<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 June 30, 1997
-------------
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)
PO Box 37, New London, New Hampshire 03257
(Address of principal executive offices) (Zip Code)
603-526-2116
(registrant's telephone number, including area code)
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 August 5, 1997 was 2,064,445.
Transitional small business disclosure format:
Yes No X
--- ---
<PAGE>
NEW HAMPSHIRE THRIFT BANCSHARES, INC.
INDEX TO FORM 10-QSB
PART I. FINANCIAL INFORMATION PAGE
Item 1 Financial Statements:
Consolidated Statements of Financial Condition 1
June 30, 1997 and December 31, 1996
Consolidated Statements of Operations 2
For the Three Months Ended June 30, 1997 and 1996
and the Six Months Ended June 30, 1997 and 1996
Consolidated Statements of Cash Flows 3
For the Six Months Ended June 30, 1997 and 1996
Notes To Consolidated Financial Statements 5
Item 2 Management's Discussion and Analysis of Financial 6
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 1 Legal Proceedings 12
Item 2 Changes in Securities 12
Item 3 Defaults Upon Senior Securities 12
Item 4 Submission of Matters to a Vote of Common 12
Shareholders
Item 5 Other Information 12
Item 6 Exhibits and Reports on Form 8-K 12
Signatures 13
<PAGE>
Part I. Item I.
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
June 30, 1997 and December 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 9,470,429 $ 5,868,749
Federal funds sold 60,000 5,134,000
------------ ------------
Cash and cash equivalents 9,530,429 11,002,749
Securities available for sale 28,452,934 24,950,725
Securities held to maturity 315,276 340,276
Other investments 2,307,557 2,307,557
Loans held for sale - 745,650
Loans receivable, net 257,130,908 215,153,819
Nonaccrual loans 1,046,770 848,942
Accrued interest receivable 1,749,392 1,354,042
Bank premises and equipment, net 7,595,950 5,104,366
Investments in real estate 723,799 619,487
Real estate owned and property acquired in settlement of loans 632,023 723,478
Goodwill 3,576,946 -
Other assets 2,218,302 1,234,253
------------ ------------
Total assets $315,280,286 $264,385,344
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Demand deposits $ 13,859,131 $ 10,587,757
Savings and NOW accounts 116,923,426 96,630,673
Time deposits 133,064,232 106,740,465
------------ ------------
Total deposits 263,846,789 213,958,895
Securities sold under agreements to repurchase 5,538,420 8,662,736
Federal funds purchased 2,090,500 -
Advances from Federal Home Loan Bank 17,387,042 20,174,025
Accrued expense and other liabilities 2,297,303 2,395,998
------------ ------------
Total liabilities 291,160,054 245,191,654
------------ ------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred stock, $.01 par value per share: 2,500,000 shares authorized,
no shares issued or outstanding - -
Common stock, $.01 par value per share: 5,000,000 shares authorized,
2,479,858 shares issued and 2,047,857 shares outstanding at
June 30, 1997, 2,147,282 shares issued and 1,704,982 shares
outstanding at December 31, 1996 24,798 21,473
Paid-in capital 17,226,736 13,241,774
Retained earnings 9,301,123 8,437,149
Unrealized loss on securities available for sale (86,370) (127,179)
------------ ------------
26,466,287 21,573,217
Treasury stock, at cost, 432,001 shares as of June 30, 1997
and 442,300 as of December 31, 1996 (2,346,055) (2,379,527)
------------ ------------
Total shareholders' equity 24,120,232 19,193,690
------------ ------------
Total liabilities and shareholders' equity $315,280,286 $264,385,344
============ ============
</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 OPERATIONS
For the Three Months Ended June 30, 1997 and 1996
For the Six Months Ended June 30, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
---------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Interest income
Interest on loans $5,303,173 $4,200,012 $10,549,004 $8,286,044
Interest and dividends on investments 513,198 463,931 1,059,562 953,543
---------- ----------- ----------- ----------
Total interest income 5,816,371 4,663,943 11,608,566 9,239,587
---------- ----------- ----------- ----------
Interest expense
Interest paid to depositors 2,852,159 2,066,025 5,711,731 4,198,985
Interest on advances and other borrowed money 262,734 455,074 543,959 855,820
---------- ----------- ----------- ----------
Total interest expense 3,114,893 2,521,099 6,255,690 5,054,805
---------- ----------- ----------- ----------
Net interest income 2,701,478 2,142,844 5,352,876 4,184,782
Provision for loan losses 164,109 497,554 376,610 674,191
---------- ----------- ----------- ----------
Net interest income after provision for loan losses 2,537,369 1,645,290 4,976,266 3,510,591
---------- ----------- ----------- ----------
Non-interest income
Customer service fees 354,914 327,429 664,274 563,762
Net gain on sale of securities and bank property 124,064 262,427 173,153 259,873
Rental income 70,982 55,393 141,784 111,392
Brokerage service income 36,136 40,924 61,558 107,638
Other income 675 671 675 1,966
---------- ----------- ----------- ----------
Total other income 586,771 686,844 1,041,444 1,044,631
---------- ----------- ----------- ----------
Other expenses
Salaries and employee benefits 947,547 734,965 1,908,989 1,558,905
Occupancy expenses 353,854 327,313 767,877 655,002
Advertising and promotion 50,709 50,648 128,172 64,745
Depositors' insurance 39,721 114,747 53,554 227,775
Outside services 122,588 92,759 253,327 182,381
Provision for other real estate owned losses - 25,000 - 70,000
Goodwill amortization 60,958 - 118,728 -
Other expenses 476,648 271,621 825,572 560,184
---------- ----------- ----------- ----------
Total other expenses 2,052,025 1,617,053 4,056,219 3,318,992
---------- ----------- ----------- ----------
Income before provision for income taxes 1,072,115 715,081 1,961,491 1,236,230
Provision for income taxes 373,500 235,700 628,772 408,000
---------- ----------- ----------- ----------
Net income $ 698,615 $ 479,381 $ 1,332,719 $ 828,230
========== =========== =========== ==========
Earnings per common share $ 0.34 $ 0.28 $ 0.64 $ 0.49
========== =========== =========== ==========
Dividends declared per common share $ 0.125 $ 0.13 $ 0.25 $ 0.25
========== =========== =========== ==========
</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 CASH FLOWS
For the Six Months Ended June 30, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
June 30, June 30,
1997 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,332,719 $ 828,230
Adjustments to reconcile net income to net cash
provided by operating activities -
Amortization of goodwill 118,728 -
Depreciation and amortization 305,459 235,558
Loans originated for sale (5,494,388) (6,301,226)
Proceeds from sale of loans 5,477,927 6,309,540
(Gain) loss from sale of loans 16,461 (8,314)
(Gain) loss from sale of debt securities available for sale (56,200) 731
Gain from sale of bank premises and equipment - (253,497)
Loss from sale of equity securities available for sale and writedowns 13,882 -
Provision for loan losses and other real estate owned losses 376,610 744,191
(Increase) decrease in accrued interest and other assets (466,572) 970,411
Decrease in deferred loan fees (53,254) (42,005)
Increase (decrease) in accrued expenses and other liabilities (509,570) 184,324
----------- -----------
Net cash provided by operating activities 1,061,802 2,667,943
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (221,434) (151,018)
Proceeds from sale of bank premises and equipment - 330,000
Proceeds from sale of debt securities available for sale 5,815,622 951,471
Proceeds from sale of equity securities available for sale 223,618 200,000
Purchase of securities available for sale (8,656,036) (3,842,459)
Maturities of securities available for sale - 2,398,000
Principal reduction on held to maturity security 25,000 25,000
Net decrease in loans to customers (1,877,477) (4,972,842)
Increase in nonaccrual loans (197,828) (1,147,067)
Decrease in real estate owned 91,455 164,506
----------- -----------
Net cash used in investing activities (4,797,080) (6,044,409)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 1,696,531 332,327
Net decrease in repurchase agreements (3,308,116) (5,351,824)
Increase (decrease) in advances from Federal Home Loan Bank (696,483) 5,477,176
Net change in other borrowed money - (9,077)
Cash and cash equivalents of $7,559,731 acquired in
the purchase of Landmark Bank, less cash of
$2,275,000 paid for the common stock of Landmark Bank
and less $313,520 for acquisition costs 4,971,211 -
Dividends paid (468,745) (422,468)
Proceeds from exercise of stock options 68,560 17,251
----------- -----------
Net cash provided by financing activities 2,262,958 43,385
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (1,472,320) (3,333,081)
CASH AND CASH EQUIVALENTS, beginning of period 11,002,749 10,993,297
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 9,530,429 $ 7,660,216
=========== ===========
</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 - (continued)
For the Six Months Ended June 30, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
June 30, June 30,
1997 1996
----------- -----------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest on deposit accounts $ 6,686,379 $ 4,215,158
Interest on advances and other borrowed money 640,868 853,362
----------- -----------
Total interest paid $ 7,327,247 $ 5,068,520
=========== ===========
Income taxes, net $ 604,531 $ 190,619
=========== ===========
Supplemental disclosure of noncash investing and financing activities:
Transfers from loans to real estate acquired through foreclosure $ 78,000 $ -
=========== ===========
In 1997 the Company purchased all of the common stock of Landmark Bank for $6,206,803. In Conjunction
with the acquisition, liabilities were assumed as follows:
Fair value of assets acquired $55,783,819
Value of common stock issued (3,931,803)
Cash paid for the common stock (2,275,000)
Deferred acquisition costs (772,016)
-----------
Liabilities assumed $48,805,000
===========
</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
June 30, 1997 and December 31, 1996
Note A - Basis of Presentation
- ------------------------------
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and the instructions to Form 10-QSB and, accordingly, do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of the
management of New Hampshire Thrift Bancshares, Inc. all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the six months ended June 30, 1997 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1997.
Note B - Accounting Policies
- ----------------------------
The accounting principles followed by New Hampshire Thrift Bancshares, Inc. and
Subsidiary and the methods of applying these principles which materially affect
the determination of financial position, results of operations, or changes in
financial position are consistent with those used at year end 1996.
The consolidated financial statements of New Hampshire Thrift Bancshares, Inc.
include its wholly-owned subsidiary, Lake Sunapee Bank, fsb, and its
subsidiaries Lake Sunapee Group, Inc., and Lake Sunapee Financial Services Corp.
All Significant intercompany balances have been eliminated.
Note C - Merger with Landmark Bank
- ----------------------------------
On July 26, 1996, the Company entered into an agreement and plan of
reorganization (the "Merger Agreement") with Landmark Bank. Pursuant to the
Merger Agreement, the Company acquired all of the outstanding shares of Landmark
Bank for total consideration of approximately $6 Million. On January 22, 1997,
the Company completed the acquisition of Landmark Bank.
Under the terms of the merger agreement, holders of Landmark Bank's stock could
elect to receive $12.00 in cash per share, or exchange their stock for stock in
the Company at a ratio of 1.1707 shares of the common stock of the Company per
Landmark share, subject to 60% of Landmark's stock being converted to stock and
40% to cash. Allocation of the merger consideration took place in February,
1997.
5
<PAGE>
PART I. ITEM II. NEW HAMPSHIRE THRIFT BANCSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
New Hampshire Thrift Bancshares, Inc. (The Company), a Delaware
holding company organized on July 5, 1989, is the parent company of Lake Sunapee
Bank, fsb (The Bank), a federally chartered savings bank. The Bank is a
member of the Federal Deposit Insurance Corporation (FDIC) and its deposits are
insured through the Savings Association Insurance Fund (SAIF). The Bank is
regulated by the Office of Thrift Supervision (OTS).
The Company's profitability is derived from its only subsidiary, Lake
Sunapee Bank, fsb. The Bank's earnings in turn are generated from the net
income from the yield on its loan and investment portfolios less the cost of its
deposit accounts and borrowings. These core revenues are supplemented by loan
origination fees, retail banking service fees, gains on the sale of investment
securities, and brokerage fees. The Bank passes its earnings to the Company to
the extent allowed by OTS regulations. Current regulations enable the Bank to
pay to the Company the higher of an amount equal to seventy-five per cent of
the Bank's prior four quarter earnings or up to fifty per cent of excess
capital plus total current year earnings. As of June 30, 1997, the Company
had capital of $1,186,157, which it plans to use to continue its annual
dividend payout of $0.50 per share.
On July 29, 1996, the Company announced that the Bank had entered into
a definitive agreement to acquire Landmark Bank, a small commercial bank
located in Lebanon, NH. The agreement provided Landmark Bank shareholders
the right to elect to receive $12.00 in cash per share, or to exchange their
shares for New Hampshire Thrift Bancshares, Inc. shares, with a total
consideration of sixty per cent in stock and forty per cent in cash. On January
22, 1997, the Company announced that the acquisition of Landmark Bank was
complete. The total transaction value was approximately $6 million.
The combined banking operation as of June 30, 1997, reflected total
assets of approximately $315 million, deposits of $264 million, capital of $24
million, and a total of 11 offices located in Sullivan, Merrimack, Grafton, and
Hillsborough counties.
On July 9, 1997, Phoenix Home Life Mutual Insurance Company and
Charter Holding Corporation announced their intentions to form a partnership.
Lake Sunapee Bank is currently a one-sixth owner of Charter Holding Corporation.
Upon completion of the definitive agreement and regulatory approval, Phoenix
will acquire a majority ownership on Charter Trust Corporation. This arrangement
will complement the Phoenix's strategy to distribute life insurance products
and services through the member banks. The definitive agreement is expected to
be signed within the next 30 days. The Bank expects to realize a one-time,
after-tax gain of approximately $500,000.
FINANCIAL CONDITION
During the first six months of 1997, total assets increased by
$50,894,942, or 19.25% to $315,280,286. Net loans increased $41,977,089, or
19.51%, investment securities increased $3,477,209, or 12.60%, and investment
in real estate and premises and equipment increased $2,595,896, or 45.35%.
These increases were due primarily to the acquisition of Landmark Bank.
During the six months ended June 30, 1997, proceeds from the
sale of loans amounted to $5,477,927. Total sold loans were approximately
$55 million as of June 30, 1997. The Bank from time-to-time sells fixed-rate
mortgage loans into the secondary market and retains the servicing on these
loans in order to build fee income. The selling of fixed-rate loans reduces
interest rate risk and creates liquidity.
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Real estate and chattel property owned totaled $632,023 and accounted
for 28.75% of non-performing assets at June 30, 1997, compared to $723,478,
or 30.65% at year-end 1996. The decrease was due to the sale of three real
estate owned properties. Continuing to be included in the real estate owned
amount is a real estate development loan, Blye Hill Landing in Newbury, NH,
with a book value of $478,216 at June 30, 1997. At June 30, 1997, the Bank had
recorded no properties as in-substance foreclosures.
As mentioned above, total investments (at fair value) increased by
$3,477,209, or 12.60%. Sales and maturities of securities were approximately
$6.0 million while purchases amounted to approximately $9.0 million. The
purchase of U.S. Treasuries accounted for approximately $7.0 million of this
increase as the Company, in an attempt to limit market volatility, bought
Treasuries maturing within two years.
Non-performing assets decreased 41.96% to $2,197,862, or 0.70% of
assets at June 30, 1997, from $3,120,133, or 1.21% for the same period in 1996.
The Bank includes all loans 90 days past due, all real estate owned, and
non-interest-earning assets as non-performing assets. Investment in impaired
loans totaled $1,116,499 and $1,188,183 at June 30, 1997, and December 31,
1996, respectively. As of June 30, 1997, the Bank charged -off $660,478 of
loans which had been previously reserved for.
The following table shows the Bank's breakdown of non-performing loans (dollars
in thousands):
<TABLE>
<CAPTION>
6-30-97 12-31-96
------------- -------------
<S> <C> <C> <C> <C>
90 days delinquent/(1)/ $ 519 0.16% $ 788 0.30%
Non-earning assets/(2)/ 1,047 0.33% 849 0.32%
Real estate owned 632 0.20% 707 0.27%
------ ---- ------ ----
Total non-performing assets $2,198 0.69% $2,344 0.89%
====== ==== ====== ====
Impaired loans $1,116 0.35% $1,188 0.45%
====== ==== ====== ====
</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>
6-30-97 12-31-96
---------------- ----------------
<S> <C> <C> <C> <C>
Real estate loans -
Conventional $1,712,378 78% $1,603,860 84%
Construction 74,575 1% 83,750 -
Collateral and Consumer 96,149 11% 36,873 12%
Commercial and Municipal 782,624 10% 294,034 4%
Impaired Loans 86,116 - 139,509 -
---------- --- ---------- ---
Valuation allowance $2,751,842 100% $2,158,026 100%
========== === ========== ===
Valuation allowance as a
percentage of total loans 1.06% 0.98%
========== ==========
</TABLE>
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
As of June 30, 1997, 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.
Deposits increased $49,887,894 for the first six months of 1997,
due primarily to the acquisition of Landmark Bank. Repurchase agreements
decreased $3,124,316 due to the outflow of municipal funds that were held at
year-end. Federal Home Loan Bank of Boston (FHLBB) advances decreased
$2,786,983 million to $17,387,042 during the first six months as the Bank
utilized its available cash and cash equivalents and its increase in deposits
to fund loans.
At June 30, 1997, consolidated capital amounted to $24,120,232, or
7.65% of total assets, compared to $19,193,690, or 7.26% of total assets at
year-end 1996. The Company's book value per share was $11.78 at June 30, 1997,
versus $11.26 at December 31, 1996. The increase was primarily attributable to
the purchase of Landmark Bank.
Liquidity and Capital Resources
- -------------------------------
The Bank's sources of funds come from net deposit inflows, loan
amortizations and payoffs, and maturities of investment securities. The
primary source of funds comes from depositors with the largest segment being
time deposits. Time deposits account for approximately 50% of all deposits.
Approximately $11 million of time deposits will mature during July. The
majority of these deposits are expected to be reinvested. Deposits are obtained
from customers primarily within the Bank's community reinvestment area.
The Bank also has the ability to borrow from the Federal Home Loan
Bank (FHLB). At June 30, 1997, the Bank had approximately $75 million in
additional borrowing capacity available from the FHLB. The Bank expects to be
able to fund loan commitments of approximately $9.8 million by utilizing the
FHLB advance program, in the event future deposit inflows are not sufficient
to cover funding needs.
Liquidity represents the Bank's ability to meet its funding
requirements. In assessing appropriate levels, the Bank considers deposit
levels, lending requirements, and investment maturities. Through this
assessment, the Bank manages its liquidity level in order to maximize earnings
and also respond to customer needs. The Bank is required to maintain a 5.00%
ratio of long-term liquid assets to net withdrawable funds. At June 30, 1997,
the Bank's percentage of 10.61% exceeded regulatory requirements. Management
believes that the Bank's liquidity is adequate to meet current and future needs.
As mentioned above, at June 30, 1997, consolidated capital amounted to
$24,120,232, or 7.65% of total assets, compared to $19,193,690, or 7.26% of
total assets at year-end 1996. The change of $4,926,542 is attributed to net
income of $1,332,719, dividends paid of $468,745, a change in the unrealized
loss on securities classified as available for sale of $40,809, a change of
$89,956 in paid-in capital and treasury stock due to the exercise of stock
options and the increase of $3,931,803 due to the purchase of Landmark Bank.
As a result of the improvement in the market values on the available
for sale portfolio, the unrealized loss, net of deferred taxes, improved
$214,443 to $86,370 as compared to $300,813 at the end of the first quarter in
1997.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Pursuant to Office of Thrift Supervision regulation, banks are
required to maintain tangible, core, and total risk-based capital of 1.50%,
3.00%, and 8.00%, respectively. As of June 30, 1997, the Bank's tangible, core,
and total risk-based capital ratios were 6.23%, 6.23%, and 10.64%, respectively,
well in excess of the regulators' requirements.
Net cash provided by operating activities was $1,061,802 in 1997
compared to $2,667,943 in 1996. This change was due primarily to the decrease
in accrued expenses and other liabilities.
Net cash outflows from investing activities totaled $4,797,080
compared to $6,044,409. The net change was primarily the result of a decrease
in loan to customers and a decrease in nonaccrual loans totaling approximately
$4 million combined with an increase in investment security purchases of
approximately $2.3 million.
As of June 30, 1997, net cash provided by financing activities was
$2,262,958 compared to $43,385 for the same period in 1996. The change was
attributable to a decrease in FHLB advances and federal funds purchased of
$696,483 compared to an increase of $5,477,176 in 1996, an increase of
$4,971,211 attributable to the purchase of Landmark Bank, and a net change in
deposits and repurchase agreements, compared to 1996, of approximately $1.6
million.
Interest Rate Sensitivity
- -------------------------
The strategy of matching rate-sensitive assets with similar
liabilities stabilizes profitability during periods of interest rate
fluctuations. A negative gap 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.
The Bank's one-year interest sensitive gap at June 30, 1997, was
approximately negative nine percent, compared to the December 31, 1996, gap
position of approximately negative ten percent. The Bank continues to offer
adjustable rate mortgages which reprice at one, three, and five year intervals.
In addition, from time-to-time, the Bank sells fixed rate mortgages into the
secondary market in order to minimize interest rate risk. As of June 30,
1997, adjustable rate mortgages accounted for approximately 83% of total
loans.
Allowance for Loan Losses and Asset Quality
- -------------------------------------------
The Bank considers many factors in determining the level of loan loss
reserves. These factors include the risk and size characteristics of loans,
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 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 Company's Board
of Directors.
The allowance for loan loss at June 30, 1997, was $2,751,842
including $220,172 in specific reserves for loans classified as loss, compared
to $2,158,026, including $356,437 in specific reserves, at year-end 1996. The
total reserve for loan loss allowance represented 1.06% of total loans at
June 30,
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
1997, compared to 0.98% at December 31, 1996. The allowance for loan loss as
a percentage of non-performing assets was 125.21% at June 30, 1997, compared
to 91.43% at December 31, 1996.
Loans classified for regulatory purposes as loss, doubtful,
substandard, or special mention do not result from trends or uncertainties which
the Bank expects will materially impact future operating results, liquidity, or
capital resources.
Total classified loans, excluding special mention, as of June 30,
1997, were $8,115,622 compared to $5,254,069 at December 31, 1996. Of these
amounts, $2,197,862 and $2,343,898, respectively, are included in
non-performing assets.
RESULTS OF OPERATIONS
Net income for the six months ended June 30, 1997, was $1,332,719, or
$0.64 per share compared to $828,230, or $0.49 in 1996. Net income for the
second quarter in 1997 was $698,615, or $0.34 per share as compared to
$479,381, or $0.28 per share for the same period in 1996, an increase of
$504,489, or 60.91% and $219,234, or 45.73%, respectively. These increases
were due primarily to an overall increase in the yield on loans, the reduction
in FDIC insurance premiums, increased customer service fees, and increased
income associated with the purchase of Landmark Bank.
Interest income increased $2,368,979 and $1,152,428, for the six
months and the three months ended June 30, 1997, respectively. These increases
were attributable to both an increase in market interest rates and the volume
and mix of interest earning assets. The acquisition of Landmark Bank in
January, increased the Bank's commercial loan portfolio and, accordingly, the
overall yield on loans.
Interest expense increased $1,200,885 and $593,794, for the six months
and the three months ended June 30, 1997, respectively. This increase is
attributable to a higher average balance of deposits outstanding during the
periods. The Bank acquired approximately $48 million in deposits as a result of
the Landmark merger.
Net interest income increased by $1,168,094, or 27.91% and $558,634,
or 26.07% for the six months and the three months ended June 30, 1997. The
increase is a result of increased average outstanding balances in interest
earning assets and an improved interest rate spread for the periods. The
Bank's interest rate spread increased primarily because of lower interest
expense on decreased average balances of FHLB advances and other borrowed money,
while overall market interest rates were higher .
Provision for loan losses totaled $376,610 and $164,109 for the six
months and three months ended June 30, 1997. Provisions and the resulting
allowance for loan loss are amounts management believes will be adequate to
absorb losses on existing loans that may become uncollectible. Loans are
charged against the allowance when management believes collectibility is
unlikely. The decision to increase or decrease the provision is based on
several factors, which include but are not limited to, prior loan loss
experience, risk and size characteristics of existing loans, the current level
of delinquencies, and the prevailing economic conditions. Based upon an
analysis of the adequacy of its reserves, the Bank did not provide as
significant an addition to the allowance for loan loss during the first six
months of 1997 as it did in 1996.
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
The change in total non-interest income was flat for the first six
months ended June 30, 1997, and decreased $100,073, or 14.57% for the three
month period 1997 compared to 1996. The second quarter decrease was due
primarily to the change in net gains on the sale of securities and bank
properties of $138,363. In 1996, the Bank had recorded a gain of $253,497
on the sale of a piece of property located adjacent to the Bank's New London
office.
Operating expenses increased $737,277, or 22.21% and $434,972, or
26.90% for the six months and the three months ended June 30, 1997,
respectively, as the operating expenses of Landmark Bank were realized.
Salaries and benefits were higher due to increased personnel and occupancy
expenses increased due to the additional facilities acquired. Advertising and
promotion increased as a greater emphasis was placed on the recently acquired
market.
11
<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 Sharholders' held on April 9, 1997, the
following Directors of New Hampshire Thrift Bancshares, Inc. were re-
elected for three year terms:
For Withheld
--------- --------
Ralph B. Fifield, Jr. 1,620,218 47,229
John A. Kelley, Jr. 1,651,050 16,397
Jack H. Nelson 1,637,294 30,153
Priscilla W. Ohler 1,617,332 50,115
The appointment of Shatswell, MacLeod & Company, P.C. as independent
auditors was also ratified as follows:
For Against Abstain
--------- ------- -------
1,641,993 6,051 19,403
Item 5. Other Information
-----------------
None
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
A.) Exhibits:
Exhibit 11 - 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.
Exhibit 27 - Financial Data Schedules (EDGAR filing only)
B.) Reports on Form 8-K:
None
12
<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: August 13, 1997 /s/ Stephen W. Ensign
--------------------- ----------------------------------
Stephen W. Ensign
Vice Chairman of the Board, President
and Chief Executive Officer
Date: August 13, 1997 /s/ Stephen R. Theroux
--------------------- ---------------------------------
Stephen R. Theroux
Executive Vice President and
Chief Financial Officer
(Principal Accounting Officer)
13
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 9,470,429
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 60,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 28,452,934
<INVESTMENTS-CARRYING> 315,276
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<TOTAL-ASSETS> 315,280,286
<DEPOSITS> 263,846,789
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