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<SEC-DOCUMENT>0000910647-01-500091.txt : 20010402
<SEC-HEADER>0000910647-01-500091.hdr.sgml : 20010402
ACCESSION NUMBER: 0000910647-01-500091
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 10
CONFORMED PERIOD OF REPORT: 20001231
FILED AS OF DATE: 20010330
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: BANCORP RHODE ISLAND INC
CENTRAL INDEX KEY: 0001109525
STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021]
IRS NUMBER: 050509802
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10-K
SEC ACT:
SEC FILE NUMBER: 001-16101
FILM NUMBER: 1587237
BUSINESS ADDRESS:
STREET 1: ONE TURKS HEAD PLACE
CITY: PROVIDENCE
STATE: RI
ZIP: 02903
BUSINESS PHONE: 4014565015
MAIL ADDRESS:
STREET 1: ONE TURKS HEAD PLACE
CITY: PROVIDENCE
STATE: RI
ZIP: 02903
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<FILENAME>bri-10k.txt
<DESCRIPTION>BODY OF FORM 10-K
<TEXT>
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM 10-K
(Annual Report Under Section 13 of the Securities Exchange Act of 1934)
For the fiscal year ended December 31, 2000
Commission File No. 001-16101
BANCORP RHODE ISLAND, INC.
------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Rhode Island 05-0509802
------------------------------- -------------------
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
ONE TURKS HEAD PLACE, PROVIDENCE, RI 02903
-------------------------------------------
(Address of Principal Executive Offices)
(401) 456-5000
------------------------------------------------
(Issuer's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.01 per share
---------------------------------------
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by checkmark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statement incorporated by reference in Part III of this Form 10-
K or any amendment to this Form 10-K. [X]
The aggregate market value of the voting stock of the Registrant held
by non-affiliates of the Registrant, based on the closing price on The
Nasdaq Stock Market on March 26, 2001 was $49,230,325.
As of March 26, 2001, there were 3,736,650 shares of common stock (par
value $0.01 per share) of the Registrant issued and outstanding.
Documents incorporated by reference:
Portions of Bancorp Rhode Island's 2000 Annual Report to Shareholders
and Definitive Proxy Statement for the 2001 Annual Meeting of Shareholders
are incorporated by reference into Parts II and III of this Form 10-K.
===============================================================================
Bancorp Rhode Island, Inc.
Annual Report on Form 10-K
Table of Contents
<TABLE>
<CAPTION>
Description Page Number
- ----------- -----------
<S> <C> <C> <C>
Part I. Item 1 -- Business 3
Item 2 -- Properties 14
Item 3 -- Legal Proceedings 14
Item 4 -- Submission of Matters to a Vote of Security Holders 14
Part II. Item 5 -- Market for the Company's Common Stock and Related
Stockholder Matters 15
Item 6 -- Selected Consolidated Financial Data 15
Item 7 -- Management's Discussion and Analysis of Financial
Condition and Results of Operations 15
Item 8 -- Financial Statements and Supplementary Data 15
Item 9 -- Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 15
Part III. Item 10 -- Directors and Executive Officers of the Company 16
Item 11 -- Executive Compensation 16
Item 12 -- Security Ownership of Certain Beneficial Owners and
Management 16
Item 13 -- Certain Relationships and Related Transactions 17
Part IV. Item 14 -- Exhibits, Financial Statement Schedules and Reports
on Form 8-K 17
Signatures 19
</TABLE>
PART I
Cautionary Statement
Certain statements contained herein are "Forward Looking Statements"
within the meaning of the Private Securities Litigation Reform Act of 1995.
Forward Looking Statements may be identified by reference to a future period
or periods or by the use of forward looking terminology such as "may,"
"believes," "intends," "expects," and "anticipates" or similar terms or
variations of these terms. Actual results may differ materially from those
set forth in Forward Looking Statements as a result of certain risks and
uncertainties, including but not limited to, changes in political and
economic conditions, interest rate fluctuations, competitive product and
pricing pressures, equity and bond market fluctuations, credit risk,
inflation, as well as other risks and uncertainties detailed from time to
time in filings with the Securities and Exchange Commission ("SEC").
ITEM 1. BUSINESS
General
Bancorp Rhode Island, Inc. (the "Company"), a Rhode Island
corporation, was organized by Bank Rhode Island (the "Bank") on February 15,
2000, to be a bank holding company and to acquire all of the capital stock
of the Bank. The reorganization of the Bank into the holding company form
of ownership was completed on September 1, 2000. The Company has no
significant assets other than the common stock of the Bank. For this
reason, substantially all of the discussion in this document relates to the
operations of the Bank and its subsidiaries.
The Company's wholly-owned subsidiary, the Bank, is a commercial bank
chartered as a financial institution in the State of Rhode Island. The Bank
was formed in 1996 as a result of the acquisition of certain assets and
liabilities divested in connection with the merger of Fleet Financial Group,
Inc. and Shawmut National Corporation. Headquartered in Providence, Rhode
Island, the Bank conducts business through 13 full service branches, with
nine located in Providence County and four located in Kent County.
The Bank provides a community banking alternative in the greater
Providence market which is dominated by three large regional banking
institutions. Based on total deposits as of June 30, 2000, the Bank is the
fifth largest bank in Rhode Island and the only mid-sized commercial bank in
the greater Providence and Warwick, Rhode Island areas. The Bank offers a
wide variety of deposit products, commercial, residential and consumer
loans, nondeposit investment products, on-line banking services and other
traditional banking products and services, designed to meet the needs of
individuals and small- to mid-sized businesses. As a full service community
bank, the Bank seeks to differentiate itself from its competitors through
superior personal service, responsiveness and local decision-making. The
Bank's deposits are insured by the Federal Deposit Insurance Corporation
("FDIC"), subject to regulatory limits.
The Bank's wholly-owned subsidiary, BRI Investment Corp., a Rhode
Island corporation, engages in the maintenance and management of intangible
investments and the collection and distribution of the income from such
investments.
The Company's headquarters and executive management are located at One
Turks Head Place, Providence, Rhode Island 02903 and its telephone number is
(401) 456-5000. The Bank also maintains an internet web site at
http://www.bankri.com.
Lending Activities
General. At its formation, the Bank acquired $85.4 million of
commercial loans and $32.1 million of consumer loans that were in-market
loans largely associated with acquired branches. To provide sufficient
assets to operate profitably, the Bank also purchased $276.4 million of
residential mortgage loans, resulting in an asset mix more characteristic of
a thrift institution than that of a commercial bank. The Bank's business
strategy has been to grow its commercial loan portfolio and to allow the
residential mortgage loan portfolio to decline gradually as the Bank is able
to replace residential mortgage loans with higher yielding commercial loans.
The Bank has allocated substantial resources to its commercial lending
function to facilitate and promote such growth. From March 22, 1996, when
the Bank commenced operations, until December 31, 2000, commercial loan
outstandings have increased from $85.4 million to $212.8 million, an
increase of $127.4 million, or 149.2%.
The Bank offers a variety of loan facilities to serve both commercial
and consumer borrowers primarily within the State of Rhode Island and nearby
areas of Massachusetts. Commercial and industrial loan products include
revolving lines of credit and term loans offered at fixed and variable
rates. The Bank's real estate lending activities include originating loans
secured by commercial and residential properties and also purchasing
residential mortgage loans. Loans are made on existing properties and, to a
lesser extent, on properties under construction. The Bank satisfies a
variety of consumer credit needs by providing home equity term loans, home
equity lines of credit, direct automobile loans, savings secured loans and
personal loans, in addition to residential mortgage loans. The Bank also
recently has begun purchasing packages of automobile loans.
The Bank has tiered lending authorities. Loan commitments up to $1.0
million per customer relationship may be approved by the Chief Lending
Officer. All extensions of credit of more than $1.0 million (up to the
Bank's house lending limit) per customer relationship requires the approval
of the Credit Committee, which consists of members of the Bank's senior
management and one outside director. Department heads in the Bank's
Business Lending, Commercial Real Estate Lending and Retail Lending units
have lending authority up to $500,000 per customer relationship. Other
officers have limited lending authorities that can be exercised subject to
strict lending policy guidelines to facilitate volume production and process
flow.
The Bank issues loan commitments to prospective borrowers subject to
various conditions. Commitments generally are issued in conjunction with
commercial loans and residential mortgage loans and typically are for
periods up to 90 days. The proportion of the total value of commitments
derived from any particular category of loan varies from time to time and
depends upon market conditions. At December 31, 2000, the Bank had $5.4
million of aggregate loan commitments outstanding to originate a variety of
loans.
Commercial Real Estate and Multi-Family Loans. The Bank originates
loans secured by mortgages on owner-occupied and nonowner-occupied
commercial and multi-family residential properties. At December 31, 2000,
owner-occupied commercial real estate loans totaled $38.3 million, or 7.4%
of the total loan portfolio. Many of these customers have other commercial
borrowing relationships with the Bank, as the Bank finances their other
business needs. Nonowner-occupied commercial real estate loans totaled
$69.3 million, or 13.4% of the total loan portfolio, and multi-family
residential loans totaled $15.9 million, or 3.1% of the total loan
portfolio. The majority of real estate secured commercial loans are
originated on a three-, or five-year adjustable rate basis. Interest rates
typically charged on these loans are higher than those charged on adjustable
rate loans secured by one- to four-family residential units. Additionally,
origination fees may be charged on these loans.
The Bank's underwriting practices for commercial real estate and
multi-family residential loans are intended to ensure that the property
securing these loans will generate a positive cash flow after operating
expenses and debt service payments. The Bank requires appraisals before
making a loan and generally requires the personal guarantee of the borrower.
Permanent loans on commercial real estate and multi-family properties
generally are made at a loan-to-value ratio of no more than 80%.
Loans secured by nonowner-occupied commercial real estate and multi-
family properties involve greater risks than owner-occupied properties
because repayment generally depends on the rental income generated by the
property. In addition, because the payment experience on loans secured by
nonowner-occupied properties is often dependent on successful operation and
management of the property, repayment of the loan is usually more subject to
adverse conditions in the real estate market or the general economy than is
the case with owner-occupied real estate loans. Also, the nonowner-occupied
commercial real estate and multi-family residential business is cyclical and
subject to downturns, over-building and local economic conditions.
Commercial and Industrial Loans. The Bank originates non-real estate
commercial loans that, in most instances, are secured by equipment, accounts
receivable or inventory, as well as the personal guarantees of the principal
owners of the borrower. Unlike many community banks, the Bank is able to
offer asset-based commercial loan facilities that monitor advances against
receivables and inventories on a formula basis. A number of commercial and
industrial loans are granted in conjunction with the Small Business
Administration's (''SBA'') loan programs and include some form of SBA credit
enhancement. Commercial lending activities are supported by noncredit
products and services, such as letters of credit and cash management
services, that are responsive to the needs of the Bank's commercial
customers.
Approximately 75% of Rhode Island businesses are in Providence and
Kent counties. The vast majority of these businesses are small- to mid-
sized and have fewer than 50 employees. The Bank believes the financing
needs of these businesses generally match the Bank's lending profile and
that the Bank's branches are well positioned to generate loans from this
customer base. At December 31, 2000, commercial and industrial loans
(including leases) totaled $63.2 million, or 12.2% of the total loan
portfolio. Generally, commercial and industrial loans are granted at higher
rates than residential mortgage loans, with relatively short-term
maturities, or are at adjustable rates without interest rate caps.
Unlike residential and commercial real estate loans, which generally
are based on the borrower's ability to make repayment from employment and
rental income and which are secured by real property whose value tends to be
relatively easily ascertainable, commercial and industrial loans are
typically made on the basis of the borrower's ability to make repayment from
the cash flow of the business and are generally secured by business assets,
such as accounts receivable, equipment and inventory. As a result, the
availability of funds for the repayment of commercial and industrial loans
may be significantly dependent on the success of the business itself.
Further, the collateral securing the loans may be difficult to value,
fluctuate in value based on the success of the business and deteriorate over
time.
Small Business Loans. The Bank originates loans of $250,000 or less
to small business customers through its branch network and business
development officers. These loans are generally secured by the assets of
the business, as well as the personal guarantees of the principal owners of
the borrower. A number of these loans are granted in conjunction with the
SBA's Low-Doc and Express programs and include some form of SBA credit
enhancement. At December 31, 2000, small business loans totaled $19.2
million, or 3.7% of the total loan portfolio. Generally, small business
loans are granted at higher rates than commercial and industrial loans.
These loans have relatively short-term maturities or are at adjustable rates
without interest rate caps.
The Bank's underwriting practices for small business loans are
designed to provide quick turn-around and minimize the fees and expenses to
the customer. Accordingly, the Bank utilizes a credit scoring process to
assist in evaluating potential borrowers. In many cases traditional
underwriting practices, similar to those for commercial and industrial
loans, are also employed to provide a more balanced and judgmentally-based
credit decision. The Bank distinguishes itself from larger financial
institutions by providing personalized service through a loan officer
(usually a branch manager) assigned to the customer relationships. Lending
to small businesses may involve additional risks as a result of their more
limited financial resources and more niche-based operations.
Construction Loans. The Bank originates residential construction
loans to individuals and professional builders to construct one- to four-
family residential units, either as primary residences or for resale. The
Bank also makes construction loans for the purpose of constructing multi-
family or commercial properties. At December 31, 2000, outstanding
construction loans totaled $7.1 million, or 1.4% of the total loan
portfolio. Currently, the Bank offers interest-only construction loans
during the construction period.
The Bank's underwriting practices for construction loans are similar
to those for commercial real estate loans, but they also are intended to
ensure completion of the project and take into account the feasibility of
the project, among other things. As a matter of practice, the Bank
generally lends an amount sufficient to pay a percentage of the property's
acquisition costs and a majority of the construction costs but requires that
the borrower have equity in the project. Property appraisals and generally
the personal guarantee of the borrower are required, as is the case with
commercial real estate loans.
The risks associated with construction lending are greater than those
with commercial real estate lending and multi-family lending on existing
properties for a variety of reasons. The Bank seeks to minimize these risks
by, among other things, often using the services of a consulting engineer
for commercial construction loans, advancing money only as the project is
completed and generally lending for construction of properties within its
market area to borrowers who are experienced in the type of construction for
which the loan is made, as well as by adhering to the lending standards
described above. In addition, the Bank does not usually lend to fund the
construction of property being built for speculative purposes.
Residential Mortgage Loans. The Bank's one- to four-family
residential mortgage loan portfolio consists primarily of whole loans
purchased from other financial institutions. Currently, the Bank purchases
new ARM whole loans from other financial institutions both in New England
and elsewhere in the country. The Bank anticipates continuing to purchase
residential mortgage loans until such time as its commercial and consumer
loan originations are sufficient to utilize available cash flows. Servicing
rights related to the whole loan mortgage portfolio are retained by the
mortgage servicing companies. The Bank pays a servicing fee ranging from
.25% to .375% to the mortgage servicing companies for administration of the
loan portfolios. Some of the loans purchased subsequent to the formation of
the Bank were originated outside of New England. As of December 31, 2000,
approximately 10.7% of the residential mortgage loan portfolio consisted of
loans secured by real estate outside of New England.
Additionally, but to a lesser extent, the Bank originates ARMs for its
own portfolio. The Bank also originates fixed rate mortgage loans and sells
these mortgages to its correspondents at the time of the loan's closing.
While the Bank anticipates that its residential mortgage loan portfolio will
decline long-term as it focuses its resources on commercial lending, the
Bank plans to continue its own origination of one- to four-family
residential mortgage loans, primarily in its market area. Such activity
would decrease the Bank's need to purchase residential mortgage loans in
order to enhance profitability while it increases its commercial loan
portfolio, as well as facilitate overall growth of customer relationships.
At December 31, 2000, one- to four-family residential mortgage loans
totaled $247.9 million, or 47.8% of the total loan portfolio. The fixed
rate portion of this portfolio totaled $34.6 million and had original
maturities of 15 and 30 years. The adjustable rate portion of this
portfolio totaled $212.2 million and had original maturities of 30 years.
Interest rates on adjustable rate loans are set for an initial period of
either one, three, five, seven or ten years with annual adjustments for the
remainder of the loan. These loans have periodic rate adjustment caps of
primarily 2% and lifetime rate adjustment caps of either 5% or 6%. There
are no prepayment penalties for the one- to four-family residential mortgage
loans.
Although adjustable rate mortgage loans allow the Bank to increase the
sensitivity of its assets to changes in market interest rates, the terms of
such loans include limitations on upward and downward rate adjustments.
These limitations increase the likelihood of prepayments due to refinancings
during periods of falling interest rates, particularly if rate adjustment
caps keep the loan rate above market rates. Additionally, these limitations
could keep the market value of the portfolio below market during periods of
rising interest rates, particularly if rate adjustment caps keep the loan
rate below market rates.
Consumer and Other Loans. The Bank originates a variety of term loans
and line of credit loans for consumers. At December 31, 2000, the consumer
loan portfolio totaled $58.1 million, or 11.2% of the total loan portfolio,
and is comprised primarily of home equity term loans and home equity lines
of credit. These loans and lines of credit are generally offered for up to
80% of the appraised value of the borrower's home, less the amount of the
remaining balance of the borrower's first mortgage. The Bank also offers
direct automobile loans, savings secured loans and personal loans. During
2000, the Bank for the first time purchased a package of automobile loans
from another New England institution. The Bank currently anticipates
continued automobile loan purchases to further diversify its consumer and
other loan portfolio.
Investment Activities
Investments, an important component of the Company's diversified asset
structure, are a source of earnings in the form of interest and dividends,
and provide a source of liquidity to meet lending demands and fluctuations
in deposit flows. Overall, the portfolio, comprised of U.S. Treasury and
federal agency securities, mortgage-backed securities, Federal Home Loan
Bank of Boston (''FHLB'') stock and federal funds sold, represents 23.5% of
total assets, or $174.0 million, as of December 31, 2000.
Loans receivable generally provide a better return than investments,
and accordingly, the Company seeks to emphasize the generation of loans,
rather than increasing its investment portfolio. The investments are
managed by the Chief Financial Officer, subject to the supervision and
review of the Asset/Liability Committee and in compliance with the
Investment Policy established by the Bank's board of directors.
Overall, investments produced total interest and dividend income of
$9.8 million, or 19.7% of total interest and dividend income, in 2000 and
$8.4 million, or 20.1% of total interest and dividend income, during 1999.
Deposits
Deposits are the principal source of funds for use in lending and for
other general business purposes. The Bank attracts deposits from businesses
and the general public by offering a variety of deposit products ranging in
maturity from demand-type accounts to certificates of deposit with
maturities of up to ten years. The Bank relies mainly on quality customer
service and diversified products, as well as competitive pricing policies
and advertising, to attract and retain deposits. The Bank emphasizes retail
deposits obtained locally in contrast to wholesale deposits obtained from
national or regional deposit brokers.
The Bank seeks to develop relationships with its customers in order to
become their primary bank. In order to achieve this, the Bank has stressed
growing its "core" account base, namely its checking and savings accounts.
While the Bank prices certificate of deposit accounts competitively, and
from time to time will run special offers, the Bank does not ordinarily
solicit high cost certificates of deposit.
The Bank generally charges early withdrawal penalties on its
certificates of deposit in an amount equal to three months' interest on
accounts with original maturities of one year or less and six months'
interest on accounts with original maturities longer than one year.
Interest credited to an account during any term may be withdrawn without
penalty at any time during the term. Upon renewal of a certificate of
deposit, only interest credited during the renewal term may be withdrawn
without penalty during the renewal term. The Bank's withdrawal penalties
are intended to offset the potentially adverse effects of the withdrawal of
funds during periods of rising interest rates.
As a general policy, the Bank systematically reviews the deposit
accounts it offers to determine whether the accounts continue to meet
customers' needs and the Bank's asset/liability management goals. This
review is the responsibility of the Pricing Committee which meets weekly to
determine, implement and monitor pricing policies and practices consistent
with the Bank's overall earnings and growth goals. The Pricing Committee
analyzes the cost of funds and also reviews all sources of fee income.
The Bank also derives funds from loan repayments, sales of investment
securities, and FHLB and other borrowings. Loan repayments and deposit
inflows and outflows are significantly influenced by prevailing interest
rates, competition and general economic conditions. Borrowings may be used
on a short-term basis to compensate for reductions in normal sources of
funds, or on a longer term basis to support expanded lending activities.
Nondeposit Investment Products and Services
In October 1997, the Bank introduced a nondeposit investment program
through which it made available to its customers a variety of mutual funds
and fixed and variable annuities. These investment products were offered
through an arrangement with a national wholesaler of mutual funds and
annuities. In December of 2000, the Bank terminated this agreement and
entered into a new agreement with Commonwealth Equity Services, Inc., of
Waltham, MA. The Bank will now make mutual funds and annuities available to
its customers through Commonwealth, but will assume direct management
responsibility for the program.
In 1998, the Bank began offering trust services through a referral
arrangement with a well-known, local trust company. At year-end 2000, the
Bank severed this relationship and now makes investment management services
available to its high net worth customers through two sources. The first is
a national firm, PNC Advisors, a division of PNC Financial Services Group.
The other is Baldwin Brothers, a boutique investment management firm with
offices in Providence, RI and Marion, MA.
Employees
At December 31, 2000, the Company had 167 full-time and 40 part-time
employees. The Company's employees are not represented by any collective
bargaining unit, and the Company believes its employee relations are good.
The Company maintains a benefit program which includes health and dental
insurance, life and long-term disability insurance and a 401(k) plan.
Competition and Marketplace
The Company's primary operating subsidiary, the Bank, is headquartered
in Providence, Rhode Island, and operates in Providence and Kent counties.
The Bank faces significant competition both in making loans and generating
deposits. In the past, the Bank's most direct competition has come from
three large regional banks which have dominated the Rhode Island market.
Currently, these regional banks are FleetBoston, Citizens and Sovereign.
These regional banks have well-established distribution networks and greater
financial resources than the Bank, which have enabled them to market their
products and services extensively, offer access to a greater number of
locations and products, and price competitively. In addition, the Bank
faces competition for loans from out-of-state financial institutions which
have established loan production offices as well as from non-bank
competitors. Competition for deposits also comes from short-term money
market funds, other corporation and government securities funds and other
non-bank financial institutions such as brokerage firms and insurance
companies. Many of the Bank's non-bank competitors are not subject to the
same degree of regulation as that imposed on federally insured state
chartered banks. As a result, such non-bank competitors have advantages
over the Bank in providing certain services.
The population in the Bank's market area is not growing and economic
growth in the Rhode Island area has been slow to moderate over the past
several years, lagging behind other parts of New England and the United
States. Accordingly, the Bank's future growth depends largely upon its
ability to increase its market penetration. Moreover, economic conditions
beyond the Bank's control may have a significant impact on the Bank's
operations. Examples of such conditions include the strength of credit
demand by customers and changes in the general levels of interest rates.
Furthermore, the Bank's commercial and consumer lending activities are
conducted principally in Rhode Island and, to a lesser extent, Southeastern
Massachusetts. Its borrowers' ability to honor their repayment commitments
is generally dependent upon the level of economic activity and general
health of the regional economy, and any economic recession in the Bank's
market area adversely affecting growth could cause significant increases in
nonperforming assets, thereby causing operating losses, impairing liquidity
and eroding capital.
Supervision and Regulation
Overview. The Company and the Bank are subject to extensive
governmental regulation and supervision. Federal and state laws and
regulations govern numerous matters affecting the Bank and/or the Company,
including changes in the ownership or control, maintenance of adequate
capital, financial condition, permissible types, amounts and terms of
extensions of credit and investments, permissible non-banking activities,
the level of reserves against deposits and restrictions on dividend
payments. These regulations are intended primarily for the protection of
depositors and customers, rather than for the benefit of shareholders.
Compliance with such regulation involves significant costs to the Company
and the Bank and may restrict their activities. In addition, the passage of
new or amended federal and state legislation could result in additional
regulation of, and restrictions on, the operations of the Company and/or the
Bank. It cannot be predicted whether any legislation currently under
consideration will be adopted or how such legislation or any other
legislation that might be enacted in the future would affect the business of
either the Company or the Bank. The following descriptions of applicable
statutes and regulations are not intended to be complete descriptions of
these provisions or their effects on the Company and the Bank, but are brief
summaries which are qualified in their entirety by reference to such
statutes and regulations.
The Company and the Bank are subject to extensive periodic reporting
requirements concerning financial and other information. In addition, the
Bank and the Company must file such additional reports as the regulatory and
supervisory authorities may require. The Company also is subject to the
reporting and other dictates of the Securities Exchange Act of 1934, as
amended.
The Company is a bank holding company registered under the Bank
Holding Company Act of 1956, as amended (the "BHC Act"). As a bank holding
company, the Company is regulated by the Board of Governors of the Federal
Reserve System (the "FRB"), and also is subject to certain laws of the State
of Rhode Island.
The Bank is a Rhode Island chartered non-member bank of the Federal
Reserve System. The Bank's deposits are insured by the Bank Insurance Fund
(the "BIF") of the FDIC. Accordingly, the Bank is subject to the
supervision and regulation of the FDIC and the Rhode Island Department of
Business Regulation (the "Department of Business Regulation").
Rhode Island Regulation
As a state chartered financial institution, the Bank is subject to the
continued regulation and supervision and periodic examination by the
Department of Business Regulation. Rhode Island law also imposes reporting
requirements on the Bank. Rhode Island statutes and regulations govern
among other things, investment powers, deposit activity, trust powers and
borrowings. The approval of the Department of Business Regulation is
required to establish, close or relocate a branch, merge with other banks,
amend the Bank's Charter or By-laws and undertake certain other enumerated
activities.
If it appears to the Department of Business Regulation that a Rhode
Island bank has violated its charter, or any law or regulation, or is
conducting its business in an unauthorized or unsafe manner, or that the
bank has been notified by its federal insurer of such insurer's intent to
terminate deposit insurance, the director may, under certain circumstances,
restrict the withdrawal of deposits, order any person to cease violating any
Rhode Island statutes or rules and regulations or cease engaging in any
unsafe, unsound or deceptive banking practice, order that capital be
restored, or suspend or remove directors, committee members, officers or
employees who have violated the Rhode Island banking statutes, or a rule or
regulation or order thereunder, or who are reckless or incompetent in the
conduct of the bank's business.
Rhode Island law also requires any person or persons desiring to
acquire control of any Rhode Island financial institution in any manner to
make an application with the Director of the Department of Business
Regulation. For the purposes of the statute, "Control" has the meaning set
forth in the BHC Act. The application requires, among other things,
information regarding the financial condition of the bank, personal business
history of the persons involved in the transaction, terms and conditions of
the proposed transaction, the source of funds used in the acquisition and
any plans to liquidate the bank after the acquisition. The Director may
disapprove the acquisition if the proposed transaction would result in a
monopoly, the financial condition of any acquiring person might jeopardize
the financial stability of the institution, the competence of the proposed
management indicates that it would not be in the interest of the depositors,
or the acquisition would not promote public convenience and advantage.
In addition, whenever the Department of Business Regulation considers
it advisable, an examination of a Rhode Island bank holding company, such as
the Company, may be conducted. Every Rhode Island bank holding company also
must file an annual financial report with the Department of Business
Regulation which may be a copy of the annual report prepared for the FRB.
The Company also is subject to the Rhode Island Business Combination
Act.
Federal Supervision: FDIC
Overview. The FDIC issues rules and regulations, conducts periodic
inspections, requires the filing of certain reports and generally supervises
the operations of its insured state chartered banks, that, like the Bank,
are not members of the Federal Reserve System. The FDIC's powers have been
enhanced in recent years by federal legislation. With the passage of the
Financial Institutions Reform, Recovery and Enforcement Act of 1989, the
Crime Control Act of 1990, and the Federal Deposit Insurance Corporation
Improvement Act of 1991 ("FDICIA"), federal bank regulatory agencies,
including the FDIC, were granted substantially broader enforcement powers to
restrict the activities of financial institutions and to impose or seek the
imposition of increased civil and/or criminal penalties upon financial
institutions and the individuals who manage or control such institutions.
The Bank is subject to the FDIC regulatory capital requirements. An
FDIC-insured bank also must conform to certain standards, limitations, and
collateral requirements with respect to certain transactions with affiliates
such as the Company. Further, an FDIC-insured bank is subject to laws and
regulations that limit the amount of, and establish required approval
procedures, reporting requirements and credit standards with respect to,
loans and other extensions of credit to officers, directors and principal
shareholders of the Company, the Bank, and any subsidiary of the Bank, and
to their related interests. FDIC approval also is required prior to the
Bank's redemption of any stock. The prior approval of the FDIC or, in some
circumstances another regulatory agency, is required for mergers and
consolidations. In addition, notice to the FDIC is required prior to the
closing of any branch office, and the approval of the FDIC is required in
order to establish or relocate a branch facility.
Proceedings may be instituted against any FDIC-insured bank, or any
officer or director or employee of such bank and any other institution
affiliated parties who engage in unsafe and unsound practices, breaches of
any fiduciary duty, or violation of applicable laws, regulations, regulatory
orders and agreements. The FDIC has the authority to terminate insurance of
accounts, to issue orders to cease and desist, to remove officers, directors
and other institution affiliated parties, and to impose substantial civil
money penalties.
Deposit Insurance. The Bank's deposits are insured by the BIF of the
FDIC to the legal maximum of $100,000 for each separately insured depositor.
The Federal Deposit Insurance Act provides that the FDIC shall set deposit
insurance assessment rates on a semiannual basis and requires the FDIC to
increase deposit insurance assessments whenever the ratio of BIF reserves to
insured deposits in the BIF is less than 1.25%.
The FDIC has established a risk-based bank assessment system the rates
of which are determined on the basis of a particular institution's
supervisory rating and capital level. The assessment system is based upon
three supervisory categories and three capital categories, resulting in
risk-based premiums which range from the current 0 basis points (subject to
a $2,000 minimum annual fee) for the most highly-rated, well-capitalized
banks to 27 basis points per $100 of domestic deposits for troubled banks
which are undercapitalized (as discussed below). The Bank currently pays
the minimum assessment.
The FDIC may terminate the deposit insurance of any insured depository
institution if the FDIC determines that the institution had engaged in or is
engaging in unsafe or unsound practices, is in an unsafe or unsound
condition to continue operations, or has violated any applicable law,
regulation, order or any condition imposed in writing by, or written
agreement with, the FDIC.
Capital Adequacy. FDIC-insured institutions must meet specified
minimal capital requirements and are subject to varying regulatory
restrictions based upon their capital levels. All banks are subject to
restrictions on capital distributions (such as dividends, stock repurchases
and redemptions) and payment of management fees if, after making such
distributions or payment, the institution would be undercapitalized. FDIC-
insured banks that have the highest regulatory rating and are not
anticipating or experiencing significant growth are required to maintain a
leverage capital ratio (calculated using Tier 1 capital, as defined below,
to total assets) of at least 3.0%. All other banks are required to maintain
a minimum leverage capital ratio of 1.0% to 2.0% above 3.0%, with a minimum
of 4.0%.
In addition, the FDIC has adopted capital guidelines based upon ratios
of a bank's capital to total assets adjusted for risk, which require FDIC-
insured banks to maintain a total capital-to-risk weighted assets ratio
("Risk-Based Capital Ratio") of at least 8.0% and a Tier 1 Risk-Based
Capital Ratio of at least 4.0%. The guidelines provide a general framework
for assigning assets and off-balance sheet items (such as standby letters of
credit) to broad risk categories and provide procedures for the calculation
of the Risk-Based Capital Ratio. Tier 1 (sometimes referred to as "core")
capital consists of common shareholders' equity, qualifying, non- cumulative
perpetual preferred stock, and minority interests in the equity accounts of
consolidated subsidiaries. "Supplementary" or Tier 2 capital includes
perpetual debt, mandatory convertible debt securities, a limited amount of
subordinated debt, other preferred stock, and a limited amount of loan loss
reserves. Certain intangible assets, including goodwill, are deducted in
computing the Capital Ratios.
Prompt Corrective Action Provisions. In order to resolve the problems
of undercapitalized institutions, FDICIA established a system known as
"prompt corrective action." Under prompt corrective action provisions and
implementing regulations, every institution is classified into one of five
categories reflecting the institution's capitalization. These categories
are the following: well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized and critically
undercapitalized. For an institution to be well capitalized, it must have a
total Risk-Based Capital Ratio of at least 10%, a Tier 1 Risk-Based Capital
Ratio of at least 6% and a Tier 1 leverage ratio of at least 5% and not be
subject to any specific capital order or directive. In contrast, an
institution will be deemed to be significantly undercapitalized if it has a
total Risk-Based Capital Ratio that is less than 6%, or a Tier 1 Risk-Based
Capital Ratio that is less than 3%, or a leverage ratio that is less than
3%, and will be deemed to be critically undercapitalized if the bank has a
ratio of tangible equity to total assets that is equal to or less than 2%.
As of December 31, 2000, the Bank's Tier 1 leverage ratio was 5.85%, its
total Risk-Based Capital Ratio was 10.66% and its Tier 1 Risk-Based Capital
Ratio was 9.41%. Based upon the above ratios, the Bank is considered "well
capitalized" for regulatory capital purposes.
The activities in which a depository institution may engage and the
remedies available to federal regulators vary depending upon the category
described above into which an institution's level of capital falls. At each
successive downward capital level, institutions are subject to more
restrictions on their activities. For example, only "well capitalized"
institutions may accept brokered deposits without prior regulatory approval
(brokered deposits are defined to include deposits with an interest rate
which is 75 basis points above prevailing rates paid on similar deposits in
an institution's normal market area).
The FDIC has broad powers to take prompt corrective action to resolve
problems of insured depository institutions, depending upon a particular
institution's level of capital. A bank which does not meet applicable
minimum capital requirements or is deemed to be in a "troubled" condition
may be subject to additional restrictions, including a requirement of
written notice to federal regulatory authorities prior to certain proposed
changes in senior management or directors of the institutions, and a general
prohibition on acceptance, renewal or rollover of brokered deposits. Also,
undercapitalized, significantly undercapitalized and critically
undercapitalized institutions are subject to a number of other requirements
and restrictions. Such institutions also are required to submit and
implement capital restoration plans acceptable to the appropriate federal
banking regulator and are subject to increased regulatory monitoring. Once
an institution becomes significantly undercapitalized, regulators must take
certain actions. A critically undercapitalized institution must be placed
in conservatorship or receivership unless certain stringent conditions are
satisfied. Failure to meet the minimum regulatory capital requirements
could subject a banking institution to a variety of enforcement remedies,
including the termination of deposit insurance by the FDIC and seizure of
the institution.
Safety and Soundness Standards. The Federal Deposit Insurance Act, as
amended, directs each federal banking agency to prescribe standards for
safety and soundness for insured depository institutions and their holding
companies relating to operations, management, asset quality, earnings and
stock valuation.
Examination. FDIC requires that nearly all insured depository
institutions have annual, on-site regulatory examinations and annual audits
by an independent public accountant. Management must prepare an annual
report, attested to by the independent public accountant, confirming
management's responsibility in preparing financial statements, maintaining
internal controls for financial reporting and complying with safety and
soundness standards. The audit process must be overseen by an independent
audit committee composed of outside directors, provided that the federal
banking agencies may permit the committee to include inside directors if the
bank is unable to find competent outside directors, so long as outside
directors comprise a majority of the committee.
Federal Supervision: FRB
The BHC Act mandates that the prior approval of the FRB must be
obtained in order for the Company to engage in certain activities such as
acquiring or establishing additional banks or non-banking subsidiaries or
merging with other institutions.
In addition to the need for obtaining the approval of the FRB for
particular kinds of transactions, a bank holding company is required by the
FRB to adhere to certain capital adequacy standards. It is the position of
the FRB that a bank holding company, such as the Company, should be a source
of financial strength to its subsidiary banks such as the Bank. In general,
the FRB has adopted substantially identical capital adequacy guidelines as
the FDIC. Such standards are applicable to bank holding companies and their
bank subsidiaries on a consolidated basis for holding companies, like the
Company, with consolidated assets in excess of $150 million. If a bank
holding company's capital levels fall below the minimum requirements
established by the capital adequacy guidelines, the holding company will be
expected to develop and implement a plan, acceptable to the FRB, to achieve
adequate levels of capital within a reasonable time. Until such capital
levels are achieved, the holding company may be denied approval by the FRB
for certain activities such as those described in the preceding paragraph.
As of December 31, 2000, on a consolidated basis, the Company's Tier 1
Leverage Ratio was 5.91%, its total Risk-Based Capital Ratio was 10.76% and
its Tier 1 Risk-Based Capital Ratio was 9.50%. Based upon the above ratios,
the Company is considered "well capitalized" for regulatory capital
purposes.
Restrictions on Transactions with Affiliates and Insiders
The Bank is subject to certain federal statutes limiting transactions
with non-banking affiliates and insiders. Section 23A of the Federal
Reserve Act limits loans or other extensions of credit to, asset purchases
with and investments in affiliates of the Bank, such as the Company, to ten
percent (10%) of the Bank's capital and surplus. Further, such loans and
extensions of credit, as well as certain other transactions, are required to
be secured in specified amounts. Section 23B of the Federal Reserve Act,
among other things, requires that certain transactions between the Bank and
its affiliates must be on terms substantially the same, or at least as
favorable to the Bank, as those prevailing at the time for comparable
transactions with or involving other nonaffiliated persons. In the absence
of comparable transactions, any transaction between the Bank and its
affiliates must be on terms and under circumstances, including credit
standards that in good faith would be offered to or would apply to
nonaffiliated persons.
The restrictions on loans to officers, directors, principal
shareholders and their related interests (collectively referred to herein as
"insiders") contained in the Federal Reserve Act and Regulation O apply to
all institutions and their subsidiaries. These restrictions include limits
on loans to one borrower and conditions that must be met before such loans
can be made. Loans made to insiders and their related interests cannot
exceed the institution's total unimpaired capital and surplus. Insiders are
subject to enforcement actions for knowingly accepting loans in violation of
applicable restrictions. All extensions of credit by the Bank to its
insiders are in compliance with these restrictions and limitations.
Loans outstanding to executive officers and directors of the Bank,
including their immediate families and affiliated companies ("related
parties"), aggregated $6.4 million at December 31, 2000 and $3.8 million at
December 31, 1999. Loans to related parties are made in the ordinary course
of business under normal credit terms, including interest rates and
collateral, prevailing at the time of origination for comparable
transactions with other persons, and do not represent more than normal
credit risk.
Interstate Banking
The Riegle-Neal Interstate Banking and Branching Efficiency Act of
1994 facilitates the interstate expansion and consolidation of banking
organizations by permitting (i) bank holding companies such as the Company,
that are adequately capitalized and managed, to acquire banks located in
states outside their home states regardless of whether such acquisitions are
authorized under the law of the host state, (ii) the interstate merger of
banks after June 1, 1997, subject to the right of individual states to "opt
in" early or "opt out" of this authority prior to such date, (iii) banks to
establish new branches on an interstate basis provided that such action is
specifically authorized by the law of the host state, (iv) foreign banks to
establish, with approval of the appropriate regulators in the United States,
branches outside their home states to the same extent that national or state
banks located in such state would be authorized to do so and (v) banks to
receive deposits, renew time deposits, close loans and receive payments on
loans and other obligations as agent for any bank or thrift affiliate,
whether the affiliate is located in the same or different state. Rhode
Island adopted "opt in" legislation, which permits full interstate banking
acquisition and branching.
Gramm-Leach-Bliley Act
On November 12, 1999 the Gramm-Leach-Bliley Act (the "G-L-B Act")
became law, repealing the 1933 Glass-Steagall Act's separation of the
commercial and investment banking industries. The G-L-B Act could have a
far-reaching impact on the financial services industry. The G-L-B Act
expands the range of non-banking activities that certain bank holding
companies may engage in while preserving existing authority for bank holding
companies to engage in activities that are closely related to banking. In
order to engage in these new non-banking activities, a bank holding company
must qualify and register with the FRB as a "financial holding company" by
demonstrating that each of its banking subsidiaries is "well capitalized"
and "well managed" and has a rating of "Satisfactory" or better under the
Community Reinvestment Act of 1977.
Under the G-L-B Act and its implementing regulations, financial
holding companies may engage in any activity that (i) is financial in nature
or incidental to a financial activity under the G-L-B Act or (ii) is
complementary to a financial activity and does not impose a substantial risk
to the safety and soundness of depository institutions or the financial
system generally. The G-B-L Act and its accompanying regulations specify
certain activities that are financial in nature such as acting as principal,
agent or broker for insurance; underwriting, dealing in or making a market
in securities; and providing financial and investment advice. The new
financial activities authorized by the G-L-B Act may also be engaged in by a
"financial subsidiary" of a national or state bank, except for insurance or
annuity underwriting, insurance company portfolio investments, real estate
investments and development and merchant banking, which must be conducted in
a financial holding company. The FRB and the Secretary of the Treasury have
the authority to decide whether other activities are also financial in
nature or incidental thereto, taking into account changes in technology,
changes in the banking marketplace, competition for banking services and
other pertinent factors. Although the Company may meet the qualifications
to become a financial holding company, it has no current plans to elect such
status.
The G-L-B Act establishes a system of functional regulation, under
which the federal banking agencies will regulate the banking activities of
financial holding companies and banks' financial subsidiaries, the U.S.
Securities and Exchange Commission will regulate their securities activities
and state insurance regulators will regulate their insurance activities. In
addition, the G-L-B Act provides new protections against the transfer and
use by financial institutions of consumers' nonpublic, personal information.
The G-L-B Act also contains a variety of additional provisions, which, among
others, impose additional regulatory requirements on certain depository
institutions and reduce certain other regulatory burdens, modify the laws
governing the Community Reinvestment Act of 1977, and address a variety of
other legal and regulatory issues affecting both day-to-day operations and
long-term activities of financial institutions.
At this time, the Company is unable to predict the impact of the G-L-B
Act on its future operations. In granting other types of financial
institutions more flexibility, the G-L-B Act may increase the number and
type of institutions engaging in the same or similar activities as those of
the Company and the Bank, thereby creating a more competitive atmosphere.
However, management believes legislation and implementing regulations are
likely to have a more immediate impact on regional and national holding
companies and banks than on community-based institutions engaged principally
in traditional banking activities.
Other Aspects of Federal and State Laws
Community Reinvestment Act. The Community Reinvestment Act of 1977
("CRA") and the regulations issued thereunder are intended to encourage
banks to help meet the credit needs of their service area, including low and
moderate income neighborhoods, consistent with the safe and sound operations
of the banks. Under CRA, banks are rated on their performance in meeting
these credit needs and the rating of a bank's performance is public. In
connection with the filing of an application to conduct certain
transactions, the CRA performance record of the banks involved are reviewed.
Under the Bank's last CRA examination, the Bank received a "Satisfactory"
rating.
Insurance Sales. Rhode Island legislation enacted in 1996 permits
financial institutions to participate in the sale of insurance products,
subject to certain restrictions and license requirements. The regulatory
approvals required from the Department of Business Regulation and the FDIC
depend upon the form and structure used to engage in such activities.
Miscellaneous. The Company and/or the Bank also are subject to
federal and state statutory and regulatory provisions covering, among other
things, reserve requirements, security procedures, currency and foreign
transactions reporting, insider and affiliated party transactions,
management interlocks, loan interest rate limitations, truth-in-lending,
electronic funds transfers, funds availability, truth-in-savings, home
mortgage disclosure, and equal credit opportunity.
Effect of Governmental Policy
The Company's revenues consist of cash dividends paid to it by the
Bank. Such payments are restricted pursuant to various state and federal
regulatory limitations. Banking is a business that depends heavily on
interest rate differentials. One of the most significant factors affecting
the Bank's earnings is the difference between the interest rates paid by the
Bank on its deposits and its other borrowings, on the one hand, and, on the
other hand, the interest rates received by the Bank on loans extended to its
customers and on securities held in the Bank's portfolio. The value and
yields of its assets and the rates paid on its liabilities are sensitive to
changes in prevailing market rates of interest. Thus, the earnings and
growth of the Bank will be influenced by general economic conditions, the
monetary and fiscal policies of the federal government, and policies of
regulatory agencies, particularly the FRB, which implement national monetary
policy. The nature and impact on the Bank of any future changes in such
policies cannot be predicted.
ITEM 2. PROPERTIES
The Bank presently has a network of 13 branch offices located in
Providence and Kent counties. Five of these office facilities are owned and
eight are leased. Facilities are generally leased for a period of one to
ten years with renewal options. The termination of any short-term lease
would not have a material adverse effect on the operations of the Bank. The
Company is currently renovating an additional 3,500 square feet of office
space at One Turks Head Place, which will become administrative offices of
the Company and the Bank. The Company's offices are in good physical
condition and are considered adequate to meet the banking needs of the
Bank's customers.
The following are the locations of the Bank's offices:
<TABLE>
<CAPTION>
Size Year Opened Owned or Lease
Location (Square feet) or Acquired Leased Expiration Date
- -------- ------------- ----------- -------- ---------------
<S> <C> <C> <C> <C>
1047 Park Avenue, Cranston, RI 4,700 1996 Owned N.A.
383 Atwood Avenue, Cranston, RI 4,700 1996 Owned N.A.
999 South Broadway, East Providence, RI 10,500 1996 Owned N.A.
195 Taunton Avenue, East Providence, RI 3,100 1996 Leased 2/28/03
1440 Hartford Avenue, Johnston, RI 4,700 1996 Land Leased 12/31/02
One Turks Head Place, Providence, RI (branch) 5,000 1996 Leased 4/30/09
One Turks Head Place, Providence, RI (offices) 14,900 1999 Leased 6/30/09
165 Pitman Street, Providence, RI 3,300 1998 Leased 10/18/08
445 Putnam Pike, Smithfield, RI 3,500 1996 Leased 7/31/09
1062 Centerville Road, Warwick, RI 2,600 1996 Owned N.A.
1300 Warwick Avenue, Warwick, RI 4,200 1996 Leased 6/30/04
233 Lambert Lind Highway, Warwick, RI (a) 4,800 1996 Leased 4/01/01
233 Lambert Lind Highway, Warwick, RI (a) 600 2001 Leased 3/31/10
2975 West Shore Road, Warwick, RI 3,500 2000 Leased 3/31/10
1175 Cumberland Hill Road, Woonsocket, RI 3,100 1998 Owned N.A.
<FN>
(a) Existing free-standing facility to be replaced with a new store front
facility on adjacent parcel. Estimated occupancy date of new facility
is late summer 2001.
</FN>
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
The Company is involved only in routine litigation incidental to the
business of banking, none of which the Company's management expects to have
a material adverse effect on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders in the
fourth quarter of 2000.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The information required by this item is incorporated herein by
reference to the Section entitled "Market for the Company's Common Stock and
Related Stockholder Matters" contained on the inside back cover of the
Company's 2000 Annual Report to Shareholders filed as Exhibit 13 to this
Annual Report on Form 10-K.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The information required by this item is incorporated herein by
reference to the Section entitled "Selected Consolidated Financial Data"
contained on pages 18 through 19 of the Company's 2000 Annual Report to
Shareholders filed as Exhibit 13 to this Annual Report on Form 10-K.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information required by this item is incorporated herein by
reference to the Section entitled "Management's Discussion and Analysis of
Financial Condition and Results of Operations" contained on pages 20 through
37 of the Company's 2000 Annual Report to Shareholders filed as Exhibit 13
to this Annual Report on Form 10-K.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is incorporated herein by
reference to the Consolidated Balance Sheets as of December 31, 2000 and
1999 and the Consolidated Statements of Operations, Consolidated Statements
of Changes in Shareholders' Equity and Consolidated Statements of Cash Flows
for each of the years in the three-year period ended December 31, 2000,
together with the accompanying notes and the Independent Auditors' Report
contained on pages 39 through 64 of the Company's 2000 Annual Report to
Shareholders filed as Exhibit 13 to this Annual Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING OR
FINANCIAL DISCLOSURE
There were no changes in, or disagreements with, accountants on
accounting or financial disclosure as defined by Item 304 of Regulation S-K.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The director information required by this item is incorporated herein
by reference to the Sections entitled "Election of Directors" and "Section
16(a) Beneficial Ownership Reporting Compliance" in the Company's Definitive
Proxy Statement for the 2001 Annual Meeting of Shareholders to be filed with
the SEC.
The following table sets forth the executive officers of the Company
as of the date hereof.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Merrill W. Sherman 52 President and Chief Executive Officer
Albert R. Rietheimer 44 Chief Financial Officer and Treasurer
Donald C. McQueen 44 Vice President and Assistant Secretary
Margaret D. Farrell 51 Secretary
James V. DeRentis 39 Bank Senior Vice President - Retail Banking
</TABLE>
Merrill W. Sherman. Ms. Sherman has served as President and Chief
Executive Officer of the Company and Bank since their formation. From 1993
through 1995, when she became associated with EFC, Inc. (the Bank's agent in
connection with its formation), she was a member of the law firm of Brown
Rudnick Freed & Gesmer, Ltd. Ms. Sherman is also a director of the
Providence and Worcester Railroad Company.
Albert R. Rietheimer. Mr. Rietheimer has served as Chief Financial
Officer and Treasurer of the Company since its formation and of the Bank
since September 1996. Prior to joining the Bank, he served as Senior Vice
President and Chief Financial Officer of Boston Private Bancorp, Inc. from
August 1995 to September 1996. Mr. Rietheimer is a certified public
accountant.
Donald C. McQueen. Mr. McQueen has served as Vice President and
Assistant Secretary of the Company since its formation and as the Bank's
Executive Vice President and Chief Lending Officer since May 1998. From
1996 through May 1998, Mr. McQueen served as the Bank's Senior Vice
President - Credit Administration. From 1993 to 1995, he served as Vice
President of Fleet Bank, where he was responsible for commercial
relationship management, including commercial and industrial, real estate
and problem loans.
Margaret D. Farrell. Ms. Farrell has served as Secretary of the
Company and Bank since their formation. Ms. Farrell has been a partner of
the law firm of Hinckley, Allen & Snyder LLP since 1981.
James V. DeRentis. Mr. DeRentis has served as the Bank's Senior Vice
President - Retail Banking since December 1998. From 1996 through 1998, Mr.
DeRentis was a Vice President in the Bank's Retail Group. Subsequent to
1993 and prior to joining the Bank, Mr. DeRentis held a number of officer
positions with Northeast Mortgage, Citizens Bank and NationsBank in their
retail sales areas.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated herein by
reference to the Section entitled "Executive Compensation" in the Company's
Definitive Proxy Statement for the 2001 Annual Meeting of Shareholders to be
filed with the SEC.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated herein by
reference to the Section entitled "Common Stock Ownership of Certain
Beneficial Owners and Management" in the Company's Definitive Proxy
Statement for the 2001 Annual Meeting of Shareholders to be filed with the
SEC.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated herein by
reference to the Section entitled "Transactions with Management" in the
Company's Definitive Proxy Statement for the 2001 Annual Meeting of
Shareholders to be filed with the SEC.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) Financial Statements
The following consolidated financial statements contained within the
Company's 2000 Annual Report to Shareholders are incorporated herein
by reference in Item 8.
1. Independent Auditors' Report
2. Consolidated Balance Sheets as of December 31, 2000 and
1999
3. Consolidated Statements of Operations for the Years Ended
December 31, 2000, 1999 and 1998
4. Consolidated Statements of Changes in Shareholders' Equity
for the Years Ended December 31, 2000, 1999 and 1998
5. Consolidated Statements of Cash Flows for the Years Ended
December 31, 2000, 1999 and 1998
6. Notes to Consolidated Financial Statements
(2) Financial Statement Schedules
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required
under the related instructions or are inapplicable, and therefore have
been omitted.
(3) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
3.1 Articles of Incorporation of the Company, as amended (1)
3.2 By-laws of the Company (1)
10.1 Employment Agreement of Merrill W. Sherman dated December 18, 2000 +
10.2 Employment Agreement of Albert R. Rietheimer dated December 18, 2000 +
10.3 Employment Agreement of Donald C. McQueen dated December 18, 2000 +
10.4 Employment Agreement of James V. DeRentis dated December 18, 2000 +
10.5 Amended and Restated 1996 Incentive and Nonqualified Stock Option Plan +
10.6 Amended and Restated Non-Employee Director Stock Plan (2) +
10.7(a) Bank Rhode Island Supplemental Executive Retirement Plan, as amended by
Amendments No. 1 and No. 2 (1) +
10.7(b) Amendment No. 3 to Bank Rhode Island Supplemental Executive Retirement Plan +
10.8 Bank Rhode Island Nonqualified Deferred Compensation Plan, as amended by
Amendment No. 1 (1) +
10.9 Warrant for 136,315 shares of Common Stock issued to Fleet Financial
Group, Inc. (1)
11 Computation of earnings per share (3)
13 Annual Report to Shareholders for 2000, portions of which have been
incorporated by reference herein are filed with the Commission. Those
portions which have not been incorporated by reference herein are provided
for information purposes only.
21 List of Subsidiaries
23 Consent of KPMG LLP, as accountants for the Company
<FN>
- --------------------
<F1> Incorporated by reference from the Company's Registration Statement on
Form S-4, SEC File No. 333-33182
<F2> Incorporated by reference from the Company's Quarterly Report on Form
10-Q for the period ended September 30, 2000.
<F3> The calculation of earnings per share is set forth as Note 19 to the
Company's audited consolidated financial statements. The Company's
audited consolidated financial statements are filed herewith as part
of Exhibit 13.
(+) Management contract or compensatory plan or arrangement.
</FN>
</TABLE>
(b) Reports on Form 8-K
None.
BANCORP RHODE ISLAND, INC.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
BANCORP RHODE ISLAND, INC.
Date: March 27, 2001 By: /s/ Merrill W. Sherman
---------------------------
Merrill W. Sherman
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ Merrill W. Sherman /s/ Albert R. Rietheimer
- ------------------------------ -------------------------------
Merrill W. Sherman, Albert R. Rietheimer,
President, Chief Executive Officer Chief Financial Officer and
and Director (Principal Executive Treasurer (Principal Financial and
Officer) Accounting Officer)
Date: March 27, 2001 Date: March 27, 2001
/s/ John R. Berger
- ------------------------------ -------------------------------
Anthony F. Andrade, Director John R. Berger, Director
Date: Date: March 27, 2001
/s/ Malcolm G. Chace /s/ Ernest J. Chornyei, Jr.
- ------------------------------ -------------------------------
Malcolm G. Chace, Director and Ernest J. Chornyei, Jr., Director
Chairman of the Board Date: March 27, 2001
Date: March 27, 2001
/s/ Karl F. Ericson /s/ Margaret D. Farrell
- ------------------------------ -------------------------------
Karl F. Ericson, Director Margaret D. Farrell, Director
Date: March 27, 2001 Date: March 27, 2001
/s/ Mark R. Feinstein /s/ F. James Hodges, Jr.
- ------------------------------ -------------------------------
Mark R. Feinstein, Director F. James Hodges, Jr., Director
Date: March 27, 2001 Date: March , 2001
/s/ Cheryl W. Snead
- ------------------------------ -------------------------------
Donald J. Reaves, Director Cheryl W. Snead, Director
Date: Date: March 27, 2001
/s/ John A. Yena
- ------------------------------
John A. Yena, Director
Date: March 27, 2001
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>2
<FILENAME>bri-x101.txt
<DESCRIPTION>EMPLOYMENT AGREEMENT WITH MERRILL W. SHERMAN
<TEXT>
EXHIBIT 10.1
EXECUTIVE EMPLOYMENT AGREEMENT
------------------------------
THIS EMPLOYMENT AGREEMENT (the "Agreement") is between Bank Rhode
Island, a financial institution organized under the laws of the State of
Rhode Island with its executive offices located at One Turks Head Place,
Providence, Rhode Island 02903 (the "Bank"), Bancorp Rhode Island, Inc. a
corporation organized under the laws of the State of Rhode Island and sole
shareholder of the Bank (the "Company"), and Merrill W. Sherman of 24
Channing Avenue, Providence, Rhode Island 02906 (the "Executive").
IT IS MUTUALLY AGREED by the parties as follows:
1. Employment; Duties
1.1 Responsibilities and Authority. (a) The Bank hereby
employs Executive to serve as President and Chief Executive Officer
of the Bank, and Executive hereby accepts such employment. Executive
shall have the duties, responsibilities, authorities and powers
normally incident to such offices. At all times, however,
Executive's activities and authority with respect to such offices
will be subject to supervision, control and direction by the Board of
Directors of the Bank (the "Board") or by the Executive Committee of
the Board, and Executive hereby agrees to carry out such duties and
responsibilities as either of them may from time to time reasonably
assign to Executive. Executive shall report from time to time or
routinely, upon request, to the Board as to the current status of any
of Executive's assigned duties and responsibilities.
(b) The Company hereby employs Executive to serve as
President and Chief Executive Officer of the Company and such
other offices and positions as the Company may determine, and
Executive hereby accepts such employment. Executive shall have
the duties, responsibilities, authorities and powers normally
incident to such offices. At all times, however, Executive's
activities and authority with respect to such offices will be
subject to supervision, control and direction by the Board of
Directors of the Company (the "Company Board") or by the
Executive Committee of the Company Board, and Executive hereby
agrees to carry out such duties and responsibilities as either
of them may from time to time reasonably assign to Executive.
Executive shall report from time to time or routinely, upon
request, to the Company Board as to the current status of any
of Executive's assigned duties and responsibilities.
1.2 Compensation. The Bank shall pay Executive a base salary
at the rate of (i) Two Hundred Sixty-Three Thousand Seven Hundred
Dollars ($263,700) per year, commencing on the date hereof and
continuing through December 31, 2000, and (ii) Three Hundred Fourteen
Thousand Four Hundred Dollars ($314,400) per year commencing on
January 1, 2001 and thereafter, payable on a bi-weekly basis, or at
such higher rate as shall be determined from time to time by the
Board. In addition, Executive shall be entitled to receive payments
under any incentive compensation or bonus program which the Bank may
establish for its employees and/or senior executives (as in effect
from time to time), in such amounts as are provided by such programs,
provided, however, that Executive shall be provided with an annual
bonus opportunity of no less than 60% of Executive's base salary.
1.3 Employee Benefits. As a full-time employee of the Bank,
Executive shall be eligible to participate in any and all employee
benefit plans generally available to full-time employees of the Bank,
including non-contributory plans and, at Executive's option,
contributory plans.
1.4 Certain Specific Employee Benefits.
(a) Grant of Stock Options. Executive shall receive
stock options to purchase shares of the Company's common stock
in such number and at an exercise price and such other terms as
the Compensation Committee of the Company Board may determine,
in its sole discretion. Any such options will become
exercisable on a schedule no less favorable than the following:
25% on the grant date and an additional 25% on each of the
first through third anniversaries of the grant date, with such
vesting to accelerate on a Change in Control (as defined in
Section 3.2).
(b) Automobile. The Bank shall provide Executive with
an automobile for Executive's personal and business use, both
in the course of her employment hereunder and afterwards as
specifically provided herein, at the Bank's expense. All
expenses related to the operation of such automobile shall be
paid for by the Bank, including but not limited to automobile
insurance, gasoline, maintenance, repairs, and other expenses
associated with the operation of such automobile, subject to
applicable rules and regulations regarding reporting of income
and withholding of applicable taxes.
1.5 Vacation. Executive shall be entitled to six weeks of
vacation during each year of employment, such vacation to be taken in
accordance with the Bank's customary vacation policies and at such
times and intervals as are mutually agreed upon by Executive and the
Bank. Executive shall be entitled to holiday time and sick leave in
accordance with the then existing policies of the Bank, as in effect
from time to time.
1.6 Reimbursement of Expenses. (a) Executive shall be
reimbursed by the Bank for reasonable business expenses incurred by
Executive incident to her employment by the Bank upon presentation of
appropriate vouchers, receipts, and other supporting documents
required by the Bank.
(b) Executive shall be reimbursed by the Company for
reasonable business expenses incurred by Executive incident to
her employment by the Company upon presentation of appropriate
vouchers, receipts, and other supporting documents required by
the Company.
1.7 Duty to Perform Services. So long as Executive is
employed by the Company and Bank, Executive agrees to devote her full
business and productive time, skill, and energy diligently, loyally,
effectively, and to the best of her ability to the rendering of
services to the Company and Bank, and will exert Executive's best
efforts in the rendering of such services. This provision will not
prohibit Executive from:
(a) making passive investments;
(b) serving on the board of directors of any company,
subject to the provisions of Section 4.2 below and provided
that Executive shall not render any material services with
respect to the operations or affairs of any such company; or
(c) engaging in religious, charitable or other
community or non-profit activities which do not impair
Executive's ability to fulfill her duties and responsibilities
to the Company and Bank.
Executive agrees that in the rendering of all services to the Company
and Bank and in all aspects of her employment in connection with
Executive's duties as President and Chief Executive Officer, she will
comply with all directives, policies, standards, and regulations from
time to time established by the Company or the Bank or by applicable
law.
1.8 Death or Disability.
(a) Death. In the event of Executive's death during
the term of her employment under this Agreement, the Bank shall
immediately pay to Executive's designated beneficiary any
salary accrued but unpaid as of the date of death. Upon
payment of the aforementioned sums, the Bank's obligations to
make further salary payments shall terminate. This provision
shall not be construed to negate any rights Executive may have
to death benefits under any employee benefit or welfare plan of
the Company or Bank in which Executive may from time to time be
a participant or under any other written agreement with the
Company or Bank which specifically provides for such benefits.
(b) Disability. In the event of Executive's
"disability" (as defined below) during the term of her
employment under this Agreement, the Bank shall continue to pay
Executive her base salary (reduced by any benefits she may be
entitled to receive under any state or federal disability
insurance program, such as Rhode Island temporary disability
insurance or federal social security) for a period of one year
from the date of "disability". For purposes of this Agreement,
"disability" shall mean the good faith determination by the
Board that Executive is unable for any reason, either physical
or mental, to perform the duties required of her hereunder.
1.9 Term of Employment. The term of Executive's employment
under this Agreement shall commence on the date hereof and shall
continue, unless sooner terminated pursuant to the provisions of this
Agreement, for a period of three years (the "Term"), which Term shall
automatically renew on each successive one year anniversary hereafter
commencing with the first anniversary hereof unless any party shall
have given written notice to the other parties of such party's
election not to extend the Term within ninety (90) calendar days
prior to any anniversary date.
1.10 Termination. This Agreement and the rights of the
parties hereunder will terminate (subject to the provisions of
Section 1.11 below) upon the occurrence of one of the following:
(a) Upon the Executive's death or disability as
provided in Section 1.8 above;
(b) Upon termination of employment by the Bank or the
Company for Cause as provided in Section 3.5, immediately upon
the giving of notice by the Bank or at such later time as such
notice may specify or as may be required by Section 3.5;
(c) Upon termination of employment at the election of
the Executive for Good Reason (as hereinafter defined) as
provided in Section 2.2;
(d) Upon expiration of the Term, upon notice by any
party not to renew the term as provided in Section 1.9; or
(e) In the event of the Executive's resignation for any
reason (other than the reasons set forth in Sections 1.10(a),
(c) or (d) above), upon thirty days' prior written notice of
such resignation to the Bank or the Company; or, in the event
of termination of Executive's employment by the Bank or the
Company for any reason (other than the reasons set forth in
Sections 1.10(a), (b) or (d) above), upon thirty days' prior
written notice of such termination to the Executive.
1.11 Survival. The provisions of Sections 1.8, 2.1, 2.2, 3.1
through 3.11 inclusive, and 4.1, 4.2, 4.4, 4.6, 4.8, 4.9 and 4.11 of
the Agreement shall remain in full force and effect and shall
continue to be enforceable in accordance with their terms beyond the
termination of employment and beyond expiration of this Agreement,
except as otherwise agreed in writing by Executive and the Company
and the Bank.
2. Severance.
2.1 Severance Benefit. In the event of a termination of
Executive's employment by the Bank or the Company without Cause (as
such term is defined in Section 3.5) at any time, or in the event of
termination of Executive's employment by her for Good Reason, the
Bank will pay to Executive within 30 days of the date of such
termination or expiration, in lump sum, a severance payment equal to
2.99 times the sum of (a) Executive's annual base salary then in
effect and (b) an amount equal to the average executive cash bonus
earned by Executive with respect to the two (2) full fiscal years
immediately preceding the year in which termination occurs (the
"Severance Benefit"). In addition, the Bank shall continue to pay
for all medical and life insurance coverage provided on the date of
termination for the thirty-six month period commencing on the date of
termination of employment (the "Severance Period"); the Bank shall
continue to provide Executive with the same automobile then being
used by Executive in accordance with the provisions of Section
1.4(b) of this Agreement for the Severance Period and, at any time
during or within thirty (30) days of the expiration of the Severance
Period, Executive shall have the right and option, on written notice
to the Bank, to purchase such automobile for a purchase price equal
to 90% of the wholesale value as established by the National
Automobile Dealers Association Official Used Car Guide published in
the year of such notice; and, notwithstanding any provision of any
option agreement governing options to purchase common stock of the
Company granted to Executive ("Options"), any such Options which are
exercisable by Executive on the date of termination shall not
terminate until the expiration of the Severance Period. Any
Severance Benefit paid under this Section 2.1 shall be credited
against any amounts due Executive under Section 3 as a result of a
Change in Control. The Bank shall have no obligation to pay the
Severance Benefit to Executive in the event her employment is
terminated with Cause by the Bank or the Company or voluntarily by
Executive without Good Reason prior to a Change in Control.
2.2 "Good Reason" Defined. For purposes of this Agreement,
"Good Reason" shall mean and include any of the following without
Executive's prior written consent:
(i) a significant reduction in the nature or scope of
Executive's duties, responsibilities, authority and powers from
the duties, responsibilities, authority and powers exercised by
her on the date hereof;
(ii) any requirement by the Bank or any person in
control of the Bank that the location at which Executive
performs the principal duties for the Bank or the Company be
outside a radius of 50 miles from the location at which
Executive performed such duties as of the date hereof; or
(iii) the election by the Company or the Bank not to
renew this Agreement on any anniversary date unless the Company
and the Bank enter into a new employment agreement with
Executive on terms not less favorable than those existing
immediately prior to such notice of non-renewal, other than a
reduction of fringe benefits required by law or applicable to
all employees generally,
provided, however, that Good Reason shall not be deemed to have
occurred unless prior to Executive's termination of employment for
Good Reason, Executive shall give not less than 30 days written
notice to the Bank and the Company of her intent to terminate for
Good Reason stating the basis of the Good Reason sufficient to permit
the Bank and the Company to alleviate the basis of such Good Reason
prior to termination, and the Bank and the Company have not done so
within such 30 day period, and further provided, that Executive's
continuing to work in the absence of entering into a new employment
agreement following a notice of non-renewal by the Company or the
Bank shall be without prejudice to her right to claim termination for
Good Reason, absent written agreement between Executive and the Bank
or the Company to the contrary.
3. Change in Control
3.1 Purpose. In order to allow Executive to consider the
prospect of a Change in Control (as defined in Section 3.2) in an
objective manner and in consideration of the services rendered and to
be rendered by Executive to the Bank, the Bank is willing to provide,
subject to the terms of this Agreement, certain severance benefits to
protect Executive from the consequences of a Terminating Event (as
defined in Section 3.4) occurring subsequent to a Change in Control.
3.2 Change in Control. A "Change in Control" will be deemed
to have occurred if: (i) a Takeover Transaction is effectuated; or
(ii) the Company commences substantive negotiations with a third
party with respect to a Takeover Transaction if within twelve (12)
months of the commencement of such negotiations, enters into a
definitive agreement with respect to a Takeover Transaction with any
party with which negotiations were originally commenced; or (iii) any
election of directors of the Company occurs (whether by the directors
then in office or by the shareholders at a meeting or by written
consent) where a majority of the directors in office following such
election are individuals who were not nominated by a vote of two-
thirds of the members of the board of directors immediately preceding
such election; or (iv) either of the Company or the Bank effectuates
a complete liquidation.
3.3 Takeover Transaction. A "Takeover Transaction" shall
mean:
(a) The acquisition of voting securities of the Company
by any individual, entity or group (within the meaning of
Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")), other than by the
Company or its subsidiaries or any employee benefit plan (or
related trust) of the Company or its subsidiaries, which
theretofore did not beneficially own (within the meaning of
Rule 13d-3 promulgated under the Exchange Act) securities
representing 30% or more of the voting power of all outstanding
shares of voting securities of the Company, if such acquisition
results in such individual, entity or group owning securities
representing more than 30% of the voting power of all
outstanding voting securities of the Company; provided, that
any acquisition by a corporation with respect to which,
following such acquisition, more than 50% of the then
outstanding shares of voting securities of such corporation, is
then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the
beneficial owners of the voting securities of the Company
outstanding immediately prior to such acquisition in
substantially the same proportion as their ownership,
immediately prior to such acquisition, of the outstanding
voting securities of the Company, shall not constitute a Change
in Control; or
(b) The issuance of additional shares of common stock
of the Company or the Bank, as applicable, in a single
transaction or a series of related transactions if the
individuals and entities who were the beneficial owners of the
outstanding voting securities of the Company or the Bank, as
applicable, immediately prior to such issuance do not,
following such issuance, beneficially own, directly or
indirectly, securities representing more than 50% of the voting
power of all then outstanding voting securities of the Company
or the Bank, as applicable; or
(c) Consummation by the Company or the Bank of (i) a
reorganization, merger or consolidation, in each case, with
respect to which all or substantially all of the individuals
and entities who were the beneficial owners of the voting
securities of such entity immediately prior to such
reorganization, merger or consolidation do not, following such
reorganization, merger or consolidation, beneficially own,
directly or indirectly, securities representing more than 50%
of the voting power of then outstanding voting securities of
the corporation resulting from such a reorganization, merger or
consolidation, or (ii) the sale, exchange or other disposition
(in one transaction or a series of related transactions) of all
or substantially all of the assets of the Company (on a
consolidated basis) or the Bank to a party which is not
controlled by or under common control with such entity, or
(iii) the sale by the Company in one transaction or in a series
of related transactions of voting securities of the Bank such
that following such transaction or transactions the Company no
longer beneficially owns, directly or indirectly, securities
representing more than 50% of the voting power of the then
outstanding voting securities of the Bank.
For purposes of this Section 3.3, "voting power" means ordinary
voting power for the election of directors.
3.4 Terminating Event. A "Terminating Event" means either
(a) Termination by the Bank or the Company of
Executive's employment for any reason other than "Cause" (as
such term is defined in Section 3.5 hereof); or
(b) Executive's resignation as an employee of the
Company or the Bank or any successor thereof following a
Takeover Transaction or a Change in Control under Section
3.2(iii), including, but not limited to, termination of this
Agreement by reason of disability pursuant to Section 1.8,
prior to the first anniversary of the Takeover Transaction or
such Change in Control; or
(c) Executive's death following a Takeover Transaction
or a Change in Control under Section 3.2(iii), prior to the
first anniversary of the Takeover Transaction or such Change in
Control.
3.5 Termination for "Cause" Defined. For purposes of this
Agreement, termination for Cause, as determined by the Board shall
include termination by reason of any of the following:
(a) Continuing any arrangement, holding any position or
engaging in any activities that conflict with the interest of,
or that interfere with Executive's duties owed to, the Company
or the Bank, after ten (10) days prior written notice by the
Company or the Bank, as applicable, to Executive of the same;
(b) Conviction of embezzlement or other crimes against
the Company or the Bank;
(c) Deliberate misappropriation of the Company's or the
Bank's funds;
(d) Material violation of written policies of the
Company or the Bank or material breach of any of Executive's
obligations under the terms of this Agreement, which continues
after ten (10) days prior written notice by the Company or the
Bank, as applicable, to Executive of the same; and
(e) Refusal to perform assigned duties when such
refusal is not justified or excused either by the terms of this
Agreement or by actions taken by the Bank or the Company in
violation of this Agreement; provided, however, that if
Executive should dispute the Bank's or the Company's
determination that it has caused Executive to terminate her
employment, or if Executive asserts that this act or omission
was caused by actions taken by the Bank or the Company in
violation of this Agreement, the dispute will be governed by
Section 4.8 hereof.
3.6 Payment In Connection With Terminating Event. If a
Terminating Event occurs within one (1) year after a Change in
Control (which one year period shall be calculated from the effective
date of the Takeover Transaction if the Terminating Event occurs
after a Takeover Transaction), the Bank will pay to Executive an
amount (the "Severance Payment") equal to 2.99 times the sum of (i)
the annual base salary in effect at the time of the Change in Control
plus (ii) the amount of the largest annual bonus paid to Executive
within the three year period preceding the Change in Control, which
Severance Payment shall be payable in one lump sum within 30 days of
the date of termination of employment, or if such Change in Control
is governed by clause (ii) of Section 3.2 and the Terminating Event
occurs prior to entering into a definitive agreement, upon the
entering into of a definitive agreement by the Company. In addition,
during the Severance Period (which, for purposes of Section 3 shall
be deemed to commence on the date of a Terminating Event), the
Executive shall be entitled to receive continuing medical and life
insurance benefits, use of an automobile with the option to purchase,
and extended Options, all as more specifically set forth in Section
2.1 hereof, provided, however, that any unvested Options held by
Executive shall accelerate and become vested upon a Change in Control
pursuant to Section 1.4(a). No Severance Payment will be made to
Executive under Section 3 if her employment with the Company and the
Bank terminates for any reason prior to a Change in Control, or if
her employment with the Company and the Bank terminates after a
Change in Control but such termination or resignation is not a
Terminating Event. In addition, no Severance Payment will be made to
Executive under Section 3.6 of this Agreement with respect to a
Terminating Event which occurs more than one year after a Change in
Control (which one year period shall be calculated from the effective
date of the Takeover Transaction if the Terminating Event occurs
after a Takeover Transaction).
3.7 Applicability of Change in Control Provisions. The
provisions of Section 3 shall terminate upon the earliest of (i) the
termination by the Company or the Bank of Executive's employment for
any reason prior to a Change in Control, (ii) the termination of
Executive's employment by the Company or the Bank after a Change in
Control for Cause, (iii) Executive's resignation or termination of
employment with the Company or the Bank for any reason other than
Good Reason prior to a Change in Control, and (iv) Executive's
resignation or termination of employment after a Change in Control on
or after the first anniversary of the Takeover Transaction or events
specified in Sections 3.2(iii) or (iv).
3.8 Excise Tax Equalization Payment. In the event that
Executive becomes entitled to a Severance Payment or any other
payment or benefit under this Agreement, or under any other agreement
with or plan of the Company (in the aggregate, the "Total Payments"),
and if any of the Total Payments will be subject to the tax (the
"Excise Tax") imposed by Section 4999 of the Code (or any similar tax
that may hereafter be imposed), then the Bank shall pay to Executive
in cash an additional amount (the "Gross-Up Payment") such that the
net amount retained by Executive after deduction of any Excise Tax
upon the Total Payments and any Federal, state and local income tax
and Excise Tax upon the Gross-Up Payment provided for by this Section
3.8 (including FICA and FUTA), shall be equal to the Total Payments.
Such payment shall be made by the Bank to Executive as soon as
practical following the effective date of the Terminating Event, but
in no event beyond thirty (30) days from such date.
3.9 Tax Computation. For purposes of determining whether any
of the Total Payments will be subject to the Excise Tax and the
amounts of such Excise Tax:
(a) Any other payments or benefits received or to be
received by Executive in connection with a Change in Control or
Executive's termination of employment (whether pursuant to the
terms of this Agreement or any other plan, arrangement, or
agreement with the Company or the Bank, or with any person
(which shall have the meaning set forth in Section 3(a)(9) of
the Exchange Act, including a "group" as defined in Section
13(d) therein) whose actions result in a Change in Control or
any person affiliated with the Company or such persons) shall
be treated as "parachute payments" within the meaning of
Section 280G(b)(1) of the Code, and all "excess parachute
payments" within the meaning of Section 280G(b)(1) shall be
treated as subject to the Excise Tax, unless in the opinion of
tax counsel as supported by the Company's independent auditors
and acceptable to Executive, such other payments or benefits
(in whole or in part) do not constitute parachute payments, or
unless such excess parachute payments (in whole or in part)
represent reasonable compensation for services actually
rendered within the meaning of Section 280G(b)(4) of the Code
in excess of the base amount within the meaning of Section 280G
(b)(3) of the Code, or are otherwise not subject to the Excise
Tax;
(b) The amount of the Total Payments which shall be
treated as subject to the Excise Tax shall be equal to the
lesser of: (i) the total amount of the Total Payments; or (ii)
the amount of excess parachute payments within the meaning of
Section 280G(b)(1) (after applying clause (a) above); and
(c) The value of any noncash benefits or any deferred
payment or benefit shall be determined by the Company's
independent auditors in accordance with the principles of
Sections 280G(d)(3) and (4) of the Code.
For purposes of determining the amount of the Gross-Up Payment,
Executive shall be deemed to pay Federal income taxes at the highest
marginal rate of Federal income taxation in the calendar year in which the
Gross-Up Payment is to be made, and state and local income taxes at the
highest marginal rate of taxation in the state and locality of Executive's
residence on the effective date of the Terminating Event, net of the
maximum reduction in Federal income taxes which could be obtained from
deduction of such state and local taxes.
3.10 Subsequent Recalculation. In the event the Internal
Revenue Service adjusts the computation of the Bank under Section 3.9
herein so that Executive did not receive the greatest net benefit,
the Bank shall reimburse Executive for the full amount necessary to
make her whole, plus a market rate of interest, as determined by the
Compensation Committee of the Board.
3.11 Dispute Resolution. If any dispute between the Bank and
Executive as to any of the amounts to be determined under Sections
3.8 or 3.9, or the method of calculating such amounts, cannot be
resolved by Executive and the Bank, either the Bank or Executive
after giving three (3) days written notice to the other, may refer
the dispute to a partner in the Boston, Massachusetts office of a
firm of independent certified public accountants selected jointly by
Executive and the Bank. The determination of such partner as to the
amount to be determined under Section 3.8 and 3.9 and the method of
calculating such amounts shall be final and binding on both Executive
and the Bank and the Company. The Bank shall bear the costs of any
such determination. The Company shall have the same rights and
obligations as the Bank under this Section 3.11 in the event of a
dispute between the Company and Executive.
4. Miscellaneous.
4.1 Confidential Information. Unless Executive first secures
the Company's consent, Executive will not disclose or use, at any
time either during or subsequent to her employment by the Company or
the Bank, except as required by her duties to the Company or Bank,
any secret or confidential information of the Company or Bank of
which Executive becomes informed during her employment, whether or
not developed by her. The term "confidential information" includes,
without limitation, financial information, business plans, prospects,
and opportunities (such as lending relationships, financial product
developments, or possible acquisitions or dispositions of business or
facilities) which have been discussed or considered by the Company's
or Bank's management, but does not include any information which has
become part of the public domain by means other than Executive's non-
observance of her obligations hereunder.
4.2 Non-Competition. During Executive's employment by the
Company and the Bank hereunder, and during a period of one year
following the date of termination of her employment with the Company
or the Bank for any reason, Executive will not, directly or
indirectly whether as partner, consultant, agent, employee, co-
venturer, greater than 2% owner, or otherwise, or through any Person
(as hereafter defined),
(a) attempt to recruit any employee of the Company or
Bank, assist in such hiring by any other Person, or encourage
any such employee to terminate his or her relationship with the
Company or Bank, or
(b) encourage any customer of the Company or Bank to
conduct with any other Person any business or activity which
such customer conducts or could conduct with the Company or
Bank, as applicable.
For purposes of this Section 4.2, the term "Person" shall mean an
individual, a corporation, an association, a partnership, an estate,
a trust and any other entity or organization.
4.3 No Conflicting Obligations. The Company and the Bank, in
entering into this Agreement, understand, and Executive hereby
represents, that she is not under any obligation to any former
employer or any person, firm or corporation that would prevent, limit
or impair, in any way, the performance by Executive of her duties as
an employee of the Company or the Bank.
4.4 Ethical Behavior. Upon termination by the Company or the
Bank of Executive's employment for any reason, Executive shall act at
all times in an ethical manner with regard to the Bank and the
Company, and during the one-year period following the date of such
termination, shall take no action which directly or indirectly could
reasonably be expected to have the effect of terminating or otherwise
adversely affecting the relationship of the Company or the Bank with
any employee of, or others with business or advantageous
relationships with, the Company or any of its affiliates, including
the Bank.
4.5 Withholding. All payments made by the Bank or the
Company under this Agreement will be net of any tax or other amounts
required to be withheld by the Bank or the Company under applicable
law.
4.6 Legal Fees. Upon submission of appropriate statements or
documentation, the Company and the Bank jointly and severally agree
to reimburse Executive for reasonable legal fees actually incurred by
her in connection with the negotiation, review and enforcement of the
terms of this Agreement, provided, however, that neither the Company
nor the Bank shall be obligated to reimburse Executive for any legal
fees or expenses incurred by her in connection with the Company's or
the Bank's enforcement of the terms of this Agreement or in
connection with any arbitration or litigation in which the Company or
the Bank is the prevailing party.
4.7 Binding Effect. This Agreement is binding upon and will
inure to the benefit of the parties hereto and their respective
heirs, administrators, executors, successors and assigns. The
Company and the Bank will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company or the
Bank, as the case may be, to assume expressly and perform the
Agreement. Failure of the Company or the Bank, as applicable, to
obtain such assumption and agreement prior to the effectiveness of
any such succession shall be a breach of the Agreement and shall
entitle Executive to compensation from the Bank in the same amount
and on the same terms as she would be entitled to hereunder following
a Terminating Event, except that for purposes of implementing the
foregoing, the date on which any such succession becomes effective
shall be deemed the date on which Executive becomes entitled to such
compensation from the Bank. As used in this Agreement, "Bank" shall
mean the Bank, as hereinbefore defined and any successor to its
business and/or assets as aforesaid which assumes and agrees to
perform the Agreement by operation of law, or otherwise.
4.8 Arbitration of Disputes. Any dispute, controversy or
claim arising out of or relating to this Agreement or the breach or
performance hereof will be settled by arbitration in accordance with
the laws of the State of Rhode Island by an arbitrator mutually
agreed upon by Executive and the Bank and/or the Company. If an
arbitrator cannot be agreed upon, Executive shall choose an
arbitrator and the Company and/or the Bank shall choose an
arbitrator, and these two together shall select a third arbitrator.
If the first two arbitrators cannot agree on the appointment of a
third arbitrator, then the third arbitrator will be appointed by the
American Arbitration Association in Providence, Rhode Island. Such
arbitration will be conducted in the City of Providence in accordance
with the Commercial Arbitration Rules of the American Arbitration
Association, except with respect to the selection of arbitrators
which shall be as provided in this Section 4.8. Judgment upon the
award rendered by the arbitrators may be entered in any court having
jurisdiction thereof.
4.9 Indemnification. The Company and the Bank each hereby
covenants and agrees to indemnify Executive and hold her harmless
fully, completely, and absolutely against and in respect to any and
all actions, suits, proceedings, claims, demands, judgments, costs,
expenses (including attorney's fees), losses, and damages resulting
from Executive's good faith performance of her duties and obligations
under the terms of this Agreement.
4.10 Interpretation. In case of ambiguity with respect to the
meaning or intent of any provision herein, whether in the course of
arbitration or otherwise, such provision shall be construed in the
manner most favorable to the Executive.
4.11 Guaranty. The Company hereby guarantees the due and
punctual performance in full by the Bank of its covenants, agreements
and obligations contained herein.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
/s/18th day of /s/December, 2000.
BANCORP RHODE ISLAND, INC.
By: /s/Malcolm G. Chace
--------------------------------
Malcolm G. Chace, Chairman
BANK RHODE ISLAND
By: /s/Malcolm G. Chace
--------------------------------
Malcolm G. Chace, Chairman
EXECUTIVE
/s/Merrill W. Sherman
--------------------------------
Merrill W. Sherman
#383466v9
Sherman Employ.
13
EXHIBIT 10.1
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>3
<FILENAME>bri-x102.txt
<DESCRIPTION>EMPLOYMENT AGREEMENT WITH ALBERT R. RIETHEIMER
<TEXT>
EXHIBIT 10.2
EXECUTIVE EMPLOYMENT AGREEMENT
------------------------------
THIS EMPLOYMENT AGREEMENT (the "Agreement") is between Bank Rhode
Island, a financial institution organized under the laws of the State of
Rhode Island with its executive offices located at One Turks Head Place,
Providence, Rhode Island 02903 (the "Bank"), Bancorp Rhode Island, Inc., a
corporation organized under the laws of the State of Rhode Island (the
"Company"), and Albert R. Rietheimer of 6 Hope Court, Barrington, Rhode
Island 02806 (the "Executive").
IT IS MUTUALLY AGREED by the parties as follows:
1. Employment; Duties.
1.1 Responsibilities and Authority. (a) The Bank hereby
employs Executive to serve as Chief Financial Officer and Treasurer
of the Bank, and Executive hereby accepts such employment. Executive
shall have the duties, responsibilities, authorities and powers
normally incident to such offices. At all times, however,
Executive's activities and authority with respect to such offices
will be subject to supervision, control and direction by the Board of
Directors of the Bank (the "Board"), by the Executive Committee of
the Board, and by the President and Chief Executive Officer of the
Bank (the "Chief Executive Officer") and Executive agrees to carry
out such duties and responsibilities as any of them may from time to
time reasonably assign to him. Executive shall report from time to
time or routinely, upon request, to the Chief Executive Officer or
her designee as to the current status of any of Executive's assigned
duties and responsibilities.
(b) The Company hereby employs Executive to serve as
Chief Financial Officer and Treasurer of the Company and such
other offices and positions as the Company may determine, and
Executive hereby accepts such employment. Executive shall have
the duties, responsibilities, authorities and powers normally
incident to such offices. At all times, however, Executive's
activities and authority with respect to such offices will be
subject to supervision, control and direction by the Board of
Directors of the Company (the "Company Board") or by the
Executive Committee of the Company Board, and Executive hereby
agrees to carry out such duties and responsibilities as either
of them may from time to time reasonably assign to Executive.
Executive shall report from time to time or routinely, upon
request, to the Company Board as to the current status of any
of Executive's assigned duties and responsibilities.
1.2 Compensation. The Bank shall pay Executive a base salary
at the rate of (i) One Hundred Thirty-Seven Thousand Five Hundred
Fifty Dollars ($137,550) per year, commencing as of the date hereof
and continuing through December 31, 2000, and (ii) One Hundred Forty-
Five Thousand Nine Hundred Dollars ($145,900) per year, commencing on
January 1, 2001 and thereafter, payable on a bi-weekly basis, or at
such higher rate as shall be determined from time to time by the
Board. In addition, Executive shall be entitled to receive payments
under any incentive compensation or bonus program (as in effect from
time to time), which the Bank may establish for its employees and/or
senior executives, in such amounts as are provided by such programs.
1.3 Employee Benefits. As a full-time employee of the Bank,
Executive shall be eligible to participate in any and all employee
benefit plans generally available to full-time employees of the Bank,
including non-contributory plans and, at Executive's option,
contributory plans.
1.4 Grant of Stock Options. Executive shall receive stock
options to purchase shares of the Company's common stock in such
number, at an exercise price and on such other terms as may be
approved by the Compensation Committee of the Company Board, in its
sole discretion. Any such options will become exercisable on a
schedule no less favorable than the following: 20% on the grant date
and an additional 20% on each of the first through fourth
anniversaries of the grant date, with such vesting to accelerate on a
Change in Control (as defined in Section 3.2).
1.5 Vacation. Executive shall be entitled to four weeks of
vacation during each year of employment, such vacation to be taken in
accordance with the Bank's customary vacation policies and at such
times and intervals as are mutually agreed upon by Executive and the
Bank. Executive shall be entitled to holiday time and sick leave in
accordance with the then existing policies of the Bank, as in effect
from time to time.
1.6 Reimbursement of Expenses.
(a) Executive shall be reimbursed by the Company for
reasonable business expenses incurred by him incident to his
employment by the Company upon presentation of appropriate
vouchers, receipts, and other supporting documents required by
the Company.
(b) Executive shall be reimbursed by the Bank for
reasonable business expenses incurred by him incident to his
employment upon presentation of appropriate vouchers, receipts,
and other supporting documents required by the Bank.
1.7 Duty to Perform Services. So long as Executive is
employed by the Company and the Bank, Executive agrees to devote his
full business and productive time, skill, and energy diligently,
loyally, effectively, and to the best of his ability to the rendering
of service to the Company and Bank, and will exert his best efforts
in the rendering of such services. This provision will not prohibit
Executive from:
(a) making passive investments or serving as a
fiduciary with respect to direct family investments;
(b) serving on the board of directors of any company,
provided that Executive shall not render any material services
with respect to the operations or affairs of any such company
and provided further that serving on such board of directors
does not otherwise violate the terms of this Agreement,
including, but not limited to, the provisions of Section 4.2
herein; or
(c) engaging in religious, charitable or other
community or non-profit activities which do not impair
Executive's ability to fulfill his duties and responsibilities
to the Company and Bank.
Executive agrees that in the rendering of all services to the Company
and the Bank and in all aspects of his employment, in connection with
his duties as Chief Financial Officer, he will comply with all
directives, policies, standards, and regulations from time to time
established by the Company or the Bank or by applicable law.
1.8 Death or Disability.
(a) Death. In the event of Executive's death during
the term of his employment under this Agreement, the Bank shall
immediately pay to Executive's designated beneficiary any
salary accrued but unpaid as of the date of death. Upon
payment of the aforementioned sums, the Bank's obligations to
make further salary payments shall terminate. This provision
shall not be construed to negate any rights Executive may have
to death benefits under any employee benefit or welfare plan of
the Company or Bank in which he may from time to time be a
participant or under any other written agreement with the
Company or Bank which specifically provides for such benefits.
(b) Disability. In the event of Executive's
"disability" (as defined below) during the term of his
employment under this Agreement, the Bank shall continue to pay
Executive his base salary (reduced by any benefits he is
entitled to receive under any state or federal disability
insurance program, such as Rhode Island temporary disability
insurance or federal social security) for a period of six
months from the date of "disability". For purposes of this
Agreement, "disability" shall mean a good faith determination
by the Board that Executive is unable for any reason, either
physical or mental, to perform the duties required of him
hereunder.
1.9 Term of Employment. The term of Executive's employment
under this Agreement shall commence on the date hereof and shall
continue, unless sooner terminated pursuant to the provisions of this
Agreement, for a period of two years (the "Term"), which Term shall
automatically renew on each successive one year anniversary hereafter
commencing with the first anniversary hereof unless any party shall
have given written notice to the other parties of such party's
election not to extend the Term within ninety (90) calendar days
prior to any anniversary date.
1.10 Termination. This Agreement and the rights of the
parties hereunder will terminate (subject to the provisions of
Section 1.11 below) upon the occurrence of one of the following:
(a) Upon the Executive's death or disability as
provided in Section 1.8 above;
(b) For Cause as provided in Section 3.5, immediately
upon the giving of notice by the Company or the Bank or at such
later time as such notice may specify or as may be required by
Section 3.5;
(c) At the election of the Executive for Good Reason
(as hereinafter defined) as provided in Section 2.2; or
(d) Upon expiration of the Term, following notice of
any party not to renew the Term as provided in Section 1.9.
1.11 Termination and Survival. The provisions of Section 1.8,
Sections 2 and 3 and Sections 4.1, 4.2, 4.4, 4.6, 4.8, 4.9 and 4.10
hereof shall remain in full force and effect and shall continue to be
enforceable in accordance with their terms beyond termination of
employment and beyond expiration of this Agreement, except as
otherwise agreed in writing by Executive and the Company and the
Bank.
2. Severance.
2.1 Severance Benefit. In the event of a termination of
Executive's employment by the Company or the Bank without Cause (as
such term is defined in Section 3.5) at any time, or in the event of
termination of Executive's employment by him for Good Reason (as
defined in Section 2.2), the Bank will (a) continue to pay Executive
his base salary (the "Severance Benefit") then in effect for an
eighteen (18) month period commencing on the date of termination (the
"Severance Period") and (b) provide Executive with the medical and
life insurance coverage generally available to full-time employees
during the Severance Period or as required by law, whichever is
longer. The Bank shall also provide Executive with outplacement
assistance at no charge. Notwithstanding anything herein to the
contrary, the Bank shall have no obligation to pay the Severance
Benefit to Executive in the event his employment is terminated with
Cause by the Company or the Bank or voluntarily by him without Good
Reason. Any Severance Benefit paid under this Section 2.1 shall be
credited against any amounts due Executive under Section 3 as a
result of a Change in Control.
2.2 "Good Reason" Defined. For purposes of this Agreement
"Good Reason" shall mean the Company or the Bank giving written
notice of its election not to renew this Agreement on any anniversary
date as permitted under Section 1.9 and its failure to offer and
enter into a new employment agreement with Executive on terms which
are substantially similar to those of his employment existing
immediately prior to such notice of non-renewal (other than a
reduction of fringe benefits required by law or applicable to all
employees generally) provided, however, that Good Reason shall not be
deemed to have occurred unless prior to Executive's termination of
employment for Good Reason, he shall give not less than 30 days
written notice to the Company and the Bank of his intent to terminate
for Good Reason stating the basis of the Good Reason sufficient to
permit the Company and the Bank to alleviate the basis of such Good
Reason prior to termination, and the Company and the Bank have not
done so within such 30 day period, and further provided, that
Executive's continuing to work following notice of non-renewal by the
Company or the Bank and in the absence of entering into a new
employment agreement shall be without prejudice to his right to
claim termination for Good Reason, absent written agreement between
Executive and the Bank or the Company to the contrary.
3. Change in Control.
3.1 Purpose. In order to allow Executive to consider the
prospect of a Change in Control (as defined in Section 3.2) in an
objective manner and in consideration of the services rendered and to
be rendered by him to the Company and the Bank, the Bank is willing
to provide, subject to the terms of this Agreement, certain severance
benefits to protect Executive from the consequences of a Terminating
Event (as defined in Section 3.4) occurring subsequent to a Change in
Control.
3.2 Change in Control. A "Change in Control" will be deemed
to have occurred if: (i) a Takeover Transaction is effectuated; or
(ii) the Company commences substantive negotiations with a third
party with respect to a Takeover Transaction if within twelve (12)
months of the commencement of such negotiations, enters into a
definitive agreement with respect to a Takeover Transaction with any
party with which negotiations were originally commenced; or (iii) any
election of directors of the Company occurs (whether by the directors
then in office or by the shareholders at a meeting or by written
consent) where a majority of the directors in office following such
election are individuals who were not nominated by a vote of two-
thirds of the members of the board of directors immediately preceding
such election; or (iv) the Company or the Bank effectuates a complete
liquidation.
3.3 Takeover Transaction. A "Takeover Transaction" shall
mean:
(a) The acquisition of voting securities of the Company
by any individual, entity or group (within the meaning of
Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")), other than by the
Company or its subsidiaries or any employee benefit plan (or
related trust) of the Company or its subsidiaries, which
theretofore did not beneficially own (within the meaning of
Rule 13d-3 promulgated under the Exchange Act), securities
representing 30% or more of the voting power of all outstanding
shares of voting securities of the Company, if such acquisition
results in such individual, entity or group owning securities
representing more than 30% of the voting power of all
outstanding voting securities of the Company; provided, that
any acquisition by a corporation with respect to which,
following such acquisition, more than 50% of the then
outstanding shares of voting securities of such corporation, is
then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the
beneficial owners of the voting securities of the Company
outstanding immediately prior to such acquisition in
substantially the same proportion as their ownership,
immediately prior to such acquisition, of the outstanding
voting securities of the Company, shall not constitute a Change
in Control; or
(b) The issuance of additional shares of common stock
of the Company or the Bank, as applicable, in a single
transaction or a series of related transactions if the
individuals and entities who were the beneficial owners of the
outstanding voting securities of the Company or the Bank, as
applicable, immediately prior to such issuance do not,
following such issuance, beneficially own, directly or
indirectly, securities representing more than 50% of the voting
power of all then outstanding voting securities of the Company
or the Bank, as applicable; or
(c) Consummation by the Company or the Bank of (i) a
reorganization, merger or consolidation, in each case, with
respect to which all or substantially all of the individuals
and entities who were the beneficial owners of the voting
securities of such entity immediately prior to such
reorganization, merger or consolidation do not, following such
reorganization, merger or consolidation, beneficially own,
directly or indirectly, securities representing more than 50%
of the voting power of the outstanding voting securities of the
corporation resulting from such a reorganization, merger or
consolidation, or (ii) the sale, exchange or other disposition
(in one transaction or a series of related transactions) of all
or substantially all of the assets of the Company (on a
consolidated basis) or the Bank to a party which is not
controlled by or under common control with such entity, or
(iii) the sale by the Company on one transaction or in a series
of related transactions of voting securities of the Bank such
that following such transaction or transactions the Company no
longer beneficially owns, directly or indirectly, securities
representing more than 50% of the voting power of the then
outstanding voting securities of the Bank.
For purposes of this Section 3.3, "voting power" means ordinary
voting power for the election of directors.
3.4 Terminating Event. A "Terminating Event" means either:
(a) Termination by the Company or the Bank of
Executive's employment with the Company or the Bank for any
reason other than (i) Executive's death or disability or (ii)
for "Cause" (as such term is defined in Section 3.5 hereof),
or;
(b) Executive's resignation as an employee of the
Company or the Bank, other than for reasons of disability,
following (i) a significant reduction in the nature or scope of
Executive's duties, responsibilities, authority and powers from
the duties, responsibilities, authority and powers exercised by
him immediately prior to the Change in Control or (ii) a
greater than 10% reduction in Executive's annual base salary or
fringe benefits as in effect on the date of the Change in
Control; or (iii) any requirement by the Company or the Bank or
of any Person (as defined in Section 4.2 hereof) in control of
the Bank that the location at which Executive performs the
principal duties of the Company or the Bank be outside a radius
of 50 miles from the location at which he performed such duties
immediately prior to the Change in Control; or (iv) the failure
of any successor of the Company or the Bank to agree in writing
upon terms and conditions of employment with Executive which
are substantially similar to those of his employment
immediately prior to a Change in Control and which are
reasonably satisfactory to Executive within ninety (90) days
following a Change in Control.
3.5 Termination for "Cause" Defined. For purposes of this
Agreement, termination for Cause shall include termination by reason
of any of the following:
(a) Continuing any arrangement, holding any position or
engaging in any activities that conflict with the interest of,
or that interfere with Executive's duties owed to, the Company
or Bank, after ten (10) days prior written notice by the
Company or the Bank, as applicable, to him of the same;
(b) Conviction of embezzlement or other crimes against
the Company or the Bank, deliberate misappropriation of the
Company's or Bank's funds or dishonesty;
(c) Material violation of written policies of the
Company or the Bank, irresponsible acts in the performance of
Executive's duties or material breach of any of his obligations
under the terms of this Agreement;
(d) Material non-performance of Executive's duties or
material acts (or omissions) of mismanagement; and
(e) Refusal to perform assigned duties when such
refusal is not justified or excused either by the terms of this
Agreement or by actions taken by the Company or the Bank in
violation of this Agreement.
3.6 Payment in Connection With Terminating Event. If a
Terminating Event occurs within one (1) year after a Change in
Control (which one year period shall be calculated from the effective
date of the Takeover Transaction if the Terminating Event occurs
after a Takeover Transaction), the Bank will pay to Executive an
amount (the "Severance Payment") equal to two times the sum of (a)
Executive's annual base salary in effect at the time of the Change in
Control, and (b) an amount equal to the largest annual cash bonus
paid to Executive with respect to the two full fiscal years
immediately preceding the Change in Control, which Severance Payment
shall be payable in one lump sum within 30 days of the date of
termination of Executive's employment, or if such Change in Control
is governed by clause (ii) of Section 3.2 and the Terminating Event
occurs prior to entering into a definitive agreement, upon the
entering into of a definitive agreement by the Company. In addition,
the Bank shall continue to pay for all medical and life insurance
coverage provided on the date of the Terminating Event for the
twenty-four month period commencing on the effective date of the
Terminating Event. No Severance Payment will be made to Executive
under Section 3 if his employment with the Bank terminates for any
reason prior to a Change in Control (except as may be provided
below), or if his employment with the Company terminates after a
Change in Control but such termination or resignation is not a
Terminating Event. In addition, except as provided in Section 2, no
Severance Payment will be made to Executive under Section 3.6 of this
Agreement with respect to a Terminating Event which occurs more than
one year after a Change in Control (which one year period shall be
calculated from the effective date of the Takeover Transaction if the
Terminating Event occurs after a Takeover Transaction).
3.7 Applicability of Change in Control Provisions. The
provisions of Section 3 shall terminate upon the earliest of (i) the
termination by the Company or the Bank of Executive's employment for
any reason prior to a Change in Control, (ii) the termination of
Executive's employment by the Company or the Bank after a Change in
Control because of death or disability or for Cause, (iii)
Executive's resignation or termination of employment with the Company
or the Bank for any reason other than Good Reason prior to a Change
in Control, and (iv) Executive's resignation or termination of
employment after a Change in Control on or after the first
anniversary of the Takeover Transaction or events specified in
Sections 3.2(iii) or (iv).
3.8 Excise Tax Equalization Payment. In the event that
Executive becomes entitled to a Severance Payment or any other
payment or benefit under this Agreement, or under any other agreement
with or plan of the Company (in the aggregate, the "Total Payments"),
if any of the Total Payments will be subject to the tax (the "Excise
Tax") imposed by Section 4999 of the Code (or any similar tax that
may hereafter be imposed), then the Bank shall pay to Executive in
cash an additional amount (the "Gross-Up Payment") such that the net
amount retained by him after deduction of any Excise Tax upon the
Total Payments and any Federal, state and local income tax and Excise
Tax upon the Gross-Up Payment provided for by this Section 3.8
(including FICA and FUTA), shall be equal to the Total Payments.
Such payment shall be made by the Bank to Executive as soon as
practical following the effective date of the Terminating Event, but
in no event beyond thirty (30) days from such date.
3.9 Tax Computation. For purposes of determining whether any
of the Total Payments will be subject to the Excise Tax and the
amounts of such Excise Tax:
(a) Any other payments or benefits received or to be
received by Executive in connection with a Change in Control or
Executive's termination of employment (whether pursuant to the
terms of this Agreement or any other plan, arrangement, or
agreement with the Company or the Bank, or with any person
(which shall have the meaning set forth in Section 3(a)(9) of
the Exchange Act, including a "group" as defined in Section
13(d) therein) whose actions result in a Change in Control or
any person affiliated with the Company or such persons) shall
be treated as "parachute payments" within the meaning of
Section 280G(b)(1) of the Code, and all "excess parachute
payments" within the meaning of Section 280G(b)(1) shall be
treated as subject to the Excise Tax, unless in the opinion of
tax counsel as supported by the Company's independent auditors
and acceptable to Executive, such other payments or benefits
(in whole or in part) do not constitute parachute payments, or
unless such excess parachute payments (in whole or in part)
represent reasonable compensation for services actually
rendered within the meaning of Section 280G(b)(4) of the Code
in excess of the base amount within the meaning of Section 280G
(b)(3) of the Code, or are otherwise not subject to the Excise
Tax;
(b) The amount of the Total Payments which shall be
treated as subject to the Excise Tax shall be equal to the
lesser of: (i) the total amount of the Total Payments; (or
(ii) the amount of excess parachute payments within the meaning
of Section 280G(b)(1) (after applying clause (a) above); and
(c) The value of any noncash benefits or any deferred
payment or benefit shall be determined by the Company's
independent auditors in accordance with the principles of
Sections 280G(d)(3) and (4) of the Code.
For purposes of determining the amount of the Gross-Up Payment,
Executive shall be deemed to pay Federal income taxes at the highest
marginal rate of Federal income taxation in the calendar year in which the
Gross-Up Payment is to be made, and state and local income taxes at the
highest marginal rate of taxation in the state and locality of his
residence on the effective date of the Terminating Event, net of the
maximum reduction in Federal income taxes which could be obtained from
deduction of such state and local taxes.
3.10 Subsequent Recalculation. In the event the Internal
Revenue Service adjusts the computation of the Bank under Section 3.9
herein so that Executive did not receive the greatest net benefit,
the Bank shall reimburse him for the full amount necessary to make
him whole, plus a market rate of interest, as determined by the
Compensation Committee of the Board.
3.11 Dispute Resolution. If any dispute between the Bank and
Executive as to any of the amounts to be determined under Sections
3.8 or 3.9, or the method of calculating such amounts, cannot be
resolved by Executive and the Bank, either the Bank or Executive
after giving three (3) days written notice to the other, may refer
the dispute to a partner in the Boston, Massachusetts office of a
firm of independent certified public accountants selected jointly by
Executive and the Bank. The determination of such partner as to the
amount to be determined under Section 3.8 and 3.9 and the method of
calculating such amounts shall be final and binding on both Executive
and the Bank and the Company. The Bank shall bear the costs of any
such determination. The Company shall have the same rights and
obligations as the Bank under this Section 3.11 in the event of a
dispute between the Company and Executive.
4. Miscellaneous.
4.1 Confidential Information. Unless Executive first secures
the Company's consent, he shall not disclose or use, at any time
either during or subsequent to his employment by the Company or the
Bank, except as required by his duties to the Company or Bank, any
secret or confidential information of the Company or the Bank of
which Executive becomes informed during his employment, whether or
not developed by him. The term "confidential information" includes,
without limitation, financial information, business plans, prospects,
and opportunities (such as lending relationships, financial product
developments, or possible acquisitions or dispositions of business or
facilities) which have been discussed or considered by the Company's
or Bank's management, but does not include any information which has
become part of the public domain by means other than Executive's non
-observance of his obligations hereunder.
4.2 Non-Competition. During Executive's employment by the
Company and the Bank hereunder, and during a period of one (1) year
following the date of termination of his employment with the Company
or the Bank for any reason, Executive will not, directly or
indirectly, whether as partner, consultant, agent, employee, co-
venturer, greater than 2% owner, or otherwise, or through any Person
(as hereafter defined),
(a) attempt to recruit any employee of the Company or
Bank, assist in such hiring by any other Person, or encourage
any such employee to terminate his or her relationship with the
Company or Bank, or
(b) encourage any customer of the Company or Bank to
conduct with any other Person any business or activity which
such customer conducts or could conduct with the Company or
Bank.
For purposes of this Section 4.2, the term "Person" shall mean an
individual, a corporation, an association, a partnership, an estate,
a trust and any other entity or organization.
4.3 No Conflicting Obligations. The Company and the Bank, in
entering into this Agreement, understand, and Executive hereby
represents, that he is not under any obligation to any former
employer or any person, firm or corporation that would prevent, limit
or impair, in any way, the performance by Executive of his duties as
an employee of the Company or the Bank.
4.4 Ethical Behavior. Upon termination by the Company or the
Bank of Executive's employment for any reason, Executive shall act at
all times in an ethical manner with regard to the Bank and the
Company, and during the one-year period following the date of such
termination, shall take no action which directly or indirectly could
reasonably be expected to have the effect of terminating or otherwise
adversely affecting the relationship of the Company or the Bank with
any employee of, or others with business or advantageous
relationships with, the Company or any of its affiliates, including
the Bank.
4.5 Withholding. All payments made by the Company or the
Bank under this Agreement will be net of any tax or other amounts
required to be withheld by the Company or the Bank under applicable
law.
4.6 Legal Fees. Upon submission of appropriate statements or
documentation, the Company and the Bank jointly and severally agree
to reimburse Executive for reasonable legal fees actually incurred by
him in connection with the enforcement of the terms of this Agreement
following a Change in Control, provided, however, that neither the
Company nor the Bank shall be obligated to reimburse Executive for
any legal fees or expenses incurred by him in connection with the
Company's or the Bank's enforcement of the terms of this Agreement or
in connection with any arbitration or litigation in which the Company
or the Bank is the prevailing party.
4.7 Binding Effect. This Agreement is binding upon and will
inure to the benefit of the parties hereto and their respective
heirs, administrators, executors, successors and assigns. The
Company and the Bank will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company or the
Bank, as the case may be, to assume expressly and perform this
Agreement. Failure of the Company or the Bank, as applicable, to
obtain such assumption and agreement prior to the effectiveness of
any such succession shall be a breach of this Agreement and shall
entitle Executive to compensation from the Bank in the same amount
and on the same terms as he would be entitled to hereunder following
a Terminating Event, except that for purposes of implementing the
foregoing, the date on which any such succession becomes effective
shall be deemed the date on which Executive becomes entitled to such
compensation from the Bank. As used in this Agreement, "Bank" shall
mean the Bank, as hereinbefore defined and any successor to its
business and/or assets as aforesaid which assumes and agrees to
perform this Agreement by operation of law, or otherwise.
4.8 Arbitration of Disputes. Any dispute, controversy or
claim arising out of or relating to this Agreement or the breach or
performance hereof will be settled by arbitration in accordance with
the laws of the State of Rhode Island by an arbitrator mutually
agreed upon by Executive and the Company and/or the Bank. If an
arbitrator cannot be agreed upon, Executive shall choose an
arbitrator and the Company and/or the Bank shall choose an
arbitrator, and these two together shall select a third arbitrator.
If the first two arbitrators cannot agree on the appointment of a
third arbitrator, then the third arbitrator will be appointed by the
American Arbitration Association in Providence, Rhode Island. Such
arbitration will be conducted in the City of Providence in accordance
with the Commercial Arbitration Rules of the American Arbitration
Association, except with respect to the selection of arbitrators
which shall be as provided in this Section 4.8. Judgment upon the
award rendered by the arbitrators may be entered in any court having
jurisdiction thereof.
4.9 Indemnification. The Company and the Bank each hereby
covenants and agrees to indemnify Executive and hold him harmless
fully, completely, and absolutely against and in respect to any and
all actions, suits, proceedings, claims, demands, judgments, costs,
expenses (including attorney's fees), losses, and damages resulting
from his good faith performance of his duties and obligations under
the terms of this Agreement.
4.10 Guaranty. The Company hereby guarantees the due and
punctual performance in full by the Bank of its covenants, agreements
and obligations contained herein.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
/s/18th day of /s/December, 2000.
BANCORP RHODE ISLAND, INC.
By: /s/Merrill W. Sherman
--------------------------------
Merrill W. Sherman
BANK RHODE ISLAND
By: /s/Merrill W. Sherman
--------------------------------
Merrill W. Sherman
President and Chief Executive
Officer
EXECUTIVE
/s/Albert R. Rietheimer
--------------------------------
Albert R. Rietheimer
#384040v6
Rietheimer Employ.
1
EXHIBIT 10.2
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>4
<FILENAME>bri-x103.txt
<DESCRIPTION>EMPLOYMENT AGREEMENT WITH DONALD C. MCQUEEN
<TEXT>
EXHIBIT 10.3
EXECUTIVE EMPLOYMENT AGREEMENT
------------------------------
THIS EMPLOYMENT AGREEMENT (the "Agreement") is between Bank Rhode
Island, a financial institution organized under the laws of the State of
Rhode Island with its executive offices located at One Turks Head Place,
Providence, Rhode Island 02903 (the "Bank"), Bancorp Rhode Island, Inc., a
corporation organized under the laws of the State of Rhode Island (the
"Company"), and Donald C. McQueen of 3 Shady Lane, Barrington, Rhode Island
02806 (the "Executive").
IT IS MUTUALLY AGREED by the parties as follows:
1. Employment; Duties
1.1 Responsibilities and Authority. (a) The Bank hereby
employs Executive to serve as Executive Vice President and Chief
Lending Officer of the Bank, and Executive hereby accepts such
employment. Executive shall have the duties, responsibilities,
authorities and powers normally incident to such office. At all
times, however, Executive's activities and authority with respect to
such offices will be subject to supervision, control and direction by
the Board of Directors of the Bank (the "Board"), by the Executive
Committee of the Board, and by the President and Chief Executive
Officer of the Bank (the "Chief Executive Officer") and Executive
agrees to carry out such duties and responsibilities as any of them
may from time to time reasonably assign to him. Executive shall
report from time to time or routinely, upon request, to the Chief
Executive Officer or her designee as to the current status of any of
Executive's assigned duties and responsibilities.
(b) The Company hereby employs Executive to serve as
Vice President of the Company and such other offices and
positions as the Company may determine, and Executive hereby
accepts such employment. Executive shall have the duties,
responsibilities, authorities and powers normally incident to
such offices. At all times, however, Executive's activities
and authority with respect to such offices will be subject to
supervision, control and direction by the Board of Directors of
the Company (the "Company Board") or by the Executive Committee
of the Company Board, and Executive hereby agrees to carry out
such duties and responsibilities as either of them may from
time to time reasonably assign to Executive. Executive shall
report from time to time or routinely, upon request, to the
Company Board as to the current status of any of Executive's
assigned duties and responsibilities.
1.2 Compensation. The Bank shall pay Executive a base salary
at the rate of (i) One Hundred Thirty-Four Thousand Three Hundred
Dollars ($134,300) per year, commencing on the date hereof and
continuing through December 31, 2000, and (ii) One Hundred Forty-Two
Thousand Three Hundred Dollars ($142,300) per year, commencing on
January 1, 2001 and thereafter, payable on a bi-weekly basis, or at
such higher rate as shall be determined from time to time by the
Board. In addition, Executive shall be entitled to receive payments
under any incentive compensation or bonus program (as in effect from
time to time), which the Bank may establish for its employees and/or
senior executives, in such amounts as are provided by such programs.
1.3 Employee Benefits. As a full-time employee of the Bank,
Executive shall be eligible to participate in any and all employee
benefit plans generally available to full-time employees of the Bank,
including non-contributory plans and, at Executive's option,
contributory plans.
1.4 Certain Specified Employee Benefits.
(a) Grant of Stock Options. Executive shall receive
stock options to purchase shares of the Company's common stock
in such number, at an exercise price and on such other terms as
may be approved by the Compensation Committee of the Company
Board, in its sole discretion. Any such options will become
exercisable on a schedule no less favorable than the following:
20% on the grant date and an additional 20% on each of the
first through fourth anniversaries of the grant date, with such
vesting to accelerate on a Change in Control (as defined in
Section 3.2).
(b) Car Allowance. Executive shall be entitled to
receive a monthly car allowance in the amount of $600 per
month.
1.5 Vacation. Executive shall be entitled to four weeks of
vacation during each year of employment, such vacation to be taken in
accordance with the Bank's customary vacation policies and at such
times and intervals as are mutually agreed upon by Executive and the
Bank. Executive shall be entitled to holiday time and sick leave in
accordance with the then existing policies of the Bank, as in effect
from time to time.
1.6 Reimbursement of Expenses. (a) Executive shall be
reimbursed by the Bank for reasonable business expenses incurred by
him incident to his employment upon presentation of appropriate
vouchers, receipts, and other supporting documents required by the
Bank.
(b) Executive shall be reimbursed by the Company for
reasonable business expenses incurred by him incident to his
employment by the Company upon presentation of appropriate
vouchers, receipts, and other supporting documents required by
the Company.
1.7 Duty to Perform Services. So long as Executive is
employed by the Company and the Bank, Executive agrees to devote his
full business and productive time, skill, and energy diligently,
loyally, effectively, and to the best of his ability to the rendering
of service to the Company and the Bank, and will exert his best
efforts in the rendering of such services. This provision will not
prohibit Executive from:
(a) making passive investments or serving as a
fiduciary with respect to direct family investments;
(b) serving on the board of directors of any company,
provided that Executive shall not render any material services
with respect to the operations or affairs of any such company
and provided further that serving on such board of directors
does not otherwise violate the terms of this Agreement,
including, but not limited to, the provisions of Section 4.2
herein; or
(c) engaging in religious, charitable or other
community or non-profit activities which do not impair
Executive's ability to fulfill his duties and responsibilities
to the Company and Bank.
Executive agrees that in the rendering of all services to the Company
and the Bank and in all aspects of his employment, in connection with
his duties as Executive Vice President and Chief Lending Officer, he
will comply with all directives, policies, standards, and regulations
from time to time established by the Company or the Bank or by
applicable law.
1.8 Death or Disability.
(a) Death. In the event of Executive's death during
the term of his employment under this Agreement, the Bank shall
immediately pay to Executive's designated beneficiary any
salary accrued but unpaid as of the date of death. Upon
payment of the aforementioned sums, the Bank's obligations to
make further salary payments shall terminate. This provision
shall not be construed to negate any rights Executive may have
to death benefits under any employee benefit or welfare plan of
the Company or Bank in which he may from time to time be a
participant or under any other written agreement with the
Company or Bank which specifically provides for such benefits.
(b) Disability. In the event of Executive's
"disability" (as defined below) during the term of his
employment under this Agreement, the Bank shall continue to pay
Executive his base salary (reduced by any benefits Executive is
entitled to receive under any state or federal disability
insurance program, such as Rhode Island temporary disability
insurance or federal social security) for a period of six
months from the date of "disability". For purposes of this
Agreement, "disability" shall mean a good faith determination
by the Board that Executive is unable for any reason, either
physical or mental, to perform the duties required of him
hereunder.
1.9 Term of Employment. The term of Executive's employment
under this Agreement shall commence on the date hereof and shall
continue, unless sooner terminated pursuant to the provisions of this
Agreement, for a period of two years (the "Term"), which Term shall
automatically renew on each successive one year anniversary hereafter
commencing with the first anniversary hereof unless any party shall
have given written notice to the other parties of such party's
election not to extend the Term within ninety (90) calendar days
prior to any anniversary date.
1.10 Termination. This Agreement and the rights of the
parties hereunder will terminate (subject to the provisions of
Section 1.11 below) upon the occurrence of one of the following:
(a) Upon the Executive's death or disability as
provided in Section 1.8 above;
(b) For Cause as provided in Section 3.5, immediately
upon the giving of notice by the Company or the Bank or at such
later time as such notice may specify or as may be required by
Section 3.5;
(c) At the election of the Executive for Good Reason
(as hereinafter defined) as provided in Section 2.2; or
(d) Upon expiration of the Term, following notice by
any party not to renew the Term as provided in Section 1.9.
1.11 Termination and Survival. The provisions of Section 1.8,
Sections 2 and 3 and Sections 4.1, 4.2, 4.4, 4.6, 4.8, 4.9 and 4.10
hereof shall remain in full force and effect and shall continue to be
enforceable in accordance with their terms beyond termination of
employment and beyond expiration of this Agreement, except as
otherwise agreed in writing by Executive and the Company and the
Bank.
2. Severance.
2.1 Severance Benefit. In the event of a termination of
Executive's employment by the Company or the Bank without Cause (as
such term is defined in Section 3.5) at any time, or in the event of
termination of Executive's employment by him for Good Reason (as
defined in Section 2.2), the Bank will (a) continue to pay Executive
his base salary (the "Severance Benefit") then in effect for an
eighteen (18) month period commencing on the date of termination (the
"Severance Period"), and (b) provide Executive with the medical and
life insurance coverage generally available to full-time employees
during the Severance Period or as required by law, whichever is
longer. The Bank shall also provide Executive with outplacement
assistance at no charge. Notwithstanding anything herein to the
contrary, the Bank shall have no obligation to pay the Severance
Benefit to Executive in the event his employment is terminated with
Cause by the Company or the Bank or voluntarily by him without Good
Reason. Any Severance Benefit paid under this Section 2.1 shall be
credited against any amounts due Executive under Section 3 as a
result of a Change in Control. In the event that during the first
twelve (12) months of the Severance Period Executive accepts a
position as a senior lending officer with a commercial lending
institution located in the greater Providence area, effective as of
the effective date of such employment, the Executive shall not be
entitled to any further Severance Benefit.
2.2 "Good Reason" Defined. For purposes of this Agreement
"Good Reason" shall mean the Company or the Bank giving written
notice of its election not to renew this Agreement on any anniversary
date as permitted under Section 1.9 and its failure to offer and
enter into a new employment agreement with Executive on terms which
are substantially similar to those of his employment existing
immediately prior to such notice of non-renewal (other than a
reduction of fringe benefits required by law or applicable to all
employees generally) provided, however, that Good Reason shall not be
deemed to have occurred unless prior to Executive's termination of
employment for Good Reason, he shall give not less than 30 days
written notice to the Company and the Bank of his intent to terminate
for Good Reason stating the basis of the Good Reason sufficient to
permit the Company and the Bank to alleviate the basis of such Good
Reason prior to termination, and the Company and the Bank have not
done so within such 30 day period, and further provided, that
Executive's continuing to work following notice of non-renewal by the
Company or the Bank and in the absence of entering into a new
employment agreement shall be without prejudice to his right to
claim termination for Good Reason, absent written agreement between
Executive and the Bank or the Company to the contrary.
3. Change in Control.
3.1 Purpose. In order to allow Executive to consider the
prospect of a Change in Control (as defined in Section 3.2) in an
objective manner and in consideration of the services rendered and to
be rendered by him to the Company and the Bank, the Bank is willing
to provide, subject to the terms of this Agreement, certain severance
benefits to protect Executive from the consequences of a Terminating
Event (as defined in Section 3.4) occurring subsequent to a Change in
Control.
3.2 Change in Control. A "Change in Control" will be deemed
to have occurred if: (i) a Takeover Transaction is effectuated; or
(ii) the Company commences substantive negotiations with a third
party with respect to a Takeover Transaction if within twelve (12)
months of the commencement of such negotiations, enters into a
definitive agreement with respect to a Takeover Transaction with any
party with which negotiations were originally commenced; or (iii) any
election of directors of the Company occurs (whether by the directors
then in office or by the shareholders at a meeting or by written
consent) where a majority of the directors in office following such
election are individuals who were not nominated by a vote of two-
thirds of the members of the board of directors immediately preceding
such election; or (iv) the Company or the Bank effectuates a complete
liquidation.
3.3 Takeover Transaction. A "Takeover Transaction" shall
mean:
(a) The acquisition of voting securities of the Company
by any individual, entity or group (within the meaning of
Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")), other than by the
Company or its subsidiaries or any employee benefit plan (or
related trust) of the Company or its subsidiaries, which
theretofore did not beneficially own (within the meaning of
Rule 13d-3 promulgated under the Exchange Act), securities
representing 30% or more of the voting power of all outstanding
shares of voting securities of the Company, if such acquisition
results in such individual, entity or group owning securities
representing more than 30% of the voting power of all
outstanding voting securities of the Company; provided, that
any acquisition by a corporation with respect to which,
following such acquisition, more than 50% of the then
outstanding shares of voting securities of such corporation, is
then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the
beneficial owners of the voting securities of the Company
outstanding immediately prior to such acquisition in
substantially the same proportion as their ownership,
immediately prior to such acquisition, of the outstanding
voting securities of the Company, shall not constitute a Change
in Control; or
(b) The issuance of additional shares of common stock
of the Company or the Bank, as applicable, in a single
transaction or a series of related transactions if the
individuals and entities who were the beneficial owners of the
outstanding voting securities of the Company or the Bank, as
applicable, immediately prior to such issuance do not,
following such issuance, beneficially own, directly or
indirectly, securities representing more than 50% of the voting
power of all then outstanding voting securities of the Company
or the Bank, as applicable; or
(c) Consummation by the Company or the Bank of (i) a
reorganization, merger or consolidation, in each case, with
respect to which all or substantially all of the individuals
and entities who were the beneficial owners of the voting
securities of the Company immediately prior to such
reorganization, merger or consolidation do not, following such
reorganization, merger or consolidation, beneficially own,
directly or indirectly, securities representing more than 50%
of the voting power of the outstanding voting securities of the
corporation resulting from such a reorganization, merger or
consolidation, or (ii) the sale, exchange or other disposition
(in one transaction or a series of related transactions) of all
or substantially all of the assets of the Company (on a
consolidated basis) or the Bank to a party which is not
controlled by or under common control with such entity, or
(iii) the sale by the Company on one transaction or in a series
of related transactions of voting securities of the Bank such
that following such transaction or transactions the Company no
longer beneficially owns, directly or indirectly, securities
representing more than 50% of the voting power of the then
outstanding voting securities of the Bank.
For purposes of this Section 3.3, "voting power" means ordinary
voting power for the election of directors.
3.4 Terminating Event. A "Terminating Event" means either:
(a) Termination by the Company or the Bank of
Executive's employment for any reason other than (i)
Executive's death or disability or (ii) for "Cause" (as such
term is defined in Section 3.5 hereof), or
(b) Executive's resignation as an employee of the
Company or the Bank, other than for reasons of disability,
following (i) a significant reduction in the nature or scope of
Executive's duties, responsibilities, authority and powers from
the duties, responsibilities, authority and powers exercised by
him immediately prior to the Change in Control or (ii) a
greater than 10% reduction in Executive's annual base salary or
fringe benefits as in effect on the date of the Change in
Control; or (iii) any requirement by the Company or the Bank or
of any Person (as defined in Section 4.2 hereof) in control of
the Company or the Bank that the location at which Executive
performs the principal duties of the Bank or the Company be
outside a radius of 50 miles from the location at which he
performed such duties immediately prior to the Change in
Control; or (iv) the failure of any successor of the Company or
the Bank to agree in writing upon terms and conditions of
employment with Executive pursuant to which he shall serve in a
position no less senior than Chief Lending Officer responsible
for lending operations and whereby he shall report directly to
the chief executive officer of such successor entity and which
are reasonably satisfactory to Executive within ninety (90)
days following a Change in Control.
3.5 Termination for "Cause" Defined. For purposes of this
Agreement, termination for Cause shall include termination by reason
of any of the following:
(a) Continuing any arrangement, holding any position or
engaging in any activities that conflict with the interest of,
or that interfere with Executive's duties owed to, the Company
or Bank, after ten (10) days prior written notice by the
Company or the Bank, as applicable, to him of the same;
(b) Conviction of embezzlement or other crimes against
the Company or the Bank, deliberate misappropriation of the
Company's or Bank's funds or dishonesty;
(c) Material violation of written policies of the
Company or the Bank, irresponsible acts in the performance of
Executive's duties or material breach of any of his obligations
under the terms of this Agreement;
(d) Material non-performance of Executive's duties or
material acts (or omissions) of mismanagement; and
(e) Refusal to perform assigned duties when such
refusal is not justified or excused either by the terms of this
Agreement or by actions taken by the Company or the Bank in
violation of this Agreement.
3.6 Payment in Connection With Terminating Event. If a
Terminating Event occurs within one (1) year after a Change in
Control (which one year period shall be calculated from the effective
date of the Takeover Transaction if the Terminating Event occurs
after a Takeover Transaction), the Bank will pay to Executive an
amount (the "Severance Payment") equal to two times the sum of (a)
Executive's annual base salary in effect at the time of the Change in
Control, and (b) an amount equal to the largest annual cash bonus
paid to Executive with respect to the two full fiscal years
immediately preceding the Change in Control, which Severance Payment
shall be payable in one lump sum within 30 days of the date of
termination of Executive's employment, or if such Change in Control
is governed by clause (ii) of Section 3.2 and the Terminating Event
occurs prior to entering into a definitive agreement, upon the
entering into of a definitive agreement by the Company. In addition,
the Bank shall continue to pay for all medical and life insurance
coverage provided on the date of the Terminating Event for the
twenty-four month period commencing on the effective date of the
Terminating Event. No Severance Payment will be made to Executive
under Section 3 if his employment with the Bank terminates for any
reason prior to a Change in Control (except as may be provided
below), or if his employment with the Company terminates after a
Change in Control but such termination or resignation is not a
Terminating Event. In addition, except as provided in Section 2, no
Severance Payment will be made to Executive under Section 3.6 of this
Agreement with respect to a Terminating Event which occurs more than
one year after a Change in Control (which one year period shall be
calculated from the effective date of the Takeover Transaction if the
Terminating Event occurs after a Takeover Transaction).
3.7 Applicability of Change in Control Provisions. The
provisions of Section 3 shall terminate upon the earliest of (i) the
termination by the Company or the Bank of Executive's employment for
any reason prior to a Change in Control, (ii) the termination of
Executive's employment by the Company or the Bank after a Change in
Control because of death or disability or for Cause, (iii)
Executive's resignation or termination of employment with the Company
or the Bank for any reason other than Good Reason prior to a Change
in Control, and (iv) Executive's resignation or termination of
employment after a Change in Control on or after the first
anniversary of the Takeover Transaction or events specified in
Sections 3.2(iii) or (iv).
3.8 Excise Tax Equalization Payment. In the event that
Executive becomes entitled to a Severance Payment or any other
payment or benefit under this Agreement, or under any other agreement
with or plan of the Company (in the aggregate, the "Total Payments"),
if any of the Total Payments will be subject to the tax (the "Excise
Tax") imposed by Section 4999 of the Code (or any similar tax that
may hereafter be imposed), then the Bank shall pay to Executive in
cash an additional amount (the "Gross-Up Payment") such that the net
amount retained by him after deduction of any Excise Tax upon the
Total Payments and any Federal, state and local income tax and Excise
Tax upon the Gross-Up Payment provided for by this Section 3.8
(including FICA and FUTA), shall be equal to the Total Payments.
Such payment shall be made by the Bank to Executive as soon as
practical following the effective date of the Terminating Event, but
in no event beyond thirty (30) days from such date.
3.9 Tax Computation. For purposes of determining whether any
of the Total Payments will be subject to the Excise Tax and the
amounts of such Excise Tax:
(a) Any other payments or benefits received or to be
received by Executive in connection with a Change in Control or
Executive's termination of employment (whether pursuant to the
terms of this Agreement or any other plan, arrangement, or
agreement with the Company or the Bank, or with any person
(which shall have the meaning set forth in Section 3(a)(9) of
the Exchange Act, including a "group" as defined in Section
13(d) therein) whose actions result in a Change in Control or
any person affiliated with the Company or such persons) shall
be treated as "parachute payments" within the meaning of
Section 280G(b)(1) of the Code, and all "excess parachute
payments" within the meaning of Section 280G(b)(1) shall be
treated as subject to the Excise Tax, unless in the opinion of
tax counsel as supported by the Company's independent auditors
and acceptable to Executive, such other payments or benefits
(in whole or in part) do not constitute parachute payments, or
unless such excess parachute payments (in whole or in part)
represent reasonable compensation for services actually
rendered within the meaning of Section 280G(b)(4) of the Code
in excess of the base amount within the meaning of Section 280G
(b)(3) of the Code, or are otherwise not subject to the Excise
Tax;
(b) The amount of the Total Payments which shall be
treated as subject to the Excise Tax shall be equal to the
lesser of: (i) the total amount of the Total Payments; (or
(ii) the amount of excess parachute payments within the meaning
of Section 280G(b)(1) (after applying clause (a) above); and
(c) The value of any noncash benefits or any deferred
payment or benefit shall be determined by the Company's
independent auditors in accordance with the principles of
Sections 280G(d)(3) and (4) of the Code.
For purposes of determining the amount of the Gross-Up Payment,
Executive shall be deemed to pay Federal income taxes at the highest
marginal rate of Federal income taxation in the calendar year in which the
Gross-Up Payment is to be made, and state and local income taxes at the
highest marginal rate of taxation in the state and locality of his
residence on the effective date of the Terminating Event, net of the
maximum reduction in Federal income taxes which could be obtained from
deduction of such state and local taxes.
3.10 Subsequent Recalculation. In the event the Internal
Revenue Service adjusts the computation of the Bank under Section 3.9
herein so that Executive did not receive the greatest net benefit,
the Bank shall reimburse him for the full amount necessary to make
him whole, plus a market rate of interest, as determined by the
Compensation Committee of the Board.
3.11 Dispute Resolution. If any dispute between the Bank
and Executive as to any of the amounts to be determined under
Sections 3.8 or 3.9, or the method of calculating such amounts,
cannot be resolved by Executive and the Bank, either the Bank or
Executive after giving three (3) days written notice to the other,
may refer the dispute to a partner in the Boston, Massachusetts
office of a firm of independent certified public accountants selected
jointly by Executive and the Bank. The determination of such partner
as to the amount to be determined under Section 3.8 and 3.9 and the
method of calculating such amounts shall be final and binding on both
Executive and the Bank and the Company. The Bank shall bear the
costs of any such determination. The Company shall have the same
rights and obligations as the Bank under this Section 3.11 in the
event of a dispute between the Company and Executive.
4. Miscellaneous.
4.1 Confidential Information. Unless Executive first secures
the Company's consent, he shall not disclose or use, at any time
either during or subsequent to his employment by the Company or the
Bank, except as required by his duties to the Company or Bank, any
secret or confidential information of the Company or Bank of which
Executive becomes informed during his employment, whether or not
developed by him. The term "confidential information" includes,
without limitation, financial information, business plans, prospects,
and opportunities (such as lending relationships, financial product
developments, or possible acquisitions or dispositions of business or
facilities) which have been discussed or considered by the Company's
or Bank's management, but does not include any information which has
become part of the public domain by means other than Executive's non-
observance of his obligations hereunder.
4.2 Non-Competition. During Executive's employment by the
Company and the Bank hereunder, and during a period of one (1) year
following the date of termination of his employment with the Company
or the Bank for any reason, Executive will not, directly or
indirectly, whether as partner, consultant, agent, employee, co-
venturer, greater than 2% owner, or otherwise, or through any Person
(as hereafter defined),
(a) attempt to recruit any employee of the Company or
Bank, assist in such hiring by any other Person, or encourage
any such employee to terminate his or her relationship with the
Company or Bank, or
(b) encourage any customer of the Company or Bank to
conduct with any other Person any business or activity which
such customer conducts or could conduct with the Company or
Bank.
For purposes of this Section 4.2, the term "Person" shall mean an
individual, a corporation, an association, a partnership, an estate, a
trust and any other entity or organization.
4.3 No Conflicting Obligations. The Company and the Bank,
in entering into this Agreement, understand, and Executive hereby
represents, that he is not under any obligation to any former
employer or any person, firm or corporation that would prevent, limit
or impair, in any way, the performance by Executive of his duties as
an employee of the Company or the Bank.
4.4 Ethical Behavior. Upon termination by the Company or the
Bank of Executive's employment for any reason, Executive shall act at
all times in an ethical manner with regard to the Bank and the
Company, and during the one-year period following the date of such
termination, shall take no action which directly or indirectly could
reasonably be expected to have the effect of terminating or otherwise
adversely affecting the relationship of the Company or the Bank with
any employee of, or others with business or advantageous
relationships with, the Company or any of its affiliates, including
the Bank.
4.5 Withholding. All payments made by the Company or the
Bank under this Agreement will be net of any tax or other amounts
required to be withheld by the Company or the Bank under applicable
law.
4.6 Legal Fees. Upon submission of appropriate statements or
documentation, the Company and the Bank jointly and severally agree
to reimburse Executive for reasonable legal fees actually incurred by
him in connection with the enforcement of the terms of this Agreement
following a Change in Control, provided, however, that neither the
Company nor the Bank shall not be obligated to reimburse Executive
for any legal fees or expenses incurred by him in connection with the
Company's or the Bank's enforcement of the terms of this Agreement or
in connection with any arbitration or litigation in which the Company
or the Bank is the prevailing party.
4.7 Binding Effect. This Agreement is binding upon and will
inure to the benefit of the parties hereto and their respective
heirs, administrators, executors, successors and assigns. The
Company and the Bank will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company or the
Bank, as the case may be, to assume expressly and perform this
Agreement. Failure of the Company or the Bank, as applicable, to
obtain such assumption and agreement prior to the effectiveness of
any such succession shall be a breach of this Agreement and shall
entitle Executive to compensation from the Bank in the same amount
and on the same terms as he would be entitled to hereunder following
a Terminating Event, except that for purposes of implementing the
foregoing, the date on which any such succession becomes effective
shall be deemed the date on which Executive becomes entitled to such
compensation from the Bank. As used in this Agreement, "Bank" shall
mean the Bank, as hereinbefore defined and any successor to its
business and/or assets as aforesaid which assumes and agrees to
perform this Agreement by operation of law, or otherwise.
4.8 Arbitration of Disputes. Any dispute, controversy or
claim arising out of or relating to this Agreement or the breach or
performance hereof will be settled by arbitration in accordance with
the laws of the State of Rhode Island by an arbitrator mutually
agreed upon by Executive and the Company and/or the Bank. If an
arbitrator cannot be agreed upon, Executive shall choose an
arbitrator and the Company and/or the Bank shall choose an
arbitrator, and these two together shall select a third arbitrator.
If the first two arbitrators cannot agree on the appointment of a
third arbitrator, then the third arbitrator will be appointed by the
American Arbitration Association in Providence, Rhode Island. Such
arbitration will be conducted in the City of Providence in accordance
with the Commercial Arbitration Rules of the American Arbitration
Association, except with respect to the selection of arbitrators
which shall be as provided in this Section 4.8. Judgment upon the
award rendered by the arbitrators may be entered in any court having
jurisdiction thereof.
4.9 Indemnification. The Company and the Bank each hereby
covenants and agrees to indemnify Executive and hold him harmless
fully, completely, and absolutely against and in respect to any and
all actions, suits, proceedings, claims, demands, judgments, costs,
expenses (including attorney's fees), losses, and damages resulting
from his good faith performance of his duties and obligations under
the terms of this Agreement.
4.10 Guaranty. The Company hereby guarantees the due and
punctual performance in full by the Bank of its covenants, agreements
and obligations contained herein.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
/s/18th day of /s/December, 2000.
BANCORP RHODE ISLAND, INC.
By: /s/Merrill W. Sherman
-------------------------------
Merrill W. Sherman
BANK RHODE ISLAND
By: /s/Merrill W. Sherman
-------------------------------
Merrill W. Sherman
President and Chief Executive
Officer
EXECUTIVE
/s/Donald C. McQueen
-------------------------------
Donald C. McQueen
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>5
<FILENAME>bri-x104.txt
<DESCRIPTION>EMPLOYMENT AGREEMENT WITH JAMES V. DERENTIS
<TEXT>
EXHIBIT 10.4
EXECUTIVE EMPLOYMENT AGREEMENT
------------------------------
THIS EMPLOYMENT AGREEMENT (the "Agreement") is between Bank Rhode
Island, a financial institution organized under the laws of the State of
Rhode Island with its executive offices located at One Turks Head Place,
Providence, Rhode Island 02903 (the "Bank"), Bancorp Rhode Island, Inc., a
corporation organized under the laws of the State of Rhode Island and sole
shareholder of the Bank (the "Company") and James V. DeRentis of 48 Laurel
Avenue, Providence, Rhode Island 02906 (the "Executive").
IT IS MUTUALLY AGREED by the parties as follows:
1. Employment; Duties
1.1 Responsibilities and Authority. The Bank hereby employs
Executive to serve as Senior Vice President of Retail Banking of the
Bank, and Executive hereby accepts such employment. Executive shall
have the duties, responsibilities, authorities and powers normally
incident to such office. At all times, however, Executive's
activities and authority will be subject to supervision, control and
direction by the Board of Directors of the Bank (the "Board"), by the
Executive Committee of the Board, and by the President and Chief
Executive Officer of the Bank (the "Chief Executive Officer") and
Executive agrees to carry out such duties and responsibilities as any
of them may from time to time reasonably assign to him. Executive
shall report from time to time or routinely, upon request, to the
Chief Executive Officer or her designee as to the current status of
any of Executive's assigned duties and responsibilities.
1.2 Compensation. The Bank shall pay Executive a base salary
at the rate of (i) One Hundred Four Thousand Dollars ($104,000) per
year, commencing on the date hereof through December 31, 2000, and
(ii) One Hundred Eighteen Thousand Four Hundred Dollars ($118,400)
commencing January 1, 2001 and thereafter, payable on a bi-weekly
basis, or at such higher rate as shall be determined from time to
time by the Board. In addition, Executive shall be entitled to
receive payments under any incentive compensation or bonus program
(as in effect from time to time), which the Bank may establish for its
employees and/or senior executives, in such amounts as are provided by
such programs.
1.3 Employee Benefits. As a full-time employee of the Bank,
Executive shall be eligible to participate in any and all employee
benefit plans generally available to full-time employees of the Bank,
including non-contributory plans and, at Executive's option,
contributory plans.
1.4 Grant of Stock Options. Executive shall receive options
to purchase shares of the common stock of the Company in such number,
at an exercise price and on such other terms as may be approved by
the Compensation Committee of the Company's Board of Directors, in
its sole discretion. Any such options will become exercisable on a
schedule no less favorable than the following: 20% on the grant date
and an additional 20% on each of the first through fourth
anniversaries of the grant date, with such vesting to accelerate on a
Change in Control (as defined in Section 3.2).
1.5 Vacation. Executive shall be entitled to four weeks of
vacation during each year of employment, such vacation to be taken in
accordance with the Bank's customary vacation policies and at such
times and intervals as are mutually agreed upon by him and the Bank.
Executive shall be entitled to holiday time and sick leave in
accordance with the then existing policies of the Bank, as in effect
from time to time.
1.6 Reimbursement of Expenses. Executive shall be reimbursed
by the Bank for reasonable business expenses incurred by him incident
to his employment upon presentation of appropriate vouchers,
receipts, and other supporting documents required by the Bank.
1.7 Duty to Perform Services. So long as Executive is
employed by the Bank, Executive agrees to devote his full business
and productive time, skill, and energy diligently, loyally,
effectively, and to the best of his ability to the rendering of
service to the Bank, and will exert his best efforts in the rendering
of such services. This provision will not prohibit Executive from:
(a) making passive investments or serving as a
fiduciary with respect to direct family investments;
(b) serving on the board of directors of any company,
provided that Executive shall not render any material services
with respect to the operations or affairs of any such company
and provided further that serving on such board of directors
does not otherwise violate the terms of this Agreement,
including, but not limited to, the provisions of Section 4.2
herein; or
(c) engaging in religious, charitable or other
community or non-profit activities which do not impair
Executive's ability to fulfill his duties and responsibilities
to the Bank.
Executive agrees that in the rendering of all services to the Bank
and in all aspects of his employment, in connection with his duties as
Senior Vice President of Retail Banking, he will comply with all
directives, policies, standards, and regulations from time to time
established by the Bank or by applicable law.
1.8 Death or Disability.
(a) Death. In the event of Executive's death during
the term of his employment under this Agreement, the Bank shall
immediately pay to Executive's designated beneficiary any
salary accrued but unpaid as of the date of death. Upon
payment of the aforementioned sums, the Bank's obligations to
make further salary payments shall terminate. This provision
shall not be construed to negate any rights Executive may have
to death benefits under any employee benefit or welfare plan of
the Bank in which he may from time to time be a participant or
under any other written agreement with the Bank which
specifically provides for such benefits.
(b) Disability. In the event of Executive's
"disability" (as defined below) during the term of his
employment under this Agreement, the Bank shall continue to pay
Executive his base salary (reduced by any benefits Executive is
entitled to receive under any state or federal disability
insurance program, such as Rhode Island temporary disability
insurance or federal social security) for a period of six
months from the date of "disability". For purposes of this
Agreement, "disability" shall mean a good faith determination
by the Board that Executive is unable for any reason, either
physical or mental, to perform the duties required of him
hereunder.
1.9 Term of Employment. The term of Executive's employment
by the Bank under this Agreement shall commence on the date hereof
and shall continue, unless sooner terminated pursuant to the
provisions of this Agreement, for a period of two years (the "Term"),
which Term shall automatically renew on each successive one year
anniversary hereafter commencing with the first anniversary hereof
unless either the Bank or the Executive shall have given written
notice to the other of such party's election not to extend the Term
within ninety (90) calendar days prior to any anniversary date.
1.10 Termination. This Agreement and the rights of the
parties hereunder will terminate (subject to the provisions of
Section 1.11 below) upon the occurrence of one of the following:
(a) Upon the Executive's death or disability as
provided in Section 1.8 above;
(b) For Cause as provided in Section 3.5, immediately
upon the giving of notice by the Bank or at such later time as such
notice may specify or as may be required by Section 3.5;
(c) At the election of the Executive for Good Reason
(as hereinafter defined) as provided in Section 2.2; or
(d) Upon the expiration of the Term, following notice
of either the Company or the Bank not to extend the Term as
provided in Section 1.9.
1.11 Termination and Survival. The provisions of Section 1.8,
Sections 2 and 3 and Sections 4.1, 4.2, 4.4, 4.6, 4.8, 4.9 and 4.10
hereof shall remain in full force and effect and shall continue to be
enforceable in accordance with their terms beyond termination of
employment and beyond expiration of this Agreement, except as
otherwise agreed in writing by Executive and the Company and the
Bank.
2. Severance.
2.1 Severance Benefit. In the event of a termination of
Executive's employment by the Bank without Cause (as such term is
defined in Section 3.5) at any time, or in the event of termination
of Executive's employment by him for Good Reason (as defined in
Section 2.2), the Bank will (a) continue to pay Executive his base
salary (the "Severance Benefit") then in effect for an eighteen (18)
month period commencing on the date of termination (the "Severance
Period"), and (b) provide Executive with the medical and life
insurance coverage generally available to full-time employees during
the Severance Period or as required by law, whichever is longer. The
Bank shall also provide Executive with outplacement assistance at no
charge. Notwithstanding anything herein to the contrary, the Bank
shall have no obligation to pay the Severance Benefit to Executive in
the event his employment is terminated with Cause by the Bank or
voluntarily by him without Good Reason. Any Severance Benefit paid
under this Section 2.1 shall be credited against any amounts due
Executive under Section 3 as a result of a Change in Control. In the
event that if during the first twelve (12) months of the Severance
Period Executive accepts a supervisory position for a retail branch
network in the greater Providence area, effective as of the effective
date of such employment, the Executive shall not be entitled to any
further Severance Benefit.
2.2 "Good Reason" Defined. For purposes of this Agreement
"Good Reason" shall mean the Bank giving written notice of its
election not to renew this Agreement on any anniversary date as
permitted under Section 1.9 and its failure to offer and enter into a
new employment agreement with Executive on terms which are
substantially similar to those of his employment existing immediately
prior to such notice of non-renewal (other than a reduction of fringe
benefits required by law or applicable to all employees generally)
provided, however, that Good Reason shall not be deemed to have
occurred unless prior to Executive's termination of employment for
Good Reason, he shall give not less than 30 days written notice to
the Bank of his intent to terminate for Good Reason stating the basis
of the Good Reason sufficient to permit the Bank to alleviate the
basis of such Good Reason prior to termination, and the Bank has not
done so within such 30 day period, and further provided, that
Executive's continuing to work following notice of non-renewal by the
Bank and in the absence of entering into a new employment agreement
shall be without prejudice to his right to claim termination for Good
Reason, absent written agreement between Executive and the Bank to
the contrary.
3. Change in Control.
3.1 Purpose. In order to allow Executive to consider the
prospect of a Change in Control (as defined in Section 3.2) in an
objective manner and in consideration of the services rendered and to
be rendered by him to the Bank, the Bank is willing to provide,
subject to the terms of this Agreement, certain severance benefits to
protect Executive from the consequences of a Terminating Event (as
defined in Section 3.4) occurring subsequent to a Change in Control.
3.2 Change in Control. A "Change in Control" will be deemed
to have occurred if: (i) a Takeover Transaction is effectuated; or
(ii) the Company commences substantive negotiations with a third
party with respect to a Takeover Transaction if within twelve (12)
months of the commencement of such negotiations, enters into a
definitive agreement with respect to a Takeover Transaction with any
party with which negotiations were originally commenced; or (iii) any
election of directors of the Company occurs (whether by the directors
then in office or by the shareholders at a meeting or by written
consent) where a majority of the directors in office following such
election are individuals who were not nominated by a vote of two-
thirds of the members of the board of directors immediately preceding
such election; or (iv) either of the Company or the Bank effectuates
a complete liquidation.
3.3 Takeover Transaction. A "Takeover Transaction" shall
mean:
(a) The acquisition of voting securities of the Company
by any individual, entity or group (within the meaning of
Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")), other than by the
Company or its subsidiaries or any employee benefit plan (or
related trust) of the Company or its subsidiaries, which
theretofore did not beneficially own (within the meaning of
Rule 13d-3 promulgated under the Exchange Act), securities
representing 30% or more of the voting power of all outstanding
shares of voting securities of the Company, if such acquisition
results in such individual, entity or group owning securities
representing more than 30% of the voting power of all
outstanding voting securities of the Company; provided, that
any acquisition by a corporation with respect to which,
following such acquisition, more than 50% of the then
outstanding shares of voting securities of such corporation, is
then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the
beneficial owners of the voting securities of the Company
outstanding immediately prior to such acquisition in
substantially the same proportion as their ownership,
immediately prior to such acquisition, of the outstanding
voting securities of the Company, shall not constitute a Change
in Control; or
(b) The issuance of additional shares of common stock
of the Company or the Bank, as applicable, in a single
transaction or a series of related transactions if the
individuals and entities who were the beneficial owners of the
outstanding voting securities of the Company or the Bank, as
applicable, immediately prior to such issuance do not,
following such issuance, beneficially own, directly or
indirectly, securities representing more than 50% of the voting
power of all then outstanding voting securities of the Company
or the Bank, as applicable; or
(c) Consummation by the Company or the Bank of (i) a
reorganization, merger or consolidation, in each case, with
respect to which all or substantially all of the individuals
and entities who were the beneficial owners of the voting
securities of the Company immediately prior to such
reorganization, merger or consolidation do not, following such
reorganization, merger or consolidation, beneficially own,
directly or indirectly, securities representing more than 50%
of the voting power of the outstanding voting securities of the
corporation resulting from such a reorganization, merger or
consolidation, or (ii) the sale, exchange or other disposition
(in one transaction or a series of related transactions) of all
or substantially all of the assets of the Company (on a
consolidated basis) or the Bank to a party which is not
controlled by or under common control with such entity, or
(iii) the sale by the Company on one transaction or in a series
of related transactions of voting securities of the Bank such
that following such transaction or transactions the Company no
longer beneficially owns, directly or indirectly, securities
representing more than 50% of the voting power of the then
outstanding voting securities of the Bank.
For purposes of this Section 3.3, "voting power" means ordinary
voting power for the election of directors.
3.4 Terminating Event. A "Terminating Event" means either:
(a) Termination by the Bank of Executive's employment
for any reason other than (i) Executive's death or disability
or (ii) for "Cause" (as such term is defined in Section 3.5
hereof); or
(b) Executive's resignation as an employee of the Bank,
other than for reasons of disability, following (i) a
significant reduction in the nature or scope of Executive's
duties, responsibilities, authority and powers from the duties,
responsibilities, authority and powers exercised by him
immediately prior to the Change in Control or (ii) a greater
than 10% reduction in Executive's annual base salary or fringe
benefits as in effect on the date of the Change in Control, or
(iii) any requirement by the Company or the Bank or of any
Person (as defined in Section 4.2 hereof) in control of the
Bank that the location at which Executive performs the
principal duties of the Bank be outside a radius of 50 miles
from the location at which he performed such duties immediately
prior to the Change in Control; or (iv) the failure of any
successor of the Company or the Bank to agree in writing upon
terms and conditions of employment with Executive which are
substantially similar to those of his employment immediately
prior to the Change in Control and which are reasonably
satisfactory to him within ninety (90) days following a Change
in Control.
3.5 Termination for "Cause" Defined. For purposes of this
Agreement, termination for Cause shall include termination by reason
of any of the following:
(a) Continuing any arrangement, holding any position or
engaging in any activities that conflict with the interest of,
or that interfere with Executive's duties owed to the Bank,
after ten (10) days prior written notice by the Bank to him of
the same;
(b) Conviction of embezzlement or other crimes against
the Bank, deliberate misappropriation of the Bank's funds or
dishonesty;
(c) Material violation of written policies of the Bank,
irresponsible acts in the performance of Executive's duties or
material breach of any of his obligations under the terms of
this Agreement;
(d) Material non-performance of Executive's duties or
material acts (or omissions) of mismanagement; and
(e) Refusal to perform assigned duties when such
refusal is not justified or excused either by the terms of this
Agreement or by actions taken by the Bank in violation of this
Agreement.
3.6 Payment in Connection With Terminating Event. If a
Terminating Event occurs within one (1) year after a Change in
Control (which one year period shall be calculated from the effective
date of the Takeover Transaction if the Terminating Event occurs
after a Takeover Transaction), the Bank will pay to Executive an
amount (the "Severance Payment") equal to two times the sum of (a)
Executive's annual base salary in effect at the time of the Change in
Control, and (b) an amount equal to the largest annual cash bonus
paid to Executive with respect to the two full fiscal years
immediately preceding the Change in Control, which Severance Payment
shall be payable in one lump sum within 30 days of the date of
termination of Executive's employment, or if such Change in Control
is governed by clause (ii) of Section 3.2 and the Terminating Event
occurs prior to entering into a definitive agreement, upon the
entering into of a definitive agreement by the Company. In addition,
the Bank shall continue to pay for all medical and life insurance
coverage provided on the date of the Terminating Event for the
twenty-four month period commencing on the effective date of the
Terminating Event. No Severance Payment will be made to Executive
under Section 3 if his employment with the Company terminates for any
reason prior to a Change in Control (except as may be provided
below), or if his employment with the Company terminates after a
Change in Control but such termination or resignation is not a
Terminating Event. In addition, except as provided in Section 2, no
Severance Payment will be made to Executive under Section 3.6 of this
Agreement with respect to a Terminating Event which occurs more than
one year after a Change in Control (which one year period shall be
calculated from the effective date of the Takeover Transaction if the
Terminating Event occurs after a Takeover Transaction).
3.7 Applicability of Change in Control Provisions. The
provisions of Section 3 shall terminate upon the earliest of (i) the
termination by the Bank of Executive's employment for any reason
prior to a Change in Control, (ii) the termination of Executive's
employment by the Bank after a Change in Control because of death or
disability or for Cause, (iii) Executive's resignation or termination
of employment with the Bank for any reason other than Good Reason
prior to a Change in Control, and (iv) Executive's resignation or
termination of employment after a Change in Control on or after the
first anniversary of the Takeover Transaction or events specified in
Sections 3.2(iii) or (iv).
3.8 Excise Tax Equalization Payment. In the event that
Executive becomes entitled to a Severance Payment or any other
payment or benefit under this Agreement, or under any other agreement
with or plan of the Bank (in the aggregate, the "Total Payments"), if
any of the Total Payments will be subject to the tax (the "Excise
Tax") imposed by Section 4999 of the Code (or any similar tax that
may hereafter be imposed), the Bank shall pay to Executive in cash an
additional amount (the "Gross-Up Payment") such that the net amount
retained by him after deduction of any Excise Tax upon the Total
Payments and any Federal, state and local income tax and Excise Tax
upon the Gross-Up Payment provided for by this Section 3.8 (including
FICA and FUTA), shall be equal to the Total Payments. Such payment
shall be made by the Bank to Executive as soon as practical following
the effective date of the Terminating Event, but in no event beyond
thirty (30) days from such date.
3.9 Tax Computation. For purposes of determining whether any
of the Total Payments will be subject to the Excise Tax and the
amounts of such Excise Tax:
(a) Any other payments or benefits received or to be
received by Executive in connection with a Change in Control or
Executive's termination of employment (whether pursuant to the
terms of this Agreement or any other plan, arrangement, or
agreement with the Bank, or with any person (which shall have
the meaning set forth in Section 3(a)(9) of the Exchange Act,
including a "group" as defined in Section 13(d) therein) whose
actions result in a Change in Control or any person affiliated
with the Bank or such persons) shall be treated as "parachute
payments" within the meaning of Section 280G(b)(1) of the Code,
and all "excess parachute payments" within the meaning of
Section 280G(b)(1) shall be treated as subject to the Excise
Tax, unless in the opinion of tax counsel as supported by the
Bank's independent auditors and acceptable to Executive, such
other payments or benefits (in whole or in part) do not
constitute parachute payments, or unless such excess parachute
payments (in whole or in part) represent reasonable
compensation for services actually rendered within the meaning
of Section 280G(b)(4) of the Code in excess of the base amount
within the meaning of Section 280G (b)(3) of the Code, or are
otherwise not subject to the Excise Tax;
(b) The amount of the Total Payments which shall be
treated as subject to the Excise Tax shall be equal to the
lesser of: (i) the total amount of the Total Payments; (or
(ii) the amount of excess parachute payments within the meaning
of Section 280G(b)(1) (after applying clause (a) above); and
(c) The value of any noncash benefits or any deferred
payment or benefit shall be determined by the Company's
independent auditors in accordance with the principles of
Sections 280G(d)(3) and (4) of the Code.
For purposes of determining the amount of the Gross-Up Payment,
Executive shall be deemed to pay Federal income taxes at the highest
marginal rate of Federal income taxation in the calendar year in which the
Gross-Up Payment is to be made, and state and local income taxes at the
highest marginal rate of taxation in the state and locality of his
residence on the effective date of the Terminating Event, net of the
maximum reduction in Federal income taxes which could be obtained from
deduction of such state and local taxes.
3.10 Subsequent Recalculation. In the event the Internal
Revenue Service adjusts the computation of the Bank under Section 3.9
herein so that Executive did not receive the greatest net benefit,
the Bank shall reimburse him for the full amount necessary to make
him whole, plus a market rate of interest, as determined by the
Compensation Committee of the Board.
3.11 Dispute Resolution. If any dispute between the Bank and
Executive as to any of the amounts to be determined under Sections
3.8 or 3.9, or the method of calculating such amounts, cannot be
resolved by Executive and the Bank, either the Bank or Executive
after giving three (3) days written notice to the other, may refer
the dispute to a partner in the Boston, Massachusetts office of a
firm of independent certified public accountants selected jointly by
Executive and the Bank. The determination of such partner as to the
amount to be determined under Section 3.8 and 3.9 and the method of
calculating such amounts shall be final and binding on both Executive
and the Bank and the Company. The Bank shall bear the costs of any
such determination. The Company shall have the same rights and
obligations as the Bank under this Section 3.11 in the event of a
dispute between the Company and Executive.
4. Miscellaneous.
4.1 Confidential Information. Unless Executive first secures
the Bank's consent, he shall not disclose or use, at any time either
during or subsequent to his employment by the Bank, except as
required by his duties to the Bank, any secret or confidential
information of the Bank of which Executive becomes informed during
his employment, whether or not developed by him. The term
"confidential information" includes, without limitation, financial
information, business plans, prospects, and opportunities (such as
lending relationships, financial product developments, or possible
acquisitions or dispositions of business or facilities) which have
been discussed or considered by the Bank's management, but does not
include any information which has become part of the public domain by
means other than Executive's non-observance of his obligations
hereunder.
4.2 Non-Competition. During Executive's employment by the
Bank hereunder, and during a period of one (1) year following the
date of termination of his employment with the Bank for any reason,
Executive will not, directly or indirectly, whether as partner,
consultant, agent, employee, co-venturer, greater than 2% owner, or
otherwise, or through any Person (as hereafter defined),
(a) attempt to recruit any employee of the Bank, assist
in such hiring by any other Person, or encourage any such
employee to terminate his or her relationship with the Bank, or
(b) encourage any customer of the Bank to conduct with
any other Person any business or activity which such customer
conducts or could conduct with the Bank.
For purposes of this Section 4.2, the term "Person" shall mean an
individual, a corporation, an association, a partnership, an estate, a
trust and any other entity or organization.
4.3 No Conflicting Obligations. The Bank, in entering into
this Agreement, understands, and Executive hereby represents, that he
is not under any obligation to any former employer or any person,
firm or corporation that would prevent, limit or impair, in any way,
the performance by Executive of his duties as an employee of the
Bank.
4.4 Ethical Behavior. Upon termination by the Bank of
Executive's employment for any reason, Executive shall act at all
times in an ethical manner with regard to the Bank, and during the
one-year period following the date of such termination, shall take no
action which directly or indirectly could reasonably be expected to
have the effect of terminating or otherwise adversely affecting the
relationship of the Company or the Bank with any employee of, or
others with business or advantageous relationships with, the Company
or any of its affiliates, including the Bank.
4.5 Withholding. All payments made by the Bank under this
Agreement will be net of any tax or other amounts required to be
withheld by the Bank under applicable law.
4.6 Legal Fees. Upon submission of appropriate statements or
documentation the Company and the Bank, the Bank jointly and
severally agree to reimburse Executive for reasonable legal fees
actually incurred by him in connection with the enforcement of the
terms of this Agreement following a Change in Control, provided,
however, that neither the Company nor the Bank shall be obligated to
reimburse Executive for any legal fees or expenses incurred by him in
connection with the Bank's enforcement of the terms of this Agreement
or in connection with any arbitration or litigation in which the
Company or the Bank is the prevailing party.
4.7 Binding Effect. This Agreement is binding upon and will
inure to the benefit of the parties hereto and their respective
heirs, administrators, executors, successors and assigns. The Bank
will require any successor (whether direct or indirect, by purchase,
merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of the Bank to assume expressly and
perform this Agreement. Failure of the Bank to obtain such
assumption and agreement prior to the effectiveness of any such
succession shall be a breach of this Agreement and shall entitle
Executive to compensation from the Bank in the same amount and on the
same terms as he would be entitled to hereunder following a
Terminating Event, except that for purposes of implementing the
foregoing, the date on which any such succession becomes effective
shall be deemed the date on which Executive becomes entitled to such
compensation from the Bank. As used in this Agreement, "Bank" shall
mean the Bank, as hereinbefore defined and any successor to its
business and/or assets as aforesaid which assumes and agrees to
perform this Agreement by operation of law, or otherwise.
4.8 Arbitration of Disputes. Any dispute, controversy or
claim arising out of or relating to this Agreement or the breach or
performance hereof will be settled by arbitration in accordance with
the laws of the State of Rhode Island by an arbitrator mutually
agreed upon by Executive and the Company and/or the Bank. If an
arbitrator cannot be agreed upon, Executive shall choose an
arbitrator and the Company and/or the Bank shall choose an
arbitrator, and these two together shall select a third arbitrator.
If the first two arbitrators cannot agree on the appointment of a
third arbitrator, then the third arbitrator will be appointed by the
American Arbitration Association in Providence, Rhode Island. Such
arbitration will be conducted in the City of Providence in accordance
with the Commercial Arbitration Rules of the American Arbitration
Association, except with respect to the selection of arbitrators
which shall be as provided in this Section 4.8. Judgment upon the
award rendered by the arbitrators may be entered in any court having
jurisdiction thereof.
4.9 Indemnification. The Bank hereby covenants and agrees to
indemnify Executive and hold him harmless fully, completely, and
absolutely against and in respect to any and all actions, suits,
proceedings, claims, demands, judgments, costs, expenses (including
attorney's fees), losses, and damages resulting from his good faith
performance of his duties and obligations under the terms of this
Agreement.
4.10 Guaranty. The Company hereby guarantees the due and
punctual performance in full by the Bank of its covenants, agreements
and obligations contained herein.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
/s/18th day of /s/December, 2000.
BANK RHODE ISLAND
By: /s/Merrill W. Sherman
-------------------------------
Merrill W. Sherman
President and Chief Executive
Officer
BANCORP RHODE ISLAND, INC.
By: /s/Merrill W. Sherman
-------------------------------
Merrill W. Sherman
EXECUTIVE
/s/James V. DeRentis
------------------------------------
James V. DeRentis
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>6
<FILENAME>bri-x105.txt
<DESCRIPTION>1996 INCENTIVE AND NONQUALIFIED STOCK OPTION PLAN
<TEXT>
EXHIBIT 10.5
BANCORP RHODE ISLAND, INC.
AMENDED AND RESTATED
1996 INCENTIVE AND NONQUALFIED STOCK OPTION PLAN
------------------------------------------------
WHEREAS, pursuant to Section 2.5 of that certain Plan of
Reorganization and Merger dated as of February 15, 2000 (the "Merger
Agreement") by and among Bank Rhode Island ("Bank RI"), Bancorp Rhode
Island, Inc. (the "Corporation") and BKRI Interim Bank, each outstanding
option to purchase the common stock of Bank RI, including options to
purchase such common stock granted to pursuant to Bank RI's 1996 Incentive
and Nonqualified Stock Option Plan, as amended (the "1996 Plan"), became,
by virtue of the effectiveness of the Merger Agreement and Section 8.3 of
the 1996 Plan, without any action on the part of the holders of such
options, options to purchase the Common Stock, par value $0.01 per share,
of the Corporation (the "Common Stock"); and
WHEREAS, the Corporation desires to assume the 1996 Plan and to amend
and restate the 1996 Plan to reflect the assumption of the 1996 Plan by the
Corporation as the parent holding company of Bank RI, and to effect the
changes to the 1996 Plan necessary to implement the purposes of the 1996
Plan under the new holding company structure; and
WHEREAS, pursuant to Section 10 of the 1996 Plan, the Board of
Directors of Bank RI has consented to the amendment and restatement of the
1996 Plan as hereinafter set forth; and
WHEREAS, the Board of Directors of the Corporation has consented to
the adoption of the 1996 Plan as hereby amended and restated;
NOW, THEREFORE, the 1996 Plan is amended and restated as follows:
SECTION 1. PURPOSE
This Amended and Restated 1996 Incentive and Nonqualified Stock
Option Plan (the "Plan") of the Corporation, is designed to provide
additional incentive to executives and other key employees of the
Corporation and its subsidiaries and for certain other individuals
providing services to or acting as directors of the Corporation and
its subsidiaries. The Corporation intends that this purpose will be
effected by the granting of incentive stock options ("Incentive Stock
Options") as defined in Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"), and nonqualified stock options
("Nonqualified Options") under the Plan which afford such executives,
key employees, directors and other eligible individuals an
opportunity to acquire or increase their proprietary interest in the
Corporation through the acquisition of shares of its Common Stock.
The Corporation intends that Incentive Stock Options issued under the
Plan will qualify as "incentive stock options" as defined in Section
422 of the Code and the terms of the Plan shall be interpreted in
accordance with this intention. The terms "parent" and "subsidiary"
as used herein shall have the respective meanings set forth in
Section 424 of the Code.
SECTION 2. ADMINISTRATION
2.1 Board of Directors/ Committee.
(a) Except as otherwise provided in section 2.1(b)
below, the Plan shall be administered by the Board of Directors
(the "Board") of the Corporation.
(b) At such time and so long as the Corporation has a
class of securities registered pursuant to Section 12 of the
Securities Exchange Act of 1934, as amended (the "Exchange
Act"), the Plan shall be administered by a Committee (the
"Committee") consisting of at least two members of the Board of
Directors appointed by the Board of Directors of the
Corporation. None of the members of the Committee shall be an
officer or other employee of the Corporation. It is the
intention of the Corporation that, so long as the Corporation
has a class of securities registered pursuant to the Exchange
Act, the Plan shall be administered, in accordance with the
provisions of Section 4 hereof, by "disinterested persons"
within the meaning of Rule l6b-3 under the Exchange Act, but
the authority and validity of any act taken or not taken by the
Committee shall not be affected if any person administering the
Plan is not a disinterested person. Except as specifically
reserved to the Board under the terms of the Plan, the
Committee shall have full and final authority to the Board
under the operate, manage, and administer the Plan on behalf of
the Corporation. Action by the Committee shall require the
affirmative vote of a majority of all members thereof.
2.2 Powers of the Board/Committee. Subject to the terms and
conditions of the Plan, the Board or the Committee, as the case may be,
shall have the power:
(a) To determine from time to time the persons
eligible to receive options and the options to be granted to
such persons under the Plan and to prescribe the terms,
conditions, restrictions, if any, and provisions (which need
not be identical) of each option granted under the Plan to such
persons;
(b) To construe and interpret the Plan and options
granted thereunder and to establish, amend, and revoke rules
and regulations for administration of the Plan. In this
connection, the Board or the Committee, as the case may be, may
correct any defect or supply any omission, or reconcile any
inconsistency in the Plan, or in any option agreement, in the
manner and to the extent it shall deem necessary or expedient
to make the Plan fully effective. All decisions and
determinations by the Board or the Committee, as the case may
be, in the exercise of this power shall be final and binding
upon the Corporation and optionees;
(c) To make, in its sole discretion, changes to any
outstanding option granted under the Plan, including: (i) to
reduce the exercise price, (ii) to accelerate the vesting
schedule or (iii) to extend the expiration date; and
(d) Generally, to exercise such powers and to perform
such acts as are deemed necessary or expedient to promote the
best interests of the Corporation with respect to the Plan.
SECTION 3. STOCK
3.1 Stock to be Issued. The stock subject to the options
granted under the Plan shall be shares of the Corporation's
authorized but unissued Common Stock or shares of the Common Stock
held in treasury. The total number of shares that may be issued
pursuant to options granted under the Plan shall not exceed an
aggregate of three hundred eighty-five thousand (385,000) shares of
Common Stock; provided, however, that the class and aggregate number
of shares which may be subject to options granted under the Plan
shall be subject to adjustment as provided in Section 8 hereof.
3.2 Expiration. Cancellation or Termination of Option.
Whenever any outstanding option under the Plan expires, is cancelled
or is otherwise terminated (other than by exercise), the shares of
Common Stock allocable to the unexercised portion of such option may
again be the subject of options under the Plan.
SECTION 4. ELIGIBILITY
4.1 Persons Eligible. Incentive Stock Options under the Plan
may be granted only to officers and other employees of the
Corporation or its subsidiaries. Nonqualified Options may be granted
to officers or other employees of the Corporation or its
subsidiaries, to members of the Board of Directors of the Corporation
or its subsidiaries, and to consultants or other persons who render
services to the Corporation or its subsidiaries (regardless of
whether they are also employees), provided, however, that no such
option may be granted to a person who is a member of the Committee,
if any, at the time of grant.
4.2 Greater-Than-Ten -Percent Stockholders. Except as may
otherwise be permitted by the Code or other applicable law or
regulation, no Incentive Stock Option shall be granted to an
individual who, at the time the option is granted, owns (including
ownership attributed pursuant to Section 424 of the Code) more than
ten percent of the total combined voting power of all classes of
stock of the Corporation or any parent or subsidiary (a "greater-
than-ten-percent stockholder"), unless such Incentive Stock Option
provides that (i) the purchase price per share shall not be less than
one hundred ten percent of the fair market value of the Common Stock
at the time such option is granted, and (ii) that such option shall
not be exercisable to any extent after the expiration of five years
from the date it is granted.
4.3 Maximum Aggregate Fair Market Value. The aggregate fair
market value (determined at the time the option is granted in the
manner specified in Section 6.3) of the Common Stock with respect to
which Incentive Stock Options are exercisable for the first time by
any optionee during any calendar year (under the Plan and any other
plans of the Corporation or any parent or subsidiary for the issuance
of incentive stock options) shall not exceed $100,000 (or such
greater amount as may from time to time be permitted with respect to
incentive stock options by the Code or any other applicable law or
regulation).
SECTION 5. TERMINATION OF EMPLOYMENT OR DEATH OF OPTIONEE
5.1 Termination of Employment. Except as may be otherwise
expressly provided herein, options shall terminate on the earlier of:
(a) the date of expiration thereof,
(b) the date of termination of the optionee's
employment with or services to the Corporation by it for cause
(as determined by the Corporation);
(c) 30 days after the date of termination of the
optionee's employment with or services to the Corporation
voluntarily by the optionee; or
(d) 90 days after the date of termination of the
optionee's employment with or services to the Corporation by it
without cause; provided, that Nonqualified Options granted to
persons who are not employees of the Corporation need not,
unless the Board or the Committee, as the case may be,
determines otherwise, be subject to the provisions set forth in
clauses (b), (c) and (d) above.
An employment relationship between the Corporation and the optionee
shall be deemed to exist during any period in which the optionee is
employed by the Corporation, or any parent or subsidiary. Whether
authorized leave of absence, or absence on military or government
service, shall constitute termination of the employment relationship
between the Corporation and the optionee shall be determined by the
Board or the Committee, as the case may be, at the time thereof.
As used herein, "cause" shall mean (x) any material breach by the
optionee of any agreement to which the optionee and the Corporation
are both parties, (y) any act or omission to act by the optionee
which may have a material and adverse effect on the Corporation's
business or on the optionee's ability to perform services for the
Corporation, including, without limitation, the commission of any
crime (other than ordinary traffic violations), or (z) any material
misconduct or material neglect of duties by the optionee in
connection with the business or affairs of the Corporation or any
affiliate of the Corporation.
5.2 Death or Permanent Disability of Optionee. In the event
of the death or permanent and total disability of the holder of an
option that is subject to clause (b) or (c) of Section 5.1 above
prior to termination of the optionee's employment with or services to
the Corporation and before the date of expiration of such option,
such option shall terminate on the earlier of such date of expiration
or one year following the date of such death or disability. After the
death of the optionee, his/her executors, administrators or any
person or persons to whom his/her option may be transferred by will
or by the laws of descent and distribution, shall have the right, at
any time prior to such termination, to exercise the option to the
extent the optionee was entitled to exercise such option immediately
prior to his/her death. An optionee is permanently and totally
disabled if he/she is unable to engage in any substantial gainful
activity by reason of any medically determinable physical or mental
impairment which can be expected to last for a continuous period of
not less than 12 months; permanent and total disability shall be
determined in accordance with Section 22(e)(3) of the Code and the
regulations issued thereunder.
SECTION 6. TERMS OF THE OPTION AGREEMENTS
Each option agreement shall be in writing and shall contain
such terms, conditions, restrictions, if any, and provisions as the
Board or the Committee, as the case may be, shall from time to time
deem appropriate. Such provisions or conditions may include without
limitation restrictions on transfer, repurchase rights, or such other
provisions as shall be determined by the Board or the Committee, as
the case may be, provided that such additional provisions shall not
be inconsistent with any other term or condition of the Plan and such
additional provisions shall not cause any Incentive Stock Option
granted under the Plan to fail to qualify as an incentive option
within the meaning of Section 422 of the Code. At such time as the
Corporation has a class of securities registered pursuant to Section
12 of the Exchange Act, the shares of stock issuable upon exercise of
an option by any executive officer, director or beneficial owner of
more than ten percent of the Common Stock of the Corporation may not
be sold or transferred (except that such shares may be issued upon
exercise of such option) by such officer, director or beneficial
owner for a period of six months following the grant of such option.
Option agreements need not be identical, but each option
agreement by appropriate language shall include the substance of all
of the following provisions:
6.1 Expiration of Option. Notwithstanding any other
provision of the Plan or of any option agreement, each option shall
expire on the date specified in the option agreement, which date
shall not, in the case of an Incentive Stock Option, be later than
the tenth anniversary (fifth anniversary in the case of a greater-
than-ten-percent stockholder) of the date on which the option was
granted, or as specified in Section 5 of this Plan.
6.2 Exercise. Each option may be exercised, so long as it is
valid and outstanding from time to time in part or as a whole,
subject to any limitations with respect to the number of shares for
which the option may be exercised at a particular time and to such
other conditions as the Board or the Committee, as the case may be,
in its discretion may specify upon granting the option.
6.3 Purchase Price. The purchase price per share under each
option shall be determined by the Board or the Committee, as the case
may be, at the time the option is granted; provided, however, that
the option price of any Incentive Stock Option shall not, unless
otherwise permitted by the Code or other applicable law or
regulation, be less than the fair market value of the Common Stock on
the date the option is granted (110 % of the fair market value in the
case of a greater-than-ten-percent stockholder). For the purpose of
the Plan the fair market value of the Common Stock shall be the
closing price per share on the date of grant of the option as
reported on the Nasdaq Stock Market or by a nationally recognized
stock exchange, or, if the Common Stock is not listed on the Nasdaq
Stock Market or such an exchange, the fair market value as determined
by the Board or the Committee, as the case may be.
6.4 Transferability of Options. Options shall not be
transferable by the optionee otherwise than by will or under the laws
of descent and distribution, and shall be exercisable, during his or
her lifetime, only by him or her.
6.5 Rights of Optionees. No optionee shall be deemed for any
purpose to be the owner of any shares of Common Stock subject to any
option unless and until the option shall have been exercised pursuant
to the terms thereof, and the Corporation shall have issued and
delivered the shares to the optionee.
SECTION 7. METHOD OF EXERCISE, PAYMENT OF PURCHASE PRICE
7.1 Method of Exercise. Any option granted under the Plan may
be exercised by the optionee by delivering to the Corporation, on any
business day a written notice specifying the number of shares of
Common Stock the optionee then desires to purchase and specifying the
address to which the certificates for such shares are to be mailed
(the "Notice"), accompanied by payment for such shares.
7.2 Payment of Purchase Price. Payment for the shares of
Common Stock purchased pursuant to the exercise of an option shall be
made either by (i) cash, certified check, bank draft or postal or
express money order equal to the option price for the number of
shares specified in the Notice, or (ii) with the consent of the Board
or the Committee, as the case may be, shares of Common Stock of the
Corporation having a fair market value equal to the option price of
such shares, or (iii) with the consent of the Board or the Committee,
as the case may be, such other consideration which is acceptable to
said Board or Committee, as the case may be, and which has a fair
market value equal to the option price of such shares, or (iv) with
the consent of the Board or the Committee as the case may be, a
combination of (i), (ii) and/or (iii). For the purpose of the
preceding sentence, the fair market value per share of Common Stock
so delivered to the Corporation shall be determined in the manner
specified in Section 6.3. As promptly as practicable after receipt
of the Notice and accompanying payment, the Corporation shall deliver
to the optionee certificates for the number of shares with respect to
which such option has been so exercised, issued in the optionee's
name; provided, however, that such delivery shall be deemed effected
for all purposes when the Corporation or a stock transfer agent of
the Corporation shall have deposited such certificates in the United
States mail, addressed to the optionee, at the address specified in
the Notice.
SECTION 8. CHANGES IN THE CORPORATION'S CAPITAL STRUCTURE
8.1 Rights of the Corporation. The existence of outstanding
options shall not affect in any way the right or power of the
Corporation or its stockholders to make or authorize, without
limitation, any or all adjustments, recapitalizations,
reorganizations or other changes in the Corporation's capital
structure or its business, or any merger or consolidation of the
Corporation, or any issue of Common Stock, or any issue of bonds,
debentures, preferred or prior preference stock or other capital
stock ahead of or affecting the Common Stock or the rights thereof,
or the dissolution or liquidation of the Corporation, or any sale or
transfer of all or any part of its assets or business, or any other
corporate act or proceeding, whether of a similar character or
otherwise.
8.2 Recapitalization, Stock Splits and Dividends. If the
Corporation shall effect a subdivision or consolidation of shares or
other capital readjustment, the payment of a stock dividend, or other
increase or reduction of the number of shares of the Common Stock
outstanding, in any such case without receiving compensation therefor
in money, services or property, then (i) the number, class, and price
per share of shares of stock subject to outstanding options hereunder
shall be appropriately adjusted by the Corporation in such a manner
as to entitle an optionee to receive upon exercise of an option, for
the same aggregate cash consideration, the same total number and
class of shares as he or she would have received as a result of the
event requiring the adjustment had he or she exercised his or her
option in full immediately prior to such event; and (ii) the number
and class of shares with respect to which options may be granted
under the Plan shall be adjusted by substituting for the total number
of shares of Common Stock then reserved for issuance under the Plan
that number and class of shares of stock that the owner of an equal
number of outstanding shares of Common Stock would own as the result
of the event requiring the adjustment.
8.3 Merger without Change of Control. After a merger of one
or more corporations into the Corporation, or after a consolidation
of the Corporation and one or more corporations in each case as a
result of which (i) the Corporation shall be the surviving
corporation, and (ii) the stockholders of the Corporation immediately
prior to such merger or consolidation own after such merger or
consolidation shares representing at least fifty percent of the
voting power of the Corporation, each holder of an outstanding option
shall, at no additional cost, be entitled upon exercise of such
option to receive in lieu of the number of shares as to which such
option shall then be so exercisable, the number and class of shares
of stock or other securities to which such holder would have been
entitled pursuant to the terms of the agreement of merger,
consolidation or reorganization if, immediately prior to such merger,
consolidation or reorganization, such holder had been the holder of
record of a number of shares of, Common Stock equal to the number of
shares for which such option was exercisable.
8.4 Sale or Merger with Change of Control. If the
Corporation is merged into or consolidated with another corporation
under circumstances where the Corporation is not the surviving
corporation, or if there is a merger or consolidation where the
Corporation is the surviving corporation but the stockholders of the
Corporation immediately prior to such merger or consolidation do not
own after such merger or consolidation shares representing at least
fifty percent of the voting power of the Corporation, or if the
Corporation is liquidated, or sells or otherwise disposes of
substantially all of its assets to another corporation while
unexercised options remain outstanding under the Plan (i) subject to
the provisions of clause (iii) below, after the effective date of
such merger, consolidation, reorganization, liquidation, sale or
disposition, as the case may be, each holder of an outstanding option
shall be entitled, upon exercise of such option, to receive, in lieu
of shares of Common Stock, shares of such stock or other securities,
cash or property as the holders of shares of Common Stock received
pursuant to the terms of the merger, consolidation, reorganization,
liquidation, sale or disposition; (ii) the Board or the Committee, as
the case may be, may accelerate the time for exercise of all
unexercised and unexpired options to and after a date prior to the
effective date of such merger, consolidation, reorganization,
liquidation, sale or disposition, as the case may be, specified by
said Board or Committee; or (iii) all outstanding options may be
cancelled by the Board or the Committee, as the case may be, as of
the effective date of any such merger, consolidation, reorganization,
liquidation, sale or disposition provided that (x) notice of such
cancellation shall be given to each holder of an option and (y) each
holder of an option shall have the right to exercise such option to
the extent that the same is then exercisable or, if said Board or
Committee shall have accelerated the time for exercise of all
unexercised and unexpired options, in full during, the 30-day period
preceding the effective date of such merger, consolidation,
reorganization, liquidation, sale or disposition.
8.5 Adjustments to Common Stock Subject to Option. Except as
hereinbefore expressly provided, the issue by the Corporation of
shares of stock of any class, or securities convertible into shares
of stock of any class, for cash or property, or for labor or
services, either upon direct sale or upon the exercise of rights or
warrants to subscribe therefor, or upon conversion of shares or
obligations of the Corporation convertible into such shares or other
securities, shall not affect, and no adjustment by reason thereof
shall be made with respect to, the number or price of shares of
Common Stock then subject to outstanding options.
8.6 Miscellaneous. Adjustments under this Section 8 shall be
determined by the Board or the Committee, as the case may be, and
such determinations shall be conclusive. No fractional shares of
Common Stock shall be issued under the Plan on account of any
adjustment specified above.
SECTION 9. GENERAL RESTRICTIONS
9.1 Investment Representations. The Corporation may require
any person to whom an option is granted, as a condition of exercising
such option, to give written assurances in substance and form
satisfactory to the Corporation to the effect that such person is
acquiring the Common Stock subject to the option for his or her own
account for investment and not with any present intention of selling
or otherwise distributing the same, and to such other effects as the
Corporation deems necessary or appropriate in order to comply with
federal and applicable state securities laws.
9.2 Compliance with Securities Laws. The Corporation shall
not be required to sell or issue any shares under any option if the
issuance of such shares shall constitute a violation by the optionee
or by the Corporation of any provisions of any law or regulation of
any governmental authority. In addition, in connection with the
Securities Act of 1933, as now in effect or hereafter amended (the
"Securities Act"), upon exercise of any option, the Corporation shall
not be required to issue such shares unless the Board or the
Committee, as the case may be, has received evidence satisfactory to
it to the effect that the holder of such option will not transfer
such shares except pursuant to a registration statement in effect
under such Act or unless an opinion of counsel satisfactory to the
Corporation has been received by the Corporation to the effect that
such registration is not required. Any determination in this
connection by the Board or the Committee, as the case may be, shall
be final, binding and conclusive. In the event the shares issuable on
exercise of an option are not registered under the Securities Act,
the Corporation may imprint upon any certificate representing shares
so issued the following legend or any other legend which counsel for
the Corporation considers necessary or advisable to comply with the
Securities Act and with applicable state securities laws:
"The shares of stock represented by this certificate have not
been registered under the Securities Act of 1933 or under the
securities laws of any State and may not be sold or transferred
except upon such registration or upon receipt by the
Corporation of an opinion counsel satisfactory to the
Corporation, in form and substance satisfactory to the
Corporation, that registration is not required for such sale or
transfer."
The Corporation may, but shall in no event be obligated to, register
any securities covered hereby pursuant to the Securities Act; and in
the event any shares are so registered the Corporation may remove any
legend on certificates representing such shares. The Corporation
shall not be obligated to take any other affirmative action in order
to cause the exercise of an option or the issuance of shares pursuant
thereto to comply with any law or regulation of any governmental
authority.
9.3 Employment Obligation. The granting of any option shall
not impose upon the Corporation any obligation to employ or continue
to employ any optionee; and the right of the Corporation to terminate
the employment of any officer or other employee shall not be
diminished or affected by reason of the fact that an option has been
granted to him or her.
SECTION 10. AMENDMENT OR TERMINATION OF THE PLAN
The Board of Directors may modify, revise or terminate this Plan at
any time and from time to time, except that the class of persons
eligible to receive options and the aggregate number of shares
issuable pursuant to this Plan shall not be changed or increased,
other than by operation of Section 8 hereof, without the consent of
the stockholders of the Corporation.
SECTION 11. NONEXCLUSIVITY OF THE PLAN
Neither the adoption of the Plan by the Board of Directors nor the
submission of the Plan to the stockholders of the Corporation for
approval shall be construed as creating any limitations on the power
of the Board of Directors to adopt such other incentive arrangements
as it may deem desirable, including, without limitation, the granting
of stock options otherwise than under the Plan, and such arrangements
may be either applicable generally or only in specific cases.
SECTION 12. EFFECTIVE DATE AND DURATION OF PLAN
The Plan has been approved by the sole shareholder of the Corporation
and shall become effective upon the effective date of the
reorganization contemplated by the Merger Agreement. No option may
be granted under the Plan after the tenth anniversary of the opening
of Bank RI for business (March 25, 2006). The Plan shall terminate
(x) when the total amount of the Common Stock with respect to which
options may be granted shall have been issued upon the exercise of
options or (y) by action of the Board of Directors pursuant to
Section 10 hereof, whichever shall first occur.
IN WITNESS WHEREOF, the Corporation has caused this Amended and
Restated 1996 Incentive and Nonqualified Stock Option Plan to be executed
by its duly authorized officer as of the 19th day of September, 2000.
BANCORP RHODE ISLAND, INC.
By: /s/ Merrill W. Sherman
---------------------------
Name: Merrill W. Sherman
Title: President
Attest:
/s/ Margaret D. Farrell
- ------------------------------
Margaret D. Farrell
Secretary
393487 v2
EXHIBIT 10.5
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>7
<FILENAME>bri-x107.txt
<DESCRIPTION>AMEND. NO. 3 TO SUPPLEMENTAL EXEC. RETIREMENT PLAN
<TEXT>
EXHIBIT 10.7(b)
BANK RHODE ISLAND
AMENDMENT NO. 3 TO
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
WHEREAS, Bank Rhode Island (the "Bank") desires to amend the
provisions of the Bank's Supplemental Executive Retirement Plan (the "Plan")
to change the definition of "Change of Control" under the Plan; and
WHEREAS, under Article VIII of the Plan, the Board of Directors of the
Bank may amend the Plan at any time, provided that such amendment shall not
reduce the vested benefit of any Participant or amend Section 6.1 or 6.2 of
the Plan without the consent of all Participants; and
WHEREAS, under Section 3.1 of the Plan, the Board of Directors of the
Bank may from time to time select employees who shall be Participants in the
Plan and shall determine the Applicable Benefit Amount for such Participants
(as such terms are defined in the Plan); and
WHEREAS, on September 19, 2000 the Board of Directors of the Bank
approved amending the definition of "Change in Control" under the Plan and
approved increasing the Applicable Benefit Amounts payable to Participants
under the Plan;
NOW, THEREFORE, the Plan is amended as follows:
1. That Schedule A of the Plan be amended in its entirety to read
as set forth on Schedule A attached hereto.
2. Schedule B of the Plan be amended to increase the Applicable
Benefit Amount payable to Merrill W. Sherman to $150,000 as set forth in
Schedule B attached hereto.
3. Schedule C of the Plan be amended to increase the Applicable
Benefit Amounts payable to the Participants listed thereon as set forth on
Schedule C attached hereto.
4. All other provisions of the Plan shall remain in full force and
effect and are hereby ratified, approved and confirmed.
IN WITNESS WHEREOF, the Company has caused this Amendment No. 3 to the
Supplemental Executive Retirement Plan to be executed by its duly authorized
officer as of the 1st day of January, 2001.
BANK RHODE ISLAND
By: /s/Malcolm G. Chace
-------------------------------
Malcolm G. Chace,
Chairman
Attest:
/s/ Margaret D. Farrell
Secretary
SCHEDULE A
----------
TO
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
(A) Change in Control. For purposes of this Plan, a "Change in
Control" shall be deemed to have occurred if and when:
(1) a Takeover Transaction is effectuated; or (2) Bancorp
Rhode Island, Inc. (the "Company") commences substantive negotiations
with a third party with respect to a Takeover Transaction if within
twelve (12) months of the commencement of such negotiations, enters
into a definitive agreement with respect to a Takeover Transaction
with any party with which negotiations were originally commenced; or
(3) any election of directors of the Company occurs (whether by the
directors then in office or by the shareholders at a meeting or by
written consent) where a majority of the directors in office
following such election are individuals who were not nominated by a
vote of two-thirds of the members of the board of directors
immediately preceding such election; or (4) either of the Company or
the Bank effectuates a complete liquidation.
(B) Takeover Transaction. A "Takeover Transaction" shall mean:
(1) The acquisition of voting securities of the Company by
any individual, entity or group (within the meaning of Section
13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")), other than by the Company or its
subsidiaries or any employee benefit plan (or related trust) of the
Company or its subsidiaries, which theretofore did not beneficially
own (within the meaning of Rule 13d-3 promulgated under the Exchange
Act) securities representing 30% or more of the voting power of all
outstanding shares of voting securities of the Company, if such
acquisition results in such individual, entity or group owning
securities representing more than 30% of the voting power of all
outstanding voting securities of the Company; provided, that any
acquisition by a corporation with respect to which, following such
acquisition, more than 50% of the then outstanding shares of voting
securities of such corporation, is then beneficially owned, directly
or indirectly, by all or substantially all of the individuals and
entities who were the beneficial owners of the voting securities of
the Company outstanding immediately prior to such acquisition in
substantially the same proportion as their ownership, immediately
prior to such acquisition, of the outstanding voting securities of
the Company, shall not constitute a Change in Control; or
(2) The issuance of additional shares of common stock of the
Company or the Bank, as applicable, in a single transaction or a
series of related transactions if the individuals and entities who
were the beneficial owners of the outstanding voting securities of
the Company or the Bank, as applicable, immediately prior to such
issuance do not, following such issuance, beneficially own, directly
or indirectly, securities representing more than 50% of the voting
power of all then outstanding voting securities of the Company or the
Bank, as applicable; or
(3) Consummation by the Company or the Bank of (a) a
reorganization, merger or consolidation, in each case, with respect
to which all or substantially all of the individuals and entities who
were the beneficial owners of the voting securities of such entity
immediately prior to such reorganization, merger or consolidation do
not, following such reorganization, merger or consolidation,
beneficially own, directly or indirectly, securities representing
more than 50% of the voting power of then outstanding voting
securities of the corporation resulting from such a reorganization,
merger or consolidation, or (b) the sale, exchange or other
disposition (in one transaction or a series of related transactions)
of all or substantially all of the assets of the Company (on a
consolidated basis) or the Bank to a party which is not controlled by
or under common control with such entity, or (c) the sale by the
Company in one transaction or in a series of related transactions of
voting securities of the Bank such that following such transaction or
transactions the Company no longer beneficially owns, directly or
indirectly, securities representing more than 50% of the voting power
of the then outstanding voting securities of the Bank.
For purposes of this Section (B), "voting power" means ordinary
voting power for the election of directors.
SCHEDULE B
----------
Participants: Applicable Benefit Amount
------------ -------------------------
Sherman, Merrill W. $150,000
SCHEDULE C
----------
Participants: Applicable Benefit Amount
------------ -------------------------
DeRentis, James V. $ 35,000
McQueen, Donald C. $ 50,000
Rietheimer, Albert R. $ 50,000
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-13
<SEQUENCE>8
<FILENAME>bri-x13.txt
<DESCRIPTION>ANNUAL REPORT
<TEXT>
EXHIBIT 13
BANCORP RHODE ISLAND, INC.
Financial Highlights
<TABLE>
<CAPTION>
As of and for the Year Ended December 31,
---------------------------------------------------------------
2000 1999 1998 1997 1996 (a)
---------------------------------------------------------------
(Dollars in thousands, except Per Share Data)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net income $ 5,618 $ 4,362 $ 3,834 $ 3,510 $ 1,572
Per Share Data:
Net income per common share $ 1.49 $ 1.14 $ 0.85 $ 0.75 $ 0.30
Cash income per common share (b) 1.69 1.34 1.07 1.03 0.52
Book value per common share 14.29 12.79 12.31 10.77 9.92
Tangible book value per common share 11.09 9.27 8.44 5.18 3.89
Balance Sheet Data:
Total assets $739,420 $631,977 $595,964 $533,025 $472,417
Total loans 518,825 458,958 431,402 405,819 383,039
Total deposits 631,632 513,416 500,713 464,907 424,817
Total shareholders' equity 53,292 47,675 47,687 44,707 43,627
Operating Ratios:
Net interest margin 4.10% 3.80% 3.78% 4.22% 4.36%
Cash basis efficiency ratio (b) 61.79% 64.06% 64.62% 64.67% 73.91%
Cash basis return on average assets (b) (c) 0.96% 0.87% 0.84% 0.89% 0.62%
Cash basis return on average equity (b) (c) 13.12% 11.20% 10.08% 9.97% 6.55%
<FN>
(a) Partial year
(b) Excludes amortization of goodwill and any related income taxes
(c) Excludes cumulative effect of change in accounting principle, net of
taxes
</FN>
</TABLE>
BankRI's Mission
Bank Rhode Island will be the premier bank in the
communities we serve. We will provide excellent service
and a broad range of competitive financial products to
our customers through a team of well-trained professional
employees. We will be a civic leader through direct
involvement in local organizations and activities.
All of these endeavors will result in a strong performance for
our shareholders, a rewarding work environment for our employees,
and a valuable resource for our customers and community.
This report contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from
those discussed herein. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed in the
Company's Form 10-K for the year ended December 31, 2000.
Bancorp Rhode Island has no significant assets other than the common stock
of the Bank, therefore substantially all of the discussion in this document
relates to the operations of the Bank.
BancorpRI has experienced consistent growth since the Bank opened almost
five years ago.
<TABLE>
<CAPTION>
December 31,
1996 1997 1998 1999 2000
(In millions)
<S> <C> <C> <C> <C> <C>
Total Assets $472.4 $533.0 $596.0 $632.0 $739.4
Total Deposits $424.8 $464.9 $500.7 $513.4 $631.6
</TABLE>
<TABLE>
<CAPTION>
1996
(Partial year) 1997 1998 1999 2000
<S> <C> <C> <C> <C> <C>
Earnings Per Share $ .30 $ .75 $ .85 $ 1.14 $ 1.49
Earnings Per Share (Cash Basis) $ .52 $ 1.03 $ 1.07 $ 1.34 $ 1.69
</TABLE>
[PHOTO]
[Caption]
Caduceus Associates, a consortium of doctors and a real estate developer,
came to Bank Rhode Island with an idea to turn a vacant manufacturing building
into high-end medical office space. The Bank's flexibility in structuring the
complex construction and permanent financing allowed the project to go forward
and has brought new life to the 1950s manufacturing building in the heart of
the City's hospital district. The building provides much-needed medical office
space in the area and has put the doctors, and their patients, closer to the
extensive medical services available at three of the largest hospitals in
Rhode Island.
[End Caption]
Letter to Shareholders
The Company posted record earnings of $5.6 million in 2000, a 29 percent
jump over the previous year.
We knew early on that the Year 2000 was going to be an extraordinary one in
the history of Bank Rhode Island. By the end of March, our checking and
savings deposits had grown more than they did the entire year before. Our
quarterly commercial loan growth was higher than it had ever been, and our
earnings were up an impressive 47 percent over the first quarter of 1999.
And things just kept getting better.
<TABLE>
<CAPTION>
1996
(Partial year) 1997 1998 1999 2000
(In thousands)
<S> <C> <C> <C> <C> <C>
Net Income $1,572 $3,510 $3,835 $4,362 $5,618
</TABLE>
By the time the Year 2000 came to a close, we had redefined the benchmarks
by which we measure our success. We stopped comparing the Year 2000 to 1999
and began comparing it to the previous three and a half years combined.
Our core deposits (checking and savings) grew $81 million in 2000, $6.5
million more than in the previous three and a half years. Total deposit
growth was even stronger. Total deposits climbed $118 million, compared
with $95 million during the previous three and a half years. And total
assets were up more than $107 million, 70 percent higher than any previous
year.
All that growth resulted in record earnings of $5.6 million, a 29 percent
jump over the previous year. Earnings per share also posted impressive
gains, reaching $1.49, a 31 percent increase over 1999.
Our extraordinary success last year was the result of an ideal blend of
market conditions, the growing reputation of the Bank and our aggressive
efforts to market the Bank and its products.
We clearly benefited from changes in the marketplace that led many Rhode
Islanders to review their banking relationships. And when customers did
switch banks, many of them turned to us - the service-oriented local
alternative to the large regional banks in our marketplace. We also worked
very hard to become top of mind among Rhode Island consumers. We extended
our branch hours in some locations and ran special advertising campaigns
promoting Small Business Checking, our Custom Account and our home equity
loans. We also opened a new branch in Warwick and introduced a consumer and
business Internet product, both of which have met with tremendous success.
Our reputation as a sophisticated commercial lender continued to grow.
Rhode Island businesses are recognizing Bank Rhode Island as a source for
all their banking needs. The strength of our lending group, the customer
service available throughout our organization, and the access customers
have to decision makers makes us unique among banks serving the Rhode
Island business community.
We also have carved out a special niche among Rhode Island small
businesses. Our small business portfolio has increased 180 percent over the
last two years, and we are now the No. 3 SBA lender in the State.
The growth in our commercial portfolio has allowed the Bank to shift its
asset mix away from residential mortgages. This commercial loan growth,
along with the tremendous growth in core deposits, has driven the Bank's
earnings.
[PHOTO]
[Caption]
Bank Rhode Island has enjoyed tremendous success since it opened its doors
nearly five years ago. We have a strong balance sheet, talented people and
an outstanding reputation in the State. We are proud of what we've
accomplished, and we truly believe the best years of this franchise lie ahead.
[End Caption]
Market conditions were truly exceptional in 2000, and we do not
expect those conditions to duplicate themselves. But we have taken some
important steps to continue the success of the Bank in 2001 and beyond.
Last year we converted to a holding company structure. Bank Rhode Island
now operates as a wholly-owned subsidiary of Bancorp Rhode Island, Inc. We
believe this new structure will give the company more financial
flexibility, and it has already allowed the Bank to take advantage of
capital markets by participating in a trust preferred security pool in
early 2001.
We also entered into several strategic alliances in 2000 to broaden our
product array and compete with the larger players in our marketplace. We
have always looked to third-party providers to deliver best-in-class
products we simply could not develop internally. This puts us in a position
to be able to offer comparable if not better products than our larger
competitors and generate income without significantly increasing our
expenses.
In 2000, these partnerships allowed us to offer 24-hour home equity loan
approvals, to provide payroll and leasing products, international services
and to add 51 ATMs to our network.
[PHOTO]
Last year the Bank's senior management team also embarked on a long-range
strategic planning initiative. The goal of the initiative was to identify
ways to fully leverage our existing operations and develop concrete plans
for growing and expanding the Bank Rhode Island franchise.
We reviewed nearly every department of the Bank, and a number of elements
of the plan already have been implemented. One of the key programs to come
out of the planning initiative was the addition of investment services,
which the Bank added early in 2001 through relationships with two leading
investment advisors.
We also took some important steps in 2000 to tangibly show our gratitude to
our shareholders for their continued support. In January 2000 we doubled
the quarterly dividend to $0.10 and then increased it again to $0.12 in
November. The increases reflect our commitment to adding value for our
shareholders.
Bank Rhode Island has enjoyed tremendous success since it opened its doors
nearly five years ago. We have a strong balance sheet, talented people and
an outstanding reputation in the State. We are proud of what we've
accomplished, and we truly believe the best years of this franchise lie
ahead.
/s/ Malcolm G. Chace /s/ Merrill W. Sherman
Malcolm G. Chace Merrill W. Sherman
Chairman of the Board President & CEO
[PHOTO]
[Caption]
Edward, Romolo and Richard Evangelista of Federal Electronics. In 1948, Romolo
Evangelista started repairing appliances and radios out of a small shop in
Providence. Today, Federal Electronics ships products to companies all over
the world, produces millions of dollars in sales and employs hundreds of
workers. This family-run business came to Bank Rhode Island because the Bank
took the time to understand their business and treated them like they treat
their own customers. "There's a personal element at Bank Rhode Island that you
just don't see at other banks."
[End Caption]
Commercial Lending
The Bank's commercial loan outstanding have grown an average of 23 percent
per year over the last four years.
Bank Rhode Island's reputation and success as a commercial lender continued
to flourish in the Year 2000. The expertise of its lenders, the high level
of service provided and a growing product array has allowed the Bank to
consistently attract new business while continuing to meet the borrowing
needs of its existing customers.
<TABLE>
<CAPTION>
December 31,
1996 1997 1998 1999 2000
(In millions)
<S> <C> <C> <C> <C> <C>
Commercial Loans $92.6 $114.7 $134.0 $174.5 $212.8
</TABLE>
The Bank's growing presence in the marketplace has allowed it to increase
its commercial loan outstandings an average of 23 percent per year over the
last four years. The Bank's total commercial loan outstandings have more
than doubled in that time, reaching $213 million by year-end 2000.
And despite all that growth, the Bank's credit quality remained strong,
reflecting the integrity of the Bank's credit culture and the financial
strength of its customers.
Bank Rhode Island's lending capabilities reach across all business types
and industries. More and more, Rhode Island businesses are turning to Bank
Rhode Island for their commercial lending needs.
The Bank also took steps in the Year 2000 to ensure that it continued to
meet the needs of the business community, including the addition of two
senior business lenders. The Bank also expanded its menu of commercial
products and services in a variety of ways through agreements with third-
party providers.
In 2000, the Bank teamed with Brown Brothers Harriman, a well-respected
private commercial bank in Boston, to provide its customers with
international trade services. The Bank also added payroll services through
an agreement with Advantage Payroll, a national payroll service provider.
In June, the Bank signed an agreement with Synergy Resources of Minneapolis
to provide business customers with options for equipment lease financing.
Synergy provides Bank customers with leases from $3,000 to over $1 million
for all types of equipment, including computers, office equipment, and
telephone systems.
And through a leading provider of Internet technology, the Bank began
offering its customers one of the area's best online cash management
systems. The Bank's business customers can make direct payroll deposits
into employees' accounts, pay vendors' bills online and transfer money from
other banks to and from their Bank Rhode Island accounts. The Internet
product has been tremendously successful. In just under a year, more than
13 percent of the Bank's business checking customers have signed up for
online banking.
Bank Rhode Island is proud of its reputation in the marketplace and the
depth of knowledge of its commercial lenders. The Bank will continue to add
to its product mix and its expertise so that it can better serve the
growing business community.
[PHOTO]
[Caption]
Federal Electronics produces sub-assemblies for companies like Lockheed
Martin, General Dynamics and Teradyne from its 42,000 square foot facility
in Cranston.
[End Caption]
Business Lending
The Bank booked $54 million in new commercial and industrial commitments in
the Year 2000, meeting the financial needs of small-to mid-size businesses
across the State and in Southeastern Massachusetts. The Bank provided local
businesses with financing for virtually every business purpose, including
business expansion, equipment needs and physical plant improvements.
More than half of those new commitments, $34 million, were to new business
customers. And many of those new commercial loan customers, nearly 60 in
all, moved their entire banking relationships to Bank Rhode Island.
The growth in commercial and industrial lending continued to fuel the
growth of the Bank. In 2000, Business Lending (commercial & industrial
lending and related owner-occupied real estate lending) climbed more than
38 percent and made up more than 65 percent of the growth in the commercial
portfolio.
Commercial Real Estate Lending
The Commercial Real Estate Group booked more than $21 million in new loans
during the Year 2000. The Group continued to finance an array of commercial
and residential real estate projects throughout the State.
Some of the more noteworthy of these projects last year included the
permanent financing for a new CVS in Providence, financing the purchase of
a large medical office building in Lincoln and the construction and
permanent financing of a new hotel in Middletown. Bank Rhode Island also
financed multi-family housing units in Providence and Central Falls, a
residential subdivision in Cranston and retail construction in Providence
and Coventry.
The Group also committed $7.5 million in lines of credit to local
residential homebuilders. The lines provide local contractors with
construction financing for homes under contract and allow contractors to
begin construction more quickly by streamlining the construction loan
process. The program has helped the Bank build strong relationships with
the local building community and meet the demands of the real estate market
for new single-family construction.
Small Business Lending
In the Year 2000, that Bank continued to be one of the primary sources of
financing for small businesses in the State. The Bank's Small Business
portfolio (loans under $250,000) climbed more than 43 percent after nearly
doubling in 1999. The portfolio reached $19 million by year-end and now
makes up 9 percent of the total commercial loan portfolio.
In 2000, the Bank was one of the leading U.S. Small Business Administration
(SBA) lenders in the State. Bank Rhode Island ranked No. 3 in Rhode Island
with 69 loans totaling $9.4 million for the SBA fiscal year ending
September 30. And over the last three months of 2000, Bank Rhode Island
approved $3.2 million in SBA guaranteed loans, making it the top SBA lender
in Rhode Island.
The Bank continued to add products and services to provide additional
resources for small businesses. Bank Rhode Island implemented a loan
program for non-profit organizations, added a streamlined approval process
for overdraft lines of credit and took part in an expedited financing
program for Rhode Island oil dealers during the oil crisis in early 2000.
[PHOTO]
[Caption]
Last year, Bank Rhode Island continued its commitment to the revitalization
efforts in the neighborhoods of Providence. By utilizing Community Development
Advances from the Federal Home Loan Bank of Boston, Bank Rhode Island was able
to provide a construction and permanent mortgage for this 146-year-old
Italianate style home in the Armory District. Bank Rhode Island's flexibility
in structuring the loan allowed the owner to qualify for additional funding
through the Providence Preservation Society, which helped finance the exterior
restoration.
[End Caption]
Retail Banking
The Bank's total deposits climbed $118 million in 2000, nine times the
deposit growth in 1999.
Phenomenal deposit growth was the dominant story in the Year 2000 for
Retail Banking.
Changes in the marketplace, new products and strong advertising helped
shatter almost every deposit growth measure at the Bank.
By the end of 2000, the Bank's total deposits had climbed a remarkable $118
million, more than nine times the deposit growth in 1999. In fact, the
Bank's two Providence offices, Turks Head ($18 million in deposit growth)
and the East Side ($14 million) both surpassed the 1999 deposit growth for
the entire Bank.
<TABLE>
<CAPTION>
December 31,
1996 1997 1998 1999 2000
<S> <C> <C> <C> <C> <C>
Average branch size $35.4 $38.7 $38.5* $39.4 $48.5
<FN>
(In millions)
* Added 13th branch to Network
</FN>
</TABLE>
The Bank even saw strong deposit growth over the summer, a traditionally
slow time for bank deposits. The Bank now has an average branch size of $49
million, compared to $35 million when the Bank opened its doors in 1996.
Two branches are now over $60 million in deposits and six are over $50
million.
The Fleet/BankBoston merger clearly impacted the local marketplace and
presented Bank Rhode Island with a unique opportunity to attract customers.
The Bank stepped up its marketing efforts considerably in order to take
full advantage of the displacement the merger caused in Rhode Island.
The Bank developed BusinessMax, a high rate savings account for businesses.
The highly successful promotion fueled the Bank's $37 million in savings
account growth. Bank Rhode Island also launched a small business checking
account campaign in the Spring that was so successful the Bank re-
introduced the promotion in the Fall. As a result of these and other
efforts, the Bank's demand deposits grew more than $38 million during 2000.
Other promotions also helped to substantially increase Bank Rhode Island's
visibility in 2000. The Bank opened a new branch in the Buttonwoods section
of Warwick in March. The new branch gives Bank Rhode Island four locations
in Warwick, the second largest city in the State.
The Bank also introduced both a personal and business Internet product. By
partnering with Digital Insight, Bank Rhode Island was able to offer one of
the best on-line products available. Nearly five percent of the Bank's
retail checking customers are already online and can view account balances
and histories, pay bills and transfer funds.
Additionally, Bank Rhode Island teamed with the Rhode Island Public Transit
Authority to offer RIPTA passes through its branches. The program, which
included advertising throughout the State, was developed to give commuters
an alternative place to buy passes while renovations were made to the
State's central bus terminal in downtown Providence.
And while actively promoting the Bank was the primary focus of Retail
Banking last year, the Bank continued its ongoing effort to update its
branch network and expand its product offerings.
The Bank completed renovations of its Centerville Road branch and its
downtown Providence location in the historic Turks Head Building. The Turks
Head space features a gallery wall where local artists can display their
work. The gallery gives the Bank a presence in the thriving Rhode Island
arts community and is also a stop on Gallery Night, a monthly trolley tour
connecting galleries throughout the City.
[PHOTO]
[Captions]
Bancorp Rhode Island is proud of its involvement in the community, which
included donations not only of money, but of time, at more than 140 non-
profit organizations last year. Whether it's supporting the Breast Cancer
Research Center at Women & Infants Hospital or the local Chamber of Commerce,
Bank Rhode Island is always willing to contribute to the on-going efforts to
improve the communities in which we work and live.
As part of its five-year anniversary celebration, Bank Rhode Island will
sponsor the CapitalArts summer concert series at Waterplace Park in
downtown Providence. The series features performers from around the world
and draws nearly 5,000 people a week.
[End Captions]
The Bank also expanded ATM access for its customers through an agreement
with an independent ATM network. The agreement gives Bank Rhode Island
customers access to cash at 51 ATMs throughout the State without incurring
a foreign ATM fee. And earlier this year, the Bank joined the SUM Program,
giving Bank customers access to surcharge free ATM transactions at more
than 2,500 ATMs in New England.
Early in 2001, the Bank also announced agreements with three leading
investment service providers to bring an array of financial services to its
customers. Two of the relationships, with Baldwin Brothers Investment
Advisors and PNC Advisors, will enable the Bank to provide investment
management services to high net worth individuals.
The third partnership, with Commonwealth Financial Network, will help
revamp the Bank's in-branch mutual fund and annuity sales and market them
under the name "BARI Investment Services." The Bank has added an Investment
Management Officer to spearhead the program and has hired investment
representatives to work in the Bank's 13 branches. Bank Rhode Island also
added a Retail Sales Manager position and realigned its regional operations
to better promote all product sales in the branches.
Retail Lending
A successful home equity campaign in March and a joint direct mail program
with Amica Insurance in October helped push the Bank's consumer loan
portfolio to $58 million, a 23 percent increase over 1999.
Home equity volumes were also helped by the addition of a home equity loan
and line of credit hotline. Bank customers can receive a conditional
approval on a home equity loan or line in about 10 minutes, 24 hours a day,
7 days a week.
The Bank also continued its commitment to low and moderate income
neighborhoods in Rhode Island. Through a partnership with the Providence
Preservation Society, the Bank invested $75,000 in its Revolving Fund to be
designated for home improvement loans in Rhode Island's less affluent
neighborhoods.
The Bank also utilized Community Development Advances from the Federal Home
Loan Bank of Boston to provide a rehabilitation mortgage for Providence
Community Action and allow an owner-occupant to purchase a five-unit mixed
use property on Westminster Street in Providence. And in 2000, Bank Rhode
Island became a Rhode Island Housing and Mortgage Finance lender. Rhode
Island Housing mortgages provide home ownership opportunities for low-to
middle-income individuals in the State.
BANCORP RHODE ISLAND, INC. AND BANK RHODE ISLAND BOARDS OF DIRECTORS
Malcolm G. Chace
Chairman of the Board
Bancorp Rhode Island, Inc.
Chairman of the Board
Bank Rhode Island
Providence, RI
Chairman
Mossberg Industries
Cumberland, RI
Chairman
SENESCO
North Kingstown, RI
Anthony F. Andrade
President
A & H Printing
East Providence, RI
John R. Berger
Consultant
West Hartford, CT
Ernest J. Chornyei, Jr.
Consultant
Watch Hill, RI
Karl F. Ericson
Consultant
Providence, RI
Margaret D. Farrell, Esq.
Hinckley, Allen & Snyder LLP
Providence, RI
Mark R. Feinstein
President
Northeast Management, Inc.
Lincoln, RI
F. James Hodges
Chairman
Hodges Badge Company
Portsmouth, RI
Donald J. Reaves
Executive Vice President/Finance
and Administration and
Chief Financial Officer
Brown University
Providence, RI
Merrill W. Sherman
President and CEO
Bancorp Rhode Island, Inc.
President and CEO
Bank Rhode Island
Providence, RI
Cheryl L. Watkins-Snead
President and CEO
Banneker Industries, Inc.
Lincoln, RI
John A. Yena
President
Johnson & Wales University
Providence, RI
[PHOTO]
(L-R) Anthony F. Andrade, Donald J. Reaves,
Margaret D. Farrell and Mark R. Feinstein
[PHOTO]
(L-R) Karl F. Ericson, Ernest J. Chornyei,
Cheryl L. Watkins-Snead and John R. Berger
[PHOTO]
(L-R) Malcolm G. Chace,
Merrill W. Sherman and John A. Yena
(not pictured, F. James Hodges)
Bancorp Rhode Island, Inc.
Executive Officers
Merrill W. Sherman
President and CEO
Albert R. Rietheimer, CPA
Chief Financial Officer and Treasurer
Donald C. McQueen
Vice President and Assistant Secretary
Bank Rhode Island
Executive Officers
Merrill W. Sherman
President and CEO
Albert R. Rietheimer, CPA
Chief Financial Officer and Treasurer
Donald C. McQueen
Executive Vice President and
Chief Lending Officer
James V. DeRentis
Senior Vice President,
Retail Banking and Marketing
Officers
Accounting and Finance
John E. Westwood
Vice President and
Controller
Mona E. Blais
Vice President,
Accounting
Joan E. Rivelli
Accounting Officer,
Accounting Manager
Administration & Planning
Melinda L. Ailes
Senior Vice President,
Planning & Development Manager
Elizabeth M. Carroll
Senior Vice President,
Administrative Services
Stephen M. Turgeon
Vice President,
Corporate Communications
Gisele M. Golembeski
Assistant Vice President,
Administrative Services
Daniel A. Patenaude
Assistant Vice President,
Facilities Manager & Security Officer
Debra S. Regan
Assistant Vice President,
Human Resources Director
Audit
Kenneth L. Senus
Chief Auditor
Melissa A. Ogg
Senior Auditor
Retail Banking
Kathleen C. Anter
Vice President,
Branch Sales
Linda A. Geremia
Vice President,
Regional Manager
Kathryn E. Taylor
Vice President,
Regional Manager
Elizabeth A. Hart
Vice President,
Marketing Manager
Michael J. Roy
Vice President,
Retail Banking
Melissa L. Trapp
Vice President,
Investment Services
Donald L. DiBlasi
Vice President,
Business Development Officer
Andrew J. Deluski
Assistant Vice President,
Branch Manager
Steven J. Grasso
Assistant Vice President,
Business Development Officer
Diane Y. Goyette
Assistant Vice President,
Branch Manager
Lorie L. Bruyere
Retail Banking Officer,
Branch Manager
Madeleine G. Dickie
Retail Banking Officer,
Branch Manager
Tanya S. Fandino
Retail Banking Officer,
Internet Banking Manager
Suzanne D. Joyal
Retail Banking Officer,
Branch Manager
Kathleen M. Morgan
Retail Banking Officer,
Branch Manager
Leah M. Prata
Retail Banking Officer,
Branch Manager
Paula J. Salcone
Retail Banking Officer,
Branch Manager
Maria T. Travassos
Retail Banking Officer,
Branch Manager
Eileen F. Tweedie
Retail Banking Officer,
Branch Manager
Doris Bragger
Collections Officer
Lori A. Oliveira
Marketing Officer
Doreen M. Sousa
Retail Banking Officer
[PHOTO]
Bank Rhode Island
Executive Officers
(L-R) Donald C. McQueen, James V. DeRentis,
Merrill W. Sherman and Albert R. Rietheimer
Commercial Lending
Kevin R. Kelly
Senior Vice President and
Head of Business Lending
Emanuel E. Barrows
Senior Vice President,
Business Lending
Daniel J. Hagerty
Senior Vice President,
Business Lending
Michael J. Kerr
Senior Vice President,
Business Lending
Lori J. Webber
Senior Vice President,
Business Lending
James C. Kelshaw
Vice President,
Business Lending
Albert M. Jaffarian
Commercial Lending Officer,
Portfolio Manager
Real Estate Lending
Kyle A. Macdonald
Senior Vice President and
Head of Real Estate Lending
Stephen J. Gibbons
Senior Vice President,
Real Estate Lending
Rosa C. Medeiros
Assistant Vice President
Commercial Real Estate Officer
Consumer & Small Business Lending
Peter Walsh
Senior Vice President,
Retail and Small Business Lending
CRA Officer
David L. Goolgasian
Assistant Vice President,
Consumer Underwriter
Joseph P. Hindle
Assistant Vice President,
Small Business Lending
Joseph M. D'Amico
Retail Lending Officer
Abigail T. Moore
Small Business Officer,
Portfolio Manager
Credit Administration
Paul G. Wielgus
Senior Vice President,
Senior Credit & Compliance Officer
Gregory E. Kwiatkowski
Assistant Vice President,
Loan Review Officer
Maureen F. Snell
Assistant Vice President,
Loan Servicing
Operations/MIS
Arlene N. Stinson
Senior Vice President,
Operations & MIS
Tonia R. Ryan
Vice President,
Operations Manager
Donald G. Morash
Assistant Vice President,
MIS Manager
Karen J. Talbot
Operations Officer
Elizabeth A. Limerick
Operations Officer
Stock Transfer
Agent
Registrar and Transfer Company
10 Commerce Way
Cranford, NJ 07016
Auditors
KPMG LLP
Providence, RI
Counsel
Hinckley, Allen & Snyder LLP
Providence, RI
Investor Information
The Bancorp Rhode Island, Inc. 2001 annual meeting will be held on
Wednesday, May 16, 2001 at 10:00 a.m. at the Courtyard by Marriott,
Providence, RI.
Requests for information, including copies of the company's annual report,
may be obtained at no charge by writing to:
Investor Relations Department
Bancorp Rhode Island, Inc.
One Turks Head Place
Providence, RI 02903
Branch Locations
1047 Park Avenue
Cranston, RI 02910
383 Atwood Avenue
Cranston, RI 02910
195 Taunton Avenue
East Providence, RI 02914
999 South Broadway
East Providence, RI 02914
1440 Hartford Avenue
Johnston, RI 02919
One Turks Head Place
Providence, RI 02903
137 Pitman Street
Providence, RI 02906
445 Putnam Pike
Smithfield, RI 02917
1300 Warwick Avenue
Warwick, RI 02888
1062 Centerville Road
Warwick, RI 02886
233 Lambert Lind Highway
Warwick, RI 02886
2975 West Shore Road
Warwick, RI 02886
1175 Cumberland Hill Road
Woonsocket, RI 02895
(Full Service Drive-up ATM)
17 Coventry Shoppers Park
Coventry, RI 02816
SELECTED CONSOLIDATED FINANCIAL DATA
The following table represents selected consolidated financial data as
of and for the years ended December 31, 2000, 1999, 1998, 1997 and 1996. The
selected consolidated financial data is derived from the Company's
Consolidated Financial Statements that have been audited by KPMG LLP. The
selected consolidated financial data set forth below does not purport to be
complete and should be read in conjunction with, and are qualified in their
entirety by, the more detailed information, including the Consolidated
Financial Statements and related Notes, and "Management's Discussion and
Analysis of Financial Condition and Results of Operations," appearing
elsewhere herein.
<TABLE>
<CAPTION>
As of and for the
Year Ended December 31,
---------------------------------------------------------
2000 1999 1998 1997 1996(a)
---- ---- ---- ---- -------
(Dollars in thousands, except Per Share Data)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Interest income $ 50,035 $ 41,651 $ 40,034 $ 37,269 $ 26,514
Interest expense 23,678 19,600 19,845 17,478 11,778
---------------------------------------------------------
Net interest income 26,357 22,051 20,189 19,791 14,736
Provision for loan losses 1,542 1,000 1,017 1,000 837
Noninterest income 3,578 3,222 2,727 1,916 1,237
Noninterest expense 19,662 17,354 16,043 15,273 12,718
---------------------------------------------------------
Income before taxes and change in accounting principle 8,731 6,919 5,856 5,434 2,418
Income taxes 3,113 2,448 2,022 1,924 846
---------------------------------------------------------
Income before change in accounting principle 5,618 4,471 3,834 3,510 1,572
Cumulative effect of change in accounting principle, net of taxes -- 109 -- -- --
---------------------------------------------------------
Net income 5,618 4,362 3,834 3,510 1,572
Dividends on preferred stock -- 88 793 1,413 720
---------------------------------------------------------
Net income available to common shareholders $ 5,618 $ 4,274 $ 3,041 $ 2,097 $ 852
=========================================================
Per Share Data:
Basic earnings per common share:
Income before change in accounting principle $ 1.51 $ 1.18 $ 0.87 $ 0.75 $ 0.30
Cumulative effect of change in accounting principle -- (0.03) -- -- --
---------------------------------------------------------
Net income $ 1.51 $ 1.15 $ 0.87 $ 0.75 $ 0.30
=========================================================
Basic cash earnings per common share (d) $ 1.71 $ 1.35 $ 1.10 $ 1.03 $ 0.52
Diluted earnings per common share:
Income before change in accounting principle $ 1.49 $ 1.17 $ 0.85 $ 0.75 $ 0.30
Cumulative effect of change in accounting principle -- (0.03) -- -- --
---------------------------------------------------------
Net income $ 1.49 $ 1.14 $ 0.85 $ 0.75 $ 0.30
=========================================================
Diluted cash earnings per common share (d) $ 1.69 $ 1.34 $ 1.07 $ 1.03 $ 0.52
Dividends per common share $ 0.42 $ 0.10 -- -- --
Dividend pay-out ratio 28.2% 8.8% NA NA NA
Book value per common share $ 14.29 $ 12.79 $ 12.31 $ 10.77 $ 9.92
Tangible book value per common share $ 11.09 $ 9.27 $ 8.44 $ 5.18 $ 3.89
Average common shares outstanding - Basic 3,728,688 3,727,010 3,506,573 2,800,061 2,800,000
Average common shares outstanding - Diluted 3,768,589 3,741,778 3,584,820 2,805,688 2,800,000
Balance Sheet Data:
Total assets $ 739,420 $ 631,977 $ 595,964 $ 533,025 $ 472,417
Investment securities 47,296 50,503 39,703 48,319 45,120
Mortgage-backed securities 117,431 74,793 79,924 43,078 --
Total loans receivable 518,825 458,958 431,402 405,819 383,039
Allowance for loan losses 7,294 5,681 5,018 4,340 4,024
Excess of costs over net assets acquired 11,930 13,094 14,424 15,658 16,892
Deposits 631,632 513,416 500,713 464,907 424,817
Borrowings 51,889 67,911 45,512 19,754 1,303
Common shareholders' equity 53,292 47,675 45,835 30,165 27,785
Total shareholders' equity 53,292 47,675 47,687 44,707 43,627
Average Balance Sheet Data: (b)
Total assets $ 679,085 $ 616,426 $ 565,759 $ 499,382 $ 465,961
Investment securities 47,034 47,348 44,040 47,242 23,918
Mortgage-backed securities 86,114 79,463 57,627 15,689 --
Total loans receivable 491,327 439,099 421,554 395,684 384,857
Allowance for loan losses 6,472 5,358 4,799 4,210 3,772
Excess of costs over net assets acquired 12,540 13,720 15,077 16,318 16,788
Deposits 572,924 516,610 476,227 442,604 420,709
Borrowings 54,471 50,496 39,944 10,823 443
Common shareholders' equity 48,530 46,169 40,568 27,981 26,605
Total shareholders' equity 48,530 46,631 46,041 43,196 42,433
Operating Ratios:
Interest rate spread 3.44% 3.25% 3.20% 3.68% 3.86%
Net interest margin 4.10% 3.80% 3.78% 4.22% 4.36%
Efficiency ratio (c) 65.68% 68.67% 70.01% 70.36% 79.63%
Cash basis efficiency ratio (c) (d) 61.79% 64.06% 64.62% 64.67% 73.91%
Return on average assets (e) 0.83% 0.73% 0.68% 0.70% 0.43%
Cash basis return on average assets (d) (e) 0.96% 0.87% 0.84% 0.89% 0.62%
Return on average equity (e) 11.58% 9.59% 8.33% 8.13% 4.76%
Cash basis return on average equity (d) (e) 13.12% 11.20% 10.08% 9.97% 6.55%
Asset Quality Ratios:
Nonperforming loans to total loans 0.10% 0.24% 0.36% 0.41% 0.35%
Nonperforming assets to total assets 0.07% 0.18% 0.33% 0.38% 0.28%
Allowance for loan losses to nonperforming loans 1435.83% 510.88% 321.05% 258.49% 301.88%
Allowance for loan losses to total loans 1.41% 1.24% 1.16% 1.07% 1.05%
Net loans charged-off to average loans outstanding (0.01%) 0.08% 0.08% 0.17% 0.06%
Capital Ratios:
Average shareholders' equity to average total assets 7.15% 7.54% 8.14% 8.64% 9.11%
Tier I leverage ratio 5.91% 5.88% 5.72% 5.62% 5.92%
Tier I risk-based capital ratio 9.50% 9.70% 9.60% 9.41% 9.05%
Total risk-based capital ratio 10.76% 10.96% 10.85% 10.66% 10.30%
<FN>
(a) The Bank commenced operations on March 22, 1996.
(b) Average balances for 1996 are computed for the period subsequent to
the Bank's opening (March 22, 1996).
(c) Calculated by dividing total noninterest expenses by net interest
income plus noninterest income.
(d) Excludes amortization of intangibles and any related income taxes.
(e) Excludes cumulative effect of change in accounting principle, net of
taxes.
</FN>
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Cautionary Statement
Certain statements contained herein are "Forward Looking Statements"
within the meaning of the Private Securities Litigation Reform Act of 1995.
Forward Looking Statements may be identified by reference to a future period
or periods or by the use of forward looking terminology such as "may,"
"believes," "intends," "expects," and "anticipates" or similar terms or
variations of these terms. Actual results may differ materially from those
set forth in Forward Looking Statements as a result of certain risks and
uncertainties, including but not limited to, changes in political and
economic conditions, interest rate fluctuations, competitive product and
pricing pressures, equity and bond market fluctuations, credit risk,
inflation, as well as other risks and uncertainties detailed from time to
time in filings with the Securities and Exchange Commission ("SEC").
General
Bancorp Rhode Island, Inc. (the "Company"), a Rhode Island
corporation, was organized by Bank Rhode Island (the "Bank") on February 15,
2000, to be a bank holding company and to acquire all of the capital stock
of the Bank. The reorganization of the Bank into the holding company form
of ownership was completed on September 1, 2000. The Company has no
significant assets other than the common stock of the Bank. For this
reason, substantially all of the discussion in this document relates to the
operations of the Bank and its subsidiaries.
Bank Rhode Island is a commercial bank chartered as a financial
institution in the State of Rhode Island. The Bank pursues a community
banking mission and is principally engaged in providing banking products and
services to individuals and businesses in Providence and Kent counties. The
Bank is subject to competition from a variety of traditional and
nontraditional financial service providers both within and outside of Rhode
Island. The Bank offers its customers a wide range of deposit products,
nondeposit investment products, commercial, residential and consumer loans,
and other traditional banking products and services, designed to meet the
needs of individuals and small- to mid-sized businesses. The Bank also has
introduced both commercial and consumer on-line banking products and
maintains a web site at http://www.bankri.com. The Company and Bank are
subject to regulation by a number of federal and state agencies and undergo
periodic examinations by certain of those regulatory authorities. The
Bank's deposits are insured by the Federal Deposit Insurance Corporation
("FDIC"), subject to regulatory limits. The Bank is also a member of the
Federal Home Loan Bank of Boston ("FHLB").
Non-GAAP Measures of Financial Performance
Contained within this document are various measures of financial
performance that have been calculated excluding the amortization of goodwill
and any related income taxes. These measures are identified as "cash" or
"cash basis" and have been provided to assist the reader in evaluating the
core performance of the Company. This presentation is not in accordance
with Generally Accepted Accounting Principles ("GAAP"), but management
believes it to be beneficial to gaining an understanding of the financial
performance of the Company.
The Bank's formation in 1996 resulted in the generation of $17.5
million of goodwill that is being amortized over a 15-year period. The
amortization of goodwill reduces the Bank's pre-tax income by $1.2 million
annually. Because of the impact of this amortization, certain information
has been presented on both a GAAP and cash basis. Recently, the Financial
Accounting Standards Board ("FASB") has concluded that goodwill would no
longer be amortized. Upon the effective date of the final FASB statement,
the difference between GAAP and cash basis presentation will no longer
exist. Also see discussion under "Recent Accounting Developments".
Results of Operations
Net Interest Income
The Company's operating results depend primarily on its "net interest
income", or the difference between its interest income and its cost of
money, and on the quality of its assets. Interest income depends on the
amount of interest-earning assets outstanding during the year and the
interest rates earned thereon. The Company's cost of money is a function of
the average amount of deposits and borrowed money outstanding during the
year and the interest rates paid thereon. The quality of assets influences
operating results through the amount of additions to the allowance for loan
losses, which are a charge against earnings, and the amount of interest
income lost on nonaccrual loans.
Net interest income for 2000 was $26.4 million, compared to $22.1
million for 1999 and $20.2 million for 1998. This increase of $4.3 million,
or 19.5%, during 2000 was primarily attributable to the continued growth of
the commercial loan portfolio, coupled with unparalleled growth in core
deposit accounts resulting in part from the unusual market conditions
created by the Fleet Financial/BankBoston divestitures. The Company's net
interest margin increased in 2000 and was 4.10%, compared to 3.80% in 1999
and 3.78% for 1998. Average earning assets were $63.2 million, or 10.9%,
higher and average interest-bearing liabilities were $47.0 million, or 9.4%,
higher during 2000 than during the previous year.
Average Balances, Yields and Costs
The following table sets forth certain information relating to the
Company's average balance sheet and reflects the average yield on assets and
average cost of liabilities for the years indicated. Such yields and costs
are derived by dividing income or expense by the average balance of assets
or liabilities. Average balances are derived from daily balances and
include nonperforming loans.
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------------------------
2000 1999 1998
-------------------------- -------------------------- -------------------------
Interest Interest Interest
Average Earned/ Average Average Earned/ Average Average Earned/ Average
Balance Paid Yield Balance Paid Yield Balance Paid Yield
------- -------- ------- ------- -------- ------- ------- -------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Earning assets:
Federal funds sold $ 14,571 $ 930 6.38% $ 10,051 $ 482 4.80% $ 7,806 $ 400 5.12%
Investment securities 47,034 3,056 6.50% 47,348 2,814 5.94% 44,040 2,744 6.23%
Mortgage-backed securities 86,114 5,576 6.48% 79,463 4,835 6.08% 57,627 3,521 6.11%
Stock in the FHLB 3,704 282 7.61% 3,622 237 6.54% 3,248 208 6.40%
Loans receivable:
Residential mortgage loans 243,706 17,982 7.38% 244,698 16,997 6.95% 266,917 19,205 7.20%
Commercial loans 197,200 17,737 8.99% 151,725 12,795 8.43% 118,941 10,812 9.09%
Consumer and other loans 50,421 4,472 8.87% 42,676 3,491 8.18% 35,696 3,144 8.81%
----------------- ----------------- ----------------
Total earning assets 642,750 50,035 7.78% 579,583 41,651 7.19% 534,275 40,034 7.49%
------- ------- -------
Cash and due from banks 17,998 18,268 11,628
Allowance for loan losses (6,472) (5,358) (4,799)
Premises and equipment 6,306 5,283 4,855
Other real estate owned 80 226 502
Excess of cost over net assets acquired, net 12,540 13,720 15,077
Accrued interest receivable 4,126 3,704 3,967
Prepaid expenses and other assets 1,757 1,000 254
-------- -------- --------
Total assets $679,085 $616,426 $565,759
======== ======== ========
Liabilities and Shareholders' Equity:
Interest-bearing liabilities:
Deposits:
NOW accounts $ 31,555 205 0.65% $ 27,082 175 0.65% $ 22,176 175 0.79%
Money market accounts 14,113 375 2.66% 17,284 473 2.74% 13,327 401 3.01%
Savings accounts 192,217 6,137 3.19% 172,073 4,742 2.76% 155,420 4,670 3.00%
Certificate of deposit accounts 252,521 13,685 5.42% 230,901 11,396 4.94% 231,392 12,360 5.34%
Overnight and short-term borrowings 11,474 636 5.54% 7,329 335 4.57% 4,555 225 4.94%
FHLB and other borrowings 42,997 2,640 6.14% 43,167 2,479 5.74% 35,389 2,014 5.69%
----------------- ----------------- ----------------
Total interest-bearing liabilities 544,876 23,678 4.34% 497,836 19,600 3.94% 462,259 19,845 4.29%
------- ------- -------
Noninterest-bearing deposits 82,518 69,270 53,912
Other liabilities 3,161 2,689 3,547
-------- -------- --------
Total liabilities 630,555 569,795 519,718
Shareholders' equity 48,530 46,631 46,041
-------- -------- --------
Total liabilities and shareholders' equity $679,085 $616,426 $565,759
======== ======== ========
Net interest income $26,357 $22,051 $20,189
======= ======= =======
Net interest rate spread 3.44% 3.25% 3.20%
Net interest rate margin 4.10% 3.80% 3.78%
</TABLE>
Rate/Volume Analysis
The following table sets forth certain information regarding changes
in the Company's interest income and interest expense for the periods
indicated. For each category of interest-earning assets and interest-
bearing liabilities, information is provided on changes attributable to (i)
changes in rate (changes in rate multiplied by old average balance) and (ii)
changes in volume (changes in average balances multiplied by old rate). The
net change attributable to the combined impact of rate and volume was
allocated to the individual rate and volume changes.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------
2000 vs 1999 1999 vs 1998
Increase/(Decrease) Due To Increase/(Decrease) Due To
---------------------------- --------------------------------
Rate Volume Total Rate Volume Total
---- ------ ----- ---- ------ -----
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Federal funds sold $ 190 $ 258 $ 448 $ (24) $ 106 $ 82
Investment securities 261 (19) 242 (110) 180 70
Mortgage-backed securities 321 420 741 (14) 1,328 1,314
Stock in the FHLB 40 5 45 5 25 30
Residential mortgage loans 1,054 (69) 985 (649) (1,560) (2,209)
Commercial loans 898 4,044 4,942 (706) 2,689 1,983
Consumer and other loans 311 670 981 (199) 546 347
-----------------------------------------------------------------
Total interest income 3,075 5,309 8,384 (1,697) 3,314 1,617
-----------------------------------------------------------------
Interest Expense:
NOW accounts 1 29 30 -- -- --
Money market accounts (14) (84) (98) (31) 103 72
Savings accounts 803 592 1,395 (247) 319 72
Certificate of deposit accounts 1,171 1,118 2,289 (938) (26) (964)
Overnight & short-term borrowings 82 219 301 (16) 126 110
FHLB and other borrowings 171 (10) 161 18 447 465
-----------------------------------------------------------------
Total interest expense 2,214 1,864 4,078 (1,214) 969 (245)
-----------------------------------------------------------------
Net interest income $ 861 $3,445 $4,306 $ (483) $ 2,345 $ 1,862
=================================================================
</TABLE>
Comparison of Years Ended December 31, 2000 and December 31, 1999
- -----------------------------------------------------------------
General
Net income for 2000 increased $1.3 million, or 28.8%, to $5.6 million,
or $1.49 per diluted common share, from $4.4 million, or $1.14 per diluted
common share, for 1999. Net income for 1999 was reduced by a one-time
charge of $109,000 resulting from a change in accounting principle that
required remaining unamortized organizational costs to be charged against
earnings. Operating income, which excludes this one-time charge, was $5.6
million for 2000, compared to $4.5 million for last year, an increase of
$1.1 million, or 25.7%. Diluted cash earnings per common share were $1.69
in 2000, compared to $1.37 in 1999.
This performance represented a return on average assets of 0.83% and a
return on average equity of 11.58% for 2000, as compared to a return on
average assets of 0.73% and a return on average equity of 9.59% for 1999.
Cash basis return on average assets and cash basis return on average equity
were 0.96% and 13.12% for 2000, and 0.87% and 11.20% for 1999, respectively.
Interest Income - Investments
Total investment income (consisting of interest or dividends on
federal funds sold, investment securities, mortgage-backed securities, and
FHLB stock) was $9.8 million for 2000, compared to $8.4 million for 1999.
This increase in total investment income of $1.5 million, or 17.6%, was
attributable to an increase of $10.9 million, or 7.8%, in the average
balance of investments (resulting from growth in deposits), along with an
increase in the overall yield of investments of 54 basis points (resulting
from increases in market interest rates). The Company's investments at
December 31, 2000 were primarily comprised of Treasury and Agency securities
with remaining maturities of less than five years, along with mortgage-
backed securities ("MBSs") with repricing periods of less than five years.
Management believes that this composition, along with a structured maturity
ladder, provides more stable earnings and predictable cash flows from the
portfolio. As a result of the rising interest rate environment present
during the past year, prepayments on MBSs have slowed. These lower
prepayment levels have had a positive impact on the yield of MBSs purchased
at a premium. Management anticipates a declining interest rate environment
in 2001, which is likely to accelerate prepayments, which, in turn, would
have a negative impact on the yield of MBSs.
Interest Income - Loans
Interest from loans was $40.2 million for 2000, and represented a
yield on total loans of 8.18%. This compares to $33.3 million of interest,
and a yield of 7.58%, for 1999. Interest from commercial loans increased
$4.9 million, or 38.6%, between the two years and represented the fastest
growing segment of the total loan portfolio. Income from consumer and other
loans increased $981,000, or 28.1%, and residential mortgage loan income
increased $985,000, or 5.8%. Since 1996, origination efforts have been
concentrated on commercial and, to a lesser extent, consumer loan
opportunities, with residential mortgage loans purchased as cash flows
dictated. The Bank also originates residential mortgage loans on a limited
basis. The average balance of the various components of the loan portfolio
changed from 1999 as follows: commercial loans increased $45.5 million, or
30.0%, consumer and other loans increased $7.7 million, or 18.1%, and
residential mortgage loans decreased $992,000, or 0.4%. In response to
rising market interest rates, the yields on the various loan portfolio
components changed as follows: commercial loans increased 56 basis points,
to 8.99%; consumer and other loans increased 69 basis points, to 8.87%, and
residential mortgage loans increased 43 basis points, to 7.38%. As with
MBSs, the rising interest rate and slower prepayment environment present
during 2000 has positively impacted the yield on the loan portfolio. The
current declining rate environment is expected to increase prepayments and
negatively impact the yield on the loan portfolio during 2001.
Interest Expense - Deposits & Borrowings
Interest paid on deposits and borrowings increased $4.1 million, or
20.8%, to $23.7 million for 2000, from $19.6 million paid during 1999. The
overall average cost of interest-bearing liabilities increased 41 basis
points, from 3.94% for 1999 to 4.34% for 2000, and resulted in $2.2 million
of additional interest expense. Liability costs are dependent on a number
of factors including general economic conditions, national and local
interest rates, competition in the local deposit marketplace, interest rate
tiers offered and cash flow needs. In general, deposit costs during the
second half of 2000 showed signs of reacting (on a delayed basis) to the
increases in market rates that occurred during the first half of the year.
Average costs for the various components of interest-bearing liabilities
changed from 1999 as follows: NOW accounts remained the same at 0.65%,
money market accounts decreased 8 basis points, to 2.66%, savings accounts
increased 44 basis points, to 3.19%, certificate of deposit accounts
increased 48 basis points, to 5.42%, and borrowings increased 44 basis
points to 6.01%. Meanwhile, the average balance of interest-bearing
liabilities increased $47.0 million, from $497.8 million in 1999 to $544.9
million in 2000, as the Bank actively sought checking and savings deposits
("core deposits") to fund asset growth and benefited from the unusual market
conditions created by the Fleet Financial/BankBoston divestitures.
Provision for Loan Losses
The provision for loan losses was $1.5 million for 2000, up $542,000,
or 54.2%, from the prior year. The commercial loan portfolio grew at a rate
of 21.9% during 2000, while the Bank experienced net recoveries of $71,000
for the year. When determining the provision for loan losses, management
evaluates several factors including new loan originations, actual and
estimated charge-offs and the risk characteristics of the loan portfolio.
Also see discussion under "Financial Condition -- Allowance for Loan
Losses."
Noninterest Income
Total noninterest income increased $356,000, or 11.0%, to $3.6 million
for 2000, from $3.2 million for 1999. Service Charges on Deposit Accounts,
which represent the largest source of noninterest income, rose $507,000, or
22.9%, from $2.2 million for 1999, to $2.7 million for 2000, primarily as a
result of growth in core deposit accounts. Loan Related Fees decreased
$48,000, or 15.7%, as prepayment penalties were less in 2000 than in the
prior year and Other Income decreased $94,000, or 15.2%, as income from
investment product sales decreased $110,000. The Bank has recently
announced a number of initiatives to revitalize this program.
The following table sets forth the components of noninterest income:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
2000 1999
---- ----
(In thousands)
<S> <C> <C>
Loan related fees $ 258 $ 306
Service charges on deposit accounts 2,722 2,215
Commissions on loans originated for others 74 83
Other income 524 618
------ ------
Total noninterest income $3,578 $3,222
====== ======
</TABLE>
Noninterest Expense
Total noninterest expense for 2000 increased $2.3 million, or 13.3%,
to $19.7 million from $17.4 million in 1999. This increase occurred
primarily in the following areas: Salaries and Benefits (up $1.5 million,
or 18.4%), Occupancy and Equipment (up $383,000, or 18.7%), Marketing (up
$186,000, or 21.1%) and Other Expenses (up $329,000, or 16.6%) and primarily
represent increased costs associated with the overall growth of the
institution. As a result of a relatively strong local economy, the Company
anticipates continued upward pressure on compensation and occupancy expense.
The increase in Occupancy and Equipment was partially attributable to the
Bank opening a de novo branch in the Buttonwoods section of Warwick and the
Bank's ongoing replacement and upgrading of fixed assets throughout its
branch network. The increase in Marketing expense was attributable to the
Bank seeking to take advantage of unusual market conditions created by the
Fleet Financial/BankBoston divestitures. Partially offsetting these
increases were decreases in: Loan Servicing (down $64,000, or 7.8%) due to
decreases in mortgage loans serviced by others and OREO expense (down
$77,000, or 71.3%) due to decreased levels of foreclosures. The Company's
cash basis efficiency ratio for 2000 was 61.79%, compared to 64.06% for
1999, an improvement of 227 basis points.
The following table sets forth the components of noninterest expense:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
2000 1999
---- ----
(In thousands)
<S> <C> <C>
Salaries and employee benefits $ 9,552 $ 8,065
Occupancy 1,530 1,302
Equipment 899 744
Data processing 1,340 1,348
Marketing 1,069 883
Professional services 891 870
Loan servicing 761 825
Other real estate owned 31 108
Amortization of goodwill 1,164 1,164
Deposit tax and assessments 109 58
Other expenses 2,316 1,987
------- -------
Total noninterest expense $19,662 $17,354
======= =======
</TABLE>
Income Tax Expense
Income tax expense of $3.1 million was recorded for 2000, compared to
$2.4 million for 1999. This represented total effective tax rates of 35.7%
and 35.4%, respectively. Tax-favored income from U.S. Treasury and Agency
securities along with the utilization of a Rhode Island passive investment
company has reduced the effective tax rate from the 39.9% combined statutory
federal and state tax rates.
Comparison of Years Ended December 31, 1999 and December 31, 1998
- -----------------------------------------------------------------
General
Net income for 1999 increased $528,000, or 13.8%, to $4.4 million, or
$1.14 per diluted common share, from $3.8 million, or $0.85 per diluted
common share, for 1998. Net income for 1999 was reduced by a one-time
charge of $109,000 resulting from a change in accounting principle which
required remaining unamortized organizational costs to be charged against
earnings. Operating income, which excludes this one-time charge, was $4.5
million for 1999, compared to $3.8 million for 1998, an increase of
$637,000, or 16.6%. Diluted earnings per common share, excluding the one-
time charge, were $1.17 in 1999, compared to $0.85 in 1998.
This operating performance represented a return on average assets of
0.73% and a return on average equity of 9.59% for 1999, as compared to a
return on average assets of 0.68% and a return on average equity of 8.33%
for 1998. Diluted cash earnings per common share were $1.34 for 1999,
compared to $1.07 for 1998. Cash basis return on average assets and cash
basis return on average equity were 0.87% and 11.20% for 1999, and 0.84% and
10.08% for 1998, respectively.
Interest Income - Investments
Total investment income (consisting of interest or dividends on
federal funds sold, investment securities, MBSs and FHLB stock) was $8.4
million for 1999, compared to $6.9 million for 1998. This increase in total
investment income of $1.5 million, or 21.8%, was primarily attributable to a
$21.8 million increase in the average balance of MBSs, partially offset by a
decrease of 14 basis points, to 5.96%, in the overall yield on investments.
The growth in MBSs was related to the Bank's establishment of a Rhode Island
passive investment company and its efforts to leverage its capital. As a
result of the declining interest rate environment present for the end of
1998 and the beginning of 1999, purchases of MBSs were at lower yields than
those already in the portfolio and caused the overall yield on the MBS
portfolio to decline.
Interest Income - Loans
Interest from loans was $33.3 million for 1999, and represented a
yield on total loans of 7.58%. This compares to $33.2 million of interest,
and a yield of 7.87%, for 1998. This increase of $122,000, or 0.4%, in
interest on loans was due primarily to an increase in the commercial loan
average balance (up $32.8 million, or 27.6%), offset by the decrease in the
overall yield of the portfolio resulting from reinvestment of repayments at
lower rates. The Bank has continued to change the mix of its loan portfolio
away from residential mortgage loans and toward commercial loans by
concentrating its origination efforts on commercial and consumer loan
opportunities. Nonetheless, the Bank also originated residential mortgage
loans on a limited basis. The yields on the various components of the loan
portfolio changed as follows: commercial loans decreased 66 basis points,
to 8.43%; consumer and other loans decreased 63 basis points, to 8.18%; and
residential mortgage loans decreased 25 basis points, to 6.95%. Offsetting
these decreases, the average balance of commercial and consumer loans
changed as follows: commercial loans increased $32.8 million, or 27.6%, and
consumer and other loans increased $7.0 million, or 19.6%.
Interest Expense - Deposits & Borrowings
Interest paid on deposits and borrowings decreased $245,000, or 1.2%,
to $19.6 million for 1999, from $19.8 million in 1998. The overall average
cost for interest-bearing liabilities decreased 35 basis points from 4.29%
for 1998, to 3.94% for 1999. The Bank has concentrated its deposit
gathering efforts on core deposits and has utilized FHLB borrowings as
necessary to fund asset growth in an effort to decrease its overall cost of
money. Deposit costs are dependent on a number of factors including general
economic conditions, national and local interest rates, competition in the
local marketplace, interest rate tiers offered and the Bank's cash flow
needs. The average balance of interest-bearing liabilities increased $35.6
million, from $462.3 million in 1998 to $497.8 million in 1999. This growth
in average balances of interest-bearing liabilities was centered in core
accounts, specifically NOW and money market accounts (up $8.9 million, or
25.0%) and savings accounts (up $16.7 million, or 10.7%). In addition, the
Bank increased its utilization of borrowed funds (up $10.6 million, or
26.4%).
Provision for Loan Losses
The provision for loan losses was $1.0 million for 1999, similar to
the amount provided in the prior year. The Bank experienced net charge-offs
during 1999 of $337,000, similar to the $339,000 of net charge-offs
experienced in 1998. Management evaluates several factors including new
loan originations, actual and estimated charge-offs, and the risk
characteristics of the loan portfolio when determining the provision for the
period. Also see discussion under "Financial Condition -- Allowance for
Loan Losses."
Noninterest Income
Total noninterest income increased $495,000, or 18.2%, to $3.2 million
for 1999, from $2.7 million for 1998. Excluding non-recurring items
($84,000 of loan prepayment penalties and a $43,000 deposit tax refund
received in 1999, and a $272,000 settlement on a bifurcated loan received in
1998), total noninterest income increased $640,000, or 26.1%, year to year.
Service Charges on Deposit Accounts, which represents the largest source of
noninterest income for the Bank, rose $481,000, or 27.7%, from $1.7 million
for 1998, to $2.2 million for 1999. Additionally, Other Income (exclusive
of the deposit tax refund and loan settlement) increased $137,000, or 31.3%,
from $438,000 to $575,000, for the comparable periods, and resulted
primarily from the introduction of ATM access fees for non-customers in
September 1998.
The following table sets forth the components of noninterest income:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1999 1998
---- ----
(In thousands)
<S> <C> <C>
Loan related fees $ 306 $ 137
Service charges on deposit accounts 2,215 1,734
Gain on sales of investment securities -- 5
Commissions on loans originated for others 83 141
Other income 618 710
------ ------
Total noninterest income $3,222 $2,727
====== ======
</TABLE>
Noninterest Expense
Noninterest expenses for 1999 increased a total of $1.3 million, or
8.2%, to $17.4 million from $16.0 million in 1998. This increase occurred
primarily as a result of the overall growth of the Bank, including its de
novo Woonsocket office (April 1998), its relocated and expanded Providence
East Side office (August 1998) and relocated headquarters (June 1999), and
was centered in the following areas: Salaries and Benefits (up $929,000, or
13.0%), Occupancy (up $147,000, or 12.7%), Data Processing (up $211,000, or
18.6%) and Other Expenses (up $102,000, or 5.4%). In addition to the
overall growth of the Bank, its Year 2000 efforts contributed to the growth
in Data Processing expense. Professional Services increased $284,000, or
48.5%. A significant portion of the increase resulted from the Bank
engaging consultants to review the effectiveness of its operations during
1999. Partially offsetting these increases were decreases in: Equipment
(down $144,000, or 16.2%) as initial equipment purchases became fully
depreciated; Loan Servicing (down $146,000, or 15.0%) as the purchased
residential mortgage portfolio decreased in outstandings; OREO (down
$58,000, or 34.9%) as the level of foreclosures declined; and Amortization
of Goodwill (down $70,000, or 5.7%) as the Bank expensed any remaining
capitalized organizational costs in January 1999. The Bank's cash basis
efficiency ratio improved from 64.62% for the 1998, to 64.06% for 1999.
The following table sets forth the components of noninterest expense:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1999 1998
---- ----
(In thousands)
<S> <C> <C>
Salaries and employee benefits $ 8,065 $ 7,136
Occupancy 1,302 1,155
Equipment 744 888
Data processing 1,348 1,137
Marketing 883 829
Professional services 870 586
Loan servicing 825 971
Other real estate owned 108 166
Amortization of goodwill 1,164 1,234
Deposit tax and assessments 58 56
Other expenses 1,987 1,885
------- -------
Total noninterest expense $17,354 $16,043
======= =======
</TABLE>
Income Tax Expense
The Bank recorded income tax expense of $2.4 million for 1999,
compared to $2.0 million for 1998. This represented total effective tax
rates of 35.4% and 34.5%, respectively. The Bank's tax-favored income from
U.S. Treasury and Agency securities and its establishment of a Rhode Island
passive investment company reduced its effective tax rate from the 39.9%
combined statutory federal and state tax rates.
Financial Condition
Loans Receivable
Total loans were $518.8 million, or 70.2% of total assets, at December
31, 2000, compared to $459.0 million, or 72.6% of total assets, at December
31, 1999, an increase of $59.9 million, or 13.0%. Total loans as of
December 31, 2000 may be segmented in three broad categories: residential
mortgages that aggregate $247.9 million, or 47.8% of the portfolio;
commercial loans that aggregate $212.8 million, or 41.0% of the portfolio;
and consumer and other loans that aggregate $58.1 million, or 11.2% of the
portfolio.
During the second quarter of 1998, the Bank completed a comprehensive
project begun in late 1997, to refine the classification of its individual
commercial loans. This project defined the classification of a loan based
on its primary purpose and collateral. As a result of this project, the
Bank reclassified a number of loans from the commercial & industrial
category to the commercial real estate or multi-family real estate
categories. The amounts shown for December 31, 1997 and 1996 have not been
restated to reflect this reclassification. Included in the following table
as commercial real estate loans at December 31, 2000, 1999 and 1998, are
$38.3 million, $34.0 million and $36.9 million of 'owner occupied' loans,
many of which were originated in conjunction with a commercial & industrial
loan to the same borrower and previously classified as commercial &
industrial loans. This classification project did not affect the total
outstanding for commercial loans, only the breakdown by individual category
within the total portfolio.
The Bank utilizes the term "small business loans" to describe its
portfolio comprised of loans to businesses of up to $250,000 in the
aggregate.
The following is a summary of loans receivable:
<TABLE>
<CAPTION>
December 31,
------------------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C>
Residential mortgage loans:
One- to four-family adjustable rate $212,197 $196,863 $211,076 $205,020 $201,628
One- to four-family fixed rate 34,609 39,037 45,671 50,704 55,160
------------------------------------------------------------
Subtotal 246,806 235,900 256,747 255,724 256,788
Premium on loans acquired 1,166 1,446 2,110 2,045 2,589
Net deferred loan origination fees (49) (26) -- -- --
------------------------------------------------------------
Total $247,923 $237,320 $258,857 $257,769 $259,377
============================================================
Commercial loans:
Commercial real estate $107,587 $ 90,149 $ 76,562 $ 49,412 $ 34,370
Commercial & industrial 51,470 40,109 30,655 47,440 52,638
Small business 19,170 13,322 6,804 3,775 1,460
Multi-family 15,933 16,270 13,221 6,874 3,969
Leases 11,731 8,499 3,370 2,600 --
Construction 7,070 6,379 3,482 4,683 244
------------------------------------------------------------
Subtotal 212,961 174,728 134,094 114,784 92,681
Net deferred loan origination fees (143) (180) (61) (112) (34)
------------------------------------------------------------
Total $212,818 $174,548 $134,033 $114,672 $ 92,647
============================================================
Consumer and other loans:
Home equity - lines of credit $ 26,215 $ 24,166 $ 18,400 $ 11,515 $ 12,328
Home equity - term loans 23,292 19,710 16,996 18,758 15,130
Automobile 4,643 -- -- -- --
Installment 1,348 1,279 1,010 888 1,387
Savings secured 987 1,005 935 1,261 1,101
Unsecured and other 1,044 590 972 956 1,069
------------------------------------------------------------
Subtotal 57,529 46,750 38,313 33,378 31,015
Premium on loans acquired 144 -- -- -- --
Net deferred loan origination costs 411 340 199 -- --
------------------------------------------------------------
Total $ 58,084 $ 47,090 $ 38,512 $ 33,378 $ 31,015
============================================================
</TABLE>
During 2000, residential mortgage loans increased $10.6 million, or
4.5%, as purchases of $48.5 million and originations of $10.0 million were
offset by $47.4 million in repayments. Since 1996, the Bank has
concentrated its portfolio lending efforts on commercial and, to a lesser
extent, consumer lending opportunities. During late 1997, the Bank began to
originate mortgage loans for its own portfolio as well as for sale to others
and anticipates continuing to originate mortgage loans on a limited basis
for its customers. The Bank does not employ any mortgage originators and
typically only holds in its portfolio loans whose rate will adjust in less
than 10 years. Until such time as the Bank can originate sufficient
commercial and consumer loans to utilize available cash flow, it intends to
continue purchasing residential mortgage loans as opportunities develop.
The Bank's commercial loan portfolio (consisting of commercial real
estate, commercial & industrial, multi-family real estate, construction and
small business loans) increased $38.3 million, or 21.9%, during 2000. The
Bank believes it is well positioned for continued commercial loan growth.
Particular emphasis is placed on generation of small- to medium-sized
commercial relationships (those relationships with $5.0 million or less in
loan commitments). The Bank is also active in small business lending in
which it utilizes credit scoring, in conjunction with traditional review
standards, and employs streamlined documentation. The Bank's small business
portfolio increased $5.8 million, or 43.9%, during 2000. The Bank is a
participant in the U.S. Small Business Administration ("SBA") Preferred
Lender Program ("PLP") in Rhode Island and the 7a Guarantee Loan Program in
Massachusetts.
The consumer loan portfolio is comprised primarily of home equity term
loans and home equity lines of credit. During 2000, consumer loan
outstandings increased $11.0 million, or 23.3%, to $58.1 million at December
31, 2000, from $48.1 million at December 31, 1999. During 2000, the Bank
for the first time purchased a package of automobile loans from another New
England institution. At December 31, 2000, these automobile loans
represented 42.2% of the total growth that occurred in the consumer and
other loan portfolio. The remainder of the growth was in home equity term
loans and lines of credit.
The table below shows loan originations, purchases, sales and
repayment activities.
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C>
Originations and Principal Additions:
Loans purchased:
Residential mortgage loans $ 48,491 $ 53,747 $ 107,559 $ 58,271 $ 29,921
Consumer and other loans 4,891 -- -- -- --
--------------------------------------------------------------
Total loans purchased 53,382 53,747 107,559 58,271 29,921
--------------------------------------------------------------
Loans originated:
Residential mortgage loans 9,985 17,659 13,093 200 --
Commercial loans 65,465 62,430 41,872 40,065 13,492
Consumer and other loans 17,950 18,704 16,837 12,526 8,416
--------------------------------------------------------------
Total loans originated 93,400 98,793 71,802 52,791 21,908
--------------------------------------------------------------
Principal Reductions:
Charge-offs/transfers to OREO:
Residential mortgage loans (148) (412) (950) (1,116) --
Commercial loans (93) (176) (15) (145) (103)
Consumer and other loans (20) (80) (163) (178) (110)
--------------------------------------------------------------
Total charge-offs/transfers to OREO (261) (668) (1,128) (1,439) (213)
--------------------------------------------------------------
Principal payments:
Residential mortgage loans (47,422) (91,841) (118,679) (58,419) (46,527)
Commercial loans (27,139) (21,620) (22,547) (17,817) (6,105)
Consumer and other loans (12,042) (10,187) (11,739) (9,985) (9,351)
--------------------------------------------------------------
Total principal payments (86,603) (123,648) (152,965) (86,221) (61,983)
--------------------------------------------------------------
Change in loans receivable (before
net items) $ 59,918 $ 28,224 $ 25,268 $ 23,402 $(10,367)
==============================================================
</TABLE>
The following table sets forth certain information at December 31,
2000, regarding the aggregate dollar amount of certain loans maturing in the
loan portfolio based on scheduled payments to maturity. Actual loan
principal payments may vary from this schedule due to refinancings,
modifications and other changes in loan terms. Demand loans and loans
having no stated schedule of repayments and no stated maturity are reported
as due in one year or less.
<TABLE>
<CAPTION>
Principal Repayments Contractually Due
---------------------------------------------
After One, But
One Year or Within Five After Five
Less Years Years
----------- -------------- ----------
(In thousands)
<S> <C> <C> <C>
Construction loans $ 7,070 $ -- $ --
Commercial & industrial loans (including leases) 38,672 19,136 5,393
Small business loans 9,661 8,880 629
-----------------------------------------
Total $55,403 $28,016 $6,022
=========================================
</TABLE>
The following table sets forth as of December 31, 2000, the dollar
amount of certain loans due after one year that have fixed interest rates or
floating or adjustable interest rates.
<TABLE>
<CAPTION>
Loans Due After One Year
-------------------------
Floating or
Fixed Adjustable
Rates Rates
----- -----------
(In thousands)
<S> <C> <C>
Construction loans $ -- $ --
Commercial & industrial loans (including leases) 12,788 11,741
Small business loans 5,307 4,202
-------------------
Total $18,095 $15,943
===================
</TABLE>
Asset Quality
The definition of nonperforming assets includes nonperforming loans
and OREO. OREO consists of real estate acquired through foreclosure
proceedings and real estate acquired through acceptance of a deed in lieu of
foreclosure. Nonperforming loans are defined as nonaccrual loans, loans
past due 90 days or more, but still accruing and impaired loans. Under
certain circumstances the Bank may restructure the terms of a loan as a
concession to a borrower. These restructured loans are considered impaired
loans. Included in nonaccrual loans at December 31, 1999, were $329,000 of
impaired loans. At December 31, 2000 and 1998, the Bank did not have any
impaired loans.
Nonperforming Assets. At December 31, 2000, the Bank had nonperforming
assets of $538,000, or 0.07% of total assets. This compares to
nonperforming assets of $1.2 million, or 0.18% of total assets, at December
31, 1999 and nonperforming assets of $2.0 million, or 0.33% of total assets,
at December 31, 1998. The Bank's nonperforming assets at December 31, 2000,
consisted of residential mortgage loans aggregating $398,000, commercial
loans aggregating $109,000, consumer loans aggregating $1,000 and OREO
aggregating $30,000. Nonperforming assets at December 31, 1999 and 1998,
were also primarily comprised of nonaccrual residential mortgage loans. The
Bank evaluates the underlying collateral of each nonperforming loan and
continues to pursue the collection of interest and principal. Management
believes that the December 31, 2000 level of nonperforming assets and the
charge-off experience for 2000 were unusually low. As the Bank's loan
portfolio continues to grow and mature, or if economic conditions worsen,
management believes it highly likely that the level of nonperforming assets
will increase, as will its level of charged-off loans.
The following table sets forth information regarding nonperforming
assets.
<TABLE>
<CAPTION>
December 31,
---------------------------
2000 1999 1998
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Nonaccrual loans $ 508 $1,112 $1,563
Loans past due 90 days or more, but still accruing -- -- --
Impaired loans (not included in nonaccrual loans) -- -- --
---------------------------
Total nonperforming loans 508 1,112 1,563
Other real estate owned 30 49 394
---------------------------
Total nonperforming assets $ 538 $1,161 $1,957
===========================
Nonperforming loans as a percent of total loans 0.10% 0.24% 0.36%
Nonperforming assets as a percent of total assets 0.07% 0.18% 0.33%
</TABLE>
Nonaccrual Loans. Accrual of interest income on all loans is
discontinued when concern exists as to the collectibility of principal or
interest, or when a loan becomes over ninety days delinquent. Additionally,
when a loan is placed on nonaccrual status, all interest previously accrued
but not collected is reversed against current period income. Loans are
removed from nonaccrual when they become less than ninety days past due and
in the case of commercial and consumer loans, when concern no longer exists
as to the collectibility of principal or interest. Interest collected on
nonaccruing loans is either applied against principal or reported as income
according to management's judgment as to the collectibility of principal.
At December 31, 2000, nonaccrual loans totaled $508,000. Interest on
nonaccrual loans that would have been recorded as additional income for the
year ended December 31, 2000, had the loans been current in accordance with
their original terms, totaled $35,000. This compares with $66,000 and
$117,000 of foregone interest income on nonaccrual loans for the years ended
December 31, 1999 and 1998, respectively.
The following table sets forth certain information regarding
nonaccrual loans.
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------------------------
2000 1999 1998
---------------------- ---------------------- ----------------------
Percent Percent Percent
Principal of Total Principal of Total Principal of Total
Balance Loans Balance Loans Balance Loans
--------- -------- --------- -------- --------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Nonaccrual loans:
Residential mortgage loans $398 0.08% $ 602 0.13% $1,475 0.34%
Commercial loans 109 0.02% 510 0.11% 57 0.01%
Consumer and other loans 1 0.00% -- -- 31 0.01%
-----------------------------------------------------------------------
Total nonaccrual loans $508 0.10% $1,112 0.24% $1,563 0.36%
=======================================================================
</TABLE>
Delinquencies. At December 31, 2000, $1.1 million of loans were 30 to
89 days past due. This compares to $811,000 and $1.9 million of loans 30 to
89 days past due as of December 31, 1999 and 1998, respectively. The
majority of these loans at all three dates were residential mortgage loans
and are secured.
Management reviews delinquent loans frequently to assess problem
situations and to quickly address these problems. In the case of consumer
and commercial loans, the Bank contacts the borrower when a loan becomes
delinquent. When a payment is not made, generally within 10-15 days of the
due date, a late charge is assessed. After 30 days of delinquency, a notice
is sent to the borrower advising that failure to cure the default may result
in formal demand for payment in full. In the event of further delinquency,
the matter is generally referred to legal counsel to commence civil
proceedings to collect all amounts owed. In the case of residential
mortgage loans, delinquency and collection proceedings are conducted by
either the Bank or its mortgage servicers in accordance with standard
servicing guidelines. In any circumstance where the Bank is secured by real
property or other collateral, the Bank enforces its rights to the collateral
in accordance with applicable law.
The following table sets forth information as to loans delinquent for
30 to 89 days.
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------------------------
2000 1999 1998
---------------------- ---------------------- ----------------------
Percent Percent Percent
Principal of Total Principal of Total Principal of Total
Balance Loans Balance Loans Balance Loans
--------- -------- --------- -------- --------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Loans delinquent for 30 to 59 days:
Residential mortgage loans $ 584 0.11% $378 0.08% $ 483 0.11%
Commercial loans 168 0.03% 334 0.08% 1,164 0.27%
Consumer and other loans 39 0.01% 6 0.00% 14 0.00%
------------------------------------------------------------------------
Total loans delinquent 30 to 59 days 791 0.15% 718 0.16% 1,661 0.38%
------------------------------------------------------------------------
Loans delinquent for 60 to 89 days:
Residential mortgage loans 278 0.05% 92 0.02% 258 0.06%
Commercial loans 39 0.01% -- -- -- --
Consumer and other loans 20 0.01% 1 0.00% -- --
------------------------------------------------------------------------
Total loans delinquent 60 to 89 days 337 0.07% 93 0.02% 258 0.06%
------------------------------------------------------------------------
Total loans delinquent 30 to 89 days $1,128 0.22% $811 0.18% $1,919 0.44%
========================================================================
</TABLE>
Adversely Classified Assets. The Company's management adversely
classifies certain assets as "substandard," "doubtful" or "loss" based on
criteria established under banking regulations. An asset is considered
substandard if inadequately protected by the current net worth and paying
capacity of the obligor or of the collateral pledged, if any. Substandard
assets include those characterized by the "distinct possibility" that the
insured institution will sustain "some loss" if existing deficiencies are
not corrected. Assets classified as doubtful have all of the weaknesses
inherent in those classified substandard with the added characteristic that
the weaknesses present make "collection or liquidation in full," on the
basis of currently existing facts, conditions, and values, "highly
questionable and improbable." Assets classified as loss are those
considered "uncollectible" and of such little value that their continuance
as assets without the establishment of a specific loss reserve is not
warranted.
At December 31, 2000, the Company had $5.8 million of assets that were
classified as substandard. This compares to $1.2 million and $2.5 million
of assets that were classified as substandard at December 31, 1999 and 1998,
respectively. The Company had no assets that were classified as loss or
doubtful at either date. Delinquent loans may or may not be adversely
classified depending upon management's judgment with respect to each
individual loan. At December 31, 2000, included in the $5.8 million of
assets that were classified as substandard, were $3.3 million of performing
loans and $2.0 million of performing investment securities. This compares
to $127,000 and $916,000 of adversely classified performing assets as of
December 31, 1999 and 1998, respectively. These amounts constitute assets
that, in the opinion of management, could potentially migrate to
nonperforming or doubtful status.
Allowance for Loan Losses
The allowance for loan losses is established for credit losses
inherent in the loan portfolio through a charge to earnings. Loans deemed
uncollectible are charged against the allowance, while recoveries of amounts
previously charged-off are added to the allowance. Amounts are charged-off
once the probability of loss has been established, with consideration given
to such factors as the customer's financial condition, underlying collateral
and guarantees, and general and industry economic conditions.
When an insured institution classifies problem loans as either
substandard or doubtful, it is required to establish allowances for loan
losses in an amount deemed prudent by management. Additionally, general
allowances represent loss allowances that have been established to recognize
the inherent risk associated with lending activities, and have not been
allocated to particular problem loans.
The following table represents the allocation of the allowance for
loan losses as of the dates indicated:
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
----------------- ----------------- ------------------ ----------------- -----------------
Percent Percent Percent Percent Percent
of Loans of Loans of Loans of Loans of Loans
in Each in Each in Each in Each in Each
Category Category Category Category Category
to Total to Total to Total to Total to Total
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
------ -------- ------ -------- ------ -------- ------ -------- ------ --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Residential mortgage loans $1,460 47.8% $1,395 51.7% $1,558 60.0% $1,534 63.5% $1,532 67.7%
Commercial loans 3,210 41.0% 2,007 38.0% 1,277 31.1% 1,040 28.3% 973 24.2%
Consumer and other loans 731 11.2% 566 10.3% 456 8.9% 393 8.2% 363 8.1%
Unallocated 1,893 -- 1,713 -- 1,727 -- 1,373 -- 1,156 --
------------------------------------------------------------------------------------------------
Total $7,294 100.0% $5,681 100.0% $5,018 100.0% $4,340 100.0% $4,340 100.0%
================================================================================================
</TABLE>
Assessing the adequacy of the allowance for loan losses involves
substantial uncertainties and is based upon management's evaluation of the
amounts required to meet estimated charge-offs in the loan portfolio after
weighing various factors. Management's methodology to estimate loss
exposure includes an analysis of individual loans deemed to be impaired,
reserve allocations for various loan types based on payment status or loss
experience and an unallocated allowance that is maintained based on
management's assessment of many factors including the growth, composition
and quality of the loan portfolio, historical loss experiences, general
economic conditions and other pertinent factors. Based on this evaluation,
the Bank believes that its year-end allowance for loan losses is adequate.
While management evaluates currently available information in
establishing the allowance for loan losses, future adjustments to the
allowance may be necessary if conditions differ substantially from the
assumptions used in making the evaluations. In addition, various regulatory
agencies, as an integral part of their examination process, periodically
review a financial institution's allowance for loan losses and carrying
amounts of other real estate owned. Such agencies may require the financial
institution to recognize additions to the allowance based on their judgments
about information available to them at the time of their examination.
During 2000, 1999 and 1998, the Bank made additions to the allowance
of $1.5 million, $1.0 million and $1.0 million and experienced net charge-
offs (recoveries) of ($71,000), $337,000 and $339,000, respectively. At
December 31, 2000, the allowance for loan losses stood at $7.3 million and
represented 1435.83% of nonperforming loans and 1.41% of total loans
outstanding. This compares to an allowance for loan losses of $5.7 million,
representing 510.88% of nonperforming loans and 1.24% of total loans
outstanding at December 31, 1999. The increase in the allowance as a
percent of total loans is reflective of the increase in commercial and
consumer loan outstandings.
An analysis of the activity in the allowance for loan losses is as
follows:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of year $5,681 $5,018 $4,340 $4,024 $ --
Acquired reserves -- -- -- -- 3,400
Loans charged-off:
Residential mortgage loans (11) (128) (174) (505) --
Commercial loans (94) (176) (15) (71) (103)
Consumer and other loans (20) (80) (163) (135) (110)
--------------------------------------------------
Total loans charged-off (125) (384) (352) (711) (213)
--------------------------------------------------
Recoveries of loans previously charged-off:
Residential mortgage loans -- 29 0 8 --
Commercial loans 191 1 3 3 --
Consumer and other loans 5 17 10 16 --
--------------------------------------------------
Total recoveries of loans previously charged-off 196 47 13 27 --
--------------------------------------------------
Net (charge-offs) recoveries 71 (337) (339) (684) (213)
Provision for loan losses charged against income 1,542 1,000 1,017 1,000 837
--------------------------------------------------
Balance at end of year $7,294 $5,681 $5,018 $4,340 $4,024
==================================================
Net charge-offs (recoveries) to average loans
outstanding (0.01%) 0.08% 0.08% 0.17% 0.06%
==================================================
</TABLE>
Investments
Total investments (consisting of federal funds sold, investment
securities, MBSs, and FHLB stock) totaled $174.0 million, or 23.5% of total
assets, at December 31, 2000. This compares to total investments of $135.9
million, or 21.5% of total assets, as of December 31, 1999. The increase of
$38.2 million, or 28.1%, was primarily in MBSs that were purchased to
reinvest the funds generated from the Bank's unusual level of deposit
growth. A number of these purchases were of SBA securities that, in
addition to a Governmental guarantee, have a floating interest rate indexed
to a specified Prime rate.
The investment portfolio provides the Bank with a source of short-term
liquidity and acts as a counterbalance to loan and deposit flows.
Investment securities and MBSs are primarily comprised of U.S. Government
and Agency securities. All investment securities and MBSs at December 31,
2000 and 1999, were classified as securities available for sale. These
securities carried a total of $275,000 and $2.6 million in net unrealized
losses at December 31, 2000 and 1999, respectively.
A summary of investment and mortgage-backed securities available for
sale follows:
<TABLE>
<CAPTION>
Unrealized
Amortized ------------------ Market
Cost Gains Losses Value
--------- ----- ------ ------
(In thousands)
<S> <C> <C> <C> <C>
At December 31, 2000:
U.S. Treasury obligations $ 1,016 $ -- $ (11) $ 1,005
U.S. Agency obligations 44,256 167 (119) 44,304
Trust preferred securities 2,187 -- (200) 1,987
U.S. Agency mortgage-backed securities 104,863 457 (468) 104,852
Collateralized mortgage obligations 12,680 -- (101) 12,579
---------------------------------------------
Total $165,002 $624 $ (899) $164,727
=============================================
At December 31, 1999:
U.S. Treasury obligations $ 10,023 $ 21 $ (36) $ 10,008
U.S. Agency obligations 39,256 5 (875) 38,386
Trust preferred securities 2,198 -- (89) 2,109
U.S. Agency mortgage-backed securities 62,101 -- (1,125) 60,976
Collateralized mortgage obligations 14,357 -- (540) 13,817
---------------------------------------------
Total $127,935 $ 26 $(2,665) $125,296
=============================================
At December 31, 1998:
U.S. Treasury obligations $ 18,050 $245 $ (14) $ 18,281
U.S. Agency obligations 21,245 203 (26) 21,422
U.S. Agency mortgage-backed securities 62,814 72 (138) 62,748
Collateralized mortgage obligations 17,162 14 -- 17,176
---------------------------------------------
Total $119,271 $534 $ (178) $119,627
=============================================
</TABLE>
The following table sets forth the maturities of investment and
mortgage-backed securities available for sale and the weighted average
yields of such securities:
<TABLE>
<CAPTION>
After One, But After Five, But
Within One Year Within Five Years Within Ten Years After Ten Years
------------------- ------------------- ------------------ --------------------
Weighted Weighted Weighted Weighted
Market Average Market Average Market Average Market Average
Value Yield Value Yield Value Yield Value Yield
------ -------- ------ -------- ------ -------- ------ --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
At December 31, 2000:
U.S. Treasury obligations $ 1,005 4.16% $ -- -- $ -- -- $ -- --
U.S. Agency obligations 5,243 5.70% 39,061 6.40% -- -- -- --
Trust preferred securities -- -- -- -- -- -- 1,987 8.16%
U.S. Agency mortgage-backed securities -- -- -- -- -- -- 104,852 6.69%
Collateralized mortgage obligations -- -- -- -- -- -- 12,579 6.47%
------- ------- ------ --------
Total $ 6,248 5.46% $39,061 6.40% $ -- -- $119,418 6.71%
================ ================ =============== =================
At December 31, 1999:
U.S. Treasury obligations $ 9,007 6.39% $ 1,002 4.15% $ -- -- $ -- --
U.S. Agency obligations 3,991 5.80% 24,557 5.74% 9,838 7.10% -- --
Trust preferred securities -- -- -- -- -- -- 2,108 8.16%
U.S. Agency mortgage-backed securities -- -- -- -- -- -- 60,976 5.98%
Collateralized mortgage obligations -- -- -- -- -- -- 13,817 6.48%
------- ------- ------ --------
Total $12,998 6.21% $25,559 5.68% $9,838 7.10% $ 76,901 6.13%
================ ================ =============== =================
At December 31, 1998:
U.S. Treasury obligations $ 8,040 6.10% $10,241 6.16% $ -- -- $ -- --
U.S. Agency obligations 2,039 6.57% 19,384 6.05% -- -- -- --
U.S. Agency mortgage-backed securities -- -- -- -- -- -- 62,748 6.47%
Collateralized mortgage obligations -- -- -- -- -- -- 17,176 6.48%
------- ------- ------ --------
Total $10,079 6.19% $29,625 6.09% $ -- -- $ 79,924 6.48%
================ ================ =============== =================
</TABLE>
Deposits and Borrowings
The Bank has devoted considerable time and resources to its deposit
gathering network. The Bank experienced a net increase in total deposits
during 2000, to $631.6 million, or 85.4% of total assets, at December 31,
2000, from $513.4 million, or 81.2% of total assets, at December 31, 1999.
This increase of $118.2 million, or 23.0%, in total deposits was the result
of unusual local market conditions and increased marketing expenditures by
the Bank. The increase was centered in core accounts and broken down as
follows: Demand deposit and NOW accounts up $47.7 million, or 50.1%;
savings accounts up $37.0 million, or 21.3%; and certificates of deposit
accounts up $37.3 million, or 16.3%. By comparison, the increase in total
deposits during 1999 was $12.7 million, or 2.5%.
The following table sets forth certain information regarding deposits:
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------------------------------------
2000 1999 1998
----------------------------- ----------------------------- -----------------------------
Percent Weighted Percent Weighted Percent Weighted
of Average of Average of Average
Amount Total Rate Amount Total Rate Amount Total Rate
------ ------- -------- ------ ------- -------- ------ ------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NOW accounts $ 36,910 5.8% 0.64% $ 27,456 5.4% 0.64% $ 26,899 5.4% 0.65%
Money market accounts 12,283 1.9% 2.59% 16,073 3.1% 2.70% 15,599 3.1% 2.78%
Savings accounts 210,728 33.4% 3.52% 173,692 33.8% 2.78% 163,118 32.6% 2.74%
Certificate of deposit accounts 265,623 42.1% 5.76% 228,351 44.5% 4.95% 234,541 46.8% 5.14%
---------------- ---------------- ----------------
Total interest bearing deposits 525,544 83.2% 4.43% 445,572 86.8% 3.76% 440,157 87.9% 3.89%
Noninterest bearing accounts 106,088 16.8% -- 67,844 13.2% -- 60,556 12.1% --
---------------- ---------------- ----------------
Total deposits $631,632 100.0% 3.69% $513,416 100.0% 3.26% $500,713 100.0% 3.42%
========================================================================================
</TABLE>
At December 31, 2000, certificate of deposit accounts with balances
greater than $100,000 aggregated $32.1 million, compared to $25.3 million
and $23.1 million at December 31, 1999 and 1998, respectively.
Total borrowings (consisting of overnight and short-term borrowings,
FHLB and other borrowings) decreased $16.0 million during 2000, to $51.9
million, from $67.9 million at December 31, 1999. The Bank had $45.5
million of overnight and short-term borrowing outstanding at the end of
1998. The decrease during 2000 was primarily attributable to the strong
deposit growth the Bank experienced permitting the repayment of maturing
FHLB borrowings. During 1999, the increase in total borrowings was the
result of the Bank utilizing FHLB borrowings (up $11.7 million, or 32.0%) to
partially fund its asset growth, coupled with repurchase agreement growth
(up $8.5 million, or 248.1%) resulting from growth of the Bank's overnight
cash management product for its commercial customers. The Bank, through its
membership in the FHLB, has access to a variety of borrowing alternatives,
and management will from time to time take advantage of these opportunities
to fund asset growth. However, on a long-term basis, the Bank intends to
concentrate on increasing its core deposits.
Asset and Liability Management
The principal objective of the Bank's asset and liability management
process is to maximize profit potential while minimizing the vulnerability
of its operations to changes in interest rates by means of managing the
ratio of interest rate sensitive assets to interest rate sensitive
liabilities within specified maturity or repricing periods. The Bank's
actions in this regard are taken under the guidance of the Asset/Liability
Committee ("ALCO") that is comprised of members of senior management. The
ALCO generally meets monthly and is actively involved in formulating the
economic assumptions that the Bank uses in its financial planning and
budgeting process and establishes policies which control and monitor the
sources, uses and pricing of funds. The Bank has not engaged in any hedging
activities.
The ALCO manages the Bank's interest rate risk position using both
income simulation and interest rate sensitivity "gap" analysis. The Bank
has established internal parameters for monitoring the income simulation and
gap analysis. These guidelines serve as benchmarks for evaluating actions
to balance the current position against overall strategic goals. The ALCO
monitors current exposures and reports these to the Board of Directors.
Simulation is used as the primary tool for measuring the interest rate
risk inherent in the Bank's balance sheet at a given point in time by
showing the effect on net interest income, over a twenty-four month period,
of interest rate ramps of up to 200 basis points. These simulations take
into account repricing, maturity and prepayment characteristics of
individual products. The ALCO reviews simulation results to determine
whether the downside exposure resulting from changes in market interest
rates remains within established tolerance levels over both a twelve month
and twenty-four month horizon, and develops appropriate strategies to manage
this exposure. The Bank's limits on interest rate risk specify that if
interest rates were to shift up or down 200 basis points over a twelve month
period, estimated net interest income for those twelve months and the
subsequent twelve months, should decline by no more than 5.0% or 10.0%,
respectively. As of December 31, 2000, net interest income simulation
indicated that the Bank's exposure to changing interest rates was within
these established tolerance levels. The ALCO reviews the methodology
utilized by the Bank for calculating its interest rate risk exposure and
may, from time to time, adopt modifications to this methodology. While the
ALCO reviews simulation assumptions and methodology to ensure that they
reflect historical experience, it should be noted that income simulation may
not always prove to be an accurate indicator of interest rate risk because
the actual repricing, maturity and prepayment characteristics of individual
products may differ from the estimates used in the simulations.
The following table presents the estimated impact of interest rate
ramps on estimated net interest income over a twenty-four month period
beginning January 1, 2001:
<TABLE>
<CAPTION>
Estimated Exposure
to Net Interest Income
----------------------
Dollar Percent
Change Change
------ -------
(Dollars in thousands)
<S> <C> <C>
Initial Twelve Month Period:
Up 200 basis point ramp $ 457 1.63%
Up 100 basis point ramp 247 0.88%
Down 100 basis point ramp (314) (1.12%)
Down 200 basis point ramp (673) (2.40%)
Subsequent Twelve Month Period:
Up 200 basis point ramp $ 392 1.36%
Up 100 basis point ramp 394 1.36%
Down 100 basis point ramp (731) (2.53%)
Down 200 basis point ramp (1,819) (6.30%)
</TABLE>
The Company also uses interest rate sensitivity "gap" analysis to
provide a more general overview of its interest rate risk profile. The
effect of interest rate changes on the assets and liabilities of a financial
institution such as the Bank may be analyzed by examining the extent to
which such assets and liabilities are "interest rate sensitive" and by
monitoring an institution's interest rate sensitivity gap. An asset or
liability is said to be interest rate sensitive within a specific time
period if it will mature or reprice within that time period. The interest
rate sensitivity gap is defined as the difference between interest-earning
assets and interest-bearing liabilities maturing or repricing within a given
time period. A gap is considered positive when the amount of interest rate
sensitive assets exceeds the amount of interest rate sensitive liabilities.
A gap is considered negative when the amount of interest rate sensitive
liabilities exceeds interest rate sensitive assets. During a period of
falling interest rates, a positive gap would tend to adversely affect net
interest income, while a negative gap would tend to result in an increase in
net income. Conversely, during a period of rising interest rates, a
positive gap would tend to result in an increase in net interest income
while a negative gap would tend to affect net interest income adversely.
The Company has sought to maintain a relatively narrow gap position
and has, in some instances, foregone investment in higher yielding assets
when such investment, in management's opinion, exposed it to undue interest
rate risk. However, the Company does not attempt to perfectly match
interest rate sensitive assets and liabilities and will selectively mismatch
its assets and liabilities to a controlled degree when it considers it both
appropriate and prudent to do so. There are a number of relevant time
periods in which to measure the gap position, such as at the 30, 60, 90, or
180 day points in the maturity schedule. Management monitors the gap
position at each of these maturity points, while also focusing closely on
the gap at the one-year point in making its principal funding decisions,
such as with respect to its commercial and residential mortgage loan
portfolios. At December 31, 2000, the Company's cumulative one-year gap was
a negative $2.4 million, or 0.3% of total assets, compared to positive $14.0
million, or 2.2% of total assets, at the end of 1999.
The following table presents the repricing schedule for interest-
earning assets and interest-bearing liabilities at December 31, 2000. To
the extent applicable, amounts of assets and liabilities which mature or
reprice within a particular period were determined in accordance with their
contractual terms. Loans have been allocated based upon expected
amortization and prepayment rates based on historical performance. Savings,
NOW and money market deposit accounts, which have no contractual term and
are subject to immediate repricing, are anticipated to behave more like core
accounts and therefore are presented as spread evenly over the first three
years. Nonetheless, this presentation does not reflect lags that may occur
in the actual repricing of these deposits.
<TABLE>
<CAPTION>
Within Over Three Over Six Over One
Three to Six to Twelve Year to Over Five
Months Months Months Five Years Years Total
------ ---------- --------- ---------- --------- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Federal funds sold $ 5,600 $ -- $ -- $ -- $ -- $ 5,600
Investment securities -- 4,999 19,273 21,000 2,024 47,296
Mortgage-backed securities 27,736 10,446 16,899 59,168 3,182 117,431
FHLB Stock 3,704 -- -- -- -- 3,704
Residential mortgage loans 32,850 26,502 47,638 115,085 25,848 247,923
Commercial loans 80,559 10,470 20,018 93,550 8,221 212,818
Consumer and other loans 28,413 2,411 3,292 16,343 7,625 58,084
------------------------------------------------------------------------------
Total interest-earning assets 178,862 54,828 107,120 305,146 46,900 692,856
------------------------------------------------------------------------------
Interest-bearing liabilities:
NOW accounts 3,075 3,075 6,152 24,608 -- 36,910
Money market accounts 1,023 1,023 2,048 8,189 -- 12,283
Savings accounts 17,562 17,562 35,122 140,482 -- 210,728
Certificate of deposit accounts 66,480 45,377 113,144 40,269 353 265,623
Overnight & short-term borrowings 13,847 -- -- -- -- 13,847
FHLB borrowings 3,003 3 10,004 20,137 145 33,292
Other borrowings -- 4,750 -- -- -- 4,750
------------------------------------------------------------------------------
Total interest-bearing liabilities 104,990 71,790 166,470 233,685 498 577,433
------------------------------------------------------------------------------
Net interest sensitivity gap during
the period $ 73,872 $(16,962) $(59,350) $ 71,461 $ 46,402 $115,423
==============================================================================
Cumulative gap $ 73,872 $ 56,910 $ (2,440) $ 69,021 $115,423
================================================================
Cumulative gap -- 12/31/99 $ 55,263 $ 34,801 $ 13,953 $ 22,572 $ 81,325
================================================================
Interest-sensitive assets as a percent of
interest-sensitive liabilities (cumulative) 170.36% 132.19% 99.29% 111.96% 119.99%
Cumulative gap as a percent of total assets 9.99% 7.70% (0.33%) 9.33% 15.61%
</TABLE>
The preceding table does not necessarily indicate the impact of
general interest rate movements on the Company's net interest income because
the repricing of various assets and liabilities is discretionary and is
subject to competitive and other factors. As a result, assets and
liabilities indicated as repricing within the same period may, in fact,
reprice at different times and at different rate levels.
Liquidity and Capital Resources
Liquidity
Liquidity is defined as the ability to meet current and future
financial obligations of a short-term nature. The Company further defines
liquidity as the ability to respond to the needs of depositors and
borrowers, as well as to earnings enhancement opportunities, in a changing
marketplace.
The primary source of funds for the payment of dividends and expenses
by the Company is dividends paid to it by the Bank. Bank regulatory
authorities generally restrict the amounts available for payment of
dividends if the effect thereof would cause the capital of the Bank to be
reduced below applicable capital requirements. These restrictions
indirectly affect the Company's ability to pay dividends. The primary
sources of liquidity for the Bank consist of deposit inflows, loan
repayments, borrowed funds, maturity of investment securities and sales of
securities from the available for sale portfolio. Management believes that
these sources are sufficient to fund the Bank's lending and investment
activities.
Management is responsible for establishing and monitoring liquidity
targets as well as strategies and tactics to meet these targets. In
general, the Company maintains a high degree of flexibility with a liquidity
target of 10% to 25% of total assets. At December 31, 2000, federal funds
sold, investment securities and mortgage-backed securities available for
sale amounted to $170.3 million, or 23.0% of total assets. This compares to
$132.1 million, or 20.9% of total assets, at December 31, 1999. The Bank is
a member of the FHLB and, as such, has access to both short- and long-term
borrowings. In addition, the Bank maintains a line of credit at the FHLB as
well as a line of credit with a correspondent bank. There have been no
adverse trends in the Company's liquidity or capital reserves. Management
believes that the Company has adequate liquidity to meet its commitments.
Capital Resources
Total shareholders' equity of the Company at December 31, 2000 was
$53.3 million, as compared to $47.7 million at December 31, 1999. Major
activity in shareholders' equity during 2000 can be summarized as follows:
net income for the year was $5.6 million, dividends paid on Common Stock
totaled $1.6 million and changes in unrealized gains and losses on
securities equaled $1.6 million.
Capital guidelines issued by the Federal Reserve Board require the
Company to maintain minimum capital levels for capital adequacy purposes.
At December 31, 2000, the Company's Tier I leverage ratio was 5.91%, its
Tier I Risk-based capital ratio was 9.50% and its Total Risk-based capital
ratio was 10.76%. At December 31, 2000, all of the Company's capital ratios
met all of the requirements to which they are subject. The Bank is also
subject to FDIC regulations regarding capital requirements. These
regulations require banks to maintain minimum capital levels for capital
adequacy purposes and higher capital levels to be considered "well
capitalized." At December 31, 2000, the Bank's Tier I leverage ratio stood
at 5.85%. The Bank is also subject to risk-based capital measures. The
risk-based capital guidelines include both a definition of capital and a
framework for calculating risk-weighted assets by assigning balance sheet
assets and off-balance sheet items to broad risk categories. According to
these standards, the Bank had a Tier I risk-weighted capital ratio of 9.41%
and a Total risk-weighted capital ratio of 10.66% at December 31, 2000. The
minimum Tier I leverage, Tier I risk-weighted, and Total risk-weighted
capital ratios necessary to be classified for regulatory purposes as a "well
capitalized" institution are 5.00%, 6.00% and 10.00%, respectively. The
Bank, therefore, is considered to be "well capitalized."
Impact of Inflation and Changing Prices
The consolidated financial statements and related notes thereto,
included elsewhere herein, have been prepared in accordance with GAAP, which
require the measurement of financial position and operating results in terms
of historical dollars, without considering changes in the relative
purchasing power of money over time due to inflation. Unlike many
industrial companies, substantially all of the assets and liabilities of the
Bank are monetary in nature. As a result, interest rates have a more
significant impact on the Bank's performance than the general level of
inflation. Over short periods of time, interest rates may not necessarily
move in the same direction or in the same magnitude as inflation.
Recent Accounting Developments
On December 20, 2000, FASB tentatively concluded that upon the
effective date of its final statement on business combinations and
intangible assets, goodwill recorded on an entity's balance sheets would no
longer be amortized. This conclusion includes existing goodwill (i.e.,
recorded goodwill at the date the financial statement is issued), as well as
goodwill arising subsequent to the effective date of the final statement.
Goodwill will not be amortized but will be reviewed for impairment upon the
occurrence of certain triggering events. The FASB decided to issue a
revised Exposure Draft during the first quarter of 2001, limited to its
tentative conclusions regarding an impairment-only approach to accounting
for goodwill. The FASB plans to issue a final statement in the second
quarter of 2001 that incorporates its tentative decisions. At December 31,
2000, the Company had $11.9 million of goodwill on its balance sheet that
was being amortized at rate of $1.2 million annually.
BANCORP RHODE ISLAND, INC.
Management's Report
The management of Bancorp Rhode Island, Inc. is responsible for the
preparation, integrity and fair presentation of the financial statements and
other financial information in this annual report. Management believes that
the financial statements have been prepared in conformity with generally
accepted accounting principles applied on a consistent basis in all material
respects. In preparing the financial statements and other financial
information, management makes certain judgments and estimates where
appropriate.
The accounting systems, which record, summarize and report financial
data, are supported by a system of internal control. The Company's system
of internal control is designed to provide reasonable assurance that assets
are safeguarded, that transactions are executed in accordance with
management's authorizations and that transactions are properly recorded in
the financial statements. This system is augmented by written policies and
procedures, along with internal audits. Management recognizes that
estimates and judgments are required to assess and balance the relative
costs and expected benefits of the controls and that errors or
irregularities may nevertheless occur. However, management believes that
the Company's internal control system provides reasonable assurance that
errors or irregularities that could be material to the financial statements
are prevented or would be detected on a timely basis and corrected in the
normal course of business.
The Board of Directors oversees the financial statements through an
Audit Committee comprised solely of outside directors who are not employees
of the Company. The Audit Committee reviews the activities of the internal
audit function and meets regularly with representatives of KPMG LLP, the
Company's independent auditors. KPMG LLP has been appointed by the Board of
Directors to conduct an independent audit and to express an opinion as to
the fairness of the presentation of the consolidated financial statements of
Bancorp Rhode Island, Inc.
Merrill W. Sherman Albert R. Rietheimer
President and Chief Financial Officer and
Chief Executive Officer Treasurer
BANCORP RHODE ISLAND, INC.
Independent Auditors' Report
The Board of Directors and Shareholders
Bancorp Rhode Island, Inc.:
We have audited the accompanying consolidated balance sheets of
Bancorp Rhode Island, Inc. and subsidiaries as of December 31, 2000 and
1999, and the related consolidated statements of operations, changes in
shareholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 2000. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States of America. Those standards require
that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
Bancorp Rhode Island, Inc. and subsidiaries as of December 31, 2000 and
1999, and the results of their operations and their cash flows for each of
the years in the three-year period ended December 31, 2000, in conformity
with accounting principles generally accepted in the United States of
America.
KPMG LLP
Providence, Rhode Island
January 18, 2001
<TABLE>
<CAPTION>
BANCORP RHODE ISLAND, INC.
Consolidated Balance Sheets
December 31,
---------------------
2000 1999
---- ----
(In thousands)
<S> <C> <C>
Assets:
Cash and due from banks (Note 2) $ 28,853 $ 17,636
Federal funds sold 5,600 6,850
Investment securities available for sale (amortized cost of $47,459 and
$51,476, respectively) (Notes 3, 10, 11 and 12) 47,296 50,503
Mortgage-backed securities available for sale (amortized cost of $117,543 and
$76,458, respectively) (Notes 4 and 11) 117,431 74,793
Stock in the Federal Home Loan Bank of Boston (Note 11) 3,704 3,704
Loans receivable (Notes 5 and 11):
Residential mortgage loans 247,923 237,320
Commercial loans 212,818 174,548
Consumer and other loans 58,084 47,090
---------------------
Total loans receivable 518,825 458,958
Allowance for loan losses (Note 6) (7,294) (5,681)
---------------------
Net loans receivable 511,531 453,277
Premises and equipment, net (Note 7) 6,384 5,857
Other real estate owned (Note 8) 30 49
Goodwill, net (Note 2) 11,930 13,094
Accrued interest receivable 5,630 4,670
Prepaid expenses and other assets 1,031 1,544
---------------------
Total assets $739,420 $631,977
=====================
Liabilities:
Deposits (Note 9):
Demand deposit accounts $106,088 $ 67,844
NOW accounts 36,910 27,456
Money market accounts 12,283 16,073
Savings accounts 210,728 173,692
Certificate of deposit accounts 265,623 228,351
---------------------
Total deposits 631,632 513,416
Overnight and short-term borrowings (Note 10) 13,847 14,978
Federal Home Loan Bank of Boston borrowings (Note 11) 33,292 48,183
Other borrowings (Note 12) 4,750 4,750
Other liabilities 2,607 2,975
---------------------
Total liabilities 686,128 584,302
---------------------
Commitments and contingencies (Notes 7, 16 and 20)
Shareholders' equity (Notes 1 and 18):
Common stock, par value $0.01 per share, authorized 11,000,000 shares:
Voting: Issued and outstanding 3,448,950 shares in 2000 and 3,448,550
shares in 1999 34 34
Non-Voting: Issued and outstanding 280,000 shares 3 3
Additional paid-in capital 39,621 39,617
Retained earnings 13,815 9,763
Accumulated other comprehensive loss, net (Notes 3 and 4) (181) (1,742)
---------------------
Total shareholders' equity 53,292 47,675
---------------------
Total liabilities and shareholders' equity $739,420 $631,977
=====================
</TABLE>
See accompanying notes to consolidated financial statements.
BANCORP RHODE ISLAND, INC.
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------
2000 1999 1998
---- ---- ----
(In thousands, except per share data)
<S> <C> <C> <C>
Interest and dividend income:
Residential mortgage loans $ 17,982 $ 16,997 $ 19,205
Commercial loans 17,737 12,795 10,812
Consumer and other loans 4,472 3,491 3,144
Investment securities 3,056 2,814 2,744
Mortgage-backed securities 5,576 4,835 3,521
Federal funds sold and other 930 482 400
Federal Home Loan Bank of Boston stock dividends 282 237 208
----------------------------------------
Total interest and dividend income 50,035 41,651 40,034
----------------------------------------
Interest expense:
NOW accounts 205 175 175
Money market accounts 375 473 401
Savings accounts 6,137 4,742 4,670
Certificate of deposit accounts 13,685 11,396 12,360
Overnight and short-term borrowings 636 335 225
Federal Home Loan Bank of Boston borrowings 2,359 2,198 1,871
Other borrowings 281 281 143
----------------------------------------
Total interest expense 23,678 19,600 19,845
----------------------------------------
Net interest income 26,357 22,051 20,189
Provision for loan losses (Note 6) 1,542 1,000 1,017
----------------------------------------
Net interest income after provision for loan losses 24,815 21,051 19,172
----------------------------------------
Noninterest income:
Loan related fees 258 306 137
Service charges on deposit accounts 2,722 2,215 1,734
Gain on sales of investment securities -- -- 5
Commissions on loans originated for others 74 83 141
Other income 524 618 710
----------------------------------------
Total noninterest income 3,578 3,222 2,727
----------------------------------------
Noninterest expense:
Salaries and employee benefits (Note 14) 9,552 8,065 7,136
Occupancy (Note 7) 1,530 1,302 1,155
Equipment 899 744 888
Data processing 1,340 1,348 1,137
Marketing 1,069 883 829
Professional services 891 870 586
Loan servicing 761 825 971
Other real estate owned (Note 8) 31 108 166
Amortization of goodwill 1,164 1,164 1,234
Deposit tax and assessments 109 58 56
Other expenses (Note 15) 2,316 1,987 1,885
----------------------------------------
Total noninterest expense 19,662 17,354 16,043
----------------------------------------
Income before income taxes and change in accounting principle 8,731 6,919 5,856
Income tax expense (Note 13) 3,113 2,448 2,022
----------------------------------------
Net income before change in accounting principle 5,618 4,471 3,834
Cumulative effect of change in accounting principle -- 109 --
----------------------------------------
Net income 5,618 4,362 3,834
Dividends on preferred stock -- 88 793
----------------------------------------
Net income available to common shareholders $ 5,618 $ 4,274 $ 3,041
========================================
Basic earnings per common share (Notes 2 and 19):
Income per common share before change in accounting principle $ 1.51 $ 1.18 $ 0.87
Cumulative effect of change in accounting principle, net of tax -- (0.03) --
----------------------------------------
Net income per common share $ 1.51 $ 1.15 $ 0.87
========================================
Diluted earnings per common share (Notes 2 and 19):
Income per common share before change in accounting principle $ 1.49 $ 1.17 $ 0.85
Cumulative effect of change in accounting principle, net of tax -- (0.03) --
----------------------------------------
Net income per common share $ 1.49 $ 1.14 $ 0.85
========================================
Average common shares outstanding - basic 3,728,688 3,727,010 3,506,573
Average common shares outstanding - diluted 3,768,589 3,741,778 3,584,820
</TABLE>
See accompanying notes to consolidated financial statements.
BANCORP RHODE ISLAND, INC.
Consolidated Statements of Changes in Shareholders' Equity
For Years Ended December 31, 2000, 1999 and 1998
<TABLE>
<CAPTION>
Accumulated
Other
Compre-
Additional hensive
Preferred Common Paid-in Retained Income/
Stock Stock Capital Earnings (Loss) Total
--------- ------ ---------- -------- ----------- -----
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 $ 4,770 $28 $36,753 $ 2,821 $ 335 $ 44,707
Net income -- -- -- 3,834 -- 3,834
Other comprehensive income, net
of tax:
Unrealized holding losses arising
during the period, net of taxes of $57 (122) (122)
Gains included in net income, net of
taxes of $2 (3) (3)
--------
Comprehensive income 3,709
Issuance of common stock -- 9 12,711 -- -- 12,720
Exercise of stock options -- -- 34 -- -- 34
Redemption of preferred stock (3,966) -- (8,724) -- -- (12,690)
Dividends on preferred stock -- -- -- (793) -- (793)
---------------------------------------------------------------------------
Balance at December 31, 1998 804 37 40,774 5,862 210 47,687
Net income -- -- -- 4,362 -- 4,362
Other comprehensive income, net
of tax:
Unrealized holding losses arising
during the period, net of taxes of $1,002 (1,952) (1,952)
--------
Comprehensive income 2,410
Exercise of stock options -- -- 49 -- -- 49
Redemption of preferred stock (804) -- (1,206) -- -- (2,010)
Dividends on preferred stock -- -- -- (88) -- (88)
Dividends on common stock -- -- -- (373) -- (373)
---------------------------------------------------------------------------
Balance at December 31, 1999 -- 37 39,617 9,763 (1,742) 47,675
Net income -- -- -- 5,618 -- 5,618
Other comprehensive income, net
of tax:
Unrealized holding gains arising
during the period, net of taxes of $(804) 1,561 1,561
--------
Comprehensive income 7,179
Exercise of stock options -- -- 4 -- -- 4
Dividends on common stock -- -- -- (1,566) -- (1,566)
---------------------------------------------------------------------------
Balance at December 31, 2000 $ -- $37 $39,621 $13,815 $ (181) $ 53,292
===========================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
BANCORP RHODE ISLAND, INC.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------
2000 1999 1998
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 5,618 $ 4,362 $ 3,834
Adjustment to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 2,558 3,030 3,428
Provision for loan losses 1,542 1,000 1,017
Gain on sales of investments -- -- (5)
Loss (gain) on other real estate owned (7) 12 65
(Increase) decrease in accrued interest receivable (960) 59 306
(Increase) decrease in prepaid expenses and other assets (290) (225) 61
Increase (decrease) in other liabilities (368) 923 (1,605)
Increase (decrease) in other, net 204 213 54
-----------------------------------
Net cash provided by operating activities 8,297 9,374 7,155
-----------------------------------
Cash flows from investing activities:
Origination of:
Residential mortgage loans (9,960) (17,630) (13,093)
Commercial loans (65,421) (62,281) (41,899)
Consumer loans (18,111) (18,909) (17,051)
Purchase of:
Investment securities available for sale (9,000) (35,168) (25,950)
Mortgage-backed securities available for sale (58,999) (17,947) (55,930)
Residential mortgage loans (48,503) (53,883) (108,591)
Consumer and other loans (5,043) -- --
Federal Home Loan Bank of Boston stock -- (359) (437)
Principal payments on:
Investment securities available for sale 13,000 23,000 32,670
Mortgage-backed securities available for sale 17,785 21,256 18,648
Residential mortgage loans 47,422 91,841 118,679
Commercial loans 27,139 21,620 22,547
Consumer loans 12,042 10,187 11,739
Proceeds from sale of investment securities available for sale -- -- 2,001
Proceeds from disposition of other real estate owned 163 617 673
Proceeds from sale of premises and equipment -- -- 205
Capital expenditures for premises and equipment (1,476) (1,923) (1,642)
-----------------------------------
Net cash used in investing activities (98,962) (39,579) (57,431)
-----------------------------------
Cash flows from financing activities:
Net increase in deposits 118,216 12,703 35,806
Net increase in overnight and short-term borrowings (1,131) 10,716 1,933
Proceeds from FHLB and other borrowings 15,116 70,300 70,000
Repayment of FHLB and other borrowings (30,007) (58,617) (46,175)
Proceeds from issuance of common stock, net 4 49 12,754
Redemption of preferred stock -- (2,010) (12,690)
Dividends on preferred stock -- (88) (793)
Dividends on common stock (1,566) (373) --
-----------------------------------
Net cash provided by financing activities 100,632 32,680 60,835
-----------------------------------
Net increase (decrease) in cash and cash equivalents 9,967 2,475 10,559
Cash and cash equivalents at beginning of year 24,486 22,011 11,452
-----------------------------------
Cash and cash equivalents at end of year $ 34,453 $ 24,486 $ 22,011
===================================
Supplementary disclosures:
Cash paid for interest $ 23,471 $ 19,604 $ 20,473
Cash paid for income taxes 3,975 3,230 2,665
Non-cash transactions:
Additions to other real estate owned in settlement of loans 137 284 776
Change in other comprehensive income, net of taxes 1,561 (1,952) (125)
</TABLE>
See accompanying notes to consolidated financial statements.
BANCORP RHODE ISLAND, INC.
Notes to Consolidated Financial Statements
(1) Organization
Bancorp Rhode Island, Inc., a Rhode Island corporation (the
"Company"), was organized by Bank Rhode Island (the "Bank") on February 15,
2000, to be a bank holding company and to acquire all of the capital stock
of the Bank. The reorganization of the Bank into the holding company form
of ownership was completed on September 1, 2000. The Company has no
significant assets other than the common stock of the Bank. For this
reason, substantially all of the discussion in these Consolidated Financial
Statements and accompanying Notes relates to the operations of the Bank and
its subsidiaries.
Bank Rhode Island is a commercial bank chartered as a financial
institution in the State of Rhode Island. The Bank pursues a community
banking mission and is principally engaged in providing banking products and
services to individuals and businesses in Providence and Kent counties. The
Bank is subject to competition from a variety of traditional and
nontraditional financial service providers both within and outside of Rhode
Island. The Bank offers its customers a broad range of basic deposit
services, including checking, savings and certificate of deposit accounts,
along with access to their accounts through automated teller machines
("ATMs") and through use of debit cards. The Bank also offers a broad range
of commercial, commercial real estate and consumer loans. Additionally, the
Bank provides IRA and Keogh accounts, along with nondeposit investment
products. The Company and Bank are subject to the regulations of certain
state and federal agencies and undergo periodic examinations by those
regulatory authorities. The Bank's deposits are insured by the Federal
Deposit Insurance Corporation ("FDIC"), subject to regulatory limits.
(2) Summary of Significant Accounting Policies
Basis of Presentation
The accounting and reporting policies of the Company conform to
accounting principles generally accepted in the United States of America and
to prevailing practices within the banking industry. The Company has one
reportable operating segment. The following is a summary of the significant
accounting and reporting policies used by management in preparing and
presenting the consolidated financial statements.
In preparing the consolidated financial statements, management is
required to make estimates and assumptions that affect the reported amounts
of assets and liabilities as of the date of the balance sheet and revenues
and expenses for the period. Actual results could differ from those
estimates. Material estimates that are particularly susceptible to change
relate to the determination of the allowance for loan losses.
Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of Bancorp Rhode Island, Inc., and its wholly-owned subsidiary,
Bank Rhode Island along with the Bank's wholly-owned subsidiaries, BRI
Investment Corp. (a Rhode Island passive investment company) and BRI Realty
Corp. (a Rhode Island real estate holding company) subsequent to its
incorporation on August 10, 1999. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Reclassifications
Certain amounts in the prior year's financial statements have been
reclassified to conform with the current year's presentation.
Statement of Cash Flows
For purposes of reporting cash flows, the Company considers cash, due
from banks and federal funds sold to be cash equivalents. Cash flows
relating to deposits are presented net in the statement of cash flows.
Comprehensive Income
Comprehensive income is defined as all changes to equity except
investments by and distributions to shareholders. Net income is a component
of comprehensive income, with all other components referred to in the
aggregate as 'other comprehensive income.'
Cash and Due From Banks
The Bank is required to maintain average reserve balances in a
noninterest bearing account with the Federal Reserve Bank based upon a
percentage of certain deposits. As of December 31, 2000 and 1999, the
average daily amount required to be held was $500,000 and $5.4 million,
respectively. Additionally, in connection with a line of credit from a
correspondent bank, the Bank is required to maintain a compensating balance
in a noninterest bearing account. As of both December 31, 2000 and 1999,
the required compensating balance was $100,000.
Investment and Mortgage-Backed Securities
Debt securities are classified as held to maturity, available for
sale, or trading. Securities are classified as held to maturity and carried
at amortized cost only if the Company has a positive intent and the ability
to hold these securities to maturity. Securities are classified as trading
and carried at fair value, with unrealized gains and losses included in
earnings, if they are bought and held principally for the purpose of selling
in the near term. Securities not classified as either held to maturity or
trading are classified as available for sale and reported at fair value,
with unrealized gains and losses excluded from earnings and reported as a
separate component of shareholders' equity, net of estimated income taxes.
Premiums and discounts on securities are amortized or accreted into
income by the level-yield method. If a decline in fair value below the
amortized cost basis of a security is judged to be other than temporary, the
cost basis of the security is written down to fair value. The amount of the
writedown is included as a charge against earnings. Gains and losses on the
sale of securities are recognized at the time of sale on a specific
identification basis.
Loans
Loans held in portfolio are stated at the principal amount
outstanding, net of unamortized premiums, discounts, or deferred loan
origination fees and costs. Interest income is accrued on a level yield
basis based on the principal amount outstanding. Premiums, discounts, and
deferred loan origination fees and costs are amortized as an adjustment to
yield over the life of the related loans. When a loan is paid-off, the
unamortized portion of premiums, discounts or net fees is recognized into
income.
Loans on which the accrual of interest has been discontinued are
designated nonaccrual loans. Accrual of interest income is discontinued
when concern exists as to the collectibility of principal or interest, or
when a loan becomes over ninety days delinquent. Additionally, when a loan
is placed on nonaccrual status, all interest previously accrued but not
collected is reversed against current period income. Loans are removed from
nonaccrual when they become less than ninety days past due and when concern
no longer exists as to the collectibility of principal or interest.
Interest collected on nonaccruing loans is either applied against principal
or reported as income according to management's judgment as to the
collectibility of principal.
Impaired loans are loans for which it is probable that the Bank will
not be able to collect all amounts due according to the contractual terms of
the loan agreements. Impairment is measured on a discounted cash flow
method, or at the loan's observable market price, or at the fair value of
the collateral if the loan is collateral dependent. When foreclosure is
probable, impairment is measured based on the fair value of the collateral.
In addition, the Bank classifies a loan as an in-substance foreclosure only
when the Bank is in possession of the collateral.
Allowance for Loan Losses
The allowance for loan losses is established for credit losses
inherent in the loan portfolio through a charge to earnings. When
management believes that the collectibility of a loan's principal balance,
or portions thereof, is unlikely, the principal amount is charged against
the allowance. Recoveries on loans which have been previously charged off
are credited to the allowance as received.
Management's methodology to estimate loss exposure inherent in the
portfolio includes an analysis of individual loans deemed to be impaired,
reserve allocations for various loan types based on payment status or loss
experience and an unallocated allowance that is maintained based on
management's assessment of many factors including the growth, composition
and quality of the loan portfolio, historical loss experience, general
economic conditions, and other pertinent factors. While management
evaluates currently available information in establishing the allowance for
loan losses, future adjustments to the allowance may be necessary if
economic conditions differ substantially from the assumptions used in making
the evaluations. In addition, various regulatory agencies, as an integral
part of their examination process, periodically review a financial
institution's allowance for loan losses. Such agencies may require the
financial institution to recognize additions to the allowance based on their
judgments about information available to them at the time of their
examination.
Other Real Estate Owned
OREO consists of property acquired through foreclosure, real estate
acquired through acceptance of a deed in lieu of foreclosure and loans
determined to be substantively repossessed. Real estate loans that are
substantively repossessed include only those loans for which the Bank has
taken possession of the collateral, but has not completed legal foreclosure
proceedings.
OREO, including real estate substantively repossessed, is stated at
the lower of cost or fair value, minus estimated costs to sell, at the date
of acquisition or classification to OREO status. Fair value of such assets
is determined based on independent appraisals and other relevant factors.
Any write-down to fair value at the time of foreclosure is charged to the
allowance for loan losses. A valuation allowance is maintained for known
specific and potential market declines and for estimated selling expenses.
Increases to the valuation allowance, expenses associated with ownership of
these properties, and gains and losses from their sale, are reflected in
operations as incurred. Realized gains upon disposal are recognized as
income.
Management believes that the net carrying value of OREO reflects the
lower of its cost basis or net fair value. Factors similar to those
considered in the evaluation of the allowance for loan losses, including
regulatory agency requirements, are considered in the evaluation of the net
fair value of OREO.
Transfers and Servicing of Assets and Extinguishments of Liabilities
The Company accounts and reports for transfers and servicing of
financial assets and extinguishments of liabilities based on consistent
application of a financial components approach that focuses on control.
This approach distinguishes transfers of financial assets that are sales
from transfers that are secured borrowings. After a transfer of financial
assets, the Company recognizes all financial and servicing assets it
controls and liabilities it has incurred and derecognizes financial assets
it no longer controls and liabilities that have been extinguished. This
financial components approach focuses on the assets and liabilities that
exist after the transfer. Many of these assets and liabilities are
components of financial assets that existed prior to the transfer. If a
transfer does not meet the criteria for a sale, the Company accounts for a
transfer as a secured borrowing with a pledge of collateral.
Premises and Equipment
Premises and equipment are carried at cost, less accumulated
depreciation and amortization. Depreciation and amortization are computed
primarily by the straight-line method over the estimated useful lives of the
assets, or the terms of the leases if shorter.
Goodwill
On March 22, 1996, the Bank acquired certain assets and assumed
certain liabilities from Fleet National Bank of Connecticut, formerly known
as Shawmut Bank Connecticut, N.A. and other related entities. This
acquisition was accounted for utilizing the purchase method of accounting
and generated $17.5 million of excess costs over net assets acquired,
commonly referred to as "goodwill." This goodwill is being amortized to
expense using the straight-line method over 15 years and results in a annual
pre-tax charge to earnings of $1.2 million. On an ongoing basis, management
reviews the valuation and amortization of its goodwill, taking into
consideration any events and circumstances which might have diminished its
value.
In April 1998, the FASB issued Statement of Position ("SOP") 98-5,
"Accounting for Costs of a Start-Up Entity." SOP 98-5 requires
organizational costs, which were being amortized, to be expensed as of the
effective date of this statement, January 1, 1999, and accounted for as a
cumulative effect of a change in accounting principle. On January 1, 1999,
the Bank expensed $166,000 of unamortized organizational costs resulting in
a charge to earnings, net of taxes, of $109,000.
Employee Benefits
The Bank maintains a Section 401(k) savings plan for employees of the
Bank and its subsidiaries. Under the plan, the Bank makes a matching
contribution of the amount contributed by each participating employee, up to
4% of the employee's yearly salary. The Bank's contributions are charged
against current operations in the year made.
The Company has adopted Statement of Financial Accounting Standards
("SFAS") 123, "Accounting for Stock-Based Compensation." This Statement
establishes a fair value based method of accounting for stock-based
compensation plans under which compensation cost is measured at the grant
date based on the value of the award and is recognized over the service
period. However, the Statement allows a company to continue to measure
compensation cost for such plans under Accounting Principles Board Opinion
("APB") 25, "Accounting for Stock Issued to Employees." Under APB 25, no
compensation cost is recorded if, at the grant date, the exercise price of
the options is equal to the fair market value of the Company's common stock.
The Company has elected to continue to follow the accounting in APB 25.
SFAS 123 requires companies that elect to continue to follow the accounting
in APB 25 to disclose in the notes to their financial statements pro forma
net income and earnings per share as if the fair value based method of
accounting had been applied.
Income Taxes
The Company recognizes income taxes under the asset and liability
method. Under this method, deferred tax assets and liabilities are
established for the future tax consequences attributable to temporary
differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases and operating loss and
tax credit carryforwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled.
The effect on deferred tax assets and liabilities of a change in tax rates
is recognized in income during the period that includes the enactment date.
Earnings Per Share
Basic earnings per share ("EPS") excludes dilution and is computed by
dividing income available to common shareholders by the weighted average
number of common shares outstanding for the period. Diluted EPS reflects
the potential dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common stock or resulted
in the issuance of common stock that then share in the earnings of the
entity.
(3) Investment Securities Available for Sale
A summary of investment securities available for sale follows:
<TABLE>
<CAPTION>
Unrealized
Amortized ----------------- Market
Cost Gains Losses Value
--------- ----- ------ -----
(In thousands)
<S> <C> <C> <C> <C>
At December 31, 2000:
U.S. Treasury obligations $ 1,016 $ -- $ (11) $ 1,005
U.S. Agency obligations 44,256 167 (119) 44,304
Trust Preferred securities 2,187 -- (200) 1,987
-----------------------------------------
Total $47,459 $167 $(330) $47,296
=========================================
At December 31, 1999:
U.S. Treasury obligations $10,023 $ 21 $ (35) $10,009
U.S. Agency obligations 39,256 5 (875) 38,386
Trust Preferred securities 2,197 -- (89) 2,108
-----------------------------------------
Total $51,476 $ 26 $(999) $50,503
=========================================
</TABLE>
The following table sets forth the maturities of investment securities
available for sale and the weighted average yields of such securities:
<TABLE>
<CAPTION>
After One, But
Within One Year Within Five Years
---------------------------------- ----------------------------------
Weighted Weighted
Amortized Market Average Amortized Market Average
Cost Value Yield Cost Value Yield
--------- ------ -------- --------- ------ --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
At December 31, 2000:
U.S. Treasury obligations $ 1,016 $ 1,005 4.16% $ -- $ -- --%
U.S. Agency obligations 5,256 5,243 5.70% 39,000 39,061 6.40%
Trust Preferred securities -- -- --% -- -- --%
-------------------- --------------------
Total $ 6,272 $ 6,248 5.46% $39,000 $39,061 6.40%
============================== ==============================
At December 31, 1999:
U.S. Treasury obligations $ 8,986 $ 9,007 6.39% $ 1,037 $ 1,002 4.15%
U.S. Agency obligations 3,991 3,991 5.80% 25,265 24,557 5.74
Trust Preferred securities -- -- --% -- -- --%
-------------------- --------------------
Total $12,977 $12,998 6.21% $26,302 $25,559 5.68%
============================== ==============================
<CAPTION>
After Five, But
Within Ten Years After Ten Years
---------------------------------- ----------------------------------
Weighted Weighted
Amortized Market Average Amortized Market Average
Cost Value Yield Cost Value Yield
--------- ------ -------- --------- ------ --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
At December 31, 2000:
U.S. Treasury obligations $ -- $ -- --% $ -- $ -- --%
U.S. Agency obligations -- -- --% -- -- --%
Trust Preferred securities -- -- --% 2,187 1,987 8.16%
-------------------- --------------------
Total $ -- $ -- --% $ 2,187 $ 1,987 8.16%
============================== ==============================
At December 31, 1999:
U.S. Treasury obligations $ -- $ -- --% $ -- $ -- --%
U.S. Agency obligations 10,000 9,838 7.10% -- -- --%
Trust Preferred securities -- -- --% 2,197 2,108 8.16%
-------------------- --------------------
Total $10,000 $ 9,838 7.10% $ 2,197 $ 2,108 8.16%
============================== ==============================
</TABLE>
The weighted average remaining life of investment securities available
for sale at December 31, 2000 and 1999 was 3.8 years and 3.9 years,
respectively. Included in the weighted average remaining life calculation
at December 31, 2000 and 1999, were $31.2 million and $34.0 million,
respectively, of securities that are callable at the discretion of the
issuer. These call dates were not utilized in computing the weighted
average remaining life.
The following table presents the sale of investment securities
available for sale and the resulting gains from such sales:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------
2000 1999 1998
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Amortized cost of Investment Securities sold $ -- $ -- $1,996
Gains realized on sales of Investment Securities -- -- 5
----------------------------
Net proceeds from sales of Investment Securities $ -- $ -- $2,001
============================
</TABLE>
(4) Mortgage-Backed Securities Available for Sale
A summary of mortgage-backed securities available for sale by issuer
follows:
<TABLE>
<CAPTION>
Unrealized
Amortized ----------------- Market
Cost Gains Losses Value
--------- ----- ------ ------
(In thousands)
<S> <C> <C> <C> <C>
At December 31, 2000:
Small Business Administration $ 21,785 $ -- $ (20) $ 21,765
Federal National Mortgage Association 66,623 381 (445) 66,559
Federal Home Loan Mortgage Corporation 16,455 76 (3) 16,528
Collateralized Mortgage Obligations 12,680 -- (101) 12,579
---------------------------------------------
Total $117,543 $457 $ (569) $117,431
=============================================
At December 31, 1999:
Federal National Mortgage Association $ 57,911 $ -- $(1,106) $ 56,805
Federal Home Loan Mortgage Corporation 4,190 -- (19) 4,171
Collateralized Mortgage Obligations 14,357 -- (540) 13,817
---------------------------------------------
Total $ 76,458 $ -- $(1,665) $ 74,793
=============================================
</TABLE>
The following table sets forth the maturities of mortgage-backed
securities available for sale and the weighted average yields of such
securities:
<TABLE>
<CAPTION>
Within Ten Years After Ten Years
--------------------------------- -----------------------------------
Weighted Weighted
Amortized Market Average Amortized Market Average
Cost Value Yield Cost Value Yield
--------- ------ -------- --------- ------ --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
At December 31, 2000:
Small Business Administration $ -- $ -- --% $ 21,785 $ 21,765 7.27%
Federal National Mortgage Association -- -- --% 66,623 66,559 6.50%
Federal Home Loan Mortgage Corporation -- -- --% 16,455 16,528 6.74%
Collateralized Mortgage Obligations -- -- --% 12,680 12,579 6.47%
------------------- ----------------------
Total $ -- $ -- --% $117,543 $117,431 6.67%
============================ ================================
At December 31, 1999:
Federal National Mortgage Association $ -- $ -- --% $ 57,911 $ 56,805 5.93%
Federal Home Loan Mortgage Corporation -- -- --% 4,190 4,171 6.67%
Collateralized Mortgage Obligations -- -- --% 14,357 13,817 6.48%
------------------- ----------------------
Total $ -- $ -- --% 76,458 $ 74,793 6.07%
============================ ================================
</TABLE>
Maturities on mortgage-backed securities are based on contractual
maturities and do not take into consideration scheduled amortization or
prepayments. Actual maturities will differ from contractual maturities due
to scheduled amortization and prepayments. The weighted average remaining
contractual term of mortgage-backed securities available for sale at
December 31, 2000 and 1999 was 25.0 years and 25.9 years, respectively.
There were no sales of mortgage-backed securities during 2000, 1999 or 1998.
(5) Loans Receivable
The following is a summary of loans receivable:
<TABLE>
<CAPTION>
December 31,
---------------------
2000 1999
---- ----
(In thousands)
<S> <C> <C>
Residential mortgage loans:
One- to four-family adjustable rate $212,197 $196,863
One- to four-family fixed rate 34,609 39,037
---------------------
Subtotal 246,806 235,900
Premium on loans acquired 1,166 1,446
Net deferred loan origination fees (49) (26)
---------------------
Total $247,923 $237,320
=====================
Commercial loans:
Commercial real estate - nonowner occupied $ 69,315 $ 56,181
Commercial and industrial 51,470 40,109
Commercial real estate - owner occupied 38,272 33,968
Small business 19,170 13,322
Multi-family 15,933 16,270
Leases 11,731 8,499
Construction 7,070 6,379
---------------------
Subtotal 212,961 174,728
Net deferred loan origination fees (143) (180)
---------------------
Total $212,818 $174,548
=====================
Consumer and other loans:
Home equity - lines of credit $ 26,215 $ 24,166
Home equity - term loans 23,292 19,710
Automobile 4,643 --
Installment 1,348 1,279
Savings secured 987 1,005
Unsecured and other 1,044 590
---------------------
Subtotal 57,529 46,750
Premium on loans acquired 144 --
Net deferred loan origination costs 411 340
---------------------
Total $ 58,084 $ 47,090
=====================
</TABLE>
The Bank's commercial and consumer lending activities are conducted
principally in the State of Rhode Island and, to a lesser extent, in nearby
areas of Massachusetts. The Bank originates commercial real estate loans,
commercial and industrial loans, multi-family residential loans and consumer
loans (principally home equity loans and lines of credit) for its portfolio.
The Bank purchases one- to four-family residential mortgage loans and
automobile loans from third party originators. These loans may have been
originated from areas outside of New England. Most loans made by the Bank
are secured by borrowers' personal or business assets. The Bank considers a
concentration of credit to a particular industry to exist when the aggregate
credit exposure to a borrower or group of borrowers in that industry exceeds
25% of the Bank's capital plus reserves. At December 31, 2000, no
concentrations of credit to a particular industry existed as defined by
these parameters. The ability of the Bank's residential and consumer
borrowers to honor their repayment commitments is generally dependent on the
level of overall economic activity within the area they reside in.
Commercial borrowers' ability to repay is generally dependent upon the
general health of the economy and in cases of real estate loans, the real
estate sector in particular. Accordingly, the ultimate collectibility of a
substantial portion of the Bank's loan portfolio is susceptible to changing
conditions in the Rhode Island economy in particular, and the New England
and national economies, in general.
The Bank's lending limit to any single borrowing relationship is
limited by law to approximately $9.0 million. At December 31, 2000, the
Bank had no outstanding commitments to any single borrowing relationship
that were in excess of $4.7 million.
At December 31, 2000, the risk elements contained within the loan
portfolio were centered in $508,000 of nonaccrual loans and $337,000 of
loans past due 60 to 89 days. This compares to $1.1 million of nonaccrual
loans and $93,000 of loans past due 60 to 89 days as of December 31, 1999,
and $1.6 million of nonaccrual loans and $258,000 of loans past due 60 to 89
days as of December 31, 1998. As of December 31, 2000 and 1998, the Bank
did not have any loans that were considered impaired. Included in
nonaccrual loans as of December 31, 1999, were $329,000 of impaired loans.
No specific reserves were necessary in conjunction with these impaired
loans. The average balance of impaired loans during 2000 was $648,000 and
during 1999 was $304,000.
The reduction in interest income associated with nonaccrual loans was
as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
2000 1999 1998
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Income in accordance with original terms $ 48 $130 $138
Income recognized (13) (64) (21)
----------------------
Foregone interest income $ 35 $ 66 $117
======================
</TABLE>
Loans outstanding to executive officers and directors of the Company,
including their immediate families and affiliated companies ("related
parties"), are made in the ordinary course of business under normal credit
terms, including interest rates and collateral, prevailing at the time of
origination for comparable transactions with other persons, and do not
represent more than normal credit risk. An analysis of the activity of
these loans is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
2000 1999
---- ----
(In thousands)
<S> <C> <C>
Balance at beginning of year $ 3,767 $ 2,695
Additions 4,251 4,962
Repayments (1,633) (3,890)
-------------------
Balance at end of year $ 6,385 $ 3,767
===================
</TABLE>
(6) Allowance for Loan Losses
An analysis of the activity in the allowance for loan losses is as
follows:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------
2000 1999 1998
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Balance at beginning of year $5,681 $5,018 $4,340
Provision for loan losses charged against income 1,542 1,000 1,017
Loans charged-off (125) (384) (352)
Recoveries of loans previously charged-off 196 47 13
----------------------------
Balance at end of year $7,294 $5,681 $5,018
============================
</TABLE>
The following table represents the allocation of the allowance for
loan losses as of the dates indicated:
<TABLE>
<CAPTION>
December 31,
-----------------
2000 1999
---- ----
(In thousands)
<S> <C> <C>
Loan category:
Residential mortgage loans $1,460 $1,395
Commercial loans 3,210 2,007
Consumer and other loans 731 566
Unallocated 1,893 1,713
-----------------
Total $7,294 $5,681
=================
</TABLE>
(7) Premises and Equipment
Premises and equipment consisted of the following:
<TABLE>
<CAPTION>
December 31,
------------------
2000 1999
---- ----
(In thousands)
<S> <C> <C>
Land $ 785 $ 785
Office buildings and improvements 1,837 1,727
Leasehold improvements 2,233 1,886
Data processing equipment and software 3,297 2,896
Furniture, fixtures and other equipment 2,610 2,094
-------------------
Subtotal 10,762 9,388
Less accumulated depreciation and amortization (4,378) (3,531)
-------------------
Total premises and equipment $ 6,384 $ 5,857
===================
</TABLE>
The Company utilizes a useful life of 40 years for buildings and 15
years for building improvements. Leasehold improvements are amortized over
their respective lease terms. Data processing equipment and software's
useful life is three years and furniture, fixtures and other equipment's
useful life varies but is primarily five years. Depreciation expense
totaled $941,000, $841,000 and $1.1 million for the years ended December 31,
2000, 1999 and 1998, respectively.
Rent expense for the years ended December 31, 2000, 1999 and 1998 was
$686,000, $531,000 and $417,000, respectively. In connection with the
acquisition of branches from Fleet National Bank of Connecticut, the Bank
assumed the liability for lease payments on seven banking offices previously
occupied by Shawmut Bank Connecticut, N.A. The Bank has renegotiated some
of these leases and has also entered into agreements to lease additional
space. Under the terms of these noncancellable operating leases, the Bank
is currently obligated to minimum annual rents as follows:
<TABLE>
<CAPTION>
Minimum
Lease Payments
--------------
(In thousands)
<S> <C>
2001 $ 715
2002 726
2003 673
2004 669
2005 659
Thereafter 2,136
------
$5,578
======
</TABLE>
(8) Other Real Estate Owned
The following table provides a summary of OREO:
<TABLE>
<CAPTION>
December 31,
------------
2000 1999
---- ----
(In thousands)
<S> <C> <C>
One- to four-family residential property $ 61 $ 84
------------
Subtotal 61 84
Allowance for losses (31) (35)
------------
Total $ 30 $ 49
============
</TABLE>
A summary of the activity in the allowance for losses on OREO follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
2000 1999
---- ----
(In thousands)
<S> <C> <C>
Balance at beginning of year $ 35 $ 49
Provisions -- 12
Net charge-offs (4) (26)
-------------
Balance at end of year $ 31 $ 35
=============
</TABLE>
The following summarizes the operating results from OREO excluding net
gains attributed to disposition:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
2000 1999 1998
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Collection and repossession expenses $42 $ 73 $ 46
Net expenses of holding properties (4) 23 55
Provision for losses -- 12 75
---------------------
Total $38 $108 $176
=====================
</TABLE>
(9) Deposits
Certificate of deposit accounts had the following schedule of
maturities:
<TABLE>
<CAPTION>
December 31,
---------------------
2000 1999
---- ----
(In thousands)
<S> <C> <C>
1 year or less remaining $224,690 $152,025
More than 1 year to 2 years remaining 36,403 69,775
More than 2 years to 4 years remaining 2,938 4,943
More than 4 years remaining 1,592 1,608
---------------------
Total $265,623 $228,351
=====================
</TABLE>
At December 31, 2000, 1999 and 1998, certificate of deposit accounts
with balances $100,000 or more aggregated $32.1 million, $25.3 million and
$23.1 million, respectively.
(10) Overnight and Short-Term Borrowings
Overnight and short-term borrowings are comprised of the following:
<TABLE>
<CAPTION>
December 31,
-------------------
2000 1999
---- ----
(In thousands)
<S> <C> <C>
Treasury tax and loan notes $ 819 $ 3,104
Retail reverse repurchase agreements 13,028 11,874
-------------------
Total $13,847 $14,978
===================
</TABLE>
The Bank utilizes the Note Option for remitting Treasury Tax and Loan
payments to the Federal Reserve Bank. Under this option the U.S. Treasury
invests in obligations of the Bank, as evidenced by open-ended interest-
bearing notes. These notes are collateralized by U.S. Agency securities
owned by the Bank. Information concerning these treasury tax and loan notes
is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
2000 1999
---- ----
(Dollars in thousands)
<S> <C> <C>
Outstanding at end of year $ 819 $3,104
Outstanding collateralized by securities with:
Amortized cost 3,999 3,996
Market value 3,987 3,999
Average outstanding for the year 921 837
Maximum outstanding at any month end 3,000 3,104
Weighted average rate at end of year 5.72% 4.52%
Weighted average rate paid for the year 6.25% 4.84%
</TABLE>
The Bank utilizes retail reverse repurchase agreements in connection
with a cash management product that the Bank offers its commercial
customers. Sales of retail reverse repurchase agreements are treated as
financings. The obligations to repurchase the identical securities that
were sold are reflected as liabilities and the securities remain in the
asset accounts. All of these agreements are collateralized by U.S. Agency
securities owned by the Bank. The securities underlying the agreements were
held by the Bank in a special custody account and remained under the Bank's
control. Information concerning these retail repurchase agreements is as
follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
2000 1999
---- ----
(Dollars in thousands)
<S> <C> <C>
Outstanding at end of year $13,028 $11,874
Maturity date 1/2/01 1/3/00
Outstanding collateralized by securities with:
Amortized cost 14,904 23,255
Market value 14,903 22,790
Average outstanding for the year 10,553 6,278
Maximum outstanding at any month end 14,485 12,361
Weighted average rate at end of year 2.74% 2.88%
Weighted average rate paid for the year 5.48% 4.50%
</TABLE>
Additionally, at December 31, 2000, the Bank had a $2.0 million line
of credit with a correspondent bank to facilitate the issuance of letters of
credit by the Bank and the conducting of foreign exchange transactions for
the Bank's customers. Since inception, there have been no outstanding
balances under this line of credit. The Bank is required to maintain a
compensating balance of $100,000 in conjunction with this line of credit.
(11) Federal Home Loan Bank of Boston Borrowings
FHLB borrowings are comprised of the following:
<TABLE>
<CAPTION>
December 31,
-------------------
2000 1999
---- ----
(In thousands)
<S> <C> <C>
Notes payable:
5.76% note due 03/08/00 $ -- $ 5,000
5.82% note due 03/30/00 -- 4,000
5.84% note due 05/01/00 -- 4,000
6.50% note due 01/05/01 3,000 --
5.87% note due 06/02/03 10,100 10,100
6.01% note due 11/08/04 (callable 11/08/01) 10,000 10,000
6.72% note due 12/03/04 10,000 10,000
5.25% note due 01/21/09 (amortizing) 76 83
5.35% note due 10/08/09 (callable 10/10/00) -- 5,000
6.97% note due 09/08/20 (amortizing) 116 --
-------------------
Total $33,292 $48,183
===================
</TABLE>
All borrowings from the FHLB are secured by the Bank's stock in the
FHLB and a blanket lien on "qualified collateral" defined principally as 90%
of the market value of U.S. Government and Agency obligations and 75% of the
carrying value of certain residential mortgage loans. Unused term borrowing
capacity with the FHLB at December 31, 2000, 1999 and 1998 was $269.7
million, $221.0 million and $241.6 million, respectively. In addition, the
Bank has a short-term line of credit with the FHLB. Unused borrowing
capacity under this line was $11.2 million for each of the years in the
three year period. As one requirement of its borrowings, the Bank is
required to invest in the common stock of the FHLB in an amount at least
equal to five percent of its outstanding borrowings from the FHLB. As and
when such stock is redeemed, the Bank would receive from the FHLB an amount
equal to the par value of the stock. As of December 31, 2000, the Bank's
FHLB stock holdings, recorded at cost, were $3.7 million.
(12) Other Borrowings
The Bank utili