<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 March 31, 1996
---------------------------------------------------------------
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 -- 5,736,913 shares as of March 31, 1996
- ---------------------------------------------------------------------
<PAGE> 2
<TABLE>
FORM 10Q QUARTERLY REPORT -- TABLE OF CONTENTS
<CAPTION>
PART I - FINANCIAL INFORMATION Page
- ------------------------------
<S> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheets - March 31, 1996
and December 31, 1995 3
Consolidated Statements of Income - Three
months ended March 31, 1996 and 1995 4
Consolidated Statements of Changes in
Stockholders' Equity - March 31, 1996
and December 31, 1995 5
Consolidated Statements of Cash Flows - Three
months ended March 31, 1996 and 1995 6
Notes to Consolidated Financial Statements -
March 31, 1996 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
PART II - OTHER INFORMATION
- ---------------------------
Item 1. Legal Proceedings 16
Item 2. Changes in Securities 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURE 17
- ---------
</TABLE>
<PAGE> 3
Part I - Financial Information
Portsmouth Bank Shares, Inc. and Subsidiary
<TABLE>
Consolidated Balance Sheets
- --------------------------------------------------------------------------------------
<CAPTION>
March 31, Dec. 31,
1996 1995
-------- --------
(Unaudited)
(In thousands)
<S> <C> <C>
ASSETS
Cash and due from banks $ 4,892 $ 5,466
Interest-bearing deposits with
the Federal Home Loan Bank 61,858 55,458
Investment securities:
Held-to-maturity (market value $20,714 at March 31, 20,859 20,115
1996 and $19,963 at December 31, 1995)
Available-for-sale (at market) 90,751 103,318
Loans (Note 2) 83,553 77,852
Less: Unearned income (664) (674)
Allowance for loan losses (Note 3) (687) (727)
-------- --------
Net loans 82,202 76,451
Premises and equipment 886 895
Other real estate owned (Note 4) 236 668
Other assets 5,744 4,900
-------- --------
TOTAL ASSETS $267,428 $267,271
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Non-interest bearing $ 3,880 $ 2,802
Interest bearing 192,418 192,767
-------- --------
Total deposits 196,298 195,569
Other liabilities 4,138 3,927
-------- --------
TOTAL LIABILITIES 200,436 199,496
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 1996 & 1995;
issued 6,476,763 shares in 1996 & 6,362,748 in 1995
outstanding shares-5,736,913 in 1996 &
5,622,898 in 1995 648 636
Paid-in capital 33,324 31,646
Retained earnings 36,609 37,696
Net unrealized holding gain on AFS securities 2,192 3,578
-------- --------
72,773 73,556
Less: Cost of Treasury Stock: 1996-739,850 shares
1995-739,850 shares (5,781) (5,781)
-------- --------
Total Shareholders' Equity 66,992 67,775
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $267,428 $267,271
======== ========
Book value per share $ 11.68 *$ 11.82
======== ========
<FN>
(see notes to consolidated financial statements)
* Adjusted for a 2% stock dividend issued on March 15, 1996
</TABLE>
3
<PAGE> 4
Portsmouth Bank Shares, Inc. and Subsidiary
<TABLE>
Consolidated Statements of Income
- ---------------------------------------------------------------------------------------
<CAPTION>
Three Months Ended
March 31 (Unaudited)
(In thousands)
1996 1995
------ ------
<S> <C> <C>
Interest and dividend income:
Interest and fees on loans $1,723 $1,675
Interest on investment securities:
Taxable 1,693 2,320
Tax exempt 26 34
Other interest 778 248
Dividends on marketable equity securities 279 323
------ ------
Total interest and dividend income 4,499 4,600
------ ------
Interest expense 2,008 1,600
------ ------
Net interest and dividend income 2,491 3,000
Provision for loan losses 0 0
------ ------
Net interest and dividend income
after provision for loan losses 2,491 3,000
------ ------
Other income:
Service charges on deposit accounts 66 65
Investment securities gains 488 0
Gain (Loss) on sale of OREO (24) (7)
Other 4 9
------ ------
534 67
------ ------
Other expense:
Salaries and employee benefits 488 540
Occupancy expense 117 103
Other 316 381
------ ------
921 1,024
------ ------
Income before income taxes 2,104 2,043
Income taxes 643 596
------ ------
Net income: $1,461 $1,447
====== ======
Earnings per share $ 0.25 *$ 0.25
Dividends declared 0.15 * 0.12
====== ======
<FN>
(see notes to consolidated financial statements)
* Adjusted for a 2% stock dividend issued March 15, 1996
</TABLE>
4
<PAGE> 5
Portsmouth Bank Shares, Inc. and Subsidiary
<TABLE>
Consolidated Statements of Changes in Stockholders' Equity
<CAPTION>
March 31, 1996
(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, 1994 ................. $624 $30,346 $37,302 $(4,932) $(74) $ (550)
Net income ................................. 6,041
Payment of principal on
Employee Stock Ownership
Plan loan ................................. 74
Issuance of common stock ................... 1 64
Purchase of treasury stock ................. (849)
Dividends declared ($.78 per share) ........ (4,394)
Stock dividend declared .................... 11 1,236 (1,253)
Change in net unrealized holding gain
(loss) on AFS securities .................. 4,128
---- ------- ------- ------- ---- -------
Balance, December 31, 1995 ................. 636 31,646 37,696 (5,781) 0 3,578
Net income ................................. 1,461
Issuance of common stock ................... 1 9
Dividends declared ($.15 per share) ........ (861)
Stock dividend declared .................... 11 1,669 (1,687)
Change in net unrealized holding gain
(loss) on AFS securities .................. (1,386)
---- ------- ------- ------- ---- -------
Balance, March 31, 1996 .................... $648 $33,324 $36,609 $(5,781) $ 0 $ 2,192
==== ======= ======= ======= ==== =======
</TABLE>
5
<PAGE> 6
Portsmouth Bank Shares, Inc. and Subsidiary
<TABLE>
Consolidated Statements of Cash Flows
For the Three Months Ended March 31,
<CAPTION>
1996 1995
---- ----
(Unaudited)
(In thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,461 $ 1,447
Adjustments to reconcile net income to ne
cash provided by operating activities:
Increase in cash surrender value (38) (38)
Depreciation and amortization 14 23
Increase (decrease) in taxes payable 481 (418)
Decrease in interest receivable 6 368
Increase in interest payable 1 2
Increase (decrease) in accrued expenses 19 (55)
Increase in prepaid expenses (68) (198)
Amortization of securities, net of accretion 140 239
Net gain on sales of securities available-
for-sale (488) 0
Change in unearned income (10) (19)
Deferred compensation (19) (22)
Provision for loan loss 0 0
Loss on sales of other real estate owned 24 7
------- -------
Net cash provided by operating activities $ 1,523 $ 1,336
------- -------
Cash flows from investing activities:
Proceeds received from sales of other
real estate owned 57 0
Purchases of securities available-for-sale (9,782) (2,124)
Purchases of securities held-to-maturity (8,503) (4,501)
Sales of securities available-for-sale 6,926 0
Maturities of securities available-for-sale 13,500 11,075
Maturities of securities held-to-maturity 7,760 500
Net decrease (increase) in loans (5,390) 3,111
Capital expenditures (5) (17)
Increase (decrease) in other liabilities 455 (34)
Decrease (increase)in other assets (586) 921
------- -------
Net cash provided by (used in) investing
activities 4,432 8,931
------- -------
</TABLE>
6
<PAGE> 7
Portsmouth Bank Shares, Inc. and Subsidiary
<TABLE>
Consolidated Statements of Cash Flows
For the Three Months Ended March 31,
(Continued)
<CAPTION>
1996 1995
---- ----
(Unaudited)
(In thousands)
<S> <C> <C>
Cash flows from financing activities:
Proceeds from sale of common stock 10 0
Purchase of treasury stock 0 (577)
Net increase (decrease) in demand deposits,
NOW, money market and savings accounts 119 (11,030)
Net increase in time deposits 610 8,137
Dividends paid (861) (681)
Fractional shares paid in cash (7) (6)
------- --------
Net cash used in financing activities (129) (4,157)
------- --------
Net increase (decrease) in cash and cash
equivalents 5,826 6,110
Cash and cash equivalents at beginning of
period 60,924 13,320
------- --------
Cash and cash equivalents at end of period $66,750 $ 19,430
======= ========
Supplemental disclosures:
Loans transferred to other real estate owned $ 167 $ 0
Origination of loans for sales of other real
owned 518 226
Interest paid 2,007 1,598
Income taxes paid 162 1,014
</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 March 31, 1996 and December
31, 1995 and the results of its operations for the three months ended March 31,
1996 and 1995. All adjustments are of a normal recurring nature. Results of
operations for the three months ended March 31, 1996 are not necessarily
indicative of the results to be expected for the entire year.
<TABLE>
Note 2 - LOANS BY CATEGORIES (in thousands):
<CAPTION>
March 31, December 31,
1996 1995
-------- ------------
<S> <C> <C>
Real estate - mortgage $71,570 $70,716
Real estate - construction 666 693
Commercial 5,452 423
Installment loans to individuals 5,865 6,020
------- -------
$83,553 $77,852
======= =======
</TABLE>
<TABLE>
Note 3 - ALLOWANCE FOR LOAN LOSSES - Changes in the allowance for loan losses
were as follows (in thousands):
<CAPTION>
March 31,
1996
---------
<S> <C>
Balance at January 1 $727
Provision for loan losses 0
Loans charged off 40
Loan recoveries 0
----
Balance at March 31 $687
====
</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 $236,000 on four properties, at March 31,
1996. One property with a cost of $43,000 was sold in April, 1996. The remaining
properties are being actively marketed. The Bank anticipates their sale during
1996.
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>
March 31, December 31,
1996 1995
--------- ------------
<S> <C> <C>
Nonaccrual Loans:
Commercial $155 $264
Residential 120 219
---- ----
Total $275 $483
Accruing loans past
due 90 days or more 48 44
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 March 31, 1996 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
- -------------------
Total assets amounted to $267,428,000 at March 31, 1996, compared to
$267,271,000 on December 31, 1995. Net loans increased $5,751,000,
interest-bearing deposits with the Federal Home Loan Bank increased $6,400,000
while investment securities available-for-sale decreased $12,567,000. This
decrease is due primarily to early calls of investment securities by the issuer.
Deposits totaled $196,298,000 at March 31, 1996, compared to
$195,569,000 on December 31, 1995. The composition of deposits continues to
migrate into certificate accounts as seen in the average balance analysis on
page 12.
The Bank's liquidity consists of deposits at the Federal Home Loan Bank
of $61,858,000 and investments in U.S. Treasury securities of $40,781,000 for
total of $102,639,000 at March 31, 1996.
Shareholders equity equaled $66,992,000 at March 31, 1996, compared to
$67,775,000 on December 31, 1995, a decrease of $783,000. A reduction in net
unrealized holding gain on AFS securities of $1,386,000 after recording net
income of $1,461,000, less dividends paid totaling $861,000, accounts for the
decrease. Management is not aware of any trends, events or uncertainties that
will have or that are reasonably likely to have material effect on the company's
liquidity, capital resources or results of operations.
RESULTS OF OPERATIONS:
- ----------------------
COMPARISON OF THREE MONTHS ENDED MARCH 31, 1996 AND 1995
- --------------------------------------------------------
Net income for the current quarter totaled $1,461,000 or $.25 per share
compared to $1,447,000 or $.25 per share for the 1995 first quarter, after
adjustment for a two-percent stock dividend.
Net interest income amounted to $2,491,000 for the current period
compared to $3,000,000 for the 1995 first quarter, a decrease of $509,000 or
17.00%. This decrease is
10
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
- --------------------------------------------------------------------------
OPERATIONS.
- -----------
(CONTINUED)
attributable to the changes within our average balance sheet and a decline in
short-term rates.
Total interest-bearing assets reflect a decrease in taxable investment
securities of $42,320,000 due primarily to early calls by the issuer. The early
calls contributed to interest-bearing deposits with other banks increasing
$44,712,000. These funds earned an average rate of 5.05%.
Total interest-bearing liabilities reflect an increase in time
certificates of deposit of $12,021,000, as depositors seek higher yields, while
regular savings, NOW accounts and money market accounts collectively decreased a
total of $11,058,000. The average rate on time certificates of deposit increased
121 basis points to 5.38%. The interest rate spread stood at 3.95% at March 31,
1996, compared to 4.79% in 1995's first quarter.
There was no provision for loan losses in the current quarter nor for
the quarter ended March 31, 1995. The zero provision for 1996 reflects
managements judgment 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 $534,000, an increase of $467,000 compared to
$67,000 for March 31, 1995. Investment securities gains increased $488,000,
partially offset by the loss of $24,000 from the sale of other real estate
owned. Other expense totaled $921,000 at March 31, 1996, compared to $1,024,000
for the comparable 1995 quarter, a decrease of $103,000.
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>
Quarter Ended March 31,
-------------------------------------------------------------------------------
1996 1995
----------------------------------- -------------------------------------
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
------- -------- ---- ------- -------- ----
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans.................... $ 77,492 $1,723 8.89% $ 77,710 $1,675 8.62%
Interest-bearing
deposits with other
banks.................. 61,662 778 5.05% 16,950 248 5.85%
Taxable investment
securities............. 110,543 1,972 7.14% 152,863 2,643 6.92%
Tax-exempt investment
securities............. 2,618 26 3.97% 3,208 34 4.24%
-------- ------ -------- ------
Total interest-earning
assets................... 252,315 4,499 7.13% 250,731 4,600 7.34%
Non-interest-earning
assets................... 9,377 9,169
-------- --------
Total.................. $261,692 $259,900
======== ========
Interest-bearing
liabilities:
Regular savings........ $ 46,362 311 2.68% $ 53,670 358 2.67%
NOW accounts........... 22,279 95 1.71% 21,656 94 1.74%
Money market
accounts............. 24,657 239 3.88% 29,030 217 2.99%
Time certificates of
deposit.............. 101,397 1,363 5.38% 89,376 931 4.17%
-------- ------ -------- ------
Total interest-bearing
liabilities.......... 194,695 2,008 4.13% 193,732 1,600 3.30%
Non-interest-bearing
liabilities.............. 2,759 1,081
Net worth.................. 64,238 65,087
-------- --------
Total.................. $261,692 $259,900
======== ------ ---- ======== ------ ----
Net interest income/
interest rate spread..... $2,491 3.01% $3,000 4.04%
====== ==== ====== ====
Net earning balance/net
yield on interest-earning
assets................... $ 57,620 3.95% $ 56,999
4.79%
- -----------------------
</TABLE>
12
<PAGE> 13
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 March 31, 1996, the Company's one year interest rate
sensitivity cumulative gap position is asset sensitive 19.2%, as a percent of
total earning assets.
<TABLE>
The following table depicts the Company's interest rate sensitivity at March 31, 1996.
<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.................. $ 14,782 $ 8,719 $ 6,083 $ 9,665 $43,640 $ 82,889
Investments............ 89,650 7,498 11,123 23,102 38,524 169,897
-------- ------- -------- ------- ------- --------
Total................ $104,432 $16,217 $17,206 $32,767 $82,164 $252,786
======== ======= ======= ======= ======= ========
Interest-bearing liabilities:
Deposits................ $ 26,390 $24,860 $38,181 $43,971 $62,896 $196,298
======== ======= ======= ======= ======= ========
Period sensitivity gap...... $ 78,042 ($ 8,643) ($20,975) ($11,204) $19,268 $ 56,488
Cumulative sensitivity gap... $ 78,042 $69,399 $48,424 $37,220 $56,488 $ 56,488
Cumulative sensitivity gap as
a percent of earning
assets................... 30.9% 27.5% 19.2% 14.7% 22.3%
</TABLE>
All categories of interest earning assets and that portion of
interest-bearing liabilities classed as certificates of deposits ($102,472) 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.
13
<PAGE> 14
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 3/31/96 12/31/95
----- ------- --------
<S> <C> <C> <C>
Leveraged Capital 4.0% 25.3% 24.5%
Total Capital (sum of Tier 1 and 8.0% 60.1% 64.6%
Tier 2 capital) to Risk Weighted
Assets
</TABLE>
14
<PAGE> 15
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 March 31, 1996 all of the retained
earnings, $35.3 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.
15
<PAGE> 16
<TABLE>
PART II - OTHER INFORMATION
---------------------------
<CAPTION>
<S> <C>
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
</TABLE>
16
<PAGE> 17
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: May 8, 1996 By: /s/ Harry R. Hart
- ----------------- --------------------------
Harry R. Hart, President
and Chief Executive Officer
(Principal Financial Officer)
17
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF PORTSMOUTH BANK SHARES, INC. FOR THE THREE MONTHS ENDED
MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<CASH> 4,892
<INT-BEARING-DEPOSITS> 61,858
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 90,751
<INVESTMENTS-CARRYING> 20,859
<INVESTMENTS-MARKET> 20,714
<LOANS> 82,866
<ALLOWANCE> 687
<TOTAL-ASSETS> 267,428
<DEPOSITS> 196,298
<SHORT-TERM> 0
<LIABILITIES-OTHER> 4,138
<LONG-TERM> 0
0
0
<COMMON> 66,992
<OTHER-SE> 0
<TOTAL-LIABILITIES-AND-EQUITY> 267,428
<INTEREST-LOAN> 1,723
<INTEREST-INVEST> 1,998
<INTEREST-OTHER> 778
<INTEREST-TOTAL> 4,499
<INTEREST-DEPOSIT> 2,008
<INTEREST-EXPENSE> 2,008
<INTEREST-INCOME-NET> 2,491
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 488
<EXPENSE-OTHER> 921
<INCOME-PRETAX> 2,104
<INCOME-PRE-EXTRAORDINARY> 1,461
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,461
<EPS-PRIMARY> .25
<EPS-DILUTED> .25
<YIELD-ACTUAL> 3.95
<LOANS-NON> 275
<LOANS-PAST> 48
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 727
<CHARGE-OFFS> 40
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 687
<ALLOWANCE-DOMESTIC> 687
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
