SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM 10-Q
Quarterly Report Under Section 13 of the Securities Exchange Act of 1934
For quarter ended: March 31, 2003
Commission File No. 001-16101
BANCORP RHODE ISLAND, INC.
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(Exact Name of Registrant as Specified in Its Charter)
RHODE ISLAND 05-0509802
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(State or Other Jurisdiction (IRS Employer
of Incorporation or Organization) Identification No.)
ONE TURKS HEAD PLACE, PROVIDENCE, RI 02903
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(Address of Principal Executive Offices)
(401) 456-5000
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(Issuer's Telephone Number, Including Area Code)
Not Applicable
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(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes ( X ) No
Indicate by check mark whether the Registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act). Yes No ( X )
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of May 9, 2003:
Common Stock - Par Value $0.01 3,790,850 shares
------------------------------ ----------------
(class) (outstanding)
BANCORP RHODE ISLAND, INC.
FORM 10-Q
INDEX
PAGE NUMBER
-----------
Cover Page 1
Index 2
PART I - FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Balance Sheets 3
Consolidated Statements of Operations 4
Consolidated Statements of Changes in
Shareholders' Equity 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 7 - 8
Item 2 Management's Discussion and Analysis 9 - 18
Item 3 Quantitative and Qualitative Disclosures
About Market Risk 19 - 20
PART II - OTHER INFORMATION
Item 1 Legal Proceedings 21
Item 2 Changes in Securities 21
Item 3 Default upon Senior Securities 21
Item 4 Submission of Matters to a Vote of Security Holders 21
Item 5 Other Information 21
Item 6 Exhibits and Reports on Form 8-K 21
Signature Page 22
Certifications Pursuant to Section 302 of the
Sarbanes-Oxley Act 23 - 24
2
BANCORP RHODE ISLAND, INC.
Consolidated Balance Sheets
March 31, December 31,
2003 2002
--------- ------------
(In thousands)
ASSETS:
Cash and due from banks $ 24,350 $ 25,336
Overnight investments 7,900 17,623
Investment securities available for sale (amortized cost of $96,274 and
$99,803 at March 31, 2003 and December 31, 2002, respectively) 97,501 101,329
Mortgage-backed securities available for sale (amortized cost of $139,920
and $154,225 at March 31, 2003 and December 31, 2002, respectively) 141,711 156,114
Stock in Federal Home Loan Bank of Boston 7,900 7,683
Loans receivable:
Residential mortgage loans 304,389 297,763
Commercial loans 298,612 280,967
Consumer and other loans 101,374 91,928
------------------------
Total loans 704,375 670,658
Less allowance for loan losses (10,435) (10,096)
------------------------
Net loans 693,940 660,562
Premises and equipment, net 11,296 9,702
Other real estate owned 31 58
Goodwill, net 10,766 10,766
Accrued interest receivable 6,084 6,183
Investment in bank owned life insurance 14,972 14,768
Prepaid expenses and other assets 3,291 2,753
------------------------
Total assets $1,019,742 $1,012,877
========================
LIABILITIES:
Deposits:
Demand deposit accounts $ 135,639 $ 137,920
NOW accounts 106,259 100,476
Money market accounts 11,187 10,660
Savings accounts 297,340 290,981
Certificate of deposit accounts 212,527 221,874
------------------------
Total deposits 762,952 761,911
Overnight and short-term borrowings 18,691 27,364
Federal Home Loan Bank of Boston borrowings 157,997 143,941
Company-obligated mandatorily redeemable capital securities 8,000 8,000
Other liabilities 4,653 5,234
------------------------
Total liabilities 952,293 946,450
------------------------
SHAREHOLDERS' EQUITY:
Preferred stock, par value $0.01 per share, authorized 1,000,000 shares:
Issued and outstanding: none -- --
Common stock, par value $0.01 per share, authorized 11,000,000 shares:
Voting: Issued and outstanding 3,790,850 shares 2003 and 3,777,450
shares in 2002 38 38
Additional paid-in capital 40,276 40,134
Retained earnings 25,143 24,002
Accumulated other comprehensive income (loss), net 1,992 2,253
------------------------
Total shareholders' equity 67,449 66,427
------------------------
Total liabilities and shareholders' equity $1,019,742 $1,012,877
========================
See accompanying notes to consolidated financial statements
3
BANCORP RHODE ISLAND, INC.
Consolidated Statements of Operations
Three Months Ended
March 31,
------------------------
2003 2002
---------- ----------
(In thousands, except per share data)
Interest and dividend income:
Residential mortgage loans $ 4,174 $ 4,927
Commercial loans 4,683 4,288
Consumer and other loans 1,289 939
Mortgage-backed securities 1,480 2,100
Investment securities 1,139 708
Overnight investments 39 73
Federal Home Loan Bank of Boston stock dividends 62 62
------------------------
Total interest and dividend income 12,866 13,097
------------------------
Interest expense:
NOW accounts 326 42
Money market accounts 28 35
Savings accounts 1,148 1,217
Certificate of deposit accounts 1,600 2,289
Overnight and short-term borrowings 51 59
Federal Home Loan Bank of Boston borrowings 1,762 1,762
Company-obligated mandatorily redeemable capital securities 137 76
------------------------
Total interest expense 5,052 5,480
------------------------
Net interest income 7,814 7,617
Provision for loan losses 400 400
------------------------
Net interest income after provision for loan losses 7,414 7,217
------------------------
Noninterest income:
Service charges on deposit accounts 952 855
Commissions on nondeposit investment products 174 249
Income from bank owned life insurance 203 95
Loan related fees 104 91
Commissions on loans originated for others 109 94
Gains on sales of mortgage-backed securities 104 23
Gains on sales of investment securities 54 --
Other income 216 159
------------------------
Total noninterest income 1,916 1,566
------------------------
Noninterest expense:
Salaries and employee benefits 3,298 3,047
Occupancy 603 467
Equipment 336 249
Data processing 845 440
Marketing 297 296
Professional services 277 382
Loan servicing 228 223
Other real estate owned expense 15 (9)
Other expenses 974 762
------------------------
Total noninterest expense 6,873 5,857
------------------------
Income before income taxes 2,457 2,926
Income tax expense 785 1,032
------------------------
Net income $ 1,672 $ 1,894
========================
Per share data:
Basic earnings per common share $ 0.44 $ 0.51
Diluted earnings per common share $ 0.42 $ 0.48
Average common shares outstanding - basic 3,779,007 3,747,171
Average common shares outstanding - diluted 4,021,127 3,977,319
See accompanying notes to consolidated financial statements
4
BANCORP RHODE ISLAND, INC.
Consolidated Statements of Changes in Shareholders' Equity
Accumulated
Other
Compre-
Additional hensive
Common Paid-in Retained Income
Three months ended March 31, Stock Capital Earnings (Loss), Net Total
---------------------------- ------ ---------- -------- ----------- -----
2003
----
Balance at December 31, 2002 $38 $40,134 $24,002 $ 2,253 $66,427
Net income -- -- 1,672 -- 1,672
Other comprehensive income, net of tax:
Unrealized gain (loss) on
securities available for sale (364) (364)
Realized gain (loss) on
securities available for sale
net of taxes of $55 103 103
-------
Comprehensive income 1,411
Exercise of stock options -- 134 -- -- 134
Common stock issued for incentive
stock award, net -- 8 -- -- 8
Dividends on common stock -- -- (531) -- (531)
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Balance at March 31, 2003 $38 $40,276 $25,143 $ 1,992 $67,449
=====================================================
2002
----
Balance at December 31, 2001 $37 $39,826 $18,336 $ 898 $59,097
Net income -- -- 1,894 -- 1,894
Other comprehensive income, net of tax:
Unrealized gain (loss) on
securities available for sale (1,080) (1,080)
Realized gain (loss) on
securities available for sale
net of taxes of $8 (15) (15)
-------
Comprehensive income 799
Exercise of stock options 1 43 -- -- 44
Common stock issued for incentive
stock award, net -- 8 -- -- 8
Dividends on common stock -- -- (488) -- (488)
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Balance at March 31, 2002 $38 $39,877 $19,742 $ (197) $59,460
=====================================================
See accompanying notes to consolidated financial statements
5
BANCORP RHODE ISLAND, INC.
Consolidated Statements of Cash Flows
Three Months Ended
March 31,
----------------------
2003 2002
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(In thousands)
Cash flows from operating activities:
Net income $ 1,672 $ 1,894
Adjustments to reconcile net income to net cash from
operating activities:
Depreciation and amortization 922 637
Provision for loan losses 400 400
Gain on sale of investment securities (54) --
Gain on sale of mortgage-backed securities (104) (23)
Gain on sale of other real estate owned 10 (29)
Income from bank-owned life insurance (204) (95)
Compensation expense from restricted stock grant 8 8
(Increase) decrease in:
Accrued interest receivable 99 (535)
Prepaid expenses and other assets (403) (2,133)
Increase (decrease) in:
Other liabilities (581) 2,364
Other, net 4 43
---------------------
Net cash provided (used) by operating activities 1,769 2,531
---------------------
Cash flows from investing activities:
Origination of:
Residential mortgage loans (6,032) (1,761)
Commercial loans (24,597) (21,311)
Consumer loans (17,725) (7,122)
Purchase of:
Investment securities available for sale (16,573) (17,984)
Mortgage-backed securities available for sale (33,640) (55,820)
Residential mortgage loans (50,081) (34,462)
Federal Home Loan Bank of Boston stock (217) (2,015)
Principal payments on:
Investment securities available for sale 18,000 3,006
Mortgage-backed securities available for sale 22,645 16,154
Residential mortgage loans 49,313 51,486
Commercial loans 6,982 18,514
Consumer loans 8,166 6,612
Proceeds from sale of investment securities 2,060 --
Proceeds from sale of mortgage-backed securities 25,164 3,766
Proceeds from sale of other real estate owned -- 293
Capital expenditures for premises and equipment (1,970) (287)
Purchase of bank-owned life insurance -- (10,000)
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Net cash provided (used) by investing activities (18,505) (50,931)
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Cash flows from financing activities:
Net increase (decrease) in deposits 1,041 22,265
Net increase (decrease) in overnight and short-term
borrowings (8,673) 5,245
Proceeds from long-term borrowings 29,000 40,295
Repayment of long-term borrowings (14,944) (2,004)
Proceeds from issuance of common stock 134 44
Dividends on common stock (531) (488)
---------------------
Net cash provided (used) by financing activities 6,027 65,357
---------------------
Net increase (decrease) in cash and cash equivalents (10,709) 16,957
Cash and cash equivalents at beginning of period 42,959 29,174
---------------------
Cash and cash equivalents at end of period $ 32,250 $ 46,131
=====================
Supplementary Disclosures:
Cash paid for interest $ 5,244 $ 5,595
Cash paid for income taxes 27 45
Non-cash transactions:
Change in other comprehensive income, net of taxes (261) (1,095)
See accompanying notes to consolidated financial statements
6
BANCORP RHODE ISLAND, INC.
Notes to Consolidated Financial Statements
(1) Basis of Presentation
Bancorp Rhode Island, Inc. (the "Company"), a Rhode Island
corporation, was organized by Bank Rhode Island (the "Bank") to be a bank
holding company and to acquire all of the capital stock of the Bank. The
reorganization of the Bank into the holding company form of ownership was
completed on September 1, 2000. The Company has no significant operating
entities other than the Bank. For that reason, substantially all of the
discussion in this Quarterly Report on Form 10-Q relates to the operations
of the Bank and its subsidiaries.
The consolidated financial statements include the accounts of the
Company and its wholly-owned direct subsidiaries, the Bank, BRI Statutory
Trust I and BRI Statutory Trust II (issuers of trust preferred securities),
and its indirect subsidiaries, BRI Investment Corp. (a Rhode Island passive
investment company), BRI Realty Corp. (a real estate holding company) and
Acorn Insurance Agency, Inc. (a licensed insurance agency). All significant
intercompany accounts and transactions have been eliminated in
consolidation.
The interim results of consolidated operations are not necessarily
indicative of the results for any future interim period or for the entire
year. These interim consolidated financial statements do not include all
disclosures associated with annual financial statements and, accordingly,
should be read in conjunction with the annual consolidated financial
statements and accompanying notes included in the Company's Annual Report to
Shareholders filed with the Securities and Exchange Commission.
In preparing the consolidated financial statements, management is
required to make estimates and assumptions that affect the reported amounts
of assets and liabilities as of the date of the balance sheet and revenues
and expenses for the period. Actual results could differ from those
estimates. Material estimates that are particularly susceptible to change
relate to the determination of the allowance for loan losses and goodwill
valuation.
The unaudited interim consolidated financial statements of the Company
have been prepared in accordance with Accounting Principles Generally
Accepted in the United States of America ("GAAP") and prevailing practices
within the banking industry and include all necessary adjustments
(consisting of only normal recurring adjustments), that, in the opinion of
management, are required for a fair presentation of the results and
financial condition of the Company.
(2) Earnings Per Share
Basic earnings per share ("EPS") excludes dilution and is computed by
dividing income available to common shareholders by the weighted average
number of common shares outstanding during the period. Diluted EPS reflects
the potential dilution that could occur if securities or other contracts to
issue common stock were exercised and resulted in the issuance of additional
common stock that then shared in the earnings of the entity.
7
(3) Recent Accounting Developments
In December 2002, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") 148, "Accounting
for Stock-Based Compensation - Transition and Disclosure". SFAS 148 amends
SFAS 123, "Accounting for Stock-Based Compensation", to provide alternative
methods of transition for a voluntary change to the fair value based method
of accounting for stock-based employee compensation. Companies are able to
eliminate a "ramp-up" effect that the SFAS 123 transition rule creates in
the year of adoption. Companies can choose to elect a method that will
provide for comparability amongst years reported. In addition, this
Statement amends the disclosure requirement of SFAS 123 to require prominent
disclosures in both annual and interim financial statements about the fair
value based method of accounting for stock-based employee compensation and
the effect of the method used on reported results. The amendments to SFAS
123 are effective for financial statements for fiscal years ending after
December 15, 2002. The adoption of this Statement did not have a material
impact on the Company's financial position or results of operations.
The following table summarizes the differences between the fair value
and intrinsic value methods of accounting for stock-based compensation:
Three Months Ended March 31,
----------------------------
2003 2002
------ ------
Net income (in thousands):
As reported $1,672 $1,894
Compensation cost, net of taxes (1) (23) (40)
------------------
Pro forma $1,649 $1,854
==================
Earnings per common share:
Basic:
As reported $ 0.44 $ 0.51
Compensation cost, net of taxes (1) (0.00) (0.02)
------------------
Pro forma $ 0.44 $ 0.49
==================
Diluted:
As reported $ 0.42 $ 0.48
Compensation cost, net of taxes (1) (0.01) (0.01)
------------------
Pro forma $ 0.41 $ 0.47
==================
The stock-based employee compensation cost, net of related tax
effects, that would have been included in the determination of net
income if the fair value based method had been applied to all awards
granted since 1995. The fair value of each option granted was
estimated as of the date of the grant using the Black-Scholes option-
pricing model. No new options were granted during the first quarter of
2003.
8
BANCORP RHODE ISLAND, INC.
Management's Discussion and Analysis
ITEM 2. Management's Discussion and Analysis
Certain statements contained herein are "Forward Looking Statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. Forward
Looking Statements may be identified by reference to a future period or
periods or by the use of forward looking terminology such as "may,"
"believes," "intends," "expects," and "anticipates" or similar terms or
variations of these terms. Actual results may differ materially from those
set forth in Forward Looking Statements as a result of certain risks and
uncertainties, including but not limited to, changes in political and
economic conditions, interest rate fluctuations, competitive product and
pricing pressures, equity and bond market fluctuations, credit risk,
inflation, as well as other risks and uncertainties detailed from time to
time in filings with the Securities and Exchange Commission ("SEC").
GENERAL
-------
The Company's principal subsidiary, Bank Rhode Island, is a commercial
bank chartered as a financial institution in the State of Rhode Island. The
Bank pursues a community banking mission and is principally engaged in
providing banking products and services to individuals and businesses in
Rhode Island. The Bank is subject to competition from a variety of
traditional and nontraditional financial service providers both within and
outside of Rhode Island. The Bank offers its customers a wide range of
deposit products, nondeposit investment products, commercial, residential
and consumer loans, and other traditional banking products and services
designed to meet the needs of individuals and small- to mid-sized
businesses. The Bank also offers both commercial and consumer on-line
banking products and maintains a web site at http://www.bankri.com. The
Company and Bank are subject to regulation by a number of federal and state
agencies and undergo periodic examinations by certain of those regulatory
authorities. The Bank's deposits are insured by the Federal Deposit
Insurance Corporation ("FDIC"), subject to regulatory limits. The Bank is
also a member of the Federal Home Loan Bank of Boston ("FHLB").
OVERVIEW
--------
Total assets increased $6.9 million, or 0.7%, to $1.0 billion at March
31, 2003 from December 31, 2002. This increase was centered in the Company's
residential, commercial and consumer loan portfolios and was funded by a
combination of checking and savings deposit growth, borrowings from the FHLB
and decreases in overnight investments, investment securities and mortgage-
backed securities ("MBSs"). Since the end of 2002, residential mortgage
loans increased $6.6 million, or 2.2%, commercial loans increased $17.6
million, or 6.3%, consumer loans increased $9.4 million, or 10.3%, checking
and savings deposits increased $10.4 million, or 1.9%, and FHLB borrowings
increased $14.1 million, or 9.8%. Shareholders' equity was $67.4 million at
March 31, 2003, and represented 6.6% of total assets.
9
FINANCIAL CONDITION
-------------------
-- Investments. Total investments (consisting of overnight
investments, investment securities, MBSs, and stock in the FHLB) totaled
$255.0 million, or 25.0% of total assets, at March 31, 2003, compared to
$282.7 million, or 27.9% of total assets, at December 31, 2002. All $239.2
million of investment securities and MBSs at March 31, 2003 were classified
as available for sale and carried a total of $3.0 million in net unrealized
gains at the end of the quarter. The decrease in total investments of $27.7
million, or 9.8%, was utilized to partially fund the growth in the loan
portfolios.
-- Loans. Total loans were $704.4 million, or 69.1% of total assets,
at March 31, 2003, compared to $670.7 million, or 66.2% of total assets, at
December 31, 2002. The Company concentrated its asset growth during the
first quarter in its loan portfolios to maximize the yield on new assets and
to take advantage of continued strong demand for both commercial and home
equity loan products in its market area.
The commercial loan portfolio (consisting of commercial & industrial,
small business, leases, commercial real estate, multi-family real estate,
and construction loans) increased $17.6 million, or 6.3%, during the first
quarter. The Company believes it is well positioned for continued commercial
loan growth. Particular emphasis is placed on generation of small- to
medium-sized commercial relationships (those relationships with $6.0 million
or less in loan commitments). The Bank is also active in small business
lending (loans of $250,000 or less) in which it utilizes credit scoring, in
conjunction with traditional review standards, and employs streamlined
documentation. The Bank is a participant in the U.S. Small Business
Administration ("SBA") Preferred Lender Program in Rhode Island and the 7a
Guarantee Loan Program in Massachusetts.
The consumer loan portfolio increased $9.4 million, or 10.3%, during
the first quarter of 2003. This growth was centered in fifteen-year fixed-
rate home equity loans. In the current interest rate environment, this
fifteen-year fixed-rate product provides an attractive alternative to first-
mortgage refinances and the Company anticipates that growth in this product
will continue.
Despite the continuing low interest rate environment, and the
resulting higher level of prepayments, the residential mortgage loan
portfolio increased $6.6 million, or 2.2%, during the first quarter, as
purchases of hybrid ARMS and fixed-rate loans ($50.1 million) and
originations ($6.0 million) were greater than repayments ($49.3 million). As
long as market interest rates remain low, the Company expects prepayment
activity to be above average historical levels.
10
While origination efforts continue to be concentrated on commercial
and consumer loan opportunities, the Company also originates residential
mortgage loans on a limited basis. Additionally, until such time as the
Company can generate sufficient commercial and consumer loans to utilize
available cash flow, or to otherwise meet investment objectives, it also
intends to continue purchasing residential mortgage and automobile loans as
opportunities develop.
The following is a breakdown of loans receivable:
March 31, December 31,
2003 2002
--------- ------------
(In thousands)
Residential mortgage loans:
One- to four-family adjustable rate $276,265 $277,265
One- to four-family fixed rate 26,953 19,310
---------------------
Subtotal 303,218 296,575
Premium on loans acquired 1,228 1,248
Net deferred loan origination fees (57) (60)
---------------------
Total residential mortgage loans $304,389 $297,763
=====================
Commercial loans:
Commercial real estate - nonowner occupied $ 82,518 $ 81,242
Commercial and industrial 62,855 57,389
Commercial real estate - owner occupied 60,383 59,249
Small business 29,229 28,750
Multi-family real estate 21,232 18,952
Construction 19,782 18,101
Leases and other 22,941 17,613
---------------------
Subtotal 298,940 281,296
Net deferred loan origination fees (328) (329)
---------------------
Total commercial loans $298,612 $280,967
=====================
Consumer loans:
Home equity - term loans $ 57,620 $ 47,906
Home equity - lines of credit 37,639 37,381
Automobile 2,722 3,409
Installment 778 967
Savings secured 530 602
Unsecured and other 1,471 1,063
---------------------
Subtotal 100,760 91,328
Premium on loans acquired 83 103
Net deferred loan origination costs 531 497
---------------------
Total consumer loans $101,374 $ 91,928
=====================
Total loans receivable $704,375 $670,658
=====================
11
-- Deposits and Borrowings. Total deposits increased by $1.0 million,
or 0.1%, during the first quarter of 2003, from $761.9 million, or 75.2% of
total assets, at December 31, 2002, to $763.0 million, or 74.8% of total
assets, at March 31, 2003. The decrease in the relative percentage of total
assets resulted from first quarter total asset growth being primarily funded
by FHLB borrowings. In addition, the composition of total deposits also
changed during the quarter. Core deposit accounts (checking and savings)
increased $10.4 million, or 1.9%, during the quarter, while certificates of
deposit decreased $9.3 million, or 4.2%, during this time period. The Bank
continues its strategy of emphasizing core deposit growth over certificate
of deposit growth. The decline in certificates of deposits also reflects
customer movement away from extended term deposits in response to the
current low interest rate environment. At March 31, 2003, core deposit
accounts comprised 72.1% of total deposits, compared to 70.9% of total
deposits at December 31, 2002.
The following table sets forth certain information regarding deposits:
March 31, 2003 December 31, 2002
------------------------------ ------------------------------
Percent Weighted Percent Weighted
of Average of Average
Amount Total Rate Amount Total Rate
------ ------- -------- ------ ------- --------
(Dollars in thousands)
NOW accounts $106,259 13.9% 1.31% $100,476 13.2% 1.37%
Money market accounts 11,187 1.5% 0.94% 10,660 1.4% 1.00%
Savings accounts 297,340 39.0% 1.51% 290,981 38.2% 1.70%
Certificate of deposit accounts 212,527 27.8% 2.94% 221,874 29.1% 3.07%
----------------- -----------------
Total interest bearing deposits 627,313 82.2% 1.95% 623,991 81.9% 2.12%
Noninterest bearing accounts 135,639 17.8% -- 137,920 18.1% --
----------------- -----------------
Total deposits $762,952 100.0% 1.60% $761,911 100.0% 1.74%
=============================================================
The Company, through the Bank's membership in the FHLB, has access to
a variety of borrowing alternatives, and management will from time to time
take advantage of these opportunities to fund asset growth. During the first
quarter of 2003, FHLB borrowings increased $14.1 million, or 9.8%, as the
Company sought to take advantage of lower borrowing rates to fund its asset
growth. The proceeds from these new borrowings were primarily reinvested in
the Company's loan portfolios and allowed the Company to continue to grow
its balance sheet. However, on a long-term basis, the Company intends to
continue concentrating on increasing its core deposits.
Asset Quality
-------------
The definition of nonperforming assets includes nonperforming loans
and other real estate owned ("OREO"). OREO consists of real estate acquired
through foreclosure proceedings and real estate acquired through acceptance
of a deed in lieu of foreclosure. Nonperforming loans are defined as
nonaccrual loans, loans past due 90 days or more, but still accruing and
impaired loans. Under certain circumstances the Company may restructure the
terms of a loan as a concession to a borrower. These restructured loans are
considered impaired loans.
-- Nonperforming Assets. At March 31, 2003, the Company had
nonperforming assets of $5.2 million, which represented 0.51% of total
assets. This compares to nonperforming assets of $794,000, or 0.08% of total
assets, at December 31, 2002. The growth in nonperforming assets was
concentrated in two commercial relationships placed on nonaccrual status
aggregating $4.3 million. Total nonperforming assets at March 31, 2003,
consisted of nonaccrual residential mortgage loans aggregating $252,000,
nonaccrual commercial loans aggregating $4.9 million, nonaccrual consumer
loans aggregating $20,000 and other real estate owned aggregating $31,000.
The Company evaluates the underlying collateral of each nonperforming loan
and continues to pursue the collection of interest and principal. The
current level of nonperforming assets remains below peer averages, but as
the loan portfolio continues to grow and mature, or if economic conditions
worsen, management believes it possible that the level of nonperforming
assets could increase, as could its level of charged-off loans. Included in
nonaccrual loans were $4.7 million, at March 31, 2003, and $224,000, at
December 31, 2002, of impaired loans. Specific reserves against these
impaired loans were $431,000 and $-0- at March 31, 2003 and December 31,
2002, respectively.
Delinquencies. At March 31, 2003, loans with an aggregate balance of
$108,000 were 60 to 89 days past due, an increase of $81,000, or 300.0%,
from the $27,000 reported at December 31, 2002. The majority of these loans
at both dates were residential mortgage loans and are secured.
The following table sets forth information regarding nonperforming
assets and loans 60-89 days past due as to interest at the dates indicated.
March 31, December 31,
2003 2002
--------- ------------
(Dollars in thousands)
Loans accounted for on a nonaccrual basis $5,190 $ 736
Loans past due 90 days or more, but still accruing -- --
Impaired loans (not included in nonaccrual loans) -- --
--------------------
Total nonperforming loans 5,190 736
Other real estate owned 31 58
--------------------
Total nonperforming assets $5,221 $ 794
====================
Delinquent loans 60-89 days past due $ 108 $ 27
Nonperforming loans as a percent of total loans 0.74% 0.11%
Nonperforming assets as a percent of total assets 0.51% 0.08%
Delinquent loans 60-89 days past due as a percent of total loans 0.02% 0.01%
Adversely Classified Assets. The Company's management adversely
classifies certain assets as "substandard," "doubtful" or "loss" based on
criteria established under banking regulations. An asset is considered
substandard if inadequately protected by the current net worth and paying
capacity of the obligor or of the collateral pledged, if any. Substandard
assets include those characterized by the "distinct possibility" that the
insured institution will sustain "some loss" if existing deficiencies are
not corrected. Assets classified as doubtful have all of the weaknesses
inherent in those classified substandard with the added characteristic that
the weaknesses present make "collection or liquidation in full," on the
basis of currently existing facts, conditions, and values, "highly
questionable and improbable." Assets classified as loss are those considered
"uncollectible" and of such little value that their continuance as assets
without the establishment of a specific loss reserve is not warranted.
At March 31, 2003, the Company had $11.0 million of assets that were
classified as substandard and $465,000 of assets that were classified as
doubtful. This compares to $8.4 million of assets that were classified as
substandard at December 31, 2002. The Company had no assets that were
classified as doubtful at December 31, 2002 and no assets classified as loss
at either date. Performing loans may or may not be adversely classified
depending upon management's judgment with respect to each individual loan.
At March 31, 2003, included in the assets that were classified as
substandard, were $6.3 million of performing loans. This compares to $7.6
million of adversely classified performing loans as of December 31, 2002.
These amounts constitute assets that, in the
13
opinion of management, could potentially migrate to nonperforming status. An
increase in nonperforming loans may also lead to an increase in the
provision for loan losses in future periods.
Allowance for Loan Losses
-------------------------
During the first quarter of 2003, the Company made provisions to the
allowance for loan losses totaling $400,000 and had $61,000 of net charge-
offs, bringing the balance in the allowance to $10.4 million, compared to
$10.1 million at December 31, 2002. The allowance, expressed as a percentage
of total loans, was 1.48% as of March 31, 2003, compared to 1.51% at the
prior year end and stood at 201.1% of nonperforming loans at March 31, 2003,
compared to 1371.7% of nonperforming loans at December 31, 2002.
Assessing the adequacy of the allowance for loan losses involves
substantial uncertainties and is based upon management's evaluation of the
amounts required to meet estimated charge-offs in the loan portfolio after
weighing various factors. Management's methodology to estimate loss exposure
includes an analysis of individual loans deemed to be impaired, reserve
allocations for various loan types based on payments status or loss
experience and an unallocated allowance that is maintained based on
management's assessment of many factors including the growth, composition
and quality of the loan portfolio, historical loss experiences, general
economic conditions and other pertinent factors. Based on this evaluation,
management believes that the allowance for loan losses, as of March 31,
2003, is adequate.
A portion of the allowance for loan losses is not allocated to any
specific segment of the loan portfolio. This non-specific allowance is
maintained for two primary reasons: (i) there exists an inherent
subjectivity and imprecision to the analytical processes employed, and (ii)
the prevailing business environment, as it is affected by changing economic
conditions and various external factors, may impact the portfolio in ways
currently unforeseen. Management, therefore, has established and maintains a
non-specific allowance for loan losses.
While management evaluates currently available information in
establishing the allowance for loan losses, future adjustments to the
allowance may be necessary if conditions differ substantially from the
assumptions used in making the evaluations. In addition, various regulatory
agencies, as an integral part of their examination process, periodically
review a financial institution's allowance for loan losses and carrying
amounts of other real estate owned. Such agencies may require the financial
institution to recognize additions to the allowance based on their judgments
about information available to them at the time of their examination.
RESULTS OF OPERATIONS
---------------------
The Company's operating results depend primarily on its "net interest
income," or the difference between its interest income and its cost of
money, and on the quality of its assets. Interest income depends on the
average amount of interest-earning assets outstanding during the period and
the interest rates earned thereon. The Company's cost of money is a function
of the average amount of deposits and borrowed money outstanding during the
period and the interest rates paid thereon. Earnings are further influenced
by the quality of assets through the amount of interest income lost on
nonaccrual loans, the amount of additions to the allowance for loan losses
and the amount of losses and other expenses incurred as a result of
resolving troubled assets.
Three Months Ended March 31, 2003 and 2002
------------------------------------------
14
-- Overview. The Company reported net income for the first quarter of
2003 of $1.7 million, down $222,000, or 11.7%, from the first quarter of
2002. Diluted earnings per common share were $0.42 for the first quarter of
2003, compared to $0.48 for the first quarter of 2002.
The Company reported a return on average assets of 0.67% and a return
on average equity of 10.18% for the 2003 period, as compared to a return on
average assets of 0.86% and a return on average equity of 12.75% for the
2002 period.
During the first quarter of 2003 the Company made some significant
investments in the future of the Bank, including opening a new Operations
Center, as well as beginning the conversion to a new core data processing
system, which resulted in significant start-up charges for the quarter. The
data processing conversion is continuing and is scheduled to be completed
during the second quarter.
-- Net Interest Income. For the quarter ended March 31, 2003, net
interest income was $7.8 million, compared to $7.6 million for the 2002
period. The net interest margin for the first quarter of 2003 was 3.33%
compared to a net interest margin of 3.63% for the 2002 period. The increase
in net interest income of $197,000, or 2.6%, was primarily attributable to
the continued growth of the Company. Average earning assets were $98.9
million, or 11.6%, higher, and average interest-bearing liabilities were
$82.5 million, or 11.4%, higher, than the comparable period a year earlier.
The decrease of 30 basis points in the net interest margin primarily
resulted from a drop in market interest rates, coupled with higher
prepayment activity on mortgage-related assets, present since the first
quarter of 2002.
-- Interest Income. Investments. Total investment income was $2.7
million for the quarter ended March 31, 2003, compared to $2.9 million for
the 2002 quarter. The decrease in total investment income was $223,000, or
7.6%, and was primarily attributable to a decrease in market interest rates,
partially offset by an increase in average balances. The average yield on
investments decreased 61 basis points, and the average balance of
investments increased $15.2 million, from the first quarter of 2002 to the
first quarter of 2003. The Company's investments are primarily comprised of
US Agency securities and MBSs with remaining maturities or repricing periods
of less than five years. However, in an effort to diversify the portfolio
and increase yields, the Company has started to invest in corporate debt
securities and collateralized mortgage obligations ("CMOs").
-- Interest Income. Loans. Interest from loans was $10.1 million for
the three months ended March 31, 2003, and represented a yield on total
loans of 5.97%. This compares to $10.2 million of interest, and a yield of
6.80%, for the first quarter of 2002. Declining market interest rates,
coupled with increased prepayment activity, resulted in residential mortgage
loan interest decreasing $753,000, or 15.3%, from the first quarter of 2002.
Interest from commercial loans increased $395,000, or 9.2%, and income from
consumer and other loans increased $350,000, or 37.3%, as increased average
balances more than offset any decline in average yields. In response to
declining market interest rates, the yields on the various loan portfolio
components changed from the first quarter of 2002 as follows: residential
mortgage loans decreased 100 basis points, to 5.60%; commercial loans
decreased 66 basis points, to 6.55%, and consumer and other loans decreased
78 basis points, to 5.37%. The average balance of the various components of
the loan portfolio changed from the first quarter of 2002 as follows:
commercial loans increased $48.9 million, or 20.3%, and consumer and other
loans increased $35.4 million, or 57.3%, while residential mortgage loans
remained stable at approximately $298 million. Since its inception, the Bank
has concentrated its
15
origination efforts on commercial and consumer loan opportunities, while
purchasing residential mortgage loans, and to a limited degree, automobile
loans, as cash flows dictated.
-- Interest Expense. Interest paid on deposits and borrowings
decreased $428,000, or 7.8%, to $5.1 million for the three months ended
March 31, 2003, from $5.5 million for the same period during 2002. The
decrease in total interest expense was primarily attributable to a decrease
in market interest rates. The overall average cost for interest-bearing
liabilities decreased 53 basis points from 3.08% for the first quarter of
2002 to 2.55% for the first quarter of 2003. Liability costs are dependent
on a number of factors including general economic conditions, national and
local interest rates, competition in the local deposit marketplace, interest
rate tiers offered and the Company's cash flow needs. Average costs for the
various components of interest-bearing liabilities changed from the first
quarter of 2002 as follows: NOW accounts increased 93 basis points, to 1.32%
(as a result of the introduction of Asset Manager, a premium rate checking
account); money market accounts decreased 36 basis points, to 1.01%; savings
deposits decreased 29 basis points, to 1.57%; certificate of deposit
accounts decreased 85 basis points, to 2.96%; and borrowings decreased 38
basis points to 4.40%. Meanwhile, the average balance of total interest-
bearing liabilities increased $82.5 million, from $720.8 million in the
first quarter of 2002 to $803.3 million in the first quarter of 2003, as NOW
and savings average balances increased a total of $87.9 million, or 28.5%.
-- Provision for Loan Losses. The provision for loan losses was
$400,000 for the quarter ended March 31, 2003, identical to the same quarter
last year. Management evaluates several factors including new loan
originations, actual and estimated charge-offs, the risk characteristics of
the loan portfolio and general economic conditions when determining the
provision for each quarter. Also see discussion under "Allowance for Loan
Losses." While nonperforming loans increased during the quarter, they
remained below peer averages and actual loan charge-offs continued to be
minimal. As the loan portfolio continues to grow and mature, or if economic
conditions worsen, management believes it possible that the level of
nonperforming assets could increase further, which in turn could lead to
increases in the provision for loan losses in future periods.
-- Noninterest Income. Total noninterest income increased $350,000, or
22.3%, to $1.9 million for the first quarter of 2003, from $1.6 million for
the first quarter of 2002. Service charges on deposit accounts, which
continues to represent the largest source of noninterest income for the
Company, rose $97,000, or 11.3%, from $855,000 for the three months ended
March 31, 2002, to $952,000 for the same period in 2003 in response to
continued growth in checking and savings accounts. Income from bank-owned
life insurance ("BOLI") increased $108,000, or 113.7%, as the amount
invested in BOLI increased and the 2002 period reflects BOLI income for less
than a full quarter. During the 2003 period, the Company sold both
investment securities and MBSs in an effort to restructure its portfolio.
The Company realized a net gain of $158,000 from these sales, while the 2002
period contained only $23,000 of net gains. Commissions on loans originated
for others increased $15,000, or 16.0%, as fixed-rate mortgage loan
refinancing activity continued in response to low market interest rates.
Lastly, Other income increased $57,000, or 35.8%, primarily from increased
cash management fees. Partially offsetting these increases, Commissions on
nondeposit investment products decreased $75,000, or 30.1%, as the number of
nondeposit investments sales declined from the same quarter a year ago.
-- Noninterest Expense. Noninterest expenses for the first quarter of
2003 increased a total of $1.0 million, or 17.3%, to $6.9 million from $5.9
million in 2002. This increase occurred primarily in the following areas:
Salaries and employee benefits (up $251,000, or 8.2%), Occupancy and
Equipment (up $223,000, or 31.1%), Data processing (up $405,000, or 92.0%)
and Other expenses
16
(up $212,000, or 27.8%). In addition to incurring increased operating costs
as a result of the continuing growth in both loans and core deposits, the
Company made significant investments during the first quarter of 2003 in the
future of the Bank. These investments included the opening of a brand new
Operations Center and commencing the conversion to a new core data
processing system. Both of these investments included some start-up costs
such as for relocation, setup and training. The core data processing
conversion is continuing and is scheduled to be completed during the second
quarter of 2003, and as a result, the Company will continue to incur some
start-up costs in the second quarter. Partially offsetting these increases
was a decrease in Professional services (down $105,000, or 27.5%), as the
2002 period included professional fees associated with reviewing alternative
data processing systems, which fees were not present in the 2003 period. As
a result of the increased noninterest expenses, the Company's efficiency
ratio increased to 70.64% in 2003, from 63.78% in the 2002 period.
-- Income Tax Expense. Income tax expense of $785,000 was recorded for
the three months ended March 31, 2003, compared to $1.0 million for the same
period during 2002. This represented total effective tax rates of 31.9% and
35.3%, respectively. Tax-favored income from U.S. Agency securities and BOLI
(in the 2003 period), along with the utilization of a Rhode Island passive
investment company has reduced the effective tax rate from the 39.9%
combined statutory federal and state tax rates.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
-- Liquidity. Liquidity is defined as the ability to meet current and
future financial obligations of a short-term nature. The Company further
defines liquidity as the ability to respond to the needs of depositors and
borrowers, as well as to earnings enhancement opportunities, in a changing
marketplace.
The primary source of funds for the payment of dividends and expenses
by the Company is dividends paid to it by the Bank. Bank regulatory
authorities generally restrict the amounts available for payment of
dividends if the effect thereof would cause the capital of the Bank to be
reduced below applicable capital requirements. These restrictions indirectly
affect the Company's ability to pay dividends. The primary sources of
liquidity for the Bank consist of deposit inflows, loan repayments, borrowed
funds, maturity of investment securities and sales of securities from the
available for sale portfolio. Management believes that these sources are
sufficient to fund the Bank's lending and investment activities.
Management is responsible for establishing and monitoring liquidity
targets as well as strategies and tactics to meet these targets. In general,
the Company seeks to maintain a high degree of flexibility. At March 31,
2003, overnight investments, investment securities and MBSs available for
sale amounted to $247.1 million, or 24.2% of total assets. This compares to
$275.1 million, or 27.2% of total assets at December 31, 2002. The Bank is a
member of the FHLB and, as such, has access to both short- and long-term
borrowings. In addition, the Bank maintains a line of credit at the FHLB as
well as a line of credit with a correspondent bank. There have been no
adverse trends in the Company's liquidity or capital reserves. Management
believes that the Company has adequate liquidity to meet its commitments.
-- Capital Resources. Total shareholders' equity of the Company at
March 31, 2003 was $67.4 million, as compared to $66.4 million at December
31, 2002. This increase of $1.0 million was the
17
result of net income for the quarter of $1.7 million, plus proceeds from
issuance of stock of $134,000, less dividends of $531,000.
All FDIC-insured institutions must meet specified minimal capital
requirements. These regulations require banks to maintain a minimum leverage
capital ratio. In addition, the FDIC has adopted capital guidelines based
upon ratios of a bank's capital to total assets adjusted for risk. The risk-
based capital guidelines include both a definition of capital and a
framework for calculating risk-weighted assets by assigning balance sheet
assets and off-balance sheet items to broad risk categories. These
regulations require banks to maintain minimum capital levels for capital
adequacy purposes and higher capital levels to be considered "well
capitalized."
Capital guidelines have also been issued by the Federal Reserve Board
("FRB") for bank holding companies. These guidelines require the Company to
maintain minimum capital levels for capital adequacy purposes. In general,
the FRB has adopted substantially identical capital adequacy guidelines as
the FDIC. Such standards are applicable to bank holding companies and their
bank subsidiaries on a consolidated basis.
As of March 31, 2003, the Company and the Bank met all applicable
minimum capital requirements and were considered "well capitalized" by both
the FRB and the FDIC. The Company's and the Bank's actual and required
capital amounts and ratios are as follows:
Minimum Required Minimum Required
For Capital To Be Considered
Actual Adequacy Purposes "Well Capitalized"
---------------- ----------------- ------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
At March 31, 2003:
Bancorp Rhode Island, Inc.
--------------------------
Tier I capital (to average assets) $62,692 6.30% $29,859 3.00% $49,766 5.00%
Tier I capital (to risk weighted assets) 62,692 9.35% 26,820 4.00% 40,230 6.00%
Total capital (to risk weighted assets) 71,095 10.60% 53,639 8.00% 67,049 10.00%
Bank Rhode Island
-----------------
Tier I capital (to average assets) $61,172 6.15% $29,858 3.00% $49,763 5.00%
Tier I capital (to risk weighted assets) 61,172 9.13% 26,809 4.00% 40,214 6.00%
Total capital (to risk weighted assets) 69,575 10.38% 53,618 8.00% 67,023 10.00%
At December 31, 2002:
Bancorp Rhode Island, Inc.
--------------------------
Tier I capital (to average assets) $61,408 6.19% $29,779 3.00% $49,631 5.00%
Tier I capital (to risk weighted assets) 61,408 9.63% 25,506 4.00% 38,260 6.00%
Total capital (to risk weighted assets) 69,401 10.88% 51,013 8.00% 63,766 10.00%
Bank Rhode Island
-----------------
Tier I capital (to average assets) $60,097 6.06% $29,760 3.00% $49,599 5.00%
Tier I capital (to risk weighted assets) 60,097 9.43% 25,494 4.00% 38,240 6.00%
Total capital (to risk weighted assets) 68,090 10.68% 50,987 8.00% 63,734 10.00%
18
BANCORP RHODE ISLAND, INC.
Quantitative and Qualitative Disclosures About Market Risk
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
INTEREST RATE RISK
------------------
The principal market risk facing the Company is interest rate risk.
The Company's objective regarding interest rate risk is to manage its assets
and funding sources to produce results which are consistent with its
liquidity, capital adequacy, growth and profitability goals, while
minimizing the vulnerability of its operations to changes in market interest
rates. The Company's actions in this regard are taken under the guidance
of the Bank's Asset/Liability Committee ("ALCO"). The ALCO manages the
Company's interest rate risk position using both income simulation and
interest rate sensitivity "gap" analysis. The ALCO has established internal
parameters for monitoring the income simulation and gap analysis. These
guidelines serve as benchmarks for evaluating actions to balance the current
position against overall strategic goals. The ALCO monitors current
exposures and reports these to the Board of Directors.
Simulation is used as the primary tool for measuring the interest rate
risk inherent in the Company's balance sheet at a given point in time by
showing the effect on net interest income, over a 24-month period, of
interest rate ramps of up to 200 basis points. These simulations take into
account repricing, maturity and prepayment characteristics of individual
products. The ALCO reviews simulation results to determine whether the
downside exposure resulting from changes in market interest rates remains
within established tolerance levels over both a 12-month and 24-month
horizon, and develops appropriate strategies to manage this exposure. The
Company's guidelines for interest rate risk specify that if interest rates
were to shift up or down 200 basis points over a 12-month period, estimated
net interest income for those 12 months and the subsequent 12 months, should
decline by no more than 5.0% or 10.0%, respectively. As of March 31, 2003,
net interest income simulation indicated that the Company's exposure to
changing interest rates was outside of the 10% tolerance level established
for the second year of a 200 basis point decline. This exposure primarily
results from the unusually low current rates paid on deposit accounts and
the extremely high prepayment speeds anticipated for mortgage-related assets
if market rates declined 200 basis points. The current rates on many deposit
accounts are so low, that they cannot decline 200 basis points without
becoming negative. This results in a floor of zero percent for these deposit
accounts, and this floor causes compression of the net interest margin for
modeling purposes. The ALCO reviews the methodology utilized for calculating
interest rate risk exposure and may, from time to time, adopt modifications
to this methodology. While the ALCO reviews simulation assumptions and
methodology to ensure that they reflect historical experience, it should be
noted that income simulation may not always prove to be an accurate
indicator of interest rate risk because the actual repricing, maturity and
prepayment characteristics of individual products may differ from the
estimates used in the simulations.
19
The following table presents the estimated impact of interest rate
ramps on the Company's estimated net interest income over a twenty-four
month period beginning April 1, 2003:
Estimated Exposure
to Net Interest Income
----------------------
Dollar Percent
Change Change
------ -------
(Dollars in thousands)
Initial Twelve Month Period:
Up 200 basis points $ 1,332 4.26%
Up 100 basis points 805 2.58%
Down 100 basis points (350) (1.12%)
Down 200 basis points (823) (2.63%)
Subsequent Twelve Month Period:
Up 200 basis points $ 2,467 8.10%
Up 100 basis points 2,131 7.00%
Down 100 basis points (1,212) (3.98%)
Down 200 basis points (3,866) (12.69%)
The Company also uses interest rate sensitivity gap analysis to
provide a more general overview of its interest rate risk profile. The
interest rate sensitivity gap is defined as the difference between interest-
earning assets and interest-bearing liabilities maturing or repricing within
a given time period. At March 31, 2003, the Company's one year cumulative
gap was a positive $125.2 million, or 12.28% of total assets.
For additional discussion on interest rate risk see the section titled
"Asset and Liability Management" on pages 39 to 41 of the Company's 2002
Annual Report to Shareholders.
ITEM 4. Controls and Procedures
As required by Rule 13a-15 under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), within the 90 days prior to the filing date
of this report, the Company carried out an evaluation of the effectiveness
of the design and operation of the Company's disclosure controls and
procedures. This evaluation was carried out under the supervision and with
the participation of the Company's management, including the Company's Chief
Executive Officer and the Company's Chief Financial Officer. Based upon that
evaluation, the Chief Executive Officer and the Chief Financial Officer
concluded that the Company's disclosure controls and procedures are
effective to ensure that information required to be disclosed by the Company
in reports that it files or submits under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission rules and forms.
There have been no significant changes in the Company's internal
controls or, to the Company's knowledge, in other factors that could
significantly affect such internal controls subsequent to the date of the
Company's evaluation of its internal controls.
20
BANCORP RHODE ISLAND, INC.
Other Information
PART II. Other Information
ITEM 1. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the
Company or its subsidiaries are a party, or to which any of
their property is subject, other than ordinary routine
litigation incidental to the business of banking.
ITEM 2. CHANGE IN SECURITIES AND USE OF PROCEEDS
No information to report.
ITEM 3. DEFAULT UPON SENIOR SECURITIES
No defaults upon senior securities have taken place.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF THE SECURITY HOLDERS
No information to report.
ITEM 5. OTHER INFORMATION
No information to report.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
99.1 Certification of Chief Executive Officer pursuant to
18 U.S.C. Section 1350 as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
99.2 Certification of Chief Financial Officer pursuant to
18 U.S.C. Section 1350 as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
No information to report.
21
BANCORP RHODE ISLAND, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Bancorp Rhode Island, Inc.
May 12, 2003 /s/ Merrill W. Sherman
------------ -----------------------------------
(Date) Merrill W. Sherman
President and
Chief Executive Officer
May 12, 2003 /s/ Albert R. Rietheimer
------------ -----------------------------------
(Date) Albert R. Rietheimer
Chief Financial Officer
and Treasurer
22
CERTIFICATION PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, Merrill W. Sherman, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Bancorp Rhode
Island, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date");
and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 12, 2003
/s/ Merrill W. Sherman
-----------------------------
Merrill W. Sherman
President and
Chief Executive Officer
23
CERTIFICATION PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, Albert R. Rietheimer, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Bancorp Rhode
Island, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date");
and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 12, 2003
/s/ Albert R. Rietheimer
-----------------------------
Albert R. Rietheimer
Chief Financial Officer
and Treasurer
24