FORM 10-K/A Amendment Number 1
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
For the fiscal year ended December 31, 1996
Commission file number 33-22807-B
PEMI BANCORP, INC.
------------------
(exact name of registrant as specified in its charter)
New Hampshire 02-0386832
------------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
287 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 $7,483,374 on February 28, 1997. On that date,
554,324 shares of common stock were held by non-affiliates of the registrant.
On March 7, 1997, 690,401 shares of common stock were issued and outstanding.
<PAGE>
-32-
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Financial Statements Page
----------------------------- ----
Accountants' Opinion, January 16, 1997
except for Note 10, as to which the
date is March 7, 1997 and note 18,
as to which the date is March 14, 1997..... F-1
Consolidated Balance Sheets at December
31, 1996 and 1995.......................... F-2
Consolidated Statements of Income for
Years Ended December 31, 1996, 1995
and 1994................................... F-3
Consolidated Statements of Changes in
Stockholders' Equity for Years Ended
December 31, 1996, 1995 and 1994........... F-4
Consolidated Statements of Cash Flows
for Years Ended December 31, 1996,
1995 and 1994.............................. 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, 1996 and 1995 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, 1996.
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 overall
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, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1996, in conformity with
generally accepted accounting principles.
SHATSWELL, MacLEOD & COMPANY, P.C.
West Peabody, Massachusetts
January 16, 1997, except for Note 10,
as to which the date is March 7, 1997, and Note 18, as to which the date is
March 14, 1997
F-1
<PAGE>
PEMI BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
ASSETS 1996 1995
- ------ ------------ ------------
<S> <C> <C>
Cash and due from banks $ 4,979,633 $ 4,918,670
Federal funds sold 3,300,000
------------ ------------
Cash and cash equivalents 4,979,633 8,218,670
Investments in available-for-sale securities (at fair value) 18,456,658 8,113,477
Investments in held-to-maturity securities (fair values of $11,879,497 as of
December 31, 1996 and $14,926,264 as of December 31, 1995) 11,975,136 14,999,810
Federal Reserve Bank stock, at cost 80,250 80,250
Federal Home Loan Bank stock, at cost 739,600 739,600
Loans, net 87,095,923 80,087,042
Premises and equipment 3,979,403 3,481,386
Other real estate owned 54,193 61,701
Accrued interest receivable 863,612 855,135
Other assets 754,724 685,446
------------ ------------
$128,979,132 $117,322,517
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Demand deposits $ 16,116,453 $ 14,023,174
Savings and NOW deposits 43,540,576 40,933,371
Time deposits 46,028,339 41,459,672
------------- -------------
Total deposits 105,685,368 96,416,217
Advances from Federal Home Loan Bank of Boston 8,702,525 7,491,525
Other liabilities 2,377,330 2,020,717
------------- -------------
Total liabilities 116,765,223 105,928,459
------------- -------------
Stockholders' equity:
Common stock, par value $1.00 per share; authorized 2,000,000 shares;
issued 751,901 shares; outstanding 690,401 shares 751,901 751,901
Paid-in capital 2,384,329 2,384,329
Retained earnings 9,714,379 8,885,889
Treasury stock, at cost (61,500 shares) (615,000) (615,000)
Net unrealized holding loss on available-for-sale securities (21,700) (13,061)
------------- ------------
Total stockholders' equity 12,213,909 11,394,058
------------- ------------
$128,979,132 $117,322,517
============ ============
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
F-2
<PAGE>
PEMI BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------- ---------- ----------
Interest and dividend income:
<S> <C> <C> <C>
Interest and fees on loans $ 8,257,107 $8,123,043 $7,189,810
Interest and dividends on securities:
Taxable 1,616,581 1,093,942 1,138,808
Tax-exempt 249,466 157,782 160,299
Other interest 76,596 128,047 35,069
----------- ---------- ----------
Total interest and dividend income 10,199,750 9,502,814 8,523,986
----------- ---------- ----------
Interest expense:
Interest on deposits 3,632,440 3,079,319 2,628,419
Interest on advances from FHLB 519,604 610,675 418,929
Interest on other borrowed funds 1,642 3,233 4,753
----------- ---------- ----------
Total interest expense 4,153,686 3,693,227 3,052,101
----------- ---------- ----------
Net interest and dividend income 6,046,064 5,809,587 5,471,885
Provision for loan losses 152,000 112,500 120,000
----------- ---------- ----------
Net interest and dividend income after provision
for loan losses 5,894,064 5,697,087 5,351,885
----------- ---------- ----------
Other income:
Service charges on deposit accounts 259,879 253,302 266,532
Securities gains, net 22,405
Other income 216,325 241,273 241,159
Other deposit fees 178,022 178,781 161,369
Gain on sales of other real estate owned, net 19,299 6,800 32,925
----------- ---------- ----------
Total other income 673,525 680,156 724,390
----------- ---------- ----------
Other expense:
Salaries and employee benefits 2,390,189 2,376,100 2,282,176
Occupancy expense 340,735 297,112 308,864
Equipment expense 525,625 446,449 407,169
Writedown of other real estate owned 25,000 79,494 47,500
Other real estate owned expense 16,400 13,450 42,560
FDIC deposit insurance premium 2,000 135,165 240,722
Stationery and supplies 135,582 123,672 109,353
Postage expense 116,380 101,773 95,298
Other expense 1,110,407 901,034 839,235
----------- ---------- ----------
Total other expense 4,662,318 4,474,249 4,372,877
----------- ---------- ----------
Income before income taxes 1,905,271 1,902,994 1,703,398
Income taxes 628,020 627,700 552,416
----------- ---------- ----------
Net income $ 1,277,251 $1,275,294 $1,150,982
=========== ========== ==========
Net income per share $ 1.85 $ 1.85 $ 1.53
=========== ========== ==========
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
F-3
<PAGE>
<TABLE>
<CAPTION>
PEMI BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
Net Unrealized
Holding Gain
(Loss) On
Common Paid-in Retained Treasury Available-For-
Stock Capital Earnings Stock Sale Securities Total
----------- ----------- ---------- --------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
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 (298,000) (74,302) 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 ($.50
per share) (345,200) (345,200)
Treasury stock purchased (317,000) (317,000)
-------- ---------- ---------- --------- --------- -----------
Balance, December 31, 1995 751,901 2,384,329 8,885,889 (615,000) (13,061) 11,394,058
Net income 1,277,251 1,277,251
Net change in unrealized
holding loss on available-
for-sale securities (8,639) (8,639)
Dividends declared ($.65
per share) (448,761) (448,761)
-------- ---------- ---------- --------- --------- -----------
Balance, December 31, 1996 $751,901 $2,384,329 $9,714,379 $(615,000) $(21,700) $12,213,909
======== ========== ========== ========= ========= ===========
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
F-4
<PAGE>
<TABLE>
<CAPTION>
PEMI BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1996 1995 1994
------------ ----------- -----------
Cash flows from operating activities:
<S> <C> <C> <C>
Net income $ 1,277,251 $ 1,275,294 $ 1,150,982
Adjustments to reconcile net income to net cash provided by
operating activities:
Donation of other real estate owned 5,000
Securities gains, net (22,405)
Amortization, net of accretion of securities 134,807 110,687 194,800
Depreciation and amortization 354,777 317,405 284,257
Provision for loan losses 152,000 112,500 120,000
Deferred tax expense 100,020 108,700 152,985
Increase (decrease) in taxes payable (10,856) (160,143) 170,430
Increase in interest receivable (8,477) (98,319) (16,763)
Increase (decrease) in interest payable 281,263 471,682 (58,962)
Increase (decrease) in accrued expenses 40,979 (80,240) (94,948)
(Increase) decrease in prepaid expenses (71,657) (67,966) 7,255
Increase (decrease) in other liabilities 24,254 4,277 (88)
Amortization of core deposit intangible 13,125
(Increase) decrease in other assets (394) 266 64,226
Change in unearned income (148,754) (33,647) (12,202)
Gain on sales of other real estate owned, net (19,299) (6,800) (32,925)
Writedown of other real estate owned 25,000 79,494 47,500
------------ ----------- -----------
Net cash provided by operating activities 2,144,039 2,038,190 1,954,142
------------ ----------- -----------
Cash flows from investing activities:
Proceeds from sales of other real estate owned 134,307 78,506 206,765
Purchases of Federal Home Loan Bank stock (143,600) (46,500)
Purchases of available-for-sale securities (12,513,768) (5,421,630) (97,489)
Proceeds from maturities of available-for-sale securities 2,120,332 258,355 881,886
Purchases of held-to-maturity securities (1,590,598) (2,760,777)
Proceeds from maturities of held-to-maturity securities 2,926,048 2,631,095 6,236,832
Net (increase) decrease in loans (7,175,272) 3,715,789 (2,721,844)
Capital expenditures (627,794) (248,004) (300,226)
Recoveries of previously charged-off loans 35,026 54,966 164,778
------------ ----------- -----------
Net cash provided by (used in) investing activities (15,101,121) (665,121) 1,563,425
------------ ----------- -----------
</TABLE>
F-5
<PAGE>
<TABLE>
<CAPTION>
PEMI BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(continued)
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from financing activities:
Cash received from acquisition of branch 6,355,157
Purchases of treasury stock (317,000) (298,000)
Repayment of advances from FHLB (37,391,621) (25,589,000) (19,052,000)
Advances from FHLB 38,602,621 24,089,000 18,192,825
Net increase (decrease) in demand deposits, NOW and
savings accounts 924,325 (3,134,595) 330,315
Net increase (decrease) in time deposits 1,586,572 7,785,215 (2,334,479)
Dividends paid (359,009) (330,360) (210,533)
------------ ------------ ------------
Net cash provided by (used in) financing activities 9,718,045 2,503,260 (3,371,872)
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents (3,239,037) 3,876,329 145,695
Cash and cash equivalents at beginning of year 8,218,670 4,342,341 4,196,646
------------ ------------ ------------
Cash and cash equivalents at end of year $ 4,979,633 $ 8,218,670 $ 4,342,341
============ ============ ============
Supplemental disclosures:
Loans transferred to other real estate owned $ 195,000 $ 8,000 $ 190,000
Loans originating from sales of other real estate owned 62,500 13,500 264,625
Held-to-maturity securities transferred to available-
for-sale securities 1,389,021 468,862
Interest paid 3,872,423 3,221,545 3,111,063
Income taxes paid 538,856 679,143 229,001
Assets acquired and liabilities assumed from another
financial institution:
Cash received $ 6,355,157
Overdraft protection loans 4,381
Premises and equipment 225,000
Core deposit intangible 175,000
Deposits 6,758,254
Miscellaneous liabilities 1,284
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
F-6
<PAGE>
PEMI BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
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,
demand deposits due from banks and federal funds sold.
SECURITIES:
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.
The Company classifies 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.
F-7
<PAGE>
-- 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
consolidated 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
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.
Interest on loans is generally recognized on a simple interest basis.
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.
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.
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.
F-8
<PAGE>
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 Company considers
its residential real estate loans and consumer loans that are not
individually significant to be large groups of smaller balance
homogeneous loans.
Factors considered by management in determining impairment include
payment status, net worth and collateral value. An insignificant
payment delay or an insignificant shortfall in payment does not in
itself result in the review of a loan for impairment. The Company
applies SFAS No. 114 on a loan-by-loan basis. The Company does not
apply SFAS No. 114 to aggregations of loans that have risk
characteristics in common with other impaired loans. Interest on a loan
is not generally accrued when the loan becomes ninety or more days
overdue. The Company may place a loan on nonaccrual status but not
classify it as impaired, if (i) it is probable that the Company will
collect all amounts due in accordance with the contractual terms of the
loan or (ii) the loan is an individually insignificant residential
mortgage loan or consumer loan. Impaired loans are charged-off when
management believes that the collectibility of the loan's principal is
remote. Substantially all of the Company's loans that have been
identified as impaired have been measured by the fair value of existing
collateral.
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.
INCOME TAXES:
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.
F-9
<PAGE>
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 - SECURITIES
Debt securities have been classified in the consolidated balance sheets
according to management's intent. The carrying amount of securities and their
approximate fair values are as follows as of December 31:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Gross Gross
Amortized Unrealized Unrealized
Cost Holding Holding Fair
Basis Gains Losses Value
--------- ----------- ------------- -------
Available-for-sale securities:
December 31, 1996:
Debt securities issued by the U.S. Treasury and other
U.S. government corporations and agencies $ 2,488,941 $ 16,759 $ 15,778 $ 2,489,922
Debt securities issued by states of the United States
and political subdivisions of the states 3,218,991 45,320 5,129 3,259,182
Mortgage-backed securities 12,784,080 44,094 120,620 12,707,554
----------- -------- -------- ----------
$18,492,012 $106,173 $141,527 $18,456,658
=========== ======== ======== ===========
December 31, 1995:
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>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Gross Gross
Amortized Unrealized Unrealized
Cost Holding Holding Fair
Basis Gains Losses Value
--------- ---------- ------------ -------
Held-to-maturity securities:
December 31, 1996:
Debt securities issued by the U.S. Treasury $ 500,528 $ 2,206 $ $ 502,734
Debt securities issued by states of the United States
and political subdivisions of the states 1,531,166 35,395 1,566,561
Mortgage-backed securities 9,943,442 18,391 151,631 9,810,202
----------- ------- -------- -----------
$11,975,136 $55,992 $151,631 $11,879,497
=========== ======= ======== ===========
December 31, 1995:
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>
F-11
<PAGE>
The scheduled maturities of held-to-maturity securities and available-for-sale
securities were as follows as of December 31, 1996:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Held-to-maturity Available-for-sale
securities: securities:
------------------------- ------------------------------
Amortized Amortized
Cost Fair Cost Fair
Basis Value Basis Value
--------- ------- ---------- -------
Debt securities other than mortgage-backed
securities:
Due within one year $ 660,994 $ 666,484 $ 501,247 $ 501,875
Due after one year through five years 1,370,700 1,402,811 2,159,384 2,168,680
Due after five years through ten years 834,274 844,112
Due after ten years 2,213,027 2,234,438
Mortgage-backed securities 9,943,442 9,810,202 12,784,080 12,707,553
----------- ---------- ----------- -----------
$11,975,136 $11,879,497 $18,492,012 $18,456,658
=========== =========== =========== ===========
</TABLE>
There were no sales of available-for-sale or held-to-maturity securities in
1996, 1995 and 1994.
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.
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, 1996.
A total par value of $1,545,062 and $1,144,343 of debt securities was pledged to
secure treasury tax and loan, deposits and office of U. S. Trustees (Bankruptcy
courts) as of December 31, 1996 and 1995, respectively.
NOTE 4 - LOANS
Loans consisted of the following as of December 31:
<TABLE>
<CAPTION>
<S> <C> <C>
1996 1995
----------- -----------
Commercial, financial and agricultural $13,749,755 $12,362,986
Real estate - construction and land development 882,416 363,295
Real estate - residential 53,242,528 50,126,739
Real estate - commercial 12,209,054 11,705,038
Consumer 7,440,546 6,081,178
Obligations of states and political subdivisions 931,444 1,054,165
Other 59,934 15,824
----------- -----------
88,515,677 81,709,225
Allowance for possible loan losses (1,306,304) (1,359,979)
Unearned income (113,450) (262,204)
----------- -----------
Net loans $87,095,923 $80,087,042
=========== ===========
</TABLE>
F-12
<PAGE>
Certain directors and executive officers of the Company and companies in which
they have significant ownership interest were customers of the Bank during 1996.
Total loans to such persons and their companies amounted to $370,608 as of
December 31, 1996. During the year ended December 31, 1996, advances totaled
$78,932 and repayments totaled $149,892.
Changes in the allowance for possible loan losses were as follows for the years
ended December 31:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1996 1995 1994
---------- ---------- ----------
Balance at beginning of period $1,359,979 $1,566,919 $1,730,493
Loans charged off (240,701) (374,406) (448,352)
Provision for loan losses 152,000 112,500 120,000
Recoveries of loans previously charged off 35,026 54,966 164,778
---------- ---------- ----------
Balance at end of period $1,306,304 $1,359,979 $1,566,919
========== ========== ==========
</TABLE>
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:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
1996 1995
-------------------------- -------------------------
Recorded Related Recorded Related
Investment Allowance Investment Allowance
In Impaired For Credit In Impaired For Credit
Loans Losses Loans Losses
----------- ---------- ----------- ----------
Loans for which there is a related allowance for credit losses $ 97,412 $9,048 $211,076 $22,691
Loans for which there is no related allowance for credit losses 413,366
-------- ------ -------- -------
Totals $ 97,412 $9,048 $624,442 $22,691
======== ====== ======== =======
Average recorded investment in impaired loans during the year
ended December 31 $132,269 $728,973
======== ========
Related amount of interest income recognized during the time,
in the year ended December 31, that the loans were impaired
Total recognized $ 25,245 $ 0
======== ========
Amount recognized using a cash-basis method of
accounting $ 25,245 $ 0
======== ========
</TABLE>
As of December 31, 1996, loans restructured in a troubled debt restructuring
before January 1, 1995, the effective date of SFAS No. 114, that are not
impaired based on the terms specified by the restructuring agreement totaled
$260,943. The gross interest income that would have been recorded in the year
ended December 31, 1996 if such restructured loans had been current in
accordance with their original terms was $27,078. The amount of interest income
on such restructured loans that was included in net income for the year ended
December 31, 1996 was $22,901.
NOTE 5 - PREMISES AND EQUIPMENT
The following is a summary of premises and equipment as of December 31:
<TABLE>
<CAPTION>
<S> <C> <C>
1996 1995
---------- ----------
Land $ 448,851 $ 409,251
Buildings 3,229,269 3,061,241
Furniture and equipment 2,637,556 1,992,390
---------- ----------
6,315,676 5,462,882
Accumulated depreciation and amortization (2,336,273) (1,981,496)
---------- ----------
$3,979,403 $3,481,386
========== ==========
</TABLE>
F-13
<PAGE>
NOTE 6 - DEPOSITS
The aggregate amount of time deposit accounts (including CDs), each with a
minimum denomination of $100,000, was approximately $5,392,466 and $4,889,539 as
of December 31, 1996 and 1995, respectively.
For time deposits as of December 31, 1996, the aggregate amount of maturities
for each of the following five years ended December 31, and thereafter are:
1997 $31,162,674
1998 12,866,828
1999 1,398,527
2000 424,339
2001 175,971
-----------
$46,028,339
===========
NOTE 7 - ADVANCES FROM FEDERAL HOME LOAN BANK OF BOSTON
Advances consist of funds borrowed from the Federal Home Loan Bank of Boston
(FHLB). The components of these borrowings are as follows as of December 31,
1996:
Weighted
Average
Rate to
Maturity Date Balance Maturity
------------- ------- --------
1997 $4,908,225 5.92%
1998 3,711,700 6.12
1999 82,600 7.43
----------
Total $8,702,525
==========
Advances are secured by the Company's stock in that institution, its residential
real estate mortgage portfolio and the remaining U.S. government and agencies
obligations not otherwise pledged.
Information about short-term advances included above is as follows (dollars in
thousands):
December 31,
------------------
1996 1995
---- ----
Outstanding at end of period $4,711 $7,000
Approximate maximum outstanding at any month end 5,900 8,500
Average amounts outstanding during the period 7,473 7,152
Weighted average interest rate during the period 5.82% 6.27%
Weighted average interest rate at end of period 6.21 6.09
NOTE 8 - ACQUISITION OF BRANCH
On April 22, 1996, the Company purchased certain assets and assumed deposits
from First New Hampshire Bank's branch office in Campton, New Hampshire. On that
day, the Company recorded the following entries to record this transaction.
Loans $ 4,381
Premises and equipment 225,000
Core deposit intangible 175,000
Cash 6,355,157
Other liabilities 1,284
Deposits 6,758,254
The transaction was accounted for using the purchase method of accounting. The
results of operations of the acquired branch office are included in the 1996
income statement of the Company from the date of the transaction to December 31,
1996.
The core deposit intangible is being amortized over 10 years. During 1996
amortization expense amounted to $13,125.
F-14
<PAGE>
NOTE 9 - INCOME TAXES
The components of income tax expense are as follows for the years ended December
31:
1996 1995 1994
---------- ---------- -------
Current:
Federal $438,000 $431,000 $349,233
State 90,000 88,000 50,198
-------- -------- --------
528,000 519,000 399,431
-------- -------- --------
Deferred:
Federal 82,971 90,269 124,262
State 17,049 18,431 28,723
-------- -------- -------
100,020 108,700 152,985
-------- -------- -------
Total income tax expense $628,020 $627,700 $552,416
======== ======== ========
The reasons for the differences between the statutory federal income tax rates
and the effective tax rates are summarized as follows for the years ended
December 31:
1996 1995 1994
% of % of % of
Income Income Income
------ ------ ------
Federal income tax at statutory rate 34.0% 34.0% 34.0%
Increase (decrease) in tax resulting from:
Tax-exempt income (6.2) (5.1) (5.7)
Unallowable expenses .8 .6 .6
Other, net 1.3 .5 .5
State tax, net of federal tax benefit 3.1 3.0 3.0
---- ---- ----
33.0% 33.0% 32.4%
==== ==== ====
The Company had gross deferred tax assets and gross deferred tax liabilities as
follows as of December 31:
<TABLE>
<CAPTION>
1996 1995
--------- --------
<S> <C> <C>
Deferred tax assets:
Allowance for loan $360,553 $379,099
Loan origination fees 76,921 96,151
Nonaccrual loans 25,634 30,326
Other real estate owned valuation 13,650 7,800
Net unrealized holding loss on available-for-sale securities 13,654 8,218
Other, net 5,647
-------- --------
Gross deferred tax assets 490,412 527,241
-------- --------
Deferred tax liabilities:
Other, net (5,192)
Depreciation (136,780) (115,916)
Pension (40,666) (16,553)
-------- --------
Gross deferred tax liabilities (182,638) (132,469)
-------- --------
Net deferred tax assets $307,774 $394,772
======== ========
</TABLE>
Deferred tax assets as of December 31, 1996 and 1995 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, 1996, the Company had no operating loss and tax credit
carryovers for tax purposes.
F-15
<PAGE>
NOTE 10 - CONTINGENCY
The Bank intends to file with the Internal Revenue Service an application to
resolve certain problems concerning the eligibility of its defined benefit
pension and 401K plans. Bank management and counsel estimate that the sanction
that would be imposed by the IRS is between $25,000 and $200,000. The minimum
contingent liability of $25,000 has not been accrued due to immateriality.
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>
<S> <C> <C>
1996 1995
----------- -----------
Actuarial present value of benefit obligations:
Accumulated benefit obligation (including vested benefits of
$1,304,460 and $1,092,112, respectively) $ 1,330,688 $ 1,108,148
=========== ===========
Projected benefit obligation for services rendered to date $(1,577,755) $(1,394,760)
Plan assets at fair value, primarily invested in individual
life insurance policies and investments 1,621,693 1,525,046
---------- -----------
Plan assets greater than projected benefit obligation 43,938 130,286
Unrecognized net transition asset (28,821) (32,938)
Unrecognized net loss (gain) 89,156 (54,905)
---------- ----------
Prepaid pension cost included in other assets on the balance sheets $ 104,273 $ 42,443
========== ==========
</TABLE>
Net periodic pension cost included the following components for the years ended
December 31:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1996 1995 1994
--------- --------- ---------
Service cost-benefits earned during the period $ 93,526 $ 80,997 $ 72,773
Interest cost on projected benefit obligation 104,065 82,665 91,875
Actual (return) loss on plan assets (149,152) (254,441) 34,815
Net amortization and deferral 25,131 162,825 (122,656)
--------- --------- ---------
Net periodic pension cost $ 73,570 $ 72,046 $ 76,807
========= ========= =========
</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%.
The Bank has a 401(k) plan. To be eligible, employees must have attained age
twenty-one, completed six months of service and be credited with 1,000 hours of
service. The Bank matches 25% of employee contributions on the first 4% of
compensation deposited as elective contributions. The 401(k) matching expense
was $13,744, $15,714 and $12,680 for the years ended December 31, 1996, 1995 and
1994, respectively.
F-16
<PAGE>
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, 1996, $33,000 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.
The 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 are as follows as of December 31:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
1996 1995
------------------------------ ------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------------ ------------ ------------ ------------
Financial assets:
Cash and cash equivalents $ 4,979,633 $ 4,979,633 $ 8,218,670 $ 8,218,670
Available-for-sale securities 18,456,658 18,456,658 8,113,477 8,113,477
Held-to-maturity securities 11,975,136 11,879,497 14,999,810 14,926,264
Federal Reserve Bank stock 80,250 80,250 80,250 80,250
Federal Home Loan Bank stock 739,600 739,600 739,600 739,600
Loans 87,095,923 86,753,000 80,087,042 80,678,000
Accrued interest receivable 863,612 863,612 855,135 855,135
Financial liabilities:
Deposits 105,685,368 105,984,000 96,416,217 96,672,000
Advances from FHLB 8,702,525 8,717,000 7,491,525 7,504,000
</TABLE>
The carrying amounts of financial instruments shown in the above table are
included in the consolidated balance sheets under the indicated captions.
Accounting policies related to financial instruments are described in Note 2.
F-17
<PAGE>
Notional amounts of financial instrument liabilities with off-balance sheet
credit risk are as follows as of December 31:
1996 1995
---------- ----------
Commitments to originate loans $1,768,044 $1,152,100
Standby letters of credit 211,114 141,656
Unadvanced portions of commercial real estate loans 45,000 47,526
Unadvanced portions of home equity loans 1,019,889 405,661
Unadvanced portions of commercial lines of credit 3,072,335 5,771,961
---------- ----------
$6,116,382 $7,518,904
========== ==========
There is no material difference between the notional amounts and the estimated
fair values of the off-balance sheet liabilities.
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 1996, 1995 and 1994 were calculated using the weighted
average number of shares outstanding during those periods. For 1996, 1995 and
1994 earnings per share calculations, the weighted average number of shares
outstanding were 690,401, 691,188 and 751,020, respectively.
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, 1996 that the Bank could declare, without the approval of the
Comptroller of the Currency, amounted to approximately $2,407,449.
The Company and its subsidiary the Bank are subject to various regulatory
capital requirements administered by the federal banking agencies. Failure to
meet minimum capital requirements can initiate certain mandatory - and possibly
additional discretionary - actions by regulators that, if undertaken, could have
a direct material effect on the Company's and the Bank's financial statements.
Under capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Company and the Bank must meet specific capital
guidelines that involve quantitative measures of their assets, liabilities, and
certain off-balance-sheet items as calculated under regulatory accounting
practices. Their capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weightings and
other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Company and the Bank to maintain minimum amounts and ratios (set
forth in the table below) of total and Tier I capital (as defined in the
regulations) to risk-weighted assets (as defined), and of Tier I capital (as
defined) to average assets (as defined). Management believes, as of December 31,
1996, that the Company and the Bank meet all capital adequacy requirements to
which they are subject.
F-18
<PAGE>
As of December 31, 1996, the most recent notification from the Office of the
Comptroller of the Currency categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized the Bank must maintain minimum total risk-based, Tier I risk-based
and Tier I leverage ratios as set forth in the table. There are no conditions or
events since that notification that management believes have changed the Bank's
category.
The Company's and the Bank's actual capital amounts and ratios are also
presented in the table.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes: Action Provisions:
----------------- ------------------ ------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
Greater than Greater than
As of December 31, 1996: or equal to: or equal to:
Total Capital (to Risk Weighted Assets): ------------ ------------
Consolidated $13,013 17.41% $5,978 8% N/A
Pemigewasset National Bank 12,964 17.35 5,978 8 $7,473 10%
Tier 1 Capital (to Risk Weighted Assets):
Consolidated 12,074 16.08 3,004 4 N/A
Pemigewasset National Bank 12,025 16.01 3,004 4 4,506 6
Tier 1 Capital (to Average Assets):
Consolidated 12,074 9.50 5,083 4 N/A
Pemigewasset National Bank 12,025 9.46 5,083 4 6,354 5
As of December 31, 1995:
Total Capital (to Risk Weighted Assets):
Consolidated 12,274 17.82 5,509 8 N/A
Pemigewasset National Bank 12,225 17.75 5,509 8 6,886 10
Tier 1 Capital (to Risk Weighted Assets):
Consolidated 11,407 16.45 2,774 4 N/A
Pemigewasset National Bank 11,358 16.38 2,774 4 4,161 6
Tier 1 Capital (to Average Assets):
Consolidated 11,407 9.91 4,606 4 N/A
Pemigewasset National Bank 11,358 9.86 4,606 4 5,758 5
</TABLE>
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-19
<PAGE>
PEMI BANCORP, INC.
(Parent Company Only)
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS 1996 1995
- ------ ---------- ----------
Cash $ 394,360 $ 302,345
Investment in subsidiary, The Pemigewasset National Bank 12,164,750 11,344,568
Other assets 2,593
----------- -----------
$12,559,110 $11,649,506
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Other liabilities $ 345,201 $ 255,448
----------- -----------
Stockholders' equity:
Common stock, par value $1.00 per share; authorized 2,000,000 shares;
issued 751,901 shares; outstanding 690,401 shares 751,901 751,901
Paid-in capital 2,384,329 2,384,329
Retained earnings 9,714,379 8,885,889
Treasury stock, at cost (61,500 shares) (615,000) (615,000)
Net unrealized holding loss on available-for-sale securities (21,700) (13,061)
----------- -----------
Total stockholders' equity 12,213,909 11,394,058
----------- -----------
$12,559,110 $11,649,506
=========== ===========
</TABLE>
F-20
<PAGE>
PEMI BANCORP, INC.
(Parent Company Only)
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1996 1995 1994
---------- ---------- ----------
Dividends from subsidiary $ 448,761 $ 547,201 $ 300,761
Management fee income from subsidiary 36,025 20,840 37,492
---------- ---------- ----------
484,786 568,041 338,253
---------- ---------- ----------
General and administrative expense 36,356 21,154 37,492
---------- ---------- ----------
Income before equity in undistributed net income of subsidiary 448,430 546,887 300,761
Equity in undistributed net income of subsidiary 828,821 728,407 850,221
---------- ---------- ----------
Net income $1,277,251 $1,275,294 $1,150,982
========== ========== ==========
</TABLE>
F-21
<PAGE>
PEMI BANCORP, INC.
(Parent Company Only)
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1996 1995 1994
----------- ---------- -----------
Cash flows from operating activities:
Net income $1,277,251 $1,275,294 $1,150,982
Adjustments to reconcile net income to net cash provided by
operating activities:
(Increase) decrease in accrued dividend receivable 2,594 238,015 (90,228)
Undistributed net income of subsidiary (828,821) (728,407) (850,221)
---------- ---------- ----------
Net cash provided by operating activities 451,024 784,902 210,533
---------- ---------- ----------
Cash flows from financing activities:
Purchases of treasury stock (317,000) (298,000)
Dividends paid (359,009) (330,360) (210,533)
---------- ---------- ---------
Net cash used in financing activities (359,009) (647,360) (508,533)
---------- ---------- ---------
Net increase (decrease) in cash and cash equivalents 92,015 137,542 (298,000)
Cash and cash equivalents at beginning of year 302,345 164,803 462,803
---------- ----------- ----------
Cash and cash equivalents at end of year $ 394,360 $ 302,345 $ 164,803
========== ========== ==========
</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, 1996, 1995 and 1994, and therefore are not
reprinted here.
NOTE 18 MERGER AGREEMENT
On March 14, 1997, the Company and the Bank entered into an Agreement and
Plan of Merger (the "Merger Agreement"), by and among the Company, the Bank, The
Berlin City Bank ("BCB"), and Northway Financial, Inc. ("Northway"), a New
Hampshire corporation and a wholly owned subsidiary of BCB. Under the terms of
the Merger Agreement, (i) Northway will organize a new New Hampshire trust
company, Berlin Interim Trust Company ("BITC"), (ii) BITC will merge with and
into BCB (the "BCB Reorganization"), as a result of which BCB will become a
wholly owned direct subsidiary of Northway, and (iii) following the BCB
Reorganization, the Company will merge with and into Northway, with Northway
being the surviving corporation. As a result of the foregoing transactions,
Northway will be the bank holding company for BCB and the Bank and each of BCB
and the Bank will be wholly owned direct subsidiaries of Northway.
F-22
<PAGE>
-43-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this amendment to the
report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: September 5, 1997 PEMI BANCORP, INC.
By /s/ Fletcher W. Adams
-------------------------------
Fletcher W. Adams
President, Treasurer and
Chief Executive Officer
Date: September 5, 1997 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>
-44-
Pursuant to the requirements of the Securities Exchange Act of 1934,
this amendment to the 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 September 5, 1997
- ---------------------------- Chief Executive
Fletcher W. Adams Officer and Director
/s/ Charles H. Clifford, Jr. Director September 4, 1997
- ----------------------------
Charles H. Clifford, Jr.
/s/ James E. Currie Director September 8, 1997
- ----------------------------
James E. Currie
/s/ Andrew L. Morse Director September 15, 1997
- ----------------------------
Andrew L. Morse
/s/ John H. Noyes Director September 4, 1997
- ----------------------------
John H. Noyes
/s/ Milton E. Pettengill Director September 4, 1997
- ----------------------------
Milton E. Pettengill
/s/ Ann M. Reever Director September 10, 1997
- ----------------------------
Ann M. Reever
/s/ Dean H. Yeaton Director September 4, 1997
- ----------------------------
Dean H. Yeaton
