-----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, UsikAIy5gSV0z8HrXvkOquYd8oNiA86TUV0Vd0Hsu2bxXFknRDMlNzOmvtNHysw+ 74GKuZ1aQEhV1NM578DbCw== 0000910647-05-000160.txt : 20050512 0000910647-05-000160.hdr.sgml : 20050512 20050512164654 ACCESSION NUMBER: 0000910647-05-000160 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20050331 FILED AS OF DATE: 20050512 DATE AS OF CHANGE: 20050512 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: 05825033 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 slad-q1.txt BODY OF FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISION Washington, D.C. 20549 FORM 10-Q X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period quarter ended March 31, 2005 -------------- Commission file number 000-23904 --------- SLADE'S FERRY BANCORP. -------------------------------------------------------- (Exact name of registrant as specified in its character) Massachusetts 04-3061936 - --------------------------------- ---------------------- (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification Number) 100 Slade's Ferry Avenue Somerset, Massachusetts 02726 - ---------------------------------------- ---------------------- (Address of principal executive offices) (Zip code) (508)-675-2121 ---------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ------------ ----------- Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes No X ------------ ----------- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date: Common stock ($0.01 par value) 4,114,646 shares as of April 30, 2005. --------------------------------------------------------------------- TABLE OF CONTENTS Part I ITEM 1 - Consolidated Financial Statements of Slade's Ferry Bancorp. and Subsidiary 2 Consolidated Balance Sheets - March 31, 2005 and December 31, 2004 (Unaudited) Consolidated Statements of Income - Three Months Ended March 31, 2005 and 2004 (Unaudited) Consolidated Statement of Changes in Stockholder's Equity - Three Months Ended March 31, 2005 (Unaudited) Consolidated Statements of Cash Flows - Three Months Ended March 31, 2005 and 2004 (Unaudited) Notes to Consolidated Financial Statements (Unaudited) ITEM 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 9 ITEM 3 - Quantitative and Qualitative Disclosures About Market Risk 23 ITEM 4 - Controls and Procedures 25 Part II ITEM 1 - Legal Proceedings 26 ITEM 2 - Unregistered Sales of Equity Securities and Use of Proceeds 26 ITEM 3 - Defaults upon Senior Securities 26 ITEM 4 - Submission of Matters to a Vote of Security Holders 26 ITEM 5 - Other Information 26 ITEM 6 - Exhibits 27 1 PART I ITEM 1 FINANCIAL STATEMENTS SLADE'S FERRY BANCORP. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands) March 31, 2005 December 31, 2004 - ---------------------- ----------------------------------- (Unaudited) Assets - ------ Cash and due from banks $ 19,901 $ 15,984 Interest-bearing demand deposits with other banks 550 410 Federal Home Loan Bank overnight deposit - 5,000 Federal funds sold 7,100 13,800 -------- -------- Cash and cash equivalents 27,551 35,194 Interest-bearing time deposits with other bank 100 100 Investments in available-for-sale securities (at fair value) 80,896 83,882 Investments in held-to-maturity securities (fair values of $35,883 at March 31, 2005 and $38,112 at December 31, 2004) 35,964 37,773 Federal Home Loan Bank stock 5,905 4,650 Loans, net of allowance for loan losses of $4,176 at March 31, 2005 and $4,101 at December 31, 2004 379,452 362,265 Premises and equipment 5,427 5,527 Goodwill 2,173 2,173 Accrued interest receivable 2,055 1,969 Cash surrender value of life insurance 11,563 11,548 Deferred taxes 1,321 880 Other assets 3,428 3,871 -------- -------- Total assets $555,835 $549,832 ======== ======== Liabilities and Stockholders' Equity - ------------------------------------ Deposits: Noninterest-bearing $ 76,602 $ 80,232 Interest-bearing 308,936 319,673 -------- -------- Total deposits 385,538 399,905 Federal Home Loan Bank advances 110,180 90,286 Subordinated debentures 10,310 10,310 Other liabilities 2,211 2,296 -------- -------- Total liabilities 508,239 502,797 Stockholders' equity: Common stock, par value $0.01 per share; authorized 10,000,000 shares; issued and outstanding 4,094,333 shares on March 31, 2005 and 4,068,423 shares on December 31, 2004 41 41 Paid-in capital 30,381 29,976 Retained earnings 17,590 16,893 Accumulated other comprehensive income (loss) (416) 125 -------- -------- Total stockholders' equity 47,596 47,035 -------- -------- Total liabilities and stockholders' equity $555,835 $549,832 ======== ========
The accompanying notes are an integral part of these consolidated financial statements. 2 SLADE'S FERRY BANCORP. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Three Months Ended March 31, (Dollars in Thousands, except per share data) 2005 2004 - --------------------------------------------- --------- --------- Interest and dividend income: Interest and fees on loans $ 5,266 $ 4,892 Interest and dividends on securities 1,322 529 Interest on federal funds sold 65 58 Other interest 4 1 --------- --------- Total interest and dividend income 6,657 5,480 --------- --------- Interest expense: Interest on deposits 1,159 1,122 Interest on Federal Home Loan Bank advances 911 595 Interest on subordinated debentures 136 16 --------- --------- Total interest expense 2,206 1,733 --------- --------- Net interest and dividend income 4,451 3,747 Provision for loan losses 50 246 --------- --------- Net interest and dividend income after provision for loan losses 4,401 3,501 --------- --------- Noninterest income: Service charges on deposit accounts 98 145 Overdraft service charges 110 123 Gain on sale of property and equipment 40 - Gain on sales and calls of available-for-sale securities, net 2 35 Increase in cash surrender value of life insurance policies 147 138 Other income 172 122 --------- --------- Total noninterest income 569 563 --------- --------- Noninterest expense: Salaries and employee benefits 2,033 1,968 Occupancy expense 239 231 Equipment expense 170 147 Professional fees 307 227 Marketing expense 99 57 Other expense 525 480 --------- --------- Total noninterest expense 3,373 3,110 --------- --------- Income before income taxes 1,597 954 Income taxes 532 308 --------- --------- Net income $ 1,065 $ 646 ========= ========= Earnings per common share - basic $ 0.26 $ 0.16 ========= ========= Earnings per common share - diluted $ 0.26 $ 0.16 ========= ========= Weighted average common shares outstanding - basic 4,076,707 4,012,654 ========= ========= Weighted average common shares outstanding - diluted 4,113,256 4,069,855 ========= ========= Dividends declared per share $ 0.09 $ 0.09 ========= =========
The accompanying notes are an integral part of these consolidated financial statements. 3 SLADE'S FERRY BANCORP. AND SUBSIDIARY CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY THREE MONTHS ENDED MARCH 31, 2005 AND DECEMBER 31, 2004 (Unaudited)
Accumulated Other Common Paid-in Retained Comprehensive (Dollars in Thousands, except per share data) Stock Capital Earnings Income (Loss) Total - ----------------------------------------------------------------------------------------------------------- Balance, December 31, 2004 $41 $29,976 $16,893 $ 125 $47,035 Comprehensive income: Net income - - 1,065 - 1,065 Net unrealized losses on securities available-for-sale, net of tax and reclassification adjustment - - - (541) (541) ------- Comprehensive income - - - - 524 ------- Issuance of common stock from dividend reinvestment plan - 142 - - 142 Stock issuance relating to optional cash contribution plan - 12 - - 12 Stock options exercised - 196 - - 196 Tax benefit of stock options exercised - 55 - - 55 Dividends declared ($.09 per share) - - (368) - (368) ------------------------------------------------------- Balance, March 31, 2005 $41 $30,381 $17,590 $(416) $47,596 =======================================================
The accompanying notes are an integral part of these consolidated financial statements. 4 SLADE'S FERRY BANCORP. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended March 31, (Dollars in Thousands) 2005 2004 Cash flows from operating activities: Net income $ 1,065 $ 646 Adjustments to reconcile net income to net cash provided by operating activities: Amortization, net of accretion of securities 59 44 Gain on sales and calls of available-for-sale securities, net (2) (35) Change in unearned income 37 83 Provision for loan losses 50 246 Deferred tax (benefit) expense 244 (21) Depreciation and amortization 184 166 Gain on sale of property and equipment (40) - Increase in cash surrender value of life insurance policies (147) (138) Increase in interest receivable (86) (6) (Increase) decrease in other assets 443 (404) Decrease in other liabilities (85) (165) -------- -------- Net cash provided by operating activities 1,722 416 -------- -------- Cash flows from investing activities: Decrease in interest-bearing time deposits with other banks - 100 Purchases of available-for-sale securities (767) (852) Proceeds from sales of available-for-sale securities 892 - Proceeds from maturities of available-for-sale securities 1,670 5,535 Proceeds from maturities of held-to-maturity securities 1,772 1,367 Purchases of Federal Home Loan Bank stock (1,255) - Loan originations and principal collections, net (17,299) (17,656) Recoveries of loans previously charged off 25 49 Purchase of premises and equipment (696) (118) Proceeds from sale of banking premises 652 - Proceeds from sale of property and equipment - (25) Redemption of life insurance policy 132 - -------- -------- Net cash used in investing activities (14,874) (11,600) -------- --------
The accompanying notes are an integral part of these consolidated financial statements. 5 SLADE'S FERRY BANCORP. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Continued)
Three Months Ended March 31, (Dollars in Thousands) 2005 2004 Cash flows from financing activities: Net increase in demand deposits, NOW and savings accounts $ 807 $ 33,774 Net increase (decrease) in time deposits (15,174) 33,357 Short-term advances from Federal Home Loan Bank, net - (4,300) Long-term advances from Federal Home Loan Bank 20,000 - Payments on Federal Home Loan Bank long-term advances (106) (85) Proceeds from issuance of common stock 154 201 Stock options exercised 196 327 Retirement of shares of common stock - (32) Dividends declared (368) (360) Proceeds from issuance of subordinated debentures - 10,310 -------- -------- Net cash provided by financing activities 5,509 73,192 -------- -------- Net increase (decrease) in cash and cash equivalents (7,643) 62,008 Cash and cash equivalents at beginning of period 35,194 22,706 -------- -------- Cash and cash equivalents at end of period $ 27,551 $ 84,714 ======== ======== Supplemental disclosures: Interest paid $ 2,132 $ 1,683 Income taxes paid $ 555 $ 101
The accompanying notes are an integral part of these consolidated financial statements. 6 SLADE'S FERRY BANCORP. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) March 31, 2005 Note A - Basis of Presentation - ------------------------------ The accompanying unaudited 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, 2005 are not necessarily indicative of the results that may be expected for the year ending December 31, 2005. The year-end consolidated financial data was derived from audited financial statements, but does not include all disclosures required by GAAP. This form 10-Q should be read in conjunction with the Company's Annual Report filed on Form 10-K for the year ended December 31, 2004. 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, 2004. 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 Securities Corporation II and Slade's Ferry Loan Company. Slade's Ferry Loan Company is currently in the process of dissolution. All significant intercompany balances have been eliminated. Slade's Ferry Statutory Trust I, a subsidiary of the Company, was formed to sell capital securities to the public through a third party trust pool. In accordance with Financial Accounting Standards Board ("FASB") Interpretation No. 46R, "Consolidation of Variable Interest Entities" ("FIN 46R"), the subsidiary has not been included in the consolidated financial statements. Note C - Stock Based Compensation - --------------------------------- The Company has a stock-based employee compensation plan. The Company accounts for the plan under the recognition and measurement principles of Accounting Principle Board ("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. 7 The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of Statement of Financial Accounting Standards ("SFAS") Statement No. 123, "Accounting for Stock-Based Compensation," to stock-based employee compensation.
Three Months Ended March 31, (Dollars in Thousands, except per share data) 2005 2004 - --------------------------------------------- ------ ---- Net income, as reported $1,065 $ 646 Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects - - ------ ----- Pro forma net income $1,065 $ 646 ====== ===== Earnings per share: Basic - as reported $ 0.26 $0.16 Basic - pro forma $ 0.26 $0.16 Diluted - as reported $ 0.26 $0.16 Diluted - pro forma $ 0.26 $0.16
Note D - Pension Benefits - ------------------------- The following summarizes the net periodic benefit cost for the three months ended March 31:
(Dollars in Thousands) 2005 2004 - ---------------------- ---- ---- Service cost $ 1 $ 3 Interest cost 26 25 Expected return on plan assets (41) (11) Amortization of transition obligation 2 2 Prior service cost recognized 1 1 Recognized net actuarial (gain) loss 21 (56) ---- ---- Net periodic benefit cost (income) $ 10 $(36) ==== ====
The Company previously disclosed in its consolidated financial statements for the year ended December 31, 2004 that it expects to make no contributions to the plan in 2005. Note E - Impact of New Accounting Standards - ------------------------------------------- In December 2004, the FASB issued SFAS No. 123 (revised 2004), "Share-Based Payment" ("SFAS 123R"). This Statement revises FASB Statement No. 123, "Accounting for Stock-Based Compensation" and supersedes APB Opinion No. 25, "Accounting for Stock Issued to Employees," and its related implementation guidance. SFAS 123R requires that the cost resulting from all share-based payment transactions be recognized in the financial statements. It establishes fair value as the measurement objective in accounting for share- based payment arrangements and requires all entities to apply a fair-value based measurement method in accounting for share-based payment transactions with employees except for equity instruments held by employee share ownership plans. This Statement was originally to be effective for the Company as of the beginning of the first interim or annual reporting period that begins after June 15, 2005. On April 14, 2005, the Securities and Exchange Commission adopted a rule which allows companies to adopt SFAS 123R at the beginning of their next fiscal year. Accordingly, the Company will adopt SFAS 123R effective January 1, 2006. The Company does not believe the adoption of this Statement will have a material impact on the Company's financial position or results of operations. 8 ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Slade's Ferry Bancorp, a Massachusetts corporation, is a bank holding company headquartered in Somerset, Massachusetts with consolidated assets of $555.8 million, consolidated net loans and leases of $379.5 million, consolidated deposits of $385.5 million and consolidated shareholders' equity of $47.7 million as of March 31, 2005. We conduct our business principally through our wholly-owned subsidiary, Slade's Ferry Trust Company (referred to herein as the "Bank"), a Massachusetts-chartered trust company. Our common stock is quoted on the Nasdaq Small Cap Market under the symbol "SFBC." 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. Such statements may be identified by words such as "believes," "will," "expects," "project," "may," "could," "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. As used throughout this report, the terms "we," "our," "us," or the "Company" refer to Slade's Ferry Bancorp and its consolidated subsidiaries. 9 Critical Accounting Policies - ---------------------------- Our significant accounting policies are incorporated by reference from Note 2 to our Consolidated Financial Statements filed within Form 10-K for the year ended December 31, 2004. In preparing financial information, management is required to make significant judgements, estimates, and assumptions that impact the reported amounts of certain assets, liabilities, revenues and expenses. The accounting principles we follow and the methods of applying these principles conform to accounting principles generally accepted in the United States, and general banking practices. We consider the following to be our critical accounting policies: allowance for loan losses; goodwill and other intangible assets other than temporary impairment of investments; and deferred taxes. Allowance for loan losses. The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to earnings. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. The allowance for loan losses is evaluated on a regular basis by management and is based upon our periodic review of the collectibility of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower's ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available. Other than temporary impairment. We record a writedown impairment charge when we believe an investment experiences a decrease in value that is other than temporary. In making a decision whether an investment is permanently impaired, we review current and forecasted information about the underlying investment that is available, applicable industry data, and analyst reports. When an investment is deemed to be permanently impaired, it is written down to current fair market value. Future adverse changes in economic and market conditions, deterioration in credit quality, and continued poor financial results of underlying investments or other factors could result in further losses that may not be reflected in an investment's current book value that could result in future writedown charges due to impairment. Deferred tax estimates. We use the asset and liability method for accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax attributable to differences between the financial statement carrying amounts of assets and liabilities and their respective tax basis. We also assess the probability that deferred tax assets will be recovered from future taxable income, and establish a valuation allowance for any assets determined not likely to be recovered. Our management exercises judgement in evaluating the amount and timing of recognition of the resulting deferred tax assets and liabilities, including projections of future taxable income. These judgements are estimates and assumptions and are reviewed on a continuing basis. Comparison of Financial Condition at March 31, 2005 and December 31, 2004 - ------------------------------------------------------------------------- General - ------- Total assets increased by $6.0 million, or 1.1%, from $549.8 million at December 31, 2004 to $555.8 million at March 31, 2005. The increase is the result of growth in the loan portfolio, which increased by $17.2 million or 4.7%, from $362.3 million (net of allowance for loan losses) to $379.5 million. The increase in loans was partially offset by decreases in cash equivalents totaling $7.6 million and decreases in securities portfolios totaling $3.8 million. During the first quarter of 2005, deposits decreased by $14.4 million, or 3.6%, from $399.9 million to $385.5 million. This decrease is predominantly the result of planned run-off of certificate 10 of deposit "specials" which matured in January of 2005. The decrease in deposits was offset by an increase in Federal Home Loan Bank advances totaling $19.9 million. Cash and Cash Equivalents - ------------------------- Cash and cash equivalents decreased by $7.6 million, from $35.2 million reported at year-end 2004 to $27.6 million at March 31, 2005. The decrease partially funded the run-off of special-rate certificates of deposit that matured in January 2005. Investment Portfolio - -------------------- Total investments, excluding Federal Home Loan Bank stock, decreased by $4.8 million from $121.7 million reported at December 31, 2004 to $116.9 million at March 31, 2005. The decrease in investments, coupled with the decrease in federal funds sold, partially funded the planned run-off of premium-rate certificates of deposit that matured in January 2005. We chose not to offer a premium-rate certificate in January 2005. Contingent upon our funding needs, additional premium-rate certificates may be offered in the future. 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 our overall asset/liability management objectives. We do not purchase free standing derivative instruments, such as swaps, options or futures. We utilize both a "held-to-maturity" portfolio and an "available-for-sale" portfolio, as defined in Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities", to manage investments. Our investment policy requires Board approval before a trading account can be established. The held-to-maturity portfolio was originally established for holding high-yielding municipal securities. During 2004, certain mortgage-backed securities designated as collateral for FHLB advances were also designated as held-to-maturity. Management has the ability and intent to hold these securities to their contractual maturity. We primarily utilize U.S. Government agency securities and agency-insured mortgage-backed securities as investment vehicles. High-quality corporate bonds and municipal securities are purchased when an exceptional opportunity to enhance investment yields arises. Purchases of these investments are limited to securities that carry a rating of "Baa1" (Moody's) or "BBB+" (Standard and Poor's), in order to control credit risk within the investment portfolio. Among other investment criteria, it is management's goal to maintain a total portfolio duration of less than five years. At March 31, 2005, the portfolio duration was estimated at 2.65 years. The following table presents the amortized cost, unrealized gains and losses, and fair value of our portfolio of Investment Securities Held-to- Maturity at March 31, 2005:
Amortized Gross Unrealized Gross Unrealized (Dollars in Thousands) Cost Basis Gains Losses Fair Value - ---------------------- ---------- ---------------- ---------------- ---------- Debt securities issued by states of the United States and political subdivisions of the states $ 8,251 $222 $ 6 $ 8,467 Federal agency mortgage-backed securities 27,713 - 297 27,416 ------- ---- ---- ------- Total $35,964 $222 $303 $35,883 ======= ==== ==== =======
Securities in the Available-for-Sale portfolio are securities that we intend 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 gain or loss, net of taxes, for the Available-for-Sale securities is reflected in stockholders' equity. 11 The Available-for-Sale portfolio consists primarily of Federal agency obligations, agency-insured mortgage-backed securities, and high-quality corporate bonds. We also have a portfolio of common and preferred marketable equity securities. The equity securities carry a greater level of risk as they are subject to market fluctuations. These securities are constantly monitored and evaluated to determine their suitability for sale, retention in the portfolio, or possible write-downs due to impairment issues. We minimize risk by limiting the total amount invested in marketable equity securities. At March 31, 2005, the amount invested in marketable equity securities was 4.4% of the total market value of the investment portfolio distributed over various industry sectors. The following table presents the amortized cost, unrealized gains and losses, and fair value of our portfolio of Investment Securities Available- for-Sale at March 31, 2005:
Amortized Gross Unrealized Gross Unrealized (Dollars in Thousands) Cost Basis Gains Losses Fair Value - ------------------------------------------------------------------------------------------------------------ Debt securities issued by the U.S. Treasury and other U.S. Government corporations and agencies $41,423 $ 5 $ 651 $40,777 Federal agency mortgage-backed securities 26,385 238 153 26,470 Corporate debt securities 9,089 29 231 8,887 Mutual funds 1,215 1 - 1,216 Marketable equity securities 3,736 153 343 3,546 ------------------------------------------------------------ Total $81,848 $426 $1,378 $80,896 ============================================================
Loans - ----- The loan portfolio consists of loans originated primarily in our market area. There are no foreign loans outstanding. The interest rates we charge on loans are affected principally by the demand for such loans, the supply of money available for lending purposes and the rates offered by its competitors. Total net loans increased from 65.9% of total assets at December 31, 2004, to 68.3% of total assets at March 31, 2005. The following table shows the amount of loans by category at March 31, 2005 and December 31, 2004.
Percentage (Dollars In Thousands) March 31, 2005 December 31, 2004 Increase/(Decrease) ---------------------------------------------------------- Commercial, financial and agricultural $ 30,113 $ 26,606 13.18% Real estate - construction and land development 22,535 24,240 (7.03) Real estate - residential 101,084 97,496 3.68 Real estate - commercial 205,423 192,822 6.54 Home equity lines of credit 22,556 23,131 (2.49) Consumer 2,393 2,510 (4.66) ------------------------------------------------ Total loans 384,104 366,805 4.72 Allowance for loan losses (4,176) (4,101) 1.83 Unearned income (476) (439) 8.43 ------------------------------------------------ Net loans, carrying amount $379,452 $362,265 4.74% ================================================
12 The increases in the loan portfolio are the result of the normal origination process. We have been successful in both retention of existing loans and the origination of new loans, particularly commercial and commercial real estate loans. The following table presents information with respect to nonaccrual and past due loans during the periods indicated. Information With Respect to Nonaccrual and Past Due Loans at March 31, 2005 and December 31, 2004
At March 31, At December 31, (Dollars in Thousands) 2005 2004 - ---------------------- ------------ --------------- Non-accrual loans $ 484 $ 506 Interest income that would have been recorded during the period under original terms 8 67 Interest income recorded during the period 8 44 Loans 90 days or more past due and still accruing real estate acquired by foreclosure or substantively repossessed - - Percentage of nonaccrual loans to total gross loans 0.13% .013% Percentage of nonaccrual loans, restructured loans, and real estate acquired by foreclosure or substantively repossessed to total assets 0.09% 0.13% Percentage of allowance for loan losses to nonaccrual loans 862.81% 810.47%
The $484,000 in non-accrual loans as of March 31, 2005 consists mainly of $379,000 of real estate mortgages and $106,000 attributed to commercial loans. There were no restructured loans included in nonaccrual loans for the first three months of 2005. We stop accruing interest on a loan once it becomes past due 90 days 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 only when payments are received and the loan is no longer past due. Loans in the nonaccrual category will remain in that category until the possibility of collection no longer exists, the loan is paid off, or the loan 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" ("SFAS No. 114") 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 the lower of cost or fair value. SFAS No. 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 market value of the collateral if the loan is collateral dependent. Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, we do not separately identify individual consumer and residential loans for impairment disclosures. A loan is considered impaired when, based on current information and events, it is probable that we will be unable to collect the scheduled payments of principle or interest when due according to the contractual terms of the loan agreement. 13 At March 31, 2005 there were $64,300 of loans which we have determined to be impaired, with a related allowance for credit losses of $3,200. Analysis of Allowance for Loan Losses The table below illustrates the changes in the Allowance for Loan Losses for the periods indicated.
Three Months Ended March 31, ----------------- (Dollars in Thousands) 2005 2004 ------ ------ Balance at beginning of period $4,101 $4,154 Charge-offs: Commercial - - Real estate - construction - - Real estate - mortgage - - Installment/Consumer - (4) ----------------- Total charge-offs - (4) ----------------- Recoveries: Commercial 8 21 Real estate - construction - - Real estate - mortgage 16 24 Installment/Consumer 1 4 ----------------- Total recoveries 25 49 ----------------- Net charge-offs 25 45 Provision charged to operations 50 246 ----------------- Balance at end of period $4,176 $4,445 ================= Allowance for Loan Losses as a percent of loans 1.09% 1.26% ================= Ratio of net recoveries (charge-offs) to average loans outstanding 0.12% 0.00% =================
We maintain an allowance for possible losses that are inherent in the loan portfolio. The allowance for loan losses is increased by provisions charged to operations based on the estimated loan loss exposure inherent in the portfolio. Management uses a methodology to systematically measure the amount of estimated loan loss exposure inherent in the portfolio for purposes of establishing a sufficient allowance for loan losses. The methodology includes three elements: an analysis of individual loans deemed to be impaired in accordance with the terms of Statement of Financial Accounting Standard No. 114, "Accounting by Creditors for Impairment of a Loan", general loss allocations for various loan types based on loss experience factors and other qualitative factors, and an unallocated allowance which is maintained based on management's assessment of many factors including the risk characteristics of the portfolio, concentrations of credit, economic conditions that may effect borrowers' ability to pay, and trends in loan delinquencies and charge-offs. Realized losses, net of recoveries, are charged directly to the allowance. While management uses the currently available information in establishing the allowance for loan losses, adjustments to the allowance may be necessary if 14 future economic conditions differ from the assumptions used in making the evaluation. In addition, various regulatory agencies, as an integral part of their examination process, periodically review our allowance for loan losses. During 2004 and going forward, we have placed increased emphasis on the origination of residential real estate loans. Accordingly, as the composition of the loan portfolio gradually changes and diversifies from higher credit risk weighted loans, such as commercial real estate and commercial, financial and agricultural, to residential and home equity loans, a lower overall reserve allowance rate will be required. We also continued to take positive steps in reducing the overall level of risk in the loan portfolio by further enhancing and strengthening our underwriting guidelines, and by selling impaired real estate loans totaling $8.4 million in August 2004. We realized a gain of $198,000 on this sale. As a result, the allowance for loan losses remained relatively constant, increasing from $4,101,000, or 1.11% of total gross loans at December 31, 2004 to $4,176,000, or 1.09% of total gross loans at March 31, 2005. After thorough review and analysis of the adequacy of the loan loss allowance, we recorded a provision for loan losses of $50,000 for the three months ended March 31,2005, compared to a provision of $246,000 recorded for the three months ended March 31, 2004. The decreased provision is primarily the result of the enhanced credit quality achieved with the actions taken in 2004. Loans charged off were $0 in the three months ended March 31, 2005 compared with $4,000 for the three months ended March 31, 2004. We realized recoveries of previously charged-off loans totaling $25,000 for the three months ended March 31, 2005 compared with recoveries totaling $49,000 for the three months ended March 31, 2004. Management believes that the Allowance for Loan Losses of $4,176,000 at March 31, 2005 is adequate to cover potential losses in the loan portfolio, based on current information available to management. This table shows an allocation of the allowance for loan losses as of the end of each of the periods indicated.
March 31, 2005 December 31, 2004 ----------------------------- ----------------------------- Percent of Loans Percent of Loans in Each Category in Each Category (Dollars in Thousands) Amount to Total Loans Amount to Total Loans - ---------------------- ------ ---------------- ------ ---------------- Commercial (4) $ 491(1) 7.84% $ 743(1) 7.26% Real estate Construction 211 5.87% 236 6.62% Real estate - residential 430 32.19% 421 32.87% Real estate - commercial 2,994 53.48% 2,568 52.57% Consumer (2) 50(3) 0.62% 133(3) 0.68% ------ ------ ------ ------ $4,176 100.00% $4,101 100.00% ====== ====== ====== ====== - -------------------- Includes amounts specifically reserved for impaired loans of $0 at March 31, 2005, and $270,722 at December 31, 2004 as required by Financial Accounting Standard No. 114, "Accounting for Impairment of Loans." Includes consumer and other loans. Includes amounts specifically reserved for impaired loans of $0 at March 31, 2005 and $76,194 at December 31, 2004 as required by Financial Accounting Standard No. 114, "Accounting for Impairment of Loans." Includes commercial, financial, agricultural and nonprofit loans.
Commercial real estate loans represent 41.2% of gross loans. Residential real estate, including home equity loans, represents 45.7% of gross loans. We require 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. Home equity loans are generally revolving lines of credit and are typically secured by second mortgages on one-to-four family owner-occupied properties. 15 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, we evaluate the financial condition of the borrower(s), the location of the real estate, the quality of management, and general economic and competitive conditions. When granting a residential mortgage, we review the borrower's repayment history on past debts, and assess 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. Commercial loans consist of loans predominantly collateralized by inventory, furniture and fixtures, and accounts receivable. In assessing the collateral for this type of loan, we apply 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 9.4% of the loan portfolio as of March 31, 2005. Consumer loans are both secured and unsecured borrowings and, at March 31, 2005 and 2004, represents only 1.2% of our total loan portfolio. These loans have a higher degree of risk than residential mortgage loans. The underlying collateral of a secured consumer loan tends to depreciate in value. Consumer loans are typically made based on the borrower's ability to repay the loan through continued financial stability. We endeavor 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. Deposits - -------- Total deposits at March 31, 2005 were $385.5 million, a decrease of $14.4 million, or 3.6%, when compared to total deposits of $399.9 million at December 31, 2004. The following table presents deposits by category for various deposit types at March 31, 2005 and December 31, 2004.
Percentage (Dollars in Thousands) March 31, 2005 December 31,2004 Increase/(Decrease) --------------------------------------------------------- Demand deposits $ 76,602 $ 80,232 (4.52)% NOW 44,955 42,881 4.84% Savings 93,356 89,809 3.95% Money market 37,167 38,518 (3.51)% Certificates of deposit 133,458 148,465 (10.11)% -------- -------- ------ $385,538 $399,905 (3.59)% ======== ======== ======
We had approximately $30 million in premium-rate certificates of deposit that matured in January 2005. We elected not to price the renewals at a premium; consequently, approximately $15 million of these certificates ran off. The increase in savings deposits is primarily the result of the increased promotion of the Coastal Savings account, which pays a market- based interest rate, designed to fill the needs of high-balance customers. Federal Home Loan Bank Advances - ------------------------------- Advances from the Federal Home Loan Bank totaled $110.2 million at March 31, 2005, as compared to $90.3 million at December 31, 2004, an increase of $19.9 million or 22.0%. These incremental borrowings funded the growth in the loan portfolio as internal liquidity funded the certificate of deposit run-off. There was no change in the balance of our subordinated debentures or underlying trust preferred securities. 16 Comparison of Results of Operations at March 31, 2005 and 2004 - -------------------------------------------------------------- General - ------- Net income increased from $646,000 or $0.16 per share, basic and diluted, for the three months ended March 31, 2004 to $1.1 million or $0.26 per share, basic and diluted, for the three months ended March 31, 2005, an increase in net income of 64.9%. Net interest income increased by $704,000 or 18.8%, from $3.7 million to $4.5 million when comparing the three months ended March 31, 2005 and 2004. This increase is primarily the result of our asset growth during 2004, and the deployment of deposit funds garnered in early 2004 into loans and investment securities. Over the same period, the provision for loan losses decreased from $246,000 to $50,000 primarily the result of enhanced loan quality. Non-interest income remained stable, increasing by $4,000 while non-interest expenses increased by $263,000 or 8.5%, from $3.1 million for the three months ended March 31, 2004 to $3.4 million for the three months ended March 31, 2005. Interest Income - --------------- Our operating performance is dependent on net interest and dividend income, 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 is significantly impacted by several factors such as economic conditions, interest rates, asset/liability management, and strategic planning. Total interest and dividend income increased by $1.2 million or 21.5%, from $5.5 million for the three months ended March 31, 2004 to $6.6 million for the three months ended March 31, 2005. This increase is the result of increases in the levels of both loans and investment securities. Interest on loans increased from $4.9 million for the three months ended March 31, 2004 to $5.3 million for the three months ended March 31, 2005, an increase of 7.6%. During the same time, interest and dividends on investment securities increased by $792,000, from $529,000 to $1.3 million. All other interest increased by $11,000. The yield on earning assets decreased from 5.78% for the three months ended March 31, 2004 to 5.71% for the three months ended March 31, 2005, due principally to commercial and commercial real estate loans that were originated in mid-2004 at low interest rates, in an effort to gain additional market share. Interest Expense - ---------------- Total interest expense increased by $473,000, from $1.7 million for the three months ended March 31, 2004 to $2.2 million for the three months ended March 31, 2005. This increase was due to additional interest on FHLB borrowings and interest expense associated with subordinated debentures entered into during March of 2004. The net interest margin increased by four basis points from 3.48% for the three months ended March 31, 2004 to 3.52% for the three months ended March 31, 2005. 17 The following table sets forth our average assets, liabilities, and stockholders' equity, interest income earned and interest paid, average rates earned and paid, net interest spread and the net interest margin for the three months ended March 31, 2005, and 2004. Average balances reported are daily averages.
Three Months Ended March 31, 2005 2004 ------------------------------------ ------------------------------------ Average Interest Average Average Interest Average (Dollars in Thousands) Balance Income/Expense Rate Balance Income/Expense Rate - ------------------------------------------------------------------------------------------------------------------------ Assets: Interest-earning assets Commercial loans $ 28,506 $ 417 5.93% $ 33,149 $ 416 5.05% Commercial real estate 214,475 3,138 5.93% 196,883 3,049 6.23% Residential real estate 128,848 1,678 5.28% 109,317 1,372 5.05% Consumer loans 2,397 33 5.58% 3,934 55 5.62% -------------------------------------------------------------------------- Total loans 374,226 5,266 5.71% 343,283 4,892 5.73% Federal funds sold 12,157 65 2.17% 30,985 58 0.74% Taxable debt securities 106,754 1,135 4.31% 41,923 382 3.67% Tax-exempt debt securities 8,472 91 4.36% 10,478 111 4.26% Marketable equity securities 4,949 46 3.77% 3,593 21 2.35% FHLB stock 5,060 50 4.01% 3,024 15 2.00% Other investments 766 4 2.12% 195 1 2.06% -------------------------------------------------------------------------- Total interest-earning assets 512,384 6,657 5.27% 433,481 5,480 5.08% Allowance for loan losses (4,176) (4,304) Unearned income (387) (388) Cash and due from banks 16,537 19,632 Other assets 27,256 23,655 -------- -------- Total assets $551,614 $472,076 ======== ======== Liabilities & Stockholders' equity: Savings accounts $ 89,722 $ 205 0.93% $ 77,282 $ 147 0.77% NOW accounts 47,316 81 0.69% 37,522 65 0.70% Money market accounts 41,187 119 1.17% 31,290 118 1.52% Time deposits 138,238 754 2.21% 146,634 792 2.17% FHLB advances 98,738 911 3.74% 58,746 595 4.07% Subordinated debt 10,310 136 5.35% 1,586 16 4.06% -------------------------------------------------------------------------- Total interest-bearing liabilities 425,511 2,206 2.10% 353,060 1,733 1.97% Demand deposits 77,285 73,525 Other liabilities 2,376 1,679 -------- -------- Total liabilities 505,172 428,264 Stockholders' equity 46,442 43,812 -------- -------- Total liabilities & stockholders' equity $551,614 $472,076 ======== ======== Net interest income $4,451 $3,747 ====== ====== Net interest spread 3.17% 3.11% Net interest margin 3.52% 3.48%
18 The following table presents the changes in components of net interest income for the three months ending March 31, 2005 and 2004, which are the result of changes in interest rates and the changes that are the result of changes in volume of the underlying asset or liability. Changes that are attributable to changes in both rate and volume have been allocated equally to rate and volume. Net Interest Income - Changes Due to Volume and Rate
Three Months ended March 31, 2005 vs. 2004 Increase / (Decrease) Total Due to Due to (Dollars in Thousands) Change Volume Rate - ---------------------- ---------------------------- Commercial loans $ 1 $ (63) $ 64 Commercial real estate 89 265 (176) Residential real estate 306 251 55 Consumer loans (22) (21) (1) Federal funds sold 8 (68) 76 Taxable debt securities 752 637 115 Tax-exempt securities (20) (22) 2 Marketable equity securities 25 10 15 FHLB stock 35 15 20 Other investments 3 3 - --------------------------- Total Interest Income 1,177 1,007 170 --------------------------- Savings accounts 58 25 33 NOW accounts 16 17 (1) Money market accounts 1 32 (31) Time deposits (38) (49) 11 FHLB advances 316 383 (67) Subordinated debt 120 101 19 --------------------------- Total Interest Expense 473 509 (36) --------------------------- Net Interest Income $ 704 $ 499 $ 205 ===========================
Provision for Loan Losses - ------------------------- The provision for loan losses is a charge against earnings that increases the allowance for loan losses. The allowance for loan losses is maintained at a level that is deemed adequate to absorb losses inherent 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. The allowance for loan losses is assessed on a monthly basis. A provision was made during the first quarter of 2005 and 2004 to adequately absorb any credit risk in the portfolio. The provision during the three months ended March 31, 2005 was $50,000, compared to $246,000 for the three months ended March 31, 2004. We reduced the level of the provision because of a higher level of 19 residential real estate loan originations, which require a lower overall provision level, and because of the overall enhancement in credit quality achieved through tighter underwriting standards, the previously-mentioned sales of loans and a 96% reduction in the level of impaired loans from $1.7 million at March 31, 2004 to $64,300 at March 31, 2005. Non-Interest Income - ------------------- Total non-interest income remained relatively stable, increasing by $5,000 or 0.9% from $564,000 for the three months ended March 31, 2004 to $569,000 for the three months ending March 31, 2005. Service charges on deposit accounts decreased from $145,000 for the three months ended March 31, 2004 to $98,000 for the three months ended March 31, 2005. This decrease is the result of the proliferation of free checking accounts. In response to competitive pressure, we offered and promoted free checking accounts and realized a significant shift of accounts into this product, resulting in the decrease in fee income. We also realized a decrease in overdraft fees of $13,000 when comparing the two quarters. In March, we realized a $40,000 gain on the sale of a building that formerly housed a branch office. This gain was partially offset by a reduction in the levels of gains realized on sales of available-for-sale securities totaling $33,000. The gains realized during the three months ended March 31, 2005 and 2004 were the result of sales of marketable equity securities. Cash surrender values of bank-owned life insurance policies increased to $147,000 for the three months ended March 31, 2005, compared with $138,000 for the three months ended March 31, 2004. Non-Interest Expense - -------------------- Other income increased from $122,000 for the three months ended March 31, 2004 to $172,000 for the three months ended March 31, 2005, an increase of 41.0%. This increase is the result of increased ATM and debit card use, and increases in commissions realized from the sales of non-deposit investment products. Total non-interest expense increased from $3.1 million recorded for the three months ended March 31, 2004, to $3.4 million reported for the three months ended March 31, 2005, an increase of 8.5%. Salaries and employee benefits increased by $65,000, or 3.3%, from $1.9 million for the three months ended March 31, 2004, to $2.0 million for the three months ended March 31, 2005. The increase was attributable to general salary increases due to annual performance reviews, and annual bonuses. Occupancy expense totaled $239,000 for the three months ended March 31, 2005, compared to $231,000 for the three months ended March 31, 2004. Cost savings realized from closing branches in 2004 have been offset by costs associated with opening the new Assonet Branch in March 2005. Equipment expenses increased over the same period from $147,000 to $170,000, or 15.6% because of management's initiative to modernize the teller and platform systems. We believe that the investment in equipment and software will ultimately result in more efficient customer service and savings in personnel costs. The expenses for stationary and supplies increased by $24,000, from $44,000 for the three months ended March 31, 2004 to $68,000 for the three months ended March 31, 2005. The increase was the result of purchases of supplies required for the teller and platform automation equipment. Professional fees increased from $227,000 for the three months ended March 31, 2004 to $307,000 for the three months ended March 31, 2005, an increase of 35.2%. The increase is the result of increased accounting and consulting costs associated with complying with the provisions of section 404 of the Sarbanes-Oxley Act of 2002. We anticipate that professional fees will continue to increase throughout 2005, in order to bring the Company into compliance with The Sarbanes-Oxley Act. Additionally, legal collection costs increased by $17,000. Costs associated with marketing consultants have also increased. 20 Marketing expenses attributed to production and media costs, print advertising, and other direct marketing increased by $42,000, or 73.6%, to $99,000 for the three months ended March 31, 2005, from $57,000 for the same period in 2004. As we continue to launch new deposit products and services, such as the Coastal Savings account and bank at work program, we expect marketing costs to rise. Other expenses increased by $45,000 from $480,000 for the three months ended March 31, 2004 to $525,000 for the three months ended March 31, 2005, an increase of 9.3%. This increase is primarily attributable to increased purchases of stationery and supplies related to the conversion of teller and platform computer systems throughout the Bank. The conversion required an initial purchase of supplies needed to support the hardware installed in the conversion. The new systems are designed to make both the account opening process and transaction processing more efficient. We believe that the efficiencies created by converting these systems will ultimately lead to improved customer service and lower operating costs. Income before taxes increased from $954,000 for the three months ended March 31, 2004, to $1.6 million for the three months ended March 31, 2005, an increase of $643,000, or 67.4%. Applicable income taxes totaled $532,000 for the three months ended March 31, 2005, reflecting an effective tax rate of 33.3%, compared to income taxes of $308,000 for the three months ended March 31, 2004, reflecting an effective tax rate of 32.4%. Liquidity - --------- Our principal sources of funds are customer deposits, amortization and payoff of existing loan principal, and sales or maturities of various investment securities. The Bank is a voluntary member of the Federal Home Loan Bank of Boston (the "FHLB") and as such, may take advantage of the FHLB's borrowing programs to enhance liquidity and leverage its favorable capital position. We may also draw on lines of credit at the FHLB or the Federal Reserve Board (the "FRB"), and enter into repurchase or reverse repurchase agreements with authorized brokers. These various sources of liquidity are used to fund withdrawals, new loans, and investments. We seek to promote deposit growth while controlling cost of funds. Sales- oriented programs to attract new depositors and the cross-selling of various products to its existing customer base are currently in place. Management reviews, on an ongoing basis, possible new products, with particular attention to products and services, which will aid in retaining our base of lower-costing deposits. Maturities and sales of investment securities provide us with significant liquidity. Our policy of purchasing shorter-term debt securities reduces market risk in the bond portfolio while providing significant cash flow. For the three months ended March 31, 2005, cash flow from maturities of securities was $3.4 million, proceeds from sales of securities totaled $0.9 million, compared to maturities of securities of $6.9 million, and proceeds from sales of securities of $0 for the three months ended March 31, 2004. Purchases of securities for the three months ended March 31, 2005 totaled $0.8 million as compared to $0.9 million at March 31, 2004. Amortization and pay-offs of the loan portfolio also provide us with significant liquidity. Traditionally, amortization and pay-offs are reinvested into loans. Excess liquidity is invested in federal funds sold and overnight investments at the FHLB. We have also used borrowed funds as a source of liquidity. At March 31, 2005, the Bank's outstanding borrowings from the FHLB were $110.2 million. We have the capacity to borrow in excess of $54 million additional at the FHLB. Loan originations for the three months ended March 31, 2005 totaled $29.8 million. Commitments to originate loans at March 31, 2005 were $20.5 million, excluding unadvanced construction funds totaling $9.6 million, 21 unadvanced commercial lines of credit totaling, $14.9 million and unadvanced home equity lines totaling $17.8 million. Management believes that adequate liquidity is available to fund loan commitments utilizing deposits, loan amortization, maturities of securities, or borrowings. Capital - ------- At March 31, 2005, our total stockholders' equity was $47.5 million an increase of $561,000 from $47.0 million. The increase in capital was a combination of several factors. Additions consisted of 2005 net income of $1.1 million, transactions originating through the Dividend Reinvestment Program whereby 613 shares were issued for optional cash contributions of $12,000 and 7,297 shares were issued for $142,447 in lieu of cash dividend payments. There were also stock options exercised resulting in the issuance of common stock totaling $196,000, including a tax benefit. These additions were offset by dividends declared of $368,000 and comprehensive loss of $541,000. 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. In addition to meeting the required levels, Slade's Ferry Bancorp's and the Bank's capital ratios meet the criteria of the well-capitalized category established by the federal banking agencies as of March 31, 2005 and at December 31, 2004. The Tier I Capital leverage ratio and Tier I Capital to risk weighted assets ratio for Slade's Ferry Bancorp are 8.44% and 11.99%, respectively, for the three months ended March 31, 2005. Slade's Ferry Bancorp's Tier I Capital leverage ratio and Tier I Capital to risk weighted assets ratio for the year ended December 31, 2004 are 10.29% and 14.82%, respectively. The Tier I Capital leverage ratio and Tier I Capital to risk weighted assets ratio for Slade's Ferry Trust Company are 8.74% and 12.49%, respectively, for the three months ended March 31, 2005. Slade's Ferry Trust Company's Tier I Capital leverage ratio and Tier I Capital to risk weighted assets ratio for the year ended December 31, 2004 are 8.75% and 12.67%, respectively. Off-Balance Sheet Arrangements - ------------------------------ We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors. 22 ITEM 3 QUANITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We consider interest rate risk to be a significant market risk as it could potentially have an effect on our financial condition and results of operation. The definition of interest rate risk is the exposure of our earnings to adverse movements in interest rates, arising from the differences in the timing of repricing of assets and liabilities; the differences in the various pricing indices inherent in our assets and liabilities; and the effects of overt and embedded options in our assets and liabilities. Our Asset/Liability Committee, comprised of the executive management, is responsible for managing and monitoring interest rate risk, and reviewing with the Board of Directors, at least quarterly, the interest rate risk positions, the impact changes in interest rates would have on net interest income, and the maintenance of interest rate risk exposure within approved guidelines. The potentially volatile nature of market interest rates requires us to manage interest rate risk on an active and dynamic basis. Our objective is to reduce and control the volatility of its net interest income to within tolerance levels established by the Board of Directors, by managing the relationship of interest-earning assets and interest-bearing liabilities. In order to manage this relationship, the Asset/Liability Committee utilizes an income simulation model to measure the net interest income at risk under differing interest rate scenarios. Additionally, the Committee uses Economic Value of Equity ("EVE") analysis to measure the effects of changing interest rates on the market values of rate-sensitive assets and liabilities, taken as a whole. The Board of Directors and management believe that static measures of timing differences, such as "gap analysis", do not accurately assess the levels of interest rate risk inherent in our balance sheet. Gap analysis does not reflect the effects of overt and embedded options on net interest income, given a shift in interest rates, nor does it take into account basis risk, the risk arising from using various different indices on which to base pricing decisions. The income simulation model currently utilizes a 300 basis point increase in interest rates and a 150 basis point decrease in rates. Due to the existing low interest rate environment in effect with the average Federal Funds overnight trading at approximately 2.75% at March 31, 2005, the simulation model only reduces rates downward by 150 basis points. The interest rate movements used assume an instant and parallel change in interest rates and no implementation of any strategic plans are made in response to the change in rates. Prepayment speeds for loans are based on median dealer forecasts for each interest rate scenario. Our Board of Directors has established a risk limit of a 5.00% change in net interest income for each 100 number basis point shift in market interest rates. The limit established by the Board provides an internal tolerance level to control interest rate risk. We are within our policy-mandated risk limit for net interest income at risk. 23 The following table reflects our estimated exposure as a percentage of net interest income and the dollar impact for the next twelve months, assuming an immediate change in interest rates set forth below:
Estimated Exposure as a Percentage Rate Change of Net Interest Income (Basis Points) March 31, 2005 ------------------------------------------------------ +300 (6.04%) -150 0.26%
Additionally we use the model to estimate the effects of changes in interest rates on our EVE. EVE represents our theoretical market value, given the rate shocks applied in the model. The Board of Directors has established a risk limit for EVE which provides that the EVE will not fall below 6.00%, the FDIC's minimum capital level to be classified as "well capitalized". We are within our risk limit for EVE. The following table presents the changes in EVE given rate shocks.
Rate Change Estimated Exposure as a Percentage of Change from (Basis Points) Net Interest Income Flat Rates ------------------------------------------------------------------------ FLAT 14.00% N/A +300 12.30% (1.70%) -150 13.28% (0.72%)
24 ITEM 4 CONTROLS AND PROCEDURES As required by Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the Company's management conducted an evaluation with the participation of the Company's Chief Executive Officer and Chief Financial Officer, regarding the effectiveness of the Company's disclosure controls and procedures, as of the end of the last fiscal quarter. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as of March 31, 2005 to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms and (ii) accumulated and communicated to the Company's management, including its principal executive and financial officers, as appropriate to allow timely decisions regarding required disclosure. We intend to continue to review and document our disclosure controls and procedures, including our internal controls and procedures for financial reporting, and we may from time to time make changes to the disclosure controls and procedures to enhance their effectiveness and to ensure that our systems evolve with our business. In designing and evaluating the Company's disclosure controls and procedures, the Company and its management recognize that any controls and procedures, no matter how well designed and operated, can provide only a reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating and implementing possible controls and procedures. There has been no change in the Company's internal control over financial reporting identified in connection with the evaluation that occurred during the Company's last fiscal quarter that has materially affected, or that is reasonably likely to materially affect, the Company's internal control over financial reporting. 25 PART II OTHER INFORMATION ITEM 1 LEGAL PROCEEDINGS None. ITEM 2 UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS During the three months ended March 31, 2005, the Company did not repurchase any of its common stock. The Company currently does not have a stock repurchase program in place. ITEM 3 DEFAULTS UPON SENIOR SECURITIES None. ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 5 OTHER INFORMATION Amendment to Bylaws On May 11, 2005, our Board of Directors voted to amend Section 8 of Article III of our Bylaws to provide that honorary directors are appointed for one- year terms with review and consideration of one-year renewals. Previously, the Bylaws provided that honorary directors were appointed for life subject to removal by the Board. Change of Control Agreements Effective May 11, 2005, Slade's Ferry Bancorp and Slade's Ferry Trust Company jointly entered into Change of Control Agreements with employees Anthony L. Weatherford and Anna Demetrius Iatridis. Generally, the agreements provides that the Bank may terminate the employment of any employee covered by the agreement, with or without cause, at any time prior to a "change of control" or "pending change of control" (as each such term is defined in the agreement) without obligation for severance benefits. However, upon the occurrence of a "change of control" or "pending change of control", the employee will receive severance benefits if his or her employment is terminated without cause or the employee resigns with good reason. The 26 severance benefits would generally be equal to the value of the cash compensation and fringe benefits that the employee would have received if he or she had continued working for one additional year. The term of the agreement is perpetual until one year after the date on which the Bank notifies the employee of its intention to terminate the agreement (the "Initial Expiration Date") or, if later, the first anniversary of the latest "change of control" or "pending change of control" that occurs before the Initial Expiration Date. ITEM 6 EXHIBITS Exhibits: See exhibit index. 27 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 12, 2005 /s/ Mary Lynn D. Lenz - -------------- ---------------------------------------- (Date) (Signature) Mary Lynn D. Lenz President/Chief Executive Officer May 12, 2005 /s/ Deborah A. McLaughlin - -------------- ---------------------------------------- (Date) (Signature) Deborah A. McLaughlin Chief Operating Officer/ Chief Financial Officer 28 EXHIBIT INDEX Exhibit No. Description Item - ----------- ----------- ---- 3.1 Amended and Restated Articles of Incorporation of Slade's Ferry Bancorp. (1) 3.2 Amended and Restated Bylaws of Slade's Ferry Bancorp. 3.3 Articles of Amendment to the Amended and Restated (2) Articles of Incorporation of Slade's Ferry Bank 10.1 Slade's Ferry Bancorp. 1996 Stock Option Plan, as amended (3) 10.2 Supplemental Executive Retirement Agreement between (4) Slade's Ferry Bancorp. and Manuel J. Tavares 10.3 Form of Director Supplemental Retirement Program Director (5) Agreement, Exhibit 1 thereto (Slade's Ferry Trust Company Director Supplemental Retirement Program Plan) and Endorsement Method Split Dollar Plan Agreement thereunder. 10.4 Form of Directors' Paid-up Insurance Policy (part of the (6) Director Supplemental Retirement Program). 10.5 Supplemental Executive Retirement Agreement between (7) Slade's Ferry Bancorp. and Mary Lynn D. Lenz 10.6 Employment Agreement between Slade's Ferry Bancorp. (8) and Mary Lynn D. Lenz 10.7 Employment Agreement between Slade's Ferry Bancorp. and (9) Deborah A. McLaughlin 10.8 Employment Agreement between Slade's Ferry Bancorp. and (10) Manuel J. Tavares 10.9 Form Change of Control Agreement (11) 10.10 Severance Pay Plan (12) 10.11 Slade's Ferry Bancorp 2004 Equity Incentive Plan (13) 11.1 Statement Regarding Computation of Per Share Earnings 14.1 Code of Ethics (14) 31.1 Rule 13a-14(a)/15d-14(a) Certification of the CEO 31.2 Rule 13a-14(a)/15d-14(a) Certification of the CFO 32.1 Section 1350 Certification of the CEO 32.2 Section 1350 Certification of the CFO - -------------------- 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 8-K filed with the Commission on December 21, 2004. Incorporated by reference to the Registrant's Form 10-Q for the quarter ended June 30, 1999. Incorporated by reference to the Registrant's Form 10-KSB for the fiscal year ended December 31, 1996. Incorporated by reference to Exhibit 10 to the Registrant's Form 10-Q for the quarter ended March 31, 1999. Incorporated by reference to Exhibit 10 to the Registrant's Form 10-QSB for the quarter ended June 30, 1998. Incorporated by reference to Exhibit 10.10 to the Registrant's Form 10-Q for the quarter ended March 31, 2003. 29 Incorporated by reference to Exhibit 10.11 to the Registrant's Form 10-Q for the quarter ended June 30, 2004. Incorporated by reference to Exhibit 10.7 to the Registrant's Form 10-Q for the quarter ended September 30, 2004. Incorporated by reference to Exhibit 10.8 to the Registrant's Form 10-Q for the quarter ended September 30, 2004. Incorporated by reference to the Registrant's Form 8-K filed with the Commission on January 13, 2005. Incorporated by reference to the Registrant's Form 8-K filed with the Commission on January 14, 2005. Incorporated by reference to Appendix C to the Registrant's Proxy Statement filed on April 9, 2004 Incorporated by reference to the Registrant's Form 10-K for the fiscal year ended December 31, 2004. 30 EX-3 2 slad1-x3.txt EXHIBIT 3.2 Exhibit 3.2 SLADE'S FERRY BANCORP. AMENDED AND RESTATED BY-LAWS ARTICLE I --------- Name, Location and Seal ----------------------- The name of this corporation (hereinafter in these Bylaws called the "Corporation" or the "Bancorp") is Slade's Ferry Bancorp or such other name as may hereafter be adopted in accordance with law. The main office of the Bancorp shall be located in Somerset, Massachusetts, subject to change as authorized by law. The seal shall be circular in form with the name of the corporation, its state of incorporation and the year thereof inscribed thereon. ARTICLE II ---------- Stockholders ------------ Section 1. Place. Meetings of the stockholders shall be held at the principal office of the Corporation in Massachusetts or at such other place within or without the Commonwealth, but within the United States, as designated by the Board of Directors. Section 2. Annual Meetings. The annual meeting of stockholders shall be held on such business day within six (6) months after the end of the fiscal year of the Corporation as designated by the Board of Directors, and at such hour as designated by the Board of Directors. The business of such meeting shall include the election of directors and such other business as may properly come before the meeting. Section 3. Special Meetings. Special meetings of stockholders may be called by the President or by a majority of the Board of Directors, and shall be called by the Secretary/Clerk, or in the case of the death, absence, incapacity or refusal of the Secretary/Clerk, by another officer, upon written application of one or more stockholders of record holding not less than forty percent (40%) of the voting capital stock of the Corporation at the time issued and outstanding. Such written application shall state the nature of the business to be conducted at the special meeting. Section 4. Notice. A written notice of the date, place and hour of all meetings of stockholders shall be given by the Clerk/Secretary (or by any other officer who is entitled to call such a meeting) not less than seven (7) nor more than sixty (60) days before the meeting to each stockholder who is entitled to such notice, by leaving such notice with him or at his residence or usual place of business, or by mailing it, postage prepaid, and addressed to such stockholder at his address as it appears in the records of the corporation. Notice of a meeting need not be given to a stockholder if a written waiver of notice, executed before or after the meeting by such stockholder or his attorney thereunto duly authorized, is filed with the records of the meeting. When a meeting is adjourned to another place, date or time, notice need not be given of the new place, date or time if the new place, date and time thereof are announced at the meeting at which the adjournment is taken; provided, however, that if the date of any adjourned meeting is more than thirty (30) days after the date for which the meeting was originally called, or if a new record date is fixed for the adjourned meeting, written notice of the place, date and time of the adjourned meeting shall be given in conformity herewith. At any adjourned meeting, any business may be transacted which might have been transacted at the original meeting. Section 5. Quorum. A majority of the outstanding capital stock of the Corporation entitled to vote thereat, represented in person or by proxy, shall constitute a quorum for the transaction of business at any meeting of stockholders. The act of a majority in interest of those stockholders present at any meeting at which there is a quorum shall be the act of the corporation. The stockholders present at a duly constituted meeting may continue to transact business until adjournment notwithstanding the withdrawal of enough stockholders to leave less than a quorum. If a quorum shall fail to attend any meeting, the Chairman, the President or the holders of a majority of the shares of stock entitled to vote who are present, in person or by proxy, may adjourn any meeting from time to time until a quorum is present. Section 6. Conduct of Meetings. The Chairman of the Board of Directors shall preside at all sessions of all meetings of stockholders. In the absence of the Chairman of the Board of Directors at any session of any meeting, the President shall preside. If neither the Chairman of the Board of Directors nor the President shall be present at any session of any meeting, the stockholders shall choose a stockholder as temporary Chairman and the stockholder so chosen shall preside until said session of the meeting is adjourned. Additional business may be brought before such meeting by the President, by a majority of the Board of Directors or by stockholders of record holding, in total, not less than forty percent (40%) of the capital stock of the Corporation at the time issued and outstanding, by delivering to the Clerk/Secretary, at least thirty (30) days before the date of such meeting, a written agenda of additional business stating the nature of such additional business. At any special meeting of stockholders, only such business shall be conducted as shall have been brought before the meeting by or at the direction of the President, the Board of Directors, or as a result of a written application for a special meeting brought by stockholders in accordance with Article II, Section 3 of these By-Laws. The Chairman, President or other person presiding over the meeting of stockholders shall, if the facts so warrant, determine that business was not properly brought before the meeting in accordance with the provisions of this Section 6 and, if he or she should so determine, he or she shall so declare to the meeting and any such business shall not be transacted. Section 7. Board of Director Nominations. Only persons who are nominated in accordance with the procedures set forth in these By-Laws shall be eligible for election or re-election as Directors. Nominations of persons for election to the Board of Directors of the Corporation may be made only: (i) by or at the direction of the Board of Directors; or (ii) by any stockholder of the Corporation entitled to vote for the election of Directors at the meeting who complies with the notice procedures set forth in this Section 7. Stockholder nominations shall be made by notice in writing to the Clerk/Secretary not less than sixty (60) days in advance of the date of the Corporation's proxy statement which was released to stockholders in connection with the previous year's annual meeting of stockholders. Such stockholder's notice shall set forth: (i) as to each person whom such stockholder proposes to nominate for election or re-election as a Director, all information relating to such person that is required to be disclosed in solicitations of proxies for the election of Directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934 (including such person's written consent to being named in the proxy statement as a nominee and to serving as a Director if elected); and (ii) as to the stockholder giving notice of (x) the name and address, as they appear on the Corporation's books, of such stockholder and (y) the class and number of shares of the Corporation's capital stock that are beneficially owned by such stockholder. At the request of the Board of Directors any person nominated by the Board of Directors for election as a Director shall furnish to the Clerk/Secretary that information required to be set forth in a stockholder's notice which pertains to the nominee. The Chairman, President or other person presiding over the meeting of stockholders shall, if the facts so warrant, determine that a nomination was not made in accordance with the nomination provisions of this Section 7 and, if he or she should so determine, he or she shall so declare to the meeting and the defective nomination shall be disregarded. Nothing contained in this Section 7 shall require proxy materials distributed by the management of the Corporation to include any information with respect to nominations by stockholders. Section 8. Proxies and Voting. Stockholders, at any meeting, shall have one (1) vote for each share of stock held and a proportionate vote for each fractional share. At any meeting of the stockholders, every stockholder entitled to vote may vote in person or by proxy authorized by an instrument in writing or by a transmission permitted by law filed in accordance with the procedure established for the meeting. Proxies shall be in written form and shall be dated not more than six (6) months before the meeting named therein, unless the proxy is coupled with an interest and provides otherwise. Any copy, facsimile telecommunication or other reliable reproduction of the writing or transmission created pursuant to this paragraph may be substituted or used in lieu of the original writing or transmission for any and all purposes for which the original writing or transmission could be used, provided that such copy, facsimile telecommunication or other reproduction shall be a complete reproduction of the entire original writing or transmission. Proxies shall be filed with the Clerk/Secretary at the meeting, or of any adjournment thereof, before being voted. Except as otherwise limited therein, proxies shall entitle the persons authorized thereby to vote at any adjournment of such meeting, but they shall not be valid after final adjournment of such meeting. A proxy with respect to stock held in the name of two or more persons shall be valid if executed by any one of them unless, at or prior to exercise of the proxy, the Corporation receives a specific written notice to the contrary from any one of them. A proxy purporting to be executed by or on behalf of a stockholder shall be deemed valid unless challenged at or prior to its exercise and the burden of proving invalidity shall rest on the challenger. Section 9. Stock Certificates. Stock certificates shall be signed by any two of the following officers: The Chairman of the Board of Directors, the President, the Executive Vice-President, the Senior Vice- President, and the Treasurer and may bear the seal of the Corporation or a facsimile thereof. Such signatures may be facsimile if the certificate is signed by a transfer agent, or by a registrar, other than a Director, officer or employee of the Corporation. Section 10. Transfer of Stock. Transfer of shares of stock of the Bancorp shall be recorded on its books upon the direction, in writing and in such form as may be prescribed by the Board of Directors, of the holder thereof. Section 11. Stock and Transfer Books. The corporation shall keep in the Commonwealth of Massachusetts at its principal office (or at an office of its transfer agent or of its Clerk/Secretary or of its resident agent) stock and transfer records, which shall contain the names of all stockholders and the record address and the amount of stock held by each. The corporation for all purposes may conclusively presume that the registered holder of a stock certificate is the absolute owner of the shares represented thereby and that his record address is his proper address. Section 12. Record Date. The directors may fix in advance a time, which shall not be more than seventy (70) days before: (i) the date of any meeting of stockholders, or (ii) the date for the payment of any dividend or the making of any distribution to stockholders, or (iii) the last day on which the consent or dissent of stockholders may be effectively expressed for any purpose; as the record date for determining the stockholders having the right to notice of and to vote at such meeting and any adjournment thereof or the right to receive such dividend or distribution or the right to give such consent or dissent. In such case, only stockholders of record on such date shall have such right, notwithstanding any transfer of stock on the books of the Corporation after the record date; or without fixing such record date, the directors may for any such purpose close the transfer books for all or any part of such period. ARTICLE III ----------- Board of Directors ------------------ Section 1. Composition. (a) The Bancorp shall have a Board of Directors of not less than seven nor more than twenty-five Directors divided into Classes One, Two and Three as set forth in the Articles of Organization. (b) The total number of Directors and their division into classes may be fixed within the limits specified in paragraph (a) at any meeting of stockholders at which the number of Directors is a matter of business properly before the meeting. The Board of Directors may also be enlarged from the size fixed by the stockholders but within the limits specified in paragraph (a) at any time by vote of a majority of Directors then in office provided that any such additional directors shall be divided amongst and assigned to the Classes of Directors. Section 2. Election and Term of Office. Directors shall be elected by ballot of such stockholders as have the right to vote thereon in accordance with their class designation at the annual meeting of stockholders and shall hold their respective offices as set forth in the Articles of Organization. In the event the number of Directors fixed at a special meeting of stockholders increases the number of Directors, Directors to fill the places thus created may be elected at any special meeting of stockholders at which the election of such Directors is a matter of business properly before the meeting and shall hold their respective offices in accordance with their class designation until the next following appropriate annual meeting of stockholders, and thereafter until their successors are elected and qualified. Section 3. Resignations and Vacancies. Any Director may resign at any time by giving written notice of his resignation to the Chairman of the Board of Directors, the President or the Secretary. Any such resignation shall take effect at the time specified therein, or, if no time is specified, upon delivery. No acceptance of such resignation shall be necessary to make it effective. Vacancies in the Board of Directors, including vacancies created by enlargement of the Board of Directors by vote of the Directors under Section 1 above, may be filled by majority vote of the full Board of Directors. The person chosen to fill any vacancy in the Board of Directors shall hold office for the unexpired portion of the term for which his predecessor was elected or chosen, or, if the vacancy is a new position, for the unexpired portion of the term of the class to which the position is assigned. Section 4. Meetings. There shall be a regular meeting of the Board of Directors at least quarterly and at such time and place as the Board may designate. An annual meeting shall be held each year immediately after and at the place of the meeting of stockholders at which the Board of Directors is elected. No notice of any regular or annual meeting shall be necessary. Special meetings of the Board of Directors shall be held whenever called by the Clerk/Secretary at the request of the Chairman of the Board of Directors, the President, a majority of the members of the Executive Committee, or a majority of the Board of Directors and shall be held at such place, on such date, and at such time as they or he/she shall fix. Notice of special meetings, which need not be in writing and which need state only the time and place of the meeting, shall be given by the Secretary to each director at least twenty-four (24) hours before the time of the meeting. Notice of a meeting need not be given to any director if a written waiver of notice executed by him before or after the meeting is filed with the records of the meeting or to any director who attends the meeting without protesting prior thereto or at its commencement the lack of notice to him. A majority of the directors then in office shall constitute a quorum for the transaction of business. If a quorum is present, a majority of the directors present may take any action on behalf of the Board except to the extent a larger number is required by law, the Articles of Organization or these By-Laws. Less than a quorum of the Board of Directors may adjourn any meeting from time to time until a quorum is present, without further notice or waiver thereof. Section 5. Participation in Meetings by Conference Telephone. Members of the Board of Directors, or of any committee thereof, may participate in a meeting of such Board or committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other and such participation shall constitute presence in person at such meeting. Section 6. Action Without a Meeting. Any action required or permitted to be taken by the Board of Directors at any meeting may be taken by the Board of Directors without a meeting if consent in writing, setting forth the action so taken, shall be signed by all of the directors then in office. Such written consents shall be filed with the minutes of proceeding of the Board of Directors and shall be treated for all purposes as a vote at a meeting of the Board of Directors. Section 7. Powers. The Board of Directors shall have power to manage, control and direct the business, property and affairs of the Bancorp and to do all things which under the laws of Massachusetts, from time to time in force, boards of directors are or may be authorized to do except such as by law, the Articles of Organization or their Bylaws are reserved to the stockholders. Without limiting the generality of the foregoing, and in addition to all powers elsewhere in these Bylaws and by law conferred upon to all powers elsewhere in these Bylaws and by law conferred upon it, the Board of Directors shall have the following powers: to issue stock from the authorized but unissued capital stock of the corporation; to designate a Director to serve at its pleasure as Chairman of the Board of Directors; to designate the same or another Director to serve as President; to designate Directors, in addition to the Chairman of the Board and the President, to serve at its pleasure as members of the Executive Committee; to designate a person to serve as Treasurer; to establish such committees as it may deem appropriate and to prescribe the duties and authorities of any such committee, and to designate Directors to serve at its pleasure as members thereof; to establish such other offices as it may deem appropriate, and to designate persons to serve at its pleasure in such offices; to prescribe the duties of all officers of the corporation and to fix their compensation, and to require bonds of any officer or employee. Section 8. Honorary Directors. The Board of Directors may designate and appoint such person or persons as it determines qualified to be an Honorary Director. To qualify to be an Honorary Director, a person must be a former Director in good standing of the Corporation. The person must have resigned as a Director or not hold the office of Director at the time of appointment and must request that he be designated as Honorary Director and approved by majority vote of the Board of Directors. Honorary Directors shall be appointed for terms that expire at the first meeting of the Board of Directors following each annual meeting of stockholders. Honorary Directors may, in the discretion of the Board of Directors, be appointed for additional terms. An Honorary Director shall be allowed to attend any regular or special meeting of the Board of Directors and may participate in the meeting subject to the control of any person in charge of the meeting. An Honorary Director shall not have any vote as a Director, his presence shall not count towards any necessary quorum and he shall not be counted against the total numbers of directors. Any Honorary Director who, acting in good faith, suffers any monetary loss as a result of any claim, lawsuit or action arising out of any action or activity as an Honorary Director shall be entitled to indemnification or reimbursement by the Corporation upon a vote authorizing such indemnification or reimbursement by the Board of Directors. An Honorary Director may be paid for attendance at any such meeting at a fee established from time to time by the Board of Directors. ARTICLE IV ---------- Committees ---------- Section 1. Committees of the Board of Directors. The Board of Directors, by a vote of a majority of the full Board, may from time to time designate committees of the Board, with such lawfully delegable powers and duties as it thereby confers, to serve at the pleasure of the Board and shall, for those committees and any others provided for herein, elect a director or directors to serve as the member or members, designating, if it desires, other directors as alternate members who may replace any absent or disqualified member at any meeting of the committee. Section 2. Conduct of Business. Except as provided otherwise in these By-Laws, each committee may determine the procedural rules for meeting and conducting its business and shall act in accordance therewith, except as otherwise provided herein or required by law. Action may be taken by any committee without a meeting if all members thereof consent thereto in writing, and the writing or writings are filed with the minutes of the proceedings of such committee. Section 3. Executive Committee. There shall be an Executive Committee consisting of the Chairman of the Board, ex officio, the President, ex officio, and such other Directors, not less than three, as the Board of Directors shall from time to time elect and who shall serve at the pleasure of the Board of Directors. Section 4. Executive Committee Meetings. The Executive Committee shall meet at such time and place as the Committee shall designate. No notice of any regular meeting shall be necessary. Special meetings of the Executive Committee may be held at any time. Such meetings shall be called by the Chairman of the Board or President whenever the business or affairs of the corporation so require and may be called by two other members of the Executive Committee. Notice of every special meeting, which need not be in writing and which need only state the time and place of the meeting, shall be given by the calling party or by the clerk of the Executive Committee, at least six hours before the time of the meeting. Notice of a meeting need not be given to any director if a written waiver of notice executed by him before or after the meeting is filed with the records of the meeting or to any director who attends the meeting without protesting prior thereto or at its commencement the lack of notice to him. A majority of the members of the Executive Committee shall constitute a quorum for the transaction of business. Less than a quorum of the Executive Committee may adjourn any meeting from time to time until a quorum is present. The Chairman of the Board shall preside at meetings of the Executive Committee and in his absence, the President shall preside. If neither of them is present, the members of the Executive Committee may designate a temporary chairman. The Executive Committee shall designate a clerk, who may be the Clerk/Secretary of the Bancorp, to serve at its pleasure, who shall keep records of its meetings, give notice of its meetings and perform such other duties of a like nature as the Executive Committee may designate. Section 5. Powers. Subject to control by the Board of Directors, the Executive Committee shall, when the Board of Directors is not in session, have and exercise all of the powers of the Board of Directors except the power: (a) to change the principal office of the corporation; (b) to amend the By-Laws; (c) to elect officers required by law to be elected by the stockholders or directors and to fill vacancies in any such offices; (d) to change the number of the Board of Directors and to fill vacancies in the Board of Directors; (e) to remove officers or directors from office; (f) to authorized the payment of any dividend or distribution to stockholders; (g) to authorize the reacquisition for value of stock of the corporation; or (h) to authorize a merger. Section 6. Nominating Committee. The Board of Directors shall have a Nominating Committee consisting of not less than three (3) members. The Nominating Committee shall be comprised entirely of "Independent" directors as such term is defined by the applicable rules and regulations of the Nasdaq Stock Market (or such other stock market or exchange on which the Corporation's common stock is actively traded). The Nominating Committee shall have (a) authority to review any nominations for election to the Board of Directors made by a stockholder of the Corporation pursuant to Section 7 of Article II of these By-Laws in order to determine compliance with such Bylaw provision, (b) authority to recommend to the Board of Directors nominees for election to the Board of Directors, and (c) such other authority as may be granted to it by the Board of Directors. The Corporation must have a formal written Nominating Committee charter addressing the Board of Directors nomination process and such related matters as may be required by the federal securities laws. Section 7. Audit Committee. The Board of Directors shall have an Audit Committee of at least three members, each of whom must: (i) be "Independent" as such term is defined by the applicable rules of the Nasdaq Stock Market (or such other stock market or exchange on which the Corporation's common stock is actively traded), (ii) meet the criteria for independence set forth in Rule 10A-3(b)(1) under the Securities Exchange Act of 1934 (subject to the exemptions provided in Rule 10A-3(c)); (iii) not have participated in the preparation of the financial statements of the Corporation or any current subsidiary of the Corporation at any time during the past three years; and (iv) be able to read and understand fundamental financial statements, including a company's balance sheet, income statement, and cash flow statement. At least one member of the Audit committee must have past employment experience in finance or accounting, requisite professional certification in accounting, or any other comparable experience or background which results in the individual's financial sophistication, including being or having been a chief executive officer, chief financial officer or other senior officer with financial oversight responsibilities. The Corporation must have a formal written Audit Committee charter. The Audit Committee must review and reassess the adequacy of the Audit Committee charter on at lease an annual basis. The Audit Committee charter must specify: (a) the scope of the Audit Committee's responsibilities, and how it carries out those responsibilities, including structure, processes, and membership requirements; (b) the Audit Committee's responsibility for ensuring its receipt from the Corporation's outside auditors of a formal written statement delineating all relationships between the auditor and the company, consistent with Independence Standards Board Standard 1, and the Audit Committee's responsibility for actively engaging in a dialogue with the auditor with respect to any disclosed relationships or services that may impact the objectivity and independence of the auditor and for taking, or recommending that the full board take, appropriate action to oversee the independence of the outside auditor; and (c) the Audit Committee's purpose of overseeing the accounting and financial reporting processes of the Corporation and the audits of the financial statements of the Corporation; (d) the Audit Committee's responsibilities and authority necessary to comply with Rule 10A-3(b)(2), (3), (4) and (5) under the Securities Exchange Act of 1934 (subject to the exemptions provided in Rule 10A-3(c)), concerning responsibilities relating to: (i) registered public accounting firms, (ii) complaints relating to accounting, internal accounting controls or auditing matters, (iii) authority to engage advisors, and (iv) funding as determined by the Audit Committee. ARTICLE V --------- Officers -------- Section 1. Composition, Selection, Qualifications and Terms of Office. The officers of the Corporation shall be the following: a Chairman of the Board of Directors, a President, a Clerk/Secretary and a Treasurer, each of whom shall be elected annually by the Board of Directors at the first meeting of the Board after the annual meeting of stockholders and shall hold office until the first meeting of the Board of Directors following the next annual meeting of stockholders and until their successors are elected and qualified, and such other officers as the Board of Directors may from time to time determine, all of whom shall be elected or appointed by the Board of Directors or as it may determine and shall hold office at the pleasure of the Board. The Chairman of the Board and the President shall be elected from the members of the Board of Directors. The other officers may but need not be elected or appointed from the members of the Board. Any two or more offices may be held by one person. Section 2. Resignations, Removals and Vacancies. Any officer may resign at any time by delivering written notice of his resignation to the Chairman of the Board of Directors or the President. Any such resignation shall take effect at the time specified therein, or, if no time is specified, upon delivery. No acceptance of such resignation shall be necessary to make it effective. The Chairman of the Board of Directors, the President, the Clerk/Secretary and the Treasurer may be removed at any time by the affirmative vote of a majority of the whole Board of Directors. Any other officer, agent or employee may be removed at any time by the Board of Directors. Any officer, agent or employee not elected or appointed by the Board of Directors may be removed at any time by the President. If any office for which a term of office is specified in these By- Laws should become vacant by reason of death, incapacity or removal, the vacancy may be filled in the manner provided in these By-Laws for election appointment to such office. Any person so elected or appointed to fill any such vacancy shall hold office for the unexpired portion of the term for which his predecessor was elected or appointed. If the President should be temporarily absent or disabled, the Board of Directors may designate a member of the Board of Directors to act temporarily in his stead. If any officer, agent or employee, other than the President should be temporarily absent or disabled, the Board of Directors may designate a person to act temporarily in the stead of such officer, agent or employee. If any officer, agent or employee not elected or appointed by the Board of Directors should be temporarily absent or disabled, the President may designate a person to act temporarily in the stead of such officer unless and until the Board of Directors should designate some other person for such purpose. Section 3. Powers and Duties. Except as the Board of Directors may in general or specific other cases provide, the powers and duties of the officers shall be as follows: (a) Chairman of the Board of Directors. The Chairman of the Board of Directors shall have the powers and duties conferred upon him by law, by these By-Laws, and such other powers and duties as may be from time to time prescribed by the Board of Directors. (b) President. The President shall have the powers and duties by law and elsewhere in these By-Laws conferred upon him; the authority to appoint any agents or employees, other than those provided by law or by these By-Laws to be elected or appointed by the stockholders or the Board of Directors; the authority to fix the compensation of and to prescribe the authority and duties, which may include the authority to appoint subordinate agents or employees, of such agents and employees as he may appoint; and such other powers, authority and duties as from time to time may be provided by law or prescribed by the Board of Directors. (c) Treasurer. The Treasurer shall have the control of the money, securities and other property belonging to or in the possession or custody of the corporation, and shall cause the same to be held or deposited for safekeeping subject to the authority of the Board of Directors, and shall perform such other duties as are usually required of Treasurers, or as may be prescribed by law or by the Board of Directors. (d) Clerk/Secretary. The Clerk/Secretary shall keep a record of the proceedings at all meetings of stockholders and of the Board of Directors, shall give notice, where required by these By-Laws, of meetings of stockholders and of the Board of Directors, and shall perform such other duties as are provided by law. ARTICLE VI ---------- Indemnification of Directors, Officers and Certain Others --------------------------------------------------------- The corporation shall indemnify any Director and may as determined by the Board of Directors, indemnify any officer of the corporation or any person serving at the Corporation's request as a Trustee or administrator of any employees benefit plan of the corporation, against all expenses (including court costs, attorneys' fees and the amount of any judgment or reasonable settlement) actually and reasonably incurred by him, subsequent to the adoption hereof, in connection with any claim asserted against him, or any action, suit or proceeding in which he may be involved as a party, by reason of his having been such Director, officer, trustee or administrator or by reason of any action alleged to have been taken or omitted by him as such Director, officer, trustee or administrator; provided, however, that the corporation shall indemnify such director, officer, trustee or administrator against expenses incurred in relation to any matter with respect to which an allegation is made against him of willful misconduct, willful default or of gross negligence in the conduct of his office only if there be no final adjudication that such person is guilty of or liable for such willful misconduct, willful default or gross negligence and one of the following three conditions be complied with: (a) There be a final adjudication that such person is not guilty of or liable for such willful misconduct, willful default or gross negligence; (b) There be a sufficient number of Directors then in office who are not involved in such claim, action, suit or proceeding, to constitute a majority of the whole Board of Directors, and there be a determination that such person is free from such willful misconduct, willful default or gross negligence by a vote of a majority of the Directors on a ballot in which no Director who is involved in such claim, action, suit or proceeding shall participate; or (c) There be a determination that such person is free from such willful misconduct, willful default, or gross negligence by a vote of a majority of a committee of seven stockholders, none of whom is involved in such claim, action, suit or proceeding, chosen to determine such matter at a regular or special meeting of the stockholders of the Corporation. Such indemnification may include payment by the corporation of expenses incurred in defending a civil or criminal action or proceeding in advance of the final disposition of such action or proceeding, upon receipt of an undertaking by the person indemnified to repay such payment if he shall be adjudicated to be not entitled to indemnification under this Article which undertaking may be accepted without reference to the financial ability of such person to make repayment. Any such indemnification may be provided although the person to be indemnified is no longer an officer, director, trustee or administrator. No indemnification shall be provided for any person with respect to any matter as to which he shall have been adjudicated in any proceeding not to have acted in good faith in the reasonable belief that his action was in the best interest of the corporation or to the extent that such matter relates to service with respect to any employee benefit plan, in the best interests of the participants or beneficiaries of such employee benefit plan. The right of indemnification herein provided for shall inure to the benefit of the executors or administrators of each such Director, officer, trustee or administrator and shall not be deemed exclusive of any other rights to which he may be entitled, under any, statute, By-Law, agreement, vote of stockholders or otherwise, or to which he might have been entitled were it not for this provision. ARTICLE VII ----------- Business Combinations --------------------- Section 1. Vote Required for Certain Business Combinations. (a) The affirmative vote of the holders of not less than 80 percent of the outstanding shares of "Voting Stock" (as hereinafter defined) held by stockholders other than an "Interested Person" (as hereinafter defined) shall be required for the approval or authorization of any "Business Combination" (as hereinafter defined) of the Corporation with any Interested Person unless the "Continuing Directors" (as hereinafter defined) of the Corporation by at least a two-thirds vote (i) have expressly approved in advance the acquisition of the outstanding shares of Voting Stock that caused such Interested Person to become an Interested Person, or (ii) have expressly approved such Business Combination either in advance of or subsequent to such Interested Person's having become an Interested Person. (b) The affirmative vote of the holders of not less than 90 percent of the outstanding shares of "Voting Stock" (as hereinafter defined) held by stockholders other than an "Interested Person" (as hereinafter defined) shall be required for the approval or authorization of any "Business Combination" ( as hereinafter defined) of the Corporation with any Interested Person if the cash or fair market value (as determined by at least two-thirds of the Continuing Directors) of the property, securities or "Other Consideration to be Received" (as hereinafter defined) per share by holders of Voting Stock of the Corporation in the Business Combination is less than the "Fair Price" (as hereinafter defined) paid by the Interested Person in acquiring any of its holdings of the Corporation's Voting Stock. Section 2. Definitions. Certain words and terms as used in this Article VII shall have the meanings given to them by the definitions and descriptions in this Section. 2.1. Business Combination. The term Business Combination. shall mean (a) any merger or consolidation of the Corporation or a subsidiary of the Corporation with or into an Interested Person, (b) any sale, lease, exchange, transfer or other disposition, including without limitation, a mortgage or any other security device, of all or any "Substantial Part" as hereinafter defined) of the assets either of the Corporation (including without limitation, any voting securities of a subsidiary) or of a subsidiary of the Corporation to an Interested Person, (c) any merger or consolidation of an Interested Person with or into the Corporation or a subsidiary of the Corporation, (d) any reclassification of securities, recapitalization or other comparable transaction involving the Corporation that would have the effect of increasing the voting power of any Interested Person with respect to Voting Stock of the Corporation, and (e) any agreement, contract or other arrangement providing for any of the transactions described in this definition of Business Combination. The term "business combination" shall not apply to any transaction with any subsidiary of this corporation approved by the full Board of Directors for purposes of internal reorganization. 2.2. Interested Person. The term "Interested Person" shall mean and include any individual, corporation, partnership or other person or entity which, together with its "Affiliates" and "Associates" (as defined in Rule 12B-2 of the General Rules and Regulations under the Securities Exchange Act of 1934 as in effect at the date of the adoption of this Article), "Beneficially Owns" (as defined in Rule 13D-3 of the General Rules and Regulations under the Securities Exchange Act of 1934 as in effect at the date of the adoption of this Article) in the aggregate 20 percent or more of the outstanding Voting Stock of the Corporation, and any Affiliate or Associate of any such individual, corporation, partnership or other person or entity. Without limitation, any share of Voting Stock of the Corporation that any interested Person has the right to acquire at any time (notwithstanding that Rule 13d-3 deems such shares to be beneficially owned only if such right may be exercised within 60 days) pursuant to any agreement, or upon exercise of conversion rights, warrants or options, or otherwise, shall be deemed to be Beneficially Owned by the Interested Person and to be outstanding for purposes of this definition. An Interested Person shall be deemed to have acquired a share of the Voting Stock of the Corporation at the time when such Interested Person became the Beneficial Owner thereof. With respect to the shares owned by Affiliates, Associates or other persons whose ownership is attributed to an Interested Person under the foregoing definition of Interested Person, if the price paid by such Interested Person for such shares is not determinable by two-thirds of the Continuing Directors, the price so paid shall be deemed to be the higher of (a) the price paid upon the acquisition thereof by the Affiliate, Associate or other person or (b) the market price of the shares in question at the time when the Interested Person became the Beneficial Owner thereof. 2.3. Voting Stock. The term "Voting Stock" shall mean all of the outstanding shares of Common Stock of the Corporation and any outstanding shares of preferred Stock entitled to vote on each matter on which the holders of record of Common Stock shall be entitled to vote, and each reference to a proportion of shares of Voting Stock shall refer to such proportion of the votes entitled to be cast by such shares. 2.4. Continuing Director. The term "Continuing Director" shall mean a Director who was a member of the Board of Directors of the Corporation immediately prior to the time that the Interested Person involved in a Business Combination became an Interested Person, or a Director who was elected or appointed to fill a vacancy after the date the Interested Person became an Interested Person by a majority of the then-current Continuing Directors. 2.5. Fair Price. The term "Fair Price" shall mean the following: If there is only one class of capital stock of the Corporation issued and outstanding, the Fair Price shall mean the highest price that can be determined by two-thirds of the Continuing Directors to have been paid at any time by the Interested Person for any share or shares of that class of capital stock. If there is more than one class of capital stock of the Corporation issued and outstanding, the Fair Price shall mean with respect to each class and series of capital stock of the Corporation, the amount determined by two-thirds of the Continuing Directors to be the highest per share price equivalent of the highest price that can be determined to have been paid at any time by the Interested Person for any share or shares of any class or series of capital stock of the Corporation. In determining the Fair Price, all purchases by the Interested Person shall be taken into account regardless of whether the shares were purchased before or after the Interested Person became an Interested Person. Also, the Fair Price shall include any brokerage commissions, transfer taxes and soliciting dealers' fees paid by the Interested Person with respect to the shares of capital stock of the Corporation acquired by the Interested Person. In case of any Business Combination with an Interested Person, two-thirds of the Continuing Directors shall determine the Fair Price for each class and series of the capital stock of the Corporation. The Fair Price shall also include interest compounded annually from the date an Interested Person became an Interested Person through the date the Business Combination is consummated at the publicly announced base rate of interest of The Bank of Boston less the aggregate amount of any cash dividends paid, and the fair market value of any dividends paid in other than cash on each share of capital stock in the same time period, in an amount up to but not exceeding the amount of interest so payable per share of capital stock. 2.6. Substantial Part. The term "Substantial Part" shall mean more than 20 percent of the fair market value as determined by two-thirds of the Continuing Directors of the total consolidated assets of the Corporation and its subsidiaries taken as a whole as of the end of its most recent fiscal year ended prior to the time the determination is being made. 2.7. Other Consideration to be Received. The term "Other Consideration to be Received" shall include, without limitation, Common Stock or other capital stock of the Corporation retained by its existing stockholders other than Interested Persons or other parties to such Business Combination in the event of a Business Combination in which the Corporation is the surviving corporation. Section 3. Determinations by the Continuing Directors. In making any determinations, the Continuing Directors may engage such persons, including investment banking firms and the independent accountants who have reported on the most recent financial statements of the Corporation, and utilize employees and agents of the Corporation, who will, in the judgment of the Continuing Directors, be of assistance to the Continuing Directors. Any determinations made by the Continuing Directors, acting in good faith on the basis of such information and assistance as was then reasonably available for such purposes, shall be conclusive and binding upon the Corporation and its stockholders, including any Interested Person. Section 4. Amendments, etc. of this Article VII. Notwithstanding any other provisions of the Articles of Organization or the By-Laws of the Corporation (and notwithstanding the fact that some lesser percentage may be specified by law, the Articles of Organization or the By-Laws of the Corporation) this Article VII shall not be amended, altered, changed or repealed: (a) as to any provision other than the "Fair Price" provisions without the affirmative vote of 80 percent or more of the stock outstanding and entitled to vote thereon at a stockholders' meeting duly called for the purpose; or (b) as to the "Fair Price" provisions without the affirmative vote of 90 percent or more of the stock outstanding and entitled to vote thereon at a stockholders' meeting duly called for the purpose. ARTICLE VIII ------------ Miscellaneous ------------- Section 1. Actions With Respect to Securities of Other Corporations. Unless otherwise directed by the Board of Directors, the President or any officer of the Corporation authorized by the President shall have power to vote and otherwise act on behalf of the Corporation, in person or in which the Corporation may hold securities and otherwise to exercise any and all rights and powers which the Corporation may possess by reason of its ownership of securities in such other corporation. The issue, transfer, conversion and registration of certificates of stock shall be governed by such other regulations as the Board of Directors may establish. Section 2. Facsimile Signatures. In addition to the provisions for use of facsimile signatures elsewhere specifically authorized in these By- Laws, facsimile signatures of any officer or officers of the Corporation may be used whenever and as authorized by the Board of Directors or a committee thereof. Section 3. Execution of Instruments. All deeds, leases, transfers, contracts, bonds, notes and other instruments and obligations to be entered into by the Corporation in the ordinary course of its business without Board of Directors action may be executed on behalf of the Corporation by the Chairman of the Board, President, any Vice President, Treasurer or any other Officer, employee or agent of the Corporation as the Board of Directors may authorize. ARTICLE IX ---------- Amendment of By-Laws -------------------- Section 1. Amendment by Directors. The Bylaws of the Corporation may be amended or repealed by the affirmative vote of two-thirds of the full Board at a duly constituted meeting of the Board of Directors, unless at the time of such action there shall be an Interested Stockholder, in which case such action shall also require an affirmative vote of a majority of the Disinterested Directors then in office at such meeting. Not later than the time of giving notice of the annual meeting of stockholders next following the amending or repealing by the Directors of any Bylaw, notice thereof stating the substance of such change shall be given to all stockholder entitled to vote on amending the Bylaws. Section 2. Amendment by Stockholders. These By-Laws may be amended or repealed at any duly constituted meeting of stockholders where the business of amending the By-Laws is properly before the meeting by the affirmative vote of the holders of a majority of the shares of the capital stock of the Trust Company at the time outstanding except as otherwise provided under specific provisions of these By-Laws. EX-11 3 slad1-x11.txt EXHIBIT 11.1 Exhibit 11.1 ------------ SLADE'S FERRY BANCORP. AND SUBSIDIARY COMPUTATION OF PER SHARE EARNINGS (Unaudited)
(Dollars in Thousands) 2005 2004 - ---------------------------------------------------------------- Net income $ 1,065 $ 646 ========== ========== Average shares outstanding 4,076,707 4,012,654 ========== ========== Basic earnings per share $ 0.26 $ 0.16 ========== ========== Average shares outstanding 4,076,707 4,012,654 Net effect of dilutive stock options 36,549 57,201 ---------- ---------- Adjusted shares outstanding 4,113,256 4,069,855 ========== ========== Diluted earnings per share $ 0.26 $ 0.16 ========== ==========
EX-31 4 slad1-311.txt EXHIBIT 31.1 Exhibit 31.1 ------------ 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 officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13(a)-15(e) and 15(d)-15(e)) for the registrant and have: a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c. Disclosed in this report any change in registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial data; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: May 12 2005 /s/ Mary Lynn D. Lenz ------------ --------------------------------- President/Chief Executive Officer EX-31 5 slad1-312.txt EXHIBIT 31.2 Exhibit 31.2 ------------ CERTIFICATIONS I, Deborah A. McLaughlin, 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 officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13(a)-15(e) and 15(d)-15(e)) for the registrant and have: a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c. Disclosed in this report any change in registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial data; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: May 12, 2005 /s/ Deborah A. McLaughlin ------------ ------------------------------ Chief Financial Officer/ Chief Operations Officer EX-32 6 slad1-321.txt EXHIBIT 32.1 Exhibit 32.1 ------------ STATEMENT FURNISHED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002, 18 U.S.C. SECTION 1350 The undersigned, Mary Lynn D. Lenz, is the President and Chief Executive Officer of Slade's Ferry Bancorp. (the "Company"). This statement is being furnished in connection with the filing by the Company of the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2005 (the "Report"). By execution of this statement, I certify that: 1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)); and 2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods covered by the Report. This statement is authorized to be attached as an exhibit to the Report so that this statement will accompany the Report at such time as the Report is filed with the Securities and Exchange Commission, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350. It is not intended that this statement be deemed to be filed for purposes of the Securities Exchange Act of 1934, as amended. A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. DATE: May 12, 2005 /S/ MARY LYNN D. LENZ ------------ ------------------------------------- MARY LYNN D. LENZ PRESIDENT AND CHIEF EXECUTIVE OFFICER EX-32 7 slad1-322.txt EXHIBIT 32.2 Exhibit 32.2 ------------ STATEMENT FURNISHED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002, 18 U.S.C. SECTION 1350 The undersigned, Deborah A. McLaughlin, is the Chief Financial Officer and Chief Operating Officer of Slade's Ferry Bancorp. (the "Company"). This statement is being furnished in connection with the filing by the Company of the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2005 (the "Report"). By execution of this statement, I certify that: 1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)); and 2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods covered by the Report. This statement is authorized to be attached as an exhibit to the Report so that this statement will accompany the Report at such time as the Report is filed with the Securities and Exchange Commission, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350. It is not intended that this statement be deemed to be filed for purposes of the Securities Exchange Act of 1934, as amended. A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. DATE: MAY 12, 2005 /S/ DEBORAH A. MCLAUGHLIN ------------ ----------------------------- DEBORAH A. MCLAUGHLIN Chief Financial Officer/Chief Operating Officer -----END PRIVACY-ENHANCED MESSAGE-----