<PAGE>
FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For The Quarter Ended June 30, 1999
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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
----- -----
The number of shares outstanding of each of the issuer's classes of common
stock, $.01 par value per share, as of August 1, 1999, was 2,104,285.
----------
Transitional small business disclosure format:
Yes No X
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<PAGE>
NEW HAMPSHIRE THRIFT BANCSHARES, INC.
INDEX TO FORM 10-QSB
PART I. FINANCIAL INFORMATION Page
Item 1 Financial Statements:
Consolidated Statements of Financial Condition 1
June 30, 1999 and December 31, 1998
Consolidated Statements of Operations - 2
For the Three Months Ended June 30, 1999 and 1998
and the Six Months Ended June 30, 1999 and 1998
Consolidated Statements of Cash Flows - 3
For the Six Months Ended June 30, 1999 and 1998
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 15
Item 2 Changes in Securities 15
Item 3 Defaults Upon Senior 15
Securities
Item 4 Submission of Matters to a 15
Vote of Common Shareholders
Item 5 Other Information 15
Item 6 Exhibits and Reports on 15
Form 8-K
Signatures 16
<PAGE>
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
June 30, 1999 and December 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
--------------- ------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 9,477,987 $ 8,701,558
Federal funds sold - 7,583,000
--------------- ------------------
Cash and cash equivalents 9,477,987 16,284,558
Securities available-for-sale 47,644,534 52,137,753
Other investments 2,032,999 2,032,999
Loans held-for-sale 970,000 3,775,802
Loans receivable, net 251,110,010 232,321,171
Accrued interest receivable 1,873,928 1,725,235
Bank premises and equipment, net 8,277,319 8,416,182
Investments in real estate 524,125 531,729
Real estate owned and property acquired in settlement of loans 589,403 670,153
Goodwill 3,089,450 3,213,028
Other assets 3,758,071 2,299,159
--------------- ------------------
Total assets $ 329,347,826 $ 323,407,769
=============== ==================
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Checking accounts (non-interest-bearing) $ 16,474,974 $ 16,521,820
Savings and interest-bearing checking accounts 152,555,843 144,430,362
Time deposits 108,617,098 121,096,974
--------------- ------------------
Total deposits 277,647,915 282,049,156
Other borrowed funds 2,849,000 -
Securities sold under agreements to repurchase 8,744,920 11,849,116
Advances from Federal Home Loan Bank 10,000,000 -
Accrued expenses and other liabilities 2,696,126 1,729,891
--------------- ------------------
Total liabilities 301,937,961 295,628,163
=============== ==================
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 2,104,285 shares outstanding at
June 30, 1999 and December 31, 1998 24,798 24,798
Paid-in capital 17,874,567 17,874,567
Retained earnings 13,037,282 12,082,784
Accumulated other comprehensive income (1,069,205) 255,034
--------------- ------------------
29,867,442 30,237,183
Treasury stock, at cost, 375,573 shares as of June 30, 1999
and December 31, 1998 (2,457,577) (2,457,577)
--------------- ------------------
Total shareholders' equity 27,409,865 27,779,606
--------------- ------------------
Total liabilities and shareholders' equity $ 329,347,826 $ 323,407,769
=============== ==================
</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 OPERATIONS
For the Three Months Ended June 30, 1999 and 1998
For the Six Months Ended June 30, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Interest income
Interest on loans $ 4,767,295 $ 5,155,596 $ 9,381,596 $ 10,383,557
Interest and dividends on investments 883,336 738,321 1,802,303 1,324,683
------------ ----------- ----------- -----------
Total interest income 5,650,631 5,893,917 11,183,899 11,708,240
------------ ----------- ----------- -----------
Interest expense
Interest on deposits 2,502,829 2,978,011 5,133,192 5,894,704
Interest on advances and other borrowed money 108,759 84,340 162,753 229,999
------------ ----------- ----------- -----------
Total interest expense 2,611,588 3,062,351 5,295,945 6,124,703
------------ ----------- ----------- -----------
Net interest income 3,039,043 2,831,566 5,887,954 5,583,537
Provision for loan losses 30,000 52,318 60,000 66,838
------------ ----------- ----------- -----------
Net interest income after provision for loan losses 3,009,043 2,779,248 5,827,954 5,516,699
------------ ----------- ----------- -----------
Other income
Loan origination and customer service fees 451,315 397,697 858,366 670,756
Net gain (loss) on sale of securities (12,856) 23,731 32,554 25,797
Gain on sale of property acquired in settlement of loans 25,481 - 25,504 -
Net gain on sale of loans 100,649 78,349 140,878 70,705
Net gain (loss) on sale of property and equipment - (1,844) - 4,918
Rental income 85,065 80,335 170,577 159,695
Brokerage service income 49,875 35,113 85,280 72,332
------------ ----------- ----------- -----------
Total other income 699,529 613,381 1,313,159 1,004,203
------------ ----------- ----------- -----------
Other expenses
Salaries and employee benefits 1,224,044 1,048,976 2,425,570 1,977,018
Occupancy expenses 450,873 433,043 920,752 847,965
Advertising and promotion 72,459 73,348 155,542 148,970
Depositors' insurance 34,599 35,358 69,926 70,864
Outside services 141,189 175,533 266,466 314,703
Amortization of goodwill 61,789 61,789 123,578 123,578
Other expenses 436,395 459,241 862,398 894,637
------------ ----------- ----------- -----------
Total other expenses 2,421,348 2,287,288 4,824,232 4,377,735
------------ ----------- ----------- -----------
Income before provision for income taxes 1,287,224 1,105,341 2,316,881 2,143,167
Provision for income taxes 369,961 356,508 689,009 691,508
------------ ----------- ----------- -----------
Net income $ 917,263 $ 748,833 $ 1,627,872 $ 1,451,659
============ =========== =========== ===========
Comprehensive net income $ 142,900 $ 772,862 $ 303,633 $ 1,435,291
============ =========== =========== ===========
Earnings per common share, basic $ 0.44 $ 0.36 $ 0.77 $ 0.69
============ =========== =========== ===========
Earnings per common share, assuming dilution $ 0.43 $ 0.35 $ 0.77 $ 0.68
============ =========== =========== ===========
Dividends declared per common share $ 0.16 $ 0.15 $ 0.32 $ 0.30
============ =========== =========== ===========
</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 Six Months Ended June 30, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
June 30, June 30,
1999 1998
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,627,872 $ 1,451,658
Depreciation and amortization 344,502 313,342
Amortization of goodwill 123,578 123,578
Loans originated for sale (27,400,457) (31,151,533)
Proceeds from sale of loans 27,541,335 31,222,238
Gain from sale of loans (140,878) (70,705)
Gain from sale of debt securities available-for-sale (32,554) (25,797)
Gain from sale of bank premises and equipment - (4,918)
Provision for loan losses and other real estate owned losses 60,000 66,838
Gain on sale of property acquired in settlement of loan (25,504) -
Increase in accrued interest and other assets (1,558,803) (226,202)
Decrease in deferred loan fees (203,783) (95,076)
Increase in accrued expenses and other liabilities 1,799,440 1,809,540
------------ ------------
Net cash provided by operating activities 2,134,748 3,412,963
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (206,028) (288,046)
Proceeds from sale of bank premises and equipment 7,995 9,145
Proceeds from sale of debt securities available-for-sale 15,940,595 14,136,808
Purchase of securities available-for-sale (13,871,073) (24,325,883)
Purchase of Federal Home Loan Bank stock - (77,000)
Maturities of securities available for sale 250,000 1,310,000
Net (increase) decrease in loans to customers (15,839,254) 6,946,954
(Increase) decrease in real estate owned 106,254 (77,082)
------------ ------------
Net cash used in investing activities (13,611,511) (2,365,104)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits (4,401,241) 4,546,318
Net increase (decrease) in repurchase agreements (3,104,196) 4,575,952
Increase (decrease) in advances from Federal Home Loan Bank
and other borrowings 12,849,000 (5,439,222)
Dividends paid (673,371) (628,112)
Proceeds from exercise of stock options - 30,884
------------ ------------
Net cash provided by financing activities 4,670,192 3,085,820
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (6,806,571) 4,133,679
CASH AND CASH EQUIVALENTS, beginning of period 16,284,558 13,306,626
------------ ------------
CASH AND CASH EQUIVALENTS, end of period $ 9,477,987 $ 17,440,305
============ ============
</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 Six Months Ended June 30, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
June 30, June 30,
1999 1998
----------- -----------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest on deposit accounts $ 5,155,360 $ 5,897,233
Interest on advances and other borrowed money 119,670 256,987
----------- -----------
Total interest paid $ 5,275,030 $ 6,154,220
----------- -----------
Income taxes, net $ 530,400 $ 528,205
----------- -----------
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Transfers from loans to real estate acquired through foreclosure $ 17,250 $ 280,000
----------- -----------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
4
<PAGE>
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999 and December 31, 1998
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 and the six months ended
June 30, 1999 are not necessarily indicative of the results that may be expected
for the year ending December 31, 1999.
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 for the year 1998.
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 - Branch Acquisitions
- ----------------------------
On April 12, 1999, Lake Sunapee Bank, fsb signed a definitive agreement to
acquire three branch offices of New London Trust, New London, NH. This agreement
was amended on June 1, 1999. Under the terms of the agreement, Lake Sunapee
Bank, fsb will acquire the Main Office of New London Trust, as well as, the
Andover and Newbury branches.
The transaction, which is subject to regulatory approval, is expected to close
during the fourth quarter of this year. This transaction will include
approximately $103 million in deposits and $88 million in loans. It is
anticipated that this in-market acquisition will increase Company assets to over
$440 million and be accretive to shareholders beginning in the year 2000.
Note D - Guaranteed Preferred Beneficial Interests in Company's Debentures
- --------------------------------------------------------------------------
On August 12, 1999, NHTB Capital Trust I (the "Trust"), a Delaware business
trust formed by the Company, completed the sale of $15 million of 9.25% Capital
Securities (the "Capital Securities"). The Trust also issued Common Securities
to the Company and used the net proceeds from the offering to purchase a like
amount of 9.25% Junior Subordinated Deferrable Interest Debentures (the
"Debentures") of the Company. The Debentures are the sole assets of the Trust
and are eliminated, along with the related income statement effects, in the
consolidated financial statements. The Company will contribute the proceeds from
the sale of the Debentures to the Bank as Tier I Capital to support the pending
acquisition of the three branches of New London Trust, FSB. Total expenses
associated with the offering approximating $900,000 were included in other
assets and are being amortized on a straight-line basis over the life of the
Debentures.
The Capital Securities accrue and pay distributions quarterly at an annual rate
of 9.25% of the stated liquidation amount of $10 per Capital Security. The
Company has fully and unconditionally guaranteed all of the obligations of the
Trust. The guaranty covers the quarterly distributions and payments on
liquidation or redemption of the Capital Securities, but only to the extent of
the funds held by the Trust.
The Preferred Securities are mandatorily redeemable upon the maturing of the
Debentures on September 30, 2029 or upon earlier redemption as provided in the
Indenture. The Company has the right to redeem the Debentures, in whole or in
part on or after September 20, 2004 at the liquidation amount plus any accrued
but unpaid interest to the redemption date.
5
<PAGE>
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, 1999, the Company had $661,340
available, which it plans to use to continue its annual dividend payout of $0.64
per share. On August 12, 1999, the Bank upstreamed an additional $500,000 to the
Company.
Forward-looking Statements
The preceding and following discussion may contain certain forward-looking
statements which are based on management's current expectations regarding
economic, legislative, and regulatory issues that may impact the Company's
earnings in future periods. Factors that could cause future results to vary
materially from current management expectations include, but are not limited to:
general economic conditions, changes in interest rates, deposit flows, real
estate values, and competition; changes in accounting principles, policies, or
guidelines; changes in legislation or regulation; and other economic,
competitive, governmental, regulatory and technological factors affecting the
Company's operations, pricing, products and services. In particular, these
issues may impact management's estimates used in evaluating market risk and
interest rate risk in it GAP and NPV tables, loan loss provisions,
classification of assets, Year 2000 issues, accounting estimates and other
estimates used throughout this discussion.
Pending Acquisition of Three New London Trust, FSB Branches
On April 12, 1999, the Bank announced the signing of a definitive agreement
to purchase three branches located in New London, Andover, and Newbury, New
Hampshire from New London Trust, FSB. The transaction, which is subject to
regulatory approval, is currently expected to close in the fourth quarter of
1999. The Bank has filed the regulatory applications necessary to obtain the
required regulatory approvals.
Under the agreement, the Bank will acquire all of the deposits, certain
loans and other assets and liabilities related to the three branches. As of June
30, 1999, total deposits amounted to approximately $103 million and total loans
amounted to approximately $84 million.
6
<PAGE>
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
On August 12, 1999, NHTB Capital Trust I (the "Trust"), a Delaware business
trust formed by the Company, completed the sale of $15 million of 9.25% Capital
Securities (the "Capital Securities"). The Trust also issued Common Securities
to the Company and used the net proceeds from the offering to purchase a like
amount of 9.25% Junior Subordinated Deferrable Interest Debentures (the
"Debentures") of the Company. The Debentures are the sole assets of the Trust
and are eliminated, along with the related income statement effects, in the
consolidated financial statements. The Company will contribute the proceeds from
the sale of the Debentures to the Bank as Tier I Capital to support the pending
acquisition of the three branches of New London Trust, FSB. Total expenses
associated with the offering approximating $900,000 were included in other
assets and are being amortized on a straight-line basis over the life of the
Debentures.
The Capital Securities accrue and pay distributions quarterly at an annual
rate of 9.25% of the stated liquidation amount of $10 per Capital Security. The
Company has fully and unconditionally guaranteed all of the obligations of the
Trust. The guaranty covers the quarterly distributions and payments on
liquidation or redemption of the Capital Securities, but only to the extent of
the funds held by the Trust.
The Preferred Securities are mandatorily redeemable upon the maturing of
the Debentures on September 30, 2029 or upon earlier redemption as provided in
the Indenture. The Company has the right to redeem the Debentures, in whole or
in part on or after September 20, 2004 at the liquidation amount plus any
accrued but unpaid interest to the redemption date.
Year 2000
Many companies continue to undertake projects to address the Year 2000
(Y2K). Companies have determined potential costs and uncertainties based on a
number of factors, including its software and hardware and the nature of its
business. Companies must also coordinate with other entities with which they do
business. Lake Sunapee Bank, through its technology committee and an outside
consultant, implemented many hardware and software changes during 1998. The Bank
installed a new data processing mainframe computer, upgraded its mainframe
software, and installed a new proof of deposit and check imaging system. All of
these Y2K compliant systems were in operation throughout most of 1998.
Y2K testing has been on going and will continue throughout 1999. Based on a
review of internal practices and communications with third party processors, the
Bank does not expect to encounter significant difficulties in connection with
the transition to the Year 2000. The status of the Bank's `Year 2000 Action
Plan' is reported to its Board of Directors monthly. A $100,000 annual provision
has been established to cover Y2K related expenses. In conjunction with the
`Action Plan', the Bank has developed a `Business Continuity Plan'. This Plan is
designed to allow the Bank to operate should a system it relies on fail. As part
of the `Business Continuity Plan', the Bank has purchased power generators and
designed a manual accounting system. It is unlikely the Bank will need to
utilize these systems, but nevertheless, they have been developed and are being
tested. The Bank has scheduled a `mock' Y2K disaster for the end of September.
Teams have been assigned tasks and the plan will be implemented using various
assumptions.
The Bank is subject to regulatory review concerning the Year 2000 from its
primary regulator, The Office of Thrift Supervision (OTS). During 1998, the Bank
had both its Phase I and Phase II examinations and during the second quarter of
1999 its Phase III exam.
7
<PAGE>
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Monitoring and managing the Year 2000 project has and will likely continue
to result in additional direct and indirect costs to the Bank. Direct costs
include potential charges by third party software vendors for product
enhancements, costs involved in testing software for Year 2000 compliance, and
any resulting costs for developing and implementing contingency plans for
critical software products not enhanced. Indirect costs will principally consist
of the time devoted by existing employees in monitoring software vendor
progress, testing enhanced software products and implementing necessary
contingency plans. Both direct and indirect costs of addressing the Year 2000
Issue will be charged to earnings as incurred. Such costs have not been material
to date.
Financial Condition
During the first six months of 1999, total assets increased by $5,940,057,
or 1.84% from $323,407,769 to $329,347,826. An increase in total loans of
$15,847,665, or 6.63% partially offset by an $11,299,790, or 16.51% decrease in
cash and cash equivalents and investment securities accounted for the majority
of the change.
As mentioned above, total loans increased $15,847,665 from $239,116,440 to
$254,964,105, or 6.63%. As of June 30, 1999, the Bank had originated $87 million
in loans, had pay-offs of approximately $38 million, normal amortization of
approximately $15 million and loans sold of approximately $18 million. Of the
$87 million in loan originations, approximately 82% was attributed to mortgage
and other consumer loans. Commercial real estate and other commercial loans
accounted for the remaining 18%. During the first three months of 1999, as
interest rate remained favorable, many of the Bank's variable rate mortgage loan
customers refinanced into fixed rate products. The Bank sold much of this fixed
rate product into the secondary market, retaining the servicing. Selling fixed
rate loans into the secondary market helps protect the Bank against interest
rate risk and provides the Bank with a consistent fee income stream. The Bank
expects to continue to sell fixed rate loans into the secondary market from time
to time in order to manage interest rate risk. Market risk exposure during the
production cycle is managed through the use of secondary market forward
commitments. Proceeds from the sale of loans are available to lend back into the
Bank's market area and to purchase investment securities. At June 30, 1999, the
Bank had $146,114,770 in its servicing portfolio. The Bank expects to exceed
$170 million in serviced loans by the end of 1999. As interest rates began to
rise during the second quarter, the Bank elected to hold certain fixed rate
mortgage loans in portfolio. Approximately 25% of the $15,847,665 loan increase
was attributed to mortgage loans held in portfolio. The remaining 75% was
attributed to commercial real estate and other commercial loans. At June 30,
1999, adjustable rate loans comprised approximately 79% of the Bank's loan
portfolio. This is consistent with prior years.
As of June 30, 1999, total investment securities decreased by $2,335,774,
or 4.35% from $53,755,251 to $51,419,477 (at amortized cost). During the first
six months of 1999, the Bank purchased approximately $14 million of investment
securities to offset the approximately $16 million in calls, sales and
maturities of securities that occurred during that same time. The Bank continues
to use proceeds from sold loans and paid loans to purchase investment securities
with favorable yields, thereby mitigating the reduction in the Bank's interest
rate spread that might otherwise occur. The Bank's net unrealized gain was
$415,501 at December 31, 1998 compared to a net unrealized loss of $1,741,944 at
June 30, 1999. This change of $2,157,445 reflects the rise in interest rates
during the first six months of 1999 and the corresponding decrease in investment
security market values.
8
<PAGE>
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 decreased by
$80,750, or 12.05% to $589,403. This total reflects $315,153 in market value for
the remaining five lots at Blye Hill Landing in Newbury, NH. During the second
quarter, two real estate owned properties were sold. The Bank realized a $25,481
gain on the sales.
Deposits decreased by $4,401,241, or 1.56% to $277,647,915 from
$282,049,156 at year-end. Certificates of deposit decreased 10.31% as many
higher balance customers sought investment alternatives. Savings and
interest-bearing checking accounts increased by 5.63% as many customers who
traditionally sought CDs invested funds in overnight-type accounts. Non-interest
bearing checking accounts decreased slightly by .28%.
Securities sold under agreement to repurchase decreased by $3,104,196, to
$8,744,920 from $11,849,116. As mentioned above, many higher balance customers
sought investment alternatives. Repurchase agreements are collateralized by the
Bank's government and agency investment securities.
Overnight and long-term advances from the Federal Home Loan Bank (FHLB)
increased to $12,849,000 from zero at year-end. During the first six months of
1999, the Bank funded a net $15.8 million increase in loans and a $7.5 million
decrease in deposits and repurchase agreements using approximately $9.3 million
in cash and cash equivalents and investment security proceeds and $12.8 million
from FHLB advances.
Accrued expenses and other liabilities increased $966,235, to $2,696,126
from $1,729,891. The majority of the increase was attributable to an increase in
secondary market loan payments and mortgagors' insurance and tax payments held
in escrow.
Liquidity and Capital Resources
The Bank is required to maintain a 4% ratio of liquid assets to net
withdrawable funds. At June 30, 1999, the Bank's ratio of 9.06% 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, 1999, the Bank had approximately $88 million in
additional borrowing capacity from the FHLB.
At June 30, 1999, the Company's shareholders' equity totaled $27,409,865,
or 8.32% of total assets, compared to $27,779,606, or 8.59% of total assets at
year-end 1998. The decrease of $369,741 reflects net income of $1,627,872, the
payment of $673,371 in common stock dividends and the decrease of $1,324,242 in
the net unrealized holding gain on securities classified as available-for-sale.
This change reflects the rise in interest rates during the first six months of
1999 and the corresponding decrease in investment security market values during
the same period.
For the three months ended June 30, 1999, net cash provided by operating
activities was $2,134,748, versus $3,412,963 for the same period in 1998. A net
increase in accrued interest and other assets accounted for the majority of the
change.
9
<PAGE>
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Net cash flows used in investing activities amounted to $13,611,511 for the
six months ended June 30, 1999, compared to $2,365,104 for the same period in
1998, a change of approximately $11 million. A net increase in loans to
customers used cash flows of $15,839,254 compared to a decrease in loans that
provided cash flows of $6,946,954 for the same period in 1998, a change of
approximately $23 million. During the first six months of 1999, purchases of
investment securities were approximately $14 million and sales, calls and
maturities of investment securities were approximately $16 million. Investment
securities activity for the first six months of 1999 provided net cash of
approximately $2 million compared to net cash used of approximately $9 million
for the same period in 1998, a change of approximately $11 million.
At June 30, 1999, net cash flows provided by financing activities was
$4,670,192 compared to $3,085,820 for the same period in 1998, a change of
approximately $1.6 million. A decrease in deposits and repurchase agreements of
$7,505,437 was offset by an increase in advances from the FHLB and other
borrowings of $12,849,000. During the same time period in 1998, deposits and
repurchase agreements increased $9,122,270 while FHLB advances decreased
$5,439,222.
The Bank expects to be able to fund loan demand and other investing during
1999 by continuing to use funds provided from customer deposits, as well as the
FHLB's advance program. Management believes that cash from its operations and
from the Debentures will be sufficient to meet its cash and capital requirements
after the pending acquisition of the three New London Trust, FSB branches is
completed. 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 tangible capital, core leverage capital, and
total risk based capital of 1.50%, 4.00%, and 8.00%, respectively. As of June
30, 1999, the Bank's ratios were 7.53%, 7.53%, and 12.53%, respectively, well in
excess of the regulators' requirements.
Book value per share was $13.03 at June 30, 1999, versus $12.60 per share
at June 30, 1998. The increase in paid-in capital and retained earnings provided
the increase in book value per share.
Interest Rate Sensitivity
The principal objective of the Bank's interest rate management function is
to evaluate the interest rate risk inherent in certain balance sheet accounts
and determine the appropriate level of risk given the Bank's business
strategies, operating environment, capital and liquidity requirements and
performance objectives and to manage the risk consistent with the Board of
Directors' approved guidelines. The Bank's Board of Directors has established an
Asset/Liability Committee (ALCO) to review its asset/liability policies and
interest rate position monthly. Trends and interest rate positions are reported
to the Board of Directors quarterly.
Gap analysis is used to examine the extent to which assets and liabilities
are "rate sensitive". An asset or liability is said to be interest rate
sensitive within a specific time-period if it will mature or reprice within that
time. The interest rate sensitivity gap is defined as the difference between the
amount of interest-earning assets maturing or repricing within a specified
period of time and the amount of interest-bearing liabilities maturing or
repricing within the same specified period of time. The strategy of matching
rate sensitive assets with similar liabilities stabilizes profitability during
periods of interest rate fluctuations.
10
<PAGE>
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
The Bank's one-year gap at June 30, 1999 was approximately 7.00%, compared
to the December 31, 1998 gap of 6.78%. The Bank continues to hold in portfolio
adjustable rate mortgages, which reprice at one, three, and five-year intervals.
The Bank sells fixed-rate mortgages into the secondary market in order to
minimize interest rate risk.
The Bank's gap, of approximately negative seven percent at June 30, 1999,
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 FHLB advance program to
control the repricing of a segment of liabilities.
As another part of its interest rate risk analysis, the Bank uses an
interest rate sensitivity model, which generates estimates of the change in the
Bank's net portfolio value (NPV) over a range of interest rate scenarios. The
OTS produces the data quarterly using its own model and data submitted by the
Bank.
NPV is the present value of expected cash flows from assets, liabilities
and off-balance sheet contracts. The NPV ratio, under any rate scenario, is
defined as the NPV in that scenario divided by the market value of assets in the
same scenario. Modeling changes requires making certain assumptions, which may
or may not reflect the manner in which actual yields and costs respond to the
changes in market interest rates. In this regard, the NPV model assumes that the
composition of the Bank's interest sensitive assets and liabilities existing at
the beginning of a period remain constant over the period being measured and
that a particular change in interest rates is reflected uniformly across the
yield curve. Accordingly, although the NPV measurements and net interest income
models provide an indication of the Bank's interest rate risk exposure at a
particular point in time, such measurements are not intended to and do not
provide a precise forecast of the effect of changes in market rates on the
Bank's net interest income and will likely differ from actual results.
The following table sets forth the Bank's NPV as of March 31, 1999 (the
latest NPV analysis prepared by the OTS), as calculated by the OTS.
Change Net Portfolio Value NPV as % of PV Assets
in Rates $ Amount $ Change % Change NPV Ratio Change
- --------------- -------------------------------- ----------------------
+300 bp ....... 24,171 - 9,384 - 28% 7.69% - 264 bp
+200 bp ....... 28,118 - 5,437 - 16% 8.83% - 150 bp
+100 bp ....... 31,321 - 2,234 - 7% 9.72% - 61 bp
0 bp ....... 33,554 -- -- 10.33% --
- -100 bp ....... 35,358 1,804 + 5% 10.81% + 48 bp
- -200 bp ....... 37,279 3,725 + 11% 11.30% + 97 bp
- -300 bp ....... 40,085 6,530 + 19% 12.03% + 170 bp
11
<PAGE>
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
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 regular 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, 1999 was $3,185,480, compared to
$3,117,068 at year-end 1998. As of June 30, 1999, the allowance included
$2,695,657 in general reserves compared to $2,731,374 at year-end 1998. The
total allowance represented 1.25% of total loans at June 30, 1999 versus 1.30%
at year-end 1998. The allowance for loan losses as a percentage of non-
performing assets was 139.39% at June 30, 1999, compared to 115.82% at December
31, 1998. During the first six months of 1999, the Bank had net recoveries of
$8,412 compared to net charge-offs of $45,916 for the same period in 1998.
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, 1999, 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, 1999 were
$3,923,237 compared to $5,356,046 at December 31, 1998. At June 30, 1999, loans
classified as 90 days delinquent were $549,043 compared to $170,999 at December
31, 1998. At June 30, 1999, non-earning assets were $1,146,854 compared to
$1,850,214 at year-end 1998. Total non-performing assets amounted to $2,285,300
and $2,691,366, for June 30, 1999 and December 31, 1998, respectively.
The following table shows the breakdown of non-performing assets and non-
performing assets as a percentage of total assets (dollars in thousands):
June 30, December 31,
1999 1998
------------------ ---------------
90 day delinquent loans (1) $ 549 0.17% $ 171 0.05%
Non-earning assets (2) 1,147 0.34% 1,850 0.57%
Other real estate owned 589 0.18% 670 0.21%
------------------ ---------------
Total non-performing assets $ 2,285 0.69% $ 2,691 0.83%
------------------ ---------------
Troubled debt restructured $ - - $ 114 0.04%
------------------ ---------------
(1) All loans 90 days or more delinquent are placed on a non-accruing status.
(2) Loans considered to be uncollectible, pending foreclosure, impaired, or in
bankruptcy proceeding, are placed on a non-earning status.
12
<PAGE>
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
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):
June 30, December 31,
1999 1998
--------------- ---------------
Real estate loans -
Conventional $ 1,431 79% $ 1,473 79%
Construction 118 2% 123 2%
Collateral and Consumer 76 11% 68 11%
Commercial and Municipal 1,056 8% 1,007 8%
Other loans 76 - 60 -
Impaired Loans 428 - 386 -
--------------- ---------------
Valuation allowance $ 3,185 100% $ 3,117 100%
=============== ===============
Total valuation allowance as a
Percentage of total loans 1.25% 1.30%
--------- ---------
Results of Operations
Net income for the six months ended June 30, 1999, was $1,627,872, or $0.77
per common share (assuming dilution) compared to $1,451,659, or $0.68 per common
share (assuming dilution) for the same period in 1998. Net income for the second
quarter in 1999 was $917,263, or $0.43 per share (assuming dilution) as compared
to $748,833, or $0.35 per share (assuming dilution) for the same period in 1998,
an increase of $176,213, or 12.14% and $168,430, or 22.49%, respectively. The
increase was due primarily to a decrease in the cost of deposits, advances, and
other borrowed funds and the resultant increase in net interest income.
Total interest income for the six months and the three months ended June
30, 1999 decreased by $524,341, or 4.48%, to $11,183,899 and $243,286, or 4.13%
to $5,650,631, respectively. The change is primarily attributable to a
$1,001,961, or 9.65% and $388,301, or 7.53%, decrease in interest on loans. As
many of the Bank's loan customers refinanced adjustable rate loans into fixed
rate loans, the Bank, in order to avoid interest rate risk, sold the loans into
the secondary market. Fee income associated with the sales is recorded in other
income. Partially offsetting the decrease in interest on loans was a $477,620,
or 36.06% and $145,015, or 19.64% increase in interest and dividends on
investments. Over the past several months, the Bank has increased its investment
portfolio by purchasing quality corporate bonds and government agencies with
favorable yields as a strategy to stabilize its yield on interest-earning
assets.
For the six months and the three months ended June 30, 1999, total interest
expense decreased $828,758, or 13.53% and $450,763, or 14.72%, respectively. The
decrease was primarily a result of lower interest expense associated with
deposits. During the first six months of 1999, both total deposits and the cost
of deposits decreased. Seasonal customer demands primarily attributed to the
decrease in deposit balances. In addition, many certificate of deposit customers
sought investment alternatives as deposit rates continued to decline. Savings
and interest-bearing checking accounts increased as customers elected
shorter-term instruments.
13
<PAGE>
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Interest expense on FHLB overnight and long-term advances decreased
$67,246, or 29.24% for the six months ended and increased $24,419, or 28.95% for
the three months ended June 30, 1999. At June 30, 1999, overnight and long-term
FHLB advances totaled $12,849,000 compared to $5,107,096 for the same period in
1998. The average balance in overnight and long-term FHLB advances was
$6,505,831 and $8,069,546 at June 30, 1999 and 1998, respectively. The cost of
advances was 4.99% at June 30, 1999 compared to 5.56% for the same period in
1998.
Net interest income increased $304,417, or 5.45%, for the first six months
of 1999 and $207,477, or 7.33%, for the second quarter. As mentioned above, the
increase was primarily attributable to a decrease in the cost of deposits,
advances, and other borrowed funds.
Due to continued lower levels of non-performing loans and lower loan
portfolio average balances combined with management's assessment that reserve
levels are adequate and risk has been reduced, the net provision for loan losses
was maintained at $60,000 for the first six months of 1999 as compared to
$66,838 for the same period in 1998. For the second quarter, the net provision
for loan losses was $30,000 compared to $52,318 for the same period in 1998. The
total allowance represented 1.25% of total loans at June 30, 1999 versus 1.23%
for the same period in 1998.
For the six months ended June 30, 1999, total other income increased by
$308,956, or 30.77% from $1,004,203 in 1998 to $1,313,159 for the same period in
1999. The change was primarily a result of an increase in loan origination and
customer service fees and net gains on the sale of securities, loans, and
property acquired in settlement of loans. For the second quarter, total other
income increased by $86,148, or 14.04%. Loan activity and the resultant fees
accounted for the majority if this change.
Total operating expenses increased $446,497, or 10.20% and $134,060, or
5.86% for the six months and the three months ended June 30, 1999, respectively.
The increase was primarily due to costs associated with additional staffing,
occupancy and marketing expenses. Salaries and employee benefits increased as
the Bank managed its loan production and as costs associated with various
benefit plans rose. Occupancy costs increased as general expenses related to the
Bank's branches increased and as depreciation expenses associated with capital
expenditures done during 1998 were recognized. Marketing increased as the Bank
enhanced its position within a highly competitive market.
14
<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
subsidiary is a party or which the property of the Company or its
subsidiary 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 27 Financial Data Schedules (EDGAR filing only)
B.) Reports on Form 8-K:
None
15
<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 16, 1999 /s/ Stephen W. Ensign
---------------------- --------------------------------------------------
Stephen W. Ensign
Vice Chairman of the Board, President
and Chief Executive Officer
Date: August 16, 1999 /s/ Stephen R. Theroux
---------------------- -------------------------------------------------
Stephen R. Theroux
Executive Vice President and
Chief Operating Officer
Date: August 16, 1999 /s/ Daryl J. Cady
---------------------- -------------------------------------------------
Daryl J. Cady
Senior Vice President and
Chief Financial Officer
(Principal Accounting Officer)
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
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<CURRENCY> U.S. DOLLAR
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<EXCHANGE-RATE> 1
<CASH> 9,477,987
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 47,644,534
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<LOANS> 254,964,105
<ALLOWANCE> 3,185,480
<TOTAL-ASSETS> 329,347,826
<DEPOSITS> 277,647,915
<SHORT-TERM> 10,000,000
<LIABILITIES-OTHER> 14,290,046
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0
0
<COMMON> 24,798
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<TOTAL-LIABILITIES-AND-EQUITY> 27,409,865
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<INTEREST-TOTAL> 5,650,631
<INTEREST-DEPOSIT> 2,502,829
<INTEREST-EXPENSE> 2,611,588
<INTEREST-INCOME-NET> 3,039,043
<LOAN-LOSSES> 30,000
<SECURITIES-GAINS> (12,856)
<EXPENSE-OTHER> 2,421,348
<INCOME-PRETAX> 1,287,224
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 917,263
<EPS-BASIC> 0.44
<EPS-DILUTED> 0.43
<YIELD-ACTUAL> 7.42
<LOANS-NON> 1,146,854
<LOANS-PAST> 0
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<ALLOWANCE-CLOSE> 3,185,480
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