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, 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 SMALL BUSINESS ISSUER 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 March 31, 2000:
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
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION Page No.
-----------------
<S> <C>
Item 1 - Financial Statements
Consolidated Balance Sheets at March 31, 2000 and December 31, 1999. 3
Consolidated Statements of Earnings for the three months ended March 31,
2000 and 1999. 4
Consolidated Statements of Changes in Stockholders' Equity for the three
Months ended March 31, 2000 and for the year ended December 31, 1999 5
Consolidated Statements of Cash Flows for the three months 6
ended March 31, 2000 and 1999
Notes to Consolidated Financial Statements 7-8
Item 2 - Management's Discussion and Analysis of Financial Condition 9-13
and Results of Operation
Item 3 - Quantitative and Qualitative Disclosures About Market Risk 14
PART II - OTHER INFORMATION 15
Signatures 16
</TABLE>
<PAGE>
Home Port Bancorp, Inc.
Consolidated Balance Sheet
<TABLE>
<CAPTION>
(In Thousands, Except Share Data) March 31, December 31,
2000 1999
(unaudited)
---------------------------------
<S> <C> <C>
Assets
Cash and due from banks $12,620 $ 11,894
Federal funds sold - 1,440
Interest bearing deposits in banks 24 76
---------------------------------
Total cash and cash equivalents 12,644 13,410
Securities held to maturity (market value $15,221 and $15,220) 15,628 15,599
Securities available for sale (amortized cost of $14,096 and $17,087) 13,690 16,741
Loans, net of allowance for loan losses of $4,019 and $3,956 (note 3) 269,932 258,302
Loans held for sale 5,875 4,934
Stock in Federal Home Loan Bank of Boston, at cost 4,477 4,477
Land, buildings and equipment, net 2,664 2,364
Accrued income receivable 1,664 1,577
Net deferred tax asset 817 742
Prepaid expenses and other assets 1,064 1,114
---------------------------------
Total assets $328,455 $319,260
=================================
Liabilities and Stockholders' Equity
Liabilities:
Deposits (Note 4) $223,183 $218,197
Borrowed funds 74,087 71,417
Accrued expenses 2,314 1,868
Other liabilities 715 469
---------------------------------
Total liabilities 300,299 291,951
---------------------------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
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 15,301 14,418
Accumulated other comprehensive loss, net:
Unrealized loss on securities available for sale, net of taxes (note 2) (244) (208)
Less: Treasury stock, at cost (483,604 shares) (4,397) (4,397)
---------------------------------
Total stockholders' equity 28,156 27,309
---------------------------------
Total liabilities and stockholders' equity $328,455 $316,260
=================================
</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 Month Ended
March 31,
-------------------------
2000 1999
-------------------------
<S> <C> <C>
Interest income:
Interest on loans $5,428 $4,784
Interest on securities 458 350
Dividends 78 55
Interest on federal funds sold and interest bearing deposits 29 2
-------------------------
Total interest income 5,993 5,191
-------------------------
Interest expense:
Interest on deposits 1,638 1,425
Interest on borrowed funds 1,021 908
-------------------------
Total interest expense 2,659 2,333
-------------------------
Net interest income 3,334 2,858
Provision for loan losses 50 50
-------------------------
Net interest income after provision for loan losses 3,284 2,808
Non interest income:
Deposit servicing fees 148 113
Loan servicing fees 91 69
Other fees and income 150 69
Net gain from sale of mortgage loans 27 129
-------------------------
Total non interest income 416 380
-------------------------
Non interest expense:
Salaries and employee benefits 894 817
Building and equipment expenses 235 180
Deposit insurance fees 18 15
Professional fees 85 121
Other 439 334
-------------------------
Total non interest expense 1,671 1,467
-------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Income before income taxes 2,029 1,721
Provision for income taxes 686 599
-------------------------
Net Income $1,343 $1,122
=========================
Earnings per common share - basic and diluted $0.73 $0.61
===========================
Weighted number of common shares outstanding - basic and diluted 1,842 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)
<TABLE>
<CAPTION>
(In Thousands, Except Per Share Data)
Accumulated
Additional Other Total
Common Paid-in Retained Treasury Comprehensive Stockholders
Stock Capital Earnings Stock Income (loss), Equity
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, net
Change in unrealized gain (loss)
on securities available for sale - - - - (223) (223)
-----------------
Comprehensive income 4,843
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 - - 1,343 - - 1,343
Other comprehensive income, net
Change in unrealized gain (loss)
on securities available for sale - - - - (36) (36)
-----------------
Comprehensive income 1,307
Cash dividends paid at
$.25 per share - - (460) - - (460)
-------------------------------------------------------------------------------
Balance at March 31, 2000 $23 $17,473 $15,301 $(4,397) $(244) $28,156
===============================================================================
</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) Three Months Ended
March 31,
--------------------------------
2000 1999
--------------------------------
<S> <C> <C>
Net cash flows from operating activities:
Net income $1,343 $1,122
Adjustments to reconcile net income to net cash provided by (used in) operating
activities:
Provision for loan losses 50 50
Depreciation of building and equipment 107 94
Net gain on sale of mortgage loans (27) (129)
Net (accretion) amortization of securities (discounts) premiums (14) (5)
Amortization of deferred loan origination fees (6) (75)
Amortization of deferred premiums on loans sold 13 16
Net (increase) decrease in accrued income receivable (87) (12)
Net increase (decrease) in accrued expenses 446 (905)
Net (increase) decrease in loans held for sale (914) (2,473)
Net (increase) decrease in prepaid expenses and other assets 37 (142)
Net increase (decrease) in other liabilities 246 (465)
Net (increase) decrease in deferred income taxes (51) 55
--------------------------------
Net cash provided by (used in) operating activities 1,143 (2,869)
--------------------------------
Cash flows from investing activities
Purchases of securities held to maturity
(1,000) -
Purchases of securities available for sale (2,000) (2,133)
Proceeds from maturities/calls of securities 5,095 2,370
Principal payments on mortgage-backed securities 881 776
Net increase in loans (11,674) (11,782)
Purchases of land, buildings and equipment (407) (171)
Purchase of Federal Home Loan Bank stock - (544)
--------------------------------
Net cash provided by (used in) investing activities (9,105) (11,484)
--------------------------------
Cash flows from financing activities:
Net increase (decrease) in deposits 4,986 (6,398)
Federal Home Bank advances 7,000 14,000
Federal Home Loan Bank repayments (7,000) (1,305)
Net increase in short term borrowings 2,670 5,569
Cash dividends paid (460) (369)
--------------------------------
Net cash provided by (used in) financing activities 7,196 11,497
--------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Net increase (decrease) in cash and cash equivalents (766) (2,856)
Cash and cash equivalents at beginning of period 13,410 12,124
--------------------------------
Cash and cash equivalents at end of period $12,644 $9,268
================================
Supplemental disclosures of cash flow information: Cash paid during the period
for:
Interest $2,607 $2,239
Income taxes 300 1,855
See accompanying notes to unaudited consolidated financial statements
</TABLE>
6
<PAGE>
Home Port Bancorp, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
Unaudited Interim Information for March 31, 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.
2. Comprehensive Income
The following table shows the components of other comprehensive income.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------------------
2000 1999
------------------------------------
<S> <C> <C>
Net income $1,343 $1,122
Other comprehensive loss, net of tax
Unrealized loss on securities:
Unrealized holding losses arising during the period (36) (34)
Add: reclassification adjustment for losses
included in net income, net of tax - -
--------------- ----------------
(36) (34)
--------------- ----------------
Comprehensive Income $1,307 $1,088
================ ===============
3. Loans, Net (in thousands)
The composition of the balances of loans is as follows: March 31, December 31,
2000 1999
---------------- ---------------
Mortgage loans:
Residential $159,120 $156,409
Residential construction 45,265 44,533
Commercial 50,830 50,459
Commercial construction 4,735 4,135
---------------- ---------------
Total principal balances 259,950 255,536
Less: Due borrowers on uncompleted loans
Residential (9,154) (10,237)
Commercial (1,119) (1,167)
Deferred loan origination fees (775) (781)
---------------- ---------------
Total mortgage loans 248,902 243,351
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Other loans:
Commercial business 16,570 11,966
Second mortgage 1,489 1,430
Home equity 4,281 2,977
Passbook and stock secured 1,083 970
Consumer 1,626 1,564
---------------- ---------------
Total other loans 25,049 18,907
---------------- ---------------
Total mortgages and other loans 273,951 262,258
Less: Allowance for loan losses (4,019) (3,956)
---------------- ---------------
Loans, net $269,932 $258,302
================ ===============
</TABLE>
7
<PAGE>
Home Port Bancorp, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
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,
--------------------------------
2000 1999
--------------------------------
<S> <C> <C>
Balance at beginning of period $3,956 $3,145
Provisions 50 50
Recoveries 20 95
Realized losses charged to allowance (7) (10)
--------------------------------
Balance at end of period $4,019 $3,280
================================
Non-performing loans are summarized as follows:
March 31, December 31,
2000 1999
--------------------------------
Loans accounted for on a non-accrual basis $ - $ -
Accruing loans 90 days past due 330 71
Impaired loans - -
4. Deposits (in thousands)
A summary of deposit balances, by type, is as follows:
March 31, December 31,
2000 1999
--------------------------------
Demand (non-interest bearing) $19,716 $21,515
Savings:
NOW 57,858 49,409
Regular and 90-day notice accounts 20,385 19,635
Money market deposit accounts 48,638 47,994
Advance payments from mortgagors 489 264
--------------------------------
--------------------------------
Total savings 127,370 117,302
--------------------------------
Time certificates of deposit 76,097 79,380
--------------------------------
Total deposits $223,183 $218,197
================================
</TABLE>
<PAGE>
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 $14.0 million at March 31, 2000.
8
<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, 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 quarterly report
on 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 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,
Year 2000 compliance and changing regulatory requirements.
Consolidated Balance Sheet
Total assets of Home Port Bancorp, Inc. (the "Company") grew during the first
quarter of 2000, increasing $9.2 million, or 2.9%, to $328.5 million at March
31, 2000 from $319.3 million at December 31, 1999. For the comparable period in
1999, total assets increased $11.2 million, or $4.1%. Major balance sheet
categories are discussed in detail below.
Net loans outstanding (including loans held for sale) were $275.8 million at
March 31, 2000, an increase of $12.6 million, or 4.8%, from $263.2 million at
December 31, 1999. For the comparable period in 1999, loans increased $14.4
million, or 6.2%, to $244.3 million from $229.9 million. Loan sales decreased to
$9.5 million during the first quarter of 2000 as compared to $17.8 million for
the corresponding 1999 period. Mortgage loan originations decreased to $32.4
million during the first quarter of 2000 compared to $45.5 million in the prior
year quarter. The decrease in loan originations is attributed to the higher
interest rate environment in 2000. The Bank's lending activities are conducted
solely on Nantucket.
Total deposits increased by $5.0 million, or 2.3%, to $223.2 million at March
31, 2000 from $218.2 million at December 31, 1999. During the first quarter of
1999, deposits decreased by $6.4 million, or 3.4%. The Bank normally experiences
a seasonal decrease in deposits during the first quarter. The increase in 2000
is attributed to continuing favorable economic conditions. Substantially all of
the Bank's deposits are from Nantucket-related individuals, businesses and
government entities.
<PAGE>
Borrowed funds, consisting of Federal Home Loan Bank advances, totaled $74.1
million at March 31, 2000, an increase of $2.3 million from the December 31,
1999 total of $71.4 million. During the first quarter of 1999 borrowed funds
increased by $18.3 million from the December 31, 1998 total of $58.9 million.
These borrowings are used to fund loan growth and seasonal deposit outflows.
Borrowed funds represented 23% of total assets at March 31, 2000 compared to 27%
at March 31, 1999.
9
<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, 2000
Total stockholders' equity increased by $.9 million to $28.2 million at March
31, 2000 from $27.3 million at December 31, 1999. This increase reflects net
income of $1.3 million less cash dividends declared of $460 thousand.
Results of Operations
For the quarter ended March 31, 2000, the Company reported net income of $1.3
million or $0.73 per share compared to net income of $1.1 million, or $0.61 per
share for the quarter ended March 31, 1999, an increase of $221 thousand, or
20%. This increase is attributable to the significant increases in loans and
deposits experienced by Nantucket Bank over the past year, higher non-interest
income and a reduction in non-interest expenses (measured as a percentage of
average assets). The following paragraphs describe the results of operations in
more detail.
Net Interest Income
Net interest income, before provision for loan losses, increased $459 thousand,
or 15.9%, compared to the prior year. Calculated on a fully tax-equivalent
basis, the increase was $475 thousand. This increase was primarily the result of
an increase in the average volume of loans and deposits offset by a small
reduction in the interest rate spread. Additional information on average
balances, interest and yields is provided in the following two tables:
<TABLE>
<CAPTION>
(in thousands) Three Months Ended March 30, 2000 Three Months Ended Mar. 30, 1999
------------------------------------------ ---------------------------------------
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 $198,576 $3,669 7.39% $176,378 $3,184 7.22%
Commercial loans 68,602 1,577 9.20% 63,412 1,462 9.22%
Consumer loans 7,656 182 9.51% 5,495 138 10.05%
------------------------------------------ ---------------------------------------
Total loans 274,834 5,428 7.90% 245,285 4,784 7.80%
Securities and FHLB Stock 35,311 593 6.72% 28,914 436 6.03%
------------------------------------------ ---------------------------------------
Total interest earning assets $310,145 $6,021 7.77% $274,199 $5,220 7.61%
------------------------------------------ ---------------------------------------
Interest bearing liabilities:
Deposits $201,760 $1,638 3.26% $169,697 $1,425 3.37%
Borrowed funds 72,543 1,021 5.65% 65,662 908 5.55%
------------------------------------------ ---------------------------------------
Total interest bearing liabilities $274,303 $2,659 3.89% $235,359 $2,333 3.98%
------------------------------------------ ---------------------------------------
Net interest income $3,362 $2,887
=============== ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Interest rate spread 3.88% 3.63%
============ ============
Net interest margin 4.34% 4.21%
============ ============
</TABLE>
(1) Average balances include the assets held for sale, available for sale and
held to maturity.
(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 $28 thousand in 2000 and $29
thousand in 1999.
10
<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, 2000
The effect on net interest income as a result of changes in average interest
rates and balances follows:
<TABLE>
<CAPTION>
(in thousands) Three Months Ended March 31, 2000 vs. 1999
-----------------------------------------------------------------
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 $485 $401 $75 $9
Commercial loans 115 120 (3) (2)
Consumer loans 44 54 (7) (3)
-----------------------------------------------------------------
Total loans 644 575 65 4
Securities and FHLB Stock 157 96 50 11
-----------------------------------------------------------------
Total interest earning assets $801 671 $115 $15
-----------------------------------------------------------------
Interest bearing liabilities:
Deposits $213 $270 ($47) $10)
Borrowed funds 113 95 16 2
-----------------------------------------------------------------
Total interest bearing liabilities 326 365 (31) (8)
-----------------------------------------------------------------
Net interest income $475 $306 $146 $23
=================================================================
</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.
Non-interest income
Non-interest income increased to $416 thousand in the first quarter of 2000 from
$380 thousand in the first quarter of 1999. This increase was primarily due to
an increase in fees from the sale of non-deposit investment products offset by a
reduction in net gains from the sale of loans to $27 thousand in 2000 from $129
thousand in 1999. This decrease in gains was due to a decrease in the amount of
loans sold from $17.8 million in the first quarter of 1999 to $9.5 million in
the first quarter of 2000 together with a reduction in servicing spreads due to
rising interest rates.
<PAGE>
Non-interest expense
Non-interest expense increased by $204 thousand, or 13.9%, to $1.7 million in
the first quarter of 2000 from $1.5 million in the comparable 1999 period. This
increase is due to the costs associated with additional office space leased
during 1998 and 1999, the additions and renovations to the Bank's main office
and additional staffing to service the increased loan and deposit business. The
Company's efficiency ratio was 44.6% for the quarter ended March 31, 2000 versus
45.3% in comparable 1999 period. Total non-interest expenses decreased to 2.05%
of average assets in the first quarter of 2000 from 2.11% of average assets in
the prior year quarter.
11
<PAGE>
Return on Equity
Return on average equity increased to an annualized rate of 19.4% for the three
months ended March 31, 2000 from 18.5% for the same period in 1999. This
increase is the result the increase in earnings described above.
12
<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, 2000
Provision for Loan Losses
The allowance for loan losses at March 31, 2000 was $4.0 million or 1.47% of
total loans compared to $4.0 million, or 1.50% of total loans, at December 31,
1999. During the three months ending March 31, 2000 the loan loss reserve
increased by $63 thousand due to recoveries of $16 thousand and a loan loss
provision of $50 thousand, offset by charge-offs of $3 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 $330 thousand at March 31, 2000, all
which were accruing loans with payments past due ninety or more days.
Non-performing loans at December 31, 1999 totaled $71 thousand of past due
accruing loans. None of these loans were to affiliated persons. At both March
31, 2000 and December 31, 1999 the Bank had no other real estate owned. The Bank
had no loans that were considered impaired at either March 31, 2000 or December
31, 1999.
At March 31, 2000 management has identified $915 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.
Income Taxes
The Company's effective income tax rate for the quarter ended March 31, 2000 was
33.8% compared to 34.8% for the quarter ended March 31, 1999. The effective tax
rate is impacted by 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. 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 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 March 31, 2000 and December 31, 1999 the Company's and the Bank's capital
ratios were in excess of regulatory requirements.
13
<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, 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.
Year 2000 Readiness
The statements in the following section include "Year 2000 readiness disclosure"
within the meaning of the Year 2000 Information and Readiness Disclosure Act.
During 1999 and the first quarter of 2000, the Company and the Bank completed a
detailed assessment of all its information technology (IT) and non-information
technology (non-IT) systems with respect to the century date change (the
transition from the year 1999 to 2000), with special emphasis on
mission-critical systems. IT and non-IT hardware and software were inventoried
and those not Year 2000 ready were identified, remedied and tested. The Company
has not yet experienced any effects from Year 2000 issues.
There can be no guarantee that the systems of other companies, or outside
vendors on which the Company's systems rely, have been fully remedied. Therefore
the Company could possibly experience a negative impact to the extent other
entities not affiliated with the Company are not Year 2000 compliant.
The Company's risk management program includes emergency backup and recovery
procedures to be followed in the event of failure of a business-critical system.
These procedures were expanded to include specific procedures for potential Year
2000 issues, and contingency plans to protect against Year 2000-related
interruptions. These plans include backup procedures and identification of
alternative suppliers.
14
<PAGE>
Home Port Bancorp, Inc. and Subsidiaries
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 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.
15
<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. 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
---------------------------------------------------
None
Item 5. Other Information.
------------------
A cash dividend of $.25 per common share was declared on
January 31, 2000. The dividend was paid on February 25, 2000
to shareholders of record as of February 11, 2000.
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 - No reports on Form 8-K were filed
during the quarter ended March 31, 2000.
16
<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 8, 2000 By: /s/ William P. Hourihan, Jr.
----------------------------------------------
William P. Hourihan, Vice President
Date: May 8, 2000 By: /s/ John M. Sweeney
----------------------------------------------
John M. Sweeney, Treasurer
(chief financial & accounting officer)
17
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