-----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, TGp40erzAJl99ibTuD0bcQqN0LJcMLkXJc309pPQOS9j9x3dnt0xURKnkouv0bv/ Ox4VIhyrepY6cPArH4gz8Q== 0000950109-96-003034.txt : 19960515 0000950109-96-003034.hdr.sgml : 19960515 ACCESSION NUMBER: 0000950109-96-003034 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960514 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SAFETY FUND CORP CENTRAL INDEX KEY: 0000086134 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 042532311 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 001-11615 FILM NUMBER: 96563359 BUSINESS ADDRESS: STREET 1: 470 MAIN ST CITY: FITCHBURG STATE: MA ZIP: 01420 BUSINESS PHONE: 5083436406 MAIL ADDRESS: STREET 1: 470 MAIN STREET CITY: FITCHBURG STATE: MA ZIP: 01420 10QSB 1 QUARTERLY REPORT U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934. For the quarter ended March 31, 1996 ----------------------------- [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934. For the transition period from ____________ to ____________ Commission File Number 1-11615 ------- THE SAFETY FUND CORPORATION --------------------------- (Exact name of small business issuer as specified in its charter) MASSACHUSETTS 04-2532311 - --------------------------------- ----------------------------------- (State or other jurisdiction of (I.R.S Employer Identification No.) incorporation or organization) 470 MAIN STREET, FITCHBURG, MASSACHUSETTS 01420 ----------------------------------------------- (Address of principal executive offices) Issuer's telephone number (508) 343-6406 -------------- Former name, former address and former fiscal year, if changed since last report: Not Applicable ----------------- Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No_______ ------- At April 19, 1996, the Registrant had 1,664,265 shares of its common stock outstanding. PART I - FINANCIAL INFORMATION ITEM I - FINANCIAL STATEMENTS The financial information required for Part I follows. -2- THE SAFETY FUND CORPORATION CONSOLIDATED BALANCE SHEETS _______________________________________________________________________________
MARCH 31, DECEMBER 31, 1996 1995 ------------------------------ ASSETS Cash and due from banks $ 11,273,097 $ 13,305,505 Federal funds sold 7,300,000 2,500,000 Investment securities available for sale (amortized cost of $55,838,968 in 1996 and $62,427,502 in 1995) 56,340,118 63,737,909 Investment securities held to maturity (market value of $57,853,257 in 1996 and $41,024,069 in 1995) 58,291,919 39,924,078 Loans 155,191,032 160,433,831 Less allowance for possible loan losses (6,977,286) (7,350,150) ------------------------------ Net loans 148,213,746 153,083,681 ------------------------------ Premises and equipment, net 9,392,499 9,638,596 Accrued interest receivable 2,886,491 2,473,884 Other real estate owned, net 151,809 50,000 Deferred income tax asset, net 2,055,393 1,665,799 Other assets 1,235,134 1,103,800 ------------------------------ Total assets $297,140,206 $287,483,252 ============================== LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Deposits: Interest bearing $187,001,375 $184,897,462 Noninterest bearing 65,510,848 67,891,000 ------------------------------ Total deposits 252,512,223 252,788,462 Securities sold under repurchase agreements 18,617,807 11,119,611 Treasury tax and loan notes 3,304,639 1,156,804 Other liabilities 1,243,320 1,031,315 ------------------------------ Total liabilities 275,677,989 266,096,192 ------------------------------ Commitments and contingencies Stockholders' equity: Preferred stock, $10 par value; 100,000 shares authorized, none issued Common stock, $5 par value; 3,200,000 shares authorized 1,660,665 issued and outstanding 8,303,325 8,303,325 Surplus 7,584,846 7,584,846 Retained earnings 5,380,304 4,815,433 Net unrealized gain on investment securities available for sale 193,742 683,456 ------------------------------ Total stockholders' equity 21,462,217 21,387,060 ------------------------------ Total liabilities and stockholders' equity $297,140,206 $287,483,252 ==============================
-3- THE SAFETY FUND CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS ________________________________________________________________________________
THREE MONTHS ENDED MARCH 31, 1996 1995 ---------------------------- Interest income: Interest on loans $3,641,350 $3,467,820 Interest and dividends on investment securities: Available for sale 910,897 840,597 Held to maturity 866,066 794,874 Interest on federal funds sold 43,353 20,385 ---------------------------- Total interest income 5,461,666 5,123,676 ---------------------------- Interest expense: Interest on deposits 1,798,024 1,554,336 Interest on borrowed funds 168,771 191,092 ---------------------------- Total interest expense 1,966,795 1,745,428 ---------------------------- Net interest income 3,494,871 3,378,248 Provision for possible loan losses 75,000 525,000 ---------------------------- Net interest income after provision for possible loan losses 3,419,871 2,853,248 ---------------------------- Noninterest income: Trust fees 559,051 519,462 Service fees 294,252 258,383 Gains on loans sold, net 0 709 Gains on sales of investment securities available for sale, net 0 781 Other 235,126 160,733 ---------------------------- Total noninterest income 1,088,429 940,068 ---------------------------- Noninterest expense: Salaries and wages 1,451,452 1,474,866 Employee benefits 348,229 339,678 Occupancy, net 266,418 258,405 Equipment 290,001 292,738 Professional fees 195,026 198,059 Marketing 144,972 162,013 Expenses related to proposed merger 324,873 0 Deposit insurance 18,066 141,852 Other real estate owned, net 30,371 17,574 Directors' fees 64,800 61,300 Other 484,221 498,049 ---------------------------- Total noninterest expense 3,618,429 3,444,534 ---------------------------- Income before income taxes 889,871 348,782 Income tax expense 325,000 130,800 ---------------------------- Net income $ 564,871 $ 217,982 ============================ Net income per common share $.34 $.13 Weighted average shares outstanding 1,660,665 1,657,120
-4- THE SAFETY FUND CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY ________________________________________________________________________________
Common Retained Stock Surplus Earnings Other Total ------------- ------------- ------------- ----------- ------------ Balance December 31, 1995 $8,303,325 $7,584,846 $4,815,433 $ 683,456 $21,387,060 Net income - - 564,871 - 564,871 Reduction in unrealized gain on investment securities available for sale, net of income taxes - - - (489,714) (489,714) ------------- ------------- ------------- ------------ ------------ Balance, March 31, 1996 $8,303,325 $7,584,846 $5,380,304 $ 193,742 $21,462,217 ============= ============= ============= ============ ============
-5- THE SAFETY FUND CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS ________________________________________________________________________________
Three months Ended March 31, CASH FLOWS PROVIDED (USED) BY OPERATING ACTIVITIES: 1996 1995 ------------- ------------- Net income $ 564,871 $ 217,982 Adjustments to reconcile net income to net cash provided (used) by operating activities: Proceeds from sale of mortgage loans - 78,009 Origination of mortgage loans held for sale - (77,300) Repurchase of mortgage loans previously sold - (222,788) Gains on mortgage loans sold, net - (709) Depreciation and amortization 289,996 300,312 Gains on sales of investment securities available for sale, net - (781) Amortization (accretion) of bond premiums and discounts, net 3,720 (50,685) Provision for possible losses on loans and other real estate owned 75,000 541,333 Increase in accrued interest receivable (412,607) (521,505) (Increase) decrease in other assets, net (308,143) 218,682 Increase (decrease) in other liabilities 212,005 (94,985) --------------- ------------- Net cash provided by operating activities 424,842 387,565 --------------- ------------- CASH FLOWS PROVIDED (USED) BY INVESTING ACTIVITIES: Proceeds from sales of investment securities available for sale - 6,632,345 Proceeds from maturities of investment securities available for sale 9,000,000 2,000,000 Proceeds from maturities of investment securities held to maturity 5,294,739 179,954 Purchase of investment securities available for sale (2,430,078) - Purchase of investment securities held to maturity (23,642,739) - Increase in federal funds sold (4,800,000) (3,200,00) (Increase) decrease in loans outstanding 4,794,935 (7,316,327) Purchases of premises and equipment (43,899) (249,535) --------------- ------------- Net cash used by investing activities (11,827,042) (1,953,563) --------------- ------------- CASH FLOWS PROVIDED (USED) BY FINANCING ACTIVITIES: Increase (decrease) in securities sold under repurchase agreements 7,498,196 (7,418,960) Increase (decrease) in treasury tax and loan notes 2,147,835 (1,378,013) Increase (decrease) in deposits (276,239) 9,812,230 --------------- ------------- Net cash provided by financing activities 9,369,792 1,015,257 --------------- ------------- DECREASE IN CASH AND DUE FROM BANKS (2,032,408) (550,741) CASH AND DUE FROM BANKS, BEGINNING OF YEAR 13,305,505 15,223,830 --------------- ------------- CASH AND DUE FROM BANKS, END OF PERIOD $ 11,273,097 $14,673,089 =============== ============= Supplemental disclosures of cash flow information: Cash paid during quarter for: Interest $ 1,914,509 $ 1,628,364 Income taxes 288,000 141,901 Non-cash transactions: Transfers from loans to other real estate owned 101,809 -
-6- THE SAFETY FUND CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1996 1. The financial information furnished herein reflects all adjustments which, in the opinion of management, are necessary for a fair presentation of the financial position and results of operations for interim periods. All such adjustments consist of normal recurring accruals. 2. Results of operations for the three month period ended March 31, 1996 are not necessarily indicative of the results to be expected for the entire year. 3. The accompanying consolidated financial statements should be read in conjunction with the consolidated financial statements included in the Form 10-KSB for the year ended December 31, 1995. 4. Financial statements for interim periods, by their very nature, require estimations which may result in greater imprecision than those associated with annual audited financial statements. 5. Earnings per share are based upon the weighted average number of shares outstanding during the period. 6. In accordance with the Financial Accounting Standards Board Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes", the Company has a net deferred tax asset. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. As of March 31, 1996, the Company had established a valuation allowance of $424,059 ($499,059 at December 31, 1995). 7. The "net unrealized gain on investment securities available for sale" included in the stockholders' equity section of the Company's balance sheet as of March 31, 1996 consists of three components: Net unrealized gain on investment securities available for sale, net of deferred income taxes of $197,954 $ 303,196 Net unrealized loss related to investment securities transferred during 1994 from the available for sale portfolio to the held to maturity portfolio, net of deferred income taxes of $188,595 (288,861) Net unrealized gain related to investment securities transferred during 1995 from the available for sale portfolio to the held to maturity portfolio, net of deferred income taxes of $117,133 179,407 ---------- $ 193,742 ==========
-7- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D) 8. As of March 31, 1996, the Company had commitments to extend credit of approximately $33 million. Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL For the three months ended March 31, 1996, The Safety Fund Corporation ("the Company") recorded net income of $564,871 or $.34 per share. This represents a $346,889 increase over the first quarter 1995 earnings of $217,982 or $.13 per share. The Company's earnings performance was directly related to the Company's continued focus on reducing problem assets and reducing noninterest expenses, while developing new sources of noninterest income. For the quarter ended March 31, 1996, noninterest income was $1,088,429, an increase of $148,361 or 15.8% from the same quarter a year ago. Continued improvement in asset quality, among other factors, resulted in a loan loss provision of $75,000 for the quarter, which was $450,000 or 85.7% less than the provision for the comparable period last year. The net interest margin rose $116,623 to $3,494,871 during the first quarter of 1996, compared to the first quarter of 1995. Non interest expense increased $173,895 or 5.0% in the first quarter of 1996 as compared to the first quarter of 1995. On January 5, 1996, the Company entered into an agreement to be acquired by CFX Corporation of Keene, NH, subject to regulatory and shareholder approvals. During the quarter, the Company incurred expenses of $324,873 related to the proposed acquisition. Noninterest expense decreased $150,978 or 4.4% after excluding the merger related expenses. The Company's capital position continues to be in full compliance with regulatory guidelines. FIRST QUARTER, 1996 (1Q'96) OPERATIONS COMPARED TO FIRST QUARTER, 1995 (1Q'95) The Company had net income of $564,871 ($.34 per share) in 1Q'96 compared to 1Q'95 net income of $217,982 ($.13 per share). The following discussion summarizes the major components of the increase in earnings. -8- FIRST QUARTER, 1996 (1Q'96) OPERATIONS COMPARED TO FIRST QUARTER, 1995 (1Q'95) (CONT'D) NET INTEREST INCOME - ------------------- The largest component of the Company's operating income is net interest income. Changes in net interest income generally result from fluctuations in the balances and/or mixes of interest earning assets and interest bearing liabilities, and changes in their corresponding interest yields and costs. Changes in nonperforming assets, together with interest lost and recovered on those assets, also impact comparisons of net interest income. Net interest income increased $116,623 or 3.5% during 1Q'96 compared to 1Q'95. Growth in earning assets favorably affected the quarterly comparison as average earning assets in 1996 reached $268.3 million, up $21.9 million or 8.9% from 1995, with growth in average loans accounting for 61.2% of this increase. A portion of the revenue gains generated by asset growth in 1996 was offset by mix and rate changes in the Company's liability structure. Overall, the Company's net yield on interest earning assets decreased from 5.5% in 1995 to 5.2% in 1996. Income from interest on loans was higher during 1Q'96 than 1Q'95 by $173,530 or 5.0%. During the first quarter of 1996, the Company's average loans outstanding were $159.4 million compared to $146.0 million in 1995. The net growth in the loan portfolio has been accomplished primarily through the origination of residential and commercial mortgage loans. The average yield on loans outstanding decreased from 9.5% to 9.2% due primarily to a lower prime lending rate during 1Q'96. Total interest income from investment securities available for sale and investment securities held to maturity increased $141,492 or 8.7% during the first quarter of 1996 compared to the comparable quarter in 1995. The average balance in the overall investment security portfolio increased $6.6 million during the first three months of 1996 compared to the first three months of 1995. The average yields on the portfolios increased from 6.6% to 6.8%. Interest expense on deposits was also higher during 1Q'96 than 1Q'95 by $243,688 or 15.7% due to an increase in the amount of, and the rate paid on, deposits. Average interest bearing deposits increased $11.2 million or 6.4%. The increase was primarily in personal certificate of deposit products and a money fund product designed especially for funeral home pre-need arrangements. The Company's average rate paid on interest bearing deposits increased from 3.5% in 1Q'95 to 3.9% during 1Q'96 as overall market rates increased due to increased competitiveness among financial institutions for deposit customers. Interest expense on borrowed funds decreased by $22,321 due primarily to lower rates paid. PROVISION FOR POSSIBLE LOAN LOSSES - ---------------------------------- The provision for possible loan losses decreased during 1Q'96 as compared to 1Q'95 by $450,000 or 85.7%. The amount provided during the period was determined by applying the Company's allowance methodology and management's assessment as to the adequacy of -9- FIRST QUARTER, 1996 (1Q'96) OPERATIONS COMPARED TO FIRST QUARTER, 1995 (1Q'95) (CONT'D) the allowance. That assessment takes into account specific credit reviews, past loan loss experience, current economic conditions and trends, the volume, growth, and composition of the loan portfolio and the Company's nonaccrual loan balances and loans contractually past due 90 days and still accruing interest. NONINTEREST INCOME - ------------------ Trust fees increased $39,589 or 7.6% during 1Q'96 as compared to 1Q'95. The increase was due primarily to an increase in the number of accounts serviced. Service fee income increased $35,869 or 13.9% due primarily to an increase in service charges, effective in the second half of 1995. Other noninterest income increased $74,393 or 46.3% due primarily to increased ATM/debit card usage and increased mutual fund sales commissions. NONINTEREST EXPENSE - ------------------- Salary expense decreased $23,414 or 1.6% due primarily to the internal restructuring initiated during the latter part of 1995 whereby certain staff levels were decreased. Deposit insurance expense decreased during 1Q'96 by $123,786 or 87.3% as a result of the Federal Deposit Insurance Corporation's reduction in the premium paid by banking institutions on insured deposits as of June 1, 1995. During the first quarter of 1996, the Company incurred costs related to its proposed merger with CFX Corporation of Keene, NH. Professional fees related to the proposed merger of $324,873 were paid primarily to the Company's legal, accounting and investment banking firms. INCOME TAX EXPENSE - ------------------ The Company recorded tax expense of $325,000 during 1Q'96 as compared to $130,800 during 1Q'95. The Company's effective tax rate of 36.5% during 1996 was less than the statutory rate due to two primary factors. First, the Company pays a reduced tax because of the Company's investment in tax exempt assets and the use of its Massachusetts security corporation, which is taxed at a preferential state rate. Secondly, the Company reduced the valuation allowance on its deferred tax asset by $75,000 during the period. The effective rate of 37.5% recorded during 1Q'95 was based on an evaluation of the Company's tax history and status of temporary differences. -10- ASSET QUALITY Information with respect to nonaccrual and past due loans, other real estate owned and troubled debt restructurings at March 31, 1996 and December 31, 1995 is as follows:
March 31, December 31, 1996 1995 ---------------------------- Nonaccrual loans $1,514,484 $1,975,690 Troubled debt restructurings accruing interest 1,135,709 1,162,220 Loans contractually past due 90 days and still accruing interest 324,700 40,866 Other real estate owned, net 151,809 50,000 ---------------------------- $3,126,702 $3,228,776 ============================
The decrease in nonaccrual loans was primarily due to the resolution of problem credits. The increase in loans past due 90 days and still accruing interest was attributable to one loan relationship on which payments were received shortly after March 31, 1996 bringing the loan to less than 90 days past due. ALLOWANCE FOR POSSIBLE LOSSES Activity in the allowance for possible losses for the first three months of 1996 was as follows: Balance, December 31, 1995 $7,350,150 Provision charged to earnings 75,000 Charge-offs (502,791) Recoveries 54,927 ------------ Balance, March 31, 1996 $6,977,286 ============
The quarterly charge-off total includes a $395,000 write-down related to a problem loan relationship which was resolved during 1Q'96. REGULATORY MATTERS AND CAPITAL RESOURCES Following the 1992 examination by the Office of the Comptroller of the Currency, Safety Fund National Bank (the "Bank") entered into an informal Memorandum of Understanding. The Memorandum related to certain aspects of the Bank's operations, including asset quality monitoring and other administrative matters. During the third quarter of 1995, the Bank was subject to a regular safety and soundness examination by the Office of the Comptroller of the Currency. The Bank was notified that, as a result of that examination, the OCC removed the Memorandum of Understanding. -11- REGULATORY MATTERS AND CAPITAL RESOURCES (CONT'D) The Federal Reserve Board has established risk-based standards for measuring capital adequacy for U.S. banking organizations. In general, the standards require banks and bank holding companies to maintain capital based on "risk- adjusted" assets so that categories of assets with potentially higher credit risk will require more capital backing than assets with lower credit risk. In addition, banks and bank holding companies are required to maintain capital to support, on a risk-adjusted basis, certain off-balance sheet activities such as loan commitments and contingencies. The Federal Reserve Board standards classify capital into two tiers, referred to as Tier 1 and Tier 2. Tier 1 capital consists of common stockholders' equity and preferred stock. Tier 2 capital consists of other types of equity instruments and the allowance for loan and lease losses. All banks are required to meet a minimum ratio of 8% of qualifying total capital to risk-adjusted total assets with at least 4% Tier 1 capital. The Office of the Comptroller of the Currency has requested that the Bank endeavor to maintain a leverage ratio of at least 6% and the Board of Directors has adopted a resolution to that effect. As shown below, all regulatory ratios exceed the minimum required.
COMPANY BANK ------- ---- Tier 1 risk-based capital ratio 13.51% 13.01% Total risk-based capital ratio 14.79% 14.30% Leverage ratio 7.39% 7.08%
The approval of the Comptroller of the Currency is required for a national bank to pay dividends if the total of all dividends declared in any calendar year exceeds the Bank's net profit (as defined) for that year combined with its retained net profits for the preceding two calendar years. LIQUIDITY AND INTEREST RATE SENSITIVITY MANAGEMENT The primary functions of asset/liability management are to assure adequate liquidity and maintain an appropriate balance between interest sensitive earning assets and interest bearing liabilities. Liquidity management involves the ability to meet the cash flow requirements of customers who may be either depositors wanting to withdraw funds or borrowers needing assurance that sufficient funds will be available to meet their credit needs. Interest rate sensitivity management seeks to avoid fluctuating net interest margins and to enhance consistent growth of net interest income through periods of changing interest rates. As a holding company, the Company's primary sources of liquidity are dividends from the Bank and interest earned on repurchase agreements with the Bank. The Company uses its liquidity to pay cash dividends to shareholders, fund operating expenses and pay income taxes. -12- LIQUIDITY AND INTEREST RATE SENSITIVITY MANAGEMENT (CONT'D) Marketable investment securities, particularly those of shorter maturities, are a principal source of liquidity. Available for sale and held to maturity securities maturing, callable or receiving principal payments during the next twelve months amounted to $40.6 million at March 31, 1996, representing 35.6% of the total securities portfolio. Assets such as federal funds sold and maturing loans are also sources of liquidity. During the second quarter of 1994, the Company transferred securities with a fair value of $5,357,472 from its available for sale portfolio to its held to maturity portfolio. The transfer was the result of a strategic decision, in conjunction with the engagement of a new investment advisor, to hold a larger percentage of the Company's securities to maturity. At the time of transfer, the securities had an unrealized loss of $599,596. Such amount, after related tax benefit of $203,863, is reflected as a decrease to stockholders' equity. This unrealized loss is being amortized over the life of the securities transferred, which is approximately nine years. In 1995, the FASB allowed a one-time reassessment of the classifications of all securities held at the time. Accordingly, the Company reclassified $19,491,445 from the held to maturity portfolio to available for sale and $4,126,119 from the available for sale portfolio to the held to maturity portfolio. Securities transferred from the available for sale portfolio to the held to maturity portfolio had an unrealized gain of $308,246 at the time of transfer. The unrealized gain will be accreted over the life of the securities transferred, which is approximately seven years. Historically, the overall liquidity of the Company has been enhanced by a high level of core deposits. Maintaining an ability to acquire large denomination time deposits, and money fund accounts is a key to assuring liquidity. This involves maintenance of an appropriate maturity distribution of purchased funds as well as diversification of sources through various money markets. During 1Q'96, total assets increased $9.7 million or 3.4%. Federal funds sold increased $4.8 million while gross loans decreased $5.2 million. The loan decrease was due to both residential mortgage prepayments and commercial loan pay-downs. During the period, the Company increased its investment portfolios by purchasing $26.1 million which more than offset maturities or calls of $14.3 million. The growth in assets was funded by an increase in securities sold under repurchase agreements of $7.5 million and an increase in treasury tax and loan notes of $2.1 million. Management believes the liquidity of the Bank is sufficient to meet future needs. The Bank does not accept brokered deposits. Interest rate sensitivity varies with different types of interest-earning assets and interest-bearing liabilities. Overnight federal funds on which rates change daily and loans which are indexed to the base rate differ considerably from longer-term investment securities and fixed-rate loans. Similarly, time deposits are much more interest sensitive than deposits such as savings accounts. The shorter term interest rate sensitivities are key to measuring the interest sensitivity gap, which is the difference between the total of interest sensitive earning assets and interest bearing liabilities. Generally, a financial institution with an excess of interest sensitive assets would have a higher net interest income in times of increasing market interest rates and lower net interest income in times of decreasing market interest rates. -13- LIQUIDITY AND INTEREST RATE SENSITIVITY MANAGEMENT (CONT'D) The following table shows the interest sensitivity gaps for five different time intervals as of March 31, 1996 based upon the Company's earliest repricing opportunity according to contractual terms. Loan balances do not take into account normal principal amortization or prepayments. During the first 365 days, there is an excess of interest bearing liabilities over interest earning assets.
INTEREST RATE SENSITIVITY GAPS AS OF MARCH 31, 1996 (in millions): 2-90 91-365 1-2 Over 2 Immediate Days Days Years years Total --------- ------ -------- ------- ------- ------- INTEREST EARNING ASSETS: Federal funds sold $ 7.3 $ - $ - $ - $ - $ 7.3 Investment securities available for sale - 2.0 9.3 10.0 34.5 55.8 Investment securities held to maturity - - - - 58.3 58.3 Loans 77.5 0.2 0.6 2.5 74.4 155.2 -------------- ------- -------- ------- --------- -------- Total interest earning assets 84.8 2.2 9.9 12.5 167.2 276.6 -------------- ------- -------- ------- --------- -------- INTEREST BEARING LIABILITIES: Deposits: Savings, N.O.W. and money market (100.3) (2.2) - - - (102.5) Time - (24.8) (42.5) (11.4) (5.8) (84.5) Securities sold under repurchase agreements (12.7) (5.9) - - - (18.6) Treasury tax and loan notes - (3.3) - - - (3.3) -------------- ------- -------- ------- --------- -------- Total interest bearing liabilities (113.0) (36.2) (42.5) (11.4) (5.8) (208.9) -------------- ------- -------- ------- --------- -------- Interest sensitivity gap $ (28.2) $(34.0) $(32.6) $ 1.1 $161.4 $ 67.7 ============== ======= ======== ======= ========= ========
One of the objectives of the Company's asset-liability management strategy is to effectively manage the sensitivity gap. In 1994, the Company entered into an interest rate swap to manage exposure to interest rate risk. At March 31, 1996, the Company had outstanding a $5,000,000 interest rate swap agreement pursuant to which, for a three year period ending December 1997, the Company receives a fixed payment of 7.95% on the amount of the agreement in exchange for a variable-rate payment indexed to the three month London Interbank Offered Rate (LIBOR) on the same agreement amount. The variable-rate payment on March 31, 1996 was 5.42%. During 1Q'96, the Company earned $26,921 net under this agreement, which is included in interest income. During 1995, the Company entered into an interest rate floor agreement to manage exposure to interest rate risk. At March 31, 1996, the Company had outstanding a $10,000,000 interest rate floor agreement pursuant to which, for a five-year period ending February 2000, the Company receives an interest payment if the three-month LIBOR declines below 6.25%. -14- LIQUIDITY AND INTEREST RATE SENSITIVITY MANAGEMENT (CONT'D) This payment would be based upon the rate difference between current LIBOR and 6.25% accrued on the notional value of $10,000,000. The transaction fee paid of $88,000 is currently being amortized over the life of the contract. Interest earned during 1Q'96 totalled $12,892 on this agreement. -15- PART II - OTHER INFORMATION ITEMS 1-5 - Not Applicable ITEM 6 - Exhibits and reports on Form 8-K: (A) EXHIBITS 2.1) Agreement and Plan of Merger between CFX Corporation and The Safety Fund Corporation, dated January 5, 1996, as amended March 28, 1996 ........................... Filed herewith 3.1) Articles of Organization a. Articles of Organization dated May 24, 1973.......... (2) b. Amendment dated April 25, 1983....................... (2) c. Amendment dated January 13, 1986..................... (6) d. Amendment dated April 27, 1987....................... (2) e. Amendment dated April 25, 1988....................... (2) f. Further Amendment dated April 25, 1988............... (6) 3.2) Amended and Restated By-Laws ..................................... (4) 4.1) Certificate of Vote of Directors Establishing A Series of A Class of Stock................................................. (5) 10.2) The Safety Fund Corporation 1984 Incentive Stock Option Plan for Key Employees, as amended (1)................................ (3) 10.3) The Safety Fund Corporation 1994 Incentive and Nonqualified Stock Option Plan (1)............................................ (4) 10.6) Amended and Restated Employment Agreement between The Safety Fund Corporation and Christopher W. Bramley dated as of February 1, 1994 (1).......................................... (6) 10.7) Employment and Change of Control Agreement between The Safety Fund Corporation and Stephen R. Shirley dated June 1, 1994 (1)... (4) 10.8) Employment and Change of Control Agreement between The Safety Fund Corporation and James C. Garvey dated August 4, 1994 (1).... (4)
-16- (A) EXHIBITS (Continued) 10.9) Incentive Plan for Senior Officers (1)........................... (4) 10.10) Stock Option Agreement between CFX Corporation and The Safety Fund Corporation, dated January 5, 1996............... (5) 10.11) Rights Agreement dated as of January 5, 1996 between The Safety Fund Corporation and Fleet National Bank of Massachusetts........ (5) 27.1) Financial data schedule.......................................... 20
_______________________________________________________________________________ (1) Management contract or compensatory plan. (2) Incorporated by reference from the Company's Annual Report on Form 10-K for the year ended December 31, 1993 (3) Incorporated by reference from the Exhibit 10.4 to Registration Statement No. 33-19325. (4) Incorporated by reference from the Company's Annual Report on Form 10-KSB for the year ended December 31, 1994 (5) Incorporated by reference to the Company's Current Report on Form 8-K as of January 5, 1996, filed on January 12, 1996. (6) Incorporated by reference from the Company's Annual Report on Form 10-KSB for the year ended December 31, 1995. (b) The Company filed a current report on Form 8-K on January 12, 1996 with respect to an Agreement and Plan of Merger entered into between CFX Corporation and the Company dated as of January 5, 1996 and the adoption of a Shareholder Rights Plan as of January 5, 1996. Both matters were reported under Item 5 of the report. -17- 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. THE SAFETY FUND CORPORATION ---------------------------------------- (Registrant) Date: May 8, 1996 /S/ CHRISTOPHER W. BRAMLEY -------------------- ----------------------------------------- Christopher W. Bramley President and Chief Executive Officer Principal Executive Officer Date: May 8, 1996 /S/ MARTIN F. CONNORS, JR. -------------------- ----------------------------------------- Martin F. Connors, Jr., Treasurer Principal Financial and Accounting Officer (Signature) -18- THE SAFETY FUND CORPORATION INDEX TO EXHIBITS Description Page _______________________________________________________________________________ 27.1) Financial data schedule 20 -19- EX-27 2 FINANCIAL DATA SCHEDULE
9 3-MOS 3-MOS DEC-31-1996 DEC-31-1995 JAN-01-1996 JAN-01-1995 MAR-31-1996 MAR-31-1995 11,273,097 13,305,505 0 0 7,300,000 2,500,000 0 0 56,340,118 63,737,909 58,291,919 39,924,078 57,853,257 41,024,069 155,191,032 160,433,831 6,977,286 7,350,150 297,140,206 287,483,252 252,512,223 252,788,462 21,922,446 12,276,415 1,243,320 1,031,315 0 0 0 0 0 0 8,303,325 8,303,325 13,158,892 13,083,735 297,140,206 287,483,252 3,641,350 3,467,820 1,776,963 1,635,471 43,353 20,385 5,461,666 5,123,676 1,798,024 1,554,336 1,996,795 1,745,428 3,494,871 3,378,248 75,000 525,000 0 781 3,618,429 3,444,534 889,871 348,782 889,871 348,782 0 0 0 0 564,871 217,982 .34 .13 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
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