<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, 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)
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 21, 1997 was 2,041,274.
<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
March 31, 1997 and December 31, 1996
Consolidated Statements of Income - 2
For the Three Months Ended March 31, 1997 and 1996
Consolidated Statements of Changes In Shareholders' Equity 3
For the Three Months Ended March 31, 1997 and 1996
Consolidated Statements of Cash Flows - 4
For the Three Months Ended March 31, 1997 and 1996
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 17
Shareholders
Item 5 Other Information 17
Item 6 Exhibits and Reports on Form 8-K 17
Signatures 18
<PAGE>
Part I. Item I.
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
March 31, 1997 and December 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
------------- ------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 6,948,675 $ 5,868,749
Federal funds sold 2,896,000 5,134,000
------------- ------------
Cash and cash equivalents 9,844,675 11,002,749
Securities available for sale 29,153,965 24,950,725
Securities held to maturity 340,276 340,276
Other investments 2,307,557 2,307,557
Loans held for sale - 745,650
Loans receivable, net 253,439,890 215,153,819
Nonaccrual loans 1,596,652 848,942
Accrued interest receivable 1,629,359 1,354,042
Bank premises and equipment, net 7,739,033 5,104,366
Investments in real estate 615,002 619,487
Real estate owned and property acquired in settlement of loans 732,641 723,478
Goodwill 3,570,809 -
Other assets 2,068,360 1,234,253
------------- ------------
Total assets $ 313,038,219 $264,385,344
------------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Demand deposits $ 11,907,547 $ 10,587,757
Savings and NOW accounts 114,356,342 96,630,673
Time deposits 138,133,091 106,740,465
------------- ------------
Total deposits 264,396,980 213,958,895
Securities sold under agreements to repurchase 5,093,682 8,662,736
Advances from Federal Home Loan Bank 17,719,837 20,174,025
Accrued expense and other liabilities 2,427,010 2,395,998
------------- ------------
Total liabilities 289,637,509 245,191,654
------------- ------------
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 2,041,274 shares outstanding at
March 31, 1997, 2,147,282 shares issued and 1,704,982 shares
outstanding at December 31, 1996 24,798 21,473
Paid-in capital 17,186,045 13,241,774
Retained earnings 8,858,130 8,437,149
Unrealized loss on securities available for sale (300,813) (127,179)
------------- ------------
25,768,160 21,573,217
Treasury stock, at cost, 438,584 shares as of March 31, 1997
and 442,300 as of December 31, 1996 (2,367,450) (2,379,527)
------------- ------------
Total shareholders' equity 23,400,710 19,193,690
------------- ------------
Total liabilities and shareholders' equity $ 313,038,219 $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 INCOME
For the Three Months Ended March 31, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
March 31, March 31,
1997 1996
---------- ----------
<S> <C> <C>
Interest income
Interest on loans $5,245,831 $4,087,858
Interest and dividends on investments 546,364 489,612
---------- ----------
Total interest income 5,792,195 4,577,470
---------- ----------
Interest expense
Interest paid to depositors 2,859,572 2,132,960
Interest on advances and other borrowed money 281,225 400,746
---------- ----------
Total interest expense 3,140,797 2,533,706
---------- ----------
Net interest income 2,651,398 2,043,764
Provision for loan losses 212,501 176,637
---------- ----------
Net interest income after provision for loan losses 2,438,897 1,867,127
---------- ----------
Other income
Customer service fees 309,360 234,508
Net gain (loss) on sale of securities and bank proper 49,089 (2,554)
Rental income 70,802 55,999
Brokerage service income 25,422 66,714
Other income - 1,295
---------- ----------
Total other income 454,673 355,962
---------- ----------
Other expenses
Salaries and employee benefits 961,442 823,940
Occupancy expenses 414,023 327,689
Advertising and promotion 77,463 14,097
Depositors' insurance 13,833 113,028
Outside services 130,739 89,622
Provision for other real estate owned losses - 45,000
Goodwill amortization 57,770 -
Other expenses 348,924 288,564
---------- ----------
Total other expenses 2,004,194 1,701,940
---------- ----------
Income before provision for income taxes 889,376 521,149
Provision for income taxes 255,272 172,300
Net income $ 634,104 $ 348,849
---------- ----------
Earnings per common share $ .31 $ .21
---------- ----------
Dividends declared per common share $ .25 $ .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 CHANGES IN SHAREHOLDERS' EQUITY
For the Three Months Ended March 31, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
March 31, March 31,
1997 1996
------------ ------------
<S> <C> <C>
COMMON STOCK
Balance, beginning of period $ 21,473 $ 21,473
Issuance of common stock pursuant to acquisition
of Landmark Bank, 332,576 shares 3,325 -
------------ ------------
Balance, end of period $ 24,798 $ 21,473
------------ ------------
PAID-IN CAPITAL
Balance, beginning of period $ 13,241,774 $ 13,160,382
Gain on sale of treasury stock, at cost 15,793 -
Increase in paid-in capital pursuant to acquisition of
Landmark Bank 3,928,478 -
------------ ------------
Balance, end of period $ 17,186,045 $ 13,160,382
------------ ------------
RETAINED EARNINGS
Balance, beginning of period $ 8,437,149 $ 8,673,504
Net income 634,104 348,849
Cash dividends paid (213,123) (211,188)
------------ ------------
Balance, end of period $ 8,858,130 $ 8,811,165
------------ ------------
UNREALIZED GAIN (LOSS) ON SECURITIES
AVAILABLE FOR SALE
Balance, beginning of period $ (127,179) $ 97,594
Adjustment to fair value (259,634) (401,992)
Effect of change in deferred taxes 86,000 137,000
------------ ------------
Balance, end of period $ (300,813) $ (167,398)
------------ ------------
TREASURY STOCK
Balance, beginning of period $ (2,379,527) $ (2,408,948)
Exercise of stock options, 3,716 shares in 1997 12,077 -
------------ ------------
Balance, end of period $ (2,367,450) $ (2,408,948)
------------ ------------
</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, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
March 31, March 31,
1997 1996
------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 634,104 $ 348,849
Adjustments to reconcile net income to net cash
provided by operating activities -
Amortization of goodwill 57,770 -
Depreciation and amortization 158,890 110,828
Loans originated for sale (2,137,368) (4,475,078)
Proceeds from sale of loans 2,114,621 4,480,171
(Gain) loss from sale of loans 22,747 (5,093)
(Gain) loss from sale of debt securities available for sale (44,670) 1,538
Loss from sale of equity securities available for sale and writedowns 20,124 -
Provision for loan losses and other real estate owned losses 212,501 221,637
Increase in accrued interest and other assets (21,771) (38,549)
Increase (decrease) in deferred loan fees 5,128 (23,294)
(Decrease) increase in accrued expenses and other liabilities (479,981) 835,605
------------- --------------
Net cash provided by operating activities 542,095 1,456,614
------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (109,151) (70,755)
Proceeds from sale of debt securities available for sale 2,172,412 643,194
Proceeds from sale of equity securities available for sale 223,618 200,000
Purchase of securities available for sale (6,052,432) (3,537,519)
Maturities of securities available for sale - 1,000,000
Net decrease in loans to customers 1,929,524 3,658,611
Increase in nonaccrual loans (747,710) (1,980,343)
(Increase) decrease in real estate owned (9,163) 143,372
------------- --------------
Net cash provided by (used in) investing activities (2,592,902) 56,560
------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits 2,246,722 (1,513,778)
Net decrease in repurchase agreements (3,752,854) (5,378,913)
Increase (decrease) in advances from Federal Home Loan Bank (2,454,188) 589,054
Net change in other borrowed money - (2,905)
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 $246,425
for acquisition costs 5,038,306 -
Dividends paid (213,123) (211,188)
Proceeds from exercise of stock options 27,870 -
------------- --------------
Net cash provided by (used in) financing activities 892,733 (6,517,730)
------------- --------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (1,158,074) (5,004,556)
CASH AND CASH EQUIVALENTS, beginning of period 11,002,749 10,993,297
------------- --------------
CASH AND CASH EQUIVALENTS, end of period $ 9,844,675 $ 5,988,741
============= ==============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest on deposit accounts $ 3,796,345 $ 2,135,847
Interest on advances and other borrowed money 380,321 408,385
------------- --------------
Total interest paid $ 4,176,666 $ 2,544,232
============= ==============
Income taxes, net $ 33,222 $ 2,499
============= ==============
Supplemental disclosure of noncash investing and financing activities:
Loans originated to facilitate sales of other real estate owned $ - $ -
============= ==============
Transfers from loans to real estate acquired through foreclosure $ 50,000 $ -
============= ==============
</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:
Fair value of assets acquired $55,716,724
Value of Common Stock issued (3,931,803)
Cash paid for the Common Stock (2,275,000)
Deferred acquisition costs (704,921)
-----------
Liabilities assumed $48,805,000
===========
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, 1997 and December 31, 1996
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, 1997 and 1996.
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, 1997
and 1996, there was a dilutive effect from stock options. The number of
shares used in computing earnings per share was 2,058,595 and 1,701,076
for the periods ended March 31, 1997 and 1996, 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, 1997 and December 31, 1996
2. Securities
The amortized cost and appropriate market value of securities are
summarized as follows:
<TABLE>
<CAPTION>
March 31, 1997
-----------------------------------------------
Gross Gross
Fair Unrealized Unrealized Amortized
Value Gain Loss Cost
-----------------------------------------------
<S> <C> <C> <C> <C>
Held to maturity:
Bonds and notes -
Municipal bonds $ 340,276 $ - $ - $ 340,276
----------- -------- -------- -----------
Total held to maturity 340,276 - - 340,276
----------- -------- -------- -----------
Available for sale:
Bonds and notes -
U.S. Treasury Notes 16,187,809 4,445 241,396 16,424,760
U.S. Government, including agencies 3,973,988 2,713 71,007 4,042,282
Other bonds and debentures 8,043,293 9,461 132,641 8,166,473
----------- -------- -------- -----------
28,205,090 16,619 445,044 28,633,515
Equity securities 948,875 3,375 20,375 965,875
----------- -------- -------- -----------
Total available for sale 29,153,965 19,994 465,419 29,599,390
----------- -------- -------- -----------
Other investments:
Federal Home Loan Bank stock 1,861,000 - - 1,861,000
Other securities 446,557 - - 446,557
----------- -------- -------- -----------
Total other investments 2,307,557 - - 2,307,557
----------- -------- -------- -----------
Total securities $31,801,798 $ 19,994 $465,419 $32,247,223
----------- -------- -------- -----------
December 31, 1996
----------------------------------------------
Gross Gross
Fair Unrealized Unrealized Amortized
Value Gain Loss Cost
----------------------------------------------
Held to maturity:
Bonds and notes -
Municipal bonds $ 340,276 $ - $ - $ 340,276
----------- -------- -------- -----------
Total held to maturity 340,276 - - 340,276
----------- -------- -------- -----------
Available for sale:
Bonds and notes -
U.S. Treasury Notes 12,884,840 31,066 94,145 12,947,919
U.S. Government, including agencies 3,269,758 17,393 18,099 3,270,464
Other bonds and debentures 7,641,502 17,692 97,336 7,721,146
----------- -------- -------- -----------
23,796,100 66,151 209,580 23,939,529
Equity securities 1,154,625 45,575 94,325 1,203,375
----------- -------- -------- -----------
Total available for sale 24,950,725 111,726 303,905 25,142,904
----------- -------- -------- -----------
Other investments:
Federal Home Loan Bank stock 1,861,000 - - 1,861,000
Other securities 446,557 - - 446,557
----------- -------- -------- -----------
Total other investments 2,307,557 - - 2,307,557
----------- -------- -------- -----------
Total securities $27,598,558 $111,726 $303,905 $27,790,737
----------- -------- -------- -----------
</TABLE>
6
<PAGE>
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
March 31, 1997 and December 31, 1996
3. Loans
<TABLE>
<CAPTION>
Loans consisted of the following as of: March 31, December 31,
1997 1996
------------- -------------
<S> <C> <C>
Real estate loans -
Conventional $ 202,007,391 $ 183,550,150
Construction 3,043,977 2,702,613
------------- -------------
205,051,368 186,252,763
Less: Unadvanced portion 1,170,069 1,270,412
------------- -------------
Total real estate loans 203,881,299 184,982,351
Collateral loans 21,299,792 20,574,710
Consumer loans 6,770,348 4,860,325
Commercial and municipal loans 25,608,146 8,352,789
Other loans 633,850 436,754
------------- -------------
Total loans 258,193,435 219,206,929
Less: Reserve for loan losses 2,938,590 2,158,026
Deferred loan origination fees 218,303 300,492
Non-earning assets 1,596,652 848,942
------------- -------------
Net loans $ 253,439,890 $ 215,899,469
------------- -------------
</TABLE>
A summary of activity in the reserve for loan loss account consisted of the
following as of:
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
------------- -------------
<S> <C> <C>
BALANCE, beginning of period $ 2,158,026 $ 1,828,060
------------- -------------
Loans charged-off:
Real estate loans -
Conventional 126,558 628,107
Construction - 614,355
Collateral and consumer loans 155,422 36,721
Commercial and municipal loans 16,751 101,431
------------- -------------
Total charged-off loans 298,731 1,380,614
------------- -------------
Recoveries:
Real estate loans -
Conventional 5,686 19,063
Collateral and consumer loans 1,981 22,105
Commercial and municipal loans 8,832 8,671
------------- -------------
Total recoveries 16,499 49,839
------------- -------------
Charged-off loans, net of recoveries 282,232 1,330,775
------------- -------------
Reserves acquired pursuant to acquisition of Landmark Bank 850,295 -
Provision for loan losses charged to income 212,501 1,660,741
------------- -------------
BALANCE, end of period $ 2,938,590 $ 2,158,026
------------- -------------
Ratio of net charged-off loans during the period
to average loans outstanding during the period 0.12% 0.63%
------------- -------------
</TABLE>
7
<PAGE>
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
March 31, 1997 and December 31, 1996
<TABLE>
<CAPTION>
3. Loans (continued): March 31, December 31,
1997 1996
----------- -----------
<S> <C> <C>
Non-earning assets $ 1,596,652 $ 848,942
In addition to non-earning assets, non-accrual
loans included the following amount of delinquent loans 898,867 787,930
Effect of FASB No. 66:
Loans reclassified to real estate owned $ 282,529 $ 362,436
Interest income reduced by 5,659 22,602
Impaired loans:
Average recorded investment in impaired loans $ 950,822 $ 837,357
Investment in impaired loans, end of period 1,012,358 1,188,183
Portion of valuation allowance allocated to impaired loans 58,959 139,509
Net balance of impaired loans 953,400 1,048,674
Interest income recognized on impaired loans 24,315 40,006
Interest income on impaired loans on cash basis 24,315 37,592
</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, 1997.
Mortgage servicing rights - As of March 31, 1997, the fair value of MSR's was
$136,121. 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, and industry averages for other
significant assumptions. MSR's capitalized were reduced by $7,957 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, 1997, 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,
1997.
8
<PAGE>
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
March 31, 1997 and December 31, 1996
4. Deposits:
Deposit accounts consisted of the following as of :
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
---------------------- ----------------------
<S> <C> <C>
Checking Accounts (non-interest bearing) $ 11,907,547 4.5% $ 10,587,756 4.9%
NOW Accounts 30,449,253 11.5% 26,030,170 12.2%
Ever-Ready Money Market 11,995,982 4.5% 11,207,455 5.2%
Regular Savings Accounts 8,972,034 3.4% 9,167,458 4.3%
Treasury Savings Accounts 62,758,320 23.7% 50,154,503 23.4%
Club Deposits 180,753 0.1% 71,088 0.0%
Time Deposits:
$100,000 and over 17,739,878 6.7% 12,884,426 6.0%
Other Time Deposits 120,393,213 45.5% 93,856,039 43.9%
--------------------- ---------------------
$ 264,396,980 100.0% $ 213,958,895 100.0%
--------------------- ---------------------
</TABLE>
REPURCHASE AGREEMENTS - As of March 31, 1997, sixteen 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 $16,187,809.
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 6.78%, maturing as follows:
March 31, 1997
--------------
1997 (4.87% - 6.78%) $ 5,468,520
1998 (4.87% - 5.97%) 7,166,033
1999 (5.78%) 56,084
2000 and after (5.44% - 5.78%) 5,024,200
--------------
$ 17,714,837
==============
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
$75,000,000 of Federal Home Loan Bank advances.
In addition to the above advances, the Bank has credit available up to
$5,167,000 under a revolving loan agreement with the Federal Home Loan Bank. As
of March 31, 1997, no amount had been borrowed against this line of credit.
Interest is payable monthly when funds are borrowed.
9
<PAGE>
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
March 31, 1997 and December 31, 1996
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 April meeting, declared a cash
dividend of $0.125 per share payable April 28, 1997.
7. Stock Compensation Plans:
As of March 31, 1997, the Company had four fixed option, stock-based
compensation plans. The Company has adopted the disclosure only provisions
of SFAS No. 123 "Accounting for Stock-based Compensation" but applies APB
Opinion #25 and related interpretations in accounting for its plans.
Accordingly, no compensation cost has been recognized for its fixed stock
option plans. Had compensation cost for the Company's stock-based
compensation plans been determined based on the fair value at the grant
dates for awards under those plans 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>
Three Months Ended
March 31,
1997 1996
----------------------
<S> <C> <C> <C>
Net income: As reported $ 634,104 $ 348,849
Pro forma $ 634,104 $ 298,625
Primary earnings per share: As reported $ 0.31 $ 0.21
Pro forma $ 0.31 $ 0.18
Fully diluted earnings per share: As reported $ 0.31 $ 0.21
Pro forma $ 0.31 $ 0.18
</TABLE>
10
<PAGE>
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
March 31, 1997 and December 31, 1996
7. Stock Compensation Plans: (continued)
Under the 1986 plan, the Company may grant options to its employees for up
to 57,880 additional shares of common stock. Under the 1987 plan, the
Company may grant options to its employees for up to 27,666 additional
shares of common stock. Under both plans, 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. Options are exerciseable immediately.
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. On December 2, 1996, 48,000 options were granted from the 1996
stock option plan at an exercise price of $12.50 per share, the fair market
value on that date.
The weighted average fair value of the options granted during the three
months ended March 31, 1997 was $1.65.
The fair value was estimated on the date of grant using the Black-Scholes
option pricing model with the following weighted-average assumptions:
Weighted risk-free interest rate 6.37%
Weighted expected life 9.25 years
Weighted expected volatility 17.33%
Weighted expected dividend yield 5.0% per year
No modifications have been made to the terms of the option agreements.
A summary of the status of the Company's fixed stock option plans as of March
31, 1997 and 1996 and changes during the three months ended is presented below:
<TABLE>
<CAPTION>
1997 1996
-------------------------- ------------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
-------- ----------- -------- ----------
<S> <C> <C> <C> <C>
Outstanding, beginning of year 141,760 $ 10.340 62,590 $ 8.220
Granted - - 49,900 10.125
Exercised (3,716) 7.500 - -
Forfeited - - - -
Expired - - - -
Outstanding, end of period 138,044 $ 10.420 112,490 $ 9.070
-------- ----------- --------- ----------
Exerciseable, end of period 138,044 112,490
-------- ---------
</TABLE>
11
<PAGE>
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
March 31, 1997 and December 31, 1996
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, 1997, LSB has entered into commitments to fund loans
totaling approximately $6.3 million. The majority of these loans will have
adjustable rates.
9. Treasury Stock:
On July 15, 1993, the Company announced a 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, 1997, 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,
1997 1996
--------- ------------
<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 2,479,858 2,147,282
Outstanding shares 2,041,274 1,704,982
</TABLE>
12
<PAGE>
PART I. ITEM II. 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 was
originally chartered by the State of New Hampshire in 1868 as the Newport
Savings Bank. On December 1, 1980, the Bank became the first bank in the United
States to convert from a state chartered mutual savings bank to a federally-
chartered mutual savings bank. In 1981, the Bank changed its name to Lake
Sunapee Savings Bank, fsb, and in 1994, changed its name to Lake Sunapee Bank,
fsb. 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 March 31, 1997, the Company had capital
of $1,379,694 which the Company 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 March 31, 1997, reflected total assets of $313 million, deposits of $264
million, capital of $23.4 million, and a total of 11 offices located in
Sullivan, Merrimack, Grafton, and Hillsborough counties.
FINANCIAL CONDITION
During the first three months of 1997, total assets increased by
$48,652,875, or 18.40% to $313,038,219. Net loans increased $38,286,071, or
17.79%, investment securities increased $4,203,240, or 15.23%, and investment in
real estate and premises and equipment increased $2,630,182, or 45.95%. The
majority of these increases were due to the acquisition of Landmark Bank.
Real estate loans held in portfolio increased $18,898,947, or 10.22%
from year-end. During the three months ended March 31, 1997, proceeds from the
sale of loans amounted to $2,114,621. Total sold loans were approximately $54
million a s of March 31, 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. Commercial and municipal loans
increased $17,255,357, or 207% during the first three month of the 1997 due to
the acquisition of Landmark Bank.
Real estate and chattel property owned totaled $ 732,641 and accounted
for 22.70% of non-performing assets at March 31, 1997, compared to $723,478, or
30.65% at year-end 1996. Continuing to
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
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 $473,912 at March 31,
1997. At March 31, 1997, the Bank had recorded no properties as in-substance
foreclosures.
Total investments (at fair value) increased by $4,203,240, or 15.23%.
Sales and maturities of securities were approximately $2.4 million while
purchases amounted to approximately $6.8 million. The purchases of U.S.
Treasuries accounted for approximately $5.5 million of this increase as the
Company, in an attempt to limit price volatility, developed a two-year
laddered Treasury portfolio.
Non-performing assets amounted to $3,228,160, or 1.03% of
assets at March 31, 1997, compared to $3,320,923, or 1.32% 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 $1,012,358 and $1,188,183 at March 31,
1997 and December 31, 1996, respectively. As of March 31, 1997, the Bank
charged-off $298,731 of loans which had been previously reserved for.
Deposits increased $50,438,085 for the first three months of 1997,
due primarily to the acquisition of Landmark Bank. Federal Home Loan Bank of
Boston (FHLBB) advances decreased $2,454,188 million to $17,719,837 during the
three months ended March 31, 1997.
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, 1997, the Bank's percentage of
12.73% exceeded regulatory requirements.
The Bank's sources of funds come from net deposit inflows, loan
amortizations, and advances from the FHLBB. At March 31, 1997, the Bank had
approximately $75 million in additional borrowing capacity available from the
FHLBB. The Bank expects to be able to fund loan commitments of approximately
$6.3 million by utilizing the FHLBB advance program, in the event future deposit
inflows are not sufficient to cover funding needs.
At March 31, 1997, the Company's capital amounted to $23,400,710,
or 7.48% of total assets, compared to $19,193,690, or 7.26% of total assets
at year-end 1996. The change of $4,207,020 is attributed to net income of
$634,104, dividends paid of $213,123, a change in the unrealized loss on
securities available for sale of $173,634, a change of $27,870 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. An increase in interest
rates during the first three months of 1997 resulted in a drop in bond values.
This in turn increased the unrealized loss on securities held as available for
sale.
Pursuant to Office of Thrift Supervision regulation, banks are
required to maintain core, leverage, and total risk-based capital of 3.00%,
3.00%, and 8.00%, respectively. As of March 31, 1997, the Bank's core,
leverage and total risk-based capital ratios were 6.04%, 6.04%, and 10.04%,
respectively, well in excess of the regulators' requirements.
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
The Company's book value per share was $11.46 at March 31, 1997,
versus $11.26 at December 31, 1996. The increase was primarily attributable to
the purchase of Landmark Bank.
INTEREST RATE SENSITIVITY
The Bank's one-year interest sensitive gap at March 31, 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 March 31, 1997,
adjustable rate mortgages accounted for approximately 83% 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 nine percent at March
31, 1997, 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.
OPERATING RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 1997
AS COMPARED TO THE THREE MONTHS ENDED MARCH 31, 1996
Operating Results for the first quarter in 1997 were $634,103, or
$0.31 per share as compared to $348,849,or $0.21 per share for the same period
in 1996, an increase of $285,254, or 81.77%. The increase was due to the
reduction in FDIC insurance premiums, increased customer service fees, and
increased income associated with the purchase of Landmark Bank.
Net interest income increased by $607,634, or 29.73% due to upward
adjustments to the Bank's variable rate loans and an increase in higher yielding
loans pursuant to the Landmark Bank acquisition.
Total non-interest income increased $98,711, or 27.73%. The increase
was due primarily to the change in customer service fees of $74,852.
Operating expenses increased $302,256, or 17.76% as certain expenses
related to the acquisition were recorded.
RESERVE FOR LOAN LOSSES
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 reserve for loan losses at March 31, 1997, was $2,938,590
including $486,501 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 March
31,
15
<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 losses as a
percentage of non-performing assets was 91.03% at March 31, 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 March 31,
1997, were $8,589,388 compared to $5,254,069 at December 31, 1996. Of these
amounts, $3,228,160 and $2,343,898, 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 the Bank as of January 1, 1995. Note 3 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>
3-31-97 12-31-96
----------------- ----------------
<S> <C> <C>
90 days delinquent/(1)/ $ 899 0.29% $ 788 0.30%
Non-earning assets/(2)/ 1,597 0.51% 849 0.32%
Real estate and chattel property owned 732 0.23% 723 0.27%
-------- ----- ------- -----
Total non-performing assets $ 3,228 1.03% $ 2,360 0.89%
-------- ----- ------- -----
Impaired loans $ 1,012 0.32% $ 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>
3-31-97 12-31-96
------------------ -------------------
<S> <C> <C>
Real estate loans -
Conventional $1,695,142 78% $1,603,860 84%
Construction 73,861 1% 83,750 -
Collateral and Consumer 48,952 11% 36,873 12%
Commercial and Municipal 1,061,676 10% 294,034 4%
Impaired Loans 58,959 - 139,509 -
---------- ----- ---------- -----
Valuation allowance $2,938,590 100% $2,158,026 100%
---------- ----- ---------- -----
Valuation allowance as a
percentage of total loans 1.14% 0.98%
---------- ----------
</TABLE>
As of March 31, 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.
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 9, 1997, Ralph B.
Fifield, Jr., John A. Kelley, Jr., Jack H. Nelson, and Priscilla W.
Ohler were re-elected as Directors of New Hampshire Thrift Bancshares,
Inc. for three-year terms. Also, the appointment of Shatswell, Macleod
& Company, P.C. as independent auditors for the year 1997 was ratified.
Item 5. Other Information
-----------------
None
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
A.) Exhibits:
None
B.) Reports on Form 8-K:
A report on Form 8-K regarding the merger of Landmark Bank with and
into Lake Sunapee Bank was filed on February 6, 1997. A Form 8-K/A was
filed April 7, 1997 which incorporated proforma financial statements
related to the acquisition into the February 6, 1997 filing.
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 12, 1997 /s/ Stephen W. Ensign
------------------------------- ------------------------------------
Stephen W. Ensign
Vice Chairman of the Board, President
and Chief Executive Officer
Date: May 12, 1997 /s/ Stephen R. Theroux
------------------------------- ------------------------------------
Stephen R. Theroux
Executive Vice President and
Chief Financial Officer
(Principal Accounting Officer)
18
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 6,948,675
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 2,896,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 29,153,965
<INVESTMENTS-CARRYING> 340,276
<INVESTMENTS-MARKET> 340,276
<LOANS> 258,193,435
<ALLOWANCE> 2,938,590
<TOTAL-ASSETS> 313,038,219
<DEPOSITS> 264,396,980
<SHORT-TERM> 0
<LIABILITIES-OTHER> 25,240,529
<LONG-TERM> 0
0
0
<COMMON> 24,798
<OTHER-SE> 23,375,912
<TOTAL-LIABILITIES-AND-EQUITY> 23,400,710
<INTEREST-LOAN> 5,245,831
<INTEREST-INVEST> 546,364
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 5,792,195
<INTEREST-DEPOSIT> 2,859,572
<INTEREST-EXPENSE> 3,140,797
<INTEREST-INCOME-NET> 2,651,398
<LOAN-LOSSES> 212,501
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,004,194
<INCOME-PRETAX> 889,376
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 634,104
<EPS-PRIMARY> 0.31
<EPS-DILUTED> 0.31
<YIELD-ACTUAL> 7.87
<LOANS-NON> 1,596,652
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,158,026
<CHARGE-OFFS> 298,731
<RECOVERIES> 16,499
<ALLOWANCE-CLOSE> 2,938,590
<ALLOWANCE-DOMESTIC> 2,938,590
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
