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 quarterly period ended September 30, 2012
Commission File Number: 000-17859
NEW HAMPSHIRE THRIFT BANCSHARES, INC.
(Exact Name of Registrant as Specified in Its Charter)
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State of Delaware
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02-0430695
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(State or Other Jurisdiction of
Incorporation or Organization)
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(IRS Employer
I.D. Number)
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9 Main St., PO Box 9, Newport, NH
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03773
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(Address of Principal Executive Offices)
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(Zip Code)
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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 has submitted electronically and
posted on its corporate Web site, 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):
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Large accelerated filer
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¨
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Accelerated filer
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¨
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Non-accelerated filer
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¨
(Do not check if a smaller reporting company)
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Smaller reporting company
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x
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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 November 10, 2012, was
5,902,402.
NEW HAMPSHIRE THRIFT BANCSHARES, INC.
INDEX TO FORM 10-Q
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
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, continues, remains, 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:
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local, regional, national and international economic conditions and the impact they may have on us and our customers and our assessment of that impact;
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continued volatility and disruption in national and international financial markets;
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changes in the level of non-performing assets and charge-offs;
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changes in estimates of future reserve requirements based upon the periodic review thereof under relevant regulatory and accounting requirements;
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adverse conditions in the securities markets that lead to impairment in the value of securities in our investment portfolio;
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inflation, interest rate, securities market and monetary fluctuations;
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the timely development and acceptance of new products and services and perceived overall value of these products and services by users;
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changes in consumer spending, borrowings and savings habits;
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the ability to increase market share and control expenses;
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changes in the competitive environment among banks, financial holding companies and other financial service providers;
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the effect of changes in laws and regulations (including laws and regulations concerning taxes, banking, securities and insurance) with which we must
comply;
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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;
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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;
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difficulties related to the consummation of the merger and the integration of the businesses of the Bank and The Nashua Bank; and
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our success at managing the risks involved in the foregoing items.
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Forward-looking statements speak only as of the date on which such statements are made. We undertake 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.
Throughout this report, the terms Company, we, our and us refer to the consolidated entity of New Hampshire Thrift Bancshares, Inc., its wholly owned
subsidiaries, McCrillis & Eldredge Insurance, Inc. and Lake Sunapee Bank, fsb (the Bank), and the Banks subsidiaries, Lake Sunapee Group, Inc. and Lake Sunapee Financial Services Corporation.
1
PART I. FINANCIAL INFORMATION
Item 1. Financial Information
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2012 AND DECEMBER 31, 2011
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(Dollars in thousands)
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September 30,
2012
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December 31,
2011
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(Unaudited)
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ASSETS
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Cash and due from banks
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$
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16,839
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$
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21,841
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Overnight deposits
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12,000
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2,899
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Cash and cash equivalents
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28,839
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24,740
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Securities available-for-sale
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174,247
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210,318
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Federal Home Loan Bank stock
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9,123
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7,615
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Loans held-for-sale
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10,718
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3,434
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Loans receivable, net of allowance for loan losses of $9.8 million as of September 30, 2012, and $9.1 million as of
December 31, 2011
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810,307
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714,952
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Accrued interest receivable
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2,616
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2,669
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Bank premises and equipment, net
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16,573
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16,450
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Investments in real estate
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3,863
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3,451
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Other real estate owned
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1,344
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Goodwill and other intangible assets
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30,077
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30,352
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Investment in partially owned Charter Holding Corp., at equity
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5,217
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4,895
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Bank-owned life insurance
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18,758
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13,347
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Other assets
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8,023
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8,252
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Total assets
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$
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1,118,361
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$
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1,041,819
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LIABILITIES AND STOCKHOLDERS EQUITY
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LIABILITIES
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Deposits:
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Noninterest-bearing
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$
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68,465
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$
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64,356
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Interest-bearing
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762,199
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738,667
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Total deposits
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830,664
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803,023
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Federal Home Loan Bank advances
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120,974
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80,967
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Notes Payable
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272
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543
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Securities sold under agreements to repurchase
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18,330
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15,514
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Subordinated debentures
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20,620
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20,620
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Accrued expenses and other liabilities
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15,515
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12,492
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Total liabilities
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1,006,375
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933,159
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STOCKHOLDERS EQUITY
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Preferred stock, $.01 par value per share: 2,500,000 shares authorized, non-cumulative perpetual Series B; 20,000 shares issued
and outstanding at September 30, 2012 and December 31, 2011; liquidation value $1,000 per share
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Common stock, $.01 par value per share: 10,000,000 shares authorized, 6,332,681 shares issued and 5,902,402 shares outstanding at
September 30, 2012 and 6,292,639 shares issued and 5,832,360 shares outstanding December 31, 2011
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63
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63
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Warrants
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85
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Paid-in capital
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66,292
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66,658
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Retained earnings
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53,067
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49,892
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Accumulated other comprehensive loss
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(389
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(887
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)
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Unearned stock awards
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(377
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)
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Treasury Stock, 430,279 shares as of September 30, 2012 and 460,279 shares as of December 31, 2011, at
cost
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(6,670
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)
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(7,151
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)
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Total stockholders equity
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111,986
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108,660
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Total liabilities and stockholders equity
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$
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1,118,361
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$
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1,041,819
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The accompanying notes are an integral part of these consolidated financial statements.
2
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011
(Unaudited)
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Three Months Ended
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Nine months Ended
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(Dollars in thousands, except for per share data)
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September 30,
2012
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September 30,
2011
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September 30,
2012
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September 30,
2011
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Interest and dividend income
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Interest and fees on loans
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$
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8,305
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$
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7,947
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$
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24,053
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$
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23,797
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Interest on debt securities:
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Taxable
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628
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1,154
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2,757
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3,612
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Dividends
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15
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9
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47
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29
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Other
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134
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226
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443
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679
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Total interest and dividend income
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9,082
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9,336
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27,300
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28,117
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Interest expense
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Interest on deposits
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1,072
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1,466
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3,358
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4,411
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Interest on advances and other borrowed money
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755
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712
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2,243
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2,203
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Total interest expense
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1,827
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2,178
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5,601
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6,614
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Net interest and dividend income
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7,255
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7,158
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21,699
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21,503
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Provision for loan losses
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1,032
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|
574
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2,261
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984
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Net interest and dividend income after provision for loan losses
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6,223
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6,584
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19,438
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20,519
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Noninterest income
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Customer service fees
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1,307
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|
1,348
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3,764
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|
3,813
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Net gain on sales of loans
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778
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133
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1,534
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|
563
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|
Gain on sales and calls of securities, net
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1,091
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|
929
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3,415
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2,239
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Gain (loss) on sales of other real estate and property owned, net of write-down
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18
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(150
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)
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27
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|
Rental income
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|
|
186
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|
|
|
210
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|
560
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|
551
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Income from equity interest in Charter Holding Corp.
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72
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|
124
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298
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|
459
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Insurance commission income
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343
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1,048
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Brokerage service income
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1
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|
1
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3
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|
2
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Bank-owned life insurance income
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141
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|
110
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|
374
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|
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|
314
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Total noninterest income
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3,919
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|
|
|
2,873
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10,846
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7,968
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Noninterest expenses (income)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Salaries and employee benefits
|
|
|
3,694
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|
|
|
3,691
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|
|
|
11,153
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|
|
|
10,525
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|
Occupancy and equipment
|
|
|
876
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|
|
|
881
|
|
|
|
2,767
|
|
|
|
2,850
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|
Advertising and promotion
|
|
|
96
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|
|
|
111
|
|
|
|
350
|
|
|
|
369
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|
Depositors insurance
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|
204
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(27
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)
|
|
|
603
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|
|
|
610
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Data processing and outside services
|
|
|
301
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|
|
|
266
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|
|
|
848
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|
|
|
763
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|
Professional services
|
|
|
404
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|
|
230
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|
|
|
919
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|
|
|
808
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ATM processing fees
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|
|
130
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|
|
|
107
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|
|
|
367
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|
|
|
363
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|
Supplies
|
|
|
93
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|
|
|
85
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|
|
|
279
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|
|
|
251
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|
Mortgage servicing, net of amortization of mortgage servicing rights
|
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|
50
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|
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(67
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)
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|
|
96
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|
|
|
(128
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)
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Other expenses
|
|
|
1,419
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|
|
|
1,477
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|
|
|
4,162
|
|
|
|
3,632
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expenses
|
|
|
7,267
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|
|
|
6,754
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|
|
|
21,544
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|
|
|
20,043
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes
|
|
|
2,875
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|
|
|
2,703
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|
|
|
8,740
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|
|
|
8,444
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|
Provision for income taxes
|
|
|
845
|
|
|
|
690
|
|
|
|
2,616
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|
|
|
2,406
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
2,030
|
|
|
$
|
2,013
|
|
|
$
|
6,124
|
|
|
$
|
6,038
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common stockholders
|
|
$
|
1,914
|
|
|
$
|
1,799
|
|
|
$
|
5,507
|
|
|
$
|
5,566
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share, basic
|
|
$
|
0.32
|
|
|
$
|
0.31
|
|
|
$
|
0.94
|
|
|
$
|
0.96
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares, basic
|
|
|
5,967,522
|
|
|
|
5,773,772
|
|
|
|
5,860,169
|
|
|
|
5,773,772
|
|
Earnings per common share, assuming dilution
|
|
$
|
0.32
|
|
|
$
|
0.31
|
|
|
$
|
0.94
|
|
|
$
|
0.96
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares, assuming dilution
|
|
|
5,967,522
|
|
|
|
5,786,017
|
|
|
|
5,866,680
|
|
|
|
5,786,355
|
|
Dividends declared per common share
|
|
$
|
0.13
|
|
|
$
|
0.13
|
|
|
$
|
0.39
|
|
|
$
|
0.39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
3
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
For the three months
ended September 30,
|
|
|
For the nine months
ended September 30,
|
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
Net income
|
|
$
|
2,030
|
|
|
$
|
2,013
|
|
|
$
|
6,124
|
|
|
$
|
6,038
|
|
Other comprehensive income, net of tax effect
|
|
|
623
|
|
|
|
707
|
|
|
|
498
|
|
|
|
1,974
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
2,653
|
|
|
$
|
2,720
|
|
|
$
|
6,622
|
|
|
$
|
8,012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in accumulated other comprehensive loss consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
For the three months
ended September 30,
|
|
|
For the nine months
ended September 30,
|
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
Net unrealized holding gains on available-for-sale securities, net of taxes
|
|
$
|
576
|
|
|
$
|
700
|
|
|
$
|
345
|
|
|
$
|
1,911
|
|
Unrecognized net gain derivative, net of tax
|
|
|
44
|
|
|
|
37
|
|
|
|
129
|
|
|
|
84
|
|
Unrecognized net income (loss), equity investment, net of tax
|
|
|
3
|
|
|
|
(30
|
)
|
|
|
24
|
|
|
|
(21
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
623
|
|
|
$
|
707
|
|
|
$
|
498
|
|
|
$
|
1,974
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive loss consists of the following:
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
As of
|
|
|
|
September 30,
2012
|
|
|
December 31,
2011
|
|
Net unrealized holding gains on available-for-sale securities, net of taxes
|
|
$
|
2,059
|
|
|
$
|
1,714
|
|
Unrecognized net actuarial loss, defined benefit pension plan, net of tax
|
|
|
(2,342
|
)
|
|
|
(2,342
|
)
|
Unrecognized net loss, derivative, net of tax
|
|
|
(154
|
)
|
|
|
(283
|
)
|
Unrecognized net income, equity investment, net of tax
|
|
|
48
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive loss
|
|
$
|
(389
|
)
|
|
$
|
(887
|
)
|
|
|
|
|
|
|
|
|
|
Reclassification disclosure for the three and nine month periods ended September 30, 2012 and 2011
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
For the three months
ended September 30,
|
|
|
For the nine months
ended September 30,
|
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
Net unrealized holding gains on available-for-sale securities
|
|
$
|
2,045
|
|
|
$
|
2,088
|
|
|
$
|
3,988
|
|
|
$
|
5,403
|
|
Reclassification adjustment for realized gains in net income
|
|
|
(1,091
|
)
|
|
|
(929
|
)
|
|
|
(3,415
|
)
|
|
|
(2,239
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income before income tax effect
|
|
|
954
|
|
|
|
1,159
|
|
|
|
573
|
|
|
|
3,164
|
|
Income tax expense
|
|
|
(378
|
)
|
|
|
(459
|
)
|
|
|
(228
|
)
|
|
|
(1,253
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
576
|
|
|
|
700
|
|
|
|
345
|
|
|
|
1,911
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of derivatives used for cash flow hedges
|
|
|
73
|
|
|
|
61
|
|
|
|
212
|
|
|
|
139
|
|
Income tax expense
|
|
|
(29
|
)
|
|
|
(24
|
)
|
|
|
(83
|
)
|
|
|
(55
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44
|
|
|
|
37
|
|
|
|
129
|
|
|
|
84
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) equity investment
|
|
|
3
|
|
|
|
(30
|
)
|
|
|
24
|
|
|
|
(21
|
)
|
Income tax expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
(30
|
)
|
|
|
24
|
|
|
|
(21
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income, net of tax effect
|
|
$
|
623
|
|
|
$
|
707
|
|
|
$
|
498
|
|
|
$
|
1,974
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
4
PART I. FINANCIAL INFORMATION
Item 1. Financial Information
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011
(Unaudited)
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
September 30,
2012
|
|
|
September 30,
2011
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
6,124
|
|
|
$
|
6,038
|
|
Depreciation and amortization
|
|
|
1,083
|
|
|
|
954
|
|
Amortization of fair value adjustments, net (loans)
|
|
|
85
|
|
|
|
90
|
|
Amortization of securities, net
|
|
|
840
|
|
|
|
912
|
|
Net decrease in mortgage servicing rights
|
|
|
132
|
|
|
|
353
|
|
Net (increase) decrease in loans held-for-sale
|
|
|
(7,284
|
)
|
|
|
600
|
|
Increase in cash surrender value of life insurance
|
|
|
(411
|
)
|
|
|
(346
|
)
|
Amortization of intangible assets
|
|
|
275
|
|
|
|
316
|
|
Provision for loan losses
|
|
|
2,261
|
|
|
|
984
|
|
Decrease in accrued interest receivable and other assets
|
|
|
20
|
|
|
|
390
|
|
Write-down of other real estate owned
|
|
|
190
|
|
|
|
|
|
Net loss (gain) on sales of other real estate owned
|
|
|
132
|
|
|
|
(27
|
)
|
Net gain on sales and calls of securities
|
|
|
(3,415
|
)
|
|
|
(2,239
|
)
|
Income from equity interest in Charter Holding Corp.
|
|
|
(298
|
)
|
|
|
(459
|
)
|
Change in deferred loan origination fees and cost, net
|
|
|
(967
|
)
|
|
|
(250
|
)
|
Increase in accrued expenses and other liabilities
|
|
|
3,044
|
|
|
|
1,306
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
1,811
|
|
|
|
8,622
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(1,535
|
)
|
|
|
(781
|
)
|
Proceeds from sales and calls of securities available-for-sale
|
|
|
192,727
|
|
|
|
113,291
|
|
Proceeds from maturities of securities available-for-sale
|
|
|
3,000
|
|
|
|
|
|
Purchases of securities available-for-sale
|
|
|
(156,509
|
)
|
|
|
(125,704
|
)
|
Purchase of Federal Home Loan Bank stock
|
|
|
(1,508
|
)
|
|
|
|
|
Loan originations and principal collections, net
|
|
|
(96,734
|
)
|
|
|
(31,181
|
)
|
Proceeds from sales of other real estate owned
|
|
|
1,022
|
|
|
|
322
|
|
Purchase of life insurance policies
|
|
|
(5,000
|
)
|
|
|
(2,500
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(64,537
|
)
|
|
|
(46,553
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net increase in deposits
|
|
|
27,641
|
|
|
|
11,698
|
|
Net increase (decrease) in securities sold under agreements to repurchase
|
|
|
2,816
|
|
|
|
(3,163
|
)
|
Net increase in advances from Federal Home Loan Bank and other borrowings
|
|
|
39,736
|
|
|
|
20,000
|
|
Proceeds from exercises of stock options
|
|
|
392
|
|
|
|
|
|
Redemption of stock warrants
|
|
|
(737
|
)
|
|
|
|
|
Proceeds from issuance of preferred stock, Series B
|
|
|
|
|
|
|
20,000
|
|
Redemption of preferred stock, Series A
|
|
|
|
|
|
|
(10,000
|
)
|
Dividends paid on preferred stock
|
|
|
(738
|
)
|
|
|
(389
|
)
|
Dividends paid on common stock
|
|
|
(2,285
|
)
|
|
|
(2,252
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
66,825
|
|
|
|
35,894
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
|
|
4,099
|
|
|
|
(2,037
|
)
|
CASH AND CASH EQUIVALENTS, beginning of period
|
|
|
24,740
|
|
|
|
33,213
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, end of period
|
|
$
|
28,839
|
|
|
$
|
31,176
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
|
|
Interest on deposit accounts
|
|
$
|
3,415
|
|
|
$
|
4,512
|
|
Interest on advances and other borrowed money
|
|
|
2,229
|
|
|
|
2,224
|
|
|
|
|
|
|
|
|
|
|
Total interest paid
|
|
$
|
5,644
|
|
|
$
|
6,736
|
|
|
|
|
|
|
|
|
|
|
Income taxes paid
|
|
$
|
1,917
|
|
|
$
|
1,400
|
|
|
|
|
|
|
|
|
|
|
Loans transferred to other real estate owned
|
|
$
|
260
|
|
|
$
|
1,265
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
5
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2012
(Unaudited)
Nature of Operations
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 and McCrillis & Eldredge Insurance, Inc. (McCrillis & Eldredge), a full-line independent
insurance agency which offers a complete range of commercial insurance services and consumer products. These wholly owned subsidiaries operate through 29 offices strategically located within the greater Dartmouth-Lake Sunapee-Kearsarge and Monadnock
regions of west-central New Hampshire and central Vermont. The Bank is a member of the Federal Deposit Insurance Corporation (FDIC) and its deposits are insured by the FDIC. The Company is regulated by the Federal Reserve Board, and the
Bank is regulated by the Office of the Comptroller of the Currency (OCC).
Note A Basis of Presentation
The accompanying unaudited 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, 2011, 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, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the nine months ended September 30, 2012, are not necessarily indicative of the results that may be expected for the year ending
December 31, 2012.
Note B Accounting Policies
The consolidated financial statements include the accounts of the Company, McCrillis & Eldredge, 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 the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 810-10, Consolidation-Overall, these affiliates have not been included in the
consolidated financial statements.
Note C Impact of New Accounting Standards
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. The adoption of this guidance did not have an impact on the Companys results of operations or financial position.
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. The amendments are effective during interim and annual periods beginning after
December 15, 2011. The adoption of this guidance did not have an impact on the Companys results of operations or financial position, and the required disclosures are reflected in the Companys notes to the financial statements.
In September 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. The
6
amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The adoption of this guidance did not have an impact on the
Companys results of operations or financial position. The required disclosures have been reflected in the accompanying financial statements.
In September 2011, FASB issued ASU 2011-08,
Intangibles Goodwill and Other, an update to ASC 350, Intangibles Goodwill and Other. ASU 2011-08 simplifies how entities, both public and nonpublic, test goodwill for impairment. The amendments in this update
permit an entity to first assess qualitative factors to determine whether it is more likely than not the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step
goodwill impairment test described in ASC 350. The more-likely-than-not threshold is defined as having a likelihood of more than 50 percent. The amendments in this ASU are effective for annual and interim goodwill impairment tests performed for
fiscal years beginning after December 15, 2011. Early adoption is permitted. The adoption of this guidance did not have an impact on the Companys results of operations or financial position.
In September 2011, FASB issued ASU 2011-09, Disclosures About an
Employers Participation in a Multiemployer Plan, which amends ASC 715-80, Compensation Retirement Benefits Multiemployer Plans, and requires additional separate disclosures for multiemployer pension plans and
multiemployer other postretirement benefit plans. This objective of this ASU is to help users of financial statements assess the potential future cash flow implications relating to an employers participation in multiemployer pension plans. The
disclosures also will indicate the financial health of all of the significant plans in which the employer participates and assist a financial statement user to access additional information that is available outside the financial statements. For
public entities, the amendments in this ASU are effective for fiscal years ending after December 15, 2011, with early adoption permitted. The amendments should be applied retrospectively for all prior periods presented. The adoption of this
guidance did not have an impact on the Companys results of operations or financial position.
In December 2011, the FASB issued ASU 2011-10,
Derecognition of in Substance Real Estate, an update to Topic 360, Property, Plant and Equipment. The objective of the amendments in this ASU is to resolve the diversity in practice about whether the guidance in Subtopic
360-20, Property, Plant, and Equipment Real Estate Sales, applies to a parent that ceases to have a controlling financial interest (as described in Subtopic 810-10, Consolidation Overall) in a subsidiary that is
in substance real estate as a result of default on the subsidiarys nonrecourse debt. This ASU does not address whether the guidance in Subtopic 360-20 would apply to other circumstances when a parent ceases to have a controlling financial
interest in a subsidiary that is in substance real estate. Under the amendments of this ASU, when a parent (reporting entity) ceases to have a controlling financial interest (as described in Subtopic 810-10) in a subsidiary that is in substance real
estate as a result of default on the subsidiarys nonrecourse debt, the reporting entity should apply the guidance in Subtopic 360-20 to determine whether it should derecognize the in substance real estate. Generally, a reporting entity would
not satisfy the requirements to derecognize the in substance real estate before the legal transfer of the real estate to the lender and the extinguishment of the related nonrecourse indebtedness. That is, even if the reporting entity ceases to have
a controlling financial interest under Subtopic 810-10, the reporting entity would continue to include the real estate, debt and the results of the subsidiarys operations in its consolidated financial statements until legal title to the real
estate is transferred to legally satisfy the debt. The amendments in this ASU are effective for fiscal years and interim periods beginning on or after September 15, 2012 and should be applied on a prospective basis to deconsolidating events
occurring after the effective date. Early adoption is permitted. The adoption of this guidance is not expected to have an impact on the Companys results of operations or financial position.
In December 2011, FASB issued ASU 2011-11,
Disclosures about Offsetting Assets and Liabilities. This ASU is to enhance current disclosures. Entities are required to disclose both gross information and net information about both instruments and transactions eligible for offset in
the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement. The amendments in this ASU are effective for annual periods beginning on or after January 1, 2013, and interim
periods within those annual periods. An entity should provide the disclosures required by those amendments retrospectively for all comparative periods presented. The Company does not anticipate that the adoption of this guidance will have a material
impact on its consolidated financial statements.
In December 2011, FASB issued ASU 2011-12, Comprehensive Income (Topic
220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05. The amendments in this update defer those
changes in ASU 2011-05 that relate to the presentation of reclassifications out of accumulated other comprehensive income on the components of net income and other comprehensive income for all periods presented. All other requirements in ASU 2011-05
are not affected by this update. The amendments are effective during interim and annual periods beginning after December 15, 2011. The required disclosures have been reflected in the accompanying financial statements.
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.
7
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.
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.
8
The following summarizes assets
and liabilities measured at fair value at September 30, 2012 and December 31, 2011.
Assets measured at fair value on a recurring
basis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
|
(Dollars in thousands)
|
|
September 30, 2012
|
|
|
Quoted Prices in
Active
Markets
for Identical
Assets
Level 1
|
|
|
Significant
Other
Observable
Inputs
Level 2
|
|
|
Significant
Unobservable
Inputs
Level 3
|
|
Mortgage-backed securities
|
|
$
|
155,487
|
|
|
$
|
|
|
|
$
|
155,487
|
|
|
$
|
|
|
Municipal bonds
|
|
|
18,223
|
|
|
|
|
|
|
|
18,223
|
|
|
|
|
|
Other bonds and debentures
|
|
|
145
|
|
|
|
|
|
|
|
145
|
|
|
|
|
|
Equity securities
|
|
|
392
|
|
|
|
392
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
174,247
|
|
|
$
|
392
|
|
|
$
|
173,855
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
December 31, 2011
|
|
|
Quoted Prices in
Active
Markets
for Identical
Assets
Level 1
|
|
|
Significant
Other
Observable
Inputs
Level 2
|
|
|
Significant
Unobservable
Inputs
Level 3
|
|
Mortgage-backed securities
|
|
$
|
155,942
|
|
|
$
|
|
|
|
$
|
155,942
|
|
|
$
|
|
|
Municipal bonds
|
|
|
29,441
|
|
|
|
|
|
|
|
29,441
|
|
|
|
|
|
Other bonds and debentures
|
|
|
24,447
|
|
|
|
|
|
|
|
24,447
|
|
|
|
|
|
Equity securities
|
|
|
488
|
|
|
|
488
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
210,318
|
|
|
$
|
488
|
|
|
$
|
209,830
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities measured at fair value on a recurring basis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
|
(Dollars in thousands)
|
|
September 30, 2012
|
|
|
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
|
|
$
|
255
|
|
|
$
|
|
|
|
$
|
255
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
255
|
|
|
$
|
|
|
|
$
|
255
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
|
(Dollars in thousands)
|
|
December 31, 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
|
|
$
|
468
|
|
|
$
|
|
|
|
$
|
468
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
468
|
|
|
$
|
|
|
|
$
|
468
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
Assets measured at fair value on a nonrecurring basis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
|
(Dollars in thousands)
|
|
September 30, 2012
|
|
|
Quoted Prices in
Active
Markets
for Identical
Assets
Level 1
|
|
|
Significant
Other
Observable
Inputs
Level 2
|
|
|
Significant
Unobservable
Inputs
Level 3
|
|
Impaired loans
|
|
$
|
5,545
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
5,545
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,545
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
5,545
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
|
(Dollars in thousands)
|
|
December 31, 2011
|
|
|
Quoted Prices in
Active
Markets
for Identical
Assets
Level 1
|
|
|
Significant
Other
Observable
Inputs
Level 2
|
|
|
Significant
Unobservable
Inputs
Level 3
|
|
Impaired loans
|
|
$
|
2,581
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,581
|
|
Other real estate owned
|
|
|
1,344
|
|
|
|
|
|
|
|
|
|
|
|
1,344
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,925
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3,925
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans measured for impairment, using the fair value of the collateral for collateral dependent loans, had a
recorded investment of $5.5 million with no valuation allowance at September 30, 2012. At December 31, 2011, impaired loans had a recorded investment of $4.2 million with a valuation allowance of $253 thousand. Changes in fair value
recognized for partial charge-offs of loans and impairment reserves on loans was a net decrease of $2.0 million and $1.5 million for the nine months ended September 30, 2012 and 2011, respectively.
The fair value of collateral dependent impaired loans was measured based upon real estate appraisals primarily using the sales comparison
approach. Unobservable inputs included adjustments to reflect realizable value.
The following table presents quantitative information about
Level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis at September 30, 2012.
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Fair
Value
|
|
|
Valuation
Techniques
|
|
Unobservable Inputs
|
|
Range
|
Impaired Loans
|
|
$
|
5,545
|
|
|
Third party appraisal
|
|
Discount adjustment to reflect realizable value
|
|
25-40%
|
10
The estimated fair values of the Companys financial instruments at
September 30, 2012 and December 31, 2011, all of which are held or issued for purposes other than trading, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
|
(Dollars in thousands)
September 30, 2012
|
|
Carrying
Value
|
|
|
Fair
Value
|
|
|
Quoted Prices
in Active
Markets for
Identical
Assets
Level 1
|
|
|
Significant
Other
Observable
Inputs
Level 2
|
|
|
Significant
Unobservable
Inputs
Level 3
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
28,839
|
|
|
$
|
28,839
|
|
|
$
|
28,839
|
|
|
$
|
|
|
|
$
|
|
|
Securities available-for-sale
|
|
|
174,247
|
|
|
|
174,247
|
|
|
|
392
|
|
|
|
173,855
|
|
|
|
|
|
Federal Home Loan Bank stock
|
|
|
9,123
|
|
|
|
9,123
|
|
|
|
|
|
|
|
|
|
|
|
9,123
|
|
Loans held-for-sale
|
|
|
10,718
|
|
|
|
10,908
|
|
|
|
|
|
|
|
10,908
|
|
|
|
|
|
Loans, net
|
|
|
810,307
|
|
|
|
820,705
|
|
|
|
|
|
|
|
|
|
|
|
820,705
|
|
Investment in unconsolidated subsidiaries
|
|
|
620
|
|
|
|
557
|
|
|
|
|
|
|
|
|
|
|
|
557
|
|
Accrued interest receivable
|
|
|
2,616
|
|
|
|
2,616
|
|
|
|
|
|
|
|
|
|
|
|
2,616
|
|
|
|
|
|
|
|
Deposits
|
|
|
830,664
|
|
|
|
834,820
|
|
|
|
|
|
|
|
|
|
|
|
834,820
|
|
FHLB advances
|
|
|
120,974
|
|
|
|
123,076
|
|
|
|
|
|
|
|
|
|
|
|
123,076
|
|
Notes Payable
|
|
|
272
|
|
|
|
272
|
|
|
|
|
|
|
|
|
|
|
|
272
|
|
Securities sold under agreements to repurchase
|
|
|
18,330
|
|
|
|
18,330
|
|
|
|
|
|
|
|
|
|
|
|
18,330
|
|
Subordinated debentures
|
|
|
20,620
|
|
|
|
18,517
|
|
|
|
|
|
|
|
|
|
|
|
18,517
|
|
Derivatives interest rate swap
|
|
|
255
|
|
|
|
255
|
|
|
|
|
|
|
|
255
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
|
(Dollars in thousands)
December 31, 2011
|
|
Carrying
Value
|
|
|
Fair Value
|
|
|
Quoted Prices
in Active
Markets for
Identical
Assets
Level 1
|
|
|
Significant
Other
Observable
Inputs
Level 2
|
|
|
Significant
Unobservable
Inputs
Level 3
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
24,740
|
|
|
$
|
24,740
|
|
|
$
|
24,740
|
|
|
$
|
|
|
|
$
|
|
|
Securities available-for-sale
|
|
|
210,318
|
|
|
|
210,318
|
|
|
|
488
|
|
|
|
209,830
|
|
|
|
|
|
Federal Home Loan Bank stock
|
|
|
7,615
|
|
|
|
7,615
|
|
|
|
|
|
|
|
|
|
|
|
7,615
|
|
Loans held-for-sale
|
|
|
3,434
|
|
|
|
3,478
|
|
|
|
|
|
|
|
3,478
|
|
|
|
|
|
Loans, net
|
|
|
714,952
|
|
|
|
721,388
|
|
|
|
|
|
|
|
|
|
|
|
721,388
|
|
Investment in unconsolidated subsidiaries
|
|
|
620
|
|
|
|
554
|
|
|
|
|
|
|
|
|
|
|
|
554
|
|
Accrued interest receivable
|
|
|
2,669
|
|
|
|
2,669
|
|
|
|
|
|
|
|
|
|
|
|
2,669
|
|
|
|
|
|
|
|
Deposits
|
|
|
803,023
|
|
|
|
806,295
|
|
|
|
|
|
|
|
|
|
|
|
806,295
|
|
FHLB advances
|
|
|
80,967
|
|
|
|
82,999
|
|
|
|
|
|
|
|
|
|
|
|
82,999
|
|
Notes Payable
|
|
|
543
|
|
|
|
543
|
|
|
|
|
|
|
|
|
|
|
|
543
|
|
Securities sold under agreements to repurchase
|
|
|
15,514
|
|
|
|
15,514
|
|
|
|
|
|
|
|
|
|
|
|
15,514
|
|
Subordinated debentures
|
|
|
20,620
|
|
|
|
18,419
|
|
|
|
|
|
|
|
|
|
|
|
18,419
|
|
Derivatives interest rate swap
|
|
|
468
|
|
|
|
468
|
|
|
|
|
|
|
|
468
|
|
|
|
|
|
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 and derivatives, which are included in other assets and other liabilities, respectively.
The Company did not have any significant transfers of assets or liabilities between Levels 1 and 2 of the fair value hierarchy during the
nine months ended September 30, 2012.
11
Note E Securities
Debt and equity securities have been classified in the consolidated balance sheets according to managements
intent.
The amortized cost of securities available-for-sale and their approximate fair values
at September 30, 2012, and December 31, 2011, are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
September 30, 2012
|
|
Amortized Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair Value
|
|
Bonds and notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
|
$
|
152,613
|
|
|
$
|
2,874
|
|
|
$
|
|
|
|
$
|
155,487
|
|
Municipal bonds
|
|
|
17,588
|
|
|
|
635
|
|
|
|
|
|
|
|
18,223
|
|
Other bonds and debentures
|
|
|
145
|
|
|
|
|
|
|
|
|
|
|
|
145
|
|
Equity securities
|
|
|
490
|
|
|
|
1
|
|
|
|
99
|
|
|
|
392
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available-for-sale
|
|
$
|
170,836
|
|
|
$
|
3,510
|
|
|
$
|
99
|
|
|
$
|
174,247
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
December 31, 2011
|
|
Amortized Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair Value
|
|
Bonds and notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
|
$
|
154,213
|
|
|
$
|
1,786
|
|
|
$
|
57
|
|
|
$
|
155,942
|
|
Municipal bonds
|
|
|
28,475
|
|
|
|
984
|
|
|
|
18
|
|
|
|
29,441
|
|
Other bonds and debentures
|
|
|
24,281
|
|
|
|
255
|
|
|
|
89
|
|
|
|
24,447
|
|
Equity securities
|
|
|
511
|
|
|
|
9
|
|
|
|
32
|
|
|
|
488
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available-for-sale
|
|
$
|
207,480
|
|
|
$
|
3,034
|
|
|
$
|
196
|
|
|
$
|
210,318
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturities of debt securities, excluding mortgage-backed
securities, classified as available-for-sale are as follows as of September 30, 2012:
|
|
|
|
|
(Dollars in thousands)
|
|
Fair Value
|
|
Municipal bonds
|
|
$
|
631
|
|
|
|
|
|
|
Total due in less than one year
|
|
$
|
631
|
|
|
|
|
|
|
Municipal bonds
|
|
$
|
3,814
|
|
|
|
|
|
|
Total due after one year through five years
|
|
$
|
3,814
|
|
|
|
|
|
|
Municipal bonds
|
|
$
|
6,771
|
|
|
|
|
|
|
Total due after five years through ten years
|
|
$
|
6,771
|
|
|
|
|
|
|
Municipal bonds
|
|
$
|
7,007
|
|
Other bonds and debentures
|
|
|
145
|
|
|
|
|
|
|
Total due after ten years
|
|
$
|
7,152
|
|
|
|
|
|
|
For the nine months ended September 30, 2012, the proceeds from sales of securities available-for-sale were $156.5
million. Gross gains of $3.4 million were realized during the same period on these sales. For the nine months ended September 30, 2011, proceeds from sales of securities available-for-sale amount to $88.2 million. Gross gains of $2.2 million
were realized during the same period on these sales. For the three months ended September 30, 2012, the proceeds from sales of securities available-for-sale were $59.0 million. Gross gains of $1.1 million were realized during the same period on
these sales. For the three months ended September 30, 2011, the proceeds from sales of securities available-for-sale were $26.8 million. Gross gains of $929 thousand were realized during the same period on these sales.
Securities, carried at $146.5 million and $155.9 million were pledged to secure public deposits, Federal Home Loan Bank
(FHLB) advances and securities sold under agreements to repurchase as of September 30, 2012, and December 31, 2011, respectively.
12
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 12 months and for 12 months or more, and are not other than temporarily impaired, are as follows as of September 30, 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than 12 Months
|
|
|
12 Months or Longer
|
|
|
Total
|
|
(Dollars in thousands)
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
Bonds and notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
|
$
|
2
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2
|
|
|
$
|
|
|
Equity securities
|
|
|
369
|
|
|
|
99
|
|
|
|
|
|
|
|
|
|
|
|
369
|
|
|
|
99
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily impaired securities
|
|
$
|
371
|
|
|
$
|
99
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
371
|
|
|
$
|
99
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The investments in the Companys investment portfolio that are temporarily impaired as of September 30, 2012,
consist of mortgage-backed securities issued by U.S. government sponsored enterprises and equity securities. The unrealized losses 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 equity securities until the recovery of cost basis, 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:
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
September 30,
2012
|
|
|
December 31,
2011
|
|
Real estate loans
|
|
|
|
|
|
|
|
|
Conventional
|
|
$
|
462,627
|
|
|
$
|
397,010
|
|
Home equity
|
|
|
66,813
|
|
|
|
71,990
|
|
Construction
|
|
|
14,893
|
|
|
|
12,731
|
|
Commercial
|
|
|
171,368
|
|
|
|
148,424
|
|
|
|
|
|
|
|
|
|
|
|
|
|
715,701
|
|
|
|
630,155
|
|
Consumer loans
|
|
|
6,889
|
|
|
|
7,343
|
|
Commercial and municipal loans
|
|
|
93,880
|
|
|
|
83,835
|
|
Unamortized adjustment to fair value
|
|
|
1,016
|
|
|
|
1,101
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
|
817,486
|
|
|
|
722,434
|
|
Allowance for loan losses
|
|
|
(9,795
|
)
|
|
|
(9,131
|
)
|
Deferred loan origination costs, net
|
|
|
2,616
|
|
|
|
1,649
|
|
|
|
|
|
|
|
|
|
|
Loans receivable, net
|
|
$
|
810,307
|
|
|
$
|
714,952
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth information regarding the
allowance for loan losses by portfolio segment as of September 30, 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate:
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Residential
|
|
|
Commercial
|
|
|
Land and
Construction
|
|
|
Commercial
|
|
|
Consumer
|
|
|
Total
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
43
|
|
|
$
|
48
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
91
|
|
Ending balance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collectively evaluated for impairment
|
|
|
4,848
|
|
|
|
3,485
|
|
|
|
340
|
|
|
|
949
|
|
|
|
82
|
|
|
|
9,704
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total allowance for loan losses ending balance
|
|
$
|
4,891
|
|
|
$
|
3,533
|
|
|
$
|
340
|
|
|
$
|
949
|
|
|
$
|
82
|
|
|
$
|
9,795
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
5,848
|
|
|
$
|
9,509
|
|
|
$
|
912
|
|
|
$
|
713
|
|
|
$
|
|
|
|
$
|
16,982
|
|
Ending balance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collectively evaluated for impairment
|
|
|
524,608
|
|
|
|
161,859
|
|
|
|
13,981
|
|
|
|
93,167
|
|
|
|
6,889
|
|
|
|
800,504
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans ending balance
|
|
$
|
530,456
|
|
|
$
|
171,368
|
|
|
$
|
14,893
|
|
|
$
|
93,880
|
|
|
$
|
6,889
|
|
|
$
|
817,486
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13
The following table sets forth information regarding nonaccrual loans and past-due
loans as of September 30, 2012, and December 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2012
(Dollars in thousands)
|
|
30-59 Days
|
|
|
60-89 Days
|
|
|
90 Days or
More
|
|
|
Total Past
Due
|
|
|
Recorded
Investments
Nonaccrual
Loans
|
|
Real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conventional
|
|
$
|
1,674
|
|
|
$
|
1,010
|
|
|
$
|
1,684
|
|
|
$
|
4,368
|
|
|
$
|
5,341
|
|
Commercial
|
|
|
1,943
|
|
|
|
42
|
|
|
|
2,394
|
|
|
|
4,379
|
|
|
|
9,510
|
|
Home equity
|
|
|
418
|
|
|
|
|
|
|
|
|
|
|
|
418
|
|
|
|
3
|
|
Land and construction
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
7
|
|
|
|
912
|
|
Commercial
|
|
|
38
|
|
|
|
107
|
|
|
|
438
|
|
|
|
583
|
|
|
|
713
|
|
Consumer
|
|
|
22
|
|
|
|
2
|
|
|
|
|
|
|
|
24
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,102
|
|
|
$
|
1,161
|
|
|
$
|
4,516
|
|
|
$
|
9,779
|
|
|
$
|
16,479
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011
(Dollars in thousands)
|
|
30-59 Days
|
|
|
60-89 Days
|
|
|
90 Days or
More
|
|
|
Total Past
Due
|
|
|
Recorded
Investments
Nonaccrual
Loans
|
|
Real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conventional
|
|
$
|
1,925
|
|
|
$
|
615
|
|
|
$
|
1,306
|
|
|
$
|
3,846
|
|
|
$
|
5,578
|
|
Commercial
|
|
|
966
|
|
|
|
584
|
|
|
|
1,513
|
|
|
|
3,063
|
|
|
|
8,485
|
|
Home equity
|
|
|
498
|
|
|
|
|
|
|
|
|
|
|
|
498
|
|
|
|
|
|
Land and construction
|
|
|
444
|
|
|
|
|
|
|
|
176
|
|
|
|
620
|
|
|
|
1,006
|
|
Commercial
|
|
|
178
|
|
|
|
352
|
|
|
|
280
|
|
|
|
810
|
|
|
|
1,540
|
|
Consumer
|
|
|
22
|
|
|
|
|
|
|
|
8
|
|
|
|
30
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,033
|
|
|
$
|
1,551
|
|
|
$
|
3,283
|
|
|
$
|
8,867
|
|
|
$
|
16,617
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Troubled Debt Restructurings
The following table presents the recorded
investment in troubled debt restructured loans as of September 30, 2012 and December 31, 2011 based on payment performance status (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2012
|
|
|
|
Real Estate
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Residential
|
|
|
Commercial
|
|
|
Land and
Construction
|
|
|
Commercial
|
|
|
Total
|
|
Performing
|
|
$
|
3,110
|
|
|
$
|
5,658
|
|
|
$
|
684
|
|
|
$
|
198
|
|
|
$
|
9,650
|
|
Non-performing
|
|
|
526
|
|
|
|
1,431
|
|
|
|
|
|
|
|
190
|
|
|
|
2,147
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,636
|
|
|
$
|
7,089
|
|
|
$
|
684
|
|
|
$
|
388
|
|
|
$
|
11,797
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011
|
|
|
|
Real Estate
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Residential
|
|
|
Commercial
|
|
|
Land and
Construction
|
|
|
Commercial
|
|
|
Total
|
|
Performing
|
|
$
|
3,447
|
|
|
$
|
6,200
|
|
|
$
|
202
|
|
|
$
|
315
|
|
|
$
|
10,164
|
|
Non-performing
|
|
|
402
|
|
|
|
1,144
|
|
|
|
|
|
|
|
381
|
|
|
|
1,927
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,849
|
|
|
$
|
7,344
|
|
|
$
|
202
|
|
|
$
|
696
|
|
|
$
|
12,091
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Troubled debt restructured loans are considered impaired and are included in the previous impaired loans disclosures in
this footnote. As of September 30, 2012, we have not committed to lend additional amounts to customers with outstanding loans that are classified as troubled debt restructurings.
14
The following table presents pre-modification balance
information on how loans were modified as TDRs during the nine months ended September 30, 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Extended
Maturity
|
|
|
Adjusted
Interest
Rates
|
|
|
Rate and
Maturity
|
|
|
Interest Only
Payments
and Extended
Maturity
|
|
|
Forgiveness of
Principle,
Reamortized
and Extended
Maturity
|
|
|
Other
(1)
|
|
|
Total
|
|
Real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
152
|
|
|
$
|
307
|
|
|
$
|
420
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
565
|
|
|
$
|
1,444
|
|
Commercial
|
|
|
701
|
|
|
|
|
|
|
|
|
|
|
|
382
|
|
|
|
2,276
|
|
|
|
89
|
|
|
|
3,448
|
|
Land and Construction
|
|
|
698
|
|
|
|
|
|
|
|
|
|
|
|
202
|
|
|
|
|
|
|
|
|
|
|
|
900
|
|
Commercial
|
|
|
36
|
|
|
|
|
|
|
|
15
|
|
|
|
104
|
|
|
|
|
|
|
|
|
|
|
|
155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total TDRs
|
|
$
|
1,587
|
|
|
$
|
307
|
|
|
$
|
435
|
|
|
$
|
688
|
|
|
$
|
2,276
|
|
|
$
|
654
|
|
|
$
|
5,947
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Other includes various combinations of maturity, interest rates, interest only payments, and principal forgiveness not already presented.
|
The following table presents pre-modification balance information on how loans were modified as TDRs during the twelve months ended
December 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Extended
Maturity
|
|
|
Adjusted
Interest
Rates
|
|
|
Rate and
Maturity
|
|
|
Interest
Only
Payments
and
Extended
Maturity
|
|
|
Adjusted
Interest
Rates and
Interest Only
Payments
|
|
|
Reduced or
Reamortized
Payment and
Extended
Maturity
|
|
|
Total
|
|
Real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
|
|
|
$
|
51
|
|
|
$
|
|
|
|
$
|
1,997
|
|
|
$
|
1,120
|
|
|
$
|
154
|
|
|
$
|
3,322
|
|
Commercial
|
|
|
303
|
|
|
|
|
|
|
|
|
|
|
|
3,724
|
|
|
|
|
|
|
|
460
|
|
|
|
4,487
|
|
Land and Construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
202
|
|
|
|
|
|
|
|
|
|
|
|
202
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
44
|
|
|
|
653
|
|
|
|
|
|
|
|
|
|
|
|
697
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total TDRs
|
|
$
|
303
|
|
|
$
|
51
|
|
|
$
|
44
|
|
|
$
|
6,576
|
|
|
$
|
1,120
|
|
|
$
|
614
|
|
|
$
|
8,708
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following tables summarize
troubled debt restructurings that occurred during the periods indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the nine months ended September 30, 2012
|
|
(Dollars in thousands)
|
|
Number
of Loans
|
|
|
Pre-
Modification
Outstanding
Recorded
Investment
|
|
|
Post-
Modification
Outstanding
Recorded
Investment
|
|
Real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
Conventional
|
|
|
11
|
|
|
$
|
1,444
|
|
|
$
|
1,444
|
|
Commercial
|
|
|
5
|
|
|
|
3,448
|
|
|
|
3,448
|
|
Land and construction
|
|
|
4
|
|
|
|
900
|
|
|
|
900
|
|
Commercial
|
|
|
4
|
|
|
|
155
|
|
|
|
155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
24
|
|
|
$
|
5,947
|
|
|
$
|
5,947
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes the
troubled debt restructurings for which there was a payment default within twelve months following the date of the restructuring for the periods indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
For the nine months ending
September 30, 2012
|
|
(Dollars in thousands)
|
|
Number
of Loans
|
|
|
Recorded
Investment
|
|
Real estate:
|
|
|
|
|
|
|
|
|
Conventional
|
|
|
15
|
|
|
$
|
1,573
|
|
Commercial
|
|
|
12
|
|
|
|
4,032
|
|
Commercial
|
|
|
6
|
|
|
|
265
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
33
|
|
|
$
|
5,870
|
|
|
|
|
|
|
|
|
|
|
15
Loans are considered to be in payment default once it is greater than 30 days contractually
past due under the modified terms. The troubled debt restructurings described above that subsequently defaulted resulted in a net allocation of the allowance for credit losses of $9 thousand for the nine month period ending September 30, 2012.
There were four charge-offs totaling $135 thousand on these defaulted troubled debt restructurings during the nine month period ending September 30, 2012.
Information about loans that meet the definition of an impaired loan in ASC
310-10-35 is as follows as of September 30, 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Recorded
Investment
|
|
|
Unpaid
Principal
Balance
|
|
|
Related
Allowance
For Credit
Losses
|
|
|
Average
Recorded
Investment
|
|
|
Interest
Income
Recognized
|
|
With no related allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conventional
|
|
$
|
5,553
|
|
|
$
|
6,464
|
|
|
$
|
|
|
|
$
|
5,875
|
|
|
$
|
189
|
|
Commercial
|
|
|
8,981
|
|
|
|
9,651
|
|
|
|
|
|
|
|
9,042
|
|
|
|
577
|
|
Land and construction
|
|
|
912
|
|
|
|
912
|
|
|
|
|
|
|
|
1,107
|
|
|
|
34
|
|
Commercial
|
|
|
713
|
|
|
|
868
|
|
|
|
|
|
|
|
1,067
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total impaired with no related allowance:
|
|
$
|
16,159
|
|
|
$
|
17,895
|
|
|
$
|
|
|
|
$
|
17,091
|
|
|
$
|
819
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conventional
|
|
$
|
295
|
|
|
$
|
328
|
|
|
$
|
43
|
|
|
$
|
295
|
|
|
$
|
10
|
|
Commercial
|
|
|
528
|
|
|
|
528
|
|
|
|
48
|
|
|
|
530
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total impaired with an allowance recorded:
|
|
$
|
823
|
|
|
$
|
856
|
|
|
$
|
91
|
|
|
$
|
825
|
|
|
$
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conventional
|
|
$
|
5,848
|
|
|
$
|
6,792
|
|
|
$
|
43
|
|
|
$
|
6,170
|
|
|
$
|
199
|
|
Commercial
|
|
|
9,509
|
|
|
|
10,179
|
|
|
|
48
|
|
|
|
9,572
|
|
|
|
598
|
|
Land and construction
|
|
|
912
|
|
|
|
912
|
|
|
|
|
|
|
|
1,107
|
|
|
|
34
|
|
Commercial
|
|
|
713
|
|
|
|
868
|
|
|
|
|
|
|
|
1,067
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total impaired loans:
|
|
$
|
16,982
|
|
|
$
|
18,751
|
|
|
$
|
91
|
|
|
$
|
17,916
|
|
|
$
|
850
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Information about loans that meet the definition of an impaired loan in ASC 310-10-35 is as follows as of
December 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Recorded
Investment
|
|
|
Unpaid
Principal
Balance
|
|
|
Related
Allowance
For Credit
Losses
|
|
|
Average
Recorded
Investment
|
|
|
Interest
Income
Recognized
|
|
With no related allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conventional
|
|
$
|
3,926
|
|
|
$
|
3,926
|
|
|
$
|
|
|
|
$
|
2,124
|
|
|
$
|
83
|
|
Commercial
|
|
|
7,584
|
|
|
|
7,584
|
|
|
|
|
|
|
|
6,407
|
|
|
|
437
|
|
Land and construction
|
|
|
1,006
|
|
|
|
1,006
|
|
|
|
|
|
|
|
307
|
|
|
|
11
|
|
Commercial and industrial
|
|
|
1,211
|
|
|
|
1,211
|
|
|
|
|
|
|
|
690
|
|
|
|
45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total impaired with no related allowance:
|
|
$
|
13,727
|
|
|
$
|
13,727
|
|
|
$
|
|
|
|
$
|
9,528
|
|
|
$
|
576
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conventional
|
|
$
|
1,563
|
|
|
$
|
1,563
|
|
|
$
|
77
|
|
|
$
|
542
|
|
|
$
|
32
|
|
Commercial
|
|
|
1,326
|
|
|
|
1,326
|
|
|
|
231
|
|
|
|
782
|
|
|
|
86
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total impaired with an allowance recorded:
|
|
$
|
2,889
|
|
|
$
|
2,889
|
|
|
$
|
308
|
|
|
$
|
1,324
|
|
|
$
|
118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conventional
|
|
$
|
5,489
|
|
|
$
|
5,489
|
|
|
$
|
77
|
|
|
$
|
2,666
|
|
|
$
|
115
|
|
Commercial
|
|
|
8,910
|
|
|
|
8,910
|
|
|
|
231
|
|
|
|
7,189
|
|
|
|
523
|
|
Land and construction
|
|
|
1,006
|
|
|
|
1,006
|
|
|
|
|
|
|
|
307
|
|
|
|
11
|
|
Commercial and industrial
|
|
|
1,211
|
|
|
|
1,211
|
|
|
|
|
|
|
|
690
|
|
|
|
45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total impaired loans:
|
|
$
|
16,616
|
|
|
$
|
16,616
|
|
|
$
|
308
|
|
|
$
|
10,852
|
|
|
$
|
694
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
The following table presents the Companys loans by risk
ratings as of September 30, 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Residential
|
|
|
Commercial
|
|
|
Land and
Construction
|
|
|
Commercial
|
|
|
Consumer
|
|
|
Total
|
|
Grade:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Not formally rated
|
|
$
|
518,379
|
|
|
$
|
10,618
|
|
|
$
|
6,454
|
|
|
$
|
29,491
|
|
|
$
|
6,889
|
|
|
$
|
571,831
|
|
Pass
|
|
|
5,520
|
|
|
|
141,592
|
|
|
|
6,116
|
|
|
|
62,615
|
|
|
|
|
|
|
|
215,843
|
|
Special Mention
|
|
|
116
|
|
|
|
4,895
|
|
|
|
764
|
|
|
|
292
|
|
|
|
|
|
|
|
6,067
|
|
Substandard
|
|
|
6,441
|
|
|
|
14,263
|
|
|
|
1,559
|
|
|
|
1,482
|
|
|
|
|
|
|
|
23,745
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
530,456
|
|
|
$
|
171,368
|
|
|
$
|
14,893
|
|
|
$
|
93,880
|
|
|
$
|
6,889
|
|
|
$
|
817,486
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents the Companys loans by risk ratings as of December 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Residential
|
|
|
Commercial
|
|
|
Land and
Construction
|
|
|
Commercial
|
|
|
Consumer
|
|
|
Total
|
|
Grade:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Not formally rated
|
|
$
|
463,402
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
7,343
|
|
|
$
|
470,745
|
|
Pass
|
|
|
|
|
|
|
125,405
|
|
|
|
10,506
|
|
|
|
81,835
|
|
|
|
|
|
|
|
217,746
|
|
Special Mention
|
|
|
109
|
|
|
|
5,266
|
|
|
|
1,166
|
|
|
|
1,163
|
|
|
|
|
|
|
|
7,704
|
|
Substandard
|
|
|
5,489
|
|
|
|
17,753
|
|
|
|
1,059
|
|
|
|
837
|
|
|
|
|
|
|
|
25,138
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
$
|
469,000
|
|
|
$
|
148,424
|
|
|
$
|
12,731
|
|
|
$
|
83,835
|
|
|
$
|
7,343
|
|
|
$
|
721,333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
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.
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 thousand. The assessment of those loans less than $250 thousand are based on the borrowers ability to pay and not on overall risk.
Additionally, the Company monitors the repayment activity for loans less than $250 thousand and if a loan becomes delinquent over 60 days past due, it is reviewed for risk and is subsequently risk rated based on available information such as ability
to repay based on current cash flow conditions and workout discussions with the borrower.
Loan Servicing
The Company recognizes as separate assets from their related loans the rights to service mortgage loans for others, either through
acquisition of those rights or from the sale or securitization of loans with the servicing rights retained on those loans, based on their relative fair values. To determine the fair value of the servicing rights created, the Company uses the market
prices under comparable servicing sale contracts, when available, or alternatively uses a valuation model that calculates the present value of future cash flows to determine the fair value of the servicing rights. In using this valuation method, the
Company incorporates assumptions that market participants would use in estimating future net servicing income, which includes estimates of the cost of servicing loans, the discount rate, ancillary income, prepayment speeds and default rates.
Mortgage servicing rights are amortized in proportion to, and over the period of, estimated net servicing revenues. Refinance
activities are considered in estimating the period of net servicing revenues. Impairment of mortgage servicing rights is assessed based on the fair value of those rights. Fair values are estimated using discounted cash flows based on a current
market interest rate. For purposes of measuring impairment, the rights are stratified based on the interest rate risk characteristics of the underlying loans. The amount of impairment recognized is the amount by which the capitalized mortgage
servicing rights for a stratum exceed their fair value.
The balance of capitalized servicing rights, net of valuation
allowances, included in other assets at September 30, 2012, was $1.7 million. Servicing rights of $765 thousand were capitalized during the nine months ended September 30, 2012, and $340 thousand during the three months ended
September 30, 2012, compared to $430 thousand and $89 thousand for the same periods in 2011, respectively. Amortization of capitalized servicing rights was $763 thousand for the nine months ended September 30, 2012, and $264 thousand
during the three months ended September 30, 2012, compared to $568 thousand and $176 thousand for the same periods in 2011, respectively. The fair value of capitalized servicing rights was $2.1 million of September 30, 2012.
Following is an analysis of the aggregate changes in the
valuation allowance for capitalized servicing rights during the period indicated:
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Three months ended
September 30, 2012
|
|
|
Nine months ended
September 30, 2012
|
|
Balance, beginning of period
|
|
$
|
244
|
|
|
$
|
58
|
|
(Decrease) increase
|
|
|
(51
|
)
|
|
|
135
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
193
|
|
|
$
|
193
|
|
|
|
|
|
|
|
|
|
|
18
Note H Stock-based Compensation
At September 30, 2012, 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 three and nine month periods ending September 30,
2012 and 2011.
Note I Pension Benefits
The following summarizes the net periodic pension cost
for the three and nine month periods ended September 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
September 30,
|
|
|
Nine months ended
September 30,
|
|
(Dollars in thousands)
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
Interest cost
|
|
$
|
84
|
|
|
$
|
82
|
|
|
$
|
252
|
|
|
$
|
245
|
|
Expected return on plan assets
|
|
|
(134
|
)
|
|
|
(126
|
)
|
|
|
(402
|
)
|
|
|
(377
|
)
|
Amortization of unrecognized net loss
|
|
|
65
|
|
|
|
51
|
|
|
|
195
|
|
|
|
154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic pension cost
|
|
$
|
15
|
|
|
$
|
7
|
|
|
$
|
45
|
|
|
$
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note J Earnings Per Share (EPS)
Basic and diluted net income per common share calculations are
as follows (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months
ended September 30,
|
|
|
For the nine months
ended September 30,
|
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
Basic EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income as reported
|
|
$
|
2,030
|
|
|
$
|
2,013
|
|
|
$
|
6,124
|
|
|
$
|
6,038
|
|
Preferred stock net accretion
|
|
|
|
|
|
|
(45
|
)
|
|
|
|
|
|
|
(53
|
)
|
Cumulative preferred stock dividend earned
|
|
|
(116
|
)
|
|
|
(169
|
)
|
|
|
(617
|
)
|
|
|
(419
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common stockholders
|
|
$
|
1,914
|
|
|
$
|
1,799
|
|
|
$
|
5,507
|
|
|
$
|
5,566
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
5,967,522
|
|
|
|
5,773,772
|
|
|
|
5,860,169
|
|
|
|
5,773,772
|
|
Net income per common share basic
|
|
$
|
0.32
|
|
|
$
|
0.31
|
|
|
$
|
0.94
|
|
|
$
|
0.96
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common stockholders
|
|
$
|
1,914
|
|
|
$
|
1,799
|
|
|
$
|
5,507
|
|
|
$
|
5,566
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
5,967,522
|
|
|
|
5,773,772
|
|
|
|
5,860,169
|
|
|
|
5,773,772
|
|
Effect of dilutive securities, options
|
|
|
|
|
|
|
12,245
|
|
|
|
6,511
|
|
|
|
12,583
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding diluted
|
|
|
5,967,522
|
|
|
|
5,786,017
|
|
|
|
5,866,680
|
|
|
|
5,786,355
|
|
Net income per common share diluted
|
|
$
|
0.32
|
|
|
$
|
0.31
|
|
|
$
|
0.94
|
|
|
$
|
0.96
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note K Merger and Acquisition Activity
The Company announced on August 1, 2012, the execution of a definitive agreement in which the Company will acquire The Nashua Bank
(TNB) in an exchange of cash and stock (the Merger). TNB will merge with and into the Bank and will operate under the name The Nashua Bank, a division of Lake Sunapee Bank. The terms of the merger agreement call
for each outstanding share of TNB common stock to be converted into the right to receive $14.50 in cash or 1.136 shares of the Companys common stock. TNB shareholders will have the right to elect either cash or stock with the constraint that
the overall transaction must be consummated with 80% of TNB shares being exchanged for Company stock and 20% being exchanged for cash. If there is an imbalance in elections, there will be a proration of proceeds to achieve the 80/20 split.
Completion of the transaction is subject to customary closing conditions, including the receipt of regulatory approval and the approval of TNBs shareholders. TNBs shareholders approved the Merger on October 25, 2012. The transaction
is expected to close in the fourth quarter of 2012.
19
Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operation
Highlights and Overview
Our 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 following is a summary of key
financial results for the quarter and nine months ended September 30, 2012:
|
|
|
Total assets increased $76.5 million, or 7.34%, to $1.1 billion at September 30, 2012, from $1.0 billion at December 31, 2011.
|
|
|
|
Net loans increased $95.3 million, or 13.34%, to $810.3 million at September 30, 2012, from $715.0 million at December 31, 2011.
|
|
|
|
We originated $323.3 million in loans for the nine months ended September 30, 2012, compared to $195.8 million for the same period in 2011.
|
|
|
|
Our loan servicing portfolio was $361.1 million at September 30, 2012, compared to $365.8 million at December 31, 2011.
|
|
|
|
Total deposits increased $27.6 million, or 3.44%, to $830.7 million at September 30, 2012, from $803.0 million at December 31, 2011.
|
|
|
|
Net interest and dividend income for the nine months ended September 30, 2012, was $21.7 million compared to $21.5 million for the same period in
2011.
|
|
|
|
Net income available to common stockholders was $5.5 million for the nine months ended September 30, 2012, compared to $5.6 million for the same
period in 2011.
|
|
|
|
Our returns on average assets and average equity for the nine months ended September 30, 2012, were 0.82% and 7.24%, respectively, compared to
0.78% and 8.43%, respectively, for the same period in 2011.
|
|
|
|
As a percentage of total loans, non-performing loans decreased from 2.26% at December 31, 2011, to 2.04% at September 30, 2012.
|
The following discussion is intended to assist in understanding our financial condition and results of
operations. This discussion should be read in conjunction with our consolidated financial statements and accompanying notes contained elsewhere in this report.
Pending Merger
The Company announced on August 1, 2012, the execution of a definitive
agreement in which the Company will acquire The Nashua Bank (TNB) in an exchange of cash and stock (the Merger). TNB will merge with and into the Bank and will operate under the name The Nashua Bank, a division of Lake
Sunapee Bank. The terms of the merger agreement call for each outstanding share of TNB common stock to be converted into the right to receive $14.50 in cash or 1.136 shares of the Companys common stock. TNB shareholders will have the
right to elect either cash or stock with the constraint that the overall transaction must be consummated with 80% of TNB shares being exchanged for Company stock and 20% being exchanged for cash. If there is an imbalance in elections, there will be
a proration of proceeds to achieve the 80/20 split. Completion of the transaction is subject to customary closing conditions, including the receipt of regulatory approval and the approval of TNBs shareholders. TNBs shareholders approved
the Merger on October 25, 2012. The transaction is expected to close in the fourth quarter of 2012.
Recent Legislative Updates
In September 2012, the Federal Reserve Board, the OCC and the FDIC issued three proposals that would amend the existing
regulatory risk-based capital adequacy requirements of banks and bank holding companies. The proposed rules implement the Basel III regulatory capital reforms and changes required by the Dodd-Frank Act. The Basel III proposal would
increase the minimum levels of required capital, narrow the definition of capital, and places much greater emphasis on common equity. The proposed rules will be subject to a comment period through October 22, 2012.
The proposed rules include new risk-based capital and leverage ratios, which would be phased in from 2013 to 2019, and would refine the
definition of what constitutes capital for purposes of calculating those ratios. The proposed new minimum capital level requirements applicable to us and the Bank under the proposals would be: (i) a new common equity Tier 1 capital
ratio of 4.5%; (ii) a Tier 1 capital ratio of 6% (increased from 4%); (iii) a total capital ratio of 8% (unchanged from current rules); and (iv) a Tier 1 leverage ratio of 4% for all institutions. The proposed rules would also
establish a capital conservation buffer of 2.5% above the new regulatory minimum capital requirements, which must consist entirely of common equity Tier 1 capital and would result in the following minimum ratios: (i) a common equity
Tier 1 capital ratio of 7.0%, (ii) a Tier 1 capital ratio of 8.5%, and (iii) a total capital ratio of 10.5%. The new capital conservation buffer requirement would be phased in beginning in January 2016 at 0.625% of risk-weighted assets and
would increase by that amount each year until fully implemented in January 2019. An institution would be subject
20
to limitations on paying dividends, engaging in share repurchases and paying discretionary bonuses if its capital level falls below the buffer amount. These limitations would establish a maximum
percentage of eligible retained income that could be utilized for such actions.
The proposed rules also implement revisions
and clarifications consistent with Basel III regarding the various components of Tier 1 capital, including common equity, unrealized gains and losses, as well as certain instruments that will no longer qualify as Tier 1 capital, such as trust
preferred securities, which would be phased out over time. Although the Dodd-Frank Act only required the phase out of such instruments for institutions with total consolidated assets of $15 billion or more, the proposed rules would require almost
all institutions to phase out instruments that will no longer qualify as Tier 1 capital, albeit on a longer time frame than for institutions with total consolidated assets of $15 billion or more.
The federal bank regulatory agencies also proposed revisions to the prompt corrective action framework, which is designed to place
restrictions on insured depository institutions, including the Bank, if their capital levels begin to show signs of weakness. These revisions would take effect January 1, 2015.
We are still in the process of assessing the impacts of these complex proposals, however, we believe we will continue to exceed all
estimated well-capitalized regulatory requirements over the course of the proposed phase-in period, and on a fully phased-in basis
.
Critical Accounting Policies
Our 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 our critical accounting policies, please refer to the information contained in Notes A, B and C of the accompanying unaudited condensed consolidated financial statements and Note 1 of the consolidated
financial statements included in our 2011 Annual Report on Form 10-K.
Financial Condition and Results of Operations
Comparison of Financial Condition at September 30, 2012 and December 31, 2011
Total assets were $1.1 billion at September 30, 2012, compared to $1.0 billion at December 31, 2011, an increase of $76.5
million, or 7.34%. Securities available-for-sale decreased $36.1 million, or 17.15%, to $174.2 million at September 30, 2012 from $210.3 million at December 31, 2011. Net unrealized gains on securities available-for-sale were $3.4 million
at September 30, 2012, compared to net unrealized gains of $2.8 million at December 31, 2011. During the nine months ended September 30, 2012, we sold securities with a total book value of $156.1 million for a net gain on sales of
$2.9 million. During the same period, we purchased $15.0 million of other bonds and debentures and $140.7 million of mortgage-backed securities. Our net unrealized gain (after tax) on our investment portfolio was $2.1 million at September 30,
2012, compared to an unrealized gain (after tax) of $1.7 million at December 31, 2011. The investments in our securities portfolio that were temporarily impaired as of September 30, 2012, consisted primarily of equity securities issued.
Management does not intend to sell these securities in the near term. Since we have the ability to hold equity securities until recovery of cost basis, no declines are deemed to be other than temporary.
Net loans held in portfolio increased $95.3 million, or 13.34%, to $810.3 million at September 30, 2012, from $715.0 million at
December 31, 2011. The allowance for loan losses increased $664 thousand to $9.8 million at September 30, 2012, from $9.1 million at December 31, 2011. The change in the allowance for loan losses is the net of the effect of provisions
of $2.3 million, charge-offs of $2.1 million, and recoveries of $500 thousand. As a percentage of total loans, non-performing loans decreased from 2.26% at December 31, 2011, to 2.04% at September 30, 2012. Total loan production for the
nine months ended September 30, 2012, was $323.3 million compared to $195.8 million for the same period in 2011. The increase of loans held in portfolio was primarily due to increases in residential mortgages and commercial real estate loans.
At September 30, 2012, our mortgage servicing loan portfolio was $361.1 million compared to $365.8 million at December 31, 2011. We expect to continue to sell long-term fixed-rate loans with terms of more than 15 years into the secondary
market in order to manage interest rate risk. Market risk exposure during the production cycle is managed through the use of secondary market forward commitments. At September 30, 2012, adjustable-rate mortgages comprised approximately 64.0% of
our real estate mortgage loan portfolio, which is lower than the mix at December 31, 2011 as more fixed rate real estate loans with terms of 10 years or less were originated during the nine months ended September 30, 2012.
Goodwill and other intangible assets amounted to $30.1 million, or 2.69% of total assets, as of September 30, 2012, compared to
$30.4 million, or 2.91% of total assets, as of December 31, 2011. The decrease was due to normal amortization of core deposit intangible and customer list assets.
21
We held no other real estate owned (OREO) and property acquired in settlement of
loans at September 30, 2012, compared to $1.3 million at December 31, 2011.
Total deposits increased $27.6 million,
or 3.44%, to $830.7 million at September 30, 2012, from $803.0 million at December 31, 2011. Non-interest bearing deposit accounts increased $4.1 million, or 6.38%, and interest-bearing deposit accounts increased $23.5 million, or 3.19%,
over the same period. The balances at September 30, 2012, included $20.0 million of brokered deposits and $7.0 million of deposits obtained through listing services which is an increase of $15.0 million and $747 thousand, respectively, compared
to December 31, 2011.
Securities sold under agreements to repurchase increased $2.8 million, or 18.15%, to $18.3 million
at September 30, 2012, from $15.5 million at December 31, 2011. Repurchase agreements are collateralized by some of our U.S. government and agency investment securities.
We maintained balances of $121.0 million in advances from the FHLB at September 30, 2012, an increase of $40.0 million from $81.0
million at December 31, 2011, as advances were utilized, in part, to fund loan growth.
Allowance and Provision for Loan Losses
We maintain 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. We test 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, we consider 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.
Our commercial loan officers review the financial condition of commercial loan customers on a regular basis
and perform visual inspections of facilities and inventories. We also have loan review, internal audit and compliance programs with results reported directly to the Audit Committee of the Board of Directors.
The allowance for loan losses (not including allowance for losses from the overdraft program described below) at September 30, 2012
was 9.8 million and at December 31, 2011 was $9.1 million. At approximately $9.8 million, the allowance for loan losses represents 1.19% of total loans, down from 1.27% at December 31, 2011. Total non-performing assets at
September 30, 2012, were approximately $16.5 million, representing 168.23% of the allowance for loan losses. Modestly improving economic and market conditions, coupled with internal risk rating changes, resulted in us adding $2.2 million to the
allowance for loan and lease losses during the nine months ended September 30, 2012, compared to $950 thousand for the same period in 2011. Loan charge-offs (excluding the overdraft program) were $1.9 million during the nine month period ended
September 30, 2012, compared to $1.2 million for the same period in 2011. Recoveries were $390 thousand during the nine month period ended September 30, 2012, compared to $89 thousand for the same period in 2011. This activity resulted in
net charge-offs of $1.6 million for the nine month period ended September 30, 2012, compared to $1.1 million for the same period in 2011. One-to-four family residential mortgages, commercial real estate, land, commercial, and consumer loans
accounted for 51%, 20%, 7%, 21%, and 1%, respectively, of the amounts charged-off during the nine month period ended September 30, 2012.
The effects of national economic issues that continue to be felt in our local communities and the national economic outlook as well as portfolio performance and charge-offs influenced our decision to
maintain our allowance for loan losses of $9.8 million. The provisions made in 2012 reflect growth in the portfolio, 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 2012 to maintain the allowance at an adequate level.
22
In addition to the allowance for loan losses, there is an allowance for losses from the fee
for service overdraft program. Our 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 September 30, 2012, the overdraft allowance was $35 thousand, compared to $17 thousand at year-end 2011. Provisions for overdraft losses in the amount of $61 thousand were recorded during the nine
month period ended September 30, 2012, compared to provisions of $34 thousand that were recorded for the same period during 2011. Ongoing provisions are anticipated as overdraft charge-offs continue and we adhere to our 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. The following is a summary of activity in the allowance for loan losses account (excluding overdraft allowances) for
the nine month periods ended September 30:
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
2012
|
|
|
2011
|
|
Balance, beginning of year
|
|
$
|
9,113
|
|
|
$
|
9,841
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs:
|
|
|
|
|
|
|
|
|
Residential real estate
|
|
|
(993
|
)
|
|
|
(454
|
)
|
Commercial real estate
|
|
|
(393
|
)
|
|
|
(407
|
)
|
Land and construction
|
|
|
(138
|
)
|
|
|
(209
|
)
|
Consumer loans
|
|
|
(13
|
)
|
|
|
(25
|
)
|
Commercial loans
|
|
|
(406
|
)
|
|
|
(97
|
)
|
|
|
|
|
|
|
|
|
|
Total charged-off loans
|
|
|
(1,943
|
)
|
|
|
(1,192
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Recoveries
|
|
|
|
|
|
|
|
|
Residential real estate
|
|
|
164
|
|
|
|
54
|
|
Commercial real estate
|
|
|
24
|
|
|
|
|
|
Land and construction
|
|
|
65
|
|
|
|
|
|
Consumer loans
|
|
|
6
|
|
|
|
5
|
|
Commercial loans
|
|
|
131
|
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
Total recoveries
|
|
|
390
|
|
|
|
89
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs
|
|
|
(1,553
|
)
|
|
|
(1,103
|
)
|
|
|
|
Provision for loan loss charged to income:
|
|
|
|
|
|
|
|
|
Residential real estate
|
|
|
1,106
|
|
|
|
445
|
|
Commercial real estate
|
|
|
791
|
|
|
|
315
|
|
Land and construction
|
|
|
77
|
|
|
|
26
|
|
Consumer loans
|
|
|
11
|
|
|
|
11
|
|
Commercial loans
|
|
|
215
|
|
|
|
153
|
|
|
|
|
|
|
|
|
|
|
Total provision
|
|
|
2,200
|
|
|
|
950
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
9,760
|
|
|
$
|
9,688
|
|
|
|
|
|
|
|
|
|
|
The following is a summary of activity in the allowance for overdraft privilege account for the nine
month period ended September 30:
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
2012
|
|
|
2011
|
|
Beginning balance
|
|
$
|
18
|
|
|
$
|
23
|
|
|
|
|
|
|
|
|
|
|
Overdraft charge-offs
|
|
|
(155
|
)
|
|
|
(174
|
)
|
Overdraft recoveries
|
|
|
111
|
|
|
|
134
|
|
|
|
|
|
|
|
|
|
|
Net overdraft losses
|
|
|
(44
|
)
|
|
|
(40
|
)
|
|
|
|
|
|
|
|
|
|
Provision for overdrafts
|
|
|
61
|
|
|
|
34
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
35
|
|
|
$
|
17
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth the allocation of the allowance for loan losses (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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
September 30, 2012
|
|
|
December 31, 2011
|
|
Real estate loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential, 1-4 family and home equity loans
|
|
$
|
4,848
|
|
|
|
50
|
%
|
|
|
65
|
%
|
|
$
|
4,907
|
|
|
|
54
|
%
|
|
|
64
|
%
|
Commercial
|
|
|
3,485
|
|
|
|
36
|
%
|
|
|
21
|
%
|
|
|
2,915
|
|
|
|
32
|
%
|
|
|
21
|
%
|
Land and construction
|
|
|
340
|
|
|
|
3
|
%
|
|
|
2
|
%
|
|
|
222
|
|
|
|
2
|
%
|
|
|
2
|
%
|
Collateral and consumer loans
|
|
|
82
|
|
|
|
|
|
|
|
1
|
%
|
|
|
40
|
|
|
|
1
|
%
|
|
|
1
|
%
|
Commercial and municipal loans
|
|
|
949
|
|
|
|
10
|
%
|
|
|
11
|
%
|
|
|
721
|
|
|
|
8
|
%
|
|
|
12
|
%
|
Impaired loans
|
|
|
91
|
|
|
|
1
|
%
|
|
|
|
|
|
|
308
|
|
|
|
3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
|
|
$
|
9,795
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
$
|
9,113
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance as a percentage of total loans
|
|
|
|
|
|
|
1.19
|
%
|
|
|
|
|
|
|
|
|
|
|
1.26
|
%
|
|
|
|
|
Non-performing loans as a percentage of allowance
|
|
|
|
|
|
|
168.23
|
%
|
|
|
|
|
|
|
|
|
|
|
178.98
|
%
|
|
|
|
|
23
The following table shows total allowances including overdraft allowances:
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
September 30, 2012
|
|
|
December 31, 2011
|
|
Allowance for loan and lease losses
|
|
$
|
9,760
|
|
|
$
|
9,113
|
|
Overdraft allowance
|
|
|
35
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
Total allowance
|
|
$
|
9,795
|
|
|
$
|
9,131
|
|
|
|
|
|
|
|
|
|
|
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 $23.7 million at September 30, 2012, compared to $25.1 million at December 31, 2011. In addition, we had no OREO at
September 30, 2012, compared to $1.3 million at December 31, 2011. During the nine month period ended September 30, 2012, we sold five properties which were classified as OREO at December 31, 2011. Losses are incurred in the
liquidation process and our loss experience suggests it is prudent for us 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, we
anticipate more charge-offs as loan issues are resolved. The impaired loans meet the criteria established under ASC 310-10-35. Five loans considered to be impaired loans at September 30, 2012, have specific allowances identified and assigned.
The five loans are secured by real estate, business assets or a combination of both. At September 30, 2012, the allowance included $91 thousand allocated to impaired loans. The portion of the allowance allocated to impaired loans at
December 31, 2011 was $308 thousand.
At September 30, 2012, we had 56 loans with net carrying values of $11.1
million considered to be troubled debt restructurings as defined in ASC 310-40, Receivables-Troubled Debt Restructurings by Creditors included in impaired loans. At September 30, 2012, 40 of the troubled debt
restructurings were performing under contractual terms. Of the loans classified as troubled debt restructured, sixteen were more than 30 days past due at September 30, 2012. The balances of these past due loans were $2.1 million and have
no assigned specific allowances. At December 31, 2011, we had 50 loans with net carrying values of $12.0 million considered to be troubled debt restructurings.
Loans over 90 days past due were $4.5 million at September 30, 2012, compared to $3.3 million at December 31, 2011. Loans 30 to
89 days past due were $5.3 million at September 30, 2012, compared to $5.6 million at December 31, 2011. As a percentage of assets, the recorded investment in non-performing loans decreased from 1.59% at December 31, 2011, to 1.47% at
September 30, 2012, and, as a percentage of total loans, decreased from 2.26% at December 31, 2011, to 2.02% at September 30, 2012.
Loans classified for regulatory purposes as loss, doubtful, substandard, or special mention do not reflect trends or uncertainties which we reasonably expect will materially impact future operating
results, liquidity, or capital resources. For the period ended September 30, 2012, 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 September 30, 2012, 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 as a percentage of the total allowance and total assets for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2012
|
|
|
December 31, 2011
|
|
(Dollars in thousands)
|
|
Carrying
Value
|
|
|
Percentage
of Total
Allowance
|
|
|
Percentage
of Total
Assets
|
|
|
Carrying
Value
|
|
|
Percentage
of Total
Allowance
|
|
|
Percentage
of Total
Assets
|
|
90 days or more delinquent loans
(1)
|
|
$
|
72
|
|
|
|
0.74
|
%
|
|
|
0.01
|
%
|
|
$
|
100
|
|
|
|
1.10
|
%
|
|
|
0.01
|
%
|
Non-accrual impaired loans
|
|
|
4,640
|
|
|
|
47.37
|
%
|
|
|
0.41
|
%
|
|
|
4,173
|
|
|
|
45.70
|
%
|
|
|
0.40
|
%
|
Troubled debt restructured
|
|
|
11,130
|
|
|
|
113.63
|
%
|
|
|
1.00
|
%
|
|
|
12,037
|
|
|
|
131.83
|
%
|
|
|
1.16
|
%
|
Other real estate owned and chattel
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,365
|
|
|
|
14.95
|
%
|
|
|
0.13
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing assets
|
|
$
|
15,842
|
|
|
|
161.74
|
%
|
|
|
1.42
|
%
|
|
$
|
17,675
|
|
|
|
193.58
|
%
|
|
|
1.70
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
All loans 90 days or more delinquent are placed on non-accruing status.
|
24
The following table sets forth the breakdown of non-performing assets at the dates
indicated:
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
September 30, 2012
|
|
|
December 31, 2011
|
|
Nonaccrual loans
(1)
|
|
$
|
16,479
|
|
|
$
|
16,617
|
|
Real estate and chattel property owned
|
|
|
|
|
|
|
1,365
|
|
|
|
|
|
|
|
|
|
|
Total non-performing assets
|
|
$
|
16,479
|
|
|
$
|
17,982
|
|
|
|
|
|
|
|
|
|
|
(1)
|
All loans 90 days or more delinquent are placed on a non-accruing status.
|
The following table sets forth the recorded investment in nonaccrual loans by category at the dates indicated:
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
September 30, 2012
|
|
|
December 31, 2011
|
|
Real estate loans
|
|
|
|
|
|
|
|
|
Conventional
|
|
$
|
5,341
|
|
|
$
|
5,578
|
|
Commercial
|
|
|
9,510
|
|
|
|
8,485
|
|
Home equity
|
|
|
3
|
|
|
|
|
|
Land and construction
|
|
|
912
|
|
|
|
1,006
|
|
Consumer loans
|
|
|
|
|
|
|
8
|
|
Commercial and municipal loans
|
|
|
713
|
|
|
|
1,540
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
16,479
|
|
|
$
|
16,617
|
|
|
|
|
|
|
|
|
|
|
We believe 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, we recognize 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.
Liquidity and Capital Resources
We are required to maintain sufficient liquidity for safe and sound operations. At September 30, 2012, our liquidity was sufficient
to cover our anticipated needs for funding new loan commitments of approximately $51.0 million. Our 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 September 30, 2012, we had approximately $179.0 million in additional borrowing capacity from the FHLB.
At September 30, 2012, stockholders equity totaled $112.0 million, compared to $108.7 million at December 31, 2011. This
reflects net income of $6.1 million, the declaration and payment of $2.3 million in common stock dividends, the declaration of $738 thousand in preferred stock dividends, the purchase of $737 thousand of stock warrants outstanding, proceeds of $392
thousand from stock options exercised, and a decrease of $498 thousand in accumulated other comprehensive loss.
At
September 30, 2012, 148,088 shares remained to be repurchased under the repurchase plan previously approved by the Board of Directors. The repurchase plan permits the repurchase of up to 253,776 shares of our common stock. The Board of
Directors 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. We buy stock in the open market whenever the price of the stock is deemed reasonable and we have funds available for the purchase. During the nine months ended September 30, 2012, no
shares were repurchased.
On September 14, 2012, we awarded 5,000 restricted shares of NHTB common stock to each of the
Banks seven non-employee directors. These shares, issued from treasury stock, represent restricted common shares which vest 1,000 common shares per year beginning on September 14, 2013. On August 9, 2012, one director resigned
effectively forfeiting all unvested (5,000) shares awarded.
At September 30, 2012, we had unrestricted funds
available in the amount of $1.7 million. As of September 30, 2012, our total cash needs for the remainder of 2012 are estimated to be approximately $6.3 million with $768 thousand projected to be used to pay dividends on our common stock, $251
thousand to pay interest on our capital securities, $117 thousand to pay dividends on our Series B Preferred Stock (as defined below), $272 thousand to pay-off notes payable, approximately $375 thousand for ordinary operating expense, and $4.5
million to complete the acquisition of The Nashua Bank. 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 the additional Company cash requirements for 2012, if needed, as long as earnings at the Bank are sufficient to maintain adequate leverage capital.
For the nine months ended September 30, 2012, net cash provided by operating activities decreased $6.8 million to $1.8 million
compared to $8.6 million for the same period in 2011. The change in loans held for sale increased $7.9 million for the nine months ended September 30, 2012, compared to the same period in 2011, with $7.3 million increase in loans held for the
period in 2012
25
compared to a decrease of $600 thousand in 2011. Net gain on sales and calls of securities increased $1.2 million for the nine months ended September 30, 2012, compared to the same period in
2011, as a result of the sale and settlement of approximately $192.7 million of securities during the nine months ended September 30, 2012, compared to approximately $113.3 million of securities during the same period in 2011. The provision for
loan losses increased $1.3 million for the nine months ended September 30, 2012, compared to the same period in 2011. The decrease in accrued interest receivable and other assets decreased $321 thousand while the increase in accrued expenses
and liabilities increased $1.7 million.
Net cash used in investing activities was $64.5 million for the nine months ended
September 30, 2012, compared to $46.6 million for the same period in 2011, an increase of $17.9 million. The cash provided by net securities activities was $39.2 million for the nine months ended September 30, 2012, compared to cash used
in net securities activities of $12.4 million for the same period in 2011. Cash used to purchase FHLB stock was $1.5 million for the nine months ended September 30, 2012, compared to no related cash activity for the same period in 2011. Cash
used in loan originations and principal collections, net, was $97.0 million for the nine months ended September 30, 2012, an increase of $65.8 million, compared to the same period in 2011. Additionally, $5.0 million of cash was used in the
purchase of life insurance policies during the nine months ended September 30, 2012, compared to $2.5 million for this purpose in the same period in 2011.
For the nine months ended September 30, 2012, net cash flows provided by financing activities increased $30.9 million to $66.8 million compared to net cash provided by financing activities of $35.9
million for the nine months ended September 30, 2011. We experienced a net increase of $21.9 million in cash provided by deposits and securities sold under agreements to repurchase comparing the nine months ended September 30, 2012, to the
same period in 2011. We had an increase of $19.7 million cash provided by FHLBB advances and other borrowings comparing the nine months ended September 30, 2012 to the same period in 2011. During the nine months ended September 30, 2011,
we used $10.0 million to redeem Series A Preferred Stock and received $20.0 million for the issuance of Series B Preferred Stock (as defined below.)
On August 25, 2011, as part of the Small Business Lending Fund (SBLF) program, we entered into a letter agreement with Treasury pursuant to which we issued and sold to Treasury 20,000
shares of our Non-Cumulative Perpetual Preferred Stock, Series B, par value $.01 per preferred share, having a liquidation preference of $1,000 per preferred share (the Series B Preferred Stock.) We used $10.0 million of the proceeds to
redeem the Series A Preferred Stock issued under CPP.
The initial rate payable on SBLF capital is, at most, five percent, and
the rate falls to one percent if a banks small business lending increases by ten percent or more. Banks that increase their lending by less than ten percent pay rates between two percent and four percent. If a banks lending does not
increase in the first two years, however, the rate increases to seven percent, and after 4.5 years total, the rate for all banks increases to nine percent (if the bank has not already repaid the SBLF funding). The dividend will be paid only when
declared by our Board of Directors. The Series B 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 B Preferred Stock generally is non-voting, other than class voting on certain matters that could
adversely affect the Series B Preferred Stock.
Banks are required to maintain tier one leverage capital and total risk based
capital ratios of 4.00% and 8.00%, respectively. As of September 30, 2012, the Banks ratios were 9.21% and 14.16%, respectively, well in excess of the regulators requirements.
Book value per common share was $15.58 at September 30, 2012, compared to $15.20 per common share at December 31, 2011.
Tangible book value per common share was $10.49 at September 30, 2012 compared to $10.00 per common share at December 31, 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. We believe 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.
26
A reconciliation of these non-GAAP financial measures is provided below:
|
|
|
|
|
|
|
|
|
(Dollars in thousands except for per share data)
|
|
September 30, 2012
|
|
|
December 31, 2011
|
|
Shareholders equity
|
|
$
|
111,986
|
|
|
$
|
108,660
|
|
Less goodwill
|
|
|
28,650
|
|
|
|
28,597
|
|
Less other intangible assets
|
|
|
1,427
|
|
|
|
1,755
|
|
Less preferred stock
|
|
|
20,000
|
|
|
|
20,000
|
|
|
|
|
|
|
|
|
|
|
Tangible common equity
|
|
$
|
61,909
|
|
|
$
|
58,308
|
|
|
|
|
|
|
|
|
|
|
Ending common shares outstanding
|
|
|
5,902,402
|
|
|
|
5,832,360
|
|
Tangible book value per common share
|
|
$
|
10.49
|
|
|
$
|
10.00
|
|
Interest Rate Sensitivity
The principal objective of our 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 our
business strategies, operating environment, capital and liquidity requirements and performance objectives, and to manage the risk consistent with our Board of Directors approved guidelines. The Board of Directors has established an
Asset/Liability Committee (ALCO) to review our 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.
Our one-year cumulative interest-rate gap at September 30, 2012, was positive 2.65%,
compared to the December 31, 2011, gap of positive 1.65%. 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.
We continue to offer adjustable-rate mortgages, which reprice at one, three, five and seven year intervals. In addition, we
sell most fixed-rate mortgages with terms of 15 years or longer into the secondary market in order to minimize interest rate risk and provide liquidity.
As another part of its interest rate risk analysis, we use an interest rate sensitivity model, which generates estimates of the change in our economic value of equity (EVE) over a range of interest rate
scenarios. EVE is the present value of expected cash flows from assets, liabilities and off-balance sheet contracts. The EVE ratio, under any rate scenario, is defined as the EVE 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 EVE model assumes that the composition of
our 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 EVE measurements and net interest income models provide an indication of our 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 our net interest income and will likely differ from actual results.
The following table sets forth our EVE at
September 30, 2012, as calculated by an independent third party agent:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Book
Value
|
|
|
-100 bp
|
|
|
0 bp
|
|
|
+100 bp
|
|
|
+200 bp
|
|
|
+300 bp
|
|
|
+400 bp
|
|
EVE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
$
|
130,059
|
|
|
$
|
96,663
|
|
|
$
|
113,343
|
|
|
$
|
113,273
|
|
|
$
|
107,526
|
|
|
$
|
99,346
|
|
|
$
|
90,970
|
|
Percent of Change
|
|
|
|
|
|
|
-14.7
|
%
|
|
|
|
|
|
|
-0.1
|
%
|
|
|
-5.1
|
%
|
|
|
-12.3
|
%
|
|
|
-19.7
|
%
|
|
|
|
|
|
|
|
|
EVE Ratio:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio
|
|
|
11.65
|
%
|
|
|
8.67
|
%
|
|
|
10.22
|
%
|
|
|
10.42
|
%
|
|
|
10.14
|
%
|
|
|
9.61
|
%
|
|
|
9.03
|
%
|
Change in basis points
|
|
|
|
|
|
|
-155
|
|
|
|
|
|
|
|
21
|
|
|
|
-7
|
|
|
|
-60
|
|
|
|
-119
|
|
Comparison of the Operating Results for the Nine Months Ended September 30, 2012 and September 30, 2011
Consolidated net income for the nine months ended September 30, 2012, was $6.1 million, or $0.94 per common share
(assuming dilution), compared to $6.0 million, or $0.96 per common share (assuming dilution), for the same period in 2011, an increase of $86 thousand, or 1.42%. Our net interest margin decreased to 2.90% at September 30, 2012, from 3.22% at
September 30, 2011. Our return on average assets and average equity for the nine months ended September 30, 2012, were 0.82% and 7.23%, respectively, compared to 0.88% and 7.91%, respectively, for the same period in 2011.
27
Net interest and dividend income increased $196 thousand, or 0.91%, to $21.7 million for the
nine month period ended September 30, 2012, from $21.5 million for the nine month period ended September 30, 2011, as a result of the increase in interest-earning assets offset by the overall decline in net interest margin.
For the nine months ended September 30, 2012, total interest and dividend income decreased $817 thousand, or 2.91%, to $27.3 million
from $28.1 million for the same period in 2011. Interest and fees on loans increased $256 thousand, or 1.08%, for the nine month period ended September 30, 2012, to $24.1 million from $23.8 million at September 30, 2011, due primarily to
increased portfolio balances offset by loans repricing. Interest on investments and other interest decreased $1.1 million, or 24.84%, for the nine month period ended September 30, 2012, due primarily to a decreased position in investments
coupled with lower yields on investments held comparing periods.
For the nine months ended September 30, 2012, total
interest expense decreased $1.0 million, or 15.31%, to $5.6 million from $6.6 million for the same period in 2011. Interest on deposits decreased $1.1 million, or 23.87%, due to the overall decline in short-term interest rates comparing periods as
well as a transition from time deposits to lower cost non-maturity deposits. Interest on advances and other borrowed money increased $40 thousand, or 1.82%, to $2.2 million from $2.2 million for the same period in 2011.
The provision for loan losses (not including overdraft allowances) was $2.2 million for the nine months ended September 30, 2012,
and $950 thousand for the same period in 2011. We made adjustments to the provisions for overdraft losses in the nine months ended September 30, 2012, and 2011, recording provisions of $61 thousand and $34 thousand, respectively. For additional
information on provisions and adequacy, please refer to the section on Allowances for Loan Losses.
For the nine months ended
September 30, 2012, total noninterest income increased $2.9 million, or 36.12%, to $10.8 million, from $8.0 million for the same period in 2011, as discussed below. The increase was primarily due to increases in net gains on sales of loans,
gains on sales and calls of securities, net, and insurance commission income.
For the nine month period ended
September 30, 2012:
|
|
|
Customer service fees
decreased $49 thousand, or 1.29%, to $3.8 million from $3.8 million for the nine months ended September 30, 2012.
This decrease includes an increase of $124 thousand in ATM-related income for the nine months ended September 30, 2012, compared to the same period in 2011 offset in part by decreases of $138 thousand in overdraft fees.
|
|
|
|
Net gain on sales of loans
increased $971 thousand, or 172.48%, compared to the same period in 2011, represented by an increase of $25.2 million
in loans sold into the secondary market, to $80.9 million for the nine months ended September 30, 2012, from $39.2 million for the nine months ended September 30, 2011.
|
|
|
|
Gain on sales and calls of securities, net
increased $1.2 million to $3.4 million for the nine months ended September 30, 2012, from $2.2
million for the nine months ended September 30, 2011. This reflects the recognition of gains on the sales of approximately $153.1 million of securities sold during the nine months ended September 30, 2012, compared to $78.4 million of
securities sold during the same period in 2011.
|
|
|
|
Gain
(loss) on sales of other real estate and property owned, net of write-down
changed $177 thousand to a loss of $150 thousand for the nine
months ended September 30, 2012, from a gain of $27 thousand for the nine months ended September 30, 2011. This reflects the recognition of $190 thousand write-down on a commercial real estate property owned during the nine months ended
September 30, 2012.
|
|
|
|
Rental income
increased $9 thousand, or 1.63%, to $560 thousand for the nine months ended September 30, 2012, from $551 thousand for the
nine months ended September 30, 2011. This reflects additional lease arrangements coupled with normal annual increases.
|
|
|
|
Income from equity interest in Charter Holding Corp.
decreased $161 thousand to $298 thousand for the nine months ended September 30, 2012,
from $459 thousand for the same period in 2011. During the nine months ended September 30, 2011, there was non-recurring revenue at Charter Holding Corp. coupled with non-recurring expenses for the same period in 2012 which accounts for the
majority of the change in revenue comparing periods.
|
|
|
|
Insurance commission income
increased $1.0 million to $1.0 million for the nine months ended September 30, 2012, compared to the same
period in 2011 due to commissions recorded related to McCrillis & Eldredge operations which were acquired during the fourth quarter of 2011.
|
|
|
|
Bank-owned life insurance income
increased $60 thousand to $374 thousand from $314 thousand for the nine months ended September 30, 2011,
which reflects the addition of $5.0 million Bank-owned life insurance during the first quarter of 2012.
|
For
the nine months ended September 30, 2012, total noninterest expenses increased $1.5 million, or 7.49%, to $21.5 million, from $20.0 million for the same period in 2011, discussed as follows. In summary, the increase was primarily due to
increases in salary and employee benefits and other expenses.
28
For the nine month period ended September 30, 2012:
|
|
|
Salaries and employee benefits
increased $628 thousand, or 5.97%, compared to the nine months ended September 30, 2011. Gross salaries and
benefits paid, which excludes the deferral of expenses associated with the origination of loans, increased $1.4 million, or 12.28%, from $11.4 million for the nine months ended September 30, 2011, to $12.8 million for the nine months ended
September 30, 2012. Salary expense increased $1.2 million, or 14.37%, reflecting ordinary cost-of-living adjustments and additional staffing primarily in the lending and compliance departments as well as the addition of staff related to
McCrillis & Eldredge which accounts for approximately 40% of the increase. The deferral of expenses in conjunction with the origination of loans increased $703 thousand, or 77.05%, to $1.6 million from $912 thousand for the same period in
2011 due to the increase in loan originations in 2012.
|
|
|
|
Occupancy and equipment
decreased $83 thousand, or 2.90 %, to $2.8 million compared to the same period in 2011.
|
|
|
|
Advertising and promotion
decreased $19 thousand, or 5.14%, to $350 thousand from $369 thousand for the same period in 2011. This includes a net
increase in print media expenses for the nine months ended September 30, 2012, compared to the same period in 2011, partially offset by decreases in radio and television media expenses.
|
|
|
|
Depositors insurance
decreased $7 thousand, or 1.14%%, to $603 thousand from $610 thousand for the same period in 2011 due primarily to
modifications made by the FDIC to the risk-based assessment model and calculation which resulted in lower assessment rates despite increase account balances.
|
|
|
|
Data processing and outside services
increased $85 thousand, or 11.14%, to $848 thousand compared to $763 thousand for the same period in 2011.
This primarily reflects increases in expenses associated with our core processing system.
|
|
|
|
Professional services
increased $111 thousand, or 13.74%, to $919 thousand compared to $808 thousand for the same period in 2011, reflecting an
increase in ordinary regulatory assessments and consulting fees related to the transaction to acquire The Nashua Bank.
|
|
|
|
ATM processing fees
increased $4 thousand, or 1.16%, to $367 thousand compared to $363 thousand for the same period in 2011.
|
|
|
|
Supplies
increased $28 thousand, or 11.16%, to $279 thousand compared to $251 thousand for the same period in 2011.
|
|
|
|
Mortgage servicing net of amortization of mortgage servicing rights
increased $224 thousand from a net benefit of $128 thousand for the nine
months ended September 30, 2011, to a net expense of $96 thousand in 2012 as amortization expense increased $195 thousand during 2012 while mortgage serving income remained relatively flat.
|
|
|
|
Other expenses
increased $530 thousand, or 14.59%, to $4.2 million for the nine months ended September 30, 2012, compared to $3.6 million
for the same period in 2011. This primarily reflects increases of holding company expenses of $318 thousand, non-performing assets and other real estate owned expenses of $150 thousand, and mortgage service impairment of $80 thousand.
|
Comparison of the Operating Results for the Three Months Ended September 30, 2012, and September 30, 2011
Consolidated net income for the three months ended September 30, 2012, was $2.0 million, or $0.32 per common share
(assuming dilution), compared to $2.0 million, or $0.31 per common share (assuming dilution), for the same period in 2011, an increase of $17 thousand, or 0.84%. Net interest and dividend income increased $97 thousand, or 1.36%, to $7.3 million for
the three month period ended September 30, 2012, from $7.2 million for the three month period ended September 30, 2011.
For the three months ended September 30, 2012, total interest and dividend income decreased $254 thousand, or 2.72%, to $9.1 million from $9.3 million for the same period in 2011. Interest and fees
on loans increased $358 thousand, or 4.51%, for the three month period ended September 30, 2012, to $8.3 million from $7.9 million for the same period in 2011 due to the increase in new loans booked offsetting the impact of lower market rates.
Interest on investments and other interest decreased $611 thousand, or 43.99%, for the three month period ended September 30, 2012, due primarily to reduced holdings and overall lower yields on the investment portfolio in the period during
2012.
For the three months ended September 30, 2012, total interest expense decreased $351 thousand, or 16.1%, to $1.8
million from $2.2 million for the same period in 2011. Interest on deposits decreased $394 thousand, or 26.86%, due to the overall decline in short-term interest rates coupled with a migration to lower cost deposits from time deposits comparing
periods. Interest on advances and other borrowed money increased $43 thousand, or 6.04%, to $755 thousand from $712 thousand for the same period in 2011.
The provision for loan losses (not including overdraft allowances) was $1.0 million for the three months ended September 30, 2012, and $550 thousand for the same period in 2011. We made adjustments
to the provisions for overdraft losses in the three months ended September 30, 2012, and 2011, recording provisions of $32 thousand and $24 thousand, respectively. For additional information on provisions and adequacy, please refer to the
section on Allowances for Loan Losses.
For the three months ended September 30, 2012, total noninterest income increased
$1.0 million, or 36.43%, to $3.9 million, from $2.9 million for the same period in 2011, as discussed below. In summary, the increase was primarily due to increases in net gains on sales of loans and insurance commission income.
29
For the three month period ended September 30, 2012:
|
|
|
Customer service fees
decreased $41 thousand, or 3.04%, to $1.3 million from $1.3 million for the three months ended September 30, 2012,
compared to the same period in 2011. This decrease includes a decrease of $59 thousand in overdraft fees for the three months ended September 30, 2012, compared to the same period in 2011.
|
|
|
|
Net gain on sales of loans
increased $645 thousand, or 484.96%, compared to the same period in 2011, represented by an increase of $26.4 million
in loans sold into the secondary market, to $39.3 million for the three months ended September 30, 2012, from $12.9 million for the three months ended September 30, 2011 coupled with higher valuations during the period in 2012.
|
|
|
|
Gain on sales and calls of securities, net
increased $162 thousand to $1.1 million for the three months ended September 30, 2012, from $929
thousand for the three months ended September 30, 2011. This reflects the recognition of gains on the sales of approximately $90.3 million of securities sold during the three months ended September 30, 2012, compared to $41.5 million of
securities sold during the same period in 2011.
|
|
|
|
Gain (loss) on sales of other real estate and property owned, net of write-down
decreased $18 thousand to no activity for the three months ended
September 30, 2012, from $18 thousand for the three months ended September 30, 2011.
|
|
|
|
Rental income
decreased $24 thousand, or 11.43%, to $186 thousand for the three months ended September 30, 2012, from $210 thousand for the
three months ended September 30, 2011. This reflects a reduction in safe deposit box rental income.
|
|
|
|
Income from equity interest in Charter Holding Corp.
decreased $52 thousand to $72 thousand for the three months ended September 30, 2012,
from $124 thousand for the same period in 2011. During the three months ended September 30, 2012, there was non-recurring expense at Charter Holding Corp. accounting for the majority of the change in revenue comparing periods.
|
|
|
|
Insurance commission income
increased $343 thousand to $343 thousand for the three months ended September 30, 2012, compared to the same
period in 2011 due to commissions recorded related to McCrillis & Eldredge operations, which were acquired during the fourth quarter of 2011.
|
|
|
|
Bank-owned life insurance income
increased $31 thousand to $141 thousand from $110 thousand for the three months ended September 30, 2011,
which reflects the addition of $5.0 million bank-owned life insurance during the first quarter of 2012.
|
For
the three months ended September 30, 2012, total noninterest expense increased $513 thousand, or 7.61%, to $7.3 million, from $6.8 million for the same period in 2011, discussed as follows. In summary, the increase was primarily due to
increases in depositors insurance and professional services.
For the three month period ended September 30, 2012:
|
|
|
Salaries and employee benefits
increased $3 thousand, or 0.08%, compared to the three months ended September 30, 2011. Gross salaries and
benefits paid, which exclude the deferral of expenses associated with the origination of loans, increased $283 thousand, or 7.08%, from $4.0 million for the three months ended September 30, 2011, to $4.3 million for the three months ended
September 30, 2012. Salary expense increased $340 thousand, or 12.16%, reflecting ordinary cost-of-living adjustments and additional staffing primarily in the lending and compliance departments as well as the addition of staff related to
McCrillis & Eldredge which accounts for approximately 45% of the increase. The deferral of expenses in conjunction with the origination of loans increased $280 thousand, or 92.39%, to $583 thousand from $303 thousand for the same period in
2011 due to the increase in loan originations in 2012.
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Occupancy and equipment
decreased $5 thousand, or 0.57 %, to $876 thousand compared to the same period in 2011.
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Advertising and promotion
decreased $15 thousand, or 13.51%, to $96 thousand from $111 thousand for the same period in 2011. This includes
decreases of $9 thousand in radio media expenses and $11 thousand in print media expenses offset by increases in web media expenses and production expenses.
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Depositors insurance
increased $231 thousand to $204 thousand from a benefit of $27 thousand for the same period in 2011 due primarily to
a non-recurring adjustment during the period in 2011 as a result of changes by the FDIC to the risk-based assessment model and calculation which resulted in lower assessment rates.
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Data processing and outside services
increased $35 thousand, or 13.16%, to $301 thousand compared to $266 thousand for the same period in 2011.
This primarily reflects increases in expenses associated with our core processing system and collection expenses partially offset by decreases in correspondent services.
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Professional services
increased $174 thousand, or 75.65%, to $404 thousand from $230 thousand for the same period in 2011, reflecting an
increase in ordinary regulatory assessments and consulting fees related to the transaction to acquire The Nashua Bank.
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ATM processing fees
increased $23 thousand, or 21.50%, to $130 thousand compared to $107 thousand for the same period in 2011.
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Supplies
increased $8 thousand, or 9.41%, to $93 thousand compared to $85 thousand for the same period in 2011.
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30
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Mortgage servicing net of amortization of mortgage servicing rights
increased $117 thousand from a net benefit of $67 thousand for the three
months ended September 30, 2011, to a net expense of $50 thousand in 2012 as amortization expense increased $88 thousand during 2012 while mortgage serving income decreased $30 thousand.
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Other expenses
decreased $58 thousand, or 3.93%, to $1.4 million for the three months ended September 30, 2012, compared to $1.5 million
for the same period in 2011. This primarily reflects increases of stockholder expenses of $133 thousand offset by decreases in non-performing assets and other real estate owned expenses of $19 thousand and mortgage service impairment of $229
thousand.
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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 nine months at LIBOR plus 2.79% (Capital Securities II). Trust II also issued common securities to us and used the net proceeds from the offering to purchase a like amount of our Junior Subordinated Deferrable Interest Debentures
(Debentures II). Debentures II are the sole assets of Trust II. Total expenses associated with the offering of $160 thousand 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 $10.00 per capital
security. We have 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. We have 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 and used the net proceeds from the offering to purchase a like amount of our 6.06% Junior
Subordinated Deferrable Interest Debentures (Debentures III). Debentures III are the sole assets of Trust III. Total expenses associated with the offering of $160 thousand 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. We have 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.
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. We have 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, we entered into an interest rate swap agreement with PNC Bank, effective on September 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 September 17, 2013. Under the swap agreement, we are
to receive quarterly interest payments at a floating rate based on three month LIBOR and are obligated to make quarterly interest payments at a fixed-rate of 6.65%.
Off Balance Sheet Arrangements
We do not have any off-balance sheet
arrangements that have or are reasonably likely to have a current or future effect on our 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 our President and Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our 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, our 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
31
in the reports we file and submit under the Exchange Act is (i) recorded, processed, summarized and reported as and when required and (ii) accumulated and communicated to our
management, including our 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 our internal control over financial reporting identified in connection with the evaluation that occurred during our last fiscal quarter that has materially affected, or that
is reasonably likely to materially affect, our internal control over financial reporting.
PART
II. OTHER INFORMATION
Item 1. Legal Proceedings
There is no material litigation pending to which we or any of our subsidiaries are a party or to which our property or the property any of
our subsidiaries is subject, other than ordinary routine litigation incidental to our business.
Item 1A.
Risk Factors
Our operations involve various risks that could have adverse consequences, including those described below
and in Part I, Item 1A, Risk Factors of our 2011 Annual Report on Form 10-K.
The merger with TNB is subject to the
receipt of consents and approvals from governmental entities that may delay the date of completion of the merger or impose conditions that could have an adverse effect on us.
Before the merger may be completed, various approvals, consents or waivers must be obtained from state and federal governmental
authorities, including the OCC and the State of New Hampshire Banking Department. Satisfying the requirements of these governmental entities may delay the date of completion of the merger. In addition, these governmental entities may include
conditions on the completion of the merger or require changes to the terms of the merger. While we and TNB do not currently expect that any such conditions or changes would result in a material adverse effect on us, there can be no assurance that
they will not, and such conditions or changes could have the effect of delaying completion of the merger or imposing additional costs on or limiting our revenues following the merger, any of which might have a material adverse effect on us following
the merger. The parties are not obligated to complete the merger should any regulatory approval contain a non-customary condition that materially alters the benefit to which we bargained for in the merger agreement.
The failure to successfully integrate TNBs business and operations in the expected time frame may adversely affect our future results.
The success of the merger will depend, in part, on the combined companys ability to realize the anticipated
benefits from combining the business of TNB with our business. However, to realize these anticipated benefits, the businesses must be successfully combined. If the combined company is not able to achieve these objectives, the anticipated benefits of
the merger may not be realized fully or at all or may take longer to realize than expected.
We and TNB have operated and,
until the completion of the merger, will continue to operate independently. It is possible that the integration process could result in the loss of key employees, as well as the disruption of each companys ongoing businesses or inconsistencies
in standards, controls, procedures and policies, any or all of which could adversely affect our ability to maintain relationships with clients, customers, depositors and employees after the merger or to achieve the anticipated benefits of the
merger. Integration efforts between the two companies will also divert management attention and resources. These integration matters could have an adverse effect on our Company.
Failure to complete the merger could negatively impact our stock prices and future businesses and financial results.
If the merger is not completed, our ongoing business may be adversely affected and we will be subject to several risks, including the following:
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we will be required to pay certain costs relating to the merger, whether or not the merger is completed, such as legal, accounting, financial advisor
and printing fees; and
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matters relating to the merger may require substantial commitments of time and resources by our management, which could otherwise have been devoted to
other opportunities that may have been beneficial to us as independent company.
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In addition, if the merger
is not completed, we may experience negative reactions from the financial markets and from our customers and employees. We also could be subject to litigation related to any failure to complete the merger or to enforcement proceedings commenced
against us or TNB to perform our respective obligations under the merger agreement. If the merger is not completed, we cannot assure our stockholders that the risks described above will not materialize and will not materially affect our business,
financial results and stock prices.
32
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not
applicable.
Item 5. Other Information
None.
Item 6. Exhibits
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.
33
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 on November 13,
2012.
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NEW HAMPSHIRE THRIFT BANCSHARES, INC.
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(Registrant)
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/s/ Stephen R. Theroux
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Stephen R. Theroux
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President and Chief Executive Officer
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(Principal Executive Officer)
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/s/ Laura Jacobi
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Laura Jacobi
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Senior Vice President, Chief Financial Officer and Chief Accounting Officer
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(Principal Financial and Accounting Officer)
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34
EXHIBIT INDEX
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Exhibit
No.
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Description
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2.1
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Agreement and Plan of Merger by and between, New Hampshire Thrift Bancshares, Inc. and The Nashua Bank, dated August 1, 2012 (filed as Exhibit 2.1 to the Companys Current
Report on Form 8-K, filed with the Commission on August 7, 2012, and incorporated herein by reference)
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3.1
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Certificate of Incorporation of the Company, as amended (filed as Exhibit 3.1.1 to the Companys 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).
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3.2
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Certificate of Designations establishing the rights of the Companys Fixed Rate Cumulative Perpetual Preferred Stock, Series A (filed as Exhibit 3.1 to the Companys
Current Report on Form 8-K filed with the Commission on January 22, 2009, and incorporated herein by reference).
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3.3
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Certificate of Designations establishing the rights of the Companys Non-Cumulative Perpetual Preferred Stock, Series B (filed as Exhibit 3.1 to the Companys Current
Report on Form 8-K filed with the Commission on August 29, 2011, and incorporated herein by reference).
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3.4
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Amended and Restated Bylaws of NHTB (as amended) (filed as Exhibit 3.2 to the Companys 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).
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4.1
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Stock Certificate (filed as an exhibit to the Companys Registration Statement on Form S-4 filed with the Commission on March 1, 1989, and incorporated herein by
reference).
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4.2
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Indenture by and between the Company, 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 the Companys 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).
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4.3
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Form of Floating Rate Junior Subordinated Deferrable Interest Debentures issued by the Company to U.S. Bank National Association dated March 30, 2004 (filed as Exhibit A to
Exhibit 4.2 to the Companys 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).
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4.4
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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 the Companys 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).
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4.5
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Form of Fixed/Floating Rate Junior Subordinated Deferrable Interest Debentures issued by the Company to U.S. Bank National Association dated March 30, 2004 (filed as Exhibit A
to Exhibit 4.4 to the Companys 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).
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31.1 *
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Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer.
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31.2 *
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Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer.
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32.1 *
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Section 1350 Certification of the Chief Executive Officer.
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32.2 *
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Section 1350 Certification of the Chief Financial Officer.
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101 **
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Financial statements from the Companys quarterly report on Form 10-Q for the quarter ended September 30, 2012, 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 Comprehensive Income, (iv) the Condensed Consolidated Statements of Cash Flows and (v) Notes to
Condensed Consolidated Financial Statements.
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**
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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.
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35
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