<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 June 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 -- 5,624,762 shares as of June 30, 1995
- --------------------------------------------------------------------
<PAGE> 2
<TABLE>
FORM 10Q QUARTERLY REPORT -- TABLE OF CONTENTS
<CAPTION>
Page
<S> <C>
PART I - FINANCIAL INFORMATION
- ------ ----------------------
Item 1. Financial Statements
Consolidated Balance Sheets - June 30, 1995
and December 31, 1994 3
Consolidated Statements of Income - Three
and six months ended June 30, 1995 and 1994 4
Consolidated Statements of Changes in
Stockholders' Equity - June 30, 1995
and December 31, 1994 5
Consolidated Statements of Cash Flows - Six
months ended June 30, 1995 and 1994 6
Notes to Consolidated Financial Statements -
June 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>
June 30, Dec. 31,
1995 1994
-------- --------
(Unaudited)
(In thousands)
<S> <C> <C>
ASSETS
Cash and due from banks $ 4,869 $ 4,187
Interest-bearing deposits with
the Federal Home Loan Bank 27,539 9,133
Investment securities:
Held to maturity (market value $39,475 at June 30, 39,692 44,205
1995 and $43,004 at December 31, 1994)
Available for sale (at market) 108,537 110,702
Loans (Note 2) 77,283 80,185
Less: Unearned income (704) (734)
Allowance for loan losses (Note 3) (763) (767)
--------- ---------
Net loans 75,816 78,684
Premises and equipment 940 966
Other real estate owned (Note 4) 717 948
Other assets 5,201 11,684
-------- --------
TOTAL ASSETS $263,311 $260,509
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Non-interest bearing $ 2,002 $ 2,698
Interest bearing 191,000 192,698
-------- --------
Total deposits 193,002 195,396
Other liabilities 2,080 1,124
Liability in connection with funds
borrowed by the ESOP to acquire common stock 0 74
-------- --------
TOTAL LIABILITIES 195,082 196,594
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 6,357,112 shares in 1995 & 6,336,126 in 1994
outstanding shares- 5,624,762 in 1995 &
5,570,508 in 1994 636 624
Paid-in capital 31,619 30,346
Retained earnings 38,728 38,501
Net unrealized holding gain (loss) on AFS securities 2,939 (550)
-------- ---------
73,922 68,921
Less: Unearned Compensation - ESOP 0 (74)
Cost of Treasury Stock: 1995-732,350 shares
1994-666,750 shares (5,693) (4,932)
--------- ---------
Total Shareholders' Equity 68,229 63,915
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $263,311 $260,509
======== ========
Book value per share $ 12.13 *$ 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 Six Months Ended
June 30 (Unaudited)
(In thousands)
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest and dividend income:
Interest and fees on loans $1,691 $1,642 $3,366 $3,363
Interest on investment securities:
Taxable 2,280 2,201 4,600 4,453
Tax exempt 72 134 106 207
Other interest 297 169 545 363
Dividends on marketable equity securities 295 281 618 543
------ ------- ------ ------
Total interest and dividend income 4,635 4,427 9,235 8,929
------ ------- ------ ------
Interest expense:
Interest on deposits 1,837 1,483 3,437 2,985
----- ------ ----- -----
Total interest expense 1,837 1,483 3,437 2,985
----- ------ ----- -----
Net interest and dividend income 2,798 2,944 5,798 5,944
Provision for loan losses 0 0 0 0
----- ------ ----- -----
Net interest and dividend income 2,798 2,944 5,798 5,944
after provision for loan losses ----- ------ ----- -----
Other income:
Service charges on deposit accounts 67 68 132 132
Investment securities gains 187 138 187 209
Gain (Loss) on sale of OREO 0 6 (7) 6
Other 4 3 13 12
----- ------ ----- -----
258 215 325 359
----- ------ ----- -----
Other expense:
Salaries and employee benefits 541 483 1,081 996
Occupancy expense 96 122 199 240
Other 367 498 748 873
------ ------- ------ ------
1,004 1,103 2,028 2,109
------ ------- ------ ------
Income before income taxes 2,052 2,056 4,095 4,194
Income taxes 606 590 1,202 1,236
------ ------- ------ ------
Net income: $1,446 $1,466 $2,893 $2,958
====== ======= ====== ======
Earnings per share $ 0.26 *$ 0.26 $ 0.52 *$ 0.52
Dividends declared 0.13 * 0.11 0.25 * 0.22
====== ======= ====== ======
<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
<CAPTION>
June 30, 1995
(In thousands)
(Unaudited)
NET
Unrealized
Unearned Holding
Common Paid-in Retained Treasury Comp Gain (Loss)
Stock Capital Earnings Stock ESOP AFS Secur
----- ------- -------- ----- ---- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance December 31, 1993.......... $414 $30,415 $36,638 $(3,908) $(147) $
Net income......................... 5,887
Payment of principal on
Employee Stock Ownership
Plan loan....... ................. 73
Purchase of treasury stock......... (1,024)
Dividends declared ($.72 per share) (4,022)
Stock split declared............... 208 (208)
Issuance of common stock........... 2 139 (2)
Net realized holding gain (loss) on
available for sale securities.... (550)
---- ------- ------- ------- ---- -----
Balance, December 31, 1994......... 624 30,346 38,501 (4,932) (74) (550)
Net income......................... 2,893
Payment of principal on
Employee Stock Ownership
Plan loan......................... 74
Issuance of common stock........... 1 37
Purchase of treasury stock......... (761)
Dividends declared ($.25 per share) (1,413)
Stock dividend declared............ 11 1,236 (1,253)
Change in net unrealized holding gain
(loss) on AFS securities ......... 3,489
---- ------- ------- ---- ------
Balance, June 30, 1995............ $636 $31,619 $38,728 $(5,693) $ 0 $2,939
==== ======= ======= ======= ==== ======
</TABLE>
5
<PAGE> 6
<TABLE>
Portsmouth Bank Shares, Inc. and Subsidiary
Consolidated Statements of Cash Flows
For the Six Months Ended June 30,
<CAPTION>
1995 1994
---- ----
(Unaudited)
(In thousands)
<S> <C> <C>
Increase (decrease) in cash and cash equivalents
Cash flows from operating activities:
Interest received $10,173 $ 9,663
Service charges and other income received 145 144
Interest paid (3,434) (2,986)
Cash paid to suppliers and employees (2,203) (2,166)
Income taxes paid (401) (1,404)
------- -------
Net cash provided by operating activities 4,280 3,251
------- -------
Cash flows from investing activities:
Proceeds received from sales of other
real estate owned 0 52
Purchases of securities available-for-sale (2,124) (14,381)
Purchases of securities held-to-maturity (6,821) (15,060)
Sales of securities available-for-sale 2,062 15,761
Maturities of securities available-for-sale 12,600 4,550
Maturities of securities held-to-maturity 11,375 6,220
Recoveries of loans previously charged off 1 0
Net decrease in loans 3,121 2,056
Capital expenditures (20) (2)
(Decrease) increase in other liabilities (876) 93
Increase (decrease) in other assets 26 (115)
------- -------
Net cash provided by (used in) investing 19,344 (826)
activities ------- -------
Cash flows from financing activities:
Proceeds from sale of common stock 38 72
Purchase of treasury stock (761) (885)
Net decrease in demand deposits, NOW, money
market and savings accounts (15,702) (4,463)
Net increase (decrease) in time deposits 13,308 (4,564)
Dividends paid (1,419) (1,232)
------- -------
Net cash used in financing activities (4,536) (11,072)
------- -------
Net increase (decrease) in cash and cash
equivalents 19,088 (8,647)
Cash and cash equivalents at beginning of
period 13,320 38,360
------- -------
Cash and cash equivalents at end of period $32,408 $29,713
======= =======
</TABLE>
6
<PAGE> 7
<TABLE>
Portsmouth Bank Shares, Inc. and Subsidiary
Consolidated Statements of Cash Flows
For the Six Months Ended June 30,
(Continued)
<CAPTION>
1995 1994
---- ----
(Unaudited)
(In thousands)
<S> <C> <C>
Reconciliation of net income to net cash
provided by operating activities:
Net income $2,893 $2,958
------ ------
Adjustments to reconcile net income to net
cash provided by operating activities:
Increase in cash surrender value (87) (78)
Depreciation and amortization 46 68
Increase (decrease) in taxes payable 801 (168)
Decrease in interest receivable 545 91
Increase (decrease) in interest payable 3 (1)
Decrease in accrued expenses (70) (13)
Increase in prepaid expenses (18) (20)
Amortization, net of accretion, of investment
securities 423 632
Net gain on sales of investments (187) (209)
Change in unearned income (30) 11
Deferred compensation (46) (37)
Provision for loan loss 0 0
Writedown of other real estate owned 0 23
Gain (loss) on sales of other real estate owned 7 (6)
------ ------
Total adjustments 1,387 293
------ ------
Net cash provided by operating activities $4,280 $3,251
====== ======
Non-cash investing activities:
Loans transferred to other real estate owned $ 0 $ 189
Origination of loans for sales of other real
estate owned 226 0
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 June 30, 1995 and December
31, 1994 and the results of its operations for the six months ended June 30,
1995 and 1994. All adjustments are of a normal recurring nature. Results of
operations for the six months ended June 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>
June 30, December 31,
1995 1994
------------ -----------
<S> <C> <C>
Real estate - mortgage $69,297 $70,632
Real estate - construction 1,282 998
Commercial 409 2,386
Installment loans to individuals 6,295 6,169
------- -------
$77,283 $80,185
======= =======
</TABLE>
<TABLE>
Note 3 - ALLOWANCE FOR LOAN LOSSES - Changes in the allowance for loan losses
were as follows (in thousands):
<CAPTION>
June 30,
1995
------------
<S> <C>
Balance at January 1 $767
Provision for loan losses 0
Loans charged off 5
Loan recoveries 1
----
Balance at March 31 $763
====
</TABLE>
8
<PAGE> 9
Note 4 - OTHER REAL ESTATE OWNED:
Real estate acquired by the Bank as a result of foreclosure or
insubstance foreclosure amounted to $717,000 on three properties, at June 30,
1995. All 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. Any
write-down from book value to 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>
June 30, December 31,
1995 1994
-------- ------------
<S> <C> <C>
Nonaccrual Loans:
Commercial $109 $ 0
Residential 294 55
---- ---
Total $403 $55
Accruing loans past
due 90 days or more 452 253
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 June 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 June 30, 1995, the Company's total assets were $263,311,000
compared to $260,509,000 at December 31, 1994. Interest bearing deposits with
the Federal Home Loan Bank increased $18,406,000 due to maturities and early
calls of investment securities.
Deposits were $193,002,000 at June 30 1995, compared to $195,396,000
at December 31, 1994. The decline and or change of mix in deposits is
attributable to daily deposit accounts seeking higher returns via transfers to
our certificate accounts and competitive investment vehicles.
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 $65,228,000 on June 30, 1995.
Shareholders equity has increased to $68,229,000 at June 30, 1995 or
25.9% 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 June 30, 1995 resulted in an increase of $3,489,000 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 SIX MONTHS ENDED JUNE 30, 1995 AND 1994
- -----------------------------------------------------
The Company earned $2,893,000 or $.52 per share for the six months
ended June 30, 1995 compared to $2,958,000 or $.52 per share for the 1994
comparable period, after adjustment for a two percent stock dividend paid
March 15, 1995.
Net interest income totaled $5,798,000 for the current period compared
to $5,944,000 for the 1994 six month period. The change in net interest income
is attributable to a shift in the mix of declining average balances of
interest-earning assets and interest-bearing liabilities, an increase in
yield/rate and the resultant change in corresponding income
10
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
- --------------------------------------------------------------------------
OPERATIONS. (CONTINUED)
- ------------------------
and/or expense accounts. The composition of interest-earning assets reflects a
decline in interest-bearing deposits with other banks of $2,897,000 and
tax-exempt investment securities of $7,976,000. These short-term funds are now
generating yields substantially higher than the 1994 period, 1.55% and 1.42%
respectively. Loan balances declined $1,793,000 reflecting a sluggish economy
but the yield increased 21 basis points. Taxable investment securities
increased $1,706,000 as management locked in yields that averaged 89 basis
points higher than 1994. Interest-bearing liabilities reflect decreases in day
of deposit balance accounts of $17,844,000 with little change in rates paid,
while time certificates of deposit balances increased $5,032,000 at an average
cost of 4.62% compared to 3.41% for the 1994 period. The Company's interest
rate spread remained constant, 3.93% in 1995 compared to 3.95% in 1994.
There was no loan loss provision for the six months ended June 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 $325,000 for June 30, 1995 compared to
$359,000 for the 1994 six month period. The decrease of $34,000 is due
primarily to a reduction in investment securities gains of $22,000 and the net
change in sales of other real estate owned of $12,000. Other expense totaled
$2,028,000 in the current period compared to $2,109,000 in the 1994 six months
period, a decrease of $81,000.
COMPARISON OF THREE MONTHS ENDED JUNE 30, 1995 AND 1994
- -------------------------------------------------------
The company had net income of $1,446,000 or $.26 per share, for the
three months ended June 30, 1995. For the 1994 period, net income amounted to
$1,466,000 or $.26 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 $2,798,000 for the quarter ended June 30, 1995 compared
to $2,944,000 for the 1994 comparable quarter.
The factors contributing to the decline in net interest income of
$146,000 for the current quarter mirror those of the six month comparison,
specifically the change in deposit mix, an increase in yield/rate and the
results thereof. The most significant factor was the increase in average
balances of time certificates of deposit of $9,120,000 and an increase in the
rate paid to 5.04% from 3.40% in 1994. This increase escalated the cost of
deposits to 3.80%, a jump of 91 basis points over the 1994 quarter. Interest
rate spread at June 30, 1995 amounted to 3.63% compared to 3.94% for 1994.
There was no provision for loan losses in the current quarter nor for
the quarter ended June 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 $258,000, an increase of $43,000 compared to
$215,000 for June 30, 1994. Investment securities gains increased $49,000,
partially offset by the gain of $6,000 from the sale of other real estate
owned. Other expense totaled $1,004,000 at June 30, 1995 compared to
$1,103,000 for the comparable 1994 quarter, a decrease of $99,000.
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>
Six Months Ended June 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.................... $ 77,579 $3,366 8.68% $ 79,372 $3,363 8.47%
Interest-bearing
deposits with other
banks.................. 18,176 545 6.00% 21,073 363 3.45%
Taxable investment
securities............. 149,890 5,218 6.96% 148,184 4,996 6.07%
Tax-exempt investment
securities............. 4,465 106 4.75% 12,441 207 3.33%
-------- ------ -------- ------
Total interest-earning
assets................... 250,110 9,235 7.48% 261,070 8,929 6.84%
Non-interest-earning
assets................... 9,402 10,531
-------- --------
Total.................. $259,512 $271,601
======== ========
Interest-bearing
liabilities:
Regular savings........ $ 51,861 695 2.68% $ 61,268 818 2.67%
NOW accounts........... 21,378 185 1.73% 21,673 192 1.77%
Money market
accounts............. 28,064 425 3.03% 36,206 487 2.69%
Time certificates of
deposit.............. 92,294 2,132 4.62% 87,262 1,488 3.41%
-------- ------ -------- ------
Total interest-bearing
liabilities.......... 193,597 3,437 3.55% 206,409 2,985 2.89%
Non-interest-bearing
liabilities.............. 1,453 1,778
Net worth.................. 64,462 63,414
-------- --------
Total.................. $259,512 $271,601
======== ------ ----- ======== ------ -----
Net interest income/
interest rate spread..... $5,798 3.93% $5,944 3.95%
====== ===== ====== =====
Net earning balance/net
yield on interest-earning
assets................... $56,513 4.64% $54,661 4.55%
</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 the resultant yields as well as the interest paid on interest-bearing liabilities, expressed both in dollars and
rates:
<CAPTION>
Quarter Ended June 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.................... $ 77,444 $1,691 8.73% $ 78,524 $1,642 8.36%
Interest-bearing
deposits with other
banks.................. 19,421 297 6.12% 17,172 169 3.94%
Taxable investment
securities............. 146,954 2,575 7.01% 147,698 2,482 6.72%
Tax-exempt investment
securities............. 5,710 72 5.04% 15,983 134 5.08%
-------- ------ -------- ------
Total interest-earning
assets................... 249,529 4,635 7.43% 259,377 4,427 6.83%
Non-interest-earning
assets................... 9,579 10,679
-------- --------
Total.................. $259,108 $270,056
======== ========
Interest-bearing
liabilities:
Regular savings........ $ 50,080 337 2.69% $ 61,050 409 2.68%
NOW accounts........... 21,132 91 1.72% 22,038 98 1.78%
Money market
accounts............. 26,611 208 3.13% 35,777 244 2.73%
Time certificates of
deposit.............. 95,164 1,201 5.04% 86,044 732 3.40%
-------- ------- -------- ----
Total interest-bearing
liabilities.......... 192,987 1,837 3.80% 204,909 1,483 2.89%
Non-interest-bearing
liabilities.............. 1,453 1,596
Net worth.................. 64,668 63,551
-------- --------
Total.................. $259,108 $270,056
======== ------- ----- ======== ------ -----
Net interest income/
interest rate spread..... $2,798 3.63% $2,944 3.94%
======= ===== ====== =====
Net earning balance/net
yield on interest-earning
assets................... $56,542 4.49% $54,468 4.53%
</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 June 30, 1995, the Company's one year
interest rate sensitivity cumulative gap position is asset sensitive 5.9%, as a
percent of total earning assets.
<TABLE>
The following table depicts the Company's interest rate sensitivity at June 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.................. $ 9,802 $ 8,999 $ 6,871 $ 9,432 $ 42,179 $ 77,283
Investments............ 41,000 3,997 26,731 48,853 38,299 158,880
------- -------- ------- ------- -------- --------
Total................ $50,802 $ 12,996 $33,602 $58,285 $ 80,478 $236,163
======= ======== ======= ======= ======== ========
Interest-bearing liabilities:
Deposits................ $26,243 $ 24,089 $33,024 $46,151 $ 63,495 $193,002
======= ======== ======= ======= ======== ========
Period sensitivity gap...... $24,559 $(11,093) $ 578 $12,134 $ 16,983 $ 43,161
Cumulative sensitivity gap... $24,559 $ 13,466 $14,044 $26,178 $ 43,161 $ 43,161
Cumulative sensitivity gap as
a percent of earning
assets................... 10.4% 5.7% 5.9% 11.1% 18.3%
</TABLE>
All categories of interest earning assets and that portion of
interest-bearing liabilities classed as certificates of deposits ($98,343) 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-case
basis. Banks that fail to meet these minimum leverage capital levels will not,
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 instruments (including mandatory
convertible securities) and term subordinated debt.
<TABLE>
Capital Ratios
--------------
<CAPTION>
Minimum
Regulatory Portsmouth
Capital Bank Shares, Inc.
Level 12/31/94 6/30/95
----- -------- -------
<S> <C> <C> <C>
Leveraged Capital 4.0% 24.5% 25.9%
Total Capital (sum of Tier 1 and Tier 2 capital) 8.0% 57.9% 65.6%
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 June 30, 1995 all of the
retained earnings, $35.9 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: August 4, 1995 By: /s/ Harry R. Hart
------------------ -----------------------------
Harry R. Hart, President
and Chief Executive Officer
(Principal Financial Officer)
18
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<EXCHANGE-RATE> 1
<CASH> 4,869
<INT-BEARING-DEPOSITS> 27,539
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 108,537
<INVESTMENTS-CARRYING> 39,692
<INVESTMENTS-MARKET> 39,475
<LOANS> 77,283
<ALLOWANCE> 763
<TOTAL-ASSETS> 263,311
<DEPOSITS> 193,002
<SHORT-TERM> 0
<LIABILITIES-OTHER> 2,080
<LONG-TERM> 0
<COMMON> 68,229
0
0
<OTHER-SE> 0
<TOTAL-LIABILITIES-AND-EQUITY> 263,311
<INTEREST-LOAN> 3,366
<INTEREST-INVEST> 5,324
<INTEREST-OTHER> 545
<INTEREST-TOTAL> 9,235
<INTEREST-DEPOSIT> 3,437
<INTEREST-EXPENSE> 3,437
<INTEREST-INCOME-NET> 5,798
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 187
<EXPENSE-OTHER> 1,890
<INCOME-PRETAX> 4,095
<INCOME-PRE-EXTRAORDINARY> 2,893
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,893
<EPS-PRIMARY> .52
<EPS-DILUTED> .52
<YIELD-ACTUAL> 4.64
<LOANS-NON> 403
<LOANS-PAST> 452
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 767
<CHARGE-OFFS> 5
<RECOVERIES> 1
<ALLOWANCE-CLOSE> 763
<ALLOWANCE-DOMESTIC> 763
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
