<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 September 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 9, Newport, New Hampshire 03773
(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 October 31, 1997, was 2,081,343.
Transitional small business disclosure format:
Yes No X
----- -----
<PAGE>
NEW HAMPSHIRE THRIFT BANCSHARES, INC.NEW HAMPSHIRE
THRIFT BANCSHARES, INC.
INDEX TO FORM 10-QSB
PART I. FINANCIAL INFORMATION PAGE
Item 1 Financial Statements:
Consolidated Statements of Financial Condition
September 30, 1997 and December 31, 1996 1
Consolidated Statements of Operations
For the Three Months Ended September 30, 1997 and 1996
and the Nine Months Ended September 30, 1997 and 1996 2
Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 1997 and 1996 3
Notes To Consolidated Financial Statements 5
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 6
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
Shareholders 12
Item 5 Other Information 12
Item 6 Exhibits and Reports on Form 8-K 12
Signatures 13
2
<PAGE>
Part I. Item I. NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
September 30, 1997 and December 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
--------------- --------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 8,050,521 $ 5,868,749
Federal funds sold 7,412,000 5,134,000
--------------- --------------
Cash and cash equivalents 15,462,521 11,002,749
Securities available for sale 29,723,796 24,950,725
Securities held to maturity 75,000 340,276
Other investments 1,987,560 2,307,557
Loans held for sale - 745,650
Loans receivable, net 254,478,601 215,153,819
Nonaccrual loans 1,342,995 848,942
Accrued interest receivable 1,683,579 1,354,042
Bank premises and equipment, net 7,671,772 5,104,366
Investments in real estate 606,034 619,487
Real estate owned and property acquired in settlement of loans 725,851 723,478
Goodwill 3,521,931 -
Other assets 2,058,396 1,234,253
--------------- --------------
Total assets $ 319,338,036 $ 264,385,344
--------------- --------------
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Demand deposits $ 11,892,489 $ 10,587,757
Savings and NOW accounts 124,554,400 96,630,673
Time deposits 132,682,055 106,740,465
--------------- --------------
Total deposits 269,128,944 213,958,895
Securities sold under agreements to repurchase 5,236,780 8,662,736
Federal funds purchased - -
Advances from Federal Home Loan Bank 17,314,689 20,174,025
Accrued expense and other liabilities 2,681,276 2,395,998
--------------- --------------
Total liabilities 294,361,689 245,191,654
--------------- --------------
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 2,074,683 shares outstanding at September 30, 1997,
2,147,282 shares issued and 1,704,982 shares
outstanding at December 31, 1996 24,798 21,473
Paid-in capital 17,446,066 13,241,774
Retained earnings 9,744,284 8,437,149
Unrealized gain (loss) on securities available for sale 166,464 (127,179)
--------------- --------------
27,381,612 21,573,217
Treasury stock, at cost, 405,175 shares as of September 30, 1997
and 442,300 as of December 31, 1996 (2,405,265) (2,379,527)
--------------- --------------
Total shareholders' equity 24,976,347 19,193,690
--------------- --------------
Total liabilities and shareholders' equity $ 319,338,036 $ 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 September 30, 1997 and 1996 For the Nine
Months Ended September 30, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1997 1996
----------------- ----------------
<S> <C> <C>
Interest income
Interest on loans $ 5,324,092 $ 4,247,487
Interest and dividends on investments 546,491 483,977
----------------- ----------------
Total interest income 5,870,583 4,731,464
----------------- ----------------
Interest expense
Interest paid to depositors 2,934,551 2,178,739
Interest on advances and other borrowed money 256,754 444,645
----------------- ----------------
Total interest expense 3,191,305 2,623,384
----------------- ----------------
Net interest income 2,679,278 2,108,080
Provision for loan losses 253,054 206,541
----------------- ----------------
Net interest income after provision for loan losses 2,426,224 1,901,539
----------------- ----------------
Non-interest income
Customer service fees 356,187 299,062
Net gain on sale of securities and bank property 489,907 19,378
Rental income 72,370 56,281
Brokerage service income 32,689 29,480
Other income - 539
----------------- ----------------
Total other income 951,153 404,740
----------------- ----------------
Other expenses
Salaries and employee benefits 991,006 823,212
Occupancy expenses 383,616 279,155
Advertising and promotion 83,684 53,063
Depositors' insurance 34,979 113,306
Special FDIC Assessment - 995,000
Outside services 170,097 90,844
Provision for other real estate owned losses - 70,000
Goodwill amortization 61,754 -
Other expenses 574,399 243,507
----------------- ----------------
Total other expenses 2,299,535 2,668,087
----------------- ----------------
.
Income (loss) before provision for income taxes 1,077,842 (361,808)
Provision for (benefit from) income taxes 376,500 (119,000)
----------------- ----------------
Net income (loss) $ 701,342 $ (242,808)
----------------- ----------------
Earnings (loss) per common share $ 0.33 $ (0.14)
----------------- ----------------
Dividends declared per common share $ 0.12 $ 0.125
----------------- ----------------
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1997 1996
----------------- ----------------
<S> <C> <C>
Interest income
Interest on loans $ 15,873,096 $ 12,491,469
Interest and dividends on investments 1,606,053 1,437,520
----------------- ----------------
Total interest income 17,479,149 13,928,989
----------------- ----------------
Interest expense
Interest paid to depositors 8,646,282 6,377,724
Interest on advances and other borrowed money 800,713 1,300,465
----------------- ----------------
Total interest expense 9,446,995 7,678,189
----------------- ----------------
Net interest income 8,032,154 6,250,800
Provision for loan losses 629,664 880,732
----------------- ----------------
Net interest income after provision for loan losses 7,402,490 5,370,068
----------------- ----------------
Non-interest income
Customer service fees 1,020,461 904,886
Net gain on sale of securities and bank property 663,060 279,251
Rental income 214,154 167,673
Brokerage service income 94,247 137,117
Other income 675 2,505
----------------- ----------------
Total other income 1,992,597 1,491,432
----------------- ----------------
Other expenses
Salaries and employee benefits 2,899,995 2,382,117
Occupancy expenses 1,151,493 934,157
Advertising and promotion 211,856 117,808
Depositors' insurance 88,533 341,081
Special FDIC Assessment - 995,000
Outside services 423,424 273,225
Provision for other real estate owned losses - 140,000
Goodwill amortization 180,482 -
Other expenses 1,399,971 803,691
----------------- ----------------
Total other expenses 6,355,754 5,987,079
----------------- ----------------
Income (loss) before provision for income taxes 3,039,333 874,421
Provision for (benefit from) income taxes 1,005,272 289,000
----------------- ----------------
Net income (loss) $ 2,034,061 $ 585,421
----------------- ----------------
Earnings (loss) per common share $ 0.97 $ 0.34
----------------- ----------------
Dividends declared per common share $ 0.37 $ 0.375
----------------- ----------------
</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 Nine Months Ended September 30, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
September 30, September 30,
1997 1996
----------------- -----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,034,061 $ 585,421
Adjustments to reconcile net income to net cash
provided by operating activities -
Amortization of goodwill 180,482 -
Depreciation and amortization 441,740 338,969
Loans originated for sale (13,548,007) (10,891,780)
Proceeds from sale of loans 13,476,454 10,847,663
Loss from sale of loans 71,553 44,117
(Gain) loss from sale of debt securities available for sale (59,776) 667
Loss from sale of equity securities available for sale - 10,000
(Gain) loss from sale of bank premises and equipment 31,705 (253,497)
Net gain from sale of equity securities available for sale
and writedowns (489,348) -
Provision for loan losses and other real estate owned losses 629,664 1,020,732
(Increase) decrease in accrued interest and other assets (351,235) 967,492
Decrease in deferred loan fees (75,128) (62,841)
Increase (decrease) in accrued expenses and other liabilities (77,412) 1,614,130
----------------- -----------------
Net cash provided by operating activities 2,264,753 4,221,073
----------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (428,251) (201,487)
Proceeds from sale of bank premises and equipment 80,774 330,000
Proceeds from sale of debt securities available for sale 14,081,796 2,459,886
Proceeds from sale of equity securities available for sale 2,012,719 300,000
Purchase of securities available for sale (18,716,457) (9,040,209)
Maturities of securities available for sale 100,000 2,498,000
Principal reduction on held to maturity security 25,000 25,000
Net increase (decrease) in loans to customers 543,650 (7,544,697)
Increase in nonaccrual loans (494,053) (770,147)
(Increase) decrease in real estate owned (2,373) 47,580
----------------- -----------------
Net cash used in investing activities (2,797,195) (11,896,074)
----------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 6,978,686 6,635,255
Net decrease in repurchase agreements (3,609,756) (4,750,497)
Increase (decrease) in advances from Federal Home Loan Bank (2,859,336) 2,861,001
Net change in other borrowed money (5,000) (29,077)
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 $320,261 for acquisition costs 4,964,470 -
Dividends paid (726,926) (633,943)
Proceeds from exercise of stock options 250,076 64,748
----------------- -----------------
Net cash provided by financing activities 4,992,214 4,147,487
----------------- -----------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 4,459,772 (3,527,514)
CASH AND CASH EQUIVALENTS, beginning of period 11,002,749 10,993,297
----------------- -----------------
CASH AND CASH EQUIVALENTS, end of period $ 15,462,521 $ 7,465,783
</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 Nine Months Ended September 30, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
September 30, September 30,
1997 1996
----------------- -----------------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest on deposit accounts $ 8,644,430 $ 6,385,103
Interest on advances and other borrowed money 818,931 1,300,756
----------------- -----------------
Total interest paid $ 9,463,361 $ 7,685,859
================= =================
Income taxes, net $ 1,003,733 $ 190,619
================= =================
Supplemental disclosure of noncash investing and financing activities:
Transfers from loans to real estate acquired through foreclosure $ 84,021 $ 200,000
================= =================
</TABLE>
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:
<TABLE>
<CAPTION>
<S> <C>
Fair value of assets acquired $ 55,790,558
Value of common stock issued (3,931,803)
Cash paid for the common stock (2,275,000)
Deferred acquisition costs (778,755)
-----------------
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
September 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 nine months ended September 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 September 30, 1997, the
Company had capital of $1,079,774, 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 September 30, 1997, reflected total
assets of approximately $319 million, deposits of $269 million, capital of $25
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 arrangement became effective on
September 30, 1997. The Bank realized a one-time, after-tax gain of
approximately $335,000.
FINANCIAL CONDITION
During the first nine months of 1997, total assets increased by
$54,952,692, or 20.79% to $319,338,036. Net loans increased $39,324,782, or
18.28%, investment securities increased $4,187,798, or 15.17%, and investment
in real estate and premises and equipment increased $2,553,983, or 44.62%.
These increases were due primarily to the acquisition of Landmark Bank.
During the nine months ended September 30, 1997, proceeds from the
sale of loans amounted to $13,476,454. Total sold loans were approximately $60
million as of September 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 $725,851 and
accounted for 26.12% of non-performing assets at September 30, 1997, compared
to $723,478, or 30.65% at year-end 1996. 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 $491,023 at September 30, 1997. At September
30, 1997, the Bank had recorded no properties as in-substance foreclosures.
As mentioned above, total investments (at fair value) increased by
$4,187,798, or 15.17%. Sales and maturities of securities were approximately
$16 million while purchases amounted to approximately $19 million. The
purchase of U. S. Treasuries accounted for approximately $7.2 million of this
increase as the Company, in an attempt to limit market volatility, bought
Treasuries maturing within two years.
Non-performing assets decreased 10.95% to $341,534, or 0.88%
of assets at September 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 $940,201 and $1,188,183 at September
30, 1997, and December 31, 1996, respectively. As of September 30, 1997,
the Bank charged-off $743,279 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>
9-30-97 12-31-96
--------------- --------------
<S> <C> <C> <C> <C>
90 days delinquent /(1)/ $ 710 0.27% $ 788 0.30%
Non-earning assets/ (2)/ 1,343 0.43% 849 0.32%
Real estate owned 726 0.23% 707 0.27%
------- ---- ------- ----
Total non-performing assets $ 2,779 0.88% $ 2,344 0.89%
======= ==== ======= ====
Impaired loans $ 940 0.30% $ 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>
9-30-97 12-31-96
----------------- -----------------
<S> <C> <C> <C> <C>
Real estate loans -
Conventional $ 1,924,507 78% $ 1,603,860 84%
Construction 146,488 1% 83,750 -
Collateral and Consumer 58,889 11% 36,873 12%
Commercial and Municipal 753,088 10% 294,034 4%
Impaired Loans 62,070 - 139,509 -
----------- ---- ----------- ----
Valuation allowance $ 2,945,042 100% $ 2,158,026 100%
=========== ==== =========== ====
Total valuation allowance as a
percentage of total loans 1.14% 0.98%
=========== ===========
</TABLE>
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
As of September 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 $55,170,049 for the first nine months of 1997,
due primarily to the acquisition of Landmark Bank. Repurchase agreements
decreased $3,425,956 due to the outflow of municipal funds that were held at
year-end. Federal Home Loan Bank of Boston (FHLBB) a dvances decreased
$2,859,336 million to $17,314,689 during the first nine months as the Bank
utilized its available cash and cash equivalents and its increase in deposits to
fund loans.
At September 30, 1997, consolidated capital amounted to $24,976,347,
or 7.82% 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 $12.04 at September 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 $11.2 million of time deposits will mature during October. 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 September 30, 1997, the Bank had approximately $80 million in
additional borrowing capacity available from the FHLB. The Bank expects to be
able to fund loan commitments of approximately $9.5 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 September 30,
1997, the Bank's percentage of 13.53% exceeded regulatory requirements.
Management believes that the Bank's liquidity is adequate to meet current and
future needs.
As mentioned above, at September 30, 1997, consolidated capital
amounted to $24,976,347, or 7.82% of total assets, compared to $19,193,690, or
7.26% of total assets at year-end 1996. The change of $5,782,657 is attributed
to net income of $2,034,061, dividends paid of $726,926, a change in the
unrealized loss on securities classified as available for sale of $293,643, a
change of $250,076 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 gain (loss), net of deferred taxes, improved
$293,643 to $166,464 compared to $(127,179) at the end of 1996.
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 September 30, 1997, the Bank's tangible,
core, and total risk-based capital ratios were 6.43%, 6.43%, and 11.92%,
respectively, well in excess of the regulators' requirements.
Net cash provided by operating activities was $2,264,753 in 1997
compared to $4,221,073 in 1996. This change was due primarily to the decrease
in accrued expenses and other liabilities.
Net cash used in investing activities decreased from $11,896,074 in
1996 to $2,797,195 in 1997. The net change was primarily the result of an $8
million increase in loan to customers over 1986 combined with a change in
investment activities of approximately $1.3 million.
As of September 30, 1997, net cash provided by financing activities
was $4,992,214 compared to $4,147,487 for the same period in 1996. The change
was attributable to a decrease in FHLB advances and federal funds purchased of
$2,859,336 compared to an increase of $2,861,001 in 1996, an increase of
$4,964,470 attributable to the purchase of Landmark Bank, and a net change in
deposits and repurchase agreements, compared to 1996, of approximately $1.5
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 September 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 September 30,
1997, adjustable rate mortgages accounted for approximately 80% 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 September 30, 1997, was $2,945,041
including $171,828 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 1.14% of total loans at
September 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 105.99% at September 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 September 30,
1997, were $8,481,778 compared to $5,254,069 at December 31, 1996. Of these
amounts, $2,778,599 and $2,343,898, respectively, are included in non-
performing assets .
RESULTS OF OPERATIONS
Net income for the nine months ended September 30, 1997, was
$2,034,061, or $0.97 per share compared to $585,421, or $0.34 in 1996. Net
income for the second quarter in 1997 was $701,342, or $0.33 per share as
compared to $(242,808), or $(0.14) per share for the same period in 1996, an
increase of $1,448,640, or 247.45% and $944,150, or 388.85%, 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.
During the third quarter of 1996, the Company was charged the one-time special
FDIC assessment of approximately $667,000 after taxes.
Interest income increased $3,550,160 and $1,139,119, for the nine
months and the three months ended September 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 the overall yield on
loans.
Interest expense increased $1,768,806 and $567,921, for the nine
months and the three months ended September 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 $1,781,354, or 28.50% and $571,198,
or 27.10% for the nine months and the three months ended September 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 $629,664 and $253,054 for the nine
months and three months ended September 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 nine
months of 1997 as it did in 1996.
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Non-interest income increased $501,165, or 33.60% and $546,413, or
135% for the nine months and the three months ended September 30, 1997. The
increases were due primarily to the capital gain of approximately $500,000
recorded on the sale of the Company's share of Charter Trust Company.
Operating expenses increased $368,675, or 6.16% for the nine months
ended September 30, 1997, and decreased $368,552, or 13.81% for the three
months ended September 30, 1997. Included in September 30, 1996, was the one-
time special FDIC assessment of approximately $995,000. During the first nine
months of 1997, salaries and benefits were higher due to increased personnel.
Occupancy expenses increased due to the additional facilities acquired.
Advertising and promotion increased as a greater emphasis was placed on the
recently acquired market. Other expenses increased during the third quarter
due to a theft in one of the Bank's branches that resulted in a recorded loss of
approximately $190,000. Subsequent to September 30, 1997, approximately $150,000
of the loss was located and will be booked as a recovery during the fourth
quarter of 1997.
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
------------------------------------------------------
None
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: November 13, 1997 /s/ Stephen W. Ensign
--------------------------- -------------------------------------
Stephen W. Ensign
Vice Chairman of the Board, President
and Chief Executive Officer
Date: November 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-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 8,050,521
<INT-BEARING-DEPOSITS> 0
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