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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended December 31, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ To ___________
Commission file number 0-23533
MYSTIC FINANCIAL, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 04-3401049
- -------- ----------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
60 HIGH STREET
MEDFORD, MASSACHUSETTS 02155
- ---------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (781) 395-2800
--------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES [X] NO [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12-b-2 of the Exchange Act).
YES [ ] NO [X]
As of February 13, 2004, 1,558,846 shares of the registrant's common stock
were outstanding.
MYSTIC FINANCIAL, INC. AND SUBSIDIARIES
INDEX
PART I FINANCIAL INFORMATION Page
--------------------- ----
Item 1 Financial Statements: (unaudited)
Consolidated Balance Sheets - December 31, 2003
and June 30, 2003 3
Consolidated Statements of Income - Three and Six
Months Ended December 31, 2003 and 2002 4
Consolidated Statements of Changes in Stockholders'
Equity - Six Months Ended December 31, 2003 and 2002 5
Consolidated Statements of Cash Flows - Six Months
Ended December 31, 2003 and 2002 6
Notes to Unaudited Consolidated Financial Statements -
December 31, 2003 7
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
Item 3 Quantitative and Qualitative Disclosures About
Market Risk 25
Item 4 Controls and Procedures 25
PART II OTHER INFORMATION
-----------------
Item 1 Legal Proceedings 26
Item 2 Changes in Security and Use of Proceeds 26
Item 3 Defaults Upon Senior Securities 26
Item 4 Submission of Matters to a Vote of Security Holders 26
Item 5 Other Information 26
Item 6 Exhibits and Reports on Form 8-K 26
SIGNATURES 27
- ----------
Mystic Financial, Inc. and Subsidiaries
Part I - Financial Information
Item 1 - Financial Statements
Consolidated Balance Sheets
(In Thousands)
December 31, June 30,
2003 2003
------------ --------
(Unaudited)
Assets
Cash and due from banks $ 8,321 $ 11,548
Federal funds sold 632 6,734
Short-term investments 1,358 1,518
-------- --------
Total cash and cash equivalents 10,311 19,800
Securities available for sale, at fair value 117,858 117,871
Securities held to maturity (fair value approximates $2,987
at December 31, 2003) 2,985 -
Federal Home Loan Bank stock, at cost 2,960 2,932
Loans, net of allowance for loan losses of
$2,756 and $2,347, respectively 289,936 279,949
Mortgage loans held for sale 765 -
Bank premises and equipment, net 3,432 3,049
Real estate held for investment, net 1,504 1,541
Accrued interest receivable 1,649 1,780
Due from Co-operative Central Bank 929 929
Other assets 1,990 1,465
-------- --------
$434,319 $429,316
======== ========
Liabilities and Stockholders' Equity
Deposits $344,482 $343,564
Federal Home Loan Bank borrowings 49,181 41,200
Subordinated debt 12,000 12,000
Mortgagors' escrow accounts 1,014 925
Due to broker - 3,891
Accrued expenses and other liabilities 1,205 1,492
-------- --------
Total liabilities 407,882 403,072
-------- --------
Stockholders' equity
Preferred stock, $.01 par value, 1,000,000
shares authorized; none issued - -
Common stock, $.01 par value, 5,000,000 shares
authorized; 2,731,445 and 2,723,025 issued,
respectively 27 27
Additional paid-in capital 26,650 25,819
Retained earnings 17,122 18,338
Treasury stock, at cost, 1,180,319 shares (16,129) (17,131)
Accumulated other comprehensive income 90 767
Unearned ESOP shares, 82,279 shares and 93,530
shares, respectively (1,132) (1,293)
Unearned RRP stock, 19,166 and 27,297 shares, respectively (191) (283)
-------- --------
Total stockholders' equity 26,437 26,244
-------- --------
$434,319 $429,316
======== ========
See accompanying notes to unaudited consolidated financial statements.
3
Mystic Financial, Inc. and Subsidiaries
Part I - Financial Information
Item 1 - Financial Statements
Consolidated Statements of Income
(In Thousands, Except Per Share Data)
Three Months Ended Six Months Ended
---------------------------- ----------------------------
December 31, December 31, December 31, December 31,
2003 2002 2003 2002
------------ ------------ ------------ ------------
(Unaudited)
Interest and dividend income:
Interest and fees on loans $4,345 $4,401 $ 8,658 $ 8,793
Interest and dividends on securities 1,022 812 1,983 1,572
Other interest 26 126 50 237
------ ------ ------- -------
Total interest and dividend income 5,393 5,339 10,691 10,602
------ ------ ------- -------
Interest expense:
Deposits 1,515 1,879 3,056 3,689
Federal Home Loan Bank borrowings 483 741 1,056 1,501
Subordinated debt 142 70 285 147
------ ------ ------- -------
Total interest expense 2,140 2,690 4,397 5,337
------ ------ ------- -------
Net interest income 3,253 2,649 6,294 5,265
Provision for loan losses 312 50 399 125
------ ------ ------- -------
Net interest income, after provision
for loan losses 2,941 2,599 5,895 5,140
Other income:
Customer service fees 204 244 419 503
Gain (loss) on sales of securities
available for sale, net 193 (128) 238 (128)
Gain on sale of loans 129 291 192 483
Miscellaneous 12 45 13 54
------ ------ ------- -------
Total other income 538 452 862 912
------ ------ ------- -------
Other expense:
Salaries and employee benefits 1,685 1,457 3,208 2,820
Occupancy and equipment expenses 378 320 730 613
Data processing expenses 113 85 216 172
Other general and administrative expenses 959 577 1,568 1,078
------ ------ ------- -------
Total other expense 3,135 2,439 5,722 4,683
------ ------ ------- -------
Income before income taxes 344 612 1,035 1,369
Provision for income taxes 99 248 350 540
------ ------ ------- -------
Net income $ 245 $ 364 $ 685 $ 829
====== ====== ======= =======
Earnings per share - basic $ 0.17 $ 0.26 $ 0.48 $ 0.60
====== ====== ======= =======
Weighted average shares outstanding - basic 1,441 1,397 1,433 1,391
====== ====== ======= =======
Earnings per share - diluted $ 0.16 $ 0.25 $ 0.45 $ 0.57
====== ====== ======= =======
Weighted average shares outstanding - diluted 1,524 1,460 1,520 1,453
====== ====== ======= =======
See accompanying notes to unaudited consolidated financial statements.
4
Mystic Financial, Inc. and Subsidiaries
Part I - Financial Information
Item 1 - Financial Statements
Consolidated Statements of Changes in Stockholders' Equity
Six Months Ended December 31, 2003 and 2002
(In Thousands)
(Unaudited)
Accumulated
Additional Other Unearned Unearned Total
Common Paid-In Retained Treasury Comprehensive ESOP RRP Stockholders'
Stock Capital Earnings Stock Income (Loss) Shares Stock Equity
------ ---------- -------- -------- ------------- -------- -------- -------------
Balance at June 30, 2003 $27 $25,819 $18,338 $(17,131) $767 $(1,293) $(283) $26,244
-------
Comprehensive income:
Net income - - 685 - - - - 685
Change in net unrealized
gain on securities
available for sale, net of
tax effects - - - - (677) - - (677)
-------
Total comprehensive income - - - - - - - 8
Stock dividend - 614 (1,616) 1,002 - - - -
Dividend paid ($0.20 per share) - - (285) - - - - (285)
Stock options exercised (8,420 shares) - 105 - - - - - 105
Decrease in unearned ESOP shares - 112 - - - 161 - 273
Decrease in unearned RRP stock - - - - - - 92 92
--- ------- ------- -------- ---- ------- ----- -------
Balance at December 31, 2003 $27 $26,650 $17,122 $(16,129) $ 90 $(1,132) $(191) $26,437
=== ======= ======= ======== ==== ======= ===== =======
Balance at June 30, 2002 $27 $25,699 $17,099 $(17,124) $350 $(1,622) $(506) $23,923
-------
Comprehensive income:
Net income - - 829 - - - - 829
Change in net unrealized
gain on securities
available for sale, net of
tax effects - - - - 343 - - 343
-------
Total comprehensive income - - - - - - - 1,172
Dividend paid ($0.18 per share) - - (235) - - - - (235)
Stock options exercised (3,000 shares) - 36 - - - - - 36
Decrease in unearned ESOP shares - 30 - - - 167 - 197
Decrease in unearned RRP stock - - - - - - 115 115
--- ------- ------- -------- ---- ------- ----- -------
Balance at December 31, 2002 $27 $25,765 $17,693 $(17,124) $693 $(1,455) $(391) $25,208
=== ======= ======= ======== ==== ======= ===== =======
See accompanying notes to unaudited consolidated financial statements
5
Mystic Financial, Inc. and Subsidiaries
Part I - Financial Information
Item 1 - Financial Statements
Consolidated Statements of Cash Flows
(In Thousands)
Six Months Ended
December 31, December 31,
2003 2002
------------ ------------
(Unaudited)
Cash flows from operating activities:
Net income $ 685 $ 829
Adjustments to reconcile net income to net
cash provided by operating activities
Provision for loan losses 399 125
Net (accretion) amortization of securities (107) 193
Amortization of unearned ESOP shares 273 197
Amortization of unearned RRP stock 92 115
(Gain) loss on sales of securities available for sale, net (238) 128
Gain on sales of loans, net (192) (483)
Depreciation and amortization expense 325 253
Net change in mortgage loans held for sale (765) 1,231
Decrease (increase) in accrued interest receivable 131 (74)
Increase in other assets (59) (315)
Decrease in accrued expenses and other liabilities (287) (222)
-------- --------
Net cash (used) provided by operating activities 257 1,977
-------- --------
Cash flows from investing activities:
Activity in available for sale securities
Sales 19,730 6,445
Maturities, prepayment and calls 24,171 10,751
Purchases (48,577) (50,608)
Purchase of securities held to maturity (2,985) -
Purchase of Federal Home Loan Bank stock (28) -
Proceeds from sale of loans 18,179 19,114
Loans originated, net of payments received (28,373) (35,164)
Purchases of banking premises and equipment (671) (392)
-------- --------
Net cash used by investing activities (18,554) (49,854)
-------- --------
Cash flows from financing activities:
Net increase in deposits 918 46,758
Net increase (decrease) in borrowings 7,981 (6,567)
Net increase in mortgagors' escrow accounts 89 132
Dividends paid (285) (235)
Proceeds from exercise of stock options 105 36
-------- --------
Net cash provided by financing activities 8,808 40,124
-------- --------
Net change in cash and cash equivalents (9,489) (7,753)
Cash and cash equivalents at beginning of period 19,800 34,612
-------- --------
Cash and cash equivalents at end of period $ 10,311 $ 26,859
======== ========
Supplemental cash flow information:
Interest paid $ 4,477 $ 5,292
Income taxes paid 325 685
6
Mystic Financial, Inc. and Subsidiaries
Part I - Financial Information
Item 1 - Financial Statements
Notes to Unaudited Consolidated Financial Statements
December 31, 2003
1) Basis of Presentation and Consolidation
The unaudited consolidated interim financial statements of Mystic
Financial, Inc. and subsidiary ("Mystic" or the "Company") presented herein
should be read in conjunction with the consolidated financial statements
for the year ended June 30, 2003, included in the Annual Report on Form 10-
K of Mystic Financial, Inc., the holding company for Medford Co-operative
Bank (the "Bank").
The significant accounting policies followed by the Company for interim
financial reporting are consistent with the accounting policies followed
for annual financial reporting. The unaudited consolidated interim
financial statements herein have been prepared in accordance with
accounting principles generally accepted in the United States of America
for interim financial information and with the instructions to Form 10-Q
and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by accounting principles generally
accepted in the United States of America for complete financial statements.
In the opinion of management, the consolidated financial statements reflect
all adjustments (consisting solely of normal recurring accruals) necessary
for a fair presentation of such information. Interim results are not
necessarily indicative of results to be expected for the entire year.
2) Restatements for Stock Dividend
Prior period common share and per share data have been adjusted to reflect
Mystic Financial's 5% common stock dividend declared on July 9, 2003 and
paid on August 15, 2003 to shareholders of record on July 31, 2003.
3) Commitments and Contingencies
At December 31, 2003, the Bank had outstanding commitments to originate
loans amounting to approximately $15.3 million, and unadvanced funds on
construction loans, lines of credit and equity loans amounting to
approximately $26.6 million, $9.6 million and $16.9 million, respectively.
The Bank has sold loans with recourse in the amount of $593,000.
4) Earnings Per Share
Basic earnings per share represents income available to common stock
divided by the weighted-average number of common shares outstanding during
the period. In calculating earnings per share, the number of shares of
common stock outstanding is reduced by the number of shares held by the
Company's Employee Stock Ownership Plan (the "ESOP") and the Company's 1999
Recognition and Retention Plan (the "RRP") that have not been allocated or
are not committed for release to participants' individual accounts.
Diluted earnings per share reflects additional common shares that
would have been outstanding if dilutive potential common shares had been
issued, as well as any adjustment to income that would result from the
assumed conversion. Potential common shares that may be issued by the
Company relate to outstanding stock options and unearned RRP shares and are
determined using the treasury stock method.
7
Mystic Financial, Inc. and Subsidiaries
Part I - Financial Information
Item 1 - Financial Statements
Notes to Unaudited Consolidated Financial Statements
December 31, 2003
5) Book Value Per Share
Book value per share was $18.24 as of December 31, 2003 and $17.32 as of
December 31, 2002. In calculating book value per share, the number of
shares of common stock outstanding is reduced by the number of shares held
by the ESOP that have not been allocated or are not committed to be
released to participants' individual accounts, unearned RRP shares and
treasury stock. There were 1,449,681 and 1,455,498 shares of common stock
outstanding as of December 31, 2003 and 2002, respectively, for purposes of
calculating the Company's book value per share.
6) Securities
The following table sets forth the Company's securities at the dates
indicated.
December 31, 2003 June 30, 2003
--------------------- ---------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
--------- ----- --------- -----
(In Thousands)
Securities available for sale:
- ------------------------------
U.S. Government & federal
agency obligations $ 20,411 $ 20,223 $ 41,468 $ 42,002
Mortgage-backed securities 76,573 76,286 58,414 59,016
Other bonds & obligations 17,628 17,708 13,736 13,820
Marketable equity securities 3,145 3,641 3,009 3,033
-------- -------- -------- --------
Total $117,757 $117,858 $116,627 $117,871
======== ======== ======== ========
Securities held to maturity:
- ----------------------------
U.S. Government & federal
agency obligations $ 2,985 $ 2,987 - -
======== ======== ======== ========
8
Mystic Financial, Inc. and Subsidiaries
Part I - Financial Information
Item 1 - Financial Statements
Notes to Unaudited Consolidated Financial Statements
December 31, 2003
7) Loans
The following table presents selected data relating to the composition of
the Company's loan portfolio by type of loan on the dates indicated.
December 31, 2003 June 30, 2003
------------------- -------------------
Amount Percent Amount Percent
------ ------- ------ -------
(Dollars in Thousands)
Residential mortgage loans $161,736 55.8% $165,463 59.1%
Commercial real estate loans 78,574 27.1% 69,785 24.9%
Commercial loans 21,266 7.3% 20,250 7.2%
Consumer loans 629 0.2% 767 0.3%
Home equity loans 10,094 3.5% 9,385 3.4%
Construction loans 20,337 7.1% 16,557 5.9%
-------- ----- -------- -----
Total loans 292,636 101.0% 282,207 100.8%
Less:
Deferred loan origination fees (56) 0.0% (89) 0.0%
Allowance for loan losses 2,756 1.0% 2,347 0.8%
-------- ----- -------- -----
Loans, net $289,936 100.0% $279,949 100.0%
======== ===== ======== =====
8) Allowance for Loan Losses
The following table analyzes activity in the Company's allowance for loan
losses for the periods indicated.
Six Months Ended Six Months Ended
December 31, 2003 December 31, 2002
----------------- -----------------
(Dollars in Thousands)
Average loans, net $284,927 $251,223
======== ========
Period-end net loans $289,936 $260,151
======== ========
Allowance for loan losses at beginning of period $ 2,347 $ 2,063
Provision for loan losses 399 125
Plus recoveries 12 14
Loans charged-off (2) (29)
-------- --------
Allowance for loan losses at end of period $ 2,756 $ 2,173
======== ========
Non-performing loans $ 1,759 $ 296
======== ========
Ratios:
Allowance for loan losses to period-end net loans 0.95% 0.84%
Net charge-offs to average loans, net 0.00% 0.00%
9
Mystic Financial, Inc. and Subsidiaries
Part I - Financial Information
Item 1 - Financial Statements
Notes to Unaudited Consolidated Financial Statements
December 31, 2003
9) Deposits and Borrowed Funds
The following tables set forth the various types of deposit accounts at the
Company and the balances in these accounts as well as the borrowings of the
Company at the dates indicated.
December 31, 2003 June 30, 2003
------------------- -------------------
Amount Percent Amount Percent
------ ------- ------ -------
(Dollars in Thousands)
Deposits:
Savings deposits $ 78,541 22.8% $ 69,015 20.1%
NOW accounts 26,607 7.7% 26,342 7.7%
IOLTA accounts 12,138 3.6% 28,659 8.3%
Money market deposits 55,166 16.0% 51,719 15.1%
Demand deposits 28,362 8.2% 25,871 7.5%
Certificates of deposit 143,668 41.7% 141,958 41.3%
-------- ----- -------- -----
Total deposits $344,482 100.0% $343,564 100.0%
======== ===== ======== =====
Borrowed funds:
Advances from Federal Home Loan Bank of Boston:
Maturities less than one year $ 23,600 48.0% $ 10,600 25.7%
Maturities greater than one year 25,581 52.0% 30,600 74.3%
-------- ----- -------- -----
Total borrowed funds $ 49,181 100.0% $ 41,200 100.0%
======== ===== ======== =====
10) Stock Option Plan
On March 24, 1999, the Company's stockholders approved the 1999 Stock
Option Plan (the "Stock Option Plan"). Under the Stock Option Plan, the
Company may grant options to its directors, officers and employees for up
to 270,223 shares of common stock. Both incentive stock options and non-
qualified stock options may be granted under the Stock Option Plan. The
exercise price of each option equals the market price of the Company's
stock on the date of grant and an option's maximum term is ten years.
Options generally vest over a five year period.
The Company applies APB Opinion 25 and related Interpretations in
accounting for the Stock Option Plan. Accordingly, no compensation cost has
been recognized. Had compensation cost for the Company's Stock Option Plan
been determined based on the fair value at the grant dates for awards under
the plan consistent with the method prescribed by SFAS No. 123, the
Company's net income and earnings per share would have been adjusted to the
pro forma amounts indicated below:
10
Mystic Financial, Inc. and Subsidiaries
Part I - Financial Information
Item 1 - Financial Statements
Notes to Unaudited Consolidated Financial Statements
December 31, 2003
In the quarter ended December 31, 2003, the Company granted 11,231 options
for it's common stock at a price of $28.57 per share. The fair value of
option grants is estimated on the date of grant using the Bloomberg option-
pricing model with the following weighted-average assumptions for the year
ended June 30, 2004:
Dividend yield 1.33%
Expected life in years 5
Expected volatility 26.11%
Risk-free interest rate 2.92%
Three Months Ended Six Months Ended
---------------------------- ----------------------------
December 31, December 31, December 31, December 31,
2003 2002 2003 2002
------------ ------------ ------------ ------------
(In thousands, except per share data)
Net income
As reported $ 245 $ 364 $ 685 $ 829
Pro forma $ 230 $ 351 $ 655 $ 802
Basic earnings per share
As reported $0.17 $0.26 $0.48 $0.60
Pro forma $0.16 $0.25 $0.46 $0.58
Diluted earnings per share
As reported $0.16 $0.25 $0.45 $0.57
Pro forma $0.15 $0.24 $0.43 $0.55
11
Mystic Financial, Inc. and Subsidiaries
Part I - Financial Information
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations
December 31, 2003
Item 2 - Management's Discussion and Analysis of Financial Condition
The following discussion compares the consolidated financial condition of
the Company at December 31, 2003 to June 30, 2003, and the results of
operations for the three and six months ended December 31, 2003, compared
to the same period in 2002. This discussion and analysis should be read in
conjunction with the consolidated financial statements and related notes
thereto included within this report.
Forward-looking Statements
The Company and the Bank may from time to time make written or oral
"forward-looking statements." These forward-looking statements may be
contained in this quarterly filing with the Securities and Exchange
Commission (the "SEC"), the Annual Report to Shareholders, other filings
with the SEC, and in other communications by the Company and the Bank,
which are made in good faith pursuant to the "safe harbor" provisions of
the Private Securities Litigation Reform Act of 1995. The words "may,"
"could," "should," "would," "believe," "anticipate," "estimate," "expect,"
"intend," "plan" and similar expressions are intended to identify forward-
looking statements.
Forward-looking statements include statements with respect to the Company's
beliefs, plans, objectives, goals, expectations, anticipations, estimates
and intentions, that are subject to significant risks and uncertainties.
The following factors, many of which are subject to change based on various
other factors beyond the Company's control, and other factors discussed in
this Form 10-Q, as well as other factors identified in the Company's
filings with the SEC and those presented elsewhere by management from time
to time, could cause its financial performance to differ materially from
the plans, objectives, expectations, estimates and intentions expressed in
such forward-looking statements:
* the strength of the United States economy in general and the strength
of the local economies in which the Company and the Bank conduct
operations;
* the effects of, and changes in, trade, monetary and fiscal policies
and laws, including interest rate policies of the Federal Reserve
Board;
* inflation, interest rate, market and monetary fluctuations;
* the timely development of and acceptance of new products and services
and the perceived overall value of these products and services by
users, including the features, pricing and quality compared to
competitors' products and services;
* the willingness of users to substitute competitors' products and
services for the Company's and the Bank's products and services;
* the Company's and the Bank's success in gaining regulatory approval
of their products and services, when required;
* the impact of changes in financial services' laws and regulations
(including laws concerning taxes, banking, securities and insurance);
12
Mystic Financial, Inc. and Subsidiaries
Part I - Financial Information
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations
December 31, 2003
* the impact of technological changes;
* acquisitions;
* changes in consumer spending and saving habits; and
* the Company's and the Bank's success at managing the risks involved
in their business.
This list of important factors is not exclusive. The Company or the Bank
does not undertake to update any forward-looking statement, whether written
or oral, that may be made from time to time by or on behalf of the Company
or the Bank.
General
The Bank completed its conversion from a mutual to a stock institution and
was simultaneously acquired by the Company on January 8, 1998. The
Company's principal business activity consists of the ownership of the
Bank. The Company also invests in short-term investment grade marketable
securities and other liquid investments.
The Bank is a Massachusetts chartered stock co-operative bank founded in
1886 with three full-service offices in Medford, Massachusetts and four
other full-service offices located in Lexington, Arlington, Bedford and
Malden, Massachusetts. The business of the Bank consists of attracting
deposits from the general public and using these funds to originate various
types of loans primarily in eastern Middlesex County, Massachusetts,
including mortgage loans secured by one-to-four family residences, home
equity loans, commercial loans secured by general business assets and
commercial real estate loans secured by commercial property, and to invest
in U.S. Government and federal agency and other securities.
The Bank has one active subsidiary, Mystic Securities Corporation, which
was established for the sole purpose of acquiring and holding investment
securities. All securities held by Mystic Securities Corporation are
investments which are permissible for banks to hold under Massachusetts
law.
The Company's profitability depends primarily on its net interest income,
which is the difference between the interest income it earns on its loans
and investment portfolio and its cost of funds, which consists mainly of
interest paid on deposits and on borrowings from the Federal Home Loan Bank
of Boston. Net interest income is affected by the relative amounts of
interest-earning assets and interest-bearing liabilities and the interest
rates earned or paid on these balances. When interest-earning assets
approximate or exceed interest-bearing liabilities, any positive interest
rate spread will generate net interest income.
13
Mystic Financial, Inc. and Subsidiaries
Part I - Financial Information
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations
December 31, 2003
Average Balances, Interest and Average Yields
The following tables set forth certain information relating to the
Company's average balance sheet and reflect the interest earned on assets
and interest cost of liabilities for the periods indicated and the average
yields earned and rates paid for the periods indicated. Such yields and
costs are derived by dividing income or expense by the average monthly
balances of assets and liabilities, respectively, for the periods
presented. Average balances are derived from daily balances. Loans on
nonaccrual status are included in the average balances of loans shown in
the tables. The securities in the following tables are presented at
amortized cost.
14
MYSTIC FINANCIAL, INC. AND SUBSIDIARY
AVERAGE BALANCES, INTEREST AND AVERAGE YIELDS
THREE MONTHS ENDED DECEMBER 31, 2003 AND 2002
Three Months Ending December 31, 2003 Three Months Ending December 31, 2002
------------------------------------- -------------------------------------
Average Interest Yield/ Average Interest Yield/
Balance Income/Expense Rate Balance Income/Expense Rate
------- -------------- ------ ------- -------------- ------
(Dollars in thousands)
INTEREST-EARNING ASSETS:
Total loans, net $288,090 $4,345 6.03% $255,376 $4,401 6.89%
Securities 116,218 1,022 3.52% 81,821 812 3.97%
Other earning assets 11,729 26 0.89% 33,971 126 1.48%
-------- ------ -------- ------
Total interest-earning assets 416,037 5,393 5.19% 371,168 5,339 5.75%
------ ------
Cash and due from banks 6,374 9,716
Other assets 8,379 7,816
-------- --------
Total assets $430,790 $388,700
======== ========
INTEREST-BEARING LIABILITIES:
Regular and other deposits $ 78,679 147 0.74% $ 57,329 230 1.59%
NOW and IOLTA accounts 37,311 13 0.14% 40,156 88 0.87%
Money market deposits 58,869 230 1.55% 47,692 293 2.44%
Certificates of deposit 142,391 1,125 3.16% 133,165 1,268 3.78%
-------- ------ -------- ------
Total interest-bearing deposits 317,250 1,515 1.91% 278,342 1,879 2.68%
FHLB borrowings 46,077 483 4.16% 56,197 741 5.23%
Subordinated debt 12,000 142 4.63% 5,000 70 5.48%
-------- ------ -------- ------
Total interest-bearing liabilities 375,327 2,140 2.26% 339,539 2,690 3.14%
------ ------
Demand deposit accounts 27,549 22,459
Other liabilities 1,895 1,992
-------- --------
Total liabilities 399,974 363,990
Stockholders' equity 26,019 24,710
-------- --------
Total liabilities and stockholders' equity $430,790 $388,700
======== ========
Net interest income $3,253 $2,649
====== ======
Interest rate spread 2.93% 2.61%
Net interest margin 3.13% 2.85%
Interest earning assets/interest-bearing liabilities 1.11 1.09
15
MYSTIC FINANCIAL, INC. AND SUBSIDIARY
AVERAGE BALANCES, INTEREST AND AVERAGE YIELDS
SIX MONTHS ENDED DECEMBER 31, 2003 AND 2002
Six Months Ending December 31, 2003 Six Months Ending December 31, 2002
------------------------------------- -------------------------------------
Average Interest Yield/ Average Interest Yield/
Balance Income/Expense Rate Balance Income/Expense Rate
------- -------------- ------ ------- -------------- ------
(Dollars in thousands)
INTEREST-EARNING ASSETS:
Total loans, net $284,927 $ 8,658 6.08% $251,223 $ 8,793 7.00%
Securities 117,058 1,983 3.39% 74,143 1,572 4.24%
Other earning assets 10,026 50 1.00% 28,632 237 1.66%
-------- ------- -------- -------
Total interest-earning assets 412,011 10,691 5.19% 353,998 10,602 5.99%
------- -------
Cash and due from banks 7,966 9,056
Other assets 8,180 7,780
-------- --------
Total assets $428,157 $370,834
======== ========
INTEREST-BEARING LIABILITIES:
Regular and other deposits $ 75,289 283 0.75% $ 55,682 506 1.80%
NOW and IOLTA accounts 40,412 29 0.14% 38,391 176 0.91%
Money market deposits 57,009 447 1.56% 35,644 438 2.44%
Certificates of deposit 141,134 2,297 3.23% 131,506 2,569 3.88%
-------- ------- -------- -------
Total interest-bearing deposits 313,844 3,056 1.93% 261,223 3,689 2.80%
FHLB borrowings 47,010 1,056 4.46% 57,165 1,501 5.21%
Subordinated debt 12,000 285 4.65% 5,000 147 5.75%
-------- ------- -------- -------
Total interest-bearing liabilities 372,854 4,397 2.34% 323,388 5,337 3.27%
------- -------
Demand deposit accounts 27,459 20,989
Other liabilities 2,122 1,993
-------- --------
Total liabilities 402,435 346,370
Stockholders' equity 25,722 24,464
-------- --------
Total liabilities and stockholders' equity $428,157 $370,834
======== ========
Net interest income $ 6,294 $ 5,265
======= =======
Interest rate spread 2.85% 2.72%
Net interest margin 3.06% 2.97%
Interest earning assets/interest-bearing liabilities 1.11 1.09
16
Mystic Financial, Inc. and Subsidiaries
Part I - Financial Information
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations
December 31, 2003
Rate/Volume Analysis
The following table sets forth certain information regarding changes in
interest income and interest expense of the Company for the periods
indicated. For each category of interest-earning asset and interest-
bearing liability, information is provided on changes attributable to: (i)
changes in volume (changes in volume multiplied by old rate); and (ii)
changes in rates (change in rate multiplied by old volume). Changes in
rate-volume (changes in rate multiplied by the changes in volume) are
allocated between changes in rate and changes in volume.
These tables show that the Company benefited from lower rates of interest
on its interest-bearing liabilities and that increases in volume more than
offset the lower interest rates on our interest earning assets, during the
three months ended December 31, 2003 as compared with the same period in
2002 and during the six months ended December 31, 2003 as compared with the
same period in 2002.
Three Months Ended December 31,
2003 vs 2002
Increase (decrease)
-------------------------------
Due To
-------------------------------
Rate Volume Total
---- ------ -----
(In thousands)
Interest and dividend income:
Loans, net $(584) $ 528 $ (56)
Investments (109) 319 210
Other earning assets (28) (72) (100)
----- ----- -----
Total (721) 775 54
----- ----- -----
Interest expense:
Savings deposits (150) 67 (83)
NOW and IOLTA accounts (69) (6) (75)
Money market deposits (122) 59 (63)
Certificates of deposits (226) 83 (143)
----- ----- -----
Total deposits (567) 203 (364)
Borrowed funds (137) (121) (258)
Subordinated debt (12) 84 72
----- ----- -----
Total (716) 166 (550)
----- ----- -----
Change in net interest income $ (5) $ 609 $ 604
===== ===== =====
17
Mystic Financial, Inc. and Subsidiaries
Part I - Financial Information
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations
December 31, 2003
Six Months Ended December 31,
2003 vs 2002
Increase (decrease)
------------------------------
Due To
------------------------------
Rate Volume Total
---- ------ -----
(In thousands)
Interest and dividend income:
Loans, net $(1,236) $1,101 $ (135)
Investments (363) 774 411
Other earning assets (71) (116) (187)
------- ------ ------
Total (1,670) 1,759 89
------- ------ ------
Interest expense:
Savings deposits (362) 139 (223)
NOW and IOLTA accounts (156) 9 (147)
Money market deposits (194) 203 9
Certificates of deposits (451) 179 (272)
------- ------ ------
Total deposits (1,163) 530 (633)
Borrowed funds (200) (245) (445)
Subordinated debt (32) 170 138
------- ------ ------
Total (1,395) 455 (940)
------- ------ ------
Change in net interest income $ (275) $1,304 $1,029
======= ====== ======
Financial Condition and Results of Operations
Comparison of Financial Condition at December 31, 2003 and June 30, 2003
The Company's total assets amounted to $434.3 million at December 31, 2003
compared to $429.3 million at June 30, 2003, an increase of $5.0 million or
1.2%. This increase in total assets is primarily a result of continued
loan growth funded by short-term borrowings.
Cash and cash equivalents decreased to $10.3 million at December 31, 2003
from $19.8 million at June 30, 2003, a decrease of $9.5 million or 47.9%.
Securities available for sale remained flat while securities held to
maturity increased to $3.0 million from $0 at June 30, 2003.
Net loans increased by $10.0 million or 3.6% to $289.9 million or 66.8% of
total assets at December 31, 2003 as compared to $279.9 million or 65.2% of
total assets at June 30, 2003. Commercial real estate, construction and
commercial loans, net of unadvanced funds, increased by $13.6 million or
12.7% to $120.2 million at December 31, 2003 from $106.6 million at June
30, 2003. Commercial real estate loans increased by $8.8 million or 12.6%
to $78.6 million at December 31, 2003 from $69.8 million at June 30, 2003.
Construction loans increased by $3.8 million or 22.8% to $20.3 million at
December 31, 2003 from $16.6 million at June 30, 2003.
18
Mystic Financial, Inc. and Subsidiaries
Part I - Financial Information
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations
December 31, 2003
Residential mortgage loans decreased by $3.8 million or 2.3% to $161.7
million at December 31, 2003 from $165.5 million at June 30, 2003. At
December 31, 2003, the Company had $45.1 million in its servicing portfolio
compared to $37.2 million at June 30, 2003 reflecting increased loan sales.
The Company's deposits increased to $344.5 million at December 31, 2003
from $343.6 million at June 30, 2003, an increase of $918,000 or 0.3%.
Savings accounts increased by $9.5 million or 13.8% to $78.5 million at
December 31, 2003 from $69.0 million at June 30, 2003. Money market
accounts increased by $3.4 million or 6.7% to $55.2 million at December 31,
2003 from $51.7 million at June 30, 2003. Demand deposit accounts
increased by $2.5 million or 9.6% to $28.4 million at December 31, 2003
from $25.9 million at June 30, 2003. NOW accounts increased by $265,000 or
1.0% to $26.6 million at December 31, 2003 from $26.3 million at June 30,
2003. Certificates of deposit increased by $1.7 million or 1.2% to $143.7
million at December 31,2003 from $142.0 million at June 30, 2003. IOLTA
accounts decreased by $16.5 million or 57.6% to $12.1 million at December
31, 2003 from $28.7 million at June 30, 2003. Deposits are the primary
source of funds for investment and lending activities. Deposit flows vary
significantly and are influenced by prevailing interest rates, market
conditions and competition.
Borrowings increased by $8.0 million to $49.2 million at December 31, 2003
from $41.2 million at June 30, 2003. The increase consisted of short-term
borrowings to fund loan and investment growth.
Comparison of the Operating Results for the Three and Six Months Ended
December 31, 2003 and 2002
Net Income. Net income was $245,000 and $685,000 for the three and six
months ended December 31, 2003, compared to $364,000 and $829,000 for the
three and six months ended December 31, 2002. Return on average assets was
0.23% and 0.32% for the three and six months ended December 31, 2003,
compared to 0.37% and 0.45% for the three and six months ended December 31,
2002. Return on average equity was 3.78% and 5.33% for the three and six
months ended December 31, 2003, compared to 5.89% and 6.78% for the three
and six months ended December 31, 2002.
The decrease of $268,000 in income before income taxes for the three months
ended December 31, 2003 compared to the three months ended December 31,
2002 was attributable to an increase in the provision for loan losses of
$262,000 and an increase in other expense of $696,000, partially offset by
an increase in total interest and dividend income of $54,000, an increase
in other income of $86,000 and a decrease in total interest expense of
$550,000.
The decrease of $334,000 in income before income taxes for the six months
ended December 31, 2003 compared to the six months ended December 31, 2002
was attributable to an increase in the provision for loan losses of
$274,000, an increase in other expense of $1.0 million and a decrease in
other income of $50,000, partially offset by an increase in total interest
and dividend income of $89,000 and a decrease in total interest expense of
$940,000.
19
Mystic Financial, Inc. and Subsidiaries
Part I - Financial Information
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations
December 31, 2003
Interest and Dividend Income. Total interest and dividend income increased
by $54,000 or 1.0% to $5.4 million for the three months ended December 31,
2003 from $5.3 million for the three months ended December 31, 2002. The
increase in interest income was a result of a higher level of loans and
securities resulting from general asset growth, partially offset by a
decrease in the average yield on interest-earning assets caused by
generally declining interest rates.
The average balance of net loans for the three months ended December 31,
2003 was $288.1 million compared to $255.4 million for the three months
ended December 31, 2002. The average yield on net loans was 6.03% for the
three months ended December 31, 2003 compared to 6.89% for the three months
ended December 31, 2002. This decrease in yield was the result of a high
volume of higher-yielding fixed-rate loans refinancing to lower-yielding
products and the adjustable-rate loans continuing to reprice at lower
levels as the repricing indexes remain at historic lows.
The average balance of securities for the three months ended December 31,
2003 was $116.2 million compared to $81.8 million for the three months
ended December 31, 2002. The average yield on securities was 3.52% for
the three months ended December 31, 2003 compared to 3.97% for the three
months ended December 31, 2002. The reduction in yield is a reflection of
the low interest rate environment, which results in the reinvestment of
amortization and prepayments of loans and investment securities into lower
yielding investments.
The average balance of other earning assets for the three months ended
December 31, 2003 was $11.7 million compared to $34.0 million for the three
months ended December 31, 2002. The average yield on other earning assets
was 0.89% for the three months ended December 31, 2003 compared to 1.48%
for the three months ended December 31, 2002. The average yield on other
earning assets declined because of the short-term repricing intervals of
these assets combined with lower short-term interest rates.
Interest Expense. Total interest expense decreased by $550,000 or 20.4% to
$2.1 million for the three months ended December 31, 2003 from $2.7 million
for the three months ended December 31, 2002. Average interest-bearing
deposits increased by $38.9 million or 14.0% to $317.3 million for the
three months ended December 31, 2003. Average borrowings decreased by
$10.1 million to $46.1 million for the three months ended December 31, 2003
from $56.2 million for the three months ended December 31, 2002. The
average rate on interest-bearing deposits decreased 77 basis points to
1.91% for the three months ended December 31, 2003 from 2.68% for the three
months ended December 31, 2002, while the average rate on borrowed funds
decreased 107 basis points to 4.16% from 5.23% during the same period. The
decline in interest expense resulted from continued growth in lower-rate
core deposits while higher-rate term deposits declined, from the prepayment
and maturities of higher-cost Federal Home Loan Bank (the "FHLB")
borrowings and from lower interest rates in the economy, in general.
20
Mystic Financial, Inc. and Subsidiaries
Part I - Financial Information
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations
December 31, 2003
Interest expense on subordinated debt for the three months ended December
31, 2003 was $142,000 as compared to $70,000 for the three months ended
December 31, 2002. Average subordinated debt for the three months ended
December 31, 2003 was $12.0 million with an average rate of 4.63% as
compared to $5.0 million with an average rate of 5.48% for the three months
ended December 31, 2002.
Total interest expense decreased by $940,000 or 17.6% to $4.4 million for
the six months ended December 31, 2003 from $5.3 million for the six months
ended December 31, 2002. Average interest-bearing deposits increased by
$52.6 million or 20.1% to $313.8 million for the six months ended December
31, 2003. Average borrowings decreased by $10.2 million to $47.0 million
for the six months ended December 31, 2003 from $57.2 million for the six
months ended December 31, 2002. The average rate on interest-bearing
deposits decreased 87 basis points to 1.93% for the six months ended
December 31, 2003 from 2.80% for the six months ended December 31, 2002,
while the average rate on borrowed funds decreased 75 basis points to 4.46%
from 5.21% during the same period. The decline in interest expense
resulted from continued growth in lower-rate core deposits while higher-
rate term deposits declined, from the prepayment and maturities of higher-
cost FHLB borrowings and from lower interest rates in the economy, in
general.
Interest expense on subordinated debt for the six months ended December 31,
2003 was $285,000 as compared to $147,000 for the six months ended December
31, 2002. Average subordinated debt for the six months ended December 31,
2003 was $12 million with an average rate of 4.65% as compared to $5
million with an average rate of 5.75% for the six months ended December 31,
2002.
Net Interest Income. Net interest income for the three months ended
December 31, 2003 was $3.3 million as compared to $2.6 million for the
three months ended December 31, 2002. The $604,000 increase can be
attributed to a combination of the $54,000 increase in interest and
dividend income, and a $550,000 decrease in interest expense on deposits,
borrowed funds and subordinated debt. The average yield on interest-
earning assets decreased 56 basis points to 5.19% for the three months
ended December 31, 2003 from 5.75% for the three months ended December 31,
2002, while the average cost on interest-bearing liabilities decreased by
88 basis points to 2.26% for the three months ended December 31, 2003 from
3.14% for the three months ended December 31, 2002. As a result, the
interest rate spread increased by .32% to 2.93% for the three months ended
December 31, 2003 from 2.61% for the three months ended December 31, 2002.
Net interest income for the six months ended December 31, 2003 was $6.3
million as compared to $5.3 million for the six months ended December 31,
2002. The $1.0 million increase can be attributed to a combination of the
$89,000 increase in interest and dividend income, and a $940,000 decrease
in interest expense on deposits, borrowed funds and subordinated debt. The
average yield on interest-earning assets decreased 80 basis points to 5.19%
for the six months ended December 31,
21
Mystic Financial, Inc. and Subsidiaries
Part I - Financial Information
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations
December 31, 2003
2003 from 5.99% for the six months ended December 31, 2002, while the
average cost on interest-bearing liabilities decreased by 93 basis points
to 2.34% for the six months ended December 31, 2003 from 3.27% for the six
months ended December 31, 2002. As a result, the interest rate spread
increased by 0.13% to 2.85% for the six months ended December 31, 2003 from
2.72% for the six months ended December 31, 2002.
Provision for Loan Losses. The provision for loan losses for the three and
six months ended December 31, 2003 was $312,000 and $399,000, respectively,
compared to $50,000 and $125,000 for the three and six months ended
December 31, 2002. The increase in the provision was necessary due to a
specific reserve of $300,000 allocated to one impaired commercial loan
during the quarter and growth in the commercial loan area. At December 31,
2003, the balance of the allowance for loan losses was $2.8 million or
0.95% of net loans. At December 31, 2002, the balance of the allowance for
loan losses was $2.2 million or 0.84% of net loans. Provisions result from
management's continuing review of the loan portfolio as well as its
judgment as to the adequacy of the reserves in light of the condition of
the economy and the real estate market. Management believes that based on
information currently available, the allowance for loan losses is adequate
and overall credit quality remains strong.
Non-performing loans at December 31, 2003 totaled $1.8 million as compared
to $296,000 at December 31, 2002. The increase is primarily due to a $1.5
million residential mortgage loan that became 90 days delinquent at
September 30, 2003 and does not require additional loan loss reserves.
Management believes that the value of the property exceeds that of the loan
balance.
Other Income. Total other income increased by $86,000 or 19.0% to $538,000
for the three months ended December 31, 2003 as compared to $452,000 for
the three months ended December 31, 2002. The increase in other income
reflects an increase in gain on the sales of securities of $321,000, offset
by a decrease in net gain on sale of loans of $162,000 and miscellaneous
and service fee income of $73,000.
For the six months ended December 31, 2003, other income decreased by
$50,000 or 5.5% to $862,000 as compared to $912,000 for the six months
ended December 31, 2002. The decrease in other income reflects an increase
in gain on sale of securities of $366,000, offset by a decrease in net gain
on sale of loans of $291,000 and miscellaneous and service fee income of
$125,000.
Other Expense. Total other expense increased by $696,000 or 28.5% to $3.1
million for the three months ended December 31, 2003 as compared to $2.4
million for the three months ended December 31, 2002. Salaries and employee
benefits increased by $228,000, occupancy and equipment expenses increased
by $58,000 and data processing and other general and administrative
expenses increased by $410,000. The Company prepaid $5.0 million of
higher-cost FHLB borrowings resulting in a $298,000 prepayment penalty,
which is reflected in other general and administrative expenses. This
increase in other expense, excluding the FHLB prepayment penalty, was
caused by higher personnel
22
Mystic Financial, Inc. and Subsidiaries
Part I - Financial Information
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations
December 31, 2003
costs, occupancy costs, data processing costs and marketing costs
associated with the growth of the Bank and the branch office that opened in
Malden, MA in September 2003.
Total other expense increased by $1.0 million or 22.2% to $5.7 million for
the six months ended December 31, 2003 as compared to $4.7 million for the
six months ended December 31, 2002. Salaries and employee benefits
increased by $388,000, occupancy and equipment expenses increased by
$117,000 and data processing and other general and administrative expenses
increased by $534,000. The Company prepaid $5.0 million of higher-cost
FHLB borrowings resulting in a $298,000 prepayment penalty, which is
reflected in other general and administrative expenses. This increase in
other expense, excluding the FHLB prepayment penalty, was caused by higher
personnel costs, occupancy costs, data processing costs and marketing costs
associated with the growth of the Bank and the branch office that opened in
Malden, MA in September 2003.
Asset/Liability Management
A principal operating objective of the Company is to produce stable
earnings by achieving a favorable interest rate spread that can be
sustained during fluctuations in prevailing interest rates. Since the
Company's principal interest-earning assets have longer terms to maturity
than its primary source of funds, i.e. deposit liabilities, increases in
general interest rates will generally result in an increase in the
Company's cost of funds before the yield on its asset portfolio adjusts
upward. Banking institutions have generally sought to reduce their
exposure to adverse changes in interest rates by attempting to achieve a
closer match between the periods in which their interest-bearing
liabilities and interest-earning assets can be expected to reprice through
the origination of adjustable-rate mortgages and loans with shorter terms
and the purchase of other shorter term interest-earning assets.
The term "interest rate sensitivity" refers to those assets and
liabilities, which mature and reprice periodically in response to
fluctuations in market rates and yields. Thrift institutions have
historically operated in a mismatched position with interest-sensitive
liabilities exceeding interest-sensitive assets in the short-term time
periods. As noted above, one of the principal goals of the
Bank's asset/liability program is to more closely match the interest rate
sensitivity characteristics of the asset and liability portfolios.
In order to properly manage interest rate risk, the Board of Directors has
established an Asset/Liability Management Committee ("ALCO") made up of
members of the Board and management to monitor the difference between the
Company's maturing and repricing assets and liabilities and to develop and
implement strategies to decrease the "negative gap" between the two. The
primary responsibilities of the committee are to assess the Company's
asset/liability mix, recommend strategies to the Board that will enhance
income while managing the Company's vulnerability to changes in interest
rates and report to the Board the results of the strategies used.
23
Mystic Financial, Inc. and Subsidiaries
Part I - Financial Information
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations
December 31, 2003
Liquidity and Capital Resources
The Company's primary sources of funds consist of deposits, borrowings,
repayment and prepayment of loans, sales and participations of loans,
maturities of securities and interest-bearing deposits, and funds provided
from operations. While scheduled repayments of loans and maturities of
securities are predictable sources of funds, deposit flows and loan
prepayments are greatly influenced by the general level of interest rates,
economic conditions, and competition. The Company uses its liquidity
resources primarily to fund existing and future loan commitments, to fund
net deposit outflows, to invest in other interest-earning assets, to
maintain liquidity, and to meet operating expenses.
The Company is required to maintain adequate levels of liquid assets. This
requirement, which may be varied depending upon economic conditions and
deposit flows, is based upon a percentage of deposits and short-term
borrowings. The Company has historically maintained a level of liquid
assets in excess of regulatory requirements. The Company's liquidity ratio
at December 31, 2003 was 38.9%, using the short-term assets to short-term
liabilities formula defined under the Federal Deposit Insurance
Corporation's Uniform Bank Performance Reports.
A major portion of the Company's liquidity consists of cash and cash
equivalents, short-term U.S. Government and federal agency obligations, and
corporate bonds. The level of these assets is dependent upon the Company's
operating, investing, lending and financing activities during any given
period.
Liquidity management is both a daily and long-term function of management.
If the Company requires funds beyond its ability to generate them
internally, the Company believes it could borrow additional funds from the
FHLB. At December 31, 2003, the Company had outstanding borrowings of
$49.2 million and an available line of credit of $3.5 million from the
FHLB.
At December 31, 2003, the Company had $15.3 million in outstanding
commitments to originate loans. The Company anticipates that it will have
sufficient funds available to meet its current loan origination
commitments. Certificates of deposit which are scheduled to mature in one
year or less totaled $98.1 million at December 31, 2003. Based upon
historical experience, management believes that a significant portion of
such deposits will remain with the Bank. At December 31, 2003, the Company
and the Bank exceeded all of their regulatory capital requirements.
Off-Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements that have or
are reasonably likely to have a current or future effect on the Company's
financial condition, revenues or expenses, results of operations,
liquidity, capital expenditures or capital resources that is material to
investors.
24
Mystic Financial, Inc. and Subsidiaries
Part I - Financial Information
Item 3 - Quantitative and Qualitative Disclosures About Market Risk
December 31, 2003
Item 3. Quantitative and Qualitative Disclosures About Market Risk
In management's opinion, there has been no material change in market risk
since disclosed in Item 7A of the Company's Annual Report on Form 10-K for
the year ended June 30, 2003.
Item 4. Controls and Procedures
Management, including the Company's President and Chief Executive Officer
and Chief Financial Officer, has evaluated the effectiveness of the
Company's disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this
report. Based upon that evaluation, the President and Chief Executive
Officer and Chief Financial Officer concluded that the disclosure controls
and procedures were effective, in all material respects, to ensure that
information required to be disclosed in the reports the Company files and
submits under the Exchange Act is recorded, processed, summarized and
reported as and when required.
25
Mystic Financial, Inc. and Subsidiaries
Part II - Other Information
December 31, 2003
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Controls and Procedures
None
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
31.1 Rule 13a-14(a) Certification of President and Chief Executive
Officer as adopted pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002.
31.2 Rule 13a-14(a) Certification of Senior Vice President and
Treasurer as adopted pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002.
32.1 Certification of President and Chief Executive Officer pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
32.2 Certification of Senior Vice President and Treasurer pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
The Company furnished a report on Form 8-K dated October 22, 2003 (1)
pursuant to Item 9 to report that management had made a presentation at the
Company's 2003 Annual Meeting of Stockholders, and to furnish the
presentation, and (2) pursuant to Item 12 to report the issuance of and
furnish its press release announcing the Company's earnings for the three
months ended September 30, 2003.
26
Mystic Financial, Inc. and Subsidiaries
Part II - Other Information
Signatures
December 31, 2003
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MYSTIC FINANCIAL, INC.
(Registrant)
Date: February 13, 2004 By: /s/ Ralph W. Dunham
----------------- --------------------------------
Ralph W. Dunham
President and Chief Executive
Officer
Date: February 13, 2004 By: /s/ Anthony J. Patti
----------------- --------------------------------
Anthony J. Patti
Senior Vice President, Chief
Financial Officer and Treasurer
27