ý
|
Annual
Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
|
o
|
Transition
Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
|
Massachusetts
|
20-4652200
|
(State
or other jurisdiction of
|
(I.R.S.
Employer
|
incorporation
or organization)
|
Identification
No.)
|
10 Meridian Street,
East Boston, Massachusetts
|
02128
|
(Address
of Principal Executive Offices)
|
Zip
Code
|
Name
of Each
|
|
Title of Each
Class
|
Exchange on Which
Registered
|
Common
Stock, .01 par value per share
|
The
NASDAQ Global Select Stock Market,
LLC
|
Page
|
||
PART
I
|
||
Forward
Looking Statements
|
3
|
|
Item
1.
|
Business
|
4
|
Item
1A.
|
Risk
Factors
|
24
|
Item
1B.
|
Unresolved
Staff Comments
|
24
|
Item
2.
|
Properties
|
24
|
Item
3.
|
Legal
Proceedings
|
24
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
24
|
PART
II
|
||
Item
5.
|
Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
|
25
|
Item
6.
|
Selected
Financial Data
|
27
|
Item
7.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
28
|
Item
7A.
|
Quantitative
and Qualitative Disclosures about Market Risk
|
49
|
Item
8.
|
Financial
Statements and Supplementary Data
|
50
|
Item
9.
|
Changes
and Disagreements with Accountants on Accounting and Financial
Disclosure
|
92
|
Item 9A. |
Controls
and Procedures
|
92 |
Item
9AT.
|
Controls
and Procedures
|
92
|
Item
9B.
|
Other
Information
|
92
|
PART
III
|
||
Item
10.
|
Directors
and Executive Officers and Corporate Governance
|
93
|
Item
11.
|
Executive
Compensation
|
93
|
Item
12.
|
Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
|
93
|
Item
13.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
93
|
Item
14.
|
Principal
Accountant Fees and Services
|
93
|
PART
IV
|
||
Item
15.
|
Exhibits
and Financial Statement Schedules.
|
94
|
Signatures
|
95
|
|
·
|
statements
of our goals, intentions and
expectations;
|
|
·
|
statements
regarding our business plans, prospects, growth and operating
strategies;
|
|
·
|
statements
regarding the quality of our loan and investment portfolios;
and
|
|
·
|
estimates
of our risks and future costs and
benefits.
|
|
·
|
general
economic conditions, either nationally or in our market area, that are
worse than expected;
|
|
·
|
inflation
and changes in the interest rate environment that reduce our interest
margins or reduce the fair value of financial
instruments;
|
|
·
|
increased
competitive pressures among financial services
companies;
|
|
·
|
changes
in consumer spending, borrowing and savings
habits;
|
|
·
|
our
ability to enter new markets successfully and take advantage of growth
opportunities, and the possible dilutive effect of potential acquisitions
or de novo
branches, if any;
|
|
·
|
legislative
or regulatory changes that adversely affect our
business;
|
|
·
|
adverse
changes in the securities markets;
|
|
·
|
changes
in accounting policies and practices, as may be adopted by the bank
regulatory agencies, the Financial Accounting Standards Board or the
Securities and Exchange Commission;
|
|
·
|
inability
of third-party providers to perform their obligations to us;
and
|
|
·
|
changes
in our organization, compensation and benefit
plans.
|
·
|
Home
Mortgage Disclosure Act of 1975, requiring financial institutions to
provide information to enable the public and public officials to determine
whether a financial institution is fulfilling its obligation to help meet
the housing needs of the community it
serves;
|
·
|
Equal
Credit Opportunity Act, prohibiting discrimination on the basis of race,
creed or other prohibited factors in extending
credit;
|
·
|
Fair
Credit Reporting Act of 1978, governing the use and provision of
information to credit reporting
agencies;
|
·
|
Massachusetts
Debt Collection Regulations, establishing standards, by defining unfair or
deceptive acts or practices, for the collection of debts from persons
within the Commonwealth of Massachusetts and the General Laws of
Massachusetts, Chapter 167E, which governs East Boston Savings Bank’s
lending powers; and
|
·
|
Rules
and regulations of the various federal and state agencies charged with the
responsibility of implementing such federal and state
laws.
|
·
|
Right
to Financial Privacy Act, which imposes a duty to maintain confidentiality
of consumer financial records and prescribes procedures for complying with
administrative subpoenas of financial
records;
|
·
|
Check
Clearing for the 21st Century Act (also known as “Check 21”), which gives
“substitute checks,” such as digital check images and copies made from
that image, the same legal standing as the original paper check;
and
|
·
|
Electronic
Funds Transfer Act and Regulation E promulgated thereunder, and, as to
East Boston Savings Bank Chapter 167B of the General Laws of
Massachusetts, which govern automatic deposits to and withdrawals from
deposit accounts and customers’ rights and liabilities arising from the
use of automated teller machines and other electronic banking
services;
|
·
|
General
Laws of Massachusetts, Chapter 167D, which governs East Boston Savings
Bank’s deposit powers.
|
(c)
|
There
was no issuer repurchases of equity securities during the quarter ended
December 31, 2007.
|
ITEM
6. SELECTED FINANCIAL
DATA
|
||||||||||||||||||||
At
or for the Year Ended December 31,
|
||||||||||||||||||||
(Dollars
in thousands)
|
2007
|
2006
|
2005
|
2004
|
2003
|
|||||||||||||||
Financial
Condition Data
|
||||||||||||||||||||
Total
assets
|
$ | 1,003,226 | $ | 899,563 | $ | 824,500 | $ | 794,008 | $ | 766,169 | ||||||||||
Securities
|
267,058 | 281,662 | 264,174 | 298,492 | 301,314 | |||||||||||||||
Loans
receivable, net
|
568,104 | 529,650 | 480,833 | 424,418 | 400,513 | |||||||||||||||
Deposits
|
774,446 | 736,989 | 672,544 | 642,714 | 628,570 | |||||||||||||||
Federal
Home Loan Bank advances
|
36,527 | 40,589 | 37,108 | 38,482 | 29,152 | |||||||||||||||
Total
retained earnings
|
115,684 | 110,275 | 104,243 | 102,076 | 97,778 | |||||||||||||||
Operating
Data
|
||||||||||||||||||||
Interest
and dividend income
|
$ | 49,175 | $ | 45,235 | $ | 40,186 | $ | 38,260 | $ | 40,388 | ||||||||||
Interest
expense
|
28,096 | 21,828 | 14,545 | 11,937 | 13,039 | |||||||||||||||
Net
interest income
|
21,079 | 23,407 | 25,641 | 26,323 | 27,349 | |||||||||||||||
Provision
(credit) for loan losses
|
465 | 434 | 456 | (113 | ) | 375 | ||||||||||||||
Net
interest income after provision (credit)
|
20,614 | 22,973 | 25,185 | 26,436 | 26,974 | |||||||||||||||
for
loan losses
|
||||||||||||||||||||
Non-interest
income
|
4,652 | 3,342 | 3,555 | 4,331 | 5,276 | |||||||||||||||
Non-interest
expenses
|
22,620 | 21,894 | 20,637 | 20,104 | 20,164 | |||||||||||||||
Income
before income taxes
|
2,646 | 4,421 | 8,103 | 10,663 | 12,086 | |||||||||||||||
Income
taxes
|
380 | 1,127 | 2,700 | 3,894 | 4,250 | |||||||||||||||
Net
income
|
$ | 2,266 | $ | 3,294 | $ | 5,403 | $ | 6,769 | $ | 7,836 | ||||||||||
Key
Performance Ratios
|
||||||||||||||||||||
Return
on average assets
|
0.25 | % | 0.38 | % | 0.68 | % | 0.88 | % | 1.05 | % | ||||||||||
Return
on average equity
|
2.01 | 3.12 | 5.31 | 6.85 | 8.55 | |||||||||||||||
Interest
rate spread (1)
|
1.97 | 2.60 | 3.23 | 3.48 | 3.76 | |||||||||||||||
Net
interest margin (2)
|
2.47 | 2.92 | 3.47 | 3.67 | 3.97 | |||||||||||||||
Noninterest
expense to average assets
|
2.47 | 2.55 | 2.58 | 2.60 | 2.71 | |||||||||||||||
Efficiency
ratio (3)
|
88.94 | 81.72 | 70.97 | 66.75 | 61.78 | |||||||||||||||
Average
interest-earning assets to
|
115.31 | 111.47 | 111.97 | 111.68 | 110.69 | |||||||||||||||
average
interest-bearing liabilities
|
||||||||||||||||||||
Capital
Ratios
|
||||||||||||||||||||
Average
equity to average assets
|
12.32 | % | 12.26 | % | 12.72 | % | 12.80 | % | 12.31 | % | ||||||||||
Total
capital to risk weighted assets (4)
|
12.97 | 13.44 | 15.49 | 15.05 | 14.71 | |||||||||||||||
Tier
I capital to risk weighted assets (4)
|
11.93 | 12.39 | 14.77 | 14.35 | 14.10 | |||||||||||||||
Tier
I capital to average assets (4)
|
10.21 | 10.46 | 12.77 | 12.53 | 12.03 | |||||||||||||||
Asset
Quality Ratios
|
||||||||||||||||||||
Allowance
for loan losses/total loans
|
0.63 | % | 0.63 | % | 0.61 | % | 0.58 | % | 0.65 | % | ||||||||||
Allowance
for loan losses/nonperforming loans
|
73.00 | 126.06 | 926.50 | 1,301.05 | 81.28 | |||||||||||||||
Net
charge-offs/average loans outstanding
|
0.03 | 0.00 | 0.00 | 0.01 | 0.00 | |||||||||||||||
Non-performing
loans/total loans
|
0.87 | 0.50 | 0.07 | 0.04 | 0.80 | |||||||||||||||
Non-performing
assets/total assets
|
0.55 | 0.30 | 0.04 | 0.02 | 0.42 | |||||||||||||||
Other data: Number of
offices
|
11 | 11 | 10 | 10 | 9 |
(1)
Represents the difference between the weighted average yield on average
interest-earning assets and the weighted average
|
cost
of interest-bearing liabilities.
|
(2)
Represents net interest income as a percent of average interest-earning
assets.
|
(3)
Represents non-interest expense divided by the sum of net interest income
and non-interest income, excluding gains
|
or
losses on the sale of securities.
|
(4)
Ratios are for East Boston Savings Bank
only.
|
|
1.
|
Continuing
to emphasize our commercial real estate, commercial business and
construction loans, as well as increase our commercial business
relationships in our expanding market
area;
|
|
2.
|
Managing
credit risk to maintain a low level of nonperforming assets, and interest
rate risk to optimize our net interest
margin;
|
|
3.
|
Expanding
our franchise through the opening of additional branch offices and the
possible acquisition of existing financial service companies or their
assets;
|
|
4.
|
Increasing
core deposits through aggressive marketing and offering new deposit
products; and
|
5.
|
Continuing to grow and diversify
our sources of non-interest
income.
|
Loan
Portfolio Composition at December 31,
|
||||||||||||||||||||||||||||||||||||||||
2007
|
2006
|
2005
|
2004
|
2003
|
||||||||||||||||||||||||||||||||||||
(Dollars
in thousands)
|
Amount
|
%
|
Amount
|
%
|
Amount
|
%
|
Amount
|
%
|
Amount
|
%
|
||||||||||||||||||||||||||||||
Real
estate loans:
|
||||||||||||||||||||||||||||||||||||||||
One-
to four-family
|
$ | 224,109 | 39.1 | % | $ | 204,559 | 38.3 | % | $ | 205,044 | 42.2 | % | $ | 189,586 | 44.2 | % | $ | 194,889 | 48.1 | % | ||||||||||||||||||||
Multi-family
|
26,855 | 4.7 | 26,781 | 5.0 | 19,392 | 4.0 | 20,633 | 4.8 | 21,400 | 5.3 | ||||||||||||||||||||||||||||||
Commercial
real estate
|
175,072 | 30.5 | 169,422 | 31.7 | 156,995 | 32.3 | 150,181 | 35.1 | 136,456 | 33.7 | ||||||||||||||||||||||||||||||
Home
equity lines
|
||||||||||||||||||||||||||||||||||||||||
of
credit
|
21,541 | 3.8 | 20,663 | 3.9 | 16,794 | 3.5 | 13,305 | 3.1 | 9,985 | 2.5 | ||||||||||||||||||||||||||||||
Construction
|
111,796 | 19.5 | 101,495 | 19.0 | 76,041 | 15.7 | 44,106 | 10.3 | 33,953 | 8.4 | ||||||||||||||||||||||||||||||
Total
real estate loans
|
559,373 | 97.6 | 522,920 | 97.9 | 474,266 | 97.7 | 417,811 | 97.5 | 396,683 | 98.0 | ||||||||||||||||||||||||||||||
Commercial
business loans
|
11,859 | 2.1 | 10,220 | 1.9 | 10,149 | 2.1 | 9,695 | 2.3 | 6,610 | 1.6 | ||||||||||||||||||||||||||||||
Consumer
loans
|
1,576 | 0.3 | 1,330 | 0.2 | 999 | 0.2 | 1,034 | 0.2 | 1,537 | 0.4 | ||||||||||||||||||||||||||||||
Total
loans
|
572,808 | 100.0 | % | 534,470 | 100.0 | % | 485,414 | 100.0 | % | 428,540 | 100.0 | % | 404,830 | 100.0 | % | |||||||||||||||||||||||||
Net
deferred loan origination fees
|
(1,067 | ) | (1,458 | ) | (1,644 | ) | (1,637 | ) | (1,696 | ) | ||||||||||||||||||||||||||||||
Allowance
for loan losses
|
(3,637 | ) | (3,362 | ) | (2,937 | ) | (2,485 | ) | (2,619 | ) | ||||||||||||||||||||||||||||||
Loans,
net
|
$ | 568,104 | $ | 529,650 | $ | 480,833 | $ | 424,418 | $ | 400,515 |
Contractual
Maturities and Interest Rate Sensitivity At December 31,
2007
|
||||||||||||||||
Real
Estate
Loans
|
Commercial
Business
Loans
|
Consumer
Loans
|
Total
Loans
|
|||||||||||||
(Dollars
in thousands)
|
||||||||||||||||
Amounts
due in:
|
||||||||||||||||
One
year or less
|
$ | 133,060 | $ | 5,089 | $ | 225 | $ | 138,374 | ||||||||
More
than one to five years
|
299,264 | 4,488 | 1,351 | 305,103 | ||||||||||||
More
than five to ten years
|
39,209 | 438 | - | 39,647 | ||||||||||||
More
than ten years
|
87,840 | 1,844 | - | 89,684 | ||||||||||||
Total
|
$ | 559,373 | $ | 11,859 | $ | 1,576 | $ | 572,808 | ||||||||
Interest
rate terms on amounts
|
||||||||||||||||
due
after one year:
|
||||||||||||||||
Fixed-rate
loans
|
$ | 130,571 | $ | 5,832 | $ | 1,351 | $ | 137,754 | ||||||||
Adjustable-rate
loans
|
295,742 | 938 | - | 296,680 | ||||||||||||
Total
|
$ | 426,313 | $ | 6,770 | $ | 1,351 | $ | 434,434 |
Non-performing
Assets
|
||||||||||||||||||||
At
December 31,
|
||||||||||||||||||||
(In
thousands)
|
2007
|
2006
|
2005
|
2004
|
2003
|
|||||||||||||||
Loans
accounted for on a non-accrual basis:
|
||||||||||||||||||||
Real
estate loans:
|
||||||||||||||||||||
One-to
four-family
|
$ | 2,059 | $ | 824 | $ | 167 | $ | 168 | $ | 277 | ||||||||||
Multi-family
|
- | - | - | - | 1,560 | |||||||||||||||
Commercial
real estate
|
1,561 | - | 123 | - | - | |||||||||||||||
Home
equity lines of credit
|
98 | 29 | 27 | 14 | 47 | |||||||||||||||
Construction
|
1,218 | 1,814 | - | - | 1,323 | |||||||||||||||
Total
real estate loans
|
4,936 | 2,667 | 317 | 182 | 3,207 | |||||||||||||||
Commercial
business loans
|
45 | - | - | - | 12 | |||||||||||||||
Consumer
loans
|
1 | - | - | 8 | 3 | |||||||||||||||
Total
non-accrual loans
|
4,982 | 2,667 | 317 | 190 | 3,222 | |||||||||||||||
Accruing
loans past due 90 days or more:
|
||||||||||||||||||||
Real
estate loans
|
- | - | - | - | - | |||||||||||||||
Commercial
business loans
|
- | - | - | - | - | |||||||||||||||
Consumer
loans
|
- | - | - | - | - | |||||||||||||||
Total
accruing past due 90 days or more
|
- | - | - | - | - | |||||||||||||||
Total
non-performing loans
|
4,982 | 2,667 | 317 | 190 | 3,222 | |||||||||||||||
Foreclosed
assets
|
560 | - | - | - | - | |||||||||||||||
Other
nonperforming assets
|
- | - | - | - | - | |||||||||||||||
Total
non-performing assets
|
$ | 5,542 | 2,667 | 317 | 190 | 3,222 | ||||||||||||||
Non-performing
loans to total loans
|
0.87 | % | 0.50 | % | 0.07 | % | 0.04 | % | 0.80 | % | ||||||||||
Non-performing
loans to total assets
|
0.50 | % | 0.30 | % | 0.04 | % | 0.02 | % | 0.42 | % |
Selected
Loan Delinquencies
|
||||||||||||||||||||||||||||||||||||
The
following table sets forth a summary of certain delinquency information as
of Deember 31.
|
||||||||||||||||||||||||||||||||||||
2007 |
2006
|
2005
|
||||||||||||||||||||||||||||||||||
30-59 |
60-89
|
90
days
|
30-59
|
60-89 |
90
days
|
30-59
|
60-89
|
90
days
|
||||||||||||||||||||||||||||
(In
thousands)
|
Days
|
Days
|
or
more
|
Days
|
Days
|
or
more
|
Days
|
Days
|
or
more
|
|||||||||||||||||||||||||||
Past
Due
|
Past
Due
|
Past
Due
|
Past
Due
|
Past
Due
|
Past
Due
|
Past
Due
|
Past
Due
|
Past
Due
|
||||||||||||||||||||||||||||
Real
estate loans :
|
||||||||||||||||||||||||||||||||||||
One-to
four-family
|
$ | 1,489 | $ | 856 | $ | 1,036 | $ | 313 | $ | 284 | $ | 540 | $ | 1,441 | $ | 167 | $ | - | ||||||||||||||||||
Multi
family
|
- | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||
Commercial
real estate
|
526 | - | 623 | 992 | - | - | 386 | - | 123 | |||||||||||||||||||||||||||
Home
equity lines of credit
|
41 | - | 70 | 153 | - | 29 | - | - | 27 | |||||||||||||||||||||||||||
Construction
|
4,576 | - | - | 335 | 760 | 1,054 | 708 | - | - | |||||||||||||||||||||||||||
Total
real estate loans
|
6,632 | 856 | 1,729 | 1,793 | 1,044 | 1,623 | 2,535 | 167 | 150 | |||||||||||||||||||||||||||
Commercial
business loans
|
25 | 250 | 116 | - | - | 50 | - | - | ||||||||||||||||||||||||||||
Consumer
loans
|
1 | - | 1 | 3 | 5 | - | - | - | - | |||||||||||||||||||||||||||
Total
|
$ | 6,658 | $ | 856 | $ | 1,980 | $ | 1,912 | $ | 1,049 | $ | 1,623 | $ | 2,585 | $ | 167 | $ | 150 |
Analysis
of Loan Loss Experience
|
||||||||||||||||||||
At
December 31,
|
||||||||||||||||||||
(Dollars
in thousands)
|
2007
|
2006
|
2005
|
2004
|
2003
|
|||||||||||||||
Beginning
Balance
|
$ | 3,362 | $ | 2,937 | $ | 2,485 | $ | 2,619 | $ | 2,250 | ||||||||||
Provision
for loan losses
|
465 | 434 | 456 | (113 | ) | 375 | ||||||||||||||
Charge
offs:
|
||||||||||||||||||||
Real
estate loans
|
207 | - | - | 12 | - | |||||||||||||||
Commercial
business loans
|
- | - | - | - | - | |||||||||||||||
Consumer
loans
|
63 | 12 | 11 | 18 | 24 | |||||||||||||||
Total
charge-offs
|
270 | 12 | 11 | 30 | 24 | |||||||||||||||
Recoveries:
|
||||||||||||||||||||
Real
estate loans
|
16 | - | - | - | 1 | |||||||||||||||
Commercial
business
|
- | - | - | - | - | |||||||||||||||
Consumer
loans
|
64 | 3 | 7 | 9 | 17 | |||||||||||||||
Total
recoveries
|
80 | 3 | 7 | 9 | 18 | |||||||||||||||
Net
charge-offs
|
(190 | ) | (9 | ) | (4 | ) | (21 | ) | (6 | ) | ||||||||||
Allowance
at end of year
|
$ | 3,637 | $ | 3,362 | $ | 2,937 | $ | 2,485 | $ | 2,619 | ||||||||||
Allowance
to nonperforming loans
|
73.00 | % | 126.06 | % | 926.50 | % | 1301.05 | % | 81.28 | % | ||||||||||
Allowance
to total loans outstanding
|
0.63 | % | 0.63 | % | 0.61 | % | 0.58 | % | 0.65 | % | ||||||||||
Net
charge-offs to average loans
outstanding
|
0.03 | % | 0.00 | % | 0.00 | % | 0.01 | % | 0.00 | % |
Allocation
of the Allowance for Loan Losses
|
||||||||||||||||||||||||||||||||||||
At
December 31,
|
||||||||||||||||||||||||||||||||||||
2007
|
2006
|
2005
|
||||||||||||||||||||||||||||||||||
(Dollars
in thousands)
|
Amount
|
%
of
Allowance
to
Total
Allowance
|
%
of
Loans
in
Category
to
Total
Loans
|
Amount
|
%
of
Allowance
to
Total
Allowance
|
%
of
Loans
in
Category
to
Total
Loans
|
Amount
|
%
of
Allowance
to
Total
Allowance
|
%
of
Loans
in
Category
to
Total
Loans
|
|||||||||||||||||||||||||||
Real
estate loans:
|
||||||||||||||||||||||||||||||||||||
One-
to four-family
|
$ | 668 | 18.4 | % | 39.1 | % | $ | 550 | 16.4 | % | 38.3 | % | $ | 542 | 18.5 | % | 42.2 | % | ||||||||||||||||||
Multi-family
|
201 | 5.5 | 4.7 | 201 | 6.0 | 5.0 | 145 | 4.9 | 4.0 | |||||||||||||||||||||||||||
Commercial
real estate
|
1,313 | 36.1 | 30.5 | 1,271 | 37.8 | 31.7 | 1,178 | 40.1 | 32.3 | |||||||||||||||||||||||||||
Home
equity lines of credit
|
82 | 2.2 | 3.8 | 52 | 1.5 | 3.9 | 42 | 1.4 | 3.5 | |||||||||||||||||||||||||||
Construction
|
1,007 | 27.7 | 19.5 | 974 | 29.0 | 19.0 | 721 | 24.6 | 15.7 | |||||||||||||||||||||||||||
Total
real estate loans
|
3,271 | 89.9 | 97.6 | 3,048 | 90.7 | 97.9 | 2,628 | 89.5 | 97.7 | |||||||||||||||||||||||||||
Commercial
business loans
|
355 | 9.8 | 2.1 | 306 | 9.1 | 1.9 | 304 | 10.3 | 2.1 | |||||||||||||||||||||||||||
Consumer
loans
|
11 | 0.3 | 0.3 | 8 | 0.2 | 0.2 | 5 | 0.2 | 0.2 | |||||||||||||||||||||||||||
Total
|
$ | 3,637 | 100.0 | % | 100.0 | % | $ | 3,362 | 100.0 | % | 100.0 | % | $ | 2,937 | 100.0 | % | 100.0 | % |
Securities
|
||||||||||||||||||||||||
At
December 31,
|
||||||||||||||||||||||||
2007
|
2006
|
2005
|
||||||||||||||||||||||
|
Amortized
|
Fair
|
Amortized
|
Fair
|
Amortized
|
Fair
|
||||||||||||||||||
(Dollars
in thousands)
|
Cost
|
Value
|
Cost
|
Value
|
Cost
|
Value
|
||||||||||||||||||
Securities
available for sale:
|
||||||||||||||||||||||||
Government
– sponsored
|
||||||||||||||||||||||||
enterprises
|
$ | 7,002 | $ | 6,975 | $ | 9,005 | $ | 8,831 | $ | 15,944 | $ | 15,740 | ||||||||||||
Corporate
bonds
|
219,626 | 220,629 | 235,823 | 233,142 | 217,620 | 214,399 | ||||||||||||||||||
Mortgage-backed
securities
|
43 | 43 | 46 | 46 | 50 | 50 | ||||||||||||||||||
Total
debt securities
|
226,671 | 227,647 | 244,874 | 242,019 | 233,614 | 230,189 | ||||||||||||||||||
Marketable
equity securities
|
28,843 | 39,411 | 29,759 | 39,643 | 29,216 | 33,985 | ||||||||||||||||||
Total
|
$ | 255,514 | $ | 267,058 | $ | 274,633 | $ | 281,662 | $ | 262,830 | $ | 264,174 | ||||||||||||
Investment
Maturities Schedule
|
||||||||||||||||||||||||||||||||||||||||
One
Year or Less
|
More
than One Year
to
Five Years
|
More
than Five Years
to
Ten Years
|
More
than Ten
Years
|
Total
|
||||||||||||||||||||||||||||||||||||
(Dollars
in thousands)
|
Amortized
Cost
|
Weighted
Average
Yield
|
Amortized
Cost
|
Weighted
Average
Yield
|
Amortized
Cost
|
Weighted
Average
Yield
|
Amortized
Cost
|
Weighted
Average
Yield
|
Amortized
Cost
|
Weighted
Average
Yield
|
||||||||||||||||||||||||||||||
Government
– sponsored
|
||||||||||||||||||||||||||||||||||||||||
enterprises
|
$ | 6,003 | 3.71 | % | $ | 999 | 3.31 | % | $ | - | - | % | $ | - | - | % | $ | 7,002 | 3.66 | % | ||||||||||||||||||||
Corporate
bonds
|
71,867 | 4.31 | 147,759 | 5.04 | - | - | - | - | 219,626 | 4.80 | ||||||||||||||||||||||||||||||
Mortgage-backed
securities
|
- | - | - | - | 17 | 7.67 | 26 | 9.18 | 43 | 8.59 | ||||||||||||||||||||||||||||||
Total
debt securities
|
$ | 77,870 | 4.26 | % | $ | 148,758 | 5.02 | % | $ | 17 | 7.67 | % | $ | 26 | 9.18 | % | $ | 226,671 | 4.76 | % |
Deposits
|
||||||||||||||||||||||||
Year
Ended December 31,
|
||||||||||||||||||||||||
2007
|
2006
|
2005
|
||||||||||||||||||||||
(Dollars
in thousands)
|
Average
Balance
|
Percent
of
Total
Deposits
|
Average
Balance
|
Percent
of
Total
Deposits
|
Average
Balance
|
Percent
of
Total
Deposits
|
||||||||||||||||||
Demand
deposits
|
$ | 54,051 | 7.2 | % | $ | 25,358 | 3.6 | % | $ | 25,432 | 3.9 | % | ||||||||||||
NOW
deposits
|
34,355 | 4.6 | 67,228 | 9.6 | 66,653 | 10.2 | ||||||||||||||||||
Money
market deposits
|
113,392 | 15.0 | 105,071 | 14.9 | 120,074 | 18.5 | ||||||||||||||||||
Regular
and other deposits
|
129,153 | 17.1 | 142,698 | 20.3 | 165,747 | 25.5 | ||||||||||||||||||
Certificates
of deposit
|
422,588 | 56.1 | 362,990 | 51.6 | 272,733 | 41.9 | ||||||||||||||||||
Total
|
$ | 753,539 | 100.0 | % | $ | 703,345 | 100.0 | % | $ | 650,639 | 100.0 | % |
Time
Deposit Maturities of $100,000 or more
|
||||
|
Certificates
|
|||
(Dollars
in thousands)
|
of
Deposit
|
|||
Maturity
Period:
|
||||
Three
months or less
|
$ | 15,449 | ||
Over
three through six months
|
21,878 | |||
Over
six through twelve months
|
58,384 | |||
Over
twelve months
|
70,070 | |||
Total
|
$ | 165,781 |
Borrowings
|
Year
Ended
|
|||||||||||
December
31,
|
||||||||||||
(Dollars
in thousands)
|
2007
|
2006
|
2005
|
|||||||||
Balance
outstanding at end of year
|
$ | 36,527 | $ | 40,589 | $ | 37,108 | ||||||
Average
amount outstanding during the year
|
$ | 39,193 | $ | 41,039 | $ | 35,665 | ||||||
Weighted
average interest rate during the year
|
4.74 | % | 4.43 | % | 3.76 | % | ||||||
Maximum
outstanding at any month end
|
$ | 49,188 | $ | 52,649 | $ | 56,030 | ||||||
Weighted
average interest rate at end of year
|
4.49 | % | 4.69 | % | 4.00 | % |
Average
Balance Table
|
||||||||||||||||||||||||||||||||||||
At
or For the
|
||||||||||||||||||||||||||||||||||||
Year
Ended December 31,
|
||||||||||||||||||||||||||||||||||||
2007
|
2006
|
2005
|
||||||||||||||||||||||||||||||||||
Average
Balance
|
Interest
|
Average
Yield
|
Average
Balance
|
Interest
|
Average
Yield
|
Average
Balance
|
Interest
|
Average
Yield
|
||||||||||||||||||||||||||||
Assets:
|
||||||||||||||||||||||||||||||||||||
Interest-earning
assets:
|
||||||||||||||||||||||||||||||||||||
Loans
|
$ | 550,494 | $ | 35,745 | 6.49 | % | $ | 507,143 | $ | 32,661 | 6.44 | % | $ | 457,841 | $ | 28,708 | 6.27 | |||||||||||||||||||
Securities
|
275,055 | 12,170 | 4.42 | 278,621 | 11,781 | 4.23 | 274,005 | 11,201 | 4.09 | |||||||||||||||||||||||||||
Other
interest-earning assets
|
26,244 | 1,260 | 4.80 | 15,753 | 793 | 5.03 | 8,149 | 277 | 3.40 | |||||||||||||||||||||||||||
Total
interest-earning assets
|
851,793 | 49,175 | 5.77 | 801,517 | 45,235 | 5.64 | 739,995 | 40,186 | 5.43 | |||||||||||||||||||||||||||
Noninterest-earning
assets
|
65,348 | 58,643 | 59,754 | |||||||||||||||||||||||||||||||||
Total
assets
|
$ | 917,141 | $ | 860,160 | $ | 799,749 | ||||||||||||||||||||||||||||||
Liabilities
and equity:
|
||||||||||||||||||||||||||||||||||||
Interest-bearing
liabilities:
|
||||||||||||||||||||||||||||||||||||
NOW
deposits
|
$ | 34,355 | $ | 123 | 0.36 | % | $ | 67,228 | $ | 96 | 0.14 | % | $ | 66,653 | $ | 90 | 0.14 | % | ||||||||||||||||||
Money
market deposits
|
113,392 | 4,164 | 3.67 | 105,071 | 3,188 | 3.03 | 120,074 | 2,788 | 2.32 | |||||||||||||||||||||||||||
Regular
and other deposits
|
129,153 | 1,500 | 1.16 | 142,698 | 1,673 | 1.17 | 165,747 | 2,064 | 1.25 | |||||||||||||||||||||||||||
Certificates
of deposit
|
422,588 | 20,452 | 4.84 | 362,990 | 15,052 | 4.15 | 272,733 | 8,260 | 3.03 | |||||||||||||||||||||||||||
Total
interest-bearing deposits
|
699,488 | 26,239 | 3.75 | 677,987 | 20,009 | 2.95 | 625,207 | 13,202 | 2.11 | |||||||||||||||||||||||||||
FHLB
advances
|
39,193 | 1,857 | 4.74 | 41,039 | 1,819 | 4.43 | 35,665 | 1,343 | 3.76 | |||||||||||||||||||||||||||
Total
interest-bearing liabilities
|
738,681 | 28,096 | 3.80 | 719,026 | 21,828 | 3.04 | 660,872 | 14,545 | 2.20 | |||||||||||||||||||||||||||
Noninterest-bearing
demand deposits
|
54,051 | 25,358 | 25,432 | |||||||||||||||||||||||||||||||||
Other
noninterest-bearing liabilities
|
11,429 | 10,358 | 11,691 | |||||||||||||||||||||||||||||||||
Total
liabilities
|
804,161 | 754,742 | 697,995 | |||||||||||||||||||||||||||||||||
Total
equity
|
112,980 | 105,418 | 101,754 | |||||||||||||||||||||||||||||||||
Total
liabilities and equity
|
$ | 917,141 | $ | 860,160 | $ | 799,749 | ||||||||||||||||||||||||||||||
Net
interest income
|
$ | 21,079 | $ | 23,407 | $ | 25,641 | ||||||||||||||||||||||||||||||
Interest
rate spread
|
1.97 | % | 2.60 | % | 3.23 | % | ||||||||||||||||||||||||||||||
Net
interest margin
|
2.47 | % | 2.92 | % | 3.47 | % | ||||||||||||||||||||||||||||||
Average
interest-earning assets to
average
interest-bearing liabilities
|
115.31 | % | 111.47 | % | 111.97 | % |
Analysis
of Net Interest Income
|
||||||||||||||||||||||||
Years
ended December 31,
|
Years
ended December 31,
|
|||||||||||||||||||||||
2007
Compared to 2006
|
2006
Compared to 2005
|
|||||||||||||||||||||||
Increase
(Decrease) Due to
|
Increase
(Decrease) Due to
|
|||||||||||||||||||||||
(Dollars
in thousands)
|
Volume
|
Rate
|
Net
|
Volume
|
Rate
|
Net
|
||||||||||||||||||
Interest
income:
|
||||||||||||||||||||||||
Loans
|
$ | 2,670 | $ | 414 | $ | 3,084 | $ | 3,158 | $ | 795 | $ | 3,953 | ||||||||||||
Securities
|
(340 | ) | 729 | 389 | 191 | 389 | 580 | |||||||||||||||||
Other
interest-earning
|
||||||||||||||||||||||||
assets
|
502 | (35 | ) | 467 | 341 | 175 | 516 | |||||||||||||||||
Total
|
2,832 | 1,108 | 3,940 | 3,690 | 1,359 | 5,049 | ||||||||||||||||||
Interest
expense:
|
||||||||||||||||||||||||
Deposits
|
2,767 | 3,463 | 6,230 | 2,557 | 4,250 | 6,807 | ||||||||||||||||||
FHLB
advances
|
(71 | ) | 109 | 38 | 219 | 257 | 476 | |||||||||||||||||
Total
|
2,696 | 3,572 | 6,268 | 2,776 | 4,507 | 7,283 | ||||||||||||||||||
Change
in interest income
|
$ | 136 | $ | (2,464 | ) | $ | (2,328 | ) | $ | 914 | $ | (3,148 | ) | $ | (2,234 | ) |
Summary
Income Statements
|
||||||||||||||||||||||||||||
Year
Ended December 31,
|
Change
2007/2006
|
Change
2006/2005
|
||||||||||||||||||||||||||
(Dollars
in thousands)
|
2007
|
2006
|
2005
|
Amount
|
Percent
|
Amount
|
Percent
|
|||||||||||||||||||||
Net
interest income
|
$ | 21,079 | $ | 23,407 | $ | 25,641 | $ | (2,328 | ) | (9.95 | ) % | $ | (2,234 | ) | (8.71 | ) % | ||||||||||||
Provision
for loan losses
|
465 | 434 | 456 | 31 | 7.14 | (22 | ) | (4.82 | ) | |||||||||||||||||||
Non-interest
income
|
4,652 | 3,342 | 3,555 | 1,310 | 39.20 | (213 | ) | (5.99 | ) | |||||||||||||||||||
Non-interest
expenses
|
22,620 | 21,894 | 20,637 | 726 | 3.32 | 1,257 | 6.09 | |||||||||||||||||||||
Net
income
|
2,266 | 3,294 | 5,403 | (1,028 | ) | (31.21 | ) | (2,109 | ) | (39.03 | ) | |||||||||||||||||
Return
on average equity
|
2.01 | % | 3.12 | % | 5.31 | % | (35.58 | ) | (41.24 | ) | ||||||||||||||||||
Return
on average assets
|
0.25 | % | 0.38 | % | 0.68 | % | (34.21 | ) | (44.12 | ) |
Non-interest
Income Summary
|
||||||||||||||||||||||||||||
Year
Ended December 31,
|
Change
2007/2006
|
Change
2006/2005
|
||||||||||||||||||||||||||
(Dollars
in thousands)
|
2007
|
2006
|
2005
|
Amount
|
Percent
|
Amount
|
Percent
|
|||||||||||||||||||||
Customer
service fees
|
$ | 2,810 | $ | 2,444 | $ | 2,271 | $ | 366 | 14.98 | % | $ | 173 | 7.62 | % | ||||||||||||||
Loan
fees
|
569 | 606 | 443 | (37 | ) | (6.11 | ) | 163 | 36.79 | |||||||||||||||||||
Gain
on sales of loans, net
|
49 | 69 | 190 | (20 | ) | (28.99 | ) | (121 | ) | (63.68 | ) | |||||||||||||||||
Gain
(loss) on securities, net
|
299 | (44 | ) | 117 | 343 | (779.55 | ) | (161 | ) | (137.61 | ) | |||||||||||||||||
Income
from bank-owned life insurance
|
1,143 | 796 | 564 | 347 | 43.59 | 232 | 41.13 | |||||||||||||||||||||
Equity
loss on investment in affiliate bank
|
(541 | ) | (578 | ) | (109 | ) | 37 | (6.40 | ) | (469 | ) | (430.28 | ) | |||||||||||||||
Other
|
323 | 49 | 79 | 274 | 559.18 | (30 | ) | (37.97 | ) | |||||||||||||||||||
Total non-interest
income
|
$ | 4,652 | $ | 3,342 | $ | 3,555 | $ | 1,310 | 39.20 | % | $ | (213 | ) | (5.99 | ) % |
Non-interest
Expense Summary
|
||||||||||||||||||||||||||||
Year
Ended December 31,
|
Change
2007/2006
|
Change
2006/2005
|
||||||||||||||||||||||||||
(Dollars
in thousands)
|
2007
|
2006
|
2005
|
Amount
|
Percent
|
Amount
|
Percent
|
|||||||||||||||||||||
Salaries
and employee benefits
|
$ | 14,708 | $ | 13,225 | $ | 13,325 | $ | 1,483 | 11.21 | % | $ | (100 | ) | (0.75 | ) % | |||||||||||||
Occupancy
and equipment
|
2,602 | 2,630 | 2,575 | (28 | ) | (1.06 | ) | 55 | 2.14 | |||||||||||||||||||
Data
processing
|
1,588 | 1,578 | 1,361 | 10 | 0.63 | 217 | 15.94 | |||||||||||||||||||||
Marketing
and advertising
|
987 | 1,017 | 899 | (30 | ) | (2.95 | ) | 118 | 13.13 | |||||||||||||||||||
Professional
services
|
847 | 1,036 | 753 | (189 | ) | (18.24 | ) | 283 | 37.58 | |||||||||||||||||||
Litigation
settlement
|
- | 575 | - | (575 | ) | (100.00 | ) | 575 | 100.00 | |||||||||||||||||||
Other
general and administrative
|
1,888 | 1,833 | 1,724 | 55 | 3.00 | 109 | 6.32 | |||||||||||||||||||||
Total non-interest
expense
|
$ | 22,620 | $ | 21,894 | $ | 20,637 | $ | 726 | 3.32 | % | $ | 1,257 | 6.09 | % |
|
·
|
Develops,
implements and maintains a risk management program for the entire bank to
withstand regulatory scrutiny and provides operational safety and
efficiency;
|
|
·
|
Recommends
policy to the board of directors;
|
|
·
|
Chairs
the Risk Management Committee;
|
|
·
|
Participates
in developing long-term strategic risk objectives for East Boston Savings
Bank;
|
|
·
|
Coordinates
and reviews risk assessments and provides recommendations on risk
controls, testing and mitigation
strategies;
|
|
·
|
Reviews
and provides recommendations and approvals for all proposed business
initiatives;
|
|
·
|
Implements
and maintains the Vendor Management
Program;
|
|
·
|
Acts
as our Information Security Officer and provides comments and
recommendations in accordance with Gramm-Leach Bliley Act requirements;
and
|
|
·
|
Maintains
leading edge knowledge of risk management and regulatory trends and
mitigation strategies.
|
Interest
Rate Sensitivity
|
||||||||||||||||||||||||
Increase
(Decrease)
|
|
|||||||||||||||||||||||
in
Market Interest
|
Net
Interest Income
|
Net
Portfolio Value Estimate
|
||||||||||||||||||||||
Rates
(Rate Shock)
|
Amount
|
Change
|
Percent
|
Amount
|
Change
|
Percent
|
||||||||||||||||||
(Dollars
in Thousands)
|
||||||||||||||||||||||||
300
bp
|
$ | 25,871 | $ | 1,820 | 7.57 | % | $ | 57,636 | $ | (43,179 | ) | (42.83 | ) % | |||||||||||
200
|
25,287 | 1,236 | 5.14 | 72,263 | (28,552 | ) | (28.32 | ) | ||||||||||||||||
100
|
24,684 | 633 | 2.63 | 86,823 | (13,992 | ) | (13.88 | ) | ||||||||||||||||
0
|
24,051 | 100,815 | ||||||||||||||||||||||
(100)
|
23,351 | (700 | ) | (2.91 | ) | 113,135 | 12,320 | 12.22 | ||||||||||||||||
(200)
|
22,484 | (1,567 | ) | (6.52 | ) | 122,354 | 21,539 | 21.36 | ||||||||||||||||
(300)
|
21,398 | (2,653 | ) | (11.03 | ) | 129,786 | 28,971 | 28.74 |
Contractual
Obligations
|
||||||||||||||||||||
Payments
Due by Period
|
||||||||||||||||||||
(Dollars
in thousands)
|
Total
|
Less
than One Year
|
1-3
Years
|
3-5
Years
|
More
Than
5
Years
|
|||||||||||||||
Contractual
obligations:
|
||||||||||||||||||||
Long-term
debt obligations
|
$ | 27,373 | $ | 14,848 | $ | 12,525 | $ | - | $ | - | ||||||||||
Operating
lease obligations
|
259 | 69 | 122 | 68 | - | |||||||||||||||
Other
long-term obligations (1)
|
7,395 | 1,305 | 2,610 | 2,610 | 870 | |||||||||||||||
Total
|
$ | 35,027 | $ | 16,222 | $ | 15,257 | $ | 2,678 | $ | 870 | ||||||||||
(1)
Consists entirely of expenses related to obligations under a data
processing agreement.
|
Page
|
|
Report
of Independent Registered Public Accounting Firm
|
51
|
Consolidated
Balance Sheets as of December 31, 2007 and 2006
|
52
|
Consolidated
Statements of Income for the years ended December 31, 2007, 2006 and
2005
|
53
|
Consolidated
Statements of Changes in Retained Earnings for the years ended December
31, 2007, 2006 and 2005
|
54
|
Consolidated
Statements of Cash Flows for the years ended December 31, 2007, 2006 and
2005
|
55
|
Notes
to Consolidated Financial Statements
|
57
|
December
31,
|
||||||||
(In
thousands)
|
2007
|
2006
|
||||||
ASSETS
|
||||||||
Cash
and due from banks
|
$ | 11,821 | $ | 13,162 | ||||
Federal
funds sold
|
91,272 | 10,332 | ||||||
Total
cash and cash equivalents
|
103,093 | 23,494 | ||||||
Securities
available for sale, at fair value
|
267,058 | 281,662 | ||||||
Federal
Home Loan Bank stock, at cost
|
3,165 | 3,371 | ||||||
Loans
held for sale
|
- | 3,594 | ||||||
Loans
|
571,741 | 533,012 | ||||||
Less
allowance for loan losses
|
(3,637 | ) | (3,362 | ) | ||||
Loans,
net
|
568,104 | 529,650 | ||||||
Bank-owned
life insurance
|
18,003 | 19,029 | ||||||
Investment
in affiliate bank
|
10,772 | 11,313 | ||||||
Premises
and equipment, net
|
22,816 | 19,700 | ||||||
Accrued
interest receivable
|
5,764 | 5,502 | ||||||
Other
assets
|
4,451 | 2,248 | ||||||
Total
assets
|
$ | 1,003,226 | $ | 899,563 | ||||
LIABILITIES
AND RETAINED EARNINGS
|
||||||||
Deposits:
|
||||||||
Non
interest-bearing
|
$ | 51,396 | $ | 52,491 | ||||
Interest-bearing
|
723,050 | 684,498 | ||||||
Total
deposits
|
774,446 | 736,989 | ||||||
Stock
subscriptions
|
62,518 | - | ||||||
Short-term
borrowings
|
9,154 | 8,916 | ||||||
Long-term
debt
|
27,373 | 31,673 | ||||||
Accrued
expenses and other liabilities
|
14,051 | 11,710 | ||||||
Total
liabilities
|
887,542 | 789,288 | ||||||
Commitments
and contingencies (Notes 6, 7 and 11)
|
||||||||
Retained
earnings
|
109,177 | 106,911 | ||||||
Accumulated
other comprehensive income
|
6,507 | 3,364 | ||||||
Total
retained earnings
|
115,684 | 110,275 | ||||||
Total
liabilities and retained earnings
|
$ | 1,003,226 | $ | 899,563 | ||||
Years Ended
December 31,
|
||||||||||||
(In
thousands)
|
2007
|
2006
|
2005
|
|||||||||
Interest
and dividend income:
|
||||||||||||
Interest
and fees on loans
|
$ | 35,745 | $ | 32,661 | $ | 28,708 | ||||||
Interest
on debt securities
|
11,039 | 10,577 | 10,454 | |||||||||
Dividends
on equity securities
|
1,131 | 1,204 | 747 | |||||||||
Interest
on federal funds sold
|
1,260 | 793 | 277 | |||||||||
Total
interest and dividend income
|
49,175 | 45,235 | 40,186 | |||||||||
Interest
expense:
|
||||||||||||
Interest
on deposits
|
26,239 | 20,009 | 13,202 | |||||||||
Interest
on short-term borrowings
|
370 | 392 | 279 | |||||||||
Interest
on long-term debt
|
1,487 | 1,427 | 1,064 | |||||||||
Total
interest expense
|
28,096 | 21,828 | 14,545 | |||||||||
Net
interest income
|
21,079 | 23,407 | 25,641 | |||||||||
Provision
for loan losses
|
465 | 434 | 456 | |||||||||
Net
interest income, after provision
|
||||||||||||
for
loan losses
|
20,614 | 22,973 | 25,185 | |||||||||
Non-interest
income:
|
||||||||||||
Customer
service fees
|
2,810 | 2,444 | 2,271 | |||||||||
Loan
fees
|
569 | 606 | 443 | |||||||||
Gain
on sales of loans, net
|
49 | 69 | 190 | |||||||||
Gain
(loss) on sales of securities, net
|
299 | (44 | ) | 117 | ||||||||
Income
from bank-owned life insurance
|
1,143 | 796 | 564 | |||||||||
Equity
loss on investment in affiliate bank
|
(541 | ) | (578 | ) | (109 | ) | ||||||
Other
|
323 | 49 | 79 | |||||||||
Total
non-interest income
|
4,652 | 3,342 | 3,555 | |||||||||
Non-interest
expenses:
|
||||||||||||
Salaries
and employee benefits
|
14,708 | 13,225 | 13,325 | |||||||||
Occupancy
and equipment
|
2,602 | 2,630 | 2,575 | |||||||||
Data
processing
|
1,588 | 1,578 | 1,361 | |||||||||
Marketing
and advertising
|
987 | 1,017 | 899 | |||||||||
Professional
services
|
847 | 1,036 | 753 | |||||||||
Litigation
settlement
|
- | 575 | - | |||||||||
Other
general and administrative
|
1,888 | 1,833 | 1,724 | |||||||||
Total
non-interest expenses
|
22,620 | 21,894 | 20,637 | |||||||||
Income
before income taxes
|
2,646 | 4,421 | 8,103 | |||||||||
Provision
for income taxes
|
380 | 1,127 | 2,700 | |||||||||
Net
income
|
$ | 2,266 | $ | 3,294 | $ | 5,403 | ||||||
Accumulated
|
||||||||||||
Other
|
Total
|
|||||||||||
Retained
|
Comprehensive
|
Retained
|
||||||||||
(In
thousands)
|
Earnings
|
Income
|
Earnings
|
|||||||||
Balance
at December 31, 2004
|
$ | 98,214 | $ | 3,862 | $ | 102,076 | ||||||
Comprehensive
income:
|
||||||||||||
Net
income
|
5,403 | - | 5,403 | |||||||||
Change
in net unrealized gain on
|
||||||||||||
securities
available for sale, net of
|
||||||||||||
reclassification
adjustment and tax effects
|
- | (3,236 | ) | (3,236 | ) | |||||||
Total
comprehensive income
|
2,167 | |||||||||||
Balance
at December 31, 2005
|
103,617 | 626 | 104,243 | |||||||||
Comprehensive
income:
|
||||||||||||
Net
income
|
3,294 | - | 3,294 | |||||||||
Change
in net unrealized gain on
|
||||||||||||
securities
available for sale, net of
|
||||||||||||
reclassification
adjustment and tax effects
|
- | 3,323 | 3,323 | |||||||||
Total
comprehensive income
|
6,617 | |||||||||||
Adjustment
to initially apply SFAS
|
||||||||||||
No.
158, net of tax effect
|
- | (585 | ) | (585 | ) | |||||||
Balance
at December 31, 2006
|
106,911 | 3,364 | 110,275 | |||||||||
Comprehensive
income:
|
||||||||||||
Net
income
|
2,266 | - | 2,266 | |||||||||
Change
in net unrealized gain on
|
||||||||||||
securities
available for sale, net of
|
||||||||||||
reclassification
adjustment and tax effects
|
- | 2,720 | 2,720 | |||||||||
Amortization
of net actuarial loss and prior
|
||||||||||||
service
cost, net of tax effect
|
- | 94 | 94 | |||||||||
Termination
of supplemental executive retirement
|
||||||||||||
plan,
net of tax effect (see Note 12)
|
- | 329 | 329 | |||||||||
Total
comprehensive income
|
5,409 | |||||||||||
Balance
at December 31, 2007
|
$ | 109,177 | $ | 6,507 | $ | 115,684 | ||||||
Years Ended
December 31,
|
||||||||||||
(In
thousands)
|
2007
|
2006
|
2005
|
|||||||||
Change
flows from operating activities:
|
||||||||||||
Net
income
|
$ | 2,266 | $ | 3,294 | $ | 5,403 | ||||||
Adjustments
to reconcile net income to net cash
|
||||||||||||
provided
by operating activities:
|
||||||||||||
Provision
for loan losses
|
465 | 434 | 456 | |||||||||
Amortization
of net deferred loan origination fees
|
(464 | ) | (608 | ) | (738 | ) | ||||||
Gain
on sale of loans held in portfolio
|
- | (14 | ) | - | ||||||||
Net
amortization of securities available for sale
|
649 | 1,017 | 1,584 | |||||||||
Depreciation
and amortization expense
|
1,200 | 1,178 | 1,131 | |||||||||
Loss
(gain) on securities, net
|
(299 | ) | 44 | (117 | ) | |||||||
Deferred
income tax benefit
|
(316 | ) | (390 | ) | (1,751 | ) | ||||||
Income
from bank-owned life insurance
|
(1,143 | ) | (796 | ) | (564 | ) | ||||||
Equity
loss on investment in affiliate bank
|
541 | 578 | 109 | |||||||||
Net
changes in:
|
||||||||||||
Loans
held for sale
|
745 | - | - | |||||||||
Accrued
interest receivable
|
(262 | ) | (832 | ) | 281 | |||||||
Other
assets
|
(2,005 | ) | (780 | ) | 1,999 | |||||||
Accrued
expenses and other liabilities
|
1,647 | 113 | 1,816 | |||||||||
Net
cash provided by operating activities
|
3,024 | 3,238 | 9,609 | |||||||||
Cash
flows from investing activities:
|
||||||||||||
Activity
in securities available for sale:
|
||||||||||||
Proceeds
from maturities, calls and principal payments
|
97,441 | 91,909 | 10,817 | |||||||||
Proceeds
from sales
|
44,091 | 14,975 | 37,817 | |||||||||
Purchases
|
(122,763 | ) | (119,748 | ) | (21,142 | ) | ||||||
Investment
in affiliate bank
|
- | (11,400 | ) | (600 | ) | |||||||
Redemption
(purchase) of Federal Home Loan Bank stock
|
206 | 99 | (755 | ) | ||||||||
Loans
originated, net of principal payments received
|
(36,386 | ) | (55,540 | ) | (56,133 | ) | ||||||
Proceeds
from sales of loans held in portfolio
|
- | 3,317 | - | |||||||||
Decrease
in cash surrender value from life insurance proceeds
|
2,169 | - | - | |||||||||
Purchases
of premises and equipment
|
(4,316 | ) | (2,949 | ) | (2,051 | ) | ||||||
Proceeds
from sales of foreclosed real estate
|
220 | - | - | |||||||||
Net
cash used in investing activities
|
(19,338 | ) | (79,337 | ) | (32,047 | ) |
Years Ended
December 31,
|
||||||||||||
(In
thousands)
|
2007
|
2006
|
2005
|
|||||||||
Cash
flows from financing activities:
|
||||||||||||
Net
increase in deposits
|
37,457 | 64,445 | 29,830 | |||||||||
Proceeds
from stock subscriptions
|
62,518 | - | - | |||||||||
Net
change in Federal Home Loan Bank advances
|
||||||||||||
with
maturities less than three months
|
(212 | ) | 1,983 | (12,497 | ) | |||||||
Proceeds
from Federal Home Loan Bank advances
|
||||||||||||
with
maturities of three months or more
|
150 | 14,013 | 12,823 | |||||||||
Repayment
of Federal Home Loan Bank advances
|
||||||||||||
with
maturities of three months or more
|
(4,000 | ) | (12,515 | ) | (1,700 | ) | ||||||
Net
cash provided by financing activities
|
95,913 | 67,926 | 28,456 | |||||||||
Net
change in cash and cash equivalents
|
79,599 | (8,173 | ) | 6,018 | ||||||||
Cash
and cash equivalents at beginning of year
|
23,494 | 31,667 | 25,649 | |||||||||
Cash
and cash equivalents at end of year
|
$ | 103,093 | $ | 23,494 | $ | 31,667 | ||||||
Supplemental
cash flow information:
|
||||||||||||
Interest
paid on deposits
|
$ | 26,171 | $ | 19,631 | $ | 13,011 | ||||||
Interest
paid on Federal Home Loan Bank advances
|
1,872 | 1,798 | 1,320 | |||||||||
Income
taxes paid, net of refunds
|
455 | 2,497 | 2,401 | |||||||||
Non-cash
investing and financing activities:
|
||||||||||||
Transfers
from loans to loans held for sale
|
- | 3,594 | - | |||||||||
Transfers
from loans held for sale to loans
|
2,849 | - | - | |||||||||
Transfers
from loans to foreclosed real estate
|
780 | - | - |
1.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
|
Before
|
After
|
|||||||||||
Application
of
|
Application
of
|
|||||||||||
(In
thousands)
|
SFAS
No.158
|
Adjustments
|
SFAS
No.158
|
|||||||||
Accrued
pension benefit
|
$ | 3,201 | $ | 992 | $ | 4,193 | ||||||
Net
deferred tax asset (liability)
|
(45 | ) | 407 | 362 | ||||||||
Total
assets
|
899,201 | 362 | 899,563 | |||||||||
Total
liabilities
|
788,926 | 362 | 789,288 | |||||||||
Accumulated
other comprehensive income
|
3,949 | (585 | ) | 3,364 | ||||||||
Total
retained earnings
|
110,860 | (585 | ) | 110,275 |
Years
Ended December 31,
|
||||||||||||
(In
thousands)
|
2007
|
2006
|
2005
|
|||||||||
Unrealized
holding gains/losses on
|
||||||||||||
securities
available for sale
|
$ | 4,814 | $ | 5,641 | $ | (5,242 | ) | |||||
Reclassification
adjustments for losses (gains)
|
||||||||||||
realized
in income
|
(299 | ) | 44 | (117 | ) | |||||||
Unrealized
gains (losses)
|
4,515 | 5,685 | (5,359 | ) | ||||||||
Tax
effect
|
(1,795 | ) | (2,362 | ) | 2,123 | |||||||
Net-of-tax
amount
|
2,720 | 3,323 | (3,236 | ) | ||||||||
Amortization
of net actuarial loss and prior
|
||||||||||||
service
cost
|
159 | - | - | |||||||||
Tax
effect
|
(65 | ) | - | - | ||||||||
Net
of tax amount
|
94 | - | - | |||||||||
Termination
of supplemental executive
|
||||||||||||
retirement
plan
|
557 | - | - | |||||||||
Tax
effect
|
(228 | ) | - | - | ||||||||
Net
of tax amount
|
329 | - | - | |||||||||
$ | 3,143 | $ | 3,323 | $ | (3,236 | ) | ||||||
December
31,
|
||||||||
(In
thousands)
|
2007
|
2006
|
||||||
Net
unrealized gain on securities
|
||||||||
available
for sale
|
$ | 11,544 | $ | 7,029 | ||||
Tax
effect
|
(4,875 | ) | (3,080 | ) | ||||
Net-of-tax
amount
|
6,669 | 3,949 | ||||||
Unrecognized
net actuarial loss pertaining
|
||||||||
to
supplemental executive retirement plans
|
(47 | ) | (736 | ) | ||||
Unrecognized
prior service cost pertaining
|
||||||||
to
supplemental executive retirement plans
|
(229 | ) | (256 | ) | ||||
Total
|
(276 | ) | (992 | ) | ||||
Tax
effect
|
114 | 407 | ||||||
Net-of-tax
amount
|
(162 | ) | (585 | ) | ||||
$ | 6,507 | $ | 3,364 |
2.
|
STOCK
OFFERING
|
(In
Thousands)
|
||||
Assets
|
||||
Cash
and cash equivalents
|
$ | 139,394 | ||
Investments
|
270,223 | |||
Loans,
net
|
568,104 | |||
Other
assets
|
60,620 | |||
Total
assets
|
$ | 1,038,341 | ||
Liabilities and
Stockholders' Equity
|
||||
Deposits
|
$ | 774,446 | ||
Other
liabilities
|
57,838 | |||
Total
liabilities
|
832,284 | |||
Stockholders'
equity
|
206,057 | |||
Total
liabilities and stockholders' equity
|
$ | 1,038,341 |
3.
|
RESTRICTIONS
ON CASH AND AMOUNTS DUE FROM BANKS
|
4.
|
SECURITIES
AVAILABLE FOR SALE
|
Gross
|
Gross
|
|||||||||||||||
Amortized
|
Unrealized
|
Unrealized
|
Fair
|
|||||||||||||
(In
thousands)
|
Cost
|
Gains
|
Losses
|
Value
|
||||||||||||
December 31,
2007
|
||||||||||||||||
Debt
securities:
|
||||||||||||||||
Government-sponsored
enterprises
|
$ | 7,002 | $ | - | $ | (27 | ) | $ | 6,975 | |||||||
Corporate
bonds
|
219,626 | 1,697 | (694 | ) | 220,629 | |||||||||||
Mortgage-backed
securities
|
43 | 3 | (3 | ) | 43 | |||||||||||
Total
debt securities
|
226,671 | 1,700 | (724 | ) | 227,647 | |||||||||||
Marketable
equity securities
|
28,843 | 10,819 | (251 | ) | 39,411 | |||||||||||
Total
securities available
|
||||||||||||||||
for
sale
|
$ | 255,514 | $ | 12,519 | $ | (975 | ) | $ | 267,058 | |||||||
December 31,
2006
|
||||||||||||||||
Debt
securities:
|
||||||||||||||||
Government-sponsored
enterprises
|
$ | 9,005 | $ | - | $ | (174 | ) | $ | 8,831 | |||||||
Corporate
bonds
|
235,823 | 21 | (2,702 | ) | 233,142 | |||||||||||
Mortgage-backed
securities
|
46 | 3 | (3 | ) | 46 | |||||||||||
Total
debt securities
|
244,874 | 24 | (2,879 | ) | 242,019 | |||||||||||
Marketable
equity securities
|
29,759 | 9,894 | (10 | ) | 39,643 | |||||||||||
Total
securities available
|
||||||||||||||||
for
sale
|
$ | 274,633 | $ | 9,918 | $ | (2,889 | ) | $ | 281,662 |
December
31, 2007
|
December
31, 2006
|
|||||||||||||||
Amortized
|
Fair
|
Amortized
|
Fair
|
|||||||||||||
(In
thousands)
|
Cost
|
Value
|
Cost
|
Value
|
||||||||||||
Within
1 year
|
$ | 77,870 | $ | 77,669 | $ | 93,153 | $ | 92,838 | ||||||||
Over
1 year to 5 years
|
148,758 | 149,935 | 151,675 | 149,135 | ||||||||||||
Mortgage-backed
securities
|
43 | 43 | 46 | 46 | ||||||||||||
$ | 226,671 | $ | 227,647 | $ | 244,874 | $ | 242,019 |
Less
Than Twelve Months
|
Over
Twelve Months
|
|||||||||||||||
Gross
|
Gross
|
|||||||||||||||
Unrealized
|
Fair
|
Unrealized
|
Fair
|
|||||||||||||
(In
thousands)
|
Losses
|
Value
|
Losses
|
Value
|
||||||||||||
December 31,
2007
|
||||||||||||||||
Debt
securities:
|
||||||||||||||||
Government-sponsored
enterprises
|
$ | - | $ | - | $ | 27 | $ | 6,975 | ||||||||
Corporate
bonds
|
160 | 30,256 | 534 | 77,576 | ||||||||||||
Mortgage-backed
securities
|
- | - | 3 | 12 | ||||||||||||
Total
debt securities
|
160 | 30,256 | 564 | 84,563 | ||||||||||||
Marketable
equity securities
|
221 | 3,931 | 30 | 285 | ||||||||||||
Total
temporarily impaired
|
||||||||||||||||
securities
|
$ | 381 | $ | 34,187 | $ | 594 | $ | 84,848 |
Less
Than Twelve Months
|
Over
Twelve Months
|
|||||||||||||||
Gross
|
Gross
|
|||||||||||||||
Unrealized
|
Fair
|
Unrealized
|
Fair
|
|||||||||||||
(In
thousands)
|
Losses
|
Value
|
Losses
|
Value
|
||||||||||||
December 31,
2006
|
||||||||||||||||
Debt
securities:
|
||||||||||||||||
Government-sponsored
enterprises
|
$ | 1 | $ | 1,999 | $ | 173 | $ | 6,832 | ||||||||
Corporate
bonds
|
381 | 88,661 | 2,321 | 115,561 | ||||||||||||
Mortgage-backed
securities
|
- | - | 3 | 12 | ||||||||||||
Total
debt securities
|
382 | 90,660 | 2,497 | 122,405 | ||||||||||||
Marketable
equity securities
|
10 | 304 | - | - | ||||||||||||
Total
temporarily impaired
|
||||||||||||||||
securities
|
$ | 392 | $ | 90,964 | $ | 2,497 | $ | 122,405 |
December
31,
|
||||||||
(In
thousands)
|
2007
|
2006
|
||||||
Mortgage
loans on real estate:
|
||||||||
Residential
real estate
|
$ | 224,109 | $ | 204,559 | ||||
Commercial
real estate
|
175,072 | 169,422 | ||||||
Construction
|
111,796 | 101,495 | ||||||
Multi-family
|
26,855 | 26,781 | ||||||
Home
equity lines of credit
|
21,541 | 20,663 | ||||||
559,373 | 522,920 | |||||||
Other
loans:
|
||||||||
Commercial
non-real estate
|
11,859 | 10,220 | ||||||
Passbook
and stock secured
|
440 | 506 | ||||||
Personal
|
1,136 | 824 | ||||||
13,435 | 11,550 | |||||||
Total
loans
|
572,808 | 534,470 | ||||||
Less:
|
||||||||
Allowance
for loan losses
|
(3,637 | ) | (3,362 | ) | ||||
Net
deferred loan origination fees
|
(1,067 | ) | (1,458 | ) | ||||
Loans,
net
|
$ | 568,104 | $ | 529,650 |
Years
Ended December 31,
|
||||||||||||
(In
thousands)
|
2007
|
2006
|
2005
|
|||||||||
Balance
at beginning of year
|
$ | 3,362 | $ | 2,937 | $ | 2,485 | ||||||
Provision
for loan losses
|
465 | 434 | 456 | |||||||||
Recoveries
|
80 | 3 | 7 | |||||||||
Loans
charged-off
|
(270 | ) | (12 | ) | (11 | ) | ||||||
Balance
at end of year
|
$ | 3,637 | $ | 3,362 | $ | 2,937 |
December
31,
|
||||||||
(In
thousands)
|
2007
|
2006
|
||||||
Impaired
loans without a valuation allowance
|
$ | 4,495 | $ | 1,814 | ||||
Impaired
loans with a valuation allowance
|
621 | - | ||||||
Total
impaired loans
|
$ | 5,116 | $ | 1,814 | ||||
Valuation
allowance related to impaired loans
|
$ | 89 | $ | - | ||||
Total
non-accrual loans
|
$ | 4,982 | $ | 2,667 | ||||
Total
loans past-due ninety days or more and still accruing
|
$ | - | $ | - |
Years
Ended December 31,
|
||||||||||||
(In
thousands)
|
2007
|
2006
|
2005
|
|||||||||
Average
investment in impaired loans
|
$ | 4,605 | $ | 701 | $ | - | ||||||
Interest
income recognized on
|
||||||||||||
impaired
loans
|
$ | 227 | $ | - | $ | - | ||||||
Interest
income recognized on a cash basis
|
||||||||||||
on
impaired loans
|
$ | 227 | $ | - | $ | - | ||||||
6.
|
SERVICING
|
7.
|
PREMISES
AND EQUIPMENT
|
Estimated
|
||||||||||||
December
31,
|
Useful
|
|||||||||||
(In
thousands)
|
2007
|
2006
|
Lives
|
|||||||||
Land
and land improvements
|
$ | 5,007 | $ | 3,082 |
-
|
|||||||
Buildings
|
18,435 | 12,221 |
40
years
|
|||||||||
Leasehold
improvements
|
411 | 623 |
5
years
|
|||||||||
Equipment
|
6,633 | 5,699 |
3-10
years
|
|||||||||
Construction
in process
|
- | 4,587 | ||||||||||
30,486 | 26,212 | |||||||||||
Less
accumulated depreciation
|
||||||||||||
and
amortization
|
(7,670 | ) | (6,512 | ) | ||||||||
$ | 22,816 | $ | 19,700 | |||||||||
Year
Ending
|
||||
December
31,
|
Amount
|
|||
(In
thousands)
|
||||
2008
|
$ | 69 | ||
2009
|
61 | |||
2010
|
61 | |||
2011
|
61 | |||
2012
|
7 | |||
$ | 259 |
8.
|
DEPOSITS
|
December
31,
|
||||||||
(In
thousands)
|
2007
|
2006
|
||||||
Demand
deposits
|
$ | 51,396 | $ | 52,491 | ||||
NOW
deposits
|
33,649 | 36,627 | ||||||
Money
market deposits
|
138,688 | 96,744 | ||||||
Regular
and other deposits
|
118,837 | 130,878 | ||||||
Total
non-certificate accounts
|
342,570 | 316,740 | ||||||
Term
certificates less than $100,000
|
266,095 | 256,251 | ||||||
Term
certificates $100,000 and greater
|
165,781 | 163,998 | ||||||
Total
term certificates
|
431,876 | 420,249 | ||||||
Total
deposits
|
$ | 774,446 | $ | 736,989 |
(Dollars
In thousands)
|
December
31, 2007
|
December
31, 2006
|
||||||||||||||
Weighted
|
Weighted
|
|||||||||||||||
Average
|
Average
|
|||||||||||||||
Amount
|
Rate
|
Amount
|
Rate
|
|||||||||||||
Within
1 year
|
$ | 261,209 | 4.82 | % | $ | 286,883 | 4.60 | % | ||||||||
Over
1 year to 2 years
|
156,602 | 4.97 | 75,942 | 4.89 | ||||||||||||
Over
2 years to 3 years
|
9,114 | 4.26 | 47,364 | 5.16 | ||||||||||||
Over
3 years to 4 years
|
2,363 | 4.02 | 7,808 | 4.05 | ||||||||||||
Over
4 years to 5 years
|
2,588 | 4.46 | 2,252 | 4.48 | ||||||||||||
$ | 431,876 | 4.86 | % | $ | 420,249 | 4.70 | % |
9.
|
BORROWINGS
|
(Dollars
In thousands)
|
December
31, 2007
|
December
31, 2006
|
||||||||||||||
Weighted
|
Weighted
|
|||||||||||||||
Maturing
During the
|
Average
|
Average
|
||||||||||||||
Year Ending December
31,
|
Amount
|
Rate
|
Amount
|
Rate
|
||||||||||||
2007
|
- | - | % | $ | 4,450 | 4.69 | % | |||||||||
2008
|
14,848 | 4.80 | 14,698 | 4.81 | ||||||||||||
2009
|
7,475 | 4.00 | 7,475 | 4.00 | ||||||||||||
2010
|
5,050 | 4.22 | 5,050 | 4.22 | ||||||||||||
$ | 27,373 | 4.48 | % | $ | 31,673 | 4.51 | % |
10.
|
INCOME
TAXES
|
Years
Ended December 31,
|
||||||||||||
(In
thousands)
|
2007
|
2006
|
2005
|
|||||||||
Current
tax provision:
|
||||||||||||
Federal
|
$ | 625 | $ | 1,314 | $ | 3,440 | ||||||
State
|
71 | 203 | 1,011 | |||||||||
Total
current provision
|
696 | 1,517 | 4,451 | |||||||||
Deferred
tax benefit:
|
||||||||||||
Federal
|
(281 | ) | (350 | ) | (1,302 | ) | ||||||
State
|
(35 | ) | (40 | ) | (449 | ) | ||||||
Total
deferred benefit
|
(316 | ) | (390 | ) | (1,751 | ) | ||||||
Total
provision
|
$ | 380 | $ | 1,127 | $ | 2,700 |
Years
Ended December 31,
|
||||||||||||
(In
thousands)
|
2007
|
2006
|
2005
|
|||||||||
Statutory
federal tax rate
|
34.0 | % | 34.0 | % | 34.0 | % | ||||||
Increase
(decrease) resulting from:
|
||||||||||||
State
taxes, net of federal tax benefit
|
0.9 | 2.4 | 4.6 | |||||||||
Dividends
received deduction
|
(7.0 | ) | (5.0 | ) | (1.9 | ) | ||||||
Bank-owned
life insurance
|
(14.7 | ) | (6.2 | ) | (2.3 | ) | ||||||
Other,
net
|
1.2 | 0.3 | (1.1 | ) | ||||||||
Effective
tax rates
|
14.4 | % | 25.5 | % | 33.3 | % |
December
31,
|
||||||||
(In
thousands)
|
2007
|
2006
|
||||||
Deferred
tax asset:
|
||||||||
Federal
|
$ | 3,146 | $ | 3,168 | ||||
State
|
942 | 1,009 | ||||||
4,088 | 4,177 | |||||||
Deferred
tax liability:
|
||||||||
Federal
|
(3,975 | ) | (2,629 | ) | ||||
State
|
(1,523 | ) | (1,186 | ) | ||||
(5,498 | ) | (3,815 | ) | |||||
Net
deferred tax asset (liability)
|
$ | (1,410 | ) | $ | 362 |
December
31,
|
||||||||
(In
thousands)
|
2007
|
2006
|
||||||
Net
unrealized gain on securities available for sale
|
$ | (4,875 | ) | $ | (3,080 | ) | ||
Depreciation
and amortization
|
(360 | ) | (304 | ) | ||||
Allowance
for loan losses
|
1,488 | 1,376 | ||||||
Employee
benefit plans
|
2,002 | 2,186 | ||||||
Equity loss on investment in affiliate bank | 417 | 234 | ||||||
Deferred
income
|
- | 104 | ||||||
Other,
net
|
(82 | ) | (154 | ) | ||||
Net
deferred tax asset (liability)
|
$ | (1,410 | ) | $ | 362 |
Years
Ended December 31,
|
||||||||||||
(In
thousands)
|
2007
|
2006
|
2005
|
|||||||||
Balance
at beginning of year
|
$ | 362 | $ | 1,927 | $ | (1,947 | ) | |||||
Deferred
tax benefit
|
316 | 390 | 1,751 | |||||||||
Change
in net unrealized gain on
|
||||||||||||
securities
available for sale
|
(1,795 | ) | (2,362 | ) | 2,123 | |||||||
Adjustment
to initially apply
|
||||||||||||
SFAS
No. 158
|
- | 407 | - | |||||||||
Termination
of supplemental
|
||||||||||||
executive
retirement plan
|
(228 | ) | - | - | ||||||||
Amotization
of net actuarial loss and
|
||||||||||||
prior
service cost
|
(65 | ) | - | - | ||||||||
Balance
at end of year
|
$ | (1,410 | ) | $ | 362 | $ | 1,927 | |||||
11.
|
OTHER
COMMITMENTS AND CONTINGENCIES
|
December
31,
|
||||||||
(In
thousands)
|
2007
|
2006
|
||||||
Commitments
to originate loans
|
$ | 37,674 | $ | 28,218 | ||||
Unadvanced
funds on construction loans
|
35,293 | 37,617 | ||||||
Unadvanced
funds on home equity lines of credit
|
20,475 | 19,673 | ||||||
Unadvanced
funds on revolving lines of credit
|
26,985 | 25,374 | ||||||
Commercial
letters of credit
|
1,574 | 1,306 |
12.
|
EMPLOYEE
BENEFIT PLANS
|
Years
Ended December 31,
|
||||||||||||||||||||||||
2007
|
2006
|
2005
|
||||||||||||||||||||||
(In
thousands)
|
Officers
|
Directors
|
Officers
|
Directors
|
Officers
|
Directors
|
||||||||||||||||||
Change
in plan assets:
|
||||||||||||||||||||||||
Fair
value of plan assets at beginning
|
||||||||||||||||||||||||
of
year
|
$ | - | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||||
Employer
contribution
|
- | - | 784 | - | - | - | ||||||||||||||||||
Benefits
payments
|
- | - | (784 | ) | - | - | - | |||||||||||||||||
Fair
value of plan assets at end of year
|
- | - | - | - | - | - | ||||||||||||||||||
Change
in benefit obligation:
|
||||||||||||||||||||||||
Benefit
obligation at beginning of year
|
3,547 | 646 | 3,922 | 386 | 4,161 | - | ||||||||||||||||||
Service
cost
|
39 | 103 | 63 | 59 | 88 | 56 | ||||||||||||||||||
Interest
cost
|
155 | 37 | 226 | 22 | 208 | 18 | ||||||||||||||||||
Benefit
payments
|
- | - | (784 | ) | - | - | - | |||||||||||||||||
Plan
amendment
|
- | - | - | - | - | 312 | ||||||||||||||||||
Actuarial
loss (gain)
|
16 | (118 | ) | 120 | 179 | (535 | ) | - | ||||||||||||||||
Plan
termination
|
(3,757 | ) | - | - | - | - | - | |||||||||||||||||
Benefit
obligation at end of year
|
- | 668 | 3,547 | 646 | 3,922 | 386 | ||||||||||||||||||
Funded
status
|
- | (668 | ) | (3,547 | ) | (646 | ) | (3,922 | ) | (386 | ) | |||||||||||||
Unrecognized
net loss
|
- | - | - | - | 442 | - | ||||||||||||||||||
Unrecognized
net transition obligation
|
- | - | - | - | - | 284 | ||||||||||||||||||
Accrued
benefit obligation
|
$ | - | $ | (668 | ) | $ | (3,547 | ) | $ | (646 | ) | $ | (3,480 | ) | $ | (102 | ) | |||||||
Accumulated
benefit obligation
|
$ | - | $ | 567 | $ | 2,905 | $ | 517 | $ | 2,860 | $ | 271 |
(In
thousands)
|
2007
|
2006
|
2005
|
|||||||||||||||||||||
Officers
|
Directors
|
Officers
|
Directors
|
Officers
|
Directors
|
|||||||||||||||||||
Service
cost
|
$ | 39 | $ | 103 | $ | 63 | $ | 59 | $ | 88 | $ | 56 | ||||||||||||
Interest
cost
|
155 | 37 | 226 | 22 | 208 | 18 | ||||||||||||||||||
Recognized
net actuarial loss
|
16 | 13 | 5 | - | 10 | - | ||||||||||||||||||
Recognition
of prior service cost
|
- | 28 | - | 28 | - | 28 | ||||||||||||||||||
$ | 210 | $ | 181 | $ | 294 | $ | 109 | $ | 306 | $ | 102 |
2007 |
2006
|
2005
|
|||||||||
Officers
|
Directors
|
Officers
|
Directors
|
Officers
|
Directors
|
||||||
Discount
rate
|
5.75%
|
5.75%
|
5.75%
|
5.75%
|
5.75%
|
5.75%
|
|||||
Rate
of compensation increase
|
4.00%
|
3.00%
|
4.00%
|
3.00%
|
4.00%
|
3.00%
|
|||||
Expected
return on plan assets
|
N/A
|
N/A
|
N/A
|
N/A
|
N/A
|
N/A
|
|||||
Retirement
age
|
65
|
72
|
65
|
72
|
65
|
72
|
Year
Ending December 31,
|
Amount
|
|||
(In
thousands)
|
||||
2008
|
$ | - | ||
2009
|
226 | |||
2010
|
- | |||
2011
|
- | |||
2012
|
193 | |||
2013-2017
|
466 |
13.
|
RELATED
PARTY TRANSACTIONS
|
Years
Ended December 31,
|
||||||||
(In
thousands)
|
2007
|
2006
|
||||||
Balance
at beginning of year
|
$ | 12,294 | $ | 12,129 | ||||
Additions
|
1,771 | 3,123 | ||||||
Reductions
|
(2,117 | ) | (2,958 | ) | ||||
Balance
at end of year
|
$ | 11,948 | $ | 12,294 |
14.
|
MINIMUM
REGULATORY CAPITAL REQUIREMENTS
|
Minimum
|
||||||||||||||||||||||||
To
Be Well
|
||||||||||||||||||||||||
Minimum
|
Capitalized
Under
|
|||||||||||||||||||||||
Capital
|
Prompt
Corrective
|
|||||||||||||||||||||||
Actual
|
Requirement
|
Action
Provisions
|
||||||||||||||||||||||
(Dollars
in thousands)
|
Amount
|
Ratio
|
Amount
|
Ratio
|
Amount
|
Ratio
|
||||||||||||||||||
December 31,
2007
|
||||||||||||||||||||||||
Total
Capital (to Risk Weighted
|
||||||||||||||||||||||||
Assets):
|
||||||||||||||||||||||||
Company
|
$ | 117,546 | 14.4 |
%
|
$ | 65,236 | 8.0 |
%
|
N/A | N/A | ||||||||||||||
Bank
|
104,156 | 13.0 | 64,221 | 8.0 | $ | 80,276 | 10.0 | % | ||||||||||||||||
Tier
1 Capital (to Risk Weighted
|
||||||||||||||||||||||||
Assets):
|
||||||||||||||||||||||||
Company
|
109,154 | 13.4 | 32,618 | 4.0 | N/A | N/A | ||||||||||||||||||
Bank
|
95,764 | 11.9 | 32,110 | 4.0 | 48,165 | 6.0 | ||||||||||||||||||
Tier
1 Capital (to Average Assets):
|
||||||||||||||||||||||||
Company
|
109,154 | 11.5 | 38,013 | 4.0 | N/A | N/A | ||||||||||||||||||
Bank
|
95,764 | 10.2 | 37,505 | 4.0 | 46,881 | 5.0 | ||||||||||||||||||
December 31,
2006
|
||||||||||||||||||||||||
Total
Capital (to Risk Weighted
|
||||||||||||||||||||||||
Assets):
|
||||||||||||||||||||||||
Company
|
$ | 114,684 | 15.1 |
%
|
$ | 60,688 | 8.0 |
%
|
N/A | N/A | ||||||||||||||
Bank
|
100,187 | 13.4 | 59,638 | 8.0 | $ | 74,548 | 10.0 | % | ||||||||||||||||
Tier
1 Capital (to Risk Weighted
|
||||||||||||||||||||||||
Assets):
|
||||||||||||||||||||||||
Company
|
106,882 | 14.1 | 30,344 | 4.0 | N/A | N/A | ||||||||||||||||||
Bank
|
92,385 | 12.4 | 29,819 | 4.0 | 44,729 | 6.0 | ||||||||||||||||||
Tier
1 Capital (to Average Assets):
|
||||||||||||||||||||||||
Company
|
106,882 | 12.4 | 34,402 | 4.0 | N/A | N/A | ||||||||||||||||||
Bank
|
92,385 | 10.5 | 35,335 | 4.0 | 44,168 | 5.0 |
December
31, 2007
|
December
31, 2006
|
|||||||||||||||
(In
Thousands)
|
Consolidated
|
Bank
|
Consolidated
|
Bank
|
||||||||||||
Total
retained earnings per financial statements
|
$ | 115,684 | $ | 102,294 | $ | 110,275 | $ | 95,778 | ||||||||
Adjustments
to Tier 1 capital:
|
||||||||||||||||
Accumulated
other comprehensive income
|
(6,507 | ) | (6,507 | ) | (3,364 | ) | (3,364 | ) | ||||||||
Servicing
assets
|
(23 | ) | (23 | ) | (29 | ) | (29 | ) | ||||||||
Total
Tier 1 capital
|
109,154 | 95,764 | 106,882 | 92,385 | ||||||||||||
Adjustments
for total capital:
|
||||||||||||||||
Allowance
for loan losses
|
3,637 | 3,637 | 3,354 | 3,354 | ||||||||||||
45%
of net unrealized gains on
|
||||||||||||||||
marketable
equity securities
|
4,755 | 4,755 | 4,448 | 4,448 | ||||||||||||
Total
capital per regulatory reporting
|
$ | 117,546 | $ | 104,156 | $ | 114,684 | $ | 100,187 |
15.
|
FAIR
VALUE OF FINANCIAL INSTRUMENTS
|
December
31,
|
||||||||||||||||
2007
|
2006
|
|||||||||||||||
Carrying
|
Fair
|
Carrying
|
Fair
|
|||||||||||||
(In
thousands)
|
Amount
|
Value
|
Amount
|
Value
|
||||||||||||
Financial
assets:
|
||||||||||||||||
Cash
and cash equivalents
|
$ | 103,093 | $ | 103,093 | $ | 23,494 | $ | 23,494 | ||||||||
Securities
available for sale
|
267,058 | 267,058 | 281,662 | 281,662 | ||||||||||||
Federal
Home Loan Bank stock
|
3,165 | 3,165 | 3,371 | 3,371 | ||||||||||||
Loans
held for sale
|
- | - | 3,594 | 3,594 | ||||||||||||
Loans
|
568,104 | 572,820 | 529,650 | 532,484 | ||||||||||||
Accrued
interest receivable
|
5,764 | 5,764 | 5,502 | 5,502 | ||||||||||||
Financial
liabilities:
|
||||||||||||||||
Deposits
|
774,446 | 776,037 | 736,989 | 738,422 | ||||||||||||
Stock
subscriptions
|
62,518 | 62,518 | - | - | ||||||||||||
Borrowings
|
36,527 | 36,556 | 40,589 | 40,042 | ||||||||||||
Accrued
interest payable
|
1,222 | 1,222 | 1,169 | 1,169 |
16.
|
CONDENSED
FINANCIAL STATEMENTS OF PARENT
COMPANY
|
December
31,
|
||||||||
(In
Thousands)
|
2007
|
2006
|
||||||
BALANCE
SHEET
|
||||||||
Assets
|
||||||||
Cash
and cash equivalents
|
$ | 177 | $ | 26 | ||||
Securities
available for sale at fair value
|
1,093 | 2,506 | ||||||
Investment
in subsidiary
|
102,294 | 96,227 | ||||||
Investment
in affiliate bank
|
10,772 | 11,313 | ||||||
Other
assets
|
1,577 | 203 | ||||||
Total
assets
|
$ | 115,913 | $ | 110,275 | ||||
Liabilities and
Stockholder's Equity
|
||||||||
Accrued
expenses and other liabilities
|
$ | 229 | $ | - | ||||
Stockholder's
equity
|
115,684 | 110,275 | ||||||
Total
liabilities and stockholder's equity
|
$ | 115,913 | $ | 110,275 |
Year
Ended December 31,
|
||||||||
(In
Thousands)
|
2007
|
2006
|
||||||
STATEMENTS OF
INCOME
|
||||||||
Income:
|
||||||||
Interest
and dividends on securities
|
$ | 113 | $ | 180 | ||||
Equity
loss on investment in affliate bank
|
(541 | ) | (578 | ) | ||||
Total
loss
|
(428 | ) | (398 | ) | ||||
Operating
expenses
|
412 | 58 | ||||||
Loss
before income taxes and equity in undistributed
|
||||||||
earnings
of subsidiary
|
(840 | ) | (456 | ) | ||||
Applicable
income tax benefit
|
(184 | ) | (113 | ) | ||||
(656 | ) | (343 | ) | |||||
Equity
in undistributed earnings of subsidiary
|
2,922 | 3,637 | ||||||
Net
income
|
$ | 2,266 | $ | 3,294 | ||||
STATEMENTS OF CASH
FLOWS
|
||||||||
Cash
flows from operating activities:
|
||||||||
Net
income
|
$ | 2,266 | $ | 3,294 | ||||
Adjustments
to reconcile net income to net
|
||||||||
cash
used by operating activities:
|
||||||||
Equity
in undistributed earnings of subsidiary
|
(2,922 | ) | (3,637 | ) | ||||
Equity
loss on investment in affliate bank
|
541 | 578 | ||||||
Net
amortization of securities available for sale
|
- | (125 | ) | |||||
Increase
in other assets
|
(1,374 | ) | (203 | ) | ||||
Increase
in other liabilities
|
229 | - | ||||||
Net
cash used by operating activities
|
(1,260 | ) | (93 | ) | ||||
Cash
flows from investing activities:
|
||||||||
Sales
and maturities of securities available for sale
|
1,523 | 23,050 | ||||||
Purchase
of securities available for sale
|
(112 | ) | (25,431 | ) | ||||
Investment
in affiliate bank
|
- | (12,000 | ) | |||||
Dividend
from subsidiary
|
- | 14,500 | ||||||
Net
cash provided by investing activities
|
1,411 | 119 | ||||||
Net
increase in cash and cash equivalents
|
151 | 26 | ||||||
Cash
and cash equivalents at beginning of year
|
26 | - | ||||||
Cash
and cash equivalents at end of year
|
$ | 177 | $ | 26 |
17.
|
SELECTED
QUARTERLY CONSOLIDATED FINANCIAL INFORMATION
(Unaudited)
|
Years
Ended December 31,
|
||||||||||||||||||||||||||||||||
(Dollars in
Thousands)
|
2007
|
2006
|
||||||||||||||||||||||||||||||
Fourth
|
Third
|
Second
|
First
|
Fourth
|
Third
|
Second
|
First
|
|||||||||||||||||||||||||
Quarter
|
Quarter
|
Quarter
|
Quarter
|
Quarter
|
Quarter
|
Quarter
|
Quarter
|
|||||||||||||||||||||||||
Interest
and dividend income
|
$ | 12,810 | $ | 12,390 | $ | 12,080 | $ | 11,895 | $ | 12,090 | $ | 11,464 | $ | 10,982 | $ | 10,699 | ||||||||||||||||
Interest
expense
|
7,501 | 7,203 | 6,800 | 6,592 | 6,550 | 5,688 | 4,994 | 4,596 | ||||||||||||||||||||||||
Net
interest income
|
5,309 | 5,187 | 5,280 | 5,303 | 5,540 | 5,776 | 5,988 | 6,103 | ||||||||||||||||||||||||
Provision
for loan losses
|
205 | 117 | 71 | 72 | 31 | 223 | 111 | 69 | ||||||||||||||||||||||||
Net
interest income, after provision for loan
losses
|
5,104 | 5,070 | 5,209 | 5,231 | 5,509 | 5,553 | 5,877 | 6,034 | ||||||||||||||||||||||||
Non-interest
income
|
452 | 11 | 1,253 | 2,936 | 232 | 234 | 934 | 1,942 | ||||||||||||||||||||||||
Non-interest
expenses
|
6,140 | 5,707 | 5,237 | 5,536 | 6,096 | 5,220 | 5,305 | 5,273 | ||||||||||||||||||||||||
Income
(loss) before
|
||||||||||||||||||||||||||||||||
income
taxes
|
(584 | ) | (626 | ) | 1,225 | 2,631 | (355 | ) | 567 | 1,506 | 2,703 | |||||||||||||||||||||
Provision
(benefit) for
|
||||||||||||||||||||||||||||||||
income
taxes
|
(562 | ) | (323 | ) | 429 | 836 | (64 | ) | 128 | 279 | 784 | |||||||||||||||||||||
Net
income (loss)
|
$ | (22 | ) | $ | (303 | ) | $ | 796 | $ | 1,795 | $ | (291 | ) | $ | 439 | $ | 1,227 | $ | 1,919 |
|
(A)
|
Report
of Independent Registered Public Accounting
Firm
|
|
(B)
|
Consolidated
Balance Sheets - at December 31, 2007 and
2006
|
|
(C)
|
Consolidated
Statements of Income - Years ended December 31, 2007, 2006 and
2005
|
|
(D)
|
Consolidated
Statements of Changes in Retained Earnings - Years ended December 31,
2007, 2006 and 2005
|
|
(E)
|
Consolidated
Statements of Cash Flows - Years ended December 31, 2007, 2006 and
2005
|
|
(F)
|
Notes
to Consolidated Financial
Statements.
|
3.1
|
Amended
and Restated Articles of Organization of Meridian Interstate Bancorp,
Inc.*
|
3.2
|
Amended
and Restated Bylaws of Meridian Interstate Bancorp,
Inc.*
|
4
|
Form
of Common Stock Certificate of Meridian Interstate Bancorp,
Inc.*
|
10.1
|
Form
of East Boston Savings Bank Employee Stock Ownership
Plan*
|
10.2
|
Form
of East Boston Savings Bank Employee Stock Ownership Plan Trust
Agreement*
|
10.3
|
East
Boston Savings Bank Employee Stock Ownership Plan Loan Agreement, Pledge
Agreement and Promissory Note*
|
10.4
|
Form
of Amended and Restated Employment Agreement*
|
10.5
|
Form
of East Boston Savings Bank Employee Severance Compensation
Plan*
|
10.6
|
Form
of Amended and Restated Supplemental Executive Retirement Agreements with
certain officers*
|
10.7
|
Form
of Supplemental Executive Retirement Agreements with certain
directors*
|
21
|
Subsidiaries
of Registrant*
|
31.1
|
Certification
of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
|
31.2
|
Certification
of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
|
32
|
Certification
of Chief Executive Officer and Chief Financial Officer pursuant to Section
906 of the Sarbanes-Oxley Act of
2002
|
*
|
Incorporated
by reference to the Registration Statement on Form S-1 of Meridian
Interstate Bancorp, Inc. (File No. 333-146373), originally filed with the
Securities and Exchange Commission on September 28,
2007.
|
MERIDIAN
INTERSTATE BANCORP, INC.
|
||||
Date:
|
March 28, 2008 |
By:
|
/s/
Richard J. Gavegnano
|
|
Richard
J. Gavegnano
|
||||
Chairman
of the Board and Chief Executive Officer
|
||||
(Duly
Authorized Representative)
|
Signatures
|
Title
|
Date
|
||
/s/
Richard J. Gavegnano
Richard
J. Gavegnano
|
Chairman
of the Board and Chief Executive Officer (Principal Executive
Officer)
|
March
28, 2008
|
||
/s/
Leonard V. Siuda
Leonard
V. Siuda
|
Chief
Financial Officer and Treasurer (Principal Financial and Accounting
Officer)
|
March
28, 2008
|
||
/s/
Robert F. Verdonck
Robert
F. Verdonck
|
President
and Director
|
March
28, 2008
|
||
/s/
Philip F. Freehan
Philip
F. Freehan
|
Executive
Vice President and Director
|
March
28, 2008
|
||
/s/
Vincent D. Basile
Vincent
D. Basile
|
Director
|
March
28, 2008
|
||
/s/
James P. DelRossi
James
P. DelRossi
|
Director
|
March
28, 2008
|
||
/s/
Anna R. DiMaria
Anna
R. DiMaria
|
Director
|
March
28, 2008
|
||
/s/
Domenic A. Gambardella
Domenic
A. Gambardella
|
Director
|
March
28, 2008
|
||
/s/
Edward L. Lynch
Edward
L. Lynch
|
Director
|
March
28, 2008
|
||
/s/
Gregory F. Natalucci
Gregory
F. Natalucci
|
Director
|
March
28, 2008
|
Signatures
|
Title
|
Date
|
||
/s/
James G. Sartori
James
G. Sartori
|
Director
|
March
28, 2008
|
||
/s/
Paul T. Sullivan
Paul
T. Sullivan
|
Director
|
March
28, 2008
|
||
/s/
Marilyn A. Censullo
Marilyn
A. Censullo
|
Director
|
March
28, 2008
|
||