<PAGE>
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark one)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
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 jurisdition of (I.R.S. Employer
incorporation or organization) Identification No.)
300 Franklin Street, Manchester, New Hampshire 03101
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (603) 624-6600
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value, with a stated value of $2.50 per share
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports re-
quired 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 period that the
Registrant was required to file such report(s), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
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The aggregate market value of the shares of common stock held by nonaffiliates
of the registrant was $144.9 million based upon the reported closing price per
share on March 21, 1996 of $42.00. The Registrant, solely for the purpose of
this required presentation, has deemed the Rule 13 d-5(b)(1) Group, (Thurber
Family, so called,) to be affiliates, and deducted from its outstanding shares
in determining the aggregate market value, their beneficial holdings of
614,268 shares or $25.8 million.
Number of Shares Outstanding at March 28, 1996 - 4,064,165 shares
DOCUMENTS INCORPORATED BY REFERENCE
Sections of the Company's 1995 Part I, Items 1 and 2
Annual Report to Shareholders Part II, Items 5, 6, 7, and 8; and
Part IV, Item 14
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INDEX
Name of Item Page
PART I
ITEM 1. BUSINESS 4
Table of Contents of Statistical Information 11
ITEM 2. PROPERTIES 25
ITEM 3. LEGAL PROCEEDINGS 25
ITEM 3A. EXECUTIVE OFFICERS OF THE COMPANY 25
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 26
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS 26
ITEM 6. SELECTED FINANCIAL DATA 26
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 26
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 27
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE 27
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY 27
ITEM 11. EXECUTIVE COMPENSATION 29
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT 34
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 36
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K 36
SIGNATURES
SIGNATURES 38
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PART I
ITEM 1. BUSINESS
THE COMPANY
Bank of New Hampshire Corporation (the "Company") is a registered bank holding
company incorporated in 1979 under New Hampshire law. The Company is
regulated by the State of New Hampshire Banking Department and by the Federal
Reserve System and transacts its business through its only subsidiary, Bank of
New Hampshire (the "Bank"), a state-chartered commercial bank organized under
New Hampshire law, headquartered, along with the executive offices of the
Company, at 300 Franklin Street, Manchester, New Hampshire 03101 (telephone
603-624-6600).
The Company employs approximately 500 employees and conducts its business
through twenty-nine offices of the Bank located throughout the southern,
central, seacoast, and lakes regions of New Hampshire, which areas contain
approximately 80% of the State's population.
MERGER AGREEMENT
On October 25, 1995 the Company, along with Peoples Heritage Financial Group,
Inc. ("Peoples") announced a definitive agreement to merge. The transaction
would be a tax-free exchange of two shares of Peoples' common stock for each
share of the Company's common stock. It is intended that the transaction will
be accounted for as a pooling of interests.
Under the definitive agreement, Peoples' New Hampshire-based holding company,
First Coastal Banks, Inc., will merge into the Company. Subsequently, The
First National Bank of Portsmouth, a wholly-owned subsidiary of First Coastal,
will be merged into the Bank. The combination will result in Peoples becoming
a $4.2 billion banking company with a New Hampshire-based banking subsidiary
of approximately $1.7 billion in assets.
The agreement was approved by shareholders of both companies on February 27,
1996. Regulatory approvals have been received and it is anticipated that the
transaction will close in April, 1996.
BUSINESS OF THE COMPANY
The Company, primarily, provides management resources to the Bank. The Bank
is a full service commercial bank engaged in providing a wide variety of
financial services to New Hampshire individuals, businesses and governments,
including commercial and real estate lending; retail banking; consumer
finance; mortgage origination, sales and servicing; cash management; and trust
and investment services. Through its Trust and Investment Services Division,
the Bank administers estates, personal and corporate trusts, and provides
fiduciary services to individuals, businesses, and governments. The Bank also
offers electronic banking services through a network of twenty-five ATMs. The
Bank maintains a centralized data processing facility at its Data Services
Center located in Manchester, New Hampshire.
Activities in which the Company and the Bank are presently engaged or which
they may undertake in the future are subject to certain statutory and regula-
tory restrictions. Banks and bank holding companies are extensively regulated
under both federal and state law. There are various legal limitations upon
the extent to which the Bank can finance or otherwise supply funds to the
Company. In addition, there are certain regulatory limitations on the payment
of dividends by the Company and by the Bank. See "SUPERVISION AND REGULATION"
and "Dividends and Dividend Policy" on pages 5 and 7 of this Report.
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COMPETITION
The business of the Bank is extremely competitive. In addition to competing
actively with other commercial banks in its market area for deposits and
loans, the Bank competes with larger commercial banks located outside of New
Hampshire. The Bank also competes with other financial institutions,
including state co-operatives, mutual and stock savings banks, savings and
loan associations, finance companies and credit unions. In addition, it
competes with nonbanking institutions including insurance companies and other
financial services organizations. Competition among financial institutions is
based upon product pricing, customer service, convenience of banking locations
and a variety of other factors. At December 31, 1995, the Bank's deposits
totalled $837.7 million, which represents approximately 5.5% of the total
time, savings and demand deposits of all banks, state co-operatives and
savings and loan associations in New Hampshire.
SUPERVISION AND REGULATION
The Company is a bank holding company registered under the Bank Holding
Company Act of 1956 ("BHCA") and is subject to supervision by the State
Banking Department and by the Board of Governors of the Federal Reserve System
("FRB"). The Company is required to file quarterly reports and certain other
information with the Federal Reserve Bank of Boston ("FRBB"). The FRBB also
examines the Company.
The Bank is a state-chartered institution and is not a member of the FRB.
Accordingly, the Bank is subject to supervision, regulation and examination by
both the FDIC and the State Banking Department. Deposits in the Bank are
insured by the FDIC to the extent allowed by law.
Several of the more significant regulatory provisions applicable to bank
holding companies and banks, to which the Company and the Bank are subject,
appear below. To the extent that the following information describes
statutory or regulatory provisions, it is qualified in its entirety by
reference to the particular statutory provisions. Any change in applicable
law or regulation could have a material effect on the Company's business.
LEGISLATION
Interstate Banking Efficiency Act ("IBEA")
On September 29, 1994, the Federal government enacted the IBEA, which
authorizes nationwide banking and branching. Subject to states' rights and
Community Reinvestment Act provisions, nationwide banking is permitted after
September 29, 1995, and nationwide branching will be permitted after June 1,
1997. A bank holding company cannot control more than 10% of the nationwide
total amount of insured deposits, under the IBEA.
Interstate Branching
Under the IBEA, states will be permitted to authorize out-of-state banks to
open de novo (new) branches in their states. De novo branching across state
lines is otherwise generally barred. Similarly, acquisitions of branches
across state lines are barred unless authorized by state law. As of September
29, 1995, banks are allowed to accept deposits, close and service loans and
accept loan payments on behalf of affiliated banks from other states, in
effect a preview of interstate branching. However, banks cannot originate
loans or open deposit accounts on behalf of an out-of-state affiliate.
After June 1, 1997, bank holding companies will be allowed to convert all or
part of their branch networks into interstate branches. They may also acquire
banks in other states concurrent with converting them to branches. States now
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have three options: (i) opt-in before June 1, 1997 (ii) opt-out by May 31,
1997 or (iii) accept the provisions of the law based on the federal timetable.
The selection of option (ii) above would bar branching in their state and also
bar in-state banks from branching into other states or acquiring banks across
state lines. Bank holding companies that convert their banks into branches
across state lines retain the branching capacity of the original banks in
their respective states.
Under New Hampshire's enabling legislation, which does not take effect until
June 1997, out-of-state banks may enter the state only by acquiring an entire
bank that is at least five years old. Entry by de novo branching or buying a
single branch is prohibited. In addition, the cap on statewide deposit share
was set at 20%, compared to 30% under federal law.
In 1996, the New Hampshire legislature passed legislation establishing a
committee on interstate banking and branching to address the options allowed
under the IBEA, as a result of the less restrictive rules adopted in nearby
states.
Other Provisions
Under the IBEA, federal regulators must implement regulations which prevent
interstate branching from being used to create "deposit production offices";
the FRB must conduct an annual survey of banks' fees for retail financial
services; the FDIC can revive an expired state statute of limitations if the
statute expired within five years of the FDIC's takeover of a failed bank only
in cases of fraud, intentional misconduct leading to personal enrichment or
intentional misconduct leading to substantial loss to the bank; the General
Accounting Office must compile a report on the efficiency of current reporting
requirements in light of nationwide interstate banking and branching; and the
Secretary of the Treasury must establish a commission to study the U.S.
financial services systems' strengths and weaknesses in meeting customer
needs.
BANK HOLDING COMPANY REGULATION
Acquisitions by Bank Holding Companies
The BHCA prohibits the Company from acquiring direct or indirect control of
more than 5% of the outstanding shares of any class of voting stock or
substantially all of the assets of any bank, or merging or consolidating with
another bank holding company, without prior approval of the FRB. Restrictions
also apply to similar acquisition of shares of stock of the Company by other
bank holding companies.
The BHCA also prohibits the Company from engaging in, or from acquiring
ownership or control of, more than 5% of the outstanding shares of any class
of voting stock of any company engaged in a nonbanking activity unless such
activity has been determined by the FRB to be so closely related to banking as
to be a proper incident thereto. The BHCA does not place territorial
restrictions on the activities of such nonbanking-related activities.
Control of Bank Holding Companies
The Change in Bank Control Act ("CBCA") requires notice to and approval by the
FRB prior to the acquisition by any person or entity of "control" of a bank
holding company. The CBCA defines "control" as the power, directly or
indirectly, to vote 25% or more of any class of voting securities. The FRB
has promulgated regulations pursuant to which it presumes that one has
"control" of a bank holding company if one owns, controls, or holds with the
power to vote 10% or more of any class of voting securities of a
publicly-traded bank holding company.
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New Hampshire law currently may restrict acquisitions of control of New
Hampshire bank holding companies. The Board of Directors of individual banks
or bank holding companies may adopt resolutions which, upon filing with the
State Banking Department, prohibit acquisitions by out-of-state banks.
Neither the Company's nor the Bank's Board has taken action with regard to
these resolutions.
Capital Adequacy
The FRB uses risk-based capital adequacy guidelines to evaluate the capital
adequacy of bank holding companies. Such guidelines require bank holding
companies to maintain risk-based capital ratios substantially similar to those
required for state banks, as described below. In addition to the risk-based
capital guidelines, the FRB and the FDIC require the use of the leverage ratio
as an additional tool to evaluate the capital adequacy of bank holding
companies. Bank holding companies are required to maintain a leverage ratio
of 3.0% plus an additional cushion of at least 100 to 200 basis points.
Information concerning the Company and the Bank with respect to capital is set
forth in Management's Financial Review - "Consolidated Balance Sheet" and
"Capital Resources", contained in the Company's 1995 Annual Report to
Shareholders on pages 8 and 16, respectively, filed as Exhibit 13, which is
incorporated herein by reference.
Dividends and Dividend Policy
The Company is a legal entity separate and distinct from the Bank. The
Company's revenues (on a Parent Company only basis) result, in part, from
dividends paid to the Company by the Bank. During 1995, the Bank paid $2.9
million in dividends to the Company. The right of the Company, and its
creditors and shareholders, to participate in any distribution of the assets
of the Bank is subject to the prior claims of creditors of the Bank, including
depositors.
The Company's dividend policy with respect to its common stock is reviewed
quarterly. During 1995, the Company paid $2.7 million in dividends to
shareholders. Any dividend declaration by the Company or the Bank must con-
sider the amount of current period earnings, capital adequacy and other
factors (as discussed below). However, federal and state regulators have the
authority to prohibit the Bank and the Company from paying dividends at any
time if they deem such payment to be an unsafe or unsound practice.
The FRB issued a policy statement that bank holding companies should serve as
a source of managerial and financial strength to their subsidiary banks. As
part of this policy, the FRB expects that if a major subsidiary bank is unable
to pay dividends to a bank holding company, the bank holding company should
consider reducing or eliminating its dividends to shareholders in order to
conserve its capacity to provide capital assistance to the subsidiary bank.
The policy also discourages bank holding companies with subsidiary banks which
are experiencing earnings weaknesses, other serious problems, or that have
inadequate capital, from paying dividends not covered by current earnings,
from borrowed funds, or from unusual or nonrecurring gains. In addition, a
bank holding company is prohibited under the Federal Deposit Insurance Act
from paying dividends without the prior approval of the FRB if an insured bank
subsidiary is deemed to be "significantly undercapitalized" (as discussed
below) or is deemed to be "undercapitalized" and has failed to submit and
implement a required capital restoration plan.
BANK REGULATION
The Bank is required to maintain cash reserves against deposits and is subject
to restrictions, among others, upon the nature and amount of loans which it
<PAGE>
may make to a borrower, the nature and amount of securities in which it may
invest, the amount of its assets which may be invested in bank premises, the
geographic location of its branches, and the nature and extent to which it can
borrow money.
FDICIA
The Federal government enacted the Federal Deposit Insurance Corporation
Improvement Act of 1991 ("FDICIA") which, in general, required the adoption of
regulations establishing minimum capital ratio requirements for insured
institutions, established a system of classifications for insured institutions
based on capital ratios and other factors under which federal regulatory
agencies are required to take "prompt corrective action" with regard to
capital and other deficiencies, and provided for the recapitalization of the
FDIC's Bank Insurance Fund ("BIF") by setting up a risk-based scheme of
premium assessments of insured institutions.
Capital Adequacy
Under the FDIC's minimum capital ratio regulations, state banks are required
to have a ratio of "Tier 1," or core, capital-to-total risk-weighted assets of
4.0% and a ratio of total capital-to-total risk-weighted assets of 8.0%.
Except in the case of the strongest institutions, the FDIC expects state banks
to substantially exceed these minimum risk-based capital ratios. As of
December 31, 1995, the Bank's ratio of "Tier 1" capital-to-total risk-weighted
assets was 15.86% and its ratio of total capital-to-total risk-weighted assets
was 17.13%. Also under FDIC regulations, state banks are required, in most
cases, to maintain a leverage ratio, or "Tier 1" capital-to-average total
assets ratio, of no less than 4.0%. As of December 31, 1995, the Bank's
leverage ratio was 8.15%. Under certain circumstances, the FDIC may establish
higher minimum capital ratio requirements than set forth above; for example,
when a bank has received special regulatory attention or has high
susceptibility to interest rate risk. A bank is restricted from paying
dividends if it is, or as a result of the dividend would be, considered to be
undercapitalized under these minimum capital ratio requirements. Banks with
capital ratios below the required minimums are also subject to certain
administrative actions, including termination of deposit insurance upon notice
and hearing, or temporary suspension of insurance without a hearing in the
event the institution has no tangible capital.
Prompt Corrective Action
The regulations relating to "prompt corrective action" establish five
classifications based on capital levels, some of which require or permit the
FRB or the FDIC to take supervisory action -- "well capitalized," "adequately
capitalized," "undercapitalized," "signficantly undercapitalized," and
"critically undercapitalized." The classifications are determined by the
ratios of the institution's "Tier 1" capital-to-total risk-weighted assets, its
total capital-to-total risk-weighted assets, and its leverage ratio. To fall
within the "well capitalized" category, ratios (as described above) must be at
least 6.0%, 10.0%, and 5.0%, respectively. The regulations require a bank to
notify the appropriate agency of material events that decrease the capital
level of the bank, and to do so within 15 days. In addition, federal banking
regulators are authorized to effectively downgrade an institution to a lower
capital category than the institution's capital ratios would otherwise
indicate, based upon safety and soundness considerations, such as when the
institution has received a less than satisfactory examination rating for any of
the rating categories for asset quality, management, earnings, or liquidity.
The scope and degree of regulatory intervention is linked to the amount of any
shortfall in the capital ratios of the insured institution. In the case of an
insured institution which is "critically undercapitalized" (a term defined to
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include institutions which have a positive net worth), the federal bank
regulatory authorities are generally required to appoint a conservator or
receiver. An "undercapitalized" bank must develop a capital restoration plan
and its parent holding company must guarantee the bank's compliance with the
plan. The liability of the parent holding company under any such guarantee is
limited to the lesser of 5% of the bank's assets at the time it became
"undercapitalized" or the amount needed to comply with the plan. An
"undercapitalized" bank also is subject to limitations in numerous areas,
including, but not limited to: capital distributions, asset growth,
acquisitions, branching, new business lines and borrowings from the FRB.
Under the regulations relating to brokered deposits, "well capitalized" banks
may accept brokered deposits without restriction, "adequately capitalized"
banks may accept such funds only if they first obtain a waiver from the FDIC,
and "undercapitalized" banks are prohibited from accepting such deposits. In
addition, banks which are not "well capitalized" (even if meeting minimum
capital requirements) are subject to limits on the rates of interest they may
pay on brokered and other deposits. Based on its capital ratios as of
December 31, 1995, the Bank is deemed to be "well capitalized" under the
prompt corrective action regulations.
FDICIA contains numerous other provisions, including accounting, audit and
reporting requirements, the termination of the "too big to fail" doctrine
except in special cases, regulatory standards in areas such as asset quality,
earnings and compensation, and revised regulatory standards for, among other
things, powers of state chartered banks, real estate lending, branch closures,
and capital adequacy.
Deposit Insurance Assessments
In order to implement the recapitalization of the BIF pursuant to FDICIA, the
FDIC established a schedule to increase the reserve ratio of the BIF to 1.25%
of insured deposits by January 1, 2002. However, the FDIC reported that the
BIF became fully recapitalized during May 1995. The FDIC has the authority to
change the premium rates and, on June 1, 1995, cut premiums from $.23 to $.04
cents and on January 1, 1996 from $.04 cents to $.00, for the safest banks.
However, all banks are subject to a minimum charge of $2,000 per year. The
FDIC also widened the range of risk-based premiums charged from $.00 cents for
the safest banks to $.27 cents for the weakest banks.
Each institution is placed in one of nine risk categories using a two-step
process. First, a bank is assigned to one of three groups based on whether it
is "well capitalized," "adequately capitalized," or "undercapitalized".
Second, a bank is assigned to one of three subgroups based on an evaluation of
the risk posed by the bank. Based on these classifications, the FDIC uses an
insurance premium schedule under which the safest banks, including the Bank,
currently pay $.00 cents per $100 of deposits. The rates increase
incrementally to a top rate of $.27 cents for the weakest banks.
FIRREA
The Federal government enacted the Financial Institutions Reform, Recovery and
Enforcement Act of 1989 ("FIRREA") which empowers regulatory authorities to
use their "cease-and-desist" authority to require institutions to take certain
affirmative actions. Such cease-and-desist orders may include restricting the
growth of the institution, disposing of any loan or assets, rescinding
agreements or contracts, employing qualified officers or employees or taking
other actions. Regulatory agencies also have the authority to order
restitution where an institution or "institution-affiliated party" (a term
which does not include bank holding companies) was "unjustly enriched" or
recklessly disregarded the law.
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GOVERNMENTAL POLICIES AND ECONOMIC CONDITIONS
The earnings and business of the Company and the Bank are and will be affected
by a number of external influences, including general economic conditions and
the policies of various regulatory authorities. In addition to those
enumerated under "SUPERVISION AND REGULATION" important FRB functions are to
regulate the supply of money and of bank credit, to deal with general economic
conditions within the United States and to be responsive to international
economic conditions. Among the means available to the FRB to affect the money
supply are open market operations in U.S. Government securities, changes in
the discount rate on member bank borrowings, and changes in reserve re-
quirements against member bank deposits. These means are used in varying
combinations to influence overall growth and distribution of bank loans,
investments and deposits, and their use may affect interest rates charged on
loans or paid for deposits. From time to time, the FRB has taken specific
steps to control domestic inflation and to control the country's money supply.
FRB monetary policies have materially affected the operating results of
commercial banks in the past and are expected to continue to do so in the
future.
The effect upon the future business and earnings of the Company, of
prospective economic and political conditions, and of the policies of the FRB
as well as other regulatory authorities, cannot be determined at this time.
This section should be read in conjunction with "Management's Financial
Review" contained in the Company's 1995 Annual Report to Shareholders, filed
as Exhibit 13, which is incorporated herein by reference.
<PAGE>
Table of Contents of Statistical Information Page No.
I. A. Distribution of Assets, Liabilities,
and Shareholders' Equity 12
B. Interest Income and Expense 13
C. Interest Rates 14
D. Volume and Rate Analysis 15
II. Securities 16
III. A. Loans 17
B. Maturities and Interest Rate
Sensitivity of Loans 18
C. Nonperforming Assets 19
IV. A. Analysis of Allowance for Possible Loan
Losses 20
B. Allocation of Allowance for Possible
Loan Losses 21
V. Deposits 22
VI. Return on Equity and Assets and Other Ratios 22
VII. Federal Funds Purchased and Securities Sold
Under Repurchase Agreements 23
VIII. Trust Data 24
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I. A. Distribution of Assets, Liabilities and Shareholders' Equity
The following Table presents, for the years indicated, the
average balances of each principal category of assets and
liabilities, and shareholders' equity.
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
(In thousands)
ASSETS
<S> <C> <C> <C>
Earning assets:
Loans $522,368 $522,940 $581,353
Taxable securities 285,600 278,699 207,846
Non-taxable securities 745 2,759 2,464
Federal funds sold and securities
purchased under resale agreements 60,362 72,652 84,320
Total earning assets 869,075 877,050 875,983
Cash and due from banks 48,565 53,556 56,767
Premises and equipment, net 10,388 10,840 11,581
Other assets 26,653 26,529 24,153
Allowance for possible loan losses (12,836) (13,837) (15,950)
Total assets $941,845 $954,138 $952,534
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest bearing liabilities:
Savings deposits $448,239 $489,080 $481,521
Certificates of deposit of $100,000 or more 11,642 10,169 12,896
Other time deposits 207,589 200,306 222,097
Federal funds purchased and securities sold
under repurchase agreements 38,812 33,346 35,431
Other borrowed funds 2,726 2,720 3,529
Total interest bearing liabilities 709,008 735,621 755,474
Demand deposits 142,455 138,676 131,335
Other liabilities 10,612 8,556 9,032
Total liabilities 862,075 882,853 895,841
Shareholders' equity 79,770 71,285 56,693
Total liabilities and shareholders' equity $941,845 $954,138 $952,534
</TABLE>
<PAGE>
I. B. Interest Income and Expense
The following Table presents, for the years indicated, interest
income on earning assets on a fully taxable equivalent ("FTE")
basis, interest expense on interest bearing liabilities and net
interest income. Interest earned from loans includes fees
on loans.
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
(In thousands)
<S> <C> <C> <C>
Interest earned from:
Loans (1) $ 50,601 $ 45,897 $ 51,782
Taxable securities 16,847 12,048 8,429
Non-taxable securities (1) 67 158 170
Federal funds sold and securities
purchased under resale agreements 3,539 2,909 2,570
Total interest income (1) 71,054 61,012 62,951
Interest expense on:
Savings deposits 11,048 11,324 12,203
Certificates of deposit of $100,000 or more 560 376 467
Other time deposits 10,429 7,996 9,395
Federal funds purchased and securities sold
under repurchase agreements 1,639 920 721
Other borrowed funds 155 112 84
Total interest expense 23,831 20,728 22,870
Net Interest Income (1) $ 47,223 $ 40,284 $ 40,081
(1) Includes an FTE adjustment based on a 34%
federal income tax rate. $ 128 $ 160 $ 232
</TABLE>
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I. C. Interest Rates
The following Table presents, for the years indicated, the
interest rate earned on average earning assets, on an FTE basis,
and the interest rate paid on average interest bearing
liabilities.
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
<S> <C> <C> <C>
Rate earned on:
Loans (1) 9.69% 8.78% 8.91%
Taxable securities 5.90 4.32 4.06
Non-taxable securities 8.99 5.73 6.90
Federal funds sold and securities
purchased under resale agreements 5.86 4.00 3.05
Total 8.18 6.96 7.19
Rate paid on:
Savings deposits 2.46 2.32 2.53
Certificates of deposit of $100,000 or more 4.81 3.70 3.62
Other time deposits 5.02 3.99 4.23
Federal funds purchased and securities sold
under repurchase agreements 4.22 2.76 2.03
Other borrowed funds 5.69 4.12 2.38
Total 3.36 2.82 3.03
Interest Rate Spread (2) 4.82% 4.14% 4.16%
Net Interest Margin (3) 5.43% 4.59% 4.58%
</TABLE>
____________________
(1) For the calculation of rate earned on loans, nonaccrual and
restructured loans are included in the average amounts outstanding.
(2) Interest rate spread is the average rate earned on total earning
assets less the average rate paid for interest bearing liabilities.
(3) Interest rate margin is calculated by dividing net interest income by
total earning assets.
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I. D. Volume and Rate Analysis
The following Table presents an analysis of the effect on net
interest income, on an FTE basis, of volume and rate changes for
the years indicated. The effect of changes due to both volume
and rate have been allocated to the change in volume and change
in rate categories in proportion to the relationship of the
absolute dollar amounts of the change in each category.
<TABLE>
<CAPTION>
1995 vs 1994 1994 vs 1993
Net Changes due to Net Changes due to
Increase Increase
(Decrease) Volume Rate (Decrease) Volume Rate
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest income from:
Loans $ 4,704 $ (50) $ 4,754 $(5,885) $(5,139) $ (746)
Taxable securities 4,799 304 4,495 3,619 3,047 572
Non-taxable securities (91) (152) 61 (12) 19 (31)
Federal funds sold and
securities purchased
under resale agreements 630 (553) 1,183 339 (389) 728
Total interest income 10,042 (451) 10,493 (1,939) (2,462) 523
Interest expense on:
Savings deposits (276) (955) 679 (879) 182 (1,061)
Certificates of deposit
of $100,000 or more 184 60 124 (91) (101) 10
Other time deposits 2,433 300 2,133 (1,399) (886) (513)
Federal funds purchased
and securities sold under
repurchase agreements 719 170 549 199 (45) 244
Other borrowed funds 43 0 43 28 (23) 51
Total interest expense 3,103 (425) 3,528 (2,142) (873) (1,269)
Net Interest Income $ 6,939 $ (26) $ 6,965 $ 203 $(1,589) $ 1,792
</TABLE>
<PAGE>
II. Securities
The following Table presents the book values of securities for the
years indicated.
December 31,
1995 1994 1993
(In thousands)
U.S. Treasury and Other
U.S. Government agencies $276,879 $285,392 $256,380
State and municipal 538 908 1,215
Other 4,013 3,891 797
Total securities $281,430 $290,191 $258,392
The following Table presents the relative maturities at book value and
weighted average interest rates of securities at December 31, 1995. Other
securities having a book value of $4.0 million are not included in the
Table. Weighted average rates on tax-exempt obligations have been
computed on an FTE basis assuming a tax rate of 34%. The rates are
calculated by dividing annual interest, net of amortization of premiums
and accretion of discounts, by the book value of the securities at
December 31, 1995.
<TABLE>
<CAPTION>
Within After One But After Five But After
One Year Within Five Years Within Ten Years Ten Years
Amount Rate Amount Rate Amount Rate Amount Rate
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury
and other U.S.
Government
agencies $215,438 6.06% $ 60,681 6.17% $ 114 6.65% $ 646 9.49%
State and
municipal 188 9.40% 350 9.60%
Total $215,626 6.06% $ 60,681 6.17% $ 114 6.65% $ 996 9.53%
</TABLE>
<PAGE>
III. A. Loans
The balance of loans outstanding, and the percent for each
category, of loans to total loans at the dates indicated are
shown in the following Tables.
<TABLE>
<CAPTION>
December 31,
1995 1994 1993
Balance % Balance % Balance %
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Commercial $ 72,267 13% $ 58,764 11% $ 55,430 10%
Real estate - commercial 138,044 25 133,183 24 135,559 26
Real estate - construction 7,732 1 3,544 1 3,019 1
Real estate - residential 268,003 48 261,062 48 287,288 54
Installment 74,834 13 85,926 16 46,975 9
Total loans $560,880 100% $542,479 100% $528,271 100%
</TABLE>
<TABLE>
<CAPTION>
December 31,
1992 1991
Balance % Balance %
(Dollars in thousands)
<S> <C> <C> <C> <C>
Commercial $ 80,256 13% $104,468 16%
Real estate - commercial 168,682 26 174,486 26
Real estate - construction 5,620 1 8,598 1
Real estate - residential 334,751 53 325,469 50
Installment 43,641 7 47,277 7
Total loans $632,950 100% $660,298 100%
</TABLE>
The Company does not have an automatic renewal policy for maturing loans.
Loans are renewed at the maturity date, at the request of customers, if
deemed to be creditworthy by the Company. Additionally, the Company
reviews such requests in substantially the same manner as applications by
new customers for extensions of credit. The maturity date and interest
terms of renewed loans are based, in part, upon market rates of interest,
the needs of the customer, the Company's credit review and the evaluation
of current and future economic conditions.
<PAGE>
III. B. Maturities and Interest Rate Sensitivity of Loans
The following Table presents the maturities and interest rate
sensitivity, based on original contractual terms, of
loans as of December 31, 1995.
<TABLE>
<CAPTION>
Maturing
After One
Within But Within After
One Year Five Years Five Years Total
(In thousands)
<S> <> <C> <C> <C>
Commercial $ 51,788 $ 16,584 $ 3,895 $ 72,267
Real estate - commercial 59,509 39,369 39,166 138,044
Real estate - construction 4,986 855 1,891 7,732
Real estate - residential 19,500 52,134 196,369 268,003
Installment 14,114 56,511 4,209 74,834
Total $149,897 $165,453 $245,530 $560,880
Loans with fixed interest rates $ 75,764 $ 87,206 $202,669 $365,639
Loans with variable interest rates 74,133 78,247 42,861 195,241
Total $149,897 $165,453 $245,530 $560,880
</TABLE>
<PAGE>
III. C. Nonperforming Assets
The following Table summarizes nonperforming assets at December
31 for the years presented.
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Nonaccrual loans:
Commercial $ 500 $ 601 $ 2,167 $ 3,486 $ 7,344
Real estate - commercial 3,194 5,365 5,701 9,495 13,849
Real estate - construction 233 476 593 650 648
Real estate - residential 1,770 4,453 7,969 11,028 9,296
Installment 48 32 37 301 575
Total nonaccrual 5,745 10,927 16,467 24,960 31,712
Past due 90 days or more(accruing) 1,156 3,003 2,006 1,770 3,738
Restructured loans 591 1,251 1,012 1,628 1,991
Total nonperforming loans 7,492 15,181 19,485 28,358 37,441
Other real estate owned, net 7,606 10,124 9,965 7,287 9,862
Total nonperforming assets $ 15,098 $ 25,305 $ 29,450 $ 35,645 $ 47,303
Total assets $977,836 $953,456 $976,719 $ 967,202 $1,015,061
APLL (See Page 20) $ 11,837 $ 13,191 $ 14,581 $ 16,619 $ 20,012
APLL/Nonaccrual loans 206% 121% 89% 67% 63%
APLL/Nonperforming loans 158 87 75 59 53
APLL/Nonperforming assets (NPA) 78 52 50 47 42
NPA/Total assets 1.5 2.7 3.0 3.7 4.7
NPA/Total loans plus OREO 2.7 4.6 5.5 5.6 7.1
</TABLE>
Substantially all of the nonaccrual loans at December 31, 1995 were secured.
At December 31, 1995, $6.5 million in commercial and commercial real estate
loans were not 90 days past due, restructured, or on nonaccrual but were
internally rated substandard, defined as inadequately protected by the current
sound worth and paying capacity of the obligor or of the collateral pledged,
if any, with well defined weakness(s) that jeopardize the liquidation of
the debt.
The following information and analysis of unrecorded interest income relates to
loans on nonaccrual and/or restructured loans at December 31 for the years
presented.
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
(In thosuands)
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $ 5,745 $10,927 $16,467 $24,960 $31,712
Restructured loans 591 1,251 1,012 1,628 1,991
$ 6,336 $12,178 $17,479 $26,588 $33,703
Originally contracted interest income
for the year $ 589 $ 1,693 $ 2,390 $ 3,139 $ 3,969
Interest income actually recorded (92) (323) (860) (921) (1,653)
Difference - unrecorded interest $ 497 $ 1,370 $ 1,530 $ 2,218 $ 2,316
</TABLE>
<PAGE>
IV. A. Analysis of Allowance for Possible Loan Losses
The allowance for possible loan losses (the "APLL") is available
for estimated future loan losses. The provision for possible loan
losses is added to the APLL and is based upon management's
estimation of the amount necessary to maintain the APLL at an
adequate level. Management considers evaluations of individual
credits and concentrations of credit risk, net losses charged to
the APLL, changes in the quality of the loan portfolio, levels of
nonaccrual loans, current economic conditions, changes in the size
and character of the loan risks and other pertinent factors
warranting current recognition. The Company charges all or a
portion of a loan against the APLL when a probability of loss has
been established, with consideration given to such factors as the
customer's financial condition, underlying collateral and
guarantees.
The following Table presents a five year analysis of the APLL.
1995 1994 1993 1992 1991
(Dollars in thousands)
Balance at January 1 $13,191 $14,581 $16,619 $20,012 $21,575
Provision for possible
loan losses 1,800 1,517 4,268 8,152 13,585
Loan losses:
Commercial (320) (1,101) (1,028) (3,160) (4,564)
Real estate-commercial (1,620) (939) (2,026) (2,131) (6,809)
Real estate-construction (5) (100) (202) (431)
Real estate-residential (2,672) (2,789) (4,169) (5,483) (3,509)
Installment (369) (511) (777) (1,242) (1,959)
Total loan losses (4,986) (5,440) (8,202) (12,447) (16,841)
Loan recoveries:
Commercial 566 934 775 334 666
Real estate-commercial 361 455 470 152 189
Real estate-construction 198 278 147
Real estate-residential 375 496 102 14 244
Installment 332 370 402 402 594
Total loan recoveries 1,832 2,533 1,896 902 1,693
Net loan losses (3,154) (2,907) (6,306) (11,545) (15,148)
APLL at December 31 $11,837 $13,191 $14,581 $16,619 $20,012
Loans at December 31 $560,880 $542,479 $528,271 $632,950 $660,298
Average loans $522,368 $522,940 $581,353 $656,807 $680,236
APLL/Total loans 2.11% 2.43% 2.76% 2.63% 3.03%
Net loan losses/Average
loans .60 .56 1.08 1.76 2.23
Net loan losses/
Provision 175.22 191.63 147.75 141.62 111.51
Recoveries/Loan losses 36.74 46.56 23.12 7.25 10.05
Provision/Average loans .34 .29 .73 1.24 2.00
<PAGE>
IV. B. Allocation of the APLL
The APLL is a general reserve available for all categories of
possible loan loss. Allocations of the APLL are based on
estimates and subjective judgments and are not necessarily indicative
of the specific amounts or loan categories in which losses may
ultimately occur. The following Table presents a five year analysis
of the allocations by loan categories. For the percentage of loans
outstanding in each category to total loans, refer to the Table
"Loans" on page 17.
<TABLE>
<CAPTION>
As of December 31,
1995 1994 1993
% of % of % of
Amount Total Amount Total Amount Total
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Commercial $ 878 7.4% $ 835 6.3% $ 1,507 10.3%
Real estate-commercial 1,676 14.2 3,560 27.0 4,073 27.9
Real estate-construction
Real estate-residential 1,586 13.4 1,954 14.8 1,742 12.0
Installment 521 4.4 1,361 10.3 1,566 10.7
Unallocated 7,176 60.6 5,481 41.6 5,693 39.1
$11,837 100.0% $13,191 100.0% $14,581 100.0%
</TABLE>
<TABLE>
<CAPTION>
1992 1991
% of % of
Amount Total Amount Total
(Dollars in thousands)
<S> <C> <C> <C> <C>
Commercial $ 1,956 11.8% $ 4,626 23.1%
Real estate-commercial 6,218 37.4 7,379 36.9
Real estate-construction 40 .2 380 1.8
Real estate-residential 5,033 30.3 2,417 12.1
Installment 1,045 6.3 934 4.7
Unallocated 2,327 14.0 4,276 21.4
$16,619 100.0% $20,012 100.0%
<PAGE>
V. Deposits
The average daily amount of deposits and rates paid on such
deposits is summarized for the years indicated in the
following Table.
</TABLE>
<TABLE>
<CAPTION>
1995 1994 1993
Amount Rate Amount Rate Amount Rate
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Demand deposits $142,455 $138,676 $131,335
Savings deposits 448,239 2.46% 489,080 2.32% 481,521 2.53%
Certificate deposits
of $100,000 or more 11,642 4.81 10,169 3.70 12,896 3.62
Other time deposits 207,589 5.02 200,306 3.99 222,097 4.23
Total $809,925 $838,231 $847,849
</TABLE>
The maturity schedule of time certificates of deposit of $100,000 or more at
December 31, 1995, is as follows (in thousands):
Time Certificates of Deposit
3 months or less $ 2,413
Over 3 through 6 months 2,786
Over 6 through 12 months 4,587
Over 12 months 2,956
Total $12,742
VI. Return on Equity and Assets and Other Ratios
The ratio of net income to average shareholders' equity
("ROE") and to average total assets ("ROA") and certain other ratios
are presented below for the years indicated.
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
ROE 13.11% 12.08% 11.27%
ROA 1.11 .90 .67
Dividends declared per share as a percent of
net income per share 25.68 19.10 4.44
Average shareholders' equity as a percent of
average total assets 8.47 7.47 5.95
Leverage ratio 8.46 7.68 6.78
Tier 1 risk-based capital ratio 16.38 15.94 14.31
Total risk-based capital ratio 17.65 17.21 15.59
</TABLE>
<PAGE>
VII. Federal Funds Purchased and Securities Sold Under Repurchase
Agreements
The following Table presents the distribution of federal funds
purchased and securities sold under repurchase agreements and the
weighted average interest rates thereon at the end of each of the
last three years. Also provided are the maximum amount of these
borrowings and the average amount of these borrowings, as well as
weighted average interest rates for the last three years.
Federal Funds Purchased &
Securities Sold Under
Repurchase Agreement
Balance at December 31: (Dollars in thousands)
1995 $ 41,015
1994 40,888
1993 32,238
Weighted average interest
rate at December 31:
1995 4.17%
1994 4.20
1993 1.75
Maximum amount outstanding
at any month's end during:
1995 $ 45,486
1994 43,534
1993 44,381
Average amount outstanding
during:
1995 $ 38,812
1994 33,346
1993 35,431
Weighted average interest
rate during:
1995 4.22%
1994 2.76
1993 2.03
<PAGE>
VIII. Trust Data
The following presents information with respect to Trust Investments
and Trust Accounts for which the Bank has both sole and shared
investment responsibility at December 31, 1995.
<TABLE>
<CAPTION>
Market Percentage
Trust Investments Value of Total
(Dollars in thousands)
<S> <C> <C>
Common and preferred stocks $263,724 44%
Bonds, notes and short-term obligations 119,028 19
U.S. Government and agency obligations 111,770 18
State, county and municipal obligations 40,978 7
Nondiscretionary assets(1) 52,397 9
Real estate and real estate mortgages 4,303 1
Miscellaneous assets 6,205 1
Cash (2) 2,679 1
$601,084 100%
</TABLE>
<TABLE>
<CAPTION>
Number of Market Percentage
Trust Accounts Accounts Value of Total
(Dollars in thousands)
<S> <C> <C> <C>
Personal trusts 1,289 $298,448 50%
Employee benefit trusts 219 110,389 18
Agencies 942 188,447 31
Estates, conservatorships and guardians 14 3,800 1
2,464 601,084 100
(1) Assets for which the Bank has shared investment responsibility
(2) Predominantly invested in certificates of deposit
<PAGE>
ITEM 2. PROPERTIES
The Company's headquarters occupies a portion of the Bank's building at 300
Franklin Street, Manchester, New Hampshire, and the Company conducts its
meetings of the Board of Directors at the Bank's Data Services Center at
John Devine Drive, Manchester, New Hampshire.
The Bank owns or leases numerous premises used in the conduct of the business
of the Company. The Company does not own or lease any real property, other
than a branch office in Portsmouth, which is sublet to the Bank. Additional
information on the Bank's properties is set forth in Note H on page 30 of the
Company's 1995 Annual Report to shareholders, filed as Exhibit 13, and such
information is hereby incorporated by reference.
ITEM 3. LEGAL PROCEEDINGS
Various actions and proceedings are presently pending to which the Bank
is a party. All such actions are deemed to be ordinary routine
litigation incidental to the business of the Bank. Resolution of these
matters is not expected to have a material effect on the consolidated
financial statements of the Company.
ITEM 3A. EXECUTIVE OFFICERS OF THE COMPANY
The names, positions, ages and backgrounds of the executive officers of
the Company, as of March 27, 1996 are set forth below. Executive
officers are elected annually by the Board of Directors and hold office
until the following year and until their successors are chosen and
qualified, unless they sooner resign, retire, die, are removed or become
disqualified. There are no family relationships existing between or
among any of the executive officers listed below.
Davis P. Thurber, age 70, became a director of the Bank in 1949;
President in 1962; and Chairman of the Board of Directors of the Bank in
1969. He is also President and Chairman of the Board of Directors of
the Company.
Paul R. Shea, age 63, joined the Company in 1980, when he was appointed
Assistant to the Chairman. He was elected Vice President, Corporate
Planning in 1982; Senior Vice President, Corporate Planning and Senior
Vice President, Corporate Development of the Company in 1985; Executive
Vice President in 1987; President and Chief Executive Officer of the
Bank in 1991; and Senior Executive Vice President of the Company in
1994. He also serves as a director of the Company and the Bank.
Gregory D. Landroche, age 47, was elected Controller of the Company in
1983; Vice President, Controller of the Company in 1985; Vice President,
Treasurer of the Company in 1986; Senior Vice President, Chief Financial
Officer and Treasurer of the Company in 1987; Chief Financial Officer of
the Bank in 1992; Executive Vice President of the Company in 1994; and
Senior Executive Vice President of the Bank in 1995. Mr. Landroche is a
Certified Public Accountant.
William D. Biser, age 54, was elected Vice President, Auditor of the
Company in 1987; Senior Vice President of the Company in 1994; General
Auditor of the Company and Senior Vice President, Risk Management of the
Bank in 1995. Mr. Biser is a Certified Public Accountant.
<PAGE>
Alice L. DeSouza, age 51, was elected Vice President, Director of
Marketing of the Bank in 1981; Vice President, Marketing Services of the
Company in 1985; Senior Vice President, Planning and Marketing for the
Company in 1987; Senior Vice President, Administration & Planning of the
Company in 1991; and Executive Vice President, Administration and Retail
Banking of the Bank in 1992.
Robert J. McDonald, age 46, was elected Senior Vice President, Loan
Administration of the Company in 1992. Prior thereto, he was employed
by Bank of Boston Corporation, most recently as a Vice President in the
Financial Institutions Division.
Allen G. Tarbox, Jr., age 61, was elected Senior Vice President, Data
Services of the Company in 1990 and Director of Information Systems of
the Bank in 1992. Prior thereto, he was President of Fleet/Norstar
Services-NH.
Robert A. Boulay, age 42, was elected Controller of the Company in 1986
and Vice President of the Company in 1988. Mr. Boulay is a Certified
Public Accountant.
Thomas C. Martin, age 36, was elected Vice President, Director of Audit
of the Company in 1995. Prior thereto, he was Assistant Vice President,
Audit Manager. Mr. Martin is a Certified Public Accountant.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURTIY HOLDERS
A. A Special Meeting of Shareholders of the Company was held on
February 27, 1996.
B. The following matter was submitted to a vote of the
shareholders of the Company.
"To consider and vote upon a proposal to adopt an Agreement and Plan of
Merger, dated as of October 25, 1995, by and among Peoples Heritage
Financial Group, Inc. ("PHFG"), First Coastal Banks, Inc. ("First
Coastal"), a wholly-owned subsidiary of PHFG, and Bank of New Hampshire
Corporation ("BNHC"), which provides, among other things, for (i) the
merger of First Coastal with and into BNHC and (ii) the conversion of
each share of common stock of BNHC outstanding immediately prior to the
Merger (other than any dissenting shares under New Hamsphire law and
certain shares held by PHFG) into the right to receive two shares of
PHFG common stock, subject to possible adjustment under certain
circumstances.
VOTED: FOR: 3,335,434
AGAINST: 11,181
ABSTAIN: 16,907"
Part II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS
The information required by this item is presented on page 20 of the
Company's 1995 Annual Report to Shareholders, filed as Exhibit 13, and
such information is hereby incorporated by reference.
ITEM 6. SELECTED FINANCIAL DATA
The consolidated "Summary of Selected Financial Data" of the Company for
the five years ended December 31, 1995 appears on page 19 of the
<PAGE>
Company's 1995 Annual Report to Shareholders, filed as Exhibit 13, and
such information is hereby incorporated by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
The information in response to this item is included in Management's
Financial Review on pages 6 through 20 of the Company's 1995 Annual
Report to Shareholders, filed as Exhibit 13, and such information is
hereby incorporated by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data required by this Item
are included as indicated below in the Company's 1995 Annual Report to
Shareholders, filed as Exhibit 13, and such statements and data are
hereby incorporated by reference.
Page of the 1995 Annual
Report to Shareholders
Report of Independent Auditors 21
Consolidated Balance Sheets -
December 31, 1995 and 1994 22
Consolidated Statements of
Income - Years ended
December 31, 1995, 1994 and 1993 23
Consolidated Statements of Changes
in Shareholders' Equity - Years
ended December 31, 1995, 1994 and 1993 24
Consolidated Statements of Cash
Flows - Years ended December
31, 1995, 1994 and 1993 25
Notes to Consolidated Financial
Statements 26 - 36
Five Year Summary of Selected
Financial Data 19
Information on Common Stock and Selected
Quarterly Data 20
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not applicable
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Information concerning the executive officers of the Company which
responds to this Item is contained in the response to Item 3A contained
in Part I of this Report.
<PAGE>
The Board of Directors has the overall responsibility for the conduct of
the business of the Company. Of the present sixteen directors, fourteen
are outside directors and two are executive officers of the Company.
The following sets forth certain biographical information concerning the
directors. Terms of service as a director of the Company are stated in
a manner which includes service as a director of a predecessor of the
Bank of New Hampshire (the "Bank"), Bank of New Hampshire, National
Association, and its predecessors.
Robert L. Bailey, age 74, has been a director since 1985. He has been
retired for four years and prior thereto, he served as President and
Chief Executive Officer of Bank of New Hampshire, National Association.
Robert P. Bass, Jr., age 72, has been a director since 1981. He was a
director and shareholder of the law firm of Cleveland, Waters and Bass,
P.A. until 1992, and since then has been of counsel to said firm. His
firm is counsel to the Bank's Trust and Investment Services Division and
performs other legal services for the Bank and the Company. He is also
a director of Bird Corporation of Norwood, Massachusetts.
Arthur E. Comolli, DMD, age 63, has been a director since 1981. He is a
practitioner of general dentistry. Director Comolli also serves as a
director of the Bank.
Raymond G. Cote, age 66, has been a director since 1982. He has been
retired for five years, and, prior thereto, was President of Harvey Con-
struction Co., Inc. Director Cote also serves as a director of the
Bank.
Sidney Thurber Cox, age 73, has been a director since 1979. Mr. Cox has
been retired for more than five years.
Raymond J. Creteau, age 69, has been a director since 1981. He has been
retired for five years, and, prior thereto, was President and General
Manager of Riverside Millwork Co., Inc. Director Creteau also serves as
a director of the Bank.
Robert B. Field, Jr., age 53, has been a director since 1981. He is a
director and member of the law firm of Sheehan Phinney Bass + Green,
Professional Association, which serves as general counsel to the Company
and the Bank. Mr. Field is also Secretary of the Company.
Morton E. Goulder, age 75, has been a director since 1981. He is
President of M.E. Goulder Enterprises, Inc. (personal investments and
business consulting). He is a Director of Computer Devices, Inc. and
Spacetec IMC, Inc.
Philip D. Labombarde, age 75, has been a director since 1964. He has
been retired for more than five years. Prior thereto he was Senior Vice
President, The International Paper Box Machine Company.
Floyd A. Lamb, age 75, has been a director since 1981. He has been
retired for more than five years. Prior thereto he was Senior Vice
President, John Hancock Mutual Life Insurance Company and Chief
Executive Officer, John Hancock Advisors, Inc.
Peter Prudden, Jr., age 47, became a director in 1995. He is a Senior
Account Executive at Moore Business Forms and Systems of Salem, New
Hampshire. Director Prudden also serves as a director of the Bank.
<PAGE>
Joseph G. Sakey, age 70, has been a director since 1981. He has been
retired for three years, and prior thereto was Director of Libraries and
Communications, City of Cambridge, Massachusetts.
Paul R. Shea, age 63, has been a director since 1989. He is Senior
Executive Vice President of the Company. Mr. Shea is also President,
Chief Executive Officer, and a director of the Bank.
Davis P. Thurber, age 70, has been a director since 1949. He is
Chairman of the Board and President of the Company. Mr. Thurber is also
Chairman of the Board of the Bank. He is a director of Pennichuck
Corporation and EnergyNorth, Inc.
George R. Walker, age 81, has been a director since 1961, except for a
two-year period ending in 1981. He was Chairman of Concord Group
Insurance Companies, from which position he retired in 1991.
Richard S. West, age 70, has been a director since 1981. He is Chairman
of the Board of Parker & West Management, Inc., American Syndicate
Advisors, Inc., and West Capital Corp. Mr. West is a registered
investment advisor and a director of the Bank.
Section 16 (a) Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who own more
than ten percent of a registered class of the Company's equity
securities ("Insiders"), to file with the SEC initial reports of
ownership, and reports of changes in ownership, of common stock of the
Company. Insiders are required by SEC regulation to furnish the Company
with copies of all such reports they file.
The Company believes that during 1995, based solely on review of the
copies of such reports furnished to the Company and written
representation that no other report was required, all Section 16(a)
filing requirements applicable to its Insiders were met, except that two
reports were filed late by Director Bass relating to one sale by
Director Bass and one purchase and sale by his wife.
ITEM 11. EXECUTIVE COMPENSATION
Executive Compensation Committee Report
Oversight
The Executive Compensation Committee (the "ECC") performs a general
oversight function in connection with executive officer compensation and
personnel matters for both the Company and the Bank, including the
review and recommendation of salaries for senior personnel and other
compensation matters as may be requested by the Board. Following review
and approval by the ECC, all issues pertaining to executive compensation
are submitted to the Board for approval.
The ECC meets as frequently as required, but not less than once each
year, to review and consider the compensation and perquisite
recommendations made by management for all senior executive officers.
The ECC, with the assistance of outside counsultants and the benefit of
data obtained from independent professional publications, has developed
and refined base compensation ranges, as well as incentive and
performance plans.
<PAGE>
Compensation Philosophy
The compensation philosophy generally followed by the ECC has been to
develop a program which will attract, motivate, and retain executives
demonstrating outstanding potential and/or ability and which will align
the interests of these executives with the interests of the Company's
shareholders. The principle objectives of the program are to reward
executives for enhancement of shareholder value as reflected in the
Company's annual earnings performance and to balance awards for
accomplishments of short and long-term performance criteria.
Internal Revenue Code Limitation
The SEC has requested that this Report address any policy the Company
may have adopted with respect to Section 162(m) of the Internal Revenue
Code, i.e., limiting income tax deductions of public companies for
certain compensation in excess of $1 million paid to any of the
executive officers named in the proxy statement compensation tables.
The Company has adopted no such policy.
1995 Executive Compensation
The Company has a program that sets base compensation ranges for its
various executive positions which are believed to be competitive in the
labor market within which the Company competes for qualified personnel.
The Company's geographic labor market is defined as the New England
states and New York, with the Company's ranges being compared to similar
sized commercial banks located in those market areas.
The compensation ranges are supplemented by a two-part incentive
program. Awards under the program are based primarily on the
performance of the Company, normally two thirds of the award, with the
remainder based on an evaluation of individual job performance.
Determination of the amount of the Company award for any year is made
following the close of the plan year, on the basis of the ECC's review
of data comparing the Company's performance with a previously
established "target" return on average assets ("ROAA"). For 1995, the
Company's "target" ROAA of 1.05% was exceeded. The amount of the award
determined by an evaluation of individual performance, normally one
third, is subjective and is based upon the extent to which the ECC
concludes individual performance goals for the year were achieved. See
also Note (3) to the "Summary Compensation Table " that follows.
1995 CEO Compensation
In determining compensation for Mr. Thurber, the ECC utilized the same
programs, as noted above, for other executive officers. Additionally,
the ECC considered the substantial increase in total market value of the
Company's Common Stock, the record earnings for the year, actual ROAA in
excess of the "target" ROAA, reduction in nonperforming assets,
continued strengthening of the Company's balance sheet, and overall
improvement in the Company's operating ratios. See also Note (3) to the
"Summary Compensation Table" that follows.
Submitted by:
February 28, 1996 Executive Compensation Committee
Richard S. West, Chairman
Raymond J. Creteau
Joseph G. Sakey
<PAGE>
Compensation Committee Interlock and Insider Participation
The Executive Compensation Committee is composed of Directors West
(Chairman), Creteau, and Sakey, three independent non-employee
directors. The Committee is not aware of any interlocks and/or any
reportable insider participation in compensation decisions during 1995.
Compensation of Directors
Non-employee directors receive an annual retainer of $6,000, plus $400
for attendance at each Board meeting. Members of the Executive
Committee and the Examining (Audit) Committee receive an annual fee of
$1,200, plus $150 per meeting, and members of the other committees
receive $250 per meeting.
Several directors also serve as directors of the Bank, and receive $150
per meeting. Bank directors serving on certain Bank committees receive
annual retainers ranging from $1,200 to $3,000. Bank committee members
also receive attendance fees ranging from $150 to $250 per meeting.
Most directors of the Company and the Bank also serve on one of several
Advisory Boards of the Bank and receive $250 per meeting.
Directors may use, on a space available basis, conference space in the
offices of the Bank. Management believes the value of such usage is de
minimis, although an exact value cannot be assigned to such benefit.
Further, three directors participate in several group insurance programs
maintained by the Company for the general benefit of all employees who
elect to participate in such programs. Such participation is at the
personal expense of these directors.
<PAGE>
Executive Compensation Summary Table
The following Summary Compensation Table is included to provide the
shareholders with a concise, comprehensive review of compensation
awarded, earned or accrued, in the reporting period. The Table includes
individual compensation information for the (i) Chief Executive Officer,
and (ii) the four other most highly compensated executive officers, for
services rendered in all capacities for each year in the reporting
period ending December 31, 1995. No stock options or other rights to
acquire shares of the Company have either been awarded during 1995 or
are outstanding as to any executive officer.
</TABLE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long Term
Annual Compensation Compensation
Name Restricted
and Stock All Other
Principal Awards Compensation
Position Year Salary Bonus (1) (2) (3)
<S> <C> <C> <C> <C> <C>
Davis P. Thurber 1995 $286,000 $78,000 $ -- $1,496,289
Chairman of the 1994 261,705 45,000 3,885 176,502
Board and 1993 248,800 30,000 2,220 17,937
President
Paul R. Shea 1995 220,000 65,000 -- 1,167,875
Senior Executive 1994 204,698 37,500 1,864 102,275
Vice President 1993 177,500 25,000 1,065 11,949
Gregory D. Landroche 1995 154,000 39,000 -- 628,284
Executive Vice 1994 147,980 22,500 1,680 26,765
President, Chief 1993 125,000 15,000 960 4,030
Financial Officer
and Treasurer
Alice L. DeSouza 1995 100,000 22,200 -- 4,333
Senior Vice 1994 100,000 13,000 1,208 3,409
President, Admini- 1993 95,000 7,500 690 3,235
stration and Planning
Allen G. Tarbox, Jr. 1995 100,000 19,200 -- 4,878
Senior Vice 1994 100,000 10,000 2,231 7,176
President, Data 1993 97,500 5,000 1,275 5,503
Services
</TABLE>
See Notes to Summary Compensation Table
<PAGE>
Notes to Summary Compensation Table
(1) The Company had a Stock Plan whereby all full-time employees
received restricted shares which had an aggregate fair market value or
book value equal to a specified percentage of the employee's base salary
determined as of specified dates over specified periods. Shares issued
pursuant to the Stock Plan receive dividends and have voting rights.
All restrictions expired on June 30, 1994.
(2) The Company maintains and contributes to the Savings & Investment
Plan ("SIP") and group term life insurance ("Life Insurance") for its
full-time employees. The Company also maintains and contributes to a
supplemental executive retirement plan ("SERP"). The Company's matching
contribution to the SIP, premiums paid for Life Insurance and
contributions made to the SERP on behalf of the named executive officers
follows:
<TABLE>
<CAPTION>
SIP Life Insurance SERP
<S> <C> <C> <C> <C>
Davis P. Thurber 1995 $ - $18,274 $413,015
1994 - 11,466 165,036
1993 4,707 13,230 -
Paul R. Shea 1995 3,080 9,196 306,599
1994 3,080 9,196 89,999
1993 2,998 8,951 -
Gregory D. Landroche 1995 3,077 2,161 47,046
1994 2,848 1,999 21,918
1993 2,273 1,757 -
Alice L. DeSouza 1995 2,000 2,333 -
1994 2,000 1,409 -
1993 1,896 1,339 -
Allen G. Tarbox, Jr. 1995 2,000 2,878 -
1994 2,000 5,176 -
1993 1,948 3,555 -
</TABLE>
(3) On October 25, 1995 the Company, jointly with Peoples Heritage
Financial Group, Inc. ("Peoples"), announced a definitive agreement to
merge (the "Agreement"). The Agreement was approved by shareholders of
both companies on February 27, 1996. In connection with the execution
of the Agreement, Peoples requested that the Company enter into letter
agreements with Messrs. Thurber, Shea and Landroche (the "Executives")
wherein the Company agreed to pay, and the Executives agreed to accept,
payment of certain amounts under their respective change of control
agreements. Pursuant to these letter agreements the Executives received
payments of $1,104,051, $1,033,598 and $587,964, respectively. See Item
14(a) 3. Exhibits (10)(f) Change of Control Agreements and (10)(h)
Letter Agreements.
In the event that the merger is not consummated pursuant to the
Agreement (unless the failure of such occurrence shall be due to the
failure of the Company to perform or observe in any material respect any
of its obligations under the Agreement to be performed or observed by
it), Peoples shall, within five days following termination of the
Agreement in accordance with its terms, promptly reimburse the Company
for the amounts paid to the Executives.
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
PRINCIPAL SHAREHOLDERS
The following Table lists persons known to the Company to constitute a
group within the meaning of SEC Rule 13d-5(b)(1) of the Securities
Exchange Act of 1934 for the purpose of acting together to vote their
beneficially owned shares.
Shares of Percentage
Name and Address Common Stock Outstanding
Sidney Thurber Cox (1) 173,680 4.27%
241 Clinton Street
Watertown, New York 13601
Davis P. Thurber (1) 167,451 4.12
25 Swart Terrace
Nashua, New Hampshire 03060
Constance T. Prudden (1) 100,037 2.46
1 Button Cove Road
Hingham, Massachusetts 02043
Shelley D. Thurber (3) 40,380 .99
93 Summer Street
Boston, Massachusetts 02110
Steven A. Thurber (2) (3) 38,680 .95
39-A Manchester Street
Nashua, New Hampshire 03060
George Frederick Thurber (3) 47,020 1.16
227 Summit Avenue
Brookline, Massachusetts 02146
Matthew T. Thurber (3) 47,020 1.16
1 Carey Circle
Revere, Massachusetts 02151
Group Total 614,268 15.11%
(1) See "Securities of the Company owned by Directors and Executive
Officers" and related footnotes.
(2) Mr. Thurber disclaims a beneficial interest in 200 shares held as
custodian and 100 shares held as trustee for his minor child.
(3) Includes 2,200 shares held in the Shirley A. Thurber Trust.
The Company knows of no other person who beneficially owned five percent
or more of the Company's outstanding common stock as of March 28, 1996.
<PAGE>
Securities of the Company Owned by Directors and Executive Officers
The following Table sets forth the number of shares and percentage of
the Company's common stock beneficially owned by each director and all
directors and executive officers of the Company as a group as of March
27, 1996. Each beneficial owner listed has sole investment and voting
power with respect to the shares indicated unless otherwise noted.
Shares of Percentage
Directors Common Stock Outstanding(5)
Robert L. Bailey 17,074 *
Robert P. Bass, Jr. 4,980 *
Arthur E. Comolli 4,530 *
Raymond G. Cote 7,800 *
Sidney Thurber Cox(2) 173,680 4.27%
Raymond J. Creteau 17,380 *
Robert B. Field, Jr.(1) 12,850 *
Morton E. Goulder(1) 62,752 1.54%
Philip D. Labombarde(1) 4,640 *
Floyd A. Lamb 400 *
Peter Prudden, Jr.(2) 10,964 *
Joseph G. Sakey(1) 5,565 *
Paul R. Shea 4,130 *
Davis P. Thurber(1)(2)(4) 167,451 4.12%
George R. Walker 5,500 *
Richard S. West(1) 16,024 *
All directors and executive officers
as a group (19 persons) (3) 520,470 12.80%
* - Less than 1%
(1) Includes shares owned by a director's spouse, minor children,
children or family members living at home, shares to which investment
advice is given, and shares held or owned as a custodian for the benefit
of minors, as to which each beneficial owner disclaims any beneficial
interests as follows:
Director Field disclaims a beneficial interest in 2,550 shares owned by
family members (2,200) and the Robert B. Field Revocable Trust (350);
Director Goulder disclaims a beneficial interest in 33,240 shares owned
by Goulder Investments, Ltd. and 7,000 shares owned by family members;
Director Labombarde disclaims a beneficial interest in 940 shares owned
by deGaspe Corporation (500) and by his daughter (440); Director Sakey
disclaims a beneficial interest in 1,168 shares owned by family members;
Director Thurber disclaims a beneficial interest in 5,000 shares owned
by his spouse; and Director West disclaims a beneficial interest in
8,900 shares owned by family members.
(2) Director Thurber is a first cousin to Director Cox and an uncle to
Director Prudden.
(3) Includes 4,750 shares beneficially owned by the following named
executive officers, Mr. Landroche (1,248), Mr. Tarbox (2,570), and Ms.
DeSouza (932), representing less than one percent of common stock
outstanding and entitled to vote. See "Summary Compensation Table".
(4) Includes an interest in 41,113 shares held by the Bank as Trustee
under testamentary trusts created under the wills of George F. Thurber,
Sr. and Muriel D. Thurber, to be voted in person or by proxy at the
Meeting by Constance T. Prudden.
(5) Computed on the basis of 4,064,165 shares outstanding at March 28, 1996.
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 1995 certain directors and officers of the Company and the Bank,
as well as firms and companies with which they are associated, were
customers of the Bank and as such have had ordinary banking
transactions, including loans and loan commitments, with the Bank. Such
loans and loan commitments were made in the ordinary course of business
and on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions
with unrelated parties. In the opinion of management, such loans and
loan commitments do not involve more than the normal risk of
collectibility or present other unfavorable features. The Bank made
loans within approved regulatory limits to other officers and employees
at interest rates which are similar to interest rates charged on
comparable loans to unrelated parties.
Director Field, Secretary of the Company, is a member of the law firm of
Sheehan Phinney Bass + Green, Professional Association, which firm
serves as general counsel to the Company and the Bank. Director Bass is
of counsel to the law firm of Cleveland, Waters & Bass, P.A., which firm
is counsel to the Bank's Trust and Investment Services Division and
performs other legal services for the Bank and the Company.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) 1. Financial Statements
The financial statements required in response to this Item
are listed in response to Item 8 of this Report and are
incorporated herein by reference.
(a) 2. Financial Statement Schedules
Schedules have been omitted because the information is
either not required, not applicable, or is included in the
financial statements or notes thereto.
(a) 3. Exhibits
(3) (a) By-Laws of the Company as amended through January
23, 1991, incorporated herein by reference to Form
8-K, filed February 13, 1991, p. 3 and Exhibit I,
attached thereto.
(b) Articles of Agreement of the Company, as amended
through April 17, 1991, incorported herein by
reference to the Company's Form 10-K for the year
ended December 31, 1991 (File No. 0-9517).
(10) (a)* Compensation Deferral Agreement for Paul R. Shea
effective January 1, 1992, incorporated herein by
reference to the Company's Form 10-K for the year
ended December 31, 1991 (File No. 0-9517).
(b)* Compensation Deferral Agreement for Davis P. Thurber
effective January 1, 1993, incorporated herein by
reference to the Company's Form 10-K for the year
ended December 31, 1992 (File No. 0-9517).
<PAGE>
(c)* Merit Performance Plan, continued in effect through
1995, incorporated herein by reference to the
Company's Form 10-K for the year ended December 31,
1988 (File No. 0-9517).
(d) Director Indemnification Agreement (Representative
Form of Agreement), effective January 1, 1988,
incorporated herein by reference to the Company's
Form 10-K for the year ended December 31, 1988
(File No. 0-9517).
(e)* 1988 Incentive Bonus Plan, continued in effect
through 1995, incorporated herein by reference
to the Company's form 10-K for the year ended
December 31, 1988 (File No. 0-9517).
(f)* Change of Control Agreements (Representative Form
of Agreement) for Davis P. Thurber, Paul R. Shea
and Gregory D. Landroche, effective December 21,
1994, incorporated herein by reference to the
Company's Form 10-K for the year ended December 31,
1994 (File No. 0-9517).
(g)* Supplemental executive retirement plan for Davis P.
Thurber, Paul R. Shea and Gregory D. Landroche,
effective August 24, 1994, incorporated herein by
reference to the Company's Form 10-K for the year
ended December 31, 1994 (File No. 0-9517).
(h)* Letter Agreements (Representative Form of Agreement)
for Davis P. Thurber, Paul R. Shea and Gregory D.
Landroche, effective October 25, 1995, on page 39.
(i)* 1988 Incentive Bonus Plan, (1996 Approved Pools)
effective January 1, 1996, on page 42.
(j)* Compensation Deferral Agreement, Davis P. Thurber
(Amendment #(3)), effective January 1, 1996, on
page 46.
(k)* Compensation Deferral Agreement, Paul R. Shea
(Amendment #(3)), effective January 1, 1996, on
page 47.
(13) Sections of the Company's 1995 Annual Report to
Shareholders which are incorporated by reference
into this filing, on page 48.
(21) Subsidiary of the Company
(27) Financial Data Schedule
(b) Reports on Form 8-K
During the fourth quarter of 1995, the Company filed a Report on
Form 8-K dated November 3, 1995, which contained information
pursuant to Items 5 and 7 of Form 8-K.
* - Management contract or compensatory plan.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
By:/s/Davis P. Thurber
Davis P. Thurber, Chairman
Date: March 27, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf
of the Company and in the capacities and on the dates indicated.
Date: Date:
3/25/96 /s/Davis P. Thurber 3/25/96 /s/Gregory D. Landroche
Davis P. Thurber Gregory D. Landroche
President, Chairman Executive Vice President,
and Director Chief Financial Officer &
Treasurer
3/25/96 /s/Paul R. Shea 3/25/96 /s/Robert A. Boulay
Paul R. Shea Robert A. Boulay
Senior Executive Vice Vice President &
President and Director Controller
3/27/96 /s/Robert L. Bailey 3/25/96 /s/Sidney Thurber Cox
Robert L. Bailey Sidney Thurber Cox
Director Director
3/27/96 /s/Robert P. Bass, Jr. 3/25/96 /s/Raymond J. Creteau
Robert P. Bass, Jr. Raymond J. Creteau
Director Director
3/25/96 /s/Arthur E. Comolli 3/27/96 /s/Robert B. Field, Jr.
Arthur E. Comolli Robert B. Field, Jr.
Director Director and Secretary
3/25/96 /s/Raymond G. Cote
Raymond G. Cote Morton E. Goulder
Director Director
Philip D. Labombarde Joseph G. Sakey
Director Director
3/25/96 /s/Floyd A. Lamb
Floyd A. Lamb George R. Walker
Director Director
3/27/96 /s/Peter Prudden, Jr. 3/27/96 /s/Richard S. West
Peter Prudden, Jr. Richard S. West
Director Director
<PAGE>
EXHIBIT (21)
SUBSIDIARY OF THE COMPANY
1. Bank of New Hampshire, a wholly-owned subsidiary of the Company
(equity ownership 100%). The Bank is the entity resulting from the
merger of four former affiliates of the Company with and into one
former affiliate, Bank of New Hampshire-Portsmouth, effective as of
the close of business, September 30, 1991.
<PAGE>
October 25, 1995
Peoples Heritage Financial Group, Inc.
One Portland Square
Portland, Maine 04101
Ladies and Gentlemen,
This letter agreement is being entered into in connection with the
execution of an Agreement and Plan of Merger, dated as of the date
hereof (the "Agreement"), among Peoples Heritage Financial Group, Inc.
(the "Acquiror"), First Coastal Banks, Inc. (the "Acquiror Sub") and
Bank of New Hampshire Corporation (the "Company"), pursuant to which,
among other things, the Acquiror Sub will merge with and into the
Company (the "Merger"), subject to the terms and conditions set forth in
the Agreement. Capitalized terms which are used but not defined herein
shall have the meanings ascribed to such terms in the Agreement.
The purpose of this letter agreement is to confirm our mutual
understandings and agreements with regard to the Amended and Restated
Agreement as to Future Employment between the Company and the
undersigned executive officer of the Company (the "Executive") (which
agreement is hereinafter referred to as the "Employment Agreement").
Provided that the Company and the Acquiror certify to each other on or
before December 29, 1995 (the "Payment Date") that it is not then aware
of any facts applicable to it that would be likely to prevent approval
of the Merger or the Bank Merger by any Governmental Entity (which each
company agrees to do unless it is aware of any such facts and provides a
reasonable description thereof in writing to the other pursuant to
Section 5.15 of the Agreement), the Company agrees to pay, and the
Executive agrees to accept payment of, (i) the amount set forth in
Section 6(a)(i)(B) of the Employment Agreement and (ii) 25% of the
amount due pursuant to Section 6(a)(i)(C) of the Employment Agreement,
in each case less applicable withholding taxes pursuant to Section 12(d)
of the Employment Agreement, on or before the Payment Date, such
payments to be made as if the Effective Date, as defined in Section 1 of
the Employment Agreement, was the Payment Date and the Executive
terminated his employment for Good Reason on such date. The Executive,
the Company and the Acquiror agree that the amount payable pursuant
hereto on the Payment Date by the Company to the Executive pursuant to
Section 6(a)(i)(B) of the Employment Agreement is $XXXXXX, less
applicable withholding taxes.
The Executive agrees, on his behalf and on behalf of his heirs, assigns,
executors, administrators and legal representatives, that (i) the
Company's payment of the amount required by Section 6(a)(i)(B) of the
Employment Agreement pursuant to this letter agreement shall be in full
satisfaction of all obligations of the Company, any successor thereto
and the Acquiror under such section of the Employment Agreement and (ii)
upon the Executive's receipt of the aforesaid payment, the Company, any
successor thereto and the Acquiror will be released from any further
obligation, liability or claim under or relating to Section 6(a)(i)(B)
of the Employment Agreement whenever arising. The Executive further
agrees, on his behalf and on behalf of his heirs, assigns, executors,
administrators and legal representatives, that (i) the Company's partial
payment of the amount required by Section 6(a)(i)(C) of the Employment
Agreement pursuant to this letter agreement shall be a dollar for dollar
reduction of any obligation which the Company, any successor thereto or
the Acquiror may have under such section of the Employment Agreement and
(ii) upon the Executive's receipt of the aforesaid payment, the Company,
<PAGE>
Peoples Heritage Financial Group, Inc.
October 25, 1995
Page Two
any successor thereto and the Acquiror will be released from any further
obligation, liability or claim under or relating to such dollar amount
which may be payable pursuant to Section 6(a)(i)(C) of the Employment
Agreement whenever arising.
In the event that the Merger is not consummated pursuant to the
Agreement after the Payment Date (unless the failure of such occurrence
shall be due to the failure of the Company to perform or observe in any
material respect any of its obligations under the Agreement to be
performed or observed by it on or prior to the Effective Time), the
Acquiror shall, within five days following termination of the Agreement
in accordance with its terms, promptly reimburse the Company for the
amounts paid to the Executive pursuant hereto on or prior to the Payment
Date. In the event that the Acquiror reimburses the Company for the
amounts paid to the Executive pursuant hereto and a Change of Control
(as defined in the Employment Agreement) not involving the Acquiror
occurs subsequent to the Payment Date, the Company agrees to reimburse
the Acquiror for an identical amount at the time, if any, that a payment
is first made to the Executive pursuant to Section 6(a)(i)(A) or (C) or
Section 6(a)(ii) of the Employment Agreement. The Company and the
Executive hereby agree not to effect any amendment, modification, change
or termination of, or waiver pursuant to, the Employment Agreement which
would adversely affect the rights of the Acquiror under the preceding
sentence.
The Company and the Executive agree that each reference to the
Employment Agreement contained therein shall be deemed to include this
letter agreement, it being the intention of the parties that, among
other things, the requirements of Section 11(c) of the Employment
Agreement apply to this letter agreement.
Notwithstanding anything to the contrary contained herein, this letter
agreement shall not be deemed to affect or modify any other provision of
the Employment Agreement, including without limitation the definition of
the Effective Date in Section 1 thereof for all purposes other than
Section 6(a)(i)(B), provided that Section 12(g) of the Employment
Agreement shall be amended by adding at the end thereof the phrase
",except as set forth in a letter agreement among the Corporation, the
Executive and Peoples Heritage Financial Group, Inc. dated as of October
25, 1995."
Notwithstanding anything to the contrary contained herein, this letter
agreement may be terminated by the Acquiror at any time prior to the
Payment Date by written notice to the Company and the Executive in the
manner set forth in Section 11 of the Employment Agreement. This letter
agreement may not be amended without the prior written consent of the
Acquiror.
This letter agreement may be executed in any number of counterparts
which together shall constitute but one agreement.
This letter agreement may not be assigned by any party hereto and shall
be binding on their respective successors and, in the case of the
Executive, heirs and other legal representatives.
<PAGE>
Peoples Heritage Financial Group, Inc.
October 25, 1995
Page Three
Each of the Company and the Executive has caused this letter agreement
to be duly executed as of the date first above written.
BANK OF NEW HAMPSHIRE CORPORATION
By: /s/
Name:
Title:
/s/
Name:
Agreed and accepted this 25th
day of October 1995 by Peoples
Heritage Financial Group, Inc.
By: /s/ William J. Ryan
Name: William J. Ryan
Title: Chairman, President and
Chief Executive Officer
<PAGE>
M E M O R A N D U M
TO: Board of Directors - BNHC and BNH
FROM: Executive Compensation Committee (ECC)
RE: ECC Recommended 1996 Incentive Bonus Plan
DATE: January 24, 1996
- ------------------------------------------------------------------------------
Attached are the recommended Target and Discretionary Pools' dollar limits for
the 1996 Incentive Bonus Plan ("Plan") and the procedures to be followed for
determining awards to be paid from the Discretionary Pool. Also attached is a
copy of the 1995 limits for your ease of reference and comparison to last
year's awards available pursuant to the Bonus Plan.
As you can see, the approach to awards from the Target and Discretionary Pools
have been left essentially unchanged from 1995. The "dollar" ranges have been
increased for all participants given the demanding "reach" that 1996's
targeted ROAA will require. The ECC's consensus is that a repeat of 1995
performance in 1996 would be a very challenging and significant achievement.
The Target Pool continues to utilize the Coopers & Lybrand "sliding-scale"
approach in the calculation of amounts available for distribution. And, as in
1995, there will be a minimum level ROAA which must be achieved prior to any
disbursements being made from this pool.
In light of the pending merger with FNBP the ECC is planning to review the
Plan subsequent to the merger and make adjustments as required. It is also
the intent of the ECC that if, for some unforeseen event, the merger does not
occur, the calculation of ROAA for 1996 be adjusted for merger related costs.
GDL/awb
<PAGE>
BANK OF NEW HAMPSHIRE CORPORATION
1996 INCENTIVE PLAN
Target Discretionary Pool
Thurber $ $ $
Shea
Landroche
SVPs (Corp.) - (A)
EVPs & Above (Bank) - (B)
SVPs (Bank) - (C)
VPs (Corp. and Bank)
$564,000 $184,000
$748,000
(A) (B) (C)
ALD HRA EPC
WDB RSB PED
RJM RBE JTH
AGT CJJ
MWM
REM
DGT
SCW
<PAGE>
BANK OF NEW HAMPSHIRE CORPORATION
Distribution Ranges
Target Bonus
1996
ROAA* Distribution Factor Bonus Dollars
1.15% .56 $315,800
1.20 .64 361,000
1.25 .72 406,000
1.30 .81 456,800
1.35 .90 507,600
1.38 .95 535,800
1.40 (1995 actual
& 1996 target) 1.00 564,000
1.45 1.10 620,400
1.50 1.21 682,400
1.55 1.32 744,500
1.60 1.43 806,500
*No award if ROAA is less than 1.15%
<PAGE>
BANK OF NEW HAMPSHIRE CORPORATION
1996 Bonus Plan
Discretionary Review Process
Exeuctive
Compensation Committee Chairman President
Chairman President All VPs and above
Corporate
Officers
- ------------------------------------------------------------------------------
Methodology
- -- All participants prepare goal memo outlining their individual goals for
the 1995 calendar year.
- -- Goals are reviewed by the individual's respective senior manager for
quantifiability and consistency with overall bank goals.
- -- Departmental/Divisional goals are reviewed and approved by the President.
- -- At the end of the year an accomplishment memo is prepared by the individual
which then follows a similar review process to the foregoing.
- -- Actual awards are proposed and follow the following review process:
. President reviews EVPs/SVPs/VPs and makes formal recommendations
to Chairman.
. Chairman reviews President and Corporate Officers and makes
recommendations to the Executive Compensation Committee.
. Executive Compensation Committee reviews Chairman and Chairman's
recommendations and makes recommendations to the BOD.
. BOD approval/changes/disapproval
<PAGE>
COMPENSATION DEFERRAL AGREEMENT
Davis P. Thurber
Amendment #3 Date: December 20, 1995
With respect to an Agreement dated December 23, 1992 between Bank of New
Hampshire, Bank of New Hampshire Corporation, and Davis P. Thurber, each party
agree to the following changes to Paragraph #3, namely:
A. Base Compensation will be $310,000 Per Annum.
B. The amount of bi-weekly Deferred Compensation will be $2,500.00.
BANK OF NEW HAMSPHIRE
Maureen Donovan By: Gregory D. Landroche 12/20/95
Attest Date
Its Chief Financial Officer
Duly Authorized (Bank)
BANK OF NEW HAMPSHIRE CORPORATION
Maureen Donovan By: Gregory D. Landroche 12/20/95
Attest Date
Its EVP, Treasurer and CFO
Duly Authorized (Corporation)
Maureen Donovan Davis P. Thurber 12/20/95
Witness Davis P. Thurber, Employee Date
<PAGE>
COMPENSATION DEFERRAL AGREEMENT
Paul R. Shea
Amendment #3 Date: December 26, 1995
With respect to an Agreement dated December 23, 1991 between Bank of New
Hampshire, Bank of New Hampshire Corporation, and Paul R. Shea, each party
agree to the following changes to Paragraph #3, namely:
A. Base Compensation will be $250,000 Per Annum.
B. Total divided as separate credits to my IRC 401-K account and the
Compensation Deferral Agreement dated December 23, 1991. Initally,
$91,500 per year to my deferred compensation account and $9,500 per
year to my IRC 401-K account: however, of the total deferred, the
credit to my IRC 401-K account shall be maintained at the maximum
allowed by current regulations.
BANK OF NEW HAMSPHIRE
Maureen Donovan By: Gregory D. Landroche 12/27/95
Attest Date
Its Chief Financial Officer
Duly Authorized (Bank)
BANK OF NEW HAMPSHIRE CORPORATION
Maureen Donovan By: Gregory D. Landroche 12/27/95
Attest Date
Its EVP, Treasurer and CFO
Duly Authorized (Corporation)
Maureen Donovan Paul R. Shea 12/26/95
Witness Paul R. Shea, Employee Date
<PAGE>
MANAGEMENT'S FINANCIAL REVIEW
GENERAL
Bank of New Hampshire Corporation (the "Company") is a registered bank holding
company incorporated in 1979 under the laws of the State of New Hampshire.
The Company is regulated by the State and the Federal Reserve System, and
transacts its business through Bank of New Hampshire (the "Bank"), a state-
chartered, commercial bank organized under New Hampshire law. The Company
conducts its business through 29 offices of the Bank located throughout the
southern, central, seacoast and lakes regions of New Hampshire.
MERGER AGREEMENT
On October 25, 1995 the Company, along with Peoples Heritage Financial Group,
Inc. ("Peoples") announced a definitive agreement to merge. The transaction
would be a tax-free exchange of two shares of People's common stock for each
share of the Company's common stock. It is intended that the transaction will
be accounted for as a pooling of interests.
Under the definitive agreement, Peoples' New Hampshire-based holding company,
First Coastal Banks, Inc., will merge into the Company. Subsequently, The
First National Bank of Portsmouth, a wholly-owned subsidiary of First Coastal,
will be merged into the Bank. The combination will result in Peoples becoming
a $4.2 billion banking company with a New Hampshire-based banking subsidiary
of approximately $1.7 billion in assets.
The agreement was approved by shareholders of both companies on February 27,
1996. It is anticipated that regulatory approval will be received in April
1996 and that the transaction will close prior to June 30, 1996.
REVIEW OF FINANCIAL STATEMENTS
The following is a discussion and analysis of the Company's consolidated
results of operations and financial condition. In order to understand this
section in context, it should be read in conjunction with the Financial
Statements on pages 22 through 36 and with the Statistical Information
contained in the Company's Annual Report on Form 10-K. Certain amounts
reported in prior years have been reclassified to conform with the 1995
presentation.
OVERVIEW
CONSOLIDATED INCOME STATEMENT
The Company reported net income of $10.5 million in 1995 compared to net
income of $8.6 million in 1994 and $6.4 million in 1993. Earnings per share
in 1995 were $2.57 compared to $2.12 in 1994 and $1.80 in 1993. Return on
average assets was 1.11% in 1995, .90% in 1994 and .67% in 1993. Return on
average equity was 13.11% in 1995, 12.08% in 1994 and 11.27% in 1993. The
principal reason for the 21% increase in net income for 1995 compared to 1994
was the significant increase in net interest income of $6.9 million. This was
offset somewhat by merger-related expenses charged to earnings of $2.7
million, after taxes, which were recorded during the quarter ended December
31, 1995, and which reduced earnings per share by $.67 for the fourth quarter
and the year. Excluding these merger-related expenses, the Company would have
reported 1995 earnings per share of $3.24, return on average assets of 1.40%
and return on average equity of 16.51%.
<PAGE>
The reason for the increase in net income for 1994 compared to 1993 was the
significant decrease in credit costs. The provision for possible loan losses
totalled $1.5 million in 1994 compared to $4.3 million in 1993, and expenses
related to Other Real Estate Owned ("OREO") totalled $1.6 million in 1994
compared to $3.2 million in 1993.
CONSOLIDATED BALANCE SHEET
At December 31, 1995, the Company had consolidated assets of $977.8 million.
The Company is the third largest bank holding company headquartered in New
Hampshire, and the Bank is the third largest bank operating in the State.
Liquid assets (cash, cash equivalents and securities) totalled $389.7 million
at December 31, 1995, an increase of $5.5 million from the 1994 year-end
balance. Management believes this level of liquid assets allows the Company
to remain responsive to external conditions and accommodate anticipated loan
growth.
Total loans were $560.9 million at December 31, 1995, an increase of $18.4
million compared to the 1994 year-end balance. However, excluding the effect
of $31.3 million in student loan sales during 1995, loans increased by $49.7
million, or 9%. See "Loans."
The following Chart presents the components of the Company's assets as of
December 31, 1995:
Net loans 56%
Securities 29
Cash and cash equivalents 11
Other assets 3
Other real estate owned 1
The following Table shows a decline in total nonperforming loans and assets
during 1995. Despite this positive trend, the Company continued to
conservatively maintain the allowance for possible loan losses (the "APLL").
At year-end, the APLL represented 78% coverage of nonperforming assets, 158%
coverage of nonperforming loans and 206% coverage of nonaccrual loans. See
"Risk Elements and Nonperforming Assets."
12/31/95 9/30/95 6/30/95 3/31/95
(In thousands)
Nonaccrual loans $ 5,745 $ 6,484 $ 8,461 $10,293
Loans past due 90 days 1,156 2,418 1,933 2,058
Restructured loans 591 594
Total nonperforming loans 7,492 9,496 10,394 12,351
Other real estate owned 7,606 7,959 9,011 10,149
Total nonperforming assets $15,098 $17,455 $19,405 $22,500
The following Graph shows the APLL coverages of nonperforming loans and
nonaccrual loans at December 31 for the years presented:
1995 1994 1993 1992 1991
APLL/Nonperforming loans 158% 87% 75% 59% 53%
APLL/Nonaccrual loans 206% 121% 89% 67% 63%
Interest-bearing deposits at December 31, 1995 totalled $670.9 million
compared to $677.8 million at year-end 1994, a decrease of $6.9 million. Non-
interest bearing deposits at December 31, 1995 totalled $166.8 million
<PAGE>
compared to $148.0 million at year-end 1994, an increase of $18.8 million.
The effect of changes in deposits for 1995 was not material to the liquidity
position of the Bank.
Shareholders' equity totalled $84.5 million at December 31, 1995, compared
with $75.2 million at the end of 1994. All capital ratios exceeded the
minimum requirements of current regulations. The increases in both
shareholders' equity and capital ratios in 1995 resulted from the retention of
earnings. See "Capital Resources."
RESULTS OF OPERATIONS
Net Interest Income
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 and
margin are affected by the current interest rate environment, the mix and
volume of assets and liabilities, the level of nonperforming assets, economic,
political and other factors. Consequently, there can be no assurance as to
the level of future net interest income or margins. See "Loans" and
"Liquidity and Interest Rate Sensitivity."
Net interest income was $47.2 million for 1995 compared to $40.3 million for
1994 and $40.1 million for 1993. Net interest income increased by $6.9
million, or 17%, in 1995 compared with 1994. This increase resulted from
higher rates earned on average earning assets, totalling $10.5 million in
additional interest income, which was offset somewhat by higher rates paid on
interest-bearing liabilities, totalling $3.5 million in additional interest
expense. Average earning assets decreased by $8.0 million in 1995 compared to
1994. Average interest-bearing liabilities decreased $26.6 million in 1995
compared to 1994. The effect on net interest income, resulting from the
decrease in average earning assets, was offset by the decrease in average
interest-bearing liabilities.
The following Table presents average Earning Assets, Interest-Bearing
Liabilities, Rate Earned on an FTE basis, and Rate Paid along with Interest
Rate Spread and Net Interest Margin for the years indicated.
1995 1994 1993
(Dollars in millions)
Earning Assets $869.1 $877.1 $876.0
Interest-Bearing Liabilities 709.0 735.6 755.5
Rate Earned (yield) 8.18% 6.96% 7.19%
Rate Paid 3.36 2.82 3.03
Interest Rate Spread 4.82 4.14 4.16
Net Interest Margin 5.43 4.59 4.58
Interest rate spread is the average yield earned on average earning assets
less the average rate paid for average interest bearing liabilities. Net
interest margin is calculated by dividing net interest income by total average
earning assets.
During 1995, 1994 and 1993, the effect on net interest income of nonaccrual
and restructured loans showed improvement each year. The reduction in
interest income as a result of the effect of these two categories was $497,000
in 1995, $1.4 million in 1994 and $1.5 million in 1993. There were no cash
payments received on nonaccrual loans during 1995 which were reported as
interest income. For 1995, a taxable equivalent adjustment of $128,000 was
added to net interest income, compared to $160,000 and $232,000 in 1994 and
1993, respectively.
<PAGE>
PROVISION FOR POSSIBLE LOAN LOSSES
In determining an appropriate 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 allowance for possible loan losses. The
aforementioned criteria are monitored by Management regularly. The amount of
the provision for possible loan losses is recommended by Management and is
then reviewed and approved quarterly by the Board based on its assessment of
the size, composition and quality of the loan portfolio and the level of the
allowance for possible loan losses relative to the risks within the loan
portfolio. See "Allowance for Possible Loan Losses."
Provisions for possible loan losses totalled $1.8 million for 1995, $1.5
million for 1994 and $4.3 million for 1993. The lower provisions for possible
loan losses, for the two most recent years, reflect the concurrent decreases
in nonperforming assets. See "Risk Elements and Nonperforming Assets."
The following Graph presents the Provision for Possible Loan Losses and Net
Loan Losses for the years indicated:
1995 1994 1993 1992 1991
(In millions)
Provision $1.8 $1.5 $4.3 $ 8.2 $13.6
Net loan losses $3.2 $2.9 $6.3 $11.5 $15.1
Noninterest Income
Noninterest income was $10.1 million for 1995, $9.7 million for 1994 and $9.8
million for 1993. The increase of $442,000 in 1995 compared to 1994 resulted
primarily from an increase in trust fees of $327,000.
The decrease of $136,000 in 1994 compared to 1993 resulted from lower gains on
mortgage sales of $922,000 and lower securities gains of $17,000, which were
mostly offset by higher trust fee income of $581,000 and service charges on
deposit accounts of $130,000.
Noninterest Expense
Total noninterest expense was $38.8 million in 1995, $35.6 million in 1994 and
$35.9 million in 1993. In 1995, noninterest expense increased $3.2 million
compared to 1994. This increase was primarily due to a nonrecurring charge to
earnings for merger related expenses of $3.7 million ($2.7 million, after tax)
consisting of legal and accounting fees ($90,000), investment banker fees
($441,000) and severance costs ($3.1 million). Excluding these non-recurring
merger expenses, noninterest expense was $35.2 million, a decrease of $438,000
compared to last year. This decrease consists of lower FDIC insurance expense
($1.2 million) and lower OREO expense ($593,000) which was offset somewhat by
planned increases in salaries and benefits costs ($633,000), increases in
occupancy and equipment expense ($134,000) and increases in other
miscellaneous expenses ($616,000). The decrease in FDIC insurance expense of
$1.2 million, or 56%, was due to an 83% reduction, effective June 1, 1995, in
the premium rate charged on deposits. The decrease in OREO expense of
$593,000, or 37%, resulted from the concurrent 25% decrease in OREO during
1995.
In 1994, noninterest expense decreased $265,000 compared to 1993. This
decrease was primarily due to lower OREO expense ($1.6 million) and FDIC
insurance expense ($341,000), mostly offset by higher salaries and employee
<PAGE>
benefits costs ($658,000) and other miscellaneous expenses ($1.1 million).
The increase in other miscellaneous expenses includes higher legal and
professional fees ($456,000), examination and audit fees ($162,000), student
loan service bureau fees ($155,000), marketing costs ($118,000),
telecommunications expenses ($129,000) and other miscellaneous expenses.
Income Tax Expense
The Company's results of operations in 1995, 1994 and 1993 produced pretax
income of $16.6 million, $12.7 million and $9.5 million, respectively. The
effective tax rate was 37.0% in 1995, 32.1% in 1994 and 32.9% in 1993.
During 1995, 1994 and 1993, the Company recorded income tax expense of $6.1
million, $4.1 million and $3.1 million, respectively.
Nondeductable merger expenses recorded in the fourth quarter of 1995 increased
the effective federal income tax rate by 2.3%.
The SFAS 109 valuation allowance which totalled $198,000 at December 31, 1993,
was reversed during 1994 resulting in a 1.6% reduction of the effective income
tax rate.
FINANCIAL CONDITION
Loans
Total loans at December 31, 1995 were $560.9 million, an increase of $18.4
million from the 1994 year-end balance of $542.5 million. The following Table
summarizes the Bank's loan portfolio by major category at December 31, 1995
and 1994. During 1995, commercial loans increased by $13.5 million, or 23%,
commercial real estate loans increased by $4.9 million, construction loans
increased by $4.2 million and residential real estate loans increased by $6.9
million. Installment loans increased by $20.2 million, or 24%, excluding the
effect of the sale of $31.3 million in student loans. Intense competition in
lending, as evidenced by aggressive marketing and loan pricing by our
competitors, continues to challenge our lenders. However, loan demand is
increasing and Management anticipates growth in all loan categories during
1996.
At December 31, 1995, residential real estate loans totalled $268.0 million,
or 48%, of the portfolio balance. This balance consisted of $253.8 million of
loans secured by one-to-four family residential properties, including $26.2
million of home equity loans, and $11.0 million of loans secured by multi-
family residential properties. The Bank has no foreign loans or energy loans,
and had agricultural loans of only $22,000 at December 31, 1995. Deferred
residential real estate loan origination fees totalled $1.1 million and
$947,000 at December 31, 1995 and 1994, respectively, and are included, net,
in this loan category.
December 31,
1995 1994
Amount % Amount %
(Dollars in thousands)
Commercial $ 72,267 13% $ 58,764 11%
Real estate--commercial 138,044 25 133,183 24
Real estate--construction 7,732 1 3,544 1
Real estate--residential 268,003 48 261,062 48
Installment 74,834 13 85,926 16
Total loans $560,880 100% $542,479 100%
<PAGE>
A significant amount of commercial real estate loans have been made to owner-
occupied businesses. Even though these loans are collateralized by real
estate, the primary repayment source is cash flow generated by the related
business. The diversification of the commercial real estate loan portfolio
and size of the potential loss exposure are such that a material adverse
impact on future operations of the Company is unlikely. See "Noninterest
Income."
Allowance for Possible Loan Losses
The APLL is available for future loan losses. The provision for possible loan
losses is added to the APLL. After review and approval by the Board,
Management charges all or a portion of a loan against the APLL when a
probability of loss has been established, with consideration given to such
factors as the prospects for recovery of the principal, the customer's
financial condition, underlying collateral and guarantees. Loans are also
subject to periodic examination by bank regulatory authorities. Each loan on
the internal Asset Quality Report is evaluated periodically to estimate
potential losses. In addition, estimated losses for each category of
classified loans are based on Management's judgment, which considers past loan
loss experience and other factors. General allocations of the APLL are based
on past loss experience, adjusted for portfolio growth and economic trends.
The amounts specifically provided for individual loans and pools of loans from
this analysis are considered allocated allowances and are supplemented by an
unallocated amount for possible loan losses. This unallocated amount is
determined based on judgments regarding risk of error in the specific
allocations, other potential exposure in the loan portfolio, economic
conditions and trends, and other factors.
Credit card loans are charged off at the earlier of; notice of bankruptcy; at
150 days past due; or when otherwise deemed uncollectible. All other
installment loans that are 90 to 120 days past due are charged off monthly,
unless insured for loss or where scheduled payments have been resumed. Real
estate mortgage loans are written down to fair value upon the earlier of
receipt of a deed of foreclosure or upon completion of foreclosure
proceedings. Commercial and commercial real estate loan losses are based on
Management's ongoing evaluation of nonperforming loans. Net loan losses were
$3.2 million, $2.9 million and $6.3 million for the years ended December 31,
1995, 1994 and 1993, respectively, representing .60%, .56% and 1.08% of
average loans for the respective years.
Recoveries of loan losses are added to the APLL. A centralized system
controls and administers the recovery effort in the Commercial Loan Workout
Department. Loan loss recoveries totalled $1.8 million in 1995, $2.5 million
in 1994 and $1.9 million in 1993.
The APLL as a percent of nonperforming assets, nonperforming loans, nonaccrual
loans and total loans was 78%, 158%, 206% and 2.1%, respectively, as of
December 31, 1995 compared to 52%, 87%, 121% and 2.4%, respectively, as of
December 31, 1994. Nonperforming assets as a percent of total assets was 1.5%
and 2.7% at December 31, 1995 and 1994, respectively.
Beginning in 1995, the Company adopted Financial Accounting Standards Board
Statement No. 114, "Accounting by Creditors for Impairment of a Loan." Under
SFAS 114, the 1995 APLL related to loans that are identified for evaluation in
accordance with SFAS 114 is based on discounted cash flows using the loan's
initial effective interest rate or the fair value of the collateral for
certain collateral dependent loans. Prior to 1995, the APLL related to these
loans was based on the fair value of the collateral for collateral dependent
loans or on undiscounted cash flows.
<PAGE>
At December 31, 1995, the recorded investment in loans that were considered
impaired under SFAS 114 was $3.4 million, $2.9 million of which were
nonaccrual loans. The allocation of the APLL for these impaired loans was
$800,000.
The following Table presents an analysis of the APLL activity for each of the
past three years.
1995 1994 1993
(In thousands)
Balance at January 1 $ 13,191 $ 14,581 $ 16,619
Provision for possible loan losses 1,800 1,517 4,268
Loan losses:
Commercial (320) (1,101) (1,028)
Real estate--commercial (1,620) (939) (2,026)
Real estate--construction (5) (100) (202)
Real estate--residential (2,672) (2,789) (4,169)
Installment (369) (511) (777)
Total loan losses (4,986) (5,440) (8,202)
Recoveries:
Commercial 566 934 775
Real estate--commercial 361 455 470
Real estate--construction 198 278 147
Real estate--residential 375 496 102
Installment 332 370 402
Total recoveries of loans 1,832 2,533 1,896
Net loan losses (3,154) (2,907) (6,306)
Balance at December 31 $ 11,837 $ 13,191 $ 14,581
Total loans at December 31 $560,880 $542,479 $528,271
The APLL is a general reserve available for all categories of possible loan
losses. Management has made allocations of its APLL giving consideration to
an evaluation of risk in the portfolios. Such allocations are based on
estimates and subjective judgments, and are not necessarily indicative of the
specific amounts or loan categories in which losses may ultimately occur. The
following Table presents an analysis of allocations of the APLL by loan
category for the years indicated.
<TABLE>
<CAPTION>
December 31,
1995 1994
% of % of % of % of
Total Total Total Total
Amount APLL Loans Amount APLL Loans
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Commercial $ 878 8% 13% $ 835 6% 11%
Real estate--commercial 1,676 14 25 3,560 27 24
Real estate--construction 1 1
Real estate--residential 1,586 13 48 1,954 15 48
Installment 521 4 13 1,361 10 16
Unallocated 7,176 61 5,481 42
$11,837 100% 100% $13,191 100% 100%
</TABLE>
<PAGE>
Risk Elements and Nonperforming Assets
Most of the Bank's loans are collateralized by real estate in New Hampshire.
In addition, all OREO properties are located in New Hampshire. The ultimate
collectibility of this portion of the loan portfolio and the recovery of this
portion of the carrying amount of OREO are susceptible to changes in the
State's market conditions. Management makes estimates and assumptions which
affect the reported amounts of these assets and which affect revenues and
expenses. Actual results could differ from those estimates. Material
estimates that are potentially susceptible to change in the near-term relate
to determination of the APLL and the valuation of real estate acquired in
connection with foreclosures or in satisfaction of loans. Management believes
it is prudent in charging off uncollectible portions of problem loans and
writing down the carrying value of OREO, as its policy is to record such
losses on a timely basis. Management also believes there are no adverse
concentrations in any loan category. However, changes in economic conditions
may require currently unanticipated additions to the APLL or reductions in
OREO valuations, which would reduce earnings in the period within which such
additions or reductions occur.
A loan generally is classified as nonaccrual when full collectibility of
principal or interest is doubtful or a loan becomes 90 days past due as to
principal or interest, unless Management determines that the estimated net
realizable value of the collateral is sufficient to recoup the principal
balance and accrued interest and the loan is in the process of collection.
When interest accruals are discontinued, unpaid interest accrued in prior
years is charged to the APLL and current year interest is reversed. Payments
received on nonaccrual loans are applied to principal. A loan is classified
as restructured if the original interest rate, repayment terms, or both have
been modified due to the deterioration in the financial condition of the
borrower. Nonperforming loans are generally returned to performing status
when the loan is brought current and has performed in accordance with contract
terms for a reasonable period of time.
At December 31, 1995 and 1994, the nonaccrual loan balance of $5.7 million and
$10.9 million, respectively, consisted of $500,000 and $601,000 in commercial
loans and $5.2 million and $10.3 million in real estate loans.
At December 31, 1995, loans 90 days past due and still accruing were $1.2
million, compared to $3.0 million at December 31, 1994. Included in this
nonperforming loan category at December 31, 1995 and 1994, were loans secured
by real estate, which totalled $1.0 million and $2.6 million, respectively.
Although restructured loans have not been material, amounting to $591,000 and
$1.3 million at December 31, 1995 and 1994, respectively, Management
encourages restructuring when it is likely to benefit the Company and the
borrower.
<PAGE>
The following Table summarizes the nonperforming assets at year end for the
years presented.
December 31,
1995 1994
(Dollars in thousands)
Nonaccrual loans:
Commercial $ 500 $ 601
Real estate--commercial 3,194 5,365
Real estate--construction 233 476
Real estate--residential 1,770 4,453
Installment 48 32
Total nonaccrual 5,745 38% 10,927 43%
Past due 90 days (accruing) 1,156 8 3,003 12
Restructured loans 591 4 1,251 5
Total nonperforming loans 7,492 50 15,181 60
Other real estate owned, net 7,606 50 10,124 40
Total nonperforming assets $ 15,098 100% $ 25,305 100%
The following Table presents the distribution of OREO, before deducting the
allowance for OREO losses, as of December 31, 1995 and 1994.
December 31,
1995 1994
(Dollars In millions)
Commercial $ 5.7 73% $ 6.7 66%
Residential 1.2 15 2.2 21
Construction and land development 1.0 12 1.3 13
Total $ 7.9 100% $10.2 100%
OREO at December 31, 1995 consisted of eighty-eight properties. The two
largest properties were commercial real estate, which account for half of the
OREO balance. Six other OREO properties are each recorded at less than
$600,000 and the remaining eighty properties are each recorded at less than
$100,000. Substantially all residential properties are one-to-four family,
and construction and land development loans are intended for residential one-
to-four family homes. OREO at December 31, 1995, net of the allowance, was
$7.6 million compared to $10.1 million at December 31, 1994, a $2.5 million,
or 25%, decrease. During 1995, additions totalled $1.8 million and sales were
$3.9 million. During 1994, additions totalled $5.5 million and sales totalled
$4.7 million.
Securities
Securities totalled $281.4 million and $290.2 million at December 31, 1995 and
1994, respectively. The portfolio is comprised primarily of short-term U.S.
Treasury instruments with an overall maturity of 10 months.
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. In
accordance with provisions in the Financial Accounting Standards Board's
Special Report, "A Guide to Implementation of Statement 115 on Accounting for
Certain Investments in Debt and Equity Securities," issued on November 15,
1995, the Company chose to reclassify debt securities from held-to-maturity to
available-for-sale at December 31, 1995. At December 31, 1995, the amortized
cost of held-to-maturity debt securities reclassified to available-for-sale
<PAGE>
totalled $275.5 million. The unrealized after tax gain on these securities
was $1.4 million and is reported as a separate component of shareholders'
equity. Held-to-maturity debt securities, carried at amortized historical
cost, totalled $286.6 million at December 31, 1994.
Marketable equity securities not classified as trading, are classified as
available-for-sale and are carried at market value. Net unrealized holding
gains, after tax, on available-for-sale equity securities are included in
shareholders' equity and were $88,000 at December 31, 1995.
The Company does not have a trading account and has no derivative financial
instruments.
Deposits
Interest-bearing deposit balances at December 31, 1995 totalled $670.9 million
compared to $677.8 million at year-end 1994, a decrease of $6.9 million. The
affect of changes in deposits for 1995 was not material to the overall
liquidity position of the Bank. Demand deposits increased $18.8 million, or
13%, in 1995 from the 1994 year-end balance of $148.0 million.
Average demand deposits increased $3.8 million, totalling $142.5 million and
$138.7 million for 1995 and 1994, respectively. Average savings deposits
decreased $40.9 million, totalling $448.2 million and $489.1 million in 1995
and 1994, respectively. Average time deposits increased $8.7 million,
totalling $219.2 million for 1995 and $210.5 million for 1994.
The following Table lists actual deposit balances at December 31 for the years
presented.
December 31,
1995 1994
(In thousands)
Demand deposits $166,833 $148,009
NOW accounts 135,952 138,031
Savings deposits 254,393 288,646
Money market accounts 41,577 51,359
Time deposits of $100,000 or more 12,742 9,558
Other time deposits 226,229 190,253
Total deposits $837,726 $825,856
Short-Term Borrowings
Short-term borrowings include securities sold under repurchase agreements and
all other borrowed funds. Such borrowings totalled $44.1 million and $44.0
million at December 31, 1995 and 1994, respectively.
Capital Resources
The Company's two sources of capital are internally generated capital and the
capital markets. Primary reliance is placed on internally generated capital.
The Board of Governors of the Federal Reserve System (the "FRB") requires
banks and bank holding companies to maintain capital based on risk-adjusted
assets so that categories of assets with potentially higher credit risk will
require more capital backing than assets with lower risk. In addition, banks
and bank holding companies are required to maintain capital to support, on a
risk-adjusted basis, certain off-balance sheet activities such as loan
commitments and interest rate swaps.
<PAGE>
The FRB standards classify capital into two tiers; Tier 1 and Tier 2. Tier 1
capital consists of common shareholders' equity, noncumulative and cumulative
(bank holding companies only) perpetual preferred stock, and minority
interests, less goodwill. Tier 2 capital consists of a portion of the APLL,
perpetual preferred stock (not included in Tier 1), hybrid capital
instruments, term subordinated debt, and intermediate-term preferred stock.
At December 31, 1995, all bank holding companies and banks are required to
meet a minimum ratio of 8% of qualifying total capital to risk-adjusted total
assets with at least 4% Tier 1 capital. Capital that qualifies as Tier 2
capital is limited to 100% of Tier 1 capital. The FRB regulations require a
minimum Tier 1 leverage capital ratio of 3% plus an additional cushion of 100
to 200 basis points or more. Under certain circumstances, the FRB may
establish higher minimum capital ratio requirements than set forth above where
increased regulatory attention is warranted.
The following Table presents the regulatory capital ratios of the Company at
December 31, 1995 and 1994.
Regulatory
Minimum 1995 1994
Regulatory Capital Ratios:
Leverage ratio 3.00% 8.46% 7.68%
Tier 1 risk-based ratio 4.00 16.38 15.94
Total risk-based ratio 8.00 17.65 17.21
The following Table presents the regulatory capital ratios of the Bank at
December 31, 1995 and 1994.
Regulatory
Minimum 1995 1994
Regulatory Capital Ratios:
Leverage ratio 3.00% 8.15% 7.06%
Tier 1 risk-based ratio 4.00 15.86 14.67
Total risk-based ratio 8.00 17.13 15.94
As shown in the Tables above, the Tier 1 and total risk-based capital ratios
and the leverage capital ratios, for the Company and the Bank, substantially
exceed the current minimum requirements.
Liquidity and Interest Rate Sensitivity Management
The primary functions of asset/liability management are to assure adequate
liquidity and maintain an appropriate balance between interest-sensitive
earning assets and interest-bearing liabilities. Liquidity management
involves the Bank's ability to meet the cash flow requirements of customers
who may be either depositors wanting to withdraw funds or borrowers needing
assurance that sufficient funds will be available to meet their credit needs.
Interest rate sensitivity management seeks to avoid fluctuating net interest
margins and to enhance consistent growth of net interest income through
periods of changing interest rates.
The Bank's most important liquidity source is liability liquidity, the ability
to raise new funds and to renew maturing liabilities in a variety of markets.
The most important factor in assuring liability liquidity is maintenance of
confidence in the Bank by depositors of funds. Such confidence, in turn, is
based on performance and reputation. The Bank believes that its reputation,
its financial strength and numerous long-term customer relationships, should
enable it to raise funds as needed in many markets. Funds are primarily
generated locally and regionally and the Bank has no brokered deposits. Other
types of assets, such as available-for-sale securities, federal funds sold and
securities purchased under resale agreements, as well as maturing loans and
<PAGE>
loan payments, are supplemental sources of liquidity.
The objective of interest rate sensitivity management is to minimize changes
in net interest income resulting from volatility in interest rates. Interest
rate sensitivity varies with different types of interest-earning assets and
interest-bearing liabilities. Overnight federal funds on which rates change
daily and loans which are tied to the prime rate differ considerably from
long-term investment securities and fixed rate loans. Similarly, time
deposits over $100,000 and money market accounts are much more interest
sensitive than passbook savings accounts. The shorter term interest rate
sensitivities are key to measuring the interest sensitivity gap, which is
defined as excess interest-sensitive earning assets over interest-bearing
liabilities.
The following Table shows the Bank's interest sensitivity gaps for four
different time intervals as of December 31, 1995. Within the first two time
intervals, i.e., 0-12 months, the Bank was liability-sensitive at December 31,
1995. An increase in the general level of interest rates would have an
unfavorable effect on net interest income by increasing rates paid on
liabilities faster than rates earned on assets. Conversely, declining rates
would have a favorable effect on net interest income.
<TABLE>
<CAPTION>
0-3 4-12 1-5 Over 5
Months Months Years Years
(In thousands)
<S> <C> <C> <C> <C>
Rate Sensitive Assets:
Loans $165,430 $ 70,365 $170,301 $154,784
Securities 80,299 135,451 60,671 3,964
Federal funds sold and other 42,000
Total 287,729 205,816 230,972 158,748
Rate Sensitive Liabilities:
NOW accounts 135,952
Savings deposits 254,393
Time deposits greater than $100,000 2,413 7,373 2,956
All other time deposits(1) 81,375 104,588 79,948 1,895
Federal funds purchased and other 44,116
Total (2) 518,249 111,961 82,904 1,895
Interest sensitivity gap $(230,520) $ 93,855 $148,068 $156,853
Cumulative interest sensitivity gap $(230,520) $(136,665) $ 11,403 $168,256
</TABLE>
(1) Includes Money Market Accounts totalling $41.6 million.
(2) Excludes noninterest-bearing deposits.
Inflation
The effects of inflation on financial institutions differ from the effects on
other commercial enterprises since financial institutions make few significant
capital or inventory expenditures, which are directly affected by changing
prices. Because virtually all bank assets and liabilities are monetary in
nature, inflation does not affect a financial institution as much as changes
in interest rates. The general level of inflation does, in fact, underlie the
general level of most interest rates; however, interest rates do not increase
at the rate of inflation as do the prices of goods and services. Rather,
interest rates react more to the changes in the expected rate of inflation and
to changes in government monetary and fiscal policy.
<PAGE>
Summary of Selected Financial Data
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Interest income $ 70,926 $ 60,852 $ 62,719 $ 72,906 $ 86,749
Interest expense 23,831 20,728 22,870 31,311 50,003
Net interest income 47,095 40,124 39,849 41,595 36,746
Provision for possible loan losses 1,800 1,517 4,268 8,152 13,585
Noninterest income 10,130 9,688 9,824 9,156 10,189
Noninterest expense 38,839(A) 35,610 35,875 36,819 37,085
Income taxes (benefit) 6,132 4,074 3,138 1,457 (509)
Cumulative effect of a change in
accounting principle (B) 1,100
Net income (loss) $ 10,454(A)$ 8,611 $ 6,392 $ 5,423 $ (3,226)
Total assets $ 977,836 $ 953,456 $ 976,719 $ 967,202 $1,015,061
Total equity $ 84,457 $ 75,174 $ 68,242 $ 50,545 $ 44,984
Per share data:
Income(loss) before cumulative
effect of a change in
accounting principle $ 2.57 $ 2.12 $ 1.80 $ 1.28 $ (.95)
Cumulative effect of a change
in accounting principle (B) .32
Net income (loss) $ 2.57(A)$ 2.12 $ 1.80 $ 1.60 $ (.95)
Cash dividends declared $ .66 $ .405 $ .08 $ .00 $ .00
Book value $ 20.78 $ 18.50 $ 16.78 $ 14.96 $ 13.29
Ratios:
Net interest margin (FTE) 5.43% 4.59% 4.58% 4.59% 4.10%
Return on average shareholders'
equity (ROE) 13.11 12.08 11.27 11.43 (6.99)
Return on average assets (ROA) 1.11 .90 .67 .55 (.33)
</TABLE>
(A) The Company recorded $3.7 million ($2.7 million, after tax) or $.67 per
share, of non-recurring merger expenses.
(B) The Company adopted SFAS No. 109, "Accounting for Income Taxes," in 1992.
Information on Common Stock
Bank of New Hampshire Corporation common stock trades on the Nasdaq Stock
Market under the symbol "BNHC." The Table below sets forth the high and
low sales prices for the common stock as reported by Nasdaq, in addition
to the cash dividends declared in each period. As of February 29, 1996,
there were approximately 1,240 holders of record of common stock.
<TABLE>
<CAPTION>
1995 1994
Fourth Third Second First Fourth Third Second First
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C> <C> <C> <C> <C>
High $43.63 $34.75 $26.75 $26.75 $27.00 $29.00 $28.25 $18.50
Low $29.50 $25.25 $24.75 $21.50 $18.25 $25.25 $16.75 $16.75
Cash dividends declared per share $ .18 $ .18 $ .15 $ .15 $ .125 $ .10 $ .10 $ .08
</TABLE>
The Company is authorized by its Articles of Agreement to issue up to 500,000
shares of preferred stock, no par value. No shares of preferred stock have
been issued. The holders of shares of common stock of the Company are
entitled to receive dividends when and as declared by the Board of Directors
out of funds legally available therefore.
<PAGE>
Selected Quarterly Data
In the opinion of Management, all adjustments, which include only normal
recurring adjustments necessary to present fairly the results of
operations for each of the following quarterly periods, have been made.
The following is a summary of selected quarterly data of the Company for the
years ended December 31, 1995 and 1994 (In thousands, except per share data):
<TABLE>
<CAPTION>
1995 1994
Fourth Third Second First Fourth Third Second First
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income $ 18,464 $ 18,150 $ 17,360 $ 16,952 $ 16,381 $ 15,448 $ 14,770 $ 14,253
Interest expense 6,344 6,141 5,832 5,514 5,404 5,227 5,019 5,078
Net interest income 12,120 12,009 11,528 11,438 10,977 10,221 9,751 9,175
Provision for possible loan losses 450 450 450 450 385 252 431 449
Noninterest income 2,493 2,386 2,524 2,727 2,402 2,523 2,379 2,384
Noninterest expense 12,024(1) 8,696 8,629 9,490 8,971 9,132 8,667 8,840
Income before income taxes 2,139 5,249 4,973 4,225 4,023 3,360 3,032 2,270
Income taxes 1,223 1,799 1,682 1,428 1,356 1,130 1,021 567
Net income $ 916(1)$ 3,450 $ 3,291 $ 2,797 $ 2,667 $ 2,230 $ 2,011 $ 1,703
Earnings per share $ .22(1)$ .85 $ .81 $ .69 $ .66 $ .55 $ .49 $ .42
</TABLE>
(1) In the 1995 fourth quarter, the Company recorded $3.7 million ($2.7
million, after tax) or $.67 per share, of nonrecurring merger expenses.
<PAGE>
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS
Board of Directors and Shareholders
Bank of New Hampshire Corporation
We have audited the accompanying consolidated balance sheets of Bank of New
Hampshire Corporation as of December 31, 1995 and 1994, and the related
consolidated statements of income, changes in shareholders' equity, and cash
flows for each of the three years in the period ended December 31, 1995.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of mate-
rial misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant esti-
mates made by management, as well as evaluating the overall financial state-
ment presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the consolidated financial statements referred to above pres-
ent fairly, in all material respects, the consolidated financial position of
Bank of New Hampshire Corporation at December 31, 1995 and 1994, and the
consolidated results of its operations and its cash flows for each of the
three years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles.
As discussed in Note A to the consolidated financial statements, the Company
changed its method of accounting for impairment of a loan in the year ended
December 31, 1995. As discussed in Note D to the consolidated financial
statements, the Company changed its method of accounting for investments in
debt and equity securities in the year ended December 31, 1994.
(Signature of Ernst & Young LLP appears here)
Manchester, New Hampshire
January 18, 1996
<PAGE>
BANK OF NEW HAMPSHIRE CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31
(Dollars in thousands, except per share amounts) 1995 1994
ASSETS
Cash and due from banks $ 66,291 $ 66,037
Federal funds sold and securities purchased
under resale agreements 42,000 28,000
Total cash and cash equivalents 108,291 94,037
Securities:
Held-to-maturity 286,577
Available-for-sale 281,430 3,614
Total securities 281,430 290,191
Loans:
Commercial 72,267 58,764
Real estate-commercial 138,044 133,183
Real estate-construction 7,732 3,544
Real estate-residential 268,003 261,062
Installment 74,834 85,926
Total loans 560,880 542,479
Less: Allowance for possible loan losses 11,837 13,191
Net loans 549,043 529,288
Premises and equipment 11,245 10,226
Other real estate owned 7,606 10,124
Interest receivable 9,122 8,877
Other assets 11,099 10,713
Total assets $ 977,836 $ 953,456
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing $ 166,833 $ 148,009
Interest-bearing 670,893 677,847
Total deposits 837,726 825,856
Securities sold under repurchase agreements 41,015 40,888
Other borrowed funds 3,101 3,072
Accrued expenses and other liabilities 11,537 8,466
Total liabilities 893,379 878,282
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 - 4,064,165 shares in 1995
and 4,064,103 shares in 1994 10,160 10,160
Surplus 27,289 27,288
Retained earnings 45,492 37,720
Net unrealized gain, after tax,
on available-for-sale securities 1,516 6
Total shareholders' equity 84,457 75,174
Total liabilities and shareholders' equity $ 977,836 $ 953,456
See notes to consolidated financial statements.
<PAGE>
BANK OF NEW HAMPSHIRE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
Year Ended December 31
1995 1994 1993
Interest income:
Loans, including fees $ 50,495 $ 45,790 $ 51,608
Securities 16,892 12,153 8,541
Other 3,539 2,909 2,570
Total interest income 70,926 60,852 62,719
Interest expense:
Deposits 22,037 19,696 22,065
Borrowed funds 1,794 1,032 805
Total interest expense 23,831 20,728 22,870
Net interest income 47,095 40,124 39,849
Provision for possible loan losses 1,800 1,517 4,268
Net interest income after
provision for possible loan losses 45,295 38,607 35,581
Noninterest income:
Trust fees 4,229 3,902 3,321
Service charges on deposit accounts 3,216 3,311 3,181
Gains on sales of loans 154 52 974
Securities gains 165 182
Other 2,531 2,258 2,166
Total noninterest income 10,130 9,688 9,824
Noninterest expense:
Salaries 14,589 13,704 13,491
Employee benefits 4,353 4,605 4,160
Occupancy 3,173 3,122 3,043
Equipment 1,752 1,669 1,839
OREO 997 1,590 3,200
FDIC insurance 955 2,183 2,524
Merger 3,667
Other 9,353 8,737 7,618
Total noninterest expense 38,839 35,610 35,875
Income before income taxes 16,586 12,685 9,530
Provision for income taxes 6,132 4,074 3,138
Net income $ 10,454 $ 8,611 $ 6,392
Average shares outstanding 4,064 4,065 3,552
Per share amounts:
Earnings $2.57 $2.12 $1.80
Cash dividends declared $ .66 $.405 $ .08
See notes to consolidated financial statements.
<PAGE>
BANK OF NEW HAMPSHIRE CORPORATION
CONSOLIDATED STATEMENTS OF
CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Net
Common Retained Unrealized Treasury
Stock Surplus Earnings Gain(Loss) Stock Total
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1993 $ 8,743 $17,700 $24,688 $ (586) $50,545
Net income 6,392 6,392
Issuance of common stock 1,725 9,871 11,596
Cash dividends declared (325) (325)
Retirement of treasury stock (296) (290) 586
Repurchase and retirement of
common stock (5) (24) (29)
Compensation cost of stock
plan 63 63
Balance at December 31, 1993 10,167 27,320 30,755 $ 0 $68,242
Adjustment to beginning bal-
ance for change in account-
ing method on securities,
(after tax of $44) $ 85 85
Net income 8,611 8,611
Cash dividends declared (1,646) (1,646)
Change in net unrealized gain
on available-for-sale
securities, (after tax of $41) (79) (79)
Repurchase and retirement of
common stock (7) (53) (60)
Compensation cost of stock
plan 21 21
Balance at December 31, 1994 10,160 27,288 37,720 6 75,174
Net income 10,454 10,454
Cash dividends declared (2,682) (2,682)
Change in net unrealized gain
on available-for-sale
securities, (after tax of $778) 1,510 1,510
Compensation cost of stock
plan 1 1
Balance at December 31, 1995 $10,160 $27,289 $45,492 $ 1,516 $84,457
</TABLE>
See notes to consolidated financial statements.
<PAGE>
BANK OF NEW HAMPSHIRE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Year Ended December 31
1995 1994 1993
<S> <C> <C> <C>
Cash Flows from
Operating Activities:
Net income $ 10,454 $ 8,611 $ 6,392
Reconciliation of net income
to net cash provided from
operating activities:
Provision for possible loan losses 1,800 1,517 4,268
Depreciation, amortization
and accretion 1,894 3,028 1,299
Net change in interest receivables
and payables 1,679 (4,407) 393
Gains on sales of loans (154) (52) (974)
(Gains) losses on OREO, net (57) 14 892
Securities gains (165) (182)
Provision for deferred taxes 994 583 1,306
Other, net (680) (212) (249)
Net cash provided from operating
activities 15,930 8,917 13,145
Cash Flows from Investing Activities:
Sales of investment securities 1,309
Sales of available-for-sale
equity securities 622 255
Maturities of held-to-maturity
securities 124,619 157,536
Maturities of investment securities 217,562
Purchases of held-to-maturity
securities (114,491) (190,247)
Purchases of investment securities (291,331)
Proceeds from sales of loans 31,425 8,990 46,720
Proceeds from sales of OREO 4,181 4,917 4,482
Net cash (used for) from loans (54,437) (29,173) 45,098
Purchases of premises and equipment (2,939) (666) (1,241)
Net cash (used for) provided from
investing activities (11,020) (48,388) 22,599
Cash Flows from
Financing Activities:
Net cash provided from (used for)
deposits 11,870 (39,479) (3,590)
Net cash provided from (used for)
short-term borrowings 156 8,694 (3,981)
Dividends paid (2,682) (1,646) (325)
(Retirement of)/net proceeds
from issuance of common stock (60) 11,567
Net cash provided from (used for)
financing activities 9,344 (32,491) 3,671
Net change in cash and cash
equivalents 14,254 (71,962) 39,415
Cash and cash equivalents at January 1 94,037 165,999 126,584
Cash and cash equivalents at
December 31 $108,291 $ 94,037 $165,999
</TABLE>
See notes to consolidated financial statements.
<PAGE>
BANK OF NEW HAMPSHIRE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The financial reporting and accounting policies of Bank of New Hampshire
Corporation (the "Company") conform to generally accepted accounting
principles and with general practices within the banking industry. The
following is a summary of the significant accounting policies.
Basis of Presentation: The financial statements include the accounts of the
Company and its sole banking subsidiary, Bank of New Hampshire (the "Bank"),
which provides commercial and consumer banking services in the southern,
central, coastal, and lakes regions of New Hampshire. All significant
intercompany accounts and transactions have been eliminated in consolidation.
In preparing the financial statements, management is required to make estimates
and assumptions that affect the reported amounts of assets and liabilities
and income and expenses. Actual results could differ from these estimates.
Certain amounts reported in prior periods have been reclassified for comparative
purposes.
Securities: 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 stated at amortized cost.
Debt securities not classified as held-to-maturity or trading, and marketable
equity securities not classified as trading, are classified as available-
for-sale. Available-for-sale securities are stated at market value, with the
unrealized gains and losses, after tax, reported in a separate component of
shareholders' equity. Prior to January 1, 1994, the Company classified all
securities as held for investment and carried them at amortized cost.
The Company does not have a trading account and has no derivative financial
instruments.
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 on
securities. Interest and dividends are included in interest income on
securities. Realized gains and losses, and declines in value judged
to be other-than-temporary, are included in securities gains (losses).
The cost of securities sold is based on the specific identification method.
Loans: Loans are reported at the principal amount outstanding, reduced by
partial loan losses and net deferred loan fees. Interest income on loans is
accrued as earned based on the principal amount outstanding. Net loan
origination fees are deferred and amortized to income over the life of the loan.
Generally, a loan (including an impaired loan) is classified as nonaccrual when
any portion of the principal or interest is ninety days past due, unless it is
well secured and in the process of collection, or earlier when concern
exists as to the ultimate collection of principal or interest. When loans
are placed in the nonaccrual category, the current year accrued interest
receivable is reversed against interest income while prior year accrued
interest is charged to the allowance for possible loan losses. Interest
received on nonaccrual loans is applied as a reduction of the principal balance
when concern exists as to the ultimate collection of principal; otherwise such
interest is recognized as interest income. Generally, loans are removed from
the nonaccrual category when they become current as to both principal and
interest and when concern no longer exists as to the collectibility of
principal or interest.
The Company may renegotiate the contractual terms of a loan because of a
deterioration in the financial condition of the borrower. The carrying value
of a restructured loan is reduced by the fair value of any asset or equity
interest received, and by the extent, if any, that future cash receipts
specified by the new terms do not equal the loan balance at the time of
renegotiation. Restructured loans performing in accordance with their new
terms are not included in nonaccrual loans unless concern exists as to the
ultimate collection of principal or interest. Interest, if any, is recognized
in income to yield a level rate of return over the life of the restructured
loan.
<PAGE>
Allowance for and Provision for Possible Loan Losses: The allowance for
possible loan losses is maintained at a level considered adequate by
management to absorb potential losses in the loan portfolio. The allowance
is increased by the provision for possible loan losses which is charged
against income and by recoveries of loan losses. The allowance is decreased
as loans are charged off. Beginning in 1995, the Company adopted
Financial Accounting Standards Board Statement (SFAS) No. 114, "Accounting
by Creditors for Impairment of a Loan." Under SFAS 114, the 1995
allowance for possible loan losses related to loans that are identified for
evaluation in accordance with SFAS 114 is based on discounted cash flows
using the loan's initial effective interest rate or the fair value of the
collateral for certain collateral dependent loans. Prior to 1995, the
allowance for possible loan losses related to these loans was based on
undiscounted cash flows or the fair value of the collateral for
collateral dependent loans.
A loan loss occurs once a probability of loss has been determined, with
consideration given to such factors as the customer's financial condition,
underlying collateral and guarantees. The provision for possible loan
losses is based upon management's estimate of the amount necessary to
maintain the allowance at an adequate level, considering an evaluation of
the individual credit risks and concentrations of credit risks, levels of
nonaccrual loans, past loan loss experience, current economic conditions,
volume, growth and composition of the loan portfolio, and other relevant
factors. This estimate is inherently subjective as it requires material
estimates including the amounts and timing of future cash flows expected
to be received on impaired loans that may be susceptible to significant change.
Other Real Estate Owned (OREO): OREO includes property acquired in satisfaction
of a loan through either a foreclosure or acceptance of a deed-in-lieu of
foreclosure and loans classified as in-substance foreclosures. In
accordance with SFAS 114, a loan is classified as in-substance foreclosure when
the Company has taken possession of the collateral regardless of whether
formal foreclosure proceedings take place. Loans previously classified as
in-substance foreclosure but for which the Company had not taken possession
of the collateral have been reclassified to loans. This reclassification did
not impact the Company's financial condition or results of operations. OREO
properties are recorded at the lower of cost or fair value based on appraised
value at the date actually or constructively received. Loan losses
arising from the acquisition of such property are charged against the
allowance for possible loan losses. An allowance for possible OREO losses
is maintained for subsequent valuation adjustments on a specific property
basis. Subsequent declines in the value of the property and net gains or losses
on sales of property are included in OREO expense.
Premises and Equipment: Premises and equipment are stated at cost less
accumulated depreciation and amortization. Depreciation and amortization for
financial reporting purposes is computed primarily on the straight-line
method over the estimated useful lives of the assets. Accelerated methods of
depreciation and amortization are used for income tax purposes. Leasehold
improvements are amortized over their useful lives or the terms of the
respective leases, whichever is less.
Retirement Plan: The Company has a noncontributory defined benefit retirement
plan covering substantially all employees. The benefits are based on years
of service and the employee's compensation. The Company's funding policy is
to contribute the minimum amount that can be deducted for federal income tax
purposes. Plan assets consist primarily of common stocks, bonds and
U.S. Government obligations.
Income Taxes: The liability method is used in accounting for income taxes.
Under this method, deferred tax assets and liabilities are determined based
on differences between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will
be in effect when the differences are expected to reverse.
Earnings Per Share: Earnings per share is computed by dividing net income by
the weighted average number of common shares outstanding during the year.
Cash Flow Information: For purposes of the statements of cash flows, the
Company considers cash and due from banks, federal funds sold, and securities
purchased under resale agreements as cash and cash equivalents. Cash paid
for interest during the years ended December 31, 1995, 1994 and 1993 was $21.9
million, $21.3 million and $22.5 million, respectively. The Company made
income tax payments of $6.4 million in 1995, $2.7 million in 1994, and $2.5
million in 1993. The Company received an income tax refund of $400,000 in 1993.
NOTE B - PENDING MERGER
On October 25, 1995, the Company, along with Peoples Heritage Financial Group,
Inc. ("Peoples"), announced a definitive agreement to merge. The transaction
would be a tax-free exchange of two shares of Peoples' common stock for each
share of the Company's common stock. It is intended that the transaction will
be accounted for as a pooling of interests.
Under the definitive agreement, Peoples' New Hampshire-based holding company,
First Coastal Banks, Inc., will merge into the Company. Immediately
following, The First National Bank of Portsmouth, a wholly owned subsidiary
of First Coastal, will be merged into the Bank. The combination will result
in Peoples becoming a $4.2 billion banking company with a New Hampshire-based
banking subsidiary of approximately $1.7 billion in assets.
Concurrent with the execution of the merger agreement, the Company and Peoples
entered into a Stock Option Agreement pursuant to which the Company granted an
option to Peoples to purchase up to 808,767 shares of the Company's common
stock, under certain conditions, at a price of $33.50 per share.
Nonrecurring merger expenses recorded during the fourth quarter of 1995 totalled
$3.7 million ($2.7 million, after tax) and included investment banker fees,
legal and accounting fees, and severance costs.
The agreement is subject to approval by shareholders of both companies and by
regulatory authorities. It is anticipated that the transaction will close
during the second quarter of 1996.
NOTE C-RESTRICTIONS ON CASH AND DUE FROM BANK ACCOUNTS
The Bank is required to maintain average reserve balances with the Federal
Reserve Bank of Boston. The average amount of reserve balances for the year
ended December 31, 1995 was approximately $10.1 million.
NOTE D-SECURITIES
The Company adopted the provisions of SFAS 115, "Accounting for Certain
Investments in Debt and Equity Securities," as of January 1, 1994. Prior
period financial statements have not been restated to reflect the change
in accounting principle.
The following is a summary of available-for-sale securities at December 31,
1995.
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
(In thousands)
U.S. Treasury and other U.S.
Government agencies $274,726 $ 2,153 $276,879
State and municipal 525 13 538
Other debt securities 277 277
Total debt securities 275,528 2,166 277,694
Equity securities 3,604 141 $ 9 3,736
Total securities $279,132 $ 2,307 $ 9 $281,430
The excess of market value over amortized cost of $1.5 million, net of $781,000
in deferred income taxes, is reported as a separate component of shareholders'
equity.
In accordance with provisions in the FASB Special Report, "A Guide to
Implementation of Statement 115 on Accounting for Certain Investments in Debt
and Equity Securities," the Company chose to reclassify debt securities
from held-to-maturity to available-for-sale at December 31, 1995.
At December 31, 1995, the amortized cost of held-to-maturity debt securities
reclassified to available-for-sale totalled $275.5 million. The unrealized
after-tax gain on these securities was $1.4 million and is included in
shareholders' equity.
<PAGE>
The following is a summary of held-to-maturity debt securities and available-
for-sale equity securities at December 31, 1994.
<TABLE>
<CAPTION>
Held-to-Maturity Debt Securities
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
(In thousands)
<S> <C> <C> <C> <C>
U.S. Treasury and other U.S.
Government agencies $285,392 $ 26 $ 3,666 $281,752
State and municipal 908 4 15 897
Other debt securities 277 89 366
Total debt securities $286,577 $ 119 $ 3,681 $283,015
</TABLE>
Available-for-Sale Equity Securities
Gross Gross
Unrealized Unrealized Market
Cost Gains Losses Value
(In thousands)
[S] [C] [C] [C] [C]
Equity securities $ 3,605 $ 33 $ 24 $ 3,614
The excess of market value over amortized cost of $6,000, net of $3,000 in
deferred income taxes, is reported as a separate component of shareholders'
equity.
The amortized cost and market value of debt securities at December 31, 1995,
by contractual maturity, are shown below. Expected maturities will differ
from contractual maturities because the issuers of the securities may have the
right to repay obligations without prepayment penalties.
Debt Securities
Amortized Market
Cost Value
(In thousands)
Due in one year or less $214,202 $215,626
Due after one year through five years 60,262 60,958
Due after five years through ten years 111 114
Due after ten years 953 996
$275,528 $277,694
A summary of realized gains and losses on investment securities in 1993, and
available-for-sale securities in 1994 and 1995, follows:
<TABLE>
<CAPTION>
1995 1994 1993
Gross Gross Gross Gross Gross Gross
Realized Realized Realized Realized Realized Realized
Gains Losses Gains Losses Gains Losses
<S> <C> <C> <C> <C> <C> <C>
Sales of securities $ 14 $ 14 $ 165 $ 0 $ 251 $ 69
</TABLE>
(In thousands)
Interest earned from taxable securities during 1995, 1994 and 1993 totalled
$16.8 million, $12.0 million, and $8.4 million, respectively. The value of
debt securities pledged to secure U.S. Government deposits and trust deposits,
and for other purposes, amounted to approximately $103.3 million and $108.1
million at December 31, 1995 and 1994, respectively.
<PAGE>
NOTE E-ALLOWANCE FOR POSSIBLE LOAN LOSSES
An analysis of changes in the allowance for possible loan losses (the "APLL")
is as follows:
1995 1994 1993
(In thousands)
Balance, January 1 $13,191 $14,581 $16,619
Provision 1,800 1,517 4,268
Loan losses (4,986) (5,440) (8,202)
Recoveries 1,832 2,533 1,896
Net loan losses (3,154) (2,907) (6,306)
Balance, December 31 $11,837 $13,191 $14,581
At December 31, 1995, the recorded investment in loans that were considered
impaired under SFAS 114 was $3.4 million, $2.9 million of which were
nonaccrual loans. Included in this amount are $2.4 million of impaired loans
for which the related allocation of the APLL is $800,000. Impaired loans
totalling $966,000 do not have an allocation of the APLL as a result of
write-downs and other factors. The average recorded investment in impaired
loans during the year ended December 31, 1995 was $4.4 million. The Company
recognized $22,000 of interest income on impaired loans in 1995.
NOTE F-NONACCRUAL AND RESTRUCTURED LOANS
Included in loans are loans which, because of the weakened financial position of
the borrower, were classified as nonaccrual or were restructured to provide
for a reduction or deferral of interest or principal payments.
Nonaccrual and restructured loans were as follows at December 31:
1995 1994
(In thousands)
Nonaccrual................ $ 5,745 $10,927
Restructured.............. 591 1,251
$ 6,336 $12,178
The effect on interest income in 1995, 1994 and 1993 of nonaccrual and
restructured loans is summarized as follows:
1995 1994 1993
(In thousands)
Originally contracted interest
income for the year......... $ 589 $1,693 $2,390
Less interest income actually
recorded for the year....... ( 92) (323) (860)
Reduction in interest income
for the year............... $ 497 $1,370 $1,530
At December 31, 1995, there were no commitments to advance additional funds on
any of the nonaccrual or restructured loans.
NOTE G-LOANS TO RELATED PARTIES
The Bank has granted loans to the officers and directors of the Company and the
Bank and to their associates. Related party loans are made on substantially
the same terms, including interest rates and collateral, as those prevailing
at the time for comparable transactions with unrelated persons and do not
involve more than normal risk of collectibility. The aggregate dollar amount
of these loans was approximately $7.5 million and $6.1 million at December 31,
1995 and 1994, respectively. During 1995, $3.7 million of new loans were
made and repayments totaled $2.3 million.
<PAGE>
NOTE H-PREMISES AND EQUIPMENT
Premises and equipment as of December 31, 1995 and 1994 consist of the follow-
ing:
1995 1994
(In thousands)
Land and land improvements $ 1,917 $ 1,891
Buildings 13,387 12,541
Leasehold improvements 1,725 1,938
Furniture and equipment 12,265 12,116
29,294 28,486
Less accumulated depre-
ciation and amortization 18,049 18,260
$11,245 $10,226
NOTE I-OTHER REAL ESTATE OWNED
The following Table summarizes the real estate operations of property held for
sale for the years ended December 31:
1995 1994 1993
(In thousands)
Balance, January 1 $10,192 $10,215 $ 7,855
OREO additions 1,804 5,451 8,115
OREO losses (120) (419) (1,001)
OREO sales (3,850) (4,712) (4,512)
Other, net (170) (343) (242)
7,856 10,192 10,215
Allowance for possible OREO losses (250) (68) (250)
Balance, December 31 $ 7,606 $10,124 $ 9,965
The following Table summarizes the components of OREO expense for the years
ended December 31:
1995 1994 1993
(In thousands)
Valuation adjustments:
OREO losses $ 37 $ 219 $ 512
Provision for possible OREO losses 351 350
Net (gain) loss on OREO sales (331) (205) 30
57 14 892
General carrying costs 940 1,576 2,308
OREO expense $ 997 $ 1,590 $ 3,200
General carrying costs include legal fees, real estate taxes, maintenance,
appraisals, insurance and miscellaneous other costs.
NOTE J-DEPOSITS
The following Table presents the types of deposit balances for the years listed:
December 31,
1995 1994
(In thousands)
Demand deposits $166,833 $148,009
NOW accounts 135,952 138,031
Savings deposits 254,393 288,646
Money market accounts 41,577 51,359
Time deposits of $100,000 or more 12,742 9,558
Other time deposits 226,229 190,253
Total deposits $837,726 $825,856
<PAGE>
NOTE K-INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The Company does
not expect to incur a New Hampshire Business Profits Tax ("NHBPT") in the
foreseeable future as a result of income derived from state tax free
sources and tax credits for the New Hampshire Business Enterprise Tax.
Therefore, no deferred income taxes have been recognized for NHBPT purposes.
Significant components of the Company's deferred tax liabilities and assets are
as follows:
December 31,
1995 1994
(In thousands)
Deferred tax liabilities:
Tax over book depreciation $ 706 $ 546
Prepaid assets 410 344
Purchase price accounting adjustment 199 267
Other 80 43
Total deferred tax liabilities 1,395 1,200
Deferred tax assets:
Allowance for possible loan losses 4,548 5,245
Income on nonaccrual loans 254 535
Deferred fee income 321 404
Accrued book expenses 1,203 942
Other 25 24
Total deferred tax assets 6,351 7,150
Net deferred tax assets $4,956 $5,950
Significant components of the provision for income taxes attributable to
continuing operations are as follows:
1995 1994 1993
(In thousands)
Current tax provision $5,138 $3,491 $1,832
Deferred tax provision 994 583 1,306
$6,132 $4,074 $3,138
Income tax expense related to net securities gains was $16,000, $62,000 and
$64,000 for the years ended December 31, 1995, 1994 and 1993, respectively.
A valuation allowance against deferred tax assets, which totalled $198,000 at
December 31, 1993, was reversed during 1994 and resulted in a reduction of
income tax expense.
<PAGE>
The reconciliation of income taxes attributable to continuing operations
computed at the U.S. federal statutory tax rate to income tax expense
is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
(Dollars in thousands) Amount % Amount % Amount %
<S> <C> <C> <C> <C> <C> <C>
Federal income tax provision
at statutory rate $5,639 34.0% $4,313 34.0% $3,240 34.0%
Effect of:
Merger expenses 380 2.3
Tax-exempt income (78) (.5) (96) (.7) (139) (1.5)
Change in valuation
allowance (198) (1.6)
Other 191 1.2 55 .4 37 .4
$6,132 37.0% $4,074 32.1% $3,138 32.9%
</TABLE>
NOTE L-RETIREMENT PLANS AND OTHER POSTRETIREMENT BENEFITS
Retirement Plans
The Company maintains a noncontributory defined benefit retirement plan covering
substantially all employees. Benefits are based on compensation and years of
service. A supplemental executive retirement plan ("SERP") was adopted during
1994 for several executive officers. The SERP is designed to offset the
impact of changes in the retirement plan which reduced benefits for highly
paid employees.
The following sets forth the funded status and amounts recognized in the
consolidated balance sheets for the Company's retirement and SERP plans:
December 31,
1995 1994
(In thousands)
Projected benefit obligation:
Vested benefits $ 16,190 $ 12,770
Nonvested benefits 324 250
Accumulated benefit obligation 16,514 13,020
Effect of projected future
compensation levels 1,779 1,335
Projected benefit obligation $ 18,293 $ 14,355
Plan assets at fair value $ 15,127 $ 12,265
Projected benefit obligation in
excess of plan assets $ 3,166 $ 2,090
Unrecognized prior service cost (322) (350)
Unrecognized net loss (2,551) (1,940)
Unrecognized net asset,
net of amortization 718 846
Net pension and SERP liability $ 1,011 $ 646
A summary of the components of net periodic pension and SERP expense follows:
1995 1994 1993
(In thousands)
Service cost - benefits earned during
the year $ 504 $ 575 $ 556
Interest cost on the projected benefit
obligation 1,284 1,192 1,190
Actual return on plan assets (2,756) 211 (295)
Net amortization and deferral 1,748 (1,310) (996)
Net periodic pension and SERP expense $ 780 $ 668 $ 455
<PAGE>
The weighted-average discount rates used in determining the actuarial present
value of the projected benefit obligation were 7.50% and 8.75% as of December
31, 1995 and 1994, respectively. The rate of increase in future compensation
levels used was 3.0% as of December 31, 1995 and 1994. The expected long-term
rate of return on plan assets was 9.0% in 1995 and 1994, and 10.0% in 1993.
The impact of changes in the discount rate as of December 31, 1995 was to
decrease the net pension liability by $443,000. The year-end 1995 and 1994
net pension and SERP accrued liability of $1.0 million and $646,000,
respectively, is included in other liabilities.
Other Postretirement Benefits
In addition to the Company's retirement plan and SERP, the Company sponsors a
defined benefit welfare plan that provides postretirement medical and life
insurance benefits to full-time employees who have worked 10 years and attained
age 55 while in service with the Company. The plan is contributory, with
retiree contributions adjusted annually, and contains other cost-sharing
features such as deductibles and coinsurance. The Company's future
contributions will be capped at the 1996 per capita cost. The Company will
continue to credit each retiree based on years of service. Retirees will
bear the cost of any future annual increases above the 1996 cost levels.
The Company's policy is to fund the cost of medical benefits in amounts
determined at the discretion of management. The plan is unfunded at
December 31, 1995.
The following Table sets forth the plan's accumulated postretirement benefit
obligation reconciled with the amount shown in the Company's balance sheet:
December 31,
1995 1994
(In thousands)
Accumulated postretirement benefit obligation:
Retirees $2,330 $2,209
Fully eligible plan participants 506 406
Other active plan participants 1,162 836
$3,998 $3,451
Plan assets $ -0- $ -0-
Accumulated postretirement benefit obligation
in excess of plan assets $3,998 $3,451
Unrecognized net (loss) gain (216) 234
Unrecognized transition obligation (2,929) (3,101)
Accrued postretirement benefit cost $ 853 $ 584
Net periodic postretirement benefit cost included the following components:
1995 1994 1993
(In thousands)
Service cost $ 71 $ 72 $ 71
Interest cost 282 272 284
Amortization of transition obligation over 20 years 172 172 172
Net periodic postretirement benefit cost $ 525 $ 516 $ 527
The weighted-average annual assumed rate of increase in the per capita cost of
covered benefits (i.e. health care cost trend rate) is 9.0% for 1996 and is
assumed to decrease gradually to 5.5% for seven years and remain at that
level thereafter. The health care cost trend rate assumption has a
significant effect on the amounts reported. For example, increasing
the assumed health care cost trend rate by one percentage point would
increase the accumulated postretirement benefit obligation as of December
31, 1995 by $272,000 and the aggregate of the service and interest cost
components of net periodic postretirement benefit cost for 1995 by $21,000.
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 7.25% at December 31, 1995 and 8.5%
at December 31, 1994.
<PAGE>
NOTE M-COMMITMENTS, CONTINGENT LIABILITIES AND OTHER OFF-BALANCE SHEET RISK
Financial Instruments With Off-Balance Sheet Risk
In the normal course of business, the Company is a party to financial
instruments with off-balance sheet risk to meet the financing needs of its
customers. These financial instruments include commitments to extend credit
and standby letters of credit. These financial instruments involve, to varying
degrees, elements of credit risk in excess of the amount recognized in the
balance sheet.
The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit
and standby letters of credit written is represented by the contractual
amount of those instruments. The Company generally requires collateral to
support such financial instruments in excess of the contractual amount of those
instruments and, therefore, is in a fully secured position. The Company
uses the same credit policies in making commitments and conditional
obligations as it does for on-balance sheet instruments.
The Company has outstanding loan commitments/lines of credit of $222.7 million
and $133.2 million at December 31, 1995 and 1994, respectively, and standby
letters of credit aggregating $11.6 million and $10.4 million at December
31, 1995 and 1994, respectively. The fair values for loan commitments/lines
of credit and for standby letters of credit approximate book values at
December 31, 1995 and 1994.
Loan commitments/lines of credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates. Since many of the
commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements.
The Company evaluates each customer's creditworthiness on a case-by-case
basis. The amount of collateral obtained, if any, is based on management's
credit evaluation of the counterparty.
Standby letters of credit are conditional commitments issued by the Company to
guarantee the performance of a customer to a third party. Those guarantees
are primarily issued to support public and private borrowing arrangements,
including commercial paper, bond financing, and similar transactions.
Letters of credit usually expire within one year of issuance. The credit risk
involved in issuing letters of credit is essentially the same as that
involved in extending loans to customers. The Company holds collateral
supporting those commitments for which collateral is deemed necessary.
Legal Proceedings
Various claims and lawsuits, incidental to the ordinary course of business, are
pending against the Company and the Bank. In the opinion of management,
after consultation with legal counsel, resolution of these matters is not
expected to have a material effect on the consolidated financial statements.
Outsource Contract
During 1995, the Bank entered into a five-year outsourcing contract for item
processing, which is non-cancelable for the first thirty months. Fees are
based on transaction volume. The Bank may cancel the contract after
thirty months subject to the following conditions: 1. Six months written
notice; 2. Payment of $40,000 per month for the remaining contract term; and
3. Payment of deconversion costs.
Lease Commitments
The Bank occupies certain branch offices under lease contracts which expire
between 1997 and 2008. Several of the leases include options to renew
for periods ranging from five to fifteen years and clauses providing for
increased rentals based on increases in property taxes and other operating
expenses. Rental expense for all leases, excluding property taxes, insurance
and certain maintenance expenses was $630,000, $627,000 and $669,000 for
1995, 1994 and 1993, respectively.
<PAGE>
The aggregate minimum lease commitments at December 31, 1995 under noncancelable
long-term leases are as follows (in thousands):
1996 $ 634
1997 573
1998 498
1999 432
2000 274
Thereafter 1,332
$3,743
NOTE N-CONCENTRATIONS OF CREDIT RISK
Concentrations of credit risk exist when changes in economic, industry or
geographic factors affect groups of counterparties with similar economic
characteristics, whose aggregate credit exposure is significant to the
Company's total credit exposure. The Company originates commercial, real
estate and installment loans to customers throughout the southern,
central, coastal and lakes regions of the state. The Company estimates
that most of its loans are based in New Hampshire with less than 1% of total
loans based out-of-state. There are no other significant concentrations
of credit risk.
NOTE O-RESTRICTIONS ON DIVIDENDS, LOANS OR ADVANCES
Federal Reserve regulations restrict the amount the Bank may loan or advance to
the Company, unless such loans are collateralized by specified obligations.
Bank regulators restrict the amount of dividends which the Bank can pay
to the Company, in excess of certain prescribed limits, without obtaining
prior approval. In addition, bank regulators have the authority to prohibit
banks and bank holding companies from paying dividends if they deem such
payment to be an unsafe or unsound practice.
NOTE P-FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," requires
disclosure of fair value information about financial instruments, whether or not
recognized in the balance sheet, for which it is practicable to estimate that
value. In cases where quoted market prices are not available, fair values
are based on estimates using present value or other valuation techniques.
Those techniques are significantly affected by the assumptions used, including
the discount rate and estimates of future cash flows. In that regard, the
derived fair value estimates cannot be substantiated by comparison to
independent markets and, in many cases, could not be realized in immediate
settlement of the instrument. SFAS 107 excludes certain financial
instruments and all nonfinancial instruments from its disclosure
requirements. Accordingly, the aggregate fair value amounts presented do not
represent the underlying value of the Company.
The following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments:
Cash and Cash Equivalents: The carrying amounts reported in the balance sheet
for cash and short-term instruments approximate those assets' fair values.
Securities: Fair values for securities are based on quoted market prices, where
available. If quoted market prices are not available, fair values are based on
quoted market prices of comparable instruments.
Loans: Fair values are estimated for portfolios of loans with similar financial
characteristics, segregated by type such as commercial, real estate and
installment. For variable-rate loans that reprice frequently and with no
significant change in credit risk, fair values are based on carrying values.
The fair values for other loans are estimated using a discounted cash
flow calculation that applies a discount rate, based upon the loan's terms,
structure of interest, credit quality factors, and prepayment risk
inherent in the portfolio, to a schedule of aggregated expected monthly
maturities on loans.
Interest Receivable: The carrying amount of interest receivable approximates
fair value.
Deposits: The fair values disclosed for demand deposits (e.g., interest-bearing
NOW accounts and noninterest-bearing checking, passbook savings, and money
market accounts) are, by definition, equal to the amount payable on demand
at the reporting date (i.e., their carrying amounts). Fair values for
<PAGE>
fixed-rate certificates of deposit are estimated using a discount rate
based upon the certificate's terms, structure of interest and withdrawal
risk to a schedule of aggregated expected monthly maturities on time
deposits.
For deposits with no stated maturities, SFAS 107 defines fair value as the
amount payable on demand. SFAS 107 defines the fair value of demand deposits
as the amount payable on demand, and prohibits adjusting fair value for any
value derived from retaining those deposits for an expected future period of
time. That component, commonly referred to as a deposit base intangible,
is estimated to be approximately $22.9 million at December 31, 1995 and is
neither considered in the fair value amounts nor is it recorded as an
intangible asset in the balance sheet.
Short-Term Borrowings: The carrying amounts of federal funds purchased,
borrowings under repurchase agreements, and other short-term borrowings
approximate their fair values.
The following presents carrying value and the fair value of the Company's
financial instruments at:
December 31,
1995 1994
Carrying Fair Carrying Fair
Value Value Value Value
(In thousands)
Financial Assets:
Cash and cash equivalents $108,291 $108,291 $ 94,037 $ 94,037
Securities 281,430 281,430 290,191 286,629
Loans 549,043 556,594 529,288 533,546
Interest receivable 9,122 9,122 8,877 8,877
Financial Liabilities:
Deposits (with no stated
maturity) 598,755 598,755 626,045 626,045
Time deposits 238,971 240,877 199,811 199,268
Short-term borrowings 44,116 44,116 43,960 43,960
<PAGE>
NOTE Q-BANK OF NEW HAMPSHIRE CORPORATION (Parent Company Only)
CONDENSED FINANCIAL STATEMENTS
BALANCE SHEETS
December 31
1995 1994
(In thousands)
Assets
Cash $ 509 $ 4,317
Securities 1,045 948
Taxes due from Bank 931 76
Investment in Bank 81,646 69,640
Other assets 1,220 214
$85,351 $75,195
Liabilities
Accrued expenses $ 894 $ 21
Total liabilities 894 21
Shareholders' equity 84,457 75,174
$85,351 $75,195
STATEMENTS OF INCOME
Year Ended December 31
1995 1994 1993
(In thousands)
Operating income:
Dividends from Bank $ 2,850 $1,050
Other 152 320 $ 241
3,002 1,370 241
Operating expenses:
Merger 3,667
Professional fees 93 185 99
Management fee 32 30 30
Other 395 214 41
4,187 429 170
(Loss) income before income tax benefit
and equity in undistributed
net income of Bank (1,185) 941 71
Income tax benefit 1,079 43 33
(Loss) income before equity in
undistributed net income of Bank (106) 984 104
Equity in undistributed net income
of Bank 10,560 7,627 6,288
Net income $10,454 $ 8,611 $ 6,392
<PAGE>
STATEMENTS OF CASH FLOWS
Year Ended December 31
1995 1994 1993
(In thousands)
Cash Flows from
Operating Activities:
Net income $10,454 $ 8,611 $ 6,392
Reconciliation of net income
to net cash (used for) provided from
operating activities:
Equity in undistributed net income
of Bank (10,560) (7,627) (6,288)
Securities losses (gains) 1 (165) (177)
Other, net (1,021) (609) 67
Net cash (used for) provided from
operating activities (1,126) 210 (6)
Cash Flows from
Investing Activities:
Capital contribution to Bank (7,500)
Sales of available-for-sale
equity securities 622 255
Purchases of available-for-sale
equity securities (622)
Sales of investment securities 654
Purchases of investment securities (230)
Net cash provided from (used for)
investing activities 0 255 (7,076)
Cash Flows from
Financing Activities:
Net proceeds from the issuance
of common stock 11,596
Cash dividends paid (2,682) (1,646) (325)
Repurchase and retirement of
common stock (60) (29)
Net cash (used for) provided from
financing activities (2,682) (1,706) 11,242
Net change in cash and cash equivalents (3,808) (1,241) 4,160
Cash and cash equivalents at January 1 4,317 5,558 1,398
Cash and cash equivalents at December 31 $ 509 $ 4,317 $ 5,558
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 66,291
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 42,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 281,430
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 560,880
<ALLOWANCE> 11,837
<TOTAL-ASSETS> 977,836
<DEPOSITS> 837,726
<SHORT-TERM> 44,116
<LIABILITIES-OTHER> 11,537
<LONG-TERM> 0
<COMMON> 10,160
0
0
<OTHER-SE> 72,781
<TOTAL-LIABILITIES-AND-EQUITY> 977,836
<INTEREST-LOAN> 50,495
<INTEREST-INVEST> 16,892
<INTEREST-OTHER> 3,539
<INTEREST-TOTAL> 70,926
<INTEREST-DEPOSIT> 22,037
<INTEREST-EXPENSE> 23,831
<INTEREST-INCOME-NET> 47,095
<LOAN-LOSSES> 1,800
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 38,839
<INCOME-PRETAX> 16,586
<INCOME-PRE-EXTRAORDINARY> 10,454
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,454
<EPS-PRIMARY> 2.57
<EPS-DILUTED> 2.57
<YIELD-ACTUAL> 5.43
<LOANS-NON> 5,745
<LOANS-PAST> 1,156
<LOANS-TROUBLED> 591
<LOANS-PROBLEM> 6,500
<ALLOWANCE-OPEN> 13,191
<CHARGE-OFFS> 4,986
<RECOVERIES> 1,832
<ALLOWANCE-CLOSE> 11,837
<ALLOWANCE-DOMESTIC> 4,661
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 7,176
</TABLE>
