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UNITED STATES
SECURITIES AND EXCHANGE COMMISION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For quarter ended June 30, 2004
-------------
Commission file number 000-23904
---------
SLADE'S FERRY BANCORP.
--------------------------------------------------------
(Exact name of registrant as specified in its character)
Massachusetts 04-3061936
- --------------------------------- ----------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
100 Slade's Ferry Avenue
Somerset, Massachusetts 02726
- ---------------------------------------- ----------------------
(Address of principal executive offices) (Zip code)
(508)-675-2121
----------------------------------------------------
(Registrant's telephone number, including area code)
Check whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
past 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
------------ -----------
Indicate by checkmark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
Yes No X
------------ -----------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date:
Common stock ($0.01 par value) 4,059,809 shares as of July 31, 2004.
--------------------------------------------------------------------
TABLE OF CONTENTS
Part I
ITEM 1 - Financial Statements of Slade's Ferry Bancorp. and Subsidiary 2
Condensed Consolidated Balance Sheets - June 30, 2004
(Unaudited) and December 31, 2003
Condensed Consolidated Statements of Income and Expense
(Unaudited) - 6 Months Ended June 30, 2004 and 2003
Condensed Consolidated Statements of Income and Expense
(Unaudited) - 3 Months Ended June 30, 2004 and 2003
Condensed Consolidated Statement of Changes in Stockholders'
Equity (Unaudited) - 6 Months Ended June 30, 2004
Condensed Consolidated Statements of Cash Flows (Unaudited) - 6
Months Ended June 30, 2004 and 2003
Notes to Condensed Consolidated Financial Statements (Unaudited)
ITEM 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations 12
ITEM 3 - Quantitative and Qualitative Disclosures About Market Risk 27
ITEM 4 - Controls and Procedures 28
Part II
ITEM 1 - Legal Proceedings 29
ITEM 2 - Changes in Securities, Use of Proceeds and Issuer Purchases
of Equity Securities 29
ITEM 3 - Defaults upon Senior Securities 29
ITEM 4 - Submission of Matters to a Vote of Security Holders 29
ITEM 5 - Other Information 30
ITEM 6 - Exhibits and Reports on Form 8-K 30
1
PART I
ITEM 1
Financial Statements
- --------------------
SLADE'S FERRY BANCORP. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, 2004 December 31, 2003
----------------------------------
(Unaudited)
ASSETS:
Cash, due from banks and interest-bearing
demand deposits with other banks $ 21,342,930 $ 18,642,370
Money market mutual funds 387,502 63,539
Federal Home Loan Bank overnight deposit 12,000,000 0
Federal funds sold 19,500,000 4,000,000
-------------------------------
Cash and cash equivalents 53,230,432 22,705,909
Interest-bearing time deposits with other banks 100,000 200,000
Investment securities held-to-maturity(1) 9,517,673 11,300,402
Investment securities available-for-sale(2) 75,595,493 47,162,852
Federal Home Loan Bank stock 3,128,500 3,023,800
Loans, net 358,534,393 331,496,525
Premises and equipment 5,776,447 5,894,736
Goodwill 2,173,368 2,173,368
Accrued interest receivable 1,830,466 1,497,104
Cash surrender value of life insurance 11,373,643 10,980,879
Deferred income tax asset, net 2,428,283 1,996,213
Other assets 1,716,399 1,016,753
-------------------------------
TOTAL ASSETS $525,405,097 $439,448,541
===============================
LIABILITIES & STOCKHOLDERS' EQUITY:
Deposits $411,692,478 $333,144,817
Federal Home Loan Bank advances 56,481,413 60,474,864
Subordinated debentures 10,310,000 0
Other liabilities 3,288,419 3,086,719
-------------------------------
Total liabilities 481,772,310 396,706,400
-------------------------------
STOCKHOLDERS' EQUITY:
Common stock 40,518 39,959
Paid-in capital 29,488,031 28,609,206
Retained earnings 15,219,781 14,698,595
Accumulated other comprehensive loss (1,115,543) (605,619)
-------------------------------
Total stockholders' equity 43,632,787 42,742,141
-------------------------------
TOTAL LIABILITIES &
STOCKHOLDERS' EQUITY $525,405,097 $439,448,541
===============================
- --------------------
Investment securities held-to-maturity have a fair market value of
$9,792,224 as of June 30, 2004 and $11,851,713 as of December 31,
2003.
Securities classified as available-for-sale are stated at fair value
with any unrealized gains or losses reflected as an adjustment in
Stockholders' Equity, net of tax effect.
The accompanying notes are an integral part of these condensed consolidated
financial statements.
2
SLADE'S FERRY BANCORP. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND EXPENSE
(Unaudited)
6 MONTHS ENDED JUNE 30,
2004 2003
--------------------------
INTEREST AND DIVIDEND INCOME:
Interest and fees on loans $ 9,867,034 $ 8,509,284
Interest and dividends on investments 1,207,525 1,586,281
Other interest 162,535 108,380
--------------------------
Total interest and dividend income 11,237,094 10,203,945
--------------------------
INTEREST EXPENSE:
Interest on deposits 2,447,061 2,447,944
Interest on Federal Home Loan Bank advances 1,173,137 651,206
Interest on subordinated debentures 117,923 0
--------------------------
Total interest expense 3,738,121 3,099,150
--------------------------
Net interest and dividend income 7,498,973 7,104,795
Provision (benefit) for loan losses 376,215 (539,357)
--------------------------
Net interest and dividend income
after provision (benefit) for loan losses 7,122,758 7,644,152
--------------------------
OTHER INCOME:
Service charges on deposit accounts 271,834 278,194
Overdraft service charges 254,787 263,126
Gain (loss) on sales of available-for-sale securities, net 39,304 (40,918)
Increase in cash surrender value of life insurance policies 257,763 216,340
Other income 339,728 293,053
--------------------------
Total other income 1,163,416 1,009,795
--------------------------
NONINTEREST EXPENSE:
Salaries and employee benefits 4,018,868 3,738,029
Occupancy expense 420,192 485,013
Equipment expense 279,697 255,022
Stationary and supplies 109,808 114,282
Professional fees 476,615 541,676
Marketing expense 198,468 229,617
Other expense 865,844 1,070,386
--------------------------
Total noninterest expense 6,369,492 6,434,025
--------------------------
Income before income taxes 1,916,682 2,219,922
Income taxes 668,965 1,302,406
--------------------------
NET INCOME (1) $ 1,247,717 $ 917,516
==========================
Basic earnings per share $ 0.31 $ 0.23
==========================
Diluted earnings per share $ 0.31 $ 0.23
==========================
Basic averages shares outstanding 4,028,706 3,956,361
==========================
Diluted average shares outstanding 4,077,206 3,979,347
==========================
Dividends per share $ 0.18 $ 0.18
==========================
Comprehensive income(2) $ 737,793 $ 1,119,927
==========================
- --------------------
The year to date results of operations for the period ended June 30,
2003 have been revised from that previously reported to remove the
extraordinary item. The extraordinary item treatment previously
presented was revised, and its individual components were reclassed to
income tax expense in the amount of $529,191, and included in other
expense is interest of $128,977. See Footnote 20 to the Company's
audited consolidated financial statements included in the Company's
annual report on Form 10-K for the year ended December 31, 2003 filed
with the U.S. Securities and Exchange Commission.
Calculated using the change in accumulated other comprehensive income
(loss) for the period and net income for the period.
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
SLADE'S FERRY BANCORP. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND EXPENSE
(Unaudited)
3 MONTHS ENDED JUNE 30,
2004 2003
--------------------------
INTEREST AND DIVIDEND INCOME:
Interest and fees on loans $ 4,974,859 $ 4,342,772
Interest and dividends on investments 678,029 737,332
Other interest 103,821 63,057
--------------------------
Total interest and dividend income 5,756,709 5,143,161
--------------------------
INTEREST EXPENSE:
Interest on deposits 1,324,772 1,220,151
Interest on Federal Home Loan Bank advances 578,266 333,713
Interest on subordinated debentures 101,673 0
--------------------------
Total interest expense 2,004,711 1,553,864
--------------------------
Net interest and dividend income 3,751,998 3,589,297
Provision (benefit) for loan losses 130,000 (680,357)
--------------------------
Net interest and dividend income
after provision (benefit) for loan losses 3,621,998 4,269,654
--------------------------
OTHER INCOME:
Service charges on deposit accounts 126,337 144,426
Overdraft service charges 131,447 141,457
Gain (loss) on sales of available-for-sale securities, net 4,422 0
Increase in cash surrender value of life insurance policies 120,059 108,170
Other income 217,493 141,076
--------------------------
Total other income 599,758 535,129
--------------------------
NONINTEREST EXPENSE:
Salaries and employee benefits 2,051,003 1,948,592
Occupancy expense 188,827 222,032
Equipment expense 132,619 131,857
Stationary and supplies 66,223 54,078
Professional fees 250,075 298,796
Marketing expense 141,653 135,344
Other expense 428,612 416,338
--------------------------
Total noninterest expense 3,259,012 3,207,037
--------------------------
Income before income taxes 962,744 1,597,746
Income taxes 361,021 (11,950)
--------------------------
NET INCOME (1) $ 601,723 $ 1,609,696
==========================
Basic earnings per share $ 0.15 $ 0.41
==========================
Diluted earnings per share $ 0.15 $ 0.40
==========================
Basic averages shares outstanding 4,044,758 3,964,054
==========================
Diluted average shares outstanding 4,088,168 3,989,285
==========================
Dividends per share $ 0.09 $ 0.09
==========================
Comprehensive income(2) $ 91,799 $ 1,729,607
==========================
- --------------------
The quarterly results of operations for the period ended June 30, 2003
have been revised from that previously reported to remove the
extraordinary item. The extraordinary item treatment previously
presented was revised, and its individual components were reclassed to
income tax expense (benefit), in the amount of $529,133 and included
in other expense is interest of $97,765. See Footnote 20 to the
Company's audited consolidated financial statements included in the
Company's annual report on Form 10-K for the year ended December 31,
2003 filed with the U.S. Securities and Exchange Commission.
Calculated using the change in accumulated other comprehensive income
(loss) for the period and net income (loss) for the period.
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
SLADE'S FERRY BANCORP. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 2004 AND 2003
(Unaudited)
Accumulated
Other
Common Paid-in Retained Comprehensive
Stock Capital Earnings Loss Total
---------------------------------------------------------------------
Balance, January 1, 2004 $39,959 $28,609,206 $14,698,595 $ (605,619) $42,742,141
Comprehensive income:
Net income 1,247,717
Other comprehensive income (509,924)
Comprehensive income 737,793
Issuance of common stock from
dividend reinvestment plan 143 313,520 313,663
Retired common stock shares (34) (32,334) (32,368)
Stock issuance relating to optional
cash contribution plan 28 66,129 66,157
Stock options exercised 422 531,510 531,932
Dividends declared ($.09 per share) (726,531) (726,531)
---------------------------------------------------------------------
Balance, June 30, 2004 $40,518 $29,488,031 $15,219,781 $(1,115,543) $43,632,787
=====================================================================
Accumulated
Other
Common Paid-in Retained Comprehensive
Stock Capital Earnings Loss Total
---------------------------------------------------------------------
Balance, January 1, 2003 $39,378 $27,693,199 $13,445,335 $ (10,908) $41,167,004
Comprehensive income:
Net income 917,516
Other comprehensive income 202,411
Comprehensive income 1,119,927
Issuance of common stock from
dividend reinvestment plan 241 343,119 343,360
Stock issuance relating to optional
cash contribution plan 55 77,309 77,364
Dividends declared ($.09 per share) (712,859) (712,859)
---------------------------------------------------------------------
Balance, June 30, 2003 $39,674 $28,113,627 $13,649,992 $ 191,503 $41,994,796
=====================================================================
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
SLADE'S FERRY BANCORP. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30,
(Unaudited)
2004 2003
-----------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,247,717 $ 917,516
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization, net of accretion of securities 71,802 102,291
(Gains) loss on sales of available-for-sale securities, net (39,304) 40,918
Loss on sale of loan 0 103,534
Change in unearned income 127,586 (7,579)
Provision (benefit) for loan losses 376,215 (539,357)
Depreciation and amortization 319,808 309,450
Increase in cash surrender value of life insurance policies (257,763) (216,340)
Decrease in taxes receivable 40,346 (64,241)
Deferred tax expense 0 52,941
(Increase) decrease in other assets (664,976) 26,300
Increase in prepaid expenses (75,018) (52,300)
(Increase) decrease in interest receivable (333,362) 61,451
Increase (decrease) in other liabilities 33,466 (24,403)
Decrease in accrued expenses 125,562 71,481
Increase (decrease) in interest payable 37,759 (11,764)
Decrease in minority interest 0 (4,500)
-----------------------------
Net cash provided by operating activities 1,009,838 765,398
-----------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of interest-bearing
time deposits with other banks 100,000 0
Purchases of available-for-sale securities (38,642,723) (21,955,276)
Proceeds from maturities and calls of
available-for-sale securities 9,240,839 31,601,021
Purchases of held-to-maturity securities 0 (4,926,305)
Proceeds from maturities of held-to-maturity securities 1,777,480 1,901,946
Purchase of Federal Home Loan Bank stock (104,700) (339,000)
Loan originations and principal collections, net (27,610,403) (30,228,939)
Recoveries of loans previously charged off 68,734 52,035
Proceeds from sales of loans 0 1,698,230
Capital expenditures (201,519) (311,979)
Investment in life insurance policies (135,000) (670,501)
-----------------------------
Net cash used in investing activities (55,507,292) (23,178,768)
-----------------------------
The accompanying notes are an integral part of these condensed consolidated
financial statements.
6
SLADE'S FERRY BANCORP. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30,
(Unaudited)
(Continued)
2004 2003
-----------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand deposits, NOW,
and savings accounts 52,809,230 14,589,565
Net increase (decrease) in time deposits 25,738,431 (206,773)
Payments on Federal Home Loan Bank long-term advances (169,451) (138,789)
Net change in short-term advances from Federal Home Loan Bank (3,824,000) 8,000,000
Proceeds from subordinated debentures 10,310,000 0
Proceeds from issuance of common stock 379,824 420,724
Stock options exercised 531,929 0
Retired common stock shares (32,368) 0
Dividends paid (721,618) (710,197)
-----------------------------
Net cash provided by financing activities 85,021,977 21,954,530
-----------------------------
Net increase (decrease) in cash and cash equivalents 30,524,523 (458,840)
Cash and cash equivalents at beginning of year 22,705,909 34,716,536
-----------------------------
Cash and cash equivalents at the end of period $ 53,230,432 $ 34,257,696
=============================
SUPPLEMENTAL DISCLOSURES:
Interest paid $ 3,700,361 $ 3,110,914
Income taxes paid (received) $ 628,619 $ 669,468
The accompanying notes are an integral part of these condensed consolidated
financial statements.
7
SLADE'S FERRY BANCORP. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 30, 2004
Note A - Basis of Presentation
- ------------------------------
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with accounting principles generally accepted in
the United States of America (GAAP) for interim financial information and
the instructions to Form 10-Q and, accordingly, do not include all of the
information and footnotes required by GAAP for complete financial
statements. In the opinion of the management of Slade's Ferry Bancorp. (the
"Company"), all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three months ended June 30, 2004 are not necessarily
indicative of the results that may be expected for the year ending December
31, 2004.
The year-end condensed consolidated balance sheet data was derived from
audited financial statements, but does not include all disclosures required
by GAAP.
Note B - Accounting Policies
- ----------------------------
The accounting principles followed by Slade's Ferry Bancorp. and subsidiary
and the methods of applying these principles which materially affect the
determination of financial position, results of operations, or changes in
financial position are consistent with those used for the year ended
December 31, 2003.
The consolidated financial statements of Slade's Ferry Bancorp. include its
wholly-owned subsidiary, Slade's Ferry Trust Company, and its subsidiaries,
Slade's Ferry Realty Trust, Slade's Ferry Securities Corporation and Slade's
Ferry Loan Company. All significant intercompany balances have been
eliminated.
Note C - Stock Based Compensation
- ---------------------------------
At June 30, 2004, the Company has a stock-based employee compensation plan.
The Company accounts for the plan under the recognition and measurement
principles of APB Opinion No. 25, "Accounting for Stock Issued to
Employees," and related Interpretations. No stock-based employee
compensation cost is reflected in net income (except for appreciation from
options surrendered), as all options granted under this plan had an exercise
price equal to the market value of the underlying common stock on the date
of grant. The following table illustrates the effect on net income and
earnings per share if the Company had applied the fair value recognition
provisions of SFAS Statement No. 123, "Accounting for Stock-Based
Compensation," to stock-based employee compensation.
3 Months Ended June 30, 6 Months Ended June 30,
2004 2003 2004 2003
--------------------------------------------------
Net income, as reported $601,723 $1,609,696 $1,247,717 $917,516
Deduct: Total stock-based employee compensation
expense determined under fair value based method
for all awards, net of related tax effects 87,438 55,967 87,438 55,967
--------------------------------------------------
Pro forma net income $514,285 $1,553,729 $1,160,279 $861,549
==================================================
Earnings per share:
Basic - as reported $ 0.15 $ 0.41 $ 0.31 $ 0.23
Basic - pro forma $ 0.13 $ 0.39 $ 0.29 $ 0.22
Diluted - as reported $ 0.15 $ 0.40 $ 0.31 $ 0.23
Diluted - pro forma $ 0.13 $ 0.39 $ 0.28 $ 0.22
8
Note D - Pension Benefits
- -------------------------
The net periodic benefit cost is summarized below:
Six months ended June 30, Three months ended June 30,
2004 2003 2004 2003
--------------------------------------------------------
Service Cost $ 9,475 $ 9,486 $ 5,979 $ 7,531
Interest Cost 65,476 71,662 40,630 56,892
Expected return on plan assets (31,913) (39,273) (21,089) (31,178)
Amortization of prior service cost 2,177 (8,786) 1,272 (6,975)
Recognized net actuarial (gain) loss (34,948) 42,572 21,228 33,796
Amortization of transition (asset) obligation 4,882 5,339 2,900 4,239
-------------------------------------------------------
Net periodic cost (income) $ 15,149 $ 81,000 $ 50,920 $ 64,305
=======================================================
The Company previously disclosed in its consolidated financial statements
for the year ended December 31, 2003 that it expected pension plan
contributions to be $150,000 in 2004. There was no cash contribution made to
the total pension plan during the second quarter 2004.
Note E - Impact of New Accounting Standards
- -------------------------------------------
In November 2002, the FASB issued FASB Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others" ("FIN 45"). FIN 45 elaborates on the
disclosure to be made by a guarantor in its interim and annual financial
statements about its obligations under certain guarantees that it has
issued. It also clarifies that a guarantor is required to recognize, at the
inception of a guarantee, a liability for the fair value of the obligation
undertaken in issuing the guarantee. FIN 45 clarifies that a guarantor is
required to disclose (a) the nature of the guarantee; (b) the maximum
potential amount of future payments under the guarantee; (c) the carrying
amount of the liability; (d) the nature and extent of any recourse
provisions or available collateral that would enable the guarantor to
recover the amounts paid under the guarantee.
Paragraph 5 of SFAS No. 147, which relates to the application of the
purchase method of accounting, was effective for acquisitions for which the
date of acquisition is on or after October 1, 2002. The provisions in
paragraph 6 related to accounting for the impairment or disposal of certain
long-term customer-relationship intangible assets were effective on October
1, 2002. Transition provisions for previously recognized unidentifiable
intangible assets in paragraphs 8-14 were effective on October 1, 2002, with
earlier application permitted. There was no impact on the Company's
consolidated financial statements on adoption of this Statement.
The initial recognition and initial measurement provisions of FIN 45 are
applicable on a prospective basis to guarantees issued or modified after
December 31, 2002. The disclosure requirements in FIN 45 are effective for
financial statements of interim or annual periods ending after December 15,
2002. The Company adopted the initial recognition and initial measurement
provisions of FIN 45 effective as of January 1, 2003 and adopted the
disclosure requirements effective as of December 31, 2002. The adoption of
this interpretation did not have a material effect on the Company's
financial position or results of operations.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure, an amendment of SFAS Statement No.
123" ("SFAS No. 148"). SFAS No. 148 provides alternative methods of
transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition, SFAS No. 148
amends the disclosure requirements of SFAS No. 123 to require prominent
disclosures in both annual and interim financial statements about the method
of accounting for stock-based employee compensation and the effect of the
method used on reported results. The transition provisions and disclosure
provisions are required for financial statements for fiscal years ending
after
9
December 15, 2002. The Company adopted the disclosure provisions of SFAS No.
148 as of December 31, 2002 and currently uses the intrinsic value method of
accounting for stock options.
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement No. 133
on Derivative Instruments and Hedging Activities" ("SFAS No. 149"), which
amends and clarifies financial accounting and reporting for derivative
instruments, including certain derivative instruments embedded in other
contracts and for hedging activities under SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities." This Statement (a) clarifies
under what circumstances a contract with an initial net investment meets the
characteristic of a derivative, (b) clarifies when a derivative contains a
financing component, (c) amends the definition of an underlying to conform
to language used in FASB Interpretation No. 45, "Guarantor's Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others," and (d) amends certain other existing
pronouncements. The provisions of SFAS No. 149 are effective for contracts
entered into or modified after June 30, 2003. There was no substantial
impact on the Company's consolidated financial statements on adoption of
this Statement.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity" ("SFAS No.
150"). This Statement establishes standards for the classification and
measurement of certain financial instruments with characteristics of both
liabilities and equity. SFAS No. 150 requires that certain financial
instruments that were previously classified as equity must be classified as
a liability. Most of the guidance in SFAS No. 150 is effective for financial
instruments entered into or modified after May 31, 2003, and otherwise is
effective at the beginning of the first interim period beginning after June
15, 2003. This Statement did not have any material effect on the Company's
consolidated financial statements.
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities" ("FIN 46"), in an effort to expand upon and
strengthen existing accounting guidance that addresses when a company should
include in its financial statements the assets, liabilities and activities
of another entity. In December 2003, the FASB revised Interpretation No. 46,
also referred to as Interpretation 46 (R) ("FIN 46(R)"). The objective of
this interpretation is not to restrict the use of variable interest entities
but to improve financial reporting by companies involved with variable
interest entities. Until now, one company generally has included another
entity in its consolidated financial statements only if it controlled the
entity through voting interests. This interpretation changes that, by
requiring a variable interest entity to be consolidated by a company only if
that company is subject to a majority of the risk of loss from the variable
interest entity's activities or entitled to receive a majority of the
entity's residual returns or both. The Company is required to apply FIN 46,
as revised, to all entities subject to it no later than the end of the first
reporting period ending after March 15, 2004. However, prior to the required
application of FIN 46, as revised, the Company shall apply FIN 46 or FIN 46
(R) to those entities that are considered to be special-purpose entities as
of the end of the first fiscal year or interim period ending after December
15, 2003. The adoption of this interpretation did not have a material effect
on the Company's consolidated financial statements.
In December 2003, the FASB issued SFAS No. 132 (revised 2003), "Employers'
Disclosures about Pensions and Other Postretirement Benefits - an amendment
of SFAS No. 87, SFAS No. 88 and SFAS No. 106" ("SFAS No. 132 (revised
2003)"). This Statement revises employers' disclosures about pension plans
and other postretirement benefit plans. It does not change the measurement
or recognition of those plans required by SFAS No. 87, "Employers'
Accounting for Pensions," SFAS No. 88, "Employers' Accounting for
Settlements and Curtailments of Defined Benefit Pension Plans and for
Termination Benefits," and SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions." This Statement retains the
disclosure requirements contained in SFAS No. 132, "Employers' Disclosures
About Pensions and Other Postretirement Benefits," which it replaces. It
requires additional disclosures to those in the original Statement 132 about
assets, obligations, cash flows and net periodic benefit cost of defined
benefit pension plans and other defined benefit postretirement plans. This
Statement is effective for financial statements with fiscal years
10
ending after December 15, 2003 and interim periods beginning after December
15, 2003. Adoption of this Statement did not have a material impact on the
Company's consolidated financial statements.
11
ITEM 2
Management's Discussion and Analysis of Financial Condition and
- ---------------------------------------------------------------
Results of Operations
- ---------------------
This Form 10-Q contains certain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995, including
statements regarding the strength of the company's capital and asset
quality. Other such statements may be identified by words such as
"believes," "will," "expects," "project," "may," "developments,"
"strategic," "launching," "opportunities," "anticipates," "estimates,"
"intends," "plans," "targets" and similar expressions. These statements are
based upon the current beliefs and expectations of Slade's Ferry Bancorp's
management and are subject to significant risks and uncertainties. Actual
results may differ materially from those set forth in the forward-looking
statements as a result of numerous factors.
The following factors, among others, could cause actual results to differ
materially from the anticipated results or other expectations expressed in
our forward-looking statements: (1) enactment of adverse government
regulation; (2) competitive pressures among depository and other financial
institutions may increase significantly and have an effect on pricing,
spending, third-party relationships and revenues; (3) the strength of the
United States economy in general and specifically the strength of the New
England economies may be different than expected, resulting in, among other
things, a deterioration in overall credit quality and borrowers' ability to
service and repay loans, or a reduced demand for credit, including the
resultant effect on the Bank's loan portfolio, levels of charge-offs and
non-performing loans and allowance for loan losses; (4) changes in the
interest rate environment may reduce interest margins and adversely impact
net interest income; and (5) changes in assumptions used in making such
forward-looking statements. Should one or more of these risks materialize or
should underlying beliefs or assumptions prove incorrect, Slade's Ferry
Bancorp.'s actual results could differ materially from those discussed. All
subsequent written and oral forward-looking statements attributable to
Slade's Ferry Bancorp. or any person acting on its behalf are expressly
qualified in their entirety by the cautionary statements set forth above.
Slade's Ferry Bancorp. does not intend or undertake any obligation to update
any forward-looking statement to reflect circumstances or events that occur
after the date the forward-looking statements are made.
Slade's Ferry Bancorp. ("Slade's Ferry," "Company," "us," or "we"), a
business corporation organized under the laws of the Commonwealth of
Massachusetts, serves as the holding company for Slade's Ferry Trust Company
(the "Bank")and its subsidiaries. Our common stock is quoted on the Nasdaq
Small Cap Market under the symbol "SFBC." Unless the context otherwise
requires, all references herein to the Company, Bank or Slade's Ferry
include Slade's Ferry, the Bank and its subsidiaries on a consolidated
basis.
Critical Accounting Policies
Our significant accounting policies are described in Note 2 to our
Consolidated Financial Statements filed within form 10-K for the year ended
December 31, 2003. In preparing financial information, management is
required to make significant judgements, estimates, and assumptions that
impact the reported amounts of certain assets, liabilities, revenues and
expenses. The accounting principles followed by us and the methods of
applying these principles conform to accounting principles generally
accepted in the United States, and general banking practices. We consider
the following to be our critical accounting policies: allowance for loan
losses, goodwill and other intangible assets, other than temporary
impairment of investments, and deferred taxes.
Allowance for loan losses. Establishing an appropriate level of allowance
for loan losses involves a high degree of judgement. The allowance for loan
losses is established through a charge or credit to the provision for loan
losses, and is based on our projection of the adequate level of the
allowance in relation to the inherent loss exposure in the loan portfolio.
On a monthly basis, management evaluates the adequacy of the allowance which
includes a formal analysis which considers, among other factors,
12
business and economic conditions and industry trends, the size and
characteristics of the loan portfolio, delinquency trends, charge-off
experience, loan growth, nonaccrual loan trends, and portfolio migration
information. Although we use available information to project the
appropriate level of the allowance which is based on factors and risk
identification procedures discussed in "Item I Business - Summary of Loan
Loss Experience," the use of judgements and projections may change in the
future. Changes in factors or assumptions used by us to determine the
adequacy of the allowance or the availability of new information could cause
the allowance for loan losses to be increased or decreased in future
periods. In addition, bank regulatory agencies, as part of their examination
process, may require the Company to recognize adjustments to the allowance
based on their judgements and projections.
Accounting for Acquisitions and Review of Goodwill. We completed an
acquisition in 1996 and used the purchase method of accounting. For
acquisitions under this method, we record assets acquired and liabilities
assumed at their estimated fair value, which in some instances involves
estimates based on internal and third party pressures, or other valuation
techniques. In addition, this purchase acquisition resulted in goodwill,
which is subject to ongoing periodic impairment tests, and is evaluated
using fair value techniques that contain estimates. If the estimated fair
value is less than the carrying amount, a loss due to impairment would be
recognized to reduce the carrying value to fair value.
Other than temporary impairment. Management recorded a writedown impairment
charge when we believe an investment experiences a decrease in value that is
other than temporary. In making a decision whether an investment is
permanently impaired, we review current and forecasted information about the
underlying investment that is available, applicable industry data, and
analyst reports. When an investment is deemed to be permanently impaired, it
is written down to current fair market value. Future adverse changes in
economic and market conditions, deterioration in credit quality, and
continued poor financial results of underlying investments or other factors
could result in further losses that may not be reflected in an investment's
current book value that could result in future writedown charges due to
impairment.
Deferred tax estimates. We use the asset and liability method for accounting
for income taxes. Under this method, deferred tax assets and liabilities are
recognized for the future tax attributable to differences between the
financial statement carrying amounts of assets and liabilities and their
respective tax basis. We must also assess the probability that deferred tax
assets will be recovered from future taxable income, and establish a
valuation allowance for any assets determined not likely to be recovered.
Management exercises judgement in evaluating the amount and timing of
recognition of the resulting deferred tax assets and liabilities, including
projections of future taxable income. These judgements are estimates and
assumptions and are reviewed on a continuing basis.
Comparison of Financial Condition at June 30, 2004 and December 31, 2003
Total Assets. In accordance with the Bank's strategic plan total assets
increased by $86.0 million, or 19.6%, from $439.4 million at December 31,
2003 to $525.4 million at June 30, 2004. The increase in total assets during
the first six months of 2004 was mainly attributable to cash and cash
equivalents experiencing a 134.4% increase. A portion of the increase in
total assets was generated by deposit growth of $78.5 million. In addition,
the Bank participated in a trust preferred offering which raised gross
proceeds in the amount of $10.3 million in March 2004, providing us with
additional regulatory capital that will be used to fund continued growth of
the institution.
Cash and Cash Equivalents. Cash and cash equivalents increased by $30.5
million, from $22.7 million reported as of year-end 2003 to $53.2 million at
June 30, 2004. Cash and cash equivalents, for purposes of reporting cash
flows, includes cash, amounts due from banks, interest-bearing demand
deposits with other banks, federal funds sold, overnight deposit with the
Federal Home Loan Bank and money market mutual funds. The increase in cash
and cash equivalents reflects deposit growth and the proceeds of the
offering of trust preferred securities, offset in part by loan growth.
13
Investments. Total investments, excluding FHLB stock and interest-bearing
time deposits with other banks, increased by $26.6 million from $58.6
million reported at December 31, 2003 to $85.2 million at June 30, 2004. The
increase in deposits at the Bank funded this increase as well as the
increase to Federal Funds sold.
The main objective of the investment policy is to provide adequate liquidity
to meet reasonable declines in deposits and any anticipated increases in the
loan portfolio, to provide safety of principal and interest, to generate
earnings adequate to provide a stable income, and to fit within the overall
asset/liability management objectives of the Company. The Company does not
purchase investments with off-balance sheet characteristics, such as swaps,
options, futures, and other hedging activities that are called derivatives.
The investment portfolio consists of securities in the Held-to-Maturity
category and securities in the Available-for-Sale category as defined by
SFAS 115. The designation is determined at the time of purchase.
The Held-to-Maturity category consists predominately of securities issued by
states of the United States and political subdivisions of states and short-
term debt securities issued by the U. S. Treasury. The Company has the
positive intent and ability to hold these securities to maturity. In
managing the Held-to-Maturity portfolio, the Company seeks to maximize its
return and maintain consistency to meet short and long term liquidity
forecasts by purchasing securities with maturities laddered within a short-
term period of 1-3 years, a mid-term period of 3-5 years, and some
securities extending out to 10 years.
Investment Securities Held-to-Maturity are securities that the Company will
hold to maturity and are carried at amortized cost on the balance sheet, and
are summarized as follows as of June 30, 2004:
Amortized Gross Unrealized Gross Unrealized
(Dollars In Thousands) Cost Basis Holding Gains Holding Losses Fair Value
- -------------------------------------------------------------------------------------------------------------
U. S. Treasury securities and obligations
of U. S. Government Corporations
and Agencies $9,517 $284 $10 $9,791
Mortgage-backed securities 1 0 0 1
- -----------------------------------------------------------------------------------------------------------
Total $9,518 $284 $10 $9,792
===========================================================================================================
Securities in the Available-for-Sale category are securities that the
Company intends to hold for an indefinite period of time, but not
necessarily to maturity. These securities may be sold in response to
interest rate changes, liquidity needs or other factors. Any unrealized gain
or loss, net of taxes, for the Available-for-Sale securities, is reflected
in Stockholders' Equity as a separate component.
Investments in Available-for-Sale securities are carried at fair value on
the balance sheet and are summarized as follows as of June 30, 2004:
Gains in Losses in
Accumulated Accumulated
Other Other
Amortized Comprehensive Comprehensive
(Dollars In Thousands) Cost Basis Income Income Fair Value
- -------------------------------------------------------------------------------------------------
Debt Securities issued by the U. S.
Treasury and other U. S. Government
Corporations and Agencies $37,014 $ 24 $ 754 $36,284
Marketable Equity Securities 3,821 183 293 3,711
Mortgage-backed Securities 26,098 312 249 26,161
Corporate Debt Securities 9,513 33 107 9,439
- ------------------------------------------------------------------------------------------------
Total $76,446 $552 $1,403 $75,595
================================================================================================
14
The Available-for-Sale securities category at June 30, 2004 had net
unrealized losses, net of taxes, of $519,664 of which $447,249 are net
unrealized losses (net of tax) attributed to securities of the U.S.
Treasury, other U.S. Government corporations and agencies, corporate bonds,
and mortgage-backed securities, and $72,415 are net unrealized losses (net
of tax) attributable to marketable equity securities.
Securities of the U.S. Treasury, U.S. Government corporations and agencies,
and mortgage-backed securities have little or no credit risk, other than
being sensitive to changes in interest rates, and if held-to-maturity, these
securities will mature at par. We amortize premiums and accrete discounts
over the life of the securities.
Marketable equity securities, however, have a greater risk as they are
subject to market fluctuations. These securities are constantly monitored
and evaluated to determine their suitability for sale, retention in the
portfolio, or possible writedowns due to impairment issues. We minimize risk
by limiting the total amount invested into marketable equity securities. At
June 30, 2004, the amount invested in marketable equity securities was 4.9%
of the total market value of the investment portfolio and was distributed
over various industry sectors.
Loans. Total gross loans increased by $27.6 million, or 8.2%, from $336.1
million reported December 31, 2003, to $363.7 million at June 30, 2004.
Residential mortgage and home equity loans increased by $21.0 million, to
$168.2 million as of June 30, 2004, compared to $147.2 milion reported at
year-end 2003. Commercial real estate loans increased by $2.9 million, from
$140.6 million reported December 31, 2003, to $143.5 million at June 30,
2004. Construction and land development increased by $4.5 million to $14.8
million at June 30, 2004, compared to $10.3 million reported at year-end
2003. The commercial and consumer portions of the Bank's portfolio decreased
slightly by $0.3 million and $0.6 million respectively in 2004.
The largest segment of the Bank's loan portfolio is residential real estate
and home equity loans representing 46.2% of total loans as of June 30, 2004
compared to 43.8% as of December 31, 2003. These loans are comprised of
first mortgages on one- to four-family properties, mortgages on multi-family
properties, and second mortgages on one- to four-family properties.
Another component of the loan portfolio is commercial real estate loans
representing 39.5% of the total loans as of June 30, 2004 compared to 41.8%
as of December 31, 2003. These loans are collateralized by various types of
commercial properties, without any predominant type of property or
concentration of credit in any one industry.
The following table shows the amount of loans by category at the end of June
30, 2004 and December 31, 2003.
(In Thousands) June 30, 2004 December 31, 2003
- -----------------------------------------------------------------------
Residential real estate $168,160 $147,178
Commercial real estate 143,549 140,572
Commercial 33,673 33,980
Construction and land development 14,888 10,346
Consumer 3,381 3,961
Other 49 57
- ------------------------------------------------------------------
Total gross loans 363,700 336,094
Allowance for loan losses (4,595) (4,154)
Unearned income (571) (443)
- ------------------------------------------------------------------
Net loans $358,534 $331,497
==================================================================
15
INFORMATION WITH RESPECT TO NONACCRUAL AND PAST DUE LOANS
AT JUNE 30, 2004 AND 2003 AND DECEMBER 31, 2003 AND 2002
At June 30, At December 31,
- --------------------------------------------------------------------------------------------------
(Dollars In Thousands) 2004 2003 2003 2002
- --------------------------------------------------------------------------------------------------
Nonaccrual Loans $ 236 $ 517 $ 407 $ 635
Loans 90 days or more past due and still accruing 5,427 0 0 8
Real estate acquired by foreclosure
or substantively repossessed 0 0 0 0
Percentage of nonaccrual loans to total gross loans 0.06% 0.18% 0.12% 0.24%
Percentage of nonaccrual loans, restructured loans,
and real estate acquired by foreclosure or
substantively repossessed to total assets 1.08% 0.12% 0.09% 0.16%
Percentage of allowance for loan losses
to nonaccrual loans 1,947.03% 840.04% 1,019.14% 764.19%
Nonperforming assets include nonaccrual loans, loans past due 90 days or
more and still accruing, restructured loans not performing in accordance
with amended terms, and other real estate acquired through foreclosure.
Nonperforming assets as a total increased by $5,256,000, from $407,000
reported on December 31, 2003 to $5,663,000 as of June 30, 2004. These loans
will be paid off and sold within the third quarter of 2004. Subsequent to
the June 30, 2004 reporting period, nonperforming assets of approximately
$1.4 million were paid off and approximately $3.8 million were sold.
The $236,000 in nonaccrual loans as of June 30, 2004 consists mainly of
$187,000 of real estate mortgages, $41,000 attributed to loans and $8,000 of
consumer loans. There were no restructured loans included in nonaccrual
loans for the first six months of 2004.
The percentage of nonaccrual loans to total gross loans decreased from 0.12%
reported at the year-end 2003 to 0.06% at June 30, 2004 due to a decrease in
the nonaccrual category and the increase in the total loan portfolio. The
percentage of nonaccrual loans, restructured loans and real estate acquired
by foreclosure or substantively repossessed to total assets increased to
1.08% at June 30, 2004 from 0.09% reported at year-end 2003 due to the
increase of loans 90 days or more past due and still accruing. As noted
above subsequent to the Balance Sheet date these loans have been paid or
sold. The percentage of allowance for loan losses to nonaccrual loans
increased to 1,947.03% at June 30, 2004 from 1,019.14% reported at year end
2003 due to a decrease in nonaccrual loans.
INFORMATION WITH RESPECT TO INTEREST ON NONACCRUAL AND PAST DUE
LOANS AT JUNE 30, 2004 AND 2003 AND DECEMBER 31, 2003 AND 2002
At June 30, At December 31,
- --------------------------------------------------------------------------------
(In Thousands) 2004 2003 2003 2002
- --------------------------------------------------------------------------------
Nonaccrual Loans $236 $517 $407 $635
Interest income that would have been recorded
during the period under original terms 5 21 41 303
Interest income recorded during the period 5 15 30 121
16
The Company stops accruing interest on a loan once it becomes past due 90
days or more unless there is adequate collateral and the financial condition
of the borrower is sufficient. When a loan is placed on nonaccrual status,
all previously accrued but unpaid interest is reversed and charged against
current income. Interest is thereafter recognized in that category only when
payments are received and the loan become current.
Loans in the nonaccrual category will remain in that category until the
possibility of collection no longer exists, the loan is paid off, or the
loan becomes current. When a loan is determined to be uncollectible, it is
then charged off against the allowance for loan losses.
Statement of Financial Accounting Standards No. 114 "Accounting by Creditors
for Impairment of a Loan" applies to all loans except large groups of
smaller-balance homogeneous loans that are collectively evaluated for
impairment, loans measured at fair value or at a lower of cost or fair
value, leases, and debt securities as defined in Statement 115. Statement
114 requires that impaired loans be valued at the present value of expected
future cash flows discounted at the loan's effective interest rate or as a
practical expedient, at the loan's observable market value of the collateral
if the loan is collateral dependent. Large groups of smaller balance
homogeneous loans are collectively evaluated for impairment. Accordingly, we
do not separately identify individual consumer and residential loans for
impairment disclosures. A loan is considered impaired when, based on current
information and events, it is probable that we will be unable to collect the
scheduled payments of principle or interest when due according to the
contractual terms of the loan agreement.
At June 30, 2004 there were $1.6 million of loans which we had determined to
be impaired, with a related allowance for credit losses of $240,344. In
addition, principal reductions, loan payoffs, charged off balances, loan
upgrades, and a change in our impairment identification methodology are
other factors resulting in a decrease of impaired loans.
There were no other loans classified for regulatory purposes as of June 30,
2004 that we expect will materially impact future operating results,
liquidity or capital resources.
ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES
Six Months Year Ended
Ended June 30, December 31,
- ------------------------------------------------------------------------------------------------
(Dollars In Thousands) 2004 2003 2003
- ------------------------------------------------------------------------------------------------
Balance at January 1 $ 4,154 $ 4,854 $ 4,854
- ------------------------------------------------------------------------------------------------
Charge-offs:
Commercial 0 0 (10)
Commercial real estate 0 (10) 0
Residential real estate 0 0 (169)
Construction and land development 0 0 0
Consumer (4) (14) (32)
Other 0 0 0
- ------------------------------------------------------------------------------------------------
Total charge-offs (4) (24) (211)
- ------------------------------------------------------------------------------------------------
Recoveries:
Commercial 36 27 55
Commercial real estate 0 0 0
Residential real estate 24 18 44
Construction and land development 0 0 0
Consumer 9 7 14
Other 0 0 0
- ------------------------------------------------------------------------------------------------
Total recoveries 69 52 113
- ------------------------------------------------------------------------------------------------
Net (charge-offs) recoveries 65 28 (98)
- ------------------------------------------------------------------------------------------------
Provision (benefit) charged to (increasing) operations 376 (539) (602)
- ------------------------------------------------------------------------------------------------
Balance at end of period $ 4,595 $ 4,343 $ 4,154
================================================================================================
Ratio of net charge-offs to
average loans outstanding (0.0013%) (0.0100%) (0.0300%)
17
The allowance for loan losses at June 30, 2004 was $4.6 million, compared to
$4.2 million at year-end 2003. The allowance for loan losses as a percentage
of outstanding loans was 1.27% at June 30, 2004, and 1.24% at December 31,
2003.
The level of the allowance for loan losses is evaluated monthly by
management and reviewed by the Board of Directors. Factors considered in the
evaluation process include growth of the loan portfolio, risk
characteristics of the loan types in the portfolio, the value of underlying
collateral, delinquency and charge off trends, current economic conditions
within the Bank's market area, and various other external and internal
factors. The allowance for loan losses is maintained at a level that we
consider to be adequate to absorb estimated losses within our loan
portfolio. Our assessment of the adequacy of the allowance for loan losses
is reviewed annually by an independent loan review consultant, our
independent auditors, and regulatory agencies.
As the composition of the Bank's loan portfolio gradually changes and
diversifies from higher credit risk weighted loans, such as commercial real
estate and commercial and industrial, to residential and home equity loans,
less reserve allowance will be required. During the first two quarters of
2004, due to the continued changes in the loan portfolio, stronger
underwriting guidelines, the sale of loans previously deemed substandard,
and overall improvement in credit quality of existing loans, the overall
credit risk embedded in the loan portfolio decreased. Charge-offs of loans
were $211,000 in 2003, $382,000 in 2002, $4,000 in the first six months
ended June 30, 2004, and $24,000 for the same period in 2003. Recoveries of
loans previously charged off were $113,000 in 2003, $62,000 in 2002, $69,000
in the first six months ended June 30, 2004, and $52,000 for the same period
in 2003. We believe that the allowance for loan losses of $4.6 million as of
June 30, 2004 is adequate to cover potential losses in the loan portfolio,
based on current information available to us.
We must maintain an allowance for loan losses at a level that is sufficient
to absorb the projected credit losses associated with the loan portfolio.
Projected credit losses should reflect consideration of all significant
factors that affect repayment as of the evaluation date. Projected losses on
loan categories should reflect historical net charge-off levels for similar
loans, adjusted for changes in current conditions or other relevant factors.
Calculation of historical charge-off rates can range from a simple average
of net charge-offs over a relevant period, to more complex techniques such
as migration analysis.
18
This table shows an allocation of the allowance for loan losses as of the
end of each of the periods indicated.
June 30, 2004 December 31, 2003
-------------------------------------------------------
Percent of Percent of
Loans in Each Loans in Each
Category to Category to
Amount Total Loans Amount Total Loans
-------------------------------------------------------
(Dollars In Thousands)
Commercial (5) $ 953(1) 9.26% $ 943(1) 10.11%
Real estate - Construction 80 4.09 52 3.08
Residential real estate 396(2) 46.24 323(2) 43.79
Commercial real estate 3,088(2) 39.47 2,748(2) 41.83
Consumer(3) 73(4) .93 80(4) 1.17
Other(3) 5(4) .01 8(4) .02
-------------------------------------------------------
$4,595 100.00% $4,154 100.00%
=======================================================
- --------------------
Includes amounts specifically reserved for impaired loans of $230,473
as of June 30, 2004 and $251,280 as of December 31, 2003 as required
by Financial Accounting Standard No. 114, Accounting by Creditors for
Impairment of a Loan. (SFAS No. 114)
Includes amounts specifically reserved for impaired loans of $7,396 as
of June 30, 2004 and $23,621 as of December 31, 2003 as required by
SFAS No. 114.
Includes consumer, obligations of states and political subdivisions.
Includes amounts specifically reserved for impaired loans of $0 as of
June 30, 2004 and $170 as of December 31, 2003 as required by SFAS No.
114.
Includes commercial, financial, agricultural and nonprofit loans.
Commercial real estate loans represent 39.5% of gross loans. Residential
real estate, including home equity loans, represents 46.2% of gross loans.
The Company requires a loan to value ratio of 80% in both commercial and
residential mortgages. These mortgages are secured by real properties which
have a readily ascertainable appraised value.
Real estate residential loans are both loans secured by one-to four-family
property and home equity loans. Home equity loans are generally revolving
lines of credit and are typically secured by second mortgages on one-to-four
family owner-occupied properties.
Generally, commercial real estate loans have a higher degree of credit risk
than residential real estate loans because they depend primarily on unit
supply and demand and various conditions. When granting these loans, we
evaluate the financial condition of the borrower, the location of the real
estate, the quality of management, and general economic and competitive
conditions. When granting a residential mortgage, we review the borrower's
repayment history on past debts and assess the borrower's ability to meet
existing obligations and payments on the proposed loans. Real estate
construction loans comprise both residential and commercial construction
loans throughout our market area.
Commercial loans consist of loans predominantly collateralized by inventory,
furniture and fixtures, and accounts receivable. In assessing the collateral
for this type of loan, we apply a 50% liquidation value to inventories; 25%
to furniture, fixtures and equipment; and 70% to accounts receivable less
than 90 days of invoice date. Commercial loans represent 9.3% of the loan
portfolio as of June 30, 2004, compared to 11.0% as of June 30, 2003.
19
Consumer loans are both secured and unsecured borrowings and, at June 30,
2004, represents only 0.9% of the total loan portfolio, compared to 2.0% at
June 30, 2003. These loans have a higher degree of risk than residential
mortgage loans. The underlying collateral of a secured consumer loan tends
to depreciate in value. Consumer loans are typically made based on the
borrower's ability to repay the loan through continued financial stability.
We endeavor to minimize risk by reviewing the borrower's repayment history
on past debts, and assessing the borrower's ability to meet existing
obligations on the proposed loans.
Total Liabilities. Total liabilities increased from $396.7 million on
December 31, 2003 to $481.8 million at June 30, 2004. This increase is
mainly attributable to a $78.5 million increase in deposits and the issuance
of $10.3 million of subordinated debentures in March 2004, offset by a $4.0
million decrease in FHLB advances.
Deposits. Total deposits at June 30, 2004 were $411.7 million, an increase
of $78.5 million or 23.6%, compared to $333.1 million at December 31, 2003.
Savings deposit balances and money market accounts increased by $41.6
million during the first six months of 2004. Term certificates of deposit as
of June 30, 2004 increased by $26.0 million when compared to December 31,
2003. These increases were primarily the result of marketing campaigns
designed to attract new customers and deposits.
The following table shows the amount of deposits at the end of June 30, 2004
and December 31, 2003.
(In Thousands) June 30, 2004 December 31, 2003
------------- -----------------
Noninterest-bearing $ 75,934 $ 73,254
Interest-bearing 335,758 259,891
-------- --------
$411,692 $333,145
======== ========
FHLB Advances. Total borrowed funds were $56.5 million at June 30, 2004, as
compared to $60.5 million at December 31, 2003, for a decrease of $4.0
million. A short-term borrowing issuance was repaid in the amount of $1.0
million during the second quarter of 2004 as a result of liquidity from our
successful deposit campaign. During the next twelve months, $3,000,000 will
mature.
Subordinated Debentures. On March 17, 2004, Slade's Ferry Capital Trust I
(the "Trust"), a Connecticut Statutory trust formed by the Company,
completed the sale of $10.0 million of floating rate trust preferred
securities (liquidation amount of $1,000 per security) in a private
placement as part of a pooled trust preferred securities transaction. The
Trust also issued common securities to the Company and used the net proceeds
from the offering to purchase a like amount of floating rate junior
subordinated deferrable interest debentures of the Company. The subordinated
debentures are the sole assets of the Trust. The Company contributed $10
million of the proceeds from the sale of the subordinated debentures to the
Bank as Tier I Capital to support the Bank's growth. Total expenses
associated with the offering approximating $140,000 at March 31, 2004 are
included in other assets and are being amortized on a straight-line basis
over the life of the subordinated debentures.
The trust preferred securities accrue and pay distributions quarterly on
March 17, June 17, September 17 and December 17 of each year, commencing on
June 17, 2004, at a floating rate of 3-Month LIBOR plus 2.79% of the stated
liquidation amount of $1,000 per trust preferred security. At June 30, 2004,
this rate was 4.35%. The Company has fully and unconditionally guaranteed
all of the obligations of the Trust, including the semi-annual distributions
and payments on liquidation or redemption of the trust preferred securities.
The trust preferred securities are mandatorily redeemable upon the maturing
of the subordinated debentures on March 17, 2034 or upon earlier redemption
as provided in the Indenture. The Company has the right to redeem the
subordinated debentures, in whole or in part, on or after March 17, 2009 at
the liquidation amount, plus any accrued but unpaid interest to the
redemption date.
20
Stockholders' Equity. Total stockholders' equity increased by $0.9 million,
from $42.7 million as reported on December 31, 2003, to $43.6 million as of
June 30, 2004. A portion of this increase during the first six months of 2004
resulted from net income of $1.2 million and dividend reinvestments of $0.3
million, partially offset by dividends declared of $0.7 million.
21
Results of Operations
Six month period ended June 30, 2004 compared to the six month period ended
June 30, 2003. Our operating performance is dependent on net interest and
dividend income, which is the difference between interest income earned on
loans and investments and interest expense paid on deposits and borrowed
funds. The level of net interest income achieved is significantly impacted
by several factors such as economic conditions, interest rates,
asset/liability management, and corporate tax and strategic planning. Total
interest and dividend income for the six-month period ended June 30, 2004
increased by $1.0 million or 10.1% to $11.2 million when compared to $10.2
million recorded during the same period in 2003. Interest and fees on loans
increased $1.4 million, or 16.0%, to $9.9 million for the six-month period
ended June 30, 2004 from $8.5 million recorded during the same period in
2003. The change was due to the increase in the commercial and residential
loan portfolios. Interest and dividend income on investments decreased
$378,756 or 23.9%. The decrease was due to the decline in the average
balance of investments and a decrease in the yield on our investment
portfolio. Total interest expense increased by $638,971 to $3,738,121 during
the six-month period ended June 30, 2004 when compared to $3,099,150
recorded during the same period in 2003. This increase was due to additional
interest on FHLB borrowings and interest expense associated with
subordinated debentures entered into during March of 2004. Our net interest
margin decreased by 60 basis points from 3.86% reported at June 30, 2003 to
3.26% as of June 30, 2004.
The provision for loan losses is a charge against earnings and funds the
allowance for loan losses. It is our desire to maintain the allowance for
loan losses at a level that is adequate to absorb losses inherent within the
loan portfolio. In determining the appropriate level of the allowance for
loan losses, we take into consideration past and anticipated loss
experience, prevailing economic conditions, evaluations of underlying
collateral, and the volume of the loan portfolio and balance of
nonperforming and classified loans. We assess the allowance for loan losses
on a monthly basis. A provision was made during the second quarter of 2004
to adequately absorb any credit risk remaining in the portfolio. Our
provision for the first six months of 2004 was an expense provision of
$376,215, compared to a benefit to earnings of $539,357 for the same period
in 2003.
Total other income increased by $153,621 or 15.2% to $1,163,416 for the
first six months of 2004, compared to $1,009,795 for the same period in
2003. This increase is associated with gains on the sales of securities, an
increase in cash surrender value of life insurance, customer investment
commission fees, rental income, safe deposit box rentals, ATM and debit card
usage fees and stop payment fees, offset by a decrease in service charges on
deposit accounts and overdraft service charges. Service charges on deposit
accounts decreased slightly by $6,360, from $278,194 reported as of June 30,
2003, to $271,834 as of June 30, 2004. The cash surrender value of bank
owned life insurance policies associated with both the directors' and
executive officers' life insurance programs increased by $41,423. Other
income increased by $46,675 when compared to the first six months of 2003.
Total noninterest expense decreased by $64,533 to $6,369,492 during the
first six months of June 2004, compared to $6,434,025 for the same period in
2003. Salaries and employee benefits increased by $280,839, or 7.5%, from
$3.7 million during the first six months of 2003, to $4.0 million during the
same period in 2004. The increase was attributable to additions in staff to
support consumer lending activities, sales incentive commissions paid for
achieving sales production targets and general salary increases due to
annual performance reviews. A Chief Operating Officer/Chief Financial
Officer was also hired in the second quarter of 2003, and, during the third
quarter of 2003, a Director of Retail and an Investment Executive were
hired. Occupancy expense totaled $420,192 during the first six months of
2004, compared to $485,013 in 2003, a decrease of $64,821 primarily due to a
cost savings achieved through closing a branch office in Swansea during
2003.
Equipment expense increased by $24,675 from $255,022 for the first six
months of 2003 to $279,697 for the same period in 2004. This increase was
due to technology capital expenditures.
22
The expenses for stationary and supplies slightly decreased by $4,474 from
$114,282 reported as of June 30, 2003 to $109,808 reported for the same
period in 2004. This decrease was due to new inventory control procedures
and the closing of one branch office.
Professional fees decreased by $65,061, from $541,676 for the first six
months of 2003, to $476,615 reported for the same period in 2004. This
decrease reflects reduced costs associated with consultants for marketing,
advertising, investment advisory, strategic planning, pension actuaries, and
information technology.
Marketing expenses attributed to production and media costs, print
advertising, and other direct marketing decreased by $31,149 to $198,468 for
the six months of 2004, from $229,617 for the same period in 2003. As the
Company launches new deposit products and internet banking services, the
Company expects these costs to rise.
The following table sets forth the components of other expense. This table
reflects a increase of $12,274 to $428,612 from $416,338 for the three month
period ending June 30, 2004 and a decrease of $204,542 to $865,844 from
$1,070,386 for the six month period ending June 30, 2004 when compared to
June 30, 2003.
Three Months Six Months
2004 2003 Variance 2004 2003 Variance
------------------------------------------------------------------------
Communications/postage $ 85,137 $ 77,009 $ 8,128 $171,773 $ 167,958 $ 3,815
Committee fees 66,850 38,900 27,950 123,150 74,500 48,650
Interest expense (associated
with REIT tax treatment) 0 5,769 (5,769) 0 232,511 (232,511)
Other various expenses 276,625 294,660 (18,035) 570,921 595,417 (24,496)
------------------------------------------------------------------------
Other expense total $428,612 $416,338 $ 12,274 $865,844 $1,070,386 $(204,542)
========================================================================
The quarterly results of operations for the period ended June 30, 2003 have
been revised from that previously reported to remove the extraordinary item.
The extraordinary item treatment previously presented was revised, and its
individual components were reclassed to federal and state tax benefits of
$352,599 and interest of $128,977 to other expense. See Footnote 20 to the
Company's audited consolidated financial statements included in the
Company's annual report on Form 10-K for the year ended December 31, 2003
filed with the U.S. Securities and Exchange Commission.
Income before income taxes totaled $1,916,682 as of the second quarter of
2004, a decrease of $303,240, or 13.7% as compared to $2,219,922 reported as
of June 30, 2003. Applicable taxes decreased by $633,441 to $668,965 when
compared to $1,302,406 reported for June 30, 2003. Included in 2003,federal
and state tax benefits of $352,599 were applicable to the dissolution of the
REIT.
The Company's year to date net income as of June 30, 2004 increased by
$330,201 or 36%, from $917,516 or $0.23 per share (basic and diluted)
reported during the first six months of 2003 to $1,247,717 or $0.31 per
share (basic and diluted).
Three Month Period Ended June 30, 2004 Compared to the Three Month Period
Ended June 30, 2003. The results of operations for the second quarter of
2004 indicates total interest and dividend income increased
by $613,548 to $5,756,709 from $5,143,161 reported for the same period in
2003. Total interest and fees on loans increased by $632,087 to $4,974,859
for the three months ended June 30, 2004, when compared to $4,342,772
reported for the same period in 2003. This increase was due to the growth in
our loan portfolio. Total interest and dividends on investment income
slightly decreased by $59,303 from 2003 to 2004, offset by an increase in
other interest of $40,764.
23
Total Other Income increased by $64,629 for the three months ending June 30,
2004, when compared to the same period in 2003. There was also an increase
of $11,889 in the cash surrender value of life insurance policies associated
with purchases of additional policies for new directors. The line item Other
Income increased by $76,417 when compared to the second quarter of 2003.
These income items represents earnings derived from rental fees on safe
deposit boxes, checkbook order fees, Atm/debit card usage fees, customer
investment and insurance commission fees.
Total Other Expenses, made up of various noninterest expenses, increased by
$51,975 from $3.2 million for the three month period ended June 30, 2003 to
$3.3 million for the three month period ended June 30, 2004. Salaries and
employee benefits increased by $102,411 related to staff additions, sales
incentive commissions, and general wage increases due to annual performance
evaluations. Occupancy and equipment expenses combined decreased by $32,443
due primarily from the closing of one branch location. Stationary and
supplies expense increased by $12,145. Professional fees decreased by
$48,721 from the three months ended June 30, 2003 compared to the same
period in 2004. Marketing expense slightly increased by $6,309 due to print
advertising and other direct marketing and business development promotion
costs.
Income before taxes for the second quarter of 2004 decreased by $635,002
when compared to the second quarter of 2003. The quarterly results of
operations for the period ended June 30, 2003 have been revised from that
previously reported to remove the extraordinary item. The extraordinary item
treatment previously presented was revised, and its individual components
were reclassed to income tax expense (benefit) of $529,133 and included in
other expense is interest of $97,765. See Footnote 20 to our audited
consolidated financial statements included in our annual report Form 10-K
for the year ended December 31, 2003 filed with the U.S. Securities and
Exchange Commission. Associated applicable income taxes also increased by
$372,971 from 2003 to 2004 due to the extraordinary item treatment
previously presented. Net income for the three month period decreased by
$1,007,973 from $1,609,696 for the six-month period ended June 30, 2003 to
$601,723 for the same period in 2004. The decrease was due to the REIT
settlement.
Liquidity
Liquidity represents our ability to meet funding requirements. In assessing
the appropriate level of liquidity, we consider deposit levels, lending
funding requirements and investment maturities in light of prevailing
economic conditions. Through this assessment, we manage our liquidity level
to optimize earnings and respond to fluctuations in customer borrowing needs
and cash withdrawals from deposit accounts.
Our principal sources of funds are customer deposits, borrowings, principal
and interest payments on outstanding loans and mortgage-backed securities,
maturities of investment securities and funds provided from operations.
Although scheduled payments from amortization of loans, mortgage-backed
securities, and maturing investment securities are predictable sources of
liquidity, deposit cash flows and loan prepayments are influenced by
interest rate movement. In addition, deposit flow could be impacted by other
instruments available to the public such as mutual funds and annuities.
The largest source of funds is provided by depositors. The greatest
component of our deposit base is term certificates which extend out to a
maximum of five years. We do not participate in brokered deposits. Deposits
are obtained from consumers and commercial customers within our community
reinvestment area, being Bristol County, Massachusetts and several abutting
towns in Rhode Island. Deposit flows are influenced by the level of interest
rates, economic conditions, and the attractiveness of competing deposits and
other investment alternatives.
24
We also have the ability to borrow funds for liquidity purposes from
correspondent banks, the FHLB, as well as the Federal Reserve Bank of
Boston, by pledging various investment securities as collateral, and in the
case of FHLB borrowings, one to four family residential loans are secured as
collateral. Borrowings from the FHLB decreased by approximately $4.0 million
from December 31, 2003 to June 30, 2004. During 2003, we took advantage of
the favorable low interest rate environment to draw down some longer term
structured funding opportunities, and to hedge against any possible interest
rate risk as a result of the increase in long term, fixed rate residential
mortgages. As of June 30, 2004, we had approximately $19.2 million in
available borrowing capacity with the FHLB that is contingent upon the
purchase of additional FHLB stock.
Excess available funds are invested on a daily basis into Federal Funds
Sold. An appropriate level of Federal Funds Sold is maintained to meet loan
commitments, anticipated loan growth and deposit forecasts. Funds exceeding
this level are then used to purchase investment securities that are suitable
in yields and maturities for the investment portfolio.
Liquidity during the first six months of 2004 was primarily provided by a
net increase in deposits of $78.5 million, trust preferred securities of
$10.3 million, and proceeds from maturities and calls of securities totaling
$11.0 million. These were offset by purchases of securities of $38.6
million, loan originations, and principal collections. Other factors
affecting liquidity included cash provided by other operating activities and
cash used in financing activities as indicated in the consolidated
statements of cash flows.
Capital
Total stockholders' equity was $43.6 million at June 30, 2004, as compared
to $42.7 million at December 31, 2003, an increase of $0.9 million. The
increase was a combination of several factors, including six months earnings
of $1.2 million and transactions originating through the Dividend
Reinvestment Program whereby 3,162 shares were issued for optional cash
contributions of $66,129 and 14,314 shares were issued for $313,520 in lieu
of cash dividend payments. There were also stock options exercised resulting
in the issuance of common stock totaling $531,510, including a tax benefit.
These additions were offset by dividends declared of $726,531.
Capital also increased as a result of a decrease in the accumulated other
comprehensive loss, which reflects net unrealized gains or losses, net of
taxes, on securities classified as Available-for-Sale and the minimum
pension liability adjustment. On December 31, 2003, the Available-for-Sale
portfolio had unrealized losses, net of taxes, of $9,740, and on June 30,
2004, as a result of the change in market values, the portfolio had
unrealized losses, net of taxes, of $519,664. There was no change in the
minimum pension liability adjustment of $595,879, net of taxes, recorded
December 31, 2003.
Under the requirements for Risk Based and Leverage Capital of the federal
banking agencies, a minimum level of capital will vary among banks based on
safety and soundness of operations. Risk Based Capital ratios are calculated
with reference to risk-weighted assets, which include both on and off
balance sheet exposure.
In addition to meeting the required levels, the Company and the Bank's
capital ratios meet the criteria of the "well capitalized" category
established by the federal bank regulatory agencies as of June 30, 2004.
At June 30, 2004 the actual total Risk Based Capital of the Bank was
$44,107,000 for Tier 1 Capital, exceeding the minimum requirements of
$14,723,520 by $29,383,480. Total Capital of $48,702,000 exceeded the
minimum requirements of $29,447,040 by $19,254,960 and Leverage Capital of
$44,107,000 exceeded the minimum requirements of $20,513,360 by $23,593,640.
In addition to the "minimum" capital requirements, "well capitalized"
standards have also been established by the Federal Banking Regulators.
25
The table below illustrates the capital ratios of the Company and the Bank
on June 30, 2004 and at December 31, 2003.
Well June 30, 2004 December 31, 2003
Capitalized ---------------- -----------------
Requirement Bancorp Bank Bancorp Bank
----------------------------------------------------
Total Capital (to Risk Weighted Assets) > or = 10% 15.27% 13.23% 13.64% 11.48%
Tier 1 Capital (to Risk Weighted Assets) > or = 6% 11.32% 11.98% 12.39% 10.23%
Leverage Capital (to Average Assets) > or = 5% 8.16% 8.60% 9.33% 7.75%
The Bank was required to maintain a 7% Tier 1 Leverage Capital ratio while
under the informal agreement with the Massachusetts Commissioner of Banks
and the Federal Deposit Insurance Corporation which was originally entered
into in 2000, and revised in March of 2003. As a result of the improved
condition and operation of the Bank, the informal agreement was terminated
effective January 22, 2004.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are
reasonably likely to have a current or future effect on our financial
condition, revenues or expenses, results of operations, liquidity, capital
expenditures or capital resources that is material to investors.
26
ITEM 3
Quantitative and Qualitative Disclosures About Market Risk
- ----------------------------------------------------------
Interest Rate Risk
Volatility in interest rates requires us to manage interest rate risk that
arises from the differences in the timing of repricing of assets and
liabilities. We consider interest rate risk, the exposure of earnings to
adverse movements in interest rates, to be a significant market risk as it
could potentially have an affect on our financial condition and results of
operation.
Our objective is to reduce risk and control the vulnerability of its net
interest margin to changes in interest rates by managing the relationship of
interest-earning assets and interest-bearing liabilities. The interest rate
risk is managed by periodic review and evaluation of the risk potential in
certain balance sheet accounts, and determining the level of risk considered
appropriate for our level of capital. This, in conjunction with certain
assumptions and other related factors, such as anticipated changes in
interest rates, liquidity requirements, performance objectives and strategic
plans, provides management a means of evaluating interest rate risk.
Our Finance/Investment Committee, comprised of designated executive
management and directors is responsible for managing and monitoring interest
rate risk, and reviewing with the Board of Directors, at least quarterly,
our interest rate risk positions, the impact changes in interest rates would
have on net interest income, and the maintenance of interest rate risks
within approved guidelines.
We quantify our interest rate risk exposure using a simulation model. This
simulation analysis is used to measure the exposure to net interest income
to changes in interest rates over a specified time frame. The simulation
analysis projects future interest income and interest expense under
different rate scenarios. Internal guidelines on limitations on interest
rate risk specify that for every 100 basis points of immediate change in
interest rates, projected net interest income over the next twelve months
should not decline by more than 5%.
The simulation model currently utilizes a 300 basis point increase in
interest rates and a 75 basis point decrease in rates. Due to the existing
low interest rate environment in effect with the average Federal Funds
overnight rate trading below .75%, the simulation model only reduces rates
downward by 75 basis points. The interest rate movements used assume an
instant and parallel change in interest rates, and no implementation of any
strategic plans are made in response to the change in interest rates.
Prepayment speeds for loans are based on median dealer forecasts for each
interest rate scenario.
The following table reflects our estimated exposure as a percentage of
estimated net interest income for the next twelve months, assuming an
immediate change in interest rates as set forth below:
Estimated Exposure as a Percentage
Rate Change of Net Interest Income
(Basis Points) June 30, 2004
-----------------------------------------------------------
+300 (9.78)%
-75 (0.62)%
The model used to monitor earnings-at-risk provides management a measurement
tool to assess the effect of changes in interest rates on our current and
future earnings. The limit we established provides an internal tolerance
level to control interest rate risk exposure.
27
ITEM 4
Controls and Procedures
- -----------------------
Management, including the Company's President and Chief Executive Officer
and Chief Financial Officer and Chief Operations 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 Company's
President and Chief Executive Officer and Chief Financial Officer and Chief
Operations 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.
There has been no change in the Company's internal control over financial
reporting identified in connection with the evaluation that occurred during
the Company's last fiscal quarter that has materially affected, or that is
reasonably likely to materially affect, the Company's internal control over
financial reporting.
28
PART II
Other Information
ITEM 1
Legal Proceedings
- -----------------
None.
ITEM 2
Changes in Securities, Use of Proceeds and Issuer Purchases
- -----------------------------------------------------------
of Equity Securities
- --------------------
During the three months ended June 30, 2004, the Company did not repurchase
any of its common stock. The Company currently does not have a stock
repurchase program in place.
ITEM 3
Defaults Upon Senior Securities
- -------------------------------
None.
ITEM 4
Submission of Matters to a Vote of Security Holders
- ---------------------------------------------------
The Annual Meeting of the Company's stockholders was held on May 10, 2004
with the following matters being voted upon and with the indicated results.
Proposal One - Amendment of the Articles of Organization and By-Laws of
Slade's Ferry Bancorp.
Votes
----------------------------------------------------------------
To approve the amendment of the Articles For Against
of Organization and By-Laws of Slade's --------------------
Ferry Bancorp to permit the Board of
Directors to amend the by-laws without 2,686,009 483,189
shareholder approval under certain
circumstances.
Proposal Two - Re-election of the following as Directors of the Company.
Votes
----------------------------------------------------------------
Nominee For Against
----------------------------------------------------------------
Paul C. Downey 3,302,219 51,852
Mary Lynn D. Lenz 3,272,945 81,126
William Q. MacLean, Jr. 3,300,599 53,471
Francis A. Macomber 3,284,625 69,446
Majed Mouded, MD 3,288,454 65,617
David F. Westgate 3,267,471 86,600
Anthony F. Cordeiro 3,266,036 88,035
29
Proposal Three - Regarding the 2004 Slade's Ferry Bancorp Equity Incentive
Plan.
Votes
----------------------------------------------------------------
For Against
--------------------
To approve the Slade's Ferry Bancorp 2004 2,453,720 179,553
Equity Incentive Plan.
Proposal Four - Election of Clerk/Secretary.
The following individual was re-elected by the stockholders to serve as
Clerk/Secretary until the next Annual Meeting of the stockholders, and until
his successor is elected and qualified.
Votes
----------------------------------------------------------------
For Against
--------------------
Peter G. Collias 3,276,059 61,673
ITEM 5
Other Information
- -----------------
None.
ITEM 6
Exhibits and Reports on Form 8-K
- --------------------------------
(a) Exhibits:
(1) Exhibit 10.7 - Employment Agreement between Slade's Ferry
Bancorp. and Mary Lynn D. Lenz
(2) Exhibit 31.1 - Rule 13a-14(a)/15d-14(a) Certification of the CEO
(3) Exhibit 31.2 - Rule 13a-14(a)/15d-14(a) Certification of the CFO
(4) Exhibit 32.1 - Section 1350 Certification of the CEO
(5) Exhibit 32.2 - Section 1350 Certification of the CFO
(b) (1) A report on Form 8-K, dated April 14, 2004, was furnished to the
Securities and Exchange Commission reporting under Item 12 the release
of information concerning the first quarter 2004 results of operations
and financial condition.
(2) A report on Form 8-K, dated May 6, 2004, was furnished to the
Securities and Exchange Commission reporting under Item 5 information
with respect to the public availability of the presentation made at
the Company's May 10, 2004 annual meeting of shareholders.
30
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
SLADE'S FERRY BANCORP.
-------------------------------------
(Registrant)
August 13, 2004 /s/ Mary Lynn D. Lenz
- ------------------- -------------------------------------
(Date) (Signature) Mary Lynn D. Lenz
President/Chief Executive Officer
August 13, 2004 /s/ Deborah A. McLaughlin
- ------------------- -------------------------------------
(Date) (Signature) Deborah A. McLaughlin
Chief Operating Officer/
Chief Financial Officer
EXHIBIT INDEX
Exhibit No. Description Item
- ----------- ----------- ----
3.1 Amended and Restated Articles of Incorporation
of Slade's Ferry Bancorp. (1)
3.2 Amended and Restated Bylaws of Slade's Ferry Bancorp. (2)
10.1 Slade's Ferry (formerly Weetamoe) Bancorp.
1996 Stock Option Plan, as amended (3)
10.2 Supplemental Executive Retirement Agreement between
Slade's Ferry (formerly Weetamoe) Bancorp. and
Donald T. Corrigan (5)
10.3 Supplemental Executive Retirement Agreement between
Slade's Ferry (formerly Weetamoe) Bancorp. and
Manuel J. Tavares (2)
10.4 Swansea Mall Lease (4)
10.5 Form of Director Supplemental Retirement Program
Director Agreement, Exhibit 1 thereto (Slade's Ferry
Trust Company Director Supplemental Retirement
Program Plan) and Endorsement Method Split Dollar Plan
Agreement thereunder for Thomas B. Almy. (Similar forms
of agreement entered into between Slade's Ferry Trust
Company and the other directors) (6)
10.6 Form of Directors' Paid-up Insurance Policy for
Thomas B. Almy (part of the Director supplemental
Retirement Program). (Similar forms of policy entered
into by Company for other directors) (7)
10.7 Severance Agreement ("Release of All Demands") with
James D. Carey (9)
10.8 Supplemental Executive Retirement Agreement between
Slade's Ferry Bancorp. and Mary Lynn D. Lenz (10)
10.9 Change-in-Control Severance Agreement between
Slade's Ferry Bancorp., Slade's Ferry Trust Company
and Mary Lynn D. Lenz (10)
10.10 Confidentiality and Non-Solicitation Agreement between
Slade's Ferry Bancorp. And Mary Lynn D. Lenz (10)
10.11 Employment Agreement between Slade's Ferry Bancorp.
and Mary Lynn D. Lenz
11.1 Computation of Per Share Earnings
31.1 Rule 13a-14(a)/15d-14(a) Certification of the CEO
31.2 Rule 13a-14(a)/15d-14(a) Certification of the CFO
32.1 Section 1350 Certification of the CEO
32.2 Section 1350 Certification of the CFO
- --------------------
Incorporated by reference to the Registrant's Registration Statement
on Form SB-2 filed with the Commission on April 14, 1997.
Incorporated by reference to the Registrant's Form 10-KSB for the
fiscal year ended December 31, 1996.
Incorporated by reference to the Registrant's Form 10-QSB for the
quarter ended June 30, 1996.
Incorporated by reference to the Registrant's Registration Statement
on Form S-4 File No. 33-32131.
Incorporated by reference to the Registrant's Form 10-KSB for the
fiscal year ended December 31, 1994.
Incorporated by reference to the Registrant's Form 10-Q for the
quarter ended June 30, 1999.
Incorporated by reference to the Registrant's Form 10-QSB for the
quarter ended June 30, 1998.
Incorporated by reference to the Registrant's Form 10-Q for the
quarter ended June 30, 2000.
Incorporated by reference to the Registrant's Form 10-K for the fiscal
year ended December 31, 2002.
Incorporated by reference to the Registrant's Form 10-Q for the
quarter ended June 30, 2003.