SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark one)
[ X ] Quarterly report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934 for the quarterly period ended March 31, 1998 or
[ ] Transition report pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934 for the transition period from to .
Commission file number 0-17099
HOME PORT BANCORP, INC.
- --------------------------------------------------------------------------------
(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
Delaware 04-3016821
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
104 Pleasant Street
Nantucket, Massachusetts 02554
- --------------------------------------------------------------------------------
(Address of principal executive office) (Zip Code)
(508) 228-0580
- --------------------------------------------------------------------------------
(Issuer's telephone number, including area code)
Not applicable.
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15 (d) of the Exchange Act during the past 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 [ ]
The number of shares outstanding of each of the registrant's classes of common
stock as of March 31, 1998:
Common Stock $.01 par value 1,841,890
--------------------------- --------------------
(Title of Class) (Shares Outstanding)
Transitional Small Business Disclosure Format (check one)
Yes [ ] No [ X ]
<PAGE>
Home Port Bancorp, Inc.
INDEX
PART I - FINANCIAL INFORMATION
Consolidated Balance Sheet at March 31, 1998 and December 31, 1997
Consolidated Statement of Earnings for the three months ended
March 31, 1998 and 1997
Consolidated Statement of Changes in Stockholders' Equity
at March 31, 1998
Consolidated Statements of Cash Flows for the three months ended
March 31, 1998 and 1997
Notes to Consolidated Financial Statements
Management's Discussion and Analysis of Financial Condition and
Results of Operation
PART II - OTHER INFORMATION
Signatures
<PAGE>
<TABLE>
<CAPTION>
Home Port Bancorp, Inc.
Consolidated Balance Sheet (Unaudited)
(In Thousands, Except Per Share Data) March 31, December 31,
1998 1997
--------- ---------
<S> <C> <C>
Assets
Cash and due from banks .................................................... $ 5,668 $ 5,065
Interest bearing deposits in banks ......................................... 42 41
Federal funds sold ......................................................... -- --
--------- ---------
Total cash and cash equivalents ......................................... 5,710 5,106
Securities held to maturity (market value $17,213 and $16,655) (note 2) .... 17,220 16,661
Securities available for sale (amortized cost of $6,584 and $6,218) (note 2) 6,601 6,231
Loans, net of allowance for loan losses of $2,859 and $2,609 (note 3) ...... 174,763 163,733
Loans held for sale ........................................................ 14,834 11,169
Land, buildings and equipment, net ......................................... 1,450 1,451
Accrued income receivable .................................................. 1,173 1,040
Net deferred tax asset ..................................................... 111 111
Stock in FHLB-Boston, at cost .............................................. 2,957 2,442
Prepaid expenses and other assets .......................................... 889 871
--------- ---------
Total assets ............................................................ $ 225,708 $ 208,815
========= =========
Liabilities and Stockholders' Equity Liabilities:
Deposits (Note 4) .......................................................... $ 147,420 $ 142,436
Borrowed funds ............................................................. 53,972 41,742
Accrued expenses ........................................................... 1,437 1,384
Other liabilities .......................................................... 812 1,305
--------- ---------
Total liabilities ....................................................... 203,641 186,867
--------- ---------
Commitments and contingencies (notes 3 and 5)
Stockholders' equity
Preferred stock, $.01 par value, 2,000,000 shares authorized, none issued .. -- --
Common stock, $.01 par value, 10,000,000 shares authorized, 2,325,494
shares issued ............................................................. 23 23
Additional paid-in capital ................................................. 17,473 17,473
Retained earnings .......................................................... 8,958 8,841
Accumulated other comprehensive income, net:
Unrealized gain on securities available for sale, net of taxes (note 2) . 10 8
Less: Treasury stock, at cost (483,604 shares) ............................. (4,397) (4,397)
--------- ---------
Total stockholders' equity .............................................. 22,067 21,948
--------- ---------
Total liabilities and stockholders' equity .............................. $ 225,708 $ 208,815
========= =========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
Home Port Bancorp, Inc.
Consolidated Statements of Earnings (Unaudited)
(In Thousands, Except Share and Per Share Data) Three Months Ended
March 31,
---------------------
1998 1997
-------- --------
<S> <C> <C>
Interest and dividend income:
Interest on loans .............................................. $ 3,913 $ 3,418
Interest on securities ......................................... 329 322
Dividends ...................................................... 42 36
Federal funds sold and interest bearing deposits ............... 6 12
------- -------
Total interest and dividend income ...................... 4,290 3,788
------- -------
Interest expense:
Interest on depositors' accounts ............................... 1,247 1,092
Interest on borrowed funds ..................................... 731 552
------- -------
Total interest expense .................................. 1,978 1,644
------- -------
Net interest and dividend income .................................... 2,312 2,144
Provision for loan losses ........................................... 37 37
------- -------
Net interest and dividend income after provision for loan losses 2,275 2,107
------- -------
Non-interest income:
Deposit servicing fees ......................................... 97 91
Loan servicing fees ............................................ 59 66
Other fees and income .......................................... 56 49
Net gain (loss) from sale of mortgage loans .................... 30 13
Net gain (loss) from securities ................................ (2) 4
------- -------
Total non-interest income ............................... 240 223
------- -------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Home Port Bancorp, Inc.
Consolidated Statements of Earnings (Unaudited)
(continued)
(In Thousands, Except Share and Per Share Data) Three Months Ended
March 31,
---------------------
1998 1997
-------- --------
<S> <C> <C>
Non-interest expense:
Salaries and employee benefits ................................. 658 619
Building and equipment expenses ................................ 139 125
Deposit insurance fees ......................................... 15 10
Professional fees .............................................. 120 67
Loss on "check-kiting" (Note 6) ............................... 560 --
Other .......................................................... 232 220
------- -------
Total non-interest expense .............................. 1,724 1,041
------- -------
Income before income taxes .......................................... 791 1,289
Provision for income taxes (Note 7) ................................. 306 507
------- -------
Net income .......................................................... $ 485 $ 782
======= =======
Earnings per common share ........................................... $ 0.26 $ 0.42
======= =======
Weighted number of common shares outstanding ........................ 1,842 1,842
======= =======
</TABLE>
See accompanying notes to unaudited consolidated financial statements
<PAGE>
<TABLE>
<CAPTION>
Home Port Bancorp, Inc.
Consolidated Statements of Changes in Stockholders' Equity (Unaudited)
(In Thousands, Except Per Share Data)
Net
Unrealized
Additional Gain (Loss) Total
Common Paid-in Comprehensive Retained Treasury Available Stockholders
Stock Capital Income Earnings Stock For sale Equity
----- ------- ------ -------- ----- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 .... $ 23 $ 17,473 $ 7,017 $ (4,397) $ (13) $ 20,103
Net income ...................... -- -- $ 3,297 3,297 -- -- 3,297
Change in unrealized gain on
securities available for sale -- -- 21 -- -- 21 21
-------- --------
Comprehensive Income ............ -- -- 3,318 -- -- -- 3,318
Cash dividends paid at
$.80 per share .............. -- -- -- (1,473) -- -- (1,473)
-------- -------- -------- -------- -------- -------- --------
Balance at December 31, 1997 .... $ 23 $ 17,473 $ -- $ 8,841 $ (4,397) $ 8 $ 21,948
Net income ...................... -- -- 485 485 -- -- 485
Change in unrealized gain on
Securities available for sale .. -- -- 2 -- -- 2 2
-------- --------
Comprehensive Income ............ -- -- 487 -- -- -- 487
Cash dividends paid at
$.20 per share .............. -- -- -- (368) -- -- (368)
-------- -------- -------- -------- -------- -------- --------
Balance at March 31, 1998 ....... $ 23 $ 17,473 $ -- $ 8,958 $ (4,397) $ 10 $ 22,067
======== ======== ======== ======== ======== ======== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements
<PAGE>
<TABLE>
<CAPTION>
Home Port Bancorp, Inc.
Consolidated Statements of Cash Flows (Unaudited)
(In Thousands) Three Months Ended
March 31,
----------------------
1998 1997
-------- --------
<S> <C> <C>
Net cash flows from operating activities:
Net income ...................................................................... $ 485 $ 782
Adjustments to reconcile net income to net cash provided by operating activities:
Net (increase) decrease in accrued income receivable ........................ (133) 36
Net increase in accrued expenses ............................................ 53 167
Net amortization of securities premiums ..................................... 6 19
Net (increase) decrease in loans held for sale .............................. (3,665) 1,208
Amortization of deferred loan origination fees .............................. (45) (66)
Amortization of deferred premiums on loans sold ............................. 4 1
Depreciation of building and equipment ...................................... 73 60
Net (increase) decrease in prepaid expenses and other assets ................ (18) 13
Net decrease in other liabilities ........................................... (493) (296)
Deferred income taxes expense (benefit) ..................................... (2) (9)
Net loss (gain) on securities and other assets .............................. 3 (4)
Net gain on sale of mortgage loans .......................................... (30) (2)
Provision for loan losses ................................................... 37 37
-------- --------
Net cash provided (used) by operating activities .................................... (3,725) 1,946
-------- --------
Cash flows from investing activities:
Purchases of securities held to maturity ........................................ (2,298) (1,733)
Purchases of securities available for sale ...................................... (2,376) (2,002)
Proceeds from sales of securities available for sale ............................ 500 752
Proceeds from maturities/calls of securities .................................... 2,780 2,622
Principal payments on mortgage-backed securities ................................ 460 208
Net increase in loans ........................................................... (10,996) (5,176)
Capital expenditures ............................................................ (72) (67)
Purchase of Federal Home Loan Bank of Boston stock .............................. (515) --
-------- --------
Net cash used by investing activities ............................................... (12,517) (5,396)
-------- --------
Cash flows from financing activities:
Net increase (decrease) in deposits ............................................. 4,984 (7,870)
Federal Home Bank advances ...................................................... 5,500 8,000
Federal Home Loan Bank repayments ............................................... (2,000) (1,350)
Net increase in short term borrowings ........................................... 8,730 252
Cash dividends paid ............................................................. (368) (368)
-------- --------
Net cash provided by financing activities ........................................... 16,846 (1,336)
-------- --------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Home Port Bancorp, Inc.
Consolidated Statements of Cash Flows (Unaudited)
(continued)
(In Thousands) Three Months Ended
March 31,
----------------------
1998 1997
-------- --------
<S> <C> <C>
Net increase (decrease) in cash and cash equivalents ................................ 604 (4,786)
Cash and cash equivalents at beginning of period .................................... 5,106 9,819
-------- --------
Cash and cash equivalents at end of period .......................................... $ 5,710 $ 5,033
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest .................................................................... 1,919 1,599
Income taxes ................................................................ 178 367
Dividends declared .............................................................. 368 368
</TABLE>
See accompanying notes to unaudited consolidated financial statements
<PAGE>
Home Port Bancorp, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
1. Consolidated Financial Statements
The accompanying unaudited consolidated financial statements include the
accounts of Home Port Bancorp, Inc. ("The Company"), its wholly owned
subsidiary, Nantucket Bank ("the Bank") and the Bank's wholly-owned subsidiaries
N.B. Securities, Inc. ("a Massachusetts Securities Corporation") and N Realty
Corp. The financial statements have been prepared in accordance with regulations
of the Securities and Exchange Commission. Certain information, required by
generally accepted accounting principles, has been condensed or omitted pursuant
to such rules and regulations. Inter-company accounts and transactions have been
eliminated.
The financial statements for the periods ended March 31, 1998 and 1997 are
unaudited, but include normal recurring adjustments which management considers
necessary for a fair presentation of results. Interim results are not
necessarily indicative of the results to be expected for the entire year. It is
recommended that these statements be read in conjunction with the audited
financial statements for the year ended December 31, 1997.
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income," is effective for the Company's financial statements
beginning in 1998. SFAS No. 130 establishes standards for reporting and
displaying comprehensive income, which 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. As of March 31, 1998 the difference
between net income and comprehensive income was $2 thousand, which represents
the net change in the unrealized gain on securities available for sale.
2. Securities (in thousands)
Securities held to maturity consist of the following:
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1997
------------------- -------------------
Book Market Book Market
Value Value Value Value
------- ------- ------- -------
<S> <C> <C> <C> <C>
United States Government and agency obligations $ 5,250 $ 5,258 $ 5,248 $ 5,253
Mortgage-backed securities .................... 6,745 6,714 7,200 7,159
Real Estate Investment Mortgage Conduits ...... 410 408 -- --
State and municipal obligations ............... 2,837 2,841 2,132 2,148
Other bonds and notes ......................... 1,978 1,992 2,081 2,095
------- ------- ------- -------
Total securities held to maturity .......... $17,220 $17,213 $16,661 $16,655
======= ======= ======= =======
</TABLE>
<PAGE>
Home Port Bancorp, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
2. Securities (in thousands) (continued)
Securities available for sale consist of the following:
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1996
------------------- -------------------
Book Market Book Market
Value Value Value Value
------- ------- ------- -------
<S> <C> <C> <C> <C>
United States Government and agency obligations .... $3,198 $3,200 $4,698 $4,705
Real Estate Investment Mortgage Conduits ........... 956 960 966 968
State and municipal obligations .................... 291 292 292 293
Other bonds and notes .............................. 877 872 250 249
Marketable equity securities ....................... 1,262 1,277 12 16
------ ------ ------ ------
Total securities available for sale ............. $6,584 $6,601 $6,218 $6,231
====== ====== ====== ======
</TABLE>
3. Loans, Net (in thousands)
The composition of the balances of loans is as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
--------- ---------
<S> <C> <C>
Mortgage loans:
Residential
Fixed .............................. $ 26,647 $ 22,345
Adjustable ......................... 73,303 71,992
Residential construction ................ 24,367 21,827
Commercial .............................. 38,318 36,188
Commercial construction ................. 5,777 4,535
--------- ---------
Total principal balances ......... 168,412 156,887
Less:
Due borrowers on uncompleted loans
Residential ........................ (6,342) (4,719)
Commercial ........................ (2,285) (1,845)
Deferred loan origination fees .......... (532) (474)
--------- ---------
Total mortgage loans ............... 159,253 149,849
Other loans:
Commercial business ..................... 12,867 10,425
Second mortgage ........................ 1,620 1,712
Home equity ............................ 1,630 1,975
Passbook and stock secured ............. 696 817
Consumer ............................... 1,556 1,564
--------- ---------
Total other loans ................. 18,369 16,493
Less: Allowance for possible loan losses ..... (2,859) (2,609)
========= =========
Loans, net ........................ $ 174,763 $ 163,733
========= =========
</TABLE>
<PAGE>
Home Port Bancorp, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
3. Loans, Net (in thousands)(continued)
The Federal Home Loan Bank has a blanket lien covering residential mortgage
loans as collateral for the Bank's borrowing from the FHLB.
A summary of the transactions in the allowance for loan losses is as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------
1998 1997
------- --------
<S> <C> <C>
Balance at beginning of period ................... $ 2,609 $ 2,365
Provisions ................................ 37 37
Recoveries ................................ 226 17
Realized losses charged to allowance ...... (13) (2)
------- -------
Balance at end of period ......................... $ 2,859 $ 2,417
======= =======
</TABLE>
The allowance for loan losses is allocated as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------
1998 1997
------ ------
<S> <C> <C>
Residential mortgage loans ................... $ 659 $ 526
Commercial real estate loans ................. 1,335 1,223
Commercial loans ............................. 243 193
All other loans .............................. 225 227
Unallocated .................................. 397 248
------ ------
Total ................................... $2,859 $2,417
====== ======
</TABLE>
Non-performing loans are summarized as follows:
<TABLE>
<CAPTION>
March 31, December 31,
--------- ------------
1998 1997
---- ----
<S> <C> <C>
Loans accounted for on a non-accrual basis ........... $ -- $ --
Accruing loans 90 days past due ...................... 664 10
Impaired loans ....................................... -- --
</TABLE>
<PAGE>
Home Port Bancorp, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
4. Deposits (in thousands)
A summary of deposit balances, by type, is as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
-------- --------
<S> <C> <C>
Demand (non-interest bearing) .................. $ 11,696 $ 11,226
Savings:
NOW ....................................... 29,903 28,072
Regular and 90-day notice accounts ........ 15,866 15,090
Money market deposit accounts ............. 27,250 26,766
Advance payments from mortgagors .......... 236 236
-------- --------
Total savings ......................... 73,255 70,164
-------- --------
Time certificates of deposit ................... 62,469 61,046
-------- --------
Total deposits ........................ $147,420 $142,436
======== ========
</TABLE>
5. Commitments
In the normal course of business, there are outstanding commitments that are not
reflected in the balance sheet. Firm commitments to originate mortgage and
commercial loans were $17.1 million at March 31, 1998.
6. Loss on "Check-Kiting"
On March 25, 1998 the Company announced that an investigation by Nantucket Bank
management revealed an apparent "check-kiting" scheme by one of its customers,
whereby checks drawn on Nantucket Bank were timed to be covered by checks drawn
on another bank while checks drawn on that other bank were covered by checks
drawn on Nantucket Bank. The consequences of the described "check-kiting" caused
an overdraft of $518,000, which has not been repaid. The Consolidated Statement
of Earnings for the Three Months Ended March 31, 1998 includes a charge of
$560,000 relating to this matter. This charge includes estimated legal and other
collection expenses.
Nantucket Bank has reported the incident to regulatory and enforcement
authorities and has instructed its legal counsel to take vigorous legal action
seeking full recovery of its loss from its customer and other sources. A
complaint has been filed by Nantucket Bank in Superior Court, Barnstable County
seeking such recovery. There is no assurance that Nantucket Bank will be able to
recover any of the $518,000 and related expenses.
7. Income Taxes
The effective rate for the quarter ended March 31, 1998 is 38.7%, which is less
than the statutory rate of 42% primarily due to a reduction in the valuation
allowance and the status of the Bank's subsidiary as a Massachusetts security
corporation.
<PAGE>
Home Port Bancorp, Inc. and Subsidiaries
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Unaudited Interim Information for March 31, 1998
Preliminary Note in Regard to Forward-looking Statements. This quarterly report
on Form 10-QSB contains forward-looking statements. For this purpose, any
statements contained herein that are not statements of historical fact may be
deemed to be forward-looking statements, within the meaning of Section 27A of
the Securities Act of 1933, as amended. Without limiting the foregoing, the
words "believes," "anticipates," "plans," "expects" and similar expressions are
intended to identify forward-looking statements. There are a number of important
factors that could cause the registrant's actual results to differ materially
from those contemplated by such forward-looking statements. These factors
include, without limitation, those set forth below under the caption "Certain
Factors That May Affect Future Results." These and other risks are also detailed
from time to time in the registrant's filings with the Securities and Exchange
Commission.
Certain Factors That May Affect Future Results. The following important
factors, among others, could cause actual results to differ materially from
those contemplated by forward-looking statements made in this quarterly report
on Form 10-QSB or presented elsewhere by management from time to time. Defined
terms used elsewhere in this quarterly report have the same meanings herein as
therein. A number of uncertainties exist that could affect the Company's future
operating results, including, without limitation, the Bank's continued ability
to originate quality loans, fluctuation of interest rates, real estate market
conditions in the Bank's lending area, general and local economic conditions,
the Bank's continued ability to attract and retain deposits, new accounting
pronouncements, and changing regulatory requirements.
Consolidated Balance Sheet
Total assets of Home Port Bancorp, Inc. (the "Company") grew during the first
quarter of 1998, increasing 8.1% or $16.9 million to $225.7 million at March 31,
1998 from $208.8 million at December 31, 1997. For the comparable three month
period in 1997, total assets decreased $.7 million to $189.2 million from $189.9
million. Major balance sheet categories are discussed in detail below.
Net loans outstanding (including loans held for sale) were $189.6 million at
March 31, 1998, an increase of $14.7 million, or 8.4%, from $174.9 million at
December 31, 1997. For the comparable period in 1997, loans increased $4.0
million to $155.3 million from $151.3 million. Loan sales totaled $6.5 million
during the first quarter of 1998 as compared to $5.0 million for the
corresponding 1997 quarter. The increase in the loan portfolio is attributable
to 14.0% growth in the residential mortgage portfolio during the first quarter
of 1998.
Total deposits increased by $5.0 million, or 3.5%, to $147.4 million at March
31, 1998 from $142.4 million at December 31, 1997. For the first quarter 1997,
deposits decreased $7.9 million, or 6.2%. The increase in deposits in 1998 is
attributed to the strong local economy and the Bank's marketing efforts.
Borrowed funds, consisting of Federal Home Loan Bank advances, totaled $54.0
million at March 31, 1998, an increase of $12.2 million from the December 31,
1997 total of $41.7 million. These borrowings were used to fund loan growth.
Total stockholders' equity increased by $119 thousand to $22.1 million at March
31, 1998 from $21.9 million at December 31, 1997. This increase reflects net
income of $485 thousand less cash dividends declared of $368 thousand and a $10
thousand net unrealized gain on securities available for sale.
<PAGE>
Home Port Bancorp, Inc. and Subsidiaries
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Unaudited Interim Information for March 31, 1998
Results of Operations
For the quarter ended March 31, 1998, the Company reported net income of $485
thousand or $0.26 per share compared to net income of $782 thousand or $0.42 per
share for the quarter ended March 31, 1997. The decrease in earnings was the
result of non-recurring charges, including the previously announced check-kiting
loss, which reduced quarterly earnings by $385 thousand, or $.21 per share. For
additional information on the loss see Note 6 of Notes to Unaudited Consolidated
Financial Statements at March 31, 1998.
Net Interest Income
Net interest and dividend income, before provision for loan losses, for the
quarter increased $168 thousand or 7.8% to the prior year comparable quarter. On
a fully tax-equivalent basis the increase was $174 thousand. The increase in net
interest income was due to an increase in the average volume of loans and
deposits offset by a reduction in the interest rate spread.
Additional information on average balances, interest and yields is included in
the following two tables:
<TABLE>
<CAPTION>
(in thousands) Quarter Ended March 31, 1998 Quarter Ended March 31, 1997
---------------------------------- ---------------------------------
Average Interest Yield/ Average Interest Yield/
Balance (1) (2) Rate Balance (1) (2) Rate
----------- --- ---- ----------- --- ----
<S> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Residential loans $127,852 $2,494 7.80% $102,721 $2,122 8.27%
Commercial loans 51,291 1,279 9.98% 46,546 1,154 9.91%
Consumer loans 5,616 140 10.00% 5,818 142 9.75%
-------- ------ ---- -------- ------ ----
Total loans 184,759 3,913 8.47% 155,086 3,418 8.82%
Securities and FHLB Stock 26,468 389 5.87% 25,914 376 5.80%
-------- ------ ---- -------- ------ ----
Total interest earning assets $211,227 $4,302 8.15% $181,000 $3,794 8.38%
-------- ------ ---- -------- ------ ----
Interest bearing liabilities:
Deposits $135,582 $1,247 3.73% $118,076 $1,092 3.71%
Borrowed funds 47,830 731 6.20% 36,540 552 6.06%
-------- ------ ---- -------- ------ ----
Total interest bearing liabilities $183,412 $1,978 4.37% $154,616 $1,644 4.26%
-------- ------ ---- -------- ------ ----
Net interest income $2,324 $2,150
====== ======
Interest rate spread 3.78% 4.12%
==== =====
Net interest margin 4.40% 4.75%
==== ====
</TABLE>
<PAGE>
Home Port Bancorp, Inc. and Subsidiaries
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Unaudited Interim Information for March 31, 1998
(1) Included in the average balance amounts are the corresponding components
of the assets held for sale, available for sale and held to maturity. The
yield is calculated using interest income divided by the average balance
of the amortized historical cost.
(2) Tax-equivalent adjustment has been included in the calculations to reflect
this income as if it had been fully taxable. The tax-equivalent adjustment
is based upon the applicable federal and state income tax rates. The FTE
adjustment included in interest income was $12 thousand in 1998 and $6
thousand in 1997.
The effect on net interest income as a result of changes in average interest
rates and balances follows:
<TABLE>
<CAPTION>
(in thousands) Quarter Ended March 31, 1998 vs. 1997
----------------------------------------------------
Changes Due to Increase
(Decrease)
----------------------------------------------------
Average
Average Average Rate/
Total Balance (1) Rate (2) Volume (3)
----- ----------- -------- ----------
<S> <C> <C> <C> <C>
Interest earning assets:
Residential loans .............. $ 372 $ 520 $(121) $ (27)
Commercial loans ............... 125 118 7 --
Consumer loans ................. (2) (6) 4 --
----- ----- ----- -----
Total loans......................... 495 632 (110) (27)
Securities FHLB Stock .......... 13 8 5 --
----- ----- ----- -----
Total interest earning assets ...... $ 508 $ 640 $(105) $ (27)
----- ----- ----- -----
Interest bearing liabilities:
Deposits ....................... $ 155 $ 162 $ 6 $ (13)
Borrowed funds.................. 179 171 13 (5)
----- ----- ----- -----
Total interest bearing liabilities . $ 334 $ 333 $ 19 $ (18)
===== ===== ===== =====
Net interest income ................ $ 174 $ 307 $(124) $ (9)
===== ===== ===== =====
</TABLE>
(1) Represents the changes in average balance multiplied by prior period yield.
(2) Represents the changes in yield multiplied by prior period average balance.
(3) Represents the changes in yield multiplied by changes in average balance.
<PAGE>
Home Port Bancorp, Inc. and Subsidiaries
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Unaudited Interim Information for March 31, 1998
Non-interest income
Non-interest income increased to $240 thousand in the first quarter of 1998 from
$223 thousand in the first quarter of 1997. This increase was primarily due to
an increase in net gains from the sale of mortgage loans to $30 thousand in 1998
from $13 thousand in 1997.
Non-interest expense
Non-interest expense, excluding the loss resulting from the "check-kiting"
situation, increased by $123 thousand, or 11.8%, to $1.2 million in the first
quarter of 1998 from $1.0 million in the comparable 1997 period. This increase
is due to increases in salaries and employee benefits and professional fees. The
increase in personnel costs was the result of an increase in staffing levels.
The increase in professional fees was due to increased audit and non-recurring
tax planning expenses. The Company's efficiency ratio, excluding the
non-recurring expenses, was 42.95% for the quarter ended March 31, 1998,
compared to 44.05% comparable 1997 period.
Return on Equity
Return on average equity decreased to an annualized rate of 8.82% for the first
quarter of 1998 from 15.45% for the same period in 1997. This decrease is a
result of the check-kiting loss incurred during the first quarter of 1998.
Provision for Loan Losses
The allowance for loan losses at March 31, 1998 was $2.9 million or 1.49% of
total loans compared to $2.6 million, or 1.47% of total loans, at December 31,
1997. During the quarter ending March 31, 1998 the loan loss reserve increased
by $250 thousand due to recoveries of $226 thousand and a loan loss provision of
$37 thousand, offset by charge-offs of $13 thousand. The Bank believes its
current level of loan loss reserves to be adequate. Any unforeseen future
economic problems, however, could lead to the Bank experiencing additional
delinquencies which may require additional provisions for loan losses.
Non-performing Loans and Other Real Estate Owned
The Bank's non-performing loans totaled $664 thousand at March 31, 1998, all
which were accruing loans with payments past due ninety or more days.
Non-performing loans at December 31, 1997 totaled $10 thousand of past due
accruing loans. None of these loans were to affiliated persons. At both March
31, 1998 and December 31, 1997 the Bank had no other real estate owned. The Bank
had no loans which were considered "impaired" within the meaning of Statement of
Financial Accounting Standards ("SFAS") No. 114 and 118 at either March 31, 1998
or December 31, 1997.
At March 31, 1998 management has identified $922 thousand of loans that, while
currently performing, may pose potential problems due to some doubts about the
ability of the borrowers to comply with all of their present loan repayment
terms. The resolution of these loans is not yet known. The Bank believes that
its allowance for loan losses is adequate to absorb any losses that may result
from these loans.
<PAGE>
Home Port Bancorp, Inc. and Subsidiaries
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Unaudited Interim Information for March 31, 1998
Income Taxes
The Company and its subsidiaries, on a consolidated basis, are subject to
Federal income tax. The Company is also subject to a Delaware franchise tax and
a Massachusetts tax as a security corporation. The Bank and its subsidiary are
subject to a Massachusetts income tax. For interim unaudited financial
statements, management calculated the provision for taxes using an estimated
combined Federal and state tax rate of approximately 40% and made an adjustment
decreasing the deferred tax valuation reserve. The expected tax rate is reviewed
and adjusted as necessary on a quarterly basis.
Liquidity and Capital Resources
Substantially all of the Company's funds are generated through its banking
subsidiary, Nantucket Bank. The Bank's sources are customer deposits,
amortization and payoffs of loans, advances from the Federal Home Loan Bank of
Boston, sale of loans in the secondary market, maturities and sales of
securities and positive cash flows generated from operations. As a member of the
Depositors' Insurance Fund, the Bank also has a right to borrow from the
Depositors Insurance Fund for short-term cash needs by pledging certain assets,
although it has never exercised this right. The Bank's liquidity management
program is designed to assure that sufficient funds are available to meet it's
daily needs.
The Bank believes its capital resources, including deposits, scheduled loan
repayments, revenue generated from the sales of loans and securities, unused
borrowing capacity at the Federal Home Loan Bank of Boston, and revenue from
other sources will be adequate to meet its funding commitments.
At March 31, 1998 and December 31, 1997 the Company's and the Bank's capital
ratios were in excess of regulatory requirements.
Quantitative and Qualitative Disclosures about Market Risk
The response is incorporated herein by reference from the discussion under the
sub-caption "Asset/Liability Management and Market Risk" of the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on pages 5-7 of the Company's 1997 Annual Report.
<PAGE>
Home Port Bancorp, Inc. and Subsidiaries
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company and its subsidiaries are not involved in any
pending legal proceedings other than those involved in the
ordinary course of their businesses, and the litigation
relating to the check-kiting loss referred to in Note 6 of
Notes to Unaudited Consolidated Financial Statements at March
31, 1998. Management believes that the resolution of these
matters will not materially affect their businesses or the
consolidated financial condition of the Company and its
subsidiary.
Item 2. Changes in Securities.
Not applicable.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information.
A dividend of $.20 per common share was declared on February
5, 1998. The cash dividend was paid on February 27, 1998 to
shareholders of record as of February 13, 1998.
Declaration of dividends by the Board of Directors depends on
a number of factors, including capital requirements,
regulatory limitations, the Company's operating results and
financial condition and general economic conditions.
Item 6. Exhibits and Reports on Form 8-K.
a. Exhibits -- None
b. Reports on Form 8-K -
(1) On March 25, 1998, a Form 8-K was filed with
the SEC by the Company relating to an investigation
by the management of Nantucket Bank that revealed
an apparent "check-kiting" scheme by one of its
customers. The results of the "check-kiting" caused
an overdraft that could result in a loss to the
Bank of up to $518,000, plus related costs.
<PAGE>
Home Port Bancorp, Inc. and Subsidiaries
Signatures
In accordance with the requirements of the Securities Exchange Act, the
Registrant caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
Home Port Bancorp, Inc.
-----------------------
(Registrant)
Date: May 6, 1998 By: /s/ William P. Hourihan, Jr.
---------------------------
William P. Hourihan, Vice President
Date: May 6, 1998 By: /s/ John M. Sweeney
-------------------
John M. Sweeney, Treasurer
(chief financial & accounting officer)
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