<PAGE>
FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For The Quarter Ended March 31, 2000
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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 April 12, 2000, was 2,062,685
---------
Transitional small business disclosure format:
Yes____ No X
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<PAGE>
HAMPSHIRE THRIFT BANCSHARES, INC.
INDEX TO FORM 10-QSB
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page
<S> <C>
Item 1 Financial Statements:
Consolidated Statements of Financial Condition - 1
March 31, 2000 and December 31, 1999
Consolidated Statements of Operations - 2
For the Three Months Ended March 31, 2000 and
1999
Consolidated Statements of Cash Flows - 3
For the Three Months Ended March 31, 2000 and 1999
Notes To Consolidated Financial Statements - 5
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations - 6
Item 3 Independent Accountants' Report 14
PART II. OTHER INFORMATION
Item 1 Legal Proceedings 15
Item 2 Changes in Securities 15
Item 3 Defaults Upon Senior Securities 15
Item 4 Submission of Matters to a Vote of Common Shareholders 15
Item 5 Other Information 15
Item 6 Exhibits and Reports on Form 8-K 15
Signatures 16
</TABLE>
<PAGE>
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
March 31, 2000 and December 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
------------------ ------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 12,219,476 $ 22,558,929
Federal funds sold - -
------------------ ------------------
Cash and cash equivalents 12,219,476 22,558,929
Securities available-for-sale 43,623,780 47,540,736
Securities held-to-maturity 10,007,215 10,006,952
Other investments 2,474,199 2,032,999
Loans held-for-sale - 0
Loans receivable, net 352,531,414 346,491,828
Accrued interest receivable 2,424,410 2,450,268
Bank premises and equipment, net 10,073,521 10,028,893
Investments in real estate 512,737 516,533
Real estate owned and property acquired in settlement of loans 91,158 219,000
Goodwill 13,443,333 13,850,308
Other assets 5,326,289 5,751,884
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Total assets $ 452,727,532 $ 461,448,330
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LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Checking accounts (non-interest-bearing) $ 16,794,584 $ 21,597,464
Savings and interest-bearing checking accounts 207,766,186 208,831,598
Time deposits 148,596,631 136,209,027
------------------ ------------------
Total deposits 373,157,401 366,638,089
Other borrowed funds 1,725,000 12,440,000
Securities sold under agreements to repurchase 9,514,900 14,038,117
Advances from Federal Home Loan Bank 20,000,000 22,000,000
Accrued expenses and other liabilities 4,662,270 2,688,977
------------------ ------------------
Total liabilities 409,059,571 417,805,183
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Guaranteed preferred beneficial interests in junior subordinated debentures 16,400,000 16,400,000
------------------ ------------------
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 2,062,685 shares outstanding at
March 31, 2000, and 5,000,000 shares authorized, 2,479,858 shares
issued and 2,106,685 shares outstanding at December 31, 1999 24,798 24,798
Paid-in capital 17,895,316 17,895,316
Retained earnings 14,512,397 14,044,427
Accumulated other comprehensive income (loss) (2,195,268) (2,271,617)
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30,237,243 29,692,924
Treasury stock, at cost, 417,173 shares as of March 31, 2000
and 373,173 shares as of December 31, 1999 (2,969,282) (2,449,777)
------------------ ------------------
Total shareholders' equity 27,267,961 27,243,147
------------------ ------------------
Total liabilities and shareholders' equity $ 452,727,532 $ 461,448,330
================== ==================
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
1
<PAGE>
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the Three Months Ended March 31, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
March 31, March 31,
2000 1999
--------------------- ---------------------
<S> <C> <C>
Interest income
Interest on loans $ 6,719,554 $ 4,614,301
Interest and dividends on investments 1,094,356 918,967
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Total interest income 7,813,910 5,533,268
--------------------- ---------------------
Interest expense
Interest on deposits 3,281,383 2,630,363
Interest on advances and other borrowed money 737,570 53,994
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Total interest expense 4,018,953 2,684,357
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Net interest income 3,794,957 2,848,911
Provision for loan losses 30,000 30,000
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Net interest income after provision for loan losses 3,764,957 2,818,911
--------------------- ---------------------
Other income
Loan origination and customer service fees 571,731 407,051
Net gain (loss) on sale of securities (10,917) 45,409
Gain on sale of property acquired in settlement of loan - 23
Net gain (loss) on sale of loans (24,767) 40,229
Net gain on sale of bank property and equipment - -
Rental income 106,401 85,512
Brokerage service income 37,840 35,405
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Total other income 680,288 613,629
--------------------- ---------------------
Other expenses
Salaries and employee benefits 1,688,204 1,201,526
Occupancy expenses 547,085 469,879
Advertising and promotion 69,564 83,083
Depositors' insurance 20,071 35,327
Outside services 126,358 125,277
Amortization of goodwill 245,776 61,789
Other expenses 563,264 426,003
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Total other expenses 3,260,322 2,402,884
--------------------- ---------------------
Income before provision for income taxes 1,184,923 1,029,656
Provision for income taxes 379,843 319,048
--------------------- ---------------------
Net income $ 805,080 $ 710,608
===================== =====================
Comprehensive net income $ 881,429 $ 160,732
===================== =====================
Earnings per common share, basic $ .39 $ .34
===================== =====================
Earnings per common share, assuming dilution $ .38 $ .34
===================== =====================
Dividends declared per common share $ .16 $ .16
===================== =====================
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
2
<PAGE>
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
March 31, March 31,
2000 1999
-------------------- -------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 805,080 $ 710,608
Depreciation and amortization 195,940 180,967
Amortization of goodwill 245,776 61,789
Loans originated for sale (2,268,578) (13,245,698)
Proceeds from sale of loans 2,243,811 13,285,927
(Gain) loss from sale of loans 24,767 (40,229)
(Gain) loss from sale of debt securities available-for-sale 10,917 (45,409)
Provision for loan losses and other real estate owned losses 30,000 30,000
Gain on sale of property acquired in settlement of loan - (23)
(Increase) decrease in accrued interest and other assets 527,539 (766,453)
Change in deferred loan origination fees and cost, net 10,817 (118,624)
Increase in accrued expenses and other liabilities 1,973,293 2,215,599
-------------------- -------------------
Net cash provided by operating activities 3,799,362 2,268,454
-------------------- -------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (236,772) (96,420)
Proceeds from sale of bank premises and equipment - 7,995
Proceeds from sale of debt securities available-for-sale 5,883,294 7,017,524
Purchase of securities available-for-sale (1,977,255) (7,017,816)
Purchase of Federal Home Loan Bank stock (441,200) -
Net increase in loans to customers (5,952,561) (4,234,360)
Adjustment to NLT Goodwill 161,199 -
-------------------- -------------------
Net cash used in investing activities (2,563,295) (4,323,077)
-------------------- -------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits 6,519,312 (6,607,441)
Net increase (decrease) in repurchase agreements (4,523,217) (4,764,024)
Increase (decrease) in advances from Federal Home Loan Bank
and other borrowings (12,715,000) 3,848,000
Dividends paid (337,110) (336,686)
Payments to acquire treasury stock (519,505) -
-------------------- -------------------
Net cash used in financing activities (11,575,520) (7,860,151)
-------------------- -------------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (10,339,453) (9,914,774)
CASH AND CASH EQUIVALENTS, beginning of period 22,558,929 16,284,558
-------------------- -------------------
CASH AND CASH EQUIVALENTS, end of period $ 12,219,476 $ 6,369,784
==================== ===================
</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 SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - (continued)
For the Three Months Ended March 31, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
March 31, March 31,
2000 1999
----------------- -----------------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest on deposit accounts $ 3,281,383 $ 2,646,650
Interest on advances and other borrowed money 737,570 46,542
----------------- -----------------
Total interest paid $ 4,018,953 $ 2,693,192
================= =================
Income taxes, net $ 400 $ 400
================= =================
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Transfers from loans to real estate acquired through foreclosure $ 67,158 $ 17,250
================= =================
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
4
<PAGE>
HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000 and December 31, 1999
Note A - Basis of Presentation
- ------------------------------
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and the instructions to Form 10-QSB and, accordingly, do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of the
management of New Hampshire Thrift Bancshares, Inc., all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three months ended March 31, 2000 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 2000.
Note B - Accounting Policies
- ----------------------------
The accounting principles followed by New Hampshire Thrift Bancshares, Inc. and
Subsidiaries 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 1999.
The consolidated financial statements of New Hampshire Thrift Bancshares, Inc.
include its wholly owned subsidiaries, NHTB Capital Trust I and 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 - Stock Repurchases
- --------------------------
On March 2, 2000, the Board of Directors of the Company authorized a stock
repurchase program under which the Company could repurchase up to 124,000 shares
of common stock. During the quarter ended March 31, 2000, the Company
repurchased 44,000 shares of its common stock at a cost of approximately
$519,505.
The Company intends to hold the shares repurchased as treasury shares. The
Company may utilize such shares to fund any stock benefit or compensation plan
or for any other purpose of the Board of Directors of the Company deems
advisable in compliance with applicable law.
5
<PAGE>
Part I. Item II.
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARIES
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 subsidiary, Lake Sunapee
Bank, fsb. The Bank's earnings in turn are generated from the net income from
the yield on its loan and investment portfolios less the cost of its deposit
accounts and borrowings. These core revenues are supplemented by loan
origination fees, retail banking service fees, gains on the sale of investment
securities, and brokerage fees. The Bank passes its earnings to the Company to
the extent allowed by OTS regulations. Current regulations enable the Bank to
pay to the Company the higher of an amount equal to seventy-five per cent of the
Bank's prior four quarter earnings or up to fifty per cent of excess capital
plus total current year earnings. As of March 31, 2000, the Company had
$1,057,005 available, which it plans to use to continue its annual dividend
payout of $0.64 per share and its capital securities interest payments.
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, accounting estimates and other estimates used
throughout this discussion.
Capital Securities
On August 12, 1999, NHTB Capital Trust I (the "Trust"), a Delaware business
trust formed by the Company, completed the sale of $16.4 million of 9.25%
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 contributed $15.0 million from the sale of the
Debentures to the Bank as Tier I Capital to support the acquisition of the three
branches of New London Trust, FSB. Total expenses associated with the offering
approximating $900,000 are included in other assets and are being amortized on a
straight-line basis over the life of the Debentures.
6
<PAGE>
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
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
first distribution was September 30, 1999. 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 Trust has funds necessary
to make these payments.
The Capital 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.
Financial Condition
During the first three months of 2000, total assets decreased by
$8,720,798, or 1.89% from $461,448,330 to $452,727,532. Cash and cash
equivalents decreased $10,339,453 from December 31, 1999, as cash held at the
end of the year for potential Y2K issues, which did not materialize, was
returned to the Federal Reserve Bank.
Total gross loans increased $5,982,420 from $350,117,816 to $356,100,236,
or 1.71%. During the first quarter of 2000, the Bank originated $26.1 million in
loans, had pay-offs of approximately $15.7 million and normal amortization of
approximately $4.5 million. Activity from loans sold into the secondary market
decreased by approximately $11.0 million from March 31, 1999. As interest rates
began to rise in 1999 and continued into 2000, many customers sought variable
rate loan programs rather than fixed rate programs. The Bank elected to hold
many of these variable rate loans in portfolio. As the Bank originates fixed
rate loans, it sells much of this 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 proceeds from the sale of loans are then available to lend
back into the Bank's market area and to purchase investment securities. At March
31, 2000, the Bank had $153,865,401 in its servicing portfolio. The Bank expects
to continue to sell fixed rate loans into the secondary market in order to
manage interest rate risk. Market risk exposure during the production cycle is
managed through the use of secondary market forward commitments. At March 31,
2000, adjustable rate mortgages comprised approximately 76% of the Bank's real
estate mortgage loan portfolio. This is consistent with prior years.
As of March 31, 2000, total investment securities decreased $3,561,007, or
5.63% from $63,281,596 to $59,720,589 (at amortized cost). During the first
three months of 2000, the Bank sold approximately $5.9 million of investment
securities to provide liquidity and to fund loan activity. The Bank's net
unrealized loss was $3,700,908 at December 31, 1999 compared to $3,615,395 at
March 31, 2000. This change of $85,513 reflects a brief decline in interest
rates at the end of the first quarter and the corresponding increase in
investment security market values.
Real estate owned and property acquired in settlement of loans decreased by
$127,842, or 58.38% to $91,158 from $219,000 at year-end. This total reflects
two properties. One was under contract at March 31, 2000. The other is a 25-acre
tract of land in Hillsboro, NH. There were no sales of real estate property
owned, during the first three months of 2000.
7
<PAGE>
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Deposits increased by $6,519,312, or 1.78% to $373,157,401 from
$366,638,089 at year-end. Non-interest bearing checking accounts decreased
$4,802,880, or 22.24%, as many business customers settled seasonal transactions.
Savings and interest-bearing checking accounts remained virtually unchanged.
Time deposits increased $12,387,604, or 9.09%. The Bank offered three time
deposit specials during the first quarter in an effort to retain and attract new
deposits.
Securities sold under agreement to repurchase decreased by $4,523,217, to
$9,514,900 from $14,038,117. As mentioned above, many business customers settled
seasonal transactions during the first quarter of 2000. 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)
decreased by $12,715,000 from $34,440,000 at year-end to $21,725,000 at March
31, 2000. During the first three months of 2000, the Bank was able to repay part
of its overnight and long-term advances using the cash that had been held for
potential Y2K issues.
Accrued expenses and other liabilities increased $1,973,293, to $4,662,270
from $2,688,977. Secondary market payments held in escrow at March 31, 2000
accounted for the majority of the increase.
Liquidity and Capital Resources
The Bank is required to maintain a 4% ratio of liquid assets to net
withdrawable funds. At March 31, 2000, the Bank's ratio of 6.52% exceeded
regulatory requirements for long-term liquidity.
The Bank's source of funds comes primarily from net deposit inflows, loan
amortizations, principal pay downs from loans, sold loan proceeds, and advances
from the FHLB. At March 31, 2000, the Bank had approximately $100,000,000 in
additional borrowing capacity from the FHLB.
At March 31, 2000, the Company's shareholders' equity totaled $27,267,961,
or 6.02% of total assets, compared to $27,243,147, or 5.90% of total assets at
year-end 1999. The Company's Tier I core capital was 6.90% at March 31, 2000
compared to 6.74% at year-end. The increase of shareholders' equity of $24,814
reflects net income of $805,080, the payment of $337,110 in common stock
dividends, the increase of $519,505 in treasury stock and the change of $76,349
in the net unrealized holding gain (loss) on securities classified as available-
for-sale. This change reflects the short decline in interest rates during the
first three months of 2000 and the corresponding rise in investment security
market values during the same period. On March 3, 2000, the Company announced a
stock repurchase program. Repurchases will be made from time to time at the
discretion of management. The stock repurchase program will continue until the
repurchase of 124,000 shares is complete. As of March 31, 2000, 44,000 shares of
common stock had been repurchased.
For the three months ended March 31, 2000, net cash provided by operating
activities was $3,960,561, versus $2,268,454 for the same period in 1999. A net
change in amortization of goodwill, accrued interest and other assets, and
accrued expenses and other liabilities accounted for the majority of the
increase.
8
<PAGE>
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Net cash used in investing activities amounted to $2,724,494 for the three
months ended March 31, 2000, compared to $4,323,077 for the same period in 1999
a decrease of $1,598,583. Investment and loan activity accounted for the
majority of the change. Net investment security activity provided $3,464,839
compared to net cash used of $292 in 1999. During the first three months of
2000, purchases of investment securities were $2,418,455 million and sales and
calls of investment securities totaled $5,883,294 million. Loans to customers
used cash flows of $6,080,403 compared to $4,217,133 for the same period in
1999.
At March 31, 2000, net cash flows used in financing activities was
$11,575,520 compared to $7,860,151 for the same period in 1999, a change of
$3,715,366. A net increase in deposits offset by a decrease in advances from the
FHLB and other borrowings accounted for majority of the change. Deposits
increased $6,519,312 in 2000 compared to a decrease of $6,607,441 in 1999, a
change of $13,126,753. FHLB advances and other borrowings decreased $12,715,000
during the first quarter compared to and increase of $3,848,000 for the same
period last year, a change of $16,563,000. The net change in deposits, FHLB
advances and other borrowing amounted to $3,436,247.
The Bank expects to be able to fund loan demand and other investing during
2000 by continuing to use funds provided from customer deposits, as well as the
FHLB's advance program. 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 March
31, 2000, the Bank's ratios were 6.90%, 6.90%, and 10.58%, respectively, well in
excess of the regulators' requirements.
Book value per share was $13.22 at March 31, 2000, versus $13.12 per share at
March 31, 1999. The increase in paid-in capital and retained earnings and the
decrease in the number of shares outstanding accounted for 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.
9
<PAGE>
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
The Bank's one-year gap at March 31, 2000, was -5.40%, compared to the
December 31, 1999 gap of -9.47%. 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 five percent at March 31, 2000,
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 December 31, 1999 (the
latest NPV analysis prepared by the OTS), as calculated by the OTS.
<TABLE>
<CAPTION>
Change Net Portfolio Value NPV as % of PV Assets
in Rates $ Amount $ Change % Change NPV Ratio Change
- ---------------------- --------------------------------------- -------------------------
<S> <C> <C> <C> <C> <C>
+300 bp .......... 36,908 -18,441 - 33% 8.12% - 356 bp
+200 bp .......... 43,555 -11,794 - 21% 9.44% - 224 bp
+100 bp .......... 49,848 - 5,501 - 10% 10.65% - 103 bp
0 bp .......... 55,513 -- -- 11.68% --
-100 bp .......... 59,513 4,164 + 8% 12.44% + 76 bp
-200 bp .......... 62,389 7,040 + 13% 12.94% + 126 bp
-300 bp .......... 65,160 9,811 + 18% 13.42% + 174 bp
</TABLE>
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.
10
<PAGE>
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
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 March 31, 2000 was $4,325,080, compared to
$4,320,563 at year-end 1999. As of March 31, 2000, the allowance included
$4,142,075 in general reserves compared to $4,111,059 at year-end 1999. The
total allowance represented 1.21% of total loans at March 31, 2000 versus 1.23%
at year-end 1999. The allowance for loan losses as a percentage of non-
performing loans was 322.52% at March 31, 2000, compared to 246.85% at December
31, 1999. During the first three months of 2000, the Bank had net charge-offs of
$25,483 compared to net recoveries of $2,060 for the same period in 1999.
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 March 31, 2000, there were no other loans not
included in the table below or discussed where known information about the
possible credit problems of borrowers caused management to have doubts as to the
ability of the borrower to comply with present loan repayment terms and which
may result in disclosure of such loans in the future.
Total classified loans, excluding special mention, as of March 31, 2000
were $3,240,711 compared to $2,988,696 at December 31, 1999. At March 31, 2000,
loans classified as 90 days delinquent were $300,648 compared to $711,149 at
December 31, 1999. At March 31, 2000, non-earning assets were $1,040,306
compared to $1,039,156 at year-end 1999. Total non-performing assets amounted to
$1,432,112 and $1,969,305, for March 31, 2000 and December 31, 1999,
respectively.
The following table shows the breakdown of non-performing assets and non-
performing assets as a percentage of total assets (dollars in thousands):
March 31, December 31,
2000 1999
-------------- --------------
90 day delinquent loans/(1)/ $ 301 0.07% $ 711 0.15%
Non-earning assets/(2)/ 1,040 0.23% 1,039 0.22%
Other real estate owned 91 0.02% 219 0.05%
-------------- --------------
Total non-performing assets $ 1,432 0.32% $ 1,969 0.43%
============== ==============
Troubled debt restructured $ - - $ - -
============== ==============
Impaired loans $ 1,040 0.23% $ 1,039 0.22%
============== ==============
/(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.
11
<PAGE>
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARIES
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):
March 31, December 31,
2000 1999
------------- -------------
Real estate loans -
Conventional $ 1,956 78% $ 1,953 78%
Construction 147 2% 147 2%
Collateral and Consumer 133 11% 133 11%
Commercial and Municipal 1,802 9% 1,800 9%
Impaired Loans 208 - 209 -
Other loans 79 - 79 -
-------------- --------------
Valuation allowance $ 4,325 100% $ 4,321 100%
============== ==============
Total valuation allowance as a
percentage of total loans 1.21% 1.23%
========= =========
Results of Operations
Net income for the three months ended March 31, 2000, was $805,080, or
$0.38 per common share (assuming dilution) compared to $710,608, or $0.34 per
common share (assuming dilution) for the same period in 1999.
Net interest income increased $946,046, or 33.21%, from $2,848,911 for the
first three months of 1999 to $3,794,957 for the first three months of 2000. The
increase was due primarily to an increase in loans and transaction-type deposit
accounts associated with the acquisition of three New London Trust, FSB ("NLT")
branches in October 1999.
Total interest income for the quarter ended March 31, 2000 increased by
$2,280,642, or 41.22%, to $7,813,910 from $5,533,268 for the same period in
1999. For the three months ended March 31, 2000, interest on loans increased
$2,105,253, or 45.62% to $6,719,554 from $4,614,301 for the same period in 1999.
Total loans held in portfolio increased from $243,551,858 at March 31, 1999 to
$355,982,520 at March 31, 2000, an increase of $112,430,662. The majority of the
increase was attributed to the acquisition of approximately $80 million in loans
from NLT. Interest and dividends on investment securities increased $175,389
from $918,967 at March 31, 1999 to $1,094,356 for the same period in 2000. A
higher overall yield on investment securities accounted for the change.
For the three months ended March 31, 2000, total interest expense increased
$1,334,596, or 49.72%. Interest on deposits increased $651,020 from $2,630,363
at March 31, 1999 to $3,281,383 at March 31, 2000. Total deposits increased by
$97,715,686 to $373,157,401 at March 31, 2000 from $275,441,715 for the same
period in 1999. The majority of the increase was attributed to the acquisition
of approximately $100 million in deposits from NLT. Interest on advances and
other borrowed money increased $683,576 from $53,994 at March 31, 1999 to
$737,570 at March 31, 2000. An increase in the outstanding balances of FHLB
advances and other borrowed money accounted for the majority of the change. FHLB
advances and other borrowed money amounted to $3,848,000 at the end of the first
quarter in 1999 compared to $21,725,000 for the same period in 2000.
The net provision for loan losses totaled $30,000 for March 31, 2000 and
1999. The total allowance for loan losses represented 1.21% of total loans at
March 31, 2000 compared to 1.29% for the same period in 1999. The allowance for
loan losses totaled $4,325,080 at March 31, 2000, compared to $3,149,129 for the
same period in 1999. The allowance acquired from NLT totaled $1,421,674.
12
<PAGE>
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
For the quarter ended March 31, 2000, total other income increased by
$66,659, or 10.86% from $613,629 in 1999 to $680,288 for the same period in
2000. The change was primarily a result of a $164,680, or 40.46% increase in
loan origination and customer service fees and a $20,889, or 22.43% increase in
rental income. As mentioned above, the Bank originated a $26.1 million of loans
during the first quarter. Rental income increased as the Bank acquired a rental
property as part of the NLT acquisition. Gains on the sale of loans decreased
$64,996. As mentioned above, customers are electing to write adjustable rate
loans, which the bank usually holds in portfolio.
Total operating expenses increased $857,438, or 35.68% for the three months
ended March 31, 2000. Additional staffing, occupancy costs and goodwill
associated with the acquisition of three NLT branches accounted for the majority
of the change.
13
<PAGE>
The Board of Directors
New Hampshire Thrift Bancshares, Inc.
Newport, New Hampshire
Independent Accountants' Report
-------------------------------
We have reviewed the accompanying consolidated statement of financial condition
of New Hampshire Thrift Bancshares, Inc. and Subsidiaries as of March 31, 2000
and the related consolidated statements of income and cash flows for the three-
month period then ended. These consolidated financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we no not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying consolidated financial statements for them to be in
conformity with generally accepted accounting principles.
SHATSWELL, MacLEOD & COMPANY, P.C.
May 11, 2000
<PAGE>
Part II.
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARIES
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
------------------------------------------------------
At the Annual Meeting of Shareholders held on April 6, 2000, the
following was voted:
Directors of New Hampshire Thrift Bancshares were re-elected for terms
of three years, each expiring at the Annual Meeting 2003.
For Withheld
-----------------------------------------------------------------------
John A. Kelley, Jr. 1,567,378 42,450
Jack H. Nelson 1,568,378 41,450
The appointment of Shatswell, MacLeod & Company, P.C. as independent
auditors was ratified.
For Against Withheld
-----------------------------------------------------------------------
1,600,561 3,950 5,317
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 SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NEW HAMPSHIRE THRIFT BANCSHARES, INC.
-------------------------------------
(Registrant)
Date: May 11, 2000 /s/ Stephen W. Ensign
-------------------------------- -------------------------------------
Stephen W. Ensign
Vice Chairman of the Board, President
and Chief Executive Officer
Date: May 11, 2000 /s/ Stephen R. Theroux
-------------------------------- -------------------------------------
Stephen R. Theroux
Executive Vice President and
Chief Operating Officer
Date: May 11, 2000 /s/ Daryl J. Cady
-------------------------------- -------------------------------------
Daryl J. Cady
Senior Vice President and
Chief Financial Officer
(Principal Accounting Officer)
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-END> DEC-31-2000
<CASH> 12,102,601
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 42,623,780
<INVESTMENTS-CARRYING> 10,623,780
<INVESTMENTS-MARKET> 352,413,698
<LOANS> 4,325,080
<ALLOWANCE> 452,610,657
<TOTAL-ASSETS> 373,040,526
<DEPOSITS> 16,725,000
<SHORT-TERM> 14,177,170
<LIABILITIES-OTHER> 5,000,000
<LONG-TERM> 16,400,000
0
0
<COMMON> 24,798
<OTHER-SE> 27,243,163
<TOTAL-LIABILITIES-AND-EQUITY> 452,610,657
<INTEREST-LOAN> 6,719,554
<INTEREST-INVEST> 1,094,356
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 7,813,910
<INTEREST-DEPOSIT> 3,281,383
<INTEREST-EXPENSE> 4,018,953
<INTEREST-INCOME-NET> 3,794,957
<LOAN-LOSSES> 30,000
<SECURITIES-GAINS> (10,917)
<EXPENSE-OTHER> 3,331,747
<INCOME-PRETAX> 1,184,920
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 805,077
<NET-INCOME> 0
<EPS-BASIC> 0.39
<EPS-DILUTED> 0.38
<YIELD-ACTUAL> 7.67
<LOANS-NON> 1,040,306
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 4,427,421
<CHARGE-OFFS> 32,154
<RECOVERIES> 6,671
<ALLOWANCE-CLOSE> 4,325,080
<ALLOWANCE-DOMESTIC> 4,325,080
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
