SECURITIES AND EXCHANGE COMMISSIO
Washington, D.C. 20549
FORM 10-Q
(Mark one)
X Quarterly report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934 for the quarterly period ended September 30, 2000 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 REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 04-3016821
(State or other jurisdiction (I.R.S. Employer
of 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 June 30, 2000:
Common Stock $.01 par value 1,841,890
--------------------------- --------------------
(Title of Class) (Shares Outstanding)
<PAGE>
Home Port Bancorp, Inc.
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION Page No.
--------------
Item 1 - Financial Statements
<S> <C>
Consolidated Balance Sheets at September 30, 2000 and 3
December 31, 1999.
Consolidated Statements of Earnings for the three months and nine
months ended September 30, 2000 and 1999 4
Consolidated Statements of Changes in Stockholders' Equity for the
nine
months ended September 30, 2000 and for the year ended 5
December 31, 1999
Consolidated Statements of Cash Flows for the nine months 6
ended September 30, 2000 and 1999
Notes to Consolidated Financial Statements 7-9
Item 2 - Management's Discussion and Analysis of Financial Condition 10-15
and Results of Operation
Item 3 - Quantitative and Qualitative Disclosures About Market Risk 16
PART II - OTHER INFORMATION 17
Signatures 18
</TABLE>
2
<PAGE>
Home Port Bancorp, Inc.
Consolidated Balance Sheet
<TABLE>
<CAPTION>
(In Thousands, Except Share Data) September 30, December 31,
2000 1999
(unaudited)
---------------------------
Assets
<S> <C> <C>
Cash and due from banks $ 16,168 $11,894
Federal Funds sold - 1,440
Interest bearing deposits in banks - 76
---------------------------
Total cash and cash equivalents 16,168 13,410
Securities held to maturity (market value $15,014
and $18,050) 15,227 15,599
Securities available for sale (amortized cost of
$11,911 and $17,087) 12,342 16,741
Loans, net of allowance for loan losses of $4,489
and $3,956 (note 3) 274,516 258,302
Loans held for sale 11,287 4,934
Stock in Federal Home Loan Bank of Boston, at cost 4,477 4,477
Land, buildings and equipment, net 3,423 2,364
Accrued income receivable 1,781 1,577
Net deferred tax asset 817 742
Prepaid expenses and other assets 1,251 1,114
---------------------------
Total assets $341,289 $319,260
===========================
Liabilities and Stockholders' Equity
Liabilities:
Deposits (Note 4) $248,417 $218,197
Borrowed funds 59,956 71,417
Accrued expenses 1,930 1,868
Other liabilities 773 469
---------------------------
Total liabilities 311,076 291,951
---------------------------
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 17,231 14,418
Accumulated other comprehensive loss, net:
Unrealized loss on securities available for sale,
net of taxes (note 2) (117) (208)
Less: Treasury stock, at cost (483,604 shares) (4,397) (4,397)
---------------------------
Total stockholders' equity 30,213 27,309
---------------------------
Total liabilities and stockholders' equity $341,289 $319,260
===========================
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
3
<PAGE>
Home Port Bancorp, Inc.
Consolidated Statements of Earnings (Unaudited)
<TABLE>
<CAPTION>
(In Thousands, Except Per Share Data) Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- ---------------------
2000 1999 2000 1999
--------------------- ---------------------
Interest income:
<S> <C> <C> <C> <C>
Interest on loans $5,874 $5,003 $17,046 $14,867
Interest on securities 428 408 1,318 1,116
Dividends 90 74 252 198
Interest on federal funds sold and interest 26 10 81 28
bearing deposits
--------------------- ---------------------
Total interest income 6,418 5,501 18,697 16,209
--------------------- ---------------------
Interest expense:
Interest on deposits 1,799 1,501 5,097 4,303
Interest on borrowed funds 1,070 751 3,309 2,736
--------------------- ---------------------
Total interest expense 2,869 2,252 8,406 7,039
--------------------- ---------------------
Net interest income 3,549 3,249 10,291 9,170
Provision for loan losses 50 50 150 150
--------------------- ---------------------
Net interest income after provision for loan
losses 3,499 3,199 10,141 9,020
Non interest income:
Deposit servicing fees 137 119 427 372
Loan servicing fees 98 88 293 229
Other fees and income 188 206 521 402
Net gain from sale of mortgage loans 20 38 39 244
--------------------- ---------------------
Total non interest income 443 451 1,280 1,247
--------------------- ---------------------
Non interest expense:
Salaries and employee benefits 1,050 876 2,956 2,531
Building and equipment expenses 264 200 746 576
Deposit insurance fees 26 16 69 48
Professional fees 78 68 268 314
Merger costs (Note 1) 293 - 293 -
Other 500 409 1,322 1,073
--------------------- ---------------------
Total non interest expense 2,211 1,569 5,654 4,542
--------------------- ---------------------
Income before income taxes 1,731 2,081 5,767 5,725
Provision for income taxes 677 721 2,032 1,994
--------------------- ---------------------
Net Income $1,054 $1,360 $3,735 $3,731
===================== =====================
Earnings per common share - basic and diluted $0.57 $0.74 $2.03 $2.03
===================== =====================
Weighted common shares outstanding - basic 1,842 1,842 1,842 1,842
Weighted common shares outstanding - diluted 1,845 1,842 1,845 1,842
</TABLE>
See accompanying notes to unaudited consolidated financial statements
4
<PAGE>
Home Port Bancorp, Inc.
Consolidated Statements of Changes in Stockholders' Equity (Unaudited)
For the nine months ended September 30, 2000 and year ended December 31, 1999
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Accumulated
Additional Other Total
Common Paid-in Retained Treasury Comprehensive Stockholders
Stock Capital Earnings Stock Income Equity
(Loss), net
--------- ---------- --------- --------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998 $23 $17,473 $10,918 $(4,397) $ 15 $24,032
Net income - - 5,065 - - 5,065
Other comprehensive income (loss), net:
Change in unrealized loss on
Securities available for sale - - - - (223) (223)
------------
Comprehensive income 4,842
Cash dividends paid at
$.85 per share - - (1,565) - - (1,565)
--------- ---------- --------- --------- ------------- ------------
Balance at December 31, 1999 23 17,473 14,418 (4,397) (208) 27,309
Net income - - 3,735 - - 3,735
Other comprehensive income
(loss), net:
Change in unrealized loss on
securities available for sale - - - - 91 91
------------
Comprehensive income 3,826
Cash dividends paid at
$.50 per share - - (922) - - (922)
--------- ---------- --------- --------- ------------- ------------
Balance at September 30, 2000 $23 $17,473 $17,231 $(4,397) $(117) $30,213
========= ========== ========= ========= ============= ============
</TABLE>
See accompanying notes to unaudited consolidated financial statements
5
<PAGE>
Home Port Bancorp, Inc.
Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
(In Thousands) Nine Months Ended
September 30,
----------------------------
2000 1999
----------------------------
Net cash flows from operating activities:
<S> <C> <C>
Net income $3,735 $3,731
Adjustments to reconcile net income to net cash provided by (used
in) operating activities:
Provision for loan losses 150 150
Depreciation of building and equipment 357 274
Net gain on sale of mortgage loans (39) (244)
Net (accretion) amortization of securities (discounts) premiums (2) 4
Amortization of deferred loan origination fees 56 (190)
Amortization of deferred premiums on loans sold 25 42
Net (increase) decrease in accrued income receivable (204) (98)
Net increase (decrease) in accrued expenses 62 66
Net (increase) decrease in loans held for sale (6,339) 6,133
Net (increase) decrease in prepaid expenses and other assets (137) (192)
Net increase (decrease) in other liabilities 304 1,022
Net (increase) decrease in deferred income taxes 107 69
--------------------------
Net cash provided by (used in) operating activities (1,925) 10,767
--------------------------
Cash flows from investing activities
Purchases of securities held to maturity (2,000) (2,912)
Purchases of securities available for sale (1,000) (10,103)
Proceeds from sales of securities available for sale - 1,370
Proceeds from maturities/calls of securities 5,825 1,660
Principal payments on mortgage-backed securities 1,857 2,279
Net increase in loans (16,420) (35,827)
Purchases of land, buildings and equipment (1,416) (745)
Purchase of Federal Home Loan Bank stock - (1,201)
--------------------------
Net cash provided by (used in) investing activities (13,154) (45,479)
--------------------------
Cash flows from financing activities:
Net increase (decrease) in deposits 30,220 51,766
Federal Home Bank advances 39,500 15,000
Federal Home Loan Bank repayments (25,950) (23,000)
Net decrease in short term borrowings (25,011) (5,561)
Cash dividends paid (922) (1,104)
--------------------------
Net cash provided by (used in) financing activities 17,837 37,101
--------------------------
Net increase (decrease) in cash and cash equivalents 2,758 2,389
Cash and cash equivalents at beginning of period 13,410 12,124
--------------------------
Cash and cash equivalents at end of period $16,168 $14,513
==========================
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $8,494 $7,031
Income taxes 2,169 2,051
</TABLE>
See accompanying notes to unaudited consolidated financial statements
6
<PAGE>
Home Port Bancorp, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
Unaudited Interim Information for September 30, 2000
1. Consolidated Financial Statements
The accompanying consolidated financial statements should be read in conjunction
with the consolidated financial statements of the Company as of and for the year
ended December 31, 1999. These 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.
("Securities") and N Realty Corp. ("Realty").
In the opinion of management, the unaudited consolidated financial statements
presented herein reflect all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation. Interim results are not
necessarily indicative of results to be expected for the entire year.
Recent Events. On July 21, 2000, the Company announced that its Board of
Directors had signed a definitive agreement by which Seacoast Financial Services
Corporation ("Seacoast"), holding company for CompassBank for Savings, will
acquire all of the outstanding shares of the Company in a cash transaction for
$37.00 per share, for a total transaction value of approximately $68.5 million.
The transaction, which has been unanimously approved by the Boards of Directors
of the Company and Seacoast, was approved by to Home Port shareholders on
October 20, 2000. The transactions remains subject to regulatory approval and is
expected to close by the end of 2000. Seacoast is a $2.3 billion holding company
based in New Bedford, Massachusetts with significant operations in southeastern
Massachusetts.
At September 30, 2000 the Company had incurred $293 thousand merger-related
expenses. Additional merger-related expenses of approximately $1.2 million are
expected to be incurred during the fourth quarter of 2000 and will have a
negative impact on the Company's reported earnings
2. Comprehensive Income
The following table shows the components of other comprehensive income (in
thousands).
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
---------------------------
2000 1999
------------- -------------
<S> <C> <C>
Net income $3,735 $3,731
Other comprehensive loss, net of tax
Unrealized loss on securities:
Unrealized holding losses arising during the period 91 (156)
Add: reclassification adjustment for losses included in
net income, net of tax
- -
------------- -------------
91 (156)
------------- -------------
Comprehensive Income $3,826 $3,575
============= =============
</TABLE>
7
<PAGE>
Home Port Bancorp, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
Unaudited Interim Information for September 30, 2000
3. Loans, Net (in thousands)
The composition of the balances of loans is as follows:
Sept. 30, December 31,
2000 1999
------------ -------------
Mortgage loans:
Residential $172,598 $156,409
Residential construction 46,649 44,533
Commercial 53,985 50,459
Commercial construction 5,325 4,135
------------ -------------
Total principal balances 278,557 256,536
Less: Due borrowers on uncompleted loans
Residential (21,719) (10,237)
Commercial (1,345) (1,167)
Deferred loan origination fees (725) (781)
------------ -------------
Total mortgage loans 254,768 243,351
Other loans:
Commercial business 14,492 11,966
Second mortgage 1,103 1,430
Home equity 5,657 2,977
Passbook and stock secured 1,250 970
Consumer 1,735 1,564
------------ -------------
Total other loans 24,237 18,907
Less: Allowance for loan losses (4,489) (3,956)
------------ -------------
Loans, net $274,516 $258,302
============ =============
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:
Nine Months Ended
September 30,
---------------------------
2000 1999
---------------------------
Balance at beginning of period $3,956 $3,145
Provisions 150 150
Recoveries 390 624
Realized losses charged to allowance (7) (10)
---------------------------
Balance at end of period $4,489 $3,909
===========================
Non-performing loans are summarized as follows:
September 30, December 31,
2000 1999
----------------------------
Loans accounted for on a non-accrual basis $ - $ -
Accruing loans 90 days past due 429 71
Impaired loans - -
8
<PAGE>
Home Port Bancorp, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
Unaudited Interim Information for September 30, 2000
4. Deposits (in thousands)
A summary of deposit balances, by type, is as follows:
September 30, December 31,
2000 1999
--------------------------
Demand (non-interest bearing) $30,348 $21,515
Savings:
NOW 62,514 49,409
Regular and 90-day notice accounts 22,090 19,635
Money market deposit accounts 51,964 47,994
Advance payments from mortgagors 493 264
--------------------------
Total savings 137,061 117,302
--------------------------
Time certificates of deposit 81,008 79,380
--------------------------
Total deposits $248,417 $218,197
==========================
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 $11.4 million at September 30, 2000.
9
<PAGE>
Home Port Bancorp, Inc. and Subsidiaries
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Unaudited Interim Information for September 30, 2000
Preliminary Note in Regard to Forward-looking Statements. This quarterly report
on Form 10-Q 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 Form 10-Q 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 definitive agreement by which Seacoast
Financial Services Corporation will acquire all of the outstanding shares of the
Company, the Bank's continued ability to originate quality loans, fluctuating
interest rates, real estate market conditions on Nantucket, general and local
economic conditions, the Bank's continued ability to attract and retain
deposits, new accounting pronouncements and changing regulatory requirements.
Recent Events. On July 21, 2000, the Company announced that its Board of
Directors had signed a definitive agreement by which Seacoast Financial Services
Corporation ("Seacoast"), holding company for CompassBank for Savings, will
acquire all of the outstanding shares of the Company in a cash transaction for
$37.00 per share, for a total transaction value of approximately $68.5 million.
The transaction, which has been unanimously approved by the Boards of Directors
of the Company and Seacoast, was approved by to Home Port shareholders on
October 20, 2000. The transactions remains subject to regulatory approval and is
expected to close by the end of 2000. Seacoast is a $2.3 billion holding company
based in New Bedford, Massachusetts with significant operations in southeastern
Massachusetts.
Seacoast will keep Nantucket Bank operating as a separate subsidiary retaining
its own name and charter. The present Board of Directors and management of
Nantucket Bank will continue to oversee the operations of the Bank. The staff of
Nantucket Bank will remain in their current positions to insure that the day to
day operations of Nantucket Bank will not be changed. Additionally, one member
of the Board of Directors of Nantucket Bank will be added to the Seacoast Board
of Directors. There are no job eliminations expected as a result of this
transaction.
In connection with the execution of the definitive merger agreement transaction,
a reciprocal breakup fee of $3.5 million was negotiated. Also the Company and
Seacoast entered into a Stock Option Agreement, granting to Seacoast an option
to acquire newly-issued shares equal to 19.9% of the Company's outstanding
common stock exercisable in certain circumstances, including a third-party's
interference with the transaction. The Company is unaware of any event that has
occurred that would permit Seacoast to exercise or assert rights under this
option.
At September 30, 2000 the Company had incurred $293 thousand merger-related
expenses. Additional merger-related expenses of approximately $1.2 million are
expected to be incurred during the fourth quarter of 2000 and will have a
negative impact on the Company's reported earnings
10
<PAGE>
Home Port Bancorp, Inc. and Subsidiaries
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Unaudited Interim Information for September 30, 2000
Consolidated Balance Sheet
--------------------------
Total assets of Home Port Bancorp, Inc. (the "Company") grew during the first
nine months of 2000, increasing $22.0 million, or 9.4%, to $341.3 million at
September 30, 2000 from $319.3 million at December 31, 1999. For the comparable
period in 1999, total assets increased $41.8 million, or 15.2%. Major balance
sheet categories are discussed in detail below.
Net loans outstanding (including loans held for sale) were $285.8 million at
September 30, 2000, an increase of $22.6 million, or 8.6%, from $263.2 million
at December 31, 1999. For the comparable period in 1999, loans increased $29.9
million, or 13.0%, to $259.8 million from $229.9 million at December 31, 1998.
Mortgage loan originations totaled $79 million during the first nine months of
2000 compared to $124 million in the prior year period. The decrease in loan
originations is attributed to the higher interest rate environment in 2000. Loan
sales decreased to $20.6 million during the first nine months of 2000 as
compared to $40.8 million for the corresponding 1999 period. The Bank's lending
activities are conducted solely on Nantucket.
Total deposits increased by $30.2 million, or 13.8%, to $248.4 million at
September 30, 2000 from $218.2 million at December 31, 1999. During the first
nine months of 1999, deposits increased by $51.8 million, or 27.4%, from $188.7
million at December 31, 1998. These increases in deposits are attributed to a
strong Nantucket economy and the Bank's marketing efforts. Substantially all of
the Bank's deposits are from Nantucket-related individuals, businesses and
government entities.
Borrowed funds, consisting of Federal Home Loan Bank advances, totaled $59.9
million at September 30, 2000, a decrease of $11.5 million from the December 31,
1999 total of $71.4 million. At September 30, 1999 borrowed funds totaled $45.4
million. These borrowings are used to fund loan growth and seasonal deposit
outflows. Total borrowings represented 18% of total assets at September 30, 2000
compared to 14% at September 30, 1999.
Total stockholders' equity increased by $2.9 million to $30.2 million at
September 30, 2000 from $27.3 million at December 31, 1999. This increase
reflects net income of $3.7 million less cash dividends declared of $.9 million.
Results of Operations
---------------------
For the quarter ended September 30, 2000, the Company reported net income of
$1.1 million or $0.57 per share compared to net income of $1.4 million or $0.74
per share for the quarter ended September 30, 1999. For the nine months ended
September 30, 2000 net income totaled $3.7 million, or $2.02 per share, compared
to $3.7 million, or $2.03 per share, for the comparable 1999 period.
Net Interest Income
Net interest income increased $300 thousand, or 9.2%, and $971 thousand, or
10.6%, respectively, for the three and six months ended September 30, 2000 as
compared to the prior year. These increases were primarily the result of an
increase in the average volume of loans and deposits. Additional information on
average balances, interest and yields, calculated on a tax-equivalent basis, is
provided in the following two tables:
11
<PAGE>
Home Port Bancorp, Inc. and Subsidiaries
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Unaudited Interim Information for September 30, 2000
<TABLE>
<CAPTION>
(in thousands) Nine Months Ended Sept. 30, 2000 Nine Moths Ended Sept. 30, 1999
---------------------------------- --------------------------------
Average Interest Yield/ Average Interest Yield/
Balance (1) (2) Rate Balance (1) (2) Rate
---------------------------------- --------------------------------
Interest earning assets:
<S> <C> <C> <C> <C> <C> <C>
Residential loans $203,682 $11,423 7.48% $180,130 $9,933 7.35%
Commercial loans 71,490 4,979 9.29% 64,956 4,519 9.28%
Consumer loans 8,855 645 9.71% 5,688 415 9.73%
---------------------------------- --------------------------------
Total loans 284,027 17,046 8.00% 250,774 14,867 7.90%
Securities and FHLB Stock 33,721 1,736 6.87% 30,496 1,342 5.87%
---------------------------------- --------------------------------
Total interest earning assets 317,748 18,783 7.88% 281,270 16,209 7.68%
---------------------------------- --------------------------------
Interest bearing liabilities:
Deposits 207,437 5,097 3.27% 179,227 4,303 3.20%
Borrowed funds 73,528 3,309 5.99% 66,109 2,736 5.51%
---------------------------------- --------------------------------
Total interest bearing 280,965 8,406 3.99% 245,336 7,039 3.82%
liabilities
---------------------------------- --------------------------------
Net interest income $10,377 $ 9,170
============ ==========
Interest rate spread 3.89% 3.86%
========== ==========
Net interest margin 4.35% 4.35%
========== ==========
</TABLE>
(1) Average balances include the assets held for sale, available for sale and
held to maturity.
(2) A tax-equivalent ("FTE") adjustment has been included in the calculations
to reflect this income as if it had been fully taxable. The FTE adjustment
is based upon the applicable federal and state income tax rates. The FTE
adjustment included in interest income was $85 thousand in 2000 and $59
thousand in 1999.
The effect on net interest income as a result of changes in average interest
rates and balances follows:
<TABLE>
<CAPTION>
(in thousands) Nine months ended September 30, 2000
---------------------------------------------------
Changes Due to Increase
(Decrease)
---------------------------------------------------
Average Average Average Rate/
Total Balance (1) Rate (2) Volume (3)
---------------------------------------------------
Interest earning assets:
<S> <C> <C> <C> <C>
Residential loans $1,490 $1,298 $ 176 $ 16
Commercial loans 460 455 5 0
Consumer loans 230 231 (1) 0
---------------------------------------------------
Total loans 2,179 1,984 180 15
Securities and FHLB Stock 394 142 229 23
---------------------------------------------------
Total interest earning assets 2,574 2,126 409 39
---------------------------------------------------
Interest bearing liabilities:
Deposits 794 677 94 23
Borrowed funds 573 307 238 28
---------------------------------------------------
Total interest bearing liabilities 1,367 984 332 51
---------------------------------------------------
Net interest income $1,207 $1,142 $ 77 $(12)
===================================================
</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.
12
<PAGE>
Home Port Bancorp, Inc. and Subsidiaries
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Unaudited Interim Information for September 30, 2000
Non-interest income
Non-interest income decreased by $8 thousand, or 1.8% for the three months ended
September 30, 2000 as compared to the prior year. Non-interest income for the
nine months ended September 30, 2000 increased by $33 thousand or 2.6% as
compared to the same period in 1999. The increase was primarily due to increases
in fees from the sale of non-deposit investment products offset by reductions in
net gains from the sale of loans. Gains from loan sales decreased to $39
thousand in the first nine months of 2000 from $244 thousand in the
corresponding 1999 period.
Non-interest expense
Non interest expense increased by $642 thousand, or 40.9%, and $1.1 million, or
24.5%, respectively, in the three and nine month periods ending September 30,
2000 as compared to the prior year. These increases are due to the costs
associated with additional office space leased in 2000, the additions and
renovations to the Bank's main office and additional staffing to service the
increased loan and deposit business. Both quarterly and year-to-date results
have been adversely impacted by costs associated with the merger. During the
third quarter Home Port incurred $293 thousand in direct merger related
expenses. Operating expenses (excluding merger costs) continue to be well under
industry norms at 2.12% of average assets in 2000 compared to 2.06% in 1999.
Return on Equity
Return on average equity decreased to 17.36% for the nine months ended September
30, 2000 from 19.59% for the corresponding period in 1999. This decrease is
primarily the result of the merger- related expenses.
Provision for Loan Losses
The allowance for loan losses at September 30, 2000 was $4.5 million or 1.55% of
total loans compared to $3.9 million, or 1.50% of total loans, at December 31,
1999. During the nine months ending September 30, 2000 the loan loss reserve
increased by $533 thousand due to net recoveries of $390 thousand and a loan
loss provision of $150 thousand, offset by charge-offs of $7 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 that may require additional provisions for loan losses.
Non-performing Loans and Other Real Estate Owned
The Bank's non-performing loans totaled $438 thousand at September 30, 2000
compared to $71 thousand at December 31, 1999. None of these loans were to
affiliated persons. At both September 30, 2000 and December 31, 1999 the Bank
had no other real estate owned. The Bank had no loans that were considered
impaired at either September 30, 2000 or December 31, 1999.
At September 30, 2000 management has identified $1.2 million 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.
13
<PAGE>
Home Port Bancorp, Inc. and Subsidiaries
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Unaudited Interim Information for September 30, 2000
Income Taxes
The Company's effective income tax rate for the quarter ended September 30, 2000
was 33.4% compared to 34.6% for the comparable prior year quarter. For the nine
months ended September 30, 2000 the effective tax rate was 33.5% compared to
34.8% in the comparable 1999 period. These tax rates are reflective of the
proportion of income earned by certain non-bank subsidiaries that is taxed, for
state tax purposes, at lower rates.
Liquidity and Capital Resources
All of the Company's funds are generated through its 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. The Bank's liquidity management program is designed
to assure that sufficient funds are available to meet its 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 September 30, 2000 and December 31, 1999 the Company's and the Bank's capital
ratios were in excess of regulatory requirements.
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<PAGE>
Home Port Bancorp, Inc. and Subsidiaries
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Unaudited Interim Information for September 30, 2000
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (FASB) issued Financial
Accounting Standard No. 133, "Accounting for Derivative Instruments and Hedging
Activities". This statement establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, (collectively referred to as derivatives) and for hedging
activities. It requires an entity to recognize all derivatives as either assets
or liabilities in balance sheet and measure those instruments at fair market
value. Under this statement, an entity that elects to apply hedge accounting is
required to establish at the inception of the hedge the method it will use for
assessing the effectiveness of the hedging derivative and the measurement
approach for determining the ineffective aspect of the hedge. In June 1999 the
FASB issued Statement No. 137 which defers the effective date of Statement No.
133. Statement No. 133 is now effective for all fiscal quarters of all fiscal
years beginning after June 15, 2000. This statement is not expected to have a
material effect on the Company's consolidated financial statements.
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<PAGE>
Home Port Bancorp, Inc. and Subsidiaries
Quantitative and Qualitative Disclosures about Market Risk
Unaudited Interim Information for September 30, 2000
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 7-8 of the Company's 1999 Annual Report.
There has not been a significant change in market risk since the fiscal year
ended December 31, 1999.
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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. 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
--------------------------------------------------------
a. A special meeting of shareholders was held on October 20, 2000.
b. Set forth below is a brief description of each matter voted upon at
the meeting, including the number of votes cast for, against, or
withheld, as well as the number abstentions and including a separate
tabulation with respect to each
(i) To consider and vote upon a proposal and adopt an agreement and
plan of merger dated July 20, 2000 by and between Seacoast
Financial Services Corporation and Home Port Bancorp, Inc.
pursuant to which Home Port Bancorp, Inc. will be acquired by and
merged with Seacoast and the shareholders of Home Port Bancorp,
Inc. will receive cash of $37.00 per share in exchange for their
common stock in Home Port Bancorp, Inc. The number of shares of
stock outstanding is 2,325,494; the number of shares entitled to
vote is 1,841,890; that the number of share present thereat in
person or by proxy is 1,291,049; that the following votes were
received and that
Approve and adopt the agreement and plan of merger: 1,273,794
for, 16,411 against, 844 votes withheld.
Item 5. Other Information.
------------------
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 August 10, 2000, a Form 8-K was filed
with the SEC by the Company stating that the Company had entered into an
Agreement and Plan of Merger, on July 20, 2000 with Seacoast Financial
Services Corporation, a Massachusetts corporation.
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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: November 8, 2000 By: /s/ William P. Hourihan, Jr.
-------------------------------------------------
William P. Hourihan, Jr.
Senior Vice President
Date: November 8, 2000 By: /s/ John M. Sweeney
-------------------------------------------------
John M. Sweeney, Treasurer
(chief financial & accounting officer)
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