SECURITIES AND EXCHANGE COMMISSION
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 June 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 of (I.R.S. Employer Identification Number)
incorporation or organization)
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.
-----------------
<S> <C>
Item 1 - Financial Statements
Consolidated Balance Sheets at June 30, 2000 and December 31, 1999. 3
Consolidated Statements of Earnings for the three months and six months ended
June 30, 2000 and 1999 4
Consolidated Statements of Changes in Stockholders' Equity for the six
months ended June 30, 2000 and for the year ended December 31, 1999 5
Consolidated Statements of Cash Flows for the six months 6
ended June 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>
<PAGE>
Home Port Bancorp, Inc.
Consolidated Balance Sheet
<TABLE>
<CAPTION>
(In Thousands, Except Share Data) June 30, December 31,
2000 1999
(unaudited)
---------------------------------
<S> <C> <C>
Assets
Cash and due from banks $ 14,199 $11,894
Federal Funds sold - 1,440
Interest bearing deposits in banks 5 76
---------------------------------
Total cash and cash equivalents 14,204 13,410
Securities held to maturity (market value $15,273 and $18,050) 15,634 15,599
Securities available for sale (amortized cost of $13,068 and $17,087) 12,712 16,741
Loans, net of allowance for loan losses of $4,441 and $3,956 (note 3) 278,396 258,302
Loans held for sale 6,739 4,934
Stock in Federal Home Loan Bank of Boston, at cost 4,477 4,477
Land, buildings and equipment, net 3,284 2,364
Accrued income receivable 1,807 1,577
Net deferred tax asset 817 742
Prepaid expenses and other assets 1,265 1,114
---------------------------------
Total assets $339,335 $319,260
=================================
Liabilities and Stockholders' Equity
Liabilities:
Deposits (Note 4) $227,659 $218,197
Borrowed funds 80,578 71,417
Accrued expenses 1,428 1,868
Other liabilities 608 469
---------------------------------
Total liabilities 310,273 291,951
---------------------------------
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 16,177 14,418
Accumulated other comprehensive loss, net:
Unrealized loss on securities available for sale, net of taxes (note 2) (214) (208)
Less: Treasury stock, at cost (483,604 shares) (4,397) (4,397)
---------------------------------
Total stockholders' equity 29,062 27,309
---------------------------------
Total liabilities and stockholders' equity $339,335 $319,260
=================================
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
Home Port Bancorp, Inc.
Consolidated Statements of Earnings (Unaudited)
<TABLE>
<CAPTION>
(In Thousands, Except Per Share Data) Three Month Ended Six Month Ended
June 30, June 30,
--------------------------- -------------------------
2000 1999 2000 1999
-------------------------- -------------------------
<S> <C> <C> <C> <C>
Interest income:
Interest on loans $5,744 $5,080 $11,172 $9,864
Interest on securities 432 358 890 708
Dividends 84 69 162 124
Interest on federal funds sold and interest bearing deposits 26 10 55 12
-------------------------- -------------------------
Total interest income 6,286 5,517 12,279 10,708
-------------------------- -------------------------
Interest expense:
Interest on deposits 1,660 1,377 3,298 2,802
Interest on borrowed funds 1,218 1,077 2,239 1,985
-------------------------- -------------------------
Total interest expense 2,878 2,454 5,537 4,787
-------------------------- -------------------------
Net interest income 3,408 3,063 6,742 5,921
Provision for loan losses 50 50 100 100
-------------------------- -------------------------
Net interest income after provision for loan losses 3,358 3,013 6,642 5,821
Non interest income:
Deposit servicing fees 142 140 290 253
Loan servicing fees 104 72 195 141
Other fees and income 183 127 333 196
Net (loss) gain from sale of mortgage loans (8) 77 19 206
-------------------------- -------------------------
Total non interest income 421 416 837 796
-------------------------- -------------------------
Non interest expense:
Salaries and employee benefits 1,012 838 1,906 1,655
Building and equipment expenses 247 196 482 376
Deposit insurance fees 25 17 43 32
Professional fees 105 125 190 246
Other 383 330 822 664
-------------------------- -------------------------
Total non interest expense 1,772 1,506 3,443 2,973
-------------------------- -------------------------
Income before income taxes 2,007 1,923 4,036 3,644
Provision for income taxes 669 674 1,355 1,273
-------------------------- -------------------------
Net Income $1,338 $1,249 $2,681 $2,371
========================== =========================
Earnings per common share - basic and diluted $0.73 $0.68 $1.46 $1.29
========================== =========================
Weighted common shares outstanding - basic and diluted 1,842 1,842 1,842 1,842
</TABLE>
See accompanying notes to unaudited consolidated financial statements
<PAGE>
Home Port Bancorp, Inc.
Consolidated Statements of Changes in Stockholders' Equity (Unaudited)
For the six months ended June 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 (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 (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 - - 2,681 - - 2,681
Other comprehensive income (loss),
net:
Change in unrealized loss on
securities available for sale - - - - (6) (6)
---------------
Comprehensive income 2,675
Cash dividends paid at
$.50 per share - - (922) - - (922)
----------------------------------------------------------------------------
Balance at June 30, 2000 $23 $17,473 $16,177 $(4,397) $(214) $29,062
============================================================================
</TABLE>
See accompanying notes to unaudited consolidated financial statements
<PAGE>
Home Port Bancorp, Inc.
Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
(In Thousands) Six Months Ended
June 30,
--------------------------------
2000 1999
--------------------------------
Net cash flows from operating activities:
<S> <C> <C>
Net income $2,681 $2,371
Adjustments to reconcile net income to net cash provided by (used in) operating
activities:
Provision for loan losses 100 100
Depreciation of building and equipment 224 188
Net gain on sale of mortgage loans (19) (206)
Net loss on securities - -
Net (accretion) amortization of securities (discounts) premiums (2) 4
Amortization of deferred loan origination fees (137) (160)
Amortization of deferred premiums on loans sold 18 31
Net (increase) decrease in accrued income receivable (230) (93)
Net increase (decrease) in accrued expenses (440) (467)
Net (increase) decrease in loans held for sale (1,804) 3,311
Net (increase) decrease in prepaid expenses and other assets (151) (162)
Net increase (decrease) in other liabilities 139 (62)
Net (increase) decrease in deferred income taxes (71) 61
--------------------------------
Net cash provided by (used in) operating activities 308 4,916
--------------------------------
Cash flows from investing activities
Purchases of securities held to maturity (2,000) (1,821)
Purchases of securities available for sale (1,000) (2,633)
Proceeds from sales of securities available for sale - -
Proceeds from maturities/calls of securities 5,471 2,370
Principal payments on mortgage-backed securities 1,515 1,498
Net increase in loans (20,057) (22,352)
Purchases of land, buildings and equipment (1,144) (499)
Purchase of Federal Home Loan Bank stock - (1,201)
--------------------------------
Net cash provided by (used in) investing activities (17,215) (24,638)
--------------------------------
Cash flows from financing activities:
Net increase (decrease) in deposits 9,462 21,850
Federal Home Bank advances 16,000 2,000
Federal Home Loan Bank repayments (12,500) (13,061)
Net increase in short term borrowings 5,661 17,186
Cash dividends paid (922) (738)
--------------------------------
Net cash provided by (used in) financing activities 17,701 27,237
--------------------------------
Net increase (decrease) in cash and cash equivalents 794 7,515
Cash and cash equivalents at beginning of period 13,410 12,124
--------------------------------
Cash and cash equivalents at end of period $14,204 $19,639
================================
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $5,816 $4,685
Income taxes 1,719 1,913
</TABLE>
See accompanying notes to unaudited consolidated financial statements
<PAGE>
Home Port Bancorp, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
Unaudited Interim Information for June 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.
2. Comprehensive Income
The following table shows the components of other comprehensive income (in
thousands).
<TABLE>
<CAPTION>
Six Months Ended
June 30,
---------------------------------
2000 1999
--------------- ----------------
<S> <C> <C>
Net income $2,681 $2,371
Other comprehensive loss, net of tax
Unrealized loss on securities:
Unrealized holding losses arising during the period (6) (144)
Add: reclassification adjustment for losses included in
net income, net of tax - -
--------------- ----------------
(6) (144)
--------------- ----------------
Comprehensive Income $2,675 $2,227
=============== ================
</TABLE>
<PAGE>
Home Port Bancorp, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
Unaudited Interim Information for June 30, 2000
3. Loans, Net (in thousands)
The composition of the balances of loans is as follows:
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
---------------- ----------------
<S> <C> <C>
Mortgage loans:
Residential $166,610 $156,409
Residential construction 40,218 44,533
Commercial 52,888 50,459
Commercial construction 5,325 4,135
---------------- ---------------
Total principal balances 265,041 256,536
Less: Due borrowers on uncompleted loans
Residential (8,172) (10,237)
Commercial (2,274) (1,167)
Deferred loan origination fees (738) (781)
---------------- ---------------
Total mortgage loans 253,857 243,351
Other loans:
Commercial business 18,996 11,966
Second mortgage 1,470 1,430
Home equity 5,587 2,977
Passbook and stock secured 1,275 970
Consumer 1,652 1,564
---------------- ---------------
Total other loans 28,980 18,907
Less: Allowance for loan losses (4,441) (3,956)
---------------- ---------------
Loans, net $278,396 $258,302
================ ===============
</TABLE>
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>
Six Months Ended
June 30,
-------------------------------
2000 1999
-------------------------------
<S> <C> <C>
Balance at beginning of period $3,956 $3,145
Provisions 100 100
Recoveries 388 504
Realized losses charged to allowance (3) (10)
-------------------------------
Balance at end of period $4,441 $3,739
===============================
<CAPTION>
Non-performing loans are summarized as follows:
June 30, December 31,
2000 1999
-------------------------------
<S> <C> <C>
Loans accounted for on a non-accrual basis $ - $ -
Accruing loans 90 days past due 393 71
Impaired loans - -
</TABLE>
<PAGE>
Home Port Bancorp, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
Unaudited Interim Information for June 30, 2000
4. Deposits (in thousands)
A summary of deposit balances, by type, is as follows:
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
---------------------------------
<S> <C> <C>
Demand (non-interest bearing) $ 27,373 $ 21,515
Savings:
NOW 58,841 49,409
Regular and 90-day notice accounts 19,331 19,635
Money market deposit accounts 45,367 47,994
Advance payments from mortgagors 828 264
---------------------------------
Total savings 120,367 117,302
---------------------------------
Time certificates of deposit 79,919 79,380
---------------------------------
Total deposits $227,659 $218,197
=================================
</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 $9.9 million at June 30, 2000.
<PAGE>
Home Port Bancorp, Inc. and Subsidiaries
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Unaudited Interim Information for June 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, is subject to Home Port shareholder and 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 June 30, 2000 the Company had not incurred significant merger-related
expenses. Merger-related expenses of approximately $1.3 million are expected to
be incurred during the third and fourth quarter of 2000 and will have a negative
impact on the Company's reported earnings
<PAGE>
Home Port Bancorp, Inc. and Subsidiaries
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Unaudited Interim Information for June 30, 2000
Consolidated Balance Sheet
--------------------------
Total assets of Home Port Bancorp, Inc. (the "Company") grew during the first
six months of 2000, increasing $20.0 million, or 6.3%, to $339.3 million at June
30, 2000 from $319.3 million at December 31, 1999. For the comparable period in
1999, total assets increased $28.9 million, or 10.5%. Major balance sheet
categories are discussed in detail below.
Net loans outstanding (including loans held for sale) were $285.1 million at
June 30, 2000, an increase of $21.9 million, or 8.3%, from $263.2 million at
December 31, 1999. For the comparable period in 1999, loans increased $19.3
million, or 8.4%, to $263.2 million from $229.9 million at December 31, 1998.
Mortgage loan originations totaled $56.6 million during the first six months of
2000 compared to $88.1 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 $16.2 million during the first six months of 2000 as compared
to $34.3 million for the corresponding 1999 period. The Bank's lending
activities are conducted solely on Nantucket.
Total deposits increased by $9.5 million, or 4.3%, to $227.7 million at June 30,
2000 from $218.2 million at December 31, 1999. During the first six months of
1999, deposits increased by $21.8 million, or 11.6%, 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 $80.6
million at June 30, 2000, an increase of $9.2 million from the December 31, 1999
total of $71.4 million. At June 30, 1999 borrowed funds totaled $65.0 million.
These borrowings are used to fund loans growth and seasonal deposit outflows.
Total borrowings represented 24% of total assets at June 30, 2000 compared to
22% at June 30, 1999.
Total stockholders' equity increased by $1.8 million to $29.1 million at June
30, 2000 from $27.3 million at December 31, 1999. This increase reflects net
income of $2.7 million less cash dividends declared of $.9 million.
Results of Operations
---------------------
For the quarter ended June 30, 1999, the Company reported net income of $1.3
million or $0.73 per share compared to net income of $1.2 million or $0.68 per
share for the quarter ended June 30, 1999. For the six months ended June 30,
2000 net income totaled $2.7 million, or $1.46 per share, compared to $2.3
million, or $1.29 per share, for the comparable 1999 period.
Net Interest Income
Net interest income increased $345 thousand, or 11.3%, and $821 thousand, or
13.9%, respectively, for the three and six months ended June 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:
<PAGE>
Home Port Bancorp, Inc. and Subsidiaries
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Unaudited Interim Information for June 30, 2000
<TABLE>
<CAPTION>
(in thousands) Six Months Ended June 30, 2000 Six Months Ended June 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 $201,282 $7,522 7.47% $176,125 $6,543 7.43%
Commercial loans 70,702 3,249 9.19% 64,712 3,047 9.42%
Consumer loans 8,486 402 9.47% 5,617 274 9.76%
------------------------------------------ ---------------------------------------
Total loans 280,470 11,172 7.97% 246,454 9,864 8.00%
Securities and FHLB Stock 34,277 1,164 6.79% 30,040 903 6.01%
------------------------------------------ ---------------------------------------
Total interest earning assets 314,747 12,337 7.84% 276,494 10,767 7.79%
------------------------------------------ ---------------------------------------
Interest bearing liabilities:
Deposits 201,428 3,298 3.28% 170,199 2,802 3.30%
Borrowed funds 77,727 2,239 5.78% 72,373 1,985 5.50%
------------------------------------------ ---------------------------------------
Total interest bearing liabilities 279,155 5,537 3.98% 242,572 4,787 3.96%
------------------------------------------ ---------------------------------------
Net interest income $6,800 $5,980
========= =========
Interest rate spread 3.86% 3.83%
======== ========
Net interest margin 4.32% 4.33%
======== ========
</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 $57 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) Six Months Ended June 30, 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 $ 979 $ 935 $ 35 $ 9
Commercial loans 202 282 (74) (6)
Consumer loans 128 140 (8) (4)
--------------------------------------------------------------
Total loans 1,308 1,357 (47) (2)
Securities and FHLB Stock 261 127 117 17
--------------------------------------------------------------
Total interest earning assets 1,570 1,484 70 16
--------------------------------------------------------------
Interest bearing liabilities:
Deposits 496 515 (17) (2)
Borrowed funds 254 147 101 6
--------------------------------------------------------------
Total interest bearing liabilities 750 662 84 4
--------------------------------------------------------------
Net interest income $ 820 $ 822 $ (14) $ 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.
<PAGE>
Home Port Bancorp, Inc. and Subsidiaries
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Unaudited Interim Information for June 30, 2000
Non-interest income
Non-interest income increased by $5 thousand, or 1.2%, and $41 thousand, or
5.2%, respectively, in the three and six month periods ended June 30, 2000 as
compared to the prior year. These increases were 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 $19
thousand in the first six months of 2000 from $206 thousand in the corresponding
1999 period. For the second quarter the Company recognized a loss on the sale of
loans of $8 thousand compared to gains of $77 thousand in the corresponding 1999
quarter. These decreases were due to the decrease in the amount of loans sold
and rising interest rates.
Non-interest expense
Non interest expense increased by $266 thousand, or 17.7%, and $470 thousand, or
15.8%, respectively, in the three and six month periods ending June 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. The Company's efficiency ratio was 45.4% for the six months
ended June 30, 2000 versus 44.3% in comparable 1999 period. Total non-interest
expenses were 2.07% of average assets in both the six months ended June 30, 1999
and 2000.
Return on Equity
Return on average equity decreased slightly to a rate of 19.03% (annualized) for
the six months ended June 30, 2000 from 19.23% for the corresponding period in
1999. This increase is the result the increase in earnings described above.
Provision for Loan Losses
The allowance for loan losses at June 30, 2000 was $4.4 million or 1.53% of
total loans compared to $3.9 million, or 1.50% of total loans, at December 31,
1999. During the six months ending June 30, 2000 the loan loss reserve increased
by $485 thousand due to net recoveries of $388 thousand and a loan loss
provision of $100 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 $393 thousand at June 30, 2000 compared
to $71 thousand at December 31, 1999. None of these loans were to affiliated
persons. At both June 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 June
30, 2000 or December 31, 1999.
At June 30, 1999 management has identified $983 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 June 30, 2000
Income Taxes
The Company's effective income tax rate for the quarter ended June 30, 2000 was
33.3% compared to 35.0% for the comparable prior year quarter. For the six
months ended June 30, 3000 the effective tax rate was 33.6% compared to 34.9% 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 June 30, 2000 and December 31, 1999 the Company's and the Bank's capital
ratios were in excess of regulatory requirements.
<PAGE>
Home Port Bancorp, Inc. and Subsidiaries
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Unaudited Interim Information for June 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.
<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.
<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
---------------------------------------------------
a. The annual meeting of shareholders was held on May 12, 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 nominee
for office:
(i) Election of directors:
William P. Hourihan, Jr.: 1,740,014 votes for, 5,014 votes
withheld.
Karl L. Meyer: 1,739,985 votes for, 5,043 votes withheld.
(ii) Ratification of KPMG LLP as independent auditors for fiscal year
2000: 1,736,134 votes for, 1,708 votes against, 7,186
abstentions.
Item 5. Other Information.
------------------
A cash dividend of $.25 per common share was declared on April 28,
2000. The dividend was paid on May 26, 2000 to shareholders of record
as of May 12, 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 June 30, 1999.
<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: August 2, 2000 By: /s/ Karl L. Meyer
-------------------------------------
Karl L. Meyer
President and Chief Executive Officer
(Duly Authorized Representative)
Date: August 2, 2000 By: /s/ John M. Sweeney
--------------------------------------
John M. Sweeney, Treasurer
(chief financial & accounting officer)
