<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 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
Commission File Number #0-9517
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 offices) (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
June 30, 1994.
Common Stock, $2.50 stated value, no par value, 4,066,333 shares.
<PAGE>
BANK OF NEW HAMPSHIRE CORPORATION
Page
INDEX Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets -
June 30, 1994 and December 31, 1993 3
Consolidated Statements of Income -
Three and Six-Month Periods Ended
June 30, 1994 and 1993. 4
Consolidated Statements of Changes
in Shareholders' Equity -
Six-Month Periods Ended
June 30, 1994 and 1993. 5
Consolidated Statements of Cash
Flows - Six-Month Periods Ended
June 30, 1994 and 1993. 6
Notes to Consolidated Financial
Statements. 7 - 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
<PAGE>
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
BANK OF HAMPSHIRE CORPORATION
CONSOLIDATED BALANCE SHEETS (Unaudited)
June 30, December 31,
1994 1993
(Dollars in thousands,
ASSETS except per share amounts)
<S> <C> <C>
Cash and due from banks $ 61,048 $ 60,999
Federal funds sold and securities purchased under
agreements to resell 86,000 105,000
Total cash and cash equivalents 147,048 165,999
Securities:
U.S. Treasury and other U.S. Government agencies 281,081 256,380
State and municipal 3,017 1,215
Other 3,790 797
Total securities 287,888 258,392
Mortgages held for sale 1,978
Loans:
Commercial, financial and agricultural 56,369 55,430
Real estate - commercial 127,022 133,837
Real estate - construction 3,352 3,019
Real estate - residential 269,468 285,582
Installment 56,268 46,975
Total loans 512,479 524,843
Less: Allowance for possible loan losses 13,090 14,581
Net loans 499,389 510,262
Premises and equipment 10,882 11,366
Other real estate 13,591 13,393
Other assets 15,606 15,329
TOTAL ASSETS $974,404 $976,719
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Non-interest bearing $150,984 $148,784
Interest bearing 704,289 716,551
Total deposits 855,273 865,335
Federal funds purchased and securities sold under
agreements to repurchase 36,894 32,238
Other borrowed funds 3,036 3,028
Accrued expenses and other liabilities 7,860 7,876
Total liabilities 903,063 908,477
Shareholders' Equity:
Preferred stock - no par value
Authorized - 500,000 shares; none issued
Common Stock - stated value $2.50 per share
Authorized - 6,000,000 shares
Issued - 4,066,333 shares at June 30, 1994
and 4,066,943 shares at December 31, 1993 10,166 10,167
Surplus 27,341 27,320
Retained earnings 33,834 30,755
Total shareholders' equity 71,341 68,242
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $974,404 $976,719
</TABLE>
See notes to consolidated financial statements.
<PAGE>
BANK OF NEW HAMPSHIRE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1994 1993 1994 1993
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $ 11,065 $ 13,291 $ 22,153 $ 27,135
Interest on securities:
Subject to federal taxes 2,922 1,868 5,321 3,863
Exempt from federal taxes 28 29 51 57
Total interest on securities 2,950 1,897 5,372 3,920
Other interest income 755 599 1,498 1,026
Total interest income 14,770 15,787 29,023 32,081
Interest expense:
Deposits 4,833 5,573 9,756 11,194
Borrowings 186 181 341 372
Total interest expense 5,019 5,754 10,097 11,566
Net interest income 9,751 10,033 18,926 20,515
Provision for possible loan losses 365 1,400 765 2,900
Net interest income after provision
for possbile loan losses 9,386 8,633 18,161 17,615
Non-interest income:
Trust fees 994 790 1,993 1,564
Service charges on deposit accounts 820 783 1,603 1,522
Securities gains 180 180
Other 565 968 1,167 1,703
Total non-interest income 2,379 2,721 4,763 4,969
Non-interest expense:
Salaries and employee benefits 4,372 4,381 8,846 8,681
Net occupancy expense 759 796 1,621 1,612
Equipment expense 469 447 904 893
ORE expense 432 938 956 1,259
FDIC insurance expense 552 642 1,103 1,284
Other 2,149 1,891 4,192 3,760
Total non-interest expense 8,733 9,095 17,622 17,489
Income before income taxes 3,032 2,259 5,302 5,095
Income taxes 1,021 747 1,588 1,692
NET INCOME $ 2,011 $ 1,512 $ 3,714 $ 3,403
Average shares outstanding 4,067 3,379 4,067 3,379
Per share amounts:
Earnings per share $ .49 $ .45 $ .91 $1.01
Cash dividends declared $ .10 $ .00 $ .18 $ .00
</TABLE>
See notes to consolidated financial statements.
<PAGE>
BANK OF NEW HAMPSHIRE CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Unaudited)
<TABLE>
<CAPTION>
1994 1993
(In thousands)
<S> <C> <C>
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 (1)
Compensation cost of stock plan 3 21
Balance, June 30 $71,341 $53,989
</TABLE>
<PAGE>
BANK OF NEW HAMPSHIRE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
1994 1993
(In thousands)
<S> <C> <C>
Operating Activities:
Net Income $ 3,714 $ 3,403
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for possible loan losses 765 2,900
Depreciation, amortization and accretion 1,367 144
Net change in interest receivable and payable (1,781) (134)
Securities gains (180)
Net gain on sales of mortgages (53) (666)
Losses (gains) on other real estate, net (46) 513
Other, net 1,395 2,348
Net cash provided by operating activities 5,361 8,328
Investing Activities:
Sales of investment securities 1,306
Maturities of securities held-to-maturity 81,120 121,577
Purchases of securities held-to-maturity (110,942) (122,534)
Proceeds from sales of mortgages 7,833 35,306
Proceeds from sales of other real estate 3,407 2,729
Net cash from loans 743 7,690
Purchases of premises and equipment (343) (798)
Net cash provided (used) by investing
activities (18,182) 45,276
Financing Activities:
Net increase in demand deposits,
NOW accounts, and savings accounts 7,547 478
Net decrease in certificates
of deposit (17,609) (9,183)
Net increase (decrease) in short-term borrowings 4,664 (9,894)
Cash dividends paid (732)
Net cash used by financing activities (6,130) (18,599)
Increase (decrease) in cash and cash equivalents (18,951) 35,005
Cash and cash equivalents at January 1 165,999 126,584
Cash and cash equivalents at June 30 $147,048 $161,589
Income tax paid, net $ 850 $ 525
Interest paid $ 10,828 $ 11,613
</TABLE>
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 to present a fair presentation of the
information contained herein have been made. Results for the six months ended
June 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. Accounting Changes - In May 1993, the Financial Accounting Standards
Board (the "FASB") issued Statement of Financial Accounting Standards ("SFAS")
No. 115, "Accounting for Certain Investments in Debt and Equity Securities."
The Company adopted the new rules for investments held as of or acquired on or
after January 1, 1994. Prior period financial statements have not been
restated to reflect the change in accounting principle.
Management determines the appropriate classification of debt securities at the
time of purchase and reevaluates such designation as of each balance sheet
date. Debt securities are classified as held-to-maturity when the Company has
the positive intent and ability to hold the securities to maturity. Held-to-
maturity securities are reported at amortized cost. Debt securities not
classified as held-to-maturity, if any, and equity securities are classified
as available-for-sale. The Company has no trading securities. Available-for-
sale securities are reported at estimated fair value, with the unrealized
gains and losses, net of tax, reported in shareholders' equity. The amortized
cost of debt securities classified as held-to-maturity or available-for-sale
is adjusted for amortization of premiums and accretion of discounts to
maturity. Such amortization is included in interest income from investments.
Interest and dividends are included in interest income from investments.
Realized gains and losses, and declines in value judged to be other than
temporary are included in net securities gains (losses). The cost of
securities sold is based on the specific identification method.
In November 1992, the FASB issued SFAS No. 112, "Employers' Accounting for
Postemployment Benefits," which presents new rules that require accrual
accounting for postemployment benefits, such as salary continuation benefits,
supplemental unemployment benefits, severance benefits and disability-related
benefits, instead of recognizing an expense for those benefits when paid. The
Company adopted the new rules as of January 1, 1994. There was no cumulative
effect on net income from adopting the new rules as of January 1, 1994.
Note 3. New Accounting Standard - In May, 1993, the FASB issued SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan." This statement will
require the Company to introduce the time value of money into the
determination of the portion of the allowance for possible loan losses which
relates to impaired, non-consumer loans. The loss component of impaired, non-
consumer loans will be measured by the difference between their recorded value
and fair value. Fair value would be either the present value of expected
future cash flows discounted at the loan's effective interest rate, market
value of the loan, or the fair value of the collateral. In-substance
foreclosures are to be reported as loans under the new rule. Real estate
loans would be reported as ORE only if the lender has taken possession of the
<PAGE>
collateral. At the present time, the impact of the new method on the
Company's results of operations and financial condition is not expected to be
material. SFAS 114 is effective in 1995, with adoption required as of the
beginning of the year, although earlier adoption is allowed. In March, 1994,
the FASB issued an Exposure Draft, proposing an amendment to the income
recognition rules of SFAS 114 to allow a creditor to use existing methods for
recognizing interest income on an impaired loan.
Note 4. Securities - There was no cumulative effect on net income from
adopting SFAS 115 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 June 30, 1994, in thousands.
<TABLE>
<CAPTION>
Held-to-Maturity
Debt Securities
-----------------------
Estimated
Amortized Fair
Cost Value
<S> <C> <C>
U.S. Treasury and other
U.S. Government agencies $281,081 $278,846
State and municipal 3,017 3,017
Other 433 497
$284,531 $282,360
</TABLE>
<TABLE>
<CAPTION>
Available-for-Sale Equity Securities
-----------------------------------------------
Gross Gross Estimated
Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Equity securities $ 3,211 $ 151 $ (5) $ 3,357
</TABLE>
During the six months ended June 30, 1994 there were no sales of securities.
The Company has no trading assets. The approximate market value of securities
was $285.7 million and $258.6 million as of June 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 Six-Month Periods Ended June 30, 1994 and 1993
OVERVIEW
Net Income
For the six months ended June 30, 1994, the Company recorded net income of
$3.7 million, or $.91 per share, versus net income of $3.4 million, or $1.01
per share, for the first half of 1993. The Company issued 690,000 shares of
common stock on September 30, 1993 which had a dilutive effect of $.19 on per
share earnings for the first six months of 1994. The principal reason for the
increase in net income for the first six 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 half of 1994 was $765,000 compared to a
$2.9 million provision recorded during the first half of 1993. Other Real
Estate ("ORE") expenses incurred during the first half of 1994 were $956,000
compared to $1.3 million incurred during the first half of 1993. The lower
credit costs were partially offset by the decrease in net interest income of
$1.6 million for the compared periods.
For the second quarter of 1994, the Company recorded net income of $2.0
million, or $.49 per share, compared to net income of $1.5 million, or $.45
per share, for the second quarter of 1993, a 33% increase. The issuance of
690,000 shares of common stock on September 30, 1993 had a dilutive effect of
$.11 on 1994 second quarter earnings per share. The principal reason for the
increase in net income for the second quarter of 1994 compared to the same
period in 1993 was the decrease in credit costs. Primarily a $365,000
provision for possible loan losses recorded during the 1994 second quarter
compared to a $1.4 million provision recorded during the second quarter of
1993, a decrease of $1.0 million. ORE expenses totalled $432,000 in the 1994
second quarter compared to $938,000 in the second quarter of 1993. The lower
credit costs were partially offset by the decrease in net interest income of
$282,000, lower non-interest income of $342,000 and higher income taxes of
$274,000, for the compared quarters.
Regulatory Matters and Capitalization
During 1992, the Bank of New Hampshire (the "Bank") entered into a Memorandum
of Understanding (the "MOU") and a Capital Directive with the FDIC and the
State of New Hampshire Banking Department (the "State"). On May 18, 1994, the
Bank received notification from the FDIC terminating the Capital Directive.
Additionally, on May 26, 1994, the Bank received notification from the FDIC
and the State terminating the MOU.
<PAGE>
The following Table presents the consolidated capital ratios of the Company at
June 30, 1994 and December 31, 1993.
<TABLE>
<CAPTION>
Regulatory June 30, December 31,
Minimum 1994 1993
<S> <C> <C> <C>
Regulatory Capital Ratios:
Leverage ratio 3.00%(1) 7.27% 6.78%
Tier 1 risk-based ratio 4.00 15.23 14.31
Total risk-based ratio 8.00 16.50 15.59
</TABLE>
<TABLE>
<CAPTION>
The following Table presents the capital ratios of the Bank at June 30, 1994
and December 31, 1993.
Regulatory June 30, December 31,
Minimum 1994 1993
<S> <C> <C> <C>
Regulatory Capital Ratios:
Leverage ratio 3.00%(1) 6.65% 6.09%
Tier 1 risk-based ratio 4.00 13.94 12.88
Total risk-based ratio 8.00 15.21 14.16
</TABLE>
(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>
FINANCIAL CONDITION
Loans
As shown in the following Table, total loans at June 30, 1994 were $512.5
million, a decrease of $12.3 million from the 1993 year-end balance of $524.8
million. The decrease was primarily due to sales of residential mortgages and
principal reductions, and to a lesser extent, due to reclassification to other
real estate ($3.9 million) and loan losses ($3.1 million). Sales of
residential mortgages amounted to $7.8 million and $34.6 million during the
first six months of 1994 and 1993, respectively. In the first half of 1994,
commercial loans increased by $939,000 and installment loans increased by $9.3
million, primarily due to the purchase of $6.3 million in student loans. At
June 30, 1994, residential real estate loans totalled $269.5 million, or 53%,
of the portfolio balance and included $254.5 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 $12,000 at June 30, 1994.
<TABLE>
<CAPTION>
June 30, December 31,
1994 1993
(In thousands)
<S> <C> <C>
Loan portfolio by category
Commercial, financial and agricultural $ 56,369 $ 55,430
Real estate - commercial 127,022 133,837
Real estate - construction 3,352 3,019
Real estate - residential 269,468 285,582
Installment 56,268 46,975
Total loans $512,479 $524,843
</TABLE>
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 June 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 June 30, 1994.
<PAGE>
Nonperforming Assets
The following Table provides information with respect to the Comany's past
due, restructured and nonaccrual loans and the components of nonperforming
assets for the periods indicated.
<TABLE>
<CAPTION>
June 30, December 31,
1994 1993
(In thousands)
<S> <C> <C>
Loans 90 days or more past due and
still accruing interest $ 2,603 $ 2,006
Loans whose terms are restructured 281 1,012
Nonaccrual loans 12,088 13,039
Total nonperforming loans 14,972 16,057
Other real estate (ORE) 13,591 13,393
Total nonperforming assets $28,563 $29,450
</TABLE>
At June 30, 1994, loans 90 days past due and still accruing interest were $2.6
million and included loans secured by real estate which totalled $1.9 million,
commercial and industrial loans which totalled $432,000 and personal
installment debt of $270,000. At June 30, 1994 the nonaccrual loan balance of
$12.1 million included $1.3 million in commercial loans, $10.8 million in real
estate loans, and $31,000 in installment loans. Although restructured loans
have not been material, amounting to $281,000 as of June 30, 1994, Management
has encouraged restructurings when the restructuring is likely to result in a
paying credit for the remainder of the restructured term.
The ORE balance at June 30, 1994 of $13.6 million consists of $11.2 million in
properties actually foreclosed on with the remaining $2.4 million representing
"in-substance" foreclosures ("ISF"). The ORE balance consists of $8.5 million
of commercial properties, $3.4 million of residential properties, and $1.7
million of sub-divided lots and undeveloped land.
<PAGE>
The following Table summarizes the real estate operations of property held for
sale for the three and six-month periods ended June 30, 1994 and 1993.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
1994 1993 1994 1993
(In thousands)
<S> <C> <C> <C> <C>
Balance, beginning of period $13,216 $16,593 $13,743 $16,424
Additions during the period 2,893 2,426 3,881 5,042
ORE losses (194) (395) (236) (1,006)
ORE sales (1,953) (1,473) (3,237) (2,765)
Other, net (99) (130) (288) (674)
13,863 17,021 13,863 17,021
Allowance for possible ORE losses (272) (39) (272) (39)
Balance, end of period $13,591 $16,982 $13,591 $16,982
</TABLE>
An analysis of the changes in the allowance for possible ORE losses for the
three and six-month periods ended June 30, 1994 and 1993 is as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
1994 1993 1994 1993
(In thousands)
<S> <C> <C> <C> <C>
Balance, beginning of period $ 328 $ 39 $ 350 $ 568
ORE losses (78) (100) (529)
Other 22 22
Balance, end of period $ 272 $ 39 $ 272 $ 39
</TABLE>
The following Table summarizes the components of ORE expense for the three and
six-month periods ended June 30, 1994, and 1993:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
1994 1993 1994 1993
(In thousands)
<S> <C> <C> <C> <C>
Valuation adjustments:
ORE losses $ 116 $ 395 $ 136 $ 477
Net (gain) loss on ORE sales (232) (39) (182) 36
(116) 356 (46) 513
General carrying costs 548 582 1,002 746
ORE expense $ 432 $ 938 $ 956 $ 1,259
</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 six-month periods ended June 30, 1994
and 1993 were as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
1994 1993 1994 1993
(In thousands)
<S> <C> <C> <C> <C>
Gross gains on ORE sales $ (318) $ (90) $ (354) $ (149)
Gross losses on ORE sales 86 51 172 185
Net (gain) loss on ORE sales $ (232) $ (39) (182) $ 36
</TABLE>
<PAGE>
Allowance for Possible Loan Losses ("APLL")
The APLL is available for future loan losses. The APLL totalled $13.1 million
at June 30, 1994, $1.5 million less than the 1993 year-end balance. The ratio
of the APLL to total loans was 2.55% at June 30, 1994, compared to the 1993
year-end ratio of 2.78%. The APLL as a percent of total nonperforming assets
was 46% at June 30, 1994 and 42% at June 30, 1993. The APLL as a percent of
nonaccrual loans was 108% and 100% at June 30, 1994 and 1993, respectively.
The APLL as a percent of nonperforming loans was 87% at June 30, 1994 and 79%
at June 30, 1993. Management believes the APLL is adequate as of June 30,
1994.
An analysis of the APLL for the three and six-month periods ended June 30,
1994 and 1993 is as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
1994 1993 1994 1993
(In thousands)
<S> <C> <C> <C> <C>
Balance, beginning of period $13,612 $16,263 $14,581 $16,619
Provision for possible loan losses 365 1,400 765 2,900
Loan losses:
Commercial, financial and
agricultural (262) (615) (663) (733)
Real estate - commercial (235) (818) (377) (1,204)
Real estate - construction (122) (140)
Real estate - residential (860) (1,099) (1,853) (2,476)
Installment (97) (260) (209) (424)
Total loan losses (1,454) (2,914) (3,102) (4,977)
Recoveries:
Commercial, financial and
agricultural 304 83 464 147
Real estate - commercial 15 116 21 176
Real estate - construction 4 5 18 5
Real estate - residential 158 4 173 19
Installment 86 102 170 170
Total recoveries 567 310 846 517
Net loan losses (887) (2,604) (2,256) (4,460)
Balance, end of period $13,090 $15,059 $13,090 $15,059
</TABLE>
Securities
Securities totalled $287.9 million at June 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 eleven months. Federal funds sold and securities purchased under
agreements to resell totalled $86.0 million at June 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 $284.5 million in amortized cost at
June 30, 1994. Equity securities classified as available-for-sale had an
estimated fair value of $3.4 million on June 30, 1994, including a net
unrealized gain of $146,000.
<PAGE>
Deposits
Deposits of $855.3 million at June 30, 1994 decreased $10.0 million from
$865.3 million at December 31, 1993. Interest bearing deposit balances at
June 30, 1994 totalled $704.3 million compared to $716.6 million at year-end
1993, a decrease of $12.3 million. The decrease occurred primarily in time
deposits ($17.6 million) and NOW accounts ($2.0 million) and was offset
somewhat by increases in savings deposits ($7.7 million). Demand deposits
increased by $ 2.2 million through June 30, 1994 compared to the 1993 year-end
balance of $148.8 million.
The following Table presents the various types of deposit balances at June 30,
1994 and at December 31, 1993.
<TABLE>
<CAPTION>
June 30, December 31,
1994 1993
(In thousands)
<S> <C> <C>
Demand deposits $150,984 $148,784
NOW accounts 136,818 138,822
Savings deposits 304,857 297,205
Money market accounts 54,045 54,347
Time deposits of $100,000 or more 9,677 11,641
Other time deposits 198,892 214,536
Total deposits $855,273 $865,335
</TABLE>
<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 six months ended June 30, 1994, totalled $19.0
million compared to $20.6 million for the six months ended June 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 six months of 1994, the $1.6 million decrease in
net interest income was due to lower average balances in the loan portfolio
and lower rates earned on loans and securities. For the first six months of
1994, the interest rate spread and net interest margin equalled 3.97% and
4.39%, respectively, compared to 4.50% and 4.88%, respectively, for the six
months ended June 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 net interest
income by average total earning assets.
Second quarter net interest income decreased from $10.1 million in 1993 to
$9.8 million in 1994. This decrease of $300,000 is the result of lower
average balances in the loan portfolio and lower rates earned, in general, on
interest earning assets. The interest rate spread for the 1994 and 1993
second quarters was 4.08% and 4.37%, respectively. The net interest margin
was 4.49% and 4.75% for the 1994 and 1993 compared quarters, respectively.
The Company's net interest margin was higher in second quarter of 1994 (4.49%)
as compared to the first quarter of 1994 (4.29%).
Average interest earning assets totalled $873.0 million for the first six
months of 1994, an increase of $20.2 million compared to the 1993 first half.
Average loans, however, totalled $515.7 million for the first half of 1994, a
decrease of $85.3 million compared to the 1993 first half. The increase in
average interest earning assets consists primarily of $87.0 million in
taxable investment securities and $18.2 million in federal funds sold and
securities purchased under agreements to resell. The yield on average
interest earning assets for the first half of 1994 equalled 6.72%, a decrease
of 89 basis points from the 1993 first half yield of 7.61%. The decrease in
yield was offset somewhat by lower interest rates paid on deposits and
borrowings in the first half of 1994 compared to 1993. Rates paid on deposits
and borrowings decreased from 3.11% in the 1993 first half to 2.75% in the
comparable 1994 period. Average interest bearing liabilities totalled $741.1
million for the 1994 first half, a decrease of $7.8 million from the 1993
first half total.
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 half of 1994 was $765,000
compared to $2.9 million during the first half of 1993. Net loans charged off
for the six months ended June 30, 1994 and 1993 were $2.3 million and $4.5
million, respectively. In connection with determining the appropriate amount
of the provision for possible loan losses for any period, Management evaluates
<PAGE>
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 second quarter of 1994 was
$365,000 compared to $1.4 million during the second quarter of 1993. Net
loans charged off for the three month periods ended June 30, 1994 and 1993
were $887,000 and $2.6 million, respectively.
Non-Interest Income
Non-interest income decreased by $206,000 for the six months ended June 30,
1994 compared with last year's total for the comparable period of $5.0
million. This decrease was principally attributable to lower net gains on
mortgage sales of $613,000 and net securities gains of $180,000. Trust fee
income increased by $429,000, or 27%, from the $1.6 million earned during the
six months ended June 30, 1993. Service charges on deposit accounts were
$81,000 higher for the six months ended June 30, 1994 compared to 1993, a 5%
increase.
Non-interest income decreased $342,000 for the second quarter of 1994 over
last year's total of $2.7 million. Other non-interest income decreased by
$403,000 primarily due to lower net gains on mortgage sales of $431,000.
Also, securities gains decreased by $180,000. The decrease was partially
offset by higher trust fees ($204,000) and higher service charges on deposit
accounts ($37,000).
Non-Interest Expense
Non-interest expense increased $133,000 to $17.6 million for the six months
ended June 30, 1994 compared to the 1993 period. This increase was primarily
due to other miscellaneous non-interest expense which totalled $4.2 million
for the six months ended June 30, 1994, an increase of $432,000, or 11%,
compared to the 1993 six-month period due to higher legal and professional
fees ($228,000), general insurance expenses ($84,000), computer expenses
($73,000), marketing expenses ($63,000), and other miscellaneous expenses.
ORE expense decreased by $303,000 for the 1994 six-month period compared to
the 1993 six-month period total of $1.3 million. The 1994 and 1993 ORE
expense for the six-month periods consisted of general carrying costs of $1.0
million and $746,000, respectively, further write-downs to fair value for
various properties of $136,000 and $477,000, respectively, and a net gain on
ORE sales of $182,000 in 1994 versus a net loss of $36,000 in 1993. ORE
losses charged to the allowance for possible ORE losses amounted to $100,000
and $529,000 in the 1994 and 1993 six-month periods, respectively. No
provisions for possible ORE losses were recorded for the six-months ended June
30, 1994 and 1993. General carrying costs increased by $256,000 in the first
six months of 1994 primarily due to lower miscellaneous recoveries ($395,000)
and higher property tax expense ($109,000), which was partially offset by
lower legal, maintenance and other miscellaneous expenses. FDIC insurance
expense totalled $1.1 million for the six months ended June 30, 1994, a
decrease of $181,000, or 14%, over the comparable 1993 period, reflecting the
decreased premium rate charged on applicable deposits. Salaries and employee
benefits increased by $165,000, or 2%. Occupancy and equipment costs
increased $20,000 to $2.5 million from the 1993 comparable period.
<PAGE>
Non-interest expense decreased $362,000 for the second quarter of 1994
compared with last year's total for the comparable period of $9.1 million.
Salaries and employee benefits decreased $9,000. Occupancy and equipment
costs were $1.2 million for both the 1994 and 1993 second quarters. ORE
expense decreased by $506,000 compared to the prior year second quarter total
of $938,000. The 1994 and 1993 second quarter ORE expense consists of general
carrying costs of $548,000 and $582,000, respectively, and further write-downs
to fair value for various properties of $116,000 and $395,000, respectively.
No write-downs were charged to the allowance for possible ORE losses in the
1993 second quarter. Write-downs of $78,000 were charged to the allowance for
possible ORE losses during the second quarter of 1994. FDIC insurance expense
decreased by $90,000 for the second quarter and reflects the lower premium
rate charged on applicable deposits. Other non-interest expense increased by
$258,000 due primarily to higher general insurance expense ($110,000), legal
and professional expense ($72,000), examination and audit fees ($49,000), and
other miscellaneous expenses.
Income Tax Expense
Income taxes for the first half of 1994 and 1993 totalled $1.6 million and
$1.7 million, respectively, on 1994 pre-tax income of $5.3 million and 1993
pre-tax income of $5.1 million. The effective tax rate was 30% and 33% for
the six months ended June 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>
AVERAGE BALANCES AND RATES -
FULLY TAXABLE EQUIVALENT BASIS
QUARTERLY SUMMARY
<TABLE>
<CAPTION>
1994
----------------------------------------------
2nd Quarter 1st Quarter
(In thousands) Avg Balance Rate Avg Balance Rate
<S> <C> <C> <C> <C>
ASSETS
Interest earning assets:
Loans (1) $511,928 8.69% $519,566 8.67%
Taxable securities 281,454 4.16 255,100 3.81
Non-taxable securities 3,057 5.64 2,168 6.55
Federal funds sold and securities
purchased under agreements to resell 78,148 3.88 94,487 3.19
Total interest earning assets 874,587 6.80 871,321 6.65
Non-interest earning assets:
Cash and due from banks 56,095 55,377
Premises and equipment, net 11,041 11,201
Other assets 28,951 28,866
Less allowance for possible loan losses 13,750 14,694
Total assets $956,924 $952,071
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest bearing liabilities:
Savings deposits $493,573 2.23 $485,317 2.23
Certificates of deposit of $100,000
or more 10,262 3.64 11,517 3.70
Other time deposits 203,024 3.95 212,233 4.11
Federal funds purchased and securities
sold under agreements to repurchase 29,666 2.15 30,886 1.79
Other borrowed funds 2,879 3.76 2,785 2.77
Total interest bearing liabilities 739,404 2.72 742,738 2.77
Non-interest bearing liabilities:
Demand deposits 138,464 131,659
Other liabilities 8,656 8,801
Total liabilities 886,524 883,198
Shareholders' equity 70,400 68,873
Total liabilities and shareholders' equity $956,924 $952,071
Interest rate spread 4.08% 3.88%
Net interest margin 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>
AVERAGE BALANCES AND RATES -
FULLY TAXABLE EQUIVALENT BASIS
QUARTERLY SUMMARY
<TABLE>
<CAPTION>
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> <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>
NONPERFORMING ASSETS
QUARTERLY SUMMARY
<TABLE>
<CAPTION>
1994 1993
------------------ ----------------------------------------------
Second First Fourth Third Second First
(In thousands) Quarter Quarter Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C> <C> <C>
90 days or more past due
and still accruing $ 2,603 $ 4,144 $ 2,006 $ 2,768 $ 2,609 $ 2,589
Restructured 281 602 1,012 963 1,505 1,576
Nonaccrual 12,088 13,435 13,039 15,004 15,030 16,796
Total nonperforming loans 14,972 18,181 16,057 18,735 19,144 20,961
Other real estate 13,591 12,888 13,393 14,149 16,982 16,554
Total nonperforming assets $28,563 $31,069 $29,450 $32,884 $36,126 $37,515
Nonperforming loans as a
percent of total loans 2.92% 3.54% 3.06% 3.43% 3.33% 3.48%
Nonperforming assets as a
percent of total loans 5.57% 6.05% 5.61% 6.01% 6.28% 6.23%
Allowance for possible loan
losses as a percent of
nonperforming assets 46% 44% 50% 45% 42% 43%
</TABLE>
<PAGE>
QUARTERLY INCOME SUMMARY -
FULLY TAXABLE EQUIVALENT BASIS
(In thousands, except per share data)
<TABLE>
<CAPTION>
1994 1993
------------------ ----------------------------------------------
Second First Fourth Third Second First
Quarter Quarter Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C> <C> <C>
Interest income $14,817 $14,286 $15,329 $15,429 $15,846 $16,347
Interest expense 5,019 5,078 5,477 5,827 5,754 5,812
Net interest income 9,798 9,208 9,852 9,602 10,092 10,535
Less tax equivalent adjustment 47 33 59 61 59 53
Provision for possible loan
losses 365 400 250 1,050 1,400 1,500
Non-interest income 2,379 2,384 2,471 2,384 2,721 2,248
Non-interest expense 8,733 8,889 9,592 8,862 9,095 8,394
Income before income taxes 3,032 2,270 2,422 2,013 2,259 2,836
Income taxes 1,021 567 785 661 747 945
Net income $ 2,011 $ 1,703 $ 1,637 $ 1,352 $ 1,512 $ 1,891
Earnings per share $ .49 $ .42 $ .40 $ .40 $ .45 $ .56
Dividends per share $ .10 $ .08 $ .08 $ .00 $ .00 $ .00
Return on average assets (1) .84% .73% .66% .56% .65% .82%
Return on average equity (1) 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: None
(b) Reports on Form 8-K:
On May 31, 1994, the Registrant filed a report on Form 8-K,
pursuant to Item 5, disclosing the following:
"On Form 10-Q for the quarterly period ended September 30, 1992
the Registrant reported that its sole subsidiary, Bank of New
Hampshire (the "Bank"), agreed to a Capital Directive and
entered into a Memorandum of Understanding with the Federal
Deposit Insurance Corporation (the "FDIC") and State of New
Hampshire Banking Department (the "State").
On May 18, 1994, the Bank received written notification from the
FDIC terminating the Capital Directive.
Additionally, on May 26, 1994, the Bank received notification
from the FDIC and the State terminating the Memorandum of
Understanding."
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: August 3, 1994 /s/ Davis P. Thurber
Davis P. Thurber, Chairman of the Board of
Directors and President
(Principal Executive Officer)
Date: August 3, 1994 /s/ Gregory D. Landroche
Gregory D. Landroche, Senior Vice President/
Chief Financial Officer and Treasurer
(Principal Financial Officer)
