FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to _________
COMMISSION FILE NUMBER 000-29343
PORT FINANCIAL CORP.
(Exact name of registrant as specified in its charter)
Massachusetts 04-1145480
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1380 Soldiers Field Road, Brighton, Massachusetts 02135
(Address of principal executive office-zip code)
Telephone (617) 661-4900
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 $.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 or 15(d) of the Securities
Exchange Act of 1934 during the preceding twelve months (or for such
shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes x No .
--------- ---------
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this form
10-K [ X ]
As of December 31, 2000, the aggregate market value of the voting and
non-voting common equity held by non-affiliates of the Registrant, computed
by reference to the average of the closing bid and asked price of such
stock on the Nasdaq National Market, was 17.6875. The exclusion from such
amount of the market value of the shares owned by any person shall not be
deemed an admission by the Registrant that such person is an affiliate of
the Registrant.
As of December 31, 2000, 7,442,818 shares of Registrant's common
stock were outstanding.
Documents Incorporated by Reference
Parts II and IV of Form 10-K - Portions of the Annual Report to
Stockholders for the year ended December 31, 2000.
Part III of Form 10-K - Portions of the Proxy Statement for the
Annual Meeting of Stockholders for the year ended December 31, 2000.
PORT FINANCIAL CORP.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED
DECEMBER 31, 2000
TABLE OF CONTENTS
Page
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FORWARD LOOKING STATEMENTS (i)
PART I. 1
ITEM 1. BUSINESS 1
ITEM 2. PROPERTIES 8
ITEM 3. LEGAL PROCEEDINGS 10
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 10
PART II. 11
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS 11
ITEM 6. SELECTED FINANCIAL AND OTHER DATA 11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 11
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 11
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 12
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE 12
PART III. 12
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 12
ITEM 11. EXECUTIVE COMPENSATION 12
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 12
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 12
PART IV. 13
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K 13
Forward Looking Statements
Port Financial Corp. ("Port" or the "Company") and Cambridgeport Bank
(the "Bank") may from time to time make written or oral "forward-looking
statements."
Forward-looking statements include statements with respect to the
Company's beliefs, plans, objectives, goals, expectations, anticipations,
estimates and intentions, that are subject to significant risks and
uncertainties. The following factors, many of which are subject to change
based on various other factors beyond the Company's control, and other
factors discussed in this Form 10-K, as well as other factors identified in
the Company's filings with the SEC and those presented elsewhere by
management from time to time, could cause its financial performance to
differ materially from the plans, objectives, expectations, estimates and
intentions expressed in such forward-looking statements:
* the strength of the United States economy in general and the
strength of the local economies in which the Company and the
Bank conduct operations;
* the effects of, and changes in, trade, monetary and fiscal
policies and laws, including interest rate policies of the
Federal Reserve Board;
* inflation, interest rate, market and monetary fluctuations;
* the timely development of and acceptance of new products and
services and the perceived overall value of these products and
services by users, including the features, pricing and quality
compared to competitors' products and services;
* the willingness of users to substitute competitors' products
and services for the Company's and the Bank's products and
services;
* the Company's and the Bank's success in gaining regulatory
approval of their products and services, when required;
* the impact of changes in financial services' laws and
regulations (including laws concerning taxes, banking,
securities and insurance);
* the impact of technological changes;
* acquisitions;
* changes in consumer spending and saving habits; and
* the Company's and the Bank's success at managing the risks
involved in their business.
This list of important factors is not exclusive. The Company or the
Bank does not undertake to update any forward-looking statement, whether
written or oral, that may be made from time to time by or on behalf of the
Company or the Bank.
(i)
PART I.
ITEM 1. BUSINESS
General
Port is a Massachusetts-chartered stock holding company, which owns
all of the capital stock of Cambridgeport. As part of its conversion, the
Company converted from a Massachusetts-chartered mutual holding company,
Cambridgeport Mutual Holding Company, to a Massachusetts-chartered stock
holding company and changed its name to Port Financial Corp. Port sold
7,442,818 shares of its common stock to the Company's eligible depositors,
management and employees and to the Company's Employee Stock Ownership Plan
("ESOP"). Net proceeds of the stock offering were $71.8 million. The
conversion and stock offering were completed on April 11, 2000.
The Company's principal business is its investment in Cambridgeport.
The Bank is a Massachusetts-chartered stock savings bank, chartered in 1853
and headquartered in Cambridge, Massachusetts, a suburb of Boston. Its
deposits are insured by the Federal Deposit Insurance Corporation (the
"FDIC") up to applicable legal limits and by the Depositors Insurance Fund
in excess of such amounts. The Bank is examined and regulated by the
Division of Banks of the Commonwealth of Massachusetts and the FDIC.
Cambridgeport is a community-oriented bank providing retail and
business customers with value-driven products and services to meet customer
needs. The Bank offers a wide variety of deposit products, residential
mortgage loans, commercial real estate loans, commercial loans and consumer
loans to its customers in the cities and towns around Cambridge,
Massachusetts. Over the past five years, the Bank has more than doubled its
branch network from four full service bank offices to eleven full service
bank offices and one Telebanking Center. The branch offices are
strategically located in cities and towns with a strong base for real
estate lending and deposit growth and where community bank competition has
been reduced by the consolidating banking industry. This branch expansion
has increased the Bank's customer base and allowed it to increase
profitability by shifting the mix of assets towards higher yielding loans
relative to investment securities. As of December 31, 2000, approximately
69.3% of the Company's total assets were invested in loans. These loans are
funded primarily by deposits with some reliance on Federal Home Loan Bank
("FHLB") borrowings. Total deposits amounted to $806.0 million at December
31, 2000 while FHLB borrowings totaled $35.8 million.
Branch expansion and a larger customer base have also enabled the
Company to diversify its loan portfolio without sacrificing asset quality
or capital strength. As of December 31, 2000, $253.7 million of the loan
portfolio consisted of commercial real estate and commercial construction
loans and $82.9 million consisted of borrowings under home equity lines of
credit. These categories grew by $36.4 million and $20.4 million
respectively compared with December 31, 1999. Non-performing assets were
.01% of total assets while the Tier 1 leverage capital ratio was 15.4% on
that date.
Regulation
The Bank is a Massachusetts-chartered savings bank, and its deposit
accounts are insured up to applicable limits by the Bank Insurance Fund
(the "BIF") of the FDIC and by the Depositors Insurance Fund. The Bank is
subject to extensive regulation, examination and supervision by the
Commonwealth of Massachusetts Division of Banks (the "Division"), and by
the FDIC. The Bank must file reports with the Division and the FDIC
concerning its activities and financial condition, and it must obtain
regulatory approval prior to entering into certain transactions, such as
mergers with, or acquisitions of, other depository institutions and opening
or acquiring branch offices. The Division and the FDIC conduct periodic
examinations to assess the Bank's compliance with various regulatory
requirements.
The Company, as a bank holding company controlling the Bank, is
subject to the Bank Holding Company Act of 1956, as amended (the "BHCA"),
and the rules and regulations of the Federal Reserve Board under the BHCA
and to the provisions. The Company is also subject to the Massachusetts
General Laws applicable to savings banks and other depository institutions
and their holding companies (the "Massachusetts banking laws") and the
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regulations of the Division under the Massachusetts banking laws. The
Company is required to file reports with, and otherwise comply with the
rules and regulations of the Federal Reserve Board and the Division. The
Company is required to file certain reports with, and otherwise comply
with, the rules and regulations of the Securities and Exchange Commission
under the federal securities laws. Any change in such laws and regulations,
whether by the Division, the FDIC, or the Federal Reserve Board, or through
legislation, could have a material adverse impact on the Company and the
Bank, and their operations and stockholders.
Massachusetts Banking Regulation
Massachusetts Community Reinvestment Act. Cambridgeport is subject
to provisions of the Massachusetts banking laws that, like the provisions
of the federal Community Reinvestment Act, impose continuing and
affirmative obligations upon a banking institution organized in
Massachusetts to serve the credit needs of its local communities. The
obligations of the Massachusetts Community Reinvestment Act ("MCRA") are
similar to those imposed by the federal Community Reinvestment Act with the
exception of the assigned exam ratings. Massachusetts banking law provides
for an additional exam rating of "high satisfactory" in addition to the
federal Community Reinvestment Act ratings of "outstanding,"
"satisfactory," "needs to improve" and "substantial noncompliance." The
Division has adopted regulations to implement the MCRA that are based on
the federal Community Reinvestment Act, including periodic assessment of a
bank's compliance with the MCRA. See "Federal Banking Regulation -
Community Reinvestment Act." The MCRA also requires the Division to make
its assessments available to the public.
When reviewing a bank's application to engage in certain
transactions, including mergers, asset purchases, new branch offices or new
automated teller machines, the Division is required to consider a bank's
MCRA rating. Such assessment may serve as a basis for the denial of any
such application. Cambridgeport's latest MCRA rating, received by letter
from the Division dated July 8, 1999, was "satisfactory."
Loans-to-One-Borrower Limitations. With specified exceptions, the
total obligations of a single borrower to a Massachusetts-chartered savings
bank may not exceed 20% of the savings bank's retained earnings account. A
savings bank may lend additional amounts up to 100% of the bank's retained
earnings account if secured by collateral meeting the requirements of the
Massachusetts banking laws. Cambridgeport currently complies with
applicable loans-to-one-borrower limitations.
Loans to a Bank's Insiders. The Massachusetts banking laws prohibit
any officer, director or trustee from borrowing, otherwise becoming
indebted, or becoming liable for a loan or other extension of credit by
such bank to any other person, except under limited circumstances. Any such
loans require approval of the majority of the members of the bank's
executive committee, excluding any member involved in the loan or extension
of credit. No such loan or extension of credit may be granted with an
interest rate or other terms that are preferential in comparison to loans
granted to persons not affiliated with the savings bank.
Dividends. Under the Massachusetts banking laws, a stock savings bank
may, subject to several limitations, declare and pay a dividend on its
capital stock out of the bank's net profits. A dividend may not be
declared, credited or paid by a stock savings bank so long as there is any
impairment of capital stock. No dividend may be declared on the bank's
common stock for any period other than for which dividends are declared
upon preferred stock, except as authorized by the Commissioner. The
approval of the Commissioner is also required for a stock savings bank to
declare a dividend, if the total of all dividends declared by the savings
bank in any calendar year shall exceed the total of its net profits for
that year combined with its retained net profits of the preceding two
years, less any required transfer to surplus or a fund for the retirement
of any preferred stock. In addition, federal law may also limit the amount
of dividends that may be paid by Cambridgeport. See "- Federal Banking
Regulation - Prompt Corrective Action" below.
Examination and Enforcement. The Division is required to examine
savings banks at least once every calendar year or at least once each 18
month period if the savings bank qualifies as well capitalized under the
prompt corrective action provisions of the Federal Deposit Insurance Act.
See "- Federal Banking Regulation - Prompt Corrective Action" below. The
Division may also examine a savings bank whenever the Division deems an
examination expedient. If the Division finds, after an inquiry, that any
trustee, director or officer of a savings bank has, among other things,
violated any law related to such bank or has conducted the business of such
bank in
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an unsafe or unsound manner, the Division may take various actions
that could result in the suspension or removal of such person as an
officer, director or trustee. If the Division determines that, among other
things, a savings bank has violated its charter or any Massachusetts law or
is conducting its business in an unsafe or unsound manner or is in an
unsafe or unsound condition to transact its banking business, the Division
may take possession of the property and business of the savings bank and
may, if the facts warrant, initiate the liquidation of the bank.
Federal Banking Regulation
Capital Requirements. FDIC regulations require BIF-insured banks,
such as the Bank, to maintain minimum levels of capital. The FDIC
regulations define two tiers, or classes, of capital.
Tier 1 capital is comprised of the sum of: common stockholders'
equity (excluding the unrealized appreciation or depreciation, net of tax,
from available-for-sale securities); non-cumulative perpetual preferred
stock (including any related surplus); and minority interests in
consolidated subsidiaries; minus all intangible assets (other than
qualifying servicing rights), and any net unrealized loss on marketable
equity securities.
The components of Tier 2 capital currently include cumulative
perpetual preferred stock, certain perpetual preferred stock for which the
dividend rate may be reset periodically, mandatory convertible securities,
subordinated debt, intermediate preferred stock and allowance for possible
loan losses. The portion of the allowance for possible loan losses that may
be included in Tier 2 capital is limited to a maximum of 1.25% of risk-
weighted assets. Overall, the amount of Tier 2 capital that may be included
in total capital cannot exceed 100% of Tier 1 capital.
The FDIC regulations establish minimum leverage capital requirements
for banks. For banks with a rating of 1 (the highest examination rating of
the FDIC for banks) under the Uniform Financial Institutions Rating System,
the FDIC may require a minimum leverage capital ratio of not less than a
ratio of 3.0% of Tier 1 capital to total assets. For all other banks, the
minimum leverage capital requirement is 4.0%, unless a higher ratio is
warranted by the particular circumstances or risk profile of the depository
institution.
The FDIC regulations also require that savings banks meet a risk-
based capital standard. The risk-based capital standard requires the
maintenance of a ratio of total capital (which is defined as the sum of
Tier 1 capital and Tier 2 capital) to risk-weighted assets of at least 8%
and a ratio of Tier 1 capital to risk-weighted assets of at least 4%. In
determining the amount of risk-weighted assets, all assets, plus certain
off balance sheet items, are multiplied by a risk-weight of 0% to 100%,
based on the risks the FDIC believes are inherent in the type of asset or
item.
The Bank exceeded its minimum capital adequacy requirements as of
December 31, 2000.
Activity Restrictions on State-Chartered Banks. Section 24 of the
Federal Deposit Insurance Act (the "FDIA"), which was amended by the
Federal Deposit Insurance Corporation Improvement Act of 1991 (the
"FDICIA"), generally limits the activities and investments of state-
chartered FDIC insured banks and their subsidiaries to those permissible
for federally-chartered national banks and their subsidiaries. Section 24
provides an exception for investments by a bank in common and preferred
stocks listed on a national securities exchange or the shares of registered
investment companies if: (a) the bank held such types of investments during
the period from September 30, 1990 through November 26, 1991; (b) the state
in which the bank is chartered permitted such investments as of September
30, 1991; and (c) the bank obtains approval from the FDIC to make or retain
such investments. Upon receiving such FDIC approval, an institution's
investment in such equity securities will be subject to an aggregate limit
up to the amount of its Tier 1 capital. The Bank has received approval from
the FDIC to retain and acquire such equity investments subject to a maximum
permissible investment equal to the lesser of: 100% of the Bank's Tier 1
capital; or the maximum permissible amount specified by the Massachusetts
banking laws. Section 24 also limits the activities of majority-owned
subsidiaries of a bank.
Before initiating any new investment or activity that is not
permissible for a national bank or otherwise permissible under Section 24
of the FDIC regulations, an insured bank must seek approval from the FDIC.
As conditions for FDIC approval, the bank must meet the FDIC's minimum
capital requirements and the FDIC must determine that the activity does not
present a significant risk to the FDIC insurance funds.
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Enforcement. The FDIC has extensive enforcement authority over
insured savings banks, including Cambridgeport. This enforcement authority
includes, among other things, the ability to assess civil money penalties,
to issue cease and desist orders and to remove directors and officers. In
general, these enforcement actions may be initiated in response to
violations of laws and regulations and to unsafe or unsound practices.
The FDIC is required, with some exceptions, to appoint a receiver or
conservator for an insured state bank if that bank is "critically
undercapitalized." For this purpose, "critically undercapitalized" means
having a ratio of tangible capital to total assets of less than 2%. The
FDIC may also appoint a conservator or receiver for a state bank on the
basis of the institution's financial condition or upon the occurrence of
certain events.
Deposit Insurance. Pursuant to the FDICIA, the FDIC established a
system for setting deposit insurance premiums based upon the risks a
particular bank or savings association posed to its deposit insurance
funds. Under the risk-based deposit insurance assessment system, the FDIC
assigns an institution to one of three capital categories based on the
institution's financial information, as of the reporting period ending six
months before the assessment period. The three capital categories are (1)
well capitalized, (2) adequately capitalized and (3) undercapitalized. The
FDIC also assigns an institution to one of three supervisory subcategories
within each capital group. An institution's assessment rate depends on the
capital category and supervisory category to which it is assigned. Any
increase in insurance assessments could have an adverse effect on the
earnings of insured institutions, including Cambridgeport.
The Deposit Insurance Funds Act of 1996 establishes the assessment
base for payments on bonds issued in the late 1980's by the Financing
Corporation to recapitalize the now defunct Federal Savings and Loan
Insurance Corporation. Beginning January 1, 1997, the assessment base is
defined as deposits of institutions such as Cambridgeport that are insured
by the Bank Insurance Fund. The rate of assessment for Bank Insurance Fund-
assessable deposits is one-fifth of the rate applied to deposits that are
insured by the Savings Association Insurance Fund.
Under the Federal Deposit Insurance Act, the FDIC may terminate the
insurance of an institution's deposits if the FDIC finds that the
institution has engaged in unsafe or unsound practices, is in an unsafe or
unsound condition to continue operations or has violated any applicable
law, regulation, rule, order or condition imposed by the FDIC. The
management of Cambridgeport does not know of any practice, condition or
violation that might lead to termination of deposit insurance.
Transactions with Affiliates of Cambridgeport. Transactions between
an insured bank, such as Cambridgeport, and any of its affiliates is
governed by Sections 23A and 23B of the Federal Reserve Act. An affiliate
of a bank is any company or entity that controls, is controlled by or is
under common control with the bank. Sections 23A and 23B limit the extent
to which the bank or its subsidiaries may engage in "covered transactions"
with any one affiliate to an amount equal to 10% of such bank's capital
stock and retained earnings, and limit on all such transactions with all
affiliates to an amount equal to 20% of such capital stock and retained
earnings; and require that all such transactions be on terms that are
consistent with safe and sound banking practices. The term "covered
transaction" includes the making of loans, purchase of assets, issuance of
guarantees and other similar types of transactions. Further, most loans by
a bank to any of its affiliates must be secured by collateral in amounts
ranging from 100 to 130 percent of the loan amounts. In addition, any
covered transaction by a bank with an affiliate and any purchase of assets
or services by a bank from an affiliate must be on terms that are
substantially the same, or at least as favorable, to the bank as those that
would be provided to a non-affiliate.
Community Reinvestment Act. Under the federal Community Reinvestment
Act ("CRA"), any insured depository institution, including Cambridgeport,
has a continuing and affirmative obligation consistent with its safe and
sound operation to help meet the credit needs of its entire community,
including low and moderate income neighborhoods. The CRA does not establish
specific lending requirements or programs for financial institutions nor
does it limit an institution's discretion to develop the types of products
and services that it believes are best suited to its particular community.
The CRA requires the FDIC, in connection with its examination of a savings
bank, to assess the depository institution's record of meeting the credit
needs of its community. The CRA also requires the FDIC to take such record
into account when it evaluates applications by the institution, including
applications for additional branches and acquisitions.
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Among other things, the current CRA regulations replace the prior
process-based assessment factors with a new evaluation system that rates an
institution based on its actual performance in meeting community needs. In
particular, the current evaluation system focuses on three tests: (1) a
lending test, to evaluate the institution's record of making loans in its
service areas; (2) an investment test, to evaluate the institution's record
of investing in community development projects, affordable housing, and
programs benefiting low or moderate income individuals and businesses; and
(3) a service test, to evaluate the institution's delivery of services
through its branches, ATMs and other offices.
The CRA requires the FDIC to provide a written evaluation of an
institution's CRA performance utilizing a four-tiered descriptive rating
system and requires public disclosure of an institution's CRA rating.
Cambridgeport received an "outstanding" rating in its CRA examination
conducted by the FDIC on, June 5, 2000.
Safety and Soundness Standards. Pursuant to the requirements of the
FDICIA, as amended by the Riegle Community Development and Regulatory
Improvement Act of 1994, each federal banking agency, including the FDIC,
has adopted established general standards relating to internal controls,
information and internal audit systems, loan documentation, credit
underwriting, interest rate exposure, asset growth, asset quality,
earnings, and compensation, fees and benefits. The FDIC requires an
institution to maintain systems and practices to identify and manage the
risks and exposures in accordance with the standards. The standards
categorize excessive compensation as an unsafe and unsound practice and
describe compensation as excessive when the amounts paid are unreasonable
or disproportionate to the services performed by an executive officer,
employee, director, or principal stockholder.
In addition, FDIC regulations require a bank that it is not
satisfying such safety and soundness standards to submit a compliance plan
to the FDIC. If, after being notified by the FDIC of such non-compliance, a
bank fails to submit an acceptable compliance plan or fails in any material
respect to implement an accepted compliance plan, the FDIC may issue an
order directing corrective and other actions. These actions may include
those specified for a significantly undercapitalized institution under the
"prompt corrective action" provisions of the FDICIA. If a bank fails to
comply with such an order, the FDIC may seek to enforce such an order in
judicial proceedings and to impose civil monetary penalties.
Prompt Corrective Action. The FDICIA also established a system of
prompt corrective action to resolve the problems of undercapitalized
institutions. The FDIC, as well as the other federal banking regulators,
adopted regulations governing the supervisory actions that may be taken
against undercapitalized institutions. The regulations establish five
categories, consisting of "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized" and "critically
undercapitalized."
The severity of the action authorized or required to be taken under
the prompt corrective action regulations increases as a bank's capital
decreases within the three undercapitalized categories. All banks are
prohibited from paying dividends or other capital distributions or paying
management fees to any controlling person if, following such distribution,
the bank would be undercapitalized.
Loans to a Bank's Insiders. A bank's loans to its executive officers,
directors, any owner of 10% or more of its stock (each, an "insider") and
any entities affiliated with an insider are subject to the conditions and
limitations imposed by Section 22(h) of the Federal Reserve Act and the
Federal Reserve Board's Regulation O. Under these restrictions, the
aggregate amount of the loans to any insider and any entities affiliated
with such insider may not exceed the loans-to-one-borrower limit applicable
to national banks, which is comparable to the loans-to-one-borrower limit
applicable to Cambridgeport's loans. See "Massachusetts Banking Regulation
- Loans-to-One Borrower Limitations." All loans by a bank to all insiders
and their affiliates in the aggregate may not exceed the bank's unimpaired
capital and unimpaired retained earnings. Generally, such loans must be
made on substantially the same terms as, and follow credit underwriting
procedures that are not less stringent than, those that are prevailing at
the time for comparable transactions with other persons. An exception is
made for extensions of credit made pursuant to a benefit or compensation
plan of a bank that is widely available to employees of the bank and that
does not give any preference to insiders of the bank over other employees
of the bank.
Holding Company Regulation
Port is regulated as a bank holding company. Bank holding companies
are subject to examination,
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regulation and periodic reporting under the Bank Holding Company Act, as
administered by the Federal Reserve Board. The Federal Reserve Board has
adopted minimum capital adequacy requirements for bank holding companies,
measured on a consolidated basis, that are substantially similar to those of
the FDIC for Cambridgeport. As of December 31, 2000, Port's total capital
and Tier 1 capital ratios exceeded these minimum capital requirements.
The activities of bank holding companies are generally limited to the
business of banking, managing or controlling banks, and other activities
that the Federal Reserve Board determines to be so closely related to
banking or managing or controlling banks as to be properly incident
thereto. In addition, a bank holding company whose controlled depository
institutions are all "well capitalized" and "well managed," as defined in
FRB Regulation Y, and have all received satisfactory CRA ratings, can
declare itself to be a "financial holding company". A financial holding
company may engage in a broader spectrum of activities than those generally
permitted to bank holding companies. These activities include insurance
underwriting and brokerage (including annuities), and underwriting and
dealing securities without a revenue limit and without limits on the
amounts of equity securities it may hold in conducting its underwriting and
dealing activities. If a financial holding company does not continue to
meet the requirements for financial holding company status, depending on
the requirements it fails to meet, it may not be permitted to undertake new
activities or acquisitions that are financial in nature and it may lose the
ability to conduct activities that are not generally permissible for bank
holding companies. The Company has not elected to be regulated as a
financial holding company, but may elect to do so in the future.
Regulations of the Federal Reserve Board provide that a bank holding
company must serve as a source of strength to any of its subsidiary banks
and must not conduct its activities in an unsafe or unsound manner. Under
the prompt corrective action provisions of the FDICIA, a bank holding
company parent of an undercapitalized subsidiary bank would be directed to
guarantee, within limitations, the capital restoration plan that is
required of such an undercapitalized bank. See "- Federal Banking
Regulation - Prompt Corrective Action" above. If the undercapitalized bank
fails to file an acceptable capital restoration plan or fails to implement
an accepted plan, the Federal Reserve Board may prohibit the holding
company of the undercapitalized bank from paying any dividend or making any
other form of capital distribution without the prior approval of the
Federal Reserve Board.
As a bank holding company, Port is required to obtain the prior
approval of the Federal Reserve Board to acquire all, or substantially all,
of the assets of any bank or bank holding company. Prior Federal Reserve
Board approval is required for Port to acquire direct or indirect ownership
or control of any voting securities of any bank or bank holding company if,
after giving effect to such acquisition, it would, directly or indirectly,
own or control more than 5% of any class of voting shares of such bank or
bank holding company.
Subject to certain limitations and restrictions, a bank holding
company, with the prior approval of the Federal Reserve Board, may acquire
an out-of-state bank. Banks in states that do not prohibit out-of-state
mergers may merge with other banks only after receiving the approval of the
appropriate federal bank regulatory agency. A national or state bank may
establish a de novo branch out of state if such branching is expressly
permitted by the other state.
Change in Control Regulations
Federal Restrictions. Under the federal Change in Bank Control Act,
any person (including a company or a group acting in concert) seeking to
acquire 10% or more of the outstanding shares of Port's common stock is
required to submit prior notice to the Federal Reserve Board, unless the
Federal Reserve Board has found that the acquisition of such shares will
not result in a change in control of Port. Under the Bank Holding Company
Act, the Federal Reserve Board has 60 days within which to act on such a
notice, taking into consideration such factors as the financial and
managerial resources of the acquirer, the convenience and needs of the
communities served by Port and Cambridgeport, and the anti-trust effects of
the acquisition. Under the Bank Holding Company Act, any company would be
required to obtain prior approval from the Federal Reserve Board before it
may obtain "control" of Port. The term "control" is defined generally under
the Bank Holding Company Act to mean the ownership or power to vote 25% or
more of any class of voting securities of an institution, or the ability to
control in any manner the election of a majority of the institution's
directors.
6
Massachusetts Restrictions. Under the Massachusetts banking laws, the
prior approval of the Division is required before any person may acquire a
Massachusetts bank holding company, such as Port Financial Corp. For this
purpose, the term "person" is defined broadly to mean a natural person or a
corporation, company, partnership, or any other form of organized entity.
The term "acquire" is defined differently for an existing bank holding
company and for other companies or persons. A bank holding company will be
treated as "acquiring" a Massachusetts bank holding company if it acquires
more than 5% of any class of the voting shares. Any other person will be
treated as "acquiring" a Massachusetts bank holding company if it acquires
ownership or control of more than 25% of any class of the voting shares.
Other State and Federal Regulation
The common stock of Port is registered with the SEC under Section
12(g) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). Accordingly, the Company is subject to the information, proxy
solicitation, insider trading restrictions and other requirements of the
Exchange Act.
The Company is subject to extensive federal consumer privacy
legislation and regulations of functional financial regulators thereunder.
The applicable legislative and regulatory requirements include, among other
things, full disclosure of the Company's privacy policy to consumers and
mandate offering the consumer the ability to "opt out" of having non-public
customer information disclosed to unaffiliated third parties. In addition,
the applicable federal statute and regulations permit the states to adopt
more extensive privacy protections through legislation or regulation. There
can be no assurance whether any such legislation or regulation will place
additional limitations on the Company's operations or adversely affect its
earnings.
Numerous other federal and state laws also affect the Company's
earnings and activities including federal and state consumer protection
laws. Legislation may be enacted or regulation imposed in the U.S. or its
political subdivisions to further regulate banking and financial services
or to limit finance charges or other fees or charges earned in such
activities. There can be no assurance that any such legislation or
regulation will not place additional limitations on the Company's
operations or adversely affect its earnings.
Competition
The Company faces intense competition both in making loans and
attracting deposits. Eastern Massachusetts has a high concentration of
financial institutions, many of which are branches of large money center
and regional banks that have emerged from the consolidation of the banking
industry in Massachusetts and surrounding states. Some of these competitors
have greater resources and therefore may offer services that Port and the
Bank do not provide.
Competition for loans comes from commercial banks, savings
institutions, mortgage banking firms, credit unions, finance companies,
mutual funds, insurance companies and brokerage and investment banking
firms. The most direct competition for deposits has historically come from
commercial banks, savings banks, savings and loan associations and credit
unions. The Bank faces additional competition for deposits from short-term
money market funds and other corporate and government securities funds, and
from brokerage firms and insurance companies.
Personnel
As of December 31, 2000, the Company had 181 full-time employees and
37 part-time employees. The employees are not represented by a collective
bargaining unit. Management considers its employee relations to be good.
7
ITEM 2. PROPERTIES
Port conducts business from its administrative offices, its eleven
full-service banking offices and its Telebanking Center. Port and certain
administrative and operations departments of the Bank, including the
Telebanking Center, are located in a recently constructed building owned by
Temple Realty LLC, a subsidiary of the Bank. The building is located at
1380 Soldiers Field Road, Brighton, MA. The Company occupies approximately
42,000 square feet of the 74,000 square foot building. Tenants under long-
term leases occupy the remainder of the building. The cost of the land and
building was $17.4 million of which $14.5 million was borrowed from the
Federal Home Loan Bank.
The Bank's headquarters and its main branch are located at 689
Massachusetts Avenue in Cambridge, in a three-story building owned by the
Bank. The building contains approximately 40,000 square feet. An
unaffiliated company occupies the upper two floors under a long-term lease.
As of December 31, 2000, the Company's properties and leasehold
improvements had an aggregate net book value of $ 20.8 million.
8
Lease or License
Location Ownership Year Opened Expiration (1)
------------------------------------------------------------------------------
Corporate Headquarters Owned 2000
1380 Soldiers Field Road
Brighton, MA 02135
Bank Headquarters/Main Office:
689 Massachusetts Avenue Owned N/A -
Cambridge, MA 02139
Branch Offices:
1751 Massachusetts Avenue Leased 1978 2007
Lexington, MA 02420
522 Main Street Leased 1980 2009
Winchester, MA 01890
Harvard Square Office Leased 1985 2016
1290 Massachusetts Avenue
Cambridge, MA 02139
177 Linden Street Leased 1994 2009
Wellesley, MA 02482
1243 Centre Street Leased 1995 2010
Newton, MA 02459
133 Chapel Street Leased 1995 2015
Needham, MA 02492
860 Massachusetts Avenue Leased 2000 2015
Arlington, MA 02476
Supermarket Offices:
101 Falls Boulevard Licensed 1996 2001
Quincy, MA 02169 (2)
150 W. Central Street Licensed 1997 2012
Natick, MA 01760
338 Washington Street Licensed 1997 2012
Westwood, MA 02090
Other:
2150 Washington Street Leased 1998 2003
Newton, MA 02462 (3)
--------------------
Lease expiration dates assume all options to extend lease terms are
exercised.
The Quincy branch office is scheduled to close on April 7, 2001. Its
deposits and certain loans were sold to South Shore Bank on February
26, 2001.
This office is currently subleased to an unaffiliated company through
the lease term. The Company does not intend to extend this lease
after the expiration period.
9
ITEM 3. LEGAL PROCEEDINGS
Neither the Company nor the Bank is involved in any pending legal
proceeding other than routine legal proceedings occurring in the ordinary
course of business. The Company believes that these routine legal
proceedings, in the aggregate, are immaterial to its financial condition
and results of operation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held a special meeting of shareholders on October 18,
2000 (the "Meeting"). All of the proposals submitted to the shareholders at
the Meeting were approved. The proposals submitted to shareholders and the
tabulation of votes for each proposal is as follows:
1. Approval of the Port Financial Corp. 2000 Stock Option Plan.
The number of votes cast with respect to this matter was as
follows:
For Against Abstain
--- ------- -------
5,775,778 251,384 63,781
There were no broker held non-voted shares represented at the
Meeting with respect to the matter.
2. Approval of the Port Financial Corp. 2000 Recognition and
Retention Plan.
The number of votes cast with respect to this matter was as
follows:
For Against Abstain
--- ------- -------
5,424,359 602,499 64,085
There were no broker held non-voted shares represented at the
Meeting with respect to the matter.
3. Authorization of the Board of Directors, in its discretion, to
direct the vote of proxies upon such matters incident to the
conduct of the special meeting as may properly come before the
special meeting, and any adjournment or postponement thereof,
including, without limitation, a motion to adjourn the special
meeting.
For Against Abstain
--- ------- -------
5,760,146 264,312 66,485
There were no broker held non-voted shares represented at the
Meeting with respect to the matter.
10
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The section entitled "Shareholder Information" of the attached Annual
Report to Stockholders for the year ended December 31, 2000 is incorporated
herein by reference.
ITEM 6. SELECTED FINANCIAL AND OTHER DATA
The section entitled "Selected Consolidated Financial and Other Data"
of the attached Annual Report to Shareholders for the year ended December
31, 2000 is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The section entitled "Management's Discussion and Analysis of
Financial Condition and Results of Operations" of the attached Annual
Report to Shareholders for the year ended December 31, 2000 is incorporated
herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The section entitled "Quantitative and Qualitative Disclosures About
Market Risk" of the attached Annual Report to Shareholders for the year
ended December 31, 2000 is incorporated herein by reference.
11
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of Port Financial Corp. and
Subsidiaries as of December 31, 2000 and 1999 are included in pages F-1
through F-35 of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following information included on pages 7 through 22 of Port
Financial Corp.'s Proxy Statement for the 2001 Annual Meeting of
Stockholders (the "Proxy Statement") is incorporated herein by reference:
"Election of Directors," "Information as to Nominees and Continuing
Directors," "Nominees for Election as Director," "Executive Officers," and
" - Section 16(a) Beneficial Ownership Reporting Compliance."
ITEM 11. EXECUTIVE COMPENSATION
The following information included on pages 14 through 22 of the
Proxy Statement is incorporated herein by reference: "Compensation of
Directors and Executive Officers-Directors' Compensation," "-Executive
Compensation," "-Employment Agreements," and "-Benefits."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following information included on pages 4 through 7 of the Proxy
Statement is incorporated herein by reference: "Security Ownership of
Certain Beneficial Owners and Management-Principal Stockholders of Port
Financial Corp." and "-Security Ownership of Management."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The following information included on page 22 of the Proxy Statement
is incorporated herein by reference: "Compensation of Directors and
Executive Officers-Transactions with Certain Related Persons."
12
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Listed below are all financial statements and exhibits filed as part
of this report:
(1) The consolidated balance sheets of Port Financial Corp. and
Subsidiaries as of December 31, 2000 and 1999 and the related
consolidated statements of operations and cash flows for each
of the years in the three-year period ended December 31, 2000,
together with the related notes and the independent auditors'
report of Arthur Andersen LLP, independent public accountants.
(2) Schedules omitted as they are not applicable.
(3) Exhibits
2.1 Plan of Conversion and Stock Issuance Plan of Cambridgeport Mutual
Holding Company (including the Amended and Restated Charter and
Bylaws of Cambridgeport)*
3.1 Articles of Organization of Port Financial Corp.*
3.2 Bylaws of Port Financial Corp.*
4.1 Articles of Organization of Port Financial Corp. (See Exhibit 3.1)*
4.2 Bylaws of Port Financial Corp. (See Exhibit 3.2)*
4.3 Form of Stock Certificate of Port Financial Corp.*
10.1 Form of Employee Stock Ownership Plan of Port Financial Corp.*
10.2 Form of ESOP Restoration Plan of Port Financial Corp.*
10.3 Form of Employment Agreement, between James Keegan and Port
Financial Corp.*
10.4 Form of Employment Agreement, between Jane Lundquist and Port
Financial Corp.*
10.5 Form of Trust Agreement under the Cambridgeport Nonqualified Pension
Plans and Supplemental Executive Retirement Plan*
10.6 Form of 1999 Nonqualified Pension Plan of Cambridgeport and Amendment
thereto*
10.7 Form of Directors' Emeritus Consultation Plan of Port Financial Corp.*
10.8 Form of Officers' Deferred Compensation Plan of Cambridgeport*
10.9 Long-Term Incentive Plan of Port Financial Corp.*
10.10 Form of Change of Control Agreement, between Charles Jeffrey and
Cambridgeport*
10.11 Form of Employment Agreement, between Charles Jeffrey and Port
Financial Corp.*
13.1 Annual Report to Shareholders
21.1 Subsidiaries of the Registrant
23.1 Consent of Arthur Andersen LLP
[FN]
--------------------
* Incorporated herein by reference to Registration Statement No.
333-91549 on Form S-1 of Port Financial Corp. filed with the
Securities and Exchange Commission on November 23, 1999, as amended.
(b) The Company has not filed any reports on Form 8-K for the quarter
ended December 31, 2000.
13
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant certifies that it has duly caused this
report to be signed on its behalf by the undersigned, hereunto duly
authorized, in the City of Boston, Commonwealth of Massachusetts, on March
21, 2001.
Port Financial Corp.
/s/ James B. Keegan
------------------------------------
By: James B. Keegan
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed by the following persons in the
capacities and on the dates indicated.
Name Title Date
---- ----- ----
/s/ James B. Keegan Director, Chairman of the Board March 21, 2001
---------------------- and Chief Executive Officer
James B. Keegan (Principal Executive Officer)
/s/ Charles Jeffrey Senior Vice President, Treasurer March 21, 2001
---------------------- and Chief Financial Officer
Charles Jeffrey (Principal Financial and
Accounting Officer)
/s/ Paul R. Corcoran, Jr. Director March 21, 2001
-------------------------
Paul R. Corcoran, Jr.
/s/ Daniel C. Crane Director March 21, 2001
-------------------------
Daniel C. Crane
/s/ Samuel C. Fleming Director March 21, 2001
-------------------------
Samuel C. Fleming
/s/ William Goldberg Director March 21, 2001
-------------------------
William Goldberg
/s/ Robert D. Happ Director March 21, 2001
-------------------------
Robert D. Happ
/s/ Jane L. Lundquist Director and President March 21, 2001
-------------------------
Jane L. Lundquist
/s/ Joseph F. O'Connor Director March 21, 2001
-------------------------
Joseph F. O'Connor
/s/ Thomas H. Niles Director March 21, 2001
-------------------------
Thomas H. Niles
/s/ Rudolph R. Russo Director March 21, 2001
-------------------------
Rudolph R. Russo
/s/ Sandra J. Sucher Director March 21, 2001
-------------------------
Sandra J. Sucher
/s/ Lawrence Weber Director March 21, 2001
-------------------------
Lawrence Weber
14