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, 2001
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, 2001, was 1,923,240.
Transitional small business disclosure format:
Yes____ No X
--------
NEW HAMPSHIRE THRIFT BANCSHARES, INC.
INDEX TO FORM 10-Q
PART I. FINANCIAL INFORMATION Page
Item 1 Condensed Financial Statements:
Independent Accountants' Review Report 1
Condensed Consolidated Statements of Financial Condition -
September 30, 2001 (unaudited) and December 31, 2000 2
Condensed Consolidated Statements of Operations (unaudited) -
For the Nine Months Ended September 30, 2001 and 2000
For the Three Months Ended September 30, 2001 and 2000 3
Condensed Consolidated Statements of Cash Flows (unaudited) - 4
For the Nine Months Ended September 30, 2001 and 2000
Notes To Condensed Consolidated Financial Statements - 6
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations - 9
Item 3 Quantitative and Qualitative Disclosures about Market Risk 16
PART II. OTHER INFORMATION
Item 1 Legal Proceedings 17
Item 2 Changes in Securities 17
Item 3 Defaults Upon Senior Securities 17
Item 4 Submission of Matters to a Vote of Common Shareholders 17
Item 5 Other Information 17
Item 6 Exhibits and Reports on Form 8-K 17
Signatures 18
The Board of Directors
New Hampshire Thrift Bancshares, Inc.
Newport, New Hampshire
Independent Accountants' Report
-------------------------------
We have reviewed the condensed consolidated statement of financial condition of
New Hampshire Thrift Bancshares, Inc. and Subsidiaries as of September 30, 2001
and the related condensed consolidated statements of income and cash flows for
the nine-month periods ended September 30, 2001 and 2000 and the related
condensed consolidated statements of income for the three-month periods ended
September 30, 2001 and 2000. These consolidated financial statements are the
responsibility of the Company's management.
We conducted our reviews 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 auditing standards generally accepted in the United States of
America, the objective of which is the expression of an opinion regarding the
consolidated financial statements taken as a whole. Accordingly, we do not
express such an opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to the consolidated financial statements for them to be in conformity
with accounting principles generally accepted in the United States of America.
We have previously audited, in accordance with auditing standards generally
accepted in the United States of America, the consolidated statement of
financial condition as of December 31, 2000, and the related consolidated
statements of income, changes in stockholders' equity and cash flows for the
year then ended (not presented herein); and in our report dated January 12,
2001, we expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the condensed
consolidated statement of financial condition as of December 31, 2000, is fairly
stated, in all material respects, in relation to the consolidated statement of
financial condition from which it has been derived.
SHATSWELL, MacLEOD & COMPANY, P.C.
November 13, 2001
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
September 30, 2001 and December 31, 2000
September 30,
2001 December 31,
ASSETS (Unaudited) 2000
------------- -------------
Cash and due from banks $ 15,745,459 $ 16,262,878
Federal Home Loan Bank overnight deposit 34,809,875 11,756,686
------------ -------------
Cash and cash equivalents 50,555,334 28,019,564
Securities available-for-sale 47,541,195 39,823,268
Securities held-to-maturity 4,505,435 8,507,020
Other investments 2,461,800 2,394,200
Loans held-for-sale 4,233,000 1,651,200
Loans receivable, net 349,256,898 348,388,310
Accrued interest receivable 3,273,834 2,733,268
Bank premises and equipment, net 9,596,138 10,087,683
Investments in real estate 493,756 501,349
Real estate owned and property acquired in settlement of loans 52,963 45,000
Intangible asset from branch acquisition and goodwill 12,390,152 12,950,437
Investment in partially owned Charter Holding Corp, at equity 2,998,718 3,088,336
Other assets 5,986,072 5,206,893
------------ -------------
Total assets $493,345,295 $463,396,528
------------ -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Checking accounts (non-interest-bearing) $ 28,736,741 $ 23,518,130
Savings and interest-bearing checking accounts 237,023,170 206,929,795
Time deposits 161,225,483 163,664,000
------------ -------------
Total deposits 426,985,394 394,111,925
Other borrowed funds - -
Securities sold under agreements to repurchase 13,653,224 12,182,497
Advances from Federal Home Loan Bank - 10,000,000
Accrued expenses and other liabilities 7,658,009 4,004,782
------------ -------------
Total liabilities 448,296,627 420,299,204
------------ -------------
Guaranteed preferred beneficial interests in junior subordinated debentures 16,400,000 16,400,000
------------ -------------
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 1,923,240 shares outstanding at
September 30, 2001, and 2,479,858 shares
issued and 1,973,119 shares outstanding at December 31, 2000 24,798 24,798
Paid-in capital 18,031,762 17,896,810
Retained earnings 16,420,486 15,129,160
Accumulated other comprehensive loss (961,418) (2,228,130)
------------ ------------
33,515,628 30,822,638
Treasury stock, at cost, 556,618 shares as of September 30, 2001
and 506,739 shares as of December 31, 2000 (4,866,960) (4,125,314)
------------ ------------
Total shareholders' equity 28,648,668 26,697,324
------------ ------------
Total liabilities and shareholders' equity $493,345,295 $463,396,528
============ ============
The accompanying notes to condensed consolidated financial statements are an
integral part of these statements.
2
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended September 30, 2001 and 2000
For the Nine Months Ended September 30, 2001 and 2000
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2001 2000 2001 2000
----------- ----------- ---------- -----------
Interest income
Interest and fees on loans $ 6,530,532 $ 7,475,896 $20,822,246 $21,363,384
Interest and dividends on investments 1,138,358 1,144,542 3,399,746 3,287,561
----------- ----------- ----------- ------------
Total interest income 7,668,890 8,620,438 24,221,992 24,650,945
----------- ----------- ----------- ------------
Interest expense
Interest on deposits 3,666,711 3,719,764 11,350,520 10,484,918
Interest on advances and other borrowed money 451,982 703,075 1,406,056 2,256,754
----------- ----------- ----------- -----------
Total interest expense 4,118,693 4,422,839 12,756,576 12,741,672
----------- ----------- ----------- -----------
Net interest income 3,550,197 4,197,599 11,465,416 11,909,273
Provision for loan losses - - 60,000 60,000
----------- ----------- ----------- -----------
Net interest income after provision for loan losses 3,550,197 4,197,599 11,405,416 11,849,273
----------- ----------- ----------- -----------
Other income
Customer service fees 608,211 496,847 1,595,710 1,576,219
Net gain (loss) on sale of securities 26,971 - 76,863 (42,329)
Gain on sale of property acquired in settlement of loans 3,112 - 8,986 512
Net gain on sale of loans held for sale 210,930 73,988 345,191 91,974
Rental income 114,956 83,675 343,197 302,372
Brokerage service income 8,132 30,681 93,914 97,621
----------- ----------- ----------- -----------
Total other income 972,312 685,191 2,463,861 2,026,369
----------- ----------- ----------- -----------
Other expenses
Salaries and employee benefits 1,253,778 1,876,879 4,552,015 5,278,101
Occupancy expenses 522,555 538,130 1,725,976 1,624,198
Advertising and promotion 54,309 30,094 174,021 177,587
Depositors' insurance 18,557 19,104 55,893 58,055
Outside services 78,922 141,731 356,966 392,088
Amortization of mortgage servicing rights 145,932 216,551 410,023 387,063
Amortization of goodwill and intangible asset 273,042 248,313 766,441 734,024
Other expenses 1,186,638 725,084 2,539,097 2,013,619
----------- ----------- ----------- -----------
Total other expenses 3,533,733 3,795,886 10,580,432 10,664,735
----------- ----------- ----------- -----------
Income before provision for income taxes 988,776 1,086,904 3,288,845 3,210,907
Provision for income taxes 274,478 254,493 1,066,842 894,976
Net income $ 714,298 $ 832,411 $2,222,003 $ 2,315,931
----------- ----------- ----------- ------------
Comprehensive net income $ 1,326,113 $ 1,066,533 $ 3,488,715 $ 2,465,024
----------- ----------- ----------- ------------
Earnings per common share, basic $ 0.37 $ 0.41 $ 1.16 $ 1.14
Number of Shares, basic 1,923,240 2,034,685 1,923,240 2,034,685
----------- ----------- ----------- ----------
Earnings per common share, assuming dilution $ 0.37 $ 0.40 $ 1.14 $ 1.12
Number of Shares, assuming dilution 1,945,141 2,070,891 1,945,141 2,070,891
----------- ----------- ---------- -----------
Dividends declared per common share $ .16 $ 0.16 $ 0.48 $ 0.48
The accompanying notes to condensed consolidated financial statements are an
integral part of these statements.
3
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 2001 and 2000
(Unaudited)
September 30, September 30,
2001 2000
------------ -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,222,003 $ 2,315,930
Depreciation and amortization 685,967 971,428
Amortization of mortgage servicing rights 410,023 387,063
Amortization of goodwill and intangible asset 766,441 734,024
Net increase in loans held for sale (2,581,800) (3,051,590)
(Gains) losses from sales of debt securities available-for-sale (76,863) 42,329
Provision for loan losses and other real estate owned losses 60,000 60,000
Gain on sale of property acquired in settlement of loans (8,986) (512)
Increase in accrued interest and other assets (2,459,590) (959,090)
Change in deferred loan origination fees and cost, net (88,680) (264,914)
Increase in accrued expenses and other liabilities 3,653,227 1,040,782
------------ -----------
Net cash provided by operating activities 2,581,742 1,275,450
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (186,829) (1,197,554)
Proceeds from sale of bank premises and equipment - -
Proceeds from sale of debt securities available-for-sale 18,966,947 9,066,170
Proceeds from maturities of held-to-maturity securities 4,000,000 -
Proceeds from maturities of available-for-sale securities - 1,005,943
Purchases of securities available-for-sale (24,520,274) (1,977,252)
Purchases of Federal Home Loan Bank stock (67,600) (441,200)
Investment in Charter Trust Company - (3,033,336)
Net increase in loans to customers (889,759) (6,702,444)
Proceeds from sales of other real estate owned 50,874 219,512
Adjustment to NLT intangible asset (206,156) 15,513
------------ -----------
Net cash used in investing activities (2,852,798) (3,044,648)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 32,873,469 21,656,871
Net increase (decrease) in repurchase agreements 1,470,727 (4,309,511)
Decrease in advances from Federal Home Loan Bank
and other borrowings (10,000,000) (19,440,000)
Dividends paid (930,677) (998,037)
Payments to acquire treasury stock (804,875) (866,567)
Proceeds from exercise of stock options 198,181 650
------------ -----------
Net cash provided by (used in) financing activities 22,806,825 (3,956,594)
------------ -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 22,535,770 (5,725,792)
CASH AND CASH EQUIVALENTS, beginning of period 28,019,564 22,558,929
------------ -----------
CASH AND CASH EQUIVALENTS, end of period $ 50,555,334 $ 16,833,137
============ ===========
4
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - (continued)
For the Nine Months Ended September 30, 2001 and 2000
(Unaudited)
September 30, September 30,
2001 2000
------------ ------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest on deposit accounts $10,578,696 $10,517,453
Interest on advances and other borrowed money 1,427,537 2,268,377
----------- -----------
Total interest paid $12,006,233 $12,785,830
=========== ===========
Income taxes, net $ 942,500 $ 917,500
=========== ===========
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Transfers from loans to real estate acquired through foreclosure $ 50,000 $ 45,000
=========== ===========
5
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2001
Note A - Basis of Presentation
- ------------------------------
The accompanying condensed consolidated financial statements have been prepared
in accordance with accounting principles generally accepted in the United States
of America (GAAP) for interim financial information and the instructions to Form
10-Q and, accordingly, do not include all of the information and footnotes
required by GAAP for complete financial statements. The December 31, 2000
condensed balance sheet data was derived from audited financial statements, but
does not include all disclosures required by GAAP. 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, 2001
are not necessarily indicative of the results that may be expected for the year
ending December 31, 2001.
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 2000.
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 February 22, 2001, 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, 2001, the Company
repurchased 37,000 shares of its common stock at a cost of approximately
$484,800. During the quarter ended June 30, 2001, the Company repurchased
22,500 shares at a cost of approximately $320,075. During the quarter ended
September 30, 2001, the Company did not repurchase any shares.
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 Standards
- -------------------------------------------
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. The Company adopted this statement as of
January 1, 2001. In management's opinion, the adoption of SFAS No. 133 did not
have a material effect on the Company's consolidated financial statements.
FASB has issued SFAS No. 140, Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities. This statement replaces
SFAS No. 125, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities, and rescinds SFAS Statement No. 127, "Deferral
of the Effective Date of Certain Provisions of FASB Statement No. 125." SFAS
No. 140 provides accounting and reporting standards for transfers and servicing
of financial assets and extinguishments of liabilities. This statement provides
consistent standards for distinguishing transfers of financial assets that are
sales from transfers that are secured borrowings. This statement was effective
for transfers and servicing of financial assets and extinguishments of
liabilities occurring after March 31, 2001. The adoption of this statement did
not have a material impact on the Company's financial position or results of
operations.
6
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
September 30, 2001
In June 2001, the FASB issued SFAS No. 141, "Business Combinations". This
statement addresses financial accounting and reporting for business combinations
and supercedes APB Opinion No. 16, "Business Combinations and SFAS No. 38,
"Accounting for Preacquisition Contingencies of Purchased Enterprises". Under
Opinion 16, business combinations were accounted for using one of two methods ,
the pooling-of-interests method or the purchase method. All business
combinations in the scope of SFAS No. 141 are to be accounted for using one
method - the purchase method. The provisions of SFAS No. 141 apply to all
business combinations initiated after June 30, 2001 and to all business
combinations accounted for using the purchase method for which the date of
acquisition is July 1, 2001, or later.
The adoption of SFAS No. 141 will have no immediate effect on the Company's
financial statements since it had no pending business combinations as of June
30, 2001, or as of the date of the issuance of these financial statements. If
the Company consummates business combinations in the future, any such
combinations that would have been accounted for by the pooling-of-interests
method under Opinion 16, will be accounted for under the purchase method and the
difference in accounting could have a substantial impact on the Company's
financial statements.
In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets". This statement addresses financial accounting and reporting required
for goodwill and other intangible assets and supercedes APB Opinion No. 17,
"Intangible Assets". The initial recognition and measurement provisions of SFAS
No. 142 apply to intangible assets which are defined as assets (not including
financial assets) that lack physical substance. The term "intangible assets" is
used in SFAS No. 142 to refer to intangible assets other that goodwill. The
accounting for a recognized intangible asset is based on its useful life. An
intangible asset with a finite useful life is amortized; an intangible asset
with an indefinite useful life is not amortized. An intangible asset that is
subject to amortization shall be reviewed for impairment in accordance with SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed of."
SFAS No. 142 provides that goodwill shall not be amortized. Goodwill is defined
as the excess of the cost of an acquired entity over the net of amounts assigned
to assets acquired and liabilities assumed. SFAS No. 142 further provides that
goodwill shall be tested for impairment at a level of reporting referred to as a
reporting unit. Impairment is the condition that exists when the carrying
amount of goodwill exceeds its implied fair value.
SFAS No. 142 is effective as follows:
All of the provisions of SFAS No. 142 shall be applied in fiscal years
beginning after December 15, 2001, to all goodwill and intangible assets
recognized in an entity's statement of financial position at the beginning
of that fiscal year, regardless of when those previously recognized assets
were initially recognized.
The Company has an intangible asset as of September 30, 2001 in the amount of
$9,856,803 that arose from the Company's purchase of certain assets and its
assumption of certain liabilities of branch offices of New London Trust, FSB in
1999. The fair value of the liabilities assumed exceeded the fair value of the
assets acquired. This intangible asset is being amortized to expense over
fifteen years on the straight-line method. This accounting is in accordance
with SFAS No. 72, "Accounting for Certain Acquisitions of Banking or Thrift
Institutions" and will not change because SFAS No. 142 did not change the
essential parts of SFAS No. 72. However, the intangible asset will be subject
to the impairment review requirements of SFAS No. 121.
On October 10, 2001 the Financial Accounting Standards Board (Board) affirmed
that paragraph 5 of FASB Statement No. 72, Accounting for Certain Acquisitions
of Banking or Thrift Institutions, applies to all acquisitions of financial
institutions (or branches thereof) whether "troubled" or not, in which the fair
value of the liabilities assumed exceeds the fair value of tangible and
intangible assets acquired. The Board decided to
7
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
September 30, 2001
reconsider the guidance in paragraphs 5-7 of Statement 72 as part of its
consideration of combinations of mutual enterprises within the scope of the
project on combinations of not-for-profit organizations.
The Company's assets as of September 30, 2001 includes goodwill of $2,533,349
recognized in the acquisition of Landmark Bank in 1997. This goodwill is being
amortized at the rate of $247,156 per year. Under SFAS No. 142 this
amortization will be discontinued but will be subject to the impairment review
requirements of SFAS No. 142.
8
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. As of September 30, 2001, the Company had
$939,295 available, which it plans to use along with its dividends 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 ("NLT"). 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, 2000. 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.
9
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, 2001 and December 31, 2000
During the first nine months of 2001, total assets increased by
$29,948,767, or 6.46% from $463,396,528 to $493,345,295. Cash and cash
equivalents increased $22,535,770 from December 31, 2000, as cash provided by
called and matured securities, sold loan activities and increased deposits was
transferred into federal funds.
Total gross loans (including loans held-for-sale) increased $3,305,979, or
.94% from $353,422,475 to $356,728,454. During the first nine months of 2001,
the Bank originated $161.3 million in loans, had pay-offs of approximately $86.3
million, normal amortization of approximately $33.0 million, and loans sold into
the secondary market totaling $38.0 million. As interest rates began to fall in
2000 and continued into 2001, many customers sought fixed rate loans. 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, 2001, the Bank had $202,606,440
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, 2001, 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, 2001, gross investment securities increased $1,697,790,
or 3.12% from $54,394,005 to $56,091,795 (at amortized cost). During the first
nine months of 2001, the Bank purchased approximately $24.5 million in
securities and had sales and calls of securities, totaling approximately $19.0
million. An additional $4.0 million matured. In an effort to protect against
interest rate risk, the Bank developed an investment ladder by purchasing
primarily U.S. Government Agency securities with maturities of less than 4
years. As issues near maturity, the Bank will sell and re-invest the proceeds in
similar maturity instruments. The Bank's net unrealized loss was $3,669,517 at
December 31, 2000 compared to $1,583,365 at September 30, 2001. This change of
$2,086,152 reflects a decrease in interest rates and the corresponding rise in
investment security market values. The Bank is currently holding five different
corporate bonds in its available-for-sale portfolio with a combined unrealized
loss of approximately $1.3 million. The bonds are evaluated regularly. The Bank
does not feel that these unrealized losses represent a permanent impairment.
Real estate owned and property acquired in settlement of loans increased by
$7,963, or 17.70% to $52,963 from $45,000 at year-end. The $52,963 includes one
property, a single-family dwelling located in Hartford, VT with a book value of
$50,000, which was sold at the end of August. Due to the conditions of the sale,
FASB No. 66 states that the loan must be carried as a loan to facilitate in real
estate owned for a period of time. The remaining $2,963 is a vehicle being held
as chattel property owned.
Deposits increased by $32,873,469, or 8.34%, to $426,985,394 from
$394,111,925 at year-end. Non-interest bearing checking accounts increased
$5,218,611, or 22.19%. Savings and interest-bearing checking accounts increased
$30,093,375, or 14.54%. Time deposits decreased by $2,438,517, or 1.49%. As time
deposits began to mature during the second and third quarters, customers elected
to roll funds
10
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
into overnight-type accounts. In addition, uncertainty in the stock market and
seasonal activity accounted for a portion of the increase in savings and
interest-bearing checking accounts and non-interest bearing checking accounts.
Securities sold under agreement to repurchase increased by $1,470,727, to
$13,653,224 from $12,182,497. Seasonal deposits accounted for the change.
Repurchase agreements are collateralized by the Bank's government and agency
investment securities.
Long-term advances from the FHLB decreased $10,000,000 from $10,000,000 at
year-end to zero at September 30, 2001. The Bank used excess liquidity to repay
the advances. The Bank incurred a prepayment penalty of approximately $477,000.
Accrued expenses and other liabilities increased $3,653,227 to $7,658,009
from $4,004,782. Secondary market loan payments held in escrow at September 30,
2001 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, 2001 was $4,399,648,
compared to $4,432,854 at year-end 2000. As of September 30, 2001, the allowance
included $4,212,270 in general reserves compared to $4,035,958 at year-end 2000.
The total allowance represented 1.23% of total loans at September 30, 2001
versus 1.26% at year-end. The total allowance for loan losses as a percentage of
non-performing loans was 347.54% at September 30, 2001, compared to 236.87% at
December 31, 2000. During the first nine months of 2001, the Bank had net
charge-offs of $95,885 compared to $34,138 during the first nine months of 2000.
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, 2001, 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, 2001,
were $5,476,431 compared to $5,248,151 at December 31, 2000. At September 30,
2001, loans 30 - 89 days delinquent were $5,575,010 compared to $4,318,705 at
December 31, 2000. At September 30, 2001, loans classified as 90 days delinquent
were $443,853 compared to $1,006,411 at December 31, 2000. At September 30,
2001, non-earning assets were $1,265,935 compared to $865,031 at year-end 2000.
Total non-performing assets amounted to $1,322,895 and $1,916,442, for September
30, 2001 and December 31, 2000, respectively.
11
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,
2001 2000
---------------- ----------------
90 day delinquent loans (1) $ 444 0.09% $1,006 0.22%
Non-earning assets (2) 822 0.17% 865 0.19%
Other real estate owned 57 0.01% 45 0.01%
--------------- ---------------
Total non-performing assets $1,323 0.27% $1,916 0.42%
=============== ===============
Impaired loans $ 822 0.17% $ 865 0.19%
=============== ===============
(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,
2001 2000
--------------- ---------------
Real estate loans -
Conventional $2,439 81% $2,457 80%
Construction 175 3% 176 3%
Collateral and Consumer 138 9% 139 10%
Commercial and Municipal 1,435 7% 1,446 7%
Impaired Loans 129 - 130 -
Other loans 84 - 85 -
--------------- --------------
Valuation allowance $4,400 100% $4,433 100%
=============== ==============
Total valuation allowance as a
percentage of total loans 1.23% 1.26%
====== ======
Comparison of the Operating Results for the Nine Months and the Three Months
Ended September 30, 2001 and September 30, 2000
Net income for the nine months ended September 30, 2001, was $2,222,003, or
$1.14 per common share (assuming dilution) compared to $2,315,931, or $1.12 per
common share (assuming dilution) for the same period in 2000. Net income for the
third quarter in 2001 was $714,298, or $0.37 per share (assuming dilution) as
compared to $832,411, or $0.40 per share (assuming dilution) for the same period
in 2000, a decrease of $93,928, or 4.06% and $118,113, or 14.19%, respectively.
Net interest income decreased $443,857, or 3.73%, for the first nine months
of 2001 and $647,402, or 15.42%, for the third quarter. The decrease was
primarily due to declining spreads. Although loan volume is at an all time high,
as rates have continued to fall many customers have sought fixed-rate loans. The
Bank sells fixed rate loans into the secondary market in order to minimize
interest rate risk. Accordingly, the Bank's loan portfolio balance has remained
constant while the rates have fallen. Fees associated with the sale of loans are
reflected in other income.
Total interest income for the nine months ended September 30, 2001
decreased by $428,953, or 1.74%, to $24,221,992 from $24,650,945 for the same
period in 2000. For the three months ended September 30, 2001, total interest
income decreased by $951,548, or 11.04%, to $7,668,890 from $8,620,438 for the
same period in 2000. Interest on loans decreased $541,138, or 2.53% and
$945,364, or 12.65%, respectively. Interest and dividends on investment
securities increased $112,185 from $3,287,561 at September 30, 2000 to
$3,399,746 for the same period in 2001. For the third quarter,
12
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
interest and dividends on investment securities decreased $6,184 from $1,144,542
in 2000 to $1,138,358 for the same period in 2001. A lower overall yield
accounted for the majority of the change.
For the nine months ended September 30, 2001 total interest expense
increased by $14,904, or .12%, to $12,756,576 from $12,741,672 for the same
period in 2000. For the three months ended September 30, 2001, total interest
expense decreased $304,146, or 6.88%, to $4,118,693 from $4,422,839 for the same
period in 2000. For the nine months and three months ended September 30, 2001,
interest on deposits increased $865,602 and decreased $53,053, respectively. The
majority of the nine month increase was attributable to an increase in deposit
balances. For the nine months ended September 30, 2001, interest on advances and
other borrowed money, including the debentures, decreased $850,698 from
$2,256,754 at September 30, 2000 to $1,406,056 at September 30, 2001. For the
third quarter of 2001, interest on advances and other borrowed money, including
the debenture, decreased $251,093 from $703,075 to $451,982. A decrease 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
$15,000,000 at the end of the third quarter in 2000 compared to zero for the
same period in 2001. The Bank prepaid a long-term FHLB advance during September
2001 incurring a prepayment penalty of approximately $477,000. The Bank is
expected to reduce interest expense by approximately $635,000 over the course of
the advance's normal maturity.
The provision for loan losses totaled $60,000 for the nine months ended
September 30, 2001 and 2000. For the three months ended September 30, 2001 and
2000, the Bank elected to forgo an addition to the provision. The total
allowance for loan losses represented 1.23% of total loans at September 30, 2001
compared to 1.17% for the same period in 2000. The allowance for loan losses
totaled $4,399,648 at September 30, 2001, compared to $4,357,836 for the same
period in 2000.
For the nine months ended September 30, 2001, total other income increased
by $437,492, or 21.59% from $2,026,369 in 2000 to $2,463,861 for the same period
in 2001. For the third quarter, total other income increased by $287,121, or
41.90%. The change was primarily a result of a $253,217, or 275.31% and
$136,942, or 185.09% increase in net gains on the sale of loans and a $119,192
and $26,971 increase in net gains on the sale of securities, respectively. As
mentioned above, the Bank originated $161 million of loans during the first nine
months of 2001. As the Bank originates fixed rate loans, it sells much of this
product into the secondary market, retaining the servicing.
Total operating expenses decreased $84,303, or .79% for the nine months
ended September 30, 2001 and decreased $262,153, or 6.91% for the three months
ended September 30, 2001. Salaries and employee benefits and advertising and
promotion decreased as expenses in early 2000 related to the NLT acquisition did
not recur in 2001. In addition, an adjustment to pension expense was recorded
during the third quarter. Occupancy expense increased during 2001 as costs
associated with managing the bank's branches and other properties increased.
Other expenses increased as the bank recognized phase I expenses associated with
its data processing study. The Bank changed its data processing system during
the third quarter of 2001. In addition, the FHLB prepayment penalty was recorded
in other expense.
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.
13
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, 2001, was -8.87%, compared to the
December 31, 2000 gap of -2.67%. 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 nine percent at September 30,
2001, 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, 2001 (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 .......... 45,787 -11,874 -21% 9.64% -211 bp
+200 bp .......... 49,829 -7,832 -14% 10.37% -137 bp
+100 bp .......... 54,102 -3,559 -6% 11.13% -61 bp
0 bp .......... 57,661 -- -- 11.75% --
- -100 bp .......... 60,349 2,688 +5% 12.19% +45 bp
- -200 bp .......... 61,267 3,607 +6% 12.32% +57 bp
- -300 bp .......... 61,262 3,601 +6% 12.29% +54 bp
14
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 sufficient liquidity for safe and sound
operations.
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, 2001, the Bank had approximately $140,000,000 in
additional borrowing capacity from the FHLB.
At September 30, 2001, the Company's shareholders' equity totaled
$28,648,668, or 5.81% of total assets, compared to $26,697,324, or 5.76% of
total assets at year-end 2000. The Company's Tier I core capital was 6.59% at
September 30, 2001 compared to 6.55% at year-end. The increase in shareholders'
equity of $1,951,344 reflects net income of $2,222,003, the payment of $930,677
in common stock dividends, the increase of $804,875 in treasury stock, proceeds
of $198,181 for the exercise of stock options and the change of $1,266,712 in
accumulated other comprehensive loss. The change in other comprehensive loss
reflects a decrease in interest rates during the first nine months of 2001 and
the corresponding rise in investment security market values. On February 22,
2001, 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, 2001, 59,500 shares of common stock had been repurchased.
For the nine months ended September 30, 2001, net cash provided by
operating activities was $2,581,742, versus $1,275,450 for the same period in
2000. An increase in accrued interest and other assets and a net change in
accrued expenses and other liabilities accounted for the majority of the change.
Net cash used in investing activities amounted to $2,852,797 for the nine
months ended September 30, 2001, compared to $3,044,648 for the same period in
2000, a change of $191,851. An increase in available-for-sale securities
purchased and a decrease in loans to customers held in portfolio accounted for
the majority of the change. Securities purchased used cash flows of $24,587,874
compared to $2,418,452 for the same period in 2000. Proceeds from sales, calls
and maturities of securities provided cash flows of $22,966,947 compared to
$10,072,113 for the same period in 2000. Loans to customers used cash flows of
$889,759 compared to $6,702,444 for the same period in 2000.
For the nine months ended September 30, 2001, net cash flows provided by
financing activities amounted to $22,806,825 compared to net cash used in
financing activities of $3,956,594 for the same period in 2000, a change of
$26,763,419. A net increase in deposits and repurchase agreements of $34,344,196
was offset by a decrease in advances from the FHLB and other borrowings of
$10,000,000. In the nine months ended 2000, deposits and repurchase agreements
increased $17,347,360 while net cash of $19,440,000 was used to repay FHLB
advances and other borrowings.
The Bank expects to be able to fund loan demand and other investing during
2001 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, 2001, the Bank's ratios were 6.59%, 6.59%, and 10.56%,
respectively, well in excess of the regulators' requirements.
Book value per share was $14.90 at September 30, 2001, versus $13.68 per
share at September 30, 2000. 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.
15
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-K for the year ended
December 31, 2000.
16
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
subsidiaries is a party or which the property of the Company or its
subsidiaries is subject.
Item 2. Changes in Securities
---------------------
None
Item 3. Defaults Upon Senior Securities
-------------------------------
None
Item 4. Submission of Matters to a Vote of Common Shareholders
------------------------------------------------------
None
Item 5. Other Information
-----------------
None
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
A.) Exhibits:
B.) Reports on Form 8-K:
None
17
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, 2001 /s/ Stephen W. Ensign
--------------------- -------------------------------------
Stephen W. Ensign
Vice Chairman of the Board, President
and Chief Executive Officer
Date: November 14, 2001 /s/ Stephen R. Theroux
--------------------- -------------------------------------
Stephen R. Theroux
Executive Vice President and
Chief Operating Officer
Date: November 14, 2001 /s/ Daryl J. Cady
--------------------- -------------------------------------
Daryl J. Cady
Senior Vice President and
Chief Financial Officer
(Principal Accounting Officer)
18