FORM 10-Q
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 September 30, 2000
------------------
Commission File Number 0-17859
-------
NEW HAMPSHIRE THRIFT
BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
State of Delaware 02-0430695
(State of Incorporation) (IRS Employer I.D. Number)
9 Main St., PO Box 9, Newport, NH 03773
(Address of principal executive offices) (Zip Code)
603-863-0886
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
The number of shares outstanding of each of the issuer's classes of common
stock, $.01 par value per share, as of September 30, 2000, was 2,034,685
---------
Transitional small business disclosure format:
Yes No X
----- -----
HAMPSHIRE THRIFT BANCSHARES, INC.
INDEX TO FORM 10-Q
PART I. FINANCIAL INFORMATION Page
Item 1 Financial Statements (unaudited):
Independent Accountants' Review Report 1
Consolidated Statements of Financial Condition - 2
September 30, 2000 and December 31, 1999
Consolidated Statements of Operations - 3
For the Three Months and Nine Months Ended
September 30, 2000 and 1999
Consolidated Statements of Cash Flows - 4
For the Nine Months Ended September 30, 2000 and 1999
Notes To Consolidated Financial Statements - 6
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations - 7
Item 3 Quantitative and Qualitative Disclosures about 14
Market Risk
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 15
Shareholders
Item 5 Other Information 15
Item 6 Exhibits and Reports on Form 8-K 15
Signatures 16
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 September 30,
2000, the related consolidated statements of operations and cash flows for the
nine-month period then ended and the related consolidated statement of
operations 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 do 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.
/s/ SHATSWELL, MacLEOD & COMPANY, P.C.
SHATSWELL, MacLEOD & COMPANY, P.C.
November 13, 2000
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
September 30, 2000 and December 31, 1999
(Unaudited)
September 30, December 31,
2000 1999
--------------- --------------
ASSETS
Cash and due from banks $ 14,554,137 $ 22,558,929
Federal funds sold 2,279,000 --
--------------- --------------
Cash and cash equivalents 16,833,137 22,558,929
Securities available-for-sale 39,408,691 47,540,736
Securities held-to-maturity 10,007,529 10,006,952
Other investments 2,468,477 2,032,999
Loans held-for-sale 3,051,590 --
Loans receivable, net 353,354,186 346,491,828
Accrued interest receivable 2,714,147 2,450,268
Bank premises and equipment, net 10,266,407 10,028,893
Investments in real estate 505,145 516,533
Real estate owned and property acquired in settlement of loans 45,000 219,000
Goodwill 13,100,771 13,850,308
Other assets 9,242,461 5,751,884
--------------- ---------------
Total assets $ 460,997,541 $ 461,448,330
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Checking accounts (non-interest-bearing) $ 22,138,909 $ 21,597,464
Savings and interest-bearing checking accounts 210,065,152 208,831,598
Time deposits 156,090,899 136,209,027
--------------- --------------
Total deposits 388,294,960 366,638,089
Other borrowed funds -- 12,440,000
Securities sold under agreements to repurchase 9,728,606 14,038,117
Advances from Federal Home Loan Bank 15,000,000 22,000,000
Accrued expenses and other liabilities 3,729,759 2,688,977
--------------- ---------------
Total liabilities 416,753,325 417,805,183
--------------- ---------------
Guaranteed preferred beneficial interest 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 2,034,685
shares outstanding at September 30, 2000, 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 15,362,319 14,044,427
Accumulated other comprehensive loss (2,122,522) (2,271,617)
--------------- ---------------
31,159,911 29,692,924
Treasury stock, at cost, 445,173 shares as of September 30, 2000
and 373,173 shares as of December 31, 1999 (3,315,695) (2,449,777)
--------------- ---------------
Total shareholders' equity 27,844,216 27,243,147
--------------- ---------------
Total liabilities and shareholders' equity $ 460,997,541 $ 461,448,330
=============== ===============
The accompanying notes to consolidated financial statements are an integral
part of these statements.
2
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended September 30, 2000 and 1999
For the Nine Months Ended September 30, 2000 and 1999
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
-------- --------- --------- ----------
Interest income
Interest on loans $ 7,184,122 $ 4,851,470 $ 20,860,794 $ 14,233,066
Interest and dividends on investments 1,144,542 963,252 3,287,561 2,765,555
----------- ----------- ------------ ------------
Total interest income 8,328,664 5,814,722 24,148,355 16,998,621
----------- ----------- ------------ ------------
Interest expense
Interest on deposits 3,719,764 2,490,582 10,484,918 7,623,774
Interest on advances and other borrowed money 703,075 340,694 2,256,754 503,447
----------- ----------- ------------ ------------
Total interest expense 4,422,839 2,831,276 12,741,672 8,127,221
----------- ----------- ------------ ------------
Net interest income 3,905,825 2,983,446 11,406,683 8,871,400
----------- ----------- ------------ ------------
Provision for loan losses -- 30,000 60,000 90,000
----------- ----------- ------------ ------------
Net interest income after provision for loan losses 3,905,825 2,953,446 11,346,683 8,781,400
----------- ----------- ------------ ------------
Other income
Loan origination and customer service fees 572,070 459,012 1,691,745 1,317,378
Net gain (loss) on sale of securities -- 3,689 (42,329) 36,243
Gain on sale of property acquired in settlement of loans -- 5,068 512 30,572
Net gain on sale of loans 73,988 19,610 91,974 160,488
Rental income 83,675 76,955 302,372 247,532
Brokerage service income 30,681 37,542 97,621 122,822
Total other income 760,414 601,876 2,141,895 1,915,035
----------- ----------- ------------ ------------
Other expenses
Salaries and employee benefits 1,876,879 1,338,554 5,278,101 3,764,124
Occupancy expenses 538,130 450,743 1,624,198 1,371,495
Advertising and promotion 30,094 74,216 177,587 229,758
Depositors' insurance 19,104 33,445 58,055 103,371
Outside services 141,731 119,664 392,088 386,130
Amortization of goodwill 248,313 61,789 734,024 185,367
Other expenses 725,084 407,610 2,013,619 1,270,008
Total other expenses 3,579,335 2,486,021 10,277,672 7,310,253
----------- ----------- ------------ ------------
Income before provision for income taxes 1,086,904 1,069,301 3,210,906 3,386,182
Provision for income taxes 254,493 317,355 894,976 1,006,364
----------- ----------- ------------ ------------
Net income $ 832,411 $ 751,946 $ 2,315,930 $ 2,379,818
=========== =========== ============ ============
Comprehensive net income $ 1,066,533 316,320 $ 2,465,024 $ 619,952
=========== =========== ============ ============
Earnings per common share, basic $ 0.41 $ 0.36 $ 1.14 $ 1.13
=========== =========== ============ ============
Number of Shares, basic 2,034,685 2,106,685 2,034,685 2,106,685
Earnings per common share, assuming dilution $ 0.40 $ 0.35 $ 1.12 $ 1.12
=========== =========== ============ ============
Number of Shares, assuming dilution 2,070,891 2,115,012 2,070,891 2,115,012
Dividends declared per common share $ 0.16 $ 0.16 $ 0.48 $ 0.48
=========== =========== ============ ============
The accompanying notes to consolidated financial statements are an integral
part of these statements.
3
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 2000 and 1999
(Unaudited)
September 30, September 30,
2000 1999
-------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,315,930 $ 2,379,818
Depreciation and amortization 971,428 515,123
Amortization of goodwill 734,024 185,367
(Gain) loss from sale of debt securities available-for-sale 42,329 (36,243)
Net increase in loans held for sale (3,051,590) -
Provision for loan losses and other real estate owned losses 60,000 90,000
Gain on sale of property acquired in settlement of loan (512) (30,572)
Increase in accrued interest and other assets (572,027) (3,015,046)
Change in deferred loan origination fees and cost, net (264,914) (310,314)
Increase in accrued expenses and other liabilities 1,040,782 3,670,749
------------ -------------
Net cash provided by (used in) operating activities 1,275,450 3,448,882
------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,197,554) (456,659)
Proceeds from sale of bank premises and equipment - 7,995
Proceeds from sales of debt securities available-for-sale 9,066,170 21,530,924
Purchase of securities available-for-sale (1,977,252) (31,573,966)
Purchase of Federal Home Loan Bank stock (441,200) -
Maturities of securities available for sale 1,005,943 250,000
Net increase in loans to customers (6,702,444) (25,163,159)
Investment in Charter Trust Company (3,033,336)
Proceeds from sales of other real estate owned 219,512 76,000
Adjustment to NLT Goodwill 15,513 -
------------ -------------
Net cash used in investing activities (3,044,648) (35,328,865)
------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits 21,656,871 (3,741,957)
Net decrease in repurchase agreements (4,309,511) (3,765,219)
Increase (decrease) in advances from Federal Home Loan Bank
and other borrowings (19,440,000) 18,165,000
Dividends paid (998,037) (1,010,094)
Proceeds from issuance of Capital Trust Preferred - 16,400,000
Payments to acquire treasury stock (866,567) -
Exercise of stock options 650 24,299
------------ -------------
Net cash provided by (used in) financing activities (3,956,594) 26,072,029
------------ -------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (5,725,792) (5,807,954)
CASH AND CASH EQUIVALENTS, beginning of period 22,558,929 16,284,558
------------ -------------
CASH AND CASH EQUIVALENTS, end of period $ 16,833,137 $ 10,476,604
============ =============
The accompanying notes to consolidated financial statements are an
integral part of these statements.
4
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - (continued)
For the Nine Months Ended September 30, 2000 and 1999
(Unaudited)
September 30, September 30,
2000 1999
------------- -------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest on deposit accounts $10,517,453 $ 7,623,774
Interest on advances and other borrowed money 2,268,377 21,892
----------- -----------
Total interest paid $12,785,830 $ 7,645,666
=========== ===========
Income taxes, net $ 917,500 $ 1,060,500
=========== ===========
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Transfers from loans to real estate acquired through foreclosure $ 45,000 $ 17,250
=========== ===========
The accompanying notes to consolidated financial statements are
an integral part of these statements.
5
HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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-Q 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 nine months ended September 30, 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 its 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. During the quarter ended June 30, 2000, the Company purchased 10,000
shares of its common stock at a cost of approximately $126,563, of which $61,875
was settled in July of 2000. During the quarter ended September 30, 2000, the
Company purchased 18,000 shares of its common stock at a cost of approximately
$220,500.
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.
Note D - Impact of New Accounting Standard
- ------------------------------------------
In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities". SFAS No. 133, as amended by SFAS No. 138,
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities. SFAS No. 133 is effective for all fiscal quarters of fiscal
years beginning after June 15, 2000. In management's opinion, SFAS No. 133 when
adopted will have no material effect on the Company's consolidated financial
statements.
Note E - Acquisition of Charter Trust Company (CTC)
- ---------------------------------------------------
Lake Sunapee Bank, fsb, along with two other New Hampshire banks recently
acquired CTC and Phoenix New England Trust Company from the Phoenix Home Life
Mutual Insurance Company of Hartford, Connecticut. The companies have been
merged into one operating entity, CTC, with assets of approximately $1.7 billion
under management. Headquartered in Concord, NH, CTC provides trust and
investment services from more than a dozen offices across New Hampshire, as well
as one in Norwich, Vermont. Charter New England Agency, a subsidiary of CTC,
provides life insurance, fixed and variable annuities and mutual fund products,
in addition to full brokerage services through a broker/dealer affiliation with
W.S. Griffith.
6
Part I. Item 2.
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. Subsequent to quarter end, the Board of
Directors of the Bank approved a $2,500,000 dividend to the Company. As of
September 30, 2000, the Company had $145,067 available, which it plans to use
along with its dividend from the Bank to continue its annual dividend payout of
$0.64 per share and pay 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.
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.
7
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
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 and Results of Operations
Comparison of Financial Condition at September 30, 2000 and December 31, 1999
During the first nine months of 2000, total assets decreased by $450,789, or
.10% from $461,448,330 to $460,997,541. Cash and cash equivalents decreased
$5,725,792 from December 31, 1999, as cash was used to fund loan growth, to
repay long-term advances from the Federal Home Loan Bank (FHLB), and 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 (including loans held-for-sale) increased $9,916,592, or
2.83% from $350,117,816 to $360,034,408. During the first nine months of 2000,
the Bank originated $92.0 million in loans, had pay-offs of approximately $56.0
million, normal amortization of approximately $19.4 million, and loans sold into
the secondary market totaling $6.8 million. 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 September
30, 2000, the Bank had $161,063,885 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
September 30 2000, adjustable rate mortgages comprised approximately 77% of the
Bank's real estate mortgage loan portfolio. This is consistent with prior
years.
As of September 30, 2000, gross investment securities decreased $7,777,226, or
12.29% from $63,281,595 to $55,504,369 (at amortized cost). During the first
nine months of 2000, the Bank sold approximately $9.1 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 $3,619,672 at
September 30, 2000. This change of $81,236 reflects a decrease in interest
rates at the end of the third quarter and the corresponding rise in investment
security market values.
Real estate owned and property acquired in settlement of loans decreased by
$174,000, or 79.45% to $45,000 from $219,000 at year-end. This total reflects
one property, which is located in Washington, NH. A residential property
located in Newport, NH was sold during the third quarter.
Deposits increased by $21,656,871, or 5.91% to $388,294,960 from $366,638,089
at year-end. Non-interest bearing checking accounts increased $541,445, or
2.51%. Savings and interest-bearing checking accounts increased $1,233,554, or
.59%. Time deposits increased $19,881,872, or 14.60%. The Bank offered three
time deposit specials during the first nine months of 2000 in an effort to
retain and attract new deposits.
Other borrowed funds decreased by $12,440,000 from $12,440,000 at year-end to
zero at September 30, 2000. During the first nine months of 2000, the Bank was
able to repay all of its overnight
8
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
borrowings using cash that had been held for potential Y2K issues, proceeds from
the sale of investment securities and deposit inflows.
Securities sold under agreement to repurchase decreased by $4,309,511, to
$9,728,606 from $14,038,117. Seasonal demand for funds accounted for the
change. Repurchase agreements are collateralized by the Bank's government and
agency investment securities.
Long-term advances from the FHLB decreased $7,000,000 from $22,000,000 at
year-end to $15,000,000 at September 30, 2000. The bank used excess liquidity
to repay the advances. In addition, the Bank converted a portion of its
overnight advances into longer-term advances to lengthen maturities and improve
its interest rate sensitivity position.
Accrued expenses and other liabilities increased $1,040,782, to $3,729,759
from $2,688,977. Secondary market loan payments held in escrow at September 30,
2000 accounted for the majority of the increase.
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 September 30, 2000 was $4,588,121,
compared to $4,320,563 at year-end 1999. As of September 30, 2000, the
allowance included $4,285,415 in general reserves compared to $4,111,059 at
year-end 1999. The total allowance represented 1.27% of total loans at
September 30, 2000 versus 1.23% at year-end 1999. The total allowance for loan
losses as a percentage of non-performing loans was 290.00% at September 30,
2000, compared to 246.85% at December 31, 1999. During the first nine months of
2000, the Bank had net recoveries of $207,558 compared to net charge-offs of
$346,988 during the first nine months of 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 September 30, 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 September 30, 2000
were $4,907,593 compared to $2,988,696 at December 31, 1999. At September 30,
2000, loans classified as 90 days delinquent were $583,808 compared to $711,149
at December 31, 1999. At September 30, 2000, non-earning assets were $995,444
compared to $1,039,156 at year-end 1999. Total non-performing assets amounted
to $1,624,252 and $1,969,305, for September 30, 2000 and December 31, 1999,
respectively.
9
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
The following table shows the breakdown of non-performing assets and non-
performing assets as a percentage of total assets (dollars in thousands):
September 30, December 31,
2000 1999
-------------- --------------
90 day delinquent loans /(1)/ $ 584 0.13% $ 711 0.15%
Non-earning assets /(2)/ 995 0.22% 1,039 0.22%
Other real estate owned 45 0.01% 219 0.05%
-------------- --------------
Total non-performing assets $1,624 0.35% $ 1,969 0.43%
============== ==============
Impaired loans $ 995 0.22% $ 1,039 0.22%
============== ==============
/(1)/ All loans 90 days or more delinquent are placed on a non-accruing status.
/(2)/ Loans considered to be impaired, pending foreclosure, or in bankruptcy
proceeding, are placed on a non-earning status.
The following table sets forth the allocation of the loan loss valuation
allowance and the percentage of loans in each category to total loans (dollars
in thousands):
September 30, December 31,
2000 1999
-------------- --------------
Real estate loans -
Conventional $ 2,074 78% $ 1,953 78%
Construction 156 2% 147 2%
Collateral and Consumer 141 11% 133 11%
Commercial and Municipal 1,911 9% 1,800 9%
Impaired Loans 222 - 209 -
Other loans 84 - 79 -
------------- -------------
Valuation allowance $ 4,588 100% $ 4,321 100%
============= =============
Total valuation allowance as a
percentage of total loans 1.27% 1.23%
========== =========
Comparison of the Operating Results for the Nine Months and the Three Months
Ended September 30, 2000 and September 30, 1999
Net income for the nine months ended September 30, 2000, was $2,315,930, or
$1.12 per common share (assuming dilution) compared to $2,379,818, or $1.12 per
common share (assuming dilution) for the same period in 1999 a decrease of
$63,888, or 2.68%. Net income for the third quarter in 2000 was $832,410, or
$0.40 per share (assuming dilution) as compared to $751,946, or $0.35 per share
(assuming dilution) for the same period in 1999 an increase of $80,464, or
10.70%.
Net interest income increased $2,535,283, or 28.58%, for the first nine
months of 2000 and $922,379, or 30.92%, for the third quarter. The increase was
primarily due to an increase in loan volume 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 nine months ended September 30, 2000 increased
by $7,149,734, or 42.06%, to $24,148,355 from $16,998,621 for the same period in
1999. For the three months ended September 30, 2000, total interest income
increased by $2,513,942, or 43.23%, to $8,328,664 from $5,814,722 for the same
period in 1999. Interest on loans increased $6,627,728, or 46.57% and
$2,332,652, or 48.08%, for the nine month and the three month periods,
respectively. Total loans held in portfolio increased from $254,964,105 at
September 30, 1999 to $360,034,408 at September 30, 2000, an increase of
$105,070,303. The majority of the increase was attributed to the acquisition of
approximately $80 million in loans from NLT.
10
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
The remainder was associated with the Bank's increased loan originations during
the first nine months of 2000. Interest and dividends on investment securities
increased $522,066 from $2,765,555 for the nine months ended September 30, 1999
to $3,287,561 for the same period in 2000. For the second quarter, interest and
dividends on investment securities increased $181,290 from $963,252 in 1999 to
$1,144,542 for the same period in 2000. A higher overall yield and increased
balances in investment securities accounted for the change.
For the nine months ended September 30, 2000, total interest expense
increased by $4,614,451, or 56.78%, to $12,741,672 from $8,127,221 for the same
period in 1999. For the three months ended September 30, 2000, total interest
expense increased by $1,591,563, or 56.21%, to $4,422,839 from $2,831,276 for
the same period in 1999. For the nine months and three months ended September
30, 2000, interest on deposits increased $2,861,144 and $1,229,182,
respectively. The increase was primarily attributed to the acquisition of
approximately $100 million in deposits from NLT.
Interest on advances and other borrowed money, including the Debentures,
increased $1,753,307 from $503,447 for the nine months ended September 30, 1999
to $2,256,754 for the same period in 2000. For the third quarter of 2000,
interest on advances and other borrowed money, including the debenture,
increased $362,381 from $340,694 to $703,075. Interest associated with the
capital security accounted for the majority of the change. The Debentures were
issued on August 12, 1999.
The provision for loan losses totaled $60,000 for the nine months ended
September 30, 2000 and $90,000 for the same period in 1999. The total allowance
for loan losses represented 1.27% of total loans at September 30, 2000 compared
to 1.26% for the same period in 1999. The allowance for loan losses totaled
$4,588,121 at September 30, 2000, compared to $3,185,480 for the same period in
1999. The allowance acquired from NLT totaled $1,421,674.
For the nine months ended September 30, 2000, total other income increased by
$226,860, or 11.85% from $1,915,035 in 1999 to $2,141,895 for the same period in
2000. For the second quarter, total other income increased by $158,538, or
26.34%. The change was primarily a result of a $374,367, or 28.42% and
$113,058, or 24.63% increase in loan origination and customer service fees and a
$54,840, or 22.15% and $6,720, or 8.73% increase in rental income, respectively.
As mentioned above, the Bank originated $92.0 million of loans during the first
nine months of 2000. Rental income increased as the Bank acquired rental
property as part of the NLT acquisition. Gains on the sale of loans decreased
$68,514 for the nine months ended September 30, 2000, but increased $54,378
during the third quarter as loan sales into the secondary market increased.
Total operating expenses increased $2,967,419, or 40.59%, and $1,093,315, or
43.98%, for the nine months and the three months ended September 30, 2000,
respectively. Additional staffing, occupancy costs and goodwill associated with
the acquisition of three NLT branches accounted for the change. In addition,
total costs of approximately $130,000 before taxes were charged to expense
during the second quarter. The expenses were related to the Bank's
consolidation of its two Andover, NH offices and a one-time write-off of two
balance sheet accounts.
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.
11
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
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.
The Bank's one-year gap at September 30, 2000, was -5.33%, compared to the
December 31, 1999 gap of -9.47%. The Bank continues to hold in portfolio many
adjustable rate mortgages, which reprice at one, three, and five-year intervals.
The Bank sells certain fixed-rate mortgages into the secondary market in order
to minimize interest rate risk.
The Bank's gap, of approximately negative five percent at September 30, 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 June 30, 2000 (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.......... 25,561 -16,580 - 39% 5.67% - 329 bp
+200 bp.......... 31,666 -10,476 - 25% 6.92% - 205 bp
+100 bp.......... 37,315 - 4,827 - 11% 8.04% - 93 bp
0 bp.......... 42,142 -- -- 8.97% --
-100 bp.......... 46,883 4,741 + 11% 9.85% + 89 bp
-200 bp.......... 47,250 5,108 + 12% 9.89% + 93 bp
-300 bp.......... 47,372 5,230 + 12% 9.89% + 93 bp
12
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Liquidity and Capital Resources
The Bank is required to maintain a 5% ratio of liquid assets to net
withdrawable funds. At September 30, 2000, the Bank's ratio of 10.78% exceeded
regulatory requirements for long-term liquidity.
The Bank's source of funds comes primarily from net deposit inflows, loan
amortizations, principal pay downs from loans, sold loan proceeds, and advances
from the FHLB. At September 30, 2000, the Bank had approximately $123,000,000
in additional borrowing capacity from the FHLB.
At September 30, 2000, the Company's shareholders' equity totaled
$27,844,216, or 6.04% 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 7.13% at
September 30, 2000 compared to 6.74% at year-end. The increase in shareholders'
equity of $601,069 reflects net income of $2,315,930, the payment of $998,037 in
common stock dividends, the increase of $865,918 in treasury stock and the
change of $149,095 in accumulated other comprehensive loss. The change in other
comprehensive loss reflects a decrease in interest rates during the third
quarter of 2000 and the corresponding rise in investment security market values.
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 September 30, 2000, 64,000 shares of common stock had been
repurchased.
For the nine months ended September 30, 2000, net cash provided by
operating activities was $1,275,450, versus $3,448,882 for the same period in
1999. A net change in amortization of goodwill, loans held for sale, and
accrued expenses and other liabilities accounted for the majority of the
increase.
Net cash used in investing activities amounted to $3,044,648 for the nine
months ended September 30, 2000, compared to $35,328,865 for the same period in
1999 a change of $32,284,217. A decrease in loans to customers held in
portfolio accounted for the majority of the change. Net investment security
activity provided cash flows of $7,653,661 in 2000 compared to cash used of
$9,793,042 in 1999. During the first nine months of 2000, purchases of
investment securities were $2,418,452 million while sales, calls and maturities
of investment securities totaled $10,072,113 million. Loans to customers used
cash flows of $6,702,444 compared to $25,163,159 for the same period in 1999.
During the third quarter, Lake Sunapee Bank, fsb, along with two other New
Hampshire banks acquired CTC and Phoenix New England Trust Company from the
Phoenix Home Life Mutual Insurance Company of Hartford, Connecticut. The
companies have been merged into one operating entity, CTC, with assets of
approximately $1.7 billion. Lake Sunapee Bank's investment totaled $3,033,336.
At September 30, 2000, net cash flows used in financing activities amounted to
$3,956,594 compared to net cash flows provided by financing activities of
$26,072,029 for the same period in 1999, a change of $30,028,623. A net
increase in deposits and repurchase agreements of $24,854,536 from September 30,
1999 to September 30, 2000 offset by a decrease in advances from the FHLB and
other borrowings of $37,605,000, for the same period, accounted for majority of
the change. Deposits increased $21,656,871 in 2000 compared to a decrease of
$3,741,957 in 1999, a change of $25,398,828. FHLB advances and other borrowings
decreased $19,440,000 during the nine months ended September 30, 2000 compared
to an increase of $18,165,000 for the same period last year, a change of
$37,605,000. The net change in deposits, repurchase agreements, FHLB advances
and other borrowing amounted to $12,750,464.
13
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
The Bank expects to be able to fund loan demand and other investing during
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
September 30, 2000, the Bank's ratios were 7.13%, 7.13%, and 11.21%,
respectively, well in excess of the regulators' requirements.
Book value per share was $13.68 at September 30, 2000, versus $13.03 per share
at September 30, 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.
Part I. Item 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In Management's opinion, there has been no material change in market risk
since disclosure in the Company's Annual Report on Form 10-KSB for the year
ended December 31, 1999.
14
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
------------------------------------------------------
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
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: November 14, 2000 /s/ Stephen W. Ensign
----------------------- -------------------------------------
Stephen W. Ensign
Vice Chairman of the Board, President
and Chief Executive Officer
Date: November 14, 2000 /s/ Stephen R. Theroux
----------------------- -------------------------------------
Stephen R. Theroux
Executive Vice President and
Chief Operating Officer
Date: November 14, 2000 /s/ Daryl J. Cady
----------------------- -------------------------------------
Daryl J. Cady
Senior Vice President and
Chief Financial Officer
(Principal Accounting Officer)
16