SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
_____________________
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________ to _____________
Commission file number 000-29343
Port Financial Corp.
(Exact name of registrant as specified in its charter)
Massachusetts 04-1145480
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1380 Soldiers Field Road, Brighton, Massachusetts 02135
(Address of principal executive offices)
(Zip Code)
(617) 661-4900
(Registrant's telephone number including area code)
N/A
(Former name, former address and former fiscal year,
if changed from last Report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding twelve 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 the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date.
Outstanding at
Class May 9, 2000
----- --------------
Common Stock,
Par value $.01 7,725,553
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements of Port Financial Corp.
Consolidated Balance Sheets (Unaudited) -
March 31, 2001 and December 31, 2000
Consolidated Statements of Operations (Unaudited) -
Three months ended March 31, 2001 and March 31, 2000
Consolidated Statements of Changes in Stockholders'
Equity (Unaudited) Three months ended March 31, 2001
and March 31, 2000
Consolidated Statements of Cash Flows (Unaudited) -
Three months ended March 31, 2001 and March 31, 2000
Notes to Unaudited Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Defaults upon Senior Securities
Item 3. Submission of Matters to a Vote of Security Holders
Item 4. Other Information
Item 5. Reports on Form 8-K
Signatures
1
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
Port Financial Corp.
Consolidated Balance Sheets
(Unaudited)
March 31, December 31,
2001 2000
--------- -------------
(In Thousands)
ASSETS
Cash and due from banks $ 10,525 $ 11,819
Federal funds sold 52,410 36,680
Other interest bearing cash equivalents 25,772 21,768
------------------------
Total cash and cash equivalents 88,707 70,267
Certificates of deposit 2,133 104
Investment securities held to maturity, at
amortized cost 17,173 22,332
Investment securities available for sale, at
fair value 158,959 181,196
Loans held for sale 2,834 823
Loans, net 681,299 687,382
Federal Home Loan Bank Stock, at cost 5,727 4,951
Savings Bank Life Insurance Stock, at cost 1,934 1,934
Banking premises and equipment, net 23,543 23,649
Accrued interest receivable 5,991 6,131
Other assets 5,382 5,900
------------------------
Total assets $993,682 $1,004,669
========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $793,611 $ 806,021
Federal Home Loan Bank advances 38,716 35,801
Mortgagors' escrow payments 4,281 3,801
Accrued expenses and other liabilities 7,887 6,993
------------------------
Total liabilities 844,495 852,616
------------------------
Commitments and Contingencies (Note 2)
Stockholders' Equity:
Preferred stock, $ .01 par value -
Authorized - 5,000,000 shares
Issued and outstanding - no shares - -
Common stock, $ .01 par value -
Authorized - 30,000,000 shares
Issued and outstanding - 7,725,553
shares at March 31, 2001 and at
December 31, 2000 77 77
Additional paid-in capital 76,310 76,281
2
Port Financial Corp.
Consolidated Balance Sheets-(Continued)
(Unaudited)
March 31, December 31,
2001 2000
--------- -------------
(In Thousands)
Treasury stock, at cost - 307,713 shares at
March 31, 2001 (5,644) -
Unearned compensation - Recognition and
retention plan (4,083) (4,304)
Unearned compensation - ESOP (7,214) (7,277)
Retained earnings 84,278 82,750
Accumulated other comprehensive income 5,463 4,526
------------------------
Total stockholders' equity 149,187 152,053
------------------------
Total liabilities and stockholders' equity $993,682 $1,004,669
========================
See the accompanying notes to unaudited consolidated financial statements.
3
Port Financial Corp.
Consolidated Statements of Operations
(Dollars in Thousands Except Per Share Amounts)
(Unaudited)
Three Months Ended
March 31,
-----------------------
2001 2000
---- ----
Interest and dividend income:
Interest on loans $13,540 $11,140
Interest and dividends on investment securities 3,103 2,264
Interest on other cash equivalents 841 206
Interest on certificates of deposit 31 88
--------------------------
Total interest and dividend income 17,515 13,698
--------------------------
Interest expense:
Interest on deposits 9,078 6,532
Interest on borrowed funds 575 668
--------------------------
Total interest expense 9,653 7,200
--------------------------
Net interest income 7,862 6,498
Provision for possible loan losses 200 166
Noninterest income:
Customer service fees 292 226
Gain on sale of loans, net 153 22
Loan servicing fee income 117 130
Other income 839 8
--------------------------
Total noninterest income 1,401 386
--------------------------
Noninterest expense:
Compensation and employee benefits 3,467 2,743
Occupancy and equipment expense 875 752
Data processing service fees 500 380
Marketing and investor relations 274 292
Other noninterest expense 1,042 762
--------------------------
Total noninterest expenses 6,158 4,929
--------------------------
Income before provision for income taxes 2,905 1,789
Provision for income taxes 1,005 662
--------------------------
Net income $ 1,900 $ 1,127
==========================
Earnings per share:
Basic $ 0.29 Not meaningful
Diluted $ 0.28 Not meaningful
Weighted average shares outstanding:
Basic 6,659,922 -
Diluted 6,749,656 -
See the accompanying notes to unaudited consolidated financial statements
4
Port Financial Corp.
Consolidated Statement of Changes in Stockholders' Equity
For The Period Ending March 31, 2001
(In Thousands)
(Unaudited)
Accumulated
Additional Other Unearned
Common Paid-In Retained Comprehensive Compensation Treasury Comprehensive
Stock Capital Earnings Income ESOP/RRP Stock Total Income
------ ---------- -------- ------------- ------------ -------- ----- --------------
Balance at December 31, 2000 $ 77 $76,281 $82,750 $4,526 $(11,581) $ - $152,053 $ -
Net income - - 1,900 - - - 1,900 1,900
Change in unrealized gain
on securities available
for sale, net of taxes
of $561 - - - 937 - - 937 937
Purchase of treasury stock - - - - - (5,644) (5,644) -
Amortization of unearned
compensation - 29 - - 284 - 313 -
Cash dividend - $.05 per
share - - (372) - - - (372) -
----------------------------------------------------------------------------------------------
Balance at March 31, 2001 $ 77 $76,310 $84,278 $5,463 $(11,297) $(5,644) $149,187 $2,837
=============================================================================================
5
Port Financial Corp.
Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)
Three Months Ended
March 31,
----------------------
2001 2000
---- ----
Cash flows from operating activities:
Net income $ 1,900 $ 1,127
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for possible loan losses 200 166
Depreciation and amortization 500 243
Accretion of premiums on investment securities, net (51) (38)
Gain on loan sales, net (153) (22)
(Increase) decrease in cash surrender value of life
insurance policies (49) 135
Proceeds from sale of loans 11,283 2,885
Loans originated for sale (13,141) (3,093)
Gain on sale of branch deposits (529) -
Decrease (increase) in other assets 567 (778)
Decrease (increase) in accrued interest receivable 140 (862)
Decrease in deferred loan fees (13) (139)
Decrease in accrued expenses and other liabilities 894 602
----------------------
Net cash provided by operating activities 1,548 147
----------------------
Cash flows from investing activities:
Proceeds from maturities and principal repayments of
securities available for sale 31,779 4,462
Purchases of securities available for sale (8,083) -
Proceeds from maturities and principal repayments of
held to maturity securities 5,159 117
Purchases of securities held to maturity - (17,969)
Proceeds from maturities of certificates of deposit - 2,876
Purchase of certificates of deposit (2,029) (79)
Purchase of FHLB stock (776) (499)
Purchase of premises and equipment (394) (7,586)
Net decrease (increase) in loans 6,108 (20,635)
Recoveries of loans previously charged-off 3 17
----------------------
Net cash used in investing activities 31,767 (39,296)
----------------------
6
Port Financial Corp.
Consolidated Statements of Cash Flows (Continued)
(In Thousands)
(Unaudited)
Three Months Ended
March 31,
----------------------
2001 2000
---- ----
Cash flows from financing activities:
Decrease in term deposits (1,422) (5,107)
Decrease in term deposits due to sale of branch deposits (5,958) -
Increase in demand deposits, NOW accounts and
Savings accounts 5,133 111,299
Decrease in demand deposits, NOW accounts and
Savings accounts due to sale of branch deposits (10,163) -
Increase in mortgagors' escrow payments 480 623
Increase (decrease) to borrowings 2,915 (10,194)
Cash dividends (372) -
Treasury stock purchase (5,644) -
----------------------
Net cash provided by financing activities (15,031) 96,621
----------------------
Net increase in cash and cash equivalents 18,284 57,551
Cash and cash equivalents, beginning of year 70,267 19,429
----------------------
Cash and cash equivalents, end of period $ 88,551 $ 76,980
======================
Supplemental disclosures of cash flows information:
Cash paid for interest $ 9,617 $ 7,227
======================
Cash paid for income taxes $ 47 $ 277
======================
See the accompanying notes to unaudited consolidated financial statements.
7
Port Financial Corp.
Notes to Unaudited Consolidated Financial Statements
1) Basis of Presentation
The unaudited consolidated financial statements of Port Financial Corp.
("Port" or the "Company") include the accounts of the Company and its two
wholly owned subsidiaries, Cambridgeport Bank (the "Bank") and Brighton
Investment Corporation. Brighton Investment Corporation engages in the
investment of securities. Cambridgeport Bank is a Massachusetts-chartered
savings bank with its headquarters located in Cambridge, Massachusetts.
The Bank has three wholly owned subsidiaries, Temple Investment
Corporation, River Investment Corporation and Cambridgeport Insurance
Services, Inc. Temple Investment Corporation and River Investment
Corporation both invest in securities. Cambridgeport Insurance Services,
Inc. was established in April 2000 and intends to provide insurance. In
addition, Cambridgeport Bank is the sole member of Temple Realty LLC, which
owns the Company's administrative center.
The unaudited consolidated financial statements of Port presented herein,
should be read in conjunction with the audited consolidated financial
statements of Port Financial Corp. as of and for the year ended December
31, 2000, and the notes thereto. The accompanying unaudited consolidated
financial statements have been prepared in accordance with generally
accepted accounting principles for interim financial information and with
the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from
those estimates. In the opinion of management, the unaudited consolidated
financial statements presented herein reflect all adjustments (consisting
only of normal adjustments) necessary for a fair presentation. Interim
results are not necessarily indicative of results to be expected for the
entire year.
The Company believes that the disclosures are adequate to make the
information presented not misleading. However, results for the periods
presented are not necessarily indicative of the results to be expected for
the entire 2001 fiscal year.
2) Commitments and Contingencies
At March 31, 2001, the Company had outstanding commitments to originate
loans amounting to approximately $9.8 million, and unadvanced funds on
construction loans and lines of credit amounting to approximately $2.9
million and $166.2 million, respectively. The Company had also entered into
forward sales agreements related to its residential loan commitments
intended for sale in the amount of $9.1 million.
8
3) Earnings Per Share
Basic earnings per share represents income available to holders of common
stock divided by the weighted-average number of common shares outstanding
during the period. In calculating basic earnings per share, the number of
shares of common stock outstanding is reduced by the number of shares held
by Port's Employee Stock Ownership Plan (the "ESOP") and its 2000
Recognition and Retention Plan (the "RRP") that have not been allocated or
are not committed for release to participants' individual accounts. Diluted
earnings per share reflects additional common shares that would have been
outstanding if dilutive potential common shares had been issued, as well as
any adjustment to income that would result from the assumed conversion.
Potential common shares that may be issued by the Company relate solely to
outstanding stock options and unearned RRP shares and are determined using
the treasury stock method.
Earnings per share is not presented for the three month period ended March
31, 2000 because the earnings per share calculation for the period prior to
April 11, 2000 (the date of conversion to a stock company) is not
meaningful. Prior to April 11, 2000, the Company was a mutual holding
company and no stock was outstanding.
4) Book Value Per Share
Book value per share was $20.91 as of March 31, 2001 and $20.43 as of
December 31, 2000. In calculating book value per share, the number of
shares of common stock issued and outstanding is reduced by unearned RRP
shares and treasury stock. For the purpose of calculating book value per
share, there were 7,135,105 and 7,442,818 shares of common stock as of
March 31, 2001 and December 31, 2000 respectively.
5) Quincy Branch
On February 23, 2001, the Bank sold approximately $16.1 million of deposits
that were related to its branch located in the Roche Bros. Supermarket in
Quincy, Massachusetts to South Shore Savings Bank. The Bank closed the
Quincy Branch on April 5, 2001 upon the termination of its lease. The
deposit sale generated a pre-tax gain of $529,000.
6) 2000 Recognition and Retention Plan
The Company adopted the Recognition and Retention Plan, which was approved
by shareholders' in October 2000. The Recognition and Retention Plan is
authorized to issue up to 297,713 shares of restricted stock of which
282,735 has been awarded. Each award will vest at a rate of 20% per year.
7) Employee Stock Ownership Plan
At March 31, 2001, the ESOP held 570,615 unallocated shares with an
aggregate cost of $7,213,888 and a market value of $10,413,724. For the
three month periods ended March 31, 2001 and 2000, $91,452 and $0 was
charged to compensation and employee benefit expense respectively, related
to this plan year.
9
8) Stock Repurchases
On February 22, 2001, the Company announced a repurchase program to acquire
372,140 shares of its common stock. As of March 31, 2001, the Company had
purchased 10,000 shares under this program. In addition, during the
quarter ended March 31, 2001, the Company completed the purchase of the
297,713 shares authorized related to the RRP.
9) Loans
The loan portfolio consisted of the following (in thousands):
March 31, December 31,
2001 2000
--------- ------------
(Unaudited)
Real estate loans-
Residential $346,547 $ 353,518
Commercial 237,431 241,325
Home equity lines of credit 84,027 82,885
Construction 14,892 11,458
-----------------------
Total real estate loans 682,897 689,186
Commercial 1,621 1,083
Consumer 5,024 5,172
-----------------------
Total loans 689,542 695,441
Less-Allowance for possible loan losses 8,243 8,059
-----------------------
Total loans, net $681,299 $687,382
=======================
10) Deposits
A summary of deposit balances, by type, is as follows (in thousands):
March 31, December 31,
2001 2000
--------- ------------
(Unaudited)
Demand deposit accounts $ 46,608 $ 46,138
NOW accounts 70,535 69,101
Regular savings accounts 52,125 51,864
Money market accounts 323,102 330,297
----------------------
Total noncertificate accounts 492,370 497,400
----------------------
Term certificates-
Term certificates less than $100,000 242,166 250,662
Term certificates of $100,000 and over 59,075 57,959
----------------------
Total term certificate accounts 301,241 308,621
----------------------
Total deposits $793,611 $806,021
======================
10
11) Business Segments
SFAS No. 131, Disclosure About Segments of an Enterprise and Related
Information, establishes standards for reporting segments of a business
enterprise. Operating segments are components of an enterprise, which are
evaluated regularly by the chief operating decision maker in deciding how
to allocate resources and in assessing performance. The Company's chief
operating decision maker is the President and Chief Executive Officer. The
adoption of SFAS No. 131 did not have a material effect on the Company's
primary financial statements, but did result in the disclosure of segment
information contained herein. The Company has identified its reportable
operating business segment as community banking based on products and
services provided to the customer. The Company's community banking
business segments consist of commercial banking and retail banking. The
community banking business segment derives its revenues from a wide range
of banking services, including lending activities, acceptance of demand,
saving and time deposits, mortgage lending and sales and servicing income
from investors. Nonreportable operating segments of the Company's
operations that do not have similar characteristics to the community
banking operations and do not meet the quantitative thresholds requiring
disclosure are included in the Other category in the disclosure of business
segments below. These nonreportable segments include Parent Company
financial information. Consolidation adjustments are included in the
consolidation adjustments category. The consolidation adjustments reflect
certain eliminations of cash and Parent Company investments in
subsidiaries.
The accounting policies used in the disclosure of business segments are the
same as those described in the summary of significant accounting policies.
Reportable segments and reconciliation to consolidated financial
information is as follows:
Community Consolidation
Banking Other Adjustments Consolidated
--------- ----- ------------- ------------
(Unaudited)
(In Thousands)
March 31, 2001:
Investment securities available
For sale and held to maturity $141,666 $ 44,880 $ (10,414) $176,132
Loans, net 681,299 7,206 (7,206) 681,299
Total assets 948,476 160,313 (115,107) 993,682
Total deposits (1) 797,892 - - 797,892
Total liabilities 851,553 2,506 (9,564) 844,495
Total interest and dividend income 16,645 1,386 (516) 17,515
Total interest expense 9,797 - (144) 9,653
Net interest income 6,848 1,386 (372) 7,862
Provision for possible loan losses 200 - - 200
Total noninterest income 1,401 - - 1,401
Total noninterest expense 5,849 309 - 6,158
Net income 1,431 841 (372) 1,900
11
Community Consolidation
Banking Other Adjustments Consolidated
--------- ----- ------------- ------------
(Unaudited)
(In Thousands)
March 31, 2000:
Investment securities available
For sale and held to maturity $117,489 $ 27,078 $ - $144,567
Loans, net 597,855 - - 597,855
Total assets 832,328 81,678 (53,187) 860,918
Total deposits (1) 728,134 - - 728,134
Total liabilities 780,787 1,693 (1,646) 780,834
Total interest and dividend income 13,289 409 - 13,698
Total interest expense 7,200 - - 7,200
Net interest income 6,089 409 - 6,498
Provision for possible loan losses 166 - - 166
Total noninterest income 386 - - 386
Total noninterest expense 4,925 4 - 4,929
Net income 857 270 - 1,127
Includes mortgagors' escrow payments
12) New Pronouncements
The Company adopted SFAS No. 133 "Accounting for Derivative Instruments and
Hedging Activities" as amended, on January 1, 2001. This new statement
requires that every derivative instrument be recorded on the balance sheet
as either an asset or liability measured at its fair value. The Company's
derivative instruments are certain loan commitments which are intended for
sale and their related forward sales contracts. Adoption of this statement
had no effect on income or comprehensive income.
12
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Forward Looking Statements
This Quarterly Report on Form 10-Q contains certain statements that may be
considered forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. Port Financial Corp.'s (the "Company")
actual results could differ materially from those projected in the forward-
looking statements. Important factors that might cause such a difference
include: changes in national or regional economic conditions; changes in
loan default and charge-off rates; reductions in deposit levels
necessitating increased borrowing to fund loans and investments; changes in
interest rates; changes in the size and the nature of the Company's
competition; and changes in the assumptions used in making such forward-
looking statements.
The following discussion and analysis should be read in conjunction with
the unaudited consolidated financial statements and related notes included
in this report.
General
Port Financial Corp. is a Massachusetts-chartered stock holding company,
which owns all of the capital stock of Cambridgeport Bank (the "Bank"). The
Company converted from a Massachusetts-chartered mutual holding company,
Cambridgeport Mutual Holding Company, to a Massachusetts-chartered stock
holding company and changed its name to Port Financial Corp. and sold
7,442,818 shares of its common stock to the Company's eligible depositors,
management and employees and to the Company's Employee Stock Ownership Plan
("ESOP"). Net proceeds of the stock offering were $71.8 million. The
conversion and stock offering was completed on April 11, 2000.
The Company's principal business is its investment in the Bank, a
Massachusetts stock savings bank, chartered in 1853. The Bank is a
community-oriented bank providing retail and business customers with value-
driven products and services to meet customer needs. It provides a wide
variety of deposit products, residential mortgage loans, commercial real
estate loans, commercial loans and consumer loans to its customers in the
cities and towns around Cambridge, Massachusetts. Over the past five
years, the Bank has more than doubled its branch network and has added a
TeleBanking Center. The Bank has strategically located its branch offices
in cities and towns with a strong base for real estate lending and deposit
growth and where community bank competition has been reduced by a
consolidating banking industry. In June, 2000 the Company initiated a
marketing campaign, Real Banking, as part of its strategy to build
profitable relationships with consumers and businesses impacted by large
bank mergers. The Real Banking campaign offered promotional rates on a
money market account, a short-term certificate of deposit, and a home
equity credit line to consumers who maintained their primary checking
account at the Bank.
The Bank's revenues are derived principally from interest on loans and
investment securities. The Bank's primary sources of funds are deposits,
scheduled amortization and
13
prepayments of loan principal and mortgage-backed securities, maturities
and calls of investment securities, and funds provided by operations. The
Bank also uses borrowings from the Federal Home Loan Bank as a source of
funds for loans, investments and other assets. The largest component of the
Bank's expenses is the interest it pays on deposits.
Comparison of Financial Condition at March 31, 2001 and December 31, 2000
Total assets decrease by $11.1 million from $1.005 billion at December 31,
2000 to $993.7 million at March 31, 2001. Cash, cash equivalents and
investment securities declined by $6.9 million, largely as a result of the
Quincy branch deposit sale mentioned above. Declining interest rates
during the first quarter of 2001 prompted some residential mortgage and
commercial real estate borrowers to refinance their loans. As a result,
net loans declined by $6.1 million to $681.3 million at March 31.
Residential mortgage balances at March 31 were $346.5 million, down $7.0
million from the December 31 level as some borrowers refinanced into fixed
rate mortgages. The Company's policy is to sell fixed rate residential
mortgages. The March 31 commercial real estate loan portfolio balance of
$237.4 million represented a decline of $3.9 million from the December 31,
2000 balance. The prepayment of a $7.5 million loan was the principal
reason for the decline.
Construction loans rose by $3.4 million during the first quarter as
customers increased their borrowings under previously committed lines of
credit. Outstanding balances under home equity credit lines increased by
$1.1 million during the three-month period, as the Company continued to
promote its Home Equity Credit Line product through advertising, direct
mail and in-branch promotions.
Non-performing assets totaled $76,000 and $134,000 at March 31, 2001 and
December 31, 2000, respectively. The allowance for possible loan losses was
$8.2 million at March 31, 2001, or 1.20% of total loans. This compares to
$8.1 million and 1.16% at December 31, 2000.
Deposits at March 31, 2001 totaled $793.6 million, a decrease of $12.4
million from $806.0 million at December 31, 2000. Net of the Quincy
Branch deposit transaction, total deposits rose $3.7 million during the
quarter, consisting of $3.2 million in checking accounts and $1.9 million
in money market and savings accounts, offset by a reduction of $1.4 million
in time deposits. The Quincy deposit sale included $1.3 million in demand
deposit and NOW accounts, $8.8 million in money market and savings
accounts, and $6.0 million in certificates of deposit.
The decline in stockholders equity to $149.2 million at March 31, 2001 from
$152.1 million at December 31, 2000 reflects the cost of the share
repurchases mentioned previously, partially offset by the $1.5 million
increase in retained earnings and a $937,000 increase in unrealized gains
on investment securities available for sale.
14
Comparison of Operating Results for the Three Months Ended
March 31, 2001 and 2000
Net income was $1.9 million for the quarter ended March 31, 2001 or $.28
per diluted share, compared to $1.1 million for the comparable prior year
period. The 2001 results include the gain on the Quincy deposit sale. Net
of this non-recurring transaction, net income was $1.6 million or $.24 per
diluted share.
Interest Income
Total interest and dividend income increased $3.8 million, or 27.9%, to
$17.5 million. This increase resulted primarily from 24.8% growth in the
average balance of interest-earning assets to $939.3 million in the first
quarter of 2001. The yield on average interest-earning assets rose 18
basis points in the 2001 period compared with the prior year, reflecting
higher yielding loans and investment securities that were booked during
2000.
Interest expense
Total interest expense for the three months ended March 31, 2001 was $9.7
million, an increase of $2.5 million over the same period in 2000.
Significantly higher balances in money market deposit accounts, and the
effect of the promotional rate paid on the Real Savings money market
account are the principal reasons for the rise in deposit costs. Interest
paid on money market accounts totaled $4.2 million in this year's quarter,
up from $2.0 million in the corresponding 2000 period. Money market
balances averaged $177.2 million in the 2000 period, 29.3% of total
interest bearing deposits while in the first quarter of 2001, money market
balances averaged $325.6 million, 43.5% of interest bearing deposits.
Rates paid on money market accounts during the 2001 period were 5.26%, up
70 basis points from the first quarter of 2000.
Interest paid on certificates of deposit rose by $365,000 as a decline in
average certificate balances of $23.2 million partially offset a 91 basis
point increase in their cost. Since March 31, 2000, the Company lost some
certificate customers because of higher rates paid by competitors. Some
certificate customers also transferred maturing CDs into the Real Savings
account.
The Company's strategy of building core deposits also resulted in
significant growth in checking accounts, with balances averaging $113.2
million in the recent quarter, an increase of $27.2 million, or 31.6%, over
the 2000 period.
Borrowing expense of $575,000 compared with $668,000 in the first quarter
of 2000. During the 2000 period the Company capitalized $152,000 of
interest payments related to the financing of its administration center
building. If the capitalized amount had been recorded as an expense, total
borrowing expense would have been $820,000 in the 2000 period.
Net interest income
Net interest income increased 21.0% or $1.4 million in the first quarter of
2001 as compared to the same period last year. The net interest margin was
3.40%, down from
15
3.47% in the 2000 quarter. The interest rate spread was 2.47% in the
quarter ended March 31, 2001, compared with 2.89% last year.
Provision for Possible Loan Losses
The Company recorded a provision for loan losses of $200,000 for the
quarter ended March 31, 2001 and $166,000 in the same quarter of 2000.
Non-Interest Income
Non-interest income totaled $1.4 million in the first quarter of 2001 as
compared to $386,000 in the first quarter of 2000. Customer service fees
of $292,000 were up $66,000 over the 2000 quarter, largely due to the
increased number of checking accounts and fees derived from activity in
those accounts. In addition gains from loan sales of $153,000 represents
an increase of $131,000 from the 2000 period. These gains were generated
from the sale of fixed rate residential mortgages. As mentioned above, the
low interest rate environment that prevailed in the first quarter of 2001
produced higher volume of fixed rate mortgage applications.
Other non-interest income was $839,000 in the quarter ended March 31, 2001,
up from $8,000 during the 2000 period. In addition to the Quincy branch
deposit sale gain of $529,000, the 2001 period included a $49,000 increase
in cash surrender value of life insurance policies. The first quarter of
2000 included a decrease of $135,000 in the value of those policies.
Non-Interest Expense
Non-interest expense increased $1.2 million to $6.1 million for the first
quarter of 2001, compared to $4.9 million in the 2000 period. Compensation
and benefits expenses were $3.5 million in the first quarter of 2001, an
increase of $724,000 over the same period last year. The Company's new
stock benefit plans added $363,000 in quarterly expense. Compensation
expense has also been impacted by reduced position vacancy levels this year
as staff turnover rates have declined. Occupancy and equipment expense of
$875,000 represents an increase of $123,000 from the prior year period.
This increase was due to the scheduled depreciation of the Company's
administrative building, which was still under construction during the
first quarter of 2000, and expense of the Arlington branch, which opened
last August. Data processing expense of $500,000, an increase of $120,000
from the 2000 period was the result of the significantly higher level of
customer deposit account activity in 2001, and costs associated with
providing internet banking services, which were introduced during the
second quarter of 2000. Other non-interest expense of $1.0 million
increased $280,000 over the same period in 2000. This increase includes
higher legal and other professional services expenses related to public
company matters.
The annualized expense ratio, the ratio of non-interest expense to average
assets, was 2.53% for the three months ended March 31, 2001, unchanged from
the 2000 period.
16
Provision for Income Taxes
The Company's effective tax rate for the March 31, 2001 quarter was 34.6%
as compared to 37.0% for the 2000 quarter. As explained above, the 2000
quarter included a reduction of insurance policy values totaling $135,000.
This decline in value was not deductible for tax purposes.
Port Financial Corp.
Average Balance Sheet
For the Three Months Ending March 31, 2001 and 2000
(Unaudited)
2001 2000
--------------------------------- --------------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
------- -------- ------- ------- -------- -------
(Dollars in thousands)
Assets:
Interest earning assets:
Short term investments(1) $ 61,780 $ 841 5.52% $ 11,626 $ 206 7.13%
Certificates of deposit 2,016 31 6.24% 4,800 88 7.37%
Investment securities(2) 182,172 3,103 6.83% 143,567 2,264 6.32%
Loans(3) 693,370 13,540 7.81% 592,446 11,140 7.52%
-----------------------------------------------------------------------
Total interest earning assets 939,338 17,515 7.46% 752,439 13,698 7.28%
------------------- -------------------
Allowance for possible loan losses (8,134) (7,167)
Total noninterest earning assets 54,213 38,947
-------- --------
Total assets 985,417 784,219
======== ========
Liabilities and Equity:
Interest bearing liabilities:
NOW accounts 65,616 163 1.01% 45,304 154 1.38%
Savings accounts 52,085 226 1.76% 53,756 268 2.01%
Money market deposit accounts 325,592 4,222 5.26% 177,211 2,008 4.56%
Certificate of deposit accounts 305,388 4,467 5.93% 328,609 4,102 5.02%
-----------------------------------------------------------------------
Total interest bearing deposits 748,681 9,078 4.92% 604,610 6,532 4.35%
Borrowed funds 36,063 575 6.38% 53,855 668 4.91%
-----------------------------------------------------------------------
Total interest bearing liabilities 784,744 9,653 4.99% 658,465 7,200 4.39%
------- -------
Noninterest bearing deposits 47,553 40,966
Other noninterest bearing liabilities 7,715 6,783
-------- --------
Total noninterest bearing liabilities 55,268 47,749
Total liabilities 840,012 706,214
Stockholders' equity/retained earnings 145,405 78,005
-------- --------
Total liabilities and stockholders'
Equity/retained earnings $985,417 $784,219
======== ========
Net interest income $ 7,862 $ 6,498
======= =======
Net Interest rate spread (4) 2.47% 2.89%
Net interest margin (5) 3.40% 3.47%
Ratio of average interest-earning assets
to average interest-bearing liabilities 119.64 114.25
Short term investments includes federal funds sold.
All investments securities that are considered available for sale are
carried at market value, while securities that are held to maturity
are held at cost
Loans are net of deferred loan origination costs (fees).
Net interest rate spread represents the difference between the
weighted average yield on interest earning assets and the weighted
average cost of interest bearing liabilities.
Net interest margin represents net interest income as a percentage of
average interest earning assets.
Port Financial Corp.
Rate/Volume Analysis
Three Months Ending March 31, 2001
Increase/(Decrease)
(Unaudited)
Due to
------------------
Volume Rate Net
------ ---- ---
(In thousands)
Interest earning assets:
Short term investments $ 670 $ (35) $ 635
Certificates of deposit (45) (12) (57)
Investment securities 644 195 839
Loans 1,957 443 2,400
--------------------------------
Total interest earning assets 3,226 591 3,817
--------------------------------
Interest bearing liabilities:
NOW accounts 22 (13) 9
Savings accounts (8) (34) (42)
Money market deposit accounts 1,871 343 2,214
Certificate of deposit accounts (233) 598 365
Borrowed funds (992) 899 (93)
--------------------------------
Total interest bearing
liabilities 660 1,793 2,453
--------------------------------
Change in net interest income $2,566 $(1,202) $1,364
================================
Liquidity and Capital Resources
The term "liquidity" refers to the Company's ability to generate adequate
amounts of cash to fund loan originations, loan purchases, withdrawals of
deposits and operating expenses. The Company's primary sources of
liquidity are deposits, scheduled amortization and prepayments of loan
principal and mortgage backed securities, maturities and calls of
investment securities and funds provided by operations. The Bank also can
borrow funds from the Federal Home Loan Bank based on eligible collateral
of loans and securities. The Bank's maximum borrowing capacity from the
Federal Home Loan Bank at March 31, 2001 was approximately $ 308.7
million, net of borrowings that were currently outstanding. In addition,
the Bank can enter into reverse repurchase agreements with approved broker-
dealers. Reverse repurchase agreements are agreements that allow the Bank
to borrow money, using securities as collateral.
18
Liquidity management is both a daily and long term function of business
management. The measure of a Company's liquidity is its ability to meet
its cash commitments at all times with available cash or by conversion of
other assets to cash at a reasonable price. Loan repayments and maturing
investment securities are a relatively predictable source of funds.
However, deposit flows, calls of investment securities and prepayments of
loans and mortgage-backed securities are strongly influenced by interest
rates, general and local economic conditions and competition in the
marketplace. These factors reduce the predictability of the timing of
these sources of funds. Management believes that the Company has
sufficient liquidity to meet its operating needs.
At March 31, 2001, the Company exceeded each of the applicable regulatory
capital requirements. The Company's leverage Tier 1 capital was $ 143.7
million, or 24.7% of risk-weighted assets, and 14.6% of average assets.
The Company had a risk-based total capital of $ 153.5 million and a risk-
based capital ratio of 26.4%.
See the "Consolidated Statements of Cash Flows" in the Unaudited
Consolidated Financial Statements included in this Form 10-Q for the
sources and uses of cash flows for operating and financing activities for
the three months ended March 31, 2001 and March 31, 2000.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
In Management's opinion, there has been no material change in market risk
since disclosed in Item 7A of the Company's Annual Report on Form 10-K for
the year ended December 31, 2000.
19
Part II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Defaults Upon Senior Securities
None
Item 3. Submission of Matters to a Vote of Security Holders
None
Item 4. Other Information
None
Item 5. Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
Port Financial Corp.
(Registrant)
By: /s/ James B. Keegan
---------------------------------------
James B. Keegan
Chairman and Chief Executive Officer
By: /s/ Charles Jeffrey
---------------------------------------
Charles Jeffrey
Senior Vice President and
Chief Financial Officer
May 14, 2001