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NHTB > SEC Filings for NHTB > Form 10-Q on 14-May-2013All Recent SEC Filings

Show all filings for NEW HAMPSHIRE THRIFT BANCSHARES INC | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for NEW HAMPSHIRE THRIFT BANCSHARES INC


14-May-2013

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operation

Highlights and Overview

Our profitability is derived primarily from the Bank. The Bank's 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 three months ended March 31, 2013:

total assets were $1.2 billion at March 31, 2013, from $1.3 billion at December 31, 2012, a decrease of $39.3 million, or 3.09%;

net loans were $900.1 million at March 31, 2013, from $902.2 million at December 31, 2012, a decrease of $2.1 million, or 0.23%;

during the three month period ended March 31, 2013, we originated $77.7 million in loans, compared to $72.7 million for the same period in 2012, an increase of $5.0 million, or 6.81%;

our loan servicing portfolio was $395.4 million at March 31, 2013, compared to $385.4 million at December 31, 2012;

total deposits were $912.4 million at March 31, 2013, from $949.3 million at December 31, 2012, a decrease of $36.9 million, or 3.89%;

net interest and dividend income for the three month period ended March 31, 2013, was $8.2 million compared to $7.1 million for the same period in 2012, an increase of $1.0 million, or 14.66%;

net income available to common stockholders was $1.9 million for the three month period ended March 31, 2013, compared to $1.8 million for the same period in 2012; and

as a percentage of total loans, non-performing loans decreased to 2.00% at March 31, 2013, from 2.22% at December 31, 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 Mergers

On February 15, 2013, the Bank entered into a purchase and sale agreement with Meredith Village Savings Bank ("MVSB"), pursuant to which the Bank will acquire all of the shares of common stock of Charter Holding Corp. ("Charter") held by MVSB for a total purchase price of $6.2 million in cash or its equivalent. As of the date hereof, each of the Bank and MVSB own 50% of Charter's outstanding shares of common stock; upon completion of the transaction the Bank will own all of the outstanding shares of Charter and Charter will become a wholly owned subsidiary of the Bank. Completion of the transaction is subject to closing conditions, including the receipt of all regulatory approvals by the Bank and the satisfactory completion of purchase accounting valuations by an independent third party. The transaction is expected to close at the end of the second quarter or beginning of the third quarter of 2013.

On April 3, 2013, the Company and CFC jointly announced that they entered into a definitive agreement pursuant to which the Company will acquire CFC in an all-stock transaction. The transaction, approved by the boards of directors of both companies, is valued at approximately $14.4 million or approximately $115.00 per share of CFC common stock, based on the 10-day average closing price of our common stock for the period ended April 2, 2013. The terms of the agreement call for each outstanding share of CFC common stock to be converted into the right to receive 8.699 shares of our common stock. Following the merger, CFC's wholly owned subsidiary, The Randolph National Bank, will be merged with and into the Bank, with the Bank surviving. Completion of the transaction is subject to customary closing conditions, including the receipt of regulatory approval and the approval of CFC's shareholders. The transaction is expected to close in the third quarter of 2013.

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 our consolidated 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.


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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. There have been no material changes to our critical accounting policies during the three months ended March 31, 2013. 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 2012 Annual Report on Form 10-K.

Financial Condition and Results of Operations

Comparison of Financial Condition at March 31, 2013 and December 31, 2012

Total assets were $1.2 billion at March 31, 2013, compared to $1.3 billion at December 31, 2012, a decrease of $39.3 million, or 3.09%. Securities available-for-sale decreased $18.5 million, or 8.72%, to $193.9 million at March 31, 2013, from $212.4 million at December 31, 2012. Net unrealized gains on securities available-for-sale were $1.4 million at March 31, 2013, compared to net unrealized gains of $2.0 million at December 31, 2012. During the three months ended March 31, 2013, we sold securities with a total book value of $18.5 million for a net gain on sales of $167 thousand. During the same period, we purchased a $740 thousand municipal bond. Our net unrealized gain (after tax) on our investment portfolio was $875 thousand at March 31, 2013, compared to an unrealized gain (after tax) of $1.2 million at December 31, 2012. The investments in the Company's investment portfolio that are temporarily impaired as of March 31, 2013, consist of U.S. Treasury notes, mortgage-backed securities issued by U.S. government sponsored enterprises, municipal bonds, 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

Net loans held in portfolio decreased $2.1 million, or 0.23%, to $900.1 million at March 31, 2013, from $902.2 million at December 31, 2012. The allowance for loan losses decreased $154 thousand to $9.8 million at March 31, 2013, from $9.9 million at December 31, 2012. The change in the allowance for loan losses is the net of the effect of provisions of $400 thousand, charge-offs of $734 thousand, and recoveries of $180 thousand. As a percentage of total loans, non-performing loans decreased from 2.22% at December 31, 2012, to 2.00% at March 31, 2013. During the three month period ended March 31, 2013, the Company originated $77.7 million in loans, compared to $72.7 million for the same period in 2012, an increase of $5.0 million, or 6.81%. The decrease of loans held in portfolio was primarily due to decreases in commercial real estate loans of $5.5 million and land and constructions loans of $3.0 million offset in part by increases in conventional real estate loans of $6.7 million and commercial loans of $1.7 million. At March 31, 2013, our mortgage servicing loan portfolio was $395.4 million compared to $385.4 million at December 31, 2012. 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 March 31, 2013, adjustable-rate mortgages comprised approximately 64.0% of our real estate mortgage loan portfolio, which is consistent with the mix at December 31, 2012.

Goodwill and other intangible assets amounted to $38.7 million, or 3.14% of total assets, as of March 31, 2013, compared to $38.8 million, or 3.05% of total assets, as of December 31, 2012. The decrease was due to normal amortization of core deposit intangible and customer list assets.

We held $102 thousand, representing a single property, of other real estate owned ("OREO") and property acquired in settlement of loans at March 31, 2013, and December 31, 2012.

Total deposits decreased $36.9 million, or 3.89%, to $912.4 million at March 31, 2013, from $949.3 million at December 31, 2012. Non-interest bearing deposit accounts decreased $4.3 million, or 5.86%, and interest-bearing deposit accounts decreased $32.6 million, or 3.72%, over the same period. The balances at March 31, 2013, included $21.8 million of brokered deposits, which is a decrease of $3.2 million compared to December 31, 2012, and $7.0 million of deposits obtained through listing services, which is unchanged compared to December 31, 2012.

Securities sold under agreements to repurchase increased $4.7 million, or 32.05%, to $19.3 million at March 31, 2013, from $14.6 million at December 31, 2012. Repurchase agreements are collateralized by some of our U.S. government and agency investment securities.

We maintained balances of $132.2 million in advances from the FHLB at March 31, 2013, a decrease of $10.5 million from $142.7 million at December 31, 2012.

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


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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 management's 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 loan's 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 March 31, 2013 was 9.8 million and at December 31, 2012, was $9.9 million. At approximately $9.8 million, the allowance for loan losses represents 1.08% of total loans, no change from December 31, 2012. Total non-performing assets at March 31, 2013, were approximately $11 million, representing 112.80% of the allowance for loan losses. Modestly improving economic and market conditions, coupled with internal risk rating changes, resulted in us adding $400 thousand to the allowance for loan and lease losses during the three months ended March 31, 2013, compared to $150 thousand for the same period in 2012. Loan charge-offs (excluding the overdraft program) were $734 thousand during the three month period ended March 31, 2013, compared to $379 thousand for the same period in 2012. Recoveries were $180 thousand during the three month period ended March 31, 2013, compared to $74 thousand for the same period in 2012. This activity resulted in net charge-offs of $554 thousand for the three month period ended March 31, 2013, compared to $305 thousand for the same period in 2012. One-to-four family residential mortgages, commercial real estate, commercial, and consumer loans accounted for 30%, 53%, 14%, and 3%, respectively, of the amounts charged-off during the three month period ended March 31, 2013.

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 2013 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 2013 to maintain the allowance at an adequate level.

In addition to the allowance for loan losses, there is an allowance for losses from the fee for service overdraft program. 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 March 31, 2013, the overdraft allowance was $15 thousand, compared to $14 thousand at year-end 2012. Provisions for overdraft losses in the amount of $14 thousand were recorded during the three month period ended March 31, 2013, compared to provisions of $5 thousand that were recorded for the same period during 2012. 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.


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The following is a summary of activity in the allowance for loan losses account (excluding overdraft allowances) for the three month period ended March 31:

                                                                                                March 31,
(Dollars in thousands)                                      March 31, 2013                        2012
                                               Originated         Acquired        Total           Total
Balance, beginning of year                    $      9,909       $       -       $ 9,909       $     9,113

Charge-offs:
Residential real estate                               (219 )             -          (219 )             (31 )
Commercial real estate                                (389 )             -          (389 )            (116 )
Land and construction                                   -                -            -                 -
Consumer loans                                         (20 )             -           (20 )              (3 )
Commercial loans                                      (106 )             -          (106 )            (229 )

Total charged-off loans                               (734 )             -          (734 )            (379 )

Recoveries
Residential real estate                                178               -           178                57
Commercial real estate                                  -                -            -                  7
Land and construction                                   -                -            -                  1
Consumer loans                                           1               -             1                 4
Commercial loans                                         1               -             1                 5

Total recoveries                                       180               -           180                74

Net charge-offs                                       (554 )             -          (554 )            (305 )
Provision for loan loss charged to income:
Residential real estate                                201               -           201                98
Commercial real estate                                 143               -           143                33
Land and construction                                    6               -             6                 3
Consumer loans                                           2               -             2                 1
Commercial loans                                        48               -            48                15

Total provision                                        400               -           400               150

Ending balance                                $      9,755       $       -       $ 9,755       $     8,958

The following is a summary of activity in the allowance for overdraft privilege account for the three month periods ended March 31:

                     (Dollars in thousands)     2013       2012
                     Beginning balance          $  14      $  18

                     Overdraft charge-offs        (65 )      (62 )
                     Overdraft recoveries          52         51

                     Net overdraft losses         (13 )      (11 )

                     Provision for overdrafts      14          5

                     Ending balance             $  15      $  12

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)                               March 31, 2013                      December 31, 2012
Real estate loans
Residential, 1-4 family and home equity
loans                                        $ 4,704           48 %       62 %    $ 5,073           52 %       62 %
Commercial                                     3,352           35 %       25 %      3,305           33 %       26 %
Land and construction                            145            1 %        2 %        208            2 %        2 %
Collateral and consumer loans                     55            1 %        1 %         44           -           1 %
Commercial and municipal loans                 1,111           11 %       10 %        918            9 %        9 %
Impaired loans                                   388            4 %       -           361            4 %       -

Allowance                                    $ 9,755          100 %      100 %    $ 9,909          100 %      100 %

Allowance as a percentage of total loans                     1.08 %                               1.08 %
Non-performing loans as a percentage of
allowance                                                  189.11 %                             204.74 %


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The following table shows total allowances including overdraft allowances:

    (Dollars in thousands)                 March 31, 2013       December 31, 2012
    Allowance for loan and lease losses   $          9,755     $             9,909
    Overdraft allowance                                 15                      14

    Total allowance                       $          9,770     $             9,923

Classified loans include non-performing loans and performing loans that have been adversely classified, net of specific reserves. Total classified loans were $23.9 million at March 31, 2013, compared to $25.9 million at December 31, 2012. In addition, we had OREO at March 31, 2013, and December 31, 2012, of $102 thousand. During the three month period ended March 31, 2013, there was no other OREO activity. Losses have occurred 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. Thirteen loans considered to be impaired loans at March 31, 2013, have specific allowances identified and assigned. The five loans are secured by real estate, business assets or a combination of both. At March 31, 2013, the allowance included $387 thousand allocated to impaired loans. The portion of the allowance allocated to impaired loans at December 31, 2012, was $361 thousand.

At March 31, 2013, we had 61 loans totaling $12.2 million considered to be "troubled debt restructurings" as defined in ASC 310-40, "Receivables-Troubled Debt Restructurings by Creditors," included in impaired loans. At March 31, 2013, 44 of the "troubled debt restructurings" were performing under contractual terms. Of the loans classified as troubled debt restructured, 16 were more than 30 days past due at March 31, 2013. The balances of these past due loans were $3.6 million. At December 31, 2012, we had 65 loans totaling $13.1 million considered to be "troubled debt restructurings."

Loans over 90 days past due were $3.3 million at March 31, 2013, compared to $3.2 million at December 31, 2012. Loans 30 to 89 days past due were $6.2 million at March 31, 2013, compared to $10.1 million at December 31, 2012. As a percentage of assets, the recorded investment in non-performing loans decreased from 1.60% at December 31, 2012, to 1.50% at March 31, 2013, and, as a percentage of total loans, decreased from 2.21% at December 31, 2012, to 2.02% at March 31, 2013.

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 March 31, 2013, 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 March 31, 2013, 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 amount of non-performing assets and non-performing assets as a percentage of the total allowance and total assets for the periods indicated:

                                                          March 31, 2013                                December 31, 2012
                                                          Percentage       Percentage                     Percentage       Percentage
                                                           of Total         of Total                       of Total         of Total
(Dollars in thousands)                       Value        Allowance          Assets          Value        Allowance          Assets
Non-accrual loans (1)                       $ 10,902           111.76 %           0.89 %    $ 17,001           171.57 %           1.34 %
Other real estate owned and chattel              102             1.05 %           0.01 %         102             1.03 %           0.01 %

Total non-performing assets                 $ 11,004           112.80 %           0.89 %    $ 17,103           172.60 %           1.35 %

(1) All loans 90 days or more delinquent are placed on non-accruing status.


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The following table sets forth the recorded investment in nonaccrual loans by category at the dates indicated:

          (Dollars in thousands)     March 31, 2013       December 31, 2012
          Real estate:
          Conventional               $         3,785     $             6,250
          Commercial                           6,434                   9,304
          Home equity                             41                     158
          Land and construction                  200                     887
          Consumer                                -                       -
          Commercial and municipal               442                     402

          Total                      $        10,902     $            17,001

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 March 31, 2013, our liquidity was sufficient to cover our anticipated needs for funding new loan commitments of approximately $47.9 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 March 31, 2013, we had approximately $160.7 million in additional borrowing capacity from the FHLB.

At March 31, 2013, stockholders' equity totaled $130.3 million, compared to $129.5 million at December 31, 2012. This reflects net income of $2.1 million, the declaration and payment of $893 thousand in common stock dividends, the declaration of $141 thousand in preferred stock dividends, and an increase of $251 thousand in accumulated other comprehensive loss.

At March 31, 2013, 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 . . .

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