<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
Quarterly Report Under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For Quarter Ended September 30, 1995
-------------------------------------------------------------
Commission file number #0-16510
- --------------------------------------------------------------------------------
PORTSMOUTH BANK SHARES, INC.
--------------------------------------------------------------
(Exact name of registrant as specified in its charter)
New Hampshire 02-0417778
- ----------------------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
333 State Street, Portsmouth, New Hampshire 03801
- ---------------------------------------------------- ----------
(Address of principal executive officers) (Zip Code)
(603) 436-6630
--------------
(Registrant's telephone number, including area code)
NOT APPLICABLE
--------------
(Former name, former address and former fiscal
year, if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all the 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 the number of shares outstanding of each of the issuer's classes
of common stock, as of the last practicable date.
Common Stock, $.10 Par Value -- 5,620,262 shares as of September 30, 1995
- -------------------------------------------------------------------------
<PAGE> 2
<TABLE>
FORM 10Q QUARTERLY REPORT -- TABLE OF CONTENTS
<CAPTION>
PART I - FINANCIAL INFORMATION Page
------ ----------------------
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets - September 30, 1995
and December 31, 1994 3
Consolidated Statements of Income - Three
and nine months ended September 30, 1995 and 1994 4
Consolidated Statements of Changes in
Stockholders' Equity - September 30, 1995
and December 31, 1994 5
Consolidated Statements of Cash Flows - Nine
months ended September 30, 1995 and 1994 6
Notes to Consolidated Financial Statements -
September 30, 1995 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
PART II - OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings 17
Item 2. Changes in Securities 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
----------
</TABLE>
<PAGE> 3
<TABLE>
Part I - Financial Information
Portsmouth Bank Shares, Inc. and Subsidiary
Consolidated Balance Sheets
- ----------------------------------------------------------------------------------------
<CAPTION>
Sept. 30, Dec. 31,
1995 1994
------ ------
(Unaudited)
ASSETS (In thousands)
<S> <C> <C>
Cash and due from banks $ 4,180 $ 4,187
Interest-bearing deposits with
the Federal Home Loan Bank 41,463 9,133
Investment securities:
Held-to-maturity (market value $36,938 at Sept. 30, 37,024 44,205
1995 and $43,004 at December 31, 1994)
Available-for-sale (at market) 101,961 110,702
Loans (Note 2) 77,078 80,185
Less: Unearned income (695) (734)
Allowance for loan losses (Note 3) (727) (767)
-------- --------
Net loans 75,656 78,684
Premises and equipment 919 966
Other real estate owned (Note 4) 727 948
Other assets 5,398 11,684
-------- --------
TOTAL ASSETS $267,328 $260,509
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Non-interest bearing $ 2,483 $ 2,698
Interest Bearing 193,631 192,698
-------- --------
Total deposits 196,114 195,396
Other liabilities 2,334 1,124
Liability in connection with funds
borrowed by the ESOP to acquire common stock 0 74
-------- --------
TOTAL LIABILITIES 198,448 196,594
SHAREHOLDERS' EQUITY:
Preferred stock, par value $.10 per share-
authorized but unissued 15,000,000 shares
Common stock, par value $.10 per share-
authorized 25,000,000 shares in 1995 & 1994;
issued 6,360,112 shares in 1995 & 6,239,065 in 1994
outstanding shares- 5,620,262 in 1995 &
5,572,315 in 1994 636 624
Paid-in capital 31,634 30,346
Retained earnings 39,387 38,501
Net unrealized holding gain (loss) on AFS securities 3,004 (550)
-------- --------
74,661 68,921
Less: Unearned Compensation - ESOP 0 (74)
Cost of Treasury Stock: 1995-739,850 shares
1994-666,750 shares (5,781) (4,932)
-------- --------
Total Shareholders' Equity 68,880 63,915
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $267,328 $260,509
======== ========
Book value per share $ 12.26 *$ 11.25
======== ========
<FN>
(see notes to consolidated financial statements)
* Adjusted for a 2% stock dividend paid on March 15, 1995
</TABLE>
3
<PAGE> 4
<TABLE>
Portsmouth Bank Shares, Inc. and Subsidiary
Consolidated Statements of Income
- -------------------------------------------------------------------------------------------
<CAPTION>
Three Months Ended Nine Months Ended
September 30 (Unaudited)
(In thousands)
1995 1994 1995 1994
----- ----- ------ ------
<S> <C> <C> <C> <C>
Interest and dividend income:
Interest and fees on loans $1,695 $1,665 $5,061 $5,028
Interest on investment securities:
Taxable 2,074 2,147 6,674 6,600
Tax exempt 48 88 154 295
Other interest 560 296 1,105 659
Dividends on marketable equity securities 307 292 925 835
----- ----- ------ ------
Total interest and dividend income 4,684 4,488 13,919 13,417
----- ----- ------ ------
Interest expense:
Interest on deposits 1,965 1,510 5,402 4,495
----- ----- ----- -----
Total interest expense 1,965 1,510 5,402 4,495
----- ----- ----- -----
Net interest and dividend income 2,719 2,978 8,517 8,922
Provision for loan losses
Net interest and dividend income 0 0 0 0
after provision for loan losses ----- ----- ----- -----
2,719 2,978 8,517 8,922
----- ----- ----- -----
Other income:
Service charges on deposit accounts 63 60 195 192
Investment securities gains (losses) 1 (5) 188 204
Gain (Loss) on sale of OREO 0 (15) (7) (9)
Other 4 21 17 33
----- ----- ----- -----
68 61 393 420
----- ----- ----- -----
Other expense:
Salaries and employee benefits 534 514 1,615 1,510
Occupancy expense 101 123 300 363
Other 171 385 919 1,258
----- ----- ----- ------
806 1,022 2,834 3,131
----- ----- ----- ------
Income before income taxes 1,981 2,017 6,076 6,211
Income taxes 591 590 1,793 1,826
----- ----- ----- ------
Net income: $1,390 $1,427 $4,283 $4,385
====== ====== ====== ======
Earnings per share $ 0.25 *$ 0.25 $ 0.76 *$ 0.77
Dividends declared 0.13 * 0.12 0.38 * 0.33
====== ====== ====== ======
<FN>
(see notes to consolidated financial statements)
*Adjusted for a 2% stock dividend paid March 15, 1995
</TABLE>
4
<PAGE> 5
<TABLE>
Portsmouth Bank Shares, Inc. and Subsidiary
Consolidated Statements of Changes in Stockholders' Equity
September 30, 1995
(In thousands)
(Unaudited)
<CAPTION>
NET
Unrealized
Unearned Holding
Common Paid-in Retained Treasury Comp Gain (Loss)
Stock Capital Earnings Stock ESOP AFC Secur
----- ------- -------- ----- ---- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance, December, 31, 1993........... $414 $30,415 $36,638 $(3,908) $(147) $ 0
Net income............................ 5,887
Payment of principal on
Employee Stock Ownership
Plan loan....... ................... 73
Purchase of treasury stock............ (1,024)
Dividends declared ($.72 per share) (4,022)
Stock split declared.................. 208 (208)
Issuance of common stock.............. 2 139 (2)
Net realized holding gain (loss) on
available for sale securities....... (550)
---- ------- ------- ------- ----- ------
Balance, December 31, 1994............ 624 30,346 38,501 (4,932) (74) (550)
Net income............................ 4,283
Payment of principal on
Employee Stock Ownership
Plan loan........................... 74
Issuance of common stock.............. 1 52
Purchase of treasury stock............ (849)
Dividends declared ($.38 per share) (2,144)
Stock dividend declared............... 11 1,236 (1,253)
Change in net unrealized holding gain
(loss) on AFS securities............ 3,554
---- ------- ------- -------- ----- ------
Balance, September 30, 1995........... $636 $31,634 $39,387 $(5,781) $ 0 $3,004
==== ======= ======= ======== ===== ======
</TABLE>
5
<PAGE> 6
<TABLE>
Portsmouth Bank Shares, Inc. and Subsidiary
Consolidated Statements of Cash Flows
For the Nine Months Ended September 30,
<CAPTION>
1995 1994
---- ----
(Unaudited)
(In thousands)
<S> <C> <C>
Increase (decrease) in cash and cash equivalents:
Cash flows from operating activities:
Interest received $14,930 $ 14,311
Service charges and other income received 212 225
Cash paid to suppliers and employees (3,055) (3,285)
Income taxes paid (1,619) (2,041)
------- --------
Net cash provided by operating activities 5,071 4,700
------- --------
Cash flows from investing activities:
Proceeds received from sales of other
real estate owned 4 180
Purchases of securities available-for-sale (2,486) (16,381)
Purchases of securities held-to-maturity (14,115) (23,524)
Sales of securities available-for-sale 2,367 15,868
Maturities of securities available-for-sale 19,200 9,150
Maturities of securities held-to-maturity 21,340 11,913
Recoveries of loans previously charged off 1 0
Net decrease in loans 3,276 1,964
Capital expenditures (22) (4)
Increase (decrease) in other liabilities 57 (27)
Increase in other assets (142) (9)
------- --------
Net cash provided by (used in) investing
activities 29,480 (870)
------- --------
Cash flows from financing activities:
Proceeds from sale of common stock 53 72
Purchase of treasury stock (849) (885)
Net decrease in demand deposits, NOW, money
market and savings accounts (14,745) (3,558)
Net increase (decrease) in time deposits 15,463 (4,256)
Dividends paid (2,144) (1,901)
Fractional shares paid in cash (6) 0
------- --------
Net cash used in financing activities (2,228) (10,528)
------- --------
Net increase (decrease) in cash and cash
equivalents 32,323 (6,698)
Cash and cash equivalents at beginning of
period C 13,320 38,360
------- --------
Cash and cash equivalents at
end of period $45,643 $ 31,662
======= ========
</TABLE>
6
<PAGE> 7
<TABLE>
Portsmouth Bank Shares, Inc. and Subsidiary
Consolidated Statements of Cash Flows
For the Nine Months Ended September 30,
(Continued)
<CAPTION>
1995 1994
---- ----
(Unaudited)
(In thousands)
<S> <C> <C>
Reconciliation of net income to net cash
provided by operating activities:
Net income $4,283 $4,385
------ ------
Adjustments to reconcile net income to net
cash provided by operating activities:
Increase in cash surrender value (158) (116)
Depreciation and amortization 69 102
Increase (decrease) in taxes payable 174 (215)
Decrease (increase) in interest receivable 491 (140)
Increase (decrease) in interest payable 5 (15)
(Decrease) increase in accrued expenses (38) 15
Increase in prepaid expenses (26) (145)
Amortization, net of accretion, of investment
securities 559 1,023
Net gain on sales of investments securities (188) (204)
Change in unearned income (39) 11
Deferred compensation (68) (55)
Provision for loan loss 0 0
Writedown of other real estate owned 0 45
Gain (loss) on sales of other real estate owned 7 9
------ -------
Total adjustments 788 315
------ ------
Net cash provided by operating activities $5,071 $4,700
====== ======
Non-cash investing activities:
Loans transferred to other real estate owned $ 42 $ 189
Origination of loans for sales of other real
estate owned 255 46
Securities transferred to available-for-sale 0 141,397
Securities transferred from available-for-sale
to held-to-maturity 0 13,082
</TABLE>
7
<PAGE> 8
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
Note 1 - BASIS OF PRESENTATION:
The accompanying unaudited consolidated financial statements have
been prepared in accordance with generally accepted accounting
principles for interim financial information, the instruction to form
10Q and Article 10 of Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by generally accepted
accounting principles for a complete annual financial statement
presentation.
In the opinion of management, the accompanying financial
statements contain all adjustments necessary to present fairly the
financial position of Portsmouth Bank Shares, Inc. and subsidiary as of
September 30, 1995 and December 31, 1994 and the results of its operations
for the nine months ended September 30, 1995 and 1994. All adjustments are
of a normal recurring nature. Results of operations for the nine months
ended September 30, 1995 are not necessarily indicative of the results to be
expected for the entire year.
<TABLE>
Note 2 - LOANS BY CATEGORIES (in thousands):
<CAPTION>
September 30, December 31,
1995 1994
------------ -----------
<S> <C> <C>
Real estate - mortgage $68,744 $70,632
Real estate - construction 1,689 998
Commercial 404 2,386
Installment loans to individuals 6,241 6,169
------- -------
$77,078 $80,185
======= =======
</TABLE>
<TABLE>
ALLOWANCE FOR LOAN LOSSES - Changes in the allowance for loan losses
were as follows (in thousands):
<CAPTION>
September 30,
1995
------------
<S> <C>
Balance at January 1 $767
Provision for loan losses 0
Loans charged off 41
Loan recoveries 1
----
Balance at September 30 $727
====
</TABLE>
8
<PAGE> 9
Note 4 - OTHER REAL ESTATE OWNED:
Real estate acquired by the Bank as a result of foreclosure
or in substance foreclosure amounted to $727,000 on four properties, at
September 30, 1995. One property with a cost of $59,000 was sold in
October, 1995. The remaining properties are being actively marketed. The
Bank anticipates their sale during 1995.
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
required at the time of foreclosure or classification as in-substance
foreclosure is charged to the allowance for loan losses. Expenses incurred
in connection with maintaining these assets, subsequent write-downs and
gains or losses recognized upon sale are included in other expense.
NONACCRUAL, PAST DUE, AND RESTRUCTURED LOANS
<TABLE>
The following schedule summarizes Portsmouth's nonaccrual, past due, and
restructured loans.
<CAPTION>
September 30, December 31,
1995 1994
-------- --------
<S> <C> <C>
Nonaccrual Loans:
Commercial $109 $ 0
Residential 218 55
--- --
Total $327 $55
Accruing loans past
due 90 days or more 292 253
Restructured loans 0 0
</TABLE>
Management's policy is to, on a monthly basis, review loans that
are 90 days past due to determine the future collectibility of both
principal and interest. When income is determined to be uncollectible, the
loan is put on a nonaccrual status.
As of September 30, 1995 there were no potential problem loans
which management reasonably expects will materially impact future operating
results, liquidity or capital resources, or represent material credits which
causes management to have serious doubts as to the ability of the borrower
to comply with the loan repayment terms. There were no loan
concentrations exceeding 10% of total loans.
9
<PAGE> 10
Item 2.
-------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
-------
This financial review of Portsmouth Bank Shares, Inc. is intended
to broaden the understanding of the Company's financial condition and
operating results. This section should be read in conjunction with the
Company's consolidated financial statements, related notes and
supplementary financial data.
As a financial services organization, Portsmouth Bank Shares,
Inc. should be reviewed in terms of the trends in its cash flows and
changes in financial condition, as well as the yields on earning
assets compared with the cost of interest-bearing liabilities.
The results of operations are largely dependent upon net interest
income, which is the sum of interest and fees on loans and income on
investments less interest expense paid on deposits. Interest income is
a function of the average balance of loans and investments outstanding
during the period and the rates earned. Interest expense is a function
of the average balance of deposits outstanding during the period and the
rates paid during the period on such deposits. Net income is also affected
by the level of non- interest income and expenses.
Financial Condition
-------------------
At September 30, 1995, the Company's total assets were
$267,328,000 compared to $260,509,000 at December 31, 1994. Interest
bearing deposits with the Federal Home Loan Bank increased $32,330,000 due
to maturities and early calls of investment securities.
Deposits were $196,114,000 at September 30 1995, compared to
$195,396,000 at December 31, 1994. The increase in deposits is
attributable primarily to higher rates offered on our certificate accounts.
The Bank's liquidity position remains strong. The primary sources of
liquidity are in addition to the deposits at the Federal Home Loan Bank,
investments in U.S. Treasury securities of $64,999,000 on September 30,
1995.
Shareholders equity has increased to $68,880,000 at September 30,
1995 or 25.8% of total assets, compared to $63,915,000 or 24.5% of total
assets, December 31, 1994. The adjustment for net unrealized holding
gain on AFS securities at September 30, 1995 resulted in an increase of
$3,554,000 in shareholders equity. Management is not aware of any trends,
events or uncertainties that will have or that are reasonably likely to have
a material effect on the company's liquidity, capital resources or results
of operations.
Results of Operations:
----------------------
Comparison of Nine Months Ended September 30, 1995 and 1994
-----------------------------------------------------------
The Company earned $4,283,000 or $.76 per share for the nine months
ended September 30, 1995 compared to $4,385,000 or $.77 per share for the
1994 comparable period, after adjustment for a two percent stock dividend
paid March 15, 1995.
Net interest income totaled $8,517,000 for the current period compared
to $8,922,000 for the 1994 nine month period. The decrease in net interest
income is the direct result of average time certificates of deposit
increasing $8.1 million and the resultant rate paid on these deposits
increasing to 4.89% from 3.45%. The increase in the rate paid on average
time certificates of deposit attracted new money but also drew from existing
lower yielding day of deposit accounts. The rate paid on total
average interest bearing liabilities increased
10
<PAGE> 11
Management's Discussion and Analysis of Financial Condition and Results of
--------------------------------------------------------------------------
Operations. (Continued)
------------------------
to 3.71% or 79 basis points compared to 2.92% on September 30, 1994. The
yield on total average interest bearing assets was not able to keep
pace with the increase on the liability side. Specifically a weak loan
demand and more competitive bidding for tax exempt investment securities
hampered asset management. For the nine month comparative period, the net
interest rate spread declined 26 basis points to 3.69% from 3.95%.
There was no loan loss provision for the nine months ended
September 30, 1995 or 1994. The zero provision for both 1995 and 1994
reflects managements judgement of the adequacy of the loan loss reserve
and current market conditions. Management is not aware of any trends or
uncertainties which would materially impact results of future operations.
Other income amounted to $393,000 for September 30, 1995 compared
to $420,000 for the 1994 nine month period. The decrease of $27,000 is
due primarily to a reduction in investment securities gains of $16,000
and the net change in other income categories. Other expense totaled
$2,834,000 in the current period compared to $3,131,000 in the 1994 nine
months period, a decrease of $297,000. The decrease reflects a reduction in
general and administrative expenses of $166,000 and a refund on FDIC
assessments of $131,000.
Comparison of Three Months Ended September 30, 1995 and 1994
------------------------------------------------------------
The company had net income of $1,390,000 or $.25 per share, for the
three months ended September 30, 1995. For the 1994 period, net income
amounted to $1,427,000 or $.25 per share, after adjustment for a two percent
stock dividend paid March 15, 1995.
Net interest income, the difference between the amount of
interest earned on interest earning assets and amounts paid on interest
bearing liabilities amounted to $2,719,000 for the quarter ended
September 30, 1995 compared to $2,978,000 for the 1994 comparable quarter.
The decline in net interest income of $259,000 in the current
quarter was due primarily to a shift in the composition of average total
interest bearing liabilities, whereby time certificates of deposit balances
increased $14.3 million to $99.5 million and the rate paid increased 188
basis points to 5.40%. Further exacerbating this problem was the transfer
from lower yielding day of deposit accounts which declined $22.1 million
from the comparable September 1994 period. Total average interest
bearing assets also experienced change in their makeup as a number
of fixed income taxable investment securities were called which
resulted in an increase in interest bearing deposits with other banks.
These deposits yield 114 basis points less than the taxable investment
securities. The net interest rate spread for the current quarter was 3.41%,
a decrease of 55 basis points compared to 3.96% for the 1994 September
quarter.
There was no provision for loan losses in the current quarter nor
for the quarter ended September 30, 1994. The zero provision for 1995
provision reflects managements judgement of the adequacy of the loan
loss reserve and current market conditions. Management is not aware
of any trends or uncertainties which would materially impact results of
future operations.
Other income amounted to $68,000, an increase of $7,000 compared
to $61,000 for September 30, 1994. Other expense totaled $806,000 at
September 30, 1995 compared to $1,022,000 for the comparable 1994
quarter, a decrease of $216,000. An FDIC assessment refund of $131,000
and a decrease in general and administrative expenses of $85,000
accounted for this decrease.
11
<PAGE> 12
Management s Discussion and Analysis of Financial Condition and Results of
--------------------------------------------------------------------------
Operations. (Continued)
------------------------
<TABLE>
The following average balance sheets present for the periods
indicated the total dollar amount of interest income from earning assets
and the resultant yields as well as the interest paid on interest-bearing
liabilities, expressed both in dollars and rates:
<CAPTION>
Nine Months Ended September 30,
-------------------------------------------------------------
1995 1994
-------------------------------- ------------------------------
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
------- -------- ------ ------- -------- ----
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans.................... $ 77,366 $5,061 8.72% $ 79,137 $5,028 8.47%
Interest-bearing
deposits with other
banks.................. 24,591 1,105 5.99% 22,744 659 3.86%
Taxable investment
securities............. 144,446 7,599 7.01% 146,906 7,435 6.75%
Tax-exempt investment
securities............. 4,323 154 4.75% 11,539 295 3.41%
-------- ------ -------- ------
Total interest-earning
assets................... 250,726 13,919 7.40% 260,326 13,417 6.87%
Non-interest-earning
assets................... 9,566 10,466
-------- --------
Total.................. $260,292 $270,792
======== ========
Interest-bearing
liabilities:
Regular savings........ $ 50,967 1,030 2.69% $ 60,861 1,226 2.69%
NOW accounts........... 21,460 277 1.72% 21,970 293 1.78%
Money market
accounts............. 27,057 621 3.06% 35,954 738 2.74%
Time certificates of
deposit.............. 94,693 3,474 4.89% 86,546 2,238 3.45%
-------- ------- -------- ------
Total interest-bearing
liabilities.......... 194,177 5,402 3.71% 205,331 4,495 2.92%
Non-interest-bearing
liabilities.............. 851 1,737
Net worth.................. 65,264 63,724
-------- --------
Total.................. $260,292 $270,792
======== ------- ----- ======== ------ -----
Net interest income/
interest rate spread..... $8,517 3.69% $8,922 3.95%
======= ===== ====== =====
Net earning balance/net
yield on interest-earning
assets................... $56,549 4.53% $54,995 4.57%
-----------------------
</TABLE>
12
<PAGE> 13
Management s Discussion and Analysis of Financial Condition and Results of
--------------------------------------------------------------------------
Operations. (Continued)
------------------------
<TABLE>
The following average balance sheets present for the periods
indicated the total dollar amount of interest income from earning assets
and teh resultant yields as well as the interest paid on interest-bearing
liabilities, expressed both in dollars and rates:
<CAPTION>
Quarter Ended September 30,
---------------------------------------------------------------
1995 1994
-------------------------------- ------------------------------
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
------- -------- ---- ------- -------- ----
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans.................... $ 76,941 $1,695 8.81% $ 78,672 $1,665 8.47%
Interest-bearing
deposits with other
banks.................. 37,425 560 5.99% 26,133 296 4.53%
Taxable investment
securities............. 133,550 2,381 7.13% 144,313 2,439 6.76%
Tax-exempt investment
securities............. 4,071 48 4.72% 9,760 88 3.61%
-------- ------ -------- ------
Total interest-earning
assets................... 251,987 4,684 7.44% 258,878 4,488 6.93%
Noassets................... 9,944 10,316
-------- --------
Total.................. $261,931 $269,194
======== ========
Interest-bearing
liabilities:
Regular savings........ $ 49,192 335 2.72% $ 60,060 408 2.72%
NOW accounts........... 21,638 92 1.70% 22,553 101 1.79%
Money market
accounts............. 25,056 196 3.13% 35,453 251 2.83%
Time certificates of
deposit.............. 99,477 1,342 5.40% 85,144 750 3.52%
-------- ------- -------- ------
Total interest-bearing
liabilities.......... 195,363 1,965 4.02% 203,210 1,510 2.97%
Non-interest-bearing
liabilities.............. 1,319 1,654
Net worth.................. 65,249 64,330
-------- --------
Total.................. $261,931 $269,194
======== ------- ----- ======== ------ -----
Net interest income/
interest rate spread..... $2,719 3.41% $2,978 3.96%
======= ===== ====== =====
Net earning balance/net
yield on interest-earning
assets................... $ 56,624 4.32% $ 55,668 4.60%
-----------------------
</TABLE>
13
<PAGE> 14
Management s Discussion and Analysis of Financial Condition and Results of
--------------------------------------------------------------------------
Operations. (Continued)
------------------------
LIQUIDITY AND INTEREST RATE SENSITIVITY MANAGEMENT
The Company, on a monthly basis, manages its liquidity position
as part of its strategy to better meet the cash requirements for both its
banking activities and to be prepared to satisfy the needs of its
customers. Management seeks to assure adequate liquidity by maintaining
an appropriate match of the maturities of interest bearing assets and
liabilities.
Interest rate sensitivity management seeks to avoid fluctuating net
interest margins and to achieve consistent growth of net interest
income through periods of changing interest rates. To accomplish rate
sensitivity management requires maintaining an appropriate balance between
interest sensitive assets and liabilities. At September 30, 1995, the
Company's one year interest rate sensitivity cumulative gap position is
asset sensitive 8.2%, as a percent of total earning assets.
<TABLE>
The following table depicts the Company's interest rate sensitivity at
September 30, 1995.
<CAPTION>
Sensitivity Period
------------------------------------------------------------------
Beyond
0-3 mos. 6 mos. 1 year 1-3 years 3 years Total
-------- --------- ------ --------- -------- -----
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Loans.................. $ 7,448 $ 7,003 $ 9,707 $ 9,771 $ 43,149 $77,078
Investments............ 51,262 19,939 9,270 44,916 50,167 175,554
------- ------ ------- ------- ------- --------
Total................ $58,710 $26,942 $18,977 $54,687 $93,316 $252,632
======= ======= ======= ======= ======= ========
Interest-bearing liabilities:
Deposits................ $28,510 $28,811 $26,555 $48,000 $64,238 $196,114
======= ======= ======= ======= ======= ========
Period sensitivity gap...... $30,200 ($1,869) ($7,578) $6,687 $29,078 $56,518
Cumulative sensitivity gap... $30,200 $28,331 $20,753 $27,440 $56,518 $56,518
Cumulative sensitivity gap as
a percent of earning
assets................... 12.0% 11.2% 8.2% 10.9% 22.4%
</TABLE>
All categories of interest earning assets and that portion of
interest-bearing liabilities classed as certificates of deposits
($100,490) are scheduled based on each items individual contracted
maturity or the next interest rate repricing date. The remaining
interest-bearing deposits are spread through the various sensitivity
periods based on assumptions by management of activity relating to new
and run-off of account balances.
14
<PAGE> 15
Management s Discussion and Analysis of Financial Condition and Results of
--------------------------------------------------------------------------
Operations. (Continued)
------------------------
Capital Requirements
--------------------
The FDIC and the Federal Reserve Board have adopted minimum
capital ratios and guidelines for banks and bank holding companies (on a
consolidated basis) to provide a framework for assessing the adequacy of
capital.
Under its leverage capital adequacy guidelines, the FDIC requires that
insured state banks, such as this Bank, maintain a ratio of Tier 1 or core
capital to assets of not less than 3% for banks rated composite 1 under the
FDIC's CAMEL rating system and who are not experiencing or anticipating any
significant growth. For all other banks, the minimum core capital leverage
ratio is 4%. The FDIC may impose higher ratios for banks on a case-by-
absent unusual circumstances, receive FDIC approval of applications to
establish new branches or other transactions requiring approval.
The FDIC has adopted so-called "risk based capital" guidelines for
insured state non-member banks. These risk based guidelines generally
require the Company and the Bank to maintain a consolidated ratio of Tier 1
capital to risk-weighted assets, as defined, of at least 4%, and a
consolidated ratio of total capital (as the sum of Tier 1 and Tier 2
capital, as defined below) to risk-weighted assets of at least 8%. Banks
which are not rated composite 1 or 2 will generally be required to maintain
higher risk-based capital ratios determined by the FDIC on a case-by-case
basis.
TIER 1 or core capital consists of common stock, surplus,
undivided profits, disclosed capital reserves that represent a
segregation of undivided profits, foreign currency translation adjustments
and minority interests in consolidated subsidiaries less all intangible
assets other than certain mortgage servicing rights.
TIER 2 or supplementary capital consists of allowance for loan and
lease losses (up to certain maximums), perpetual preferred stock,
long-term (minimum 20 year maturity) preferred stock intermediate-term
(minimum 5-year maturity) preferred stock, hybrid capital intstruments
(including mandatory convertible securities) and term subordinated debt.
<TABLE>
<CAPTION>
Capital Ratios
--------------
Minimum
Regulatory Portsmouth
Capital Bank Shares, Inc.
Level 12/31/94 9/30/95
----- -------- -------
<S> <C> <C> <C>
Leveraged Capital 4.0% 24.5% 25.8%
Total Capital (sum of Tier 1 and 8.0% 57.9% 67.4%
Tier 2 capital) to Risk Weighted
Assets
</TABLE>
15
<PAGE> 16
Management s Discussion and Analysis of Financial Condition and Results of
--------------------------------------------------------------------------
Operations. (Continued)
------------------------
Restrictions on the Payment of Dividends or Distribution
--------------------------------------------------------
The New Hampshire Business Corporation Act (the "Business Corporation
Act") permits Portsmouth to pay dividends on its capital stock only from its
unreserved and unrestricted earned surplus or from its net profits for
the current fiscal year and the preceding fiscal year taken as a single
period.
The Bank is not subject to the Business Corporation Act, but the
payment of a cash dividend or distribution may be restricted if the effect
thereof would cause the net worth of the Bank to be reduced below either
the amount required for the distribution and liquidation account or in
the event that net worth requirements under New Hampshire or federal laws or
regulations limit such dividends or distributions. In addition, the Bank is
required under New Hampshire law to maintain a reserve of not less than 3% of
the amount of its deposits in cash or in specified kinds of short-term
investments, for the security of its depositors. The Bank has consistently
complied with this requirement. Furthermore, the Federal Deposit Insurance
Act prohibits the Bank from paying dividends on its capital stock if it is in
default in the payment of any assessment to the FDIC.
The Company is not under any regulatory restrictions regarding
retained earnings available for distribution. At September 30, 1995 all
of the retained earnings, $36.4 million, could be distributed in accordance
with Rule 4-08 (e) (1) of Regulations S-X.
Earnings appropriated to bad debt reserves for losses and
deducted for federal income tax purposes are not available for dividends
or distributions without the prior payment of taxes at the current income
tax rates on an amount greater than the amount appropriated to bad debt
reserves.
16
<PAGE> 17
PART II - OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings:
------- ------------------
Not Applicable
Item 2. Changes in Securities:
------- ----------------------
Not Applicable
Item 3. Defaults Upon Senior Securities:
------- --------------------------------
Not Applicable
Item 4. Submission of Matters to a Vote of Securities Holders:
------- ------------------------------------------------------
Not Applicable
Item 5. Other Information:
------- ------------------
Not Applicable
Item 6. Exhibits and Reports on Form 8-K:
------- ---------------------------------
a) Not Applicable
b) Not Applicable
17
<PAGE> 18
SIGNATURE
---------
Pursuant to the requirements of Section 13 or 15 (d) of the
Securities Exchange Act of 1934, Portsmouth Bank Shares, Inc., the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PORTSMOUTH BANK SHARES, INC.
Date: November 6, 1995 By: /s/ Harry R. Hart
----------------- -----------------------------
Harry R. Hart, President
and Chief Executive Officer
(Principal Financial Officer)
18
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS OF PORTSMOUTH BANK SHARES, INC. FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<EXCHANGE-RATE> 1
<CASH> 4,180
<INT-BEARING-DEPOSITS> 41,463
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 101,961
<INVESTMENTS-CARRYING> 37,024
<INVESTMENTS-MARKET> 36,938
<LOANS> 76,383
<ALLOWANCE> 727
<TOTAL-ASSETS> 267,328
<DEPOSITS> 196,114
<SHORT-TERM> 0
<LIABILITIES-OTHER> 2,334
<LONG-TERM> 0
<COMMON> 68,880
0
0
<OTHER-SE> 0
<TOTAL-LIABILITIES-AND-EQUITY> 267,328
<INTEREST-LOAN> 5,061
<INTEREST-INVEST> 7,753
<INTEREST-OTHER> 1,105
<INTEREST-TOTAL> 13,919
<INTEREST-DEPOSIT> 5,402
<INTEREST-EXPENSE> 5,402
<INTEREST-INCOME-NET> 8,517
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 188
<EXPENSE-OTHER> 2,629
<INCOME-PRETAX> 6,076
<INCOME-PRE-EXTRAORDINARY> 4,283
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,283
<EPS-PRIMARY> .76
<EPS-DILUTED> .76
<YIELD-ACTUAL> 4.53
<LOANS-NON> 327
<LOANS-PAST> 292
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 767
<CHARGE-OFFS> 41
<RECOVERIES> 1
<ALLOWANCE-CLOSE> 727
<ALLOWANCE-DOMESTIC> 727
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
