<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, 1998
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)
9 Main St., PO Box 9, Newport, NH 03773
(Address of principal executive offices) (Zip Code)
603-863-0886
(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 April 24, 1998, was 2,090,855.
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
March 31, 1998 and December 31, 1997
Consolidated Statements of Income - 2
For the Three Months Ended March 31, 1998 and 1997
Consolidated Statements of Cash Flows - 3
For the Three Months Ended March 31, 1998 and 1997
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
<PAGE>
Part I. Item I. NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
March 31, 1998 and December 31, 1997
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
---------------- ---------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 5,906,114 $ 9,196,626
Federal funds sold 12,216,000 4,110,000
---------------- ---------------
Cash and cash equivalents 18,122,114 13,306,626
Securities available for sale 32,867,030 30,104,674
Securities held to maturity 75,000 75,000
Other investments 2,064,560 1,987,560
Loans held for sale 3,729,250 673,950
Loans receivable, net 247,426,805 255,223,525
Accrued interest receivable 1,639,117 1,556,194
Bank premises and equipment, net 8,212,931 8,178,335
Investments in real estate 544,017 548,257
Real estate owned and property acquired in settlement of loans 438,153 516,153
Goodwill 3,398,395 3,460,184
Other assets 2,074,410 2,358,504
---------------- ---------------
Total assets $ 320,591,782 $ 317,988,962
================ ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Checking accounts (non-interest-bearing) $ 13,598,402 $ 15,105,900
Savings and interest-bearing checking accounts 126,373,847 123,023,410
Time deposits 132,334,722 133,097,650
---------------- ---------------
Total deposits 272,306,971 271,226,960
Other borrowed funds - 300,000
Securities sold under agreements to repurchase 8,924,044 8,393,192
Advances from Federal Home Loan Bank 10,177,158 10,246,318
Accrued expense and other liabilities 3,243,999 2,259,367
---------------- ---------------
Total liabilities 294,652,172 292,425,837
---------------- ---------------
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 2,090,855 shares outstanding at
March 31, 1998, 2,479,858 shares issued and 2,088,155 shares
outstanding at December 31, 1997 24,798 24,798
Paid-in capital 17,678,662 17,660,097
Retained earnings 10,610,591 10,221,049
Unrealized gain on securities available for sale 41,921 82,318
---------------- ---------------
28,355,972 27,988,262
Treasury stock, at cost, 389,003 shares as of March 31, 1998
and 391,703 as of December 31, 1997 (2,416,362) (2,425,137)
---------------- ---------------
Total shareholders' equity 25,939,610 25,563,125
---------------- ---------------
Total liabilities and shareholders' equity $ 320,591,782 $ 317,988,962
================ ===============
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
1
<PAGE>
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
For the Three Months Ended March 31, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
March 31, March 31,
1998 1997
--------------- ---------------
<S> <C> <C>
Interest income
Interest on loans $ 5,227,961 $ 5,245,831
Interest and dividends on investments 586,362 546,364
--------------- ---------------
Total interest income 5,814,323 5,792,195
--------------- ---------------
Interest expense
Interest on deposits 2,916,693 2,859,572
Interest on advances and other borrowed money 145,659 281,225
--------------- ---------------
Total interest expense 3,062,352 3,140,797
--------------- ---------------
Net interest income 2,751,971 2,651,398
Provision for loan losses 14,520 212,501
--------------- ---------------
Net interest income after provision for loan losses 2,737,451 2,438,897
--------------- ---------------
Other income
Loan origination and customer service fees 273,059 309,360
Net gain on sale of securities 2,066 30,789
Net gain (loss) on sale of loans (7,644) 18,300
Net gain on sale of bank property and equipment 6,762 -
Rental income 79,360 70,802
Brokerage service income 37,219 25,422
--------------- ---------------
Total other income 390,822 454,673
--------------- ---------------
Other expenses
Salaries and employee benefits 928,042 961,442
Occupancy expenses 414,922 414,023
Advertising and promotion 75,622 77,463
Depositors' insurance 35,506 13,833
Outside services 139,170 130,739
Amortization of goodwill 61,789 57,770
Other expenses 435,396 348,924
--------------- ---------------
Total other expenses 2,090,447 2,004,194
--------------- ---------------
Income before provision for income taxes 1,037,826 889,376
Provision for income taxes 335,000 255,272
--------------- ---------------
Net income $ 702,826 $ 634,104
=============== ===============
Earnings per common share $ .34 $ .31
=============== ===============
Earnings per common share, assuming dilution $ .33 $ .31
=============== ===============
Dividends declared per common share $ .15 $ .125
=============== ===============
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
2
<PAGE>
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
March 31, March 31,
1998 1997
----------------- -----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 702,826 $ 634,104
Adjustments to reconcile net income to net cash
provided by operating activities -
Depreciation and amortization 151,270 158,890
Amortization of goodwill 61,789 57,770
Loans originated for sale (13,074,642) (2,137,368)
Proceeds from sale of loans 13,066,998 2,155,668
(Gain) loss from sale of loans 7,644 (18,300)
Gain from sale of debt securities available for sale (2,066) (44,670)
Gain from sale of bank premises and equipment (6,762) -
Net loss from sale of equity securities available for sale and writedowns - 20,124
Provision for loan losses and other real estate owned losses 14,520 212,501
(Increase) decrease in accrued interest and other assets 252,585 (21,771)
Increase (decrease) in deferred loan fees (9,693) 5,128
Increase (decrease) in accrued expenses and other liabilities 984,631 (479,981)
----------------- -----------------
Net cash provided by operating activities 2,149,100 542,095
----------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (190,771) (109,151)
Proceeds from sale of bank premises and equipment 9,145 -
Proceeds from sale of debt securities available for sale 6,009,649 2,172,412
Proceeds from sale of equity securities available for sale - 223,618
Purchase of securities available for sale (9,421,750) (6,052,432)
Purchase of Federal Home Loan Bank stock (77,000) -
Maturities of securities available for sale 560,000 -
Net decrease in loans to customers 4,736,593 1,181,814
(Increase) decrease in real estate owned 84,762 (9,163)
----------------- -----------------
Net cash provided by (used in) investing activities 1,710,628 (2,592,902)
----------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 1,080,011 2,246,722
Net increase (decrease) in repurchase agreements 530,852 (3,752,854)
Decrease in advances from Federal Home Loan Bank (369,160) (2,454,188)
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 (313,283) (213,123)
Proceeds from exercise of stock options 27,340 27,870
----------------- -----------------
Net cash provided by financing activities 955,760 892,733
----------------- -----------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 4,815,488 (1,158,074)
CASH AND CASH EQUIVALENTS, beginning of period 13,306,626 11,002,749
----------------- -----------------
CASH AND CASH EQUIVALENTS, end of period $ 18,122,114 $ 9,844,675
================= =================
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
3
<PAGE>
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS - (continued)
For the Three Months Ended March 31, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
March 31, March 31,
1998 1997
--------------- ---------------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest on deposit accounts $ 2,918,840 $ 3,796,345
Interest on advances and other borrowed money 146,372 380,321
--------------- ---------------
Total interest paid $ 3,065,212 $ 4,176,666
=============== ===============
Income taxes, net $ 400 $ 190,619
=============== ===============
Supplemental disclosure of noncash investing and financing activities:
Transfers from loans to real estate acquired through foreclosure $ 60,000 $ 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:
<TABLE>
<S> <C>
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
===============
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
4
<PAGE>
HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1998 and December 31, 1997
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 three months ended March 31, 1998 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 1998.
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 1997.
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>
ITEM II. NEW HAMPSHIRE THRIFT BANCSHARES, INC.AND SUBSIDIARY
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 March 31, 1998, the Company had
$1,143,763, which it plans to use to continue its annual dividend payout of
$0.60 per share.
YEAR 2000
In order to address the Year 2000 (Y2K) issue and to minimize its potential
adverse impact, management is identifying the areas that will be affected by the
"Year 2000 Problem". The Company is assessing the potential impact on the
operations of the Bank, monitoring the progress of software vendors, testing
changes provided by these vendors and developing contingency plans for any
mission critical systems that may not be effectively reprogrammed. The Bank's
plan is divided into five phases: 1) awareness; 2) assessment; 3) renovation;
4) validation and 5) implementation.
The Year 2000 Problem centers on the inability of computer systems to
recognize the Year 2000. Many existing computer programs and systems were
originally programmed with six digit dates that provided only two digits to
identify the calendar year in the date field, without considering the upcoming
change in the century.
The Bank has substantially completed the first two phases of the plan and
is currently working with vendors on the final three phases. Because the Bank
utilizes an in-house data processing provider, a significant component of the
Year 2000 plan is working with the provider to test and verify the system as Y2K
compliant. The Bank's primary service provider has surveyed its programs to
inventory the necessary changes and is well underway correcting the applicable
computer programs so that the Bank's systems software will be Y2K compliant by
the third quarter of 1998. This will allow the Bank to devote substantial time
to the testing the upgraded systems prior to the Year 2000. The Bank plans to
complete its regulatory timetable for carrying out it plans to address the Year
2000.
6
<PAGE>
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
In addition to the Bank's status of the `Y2K Plan' being reported to its
Board of Directors monthly, information is available to customers both in branch
offices and on the Bank's website. Monitoring and managing the Year 2000 project
will result in additional direct and indirect costs. A $50,000 provision has
been established to cover expenses that may be associated with the Y2K issue.
The Company and the Bank do not believe that such costs will have a material
effect on its results of operations.
The costs of the project and the dates on which the Bank plans to complete
Y2K modification are based on management's best estimates. However, there can be
no guarantee that these estimates will be achieved, and actual results could
differ from those plans. The Bank is also subject to regulatory review
concerning the Year 2000 from its primary regulator, The Office of Thrift
Supervision (OTS), and expects to be examined during the second quarter of 1998.
FINANCIAL CONDITION
During the first three months of 1998, total assets increased by
$2,602,820, or .82% from $317,988,962 to $320,591,782. The increase was
primarily due to an increase in funds held as overnight investments and
securities purchased as available for sale. The Bank, recognizing the need to
enhance spreads, purchased approximately $3 million of government agency
securities.
Total gross loans decreased $7,804,581 from $258,386,923 to $250,582,342,
or 3.02%. During the first three months of 1998, the Bank closed over $27
million of loans, had pay-offs of approximately $18 million, normal amortization
of about $6 million and loans sold of $10 million. At March 31, 1998, the Bank
had $3,729,250 in loans held for sale. Due to lower fixed interest rates, many
of the Bank's variable rate loan customers refinanced into fixed rate products.
Subsequently, the Bank sold much of the fixed rate product into the secondary
market, retaining the servicing. Selling fixed rate loans into the secondary
market provides the Bank with a consistent fee income stream, much like the
yield that would be received on a loan that is held in portfolio. The proceeds
from the sale are then used to re-lend into the community. At March 31, 1998,
the Bank had $80,951,515 in its servicing portfolio. The Bank expects to
continue to sell fixed rate loans into the secondary market in order to manage
interest rate risk. Market risk exposure during the production cycle is managed
through the use of secondary market forward commitments. Adjustable rate
mortgages comprise 83% of the Bank's real estate mortgage loan portfolio. This
is consistent with prior years.
Total investment securities increased by $2,839,356, or 8.83% from
$32,167,234 to $35,006,590 (at amortized cost). The Bank's net unrealized gain
of $63,516 at March 31, 1998 compares to last year's net unrealized loss of
$445,425. This change of $508,941 in market value reflects the decrease in
interest rates over the last 12 months and the resultant rise in investment
security values.
Real estate owned and property acquired in settlement of loans decreased by
$78,000, or 15.11% to $438,153. This total reflects $315,153, or 71.93% in
market value for the remaining five lots at Blye Hill Landing in Newbury, NH.
During the first three months of 1998, three real estate owned properties
totaling $144,000, in carrying value, were sold.
Deposits increased by $1,080,011, or .40% to $272,306,971 from
$271,226,960. Non-interest-bearing checking accounts decreased $1,507,498, or
9.98% as business customers settled holiday transactions. Savings and interest-
bearing checking accounts increased 2.72% as the Bank introduced an
7
<PAGE>
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
enhanced cash management checking account for higher balance customers.
Certificates of deposit decreased slightly due to the maturity of brokered CD's
that had been acquired from Landmark Bank.
Advances from the Federal Home Loan Bank (FHLB) decreased by $69,160 to
$10,177,158 from $10,246,318. The decrease was a result of principal
amortizations on two FHLB advances. Subsequent to March 31, 1998, the Bank
prepaid a $5 million 5.82% FHLB advance. This prepayment decreased the cost of
borrowings to 5.55% from 5.70%.
Liquidity and Capital Resources
The Bank is required to maintain a 4% ratio of liquid assets to net
withdrawable funds. At March 31, 1998, the Bank's ratio of 11.78% exceeded
regulatory requirements for long-term liquidity.
The Bank's source of funds comes primarily from net deposit inflows, loan
amortizations, principal pay downs from loans, sold loan proceeds, and advances
from the FHLB. At March 31, 1998, the Bank had approximately $86,000,000 in
additional borrowing capacity from the FHLB.
At March 31, 1998, the Company's shareholders' equity totaled $25,939,610,
or 8.09% of total assets, compared to $25,563,125, or 8.04% of total assets at
year-end 1997. The increase of $376,485 reflects net income of $702,826, the
payment of $313,283 in common stock dividends, the exercise of 2,700 stock
options in the amount of $8,775, a gain of $18,563 on the sale of treasury
stock, and the change of $40,396 in net unrealized holding gains on securities
classified as available-for-sale. As interest rates continued to move downward
throughout 1998, the Bank's bond portfolio increased in value.
Net cash provided by operating activities was $2,149,100 at March 31, 1998,
versus $542,095 for the same period in 1997. The increase in accrued expenses
and other liabilities accounted for the majority of the change.
Net cash flows from investing activities amounted to $1,710,628 at
March 31, 1998, compared to negative $2,592,902 in 1997. The $3,554,779 net
change in loans to customers and the $560,000 change in maturities of securities
held for sale accounted for the change.
At March 31, 1998, net cash provided by financing activities was $955,760
compared to $892,733 for the same period in 1997. In 1997, the Bank acquired
cash and cash equivalents of $5,038,306 while repurchase agreements and Federal
Home Loan Bank advances decreased $6,207,042. During 1998, repurchase
agreements increased $530,852. While the change of $2,823,348 in advances from
the Federal Home Loan Bank accounted for the majority of the change.
The Bank expects to be able to fund loan demand and other investing during
1998 by continuing to use funds provided from customer deposits, as well as the
FHLB's advance program, if necessary. Management is not aware of any trends,
events, or uncertainties that will have or that are reasonably likely to have a
material effect in the Company's liquidity, capital resources or results of
operations.
As part of the Financial Institution Reform, Recovery, and Enforcement Act
of 1989 (FIRREA), banks are required to maintain core capital, leverage ratio,
and total risk based capital of 4.00%, 4.00%, and 8.00%, respectively. As of
March 31, 1998,the Bank's ratios were 6.72%, 6.72%, and 12.54%, respectively,
well in excess of the regulators' requirements.
8
<PAGE>
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Book value per share was $12.41 at March 31, 1998, versus $11.46 per share
at March 31, 1997. The increase in paid-in capital and retained earnings
provided the increase in book value per share.
Interest Rate Sensitivity
Management has continued to utilize asset/liability management as a
strategy in monitoring interest rate risk. The strategy of matching rate-
sensitive assets with similar liabilities stabilizes profitability during
periods of interest rate fluctuations.
The Bank's one-year Gap at March 31, 1998, was approximately -9.00%,
compared to the December 31, 1997 Gap position of -7.28%. The Bank continues to
offer adjustable rate mortgages, which reprice at one, three, and five-year
intervals. In addition (as mentioned above), the Bank sells fixed-rate mortgages
into the secondary market in order to minimize interest rate risk.
The Bank's Gap, of approximately negative nine percent at March 31, 1998,
means net interest income 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 may utilize the Federal Home Loan Bank
advance program to control the repricing of a segment of liabilities.
ALLOWANCE FOR LOAN LOSSES AND ASSET QUALITY
The Bank considers many factors in determining the allowance for loan
losses. These include the risk and size characteristics of loans, the prior
years' loss experience, the levels of delinquencies, the prevailing economic
conditions, the number of foreclosures, unemployment rates, interest rates, and
the value of collateral securing the loans. No changes were made to the Bank's
procedures with respect to maintaining the loan loss allowances as a result of
any regulatory examinations.
Additionally, the Bank's commercial loan officers review the financial
condition of commercial loan customers on a monthly basis and perform visual
inspections of facilities and inventories. The Bank also has an internal audit
and compliance program. Results of the audit and compliance programs are
reported directly to the Audit Committee of the Bank's Board of Directors.
The allowance for loan losses at March 31, 1998 was $3,063,284, compared to
$3,061,451 at year-end 1997. The allowance in 1998 includes $2,699,054 in
general reserves as compared to $2,783,484 at year-end. Due to the general
improvement of the quality of the loan portfolio and a reduction in risk, the
provision for loan losses was reduced by $214,480 from $229,000 at March 31,
1997 to $14,520 for the same period in 1998. During the first three months of
1998, the Bank had net charge-offs of $34,833, or less than .015% of total loans
compared to $298,731, or .12% for 1997. The total allowance represented 1.21%
of total loans at March 31, 1998 versus 1.18% at year-end 1997. The allowance
for loan losses as a percentage of non-performing assets was 106.13% at
March 31, 1998, compared to 97.17% at December 31, 1997.
Loans classified for regulatory purposes as loss, doubtful, substandard or
special mention do not result from trends or uncertainties which the Bank
reasonably expects will materially impact future operating results, liquidity,
or capital resources.
9
<PAGE>
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
As of March 31, 1998, there were no other loans not included in the table
below or discussed where known information about the possible credit problems of
borrowers caused management to have doubts as to the ability of the borrower to
comply with present loan repayment terms and which may result in disclosure of
such loans in the future.
Total classified loans, excluding special mention, as of March 31, 1998
were $5,134,959 compared to $4,859,402 at December 31, 1997. Total non-
performing assets amounted to $2,886,158 and $3,150,040, respectively. At
March 31, 1998, loans classified as 90 days and over delinquent were $455,986
compared to $691,567 at December 31, 1997.
The following table shows the breakdown of non-performing assets and non-
performing assets as a percentage of total assets (dollars in thousands):
March 31, December 31,
1998 1997
---------------- ----------------
90 days and over delinquent/(1)/ $ 456 0.14% $ 692 0.22%
Non-accrual & impaired loans/(2)/ 1,992 0.62% 1,644 0.52%
Restructured loans - - 298 0.09%
---------------- ----------------
Total non-performing loans $ 2,448 0.76% $ 2,634 0.83%
Other real estate owned 438 0.14% 516 0.16%
---------------- ----------------
Total non-performing assets $ 2,886 0.90% $ 3,150 0.99%
================ ================
/(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 (dollars
in thousands):
March 31, December 31,
1998 1997
---------------- ----------------
Real estate loans -
Conventional $ 1,621 79% $ 1,562 80%
Construction 23 1% 112 1%
Collateral and Consumer 95 12% 59 11%
Commercial and Municipal 960 8% 1,006 8%
Impaired Loans 364 - 323 -
---------------- ----------------
Valuation allowance $ 3,063 100% $ 3,062 100%
================ ================
Total valuation allowance as a
percentage of total loans 1.20% 1.18%
========== ==========
10
<PAGE>
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
RESULTS OF OPERATIONS
Net income for the three months ended March 31, 1998, was $702,826, or
$0.33 per common share (assuming dilution) compared to $634,104, or $0.31 per
common share (assuming dilution) for the same period in 1997. The increase was
primarily a result of an increase in net interest income and a reduction in the
provision for loan losses.
Total interest income for the first three months of 1998 increased by
$22,128, or .38%, to $5,814,323. The majority of the change is attributable to a
7.32% increase in interest and dividends on investments as, during the first
quarter, the Bank purchased several government agency securities with favorable
yields. Realizing that many of the Bank's variable rate loans were refinancing
into fixed rate loans and then being sold into the secondary market, the Bank
took steps to stabilize its yield on interest-earning assets.
Total interest expense decreased $78,445, or 2.50%. The decrease was
primarily a result of lower interest expense associated with Federal Home Loan
Bank advances. At March 31, 1998 FHLB advances totaled $10,177,1598 compared to
$17,719,837 for the same period in 1997.
Net interest income increased $95,336, or 3.59%, for the first three months
of 1998. As mentioned above, the increase was primarily attributable to an
increase in yields on interest-earning assets and a decrease in the average
outstanding balances of interest-bearing liabilities.
Due to the general improvement of the quality of the loan portfolio and a
reduction in risk, the net provision for loan losses was reduced by $197,981
from $212,501 at March 31, 1997 to $14,520 for the same period in 1998. The
Bank considers many factors in determining the allowance for loan losses. These
include the risk and size characteristics of loans, the prior years' loss
experience, the levels of delinquencies, the prevailing economic conditions, the
number of foreclosures, unemployment rates, interest rates, and the value of
collateral securing the loans. No changes were made to the Bank's procedures
with respect to maintaining the loan loss allowances as a result of any
regulatory examinations.
Total non-interest income decreased slightly by $10,450, or 2.67% from
$400,089 in 1997 to $389,639 for the same period in 1998. The change was
primarily a result of a decrease in customer service fees.
Total operating expenses increased $86,254, or 4.30%, to $2,090,448. The
increase was primarily due to costs associated with the Bank's newest office
located in the Centerra Marketplace. Additional staffing, occupancy and
marketing expenses were realized as the Bank focused on this new location. In
addition, the Bank realized increased expenses associated with its loan volume.
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 Shareholders held on April 8, 1998, the
following was voted:
Directors of New Hampshire Thrift Bancshares, Inc. were re-elected for
terms of three years, each expiring at the Annual Meeting in 2001.
For Withheld
-----------------------------------------------------------------------
John J. Kiernan 1,699,183 6,290
Stephen R. Theroux 1,700,009 5,464
Peter R. Lovely 1,699,483 5,930
The appointment of Shatswell, MacLeod & Company, P.C. as independent
auditors was ratified.
For Against Abstain
-----------------------------------------------------------------------
1,687,251 7,310 10,912
The New Hampshire Thrift Bancshares, Inc. 1998 Stock Options Plan was
approved.
For Against Abstain
-----------------------------------------------------------------------
1,161,150 81,938 59,623
Item 5. Other Information
-----------------
None
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
A.) Exhibits:
Exhibit 11 - Earnings per share are presented in accordance with
Statement of Financial Accounting Standards No. 128 (SFAS No. 128)
`Earnings per Share'. This statement simplifies the standard for
computing earnings per share. It replaces the presentation of
Basic EPS, which excludes dilution and is computed by dividing
income available to common shareholders by the weighted-average
number of common shares outstanding for the period. Diluted EPS,
if applicable, reflects potential dilution that could occur if
securities or other contracts to issue common stock were exercised
or converted into common stock.
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: May 13, 1998 /s/ Stephen W. Ensign
------------------------- -------------------------------------
Stephen W. Ensign
Vice Chairman of the Board, President
and Chief Executive Officer
Date: May 13, 1998 /s/ Stephen R. Theroux
------------------------- -------------------------------------
Stephen R. Theroux
Executive Vice President and
Chief Operating Officer
Date: May 13, 1998 /s/ Daryl J. Cady
------------------------- -------------------------------------
Daryl J. Cady
Senior Vice President and
Chief Financial Officer
(Principal Accounting Officer)
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 5,906,114
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 12,216,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 32,867,030
<INVESTMENTS-CARRYING> 75,000
<INVESTMENTS-MARKET> 75,000
<LOANS> 250,582,342
<ALLOWANCE> 3,063,284
<TOTAL-ASSETS> 320,591,782
<DEPOSITS> 272,306,971
<SHORT-TERM> 0
<LIABILITIES-OTHER> 22,345,201
<LONG-TERM> 0
0
0
<COMMON> 24,798
<OTHER-SE> 25,914,812
<TOTAL-LIABILITIES-AND-EQUITY> 25,939,610
<INTEREST-LOAN> 5,227,961
<INTEREST-INVEST> 586,362
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 5,814,323
<INTEREST-DEPOSIT> 2,916,693
<INTEREST-EXPENSE> 3,062,352
<INTEREST-INCOME-NET> 2,751,971
<LOAN-LOSSES> 14,520
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,090,447
<INCOME-PRETAX> 1,037,826
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 702,826
<EPS-PRIMARY> 0.34
<EPS-DILUTED> 0.33
<YIELD-ACTUAL> 0
<LOANS-NON> 1,992,000
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 0
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 3,063,284
<ALLOWANCE-DOMESTIC> 3,063,284
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
