FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
[X] Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934.
For the quarterly period ended March 31, 1996
Commission File Number 33-22807-B
PEMI BANCORP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEW HAMPSHIRE 02-0386832
(State or other jurisdiction (I.R.S. Employer
incorporation or organization) Identification No.)
P.O. Box 29
PLYMOUTH, NEW HAMPSHIRE 03264
Address of principal executive offices
(603) 536-3339
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding twelve (12) months (or for such shorter period that
the registrant was required to file such reports),and(2)has been subject to such
filing requirements for the past ninety (90) days. YES [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practical date.
690,401 shares of common stock are outstanding as of April 15, 1996.
<PAGE>
INDEX
PEMI BANCORP, INC.
PART I. FINANCIAL INFORMATION PAGE
Item 1.
Financial Statements (Unaudited)
Consolidated Balance Sheets at March 31, 1996
and December 31, 1995................................. 3
Consolidated Statements of Income for the Three
Months ended March 31,1996 and 1995................... 4
Consolidated Statements of Cash Flows for the Three
Months Ended March 31, 1996 and 1995.................. 5
Notes to Consolidated Financial Statements............ 7
Item 2.
Management's Discussion and Analysis of Financial
Condition and Results of Operations.................. 8
PART II. OTHER INFORMATION
Item 1.
Legal Proceedings..................................... 12
Item 2.
Changes in Securities................................. 12
Item 3.
Defaults Upon Senior Securities....................... 12
Item 4.
Submission of Matters to a Vote of Security Holders... 12
Item 5.
Other Information..................................... 12
Item 6.
Exhibits and Reports on Form 8-K...................... 12
Signatures............................................ 13
2
<PAGE>
PEMI BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1996 AND DECEMBER 31, 1995
(UNAUDITED)
3/31/96 12/31/95
ASSETS
Cash & due from banks $ 2,991,688 $ 4,918,185
Interest bearing deposits with
other banks 567 485
--- ---
Total Cash & Cash Equivalents 2,992,255 4,918,670
Securities held to maturity 14,628,742 14,999,810
(approximate market value of
$14,127,110 and $14,926,264, respectively)
Securities available-for-sale 13,881,608 8,113,477
(listed at fair value)
FRB/FHLB Stock 819,850 819,850
Federal Funds Sold 0 3,300,000
Net loans 80,606,611 80,087,042
Other real estate owned 256,701 61,701
Bank premises & equipment 3,443,703 3,481,386
Other assets 1,692,085 1,540,581
--------- ---------
Total Assets $118,321,555 $117,322,517
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand $ 11,657,441 $ 14,023,174
Now & money market 25,710,369 27,995,197
Savings 14,320,014 12,938,174
Time $100,000 & over 5,235,199 4,889,539
Other time 38,115,845 36,570,133
---------- ----------
Total Deposits 95,038,868 96,416,217
Short-term borrowings 9,200,000 7,000,000
Long-term borrowings 491,525 491,525
Other liabilities 2,039,686 2,020,717
--------- ---------
Total Liabilities 106,770,079 105,928,459
Stockholders' Equity
Common stock par value $1.00
2,000,000 shares authorized
751,901 issued and 690,401
shares outstanding 751,901 751,901
Additional paid in capital 2,384,329 2,384,329
Retained earnings 9,179,793 8,885,889
Treasury stock, at cost (61,500 shares) (615,000) (615,000)
Unrealized gain/(loss)
Securities available-for-sale,net (149,547) (13,061)
-------- -------
Total Stockholders' Equity 11,551,476 11,394,058
---------- ----------
Total Liabilities & Stockholders' Equity $118,321,555 $117,322,517
============ ============
The accompanying notes are an intergral part of these financial statements.
3
<PAGE>
PEMI BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31, 1996 & MARCH 31, 1995
(UNAUDITED)
Three Months Ended
March 31, 1996 March 31, 1995
Interest and dividend income:
Interest and fees on loans $1,978,345 $1,949,817
Interest on deposits in other banks 21,426 89
Interest on federal funds sold 11,777 5,086
Interest and dividends on securities
US Government & agency securities 39,143 29,634
State &municipal securities 65,297 37,578
Other securities 306,715 244,705
------- -------
Total interest & dividend income $2,422,703 $2,266,909
Interest Expense:
Now & money market accounts 144,932 160,319
Savings deposits 88,121 89,467
Time deposits $100,000 and over 77,379 42,068
Other time deposits 551,033 365,391
Short-term borrowing 107,173 85,610
Long-term borrowing 7,490 73,798
----- ------
Total interest expense 976,128 816,653
------- -------
Net interest income $1,446,575 $1,450,256
Provisions for loan losses 36,000 22,500
------ ------
Net interest income after provision
for loan losses $1,410,575 $1,427,756
Non interest income:
Service charges deposit accounts $ 112,798 $ 111,791
Other services charges & fees 35,746 51,616
Security gains (losses) 0 0
-- --
Total non interest income $ 148,544 $ 163,407
Non interest expense:
Salaries and wages $ 463,917 $ 443,642
Pensions and other employee benefits 119,144 130,776
Occupancy expense 92,653 90,319
Furniture & equipment expense 124,928 107,132
Other operating expense 323,074 305,389
------- -------
Total non interest expense $1,123,716 $1,077,258
---------- ----------
Income before income taxes $ 435,403 $ 513,905
---------- ----------
Income taxes 141,500 174,850
------- -------
Net income $ 293,903 $ 339,055
========== ==========
Earnings per share based upon 690,401 shares $ 0.43 $ 0.49
The accompanying notes are an intergral part of these financial statements.
4
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PEMI BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1996 & MARCH 31, 1995
3/31/96 3/31/95
Increase (decrease) in cash and cash equivalents:
Cash flows from operating activities:
Interest received $ 2,344,755 $ 2,247,759
Service charges and other income received 148,544 163,407
Interest paid (800,111) (797,805)
Cash paid to suppliers and employees (1,006,337) (997,422)
Income taxes (paid) (48,055) (200,193)
------- --------
Net cash provided by operating activities $ 638,796 $ 415,746
Cash flows from investing activities:
Proceeds from maturities of securities
available-for-sale 180,933 49,877
Purchase of securities available-for-sale (6,182,400) 0
Proceeds from maturities of securities
held-to-maturity 350,068 506,297
Purchase of securities held-to-maturity 0 (143,600)
Net (increase) in loans (718,431) (1,322,523)
Capital expenditures (45,259) (51,320)
Recoveries of previously charged-off loans 6,477 3,804
(Decrease) increase in other liabilities (24,777) 14,417
Decrease in federal funds sold 3,300,000 800,000
Decrease in other assets 975 915
--- ---
Net cash used in investing activities $(3,132,414) $ (142,133)
Cash flows from financing activities:
Purchase treasury stock 0 (317,000)
Net increase in demand, NOW, money market
and savings accounts (3,268,721) (4,494,706)
Net increase in certificates of deposit 1,891,372 1,386,430
Net increase in short-term borrowings 2,200,000 3,300,000
Dividends paid (255,448) (240,608)
-------- --------
Net cash provided by (used in)
financing activities $ 567,203 $ (365,884)
Net (decrease) in cash and cash
equivalents (1,926,415) (92,271)
Cash and cash equivalents at beginning of year 4,918,670 3,542,341
--------- ---------
Cash and cash equivalents at end of period 2,992,255 3,449,980
(Continued on next page)
5
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued from previous page)
Reconciliation of net income to net cash 3/31/96 3/31/95
provided by operating activities:
Net income $293,903.00 $339,055.00
Adjustment to reconcile net income to net cash
provided by operating activities:
Amortization, net of accretion of securities
held-to-maturity 21,000.00 24,120.00
Amortization, net of accretion of securities
available-for-sale 10,974.00 1,764.00
Depreciation on bank premises and equipment 82,942.00 73,621.00
Provision for possible loan losses 36,000.00 22,500.00
Decrease in deferred taxes 17,550.00 0.00
Increase (decrease) in taxes payable 75,895.00 (25,343.00)
(Increase) in interest receivable (71,308.00) (42,709.00)
Increase in interest payable 176,017.00 18,848.00
Increase in accrued expenses 47,282.00 49,741.00
(Increase) in prepaid expenses (12,845.00) (43,526.00)
(Decrease) in unearned income (38,614.00) (2,325.00)
Total adjustments 344,893.00 76,691.00
---------- ---------
Net cash provided by operating activities $638,796.00 $415,746.00
=========== ===========
The accompanying notes are an intergral part of these financial statements.
6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
March 31, 1996
1. Financial information furnished herein reflects all adjustments which are of
a normal and recurring nature and which, in the opinion of management, are
necessary for a fair presentation of the results of operations for interim
periods.
2. Results of operations for the three month period ended March 31, 1996 are not
necessarily indicative of the results to be expected for the entire year.
3. Financial Statements for interim periods, by their very nature, require
estimations which necessarily result in greater imprecision than those
associated with annual financial statements.
7
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
INTRODUCTION
The following discussion and related consolidated financial statements
include Pemi Bancorp, Inc. (the "Company") and its wholly-owned subsidiary, the
Pemigewasset National Bank (the "Bank").
FINANCIAL CONDITION
Through the first three months of 1996, the Company's total net income
decreased by $45,152 or 13.3% to $293,903 from $339,055, during the same period
last year. This is primarily attributable to increased net interest expense on
time deposits.
The Company's total assets increased less than one percent to
$118,321,555 at March 31, 1996 as compared to $117,322,517 at December 31, 1995.
Federal Funds Sold decreased from $3,300,000 at December 31, 1995 to $0 at March
31, 1996. Cash and Cash Equivalents decreased from $4,918,670 to $2,992,255
during the period, while Securities Available-for-Sale increased from $8,113,477
to $13,881,608. During this period, net loans increased .65% or $519,569 to
$80,606,611 at March 31, 1996 as compared with $80,087,042 at December 31, 1995,
reflecting a slight increase in loan demand.
For the first three months of 1996 the Bank's Provisions to the Allowance
for Loan and Lease Losses (ALLL) amounted to $36,000 compared to $22,500 for the
first three months of 1995. On March 31, 1996 the ALLL balance was $1,380,284 or
1.68% of total loans, as compared to $1,359,979 or 1.67% of total loans as of
December 31, 1995. The adequacy of the ALLL is based on an evaluation by
Management and the Board of Directors of current and anticipated economic
conditions, changes in the diversification, size and risk within the loan
portfolio, and other factors.
Non-performing loans decreased 25.7%, or $139,077 during the first three
months of 1996 and amounted to $402,226 as of March 31, 1996, or .49% of total
loans, as compared to $541,303, as of December 31, 1995. The ratio of
non-performing assets to total assets at March 31, 1996 was .34% as compared to
.51% at December 31, 1995.
The Bank implemented SFAS No. 114, as amended by SFAS No. 118, as part of
the review and adoption of policies regarding the ALLL by the Board of Directors
on February 21, 1995. The effects of implementing SFAS Nos. 114 and 118,
respectively, were not material, and require that impaired loans be measured on
a loan by loan basis by either the present value of expected future cash flows
discounted at the loan's effective interest rate, the loan's observable market
price, or the fair value of the collateral if the loan is collateral dependent.
8
<PAGE>
Total cash and cash equivalents decreased $1,926,415 and amounted to
$2,992,255 at March 31, 1996, compared to $4,918,670 at December 31, 1995,
primarily due to a seasonal decrease in clearing accounts. Securities
held-to-maturity decreased over the same period from $14,999,810 to $14,628,742,
or $371,068, due to the maturity of certain securities and the redeployment of
the resulting cash.
RESULTS OF OPERATIONS
The Company generated net income of $293,903 for the three month period
ended March 31, 1996 as compared with net income of $339,055 for March 31, 1995.
This 13.3% decrease in net income was due to increased cost of time deposits due
to a shift of funds from NOW, money market funds and savings to time
certificates of deposit. Taxes decreased from $174,850 for the three months
ended March 31, 1995 to $141,500 for the three months ended March 31, 1996.
Earnings decreased from $.49 per share for for the first three months of
1995 to $.43 per share for the first three months of 1996.
For the three month period ended March 31, 1996, interest and fees on loans
amounted to $1,978,345, which represented an increase of 1.46% or $28,528 from
the comparable period in 1995. This can be attributed to adjustable rate
mortgages adjusting to increased interest rates. Interest and dividends on
securities for the three month period ended March 31, 1996 amounted to $411,155
as compared with $311,917 from the same period in 1995, which reflects an
increase of $99,238 or 31.8%. Interest on federal funds sold for the three month
period increased from $5,086 to $11,777, which represents an increase of 131.6%.
This increase is due to larger average federal funds sold balances.
Corresponding total interest expense for the three month period ended
March 31, 1996 was higher than the same period in fiscal 1995 by 19.5% or
$159,475, which can be attributed to higher rates paid on time deposits as well
as increased borrowing expenses.
Total non-interest income for the three month period ended March 31, 1996
decreased $14,863 or 9.1% to $148,544 from $163,407 when compared to the first
three months of 1995. This decrease is primarily attributable to decreases in
services charges and fee income.
Total non-interest expense amounted to $1,123,716 for the first three
months of 1996 as compared with $1,077,258, reflecting an increase of $46,458
compared to the corresponding period in fiscal year 1995. This increase stems
from higher personnel costs, increased equipment expense, as well as increases
in other operating expense.
9
<PAGE>
LIQUIDITY
Banking institutions measure liquidity as the ability to meet unexpected
deposit withdrawals of a short-term nature and to meet increased loan demand. It
is Management's objective to ensure a continuous ability to meet cash needs as
they arise. As of March 31, 1996 the Bank's liquidity ratio stood at 13.7% as
compared to 11.6% at December 31, 1995. With available FHLB Advances included,
these ratios become 33.9% and 35.5%, respectively. Management believes the
Bank's liquidity to be adequate to meet the needs of the Bank.
INTEREST RATE SENSITIVITY ANALYSIS
The Bank manages Interest Rate Risk through use of an asset/liability
funding matrix report supported by a GAP report. The potential impact on
earnings of changes in interest rates is also evaluated.
The Bank's analysis of interest rate sensitivity format is divided into
four (4) components. The first component is to evaluate information concerning
various maturities of rate sensitive assets. The second component identifies
rate sensitive liabilities. The third component identifies interval gaps and the
fourth component evaluates cumulative gap analysis.
Rate sensitive assets and rate sensitive liabilities are catagorized by
their repricing characteristics and evaluated.
The Bank evaluates the difference between Rate Sensitive Assets and
Rate Sensitive Liabilities at various intervals and attempts to match or control
the ratio of such assets within prudent ranges.
Finally, the Bank evaluates the cumulative GAP measurement of GAP
positions at various time intervals.
The GAPs at time intervals indicate the timing of the effect of interest
rate changes on income. The Cumulative GAP indicates the overall magnitude and
direction of rate risk exposure.
It may be less costly to adjust the GAP in a negative direction than in
a positive direction because capital losses may be generated if the maturity of
the investment portfolio is shortened to move the GAP in a positive direction.
However, the greater the Bank's ability to replace short-term liabilities with
long-term liabilities, the easier it is to adjust the GAP in a positive
direction.
Should the Interest Rate Risk Sensitivity Analysis indicate that the Bank
is asset sensitive (more rate sensitive assets than rate sensitive liabilities),
then rising rates will have a positive impact on earnings; however, falling
rates will negatively affect earnings.
Should the analysis indicate liability sensitivity, then rising rates
will tend to reduce earnings and falling rates will tend to have a positive
impact on earnings.
10
<PAGE>
Modeling is used to forecast how net interest income, and therefore net
income, varies under alternative interest rate and business activity scenarios.
The Bank then compares the risk, or income volatility, associated with a variety
of different future rate scenarios.
As of March 31, 1996, the Bank has a positive GAP position which, in a
rising interest rate environment would have a slightly positive effect on the
Bank's earnings and, in a declining interest rate environment would have a
slightly negative effect on earnings. Management believes the current level of
interest rate risk to be prudent in this economic environment and continues to
monitor and manage the Bank's GAP position to avoid an inappropriate level of
interst rate risk.
CAPITAL RESOURCES
The equity capital of the Company as of March 31, 1996 amounted to
$11,551,476 or 9.76 % of total assets. At December 31, 1995, the equity capital
amounted to $11,394,058 or 9.71 % of total assets.
The Bank and the Company are required to maintain capital levels
consistent with the capital requirements of the Office of the Comptroller of the
Currency and the Federal Reserve System. The Office of the Comptroller of the
Currency's capital guidelines require a ratio of Total Capital (consisting of
capital, surplus and the allowance for loan losses up to 1.25% of risk weighted
assets) to be equal to at least 8.00% of risk weighted assets. Additionally, the
Bank must maintain Tier 1 Capital (which under the regulations, consists of
common stockholders' equity, noncumulative perpetual preferred stock and related
surplus, and minority interests in the equity accounts of consolidated
subsidiaries) in amounts not less than 3.00% of adjusted total assets (or 100 to
200 basis points or more higher in cases of banks which do not receive the best
composite ratings). As of March 31, 1996, Total Capital amounted to 17.8% of
risk weighted assets, and Tier 1 Leverage Capital of the Bank amounted to
approximately 10.15 % of adjusted average assets, substantially exceeding
applicable minimum regulatory requirements. The Bank and the Company are in
compliance with all applicable capital requirements.
EFFECTS OF INFLATION
Inflation affects the growth of total assets by increasing the level of
loan demand and creating the need to increase equity capital at higher than
normal rates in order to maintain an appropriate ratio of equity to assets.
Interest rates in particular are significantly affected by inflation. (See
"Interest Rate Sensitivity Analysis"). In addition to its effect on interest
rates, inflation directly affects the Company by increasing the Company's cost
of funds and operating expenses. Currently, low inflation has been beneficial in
holding down the Bank's cost of funds.
11
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings- None
Item 2. Changes in Securities- None
Item 3. Defaults upon Senior Securities- None
Item 4. Submission of Matters to a Vote of Security Holders- None
Item 5. Other Information- None
Item 6. Exhibits and Reports on 8-K
(a) Exhibits
EXHIBIT NUMBER
(27) Financial Data Schedule
(b) The Company did not file any Reports on Form 8-K during the
quarter ended March 31, 1996.
12
<PAGE>
SIGNATURES
Pursuant to requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behlaf by the
undersigned thereunto duly authorized.
PEMI BANCORP, INC.
Date MAY 10, 1996 By S/S FLETCHER W. ADAMS
----------------------
Fletcher W. Adams
President and Treasurer
(Chief Executive Officer)
By S/S KEITH L. PHILBRICK
----------------------
Keith L. Philbrick
Chief Financial Officer
13
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000768868
<NAME> PEMI BANCORP INC
<MULTIPLIER> 1
<CURRENCY> U.S.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-START> Jan-01-1996
<PERIOD-END> Mar-31-1996
<EXCHANGE-RATE> 1.000
<CASH> 2,992,255
<INT-BEARING-DEPOSITS> 83,381,427
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 13,881,608
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 14,628,742
<LOANS> 81,986,895
<ALLOWANCE> 1,380,284
<TOTAL-ASSETS> 118,321,555
<DEPOSITS> 95,038,868
<SHORT-TERM> 9,200,000
<LIABILITIES-OTHER> 2,039,686
<LONG-TERM> 491,525
0
0
<COMMON> 751,901
<OTHER-SE> 10,799,575
<TOTAL-LIABILITIES-AND-EQUITY> 118,321,555
<INTEREST-LOAN> 1,978,345
<INTEREST-INVEST> 411,155
<INTEREST-OTHER> 33,203
<INTEREST-TOTAL> 2,422,703
<INTEREST-DEPOSIT> 861,465
<INTEREST-EXPENSE> 976,128
<INTEREST-INCOME-NET> 1,410,575
<LOAN-LOSSES> 36,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,123,716
<INCOME-PRETAX> 435,403
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 293,903
<EPS-PRIMARY> 0.43
<EPS-DILUTED> 0
<YIELD-ACTUAL> 0
<LOANS-NON> 320,893
<LOANS-PAST> 81,333
<LOANS-TROUBLED> 196,000
<LOANS-PROBLEM> 4,577,226
<ALLOWANCE-OPEN> 1,359,979
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 1,380,284
<ALLOWANCE-DOMESTIC> 1,380,284
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