UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
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Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
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For the fiscal year ended December 31, 2007
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Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
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Commission File Number 000-32955
LSB CORPORATION
(Exact name of registrant as specified in its charter)
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Massachusetts
(State or other jurisdiction of incorporation or organization)
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04-3557612
(I.R.S. Employer Identification Number)
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30 Massachusetts Avenue, North Andover, MA
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01845
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(Address of principal executive offices)
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(Zip Code)
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(978) 725-7500
(Registrants telephone number, including area code)
Securities Registered Pursuant to Section 12(b) of the Act:
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Titles of each Class
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Name of each Exchange on which registered
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None
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None
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Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, par value $.10 per share
(Title of Class)
Preferred Stock Purchased Rights
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of
the Securities Act.
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Yes
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No
Indicate by check mark if the registrant is not required to file pursuant to Section 13 or Section
15(d) of the Act.
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Yes
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No
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes
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No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is
not contained herein, and will not be contained, to the best of registrants knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See definition of accelerated filer and
large accelerated filer in Rule 12b-2 of the Exchange Act. (Check One):
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Large accelerated filer
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Accelerated filer
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Non-accelerated filer
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Smaller Reporting Company
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes
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No
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State the aggregate market value of the voting common equity stock held by non-affiliates* of
the registrant based on the closing sale price of $16.79 per share as of June 30, 2007 Approximately $72,422,000
Indicate the number of shares outstanding of each of the registrants classes of common stock, as
of the latest practicable date.
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Class
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Outstanding as of March 7, 2008
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Common Stock, par value $.10 per share
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4,483,941 shares
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DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents if incorporated by reference and the Part of the Form 10-K
(e.g., Part I, Part II, etc.) into which the document is incorporated:
(1)
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Portions of the Companys definitive Proxy Statement for its 2008 Annual Meeting (the Proxy
Statement) attached hereto as Exhibit (20) are incorporated by reference in Part III,
Items 10-13 and Part IV, Item 14 of this Form 10-K. Such information incorporated by
reference shall not be deemed to specifically incorporate by reference the information
referred to in Item 402(a)(8) of Regulation S-K
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*
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For purposes of this calculation only, the common stock of LSB Corporation held by directors
and executive officers of LSB Corporation has been treated as owned by affiliates.
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TABLE OF CONTENTS
PART I
CAUTION REGARDING FORWARD-LOOKING STATEMENTS
This Form 10-K contains forward-looking statements (within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities and Exchange Act of 1934 as amended) that
are subject to risks and uncertainties. Forward-looking statements include information concerning
possible or assumed future results of operations of the Company, projected or anticipated benefits,
or events related to other future developments involving the Company or the industry in which it
operates. Also, when verbs in the present tense such as believes, expects, anticipates,
continues, attempts or similar expressions are used, forward-looking statements are being made.
For example, the amounts of and statements regarding the adequacy of the Companys provision and
allowance for loan losses, which reflect managements estimates of the likelihood and magnitude of
future losses in the loan portfolio of the Companys subsidiary bank, are forward looking
statements. Investors should note that many factors, some of which are discussed elsewhere in
this document and in the documents which we incorporate by reference, could affect the future
financial results of the Company and could cause results to differ materially from those expressed
or implied by these forward-looking statements. Those factors include fluctuations in interest
rates, disruptions in credit markets, inflation, changes in the regulatory environment, government
regulations and changes in regional and local economic conditions, including changes in real estate
conditions in the Companys lending area and changes in loan defaults and charge-off rates, and
changes in the competitive environment in the geographic and business areas in which the Company
conducts its operations. As a result of such risks and uncertainties, the Companys actual results
may differ materially from those expressed or implied by such forward-looking statements. These
risks and others are described elsewhere in this report, including particularly in Item 1A, Risk
Factors. The Company does not undertake, and specifically disclaims any obligation to publicly
release revisions to any such forward-looking statements to reflect the occurrence of anticipated
or unanticipated events or circumstances after the date of such statements.
ITEM 1. BUSINESS
SUMMARY
LSB Corporation (the Corporation or the Company) is a one bank-holding company principally
conducting business through its subsidiary, River Bank (the Bank). The Corporation became the
holding company for the Bank on July 1, 2001 pursuant to a plan of reorganization in which each
share of Bank common stock then outstanding (and accompanying preferred stock purchase rights) was
converted into and exchanged for one share of the Corporations common stock (and accompanying
preferred stock purchase rights). The Corporations common stock is currently traded on the Nasdaq
Stock Market under the symbol LSBX. Prices of the common stock are reported in
The Wall
Street Journal
as LSB Corp.
The Bank was established as a Massachusetts savings bank in 1868; the Bank converted from mutual to
stock form on May 9, 1986.
The Corporation is subject to regulation, supervision and periodic examination by the Board of
Governors of the Federal Reserve System (FRB) and Massachusetts Division of Banks (the
Division). The Bank is subject to supervision, regulation, and periodic examination by the
Federal Deposit Insurance Corporation (FDIC) and the Massachusetts Division of Banks.
The Bank has three wholly-owned subsidiaries at December 31, 2007. Shawsheen Security Corporation
and Shawsheen Security Corporation II engage exclusively in buying, selling, dealing in and holding
securities for their own accounts. Spruce Wood Realty Trust holds real estate used in the ordinary
course of the Banks business.
The Bank offers various financial products to the general public. These products include loans for
residential real estate, commercial real estate, construction, consumer and commercial businesses.
The Bank offers various deposit accounts including savings, checking, money market, certificates of
deposit and individual retirement accounts. The Bank invests a portion of its funds in federal
funds and investment securities.
The principal source of funds for the Corporation is dividends from its Bank subsidiary. The
principal sources of funds for the Banks lending and investment activities are deposits, loan
payments and prepayments, investment securities payments and maturities, advances from the Federal
Home Loan Bank of Boston (FHLBB), Federal funds purchased and securities sold under agreements to
repurchase.
MARKET AREA
The Banks primary market area is the Merrimack Valley in northeastern Massachusetts and southern
New Hampshire. The Bank has six banking offices in the communities of Andover, Lawrence, Methuen
(2), and North Andover, Massachusetts and Salem, New Hampshire.
LENDING ACTIVITIES
The Banks loan portfolio consists of commercial real estate, commercial business, construction,
residential mortgage, home equity
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and consumer loans. Competition on both pricing and underwriting terms has been strong in the
Banks market area. Gross loans at December 31, 2007 were $358.1 million, for an increase of $70.0
million from $288.2 million at December 31, 2006 and $234.6 million in 2005.
COMMERCIAL REAL ESTATE
The Bank originates loans secured by real estate other than 1-4 family residential properties.
These loans are generally secured by various types of commercial real estate including income
properties, commercial facilities (including retail, manufacturing, office and office
condominiums) and small businesses. The interest rates on these loans are fixed or variable. The
interest rates are based on a margin over the rates charged on FHLB advances or another index (such
as the Prime Rate as published in
The Wall Street Journal
) for a similar term. The margin
is determined by the Bank based on the creditworthiness of the borrower, relationship profitability
and competitive factors.
COMMERCIAL BUSINESS
The Bank originates loans secured by business assets which are not real estate. The Bank has
Certified Lender status from the U.S. Small Business Administration (SBA), which means that,
subject to various conditions, the SBA guarantees repayment of some portion of the loan amount. The
interest rates on these loans may be fixed or variable. The rates are primarily based on a margin
over the Prime Rate as published in
The Wall Street Journal
. The margin is determined based
on the creditworthiness of the borrower, security offered and competitive factors.
CONSTRUCTION
The Bank originates generally short-term loans for land development, construction of residential
homes built on speculation, construction of homes for homeowners with permanent financing, and
construction of commercial facilities (including retail, manufacturing and office space). These
loans have variable interest rates and are generally priced to yield
The Wall Street
Journal
Prime Rate plus a margin. Construction loans may involve additional risk due to
uncertainty of estimated cost of completion of a project, or ultimate sale of the property to an
end buyer. The Bank attempts to reduce these risks by lending to contractors with pre-arranged
buyers or permanent financing commitments upon completion, or to businesses that are expanding and
will occupy the completed project.
RESIDENTIAL MORTGAGES
The Bank originates fixed and adjustable rate residential mortgage loans which are underwritten to
be eligible for sale in the secondary market. These loans are secured primarily by owner occupied
1-4 family primary residential properties. Adjustable rate mortgage loans are generally held by the
Bank in the loan portfolio as a means to manage interest rate risk. Fixed rate mortgages are
generally sold into the secondary market unless management believes they represent a good long-term
asset based on various factors such as loan-to-value ratios, interest rates and managements
expectations of a loans duration. During 2007, the Bank retained all of its originated loans.
SECONDARY MORTGAGE MARKET
The Bank is an approved seller and servicer for the Federal Home Loan Mortgage Corporation
(FHLMC) and the Massachusetts Housing Financing Agency (MHFA). Sales of mortgage loans may be
made at a premium or discount resulting in gains or losses on the transaction. Based on the
structure of the sale, loans sold into the secondary market may provide the Bank with service fee
income over the life of the loan.
HOME EQUITY
The Bank makes second mortgage and home equity loans. Home equity loans can be accessed by the
borrower through a deposit account established with the Bank. These loans carry interest rates that
are either fixed or variable based on the Prime Rate published in
The Wall Street Journal
plus or minus a margin above or below this rate depending on the particular product selected by the
borrower.
CONSUMER
The Bank offers a variety of consumer loan products including overdraft lines of credit, collateral
loans, and secured and unsecured personal loans. These loans are generally fixed rate in nature.
The Bank adjusts interest rates on these products from time to time based on competitive factors in
the marketplace.
DEPOSIT ACTIVITY AND OTHER SOURCES OF FUNDS
Deposits and borrowings are the primary source of funds for funding loans and purchasing investment
securities. The mix of deposits and borrowings is dependent on many factors, such as loan demand,
competition, the economy, interest rates, and capital resources. Deposits are obtained from the
general public through the Banks branch offices by additions to various deposit accounts,
including checking, savings, money market, certificates of deposit and individual retirement
accounts. The interest rates on these accounts generally are competitive with other local financial
institutions. The Banks core deposit products (savings, checking and money market accounts) allow
customers more flexibility and access and generally earn lower interest rates than other types of
accounts due to the Banks higher operating costs to service these accounts. Certificates of
deposit provide customers with higher interest rates, but
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less flexibility and access to deposits. Increasing and decreasing interest rates offered on
certificates of deposit allows the Bank to adjust its sources of funds while providing a
competitive interest rate to its customers. Another alternative source of deposits utilized by the
Bank is brokered certificates of deposit. In addition to deposit accounts, other sources of funds
include advances from the FHLB, Federal funds purchased and securities sold under agreements to
repurchase.
The Bank is a member of the FHLB. The Bank is required to own stock of the FHLB which is carried on
the Companys balance sheet at cost, which equals par value. On April 19, 2004, the FHLB
implemented a new capital structure and stock investment requirements for members to comply with
the Gramm-Leach-Bliley Act of 1999. The minimum stock investment requirements are based in part on
the amount of the Banks outstanding advances with the FHLB. The Bank receives an amount equal to
the par value of the FHLB stock when excess stock is redeemed. At December 31, 2007, the Bank held
$10.2 million of FHLB stock.
The Company functions only as a holding company for the Bank, engages in no business activities
directly and is entirely dependent on the receipt of dividends from the Bank to meet its separate
expenses, repay any indebtedness and pay dividends to the Companys stockholders.
EMPLOYEES
The Company maintains no separate payroll. As of December 31, 2007, the Bank employed 91 employees
on a full-time equivalent basis. None of the Banks employees is subject to a collective
bargaining agreement or represented by a labor union. Management considers its relations with
employees to be good.
COMPETITION
The Bank competes with local, regional and national financial service providers in its lending and
deposit activities. The Bank competes in the local market against other local and branch offices of
regional financial institutions such as banks, thrifts and credit unions. In addition, local and
national non-bank businesses such as mortgage companies, securities brokerage firms, insurance
companies and mutual funds offer services competitive with those of the Bank. Bank mergers and
legislation permitting interstate and cross-industry expansion have increased, and are expected to
continue to increase, competition in the Banks market area. The Bank competes on the basis of
interest rates, deposit and loan terms, fees, office location, product and service arrays, customer
convenience and technological advantages. Competition on the Banks deposit taking and lending
activities is affected by movements in interest rates, local and national market developments,
economic trends and the Banks ability to adjust to change.
SUPERVISION AND REGULATION
As a bank holding company, the Corporation is subject to regulation and supervision by the Federal
Reserve Board (FRB) pursuant to the Bank Holding Company Act of 1956, as amended (the BHC Act),
and files with the FRB an annual report and such additional reports as the FRB may require. The
Corporation is also subject to regulations by the Massachusetts Division of Banks. As a bank
holding company, the Corporations activities are limited to the business of banking and activities
closely related or incidental to banking as determined by the FRB. The Corporation may not
directly or indirectly engage in business activities or acquire more than five percent of any class
of voting shares of any company without notice to or approval of the FRB. The Bank is an FDIC
insured state-chartered savings bank subject to the regulations and supervisory authority of, and
periodic examinations by, both the FDIC and the Division. These examinations test the Banks safety
and soundness and compliance with various statutory and regulatory requirements. The Corporation
and the Bank are both subject to federal and state taxation authorities. The Bank is subject to
certain reserve and reporting requirements as a non-member bank of the Federal Reserve System. The
Bank is a member of the Massachusetts Depositors Insurance Fund, an industry-sponsored insurer of
deposit balances exceeding FDIC insurance limits.
Federal and state bank regulatory agencies have authority to issue cease and desist orders, assess
civil money penalties, remove officers and directors, issue capital directives and impose prompt
corrective action restrictions or requirements to address safety and soundness and compliance
issues of the Corporation and the Bank. Among other things, the regulatory agencies have authority
to restrict or prohibit the payment of dividends on the Banks or the Corporations capital stock
if such payment would constitute an unsafe or unsound banking practice or reduce the Companys or
the Banks capital levels below regulatory minimums. (See Results of Operations Capital Adequacy
in Managements Discussion and Analysis of Financial Condition and Results of Operations and Note
9 to the Consolidated Financial Statements). In addition, the Bank must obtain prior regulatory
approvals to undertake certain banking transactions and initiatives, including establishment,
relocation or termination of a banking office, and merger or acquisition transactions with other
banks or non-banking entities. The supervision and regulation of the Bank are intended primarily
for the protection of depositors, the Bank Insurance Fund of the FDIC and non-business borrowers
and not for the protection of investors or stockholders of the Company. The results of
examinations provide regulators with a means of measuring and assessing each institution and taking
prompt corrective actions to address any safety and soundness or compliance issues.
To the extent that information in this report under the heading Supervision and Regulation
describes statutory or regulatory provisions, it is qualified in its entirety by reference to the
particular statutory or regulatory provision described. Any changes in applicable laws or
regulations may have a material effect on the business and prospects of the Company.
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BANK HOLDING COMPANY ACT, CHANGE IN CONTROL ACT AND REGULATION Y
Under the BHC Act and Regulation Y of the FRB, no company may acquire control of the Company or
the Bank, and no bank holding company may acquire more than five percent of any class of
outstanding voting securities of the Company or the Bank, without prior approval of the FRB. Under
the Change in Bank Control Act of 1978 (the Control Act), no person or group of persons acting in
concert may acquire control of the Company without giving at least 60 days prior written notice
to the FRB or if the FRB gives written notice of objection to such acquisition. Under Regulation
Y, the FRB has established a rebuttable presumption that direct or indirect ownership or control of
more than 10 percent of any class of the Companys outstanding voting securities constitutes
control of the Company and the Bank for purposes of the Control Act.
GRAMM-LEACH-BLILEY ACT
The Gramm-Leach-Bliley Act of 1999 (the GLB Act) enhanced the authority of banks and their
holding companies to engage in non-banking activities. By electing to become a financial holding
company, a qualified parent company of a banking institution may engage, directly or through
non-bank subsidiaries, in any activity that is determined by the FRB in consultation with the U.S.
Treasury Department to be financial in nature or incidental to such a financial activity or in any
other activity that is complimentary to a financial activity and does not pose a substantial risk
to the safety and soundness of depository institutions or the financial system generally.
Financial activities include all of the activities that have been determined to be closely related
to banking and permissible for bank holding companies, plus insurance agency, securities
underwriting and dealing, and insurance underwriting, among other activities.
A bank holding company may elect to be regulated as a financial holding company if all of its
depository institution subsidiaries are well capitalized, well managed and have at least a
satisfactory rating under the federal Community Reinvestment Act (CRA). A bank holding company
that elects financial holding company status remains subject to regulation and oversight by the
FRB. While the Company believes that it presently satisfies all requirements to elect to become a
financial holding company, the Company has no present plan to elect financial holding company
status.
Pursuant to the GLB Act, the Bank may also organize or acquire, subject to approvals of the
Division and the FDIC, financial subsidiaries to engage in activities that are financial in
nature or incidental to a financial activity. To form a financial subsidiary, the Bank would be
required to satisfy conditions substantially similar to those that the Company would be required to
satisfy in order to elect to become a financial holding company. While the Company believes that
the Bank would be able to satisfy the requirements to organize or acquire a financial subsidiary,
the Company has no present plan for the Bank to do so.
FEDERAL RESERVE ACT SECTIONS 23A AND 23B AND REGULATION W
Under Sections 23A and 23B of the Federal Reserve Act and Regulation W of the FRB, the Bank may not
enter into any covered transaction with the Company or any separate subsidiary of the Company (a
Reg W Affiliate) on terms that are less favorable to the Bank than the Bank would in good faith
offer to an unaffiliated party. Any loan from the Bank to a Reg W Affiliate must be fully
collateralized by qualifying assets having a fair value equal to or exceeding the amount of the
loan, depending on the character of the collateral. Covered transactions between the Bank and its
Reg W Affiliates must be consistent with safe and sound banking practices and are limited to 10%
and 20% of the Banks capital in the case of any one such Affiliate and all such Affiliates,
respectively. The Bank is prohibited from accepting any assets or securities of a Reg W Affiliate
as collateral for a loan, and may not purchase any low quality asset from any such Affiliate.
FEDERAL RESERVE ACT SECTION 22 AND REGULATION O
Under Section 22 of the Federal Reserve Act and Regulation O of the FRB, the Bank may not make any
loan to directors or executive officers of the Company or the Bank or to the related interests of
any such persons except in conformity with specified restrictions and requirements related to the
amounts, terms, purposes, credit quality and pricing of such loans and with the prior approval of
the Banks Board of Directors.
FEDERAL DEPOSIT INSURANCE REFORM ACT OF 2005
The Federal Deposit Insurance Reform Act of 2005 (FDIRA), among other things, provided for the
merger of the Savings Association Insurance Fund (SAIF) and the Bank Insurance Fund (BIF) of
the FDIC into the Deposit Insurance Fund (DIF) by July 1, 2006, raised the deposit insurance
limit on certain retirement accounts to $250,000 from $100,000 and indexes that limit for
inflation, granted the FDIC Board discretion to set the Designated Reserve Ratio for the DIF within
a range of 1.15 to 1.50 percent for any given year; provided for the allocation of a $4.7 billion
assessment credit pool among insured banks and successor institutions, and provided for the
declaration and payment of cash dividends to insured institutions. The FDIC issued final
regulations implementing FDIRA on November 2, 2006.
USA PATRIOT ACT
The USA Patriot Act is intended to strengthen U.S. law enforcements and the intelligence
communities abilities to work cohesively to combat terrorism on a variety of fronts. The
potential impact of the USA Patriot Act on financial institutions of all kinds is significant and
wide ranging. The USA Patriot Act contains sweeping anti-money laundering and financial
transparency laws and imposes various regulations including standards for verifying client
identification at account opening, and rules to promote
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cooperation among financial institutions, regulators and law enforcement entities in identifying
parties that may be involved in terrorism or illegal money laundering. A bill extending the
principal provisions of the USA Patriot Act was signed into law by President George W. Bush on
March 9, 2006.
SARBANES-OXLEY ACT OF 2002
The SarbanesOxley Act of 2002 (the Sarbanes-Oxley Act) establishes a comprehensive framework
for modernizing and reforming the oversight of public company financial accounting and disclosure
practices. Principal components of the Sarbanes-Oxley Act include:
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The creation of the Public Company Accounting Oversight Board, with which all accounting
firms performing audits for public companies are required to register, and which is
empowered to set auditing, quality control and independence standards, to inspect
registered firms, and to conduct investigations and to take disciplinary actions, subject
to SEC oversight.
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The strengthening of auditor independence from corporate management by limiting the type
and scope of services that auditors can offer their public company audit clients, requiring
periodic rotation of public company audit partners, requiring direct auditor reports to
company audit committees, and prohibiting public companies from exerting improper influence
over their outside auditors.
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The imposition of new corporate governance requirements including among other things,
independence and financial expertise requirements for audit committee membership and
empowerment of public company audit committees to appoint, compensate and oversee their
companys outside auditors.
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Requirements that the Chief Executive Officer and the Chief Financial Officer certify
financial statements included in public company filings with the SEC and disgorge bonuses
and stock-based compensation for periods for which the company is forced to restate its
financial results, a prohibition of insider stock trades during periods when a companys
employee benefits plans are precluded from trading, and a prohibition of public company
loans or extensions of credit to directors and officers except by regulated financial
institutions in conformity with applicable banking regulations governing insider lending.
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Requirements that public companies disclose whether they have a code of ethics for their
senior financial officers and if not, why not, and that management periodically assess and
report on the adequacy of the companys internal controls.
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The imposition of new and accelerated public company disclosure requirements,
requirements to report off balance sheet transactions and of accelerated reporting of
insider transactions in company stock.
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The SEC has extended compliance dates for non-accelerated filers with respect to management
reporting and outside auditors attestation regarding the adequacy of internal controls over
financial reporting (Section 404 of the Sarbanes-Oxley Act). The Company is considered a
non-accelerated filer with the SEC and, under current law, began to comply with the management
reporting component of Section 404 for its year ended December 31, 2007, while the outside
auditors attestation component of Section 404 is required for the year ending December 31, 2008.
SECURITIES AND EXCHANGE COMMISSION FILINGS ON COMPANYS WEB SITE
Under Section 13 of the Securities Exchange Act of 1934, the Company files periodic and current
reports with the SEC. The Company electronically files the following reports with the SEC: Form
10-K (Annual Report), Form 10-Q (Quarterly Report), Form 8-K (Report of Unscheduled Material
Events), Forms 3, 4 & 5 (Statements of Ownership), Forms S-3, S-8 and 8-A (Registration
Statements), and Form DEF 14A (Proxy Statement). The Company may file additional forms. The SEC
maintains an Internet site, www.sec.gov, at which all forms filed electronically may be accessed.
The Companys website: www.riverbk.com has a section for SEC filings available free of charge and
provides a link under www.riverbk.com/stockholder-info.asp. Information contained on our website
and the SEC website is not incorporated by reference into this Form 10-K. We have included our web
address and the SEC website address only as inactive textual references and do not intend them to
be active links to our website or the SEC website.
MASSACHUSETTS BANK REGULATION
As a Massachusetts-chartered savings bank, the Bank is subject to supervision, regulation and
examination by the Massachusetts Division of Banks (the Division) and to various Massachusetts
statutes and regulations which govern, among other things, investment powers, lending and
deposit-taking activities, borrowings, maintenance of surplus and reserve accounts, distribution of
earnings, and payment of dividends. In addition, the Bank is subject to Massachusetts consumer
protection laws and regulations. The Divisions approval is required for a Massachusetts bank to
establish or close branches, merge with other banks, and undertake certain other activities.
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Regulatory Enforcement Authority
. Any Massachusetts bank that does not operate in accordance with
the regulations, policies and directives of the Commissioner may be subject to sanctions for
non-compliance. The Commissioner may under certain circumstances suspend or remove officers or
directors who have violated the law, conducted a banks business in a manner which is unsafe,
unsound or contrary to the depositors interests, or been negligent in the performance of their
duties. In addition, upon finding that a bank has engaged in an unfair or deceptive act or
practice, the Commissioner may issue an order to cease and desist and impose a fine on the bank.
Finally, Massachusetts consumer protection statutes applicable to a bank permit private individual
and class action law suits and provide for the rescission of consumer transactions, including
loans, and the recovery of statutory and punitive damages and attorneys fees in the case of
certain violations.
Massachusetts law has recently been amended to restrict certain home mortgage lending practices.
The law applies to banks that make so-called high cost mortgage loans and, among other
provisions, requires credit counseling for borrowers, requires that banks have a reasonable
belief that borrowers are able to make required payments out of current income, and limits the
financing of points and fees.
Massachusetts law prohibits all mortgage lenders, including savings banks, from knowingly making a
home mortgage loan in Massachusetts for the purpose of re-financing an existing home mortgage loan
closed within the preceding five years, or re-financing any other debt of the borrower regardless
of when it was incurred, unless the refinancing is in the borrowers interest. The Commissioner
recently issued regulations further clarifying the factors to be considered by a lender in
determining whether a refinancing is in the borrowers interest and the procedures a bank must
follow to demonstrate its compliance with the law.
Massachusetts enacted legislation effective in March 2005 that revised and recodified a wide range
of Massachusetts banking laws. Among other things, the law revised Massachusetts branching and
lending laws, eliminating rigid restrictions on lending, but requiring Massachusetts banks to enact
comprehensive loan policies that carefully describe loan programs and the loan-to-value ratios,
amortization requirements, and other elements of those programs.
Parity Regulation
. Massachusetts regulations allow Massachusetts banks to exercise additional or
more flexible parallel powers granted to national banks, federal savings banks and out of-state
state-chartered banks with branches in Massachusetts which are otherwise not permitted under state
law. Specifically, these regulations permit a Massachusetts-chartered bank that is either
adequately capitalized or well capitalized, is not in troubled condition, and has received as
least a satisfactory CRA rating during its most recent regulatory examination to establish
temporary branch offices, make certain investments in corporate affiliates and subsidiaries, engage
in lease financing transactions, engage in finder and certain electronic banking activities, invest
in community development and public welfare projects, and provide tax planning and preparation,
payroll and financial planning services, among others. The applicable procedures and requirements
vary according to the nature of the activity to be engaged in and the capitalization of the bank.
As of the date of this report, the Bank was well capitalized, had received a CRA rating of
satisfactory and was not in troubled condition and was therefore eligible to engage in certain
of the above-referenced activities, subject to the applicable procedures and requirements of
Massachusetts regulation.
In January 2005, the U.S. District Court for the District of Massachusetts ruled that the GLB Act
preempts four provisions of Massachusetts law regulating the way banks sell insurance as agent or
broker. The preempted rules are the so-called referral prohibition, the referral fee
prohibition, the waiting period restriction and the separation restriction. The referral
prohibition allows bank employees to refer customers to the banks insurance agency only if the
customer first inquires about insurance, and as a result prohibits a bank teller from initiating a
discussion about insurance with a customer. The referral fee prohibition forbids banks from
paying additional compensation to unlicensed bank employees including tellers who make referrals to
the banks insurance agency. The waiting period restriction allows banks to solicit the sale of
insurance from loan applicants only after the loan application has been approved and only after the
commitment letter has been issued in the case of a mortgage loan. Finally, the separation
restriction generally requires banks to keep insurance activities physically separated from a
banks loan and deposit activities, although regulations now permit tellers who refer customers to
licensed insurance producers to receive a one-time, nominal fee of a fixed dollar amount for each
referral.
Depositors Insurance Fund
. All Massachusetts-chartered savings banks, including the Bank, are
required to be members of the Depositors Insurance Fund (DIF), a corporation that insures savings
bank deposits that are not otherwise covered by federal deposit insurance. The DIF is authorized to
charge savings banks an annual assessment of up to 1/16th of 1% of a savings banks deposits.
8
ITEM 1A. RISK FACTORS
Changes in interest rates could adversely impact the Companys financial condition and results of
operations.
The Companys ability to make a profit, like that of most financial institutions,
substantially depends upon its net interest income, which is the difference between the interest
income earned on interest earning assets, such as loans and investment securities, and the interest
expense paid on interest-bearing liabilities, such as deposits and borrowings. However, certain
assets and liabilities may react differently to changes in market interest rates. Further, interest
rates on some types of assets and liabilities may fluctuate prior to changes in broader market
interest rates, while rates on other types of assets may lag behind. Additionally, some assets such
as adjustable-rate mortgages have features and rate caps which restrict changes in their interest
rates.
Factors such as inflation, recession, unemployment, fluctuations in the money supply, global
disorder such as that experienced as a result of the terrorist activity on September 11, 2001,
instability in domestic and foreign financial markets, and other factors beyond the Companys
control may affect interest rates. Changes in market interest rates will also affect the level of
voluntary prepayments on loans and the receipt of payments on mortgage-backed securities, resulting
in the receipt of proceeds that may have to be reinvested at a lower rate than the loan or
mortgage-backed security being prepaid. Although the Company pursues an asset-liability management
strategy designed to control its risk from changes in market interest rates, changes in interest
rates can still have a material adverse effect on the Companys business, financial condition,
results of operations and cash flows. Additionally, if rates paid on deposits and borrowings
reprice more quickly than the assets in a rising interest rate environment, the Company would
experience further compression of its net interest spread and net interest margin. Alternatively,
in a lower interest rate environment, if assets reprice more quickly than its liabilities, net
interest margin compression would occur.
If the Company has higher loan losses than it has allowed for, its earnings could materially
decrease
.
The Companys loan customers may not repay loans according to their terms, and the
collateral securing the payment of loans may be insufficient to assure repayment. The Company may
therefore experience significant credit losses which could have a material adverse effect on its
operating results. The Company makes various assumptions and judgments about the collectibility of
its loan portfolio, including the creditworthiness of borrowers and the value of the real estate
and other assets serving as collateral for the repayment of loans. In determining the size of the
allowance for loan losses, the Company relies on its experience and its evaluation of economic
conditions. If one or more of the assumptions prove to be incorrect, its current allowance for loan
losses may not be sufficient to cover losses inherent in its loan portfolio and adjustment may be
necessary to allow for different economic conditions or adverse developments in its loan portfolio.
Consequently, a problem with one or more loans could require the Company to significantly increase
the level of its provision for loan losses. In addition, federal and state regulators periodically
review the Companys allowance for loan losses and may require it to increase its provision for
loan losses or recognize further loan charge-offs. Material additions to the allowance would
materially reduce the Companys net income and could adversely affect its financial condition.
Moreover, when a loan is placed on non-accrual status, all interest previously accrued but not
collected is reversed against current period interest income.
A significant amount of the Companys loans are concentrated in northeastern Massachusetts and
southern New Hampshire, and adverse conditions in this area could negatively impact its
operations.
Substantially all of the loans the Company originates are secured by properties
located in or are made to businesses which operate in northeastern Massachusetts or southern New
Hampshire. Because of the current concentration of the Companys loan origination activities in
northeastern Massachusetts and southern New Hampshire, in the event of adverse economic conditions,
downward pressure on housing prices, political or business developments or natural hazards
adversely affecting northeastern Massachusetts or southern New Hampshire and the ability of
property owners and businesses in that area to make payments of principal and interest on the
underlying loans, the Company would likely experience higher rates of loss and delinquency on its
loans than if its loans were more geographically diversified. Such higher rates of loss and
delinquency could have a material adverse effect on the Companys results of operations or
financial condition.
The Company operates in a highly regulated environment and may be adversely impacted by changes in
law and regulations
. The Company is subject to extensive regulation, supervision and examination.
See Supervision and Regulation in Item 1 hereof, Business. Any change in the laws or regulations or
failure by the Company to comply with applicable law and regulation, or change in regulators
supervisory policies or examination procedures, whether by the Division, the FDIC, the FRB, other
state or federal regulators, the United States Congress, or the Massachusetts legislature could
have a material adverse effect on the Companys business, financial condition, results of
operations, and cash flows.
The Company has strong competition within its market area which may limit the Companys growth and
profitability
. The Company faces significant competition both in attracting deposits and in the
origination of loans. See Competition in Item 1 hereof, Business. Commercial banks, credit unions,
savings banks and savings and loan associations operating in our primary market area have
historically provided most of our competition for deposits. Mutual funds and internet-only bank
providers contribute additional competition in the quest for deposits. Competition for the
origination of real estate and other loans comes from other commercial, savings and cooperative
banks, thrift institutions, insurance companies, finance companies, other institutional lenders and
mortgage companies.
The success of the Company is dependent on retaining certain key personnel or attracting and
retaining additional, qualified personnel
. The Companys performance is largely dependent on the
talents and efforts of highly skilled individuals. The Company relies on key personnel, including
executive officers, to manage and operate its business, including major revenue generating
9
functions such as loan and deposit generation. The loss of key staff may adversely affect the
Companys ability to maintain and manage these functions effectively, which could negatively affect
the Companys revenues. In addition, loss of key personnel could result in increased recruiting and
hiring expenses, which could cause a decrease in the Companys net income. The Companys continued
ability to compete effectively depends on its ability to attract new employees and to retain and
motivate its existing employees.
The Company continues to encounter technological change, and may have fewer resources than many of
its larger competitors to continue to invest in technological improvements.
The financial services
industry is undergoing rapid technological changes, with frequent introductions of new
technology-driven products and services. The effective use of technology increases efficiency and
enables financial institutions to serve their customers better and to reduce costs. The Companys
success will depend, in part, upon its ability to address the needs of its customers by using
technology to provide products and services that will satisfy customer demands for convenience, as
well as to create additional efficiencies in its operations. Many of the Companys larger
competitors have substantially greater resources to invest in technological improvements. The
Company may not be able to effectively implement new technology-driven products and services or be
successful in marketing these products and services to its customers.
The Company relies on dividends from the Bank for substantially all of its revenue
. The Company is
a separate and distinct legal entity from the Bank. It receives substantially all of its revenue
from dividends paid by the Bank. These dividends are the principal source of funds used to pay
dividends on the Companys common stock. Various federal and state laws and regulations limit the
amount of dividends that the Bank may pay to the Company. If the Bank is unable to pay dividends
to the Company, then the Company will be unable to pay its obligations or pay dividends on the
Companys common stock. The inability to receive dividends from the Bank could have a material
adverse effect on the Companys business, financial condition and results of operations.
When the Company becomes subject to the full SEC requirements under Section 404 of the
Sarbanes-Oxley Act of 2002, it will likely incur significant costs in connection with first
providing internal control reports.
Under current SEC regulations, as a non-accelerated filer
under the federal securities laws, the Company became subject to the management reporting component
for its year ended December 31, 2007 and the outside auditors attestation component of Section 404
of the Sarbanes-Oxley Act of 2002 for its year ending December 31, 2008. Section 404 requires that
the Company prepare a management report on its internal control over financial reporting and obtain
an attestation on that report from its auditors in connection with its most recent consolidated
financial statements included with its annual report. During the past several years, many SEC
reporting companies have incurred significant costs in connection with first providing internal
control reports. The Company will likely incur significant costs in connection with obtaining the
outside auditors attestation report of the Companys internal control reports. If the Company
does incur such costs, the costs could have an adverse effect on the Companys results of
operations.
When the Company becomes subject to the full SEC requirements under Section 404 of the
Sarbanes-Oxley Act of 2002, if its internal control reports disclose significant deficiencies or
material weaknesses, its stockholders and lenders could lose confidence in its financial reporting,
which would likely harm the trading price of its stock, its access to additional capital, and its
liquidity.
During the past several years, various SEC reporting companies, when first providing
internal control reports, disclosed significant deficiencies or material weaknesses in their
internal control over financial reporting. If the Companys internal control reports disclose
material weaknesses, the Companys stockholders could lose confidence in its financial reporting,
which would likely harm the trading price of its stock, its access to additional capital, and its
liquidity.
10
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
The Company conducts its business at its corporate offices in North Andover and multiple branch
locations listed here. The Company believes that all of its properties are well maintained and are
suitable for banking needs and operations.
The following table sets forth certain information about the Banks offices as of December 31,
2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease
|
|
|
|
|
Year
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
Acquired
|
|
Square
|
|
Owned/
|
|
Term
|
|
Renewal
|
|
|
Or Leased
|
|
Feet
|
|
Leased
|
|
Expires
|
|
Options
|
CORPORATE OFFICES AND
MAIN BANKING OFFICE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30 Massachusetts Ave.
|
|
|
1992
|
|
|
|
45,315
|
|
|
Owned
|
|
|
|
|
|
|
|
|
No. Andover, MA 01845
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BRANCH BANKING OFFICES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Massachusetts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
342 North Main Street
|
|
|
1995
|
(1)
|
|
|
2,449
|
|
|
Leased
|
|
|
2010
|
|
|
Two (5 yrs.)
|
Andover, MA 01810
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
300 Essex
|
|
|
1998
|
(2)
|
|
|
3,432
|
|
|
Leased
|
|
|
2008
|
|
|
Three (1 yr.)
|
Lawrence, MA 01840
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20 Jackson Street
|
|
|
1968
|
|
|
|
2,369
|
|
|
Leased
|
|
|
2008
|
|
|
|
|
|
Methuen, MA 01844
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
148 Lowell Street
|
|
|
1979
|
|
|
|
5,234
|
|
|
Owned
|
|
|
|
|
|
|
|
|
Methuen, MA 01844
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New Hampshire
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51 Crystal Ave.
|
|
|
2007
|
(3)
|
|
|
2,600
|
|
|
Leased
|
|
|
2027
|
|
|
Four (5 yrs.)
|
Derry, NH 03038
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
401-403 Main Street, Ste. 105
|
|
|
2004
|
|
|
|
2,500
|
|
|
Leased
|
|
|
2014
|
|
|
Two (5 yrs.)
|
Salem, NH 03079
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
The Bank occupied the branch since 1979 and performed a sale-leaseback transaction in 1995.
|
|
(2)
|
|
Prior to moving to this location, the Bank occupied a branch office at 255 Essex Street.
|
|
(3)
|
|
The Bank has executed a ground lease and pending permitting and regulatory approvals,
anticipates opening a full service branch
location in 2008.
|
ITEM 3. LEGAL PROCEEDINGS
The Bank and the Company are, from time to time, involved as either a plaintiff or defendant in
various legal actions which are ordinary routine litigation incident to its business. None of
these actions are believed to be material, either individually or collectively, to the results of
operations and financial condition of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
11
PART II
ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
The Companys stock trades on the Nasdaq Global Market under the symbol LSBX. Sales prices of the
stock are reported in the
Wall Street Journal
as LSBCorp. On February 28, 2008, the
closing price of LSB Corporation common stock was $16.45.
The following table sets forth for the fiscal periods indicated certain information with respect to
the sales prices of the Companys common stock.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock Prices
|
|
Cash
|
Fiscal Year
|
|
High
|
|
Low
|
|
Dividends
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
Fourth Quarter
|
|
$
|
17.47
|
|
|
$
|
15.30
|
|
|
$
|
0.14
|
|
Third Quarter
|
|
|
17.14
|
|
|
|
15.50
|
|
|
|
0.14
|
|
Second Quarter
|
|
|
17.49
|
|
|
|
15.85
|
|
|
|
0.14
|
|
First Quarter
|
|
|
16.92
|
|
|
|
16.40
|
|
|
|
0.14
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
Fourth Quarter
|
|
$
|
18.06
|
|
|
$
|
16.00
|
|
|
$
|
0.14
|
|
Third Quarter
|
|
|
17.50
|
|
|
|
16.00
|
|
|
|
0.14
|
|
Second Quarter
|
|
|
18.50
|
|
|
|
16.54
|
|
|
|
0.14
|
|
First Quarter
|
|
|
18.45
|
|
|
|
16.95
|
|
|
|
0.14
|
|
The Company anticipates that it will continue to pay dividends during 2008. On March 7, 2008, there
were approximately 838 holders of common stock. This number does not reflect the number of persons
or entities who hold their stock in nominee or street name through various brokerage firms.
During the year ended December 31, 2007, there were 90,356 shares of stock repurchased under the
Companys previously announced stock buyback program.
In determining whether to declare or pay any dividends, whether regular or special, the Board of
Directors will take into account the Companys financial condition and results of operations, tax
considerations, capital requirements, industry standards and economic conditions. The regulatory
restrictions that affect the payment of dividends by the Bank to the Company discussed below will
also be considered. The Company cannot guarantee that it will not reduce or eliminate dividends in
the future.
Dividends from the Company will depend, primarily, upon receipt of dividends from the Bank because
the Company has no significant source of income other than dividends from the Bank. Massachusetts
banking law and FDIC regulations limit distributions from the Bank to the Company. For example,
the Bank could not pay dividends if it were not in compliance with applicable regulatory capital
requirements. See
Supervision and Regulation
. In addition, the Company is subject to the
Federal Reserve Boards policy that dividends should be paid only out of current earnings and only
if the prospective rate of earnings retention by the Company appears consistent with its capital
needs, asset quality and overall financial condition.
Information on equity compensation plans required by Item 5 is incorporated by reference herein
from the section in the Companys Proxy Statement entitled Equity Compensation Plan Information.
The following table sets forth information with respect to any purchase made by or on behalf of LSB
Corporation or any affiliated purchaser, as defined in 204.10b-18(a)(3) under the Securities
Exchange Act of 1934, of shares of LSB Corporation common stock during the indicated periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuer Purchases of Equity Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total number of shares
|
|
Maximum number of
|
|
|
|
|
|
|
Weighted
|
|
purchased as part of
|
|
shares that may yet
|
|
|
Total number of
|
|
Average price paid
|
|
publicly announced
|
|
purchased under the
|
|
|
Shares purchased
|
|
per share
|
|
plans or programs
|
|
plans or program(1)
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 1 October 31
|
|
|
4,000
|
|
|
$
|
15.85
|
|
|
|
4,000
|
|
|
|
170,044
|
|
November 1 November 30
|
|
|
30,400
|
|
|
$
|
15.87
|
|
|
|
30,400
|
|
|
|
139,644
|
|
December 1 December 31
|
|
None
|
|
|
|
|
|
None
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fourth quarter
|
|
|
34,400
|
|
|
$
|
15.87
|
|
|
|
34,400
|
|
|
|
139,644
|
|
|
|
|
(1)
|
|
On April 26, 2007, the Company announced a common stock repurchase program to repurchase up to
230,000 shares. The Company has placed no deadline on the duration of the repurchase program.
There were no shares purchased other than through this publicly announced plan or program.
|
12
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
FINANCIAL HIGHLIGHTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
(Dollars in Thousands, Except Per Share Data)
,
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
621,651
|
|
|
$
|
542,965
|
|
|
$
|
521,800
|
|
|
$
|
518,477
|
|
|
$
|
466,108
|
|
Loans, gross
|
|
|
358,113
|
|
|
|
288,163
|
|
|
|
234,611
|
|
|
|
232,810
|
|
|
|
211,503
|
|
Allowance for loan losses
|
|
|
4,810
|
|
|
|
4,309
|
|
|
|
4,126
|
|
|
|
4,140
|
|
|
|
4,220
|
|
Federal funds sold
|
|
|
56
|
|
|
|
11,871
|
|
|
|
198
|
|
|
|
209
|
|
|
|
889
|
|
Investment securities
|
|
|
230,596
|
|
|
|
218,682
|
|
|
|
260,046
|
|
|
|
263,303
|
|
|
|
232,878
|
|
Deposits
|
|
|
322,083
|
|
|
|
295,662
|
|
|
|
303,087
|
|
|
|
299,106
|
|
|
|
272,540
|
|
Borrowed funds
|
|
|
235,351
|
|
|
|
184,782
|
|
|
|
153,380
|
|
|
|
157,263
|
|
|
|
133,352
|
|
Stockholders equity
|
|
|
60,298
|
|
|
|
58,531
|
|
|
|
59,922
|
|
|
|
57,838
|
|
|
|
55,002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
Operating Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
$
|
35,008
|
|
|
$
|
28,956
|
|
|
$
|
25,558
|
|
|
$
|
22,331
|
|
|
$
|
21,334
|
|
Interest expense
|
|
|
19,681
|
|
|
|
15,160
|
|
|
|
11,638
|
|
|
|
8,520
|
|
|
|
8,977
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
15,327
|
|
|
|
13,796
|
|
|
|
13,920
|
|
|
|
13,811
|
|
|
|
12,357
|
|
Provision (credit) for loan losses
|
|
|
645
|
|
|
|
160
|
|
|
|
|
|
|
|
(300
|
)
|
|
|
|
|
Losses on sales of investment securities
|
|
|
|
|
|
|
(2,417
|
)
|
|
|
|
|
|
|
|
|
|
|
(14
|
)
|
Gains on pension plan termination
|
|
|
762
|
|
|
|
602
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other non-interest income
|
|
|
1,922
|
|
|
|
1,410
|
|
|
|
1,555
|
|
|
|
1,553
|
|
|
|
1,622
|
|
Lawsuit judgment collected
|
|
|
|
|
|
|
|
|
|
|
2,233
|
|
|
|
2,280
|
|
|
|
1,996
|
|
Salaries and employee benefits expense
|
|
|
6,836
|
|
|
|
7,399
|
|
|
|
6,899
|
|
|
|
6,507
|
|
|
|
5,923
|
|
Other non-interest expense
|
|
|
4,721
|
|
|
|
5,621
|
|
|
|
4,245
|
|
|
|
4,157
|
|
|
|
3,815
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
5,809
|
|
|
|
211
|
|
|
|
6,564
|
|
|
|
7,280
|
|
|
|
6,223
|
|
Income tax expense
|
|
|
2,091
|
|
|
|
85
|
|
|
|
2,407
|
|
|
|
2,600
|
|
|
|
2,087
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
3,718
|
|
|
$
|
126
|
|
|
$
|
4,157
|
|
|
$
|
4,680
|
|
|
$
|
4,136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
0.81
|
|
|
$
|
0.03
|
|
|
$
|
0.94
|
|
|
$
|
1.09
|
|
|
$
|
0.98
|
|
Diluted earnings per share
|
|
$
|
0.81
|
|
|
$
|
0.03
|
|
|
$
|
0.92
|
|
|
$
|
1.05
|
|
|
$
|
0.94
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At or for the year ended December 31,
|
|
2007
|
|
2006
|
|
2005
|
|
2004
|
|
2003
|
Other Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Efficiency ratio
|
|
|
67.00
|
%
|
|
|
85.66
|
%
|
|
|
72.19
|
%
|
|
|
69.72
|
%
|
|
|
72.07
|
%
|
Interest rate spread
|
|
|
2.19
|
%
|
|
|
2.22
|
%
|
|
|
2.34
|
%
|
|
|
2.64
|
%
|
|
|
2.57
|
%
|
Net interest margin on average earning
assets
|
|
|
2.72
|
|
|
|
2.68
|
|
|
|
2.66
|
|
|
|
2.91
|
|
|
|
2.90
|
|
Return on average assets (net income /
average assets)
|
|
|
0.64
|
|
|
|
0.02
|
|
|
|
0.77
|
|
|
|
0.96
|
|
|
|
0.94
|
|
Return on average equity (net income /
average stockholders equity)
|
|
|
6.35
|
|
|
|
0.22
|
|
|
|
7.14
|
|
|
|
8.33
|
|
|
|
7.76
|
|
Dividend payout ratio (dividends declared per
share divided by diluted earnings per share)
|
|
|
69.14
|
|
|
|
n/m
|
|
|
|
60.87
|
|
|
|
49.52
|
|
|
|
51.06
|
|
Average stockholders equity to average
assets ratio
|
|
|
10.10
|
|
|
|
10.80
|
|
|
|
10.81
|
|
|
|
11.53
|
|
|
|
12.16
|
|
Cash dividends declared and paid per
common share
|
|
$
|
0.56
|
|
|
$
|
0.56
|
|
|
$
|
0.56
|
|
|
$
|
0.52
|
|
|
$
|
0.48
|
|
Book value per share at year end
|
|
|
13.35
|
|
|
|
12.74
|
|
|
|
13.42
|
|
|
|
13.33
|
|
|
|
12.99
|
|
Tangible book value per share at year end
(excludes accumulated other comprehensive
income/loss)
|
|
|
13.26
|
|
|
|
13.05
|
|
|
|
13.58
|
|
|
|
13.43
|
|
|
|
12.98
|
|
Market value per share
|
|
|
16.00
|
|
|
|
16.57
|
|
|
|
17.35
|
|
|
|
18.52
|
|
|
|
17.31
|
|
13
ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION
FORWARD-LOOKING STATEMENTS AND FACTORS WHICH MAY AFFECT FUTURE RESULTS
Certain statements in this Managements Discussion and Analysis are forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934 and are made based upon, among other things, the Companys current
assumptions, expectations and beliefs concerning future developments and their potential effect on
the Company. Additional information regarding the treatment of forward-looking statements is
included at the beginning of Part 1 above.
OVERVIEW
The Companys financial results are dependent on the following areas of the income statement: net
interest income, provision for loan losses, non-interest income, non-interest expense and provision
for income taxes. Net interest income is the primary earnings of the Company and the main focus of
management. Net interest income is the difference between interest earned on loans and investment
securities and interest paid on deposits and borrowings. Deposits and borrowings have short
durations and the cost of these funds do not rise and fall in tandem with earnings on loans and
investment securities. There are many risks involved in managing net interest income including but
not limited to credit risk, interest rate risk and duration risk. These risks have a direct impact
on the level of net interest income. The Company manages these risks through credit review by an
outside firm and regular meetings of its Asset and Liability Management Committee (ALCO). The
credit review process reviews loans for underwriting and grading of loan quality while ALCO reviews
liquidity, interest rate risk and capital resources. Loan quality has a direct impact on the amount
of provisions for loan losses the Company reports.
Non-interest income includes net gains or losses on sales of investment securities and various
fees. Customers loan and deposit accounts generate various amounts of fee income depending on the
product selected. The Company receives fee income from servicing loans that were sold in previous
periods. Non-interest income is primarily impacted by the volume of customers transactions, which
could change in response to changes in interest rates, pricing and competition.
Non-interest expenses include salaries and employee benefits, occupancy and equipment,
professional, data processing and other expenses of the Company, which generally are directly
related to business volume and are managed by a budget process.
Provisions for income taxes are directly related to earnings of the Company. Changes in the
statutory tax rates and the earnings of the Company, the Bank and its subsidiaries, as well as the
mix of earnings among the different entities would affect the amount of income tax expense reported
and the overall effective income tax rate recorded.
For the past several years, short-term market interest rates (which are used as a general guide in
pricing deposits) have increased while longer-term market interest rates (which are used to
benchmark the pricing on loans) have not changed by similar amounts. While the Bank has had
success in changing the mix of the asset structure into higher yielding commercial real estate and
construction loans and away from lower yielding investments, it is still challenged in generating
deposit balances, and in particular, lower costing core deposit accounts. This compression is felt
throughout the banking industry, but the Company is particularly vulnerable since a relatively
large portion of its earning assets are funded by wholesale borrowings. The Company is committed
to maintaining its current strategy of improving the overall yield of the assets while carefully
managing its cost of funds to the best of its abilities.
Lastly, there are areas of the consolidated financial statements where significant estimates or
assumptions are used and include the provision and allowance for loan losses, the provision for
income taxes, and the impairment of investment securities. These areas are considered as the
Companys Critical Accounting Policies. Management regularly monitors the application of the
Companys Critical Accounting Policies in relation to the nature and impact of these estimates and
assumptions on earnings. The Critical Accounting Policies are discussed below.
CRITICAL ACCOUNTING POLICIES
Critical accounting policies are defined as those policies that involve significant judgments and
uncertainties, and could potentially result in materially different results under different
assumptions and conditions. The preparation of the financial statements requires management to
make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues
and expenses and related disclosure of contingent assets and liabilities. On an ongoing basis,
management evaluates its estimates, including those related to the allowance for loan losses,
income taxes and impairment of securities. Actual results could differ from the amount derived
from managements estimates and assumptions using different conditions. The Companys critical
accounting policies are as follows:
ALLOWANCE FOR LOAN LOSSES
The allowance balance reflects managements assessment of losses and is based on a review of the
risk characteristics of the loan portfolio. The Company considers many factors in determining the
adequacy of the allowance for loan losses. Collateral value on a
14
loan-by-loan basis, trends of loan delinquencies on a portfolio segment level, risk classification
identified in the Companys regular review of individual loans, and economic conditions are primary
factors in establishing the allowance. The allowance for loan losses reflects all information
available at the end of the year. The allowance is increased by provisions for loan losses, which
are a charge to the income statement, and by recoveries on loans previously charged-off. The
allowance is reduced by loans charged-off and by negative (credit) provisions to the allowance. For
a further discussion of the Companys methodology of assessing the adequacy of the allowance for
loan losses, see Managements Discussion and Analysis of Financial Condition and Results of
Operations and Note 1 to the Consolidated Financial Statements for more details on establishing the
allowance for loan losses.
INCOME TAXES
Deferred tax assets and liabilities are recognized for estimated future tax consequences
attributable to differences between the financial statement carrying amounts of existing assets and
liabilities and their respective tax basis. Deferred assets and liabilities are measured using
enacted tax rates in effect for the year in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the enactment date. Deferred tax valuation
allowances are established and based on managements judgment as to whether it is more likely than
not that all or some portion of the future tax benefits of prior operating losses will be realized.
For example, a deferred tax valuation allowance is required to reduce the potential deferred tax
asset when it is more likely than not that all or some portion of the potential deferred tax asset
will not be realized due to the lack of sufficient taxable income in the carry-forward period.
Factors beyond managements control, such as the general state of the economy and real estate
values, can affect future levels of taxable income and no assurance can be given that sufficient
taxable income will be generated to fully absorb gross deductible temporary differences.
For a further discussion on income taxes, see Results of Operations Income Taxes, below and Notes
1 & 8 to the Consolidated Financial Statements.
INVESTMENT SECURITIES
The measurement of the impairment of the securities portfolio requires an evaluation process that
considers both the historical and current financial performance and environment of the security,
credit worthiness of the issuer, and potential recovery measures of each impaired investment.
Management periodically reviews all securities to identify those that show signs of impairment.
Once identified, these securities are monitored and evaluated based upon the above considerations
and if the decline in fair value is below the cost basis of an investment and is judged to be
other-than-temporary, the cost basis is written down to the current fair value and the amount of
the write-down is included in the results of operations. For a further discussion on investment
securities, see Financial Condition of Investment Securities, below and Notes 1 & 2 to the
Consolidated Financial Statements.
FINANCIAL CONDITION
OVERVIEW
Total assets increased to $621.7 million at December 31, 2007 up from $543.0 million at December
31, 2006. The increase in asset size is mainly attributable to strong loan growth since year end
2006 of $70.0 million, an increase of $11.9 million in investment securities available for sale
portfolio and the purchase of Bank-owned life insurance (BOLI) amounting to $10.2 million,
partially offset by a decrease of $11.8 million federal funds sold. The funding of the loan growth
was derived from an increase of $50.6 million in total borrowed funds coupled with an increase in
deposits by $26.4 million from 2006.
INTEREST EARNING ASSETS
The Company manages its earning assets by utilizing available capital resources in a manner
consistent with the Companys credit, investment and leverage policies. Loans, U.S. Treasury and
government-sponsored enterprise obligations, mortgage-backed securities, other investment
securities, and short-term investments comprise the Companys earning assets. Total earning assets
averaged $562.5 million in 2007, an increase of $47.9 million or 9.3% from 2006.
One of the Companys primary objectives continues to be the origination of loans that are soundly
underwritten and collateralized. The Companys average loan portfolios increased $72.6 million in
2007 to $326.1 million.
The Company increases the investment portfolio through funds obtained from depositors, the FHLBB,
repurchase agreements and other borrowings when it is profitable to do so. The average balance of
investment securities, including U.S. Treasury and government-sponsored enterprise obligations,
mortgage-backed securities, other bonds and equity securities, and short-term investments amounted
to $236.4 million in 2007 as compared to $261.1 million in 2006. These securities represent 40.8%
of the Companys total average assets at December 31, 2007 versus 49.3% of total average assets at
December 31, 2006.
INVESTMENT SECURITIES
The investment portfolio totaled $230.6 million and $218.7 million, respectively, at December 31,
2007 and 2006, reflecting an increase of $11.9 million or 5.4% in 2007. During 2007, the largest
increase of $39.0 million was in mortgage-backed securities.
15
Also experiencing an increase was equity securities of $5.1 million. Partially offsetting these
increases were decreases in government-sponsored enterprises, collateralized mortgage obligations,
and corporate obligations, decreasing $18.5 million, $11.4 million, and $1.5 million, respectively.
The change in mix in the investment securities portfolio for 2006 was primarily due to the second
quarter 2006 balance sheet restructuring, with most of the sales coming from government-sponsored
enterprise and collateralized mortgage obligations (CMOs), partially offset by purchases of
mortgage-backed securities (MBSs) and, to a lesser extent, corporate bonds. The balance sheet
restructuring resulted in the sale of $78.5 million of low-yielding investments were sold at a
pre-tax loss of $2.4 million and $50 million of the proceeds were reinvested in higher yielding
securities. For more information on investment securities, see Note 2 of the Consolidated Financial
Statements.
The fair value and percentage distribution of investment securities available for sale at December
31, follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
(Dollars in Thousands)
|
|
Amount
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
U. S. Treasury bonds
|
|
$
|
5,541
|
|
|
|
2.4
|
%
|
|
$
|
5,214
|
|
|
|
2.4
|
%
|
|
$
|
4,769
|
|
|
|
10.3
|
%
|
Government-sponsored enterprise
obligations
|
|
|
15,810
|
|
|
|
6.9
|
%
|
|
|
35,190
|
|
|
|
16.1
|
%
|
|
|
9,667
|
|
|
|
20.9
|
%
|
Mortgage-backed securities
|
|
|
136,703
|
|
|
|
59.3
|
%
|
|
|
97,898
|
|
|
|
44.8
|
%
|
|
|
3,364
|
|
|
|
7.3
|
%
|
Collateralized mortgage obligations
|
|
|
60,147
|
|
|
|
26.1
|
%
|
|
|
71,555
|
|
|
|
32.7
|
%
|
|
|
24,329
|
|
|
|
52.3
|
%
|
Corporate obligations
|
|
|
5,820
|
|
|
|
2.5
|
%
|
|
|
7,364
|
|
|
|
3.4
|
%
|
|
|
3,046
|
|
|
|
6.6
|
%
|
Mutual funds
|
|
|
959
|
|
|
|
0.4
|
%
|
|
|
947
|
|
|
|
0.4
|
%
|
|
|
955
|
|
|
|
2.1
|
%
|
Equity securities
|
|
|
5,616
|
|
|
|
2.4
|
%
|
|
|
514
|
|
|
|
0.2
|
%
|
|
|
233
|
|
|
|
0.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
230,596
|
|
|
|
100.0
|
%
|
|
$
|
218,682
|
|
|
|
100.0
|
%
|
|
$
|
46,363
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amortized cost and percentage distribution of investment securities held to maturity at
December 31, 2005 follow:
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
Amount
|
|
|
Percent
|
|
Government-sponsored enterprise
obligations
|
|
$
|
87,017
|
|
|
|
40.7
|
%
|
Mortgage-backed securities
|
|
|
43,701
|
|
|
|
20.5
|
%
|
Collateralized mortgage obligations
|
|
|
70,415
|
|
|
|
32.9
|
%
|
Corporate obligations
|
|
|
11,024
|
|
|
|
5.2
|
%
|
Municipal obligations
|
|
|
1,526
|
|
|
|
0.7
|
%
|
|
|
|
|
|
|
|
Total
|
|
$
|
213,683
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
The maturities and weighted average yields using the fair value of investment securities available
for sale at December 31, 2007, follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within
|
|
|
Weighted
|
|
|
One to
|
|
|
Weighted
|
|
|
Five
|
|
|
Weighted
|
|
|
Over
|
|
|
|
|
|
|
|
|
|
|
|
|
One
|
|
|
Average
|
|
|
Five
|
|
|
Average
|
|
|
to Ten
|
|
|
Average
|
|
|
Ten
|
|
|
Average
|
|
|
Average
|
|
|
|
|
(Dollars in Thousands)
|
|
Year
|
|
|
Yield
|
|
|
Years
|
|
|
Yield
|
|
|
Years
|
|
|
Yield
|
|
|
Years
|
|
|
Yield
|
|
|
Total
|
|
|
Yield
|
|
U. S. Treasury bonds and
government-sponsored
enterprise obligations
|
|
$
|
5,474
|
|
|
|
5.19
|
%
|
|
$
|
10,841
|
|
|
|
4.20
|
%
|
|
$
|
5,036
|
|
|
|
3.26
|
%
|
|
$
|
|
|
|
|
|
%
|
|
$
|
21,351
|
|
|
|
4.22
|
%
|
Mortgage-backed
securities
|
|
|
|
|
|
|
|
%
|
|
|
5,580
|
|
|
|
4.02
|
%
|
|
|
13,863
|
|
|
|
3.77
|
%
|
|
|
117,260
|
|
|
|
5.87
|
%
|
|
|
136,703
|
|
|
|
5.57
|
%
|
Collateralized mortgage
obligations
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
%
|
|
|
11,157
|
|
|
|
4.18
|
%
|
|
|
48,990
|
|
|
|
4.49
|
%
|
|
|
60,147
|
|
|
|
4.43
|
%
|
Corporate obligations
|
|
|
|
|
|
|
|
%
|
|
|
5,820
|
|
|
|
5.48
|
%
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
%
|
|
|
5,820
|
|
|
|
5.48
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,474
|
|
|
|
5.19
|
%
|
|
$
|
22,241
|
|
|
|
4.50
|
%
|
|
$
|
30,056
|
|
|
|
3.84
|
%
|
|
$
|
166,250
|
|
|
|
5.46
|
%
|
|
$
|
224,021
|
|
|
|
5.13
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
LOANS
Total loans at December 31, 2007 and 2006 amounted to $358.1 million and $288.2 million,
respectively, reflecting an increase of $70.0 million or 24.3% in 2007. Corporate loans increased
$57.3 million or 29.1% during 2007. Commercial real estate loans increased $35.1 million or 24.6%
and commercial and construction loans increased $17.6 million or 161.9% and $4.6 million or 10.6%,
respectively. Retail loans increased $12.6 million or 13.8%. Residential real estate loans and
home equity loans increased $9.9 million or 14.1% and $2.7 million or 13.3%, respectively, while
consumer loans increased modestly. The Company believes that the increase in the portfolios was
primarily due to customers taking advantage of the low interest rate environment. For more
information on loans, see Item 7A Quantitative and Qualitative Disclosures About Market Risk,
Interest Rate Sensitivity and Note 4 to the Consolidated Financial Statements.
The components of the loan portfolio at December 31, follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
(Dollars in Thousands)
|
|
Balance
|
|
|
Percent
|
|
|
Balance
|
|
|
Percent
|
|
|
Balance
|
|
|
Percent
|
|
|
Balance
|
|
|
Percent
|
|
|
Balance
|
|
Percent
|
|
Residential real estate
loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate
|
|
$
|
49,513
|
|
|
|
13.8
|
%
|
|
$
|
39,076
|
|
|
|
13.5
|
%
|
|
$
|
34,028
|
|
|
|
14.5
|
%
|
|
$
|
33,061
|
|
|
|
14.2
|
%
|
|
$
|
33,059
|
|
|
|
15.7
|
%
|
Adjustable rate
|
|
|
30,230
|
|
|
|
8.4
|
|
|
|
30,800
|
|
|
|
10.7
|
|
|
|
28,159
|
|
|
|
12.0
|
|
|
|
26,996
|
|
|
|
11.6
|
|
|
|
23,958
|
|
|
|
11.3
|
|
Loans held for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
472
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
338
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
79,743
|
|
|
|
22.2
|
|
|
|
69,876
|
|
|
|
24.2
|
|
|
|
62,659
|
|
|
|
26.7
|
|
|
|
60,057
|
|
|
|
25.8
|
|
|
|
57,355
|
|
|
|
27.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate
|
|
|
13,821
|
|
|
|
3.9
|
|
|
|
11,170
|
|
|
|
3.9
|
|
|
|
3,592
|
|
|
|
1.5
|
|
|
|
3,535
|
|
|
|
1.5
|
|
|
|
5,882
|
|
|
|
2.7
|
|
Adjustable rate
|
|
|
9,225
|
|
|
|
2.6
|
|
|
|
9,169
|
|
|
|
3.2
|
|
|
|
6,820
|
|
|
|
2.9
|
|
|
|
5,334
|
|
|
|
2.3
|
|
|
|
4,354
|
|
|
|
2.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,046
|
|
|
|
6.5
|
|
|
|
20,339
|
|
|
|
7.1
|
|
|
|
10,412
|
|
|
|
4.4
|
|
|
|
8,869
|
|
|
|
3.8
|
|
|
|
10,236
|
|
|
|
4.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer loans
|
|
|
1,007
|
|
|
|
0.3
|
|
|
|
975
|
|
|
|
0.3
|
|
|
|
468
|
|
|
|
0.2
|
|
|
|
699
|
|
|
|
0.3
|
|
|
|
564
|
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total retail loans
|
|
|
103,796
|
|
|
|
29.0
|
|
|
|
91,190
|
|
|
|
31.6
|
|
|
|
73,539
|
|
|
|
31.3
|
|
|
|
69,625
|
|
|
|
29.9
|
|
|
|
68,155
|
|
|
|
32.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction loans
|
|
|
47,885
|
|
|
|
13.4
|
|
|
|
43,283
|
|
|
|
15.0
|
|
|
|
24,137
|
|
|
|
10.3
|
|
|
|
15,211
|
|
|
|
6.5
|
|
|
|
16,040
|
|
|
|
7.6
|
|
Commercial
real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate
|
|
|
33,920
|
|
|
|
9.5
|
|
|
|
17,434
|
|
|
|
6.1
|
|
|
|
14,793
|
|
|
|
6.3
|
|
|
|
18,629
|
|
|
|
8.0
|
|
|
|
16,508
|
|
|
|
7.8
|
|
Adjustable rate
|
|
|
144,048
|
|
|
|
40.2
|
|
|
|
125,386
|
|
|
|
43.5
|
|
|
|
112,824
|
|
|
|
48.1
|
|
|
|
112,976
|
|
|
|
48.5
|
|
|
|
95,995
|
|
|
|
45.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
177,968
|
|
|
|
49.7
|
|
|
|
142,820
|
|
|
|
49.6
|
|
|
|
127,617
|
|
|
|
54.4
|
|
|
|
131,605
|
|
|
|
56.5
|
|
|
|
112,503
|
|
|
|
53.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial loans
|
|
|
28,464
|
|
|
|
7.9
|
|
|
|
10,870
|
|
|
|
3.8
|
|
|
|
9,318
|
|
|
|
4.0
|
|
|
|
16,369
|
|
|
|
7.1
|
|
|
|
14,805
|
|
|
|
7.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total corporate loans
|
|
|
254,317
|
|
|
|
71.0
|
|
|
|
196,973
|
|
|
|
68.4
|
|
|
|
161,072
|
|
|
|
68.7
|
|
|
|
163,185
|
|
|
|
70.1
|
|
|
|
143,348
|
|
|
|
67.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
|
358,113
|
|
|
|
100.0
|
%
|
|
|
288,163
|
|
|
|
100.0
|
%
|
|
|
234,611
|
|
|
|
100.0
|
%
|
|
|
232,810
|
|
|
|
100.0
|
%
|
|
|
211,503
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
|
4,810
|
|
|
|
|
|
|
|
4,309
|
|
|
|
|
|
|
|
4,126
|
|
|
|
|
|
|
|
4,140
|
|
|
|
|
|
|
|
4,220
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, net
|
|
$
|
353,303
|
|
|
|
|
|
|
$
|
283,854
|
|
|
|
|
|
|
$
|
230,485
|
|
|
|
|
|
|
$
|
228,670
|
|
|
|
|
|
|
$
|
207,283
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The maturity distribution for construction and commercial loans at December 31, 2007, follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due After
|
|
|
|
|
|
|
|
|
|
Due Within
|
|
|
One Through
|
|
|
Due After
|
|
|
|
|
(In Thousands)
|
|
One Year
|
|
|
Five Years
|
|
|
Five Years
|
|
|
Total
|
|
Construction
|
|
$
|
22,133
|
|
|
$
|
17,777
|
|
|
$
|
7,975
|
|
|
$
|
47,885
|
|
Commercial
|
|
|
15,903
|
|
|
|
6,310
|
|
|
|
6,251
|
|
|
|
28,464
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
38,036
|
|
|
$
|
24,087
|
|
|
$
|
14,226
|
|
|
$
|
76,349
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Of construction loans and commercial loans maturing more than one year after December 31, 2007,
$5.0 million have fixed rates and $33.3 million have floating or variable rates.
At December 31, 2007, the Bank had commercial loan balances participated out to various banks
amounting to $8.2 million, compared to $2.9 million at December 31, 2006. These balances
participated out to other institutions are not carried as assets on the Companys financial
statements. Loans originated by other banks in which the Bank is the participating institution are
carried at the Banks pro rata share of ownership and amounted to $14.0 million, respectively, at
December 31, 2007 and December 31, 2006. The Bank performs an independent credit analysis of each
commitment prior to participation in the loan.
17
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is maintained through the provision for loan losses which is a charge
to operations. The allowance balance reflects managements assessment of estimated credit losses
inherent in the Banks loan portfolio and is based on a review of the risk characteristics of the
loan portfolio. The Company considers many factors in determining the adequacy of the allowance for
loan losses. Collateral value on a loan-by-loan basis, trends of loan delinquencies on a portfolio
segment level, risk classification identified in the Companys regular review of individual loans,
and economic conditions are primary factors in establishing the allowance. The Company believes
that the allowance for loan losses reflects all information available at the end of each year. The
Company considers the current year end 2007 level of the allowance for loan losses to be
appropriate and adequate. The allowance as a percentage of total loans was 1.34% at December 31,
2007 and 1.50% at December 31, 2006. Notwithstanding the increase in non-performing loans at
December 31, 2007 and December 31, 2006, which were primarily due to a single borrower with
multiple loans with the Bank, the corporate loan portfolio had moderate delinquencies throughout
the year. The low levels of delinquent loans and sustained asset quality of the loan portfolio
combined with the minimal levels of loan charge-offs contributed to the reasonableness of the
allowance coverage to decline to 1.34% as of December 31, 2007. See Note 1 to the Consolidated
Financial Statements for the accounting policy related to the allowance for loan losses.
Impaired loans are commercial, commercial real estate loans and individually significant
residential mortgage loans for which it is probable that the Company will not be able to collect
all amounts due according to the contractual terms of the loan agreement. Impaired loans are not
the same as non-accrual loans, although the two categories overlap. Non-accrual loans include
impaired loans and are those on which the accrual of interest is discontinued when principal or
interest has become contractually past due 90 days. The Company may choose to place a loan on
non-accrual status due to payment delinquency or the uncertainty of collectibility, while not
classifying the loan as impaired, if (i) it is probable that the Company will collect all amounts
due in accordance with the contractual terms of the loan or (ii) the loan is not a commercial or
commercial real estate loan. Factors considered by management in determining impairment include
payment status and collateral value. The amount of impairment is determined by the difference
between the present value of the expected cash flows related to the loan, using the original
contractual interest rate, and its recorded value, or, as a practical expedient in the case of
collateral dependent loans, the difference between the fair value of the collateral and the
recorded amount of the loan. When foreclosure is probable, impairment is based on the fair value of
the collateral.
The level of loan growth during 2007 experienced in all corporate loan categories, combined with
the increase in the levels of total corporate loans in proportion to total loans as well as an
increase in total loan charge-offs resulted in a charge to the provision for loan losses of
$645,000 in the year 2007 compared to a charge to the provision in 2006 in the amount of $160,000.
The Company had net charge-offs of $144,000 in 2007 and net recoveries of $23,000 in 2006.
The following table summarizes changes in the allowance for loan losses for the years ended
December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
Balance at beginning of year
|
|
$
|
4,309
|
|
|
$
|
4,126
|
|
|
$
|
4,140
|
|
|
$
|
4,220
|
|
|
$
|
4,167
|
|
Charge-offs by loan type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(25
|
)
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
|
(121
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
(36
|
)
|
|
|
(30
|
)
|
|
|
(25
|
)
|
|
|
(20
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total charge-offs
|
|
|
(157
|
)
|
|
|
(30
|
)
|
|
|
(25
|
)
|
|
|
(45
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recoveries by loan type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
|
3
|
|
|
|
32
|
|
|
|
2
|
|
|
|
254
|
|
|
|
16
|
|
Consumer
|
|
|
10
|
|
|
|
21
|
|
|
|
9
|
|
|
|
11
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recoveries
|
|
|
13
|
|
|
|
53
|
|
|
|
11
|
|
|
|
265
|
|
|
|
53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (charge-offs) recoveries
|
|
|
(144
|
)
|
|
|
23
|
|
|
|
(14
|
)
|
|
|
220
|
|
|
|
53
|
|
Provision (credit) for loan losses
|
|
|
645
|
|
|
|
160
|
|
|
|
|
|
|
|
(300
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
4,810
|
|
|
$
|
4,309
|
|
|
$
|
4,126
|
|
|
$
|
4,140
|
|
|
$
|
4,220
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of net (charge-offs) recoveries to average loans
outstanding during the period
|
|
|
(0.04
|
)%
|
|
|
0.01
|
%
|
|
|
(0.01
|
)%
|
|
|
0.10
|
%
|
|
|
0.02
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance as a % of total loans
|
|
|
1.34
|
%
|
|
|
1.50
|
%
|
|
|
1.76
|
%
|
|
|
1.78
|
%
|
|
|
2.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
The following table sets forth the breakdown of the allowance for loan losses by loan category for
the years ended December 31. The allocation of the allowance to each category is not necessarily
indicative of future losses and does not restrict the use of the allowance to absorb losses in any
category.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
|
Percent
|
|
|
|
|
|
|
Percent
|
|
|
|
|
|
|
Percent
|
|
|
|
|
|
|
Percent
|
|
|
|
|
|
|
Percent
|
|
|
|
|
|
|
|
of loans
|
|
|
|
|
|
|
of loans
|
|
|
|
|
|
|
of loans
|
|
|
|
|
|
|
of loans
|
|
|
|
|
|
|
of loans
|
|
|
|
|
|
|
|
in each
|
|
|
|
|
|
|
in each
|
|
|
|
|
|
|
in each
|
|
|
|
|
|
|
in each
|
|
|
|
|
|
|
in each
|
|
|
|
|
|
|
|
category
|
|
|
|
|
|
|
category
|
|
|
|
|
|
|
category
|
|
|
|
|
|
|
category
|
|
|
|
|
|
|
category
|
|
|
|
|
|
|
|
to total
|
|
|
|
|
|
|
to total
|
|
|
|
|
|
|
to total
|
|
|
|
|
|
|
to total
|
|
|
|
|
|
|
to total
|
|
(Dollars in Thousands)
|
|
Amount
|
|
|
loans
|
|
|
Amount
|
|
|
loans
|
|
|
Amount
|
|
|
loans
|
|
|
Amount
|
|
|
loans
|
|
|
Amount
|
|
|
loans
|
|
Construction, commercial and
commercial real estate
|
|
$
|
4,338
|
|
|
|
71.0
|
%
|
|
$
|
3,606
|
|
|
|
68.4
|
%
|
|
$
|
3,530
|
|
|
|
68.7
|
%
|
|
$
|
3,408
|
|
|
|
70.1
|
%
|
|
$
|
3,175
|
|
|
|
67.7
|
%
|
Residential mortgage and home equity
|
|
|
353
|
|
|
|
28.7
|
|
|
|
297
|
|
|
|
31.3
|
|
|
|
290
|
|
|
|
31.1
|
|
|
|
273
|
|
|
|
29.6
|
|
|
|
270
|
|
|
|
32.0
|
|
Consumer
|
|
|
36
|
|
|
|
0.3
|
|
|
|
39
|
|
|
|
0.3
|
|
|
|
21
|
|
|
|
0.2
|
|
|
|
30
|
|
|
|
0.3
|
|
|
|
26
|
|
|
|
0.3
|
|
Unallocated
|
|
|
83
|
|
|
|
N/A
|
|
|
|
367
|
|
|
|
N/A
|
|
|
|
285
|
|
|
|
N/A
|
|
|
|
429
|
|
|
|
N/A
|
|
|
|
749
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,810
|
|
|
|
100.0
|
%
|
|
$
|
4,309
|
|
|
|
100.0
|
%
|
|
$
|
4,126
|
|
|
|
100.0
|
%
|
|
$
|
4,140
|
|
|
|
100.0
|
%
|
|
$
|
4,220
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In determining the adequacy of the allowance for loan losses, the Company aggregates estimated
credit losses on individual loans, pools of loans and other pools of risk having geographic,
industry or other common exposures where inherent losses are identified or anticipated.
Construction, commercial and commercial real estate loans are reviewed individually for impairment
and are evaluated for collectibility and an allocation is made based on an assessment of the net
realizable value of any collateral. The Company categorizes non-impaired loans into different
pools of risk. Each risk level allocation factor has been determined based upon the Companys
estimate of expected loss for loans with similar credit characteristics based upon historical loss
experience, together with the Companys assessment of economic conditions and other relevant
factors that may have an impact on or may affect repayment of loans in these pools.
Residential mortgages, home equity loans, equity lines of credit, second mortgages and all other
small consumer loans are considered in the aggregate and an allocation factor is assessed based
upon the Companys historical loss experience together with an assessment of future economic
trends, conditions and other relevant factors that may have an impact on repayment of the loans in
these pools.
On a quarterly basis, the Company evaluates all allocation factors for appropriateness, considering
(i) significant changes in the nature and volume of the loan portfolio, (ii) the Companys
assessment of local and national economic business conditions, and (iii) any other relevant factor
that it considers may have an impact on loan portfolio risk.
Based upon these evaluations, changes to the reserve provision may be made to maintain the overall
level of the reserve at a level that the Company deems appropriate and adequate to cover the
estimated credit losses inherent in the Companys loan portfolio.
POTENTIAL PROBLEM LOANS
The Company has a loan review and grading system. During the loan review process, deteriorating
conditions of certain loans are identified in which erosion of the borrowers ability to comply
with the original terms of the loan agreement could potentially result in the future classification
of the loan as a risk asset. This may result from deteriorating conditions such as cash flows,
collateral values or creditworthiness of the borrower. There were no potential problem loans
identified at December 31, 2007 or December 31, 2006 other than those already classified as
non-performing or impaired for the respective periods.
19
RISK ASSETS
Risk assets consist of non-performing loans, OREO, and restructured loans. The following paragraphs
define each of these categories. The components of risk assets at December 31, follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
Risk assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-performing loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate
|
|
$
|
281
|
|
|
$
|
37
|
|
|
$
|
32
|
|
|
$
|
|
|
|
$
|
|
|
Commercial real estate
|
|
|
1,242
|
|
|
|
1,020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing loans
|
|
|
1,523
|
|
|
|
1,057
|
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other real estate owned:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34
|
|
|
|
47
|
|
OREO valuation allowance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(34
|
)
|
|
|
(45
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other real estate owned
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total risk assets
|
|
$
|
1,523
|
|
|
$
|
1,057
|
|
|
$
|
32
|
|
|
$
|
|
|
|
$
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk assets as a percent of total loans and OREO
|
|
|
0.4
|
%
|
|
|
0.4
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk assets as a percent of total assets
|
|
|
0.2
|
%
|
|
|
0.2
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-performing loans consist of both (i) loans 90 days or more past due, and (ii) loans placed on a
non-accrual status because full collection of the principal balance is in doubt. Non-performing
loans at December 31, 2007 and 2006 were $1.5 million and $1.1 million, respectively. Impaired
loans at December 31, 2007 and 2006 were $1.5 million and $1.0 million, respectively.
The Company actively monitors risk assets. The Company attempts to work with delinquent borrowers
in order to bring loans current. If the borrower is not able to bring the loan current, the Company
commences collection efforts. Valuation of property at foreclosure, and periodically thereafter, is
based upon appraisals and managements best estimates of fair value less selling costs. The
Companys policy is to sell such property as quickly as possible at fair value.
INTEREST BEARING LIABILITIES
The Companys earning assets are primarily funded with deposits, securities sold under agreements
to repurchase, FHLBB advances and stockholders equity. The Company manages its interest bearing
liabilities to maintain a stable source of funds while providing competitively priced deposit
accounts. Interest bearing deposits include regular savings accounts, NOW and Super NOW accounts,
money market accounts, and certificates of deposit. Another source of funds is brokered
certificates of deposit.
In 2007 total average interest bearing liabilities were $488.1 million which was a $44.2 million or
9.9% decrease from $444.0 million in 2006. Average total interest bearing deposits of $283.7
million comprised 58.1% of interest bearing liabilities in 2007 while in 2006 such deposits
totaling $278.6 million comprised 62.7% of interest bearing liabilities.
Changing interest rates can affect the mix and level of various deposit categories. The higher
average interest rate paid on certificates of deposit and money market accounts had an impact on
the overall interest rate paid on deposits and caused an increase of 92 basis points in 2007 and 87
basis points in 2006 from the prior year. The average balance of money market investment accounts
decreased by $2.7 million to $74.5 million in 2007, and decreased by $3.2 million to $77.1 million
in 2006 from the prior year. The average balance of NOW and Super NOW accounts decreased by $9.9
million to $18.0 million in 2007 and decreased by $10.7 million to $27.9 million in 2006 from the
prior year. Savings accounts decreased by $7.1 million to $30.9 million in 2007 and decreased by
$6.6 to $38.1 million in 2006 from the prior year. The average balance of certificates of deposit
increased by $24.8 million to $160.3 million in 2007 and increased by $13.0 million to $135.5
million in 2006 from the prior year.
Average borrowed funds in 2007, 2006 and 2005 were $204.4 million, $165.4 million and $171.6
million, respectively, including advances from the FHLB and other borrowed funds. The increase of
$39.0 million in 2007 resulted from an increase in borrowings to fund the continued strong loan
growth during 2007. The decrease of $6.2 million in 2006 resulted from the paydown of borrowed
funds as they matured.
DEPOSITS
Total deposits increased $26.4 million or 8.9% during 2007 to $322.1 million at December 31, 2007
from $295.7 million at December 31, 2006. Certificates of deposit had the largest increase of
$32.6 million or 23.3% from the prior year. Also increasing were money market investment accounts
by $1.5 million in 2007 and NOW accounts by $170,000. These increases were partially offset by
decreases in savings accounts of $5.2 million or 15.5%, and demand deposits of $2.6 million. For
more information, see Note 6 to the
Consolidated Financial Statements.
20
BORROWED FUNDS
Total borrowed funds increased $50.6 million or 27.4% during 2007 to $235.4 million at December 31,
2007, from $184.8 million at December 31, 2006. Long-term FHLBB advances totaled $202.4 million in
2007 versus $143.5 million in 2006, an increase of $58.9 million due to utilization of available
credit in a low interest rate environment. Long-term wholesale repurchase agreements totaled $25.0
million in 2007. There were no wholesale repurchase agreements in 2006.
Short-term borrowed funds are comprised of FHLBB Ideal Way advances totaling $800,000 in 2007,
FHLBB short-term advances which totaled $36.0 million at December 31, 2006, customer repurchase
agreements which totaled $7.2 million and $5.3 million, respectively, in 2007 and 2006. See Note 7
to the Consolidated Financial Statements for further information on the long-term and short-term
borrowings.
RESULTS OF OPERATIONS
OVERVIEW
The Companys net earnings amounted to $3.7 million or $0.81 diluted earnings per share, $126,000
or $0.03 diluted earnings per share and $4.2 million or $0.92 diluted earnings per share for the
years ended December 31, 2007, 2006 and 2005, respectively. In 2007, the Company recorded the
final settlement gain of $762,000 in connection with the pension plan termination, recorded a
provision for loan losses of $645,000 due to continued corporate loan growth and also recorded
$200,000 in increases to cash surrender value of the BOLI purchased during 2007. Non-interest
expenses declined by $1.5 million in 2007.
During 2006, the Company undertook a balance sheet restructuring whereby $80 million of investments
were sold at a loss of $2.4 million (after tax $1.6 million). These investment securities had an
average yield of 3.30%, an average life of 2 years and represented almost 30% of the investment
portfolio. Approximately $50 million of the proceeds were reinvested in securities yielding 5.7%
with and average life of 4.2 years. In 2006, the Company incurred $522,000 in costs related to the
name change of its subsidiary bank to River Bank and $780,000 in costs related to severance
payments to former employees. The Company also terminated its defined benefit plan in 2006, which
resulted in a $602,000 curtailment gain as future pension benefit obligations ceased. In 2005, the
Company reported the Banks receipt of a final distribution of $2.2 million (after tax $1.3
million) from the bankruptcy proceeding of a debtor. The diluted earnings per share impact of the
final distribution was approximately $0.29 per share based on average diluted shares outstanding at
December 31, 2005. The $2.2 million final distribution was recorded as lawsuit judgment collected
and included in non-interest income for the year ended December 31, 2005.
The Companys net interest income, which is the difference between interest earned on assets and
interest paid on liabilities, totaled $15.3 million in 2007, $13.8 million in 2006 and $13.9
million in 2005. The increase in 2007 versus 2006 can be attributed to higher average volumes of
loans and investment securities. These increases to net interest income were negatively impacted
by higher rates paid on deposits, chiefly certificates of deposit, coupled with a rise in
certificates of deposit average volumes and average volumes of borrowed funds. The decrease in
2006 versus 2005 can be attributed to higher costs of deposits and borrowed funds. Net interest
income was positively impacted by higher yields on loans and investment securities. These increases
to net interest income were negatively impacted by higher rates paid on deposits and borrowed
funds. The Companys net interest margin was 2.72% in 2007 versus 2.68% and 2.66% in 2006 and
2005, respectively. The increase in 2006 was primarily due to higher yields on interest bearing
assets.
The Bank recorded a provision for loan losses of $645,000 and $160,000 in 2007 and 2006,
respectively. The Bank made no provision in 2005 due to the low level of risk assets and minimal
delinquent loans and lack of loan growth.
Non-interest income amounted to $2.7 million in 2007 compared to non-interest loss of $405,000 in
2006 and non-interest income of $3.8 million in 2005. Excluding the loss on sale of investments,
curtailment gains and the lawsuit judgment collected noted above, non-interest income increased to
$1.9 million in 2007 while decreasing slightly to $1.4 million in 2006 compared to $1.6 million for
the year ended 2005.
Non-interest expense totaled $11.6 million in 2007, $13.0 million in 2006 and $11.1 million in
2005. The decrease in 2007 resulted from a decline in salaries and employee benefits of $563,000
due to a reduction in head count. The increase in 2006 is attributed to an increase in salaries
and employee benefits expenses of $500,000 which included severance payments related to former
employees. Occupancy and equipment expenses decreased $148,000 in 2007 due to a decrease in
repairs and maintenance of $162,000 partially offset by an increase of $20,000 in utilities
compared to an increase of $425,000 in 2006 and included repair costs related to the flood at the
Banks headquarters, net of insurance. Data processing expenses decreased by $17,000 and included
a decrease of $60,000 in maintenance partially offset by an increase of $30,000 in computer
software license fees. Professional fees decreased in 2007 due to decreased consulting expenses
and tax preparation expenses. Other non-interest expenses decreased by $601,000 due to the lack of
costs associated with the name change of the Companys subsidiary bank to River Bank incurred in
2006.
21
The Company recognized income tax expense of $2.1 million in 2007, $85,000 in 2006 and $2.4 million
in 2005. The effective tax rates for each of the years ended December 31 were 36.0% in 2007, 40.3%
in 2006 and 36.7% in 2005. The decrease in the effective tax rate during 2007 was the result of
permanent differences such as officers life insurance and tax exempt municipal income which can
have an impact on the effective income tax rate as it relates to pre-tax income. Additionally, the
subsidiaries within the consolidated group pay various state income tax rates and the mix of
taxable income within the group can change. The decrease in the income tax expense during 2006 was
the result of a decrease in pre-tax income of $6.4 million, while the increase in the effective
income tax rate for 2006 was due to the curtailment gain on the termination of the pension taxed at
a higher rate.
AVERAGE BALANCES, NET INTEREST INCOME AND AVERAGE INTEREST RATES
The table below presents the Companys average balance sheet, net interest income and average
interest rates for the years ended December 31. Average loans include non-performing loans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
Average
|
|
|
|
|
|
|
Interest
|
|
|
Average
|
|
|
|
|
|
|
Interest
|
|
|
Average
|
|
|
|
|
|
|
Interest
|
|
|
|
Balance
|
|
|
Interest
|
|
|
Rate
|
|
|
Balance
|
|
|
Interest
|
|
|
Rate
|
|
|
Balance
|
|
|
Interest
|
|
|
Rate
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate
|
|
$
|
73,122
|
|
|
$
|
4,132
|
|
|
|
5.65
|
%
|
|
$
|
65,815
|
|
|
$
|
3,573
|
|
|
|
5.43
|
%
|
|
$
|
60,733
|
|
|
$
|
3,170
|
|
|
|
5.22
|
%
|
Home equity
|
|
|
20,946
|
|
|
|
1,332
|
|
|
|
6.36
|
|
|
|
14,294
|
|
|
|
872
|
|
|
|
6.10
|
|
|
|
9,500
|
|
|
|
502
|
|
|
|
5.28
|
|
Consumer
|
|
|
874
|
|
|
|
59
|
|
|
|
6.75
|
|
|
|
670
|
|
|
|
42
|
|
|
|
6.27
|
|
|
|
631
|
|
|
|
38
|
|
|
|
6.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total retail loans
|
|
|
94,942
|
|
|
|
5,523
|
|
|
|
5.82
|
|
|
|
80,779
|
|
|
|
4,487
|
|
|
|
5.55
|
|
|
|
70,864
|
|
|
|
3,710
|
|
|
|
5.24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
51,940
|
|
|
|
4,720
|
|
|
|
9.09
|
|
|
|
32,678
|
|
|
|
2,994
|
|
|
|
9.16
|
|
|
|
19,164
|
|
|
|
1,437
|
|
|
|
7.50
|
|
Commercial real estate
|
|
|
157,769
|
|
|
|
11,554
|
|
|
|
7.32
|
|
|
|
131,091
|
|
|
|
9,478
|
|
|
|
7.23
|
|
|
|
131,755
|
|
|
|
8,965
|
|
|
|
6.80
|
|
Commercial
|
|
|
21,454
|
|
|
|
1,697
|
|
|
|
7.91
|
|
|
|
8,999
|
|
|
|
729
|
|
|
|
8.10
|
|
|
|
12,506
|
|
|
|
828
|
|
|
|
6.62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total corporate loans
|
|
|
231,163
|
|
|
|
17,971
|
|
|
|
7.77
|
|
|
|
172,768
|
|
|
|
13,201
|
|
|
|
7.64
|
|
|
|
163,425
|
|
|
|
11,230
|
|
|
|
6.87
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
|
326,105
|
|
|
|
23,494
|
|
|
|
7.20
|
|
|
|
253,547
|
|
|
|
17,688
|
|
|
|
6.98
|
|
|
|
234,289
|
|
|
|
14,940
|
|
|
|
6.38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and government-
sponsored enterprise obligations
|
|
|
33,777
|
|
|
|
1,349
|
|
|
|
3.99
|
|
|
|
67,842
|
|
|
|
2,326
|
|
|
|
3.43
|
|
|
|
111,167
|
|
|
|
3,473
|
|
|
|
3.12
|
|
Other bonds and equity securities
|
|
|
18,626
|
|
|
|
1,108
|
|
|
|
5.95
|
|
|
|
21,778
|
|
|
|
1,029
|
|
|
|
4.72
|
|
|
|
27,885
|
|
|
|
1,057
|
|
|
|
3.79
|
|
CMOs and mortgage-backed
securities
|
|
|
170,526
|
|
|
|
8,386
|
|
|
|
4.92
|
|
|
|
163,847
|
|
|
|
7,514
|
|
|
|
4.59
|
|
|
|
147,449
|
|
|
|
5,986
|
|
|
|
4.06
|
|
Short-term investments
|
|
|
13,489
|
|
|
|
671
|
|
|
|
4.97
|
|
|
|
7,655
|
|
|
|
399
|
|
|
|
5.21
|
|
|
|
3,067
|
|
|
|
102
|
|
|
|
3.33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities
|
|
|
236,418
|
|
|
|
11,514
|
|
|
|
4.87
|
|
|
|
261,122
|
|
|
|
11,268
|
|
|
|
4.32
|
|
|
|
289,568
|
|
|
|
10,618
|
|
|
|
3.67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest earning assets
|
|
|
562,523
|
|
|
|
35,008
|
|
|
|
6.22
|
%
|
|
|
514,669
|
|
|
|
28,956
|
|
|
|
5.63
|
%
|
|
|
523,857
|
|
|
|
25,558
|
|
|
|
4.88
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
|
(4,505
|
)
|
|
|
|
|
|
|
|
|
|
|
(4,188
|
)
|
|
|
|
|
|
|
|
|
|
|
(4,150
|
)
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
21,223
|
|
|
|
|
|
|
|
|
|
|
|
18,870
|
|
|
|
|
|
|
|
|
|
|
|
18,545
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
579,241
|
|
|
|
|
|
|
|
|
|
|
$
|
529,351
|
|
|
|
|
|
|
|
|
|
|
$
|
538,252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and
Stockholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Regular savings accounts
|
|
$
|
30,917
|
|
|
$
|
154
|
|
|
|
0.50
|
%
|
|
$
|
38,058
|
|
|
$
|
189
|
|
|
|
0.50
|
%
|
|
$
|
44,676
|
|
|
$
|
221
|
|
|
|
0.49
|
%
|
NOW and super NOW accounts
|
|
|
18,013
|
|
|
|
33
|
|
|
|
0.18
|
|
|
|
27,915
|
|
|
|
38
|
|
|
|
0.14
|
|
|
|
38,601
|
|
|
|
47
|
|
|
|
0.12
|
|
Money market accounts
|
|
|
74,484
|
|
|
|
2,256
|
|
|
|
3.03
|
|
|
|
77,148
|
|
|
|
1,944
|
|
|
|
2.52
|
|
|
|
80,338
|
|
|
|
1,355
|
|
|
|
1.69
|
|
Certificates of deposit
|
|
|
160,289
|
|
|
|
7,639
|
|
|
|
4.77
|
|
|
|
135,475
|
|
|
|
5,154
|
|
|
|
3.80
|
|
|
|
122,434
|
|
|
|
3,421
|
|
|
|
2.79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest bearing deposits
|
|
|
283,703
|
|
|
|
10,082
|
|
|
|
3.55
|
|
|
|
278,596
|
|
|
|
7,325
|
|
|
|
2.63
|
|
|
|
286,049
|
|
|
|
5,044
|
|
|
|
1.76
|
|
Borrowed funds
|
|
|
204,431
|
|
|
|
9,599
|
|
|
|
4.70
|
|
|
|
165,388
|
|
|
|
7,835
|
|
|
|
4.74
|
|
|
|
171,615
|
|
|
|
6,594
|
|
|
|
3.84
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest bearing liabilities
|
|
|
488,134
|
|
|
|
19,681
|
|
|
|
4.03
|
%
|
|
|
443,984
|
|
|
|
15,160
|
|
|
|
3.41
|
%
|
|
|
457,664
|
|
|
|
11,638
|
|
|
|
2.54
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest bearing deposits
|
|
|
29,444
|
|
|
|
|
|
|
|
|
|
|
|
23,506
|
|
|
|
|
|
|
|
|
|
|
|
19,005
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
3,147
|
|
|
|
|
|
|
|
|
|
|
|
4,667
|
|
|
|
|
|
|
|
|
|
|
|
3,375
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
520,725
|
|
|
|
|
|
|
|
|
|
|
|
472,157
|
|
|
|
|
|
|
|
|
|
|
|
480,044
|
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
58,516
|
|
|
|
|
|
|
|
|
|
|
|
57,194
|
|
|
|
|
|
|
|
|
|
|
|
58,208
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
stockholders equity
|
|
$
|
579,241
|
|
|
|
|
|
|
|
|
|
|
$
|
529,351
|
|
|
|
|
|
|
|
|
|
|
$
|
538,252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest rate spread
|
|
|
|
|
|
|
|
|
|
|
2.19
|
%
|
|
|
|
|
|
|
|
|
|
|
2.22
|
%
|
|
|
|
|
|
|
|
|
|
|
2.34
|
%
|
Net interest income
|
|
|
|
|
|
$
|
15,327
|
|
|
|
|
|
|
|
|
|
|
$
|
13,796
|
|
|
|
|
|
|
|
|
|
|
$
|
13,920
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin on
average earning assets
|
|
|
|
|
|
|
|
|
|
|
2.72
|
%
|
|
|
|
|
|
|
|
|
|
|
2.68
|
%
|
|
|
|
|
|
|
|
|
|
|
2.66
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
RATE-VOLUME ANALYSIS
The effect on net interest income of changes in interest rates and in the amounts of interest
earning assets and interest bearing liabilities is shown in the following table. Information is
provided on changes for the years indicated attributable to (i) changes in volume (change in
average balance multiplied by prior year rate) and (ii) changes in interest rate (change in rate
multiplied by prior year average balance).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 vs. 2006
|
|
|
2006 vs. 2005
|
|
|
|
Change due to
|
|
|
Total
|
|
|
Change due to
|
|
|
Total
|
|
(In Thousands)
|
|
Volume
|
|
|
Rate
|
|
|
Change
|
|
|
Volume
|
|
|
Rate
|
|
|
Change
|
|
Interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate
|
|
$
|
409
|
|
|
$
|
150
|
|
|
$
|
559
|
|
|
$
|
272
|
|
|
$
|
131
|
|
|
$
|
403
|
|
Equity
|
|
|
422
|
|
|
|
38
|
|
|
|
460
|
|
|
|
283
|
|
|
|
87
|
|
|
|
370
|
|
Consumer
|
|
|
14
|
|
|
|
3
|
|
|
|
17
|
|
|
|
2
|
|
|
|
2
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total retail loans
|
|
|
845
|
|
|
|
191
|
|
|
|
1,036
|
|
|
|
557
|
|
|
|
220
|
|
|
|
777
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
1,751
|
|
|
|
(25
|
)
|
|
|
1,726
|
|
|
|
1,184
|
|
|
|
373
|
|
|
|
1,557
|
|
Commercial real estate
|
|
|
1,952
|
|
|
|
124
|
|
|
|
2,076
|
|
|
|
(45
|
)
|
|
|
558
|
|
|
|
513
|
|
Commercial
|
|
|
986
|
|
|
|
(18
|
)
|
|
|
968
|
|
|
|
(261
|
)
|
|
|
162
|
|
|
|
(99
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total corporate loans
|
|
|
4,689
|
|
|
|
81
|
|
|
|
4,770
|
|
|
|
878
|
|
|
|
1,093
|
|
|
|
1,971
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest on loans
|
|
|
5,534
|
|
|
|
272
|
|
|
|
5,806
|
|
|
|
1,435
|
|
|
|
1,313
|
|
|
|
2,748
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and Government
Agency obligations
|
|
|
(1,312
|
)
|
|
|
335
|
|
|
|
(977
|
)
|
|
|
(1,459
|
)
|
|
|
312
|
|
|
|
(1,147
|
)
|
Other bonds and equity securities
|
|
|
(163
|
)
|
|
|
242
|
|
|
|
79
|
|
|
|
(258
|
)
|
|
|
230
|
|
|
|
(28
|
)
|
Mortgage-backed securities
|
|
|
314
|
|
|
|
558
|
|
|
|
872
|
|
|
|
706
|
|
|
|
822
|
|
|
|
1,528
|
|
Short-term investments
|
|
|
291
|
|
|
|
(19
|
)
|
|
|
272
|
|
|
|
215
|
|
|
|
82
|
|
|
|
297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments
|
|
|
(870
|
)
|
|
|
1,116
|
|
|
|
246
|
|
|
|
(796
|
)
|
|
|
1,446
|
|
|
|
650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
|
4,664
|
|
|
|
1,388
|
|
|
|
6,052
|
|
|
|
639
|
|
|
|
2,759
|
|
|
|
3,398
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Regular savings accounts
|
|
|
(36
|
)
|
|
|
1
|
|
|
|
(35
|
)
|
|
|
(33
|
)
|
|
|
1
|
|
|
|
(32
|
)
|
NOW and Super NOW accounts
|
|
|
(16
|
)
|
|
|
11
|
|
|
|
(5
|
)
|
|
|
(14
|
)
|
|
|
5
|
|
|
|
(9
|
)
|
Money market accounts
|
|
|
(69
|
)
|
|
|
381
|
|
|
|
312
|
|
|
|
(56
|
)
|
|
|
645
|
|
|
|
589
|
|
Certificates of deposit
|
|
|
1,044
|
|
|
|
1,441
|
|
|
|
2,485
|
|
|
|
394
|
|
|
|
1,339
|
|
|
|
1,733
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest bearing deposits
|
|
|
923
|
|
|
|
1,834
|
|
|
|
2,757
|
|
|
|
291
|
|
|
|
1,990
|
|
|
|
2,281
|
|
Borrowed funds
|
|
|
1,803
|
|
|
|
(39
|
)
|
|
|
1,764
|
|
|
|
(254
|
)
|
|
|
1,495
|
|
|
|
1,241
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
2,726
|
|
|
|
1,795
|
|
|
|
4,521
|
|
|
|
37
|
|
|
|
3,485
|
|
|
|
3,522
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
1,938
|
|
|
$
|
(407
|
)
|
|
$
|
1,531
|
|
|
$
|
602
|
|
|
$
|
(726
|
)
|
|
$
|
(124
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INTEREST INCOME
Net interest income is the difference between the interest income earned on earning assets and the
interest expense paid on interest bearing liabilities. Interest income and interest expense are
affected by changes in earning assets and interest bearing liability balances in addition to
changes in interest rates. The Companys net interest income was $15.3 million in 2007, $13.8
million in 2006 and $13.9 million in 2005.
Interest income from earning assets was $35.0 million, $29.0 million and $25.6 million in 2007,
2006 and 2005, respectively. The increase in interest income during 2007 versus 2006 was mainly
attributable to an increase in the average volume of loans coupled with a rise in rates on both
loans and investment securities. These increases were partially offset by higher average volumes
of deposits and borrowed funds coupled with an increase in deposit rates and a decrease in the
volume of investment securities. The increase in interest income during 2006 versus 2005 was
mainly attributable to higher interest rates earned on investment securities coupled with increases
in the average volume of loans. These increases were partially offset by a decrease in the average
volume of investment securities.
Average loan balances increased during 2007 from 2006 and in 2006 from 2005. The increase in 2007
and 2006 was mainly attributable to an increase of $58.4 and $9.3 million, respectively, in average
corporate loans. The increase in average loan balances and rising average rates during 2007
contributed $5.8 million to interest income mainly attributable to an increase in commercial real
estate and construction loan volumes which contributed $2.0 million and $1.8 million, respectively,
and higher interest rates on commercial real estate loans increasing interest income by $124,000.
23
The increase in average loan balances and rising average rates during 2006 contributed $2.7 million
to interest income mainly attributable to (a) an increase in commercial real estate volume which
contributed $1.1 million and (b) higher interest rates on commercial real estate loans increasing
interest income by $931,000.
Average investment security balances decreased during 2007 and 2006 while increasing in 2005.
However, interest income increased during 2007 and 2006 from 2005. The increases contributed
$650,000 and $1.6 million to interest income during 2006 and 2005, respectively, mainly
attributable to an increase in interest rates on mortgage-backed securities in 2006 contributing
$822,000 to interest income and a rise in the volume of mortgage-backed securities in 2006
contributing $706,000 to interest income. The increases in 2005 contributed $2.5 million, mainly
due to higher mortgage-backed securities average volume contributing $2.1 million and higher rates
contributing $385,000.
Interest expense on interest bearing deposits was $10.1 million in 2007, compared to $7.3 million
in 2006 and $5.0 million in 2005. In 2007, average interest bearing deposits increased mainly
attributable to an increase in certificates of deposit partially offset by decreases in NOW
accounts, money market accounts and savings accounts. In 2006, average interest bearing deposits
decreased due mainly to a decrease in money market accounts accompanied by decreases in both
regular savings and NOW accounts partially offset by an increase in certificates of deposit.
Interest expense rose during 2007 and 2006 attributable mainly to an increase to all deposit rates,
coupled with an increase in the volume of certificates of deposit. Average rates paid on
certificates of deposit rose during 2007 by 97 basis points to 4.77% from 2006 resulting in a rise
to interest expense of $1.4 million and a rise of $1.0 million relating to an increase in average
volumes. Average rates paid on certificates of deposit increased to 3.80% during 2006 from 2.79% in
2005 resulting in an increase of $1.3 million in interest expense in 2006 while the increase in
average volume caused an increase to interest expense of $394,000. Average rates paid on money
market accounts increased 51 basis points in 2007 to 3.03% from 2006 which contributed $381,000 to
interest expense during 2007. Average rates paid on money market investment accounts rose to 2.52%
in 2006 from 1.69% in 2005 increasing interest expense by $645,000.
Interest expense on borrowed funds increased to $9.6 million and $7.8 million during 2007 and 2006,
respectively, from $6.6 million in 2005. Average balances of borrowed funds increased during 2007
to $204.4 million from $165.4 million in 2006 and $171.6 million in 2005. The increase in volume
resulted in a rise in interest expense of $1.8 million during 2007 while the decreases in volume
reduced interest expense $254,000 in 2006 from 2005. In 2007, average rates on borrowed funds
declined by 4 basis points while in 2006, average rates on borrowed funds rose by 90 basis points
and during 2005 rates increased 36 basis points from the prior year. These changes caused a
decline of $39,000 to interest expense during 2007 and contributed $1.5 million to interest expense
in 2006. Interest expense on total interest bearing liabilities totaled $19.7 million, $15.2
million and $11.6 million during 2007, 2006 and 2005, respectively.
During most of 2007, 2006 and 2005 the Company operated in a rising rate environment which resulted
in higher yields on assets and a rising cost of funds. The average yield on earning assets in 2007
increased 59 basis points to 6.22%, in 2006 increased 75 basis points to 5.63%, as compared to
4.88% in 2005. The average rate paid on interest bearing liabilities in 2007 was 4.03%, an
increase of 62 basis points, in 2006 was 3.41%, or an increase of 87 basis points compared to 2.54%
in 2005. As a result of the foregoing, the net interest rate spread in 2007 was 2.19%, a 3 basis
point decrease, in 2006 was 2.22%, a 12 basis point decrease from 2005 in which the net interest
rate spread was 2.34%. The Companys net-interest margin increased to 2.72% in 2007 from 2.68% and
2.66% in 2006 and 2005, respectively.
PROVISION FOR LOAN LOSSES
The Company made a provision for loan losses in 2007 and 2006 in the amount of $645,000 and
$160,000, respectively. The Company made no provision for loan losses in 2005. The level of loan
growth experienced, primarily in the corporate loan categories, during 2007 and 2006 resulted in
the provisions for loan losses in 2007 and 2006. Other considerations included the level of
delinquent loans and risk assets as well as the level of loan charge-offs. The absence of a
provision for loan losses in 2005 was based on managements assessment of overall asset quality of
the Company, the low level of delinquent loans, and the lack of loan growth.
NON-INTEREST INCOME (LOSS)
The Companys non-interest income was $2.7 million for 2007 as compared to a non-interest loss of
$405,000 for 2006 and to non-interest income of $3.8 million for 2005. The increase in 2007 was
mainly attributable to the absence of a loss on sales of investment securities coupled with
increases in all other income categories. The loss in 2006 was mainly due to a balance sheet
restructuring which resulted in the loss on the sale of investment securities of $2.4 million.
This was partially offset by a curtailment gain on pension termination of $602,000. In 2005,
non-interest income grew primarily due to the lawsuit judgment collection amounting to $2.2
million. Excluding such balance sheet restructuring, lawsuit recoveries, and pension terminations,
non-interest income increased to $1.9 million in 2007 from $1.4 million in 2006 and $1.6 million in
2005.
24
Deposit account fees increased to $1.0 million in 2007 from $792,000 in 2006 and $870,000 in 2005.
The increase in 2007 resulted from a rise in overdraft fees. Loan servicing fees increased to
$189,000 for the year ended 2007, from $105,000 in 2006 and $162,000 in 2005. The increase in 2007
is due primarily to an increase in prepayment penalties on commercial real estate loan payoffs.
The decrease in 2006 is due to the acceleration of amortization on sold mortgage service fees.
Gains on the sale of mortgage loans decreased to zero for the year ended 2007 compared to $6,000
and $37,000 in 2006 and 2005, respectively, due to a reduction in loans sold. Other income totaled
$724,000, $507,000 and $486,000 for the years ended 2007, 2006 and 2005, respectively. The
increase in 2007 resulted primarily from an increase in the cash surrender value of the Bank Owned
Life Insurance of $200,000. The increase in 2006 includes an increase in the Depositors Insurance
Fund dividend of $23,000 while the increase in 2005 includes increases in ATM and Debit card fees
of $42,000.
NON-INTEREST EXPENSE
Non-interest expense decreased to $11.6 million in 2007, from $13.0 million in 2006 and $11.1
million in 2005. The decrease in 2007 was mainly attributable to a decrease in salaries and
benefits expense coupled with a decrease in marketing expense. The increase in 2006 was mainly
attributable to an increase in salaries and benefits expense due to payments to former employees
coupled with increases in both occupancy and equipment and other expense.
Salaries and employee benefits expense totaled $6.8 million in 2007, $7.4 million in 2006 and $6.9
million in 2005. There were 91 full-time equivalent employees at December 31, 2007, while there
were 101 at December 31, 2006 and December 31, 2005, respectively. The decrease in expenses in
2007 was attributable to a decrease in salaries of $596,000 due to a reduction in head count, stock
compensation expense totaling $279,000, offset by a bonus of $387,000. Insurance and retirement
declines were partially offset by an increase in 401(k) contributions. The increase in expense in
2006 was primarily due to severance payments to former employees totaling $780,000, the adoption of
SFAS 123R totaling $170,000 and stock awards amounting to $230,000 to senior officers.
Additionally, merit raises and increases in medical and dental insurance premiums were only
partially offset by the absence of a bonus in 2006.
Occupancy and equipment expenses decreased to $1.2 million in 2007, compared to $1.4 million in
2006 and $944,000 in 2005. In 2007, repairs and maintenance decreased $162,000 partially offset by
an increase of $20,000 in utilities. In 2006, accelerated depreciation on obsolete fixed assets
and damaged equipment resulting from a flood at the corporate headquarters amounted to $197,000 and
cleanup and remediation of an environmental issue at a branch banking location totaled $146,000.
Data processing expenses remained flat at $1.0 million in 2007 and 2006, respectively, compared to
$882,000 in 2005. These expenses include the Companys service contract for on-line deposit
accounting, loan accounting and item processing services and the installation of new communication
lines for its Wide Area Network (WAN). Professional expenses totaled $463,000, $597,000 and
$543,000 in 2007, 2006 and 2005, respectively. The decline in 2007 was chiefly due to decreases in
consulting on tax preparation expenses. Insurance expenses totaled $137,000, $168,000 and $166,000
in 2007, 2006 and 2005, respectively, and other expenses decreased to $1.9 million in 2007, as
compared to $2.5 million in 2006 and $1.7 million in 2005 primarily due to expenses relating to the
name change of the Companys banking subsidiary of $522,000 and additional marketing expenses of
$20,000 in 2006.
INCOME TAXES
The Company incurred income tax expense of $2.1 million in 2007, $85,000 in 2006 and $2.4 million
in 2005. The effective income tax rates for the years ended December 31, 2007, 2006 and 2005
amounted to 36.0%, 40.3% and 36.7%, respectively. The decrease in effective income tax rate for
2007 is the result of the exclusion of income generated from the officers life insurance partially
offset by the higher tax rate paid on the settlement gains on the pension termination. Permanent
differences such as officers life insurance and tax exempt income can have an impact on the
effective income tax rate as it relates to pre-tax income. See Note 8 to the Consolidated
Financial Statements for further information regarding income taxes.
LIQUIDITY
Managing liquidity involves planning to meet anticipated funding needs at a reasonable cost, as
well as contingency plans to meet unanticipated funding needs or a loss of funding sources. The
following factors are considered in managing liquidity: marketability of assets, the sources and
stability of funding and the level of unfunded commitments. The Companys only source of funds to
meet its expenses, repay indebtedness, and pay dividends to stockholders is the receipt of
dividends from the Bank. The Banks loans and investments are primarily funded by deposits,
Federal Home Loan Bank advances, securities sold under agreements to repurchase and stockholders
equity.
The investment portfolio is one of the primary sources of liquidity for the Bank. Maturities of
securities provide a flow of funds which are available for cash needs such as loan originations and
net deposit outflows. In addition, the investment portfolio consists of high quality, and,
therefore, readily marketable, U.S. Treasury and Government sponsored enterprise obligations. At
December 31, 2007, the Banks investment securities and mortgage-backed securities available for
sale totaled $230.6 million which are available to meet
the Banks liquidity needs.
25
Loan maturities and amortization as well as deposit growth provide for a constant flow of funds. In
addition, the Bank has two overnight lines of credit totaling $8.0 million to meet short-term
liquidity needs. The Bank had $7.2 million available for borrowing purposes at December 31, 2007.
The liquidity position of the Company is managed by the Asset/Liability Management Committee
(ALCO). The duties of ALCO include periodically reviewing the Companys level of liquidity under
prescribed policies and procedures. It is the responsibility of ALCO to report to the Board of
Directors on a regular basis the Companys liquidity position as it relates to these policies and
procedures. At December 31, 2007, management believes that the Bank has adequate liquidity to meet
current and future liquidity demands.
CONTRACTUAL OBLIGATIONS AND COMMITMENTS
The Company enters into off-balance sheet contractual obligations and commitments in the normal
course of business. The Company has contractual obligations such as payments on FHLB advances,
operating lease obligations and customer repurchase agreements. The Company has commitments in the
form of financial instruments that are for loan originations, lines of credit, letters of credit
and to sell mortgage loans. These commitments have various expiration dates.
The following tables summarize the expiration dates of the Banks off balance sheet contractual
obligations and funding commitments, respectively, at December 31, 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due By Period
|
Contractual obligations
|
|
|
|
|
|
Less than
|
|
One to
|
|
Four to
|
|
After
|
(In Thousands)
|
|
Total
|
|
One Year
|
|
Three Years
|
|
Five Years
|
|
Five Years
|
FHLBB long- term
advances
|
|
$
|
202,378
|
|
|
$
|
25,000
|
|
|
$
|
48,000
|
|
|
$
|
25,000
|
|
|
$
|
104,378
|
|
Wholesale repurchase
agreements
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
25,000
|
|
|
|
|
|
Short-term borrowings
|
|
|
7,973
|
|
|
|
7,973
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease obligations
|
|
|
1,685
|
|
|
|
219
|
|
|
|
308
|
|
|
|
206
|
|
|
|
952
|
|
Data processing vendor
|
|
|
1,529
|
|
|
|
671
|
|
|
|
858
|
|
|
|
|
|
|
|
|
|
Employee benefit
payments (1)
|
|
|
1,176
|
|
|
|
118
|
|
|
|
235
|
|
|
|
235
|
|
|
|
588
|
|
|
Total contractual cash
obligations
|
|
$
|
239,741
|
|
|
$
|
33,981
|
|
|
$
|
49,401
|
|
|
$
|
50,441
|
|
|
$
|
105,918
|
|
|
(1)
|
|
The amounts shown reflect expected employee benefits paid by the Company under its
supplemental executive retirement plans through December 31, 2016.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Commitment Expiring By Period
|
Commitments
|
|
|
|
|
|
Less than
|
|
One to
|
|
Four to
|
|
After
|
(In Thousands)
|
|
Total
|
|
One Year
|
|
Three Years
|
|
Five Years
|
|
Five Years
|
Loan originations
|
|
$
|
38,255
|
|
|
$
|
38,255
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Lines of credit
|
|
|
71,097
|
|
|
|
34,506
|
|
|
|
20,594
|
|
|
|
657
|
|
|
|
15,340
|
|
Letters of credit
|
|
|
1,770
|
|
|
|
1,770
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commitments
|
|
$
|
111,122
|
|
|
$
|
74,531
|
|
|
$
|
20,594
|
|
|
$
|
657
|
|
|
$
|
15,340
|
|
|
The Corporation has no off-balance sheet arrangements other than those disclosed in the preceding
table and Note 13 to the Consolidated Financial Statements.
CAPITAL ADEQUACY
The Company and the Bank are required to maintain a leverage capital ratio of 5% and risk-based
capital ratios of at least 10% in order to be categorized as well capitalized in accordance with
definitions in regulatory guidelines promulgated by the FDIC and FRB. At December 31, 2007 and
2006, the Companys and the Banks leverage and risk-based capital ratios exceeded the required
levels for the category of well-capitalized institutions as defined by their respective
regulatory agencies.
26
The Company and the Bank may not declare or pay cash dividends on their outstanding common stock if
the effect thereof would reduce their respective stockholders equity below applicable capital
requirements or otherwise violate regulatory requirements. See Note 9 to the Consolidated
Financial Statements for further information regarding capital adequacy.
The Company repurchased 90,356 shares of its common stock during 2007. The Company did not
repurchase any shares of its common stock during 2006 or 2005. The Companys book value per share
was $13.35 at December 31, 2007. The book value per share increased from $12.74 at December 31,
2006 due to net income of $3.7 million and the reduction in shares outstanding partially offset by
the payment of dividends of $2.6 million. These decreases were offset by an increase in market
value of investment securities available for sale (net of taxes) in the amount of $2.3 million, the
exercise of stock options of $117,000, stock awards of $121,000 and a tax benefit of $22,000
associated with stock transactions.
RECENT ACCOUNTING DEVELOPMENTS
In September 2006, the FASB issued Statement No. 157, Fair Value Measurements (FAS 157) to
provide consistency and comparability in determining fair value measurements and to provide for
expanded disclosures about fair value measurements. The definition of fair value maintains the
exchange price notion in earlier definitions of fair value but focuses on the exit price of the
asset or liability. The exit price is the price that would be received to sell the asset or paid
to transfer the liability adjusted for certain inherent risks and restrictions. Expanded
disclosures are also required about the use of fair value to measure assets and liabilities. The
effective date is for financial statements issued for fiscal years beginning after November 15,
2007, and interim periods within those fiscal years. The Company does not believe that adoption of
SFAS 157 will have a material impact on the Companys financial statements.
In February 2007, the FASB issued Statement No. 159, The Fair Value Option for Financial Assets
and Financial Liabilities (SFAS 159). FAS 159 permits entities to measure certain financial
assets and financial liabilities at fair value and amended FASB Statement No. 115, Accounting for
Investments in Debt and Equity Securities. Unrealized gains and losses on items for which the
fair value option is elected will be reported in earnings. FAS 159 is effective for fiscal years
beginning after November 15, 2007. Management is currently evaluating the impact of adopting this
statement on the Companys financial statements.
In December 2007, the FASB issued Statement No. 160, Noncontrolling Interests in Consolidated
Financial Statements An Amendment of ARB No. 51 (SFAS 160) and Statement No. 141R Business
Combinations (SFAS 141R). The two standards were issued to improve, simplify and converge
international and US accounting standards for business combinations and the reporting of
noncontrolling interests in consolidated financial statements. SFAS 160 and SFAS 141R are
effective for fiscal years beginning after December 15, 2008. The adoption of SFAS 160 and SFAS
141R is not expected to have a material impact on the Company.
IMPACT OF INFLATION AND CHANGING PRICES
The Companys asset and liability structure is substantially different from that of an industrial
company in that virtually all assets and liabilities of the Company are monetary in nature.
Management believes the impact of inflation on financial results depends upon the Companys ability
to react to changes in interest rates and by such reaction reduce the impact of inflation on asset
quality and performance. Interest rates do not necessarily move in the same direction, or at the
same magnitude, as the prices of other goods and services. As discussed previously, management
seeks to manage the relationship between interest-sensitive assets and liabilities in order to
protect against wide net interest income fluctuations, including those resulting from inflation.
Various information shown elsewhere in this Annual Report will assist in the understanding of how
well the Company is positioned to react to changing interest rates and inflationary trends. In
particular, refer to the information provided under the headings Investment Securities, Loans,
and Interest Rate Sensitivity respectively for an understanding of the Companys approach to
changing prices and inflation trends, the summary of net interest income, the maturity
distributions, the compositions of the loan and security portfolios and the data on the interest
rate sensitivity of loans and deposits.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ASSET/LIABILITY MANAGEMENT
Managing interest rate risk is fundamental to banking. The Company has continued to manage its
liquidity, capital, and GAP position so as to control its exposure to interest rate risk. As of
December 31, 2007, the Company had interest rate sensitive assets which repriced or matured within
one year of $258.1 million and interest rate sensitive liabilities which repriced or matured within
one year of $262.4 million. As of December 31, 2006, the Company had interest rate sensitive
assets which matured or repriced within one year of $220.2 million and interest rate sensitive
liabilities which repriced or matured within one year of $327.3 million.
INTEREST RATE SENSITIVITY
The Company actively manages its interest rate sensitivity position. The objectives of interest
rate risk management are to control exposure of net interest income to risks associated with
interest rate movements and to achieve a stable and rising flow of net interest income. The ALCO,
using policies approved by the Board of Directors, is responsible for managing the Banks rate
sensitivity position.
27
The asset/liability management policy establishes guidelines for acceptable exposure to interest
rate risk, liquidity, and capital. The objective of ALCO is to manage earning assets and
liabilities to produce results which are consistent with the Companys policy for net interest
income, liquidity and capital and identify acceptable levels of growth, risk and profitability.
ALCO establishes and monitors origination and pricing strategies consistent with ALCO policy.
ALCO meets regularly to review the current economic environment, income simulation model and GAP
analysis and implements appropriate changes in strategy that will manage the Companys exposure to
interest rate risk, liquidity and capital.
ALCO manages the Companys interest rate risk, using both income simulation and GAP analysis.
Income simulation is used to quantify interest rate risk inherent in the Companys consolidated
balance sheet by showing the effect of a change in net interest income over a 24 month period. The
income simulation model uses parallel interest rate shocks of up 200 basis points (bp) or down 200
bp for earning assets and liabilities in the first year of the model. Interest rates are not
shocked in the second year of the model. The simulation takes into account the dates for
repricing, maturing, prepaying and call options assumptions of various financial categories which
may vary under different interest rate scenarios. Prepayment speeds are estimates for the loans
and are adjusted according to the degree of rate changes. Call options and prepayment speeds for
investment securities are estimates using industry standards for pricing and prepayment
assumptions. The assumptions of financial instrument categories are reviewed before each
simulation by ALCO in light of current economic trends. As of December 31, 2007, the income
simulation model reflects negative exposure to net interest income in a declining interest rate
environment from flat rates to down 200 bp, which would result from assets repaying faster than the
long-term borrowings from the FHLB. Margins would narrow as deposits and borrowings are typically
slower to reprice downward in response to lower interest rates than interest earning assets which
can reprice immediately. The interest rate scenario used does not necessarily reflect ALCOs view
of the most likely change in interest rates over the models period. Furthermore, the model
assumes a static consolidated balance sheet. These results do not reflect the anticipated future
net interest income of the Company for the same periods.
The following table summarizes the net interest income for the 24 month period of the Companys
consolidated balance sheet for earning assets and liabilities for the years ended December 31:
Net Interest Income Simulation Model Results:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Shock
|
|
|
|
|
|
|
|
Down
|
|
|
Up
|
|
2007
|
|
Flat Rates
|
|
|
200 bp
|
|
|
200 bp
|
|
(In Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Year One
|
|
$
|
15,317
|
|
|
$
|
14,174
|
|
|
$
|
15,570
|
|
Year Two
|
|
|
14,899
|
|
|
|
9,962
|
|
|
|
15,985
|
|
|
|
|
|
|
|
|
|
|
|
Total net interest income for 2 year period
|
|
$
|
30,216
|
|
|
|
24,136
|
|
|
$
|
31,555
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Shock
|
|
|
|
|
|
|
|
Down
|
|
|
Up
|
|
2006
|
|
Flat Rates
|
|
|
200 bp
|
|
|
200 bp
|
|
(In Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Year One
|
|
$
|
14,477
|
|
|
$
|
14,382
|
|
|
$
|
13,992
|
|
Year Two
|
|
|
14,380
|
|
|
|
13,064
|
|
|
|
12,826
|
|
|
|
|
|
|
|
|
|
|
|
Total net interest income for 2 year period
|
|
$
|
28,857
|
|
|
$
|
27,446
|
|
|
$
|
26,818
|
|
|
|
|
|
|
|
|
|
|
|
Another measure of interest rate risk is GAP analysis. GAP measurement attempts to analyze any
mismatches in the timing of interest rate repricing between assets and liabilities. It identifies
those balance sheet sensitivity areas which are vulnerable to unfavorable interest rate movements.
As a tool of asset/liability management, the GAP position is compared with potential changes in
interest rate levels in an attempt to measure the favorable and unfavorable effect such changes
would have on net interest income. For example, when the GAP is positive, (i.e., assets reprice
faster than liabilities) a rise in interest rates will increase net interest income; and,
conversely, if the GAP is negative, a rise in interest rates will decrease net interest income. The
accuracy of this measure is limited by unpredictable loan prepayments and the lags in the interest
rate indices used for repricing variable rate loans or investment securities. The Companys
one-year cumulative GAP to total assets changed from less than 20% at December 31, 2006, to less
than 1% at December 31, 2007.
28
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
|
|
|
|
|
|
|
Page
|
REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS
|
|
|
30-31
|
|
CONSOLIDATED BALANCE SHEETS
|
|
|
32
|
|
CONSOLIDATED STATEMENTS OF INCOME
|
|
|
33
|
|
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
|
|
|
34
|
|
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
35
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
36
|
|
29
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
LSB Corporation:
We have audited the accompanying consolidated balance sheet of LSB Corporation and subsidiary (the
Company) as of December 31, 2007, and the related consolidated statements of income, changes in
stockholders equity and cash flows for the year then ended. These consolidated financial
statements are the responsibility of the Companys management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of LSB Corporation and subsidiary as of December 31,
2007, and the results of their operations and their cash flows for the year then ended, in
conformity with accounting principles generally accepted in the United States of America.
/s/ Wolf & Company, P.C.
Boston, Massachusetts
March 12, 2008
30
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
LSB Corporation:
We have audited the accompanying consolidated balance sheet of LSB Corporation and subsidiary (the
Company) as of December 31, 2006, and the related consolidated statements of income, changes in
stockholders equity and cash flows for each of the years in the two-year period ended December 31,
2006. These consolidated financial statements are the responsibility of the Companys management.
Our responsibility is to express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the Consolidated Financial Statements referred to above present fairly, in all
material respects, the financial position of LSB Corporation and subsidiary as of December 31,
2006, and the results of their operations and their cash flows for each of the years in the
two-year period ended December 31, 2006, in conformity with U.S. generally accepted accounting
principles.
/s/ KPMG LLP
Boston, Massachusetts
March 22, 2007
31
Consolidated Balance Sheets
|
|
|
|
|
|
|
|
|
December 31,
(In Thousands, Except Share Data)
|
|
2007
|
|
|
2006
|
|
Assets:
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
7,494
|
|
|
$
|
6,896
|
|
Federal funds sold
|
|
|
56
|
|
|
|
11,871
|
|
|
|
|
|
|
|
|
Total cash and cash equivalents
|
|
|
7,550
|
|
|
|
18,767
|
|
Investment securities available for sale
amortized cost of $229,885 in 2007 and $221,652 in 2006 (notes 2 and 7)
|
|
|
230,596
|
|
|
|
218,682
|
|
Federal Home Loan Bank stock, at cost (note 3)
|
|
|
10,185
|
|
|
|
10,046
|
|
Loans, net of allowance for loan losses of $4,810 in 2007
and $4,309 in 2006 (notes 4 and 7)
|
|
|
353,303
|
|
|
|
283,854
|
|
Premises and equipment, net (note 5)
|
|
|
3,590
|
|
|
|
3,807
|
|
Accrued interest receivable
|
|
|
2,453
|
|
|
|
2,259
|
|
Current income tax receivable
|
|
|
|
|
|
|
357
|
|
Deferred income tax asset, net (note 8)
|
|
|
2,485
|
|
|
|
3,606
|
|
Bank-owned life insurance
|
|
|
10,200
|
|
|
|
|
|
Other assets
|
|
|
1,289
|
|
|
|
1,587
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
621,651
|
|
|
$
|
542,965
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity
:
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Interest bearing deposits (note 6)
|
|
$
|
293,232
|
|
|
$
|
264,238
|
|
Non-interest bearing deposits (note 6)
|
|
|
28,851
|
|
|
|
31,424
|
|
|
|
|
|
|
|
|
Total deposits
|
|
|
322,083
|
|
|
|
295,662
|
|
Long-term borrowed funds (note 7)
|
|
|
227,378
|
|
|
|
143,519
|
|
Short-term borrowed funds (note 7)
|
|
|
7,973
|
|
|
|
41,263
|
|
Other liabilities
|
|
|
3,919
|
|
|
|
3,990
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
561,353
|
|
|
|
484,434
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (notes 5, 12 and 13)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity (notes 9 and 11):
|
|
|
|
|
|
|
|
|
Preferred stock, $.10 par value; 5,000,000
shares authorized, none issued
|
|
|
|
|
|
|
|
|
Common stock, $.10 par value; 20,000,000
shares authorized; 4,516,561 and 4,593,617 shares issued
and outstanding in 2007 and 2006, respectively
|
|
|
452
|
|
|
|
459
|
|
Additional paid-in capital
|
|
|
60,382
|
|
|
|
61,578
|
|
Accumulated deficit
|
|
|
(934
|
)
|
|
|
(2,090
|
)
|
Accumulated other comprehensive income (loss), net of tax
|
|
|
398
|
|
|
|
(1,416
|
)
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
60,298
|
|
|
|
58,531
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
621,651
|
|
|
$
|
542,965
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
32
Consolidated Statements of Income
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
(In Thousands, Except Share Data)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Interest and dividend income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$
|
23,494
|
|
|
$
|
17,688
|
|
|
$
|
14,940
|
|
Investment securities held to maturity
|
|
|
|
|
|
|
1,925
|
|
|
|
8,135
|
|
Investment securities available for sale
|
|
|
10,181
|
|
|
|
8,405
|
|
|
|
1,959
|
|
Federal Home Loan Bank stock (note 3)
|
|
|
662
|
|
|
|
539
|
|
|
|
422
|
|
Other interest income
|
|
|
671
|
|
|
|
399
|
|
|
|
102
|
|
|
|
|
|
|
|
|
|
|
|
Total interest and dividend income
|
|
|
35,008
|
|
|
|
28,956
|
|
|
|
25,558
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits (note 6)
|
|
|
10,082
|
|
|
|
7,325
|
|
|
|
5,044
|
|
Long-term borrowed funds
|
|
|
8,885
|
|
|
|
5,231
|
|
|
|
4,946
|
|
Short-term borrowed funds
|
|
|
714
|
|
|
|
2,604
|
|
|
|
1,648
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
19,681
|
|
|
|
15,160
|
|
|
|
11,638
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
15,327
|
|
|
|
13,796
|
|
|
|
13,920
|
|
Provision for loan losses (note 4)
|
|
|
645
|
|
|
|
160
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for loan losses
|
|
|
14,682
|
|
|
|
13,636
|
|
|
|
13,920
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest income(loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposit account fees
|
|
|
1,009
|
|
|
|
792
|
|
|
|
870
|
|
Loan servicing fees, net
|
|
|
189
|
|
|
|
105
|
|
|
|
162
|
|
Gains on sales of mortgage loans, net
|
|
|
|
|
|
|
6
|
|
|
|
37
|
|
Losses on sales of investment securities (note 2)
|
|
|
|
|
|
|
(2,417
|
)
|
|
|
|
|
Gains on pension plan termination (note 10)
|
|
|
762
|
|
|
|
602
|
|
|
|
|
|
Lawsuit judgment collected (note 12)
|
|
|
|
|
|
|
|
|
|
|
2,233
|
|
Income on bank-owned life insurance
|
|
|
200
|
|
|
|
|
|
|
|
|
|
Other income
|
|
|
524
|
|
|
|
507
|
|
|
|
486
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest income (loss)
|
|
|
2,684
|
|
|
|
(405
|
)
|
|
|
3,788
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits (notes 10 and 11)
|
|
|
6,836
|
|
|
|
7,399
|
|
|
|
6,899
|
|
Occupancy and equipment expense (note 5)
|
|
|
1,221
|
|
|
|
1,369
|
|
|
|
944
|
|
Data processing expense
|
|
|
1,019
|
|
|
|
1,036
|
|
|
|
882
|
|
Professional expense
|
|
|
463
|
|
|
|
597
|
|
|
|
543
|
|
Marketing expense
|
|
|
397
|
|
|
|
608
|
|
|
|
296
|
|
Insurance expense
|
|
|
137
|
|
|
|
168
|
|
|
|
166
|
|
Other expense
|
|
|
1,484
|
|
|
|
1,843
|
|
|
|
1,414
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest expense
|
|
|
11,557
|
|
|
|
13,020
|
|
|
|
11,144
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense
|
|
|
5,809
|
|
|
|
211
|
|
|
|
6,564
|
|
Income tax expense (note 8)
|
|
|
2,091
|
|
|
|
85
|
|
|
|
2,407
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
3,718
|
|
|
$
|
126
|
|
|
$
|
4,157
|
|
|
|
|
|
|
|
|
|
|
|
|
Average basic shares outstanding
|
|
|
4,575,197
|
|
|
|
4,543,251
|
|
|
|
4,427,525
|
|
Common stock equivalents
|
|
|
27,509
|
|
|
|
57,514
|
|
|
|
100,668
|
|
|
|
|
|
|
|
|
|
|
|
Average diluted shares outstanding
|
|
|
4,602,706
|
|
|
|
4,600,765
|
|
|
|
4,528,193
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
0.81
|
|
|
$
|
0.03
|
|
|
$
|
0.94
|
|
Diluted earnings per share
|
|
$
|
0.81
|
|
|
$
|
0.03
|
|
|
$
|
0.92
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
33
Consolidated Statements of Changes in
Stockholders Equity
Years Ended December 31, 2007, 2006 and 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained
|
|
|
Accumulated
|
|
|
Total
|
|
|
|
|
|
|
|
Additional
|
|
|
Earnings
|
|
|
Other
|
|
|
Stock-
|
|
|
|
Common
|
|
|
Paid-in
|
|
|
(Accumulated
|
|
|
Comprehensive
|
|
|
holders
|
|
|
|
Stock
|
|
|
Capital
|
|
|
Deficit)
|
|
|
Income (Loss)
|
|
|
Equity
|
|
(In Thousands, Except Share Data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2004
|
|
$
|
434
|
|
|
$
|
59,145
|
|
|
$
|
(1,347
|
)
|
|
$
|
(394
|
)
|
|
$
|
57,838
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
4,157
|
|
|
|
|
|
|
|
4,157
|
|
Other comprehensive loss -
Unrealized loss on securities
available for sale (tax effect $211)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(312
|
)
|
|
|
(312
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,845
|
|
Exercise of stock options and tax benefits
(168,250 shares)
|
|
|
12
|
|
|
|
711
|
|
|
|
|
|
|
|
|
|
|
|
723
|
|
Dividends declared and paid ($0.56 per share)
|
|
|
|
|
|
|
|
|
|
|
(2,484
|
)
|
|
|
|
|
|
|
(2,484
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2005
|
|
|
446
|
|
|
|
59,856
|
|
|
|
326
|
|
|
|
(706
|
)
|
|
|
59,922
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
126
|
|
|
|
|
|
|
|
126
|
|
Other comprehensive loss -
Unrealized loss on securities
available for sale (tax effect $619)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,160
|
)
|
|
|
(1,160
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,034
|
)
|
Stock-based compensation
|
|
|
|
|
|
|
400
|
|
|
|
|
|
|
|
|
|
|
|
400
|
|
Exercise of stock options and tax benefits
(133,775 shares)
|
|
|
13
|
|
|
|
1,322
|
|
|
|
|
|
|
|
|
|
|
|
1,335
|
|
Adjustment to initially apply
SFAS No. 158, (tax effect $312)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
450
|
|
|
|
450
|
|
Dividends declared and paid ($0.56 per share)
|
|
|
|
|
|
|
|
|
|
|
(2,542
|
)
|
|
|
|
|
|
|
(2,542
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006
|
|
|
459
|
|
|
|
61,578
|
|
|
|
(2,090
|
)
|
|
|
(1,416
|
)
|
|
|
58,531
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
3,718
|
|
|
|
|
|
|
|
3,718
|
|
Other comprehensive income -
Unrealized gain on securities
available for sale (tax effect $1,416)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,264
|
|
|
|
2,264
|
|
Pension plan settlement gain
(tax effect $312)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(450
|
)
|
|
|
(450
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,532
|
|
Stock-based compensation
|
|
|
|
|
|
|
121
|
|
|
|
|
|
|
|
|
|
|
|
121
|
|
Exercise of stock options and tax benefits
(13,300 shares)
|
|
|
2
|
|
|
|
137
|
|
|
|
|
|
|
|
|
|
|
|
139
|
|
Common stock repurchased (90,356 shares)
|
|
|
(9
|
)
|
|
|
(1,454
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,463
|
)
|
Dividends declared and paid ($0.56 per share)
|
|
|
|
|
|
|
|
|
|
|
(2,562
|
)
|
|
|
|
|
|
|
(2,562
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
$
|
452
|
|
|
$
|
60,382
|
|
|
$
|
(934
|
)
|
|
$
|
398
|
|
|
$
|
60,298
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Disclosure of reclassification amount:
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
(In Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross unrealized (losses) gains
arising during the period
|
|
$
|
3,680
|
|
|
$
|
(4,174
|
)
|
|
$
|
(523
|
)
|
Tax effect
|
|
|
(1,416
|
)
|
|
|
1,419
|
|
|
|
211
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding (losses) gains net of tax
|
|
|
2,264
|
|
|
|
(2,755
|
)
|
|
|
(312
|
)
|
|
|
|
|
|
|
|
|
|
|
Less: reclassification adjustment for gains (losses)
included in net income
|
|
|
|
|
|
|
(2,417
|
)
|
|
|
|
|
Tax effect
|
|
|
|
|
|
|
822
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized (losses) gains on securities,
net of reclassification
|
|
$
|
2,264
|
|
|
$
|
(1,160
|
)
|
|
$
|
(312
|
)
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
34
Consolidated Statements
of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
(In Thousands)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
3,718
|
|
|
$
|
126
|
|
|
$
|
4,157
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
|
|
645
|
|
|
|
160
|
|
|
|
|
|
Gains on sales of mortgage loans, net
|
|
|
|
|
|
|
(6
|
)
|
|
|
(37
|
)
|
Losses on sale of investment securities
|
|
|
|
|
|
|
2,417
|
|
|
|
|
|
Gains on pension plan termination
|
|
|
(762
|
)
|
|
|
(602
|
)
|
|
|
|
|
Net amortization (accretion) of investment securities
|
|
|
(203
|
)
|
|
|
593
|
|
|
|
1,428
|
|
Depreciation and amortization of premises and equipment
|
|
|
606
|
|
|
|
606
|
|
|
|
450
|
|
Loans originated for sale
|
|
|
|
|
|
|
(1,043
|
)
|
|
|
(3,872
|
)
|
Proceeds from sales of mortgage loans
|
|
|
|
|
|
|
1,521
|
|
|
|
3,437
|
|
(Increase) decrease in accrued interest receivable
|
|
|
(194
|
)
|
|
|
199
|
|
|
|
436
|
|
Deferred income tax expense (benefit)
|
|
|
16
|
|
|
|
148
|
|
|
|
(167
|
)
|
Stock-based compensation
|
|
|
121
|
|
|
|
400
|
|
|
|
|
|
Increase in cash surrender value of Bank-owned life insurance
|
|
|
(200
|
)
|
|
|
|
|
|
|
|
|
Tax benefits from exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
211
|
|
Decrease in other assets
|
|
|
655
|
|
|
|
147
|
|
|
|
227
|
|
(Decrease) increase in other liabilities
|
|
|
(132
|
)
|
|
|
(899
|
)
|
|
|
1,352
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
4,270
|
|
|
|
3,767
|
|
|
|
7,622
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from maturities of investment securities held to maturity
|
|
|
|
|
|
|
2,900
|
|
|
|
54,770
|
|
Proceeds from maturities of investment securities available for sale
|
|
|
23,545
|
|
|
|
16,680
|
|
|
|
25,000
|
|
Sales of investment securities available for sale
|
|
|
|
|
|
|
78,457
|
|
|
|
|
|
Purchases of investment securities held to maturity
|
|
|
|
|
|
|
|
|
|
|
(71,914
|
)
|
Purchases of investment securities available for sale
|
|
|
(60,074
|
)
|
|
|
(20,766
|
)
|
|
|
(14,198
|
)
|
Purchases of mortgage-backed securities held to maturity
|
|
|
|
|
|
|
|
|
|
|
(23,971
|
)
|
Purchases of mortgage-backed securities available for sale
|
|
|
|
|
|
|
(63,544
|
)
|
|
|
|
|
Purchase of equity securities available for sale
|
|
|
|
|
|
|
(358
|
)
|
|
|
(72
|
)
|
Purchases of Bank-owned life insurance
|
|
|
(10,000
|
)
|
|
|
|
|
|
|
|
|
Purchases of Federal Home Loan Bank stock
|
|
|
(204
|
)
|
|
|
(889
|
)
|
|
|
(2,210
|
)
|
Principal payments of investment securities held to maturity
|
|
|
|
|
|
|
4,680
|
|
|
|
26,468
|
|
Principal payments of investment securities available for sale
|
|
|
28,499
|
|
|
|
18,526
|
|
|
|
5,222
|
|
Redemption of Federal Home Loan Bank stock
|
|
|
65
|
|
|
|
940
|
|
|
|
|
|
Increase in loans, net
|
|
|
(70,094
|
)
|
|
|
(54,001
|
)
|
|
|
(1,343
|
)
|
Purchases of premises and equipment
|
|
|
(389
|
)
|
|
|
(1,162
|
)
|
|
|
(215
|
)
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(88,652
|
)
|
|
|
(18,537
|
)
|
|
|
(2,463
|
)
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in deposits
|
|
|
26,421
|
|
|
|
(7,425
|
)
|
|
|
3,981
|
|
Additions to long-term borrowed funds
|
|
|
173,000
|
|
|
|
82,000
|
|
|
|
48,900
|
|
Payments on long-term borrowed funds
|
|
|
(89,141
|
)
|
|
|
(60,342
|
)
|
|
|
(32,141
|
)
|
(Decrease) increase in short-term borrowed funds
|
|
|
(33,290
|
)
|
|
|
9,744
|
|
|
|
(20,642
|
)
|
Increase in advance payments by borrowers
|
|
|
61
|
|
|
|
80
|
|
|
|
|
|
Dividends paid to stockholders
|
|
|
(2,562
|
)
|
|
|
(2,542
|
)
|
|
|
(2,484
|
)
|
Proceeds from exercise of stock options
|
|
|
117
|
|
|
|
1,213
|
|
|
|
512
|
|
Tax benefits from exercise of stock options
|
|
|
22
|
|
|
|
122
|
|
|
|
|
|
Repurchases of common stock
|
|
|
(1,463
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
73,165
|
|
|
|
22,850
|
|
|
|
(1,874
|
)
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(11,217
|
)
|
|
|
8,080
|
|
|
|
3,285
|
|
Cash and cash equivalents, beginning of year
|
|
|
18,767
|
|
|
|
10,687
|
|
|
|
7,402
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
$
|
7,550
|
|
|
$
|
18,767
|
|
|
$
|
10,687
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on deposits
|
|
$
|
10,067
|
|
|
$
|
7,317
|
|
|
$
|
5,052
|
|
Interest on borrowed funds
|
|
|
9,357
|
|
|
|
7,599
|
|
|
|
6,517
|
|
Income taxes
|
|
|
2,101
|
|
|
|
959
|
|
|
|
2,012
|
|
Cash received during the year for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
|
635
|
|
|
|
192
|
|
|
|
215
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
35
NOTES TO CONSOLIDATED
Financial Statements
Years Ended December 31, 2007, 2006 and 2005
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION.
LSB Corporation (the Corporation or the Company) is a Massachusetts
corporation and the holding company of its wholly-owned subsidiary River Bank (the Bank), a
state-chartered Massachusetts savings bank. The Corporation was organized by the Bank on July 1,
2001 to be a bank holding company and to acquire all of the capital stock of the Bank. The
Corporation is supervised by the Board of Governors of the Federal Reserve System (FRB), and the
Massachusetts Division of Banks (the Division), while the Bank is subject to the regulations of,
and periodic examination by, the Federal Deposit Insurance Corporation (FDIC) and the Division.
The Banks deposits are insured by the Bank Insurance Fund of the FDIC up to $100,000 per account
for non-retirement accounts and up to $250,000 for certain retirement accounts, as defined by the
FDIC, and the Depositors Insurance Fund, Inc. (DIF) for customer deposit amounts not otherwise
covered by FDIC deposit insurance.
The Consolidated Financial Statements include the accounts of LSB Corporation and its wholly-owned
consolidated subsidiary, River Bank, and its wholly-owned subsidiaries, Shawsheen Security
Corporation, Shawsheen Security Corporation II and Spruce Wood Realty Trust. All inter-company
balances and transactions have been eliminated in consolidation. The Company has one reportable
operating segment. Certain amounts in prior periods have been reclassified to conform to the
current presentation.
LSB Corporations Consolidated Financial Statements have been prepared in conformity with U.S.
generally accepted accounting principles. Accordingly, management is required to make estimates and
assumptions that affect amounts reported in the balance sheets and statements of operations. Actual
results could differ significantly from those estimates and judgments. Material estimates that are
particularly susceptible to change relate to the allowance for loan losses, income taxes and
impairment of investment securities.
CASH AND CASH EQUIVALENTS.
For the purpose of reporting cash flows, cash and cash
equivalents include cash on hand, amounts due from banks and Federal Funds sold. Generally,
federal funds are sold with overnight maturities.
INVESTMENT SECURITIES.
Debt securities that the Company has the intent and ability to
hold to maturity are classified as held to maturity and reported at amortized cost; debt and
equity securities that are bought and held principally for the purpose of selling in the near term
are classified as trading and reported at fair value, with unrealized gains and losses included
in earnings; and debt and equity securities not classified as either held to maturity or trading
are classified as available for sale and reported at fair value, with unrealized gains and losses
excluded from earnings and reported as other comprehensive income, net of estimated income taxes.
Dividend income on equity securities is recorded when dividends are declared.
Premiums and discounts on debt securities are amortized or accreted into income by use of the
interest method over the terms of the securities. Declines in the fair value of held to maturity
and available for sale securities below their amortized cost basis that are deemed be other than
temporary, the cost basis of the investment is written down to fair value and the amount of the
write-down is included as a charge to earnings. Gains and losses on the sale of securities are
recognized on the trade date using the specific identification basis.
In estimating other-than-temporary impairment losses, management considers (1) the length of time
and the extent to which the fair value has been less than cost, (2) the financial condition and
near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its
investment in the issuer for a period of time sufficient to allow for any anticipated recovery in
fair value.
INTEREST ON LOANS .
Interest on loans is accrued as earned. Loans on which the accrual
of interest has been discontinued are designated as non-accrual loans. It is managements policy to
discontinue the accrual of interest on a loan when there is a reasonable doubt as to its
collectibility. Interest on loans 90 days or more contractually delinquent is generally excluded
from interest income. When a loan is placed on non-accrual status, all interest previously accrued
but not collected is reversed against current period interest income. Interest accruals are resumed
on loans that have been 90 days or more past due only when they are brought fully current with
respect to interest and principal and when, in the judgment of management, the loans are expected
to be fully collectible as to both principal and interest.
LOAN FEES.
Loan origination fees, net of direct loan acquisition costs, are deferred and
recognized over the contractual life of the loan as an adjustment of the loans yield using the
interest method. Amortization of loan fees is discontinued once a loan is placed on non-accrual
status. When loans are sold or paid-off, the unamortized portion of net fees and costs is credited
to income.
TRANSFER AND SERVICING OF ASSETS AND EXTINGUISHMENTS OF LIABILITIES.
The Company
accounts and reports for transfers and servicing of financial assets and extinguishments of
liabilities based on consistent application of a financial components approach that focuses on
control. This approach distinguishes transfers of financial assets that are sales from transfers
that are secured borrowings. After a transfer of financial assets, the Company recognizes all
financial and servicing assets it controls
36
and liabilities it has incurred and derecognizes financial assets it no longer controls and
liabilities that have been extinguished. This financial components approach focuses on the assets
and liabilities that exist after the transfer. Many of these assets and liabilities are components
of financial assets that existed prior to the transfer. If a transfer does not meet the criteria
for recognition as a sale, the Company accounts for the transfer as a secured borrowing with a
pledge of collateral.
ALLOWANCE FOR LOAN LOSSES.
Losses on loans are provided for under the allowance method
of accounting. The allowance is increased by provisions charged to operations on the basis of many
factors including the risk characteristics of the portfolio, current economic conditions and trends
in loan delinquencies and charge-offs. When management believes that the collection of a loans
principal balance is unlikely, the principal amount is charged against the allowance. Recoveries
on loans which have been previously charged off are credited to the allowance as received.
Managements methodology for assessing the appropriateness of the allowance consists of several key
elements, which include a general allowance, specific allowances for impaired loans and an
unallocated allowance.
The general allowance is calculated by applying loss factors to pools of outstanding loans. In the
case of commercial loans, changes in risk grades affect the amount of the general allowance. Loss
factors are based on the Banks historical loss experience, as well as other qualitative factors
and consider regulatory guidance.
Specific allowances are established in cases where management has identified significant conditions
related to a credit such that management believes it probable that a loss has been incurred in
excess of the amount determined by the general allowance.
The unallocated allowance recognizes the model and estimation risk associated with the general and
specific allowances as well as managements evaluation of various conditions, the effects of which
are not directly measured in the determination of the general and specific allowances. The
evaluation of the inherent loss with respect to these conditions is subject to a higher degree of
uncertainty because they are not identified with specific problem credits.
In addition, various regulatory agencies, including the FDIC and the Massachusetts Division of
Banks, as an integral part of their examination process, periodically review the Banks allowance
for loan losses. Such agencies may require the Bank to recognize additions to the allowance for
loan losses based on judgments different from those of management.
Impaired loans are commercial, commercial real estate, and individually significant residential
mortgage loans for which it is probable that the Company will not be able to collect all amounts
due according to the contractual terms of the loan agreement. Factors considered by management in
determining impairment include payment status and collateral value. The amount of impairment is
determined by the difference between the present value of the expected cash flows related to the
loan, using the original contractual interest rate, and its recorded value, or, as a practical
expedient in the case of collateral dependent loans, the difference between the fair value of the
collateral and the recorded amount of the loan. When foreclosure is probable, impairment is based
on the fair value of the collateral. Larger groups of smaller balance homogenous loans are
collectively evaluated for impairment.
PREMISES AND EQUIPMENT.
Premises and equipment are stated at cost less allowances for
depreciation and amortization. Depreciation and amortization are computed principally on the
straight-line method over the estimated useful lives of the assets or the expected terms of the
leases, if shorter.
BANK-OWNED LIFE INSURANCE
. Bank-owned life insurance policies are reflected on the consolidated
balance sheet at cash surrender value. Changes in cash surrender value are reflected in other
non-interest income.
OTHER REAL ESTATE OWNED.
Other real estate owned (OREO) is comprised of foreclosed
properties where the Bank has formally received title or has possession of the collateral.
Properties are carried at the lower of the investment in the related loan or the estimated fair
value of the property or collateral less selling costs.
STOCK COMPENSATION PLANS.
Prior to January 1, 2006, the Company accounted for its stock
option plans under the recognition and measurement provisions of Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees (APB 25), and related interpretations,
as permitted by Statement of Financial Accounting Standard No. 123, Accounting for Stock-Based
Compensation (SFAS 123). No compensation cost was recognized for stock options in the
Consolidated Statement of Income for the periods ended on or prior to December 31, 2005, as options
granted under those plans had an exercise price equal to or greater than the market value of the
underlying common stock on the date of grant.
Effective January 1, 2006, the Company adopted the fair value recognition provisions of SFAS
Statement No. 123 (revised 2004), Share-Based Payment (SFAS 123R), for all share-based
payments, using the modified prospective transition method. Under this transition method,
compensation cost recognized in the year ended December 31, 2006 includes: (1) compensation expense
recognized over the remaining service period for all share-based awards granted prior to, but not
yet fully vested, as of January 1, 2006, based on the grant date fair value estimated in accordance
with the original provisions of SFAS 123, and (2) compensation
37
expense for all share-based awards granted on or subsequent to January 1, 2006, based on the
grant-date fair value estimated in accordance with the provisions of SFAS 123R. In accordance with
the modified prospective transition method, the Companys Consolidated Financial Statements for
prior periods have not been restated to reflect, and do not include, the impact of SFAS 123R. Upon
adoption of SFAS 123R, the Company elected to retain its method of valuation for share-based awards
granted using the Black-Scholes option-pricing model which was also previously used for the
Companys pro forma information required under SFAS 123. The Company is recognizing compensation
expense for its awards on a straight-line basis over the requisite service period for the entire
award (straight-line attribution method), ensuring that the amount of compensation cost recognized
at any date at least equals the portion of the grant-date fair value of the award that is vested at
that time.
As required, prior to the adoption of SFAS 123R, the Company presented all tax benefits of
deductions resulting from the exercise of stock options as operating cash flows in the Consolidated
Statement of Cash Flows. SFAS 123R requires the cash flows resulting from the tax benefits from
tax deductions in excess of the compensation cost recognized for those options (excess tax
benefits) to be classified as financing cash flows.
For purposes of pro forma disclosures for periods prior to January 1, 2006, the estimated fair
value of the stock options is amortized to expense over the vesting period of the options. The
Companys net income and earnings per share for the year ended December 31, 2005 had the Company
elected to recognize compensation expense for the granting of options under SFAS 123 using the
Black-Scholes option pricing model would have reduced net income by $124,000 and basic and diluted
earnings per share by $0.03 on a pro forma basis.
PENSION EXPENSE.
The Bank was a participant in a multiple employer defined benefit pension plan.
Pension expense was recognized on a net periodic pension cost method over the employees
approximate service period. Pension costs were funded in the year of accrual using the aggregate
cost method.
On October 18, 2006, the Company announced that its Board of Directors had approved the termination
of its defined benefit employee pension plan effective on December 31, 2006. See Note 10 of the
Consolidated Financial Statements for further information on the impact of the termination.
Effective December 31, 2006, the Company adopted SFAS No. 158 Employers Accounting for Defined
Benefit Pension and Other Postretirement Plans an Amendment of FASB Statements No. 87, 88, 106,
and 132R (SFAS 158). This statement requires employers to fully recognize the overfunded or
underfunded position of defined benefit postretirement plans on their balance sheets as of the date
of their year-end statement of financial position. It also requires an employer to recognize
changes in the funded status, through comprehensive income, in the year in which the changes occur.
Under past accounting standards, information about the funded status of these plans was disclosed
in the notes to the financial statements. The Company recorded a pension liability adjustment in
accumulated other comprehensive income. See Note 10 of the Consolidated Financial Statements for
further information on the impact of adopting SFAS 158.
INCOME TAXES.
Deferred tax assets and liabilities are recognized for estimated future tax
consequences attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax basis. Deferred assets and liabilities are
measured using enacted tax rates in effect for the year in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income in the period that includes the enactment date. Deferred tax
valuation allowances are established and based on managements judgment as to whether it is more
likely than not that all or some portion of the future tax benefits of prior operating losses will
be realized.
EARNINGS PER SHARE
.
Basic EPS is calculated based on the weighted average number of
common shares outstanding during each period. Stock options outstanding, accounted for under the
treasury stock method, have a dilutive effect to the computation of diluted EPS. Stock options and
restricted stock that would have an anti-dilutive effect on earnings per share are excluded from
this calculation. For the years ended December 31, 2007 and 2006, 136,100 and 110,600 shares,
respectively, were anti-dilutive. There were no anti-dilutive shares for the year ended December
31, 2005.
RECENT ACCOUNTING DEVELOPMENTS
. In June 2006, the FASB issued Financial Interpretation No. 48,
Accounting for Uncertainty in Income Taxes An Interpretation of FASB Statement No. 109 (FIN
48) which clarifies the accounting for uncertainty in income taxes recognized in a companys
financial statements and provides guidance on evaluating and measuring a companys tax position and
recognition of income tax assets and liabilities. Application of the provisions of this
Interpretation was effective for reporting periods beginning after December 15, 2006. The adoption
of FIN 48 as of January 1, 2007 did not have a material impact on the Companys Financial
Statements.
In September 2006, the FASB issued Statement No. 157, Fair Value Measurements (FAS 157) to
provide consistency and comparability in determining fair value measurements and to provide for
expanded disclosures about fair value measurements. The definition of fair value maintains the
exchange price notion in earlier definitions of fair value but focuses on the exit price of the
asset or liability. The exit price is the price that would be received to sell the asset or paid
to transfer the liability adjusted for certain
38
inherent risks and restrictions. Expanded disclosures are also required about the use of fair
value to measure assets and liabilities. The effective date is for financial statements issued for
fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The
Company does not believe that adoption of SFAS 157 will have a material impact on the Companys
Financial Statements.
In February 2007, the FASB issued Statement No. 159, The Fair Value Option for Financial Assets
and Financial Liabilities (SFAS 159). FAS 159 permits entities to measure certain financial
assets and financial liabilities at fair value and amended FASB Statement No. 115, Accounting for
Investments in Debt and Equity Securities. Unrealized gains and losses on items for which the
fair value option is elected will be reported in earnings. FAS 159 is effective for fiscal years
beginning after November 15, 2007. Management is currently evaluating the impact of adopting this
statement on the Companys Financial Statements.
In December 2007, the FASB issued Statement No. 160, Noncontrolling Interests in Consolidated
Financial Statements An Amendment of ARB No. 51 (SFAS 160) and Statement No. 141R Business
Combinations (SFAS 141R). The two standards were issued to improve, simplify and converge
international and US accounting standards for business combinations and the reporting of
noncontrolling interests in consolidated financial statements. SFAS 160 and SFAS 141R are
effective for fiscal years beginning after December 15, 2008. The adoption of SFAS 160 and SFAS
141R is not expected to have a material impact on the Companys Consolidated Financial Statements.
(2) INVESTMENT SECURITIES
The amortized cost and fair market value of investment securities available for sale at December 31, follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Fair
|
|
(In Thousands)
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
US Treasury obligations
|
|
$
|
5,589
|
|
|
$
|
4
|
|
|
$
|
(52
|
)
|
|
$
|
5,541
|
|
|
$
|
5,605
|
|
|
$
|
|
|
|
$
|
(391
|
)
|
|
$
|
5,214
|
|
Government-sponsored
enterprise obligations (1)
|
|
|
15,748
|
|
|
|
95
|
|
|
|
(33
|
)
|
|
|
15,810
|
|
|
|
35,710
|
|
|
|
14
|
|
|
|
(534
|
)
|
|
|
35,190
|
|
Mortgage-backed securities
|
|
|
134,969
|
|
|
|
2,208
|
|
|
|
(474
|
)
|
|
|
136,703
|
|
|
|
98,608
|
|
|
|
606
|
|
|
|
(1,316
|
)
|
|
|
97,898
|
|
Collateralized mortgage
obligations
|
|
|
60,660
|
|
|
|
169
|
|
|
|
(682
|
)
|
|
|
60,147
|
|
|
|
72,899
|
|
|
|
73
|
|
|
|
(1,417
|
)
|
|
|
71,555
|
|
Corporate obligations
|
|
|
6,373
|
|
|
|
30
|
|
|
|
(583
|
)
|
|
|
5,820
|
|
|
|
7,316
|
|
|
|
50
|
|
|
|
(2
|
)
|
|
|
7,364
|
|
Mutual funds
|
|
|
1,000
|
|
|
|
|
|
|
|
(41
|
)
|
|
|
959
|
|
|
|
1,000
|
|
|
|
|
|
|
|
(53
|
)
|
|
|
947
|
|
Equity securities
|
|
|
5,546
|
|
|
|
70
|
|
|
|
|
|
|
|
5,616
|
|
|
|
514
|
|
|
|
|
|
|
|
|
|
|
|
514
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
229,885
|
|
|
$
|
2,576
|
|
|
$
|
(1,865
|
)
|
|
$
|
230,596
|
|
|
$
|
221,652
|
|
|
$
|
743
|
|
|
$
|
(3,713
|
)
|
|
$
|
218,682
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Government-sponsored enterprises include investment securities issued by government
sponsored enterprises (GSEs) such as Federal National Mortgage Association (FNMA),
Federal Home Loan Mortgage Corporation (FHLMC) and the Federal Home Loan Bank (FHLB).
These investment securities do not represent obligations of the U.S. government and are not
backed by the full faith and credit of the United States Treasury.
|
During the second quarter of 2006, the Company restructured its balance sheet by selling $78.5
million of fixed-rate investment securities available for sale at a pre-tax loss of $2.4 million.
These investment securities had an average yield of 3.30%, an average life of 2.0 years and
represented almost 30% of the investment portfolio. Approximately $50 million of the proceeds
were reinvested in securities yielding 5.70% with an average life of 4.2 years. There were no
sales of investment securities for the year ended December 31, 2007 or 2005.
During the first quarter of 2006, $205.8 million of investments held to maturity were reclassified
into investments available for sale. The impact of the reclassification required the total
unrealized loss of the entire investment portfolio to be reflected on the balance sheet in the
accumulated other comprehensive loss portion of stockholders equity.
39
Securities pledged at December 31, follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale
|
|
Customer
|
|
|
|
|
Repurchase Agreements
|
|
Repurchase Agreements
|
|
FHLB Advances
|
|
|
Amortized
|
|
Fair
|
|
Amortized
|
|
Fair
|
|
Amortized
|
|
Fair
|
(In Thousands)
|
|
Cost
|
|
Value
|
|
Cost
|
|
Value
|
|
Cost
|
|
Value
|
2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury obligations
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
5,589
|
|
|
$
|
5,541
|
|
Government-sponsored
enterprise obligations
|
|
|
|
|
|
|
|
|
|
|
7,945
|
|
|
|
7,991
|
|
|
|
7,803
|
|
|
|
7,819
|
|
Mortgage-backed securities
|
|
|
27,144
|
|
|
|
27,887
|
|
|
|
|
|
|
|
|
|
|
|
107,825
|
|
|
|
108,816
|
|
Collateralized mortgage obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60,660
|
|
|
|
60,147
|
|
|
2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury obligations
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
5,605
|
|
|
$
|
5,214
|
|
Government-sponsored
enterprise obligations
|
|
|
|
|
|
|
|
|
|
|
9,840
|
|
|
|
9,854
|
|
|
|
25,870
|
|
|
|
25,336
|
|
Mortgage-backed securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
97,521
|
|
|
|
96,800
|
|
Collateralized mortgage obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
72,668
|
|
|
|
71,324
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER THAN TEMPORARILY IMPAIRED SECURITIES
The following table shows the gross unrealized losses and fair value of the Companys investments
with unrealized losses that are not deemed to be other-than-temporarily impaired, aggregated by
investment category and length of time that individual securities have been in a continuous
unrealized loss position, at December 31, 2007 and 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than 12 Months
|
|
|
12 Months or Longer
|
|
|
Total
|
|
2007
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
|
Unrealized
|
|
(In Thousands)
|
|
Fair Value
|
|
|
Losses
|
|
|
Fair Value
|
|
|
Losses
|
|
|
Fair Value
|
|
|
Losses
|
|
US Treasury obligations
|
|
$
|
|
|
|
$
|
|
|
|
$
|
5,036
|
|
|
$
|
(52
|
)
|
|
$
|
5,036
|
|
|
$
|
(52
|
)
|
Government-sponsored
enterprise obligations
|
|
|
|
|
|
|
|
|
|
|
4,958
|
|
|
|
(33
|
)
|
|
|
4,958
|
|
|
|
(33
|
)
|
Mortgage-backed securities
|
|
|
37
|
|
|
|
(1
|
)
|
|
|
25,559
|
|
|
|
(473
|
)
|
|
|
25,596
|
|
|
|
(474
|
)
|
Collateralized mortgage
obligations
|
|
|
|
|
|
|
|
|
|
|
47,536
|
|
|
|
(682
|
)
|
|
|
47,536
|
|
|
|
(682
|
)
|
Corporate obligations
|
|
|
1,451
|
|
|
|
(508
|
)
|
|
|
1,874
|
|
|
|
(75
|
)
|
|
|
3,325
|
|
|
|
(583
|
)
|
Mutual funds
|
|
|
|
|
|
|
|
|
|
|
959
|
|
|
|
(41
|
)
|
|
|
959
|
|
|
|
(41
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily impaired
securities
|
|
$
|
1,488
|
|
|
$
|
(509
|
)
|
|
$
|
85,922
|
|
|
$
|
(1,356
|
)
|
|
$
|
87,410
|
|
|
$
|
(1,865
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than 12 Months
|
|
|
12 Months or Longer
|
|
|
Total
|
|
2006
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
|
Unrealized
|
|
(In Thousands)
|
|
Fair Value
|
|
|
Losses
|
|
|
Fair Value
|
|
|
Losses
|
|
|
Fair Value
|
|
|
Losses
|
|
US Treasury obligations
|
|
$
|
|
|
|
$
|
|
|
|
$
|
5,214
|
|
|
$
|
(391
|
)
|
|
$
|
5,214
|
|
|
$
|
(391
|
)
|
Government-sponsored
enterprise obligations
|
|
|
3,119
|
|
|
|
(100
|
)
|
|
|
22,217
|
|
|
|
(434
|
)
|
|
|
25,336
|
|
|
|
(534
|
)
|
Mortgage-backed securities
|
|
|
4,408
|
|
|
|
(28
|
)
|
|
|
34,907
|
|
|
|
(1,288
|
)
|
|
|
39,315
|
|
|
|
(1,316
|
)
|
Collateralized mortgage
obligations
|
|
|
12,846
|
|
|
|
(64
|
)
|
|
|
54,405
|
|
|
|
(1,353
|
)
|
|
|
67,251
|
|
|
|
(1,417
|
)
|
Corporate obligations
|
|
|
1,924
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
1,924
|
|
|
|
(2
|
)
|
Mutual funds
|
|
|
947
|
|
|
|
(53
|
)
|
|
|
|
|
|
|
|
|
|
|
947
|
|
|
|
(53
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily impaired
securities
|
|
$
|
23,244
|
|
|
$
|
(247
|
)
|
|
$
|
116,743
|
|
|
$
|
(3,466
|
)
|
|
$
|
139,987
|
|
|
$
|
(3,713
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40
U. S.
Treasury and government-sponsored enterprises.
The unrealized losses on the Companys
investments in U.S. Treasury obligations and government-sponsored enterprises were caused by
interest rate increases. Because the Company has the ability and intent to hold these investments
until a recovery of fair value, which may be at maturity, the Company does not consider these
investments to be other-than-temporarily impaired at December 31, 2007.
Mortgage-backed securities and collateralized mortgage obligations.
The unrealized losses on the
Companys investment in these securities were caused by interest rate increases. The contractual
cash flows of these investments are guaranteed by U.S. government agencies and government-sponsored
enterprises. Accordingly, it is expected that the securities would not be settled at a price less
than the amortized cost of the Companys investment. Because the decline in market value is
attributable to changes in interest rates and not credit quality and because the Company has the
ability and intent to hold these investments until a recovery of fair value, which may be at
maturity, the Company does not consider these investments to be other-than-temporarily impaired at
December 31, 2007.
Corporate obligations.
The unrealized losses on the Companys investments in corporate obligations
were caused primarily by interest rate increases for the longer-term unrealized losses and credit
deterioration for the shorter-term unrealized losses. When needed, management monitors its
holdings for impairment by reviewing the financial condition of the issuer, company specific
events, industry developments, and general economic conditions. In evaluating the severity and
duration of impairment, management also reviews corporate financial reports, press releases and
other publicly available information. Based upon this evaluation and the Companys ability and
intent to hold these investments for a reasonable period of time sufficient for a forecasted
recovery of fair value, the Company does not consider these investments to be
other-than-temporarily impaired at December 31, 2007.
Mutual funds.
The unrealized losses on mutual funds are a result of specific conditions and
circumstances that are unique to each company represented in the portfolio. When needed,
management monitors its holdings for impairment by reviewing the financial condition of the issuer,
company specific events, industry developments, and general economic conditions. In evaluating the
severity and duration of impairment, management also reviews corporate financial reports, press
releases and other publicly available information. Based upon this evaluation and the Companys
ability and intent to hold these investments for a reasonable period of time sufficient for a
forecasted recovery of fair value, the Company does not consider these investments to be
other-than-temporarily impaired at December 31, 2007.
The following table is a summary of the contractual maturities of investment securities available
for sale at December 31, 2007. These amounts exclude mutual funds and equity securities, which
have no contractual maturities. Mortgage-backed securities consist of FHLMC, FNMA, and GNMA
certificates. Mortgage-backed securities and collateralized mortgage obligations are shown at
their final contractual maturity date but are expected to have shorter average lives.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
December 31, 2007
|
|
Amortized
|
|
|
Fair
|
|
|
Average
|
|
(Dollars in Thousands)
|
|
Cost
|
|
|
Value
|
|
|
Yield
|
|
US Treasury and government-sponsored enterprises:
|
|
|
|
|
|
|
|
|
|
|
|
|
Within 1 year
|
|
$
|
5,439
|
|
|
$
|
5,474
|
|
|
|
5.19
|
%
|
1 to 2 years
|
|
|
4,991
|
|
|
|
4,958
|
|
|
|
3.33
|
%
|
3 to 5 years
|
|
|
5,818
|
|
|
|
5,883
|
|
|
|
4.93
|
%
|
5 to 10 years
|
|
|
5,089
|
|
|
|
5,036
|
|
|
|
3.26
|
%
|
After 10 years
|
|
|
520
|
|
|
|
519
|
|
|
|
6.16
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,337
|
|
|
|
21,351
|
|
|
|
4.22
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
1 to 2 years
|
|
|
1,241
|
|
|
|
1,217
|
|
|
|
3.76
|
%
|
2 to 3 years
|
|
|
2,729
|
|
|
|
2,599
|
|
|
|
3.29
|
%
|
3 to 5 years
|
|
|
1,738
|
|
|
|
1,764
|
|
|
|
5.27
|
%
|
5 to 10 years
|
|
|
14,096
|
|
|
|
13,863
|
|
|
|
3.77
|
%
|
After 10 years
|
|
|
115,165
|
|
|
|
117,260
|
|
|
|
5.87
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
134,969
|
|
|
|
136,703
|
|
|
|
5.57
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized mortgage obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
5 to 10 years
|
|
|
11,242
|
|
|
|
11,157
|
|
|
|
4.18
|
%
|
After 10 years
|
|
|
49,418
|
|
|
|
48,990
|
|
|
|
4.49
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60,660
|
|
|
|
60,147
|
|
|
|
4.43
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
1 to 2 years
|
|
|
1,958
|
|
|
|
1,451
|
|
|
|
5.41
|
%
|
2 to 3 years
|
|
|
4,415
|
|
|
|
4,369
|
|
|
|
5.51
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,373
|
|
|
|
5,820
|
|
|
|
5.48
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
223,339
|
|
|
$
|
224,021
|
|
|
|
5.13
|
%
|
|
|
|
|
|
|
|
|
|
|
|
41
(3) FEDERAL HOME LOAN BANK STOCK
The Bank is a member of the Federal Home Loan Bank of Boston (FHLBB). As part of the Banks
borrowing arrangement with the FHLBB, the Bank is required to invest in FHLBB stock in an amount
determined on the basis of the amount of the Banks residential mortgage loans and its borrowings
from the FHLBB. At December 31, 2007 and 2006, the Bank held $10.2 million and $10.0 million,
respectively, of FHLBB stock. This stock, which is restricted, is redeemable at par and earns
dividends declared at the discretion of the FHLBB. Such dividends amounted to $662,000, $539,000
and $422,000 for the years ended December 31, 2007, 2006 and 2005, respectively.
(4) LOANS
The components of the loan portfolio at December 31, follow:
|
|
|
|
|
|
|
|
|
(In Thousands)
|
|
2007
|
|
|
2006
|
|
Residential real estate
|
|
$
|
79,743
|
|
|
$
|
69,876
|
|
Home equity
|
|
|
23,046
|
|
|
|
20,339
|
|
Consumer
|
|
|
1,007
|
|
|
|
975
|
|
|
|
|
|
|
|
|
Retail loans
|
|
|
103,796
|
|
|
|
91,190
|
|
|
|
|
|
|
|
|
Construction
|
|
|
47,885
|
|
|
|
43,283
|
|
Commercial real estate
|
|
|
177,968
|
|
|
|
142,820
|
|
Commercial business
|
|
|
28,464
|
|
|
|
10,870
|
|
|
|
|
|
|
|
|
Corporate loans
|
|
|
254,317
|
|
|
|
196,973
|
|
|
|
|
|
|
|
|
Total loans
|
|
|
358,113
|
|
|
|
288,163
|
|
Allowance for loan losses
|
|
|
(4,810
|
)
|
|
|
(4,309
|
)
|
|
|
|
|
|
|
|
Net loans
|
|
$
|
353,303
|
|
|
$
|
283,854
|
|
|
|
|
|
|
|
|
The amounts above include net deferred loan origination fees and costs totaling $52,000 and $81,000
at December 31, 2007 and 2006, respectively.
Mortgage loans serviced by the Company for others amounted to $27.5 million and $32.4 million at
December 31, 2007 and 2006, respectively.
In the ordinary course of business, the Bank makes loans to its Directors and Officers and their
associates and affiliated companies (related parties) at substantially the same terms and
conditions as those prevailing at the time of origination for comparable transactions with other
borrowers.
An analysis of total related party loans for the years ended December 31, follows:
|
|
|
|
|
|
|
|
|
(In Thousands)
|
|
2007
|
|
|
2006
|
|
Balance at beginning of year
|
|
$
|
2,168
|
|
|
$
|
2,251
|
|
New loans granted
|
|
|
638
|
|
|
|
385
|
|
Retirement/reduction of directors and officers
|
|
|
|
|
|
|
(23
|
)
|
Repayment of principal
|
|
|
(694
|
)
|
|
|
(445
|
)
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
2,112
|
|
|
$
|
2,168
|
|
|
|
|
|
|
|
|
The activity in the allowance for loan losses for the years ended December 31, follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Thousands)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Balance at beginning of year
|
|
$
|
4,309
|
|
|
$
|
4,126
|
|
|
$
|
4,140
|
|
Total charge-offs
|
|
|
(157
|
)
|
|
|
(30
|
)
|
|
|
(25
|
)
|
Total recoveries
|
|
|
13
|
|
|
|
53
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
Net (charge-offs) recoveries
|
|
|
(144
|
)
|
|
|
23
|
|
|
|
(14
|
)
|
Provision for loan losses
|
|
|
645
|
|
|
|
160
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
4,810
|
|
|
$
|
4,309
|
|
|
$
|
4,126
|
|
|
|
|
|
|
|
|
|
|
|
Non-accruing loans totaled $1.5 million and $1.1 million at December 31, 2007 and 2006,
respectively.
42
The reduction in interest income for the years ended December 31, associated with non-accrual loans
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Thousands)
|
|
2007
|
|
2006
|
|
2005
|
Interest income in accordance with original loan terms
|
|
$
|
37
|
|
|
$
|
56
|
|
|
$
|
1
|
|
Interest income recognized
|
|
|
|
|
|
|
|
|
|
|
|
|
Foregone interest income
|
|
|
37
|
|
|
|
56
|
|
|
|
1
|
|
The components of impaired loans at or for the years ended December 31, follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Thousands)
|
|
2007
|
|
2006
|
|
2005
|
Total impaired loans
|
|
$
|
1,523
|
|
|
$
|
1,020
|
|
|
$
|
|
|
Impaired loans with reserve
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loan reserve
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans without reserve
|
|
|
1,523
|
|
|
|
1,020
|
|
|
|
|
|
Impaired loans average balance
|
|
|
399
|
|
|
|
1,078
|
|
|
|
|
|
Interest income in accordance with original loan terms
|
|
|
37
|
|
|
|
54
|
|
|
|
|
|
Interest income recognized
|
|
|
|
|
|
|
|
|
|
|
|
|
(5) PREMISES AND EQUIPMENT
The components of premises and equipment at December 31, follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
|
|
(In Thousands)
|
|
Useful Lives
|
|
|
2007
|
|
|
2006
|
|
Premises
|
|
10 39 years
|
|
$
|
4,164
|
|
|
$
|
4,150
|
|
Equipment
|
|
3 5 years
|
|
|
4,078
|
|
|
|
3,702
|
|
Leasehold improvements
|
|
3 10 years
|
|
|
1,047
|
|
|
|
1,047
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,289
|
|
|
|
8,899
|
|
Less accumulated depreciation and amortization
|
|
|
|
|
|
|
(5,699
|
)
|
|
|
(5,092
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,590
|
|
|
$
|
3,807
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization of premises and equipment totaled $606,000, $606,000 and $450,000,
respectively, for the years ended December 31, 2007, 2006 and 2005.
Rent expense for leased premises for the years ended December 31, 2007, 2006 and 2005 amounted to
$213,000, $205,000, and $203,000, respectively. The Company enters into operating leases in which
office space is rented to other businesses at its Corporate headquarters. Rental income for the
years ended December 31, 2007, 2006 and 2005 amounted to $235,000, $232,000, and $181,000,
respectively.
A summary of future minimum rental expense and income under non-cancelable operating leases at
December 31, 2007 follows:
|
|
|
|
|
|
|
|
|
|
|
Minimum
|
|
|
Minimum
|
|
|
|
Rental
|
|
|
Rental
|
|
(In Thousands)
|
|
Expense
|
|
|
Income
|
|
2008
|
|
$
|
219
|
|
|
$
|
230
|
|
2009
|
|
|
197
|
|
|
|
151
|
|
2010
|
|
|
111
|
|
|
|
62
|
|
2011
|
|
|
103
|
|
|
|
43
|
|
2012
|
|
|
103
|
|
|
|
|
|
Thereafter
|
|
|
952
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,685
|
|
|
$
|
486
|
|
|
|
|
|
|
|
|
The leases contain options to extend for periods of one to twenty years. The cost of such rentals
is not included above.
43
(6) DEPOSITS
The following table shows the components of deposits at December 31, 2007 and 2006 and the range of
interest rates paid as of December 31, 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rates as of
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
2007
|
|
|
2007
|
|
|
2006
|
|
Interest bearing accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
NOW acccounts
|
|
|
0.10-0.25
|
%
|
|
$
|
17,877
|
|
|
$
|
17,707
|
|
Savings accounts
|
|
|
0.50
|
%
|
|
|
28,452
|
|
|
|
33,676
|
|
Money market accounts
|
|
|
1.00-4.17
|
%
|
|
|
74,621
|
|
|
|
73,163
|
|
Certificates of deposit
|
|
|
2.72-5.37
|
%
|
|
|
141,651
|
|
|
|
109,635
|
|
Retirement certificates of deposit
|
|
|
2.72-5.37
|
%
|
|
|
30,631
|
|
|
|
30,057
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest bearing deposits
|
|
|
|
|
|
|
293,232
|
|
|
|
264,238
|
|
Non-interest bearing demand deposit accounts
|
|
|
|
|
|
|
28,851
|
|
|
|
31,424
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
|
|
|
|
$
|
322,083
|
|
|
$
|
295,662
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest forfeitures resulting from early withdrawals from certificates of deposits are credited to
non-interest expense and amounted to $42,000, $32,000, and $24,000 for the years ended December 31,
2007, 2006 and 2005, respectively.
The components of interest expense on deposits for the years ended December 31, follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Thousands)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
NOW accounts
|
|
$
|
33
|
|
|
$
|
38
|
|
|
$
|
47
|
|
Savings accounts
|
|
|
158
|
|
|
|
190
|
|
|
|
221
|
|
Money market accounts
|
|
|
2,256
|
|
|
|
1,944
|
|
|
|
1,355
|
|
Certificates of deposit
|
|
|
6,230
|
|
|
|
4,008
|
|
|
|
2,480
|
|
Retirement certificates of deposit
|
|
|
1,405
|
|
|
|
1,145
|
|
|
|
941
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
$
|
10,082
|
|
|
$
|
7,325
|
|
|
$
|
5,044
|
|
|
|
|
|
|
|
|
|
|
|
The amount and weighted average interest rate on certificates of deposit, including retirement
accounts, by periods to maturity at December 31, 2007 are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equal to
|
|
|
|
|
|
|
Weighted
|
|
|
|
Less
|
|
|
and greater
|
|
|
|
|
|
|
Average
|
|
|
|
than
|
|
|
than
|
|
|
|
|
|
|
Interest
|
|
(Dollars in Thousands)
|
|
$100,000
|
|
|
$100,000
|
|
|
Total
|
|
|
Rate
|
|
Three months or less
|
|
$
|
24,944
|
|
|
$
|
15,459
|
|
|
$
|
40,403
|
|
|
|
4.89
|
%
|
From three to six months
|
|
|
33,473
|
|
|
|
19,582
|
|
|
|
53,055
|
|
|
|
4.88
|
|
From six to twelve months
|
|
|
30,530
|
|
|
|
18,557
|
|
|
|
49,087
|
|
|
|
4.91
|
|
From one to two years
|
|
|
8,658
|
|
|
|
4,108
|
|
|
|
12,766
|
|
|
|
4.32
|
|
From two to three years
|
|
|
5,428
|
|
|
|
8,828
|
|
|
|
14,256
|
|
|
|
4.81
|
|
Three years and thereafter
|
|
|
1,857
|
|
|
|
858
|
|
|
|
2,715
|
|
|
|
4.57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
104,890
|
|
|
$
|
67,392
|
|
|
$
|
172,282
|
|
|
|
4.84
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brokered deposits totaled $5.5 million at December 31, 2007 at a rate of 5.23% and are included in
certificates of deposit. There were no brokered deposits at December 31, 2006.
(7) BORROWED FUNDS
The FHLBB permits member institutions to borrow funds for various purposes. The FHLBB requires
member banks to maintain qualified collateral for its advances. Collateral is comprised of the
Banks residential mortgage portfolio, certain commercial real estate loans, home equity lines and
loans and the portion of the investment portfolio that meets FHLB qualifying collateral
requirements and has been designated as such (see note 2).
44
The components of long-term borrowed funds at December 31, follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
Weighted Average
|
|
(In Thousands)
|
|
Amount
|
|
|
Interest Rate
|
|
|
Amount
|
|
|
Interest Rate
|
|
FHLB long-term advances
|
|
$
|
202,378
|
|
|
|
4.59
|
%
|
|
$
|
143,519
|
|
|
|
4.59
|
%
|
Wholesale repurchase agreements
|
|
|
25,000
|
|
|
|
4.83
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
227,378
|
|
|
|
4.62
|
%
|
|
$
|
143,519
|
|
|
|
4.59
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term FHLB advances outstanding at December 31, follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Weighted
|
|
Maturity
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Average
|
|
(Dollars in Thousands)
|
|
Amount
|
|
|
Interest Rate
|
|
|
Amount
|
|
|
Interest Rate
|
|
2007
|
|
$
|
|
|
|
|
|
%
|
|
$
|
39,000
|
|
|
|
4.37
|
%
|
2008
|
|
|
25,000
|
|
|
|
4.77
|
|
|
|
21,000
|
|
|
|
4.89
|
|
2009
|
|
|
10,000
|
|
|
|
5.14
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
38,000
|
|
|
|
5.36
|
|
|
|
25,000
|
|
|
|
5.60
|
|
2011
|
|
|
10,000
|
|
|
|
4.93
|
|
|
|
10,000
|
|
|
|
4.93
|
|
2012
|
|
|
15,000
|
|
|
|
4.72
|
|
|
|
|
|
|
|
|
|
Thereafter
|
|
|
104,378
|
|
|
|
4.17
|
|
|
|
48,519
|
|
|
|
4.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
202,378
|
|
|
|
4.59
|
%
|
|
$
|
143,519
|
|
|
|
4.59
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The FHLBB has the right to call or prepay certain obligations with or without call or prepayment
penalties. This right may cause actual maturities to differ from the contractual maturities
summarized above. As of December 31, 2007, the Company had callable advances totaling $151.0
million, adjustable rate advances totaling $20.0 million and amortizing advances totaling $3.4
million.
At December 31, 2007, the Company had wholesale repurchase agreements totaling $25.0 million which
mature in 2012 and have a weighted average rate of 4.83%. These agreements are treated as secured
long-term borrowings and the obligations to repurchase securities sold are reflected as liabilities
and the securities collateralized by the agreements remain as assets. Generally, the outstanding
collateral consists of U.S. Treasury and government-sponsored enterprises and is held by third
party custodians (see note 2).
The components of short-term borrowed funds at December 31, follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
Weighted Average
|
|
(Dollars In Thousands)
|
|
Amount
|
|
|
Interest Rate
|
|
|
Amount
|
|
|
Interest Rate
|
|
FHLB Ideal Way advances
|
|
$
|
800
|
|
|
|
4.20
|
%
|
|
$
|
|
|
|
|
|
%
|
FHLB short-term borrowings
|
|
|
|
|
|
|
|
|
|
|
36,000
|
|
|
|
5.31
|
%
|
Customer repurchase agreements
|
|
|
7,173
|
|
|
|
2.75
|
%
|
|
|
5,263
|
|
|
|
3.75
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,973
|
|
|
|
4.36
|
%
|
|
$
|
41,263
|
|
|
|
5.11
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45
Information relating to short-term borrowed funds for the years ended December 31, follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
|
Customer
|
|
Short-Term
|
|
Customer
|
|
Short-Term
|
|
Customer
|
|
Short-Term
|
|
|
Repurchase
|
|
FHLBB
|
|
Repurchase
|
|
FHLBB
|
|
Repurchase
|
|
FHLBB
|
(Dollars in Thousands)
|
|
Agreements
|
|
Advances
|
|
Agreements
|
|
Advances
|
|
Agreements
|
|
Advances
|
Outstanding at December 31
|
|
$
|
7,173
|
|
|
$
|
800
|
|
|
$
|
5,263
|
|
|
$
|
36,000
|
|
|
$
|
4,519
|
|
|
$
|
27,000
|
|
Average balance outstanding during the year
|
|
|
5,599
|
|
|
|
9,608
|
|
|
|
4,915
|
|
|
|
47,143
|
|
|
|
3,113
|
|
|
|
49,964
|
|
Maximum outstanding at any month end
|
|
|
7,217
|
|
|
|
31,000
|
|
|
|
6,646
|
|
|
|
61,000
|
|
|
|
4,519
|
|
|
|
85,000
|
|
Weighted average rate at December 31
|
|
|
2.75
|
%
|
|
|
4.20
|
%
|
|
|
3.75
|
%
|
|
|
5.31
|
%
|
|
|
2.75
|
%
|
|
|
4.31
|
%
|
Weighted average rate during the year
|
|
|
3.54
|
|
|
|
5.36
|
|
|
|
3.50
|
|
|
|
5.16
|
|
|
|
1.79
|
|
|
|
3.18
|
|
At December 31, 2007 and 2006, the Bank had certain investment securities with a fair value of
$218.2 million and $208.5 million, respectively, pledged as collateral against total borrowings
(see note 2).
In addition, Federal Home Loan Bank advances are also collateralized by a blanket lien on the
Banks 1-4 family residential loans, equity loans and lines and certain significant commercial real
estate loans. The Banks total borrowing capacity at FHLBB at December 31, 2007 and 2006 was
$247.6 million and $239.0 million based on the total available collateral, respectively, of which
$203.2 million and $179.5 million was outstanding at December 31, 2007 and 2006, respectively,
leaving additional capacity of $44.4 million and $59.5 million at December 31, 2007 and 2006,
respectively. Additionally, the Corporation has an unsecured line of credit of $5.0 million with
another financial institution.
(8) INCOME TAXES
An analysis of income tax expense for the years ended December 31, follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Thousands)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Current expense (benefit):
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
1,658
|
|
|
$
|
(123
|
)
|
|
$
|
2,154
|
|
State
|
|
|
417
|
|
|
|
60
|
|
|
|
420
|
|
|
|
|
|
|
|
|
|
|
|
Total current expense (benefit)
|
|
|
2,075
|
|
|
|
(63
|
)
|
|
|
2,574
|
|
|
|
|
|
|
|
|
|
|
|
Deferred expense (benefit):
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
17
|
|
|
|
142
|
|
|
|
(119
|
)
|
State
|
|
|
4
|
|
|
|
38
|
|
|
|
(45
|
)
|
Change in valuation reserve
|
|
|
(5
|
)
|
|
|
(32
|
)
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
Total deferred expense
|
|
|
16
|
|
|
|
148
|
|
|
|
(167
|
)
|
|
|
|
|
|
|
|
|
|
|
Total income tax expense
|
|
$
|
2,091
|
|
|
$
|
85
|
|
|
$
|
2,407
|
|
|
|
|
|
|
|
|
|
|
|
A reconciliation of the difference between the expected federal income tax expense computed by
applying the federal statutory rate of 34% to the amount of actual income tax expense for the years
ended December 31, follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Thousands)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Expected federal income tax expense
|
|
$
|
1,975
|
|
|
$
|
72
|
|
|
$
|
2,231
|
|
Items affecting expected tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
State income tax, net of federal benefit
|
|
|
278
|
|
|
|
64
|
|
|
|
247
|
|
Tax exempt income
|
|
|
(44
|
)
|
|
|
(111
|
)
|
|
|
(113
|
)
|
Officers life insurance
|
|
|
(68
|
)
|
|
|
|
|
|
|
|
|
Other
|
|
|
(45
|
)
|
|
|
92
|
|
|
|
45
|
|
Change in valuation reserve
|
|
|
(5
|
)
|
|
|
(32
|
)
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
Total income tax expense
|
|
$
|
2,091
|
|
|
$
|
85
|
|
|
$
|
2,407
|
|
|
|
|
|
|
|
|
|
|
|
46
The tax effects of temporary differences (the difference between financial statement carrying
amounts of existing assets and liabilities and their respective tax basis that give rise to
deferred tax assets and liabilities) for the years ended December 31, follow:
|
|
|
|
|
|
|
|
|
(In Thousands)
|
|
2007
|
|
|
2006
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
$
|
1,969
|
|
|
$
|
1,659
|
|
Capital loss carryforward
|
|
|
|
|
|
|
5
|
|
Unrealized loss on investment securities available for sale
|
|
|
|
|
|
|
1,104
|
|
Pension costs and other post-retirement benefits
|
|
|
106
|
|
|
|
108
|
|
Deferred compensation
|
|
|
533
|
|
|
|
555
|
|
Depreciation
|
|
|
406
|
|
|
|
363
|
|
Other
|
|
|
12
|
|
|
|
45
|
|
|
|
|
|
|
|
|
Gross deferred tax asset
|
|
|
3,026
|
|
|
|
3,839
|
|
Valuation reserve
|
|
|
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
Deferred tax asset
|
|
|
3,026
|
|
|
|
3,834
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Unrealized gain on investment securities available for sale
|
|
|
(313
|
)
|
|
|
|
|
Other
|
|
|
(228
|
)
|
|
|
(228
|
)
|
|
|
|
|
|
|
|
Gross deferred tax liability
|
|
|
(541
|
)
|
|
|
(228
|
)
|
|
|
|
|
|
|
|
Net deferred income tax asset
|
|
$
|
2,485
|
|
|
$
|
3,606
|
|
|
|
|
|
|
|
|
At December 31, 2007, the Bank would need to generate approximately $7.0 million of future net
taxable income to realize the net deferred income tax asset. Management believes that it is more
likely than not that the net deferred income tax asset at December 31, 2007 will be realized based
upon recent operating results. It should be noted, however, that factors beyond managements
control, such as the general state of the economy and changes in interest rates, can affect future
levels of taxable income and that no assurance can be given that sufficient taxable income will be
generated to fully absorb gross deductible temporary differences.
Tax periods ended October 31, 2004 and 2005 and December 31, 2005, 2006 and 2007 remain subject to
examination by federal and state taxing authorities.
The unrecaptured base year tax reserves as of October 31, 1998 will not be subject to recapture as
long as the institution continues to carry on the business of banking. In addition, the balance of
the pre-1988 bad debt tax reserves continue to be subject to a provision of the current law that
requires recapture in the case of certain excess distributions to stockholders. The tax effect of
pre-1988 bad debt tax reserves subject to recapture in the case of certain excess distributions is
approximately $1.0 million.
(9) STOCKHOLDERS EQUITY
The Company and the Bank are regulated by federal and state regulatory agencies. Failure by the
Company or the Bank to meet minimum capital requirements can initiate certain mandatory and
possibly additional discretionary actions by federal or state regulators that, if undertaken, could
have a direct material effect on the Companys Consolidated Financial Statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the
Bank must meet specific capital guidelines that involve quantitative measures of assets,
liabilities, and certain off-balance-sheet items as calculated under regulatory accounting
practices. The capital amounts and classification are also subject to qualitative judgments by the
regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy require the Company and
the Bank to maintain minimum amounts and ratios of Total and Tier 1 capital to risk-weighted assets
and of Tier 1 capital to average assets (Leverage ratio). There are two categories of capital under
the guidelines. Tier 1 capital as it applies to the Company and the Bank, includes stockholders
equity exclusive of the net unrealized gains/losses on investment securities available for sale.
Tier 2 capital includes the allowance for loan losses, subject to guideline limitations.
At December 31, 2007 and 2006, the Company and the Bank exceeded each of the minimum capital
requirements and the Bank also met the definition of well capitalized as defined by the FRB and
the FDIC under the regulatory framework for prompt corrective action. To be categorized as well
capitalized the Company or the Bank must maintain Tier 1, Total, and Leverage ratios as set forth
in the table below. There are no conditions or events that management believes have changed the
Companys or the Banks classification as well capitalized.
47
The Companys and the Banks minimum required and actual capital ratios and amounts at December 31,
2007 and 2006, follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk-Based Ratios
|
|
|
Tier 1 Capital
|
|
Total Capital
|
|
Leverage Capital
|
(Dollars in Thousands)
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
Capital Ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adequately capitalized
|
|
|
4.00
|
%
|
|
|
4.00
|
%
|
|
|
8.00
|
%
|
|
|
8.00
|
%
|
|
|
4.00
|
%
|
|
|
4.00
|
%
|
Well capitalized
|
|
|
6.00
|
%
|
|
|
6.00
|
%
|
|
|
10.00
|
%
|
|
|
10.00
|
%
|
|
|
5.00
|
%
|
|
|
5.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LSB Corporation
|
|
|
13.45
|
%
|
|
|
15.73
|
%
|
|
|
14.53
|
%
|
|
|
16.86
|
%
|
|
|
9.72
|
%
|
|
|
11.18
|
%
|
River Bank
|
|
|
13.14
|
%
|
|
|
15.17
|
%
|
|
|
14.22
|
%
|
|
|
16.31
|
%
|
|
|
9.49
|
%
|
|
|
10.77
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adequately capitalized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LSB Corporation
|
|
$
|
17,812
|
|
|
$
|
15,237
|
|
|
$
|
35,623
|
|
|
$
|
30,474
|
|
|
$
|
24,635
|
|
|
$
|
21,446
|
|
River Bank
|
|
|
17,812
|
|
|
|
15,223
|
|
|
|
35,623
|
|
|
|
30,446
|
|
|
|
24,654
|
|
|
|
21,450
|
|
Well capitalized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LSB Corporation
|
|
|
26,717
|
|
|
|
22,855
|
|
|
|
44,529
|
|
|
|
38,092
|
|
|
|
30,794
|
|
|
|
26,808
|
|
River Bank
|
|
|
26,717
|
|
|
|
22,835
|
|
|
|
44,529
|
|
|
|
38,058
|
|
|
|
30,817
|
|
|
|
26,813
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LSB Corporation
|
|
|
59,876
|
|
|
|
59,916
|
|
|
|
64,686
|
|
|
|
64,225
|
|
|
|
59,876
|
|
|
|
59,916
|
|
River Bank
|
|
|
58,511
|
|
|
|
57,749
|
|
|
|
63,321
|
|
|
|
62,057
|
|
|
|
58,511
|
|
|
|
57,749
|
|
Stock Repurchase Plan
In 2007, the Company announced a common stock repurchase program to repurchase up to 230,000
shares. During 2007, 90,356 shares were repurchased under this program.
Restrictions on Dividends, Loans and Advances
Federal and state banking regulations place certain restrictions on dividends paid and loans or
advances made by the Bank to the Company. The total amount of dividends declared in any calendar
year cannot exceed the Banks net income for the current year, plus the Banks net income retained
for the two previous years, without regulatory approval. In addition, loans or advances by the
Bank to the Company are limited to 10 percent of the Banks capital stock and surplus on a secured
basis.
At December 31, 2007, the Banks total retained earnings available for the payment of dividends was
$3.4 million. Accordingly, $55.3 million of the Companys equity in the net assets of the Bank was
restricted at December 31, 2007. Funds available for loans or advances by the Bank to the Company
amounted to $5.9 million.
The Company and the Bank may not declare or pay dividends if the effect thereof would cause
stockholders equity to be reduced below applicable minimum regulatory capital requirements.
Stockholders Rights Plan
In 1996, the Board of Directors adopted a stockholder rights plan declaring a dividend of one
preferred stock purchase right for each share of outstanding common stock. The rights will remain
attached to the common stock and are not exercisable except under limited circumstances relating to
(i) acquisition of beneficial ownership of more than 10% of the outstanding shares of common stock,
or (ii) a tender offer or exchange offer that would result in a person or group beneficially owning
more than 10% of the outstanding shares of common stock. The rights are not exercisable until those
aforementioned circumstances occur. The rights under the plan as adopted in 1996 would have expired
in 2006. In November 2005, however, the Board of Directors approved a renewed rights plan to
become effective upon the expiration of the plan in 2006. The terms of the renewed rights plan are
substantially similar to those of the previous plan and expires in 2016. Until a right is
exercised, the holder has no rights to vote or to receive dividends. The rights are not taxable to
stockholders until exercisable.
Treasury Stock
Effective July 1, 2004, companies incorporated in Massachusetts became subject to the Massachusetts
Business Corporation Act (Chapter 156D). Chapter 156D provides that shares that are reacquired
by a company become authorized but unissued shares. As a result, Chapter 156D eliminates the
concept of treasury shares. Accordingly, shares previously reported as treasury stock by the
Company at December 31, 2004, have been redesignated, at an aggregate cost of approximately $2.8
million, as authorized but unissued shares. This aggregate cost has been allocated to the common
stocks par value and retained earnings. There was no impact to total equity. Also effective July
1, 2004, Chapter 156D eliminated the concept of par value. The effect of that change was to
48
supersede the historic prohibition against issuing par value stock for less than par. There is no
minimum price at which the Company may issue shares. The Company continues to show on its balance
sheet the par value per share of $0.10, as well as the aggregate amount of the par value for the
shares of common stock issued and outstanding as the Company believes that presentation facilitates
a better understanding of the stockholders equity section.
(10) EMPLOYEE BENEFITS
Pension Plan
On October 18, 2006, the Company announced that its Board of Directors had approved the termination
of its defined benefit employee pension plan effective on December 31, 2006. All assets of the
defined benefit plan were to be applied to the payment of the accrued benefit obligations and plan
expenses in connection with the plans termination. No pension benefits accrued under the defined
benefit plan as of the termination date were reduced or forfeited in connection with the plan
termination. In connection with the termination of the defined benefit plan, the Company froze
future pension benefits effective December 31, 2006. As a result of that cessation of future
pension benefits, in the fourth quarter of 2006, the Company recognized a pre-tax curtailment gain
of $602,000 due to the reversal of the accrued pension liability recorded on the financial
statements.
The Company provided pension benefits for its employees through membership in the Savings Bank
Employees Retirement Association (the Plan). The Plan was a multiple-employer, non-contributory,
defined benefit plan. Bank employees became eligible after attaining age 21 and completing one year
of service. Additionally, benefits became fully vested after three years of eligible service and
the Companys annual contribution to the Plan was based upon standards established by the Employee
Retirement Income Security Act.
During the year ended December 31, 2007, the Company distributed the Plan assets and recorded
settlement gains in proportion to the distributions. During the third and fourth quarters of 2007,
the Company recorded pre-tax settlement gains of $357,000 and $405,000, respectively, or a total of
$762,000 in conjunction with the distribution of $6.4 million in Plan assets.
The Company adopted SFAS 158 on December 31, 2006 which resulted in the recognition of the net
gains or losses and prior service costs that had not yet been included in the net periodic benefits
costs as components of the ending balance of accumulated other comprehensive income, net of tax.
The Companys adoption of SFAS 158 resulted in the reduction of $762,000 in pension benefit
obligations net of deferred taxes of $312,000 and an adjustment to accumulated other comprehensive
income of $450,000. These amounts have been reversed as the settlement gains have been recognized
in the third and fourth quarters of 2007.
The following table sets forth the Plans funded status and amounts recognized in the Companys
Consolidated Financial Statements through the Plans latest valuation dates which were October 31,
2007 and 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended October 31,
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
(In Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in projected benefit obligation:
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year
|
|
$
|
6,100
|
|
|
$
|
8,350
|
|
|
$
|
7,456
|
|
Service cost
|
|
|
|
|
|
|
353
|
|
|
|
347
|
|
Interest cost
|
|
|
308
|
|
|
|
480
|
|
|
|
428
|
|
Curtailment and settlement gains on pension plan termination
|
|
|
(762
|
)
|
|
|
(602
|
)
|
|
|
|
|
Actuarial (gain) loss
|
|
|
717
|
|
|
|
(485
|
)
|
|
|
261
|
|
Benefits paid
|
|
|
(6,363
|
)
|
|
|
(1,996
|
)
|
|
|
(142
|
)
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation at end of year
|
|
$
|
|
|
|
$
|
6,100
|
|
|
$
|
8,350
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
$
|
6,100
|
|
|
$
|
7,231
|
|
|
$
|
6,778
|
|
Actual return on plan assets
|
|
|
263
|
|
|
|
865
|
|
|
|
595
|
|
Employer contribution
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits paid
|
|
|
(6,363
|
)
|
|
|
(1,996
|
)
|
|
|
(142
|
)
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of year
|
|
$
|
|
|
|
$
|
6,100
|
|
|
$
|
7,231
|
|
|
|
|
|
|
|
|
|
|
|
The discount rate and rate of increase in future compensation levels used in determining the
actuarial present value of the projected benefit obligation were 4.85% and 0% for 2007 and 5.75%
and 4.50%, for 2006, respectively.
49
Net pension cost components for the years ended October 31, follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
(In Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
|
|
|
$
|
353
|
|
|
$
|
347
|
|
Interest cost
|
|
|
308
|
|
|
|
480
|
|
|
|
428
|
|
Expected return on plan assets
|
|
|
(296
|
)
|
|
|
(579
|
)
|
|
|
(542
|
)
|
Net amortization and deferrals
|
|
|
(12
|
)
|
|
|
(4
|
)
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
Net periodic pension cost
|
|
$
|
|
|
|
$
|
250
|
|
|
$
|
229
|
|
|
|
|
|
|
|
|
|
|
|
Assumptions used to develop the net periodic pension cost were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Discount rate
|
|
|
4.85
|
%
|
|
|
5.75
|
%
|
|
|
5.75
|
%
|
Rate of increase in compensation levels
|
|
|
|
|
|
|
4.50
|
|
|
|
4.50
|
|
Expected long-term rate of return on assets
|
|
|
4.85
|
%
|
|
|
8.00
|
|
|
|
8.00
|
|
In general, the Company has selected the assumptions with respect to the expected long-term rate of
return based on prevailing yields on high quality debt securities increased by a premium of 3% to
5% for equity securities. At December 31, 2006, Plan assets consisted of 35% debt securities and
65% equity securities.
401(k) Savings Plan
The Company provides an employee savings plan (the Savings Plan) through the Savings Banks
Employees Retirement Association. The Savings Plan qualifies as a deferred salary arrangement
under Section 401(k) of the Internal Revenue Code. Under the Savings Plan, employees may defer a
portion of their pretax earnings, up to the Internal Revenue Service annual contribution limit.
Employees are eligible to participate in the Savings Plan immediately upon employment with the
Company provided they have attained 21 years of age. Company employees become eligible for
matching contributions after completing one year of service with 1,000 hours or more. On an annual
basis, the Company determines whether or not to contribute to the Savings Plan. Effective January
1, 2007, the Company adopted safe harbor contributions of 3% of total compensation on all
employees, regardless of their participation in the voluntary savings plan. The Company recognized
expenses of $182,000, $79,000, and $104,000 on behalf of the employees who were in the Savings Plan
for the years ended December 31, 2007, 2006 and 2005, respectively.
Post-Retirement Plan Other Than Pensions
In addition to the Companys defined benefit pension plan, the Company sponsored a defined benefit
post-retirement plan that provided life insurance benefits to existing retirees. Prior to the
changes adopted during 2006, the Company offered limited post-retirement medical benefits to
certain full-time employees who retire before age 65 and life insurance benefits to full-time
employees who retire after age 62 and after completing 10 years of service. The plan is
non-contributory and unfunded.
The amounts of accrued post-retirement benefit cost reported on the Companys consolidated balance
sheets were $258,000 and $265,000 as of December 31, 2007 and 2006, respectively. Total
post-retirement other than pension expense (credit) totaled $16,000, $(181,000) and $41,000 for the
years ended December 31, 2007, 2006 and 2005, respectively. Included in the 2006 amounts were the
reversal of the accrued post-retirement liability of $232,000 resulting from the curtailment
benefit due to the plan changes. The adoption of SFAS No. 158 on December 31, 2006, did not impact
the accrued post-retirement benefit liability.
Employee Stock Ownership Plan
Effective January 1, 2007, the Company established an Employee Stock Ownership Plan (the ESOP)
that covers all employees who meet specified age and length of service requirements. The Company
will make contributions to the ESOP which will in turn, use the cash contributions to purchase
Company stock on the open market. The Company contributions are discretionary and are included in
the salary and employee benefits expense and totaled $150,000 for the year ended December 31, 2007.
Incentive Compensation Plan
The Incentive Compensation Plan provides for the payment of bonuses to officers under certain
circumstances based upon the Companys pre-tax earnings adjusted for gains or losses from sales of
assets, targeted returns on assets and the individuals accomplishment of established goals and
objectives. Amounts are to be allocated to participants as determined by the Companys
Compensation Committee based on the recommendation of the President and subject to approval by its
Board of Directors. During the years ended December 31, 2007, 2006 and 2005, respectively,
payments of $333,000, $167,000 and $218,000, respectively, were made to certain officers under this
Plan. Of the amounts paid during 2006, approximately $130,000 was paid to former senior executives
under the employment agreements.
Employment Termination or Change-in-Control Agreements
The Company has entered into special termination agreements with its President and Chief Executive
Officer and certain other executives. The agreements provide generally that if there is a
change-in-control of the Company and if, within two years after such event, the officers
employment is terminated for any reason (other than death, disability or cause, as defined in the
agreements), then the officer would be entitled to receive a lump-sum severance payment in an
amount equal to approximately three times his or her
50
average annual compensation over the five previous years of his or her employment with the Company
(or such shorter period in which the officer was employed) and the continuation of his of her life,
medical and disability benefits at the same level of coverage and at the same out-of-pocket cost to
the officer, immediately prior to the change-in-control, or at the officers election, the earlier
commencement of the proposed business combination (as defined in the agreement) that results in
such change-in-control. For the purpose of these special termination agreements, a
change-in-control will be deemed to have occurred upon (i) the completion of certain mergers or
other business combinations, liquidations, or sale or other transactions as described in the
agreements, (ii) the acquisition by a person or group of persons of beneficial ownership of 25% or
more of the Common Stock, or (iii) certain changes to the majority of the Board of Directors within
a two-year period, including as the result of a tender offer, proxy contest, merger or similar
transaction. As used in the special termination agreement, the term change-in-control would
include one or more transactions that could be considered to be a merger of equals. The special
termination agreements provide that no payment by the Company to or for the benefit of the officer
under the agreement will be made to the extent such payment would be non-deductible to the Company
by reason of the operation of Section 280G of the Internal Revenue Code of 1986, as amended,
relating to so-called parachute payments.
Supplemental Executive Retirement Plan
The Company has two supplemental executive retirement plans with a former president and chief
executive officer. These plans require that the Company begin payments to the former president
commencing January 1, 2007 and was derived from the three years of gross compensation prior to his
retirement. These plans are unfunded. As of December 31, 2007 and 2006, the accrued liability
recorded on the consolidated balance sheet was $1.3 million and $1.4 million, respectively.
Expenses associated with the plans totaled $76,000, $99,000, and $(73,000), for the years ended
December 31, 2007, 2006 and 2005, respectively.
(11) STOCK COMPENSATION AWARDS
The Board offers options on its common stock to Directors and Officers to purchase unissued common
stock of the Company at a price equal to the fair market value of the Companys common stock on the
date of grant. The Company issues shares for option exercises and restricted stock issuances from
its pool of authorized but unissued shares. The following table presents the amount of cumulatively
granted options and restricted stock awards, net of cancellations, through December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative Option
|
|
|
Authorized
|
|
Cumulative
|
|
Awards, Net of
|
|
|
Awards
|
|
Stock Awards
|
|
Expiration
|
1986 Plan
|
|
|
720,500
|
|
|
|
N/A
|
|
|
|
430,250
|
|
1997 Plan
|
|
|
449,500
|
|
|
|
N/A
|
|
|
|
444,775
|
|
2006 Plan
|
|
|
400,000
|
|
|
|
14,000
|
|
|
|
59,575
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,570,000
|
|
|
|
14,000
|
|
|
|
934,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2007, there were no shares available for grant under either the 1986 Plan or the
1997 Plan due to their expiration. At December 31, 2007, there were 326,425 shares available for
grant under the 2006 Plan. Under all plans, the option exercise price equals the fair market value
on the date of grant.
All options granted prior to December 31, 2005 vested over three years from the date of grant and
have ten-year contractual terms and expire between 2008 and 2015. The vesting schedule for all
options granted provides for 50% of options granted to vest after the first year and an additional
25% to vest each year thereafter.
All options granted after January 1, 2006 vest over two years from the date of grant and have
seven-year contractual terms and expire between 2013 and 2014. The vesting schedule for these
grants typically provides for 50% of the options granted to vest immediately and an additional 25%
to vest each year thereafter. Options are fully vested two years after the grant date with the
exception of the stock option grants to the Directors during 2007, which were immediately vested at
the time of the grant.
The 14,000 restricted stock awards were granted during 2006 and represented shares of stock granted
with a transfer restriction of one year. These stock awards were fully vested upon grant.
The total compensation expense related to all equity awards recognized in earnings by the Company
in the years ended December 31, 2007 and 2006 was $121,000 and $400,000 and the related tax benefit
was $22,000 and $122,000, respectively. The expense for the year ended December 31, 2007,
represented stock options granted in 2006 of $38,000 and stock options granted in 2007 of $83,000.
The expense for the year ended December 31, 2006, represented stock options granted in 2004 of
$95,000, stock options granted in 2006 of $75,000 and compensation expense on stock awards of
$230,000.
51
A summary of the status of the Companys 2006 Plan, 1997 Plan and 1986 Plan as of December 31, and
changes during the years ended follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Average
|
|
|
|
Number of
|
|
|
Exercise
|
|
|
Number of
|
|
|
Exercise
|
|
|
Number of
|
|
|
Exercise
|
|
|
|
Options
|
|
|
Price
|
|
|
Options
|
|
|
Price
|
|
|
Options
|
|
|
Price
|
|
Outstanding at beginning of year
|
|
|
244,900
|
|
|
$
|
14.07
|
|
|
|
349,100
|
|
|
$
|
12.88
|
|
|
|
511,350
|
|
|
$
|
10.97
|
|
Granted
|
|
|
38,500
|
|
|
|
16.39
|
|
|
|
40,000
|
|
|
|
16.41
|
|
|
|
8,400
|
|
|
|
17.66
|
|
Exercised
|
|
|
(13,300
|
)
|
|
|
8.76
|
|
|
|
(133,775
|
)
|
|
|
11.44
|
|
|
|
(168,250
|
)
|
|
|
7.24
|
|
Forfeited
|
|
|
(8,500
|
)
|
|
|
16.69
|
|
|
|
(10,425
|
)
|
|
|
16.77
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(10,000
|
)
|
|
|
16.77
|
|
|
|
|
|
|
|
|
|
|
|
(2,400
|
)
|
|
|
18.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of year
|
|
|
251,600
|
|
|
|
14.51
|
|
|
|
244,900
|
|
|
|
14.07
|
|
|
|
349,100
|
|
|
|
12.88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable end of year
|
|
|
225,850
|
|
|
|
14.29
|
|
|
|
209,325
|
|
|
|
13.65
|
|
|
|
249,050
|
|
|
|
12.07
|
|
Weighted average fair value of
options granted during the year
|
|
|
|
|
|
$
|
3.50
|
|
|
|
|
|
|
$
|
3.76
|
|
|
|
|
|
|
$
|
3.17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2007, the aggregate intrinsic value of outstanding options and exercisable options
was $363,000 and $377,000, respectively. The intrinsic value is based on the average of the high
price and low price at which the Companys common stock traded on December 31, 2007 of $15.96 as
compared to the weighted average exercise price for all outstanding stock options, as well as all
exercisable stock options on that date.
For the years ended December 31, 2007 and 2006, the total intrinsic value of options exercised was
$112,000 and $831,000, respectively.
The fair value of each option grant is estimated on the grant date using the Black-Scholes
option-pricing model with the following weighted average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
2005
|
Expected volatility
|
|
|
25.00
|
%
|
|
|
25.00
|
%
|
|
|
29.30
|
%
|
Risk-free interest rate
|
|
|
3.88
|
%
|
|
|
4.60
|
%
|
|
|
3.82
|
%
|
Expected dividend yield
|
|
|
3.42
|
%
|
|
|
3.41
|
%
|
|
|
3.25
|
%
|
Expected life in years
|
|
7 years
|
|
7 years
|
|
7 years
|
The expected volatility is based on historical volatility. The risk-free interest rates for
periods within the contractual life of the awards are based on the U.S. Treasury yield curve in
effect at the time of the grant. The expected life is based on historical exercise experience.
The dividend yield assumption is based on the Companys history and expectation of dividend
payouts.
A summary of the status of the Companys nonvested stock options as of December 31, 2007 and
changes during the year then ended is presented in the table below:
|
|
|
|
|
|
|
|
|
|
|
Nonvested Stock Options
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
|
Grant Date
|
|
|
|
Shares
|
|
|
Fair Value
|
|
Nonvested at January 1, 2007
|
|
|
35,575
|
|
|
$
|
16.59
|
|
Granted
|
|
|
38,500
|
|
|
|
16.39
|
|
Vested
|
|
|
(47,325
|
)
|
|
|
16.50
|
|
Forfeited
|
|
|
(1,000
|
)
|
|
|
16.41
|
|
|
|
|
|
|
|
|
|
Nonvested at December 31, 2007
|
|
|
25,750
|
|
|
$
|
16.46
|
|
|
|
|
|
|
|
|
At December 31, 2007, the total compensation cost not yet recognized related to non-vested options
was $90,000 and the weighted average period over which it is expected to be recognized was 1.6
years.
The weighted average remaining life of outstanding options and exercisable options at December 31,
2007 was 4.8 years and 4.5 years, respectively.
52
(12) CONTINGENCIES
The Bank and the Company are, from time to time, involved as either a plaintiff or defendant in
various legal actions incident to its business. Other that discussed above, none of these actions
are believed to be material, either individually or collectively, to the results of operations and
financial condition of the Company.
In
Lawrence Savings Bank vs. Garabedian et al.,
the Bank was awarded a $4.2 million judgment
against the debtor in 1997. The judgment was subsequently upheld on appeal. On February 13, 2002,
the debtor filed a petition in bankruptcy. The Bank filed a claim as secured creditor for the
amount of its judgment plus post-judgment interest of approximately $1.9 million. On June 15,
2004, and December 15, 2005, respectively, the Company reported the Banks receipt of interim and
final distributions from the bankruptcy proceeding in the amounts of $2.5 million and $2.2 million.
During 2004, the Bank recognized $253,000 of the interim distribution as a recovery to its
allowance for loan losses on amounts previously charged off. No further recoveries are expected.
(13) FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Company is a party to financial instruments with off-balance sheet risk. These instruments, in
the form of commitments to extend credit and financial and standby letters of credit, are offered
in the normal course of business to meet the financing needs of customers. The company is exposed
to varying degrees of credit and interest rate risk in excess of amounts recognized in the
consolidated financial statements as a result of such transactions. Commitments to extend credit
are agreements to lend to a customer as long as there is compliance with conditions established in
the agreement. These extensions of credit are based upon traditional underwriting standards and
generally have a fixed expiration date of less than five years.
Letters of credit are documents issued by the Company on behalf of its customers in favor of third
parties, who can present requests for drafts from the Company within specified terms and
conditions. Letters of credit are secured by cash deposits. Standby letters of credit are
conditional commitments issued by the Company to guarantee payment to a third party. Outstanding
letters of credit generally expire within one year. The credit risk involved with these
instruments is similar to the risk of extending loans and, accordingly, the underwriting standards
are also similar. It is expected that most letters of credit will not require cash disbursements.
The components of financial instruments with off-balance sheet risk at December 31, follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
|
|
|
Variable
|
|
|
|
|
2007
|
|
Rate
|
|
|
Rate
|
|
|
Total
|
|
(In Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial instruments with contract amounts represent credit risk:
|
|
|
|
|
|
|
|
|
|
|
|
|
Unused commitments to extend credit:
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgages
|
|
$
|
1,540
|
|
|
$
|
1,620
|
|
|
$
|
3,160
|
|
Home equity lines of credit
|
|
|
1,372
|
|
|
|
12,855
|
|
|
|
14,227
|
|
Personal lines of credit
|
|
|
142
|
|
|
|
|
|
|
|
142
|
|
Commercial real estate mortgage
|
|
|
283
|
|
|
|
29,846
|
|
|
|
30,129
|
|
Construction
|
|
|
|
|
|
|
36,128
|
|
|
|
36,128
|
|
Commercial loans
|
|
|
156
|
|
|
|
26,460
|
|
|
|
26,616
|
|
|
|
|
|
|
|
|
|
|
|
Total unused commitments
|
|
$
|
3,493
|
|
|
$
|
106,909
|
|
|
$
|
110,402
|
|
|
|
|
|
|
|
|
|
|
|
Letters of credit and standby letters of credit
|
|
$
|
|
|
|
$
|
1,770
|
|
|
$
|
1,770
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
|
|
|
Variable
|
|
|
|
|
2006
|
|
Rate
|
|
|
Rate
|
|
|
Total
|
|
(In Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial instruments with contract amounts represent credit risk:
|
|
|
|
|
|
|
|
|
|
|
|
|
Unused commitments to extend credit:
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgages
|
|
$
|
757
|
|
|
$
|
|
|
|
$
|
757
|
|
Home equity lines of credit
|
|
|
1,625
|
|
|
|
10,226
|
|
|
|
11,851
|
|
Personal lines of credit
|
|
|
145
|
|
|
|
|
|
|
|
145
|
|
Commercial real estate mortgage
|
|
|
27
|
|
|
|
33,839
|
|
|
|
33,866
|
|
Construction
|
|
|
|
|
|
|
42,559
|
|
|
|
42,559
|
|
Commercial loans
|
|
|
26
|
|
|
|
36,294
|
|
|
|
36,320
|
|
|
|
|
|
|
|
|
|
|
|
Total unused commitments
|
|
$
|
2,580
|
|
|
$
|
122,918
|
|
|
$
|
125,498
|
|
|
|
|
|
|
|
|
|
|
|
Letters of credit and standby letters of credit
|
|
$
|
|
|
|
$
|
1,137
|
|
|
$
|
1,137
|
|
|
|
|
|
|
|
|
|
|
|
53
(14) FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of each class of
financial instruments for which it is practicable to estimate that value.
The fair values for cash and short-term investments approximate their carrying amounts because of
the short maturity of these instruments. The fair values for investment securities available for
sale are based on quoted bid prices received from securities dealers or third party pricing
services. The fair value of stock in the Federal Home Loan Bank of Boston equals its carrying
amount as reported in the balance sheet because this stock is redeemable only at par by the FHLBB.
Loans are estimated by discounting contractual cash flows adjusted for prepayment estimates and
using discount rates approximately equal to current market rates on loans with similar
characteristics and maturities. The incremental credit risk for non-performing loans has been
considered in the determination of the fair value of the loans. The fair values of demand deposit
accounts, NOW accounts, savings accounts and money market accounts are equal to their respective
carrying amounts since they are equal to the amounts payable on demand at the reporting date.
Certificates of deposit, Federal Home Loan Bank advances, and wholesale repurchase agreements are
based on the discounted value of contractual cash flows. The discount rates used are
representative of approximate rates currently offered on instruments with similar remaining
maturities. The fair values of short-term borrowed funds, accrued interest receivable, mortgagors
escrow accounts and accrued interest payable approximate their carrying amounts because of the
short-term nature of these financial instruments. The majority of the Companys commitments for
unused lines and outstanding standby letters of credit and unadvanced portions of loans are at
floating rates and, therefore, there is no fair value adjustment.
The estimated fair values of the Banks financial instruments at December 31, follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
|
Carrying
|
|
Fair
|
|
Carrying
|
|
Fair
|
|
|
Value
|
|
Value
|
|
Value
|
|
Value
|
(In Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
7,494
|
|
|
$
|
7,494
|
|
|
$
|
6,896
|
|
|
$
|
6,896
|
|
Short-term investments
|
|
|
56
|
|
|
|
56
|
|
|
|
11,871
|
|
|
|
11,871
|
|
Investment securities available for sale
|
|
|
230,596
|
|
|
|
230,596
|
|
|
|
218,682
|
|
|
|
218,682
|
|
Federal Home Loan Bank stock
|
|
|
10,185
|
|
|
|
10,185
|
|
|
|
10,046
|
|
|
|
10,046
|
|
Accrued interest receivable
|
|
|
2,453
|
|
|
|
2,453
|
|
|
|
2,259
|
|
|
|
2,259
|
|
Loans, net
|
|
|
353,303
|
|
|
|
352,493
|
|
|
|
283,854
|
|
|
|
281,665
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
322,083
|
|
|
|
322,920
|
|
|
|
295,662
|
|
|
|
295,012
|
|
Borrowed funds
|
|
|
235,351
|
|
|
|
243,141
|
|
|
|
184,782
|
|
|
|
184,713
|
|
Mortgagors escrow accounts
|
|
|
647
|
|
|
|
647
|
|
|
|
586
|
|
|
|
586
|
|
Accrued interest payable
|
|
|
1,013
|
|
|
|
1,013
|
|
|
|
756
|
|
|
|
756
|
|
Off-balance sheet financial instruments generally have interest rates which reflect current market
rates. Management has determined that the difference between the carrying and fair value of these
instruments is not material.
54
(15) CONDENSED PARENT COMPANY FINANCIAL STATEMENTS.
The condensed financial statements for LSB Corporation, referred to as the Parent Company for
purposes of this Note only at and for the year ended December 31, follow:
|
|
|
|
|
|
|
|
|
Balance Sheets
|
|
2007
|
|
|
2006
|
|
(In Thousands)
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
Cash deposits in subsidiaries
|
|
$
|
1,320
|
|
|
$
|
1,897
|
|
Investment in subsidiary, at equity
|
|
|
58,642
|
|
|
|
56,194
|
|
Other assets
|
|
|
458
|
|
|
|
513
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
60,420
|
|
|
$
|
58,604
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity:
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Accrued income taxes
|
|
$
|
24
|
|
|
$
|
|
|
Accrued expenses
|
|
|
98
|
|
|
|
73
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
122
|
|
|
|
73
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
60,298
|
|
|
|
58,531
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
60,420
|
|
|
$
|
58,604
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statements of Operations
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
(In Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends from bank subsidiary
|
|
$
|
3,200
|
|
|
$
|
|
|
|
$
|
1,800
|
|
Interest income
|
|
|
64
|
|
|
|
106
|
|
|
|
103
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income
|
|
|
3,264
|
|
|
|
106
|
|
|
|
1,903
|
|
Non-interest expenses
|
|
|
241
|
|
|
|
357
|
|
|
|
243
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes and undistributed earnings
|
|
|
3,023
|
|
|
|
(251
|
)
|
|
|
1,660
|
|
Income tax benefit
|
|
|
(61
|
)
|
|
|
(88
|
)
|
|
|
(48
|
)
|
|
|
|
|
|
|
|
|
|
|
Income before undistributed earnings of subsidiary
|
|
|
3,084
|
|
|
|
(163
|
)
|
|
|
1,708
|
|
Equity in undistributed earnings of subsidiary
|
|
|
634
|
|
|
|
289
|
|
|
|
2,449
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
3,718
|
|
|
$
|
126
|
|
|
$
|
4,157
|
|
|
|
|
|
|
|
|
|
|
|
The Parent Companys statements of changes in stockholders equity are identical to the
consolidated statements of changes in stockholders equity and therefore are not presented here.
55
|
|
|
|
|
|
|
|
|
|
|
|
|
Statements of Cash Flows
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
(In Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
3,718
|
|
|
$
|
126
|
|
|
$
|
4,157
|
|
Adjustments to reconcile net income to net cash
provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net distributed earnings of subsidiaries
|
|
|
(634
|
)
|
|
|
(289
|
)
|
|
|
(2,449
|
)
|
Decrease (increase) in other assets
|
|
|
55
|
|
|
|
(284
|
)
|
|
|
(217
|
)
|
Increase in liabilities
|
|
|
49
|
|
|
|
23
|
|
|
|
(22
|
)
|
Accretion of discounts on investment securities
|
|
|
|
|
|
|
(19
|
)
|
|
|
(103
|
)
|
|
|
|
|
|
|
|
|
|
|
Net cash (used) provided by operating activities
|
|
|
3,188
|
|
|
|
(443
|
)
|
|
|
1,366
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of investment securities held to maturity
|
|
|
|
|
|
|
|
|
|
|
(32,882
|
)
|
Proceeds from maturities of investment securities
|
|
|
|
|
|
|
2,900
|
|
|
|
33,100
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by investing activities
|
|
|
|
|
|
|
2,900
|
|
|
|
218
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from exercise of stock options and tax benefits
|
|
|
260
|
|
|
|
1,735
|
|
|
|
723
|
|
Repurchases of common stock
|
|
|
(1,463
|
)
|
|
|
|
|
|
|
|
|
Dividends paid to stockholders
|
|
|
(2,562
|
)
|
|
|
(2,542
|
)
|
|
|
(2,484
|
)
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(3,765
|
)
|
|
|
(807
|
)
|
|
|
(1,761
|
)
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(577
|
)
|
|
|
1,650
|
|
|
|
(177
|
)
|
Cash and cash equivalents, beginning of year
|
|
|
1,897
|
|
|
|
247
|
|
|
$
|
424
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
$
|
1,320
|
|
|
$
|
1,897
|
|
|
$
|
247
|
|
|
|
|
|
|
|
|
|
|
|
56
(16) Quarterly Results of Operations (Unaudited)
The sum of the four rounded quarters might not necessarily equal the rounded year-to-date figures.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
March
|
|
|
June
|
|
|
September
|
|
|
December
|
|
|
|
31
|
|
|
30
|
|
|
30
|
|
|
31
|
|
(In Thousands, Except Per Share Data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and dividend income
|
|
$
|
8,093
|
|
|
$
|
8,511
|
|
|
$
|
9,100
|
|
|
$
|
9,304
|
|
Interest expense
|
|
|
4,319
|
|
|
|
4,667
|
|
|
|
5,262
|
|
|
|
5,432
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
3,774
|
|
|
|
3,844
|
|
|
|
3,838
|
|
|
|
3,872
|
|
Provision for loan losses
|
|
|
60
|
|
|
|
155
|
|
|
|
250
|
|
|
|
180
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for loan losses
|
|
|
3,714
|
|
|
|
3,689
|
|
|
|
3,588
|
|
|
|
3,692
|
|
Settlement gains on pension plan termination
|
|
|
|
|
|
|
|
|
|
|
357
|
|
|
|
405
|
|
Non-interest income
|
|
|
354
|
|
|
|
434
|
|
|
|
568
|
|
|
|
566
|
|
Non-interest expense
|
|
|
2,858
|
|
|
|
2,874
|
|
|
|
2,904
|
|
|
|
2,922
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense
|
|
|
1,210
|
|
|
|
1,249
|
|
|
|
1,609
|
|
|
|
1,741
|
|
Income tax expense
|
|
|
446
|
|
|
|
417
|
|
|
|
577
|
|
|
|
651
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
764
|
|
|
$
|
832
|
|
|
$
|
1,032
|
|
|
$
|
1,090
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
0.17
|
|
|
$
|
0.18
|
|
|
$
|
0.22
|
|
|
$
|
0.24
|
|
Diluted earnings per share
|
|
$
|
0.17
|
|
|
$
|
0.18
|
|
|
$
|
0.22
|
|
|
$
|
0.24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
March
|
|
|
June
|
|
|
September
|
|
|
December
|
|
|
|
31
|
|
|
30
|
|
|
30
|
|
|
31
|
|
(In Thousands, Except Per Share Data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and dividend income
|
|
$
|
6,535
|
|
|
$
|
7,047
|
|
|
$
|
7,553
|
|
|
$
|
7,821
|
|
Interest expense
|
|
|
3,241
|
|
|
|
3,744
|
|
|
|
3,924
|
|
|
|
4,253
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
3,294
|
|
|
|
3,303
|
|
|
|
3,629
|
|
|
|
3,568
|
|
Provision for loan losses
|
|
|
|
|
|
|
30
|
|
|
|
30
|
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for loan losses
|
|
|
3,294
|
|
|
|
3,273
|
|
|
|
3,599
|
|
|
|
3,468
|
|
Loss on sale of investments
|
|
|
|
|
|
|
(2,417
|
) (1)
|
|
|
|
|
|
|
|
|
Curtailment gain on pension plan termination
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
602
|
|
Non-interest income
|
|
|
330
|
|
|
|
343
|
|
|
|
327
|
|
|
|
410
|
|
Non-interest expense
|
|
|
3,223
|
|
|
|
4,149
|
(2)
|
|
|
2,645
|
|
|
|
3,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax
|
|
|
401
|
|
|
|
(2,950
|
)
|
|
|
1,281
|
|
|
|
1,480
|
|
Income tax expense (benefit)
|
|
|
141
|
|
|
|
(1,008
|
)
|
|
|
473
|
|
|
|
480
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
260
|
|
|
$
|
(1,942
|
)
|
|
$
|
808
|
|
|
$
|
1,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share
|
|
$
|
0.06
|
|
|
$
|
(0.43
|
)
|
|
$
|
0.18
|
|
|
$
|
0.22
|
|
Diluted earnings (loss) per share
|
|
$
|
0.06
|
|
|
$
|
(0.42
|
)
|
|
$
|
0.18
|
|
|
$
|
0.22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Includes losses of $2.4 million realized from a balance sheet restructuring of the investment
portfolio.
|
|
(2)
|
|
Includes $800,000 in costs related to the name change of the Companys subsidiary bank to River
Bank and former employee severance payments.
|
57
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
Information regarding the Companys change of accountants from KPMG LLP to Wolf & Company, P.C.
required by Item 304 of Regulations S-K pursuant to Rule 14a-3 is incorporated by reference herein
from the section in the Companys definitive Proxy Statement relating to the 2008 Annual Meeting of
Stockholders of the Company to be held May 6, 2008 (the Proxy Statement) entitled Change of
Independent Accountant.
There were no disagreements or other reportable events of the type for which disclosure would be
required under Item 304(b) of
Regulation S-K.
ITEM 9A (T). CONTROLS AND PROCEDURES
(a) Disclosure of Controls and Procedures
The Companys management, including the Companys Chief Executive Officer and Chief Financial
Officer, have evaluated the effectiveness of the Companys disclosure controls and procedures, as
such term is defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as
amended, (the Exchange Act). Based upon their evaluation, the principal executive officer and
principal financial officer concluded that, as of the end of the period covered by this report, the
Companys disclosure controls and procedures were effective for the purpose of ensuring that the
information required to be disclosed in the reports that the Company files or submits under the
Exchange Act with the Securities and Exchange Commission (the SEC) (1) is recorded, processed,
summarized and reported within the time periods specified in the SECs rules and forms, and (2) is
accumulated and communicated to the Companys management, including its principal executive and
principal financial offers, as appropriate to allow timely decisions regarding required disclosure.
(b) Internal Controls Over Financial Reporting
Managements Report on Internal Control Over Financial Reporting
The management of the Company is responsible for establishing and maintaining adequate internal
control over financial reporting. The Companys internal control system was designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of the
Companys financial statements in accordance with accounting principles generally accepted in the
United States of America to the Companys management and Board of Directors regarding the
preparation of published financial statements.
All internal control systems, no matter how well designed, have inherent limitations. Therefore,
even those systems determined to be effective can provide only reasonable assurance with respect to
financial statement preparation and presentation.
Management assessed the effectiveness of the Companys internal control over financial reporting as
of December 31, 2007, using the framework set forth by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO) in
Internal Control-Integrated Framework
. Based on our assessment,
we believe that, as of December 31, 2007, the Companys internal control over financial reporting
is effective.
This report does not include an attestation report of the Companys registered public accounting
firm regarding internal control over financial reporting. Managements report was not subject to
attestation by the Companys registered public accounting firm pursuant to temporary rules of the
Securities and Exchange Commission that permit the Company to provide only managements report in
this annual report.
(c) Changes to Internal Control Over Financial Reporting
There were no changes in the Companys internal control over financial reporting during the three
months ended December 31, 2007 that have materially affected, or are reasonable likely to
materially affect, the Companys internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
58
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information required by Item 10 of this Form is incorporated by reference herein from those
sections in the Companys definitive Proxy Statement relating to the 2008 Annual Meeting of
Stockholders of the Company to be held May 6, 2008 (the Proxy Statement) entitled Information
Regarding Directors, Executive Officers, Section 16(a) Beneficial Ownership Reporting
Compliance and Code of Professional Conduct.
ITEM 11. EXECUTIVE COMPENSATION
Information required by Item 11 of this Form is incorporated by reference herein from the section
in the Companys Proxy Statement entitled Executive Compensation.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Information required by Item 12 of this Form is incorporated by reference herein from the sections
in the Companys Proxy Statement entitled Equity Compensation Plan Information and Security
Ownership of Certain Beneficial Owners and Management.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
Information required by Item 13 of this Form is incorporated by reference herein from the section
in the Companys Proxy Statement entitled Indebtedness of Directors and Management and Certain
Transactions with Management and Others.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information required by Item 14 of this Form is incorporated by reference herein from the sections
in the Companys Proxy Statement entitled Ratification of Independent Registered Public Accounting
Firm and The Board of Directors and its Committees Audit Committee..
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
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(a)
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The following documents are filed as part of this report:
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(1)
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Financial Statements: The following Consolidated Financial Statements of LSB Corporation and Subsidiary for the year ended December 31, 2007 are included in Item 8 of Part II to this report:
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Reports of Independent Registered Public Accounting Firm
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Consolidated Balance Sheets as of December 31, 2007 and 2006
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Consolidated Statements of Income for the years ended December 31, 2007, 2006 and 2005
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Consolidated Statements of Changes in Stockholders Equity for the years ended December 31, 2007, 2006 and 2005
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Consolidated Statements of Cash Flows for the years ended December 31, 2007, 2006 and 2005
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Notes to Consolidated Financial Statements
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(2)
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Financial Statement Schedules: None.
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(3)
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List of Exhibits: The following is a list of exhibits which are either filed or
incorporated by reference as part of this Annual Report on Form 10-K. Upon request to
Investors Relations, LSB Corporation, 30 Massachusetts Avenue, North Andover, MA 01845,
copies of the individual exhibits will be furnished upon payment of a reasonable
reproduction fee.
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59
Exhibits:
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Number
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Description of Exhibit
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(2)
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Plan of Reorganization and Acquisition, dated as of March 12, 2001 between LSB Corporation
and Lawrence Savings Bank (Filed as Exhibit 2.1 to the Companys Current Report on Form 8-K
filed July 2, 2001, (File Number 000-32955) and incorporated herein by reference)
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(3) (i).1
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Articles of Organization of LSB Corporation (Filed as Exhibit 3.1 to the Companys
Current Report on Form 8-K filed July 2, 2001, (File Number 000-32955) and incorporated herein
by reference)
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(3) (i).2
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Articles of Amendment of the Articles of Organization of LSB Corporation, as submitted
for filing in the Office of the Secretary of the Commonwealth of Massachusetts on December 30,
2005, (Filed as Exhibit 3(i).1 to the Companys Current Report on Form 8-K filed January 6,
2006, and incorporated herein by reference)
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(3) (ii)
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Amended and Restated By-Laws of LSB Corporation (Filed as Exhibit 3.1 to the Companys
Current Report on Form 8-K filed October 31, 2007, and incorporated herein by reference)
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(3) (iii)
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Lawrence Savings Bank Certificate of Vote of Directors Establishing a Series of a Class
of Stock (Filed as Exhibit 3(iii) to the Companys 2005 Annual Report on Form 10-K and
incorporated herein by reference)
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(4.1)
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Specimen certificate of shares of common stock of the Company (Filed as Exhibit 4.1 to the
Companys Current Report on Form 8-K filed July 2, 2001, (File Number 000-32955) and
incorporated herein by reference)
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(4.2)
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Renewed Rights Agreement dated as of November 17, 2005, between LSB Corporation and
Computershare Trust Company, N.A., as Rights Agent (Filed as Exhibit 4.1 to the Companys
Current Report on Form 8-K filed January 31, 2006, and incorporated herein by reference)
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(10.1)
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Supplemental Retirement Agreement by and between the Bank and Paul A. Miller dated April 21,
1989, (Filed as Exhibit 10.8 to the Companys Current Report on Form 8-K filed July 2, 2001,
(File Number 000-32955) and incorporated herein by reference)*
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(10.2)
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Supplemental Retirement Agreement by and between the Bank and Paul A. Miller dated April 21,
1996, (Filed as Exhibit 10.9 to the Companys Current Report on Form 8-K filed July 2, 2001,
(File Number 000-32955) and incorporated herein by reference)*
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(10.3)
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Lawrence Savings Bank 1986 Stock Option Plan (Filed as Exhibit 10.14 to the Companys
Current Report on Form 8-K filed July 2, 2001, (File Number 000-32955) and incorporated herein
by reference)*
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(10.4)
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Lawrence Savings Bank 1997 Stock Option Plan (Filed as Exhibit 10.15 to the Companys
Current Report on Form 8-K filed July 2, 2001, (File Number 000-32955) and incorporated herein
by reference)*
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(10.5)
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LSB Corporation 2006 Stock Option and Incentive Plan (Filed as Exhibit 10.1 to the Companys
Form S-8 filed June 5, 2006)*
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(10.6)
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LSB Corporations Form of Restricted Stock Agreement (Filed as Exhibit 10.1 to the Companys
Current Report on Form 8-K filed December 26, 2006, and incorporated herein by reference)*
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(10.7)
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LSB Corporations Form of Incentive Stock Option Agreement (Filed as Exhibit 10.2 to the
Companys Current Report on Form 8-K filed December 26, 2006, and incorporated herein by
reference)*
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(10.8)
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LSB Corporations Form of Non-Qualified Stock Option Agreement (Filed as Exhibit 10.3 to the
Companys Current Report on Form 8-K filed December 26, 2006, and incorporated herein by
reference)*
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(10.9)
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LSB Corporation and River Bank Employee Stock Ownership Plan (Filed as Exhibit 10.1 to the
Companys Current Report on Form 8-K filed March 19, 2007, and incorporated herein by
reference)*
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(10.10)
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LSB Corporation and River Bank Special Separation Plan (Filed as Exhibit 99.1 to the
Companys Current Report on Form 8-K filed December 14, 2007, and incorporated herein by
reference)*
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60
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Number
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Description of Exhibit
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(10.11)
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LSB Corporation and River Bank Special Termination Agreement with Gerald T. Mulligan (Filed
as Exhibit 10.2 to the Companys Current Form 10-Q filed August 14, 2006, and incorporated
herein by reference)*
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(10.12)
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LSB Corporation and River Bank Special Termination Agreement with Michael J. Ecker (Filed
as Exhibit 10.3 to the Companys Current Form 10-Q filed August 14, 2006, and incorporated
herein by reference)*
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(10.13)
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LSB Corporation and River Bank Special Termination Agreement with Stephen B. Jones (Filed
as Exhibit 10.4 to the Companys Current Form 10-Q filed August 14, 2006, and incorporated
herein by reference)*
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(10.14)
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LSB Corporation and River Bank Special Termination Agreement with Diane L. Walker (Filed as
Exhibit 10.5 to the Companys Current Form 10-Q filed August 14, 2006, and incorporated herein
by reference)*
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(13)
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2007 Annual Report to Stockholders of LSB Corporation enclosed herein (furnished solely for
the Commissions information)
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(14)
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LSB Corporation and River Bank Code of Professional Conduct (Filed as Exhibit 99.1 to the
Companys Current Report on Form 8-K filed November 20, 2006, and incorporated herein by
reference)
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(21)
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Subsidiary of LSB Corporation and subsidiaries of River Bank
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(23.1)
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Consent of Wolf & Company, P.C.
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(23.2)
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Consent of KPMG LLP
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(31.1)
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Certification of Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002
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(31.2)
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Certification of Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002
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(32.1)
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Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 as added by
Section 906 of the Sarbanes-Oxley Act of 2002
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(32.2)
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Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as added by
Section 906 of the Sarbanes-Oxley Act of 2002
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Financial Statement excluded from Annual Report to Stockholders: None
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*
|
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Management contract or compensatory plan or arrangement
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61
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
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LSB Corporation
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By:
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/s/ Gerald T. Mulligan
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President and Chief Executive Officer
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Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the registrant and in the capacities and on the dates
indicated. Each person whose signature appears below hereby makes, constitutes and appoints Gerald
T. Mulligan acting individually, his true and lawful attorney, with full power to sign for such
person and in such persons name and capacity indicated below any and all amendments to this Form
10-K, hereby ratifying and confirming such persons signature as it may be signed by said attorney
to any and all amendments.
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Signature
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Title
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Date
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/s/ Gerald T. Mulligan
Gerald T. Mulligan
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President, Chief Executive Officer and Director (Principal
Executive Officer)
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March 25, 2008
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/s/ Diane L. Walker
Diane L. Walker
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Executive Vice President, Treasurer and Chief
Financial Officer
(Principal Financial and Principal Accounting
Officer)
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March 25, 2008
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/s/ Thomas J. Burke
Thomas J. Burke
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Chairman of the Board
Director
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March 25, 2008
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/s/ Eugene A. Beliveau
Eugene A. Beliveau
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Director
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March 25, 2008
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/s/ Kathleen Boshar Reynolds
Kathleen Boshar Reynolds
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Director
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March 25, 2008
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/s/ Malcolm W. Brawn
Malcolm W. Brawn
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Director
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March 25, 2008
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/s/ Byron R. Cleveland, Jr.
Byron R. Cleveland, Jr.
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Director
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March 25, 2008
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/s/ Richard Hart Harrington
Richard Hart Harrington
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Director
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March 25, 2008
|
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/s/ Robert F. Hatem
Robert F. Hatem
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Director
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March 25, 2008
|
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|
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/s/ Marsha A. McDonough
Marsha A. McDonough
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Director
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March 25, 2008
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62
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