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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For fiscal year ended June 30, 1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from
Commission file number (0-16123)
Bethel Bancorp
(Exact name of registrant as specified in its charter)
Maine 01-0425066
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
489 Congress Street, Portland, Maine 04101
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (207) 772-8587
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $1.00 par value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (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 if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by nonaffiliates of the
registrant, as of September 20, 1995, was $12,321,563. Although directors and
executive officers of the registrant and its subsidiaries were assumed to be
"affiliates" of the registrant for the purposes of this calculation, this
classification is not to be interpreted as an admission of such status.
As of September 20, 1995, 547,625 shares of the registrant's common stock
were issued and outstanding.
DOCUMENTS INCORPORATED
BY REFERENCE
The following documents, in whole or in part, are specifically incorporated
by reference in the indicated Part of this Annual Report on Form 10-K:
Document Part
-------- ----
Proxy Statement for the III
1995 Annual Meeting of
Shareholders
PART I
Item 1. Business
_________________
(a) General Development of Business
___________________________________
The Registrant, Bethel Bancorp (The "Company") is a Maine Corporation
chartered in April 1987 for the purpose of becoming a multi-savings and loan
holding company. The Company is the parent of Bethel Savings Bank, F.S.B.
("Bethel"), a federally - chartered savings bank with its principal place of
business in Bethel, Maine and Brunswick Federal Savings, F.A. ("Brunswick"),
a federally - chartered savings association with its principal place of
business in Brunswick, Maine.
In October 1990, the Company issued 45,454 shares of Series A Preferred
Stock to Square Lake Holding Corporation ("Square Lake") at an aggregate
purchase price of $1,000,000, or $22.00 per share. The Series A Preferred
Stock is convertible into shares of the Company's common stock on a one-for-one
basis and carries a dividend rate equal to 2% below First National Bank of
Boston prime rate with a minimum of 7%. Square Lake is a Maine corporation
which is owned by a Canadian corporation of which Ronald Goguen of Moncton, New
Brunswick is a principal. Ronald Goguen is also currently serving as a
director of the Company.
In May of 1992, the Company entered into a Stock Purchase Agreement with
Square Lake and, on February 9, 1994, following receipt of regulatory and
shareholder approval, the Company issued 71,428 shares of a newly designated
Series B convertible preferred stock to Square Lake at an aggregate price of
approximately $1 million, or $14.00 per share. As part of the transaction, the
Company also issued Square Lake a warrant with a term of seven years to
purchase 116,882 shares of the Company's common stock at a price of $14.00 per
share. The Series B Preferred Stock is convertible into shares of the
Company's common stock on a one-for-one basis and carries a dividend rate equal
to 2% below the prime rate of The First National Bank of Boston, not to be less
than 7%. The rights and preferences of the Series B Preferred Stock issued
pursuant to this transaction are similar to, and on a parity with, the
Company's Series A Preferred Stock.
In fiscal year 1993, the Company moved its headquarters from Bethel, Maine
to Portland, Maine. The Company also acquired a controlling interest in ASI
Data Services, Inc., an existing company which provides sales and service of
computer related hardware and software, as well as a full line of data
processing support systems. The primary activity is for ASI to provide data
support for the Company.
During the fiscal year ended June 30, 1995, Bethel and Brunswick
(collectively, the "Banks") continued their operations in line with the past
and anticipate no significant change in their operations during the next
fiscal year. During the fiscal year, there have been no bankruptcy,
receivership or similar proceedings with respect to the Company or the Banks.
During the year the Company acquired four branches from Key Bank of Maine.
See Management's Discussion and Analysis.
(b) Financial Information About Industry Segments
__________________________________________________
Not applicable.
(c) Narrative Description of Business
______________________________________
General
_______
The Company is a savings and loan holding company whose primary assets are
its subsidiaries, the Banks.
Bethel is a federally-chartered stock savings bank. It was organized in
1872 as a Maine-chartered mutual savings bank and received its federal charter
in 1984. Bethel is headquartered in Bethel, Maine.
Brunswick is a federally-chartered savings association and is headquartered
in Brunswick, Maine. Brunswick was chartered in 1988.
In connection with its conversion to a federal stock savings bank in 1984,
Bethel retained its then-authorized powers as a Maine-chartered mutual savings
bank. Under applicable federal regulations, Bethel may exercise any authority
it was allowed to exercise as a mutual savings bank under state law and
regulation at the time of its conversion to a federal savings bank. In
exercising such "grandfathered" powers, Bethel may continue to comply with
applicable state laws and regulations in effect at the time of its conversion
to federal charter except as otherwise determined by the Office of Thrift
Supervision (the "OTS"). Bethel, however, may not use its grandfathered powers
to engage in activities to a greater degree than would be allowed under the
most liberal construction of either state or federal law or regulations.
Historically, Maine-chartered savings banks have had certain lending,
investment and other powers only recently authorized for federal institutions,
including commercial lending authority and the ability to offer personal
checking and negotiable order of withdrawal (NOW) accounts. Bethel also has
broader securities investment authority than other federal thrift institutions
(i.e. savings banks and savings and loan associations) as a result of its
retention of state powers.
The Banks' primary business has historically consisted of attracting savings
deposits from the general public and applying these funds primarily to the
origination and retention of first mortgage loans on residential real estate.
Over the past several years, the Banks have concentrated their lending efforts
on the origination of loans that are shorter-term or interest rate sensitive.
Of the Banks' loan portfolios at June 30, 1995, 84% was invested in real estate
loans (including residential, construction and commercial mortgage loans), 7%
in commercial loans and 9% in consumer loans.
The deposits of the Banks are insured by the Federal Deposit Insurance
Corporation, through the Bank Insurance Fund in the case of Bethel and the
Savings Association Insurance Fund in the case of Brunswick. The Banks are
members of the Federal Home Loan Bank of Boston (the "FHLB").
At June 30, 1995, the legal lending limits of Bethel and Brunswick were
approximately $1,350,000 and $1,200,000, respectively. When, on occasion,
customers' credit needs exceed the Banks' lending limits, the Banks may seek
participations of such loans with other banks.
Market Area and Competition
___________________________
Bethel is headquartered in Bethel, Maine with full service branches in
Harrison, South Paris, Buckfield and Mechanic Falls, Maine. Bethel has
centralized its position for servicing the area known as Oxford Hills. This
area of Western Maine is characterized by a diversified economy and a strong
emphasis on the tourist industry.
Brunswick is headquartered in Brunswick, Maine with full service branches in
Richmond and Lisbon Falls, Maine. Brunswick serves the south-central region of
the coast of Maine. This area also has a diversified economy with a strong
emphasis on the tourist industry.
The banking business in the Banks' market areas has become increasingly
competitive over the past several years. The Banks' major competitors in
attracting deposits and lending funds consist principally of other Maine-based
banks, and regional and money center and nonbank financial institutions. Many
of the Banks' competitors are larger in size and possess greater financial
resources.
The principal factors in competing for deposits are convenient office
locations, flexible hours, interest rates and services, while those relating to
loans are interest rates, the range of lending services offered and lending
fees. Additionally, the Banks believe that the local character of their
businesses and their "community bank" management philosophy enable them to
compete successfully in their market areas.
Regional Economic Environment
____________________________
The state of Maine's economy, including Cumberland, Androscoggin and
Sagadahoc counties where Brunswick is located, has stabilized with moderate to
flat growth, although the state of economy in Oxford county, the location of
Bethel continues to remain weak due to high unemployment and a soft real estate
market. Management of the Company believes that the regional real estate
decline has impacted the financial condition and operations of the Company.
The amount of the Company's non-performing loans at June 30, 1995 was
$2,266,000. Other real estate owned at June 30, 1995 was $1,372,686. At
June 30, 1995, the Company's ratio of non-performing loans to total loans was
1.33%. At June 30, 1995, the Company's allowance for loan losses was
$2,396,000, which represented 106% of non-performing loans at the same date.
The Banks have traditionally placed more emphasis on residential real estate
mortgages and loan volume continues to increase in this lower credit risk area
due to the Banks continuing to enhance their loan products as well as offering
customers competitively priced mortgage packages. Based on the different
economic positions in the Bank's market areas, management of the Company
continues to carefully monitor the Bank's exposure to credit risk and can give
no assurance that the regional real estate decline will not, in the future,
have a material negative impact on the financial condition or operations of
the Company.
Subsidiaries
____________
The Company acquired a wholly-owned subsidiary, ASI Data Services, Inc.
through two stock purchases during 1993-1994 for an aggregate purchase price
of $465,840. ASI Data Services, Inc. functions as the Company's and its
subsidiaries' data processing company. Management's objective is for ASI to
continue to provide internal data processing efficiencies and to support future
growth and expansion opportunities.
Bethel has one wholly-owned subsidiary, Bethel Service Corporation, which
was organized in 1982. Through Bethel Service Corporation, Bethel has
participated in certain real estate development projects. While Bethel does
not actively pursue such projects, several projects of varying sizes have been
undertaken in the past few years. Any proposed development project is examined
for its profit potential and its ability to enhance the communities served by
Bethel. There are no definitive plans for additional real estate development
projects at the present time. At June 30, 1995, investment in and loans to its
subsidiary constituted 1% of Bethel's total assets.
In addition, Bethel invested $75,000 of capital in Bankers Cooperative
Mortgage, Company, Inc. ("Bankers Cooperative") in 1987 along with other thrift
institutions. Bankers Cooperative is operated by independent management and
originates mortgage loans. Bankers Cooperative originates mortgages for sale
in the secondary market and provides servicing for loans. Bethel has not
provided Bankers Cooperative with any financing or purchased loans from or sold
loans to Bankers Cooperative. Bethel refers customers to and accepts
applications for Bankers Cooperative from individuals desiring fixed-rate
mortgage loans.
Bethel Service Corporation invested $375,000 of capital and now owns
62.5% of First New England Benefits, Inc. First New England is an employee
benefits consulting firm which specializes in the design and administration
of qualified retirement and 401(k) plans.
Brunswick has one wholly-owned subsidiary, Brunswick Service Corporation,
which was organized during the 1995 fiscal year. The purpose of the service
corporation is to support Brunswick's non-banking financial services through
its affiliation with Independent Financial Marketing Group, a fully licensed
New York securities firm.
Employees
_________
As of June 30, 1995, the Company and its consolidated subsidiaries had 104
full-time and 23 part-time employees. The Company's employees are not
represented by any collective bargaining unit. Relations between the Company
and its employees are considered good.
Regulation
__________
General
_______
Savings banks and savings and loan holding companies are subject to
extensive supervision and regulation. The Banks are subject to regulation and
supervision by the OTS.
The Company, as a savings and loan holding company, is subject to
regulation, examination and supervision by the OTS under the Home Owners Loan
Act. The Company is also deemed a Maine financial institution holding company.
As such, the Company is registered with the Maine Superintendent of Banking
(the "Superintendent") and will be subject to periodic examinations and
reporting requirements of the Superintendent.
Recent Developments in Savings Institution Regulation
_____________________________________________________
Federal Deposit Insurance Corporation Improvement Act of 1991
_____________________________________________________________
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA"), which was enacted on December 19, 1991, contains various provisions
intended to recapitalize the Bank Insurance Fund ("BIF") and also effects a
number of regulatory reforms that will impact all insured depository
institutions, regardless of the insurance fund in which they participate,
including the Banks. Among other things, FDICIA grants the OTS broader
regulatory authority to take prompt corrective action against insured
institutions that do not meet capital requirements, including placing
undercapitalized institutions into conservatorship or receivership. The OTS
adopted final rules on applications, delegations of authority and capital
maintenance requirements effective March 15, 1993. FDICIA also grants the OTS
broader regulatory authority to take corrective action against insured
institutions that are otherwise operating in an unsafe and unsound manner.
Since both the Banks exceeded all capital requirements at June 30, 1995, these
new provisions are not expected to have any significant impact on their
operations. Other provisions of FDICIA increase the premiums to be paid
by the Banks for deposit insurance and make the institutions subject to
special assessments to maintain the insurance fund. See "Savings Institution
Regulation -- Insurance of Deposits."
Financial Institutions Reform, Recovery and Enforcement Act of 1989
___________________________________________________________________
The Financial Institutions Reform, Recovery and Enforcement Act of 1989 (the
"FIRRE Act"), which was enacted on August 9, 1989, abolished the Federal Home
Loan Bank Board (the "FHLBB") and the Federal Savings and Loan Insurance
Corporation (the "FSLIC") and significantly changed the federal regulatory
framework for savings institutions and their holding companies. The FHLBB's
regulatory responsibilities over savings institutions and their holding
companies were transferred to the Director of the OTS, and a new insurance
fund, the Savings Association Insurance Fund (the "SAIF"), was established to
insure the deposit accounts of savings institutions. All savings institutions
that were insured by the FSLIC immediately prior to the enactment of the FIRRE
Act automatically became members of the SAIF upon enactment of the FIRRE Act.
The SAIF is administered by the FDIC, which also administers the BIF, the
separate insurance pool for banks. Bethel's deposits are insured under the BIF
and Brunswick's deposits are insured under the SAIF. The FDIC, in its capacity
as administrator of the SAIF, has the authority generally to regulate savings
institutions to the extent necessary to ensure the safety and soundness of the
SAIF. The Director of the OTS serves as a member of the FDIC's Board of
Directors. The FIRRE Act provides that all orders, resolutions, determinations
and regulations issued by the FHLBB or the FSLIC and in effect on the date of
enactment of the FIRRE Act will continue in effect and be enforceable by the
appropriate successor-in-interest to the FHLBB or the FSLIC under the FIRRE
Act, until modified, terminated, set aside or superseded in accordance with
applicable law.
The Federal Home Loan ("FHL") Banks continue to serve as central credit
facilities for member savings institutions. However, the FHL Banks no longer
have any supervisory or regulatory authority over savings institutions.
Upon dissolution of the FSLIC, all of the assets and liabilities of the
FSLIC were transferred to the FSLIC Resolution Fund ("FRF"), which is managed
by the FDIC but maintained separate and apart from the SAIF and the BIF. The
FRF will be dissolved upon satisfaction of all its debts and liabilities and
sale of all assets acquired in connection with resolutions of savings
institutions that failed prior to January 1, 1989. The FIRRE Act also provides
for the creation of the Resolution Funding Corporation ("REFCORP"), which
issues debt obligations, the proceeds of which are used to fund the case
resolution activities of the Resolution Trust Corporation (the "RTC"). The RTC
is primarily responsible for the disposition of savings institutions that fail
after January 1, 1989 but prior to the third anniversary of the FIRRE Act.
Funds for the operations of REFCORP and repayment of the principal amount of
REFCORP obligations are provided, in the first instance, by contributions from
the FHL Banks. The FHL Banks continue to be obligated to make contributions to
the Financing Corporation ("FICO"), the entity previously created under the
Competitive Equality Banking Act of 1987 ("CEBA"), as the vehicle to
recapitalize the FSLIC, to cover the operating expenses of FICO and repayment
of FICO obligations.
In addition to restructuring the federal regulatory system for savings
institutions, the FIRRE Act included provisions which, among other things,
increased the deposit insurance premiums payable by savings institutions,
authorized the Director of the OTS to make assessments against savings
institutions to cover the operating expenses of the OTS, significantly raised
the regulatory capital requirements for savings institutions, and altered the
investments and activities permitted for savings institutions. These
provisions of the FIRRE Act may increase the cost of doing business for savings
institutions. Additionally, the contributions which the FHL Banks were
required by the FIRRE Act to make to REFCORP and to FICO will reduce the amount
of dividends paid on FHL Bank stock and may increase the costs charged member
savings institutions for FHL Bank services, thereby further increasing savings
institutions' cost of doing business. Implementing regulations were required
to be adopted within various time periods after the effective date of the FIRRE
Act.
Savings and Loan Holding Company Regulation
___________________________________________
General.
________
Under the Home Owners Loan Act, as amended by the FIRRE Act (the "HOLA"),
the Director of the OTS has succeeded to the jurisdiction of the FHLBB, as
operating head of the FSLIC, over savings and loan holding companies. Thus,
the Company, as a savings and loan holding company within the meaning of the
HOLA, is now subject to regulation, supervision and examination by, and the
reporting requirements of, the Director of the OTS.
The HOLA prohibits a savings and loan holding company such as the Company,
directly or indirectly, or through one or more subsidiaries, from (i)
acquiring control of, or acquiring by merger with or purchase of the assets of,
another savings institution or a savings and loan holding company without the
prior written approval of the Director of the OTS; (ii) acquiring more than 5%
of the issued and outstanding shares of voting stock of another savings
institution or savings and loan holding company, except as part of an
acquisition of control approved by the Director of the OTS, as part of an
acquisition of stock issued by an undercapitalized savings institution or its
holding company approved by the Director of the OTS or except under certain
specified conditions (such as an acquisition of stock in a fiduciary capacity)
which negate a finding of control; or (iii) acquiring or retaining control of a
financial institution that does not have SAIF or BIF insurance of accounts.
The HOLA also allows the Director of the OTS to approve transactions resulting
in the creation of multiple savings and loan holding companies controlling
savings institutions located in more than one state in both supervisory and
nonsupervisory transactions, subject to the requirement that, in nonsupervisory
transactions, the law of the state in which the savings institution to be
acquired is located must specifically authorize the proposed acquisition, by
language to that effect and not merely by implication. As a result, the
Company may, with the prior approval of the Director of the OTS, acquire
control of a savings institution located in a state other than Maine if the
acquisition is expressly permitted by the laws of the state in which the
savings institution to be acquired is located. No director, officer, or
controlling shareholder of the Company may, except with the prior approval of
the Director of the OTS, acquire control of any savings institution which is
not a subsidiary of the Company. Restrictions relating to service as an
officer or director of an unaffiliated holding company or savings institution
are applicable to the directors and officers of the Company and its savings
institution subsidiaries under the Depository Institution Management Interlocks
Act.
Pursuant to amendments to the HOLA enacted as part of the FIRRE Act,
transactions engaged in by a savings association or one of its subsidiaries
with affiliates of the savings association generally are subject to the
affiliate transaction restrictions contained in Sections 23A and 23B of the
Federal Reserve Act in the same manner and to the same extent as such
restrictions now apply to transactions engaged in by a member bank or one of
its subsidiaries with affiliates of the member bank. Section 23A of the
Federal Reserve Act imposes both quantitative and qualitative restrictions on
transactions engaged in by a member bank or one of its subsidiaries with an
affiliate, while Section 23B of the Federal Reserve Act requires, among other
things, that all transactions with affiliates be on terms substantially the
same, and at least as favorable to the member bank or its subsidiary, as the
terms that would apply to, or would be offered in, a comparable transaction
with an unaffiliated party. Exemptions from, and waivers, of, the provisions
of Sections 23A and 23B of the Federal Reserve Act may be granted only by the
Federal Reserve Board, but the FIRRE Act authorizes the Director of the OTS
to impose additional restrictions on transactions with affiliates if the
Director determines such restrictions are necessary to ensure the safety and
soundness of any savings institution.
Restrictions on Activities of Multiple Savings and Loan Holding Companies
_________________________________________________________________________
As a multiple savings and loan holding company following the acquisition of
Brunswick, the Company, and its noninsured subsidiaries, are prohibited from
engaging in any activities other than (i) furnishing or providing management
services for the Banks; (ii) conducting an insurance agency or escrow business;
(iii) holding, managing or liquidating assets owned or acquired from the
Banks; (iv) holding or managing properties used or occupied by the Banks; (v)
acting as trustee under deeds of trust; (vi) engaging in any other activity in
which multiple savings and loan holding companies were authorized by regulation
to engage as of March 5, 1987; and (vii) engaging in any activity which the
Federal Reserve Board by regulation has determined to be permissible for bank
holding companies under Section 4(c) of Bank Holding Company Act (the "BHCA")
(unless the Director of the OTS, by regulation, prohibits or limits any such
activity for savings and loan holding companies). The activities in which
multiple savings and loan holding companies were authorized by regulation to
engage as of March 5, 1987 consist of activities similar to those permitted for
service corporations of federally chartered savings institutions and include,
among other things, various types of lending activities, furnishing or
performing clerical, accounting and internal audit services primarily for
affiliates, certain real estate development and leasing activities and
underwriting credit life or credit health and accident insurance in connection
with extension of credit by savings institutions or their affiliates. The
activities which the Federal Reserve Board by regulation has permitted for bank
holding companies under Section 4(c) of the BHCA generally consist of those
activities that the Federal Reserve Board has found to be so closely related to
banking or managing or controlling banks as to be a proper incident thereto,
and include, among other things, various lending activities, certain real and
personal property leasing activities, certain securities brokerage activities,
acting as an investment or financial advisor subject to certain conditions, and
providing management consulting to depository institutions, subject to certain
conditions. OTS regulations do not limit the extent to which savings and loan
holding companies and their nonsavings institution subsidiaries may engage in
activities permitted for bank holding companies pursuant to section 4(c)(8) of
the BHCA, although prior OTS approval is required to commence any such
activity.
The Company is currently a multiple savings and loan holding company and,
therefore, is currently subject to the foregoing activities restrictions. The
Company could be prohibited from engaging in any activity (including those
otherwise permitted under the HOLA) not allowed for bank holding companies if
any savings institution subsidiary fails to constitute a qualified thrift
lender. See "Regulation -- Savings Institution Regulation -- Qualified Thrift
Lender Requirement."
Savings Institution Regulation
______________________________
General.
________
As federally chartered institutions, the Banks are subject to supervision
and regulation by the Director of the OTS, the FHLBB's successor under the
FIRRE Act. In connection with its conversion to a federal mutual savings bank
in 1984, Bethel retained its then-authorized powers as a Maine-chartered mutual
savings bank. Under OTS regulations, the Banks are required to obtain audits
by independent accountants and to be examined periodically by the Director of
the OTS. These examinations must be conducted no less frequently than every
twelve (12) months. The Banks are subject to assessments by the OTS and the
FDIC to cover the costs of such examinations. The OTS may revalue assets of
the Banks, based upon appraisals, and require the establishment of specific
reserves in amounts equal to the difference between such revaluation and the
book value of the assets. The Director of the OTS is also authorized to
promulgate regulations to ensure the safe and sound operations of savings
institutions and may impose various requirements and restrictions on the
activities of savings institutions. The FIRRE Act requires that all
regulations and policies of the Director of the OTS for the safe and sound
operations of savings institutions be no less stringent than those established
by the Office of the Comptroller of the Currency (the "OCC") for national
banks. In November 1993, the OTC, as well as the Office of the Comptroller of
the Currency and the FDIC, acting under FDICIA, issued a notice of proposed
rulemaking in which it requested public comment on proposed safety and
soundness regulations. These regulations relate to (i) internal controls,
information systems, and internal audit systems; (ii) loan documentation;
(iii) credit underwriting; (iv) interest rate exposure; (v) asset growth; and
(vi) compensation and benefit standards for officers, directors, employees and
principal shareholders. No final action has been taken. The Banks are also
subject to regulation and supervision by the FDIC, in its capacity as insurer
of deposits in the Banks, to ensure the safety and soundness of the BIF and
the SAIF. See "Regulation -- Savings Institution Regulation -- Insurance of
Deposits."
Capital Requirements.
_____________________
As required by amendments of the HOLA enacted as part of the FIRRE Act, the
Director of the OTS has adopted capital standards which require savings
institutions to maintain (i) "core capital" in an amount of not less than 3% of
total assets, (ii) "tangible capital" in an amount not less than 1.5% of total
assets and (iii) a level of risk-based capital equal to 8.0% of risk-weighted
assets. The capital standards established for savings institutions must
generally be no less stringent than those applicable to national banks and must
use all relevant substantive definitions used in the capital standards for
national banks. Under the OTS regulations, the term "core capital" includes
common stockholders equity, noncumulative perpetual preferred stock and related
surplus, and minority interests in the equity accounts of consolidated
subsidiaries, less intangible assets, other than certain amounts of supervisory
goodwill, and up to 90% of the fair market value of readily marketable
purchased mortgage servicing rights ("PMSRs") (subject to certain conditions).
The term "tangible capital," for purposes of the HOLA, is defined as core
capital minus intangible assets (as defined by the OCC for national banks),
provided, however, that savings institutions may include up to 90% of the
fair market value of readily marketable PMSRs as tangible capital (subject to
certain conditions, including any limitations imposed by the FDIC on the
maximum percentage of the tangible capital requirement that may be satisfied
with such servicing rights). In determining compliance with capital standards,
a savings institution must deduct from capital its entire investment in and
loans to any subsidiary engaged as principal in activities not permissible for
a national bank, other than subsidiaries (i) engaged in such nonpermissible
activities solely as agent for their customers; (ii) engaged in mortgage
banking activities, or (iii) that are themselves savings institutions, or
companies the only investment of which is another savings institution, acquired
prior to May 1, 1989. With respect to investments in and loans to subsidiaries
engaged as of April 12, 1989 in activities not permitted for national banks,
the required deduction from capital was to be phased-in over a period ending
June 30, 1995.
In determining total risk-weighted assets for purposes of the risk-based
requirement, (i) each off-balance sheet asset must be converted to its
on-balance sheet credit equivalent amount by multiplying the face amount of
each such item by a credit conversion factor ranging from 0% to 100% (depending
upon the nature of the asset), (ii) the credit equivalent amount of each
off-balance sheet asset and the book value of each on-balance sheet asset must
be multiplied by a risk factor ranging from 0% to 100% (again depending upon
the nature of the asset) and (iii) the resulting amounts are added together and
constitute total risk-weighted assets. Total capital, for purposes of the
risk-based capital requirement, equals the sum of core capital plus
supplementary capital (which, as defined, includes, among other items,
perpetual preferred stock, not counted as core capital, limited life preferred
stock, subordinated debt, and general loan and lease loss allowances up to
1.25% of risk-weighted assets), less certain deductions. The amount of
supplementary capital that may be counted towards satisfaction of the total
capital requirement may not exceed 100% of core capital, and OTS regulations
require the maintenance of a minimum ratio of core capital to total risk-
weighted assets of at least 4.0%.
In August 1993, the OTS issued a final ruling adding an interest rate risk
component for purposes of risk-based capital requirements. The interest rate
risk component now takes into account, for risk-based capital purposes, the
effect that a change in interest rates would have on the value of a savings
institution's portfolio. The final rule and amendments became effective July
1, 1994.
Any insured depository institution which falls below the minimum capital
standards must submit a capital restoration plan. In general, undercapitalized
institutions will be precluded from increasing their assets, acquiring other
institutions, establishing additional branches, or engaging in new lines of
business without an approved capital plan and an agency determination that such
actions are consistent with the plan. Savings institutions that are
significantly undercapitalized or critically undercapitalized are subject to
additional restrictions and may be required to (i) raise additional capital;
(ii) limit asset growth; (iii) limit the amount of interest paid on deposits to
the prevailing rate of interest in the region where the institution is located;
(iv) divest or liquidate any subsidiary which the OTS determines poses a
significant risk; (v) order a new election for members of the board of
directors; (vi) require the dismissal of a director or senior executive
officer, or (vii) take such other action as the OTS determines is appropriate.
Under FDICIA, the OTS is required to appoint a conservator or receiver for
a critically undercapitalized institution no later than 9 months after the
institution becomes critically undercapitalized, subject to a limited exception
for institutions which are in compliance with an approved capital plan and
which the OTS and the FDIC certify are not likely to fail.
FDICIA prohibits any depository institution that is not well capitalized
from accepting deposits through a deposit broker. Previously, only troubled
institutions were prohibited from accepting brokered deposits. The FDIC may
allow adequately capitalized institutions to accept brokered deposits for
successive periods of up to 90 days. FDICIA also prohibits undercapitalized
institutions from offering rates of interest on insured deposits that
significantly exceed the prevailing rate in their normal market area or the
area in which the deposits would otherwise be accepted.
Capital requirements higher than the generally applicable minimum
requirement may be established for a particular savings institution if the OTS
determines that the institution's capital was or may become inadequate in view
of its particular circumstances. Individual minimum capital requirements may
be appropriate where the savings institution is receiving special supervisory
attention, has a high degree of exposure to interest rate risk, or poses other
safety or soundness concerns.
Qualified Thrift Lender Requirement.
____________________________________
In order for the Banks to exercise the powers granted to federally chartered
savings institutions, and maintain full access to FHL Bank advances, each must
constitute a "qualified thrift lender" ("QTL"). Pursuant to recent amendment
effected by FDICIA, a savings institution will constitute a QTL if the
institution's qualified thrift investments continue to equal or exceed 65% of
the savings association's portfolio assets on a monthly average basis in 9 out
of every 12 months. As amended by FDICIA, qualified thrift investments
generally consist of (i) various housing related loans and investments (such as
residential construction and mortgage loans, home improvement loans, mobile
home loans, home equity loans and mortgage-backed securities), (ii) certain
obligations of the FSLIC, the FDIC, the FSLIC Resolution fund and the RTC (for
limited periods of time), and (iii) shares of stock issued by any Federal Home
Loan Bank, the Federal Home Loan Mortgage Corporation or the Federal National
Mortgage Association. In addition, the following assets may be categorized as
qualified thrift investments in an amount not to exceed 20% in the aggregate of
portfolio assets: (i) 50% of the dollar amount of residential mortgage loans
originated and sold within 90 days of origination; (ii) investments in
securities of a service corporation that derives at least 80% of its income
from residential housing finance; (iii) 200% of loans and investments made to
acquire, develop or construct starter homes or homes in credit needy areas
(subject to certain conditions); (iv) loans for the purchase or construction of
churches, schools, nursing homes and hospitals; and (v) consumer loans (in an
amount up to 20% of portfolio assets). For purposes of the QTL test, as
amended by FDICIA, the term "portfolio assets" means the savings institution's
total assets minus goodwill and other intangible assets, the value of property
used by the savings institution to conduct its business, and liquid assets
held by the savings institution in an amount up to 20% of its total assets.
OTS regulations provide that any savings institution that fails to meet the
new QTL test must either convert to a national bank charter or limit its future
investments and activities (including branching and payments of dividends) to
those permitted for both savings institutions and national banks. Additionally,
any such savings institution that does not convert to a bank charter will be
ineligible to receive further FHL Bank advances and, beginning three years
after the loss of QTL status, will be required to repay all outstanding FHL
Bank advances and dispose of or discontinue any pre-existing investments and
activities not permitted for both savings institutions and national banks.
Further, within one year of the loss of QTL status, the holding company of a
savings institution that does not convert to a bank charter must register as a
bank holding company and will be subject to all statutes applicable to bank
holding companies.
These penalties do not apply to a federal savings association, such as
Bethel, which existed as a federal savings association on August 9, 1989 but
was chartered before October 15, 1982 as a savings bank under state law.
Liquidity.
__________
Under OTS regulations, savings institutions are required to maintain an
average daily balance of liquid assets (including cash, certain time deposits,
certain bankers' acceptances, certain corporate debt securities and highly
rated commercial paper, securities of certain mutual funds and specified United
States government, state or federal agency obligations) equal to a monthly
average of not less than a specified percentage of the average daily balance of
the savings institution's net withdrawable deposits plus short-term borrowings.
Under the HOLA, this liquidity requirement may be changed from time to time by
the Director of the OTS to any amount within the range of 4% to 10%, depending
upon economic conditions and the deposit flows of member institutions, and the
required ratio currently is 5%. OTS regulations also require each savings
institution to maintain an average daily balance of short term liquid assets at
a specified percentage (currently 1%) of the total of the average daily balance
of its net withdrawable deposits and short-term borrowings.
Loans to One Borrower Limitations.
__________________________________
The HOLA, as amended by the FIRRE Act, generally requires savings
institutions to comply with the loans to one borrower limitations applicable to
national banks. National banks generally may not make loans to a single
borrower in excess of 15% to 25% of their unimpaired capital and unimpaired
surplus (depending upon the type of loans and the collateral therefor). The
HOLA, as amended by the FIRRE Act, provides exceptions from the generally
applicable national bank limits, under which a savings institution may make
loans to one borrower in excess of such limits under one of the following
circumstances: (i) for any purpose, in an amount not to exceed $500,000; (ii)
to develop domestic residential housing units, in an amount not to exceed the
lesser of $30 million or 30% of the savings institution's unimpaired capital
and unimpaired surplus, provided other conditions are satisfied; or (iii) to
finance the sale of real property which it owns as a result of foreclosure, in
an amount not to exceed 50% of the savings institution's unimpaired capital and
unimpaired surplus. In addition, further restrictions on a savings
institution's loans to one borrower may be imposed by the Director of the OTS
if necessary to protect the safety and soundness of the savings institution.
The new loans to one borrower limits apply prospectively to loan commitments
issued after the date of enactment of the FIRRE Act, and legally binding loan
commitments issued prior to that date in compliance with the pre-FIRRE Act
limits may be funded even if the amount of the loan would cause the institution
to exceed the FIRRE Act limits.
Pursuant to its authority to impose more stringent requirements on savings
associations to protect safety and soundness, however, the OTS has promulgated
a rule limiting loans to one borrower to finance the sale of real property
acquired in satisfaction of debts to 15% of unimpaired capital and surplus. The
rule provides that purchase money mortgages received by a savings association
to finance the sale of such real property do not constitute "loans" (provided
that the savings association is not placed in a more detrimental position
holding the note than holding the real estate) and, therefore, are not subject
to the loan-to-one-borrower limitations.
Commercial Real Property Loans.
_______________________________
Another of the FIRRE Act amendments to the HOLA limits the aggregate amount
of commercial real estate loans that a federal savings institution may make to
an amount not in excess of 400% of the savings institution's capital (as
compared with the 40% of assets limitation in effect prior to the enactment of
the FIRRE Act). However, the new limit does not require the divestiture of
loans made prior to enactment of the FIRRE Act. The OTS is given the authority
to grant exceptions to the limit if the additional amount will not pose a
significant risk to the safe or sound operation of the savings institution
involved, and is consistent with prudent operating practices.
Regulatory Restrictions on the Payment of Dividends by Savings Institutions.
____________________________________________________________________________
OTS regulations establish uniform treatment for all capital distributions by
savings associations (including dividends, stock repurchases and cash-out
mergers). Under the rules, a savings association is classified as a tier 1
institution, a tier 2 institution or a tier 3 institution, depending on its
level of regulatory capital both before and after giving effect to a proposed
capital distribution. A tier 1 institution (i.e., one that both before and
after a proposed capital distribution has net capital equal to or in excess of
its fully phased-in regulatory capital requirement) is allowed, subject to any
otherwise applicable statutory or regulatory requirements or agreements entered
into with regulators, to make capital distributions in any calendar year up to
100% of its net income to date during the capital year plus the amount that
would reduce by one-half its surplus capital ratio (i.e., the percentage by
which (x) its ratio of capital to assets exceeds (y) the ratio of its fully
phased-in capital requirement to assets) as of the beginning of the calendar
year, adjusted to reflect current earnings. No regulatory approval of the
capital distribution is required, but prior notice has to be given to the OTS.
A tier 2 institution (i.e., one that both before and after a proposed capital
distribution has net capital equal to its then-applicable minimum capital
requirement but would fail to meet its fully phased-in capital requirement
either before or after the distribution) may make only limited capital
distributions without prior regulatory approval. A tier 3 institution (i.e.,
one that either before or after a proposed capital distribution fails to meet
its then-applicable minimum capital requirement) may not make any capital
distributions without prior OTS approval. In addition, the OTS may prohibit a
proposed capital distribution, which otherwise would be permitted by the
regulation, if the OTS determines that such a distribution would constitute an
unsafe or unsound practice. Also, an institution meeting the tier 1 criteria
which has been notified that it needs more than normal supervision will be
treated as a tier 2 or tier 3 institution, unless the OTS deems otherwise.
Activities of Subsidiaries.
___________________________
The FIRRE Act requires a savings institution seeking to establish a new
subsidiary, acquire control of an existing company (after which it would be a
subsidiary), or conduct a new activity through a subsidiary, to provide 30 days
prior notice to the FDIC and the Director of the OTS and conduct any activities
of the subsidiary in accordance with regulations and orders of the Director of
the OTS. The Director of the OTS has the power to require a savings
institution to divest any subsidiary or terminate any activity conducted by a
subsidiary that the Director of the OTS determines is a serious threat to the
financial safety, soundness or stability of such savings institution or is
otherwise inconsistent with sound banking practices.
Insurance of Deposits.
______________________
Federal deposit insurance is required for all federal savings institutions.
Federal savings institutions' deposits are insured to a maximum of $100,000 for
each insured depositor by the BIF or the SAIF. As FDIC-insured institutions,
the Banks are subject to regulation and supervision by the FDIC, to the extent
deemed necessary by the FDIC to ensure the safety and soundness of the BIF and
the SAIF. The FDIC is entitled to have access to reports of examination of the
Banks made by the Director of the OTS and all reports of condition filed by the
Banks with the Director of the OTS, and may require the Banks to file such
additional reports as the FDIC determines to be advisable for insurance
purposes. The FDIC may determine by regulation or order that any specific
activity poses a serious threat to the BIF or the SAIF and that no BIF or SAIF
member may engage in the activity directly. The FDIC is also authorized to
issue and enforce such regulations or orders as it deems necessary to prevent
actions of savings institutions that pose a serious threat to the BIF or SAIF.
SAIF insurance premiums were increased commencing January 1, 1991 to 0.23%
of the assessment base. The FDIC has the authority to further increase
premiums in order to cover expenses and to recapitalize the deposit insurance
funds. The current FDIC proposal for SAIF insurance premiums is discussed in
the management discussion and analysis section, provided in Item 7, under the
heading Regulatory Matters. On September 5, 1995, the FDIC announced that
the BIF was fully recapitalized at the end of May 1995. As a result, the
premium rates for the healthiest banks (1A category) will decrease from 0.23%
to 0.04% of the assessment base and will be retroactive to June 1, 1995.
Bethel and Brunswick are 1A category banks. All of Bethel's total deposits
and approximately 18% of Brunswick's total deposits, at June 30, 1995, are
BIF insured.
As required by the FDICIA, the FDIC adopted a final rule on a permanent
system of risk-based premiums effective January 1, 1994. Under the risk-based
assessment system, the FDIC will be required to calculate a savings
institution's semiannual assessment based on (i) the probability that the
insurance fund will incur a loss with respect to the institution (taking into
account the institution's asset and liability concentration), (ii) the
potential magnitude of any such loss, and (iii) the revenue and reserve needs
of the insurance fund. Until December 31, 1997, the minimum semiannual
assessments for SAIF members under the risk-based assessment system must equal
or exceed the assessments that would have applied prior to enactment of the
FDICIA. The semiannual assessments imposed on an institution may be higher
depending on SAIF revenue and expense levels, and the risk classification
applied to the institution. Effective January 1, 1998, the FDIC is required to
set SAIF semiannual assessments rates in an amount sufficient to increase the
reserve ratio of the SAIF to 1.25% of insured deposits over no more than a
15-year period. The FDICIA also gives the FDIC the authority to establish a
higher reserve ratio.
Insurance of deposits may be terminated by the FDIC after notice and
hearing, upon finding by the FDIC that the savings institution has engaged in
unsafe or unsound practices, is in an unsafe or unsound condition to continue
operations, or has violated any applicable law, rule, regulation, order or
condition imposed by, or written agreement with, the FDIC. Additionally, if
insurance termination proceedings are initiated against a savings institution,
the FDIC may temporarily suspend insurance on new deposits received by an
institution under certain circumstances.
Under the Federal Deposit Insurance Act, as amended by the FIRRE Act, a
savings institution may be held liable to the FDIC for any loss incurred by the
FDIC in connection with the default of a commonly controlled savings
institution or in connection with the provision of assistance by the FDIC to a
commonly controlled savings institution in danger of default. Bethel and
Brunswick may be deemed to be commonly controlled for purposes of this
provision. Thereafter, if a receiver, conservator or other legal custodian is
appointed for one of the institutions, or if the FDIC is required to provide
financial assistance to one of the institutions, the other institutions could
be held liable to the FDIC for any loss incurred in connection with such
appointment or assistance.
Effective December 19, 1992, FDICIA requires any company that controls an
undercapitalized savings institution, in connection with the submission of a
capital restoration plan by the savings institution, to guarantee that the
institution will comply with the plan and to provide appropriate assurances of
performance. The aggregate liability of any such controlling company under such
guaranty is limited to the lesser of (i) 5% of the savings institution's assets
at the time it became undercapitalized; or (ii) the amount necessary to bring
the savings institution into capital compliance as of the time the institution
fails to comply with the terms of its capital plan.
Federal Home Loan Bank System
_____________________________
The Federal Home Loan Bank System consists of 12 regional FHL Banks, each
subject to supervision and regulation by the Federal Housing Finance Board (the
"FHFB"), a new agency established pursuant to the FIRRE Act. The FHL Banks
provide a central credit facility for member savings institutions. The Banks,
as members of the FHL Bank of Boston, are required to own shares of capital
stock in that FHL Bank in an amount at least equal to 1% of the aggregate
principal amount of their unpaid residential mortgage loans, home purchase
contracts and similar obligations at the beginning of each year, or 1/20 of
their advances (borrowings) from the FHL Bank, whichever is greater. The Banks
are in compliance with this requirement. The maximum amount which the FHL Bank
of Boston will advance fluctuates from time to time in accordance with changes
in policies of the FHFB and the FHL Bank of Boston, and the maximum amount
generally is reduced by borrowings from any other source. In addition, the
amount of FHL Bank advances that a savings institution may obtain will be
restricted in the event the institution fails to constitute a QTL. See
"Regulation -- Savings Institution Regulation -- Qualified Thrift Lender
Requirement."
Federal Reserve Board
_____________________
Pursuant to the Depository Institutions Deregulation and Monetary Control
Act of 1980 (the "Deregulation Act"), Federal Reserve Board regulations require
savings institutions to maintain reserves against their net transaction
accounts (primarily NOW accounts), subject to certain exemptions. The balances
maintained to meet the reserve requirements imposed by the Federal Reserve
Board may be used to satisfy liquidity requirements imposed by the OTS.
Because required reserves must be maintained in the form of vault cash or a
non-interest bearing account at a Federal Reserve Bank, the effect of this
reserve requirement is to reduce the institution's interest-earning assets.
The Deregulation Act also gives savings institutions authority to borrow
from the appropriate Federal Reserve Bank's "discount window." Current Federal
Reserve regulations require savings institutions to exhaust all FHLB sources
before borrowing from the Federal Reserve Bank. The FDICIA places limitations
upon a Federal Reserve Bank's ability to extend advances to undercapitalized
and critically undercapitalized depository institutions. The FDICIA provides
that a Federal Reserve bank generally may not have advances outstanding to an
undercapitalized institution for more than 60 days in any 120-day period.
Maine Law
_________
Under Maine law, a Maine financial institution holding company such as the
Company may not engage in any activity other than managing or controlling
financial institutions, or other activities deemed permissible by the
Superintendent. The Superintendent has by regulation determined that, with the
prior approval of the Superintendent, a financial institution holding company
may engage in those activities deemed closely related pursuant to Section 408
of the National Housing Act, unless that activity is prohibited by the Maine
Banking Code or regulations.
Securities and Exchange Commission
__________________________________
The Company has registered its common stock with the Securities and
Exchange Commission (the "SEC") pursuant to the Securities Exchange Act of
1934, as amended. As a result of such registration, the proxy and tender offer
rules, periodic reporting requirements, insider trading restrictions and
reporting requirements, as well as certain other requirements, of such Act are
applicable.
Restrictions on the Payment of Dividends
________________________________________
The Maine Business Corporation Act (the "Business Corporation Act") permits
the Company to pay dividends on its capital stock only from its unreserved and
unrestricted earned surplus or from its net profits for the current fiscal year
and the next preceding fiscal year taken as a single period.
Applicable rules further prohibit the payment of a cash dividend if the
effect thereof would cause their net worth to be reduced below either the
amount required for the liquidation account or the net worth requirements
imposed by federal laws or regulations. The Banks are prohibited from paying
dividends on their capital stock if they are in default in the payment of any
assessment to the FDIC.
In connection with the Company's acquisition of Brunswick in 1990, the
Company, Brunswick and the OTS executed a Dividend Limitation Agreement which
provides that, for a period of ten years, the Company will neither accept nor
cause Brunswick to pay any dividend or make any other distribution that would
(i) cause Brunswick's capital to fall below its currently required capital
level; (ii) cause Brunswick's capital to fall below its fully phased-in capital
requirement, except with prior OTS approval; or (iii) provided that Brunswick's
capital remains above its fully phased-in capital requirement, cause Brunswick
to have paid out in excess of 100% of its cumulative net income for the
preceding eight quarters, taking into account all other dividends paid during
such period. The restrictions of this Agreement are in addition to, and not in
exception to, any other statutory or regulatory restrictions on Brunswick's
payment of dividends.
Earnings appropriated to bad debt reserves for losses and deducted for
federal income tax purposes are not available for dividends without the payment
of taxes at the current income tax rates on the amount used.
Restrictions on the Acquisition of the Company
______________________________________________
The savings and loan holding company provisions of the HOLA (the "Holding
Company Provisions") provide that no company, "directly or indirectly or acting
in concert with one or more persons, or through one or more subsidiaries, or
through one or more transactions, may acquire "control" of an insured savings
institution at any time without the prior approval of the OTS. In addition,
any company that acquires such control becomes a "savings and loan holding
company" subject to registration, examination and regulation under the Holding
Company Provisions and the regulations promulgated thereunder. "Control" in
this context means ownership, control of, or holding proxies representing more
than 25% of the voting shares of, an insured institution, the power to control
in any manner the election of a majority of the directors of such institution
or the power to exercise a controlling influence over the management or
policies of the institution.
In addition, the Change in Bank Control Act (the "Control Act") provides
that no "person," acting directly or indirectly or through or in concert with
one or more other persons, may acquire "control" of an insured institution
unless at least 60 days' prior written notice has been given to the OTS and the
OTS has not objected to the proposed acquisition. "Control" is defined for
this purpose as the power, directly or indirectly, to direct the management or
policies of an insured institution or to vote 25% or more of any class of
voting securities of an insured institution. Under both the Holding Company
Provisions and the Control Act (as well as the regulations referred to below)
the term "insured institutions" includes state and federally chartered
SAIF-insured institutions, federally chartered savings banks insured under the
BIF and holding companies thereof.
OTS regulations establish a uniform set of regulations under both the
Control Act and the Holding Company Provisions. Under these regulations, prior
to obtaining control of an insured institution, a person (under the Control
Act) must give 60 days notice to the OTS and have received no OTS objection to
such acquisition of control, and a company (under the Holding Company
Provisions) must apply for and receive OTS approval of the acquisition.
"Control," for purposes of the regulations, means the acquisition of 25% or
more of the voting stock (or irrevocable proxies for 25% of more of the voting
stock) of the institution, control in any manner of the election of a majority
of the institution's directors, or a determination by the OTS that the acquiror
has the power to direct, or directly or indirectly to exercise a controlling
influence over, the management or policies of the institution. Acquisition of
more than 10% of an institution's voting stock, if the acquiror also is subject
to any one of eight "control factors," constitutes a rebuttable determination
of control under the new regulations. The determination of control may be
rebutted by submission to the OTS, prior to the acquisition of stock or the
occurrence of any other circumstance giving rise to such determination, of a
statement setting forth facts and circumstances which would support a finding
that no control relationship will exist and containing certain undertakings.
The regulations provide that persons or companies which acquire beneficial
ownership exceeding 10% or more of any class of an insured institution's stock
after the effective date of the regulations must file with the OTS a
certification that the holder is not in control of such institution, is not
subject to a rebuttable determination of control and will take no action which
would result in a determination or rebuttable determination of control without
prior notice to or approval of the OTS, as applicable.
Other Regulations
_________________
The policies of regulatory authorities, including the Federal Reserve Board,
the OTS, and the FDIC, have had a significant effect on the operating results
of financial institutions in the past and are expected to do so in the future.
Policies of these agencies may be influenced by many factors, including
inflation, unemployment, short-term and long-term changes in the international
trade balance and fiscal policies of the United States government.
Supervision, regulation or examination of the Company and the Banks by such
regulatory agencies is not intended for the protection of the Company's
shareholders.
The United States Congress has periodically considered and adopted
legislation which has resulted and could result in further deregulation of both
banks and other financial institutions. Such legislation could relax or
eliminate geographic restrictions on banks and bank holding companies and could
place the Company in more direct competition with other financial institutions,
including mutual funds, securities brokerage firms and investment banking
firms.
Statistical Disclosure
______________________
The additional statistical disclosure describing the business of the Company
and the Banks required by Industry Guide 3 under the Securities Exchange Act of
1934, as amended, is provided in Item 8 b.
(d) Financial Information About Foreign and Domestic
Operations and Export Sales
_____________________________________________________
Not applicable.
Item 2. Properties
__________
The only real property which the Company owns is the real estate in Auburn,
Maine on which various operational functions are performed for the Banks. It
utilizes the premises and equipment of the Banks with no payment of any rental
fee to the Banks.
Bethel owns its main office and its branch offices in Harrison, Buckfield,
Mechanic Falls, Maine. The branch office of Bethel in South Paris, Maine is
leased. Brunswick owns its main office and its branch offices in Richmond and
Lisbon Falls, Maine.
Item 3. Legal Proceedings
_________________
There are no pending legal proceedings to which the Company is a party or
any of its property is the subject. There are no material pending legal
proceedings, other than ordinary routine litigation incidental to the business
of banking, to which the Banks is a party or of which any of the Banks'
property is the subject. There are no material pending legal proceedings to
which any director, officer or affiliate of the Company, any owner of record
beneficially of more than five percent of the common stock of the Company, or
any associate of any such director, officer, affiliate of the Company or any
security holder is a party adverse to the Company or has a material interest
adverse to the Company or the Banks.
Item 4. Submission of Matters to a Vote of Security Holders
___________________________________________________
Not applicable.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
_____________________________________________________________________
The common stock of Bethel Bancorp trades on The Nasdaq Stock Exchange under
the symbol BTHL. The number of shares of Bethel Bancorp common stock
outstanding as of June 30, 1995 was 547,625. The number of stockholders of
record, as of September 8, 1995 was approximately 400.
The following lists the high and low sales prices of the Company's common
shares during each quarter for fiscal years ending June 30, 1994 and 1995.
1994-1995 High Low 1993-1994 High Low
July 1-Sept.30 23.50 21.25 July 1-Sept.30 17.50 15.25
Oct.1-Dec.31 22.00 21.00 Oct.1-Dec.31 24.00 17.50
Jan.1-March 31 23.00 21.00 Jan.1-March 31 23.50 20.00
April 1-June 30 22.50 21.50 April 1-June 30 23.00 20.00
For each and every quarter of the fiscal years ending June 30, 1995, an $.08
dividend was paid on each share of common stock of Bethel Bancorp.
Bethel Bancorp has 45,454 shares of Series A preferred stock outstanding. The
Series A preferred stock is convertible into common stock on a one-for-one
basis and carries a dividend rate of two percent below the prime rate of the
First National Bank of Boston, but in no event to be less than 7% per annum.
There is no trading market for the Series A preferred stock.
Bethel Bancorp has 71,428 shares of Series B preferred stock outstanding. The
Series A preferred stock is convertible into common stock on a one-for-one
basis and carries a dividend rate of two percent below the prime rate of the
First National Bank of Boston, but in no event to be less than 7% per annum.
There is no trading market for the Series B preferred stock.
Item 6. Selected Financial Data
_______________________
Years Ended
June 30,
_________________________________________________
1995 1994 1993 1992 1991
_________ _________ _________ _________ _________
(Dollars in thousands)
Interest income $ 16,923 $ 14,036 $ 14,359 $ 13,987 $ 14,262
Interest expense 8,053 6,479 7,155 8,208 9,383
________ ________ ________ ________ ________
Net interest income 8,870 7,557 7,204 5,779 4,879
Provision for loan loss 641 1,021 852 733 487
Other operating income 1 1,697 2,111 1,342 694 580
Net securities gains
(losses) 419 347 108 183 146
Other operating expenses 2 7,988 7,011 5,734 4,192 3,793
Writedowns on equity and
debt securities 0 84 61 11 366
________ ________ ________ ________ ________
Income before income taxes 2,358 1,899 2,008 1,720 959
Income tax expense 869 698 786 655 403
Cumulative effect of change
in accounting principle - 260 - - -
________ ________ ________ ________ ________
Net income $ 1,489 $ 1,461 $ 1,222 $ 1,065 $ 556
======== ======== ======== ======== ========
Primary earnings per share $ 2.20 $ 2.25 $ 2.13 $ 1.82 $ 0.97
Fully diluted earnings per
share $ 2.04 $ 2.16 $ 2.13 $ 1.82 $ 0.97
Cash dividends per common
share $ 0.32 $ 0.32 $ 0.32 $ 0.32 $ 0.32
Common dividend payout
ratio 15.69% 14.81% 15.02% 17.58% 33.00%
At June 30,
________________________________________________
1995 1994 1993 1992 1991
________ ________ ________ ________ ________
Total assets $207,509 $190,600 $178,914 $164,165 $145,634
Total loans 169,836 158,461 150,756 141,431 121,849
Total deposits 147,120 124,306 122,497 121,517 108,609
Total borrowings 37,710 48,420 40,500 29,079 24,296
Total stockholder equity 17,275 15,756 14,067 12,840 11,988
Return on assets
(net income/average
assets) 0.73% 0.80% 0.72% 0.69% 0.39%
Return on equity
(net income/average
net worth) 9.08% 9.72% 9.01% 8.49% 4.90%
Average equity/average
assets 8.02% 8.23% 7.85% 8.30% 8.11%
1 Includes fees for services to customers and gains on sale of loans.
2 Includes salaries, employee benefits and occupancy.
Item 7. Management's Discussion and Analysis of Financial Condition and
_______________________________________________________________
Results of Operations
_____________________
Description of Operations
_________________________
Bethel Bancorp (the "Company") is a multi-savings and loan holding company
with the Office of Thrift Supervision (OTS) as its primary regulator. Bethel
Savings Bank, F.S.B. is headquartered in Bethel, Maine and has branches in
Harrison, South Paris, Buckfield, and Mechanic Falls. Bethel Savings Bank,
F.S.B. deposits are BIF-insured. Brunswick Federal Savings, F.A. is
headquartered in Brunswick, Maine and has branches in Richmond and Lisbon
Falls. Brunswick Federal Savings, F.A. deposits are primarily SAIF-insured.
Deposits that are originated at Brunswick Federal Savings, F.A.'s Richmond and
Lisbon Falls branches, which represent 18% of Brunswick Federal Savings, F.A.
total deposits at June 30, 1995, are BIF-insured. Both Banks were recently
examined by the OTS and given satisfactory ratings.
ASI Data Services, Inc. is a wholly - owned subsidiary of Bethel Bancorp
located in Lewiston, Maine. ASI Data Services performs data and item processing
for the Company and its subsidiaries. ASI also has the ability to sell computer
hardware and software to third parties. ASI did not actively sell hardware and
software to third parties during the fiscal year 1995.
Financial Condition
___________________
Management believes that the financial statements, notes and tables included
in this annual report represents, in light of the current economic conditions
in the Company's market areas, a good year for the Company and contributed
positively to the overall financial strength of the Company. The operating
results of the Company are largely dependent on the results of its insured
subsidiaries, Bethel Savings Bank, F.S.B. and Brunswick Federal Savings, F.A.
(the "Banks"). Both Banks, in the opinion of management, are financially sound.
The overall strategy of the Company is to increase the core earnings of both
subsidiary Banks by the development of strong net interest margins,
non-interest fee income, and by increased volume from exposure to a larger
market area.
The banking business in the Banks' market areas, of western and south central
Maine, has become increasingly competitive over the past several years. The
Banks' major competitors for deposits and loans consist primarily of other
Maine-based banks, regional and money center banks, and non-bank financial
institutions. Many of the Banks' competitors are larger in size and,
consequently, possess greater financial resources. The principal factors in
competing for deposits are convenient office locations, flexible hours,
interest rates and services, while those relating to loans are interest rates,
the range of lending services offered and lending fees. Additionally, the Banks
believe that the local character of their businesses and their "community bank"
management philosophy enable them to compete successfully in their market
areas. The Company has greatly enhanced its ability to compete by providing a
range of financial services such as loans, deposits, investments through its
affiliation with the Independent Financial Group, trust services through the
Bethel Trust Company, employee retirement benefits through First New England
Benefits and leasing services through its affiliation with LGIC Leasing. The
state of Maine's economy, including Cumberland, Androscoggin and Sagadahoc
counties where Brunswick Federal Savings. F.A. is located, has stabilized with
moderate to flat growth, although the state of the economy in Oxford county,
the location of Bethel Savings Bank, F.S.B., remains weak. Based on the
different economic positions in the Banks' market areas, management of the
Company continues to carefully monitor the exposure to interest rate risk and
credit risk at each Bank.
The Company has adequate capital, as total equity represents 8.33% of total
assets. The Company believes that its capital position will support future
growth and development as well as allow for additional provisions to the
allowance for loan losses, if needed, without significant impairment of the
financial stability of the Company.
The subsidiaries of Bethel Bancorp, Bethel Savings Bank, F.S.B and Brunswick
Federal Savings, F.A., acquired four branches from Key Bank of Maine on October
28, 1994. Bethel Savings, F.S.B. acquired the Buckfield and Mechanic Falls
branches and Brunswick Federal Savings, F.A. acquired the Richmond and Lisbon
Falls branches from Key Bank. The total deposits and repurchase agreements
acquired from the four branches were approximately $27,749,000. The premium
paid to Key Bank for these deposits was $1,590,228. The cost of the real
estate, building, and equipment purchased from Key Bank was $498,500. The
growth in assets and deposits, between June 30,1994 and June 30, 1995, was
greatly enhanced by the acquisition of the four Key Bank branches.
The Company's assets totaled $207,509,137 as of June 30, 1995, an increase of
$16,908,649 as compared to June 30, 1994. Loan volume continues to increase in
both Banks. Both Banks have focused their business development efforts towards
full service credit packages and financial services. The increase in loan
volume continues in the area of lower credit risk residential real estate
mortgages. This increase is due to each bank continuing to enhance their loan
products as well as offering customers competitively priced mortgage packages.
The Company expects loan volume and demand to continue for the reasons
discussed above.
Cash and due from banks increased by $1,374,735, from June 30, 1994, due to the
additional cash needs at the new branches and the liquidity requirements for
the increased deposit base. Deposits at the Federal Home Loan Bank and
interest bearing deposits in other banks have increased by $2,028,831 primarily
due to the receipt of cash from the sale of securities at the end of this
fiscal year.
The Company's loan portfolio had a balance of $169,835,672 as of June 30, 1995,
which represents an increase of $11,374,893 as compared to June 30, 1994. From
the period of June 30, 1994 to June 30, 1995, the loan portfolio increased by
$8.61 million in real estate mortgage loans, $2.04 million in consumer loans,
and by $720,000 in commercial loans. The loan portfolio contains elements of
credit and interest rate risk. The Company primarily lends within its local
market areas, which management believes helps it to better evaluate credit
risk. The Company also maintains a well collateralized position in real estate
mortgages. Residential real estate mortgages make up 69% of the total loan
portfolio, in which 31% of the residential loans are variable rate products. It
is management's intent to increase the volume in variable rate residential real
estate loans to reduce the interest rate risk in this area. Thirteen percent of
the Company's total loan portfolio balance is commercial real estate mortgages.
Similar to the residential mortgages, the Company tries to mitigate credit risk
by lending in its local market areas as well as maintaining a well
collateralized position in the real estate. The commercial real estate loans
have minimal interest rate risk as 98% of the portfolio consists of variable
rate products. Commercial Loans make up 7% of the total loan portfolio in
which 97% of its balance are variable rate instruments. The credit loss
exposure on commercial loans is highly dependent on the cash flow of the
customers' business. The Banks attempt to mitigate losses through lending in
accordance to the Company's credit policies. Consumer, construction and other
loans make up 11% of the total loan portfolio. Since these loans are primarily
fixed rate products, they have interest rate risk when market rates increase.
These loans also have credit risk with, at times, minimal collateral security.
Management attempts to mitigate these risks by keeping the products offered
short-term, receiving a rate of return equal to the measured risks, and lending
to individuals in the Company's known market areas.
The Company's allowance for loan losses was $2,396,000 as of June 30, 1995
versus $2,463,000 as of June 30, 1994, representing 1.41% and 1.55% of total
loans, respectively. The Company had non-performing loans totaling $2,266,000
and $2,723,000 at June 30, 1995 and 1994, respectively. Non-performing loans
represented 1.09% and 1.43% of total assets at June 30, 1995 and 1994,
respectively. The Company's allowance for loan losses was equal to 106% and 90%
of the total non-performing loans at June 30, 1995 and 1994, respectively. At
June 30, 1995, the Company had approximately $3,623,000 of loans classified
substandard, exclusive of the non-performing loans stated above, that could
potentially become non-performing due to delinquencies or marginal cash flows.
The loans classified substandard, as of June 30, 1995, have increased from the
June 30, 1994 amount of $1,400,000. This increase was primarily due to a
continuation of economic weakness in the Oxford county region. Along with
non-performing and delinquent loans, management takes an aggressive posture, in
reviewing its loan portfolio, to classify certain loans substandard. During the
past twelve months non-performing loans have decreased in 1-4 family mortgages
and increased in commercial mortgages. The following table represents the
Company's current non-performing loans:
Description Total
_____________________ ___________
1-4 Family Mortgages $ 637,000
Commercial Mortgages 1,223,000
Commercial Installment 375,000
Consumer Installment 31,000
___________
Total non-performing $2,266,000
The majority of the non-performing loans are seasoned loans located in the
Oxford county area. This geographic area continues to have a depressed
economy resulting in high unemployment and a soft real estate market.
Management has allocated substantial resources to the collection area in an
effort to control the growth in non-performing, delinquent and substandard
loans in this area. The Company has decreased its delinquent accounts during
the 1995 fiscal year. This reduction was largely due to the decrease of
non-performing loans by $457,000 and the collection efforts with regards to the
30 and 60 day delinquent accounts.
The following table reflects the annual trend of total delinquencies 30 days
or more past due, including non-performing loans, for the Company as a
percentage of total loans:
6/30/92 6/30/93 6/30/94 6/30/95
3.72% 4.42% 2.64% 2.46%
The level of the allowance for loan losses as a percentage of total loans at
June 30, 1995 decreased in comparison to the same percentage at June 30, 1994.
However, the level of the allowance for loan losses as a percentage of
non-performing loans and total delinquencies as a percentage of total loans
improved in 1995. Loans classified substandard increased in the 1995 fiscal
year, when compared to the 1994 fiscal year. Classified loans are also
considered in managements analysis in the adequacy of the allowance for loan
losses. Based on reviewing the credit risk and collateral of these classified
loans, management has considered the risks of the classified portfolio and
believes the allowance for loan losses is adequate. Management at each Bank
primarily lends within their local market areas which management believes helps
them to better evaluate credit risk. The Company also maintains a well
collateralized position in real estate mortgage loans. Net charge-offs for the
Company were $707,634, $680,795, and $283,706, for the three years ended June
30, 1995, June 30, 1994, and June 30, 1993, respectively.
On a regular and ongoing basis, Company management evaluates the adequacy of
the allowance for loan losses. The process to evaluate the allowance involves
a high degree of management judgment. The methods employed to evaluate the
allowance for loan losses are quantitative in nature and consider such factors
as the loan mix, the level of non-performing loans, delinquency trends, past
charge-off history, loan reviews and classifications, collateral, and the
current economic climate.
Management believes that the allowance for loan losses is adequate considering
the level of risk in the loan portfolio. While management uses its best
judgement in recognizing loan losses in light of available information, there
can be no assurance that the Company will not have to increase its provision
for loan losses in the future as a result of changing economic conditions,
adverse markets for real estate or other factors. In addition, various
regulatory agencies, as an integral part of their examination process,
periodically review the Company's allowance for loan losses. Such agencies may
require the Company to recognize additions to the allowance for loan losses
based on their judgments about information available to them at the time of
their examination. The Company's current examination by the OTS was on May 15,
1995. At the time of the exam the regulators proposed no additions to the
allowance for loan losses.
At June 30, 1995, the Company had a total of $1,372,686 in other real estate
owned and in-substance foreclosures versus $1,993,984 as of June 30, 1994. The
Company has an allowance for losses on other real estate owned that was
established to provide for declines in real estate values and to consider
estimated selling costs. The allowance for losses on other real estate owned
totaled $5,289 at June 30, 1995 versus $49,405 at June 30, 1994. The Company
provided for this allowance through a charge against earnings of $107,173 and
$62,600 for the years ended June 30, 1995 and 1994, respectively. In 1995 and
1994, write downs of other real estate owned totaled $151,289 and $41,076,
respectively. Management periodically receives independent appraisals to assist
in its valuation of the other real estate owned portfolio. After management's
review of the independent appraisals and the other real estate owned portfolio,
the Company believes the allowance for losses on other real estate owned is
adequate, to state the portfolio at lower of cost, or fair value less estimated
selling costs.
As of June 30, 1995, trading account securities decreased by $171,696 when
compared to the balance of such assets at June 30, 1994. This decrease was
attributed to the sale of substantially all of the trading account portfolio
during the 1995 fiscal year.
At June 30, 1995 the Company's total investment portfolio was classified as
available for sale. The amortized cost and market value of available for sale
securities at June 30, 1995 was $10,292,957 and $10,148,251, respectively. The
difference between the amortized cost and the market value was primarily due
to the change in current market interest rates from the rates at the time of
purchase. The Company has primarily invested in mortgage-backed securities.
All of the mortgage-backed securities are high grade government backed
investments. As in any long term earning asset in which its earning rate is
fixed, mortgage-backed securities have a risk in its market value declining
when market interest rates increase from the time of purchase. Since these
mortgage-backed securities are backed by the U.S. government, there is little
or no risk in loss of principal. Therefore, management believes that during
adverse market fluctuations it would be advantageous to hold these securities
until market values recover. Management believes that the yields currently
received on this portfolio are satisfactory.
At June 30, 1994, the Company had $2,060,222 of securities, at market value,
classified as available for sale and $8,020,108 of securities, at cost,
classified as held to maturity. During 1995, the Company purchased an
additional $12,399,000 in securities it classified as held to maturity. At the
time of acquiring these securities, the Company had the intention and the
ability to hold such securities to maturity. In the last quarter of fiscal
1995, as a result of its planning process and changes in market conditions,
Company management determined that it no longer possessed the intent to hold
such securities to maturity. The investment portfolio is an integral piece of
the Company's asset/liability (ALCO) management program. The Company's ALCO
committee meets on a regular basis to analyze the Company's risk during a
rising or falling rate environment. In management's efforts to maintain the
proper asset/liability mix for the Company, management determined that the
investment portfolio needs to be managed aggressively and consistently.
Consequently, the Company transferred its entire held to maturity portfolio,
with an aggregate cost of $18,775,000 and an aggregate market value of
$18,822,000 (including unrealized gains and losses of $191,000 and $144,000,
respectively) to available for sale. The Company subsequently sold selected
aforementioned securities with an aggregate cost of $11,900,000 and realized
gains of $273,000 and realized losses of $225,000. The Company's decision not
to hold these securities to maturity does not satisfy the limited criteria of
Financial Accounting Standards No. 115 which specifies circumstances in which
it is permissible to sell or transfer held to maturity securities.
Consequently, the Company will, for the foreseeable future, classify its
securities portfolio as available for sale, or trading.
Management reviews the portfolios of investments on an ongoing basis to
determine if there has been an other-than-temporary decline in value. Some
of the considerations management makes in the determination are market
valuations of particular securities and economic analysis of the securities'
sustainable market values based on the underlying companies' profitability.
Based on management's assessment of the Company's investment securities
portfolio during 1995, there have been no other than temporary declines in
value of individual securities. Based on management's assessment of the
securities portfolio in 1994 and 1993, there have been other than temporary
declines in values of individual securities in the amounts of $84,419 and
$61,000, respectively. Such securities have been written down to market value
through an adjustment against current earnings.
The Company decreased its investment in Federal Home Loan Bank (FHLB) stock by
$195,000, when compared to June 30, 1994, due to the decrease in FHLB
borrowings discussed below.
The Company has used off-balance-sheet risk financial instruments, in the
normal course of business, to meet the financing needs of its customers and to
reduce its own exposure to fluctuations in interest rates. These financial
instruments include commitments to extend credit and standby letters of credit.
The Company uses the same credit policies in making commitments as it does for
on-balance-sheet instruments. Hence, these instruments have the same elements
of credit and interest rate risk. The Company limits its involvement in
derivative financial instruments to covered call and put contracts. Gains and
losses from entering into these contracts have been immaterial to the results
of operations of the Company in fiscal 1995. The total value of securities
under call and put contracts at any one time is immaterial to the Company's
financial position, liquidity, or results of operations. Off-balance-sheet risk
financial instruments are more fully described in footnote 20 to the financial
statements.
The carrying value and market value of loans held for sale at June 30, 1995 was
$528,839 and $532,652 respectively. This compares to the carrying value and
market value of loans held for sale at June 30, 1994 of $521,458 and $525,769,
respectively. Loans held for sale are carried on the balance sheet at the lower
of cost or fair market value.
The Company's premises and equipment increased by a net of $828,487 during the
year ended June 30, 1995. This increase was primarily due to the acquisition
of the Key Bank branches, explained above, as well as the capitalized costs
associated with the relocation of the Mechanic Falls branch to a new facility.
The increase in accrued interest receivable on loans of $283,789 was primarily
due to market rates increasing during 1995, the increase in loan volume, and
the improvement in the non-performing loan portfolio. Goodwill increased by
$1,414,566 due to the premium paid to acquire the deposits of the Key Bank
branches, explained above, less the 1995 amortization of $235,098. The
decrease in other assets of $302,081 was primarily due to the reduction in
deferred tax assets, caused by a reversal of temporary differences between the
Company's financial statements and its tax returns. Due from broker of $941,000
was due to the purchase of a mortgage-backed security that had not settled by
June 30, 1995.
Both Banks continue to attract new deposit relationships. The Company utilizes,
as alternative sources of funds, brokered CD's when the interest rates on
national money is less than the interest rates on local market deposits.
Brokered C.D.'s carry the same risk as local deposit C.D.'s, in that both are
interest rate sensitive with respect to the Company's ability to retain the
funds. The Company also utilizes Federal Home Loan Bank advances, as
alternative sources of funds, when the interest rates of the advances are less
than market deposit interest rates as well as to fund short-term liquidity
demands for loan volume.
Total deposits were $147,119,870 and securities sold under repurchase
agreements were $2,585,387 as of June 30, 1995. These amounts represent
increases of $22,813,516 and $2,585,387, respectively, when compared to June
30, 1994. The increases were primarily due to the acquisition of the Key bank
branches. Broker deposits represented $8,787,701 of the total deposits for the
year ended June 30, 1995 and decreased by $4,274,546 when compared to June 30,
1994's $13,062,247 balance. Total borrowings from the FHLB were $35,700,000 as
of June 30, 1995, for a decrease of $10,200,000 when compared to June 30, 1994.
Mortgages, free of liens, pledges and encumbrances are required to be pledged
to secure FHLB advances. Both Bank's had the ability to decrease their levels
of Federal Home Loan Bank advances and brokered deposits because of the cash
received from assuming the liability of the deposits purchased from Key Bank.
The growth in deposits and repurchase agreements was also utilized to fund loan
growth, investment securities, and cash equivalents.
Notes payable decreased by $510,115 during the 1995 fiscal year due to the
scheduled principal payments on the Fleet Bank of Maine loan, which was to
finance, in part, the Brunswick Federal Savings, F.A. acquisition. Due to
broker of $989,062 was due to the purchase of a GNMA security that had not
settled by June 30, 1995.
In summary, the general financial condition of the Company, in management's
opinion, is sound. The state of Maine's economy appears to be stable with
moderate or flat growth. However, the weakness in the Oxford county economy
which has resulted in high unemployment and a soft real estate market must be
considered a risk to the overall credit quality of the loan portfolio at Bethel
Savings Bank. Hence, management will continue to monitor loans within these
portfolios and increase the levels of allowance for loan losses as necessary.
Capital Resources & Liquidity
_____________________________
Liquidity is defined as the ability to meet unexpected deposit withdrawals and
increased loan demand of a short-term nature with a minimum loss of principal.
The Banks' principal sources of funds are its interest bearing deposits, cash
and due from banks, deposits with the Federal Home Loan Bank, certificates of
deposit, loan payments and prepayments and other investments maturing in less
than two years as well as securities available for sale. In addition, both
Banks have unused borrowing capacity from the Federal Home Loan Bank through
its advances program. The Banks current advance availability, subject to the
satisfaction of certain conditions, is approximately $56,000,000 over and above
the 1995 end-of-year advances reported. The Company's ability to access the
principal sources of liquid funds listed above is immediate and adequate to
support the Company's budgeted growth.
Cross selling strategies are employed by both Banks to develop good deposit
growth. Even though deposit interest rates increased during the 1995 fiscal
year, the rate of return is much stronger in other financial instruments such
as mutual funds and annuities. The banking industry will be challenged to
maintain and or increase its core deposit liquidity base.
Total equity of the Company was $17,275,278 as of June 30, 1995 versus
$15,756,363 at June 30, 1994. The total equity to total assets ratio of the
Company as of June 30, 1995 was 8.33% and 8.27% at June 30, 1994. Book value
per common share was $27.90 as of June 30, 1995 versus $25.13 at June 30, 1994.
It is very important in today's environment to be well capitalized and
management believes that its capital position is an inherent strength of the
organization.
In 1992, the Company announced that it had agreed to issue shares of a newly
designated Series B convertible preferred stock and warrants to purchase common
stock to Square Lake Holding Corporation ("Square Lake"). On February 9, 1994,
following receipt of regulatory and shareholder approval, the Company issued
71,248 shares of the Series B convertible preferred stock to Square Lake at an
aggregate price of $999,992, or $14 per share. As part of the transaction, the
Company also issued Square Lake warrants with a term of seven years to purchase
116,882 shares of the Company's common stock at a price of $14 per share.
Square Lake is a Maine corporation which is owned by a Canadian corporation of
which Ronald Goguen is a principal. Mr. Goguen is also a director of the
Company and Square Lake. The Series B preferred stock is convertible into
shares of the Company's stock on a one-for-one basis and carries a dividend
rate equal to 2% below the prime rate of The First National Bank of Boston, not
to be less than 7%. It is anticipated that Square Lake will exercise
approximately 50,000 warrants at an aggregate price of $700,000, or $14 per
share, during the first quarter of 1995.
The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"),
which was enacted on December 19, 1991, contains various provisions intended to
recapitalize the Bank Insurance Fund ("BIF") and also effects a number of
regulatory reforms that impact all insured depository institutions, regardless
of the insurance fund in which they participate. Among other things, the FDICIA
grants OTS broader regulatory authority to take prompt corrective action
against insured institutions that do not meet capital requirements, including
placing several undercapitalized institutions into conservatorship or
receivership. FDICIA also grants OTS broader regulatory authority to take
corrective action against insured institutions that are otherwise operating in
an unsafe and unsound manner. Since both the Banks exceed all capital
requirements at June 30, 1995, these provisions are not expected to have any
significant impact on their operations. Other provisions of the FDICIA increase
the premiums to be paid by the Banks for deposit insurance and make the
institutions subject to special assessments to maintain the insurance fund. The
Banks have had no special assessments or premium increases during the 1995
fiscal year.
On August 9, 1989, the Financial Institutions Reform, Recovery and Enforcement
Act of 1989 ("FIRREA") was signed into law. FIRREA imposes more stringent
capital requirements upon savings institutions than those previously in effect.
In addition, FIRREA provides for changes in the Federal regulatory structure
for institutions, including a new deposit insurance system, increased insured
deposit premiums and restricted investment activities with respect to
non-investment grade corporate debt and certain other investments. The OTS has
issued regulations requiring a minimum regulatory tangible capital equal to
1.5% of adjusted total assets, core capital of 3.0%, leverage capital of 4.0%
and a risk-based capital standard of 8.0%. At June 30, 1995, the Banks
regulatory capital requirements were in compliance with regulatory capital
requirements as follows:
Bethel Brunswick
Savings Federal
Bank F.S.B. Savings,F.A.
____________ ____________
Capital Requirements:
Tangible capital $1,562,000 $1,498,000
Percent of tangible assets 1.5% 1.5%
Core Capital $3,124,000 $2,995,000
Percent of adjusted tangible assets 3.0% 3.0%
Leverage Capital $4,165,000 $3,994,000
Percent of adjusted leverage assets 4.0% 4.0%
Risk-based capital $5,676,000 $4,635,000
Percent of risk-weighted assets 8.0% 8.0%
Actual:
Tangible capital $7,835,000 $7,355,000
Percent of adjusted total assets 7.52% 7.37%
Excess over requirement $6,273,000 $5,857,000
Core capital $7,835,000 $7,355,000
Percent of adjusted total assets 7.52% 7.37%
Excess over requirement $4,711,000 $4,360,000
Leverage capital $7,835,000 $7,355,000
Percent of adjusted total assets 7.52% 7.37%
Excess over requirement $3,670,000 $3,361,000
Risk-based capital $8,259,000 $8,081,000
Percent of total risk-weighted assets 11.64% 13.95%
Excess over requirement $2,583,000 $3,446,000
Results of Operations
_____________________
Net income for the year ended June 30, 1995 was $1,489,381, versus $1,460,559
for the year ended June 30, 1994 and $1,222,343 for the year ended June 30,
1993. Primary earnings per share was $2.20 and fully diluted earnings per share
was $2.04 for the period ended June 30, 1995. The primary and fully diluted
earnings per share was $2.25 and $2.16 for the year ended June 30, 1994,
respectively and $2.13 for the year ended June 30, 1993. Also included in the
Company's income statement for the year ended June 30, 1994 was $260,000 for
the cumulative effect of a change in the method of accounting for income taxes,
Statement of Financial Accounting Standard 109. This one time adjustment is
more fully described in footnote 1 and 17 to the financial statements. This one
time adjustment increased the Company's primary earnings per share by $.43 and
the fully diluted earnings per share by $.38 for the year ended June 30, 1994.
The Company's overall return on assets was .72% for the year ended June 30,
1995, .77% for the year ended June 30, 1994, and .72% for the year ended June
30, 1993.
The Company's net interest income for the years ended June 30, 1995, June 30,
1994 and June 30, 1993 was $8,870,005, $7,556,529 and $7,203,957, respectively.
Net interest income for 1995 increased $1,313,476, or 17.38%, over the amount
at June 30, 1994. Total interest and dividend income increased $2,886,684 for
the year ended June 30, 1995 when compared to the year ended June 30, 1994,
resulting from the following items. Interest income on loans increased by
$1,923,203 for the year ended June 30, 1995 resulting from a $747,297 positive
variance due to an increase in the volume of loans, as well as, an increase of
$1,175,906 due to increased interest rates on loans. Interest and dividend
income on investment securities increased by $793,417 resulting from a $721,372
positive variance due to an increase in volume, as well as, an increase of
$72,045 due to increased interest rates on investments. Interest income on
short term liquid funds increased by $170,064 resulting from a $14,926 positive
variance due to an increase in volume, as well as, by an increase of $155,138
due to increased interest rates on deposits at the Federal Home Loan Bank and
other institutions.
The increase in total interest expense of $1,573,208 for the year ended June
30, 1995 as compared to 1994 resulted from the following items. Interest
expense on deposits increased by $976,328 for the year ended June 30, 1995
resulting from a $557,015 increase due to an increase in the volume of
deposits, as well as, an increase of $419,313 due to increasing deposit
interest rates. Interest expense on repurchase agreements increased by $84,921
as fiscal year 1995 was the first year this product was offered. Interest
expense on borrowings increased $511,959 for the year ended June 30, 1995
resulting from an increase of $274,607 due to an increase in volume of
borrowings, as well as, an increase of $237,352 due to the change in the mix of
interest rates on borrowings. The changes in net interest income, as explained
above, are also presented in the schedule below.
BETHEL BANCORP
Rate/Volume Analysis for the Year ended
June 30, 1995 Versus June 30, 1994
Difference Due to
Volume Rate Total
__________ __________ __________
Investments $ 721,372 $ 72,045 $ 793,417
Loans 747,297 1,175,906 1,923,203
FHLB & Other Deposits 14,926 155,138 170,064
__________ __________ __________
Total Interest Earning
Assets 1,483,595 1,403,089 2,886,684
Deposits 557,015 419,313 976,328
Repurchase Agreements 84,921 -0- 84,921
Borrowings 274,607 237,352 511,959
__________ __________ __________
Total Interest-Bearing
Liabilities 916,543 656,665 1,573,208
__________ __________ __________
Net Interest Income $ 567,052 $ 746,424 $1,313,476
__________ __________ __________
Rate/Volume amounts spread proportionately between Volume and Rate.
Net interest income for 1994 increased $352,572, or 4.90%, over the amount at
June 30, 1993. Total interest income decreased $322,284 for the year ended June
30, 1994 when compared to the year ended June 30, 1993, resulting from the
following items. Interest income on loans decreased by $420,416 for the year
ended June 30, 1994 resulting from a $471,120 positive variance due to an
increase in the volume of loans which was offset, in part, by a decrease of
$891,536 due to declining interest rates on loans. Interest income on
investment securities increased by $68,653 resulting from a $60,698 positive
variance due to an increase in volume as well as an increase of $7,955 due to
increased interest rates on investments. Interest income on short term liquid
funds increased by $29,479 resulting from a $33,688 increase due to an increase
in volume which was offset, in apart, by a decrease of $4,209 due to decreased
interest rates on deposits at the Federal Home Loan Bank and other
institutions.
The decrease in total interest expense of $674,856 for the year ended June 30,
1994 as compared to 1993 resulted from the following items. Interest expense
on deposits decreased by $739,891 for the year ended June 30, 1994 resulting
from a $789,043 reduction due to declining interest rates which was offset, in
part, by an increase of $49,152 due to an increase in the volume of deposits.
Interest expense on borrowings increased $65,035 for the year ended June 30,
1994 resulting from an increase of $114,487 due to an increase in volume of
borrowings which was offset, in part, by a decrease of $49,452 due to a change
in the mix of interest rates on borrowings. The changes in net interest income,
as explained above, are also presented in the schedule below.
BETHEL BANCORP
Rate/Volume Analysis for the Year ended
June 30, 1994 Versus June 30, 1993
Difference Due to
Volume Rate Total
___________ ___________ ___________
Investments $ 60,698 $ 7,955 $ 68,653
Loans 471,120 (891,536) (420,416)
FHLB & Other Deposits 33,688 (4,209) 29,479
___________ ___________ ___________
Total Interest Earning
Assets 565,506 (887,790) (322,284)
Deposits 49,152 (789,043) (739,891)
Borrowings 114,487 (49,452) 65,035
___________ ____________ ___________
Total Interest-Bearing
Liabilities 163,639 (838,495) (674,856)
___________ ____________ ___________
Net Interest Income $ 401,867 $ (49,295) $ 352,572
___________ ____________ ___________
Rate/Volume amounts spread proportionately between Volume and Rate.
The majority of the Company's income is generated from its two Banking
subsidiaries, Bethel Savings Bank, F.S.B. and Brunswick Federal Savings, F.A..
Both Banks are slightly asset sensitive; therefore, they will generally
experience a contraction in their net interest margins during a period of
falling rates. The Banks were able to withstand margin compression through
aggressively pricing the rates on its loan products and managing the interest
expense associated with the funding of the Banks. Management believes that the
maintenance of a slight asset sensitive position serves the best interest of
both Banks as, based on historic results, interest rates tend to rise faster
than they decline. Since October 1993, actions by the Federal Reserve Board
have resulted in increases in prime lending rates. Approximately 20% of the
Bank's loan portfolio is comprised of floating rate loans based on a prime rate
index. Interest income on these existing loans will increase as the prime rate
increases, as well as approximately 21% of other loans in the Bank's portfolio
that are based on short-term rate indices such as the one-year treasury bill.
An increase in short-term interest rates will also increase deposit and FHLB
advance rates, increasing the Company's interest expense. Although the Company
anticipates some net interest margin compression due to rising rates, the
impact on net interest income will depend on, among other things, actual rates
charged on the Banks' loan portfolio, deposit and advance rates paid by the
Banks, and loan volume.
The Company and both subsidiary Banks were affected by the financial impact of
the allowance for losses. The provision for loan losses was $640,634 for the
year ended June 30, 1995 as compared to $1,020,795 and $851,706 for 1994 and
1993, respectively. Net charge-offs amounted to $707,634 during the year ended
June 30, 1995 versus $680,795 and $283,706 for of the years ended June 30, 1994
and 1993, respectively. Due to the weak economy in some of the Company's
market areas, loan charge-offs have been high in the reported fiscal years. The
Company will continue to aggressively manage the non-performing assets, through
sales, work-outs and charge-offs, to reduce the amount of the non-performing
assets.
Non-interest income was $2,116,442 for the year ended June 30, 1995, $2,458,485
for June 30, 1994 and $1,450,425 for June 30, 1993. Generally, both Banks
continue to generate an increased level of non-interest income in service
charges and fees for other services. This component totaled $679,495 for the
year ended June 30, 1995, $579,322 for the year ended June 30, 1994 and
$457,686 for June 30, 1993. The increase in 1995 was primarily due to growth in
the deposit accounts and other branch services.
Net securities gains were $419,313, $347,032, and $108,494 for 1995, 1994 and
1993, respectively. The major reason for the increase in 1995 is that the
Company sold some of its available for sale and trading securities, taking
advantage of the fluctuation in market prices.
Gains on the sale of loans amounted to $160,982 for the year ended June 30,
1995 and was a decrease of $273,228 when compared to $434,210 for the year
ended June 30, 1994. Gains on the sale of loans decreased $79,534 in 1994 when
compared to the 1993 level. The decrease in 1995 and 1994 was primarily due to
the Banks reduced volume in underwriting and selling Freddie Mac and SBA
guaranteed commercial loans. The Company's loan sales activity is dependent on
market interest rates as well as other local competition. Based on the current
market rates and the level of competition for this product, management believes
that gain on sale of loans will only moderately increase from the June 30, 1995
amount reported in the results of operations. The Company receives income from
servicing for others mortgage loans originated and sold. The outstanding
balance of such loans increased from approximately $30,064,000 during 1994 to
$32,560,000 during 1995. In addition to loans originated and sold by the
Company, during 1993 the Company purchased loan servicing rights from another
institution. The balance of the loans serviced under this agreement was
approximately $12,983,000 and $15,805,000 at June 30, 1995 and 1994,
respectively. Fees for servicing loans was $306,220 for the year ended June 30,
1995 versus $267,697 and $102,884 for the years ended June 30, 1994 and 1993,
respectively.
Other income was $550,432, $830,224, $267,617 for the years ended 1995, 1994,
1993, respectively. The decrease of $279,792 in the 1995 fiscal year, when
compared to the 1994 fiscal year, was primarily due to the reduction in gross
sales at ASI Data Services. For the near future, gross sales at ASI Data
Services are expected to remain at the 1995 fiscal year level due to the
operational demands of the Company and its subsidiaries. The increase of
$562,607 in the 1994 fiscal year, when compared to the 1993 fiscal year, was
primarily from $368,000 in gross sales of ASI Data Services and from $265,000
in gross sales of First New England Benefits. Bethel Service Corp., a
subsidiary of Bethel Savings Bank, F.S.B., acquired First New England Benefits
in fiscal year 1994. First New England Benefits is an employee benefits
consulting firm which specializes in installation and administration of
qualified retirement and 401(k) plans.
Total non-interest expense for the Company was $7,987,877 as of June 30, 1995,
$7,095,664 as of June 30, 1994, and $5,795,033 as of June 30, 1993. The
increase in non-interest expense of $892,213 for the year ended 1995 when
compared to the year ended 1994 were due, in part, to the following items:
Operating expenses increased primarily due to the Key Bank branch acquisition
and the general growth of the Company; Compensation expenses increased by
$699,682 in 1995 when compared to the year ended June 30, 1994 as the result of
the additional employees from the four new branches, additional employees in
sales and operations due to the new branch locations and general Company
growth, as well as increases in annual salaries and other benefits; Occupancy
expense has increased by $125,952 in 1995 when compared to the year ended June
30, 1994 due to the four new branches acquired from Key Bank and general
maintenance on the Company's existing locations; Equipment expense increased by
$62,544 in the 1995 fiscal year when compared to the 1994 year end primarily
due to depreciation on assets acquired from the Key Bank acquisition. Other
Operating expenses increased by $4,035 in 1995 when compared to the year ended
June 30, 1994 primarily due to the increase in other operational expenses at
the Banks from the Key Bank branch acquisition. This increase was offset by the
reduction of ASI's 1995 cost of goods sold, resulting from hardware sales to
third parties, when compared to the June 30, 1994 year end. The increase in
non-interest expenses of $1,300,631 for the year ended 1994 when compared to
1993 were due, in part, to the following items: Operating expenses increased
due, in part, to the acquisition and computer conversion to ASI Data Services
as well as ASI's increase in cost of goods sold due to hardware sales and from
offering data processing to third parties; Compensation expenses increased by
$825,989in 1994 when compared to the year ended June 30, 1993 as a result of
the addition of the executive officers and administrative employees at Bethel
Bancorp, the full year impact of ASI Data Services and First New England
Benefits, annual salary increases at the subsidiary Banks, as well as an
increase in health care costs and other benefits; Occupancy expense increased
$61,903 in 1994 when compared to 1993 primarily due to the additional space
expense associated with the new Lewiston and Portland offices; Equipment
expense increased by $106,730 in the 1994 fiscal year when compared to 1993 due
to the depreciation of the ASI computer equipment, as well as the depreciation
associated with the new equipment for the new office locations; Other expenses
increased due to the costs associated with the general growth of the Company,
and from ASI's cost of goods sold.
In February 1992, the Financial Accounting Standards Board issued Statement
No. 109, Accounting for Income Taxes (SFAS 109). SFAS 109 requires a change
from the deferred method of accounting for income taxes required under APB
Opinion 11 to the asset and liability method of accounting for income taxes.
Under the asset and liability method of SFAS 109, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. Under SFAS 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date. Effective July 1, 1993, the Company adopted SFAS
109 and has reported the cumulative effect of the change in the method of
accounting for income taxes in the 1994 consolidated statement of income. The
cumulative effect of this change in accounting for income taxes of $260,000 was
determined as of July 1, 1993, and is reported separately in the consolidated
statement of income for the year ended June 30, 1994.
Regulatory Matters
__________________
The FDIC has proposed a one time assessment on all SAIF insured deposits in a
range of $.85 to $.90 per $100 of domestic deposits held as of March 31, 1995.
This one time assessment is intended to recapitalize the SAIF to the required
level of 1.25% of insured deposits and could be payable in the fourth quarter
of 1995 or early 1996. If the assessment is made at the proposed rates, the
effect on the Company would be an after tax charge of approximately $320,000
(assuming an income tax rate of 36%). The one time charge assumes a .85% charge
on Brunswick Federal Savings, F.A. deposits of approximately $60,000,000 at
March 31, 1995, which does not include the BIF insured deposits of the newly
acquired Key Bank branches. Subsequent to the proposed payment of the one time
assessment, the ongoing risk based assessment schedule for the newly
capitalized SAIF would be similar to the schedule of BIF (the current FDIC
board proposal has rates ranging from 4 to 31 basis points). The Company
anticipates that it would be assessed at the lowest BIF rate as it currently is
assessed at the lowest SAIF rate due to its regulatory standing. If the
Company's premium is reduced to 4 basis points, the Company would have future
after tax annual savings of approximately $180,000 (assuming an income tax rate
of 36%). The annual savings assumes a .04% insurance premium charge compared to
the current .23% insurance premium paid on the Company's total deposit base of
$147,000,000.
Impact of Inflation
___________________
The consolidated financial statements and related notes herein have been
presented in terms of historic dollars without considering changes in the
relative purchasing power of money over time due to inflation.
Unlike many industrial companies, substantially all of the assets and virtually
all of the liabilities of the Company are monetary in nature. As a result,
interest rates have a more significant impact on the Company's performance than
the general level of inflation. Over short periods of time, interest rates may
not necessarily move in the same direction or in the same magnitude as
inflation.
Recent Accounting Developments
______________________________
In May 1993, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 114, "Accounting by Creditors for
Impairment of a Loan" (SFAS No. 114) and in October 1994 the FASB issued SFAS
No. 118, "Accounting by Creditors for Impairment of a Loan-Income Recognition
and Disclosures" which amended certain provisions of SFAS No. 114. SFAS 114 and
118, taken together, will require the Company to identify impaired loans and
generally value them at the lower of (i) the present value of expected future
cash flows discounted at the loan's original effective interest rate or (ii)
the loan's observable market price or (iii) fair value of the loan's
collateral, if the loan is collateral dependent. The two statements will, in
connection with recent regulatory guidance, require the Company to reclassify
its in-substance foreclosures to loans and disclose them as impaired loans.
SFAS 114 and 118 are effective in fiscal year 1996, with adoption required as
of the beginning of the fiscal year. Financial statements issued prior to
adoption will not be restated. The Company adopted SFAS 114 and 118 on July 1,
1995; the effect of adopting the new rules did not have a significant effect on
the financial position, liquidity or results of operations of the Company.
In October 1994, the Financial Accounting Standards Board (FASB) issued SFAS
No. 119, "Disclosure about Derivative Financial Instruments and Fair Value of
Financial Instruments". This statement requires certain disclosures about
amounts, nature, and terms of derivative financial instruments that are not
subject to SFAS No. 105, "Disclosure of Information about Financial Instruments
with Off-Balance-Sheet Risk and Financial Instruments with Concentrations of
Credit Risk" because they do not result in off-balance-sheet risk of accounting
loss. This Statement is effective for financial statements issued for fiscal
years ending after December 15, 1994 and consequently adopted by the Company
for its fiscal year ended June 30, 1995. For additional information see Note 20
to the Consolidated Financial Statements.
On March 31, 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
(the Statement). This Statement provides guidance for recognition and
measurement of impairment of long-lived assets, certain identifiable
intangibles and goodwill related both to assets to be held and used and assets
to be disposed of. The Statement requires entities to perform separate
calculations for assets to be held and used to determine whether recognition of
an impairment loss is required and, if so, to measure the impairment.
The Statement requires long-lived assets and certain identifiable intangibles
to be disposed of to be reported at the lower of carrying amount or fair value
less cost to sell, except for assets covered by the provisions of APB Opinion
No. 30. Statement No. 121 is effective for financial statements issued for
fiscal years beginning after December 15, 1995 although earlier application is
encouraged. The Company has not determined the impact of adopting this
statement on its financial condition, liquidity, or results of operations.
On May 12, 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 122, "Accounting for Mortgage
Servicing Rights, an amendment of FASB Statement No. 65 "(the Statement). This
Statement provides guidance for recognition of mortgage servicing rights as an
asset when a mortgage loan is sold or securitized and servicing rights
retained. Also, the Statement requires enterprises to measure the impairment of
servicing rights based on the difference between the carrying amount of the
servicing rights and their current fair value.
Statement No. 122 is to be applied prospectively in fiscal years beginning
after December 15, 1995, to transactions in which a mortgage banking enterprise
sells or securitizes mortgage loans with servicing rights retained. In
addition, the provisions of this statement should be applied to the measurement
of impairment for all capitalized servicing rights, including servicing rights
capitalized prior to the initial adoption of this Statement. The Company has
not determined the impact of adopting this statement on its financial
condition, liquidity, or results of operations.
Item 8. Financial Statements and Supplementary Data
___________________________________________
a. Financial Statements Required by Regulation S-X
________________________________________________
BETHEL BANCORP AND SUBSIDIARIES
Consolidated Statements of Financial Condition
June 30, 1995 and 1994
Assets 1995 1994
______ ______________ ______________
Cash and due from banks $ 3,855,648 $ 2,480,913
Interest bearing deposits 367,423 873,653
Federal Home Loan Bank overnight deposits 10,517,000 7,981,939
______________ ______________
14,740,071 11,336,505
Trading account securities, at market value 1,375 173,071
Available for sale securities, at market
value (notes 2 and 12) 10,148,251 2,060,222
Held to maturity securities (market value
$7,358,599 in 1994) (note 3) - 8,020,108
Loans held for sale (note 4) 528,839 521,458
Due from broker 941,407 -
Loans receivable (notes 5 and 10):
First mortgage loans:
Residential real estate mortgages 116,904,359 110,010,204
Construction loans 3,342,708 1,850,047
Commercial real estate 22,546,508 22,029,165
______________ _______________
142,793,575 133,889,416
Less:
Undisbursed portion of
construction loans 951,754 606,491
Net deferred loan origination fees 302,178 358,439
______________ _______________
Total first mortgage loans 141,539,643 132,924,486
Commercial loans 12,181,512 11,460,759
Consumer and other loans 16,114,517 14,075,534
______________ _______________
169,835,672 158,460,779
Less allowance for loan losses 2,396,000 2,463,000
______________ _______________
Net loans 167,439,672 155,997,779
______________ _______________
Premises and equipment net (note 6) 3,873,278 3,044,791
Other real estate owned net (note 7) 1,372,686 1,993,984
Real estate held for investment (note 8) 452,479 650,191
Accrued interest receivable loans 1,031,389 747,600
Accrued interest receivable investments 107,317 99,891
Federal Home Loan Bank stock, at cost (note 10) 2,150,000 2,345,000
Goodwill, net of accumulated amortization
of $631,146 in 1995 and $396,048 in
1994 2,866,826 1,452,260
Other assets (note 17) 1,855,547 2,157,628
______________ ______________
$207,509,137 $190,600,488
============== ==============
See accompanying notes to consolidated financial statements.
Liabilities and Stockholders' Equity 1995 1994
____________________________________ ______________ ______________
Liabilities:
Deposits (note 9):
Demand $ 9,711,732 $ 5,966,651
NOW 14,210,010 11,619,737
Money market 12,761,762 14,233,315
Regular savings 23,697,510 20,022,171
Brokered deposits 8,787,701 13,062,247
Certificates of deposit under $100,000 62,633,273 48,071,097
Certificates of deposit $100,000 or more 15,317,882 11,331,136
______________ ______________
Total deposits 147,119,870 124,306,354
______________ ______________
Borrowed funds (note 10) 35,700,000 45,900,000
Notes payable (note 11) 2,010,091 2,520,206
Securities sold under repurchase
agreements (note 12) 2,585,387 -
Due to broker 989,062 -
Other liabilities 1,829,449 2,117,565
______________ ______________
Total liabilities 190,233,859 174,844,125
______________ ______________
Stockholders' equity (notes 13, 14, 15 and 19):
Series A cumulative convertible preferred
stock; $1 par value, 1,000,000 shares
authorized. 45,454 shares issued and
outstanding at conversion price of $22
per share 999,988 999,988
Series B cumulative convertible preferred
stock; $1 par value, 1,000,000 shares
authorized. 71,428 shares issued and
outstanding at conversion price of $14
per share 999,992 999,992
Common stock, $1 par value, 3,000,000
shares authorized. 547,502 and 547,400
shares issued and outstanding in 1995 and
1994, respectively 547,502 547,400
Additional paid-in capital 4,643,059 4,640,968
Retained earnings 10,180,244 9,006,038
Net unrealized losses on available for
sale securities (note 2) (95,507) (438,023)
______________ ______________
Total stockholders' equity 17,275,278 15,756,363
______________ ______________
Commitments and contingent liabilities
(notes 11, 12, 19 and 20)
$207,509,137 $190,600,488
============== ==============
BETHEL BANCORP AND SUBSIDIARIES
Consolidated Statements of Income
Years ended June 30, 1995, 1994 and 1993
1995 1994 1993
_____________ _____________ _____________
Interest and dividend income:
Interest on loans $ 15,085,138 $ 13,161,935 $ 13,582,351
Interest on Federal Home Loan
Bank overnight deposits 393,497 211,213 123,893
Interest on investments held
to maturity, excluding
mortgage backed securities 75,691 48,302 314,780
Interest and dividends on
available for sale securities 60,159 122,719 -
Interest on mortgage backed
securities 1,088,420 294,037 111,565
Dividends on Federal Home Loan
Bank stock 189,980 156,940 127,000
Other interest income 30,040 41,095 98,936
_____________ _____________ _____________
Total interest income 16,922,925 14,036,241 14,358,525
_____________ _____________ _____________
Interest expense:
Deposits (note 9) 5,443,103 4,466,775 5,206,666
Repurchase agreements 84,921 - -
Borrowed funds 2,524,896 2,012,937 1,947,902
_____________ _____________ _____________
Total interest expense 8,052,920 6,479,712 7,154,568
_____________ _____________ _____________
Net interest income before
provision for loan losses 8,870,005 7,556,529 7,203,957
Provision for loan losses (note 5) 640,634 1,020,795 851,706
_____________ _____________ _____________
Net interest income after
provision for loan losses 8,229,371 6,535,734 6,352,251
_____________ _____________ _____________
Noninterest income:
Fees and service charges
on loans 200,782 233,331 132,635
Fees for other services
to customers 478,713 345,991 325,051
Net securities gains (notes 2
and 3) 49,045 275,263 155,936
Gain (loss) on trading securities 370,268 71,769 (47,442)
Gain on sales of mortgage loans
(note 4) 160,982 434,210 513,744
Loan servicing fees 306,220 267,697 102,884
Other income (note 8) 550,432 830,224 267,617
_____________ _____________ _____________
Total noninterest income 2,116,442 2,458,485 1,450,425
_____________ _____________ _____________
Noninterest expense:
Salaries and employee
benefits (note 19) 3,977,800 3,278,118 2,452,129
Occupancy expense (note 6) 510,360 384,408 322,505
Equipment expense (note 6) 691,588 629,044 522,314
Other (note 16) 2,808,129 2,804,094 2,498,085
_____________ _____________ _____________
Total noninterest expense 7,987,877 7,095,664 5,795,033
_____________ _____________ _____________
Income before income taxes
and cumulative effect of
change in accounting
principle 2,357,936 1,898,555 2,007,643
Income tax expense (note 17) 868,555 697,996 785,300
_____________ _____________ _____________
Income before cumulative
effect of change in
accounting principle, 1,489,381 1,200,559 1,222,343
Cumulative effect at July 1, 1993
of change in accounting for
income taxes (note 17) - 260,000 -
_____________ _____________ _____________
Net income $ 1,489,381 1,460,559 1,222,343
============= ============= =============
Net income per common share
before cumulative effect of
change in accounting principle
(note 14):
Primary earnings per share 2.20 1.82 2.13
Fully diluted earnings per share 2.04 1.78 2.13
Net income per common share (note 14):
Primary earnings per share 2.20 2.25 2.13
Fully diluted earnings per share 2.04 2.16 2.13
See accompanying notes to consolidated financial statements.
BETHEL BANCORP AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
Years ended June 30, 1995, 1994 and 1993
Preferred
stock
Series A Common
and B stock
______________ ______________
Balance at June 30, 1992 $ 999,988 $ 536,200
Net income - -
Decrease in net unrealized losses
on marketable equity securities - -
Increase in net unrealized gains on
available for sale securities - -
Stock options exercised - 6,200
Dividends on preferred stock - -
Dividends on common stock at $.32 per
share - -
______________ ______________
Balance at June 30, 1993 999,988 542,400
Net income - -
Issuance of Series B preferred stock 999,992 -
Increase in net unrealized losses on
available for sale securities - -
Stock options exercised - 5,000
Dividends on preferred stock - -
Dividends on common stock at $.32 per
share - -
______________ ______________
Balance at June 30, 1994 1,999,980 547,400
Net income - -
Decrease in net unrealized losses on
available for sale securities - -
Issuance of common stock - 102
Dividends on preferred stock - -
Dividends on common stock at $.32 per
share - -
______________ ______________
Balance at June 30, 1995 $ 1,999,980 $ 547,502
============== ==============
See accompanying notes to consolidated financial statements.
Net
unrealized Net unrealized
losses on gains (losses)
Additional marketable on available
paid-in Retained equity for sale
capital earnings securities securities Total
______________ ______________ ______________ ______________ ______________
4,530,232 6,844,937 (71,279) - 12,840,078
- 1,222,343 - - 1,222,343
- - 71,279 - 71,279
- - - 111,421 111,421
58,836 - - - 65,036
- (69,999) - - (69,999)
- (172,816) - - (172,816)
______________ ______________ ______________ ______________ ______________
4,589,068 7,824,465 - 111,421 14,067,342
- 1,460,559 - - 1,460,559
- - - - 999,992
- - - (549,444) (549,444)
51,900 - - - 56,900
- (104,998) - - (104,998)
- (173,988) - - (173,988)
______________ ______________ ______________ ______________ ______________
4,640,968 9,006,038 - (438,023) 15,756,363
- 1,489,381 - - 1,489,381
- - - 342,516 342,516
2,091 - - - 2,193
- (140,000) - - (140,000)
- (175,175) - - (175,175)
______________ ______________ ______________ ______________ ______________
4,643,059 10,180,244 - (95,507) 17,275,278
============== ============== ============== ============== ==============
BETHEL BANCORP AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended June 30, 1995, 1994 and 1993
1995 1994 1993
_____________ _____________ _____________
Cash flows from operating
activities:
Net income $ 1,489,381 $ 1,460,559 $ 1,222,343
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Provision for loan losses 640,634 1,020,795 851,706
Provision for losses on
other real estate owned 107,173 62,600 99,000
Deferred income tax expense
(benefit) 122,143 (267,594) (186,000)
Cumulative effect of change
in accounting for income
taxes - (260,000) -
Depreciation of premises and
equipment 606,604 543,730 558,192
Goodwill amortization 235,098 119,743 101,974
Net gain on sale of investment
securities - - (106,783)
Net gain on sale of available
for sale securities (49,045) (275,263) -
Net gain on sale of loans (160,982) (434,210) (513,744)
Originations of loans held
for sale (4,273,878) (8,781,896) (14,236,602)
Proceeds from sale of loans
held for sale 4,325,745 11,309,708 13,449,468
Purchase of securities for
subsequent resale - - (3,203,098)
Sale of securities held for
sale - - 4,143,901
Net change in trading account
securities 171,696 (118,071) 7,875
Net change in due to/from
broker 47,655 - -
Other (73,829) 36,177 (54,441)
Change in other assets and
liabilities:
(Increase) decrease in
interest receivable (291,215) 179,246 (125,649)
(Increase) decrease in
other assets and
liabilities (326,872) 300,852 969,193
_____________ _____________ _____________
Net cash provided by
operating activities 2,570,308 4,896,376 2,977,335
_____________ _____________ _____________
Cash flows from investing activities:
Proceeds from the sale of
available for sale securities 12,179,897 5,332,865 -
Purchase of available for sale
securities (1,265,840) (9,639,772) -
Proceeds from maturities and
principal payments on available
for sale securities 335,432 2,532,959 -
Proceeds from maturities and
principal payments on held to
maturity securities 1,645,454 54,672 -
Purchase of held to maturity
securities (12,399,309) (3,992,341) -
Proceeds from maturities and
principal payments on
investments and mortgage-backed
securities - - 126,860
Purchase of investments and
mortgage-backed securities - - (6,886,222)
Proceeds from sales of investments
and mortgage-backed securities - - 3,116,917
Net increase in loans (11,905,988) (8,431,810) (11,762,974)
Additions to premises and
equipment (936,647) (332,748) (1,581,303)
Proceeds from sale of
investment in real estate 238,189 74,804 99,323
Purchase of investment in
real estate (13,397) (90,501) (196,228)
Proceeds from sale of other
real estate owned 581,880 642,355 272,978
Sale (purchase) of Federal
Home Loan Bank stock 195,000 (317,400) (599,300)
Acquisition of nonbanking
subsidiary - (348,314) -
Cash received from acquisition
of bank branches 25,547,199 - -
_____________ _____________ _____________
Net cash provided (used)
in investing activities 14,201,870 (14,515,231) (17,409,949)
_____________ _____________ _____________
Cash flows from financing activities:
Net (decrease) increase in
deposits $ (4,930,902) 1,809,469 980,146
Net increase in repurchase
agreements 2,585,387 - -
Dividends paid (315,175) (278,986) (242,815)
Stock options exercised - 56,900 65,036
Issuance of common stock 2,193 - -
Proceeds from issuance of
preferred stock - 999,992 -
Net (payments) borrowings (to)
from Federal Home Loan Bank (10,200,000) 7,900,000 10,900,000
Increase in notes payable - 20,206 520,833
Principal payments on notes
payable (510,115) - -
_____________ _____________ _____________
Net cash (used) provided
by financing activities (13,368,612) 10,507,581 12,223,200
_____________ _____________ _____________
Net increase (decrease) in cash
and cash equivalents 3,403,566 888,726 (2,209,414)
Cash and cash equivalents,
beginning of year 11,336,505 10,447,779 12,657,193
_____________ _____________ _____________
Cash and cash equivalents,
end of year $ 14,740,071 $ 11,336,505 $ 10,447,779
============= ============= =============
Supplemental schedule of cash
flow information:
Interest paid $ 7,997,123 $ 6,457,283 $ 7,192,134
Income taxes paid, net of
refunds 794,000 872,500 964,655
Supplemental schedule of noncash
investing and financing activities:
Transfer from loans to other
real estate owned 827,304 1,479,233 1,184,621
Transfer from other real
estate owned to loans 382,718 767,720 -
Transfer from loans to loans
held for sale - - 1,940,392
Loans originated to finance the
sales of other real estate owned 399,550 362,826 602,289
Transfer from investments to
available for sale securities - - 4,946,106
Transfer from available for sale
securities to held to maturity
securities, at fair value - 4,082,439 -
Transfer of securities into
available for sale securities,
at fair value 18,821,933 - -
Transfer of securities out of
held to maturity securities,
at amortized cost (18,774,672) - -
Net change in valuation for
unrealized losses on
marketable equity securities - - (71,279)
Net change in valuation for
unrealized (gains) losses on
available for sale securities (295,255) 549,444 (111,421)
Net change in deferred taxes for
unrealized losses on available
for sale securities (176,446) 326,641 -
In connection with the acquisition of bank branches, the Company assumed
deposit liabilities (See note 18).
See accompanying notes to consolidated financial statements.
BETHEL BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1995, 1994 and 1993
1. Summary of Significant Accounting Policies
______________________________________________
The accounting and reporting policies of Bethel Bancorp and subsidiaries
(the Company) conform to generally accepted accounting principles and
general practice within the banking industry.
Business
________
Bethel Bancorp provides a full range of banking services to individual and
corporate customers throughout south central and western Maine through its
wholly owned subsidiaries, Bethel Savings Bank, FSB and Brunswick Federal
Savings, F.A. The banks are subject to competition from other financial
institutions. The banks are subject to the regulations of the Federal
Deposit Insurance Corporation (FDIC) and the Office of Thrift Supervision
(OTS) and undergo periodic examinations by these agencies.
Basis of Financial Statement Presentation
_________________________________________
The financial statements have been prepared in conformity with generally
accepted accounting principles. In preparing the financial statements,
management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities as of the date of the balance
sheet and income and expenses for the period. Actual results could differ
significantly from those estimates.
Material estimates that are particularly susceptible to significant change
relate to the determination of the allowance for loan losses and the
valuation of real estate acquired in connection with foreclosures or in
satisfaction of loans. In connection with the determination of the
allowance for loan losses and the carrying value of real estate acquired
through foreclosure, management obtains independent appraisals for
significant properties.
A substantial portion (85%) of the Company's loans are secured by real
estate in the State of Maine. In addition, all of the real estate acquired
through foreclosure is located in the same market. Accordingly, the
ultimate collectibility of a substantial portion of the Company's loan
portfolio and the recovery of the carrying amount on real estate acquired
through foreclosure are susceptible to changes in market conditions in
Maine.
Principles of Consolidation
___________________________
The accompanying consolidated financial statements include the accounts of
Bethel Bancorp, a savings and loan holding company, its wholly-owned
subsidiaries, Bethel Savings Bank, FSB (including the bank's wholly-owned
subsidiary, Bethel Service Corporation and its majority-owned subsidiary,
First New England Benefits, Inc.), Brunswick Federal Savings, F.A.
(including the bank s wholly-owned subsidiary Brunswick Service
Corporation), and the Company s wholly-owned nonbanking subsidiary, ASI
Data Services, Inc. All significant intercompany transactions and balances
have been eliminated in consolidation.
Cash Equivalents
________________
Cash equivalents consist of due from banks, Federal Home Loan Bank
overnight deposits and interest bearing deposits. For purposes of the
statements of cash flows, the Company considers all highly liquid debt
instruments with original maturities of three months or less to be cash
equivalents. The Company is required to maintain a certain reserve balance
in the form of cash or deposits with the Federal Reserve Bank. At June 30,
1995, the reserve balance was approximately $448,000.
Investments
___________
On May 31, 1993, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 115, Accounting for Certain
Investments in Debt and Equity Securities (Statement 115). Statement 115
addresses the accounting and reporting for investments in equity securities
that have readily determinable fair values, and all investments in debt
securities. The Company elected early adoption of Statement 115 as of June
30, 1993. The Company s investment accounting policies are as follows at
June 30, 1995 and 1994:
Trading Account Securities
__________________________
Trading account securities, consisting of equity securities purchased
with the intent to be subsequently sold to provide net securities gains,
are carried at market value. Realized and unrealized gains and losses
on trading account securities are recognized in the statements of income
as they occur. Transactions are accounted for as of the trade date
using the specific identification method.
Available for Sale Securities
_____________________________
Available for sale securities consist of mortgage-backed, debt and
equity securities that the Company anticipates could be made available
for sale in response to changes in market interest rates, liquidity
needs, changes in funding sources and other similar factors. These
assets are specifically identified and are carried at fair value.
Unrealized holding gains and losses for these assets less the related
tax effects are reported as a net amount in a separate component of
stockholders equity. When a decline in market value is considered
other than temporary, the loss is charged to expense as a write down.
Gains and losses on the sale of available for sale securities are
determined using the specific identification method.
Held to Maturity Securities
___________________________
Held to maturity securities consist of debt securities purchased where
the Company has the positive intent and ability to hold such securities
until maturity. Debt securities classified as held to maturity are
carried at amortized cost, adjusted for amortization of premiums and
accretion of discounts. When a decline in market value is considered
other than temporary, the loss is charged to expense as a write down.
There were no held to maturity securities at June 30, 1995.
Prior to June 30, 1993, the Company accounted for investment securities as
proscribed by FASB Statement 12. The Company s accounting policies for
investment securities were as follows:
Investment Securities
_____________________
Investments included marketable equity securities and debt securities.
Debt securities were stated at cost, adjusted for amortization of
premiums and accretion of discounts. Marketable equity securities were
carried at the lower of aggregate cost or market. A valuation reserve
was established for the difference between the carrying value and market
value of marketable equity securities. The cost of securities sold was
determined using the specific identification method. When a decline in
market value was considered other than temporary, the loss was charged
to expense.
Mortgage-Backed Securities
__________________________
Mortgage-backed securities were carried at unpaid principal balances,
adjusted for unamortized premiums and unearned discounts. Premiums and
discounts were amortized using the interest method over the remaining
period to contractual maturity, adjusted for anticipated prepayments.
Federal Home Loan Bank Stock
____________________________
Federal Home Loan Bank stock is carried at cost.
Loans Held for Sale
___________________
Loans originated for the purpose of potential subsequent sale are
classified as held for sale. These assets are specifically identified and
are carried at the lower of cost or market value.
Interest Income and Expense Recognition
_______________________________________
Interest income, including amortization of premiums and accretion of
discounts, on loans and debt securities is recognized using the interest
method which relates income earned to the loans and investment securities
outstanding. The recognition of interest income on problem loan accounts
ceases when the loan is 90 days past due or when collectibility becomes
doubtful, whichever is earlier. Interest accrued but not received on loans
placed on nonaccrual status is reversed and charged against current
operations. Interest on nonaccrual loans is recognized only when received.
Loans are restored to accrual status when the borrower has demonstrated the
ability to make future principal and interest payments. Interest expense
on deposits is determined by applying contractual interest rates to
outstanding balances.
Allowance for Loan Losses
_________________________
The allowance for loan losses is established through a provision for loan
losses charged to operations. Loan losses are charged against the
allowance when management believes that the collectibility of the loan
principal is unlikely. Recoveries on loans previously charged off are
credited to the allowance.
The allowance is an amount that management believes will be adequate to
absorb possible loan losses based on evaluations of collectibility and
prior loss experience. The evaluation takes into consideration such
factors as changes in the nature and volume of the portfolio, overall
portfolio quality, specific problem loans, and current and anticipated
economic conditions that may affect the borrowers' ability to repay.
Management also obtains appraisals when considered necessary.
Management believes that the allowance for loan losses is adequate. While
management uses available information to recognize losses on loans,
changing economic conditions and the economic prospects of the borrowers
might necessitate future additions to the allowance. In addition, various
regulatory agencies, as an integral part of their examination process,
periodically review the Company's allowance for loan losses. Such agencies
may require the Company to recognize additions to the allowance based on
their judgments about information available to them at the time of their
examination.
Loan Origination Fees
_____________________
Loan origination fees and certain direct loan origination costs are
deferred and recognized in interest income as an adjustment to the loan
yield over the life of the related loans. The unamortized net deferred
fees and costs are included on the balance sheet with the related loan
balances. The amount charged or credited to income is included with the
related interest income.
Premises and Equipment
______________________
Premises and equipment are stated at cost less accumulated depreciation.
Depreciation is computed by the straight-line and accelerated methods over
the estimated useful lives of the assets or the term of the lease, if
shorter. Maintenance and repairs are charged to current expense as
incurred and the cost of major renewals and betterments are capitalized.
Income Taxes
____________
In February 1992, the Financial Accounting Standards Board issued Statement
No. 109, Accounting for Income Taxes (Statement 109). Statement 109
requires a change from the deferred method of accounting for income taxes
required under APB Opinion 11 to the asset and liability method of
accounting for income taxes. Under the asset and liability method of
Statement 109, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled.
Under Statement 109, the effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
Effective July 1, 1993, the Company adopted Statement 109 and has reported
the cumulative effect of the change in the method of accounting for income
taxes in the 1994 consolidated statement of income.
Pursuant to the deferred method under APB Opinion 11, which was applied in
1993 and prior years, deferred income taxes are recognized for income and
expense items that are reported in different years for financial reporting
purposes and income tax purposes using the tax rate applicable for the year
of the calculation. Under the deferred method, deferred taxes are not
adjusted for subsequent changes in tax rates.
Pension Plans
_____________
It is the Company's policy to provide for pension costs on its defined
contribution plans by annual charges to income and fund pension costs
accrued.
Other Real Estate Owned
_______________________
Other real estate owned is comprised of (1) properties or other assets
acquired through foreclosure proceedings, or acceptance of a deed or title
in lieu of foreclosure, (2) properties (insubstance foreclosures) which
secure loans and meet the criteria specified in Financial Reporting Release
28 of the Securities and Exchange Commission and are accounted for in
accordance with Financial Accounting Standards No. 15 where the borrower is
deemed to have little or no equity in the property, is not expected to
rebuild such equity in the foreseeable future or has effectively abandoned
control of the property and proceeds for repayment of the loan are expected
to come solely from the operation or sale of the property and (3) other
assets repossessed in connection with non-real estate loans. Other real
estate owned is carried at the lower of cost or fair value of the
collateral less estimated selling expenses. Losses arising from the
acquisition (including insubstance foreclosures) of such properties are
charged against the allowance for loan losses. Operating expenses and any
subsequent provisions to reduce the carrying value are charged to current
period earnings. Gains and losses upon disposition are reflected in
earnings as realized.
Real Estate Held for Investment
_______________________________
Real estate properties held for investment are carried at the lower of
cost, including costs of improvements and amenities incurred subsequent to
acquisition, or net realizable value. Costs relating to development and
improvement of property are capitalized, whereas costs relating to holding
property are expensed.
Goodwill
________
Goodwill arising from the acquisition of Brunswick Federal Savings, F.A.
and First New England Benefits is being amortized on a straight-line basis
over fifteen years. Goodwill arising from the acquisition of four bank
branches is being amortized on a straight-line basis over ten years.
Reclassification
________________
Certain prior year accounts and balances in the consolidated financial
statements have been reclassified to conform to the current year
presentation.
2. Available for Sale Securities
_________________________________
The Company carries available for sale securities at market value. A
summary of the cost and market values of available for sale securities at
June 30, 1995 and 1994 follows:
1995 1994
________________________ _______________________
Market Market
Cost value Cost value
___________ ___________ ___________ ___________
Debt securities issued
by the U.S. Treasury
and other U.S.
Government
corporations and
agencies $ 250,000 $ 239,225 $ 250,000 $ 226,407
Corporate bonds 149,599 141,436 149,551 129,094
Equity securities 577,939 470,085 524,433 439,341
Mortgage-backed
securities 9,315,419 9,297,505 1,391,708 1,265,380
___________ ___________ ___________ ___________
$10,292,957 $10,148,251 $ 2,315,692 $ 2,060,222
=========== =========== =========== ===========
The gross unrealized gains and unrealized losses on available for sale
securities are as follows:
1995 1994
________________________ ________________________
Gross Gross Gross Gross
unrealized unrealized unrealized unrealized
gains losses gains losses
___________ ___________ ___________ ___________
Debt securities issued
by the U. S. Treasury
and other U. S.
Government
corporations and
agencies $ - 10,775 - 23,593
Corporate bonds - 8,163 - 20,457
Equity securitie 10,625 118,479 4,708 89,800
Mortgage-backed
securities 211,709 229,623 - 126,328
___________ ___________ ___________ ___________
$ 222,334 $ 367,040 $ 4,708 $ 260,178
=========== =========== =========== ===========
At June 30, 1995, investment securities with a carrying value of $4,000,000
were pledged as collateral to secure outstanding repurchase agreements.
At June 30, 1995 and 1994, included in net unrealized losses on available
for sale securities as a reduction to stockholders equity are net
unrealized losses of $144,707 and $255,470, respectively, net of the
deferred tax effect of $49,200 and $86,860, respectively. Also included in
net unrealized losses on available for sale securities at June 30, 1994 is
$408,197, net of the deferred tax effect of $138,784, for unamortized
unrealized losses on securities transferred from the available for sale
category to the held to maturity category.
The cost and market values of available for sale securities at June 30,
1995 by contractual maturity are shown below. Actual maturities will
differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.
Market
Cost value
_______________ _______________
Due in one year $ - -
Due after one year through five years - -
Due after five years through ten years 399,599 380,661
Due after ten years - -
_______________ _______________
399,599 380,661
_______________ _______________
Mortgage-backed securities (including
securities with interest rates
ranging from 5.15% to 8.5% maturing
December 2007 to November 2024) 9,315,419 9,297,505
Equity securities 577,939 470,085
_______________ _______________
$ 10,292,957 $ 10,148,251
=============== ===============
The realized gains and losses on available for sale securities for the year
ended June 30, 1995 were $280,257 and $231,212, respectively. The realized
gains and losses for the year ended June 30, 1994 were $280,449 and $5,186,
respectively.
Based on management s assessment of equity securities, there has been more
than a temporary decline in market value of certain securities. Such
securities were written down to market value. At June 30, 1994 and 1993,
write-downs of available for sale securities amounting to $84,419 and
$61,000, respectively, are included in other expense. There were no
writedowns of available for sale securities in 1995.
Proceeds from the sale of securities held for sale were $4,193,054 in 1993;
gross realized gains were $49,153.
3. Held to Maturity Securities
_______________________________
The Company carries held to maturity securities at amortized cost. There
were no held to maturity securities at June 30, 1995. A summary of
amortized cost, gross unrealized losses and market value of held to
maturity securities at June 30, 1994 follows:
June 30, 1994
_____________________________________________
Gross
Carrying unrealized Market
value losses value
_____________ _____________ _____________
Debt securities issued by
the U. S. Treasury and
other U. S. Government
corporations and agencies $ 1,382,544 $ 142,819 $ 1,239,725
Mortgage-backed securities 5,669,215 426,697 5,242,518
FNMA Guaranteed REMIC
Class A, 7.5% 968,349 91,993 876,356
_____________ _____________ _____________
$ 8,020,108 $ 661,509 $ 7,358,599
============= ============= =============
During 1995, the Company purchased an additional $12,399,000 in securities
it classified as held to maturity, since at the time of acquisition Company
management had the intention, and the Company had the ability, to hold such
securities until maturity.
In the last quarter of fiscal 1995, as a result of its planning process and
changes in market conditions, Company management determined that it no
longer possessed the intent to hold such securities to maturity.
Consequently, the Company transferred its entire held to maturity
portfolio, with an aggregate cost of $18,775,000 and an aggregate market
value of $18,822,000 (including unrealized gains and losses of $191,000 and
$144,000, respectively) to available for sale.
The Company subsequently sold selected of the aforementioned securities
with an aggregate cost of $11,900,000 and realized gains of $273,000 and
realized losses of $225,000.
The Company's decision not to hold these securities to maturity does not
satisfy the limited criteria of Financial Accounting Standards No. 115
which specifies circumstances in which it is permissible to sell or
transfer held to maturity securities. Consequently, the Company will, for
the foreseeable future, classify its securities portfolio as available for
sale, or trading.
In 1993, realized gains and losses on the sale of debt securities were
$112,752 and $3,387, respectively. Proceeds from sale of debt securities
were $3,000,652. Net realized losses on the sale of marketable equity
securities were $2,582 for the year ended June 30, 1993.
4. Loans Held for Sale
_______________________
The Company has a portfolio of loans held for sale which have been
originated for potential subsequent sale in the foreseeable future. A
summary of the carrying value and market value of loans held for sale at
June 30, 1995 and 1994 follows:
June 30, 1995 June 30, 1994
_______________________ _______________________
Carrying Market Carrying Market
value value value value
__________ __________ __________ __________
Real estate mortgages $ 528,839 $ 532,652 $ 521,458 $ 525,769
========== ========== ========== ==========
At June 30, 1995 and 1994, gross unrealized gains on loans held for sale
were $3,813 and $4,311, respectively, and there were no unrealized losses.
The Company s subsidiaries originate loans to be sold to the secondary
market and occasionally sell mortgage loans from their loan portfolios.
Gain on sales of loans amounted to $160,982, $434,210 and $513,744 for the
years ended June 30, 1995, 1994 and 1993. Proceeds from the sale of loans
out of the portfolio was $1,616,926 in 1995, $3,862,039 in 1994 and
$3,693,935 in 1993.
5. Loans
_________
The Company's lending activities are conducted in south central and western
Maine. The Company grants single-family and multi-family residential
loans, commercial real estate loans, commercial loans and a variety of
consumer loans. In addition, the Company grants loans for the construction
of residential homes, multi-family properties, commercial real estate
properties and for land development. Most loans granted by the Company are
collateralized by real estate. The ability and willingness of residential
and commercial real estate, commercial and construction loan borrowers to
honor their repayment commitments is generally dependent on the health of
the real estate economic sector in the borrowers' geographic area and the
general economy.
Loans on nonaccrual status at June 30, 1995 and 1994 totaled approximately
$2,266,000 and $2,723,000, respectively. Interest income that would have
been recorded under the original terms of such loans, net of interest
income actually recognized for the years ended June 30, 1995, 1994 and
1993, totaled approximately $62,000, $119,000 and $75,000, respectively.
In the ordinary course of business, the Company has loan transactions with
its officers, directors and their associates and affiliated companies
("related parties") at substantially the same terms as those prevailing at
the time for comparable transactions with others. Such loans amounted to
$2,564,230 and $2,611,102 at June 30, 1995 and 1994, respectively. New
loans granted to related parties in 1995 totaled $490,418; payments and
reductions amounted to $537,290. In 1994, new loans granted to related
parties totaled $1,301,601; payments and reductions amounted to $1,326,988.
The Company was servicing for others, mortgage loans originated and sold of
approximately $32,560,000 and $30,064,000 at June 30, 1995 and 1994,
respectively. In addition to loans originated and sold by the Company,
during 1993 the Company purchased loan servicing rights from another
institution. The balance of the loans serviced under this agreement was
approximately $12,983,000 and $15,805,000 at June 30, 1995 and 1994,
respectively.
Activity in the allowance for loan losses was as follows:
Year ended June 30,
__________________________________________
1995 1994 1993
____________ ____________ ____________
Balance at beginning of year $ 2,463,000 $ 2,123,000 $ 1,555,000
Provision charged to operating
expenses 640,634 1,020,795 851,706
Loans charged off (760,733) (730,108) (313,212)
Recoveries on loans charged off 53,099 49,313 29,506
____________ ____________ ____________
Net loans charged off (707,634) (680,795) (283,706)
____________ ____________ ____________
Balance at end of year $ 2,396,000 $ 2,463,000 $ 2,123,000
============ ============ ============
On May 31, 1993, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 114, Accounting by
Creditors for Impairment of a Loan (Statement 114). This Statement as
amended by Statement 118, which applies to all creditors, addresses the
accounting by creditors for impairment of a loan by specifying how
allowances for credit losses related to certain loans should be determined.
These Statements are effective for financial statements for fiscal years
beginning after December 15, 1994. Management has determined the impact of
adopting Statement 114 and 118 on its financial condition, results of
operations or liquidity will not be material.
6. Premises and Equipment
__________________________
Premises and equipment at June 30, 1995 and 1994 are summarized as follows:
1995 1994
_______________ _______________
Land $ 625,750 $ 625,750
Buildings 2,238,391 1,536,352
Leasehold and building improvements 622,614 560,817
Furniture, fixtures and equipment 3,193,546 2,543,188
_______________ _______________
6,680,301 5,266,107
Less accumulated depreciation 2,807,023 2,221,316
_______________ _______________
Net premises and equipment $ 3,873,278 3,044,791
=============== ===============
Depreciation and amortization of premises and equipment, included in
occupancy and equipment expense, was approximately $599,868, $531,648 and
$545,352 for the years ended June 30, 1995, 1994 and 1993, respectively.
7. Other Real Estate Owned
___________________________
The following table summarizes the composition of other real estate owned
at June 30:
1995 1994
_______________ _______________
Real estate properties acquired in
settlement of loans $ 1,073,743 $ 1,295,399
In-substance foreclosures 304,232 747,990
_______________ _______________
1,377,975 2,043,389
Less allowance for losses 5,289 49,405
_______________ _______________
$ 1,372,686 $ 1,993,984
=============== ===============
Activity in the allowance for losses on other real estate owned was as
follows:
1995 1994 1993
____________ ____________ ____________
Balance at beginning of year $ 49,405 $ 27,881 $ 27,455
Provision for losses on other
real estate owned 107,173 62,600 99,000
Other real estate owned
write-downs (151,289) (41,076) (98,574)
____________ ____________ ____________
Balance at end of year $ 5,289 $ 49,405 $ 27,881
============ ============ ============
8. Real Estate Held for Investment
___________________________________
Real estate held for investment (held by Bethel Service Corporation) at
June 30 is summarized as follows:
1995 1994
_______________ _______________
Rental properties $ 167,741 $ 462,592
Less accumulated depreciation 2,639 40,764
_______________ _______________
165,102 421,828
Land held for development 287,377 228,363
_______________ _______________
$ 452,479 $ 650,191
=============== ===============
A summary of income (loss) from real estate held for investment operations,
which is included in other income, for the years ended June 30, 1995, 1994
and 1993 is as follows:
1995 1994 1993
____________ ____________ ____________
Rental income $ 9,256 $ 14,513 $ 17,553
Gain on sale of real estate 33,816 4,464 21,371
Depreciation (6,736) (12,082) (12,840)
Other operating expenses (54,068) (23,209) (23,361)
____________ ____________ ____________
Income (loss) $ (17,732) $ (16,314) $ 2,723
============ ============ ============
9. Deposits
____________
Deposits at June 30 are summarized as follows:
Weighted
average
rate 1995 1994
at June ______________________ ______________________
30, 1995 Amount Percent Amount Percent
________ ______________ _______ ______________ _______
Demand 0.00% $ 9,711,732 6.6% $ 5,966,651 4.8%
NOW 2.15 14,210,010 9.6 11,619,737 9.3
Money market 3.58 12,761,762 8.7 14,233,315 11.5
Regular savings 2.76 23,697,510 16.1 20,022,171 16.1
Certificates of
deposits:
1.00 - 3.75% 3.21 1,564,106 1.1 17,850,623 14.4
3.76 - 5.75% 5.06 40,328,991 27.4 43,424,348 34.9
5.76 - 7.75% 6.40 42,688,280 29.0 8,447,360 6.8
7.76 - 9.75% 8.04 2,157,479 1.5 2,742,149 2.2
_______ ______________ _______ ______________ _______
4.35% $ 147,119,870 100.0% $ 124,306,354 100.0%
======== ============== ======= ============== =======
At June 30, 1995, scheduled maturities of certificates of deposit are as
follows:
1996 1997 1998 1999 2000 Thereafter
_____________ _____________ ______________ ______________ _____________
_____________
1.00 - 3.75% $ 1,471,510 $ 56,483 $ 1,629 $ 10,709 $ 23,775 -
3.76 - 5.75% 29,019,721 8,547,187 1,397,243 1,242,501 118,040 4,299
5.76 - 7.75% 22,389,223 13,789,523 2,549,916 1,626,177 2,303,952 29,489
7.76 - 9.75% 1,077,807 966,422 113,250 - - -
Interest expense on deposits for the years ended June 30, 1995, 1994 and
1993 is summarized as follows:
1995 1994 1993
______________ ______________ ______________
NOW $ 264,143 $ 197,412 $ 320,372
Money market 455,080 452,620 503,743
Regular savings 610,415 521,298 645,627
Certificates of deposit 4,113,465 3,295,445 3,736,924
______________ ______________ ______________
$ 5,443,103 $ 4,466,775 $ 5,206,666
============== ============== ==============
10. Borrowings From the Federal Home Loan Bank
______________________________________________
A summary of borrowings from the Federal Home Loan Bank are as follows:
June 30, 1995
___________________________________________________
Principal Interest Maturity
amounts rates dates
_______________ _______________ _______________
$ 25,400,000 4.41% - 7.65% 1996
5,300,000 5.17% - 8.30% 1997
4,000,000 4.97% - 6.35% 1998
1,000,000 5.75% 1999
_______________
$ 35,700,000
===============
June 30, 1994
____________________________________________________
Principal Interest Maturity
amounts rates dates
_______________ _______________ ________________
$ 25,200,000 3.93% - 8.81% 1995
7,300,000 4.41% - 5.84% 1996
6,900,000 3.61% - 8.30% 1997
3,500,000 3.86% - 5.08% 1998
3,000,000 3.90% - 5.75% 1999
_______________
$ 45,900,000
===============
Mortgages, free of liens, pledges and encumbrances, and the Company's
Federal Home Loan Bank stock equal to at least 200% of the borrowings from
that bank have been pledged to secure these borrowings. The Company is
required to own stock of the Federal Home Loan Bank of Boston in order to
borrow from the Federal Home Loan Bank. Several of the Federal Home Loan
Bank borrowings held at June 30, 1995 are adjustable, and therefore the
rates are subject to change.
11. Notes Payable
_________________
Notes payable primarily consist of a $2.5 million loan from an unrelated
financial institution for the acquisition of one of the Company's banking
subsidiaries. The Company borrowed $2,500,000 payable in twenty
consecutive equal quarterly payments of principal of $125,000 commencing on
July 1, 1994. Interest is payable monthly at a rate equal to the lender's
prime rate, floating daily, plus .75% through April 30, 1997; at the prime
rate, floating daily, plus 1.25% through April 30, 1998; at the prime
rate, floating daily, plus 1.75% thereafter. The Company pledged all of
the Brunswick Federal Savings common stock and a $1 million key man life
insurance policy as collateral for the loan.
The loan agreement contains certain covenants which limits capital
expenditures of the Company and the amount of nonperforming loans and
requires minimum loan loss reserves, capital, and return on assets. At
June 30, 1995, the Company complied with these covenants.
12. Securities Sold Under Repurchase Agreements
_______________________________________________
During 1995, the Company sold securities under agreements to repurchase.
The weighted average interest rate on repurchase agreements was 4.99% at
June 30, 1995. These borrowings, which were scheduled to mature within 180
days, were collateralized by FHLMC and GNMA securities with a market value
of $4,000,000 and amortized cost of $3,867,000 at June 30, 1995. The
repurchase agreements averaged $1,775,000 during the year ended June 30,
1995. The maximum amount outstanding at any month-end during the year was
$2,585,000. Securities sold under these agreements were under the control
of the Company during 1995.
13. Stockholders' Equity
________________________
For Federal income tax purposes, the Company has designated approximately
$2,400,000 of net worth as a reserve for bad debts on loans. The use of
this amount for purposes other than to absorb losses on loans would result
in taxable income and financial statement tax expense at the then current
tax rate.
The Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA)
was signed into law on December 19, 1991. Regulations implementing the
prompt corrective action provisions of FDICIA became effective December 19,
1992. In addition to the prompt corrective action requirements, FDICIA
includes significant changes to the legal and regulatory environment for
insured depository institutions, including reductions in insurance coverage
for certain kinds of deposits, increased supervision by the federal
regulatory agencies, increased reporting requirements for insured
institutions and new regulations concerning internal controls, accounting
and operations.
The prompt corrective action regulations define specific capital categories
based on an institution's capital ratios. The capital categories, in
declining order, are "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized," and "critically
undercapitalized."
To be considered "adequately capitalized," an institution must generally
have a leverage ratio of at least 4%, a Tier 1 risk-based capital ratio of
at least 4%, and a total risk-based capital ratio of at least 8%. An
institution is deemed to be "critically undercapitalized" if it has a
tangible equity ratio of 2% or less. At June 30, 1995, the Company was in
compliance with the regulatory capital requirements.
14. Earnings Per Share
______________________
Earnings per share have been computed on the basis of the weighted average
number of shares of common stock outstanding. The weighted average number
of shares outstanding were: 613,700, 602,600, and 540,460 for the years
ended June 30, 1995, 1994 and 1993, respectively. Common stock equivalents
and potentially dilutive securities were considered in the 1995 and 1994
calculation of weighted average shares outstanding, since their effect was
dilutive. Their effects were anti-dilutive in 1993, therefore they were
not considered in the weighted average shares outstanding calculation.
Preferred stock dividends have been deducted from net income in the
calculation of earnings per share for the years ended June 30, 1995, 1994
and 1993.
15. Preferred Stock
___________________
In September 1990, the Company issued 45,454 shares of preferred stock
designated as cumulative convertible preferred stock, Series A. The stock
may be converted to common stock on a one to one ratio at the option of the
holder. The preferred stock carries voting rights. Dividends are to be
paid to the holder of the preferred stock quarterly at a rate equal to
interest at prime rate less two percent but in no event less than 7% per
annum based on $22 value per share.
In February 1994, the Company issued 71,428 shares of preferred stock
designated as cumulative convertible preferred stock, Series B. The stock
may be converted to common stock on a one to one ratio at the option of the
holder. The preferred stock carries voting rights. Dividends are to be
paid to the holder of the preferred stock quarterly at a rate equal to
interest at prime rate less two percent but in no event less than 7% per
annum based on $14 value per share. The Series B preferred stock has
warrants attached for a term of seven years to purchase 116,882 shares of
the Company's common stock at $14 per share.
On August 7, 1995, the Company was informed that 50,000 common stock
warrants that were outstanding at June 30, 1995, will be exercised on
August 16, 1995. The exercise price is $14.00 per warrant and the Company
expects to receive $700,000.
16. Other Expenses
__________________
Other expenses includes the following for the years ended June 30, 1995,
1994 and 1993:
1995 1994 1993
______________ ______________ ______________
Professional fees $ 304,547 $ 374,572 $ 209,829
Computer service and
processing fees 14,279 62,885 312,521
Collection expense 36,604 55,598 36,378
FDIC and other insurance 417,202 427,227 378,837
Supplies 248,951 193,158 224,807
Telephone 248,473 223,627 170,368
Real estate owned expenses 99,272 149,570 120,267
Postage 133,948 91,284 74,322
Dues and subscriptions 98,873 104,804 76,143
Provision for losses on OREO 107,173 62,600 99,000
Director fees 104,775 102,808 77,826
Goodwill amortization 235,098 119,743 101,974
Write-down on securities - 84,419 61,000
Other 758,934 751,799 554,813
______________ ______________ ______________
$ 2,808,129 $ 2,804,094 $ 2,498,085
============== ============== ==============
17. Income Taxes
________________
As discussed in note 1, effective July 1, 1993, the Company adopted
Statement 109, which changed the method of accounting for income taxes to
the asset and liability method from the deferred method previously
required by APB Opinion 11. The cumulative effect of this change in
accounting for income taxes of $260,000 was determined as of July 1, 1993,
and is reported separately in the consolidated statement of income for the
year ended June 30, 1994.
The current and deferred components of income tax expense (benefit) were as
follows for the years ended June 30, 1995, 1994 and 1993:
1995 1994 1993
______________ ______________ ______________
Federal:
Current $ 714,055 $ 936,146 $ 945,000
Deferred 122,143 (267,594) (186,000)
______________ ______________ ______________
836,198 668,552 759,000
______________ ______________ ______________
State and local
current 32,357 29,444 26,300
______________ ______________ ______________
$ 868,555 697,996 785,300
============== ============== ==============
Total income tax expense is different from the amounts computed by applying
the U. S. Federal income tax rates in effect to income before income taxes.
The reasons for these differences are as follows for the years ended June
30, 1995, 1994 and 1993:
1995 1994 1993
_________________ _________________ _________________
% of % of % of
pretax pretax pretax
Amount income Amount income Amount income
__________ ______ __________ ______ __________ ______
Expected income tax
expense at Federal
tax rate $ 801,698 34.0% $ 645,509 34.0% $ 682,021 34.0%
Financial statement
provision for loan
losses greater than
tax bad debt
deduction - - - - 49,342 2.5
State tax, net of
federal tax
benefit 21,562 .9 19,656 1.0 17,357 .9
Amortization of
goodwill 34,671 1.5 34,671 1.8 34,671 1.7
Dividend received
deduction (5,333) (.2) (3,276) (.2) (3,840) (.2)
Low income/
rehabilitation
credit (20,000) (.9) (20,000) (1.1) (20,000) (1.0)
Other 35,957 1.5 21,436 1.2 25,749 1.3
__________ ______ __________ ______ __________ ______
$ 868,555 36.8% $ 697,996 36.7% $ 785,300 39.2%
========== ====== ========== ====== ========== ======
The tax effect of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at June
30, 1995 and 1994 are presented below:
1995 1994
______________ ______________
Deferred tax assets:
Loans, principally due to allowance
for loan losses $ 666,000 $ 777,000
Deferred loan fees 103,000 122,000
Deferred gain on loan sales 93,000 77,000
Interest on nonperforming loans 132,000 127,000
Difference in tax and financial
statement bases of investments 78,000 283,000
Other 24,000 21,000
______________ ______________
Total deferred tax assets 1,096,000 1,407,000
______________ ______________
Deferred tax liabilities:
Loan loss reserve tax (135,000) (99,000)
Other (37,000) (29,000)
______________ ______________
Total deferred tax liabilities (172,000) (128,000)
______________ ______________
Net deferred tax assets $ 924,000 $ 1,279,000
============== ==============
The Company has sufficient refundable taxes paid in available carryback
years to fully realize its recorded deferred tax asset of $1,096,000.
At June 30, 1995 and 1994, the Company has included the net deferred tax
assets of $924,000 and $1,279,000, respectively, in other assets in the
consolidated statements of financial condition.
As a result of the Company filing its 1994 tax return during fiscal year
1995, the Company reclassed $56,000 between current and deferred tax
accounts.
Deferred taxes resulting from timing differences in 1993 are as follows:
Loan loss provision $ (23,200)
Deferred loan fees and costs 13,100
Tax and financial statement depreciation (30,300)
Tax security loss less than financial statement (38,300)
Nonaccrual interest (25,600)
Tax gain on sale of loans greater than financial statement gain (64,500)
Difference in tax and financial statement other real estate
owned activity (33,185)
Other 15,985
____________
$ (186,000)
============
18. Acquisitions
________________
Acquisition of ASI Data Services, Inc.
______________________________________
During 1993, the Company acquired 90 percent of all the outstanding capital
stock of ASI Data Services, Inc. (ASI) for an aggregate purchase price of
$465,840. The Company contributed equipment and other assets in exchange
for the 90 percent ownership. The acquisition was accounted for using the
purchase method. The effective date of the acquisition, for accounting
purposes, was the opening of business May 1, 1993, at which time ASI became
a majority owned subsidiary of the Company. The pro forma effects on the
results of operations of the Company after consideration of the acquisition
of ASI are not material. During 1994, the Company acquired the additional
10 percent of the outstanding common stock of ASI Data Services, Inc. The
price for the additional shares was not material.
Acquisition of First New England Benefits
_________________________________________
During 1994 Bethel Service Corp., a subsidiary of Bethel Savings Bank,
acquired common stock of First New England Benefits for an aggregate
purchase price of $300,000. With this purchase, the Company owns 62.5
percent of all outstanding common stock of First New England Benefits. The
effective date of the acquisition, for accounting purposes, was November 1,
1993. The acquisition was accounted for using the purchase method. The
pro forma effects on the results of operations of the Company after
consideration of the acquisition of First New England Benefits are not
material.
Acquisition of Bank Branches
____________________________
During 1995, the Company's subsidiaries, Bethel Savings Bank and Brunswick
Federal Savings, acquired four branches from Key Bank of Maine. The total
deposits assumed were $27,749,000. The premium paid to Key Bank for these
deposits was $1,590,228. In addition to the assumed deposits, the banks
acquired real estate, buildings and furniture totalling $498,500 and other
miscellaneous assets and liabilities which are immaterial. The effective
date of the acquisition was October 28, 1994. The acquisition was
accounted for using purchase accounting. Separate financial information on
the results of operations of the individual branches was not maintained by
the seller or the Company and therefore pro-forma results of operations are
not presented.
19. Employee Benefit Plans
__________________________
Profit Sharing Plan
___________________
The Company has a profit sharing plan which covers substantially all
full-time employees. Contributions and costs were determined as a percent
of each covered employee's salary and are at the Board of Directors
discretion. Expenses for the profit sharing plan for the years ended June
30, 1995, 1994 and 1993 were $76,000, $84,500 and $97,700, respectively.
Stock Option Plans
__________________
The Company adopted Stock Option Plans in 1987, 1989 and 1992. Both
"incentive stock options" and "nonqualified stock options" may be granted
pursuant to the Option Plans. Under the Option Plans, incentive stock
options may only be granted at the fair market value to employees of Bethel
Bancorp and Bethel Savings Bank. No taxable gain or loss will be
recognized by Bethel Bancorp as a result of the grant or exercise of
incentive stock options. In the case of nonqualified stock options, which
may be granted to employees and nonemployee directors, the difference
between the exercise price and the fair market value of the common stock on
the date of exercise will be a tax deductible expense to the Company. All
options granted under the Option Plans will be required to have an exercise
price per share equal to at least the fair market value of the share of
common stock on the date the option is granted. The options are
exercisable for a maximum of ten years after the options are granted in the
case of all incentive stock options, three years for nonqualified stock
options in the 1987 plan and five years for nonqualified stock options in
the 1989 and 1992 plans.
In accordance with the Stock Option Plans, a total of 118,000 shares of
unissued common stock are reserved for issuance pursuant to incentive stock
options and 30,000 shares of unissued common stock are reserved for
issuance pursuant to nonqualified stock options.
A summary of option activity for the years ended June 30, 1995 and 1994
follows:
1995 1994
_____________________ _____________________
Non Non
Incentive qualified Incentive qualified
Plan Plan Plan Plan
___________ _________ ___________ _________
Outstanding at beginning
of year 47,500 - 47,500 5,000
Granted during the year 22,500 - - -
Canceled or exercised during
the year 2,000 - - 5,000
____________ _________ ___________ _________
Outstanding at end of year 68,000 - 47,500 -
============ ========= =========== =========
Price range of options
granted $10.00 - 22.50 - $10.00 - 11.38 -
Average price of options
outstanding $ 14.10 - 10.48 -
401(k) Plan
___________
The Company offers a contributory 401(k) plan which is available to all
full-time salaried and hourly-paid employees who are regularly scheduled to
work 1,000 hours or more in a Plan year, have attained age 21, and have
completed one year of employment. Employees may contribute between 1% and
15% of their base compensation to which the Company will match 50% up to
the first 3% contributed. For the years ended June 30, 1995, 1994, and
1993, the Company contributed approximately $30,800, $14,700, and $12,500,
respectively.
Stock Purchase Plan
___________________
The Company adopted a stock purchase plan in 1995 which covers
substantially all full-time employees with one year of service. The
offering will be made quarterly at the market value on the offering
termination date. The maximum number of shares which may be granted under
the plan is 52,000 shares.
20. Financial Instruments With Off-Balance-Sheet Risk
_____________________________________________________
The Company is a party to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of its
customers and to reduce its own exposure to fluctuations in interest rates.
These financial instruments include commitments to extend credit and
standby letters of credit. Those instruments involve, to varying degrees,
elements of credit and interest rate risk in excess of the amount
recognized in the consolidated statements of financial condition. The
contract amounts of those instruments reflect the extent of involvement the
Company has in particular classes of financial instruments.
The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit
and standby letters of credit is represented by the contractual amount of
those instruments. Th Company uses the same credit policies in making
commitments and conditional obligations as it does for on-balance- sheet
instruments.
Financial instruments with contract amounts which represent credit risk:
1995 1994
______________ ______________
Commitments to originate loans:
Residential real estate mortgages $ 4,583,000 $ 2,446,000
Commercial real estate mortgages,
including multi-family
residential real estate 1,850,000 783,000
Commercial business loans 360,000 115,000
Consumer 4,000 163,000
______________ ______________
6,797,000 3,507,000
Unused lines of credit 4,331,000 3,897,000
Standby letters of credit 341,000 395,000
Unadvanced portions of construction loans 952,000 606,000
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since many of the commitments
are expected to expire without being drawn upon, the total commitment
amounts do not necessarily represent future cash requirements. The Company
evaluates each customer's credit worthiness on a case-by-case basis. The
amount of collateral obtained, if deemed necessary by the Company upon
extension of credit, is based on management's credit evaluation of the
counter party. Collateral held varies but may include accounts receivable,
inventory, property, plant, and equipment, and income-producing commercial
properties.
Standby letters of credit are conditional commitments issued by the Company
to guarantee the performance of a customer to a third party. Those
guarantees are issued to support private borrowing arrangements. The
credit risk involved in issuing letters of credit is essentially the same
as that involved in extending loan facilities to customers.
The Company has only limited involvement with derivative financial
instruments and they are used for trading purposes. The derivative
financial instruments used by the Company are covered call and put
contracts on its equity securities portfolio. Gains and losses from
entering into these types of contracts have been immaterial to the results
of operations of the Company. The total value of securities under call and
put contracts at any one time is immaterial to the Company s financial
position, liquidity, or results of operations.
The Company and its subsidiaries are parties to litigation and claims
arising in the normal course of business. Management believes that the
liabilities, if any, arising from such litigation and claims will not be
material to the Company's consolidated financial position.
21. Condensed Parent Information
_________________________________
Condensed Financial Statements of the Parent Company
____________________________________________________
Balance Sheets
______________
June 30,
_________________________________
1995 1994
_______________ _______________
Assets
Cash and due from banks $ 88,921 $ 1,156,955
Investment in subsidiaries 17,357,978 15,100,041
Premises and equipment, net 603,763 619,645
Goodwill, net 1,032,279 1,135,218
Other assets 331,897 360,822
_______________ _______________
Total assets $ 19,414,838 $ 18,372,681
=============== ===============
Liabilities and Stockholders' Equity
Note payable 2,000,000 2,500,000
Other liabilities 139,560 116,318
_______________ _______________
2,139,560 2,616,318
Stockholders' equity 17,275,278 15,756,363
_______________ _______________
Total liabilities and
stockholders' equity $ 19,414,838 $ 18,372,681
=============== ===============
Statements of Income
____________________
Years ended June 30,
________________________________________
1995 1994 1993
____________ ____________ ____________
Income:
Dividends from banking
subsidiaries $ - 642,000 431,000
Management fees charged to
subsidiaries 1,673,179 1,265,620 220,451
Other income 30,083 40,536 90,747
____________ ____________ ____________
Total income 1,703,262 1,948,156 742,198
____________ ____________ ____________
Expenses:
Goodwill amortization 102,939 104,997 101,974
Origination fee amortization 4,743 4,742 4,905
Interest on note payable 201,126 174,462 154,159
Salaries and benefits 1,318,246 856,249 275,427
Occupancy expense 125,289 104,832 36,745
Equipment expense 159,161 90,012 108,112
General and administrative
expenses 383,980 306,667 224,500
____________ ____________ ____________
Total expenses 2,295,484 1,641,961 905,822
____________ ____________ ____________
Income (loss) before income
tax benefit, equity in
undistributed net income
of subsidiaries and
cumulative effect of
change in accounting
principle (592,222) 306,195 (163,624)
Income tax benefit 166,182 81,351 167,255
____________ ____________ ____________
Income (loss) before equity
in undistributed net
income of subsidiaries
and cumulative effect of
change in accounting
principle (426,040) 387,546 3,631
Equity in undistributed net income
of subsidiaries 1,915,421 813,013 1,218,712
____________ ____________ ____________
Income before cumulative
effect of change in
accounting principle 1,489,381 1,200,559 1,222,343
Cumulative effect at July 1, 1994
of change in accounting for
income taxes - 260,000 -
____________ ____________ ____________
Net income $ 1,489,381 $ 1,460,559 $ 1,222,343
============ ============ ============
Statements of Cash Flows
________________________
Years ended June 30,
1995 1994 1993
_____________ _____________ _____________
Cash flows from operating
activities:
Net income $ 1,489,381 $ 1,460,559 $ 1,222,343
Adjustments to reconcile net
income to net cash provided
(used) by operations:
Cumulative effect of change
in accounting principle - (260,000) -
Amortization 107,682 109,739 106,879
Depreciation 100,321 63,314 115,259
Undistributed earnings of
subsidiaries (1,915,421) (813,013) (1,218,712)
Decrease (increase) in
other assets 24,182 (15,634) (99,921)
Increase in other
liabilities 23,242 23,276 131,458
_____________ _____________ _____________
Net cash provided
(used) by operating
activities (170,613) 568,241 257,306
_____________ _____________ _____________
Cash flows from investing
activities:
Purchase of premises and
equipment (84,439) (203,782) (1,105,262)
Advance to subsidiary - - (132,280)
Increase in goodwill - (16,526) -
_____________ _____________ _____________
Net cash used by
investing activities (84,439) (220,308) (1,237,542)
_____________ _____________ _____________
Cash flows from financing
activities:
Proceeds from issuance of
note payable - - 520,833
Principal payments on note
payable (500,000) - -
Stock options exercised - 56,900 65,036
Proceeds from issuance of
common stock 2,193 - -
Proceeds from issuance of
preferred stock - 999,992 -
Dividends paid to stockholders (315,175) (278,986) (242,815)
_____________ _____________ _____________
Cash flow provided
(used) by financing
activities (812,982) 777,906 343,054
_____________ _____________ _____________
Net increase
(decrease) in cash (1,068,034) 1,125,839 (637,182)
Cash and cash equivalents,
beginning of year 1,156,955 31,116 668,298
_____________ _____________ _____________
Cash and cash equivalents, end
of year $ 88,921 $ 1,156,955 $ 31,116
============= ============= =============
Supplemental schedule of cash
flow information:
Interest paid $ 201,126 $ 174,462 $ 154,159
Income taxes paid, net of
refunds 794,000 872,500 964,655
Supplemental schedule of noncash
investing and financing
activities:
Transfer of equipment and net
assets in exchange for
ownership of nonbanking
subsidiary - - 575,350
Net change in valuation for
unrealized (gains) losses on
available for sale
securities (342,516) 549,444 (111,421)
Advance contributed as capital
to nonbanking subsidiary - 241,790 -
22. Fair Value of Financial Instruments
_______________________________________
Fair value estimates, methods, and assumptions are set forth below for the
Company's significant financial instruments.
Cash and Cash Equivalents
_________________________
The fair value of cash, due from banks, interest bearing deposits and FHLB
overnight deposits approximates their relative book values at June 30, 1995
and 1994, as these financial instruments have short maturities.
Trading Account Securities, Available for Sale Securities and Held to
_____________________________________________________________________
Maturity Securities
___________________
The fair value of investment securities is estimated based on bid prices
published in financial newspapers or bid quotations received from
securities dealers at or near June 30, 1995 and 1994.
Fair values are calculated based on the value of one unit without regard to
any premium or discount that may result from concentrations of ownership of
a financial instrument, possible tax ramifications, or estimated
transaction costs. If these considerations had been incorporated into the
fair value estimates, the aggregate fair value amounts could have changed.
Federal Home Loan Bank Stock
____________________________
This financial instrument does not have a market nor is it practical to
estimate the fair value without incurring excessive costs.
Loans Held for Sale
___________________
The fair value of loans held for sale is estimated based on bid quotations
received from securities dealers at or near June 30, 1995 and 1994.
Loans
_____
Fair values are estimated for portfolios of loans with similar financial
characteristics. The fair value of performing loans is calculated by
discounting scheduled cash flows through the estimated maturity using
estimated market discount rates that reflect the credit and interest rate
risk inherent in the loan. The estimates of maturity are based on the
Company's historical experience with repayments for each loan
classification, modified, as required, by an estimate of the effect of
current economic conditions, lending conditions and the effects of
estimated prepayments.
Fair value for significant non-performing loans is based on estimated cash
flows and is discounted using a rate commensurate with the risk associated
with the estimated cash flows. Assumptions regarding credit risk, cash
flows, and discount rates are judgmentally determined using available
market information and historical information.
Management has made estimates of fair value using discount rates that it
believes to be reasonable. However, because there is no market for many of
these financial instruments, management has no basis to determine whether
the fair value presented would be indicative of the value negotiated in an
actual sale.
Accrued Interest Receivable
___________________________
The fair market value of this financial instrument approximates the book
value as this financial instrument has a short maturity. It is the
Company's policy to stop accruing interest on loans past due by more than
ninety days. Therefore this financial instrument has been adjusted for
estimated credit loss.
Deposits
________
The fair value of deposits with no stated maturity, such as
non-interest-bearing demand deposits, savings, NOW accounts and money
market accounts, is equal to the amount payable on demand as of June 30,
1995 and 1994. The fair values of certificates of deposit are based on the
discounted value of contractual cash flows. The discount rate is estimated
using the rates currently offered for deposits of similar remaining
maturities.
The fair value estimates do not include the benefit that results from the
low-cost funding provided by the deposit liabilities compared to the cost
of borrowing funds in the market. If that value was considered at June 30,
1995 and 1994, the fair value of the Company's net assets could increase.
Borrowed Funds, Notes Payable and Repurchase Agreements
_______________________________________________________
The fair value of the Company s borrowings with the Federal Home Loan Bank
is estimated by discounting the cash flows through maturity or the next
repricing date based on current rates available to the Company for
borrowings with similar maturities.
The fair value of the notes payable approximates the carrying value at June
30, 1995 and 1994, as the interest rates adjust periodically.
The fair value of repurchase agreements approximates the carrying value at
June 30, 1995, as these financial instruments have a short maturity.
Commitments to Originate Loans
______________________________
The Company has not estimated the fair value of commitments to originate
loans due to their short term nature and their relative immateriality.
Limitations
___________
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial instrument.
These values do not reflect any premium or discount that could result from
offering for sale at one time the Company's entire holdings of a particular
financial instrument. Because no market exists for a significant portion of
the Company's financial instruments, fair value estimates are based on
judgments regarding future expected loss experience, current economic
conditions, risk characteristics of various financial instruments, and
other factors. These estimates are subjective in nature and involve
uncertainties and matters of significant judgment and therefore cannot be
determined with precision. Changes in assumptions could significantly
affect the estimates.
Fair value estimates are based on existing on and off-balance sheet
financial instruments without attempting to estimate the value of
anticipated future business and the value of assets and liabilities that
are not considered financial instruments. Other significant assets and
liabilities that are not considered financial instruments include the
deferred tax asset, premises and equipment, and other real estate owned. In
addition, the tax ramifications related to the realization of the
unrealized gains and losses can have a significant effect on fair value
estimates and have not been considered in any of the estimates.
The following table presents the estimated fair value of the Company's
significant financial instruments at June 30, 1995 and 1994:
June 30, 1995 June 30, 1994
________________________________ ________________________________
Carrying Estimated Carrying Estimated
value fair value value fair value
_______________ _______________ _______________ _______________
Non-Trading Instruments:
Financial assets:
Cash and cash equivalents $ 14,740,000 $ 14,740,000 $ 11,337,000 $ 11,337,000
Available for sale securities 10,148,000 10,148,000 2,060,000 2,060,000
Held to maturity securities - - 8,020,000 7,359,000
Federal Home Loan Bank stock 2,150,000 2,150,000 2,345,000 2,345,000
Loans held for sale 529,000 532,000 521,000 526,000
Loans 167,440,000 166,290,000 155,998,000 156,447,000
Interest receivable 1,139,000 1,139,000 847,000 847,000
Financial liabilities:
Deposits (with no stated maturity) 60,381,000 60,381,000 51,842,000 51,842,000
Time deposits 86,739,000 86,614,000 72,464,000 73,378,000
Borrowed funds 35,700,000 35,670,000 45,900,000 45,404,000
Notes payable 2,010,000 2,010,000 2,520,000 2,520,000
Repurchase agreements 2,585,000 2,585,000 - -
Trading Instruments:
Financial assets:
Trading account securities 1,400 1,400 173,000 173,000
Independent Auditors' Report
____________________________
The Board of Directors
Bethel Bancorp and Subsidiaries:
We have audited the accompanying consolidated statement of financial
condition of Bethel Bancorp and subsidiaries as of June 30, 1995, and the
related consolidated statements of income, changes in stockholders' equity,
and cash flows for the year then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit. The financial statements of Bethel Bancorp
and subsidiaries as of June 30, 1994 and for each of the years in the
two-year period ended June 30, 1994, were audited by other auditors whose
report thereon dated August 5, 1994 included an explanatory paragraph that
described the Company's change in its method of accounting for income taxes
in 1994 to adopt provisions of the Financial Accounting Standards Board's
Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes on July 1, 1993, as discussed in notes 1 and 17 to the financial
statements.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the 1995 consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
Bethel Bancorp and subsidiaries as of June 30, 1995, and the results of
their operations and their cash flows for the year then ended in conformity
with generally accepted accounting principles.
Portland, Maine /s/ Baker Newman & Noyes
___________________________
August 11, 1995 Limited Liability Company
Independent Auditors Report
The Board of Directors
Bethel Bancorp and Subsidiaries:
We have audited the accompanying consolidated statement of financial condition
of Bethel Bancorp and subsidiaries as of June 30, 1994 and the related
consolidated statements of income, changes in stockholders' equity, and cash
flows for each of the years in the two-year period ended June 30, 1994. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Bethel Bancorp and
subsidiaries as of June 30, 1994 and the results of their operations and
their cash flows for each of the years in the two-year period ended June 30,
1994 in conformity with generally accepted accounting principles.
As discussed in note 1 and 17, the Company changed its method of accounting for
income taxes in 1994 to adopt the provisions of Financial Accounting Standards
Board's Statement of Financial Accounting Standards No. 109, Accounting for
Income Taxes on July 1, 1993.
Portland, Maine /s/ KPMG Peat Marwick LLP
____________________________
August 5, 1994
(b) Supplementary Financial Information
___________________________________
Bethel Bancorp Consolidated
Distribution of Assets, Liabilities and Net Worth
Interest Rates and Interest Differential
Years Ended June 30, 1995, 1994 and 1993
June 30, 1995
_____________
Interest Average
Average Income/ Yield/
Balance Expense Rate
______________ ______________ _______
Assets:
Earning Assets:
Securities Held to Maturity $ 3,368,307 $ 265,671 7.89%
Securities Available for Sale 971,763 60,159 6.19%
Trading Securities 186,757 1,165 0.62%
Mortgage-backed Securities 15,181,721 1,088,420 7.17%
Loans (3) 164,344,609 15,085,138 9.18%
FHLB Overnight Deposits & Other 7,763,217 422,372 5.44%
______________ ______________ _______
Total Earning Assets 191,816,374 16,922,925 8.82%
______________ ______________ _______
Non-interest Earning Assets:
Cash & Due from Banks 3,342,796
Premise & Equip Net 3,594,335
Other Assets 8,078,832
(Allowance for Loan Loss) (2,569,032)
______________
Total Assets $ 204,263,305
==============
Liabilities & Net Worth:
Interest Bearing Liabilities:
Deposits
Now $ 14,673,951 $ 264,143 1.80%
Money Market 14,352,970 455,080 3.17%
Savings 23,027,846 610,415 2.65%
Time 80,114,965 4,113,465 5.13%
______________ ______________ _______
Total Deposits 132,169,732 5,443,103 4.12%
Repurchase Agreements 1,776,296 84,921 4.78%
Other Borrowed Funds 43,496,049 2,524,896 5.80%
______________ ______________ _______
Total Interest Bearing Liabilities 177,442,077 8,052,920 4.54%
Non-interest Bearing Liabilities
Demand 8,526,363
Other 1,904,767
Net Worth 16,390,098
______________
Total Liabilities & Net Worth $ 204,263,305
==============
Net Interest Income $ 8,870,005
==============
Interest Rate Spread (1) 4.28%
Net yield on Interest Earning
Assets (2) 4.62%
Equity to Assets Ratio (4) 8.02%
June 30, 1994
_____________
Interest Average
Average Income/ Yield/
Balance Expense Rate
______________ ______________ _______
Assets:
Earning Assets:
Securities Held to Maturity $ 2,999,200 $ 205,242 6.84%
Securities Available for Sale 1,953,884 122,634 6.28%
Trading Securities 88,531 85 0.10%
Mortgage-backed Securities 4,593,959 294,037 6.40%
Loans (3) 155,786,903 13,161,935 8.45%
FHLB Overnight Deposits & Other 7,349,656 252,308 3.43%
______________ ______________ _______
Total Earning Assets 172,772,133 14,036,241 8.12%
______________ ______________ _______
Non-interest Earning Assets:
Cash & Due from Banks 2,689,517
Premise & Equip Net 3,246,385
Other Assets 6,365,909
(Allowance for Loan Loss) (2,311,357)
______________
Total Assets $ 182,762,587
==============
Liabilities & Net Worth:
Interest Bearing Liabilities:
Deposits
Now $ 11,761,069 197,412 1.68%
Money Market 15,248,339 452,620 2.97%
Savings 20,955,884 521,298 2.49%
Time 70,645,721 3,295,445 4.66%
______________ ______________ _______
Total Deposits 118,611,013 4,466,775 3.77%
Repurchase Agreements 0 0 0.00%
Other Borrowed Funds 38,535,140 2,012,937 5.22%
______________ ______________ _______
Total Interest Bearing Liabilities 157,146,153 6,479,712 4.12%
______________ ______________ _______
Non-interest Bearing Liabilities
Demand 5,578,538
Other 5,004,547
Net Worth 15,033,349
______________
Total Liabilities & Net Worth $ 182,762,587
==============
Net Interest Income $ 7,556,529
==============
Interest Rate Spread (1) 4.00%
Net yield on Interest Earning
Assets (2) 4.37%
Equity to Assets Ratio (4) 8.23%
June 30, 1993
_____________
Interest Average
Average Income/ Yield/
Balance Expense Rate
______________ ______________ _______
Assets:
Earning Assets:
Securities Held to Maturity $ 2,079,640 $ 127,767 6.14%
Securities Available for Sale 4,848,227 313,983 6.48%
Trading Securities 105,006 30 0.03%
Mortgage-backed Securities 1,765,205 111,565 6.32%
Loans 150,890,097 13,582,351 9.00%
FHLB Overnight Deposits & Other 6,365,556 222,829 3.50%
______________ ______________ _______
Total Earning Assets 166,053,731 14,358,525 8.65%
Non-interest Earning Assets:
Cash & Due from Banks 2,863,489
Premise & Equip Net 2,935,822
Other Assets 3,308,027
(Allowance for Loan Loss) (1,839,000)
______________
Total Assets $ 173,322,069
==============
Liabilities & Net Worth:
Interest Bearing Liabilities:
Deposits
Now $ 10,142,541 320,372 3.16%
Money Market 14,495,100 503,743 3.48%
Savings 19,366,076 645,627 3.33%
Time 72,674,198 3,736,924 5.14%
______________ ______________ _______
Total Deposits 116,677,915 5,206,666 4.46%
Repurchase Agreements 0 0 0.00%
Other Borrowed Funds 36,296,860 1,947,902 5.37%
______________ ______________ _______
Total Interest Bearing Liabilities 152,974,775 7,154,568 4.68%
______________ ______________ _______
Non-interest Bearing Liabilities
Demand 5,512,977
Other 1,228,004
Net Worth 13,606,313
______________
Total Liabilities & Net Worth $ 173,322,069
==============
Net Interest Income $ 7,203,957
==============
Interest Rate Spread (1) 3.97%
Net yield on Interest Earning Assets (2) 4.34%
Equity to Assets Ratio (4) 7.85%
(1.) Interest rate spread is the difference between the yield on earning
assets and the rates paid on interest-bearing liabilities.
(2.) Net yield on interest earning assets is net interest income divided by
average earning assets.
(3.) Non-accruing loans are included in the average of net loans.
(4.) Average equity divided by average assets.
Bethel Bancorp Consolidated
Changes in Net Interest Income
Years Ended June 30, 1995 and 1994
June 30, 1995 Compared to June 30, 1994
_______________________________________
Variance Variance Variance
Due to Due to Due to Total
Rate Volume Rate/Volume Variance
____________ ____________ ____________ ____________
Interest Earning Assets:
Securities Held to Maturity $ 31,316 $ 25,259 $ 3,854 $ 60,429
Securities Available for
Sale (1,675) (61,642) 842 (62,475)
Trading Securities 468 94 518 1,080
Mortgage-backed Securities 35,317 677,671 81,395 794,383
Loans 1,137,694 723,013 62,496 1,923,203
FHLB Overnight Deposits
& Other 147,563 14,197 8,304 170,064
____________ ____________ ____________ ____________
Total Income on Earning
Assets 1,350,683 1,378,592 157,409 2,886,684
____________ ____________ ____________ ____________
Interest Bearing
Liabilities:
Deposits:
Now 14,297 48,893 3,541 66,731
Money Market 30,849 (26,577) (1,81) 2,461
Savings 34,194 51,542 3,381 89,117
Time 331,826 441,716 44,477 818,019
____________ ____________ ____________ ____________
Total Deposits 411,166 515,574 49,588 976,328
Repurchase Agreements 0 84,921 0 84,921
Borrowed funds 223,984 259,140 28,835 511,959
____________ ____________ ____________ ____________
Total Interest Expense 635,150 859,635 78,423 1,573,208
____________ ____________ ____________ ____________
____________ ____________ ____________ ____________
Change in Net interest
Income $ 715,533 $ 518,957 $ 78,986 $ 1,313,476
============ ============ ============ ============
June 30, 1994 Compared to June 30, 1993
_______________________________________
Variance Variance Variance
Due to Due to Due to Total
Rate Volume Rate/Volume Variance
____________ ____________ ____________ ____________
Interest Earning Assets:
Securities Held to Maturity $ 14,548 $ 56,495 $ 6,432 $ 77,475
Securities Available for
Sale (9,688) (187,445) 5,784 (191,349)
Trading Securities 71 (5) (11) 55
Mortgage-backed Securities 1,417 178,784 2,271 182,472
Loans (834,131) 440,785 (27,070) (420,416)
FHLB Overnight Deposits
& Other (4,305) 34,449 (665) 29,479
____________ ____________ ____________ ____________
Total Income on Earning
Assets (832,088) 523,063 (13,259) (322,284)
____________ ____________ ____________ ____________
Interest Bearing
Liabilities:
Deposits:
Now 150,127 (51,124) 23,957 122,960
Money Market 73,482 (26,177) 3,818 51,123
Savings 163,877 (53,001) 13,453 124,329
Time 346,856 104,304 (9,681) 441,479
____________ ____________ ____________ ____________
Total Deposits 734,342 (25,998) 31,547 739,891
Repurchase Agreements 0 0 0 0
Borrowed funds 51,884 (120,119) 3,200 (65,035)
____________ ____________ ____________ ____________
Total Interest Expense 786,226 (146,117) 34,747 674,856
____________ ____________ ____________ ____________
____________ ____________ ____________ ____________
Change in Net interest
Income $ (45,862) $ 376,946 $ 21,488 $ 352,572
============ ============ ============ ============
This table reflects changes in net interest income attributable to the change
in interest rates and the change in the volume of interest-bearing assets and
liabilities. Amounts attributable to the change in rate are based upon the
change in rate multiplied by the prior year's volume. Amounts attributable to
the change in volume are based upon the changes in volume multiplied by the
prior year's rate. The combined effect of changes in both volume and rate are
calculated multiplying the change in rate by the change in volume.
Bethel Bancorp Consolidated
Maturities and Repricing of Loans
As of June 30, 1995
1 Year 1 to 5 5 to 10 Over 10 Total
or Less Years Years Years Loans
___________ ___________ ___________ ___________ ____________
Mortgages:
Residential $49,236,024 $ 8,448,181 $ 6,426,310 $52,491,666 $116,602,181
Commercial 17,396,393 2,848,422 559,323 1,742,370 22,546,508
Construction 2,390,954 0 0 0 2,390,954
Non-Mortgage
Loans :
Commercial 10,723,352 751,488 107,181 599,491 12,181,512
Consumer 2,350,045 4,591,878 2,053,321 7,119,273 16,114,517
___________ ___________ ___________ ___________ ____________
Total Loans $82,096,768 $16,639,969 $ 9,146,135 $61,952,800 $169,835,672
=========== =========== =========== =========== ============
Loans due afer
1 year:
Fixed $77,834,821
Variable 9,904,083
___________
Total due after
1 year: $87,738,904
===========
Scheduled repayments are reported in the maturity category in which the payment
is due. Demand loans and overdrafts are reported in one year or less.
Maturities are based upon contract terms.
Bethel Bancorp Consolidated
Securities Held to Maturity
Years Ended June 30, 1995, 1994 and 1993
Securities Held to Maturity June 30, June 30, June 30,
1995 1994 1993
______________________________________ __________ __________ __________
Book Value (thousands)
U.S. Government and Agency Obligations $ 0 $ 1,383 $ 0
Mortgage-backed Securities 0 5,669 0
FNMA Guaranteed REMIC 0 968 0
__________ __________ __________
Total Securities Held to Maturity $ 0 $ 8,020 $ 0
========== ========== ==========
This table sets forth the book value of securities held to maturity at the
dates indicated.
During 1995, the Company transferred all its securities from held to maturity
to avaulable for sale. (See financial statement footnote #3).
Bethel Bancorp Consolidated
Securities Available for Sale
Years Ended June 30, 1995, 1994 and 1993
Securities Available for Sale June 30, June 30, June 30,
1995 1994 1993
___________________________________ __________ __________ __________
Market Value (thousands)
U.S. Government and Agency Obligations $ 239 $ 227 $ 2,564
Mortgage-backed Securities 9,298 1,265 2,092
Other Bonds 141 129 27
Equity Securities 470 439 375
__________ __________ __________
Total Securities Available for Sale $ 10,148 $ 2,060 $ 5,058
========== ========== ==========
This table sets forth the market value of securities available for sale at the
dates indicated.
Bethel Bancorp Consolidated
Investment Maturity
Weighted
Securities Available for Sale Average Carrying
As of June 30, 1995 Rate Value
______________________________________________ ____________ ____________
Due in one Year - -
Due after one year through five years - -
Due after five years through ten years 5.61% $ 380,661
Due after ten years - -
Mortgage-backed securities maturing
December 2007 to November 2024 6.72% 9,297,505
____________ ____________
Total Securities Available for Sale 6.68% $ 9,678,166
============ ============
This table sets forth the anticipated maturities of securities available for
sale and the respective weighted average rates within these ranges.
Bethel Bancorp Consolidated
Loan Portfolio
Years Ended June 30, 1995, 1994, 1993, 1992 and 1991
June 30, 1995
_____________
Percent of
Amount Total Loans
____________ ____________
Loan Portfolio (thousands)
Residential Mortgage $ 117,723 69.32%
Consumer & Other 16,115 9.49%
Commercial Mortgage 23,816 14.02%
Commercial 12,182 7.17%
____________ ____________
Total Loans 169,836 100.00%
____________ ____________
Less: Allowance for loan losses 2,396
____________
Net Loans $ 167,440
============
June 30, 1994
_____________
Percent of
Amount Total Loans
____________ ____________
Loan Portfolio (thousands)
Residential Mortgage $ 110,461 69.71%
Consumer & Other 14,076 8.88%
Commercial Mortgage 22,463 14.18%
Commercial 11,461 7.23%
____________ ____________
Total Loans 158,461 100.00%
____________ ____________
Less: Allowance for loan losses 2,463
____________
Net Loans $ 155,998
============
June 30, 1993
_____________
Percent of
Amount Total Loans
____________ ____________
Loan Portfolio (thousands)
Residential Mortgage $ 108,079 71.69%
Consumer & Other 12,129 8.05%
Commercial Mortgage 20,051 13.30%
Commercial 10,497 6.96%
____________ ____________
Total Loans 150,756 100.00%
____________ ____________
Less: Allowance for loan losses 2,123
____________
Net Loans $ 148,633
============
June 30, 1992
_____________
Percent of
Amount Total Loans
____________ ____________
Loan Portfolio (thousands)
Residential Mortgage $ 102,594 72.54%
Consumer & Other 10,958 7.75%
Commercial Mortgage 15,172 10.73%
Commercial 12,707 8.98%
____________ ____________
Total Loans 141,431 100.00%
____________ ____________
Less: Allowance for loan losses 1,555
____________ ____________
Net Loans $ 139,876
============
June 30, 1991
_____________
Percent of
Amount Total Loans
____________ ____________
Loan Portfolio (thousands)
Residential Mortgage $ 91,926 75.44%
Consumer & Other 9,270 7.61%
Commercial Mortgage 11,451 9.40%
Commercial 9,202 7.55%
____________ ____________
Total Loans 121,849 100.00%
____________ ____________
Less: Allowance for loan losses 1,005
____________
Net Loans $ 120,844
============
This table shows the Bank's loan distribution at the end of each of the
last five years.
Bethel Bancorp Consolidated
Allowance for Loan Losses
Years Ended June 30, 1995, 1994, 1993, 1992 and 1991
June 30, 1995
______________
Percent of
Loans in Each
Category to
Amount Total Loans
_____________ _____________
Allowance for Loan Losses (thousands)
Real Estate $ 593 69.32%
Commercial Mortgage 237 14.02%
Commercial & Installment 374 16.66%
Unallocated 1,192 0.00%
_____________ _____________
Total Loans $ 2,396 100.00%
============= =============
June 30, 1994
_____________
Percent of
Loans in Each
Category to
Amount Total Loans
_____________ _____________
Allowance for Loan Losses (thousands)
Real Estate $ 649 69.71%
Commercial Mortgage 232 14.18%
Commercial & Installment 387 16.11%
Unallocated 1,195 0.00%
_____________ _____________
Total Loans $ 2,463 100.00%
============= =============
June 30, 1993
_____________
Percent of
Loans in Each
Category to
Amount Total Loans
_____________ _____________
Allowance for Loan Losses (thousands)
Real Estate $ 1,221 71.69%
Commercial Mortgage 256 13.30%
Commercial & Installment 390 15.01%
Unallocated 256 0.00%
_____________ _____________
Total Loans $ 2,123 100.00%
============= =============
June 30, 1992
_____________
Percent of
Loans in Each
Category to
Amount Total Loans
_____________ _____________
Allowance for Loan Losses (thousands)
Real Estate $ 632 72.54%
Commercial Mortgage 250 10.73%
Commercial & Installment 473 16.73%
Unallocated 200 0.00%
_____________ _____________
Total Loans $ 1,555 100.00%
============= =============
June 30, 1991
_____________
Percent of
Loans in Each
Category to
Amount Total Loans
_____________ _____________
Allowance for Loan Losses (thousands)
Real Estate $ 414 75.44%
Commercial Mortgage 125 9.40%
Commercial & Installment 322 15.16%
Unallocated 144 0.00%
_____________ _____________
Total Loans $ 1,005 100.00%
============= =============
This table shows how the allowance for loan losses was allocated for the
periods indicated.
The allowance for loan losses is established through a provision for loan
losses charged to operations. Loan losses are charged against the allowance
when management believes that the collectibility of the loan principal is
unlikely. Recoveries on loans previously charged off are credited to the
allowance.
The allowance is an amount that management believes will be adequate to absorb
possible loan losses based on evaluations of collectibility and prior loss
experience. The evaluation takes into consideration such factors as changes in
the nature and volume of the portfolio, overall portfolio quality, specific
problem loans, and current and anticipated economic conditions that may affect
the borrowers' ability to pay. Management also obtains appraisals when
considered necessary.
Bethel Bancorp Consolidated
Non-performing Ratios
Years Ended June 30, 1995, 1994, 1993, 1992 and 1991
June 30, June 30, June 30, June 30, June 30,
1995 1994 1993 1992 1991
________ ________ ________ ________ ________
Non-performing loans
(thousands)
Mortgages $ 2,152 $ 2,047 $ 2,308 $ 1,425 $ 1,386
Other 114 676 181 173 120
________ ________ ________ ________ ________
Total non-performing loans 2,266 2,723 2,489 1,598 1,506
Other Real Estate Owned 1,373 1,994 2,308 2,096 1,164
________ ________ ________ ________ ________
Total non-performing assets $ 3,639 $ 4,717 $ 4,797 $ 3,694 $ 2,670
======== ======== ======== ======== ========
________ ________ ________ ________ ________
Total non-performing loans
to total loans 1.33% 1.72% 1.65% 1.13% 1.24%
======== ======== ======== ======== ========
________ ________ ________ ________ ________
Total non-performing assets
to total assets 1.75% 2.47% 2.68% 2.25% 1.83%
======== ======== ======== ======== ========
This table sets forth certain information concerning non-performing loans and
assets and the ratios of non-performing loans and assets to the total loans and
to total assets at the dates indicated.
Non-performing loans are problem loan accounts where the Company has ceased
accrual of interest because the loan is 90 days past due or because
collectability is doubtful, whichever is earlier.
Management believes that all loans that are considered potential problems are
disclosed in the current non-performing loans table above with the exception of
loans internally rated substandard. At June 30, 1995, the Company had
approximately $3,623,000 of loans classified as substandard that could
potentially become non-performing due to previous delinquencies or marginal
cash flows.
No loans greater than 90 days past due are on accrual status and there are no
troubled debt restructurings not disclosed above.
Refer to the financial statement footnotes #1 & #5 for further discussion of
the Company's non-performing loans.
Bethel Bancorp Consolidated
Summary of Loan Losses Experience (in thousands)
Years Ended June 30, 1995, 1994, 1993, 1992 and 1991
June 30, June 30, June 30, June 30, June 30,
1995 1994 1993 1992 1991
________ ________ ________ ________ ________
Average net loans outstanding,
During period $161,342 $153,476 $149,051 $131,721 $115,290
======== ======== ======== ======== ========
Net loans outstanding,
End of period $167,440 $155,998 $148,633 $139,876 $120,844
======== ======== ======== ======== ========
Allowance for loan losses,
Beginning of period $ 2,463 $ 2,123 $ 1,555 $ 1,005 $ 765
Loans charged off:
Mortgage 419 351 203 0 0
Commercial/installment 342 379 110 196 258
________ ________ ________ ________ ________
Total loans charged off 761 730 313 196 258
________ ________ ________ ________ ________
Recoveries on amounts
previously charged off:
Mortgage 8 25 0 0 0
Commercial/installment 45 24 29 13 11
________ ________ ________ ________ ________
Total Recoveries 53 49 29 13 11
________ ________ ________ ________ ________
Net loans charged off 708 681 284 183 247
Provision for loan losses 641 1,021 852 733 487
________ ________ ________ ________ ________
Allowance for loan losses,
End of period $ 2,396 $ 2,463 $ 2,123 $ 1,555 $ 1,005
======== ======== ======== ======== ========
________ ________ ________ ________ ________
Net loans charged-off as a
percentage of average loans
outstanding 0.44% 0.44% 0.19% 0.14% 0.21%
======== ======== ======== ======== ========
________ ________ ________ ________ ________
Allowance for loan losses,
as a percentage of net loans
outstanding at the end of
period 1.43% 1.58% 1.43% 1.11% 0.83%
======== ======== ======== ======== ========
This table summaries loans outstanding at the end of each period indicated, net
of unearned income, at the end of each period indicated and the average amount
of loans outstanding, changes in the allowance for loan losses and other
selected statistics during each period indicated.
Bethel Bancorp Consolidated
Average Deposits and Rates (thousands)
Years Ended June 30, 1995, 1994 and 1993
June 30, 1995 June 30, 1994 June 30, 1993
_______________ _______________ _______________
Amount Rate Amount Rate Amount Rate
________ _____ ________ _____ ________ _____
Average Deposits:
Non-interest bearing demand
deposits $ 8,526 0.00% $ 5,579 0.00% $ 5,513 0.00%
Regular savings 23,028 2.65% 20,956 2.49% 19,366 3.33%
NOW and Money Market 29,027 2.48% 27,009 2.41% 24,638 3.35%
Time deposits 80,115 5.13% 70,646 4.66% 72,674 5.14%
________ _____ ________ _____ ________ _____
Total Average Deposits $140,696 3.87% $124,190 3.60% $122,191 4.26%
======== ===== ======== ===== ======== =====
This table shows the average daily amount of deposits and average rates paid on
such deposits for the periods indicated.
Bethel Bancorp Consolidated
Maturities of Time Deposits $100,000 & Over
As of June 30, 1995
Balance
____________
Time Deposits $100,000 & Over (in thousands):
3 months or less $ 3,997
Over 3 through 6 months 2,531
Over 6 through 12 months 4,039
Over 12 months 4,751
____________
Total Time Deposits $100,000 & Over $ 15,318
============
Bethel Bancorp Consolidated
Maturities and Repricing of Earning Assets & Interest-bearing Liabilities
As of June 30, 1995
(in thousands)
Less Than 1-5 Over 5 % of
1 Year Years Years Total Total
_________ _________ _________ _________ ________
Earning Assets
Real Estate Loans:
Fixed $ 1,722 $ 1,505 $ 61,220 $ 64,447 33.30%
Variable 67,301 9,792 0 77,093 39.83%
_________ _________ _________ _________ ________
Total Real Estate Loans 69,023 11,297 61,220 141,540 73.13%
_________ _________ _________ _________ ________
Non-Real Estate Loans:
Fixed 802 5,231 9,879 15,912 8.22%
Variable 12,272 112 0 12,384 6.40%
_________ _________ _________ _________ ________
Total Non-Real Estate Loans 13,074 5,343 9,879 28,296 14.62%
_________ _________ _________ _________ ________
Investment Securities & Other
Earning Assets 11,415 0 12,298 23,713 12.25%
_________ _________ _________ _________ ________
Total Earning Assets $ 93,512 $ 16,640 $ 83,397 $ 193,549 100.00%
========= ========= ========= ========= ========
Interest-Bearing Liabilities
Deposits:
Regular savings, value,
& club accounts $ 23,697 $ 0 $ 0 $ 23,697 13.56%
NOW Accounts 14,210 0 0 14,210 8.13%
Money market accounts 12,762 0 0 12,762 7.30%
Certificates of deposit 53,959 31,746 34 85,739 49.08%
_________ _________ _________ _________ ________
Total Deposits 104,628 31,746 34 136,408 78.08%
_________ _________ _________ _________ ________
Repurchase Agreements 2,585 0 0 2,585 1.48%
Borrowings 25,400 10,300 0 35,700 20.44%
_________ _________ _________ _________ ________
Total Interest-bearing
Liabilities $132,613 $ 42,046 $ 34 $174,693 100.00%
========= ========= ========= ========= ========
Excess(deficiency) of earning
assets over interest-bearing _________ _________ _________ _________
liabilities (39,101) (25,406) 83,363 18,856
========= ========= ========= =========
Cumulative excess (deficiency)
of earning assets over _________ _________ _________ _________
interest-bearing liabilities (39,101) (64,507) 18,856 18,856
========= ========= ========= =========
Cumulative excess (deficiency)
of earning assets over
interest-bearing liabilities _________ _________ _________ _________
as a % of total assets (-18.84%) (-31.09%) 9.09% 9.09%
========= ========= ========= =========
This table summarizes the anticipated maturities and repricing of the Company's
earning assets and interest-bearing liabilities at June 30, 1995.
The Company's internal asset/liability analysis considers regular savings, NOW
and money market accounts core deposits. Due to this consideration, the
Company's internal asset/liability model has these core deposits designated
in a five year or greater maturity bucket and not one year or less as the
above schedule shows. Because of this difference, the Company does not
consider its position to be negative as the schedule above.
(1) Selected Quarterly Financial Data
_________________________________
Bethel Bancorp Consolidated
Quarterly Data
As of June 30, 1995
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
Sept. 30 Dec. 31 Mar. 31 June 30
1994 1994 1995 1995
____________ ____________ ____________ ____________
Interest Income
Interest on loans $ 3,577,983 $ 3,695,313 $ 3,811,479 $ 4,000,363
Interest & dividends
on investments &
available for sale
securities 321,218 467,246 532,491 516,832
____________ ____________ ____________ ____________
Total Interest Income 3,899,201 4,162,559 4,343,970 4,517,195
____________ ____________ ____________ ____________
Interest Expense
Interest on Deposits 1,152,639 1,301,403 1,410,185 1,578,876
Interest on Repurchase
Agreements - 21,442 25,721 37,758
Interest on Borrowings 635,636 597,446 628,564 663,250
____________ ____________ ____________ ____________
Total Interest Expense 1,788,275 1,920,291 2,064,470 2,279,884
____________ ____________ ____________ ____________
Net Interest Income 2,110,926 2,242,268 2,279,500 2,237,311
Provision for Loan Losses 180,317 168,497 145,776 146,044
____________ ____________ ____________ ____________
Net Interest Income after
Provision for Loan
Losses 1,930,609 2,073,771 2,133,724 2,091,267
Securities Transactions 17,092 214,859 150,061 37,301
Other Operating Income 392,723 443,771 393,324 467,310
Other Operating Expense 1,705,467 2,087,524 2,030,353 2,164,532
____________ ____________ ____________ ____________
Income Before Income
Taxes 634,957 644,877 646,756 431,346
Income Tax Expense 229,245 237,763 238,683 162,864
____________ ____________ ____________ ____________
Net Income $ 405,712 $ 407,114 $ 408,073 $ 268,482
============ ============ ============ ============
Net Income Per Common
Share:
Primary earnings
per share $ 0.60 $ 0.61 $ 0.61 $ 0.38
Fully diluted
earnings per
share $ 0.55 $ 0.56 $ 0.56 $ 0.37
Bethel Bancorp Consolidated
Quarterly Data
As of June 30, 1994
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
Sept. 30 Dec. 31 Mar. 31 June 30
1993 1993 1994 1994
____________ ____________ ____________ ____________
Interest Income
Interest on loans $ 3,298,431 $ 3,254,326 $ 3,336,749 $ 3,272,429
Interest & dividends
on investments &
available for sale
securities 190,647 175,085 222,899 285,675
____________ ____________ ____________ ____________
Total Interest Income 3,489,078 3,429,411 3,559,648 3,558,104
____________ ____________ ____________ ____________
Interest Expense
Interest on Deposits 1,197,454 1,128,247 1,053,807 1,087,267
Interest on Borrowings 458,470 450,122 491,091 613,254
____________ ____________ ____________ ____________
Total Interest Expense 1,655,924 1,578,369 1,544,898 1,700,521
____________ ____________ ____________ ____________
Net Interest Income 1,833,154 1,851,042 2,014,750 1,857,583
Provision for Loan
Losses 179,235 358,195 186,908 296,457
____________ ____________ ____________ ____________
Net Interest Income
after Provision for
Loan Losses 1,653,919 1,492,847 1,827,842 1,561,126
Securities Transactions 60,775 152,701 137,916 (4,360)
Other Operating Income 656,947 547,924 496,244 410,338
Other Operating Expense 1,825,489 1,726,328 1,878,886 1,664,961
____________ ____________ ____________ ____________
Income Before Income
Taxes and Cumulative
Effect of Change in
Accounting Principle 546,152 467,144 583,116 302,143
Income Tax 228,011 130,017 230,975 108,993
____________ ____________ ____________ ____________
Income After Taxes and
Before Cumulative
Effect of Change in
Acounting Principle 318,141 337,127 352,141 193,150
Cumulative Effect of
Change in Accounting
Principle 260,000 - - -
____________ ____________ ____________ ____________
Net Income $ 578,141 $ 337,127 $ 352,141 $ 193,150
____________ ____________ ____________ ____________
Net Income Per Common
Share Before
Cumulative Effect of
Change in Accounting
Principle:
Primary earnings
per share $ 0.54 $ 0.56 $ 0.56 $ 0.26
Fully diluted
earnings per
share $ 0.53 $ 0.55 $ 0.56 $ 0.26
Net Income Per Common
Share:
Primary earnings
per share $ 1.00 $ 0.56 $ 0.56 $ 0.26
(2) Information on the Effects of Changing Prices
_____________________________________________
The consolidated financial statements and related notes herein
have been presented in terms of historic dollars without
considering changes in the relative purchasing power of money over
time due to inflation.
Unlike many industrial companies, substantially all of the assets
and virtually all of the liabilities of the Company are monetary
in nature. As a result, interest rates have a more significant
impact on the Company's performance than the general level of
inflation. Over short periods of time, interest rates may not
necessarily move in the same direction or in the same magnitude
as inflation.
(3) Information About Oil and Gas Producing Activities
__________________________________________________
Not Applicable.
Item 9. Changes in and Disagreements with Accountants on
________________________________________________
Accounting and Financial Disclosure.
____________________________________
KPMG Peat Marwick LLP was previously the principal accountants for Bethel
Bancorp. On February 6, 1995, that firm's appointment as principal accountants
was terminated and Baker Newman & Noyes, Limited Liability Company was engaged
as principal accountants. The decision to change accountants has been
approved by the Board of Directors on February 6, 1995.
In connection with the audits of the two fiscal years ended June 30, 1994 and
the subsequent interim period through February 6, 1995, there were no
disagreements with KPMG Peat Marwick on any matter of accounting principles or
practices, financial statements disclosure, or auditing scope or procedures,
which disagreements if not resolved to their satisfaction would have caused
them to make reference in connection with their opinion to the subject matter
of the disagreement.
The audit reports of KPMG Peat Marwick LLP on the consolidated financial
statements of Bethel Bancorp as of and for the years ended June 30, 1994 and
1993 did not contain any adverse opinion or disclaimer of opinion, nor were
they qualified or modified as to uncertainty, audit scope, or accounting
principles.
PART III
Item 10. Directors and Executive Officers of the Registrant.
___________________________________________________
The "Election of Directors" and "Compliance with Section 16(a) of the
Securities Exchange Act of 1934" sections of the Company's definitive
Proxy Statement for the 1995 Annual Meeting of Shareholders is incorporated
herein by reference.
Item 11. Executive Compensation
______________________
The "Excutive Compensation and Other Information" section of the Company's
definitive Proxy Statement for the 1995 Annual Meeting of Shareholders is
incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
______________________________________________________________
The "Election of Directors" section of the Company's definitive Proxy
Statement for the 1995 Annual Meeting of Shareholders is incorporated herein
by reference.
Item 13. Certain Relationships and Related Transactions
______________________________________________
The "Transaction with Management" section of the Company's definitive Proxy
Statement for the 1995 Annual Meeting of Shareholders is incorporated herein
by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
________________________________________________________________
(a) List of Financial Statements Filed as Part of This Report
_________________________________________________________
The following financial statements are submitted herewith in
response to Part II Item 8:
Consolidated Statements of Financial Condition as of June 30,
1995 and 1994
Consolidated Statements of Income for the years ended June 30,
1995, 1994 and 1993
Consolidated Statements of Changes in Stockholder's Equity for
the years ended June 30, 1995, 1994 and 1993
Consolidated Statements of Cash Flows for the years ended June
30, 1995, 1994 and 1993
(b) Reports on Form 8-K
___________________
Not Applicable.
(c) Exhibits
________
The exhibits listed below are filed herewith or are incorporated
herein by reference to other filings.
2.1 Agreement for the Purchase and Sale of Assets and
Assumption of Liabilities dated as of May 4, 1994
between Bethel Savings Bank and Key Bank of Maine,
incorporated by reference to Exhibit 2.1 to Bethel
Bancorp's Current Report on Form 8-K dated May 4, 1994
2.2 Agreement for the Purchase and Sale of Assets and
Assumption of Liabilities dated as of May 4, 1994
between Brunswick Federal Savings Bank and Key Bank of
Maine, incorporated by reference to Exhibit 2.2 to
Bethel Bancorp's Current Report on Form 8-K dated May
4, 1994
3.1 Conformed Articles of Incorporation of Bethel Bancorp
are filed herewith as Exhibit 3.1
3.2 Bylaws of Bethel Bancorp are filed herewith as Exhibit 3.2
10.1* Employment Agreement between Bethel Savings Bank,
F.S.B. and James D. Delamater, incorporated by
reference to Bethel Bancorp's Registration Statement on
Form S-1 (No. 33-12815), filed with the Securities and
Exchange Commission.
10.2* 1987 Stock Option Plan of Bethel Bancorp, incorporated
by reference to Bethel Bancorp's Registration Statement
on Form S-1 (No. 33-12815), filed with the Securities
and Exchange Commission.
10.3* 1989 Stock Option Plan of Bethel Bancorp is
incorporated by reference to Exhibit 10.6 to Bethel
Bancorp's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1994
10.4* 1992 Stock Option Plan of Bethel Bancorp, incorporated
by reference to Exhibit 10.7 to Bethel Bancorp's Annual
Report on Form 10-K for the year ended June 30, 1992
11 Statement regarding computation of per share earnings
is submitted herewith as Exhibit 11
21 A list of subsidiaries of Bethel Bancorp is filed herewith
as Exhibit 21
23 The Consent of Baker Newman & Noyes, Limited Liability
Company, is submitted herewith as Exhibit 23
27 A Financial Data Schedule is submitted herewith as
Exhibit 27
* Management or compensation plan or arrangement required to be
filed as an Exhibit pursuant to Item 14(c) of Form 10-K
SIGNATURES
__________
Pursuant to the requirements of Section 13 or 15(d) 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.
BETHEL BANCORP
Date: September 20, 1995 By:/s/ James D. Delamater
_____________________________
James D. Delamater, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Name Title Date
______________________ ____________________ ___________________
/s/ Norris T. Brown Director September 20, 1995
_________________________
Norris T. Brown
/s/ James D. Delamater Director, September 20, 1995
_________________________ President and Chief
James D. Delamater Executive Officer
(Principal
Executive Officer)
/s/ Ronald J. Goguen Director September 20, 1995
_________________________
Ronald J. Goguen
/s/ Philip C. Jackson Director September 20, 1995
________________________ Vice President
Philip C. Jackson
/s/ Ronald C. Kendall Director September 20, 1995
_________________________
Ronald C. Kendall
/s/ Judith W. Hayes Director September 20, 1995
_________________________
Judith W. Hayes
/s/ Robert Morrell Director September 20, 1995
_________________________
Robert Morrell
/s/ John W. Trinward, DMD Chairman of the September 20, 1995
_________________________ Board
John W. Trinward, DMD
/s/ Edmond J. Vachon Director September 20, 1995
_________________________
Edmond J. Vachon
/s/ Stephen W. Wight Director September 20, 1995
_________________________
Stephen W. Wight
/s/ Dennis A. Wilson Director September 20, 1995
_________________________
Dennis A. Wilson
/s/ Richard E. Wyman, Jr. Chief Financial September 20, 1995
_________________________ Officer (Principal)
Richard E. Wyman, Jr. Financial and
Accounting Officer)
EXHIBIT INDEX
Exhibit
Number Exhibit
______ _______
2.1 Agreement for the Purchase and Sale of Assets and
Assumption of Liabilities dated as of May 4, 1994
between Bethel Savings Bank and Key Bank of Maine,
incorporated by reference to Exhibit 2.1 to Bethel
Bancorp's Current Report on Form 8-K dated May 4, 1994
2.2 Agreement for the Purchase and Sale of Assets and
Assumption of Liabilities dated as of May 4, 1994
between Brunswick Federal Savings Bank and Key Bank of
Maine, incorporated by reference to Exhibit 2.2 to
Bethel Bancorp's Current Report on Form 8-K dated May
4, 1994
3.1 Conformed Articles of Incorporation of Bethel Bancorp
are filed herewith as Exhibit 3.1
3.2 Bylaws of Bethel Bancorp are filed herewith as Exhibit 3.2
10.1* Employment Agreement between Bethel Savings Bank,
F.S.B. and James D. Delamater, incorporated by
reference to Bethel Bancorp's Registration Statement on
Form S-1 (No. 33-12815), filed with the Securities and
Exchange Commission.
10.2* 1987 Stock Option Plan of Bethel Bancorp, incorporated
by reference to Bethel Bancorp's Registration Statement
on Form S-1 (No. 33-12815), filed with the Securities
and Exchange Commission.
10.3* 1989 Stock Option Plan of Bethel Bancorp is
incorporated by reference to Exhibit 10.6 to Bethel
Bancorp's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1994
10.4* 1992 Stock Option Plan of Bethel Bancorp, incorporated
by reference to Exhibit 10.7 to Bethel Bancorp's Annual
Report on Form 10-K for the year ended June 30, 1992
11 Statement regarding computation of per share earnings
is submitted herewith as Exhibit 11
21 A list of subsidiaries of Bethel Bancorp is filed herewith
as Exhibit 21
23 The Consent of Baker Newman & Noyes, Limited Liability
Company, is submitted herewith as Exhibit 23
27 A Financial Data Schedule is submitted herewith as
Exhibit 27
* Management or compensation or plan arrangement required to be
filed as an Exhibit pursuant to Item 14(c) of Form 10-K