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FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For The Quarter Ended June 30, 1998
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Commission File Number 0-17859
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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
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The number of shares outstanding of each of the issuer's classes of common
stock, $.01 par value per share, as of July 31, 1998, was 2,094,555.
Transitional small business disclosure format:
Yes No X
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NEW HAMPSHIRE THRIFT BANCSHARES, INC.
INDEX TO FORM 10-QSB
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PART I. FINANCIAL INFORMATION PAGE
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Item 1 Financial Statements:
Consolidated Statements of Financial Condition - 1
June 30, 1998 and December 31, 1997
Consolidated Statements of Operations - 2
For the Three Months Ended June 30, 1998 and 1997
and the Six Months Ended June 30, 1998 and 1997
Consolidated Statements of Cash Flows - 3
For the Six Months Ended June 30, 1998 and 1997
Notes To Consolidated Financial Statements - 5
Item 2 Management's Discussion and Analysis of Financial 6
Condition and Results of Operations -
PART II. OTHER INFORMATION
Item 1 Legal Proceedings 13
Item 2 Changes in Securities 13
Item 3 Defaults Upon Senior Securities 13
Item 4 Submission of Matters to a Vote of Common 13
Shareholders
Item 5 Other Information 13
Item 6 Exhibits and Reports on Form 8-K 13
Signatures 14
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Part I. Item I.
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
June 30, 1998 and December 31, 1997
(Unaudited)
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June 30, December 31,
1998 1997
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ASSETS
Cash and due from banks $ 8,510,305 $ 9,196,626
Federal funds sold 8,930,000 4,110,000
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Cash and cash equivalents 17,440,305 13,306,626
Securities available for sale 38,929,637 30,104,674
Securities held to maturity 75,000 75,000
Other investments 2,064,560 1,987,560
Loans held for sale 1,493,387 673,950
Loans receivable, net 247,485,372 255,223,525
Accrued interest receivable 1,670,530 1,556,194
Bank premises and equipment, net 8,152,230 8,178,335
Investments in real estate 539,921 548,257
Real estate owned and property acquired in settlement of loans 598,153 516,153
Goodwill 3,336,606 3,460,184
Other assets 2,534,404 2,358,504
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Total assets $324,320,105 $317,988,962
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LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Checking accounts (non-interest-bearing) $ 16,044,270 $ 15,105,900
Savings and interest-bearing checking accounts 133,430,361 123,023,410
Time deposits 126,298,647 133,097,650
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Total deposits 275,773,278 271,226,960
Other borrowed funds - 300,000
Securities sold under agreements to repurchase 12,969,144 8,393,192
Advances from Federal Home Loan Bank 5,107,096 10,246,318
Accrued expenses and other liabilities 4,069,400 2,259,367
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Total liabilities 297,918,918 292,425,837
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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 2,094,555 shares outstanding at
June 30, 1998, 2,479,858 shares issued and 2,088,155 shares
outstanding at December 31, 1997 24,798 24,798
Paid-in capital 17,755,044 17,660,097
Retained earnings 11,044,595 10,221,049
Net unrealized gain on securities available for sale 65,950 82,318
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28,890,387 27,988,262
Treasury stock, at cost, 385,303 shares as of June 30, 1998
and 391,703 as of December 31, 1997 (2,489,200) (2,425,137)
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Total shareholders' equity 26,401,187 25,563,125
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Total liabilities and shareholders' equity $324,320,105 $317,988,962
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</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
1
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NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended June 30, 1998 and 1997
For the Six Months Ended June 30, 1998 and 1997
(Unaudited)
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Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
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Interest income
Interest on loans $ 5,155,596 $ 5,303,173 $ 10,383,557 $ 10,549,004
Interest and dividends on investments 738,321 513,198 1,324,683 1,059,562
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Total interest income 5,893,917 5,816,371 11,708,240 11,608,566
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Interest expense
Interest on deposits 2,978,011 2,852,159 5,894,704 5,711,731
Interest on advances and other borrowed money 84,340 262,734 229,999 543,959
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Total interest expense 3,062,351 3,114,893 6,124,703 6,255,690
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Net interest income 2,831,566 2,701,478 5,583,537 5,352,876
Provision for loan losses, net 52,318 164,109 66,838 376,610
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Net interest income after provision for loan losses 2,779,248 2,537,369 5,516,699 4,976,266
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Other income
Loan origination and customer service fees 397,697 354,914 670,756 664,274
Net gain on sale of securities 23,731 11,529 25,797 42,318
Net gain on sale of loans 78,349 112,535 70,705 130,835
Net gain (loss) on sale of property and equipment (1,844) - 4,918 -
Rental income 80,335 70,982 159,695 141,784
Brokerage service income 35,113 36,136 72,332 61,558
Other income - 675 - 675
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Total other income 613,381 586,771 1,004,203 1,041,444
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Other expenses
Salaries and employee benefits 1,048,976 947,547 1,977,018 1,908,989
Occupancy expenses 433,043 353,854 847,965 767,877
Advertising and promotion 73,348 50,709 148,970 128,172
Depositors' insurance 35,358 39,721 70,864 53,554
Outside services 175,533 122,588 314,703 253,327
Amortization of goodwill 61,789 60,958 123,578 118,728
Other expenses 459,241 476,648 894,637 825,572
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Total other expenses 2,287,288 2,052,025 4,377,735 4,056,219
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Income before provision for income taxes 1,105,341 1,072,115 2,143,167 1,961,491
Provision for income taxes 356,508 373,500 691,508 628,772
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Net income $ 748,833 $ 698,615 $ 1,451,659 $ 1,332,719
============= ============= ============== ==============
Comprehensive net income $ 772,862 $ 913,058 $ 1,435,291 $ 1,373,528
============= ============= ============== ==============
Earnings per common share $ 0.36 $ 0.34 $ 0.69 $ 0.64
============= ============= ============== ==============
Earnings per common share, assuming dilution $ 0.35 $ 0.33 $ 0.68 $ 0.63
============= ============= ============== ==============
Dividends declared per common share $ 0.15 $ 0.125 $ 0.30 $ 0.25
============= ============= ============== ==============
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
2
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NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 1998 and 1997
(Unaudited)
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June 30, June 30,
1998 1997
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,451,658 $ 1,332,719
Adjustments to reconcile net income to net cash
provided by operating activities -
Depreciation and amortization 313,342 305,459
Amortization of goodwill 123,578 118,728
Loans originated for sale (31,151,533) (5,494,388)
Proceeds from sale of loans 31,222,238 5,625,223
Gain from sale of loans (70,705) (130,835)
Gain from sale of debt securities available for sale (25,797) (56,200)
Gain from sale of bank premises and equipment (4,918) -
Net loss from sale of equity securities available for sale and writedowns - 13,882
Provision for loan losses and other real estate owned losses 66,838 376,610
Increase in accrued interest and other assets (226,202) (466,572)
Decrease in deferred loan fees (95,076) (53,254)
Increase (decrease) in accrued expenses and other liabilities 1,809,540 (509,570)
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Net cash provided by operating activities 3,412,963 1,061,802
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (288,046) (221,434)
Proceeds from sale of bank premises and equipment 9,145 -
Proceeds from sale of debt securities available for sale 14,136,808 5,815,622
Proceeds from sale of equity securities available for sale - 223,618
Principal reduction on securities held-to-maturity 25,000 25,000
Purchase of securities available for sale (24,350,883) (8,656,036)
Purchase of Federal Home Loan Bank stock (77,000) -
Maturities of securities available for sale 1,310,000 -
Net (increase) decrease in loans to customers 6,946,954 (2,075,305)
(Increase) decrease in real estate owned (77,082) 91,455
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Net cash used in investing activities (2,365,104) (4,797,080)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 4,546,318 1,696,531
Net increase (decrease) in repurchase agreements 4,575,952 (3,308,116)
Decrease in advances from Federal Home Loan Bank (5,439,222) (696,483)
Cash and cash equivalents of $7,559,731 acquired in
the purchase of Landmark Bank, less cash of
$2,275,000 paid for the common stock of Landmark Bank
and less $313,520 for acquisition costs 4,971,211
Dividends paid (628,112) (468,745)
Proceeds from exercise of stock options 30,884 68,560
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Net cash provided by financing activities 3,085,820 2,262,958
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 4,133,679 (1,472,320)
CASH AND CASH EQUIVALENTS, beginning of period 13,306,626 11,002,749
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CASH AND CASH EQUIVALENTS, end of period $ 17,440,305 $ 9,530,429
================= =================
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
3
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NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS - (continued)
For the Six Months Ended June 30, 1998 and 1997
(Unaudited)
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June 30, June 30,
1998 1997
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest on deposit accounts $ 5,897,233 $ 6,686,379
Interest on advances and other borrowed money 256,987 640,868
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Total interest paid $ 6,154,220 $ 7,327,247
================= =================
Income taxes, net $ 528,205 $ 604,531
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SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Transfers from loans to real estate acquired through foreclosure $ 280,000 $ 78,000
================= =================
In 1997 the Company purchased all of the common stock of Landmark Bank for $6,206,803. In Conjunction
with the acquisition, liabilities were assumed as follows:
Fair value of assets acquired $ 55,783,819
Value of common stock issued (3,931,803)
Cash paid for the common stock (2,275,000)
Deferred acquisition costs (772,016)
-----------------
Liabilities assumed $ 48,805,000
=================
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
4
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NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 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 June 30, 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
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Part I. 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 June 30, 1998, the Company had
$1,326,319, which it plans to use to continue its annual dividend payout of
$0.60 per share.
YEAR 2000
The Year 2000 (Y2K) 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. For example at the turn of the century, many legacy
systems would recognize the Year 2000 as 00 and interpret it as the year 1900.
In order to address the Y2K issue and to minimize its potential adverse
impact, management began working on Y2K issue in November 1996. The Bank's
Technology Committee developed a Y2K Plan to identify the areas that would be
affected by the "Year 2000 Problem". A computer specialist was hired to oversee
the Bank's Y2K plan and report to the Board of Directors. In December 1997, the
Bank's Board of Directors approved a capital expenditure budget of $880,000 to
address Y2K solutions. During 1998, a new mainframe computer and a proof of
deposit system have been installed. The Bank also awarded a contract for a new
Y2K compliant phone system. The new equipment replaces items that were fully
depreciated as of this year.
The Company is continuing to assess 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 Bank has substantially completed the first three phases of the plan and is
currently working with vendors on the final two 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 and is
substantially
6
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NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
complete with respect to 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 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.
In addition to the Bank's status of the `Y2K Plan' being reported to its staff
and 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).
The OTS conducted a Y2K examination in June 1998.
FINANCIAL CONDITION
During the first six months of 1998, total assets increased by $6,331,143, or
1.99% from $317,988,962 to $324,320,105. This change was primarily due to a $9
million increase in securities purchased as available for sale. As loan
customers refinanced and paid off loans, cash and cash equivalents increased.
In order to maintain spreads, the Bank converted much of this cash into
available for sale securities.
Total gross loans decreased $7,812,306 from $258,386,923 to $250,574,617, or
3.02%. During the first six months of 1998, the Bank originated over $68
million of loans, had pay-offs of approximately $39 million, normal amortization
of approximately $18 million and loans sold of $19 million. At June 30, 1998,
the Bank had $1,493,387 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. The Bank sold much of the fixed rate product into the secondary
market, retaining the servicing. Selling fixed rate loans into the secondary
market protects the Bank against interest rate risk and provides the Bank with a
consistent fee income stream. The proceeds from the sales are then available
for lending in the Bank's market area. At June 30, 1998, the Bank had
$96,130,150 in its servicing portfolio. The Bank expects to exceed $100 million
in serviced loans by the third quarter of fiscal 1998. 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. At June 30, 1998,
adjustable rate mortgages comprised approximately 85% of the Bank's real estate
mortgage loan portfolio. This is consistent with prior years.
Total investment securities increased by $8,936,694, or 27.90% from
$32,033,122 to $40,969,816 (at amortized cost). As mentioned above, the Bank
used proceeds from sold loans and paid off loans to increase investment
securities, and thereby mitigate the reduction in the Bank's interest rate
spread. The Bank's net unrealized gain of $99,381 at June 30, 1998 compares to
last June's net unrealized loss of $86,370. This change of $185,751 in market
value reflects the decrease in interest rates over the last 12 months and the
resultant rise in investment security values.
7
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NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Real estate owned and property acquired in settlement of loans increased by
$82,000, or 15.89% to $598,153. This total reflects $315,153 in market value for
the remaining five lots at Blye Hill Landing in Newbury, NH. During the first
six months of 1998, three real estate owned properties totaling $204,000 in
carrying value, were sold.
Deposits increased by $4,546,318, or 1.68% to $275,773,278 from $271,226,960.
Savings and interest-bearing checking accounts increased 8.46% as the Bank
introduced an enhanced cash management checking account for higher balance
customers. Certificates of deposit decreased due to the maturity of brokered
CD's and premium rate personal CD's that were acquired from Landmark Bank.
Advances from the Federal Home Loan Bank (FHLB) decreased by $5,139,222 to
$5,107,096 from $10,246,318. The decrease was a result of the Bank prepaying a
$5 million, 5.82% FHLB advance and principal amortizations on two FHLB advances.
The 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 June 30, 1998, the Bank's ratio of 13.82% 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 June 30, 1998, the Bank had approximately $92,000,000 in
additional borrowing capacity from the FHLB.
At June 30, 1998, the Company's shareholders' equity totaled $26,401,187, or
8.14% of total assets, compared to $25,563,125, or 8.04% of total assets at
year-end 1997. The increase of $838,062 reflects net income of $1,451,659, the
payment of $628,112 in common stock dividends, the exercise of 6,400 stock
options in the amount of $64,063, a gain of $94,947 on the sale of treasury
stock, and the change of $16,369 in net unrealized holding gains on securities
classified as available-for-sale.
For the six months ended June 30, 1998, net cash provided by operating
activities was $3,412,963, versus $1,061,802 for the same period in 1997. An
increase in other liabilities accounted for the majority of the change as
securities purchased and booked as a payable at the end of the quarter settled
in July.
Net cash flows used in investing activities amounted to $2,365,104 for the six
months ended June 30, 1998, compared to $4,797,080 in 1997. Although investment
security activity used cash flows of $8,956,075 compared to $2,591,796 in 1997,
the overall decrease of $2,431,976 in net cash used in investing activities was
primarily a result of a change in loans to customers of $9,022,259.
At June 30, 1998, net cash provided by financing activities was $3,085,820
compared to $2,262,958 for the same period in 1997. An increase in deposits and
repurchase agreements of $9,122,270 offset the prepayment and subsequent
decrease of $5,439,222 in Federal Home Loan Bank advances. This compares with a
net decrease in deposits, repurchase agreements, and Federal Home Loan Bank
advances of $2,308,068 for the six months ended 1997. In 1997, the Bank
acquired net cash and cash equivalents of $4,971,211 as a result of its
acquisition of Landmark Bank.
8
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NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
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.
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 June 30, 1998,
the Bank's ratios were 6.73%, 6.73%, and 12.55%, respectively, well in excess of
the regulators' requirements.
Book value per share was $12.60 at June 30, 1998, versus $11.78 per share at
June 30, 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 June 30, 1998, was -9.26%, 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 -9.26% at June 30, 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 fluctuations. 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 June 30, 1998 was $3,082,374, compared to
$3,061,451 at year-end 1997. The allowance in 1998 includes $2,755,129 in
general reserves as compared to $2,783,484 at year-end. Due to the lowering of
the level of non-performing loans and a lower loan portfolio balance combined
with management's assessment that reserve levels are adequate and risk has been
reduced, the total provision for loan losses was reduced by $292,333 from
$404,000 at June 30, 1997 to $111,667 for the same period in 1998.
9
<PAGE>
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
During the first six months of 1998, the Bank had net charge-offs of $45,916, or
less than .018% of total loans compared to 660,478, or .25% for 1997. In the
charge-off amount of $660,478, 245,051, or 37.12% was for one loan that is no
longer being held by the Bank. The total allowance represented 1.23% of total
loans at June 30, 1998 versus 1.18% at year-end 1997. The allowance for loan
losses as a percentage of non-performing assets was 95.48% at June 30, 1998,
compared to 97.21% 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.
As of June 30, 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 June 30, 1998 were
$6,023,611 compared to $4,859,402 at December 31, 1997. Total non-performing
assets amounted to $3,228,954 and $3,150,040, respectively. At June 30, 1998,
loans classified as 90 days and over delinquent were $641,439 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):
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
--------------- ---------------
<S> <C> <C> <C> <C>
90 days and over delinquent/(1)/ $ 641 0.20% $ 692 0.22%
Non-accrual & impaired loans/(2)/ 1,989 0.61% 1,644 0.52%
Restructured loans - - 298 0.09%
--------------- ---------------
Total non-performing loans $ 2,630 0.81% $ 2,634 0.83%
Other real estate owned 598 0.19% 516 0.16%
--------------- ---------------
Total non-performing assets $ 3,228 1.00% $ 3,150 0.99%
=============== ===============
</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 (dollars
in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
--------------- ---------------
<S> <C> <C> <C> <C>
Real estate loans -
Conventional $ 1,623 79% $ 1,562 80%
Construction 25 1% 112 1%
Collateral and Consumer 99 12% 59 11%
Commercial and Municipal 985 8% 1,006 8%
Impaired Loans 350 - 323 -
--------------- ---------------
Valuation allowance $ 3,082 100% $ 3,062 100%
=============== ===============
Total valuation allowance as a
percentage of total loans 1.23% 1.18%
=============== ===============
</TABLE>
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 six months ended June 30, 1998, was $1,451,659, or $0.68
per common share (assuming dilution) compared to $1,332,719, or $0.63 per common
share (assuming dilution) for the same period in 1997. Net income for the
second quarter in 1998 was $748,833, or $0.35 per share (assuming dilution) as
compared to $698,615, or $0.33 per share (assuming dilution) for the same period
in 1997, an increase of $118,940, or 8.92% and $50,218, or 7.19%, respectively.
The increase was due primarily to an overall increase in the yield on loans and
investments and the resultant increase in net interest income and a reduction in
the provision for loan losses.
Total interest income for the six months and the three months ended June 30,
1998 increased by $99,674, or .86%, to $10,708,240 and $77,546, or 1.33% to
$5,893,917, respectively. The change is primarily attributable to an increase
in interest and dividends on investments. Realizing that many of the Bank's
variable rate loans were refinancing into fixed rate loans and subsequently
being sold into the secondary market, the Bank took steps to stabilize its yield
on interest-earning assets. During the first six months, the Bank increased its
investment portfolio by approximately $10 million by purchasing quality
corporate bonds and government agencies with favorable yields. The Bank sells
loans into the secondary market, retaining servicing, in order to reduce
interest rate risk. Fee income associated with the sales is recorded in other
income.
For the six months and the three months ended June 30, 1998, total interest
expense decreased $130,987, or 2.09% and $52,542, or 1.69%, respectively. The
decrease was primarily a result of lower interest expense associated with
Federal Home Loan Bank advances. At June 30, 1998, FHLB advances totaled
$5,107,096 compared to $10,246,318 for the same period in 1997. During the
second quarter, the Bank prepaid an advance, which lowered the cost of advances
from 5.70% to 5.55%.
Net interest income increased $230,661, or 4.31%, for the first six months
of 1998 and $130,088, or 4.82%, for the second quarter. As mentioned above, the
increase was primarily attributable to an increase in balances and yields on
investment securities and a decrease in the average outstanding balances of
Federal Home Loan Bank advances.
Due to lower levels of non-performing loans and lower loan portfolio
balances combined with management's assessment that reserve levels are adequate
and risk has been reduced, the net provision for loan losses was reduced by
$309,772, from $376,610 at June 30, 1997 to $66,838 for the same period in 1998.
For the second quarter, the net provision for loan losses was reduced by
$111,791, from $164,109 to $52,318. The total allowance represented 1.23% of
total loans at June 30, 1998 versus 1.06% for the same period in 1997.
The Bank considers many factors in determining the allowance for loan
losses. They include, but are not limited to, 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. 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. No changes were made to the Bank's procedures with respect to
maintaining the loan loss allowances as a result of any regulatory examinations.
11
<PAGE>
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
For the six month ended June 30, 1998, total other income decreased by
$37,241, or 3.58% from $1,041,444 in 1997 to $1,004,203 for the same period in
1998. The change was primarily a result of a decrease in net gains on the sale
of securities and loans. During 1997, the Bank realized gains on the settlement
of various bonds it acquired from Landmark Bank. For the second quarter, total
other income increased slightly by $26,610, or 4.53%. Increased loan activity
and the resultant fees accounted for the majority if this change.
Total operating expenses increased $321,516, or 7.93% and $235,263, or 11.46%
for the six months and the three months ended June 30, 1998, respectively. The
increase was primarily due to costs associated with the Bank's newest office
located in the Centerra Marketplace and increased expenses associated with
greater loan volume. Additional staffing, occupancy and marketing expenses were
realized as the Bank focused on its new location and managed its loan
production.
12
<PAGE>
Part II.
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARY
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 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
13
<PAGE>
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARY
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NEW HAMPSHIRE THRIFT BANCSHARES, INC.
-------------------------------------
(Registrant)
Date: August 13, 1998 /s/ Stephen W. Ensign
------------------------ -------------------------------------
Stephen W. Ensign
Vice Chairman of the Board, President
and Chief Executive Officer
Date: August 13, 1998 /s/ Stephen R. Theroux
------------------------ -------------------------------------
Stephen R. Theroux
Executive Vice President and
Chief Operating Officer
Date: August 13, 1998 /s/ Daryl J. Cady
------------------------ -------------------------------------
Daryl J. Cady
Senior Vice President and
Chief Financial Officer
(Principal Accounting Officer)
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 8,510,305
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 8,930,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 38,929,637
<INVESTMENTS-CARRYING> 75,000
<INVESTMENTS-MARKET> 75,000
<LOANS> 250,574,617
<ALLOWANCE> 3,082,374
<TOTAL-ASSETS> 324,320,105
<DEPOSITS> 275,773,278
<SHORT-TERM> 0
<LIABILITIES-OTHER> 22,145,640
<LONG-TERM> 0
0
0
<COMMON> 24,798
<OTHER-SE> 26,376,389
<TOTAL-LIABILITIES-AND-EQUITY> 26,401,187
<INTEREST-LOAN> 5,155,596
<INTEREST-INVEST> 738,321
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 5,893,917
<INTEREST-DEPOSIT> 2,978,011
<INTEREST-EXPENSE> 3,062,351
<INTEREST-INCOME-NET> 2,831,566
<LOAN-LOSSES> 52,318
<SECURITIES-GAINS> 23,731
<EXPENSE-OTHER> 2,287,288
<INCOME-PRETAX> 1,105,341
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 748,833
<EPS-PRIMARY> 0.36
<EPS-DILUTED> 0.35
<YIELD-ACTUAL> 0
<LOANS-NON> 2,630,000
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 0
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 3,082,374
<ALLOWANCE-DOMESTIC> 3,082,374
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 9,470,429
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 60,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 28,452,934
<INVESTMENTS-CARRYING> 315,276
<INVESTMENTS-MARKET> 315,276
<LOANS> 260,072,039
<ALLOWANCE> 2,751,842
<TOTAL-ASSETS> 315,280,286
<DEPOSITS> 263,846,789
<SHORT-TERM> 0
<LIABILITIES-OTHER> 27,313,265
<LONG-TERM> 0
0
0
<COMMON> 24,798
<OTHER-SE> 24,095,434
<TOTAL-LIABILITIES-AND-EQUITY> 24,120,232
<INTEREST-LOAN> 5,303,173
<INTEREST-INVEST> 513,198
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 5,816,371
<INTEREST-DEPOSIT> 2,852,159
<INTEREST-EXPENSE> 3,114,893
<INTEREST-INCOME-NET> 2,701,478
<LOAN-LOSSES> 164,109
<SECURITIES-GAINS> 11,529
<EXPENSE-OTHER> 2,052,025
<INCOME-PRETAX> 1,072,115
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 698,615
<EPS-PRIMARY> 0.36
<EPS-DILUTED> 0.35
<YIELD-ACTUAL> 0
<LOANS-NON> 1,046,770
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 0
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 2,751,842
<ALLOWANCE-DOMESTIC> 2,751,842
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
