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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 June 30, 2001
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Commission File Number 0-17859
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NEW HAMPSHIRE THRIFT
BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
State of Delaware 02-0430695
(State of Incorporation) (IRS Employer I.D. Number)
9 Main St., PO Box 9, Newport, NH 03773
(Address of principal executive offices) (Zip Code)
603-863-0886
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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The number of shares outstanding of each of the issuer's classes of common
stock, $.01 par value per share, as of June 30, 2001, was 1,926,574.
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Transitional small business disclosure format:
Yes No X
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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 - 2
June 30, 2001 (unaudited) and December 31, 2000
Condensed Consolidated Statements of Operations (unaudited) - 3
For the Six Months Ended June 30, 2001 and 2000
For the Three Months Ended June 30, 2001 and 2000
Condensed Consolidated Statements of Cash Flows (unaudited) - 4
For the Six Months Ended June 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 - 8
Item 3 Quantitative and Qualitative Disclosures about Market Risk 15
PART II. OTHER INFORMATION
Item 1 Legal Proceedings 16
Item 2 Changes in Securities 16
Item 3 Defaults Upon Senior Securities 16
Item 4 Submission of Matters to a Vote of Common Shareholders 16
Item 5 Other Information 16
Item 6 Exhibits and Reports on Form 8-K 16
Signatures 17
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 June 30, 2001 and
the related condensed consolidated statements of income and cash flows for the
six-month periods ended June 30, 2001 and 2000 and the related condensed
consolidated statements of income for the three-month periods ended June 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 generally accepted auditing standards 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 generally accepted accounting principles in the United States of America.
We have previously audited, in accordance with generally accepted auditing
standards 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.
/s/ Shatswell, MacLeod & Company, P.C.
SHATSWELL, MacLEOD & COMPANY, P.C.
August 9, 2001
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
June 30, 2001 and December 31, 2000
June 30, December 31,
2001 2000
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(Unaudited)
ASSETS
Cash and due from banks $ 21,451,428 $ 16,262,878
Federal Home Loan Bank overnight deposit 20,662,400 11,756,686
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Cash and cash equivalents 42,113,828 28,019,564
Securities available-for-sale 33,905,742 39,823,268
Securities held-to-maturity 4,505,972 8,507,020
Other investments 2,461,800 2,394,200
Loans held-for-sale 4,138,675 1,651,200
Loans receivable, net 350,974,085 348,388,310
Accrued interest receivable 3,088,920 2,733,268
Bank premises and equipment, net 9,810,211 10,087,683
Investments in real estate 493,756 501,349
Real estate owned and property acquired in settlement of loans 50,000 45,000
Goodwill 12,457,038 12,950,437
Investment in partially owned Charter Holding Corp, at equity 3,065,929 3,088,336
Other assets 6,533,866 5,206,893
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Total assets $ 473,599,822 $ 463,396,528
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LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Checking accounts (non-interest-bearing) $ 26,788,670 $ 23,518,130
Savings and interest-bearing checking accounts 218,242,635 206,929,795
Time deposits 163,649,171 163,664,000
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Total deposits 408,680,476 394,111,925
Securities sold under agreements to repurchase 10,404,463 12,182,497
Advances from Federal Home Loan Bank 5,000,000 10,000,000
Accrued expenses and other liabilities 5,557,173 4,004,782
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Total liabilities 429,642,112 420,299,204
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Guaranteed preferred beneficial interests in junior subordinated debentures 16,400,000 16,400,000
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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 1,926,574 shares outstanding at June 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 17,975,913 17,896,810
Retained earnings 16,018,317 15,129,160
Accumulated other comprehensive loss (1,573,233) (2,228,130)
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32,445,795 30,822,638
Treasury stock, at cost, 553,284 shares as of June 30, 2001
and 506,739 shares as of December 31, 2000 (4,888,085) (4,125,314)
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Total shareholders' equity 27,557,710 26,697,324
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Total liabilities and shareholders' equity $ 473,599,822 $ 463,396,528
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The accompanying notes to condensed consolidated financial statements are an
integral part of these statements.
2
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended June 30, 2001 and 2000
For the Six Months Ended June 30, 2001 and 2000
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2001 2000 2001 2000
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Interest income
Interest and fees on loans $ 7,214,747 $ 7,099,407 $ 14,291,714 $ 13,887,488
Interest and dividends on investments 1,061,365 1,048,663 2,261,388 2,143,019
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Total interest income 8,276,112 8,148,070 16,553,102 16,030,507
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Interest expense
Interest on deposits 3,821,106 3,483,771 7,683,809 6,765,154
Interest on advances and other borrowed money 459,967 816,109 954,074 1,553,679
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Total interest expense 4,281,073 4,299,880 8,637,883 8,318,833
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Net interest income 3,995,039 3,848,190 7,915,219 7,711,674
Provision for loan losses 30,000 30,000 60,000 60,000
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Net interest income after provision
for loan losses 3,965,039 3,818,190 7,855,219 7,651,674
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Other income
Customer service fees 552,033 551,562 987,499 1,079,372
Net gain (loss) on sale of securities 16,575 (31,412) 49,892 (42,329)
Gain on sale of property acquired in
settlement of loans -- 512 5,874 512
Net gain on sale of loans held-for-sale 77,508 42,753 134,261 17,986
Rental income 114,909 112,296 228,241 218,697
Brokerage service income 34,081 29,100 85,782 66,940
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Total other income 795,106 704,811 1,491,549 1,341,178
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Other expenses
Salaries and employee benefits 1,653,671 1,713,018 3,298,237 3,401,222
Occupancy expenses 593,576 538,983 1,203,421 1,086,068
Advertising and promotion 64,634 77,929 119,712 147,493
Depositors' insurance 18,538 18,880 37,336 38,951
Outside services 122,140 123,999 278,044 250,357
Amortization of mortgage servicing rights 149,044 145,906 264,091 170,512
Amortization of goodwill 246,699 239,935 493,399 485,711
Other expenses 729,439 725,271 1,352,459 1,288,535
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Total other expenses 3,577,741 3,583,921 7,046,699 6,868,849
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Income before provision for income taxes 1,182,404 939,080 2,300,069 2,124,003
Provision for income taxes 414,284 260,640 792,364 640,483
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Net income $ 768,120 $ 678,440 $ 1,507,705 $ 1,483,520
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Comprehensive net income $ 823,199 $ 517,062 $ 2,162,602 $ 1,398,491
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Earnings per common share, basic $ 0.40 $ 0.33 $ 0.78 $ 0.72
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Number of Shares, basic 1,923,185 2,057,685 1,923,185 2,057,685
Earnings per common share, assuming dilution $ 0.40 $ 0.32 $ 0.78 $ 0.71
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Number of Shares, assuming dilution 1,941,189 2,088,890 1,941,189 2,088,890
Dividends declared per common share $ 0.16 $ 0.16 $ 0.32 $ 0.32
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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 Six Months Ended June 30, 2001 and 2000
(Unaudited)
June 30, June 30,
2001 2000
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,507,705 $ 1,483,520
Depreciation and amortization 454,880 438,962
Amortization of goodwill 493,399 393,325
Amortization of mortgage servicing rights 264,091 170,512
Net increase in loans held-for-sale (2,487,475) --
(Gain) loss from sales of debt securities available-for-sale (49,892) 42,329
Provision for loan losses and other real estate owned losses 60,000 60,000
Gain on sales of property acquired in settlement of loans (5,874) (512)
(Increase) decrease in accrued interest and other assets (1,169,628) 111,581
(Increase) decrease in deferred loan origination fees and cost, net (199,883) 234,552
Increase in accrued expenses and other liabilities 1,552,391 4,198,785
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Net cash provided by operating activities 419,714 7,133,054
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (169,815) (722,614)
Proceeds from sales of debt securities available-for-sale 11,427,631 8,962,665
Proceeds from maturities of held-to-maturity securities 4,000,000 --
Proceeds from maturities of securities available-for-sale -- 1,000,221
Purchase of securities available-for-sale (5,558,949) (1,977,255)
Purchases of Federal Home Loan Bank stock (67,600) (441,200)
Net increase in loans to customers (2,495,892) (23,505,704)
Proceeds from sales of other real estate owned 50,874 219,512
Adjustment to NLT Goodwill -- 240,899
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Net cash provided by (used in) investing activities 7,186,249 (16,223,476)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 14,568,551 15,564,688
Net decrease in repurchase agreements (1,778,034) (5,303,628)
Decrease in advances from Federal Home Loan Bank
and other borrowings (5,000,000) (4,054,000)
Dividends paid (618,548) (667,970)
Payments to acquire treasury stock (804,875) (584,193)
Proceeds from exercise of stock options 121,207 --
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Net cash provided by financing activities 6,488,301 4,954,897
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 14,094,264 (4,135,525)
CASH AND CASH EQUIVALENTS, beginning of period 28,019,564 22,558,929
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CASH AND CASH EQUIVALENTS, end of period $ 42,113,828 $ 18,423,404
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The accompanying notes to condensed consolidated financial statements are an
integral part of these statements.
4
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - (continued)
For the Six Months Ended June 30, 2001 and 2000
(Unaudited)
June 30, June 30,
2001 2000
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest on deposit accounts $7,683,809 $6,782,012
Interest on advances and other borrowed money 954,074 1,518,265
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Total interest paid $8,637,883 $8,300,277
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Income taxes, net $ 772,500 $ 557,500
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SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Transfers from loans to real estate acquired through foreclosure $ 50,000 $ 67,158
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The accompanying notes to condensed consolidated financial statements are an
integral part of these statements.
5
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2001
Note A - Basis of Presentation
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The accompanying condensed consolidated financial statements have been prepared
in accordance with generally accepted accounting principles 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 six months ended June 30, 2001 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2001.
Note B - Accounting Policies
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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
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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.
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
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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)
June 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 is in the process of evaluating the impact of SFAS No. 142 on its
future financial statements.
7
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 June 30, 2001, the Company had
$1,171,038 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.
8
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 JUNE 30, 2001 AND DECEMBER 31, 2000
During the first six months of 2001, total assets increased by $10,203,294,
or 2.20% from $463,396,528 to $473,599,822. Cash and cash equivalents increased
$14,094,264 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 $4,890,281, or
1.38% from $353,422,475 to $358,312,756. During the first six months of 2001,
the Bank originated $85.8 million in loans, had pay-offs of approximately $50.2
million, normal amortization of approximately $10.3 million, and loans sold into
the secondary market totaling $20.5 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 June 30, 2001, the Bank had $185,322,515 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 June 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 June 30, 2001, gross investment securities decreased $10,929,527, or
20.09% from $54,394,005 to $43,464,478 (at amortized cost). During the first six
months of 2001, the Bank had sales and calls of securities, totaling
approximately $11.4 million. An addition $4.0 million matured. The Bank's net
unrealized loss was $3,669,517 at December 31, 2000 compared to $2,590,964 at
June 30, 2001. This change of $1,078,553 reflects a decrease in interest rates
and the corresponding rise in investment security market values.
Real estate owned and property acquired in settlement of loans increased by
$5,000, or 11.11% to $50,000 from $45,000 at year-end. The $50,000 reflects one
property, a single-family dwelling located in Hartford, VT. Subsequent to June
30, 2001, a purchase and sales agreement was signed. No loss is expected on this
sale.
Deposits increased by $14,568,551, or 3.70%, to $408,680,476 from
$394,111,925 at year-end. Non-interest bearing checking accounts increased
$3,270,540, or 13.91%. Savings and interest-bearing checking accounts increased
$11,312,840, or 5.47%. Time deposits decreased slightly by $14,829, or .01%. As
time deposits began to mature during the second quarter, customers elected to
roll funds into overnight-type accounts. In addition, seasonal activity
accounted for a portion of the change in non-interest bearing checking accounts.
Securities sold under agreement to repurchase decreased by $1,778,034, to
$10,404,463 from $12,182,497. Seasonal demand for funds accounted for the
change. Repurchase agreements are collateralized by the Bank's government and
agency investment securities.
9
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Long-term advances from the FHLB decreased $5,000,000 from $10,000,000 at
year-end to $5,000,000 at June 30, 2001. The Bank used excess liquidity to repay
the advances.
Accrued expenses and other liabilities increased $1,552,391 to $5,557,173
from $4,004,782. Secondary market loan payments held in escrow at June 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 June 30, 2001 was $4,449,767, compared to
$4,432,854 at year-end 2000. As of June 30, 2001, the allowance included
$4,243,370 in general reserves compared to $4,035,958 at year-end 2000. The
total allowance represented 1.24% of total loans at June 30, 2001 versus 1.26%
at year-end. The total allowance for loan losses as a percentage of non-
performing loans was 207.94% at June 30, 2001, compared to 236.87% at December
31, 2000. During the first six months of 2001, the Bank had net charge-offs of
$45,098 compared to $34,138 during the first six 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 June 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 June 30, 2001, were
$6,475,324 compared to $5,248,151 at December 31, 2000. At June 30, 2001, loans
30 - 89 days delinquent were $4,927,440 compared to $4,318,705 at December 31,
2000. At June 30, 2001, loans classified as 90 days delinquent were $945,177
compared to $1,006,411 at December 31, 2000. At June 30, 2001, non-earning
assets were $1,194,739 compared to $865,031 at year-end 2000. Total non-
performing assets amounted to $2,189,916 and $1,916,442, for June 30, 2001 and
December 31, 2000, respectively.
10
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):
June 30, December 31,
2001 2000
---------------- ---------------
90 day delinquent loans $ 945 0.20% $1,006 0.22%
Non-earning assets (2) 1,195 0.25% 865 0.19%
Other real estate owned 50 0.01% 45 0.01%
---------------- ---------------
Total non-performing assets $2,190 0.46% $1,916 0.42%
---------------- ---------------
Impaired loans $1,195 0.25% $ 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):
June 30, December 31,
2001 2000
---------------- ---------------
Real estate loans -
Conventional $2,466 81% $2,457 80%
Construction 177 3% 176 3%
Collateral and Consumer 140 9% 139 10%
Commercial and Municipal 1,452 7% 1,446 7%
Impaired Loans 130 -- 130 --
Other loans 85 -- 85 --
---------------- -----------------
Valuation allowance $4,450 100% $4,433 100%
---------------- -----------------
Total valuation allowance as a
percentage of total loans 1.24% 1.26%
---------------- ----------------
COMPARISON OF THE OPERATING RESULTS FOR THE SIX MONTHS AND THE THREE MONTHS
ENDED JUNE 30, 2001 AND JUNE 30, 2000
Net income for the six months ended June 30, 2001, was $1,507,705, or $0.78
per common share (assuming dilution) compared to $1,483,520, or $0.71 per common
share (assuming dilution) for the same period in 2000. Net income for the second
quarter in 2001 was $768,120, or $0.40 per share (assuming dilution) as compared
to $678,440, or $0.32 per share (assuming dilution) for the same period in 2000,
an increase of $24,185, or 1.63% and $89,680, or 13.22%, respectively.
Net interest income increased $203,545, or 2.64%, for the first six months
of 2001 and $146,849, or 3.82%, for the second quarter. The increase was
primarily due to an increase in loan volume and a decrease in interest on
advances and other borrowings.
Total interest income for the six months ended June 30, 2001 increased by
$522,595, or 3.26%, to $16,553,102 from $16,030,507 for the same period in 2000.
For the three months ended June 30, 2001, total interest income increased by
$128,042, or 1.57%, to $8,276,112 from $8,148,070 for the same period in 2000.
Interest on loans increased $404,226, or 2.91% and $115,340, or 1.62%,
respectively. Interest and dividends on investment securities increased $118,369
from $2,143,019 at June 30, 2000 to $2,261,388 for the same period in 2001. For
the second quarter, interest and dividends on investment securities increased
$12,702 from $1,048,663 in 2000 to $1,061,365 for the same period in 2001. A
higher overall yield accounted for the majority of the change.
11
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
For the six months ended June 30, 2001 total interest expense increased by
$319,050, or 3.84%, to $8,637,883 from $8,318,833 for the same period in 2000.
For the three months ended June 30, 2001, total interest expense decreased
$18,807, or .44%, to $4,281,073 from $4,299,880 for the same period in 2000. For
the six months and three months ended June 30, 2001, interest on deposits
increased $918,655 and $337,335, respectively. The majority of the increase was
attributable to an increase in deposits. Interest on advances and other borrowed
money, including the debentures, decreased $599,605 from $1,553,679 at June 30,
2000 to $954,074 at June 30, 2001. For the second quarter of 2001, interest on
advances and other borrowed money, including the debenture, decreased $356,142
from $816,109 to $459,967. 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 $30,386,000 at the end of the
second quarter in 2000 compared to $5,000,000 for the same period in 2001.
The provision for loan losses totaled $60,000 for the six months ended June
30, 2001 and 2000. For the three months ended June 30, 2001 and 2000, the
provision totaled $30,000. The total allowance for loan losses represented 1.24%
of total loans at June 30, 2001 compared to 1.17% for the same period in 2000.
The allowance for loan losses totaled $4,449,767 at June 30, 2001, compared to
$4,357,836 for the same period in 2000.
For the six months ended June 30, 2001, total other income increased by
$150,371, or 11.21% from $1,341,178 in 2000 to $1,491,549 for the same period in
2001. For the second quarter, total other income increased by $90,295, or
12.81%. The change was primarily a result of a $116,275, or 646.48% and $34,755,
or 81.29% increase in net gains on the sale of loans and a $92,221 and $47,987
increase in net gains on the sale of securities, respectively. As mentioned
above, the Bank originated $85.8 million of loans during the first half 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 increased $177,850, or 2.59% for the six months
ended June 30, 2001 and decreased $6,180, or .17% for the three months ended
June 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. Occupancy expense increased during 2001 as costs associated with
managing the bank's branches and other properties increased. Outside services
and other expenses increased as the bank recognized phase I expenses associated
with its data processing study. The bank will change its data processing system
during the third quarter of 2001.
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 ith similar liabilities stabilizes profitability during
periods of interest rate fluctuations.
12
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
The Bank's one-year gap at June 30, 2001, was -5.28%, 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 five percent at June 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 March 31, 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 .......... 36,886 -13,484 -27% 8.04% -259 bp
+200 bp .......... 41,508 -8,862 -18% 8.95% -168 bp
+100 bp .......... 46,072 -4,298 -9% 9.82% -81 bp
0 bp .......... 50,370 -- -- 10.63% --
- -100 bp .......... 53,336 2,966 +6% 11.17% +54 bp
- -200 bp .......... 54,702 4,332 +9% 11.39% +77 bp
- -300 bp .......... 55,172 4,802 +10% 11.45% +83 bp
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 June 30, 2001, the Bank had approximately $135,000,000 in
additional borrowing capacity from the FHLB.
13
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
At June 30, 2001, the Company's shareholders' equity totaled $27,557,710,
or 5.82% 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 6.60% at June 30, 2001
compared to 6.55% at year-end. The increase in shareholders' equity of $860,386
reflects net income of $1,507,705, the payment of $618,548 in common stock
dividends, the increase of $804,875 in treasury stock, proceeds of $121,207 for
the exercise of stock options and the change of $654,897 in accumulated other
comprehensive loss. The change in other comprehensive loss reflects a decrease
in interest rates during the first half 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 June 30, 2001, 59,500 shares of
common stock had been repurchased.
For the three months ended June 30, 2001, net cash provided by operating
activities was $419,714, versus $7,133,054 for the same period in 2000. A net
increase in loans held for sale and accrued interest and other assets and a net
change in accrued interest and other assets accounted for the majority of the
change.
Net cash provided by investing activities amounted to $7,186,249 for the
six months ended June 30, 2001, compared to net cash used in investing
activities of $16,223,476 for the same period in 2000, a change of $23,409,725.
A decrease in loans to customers held in portfolio accounted for the majority of
the change. Loans to customers used cash flows of $2,495,892 compared to
$23,505,704 for the same period in 2000. Net investment security activity
provided cash flows of $9,801,082 in 2001 compared to $7,544,431 in 2000. During
the first six months of 2001, purchases of available-for-sale securities and
FHLB stock totaled $5,626,549, while sales, calls and maturities of investment
securities totaled $15,427,631 million.
For the three months ended June 30, 2001, net cash flows provided by
financing activities amounted to $6,488,301 compared to $4,954,897 for the same
period in 2000, a change of $1,533,404. A net increase in deposits and
repurchase agreements of $12,790,517 was offset by a decrease in advances from
the FHLB and other borrowings of $5,000,000. In the six months ended 2000,
deposits and repurchase agreements increased $10,261,060 while net cash of
$4,054,000 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 June
30, 2001, the Bank's ratios were 6.60%, 6.60%, and 10.46%, respectively, well in
excess of the regulators' requirements.
Book value per share was $14.21 at June 30, 2001, versus $13.34 per share
at June 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.
14
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.
15
Part II.
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARIES
OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
There is no material litigation pending in which the Company or its
subsidiary is a party or which the property of the Company or its
subsidiary is subject.
Item 2. Changes in Securities
---------------------
None
Item 3. Defaults Upon Senior Securities
-------------------------------
None
Item 4. Submission of Matters to a Vote of Common Shareholders
------------------------------------------------------
At the Annual Meeting of Shareholders held on April 5, 2001, the
following was voted:
Directors of New Hampshire Thrift Bancshares were re-elected for terms
of three years, each expiring at Annual Meeting 2004.
For Withheld
--- --------
Peter R. Lovely 1,455,309 78,281
Stephen R. Theroux 1,453,945 79,645
Joseph B. Willey 1,435,957 97,633
Director of New Hampshire Thrift Bancshares were re-elected for terms
of two years, each expiring at Annual Meeting 2003.
For Withheld
--- --------
John J. Kiernan 1,453,359 80,231
The appointment of Shatswell, MacLeod & Company, P.C. as independent
auditors.
For Against Withheld
--- ------- --------
1,600,561 20,089 9,365
Item 5. Other Information
-----------------
None
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
A.) Exhibits:
B.) Reports on Form 8-K:
None
16
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: August 13, 2001 /s/ Stephen W. Ensign
---------------- ------------------------------
Stephen W. Ensign
Vice Chairman of the Board, President
and Chief Executive Officer
Date: August 13, 2001 /s/ Stephen R. Theroux
---------------- ------------------------------
Stephen R. Theroux
Executive Vice President and
Chief Operating Officer
Date: August 13, 2001 /s/ Daryl J. Cady
--------------------- ------------------------------
Daryl J. Cady
Senior Vice President and
Chief Financial Officer
(Principal Accounting Officer)
17