FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] Annual Report Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934 [Fee Required]
For the fiscal year ended December 31, 1995
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 of (I.R.S. Employer
incorporation or organization) identification No.)
151 Highland Street
PLYMOUTH, NEW HAMPSHIRE 03264
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (603) 536-3339
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
NONE NONE
Securities registered pursuant to Section 12(g) of the Act:
NONE
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss. 229.405 of this chapter) 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. [X] - Not Applicable.
The aggregate market value of the common stock held by non-affiliates of the
registrant was approximately $6,298,941 on March 15, 1996. On that date, 547,734
shares of common stock were held by non-affiliates of the registrant.
On March 15, 1996, 690,401 shares of common stock were issued and outstanding.
<PAGE>
TABLE OF CONTENTS
Part I
Item 1 - Business
Item 2 - Properties
Item 3 - Legal Proceedings
Item 4 - Submission of Matters to a Vote of
Security Holders
Part II
Item 5 - Market for Registrant's Common Stock
and Related Security Holder Matters
Item 6 - Selected Financial Data
Item 7 - Management's Discussion and Analysis
of Financial Condition and Results
of Operations
Item 8 - Financial Statements and Supplementary
Data
Item 9 - Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure
Part III
Item 10 - Directors and Executive Officers
of the Registrant
Item 11 - Executive Compensation
Item 12 - Security Ownership of Certain
Beneficial Owners and Management
Item 13 - Certain Relationships and
Related Transactions
Part IV
Item 14 - Exhibits, Financial Statement
Schedules, and Reports on Form 8-K
Signatures
<PAGE>
BUSINESS OF THE COMPANY
THE COMPANY
The Company was organized in March of 1985 for the purpose of becoming a
bank holding company, to own and control one hundred percent (100%) of the stock
of the Bank. The Company's primary asset is the stock of the Bank and the
Company's primary activity is in connection with the operation of the Bank.
While the Company has no immediate plans to do so, the Company may, in the
future, examine opportunities for acquiring additional banks and diversifying
its activities into permissible non-banking activities.
THE BANK
The Bank is a national banking association organized under the laws of the
United States in 1881. The Bank has served the banking needs of the Plymouth,
New Hampshire community since its organization. The Bank has paid dividends in
each year since 1882. The Bank operates out of five locations: The Downtown
Plymouth office which was constructed in 1955 and served as the Main Office
until June 1990; the Campton office, constructed in 1975; the West Plymouth
office, constructed in 1979; the Ashland office, constructed in 1987; and the
North Woodstock office, opened in 1993. In 1990, the West Plymouth office was
refurbished with 16,000 sq. ft. of working space being added to the facility.
This location became the Main Office in June 1990. The Bank's deposits are
insured by the Federal Deposit Insurance Corporation in accordance with the
Federal Deposit Insurance Act.
The Bank provides loans and services to individuals and businesses,
including commercial, industrial, consumer and real estate loans.
The Bank offers various types of checking accounts, including commercial
accounts, personal checking accounts, and money market accounts. Various types
of savings accounts, individual retirement accounts, certificates of deposit and
other time deposit accounts are also offered.
The Bank makes consumer loans, including automobile, education, equipment
and home improvement loans. In addition to consumer loans, the Bank extends
secured and unsecured business and personal loans, as well as mortgages, on
commercial and residential real estate.
EMPLOYEES
As of December 31, 1995 there were 70 full and 5 part-time employees of the
Company and the Bank. The employees of the Company and the Bank are not
represented by any collective bargaining unit. Relations between management and
employees are considered to be good.
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LOCATION
The Bank is located in Grafton County, Plymouth, New Hampshire. Plymouth is
located almost directly in the center of the State of New Hampshire. The Bank is
adjacent to the White Mountains, and the Lakes Region. The White Mountain
National Forest (one of the most popular public forest areas in the United
States), Waterville Valley, Cannon Mountain, Loon Mountain, and Gunstock
Mountain are also located nearby. Because of its location, vacationers are drawn
to the Plymouth area on a year round basis. Skiing continues to attract
individuals to the Plymouth area in the winter, while large area lakes attract
potential business opportunities for the Bank to the Plymouth area in the
summer. Plymouth is also the home of Plymouth State College, a New Hampshire
State college with an enrollment of approximately 4,000 students. Interstate
I-93, a major interstate highway running north and south from Plymouth and the
Tenney Mountain Highway, the major highway leading west from Plymouth, offers
sites to attract new businesses. Toward the north, the
Campton-Thornton-Waterville Valley areas are the site of housing and condominium
projects. Although business in the Bank's market area, and New Hampshire in
general, was strong during the 1980s, during the early 1990's the area
experienced a slowdown in economic activity. The economic slowdown had a
negative effect on the economy and the business of the Company and the Bank.
More recently, regional and local economic conditions appear to have stabilized.
COMPETITION
The Bank encounters competition in all phases of its business. Several
competitive financial institutions have offices in the Plymouth, New Hampshire
banking market, including Bristol Bank, Shawmut Bank, Meredith Village Savings
Bank, Franklin Savings Bank and First N.H. Bank. A number of these institutions
have higher lending limits and greater resources than the Bank and provide
certain services that the Bank does not provide. In addition, the Bank faces
competition from a savings bank in Plymouth, Community Guaranty Savings Bank,
which commenced operations in May, 1988.
Based upon information published by the Federal Reserve Bank of Boston, the
Plymouth, New Hampshire banking market would be considered to be highly
concentrated, consisting of three (3) commercial banks and five (5) savings
banks and thrifts with a total of twelve (12) banking offices. As reflected in
such report, the Company has a 37.33% market share of deposits among all
depository institutions in the area.
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PLYMOUTH, NEW HAMPSHIRE
ALL INSTITUTIONS, BY TOTAL DEPOSITS
NUMBER OF PERCENT
BANKING OF TOTAL
OFFICES DEPOSITS
------- --------
1. Pemi Bancorp, Inc., Plymouth......... 4 37.33%
(Pemigewasset National Bank of
Plymouth) (4) ---
2. Bank of Ireland, Dublin, Ireland..... 2 17.88%
(First NH Bank) (2) ---
3. Bank of New Hampshire Corp.,
Manchester........................... 1 10.08%
(Bristol Bank) (1) ---
4. Meredith Village Savings Bank........ 1 10.05%
5. Community Guaranty Savings Bank...... 1 8.62%
6. Franklin Savings Bank................ 1 7.71%
7. Shawmut National Corporation,......... 1 5.39%
Hartford, CT (Shawmut Bk NH)
8. New London Trust, FSB................ 1 2.94%
--- ------
All Commercial Banking and Thrift 12 100.00%
Organizations
NOTE: The table is based on June 30, 1994 deposit data and reflects all mergers
and bank holding company acquisitions completed by February 28, 1995 as
published by the Federal Reserve Bank of Boston.
Banks compete on the basis of price, including rates paid on deposits and
charged on borrowings, convenience and quality of service. Savings and loan
associations are able to compete aggressively with commercial banks in the
important area of consumer lending. Credit unions and small loan companies are
each significant factors in the consumer market. Insurance companies, investment
firms, credit and mortgage companies, brokerage firms cash management accounts,
money-market funds and retailers are all significant competitors for various
types of business. Many non-bank competitors are not subject to the extensive
regulation described below under "BUSINESS OF THE COMPANY" and thus in certain
respects may have a competitive advantage over banks in providing certain
services.
In marketing its services, the Bank emphasizes its position as a hometown
bank with personal service, continuity of personnel, flexibility and prompt
responsiveness to the needs of its customers. Moreover, the Bank competes for
both deposits and loans by offering competitive rates, well positioned branch
and ATM locations and convenient business hours. In addition to providing
banking services to customers in its primary service areas, the Bank is a member
of the NYCE, CIRRUS and Cash Stream automatic teller machine networks which
allow the Bank to deliver certain financial services to customers regardless of
their proximity to the primary service area of the Bank.
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RECENT DEVELOPMENTS
During the forth calendar quarter of 1995, the Bank agreed to purchase
certain assets and assume certain deposits related to First NH's branch office
on U.S. Route 49, Campton, New Hampshire.
The Bank and First NH Bank currently each own an undivided 1/2 interest in
this facility, which both entities have shared since 1975. While operation of a
shared branch facility was not uncommon in New Hampshire several decades ago, it
has become a rarity in recent times. The deposits attributable to this joint
branch facility amount to approximately 20 Million Dollars. Slightly more than
10 Million of such deposits are deposits in the Bank and slightly more than 9
Million Dollars represent the deposits in First NH Bank which the Bank has
agreed to purchase.
The transaction will not involve the establishment of a new branch by the
Bank, which will continue to operate its existing branch at the same location.
Similarly, as a result of this transaction, there will be no change in the
Community Reinvestment Act Statement of the Bank, which received an
"outstanding" Community Reinvestment Act Compliance rating from the Office of
the Comptroller of Currency at its most recent examination.
The proposed purchase was approved by the Office of the Comptroller of the
Currency in the first calendar quarter of 1996 and is expected to be consummated
in April, 1996.
SUPERVISION AND REGULATION
The earnings of the Bank and, therefore, the earnings of the Company, are
affected not only by general economic conditions, both domestic and foreign, but
also by the policies of the Federal Government and regulatory authorities,
including the Federal Reserve Board, the Office of the Comptroller of the
Currency and the Federal Deposit Insurance Corporation. The Federal Reserve
Board influences conditions in the money and capital markets, which affect
interest rates and the growth in bank credit and deposits. Federal Reserve Board
monetary policies have had a significant effect on operating results of
commercial banks in the past and are expected to continue to do so in the
future. The Company cannot accurately predict changes in such policies or the
effect such policies may have on the Bank's future business and earnings. Bank
earnings are heavily dependent on both the change in loan volume and the margin
between the lending rate and the cost of bank funds.
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As a bank holding company registered with the Federal Reserve Board, the
Company is required to file periodic reports and such additional information as
the Federal Reserve Board may require pursuant to the Bank Holding Company Act
of 1956, as amended. The Federal Reserve Board also conducts examinations of the
Company.
The Bank Holding Company Act of 1956, as amended, requires every bank
holding company to obtain the prior approval of the Federal Reserve Board before
acquiring direct or indirect ownership or control of more than five percent (5%)
of the voting shares of any bank. However, no acquisition may be approved if it
is prohibited by applicable state law.
The Bank Holding Company Act of 1956, as amended, also prohibits a bank
holding company, with certain exceptions, from acquiring control of any other
company and from engaging in any business other than banking or activities which
are not incidental to managing or controlling banks without the prior approval
of the Federal Reserve Board. The Federal Reserve Board is authorized to
approve, among other things, the ownership of shares by a bank holding company
in any company the activities of which the Federal Reserve Board has determined
to be so closely related to banking or managing or controlling banks as to be a
proper incident thereto. In making such determination, the Federal Reserve Board
is required to weigh the expected benefit to the public, such as greater
convenience, increased competition, or gains in efficiency, against the risks of
possible adverse effects, such as undue concentration of resources, decreased or
unfair competition, conflicts or unsound banking practices.
In addition, federal legislation prohibits the acquisition of control of a
bank or bank holding company without prior notice to appropriate federal bank
regulatory agencies.
The Bank is a national banking association, organized pursuant to the
provisions of the National Bank Act. As such, its primary regulatory authority
is the Comptroller of the Currency of the United States (the "Comptroller"). The
Comptroller regularly examines national banks and their operations. In addition,
operations of national banks are subject to federal statutes and regulations.
Such statutes and regulations relate to required reserves, investments, loans,
mergers, payment of dividends, issuance of securities and many other aspects of
operations.
With respect to the ability of a national bank to pay dividends, the
Comptroller's approval is required if the total dividends declared by a national
bank in any year will exceed the total of its net profits for that year combined
with its retained net profits for the preceding two years, less any required
transfer to surplus. The Comptroller also has authority to prohibit a national
bank from engaging in unsafe or unsound practices in conducting the business of
the Bank.
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-6-
The Bank is also subject to applicable provisions of New Hampshire law
insofar as they do not conflict with or are not otherwise preempted by federal
banking law.
The banking industry in the United States, which includes commercial banks,
savings and loan associations, mutual savings banks, capital stock savings
banks, credit unions, and bank and savings and holding companies, is part of the
broader financial services industry which includes insurance companies, mutual
funds, and the brokerage industry. In recent years, intense market demands and
economic pressures have eroded once clearly defined industry classifications and
have forced the financial services institutions to diversify their services,
increase returns on deposits, and become more cost effective as a result of
competition with one another and with new types of financial services companies,
including non-bank competitors.
The present bank regulatory scheme is undergoing significant change, both
as it affects the banking industry itself and as it affects competition between
banks and non-bank financial institutions. There has been significant regulatory
change in the bank merger and acquisitions area, in the products and services
banks can offer, and in the non-banking activities in which bank holding
companies can engage. Banks are now actively competing with non-bank financial
institutions for products such as money market funds.
Recently adopted Federal legislation will soon permit adequately
capitalized bank holding companies to venture across state lines to offer
banking services through bank subsidiaries to a wider geographic market. In
light of this change in the law, it will be possible for large super-regional
organizations to enter many new markets including the market served by the Bank.
Certain of these competitors, by virtue of their size and resources, may enjoy
certain efficiencies and competitive advantages over the Bank in the pricing,
delivery, and marketing of their products and services. It is not possible to
assess what impact these changes in the regulatory scheme will have on the
Company or the Bank.
CERTAIN SUPERVISORY MATTERS
The Office of the Comptroller of the Currency ("OCC") and other federal
bank supervisory agencies have been granted broad authority by Congress to
protect the safety and soundness of the banking systems in the United States.
The supervisory tools available to the federal bank supervisory agencies range
from drastic measures involving the termination of deposit insurance, and
forfeiture of charter, to less drastic formal supervisory actions including
capital directives, cease and desist orders, suspension and removal of officers
or directors, the assessment of civil money penalties, and the use of formal
agreements or informal memoranda of understanding.
<PAGE>
-7-
Following an examination of the Bank conducted by the OCC in early 1992,
the Bank and the OCC entered into an informal remedial action in the form of a
Memorandum of Understanding ("MOU") designed to improve the condition and
profitability of the Bank and address any areas which warranted remedial action.
Following an examination of the Bank, the OCC met with the Board of Directors on
July 11, 1994 and officially terminated the MOU. At that time, the Board of
Directors provided the OCC with their written commitment on behalf of the Bank
to hire a Chief Financial Officer and enhance certain aspects of the Bank's
asset and liability management practices.
The Bank substantially complied with these commitments and the MOU was
terminated. Neither the Company nor the Bank are subject to increased regulatory
supervision or supervisory action.
STATISTICAL INFORMATION
The following supplementary information required under Guide 3 (Statistical
Disclosure by Bank Holding Companies) should be read in conjunction with the
related financial statements and notes thereto which are a part of this report.
DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDER'S EQUITY;
INTEREST RATES AND INTEREST DIFFERENTIAL
The following tables present the condensed average balance sheets as of
December 31 of each of the years indicated. The total dollar amount of interest
income from earning assets and the resultant yields are calculated on a taxable
equivalent basis. The interest paid on interest bearing liabilities, expressed
both in dollars and rates, is also shown in the tables:
YIELDS EARNED AND RATES PAID SCHEDULE
<TABLE>
<CAPTION>
Period Ended December 31, 1995 Period Ended December 31, 1994 Period Ended December 31, 1993
--------------------------------- --------------------------------- --------------------------------
Average Yield/ Average Yield/ Average Yield/
Balance Interest(1) Rate Balance Interest(1) Rate Balance Interest(1) Rate
------- ----------- ---- ------- ----------- ---- ------- ----------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Interest bearing deposits $ 11,471 $ 683 5.95% $ 23,407 $ 863 3.69% $ 71,078 $ 2,153 3.03%
Federal funds sold 2,263,151 127,364 5.63 922,192 34,206 3.71 866,027 24,988 2.89
Taxable investment
securites 17,261,405 1,093,942 6,34 18,954,061 1,138,808 6.01 17,307,682 1,016,022 5.87
Tax-exempt investment
securities 2,557,887 239,064 9.35 2,558,120 242,877 9.49 3,021,943 294,929 9.76
Loans (net of unearned
income) (2) (3) 84,357,156 8,189,866 9.71 83,666,752 7,254,678 8.67 81,247,198 6,986,271 8.60
------------ --------- ---------- --------- ---------- ---------
Total interest earning
assets 106,451,070 9,650,919 9.07 106,124,532 8,671,432 8.17 102,513,928 8,324,363 8.12
Non-interest earning assets 8,970,001 9,265,614 9,573,374
------------ ------------ ------------
Total assets $115,421,071 $115,390,146 $112,087,302
============ ============ ============
Interest bearing liabilities:
Now and Money Market $ 28,301,004 626,646 2.21 $ 32,797,203 712,397 2.17 32,693,567 831,843 2.54
Savings deposit 13,677,079 365,854 2.67 14,669,681 361,663 2.47 13,720,807 386,322 2.82
Time $100,000 and over 4,167,647 234,681 5.63 3,979,398 182,893 4.60 4,631,841 226,983 4.90
Other time 33,678,596 1,852,138 5.50 30,556,971 1,371,466 4.49 32,620,674 1,540,789 4.72
Short-term borrowings 7,201,797 451,440 6.27 962,416 47,363 4.92 1,032,992 24,783 2.40
Long-term borrowings 3,014,813 162,468 5.39 7,604,542 376,319 4.95 4,841,823 254,523 5.26
---------- --------- ---------- --------- ---------- ---------
Total interest bearing
liabilities 90,040,936 3,693,227 4.10 90,570,211 3,052,101 3.37 89,541,704 3,265,243 3.65
------------ --------- ---------- --------- ---------- ---------
Non-interest bearing
liabilities:
Demand deposits $ 12,664,966 12,891,149 11,260,376
Other 1,591,422 1,500,588 1,298,177
------------ ------------ ------------
Total non-interest
bearing liabilities 14,256,388 14,391,737 12,558,553
Stockholders' equity 11,123,747 10,428,198 9,987,045
------------ ------------ ------------
Total liabilities and
stockholders' equity $115,421,071 $115,390,146 $112,087,302
============ ============ ============
Net interest income/
interest rate margin $ 5,957,692 4.97 $ 5,619,331 4.80 $ 5,059,120 4.47
============ ============ ============
Earning balance/
net yield on interest
earning assets $ 16,410,134 5.60 $ 15,554,321 5.30 $ 12,972,224 4.94
============ ============ ============
</TABLE>
(1) Tax effect increases in interest income on municipal loans and securities
were $148,105 for 1995, $147,446 for 1994 and $176,932 for 1993. The
federal tax rate of 34% was used for the three years ended December 31,
1995.
(2) Included in interest on loans are loan fees which totaled $199,164 for
1995, $202,900 for 1994 and $206,959 for 1993.
(3) Includes nonaccruing loan balances and interest received on such loans.
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CHANGE IN NET INTEREST INCOME
The following table shows, for each period indicated, the effect on net
interest income of volume and rate changes. The combined effect of changes in
both volume and rate which cannot be separately identified has been allocated
proportionately to the change due to volume and the change due to rate.
<TABLE>
<CAPTION>
1995 as compared to 1994 1994 as compared to 1993
------------------------------- ---------------------------------
Due to a change in: Due to a change in:
------------------------------- ---------------------------------
Volume Rate Total Volume Rate Total
------ ---- ----- ------ ---- -----
<S> <C> <C> <C> <C> <C> <C>
Interest and dividend income:
Interest bearing deposits $ (562) $ 382 $ (180) $ (1,682) $ 392 $ (1,290)
Federal funds sold 68,706 24,452 93,158 1,715 7,503 9,218
Taxable investment securities (105,249) 60,383 (44,866) 98,172 24,614 122,786
Tax-exempt investment securities (23) (3,790) (3,813) (44,103) (7,949) (52,052)
Loans (net of unearned income) 60,192 874,996 935,188 210,793 57,614 268,407
--------- --------- --------- --------- --------- ---------
Total interest and dividend income 23,064 956,423 979,487 264,895 82,174 347,069
--------- --------- --------- --------- --------- ---------
Interest and dividend expense:
Now and money market (98,716) 12,965 (85,751) 2,608 (122,054) (119,446)
Regular savings (24,804) 28,995 4,191 25,544 (50,203) (24,659)
Time deposits, $100,000 and over 9,032 42,756 51,788 (30,732) (13,358) (44,090)
Other time 150,119 330,553 480,672 (95,649) (73,674) (169,323)
Short-term borrowings 387,669 16,408 404,077 (1,801) 24,381 22,580
Long-term borrowings (244,728) 30,877 (213,851) 137,603 (15,807) 121,796
--------- --------- --------- --------- --------- ---------
Total interest and dividend
expense 178,572 462,554 641,126 37,573 (250,715) (213,142)
--------- --------- --------- --------- --------- ---------
Net interest income $(155,508) $ 493,869 $ 338,361 $ 227,322 $ 332,889 $ 560,211
========= ========= ========= ========= ========= =========
</TABLE>
INVESTMENT PORTFOLIO
Recently, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 115 (SFAS 115), "Accounting for investment in
certain Debt and Equity Securities". SFAS 115 provides for the categorization of
investments into three groups and further provides for the accounting and
reporting treatment of each group. Investments may be classified as held-to-
maturity, available-for-sale, or trading. The Company does not purchase or hold
any investment securities for the purpose of trading such investments. The
following table sets forth the carrying amounts of Pemi Bancorp, Inc.'s
investment securities as of December 31, 1995, 1994, and 1993:
1995 1994 1993
---- ---- ----
U.S. Treasury securities
and obligations of government
corporations and agencies(2) $ 2,310,669 $ 2,004,911 $ 2,149,886
Obligations of
states/political
subdivisions(2) 3,749,323 2,340,805 2,892,012
Mortgage backed securities(1) 17,074,574 14,655,706 18,515,860
Federal Reserve Bank Stock 80,250 80,250 80,250
Federal Home Loan Bank Stock 739,600 596,000 549,500
----------- ----------- -----------
Total........................ $23,954,416 $19,677,672 $24,187,508
=========== =========== ===========
(1) Consists of $5,093,654; $1,476,239; and $1,937,293 of investments
classified as available-for-sale at December 31, 1995; 1994; and 1993,
respectively, and $11,980,920; $13,179,467; and 16,578,567 of investments
classified as held- to-maturity at December 31, 1995; 1994; and 1993,
respectively.
(2) Investments classified as held-to-maturity at December 31, 1994 and 1993.
<PAGE>
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The following table sets forth the maturities of investment securities as of
December 31, 1995 and the weighted average yields of such securities (calculated
on the basis of the cost and effective yields weighted for the scheduled
maturity of each security). Various securities included below are redeemable at
various times. Fully taxable equivalent adjustments have been made in
calculating yields on obligations of states and political subdivisions. For
securities with variable or adjustable interest rates, the rate in effect as of
December 31, 1995 was used for this schedule.
<TABLE>
<CAPTION>
Under 1-5 5-10 Over 10
1 Year Yield Years Yield Years Yield Years Yield Total Yield
------ ----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SECURITIES
U.S. Treasury
securities and
obligations of
U.S. government
corporations and
agencies $ 499,816 4.25% $ 801,818 6.10% $ 1,301,634 5.92%
Obligations of
states and
political
subdivisions 175,390 11.19% 1,541,866 10.11% 1,717,256 10.12%
Mortgage-backed
securities 12,684 9.59% 934,508 7.36% $5,757,344 6.95% $5,276,384 6.93% 11,980,920 6.94%
--------- ---------- ---------- ---------- -----------
Total $ 687,890 5.88% $3,278,192 8.65% $5,757,344 6.95% $5,276,384 6.93% $14,999,810 7.05%
========= ========== ========== ========== ===========
Under 1-5 5-10 Over 10
1 Year Yield Years Yield Years Yield Years Yield Total Yield
------ ----- ----- ----- ----- ----- ----- ----- ----- -----
AVAILABLE-FOR-SALE
SECURITIES
U.S. Treasury
securities and
obligations of
U.S. government
corporations and
agencies $ 502,662 7.71% $ 506,373 5.71% $ 1,009,035 6.04%
Obligation of
political
subdivisions $1,028,062 8.67% $ 1,004,005 8.28% $ 2,032,067 8.41%
Mortgage-backed
securities 115,487 5.45% 453,780 6.74% 758,498 6.89% 3,765,889 6.80% 5,093,654 6.81%
---------- ---------- ---------- ----------- ===========
Total available-for-
sale $ 618,149 6.82% $ 960,153 6.37% $1,786,560 7.86% $ 4,769,894 7.02% $ 8,134,756 7.10%
========== ========== ========== =========== ===========
Total portfolio * $1,306,039 6.31% $4,238,345 8.33% $7,543,904 7.15% $10,046,278 6.97% $23,134,566 7.07%
========== ========== ========== =========== ===========
</TABLE>
* Does not include Federal Home Loan Bank stock and Federal Reserve Bank
stock with carrying amounts of $739,600 and $80,250, respectively.
LOAN PORTFOLIO
Four areas in which the Bank has directed most of its lending activities
are (i) commercial loans, (ii) real estate mortgage loans, (iii) municipal loans
and (iv) consumer loans. As of December 31, 1995, these four categories
accounted for approximately 32.4%, 59.6%, 1.3%, 0.1% and 6.6% respectively, of
the Bank's loan portfolio.
The following table summarizes the distribution of the Bank's loan
portfolio as of December 31 of each of the years indicated:
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1995 1994 1993
---- ---- ----
Commercial $26,446,000 $30,326,691 $28,465,555
Real Estate 48,703,000 50,073,744 48,166,413
Municipal 1,054,000 874,329 1,603,139
Consumer 5,490,000 4,519,156 4,485,136
Other loans 16,000 -0- 725,560
----------- ----------- -----------
Total* $81,709,000 $85,793,920 $83,445,803
=========== =========== ===========
* Before unearned income and allowance for possible loan losses. Loans are
not categorized according to the same criteria used in the annual report.
Loan maturities for commercial, real estate, municipal, and consumer loans
at December 31, 1995 were as follows:
MATURITIES
-------------------------------------------------------------
WITHIN ONE TO OVER FIVE
ONE YEAR FIVE YEARS YEARS TOTAL
-------- ---------- ----- -----
Commercial.. $1,992,000 $ 4,754,000 $19,700,000 $26,446,000
Real Estate. 92,000 1,019,000 47,592,000 48,703,000
Municipal... 659,000 93,000 302,000 1,054,000
Consumer.... 911,000 4,474,000 105,000 5,490,000
Other....... 16,000 -0- -0- 16,000
---------- ----------- ---------- -----------
Total* $3,670,000 $10,340,000 $67,699,000 $81,709,000
========== =========== =========== ===========
Loan maturities for variable and fixed rate loans with a maturity of
greater than one year at December 31, 1995 were as follows before allowance for
possible loan losses and unearned income:
MATURITIES
-----------------------------
ONE TO OVER FIVE
FIVE YEARS YEARS
---------- -----
Variable rate $11,397,000 $47,951,000
Fixed rate 6,059,000 5,472,000
----------- -----------
Total $17,456,000 $53,423,000
=========== ===========
* The figures used in the maturity analysis also include loans subject to
interest rate adjustment within the specified time categories.
NONACCRUAL AND PAST DUE LOANS
It is the policy of the Bank to discontinue the accrual of interest on
loans when, in management's judgment, the collection of the full amount of the
loan is doubtful. This will generally occur once the loan has become 90 days
past due, unless the loan is well secured and in the process of collection. The
following table sets forth information on nonaccrual and past due loans as of
December 31 for each of the years indicated:
<PAGE>
-11-
1995 1994
---- ----
Loans on nonaccrual $495,705 $640,375
Loans past due 90 days or
more and still accruing 45,598 187,002
-------- --------
Total $541,303 $827,377
======== ========
The amount of interest income recorded during 1995, 1994 and 1993 on
nonaccrual loans outstanding at December 31, 1995, 1994 and 1993 amounted to
$22,470, $50,246, and $6,833, respectively. Had these loans performed in
accordance with their original terms, the amount recorded would have been
$70,303, $89,782, and $27,270 in 1995, 1994 and 1993, respectively.
Loans past due 90 days or more still accruing interest as of December 31,
1995 consisted primarily of first mortgage loans which are currently in the
process of collection and as to which management believes there is adequate
security.
The difference between gross interest income that would have been reported
for the fiscal year ended December 31, 1995 had the nonaccrual loans above been
current, and interest income on these loans that was included in net income, is
$47,833.
SUMMARY OF LOAN LOSS EXPERIENCE
The following table summarizes historical data of the Bank with respect to
loans outstanding, loan losses and recoveries, and changes in the allowance for
possible loan losses:
1995 1994
---------- ----------
Allowance for possible loan losses,
beginning of period $1,566,919 $1,730,493
---------- ----------
Charge Offs:
Real estate-mortgage loans (172,612) (124,620)
Commercial/industrial loans (190,873) (307,439)
Loans to individuals ( 13,693) ( 16,293)
----------- ----------
TOTAL (377,178) (448,352)
----------- ----------
Recoveries:
Real estate-mortgage loans 23,563 18,998
Commercial/industrial loans 29,547 136,389
Loans to individuals 4,628 9,391
---------- ----------
TOTAL 57,738 164,778
---------- ----------
Net charge offs (319,440) (283,574)
Provision for loan losses 112,500 120,000
---------- ----------
<PAGE>
-12-
Allowance for possible loan losses,
end of period $1,359,979 $1,566,919
========== ==========
Ratio of net charge offs to
average loans .38% .34%
Ratio of allowance for loan losses to
year-end loans 1.66% 1.83%
The provisions to the allowance for possible loan losses are sufficient to
maintain the allowance at a level which in the judgment of management is
adequate to absorb any potential loss in existing loans.
The following table reflects the allocation of the allowance for possible
loan losses and the percent (based on loan portfolio schedule on page 9) of
loans in each category of total outstanding loans as of December 31 for each of
the years indicated:
1995 1994
---- ----
AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ -------
Real Estate $ 486,227 59.61 $ 281,261 58.36
Commercial/Industrial 824,329 32.37 1,244,136 35.35
Loans to Individuals 46,131 6.72 38,702 5.27
Municipal 2,842 1.29 2,820 1.02
Other Loans -0- .00 0 0
---------- ------ --------- ------
TOTAL $1,359,629 100.00 $1,566,919 100.00
========== ====== ========== ======
The provisions to the allowance for possible loan losses are charged to
operating expenses and are based on past experience, current economic conditions
and management's judgment of the amount necessary to cover possible losses on
the collection of loans. The Bank records provisions for estimated loan losses
which are charged against earnings in the period they are established.
DEPOSITS
Most of the Bank's deposits have been obtained from individuals and from
small and medium-sized businesses. In addition, the Bank attracts deposits from
municipalities and other governmental agencies. Customer deposits are insured by
the Federal Deposit Insurance Corporation, up to applicable limits.
As of December 31, 1995, the Bank had a total of $14,023,174 in demand
deposit accounts and $82,393,043 in NOW and money market, time and savings
deposit accounts for individuals, corporations and other entities. Of total
deposits of $96,416,217, eighty-five percent (85%) were in interest bearing
categories and fifteen percent (15%) were in non-interest bearing categories.
<PAGE>
-13-
The following table shows the average deposits and average interest rate
paid for the last two years:
YEAR ENDED YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1994
----------------------- ---------------------
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE RATE BALANCE RATE
----------------------- ---------------------
Demand deposits $12,664,966 0% $12,891,149 0%
NOW and Money Market
Accounts 28,301,004 2.21% 32,797,203 2.17%
Savings 13,677,079 2.67% 14,669,681 2.47%
Time, $100,000 and over 4,167,647 5.63% 3,979,398 4.60%
Other time deposits 33,678,596 5.50% 30,556,971 4.49%
----------- -----------
Total $92,489,292 $94,894,402
=========== ===========
As of December 31, 1995, the Bank had time deposits in amounts of $100,000
or more aggregating $4,890,000. These certificates of deposit mature as follows:
MATURITY AMOUNT
-------- ------
3 months or less $ 430,000
Over 3 months through 6 months 1,165,000
Over 6 months through 12 months 1,931,000
Over 12 months 1,364,000
----------
Total $4,890,000
==========
RETURN ON EQUITY AND ASSETS
The following summarizes various operating ratios of the Company for the
last two years:
1995 1994
---- ----
Return on average total assets
(net income divided by average
total assets) 1.10% 1.00%
Return on average stockholders'
equity (net income divided
by average stockholders' equity) 11.46% 11.04%
Dividend payout ratio 27.07% 26.13%
Equity to Assets (average stockholders'
equity as a percent of average
total assets) 9.64% 9.04%
SHORT-TERM BORROWINGS
The Company engages in certain borrowing arrangements
throughout the year. These are ordinary consequences of bank
business. Such short-term borrowings consist of Federal Funds
<PAGE>
-14-
purchased and Federal Home Loan Bank (FHLB) advances. The following table
summarizes such short-term borrowings at December 31 for each of the years
indicated:
FEDERAL FUNDS PURCHASED
AND FHLB ADVANCES
DECEMBER 31,
--------------------------------
1995 1994
---- ----
Balance at end of period $7,000,000 $3,500,000
Maximum amount outstanding
at any month-end during period $9,000,000 $4,400,000
Average amount outstanding $7,201,797 $ 962,416
Weighted Average interest rate 6.27% 4.92%
Weighted Average interest rate at
end of period 6.09% 6.92%
ITEM 2 - PROPERTIES
The Bank owns its main office in West Plymouth, New Hampshire and its
branch offices in Plymouth, Campton, Ashland and North Woodstock New Hampshire.
The Bank conducts its banking business through its principal office in West
Plymouth, New Hampshire and through its four branch offices. In general, all
premises occupied by the Bank are considered to be in good condition. The Bank's
branch office in Campton, New Hampshire is owned jointly by the Bank and First
NH Bank as tenants in common. The Bank has filed an application with the OCC to
purchase and assume certain deposits, equipment and the remaining 1/2 undivided
interest of the Campton branch office from First NH Bank.
While the Bank does not have any plans to close any of its branch offices,
the federal banking laws and regulations impose certain notification and filing
requirements on depository institutions which must be complied with prior to the
closing of any branches.
The following table lists the properties owned by Pemi Bancorp, Inc. The
Company owns all of the offices, for which the Company and Bank operate. Net
book value amounts represent the net book value of land and improvements of
these properties.
OFFICE LOCATION
Highland Street
W. Plymouth, NH
(Main Office)
1-3 Highland Street
Plymouth, NH
<PAGE>
-15-
Route 49
Campton, NH
Route 3
Ashland, NH
Route 3
North Woodstock, NH
At December 31, 1995 the total net book value of the Company's premises and
equipment was $3,481,386.
The following table sets forth information with regard to Automated Teller
Machines owned and operated by Pemi Bancorp, Inc.
LOCATION
287 Highland Street
Plymouth, NH
1-3 Highland Street
Plymouth, NH
Shop-N-Save
Old Route 25
Plymouth, NH
Route 49
Campton, NH
North Main Street
Ashland, NH
ITEM 3 - LEGAL PROCEEDINGS
There are no known pending material legal proceedings to which Pemi
Bancorp, Inc. or its subsidiary are a party, or to which any of their properties
are subject, other than ordinary litigation arising in the normal course of
business.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of 1995, no matter was submitted to a vote of
Stockholders of the Company.
<PAGE>
-16-
PART II
ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON STOCK
AND RELATED STOCKHOLDER MATTERS
DIVIDEND HISTORY AND POLICY
The Company has paid dividends to stockholders on a semi-annual basis since
its organization as a bank holding company for the Bank in 1985. Prior to that
time, to the best knowledge and belief of management, the Bank has paid
dividends in every year since 1882.
The following table summarizes the Company's dividend history for the
fiscal years ended December 31, 1995, December 31, 1994 and December 31, 1993.
PER SHARE DIVIDEND HISTORY
YEARS ENDED DECEMBER 31,
-----------------------------------------
1995 1994 1993
---- ---- ----
Dividends Per Share* $ .50 $ .40 $ .25
Net Income Per Share* 1.85 1.53 1.11
Dividends/Net Income 27.07% 26.13% 22.60%
* Based on 691,188 weighted average shares outstanding for 1995 and 751,020
weighted average shares outstanding for 1994 and 751,901 weighted average
shares outstanding for 1993.
Consistent with prudent banking practices and applicable law, the Company
intends to continue its practice of declaring dividends on a semiannual basis to
Stockholders of record as of the date of declaration. However, there can be no
assurance that dividends per share will not be reduced or limited in the future.
The Company's ability to pay dividends is limited by the prudent banking
principles applicable to all bank holding companies and by the provisions of New
Hampshire Corporate law, which limit the payment of dividends by a corporation
to an amount not to exceed the unrestricted earned surplus of the corporation or
the unrestricted net earnings of the current fiscal year and the next preceding
fiscal year taken as a single period, unless such dividends would render a
corporation insolvent.
As a practical matter, the Company's ability to pay dividends is generally
limited by the Bank's ability to dividend funds to the Company. As a national
bank, the declaration and payment of dividends by the Bank must be in accordance
with the National Bank Act. More specifically, applicable law provides that the
Board of Directors may declare quarterly, semiannual and annual dividends so
<PAGE>
-17-
long as the Bank carries at least ten percent (10%) of its net profits for the
preceding half year in its surplus fund, and, in the case of annual dividends,
has carried not less than one-tenth of its net profits of the preceding two
consecutive half year periods in its surplus fund. National banks are required
to obtain the approval of the Office of the Comptroller of the Currency if the
total dividends declared by it in any calendar year exceed the total of its net
profits for that year combined with any retained net profits of the preceding
two years less any required transfers. In addition to such statutory
requirements, the payment of an excessive dividend which would deplete a bank's
capital base to an inadequate level could be considered to be an unsafe or
unsound banking practice and be a basis for supervisory action by the Office of
the Comptroller of the Currency. As of December 31, 1995, approximately
$2,222,471, of the undistributed net income of the Bank was theoretically
available for distribution to the Company as dividends. However, the ability of
the Bank to declare and pay such dividends would be subject to safe and sound
banking practices.
The current and future dividend practices of the Bank and the Company will
continue to bear a correlation to the level of the Company's and the Bank's
current and expected earnings stream, the capital needs of the Bank, and the
perceptions of the marketplace.
NATURE OF TRADING MARKET
As of March 15, 1996, the Company's Common Stock is owned by approximately
413 stockholders of record. The Common Stock of the Company is not actively
traded and is not listed on any public exchange or the National Association of
Securities Dealer's Automatic Quotation System ("NASDAQ"). On rare occasions,
shares are traded between individuals or through one or more local
broker-dealers. Because there is no established market for the Company's shares,
the following table represents management's best knowledge and belief of the
prices paid in the isolated transactions which have occurred during the past two
years. However, the prices set forth may not be indicative of current value.
PRICE FOR THE QUARTER ENDED HIGH LOW
- - --------------------------- ---- ---
March 31, 1994 $ 9.25 $ 8.00
June 30, 1994 9.50 9.00
September 30, 1994 10.00 9.00
December 31, 1994 10.25 9.50
March 31, 1995 9.00 8.50
June 30, 1995 9.25 9.00
September 30, 1995 10.25 9.00
December 31, 1995 11.50 10.25
March 15, 1996 11.50 11.50
During the fourth quarter of 1994 and the first quarter of 1995, the
Company redeemed an aggregate of 61,500 shares of its outstanding common stock
from eleven (11) shareholders. During the
<PAGE>
-18-
fourth quarter of 1994, a total of 29,800 shares were redeemed from six (6)
shareholders at a price of $10.00 per share. The aggregate gross consideration
for the redemption amounted to $298,000. The Company did not incur any debt in
connection with the redemption.
During the first quarter of 1995, a total 31,700 shares were redeemed from
five (5) shareholders at a price of $10.00 per share. The aggregate gross
consideration for the redemption amounted to $317,000. The Company did not incur
any debt in connection with the redemption.
The net effect of the redemptions resulted in a reduction in the Company's
outstanding common stock by 8.18%, thereby slightly increasing the net per share
book value to remaining shareholders.
Regulation Y of the Bank Holding Company Act requires bank holding
companies to provide the Federal Reserve Board with written notice before
purchasing or redeeming equity securities if the gross consideration for the
purchase or redemption, when aggregated with the net consideration paid by the
Company for all such purchases or redemptions during the preceding twelve
months, is equal to 10% or more of the company's consolidated net worth. For
purposes of Regulation Y, "net consideration" is the gross consideration paid by
a company for all of its equity securities purchased or redeemed during the
period, minus the gross consideration received for all of its equity securities
sold during the period other than as part of a new issue.
<PAGE>
-19-
ITEM 6 - SELECTED FINANCIAL DATA
The following selected financial information for the periods ended December
31, 1995, 1994, 1993, 1992 and 1991 is based on the Company's audited
consolidated financial statements.
SELECTED FINANCIAL DATA
BALANCE SHEET DATA
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Total assets $117,322,517 $113,169,496 $115,449,751 $112,539,477 $110,402,794
Interest bearing deposits with other banks 99,527 511
Net loans 80,087,042 83,931,150 81,407,257 79,818,995 78,705,287
Investments in securities 23,933,137 19,677,672 24,187,508 19,529,109 18,071,579
Deposits 96,416,217 91,765,597 93,769,761 97,981,681 98,873,918
Borrowings 7,491,525 8,991,525 9,850,700 3,139,000
Stockholders' equity 11,394,058 10,719,723 10,243,299 9,597,961 9,308,705
Operating data
Interest and dividend income $ 9,502,814 $ 8,523,986 $ 8,147,431 $ 9,355,064 $ 10,263,472
Interest expense 3,693,227 3,052,101 3,265,243 4,272,141 5,848,577
------------ ------------ ------------ ------------ ------------
Net interest and dividend income 5,809,587 5,471,885 4,882,188 5,082,923 4,414,895
Provision for loan losses 112,500 120,000 180,000 975,000 668,940
------------ ------------ ------------ ------------ ------------
Net interest and dividend income after
provision for loan losses 5,697,087 5,351,885 4,702,188 4,107,923 3,745,955
Other income 680,156 724,390 684,249 781,679 660,138
Other expense 4,474,249 4,372,877 4,423,205 4,426,466 3,773,017
------------ ------------ ------------ ------------ ------------
Income before income taxes 1,902,994 1,703,398 963,232 463,136 633,076
Provision for income taxes 627,700 552,416 131,414 23,500 66,500
------------ ------------ ------------ ------------ ------------
Net income $ 1,275,294 $ 1,150,982 $ 831,818 $ 439,636 $ 566,576
============ ============ ============ ============ ============
Per share data
Earnings per share (1) $ 1.85 $ 1.53 $ 1.11 $ .58 $ .75
Dividends declared per share .50 .40 .25 .20 .20
Book value per share 16.50 14.85 13.62 12.76 12.38
Financial ratios
Net yield on interest earning assets 5.60% 5.30% 4.94% 5.15% 4.81%
Interest rate margin 4.97 4.80 4.46 4.62 3.97
Net income as a percentage of
Average assets 1.10 1.00 .74 .39 .54
Average equity 11.46 11.04 8.33 4.58 6.61
Dividend payout ratio 27.07 26.13 22.60 34.21 26.54
Average equity to average assets 9.64 9.04 8.91 8.53 8.12
</TABLE>
(1) Computed using the weighted average number of shares outstanding.
<PAGE>
-20-
ITEM 7 - MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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"). The Bank operates four branches.
In light of the economic climate in the region, Management is pleased with
the results for the fiscal year ended December 31, 1995, which resulted in net
income of $1,275,294 and the declaration of dividends amounting to $345,200 or
$.50 per share. The Bank's capital ratios and reserves are considered to be
healthy, the lending staff is seasoned, the Bank's traditional, conservative
practices will continue, and the Bank's facilities are modern, with ample space
for any foreseeable growth. As a community bank, the Bank's health and
profitability is somewhat dependent upon the local economy and other pressures
on community banks, such as the increasing costs of regulation and FDIC
insurance premiums.
Growth of the Bank during the late 1980s resulted in crowded conditions
which necessitated an increase in working space. In 1990, the West Plymouth
office became the main office of the Bank.
As with other areas of New England, many businesses in the Bank's primary
service area are struggling and commercial loan demand at the Bank has been down
the past several years. Plymouth is located in a reasonably stable area with no
business concentrations other than the resort business. The local and regional
economies appear to be stabilizing.
RESULTS OF OPERATIONS
Net income for the fiscal year ended December 31, 1995 was $1,275,294, as
compared with $1,150,982 for the year ended 1994 and $831,818 for the year ended
1993. Interest and fees on loans, the Company's primary source of income, for
the year ended December 31, 1995 amounted to $8,123,043, $7,189,810 in 1994 and
$6,909,615 in 1993. This represents an increase of 13.0% from 1994 to 1995. An
increase in loan rates is the primary reason for this increase. Total interest
expense for the fiscal year ended December 31, 1995 was $3,693,227 as compared
with $3,052,101 for 1994 and $3,265,243 for 1993. These increases reflect an
increase in short term rates.
For the fiscal year ending December 31, 1995 other income decreased by
$44,234 or 6.1% from December 31, 1994 and increased
<PAGE>
-21-
$40,141 or 5.9% from December 31, 1993 to December 31, 1994. Other expense in
1995 increased by $101,372 or 2.3% compared to a decrease of $50,328 or 1.1%
from 1993 to 1994. An increase in equipment expenses primarily contributed to
this result.
At December 31, 1995, the Bank's Allowance for Possible Loan Losses
("APLL") amounted to $1,359,979, which was $206,940 less than the $1,566,919
balance at December 31, 1993. During 1995, the Bank made provisions to the APLL
of $112,500 for loan losses as compared to $120,000 in 1994. This compares with
provisions of $180,000 in 1993. Provisions are based on the evaluation by
management and the Board of current and anticipated economic conditions, changes
in character and size of the loan portfolio and other indicators. The balance in
the APLL is considered adequate by management and the Board to absorb the risk
of loss inherent in the Bank's loan portfolio. Reduced provisions during 1995
reflect the stabilization of economic conditions and collateral values as well
as the strengthening of the Bank's loan portfolio.
In this regard, the APLL was $1,359,979 or 1.66% of total loans at December
31, 1995, as compared with $1,566,919 or 1.83% of total loans for the fiscal
year ended December 31, 1994.
As of December 31, 1995, non-performing loans (nonaccrual loans and loans
past due 90 days or more) totaled $541,303, or .66% of total loans as compared
to $827,377 or .96% at December 31, 1994. This represents a decrease of
$286,074.
The ratio of APLL to nonaccrual loans for December 31, 1995 was 274.35% as
compared to 244.69% for December 31, 1994.
The ratio of APLL to nonaccrual loans plus loans which are past due ninety
(90) days or more for December 31, 1995 was 251.24% as compared to 189.38% for
December 31, 1994.
The ratio of nonperforming assets (non performing loans and OREO) to total
assets for December 31, 1995 was .51% as compared to .93% for December 31, 1994.
Net charge-offs totaled $319,440 or .39% of total loans as of December 31,
1995 as compared to $283,574 or .33% of total loans as of December 31, 1994.
The Company's assets increased to $117,322,517 at year end December 31,
1995 as compared to $113,169,496 at year end December 31, 1994 and $115,449,751
at year end 1993. This represents a 3.7% increase from December 31, 1994. Net
loans decreased by 4.6% from December 31, 1994 to the period ended December 31,
1995 and deposits increased by 5.1% for the same period.
<PAGE>
-22-
The average yield on interest earning assets for 1995, 1994 and 1993 was
9.07%, 8.17% and 8.12%, respectively. For 1995, this represents a 90 basis point
increase in yield on assets. The cost of interest bearing liabilities was 4.10%
in 1995, 3.37% in 1994 and 3.65% in 1993. For 1995, this represents a 73 basis
point increase in cost of funds.
Nonaccrual loans totaled $541,303 as of December 31, 1995, which
represented a decrease of $286,074 from 1994. The primary reason for the
reduction was due to one commercial loan relationship that was brought back to
an accrual status. Otherwise, all other categories remained relevantly
unchanged. Management devotes significant time and resources to the resolution
of non-accrual loans, and this trend toward reduction of non- accruals should
continue.
LIQUIDITY AND CAPITAL RESOURCES
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 December 31, 1995 the Bank's liquidity ratio stood at 11.6% as
compared to 7.3% at December 31, 1994. With available Federal Home Loan Bank of
Boston (FHLB) Advances included, these ratios become 35.5% and 29.5%
respectively.
The liquidity ratio is determined by the use of the Bank's Basic Surplus
Model which represents a static analysis of the relationship between liquid
assets and short-term liabilities which are vulnerable to non-replacement under
abnormally stringent conditions. This controlled level of liquidity reflects the
efforts of the Bank to redeploy its assets into loans to respond to the credit
needs of the community and hopefully improve the Bank's return on assets.
Management believes the Bank's liquidity to be adequate to meet the needs of the
Bank.
Liquidity is measured by the Bank's ability to raise cash when needed at a
reasonable cost and with a minimum of loss. The Bank must be capable of meeting
all obligations to customers at any time and, therefor, the active management of
liquidity is important.
Given the uncertain nature of customers' demands as well as the Bank's
desire to take advantage of earnings enhancement opportunities, the Bank must
have available adequate sources of on and off balance sheet funds that can be
acquired in time of need. Accordingly, in addition to the liquidity provided by
balance sheet cash flows, liquidity must be supplemented with alternative
sources such as Fed Funds and Liens of Credit, Federal Home Loan Bank Advances,
and wholesale and retain repurchase agreements.
<PAGE>
-23-
Accordingly, when making investments and loans, their marketability and
collateral value must be considered. When the necessity for pledging arises, the
least marketable should generally be used.
Two methods of measuring liquidity are generally utilized. The first is a
static analysis of the relationship between liquid assets and short-term
liabilities which are vulnerable to non- replacement under abnormally stringent
conditions. The second measure of liquidity operationalizes the static analysis.
It is a cash-flow forecast expressed in terms of the relationship between
identified funding needs and the estimated level of cash in flows over a 90-day
horizon.
Monitoring and managing both liquidity measurements is important in
developing prudent and effective deposit pricing and investment strategies.
The equity capital of the Company as of December 31, 1995 amounted to
$11,394,058. This represents a 6.3% increase over the equity capital at December
31, 1994. The increase is attributable to a 11.69% increase in retained
earnings. Equity capital as a percent of total assets amounted to 9.71% as of
December 31, 1995, a very slight increase of approximately .24% from year end
1994.
The Bank and the Company are required to maintain capital levels consistent
with the "risk-based capital guidelines" adopted by 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 8.0%. 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 4.00% of adjusted total assets (or 100 to
200 basis points higher in the case of the banks which do not receive the best
composite ratings). At December 31, 1995 the actual Risk Based Capital of the
Bank was 16.38% for Tier 1 and 17.75% for Total Capital and the Leverage Capital
was 9.68%, substantially exceeding current applicable and any known future
minimum regulatory 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. In
addition to its effects on interest rates, inflation directly affects the
Company by increasing the Company's cost of funds and operating expenses.
<PAGE>
-24-
INTEREST RATE SENSITIVITY ANALYSIS
The following discussion of Interest Rate Sensitivity Analysis should be
read in conjunction with the GAP Table set forth following the discussion which
reflects how the timing and repricing of assets and liabilities would impact
liquidity and interest rate spread.
The Bank's rate sensitivity analysis format is divided into four (4)
sections. The first section details information concerning various maturities of
rate sensitive assets. The second section identifies rate sensitive liabilities.
The third section identifies interval gaps and the fourth, cumulative gap
analysis.
Rate sensitive assets can be divided into two component parts: Investments
in Securities and Loans. Investments have various maturities, are normally fixed
rates, and when they mature, the proceeds are available for reinvestment. As
these securities approach maturity, it is important for the investment officer
to be aware of the rate on the maturing investment, current rates available on
similar investments and liquidity requirements of the bank. As the securities
mature, the proceeds will be invested in rates higher or lower than the maturing
security, thus affecting the rate of return.
The final section of rate sensitive assets consists of commercial loans,
real estate loans and consumer loans. Commercial loans are comprised of both
maturing loans that will be paid off, and loans that mature but will in all
likelihood be rewritten. Real estate loans are comprised of those loans whose
rates will be repriced at maturity and consumer loans are those that will be
repriced and paid in full at maturity.
Rate Sensitive Liabilities are primarily time deposits. As the savings
instruments reach maturity, the Bank, in order to retain the deposits, will need
to offer competitive rates or be faced with disintermediation. Falling rates
indicate it may cost the Bank less to retain these funds, thus increasing
profits. Conversely, rising rates may adversely affect profits.
The section on interval gaps indicate the difference between Rate Sensitive
Assets and Rate Sensitive Liabilities at different maturity intervals. It is a
snapshot of the gaps at specific time periods. The ratios measure a tolerance
range for various time periods.
The final section on Cumulative Gaps measure the overall Gap position at
different time periods.
<PAGE>
-25-
In analyzing the Bank's GAP, several general principles should be
considered. First, in a more risky interest rate environment, you would expect a
smaller GAP tolerance range associated with a given appetite for interest rate
risk. Conversely, the greater the tolerance range, the greater the expected
return and risk.
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.
The GAP measures interest rates risk exposure, not liquidity of funding
risk.
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.
Prudent adjustment of the GAP to capitalize on expected interest rate
trends will usually result in a negative impact on short term earnings. For
example, if rates are expected to rise by more than the consensus rate forecast,
a somewhat positive GAP is appropriate.
Generally, the smaller the GAP, the smaller the fluctuation in the net
interest margin resulting from changes in levels of interest rates.
If Risk Sensitivity Analysis indicated that the Bank was Asset Sensitive
(meaning that it had 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.
The Bank's primary tool in managing Interest Rate Risk will be
asset/liability funding matrix reports. Income simulation will be utilized to
quantify the potential impact on earnings of changes in interest rates. A
standard gap report will also be utilized to provide supporting detailed
information. Management has monitored deposit runoff in both rising and falling
rate environments, and based upon this analysis, has developed simulation models
of interest rate risk as well as liquidity cash flows that reflect the results
of assumptions.
<PAGE>
-26-
RATE SENSITIVITY ANALYSIS
AS OF DECEMBER 31, 1995
(in thousands)
<TABLE>
<CAPTION>
0-3 3 MONTHS 6 MONTHS 1 YEAR TO OVER 5
MONTHS TO 6 MONTHS TO 1 YEAR 5 YEARS YEARS TOTAL
------ ----------- --------- ------- ----- -----
Interest earning assets:
<S> <C> <C> <C> <C> <C> <C>
Federal funds sold $ 3,300 $ $ $ $ $ 3,300
Loans 17,562 10,680 25,893 23,234 3,843 81,212
FHLB/FRB Bank stock 820 820
Available-for-sale securities* 503 115 960 6,557 8,135
Held-to-maturity securities* 676 13 3,278 11,033 15,000
------- ------- ------- ------- ------- --------
Total interest earning assets $22,185 $11,356 $26,021 $27,472 $21,433 $108,467
======= ======= ======= ======= ======= ========
Interest bearing liabilities:
Time CD's $100,000 and over $ 430 $ 1,164 $ 1,931 $ 1,365 $ $ 4,890
Other time deposits 8,371 5,501 12,908 8,496 1,294 36,570
Money market accounts 14,077 14,077
Regular savings 151 4,227 8,560 12,938
NOW accounts 613 13,305 13,918
Borrowings 4,500 2,500 492 7,492
------- ------- ------- ------- ------- -------
Total interest bearing
liabilities $28,142 $ 9,165 $19,066 $10,353 $23,159 $ 89,885
======= ======= ======= ======= ======= ========
Period sensitivity gap $(5,957) $ 2,191 $ 6,955 $17,119 $(1,726) $ 18,582
Cumulative sensitivity gap (5,957) (3,766) 3,189 20,308 18,582
Period sensitivity gap as a
percentage of interest earning
assets (5.49)% 2.02% 6.41% 15.78% (1.59)%
Cumulative sensitivity gap as a
percentage of interest earning
assets (5.49)% (3.47)% 2.94% 18.72% 17.13%
</TABLE>
* Amortized cost
<PAGE>
-27-
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS PAGE
----------------------------- ----
Accountants' Opinion, January 22, 1996...... F-1
Consolidated Balance Sheets at December
31, 1995 and 1994.......................... F-2
Consolidated Statements of Income for
Years Ended December 31, 1995, 1994
and 1993................................... F-3
Consolidated Statements of Changes in
Stockholders' Equity for Years Ended
December 31, 1995, 1994 and 1993........... F-4
Consolidated Statements of Cash Flows
for Years Ended December 31, 1995,
1994 and 1993.............................. F-5
Notes to Financial Statements.............. F-7
<PAGE>
The Board of Directors
and Stockholders
Pemi Bancorp, Inc.
Plymouth, New Hampshire
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying consolidated balance sheets of Pemi Bancorp,
Inc. and Subsidiary as of December 31, 1995 and 1994 and the related
consolidated statements of income, changes in stockholders' equity and cash
flows for each of the years in the three-year period ended December 31, 1995.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the over-all
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Pemi
Bancorp, Inc. and Subsidiary as of December 31, 1995 and 1994, and the
consolidated results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1995, in conformity with
generally accepted accounting principles.
As discussed in Notes 2 and 10 to the consolidated financial statements, the
Company adopted the provisions of the Financial Accounting Standards Board's
Statement of Financial Accounting Standards No. 109 "Accounting for Income
Taxes," effective January 1, 1993.
As discussed in Note 2 to the consolidated financial statements, the Company
adopted the provisions of the Financial Accounting Standards Board's Statement
of Financial Accounting Standards No. 115 "Accounting for Certain Investments in
Debt and Equity Securities" as of December 31, 1993.
SHATSWELL, MacLEOD & COMPANY, P.C.
West Peabody, Massachusetts
January 22, 1996
F-1
<PAGE>
PEMI BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
ASSETS 1995 1994
- - ------ ------------- -------------
Cash and due from banks $ 4,918,670 $ 3,542,341
Federal funds sold 3,300,000 800,000
Investments in available-for-sale
securities (at fair value) (Note 3) 8,113,477 1,476,239
Investments in held-to-maturity
securities (fair value of $14,926,264
as of December 31, 1995 and $16,539,856
as of December 31, 1994) (Note 3) 14,999,810 17,525,183
Federal Reserve Bank stock, at cost 80,250 80,250
Federal Home Loan Bank stock, at cost 739,600 596,000
Loans, net (Note 5) 80,087,042 83,931,150
Premises and equipment (Note 6) 3,481,386 3,550,787
Other real estate owned 61,701 223,401
Accrued interest receivable 855,135 756,816
Other assets 685,446 687,329
------------- -------------
$ 117,322,517 $ 113,169,496
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
- - ------------------------------------
Deposits (Note 7) $ 96,416,217 $ 91,765,597
Short-term borrowings (Note 8) 7,000,000 3,500,000
Long-term borrowings (Note 9) 491,525 5,491,525
Other liabilities 2,020,717 1,692,651
------------- -------------
Total liabilities 105,928,459 102,449,773
------------- -------------
Commitments and contingent liabilities (Note 12)
Stockholders' equity:
Common stock, par value $1.00 per share;
authorized 2,000,000 shares; issued 751,901
shares; outstanding 690,401 shares in 1995
and 722,101 shares in 1994 751,901 751,901
Paid-in capital 2,384,329 2,384,329
Retained earnings 8,885,889 7,955,795
Treasury stock, at cost (61,500 shares in
1995 and 29,800 shares in 1994) (615,000) (298,000)
Net unrealized holding loss on
available-for-sale securities (13,061) (74,302)
------------- -------------
Total stockholders' equity 11,394,058 10,719,723
------------- -------------
$ 117,322,517 $ 113,169,496
============= =============
The accompanying notes are an integral part of these
consolidated financial statements.
F-2
<PAGE>
PEMI BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1995 1994 1993
---------- ---------- ----------
Interest and dividend income:
Interest and fees on loans $8,123,043 $7,189,810 $6,909,615
Interest and dividends on
investment securities:
Taxable 1,093,942 1,138,808 1,016,022
Tax-exempt 157,782 160,299 194,653
Other interest 128,047 35,069 27,141
---------- ---------- ----------
Total interest and
dividend income 9,502,814 8,523,986 8,147,431
---------- ---------- ----------
Interest expense:
Interest on deposits (Note 7) 3,079,319 2,628,419 2,985,937
Interest on short-term borrowings
(Note 8) 451,440 47,363 24,783
Interest on long-term borrowings
(Note 9) 162,468 376,319 254,523
---------- ---------- ----------
Total interest expense 3,693,227 3,052,101 3,265,243
---------- ---------- ----------
Net interest and dividend
income 5,809,587 5,471,885 4,882,188
Provision for loan losses (Note 5) 112,500 120,000 180,000
---------- ---------- ----------
Net interest and dividend
income after provision
for loan losses 5,697,087 5,351,885 4,702,188
---------- ---------- ----------
Other income:
Service charges on deposit accounts 253,302 266,532 265,211
Investment securities gains, net 22,405 4,810
Other income 241,273 241,159 255,441
Other deposit fees 178,781 161,369 151,295
Gain on sales of other real estate
owned, net 6,800 32,925 7,492
---------- ---------- ----------
Total other income 680,156 724,390 684,249
---------- ---------- ----------
Other expense:
Salaries and employee benefits
(Note 11) 2,376,100 2,282,176 2,113,495
Occupancy expense 297,112 308,864 296,184
Equipment expense 446,449 407,169 402,339
Writedown of other real estate owned 79,494 47,500 191,455
Other real estate owned expense 13,450 42,560 131,608
FDIC deposit insurance premium 135,165 240,722 244,859
Stationery and supplies 123,672 109,353 98,799
Postage expense 101,773 95,298 98,904
Other expense 901,034 839,235 845,562
---------- ---------- ----------
Total other expense 4,474,249 4,372,877 4,423,205
---------- ---------- ----------
Income before income taxes 1,902,994 1,703,398 963,232
Income taxes (Note 10) 627,700 552,416 131,414
---------- ---------- ----------
Net income $1,275,294 $1,150,982 $ 831,818
========== ========== ==========
Net income per share (Note 14) $ 1.85 $ 1.53 $ 1.11
========== ========== ==========
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
<PAGE>
PEMI BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
Net Unrealized
Holding Gain
(Loss) On
Common Paid-in Retained Available-For- Treasury
Stock Capital Earnings Sale Securities Stock Total
----- ------- -------- --------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1992 $ 751,901 $2,384,329 $6,461,731 $ $ $9,597,961
Net income 831,818 831,818
Dividends declared ($.25 per
share) (187,975) (187,975)
Net unrealized holding
gain on adoption of
SFAS No. 115 as of
December 31, 1993
(Notes 2 and 3) 1,495 1,495
--------- ---------- ---------- -------- ---------- -----------
Balance, December 31, 1993 751,901 2,384,329 7,105,574 1,495 10,243,299
Net income 1,150,982 1,150,982
Net change in unrealized
holding gain on available-
for-sale securities (75,797) (75,797)
Dividends declared ($.40
per share) (300,761) (300,761)
Treasury stock purchased (298,000) (298,000)
--------- ---------- ---------- -------- ---------- -----------
Balance, December 31, 1994 751,901 2,384,329 7,955,795 (74,302) (298,000) 10,719,723
Net income 1,275,294 1,275,294
Net change in unrealized
holding loss on available-
for-sale securities 61,241 61,241
Dividends declared ($.50
per share) (345,200) (345,200)
Treasury stock purchased (317,000) (317,000)
--------- ---------- ---------- -------- ---------- -----------
Balance, December 31, 1995 $ 751,901 $2,384,329 $8,885,889 $(13,061) $ (615,000) $11,394,058
========= ========== ========== ========= ========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
<PAGE>
PEMI BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $1,275,294 $1,150,982 $ 831,818
Adjustments to reconcile net income to
net cash provided by operating activities:
Donation of other real estate owned 5,000
Loss (gain) on sales of fixed assets, net (3,015)
Investment securities gains, net (22,405) (4,810)
Amortization, net of accretion of
investment securities 110,687 194,800 280,935
Decrease in securities held-for-sale 482,275
Depreciation and amortization 317,405 284,257 286,721
Provision for loan losses 112,500 120,000 180,000
Deferred tax expense 108,700 152,985 62,518
Increase (decrease) in taxes payable (160,143) 170,430 163,454
(Increase) decrease in interest receivable (98,319) (16,763) 79,102
Increase (decrease) in interest payable 471,682 (58,962) (334,977)
Increase (decrease) in accrued expenses (80,240) (94,948) 50,619
(Increase) decrease in prepaid expenses (67,966) 7,255 (13,240)
Change in unearned income (33,647) (12,202) 12,746
Gain on sales of other real estate owned, net (6,800) (32,925) (7,492)
Writedown of other real estate owned 79,494 47,500 191,455
----------- --------- ---------
Net cash provided by operating activities 2,033,647 1,890,004 2,258,109
----------- ---------- ----------
Cash flows from investing activities:
Proceeds from sales of fixed assets 4,000
Proceeds from sales of other real estate owned 78,506 206,765 219,341
Net (increase) decrease in interest
bearing deposits 99,000
Purchases of Federal Home Loan Bank stock (143,600) (46,500)
Purchases of available-for-sale securities (5,421,630) (97,489)
Proceeds from maturities of available-for-sale
securities 258,355 881,886
Purchases of held-to-maturity securities (1,590,598) (2,760,777)
Proceeds from maturities of held-to-maturity
securities 2,631,095 6,236,832
Proceeds from sales of investment securities 977,943
Proceeds from maturities of investment
securities 4,775,963
Purchases of investment securities (11,168,270)
Net decrease (increase) in loans 3,715,789 (2,721,844) (1,409,835)
Capital expenditures (248,004) (300,226) (241,002)
Recoveries of previously charged-off loans 54,966 164,778 64,695
Increase (decrease) in other liabilities 4,277 (88) (18,151)
(Increase) decrease in federal funds sold (2,500,000) (800,000) 2,100,000
Decrease in other assets 266 64,226 2,975
------------ ----------- -----------
Net cash provided by (used in)
investing activities (3,160,578) 827,563 (4,593,341)
------------- ----------- -----------
</TABLE>
F-5
<PAGE>
PEMI BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(continued)
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from financing activities:
Purchases of treasury stock (317,000) (298,000)
Net increase in short-term borrowings 3,500,000 2,500,000 1,000,000
Repayment of long-term borrowings (5,000,000) (3,500,000)
Long-term borrowings 140,825 5,711,700
Net increase (decrease) in demand
deposits, NOW, money market and
savings accounts (3,134,595) 330,315 (189,427)
Net increase (decrease) in time deposits 7,785,215 (2,334,479) (4,022,493)
Dividends paid (330,360) (210,533) (150,380)
--------- ---------- ----------
Net cash provided by (used in)
financing activities 2,503,260 (3,371,872) 2,349,400
--------- ---------- ----------
Net increase (decrease) in cash and cash equivalents 1,376,329 (654,305) 14,168
Cash and cash equivalents at beginning of year 3,542,341 4,196,646 4,182,478
---------- ---------- ----------
Cash and cash equivalents at end of year $4,918,670 $3,542,341 $4,196,646
========== ========== ==========
Supplemental disclosures:
Loans transferred to other real estate owned $ 8,000 $ 190,000 $ 246,532
Loans originating from sales of other
real estate owned 13,500 264,625 634,700
Other real estate owned transferred to loans 47,700
Investments transferred to held-for-sale
securities 2,417,132
Securities held-for-sale transferred to
available-for-sale securities 1,934,857
Held-to-maturity securities transferred to
available-for-sale securities 1,389,021 468,862
Interest paid 3,221,545 3,111,063 3,600,220
Income taxes paid (received) 679,143 229,001 (94,558)
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-6
<PAGE>
PEMI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
NOTE 1 - NATURE OF OPERATIONS
Pemi Bancorp, Inc. (Company) is a New Hampshire corporation that was organized
in 1985 to become the holding company of The Pemigewasset National Bank (Bank).
The Company's primary activity is to act as the holding company for the Bank.
The Bank is a federally chartered bank which was incorporated in 1881 and is
headquartered in Plymouth, New Hampshire. The Bank operates its business from
five banking offices located in New Hampshire. The Bank is engaged principally
in the business of attracting deposits from the general public and investing
those deposits in residential and real estate loans, and in consumer and small
business loans.
NOTE 2 - ACCOUNTING POLICIES
The accounting and reporting policies of the Company and its subsidiary conform
to generally accepted accounting principles and predominant practices within the
banking industry. The consolidated financial statements of the Company were
prepared using the accrual basis of accounting. The significant accounting
policies of the Company and its subsidiary are summarized below to assist the
reader in better understanding the financial statements and other data contained
herein.
PERVASIVENESS OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from the estimates.
BASIS OF PRESENTATION:
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiary, the Bank. All significant
intercompany accounts and transactions have been eliminated in the
consolidation.
CASH AND CASH EQUIVALENTS:
For purposes of reporting cash flows, cash and cash equivalents
include cash on hand, cash items, Federal Home Loan Bank overnight
deposits and demand deposits due from banks.
INVESTMENT SECURITIES, IN GENERAL:
Investments in debt securities are adjusted for amortization of
premiums and accretion of discounts computed on the straight-line
method which has substantially the same effect as using the interest
method. Gains or losses on sales of investment securities are computed
on a specific identification basis.
F-7
<PAGE>
INVESTMENT SECURITIES, AFTER THE ADOPTION OF SFAS NO. 115:
As of December 31, 1993, the Company adopted Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" (SFAS No. 115). The Statement establishes standards of financial
accounting and reporting for investments in equity securities that have readily
determinable fair values and all investments in debt securities. SFAS No. 115
requires that the Company classify debt and equity securities into one of three
categories: held-to-maturity, available-for- sale, or trading. This security
classification may be modified after acquisition only under certain specified
conditions. In general, securities may be classified as held-to-maturity only if
the Company has the positive intent and ability to hold them to maturity.
Trading securities are defined as those bought and held principally for the
purpose of selling them in the near term. All other securities must be
classified as available-for-sale.
-- Held-to-maturity securities are measured at amortized cost in the
balance sheet. Unrealized holding gains and losses are not
included in earnings or in a separate component of capital. They
are merely disclosed in the notes to the financial statements.
-- Available-for-sale securities are carried at fair value on the
balance sheet. Unrealized holding gains and losses are not
included in earnings, but are reported as a net amount (less
expected tax) in a separate component of capital until realized.
-- Trading securities are carried at fair value on the balance
sheet. Unrealized holding gains and losses for trading securities
are included in earnings. As the Company had no trading
securities as of December 31, 1993 there was no impact to the
Company's earnings upon the adoption of the Statement.
INVESTMENT SECURITIES, PRIOR TO THE ADOPTION OF SFAS NO. 115:
Investments in debt securities are those securities which the Company has the
ability and intent to hold to maturity.
LOANS:
Interest on loans is generally recognized on a simple interest basis. Interest
on loans is generally not accrued when loans become 90 days or more overdue.
Loan origination and commitment fees and certain direct origination costs are
deferred, and the net amount amortized as an adjustment of the related loan's
yield. The Company is generally amortizing these amounts over the contractual
life of the related loans.
Loans receivable that management has the intent and ability to hold for the
foreseeable future or until maturity or payoff are reported at their outstanding
principal balances reduced by amounts due to borrowers on unadvanced loans, any
charge-offs, the allowance for loan losses and net deferred fees or costs on
originated loans, or unamortized premiums or discounts on purchased loans.
Cash receipts of interest income on impaired loans is credited to principal to
the extent necessary to eliminate doubt as to the collectibility of the net
carrying amount of the loan. Some or all of the cash receipts of interest income
on impaired loans is recognized as interest income if the remaining net carrying
amount of the loan is deemed to be fully collectible. When recognition of
interest income on an impaired loan on a cash basis is appropriate, the amount
of income that is recognized is limited to that which would have been accrued on
the net carrying amount of the loan at the contractual interest rate. Any cash
interest payments received in excess of the limit and not applied to reduce the
net carrying amount of the loan are recorded as recoveries of charge-offs until
the charge-offs are fully recovered.
F-8
<PAGE>
ALLOWANCE FOR POSSIBLE LOAN LOSSES:
An allowance is available for losses which may be incurred in the future on
loans in the current portfolio. The allowance is increased by provisions charged
to current operations and is decreased by loan losses, net of recoveries. The
provision for loan losses is based on management's evaluation of current and
anticipated economic conditions, changes in the character and size of the loan
portfolio, and other indicators. The balance in the allowance for possible loan
losses is considered adequate by management to absorb any reasonably foreseeable
loan losses.
As of January 1, 1995, the Company adopted Statement of Financial Accounting
Standards No. 114, "Accounting by Creditors for Impairment of a Loan," as
amended by SFAS No. 118. According to SFAS No. 114, a loan is impaired when,
based on current information and events, it is probable that a creditor will be
unable to collect all amounts due according to the contractual terms of the loan
agreement. The Statement requires 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.
The Statement is applicable to all loans, except large groups of smaller balance
homogeneous loans that are collectively evaluated for impairment, loans that are
measured at fair value or at the lower of cost or fair value, leases, and
convertible or nonconvertible debentures and bonds and other debt securities.
The financial statement impact of adopting the provisions of this Statement was
not material.
PREMISES AND EQUIPMENT:
Premises and equipment are stated at cost, less accumulated depreciation and
amortization. Cost and related allowances for depreciation and amortization of
premises and equipment retired or otherwise disposed of are removed from the
respective accounts with any gain or loss included in income or expense.
Depreciation and amortization are calculated principally on the straight-line
method over the estimated useful lives of the assets.
OTHER REAL ESTATE OWNED AND IN-SUBSTANCE FORECLOSURES:
Other real estate owned includes properties acquired through foreclosure and
properties classified as in-substance foreclosures in accordance with Financial
Accounting Standards Board Statement No. 15, "Accounting by Debtors and
Creditors for Troubled Debt Restructuring." These properties are carried at the
lower of cost or estimated fair value less costs to sell. Any writedown from
cost to estimated fair value required at the time of foreclosure or
classification as in-substance foreclosure is charged to the allowance for
possible loan losses. Expenses incurred in connection with maintaining these
assets, subsequent writedowns and gains or losses recognized upon sale are
included in other expense.
Beginning in 1995, in accordance with Statement of Financial Accounting
Standards No. 114 "Accounting by Creditors for Impairment of a Loan," the
Company classifies loans as in-substance repossessed or foreclosed if the
Company receives physical possession of the debtor's assets regardless of
whether formal foreclosure proceedings take place.
F-9
<PAGE>
INCOME TAXES
Effective January 1, 1993, the Company recognizes income taxes under the asset
and liability method. Under this method, deferred tax assets and liabilities are
established for the temporary differences between the accounting basis and the
tax basis of the Company's assets and liabilities at enacted tax rates expected
to be in effect when the amounts related to such temporary differences are
realized or settled. As of the adoption date of this method, January 1, 1993,
the Company's net deferred tax asset did not differ materially from such assets
prior to adoption. Accordingly, the difference has not been reflected in the
1993 financial statements.
Prior to January 1, 1993, the Company recognized income taxes under the deferred
method. Under this method, annual income tax expense was matched with pretax
accounting income by providing deferred taxes at current tax rates for timing
differences between income reported for accounting purposes and that reported
for tax purposes.
FAIR VALUES OF FINANCIAL INSTRUMENTS:
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments," requires that the Company disclose estimated
fair value for its financial instruments. Fair value methods and assumptions
used by the Company in estimating its fair value disclosures are as follows:
Cash and cash equivalents: The carrying amounts reported in the balance sheet
for cash and federal funds sold approximate those assets' fair values.
Securities (including mortgage-backed 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 receivable: 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 discounted cash flow analyses,
using interest rates currently being offered for loans with similar terms to
borrowers of similar credit quality. The carrying amount of accrued interest
approximates its fair value.
Deposit liabilities: The fair values disclosed for demand deposits (e.g.,
interest and non-interest 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 fixed-rate certificates of
deposit are estimated using a discounted cash flow calculation that applies
interest rates currently being offered on certificates to a schedule of
aggregated expected monthly maturities on time deposits.
Off-balance sheet instruments: The fair value of commitments to originate loans
is estimated using the fees currently charged to enter similar agreements,
taking into account the remaining terms of the agreements and the present
creditworthiness of the counterparties. For fixed-rate loan commitments and the
unadvanced portion of loans, fair value also considers the difference between
current levels of interest rates and the committed rates. The fair value of
letters of credit is based on fees currently charged for similar agreements or
on the estimated cost to terminate them or otherwise settle the obligation with
the counterparties at the reporting date.
F-10
<PAGE>
NOTE 3 - INVESTMENTS IN SECURITIES
Investments in available-for-sale securities are carried at fair value on the
balance sheet and are summarized as follows as of December 31, 1995:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized
Cost Holding Holding Fair
Basis Gains Losses Value
---------- ------- -------- ----------
<S> <C> <C> <C> <C>
Debt securities issued by the U.S. Treasury and other
U.S. government corporations and agencies $1,009,035 $ 2,528 $ $1,011,563
Debt securities issued by states of the United States and
political subdivisions of the states 2,032,067 34,429 10,950 2,055,546
Mortgage-backed securities 5,093,654 11,789 59,075 5,046,368
---------- ------- ------- ----------
$8,134,756 $48,746 $70,025 $8,113,477
========== ======= ======= ==========
</TABLE>
Information about the contractual maturities of investments in debt securities
classified as available-for-sale is summarized as follows as of December 31,
1995:
Amortized
Cost Fair
Basis Value
---------- ----------
Debt securities other than mortgage-backed
securities:
Due within one year $ 502,662 $ 502,813
Due after one year through five years 506,373 508,750
Due after five years through ten years 1,028,062 1,042,905
Due after ten years 1,004,005 1,012,641
Mortgage-backed securities 5,093,654 5,046,368
---------- ----------
$8,134,756 $8,113,477
========== ==========
There were no sales of available-for-sale or held-to-maturity securities during
1995.
In 1995, the Bank transferred at fair value certain debt securities from
securities classified as held-to-maturity to securities classified as
available-for-sale. The unrealized holding loss of $16,480 ($26,850 less tax
effect of $10,370) at the date of transfer has been recognized as a separate
component of shareholders' equity. The transfer was a result of a reassessment
of the appropriateness of the classification of all securities held at December
31, 1995. In accordance with a Special Report of the Financial Accounting
Standards Board regarding SFAS No. 115 this transfer will not call into question
the intent of the Bank to hold other debt securities to maturity in the future.
Investments in available-for-sale securities are carried at fair value on the
balance sheet and are summarized as follows as of December 31, 1994:
Gross Gross
Amortized Unrealized Unrealized
Cost Holding Holding Fair
Basis Gains Losses Value
---------- ---- -------- ----------
Mortgage-backed securities $1,597,292 $253 $121,306 $1,476,239
========== ==== ======== ==========
There were no sales of available-for-sale securities during 1994.
F-11
<PAGE>
The adoption of SFAS No. 115 was as of December 31, 1993, and therefore there
are no sales of investments in available-for-sale securities to report for 1993.
The adoption of SFAS No. 115 as of December 31, 1993 had the following effect on
the consolidated financial statements for the year ended December 31, 1993:
Addition to stockholders' equity:
Net unrealized holding gain on available-for-sale securities $2,436
Less tax effect 941
------
$1,495
======
Investments in held-to-maturity securities are carried at amortized cost on the
balance sheet and are summarized as follows as of December 31, 1995:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized
Cost Holding Holding Fair
Basis Gains Losses Value
----------- ------- -------- -----------
<S> <C> <C> <C> <C>
Debt securities issued by the U.S. Treasury and other
U.S. government corporations and agencies $ 1,301,634 $ 7,167 $ 2,504 $ 1,306,297
Debt securities issued by states of the United States and
political subdivisions of the states 1,717,256 52,642 1,769,898
Mortgage-backed securities 11,980,920 31,463 162,314 11,850,069
----------- ------- -------- -----------
$14,999,810 $91,272 $164,818 $14,926,264
=========== ======= ======== ===========
</TABLE>
Information about the contractual maturities of investments in debt securities
classified as held-to-maturity is summarized as follows as of December 31, 1995:
Amortized
Cost Fair
Basis Value
----------- -----------
Debt securities other than mortgage-backed securities:
Due within one year $ 675,206 $ 674,195
Due after one year through five years 2,343,684 2,402,000
Mortgage-backed securities 11,980,920 11,850,069
----------- -----------
$14,999,810 $14,926,264
=========== ===========
Investments in held-to-maturity securities are carried at amortized cost on the
balance sheet and are summarized as follows as of December 31, 1994:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized
Cost Holding Holding Fair
Basis Gains Losses Value
----------- ------- ---------- -----------
<S> <C> <C> <C> <C>
Debt securities issued by the U.S. Treasury and other
U.S. government corporations and agencies $ 2,004,911 $ 2,461 $ 56,060 $ 1,951,312
Debt securities issued by states of the United States
and political subdivisions of the states 2,340,805 36,246 32,568 2,344,483
Mortgage-backed securities 13,179,467 5,221 940,627 12,244,061
----------- ------- ---------- -----------
$17,525,183 $43,928 $1,029,255 $16,539,856
=========== ======= ========== ===========
</TABLE>
F-12
<PAGE>
During 1994, the amortized cost of a security held-to-maturity that was
transferred to available-for-sale at fair value amounted to $468,862, and the
related unrealized loss amounted to $69,165. Such security was transferred as a
result of the Company's understanding that there was a significant deterioration
in the issuer's creditworthiness.
There were no securities of issuers whose aggregate carrying amount exceeded 10%
of stockholders' equity as of December 31, 1995.
A total par value of $1,144,343 and $1,221,571 of debt securities was pledged to
secure treasury tax and loan, deposits and office of U. S. Trustees (Bankruptcy
courts) as of December 31, 1995 and 1994, respectively.
NOTE 4 - INVESTMENT SECURITIES, PRIOR TO THE ADOPTION OF SFAS NO. 115
Proceeds from sales of investments in debt securities during 1993 were $977,943.
Gross gains of $10,860 and gross losses of $6,050 were realized on those sales.
NOTE 5 - LOANS
Loans consisted of the following as of December 31:
1995 1994
----------- ------------
Commercial, financial and agricultural $12,362,986 $13,426,227
Real estate - construction and land development 363,295 516,666
Real estate - residential 50,126,739 51,613,308
Real estate - commercial 11,705,038 14,349,264
Consumer 6,081,178 4,994,269
Obligations of states and political subdivisions 1,054,165 874,329
Other 15,824 19,857
----------- ------------
81,709,225 85,793,920
Allowance for possible loan losses (1,359,979) (1,566,919)
Unearned income (262,204) (295,851)
----------- ------------
Net loans $80,087,042 $83,931,150
=========== ===========
Information with respect to nonaccrual and
past due loans is as follows as of December 31:
1995 1994
-------- --------
Nonaccrual loans $495,705 $640,375
Accruing loans past due 90 days or more 45,598 187,002
-------- --------
$541,303 $827,377
======== ========
The amount of interest income recorded during 1995, 1994 and 1993 on nonaccrual
loans outstanding at December 31, 1995, 1994 and 1993 amounted to $22,470,
$50,246 and $6,833, respectively. Had these loans performed under their original
terms, the amount recorded would have been $70,303, $89,782 and $27,270 in 1995,
1994 and 1993, respectively.
Certain directors and executive officers of the Company and companies in which
they have significant ownership interest were customers of the Bank during 1995.
Total loans to such persons and their companies amounted to $402,310 as of
December 31, 1995 and $527,273 as of December 31, 1994. During the year ended
December 31, 1995, advances totaled $117,645 and repayments totaled $242,608.
F-13
<PAGE>
Changes in the allowance for possible loan losses were as follows for the years
ended December 31:
1995 1994 1993
---------- ---------- ----------
Balance at beginning of period $1,566,919 $1,730,493 $1,741,356
Loans charged off (374,406) (448,352) (255,558)
Provision for loan losses 112,500 120,000 180,000
Recoveries of loans previously
charged off 54,966 164,778 64,695
---------- -------- ---------
Balance at end of period $1,359,979 $1,566,919 $1,730,493
========== ========== ==========
Information about loans that meet the definition of an impaired loan in
Statement of Financial Accounting Standards No. 114 is as follows as of December
31, 1995:
Recorded Related
Investment Allowance
In Impaired For Credit
Loans Losses
-------- -------
Loans for which there is a related allowance
for credit losses $211,076 $22,691
Loans for which there is no related allowance
for credit losses 413,366
-------- -------
Totals $624,442 $22,691
======== =======
Average recorded investment in impaired loans
during the year ended December 31, 1995 $728,973
========
Related amount of interest income recognized
during the time, in the year ended
December 31, 1995, that the loans were impaired
Total recognized $ 0
========
Amount recognized using a cash-basis
method of accounting $ 0
========
NOTE 6 - PREMISES AND EQUIPMENT
The following is a summary of premises and equipment as of December 31:
1995 1994
----------- -----------
Land $ 409,251 $ 409,251
Buildings 3,061,241 3,061,241
Furniture and equipment 1,992,390 1,744,386
----------- -----------
5,462,882 5,214,878
Accumulated depreciation and amortization (1,981,496) (1,664,091)
----------- -----------
$ 3,481,386 $ 3,550,787
=========== ===========
Depreciation and amortization expense amounted to $317,405, $284,257 and
$286,721 for the years ended December 31, 1995, 1994 and 1993, respectively.
F-14
<PAGE>
NOTE 7 - DEPOSITS
Deposits consisted of the following as of December 31:
1995 1994
----------- -----------
Demand $14,023,174 $13,653,137
Regular savings 12,938,174 13,737,830
NOW accounts 13,918,032 13,550,150
Money market accounts 14,077,165 17,150,023
Time deposits, $100,000 and over 4,889,539 3,573,051
Other time deposits 36,570,133 30,101,406
----------- -----------
$96,416,217 $91,765,597
=========== ===========
Interest on deposits classified by type is as follows for the years ended
December 31:
1995 1994 1993
---------- ---------- ----------
Regular savings $ 365,854 $ 361,663 $ 386,322
NOW accounts 197,080 199,205 229,185
Money market accounts 429,566 513,192 602,658
Time deposits 2,086,819 1,554,359 1,767,772
---------- ----------- -----------
$3,079,319 $2,628,419 $2,985,937
========== =========== ===========
NOTE 8 - SHORT-TERM BORROWINGS
The Company engages in certain borrowing agreements throughout the year. These
are ordinary consequences of bank business and are generally composed of two
types. Federal funds purchased represent daily transactions which the Company
uses to manage its funds and liquidity position to comply with regulatory
requirements. Interest rates fluctuate daily reflecting existing market
conditions. Federal Home Loan Bank advances represent borrowings from the
Federal Home Loan Bank. The components of these borrowings and the respective
weighted average interest rate were as follows as of December 31:
1995 1994
------------------------ ----------------------
Interest Interest
Amount Rate Amount Rate
---------- ----- ------ ----
Federal Home Loan
Bank advances $7,000,000 6.09% $3,500,000 6.29%
========== ==========
Information relating to average borrowings, interest paid and average rates paid
during 1995, 1994 and 1993 are as follows:
1995 1994 1993
---------- -------- ----------
Average borrowings:
Federal funds purchased $ 49,315 $ 95,890 272,329
Federal Home Loan Bank advances 7,152,482 866,526 760,663
---------- -------- ----------
$7,201,797 $962,416 $1,032,992
========== ======== ==========
Interest paid:
Federal funds purchased $ 3,233 $ 4,753 $ 13,234
Federal Home Loan Bank advances 448,207 42,610 11,549
---------- -------- ----------
$ 451,440 $ 47,363 $ 24,783
========== ======== ==========
F-15
<PAGE>
1995 1994 1993
---- ---- ----
Average borrowing rates:
Federal funds purchased 6.56% 4.96% 4.86%
Federal Home Loan Bank advances 6.27 4.92 1.52
Weighted average 6.27 4.92 2.40
The average interest rate was arrived at by dividing the actual interest expense
related to the borrowing by the average daily balance of the outstanding
borrowings.
<TABLE>
<CAPTION>
1995 1994 1993
----------- ---------- ---------
<S> <C> <C> <C>
Maximum amount outstanding at any month's end:
Federal funds purchased $ 500,000 $ 900,000 $1,800,000
Federal Home Loan Bank advances 8,500,000 3,500,000 1,999,999
</TABLE>
NOTE 9 - LONG-TERM BORROWINGS
Long-term borrowings consisted of the following amounts borrowed from the
Federal Home Loan Bank of Boston as of December 31, 1995:
INTEREST
MATURITY DATE AMOUNT RATE
----------------------- -------- --------
July 23, 1997 $ 71,000 6.00%
September 16, 1997 58,225 6.75
November 4, 1997 68,000 6.26
March 31, 1998 40,800 5.40
April 9, 1998 54,000 5.35
July 30, 1998 62,900 5.29
September 10, 1998 54,000 4.86
September 27, 1999 37,600 7.42
September 28, 1999 45,000 7.44
--------
$491,525
========
Interest expense on long-term borrowings was $162,468, $376,319 and $254,523 for
the years ended December 31, 1995, 1994 and 1993, respectively.
NOTE 10 - INCOME TAXES
As discussed in Note 2, effective January 1, 1993, the Company adopted Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes."
F-16
<PAGE>
The components of income tax expense are as follows for the years ended December
31:
1995 1994 1993
-------- -------- --------
Current:
Federal $431,000 $349,233 $159,889
State 88,000 50,198 11,977
-------- -------- --------
519,000 399,431 171,866
-------- -------- --------
Deferred:
Federal 90,269 124,262 50,495
State 18,431 28,723 12,023
Adjustment to the deferred
asset due to change in
New Hampshire tax laws (102,970)
-------- -------- --------
108,700 152,985 (40,452)
-------- -------- --------
Total income tax expense $627,700 $552,416 $131,414
======== ======== ========
The following reconciles the income tax provision from the statutory rate to the
amount reported in the consolidated statements of income for the years ended
December 31:
<TABLE>
<CAPTION>
% OF % OF % OF
1995 INCOME 1994 INCOME 1993 INCOME
-------- ------ -------- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C>
Federal income tax at statutory rate $647,022 34.0% $579,156 34.0% $327,000 34.0%
Increase (decrease) in tax resulting from:
Tax-exempt income (97,872) (5.1) (97,437) (5.7) (117,370) (12.2)
Unallowable expenses 10,954 .6 9,758 .6 11,899 1.2
Other, net 9,516 .5 8,851 .5 (2,985) (.3)
State tax, net of federal tax benefit 58,080 3.0 52,088 3.0 15,840 1.6
Adjustment due to change in method of
calculating New Hampshire business
profits tax (102,970) (10.7)
-------- ---- -------- ---- -------- ----
$627,700 33.0% $552,416 32.4% $131,414 13.6%
======== ==== ======== ==== ======== ====
</TABLE>
The major components of deferred income tax expense (benefit) attributable to
income are as follows for the years ended December 31:
1995 1994
-------- --------
Other real estate owned $ (7,800) $ 29,778
Deferred origination fees 19,231 3,534
Nonaccrual loans (14,726) (6,707)
Provision for loan losses 60,449 78,833
Accelerated depreciation 12,730 23,783
Pension expense 44,463 23,764
Other, net (5,647)
-------- --------
$108,700 $152,985
======== ========
F-17
<PAGE>
The Company had gross deferred tax assets and gross deferred tax liabilities as
follows as of December 31:
1995 1994
-------- --------
Deferred tax assets:
Allowance for loan losses $379,099 $439,548
Loan origination fees 96,151 115,382
Nonaccrual loans 30,326 15,600
Pension 27,910
Other real estate owned valuation 7,800
Net unrealized holding loss on
available-for-sale securities 8,218 46,751
Other, net 5,647
------- -------
Gross deferred tax asset 527,241 645,191
------- -------
Deferred tax liabilities:
Depreciation (115,916) (103,186)
Pension (16,553)
-------- --------
Gross deferred tax liability (132,469) (103,186)
-------- --------
Net deferred tax asset $394,772 $542,005
======== ========
Deferred tax assets as of December 31, 1995 and 1994 have not been reduced by a
valuation allowance because management believes that it is more likely than not
that the full amount of deferred tax assets will be realized.
As of December 31, 1995, the Company had no operating loss and tax credit
carryovers for tax purposes.
NOTE 11 - EMPLOYEE BENEFITS
The Company has a qualified defined benefit pension plan covering substantially
all of its employees who meet certain eligibility requirements. The benefit
provision of the plan is 50% of monthly compensation reduced by 1/20 for each
year of service less than 20 years.
The following table sets forth the funded status of the plan and amounts
recognized in the Company's balance sheet as of December 31:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation (including vested benefits of
$1,092,112 and $754,529, respectively) $ 1,108,148 $ 909,955
----------- -----------
Projected benefit obligation for services rendered to date $(1,394,760) $(1,033,316)
Plan assets at fair value, primarily invested in individual
life insurance policies and investments 1,525,046 1,093,743
----------- -----------
Plan assets greater than projected benefit obligation 130,286 60,427
Unrecognized net transition asset (32,938) (37,055)
Unrecognized net gain (54,905) (94,936)
----------- -----------
Prepaid (accrued) pension cost included in other assets or
other liabilities on the balance sheets $ 42,443 $ (71,564)
=========== ===========
</TABLE>
F-18
<PAGE>
Net periodic pension cost included the following components for the years ended
December 31:
<TABLE>
<CAPTION>
1995 1994 1993
--------- -------- -------
<S> <C> <C> <C>
Service cost-benefits earned during the period $ 80,997 $ 72,773 $81,743
Interest cost on projected benefit obligation 82,665 91,875 80,381
Actual return on plan assets (254,441) 34,815 (82,679)
Net amortization and deferral 162,825 (122,656) 6,834
--------- ------- -------
Net periodic pension cost $ 72,046 $ 76,807 $86,279
========= ======== =======
</TABLE>
The weighted-average discount rate and rate of increase in future compensation
levels used in determining the actuarial present value of the projected benefit
obligation were 8.0% and 4.0%. The expected long-term rate of return on assets
was 8.0%.
NOTE 12 - FINANCIAL INSTRUMENTS
The Company is party to financial instruments with off-balance sheet risk in the
normal course of business to meet the financing needs of its customers. These
financial instruments include commitments to originate loans, standby letters of
credit and unadvanced funds on loans. The instruments involve, to varying
degrees, elements of credit risk in excess of the amount recognized in the
balance sheets. The contract amounts of those instruments reflect the extent of
involvement the Company has in particular classes of financial instruments.
The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for loan commitments and standby letters
of credit is represented by the contractual amounts of those instruments. The
Company uses the same credit policies in making commitments and conditional
obligations as it does for on- balance sheet instruments.
Commitments to originate loans are agreements to lend to a customer provided
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. 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
deemed necessary by the Company upon extension of credit, is based on
management's credit evaluation of the borrower. Collateral held varies, but may
include secured interests in mortgages, accounts receivable, inventory,
property, plant and equipment and income-producing properties.
Standby letters of credit are conditional commitments issued by the Company to
guarantee the performance by a customer to a third party. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loan facilities to customers. Of the total standby letters of
credit outstanding as of December 31, 1995, $37,138 are secured by deposit
accounts held by the Bank.
The provisions of Statement of Financial Accounting Standards No. 107
"Disclosures about Fair Value of Financial Instruments," as amended by SFAS No.
119, became effective for the Company as of December 31, 1995.
F-19
<PAGE>
The new disclosures are the estimated fair values of the Company's financial
instruments, all of which are held or issued for purposes other than trading,
which were as follows as of December 31, 1995:
Carrying Fair
Amount Value
Financial assets: ------ -----
Cash and cash equivalents $ 4,918,670 $ 4,918,670
Federal funds sold 3,300,000 3,300,000
Available-for-sale securities 8,113,477 8,113,477
Held-to-maturity securities 14,999,810 14,926,264
Federal Reserve Bank stock 80,250 80,250
Federal Home Loan Bank stock 739,600 739,600
Loans 80,087,042 80,678,000
Accrued interest receivable 855,135 855,135
Financial liabilities:
Deposits 96,416,217 96,672,000
Short-term borrowings 7,000,000 7,007,000
Long-term borrowings 491,525 497,000
The carrying amounts of financial instruments shown in the above table are
included in the consolidated balance sheet under the indicated captions.
Notional amounts of financial instrument liabilities with off-balance sheet
credit risk are as follows as of December 31:
1995 1994
---------- ----------
Commitments to originate loans $1,152,100 $1,045,800
Standby letters of credit 141,656 140,029
Unadvanced portions of commercial real estate loans 47,526 93,420
Unadvanced portions of home equity loans 405,661 356,705
Unadvanced portions of commercial lines of credit 5,771,961 5,977,954
There is no material difference between the notional amount and the estimated
fair value of the off-balance sheet liabilities as of December 31, 1995.
The Company has no derivative financial instruments subject to the provisions of
SFAS No. 119 "Disclosure About Derivative Financial Instruments and Fair Value
of Financial Instruments."
NOTE 13 - SIGNIFICANT GROUP CONCENTRATIONS OF CREDIT RISK
Most of the Company's business activity is with customers located within the
state. There are no concentrations of credit to borrowers that have similar
economic characteristics. The majority of the Company's loan portfolio is
comprised of loans collateralized by real estate located in the state of New
Hampshire.
NOTE 14 - EARNINGS PER SHARE
Earnings per share for 1995, 1994 and 1993 were calculated using the weighted
average number of shares outstanding during those periods. For 1995, 1994 and
1993 earnings per share calculations, the weighted average number of shares
outstanding were 691,188, 751,020 and 751,901, respectively.
F-20
<PAGE>
NOTE 15 - REGULATORY MATTERS
The Bank, as a National Bank is subject to the dividend restrictions set forth
by the Comptroller of the Currency. Under such restrictions, the Bank may not,
without the prior approval of the Comptroller of the Currency, declare dividends
in excess of the sum of the current year's earnings (as defined) plus the
retained earnings (as defined) from the prior two years. The dividends, as of
December 31, 1995 that the Bank could declare, without the approval of the
Comptroller of the Currency, amounted to approximately $2,222,471.
Bank regulators have established Risk Based and Leverage Capital requirements
that establish the minimum level of capital. Under the requirements a minimum
level of capital will vary among banks based on safety and soundness of
operations. As of December 31, 1995 the minimum regulatory capital level for
Risk Based Capital was 4% for Tier 1 capital, 8% for total capital and Leverage
Capital was 4%. As of December 31, 1995 the actual Risk Based Capital of the
Pemigewasset National Bank was 16.38% for Tier 1 and 17.75% for total capital
and the Leverage Capital was 9.68%.
NOTE 16 - RECLASSIFICATION
Certain amounts in the prior year have been reclassified to be consistent with
the current year's statement presentation.
NOTE 17 - PARENT COMPANY ONLY FINANCIAL STATEMENTS
The following financial statements are for Pemi Bancorp, Inc. (Parent Company
Only) and should be read in conjunction with the consolidated financial
statements of Pemi Bancorp, Inc. and Subsidiary.
F-21
<PAGE>
PEMI BANCORP, INC.
(Parent Company Only)
BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
ASSETS 1995 1994
- - ------ ----------- -----------
<S> <C> <C>
Cash $ 302,345 $ 164,803
Investment in subsidiary 11,344,568 10,554,920
Other assets 2,593 240,608
----------- -----------
$11,649,506 $10,960,331
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Other liabilities $ 255,448 $ 240,608
----------- -----------
Stockholders' equity:
Common stock, par value $1.00 per share; authorized 2,000,000 shares; issued
751,901 shares; outstanding 690,401 shares in 1995 and
722,101 in 1994 751,901 751,901
Paid-in capital 2,384,329 2,384,329
Retained earnings 8,885,889 7,955,795
Treasury stock, at cost (61,500 shares in 1995 and 29,800 shares in 1994) (615,000) (298,000)
Net unrealized holding loss on available-for-sale securities (13,061) (74,302)
----------- -----------
Total stockholders' equity 11,394,058 10,719,723
----------- -----------
$11,649,506 $10,960,331
=========== ===========
</TABLE>
F-22
<PAGE>
PEMI BANCORP, INC.
(Parent Company Only)
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- --------
<S> <C> <C> <C>
Dividends from subsidiary $ 547,201 $ 300,761 $187,975
Management fee income 20,840 37,492 39,668
---------- ---------- --------
568,041 338,253 227,643
---------- ---------- --------
General and administrative expense 21,154 37,492 39,668
---------- ---------- --------
Income before equity in undistributed net income of subsidiary 546,887 300,761 187,975
Equity in undistributed net income of subsidiary 728,407 850,221 643,843
---------- ---------- --------
Net income $1,275,294 $1,150,982 $831,818
========== ========== ========
</TABLE>
F-23
<PAGE>
PEMI BANCORP, INC.
(Parent Company Only)
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $1,275,294 $1,150,982 $831,818
Adjustments to reconcile net income to net cash provided by
operating activities:
(Increase) decrease in accrued dividend receivable 238,015 (90,228) (37,595)
Undistributed net income of subsidiary (728,407) (850,221) (643,843)
---------- ---------- --------
Net cash provided by operating activities 784,902 210,533 150,380
---------- ---------- --------
Cash flows from financing activities:
Purchases of treasury stock (317,000) (298,000)
Dividends paid (330,360) (210,533) (150,380)
---------- --------- --------
Net cash used in financing activities (647,360) (508,533) (150,380)
---------- --------- --------
Net increase (decrease) in cash and cash equivalents 137,542 (298,000)
Cash and cash equivalents at beginning of year 164,803 462,803 462,803
---------- --------- --------
Cash and cash equivalents at end of year $ 302,345 $ 164,803 $462,803
========== ========= ========
</TABLE>
The Parent Company Only Statements of Changes in Stockholders' Equity are
identical to the Consolidated Statements of Changes in Stockholders' Equity for
the years ended December 31, 1995, 1994 and 1993, and therefore are not
reprinted here.
F-24
<PAGE>
-28-
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
The Company had no disagreements with its independent accountants on
accounting and financial disclosure matters.
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and executive officers of the Company (or where so
indicated, the Bank) are as follows:
POSITION(S) WITH
NAME AGE THE COMPANY
---- --- -----------
Fletcher W. Adams 59 President, Treasurer and
Chief Executive Officer
of the Company; President
and Chief Executive
Officer of the Bank;
Director
John P. Clark 46 Director
Charles H. Clifford, Jr. 60 Director
James E. Currie 72 Vice President and
Secretary of the Company;
Director
Robert M. Keating 59 Director
John H. Noyes 49 Director
Milton E. Pettengill 69 Chairman of the Board;
Director
Keith L. Philbrick 47 Chief Financial Officer
Ann M. Reever 51 Director
Robert R. Sargeant 44 Vice President and Senior
Loan Officer of the Bank
Dean H. Yeaton 58 Director
- - ----------------
With the exception of Mr. Keating (who is a director of Loon Mountain
Recreation Corporation in Lincoln, New Hampshire) and Mr. Adams (who is a
director of New Hampshire Electric Co-op located in Plymouth, New Hampshire), no
director or executive officer holds a directorship in any company with a class
of securities registered pursuant to Section 12 of the Securities Exchange Act
of 1934 or subject to the requirements of Section 15(d) of such Act or any
company registered as an investment company under the Investment Company Act of
1940.
<PAGE>
-29-
Fletcher W. Adams has been a Director of the Company since it was organized
in 1985. From 1985 until 1990, Mr. Adams was the Executive Vice President of the
Company. In January, 1990, Mr. Adams became President and Chief Executive
Officer of the Company. Mr. Adams is also the President, Chief Executive Officer
and a director of the Bank. Mr. Adams joined the Bank as Executive Vice
President in June of 1984. Prior to joining the Bank, Mr. Adams was the
President of Adams Supermarket, Inc., a company which owned a supermarket. Mr.
Adams has been a director of the Bank since 1973.
John P. Clark has been a director of the Company and the Bank since April
of 1991. Mr. Clark is the Executive Assistant to the President of Plymouth State
College and has held his position with the College since 1985.
Charles H. Clifford, Jr. has been a director of the Company since it was
organized in 1985. Mr. Clifford has been a director of the Bank since 1980. Mr.
Clifford is a partner in the business firm of Clifford-Nicol Printing.
James E. Currie has been a director of the Company since it was organized
in 1985. Prior to retiring in July of 1986, Mr. Currie was Vice President and
Senior Loan Officer of the Bank. Mr. Currie is also a director of the Bank and
has been a director since 1976.
Robert M. Keating, an attorney, has been a director of the Company since it
was organized in 1985. Mr. Keating is a Director of Loon Mt. Recreation
Corporation in Lincoln, New Hampshire.
John H. Noyes has been a director of the Company and the Bank since 1994.
Mr. Noyes is the Treasurer of Noyes Insurance Agency, Inc. and since 1991 has
served as President of Central Square Insurance, Inc.
Milton E. Pettengill has been the President, Chief Executive Officer and a
director of the Company since it was organized in 1985. In January of 1990, he
became Chairman of the Company. Mr. Pettengill has been with the Bank since
1951. He has been an executive officer of the Bank since 1974, and a director of
the Bank since 1973. Retiring in January of 1990, he now serves as Chairman of
the Board.
Keith L. Philbrick has been the Chief Financial Officer of the Bank since
November 1994. From October 1980 through November 1994, Mr. Philbrick served as
the Bank's senior mortgage officer. Mr. Philbrick has been with the Bank since
1970.
Ann M. Reever has been a director of the Company since 1993. Mrs. Reever, a
self-employed business manager, has been a member of the Pemi-Baker Regional
School Board since 1989 and a Director of the Swift Water Girl Scout Council
since 1991.
<PAGE>
-30-
Robert R. Sargeant has been the senior loan officer of the Bank since 1986.
From 1980 to 1986, Mr. Sargeant served as the commercial and consumer loan
officer of the Bank. Mr. Sargeant has been with the Bank since 1978.
Dean H. Yeaton has been a director of the Company since 1986. Mr. Yeaton
has been a director of the Bank since 1986. Mr. Yeaton is the President of Dean
H. Yeaton, Inc., and the President of Yeaton Oil Company.
ITEM 11 - EXECUTIVE COMPENSATION
The following table sets forth for the fiscal years ended December 31,
1995, 1994 and 1993, respectively, the remuneration received by the President,
Treasurer and Chief Executive Officer of the Company and Bank, respectively. No
individual employed by the Bank or Company received more than $100,000 in
compensation during fiscal years 1995, 1994 and 1993, respectively.
SUMMARY COMPENSATION TABLE
NAME AND
PRINCIPAL POSITION YEAR SALARY BONUS
- - ------------------ -------------------------------------
Fletcher W. Adams 1995 $93,600 (1) $1,830 (2)
President, Treasurer and 1994 $87,100 (1) $1,715 (3)
Chief Executive Officer of 1993 $82,800 (1) $ 100 (4)
the Company and the Bank
- - --------------
(1) Includes salary and monthly fee received for attendance at Board of
Directors Meetings of the Bank and Company.
(2) This amount includes a bonus of $1,730 equal to one week of salary. Every
full time employee of the Bank with seniority of one year or more received
a year end bonus equivalent to one week of salary. This amount also
includes a $100 Christmas bonus received by each full-time employee of the
Bank with seniority of one year or more.
(3) This amount includes a bonus of $1,615 equal to one week of salary. Every
full time employee of the Bank with seniority of one year or more received
a year end bonus equivalent to one week of salary. This amount also
includes a $100 Christmas bonus received by each full-time employee of the
Bank with seniority of one year or more.
(4) This amount represents a $100 Christmas bonus received by each full-time
employee of the Bank with seniority of one year or more.
In addition to the cash compensation paid to the executive officer of the
Company and the Bank, the executive officer received group life, health,
hospitalization and medical reimbursement insurance coverage. However, these
plans do not discriminate in scope, terms, or operation, in favor of officers of
the Company and the Bank and are available generally to all full-time employees.
<PAGE>
-31-
EMPLOYMENT CONTRACTS
There are no employment agreements with any employees of the Company or
Bank.
PENSION PLAN
The Bank has a qualified pension plan covering substantially all of its
employees meeting certain eligibility requirements. Benefits paid under this
plan are based on fifty percent (50%) of monthly compensation reduced by 1/20
for each year of service less than twenty (20) years.
COMPENSATION OF DIRECTORS
The Directors of the Company and the Bank receive $300 for each Board of
Directors meeting they attend except for the Chairman of the Board of Directors
who receives $450 for each Board of Directors meeting he attends. In addition,
members of various Board of Director's Committees receive a fee of $150 per
committee meeting attended.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table includes certain information as of March 15, 1996
regarding the principal stockholders of the Company. With the exception of the
stockholders listed below, the Company is not aware of any beneficial owner of
five percent (5%) or more of the Company's Common Stock.
NAME AND ADDRESS OF AMOUNT OF SHARES PERCENT
BENEFICIAL OWNER BENEFICIALLY OWNED* OF CLASS
- - ---------------- ------------------- --------
American Global Insurance Co. 43,200 6.26%
c/o Fiduciary Trust Co. Int.
Two World Trade Center
New York, NY 10048
Fletcher W. Adams 57,927 8.39%
President, Treasurer and
Chief Executive Officer
of the Company, Director
- - ------------------
* Percentages are based upon the 690,401 shares of Common Stock outstanding as
of March 15, 1996. The definition of a beneficial owner of a security includes
any person who, directly or indirectly, through any contract, arrangement,
understanding, relationship or otherwise has or shares voting power or
investment power with respect to such security.
<PAGE>
-32-
DIRECTORS
The following table includes certain share ownership and biographical
information as of March 15, 1996 regarding each director of the Company and
share ownership of all directors and executive officers as a group:
DIRECTOR OF
PEMI BANCORP, SHARES OF
NAME, INC. SINCE AND COMMON STOCK
TITLE AND (EXPIRATION BENEFICIALLY
(PRINCIPAL DATE OF OWNED AS OF PERCENTAGE
OCCUPATION) AGE CURRENT TERM) MARCH 15, 1996(1) OF CLASS
- - ----------- --- ------------- ----------------- --------
Fletcher W.
Adams 59 1985; 57,927(2) 8.39%
Director; (1998)
(President,
Treasurer, and
Chief Executive
Officer of the
Company)
John P.
Clark 46 1991; 1,700(3) .25%
Director; (1997)
(Executive
Assistant to
the President
of Plymouth
State College)
Charles H.
Clifford, Jr. 60 1985; 2,400(4) .35%
Director; (1998)
(President of
Clifford-Nicol
Printing, Inc.)
James E.
Currie 72 1985; 4,600(5) .67%
Director; (1997)
(Vice President
and Secretary of
the Company)
- - ---------------
Footnotes follow table
<PAGE>
-33-
DIRECTOR OF
PEMI BANCORP, SHARES OF
NAME, INC. SINCE AND COMMON STOCK
TITLE AND (EXPIRATION BENEFICIALLY
(PRINCIPAL DATE OF OWNED AS OF PERCENTAGE
OCCUPATION) AGE CURRENT TERM) MARCH 15, 1996(1) OF CLASS
- - ----------- --- ------------- ----------------- --------
Robert M.
Keating 59 1985; 4,940(6) .71%
Director; (1996)
(Attorney at
Law
Director
Loon Mt. Recreation
Corp).
John H.
Noyes 49 1994; 8,000(7) 1.16%
Director: (1998)
(Treasurer; Noyes
Insurance Agency,
Inc., President;
Central Square
Insurance, Inc.)
Milton E.
Pettengill 69 1985; 8,800(8) 1.27%
Chairman of (1997)
the Board of
Directors;
(Retired President
and Chief
Executive Officer
of the Company
and the Bank)
Ann M. 51 1993; 1,750(9) .25%
Reever (1996)
Director
(Self-employed
business manager
Member of Pemi-
Baker Regional
School Board,
Director of
Swift Water
Girl Scout
Council)
- - ------------------
Footnotes follow table
<PAGE>
-34-
DIRECTOR OF
PEMI BANCORP, SHARES OF
NAME, INC. SINCE AND COMMON STOCK
TITLE AND (EXPIRATION BENEFICIALLY
(PRINCIPAL DATE OF OWNED AS OF PERCENTAGE
OCCUPATION) AGE CURRENT TERM) MARCH 15, 1996(1) OF CLASS
- - ----------- --- ------------- ----------------- --------
Dean H.
Yeaton 58 1986; 3,850(10) .56%
Director; (1996)
(President
Yeaton Oil Co,;
President Dean
H. Yeaton, Inc.)
All Directors (as a group 93,967 13.61%
nine (9) individuals) ======= ======
- - --------------------
(1) Percentages are based upon the 690,401 shares of Common Stock outstanding
as of March 15, 1996. The definition of beneficial owner includes any
person who, directly or indirectly, through any contract, arrangement,
understanding, relationship or otherwise has or shares voting power or
investment power with respect to such security.
(2) Includes 44,250 shares owned individually by Mr. Adams, 4,000 shares owned
jointly with his wife, 1,700 shares owned by his son, and 1,700 shares
owned by his daughter and 6,277 shares owned by an estate of which Mr.
Adams is Trustee.
(3) All shares owned individually by Mr. Clark.
(4) All shares are owned individually by Mr. Clifford.
(5) Includes 2,400 shares owned individually by Mr. Currie and 2,200 shares
owned jointly with his wife.
(6) All shares are owned individually by Mr. Keating.
(7) All shares owned individually by Mr. Noyes.
(8) Includes 1,000 shares owned individually by Mr. Pettengill and 7,800 shares
owned jointly with his wife.
(9) All shares are owned individually by Mrs. Reever.
(10) Includes 1,500 shares owned individually by Mr. Yeaton and 2,350 shares
owned jointly with his wife.
<PAGE>
-35-
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Some of the Directors and Executive Officers of the Company and companies
or organizations with which they are associated, have had, and may have in the
future, banking transactions with the Bank in the ordinary course of the Bank's
business. As of December 31, 1995, the Bank had outstanding $402,310 in loans to
Directors and Executive Officers of the Company and the Bank and immediate
family members of such Executive Officers and Directors, which represents 3.53%
of capital.
Federal banking laws and regulations limit the aggregate amount of
indebtedness of all insiders. Pursuant to such laws and regulations, banks may
extend credit to executive officers, directors, principal stockholders or any
related interest of such persons, if the extension of credit to such persons is
in an amount that, when aggregated with the amount of all outstanding extensions
of credit to such individuals, does not exceed the banks unimpaired capital and
unimpaired surplus. As of December 31, 1995, the aggregate amount of extensions
of credit to Bank insiders was well below this limit.
All loans and commitments to loan to the Company's and Bank's Directors,
Executive Officers and their associates are made on substantially the same
terms, including interest rates, collateral and repayment terms, as those
prevailing at the time for comparable transactions with other persons and, in
the opinion of Management, do not involve more than a normal risk of collection
or, except as specified below, present other unfavorable features.
<PAGE>
-36-
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K
(a)
1. Financial Statements
The financial statements filed as part of this report are listed in the
index appearing at Item 8.
2. Financial Statement Schedules
Schedules are omitted because they are not applicable.
3. Exhibits
Exhibit No. Description
----------- -----------
3.1-3.2 Restated and Amended Articles of
Organization of the Registrant filed
as Exhibits 3.1, to the Registrant's
Annual Report on Form 10-K for the
Fiscal Year Ended December 31, 1992,
and are incorporated herein by
reference.
21 List of Subsidiaries of the Company is
filed as Exhibit 21 to the Registrant's
Annual Report on Form 10-K for the Fiscal
Year Ended December 31, 1994 and is
incorporated herein by reference.
27 Financial Data Schedule
(b) Reports on Form 8-K
None.
<PAGE>
-37-
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.
Date: March 29, 1996 PEMI BANCORP, INC.
By /s/ FLETCHER W. ADAMS
------------------------------
Fletcher W. Adams
President, Treasurer and
Chief Executive Officer
Date: March 29, 1996 By /s/ KEITH L. PHILBRICK
-----------------------
Keith L. Philbrick
Chief Financial Officer
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO
SECTION 12 OF THE ACT.
The Company's Annual Report and Proxy Material will be furnished to the
Company's Stockholders prior to the Annual Meeting and copies will be furnished
to the Commission at that time.
<PAGE>
-38-
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
registrant and in the capacities and on the dates indicated.
NAME TITLE DATE
- - ---- ----- ----
/s/ FLETCHER W. ADAMS President, Treasurer, March 29, 1996
- - -------------------------- Chief Executive
Fletcher W. Adams Officer and Director
Director March 29, 1996
- - --------------------------
John P. Clark
/s/ CHARLES H. CLIFFORD, Jr. Director March 29, 1996
- - --------------------------
Charles H. Clifford, Jr.
Director March 29, 1995
- - --------------------------
James E. Currie
Director March 29, 1996
- - --------------------------
Robert M. Keating
/s/ JOHN H. NOYES Director March 29, 1996
- - --------------------------
John H. Noyes
Director March 29, 1996
- - --------------------------
Milton E. Pettengill
/s/ ANN M. REEVER Director March 29, 1996
- - --------------------------
Ann M. Reever
/s/ DEAN H. YEATON Director March 29, 1996
- - --------------------------
Dean H. Yeaton
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 768868
<NAME> Pemi Bancorp Inc.
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 4,918,670
<INT-BEARING-DEPOSITS> 82,393,043
<FED-FUNDS-SOLD> 3,300,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 8,113,477
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 14,999,810
<LOANS> 81,709,225
<ALLOWANCE> 1,359,979
<TOTAL-ASSETS> 117,322,517
<DEPOSITS> 96,416,217
<SHORT-TERM> 7,000,000
<LIABILITIES-OTHER> 2,020,717
<LONG-TERM> 491,525
0
0
<COMMON> 751,901
<OTHER-SE> 10,642,157
<TOTAL-LIABILITIES-AND-EQUITY> 117,322,517
<INTEREST-LOAN> 8,123,043
<INTEREST-INVEST> 1,251,724
<INTEREST-OTHER> 128,047
<INTEREST-TOTAL> 9,502,814
<INTEREST-DEPOSIT> 3,079,319
<INTEREST-EXPENSE> 3,693,227
<INTEREST-INCOME-NET> 5,809,587
<LOAN-LOSSES> 112,500
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 4,474,249
<INCOME-PRETAX> 1,902,994
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,275,294
<EPS-PRIMARY> 1.85
<EPS-DILUTED> 0
<YIELD-ACTUAL> 5.60
<LOANS-NON> 495,705
<LOANS-PAST> 45,598
<LOANS-TROUBLED> 1,734,835
<LOANS-PROBLEM> 4,956,151
<ALLOWANCE-OPEN> 1,566,919
<CHARGE-OFFS> 374,406
<RECOVERIES> 54,966
<ALLOWANCE-CLOSE> 1,359,979
<ALLOWANCE-DOMESTIC> 1,359,979
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
