<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
0-9517
Commission File Number
BANK OF NEW HAMPSHIRE CORPORATION
(Exact name of registrant as specified in its charter)
NEW HAMPSHIRE 02-0346918
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
300 Franklin Street
Manchester, New Hampshire 03105
(Address of principal executive office) (Zip Code)
(603) 624-6600
(Registrant's telephone number, including area code
Not applicable
(Former name, former address and former fiscal year,
if changed since last report)
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 periods 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 the number of shares outstanding of the issuer's common stock as of
September 30, 1994:
Common Stock, $2.50 stated value, no par value, 4,064,103 shares.
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BANK OF NEW HAMPSHIRE CORPORATION
TABLE OF CONTENTS
Page
CONSOLIDATED SELECTED FINANCIAL DATA 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets -
September 30, 1994 and December 31, 1993 4
Consolidated Statements of Income -
Three and Nine-Month Periods Ended
September 30, 1994 and 1993. 5
Consolidated Statements of Changes
in Shareholders' Equity -
Nine-Month Periods Ended
September 30, 1994 and 1993. 6
Consolidated Statements of Cash
Flows - Nine-Month Periods Ended
September 30, 1994 and 1993. 7
Notes to Consolidated Financial
Statements. 8
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations. 9 - 22
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K. 23
SIGNATURES 23
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BANK OF NEW HAMPSHIRE CORPORATION
CONSOLIDATED SELECTED FINANCIAL DATA (Unaudited)
(Dollars in thousands, except per share amounts)
Quarters Ended September 30 1994 1993
Income Statement Data:
Net interest income $ 10,221 $ 9,541
Provision for possible loan losses 415 1,050
Non-interest income 2,523 2,384
Non-interest expense 8,969 8,862
Income taxes 1,130 661
Net income 2,230 1,352
Per share amounts:
Earnings per share .55 .40
Cash dividends declared .10 .00
Market value per share
High 29.00 19.75
Low 25.25 15.00
Nine Months Ended September 30
Income Statement Data:
Net interest income $ 29,147 $ 30,056
Provision for possible loan losses 1,180 3,950
Non-interest income 7,286 7,353
Non-interest expense 26,591 26,351
Income taxes 2,718 2,353
Net income 5,944 4,755
Per share amounts:
Earnings per share 1.46 1.41
Cash dividends declared .28 .00
Market value per share
High 29.00 19.75
Low 16.75 13.25
At September 30
Balance Sheet Data:
Loans $527,712 $ 546,776
Assets 958,806 1,000,929
Deposits 841,018 878,733
Shareholders' equity 73,020 66,930
Book value per share 17.97 16.46
Regulatory capital ratios:
Risk-based capital ratios:
Tier 1 15.46% 13.27%
Total 16.72 14.54
Leverage ratio 7.52 6.81
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<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
BANK OF HAMPSHIRE CORPORATION
CONSOLIDATED BALANCE SHEETS (Unaudited)
September 30, December 31,
1994 1993
(Dollars in thousands,
ASSETS except per share amounts)
<S> <C> <C>
Cash and due from banks $ 50,311 $ 60,999
Federal funds sold and securities purchased under
agreements to resell 64,000 105,000
Total cash and cash equivalents 114,311 165,999
Securities:
U.S. Treasury and other U.S. Government agencies 283,543 256,380
State and municipal 2,908 1,215
Other 3,995 797
Total securities 290,446 258,392
Mortgages held for sale 1,978
Loans:
Commercial, financial and agricultural 55,527 55,430
Real estate - commercial 132,152 133,837
Real estate - construction 2,786 3,019
Real estate - residential 266,219 285,582
Installment 71,028 46,975
Total loans 527,712 524,843
Less: Allowance for possible loan losses 13,014 14,581
Net loans 514,698 510,262
Premises and equipment 10,685 11,366
Other real estate 12,525 13,393
Other assets 16,141 15,329
TOTAL ASSETS $958,806 $976,719
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Non-interest bearing $146,094 $148,784
Interest bearing 694,924 716,551
Total deposits 841,018 865,335
Federal funds purchased and securities sold under
agreements to repurchase 34,120 32,238
Other borrowed funds 3,016 3,028
Accrued expenses and other liabilities 7,632 7,876
Total liabilities 885,786 908,477
Shareholders' Equity:
Preferred stock - no par value
Authorized shares - 500,000; none issued
Common Stock - stated value $2.50 per share
Authorized shares - 6,000,000
Issued and outstanding shares - 4,064,103 in 1994
and 4,066,943 in 1993 10,160 10,167
Surplus 27,288 27,320
Retained earnings 35,572 30,755
Total shareholders' equity 73,020 68,242
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $958,806 $976,719
</TABLE>
See notes to consolidated financial statements.
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<TABLE>
<CAPTION>
BANK OF NEW HAMPSHIRE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Quarters Ended Nine Months Ended
September 30, September 30,
1994 1993 1994 1993
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $ 11,507 $ 12,490 $ 33,660 $ 39,625
Interest on securities:
Subject to federal taxes 3,249 2,089 8,570 5,952
Exempt from federal taxes 26 28 77 85
Total interest on securities 3,275 2,117 8,647 6,037
Other interest income 666 761 2,164 1,787
Total interest income 15,448 15,368 44,471 47,449
Interest expense:
Deposits 4,959 5,605 14,715 16,799
Borrowings 268 222 609 594
Total interest expense 5,227 5,827 15,324 17,393
Net interest income 10,221 9,541 29,147 30,056
Provision for possible loan losses 415 1,050 1,180 3,950
Net interest income after provision
for possbile loan losses 9,806 8,491 27,967 26,106
Non-interest income:
Trust fees 919 783 2,912 2,347
Service charges on deposit accounts 861 821 2,464 2,343
Securities gains 165 2 165 182
Other 578 778 1,745 2,481
Total non-interest income 2,523 2,384 7,286 7,353
Non-interest expense:
Salaries and employee benefits 4,872 4,504 13,718 13,185
Net occupancy expense 730 756 2,351 2,368
Equipment expense 457 475 1,361 1,368
ORE expense 359 741 1,315 2,000
FDIC insurance expense 540 620 1,643 1,904
Other 2,011 1,766 6,203 5,526
Total non-interest expense 8,969 8,862 26,591 26,351
Income before income taxes 3,360 2,013 8,662 7,108
Income taxes 1,130 661 2,718 2,353
NET INCOME $ 2,230 $ 1,352 $ 5,944 $ 4,755
Average shares outstanding 4,064 3,386 4,066 3,381
Per share amounts:
Earnings per share $ .55 $ .40 $1.46 $1.41
Cash dividends declared $ .10 $ .00 $ .28 $ .00
</TABLE>
See notes to consolidated financial statements.
<PAGE>
BANK OF NEW HAMPSHIRE CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Unaudited)
1994 1993
(In thousands)
Balance, January 1 $68,242 $50,545
Net income 1,703 1,891
Cash dividends declared (326)
Change in net unrealized gain on securities
available-for-sale, net of tax 85
Compensation cost of stock plan 18 20
Balance, March 31 $69,722 $52,456
Net income 2,011 1,512
Cash dividends declared (406)
Change in net unrealized gain on securities
available-for-sale, net of tax 12
Incentive stock plan issuance, net of
forfeitures (1)
Compensation cost of stock plan 3 21
Balance, June 30 $71,341 $53,989
Net income 2,230 1,352
Cash dividends declared (406)
Change in net unrealized gain on securities
available-for-sale, net of tax (86)
Issuance of common stock 11,596
Compensation cost of stock plan 22
Repurchase and retirement of common stock (59) (29)
Balance, September 30 $73,020 $66,930
See notes to consolidated financial statements.
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<TABLE>
<CAPTION>
BANK OF NEW HAMPSHIRE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Nine Months Ended September 30,
1994 1993
(In thousands)
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 5,944 $ 4,755
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for possible loan losses 1,180 3,950
Depreciation, amortization and accretion 2,235 719
Net change in interest receivable and payable (1,908) (53)
Securities gains (165) (182)
Net gain on sales of mortgages (53) (870)
(Gains) losses on other real estate, net (188) 531
Other, net 348 1,465
Net cash provided by operating activities 7,393 10,315
Cash Flows from Investing Activities:
Sales of available-for-sale equity securities 233 657
Maturities of debt securities held-to-maturity 113,344 145,602
Purchases of debt securities held-to-maturity (145,936) (178,222)
Proceeds from sales of mortgages 8,214 33,690
Proceeds from sales of other real estate 4,921 6,038
Net cash (used for) from loans (15,671) 34,746
Purchases of premises and equipment (541) (1,015)
Net cash (used for) provided by investing
activities (35,436) 41,496
Cash Flows from Financing Activities:
Net (decrease) increase in demand deposits,
NOW accounts, and savings accounts (1,025) 19,229
Net decrease in certificates
of deposit (23,292) (9,421)
Net increase in short-term borrowings 1,870 8,017
Net proceeds from issuance of common stock 11,596
Repurchase and retirement of common stock (60) (29)
Cash dividends paid (1,138)
Net cash (used for) provided by financing
activities (23,645) 29,392
(Decrease) increase in cash and cash equivalents (51,688) 81,203
Cash and cash equivalents at January 1 165,999 126,584
Cash and cash equivalents at September 30 $114,311 $207,787
Income tax paid, net $ 1,820 $ 1,351
Interest paid $ 15,932 $ 17,296
See notes to consolidated financial statements.
<PAGE>
BANK OF NEW HAMPSHIRE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. The accompanying unaudited interim consolidated financial statements
of Bank of New Hampshire Corporation (the "Company") have been prepared in
accordance with generally accepted accounting principles. The balance sheet
at December 31, 1993 is from the audited financial statements at that date but
does not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements.
In the opinion of Management, all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the information
contained herein have been made. Results for the nine months ended September
30, 1994 are not necessarily indicative of the results that may be expected
for the year ended December 31, 1994. The accounting policies followed by the
Company are set forth below and in Note A to the consolidated financial
statements in the 1993 Annual Report on Form 10-K (Exhibit 1) and should be
read in conjunction with the information contained herein.
Note 2. Securities - There was no cumulative effect on net income from
adopting Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," as of January 1, 1994.
The opening balance of shareholders' equity was increased by $85,000 (net of
$44,000 in deferred income taxes) to reflect the net unrealized gains on
marketable equity securities classified as available-for-sale and previously
carried at cost. The following is a summary of held-to-maturity debt
securities and available-for-sale equity securities at September 30, 1994, in
thousands.
Held-to-Maturity
Debt Securities
Estimated
Amortized Fair
Cost Value
U.S. Treasury and other
U.S. Government agencies $283,543 $281,176
State and municipal 2,908 2,903
Other 374 484
$286,825 $284,563
Available-for-Sale Equity Securities
Gross Gross Estimated
Unrealized Unrealized Fair
Cost Gains Losses Value
Equity securities $ 3,605 $ 38 $ (22) $ 3,621
During the nine months ended September 30, 1994, sales of available-for-sale
equity securities totalled $233,000. Gains on sales of available-for-sale
equity securities totalled $165,000 for the same period. The Company has no
trading assets. The approximate market value of securities was $288.2 million
and $258.6 million as of September 30, 1994 and December 31, 1993,
respectively.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
For the Three and Nine-Month Periods Ended September 30, 1994 and 1993
OVERVIEW
Net Income
For the nine months ended September 30, 1994, the Company recorded net income
of $5.9 million, or $1.46 per share, compared to net income of $4.8 million,
or $1.41 per share, for the first nine months of 1993. The Company issued
690,000 shares of common stock on September 30, 1993 which had a dilutive
effect of $.30 on per share earnings for the first nine months of 1994. The
principal reason for the increase in net income for the first nine months of
1994 compared to the same period in 1993 was the decrease in credit costs.
The provision for possible loan losses recorded during the first nine months
of 1994 was $1.2 million compared to a $4.0 million provision recorded during
the first nine months of 1993. Other Real Estate ("ORE") expenses incurred
during the first nine months of 1994 were $1.3 million compared to $2.0
million incurred during the first nine months of 1993. The lower credit costs
were partially offset by the decrease in net interest income of $909,000 for
the compared periods.
For the third quarter of 1994, the Company recorded net income of $2.2
million, or $.55 per share, compared to net income of $1.4 million, or $.40
per share, for the third quarter of 1993, a 65% increase. The issuance of
690,000 shares of common stock on September 30, 1993 had a dilutive effect of
$.11 on 1994 third quarter earnings per share. The principal reason for the
increase in net income for the third quarter of 1994 compared to the same
period in 1993 was the decrease in credit costs. Also, net interest income
for the 1994 third quarter totalled $10.2 million, an increase of $680,000
over last year's third quarter. A $415,000 provision for possible loan losses
was recorded during the 1994 third quarter compared to a $1.1 million
provision recorded during the third quarter of 1993, a decrease of $635,000.
ORE expenses totalled $359,000 in the 1994 third quarter compared to $741,000
in the third quarter of 1993, a decrease of $382,000.
<PAGE>
FINANCIAL CONDITION
Loans
As shown in the following Table, total loans at September 30, 1994 were $527.7
million, an increase of $2.9 million from the 1993 year-end balance of $524.8
million. Sales of residential mortgages amounted to $8.2 million and $32.8
million during the first nine months of 1994 and 1993, respectively. In the
first nine months of 1994, commercial loans including commercial real estate
and construction loans decreased by $1.8 million and residential real estate
loans decreased by $19.4 million. Installment loans increased by $24.1
million, primarily due to the purchase of $15.1 million in student loans. At
September 30, 1994, residential real estate loans totalled $266.2 million, or
50%, of the portfolio balance and included $251.1 million of loans secured by
1 to 4 family residential properties. The Company has no foreign loans or
energy loans, and agricultural loans totalled only $8,000 at September 30,
1994.
September 30, December 31,
1994 1993
(In thousands)
Loan portfolio by category
Commercial, financial and agricultural $ 55,527 $ 55,430
Real estate - commercial 132,152 133,837
Real estate - construction 2,786 3,019
Real estate - residential 266,219 285,582
Installment 71,028 46,975
Total loans $527,712 $524,843
A significant amount of the Company's commercial real estate loans have been
made to owner occupied businesses. Even though these loans are collateralized
by real estate, the primary repayment source for each such loan is the cash
flow generated by the related business. Additionally, it should be noted that
the diversification of the commercial real estate loan portfolio and the
magnitude of the potential loss exposure are such that a material adverse
impact on future operations of the Company is unlikely. See "Nonperforming
Assets," "Net Interest Income," and "Non-Interest Income."
The Company had no mortgage loans held-for-sale at September 30, 1994 and $2.0
million at December 31, 1993. During 1992, Management implemented a plan to
reduce the residential mortgage portfolio by selling qualified fixed rate
loans in the secondary market, to the extent necessary to adjust the loan
portfolio mix to desired levels. Management determined that, as of March 31,
1994, the residential mortgage portfolio was at the prescribed level and
remained at that level as of September 30, 1994.
<PAGE>
Nonperforming Assets
The following Table provides information with respect to the Company's past
due, restructured and nonaccrual loans and the components of nonperforming
assets for the periods indicated.
September 30, December 31,
1994 1993
(In thousands)
Nonaccrual loans $10,911 $13,039
Loans 90 days or more past due and
still accruing interest 2,041 2,006
Loans whose terms are restructured 1,259 1,012
Total nonperforming loans 14,211 16,057
Other real estate (ORE) 12,525 13,393
Total nonperforming assets $26,736 $29,450
At September 30, 1994 the nonaccrual loan balance of $10.9 million included
$10.0 million in real estate loans, $881,000 in commercial loans, and $32,000
in installment loans. At September 30, 1994, loans 90 days past due and still
accruing interest were $2.0 million and included loans secured by real estate
which totalled $1.4 million, commercial loans which totalled $330,000 and
installment debt of $263,000. Although restructured loans have not been
material, amounting to $1.3 million as of September 30, 1994, Management has
encouraged them when the restructuring is likely to result in a paying credit
for the remainder of the restructured term.
The ORE balance at September 30, 1994 of $12.5 million consists of $10.6
million in properties actually foreclosed on with the remaining $1.9 million
representing "in-substance" foreclosures ("ISF"). The ORE balance consists of
$8.3 million of commercial properties, $2.6 million of residential properties,
and $1.6 million of sub-divided lots and undeveloped land.
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
The following Table summarizes the real estate operations of property held for
sale for the three and nine-month periods ended September 30, 1994 and 1993.
Quarters Ended Nine Months Ended
September 30 September 30
1994 1993 1994 1993
(In thousands)
<S> <C> <C> <C> <C>
Balance, beginning of period $13,863 $17,021 $13,743 $16,424
Additions during the period 482 835 4,363 5,877
ORE losses (49) (125) (285) (1,131)
ORE sales (1,323) (3,241) (4,560) (6,006)
Other, net (180) (341) (468) (1,015)
12,793 14,149 12,793 14,149
Allowance for possible ORE losses (268) (268)
Balance, end of period $12,525 $14,149 $12,525 $14,149
</TABLE>
An analysis of the changes in the allowance for possible ORE losses for the
three and nine-month periods ended September 30, 1994 and 1993 is as follows:
<TABLE>
<CAPTION>
Quarters Ended Nine Months Ended
September 30 September 30
1994 1993 1994 1993
(In thousands)
<S> <C> <C> <C> <C>
Balance, beginning of period $ 272 $ 39 $ 350 $ 568
ORE losses (39) (100) (568)
Other (4) 18
Balance, end of period $ 268 $ 0 $ 268 $ 0
</TABLE>
The following Table summarizes the components of ORE expense for the three and
nine-month periods ended September 30, 1994, and 1993:
<TABLE>
<CAPTION>
Quarters Ended Nine Months Ended
September 30 September 30
1994 1993 1994 1993
(In thousands)
<S> <C> <C> <C> <C>
Valuation adjustments:
ORE losses $ 49 $ 86 $ 185 $ 563
Net (gain) loss on ORE sales (191) (68) (373) (32)
(142) 18 (188) 531
General carrying costs 501 723 1,503 1,469
ORE expense $ 359 $ 741 $ 1,315 $ 2,000
</TABLE>
General carrying costs include legal fees, real estate taxes, maintenance,
appraisals, insurance and miscellaneous other costs. See "Non-Interest
Expense."
Gross gains and losses for the three and nine-month periods ended September
30, 1994 and 1993 were as follows:
<TABLE>
<CAPTION>
Quarters Ended Nine Months Ended
September 30 September 30
1994 1993 1994 1993
(In thousands)
<S> <C> <C> <C> <C>
Gross gains on ORE sales $ (251) $ (211) $ (605) $ (360)
Gross losses on ORE sales 60 143 232 328
Net (gain) loss on ORE sales $ (191) $ (68) (373) $ (32)
</TABLE>
<PAGE>
Allowance for Possible Loan Losses ("APLL")
The APLL is available for future loan losses. The APLL as a percent of total
nonperforming assets was 49% at September 30, 1994 and 45% at September 30,
1993. The APLL as a percent of nonaccrual loans was 119% and 99% at September
30, 1994 and 1993, respectively. The APLL as a percent of nonperforming loans
was 92% at September 30, 1994 and 79% at September 30, 1993. Management
believes the APLL is adequate as of September 30, 1994.
An analysis of the APLL for the three and nine-month periods ended September
30, 1994 and 1993 is as follows:
Quarters Ended Nine Months Ended
September 30 September 30
1994 1993 1994 1993
(In thousands)
Balance, beginning of period $13,090 $15,059 $14,581 $16,619
Provision for possible loan losses 415 1,050 1,180 3,950
Loan losses:
Commercial, financial and
agricultural (6) (220) (669) (953)
Real estate - commercial (475) (220) (852) (1,424)
Real estate - construction (62) (202)
Real estate - residential (452) (915) (2,305) (3,391)
Installment (167) (249) (376) (673)
Total loan losses (1,100) (1,666 (4,202) (6,643)
Recoveries:
Commercial, financial and
agricultural 84 167 548 314
Real estate - commercial 375 35 396 211
Real estate - construction 5 23 5
Real estate - residential 61 71 234 90
Installment 84 127 254 297
Total recoveries 609 400 1,455 917
Net loan losses (491) (1,266 (2,747) (5,726)
Balance, end of period $13,014 $14,843 $13,014 $14,843
Securities
Securities totalled $290.4 million at September 30, 1994 and $258.4 million at
December 31, 1993. The portfolio consists principally of U.S. Treasury
instruments and high-grade municipal obligations with an overall average
maturity of thirteen months. Federal funds sold and securities purchased
under agreements to resell totalled $64.0 million at September 30, 1994,
compared to $105.0 million at year-end 1993, reflecting substantial liquidity
in the Bank's balance sheet.
Held-to-maturity debt securities totalled $286.8 million in amortized cost at
September 30, 1994. Equity securities classified as available-for-sale had an
estimated fair value of $3.6 million on September 30, 1994, including a net
unrealized gain of $16,000.
<PAGE>
Deposits
Deposits of $841.0 million at September 30, 1994 decreased $24.3 million, or
2.8%, from $865.3 million at December 31, 1993. Interest bearing deposit
balances at September 30, 1994 totalled $694.9 million compared to $716.6
million at year-end 1993, a decrease of $21.7 million. The decrease occurred
primarily in time deposits ($23.3 million), NOW accounts ($3.6 million) and
money market accounts ($3.1 million) and was offset somewhat by increases in
savings deposits ($8.4 million). Demand deposits decreased by $2.7 million
through September 30, 1994 compared to the 1993 year-end balance of $148.8
million.
The following Table presents the various types of deposit balances at
September 30, 1994 and at December 31, 1993.
September 30, December 31,
1994 1993
(In thousands)
Demand deposits $146,094 $148,784
NOW accounts 135,178 138,822
Savings deposits 305,596 297,205
Money market accounts 51,265 54,347
Time deposits of $100,000 or more 9,380 11,641
Other time deposits 193,505 214,536
Total deposits $841,018 $865,335
<PAGE>
Capitalization
The following Table presents the consolidated regulatory capital ratios of the
Company at September 30, 1994 and December 31, 1993.
Regulatory September 30, December 31,
Minimum 1994 1993
Regulatory Capital Ratios:
Leverage ratio 3.00%(1) 7.52% 6.78%
Tier 1 risk-based ratio 4.00 15.46 14.31
Total risk-based ratio 8.00 16.72 15.59
The following Table presents the regulatory capital ratios of the Bank at
September 30, 1994 and December 31, 1993.
Regulatory September 30, December 31,
Minimum 1994 1993
Regulatory Capital Ratios:
Leverage ratio 3.00%(1) 6.89% 6.09%
Tier 1 risk-based ratio 4.00 14.19 12.88
Total risk-based ratio 8.00 15.46 14.16
(1) Under current regulations, all except the most highly rated institutions
are expected to exceed the minimum regulatory ratio by 100 to 200 basis
points or more.
Dividend Policy
The Company's future dividend policy for its common stock will continue to be
reviewed quarterly by the Board of Directors. The long-term capacity of the
Company to pay dividends is conditioned upon the receipt of upstreamed
dividends from the Bank, which capacity is subject to federal and state
regulation and approval by the Bank's independent Board of Directors.
<PAGE>
RESULTS OF OPERATIONS
Net Interest Income
This discussion of net interest income should be read in conjunction with the
Tables on pages 19 through 22. All interest income, yields, rates, interest
rate spreads and net interest margins which follow in this discussion are
stated on a fully taxable equivalent ("FTE") basis using a tax rate of 34%.
Net interest income for the nine months ended September 30, 1994, totalled
$29.3 million compared to $30.2 million for the nine months ended September
30, 1993. Net interest income changes are caused by interest-rate movements,
changes in the amounts and the mix of earning assets and interest bearing
liabilities, and changes in the amounts of non-earning assets and non-interest
bearing liabilities. For the first nine months of 1994, the $961,000 decrease
in net interest income was primarily due to lower average balances in the loan
portfolio and lower rates earned on loans. For the first nine months of 1994,
the interest rate spread and net interest margin equalled 4.05% and 4.49%,
respectively, compared to 4.33% and 4.71%, respectively, for the nine months
ended September 30, 1993. Interest rate spread is the average yield earned on
total earning assets less the average rate paid for interest bearing
liabilities. Net interest margin is calculated by dividing annualized net
interest income by average total earning assets.
Average interest earning assets totalled $872.4 million for the first nine
months of 1994, an increase of $13.7 million compared to the 1993 comparable
period. Average loans, however, totalled $516.6 million for the first nine
months of 1994, a decrease of $70.2 million compared to the 1993 comparable
period. The increase in average interest earning assets consists primarily of
$84.7 million in taxable investment securities. The yield on average interest
earning assets for the first nine months of 1994 equalled 6.83%, a decrease of
59 basis points from the comparable 1993 yield of 7.42%. The decrease in
yield was offset somewhat by lower interest rates paid on deposits and
borrowings in the first nine months of 1994 compared to 1993. Rates paid on
deposits and borrowings decreased from 3.09% in the first nine months of 1993
to 2.78% in the comparable 1994 period. Average interest bearing liabilities
totalled $737.5 million for the first nine months of 1994, a decrease of $14.8
million from the comparable 1993 total.
Third quarter net interest income increased from $9.6 million in 1993 to $10.3
million in 1994. This increase of $660,000 is the result of higher rates
earned on taxable securities and federal funds sold and securities purchased
under agreements to resell, lower rates paid, overall, on interest bearing
liabilities and lower average interest bearing balances. The interest rate
spread for the 1994 and 1993 third quarters was 4.22% and 3.99%, respectively.
The net interest margin was 4.68% and 4.38% for the 1994 and 1993 compared
quarters, respectively. The Company's net interest margin was higher in third
quarter of 1994 (4.68%) as compared to the first and second quarters of 1994
(4.29%) and (4.49%), respectively.
Average interest earning assets totalled $870.3 million for both the 1994 and
1993 third quarters. Average loans decreased $40.1 million and average
federal funds sold and securities purchased under agreements to resell
decreased $39.4 million compared to last year's third quarter balances.
However, average taxable securities totalled $289.7 million for the 1994 third
quarter, an increase of $79.2 million compared to 1993. The yield on average
interest earning assets for the 1994 third quarter was $7.06% compared to
7.03% last year. Rates paid on deposits and borrowings decreased from 3.04%
in the third quarter of 1993 to 2.84% this year, a decrease of 20 basis
points. Average interest bearing liabilities totalled $730.5 million for the
1994 third quarter, a decrease of $28.8 million from the third quarter of last
year.
<PAGE>
Provision for Possible Loan Losses
The amount of the provision for possible loan losses is recommended by
Management and is then reviewed and approved quarterly by the Board of
Directors of the Company based on its assessment of the size, composition and
quality of the loan portfolio and the adequacy of the APLL in relation to the
risks within the loan portfolio.
The provision for possible loan losses for the first nine months of 1994 was
$1.2 million compared to $4.0 million during the first nine months of 1993.
Net loans charged off for the nine months ended September 30, 1994 and 1993
were $2.7 million and $5.7 million, respectively. In connection with
determining the appropriate amount of the provision for possible loan losses
for any period, Management evaluates the current financial condition of
specific borrowers, the general economic climate, loan portfolio composition,
concentration of credits, loan loss history, adequacy of collateral, the
trends and amounts of nonaccrual and past due loans and estimation of future
potential losses and the level of the Company's APLL. Management will
continue to utilize the aforementioned criteria to monitor and analyze loan
quality in future periods and will provide for possible loan losses
accordingly.
The provision for possible loan losses for the third quarter of 1994 was
$415,000 compared to $1.1 million during the third quarter of 1993. Net loans
charged off for the three month periods ended September 30, 1994 and 1993 were
$491,000 and $1.3 million, respectively.
Non-Interest Income
Non-interest income decreased by $67,000 for the nine months ended September
30, 1994 compared with last year's total for the comparable period of $7.4
million. This decrease was principally attributable to lower net gains on
mortgage sales of $816,000 and net securities gains of $17,000. Trust fee
income increased by $565,000, or 24%, from the $2.3 million earned during the
nine months ended September 30, 1993. Service charges on deposit accounts
were $121,000 higher for the nine months ended September 30, 1994 compared to
1993.
Non-interest income increased $139,000 for the third quarter of 1994 over last
year's total of $2.4 million. Other non-interest income decreased, however,
by $200,000 primarily due to lower net gains on mortgage sales of $203,000.
However, securities gains increased $163,000, trust fees increased $136,000
and service charges on deposit accounts increased $40,000.
Non-Interest Expense
Non-interest expense increased $240,000 to $26.6 million for the nine months
ended September 30, 1994 compared to the 1993 period. This increase was
primarily due to other miscellaneous non-interest expense which totalled $6.2
million for the nine months ended September 30, 1994, an increase of $677,000.
This increase consists of higher legal and professional fees ($356,000),
general insurance expenses ($80,000), service bureau expenses ($84,000),
marketing expenses ($117,000), ATM processing fees ($81,000), and other
miscellaneous expenses. ORE expense decreased by $685,000 for the 1994 nine-
month period compared to the 1993 nine-month period total of $2.0 million.
The 1994 and 1993 ORE expense for the nine-month periods consisted of general
carrying costs of $1.5 million for each year, further write-downs to fair
value for various properties of $185,000 and $563,000, respectively, and a net
gain on ORE sales of $373,000 in 1994 compared to $32,000 in 1993. ORE losses
charged to the allowance for possible ORE losses amounted to $100,000 and
$568,000 in the 1994 and 1993 nine-month periods, respectively. No provisions
for possible ORE losses were recorded for the nine-months ended September 30,
<PAGE>
1994 and 1993. FDIC insurance expense totalled $1.6 million for the nine
months ended September 30, 1994, a decrease of $261,000, or 14%, over the
comparable 1993 period, reflecting the decreased premium rate charged on
applicable deposits. Salaries and employee benefits increased by $533,000.
Occupancy and equipment costs decreased by $24,000 to $3.7 million from the
1993 comparable period.
Non-interest expense increased $107,000 for the third quarter of 1994 compared
with last year's total for the comparable period of $8.9 million. Salaries
and employee benefits increased $368,000. Occupancy and equipment costs were
$1.2 million for both the 1994 and 1993 third quarters. ORE expense decreased
by $382,000 compared to the prior year third quarter total of $741,000. The
1994 and 1993 third quarter ORE expense consists of general carrying costs of
$501,000 and $723,000, respectively, and further write-downs to fair value for
various properties of $49,000 and $86,000, respectively. There were no
provisions for possible ORE losses recorded or write-downs charged to the
allowance for possible ORE losses in the 1994 third quarter. Write-downs
charged to the allowance for possible ORE losses totalled $39,000 in the 1993
third quarter. FDIC insurance expense decreased by $80,000 for the third
quarter and reflects the lower premium rate charged on applicable deposits.
Other non-interest expense increased by $245,000 due primarily to higher
marketing expenses ($54,000), legal and professional expenses ($56,000),
student loan origination fees ($75,000), service bureau expenses ($31,000),
ATM processing fees ($24,000), telephone expenses ($25,000), and other
miscellaneous expenses.
Income Tax Expense
Income taxes for the first nine months of 1994 and 1993 totalled $2.7 million
and $2.4 million, respectively, on 1994 pre-tax income of $8.7 million and
1993 pre-tax income of $7.1 million. The effective tax rate was 31% and 33%
for the nine months ended September 30, 1994 and 1993, respectively. The SFAS
109 valuation allowance which totalled $198,000 at December 31, 1993, was
reversed during the 1994 first quarter resulting in a reduction in income tax
expense.
<PAGE>
<TABLE>
<CAPTION>
AVERAGE BALANCES AND RATES -
FULLY TAXABLE EQUIVALENT BASIS
QUARTERLY SUMMARY
1994
3rd Quarter 2nd Quarter 1st Quarter
(In thousands) Avg Balance Rate Avg Balance Rate Avg Balance Rate
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest earning assets:
Loans (1) $518,157 8.83% $511,928 8.69% $519,566 8.67%
Taxable securities 289,680 4.45 281,454 4.16 255,100 3.81
Non-taxable securities 2,944 5.39 3,057 5.64 2,168 6.55
Federal funds sold and securities
purchased under agreements to resell 59,536 4.44 78,148 3.88 94,487 3.19
Total interest earning assets 870,317 7.06 874,587 6.80 871,321 6.65
Non-interest earning assets:
Cash and due from banks 52,694 56,095 55,377
Premises and equipment, net 10,770 11,041 11,201
Other assets 29,118 28,951 28,866
Less allowance for possible loan losses (13,395) (13,750) (14,694)
Total assets $949,504 $956,924 $952,071
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest bearing liabilities:
Savings deposits $490,648 2.38 $493,573 2.23 $485,317 2.23
Certificates of deposit of $100,000
or more 9,467 3.65 10,262 3.64 11,517 3.70
Other time deposits 194,882 3.92 203,024 3.95 212,233 4.11
Federal funds purchased and securities
sold under agreements to repurchase 32,855 2.86 29,666 2.15 30,886 1.79
Other borrowed funds 2,643 4.65 2,879 3.76 2,785 2.77
Total interest bearing liabilities 730,495 2.84 739,404 2.72 742,738 2.77
Non-interest bearing liabilities:
Demand deposits 138,736 138,464 131,659
Other liabilities 8,281 8,656 8,801
Total liabilities 877,512 886,524 883,198
Shareholders' equity 71,992 70,400 68,873
Total liabilities and shareholders' equity $949,504 $956,924 $952,071
Interest rate spread 4.22% 4.08% 3.88%
Net interest margin 4.68% 4.49% 4.29%
</TABLE>
(1) For the calculation of rates earned on loans, nonaccrual and restructured
loans are included in the average balance.
<PAGE>
<TABLE>
<CAPTION>
AVERAGE BALANCES AND RATES -
FULLY TAXABLE EQUIVALENT BASIS
QUARTERLY SUMMARY
1993
4th Quarter 3rd Quarter 2nd Quarter 1st Quarter
(In thousands) Avg Balance Rate Avg Balance Rate Avg Balance Rate Avg Balance Rate
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest earning assets:
Loans (1) $533,943 8.94% $558,295 8.91% $590,420 9.06% $611,586 9.21%
Taxable securities 258,372 3.80 210,472 3.94 179,314 4.18 183,227 4.42
Non-taxable securities 2,492 6.53 2,566 6.65 2,569 6.87 2,227 7.65
Federal funds sold and securities
purchased under agreements to resell 102,127 3.04 98,903 3.05 79,753 3.01 56,495 3.07
Total interest earning assets 896,934 6.78 870,236 7.03 852,056 7.46 853,535 7.77
Non-interest earning assets:
Cash and due from banks 58,889 58,408 56,846 52,926
Premises and equipment, net 11,434 11,668 11,808 11,415
Other assets 29,587 32,066 32,065 34,061
Less allowance for possible loan losses 15,467 15,780 15,750 16,802
Total assets $981,377 $956,598 $937,025 $935,135
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest bearing liabilities:
Savings deposits $491,194 2.34 $484,113 2.59 $476,539 2.61 $474,238 2.61
Certificates of deposit of $100,000
or more 13,209 3.57 13,087 3.58 12,939 3.63 12,348 3.71
Other time deposits 217,522 4.11 220,628 4.19 222,918 4.25 227,320 4.37
Federal funds purchased and securities
sold under agreements to repurchase 40,474 1.88 37,705 2.10 30,692 2.08 32,854 2.10
Other borrowed funds 2,494 3.18 3,727 2.34 4,002 2.10 3,891 2.19
Total interest bearing liabilities 764,893 2.84 759,260 3.04 747,090 3.09 750,651 3.14
Non-interest bearing liabilities:
Demand deposits 140,672 133,762 127,427 123,478
Other liabilities 8,298 8,914 9,451 9,466
Total liabilities 913,863 901,936 883,968 883,595
Shareholders' equity 67,514 54,662 53,057 51,540
Total liabilities and shareholders' equity $981,377 $956,598 $937,025 $935,135
Interest rate spread 3.94% 3.99% 4.37% 4.63%
Net interest margin 4.36% 4.38% 4.75% 5.01%
</TABLE>
(1) For the calculation of rates earned on loans, nonaccrual and restructured
loans are included in the average balance.
<PAGE>
<TABLE>
<CAPTION>
NONPERFORMING ASSETS
QUARTERLY SUMMARY
1994 1993
Third Second First Fourth Third Second First
(In thousands) Quarter Quarter Quarter Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C> <C> <C> <C>
Nonaccrual $10,911 $12,088 $13,435 $13,039 $15,004 $15,030 $16,796
90 days or more past due
and still accruing 2,041 2,603 4,144 2,006 2,768 2,609 2,589
Restructured 1,259 281 602 1,012 963 1,505 1,576
Total nonperforming loans 14,211 14,972 18,181 16,057 18,735 19,144 20,961
Other real estate 12,525 13,591 12,888 13,393 14,149 16,982 16,554
Total nonperforming assets $26,736 $28,563 $31,069 $29,450 $32,884 $36,126 $37,515
Nonperforming loans as a
percent of total loans 2.69% 2.92% 3.54% 3.06% 3.43% 3.33% 3.48%
Nonperforming assets as a
percent of total loans 5.07% 5.57% 6.05% 5.61% 6.01% 6.28% 6.23%
Allowance for possible loan
losses as a percent of
nonperforming assets 49% 46% 44% 50% 45% 42% 43%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
QUARTERLY INCOME SUMMARY -
FULLY TAXABLE EQUIVALENT BASIS
(In thousands, except per share data)
1994 1993
Third Second First Fourth Third Second First
Quarter Quarter Quarter Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income $15,489 $14,817 $14,286 $15,329 $15,429 $15,846 $16,347
Interest expense 5,227 5,019 5,078 5,477 5,827 5,754 5,812
Net interest income 10,262 9,798 9,208 9,852 9,602 10,092 10,535
Less tax equivalent adjustment 41 47 33 59 61 59 53
Provision for possible loan
losses 415 365 400 250 1,050 1,400 1,500
Non-interest income 2,523 2,379 2,384 2,471 2,384 2,721 2,248
Non-interest expense 8,969 8,733 8,889 9,592 8,862 9,095 8,394
Income before income taxes 3,360 3,032 2,270 2,422 2,013 2,259 2,836
Income taxes 1,130 1,021 567 785 661 747 945
Net income $ 2,230 $ 2,011 $ 1,703 $ 1,637 $ 1,352 $ 1,512 $ 1,891
Earnings per share $ .55 $ .49 $ .42 $ .40 $ .40 $ .45 $ .56
Dividends per share $ .10 $ .10 $ .08 $ .08 $ .00 $ .00 $ .00
Return on average assets (1) .93% .84% .73% .66% .56% .65% .82%
Return on average equity (1) 12.29% 11.46% 10.03% 9.62% 9.81% 11.43% 14.88%
</TABLE>
(1) Annualized
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits required by Item 601 of Regulation S-K are listed on
the Exhibits Index on page 24 of this report and are filed
herewith.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter ended
September 30, 1994.
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.
BANK OF NEW HAMPSHIRE CORPORATION
Date: November 8, 1994 /s/ Paul R. Shea
Paul R. Shea, Senior Executive Vice President
Date: November 8, 1994 /s/ Gregory D. Landroche
Gregory D. Landroche, Executive Vice
President/Chief Financial Officer and
Treasurer
<PAGE>
EXHIBITS INDEX
Filed as part of this Report on Form 10-Q
Part I
Exhibit No. Description Page No.
27 Financial Data Schedule 25
Part II
Exhibit No. Description Page No.
99 Consolidated Statement of Income 26
<PAGE>
EXHIBIT 99
Pursuant to the Underwriting Agreement for the Registration Statement on Form
S-2, dated September 23, 1993, an earnings statement (in form complying with
the provisions of Rule 158 under the Securities Act of 1933) is presented for
the twelve-month period beginning not later than the first day of the
Company's fiscal quarter next following the effective date of the Registration
Statement.
BANK OF NEW HAMPSHIRE CORPORATION
CONSOLIDATED STATEMENT OF INCOME (Unaudited)
(In thousands, except per share amounts)
Twelve Months Ended
September 30, 1994
Interest income:
Interest and fees on loans $45,643
Interest on securities:
Subject to federal taxes 11,047
Exempt from federal taxes 104
Total interest on securities 11,151
Other interest income 2,947
Total interest income 59,741
Interest expense:
Deposits 19,981
Borrowings 820
Total interest expense 20,801
Net interest income 38,940
Provision for possible loan losses 1,430
Net interest income after provision
for possible loan losses 37,510
Non-interest income:
Trust fees 3,886
Service charges on deposit accounts 3,302
Securities gains 165
Other 2,404
Total non-interest income 9,757
Non-interest expense:
Salaries and employee benefits 18,184
Net occupancy expense 3,026
Equipment expense 1,832
ORE expense 2,583
FDIC insurance expense 2,263
Other 8,295
Total non-interest expense 36,183
Income before income taxes 11,084
Income taxes 3,503
NET INCOME $ 7,581
Average shares outstanding 4,066
Per share amounts:
Earnings per share $1.86
Cash dividends declared $ .36
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1994
<CASH> 50,311
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 64,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 3,621
<INVESTMENTS-CARRYING> 286,825
<INVESTMENTS-MARKET> 284,563
<LOANS> 527,712
<ALLOWANCE> 13,014
<TOTAL-ASSETS> 958,806
<DEPOSITS> 841,018
<SHORT-TERM> 37,139
<LIABILITIES-OTHER> 7,632
<LONG-TERM> 0
<COMMON> 10,160
0
0
<OTHER-SE> 62,860
<TOTAL-LIABILITIES-AND-EQUITY> 958,806
<INTEREST-LOAN> 33,660
<INTEREST-INVEST> 8,647
<INTEREST-OTHER> 2,164
<INTEREST-TOTAL> 44,471
<INTEREST-DEPOSIT> 14,715
<INTEREST-EXPENSE> 15,324
<INTEREST-INCOME-NET> 29,147
<LOAN-LOSSES> 1,180
<SECURITIES-GAINS> 165
<EXPENSE-OTHER> 26,591
<INCOME-PRETAX> 8,662
<INCOME-PRE-EXTRAORDINARY> 5,944
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,944
<EPS-PRIMARY> 1.46
<EPS-DILUTED> 1.46
<YIELD-ACTUAL> 4.49
<LOANS-NON> 10,911
<LOANS-PAST> 2,041
<LOANS-TROUBLED> 1,259
<LOANS-PROBLEM> 15,730
<ALLOWANCE-OPEN> 14,581
<CHARGE-OFFS> 4,202
<RECOVERIES> 1,455
<ALLOWANCE-CLOSE> 13,014
<ALLOWANCE-DOMESTIC> 13,014
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 4,239
</TABLE>
