31, 2001 or as of the date of the issuance of these consolidated financial statements. If the Company consummates business combinations in the future, any such combinations that would have been accounted for by the pooling-of-interests method under Opinion 16 will be accounted for under the purchase method and the difference in accounting could have a substantial impact on the Company's consolidated financial statements. In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets". This statement addresses financial accounting and reporting for required goodwill and other intangible assets and supercedes APB Opinion No. 17, "Intangible Assets". The initial recognition and measurement provisions of SFAS No. 142 apply to intangible assets which are defined as assets (not including financial assets) that lack physical substance. The term "intangible assets" is used in SFAS No. 142 to refer to intangible assets other than goodwill. The accounting for a recognized intangible asset is based on its useful life. An intangible asset with a finite useful life is amortized; an intangible asset with an indefinite useful life is not amortized. An intangible asset that is subject to amortization shall be reviewed for impairment in accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of". F-13 SFAS No. 142 provides that goodwill shall not be amortized. Goodwill is defined as the excess of the cost of an acquired entity over the net of the amounts assigned to assets acquired and liabilities assumed. SFAS No. 142 further provides that goodwill shall be tested for impairment at a level of reporting referred to as a reporting unit. Impairment is the condition that exists when the carrying amount of goodwill exceeds its implied fair value. SFAS No. 142 is effective as follows: All of the provisions of SFAS No. 142 shall be applied in fiscal years beginning after December 15, 2001, to all goodwill and intangible assets recognized in an entity's statement of financial position at the beginning of that fiscal year, regardless of when those previously recognized assets were initially recognized. The Company's assets as of December 31, 2001 include goodwill of $2,173,368 recognized in the acquisition of Fairbank, Inc., in 1997. This goodwill is being amortized at the rate of $226,800 per year. Under SFAS No. 142 this amortization will be discontinued after December 31, 2001 but will be subject to the impairment review requirements of SFAS No. 142. In the impairment review of goodwill, two terms, "reporting unit" and "operating segment" are used. They are defined as follows: A reporting unit is the level of reporting at which goodwill is tested for impairment. A reporting unit is an operating segment or one level below an operating segment. An operating segment is a component of an enterprise: a. That engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components of the same enterprise), b. Whose operating results are regularly reviewed by the enterprise's chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance, and c. For which discrete financial information is available. In connection with Statement 142's transitional goodwill impairment evaluation, the Statement will require the Company to perform an assessment of whether there is an indication that goodwill is impaired as of January 1, 2002. To accomplish this, the Company must identify its reporting units and determine the carrying value of each reporting unit by assigning the assets and liabilities, including the existing goodwill and intangible assets, to those reporting units as of January 1, 2002. The Company will then have up to six months from January 1, 2002 to determine the fair value of each reporting unit and compare it to the carrying amount of the reporting unit. To the extent the carrying amount of a reporting unit exceeds the fair value of the reporting unit, an indication exists that the reporting unit goodwill may be impaired and the Company must perform the second step of the transitional impairment test. In the second step, the Company must compare the implied fair value of the reporting unit goodwill with the carrying amount of the reporting unit goodwill, both of which would be measured as of January 1, 2002. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit to all of the assets (recognized and unrecognized) and liabilities of the reporting unit in a manner similar to a purchase price allocation, in accordance with Statement 141. The residual fair value after this allocation is the implied fair value of the reporting unit goodwill. This second step is required to be completed as soon as possible, but no later than the end of 2002. Any transitional impairment loss will be recognized as the cumulative effect of a change in accounting principle in the Company's statement of income. The Company is in the process of evaluating the impact of SFAS No. 142 on its future consolidated financial statements. F-14 NOTE 3 - INVESTMENTS IN SECURITIES - ---------------------------------- Debt and equity securities have been classified in the consolidated balance sheets according to management's intent. The carrying amount of securities and their approximate fair values are as follows as of December 31:
Gains In Losses In Accumulated Accumulated Amortized Other Other Cost Comprehensive Comprehensive Fair Basis Income Income Value --------- ------------- ------------- ----- Available-for-sale securities: December 31, 2001: Debt securities issued by the U.S. Treasury and other U.S. government corporations and agencies $34,240,332 $ 508,328 $ 83,094 $34,665,566 Mortgage-backed securities 36,128,956 332,183 94,103 36,367,036 Corporate debt securities 2,941,168 69,571 5,038 3,005,701 Marketable equity securities 6,014,453 297,247 1,157,853 5,153,847 ------------------------------------------------------------ 79,324,909 1,207,329 1,340,088 79,192,150 Money market mutual funds included in cash and cash equivalents (86,613) (86,613) ------------------------------------------------------------ $79,238,296 $1,207,329 $1,340,088 $79,105,537 ============================================================ December 31, 2000: Debt securities issued by the U.S. Treasury and other U.S. government corporations and agencies $40,934,467 $ 53,125 $ 558,570 $40,429,022 Mortgage-backed securities 22,089,178 135,490 179,741 22,044,927 Corporate debt securities 1,472,754 2,051 11,935 1,462,870 Marketable equity securities 4,581,568 468,674 880,438 4,169,804 ------------------------------------------------------------ 69,077,967 659,340 1,630,684 68,106,623 Money market mutual funds included in cash and cash equivalents (113,527) (113,527) ------------------------------------------------------------ $68,964,440 $ 659,340 $1,630,684 $67,993,096 ============================================================
Gross Gross Net Unrecognized Unrecognized Carrying Holding Holding Fair Amount Gains Loss Value -------- ------------ ------------ ----- Held-to-maturity securities: December 31, 2001: Debt securities issued by the U.S. Treasury and other U.S. government corporations and agencies $ 2,749,710 $ 27,593 $ $ 2,777,303 Debt securities issued by states of the United States and political subdivisions of the states 13,528,291 292,100 11,264 13,809,127 Mortgage-backed securities 2,711 102 2,813 Other debt securities 1,000 1,000 ---------------------------------------------------------- $16,281,712 $319,795 $11,264 $16,590,243 ========================================================== F-15 Gross Gross Net Unrecognized Unrecognized Carrying Holding Holding Fair Amount Gains Loss Value -------- ------------ ------------ ----- December 31, 2000: Debt securities issued by the U.S. Treasury and other U.S. government corporations and agencies $ 6,948,231 $26,941 $ 5,125 $ 6,970,047 Debt securities issued by states of the United States and political subdivisions of the states 12,094,549 41,349 77,687 12,058,211 Mortgage-backed securities 58,716 106 58,822 Other debt securities 1,000 1,000 ---------------------------------------------------------- $19,102,496 $68,396 $82,812 $19,088,080 ==========================================================
The scheduled maturities of securities (other than equity securities) were as follows as of December 31, 2001:
Available-For-Sale Held-To-Maturity ------------------ ---------------- Fair Net Carrying Value Amount ----- ------------ Due within one year $ 1,079,681 $ 5,739,461 Due after one year through five years 33,065,825 7,236,127 Due after five years through ten years 3,525,761 2,209,903 Due after ten years 1,093,510 Mortgage-backed securities 36,367,036 2,711 -------------------------------- $74,038,303 $16,281,712 ====================================
During 2001, proceeds from sales of available-for-sale securities amounted to $891,375. Gross realized gains and gross realized losses on those sales amounted to $57,588 and $42,654, respectively. During 2000, proceeds from sales of available-for-sale securities amounted to $2,884,051. Gross realized gains and gross realized losses on those sales amounted to $428,447 and $94,866, respectively. During 1999, proceeds from sales of available- for-sale securities amounted to $5,728,160. Gross realized gains and gross realized losses on those sales amounted to $739,508 and $72,610, respectively. The tax expense applicable to these net realized gains amounted to $6,112, $136,534 and $272,962 for the years ended December 31, 2001, 2000 and 1999, respectively. There were no securities of issuers whose aggregate carrying amount exceeded 10% of stockholders' equity as of December 31, 2001. Total carrying amounts of $4,554,448 and $4,747,057 of debt securities were pledged to secure treasury tax and loan, trust department and public funds on deposit as of December 31, 2001 and 2000, respectively. NOTE 4 - LOANS - -------------- Loans consisted of the following as of December 31:
2001 2000 ----------------------------- Commercial, financial and agricultural $ 45,237,663 $ 49,330,628 Real estate - construction and land development 7,600,286 8,601,224 Real estate - residential 60,936,137 55,871,388 Real estate - commercial 128,887,954 128,327,133 Consumer 10,642,900 12,871,448 Nonprofit 236,388 1,036,350 Obligations of states and political subdivisions 21,400 61,200 Other 321,587 53,612 ----------------------------- 253,884,315 256,152,983 Allowance for loan losses (5,484,519) (4,776,360) Unearned income (382,161) (519,242) Unamortized adjustment to fair value (8,550) ----------------------------- Net loans, carrying amount $248,017,635 $250,848,831 =============================
F-16 Certain directors and executive officers of the Company and companies in which they have significant ownership interest were customers of the Bank during 2001. Total loans to such persons and their companies amounted to $5,209,567 as of December 31, 2001. During the year ended December 31, 2001, $6,598,220 of advances were made and repayments totaled $4,741,667. Changes in the allowance for loan losses were as follows for the years ended December 31:
2001 2000 1999 ---------------------------------------- Balance at beginning of period $4,776,360 $3,765,872 $3,569,282 Loans charged off (100,662) (354,812) (402,208) Provision for loan losses 750,000 1,200,000 550,000 Recoveries of loans previously charged off 58,821 165,300 48,798 ---------------------------------------- Balance at end of period $5,484,519 $4,776,360 $3,765,872 ========================================
Information about loans that meet the definition of an impaired loan in Statement of Financial Accounting Standards No. 114 is as follows as of December 31:
2001 2000 ------------------------- ------------------------- Recorded Related Recorded Related Investment Allowance Investment Allowance In Impaired For Credit In Impaired For Credit Loans Losses Loans Losses ------------------------- ------------------------- Loans for which there is a related allowance for credit losses $7,461,437 $1,195,324 $3,178,869 $424,557 Loans for which there is no related allowance for credit losses 60,252 0 ------------------------------------------------------ Totals $7,521,689 $1,195,324 $3,178,869 $424,557 ====================================================== Average recorded investment in impaired loans during the year ended December 31 $6,134,847 $3,261,772 ========== ========== Related amount of interest income recognized during the time, in the year ended December 31, that the loans were impaired Total recognized $ 562,278 $ 77,787 ========== ========== Amount recognized using a cash-basis method of accounting $ 157,735 $ 0 ========== ==========
NOTE 5 - PREMISES AND EQUIPMENT - ------------------------------- The following is a summary of premises and equipment as of December 31:
2001 2000 -------------------------- Land $ 1,710,368 $ 1,805,368 Buildings 6,940,613 6,746,917 Furniture and equipment 4,449,637 4,179,010 Leasehold improvements 383,436 383,436 -------------------------- 13,484,054 13,114,731 Accumulated depreciation and amortization (7,028,217) (6,349,042) -------------------------- $ 6,455,837 $ 6,765,689 ==========================
F-17 NOTE 6 - DEPOSITS - ----------------- The aggregate amount of time deposit accounts in denominations of $100,000 or more as of December 31, 2001 and 2000 was $33,448,818 and $35,294,948, respectively. For time deposits as of December 31, 2001, the scheduled maturities for each of the following three years ended December 31, are: 2002 $143,174,453 2003 20,553,261 2004 4,858,799 ------------ Total $168,586,513 ============
Deposits from related parties held by the Company as of December 31, 2001 and 2000 amounted to $2,773,437 and $3,387,274, respectively. NOTE 7 - FEDERAL HOME LOAN BANK ADVANCES - ---------------------------------------- Advances consist of funds borrowed from the Federal Home Loan Bank (FHLB). Maturities of advances from the FHLB for the five years ending after December 31, 2001, and thereafter, are summarized as follows:
AMOUNT ------ 2002 $ 1,230,744 2003 246,439 2004 1,259,063 2005 279,266 2006 298,638 Thereafter 13,668,937 ----------- $16,983,087 ===========
Interest rates on FHLB advances ranged from 4.89 percent to 7.72 percent. At December 31, 2001, the weighted average interest rate on FHLB advances was 6.47 percent. As of December 31, 2001, a $3,000,000 advance from the FHLB maturing in 2015 is redeemable at par at the option of the FHLB on January 7, 2002 and each calendar quarter thereafter. Amortizing advances are being repaid in equal monthly payments and are being amortized from the date of the advance to the maturity date on a direct reduction basis. Advances are secured by the Company's stock in that institution, its residential real estate mortgage portfolio and the remaining U.S. government and agency obligations not otherwise pledged. NOTE 8 - OTHER BORROWED FUNDS - ----------------------------- Other borrowed funds consist of treasury tax and loan deposits and generally are repaid within one to 120 days from the transaction date. F-18 NOTE 9 - INCOME TAXES - --------------------- The components of income tax expense are as follows for the years ended December 31:
2001 2000 1999 ---------------------------------------- Current: Federal $1,513,874 $2,086,337 $1,917,807 State 80,191 38,210 57,463 1,594,065 2,124,547 1,975,270 Deferred: Federal (162,866) (253,043) (37,739) State (56,212) (87,440) (14,774) Change in the valuation allowance 23,045 79,725 ---------------------------------------- (196,033) (260,758) (52,513) ---------------------------------------- Total income tax expense $1,398,032 $1,863,789 $1,922,757 ========================================
The reasons for the differences between the statutory federal income tax rates and the effective tax rates are summarized as follows for the years ended December 31:
2001 2000 1999 % of % of % of Income Income Income -------------------------- Federal income tax at statutory rate 34.0% 34.0% 34.0% Increase (decrease) in tax resulting from: Tax-exempt income (6.5) (4.6) (3.0) Dividends received deduction (.4) (.3) (.3) Unallowable expenses .7 .2 .8 Amortization of goodwill 1.7 1.3 1.3 State tax, net of federal tax benefit .3 (.6) .5 Change in valuation allowance .5 1.4 ------------------------ Effective tax rates 30.3% 31.4% 33.3% ========================
The Company had gross deferred tax assets and gross deferred tax liabilities as follows as of December 31:
2001 2000 ------------------------- Deferred tax assets: Allowance for loan losses $2,111,553 $1,821,703 Deferred loan fees 155,543 185,300 Interest on non-performing loans 79,299 122,470 Accrued employee benefits 200,903 243,852 Minimum pension liability adjustment 73,618 16,729 Net unrealized holding loss on available-for-sale securities 11,816 374,801 Other adjustments 10,408 1,522 ------------------------- Gross deferred tax assets 2,643,140 2,766,377 Valuation allowance (102,770) (79,725) ------------------------- 2,540,370 2,686,652 ------------------------- Deferred tax liabilities: Accelerated depreciation (197,939) (222,589) Prepaid pensions (135,471) (147,647) Discount accretion (2,504) (1,897) Deferred gain on stock conversion (2,317) (2,317) ------------------------- Gross deferred tax liabilities (338,231) (374,450) ------------------------- Net deferred tax assets $2,202,139 $2,312,202 =========================
F-19 NOTE 10 - EMPLOYEE BENEFITS - --------------------------- The Company has a defined benefit pension plan (plan) that up to January 1, 1998 covered substantially all of its full time employees who met certain eligibility requirements. On January 1, 1998 the Bank suspended the plan so that employees no longer earn additional defined benefits for future service. Employees were eligible under the plan upon attaining age 21 and completing one year of service. The benefits paid are based on 1.5% of total salary plus .5% of compensation in excess of integration level per year of service. The integration level was the first $750 of monthly compensation. The accrued benefit is based on years of service. The following tables set forth information about the plan as of December 31 and the years then ended:
2001 2000 ------------------------- Change in projected benefit obligation: Benefit obligation at beginning of year $1,199,450 $1,414,912 Interest cost 77,745 86,948 Actuarial loss 86,454 95,400 Expected distributions (237,663) (397,810) ------------------------- Benefit obligation at end of year 1,125,986 1,199,450 ------------------------- Change in plan assets: Plan assets at estimated fair value at beginning of year 1,048,186 1,304,569 Actual return on plan assets (5,274) 141,427 Benefits paid (212,351) (397,810) ------------------------- Fair value of plan assets at end of year 830,561 1,048,186 ------------------------- Funded status at end of year (295,425) (151,264) Unrecognized net actuarial loss 510,841 401,597 Unrecognized prior service cost 21,189 8,013 Unamortized net obligation existing at date of adoption of SFAS No. 87 94,372 102,379 ------------------------- Net amount recognized $ 330,977 $ 360,725 ========================= Amounts recognized in the balance sheet consist of: Prepaid benefit cost $ 330,977 $ 360,725 Accrued benefit liability (295,425) (151,264) Intangible asset 115,561 110,392 Accumulated other comprehensive loss 179,864 40,872 ------------------------- Net amount recognized $ 330,977 $ 360,725 =========================
The weighted-average discount rate used in determining the actuarial present value of the projected benefit obligation was 7.0% for 2001 and 2000. The weighted-average expected long-term rate of return on assets was 7.0% for 2001 and 2000. Components of net periodic benefit cost:
2001 2000 1999 -------------------------------- Interest cost on benefit obligation $77,745 $86,948 $97,807 Expected return on assets (61,105) (75,177) (88,652) Amortization of net transition obligation 8,007 8,007 8,007 Amortization of prior service cost (13,176) (13,176) (13,176) Recognized actuarial loss 18,277 14,753 11,151 ------------------------------- Net periodic benefit cost $29,748 $21,355 $15,137 ===============================
Securities of the Company included in plan assets as of December 31, 2001 and 2000 consist of 3,730 shares of Slade's Ferry Bancorp common stock. F-20 The Company has a 401K plan for eligible employees who attain age 21 and complete one year of service. The Company contributes a discretionary amount to be allocated to eligible participants. Current contributions vest fully after seven years of continuous service. The amount that may be deferred by the employees is limited by the amount that will not cause the plan to exceed IRS limitations. Contributions made by the Company charged to employee benefit expense amounted to $17,500, $15,000 and $11,000 for the years ended December 31, 2001, 2000 and 1999, respectively. The Company adopted a profit-sharing plan, ("Plan") effective October 1, 1998. The Company contributes amounts to the plan at the Company's discretion. Cost recognized by the Company for the profit-sharing plan amounted to $300,000, $150,000 and $111,750 for the years ended December 31, 2001, 2000 and 1999, respectively. NOTE 11 - COMMITMENTS AND CONTINGENT LIABILITIES - ------------------------------------------------ The Company is obligated under certain agreements issued during the normal course of business which are not reflected in the accompanying consolidated financial statements. The Company is obligated under various lease agreements covering branch offices and equipment. These agreements are considered to be operating leases. The total minimum rental due in future periods under these agreements is as follows as of December 31, 2001: 2002 $ 93,849 2003 77,035 2004 30,315 2005 20,000 -------- Total minimum lease payments $221,199 ========
Certain leases contain provisions for escalation of minimum lease payments contingent upon increases in real estate taxes and percentage increases in the consumer price index. The total rental expense amounted to $126,256 for 2001, $123,316 for 2000 and $123,234 for 1999. NOTE 12 - FINANCIAL INSTRUMENTS - ------------------------------- The Company is 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 originate loans, standby letters of credit and unadvanced funds on loans. The instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the balance sheets. The contract amounts of those instruments reflect the extent of involvement the Company has in particular classes of financial instruments. The Company's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for loan commitments and standby letters of credit is represented by the contractual amounts of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. Commitments to originate loans are agreements to lend to a customer provided 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 many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management's credit evaluation of the borrower. Collateral held varies, but may include secured interests in mortgages, accounts receivable, inventory, property, plant and equipment and income- producing properties. Standby letters of credit are conditional commitments issued by the Company to guarantee the performance by a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. Of the total standby letters of credit outstanding as of December 31, 2001, $36,375 are secured by deposits at the Bank. F-21 The estimated fair values of the Company's financial instruments, all of which are held or issued for purposes other than trading, are as follows as of December 31:
2001 2000 ---------------------------- ---------------------------- Carrying Fair Carrying Fair Amount Value Amount Value ------------------------------------------------------------ Financial assets: Cash and cash equivalents $ 28,692,310 $ 28,692,310 $ 28,060,709 $ 28,060,709 Interest bearing time deposit with other bank 100,000 100,000 Available-for-sale securities 79,105,537 79,105,537 67,993,096 67,993,096 Held-to-maturity securities 16,281,712 16,590,243 19,102,496 19,088,080 Federal Home Loan Bank stock 1,013,400 1,013,400 1,013,400 1,013,400 Loans, net 248,017,635 252,172,000 250,848,831 249,381,000 Accrued interest receivable 1,953,989 1,953,989 2,351,926 2,351,926 Financial liabilities: Deposits 337,043,342 339,627,000 337,000,901 337,670,000 FHLB advances 16,983,087 18,248,000 12,725,908 12,967,000 Other borrowed funds 465,216 465,216 1,200,000 1,200,000
The carrying amounts of financial instruments shown in the above table are included in the consolidated balance sheets under the indicated captions. Accounting policies related to financial instruments are described in Note 2. The notional amounts of financial instrument liabilities with off-balance sheet credit risk are as follows as of December 31:
2001 2000 -------------------------- Commitments to originate loans $14,812,646 $ 4,434,613 Standby letters of credit 638,371 1,231,573 Unadvanced portions of loans: Consumer loans (including credit card loans and student loans) 1,810,081 1,809,646 Commercial real estate loans 150,754 691,723 Home equity loans 1,574,586 1,264,103 Commercial loans 12,224,353 14,511,260 Construction loans 7,756,973 5,183,061 -------------------------- $38,967,764 $29,125,979 ==========================
There is no material difference between the notional amounts and the estimated fair values of the off-balance sheet liabilities. The Company has no derivative financial instruments subject to the provisions of SFAS No. 119 "Disclosure About Derivative Financial Instruments and Fair Value of Financial Instruments. " NOTE 13 - SIGNIFICANT GROUP CONCENTRATIONS OF CREDIT RISK - --------------------------------------------------------- Most of the Bank's business activity is with customers located within the state. There are no concentrations of credit to borrowers that have similar economic characteristics. The majority of the Bank's loan portfolio is comprised of loans collateralized by real estate located in the state of Massachusetts. NOTE 14 - EARNINGS PER SHARE (EPS) - ---------------------------------- Earnings per share were calculated using the weighted average number of common shares outstanding. F-22 Reconciliation of the numerators and the denominators of the basic and diluted per share computations for net income are as follows:
Income Shares Per-Share (Numerator) (Denominator) Amount ----------------------------------------- Year ended December 31, 2001 Basic EPS Net income and income available to common stockholders $3,210,253 3,830,575 $ .84 Effect of dilutive securities, options 13,116 -------------------------- Diluted EPS Income available to common stockholders and assumed conversions $3,210,253 3,843,691 $ .84 ========================== Year ended December 31, 2000 Basic EPS Net income and income available to common stockholders $4,074,439 3,743,138 $1.09 Effect of dilutive securities, options 3,112 -------------------------- Diluted EPS Income available to common stockholders and assumed conversions $4,074,439 3,746,250 $1.09 ========================== Year ended December 31, 1999 Basic EPS Net income and income available to common stockholders $3,856,488 3,650,275 $1.06 Effect of dilutive securities, options 8,336 -------------------------- Diluted EPS Income available to common stockholders and assumed conversions $3,856,488 3,658,611 $1.05 ==========================
NOTE 15 - REGULATORY MATTERS - ---------------------------- The Company and its subsidiary the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory - and possibly additional discretionary - actions by regulators that, if undertaken, could have a direct material effect on the Company's and the Bank's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. Their capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. In 2000, the Bank, as a result of an examination by the FDIC entered into a Memorandum of Understanding with the FDIC and the Massachusetts Division of Banks which provides, among other things, that the Bank (1) maintain a Tier I leverage capital ratio of not less than seven percent and a Tier I Risk- Based capital ratio of not less than nine percent and (2) develop specific plans and proposals for the reduction and improvement of lines of credit which are subject to adverse classification or special mention in the amount of $1,000,000 or more. During 2001, the Bank continued to operate under this informal agreement (Memorandum of Understanding) with the Federal Deposit Insurance Corporation and Massachusetts Commissioner of Banks. Following completion of the most recent joint examination in 2001, a revised Memorandum of Understanding was entered into to be implemented during the first and second quarters of 2002. Under the revised agreement, the Bank agreed to address and implement certain plans, procedures, and policies. These include performing an independent, thorough analysis and assessment of the Bank's management and staffing needs, and formalizing a written management plan. In addition, the Bank agreed to revise and implement loan and credit administration policies, including a written classified and criticized asset reduction plan, a loan risk and collection plan, and a revised loan policy providing for standards applicable to construction lending and concentrations. During the life of the agreement, the Bank must maintain a seven (7) percent Tier 1 leverage capital ratio. F-23 Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier 1 capital (as defined) to average assets (as defined). Management believes, as of December 31, 2001, that the Company and the Bank meet all capital adequacy requirements to which they are subject. As of December 31, 2001, the most recent notification from the Federal Deposit Insurance Corporation categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized the Bank must maintain minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth in the table. There are no conditions or events since that notification that management believes have changed the Bank's category. The Company's and the Bank's actual capital amounts and ratios are also presented in the table.
To Be Well Capitalized Under For Capital Prompt Corrective Actual Adequacy Purposes: Action Provisions: ----------------- ------------------ ------------------ Amount Ratio Amount Ratio Amount Ratio ------------------------------------------------------------- (Dollar amounts in thousands) As of December 31, 2001: Total Capital (to Risk Weighted Assets): Consolidated $39,393 14.43% $21,832 >=8.0% N/A Slade's Ferry Trust Company 34,046 12.55 21,697 >=8.0 $27,122 >=10.0% Tier 1 Capital (to Risk Weighted Assets): Consolidated 35,956 13.18 10,916 >=4.0 N/A Slade's Ferry Trust Company 30,630 11.29 10,849 >=4.0 16,273 >= 6.0 Tier 1 Capital (to Average Assets): Consolidated 35,956 8.98 16,025 >=4.0 N/A Slade's Ferry Trust Company 30,630 7.74 15,834 >=4.0 19,793 >= 5.0 As of December 31, 2000: Total Capital (to Risk Weighted Assets): Consolidated 36,994 13.24 22,360 >=8.0 N/A Slade's Ferry Trust Company 32,703 11.76 22,253 >=8.0 27,816 >=10.0 Tier 1 Capital (to Risk Weighted Assets): Consolidated 33,484 11.98 11,180 >=4.0 N/A Slade's Ferry Trust Company 29,210 10.50 11,126 >=4.0 16,689 >= 6.0 Tier 1 Capital (to Average Assets): Consolidated 33,484 8.74 15,323 >=4.0 N/A Slade's Ferry Trust Company 29,210 7.69 15,186 >=4.0 18,983 >= 5.0
The declaration of cash dividends is dependent on a number of factors, including regulatory limitations, and the Company's operating results and financial condition. The stockholders of the Company will be entitled to dividends only when, and if, declared by the Company's Board of Directors out of funds legally available therefor. Under the Massachusetts Business Corporation Law, a dividend may not be declared if the corporation is insolvent or if the declaration of the dividend would render the corporation insolvent. The declaration of future dividends, whether by the Board of Directors of the Company or the Bank, will be subject to favorable operating results, financial conditions, tax considerations, and other factors. As of December 31, 2001 the Bank would be restricted from declaring dividends in an amount greater than approximately $2,920,000 as such declaration would decrease capital below the Bank's required minimum level of regulatory capital. F-24 NOTE 16 - STOCK OPTION PLAN - --------------------------- As of December 31, 2001 the Company has a stock option plan (Plan). The Plan is divided into two separate equity incentive programs, a Discretionary Grant Program and an Automatic Grant Program. The maximum number of shares of common stock issuable over the term of the Plan may not exceed 275,625 shares and the maximum aggregate number of shares issuable under both programs in any plan year may not exceed 55,125 shares. Unless sooner terminated by the Board, the Plan will in all events terminate on March 11, 2006. Under the Discretionary Grant Program, key employees, including officers, may be granted incentive stock options to purchase shares of common stock of the Company. The option exercise price per share may not be less than one hundred percent of the fair market value of common stock at grant date and options generally become exercisable in periodic installments over the optionee's period of service. Two types of stock appreciation rights are authorized for issuance: (1) tandem rights, which require the option holder to elect between the exercise of the underlying option for shares of common stock and the surrender of such option for appreciation distribution and (2) limited rights, which are automatically exercised upon the occurance of a hostile takeover. Eligibility for participation in the Automatic Grant Program is limited to non-employee directors of the Company or its subsidiary. Under the Automatic Grant Program a nonstatutory option for 2,000 shares of common stock is granted each plan year to eligible directors. The exercise price per share is equal to one hundred percent of the fair market value per share of common stock at grant date and each option has a maximum five year term. Each option under the Automatic Grant Program is immediately vested. The Company applies APB Opinion 25 and related Interpretations in accounting for its plan. Accordingly, no compensation cost has been recognized for its stock option plan except for $12,490 in stock appreciation paid in 2001 to participants who surrendered their options. Had compensation cost for the Company's stock-based compensation plan been determined based on the fair value at the grant dates for awards under those plans consistent with the method of FASB Statement 123, the Company's net income and earnings per share would have been reduced to the pro forma amounts indicated below for the years ended December 31:
2001 2000 1999 -------------------------------------- Net income As reported $3,210,253 $4,074,439 $3,856,488 Pro forma $3,129,778 $3,959,899 $3,711,934 Basic earnings per share As reported $ .84 $ 1.09 $ 1.06 Pro forma $ .82 $ 1.06 $ 1.02 Diluted earnings per share As reported $ .84 $ 1.09 $ 1.05 Pro forma $ .81 $ 1.06 $ 1.01
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in the years ended December 31, 2001, 2000 and 1999: dividend yield of 3.5 percent in 2001 and 2 percent in 2000 and 1999; expected volatility of 23 percent in 2001, 23 percent in 2000 and 32 percent in 1999; risk-free interest rate of 4.93 percent in 2001, 6.37 percent in 2000 and 5.2 percent in 1999; and expected lives of 5 years in 2001, 5 years in 2000 and 4 years in 1999. F-25 A summary of the status of the Company's stock option plan as of December 31 and changes during the years then ending are presented below:
2001 2000 1999 --------------------------- --------------------------- --------------------------- Weighted-Average Weighted-Average Weighted-Average Options Shares Exercise Price Shares Exercise Price Shares Exercise Price - ----------------------------------------------------------------------------------------------------------------------------- Outstanding at beginning of year 135,345 $11.85 102,954 $12.64 63,579 $12.58 Granted 43,500 9.50 41,500 10.00 40,950 12.86 Exercised 0 0 (1,654) 8.48 0 Forfeited 0 0 (7,455) 13.21 (1,575) 16.19 Surrendered for cash (8,217) 8.48 0 0 ------- ------- ------- Outstanding at end of year 170,628 11.41 135,345 11.85 102,954 12.64 ======= ======= ======= Options exercisable at year-end 170,628 135,345 102,954 Weighted-average fair value of options granted during the year $ 1.85 $ 2.76 $ 3.53
The following table summarizes information about fixed stock options outstanding as of December 31, 2001:
Options Outstanding and Exercisable --------------------------------------------------------------------- Weighted-Average Number Remaining Weighted-Average Exercise Price Outstanding Contractual Life Exercise Price -------------- ----------- ---------------- ---------------- $ 8.48 17,640 .3 years $ 8.48 16.19 28,613 1.3 years 16.19 12.86 39,375 2.3 years 12.86 10.00 41,500 3.3 years 10.00 9.50 43,500 4.3 years 9.50 ------- 170,628 2.7 years 11.41 =======
NOTE 17 - MINORITY INTEREST FOR SUBSIDIARY - ------------------------------------------ In 1999 the Bank formed a subsidiary, Slade's Ferry Preferred Capital Corporation (SFPCC) which issued to the Bank 1,000 shares of SFPCC common stock. No other shares of SFPCC common stock have been issued. SFPCC also issued to the Bank 1,000 shares of SFPCC 8% Cumulative Non-Convertible Preferred Stock (the "Preferred Stock"). No other shares of SFPCC preferred stock have been issued. Minority interest in subsidiary consists of 106 shares, at a stated value of $500 per share, of the preferred stock owned by the Bank. These shares were issued in 1999 to directors and employees of the Bank. All voting rights of SFPCC vest exclusively with its common stockholder, the Bank. The preferred stock has a liquidation value of $500 per share. The holders of the preferred stock are entitled to receive dividends, when, as and if declared by the Board of Directors of the SFPCC. Such dividends declared accumulate and are paid on such date as determined by the Board of Directors of the Bank. NOTE 18 - RECLASSIFICATION - -------------------------- Certain amounts in the prior year have been reclassified to be consistent with the current year's statement presentation. NOTE 19 - PARENT COMPANY ONLY CONDENSED FINANCIAL STATEMENTS - ------------------------------------------------------------ The following condensed financial statements are for Slade's Ferry Bancorp (Parent Company Only) and should be read in conjunction with the consolidated financial statements of Slade's Ferry Bancorp and Subsidiary. F-26 SLADE'S FERRY BANCORP --------------------- (Parent Company Only) CONDENSED FINANCIAL STATEMENTS ------------------------------
Balance sheets December 31, 2001 2000 -------------------------- ASSETS - ------ Cash $ 813,138 $ 1,205,307 Money market mutual fund 50,046 27,553 -------------------------- Cash and cash equivalents 863,184 1,232,860 Investments in available-for-sale securities (at fair value) 4,775,744 3,264,445 Investment in subsidiary, Slade's Ferry Trust Company 33,110,950 31,348,720 Premises and equipment 10,289 13,261 Due from subsidiary 217,987 Accrued interest receivable 60,821 47,800 Other assets 78,697 62,040 -------------------------- Total assets $38,899,685 $36,187,113 ========================== LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ Due to subsidiary $ 63,810 $ Other liabilities 369,744 512,740 -------------------------- Total liabilities 433,554 512,740 -------------------------- Stockholders' equity: Common stock, par value $.01 per share; authorized 10,000,000 shares; issued and outstanding 3,869,924.9 shares in 2001 and 3,789,503.5 shares in 2000 38,700 37,895 Paid-in capital 26,761,997 25,885,220 Retained earnings 11,892,623 10,371,944 Accumulated other comprehensive loss (227,189) (620,686) -------------------------- Total stockholders' equity 38,466,131 35,674,373 -------------------------- Total liabilities and stockholders' equity $38,899,685 $36,187,113 ==========================
Statements of income
Years Ended December 31, 2001 2000 1999 ------------------------------------ Dividends from subsidiary $1,685,000 $1,500,000 $1,310,000 Interest and dividends on securities: Taxable 223,801 180,766 137,867 Other interest income 10,315 9,537 5,718 Management fee income from subsidiary 393,408 441,750 443,664 -------------------------------------- Total income 2,312,524 2,132,053 1,897,249 -------------------------------------- Salaries and employee benefits 368,405 394,654 393,666 Shareholder relations expense 75,743 85,479 71,883 Loss on sale of available-for-sale security 647 Other expense 68,408 94,479 94,060 -------------------------------------- Total expense 512,556 574,612 560,256 -------------------------------------- Income before income taxes and equity in undistributed net income of subsidiary 1,799,968 1,557,441 1,336,993 Income taxes 48,421 24,635 11,407 -------------------------------------- Income before equity in undistributed net income of subsidiary 1,751,547 1,532,806 1,325,586 Equity in undistributed net income of subsidiary 1,458,706 2,541,633 2,530,902 -------------------------------------- Net income $3,210,253 $4,074,439 $3,856,488 ======================================
F-27 SLADE'S FERRY BANCORP --------------------- (Parent Company Only) Years Ended December 31, 2001, 2000 and 1999 -------------------------------------------- Statements of cash flows
2001 2000 1999 ---------------------------------------- Cash flows from operating activities: Net income $3,210,253 $4,074,439 $3,856,488 Adjustments to reconcile net income to net cash provided by operating activities: Undistributed net income of subsidiary (1,458,706) (2,541,633) (2,530,902) Accretion, net of amortization of securities (1,562) (9,490) (8,529) Loss on sales of available-for-sale securities 647 Depreciation and amortization 5,071 4,547 4,547 (Increase) decrease in due from subsidiary 217,987 (217,987) (Increase) decrease in interest receivable (13,021) (21,515) 2,072 Increase in income taxes receivable (77,353) Decrease in prepaid expenses 993 9,599 1,019 (Increase) decrease in other assets 1,062 (406) 8,155 Deferred tax expense (benefit) 328 (106) Increase (decrease) in taxes payable (199,864) 222,274 (5,000) Increase (decrease) in accrued expenses 1,115 244 (140) Increase in due to subsidiary 63,810 Increase (decrease) in other liabilities 6,300 (50) (600) ---------------------------------------- Net cash provided by operating activities 1,756,413 1,519,916 1,327,757 ---------------------------------------- Cash flows from investing activities: Purchases of available-for-sale securities (4,257,414) (888,418) (1,939,353) Proceeds from maturities of available-for-sale securities 2,900,000 950,000 Proceeds from sales of available-for-sale securities 427,486 Purchases of held-to-maturity securities (814,768) Proceeds from maturities of held-to-maturity securities 500,000 624,466 Capital expenditures (2,099) ---------------------------------------- Net cash used in investing activities (1,359,513) (388,418) (752,169) ---------------------------------------- Cash flows from financing activities: Net proceeds from issuance of common stock 877,582 905,861 862,967 Dividends paid (1,644,158) (1,479,575) (1,250,891) Fractional shares paid in cash (2,025) ---------------------------------------- Net cash used in financing activities (766,576) (575,739) (387,924) ---------------------------------------- Net increase (decrease) in cash and cash equivalents (369,676) 555,759 187,664 Cash and cash equivalents at beginning of year 1,232,860 677,101 489,437 ---------------------------------------- Cash and cash equivalents at end of year $ 863,184 $1,232,860 $ 677,101 ======================================== Supplemental disclosure: Income taxes paid (received) $ 325,310 $ (197,533) $ 16,407
The Parent Company Only Statements of Changes in Stockholders' Equity are identical to the Consolidated Statements of Changes in Stockholders' Equity for the years ended December 31, 2001, 2000 and 1999, and therefore are not reprinted here. F-28 SIGNATURES ---------- In accordance with Section 13 or 15(d) of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on March 05, 2002. Slade's Ferry Bancorp By /s/ Kenneth R. Rezendes ------------------------------------- Kenneth R. Rezendes, President/ Chief Executive Officer and Director In accordance with the requirements of the Exchange Act, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated. /s/ Thomas B. Almy 03/05/02 /s/ Edward Bernardo Jr. 03/05/02 - ----------------------------------------------- ---------------------------------------------------------- Thomas B. Almy Edward Bernardo Jr. Director Treasurer/Chief Financial Officer/Chief Accounting Officer /s/ James D. Carey 03/05/02 /s/ Peter G. Collias 03/05/02 - ----------------------------------------------- ---------------------------------------------------------- James D. Carey Peter G. Collias Executive Vice President and Director Director /s/ Donald T. Corrigan 03/05/02 /s/ Melvyn A. Holland 03/05/02 - ----------------------------------------------- ---------------------------------------------------------- Donald T. Corrigan Melvyn A. Holland Chairman of the Board and Director Director /s/ William Q. MacLean Jr. 03/05/02 /s/ Francis A. Macomber 03/05/02 - ----------------------------------------------- ---------------------------------------------------------- William Q. MacLean Jr. Francis A. Macomber Director Director /s/ Majed Mouded, MD 03/05/02 /s/ Shaun O'Hearn Sr. 03/05/02 - ----------------------------------------------- ---------------------------------------------------------- Majed Mouded, MD Shaun O'Hearn Sr. Director Director /s/ Lawrence J. Oliveira, DDS 03/05/02 /s/ Peter Paskowski 03/05/02 - ----------------------------------------------- ---------------------------------------------------------- Lawrence J. Oliveira, DDS Peter Paskowski Director Director /s/ Kenneth R. Rezendes 03/05/02 /s/ William J. Sullivan 03/05/02 - ----------------------------------------------- ---------------------------------------------------------- Kenneth R. Rezendes William J. Sullivan President, Chief Executive Officer and Director Director /s/ Charles Veloza 03/05/02 /s/ David F. Westgate 03/05/02 - ----------------------------------------------- ---------------------------------------------------------- Charles Veloza David F. Westgate Director Director
41 Exhibit Index
Exhibit No. Description Item - ------- ----------- ---- 3.1 Articles of Incorporation of Slade's Ferry (1) Bancorp as amended 3.2 By-laws of Slade's Ferry Bancorp as amended (2) 10.1 Slade's Ferry (formerly Weetamoe) Bancorp (3) 1996 Stock Option Plan as amended 10.2 Noncompetition Agreement between Slade's (4) Ferry Trust Company and Edward S. Machado (A substantially identical contract exists with Peter Paskowski) 10.3 Supplemental Executive Retirement Agreement (5) between Slade's Ferry (formerly Weetamoe) Bancorp and Donald T. Corrigan 10.4 Supplemental Executive Retirement Agreement (2) between Slade's Ferry (formerly Weetamoe) Bancorp and James D. Carey 10.5 Supplemental Executive Retirement Agreement (2) between Slade's Ferry (formerly Weetamoe) Bancorp and Manuel J. Tavares 10.6 Swansea Mall Lease (4) 10.7 Form of Director Supplemental Retirement Program (6) Director Agreement, Exhibit 1 thereto (Slade's Ferry Trust Company Director Supplemental Retirement Program Plan) and Endorsement Method Split Dollar Plan Agreement thereunder for Thomas B. Almy. (Similar forms of agreement entered into between Slade's Ferry Trust Company and the other directors) 10.8 Form of Directors' Paid-up Insurance Policy for (7) Thomas B. Almy (part of the Director supplemental Retirement Program). (Similar forms of policy entered into by Company for other directors). 10.9 Form of Officers' Paid-up Endorsement Method Split (8) Dollar Plan Agreement and Insurance Policies for Janice Partridge (Similar forms of policies entered into by Company for its President and other Vice Presidents) 21 List of subsidiaries of Slade's Ferry Bancorp (9) 23 Consent of Independent Public Accounts Incorporated by reference to the Registrant's Registration Statement on Form SB-2 filed with the Commission on April 14, 1997. Incorporated by reference to the Registrant's Form 10-KSB for the fiscal year ended December 31, 1996. Incorporated by reference to the Registrant's Form 10-QSB for the quarter ended March 31, 1996. Incorporated by reference to the Registrant's Registration Statement on Form S-4 File No. 33-32131. Incorporated by reference to the Registrant's Form 10-KSB for the fiscal year ended December 31, 1994. Incorporated by reference to the Registrant's Form 10-Q for the quarter ended March 31, 1999. Incorporated by reference to the Registrant's Form 10-QSB for the quarter ended June 30, 1998. Incorporated by reference to the Registrant's Form 10-Q for the quarter ended June 30, 2000. Incorporated by reference to the Registrant's Form 10-K for the fiscal year ended December 31, 1999
X-1 SLADE'S FERRY BANCORP AND SUBSIDIARY BOARD OF DIRECTORS OFFICERS David J. Costa Slade's Ferry Bancorp Assistant Vice President Slade's Ferry Bancorp - Slade's Ferry Trust Company Donald T. Corrigan Sandra Curtis Chairman of the Board Compliance Review Officer Thomas B. Almy Architect Kenneth R. Rezendes Luisa DiManno President Assistant Treasurer James D. Carey Chief Executive Officer Executive Vice President of Bancorp Nancy A. Ferreira President of Bank James D. Carey Assistant Treasurer Chief Executive Officer of Bank Executive Vice President Joseph J. Ganem Peter G. Collias, Esquire Edward Bernardo, Jr. Vice President Clerk/Secretary of Bancorp and Bank Treasurer Arthur R. Gauthier Donald T. Corrigan EXECUTIVE MANAGEMENT Vice President Chairman of the Board of Bancorp Slade's Ferry Trust Company Chairman of the Board of Bank Joseph Gesualdo James D. Carey Vice President Melvyn A. Holland President Managing Partner Chief Executive Officer Russell F. Godin Rosenfield, Holland, Raymon & Pielech PC Vice President Certified Public Accountants Edward Bernardo, Jr. Vice President/Treasurer Elaine M. Guillemette Assistant Vice President William Q. MacLean, Jr. Susan R. Hajder Account Executive Senior Vice President Mark F. Harriman Sylvia Group Vice President Charlene J. Jarest Francis A. Macomber Senior Vice President Raymond C. Harris President - LeComtes Dairy, Inc. Vice President Carol A. Martin Majed Mouded MD Senior Vice President Robert C. Howard, Jr. Physician Vice President Manuel J. Tavares Shaun O'Hearn, Sr. Senior Vice President Cecelia M. Machado President - Bolger & O'Hearn Inc. Vice President OFFICERS Lawrence J. Oliveira DDS Slade's Ferry Trust Company Charlotte C. Nadeau Orthodontist Assistant Vice President James H. Amidon Peter Paskowski Vice President Jeannine M. Paliotti Past President of Bank Vice President Isola A. Anctil Kenneth R. Rezendes Assistant Vice President Fatima M. Rapoza President/CEO of Bancorp Assistant Clerk/Secretary Assistant Vice President President - K.R. Rezendes, Inc. Cherie Ashton Michelle Rivera William J. Sullivan Assistant Vice President Assistant Treasurer President - Sullivan Funeral Homes, Inc. Maria C. Barbosa Joanne Sandner Charles Veloza Vice President Assistant Treasurer Past President - Charlie's Oil Co., Inc. Kelli A. Bienvenue Deborah A. Silvia David F. Westgate Assistant Treasurer Assistant Treasurer President Quequechan Management Corp. Catherine Blakey Eduardo F. Sousa Assistant Vice President Assistant Vice President Paula M. Botelho Nancy E. Stokes Assistant Vice President Vice President Michelle Caron Mary M. Sullivan Assistant Treasurer Vice President Peter G. Collias Richard Van Blarcom Corporate Secretary Vice President CORPORATE HEADQUARTERS GENERAL COUNSELS SHAREHOLDER SERVICES Slade's Ferry Bancorp Atty. Peter G. Collias Slade's Ferry Bancorp 100 Slade's Ferry Avenue 84 North Main Street 100 Slade's Ferry Avenue Somerset, Massachusetts 02726 Fall River, Massachusetts 02720 Somerset, Massachusetts 02726 Tel. (508) 675-2121 Tel. (508) 675-7894 Tel. (508) 675-2121 Fax (508) 675-1751 Thomas H. Tucker, Esq. ANNUAL MEETING BRANCH LOCATIONS 459 Washington Street Suite 27 Duxbury, Massachusetts 02332 The Annual Meeting of Stockholders Fairhaven, MA Tel. (781) 934-8200 of Slade's Ferry Bancorp will be held 75 Huttleston Avenue at 7:30 p.m. on April 8, 2002 at the INDEPENDENT CERTIFIED Venus de Milo Restaurant, 75 G.A.R. Fall River, MA PUBLIC ACCOUNTANTS Highway, Swansea, Massachusetts. 249 Linden Street 855 Brayton Avenue Shatswell, MacLeod and Company, P.C. DIVIDEND REINVESTMENT PLAN 1601 South Main Street Certified Public Accountants 83 Pine Street The Plan provides for New Bedford, MA West Peabody, Massachusetts 01960 838 Pleasant Street Tel. (978) 535-0206 * Reinvestment of all of the 833 Ashley Boulevard dividends FORM 10-K Seekonk, MA * Voluntary cash contributions 1400 Fall River Avenue (Rte. 6) Additional copies of the annual report of up to $5,000 annual, on form 10-K, filed by Slade's Ferry minimum $100. Somerset, MA Bancorp for 2001, with the Securities 100 Slade's Ferry Avenue and Exchange Commission may be * No service fees or commissions 2722 County Street obtained without charge by writing to: Somerset High School Information may be obtained by Shareholder Services contacting Shareholder Services Swansea, MA Edward Bernardo, Jr., Treasurer at (508) 675-2121. Swansea Mall Slade's Ferry Bancorp 2388 G.A.R. Highway 100 Slade's Ferry Avenue STOCK TRADING Somerset, MA 02726 The common stock of Slade's Ferry LOAN PRODUCTION OFFICE Bancorp is listed on the NASDAQ Small Cap Market under the symbol SFBC. Slade's Ferry Loan Co. 188 Airport Road Warwick, RI 02889 Tel. (401) 732-3222
EX-23 3 slad-x23.txt EXHIBIT 23 Exhibit 23 SHATSWELL, MACLEOD & COMPANY, P.C. CERTIFIED PUBLIC ACCOUNTANTS 83 PINE STREET WEST PEABODY, MASSACHUSETTS 01960-3635 TELEPHONE (978) 535-0206 FACSIMILE (978) 535-9908 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS We consent to the incorporation by reference in this Annual Report on Form 10-K of Slade's Ferry Bancorp of our report dated January 11, 2002. /s/ SHATSWELL, MacLEOD & COMPANY, P.C. SHATSWELL, MacLEOD & COMPANY, P.C. West Peabody, Massachusetts March 6, 2002 -----END PRIVACY-ENHANCED MESSAGE-----