-----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, Hyqd7cccs5rrgG6D/8l7emMkScEXuqLLxMmxpzWpEld/G7fx+C7h/4vhAP1B4trC pVyBfFpaGDh9unJwZChiCA== 0000910647-03-000210.txt : 20030515 0000910647-03-000210.hdr.sgml : 20030515 20030515170652 ACCESSION NUMBER: 0000910647-03-000210 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20030331 FILED AS OF DATE: 20030515 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-23904 FILM NUMBER: 03705986 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-Q 1 slad10q1.txt FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For quarter ended March 31, 2003 -------------- 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 (I.R.S. Employer of incorporation or organization) Identification Number) 100 Slade's Ferry Avenue 02726 Somerset, Massachusetts ----- - ------------------------ (Zip Code) (Address of principal executive offices) (508)675-2121 ------------- (Registrant's telephone number, including area code) Check 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 past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] ------- ------ Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date: Common stock ($.01 par value) 3,953,309.576 shares as of March 31, 2003. ------------------------------------------------------------------------ 1 PART I ITEM 1 Financial Statements - -------------------- SLADE'S FERRY BANCORP AND SUBSIDIARY CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, 2003 December 31, 2002 ------------------------------------- (Unaudited) ASSETS: Cash, due from banks and interest-bearing demand deposits with other banks $ 21,825,096 $ 14,993,969 Money market mutual funds 73,399 222,567 Federal Home Loan Bank overnight deposit 5,000,000 10,000,000 Federal funds sold 12,500,000 9,500,000 --------------------------------- Cash and Cash Equivalents 39,398,495 34,716,536 Interest-bearing time deposits with other banks 200,000 200,000 Investment securities (1) 13,337,730 13,696,254 Investment securities available-for-sale(2) 59,760,817 65,907,926 Federal Home Loan Bank stock 1,237,500 1,013,400 Loans, net 268,411,377 259,816,056 Premises and equipment 6,096,519 6,067,879 Goodwill 2,173,368 2,173,368 Accrued interest receivable 1,485,251 1,492,591 Cash surrender value of life insurance 10,082,831 9,750,661 Other assets 2,708,239 3,540,312 --------------------------------- TOTAL ASSETS $404,892,127 $398,374,983 ================================= LIABILITIES & STOCKHOLDERS' EQUITY: Deposits $342,774,499 $335,632,532 Federal Home Loan Bank advances 19,116,595 19,185,338 Other liabilities 2,528,822 2,336,109 --------------------------------- TOTAL LIABILITIES 364,419,916 357,153,979 --------------------------------- Preferred stockholders' equity in a Subsidiary company 54,000 54,000 STOCKHOLDERS' EQUITY: Common stock 39,534 39,378 Paid in capital 27,909,728 27,693,199 Retained earnings 12,397,357 13,445,335 Accumulated other comprehensive income (loss) 71,592 (10,908) --------------------------------- TOTAL STOCKHOLDERS' EQUITY 40,418,211 41,167,004 --------------------------------- TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $404,892,127 $398,374,983 =================================
Investment securities are to be held to maturity and have a fair market value of $14,016,909 as of March 31, 2003 and $14,262,405 as of December 31, 2002. Securities classified as available-for-sale are stated at fair value with any unrealized gains or losses reflected as an adjustment in Stockholders' Equity, net of tax effect. The accompanying notes are an integral part of these condensed consolidated financial statements. 2 SLADE'S FERRY BANCORP AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND EXPENSE (UNAUDITED) 3 MONTHS ENDING MARCH 31,
2003 2002 ------------------------ INTEREST AND DIVIDEND INCOME: Interest and fees on loans $4,166,512 $4,519,745 Interest and dividends on investments 848,949 1,201,182 Other interest 45,323 59,635 ------------------------ Total interest and dividend income 5,060,784 5,780,562 ------------------------ INTEREST EXPENSE: Interest on deposits 1,227,793 1,948,982 Interest on Federal Home Loan Bank and other borrowed funds 317,493 263,272 ------------------------ Total interest expense 1,545,286 2,212,254 ------------------------ Net interest and dividend income 3,515,498 3,568,308 Provision for loan losses 141,000 187,500 ------------------------ Net interest and dividend income after provision for loan losses 3,374,498 3,380,808 ------------------------ OTHER INCOME: Service charges on deposit accounts 133,768 141,590 Overdraft service charges 121,669 60,050 Loss on sales of available-for-sale securities (40,918) (2,818) Increase in cash surrender value of life insurance policies 108,170 114,636 Other income 151,977 155,772 ------------------------ Total other income 474,666 469,230 ------------------------ OTHER EXPENSE: Salaries and employee benefits 1,789,437 1,790,501 Occupancy expense 262,981 211,193 Equipment expense 123,165 125,450 Stationery and supplies 60,204 74,564 Professional fees 242,880 63,151 Marketing expense 94,273 100,979 Other expense 427,306 406,013 ------------------------ Total other expense 3,000,246 2,771,851 ------------------------ Income before income taxes and extraordinary item 848,918 1,078,187 Income taxes 256,032 296,265 ------------------------ Net Income before extraordinary item 592,886 781,922 Extraordinary item, net of income taxes (1,285,066) 0 ------------------------ NET INCOME (LOSS) $ (692,180) $ 781,922 ======================== Basic earnings (loss) per share: Income before extraordinary item $ 0.15 $ 0.20 Extraordinary item, net of income tax (0.33) 0.00 ------------------------ Net income (loss) $ (0.18) $ 0.20 ======================== Diluted earnings (loss) per share: Income before extraordinary item $ 0.15 $ 0.20 Extraordinary item, net of income tax (0.32) 0.00 ------------------------ Net income (loss) $ (0.17) $ 0.20 ======================== Basic average shares outstanding 3,948,584 3,879,855 ======================== Diluted average shares outstanding 3,974,797 3,913,569 ======================== Dividends per share $ 0.09 $ 0.09 ======================== Comprehensive Income (Loss) (1) $ (609,680) $ 418,331 ========================
Calculated using the change in accumulated other comprehensive income (loss) for the period and net income (loss) for the period. The accompanying notes are an integral part of these condensed consolidated financial statements. 3 SLADE'S FERRY BANCORP AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Three Months Ended March 31, ---------------------------- (Unaudited)
2003 2002 ----------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ (692,180) $ 781,922 Adjustments to reconcile net income to net cash provided by operating activities: Accretion, net of amortization of securities 48,396 30,885 Loss on sales of available-for-sale securities, net 40,918 2,818 Change in unearned income (14,897) (42,675) Provision for loan losses 141,000 187,500 Depreciation and amortization 151,015 152,139 Increase in cash surrender value of life insurance policies (108,170) (114,636) Decrease in taxes receivable 857,305 0 Deferred tax expense 52,940 0 (Increase) decrease in other assets (5,068) 66,266 (Increase) decrease in prepaid expenses (31,528) 39,041 (Increase) decrease in interest receivable 7,340 (77,849) Increase (decrease) in other liabilities (30,923) 21,257 Decrease in accrued expenses (216,993) (80,981) Increase (decrease) in interest payable (17,565) 5,041 Increase in taxes payable 456,795 102,346 Decrease in minority interest in subsidiary 0 (1,500) ----------------------------- Net cash provided by operating activities $ 638,385 $ 1,071,574 ----------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of available-for-sale securities (6,502,300) (6,346,491) Proceeds from maturities of available-for-sale securities 12,603,546 7,228,248 Purchases of held-to-maturity securities (927,105) (1,429,214) Proceeds from maturities of held-to-maturity securities 1,281,502 3,244,133 Purchase of Federal Home Loan Bank stock (224,100) 0 Net (increase) decrease in loans (8,735,956) 1,520,474 Recoveries of loans previously charged off 14,532 8,793 Capital expenditures (178,055) (67,409) Investment in life insurance policies (224,000) 0 ----------------------------- Net cash provided by (used in) investing activities $(2,891,936) $ 4,158,534 -----------------------------
The accompanying notes are an integral part of these condensed consolidated financial statements. 4 SLADE'S FERRY BANCORP AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Three Months Ended March 31, ---------------------------- (Unaudited) (Continued)
2003 2002 ----------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Net increase in demand deposits, NOW, money market and savings accounts $ 7,243,537 $ 6,172,344 Net decrease in time deposits (101,570) (8,371,326) Advances on Federal Home Loan Bank borrowings, net of payments (68,743) (1,062,808) Net increase in other borrowed funds 0 749,857 Proceeds from issuance of common stock 216,685 209,283 Dividends paid (354,399) (347,281) ----------------------------- Net cash provided by (used in) financing activities $ 6,935,510 (2,649,931) ----------------------------- Net increase in cash and cash equivalents 4,681,959 2,580,177 Cash and cash equivalents at beginning of year 34,716,536 28,692,310 ----------------------------- Cash and cash equivalents at end of year $39,398,495 $31,272,487 ============================= SUPPLEMENTAL DISCLOSURES; Interest paid $ 1,562,851 $ 2,207,213 Income taxes paid (received) $ (52,690) $ 193,919
The accompanying notes are an integral part of these condensed consolidated financial statements. 5 SLADE'S FERRY BANCORP AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) March 31, 2003 Note A - Basis of Presentation - ------------------------------ The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information and the instructions to Form 10-Q and, accordingly, do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of the management of Slade's Ferry Bancorp (the "Company"), all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2003 are not necessarily indicative of the results that may be expected for the year ending December 31, 2003. The year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. Note B - Accounting Policies - ---------------------------- The accounting principles followed by Slade's Ferry Bancorp and subsidiary and the methods of applying these principles which materially affect the determination of financial position, results of operations, or changes in financial position are consistent with those used for the year ended December 31, 2002. The consolidated financial statements of Slade's Ferry Bancorp include its wholly-owned subsidiary, Slade's Ferry Trust Company, and its subsidiaries, Slade's Ferry Realty Trust, Slade's Ferry Securities Corporation, Slade's Ferry Preferred Capital Corporation, and Slade's Ferry Loan Company. All significant intercompany balances have been eliminated. Note C - Stock Based Compensation - --------------------------------- At March 31, 2003, the Company has a stock-based employee compensation plan. The Company accounts for the plan under the recognition and measurement principles of APB Opinion No. 25, "Accounting for Stock Issued to Employees," and related Interpretations. No stock-based employee compensation cost is reflected in net income (except for appreciation from options surrendered), as all options granted under this plan had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of SFAS Statement No. 123, "Accounting for Stock-Based Compensation", to stock-based employee compensation.
3 Months Ending March 31, 2003 2002 ---------------------- Net income (loss), as reported $(692,180) $781,922 Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects 0 0 ---------------------- Pro forma net income $(692,180) $781,922 ====================== Earnings (loss) per share: Basic - as reported $ (.18) $ .20 Basic - pro forma $ (.18) $ .20 Diluted - as reported $ (.17) $ .20 Diluted - pro forma $ (.17) $ .20
6 Note D - Impact of New Accounting Standards - ------------------------------------------- Statement of Financial Accounting Standards No. 141, "Business Combinations", improves the consistency of the accounting and reporting for business combinations by requiring that all business combinations be accounted for under a single method - the purchase method. Use of the pooling-of-interests method is no longer permitted. Statement No. 141 requires that the purchase method be used for business combinations initiated after June 30, 2001. 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 accompanying consolidated financial statements. 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 had no immediate effect on the Company's consolidated financial statements since it had no pending business combinations as of June 30, 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 also issued SFAS No. 142, "Goodwill and Other Intangible Assets", which is effective for fiscal years beginning after December 15, 2001. Under prior accounting standards, goodwill resulting from a business combination was amortized on a straight-line basis over 15 years. As a result of SFAS No. 142, goodwill is generally no longer amortized as an expense after 2001, but instead will be reviewed and tested for impairment using a fair value methodology and assessment. Goodwill will be tested at least annually for impairment. Management does not anticipate an impairment adjustment to the goodwill reflected in the accompanying condensed consolidated balance sheet. In accordance with SFAS No. 142, the Company, as of January 1, 2002, ceased the amortization of the goodwill balance of $2.2 Million. 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. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets". 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. 7 SFAS No. 142 was effective as follows: All of the provisions of SFAS No. 142 were applied in fiscal years beginning after December 15, 2001, to all goodwill and intangible assets recognized in the Company'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 was being amortized at the rate of $226,800 per year. Under SFAS No. 142 this amortization was discontinued after December 31, 2001 but is subject to the impairment review requirements of SFAS No. 142. In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets. SFAS No. 144 supercedes SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," but retains the basic recognition and measurement model for assets held for use and held for sale. The provisions of SFAS No. 144 are required to be adopted starting with fiscal years beginning after December 15, 2001. This Statement did not have a material impact on the Company's consolidated financial statements. In June 2002, the FASB issued SFAS No. 146 "Accounting for Costs Associated with Exit or Disposal Activities." This Statement requires that a liability for a cost associated with an exit or disposal activity be recognized and measured initially at fair value only when the liability is incurred. SFAS No. 146 is effective for exit or disposal activities that are initiated after December 31, 2002. This Statement did not have a material impact on the Company's consolidated financial statements. In October 2002, the FASB issued SFAS No. 147 "Acquisitions of Certain Financial Institutions" an Amendment of SFAS Nos. 72 and 144 and FASB Interpretation No. 9, SFAS No. 72 "Accounting for Certain Acquisitions of Banking or Thrift Institutions" and FASB Interpretation No. 9 "Applying APB Opinions No. 16 and 17 "When a Savings and Loan Association or a Similar Institution is Acquired in a Business Combination Accounted for by the Purchase Method" provided interpretive guidance on the application of the purchase method to acquisitions of financial institutions. Except for transactions between two or more mutual enterprises, SFAS No. 147 removes acquisitions of financial institutions from the scope of both Statement 72 and Interpretation 9 and requires that those transactions be accounted for in accordance with SFAS No. 141 "Business Combinations" and No. 142 "Goodwill and Other Intangible Assets". Thus, the requirement in paragraph 5 of Statement 72 to recognize (and subsequently amortize) any excess of the fair value of liabilities assumed over the fair value of tangible and identifiable intangible assets acquired as an unidentifiable intangible asset no longer applies to acquisitions within the scope of SFAS No. 147. In addition, SFAS No. 147 amends SFAS No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets" to include in its scope long-term customer-relationship intangible assets of financial institutions such as depositor- and borrower-relationship intangible assets and credit cardholder intangible assets. Consequently, those intangible assets are subject to the same undiscounted cash flow recoverability test and impairment loss recognition and measurement provisions that SFAS No. 144 requires for other long-lived assets that are held and used. Paragraph 5 of SFAS No. 147, which relates to the application of the purchase method of accounting, is effective for acquisitions for which the date of acquisition is on or after October 1, 2002. The provisions in paragraph 6 related to accounting for the impairment or disposal of certain long-term customer-relationship intangible assets were effective on October 1, 2002. Transition provisions for previously recognized unidentifiable intangible assets were effective on October 1, 2002. Transition provisions for previously 8 recognized unidentifiable intangible assets in paragraphs 8-14 were effective on October 1, 2002, with earlier application permitted. There was no impact on the Company's consolidated financial statements on adoption of this Statement. Note E - Contingency and Extraordinary Item - ------------------------------------------- The Massachusetts Department of Revenue ("DOR") has issued Notices of Intent to assess additional state excise taxes to several financial institutions in the Commonwealth that have established real estate investment trusts ("REIT") in their corporate structure. The DOR contends that dividends received by banks from REIT subsidiaries are fully taxable in Massachusetts. The Company believes that the Massachusetts statute that provides for the dividend received deduction of 95% of certain dividend distributions applies to dividends that have been made to banks by their REIT subsidiary. Slade's Ferry Trust Company formed a REIT subsidiary in 1999, Slade's Ferry Preferred Capital Corporation. The Bank received a notice from the DOR dated November 6, 2002 pertaining to tax year filings of 1999, 2000 and 2001. This notice assessed additional state excise taxes and interest due of $1,659,449. The Company has not recorded any expense for this notice in its financial statements at this time, and the Company intends to vigorously appeal any and all assessments. In a matter that may affect the assessment described above, on March 5, 2003, the Commonwealth of Massachusetts enacted tax legislation that imposed taxes on the Bank for the above described dividends paid by the Bank's REIT to the Bank. The new tax, including interest, for the Bank is approximately $1,971,000 covering the years ending 1999, 2000, 2001 and 2002. The Company expensed this amount in its financial statements for the quarter ended March 31, 2003, net of the tax benefit of approximately $686,000 and classified it as an extraordinary item on the statement of income for the three months ended March 31, 2003. The Company believes the legislation will be challenged, especially the retroactive provisions, on constitutional and other grounds. The Company would support such a challenge and otherwise intends to defend vigorously its position. 9 ITEM 2 Management's Discussion and Analysis of Financial Condition and Results of - --------------------------------------------------------------------------- Operation - --------- Forward-looking Statements - -------------------------- This Form 10-Q contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding the strength of the company's capital and asset quality. Other such statements may be identified by words such as "believes," "will," "expects," "project," "may," "developments," "strategic," "launching," "opportunities," "anticipates," "estimates," "intends," "plans," "targets" and similar expressions. These statements are based upon the current beliefs and expectations of Slade's Ferry Bancorp's management and are subject to significant risks and uncertainties. Actual results may differ materially from those set forth in the forward-looking statements as a result of numerous factors. The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in our forward-looking statements: (1) enactment of adverse government regulation; (2) competitive pressures among depository and other financial institutions may increase significantly and have an effect on pricing, spending, third-party relationships and revenues; (3) the strength of the United States economy in general and specifically the strength of the New England economies may be different than expected, resulting in, among other things, a deterioration in overall credit quality and borrowers' ability to service and repay loans, or a reduced demand for credit, including the resultant effect on the Bank's loan portfolio, levels of charge-offs and non-performing loans and allowance for loan losses; (4) changes in the interest rate environment may reduce interest margins and adversely impact net interest income; and (5) changes in assumptions used in making such forward-looking statements. Should one or more of these risks materialize or should underlying beliefs or assumptions prove incorrect, Slade's Ferry Bancorp's actual results could differ materially from those discussed. All subsequent written and oral forward-looking statements attributable to Slade's Ferry Bancorp or any person acting on its behalf are expressly qualified in their entirety by the cautionary statements set forth above. Slade's Ferry Bancorp does not intend or undertake any obligation to update any forward-looking statement to reflect circumstances or events that occur after the date the forward-looking statements are made. Financial Condition - ------------------- Total assets increased by $6.5 Million, or 1.6% from $398.4 Million reported as of December 31, 2002 to $404.9 Million as of March 31, 2003. This increase in assets was primarily generated by deposit growth of $7.1 Million, offset by a decrease in stockholders' equity of $0.7 Million. Cash and cash equivalents increased by $4.7 Million, from $34.7 Million reported as of year-end 2002 to $39.4 Million at March 31, 2003. Most of the increase in this category was in cash, due from banks, and interest- bearing demand deposits with other banks, which increased by $6.8 Million from $15.0 Million reported as of December 31, 2002 to $21.8 Million as of March 31, 2003. This increase of $6.8 Million was offset by decreases in investments in short-term federal funds sold, overnight deposits with the Federal Home Loan Bank, and money market mutual funds totaling $2.1 Million. 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 is determined at the time of the purchase of the investment instrument. 10 Total investments comprised of both investment securities held-to-maturity and available-for-sale decreased by $6.5 Million from $79.6 Million reported at December 31, 2002 to $73.1 Million at March 31, 2003. The decrease in investments of $6.5 Million combined with the $7.1 Million increase in deposits provided the liquidity to fund loan growth and the increase in Cash and Cash Equivalents. The Held-to-Maturity category consists predominately of 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. Investment Securities are securities that the Company will hold to maturity and are carried at amortized cost on the balance sheet, and are summarized as follows as of March 31, 2003:
Amortized Gross Unrealized Gross Unrealized (Dollars in Thousands) Cost Basis Holding Gains Holding Losses Fair Value - ---------------------------------------------------------------------------------------------------- Debt securities issued by states of the United States and political subdivisions of the states $13,335 $679 $0 $14,014 Mortgage-backed securities 2 0 0 2 Other debt securities 1 0 0 1 - -------------------------------------------------------------------------------------------------- Total $13,338 $679 $0 $14,017 ==================================================================================================
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 unrealized gains or losses, net of taxes, are reflected in Stockholders' Equity as a separate component. Investments in Available-for-Sale securities are carried at fair value on the balance sheet and are summarized as follows as of March 31, 2003:
Gains in Losses in Accumulated Accumulated Other Other Amortized Comprehensive Comprehensive (Dollars in Thousands) Cost Basis Income Income Fair Value - ----------------------------------------------------------------------------------------------- Debt securities issued by the U. S. Treasury and other U. S. Government corporations and Agencies $25,625 $ 239 $ 2 $25,862 Marketable Equities 3,672 223 959 2,936 Mortgage-backed securities 27,721 961 0 28,682 Corporate Bonds 2,168 113 0 2,281 - --------------------------------------------------------------------------------------------- Total $59,186 $1,536 $961 $59,761 =============================================================================================
11 Effect on Stockholders' Equity as of March 31, 2003: (In Whole Dollars) Unrealized gain on Available-for-Sale Securities $575,178 Less tax effect (269,406) Net unrealized gain on Available-for-Sale Securities $305,772 The Available-for-Sale category at March 31, 2003 had net unrealized gains net of taxes of $305,772 of which $1,310,842 are net unrealized gains (net of tax) attributed to securities of the U.S. Treasury, other U.S. Government corporations and agencies, corporate bonds, and mortgage-backed securities, and $735,664 are net unrealized losses (net of tax) attributable to marketable equity securities. Securities of the 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 securities. 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, retention in the portfolio, or possible writedowns due to impairment issues. Management minimizes its risk by limiting the total amount invested into marketable equity securities. At March 31, 2003, the amount invested in marketable equity securities was 4.0% of the total investment portfolio distributed over various business sectors. Total net loans increased by $8.6 Million from $259.8 Million reported at December 31, 2002 to $268.4 Million at March 31, 2003. Residential real estate, home equity, and construction loan products increased during the three months ending March 31, 2003 as new and existing customers took advantage of the lower interest rate environment. In the first quarter of 2003, due to an aggressive advertising campaign to promote historically low home equity and mortgage rates, the Bank originated more than $11.0 Million in residential real estate loans, and $7.8 Million in home equity loans. These increases were partially offset by decreases in indirect auto loans and various commercial loans and credit lines. In addition, loan amortization, prepayment, and refinancing also offset some of the increase in new loan volume. The composition of our loan portfolio continues to change. Loan demand for residential real estate and home equity loans continues to be strong, and commercial loan borrowers, due to the uncertainty of the economy, focus on refinancing existing debt at lower rates. 12 INFORMATION WITH RESPECT TO NONACCRUAL AND PAST DUE LOANS AT MARCH 31, 2003 AND 2002 AND DECEMBER 31, 2002 AND 2001 At March 31, At December 31, - ----------------------------------------------------------------------------------------------------- (Dollars in Thousands) 2003 2002 2002 2001 - ----------------------------------------------------------------------------------------------------- Nonaccrual Loans $ 509 $ 887 $ 635 $ 1,138 Loans 90 days or more past due and still accruing 194 0 8 444 Real estate acquired by foreclosure or substantively repossessed 0 0 0 0 Percentage of nonaccrual loans to total gross loans 0.19% 0.35% 0.24% 0.45% Percentage of nonaccrual loans, restructured loans, and real estate acquired by foreclosure or substantively repossessed to total assets 0.13% 0.22% 0.20% 0.34% Percentage of allowance for loan losses to nonaccrual loans 979.57% 625.93% 764.20% 481.73%
The $0.5 Million in nonaccrual loans as of March 31, 2003 consists of $0.4 Million of real estate mortgages and $0.1 Million attributed to commercial loans. Nonaccrual loans include restructured loans of $119,000 at March 31, 2003. The Company's nonperforming assets as a total increased by approximately $0.1 Million, from $0.6 Million reported on December 31, 2002 to $0.7 Million as of March 31, 2003. The Company considers nonaccrual loans, loans past due 90 days or more but still accruing, and real estate acquired by foreclosure or substantively repossessed as nonperforming assets. Nonaccrual loans, which is the largest component of nonperforming assets, decreased by $125,840 during the three months ending March 31, 2003. Loans 90 day or more but still accruing increased by $185,768 during the first three months of 2003. These loans are expected to improve or pay off within the second quarter of 2003. As of March 31, 2003, there was no real estate acquired by foreclosure. The percentage of nonaccrual loans to total gross loans decreased from 0.24% reported at year end 2002 to 0.19% at March 31, 2003 due to a decrease in the nonaccrual category. The percentage of nonaccrual loans and real estate acquired by foreclosure or substantively repossessed to total assets also decreased due to the decrease in nonaccrual loans. INFORMATION WITH RESPECT TO INTEREST ON NONACCRUAL AND PAST DUE LOANS AT MARCH 31, 2003 AND 2002 AND DECEMBER 31, 2002 AND 2001
At March 31, At December 31, - -------------------------------------------------------------------------------------- (Dollars in Thousands) 2003 2002 2002 2001 - -------------------------------------------------------------------------------------- Nonaccrual Loans $509 $887 $635 $1,138 Interest income that would have been recorded under original terms 10 78 303 109 Interest income recorded during the period 3 64 121 6
13 The Company stops accruing interest on a loan once it becomes past due 90 days or more unless there is adequate collateral and the financial condition of the borrower is sufficient. When a loan is placed on nonaccrual status, all previously accrued but unpaid interest is reversed and charged against current income. Interest is thereafter recognized in that category only when payments are received and the loan becomes current. Loans in the nonaccrual category will remain in that category until the possibility of collection no longer exists, the loan is paid off or becomes current. When a loan is determined to be uncollectible, it is then charged off against the Allowance for Loan Losses. 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 March 31, 2003, there were $2,299,825 of loans which the Company has determined to be impaired, with a related allowance for credit losses of $380,691. In addition, principal reductions, loan payoffs, charged off balances, loan upgrades, and a change in our impairment identification methodology are other factors resulting in a decrease of impaired loans. There were no other loans classified for regulatory purposes at March 31, 2003 that management reasonably expects will materially impact future operating results, liquidity or capital resources. 14 ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES
Three Months Years Ended Ended March 31, December 31, - --------------------------------------------------------------------------------- (Dollars in Thousands) 2003 2002 2002 2001 - --------------------------------------------------------------------------------- Balance at January 1 $4,854 $5,484 $5,484 $4,766 Charge-offs: Commercial (0) (263) (336) (73) Real estate - construction (0) (0) (0) (0) Real estate - mortgage (10) (0) (20) (0) Installment/consumer (14) (3) (26) (28) - --------------------------------------------------------------------------------- Total Charge-offs (24) (266) (382) (101) - --------------------------------------------------------------------------------- Recoveries: Commercial 6 4 17 14 Real estate - construction 0 0 0 0 Real estate - mortgage 7 3 38 29 Installment/consumer 2 2 7 16 - --------------------------------------------------------------------------------- Total Recoveries 15 9 62 59 - --------------------------------------------------------------------------------- Net Charge-offs (9) (257) (320) (42) - --------------------------------------------------------------------------------- Additions charged to operations 141 188 (310) 750 - --------------------------------------------------------------------------------- Balance at end of period $4,986 $5,415 $4,854 $5,484 ================================================================================= Ratio of net charge-offs to average loans outstanding (0.01%) (0.10%) (0.13%) (0.02%)
The Allowance for Loan Losses at March 31, 2003 was $4,985,820, compared to $4,854,388 at year-end 2002. The Allowance for Loan Losses as a percentage of outstanding loans was 1.82% at March 31, 2003, and 1.83% at December 31, 2002. The Company provides for loan losses to maintain the Allowance for Loan Losses at a level that management believes to be adequate to absorb losses inherent in the loan portfolio. As the composition of our loan portfolio gradually changes from higher credit risk weighted loans, such as commercial real estate and commercial and industrial, to residential and home equity loans, less reserve allowance will be required. The Bank's provision recorded for the three months ending March 31, 2003 was $141,000, compared to $188,000 recorded from the same period in the previous year. Loans charged off were $382,000 in 2002, $101,000 in 2001, $24,000 in the three months ended March 31, 2003, and $266,000 for the same period in 2002. Recoveries of loans previously charged off were $62,000 in 2002, $59,000 in 2001, $15,000 in the three months ended March 31, 2003, and $9,000 for the same period in 2002. Management believes that the Allowance for Loan Losses of $4,985,820 is adequate to absorb any losses that are estimated to occur, due to the Bank's strong collateral position and the current asset quality. 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 that collateralize the nonperforming loans, the level of nonaccrual loans, current economic conditions in the market area, and various other external and internal factors. 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. 15 This table shows an allocation of the allowance for loan losses as of the end of each of the periods indicated.
March 31, 2003 December 31, 2002 December 31, 2001 ----------------------------------------------------------------------------- Percent of Percent of Percent of Loans in Loans in Loans in Each Each Each Category Category Category to Total to Total to Total Amount Loans Amount Loans Amount Loans ----------------------------------------------------------------------------- (Dollars in Thousands) Domestic: Commercial (5) $1,093(1) 11.15% $1,155(1) 11.60% $1,629(1) 17.91% Real estate - Construction 83 5.86% 70 5.31% 41 2.99% Real estate - mortgage 3,681(2) 80.87% 3,465(2) 80.48% 3,585(2) 74.77% Consumer(3) 129(4) 2.12% 164(4) 2.61% 229(4) 4.33% -------------------------------------------------------------------------- $4,986 100.00% $4,854 100.00% $5,484 100.00% ========================================================================== - ------------------------------------ Includes amounts specifically reserved for impaired loans of $322,945 as of March 31, 2003, $412,761 as of December 31, 2002, and $780,029 as of December 31, 2001 as required by Financial Accounting Standard No. 114, Accounting for Impairment of Loans. Includes amounts specifically reserved for impaired loans of $43,172 as of March 31, 2003, $34,757 as of December 31, 2002, and $413,663 as of December 31, 2001 as required by Financial Accounting Standard No. 114, Accounting for Impairment of Loans. Includes consumer, obligations of states and political subdivisions and other. Includes amounts specifically reserved for impaired loans of $14,574 as of March 31, 2003, $29,606 as of December 31, 2002, and $1,632 as of December 31, 2001 as required by Financial Accounting Standard No. 114, Accounting for Impairment of Loans. Includes commercial, financial, agricultural and nonprofit loans.
The loan portfolio's largest segment of loans is commercial real estate loans, which represent 45% of gross loans. Residential real estate, represents 37% 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 appraised value. Real estate residential loans are both loans secured by one-to-four family property and home equity loans. Home equity loans are generally revolving lines of credit and are typically secured by second mortgages on one-to-four family owner-occupied properties. Generally, commercial real estate loans have a higher degree of credit risk than residential real estate loans because they depend primarily on unit supply and demand and various conditions. When granting these loans, the Company evaluates the financial statements of the borrower(s), the location of the real estate, the quality of management, profitability, 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. Real estate construction loans comprise both residential and commercial construction loans throughout our market area. 16 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 50% liquidation value to inventories; 25% to furniture, fixtures and equipment; and 70% to accounts receivable less than 90 days of invoice date. Commercial loans represent 11% of the loan portfolio as of March 31, 2003, compared to 17% as of March 31, 2002. Consumer loans are both secured and unsecured borrowings and represent only 2% of the total loan portfolio as of March 31, 2003. 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. The allocation of the Allowance for Loan Losses is based on management's judgement of estimated losses in the respective portfolios. While management has allocated reserves to various portfolio segments, the Allowance is general in nature and is available for the portfolio in its entirety. Total deposits at March 31, 2003 were $342.8 Million, an increase of $7.2 Million, compared to $335.6 Million at December 31, 2002. The Bank's first quarter campaign to promote money market accounts has been successful, generating more than $8.9 Million in deposits. More than three-quarters of accounts opened during the quarter were new account relationships. Results of Operations - --------------------- The Company's operating performance is dependent on net interest and dividend income, which is the difference between interest income earned on loans and investments and interest expense paid on deposits and borrowed funds. The level of net interest income achieved is significantly impacted by several factors such as economic conditions, interest rates, asset/liability management, and corporate tax and strategic planning. Net interest and dividend income for March 31, 2003 decreased by $52,810 to $3,515,498 when compared to $3,568,308 recorded during the same period in 2002. Total interest and dividend income decreased by $719,778 partially offset by a decrease in total interest expense of $666,968. The Company's net interest margin decreased by 4 basis points from 3.97% reported at March 31, 2002 to 3.93% as of March 31, 2003. The Provision for Loan Losses is a charge against earnings and funds the Allowance for Loan Losses. It is management's desire to maintain the Allowance for Loan Losses at a level that is adequate to absorb inherent losses within the loan portfolio. In determining the appropriate level of the allowance for loan losses, management takes into consideration past and anticipated loss experience, prevailing economic conditions, evaluations of underlying collateral, and the volume of the loan portfolio and balance of nonperforming and classified loans. Management assesses the allowance for loan losses at least on a monthly basis. After a thorough and detailed analysis and assessment during the first quarter of 2003, the allowance for loan losses was considered adequate to absorb inherent losses within the loan portfolio. The Bank's provision during the three month period ending March 31, 2003 was $141,000, compared to $187,500 for the same period in 2002. Total Other Income increased by $5,436 for the first three months in 2003, when compared to the same period in 2002. Service charges on both deposit accounts and overdrafts combined increased by $53,797. This increase in service charge income was partially offset by a $40,918 net loss recognized on the sale of a certain equity security. After a downgrade in the rating, and a negative outlook on the Company's future performance, management felt it prudent to sell this stock and recognize a loss. There was a decrease of $6,466 in the cash surrender value of life insurance policies income associated with both the Directors' and Executive Officers' life insurance programs. 17 The line item Other Income decreased slightly by $3,795 when compared to the first three months of 2002. These income items represent earnings derived from safe deposit box rentals, checkbook printing revenue, exchange and commission fees, customer investment commission fees, and ATM/debit card usage fees. The category Total Other Expense, made up of various noninterest expenses, increased by $228,395 or 8.2% to $3,000,246 recorded during the first three months ending March 31, 2003, compared to $2,771,851 reported for the same period in 2002. Salaries and employee benefits decreased by $1,064. Occupancy and equipment expenses combined totaled $386,146 during the first quarter of 2003, compared to $336,643 in 2002, an increase of $49,503, primarily due to increased snow removal cost resulting from a cold, severe winter, and higher energy cost. The expenses for stationery and supplies decreased by $14,360 from $74,564 reported during the first three months in 2002 to $60,204 during the first three months in 2003. Professional service fees increased by $179,729 from the first three months of 2002 compared to 2003. This increase reflects costs associated with marketing, advertising, investment advisory, information technology consulting services, and collection and repossession expenses. Marketing expenses attributed to production and media costs for television and radio commercials, print advertising and other direct marketing decreased by $6,706. The following table sets forth the components of the line item Other Expense, which reflects an increase of $21,293 for the first quarter in 2003 compared to the same period reported in 2002.
Three Months -------------------------------- 2003 2002 Variance -------------------------------- Communications/Postage $ 90,949 $ 81,240 $ 9,709 Committee Fees 39,800 46,550 (6,750) Other Expenses 296,557 278,223 18,334 ------------------------------- $427,306 $406,013 $21,293 ===============================
Other Expense increased by $21,293. Communication/Postage Expense increased by $9,709 due to the increase in postage cost effective June 2002. Committee Fees decreased by $6,750, and Other Miscellaneous Expense increased by $18,334, primarily as a result of an increase in appraisal fees on property associated with home equity loans. Income before income taxes and Extraordinary item was $848,918 for the three-month period ending March 31, 2003 compared to $1,078,187 reported for the same period in the prior year. Taxes totaled $256,032, down by $40,233 when compared to $296,265 reported for the same period in 2002, as a result of lower taxable income in 2003. Net income before extraordinary item for the three months ended March 31, 2003 was $592,886 or $0.15 per share (basic and diluted) from $781,922 or $0.20 per share (basic and diluted) for the same period in the previous year. As previously announced in the Company's March 6, 2003 press release, a $1,285,000 charge to earnings required due to a retroactive change to Massachusetts tax law was recorded during the quarter ending March 31, 2003. As a result of the new legislation, a deduction for dividends received from a real estate investment trust subsidiary ("REIT") is disallowed retroactively for fiscal years 1999-2002. This charge to earnings recorded as an extraordinary item, net of tax benefits, was the primary reason for the decrease in first quarter 2003 net income and resulted in a $0.33 per share decrease in this quarter's earnings when compared to the same quarter in 2002. 18 The extraordinary item charge of $1,285,066 to earnings resulted in a net loss for the quarter of $692,180 or $0.18 per share basic and $0.17 per share diluted as compared to net income of $781,922 for the same period in the previous year. 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, drawdowns 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 five 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. As of March 31, 2003, there was $19.1 Million in advances outstanding from the Federal Home Loan Bank. 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 during the first quarter 2003 was primarily provided by the proceeds from the maturities and calls of securities totaling $13.9 Million. These were offset by purchases of securities of $7.6 Million, loan originations, principal collections and purchased loans of $8.7 Million, and purchases of life insurance policies for Executive Officers of $0.2 Million. Other factors affecting liquidity included cash provided by other operating activities and cash used in financing activities as indicated in the cash flow statements. Capital - ------- As of March 31, 2003, the Company had total capital of $40,418,211. This represents a decrease of $748,793 from $41,167,004 reported on December 31, 2002. The decrease in capital was a combination of several factors. Three months earnings resulted in a net loss of $692,180. Transactions originating through the Dividend Reinvestment Program resulted in 3,311.111 shares being issued for cash contributions of $45,999 19 and 12,235.539 shares being issued for $170,686 in lieu of cash dividend payments. These additions were offset by dividends declared of $355,798. Also, affecting capital is 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, 2002 the Available-for-Sale portfolio had unrealized losses, net of taxes, of $120,943, and on March 31, 2003, as a result of current market values, the portfolio reflects unrealized losses, net of taxes, of $305,772. There was no change in the minimum pension liability adjustment of $234,180, net of taxes, recorded December 31, 2002. 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. At March 31, 2003 the actual Risk Based Capital of the Bank was $30,991,000 for Tier 1 Capital, exceeding the minimum requirements of $11,382,960 by $19,608,040. Total Capital of $34,568,000 exceeded the minimum requirements of $22,765,920 by $11,802,080 and Leverage Capital of $30,991,000 exceeded the minimum requirements of $15,677,520 by $15,313,480. In addition to the "minimum" capital requirements, "well capitalized" standards have also been established by the Federal Banking Regulators. The table below illustrates the capital ratios of the Company and the Bank on March 31, 2003 and at December 31, 2002.
Well March 31, 2003 December 31, 2002 Capitalized ----------------------------------- Requirement Bancorp Bank Bancorp Bank - --------------------------------------------------------------------------------- Total Capital (to Risk Weighted Assets) > or =10% 14.03% 12.15% 14.84% 12.63% Tier 1 Capital (to Risk Weighted Assets) > or = 6% 12.77% 10.89% 13.59% 11.38% Leverage Capital (to Average Assets) > or = 5% 9.65% 7.91% 9.48% 8.00%
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 ratio. As of March 31, 2003, this ratio was 7.91% compared to 8.0% at year-end 2002. 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 March 31, 2003. 20 ITEM 3 Quantitative and Qualitative Disclosure of Market Risk - ------------------------------------------------------ Interest Rate Risk - ------------------ Volatility in interest rates requires the Company to manage interest rate risk that arises from the differences in the timing of repricing of assets and liabilities. The Company considers interest rate risk, the exposure of earnings to adverse movements in interest rates, to be a significant market risk as it could potentially have an affect on the Company's financial condition and results of operation. 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 adjusting the difference between interest-sensitive assets and interest-sensitive liabilities ("GAP" position) within various time periods. 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. The GAP report 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. 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 of estimated net interest income for the next twelve months, assuming an immediate change in interest rates: Rate Change Estimated Exposure as a Percentage of Net Interest Income (Basis Points) March 31, 2003 - ------------------------------------------------------------------------------ +200 (5.28)% -200 (0.87)% 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. 21 ITEM 4 CONTROLS AND PROCEDURES (a) Evaluation of disclosure controls and procedures. As required by new Rule 13a-15 under the Securities Exchange Act of 1934, within the 90 days prior to the date of this report, we carried out an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that they believe that, as of the date of completion of the evaluation, our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. In connection with the new rules, we will continue to review and document our disclosure controls and procedures, including our internal controls and procedures for financial reporting, on an ongoing basis, and may from time to time make changes aimed at enhancing their effectiveness and to ensure that our systems evolve with our business. (b) Changes in internal controls. None. 22 PART II Other Information ITEM 6 Exhibits and Reports on Form 8-K - -------------------------------- (a) Exhibits: See exhibit index. (b) A report on Form 8-K dated March 6, 2003 was filed with the Securities and Exchange Commission reporting under Item 5 the announcement of establishing a liability in the first quarter of 2003 of approximately $1.3 Million for additional state taxes, including interest (net of any federal tax deduction associated with such taxes and interest) as a result of new Massachusetts legislation that retroactively disallows the tax deduction for dividends received from a real estate investment trust subsidiary ('REIT') for fiscal years 1999 through 2002. 23 EXHIBIT INDEX
Exhibit No. Description Note 3.1 Articles of Incorporation of Slade's Ferry Bancorp as amended (1) 3.2 By-laws of Slade's Ferry Bancorp as amended (2) 10.1 Slade's Ferry (formerly Weetamoe) Bancorp 1996 Stock Option Plan (as amended) (3) 10.2 Noncompetition Agreement between Slade's Ferry Trust Company and Edward S. Machado (A substantially identical contract exists with Peter Paskowski) (4) 10.3 Supplemental Executive Retirement Agreement between Slade's Ferry (formerly Weetamoe) Bancorp and Donald T. Corrigan (5) 10.4 Supplemental Executive Retirement Agreement between Slade's Ferry (formerly Weetamoe) Bancorp and James D. Carey (2) 10.5 Supplemental Executive Retirement Agreement between Slade's Ferry (formerly Weetamoe) Bancorp and Manuel J. Tavares (2) 10.6 Swansea Mall Lease (4) 10.7 Form of Director Supplemental Retirement Program Director Agreement, Exhibit I 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) (6) 10.8 Form of Directors' Paid-up Insurance Policy for Thomas B. Almy (part of the Director Supplemental Retirement Program). (Similar forms of policy entered into by Company for other directors). (7) 10.9 Form of Officers' Paid-up Endorsement Method Split Dollar Plan Agreement and Insurance Policies for Janice Partridge (Similar forms of policies entered into by Company for its President and other Vice Presidents) (8) 10.10 Supplemental Executive Retirement Agreement between Slade's Ferry Bancorp and Mary Lynn D. Lenz. 10.11 Change-in-Control Severance Agreement between Slade's Ferry Bancorp, Slade's Ferry Trust Company and Mary Lynn D. Lenz 10.12 Confidentiality and Non-Solicitation Agreement between Slade's Ferry Bancorp and Mary Lynn D. Lenz 11.0 Computation of Per Share Earnings 99 Certification of Chief Executive Officer and Chief Financial Officer pursuant to Sarbanes-Oxley Act of 2002
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-Q for the quarter ended June 30, 1999. 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. 24 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SLADE'S FERRY BANCORP --------------------------------- (Registrant) May 14, 2003 /s/ Mary Lynn D. Lenz - ------------ --------------------------------- (Date) (Signature) Mary Lynn D. Lenz President/Chief Executive Officer May 14, 2003 /s/ Edward Bernardo Jr. - ------------ --------------------------------- (Date) (Signature) Edward Bernardo Jr. Vice President/Treasurer Chief Financial Officer/ Chief Accounting Officer 25 CERTIFICATIONS I, Mary Lynn D. Lenz, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Slade's Ferry Bancorp; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a. Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b. Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c. Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date: 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a. All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 14, 2003 /s/ Mary Lynn D. Lenz --------------------------------- President/Chief Executive Officer 26 CERTIFICATIONS I, Edward Bernardo, Jr., certify that: 1. I have reviewed this quarterly report on Form 10-Q of Slade's Ferry Bancorp; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a. Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b. Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c. Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date: 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a. All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 14, 2003 /s/ Edward Bernardo Jr. ----------------------------------- Vice President/Treasurer Chief Financial Officer/ Chief Accounting Officer 27 EX-10 3 slad1010.txt EXHIBIT 10.10 EXHIBIT 10.10 Supplemental Executive Retirement Agreement THIS AGREEMENT is made this 20th day of March , between Slade's Ferry Bancorp, a Massachusetts Corporation, with its principal place of business in Somerset, Massachusetts, hereafter referred to as the Employer, or the Corporation, and Mary Lynn Lenz, President and Chief Executive Officer of the Corporation hereafter referred to as the Employee. Employee is employed by the Corporation and its subsidiary, Slade's Ferry Bank ("the Bank"), in key positions and the Corporation wishes to provide additional incentive to retain the services of Employee until her retirement. THEREFORE, in consideration of these premises and the mutual promises and obligation set forth hereafter, Mary Lynn Lenz as Employee and the Corporation as Employer agree as follows: 1. The Corporation agrees that, if Employee remains continuously employed by the Corporation and/or its subsidiary Bank until her retirement, in such offices and capacities as she may be elected to by the Board of Directors of either entity, or in any such offices, roles, and capacities which she otherwise holds on behalf of the Corporation and/or its subsidiary Bank, at such compensation as may be mutually agreed upon, the Corporation and/or Bank will pay and the Employee shall be entitled to receive additional compensation in the amount of $3,000.00 per month for one hundred twenty (120) months commencing on the first day of the first month following her retirement. 2. (a) The Corporation agrees that the Employee may retire from full- time employment upon the first day of the month immediately following her 62nd birthday, or at any time prior thereto after completing fifteen years continuous employment with the Corporation if she becomes permanently and totally disabled as defined in paragraph (b) or at anytime following her 62nd birthday, but not later than the first day of February following her 70th birthday hereinafter referred to as the Retirement Date. (b) Employee shall be deemed to have become permanently and totally disabled if and when the Board of Directors of the Corporation determines, on the basis of medical or other evidence satisfactory to it, that the Employee qualifies as disabled under any applicable Long-Term disability plan, policy or program provided or utilized by the Corporation or Bank or under the Social Security Act (42 U.S.C. section 1382) as amended for the purpose of supplemental security income. 3. (a) The Corporation agrees that, in the event of the death of the Employee after completing fifteen years of continuous employment with the Corporation and prior to the Retirement Date while employed by the Corporation, it will pay to her surviving spouse, if any, or, if none, in equal shares to her children then living and deceased children leaving issue then living by right of representation, or to such other persons as she may have designated, or if none, to her estate, $3,000.00 per month for one hundred and twenty (120) consecutive months commencing upon the first day of the first month following the date of death of the Employee. If any beneficiary should die prior to the receipt of all such payments, any remaining payments shall be made to such beneficiary's estate. 4. The Corporation agrees to pay to or for the benefit of Employee from the date of her retirement and thereafter for and during the term of her natural life such amounts as are required for the employer contribution to provide medical health insurance coverage comparable to that provided immediately before her retirement, supplemental to Medicare as it may be amended, in the form of Blue Cross/Blue Shield Medex Gold or its substantial equivalent according to the schedule of contribution by the Corporation or the Bank and the Employee as is in effect for the Corporation's (or the Bank's, if provided through the Bank) employees generally at the time of Employee's retirement. The Corporation agrees to pay to or for the benefit of Employee's spouse, such amounts as are required according to the schedule of contribution by the Corporation or the Bank and the Employee, as amended from time to time, to provide master medical health insurance in effect at the Corporation or the Bank and available to employees generally, or its equivalent, for Employee's spouse until he attains the age of 65 years or obtains coverage under the Medicare program, whichever first occurs, and thereafter to pay such amounts as are required under such schedule of contribution as is in effect at that time to provide comparable medical health insurance coverage supplemental to Medicare as it may be amended, in the form of Blue Cross/Blue Shield Medex Gold, or its substantial equivalent, for and during the term of his natural life. 5. Employee's rights and benefits under this agreement are in addition to and not a substitute for Employee's rights and benefits under the Corporation or Bank's other retirement, disability or benefit plans. Subject to the terms of the group life insurance policy in force at the time of retirement, the Bank will continue to include the Employee in the current group life insurance policy in force at the time of retirement. 6. In the event that the Employee should die on or after the Retirement Date, but prior to receipt of any amount to which she is entitled hereunder pursuant to Paragraph 1, or of all such amounts, any amounts remaining unpaid shall be paid to such beneficiary or beneficiaries as the Employee may designate by filing with the Corporation a notice in writing, but in the absence of any such designation, such unpaid amounts shall be so paid to her surviving spouse, if any, or, if none, in equal shares to her children then living and deceased children leaving issue then living by right of representation, and if none, then to her estate. 7. Whenever the Employee's beneficiaries (other than her, her spouse's, or any beneficiary's estate) shall be entitled to receive any amount hereunder, the amount shall be paid to such beneficiaries in monthly installments: (a) over a period of ten (10) years, in the event that no monthly installment payments have theretofore commenced to the Employee, or (b) for the balance of the ten (10) year period (commencing with the first such installment so received by the Employee), on the same due dates, in the event payment of monthly installments shall have theretofore commenced to the Employee. 2 8. Notwithstanding any other provision of this Agreement to the contrary, the Employee shall have the right, with the consent of the Corporation, to elect that payment of the amounts due hereunder be made (a) over a longer period than one hundred and twenty (120) months or (b) as a life annuity (with or without refund). 9. Notwithstanding any other provision of this Agreement to the contrary, following her retirement, the Employee shall have the right, without the consent of the Corporation, to demand immediate distribution to her, in cash or in kind of an amount equal to the value of the Supplemental Executive Retirement Account determined as of the date of such demand, following completion after her retirement of any three (3) successive fiscal years of the Corporation in which the book value of the Corporation shall have been successively decreased or any one or more successive fiscal year(s) in which the book value of the Corporation shall have decreased by a total of more than 33-1/3% 10. As used herein the term "Value of the Account" shall mean an amount equal to the sum of the monthly remaining payments for the remaining period of payment discounted at the prime lending rate as published in the Wall Street Journal on the first Monday after the event triggering the valuation. 11. Except as otherwise expressly provided in this Agreement, Employee agrees on behalf of herself and of her executors and administrators, heirs, legatees, distributes, and any other person or, persons claiming any benefits under her under this Agreement that this Agreement and its rights, interests, and benefits shall not be assigned, transferred, pledged, or hypothecated in any way by Employee or any executor, administrators, heir, legatee, distributee, or other person claiming under Employee by virtue of this Agreement, and shall not be subject to execution, attachment, or similar process. Any attempted assignment, transfer, pledge or hypothecation, or other disposition of this Agreement or of such rights, interests, and benefits contrary to the above provisions, or the levy of any attachment or similar process thereupon, shall be null and void and without effect. 12. This Agreement does not constitute an employment agreement. Nothing contained in this Agreement shall be construed to be a contract of employment for any term of years, nor as conferring upon the Employee the right to continue to be employed by the Corporation or the Bank in her present capacity, or in any other capacity. It is expressly understood by the parties hereto that this Agreement relates exclusively to additional compensation for the Employee's services, which compensation is payable after her retirement from full-time service with the Corporation and the Bank or her death, and is not intended to be an employment contract. The benefits payable under this Agreement shall be independent of, and in addition to, any benefits under any other employment agreement that may exist from time to time between the parties hereto, or any other compensation payable by the Corporation to the Employee whether as salary or otherwise. In the event that Employee's employment is terminated for any reason other than her death or retirement under the provision of paragraphs 2 and 3 hereof, this Agreement shall automatically terminate and the Corporation shall have no further obligation hereunder. 13. The rights of the Employee under this Agreement and of any beneficiary of the Employee shall be solely those of an unsecured creditor of the Corporation, and neither the Employee nor 3 any beneficiary of the Employee shall have or acquire any interest, rights or claims to any property or assets of the Corporation by virtue of this Agreement except as set forth in paragraph 16(b). The Corporation's obligation hereunder, except as set forth in paragraph 16(b), shall be an unfunded and unsecured promise to pay money in the future. 14. Hereafter, either during her full-time employment or while she is receiving any benefits under this Agreement, Employee agrees that she will not enter into competition with the Corporation or the Bank, directly or indirectly, within the Town of Somerset or a fifty (50) mile radius thereof, either as a director, officer, employee, agent, consultant, partner or any other capacity with any business which is in substantial competition with the Corporation or the Bank. The reasonable judgment of a majority of the Board of Directors that such competition exists shall be conclusive for the purposes of this Agreement. This provision shall not be construed to prevent the Employee from owning shares in any publicly traded corporation for investment purposes. 15. In the event that Employee should violate the provisions of Article 14 hereof, and should she continue to do so without adequate cause for a period thirty of days after the Corporation shall have requested her in writing to refrain from an action prohibited by said Article 14, Employee agrees that no further payments shall be due her, her spouse, or any other designated beneficiary under this Agreement and that the Corporation shall have no further obligation whatsoever hereunder. Any disputes hereunder shall be referred to arbitration pursuant to Article 17 hereof. 16. (a) The Corporation agrees that it will not merge or consolidate with any other corporation or organization, or permit its business to be taken over by any other organization, unless and until the succeeding or continuing corporation or other organization shall expressly assume the rights and obligations of the Corporation herein set forth. The Corporation further agrees that it will not cease its business activities or terminate its existence, other than as heretofore set forth in this Article, without having made adequate provision for the fulfilling of its obligations hereunder. (b) In the event of a change of control (as defined below) of the Corporation, Employee shall have the right (exercisable within 90 days of the change of control) to require the Corporation to immediately fund the unpaid portion of Employee's compensation hereunder by establishing an irrevocable trust account with an independent corporate Trustee which is a national or state charted bank with Trustee powers located in Massachusetts or Rhode Island, funded with an amount which will be sufficient to meet all of Employer's obligations hereunder. The terms of the Trust shall meet the requirements of the Internal Revenue Service for "rabbi trusts" and shall generally provide as set forth herein modified or expanded as necessary to meet said IRS requirements. The Trust fund shall be held and managed by the Trustee for the exclusive purpose of providing the compensation hereunder to Employee hereunder and the Trustee shall act as agent of the Corporation by making payments of benefits to the Employee in accordance with the terms hereof. Any and all expenses and taxes incurred by reason of the Trust and its income shall be paid by the Corporation. After all benefits payable hereunder have been paid to the Employee or her beneficiaries or after this agreement has otherwise properly terminated under its terms, any amounts remaining in the Trust account shall revert to 4 Corporation. Except for the rights of creditors in the event of Corporation's bankruptcy or receivership, Corporation shall have no right to reclaim amounts contributed to the Trust hereunder until all benefits have been paid or this Agreement has properly terminated under its terms. In the event of Corporation's bankruptcy or receivership, the Trustee shall, upon proper notice, deliver all assets held hereunder to the Trustee in bankruptcy or the duly court appointed receiver for the benefit of the general creditors (including Employee) of Corporation. "Change of Control" as used herein means any merger or consolidation with or acquisition by any other organization, the sale of substantially all the assets of the Corporation to another person or organization, or the acquisition directly or indirectly of 20% or more of the common stock of the Corporation by one or more persons or organizations acting in concert. 17. Unless otherwise provided in this Agreement, any controversy or claim arising out of or relating to this contract, or the breach thereof, shall be settled by arbitration in accordance with the Rules of the American Arbitration Association, and judgment upon the award rendered by the Arbitrator(s) may be entered in any Court having jurisdiction thereof. The Corporation agrees that it will pay Employee's costs including reasonable attorneys' fees in connection with any controversy or claim hereunder in which Employee prevails or in which the Arbitrator(s) or court determine that the Corporation should pay such costs. 18. This Agreement shall be binding upon and inure to the benefit of the parties, the Corporation's successors and assigns, and the Employee's heirs, beneficiaries, executors and administrators. IN WITNESS WHEREOF, the parties have executed this Agreement the day and year first written above. Slade's Ferry Bancorp Attest: /s/ Isola A. Anctil By: /s/ Kenneth R. Rezendes ------------------- --------------------------- Secretary (Title: Vice Chair ) /s/ Mary Lynn D. Lenz --------------------- Mary Lynn Lenz 5 EX-10 4 slad1011.txt EXHIBIT 10.11 Exhibit 10.11 Change-In-Control Severance Agreement AGREEMENT made as of this 20th day of March, 2003 by and among Slade's Ferry Bancorp, a Massachusetts corporation with its principal place of business in Somerset, Massachusetts (the Corporation), SladesFerry Trust Company d/b/a Slade's Ferry Bank of Somerset, a Massachusetts banking corporation with its principal place of business in Somerset, Massachusetts (the Bank) and Mary Lynn Lenz (the Executive), an individual to be employed as an executive of the Corporation and Bank. 1. Purpose. The Corporation and the Bank considers it essential to the best interests of its stockholders to foster the continuous employment of key management personnel employed by the Bank. The Board of Directors of the Corporation (the Board) recognizes, however, that, as is the case with many publicly held corporations, the possibility of a Change in Control (as defined in Section 2 hereof) exists and that such possibility, and the uncertainty and questions which it may raise among management, may result in the departure or distraction of management personnel to the detriment of the Corporation and its stockholders. Therefore, the Board has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of members of the Corporation and the Bank's management, including the Executive, to their assigned duties without distraction in the face of potentially disturbing circumstances arising from the possibility of a Change in Control. Nothing in this Agreement shall be construed as creating an express or implied contract of employment and, except as otherwise agreed in writing between the Executive and the Corporation and/or Bank, the Executive shall not have any right to be retained in the employ of the Corporation and/or the Bank. 2. Change in Control. For purposes of this Agreement, a Change in Control shall mean the occurrence of any one of the following events: (a) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(D)(2) of the Securities Exchange Act of 1934, as amended (the Exchange Act), of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of the then outstanding shares of common stock of the Corporation (the Outstanding Corporation Common Stock); provided, however, that any acquisition by the Corporation or its subsidiaries of 20% or more of Outstanding Corporation Common Stock shall not constitute a Change in Control; and provided, further, that any acquisition by a corporation with respect to which, following such acquisition, more than 50% of the then outstanding shares of common stock of such corporation, is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners of the Outstanding Corporation Common Stock immediately prior to such acquisition in substantially the same proportion as their ownership, immediately prior to such acquisition, of the Outstanding Corporation Common Stock, shall not constitute a change in Control; or (b) Individuals who, as of the date of this Agreement, constitute the Board (the Incumbent Board) cease for any reason to constitute at least a majority of the Board, provided that any individual becoming a director subsequent to the date of this Agreement whose election, or nomination or election by the Corporation's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office is in connection with either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a person other than the Board; or (c) Consummation by the Corporation of (i) a reorganization, merger or consolidation, in each case, with respect to which all or substantially all the individuals and entities who were the beneficial owners of the Outstanding Corporation Common Stock immediately prior to such reorganization, merger or consolidation do not, following such reorganization, merger or consolidation, beneficially own, directly or indirectly, more than 40% of the then outstanding shares of common stock of the corporation resulting from such a reorganization, merger or consolidation; (ii) a reorganization, merger or consolidation, in each case, (A) with respect to which all or substantially all of the individuals and entities who were the beneficial owners of the Outstanding Corporation Common Stock immediately prior to such reorganization, merger or consolidation, following such reorganization, merger or consolidation, beneficially own, directly or indirectly, more than 40% but less than 50% of the then outstanding shares of common stock of the corporation resulting from such a reorganization, merger or consolidation, (B) at least a majority of the directors then constituting the Incumbent Board do not approve the transaction and do not designate the transaction as not constituting a Change in Control, and (C) following the transaction members of the then Incumbent Board do not continue to comprise at least a majority of the Board; or (iii) the sale or other disposition of all substantially all of the assets of the Corporation, excluding a sale or other disposition of assets to a subsidiary of the Corporation; or (d) Consummation by the Bank of (i) a reorganization, merger or consolidation, in each case, with respect to which, following such reorganization, merger or consolidation, the Corporation does not beneficially own, directly or indirectly, more than 50% of the then outstanding shares of common stock of the corporation or bank 2 resulting from such a reorganization, merger or consolidation or (ii) the stockholders of the Corporation approve a plan the sale or other disposition of all or substantially all of the assets of the Bank, excluding a sale or other disposition of assets to the Corporation or a subsidiary of the Corporation. 3. Terminating Event. A Terminating Event shall mean any of the events set forth in subparagraphs (a), (b), or (c): (a) Termination of the Executive's employment by the Corporation and/or Bank within 13 months following a Change in Control for any reason other than for Cause or the death or disability of the Executive. "Disability" shall be deemed the reason for the termination by the Corporation of the Executive's employment, if, and only if, as a result of the executive's incapacity due to physical or mental illness, the Executive shall have been absent from the full-time performance of the Executive's duties with the Corporation on a full-time basis for the a period of one- hundred-eighty (180) consecutive days or for an aggregate period of two hundred-ten (210), days during a consecutive period of two hundred-seventy (270) days. "Cause" shall mean, and shall be limited to, the occurrence of any one or more of the following events: (i) Willful fraudulent conduct or breach of fiduciary duty or trust by the Executive which has had or has a substantial likelihood of having a demonstrably and materially injurious effect to the Corporation and/or the Bank; (ii) The Executive's indictment followed by conviction or admission to sufficient facts for a crime involving moral turpitude, or for any crime under Title 18, Sections 215, 656, 657, 1005-1007, 1014, 1032, 1341, 1343, and 1344 of the United States Code; (iii) The willful and continued failure by the Executive (other than any such failure resulting from the Executive's incapacity due to physical or mental illness or any such actual or anticipated failure after the Executive gives notice of termination for Good Reason) to substantially perform the Executive's duties with the Corporation and/or the Bank and the continuation of such failure for a period of 30 days after delivery by the Board to the Executive of written noticing seeking substantial performance and specifying the scope and nature of such failure and intention to terminate the Executive for Cause. 3 For purposes of clauses (i) and (iii) of this Section 3(a), no act, or failure to act, on the Executive's part shall be considered "willful" unless done, or omitted to be done, by the Executive not in good faith and without reasonable belief that the Executive's act, or failure to act, was in the best interest of the Corporation and/or the Bank. A Terminating Event shall not be deemed to have occurred pursuant to this Section 3 (a) solely as a result of the Executive being an employee of any direct or indirect successor to the business or assets of the Corporation and/or the Bank, rather than continuing as an employee of the Corporation and/or the Bank following a Change in Control. (b) Termination by the Executive of the Executive's employment with the Corporation and/or the Bank for Good Reason within 13 months following a Change in Control. "Good Reason" shall mean the occurrence of any of the following, without the Executive's express written consent: (i) the assignment to the Executive of any duties inconsistent with the Executive's status as an executive officer of the Corporation and/or Bank or any substantial diminution in the Executive's responsibilities, functions, powers, titles or offices as in effect immediately prior to the Change in Control; (ii) any reduction in Base Salary, except for across- the-board salary reductions similarly affecting all executives of the Corporation and/or the Bank and all executives of any person in control of the Corporation and/or Bank; (iii) the failure by the Corporation and/or the Bank to (A) continue in effect any material compensation or benefit plan or program (including, without limitation, any life insurance, medical, health and accident, disability retirement and/or supplemental retirement plan, program, policy, or agreement; any bonus plan, program, policy, or agreement; and any vacation program or policy) in which the Executive participates or is entitled or which is applicable to the Executive immediately prior to the Change in Control, unless an equitable arrangement (embodied in an ongoing substitute or alternate plan) has been made with respect to such plan, program, policy, or agreement or (B) continue the Executive's participation therein or entitlement therein (or in such substitute or alternate plan, program, or policy) on a basis not materially less favorable, both in terms of the amount of benefits provided, target levels, and the level of the Executive's 4 participation relative to other participants, than the basis existing immediately prior to the Change in Control; provided, however, this shall not apply to any change by the Bank or Corporation to any compensation or benefit plan or program which similarly affects all executive personnel of the Corporation and/or Bank and all executives of any person in control of the corporation, (iv) the relocation of the Corporation's and/or the Bank's offices at which the Executive is principally employed immediately prior to the date of a Change in Control to a location more than 50 miles from such offices, or the requirement by the Corporation and/or the Bank for the Executive to be based anywhere other than the Corporation's and/or the Bank's business to an extent substantially inconsistent with the Executive's business travel obligations immediately prior to the Change in Control; (v) any purported termination of the Executive's employment which is not effected pursuant to a Notice of Termination satisfying the requirements of Section 8 hereof; for purposes of the Agreement, no such purported termination shall be effective; or (vi) the failure by the Corporation and/or the Bank to obtain an effective agreement from any successor to assume and agree to perform this Agreement, as required by Section 17. The Executive's right to terminate the Executive's employment for Good Reason shall not be affected by the Executive's incapacity due to physical or mental illness. The Executive's continued employment shall not constitute consent to, or a waiver of rights with respect to, any act or failure to act constituting Good Reason hereunder. (c) after 12 months following a Change in Control but within 13 months following a Change in Control, termination by the Executive of the Executive's employment with the Corporation and/or the Bank without cause. 4. Special Termination Payments. In the event a Terminating Event occurs, and in lieu of any other severance benefits to which the Executive might otherwise be entitled, the Corporation and/or the Bank shall be jointly and severably responsible to, and shall pay to the Executive the following: (a) in the case of a Terminating Event under paragraphs 3(a) or 3(b) 5 (i) 2.99 times the amount of the average annual W-2 Compensation of the Executive over the prior five years (or such lesser period as the Executive has been employed), determined prior to any reductions for pre-tax contributions to a cash or deferred arrangement, a cafeteria plan, or a deferred compensation. At the Executive's election, the foregoing amount may be paid in one lump sum payment within thirty days after the Date of Termination, discounted at the then existing prime rate as quoted by the Wall Street Journal; or in equal monthly installments over three years; and (ii) the Corporation and/or the Bank shall continue to provide health, dental and life insurance to the Executive, on the same terms and conditions as though the Executive had remained an active employee, for 36 months after the Terminating Event; or until the Executive qualifies for equivalent coverage under a new employer; (iii) the Corporation and/or the Bank shall provide the Executive with 36 months of additional benefit accrual under the Corporation's and the Bank's retirement and/or supplemental retirement plans, programs, policies or agreements, but only to the extent the Executive was eligible to participate in such immediately prior to the Change in Control; and (iv) the Corporation and/or the Bank shall transfer to the Executive full unencumbered ownership of the Corporation automobile provided to the Executive. (v) Executive shall be 100% vested in any benefits provided in any Agreement in any Life Insurance Agreement or Arrangement she has entered into with the Corporation and/or Bank, including but not limited to any Split Dollar Life Insurance Plan; and (b) In the case of a Terminating Event under paragraph 3(c), 1.0 times the then base compensation of the Executive plus the amount of the bonus for the year preceding the termination which, at the Corporation and/or Bank's election, may be paid in one lump sum payment within thirty days after the date of termination or in equal monthly installments over the 12 month period after the termination date. (c) The Corporation and/or Bank will promptly reimburse Executive for any and all reasonable legal fees and expenses incurred in connection with efforts to obtain or enforce any benefit or right provided by this Agreement, including but not limited to contesting or disputing that the termination of her employment is for Cause or other than for Good Reason; provided that Employee obtains or recovers any sum from the Company, whether by settlement or award. 6 Notwithstanding anything herein to the contrary, this Agreement shall not supersede, eliminate or diminish any payments or benefits that Executive is entitled to under any stock option, supplemental retirement plan or other agreement, arrangement or plan and to the extent that any payment or benefit provided for herein is required to be paid or vested at any earlier date under the terms of any plan, agreement or arrangement, such plan, agreement or arrangement shall control. 5. Additional Benefits (a) Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any compensation, payment or distribution by the Corporation and/or the Bank to or for the benefit of the Executive, whether paid or payable or distributed pursuant to the terms of this Agreement or otherwise (the "Severance Payments"), would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment (a "Gross Payment") such that the net amount retained by the Executive, after deduction of any Excise Tax and not after the deduction of any other taxes or amounts, shall be equal to the Severance Payments. (The Gross-Up Payment is not intended to compensate the Executive for any income taxes payable with respect to the Severance Payments.) (b) Subject to the provisions of Section 5(c), all determinations required to be made under this Section 5, including whether a Gross-Up Payment is required and the amount of such Gross-Up Payment, shall be made by the Corporation and/or the Bank's Accounting Firm, which shall provide detailed supporting calculations both to the Executive and the Corporation and/or the Bank within 15 business days of the Date of Termination if applicable, or at such earlier time as is reasonably requested by the Executive or the Corporation and/or the Bank. For purposes of determining the amount of the Gross-Up Payment, the Executive shall be deemed to pay federal income taxes at the highest marginal rate of the federal income taxation applicable to individuals for the calendar year in which the Gross-Up Payment is to be made, and the state and local income taxes at the residence on the Date of Termination, net of the maximum reduction in the federal income taxes which could be obtained from deduction of such state and local taxes. The initial Gross-Up Payment, if any, as determined pursuant to the Section 5(b), shall be paid to the Executive within five days of the 7 receipt of the Accounting Firm's determination. If the Accounting Firm determines that no Excise Tax is payable by the Executive, the Corporation and/or the Bank shall furnish the Executive with an opinion of counsel that the failure to report the Excise Tax on the Executive's applicable federal income tax return would not result in the imposition of a negligence or similar penalty. Any determination by the Accounting Firm shall be binding upon the Executive and the Corporation and/or the Bank. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting firm hereunder, it is possible that Gross-Up Payments which will not ave been made by the Corporation and/or the Bank (an "Underpayment"). In the event that the Corporation and/or the Bank exhaust its remedies pursuant to Section 5(c) and the Executive thereafter is required to make payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred, consistent with the calculations required to be made hereunder, and any such Underpayment, and any interest and penalties imposed on the Underpayment and required to be paid by the Executive in connection with the proceedings described in Section 5(c), shall be promptly paid by the Corporation and/or the Bank to or for the benefit of the Executive. (c) The Executive shall notify the Corporation and/or the Bank in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Corporation and/or the Bank of the Gross-Up Payment, such notification shall be given as soon as practicable but no later than 10 business days after the Executive knows of such claim and shall apprise the Corporation and/or Bank of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which he gives such notice to the Corporation and/or the Bank (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Corporation and/or Bank notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, provided that the Corporation and/or Bank has set aside adequate reserves to cover the Underpayment and any interest and penalties thereon that may accrue, the Executive shall: (i) give the Corporation and/or Bank any information reasonably requested by the Corporation and/or the Bank relating to such claim, (ii) take such action in connection with contesting such claim as the Corporation and/or the Bank shall reasonably request in writing from time to time, including, without limitation, 8 accepting legal representation with respect to such a claim by an attorney selected by the Corporation and/or the Bank (iii) cooperate with the Corporation and/or the Bank in good faith in order effectively to contest such claim, and (iv) permit the Corporation and/or the Bank to participate in any proceedings, relating to such claim; provided, however, that the Corporation and/or the Bank shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax, including interest and penalties with respect thereto, imposed as a result of such representation and payment of costs and expenses, Without limitation on the foregoing provisions of this Section 5(c), the Corporation and/or the Bank shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearing and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner , and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Corporation and/or the Bank shall determine; provided, however, that if the Corporation and/or Bank directs the Executive to pay such claim and sue for a refund, the Corporation and/or Bank shall advance the amount of such payment to the Executive on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax, including interest or penalties with imputed income with respect to such advance; and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Corporation's and/or Bank's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issues raised by the Internal Revenue Service or any other taxing authority. 9 6. Term. This Agreement shall take effect on the date first set forth above and shall terminate upon the earliest of (a) the termination by the Corporation and/or the Bank of the employment of the Executive for Cause after a Change of Control; (b) the resignation or termination of the Executive for any reason prior to a Change in Control; or (c) the date which is 13 months and 1 day after a Change in Control. 7. Withholding. All payments made by the Corporation and/or the Bank under this Agreement shall be net of any tax or other amounts required to be withheld by the Corporation and/or the Bank under applicable law. 8. Notice and Date of Termination; Disputes; Etc. (a) Notice of Termination. After a Change in Control and during the term of this Agreement, any purported termination of the Executive's employment (other than by reason of death) shall be communicated by written Notice of Termination from one party hereto to the other party hereto in accordance with this Section 8. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated, and the Date of Termination. Further, a Notice of Termination for Cause is required to include a copy of a resolution duly adopted by the affirmative vote of not less than two-thirds (2/3) of the entire membership of the Board at a meeting of the Board (after reasonable notice to the Executive and an opportunity for the Executive, accompanied by the Executive's counsel, to be heard before the Board) finding that, in the good faith opinion of the Board, the termination met the criteria for Cause set forth in Section 3(a) hereof. (b) Date of Termination. "Date of Termination", with respect to any purported termination of the Executive's employment after a Change in Control and during the term of this Agreement, shall mean the date specified in the Notice of Termination. In the case of termination by the Corporation and/or the Bank other that a termination for Cause (which may be effective immediately), the Date of Termination shall not be less than 30 days after the Notice of Termination is given. In the case of a termination by the Executive, the Date of Termination shall not be less than 15 days, nor more than 60 days, respectively, from the date such Notice of Termination is given. Notwithstanding Section 3(a) of this Agreement, in the event that the Executive gives a Notice of Termination to the Corporation and/or Bank, the Corporation and/or Bank may unilaterally accelerate the Date of Termination and 10 such acceleration shall not result in a second Termination Event for purpose of Section 3(a) of this Agreement. (c) Dispute Concerning Termination. If within fifteen (15) days after any Notice of Termination is given, or, if later, prior to the Date of Termination (as determined without regard to this Section 8 (c), the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination, the Date of Termination shall be the date on which the dispute is finally resolved,either by mutual written agreement of the parties or by a final judgment, order or decree (which is not appealable or with respect to which the time for appeal therefrom has expired and no appeal has been perfected); provided further that the Date of Termination shall be extended by a notice of dispute only if such notice is given in good faith and the party giving such notice pursues the resolution of such dispute with reasonable diligence. (d) Compensation During Dispute. If a purported termination occurs following a Change in Control and during the Term, and such termination is disputed in accordance with Section 8(c) hereof, the Corporation and/or Bank shall continue to pay the Executive the full compensation in effect when the notice giving rise to the dispute was given (including, but not limited to salary) and continue the Executive as a participant in all compensation, benefit and insurance plans, programs, policies, and/or agreements in which the Executive was participating when the notice giving rise to the dispute was given, until the earlier of the dispute being finally resolved in accordance with Section 8(c) hereof or six months from the date of notice giving rise to the dispute is given, when such continued compensation and benefits shall cease. Amounts paid under this Section 8(d), however, are in addition to all other amounts due under this Agreement and shall not be offset against or reduce any other amounts due under this Agreement. Provided, however, that the Executive may be requested to provide reasonable services to the Corporation and/or Bank until the dispute is resolved in accordance with Section 8(c) hereof. (e) Settlement of Disputes; Arbitration. All claims by the Executive for benefits under this Agreement shall be directed to and determined by the Board and shall be in writing. Any denial by the Board of a claim for benefits under this Agreement shall be delivered to the Executive in writing and shall set forth the specific reasons for the 11 denial and the specific provisions of this Agreement relied upon. The Board shall afford a reasonable opportunity to the Executive for a review of the decision denying a claim and shall further allow the Executive to appeal to the Board a decision of the Board within sixty (60) days after notification by the Board that the Executive's claim has been denied. To the extent permitted by applicable law, any further dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Boston, Massachusetts. The parties agree there shall be three arbitrators, one of whom shall be appointed by the Corporation and/or the Bank, one by the Executive, and the third by the first two arbitrators. If the first two arbitrators cannot agree on the appointment of a third arbitrator, then the third arbitrator shall be appointed by the American Arbitration Association in Boston, Massachusetts. Such arbitration shall be conducted in accordance with the rules of the American Arbitration Association for commercial arbitrations, except with respect to the selection of arbitrator, which shall be as provided in this Section 8(e). Judgement upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof. 9. Assignment; Prior Agreements. Neither the Corporation, the Bank nor the Executive may make any assignment of this Agreement or any interest herein, by operation of law or otherwise, without the prior written consent of the other party, and without such consent any attempted transfer shall be null and void and of no effect. This Agreement shall inure to the benefit of and be binding upon the Corporation and the Bank and the Executive as well as their respective successors, executors, administrators, heirs and permitted assigns. In the event of the Executive's death after a Terminating Event but prior to the completion by the Corporation and/or the Bank of all payments due her under Sections 4 and 5 of this Agreement, the Corporation and/or the Bank shall continue such payments to the Executive's beneficiary designated in writing to the Corporation and/or Bank prior to his death (or to his estate, if the Executive fails to make such a designation). 10. Enforceability. If any provision of this Agreement shall to any extent be declared illegal or unenforceable by a court of competent jurisdiction, or any appropriate Federal or State Banking authority, then the remainder of this Agreement, or the application of such portion or provision in circumstances other than those as to which it is so declared illegal or unenforceable, shall not be affected thereby, and each portion and 12 provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law. 11. Waiver. No waiver of any provision hereof shall be effective unless made in writing and signed by the Executive and such officer as may be specifically designated by the Board. The failure of any party to require the performance of any term or obligation of this Agreement, or the waiver by any party of any breach of this Agreement, shall not prevent any subsequent enforcement of such term or obligation or be deemed a waiver of any subsequent breach. 12. Notices. Any Notices, requests, demands, and other communications provided for by this Agreement shall be sufficient if in writing and delivered in person by or sent by registered or certified mail, postage prepaid, to the Executive at the last address the Executive has filed in writing with the Corporation and/or the Bank, or to the Corporation and/or the Bank at its main offices, attention of the Board of Directors, with the copy to the Secretary of the Corporation and/or the Bank, or to such other address as either party may have furnished to the other in writing in accordance herewith, except the notice of a change of address shall be effective only upon receipt. 13. Effect on Other Plans, Policies, Agreements. An Election by the Executive to resign for good reason after a Change in Control under the provisions of the Agreement shall not be deemed a voluntary termination of employment by the Executive for purposes of interpreting the provisions of any of the Corporation's and/or the Bank's benefit plans, programs, agreements or policies. Excepts as specifically referenced herein, nothing in this Agreement shall be construed to limit the rights of the Executive under the Corporation's and/or the Bank's benefit plans, programs, agreements or policies. 14. Amendment. This Agreement may be amended or modified only by a written instrument signed by the Executive and by a duly authorized representative of the Corporation and/or the Bank. 15. Governing Law. This contract shall be construed under and be governed in all respects by the laws of the Commonwealth of Massachusetts. 16. Obligations of Successors. In addition to any obligations imposed by law upon any successor to the Corporation, the Corporation and/or the Bank shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Corporation and/or the Bank to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Corporation and/or the Bank would be required to perform 13 if no such succession had taken place. Failure of the Corporation to obtain such assumption of this Agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle the Executive to compensation from the Corporation in the same amount and on the same terms as the Executive would be entitled to hereunder if the Executive were to terminate the Executive's employment for Good Reason after a Change in Control, except that, for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. IN WITNESS WHEREOF, this Agreement has been executed as a sealed instrument by the Corporation and the Bank by their duly authorized officers and by the Executive, as of the date first above written. SLADE'S FERRY BANCORP By: /s/ Donald T. Corrigan -------------------------------- Donald T. Corrigan Chairman of the Board SLADE'S FERRY TRUST COMPANY By: /s/ Donald T. Corrigan -------------------------------- Donald T. Corrigan Chairman of the Board /s/ Mary Lynn D. Lenz -------------------------------- Executive 14 EX-10 5 slad1012.txt EXHIBIT 10.12 Exhibit 10.12 CONFIDENTIALITY AND NON-SOLICITATION AGREEMENT ---------------------------------------------- Agreement made as of this 20th day of March, 2003, by and among Slade's Ferry Bancorp, a Massachusetts corporation with its principal place of business in Somerset, Massachusetts (the Corporation), Slade's Ferry Trust Company d/b/a Slade's Ferry Bank of Somerset, a Massachusetts banking corporation with its principal place of business in Somerset, Massachusetts (the Bank) and Mary Lynn Lenz (the Executive), an individual employed as an executive of the Corporation and Bank. Whereas, the parties hereto agree that Executive is employed in key capacities by both the Corporation and the Bank and has full access to and knowledge of Confidential and Proprietary Information of the Corporation and the Bank and is in a position to develop close relationships with customers, potential customers, and employees of the Corporation and the Bank; and Whereas, the Corporation and the Bank wish to protect their Confidential and Proprietary Information and their customer and employee relations during the course of Executive's employment and following the termination of the Executive's employment with the Corporation and the Bank; and the Executive acknowledges the faith and confidence placed in her by the Corporation and the Bank and is willing to enter into this Agreement; Now Therefore, for good and valuable consideration, including but not limited to the continuation of employment and payment of certain legal fees of the Executive in the amount of $6785.00 incurred in connection with her employment with the Corporation and the Bank, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows: 1. Acknowledgement of Confidential Nature of Information and Goodwill ------------------------------------------------------------------ Interests of the Corporation and the Bank ----------------------------------------- For purposes of this Agreement, "confidential information" is any and all information of the Corporation and/or the Bank (a) that is not generally known in the industry, or (b) that is not generally known by others with whom the Corporation and the Bank competes or does business or with whom the Corporation and the Bank plans to compete or do business. Confidential information includes, but is not limited to (a) information relating to accounts, customers and employees, (b) customer lists, (c) financial information, (d) any and all management plans, policies and reports, (e) lending standards and terms, (f) marketing or expansion plans, techniques and strategies, (g) trade secrets, and (h) records, documents and other materials disclosed during the course of employment, which are internal Corporate or Bank documents. Executive acknowledges that the Corporation and the Bank have a substantial interest in maintaining the security of all confidential information. 2. Agreement Not to Reveal Confidential Information or to Engage in ---------------------------------------------------------------- Solicitation While Employed --------------------------- (a) While employed by the Corporation and the Bank, Executive agrees not to disclose any confidential information, as defined in Section 1, above, except as required in the course of Executive's employment with the Company. (b) While employed by the Corporation and the Bank, Executive agrees not to discuss with any other employee(s) the formation or operation of any business intended to, or that does, compete with the Corporation and the Bank or the possible future employment of such other employee(s) by any such business, if Executive has or expects to secure a position with the competing business or if Executive has or expects to acquire a proprietary interest in such competing business or if Executive is or expects to be made an officer or director of such competing business. (c) While employed by the Corporation and the Bank, Executive agrees not to discuss with any existing or potential customer the present or future availability of services or products by a competing business if Executive has, or expects to secure, a position with the competing business, if Executive has or expects to acquire a proprietary interest in such competing business, or if Executive is or expects to be made an officer or director of such competing business. (d) Executive agrees that a proprietary interest in a business is ownership, whether through stock holdings or otherwise, of one percent (1%) or more of such business. Executive shall be deemed to expect to acquire a proprietary interest in a business or to be made an officer or director of such business if such possibility has been discussed with any officer, director, employee, agent or promoter of such business. 2 3. Agreement Not to Reveal Confidential Information or to Solicit -------------------------------------------------------------- Customers or Employees Following Termination of Employment ---------------------------------------------------------- (a) Upon termination of employment with the Corporation and the Bank, or any time thereafter, Executive agrees not to disclose directly or indirectly to any other party or to use in any way for Executive's own purposes, any confidential information as defined in Section 1 above. The obligations of non-disclosure will not apply to any confidential information as to which Executive can demonstrate any of the following: (i) the information was previously learned by Executive from a source other than the Corporation or Bank or an agent of the Corporation or Bank without any obligation to hold it in confidence: (ii) the information was received from a third party free to disclose such information without restriction; (iii) the information is approved for release by written authorization of the Corporation or Bank, but only to the extent of such authorization. (b) Executive agrees not to engage in any manner of recruitment or hiring of employees of the Corporation and the Bank on behalf of a competing business for a two (2) year period after termination of employment with the Corporation and the Bank. (c) Executive agrees not to solicit the Corporation and the Bank's customers or potential customers during the course of employment with or in furtherance of, a competing business for a period of two (2) years after termination of employment. For purposes of this provision, the Corporation and the Bank's "customers" include all persons or entities that have had a banking or borrowing relationship with the Bank at any time during Executive's employment with the Corporation and the Bank. 4. Return of Property and Documents -------------------------------- Executive will return all documents, computer equipment, mobile phones, pagers, keys, records, tapes, media and other materials and property of the Corporation and the Bank in her possession and control, confidential and otherwise, including any and all copies of such documents, records, tapes, media and other materials and property, immediately after Executive's employment with the Corporation and the Bank terminates. 3 5. Governing Law and Construction of Agreement ------------------------------------------- This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts. 6. Severability ------------ If, for any reason, any term or provision of this Agreement is held invalid, the other terms and provisions of this Agreement will remain in full force and effect and the intent of the invalid term or provision shall be enforced to the fullest extent that he law permits. 7. Limited Effect of Waiver by the Corporation and the Bank -------------------------------------------------------- The waiver by the Corporation and the Bank of any breach of this Agreement shall not prevent any subsequent enforcement of such term or obligation and shall not be deemed a waiver of any such subsequent breach. No modification or waiver of any provision of this Agreement shall be effective unless in writing and signed by an officer or director of the Corporation and the Bank. 8. Enforcement of Agreement ------------------------ In the event of any violation of the Agreement herein, the Corporation and the Bank shall be entitled to institute and prosecute proceedings in any court of competent jurisdiction, either in law or equity. Executive acknowledges that, were Executive to breach the provisions of the Agreement, the harm to the Corporation and the Bank would be irreparable, and further, that money damages alone would be inadequate to make the Corporation and the Bank whole, Executive therefore agrees that, in addition to damages, the Corporation and the Bank shall be entitled to obtain temporary and permanent injunctive relief against any such breach. The prevailing party in any action brought to enforce this Agreement, whether for injunctive relief, damages or both, shall be entitled to recover their reasonable attorneys' fees and costs. This Agreement shall be enforceable by any successor in interest to the 5 Corporation and the Bank in the event of any sale, assignment, or other transfer of the assets of the Corporation and the Bank, a merger of the Corporation and the Bank with another company or any sales or acquisition of a controlling interest in the Corporation and the Bank's stock. /s/ Mary Lynn D. Lenz Date: 3/30/03 - ----------------------------------- ------- Mary Lynn Lenz Slade's Ferry Bancorp Date: 4/17/03 - ----------------------------------- ------- By: /s/ Kenneth R. Rezendes - ----------------------------------- Slade's Ferry Trust Company Date: 4/17/03 - ----------------------------------- ------- By: /s/ David F. Westgate - ----------------------------------- 5 EX-11 6 slad1-11.txt EXHIBIT 11 Exhibit 11.0 SLADE'S FERRY BANCORP AND SUBSIDIARY COMPUTATION OF PER SHARE EARNINGS (Unaudited)
Three months ended March 31, ------------------------- 2003 2002 ------------------------- Net Income $ (692,180) $ 781,922 ------------------------- Average shares outstanding 3,948,584 3,879,855 ------------------------- Basic earnings per share $ (0.18) $ 0.20 ------------------------- Net Income $ (692,180) $ 781,922 ------------------------- Average shares outstanding 3,948,584 3,879,855 Net effect of dilutive stock options 26,213 33,714 ------------------------- Adjusted shares outstanding 3,974,797 3,913,569 ------------------------- Diluted earnings per share $ (0.17) $ 0.20 -------------------------
EX-99 7 slad1-99.txt EXHIBIT 99 EXHIBIT 99 Mary Lynn D. Lenz, President and Chief Executive Officer, and Edward Bernardo, Jr. Vice President and Treasurer of Slade's Ferry Bancorp (the "Company"), each hereby certifies, pursuant to Section 906 of the Sarbanes- Oxley Act of 2002, 18 U.S.C. Section 1350, that to the best of his knowledge: 1) this Quarterly Report on Form 10-Q of the Company for the quarterly period ended March 31, 2003 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 780(d); and 2) the information contained in this Form 10-Q fairly represents in all material respects, the financial condition and results of operations of the Company. May 14, 2003 /s/ Mary Lynn D. Lenz - ------------- ------------------------------------ (Date) (Signature) Mary Lynn D. Lenz President/Chief Executive Officer May 14, 2003 /s/ Edward Bernardo Jr. - ------------ ------------------------------------ (Date) (Signature) Edward Bernardo Jr. Vice President/Treasurer Chief Financial Officer/ Chief Accounting Officer -----END PRIVACY-ENHANCED MESSAGE-----