<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, 1997
--------------------------------------------------------------
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 -- 5,872,334 shares as of March 31, 1997
- ---------------------------------------------------------------------
<PAGE> 2
FORM 10Q QUARTERLY REPORT -- TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION Page
- ------------------------------
Item 1. Financial Statements
Consolidated Balance Sheets - March 31, 1997
and December 31, 1996 3
Consolidated Statements of Income - Three
months ended March 31, 1997 and 1996 4
Consolidated Statements of Changes in
Stockholders' Equity - March 31, 1997
and December 31, 1996 5
Consolidated Statements of Cash Flows - Three
months ended March 31, 1997 and 1996 6
Notes to Consolidated Financial Statements -
March 31, 1997 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
SIGNATURES 17
- ----------
<PAGE> 3
Part I - Financial Information
Portsmouth Bank Shares, Inc. and Subsidiary
Consolidated Balance Sheets
<TABLE>
- ---------------------------------------------------------------------------------
<CAPTION>
March 31, Dec. 31,
1997 1996
-------- ----------
(Unaudited)
(In thousands)
<S> <C> <C>
ASSETS
Cash and due from banks $ 6,107 $ 6,149
Interest-bearing deposits with
the Federal Home Loan Bank 44,752 53,983
Investment securities:
Held-to-maturity (market value $21,326 at March 31, 21,504 12,013
1997 and $11,984 at December 31, 1996)
Available-for-sale (at market) 86,698 93,291
Loans (Note 2) 98,637 101,416
Less: Unearned income (670) (687)
Allowance for loan losses (Note 3) (688) (687)
-------- --------
Net loans 97,279 100,042
Premises and equipment 890 886
Other real estate owned (Note 4) 100 100
Other assets 5,591 5,105
-------- --------
TOTAL ASSETS $262,921 $271,569
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Non-interest bearing $ 3,575 $ 4,378
Interest bearing 190,515 193,770
-------- --------
Total deposits 194,090 198,148
Other liabilities 2,765 7,344
-------- --------
TOTAL LIABILITIES 196,855 205,492
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;
issued 6,657,184 shares in 1997 & 6,496,271 in 1996
outstanding shares - 5,872,334 in 1997 &
5,711,421 in 1996 666 650
Paid-in capital 35,416 33,423
Retained earnings 35,955 37,097
Net unrealized holding gain on AFS securities 393 1,271
-------- --------
72,430 72,441
Less: Cost of Treasury Stock: 1997-784,850 shares
1996-784,850 shares (6,364) (6,364)
-------- --------
Total Shareholders' Equity 66,066 66,077
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $262,921 $271,569
======== ========
Book value per share $ 11.25 *$ 11.34
======== ========
</TABLE>
(see notes to consolidated financial statements)
* Adjusted for a 2% stock dividend issued March 15, 1997
3
<PAGE> 4
Portsmouth Bank Shares, Inc. and Subsidiary
Consolidated Statements of Income
<TABLE>
- --------------------------------------------------------------------------------
<CAPTION>
Three Months Ended
March 31 (Unaudited)
(In thousands)
1997 1996
---- ----
<S> <C> <C>
Interest and dividend income:
Interest and fees on loans $1,965 $1,723
Interest on investment securities:
Taxable 1,490 1,693
Tax exempt 4 26
Other interest 821 778
Dividends on marketable equity securities 300 279
------ ------
Total interest and dividend income 4,580 4,499
Interest expense 1,995 2,008
------ ------
Net interest and dividend income 2,585 2,491
Provision for loan losses 0 0
------ ------
Net interest and dividend income
after provision for loan losses 2,585 2,491
------ ------
Other income:
Service charges on deposit accounts 69 66
Investment securities gains 166 488
Gain (Loss) on sale of OREO 0 (24)
Other 7 4
------ ------
242 534
------ ------
Other expense:
Salaries and employee benefits 551 488
Occupancy expense 86 117
Other 251 316
------ ------
888 921
------ ------
Income before income taxes 1,939 2,104
Income taxes 431 643
------ ------
Net income: $1,508 $1,461
====== ======
Earnings per share $ 0.26 *$ 0.25
Dividends declared 0.15 * 0.15
====== =======
</TABLE>
(see notes to consolidated financial statements)
*Adjusted for a 2% stock dividend issued March 15, 1997
4
<PAGE> 5
Portsmouth Bank Shares, Inc. and Subsidiary
Consolidated Statements of Changes in Stockholders' Equity
March 31, 1997
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Net
Unrealized
Holding
Common Paid-in Retained Treasury Gain (Loss)
Stock Capital Earnings Stock AFS Secur
----- ------- -------- ----- ---------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995............ $636 $31,646 $37,696 $(5,781) $ 3,578
Net income............................ 5,957
Issuance of common stock.............. 3 108
Purchase of treasury stock............ (583)
Dividends declared ($.85 per share) (4,869)
Stock dividend declared............... 11 1,669 (1,687)
Change in net unrealized holding gain
(loss) on AFS securities............. (2,307)
---- ------- ------- ------- -------
Balance, December 31, 1996............ 650 33,423 37,097 (6,364) 1,271
Net income............................ 1,508
Issuance of common stock.............. 5 242
Dividends declared ($.15 per share) (880)
Stock dividend declared............... 11 1,751 (1,770)
Change in net unrealized holding gain
(loss) on AFS securities............. (878)
---- ------- ------- ------- -------
Balance, March 31, 1997............... $666 $35,416 $35,955 $(6,364) $ 393
==== ======= ======= ======= =======
</TABLE>
5
<PAGE> 6
Portsmouth Bank Shares, Inc. and Subsidiary
Consolidated Statements of Cash Flows
For the Three Months Ended March 31,
<TABLE>
<CAPTION>
1997 1996
---- ----
(Unaudited)
(In thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,508 $ 1,461
Adjustments to reconcile net income to net
cash provided by operating activities:
Increase in cash surrender value (29) (38)
Depreciation and amortization 8 14
Increase in taxes payable 345 481
(Increase) decrease in interest receivable (309) 6
Increase in interest payable 2 1
Increase in accrued expenses 15 19
Increase in prepaid expenses (81) (68)
Increase in other liabilities 37 455
Increase in other assets (28) (586)
Amortization of securities, net of accretion 95 140
Net gain on sales of securities available-
for-sale (166) (488)
Change in unearned income (17) (10)
Deferred compensation (22) (19)
Provision for loan loss 0 0
Loss on sales of other real estate owned 0 24
-------- -------
Net cash provided by operating activities $ 1,358 $ 1,392
-------- -------
Cash flows from investing activities:
Proceeds received from sales of other
real estate owned 0 57
Purchases of securities available-for-sale (8,492) (9,782)
Purchases of securities held-to-maturity (14,498) (8,503)
Sales of securities available-for-sale 5,789 6,926
Maturities of securities available-for-sale 3,500 13,500
Maturities of securities held-to-maturity 5,000 7,760
Recoveries of loans previously charged off 1 0
Net decrease (increase) in loans 2,779 (5,390)
Capital expenditures (12) (5)
-------- -------
Net cash provided by (used in) investing
activities (5,933) 4,563
-------- -------
</TABLE>
6
<PAGE> 7
Portsmouth Bank Shares, Inc. and Subsidiary
Consolidated Statements of Cash Flows
For the Three Months Ended March 31,
(Continued)
<TABLE>
<CAPTION>
1997 1996
---- ----
(Unaudited)
(In thousands)
<S> <C> <C>
Cash flows from financing activities:
Proceeds from sale of common stock 247 10
Purchase of treasury stock 0 0
Net increase (decrease) in NOW
and savings accounts (1,717) 119
Net increase (decrease) in time deposits (2,340) 610
Dividends paid (880) (861)
Fractional shares paid in cash (8) (7)
------- -------
Net cash provided by (used in)
financing activities (4,698) (129)
------- -------
Net increase (decrease) in cash and cash
equivalents (9,273) 5,826
Cash and cash equivalents at beginning of
period 60,132 60,924
------- -------
Cash and cash equivalents at end of period $50,859 $66,750
======= =======
Supplemental disclosures:
Loans transferred to other real estate owned $ 0 $ 167
Origination of loans for sales of other real
owned 0 518
Interest paid 1,993 2,007
Income taxes paid 86 162
</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 10-Q 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, 1997 and December 31, 1996 and
the results of its operations for the three months ended March 31, 1997 and
1996. All adjustments are of a normal recurring nature. Results of operations
for the three months ended March 31, 1997 are not necessarily indicative of the
results to be expected for the entire year.
Note 2 - LOANS BY CATEGORIES (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
--------- ------------
<S> <C> <C>
Real estate - mortgage $80,722 $ 80,500
Real estate - construction 1,371 1,276
Commercial 10,539 13,462
Installment loans to individuals 6,005 6,178
------- --------
$98,637 $101,416
======= ========
</TABLE>
Note 3 - ALLOWANCE FOR LOAN LOSSES - Changes in the allowance for loan losses
were as follows (in thousands):
<TABLE>
<CAPTION>
March 31,
1997
---------
<S> <C>
Balance at January 1 $687
Provision for loan losses 0
Loans charged off 0
Loan recoveries 1
----
Balance at March 31, 1997 $688
====
</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 $100,000 on two properties, at March 31, 1997.
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
The following schedule summarizes Portsmouth's nonaccrual, past due, and
restructured loans.
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
--------- ------------
<S> <C> <C>
Nonaccrual Loans:
Commercial $155 $155
Residential 300 421
---- ----
Total $455 $576
Accruing loans past
due 90 days or more 441 347
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, 1997 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
- -------------------
Balance sheet footings amounted to $262,921,000 at March 31, 1997, compared
to $271,569,000 on December 31, 1996, a decrease of $8,648,000. Investment
securities of $4.5 million acquired in December of 1996, funded in January of
1997, and a net decrease in deposits of $4.1 million to $194,090,000 comprise
this decrease.
The Bank's liquidity remains strong at March 31, 1997. Deposits at the
Federal Home Loan Bank amounted to $44,752,000 and investments in U.S.
Treasuries stood at $36,825,000 for a total of $81,577,000.
Shareholders' equity totaled $66,066,000 or 25.1% of total assets at March
31, 1997. 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, 1997 AND 1996
- --------------------------------------------------------
Net income for the current quarter totaled $1,508,000 or $.26 per share
compared to $1,461,000 or $.25 per share for the 1996 first quarter, after
adjustment for the two-percent stock dividend issued in March, 1997.
Net interest income amounted to $2,585,000 for the current period compared
to $2,491,000 for the 1996 first quarter, an increase of $94,000 or 3.8%. This
increase is attributable to an increase in average loans of $13,503,000,
partially offset by a 25 basis point decrease in the yield to 8.64%, as the
competition for loans intensified. The yield on average taxable investment
securities increased 17 basis points to 7.31% however, average outstanding
balances decreased $12,653,000 as more investment funds were channeled into
loans to meet local community needs. Total interest-bearing liability costs
stabilized reflecting an increase of only $13,000. The net interest spread
increased 14 basis points to 3.15% at March 31, 1997.
10
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
- --------------------------------------------------------------------------
OPERATIONS. (CONTINUED)
- -----------------------
There was no provision for loan losses in the current quarter nor for the
quarter ended March 31, 1996. The zero provision for 1997 reflects management's
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 $242,000, a decrease of $292,000 compared to
$534,000 for March 31, 1996. Investment securities gains decreased $322,000,
partially offset by the loss of $24,000 from the sale of other real estate
owned. Other expense totaled $888,000 at March 31, 1997, compared to $921,000
for the comparable 1996 quarter, a decrease of $33,000.
11
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
- --------------------------------------------------------------------------
OPERATIONS. (CONTINUED)
- -----------------------
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:
<TABLE>
<CAPTION>
Quarter Ended March 31,
--------------------------------------------------------------------------
1997 1996
-------------------------------- -------------------------------------
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
------- -------- ---- ------- -------- ----
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans.................... $ 90,995 $1,965 8.64% $ 77,492 $1,723 8.89%
Interest-bearing
deposits with other
banks.................. 64,849 821 5.06% 61,662 778 5.05%
Taxable investment
securities............. 97,890 1,790 7.31% 110,543 1,972 7.14%
Tax-exempt investment
securities............. 389 4 4.11% 2,618 26 3.97%
-------- ------ -------- ------
Total interest-earning
assets................... 254,123 4,580 7.21% 252,315 4,499 7.13%
Non-interest-earning
assets................... 9,696 9,377
-------- --------
Total.................. $263,819 $261,692
======== ========
Interest-bearing
liabilities:
Regular savings........ $ 45,131 301 2.67% $ 46,362 311 2.68%
NOW accounts........... 24,022 96 1.60% 22,279 95 1.71%
Money market
accounts............. 23,569 183 3.11% 24,657 192 3.11%
Time certificates of
deposit.............. 103,784 1,369 5.28% 101,397 1,363 5.38%
Other interest expense. 0 46 0 47
-------- ------ ------- ------
Total interest-bearing
liabilities.......... 196,506 1,995 4.06% 194,695 2,008 4.13%
Non-interest-bearing
liabilities.............. 2,509 2,759
Net worth.................. 64,804 64,238
-------- --------
Total.................. $263,819 $261,692
======== ------ ---- ======== ------ ----
Net interest income/
interest rate spread..... $2,585 3.15% $2,491 3.01%
====== ==== ====== ====
Net earning balance/net
yield on interest-earning
assets................... $ 57,617 4.07% $ 57,620
3.95%
</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, 1997, the Company's one year interest rate
sensitivity cumulative gap position is asset sensitive 23.2%, as a percent of
total earning assets.
The following table depicts the Company's interest rate sensitivity at March 31,
1997.
<TABLE>
<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.................... $ 20,375 $ 9,103 $ 6,890 $ 9,194 $53,075 $ 98,637
Investments.............. 83,260 9,000 9,517 7,468 43,069 152,314
-------- ------- -------- -------- ------- --------
Total.................. $103,635 $18,103 $ 16,407 $ 16,662 $96,144 $250,951
======== ======= ======== ======= ======= ========
Interest-bearing liabilities:
Deposits................. $ 16,954 $25,750 $ 37,197 $ 55,014 $59,175 $194,090
======== ======= ======== ======== ======= ========
Period sensitivity gap....... $ 86,681 $(7,647) $(20,790) $(38,352) $36,969 $56,861
Cumulative sensitivity gap... $ 86,681 $79,034 $ 58,244 $ 19,892 $56,861 $56,861
Cumulative sensitivity gap as
a percent of earning
assets................... 34.5% 31.5% 23.2% 7.9% 22.7%
</TABLE>
All categories of interest earning assets and that portion of
interest-bearing liabilities classed as certificates of deposits ($102,483) 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 12/31/96 3/31/97
----- -------- -------
<S> <C> <C> <C>
Leveraged Capital 4.0% 24.0% 25.0%
Total Capital (sum of Tier 1 and 8.0% 58.6% 60.4%
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, 1997 all of the retained
earnings, $35.4 million, could be distributed in accordance with Rule 4-08 (e)
(1) of Regulation 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
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
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 6, 1997 By: /s/ Harry R. Hart
---------------------------------
Harry R. Hart, President
and Chief Executive Officer
(Principal Financial Officer)
17
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 6,107
<INT-BEARING-DEPOSITS> 44,752
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 86,698
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0
0
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</TABLE>
