Attached files
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For The Quarter Ended June 30, 2011
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
(Registrants 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 ¨
Indicate by check mark whether the registrant was submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.) Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer | ¨ | Accelerated filer | ¨ | |||
Non-accelerated filer | ¨ | Smaller reporting company | x |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
The number of shares outstanding of the issuers common stock, $.01 par value per share, as of August 10, 2011, was 5,773,722.
Table of Contents
Forward-Looking Statements and Factors that Could Affect Future Results
Certain statements contained in this Quarterly Report on Form 10-Q that are not statements of historical fact constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (the Act), notwithstanding that such statements are not specifically identified as such. In addition, certain statements may be contained in the Companys future filings with the Securities and Exchange Commission (the SEC), in press releases, and in oral and written statements made by or with the approval of the Company that are not statements of historical fact and constitute forward-looking statements within the meaning of the Act. Examples of forward-looking statements include, but are not limited to: (i) projections of revenues, expenses, income or loss, earnings or loss per share, the payment or nonpayment of dividends, capital structure and other financial items; (ii) statements of plans, objectives and expectations of the Company or its management or Board of Directors, including those relating to products or services or the impact or expected outcome of any legal proceedings; (iii) statements of future economic performance; and (iv) statements of assumptions underlying such statements. Words such as believes, anticipates, expects, intends, targeted, continue, remain, will, should, may and other similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements.
Forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from those in such statements. Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to:
| Local, regional, national and international economic conditions and the impact they may have on the Company and its customers and the Companys assessment of that impact. |
| Volatility and disruption in national and international financial markets. |
| Government intervention in the U.S. financial system. |
| Changes in the level of non-performing assets and charge-offs. |
| Changes in estimates of future reserve requirements based upon the periodic review thereof under relevant regulatory and accounting requirements. |
| Adverse conditions in the securities markets that lead to impairment in the value of securities in the Companys investment portfolio. |
| Inflation, interest rate, securities market and monetary fluctuations. |
| The timely development and acceptance of new products and services and perceived overall value of these products and services by users. |
| Changes in consumer spending, borrowings and savings habits. |
| Technological changes. |
| The ability to increase market share and control expenses. |
| Changes in the competitive environment among banks, financial holding companies and other financial service providers. |
| The effect of changes in laws and regulations (including laws and regulations concerning taxes, banking, securities and insurance) with which the Company and its subsidiaries must comply, including under the recently enacted Dodd-Frank Wall Street Reform and Consumer Protection Act. |
| The effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies, as well as the Public Company Accounting Oversight Board, the Financial Accounting Standards Board and other accounting standard setters. |
| The costs and effects of legal and regulatory developments including the resolution of legal proceedings or regulatory or other governmental inquiries and the results of regulatory examinations or reviews. |
| The Companys success at managing the risks involved in the foregoing items. |
Forward-looking statements speak only as of the date on which such statements are made. The Company undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made, or to reflect the occurrence of unanticipated events.
2
Table of Contents
NEW HAMPSHIRE THRIFT BANCSHARES, INC.
Page | ||||
PART I. |
FINANCIAL INFORMATION | |||
Item 1 | Financial Statements: |
|||
Condensed Consolidated Balance Sheets - June 30, 2011 (unaudited) and December 31, 2010 |
4 | |||
5 | ||||
6 | ||||
Notes To Condensed Consolidated Financial Statements (unaudited) - |
8 | |||
Item 2 | Managements Discussion and Analysis of Financial Condition and Results of Operations |
19 | ||
Item 3 | 34 | |||
Item 4 | 34 | |||
PART II. |
OTHER INFORMATION | |||
Item 1 | Legal Proceedings | 35 | ||
Item 1A | 35 | |||
Item 2 | 35 | |||
Item 3 | 35 | |||
Item 4 | 35 | |||
Item 5 | 35 | |||
Item 6 | 35 | |||
Signatures |
3
Table of Contents
PART I.
Item 1. Financial Statements
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 2011 AND DECEMBER 31, 2010
June 30, 2011 |
December 31, 2010 |
|||||||
(Unaudited) | ||||||||
ASSETS |
||||||||
Cash and due from banks |
$ | 21,073,491 | $ | 21,512,894 | ||||
Interest bearing deposits |
21,000,000 | 11,700,000 | ||||||
|
|
|
|
|||||
Cash and cash equivalents |
42,073,491 | 33,212,894 | ||||||
Securities available-for-sale |
190,167,138 | 195,984,515 | ||||||
Federal Home Loan Bank stock |
7,614,600 | 7,614,600 | ||||||
Loans held-for-sale |
1,236,000 | 5,887,141 | ||||||
Loans receivable, net |
710,428,601 | 675,513,787 | ||||||
Accrued interest receivable |
3,307,681 | 2,986,348 | ||||||
Premises and equipment, net |
16,461,292 | 16,671,896 | ||||||
Investments in real estate |
3,500,895 | 3,550,427 | ||||||
Other real estate owned |
191,948 | 75,000 | ||||||
Goodwill and other intangible assets |
28,626,670 | 28,843,609 | ||||||
Investment in partially owned Charter Holding Corp., at equity |
5,242,407 | 4,898,869 | ||||||
Bank owned life insurance |
13,075,844 | 10,358,288 | ||||||
Other assets |
9,073,468 | 9,456,510 | ||||||
|
|
|
|
|||||
Total assets |
$ | 1,031,000,035 | $ | 995,053,884 | ||||
|
|
|
|
|||||
LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||
LIABILITIES |
||||||||
Deposits: |
||||||||
Noninterest-bearing |
$ | 61,056,240 | $ | 53,265,124 | ||||
Interest-bearing |
721,001,646 | 724,953,993 | ||||||
|
|
|
|
|||||
Total deposits |
782,057,886 | 778,219,117 | ||||||
Securities sold under agreements to repurchase |
11,644,999 | 16,165,074 | ||||||
Federal Home Loan Bank advances |
110,963,425 | 75,959,361 | ||||||
Subordinated debentures |
20,620,000 | 20,620,000 | ||||||
Accrued expenses and other liabilities |
9,782,191 | 11,698,913 | ||||||
|
|
|
|
|||||
Total liabilities |
935,068,501 | 902,662,465 | ||||||
|
|
|
|
|||||
STOCKHOLDERS EQUITY |
||||||||
Preferred stock, $.01 par value per share: 2,500,000 shares authorized, fixed rate cumulative perpetual Series A; 10,000 shares issued and outstanding at June 30, 2011 and December 31, 2010; liquidation value $1,000 per share |
100 | 100 | ||||||
Common stock, $.01 par value per share: 10,000,000 shares authorized, 6,234,051 shares issued and 5,773,772 shares outstanding at June 30, 2011 and December 31, 2010 |
62,341 | 62,341 | ||||||
Warrants |
85,020 | 85,020 | ||||||
Paid-in capital |
55,928,753 | 55,920,664 | ||||||
Retained earnings |
48,266,603 | 46,000,732 | ||||||
Accumulated other comprehensive loss |
(1,260,560 | ) | (2,526,715 | ) | ||||
Treasury Stock, 460,279 shares as of June 30, 2011 and December 31, 2010, at cost |
(7,150,723 | ) | (7,150,723 | ) | ||||
|
|
|
|
|||||
Total stockholders equity |
95,931,534 | 92,391,419 | ||||||
|
|
|
|
|||||
Total liabilities and stockholders equity |
$ | 1,031,000,035 | $ | 995,053,884 | ||||
|
|
|
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
Table of Contents
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the Three and Six Months Ended June 30, 2011 and 2010
(Unaudited)
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, 2011 |
June 30, 2010 |
June 30, 2011 |
June 30, 2010 |
|||||||||||||
Interest and dividend income |
||||||||||||||||
Interest and fees on loans |
$ | 7,884,371 | $ | 8,085,205 | $ | 15,849,488 | $ | 16,177,289 | ||||||||
Interest on debt investments: |
||||||||||||||||
Taxable |
1,224,575 | 1,870,794 | 2,457,893 | 3,795,937 | ||||||||||||
Dividends |
9,869 | 4,047 | 19,689 | 8,931 | ||||||||||||
Other |
219,337 | 11,751 | 454,037 | 16,759 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total interest and dividend income |
9,338,152 | 9,971,797 | 18,781,107 | 19,998,916 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Interest expense |
||||||||||||||||
Interest on deposits |
1,442,261 | 1,606,112 | 2,945,194 | 3,315,852 | ||||||||||||
Interest on advances and other borrowed money |
753,466 | 760,228 | 1,491,038 | 1,499,782 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total interest expense |
2,195,727 | 2,366,340 | 4,436,232 | 4,815,634 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net interest and dividend income |
7,142,425 | 7,605,457 | 14,344,875 | 15,183,282 | ||||||||||||
Provision for loan losses |
167,500 | 531,000 | 410,000 | 1,545,000 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net interest and dividend income after provision for loan losses |
6,974,925 | 7,074,457 | 13,934,875 | 13,638,282 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Noninterest income |
||||||||||||||||
Customer service fees |
1,287,873 | 1,329,375 | 2,465,100 | 2,624,670 | ||||||||||||
Net gain on sales of loans |
110,000 | 260,203 | 429,925 | 579,259 | ||||||||||||
Gain on sales of securities, net |
869,244 | 221,663 | 1,309,491 | 438,431 | ||||||||||||
Gain on sales of other real estate and property owned, net |
5,526 | 420 | 9,363 | 39,355 | ||||||||||||
Rental income |
169,164 | 167,752 | 340,840 | 339,729 | ||||||||||||
Income from equity interest in Charter Holding Corp. |
179,332 | 69,420 | 335,334 | 124,572 | ||||||||||||
Brokerage service income |
547 | 567 | 1,127 | 1,179 | ||||||||||||
Bank owned life insurance income |
109,059 | 90,800 | 203,951 | 179,460 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total noninterest income |
2,730,745 | 2,140,200 | 5,095,131 | 4,326,655 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Noninterest expenses |
||||||||||||||||
Salaries and employee benefits |
3,552,249 | 3,172,791 | 6,834,047 | 6,244,585 | ||||||||||||
Occupancy expenses |
931,414 | 938,125 | 1,969,099 | 1,943,235 | ||||||||||||
Advertising and promotion |
146,732 | 99,931 | 258,059 | 214,952 | ||||||||||||
Depositors insurance |
320,773 | 254,574 | 636,938 | 524,563 | ||||||||||||
Outside services |
261,493 | 278,486 | 496,563 | 534,828 | ||||||||||||
Professional services |
266,111 | 272,434 | 577,575 | 458,657 | ||||||||||||
ATM processing fees |
130,020 | 129,345 | 256,449 | 254,508 | ||||||||||||
Supplies |
81,498 | 98,887 | 165,427 | 192,316 | ||||||||||||
Mortgage servicing income, net of amortization of mortgage servicing rights |
(54,217 | ) | (51,884) | (61,314 | ) | (79,824 | ) | |||||||||
Other expenses |
1,217,700 | 1,205,439 | 2,156,274 | 2,212,549 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total noninterest expenses |
6,853,773 | 6,398,128 | 13,289,117 | 12,500,369 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Income before provision for income taxes |
2,851,897 | 2,816,529 | 5,740,889 | 5,464,568 | ||||||||||||
Provision for income taxes |
851,741 | 814,056 | 1,715,749 | 1,740,597 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income |
$ | 2,000,156 | $ | 2,002,473 | $ | 4,025,140 | $ | 3,723,971 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Comprehensive income |
$ | 3,205,923 | $ | 4,161,238 | $ | 5,291,295 | $ | 6,445,248 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income available to common stockholders |
$ | 1,871,111 | $ | 1,994,551 | $ | 3,767,051 | $ | 3,588,716 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Earnings per common share, basic |
$ | 0.32 | $ | 0.32 | $ | 0.65 | $ | 0.60 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Average number of shares, basic |
5,773,772 | 5,771,772 | 5,773,772 | 5,771,772 | ||||||||||||
Earnings per common share, assuming dilution |
$ | 0.32 | $ | 0.32 | $ | 0.65 | $ | 0.60 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Average number of shares, assuming dilution |
5,787,229 | 5,777,860 | 5,786,870 | 5,777,300 | ||||||||||||
Dividends declared per common share |
$ | 0.13 | $ | 0.13 | $ | 0.26 | $ | 0.26 | ||||||||
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5
Table of Contents
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 2011 and 2010
(Unaudited)
June 30, 2011 |
June 30, 2010 |
|||||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||
Net income |
$ | 4,025,140 | $ | 3,723,971 | ||||
Depreciation and amortization |
637,381 | 721,893 | ||||||
Amortization of fair value adjustments, net (loans, deposits and borrowings) |
67,632 | 49,571 | ||||||
Amortization of securities, net |
642,589 | 436,769 | ||||||
Net decrease (increase) in mortgage servicing rights |
88,531 | (47,102 | ) | |||||
Net decrease in loans held-for-sale |
4,651,141 | 394,950 | ||||||
Increase in cash surrender value of life insurance |
(217,556 | ) | (190,767 | ) | ||||
Amortization of intangible assets |
216,939 | 248,466 | ||||||
Provision for loan losses |
410,000 | 1,545,000 | ||||||
Decrease (increase) in accrued interest receivable and other assets |
19,736 | (518,488 | ) | |||||
Net gain on sales of other real estate and property owned |
(9,363 | ) | (39,355 | ) | ||||
Net gain on sales and calls of securities |
(1,309,491 | ) | (438,431 | ) | ||||
Income from equity interest in Charter Holding Corp. |
(335,334 | ) | (124,572 | ) | ||||
Change in deferred loan origination fees and cost, net |
112,205 | (51,459 | ) | |||||
(Decrease) increase in accrued expenses and other liabilities |
(2,711,280 | ) | 578,403 | |||||
|
|
|
|
|||||
Net cash provided by operating activities |
6,288,270 | 6,288,849 | ||||||
|
|
|
|
|||||
CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||
Capital expenditures |
(377,245 | ) | (449,803 | ) | ||||
Proceeds from sales and calls of securities available-for-sale |
71,750,468 | 67,565,412 | ||||||
Purchases of securities available-for-sale |
(63,260,237 | ) | (74,916,648 | ) | ||||
Purchases of Federal Home Loan Bank stock |
| (1,438,800 | ) | |||||
Loan originations and principal collections, net |
(35,697,372 | ) | (31,245,544 | ) | ||||
Proceeds from sale of other real estate owned |
89,200 | 139,355 | ||||||
Purchase of life insurance policies |
(2,500,000 | ) | | |||||
|
|
|
|
|||||
Net cash used in investing activities |
(29,995,186 | ) | (40,346,028 | ) | ||||
|
|
|
|
|||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||
Net increase (decrease) increase in deposits |
3,838,769 | (5,219,448 | ) | |||||
Net decrease in securities sold under agreements to repurchase |
(4,520,075 | ) | (1,182,752 | ) | ||||
Net increase in advances from Federal Home Loan Bank |
35,000,000 | 29,988,818 | ||||||
Proceeds from other borrowed funds |
| (77,500 | ) | |||||
Dividends paid on preferred stock |
(250,000 | ) | (250,000 | ) | ||||
Dividends paid on common stock |
(1,501,181 | ) | (1,500,661 | ) | ||||
|
|
|
|
|||||
Net cash provided by financing activities |
32,567,513 | 21,758,457 | ||||||
|
|
|
|
|||||
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS |
8,860,597 | (12,298,722 | ) | |||||
CASH AND CASH EQUIVALENTS, beginning of period |
33,212,894 | 38,038,652 | ||||||
|
|
|
|
|||||
CASH AND CASH EQUIVALENTS, end of period |
$ | 42,073,491 | $ | 25,739,930 | ||||
|
|
|
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
6
Table of Contents
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - (continued)
For the Six Months Ended June 30, 2011 and 2010
(Unaudited)
June 30, 2011 |
June 30, 2010 |
|||||||
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: |
||||||||
Cash paid during the period for: |
||||||||
Interest on deposit accounts |
$ | 2,983,170 | $ | 3,357,641 | ||||
Interest on advances and other borrowed money |
1,493,062 | 1,588,437 | ||||||
|
|
|
|
|||||
Total interest paid |
$ | 4,476,232 | $ | 4,946,078 | ||||
|
|
|
|
|||||
Income taxes paid |
$ | 2,199,178 | $ | 2,362,371 | ||||
|
|
|
|
|||||
Loans transferred to other real estate owned |
$ | 191,948 | $ | 260,309 | ||||
|
|
|
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
7
Table of Contents
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011
(Unaudited)
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, 2010 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. (the Company), 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, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011.
Note B - Accounting Policies
The consolidated financial statements include the accounts of the Company, Lake Sunapee Bank, fsb (the Bank), Lake Sunapee Group, Inc. (LSGI), which owns and maintains all buildings, and Lake Sunapee Financial Services Corp. (LSFSC), which was formed to manage the flow of funds from the brokerage services. LSGI and LSFSC are wholly owned subsidiaries of the Bank. All significant intercompany accounts and transactions have been eliminated in consolidation.
NHTB Capital Trust II and NHTB Capital Trust III, affiliates of the Company, were formed to sell capital securities to the public through a third-party trust pool. In accordance with ASC 810-10, Consolidation-Overall, these affiliates have not been included in the consolidated financial statements.
As described in recent accounting pronouncements, in June 2009 ASC 810-10 was amended by SFAS No. 166 and SFAS No. 167, which were effective for the Company in the first interim reporting period of 2010. SFAS No. 167 amended the consolidation guidance in ASC 810-10. These amendments to ASC 810-10 did not have a material impact on the Companys financial statements.
Note C - Impact of New Accounting Standards
In January 2010, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2010-06, Improving Disclosures about Fair Value Measurements. The ASU requires disclosing the amounts of significant transfers in and out of Level 1 and 2 of the fair value hierarchy and describing the reasons for the transfers. The disclosures are effective for reporting periods beginning after December 15, 2009. The Company adopted ASU 2010-06 as of January 1, 2010. The required disclosures are included in Note D. Additionally, disclosures of the gross purchases, sales, issuances and settlements activity in the Level 3 of the fair value measurement hierarchy will be required for fiscal years beginning after December 15, 2010.
In March 2010, FASB issued ASU 2010-11, Scope Exception Related to Embedded Credit Derivatives. The ASU clarifies that certain embedded derivatives, such as those contained in certain securitizations, CDOs and structured notes, should be considered embedded credit derivatives subject to potential bifurcation and separate fair value accounting. The ASU allows any beneficial interest issued by a securitization vehicle to be accounted for under the fair value option at transition. At transition, the Company may elect to reclassify various debt securities (on an instrument-by-instrument basis) from held-to-maturity (HTM) or available-for-sale (AFS) to trading. The new rules became effective on July 1, 2010. This ASU did not have significant impact on the Companys financial condition and results of operations.
In April 2010, FASB issued ASU 2010-18, Effect of a Loan Modification When the Loan is Part of a Pool That is Accounted for as a Single Asset. As a result of this ASU, modifications of loans that are accounted for within a pool under Subtopic 310-30 do not result in the removal of those loans from the pool even if the
8
Table of Contents
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
modification of those loans would otherwise be considered a troubled debt restructuring. An entity will continue to be required to consider whether the pool of assets in which the loan is included is impaired if expected cash flows for the pool change. The amendments in this ASU are effective for modifications of loans accounted for within pools under Subtopic 310-30 occurring in the first interim or annual period ending on or after July 15, 2010. The amendments are to be applied prospectively.
In July 2010, FASB issued ASU 2010-20, Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses. This ASU requires significant new disclosures about the allowance for credit losses and the credit quality of financing receivables. The requirements are intended to enhance transparency regarding credit losses and the credit quality of loan and lease receivables by disclosing an evaluation of (i) the nature of credit risk inherent in the entitys portfolio of financing receivables, (ii) how that risk is analyzed and assessed in arriving at the allowance for credit losses and (iii) the changes and reasons for those changes in the allowance for credit losses. Under this statement, allowance for credit losses and fair value are to be disclosed by portfolio segment, while credit quality information, impaired financing receivables and nonaccrual status are to be presented by class of financing receivable. Disclosure of the nature and extent, the financial impact and segment information of troubled debt restructurings will also be required. The disclosures are to be presented at the level of disaggregation that management uses when assessing and monitoring the portfolios risk and performance. ASU 2010-20 will be effective for the Companys consolidated financial statements as of December 31, 2010, as it relates to disclosures required as of the end of a reporting period. Disclosures that relate to activity during a reporting period will be required for the Companys consolidated financial statements that include periods beginning on or after January 1, 2011. Please see Note G.
In December 2010, FASB issued ASU 2010-28, Intangibles Goodwill and Other. This ASU addresses when to perform step 2 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For public entities, the amendments in this ASU are effective for fiscal years and interim periods beginning after December 15, 2010. For nonpublic entities, the amendments are effective for fiscal years and interim periods beginning after December 15, 2011.
In December 2010, FASB issued ASU 2010-29, Disclosure of Supplementary Pro Forma Information for Business Combinations. This ASU addresses diversity in practice about the interpretation of the pro forma revenue and earnings disclosure requirements for business combinations. This ASU is effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010.
In April 2011, FASB issued ASU 2011-02, A Creditors Determination of Whether a Restructuring Is a Troubled Debt Restructuring. This ASU provides additional guidance or clarification to help creditors determine whether a restructuring constitutes a troubled debt restructuring. For public entities, the amendments in this ASU are effective for the first interim or annual period beginning on or after June 15, 2011, and should be applied retrospectively to the beginning of the annual period of adoption. As a result of applying these amendments, an entity may identify receivables that are newly considered impaired, and should measure impairment on those receivables prospectively for the first interim or annual period beginning on or after June 15, 2011. Additional disclosures are also required under this ASU. The Company is currently evaluating the impact of this ASU. The ASU is expected to cause more loan modifications to be classified as TDRs and the Company is evaluating its modification programs and practices in light of the new ASU.
In April 2011, FASB issued ASU 2011-03, Reconsideration of Effective Control for Repurchase Agreements. The objective of this ASU is to improve the accounting for repurchase agreements and other agreements that both entitle and obligate a transferor to repurchase or redeem financial assets before their maturity. This ASU prescribes when an entity may or may not recognize a sale upon the transfer of financial assets subject to repurchase agreements. The guidance in this ASU is effective for the first interim or annual period beginning on or after December 15, 2011. Early adoption is not permitted.
9
Table of Contents
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In May 2011, FASB issued ASU 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards. The amendments in this ASU explain how to measure fair value. They do not require additional fair value measurements and are not intended to establish valuation standards or affect valuation practices outside of financial reporting. The amendments in this ASU are to be applied prospectively. For public entities, the amendments are effective during interim and annual periods beginning after December 15, 2011.
In June 2011, FASB issued ASU 2011-05, Presentation of Comprehensive Income. The objective of this ASU is to improve the comparability, consistency, and transparency of financial reporting and to increase the prominence of items reported in other comprehensive income. Under this ASU, an entity has the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. An entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. An entity is required to present on the face of the financial statements reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statement(s) where the components of net income and the components of other comprehensive income are presented. The amendments in this ASU should be applied retrospectively. For public entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011.
Note D - Fair Value Measurements
In accordance with ASC 820-10, the Company groups its financial assets and financial liabilities measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.
Level 1 - Valuations for assets and liabilities traded in active exchange markets, such as the New York Stock Exchange. Level 1 also includes U.S. Treasury, other U.S. government and agency mortgage-backed securities that are traded by dealers or brokers in active markets. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.
Level 2 - Valuations for assets and liabilities traded in less active dealer or broker markets. Valuations are obtained from third party pricing services for identical or comparable assets or liabilities.
Level 3 - Valuations for assets and liabilities that are derived from other methodologies, including option pricing models, discounted cash flow models and similar techniques, are not based on market exchange, dealer, or broker traded transactions. Level 3 valuations incorporate certain assumptions and projections in determining the fair value assigned to such assets and liabilities.
A financial instruments level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.
A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below.
The Companys cash instruments are generally classified within level 1 or level 2 of the fair value hierarchy because they are valued using quoted market prices, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency.
10
Table of Contents
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The Companys investment in mortgage-backed securities, asset-backed securities, preferred stock with maturities and other debt securities available-for-sale are generally classified within level 2 of the fair value hierarchy. For these securities, the Company obtains fair value measurements from independent pricing services. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. treasury yield curve, trading levels, market consensus prepayment speeds, credit information and the instruments terms and conditions.
The Companys derivative financial instruments are generally classified within level 2 of the fair value hierarchy. For these financial instruments, the Company obtains fair value measurements from independent pricing services. The fair value measurements utilize a discounted cash flow model that incorporates and considers observable data, that may include publicly available third party market quotes, in developing the curve utilized for discounting future cash flows.
Level 3 is for positions that are not traded in active markets or are subject to transfer restrictions, valuations are adjusted to reflect illiquidity and/or non-transferability, and such adjustments are generally based on available market evidence. In the absence of such evidence, managements best estimate is used. Subsequent to inception, management only changes level 3 inputs and assumptions when corroborated by evidence such as transactions in similar instruments, completed or pending third-party transactions in the underlying investment or comparable entities, subsequent rounds of financing, recapitalization and other transactions across the capital structure, offerings in the equity or debt markets, and changes in financial ratios or cash flows.
Assets and Liabilities Measured at Fair Value on a Recurring Basis.
Securities Available-for-Sale. The fair value of the Companys available-for-sale securities portfolio is estimated using Level 1 and Level 2 inputs. The Company obtains fair value measurements from an independent pricing service. For Levels 1 and 2, the fair value measurements consider (i) quoted prices in active markets for identical assets and (ii) observable data that may include dealer quotes, market spreads, cash flows, market consensus prepayment speeds, credit information, and a bonds terms and conditions, among other factors, respectively.
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
Impaired Loans. Certain impaired loans are reported at the fair value of the underlying collateral if repayment is expected solely from collateral. Collateral values are estimated using Level 2 inputs based on appraisals of similar properties obtained from a third party valuation service. Fair values are estimated using Level 3 inputs based on appraisals of similar properties obtained from a third party valuation service discounted by management based on historical losses for similar collateral.
Other Real Estate Owned. Other Real Estate Owned is reported at the fair value of the underlying collateral. Collateral values are estimated using Level 2 inputs based on appraisals of similar properties obtained from a third party valuation service.
11
Table of Contents
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following summarizes assets measured at fair value at June 30, 2011.
Assets measured at fair value on a recurring basis
Fair Value Measurements at Reporting Date Using | ||||||||||||||||
June 30, 2011 | Quoted Prices in Active Markets for Identical Assets Level 1 |
Significant Other Observable Inputs Level 2 |
Significant Unobservable Inputs Level 3 |
|||||||||||||
Securities available-for-sale |
$ | 190,167,138 | $ | 512,050 | $ | 189,655,088 | $ | | ||||||||
|
|
|
|
|
|
|
|
|||||||||
$ | 190,167,138 | $ | 512,050 | $ | 189,655,088 | $ | | |||||||||
|
|
|
|
|
|
|
|
Liabilities measured at fair value on a recurring basis
Fair Value Measurements at Reporting Date Using | ||||||||||||||||
June 30, 2011 | Quoted Prices in Active Markets for Identical Assets Level 1 |
Significant Other Observable Inputs Level 2 |
Significant Unobservable Inputs Level 3 |
|||||||||||||
Derivative interest rate swap |
$ | 634,246 | $ | | $ | 634,246 | $ | | ||||||||
|
|
|
|
|
|
|
|
|||||||||
$ | 634,246 | $ | | $ | 634,246 | $ | | |||||||||
|
|
|
|
|
|
|
|
Assets measured at fair value on a nonrecurring basis
Fair Value Measurements at Reporting Date Using | ||||||||||||||||
June 30, 2011 | Quoted Prices in Active Markets for Identical Assets Level 1 |
Significant Other Observable Inputs Level 2 |
Significant Unobservable Inputs Level 3 |
|||||||||||||
Impaired loans |
$ | 7,572,620 | $ | | $ | | $ | 7,572,620 | ||||||||
Other real estate owned |
191,948 | | | 191,948 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
$ | 7,764,568 | $ | | $ | | $ | 7,764,568 | |||||||||
|
|
|
|
|
|
|
|
12
Table of Contents
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The estimated fair values of the Companys financial instruments, all of which are held or issued for purposes other than trading, were as follows:
June 30, 2011 | December 31, 2010 | |||||||||||||||
Carrying Amount |
Fair Value |
Carrying Amount |
Fair Value |
|||||||||||||
Financial assets: |
||||||||||||||||
Cash and cash equivalents |
$ | 42,073,491 | $ | 42,073,491 | $ | 33,212,894 | $ | 33,212,894 | ||||||||
Securities available-for-sale |
190,167,138 | 190,167,138 | 195,984,515 | 195,984,515 | ||||||||||||
Federal Home Loan Bank stock |
7,614,600 | 7,614,600 | 7,614,600 | 7,614,600 | ||||||||||||
Loans held-for-sale |
1,236,000 | 1,244,133 | 5,887,141 | 5,926,801 | ||||||||||||
Loans, net |
710,428,601 | 714,307,000 | 675,513,787 | 680,808,000 | ||||||||||||
Investment in unconsolidated subsidiaries |
620,000 | 562,148 | 620,000 | 546,332 | ||||||||||||
Accrued interest receivable |
3,307,681 | 3,307,681 | 2,986,348 | 2,986,348 | ||||||||||||
Financial liabilities: |
||||||||||||||||
Deposits |
782,057,886 | 784,386,000 | 778,219,117 | 782,619,000 | ||||||||||||
FHLB advances |
110,963,425 | 112,670,000 | 75,959,361 | 76,983,000 | ||||||||||||
Securities sold under agreements to repurchase |
11,644,999 | 11,644,999 | 16,165,074 | 16,165,074 | ||||||||||||
Subordinated debentures |
20,620,000 | 18,695,866 | 20,620,000 | 18,170,062 | ||||||||||||
Derivatives interest rate swap |
634,246 | 634,246 | 711,337 | 711,337 |
The carrying amounts of financial instruments shown in the above table are included in the consolidated balance sheets under the indicated captions, except for investment in unconsolidated subsidiaries and other investments which are included in other assets and derivatives which are included in other liabilities.
The Company did not have any significant transfers of assets or liabilities between levels 1 and 2 of the fair value hierarchy during the three months ended June 30, 2011.
13
Table of Contents
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note E - Securities
Debt and equity securities have been classified in the consolidated balance sheets according to managements intent.
The amortized cost of securities and their approximate fair values at June 30, 2011 are summarized as follows:
Available-for-sale | Amortized Cost | Gross Unrealized Gains |
Gross Unrealized Losses |
Fair Value | ||||||||||||
Bonds and notes |
||||||||||||||||
U. S. government, including agencies |
$ | 5,000,000 | | 93,865 | $ | 4,906,135 | ||||||||||
Mortgage-backed securities |
121,380,212 | 1,820,125 | | 123,200,337 | ||||||||||||
Municipal bonds |
29,315,492 | 74,375 | 477,478 | 28,912,389 | ||||||||||||
Other bonds and debentures |
32,298,468 | 337,759 | | 32,636,227 | ||||||||||||
Equity securities |
484,386 | 27,664 | | 512,050 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total available-for-sale |
$ | 188,478,558 | 2,259,923 | 571,343 | $ | 190,167,138 | ||||||||||
|
|
|
|
|
|
|
|
Maturities of debt securities, excluding mortgage-backed securities, classified as available-for-sale are as follows as of June 30, 2011:
Fair Value | ||||
Municipal bonds |
$ | 410,631 | ||
Other bonds and debentures |
8,088,421 | |||
|
|
|||
Total due in less than one year |
$ | 8,499,052 | ||
|
|
|||
Municipal bonds |
$ | 2,458,795 | ||
Other bonds and debentures |
21,131,328 | |||
|
|
|||
Total due after one year through five years |
$ | 23,590,123 | ||
|
|
|||
U.S. government, including agencies |
$ | 4,906,135 | ||
Municipal bonds |
7,816,250 | |||
|
|
|||
Total due after five years through ten years |
$ | 12,722,385 | ||
|
|
|||
Municipal bonds |
$ | 18,226,713 | ||
Other bonds and debentures |
3,416,478 | |||
|
|
|||
Total due after ten years |
$ | 21,643,191 | ||
|
|
For the six months ended June 30, 2011, proceeds from sales of securities available-for-sale amount to $53,764,923. Gross gains of $1,309,491 were realized during the same period on these sales.
14
Table of Contents
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note F - Other-Than-Temporary Impairment Losses
The aggregate fair value and unrealized losses of securities that have been in a continuous unrealized-loss position for less than twelve months and for twelve months or more, and are not other than temporarily impaired, are as follows as of June 30, 2011:
Less than 12 Months | 12 Months or Longer | Total | ||||||||||||||||||||||
Fair Value | Unrealized Losses |
Fair Value | Unrealized Losses |
Fair Value | Unrealized Losses |
|||||||||||||||||||
Bonds and notes |
||||||||||||||||||||||||
U.S. government agency bonds |
$ | 4,906,135 | $ | 93,865 | $ | | $ | | $ | 4,906,135 | $ | 93,865 | ||||||||||||
Municipal bonds |
22,489,613 | 477,478 | | | 22,489,613 | 477,478 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total temporarily impaired securities |
$ | 27,395,748 | $ | 571,343 | $ | | $ | | $ | 27,395,748 | $ | 571,343 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
The investments in the Companys investment portfolio that are temporarily impaired as of June 30, 2011 consist of bonds issued by U.S. government sponsored enterprises and agencies and municipal bonds. The unrealized losses on debt securities are primarily attributable to changes in market interest rates and market inefficiencies. Management has determined that the Company has the intent and the ability to hold debt securities until maturity, and therefore, no declines are deemed to be other than temporary.
Note G - Loan Portfolio
Loans receivable consisted of the following as of the dates indicated:
June 30, 2011 |
December 31, 2010 |
|||||||
Real estate loans |
||||||||
Conventional |
$ | 374,341,618 | $ | 347,605,965 | ||||
Home equity |
72,964,838 | 74,883,507 | ||||||
Construction |
13,445,911 | 19,210,102 | ||||||
Commercial |
151,150,200 | 143,767,814 | ||||||
|
|
|
|
|||||
611,902,567 | 585,467,388 | |||||||
Consumer loans |
7,638,894 | 8,078,946 | ||||||
Commercial and municipal loans |
98,460,406 | 89,361,109 | ||||||
Unamortized adjustment to fair value |
1,139,923 | 1,202,491 | ||||||
|
|
|
|
|||||
Total loans |
719,141,790 | 684,109,934 | ||||||
Allowance for loan losses |
(10,093,151 | ) | (9,863,904 | ) | ||||
Deferred loan origination costs, net |
1,379,962 | 1,267,757 | ||||||
|
|
|
|
|||||
Loans receivable, net |
$ | 710,428,601 | $ | 675,513,787 | ||||
|
|
|
|
15
Table of Contents
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following table sets forth information regarding the allowance for loan and lease losses by portfolio segment as of June 30, 2011:
Real Estate: | ||||||||||||||||||||||||
Residential | Commercial | Land and Construction |
Commercial | Consumer | Total | |||||||||||||||||||
Allowance for loan and lease losses: |
||||||||||||||||||||||||
Ending balance: |
||||||||||||||||||||||||
Individually evaluated for impairment |
$ | 144,058 | $ | 465,199 | $ | | $ | 189,104 | $ | | $ | 798,361 | ||||||||||||
Ending balance: |
||||||||||||||||||||||||
Collectively evaluated for impairment |
5,899,650 | 1,922,279 | 195,461 | 1,154,774 | 122,626 | 9,294,790 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total allowance for loan and lease losses ending balance |
$ | 6,043,708 | $ | 2,387,478 | $ | 195,461 | $ | 1,343,878 | $ | 122,626 | $ | 10,093,151 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Loans: |
||||||||||||||||||||||||
Ending balance: |
||||||||||||||||||||||||
Individually evaluated for impairment |
$ | 1,241,070 | $ | 5,994,913 | $ | | $ | 1,134,998 | $ | | $ | 8,370,981 | ||||||||||||
Ending balance: |
||||||||||||||||||||||||
Collectively evaluated for impairment |
447,205,309 | 145,155,287 | 13,445,911 | 97,325,408 | 7,638,894 | 710,770,809 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total loans ending balance |
$ | 448,446,379 | $ | 151,150,200 | $ | 13,445,911 | $ | 98,460,406 | $ | 7,638,894 | $ | 719,141,790 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth information regarding nonaccrual loans and past-due loans as of June 30, 2011:
30-59 Days | 60-89 Days | Greater Than 90 Days |
Total Past Due |
Recorded Investments Nonaccrual Loans |
||||||||||||||||
Real estate: |
||||||||||||||||||||
Conventional |
$ | 1,366,380 | $ | 965,351 | $ | 1,745,526 | $ | 4,077,257 | $ | 2,986,596 | ||||||||||
Commercial |
3,656,583 | 185,050 | 2,089,497 | 5,931,130 | 5,994,913 | |||||||||||||||
Home equity |
99,424 | | | 99,424 | | |||||||||||||||
Land and construction |
420,563 | 53,506 | 40,535 | 514,604 | 40,535 | |||||||||||||||
Commercial |
139,031 | 90,230 | 91,261 | 320,522 | 1,134,998 | |||||||||||||||
Consumer |
31,155 | 3,905 | | 35,060 | | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | 5,713,136 | $ | 1,298,042 | $ | 3,966,819 | $ | 10,977,997 | $ | 10,157,042 | ||||||||||
|
|
|
|
|
|
|
|
|
|
16
Table of Contents
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Information about loans that meet the definition of an impaired loan in ASC 310-10-35 is as follows as of June 30, 2011:
Recorded Investment |
Unpaid Principal Balance |
Related Allowance For Credit Losses |
Average Recorded Investment |
Interest Income Recognized |
||||||||||||||||
With no related allowance recorded: |
||||||||||||||||||||
Real estate: |
||||||||||||||||||||
Conventional |
$ | 174,552 | $ | 174,552 | $ | | $ | 412,887 | $ | 2,369 | ||||||||||
Commercial |
3,395,232 | 3,395,232 | | 4,854,176 | 136,797 | |||||||||||||||
Commercial |
237,661 | 237,661 | | 118,830 | 4,580 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total impaired with no related allowance: |
$ | 3,807,445 | $ | 3,807,445 | $ | | $ | 5,385,893 | $ | 143,746 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
With an allowance recorded: |
||||||||||||||||||||
Real estate: |
||||||||||||||||||||
Conventional |
$ | 1,066,518 | $ | 1,066,518 | $ | 144,058 | $ | 803,534 | $ | 18,670 | ||||||||||
Commercial |
2,599,681 | 2,599,681 | 465,199 | 2,073,137 | 40,342 | |||||||||||||||
Commercial |
897,337 | 897,337 | 189,104 | 832,556 | 27,424 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total impaired with an allowance recorded: |
$ | 4,563,536 | $ | 4,563,536 | $ | 798,361 | $ | 3,709,227 | $ | 86,436 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total: |
||||||||||||||||||||
Real estate: |
||||||||||||||||||||
Conventional |
$ | 1,241,070 | $ | 1,241,070 | $ | 144,058 | $ | 1,216,421 | $ | 21,039 | ||||||||||
Commercial |
5,994,913 | 5,994,913 | 465,199 | 6,927,313 | 177,139 | |||||||||||||||
Commercial |
1,134,998 | 1,134,998 | 189,104 | 951,386 | 32,004 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total impaired loans: |
$ | 8,370,981 | $ | 8,370,981 | $ | 798,361 | $ | 9,095,120 | $ | 230,182 | ||||||||||
|
|
|
|
|
|
|
|
|
|
The following table presents the Companys loans by risk ratings as of June 30, 2011:
Real Estate | ||||||||||||||||||||||||
Residential | Commercial | Land and Construction |
Commercial | Consumer | Total | |||||||||||||||||||
Grade: |
||||||||||||||||||||||||
Pass |
$ | 445,691,856 | $ | 128,656,556 | $ | 11,626,614 | $ | 94,124,920 | $ | 7,607,514 | $ | 687,707,460 | ||||||||||||
Special Mention |
131,250 | 9,061,623 | 1,819,297 | 2,218,551 | | 13,230,721 | ||||||||||||||||||
Substandard |
2,623,273 | 13,432,021 | | 2,116,935 | 31,380 | 18,203,609 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | 448,446,379 | $ | 151,150,200 | $ | 13,445,911 | $ | 98,460,406 | $ | 7,638,894 | $ | 719,141,790 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Credit Quality Information
The Company utilizes a nine grade internal loan rating system for commercial real estate, construction and commercial loans as follows:
Loans rated 10-35: Loans in these categories are considered pass rated loans with low to average risk.
Loans rated 40: Loans in this category are considered special mention. These loans are starting to show signs of potential weakness and are being closely monitored by management.
17
Table of Contents
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Loans rated 50: Loans in this category are considered substandard. Generally, a loan is considered substandard if it is inadequately protected by the current net worth and paying capacity of the obligors and/or the collateral pledged. There is a distinct possibility that the Company will sustain some loss if the weakness is not corrected.
Loans rated 60: Loans in this category are considered doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, highly questionable and improbable.
Loans rated 70: Loans in this category are considered uncollectible (loss) and of such little value that their continuance as loans is not warranted.
On an annual basis, or more often if needed, the Company formally reviews the ratings on all commercial real estate, construction and commercial loans over $250,000.
Note H - Stock-based Compensation
At June 30, 2011, the Company had two stock-based employee compensation plans. The Company accounts for those plans under ASC 718-10, Compensation-Stock Compensation-Overall. No stock-based employee compensation cost was recognized for the Companys fixed stock option plans during the quarters and six months ended June 30, 2011 or June 30, 2010.
Note I - Pension Benefits
The following summarizes the net periodic pension cost for the three and six months ended June 30:
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Interest cost |
$ | 81,803 | $ | 83,148 | $ | 163,606 | $ | 166,296 | ||||||||
Expected return on plan assets |
(125,501 | ) | (121,308 | ) | (251,002 | ) | (242,616 | ) | ||||||||
Amortization of unrecognized net loss |
51,448 | 44,408 | 102,896 | 88,816 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net periodic pension cost |
$ | 7,750 | $ | 6,248 | $ | 15,500 | $ | 12,496 | ||||||||
|
|
|
|
|
|
|
|
Note J - Other Comprehensive Income
The following summarizes the composition of other comprehensive income at June 30, 2011 and December 31, 2010:
June 30, 2011 |
December 31, 2010 |
|||||||
Net unrealized holding (losses) gains on available-for-sale securities, net of taxes |
$ | 1,019,733 | $ | (191,661 | ) | |||
Unrecognized net actuarial loss, defined benefit pension plan, net of tax |
(1,960,634 | ) | (1,960,634 | ) | ||||
Unrecognized net loss, derivative, net of tax |
(383,022 | ) | (429,578 | ) | ||||
Unrecognized net income (loss), equity investment, net of tax |
63,363 | 55,158 | ||||||
|
|
|
|
|||||
Accumulated other comprehensive loss |
$ | (1,260,560 | ) | $ | (2,526,715 | ) | ||
|
|
|
|
18
Table of Contents
Item 2. Managements Discussion and Analysis
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 organized in 1868. The Bank is a member of the Federal Deposit Insurance Corporation (FDIC) and its deposits are insured by the FDIC. Pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act), enacted on July 21, 2010, the Office of Thrift Supervision was abolished as of July 21, 2011 and its powers and duties transferred to the Office of the Comptroller of the Currency (OCC) as to savings banks and other thrifts, and to the Federal Reserve Board as to the holding companies of thrifts. Therefore, the Company is now regulated by the Federal Reserve Board, and the Bank is regulated by the OCC.
The Companys profitability is derived primarily from the Bank. The Banks earnings in turn are generated from the net income from the earnings on its loan and investment portfolios less the cost of its deposit accounts and borrowings. These core revenues are supplemented by gains on sales of loans originated for sale, retail banking service fees, gains on the sale of investment securities and brokerage fees. The Bank passes on its earnings to the Company to the extent allowed by OCC regulations.
Overview
| Total assets increased $35,946,151, or 3.61%, to $1,031,000,035 at June 30, 2011 from $995,053,884 at December 31, 2010. |
| Net loans increased $34,914,814, or 5.17%, to $710,428,601 at June 30, 2011 from $675,513,787 at December 31, 2010. |
| The Bank originated $84,221,539 in loans during the six months ended June 30, 2011, compared to $90,640,860 for the same period in 2010. |
| The Banks loan servicing portfolio was $365,847,721 at June 30, 2011 compared to $370,331,523 at December 31, 2010. |
| Total deposits increased $3,838,769, or 0.49%, to $782,057,886 at June 30, 2011 from $778,219,117 at December 31, 2010. |
| Net interest and dividend income for the six months ended June 30, 2011 was $14,344,875 compared to $15,183,282 for the same period in 2010. Net interest and dividend income for the three months ended June 30, 2011 was $7,142,425 compared to $7,605,457 for the same period in 2010. Tax-equivalent net interest income and dividend income for the three months ended June 30, 2011 was $7,504,024 compared to $7,729,990 for the same period in 2010. |
| The Company earned $4,025,140, or $0.65 per common share, assuming dilution, for the six months ended June 30, 2011, compared to $3,723,971, or $0.60 per common share, assuming dilution, for the six months ended June 30, 2010. Net income available to common stockholders was $3,767,051 for the six months ended June 30, 2011, compared to $3,588,716 for the same period in 2010. |
| The Companys returns on average assets and average equity for the six months ended June 30, 2011 were 0.79% and 8.72%, respectively, compared to 0.76% and 8.38%, respectively, for the same period in 2010. |
19
Table of Contents
Critical Accounting Policies
The Companys condensed consolidated financial statements are prepared in accordance with GAAP and practices within the banking industry. Application of these principles requires management to make estimates, assumptions, and judgments that affect the amounts reported in the financial statements and accompanying notes. These estimates, assumptions, and judgments are based on information available as of the date of the financial statements; accordingly, as this information changes, the financial statements could reflect different estimates, assumptions, and judgments. Actual results could differ from those estimates.
Critical accounting estimates are necessary in the application of certain accounting policies and procedures, and are particularly susceptible to significant change. Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and could potentially result in materially different results under different assumptions and conditions. For additional information on the Companys critical accounting policies, please refer to the information contained in Notes A, B and C of the accompanying condensed consolidated financial statements and Note 1 of the consolidated financial statements included in the Companys 2010 Annual Report on Form 10-K.
Capital Securities
On March 30, 2004, NHTB Capital Trust II (Trust II), a Connecticut statutory trust formed by the Company, completed the sale of $10.0 million of Floating Capital Securities, adjustable every three months at LIBOR plus 2.79% (Capital Securities II). Trust II also issued common securities to the Company and used the net proceeds from the offering to purchase a like amount of Junior Subordinated Deferrable Interest Debentures (Debentures II) of the Company. Debentures II are the sole assets of Trust II. Total expenses associated with the offering of $160,402 are included in other assets and are being amortized on a straight-line basis over the life of Debentures II.
Capital Securities II accrue and pay distributions quarterly based on the stated liquidation amount of $10 per capital security. The Company has fully and unconditionally guaranteed all of the obligations of Trust II. The guaranty covers the quarterly distributions and payments on liquidation or redemption of Capital Securities II, but only to the extent that Trust II has funds necessary to make these payments.
Capital Securities II are mandatorily redeemable upon the maturing of Debentures II on March 30, 2034 or upon earlier redemption as provided in the Indenture. The Company has the right to redeem Debentures II, in whole or in part at the liquidation amount plus any accrued but unpaid interest to the redemption date.
On March 30, 2004, NHTB Capital Trust III (Trust III), a Connecticut statutory trust formed by the Company, completed the sale of $10.0 million of 6.06% 5 Year Fixed-Floating Capital Securities (Capital Securities III). Trust III also issued common securities to the Company and used the net proceeds from the offering to purchase a like amount of 6.06% Junior Subordinated Deferrable Interest Debentures (Debentures III) of the Company. Debentures III are the sole assets of Trust III. Total expenses associated with the offering of $160,402 are included in other assets and are being amortized on a straight-line basis over the life of Debentures III.
Capital Securities III accrue and pay distributions quarterly at an annual rate of 6.06% for the first 5 years of the stated liquidation amount of $10 per capital security. 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 Capital Securities III, but only to the extent that the Trust has funds necessary to make these payments.
20
Table of Contents
Capital Securities III are mandatorily redeemable upon the maturing of Debentures III on March 30, 2034 or upon earlier redemption as provided in the Indenture. The Company has the right to redeem Debentures III, in whole or in part at the liquidation amount plus any accrued but unpaid interest to the redemption date.
Interest Rate Swap
On May 1, 2008, the Company entered into an interest rate swap agreement with PNC Bank, effective on June 17, 2008. The interest rate agreement converts Trust IIs interest rate from a floating rate to a fixed-rate basis. The interest rate swap agreement has a notional amount of $10 million maturing June 17, 2013. Under the swap agreement, the Company is to receive quarterly interest payments at a floating rate based on three month LIBOR plus 2.79% and is obligated to make quarterly interest payments at a fixed-rate of 6.65%.
Financial Condition and Results of Operations
Comparison of Financial Condition at June 30, 2011 and December 31, 2010
Total assets were $1,031,000,035 at June 30, 2011, compared to $995,053,884 at December 31, 2010, an increase of $35,946,151, or 3.61%. Securities available-for-sale decreased $5,817,377, or 2.97%, to $190,167,138 at June 30, 2011 from $195,984,515 at December 31, 2010. Net unrealized gains on securities available-for-sale were $1,688,580 at June 30, 2011, compared to net unrealized losses of $317,372 at December 31, 2010. During the six months ended June 30, 2011, the Company sold securities with a total book value of $57,082,372 for a net gain on sales of $1,309,491. During the same period, the Company purchased $23,409,920 of other bonds and debentures and $39,850,317 of mortgage-backed securities. The Banks net unrealized gain (after tax) on its investment portfolio was $1,019,733 at June 30, 2011, compared to an unrealized loss (after tax) of $191,661 at December 31, 2010. The investments in the Banks securities portfolio that were temporarily impaired as of June 30, 2011 consisted of debt securities issued by U.S. government corporations and agencies and municipal bonds with strong credit ratings and stable credit outlooks. The unrealized losses were primarily attributable to changes in market interest rates and recent uncertainties in the financial markets. Management does not intend to sell these securities in the near term. Since the Bank has the ability to hold debt securities until maturity, no declines are deemed to be other than temporary.
Net loans held in portfolio increased $34,914,814, or 5.17%, to $710,428,601 at June 30, 2011, from $675,513,787 at December 31, 2010. The allowance for loan losses increased $229,247 to $10,093,151 at June 30, 2011, from $9,863,904 at December 31, 2010. The change in the allowance for loan losses is the net of the effect of provisions of $410,000, charge-offs of $373,854, and recoveries of $193,101. As a percentage of total loans, non-performing loans decreased from 1.45% at December 31, 2010 to 1.32% at June 30, 2011. Total loan production for the six months ended June 30, 2011 was $84,221,539 compared to $90,640,860 for the same period in 2010. For the six month period ended June 30, 2011, the Bank originated $132.0 million in loans compared to $137.3 million in loans for the six month period ended June 30, 2010. The increase of loans held in portfolio was primarily due to increases in residential mortgages, commercial real estate loans, and municipal loans. At June 30, 2011, the Banks mortgage servicing loan portfolio amounted to $365,847,721 compared to $370,331,523 at December 31, 2010. The Bank expects to continue to sell long-term 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, 2011, adjustable-rate mortgages comprised approximately 67.0% of the Banks real estate mortgage loan portfolio. This is consistent with prior periods.
Goodwill and other intangible assets amounted to $28,626,670, or 2.87% of total assets, as of June 30, 2011, compared to $28,843,609, or 2.90% of total assets, as of December 31, 2010; the decrease was due to normal amortization of core deposit intangible assets.
21
Table of Contents
Other real estate owned (OREO) and property acquired in settlement of loans amounted was $191,948 as of June 30, 2011, compared to $75,000 as of December 31, 2010. The balance at June 30, 2011 represents the in-substance foreclosures of two loans.
Total deposits increased $3,838,769, or 0.49%, to $782,057,886 at June 30, 2011 from $778,219,117 at December 31, 2010. Non-interest bearing deposit accounts increased $7,791,116, or 14.63%, and interest-bearing deposit accounts decreased $3,952,347, or 0.55%, over the same period. The Banks transaction account balances are influenced by the seasonal migration of account owners and balances in these accounts and typically decrease during the first six months.
Advances from the Federal Home Loan Bank increased $35,004,064, or 46.08%, from $75,959,361 at December 31, 2010 to $110,963,425 at June 30, 2011.
Securities sold under agreements to repurchase decreased $4,520,075, or 27.96%, to $11,644,999 at June 30, 2011 from $16,165,074 at December 31, 2010, due to normal transactional fluctuations. Repurchase agreements are collateralized by some of the Banks U.S. government and agency investment securities.
The Bank maintained balances of $110,963,425 in advances from the Federal Home Loan Bank of Boston (FHLBB) at June 30, 2011, an increase of $35,004,064 from $75,959,361 at December 31, 2010.
Allowance and Provision for Loan Losses
The Bank maintains an allowance for loan losses to absorb losses inherent in the loan portfolio. Adjustments to the allowance for loan losses are charged to income through the provision for loan losses. The Bank tests the adequacy of the allowance for loan losses at least quarterly by preparing an analysis applying loss factors to outstanding loans by type. This analysis stratifies the loan portfolio by loan type and assigns a loss factor to each type based on an assessment of the risk associated with each type. In determining the loss factors, the Bank considers historical losses and market conditions. Loss factors may be adjusted for qualitative factors that, in managements judgment, affect the collectability of the portfolio.
The allowance for loan losses incorporates the results of measuring impairment for specifically identified non-homogenous problem loans in accordance with ASC 310-10-35, Receivables-Loans and Debt Securities Acquired with Deteriorated Credit Quality-Subsequent Measurement. In accordance with ASC 310-10-35, the specific allowance reduces the carrying amount of the impaired loans to their estimated fair value. A loan is recognized as impaired when it is probable that principal and/or interest is not collectible in accordance with the contractual terms of the loan. Measurement of impairment can be based on the present value of expected cash flows discounted at the loans effective interest rate, the market price of the loan, or the fair value of the collateral if the loan is collateral dependent. Measurement of impairment does not apply to large groups of smaller balance homogenous loans such as residential mortgage, home equity, or installment loans that are collectively evaluated for impairment.
The Banks 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 loan review, internal audit, and compliance programs with results reported directly to the Audit Committee of the Banks Board of Directors.
The allowance for loan losses (not including allowance for losses from the overdraft program described below) at June 30, 2011 was $10,079,018, compared to $9,841,030 at December 31, 2010. At approximately $10.1 million, the allowance for loan losses represents 1.40% of total loans, down from 1.44% at December 31, 2010. Total non-performing assets at June 30, 2011 were approximately $9.6 million, representing 94.77% of the allowance for loan losses. Modestly improving economic and market conditions, coupled with internal risk rating changes, resulted in the Bank adding $400,000 to the allowance for loan and lease losses during the six months ended June 30, 2011 compared to $1,500,000 for the same period in 2010. Loan charge-offs (excluding the
22
Table of Contents
overdraft program) were $246,506 during the six month period ended June 30, 2011 compared to $956,169 for the same period in 2010. Recoveries were $84,494 during the six month period ended June 30, 2011, compared to $9,015 for the same period in 2010. This activity resulted in net charge-offs of $162,012 for the six month period ended June 30, 2011, compared to $947,154 for the same period in 2010. One-to-four family residential mortgages, commercial real estate, land and construction, and consumer loans accounted for 60%, 8%, 23%, and 9%, respectively, of the amounts charged-off during the six month period ended June 30, 2011.
The effects of national economic issues continue to be felt in the Banks local communities and the national economic outlook as well as portfolio performance and charge-offs influenced the Banks decision to maintain its allowance for loan losses near $10.0 million. The provisions made in 2011 reflect loan loss experience and changes in economic conditions that affect the risk of loss inherent in the loan portfolio. Management anticipates making additional provisions during the remainder of 2011 to maintain the allowance at an adequate level.
In addition to the allowance for loan losses, there is an allowance for losses from the fee for service overdraft program. The Banks policy is to maintain an allowance equal to 100% of the aggregate balance of negative balance accounts that have remained negative for 30 days or more. Negative balance accounts are charged-off when the balance has remained negative for 60 consecutive days. At June 30, 2011, the overdraft allowance was $14,133, compared to $22,874 at year-end 2010. Provisions for overdraft losses in the amount of $10,000 were recorded during the six month period ended June 30, 2011, compared to provisions of $45,000 for the same period during 2010. Ongoing provisions are anticipated as overdraft charge-offs continue and the Bank adheres to its policy to maintain an allowance for overdraft losses equal to 100% of the aggregate negative balance of accounts remaining negative for 30 days or more.
23
Table of Contents
The following is a summary of activity in the allowance for loan losses account for the six month period ended June 30:
2011 | 2010 | |||||||
Balance, beginning of year |
$ | 9,841,030 | $ | 9,494,007 | ||||
|
|
|
|
|||||
Charge-offs: |
||||||||
Residential real estate |
(147,442 | ) | (716,819 | ) | ||||
Commercial real estate |
(20,000 | ) | (130,292 | ) | ||||
Land and construction |
(56,141 | ) | | |||||
Consumer loans |
(22,923 | ) | (28,746 | ) | ||||
Commercial loans |
| (80,312 | ) | |||||
|
|
|
|
|||||
Total charged-off loans |
(246,506 | ) | (956,169 | ) | ||||
|
|
|
|
|||||
Recoveries |
||||||||
Residential real estate |
51,796 | 4,314 | ||||||
Consumer loans |
4,362 | 1,110 | ||||||
Commercial loans |
28,336 | 3,591 | ||||||
|
|
|
|
|||||
Total recoveries |
84,494 | 9,015 | ||||||
|
|
|
|
|||||
Net charge-offs |
(162,012 | ) | (947,154 | ) | ||||
Provision for loan loss charged to income: |
||||||||
Residential real estate |
178,414 | 578,323 | ||||||
Commercial real estate |
129,472 | 533,999 | ||||||
Land and construction |
11,051 | 106,042 | ||||||
Consumer loans |
2,916 | 12,708 | ||||||
Commercial loans |
78,147 | 268,928 | ||||||
|
|
|
|
|||||
Total provisions |
400,000 | 1,500,000 | ||||||
|
|
|
|
|||||
Ending balance |
$ | 10,079,018 | $ | 10,046,853 | ||||
|
|
|
|
The following is a summary of activity in the allowance for overdraft privilege account for the six month period ended June 30:
2011 | 2010 | |||||||
Beginning balance |
$ | 22,874 | $ | 24,625 | ||||
|
|
|
|
|||||
Overdraft charge-offs |
(127,348 | ) | (131,307 | ) | ||||
Overdraft recoveries |
108,607 | 91,159 | ||||||
|
|
|
|
|||||
Net overdraft losses |
(18,741 | ) | (40,148 | ) | ||||
|
|
|
|
|||||
Provision for overdrafts |
10,000 | 45,000 | ||||||
|
|
|
|
|||||
Ending balance |
$ | 14,133 | $ | 29,477 | ||||
|
|
|
|
24
Table of Contents
The following table sets forth the allocation of the loan loss allowance (excluding overdraft allowances), the percentage of allowance to the total allowance, and the percentage of loans in each category to total loans as of the dates indicated ($ in thousands):
June 30, 2011 | December 31, 2010 | |||||||||||||||||||||||
Real estate loans |
||||||||||||||||||||||||
Residential, 1-4 family and home equity loans |
$ | 5,900 | 59 | % | 62 | % | $ | 3,887 | 40 | % | 64 | % | ||||||||||||
Commercial |
1,923 | 19 | % | 21 | % | 2,825 | 28 | % | 21 | % | ||||||||||||||
Land and Construction |
195 | 2 | % | 2 | % | 575 | 6 | % | 3 | % | ||||||||||||||
Collateral and consumer loans |
108 | 1 | % | 1 | % | 70 | 1 | % | 1 | % | ||||||||||||||
Commercial and municipal loans |
1,155 | 11 | % | 14 | % | 2,004 | 20 | % | 11 | % | ||||||||||||||
Impaired loans |
798 | 8 | % | | 480 | 5 | % | | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Allowance |
$ | 10,079 | 100 | % | 100 | % | $ | 9,841 | 100 | % | 100 | % | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Allowance as a percentage of total loans |
1.40 | % | 1.44 | % | ||||||||||||||||||||
Non-performing loans as a percentage of allowance |
86.68 | % | 101.86 | % |
Classified loans include non-performing loans and performing loans that have been adversely classified, net of specific reserves. Total classified loans at carrying value (substandard loans less specific allowance) were $19,822,673 at June 30, 2011, compared to $18,998,657 at December 31, 2010. In addition, the Bank had $191,948 of OREO at June 30, 2011 representing two in-substance foreclosures, compared to $75,000 at December 31, 2010. During the six month period ended June 30, 2011, the Bank sold one property which was classified as OREO at December 31, 2010. Losses are incurred in the liquidation process and the Banks loss experience suggests it is prudent for the Bank to continue funding provisions to build the allowance for loan losses. While, for the most part, quantifiable loss amounts have not been identified with individual credits, the Bank anticipates more charge-offs as loan issues are resolved. The impaired loans meet the criteria established under ASC 310-10-35. Fourteen loans considered to be impaired loans at June 30, 2011 have specific allowances identified and assigned. The fourteen loans are secured by real estate, business assets or a combination of both. At June 30, 2011, the allowance included $798,361 allocated to impaired loans. The portion of the allowance allocated to impaired loans at December 31, 2010 was $479,960.
Loans over 90 days past due were $3,996,819 at June 30, 2011, compared to $2,106,659 at December 31, 2010. Loans 30 to 89 days past due were $7,011,178 at June 30, 2011, compared to $8,955,612 at December 31, 2010. As a percentage of assets, non-performing loans decreased from 1.00% at December 31, 2010 to 0.93% at June 30, 2011, and, as a percentage of total loans, decreased from 1.46% at December 31, 2010 to 1.32% at June 30, 2011.
Loans classified for regulatory purposes as loss, doubtful, substandard, or special mention do not reflect trends or uncertainties which the Bank reasonably expects will materially impact future operating results, liquidity, or capital resources. For the period ended June 30, 2011, all loans about which management possesses information regarding possible borrower credit problems and doubts as to borrowers ability to comply with present loan repayment terms or to repay a loan through liquidation of collateral are included in the tables below or discussed herein.
At June 30, 2011, the Bank had twenty loans with net carrying values of $6,702,905 considered to be troubled debt restructurings as defined in ASC 310-40, Receivables-Troubled Debt Restructurings by Creditors. At June 30, 2011, eight of the troubled debt restructurings were performing under contractual terms and are included in impaired loans. Of the loans classified as troubled debt restructured, twelve were more than thirty days past due at June 30, 2011, and are included in impaired loans. The balances of these past due loans were $3.7 million and have assigned specific allowances of $361,807. At December 31, 2010, the Bank had twenty-one loans with net carrying values of $7,970,889 considered to be troubled debt restructurings.
25
Table of Contents
At June 30, 2011 there were no other loans excluded from the tables below or not discussed above where known information about possible credit problems of the borrowers caused management to have doubts as to the ability of the borrowers to comply with present loan repayment terms and which may result in disclosure of such loans in the future.
The following table shows the breakdown of the carrying value of non-performing assets and non-performing assets (dollars in thousands) as a percentage of the total allowance and total assets for the periods indicated:
June 30, 2011 | December 31, 2010 | |||||||||||||||||||||||
Carrying Value |
Percentage of Total Allowance |
Percentage of Total Assets |
Carrying Value |
Percentage of Total Allowance |
Percentage of Total Assets |
|||||||||||||||||||
90 day delinquent loans (1) |
$ | 1,786 | 17.72 | % | 0.17 | % | $ | 600 | 6.10 | % | 0.06 | % | ||||||||||||
Non-accrual impaired loans |
870 | 8.63 | % | 0.08 | % | 1,378 | 14.00 | % | 0.14 | % | ||||||||||||||
Trouble debt restructured |
6,703 | 66.51 | % | 0.65 | % | 7,971 | 81.00 | % | 0.80 | % | ||||||||||||||
Other real estate owned |
192 | 1.91 | % | 0.02 | % | 75 | 0.76 | % | 0.01 | % | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total non-performing assets |
$ | 9,551 | 94.77 | % | 0.92 | % | $ | 10,024 | 101.86 | % | 1.01 | % | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
(1) | All loans 90 days or more delinquent are placed on non-accruing status. |
The following table sets forth the carrying value breakdown of non-performing assets at the dates indicated:
June 30, 2011 | December 31, 2010 | |||||||
Nonaccrual loans (1) |
$ | 9,358,682 | $ | 9,948,311 | ||||
Real estate and chattel property owned |
191,948 | 75,000 | ||||||
|
|
|
|
|||||
Total nonperforming assets |
$ | 9,550,630 | $ | 10,023,311 | ||||
|
|
|
|
(1) | All loans 90 days or more delinquent are placed on a nonaccruing status. |
The following table sets forth nonaccrual loans by category at the dates indicated:
June 30, 2011 | December 31, 2010 | |||||||
Real estate loans |
||||||||
Conventional |
$ | 2,986,596 | $ | 1,645,254 | ||||
Commercial |
5,994,913 | 7,448,570 | ||||||
Home equity |
| 119,999 | ||||||
Land and construction |
40,535 | 140,401 | ||||||
Consumer loans |
| 18,074 | ||||||
Commercial and municipal loans |
1,134,998 | 1,047,628 | ||||||
|
|
|
|
|||||
Total |
$ | 10,157,042 | $ | 10,419,926 | ||||
|
|
|
|
The Bank believes the allowance for loan losses is at a level sufficient to cover inherent losses, given the current level of risk in the loan portfolio. At the same time, the Bank recognizes that the determination of future loss potential is intrinsically uncertain. Future adjustments to the allowance may be necessary if economic, real estate, and other conditions differ substantially from the current operating environment and result in increased levels of non-performing loans and substantial differences between estimated and actual losses. Adjustments to the allowance are charged to income through the provision for loan losses.
26
Table of Contents
Liquidity and Capital Resources
The Bank is required to maintain sufficient liquidity for safe and sound operations. At June 30, 2011, the Banks liquidity was sufficient to cover the Banks anticipated needs for funding new loan commitments of approximately $35.0 million. The Banks source of funds is derived primarily from net deposit inflows, loan amortizations, principal pay downs from loans, sold loan proceeds, and advances from the FHLB. At June 30, 2011, the Bank had approximately $100 million in additional borrowing capacity from the FHLB.
At June 30, 2011, the Companys stockholders equity totaled $95,931,534, compared to $92,391,419 at December 31, 2010. The increase of $3,540,115 reflects net income of $4,025,140, the payout of $1,501,181 in common stock dividends, the payout of $250,000 in preferred stock dividends, and an increase of $1,266,156 in other comprehensive income.
On June 12, 2007, the Company reactivated a previously adopted but incomplete stock repurchase program to repurchase up to an additional 253,776 shares of common stock. At June 30, 2011, 148,088 shares remained to be repurchased under the plan. The Board of Directors of the Company has determined that a share buyback is appropriate to enhance stockholder value because such repurchases generally increase earnings per common share, return on average assets and on average equity, which are three performing benchmarks against which bank and thrift holding companies are measured. The Company buys stock in the open market whenever the price of the stock is deemed reasonable and the Company has funds available for the purchase. During the three months ended June 30, 2011, no shares were repurchased. As a participant in the Capital Purchase Program established by the U.S. Department of the Treasury (Treasury) under the Emergency Economic Stabilization Act of 2009 (the EESA), the Company is prohibited from repurchasing shares of its common stock, except in certain circumstances, prior to January 16, 2012 without the consent of the Treasury.
At June 30, 2011, the Company had unrestricted funds available in the amount of $2,409,796. Total cash needs for the Company for the remainder of 2011 are estimated to be approximately $2.5 million with $1.5 million projected to be used to pay dividends on the Companys common stock, $490,000 million to pay interest on the Companys capital securities, $250,000 to pay dividends on the Companys Series A Preferred Stock (as defined below), and approximately $100,000 for ordinary operating expense. The Bank pays dividends to the Company as its sole stockholder, within guidelines set forth by the OCC. Since the Bank is well capitalized and has capital in excess of regulatory requirements, it is anticipated that funds will be available to cover additional Company cash requirements for 2011, if needed, as long as earnings at the Bank are sufficient to maintain adequate Tier I capital.
For the six months ended June 30, 2011, net cash provided by operating activities decreased $144,808 to $6,144,041, compared to $6,288,849 for the same period in 2010. The change in loans held for sale increased $4,256,191 for the six months ended June 30, 2011, compared to the same period in 2010. Net gain on sales and calls of securities increased $871,060 for the six months ended June 30, 2011 compared to the same period in 2010, as a result of the sale of approximately of $52.5 million of securities during the six months ended June 30, 2011, compared to sales of approximately $47.5 million of securities during the same period in 2010. The provision for loan losses decreased $1,135,000 for the six months ended June 30, 2011, compared to the same period in 2010. The change in accrued interest receivable and other assets increased $538,224 while the change in accrued expenses and liabilities decreased $3,289,683.
Net cash used in investing activities was $29,850,957 for the six months ended June 30, 2011, compared to net cash used by investing activities of $40,346,028 for the same period in 2010, a decrease of $10,495,071. The cash provided by net securities activities was $8,490,231 for the six months ended June 30, 2011 compared to cash used by net securities activities of $7,351,236 for the same period in 2010. Cash used in loan originations and principal collections, net, was $35,553,143 for the six months ended June 30, 2011, an increase of $4,307,599 compared to the same period in 2010. Additionally, $2,500,000 of cash was used in the purchase of life insurance policies during the six months ended June 30, 2011, compared to no cash transactions in the same period in 2010.
27
Table of Contents
For the six months ended June 30, 2011, net cash flows provided by financing activities increased $10,809,056 to $32,567,513 compared to net cash provided by financing activities of $21,758,457 for the six months ended June 30, 2010. The Bank experienced a net increase of $5,720,894 in cash used in deposits and securities sold under agreements to repurchase and an increase in cash provided by FHLBB advances of $5,011,182, comparing the six months ended June 30, 2011 to the same period in 2010.
The Bank expects to be able to fund loan demand and other investing activities during 2011 by continuing to utilize the FHLBs advance program and cash flows from securities and loans. On June 30, 2011, approximately $35.0 million in commitments to fund loans had been made. Management is not aware of any trends, events, or uncertainties that will have, or that are reasonably likely to have, a material effect on the Banks liquidity, capital resources or results of operations.
On January 16, 2009, as part of the Capital Purchase Program, the Company entered into a Letter Agreement with the Treasury pursuant to which the Company issued and sold to the Treasury 10,000 shares of the Companys Fixed-Rate Cumulative Perpetual Preferred Stock, Series A, par value $0.01 per preferred share, having a liquidation preference of $1,000 per preferred share (the Series A Preferred Stock) and a ten-year warrant to purchase up to 184,275 shares of the Companys common stock, par value $0.01 per common share (the Common Stock), at an initial exercise price of $8.14 per common share (the Warrant), for an aggregate purchase price of $10.0 million in cash. All of the proceeds from the sale of the Series A Preferred Stock are treated as Tier 1 capital for regulatory purposes. The Warrant is immediately exercisable.
Cumulative dividends on the Series A Preferred Stock accrue on the liquidation preference at a rate of 5% per annum for the first five years, and at a rate of 9% per annum thereafter, but will be paid only when declared by the Companys Board of Directors. The Series A Preferred Stock has no maturity date and ranks senior to the Common Stock with respect to the payment of dividends and distributions and amounts payable upon liquidation, dissolution and winding up of the Company.
The Series A Preferred Stock generally is non-voting, other than class voting on certain matters that could adversely affect the Series A Preferred Stock.
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, 2011, the Banks ratios were 8.45%, 8.45%, and 13.09%, respectively, well in excess of the regulators requirements.
Book value per common share was $14.88 at June 30, 2011, compared to $14.26 per common share at December 31, 2010. Tangible book value per common share was $9.83 at June 30, 2011. Tangible book value per common share is a non-GAAP financial measure calculated using GAAP amounts. Tangible book value per common share is calculated by dividing tangible common equity by the total number of shares outstanding at a point in time. Tangible common equity is calculated by excluding the balance of goodwill, other intangible assets and preferred stock from the calculation of shareholders equity. The Company believes that tangible book value per common share provides information to investors that is useful in understanding its financial condition. Because not all companies use the same calculation of tangible common equity and tangible book value per common share, this presentation may not be comparable to other similarly titled measures calculated by other companies.
28
Table of Contents
A reconciliation of these non-GAAP financial measures is provided below:
June 30, 2011 | December 31, 2010 | |||||||
Shareholders equity |
$ | 95,391,534 | $ | 92,391,419 | ||||
Less goodwill |
27,293,470 | 27,293,470 | ||||||
Less other intangible assets |
1,333,200 | 1,550,139 | ||||||
Less preferred stock |
10,000,000 | 10,000,000 | ||||||
|
|
|
|
|||||
Tangible common equity |
$ | 56,764,864 | $ | 53,547,810 | ||||
|
|
|
|
|||||
Ending common shares outstanding |
5,773,772 | 5,773,772 | ||||||
Tangible book value per common share |
$ | 9.83 | $ | 9.27 |
Interest Rate Sensitivity
The principal objective of the Banks 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 Banks 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 Banks Board of Directors has established an Asset/Liability Committee (ALCO) to review its asset/liability policies and interest rate position. Trends and interest rate positions are reported to the Board of Directors monthly.
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 Banks one-year cumulative interest-rate gap at June 30, 2011 was positive 2.73%, compared to the December 31, 2010 gap of positive 0.60%. With an asset sensitive (positive) gap, if rates were to rise, net interest margin would likely increase and if rates were to fall, the net interest margin would likely decrease.
The Bank continues to offer adjustable-rate mortgages, which reprice at one, three, five and seven-year intervals. In addition, the Bank sells most fixed-rate mortgages into the secondary market in order to minimize interest rate risk and provide liquidity.
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 Banks net portfolio value (NPV) over a range of interest rate scenarios.
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 require 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 Banks 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 Banks 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 Banks net interest income and will likely differ from actual results.
29
Table of Contents
The following table sets forth the Banks NPV at March 31, 2011, as calculated by the Office of Thrift Supervision:
Net Portfolio Value | NPV as % of PV Assets | |||||||||||||||||||
Change in Rates | $ Amount | $ Change | % Change | NPV Ratio | Change | |||||||||||||||
($ in thousands) | ||||||||||||||||||||
+300 bp |
$ | 70,418 | $ | -43,005 | -38 | % | 7.37 | % | 386bp | |||||||||||
+200 bp |
86,783 | -26,640 | -23 | % | 8.90 | % | 233bp | |||||||||||||
+100 bp |
101,863 | -11,560 | -10 | % | 10.25 | % | 99bp | |||||||||||||
+50 bp |
108,240 | -5,183 | -5 | % | 10.80 | % | 44bp | |||||||||||||
0 bp |
113,423 | 11.24 | % | |||||||||||||||||
50 bp |
116,223 | 2,800 | +2 | % | 11.46 | % | +22bp | |||||||||||||
100 bp |
120,594 | 7,171 | +6 | % | 11.82 | % | +58bp |
Comparison of the Operating Results for the Six Months Ended June 30, 2011 and June 30, 2010
Consolidated net income for the six months ended June 30, 2011 was $4,025,140, or $0.65 per common share (assuming dilution), compared to $3,723,971, or $0.60 per common share (assuming dilution), for the same period in 2010, an increase of $301,169, or 8.09%. The Banks net interest margin decreased to 3.16% at June 30, 2011 from 3.52% at June 30, 2010. The Companys return on average assets and equity for the six months ended June 30, 2011 were 0.79% and 8.72%, respectively, compared to 0.76% and 8.38%, respectively, for the same period in 2010.
Net interest and dividend income decreased $838,407, or 5.52%, to $14,344,875 for the six month period ended June 30, 2011 from $15,183,283 for the six month period ended June 30, 2010 primarily as a result of the overall decline in net interest margins and additional investments in tax-exempt lending and securities which generally results in lower yields that are offset by tax benefits.
Interest and fees on loans decreased $327,801, or 2.03%, for the six month period ended June 30, 2011 to $15,849,488 from $16,177,289 at June 30, 2010 due primarily to loans repricing, new loans booked at current market rates, and an increase in tax-exempt loans. Interest on investments decreased $890,008, or 23.29%, for the six month period ended June 30, 2011 due primarily to an increased position in tax-exempt investments which generally results in lower yields that are offset by tax benefits.
For the six months ended June 30, 2011, total interest expense decreased $379,402, or 7.88%, to $4,436,232 from $4,815,634 for the same period in 2010. Interest on deposits decreased $370,658, or 11.18%, due to the decline in short-term interest rates. Interest on advances and other borrowed money decreased $8,744, or 0.58%, to $1,491,038 from $1,499,782 at June 30, 2010 as the average balance held was lower during the six month period ended June 30, 2011.
The allowance for loan losses (not including overdraft allowances) was $10,079,018 on June 30, 2011 compared to $10,046,853 on June 30, 2010. The allowance for loan losses represented 1.41% and 1.54% of total loans at June 30, 2011 and June 30, 2010, respectively. The provision for loan losses was $400,000 during the six months ended June 30, 2011 and $1,500,000 during the same period in 2010. The Bank made adjustments to the provisions for overdraft losses in the six months ended June 30, 2011 and 2010, recording provisions of $10,000 and $45,000, respectively.
30
Table of Contents
For the six months ended June 30, 2011, total noninterest income increased $768,476, or 17.76%, to $5,095,131, from $4,326,655 for the same period in 2010, as discussed below.
For the six month period ended June 30, 2011:
| Customer service fees decreased $159,570, or 6.08%, to $2,465,100 from $2,624,670 for the six months ended June 30, 2011. This decrease includes an increase of $68,863 in ATM-related income due primarily to increased transaction volume for the six months ended June 30, 2011 compared the same period in 2011 and a decrease of $247,243 in overdraft fees. |
| Net gain on sale of loans decreased $149,334, or 25.78%, compared to the same period in 2011, represented by a decrease of $4,695,490 in loans sold into the secondary market, to $26,399,408 for the six months ended June 30, 2011 from $31,094,898 for the six months ended June 30, 2010. |
| Gain on sales of securities, net increased $871,060 to $1,309,491 for the six months ended June 30, 2011, from $438,431 for the six months ended June 30, 2010. This reflects the recognition of gains on the sales of approximately $52.5 million of securities sold during the six months ended June 30, 2011, compared to $47.5 million of securities sold during the same period in 2010. |
| Gain on sales of other real estate and property owned, net decreased $29,992 to $9,363 for the six months ended June 30, 2011, from $39,355 for the six months ended June 30, 2010. This reflects the recognition of gains on the sales of approximately $86k during the six months ended June 30, 2011, compared to $196k sold during the same period in 2010. |
| Income from equity interest in Charter Holding Corp. increased $210,762 to $335,334 for the six months ended June 30, 2011 from $124,572 for the same period in 2010. In addition to non-recurring revenue at Charter Holding Corp. during the period, the increase also represents an increased ownership interest of fifty percent during the six months ended June 30, 2011 compared to a one-third interest for the same period in 2010. |
| Brokerage service income decreased $52 to $1,127, for the six months ended June 30, 2011 compared to the same period in 2010. |
| Bank owned life insurance income increased $24,491 to $203,951 from $179,460 for the six months ended June 30, 2010, due primarily to increased investment of $2.5 million in Bank-owned life insurance. |
For the six months ended June 30, 2011, total noninterest expense increased $788,748, or 6.31%, to $13,289,117, from $12,500,369 for the same period in 2010, as discussed below.
For the six month period ended June 30, 2011:
| Salaries and employee benefits increased $589,462, or 9.44%, compared to the six months ended June 30, 2010. Gross salaries and benefits paid, which exclude the deferral of expenses associated with the origination of loans, increased $650,858, or 9.58%, from $6,792,539 for the six months ended June 30, 2010, to $7,443,397 for the six months ended at June 30, 2011. Salary expense increased $318,505, or 6.46%, reflecting ordinary cost-of-living adjustments and additional staffing in the lending and compliance departments. The deferral of expenses in conjunction with the origination of loans increased $61,396, or 11.20%, to $609,350 from $547,954 for the same period in 2010. |
| Occupancy expense increased $25,864, or 1.33%, to $1,969,099 from $1,943,235 for the same period in 2010. This includes increases in seasonal expenses and utilities partially offset by decreases in depreciation on furniture and fixtures as the related assets have reached full depreciation. |
| Advertising and promotion increased $43,107, or 20.05%, to $258,059 from $214,952 for the same period in 2010. This includes a net increase in media and production expenses of $64,740 for the six months ended June 30, 2011 compared to the same period in 2010, partially offset by decreases in direct mail and give-aways. |
31
Table of Contents
| Depositors insurance increased $112,375, or 21.42%, to $636,938 from $524,563 for the same period in 2010 due primarily to the increase in deposits subject to assessment year-over-year. |
| Outside services decreased $38,265, or 7.15%, to $496,563 compared to $534,828 for the same period in 2010. This primarily reflects decreases in expenses associated with overdraft protection programs. |
| Professional services increased $118,918, or 25.93%, to $577,575 compared to $458,657 for the same period in 2010, reflecting among other things increased legal expenses and consulting fees, primarily attributable to audit expenses. |
| ATM processing fees increased $1,941, or 0.76%, to $256,449 compared to $254,508 for the same period in 2010. |
| Supplies decreased $26,889, or 13.98%, to $165,427 compared to $192,316 for the same period in 2010, due to directed efforts to reduce supply-related expenditures. |
| Mortgage servicing income net of amortization of mortgage servicing rights increased $18,510 from a net benefit of $79,824 for the six months ended June 30, 2010 to a net benefit of $61,314 in 2011. |
| Other expenses decreased $56,275, or 2.54%, to $2,156,274 for the six months ended June 30, 2011 compared to $2,212,549 for the same period in 2010. This primarily reflects a decrease in tax-qualified contributions of $126k as fewer opportunities were presented to the Bank partially offset by increases in deposit account-related charge-offs of approximately $48k. |
For the three months ended June 30, 2011, total noninterest income increased $590,545, or 27.59%, to $2,730,745 from $2,140,200 for the three months ended June 30, 2010.
For the three-month period ended June 30, 2011:
| Customer service fees decreased $41,502, or 3.12%, to $1,287,873 from $1,329,375 for the three months ended June 30, 2010. This decrease includes a decrease in fees collected for overdrawn items of $107,382 for the three months ended June 30, 2011, compared to the same period in 2010 partially offset by an increase of $34,272 in ATM-related income. |
| Net gain on sales of loans decreased $150,203, or 57.73%, compared to the same period in 2010 represented by a decrease of $9,119,021 in loans sold into the secondary market, to $7,362,343 for the three months ended June 30, 2011 from $16,481,364 for the same period in 2010. |
| Gain on sales of securities, net increased $647,581 from $221,663 for the three months ended June 30, 2010 to $869,244 for the three months ended June 30, 2011. This reflects the recognition of gains on the sale of approximately $37.1 million of securities sold during the three months ended June 30, 2011, compared to gains recognized in connection with the sale of approximately $37.5 million of securities during the same period in 2010. |
| Gain on sales of other real estate and property owned, net increased $5,106 from $420 for the three months ended June 30, 2010 to $5,526 for the three months ended June 30, 2011. This reflects the recognition of gains on the sale of one property during the quarter ended June 30, 2011, compared to the recognition of gains on two properties owned that were sold during the same period in 2010. |
32
Table of Contents
| Income from equity interest in Charter Holding Corp. increased $109,912, or 158.33%, to $179,332 from $69,420 for the quarter ended June 30, 2010 In addition to non-recurring revenue at Charter Holding Corp. during the period, the increase also represents an increased ownership interest of fifty percent during the three months ended June 30, 2011 compared to a one-third interest for the same period in 2010. |
| Brokerage service income decreased $20 to $547 for the quarter ended June 30, 2011, compared to the same period in 2010. |
| Bank owned life insurance income increased $18,259, or 20.11%, to $109,059 from $90,800 for the three months ended June 30, 2010, due to changes in the interest rates earned on the underlying insurance policies and an increase of $2.5 million of Bank owned life insurance during the first quarter of 2011. |
Total noninterest expenses increased $455,645, or 7.12%, to $6,853,773 for the three months ended June 30, 2011, compared to $6,398,128 for the three months ended June 30, 2010.
For the three-month period ended June 30, 2011:
| Salaries and employee benefits increased $379,458, or 11.96%, compared to the three months ended June 30, 2010. Gross salaries and benefits paid, which exclude the deferral of expenses associated with the origination of loans, increased $345,171, or 9.99%, from $3,456,353 for the three months ended June 30, 2010 to $3,801,524 for the three months ended June 30, 2011. Salary expense increased $178,339, or 7.15%, reflecting ordinary cost-of-living adjustments and additional staffing in the lending and compliance departments. The deferral of expenses in conjunction with the origination of loans decreased $34,287, or 12.09%, to $249,275 from $283,562 for the same period in 2010. |
| Occupancy expense decreased $6,711, or 0.72%, to $931,414 from $938,125 for the three months ended June 30, 2010. |
| Advertising and promotion increased $46,801, or 46.83%, to $146,732 from $99,931 for the same period in 2010. This includes a net increase in media and production expenses of $56,782 for the three months ended June 30, 2011 compared to the same period in 2010, partially offset by decreases in production, direct mail and give-aways. |
| Depositors insurance increased $66,199, or 26.00%, to $320,773 at June 30, 2011, compared to $254,574 at June 30, 2010, due primarily to an increase of deposits subject to assessment year-over-year. |
| Outside services decreased $16,993, or 6.10%, to $261,493 compared to $278,486 for the three months ended June 30, 2010, reflecting decreases in expenses associated with overdraft protection programs partially offset by increases in internet banking and core processing. |
| Professional services decreased $6,323, or 2.32%, to $266,111 compared to $272,434 for the three months ended June 30, 2010. Included in this amount are increases in expenses associated with consulting fees of related primarily to consulting reviews of the commercial and residential loan portfolios and legal fees. |
| ATM processing fees increased $675, or 0.52%, to $130,020, compared to $129,345 for the three months ended June 30, 2010. |
| Supplies decreased $17,389, or 17.58%, to $81,498 compared to $98,887 for the three months ended June 30, 2010, due to directed efforts to reduce supply-related expenditures. |
33
Table of Contents
| Income in excess of mortgage servicing amortization increased $2,333 from a benefit of $51,884 for the three months ended June 30, 2010 to a benefit of $54,217 in 2011. |
| Other expenses increased $12,261, or 1.02%, to $1,217,700 from $1,205,439 for the three months ended June 30, 2010. This includes increases in periodic impairment expense, ATM-related expenses, annual stockholder meeting expenses, and deposit account-related charge-offs partially offset by decreases in tax-qualified contributions and core deposit intangible amortization. |
Off Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Companys financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As a smaller reporting company, we are not required to provide the information required by this Item.
Item 4. Controls and Procedures
Management, including the Companys President and Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Companys disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this report. Based upon that evaluation, the Companys President and Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective, in all material respects, to ensure that information required to be disclosed in the reports the Company files and submits under the Exchange Act is (i) recorded, processed, summarized and reported as and when required and (ii) accumulated and communicated to the Companys management, including the Companys President and Chief Executive Officer and the Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
There have been no changes in the Companys internal control over financial reporting identified in connection with the evaluation that occurred during the Companys last fiscal quarter that has materially affected, or that is reasonably likely to materially affect, the Companys internal control over financial reporting.
34
Table of Contents
PART II.
There is no material litigation pending to which the Company or any of its subsidiaries is a party or to which the property of the Company or any of its subsidiaries is subject, other than ordinary routine litigation incidental to business.
As a smaller reporting company, we are not required to provide the information required by this Item.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. [Removed and Reserved]
None.
The exhibits required to be filed as part of this Quarterly Report on Form 10-Q are listed in the Exhibit Index attached hereto and are incorporated herein by reference.
35
Table of Contents
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 12, 2011 | /s/ STEPHEN W. ENSIGN | ||||||
Stephen W. Ensign | ||||||||
Chairman of the Board | ||||||||
and Chief Executive Officer | ||||||||
Date: | August 12, 2011 | /s/ LAURA JACOBI | ||||||
Laura Jacobi | ||||||||
Senior Vice President, Chief Financial Officer and | ||||||||
Chief Accounting Officer | ||||||||
(Principal Financial Officer) |
Table of Contents
EXHIBIT INDEX
Exhibit No. |
Description | |
3.1.1 | Certificate of Incorporation of NHTB (as amended) (filed as Exhibit 3.1.1 to NHTBs Annual Report on Form 10-K for the year ended December 31, 2010, filed with the Commission on March 25, 2011 and incorporated herein by reference). | |
3.1.2 | Certificate of Designations establishing the rights of NHTBs Fixed Rate Cumulative Perpetual Preferred Stock, Series A (filed as Exhibit 3.1 to NHTBs Current Report on Form 8-K filed with the Commission on January 22, 2009 and incorporated herein by reference). | |
3.2 | Amended and Restated Bylaws of NHTB (as amended) (filed as Exhibit 3.2 to NHTBs Annual Report on Form 10-K for the year ended December 31, 2010 filed with the Commission on March 25, 2011 and incorporated herein by reference). | |
4.1 | Stock Certificate of NHTB (filed as an exhibit to NHTBs Registration Statement on Form S-4 filed with the Commission on March 1, 1989 and incorporated herein by reference). | |
4.2 | Indenture by and between NHTB, as Issuer, and U.S. Bank National Association, as Trustee, dated March 30, 2004 for Floating Rate Junior Subordinated Deferrable Interest Debentures (filed as Exhibit 4.2 to NHTBs Annual Report on Form 10-K for the year ended December 31, 2004 filed with the Commission on March 29, 2005 and incorporated herein by reference). | |
4.3 | Form of Floating Rate Junior Subordinated Deferrable Interest Debentures issued by NHTB to U.S. Bank National Association dated March 30, 2004 (filed as Exhibit A to Exhibit 4.2 to NHTBs Annual Report on Form 10-K for the year ended December 31, 2005 filed with the Commission on March 29, 2004 and incorporated herein by reference). | |
4.4 | Indenture by and between New NHTB, as Issuer, and U.S. Bank National Association, as Trustee, dated March 30, 2004 for Fixed/Floating Rate Junior Subordinated Deferrable Interest Debentures (filed as Exhibit 4.4 to NHTBs Annual Report on Form 10-K for the year ended December 31, 2004 filed with the Commission on March 29, 2005 and incorporated herein by reference). | |
4.5 | Form of Fixed/Floating Rate Junior Subordinated Deferrable Interest Debentures issued by NHTB to U.S. Bank National Association dated March 30, 2004 (filed as Exhibit A to Exhibit 4.4 to NHTBs Annual Report on Form 10-K for the year ended December 31, 2004 filed with the Commission on March 29, 2005 and incorporated herein by reference). | |
4.6 | Form of specimen stock certificate for NHTBs Fixed Rate Cumulative Perpetual Preferred Stock, Series A (filed as Exhibit 4.1 to NHTBs Current Report on Form 8-K filed with the Commission on January 22, 2009 and incorporated herein by reference). | |
4.7 | Warrant to purchase shares of NHTB common stock (filed as Exhibit 4.2 to NHTBs Current Report on Form 8-K filed with the Commission on January 22, 2009 and incorporated herein by reference). | |
31.1* | Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer. |
37
Table of Contents
Exhibit No. |
Description | |
31.2* | Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer. | |
32.1* | Section 1350 Certification of the Chief Executive Officer. | |
32.2* | Section 1350 Certification of the Chief Financial Officer. | |
101** | Financial statements from the quarterly report on Form 10-Q of New Hampshire Thrift Bancshares, Inc. for the quarter ended June 30, 2011, formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Income, (iii) the Condensed Consolidated Statements of Cash Flows and (v) Notes to Condensed Consolidated Financial Statements. |
* | Filed herewith. |
** | Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections. |
38