<PAGE>
FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For The Quarter Ended March 31, 1996
--------------
Commission File Number 0-17859
-------
NEW HAMPSHIRE THRIFT
BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
State of Delaware 02-0430695
(State of Incorporation) (IRS Employer I.D. Number)
New London, New Hampshire 03257
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 603-526-2116
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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 issuer's classes of common
stock, $.01 par value per share, as of April 18, 1996 was 1,689,503.
<PAGE>
NEW HAMPSHIRE THRIFT BANCSHARES, INC.
INDEX TO FORM 10-QSB
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
<S> <C> <C>
Item 1 Financial Statements:
Consolidated Statements of Financial Condition - 1
March 31, 1996 and December 31, 1995
Consolidated Statements of Income - 2
For the Three Months Ended March 31, 1996 and 1995
Consolidated Statements of Changes In Shareholders' Equity - 3
For the Three Months Ended March 31, 1996 and 1995
Consolidated Statements of Cash Flows - 4
For the Three Months Ended March 31, 1996 and 1995
Notes To Consolidated Financial Statements - 5
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations - 13
PART II. OTHER INFORMATION
Item 1 Legal Proceedings 17
Item 2 Changes in Securities 17
Item 3 Defaults Upon Senior Securities 17
Item 4 Submission of Matters to a Vote of Common Shareholders 17
Item 5 Other Information 17
Item 6 Exhibits and Reports on Form 8-K 17
Signatures 18
</TABLE>
<PAGE>
Part I. Item I. NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
March 31, 1996 and December 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
----------------- ----------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 5,908,741 $ 7,544,297
Federal funds sold 80,000 3,449,000
Securities held to maturity 393,054 393,054
Securities available for sale 26,997,635 25,718,260
Other investments 2,302,557 2,303,285
Loans held for sale 877,214 3,095,971
Loans receivable, net 203,434,883 205,073,080
Accrued interest receivable 1,558,064 1,433,882
Bank premises and equipment, net 5,915,321 5,955,394
Real estate owned and property acquired in settlement of loans 840,813 984,185
Non-earning assets 2,277,515 297,172
Other assets 1,895,011 1,968,497
----------------- ----------------
Total assets $ 252,480,808 $ 258,216,077
================= ================
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits $ 198,457,143 $ 199,970,921
Repurchase agreements 4,173,912 9,552,825
Federal funds purchased 1,019,000 -
Advances from Federal Home Loan Bank 26,537,394 26,936,168
Accrued expense and other liabilities 2,876,685 2,212,158
----------------- ----------------
Total liabilities 233,064,134 238,672,072
----------------- ----------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred stock, $.01 par value - -
Common stock, $.01 par value, 1,689,503 shares outstanding as
of March 31, 1996 and December 31, 1995 21,473 21,473
Paid-in capital 13,160,382 13,160,382
Retained earnings 8,811,165 8,673,504
Unrealized gain (loss) on securities available for sale (167,398) 97,594
----------------- ----------------
21,825,622 21,952,953
Treasury stock, at cost, 457,779 shares as of March 31, 1996
and December 31, 1995 (2,408,948) (2,408,948)
----------------- ----------------
Total shareholders' equity 19,416,674 19,544,005
----------------- ----------------
Total liabilities and shareholders' equity $ 252,480,808 $ 258,216,077
================= ================
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
1
<PAGE>
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the Three Months Ended March 31, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
March 31, March 31,
1996 1995
--------------- ----------------
<S> <C> <C>
Interest income
Interest on loans $ 4,067,593 $ 3,687,860
Interest and dividends on investments 489,612 357,238
--------------- ----------------
Total interest income 4,557,205 4,045,098
--------------- ----------------
Interest expense
Interest paid to depositors 2,132,960 1,862,527
Interest on advances and other borrowed money 400,746 283,025
--------------- ----------------
Total interest expense 2,533,706 2,145,552
--------------- ----------------
Net interest income 2,023,499 1,899,546
Provision for loan losses, net 221,637 300,000
--------------- ----------------
Net interest income after provision for loan losses 1,801,862 1,599,546
--------------- ----------------
Non-interest income
Customer service fees 236,333 261,375
Loan origination fees 18,439 16,152
Net gain (loss) on sale of securities and bank property (2,554) 6,490
Rental income 55,999 55,805
Brokerage service income 66,714 26,929
Other income 1,295 15,640
--------------- ----------------
Total other operating income 376,226 382,391
--------------- ----------------
Other operating expenses
Salaries and employee benefits 823,940 829,572
Occupancy expenses 327,689 309,948
Advertising and promotion 14,097 58,397
Depositors insurance 113,028 109,882
Outside services 89,622 81,062
Other expenses 288,563 309,151
--------------- ----------------
Total other operating expenses 1,656,939 1,698,012
--------------- ----------------
Income before provision for income taxes 521,149 283,925
Provision for income taxes 172,300 94,000
--------------- ----------------
Net income $ 348,849 $ 189,925
=============== ================
Earnings per common share $ .21 $ .11
=============== ================
Dividends declared per common share $ .125 $ .125
=============== ================
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
2
<PAGE>
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the Three Months Ended March 31, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
March 31, March 31,
1996 1995
------------- -------------
<S> <C> <C>
COMMON STOCK
Balance, beginning and end of period $ 21,473 $ 21,473
============= =============
PAID-IN CAPITAL
Balance, beginning and end of period $ 13,160,382 $ 13,103,404
============= =============
RETAINED EARNINGS
Balance, beginning of period $ 8,673,504 $ 8,268,094
Net income 348,849 189,925
Cash dividends paid (211,188) (208,874)
------------- -------------
Balance, end of period $ 8,811,165 $ 8,249,145
============= =============
UNREALIZED GAIN (LOSS) ON SECURITIES
AVAILABLE FOR SALE
Balance, beginning of period $ 97,594 $ (728,667)
Adjustment to fair value (401,992) 67,415
Effect of change in deferred taxes 137,000 224,000
------------- -------------
Balance, end of period $ (167,398) $ (437,252)
============= =============
TREASURY STOCK
Balance, beginning and end of period $ (2,408,948) $ (2,411,430)
============= =============
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
3
<PAGE>
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
March 31, March 31,
1996 1995
----------------- ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 348,849 $ 189,925
----------------- ----------------
Adjustments to reconcile net income to net
cash provided by operating activities -
Depreciation and amortization 110,828 110,487
Loans originated for sale (4,475,078) (1,696,684)
Proceeds from sale of loans 4,480,171 1,694,412
(Gain) loss from sale of loans (5,093) 2,272
Loss from sale of debt securities available for sale 1,538 7,376
Gain from sale of equity securities available for sale - (16,138)
Provision for loan losses 221,637 300,000
Provision for deferred taxes - 70,018
Increase in accrued interest and other assets (38,549) (396,022)
Decrease in deferred loan fees (23,294) (37,479)
Increase in accrued expenses and other liabilities 835,605 886,826
----------------- ----------------
Net cash provided by operating activities 1,456,614 1,114,993
----------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (70,755) (158,867)
Proceeds from sale of debt securities available for sale 643,194 490,189
Proceeds from sale of equity securities available for sale 200,000 342,913
Purchase of securities available for sale (3,537,519) (604,613)
Maturities of securities available for sale 1,000,000 100,000
Net (increase) decrease in loans to customers 3,658,611 (5,094,031)
(Increase) decrease in non-earning assets (1,980,343) 695,996
Decrease in real estate owned 143,372 88,970
----------------- ----------------
Net cash provided by (used in) investing activities 56,560 (4,139,443)
----------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in deposits and repurchase agreements (6,892,691) (5,583,590)
Increase in advances from Federal Home Loan Bank 589,054 6,329,447
Net change in other borrowed money (2,905 (2,835)
Dividends (211,188) (208,874)
----------------- ----------------
Net cash provided by (used in) financing activities (6,517,730) 534,148
----------------- ----------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (5,004,556) (2,490,302)
CASH AND CASH EQUIVALENTS, beginning of period 10,993,297 8,253,588
----------------- ----------------
CASH AND CASH EQUIVALENTS, end of period $ 5,988,741 $ 5,763,286
================= ================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest on deposit accounts $ 2,135,847 $ 1,836,793
Interest on advances and other borrowed money 408,385 230,081
----------------- ----------------
Total interest paid $ 2,544,232 $ 2,066,874
================= ================
Income taxes, net $ 2,499 $ 5,951
================= ================
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
4
<PAGE>
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1996 and December 31, 1995
1. Summary of significant accounting policies:
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include
the accounts of New Hampshire Thrift Bancshares, Inc. (NHTB or Company, a
unitary holding company), Lake Sunapee Bank, fsb (LSB), Lake Sunapee Group,
Inc. (LSGI), and Lake Sunapee Financial Services Corp. (LSFSC). LSB is
owned by the holding company and the other entities are wholly-owned
subsidiaries of LSB. All significant intercompany accounts and transactions
have been eliminated. The financial statements include all adjustments
(consisting of normal recurring accruals) necessary for a fair presentation
of the results of operations for the three months ended March 31, 1996 and
1995.
EARNINGS PER SHARE - Earnings per share are calculated using the weighted
average number of shares outstanding at the end of the period plus common
stock equivalents, as appropriate, resulting from the granting of incentive
stock options. Common stock equivalents are determined using the treasury
method. Common stock equivalents are included in the computation of
earnings per share if they have a dilutive effect. As of March 31, 1996 and
1995, there was a dilutive effect from stock options. The number of shares
used in computing earnings per share was 1,701,076 and 1,695,740 for the
periods ended March 31, 1996 and 1995, respectively.
CASH AND CASH EQUIVALENTS - For purposes of reporting cash flows, the Bank
considers federal funds sold and due from banks to be cash equivalents.
TREASURY STOCK - Treasury Stock is accounted for at cost when purchased.
Sales of Treasury Stock are on a first in first out basis at cost. Any gain
on the sale of Treasury Stock is recorded to Paid-in Capital.
MORTGAGE SERVICING RIGHTS - Effective January 1, 1996, Lake Sunapee Bank,
fsb recorded as a separate asset the rights to service mortgage loans for
others according to FAS No. 122 "Accounting for Mortgage Servicing Rights."
The accounting standard is effective for loans sold after December 31,
1995. The mortgage servicing rights (MSR's) are valued at the lower of cost
or market on an aggregate basis. The MSR's are amortized on a straight-line
basis over the anticipated life of the related loans.
5
<PAGE>
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1996 and December 31, 1995
2. Securities
The amortized cost and appropriate market value of securities are
summarized as follows:
<TABLE>
<CAPTION>
March 31, 1996
---------------------------------------------------------------
Gross Gross
Fair Unrealized Unrealized Amortized
Value Gain Loss Cost
---------------------------------------------------------------
<S> <C> <C> <C> <C>
Held to Maturity:
Bonds and notes -
Municipal bonds $ 393,054 $ - $ - $ 393,054
---------------------------------------------------------------
Total held to maturity 393,054 - - 393,054
---------------------------------------------------------------
Available for Sale:
Bonds and notes -
U. S. Treasury Notes 13,898,902 45,824 98,716 13,951,794
U. S. Government, including agencies 2,543,904 5,625 26,099 2,564,378
Other bonds and debentures 9,189,892 39,626 104,745 9,255,011
---------------------------------------------------------------
25,632,698 91,075 229,560 25,771,183
Equity securities 1,364,937 24,287 139,200 1,479,850
---------------------------------------------------------------
Total available for sale 26,997,635 115,362 368,760 27,251,033
---------------------------------------------------------------
Investments at cost:
Federal Home Loan Bank Stock 1,861,000 - - 1,861,000
Other securities 441,557 - - 441,557
---------------------------------------------------------------
Total investments at cost 2,302,557 2,302,557
---------------------------------------------------------------
Total securities $ 29,693,246 $ 115,362 $ 368,760 $ 29,946,644
===============================================================
</TABLE>
<TABLE>
<CAPTION>
December 31, 1995
---------------------------------------------------------------
Gross Gross
Fair Unrealized Unrealized Amortized
Value Gain Loss Cost
---------------------------------------------------------------
<S> <C> <C> <C> <C>
Held to Maturity:
Bonds and notes -
Municipal bonds $ 393,054 $ - $ - $ 393,054
---------------------------------------------------------------
Total held to maturity 393,054 - - 393,054
---------------------------------------------------------------
Available for Sale:
Bonds and notes -
U. S. Treasury Notes 12,139,529 147,900 3,166 11,994,795
U. S. Government, including agencies 2,724,130 33,249 40 2,690,921
Other bonds and debentures 9,352,476 104,119 38,416 9,286,773
---------------------------------------------------------------
24,216,135 285,268 41,622 23,972,489
Equity securities 1,502,125 11,750 106,800 1,597,175
---------------------------------------------------------------
Total available for sale 25,718,260 297,018 148,422 25,569,664
---------------------------------------------------------------
Investments at cost:
Federal Home Loan Bank Stock 1,861,000 - - 1,861,000
Other securities 442,285 - - 442,285
---------------------------------------------------------------
Total investments at cost 2,303,285 2,303,285
---------------------------------------------------------------
Total securities $ 28,414,599 $ 297,018 $ 148,422 $ 28,266,003
===============================================================
</TABLE>
6
<PAGE>
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
March 31, 1996 and December 31, 1995
3. Loans
<TABLE>
<CAPTION>
Loans consisted of the following as of: March 31, December 31,
1996 1995
-------------- --------------
<S> <C> <C>
Real estate loans -
Conventional $ 174,347,279 $ 175,130,966
Construction 664,523 2,456,763
-------------- --------------
175,011,802 177,587,729
Less: Unadvanced portion 561,210 1,434,258
-------------- --------------
Total real estate loans 174,450,592 176,153,471
Collateral loans 20,483,777 19,524,706
Consumer loans 4,796,265 5,025,818
Commercial and municipal loans 8,354,014 9,301,028
Other loans 840,543 671,302
-------------- --------------
Total loans 208,925,191 210,676,325
Less: Reserve for loan losses 1,976,831 1,828,060
Deferred loan origination fees 358,748 382,042
Non-earning assets 2,277,515 297,172
-------------- --------------
Net loans $ 204,312,097 $ 208,169,051
============== ==============
</TABLE>
A summary of activity in the reserve for loan loss account consisted of the
following as of:
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
-------------- --------------
<S> <C> <C>
BALANCE, beginning of period $ 1,828,060 $ 2,752,885
-------------- --------------
Loans charged-off:
Real estate loans -
Conventional 24,369 141,541
Construction 40,000 1,014,670
Collateral and consumer loans 11,860 25,568
Commercial and municipal loans 913,441
-------------- --------------
Total charged-off loans 76,229 2,095,220
-------------- --------------
Recoveries:
Real estate loans -
Conventional 3,363 3,300
Collateral and consumer loans - 2,099
Commercial and municipal loans - 1,286
-------------- --------------
Total recoveries 3,363 6,685
-------------- --------------
Charged-off loans, net of recoveries 72,866 2,088,535
-------------- --------------
Provision for loan losses charged to income 221,637 1,163,710
-------------- --------------
BALANCE, end of period $ 1,976,831 $ 1,828,060
============== ==============
Ratio of net charged-off loans during the period
to average loans outstanding during the period 0.03% 1.02%
============== ==============
</TABLE>
7
<PAGE>
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
March 31, 1996 and December 31, 1995
3. Loans (continued):
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
-------------- --------------
<S> <C> <C>
Non-earning assets consisted of the following $ 2,277,515 $ 297,172
Amount of interest income which would have been earned 45,760 55,864
Amount of interest income that was included in net 11,656 13,553
Troubled debt restructured 198,172 445,417
In addition to non-earning assets, non-accrual
loans included the following 202,594 1,144,293
EFFECT OF FASB NO. 66:
Loans reclassified to real estate owned $ 368,500 $ 370,672
Interest income reduced by 6,736 23,063
IMPAIRED LOANS:
Average recorded investment in impaired loans $ 1,126,897 $ 934,829
Investment in impaired loans, end of period 495,586 1,452,049
Portion of valuation allowance allocated to impaired loans 55,046 654,663
Net balance of impaired loans 440,540 797,386
Interest income recognized on impaired loans 8,684 102,449
Interest income on impaired loans on cash basis 5,793 97,401
</TABLE>
There are no impaired loans which do not have a valuation allowance assigned to
them.
Interest income on impaired loans is recognized using the accrual basis
accounting method when the impaired loan is less than 90 days past due and has
not been reclassified to non-accrual status. Interest income on impaired loans
over 90 days past due and on loans placed on non-accrual status is recognized on
the cash basis method. Cash receipts on impaired loans are recorded as both
interest income and a reduction in the impaired loan balance consistent with the
terms of the underlying contractual agreement. The net balance of impaired loans
represents the aggregate fair value or present value of expected cash flows on
individual loans identified as impaired. A loan becomes impaired when it is
probable all amounts due on the loan will not be received. A loan is placed on
non-accrual status when it is likely interest income will not be received. Non-
accrual loans are reviewed for possible impairment. Impaired loans are written-
down or charged-off when it has been determined the asset has such little value
that it no longer warrants remaining on the books. The decision to charge-off is
made on a case-by-case basis.
The Bank had no extensions of credit to affiliated parties in excess of 5% of
shareholders' equity at any time during the three months ended March 31, 1996.
MORTGAGE SERVICING RIGHTS - As of March 31, 1996, the fair value of MSR's was
$36,510. The significant assumptions used to estimate fair value included a
prepayment risk based on current market pricing information, a discount rate of
1% above the U. S. Treasury bond rate, 7.35% as of March 31, 1996, and industry
averages for other significant assumptions. MSR's capitalized were reduced by
$1,825 of amortization during the quarter. For purposes of evaluating and
measuring impairment of MSR's, the Company stratifies the underlying loans by
maturity and by interest rate. As of March 31, 1996, the Company stratified its
loans by maturity into 15 and 30 year loans and stratified loans in each of the
maturity categories by every one-half percent change in interest rates. There is
no impairment to the value of the MSR's recorded during the quarter ended March
31, 1996.
8
<PAGE>
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(continued)
March 31, 1996 and December 31, 1995
4. Deposits:
Deposit accounts consisted of the following as of March 31, 1996 and
December 31, 1995:
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
--------------- ---------------
<S> <C> <C>
Checking Accounts (non-interest bearing) $ 8,335,569 $ 10,934,512
NOW Accounts 25,362,117 26,014,007
Ever-Ready Money Market 13,383,210 13,971,617
Regular Savings 11,171,841 11,363,366
Accounts
Treasury Savings 46,518,346 44,388,408
Accounts
Club Deposits 250,220 87,779
Time Deposits:
$100,000 and over 12,191,910 11,924,585
Other Time Deposits 81,243,930 81,286,647
--------------- ---------------
$ 198,457,143 $ 199,970,921
=============== ===============
</TABLE>
REPURCHASE AGREEMENTS - As of March 31, 1996, thirteen repurchase agreements
were outstanding. Repurchase agreements are secured by U. S. Treasury Notes held
by a third party in safekeeping with a fair value of $13,898,902. The maturities
of the repurchase agreements are from April 10, 1996 to March 21, 1997 on the
anniversary date of the repurchase agreement.
5. Advances from Federal Home Loan Bank:
Advances from the Federal Home Loan Bank consisted of loans, at various
interest rates ranging from 4.87% to 7.32%, maturing as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
--------------- ---------------
<S> <C> <C>
1996 (4.87% - 6.78%) $ 6,332,197 $ 6,762,143
1997 (4.87% - 7.32%) 7,927,707 7,927,707
1998 (4.87% - 6.78%) 7,166,033 7,166,033
1999 (5.78%) 56,084 56,085
2000 and after (5.74% - 5.82%) 5,024,200 5,024,200
--------------- ---------------
$ 26,506,221 $ 26,936,168
=============== ===============
</TABLE>
These advances are secured by Federal Home Loan Bank Stock (Note 2) and
unspecified first mortgage loans. The Bank is able to borrow up to an additional
$49,000,000 of Federal Home Loan Bank advances.
In addition to the above advances, the Bank has credit available up to
$4,672,000 under a revolving loan agreement with the Federal Home Loan Bank. As
of March 31, 1996, $1,019,000 had been borrowed against this line of credit.
Interest is payable monthly as funds are borrowed.
9
<PAGE>
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
March 31, 1996 and December 31, 1995
6. Shareholders' Equity:
On May 22, 1986, Lake Sunapee Bank fsb received approval from the Federal
Home Loan Bank Board and converted from a federally-chartered mutual
savings bank to a federally-chartered stock savings bank. Net proceeds of
the conversion (after deducting applicable costs of conversion) were
$11,889,397.
At the time of conversion, the Bank established a liquidation account in an
amount of $4,292,510 (equal to the Bank's net worth as of the date of the
latest financial statement included in the final offering circular used in
connection with the conversion). The liquidation account will be
maintained for the benefit of eligible account holders who maintain their
deposit accounts in the Bank after conversion. In the event of a complete
liquidation of the Bank subsequent to conversion (and only in such event),
each eligible account holder will be entitled to receive a liquidation
distribution from the liquidation account before any liquidation
distribution may be made with respect to capital stock. The amount of the
liquidation account is reduced to the extent that the balance of eligible
deposit accounts are reduced on any year-end closing date subsequent to the
conversion.
The Bank may not declare or pay a cash dividend on or purchase any of its
stock if the effect would be to reduce the net worth of the Bank below
either the amount of the liquidation account or the net worth requirements
of the Office of Thrift Supervision.
DIVIDENDS - The Board of Directors, at their January meeting, declared a
cash dividend of $0.125 per share payable April 29, 1996.
7. Stock Options:
On January 3, 1995, 30,000 options were granted from previously forfeited
shares of the 1986 plan at an exercise price of $9.00 per share, the fair
market value on that date. As of March 31, 1996, 57,880 of previously
forfeited shares remained available for grant and options to purchase
30,000 shares were available for exercise under the 1986 plan. At the
Annual Meeting held on April 15, 1987, the shareholders approved the
adoption of the "1987 Stock Option Plan." As of March 31, 1996, 27,666 of
previously forfeited shares remained available for grant and options to
purchase 32,590 shares were available for exercise under the 1987 plan. On
January 2, 1996, 49,900 options were granted and made available from
previously ungranted and forfeited shares of the 1987 plan at an exercise
price of $10.125 per share, the fair market value on that date. As of
March 31, 1996, none of these options had been exercised. At the Annual
meeting held on April 10, 1996, the shareholders approved the adoption of
the "1996 Stock Option Plan." Under this plan, an amount equal to 10% of
the issued and outstanding common stock of the Company has been reserved
for future issuance.
10
<PAGE>
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
March 31, 1996 and December 31, 1995
7. Stock Options (continued):
A summary of the Company's stock option plans as of March 31, 1996 and 1995 and
changes during the quarter is presented below:
<TABLE>
<CAPTION>
1996 1995
-------------------- ---------------------
Weighted Weighted
Number Average Number Average
of Exercise of Exercise
Options Price Options Price
------- ---------- ------- --------
<S> <C> <C> <C> <C>
Outstanding, beginning of year 62,590 $ 8.22 32,590 $ 7.50
Granted 49,900 10.125 30,000 9.00
Exercised 0 0 0 0
Forfeited 0 0 0 0
Expired 0 0 0 0
------- ---------- ------- --------
Outstanding, end of quarter 112,490 $ 9.06 62,590 $ 8.22
------- ---------- ------- --------
Exercisable, end of quarter 112,490 62,590
------- -------
</TABLE>
The exercise price of each option equals the market price of the Company's stock
on the date of grant, and an option's maximum term is 10 years. The range of
exercise prices is $7.50 to $10.125 and $7.50 to $9.00 as of March 31, 1996 and
1995, respectively.
The weighted-average fair value of the options granted during the quarter ended
March 31, 1996 and 1995 was $10.125 and $9.00, respectively.
The Company applies APB Opinion 25 and related Interpretations in accounting for
its stock option plans. Accordingly, no compensation cost has been recognized
for its stock options. Had compensation cost for the Company plans been
determined based on the fair value at the grant dates consistent with the method
of FASB Statement 123, the Company's net income and earnings per share would
have been reduced to the proforma amounts indicated below:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C> <C>
Net income As reported $ 349,849 $ 189,925
Pro forma $ 260,526 $ 143,125
Primary earnings per share As reported $ 0.21 $ 0.11
Pro forma $ 0.15 $ 0.09
Fully diluted earnings per share As reported $ 0.21 $ 0.11
Pro forma $ 0.15 $ 0.08
</TABLE>
The fair value of each option is estimated on the date of grant using the Black-
Scholes option pricing model using the following weighted-average assumptions:
<TABLE>
<CAPTION>
March 31, 1996 March 31, 1995
--------------- --------------
<S> <C> <C>
Weighted risk-free interest rate 6.71% 6.67%
Weighted expected life 9.25 years 8.75 years
Weighted expected volatility 17.33% 17.33%
Weighted expected dividend yield 5.0% per year 5.0% per year
</TABLE>
No modifications have been made to the terms of the option agreements.
11
<PAGE>
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
March 31, 1996 and December 31, 1995
8. Commitments and Contingencies:
In the normal course of business, LSB has outstanding various commitments
and contingent liabilities, such as legal claims, which are not reflected
in the financial statements. Management does not anticipate any material
loss as a result of these transactions.
As of March 31, 1996, LSB has entered into commitments to fund loans
totaling approximately $10 million. The majority of these loans will have
adjustable rates.
9. Treasury Stock:
On April 3, 1990, NHTB announced a Stock Repurchase Program to buy back, on
the open market, up to a total of 5% of its outstanding common stock or
107,364 shares. On July 11, 1990, NHTB completed its Stock Repurchase
Program whereby 107,364 shares were repurchased at an average price of
$4.37 per share. On August 9, 1990, NHTB announced a second buy back
program to buy back, on the open market, up to 10%, or 203,992 shares of
its total outstanding common stock. On June 11, 1991, a third buy back was
announced to cover an additional 10% of the then outstanding stock or
183,592 shares. On July 15, 1993, NHTB announced another buy back program
whereby the company intends to repurchase, on the open market, 10%, or
165,233 shares of its outstanding common stock. As of March 31, 1996, NHTB
had repurchased a total of 539,148 shares at an average price of $4.98 for
all programs while 121,033 shares remained to be purchased from the 1993
buy back program.
10. Authorized Shares of Stock:
The authorized, issued and outstanding stock was as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
--------- ------------
<S> <C> <C>
Preferred stock:
Authorized shares 2,500,000 2,500,000
Issued shares - -
Outstanding shares - -
Common stock:
Authorized shares 5,000,000 5,000,000
Issued shares 2,147,282 2,147,282
Outstanding shares 1,689,503 1,689,503
</TABLE>
12
<PAGE>
Part I. Item II.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATION
GENERAL
The Company's profitability is derived from its only subsidiary, Lake
Sunapee Bank, fsb (LSB or the Bank). The Bank's earnings in turn are generated
from the difference between the yield on its loan and investment portfolios and
the cost of its deposit accounts and borrowings. These core earnings are
supplemented by loan origination fees, retail banking services, and rental
income from the Bank's various investment properties.
Net income for the three months ended March 31, 1996, amounted to $348,849,
or $.21 per share compared to $189,925, or $.11 per share, for the same period
in 1995. Earnings increased during the first quarter of 1996 compared to 1995,
due to the absence of several non-recurring items experienced during the first
quarter of 1995.
The United States Congress continues to debate various methods for the
recapitalization of the Savings Association Insurance Fund (SAIF), to which the
Bank pays deposit insurance assessments. As currently proposed, this
legislation will require the Bank to incur a one-time, after-tax expense in the
range of $800,000 to $1,100,000 in order to cover its portion of a one-time
contribution to the SAIF fund. This will be offset by expected, annual, after-
tax expense savings in deposit insurance of approximately $250,000.
Proposed legislation also provided for the merger of the BIF and SAIF on
January 1, 1998, with such merger being conditioned upon the prior elimination
of the thrift charter. Congressional leaders had also agreed that Congress
should consider and act upon separate legislation to eliminate the thrift
charter as early as possible in 1996. If adopted, such legislation would
require that the Bank, as a federal savings association, convert to a bank
charter. Such a requirement to convert to a bank charter could cause the Bank
to lose the favorable tax treatment for its bad debt reserves that it currently
enjoys under section 593 of the Internal Revenue Code and to have all or part of
its existing bad debt reserves recaptured into income.
During the second quarter of 1996, the Bank expects to realize an after-tax
gain of approximately $200,000 from the sale of a piece of land adjacent to the
Bank's New London branch.
FINANCIAL CONDITION
During the first three months of 1996, total assets decreased by
$5,735,269, or 2.22% from $258,216,077 to $252,480,808. Decreases totaling
$5,587,757 in federal funds sold and loans held for sale accounted for the drop
in assets. This was offset by a decrease of $5,378,913 in the Bank's deposits
under repurchase agreements On December 31, 1995, repurchase agreements had
balances of $9,552,825 compared to $4,173,912 at March 31, 1996. Typically,
these agreements experience withdrawals during the first quarter as the several
governmental agencies who utilize these agreements expend tax revenues received
during December.
Total investments (at fair value) increased by $1,278,647, or 4.50% from
$28,414,599 from $29,693,246. Investments in U. S. Treasury Notes increased by
$1,759,373 accounting for the increase in investments.
Total loans decreased during the first quarter by $1,751,134, to
$208,925,191 from $210,676,325. The Bank sold $4,480,171 of fixed rate loans,
of which $2,218,757 had been available for sale on December 31, 1995. The Bank
intends to originate and hold in portfolio fixed rate mortgages in an effort to
build the loan portfolio and balance the portfolio. Currently, adjustable rate
mortgages comprise 84% of total loans and the Bank intends to lower this mix to
approximately 75%.
13
<PAGE>
Real estate owned and property acquired in settlement of loans decreased by
$143,372 to $840,813. Continuing to be included in the real estate owned amount
is one real estate development loan, Blye Hill Landing, in Newbury, NH with a
book value of $627,036 at March 31, 1996. At March 31, 1996, the Bank had
recorded no properties as in-substance foreclosures.
At March 31, 1996, the Bank's non-performing assets amounted to $3,320,923
compared to $2,425,647 at December 31, 1995. The Bank includes all loans 90 days
past due, all real estate owned, and non-earning assets as non-performing
assets. The increase in non-performing assets resulted from the reclassification
of a real estate development loan in the amount of $934,786 from the impaired
loans category. When added together, non-performing assets and impaired loans
amounted to $3,761,462 and $3,233,514 on March 31, 1996, and December 31, 1995,
respectively.
Deposits decreased by $1,513,778, or 0.76% from $199,970,921 to
$198,457,143. The Bank's transaction and money market type accounts typically
experience outflows during the first quarter due to customers' needs to pay
bills associated with holiday spending, fuel, and property taxes.
No new advances from the Federal Home Loan Bank (FHLB) were incurred during
the first quarter. However, the Bank purchased Federal funds in the amount of
$1,019,000 and expects to utilize the FHLB advance programs during the second
quarter.
LIQUIDITY AND CAPITAL RESOURCES
The Bank is required to maintain a 5.00% ratio of long-term liquid assets
to net withdrawable funds. At March 31, 1996, the Bank's ratio of 11.13%
exceeded regulatory requirements.
The Bank's source of funds comes primarily from net deposit inflows, loan
amortizations, principal pay downs from loans, sold loan proceeds, and advances
from the FHLB. At March 31, 1996, the Bank had approximately $49 million in
additional borrowing capacity from the FHLB. The Bank expects to be able to
fund the approximate total of $10 million in loan commitments during the second
quarter by utilizing its customary sources of funds.
As of March 31, 1996, cash flows from operations provided $1,456,614 versus
$1,114,993 at March 31, 1995. The majority of this change was due to a decrease
in the provision for loan losses and accrued expenses and other liabilities.
Cash flows from investing activities amounted to $56,560 during the first
three months of 1996 versus negative $4,139,443 for the same period last year.
Most notably, the Bank's net decrease in total loans in the amount of
$3,658,611, due to the sale of $2,218,757 of loans held for sale and a net
decrease of $1,439,854 in total loans, created the positive cash flow.
As of March 31, 1996, cash flows from financing activities were negative
$6,517,730, reflecting a need to fund a decrease of $6,892,691 in customer
deposits and repurchase agreements.
At March 31, 1996, the Company's capital totaled $19,416,674, or 7.69% of
total assets, compared to $19,544,005, or 7.57% of total assets at year-end
1995. The net change in capital of $127,331 is attributed to retaining income of
$137,661, and a decrease in the unrealized loss on securities available for sale
in the amount of $264,992. Interest rates increased during the first quarter of
1996 causing a drop in bond values.
As part of the Financial Institution Reform, Recovery, and Enforcement Act
of 1989 (FIRREA), banks are required to maintain core, leverage, and risk-based
capital of 3.00%, 3.00%, and 8.00%, respectively. As of March 31, 1996, the
Bank's core, leverage and risk-based capital ratios were 6.97%, 6.97%, and
11.77%, respectively, well in excess of the regulators' requirements.
14
<PAGE>
Book value per share was $11.49 at March 31, 1996, versus $11.57 per share
at December 31, 1995. The decrease was attributable to the change in the
unrealized loss on securities available for sale.
INTEREST RATE SENSITIVITY
The Bank's one-year interest sensitive gap at March 31, 1996, was
approximately negative seven percent, compared to the December 31, 1995, gap
position of approximately negative seven percent. The Bank continues to offer
adjustable rate mortgages which reprice at one, three, and five year intervals.
In addition, the Bank sells fixed rate mortgages into the secondary market in
order to minimize interest rate risk. As of March 31, 1996, adjustable rate
mortgages amounted to approximately 84% of total loans.
The strategy of matching rate-sensitive assets with similar liabilities
stabilizes profitability during periods of interest rate fluctuations. The
Bank's gap, of approximately negative seven percent at March 31, 1996, means
earnings would increase if interest rates trended downward. The opposite would
occur if interest rates were to rise. Management feels that maintaining the gap
within ten points of the parity line provides adequate protection against severe
interest rate swings. In an effort to maintain the gap within ten points of
parity, the Bank utilizes the Federal Home Loan Bank advance program to control
the repricing of liabilities.
NET INCOME FOR THE THREE MONTHS ENDED MARCH 31, 1996
AS COMPARED TO THE THREE MONTHS ENDED MARCH 31, 1995
Net income for the first quarter ended March 31, 1996, was $348,849, or
$0.21 per share compared to $189,925, or $0.11 per share for the same period
last year, an increase of approximately 84%. As mentioned above, the increase
was due to the savings resulting from several non-recurring items experienced
during last year's first quarter.
Net interest income increased $123,953, or 6.53% to $2,023,499 from
$1,899,546 as the volume of loans outstanding increased over last year's first
quarter.
Total interest income increased by $512,107, or 12.66%. This increase was
the result of rising interest rates on the Bank's adjustable rate mortgages as
well as the increased amount of outstanding loans as compared to March 31, 1995.
Interest on investments increased $132,374, or 37.05%, due to the increase in
investments over last year.
Total interest expense increased $388,154, or 18.09%. Interest on deposits
increased $270,433, or 14.52%. The Bank's cost of deposits increased from 4.03%
at March 31, 1995, to 4.48% at March 31, 1996.
OTHER INCOME AND EXPENSE
Total non-interest income remained flat, decreasing slightly by $6,165, to
$376,226. Total non-interest expense decreased $41,073, or 2.42%, to
$1,656,939. Non-recurring items in the amount of approximately $90,000 incurred
during the first quarter of 1995 accounted for decrease in expenses for the
first quarter in 1996.
RESERVE FOR LOAN LOSSES
LSB considers many factors in determining the level of loan loss reserves.
These factors include the risk and size characteristics of the loans, the prior
years' loss experience, the levels of delinquencies, the prevailing economic
conditions, the number of foreclosures, unemployment rates, interest rates, and
the value of collateral securing the loans. Additionally, the Bank's commercial
loan officers review the financial condition of commercial loan facilities and
inventories. The Bank also has an internal audit and compliance program whereby
all loans are reviewed and classified to determine appropriate loan loss reserve
levels. Results of the audit and compliance programs are reported directly to
the Audit Committee of the Bank's Board of Directors.
15
<PAGE>
The reserve for loan losses at March 31, 1996, was $1,976,831 compared to
$1,828,060 at year-end 1995. The reserve as of March 31, 1996, included $741,083
in specific reserves for loans classified as loss and $1,235,748 in general
reserves as compared to $628,060 and $1,200,000, respectively, at December 31,
1995. The reserve for loan loss allowance represented 0.95% of total loans at
March 31, 1996, compared to 0.87% at December 31, 1995. The allowance for loan
losses as a percentage of non-performing assets was 59.53% at March 31, 1995,
compared to 75.36% at December 31, 1995.
Loans classified for regulatory purposes as loss, doubtful, substandard, or
special mention do not result from trends or uncertainties which the Bank
reasonably expects will materially impact future operating results, liquidity,
or capital resources.
Total classified loans, excluding special mention, as of March 31, 1996,
were $7,298,103 compared to $6,049,066 at December 31, 1995. Of these amounts,
$3,320,923 and $2,425,647, respectively, are included in non-performing assets.
The Financial Accounting Standards Board has issued Statement No. 114,
"Accounting by Creditors for Impairment of a Loan". The Statement became
effective for LSB as of January 1, 1995. Note 3, pp. 7-8, to the Financial
Reports presents a discussion relative to impaired loans.
The following table shows the Bank's breakdown of non-performing loans (dollars
in thousands):
<TABLE>
<CAPTION>
3-31-96 12-31-95
-------------- --------------
<S> <C> <C> <C> <C>
90 days delinquent $ 203 0.08% $ 1,144 0.54%
Non-earning assets 2,277 0.90% 297 0.14%
Real estate owned 841 0.33% 984 0.47%
------ ------ ------ ------
Total non-performing assets $ 3,321 1.31% $ 2,425 1.15%
------ ------ ------ ------
Impaired loans $ 441 0.17% $ 808 0.38%
------ ------ ------ ------
</TABLE>
(1)All loans 90 days or more delinquent are placed on a non-accruing status
(2)Loans considered to be uncollectible, pending foreclosure, or in bankruptcy
proceeding are placed on a non-earning status
The following table sets forth the allocation of the loan loss valuation
allowance and the percentage of loans in each category to total loans:
<TABLE>
<CAPTION>
3-31-96 12-31-95
------------------ -----------------
<S> <C> <C> <C> <C>
Real estate loans -
Conventional $ 1,125,085 83% $ 687,547 83%
Construction 557,162 201,257
Collateral and Consumer 6,602 12% 8,067 12%
Commercial and Municipal 212,936 4% 276,526 4%
Impaired Loans 55,046 1% 654,663 1%
----------- ----- ---------- -----
Valuation allowance $ 1,976,831 100% $ 1,828,060 100%
----------- ----- ---------- -----
Valuation allowance as a
percentage of total loans 0.95% 0.87%
----------- ----------
</TABLE>
As of March 31, 1996, there were no other loans not included in the table
or discussed above where known information about the possible credit problems of
borrowers caused management to have doubts as to the ability of the borrowers to
comply with present loan repayment terms and which may result in disclosure of
such loans in the future.
16
<PAGE>
NEW HAMPSHIRE THRIFT BANCSHARES, INC.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
There is no material litigation pending in which the Company or its
subsidiaries is a party or which the property of the Company or its
subsidiaries is subject.
Item 2. Changes in Securities
---------------------
None
Item 3. Defaults Upon Senior Securities
-------------------------------
None
Item 4. Submission of Matters to a Vote of Common Shareholders
------------------------------------------------------
At the Annual Meeting of Shareholders held on April 10, 1996, the
Shareholders voted to: re-elect Directors Stephen W. Ensign, Dennis A.
Morrow, and Kenneth D. Weed for three year terms, ratify the adoption
of the 1996 Stock Option Plan, and ratify the appointment of Berry,
Dunn, McNeil and Parker as the Company's independent auditors for the
fiscal year 1996.
Item 5. Other Information
-----------------
None
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
A.) Exhibits:
None
B.) Reports on Forms 8-K:
None
17
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NEW HAMPSHIRE THRIFT BANCSHARES, INC.
-------------------------------------
(Registrant)
Date: May 9, 1996 /s/ Stephen W. Ensign
------------------------ -------------------------------------
Stephen W. Ensign
President and Chief Executive Officer
Date: May 9, 1996 /s/ Stephen R. Theroux
------------------------ -------------------------------------
Stephen R. Theroux
Executive Vice President and
Chief Financial Officer
18
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 5,908,741
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 80,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 26,997,635
<INVESTMENTS-CARRYING> 393,054
<INVESTMENTS-MARKET> 393,054
<LOANS> 208,925,191
<ALLOWANCE> 1,976,831
<TOTAL-ASSETS> 252,480,808
<DEPOSITS> 198,457,143
<SHORT-TERM> 11,525,109
<LIABILITIES-OTHER> 2,876,685
<LONG-TERM> 20,205,197
0
0
<COMMON> 21,473
<OTHER-SE> 19,395,201
<TOTAL-LIABILITIES-AND-EQUITY> 19,416,674
<INTEREST-LOAN> 4,067,593
<INTEREST-INVEST> 489,612
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 4,557,205
<INTEREST-DEPOSIT> 2,132,960
<INTEREST-EXPENSE> 2,533,706
<INTEREST-INCOME-NET> 2,023,499
<LOAN-LOSSES> 221,637
<SECURITIES-GAINS> (2,554)
<EXPENSE-OTHER> 1,656,939
<INCOME-PRETAX> 521,149
<INCOME-PRE-EXTRAORDINARY> 521,149
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 348,849
<EPS-PRIMARY> .21
<EPS-DILUTED> .21
<YIELD-ACTUAL> 3.42
<LOANS-NON> 2,277,515
<LOANS-PAST> 0
<LOANS-TROUBLED> 198,172
<LOANS-PROBLEM> 4,822,416
<ALLOWANCE-OPEN> 1,828,060
<CHARGE-OFFS> 76,229
<RECOVERIES> 3,363
<ALLOWANCE-CLOSE> 1,976,831
<ALLOWANCE-DOMESTIC> 1,976,831
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
