Item 1. DESCRIPTION OF BUSINESS
General
The Company. Home Port Bancorp, Inc. (the "Company") was incorporated under the laws of the State of Delaware on November 12, 1987 for the purpose of becoming a holding company. On August 30, 1988, the Company acquired all of the common stock of Nantucket Bank (the "Bank" or "Nantucket Bank") following the Bank's conversion from a Massachusetts chartered mutual savings bank to a Massachusetts chartered stock savings bank. The Company is currently a single bank holding company registered under the Federal Bank Holding Company Act. As of December 31, 1998, the assets of the Company on an unconsolidated basis consisted principally of the capital stock of the Bank. The Company is subject to the regulations of, and periodic examinations by, the Federal Reserve Bank, the Commissioner of Banks of the Commonwealth of Massachusetts (the "Commissioner") and the Federal Deposit Insurance Corporation ("FDIC"). The Company's banking activities are conducted solely in Nantucket through its subsidiary, Nantucket Bank.
The Bank. The Bank is a Massachusetts chartered savings bank, organized in 1834. The Bank conducts its business through two full-service offices and one automated teller facility, all of which are located on the island of Nantucket, Massachusetts. The Bank's deposits are insured by the Bank Insurance Fund of the FDIC up to $100,000 per account and the Depositors Insurance Fund, a private deposit insuring company, for deposits in excess of $100,000. The Bank is subject to competition from other financial institutions. The Bank is subject to the regulations of, and periodic examinations by, the FDIC and the Massachusetts Division of Banks.
The Bank provides a full range of banking services to individual and corporate customers on the island of Nantucket. The Bank's primary services consist of attracting deposits from consumers and businesses on Nantucket and originating loans on Nantucket real estate, including both residential and commercial properties. Due to the seasonal tourist-related economy on Nantucket, the Bank's deposits generally peak during the summer months. The Bank's real estate lending business is generally not impacted by the seasonal economy. The Bank also grants commercial business loans and consumer loans. Commercial business loans normally peak in the spring, as merchants borrow to finance inventory and other purchases in advance of the tourist season. The Bank routinely sells loans in the secondary market, normally retaining the servicing rights. The Bank invests a portion of its funds in money market instruments, federal government and agency securities and corporate bonds. The Bank utilizes the Federal Home Loan Bank of Boston ("FHLB") as an additional source of funds.
The Nantucket Real Estate Market. The Nantucket real estate market has improved substantially over the past several years, after experiencing a severe downturn during the early 1990's. Total real estate sales on Nantucket totaled $401 million in 1998, a sizable increase from the $318 million recorded in 1997. During 1998, median price of a home on Nantucket was $450,000, an increase of 13% from the $400,000 median price in 1997. Since 1995 the median home price on Nantucket sold has increased by 55%. In 1998 there were 66 recorded sales of properties exceeding $1 million, compared to 52 in 1997.
Deterioration in the local or national economies could have a negative impact on the Nantucket real estate market. A downturn in the Nantucket real estate market could result in an increase in loan delinquencies for the Bank, which could have a negative effect on the Company's results of operations due to the possibility of additional loan loss provisions and reduced interest income.
Lending Activities
Residential Real Estate Lending. The Bank makes conventional mortgage loans to single family residential properties with original loan-to-value ratios up to 80% of the appraised value of the property securing the loan. These residential properties serve as the primary or secondary homes of the borrowers. The Bank also originates loans on one to four family dwellings and loans for the construction of residential housing for owner occupying borrowers, also with original loan-to-value ratios up to 80% of the property's appraised value.
Residential mortgage loans made by the Bank have traditionally been long-term loans made for periods of up to 30 years at either fixed or adjustable rates of interest. It has generally been the Bank's policy to sell most of its longer term (greater than 10 years) fixed rate loans and a portion of its adjustable rate loans, while retaining the servicing rights. The Bank's Asset/Liability Committee ("ALCO"), which is comprised of the Bank's senior management and certain other officers, reviews this policy from time to time as part of the Bank's overall asset/liability management program.
The majority of long-term fixed rate loans are originated using underwriting standards and standard documentation allowing their sale to FHLMC. The Bank also offers jumbo fixed and variable rate mortgages. The underwriting standards for jumbo loans are similar to those used for non-jumbo mortgages. The Bank sells a portion of its jumbo mortgages.
The majority of the Bank's loan originations are adjustable rate residential mortgage loans. The interest rate on these loans may either adjust on an annual basis, or feature an initial period, generally three to ten years, during which the interest rate is fixed. Generally, interest rates adjust on an annual basis after any initial fixed rate term. During 1999, most adjustable rate loan originations featured an initial fixed rate term. Adjustable rate loans may have limitations on the amount of the adjustment of 2.0% per adjustment and 6.0% over the life of the loan, and on the periods within which the adjustments may be made. Rate adjustments on residential mortgage loans are generally tied to the weekly average yield on U.S. Treasury securities adjusted to constant maturities of one year. Despite the benefits of adjustable rate mortgage loans to the Bank's asset/liability management program, they do pose potential additional risks, primarily because as interest rates rise, the underlying payments by the borrowers rise, increasing the potential for default, while at the same time the marketability of the underlying property may be adversely affected by higher interest rates. The history of the one year Treasury bill index, as of the last business day of each year for the last three years, shows that this index has fluctuated from 5.47% in 1996 to 5.53% in 1997 and 4.52% in 1998.
The Bank may at times offer adjustable rate mortgage loans with an initial discount, as is customary in the marketplace. This pricing decision is based on management's decision to remain competitive while at the same time assuring prudent underwriting guidelines. In this respect, the Bank underwrites loans as if fully indexed, or within maximum limitations established in secondary market guidelines, with a view toward minimizing potential losses resulting from increased costs to the borrowers.
Construction loans on residential properties are made to individuals for the construction of their primary or secondary homes. Construction loans are made for up to 80% of the appraised value of the property upon completion. Construction loan funds are periodically disbursed as pre-specified stages of construction are attained. Residential construction loans, which are typically made for a period of 30 years, require monthly interest payments during construction and begin to amortize after the construction phase has been completed, at which time they automatically convert into permanent mortgage loans.
Under a program that has been in existence since 1993, the Bank offers loans on one to four family primary dwellings for first time home buyers with original loan to value ratios up to 90%. These loans are made for periods up to 30 years for existing dwellings and up to 31 years for the construction of a primary dwelling.
Commercial Real Estate Lending. The Bank originates permanent and construction loans on commercial real estate. These loans mainly consist of mortgages primarily on investment properties and properties utilized by retail and small service businesses such as restaurants, guest houses and various retailers. The Bank lends for speculative real estate construction activities on a limited basis and closely monitors these loans. At December 31, 1998, such loans accounted for $6.4 million, or 2.9%, of the total loan portfolio (excluding loans held for sale).
The Bank's current policy limits commercial real estate loans (including both permanent and construction) to 30% of the total loan portfolio. At December 31, 1998 commercial real estate loans totaled 20.6% of the Bank's loan portfolio (including loans held for sale) as compared to 21.8% at the end of 1997.
During 1997 and 1998 most commercial real estate loans were granted for up to 75% of the appraised value of the property. Most of these loans were for terms from 6 months to 20 years at interest rates adjustable from one to three year periods at the Bank's sole discretion, or to a specific spread over the prime rate published in the Wall Street Journal. This policy has enabled the Bank to adjust the interest rate yield on the commercial real estate portfolio to compensate for changes in costs of funds, credit risk and balance relationships maintained by the borrowers. The periodic adjustable rate feature of this portfolio can enhance the Bank's liquidity by sale of these loans to participants when deemed advisable. Protection of the Bank's interest in the real estate collateral is covered by use of title, fire, casualty and flood insurance in applicable amounts.
Commercial real estate lending may entail significant additional risks compared to residential mortgage lending. Loan size typically may be larger. Payment experience on such loans can be more easily influenced by adverse conditions in the economy or in the real estate market. Construction financing involves a higher degree of risk of loss than long term financing on improved occupied real estate. Property values at completion of construction or development can be influenced by underestimation of construction costs. The Bank may be required to advance funds beyond the original commitment in order to finish the development. If projected cash flows or value of the property proves to be inaccurate because of unanticipated construction costs or lower than expected sales volume, the project may have a value that is insufficient to assure full repayment.
Construction loans on commercial properties are extended to individuals, unincorporated small business borrowers or to their companies, partnerships, trusts or other business entities formed to hold title to the business property. Such loans are made for periods up to 21 years with interest only during the construction period (usually nine to twelve months) and regular amortization thereafter. Funds are disbursed as prespecified stages of construction are completed.
Commercial Business Loans. The Bank offers a wide variety of commercial loan services, including short and long-term business loans, lines of credit and letters of credit. The principal market for these loans is small to medium size businesses in Nantucket. Most commercial business loans are written generally for terms of 30 to 180 days or under one year as a line of credit. Longer-term commercial business loans are granted up to five years and are subject to daily or monthly rate adjustments based on the prime rate as published in the Wall Street Journal. These interest rate sensitive loans allow the Bank to maintain an interest rate spread over its cost of funds. The interest rate paid by individual customers over the base rate is determined by the lenders and Bank management after consideration of the degree of credit risk, term of the loan, the borrower's overall relationships, the size of the loan and other pertinent criteria. These loans may be advanced on an unsecured basis or may be secured by real estate, inventory or other business assets. Loans to commercial businesses may entail significant additional risks compared to residential mortgage lending. These loans are subject to changes in the local and regional economy as well as changes in particular industries and lines of business. Analyzing the unique factors and risks affecting each business requires expertise and experience which is different from that needed for loans secured by real estate. Frequently, the arrangement involves both business services and consumer products, particularly residential real estate loans.
Consumer Lending. The Bank offers a variety of consumer loans, including second mortgage loans, home equity loans, automobile loans, secured and unsecured personal loans and boat loans. These loans are made at both fixed and adjustable rates of interest. They vary in terms depending on the type of the loan. Second mortgage loans have terms of up to 15 years, and provide for annual interest rate adjustments, while other consumer loans have shorter terms and/or fixed rates of interest.
Loan Solicitation and Processing. Loan originations come from a number of sources. Most real estate loans are attributable to referrals from existing customers, real estate brokers and builders as well as walk-in customers and depositors. Commercial business loan originations are generally obtained through officer calls, existing customers and business relationships and referrals. Consumer loans generally result from existing depositors.
Each loan originated by the Bank is underwritten by personnel of the Bank, with individual lending officers, a committee of loan officers and the Bank's Executive Committee having the authority to approve loans up to various limits. Independent appraisers are used to appraise the property intended to secure real estate loans. The Bank's underwriting criteria are designed to minimize the risks of each loan. There are detailed guidelines concerning the types of loans that may be made, the nature of the collateral required, the information that must be obtained concerning the loan applicant and follow-up inspections of collateral after the loan is made.
Income from Lending Activities. Interest rates charged by the Bank on its loans are determined by market interest rates, the Bank's strategic plans and goals, the availability of funds to lend, the demand for loans and competitive loan rates offered in its lending area.
In addition to interest earned on loans, the Bank receives loan origination fees for originating real estate loans. Loan origination fees are a percentage of the principal amount of the loan and are charged to the borrower for the creation of the loan. Currently, the Bank generally charges fees of up to 1% on permanent residential mortgage loans (2% is charged on certain residential loans), 1/2% to 1% on residential construction loans and 1% to 1 1/2% on commercial real estate loans. For accounting purposes, the Bank defers loan origination fees net of direct underwriting costs and amortizes the balance over the life of the loans. On loans written at a discounted initial rate, net origination fees are amortized over the period of discount. The Bank also receives other fees and charges relating to loans, which include loan application fees, late payment charges and fees collected in connection with loan modifications. These fees and charges do not constitute a material source of income for the Bank.
Investment Activities
Interest income from short-term investments (consisting of federal funds sold and interest bearing deposits in banks) and securities held to maturity and available for sale provides an additional significant source of income for the Bank. The Bank's securities portfolio consists mainly of United States Government and agency obligations, short-term corporate bonds, notes and debentures and state and municipal obligations and a portfolio of approximately $8.2 million of mortgage backed securities, collateralized mortgage obligations and real estate mortgage investment conduits ("REMICS"). From time to time the Bank may invest in mutual funds or equity securities of various corporations and other issuers. It is the Bank's current policy to limit to 5% of its investment portfolio the amount invested in equity securities and to avoid concentration of equity investments in any one industry.
The Company's primary objective with respect to its securities portfolio is to provide liquidity and income, consistent with prudent consideration for risk, maturity and overall diversification. The Bank's President and Chief Financial Officer are generally charged with executing the Bank's investment policy on a daily basis. They have discretion generally to buy and sell securities within the guidelines of the current plan. All transactions outside of the scope of the current plan must be discussed with and approved by the Bank's Executive Committee. All funds not needed to meet the daily investment requirements are invested in either federal funds or money market instruments. All transactions are ratified by the Bank's Board of Directors.
Sources of Funds
General. Savings accounts, checking accounts and other types of deposits have historically constituted the primary source of funds for the Bank. In addition to deposits, the Bank obtains funds from FHLB borrowings, scheduled loan repayments, loan prepayments and loan sales. Scheduled loan repayments are a relatively stable source of funds while deposit inflows and outflows and loan prepayments vary widely and are influenced by prevailing interest rates and general and local economic conditions. Dividends from the Bank represent the only source of liquidity for the Company.
Deposits. The Bank offers a broad selection of deposit instruments to the general public, including NOW accounts, regular savings accounts, money market checking accounts, fixed and variable rate time accounts, IRA and Keogh retirement accounts and commercial checking accounts. In the past the bank has utilized brokered deposits, however, at December 31, 1998 brokered deposits totaled less that 1% of total deposits. The Bank's management determines the interest rates offered on deposit accounts based on the Bank's strategic plans and goals, U.S. Government treasury rates, borrowing rates, competition, liquidity needs and the expected volatility of existing deposits.
Borrowings. The Bank is a member of the FHLB of Boston. This membership enables the Bank to borrow from the FHLB, which helps address the inherent problem on Nantucket Island of a deposit base which is unable to fund loan demand. The Bank also utilizes borrowings to reduce interest rate risk.
Dividend Policy
The Company's Board of Directors meets quarterly to discuss the payment of dividends. Many factors such as earnings, the economy, quality of assets, allowance for loan loss and projected capital needs are reviewed. After due consideration, the Board may vote to pay either the same dividend as the previous quarter, or to increase, decrease or omit the dividend.
Subsidiaries of the Bank
The Bank has two subsidiaries, N.B. Securities, Inc., which has been classified as a securities corporation under the laws of the Commonwealth of Massachusetts to take advantage of the tax benefits available to such corporations and N. realty Corp., which intends to elect to be taxed as a real estate investment trust.
Supervision, Regulation and Operating Powers
General. The Company and the Bank are extensively regulated under federal and state law. The Company, as a Delaware corporation, is subject to regulation by the Secretary of the State of Delaware and the rights of its stockholders are governed by the General Corporation Law of the State of Delaware.
Federal Bank Holding Company Act Regulation. On August 30, 1988, the Company, pursuant to approval received from the Board of Governors of the Federal Reserve Board System ("FRB"), became a registered bank holding company. As a result, its activities are subject to certain limitations, which are described below, and transactions between the Bank and the Company or its other affiliates are also subject to certain restrictions.
Under the Bank Holding Company Act, a bank holding company must obtain FRB approval before it acquires direct or indirect ownership or control of any voting shares of any bank if, after such acquisition, it will own or control directly or indirectly more than 5% of the voting stock of such bank, unless it already owns a majority of the voting stock of such bank. FRB approval must also be obtained before a bank holding company acquires all or substantially all of the assets of a bank or merges or consolidates with another bank holding company. Any acquisition, directly or indirectly, by a bank holding company or its subsidiaries of any voting shares of, or interest in, or all or substantially all, of the assets of any bank located outside of the state in which the operations of the bank holding company's banking subsidiaries are principally conducted, may not be approved by the FRB unless the laws of the state in which the bank to be acquired is located specifically, authorizes such an acquisition.
The Bank Holding Company Act and regulations adopted thereunder limit the activities of a bank holding company and its subsidiaries to the business of banking or of managing or controlling banks, and to such other activities as the FRB may determine to be so closely related to banking as to be a proper incident thereto. The activities of the Company and its non-bank subsidiaries are subject to these legal and regulatory limitations under the Bank Holding Company Act and the FRB's regulations thereunder.
In addition to the statutory and regulatory restrictions on the non-bank activities of the Company, the FRB has taken the position that it has the authority, under its general supervisory authority over bank holding companies and their subsidiaries, to prevent activities of a bank holding company's subsidiaries that the FRB regards as unsafe or unsound, or to require a bank holding company to maintain a higher level of capital to support such activities. In this connection, the FRB has expressed serious reservations about applications by bank holding companies to acquire savings banks that are engaged directly or through subsidiaries in real estate development activities.
As a bank holding company, the Company is required to give the FRB prior written notice of any purchase or redemption of its outstanding equity securities if the gross consideration for the purchase or redemption, when combined with the net consideration paid for all such purchases or redemptions during the preceding 12 months, is equal to 10% or more of the Company's consolidated net worth. The FRB may disapprove such a purchase or redemption if it determines that the proposal would violate any law, regulation, FRB order, directive, or any condition imposed by, or written agreement with, the FRB.
Massachusetts Banking Laws and Supervision. Massachusetts chartered savings banks such as the Bank are regulated and supervised by the Commissioner. The Commissioner is required to examine each state-chartered bank at least once every two years. The approval of the Commissioner is required to establish or close branches, merge with other banks, form a bank holding company and undertake many other activities. Massachusetts statutes and regulations govern among other things, investment powers, lending powers, deposit activities, maintenance of surplus and reserve accounts, the distribution of earnings, the payment of dividends, issuance of capital stock, branching, acquisitions, mergers, and consolidations.
Any Massachusetts bank that does not operate in accordance with the regulations, policies and directives of the Commissioner may be subject to sanctions for non-compliance. The Commissioner may under certain circumstances suspend or remove trustees, directors or officers who have violated the law, conducted the bank's business in a manner which is unsafe, unsound or contrary to the depositors' interests, or been negligent in the performance of their duties.
Deposit Insurance. The Bank's deposit accounts are insured by the Bank Insurance Fund of the FDIC to a maximum of $100,000 per separately insured account, and deposits in excess of that amount in each separately insured account are insured by the Depositors Insurance Fund.
Pursuant to section 7 of the Federal Deposit Insurance Act (12 USC 1817), as amended, the FDIC has incorporated a risk based deposit insurance assessment. Under this risk based system, the assessment rate for an insured depository depends on the assessment risk determined by the institutions capital level and supervisory evaluations. Institutions are assigned to one of three capital groups - well capitalized, adequately capitalized or undercapitalized.
Any FDIC-insured bank which does not operate in accordance with FDIC regulations, policies and directives may be sanctioned for non-compliance. Proceedings may be instituted against any FDIC-insured bank or any director or trustee, officer or employee of such bank who engaged in unsafe or unsound practices, including the violation of applicable laws and regulations. The FDIC has the authority to terminate insurance of accounts pursuant to the procedures established for that purpose or impose civil money penalties.
All Massachusetts chartered savings banks are required to be members of the Depositors Insurance Fund ("DIF"). The DIF maintains a private deposit insurance fund which insures all deposits in member banks which are not covered by federal insurance, which, in the case of the Bank, are its deposits in excess of $100,000 per insured account. In 1998 and 1997, the Bank's premium for this insurance was assessed at an annual rate of 1/50 of 1% of insured deposits.
Competition
The Bank faces strong competition from other banks, mortgage banking companies and other financial service providers, many of which have substantially greater resources than the Bank.
The Bank's most direct competition for deposits primarily comes from other banks located on Nantucket Island and in southeastern Massachusetts, credit unions, mutual funds and government securities. The Bank competes for deposits principally by offering depositors convenient branch hours and locations, efficient and attentive service, a wide variety of deposit programs, automated teller machines and competitive interest rates. It does not rely upon any single individual, group or entity for a material portion of its deposits.
Competition for real estate loans comes primarily from other banks, mortgage banking companies and other institutional lenders. The Bank competes for loan origination primarily based on the efficiency and quality of service that it provides as well as the interest rates and loan fees that it charges. The competition for loans varies depending on factors which include, among others, the general availability of lendable funds and credit, general and local economic conditions, current interest rate levels, conditions in the mortgage market and other factors which are not readily predictable.
In addition to competing with other savings banks and financial services organizations based in Massachusetts, the Bank has and is expected to face increased competition from major commercial banks headquartered outside of Massachusetts as a result of the interstate banking laws which currently permit banks nationwide to enter the Bank's market area and compete with it for deposits and loan originations.
Employees
As of December 31, 1998 the Company and Bank had 55 full-time-equivalent employees. None of these employees is represented by a collective bargaining agreement. The Company believes its employee relations are good.
Guide 3 Statistical Disclosures
The following tables contain additional consolidated statistical data about the Company and the Bank.
I. Distribution of Assets, Liabilities and Shareholders' Equity; Interest Rates and Interest Differential.
A. The following table presents average consolidated balance sheets for each of the three years ending December 31, 1998. Loans held for sale are included in residential real estate loans.
B. An analysis of net interest earnings, including the average amount of interest-bearing assets and liabilities outstanding during the period, interest earned or paid, average yields and costs, and net yield on interest-earning assets is presented under the caption "Net Interest Income" of "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the 1998 Annual Report.
Interest income is reported on a fully taxable-equivalent basis. Tax-exempt income is converted to a fully taxable equivalent basis by assuming a 34% marginal federal income tax rate adjusted for applicable state income taxes net of the related federal tax benefit. Interest on nonaccrual loans is included in the analysis of net interest earnings to the extent that such interest income has been recognized in the Consolidated Statements of Earnings.
C. An analysis of rate/volume changes in interest income and interest expense is presented under the caption "Net Interest Income" of "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the 1998 Annual Report.
II. Securities Available for Sale and Securities Held to Maturity
A. The carrying amounts of securities is presented in the "Notes to Consolidated Financial Statements" in the 1998 Annual Report.
B. Maturities of debt securities are presented in the "Notes to Consolidated Financial Statements" in the 1998 Annual Report. Mortgage-backed securities are included based on their weighted average maturities, adjusted for anticipated prepayments. Yields on tax exempt obligations are not computed on a tax equivalent basis.
III. Loan portfolio
A. The following table sets forth the composition of the loan portfolio for each of the past five years. Loans held for sale are included in residential mortgage loans.
B. An analysis of the maturity and interest rate sensitivity of Real Estate Construction and Commercial business loans as of December 31, 1998 follows:
Real estate construction includes residential and commercial construction loans, which are presented net of unadvanced funds. All of the loans included in the "after one year but within five year" and "over five year" categories have adjustable rates of interest.
C. Risk Elements. Reference is made to the captions "Non-performing Assets and Provision for Loan Losses" included in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the 1998 Annual Report.
1. Non-performing loans are summarized as follows:
2. Potential Problem Loans. Potential problem loans consist of certain accruing loans that were less than 90 days past due at December 31, 1998, but were identified by management of the Bank as potential problem loans. Such loans are characterized either by weaknesses in the financial condition of borrowers or by collateral deficiencies. Based on historical experience, the credit quality of some of these loans may improve as a result of collection efforts, while the credit quality of other loans may deteriorate, resulting in some amount of losses. These loans are not included in the analysis of nonaccrual, past due and restructured loans in Section III.C.1 above. At December 31, 1998, potential problem loans amounted to $623,000. The Bank's loan policy provides guidelines for the review of such loans in order to facilitate collection.
Depending on future events, these potential problem loans, and others not currently identified, could be classified as nonperforming in the future.
3. Foreign Outstandings. None
4. Loan Concentrations. The Company has no concentration of loans that exceed 10% of its total loans except as disclosed by types of loan in Section III.A.
D. Other Interest-Bearing Assets: None
III. Summary of Loan Loss Experience
A. An analysis of loss experience follows:
The factors influencing management's judgment in determining the amount of the additions to the loan loss allowance charged to operating expense are detailed in caption "Provision for Loan Losses" included in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the 1998 Annual Report.
B. The allocation of the allowance for loan losses, and percent of each loan category to total loans (excluding loans held for sale) is as follows:
V. Deposits
A. Average deposit balances outstanding and the average rates paid thereon are presented in the following table:
B. Not Applicable
C. Not Applicable
D. The maturity schedule of time deposits in amounts of $100,000 or more at December 31, 1998 was as follows:
E. Not Applicable
VI. Return on Equity and Assets
Information on the Company's return on equity, return on assets, dividend payout ratio and equity to assets ratio is presented in "Financial Highlights" in the 1998 Annual Report.
VII. Short Term Borrowings. Not Applicable
Item 2.
Item 2. DESCRIPTION OF PROPERTY
The Bank owns three properties and leases two properties. The three properties owned consist of the Bank's main office, one branch office and an undeveloped parcel of land. The Bank leases 1,500 square feet of office space and one automated teller facility.
The Bank's main office is located at 104 Pleasant Street on Nantucket, and was acquired on June 30, 1979. This 8,500 square foot facility had a net book value of $320,000 at December 31, 1998, including the book value of the land on which the facility is located.
The Bank's branch office, located at 2 Orange Street, Nantucket is a 3,200 square foot facility which the Bank acquired in 1921, and had a net book value of $31,000 at December 31, 1998, including the book value of the land on which the facility is located.
On August 30, 1995 the Bank purchased a three-quarter acre parcel of land located on Amelia Drive, Nantucket for $240,000. The future use of this land has not been determined.
The Bank leases 16 square feet of space at the main terminal building on Nantucket Island for an automated teller machine facility. The lease expires on March 31, 1999.
During 1998, the Bank entered into a non-cancelable operating lease for office space that expires in 2003. This lease contains five one-year renewal options that may be exercised by the Bank.
At December 31, 1998, the net book value of the Bank's furnishings, equipment and autos was $1.7 million. The Bank believes that the fair market value of its properties is significantly in excess of the book value of these properties.
For further information, see Note 4 of Notes to Consolidated Financial Statements in the 1998 Annual Report to Stockholders.
Item 3.
Item 3. LEGAL PROCEEDINGS
From time to time, the Bank is involved in legal proceedings incidental to its business. None of these actions individually or in the aggregate is believed to be material to the financial condition of the Bank.
Item 4.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth quarter of the year ended December 31, 1998.
PART II
Item 5.
Item 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information contained in the section captioned "Stock Market Data" in the 1998 Annual Report to Stockholders is incorporated herein by reference. For information regarding the Company's dividend policy see also "Item 1 -- Business - -- Dividend Policy."
Item 6.
Item 6. SELECTED FINANCIAL DATA
The information contained in the section captioned "Financial Highlights" in the 1998 Annual Report to Stockholders is incorporated herein by reference.
Item 7.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The information contained in the section captioned "Management's Discussion and Analysis" in the 1998 Annual Report to Stockholders is incorporated herein by reference.
Item 7A.
Item 7A. QUANTITATIVE AND QUALITATIVE DOSCLOSURES ABOUT MARKET RISK
The information contained in the sub-section of "Management's Discussion and Analysis" captioned "Asset/Liability Management and Market Risk" in the 1998 Annual Report to Stockholders is incorporated herein by reference.
Item 8.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements contained in the 1998 Annual Report to Stockholders are incorporated herein by reference. Summaries of consolidated operating results on a quarterly basis for the years ended December 31 follow:
Item 9.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
Part III
Item 10.
Item 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) EXCHANGE ACT
Item 11.
Item 11. EXECUTIVE COMPENSATION
Item 12.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Item 13.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Items 10, 11, 12 and 13 is incorporated herein by reference to the Company's definitive proxy statement for the annual meeting of stockholders to be held on May 17, 1999 which will be filed with the Securities and Exchange Commission pursuant to Regulation 14A on or before April 14, 1999.
Item 14.
Item 14. EXHIBITS AND REPORTS ON FORM 8 - K
(a) Documents Filed as Part of Form 10-KSB
1. Exhibits
(3) Certificate of Incorporation and Bylaws of Home Port Bancorp, Inc. Incorporated herein by reference to exhibit B and C to the Company's Registration on Form S-1 (No.33-21794) (the "Registration Statement")
(10.1.2) Employment Agreement between Nantucket Bank and William P. Hourihan, Jr. Incorporated herein by reference to the Registration Statement.
(10.1.3) Employment Agreement between Nantucket Bank and Daniel P. Neath. Incorporated herein by reference to the Registration Statement.
(10.1.4) Supplemental Retirement Agreement between Nantucket Bank and Daniel P. Neath. Incorporated herein by reference to the Company's Form 10-K for the Year Ended December 31, 1989, as filed with the SEC on April 13, 1990.
(10.1.5) Consulting Agreement between Home Port Bancorp, Inc. and Karl L. Meyer dated May 1, 1998. Incorporated herein by reference to the Company's Form 10-QSB for the quarterly period ended June 30, 1998 as filed with the SEC on August 13, 1998.
(10.1.6) Home Port Directors Restricted Stock Option Plan dated May 1, 1998. Incorporated herein by reference to the Company's Form 10-QSB for the quarterly period ended June 30, 1998 as filed with the SEC on August 13, 1998.
(14) 1998 Annual Report to Stockholders for the Fiscal Year Ended December 31, 1998.
(21) Subsidiaries of the Registrant.
(b) No reports on Form 8-K were filed by the Registrant during the quarter ended December 31, 1998.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant had duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
HOME PORT BANCORP, INC.
Date: March 15, 1999 By: /s/ Karl L. Meyer ----------------- Karl L. Meyer President and Chief Executive Officer (Duly Authorized Representative)
In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signatures Date - ---------- ----
/s/ Karl L. Meyer March 15, 1999 - ----------------- Karl L. Meyer Chairman of the Board, President and Chief Executive Officer
/s/ John M. Sweeney March 15, 1999 - ------------------- John M. Sweeney Treasurer & Chief Financial Officer (Principal Financial and Accounting Officer)
/s/ William P. Hourihan, Jr. March 15, 1999 - ---------------------------- William P. Hourihan, Jr. Director
/s/ Charles F. DiGiovanna March 15, 1999 - ------------------------- Charles F. DiGiovanna Director
/s/ Charles H. Jones, Jr. March 15, 1999 - ------------------------- Charles H. Jones, Jr. Director
Signatures (Continued) Date - ---------------------- ----
/s/ Robert J. McKay March 15, 1999 - ------------------- Robert J. McKay Director
/s/ Philip W. Read March 15, 1999 - ------------------ Philip W. Read Director
/s/ Robert A. Trevisani, Esq. March 15, 1999 - ------------------------------ Robert A. Trevisani, Esq. Director
INDEX TO EXHIBITS
EXHIBIT
(3) Certificate of Incorporation and Bylaws of Home Port Bancorp, Inc.- Incorporated by reference to Exhibit B and C to the Company's Registration Statement on Form S-1 (No. 33-21794) (the "Registration Statement").
(10.1.2) Employment Agreement between Nantucket Bank and William P. Hourihan, Jr. Incorporated herein by reference to the Registration Statement.
(10.1.3) Employment Agreement between Nantucket Bank and Daniel P Neath. Incorporated herein by reference to the Registration Statement.
(10.1.4) Supplemental Retirement Agreement between Nantucket Bank and Daniel P. Neath. N/A Incorporated herein by reference to the Company's Form 10-K for the year ended December 31, 1989, as filed with the Securities and Exchange Commission on April 13, 1990.
(10.1.5) Consulting Agreement between Home Port Bancorp, Inc. and Karl L. Meyer dated N/A May 1, 1998. Incorporated herein by reference to the Company's Form 10-QSB for the quarterly period ended June 30, 1998 as filed with the SEC on August 13, 1998.
(10.1.6) Home Port Directors Restricted Stock Option Plan dated May 1, 1998. N/A Incorporated herein by reference to the Company's Form 10-QSB for the quarterly period ended June 30, 1998 as filed with the SEC on August 13, 1998.
(14) Annual Report to Stockholders for the Fiscal Year Ended December 31, 1998.
(21) Subsidiaries of the Registrant.