Press Release

Lake Sunapee Bank Group Reports 2016 Third Quarter Results

Company Release - 10/20/2016 4:15 PM ET

NEWPORT, NH -- (Marketwired) -- 10/20/16 -- Lake Sunapee Bank Group ("we," "us," "our" or the "Company") (NASDAQ: LSBG), the holding company for Lake Sunapee Bank, fsb (the "Bank"), today announced results for the quarter ended September 30, 2016. Consolidated net income for the third quarter of 2016 was $2.3 million, or $0.28 per diluted common share, compared to $2.1 million, or $0.25 per diluted common share, for the same period in 2015, and $7.1 million, or $0.85 per diluted common share, for the nine months ended September 30, 2016, compared to $6.9 million, or $0.82 per diluted common share, for the same period in 2015.

"We were pleased with our third quarter performance, particularly with mortgage banking activities," President and Chief Executive Officer, Steve Theroux, commented. "In addition, the level of nonperforming assets remained low at 40 basis points, an indication of the stabilizing economy. We continue to prepare for our merger with Bar Harbor Bankshares, recognizing $510 thousand of expenses related to the merger during the quarter with additional expenses anticipated as we move towards a closing date."

Year-to-Date Highlights

Highlights of the nine months ended September 30, 2016 include:

  • Net income available to common stockholders increased 3.72% compared to the same period in 2015.
  • Return on average common stockholders' equity of 6.81% and return on average assets of 0.60%.
  • Book value per common share increased 4.11% to $16.98 as of September 30, 2016.
  • Loans increased $19.3 million, or 1.58%, to $1.2 billion as of September 30, 2016.
  • Loans totaling $282.0 million were originated.
  • Our loan servicing portfolio increased $21.3 million to $467.1 million.
  • Net loan charge-offs were $461 thousand, or 0.05% (annualized) of average loans, for the nine months ended September 30, 2016.
  • As a percentage of total loans, nonperforming loans were 0.40%.
  • Net interest margin was 3.02%.
  • Noninterest income increased 9.20% to $15.5 million compared to the same period in 2015.

Third Quarter Highlights

Highlights of the three months ended September 30, 2016 (as compared to the prior quarter end and quarter to date) include:

  • Loans totaling $103.9 million were originated.
  • Our loan servicing portfolio increased $15.3 million to $467.1 million.
  • Net loan charge-offs were $90 thousand, or 0.03% (annualized) of average loans, for the quarter ended September 30, 2016.
  • Return on average common stockholders' equity of 6.54% and return on average assets of 0.58%.

Earnings Summary for the Three and Nine Months Ended September 30, 2016

Net income decreased $61 thousand, or 2.58%, compared to the second quarter of 2016. The decrease in net income for the quarter ended September 30, 2016 compared to the quarter ended June 30, 2016 resulted from decreases of $131 thousand, or 1.20%, in net interest and dividend income and $562 thousand, or 9.79%, in noninterest income, offset by a decrease of $867 thousand, or 6.65%, in noninterest expenses.

Net income for the nine months ended September 30, 2016 increased $276 thousand, or 4.01%, to $7.1 million compared to $6.9 million for the same period in 2015. The increase in net income resulted from increases of $1.5 million, or 4.70%, in net interest and dividend income, and $1.3 million, or 9.20%, in noninterest income, offset by an increase of $2.1 million, or 6.02%, in noninterest expenses including the $1.3 million of non-deductible expenses related to the pending acquisition by Bar Harbor Bankshares (the "Merger") announced on May 5, 2016.

Net Interest and Dividend Income and Margin

Net interest and dividend income for the quarter ended September 30, 2016 decreased $131 thousand, or 1.20%, compared to the second quarter of 2016, primarily driven by decreased average balances within the investment portfolio during the period and recognition of approximately $200 thousand of interest income, during the previous quarter, related to the payoff of a non-accruing loan. Interest and dividend income decreased $205 thousand, or 1.59%, to $12.7 million for the quarter ended September 30, 2016 compared to the quarter ended June 30, 2016, which included decreases of $117 thousand, or 0.99%, in interest and fees on loans and $100 thousand on interest income and dividends related to the investment portfolio. Interest expense decreased $74 thousand, or 3.78%, including a decrease of $70 thousand in interest on advances and other borrowed money representing the impact of average borrowings decreasing 6.32% during the third quarter of 2016 compared to the second quarter of 2016.

For the quarter ended September 30, 2016, our net interest margin decreased to 3.02% compared to 3.08% for the quarter ended June 30, 2016 due primarily to the increase in the average yields on loans and investments to 3.74% and 2.19%, respectively. The average cost of deposits for the third quarter of 2016 was 0.33% compared to 0.34% for the second quarter of 2016 while the average cost of other borrowed funds was 1.52% and 1.51%, respectively. The average cost of funds for the quarter ended September 30, 2016 was 0.55% compared to 0.57% for the quarter ended June 30, 2016.

Net interest and dividend income for the nine months ended September 30, 2016 increased $1.5 million, or 4.70%, compared to the same period in 2015, primarily driven by the increase of interest income on debt securities. Interest and dividend income increased $2.0 million, or 5.47%, to $38.0 million for the nine months ended September 30, 2016 compared to the same period in 2015, which included increases of $483 thousand, or 1.39%, in interest and fees on loans including the aforementioned recognition of approximately $200 thousand of interest on a non-accruing loan which was paid off during the second quarter and $1.5 million, or 112.55%, in interest on debt securities and dividends. Interest expense increased $521 thousand, or 10.06%, which included a decrease of $241 thousand, or 8.04%, in interest on deposits and an increase of $679 thousand, or 92.11%, in interest on advances and other borrowed money which includes the impact of an increase of $79.2 million in average borrowings as compared to the same period in 2015.

For the nine months ended September 30, 2016, our net interest margin increased to 3.02% compared to 2.97% for the same period in 2015. The average yield on interest-earning assets for the nine months ended September 30, 2016 was 3.56% compared to 3.47% for the same period in 2015. The average cost of deposits for the nine months ended September 30, 2016 was 0.34% compared to 0.37% for the same period in 2015 while the average cost of other borrowed funds was 1.53% and 1.65%, respectively. The average cost of funds for the nine months ended September 30, 2016 was 0.56% compared to 0.54% for the same period in 2015.

Provision for Loan Losses

During the third quarter of 2016, we recognized an increase of $189 thousand in the provision for loan losses compared to the second quarter of 2016. Net loan charge-offs were $90 thousand, or 0.03% (annualized) of average loans, for the third quarter of 2016, compared to net loan charge-offs of $36 thousand, or 0.01% (annualized) of average loans, for the second quarter of 2016.

During the nine months ended September 30, 2016, we recognized a provision for loan losses of $542 thousand compared to $440 thousand for the same period in 2015. Net loan charge-offs were $461 thousand, or 0.05% (annualized) of average loans, for the nine months ended September 30, 2016 compared to $1.1 million, or 0.12% (annualized) of average loans, for the same period in 2015.

Noninterest Income

Noninterest income for the third quarter of 2016 was $5.2 million, a decrease of $562 thousand, or 9.79%, compared to the second quarter of 2016. The decrease was primarily due to a decrease of $859 thousand in gains on sales of securities offset, in part, by an increase of $331 thousand, or 140.25%, in mortgage banking activities income.

Noninterest income for the nine month period ended September 30, 2016 was $15.5 million, an increase of $1.3 million, or 9.20%, compared to the same period in 2015. The increase was primarily due to an increase of $1.2 million in gains on sales of securities.

Noninterest Expense

Noninterest expense for the third quarter of 2016 decreased $867 thousand, or 6.65%, compared to the second quarter of 2016. The decrease included decreases of $244 thousand of non-deductible expenses related to the pending Merger and $695 thousand in other expenses which includes decreases of $327 thousand in tax credit purchases and $164 thousand in debit card fraud charge-offs, partially offset by an increase of $235 thousand in salaries and employee benefits.

Noninterest expense for the nine month period ended September 30, 2016 increased $2.1 million, or 6.02%, compared to the same period in 2015. The increase included $1.3 million of non-deductible expenses related to the pending Merger and increases of $553 thousand in salaries and employee benefits, $91 thousand in outside services, $35 thousand in supplies, and $722 thousand in other expenses which includes increases of $234 thousand in contributions including tax credit purchases, $67 thousand in periodic impairment expense related to mortgage servicing rights, $130 thousand in shareholder expense primarily due to increased franchise taxes, and $125 thousand in debit card charge-offs related to fraudulent transactions, partially offset by decreases of $300 thousand in occupancy and equipment expense, $113 thousand in advertising and promotion expense, and $134 thousand in amortization of intangible assets.

Income Tax Provision

Income tax expense for the third quarter of 2016 increased $46 thousand, or 4.04%, to $1.2 million compared to the second quarter of 2016. Our effective tax rate was 33.93% for the quarter ended September 30, 2016, an increase from 32.48% for the second quarter of 2016. The higher effective tax rate comparing quarters is primarily driven by the benefit of tax credit purchases applied during the second quarter.

Income tax expense for the nine months ended September 30, 2016 increased $293 thousand to $3.3 million compared to the same period in 2015. Our effective tax rate was 31.89% for the nine month period ended September 30, 2016, which reflects an increase compared to the same period in 2015 due to the impact of the non-deductible Merger expenses of $1.3 million recognized during the period.

Loans and Credit Quality

During the third quarter of 2016, loans increased $2.9 million, or 0.23%, to $1.2 billion at September 30, 2016 compared to June 30, 2016. The third quarter increase reflects increases of $9.9 million in conventional real estate loans, $1.0 million in home equity loans, and $2.4 million in construction and land loans partially offset by decreases of $6.1 million in commercial real estate, $3.9 million in commercial and industrial loans, and $323 thousand in consumer loans.

During the nine months ended September 30, 2016, loans increased $19.3 million, or 1.58%, compared to December 31, 2015. The year-to-date increase reflects increases of $20.1 million in conventional real estate loans, $6.5 million in commercial real estate loans, $3.2 million in commercial and industrial loans, and $2.0 million in home equity loans, partially offset by decreases of $11.5 million in construction and land loans and $1.1 million in consumer loans.

At September 30, 2016, nonperforming loans totaled $5.0 million, or 0.40% of total loans, compared to $5.9 million, or 0.47% of total loans, at June 30, 2016. The allowance for loan losses to nonperforming loans at September 30, 2016 was 178.34% compared to 149.11% at June 30, 2016 and 147.51% at December 31, 2015.

Deposits and Funding

Deposits decreased $6.6 million, or 0.58%, to $1.1 billion at September 30, 2016 compared to June 30, 2016. Our noninterest-bearing deposits decreased $4.1 million, or 2.91%, and interest-bearing deposits decreased $2.5 million, or 0.25%, comparing balances at September 30, 2016 to balances at June 30, 2016.

Deposits decreased $15.6 million, or 1.35%, compared to December 31, 2015. Our noninterest-bearing deposits increased $9.6 million, or 7.56%, and interest-bearing deposits decreased $25.3 million, or 2.45%, including a decrease of $11.6 million in time deposits, comparing balances at September 30, 2016 to balances at December 31, 2015.

Quarterly Dividend

On October 13, 2016, the Company declared a regular quarterly cash dividend of $0.14 per share payable October 31, 2016 to stockholders of record as of October 24, 2016.

About Lake Sunapee Bank Group
Lake Sunapee Bank Group is the holding company of Lake Sunapee Bank, a federally chartered savings bank that provides a wide range of life-cycle banking and financial services. Lake Sunapee Bank has four wholly owned subsidiaries: Lake Sunapee Financial Services Corp.; Lake Sunapee Group, Inc., which owns and maintains all buildings and investment properties; McCrillis & Eldredge Insurance, Inc., a full-line independent insurance agency; and Charter Holding Corp., which wholly owns Charter Trust Company, a trust services and wealth management company. Lake Sunapee Bank Group, through its direct and indirect subsidiaries, operates 30 offices in New Hampshire in Grafton, Hillsborough, Merrimack and Sullivan counties and 15 offices in Vermont in Orange, Rutland and Windsor counties.

Forward-Looking Statements

The Company wishes to caution readers not to place undue reliance on any such forward-looking statements contained in this press release, which speak only as of the date made. Actual results may differ materially from those indicated by such forward-looking statements as a result of various important factors discussed under the caption "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2015, and in subsequent filings with the Securities and Exchange Commission. In addition, the forward-looking statements included in this press release represent our views as of the date of this release. The Company and the Bank do not undertake and specifically decline any obligation to publicly release the result of any revisions that may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.

Lake Sunapee Bank Group
Selected Financial Highlights
Three Months
Ended September 30,
Nine Months
Ended September 30,
(Dollars in thousands except for per share data) 2016 2015 2016 2015
Net Income $ 2,307 $ 2,147 $ 7,144 $ 6,868
Per Common Share Data:
Basic Earnings 0.28 0.25 0.85 0.82
Diluted Earnings (1) 0.28 0.25 0.85 0.82
Dividends Paid 0.14 0.14 0.42 0.40
Dividend Payout Ratio 50.00 % 56.00 % 49.41 % 48.78 %
As of
(Dollars in thousands except for per share data) September 30, 2016 December 31, 2015
Total Assets $ 1,584,399 $ 1,518,521
Total Securities (2) 167,947 130,161
Loans, Net 1,236,733 1,217,461
Total Deposits 1,141,710 1,157,352
Federal Home Loan Bank Advances 202,174 150,000
Stockholders' Equity 142,579 136,708
Book Value per Common Share $ 16.98 $ 16.31
Common Shares Outstanding 8,388,079 8,376,841
Bank Leverage (Tier I) Capital 8.73 % 9.02 %
Common Equity (Tier I) Capital, consolidated 9.46 % 9.41 %
Number of Offices:
Banking Offices 35 34
Insurance Offices 3 3
Trust Offices 7 7
(1) Diluted earnings per share are calculated using the weighted-average number of shares outstanding for the period, including common stock equivalents, as appropriate.
(2) Includes available-for-sale securities shown at fair value and Federal Home Loan Bank stock at cost.
Lake Sunapee Bank Group
Consolidated Balance Sheets
September 30, December 31,
(Dollars in thousands, except per share data) 2016 2015
(Unaudited)
ASSETS
Cash and due from banks $ 18,765 $ 16,426
Overnight deposits 17,320 26,140
Cash and cash equivalents 36,085 42,566
Securities available-for-sale 155,077 120,198
Federal Home Loan Bank stock 12,550 9,963
Loans held-for-sale 3,624 2,188
Loans receivable, net of allowance for loan losses of $9.0 million as of September 30, 2016 and $8.9 million as of December 31, 2015 1,236,733 1,217,461
Accrued interest receivable 2,537 2,431
Bank premises and equipment, net 24,255 24,421
Investments in real estate 3,294 3,392
Other real estate owned 321 904
Goodwill 44,576 44,576
Other intangible assets 6,804 7,822
Bank-owned life insurance 31,523 30,833
Due from broker 14,056 -
Other assets 12,647 11,019
Total assets $ 1,584,082 $ 1,517,774
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest-bearing $ 137,067 $ 127,428
Interest-bearing 1,004,643 1,029,924
Total deposits 1,141,710 1,157,352
Federal Home Loan Bank advances 202,174 150,000
Securities sold under agreements to repurchase 21,522 17,957
Subordinated debentures 36,928 36,873
Due to broker 15,234 -
Accrued expenses and other liabilities 24,125 18,884
Total liabilities 1,441,693 1,381,066
STOCKHOLDERS' EQUITY
Common stock, $.01 par value per share: 30,000,000 shares authorized, 8,823,826 shares issued, and 8,388,079 shares outstanding at September 30, 2016 and 30,000,000 shares authorized, 8,811,170 shares issued, and 8,376,841 shares outstanding at December 31, 2015 88 88
Paid-in capital 80,438 80,252
Retained earnings 71,967 68,344
Unearned restricted stock awards (1,025 ) (1,375 )
Accumulated other comprehensive loss (2,304 ) (3,850 )
Treasury stock, 435,747 shares as of September 30, 2016 and 434,329 shares as of December 31, 2015, at cost (6,775 ) (6,751 )
Total stockholders' equity 142,389 136,708
Total liabilities and stockholders' equity $ 1,584,082 $ 1,517,774
Lake Sunapee Bank Group
Consolidated Statements of Income (unaudited)
Three Months Ended Nine months Ended
(In thousands, except share and per share data) September 30,
2016
September 30,
2015
September 30,
2016
September 30,
2015
Interest and dividend income
Interest and fees on loans $ 11,755 $ 11,599 $ 35,153 $ 34,670
Interest on debt securities:
Taxable 618 291 2,077 862
Tax exempt 154 82 373 253
Dividends 122 89 311 184
Other 34 21 79 52
Total interest and dividend income 12,683 12,082 37,993 36,021
Interest expense
Interest on deposits 909 941 2,758 2,999
Interest on advances and other borrowed money 460 212 1,416 737
Interest on debentures 488 468 1,449 1,394
Interest on securities sold under agreements to repurchase 27 18 78 50
Total interest expense 1,884 1,639 5,701 5,180
Net interest and dividend income 10,799 10,443 32,292 30,841
Provision for loan losses 310 21 542 440
Net interest and dividend income after provision for loan losses 10,489 10,422 31,750 30,401
Noninterest income
Customer service fees 1,430 1,496 4,299 4,325
Gain on sales and calls of securities, net 342 - 1,543 373
Mortgage banking activities 567 196 915 1,008
Net loss on sales of other real estate and property owned (14 ) (66 ) (55 ) (69 )
Net loss on sales of premises and equipment - (6 ) - (3 )
Rental income 185 176 522 513
Trust and investment management fee income 2,110 2,093 6,276 6,339
Insurance and brokerage service income 340 344 1,247 1,163
Bank-owned life insurance income 215 152 652 450
Other income 1 1 95 89
Total noninterest income 5,176 4,386 15,494 14,188
Noninterest expense
Salaries and employee benefits 6,350 6,123 18,686 18,133
Occupancy and equipment 1,432 1,485 4,400 4,700
Advertising and promotion 183 297 624 737
Depositors' insurance 250 223 720 697
Outside services 648 702 1,976 1,885
Professional services 315 355 918 1,014
ATM processing fees 266 203 685 622
Supplies 160 149 457 422
Telephone 247 273 790 813
Merger-related expenses 510 - 1,264 -
Amortization of intangible assets 331 376 1,018 1,152
Other expenses 1,481 1,570 5,217 4,494
Total noninterest expense 12,173 11,756 36,755 34,669
Income before provision for income taxes 3,492 3,052 10,489 9,920
Provision for income taxes 1,185 905 3,345 3,052
Net income $ 2,307 $ 2,147 $ 7,144 $ 6,868
Net income applicable to common stock $ 2,289 $ 2,127 $ 7,061 $ 6,808
Earnings per common share, basic $ 0.28 $ 0.25 $ 0.85 $ 0.82
Weighted average number of shares, basic 8,317,518 8,254,688 8,300,832 8,234,789
Earnings per common share, assuming dilution $ 0.28 $ 0.25 $ 0.85 $ 0.82
Weighted average number of shares, assuming dilution 8,320,823 8,265,187 8,303,310 8,242,303
Dividends declared per common share $ 0.14 $ 0.14 $ 0.42 $ 0.40

For additional information contact:
Laura Jacobi
Executive Vice President
Chief Financial Officer
603-863-0886

Source: Lake Sunapee Bank Group