Part I. Item I. NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
March 31, 1999 and December 31, 1998
(Unaudited)
March 31, December 31,
1999 1998
--------------- ---------------
ASSETS
Cash and due from banks $ 6,369,784 $ 8,701,558
Federal funds sold - 7,583,000
--------------- ---------------
Cash and cash equivalents 6,369,784 16,284,558
Securities available for sale 51,266,027 52,137,753
Other investments 2,032,999 2,032,999
Loans held for sale - 3,775,802
Loans receivable, net 240,618,954 232,321,171
Accrued interest receivable 1,946,539 1,725,235
Bank premises and equipment, net 8,327,446 8,416,182
Investments in real estate 527,922 531,729
Real estate owned and property acquired in settlement of loans 687,403 670,153
Goodwill 3,151,239 3,213,028
Other assets 2,649,658 2,299,159
--------------- ---------------
Total assets $ 317,577,971 $ 323,407,769
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Checking accounts (non-interest-bearing) $ 14,318,913 $ 16,521,820
Savings and interest-bearing checking accounts 143,535,766 144,430,362
Time deposits 117,587,036 121,096,974
--------------- ---------------
Total deposits 275,441,715 282,049,156
Other borrowed funds 848,000 -
Securities sold under agreements to repurchase 7,085,092 11,849,116
Advances from Federal Home Loan Bank 3,000,000 -
Accrued expenses and other liabilities 3,599,513 1,729,891
--------------- ---------------
Total liabilities 289,974,320 295,628,163
--------------- ---------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY - -
Preferred stock, $.01 par value per share: 2,500,000 shares authorized,
no shares issued or outstanding
Common stock, $.01 par value per share: 5,000,000 shares authorized,
2,479,858 shares issued and 2,104,285 shares outstanding at
March 31, 1999 and December 31, 1998 24,798 24,798
Paid-in capital 17,874,567 17,874,567
Retained earnings 12,456,705 12,082,784
Net unrealized gain (loss) on securities available for sale (294,842) 255,034
--------------- ---------------
30,061,228 30,237,183
Treasury stock, at cost, 375,573 shares as of March 31, 1999
and December 31, 1998 (2,457,577) (2,457,577)
--------------- ---------------
Total shareholders' equity 27,603,651 27,779,606
--------------- ---------------
Total liabilities and shareholders' equity $ 317,577,971 $ 323,407,769
=============== ===============
1
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
For the Three Months Ended March 31, 1999 and 1998
(Unaudited)
March 31, March 31,
1999 1998
----------------- -----------------
Interest income
Interest on loans $ 4,614,301 $ 5,227,961
Interest and dividends on investments 918,967 586,362
------------ ------------
Total interest income 5,533,268 5,814,323
------------ ------------
Interest expense
Interest on deposits 2,630,363 2,916,693
Interest on advances and other borrowed money 53,994 145,659
------------ ------------
Total interest expense 2,684,357 3,062,352
------------ ------------
Net interest income 2,848,911 2,751,971
Provision for loan losses 30,000 14,520
------------ ------------
Net interest income after provision for loan losses 2,818,911 2,737,451
------------ ------------
Other income
Loan origination and customer service fees 407,051 273,059
Net gain on sale of securities 45,409 2,066
Gain on sale of property acquired in settlement of loan 23 -
Net gain (loss) on sale of loans 40,229 (7,644)
Net gain on sale of bank property and equipment - 6,762
Rental income 85,512 79,360
Brokerage service income 35,405 37,219
------------ ------------
Total other income 613,629 390,822
------------ ------------
Other expenses
Salaries and employee benefits 1,201,526 928,042
Occupancy expenses 469,879 414,922
Advertising and promotion 83,083 75,622
Depositors' insurance 35,327 35,506
Outside services 125,277 139,170
Amortization of goodwill 61,789 61,789
Other expenses 426,003 435,396
------------ ------------
Total other expenses 2,402,884 2,090,447
------------ ------------
Income before provision for income taxes 1,029,656 1,037,826
Provision for income taxes 319,048 335,000
------------ ------------
Net income $ 710,608 $ 702,826
============ ============
Comprehensive net income $ 152,734 $ 662,429
============ ============
Earnings per common share, basic $ .34 $ .34
============ ============
Earnings per common share, assuming dilution $ .34 $ .33
============ ============
Dividends declared per common share $ .16 $ .15
============ ============
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 CASH FLOWS
For the Three Months Ended March 31,
1999 and 1998 (Unaudited )
March 31, March 31,
1999 1998
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 710,608 $ 702,826
Depreciation and amortization 180,967 151,270
Amortization of goodwill 61,789 61,789
Loans originated for sale (13,245,698) (13,074,642)
Proceeds from sale of loans 13,285,927 13,066,998
(Gain) loss from sale of loans (40,229) 7,644
Gain from sale of debt securities available for sale (45,409) (2,066)
Gain from sale of bank premises and equipment - (6,762)
Provision for loan losses and other real estate owned losses 30,000 14,520
Gain on sale of property acquired in settlement of loan (23) -
(Increase) decrease in accrued interest and other assets (766,453) 252,585
Decrease in deferred loan fees (118,624) (9,693)
Increase in accrued expenses and other liabilities 2,215,599 984,631
-------------- ---------------
Net cash provided by operating activities 2,268,454 2,149,100
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (96,420) (190,771)
Proceeds from sale of bank premises and equipment 7,995 9,145
Proceeds from sale of debt securities available for sale 7,017,524 6,009,649
Purchase of securities available for sale (7,017,816) (9,421,750)
Purchase of Federal Home Loan Bank stock - (77,000)
Maturities of securities available for sale - 560,000
Net (increase) decrease in loans to customers (4,217,133) 4,736,593
(Increase) decrease in real estate owned (17,227) 84,762
--------------- ---------------
Net cash provided by (used in) investing activities (4,323,077) 1,710,628
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits (6,607,441) 1,080,011
Net increase (decrease) in repurchase agreements (4,764,024) 530,852
Increase (decrease) in advances from Federal Home Loan Bank
and other borrowings 3,848,000 (369,160)
Dividends paid (336,686) (313,283)
Proceeds from exercise of stock options - 27,340
--------------- ---------------
Net cash provided by (used in) financing activities (7,860,151) 955,760
--------------- ---------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (9,914,774) 4,815,488
CASH AND CASH EQUIVALENTS, beginning of period 16,284,558 13,306,626
--------------- ---------------
CASH AND CASH EQUIVALENTS, end of period $ 6,369,784 $ 18,122,114
--------------- ---------------
The accompanying notes to consolidated financial statements are an
integral part of these statements.
3
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND
SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH
FLOWS -(continued) For the Three Months
Ended March 31, 1999 and 1998 (Unaudited )
March 31, March 31,
1999 1998
----------------- -----------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest on deposit accounts $ 2,646,650 $ 2,918,840
Interest on advances and other borrowed money 46,542 146,372
----------------- -----------------
Total interest paid $ 2,693,192 $ 3,065,212
----------------- -----------------
Income taxes, net $ 400 $ 400
----------------- -----------------
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Transfers from loans to real estate acquired through foreclosure $ 17,250 $ 60,000
----------------- -----------------
The accompanying notes to consolidated financial statements are an integral
part of these statements.
4
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1999 and December 31, 1998
Note A - Basis of Presentation
- ------------------------------
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and the instructions to Form 10-QSB and, accordingly, do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of the
management of New Hampshire Thrift Bancshares, Inc., all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three months ended March 31, 1999 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 1999.
Note B - Accounting Policies
- ----------------------------
The accounting principles followed by New Hampshire Thrift Bancshares, Inc. and
Subsidiary and the methods of applying these principles which materially affect
the determination of financial position, results of operations, or changes in
financial position are consistent with those used for the year 1998.
The consolidated financial statements of New Hampshire Thrift Bancshares, Inc.
include its wholly owned subsidiary, Lake Sunapee Bank, fsb, and its
subsidiaries Lake Sunapee Group, Inc., and Lake Sunapee Financial Services Corp.
All significant intercompany balances have been eliminated.
Note C - Subsequent Event
- -------------------------
On April 12, 1999, Lake Sunapee Bank, fsb signed a definitive agreement to
acquire three branch offices of New London Trust, New London, NH. Under the
terms of the agreement, Lake Sunapee Bank, fsb will acquire the Main Office of
New London Trust, as well as, the Andover and Newbury branches.
The transaction, which is subject to regulatory approval, is expected to
close during the fourth quarter of this year. This transaction will include
approximately $103 million in deposits and $88 million in loans. It is
anticipated that this in-market acquisition will increase Company assets to over
$440 million and be accretive to shareholders beginning in the year 2000.
5
Part I. Item II.
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
New Hampshire Thrift Bancshares, Inc. (The Company), a Delaware holding
company organized on July 5, 1989, is the parent company of Lake Sunapee Bank,
fsb (The Bank), a federally chartered savings bank. The Bank is a member of the
Federal Deposit Insurance Corporation (FDIC) and its deposits are insured
through the Savings Association Insurance Fund (SAIF). The Bank is regulated by
the Office of Thrift Supervision (OTS).
The Company's profitability is derived from its only subsidiary, Lake Sunapee
Bank, fsb. The Bank's earnings in turn are generated from the net income from
the yield on its loan and investment portfolios less the cost of its deposit
accounts and borrowings. These core revenues are supplemented by loan
origination fees, retail banking service fees, gains on the sale of investment
securities, and brokerage fees. The Bank passes its earnings to the Company to
the extent allowed by OTS regulations. Current regulations enable the Bank to
pay to the Company the higher of an amount equal to seventy-five per cent of the
Bank's prior four quarter earnings or up to fifty per cent of excess capital
plus total current year earnings. As of March 31, 1999, the Company had
$1,005,247 available, which it plans to use to continue its annual dividend
payout of $0.64 per share.
Year 2000
Many companies continue to undertake projects to address the Year 2000 (Y2K).
Companies have determined potential costs and uncertainties based on a number of
factors, including its software and hardware and the nature of its business.
Companies must also coordinate with other entities with which they do business.
Lake Sunapee Bank, through its technology committee and an outside consultant,
implemented many hardware and software changes during 1998, in an effort to
become Y2K compliant. During 1998, the Bank installed a new data processing
mainframe computer, upgraded its mainframe software, and installed a new proof
of deposit and check imaging system. All of these Y2K compliant systems were in
operation throughout most of 1998.
Y2K testing has been on going and will continue throughout 1999. Based on a
review of internal practices and communications with third party processors, the
Bank does not expect to encounter significant difficulties in connection with
the transition to the Year 2000. The status of the Bank's `Year 2000 Action
Plan' is reported to its Board of Directors monthly. A $50,000 annual provision
has been established to cover Y2K related expenses. In conjunction with the
`Action Plan', the Bank has developed a `Business Continuity Plan'. This Plan
is designed to allow the Bank to operate should a system it relies on fail. As
part of the `Business Continuity Plan', the Bank has purchased power generators
and designed a manual accounting system. It is unlikely the Bank will need to
utilize these systems, but nevertheless, they are developed and being tested.
The Bank is subject to regulatory review concerning the Year 2000 from its
primary regulator, The Office of Thrift Supervision (OTS). During 1998, the
Bank had both its Phase I and Phase II examinations. The Bank expects its final
Phase III exam within the next few weeks.
6
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Monitoring and managing the Year 2000 project has and will likely continue to
result in additional direct and indirect costs to the Bank. Direct costs
include potential charges by third party software vendors for product
enhancements, costs involved in testing software for Year 2000 compliance, and
any resulting costs for developing and implementing contingency plans for
critical software products not enhanced. Indirect costs will principally
consist of the time devoted by existing employees in monitoring software vendor
progress, testing enhanced software products and implementing necessary
contingency plans. Both direct and indirect costs of addressing the Year 2000
Issue will be charged to earnings as incurred. Such costs have not been
material to date.
Financial Condition
During the first three months of 1999, total assets decreased by $5,829,798,
or 1.80% from $323,407,769 to $317,577,971. Cash and cash equivalents were used
to fund a $4.3 million increase in net portfolio loans and to cover seasonal
deposit outflows of $6.6 million resulting in a reduction in cash and cash
equivalents of approximately $9.9 million during the first three months of 1999.
Total gross loans increased $4,435,418 from $239,116,440 to $243,551,858, or
1.85%. During the first quarter of 1999, the Bank originated a record $35.6
million in loans, had pay-offs of approximately $17.6 million, normal
amortization of approximately $3.5 million and loans sold of approximately $13.2
million. Due to continued favorable fixed interest rates, many of the Bank's
variable rate loan customers refinanced into fixed rate products. The Bank sold
much of the fixed rate product into the secondary market, retaining the
servicing. Selling fixed rate loans into the secondary market helps protect the
Bank against interest rate risk and provides the Bank with a consistent fee
income stream. The proceeds from the sale of loans are then available to lend
back into the Bank's market area and to purchase investment securities. At
March 31, 1999, the Bank had $137,619,734 in its servicing portfolio. The Bank
expects to exceed $185 million in serviced loans by the end of 1999. The Bank
expects to continue to sell fixed rate loans into the secondary market in order
to manage interest rate risk. Market risk exposure during the production cycle
is managed through the use of secondary market forward commitments. At March
31, 1999, adjustable rate mortgages comprised approximately 80% of the Bank's
real estate mortgage loan portfolio. This is consistent with prior years.
As of March 31, 1999, total investment securities increased slightly by
$24,128, or .04% from $53,755,251 to $53,779,379 (at amortized cost). During
the first three months of 1999, the Bank purchased approximately $7.0 million of
investment securities to offset the calls and sales of securities that occurred
during that same time. The Bank continues to use proceeds from sold loans and
paid loans to purchase investment securities in order to increase yields,
thereby mitigating the reduction in the Bank's interest rate spread that might
otherwise occur. The Bank's net unrealized gain was $415,501 at December 31,
1998 compared to a net unrealized loss of $480,353 at March 31, 1999. This
change of $895,854 reflects the rise in interest rates during the first quarter
and the corresponding decrease in investment security market values.
Real estate owned and property acquired in settlement of loans increased by
$17,250, or 2.57% to $687,403. This total reflects $315,153 in market value for
the remaining five lots at Blye Hill Landing in Newbury, NH. There were no sales
of real estate property owned, during the first three months of 1999.
7
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Deposits decreased by $6,607,441, or 2.34% to $275,441,715 from $282,049,156
at year-end. Non-interest bearing checking accounts decreased 13.33% as many
business customers settled seasonal transactions. Savings and interest-bearing
checking accounts decreased slightly by .62%. Certificates of deposit decreased
2.90% as many higher balance customers sought investment alternatives.
Securities sold under agreement to repurchase decreased by $4,764,024, to
$7,085,092 from $11,849,116. As mentioned above, many business customers settled
seasonal transactions during the first quarter of 1999. Repurchase agreements
are collateralized by the Bank's government and agency investment securities.
Overnight and long-term advances from the Federal Home Loan Bank (FHLB)
increased to $3,848,000 from zero at year-end. During the first three months of
1999, the Bank funded a net $4.2 million increase in loans and an $11.4 million
decrease in deposits and repurchase agreements using approximately $9.9 million
in cash and cash equivalents and $3.8 million from FHLB advances.
Accrued expenses and other liabilities increased $1,869,622, to $3,599,513
from $1,729,891. The majority of the increase was attributable to a $1 million
payable recorded for an investment security trade booked at the end of March
that settled in April.
Liquidity and Capital Resources
The Bank is required to maintain a 4% ratio of liquid assets to net
withdrawable funds. At March 31, 1999, the Bank's ratio of 9.61% exceeded
regulatory requirements for long-term liquidity.
The Bank's source of funds comes primarily from net deposit inflows, loan
amortizations, principal pay downs from loans, sold loan proceeds, and advances
from the FHLB. At March 31, 1999, the Bank had approximately $92,000,000 in
additional borrowing capacity from the FHLB.
At March 31, 1999, the Company's shareholders' equity totaled $27,603,651, or
8.69% of total assets, compared to $27,779,606, or 8.59% of total assets at
year-end 1998. The decrease of $175,955 reflects net income of $710,608, the
payment of $336,686 in common stock dividends and the change of $549,877 in the
net unrealized holding gain (loss) on securities classified as available-for-
sale. This change reflects the rise in interest rates during the first three
months of 1999 and the corresponding decrease in investment security market
values during the same period.
For the three months ended March 31, 1999, net cash provided by operating
activities was $2,268,454, versus $2,149,100 for the same period in 1998. A net
change in other assets and other liabilities accounted for the majority of the
change as accrued interest, other assets, accrued expenses and other liabilities
increased. A security purchased and booked as a payable at the end of the first
quarter was settled in April.
Net cash flows used in investing activities amounted to $4,323,077 for the
three months ended March 31, 1999, compared to net cash flows provided by
investing activities of $1,710,628 for the same period in 1998, a change of
approximately $6 million. A net increase in loans to customers used cash flows
of $4,217,133 compared to a decrease in loans that provided cash flows of
$4,736,593 for the same period in 1998. During the first three months of 1999,
purchases of investment securities were approximately $7.0 million and sales and
calls of investment securities were also $7.0 million. Investment security
activity during the first quarter of 1998 used net cash flows of approximately
$3.4 million.
8
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
At March 31, 1999, net cash flows used in financing activities was $7,860,151
compared to net cash provided by financing activities of $955,760 for the same
period in 1998, a change of approximately $8.8 million. A decrease in deposits
and repurchase agreements of $11,371,465 was partially offset by an increase in
advances from the FHLB and other borrowings of $3,848,000. During the same time
period in 1998, deposits and repurchase agreements increased $1,610,863 while
FHLB advances decreased $369,160.
The Bank expects to be able to fund loan demand and other investing during
1999 by continuing to use funds provided from customer deposits, as well as the
FHLB's advance program. Management is not aware of any trends, events, or
uncertainties that will have or that are reasonably likely to have a material
effect in the Company's liquidity, capital resources or results of operations.
Banks are required to maintain tangible capital, core leverage capital, and
total risk based capital of 1.50%, 4.00%, and 8.00%, respectively. As of March
31, 1999, the Bank's ratios were 7.32%, 7.32%, and 12.32%, respectively, well in
excess of the regulators' requirements.
Book value per share was $13.12 at March 31, 1999, versus $12.41 per share at
March 31, 1998. The increase in paid-in capital and retained earnings provided
the increase in book value per share.
Interest Rate Sensitivity
The principal objective of the Bank's interest rate management function is to
evaluate the interest rate risk inherent in certain balance sheet accounts and
determine the appropriate level of risk given the Bank's business strategies,
operating environment, capital and liquidity requirements and performance
objectives and to manage the risk consistent with the Board of Directors'
approved guidelines. The Bank's Board of Directors has established an
Asset/Liability Committee (ALCO) to review its asset/liability policies and
interest rate position monthly. Trends and interest rate positions are reported
to the Board of Directors quarterly.
Gap analysis is used to examine the extent to which assets and liabilities are
"rate sensitive". An asset or liability is said to be interest rate sensitive
within a specific time-period if it will mature or reprice within that time.
The interest rate sensitivity gap is defined as the difference between the
amount of interest-earning assets maturing or repricing within a specified
period of time and the amount of interest-bearing liabilities maturing or
repricing within the same specified period of time. The strategy of matching
rate sensitive assets with similar liabilities stabilizes profitability during
periods of interest rate fluctuations.
The Bank's one-year gap at March 31, 1999, was 6.42%, compared to the December
31, 1998 gap of 6.78%. The Bank continues to hold in portfolio adjustable rate
mortgages, which reprice at one, three, and five-year intervals. The Bank sells
fixed-rate mortgages into the secondary market in order to minimize interest
rate risk.
The Bank's gap, of approximately negative six percent at March 31, 1999, means
net interest income would increase if interest rates trended downward. The
opposite would occur if interest rates were to rise. Management feels that
maintaining the gap within ten points of the parity line provides adequate
protection against severe interest rate swings. In an effort to maintain the
gap within ten points of parity, the Bank may utilize the FHLB advance program
to control the repricing of a segment of liabilities.
9
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
As another part of its interest rate risk analysis, the Bank uses an interest
rate sensitivity model, which generates estimates of the change in the Bank's
net portfolio value (NPV) over a range of interest rate scenarios. The OTS
produces the data quarterly using its own model and data submitted by the Bank.
NPV is the present value of expected cash flows from assets, liabilities and
off-balance sheet contracts. The NPV ratio, under any rate scenario, is defined
as the NPV in that scenario divided by the market value of assets in the same
scenario. Modeling changes requires making certain assumptions, which may or
may not reflect the manner in which actual yields and costs respond to the
changes in market interest rates. In this regard, the NPV model assumes that
the composition of the Bank's interest sensitive assets and liabilities existing
at the beginning of a period remain constant over the period being measured and
that a particular change in interest rates is reflected uniformly across the
yield curve. Accordingly, although the NPV measurements and net interest income
models provide an indication of the Bank's interest rate risk exposure at a
particular point in time, such measurements are not intended to and do not
provide a precise forecast of the effect of changes in market rates on the
Bank's net interest income and will likely differ from actual results.
The following table sets forth the Bank's NPV as of December 31, 1998 (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
- ---------------- --------------------------------------------------- -------------------------------------
+400 bp .......... 18,272 -17,343 - 49% 5.81% - 489 bp
+300 bp .......... 23,397 -12,218 - 34% 7.32% - 339 bp
+200 bp .......... 28,105 - 7,511 - 21% 8.66% - 205 bp
+100 bp .......... 32,240 - 3,375 - 9% 9.80% - 91 bp
0 bp .......... 35,615 -- -- 10.70% --
- -100 bp .......... 38,660 3,045 + 9% 11.50% + 79 bp
- -200 bp .......... 42,441 6,826 + 19% 12.46% + 175 bp
- -300 bp .......... 48,474 12,859 + 36% 13.96% + 325 bp
- -400 bp .......... 56,124 20,508 + 58% 15.78% + 508 bp
Allowance for Loan Losses and Asset Quality
The Bank considers many factors in determining the allowance for loan losses.
These include the risk and size characteristics of loans, the prior years' loss
experience, the levels of delinquencies, the prevailing economic conditions, the
number of foreclosures, unemployment rates, interest rates, and the value of
collateral securing the loans. No changes were made to the Bank's procedures
with respect to maintaining the loan loss allowances as a result of any
regulatory examinations.
Additionally, the Bank's commercial loan officers review the financial
condition of commercial loan customers on a regular basis and perform visual
inspections of facilities and inventories. The Bank also has an internal audit
and compliance program. Results of the audit and compliance programs are
reported directly to the Audit Committee of the Bank's Board of Directors.
10
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
The allowance for loan losses at March 31, 1999 was $3,149,129, compared to
$3,117,068 at year-end 1998. As of March 31, 1999, the allowance included
$2,763,435 in general reserves compared to $2,731,484 at year-end 1998. The
total allowance represented 1.29% of total loans at March 31, 1999 versus 1.30%
at year-end 1998. The allowance for loan losses as a percentage of non-
performing assets was 103.69% at March 31, 1999, compared to 115.82% at December
31, 1998. During the first three months of 1999, the Bank had net charge-offs
of $117 compared to $34,833 for the same period in 1998.
Loans classified for regulatory purposes as loss, doubtful, substandard or
special mention do not result from trends or uncertainties which the Bank
reasonably expects will materially impact future operating results, liquidity,
or capital resources. As of March 31, 1999, there were no other loans not
included in the table below or discussed where known information about the
possible credit problems of borrowers caused management to have doubts as to the
ability of the borrower to comply with present loan repayment terms and which
may result in disclosure of such loans in the future.
Total classified loans, excluding special mention, as of March 31, 1999 were
$5,198,223 compared to $5,356,046 at December 31, 1998. At March 31, 1999, loans
classified as 90 days delinquent were $1,290,849 compared to $170,999 at
December 31, 1998. At March 31, 1999, non-earning assets were $1,058,999
compared to $1,850,214 at year-end 1998. Total non-performing assets amounted to
$3,037,251 and $2,691,366, for March 31, 1999 and December 31, 1998,
respectively.
The following table shows the breakdown of non-performing assets and non-
performing assets as a percentage of total assets (dollars in thousands):
March 31, December 31,
1999 1998
------------------------- -------------------------
90 day delinquent loans /1/ $ 1,291 0.41% $ 171 0.05%
Non-earning assets /2/ 1,059 0.33% 1,850 0.57%
Other real estate owned 687 0.22% 670 0.21%
------------------------- -------------------------
Total non-performing assets $ 3,037 0.96% $ 2,691 0.83%
------------------------- -------------------------
Troubled debt restructured $ - - $ 114 0.04%
========================= =========================
/1/ All loans 90 days or more delinquent are placed on a non-accruing status.
/2/ Loans considered to be uncollectible, pending foreclosure, impaired, or in
bankruptcy proceeding, are placed on a non-earning status.
The following table sets forth the allocation of the loan loss valuation
allowance and the percentage of loans in each category to total loans (dollars
in thousands):
March 31, December 31,
1999 1998
-------------------------- --------------------------
Real estate loans -
Conventional $ 1,485 79% $ 1,473 79%
Construction 125 1% 123 2%
Collateral and Consumer 76 12% 68 11%
Commercial and Municipal 1,011 8% 1,007 8%
Other loans 66 - 60 -
Impaired Loans 386 - 386 -
-------------------------- -------------------------
Valuation allowance $ 3,149 100% $ 3,117 100%
========================== ==========================
Total valuation allowance as a
percentage of total loans 1.29% 1.30%
================ ================
11
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Results of Operations
Net income for the three months ended March 31, 1999, was $710,608, or $0.34
per common share (assuming dilution) compared to $702,826, or $0.33 per common
share (assuming dilution) for the same period in 1998.
Net interest income increased $96,940, or 3.52%, from $2,751,971 for the
first three months of 1998 to $2,848,911 for the first three months of 1999.
The increase was due primarily to a decrease in the cost of deposits and a
decrease in the average outstanding balance of FHLB advances.
Total interest income for the quarter ended March 31, 1999 decreased by
$281,055, or 4.83%, to $5,533,268 from $5,814,323 for the same period in 1998.
For the three months ended March 31, 1999, interest on loans decreased $613,660,
or 11.74% to $4,614,301 from $5,227,961 for the same period in 1998. Total
loans held in portfolio decreased from $250,582,342 at March 31, 1998 to
$243,551,858 at March 31, 1999. The decrease in loan interest income was
primarily attributable to lower yields on loans and a decrease in loans held in
portfolio. As customers refinanced from variable rate into fixed rate loans,
the Bank sold the loans into the secondary market in order to reduce interest
rate risk. Fee income associated with the sales is recorded in other income.
Somewhat offsetting the decrease in interest on loans, was a $332,605 increase
in interest and dividends on investments. As mentioned above, proceeds from
sold loans may be used to purchase investment securities. Total investment
securities, including federal funds, increased $6,076,436 from $47,222,590 at
March 31, 1998 to $53,299,026 for the same period in 1999.
For the three months ended March 31, 1999, total interest expense decreased
$377,995, or 12.34%. The decrease was a result of lower interest expense
associated with deposits and FHLB advances. Higher balances in transaction-type
accounts and lower balances in certificates of deposit accounts reduced the
Bank's cost of deposits to 3.81% at March 31, 1999 from 4.27% for the same
period in 1998. At March 31, 1999, advances from FHLB and other borrowed funds
totaled $3,848,000 compared to $10,177,158 for the same period in 1998. During
the same period, the Bank's cost of advances fell to 4.05% from 4.33%.
Due to lower loan portfolio balances combined with management's assessment
that reserve levels are adequate, the provision for loan losses remained
consistent with 1998 levels. As of March 31, 1999, the net provision for loan
losses totaled $30,000 compared to $14,520 for the same period in 1998. The
total allowance represented 1.29% of total loans at March 31, 1999 versus 1.20%
for the same period in 1998.
For the quarter ended March 31, 1999, total other income increased by
$222,807, or 57.01% from $390,822 in 1998 to $613,629 for the same period in
1999. The change was primarily a result of a $133,992, or 49.07% increase in
loan origination and customer service fees. In addition, net gains on the sale
of loans accounted for $47,873 of the increase. As mentioned above, the Bank
originated a record $35.6 million of loans during the first quarter compared to
$26.9 for the same period in 1998 and sold $13.1 million.
Total operating expenses increased $312,437, or 14.95% for the three months
ended March 31, 1999. Additional staffing and occupancy costs were realized as
the Bank managed its increased loan volume through increased staffing and
outsourcing. The Bank also recorded additional depreciation expense associated
with system upgrades done throughout 1998.
12
SHATSWELL, MacLEOD & COMPANY, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
83 PINE STREET
WEST PEABODY, MASSACHUSETTS 01960-3635
TELEPHONE (978)535-0206
FACSIMILE (978)535-9908
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 Subsidiary as of March 31, 1999,
and the related consolidated statements of income and cash flows for the three-
month period then ended. These consolidated financial statements are the
responsibility of the company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquires 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 consolidated 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.
May 12, 1999
13
PART II. NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARY
OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
There is no material litigation pending in which the Company or its
subsidiary is a party or which the property of the Company or its
subsidiary is subject.
Item 2. Changes in Securities
---------------------
None
Item 3. Defaults Upon Senior Securities
-------------------------------
None
Item 4. Submission of Matters to a Vote of Common Shareholders
------------------------------------------------------
At the Annual Meeting of Shareholders held on April 8, 1999, the
following was voted:
Directors of New Hampshire Thrift Bancshares, Inc. were re-elected for
terms of three years, each expiring at the Annual Meeting 2002.
For Withheld
- ------------------------------------------------------------------------
Leonard R. Cashman 1,680,822 30,776
Stephen W. Ensign 1,680,758 30,840
Dennis A. Morrow 1,680,322 31,276
Kenneth D. Weed 1,679,422 32,176
The appointment of Shatswell, MacLeod & Company, P.C. as independent
auditors was ratified.
For Against Withheld
- ----------------------------------------------------------------------------------------
1,687,251 7,310 10,912
Item 5. Other Information
-----------------
None
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
A.) Exhibits:
Exhibit 10.8 Stock Purchase Agreement dated April 12, 1999
Exhibit 10.9 Purchase and Assumption Agreement dated April 12,
1999
Exhibit 10.10 Asset and Liability Allocation Agreement dated
April 12, 1999
Exhibit 27 Financial Data Schedules (EDGAR filing only)
B.) Reports on Form 8-K:
A report on Form 8-K was filed on April 27, 1999, reporting the signing
of an agreement for Lake Sunapee Bank to acquire three branch offices
of New London Trust Company.
14
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARY
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NEW HAMPSHIRE THRIFT BANCSHARES, INC.
-------------------------------------
(Registrant)
Date: May 14, 1999 /s/ Stephen W. Ensign
-------------------- -------------------------------------------
Stephen W. Ensign
Vice Chairman of the Board, President
and Chief Executive Officer
Date: May 14, 1999 /s/ Stephen R. Theroux
-------------------- -------------------------------------------
Stephen R. Theroux
Executive Vice President and
Chief Operating Officer
Date: May 14, 1999 /s/ Daryl J. Cady
-------------------- -------------------------------------------
Daryl J. Cady
Senior Vice President and
Chief Financial Officer
(Principal Accounting Officer)
15