ITEM 1. BUSINESS
THE COMPANY
Bank of New Hampshire Corporation (the "Company") is a registered bank holding company incorporated in 1979 under the laws of the State of New Hampshire. The Company is a member of the Federal Reserve System and transacts its business through its only subsidiary, Bank of New Hampshire (the "Bank"), a state-chartered, Federal Reserve non-member, commercial bank organized under the laws of the State, headquartered, along with the executive offices of the Company, at 300 Franklin Street, Manchester, New Hampshire 03105 (telephone 603-624-6600).
The Company assumed its present structure on September 30, 1991, with the merger of its five separate subsidiary banks into the Bank. The Company conducts its business through twenty-eight offices of the Bank located throughout the southern, central, seacoast, and lakes regions of New Hampshire, which areas contain approximately 80% of the State's population, and employs approximately 570 employees.
BUSINESS OF THE COMPANY
The Bank is a full service commercial bank engaged in providing a wide variety of financial services to New Hampshire individuals, businesses and governments, including commercial and real estate lending, retail banking, consumer finance, mortgage origination, sales and servicing, cash management, and trust and investment services. Through its Trust and Investment Services Division, the Bank administers estates, personal and corporate trusts, and provides fiduciary services to individuals, businesses, and governments. The Bank also offers electronic banking services through a network of twenty-four ATMs. The Bank maintains a centralized data processing facility at its Data Services Center located in Manchester, New Hampshire.
The Company, from time to time, may investigate possible future acquisitions of deposits and banking assets which could strengthen the Company and enhance market coverage within New Hampshire. No agreements presently exist regarding possible future acquisitions. The Company, primarily, provides management resources to the Bank.
Activities in which the Company and the Bank are presently engaged or which they may undertake in the future are subject to certain statutory and regula-
tory restrictions. Banks and bank holding companies are extensively regulated under both federal and state law. There are various legal limitations upon the extent to which the Bank can finance or otherwise supply funds to the Company. In addition, there are certain regulatory limitations on the payment of dividends by the Company and by the Bank. See "REGULATORY MATTERS," "DIVIDENDS AND DIVIDEND POLICY," and "SUPERVISION AND REGULATION," on pages 5 and 7 of this Report.
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COMPETITION
The business of the Bank is extremely competitive. In addition to competing actively with other commercial banks in their market area for deposits and loans, the Bank competes with larger commercial banks located outside of New Hampshire. The Bank also competes with other financial institutions, including mutual and stock savings banks, savings and loan associations, finance companies and credit unions in addition to non-banking institutions including insurance companies and other financial services organizations. Competition among financial institutions is based upon product pricing, customer service, convenience of banking locations and a variety of other factors. At December 31, 1993, the Bank's deposits totalled $865 million which represents approximately 6% of the total time, savings and demand deposits of all banks, national banks, federal and state savings banks and state co-operatives and savings and loan's based in the State of New Hampshire.
REGULATORY MATTERS
During 1992, the Bank entered into a Memorandum of Understanding (the "MOU") and a Capital Directive (the "Capital Directive") with the Federal Deposit Insurance Corporation ("the FDIC") and the State of New Hampshire Banking Department. The MOU and the Capital Directive require, among other things, the attainment of increased capital ratios on an incremental basis, through and by, June 30, 1994. As of December 31, 1993, the Bank's capital ratios already exceed the minimum levels required on June 30, 1994 under the MOU and the Capital Directive. See "DIVIDENDS AND DIVIDEND POLICY."
CAPITAL
Information concerning the Company and the Bank with respect to capital is set forth in Management's Financial Review - "Capitalization" and "Capital Resources", contained in the Company's 1993 Annual Report to Stockholders on pages 12 and 24, respectively, filed as Exhibit 1, which is incorporated herein by reference. See "DIVIDENDS AND DIVIDEND POLICY" and "SUPERVISION AND REGULATION" discussed on pages 5 and 7, respectively, of this Report.
DIVIDENDS AND DIVIDEND POLICY
The Company is a legal entity separate and distinct from the Bank. The Company's revenues (on a Parent Company only basis) result, in part, from dividends paid to the Company by the Bank. The Bank did not pay dividends to the Company in either 1993 or 1992. The right of the Company, and consequently the right of creditors and stockholders of the Company, to participate in any distribution of the assets or earnings of the Bank through the payment of such dividends or otherwise is necessarily subject to the prior claims of creditors of the Bank (including depositors), except to the extent that claims of the Company in its capacity as a creditor may be recognized.
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The Company's dividend policy with respect to its common stock is reviewed quarterly. Prior to 1991, the Company paid quarterly cash dividends on its common stock. However, commencing with the first quarter of 1991 and continuing through the third quarter of 1993, the Company's Board of Directors (the "Board") consistently voted, on a quarterly basis, not to declare a dividend. Such votes acknowledged (i) the need for a continued conservative approach in utilization of the Company's capital, (ii) regulatory restrictions on the Bank's capital and the resultant limited capacity of the Company to pay dividends without the benefit of upstreamed dividends from the Bank, and (iv) actions taken by the regulators at other financial institutions to restrict or otherwise direct the discontinuance of dividend payments to stockholders.
On November 17, 1993, the Board declared a quarterly dividend of eight cents per share payable December 15, 1993, to stockholders of record at December 1, 1993. Such dividends totalled approximately $325,000 and did not require upstreaming of Bank earnings, in the form of a dividend, to the Company.
The Board voted to declare a quarterly dividend after giving consideration to the following events - eight consecutive quarters of reported net income totalling $10.7 million; the previously mentioned sale of common stock on September 30, 1993, which generated $11.6 million in net proceeds for the Company and a $7.5 million contribution from the Company to the capital of the Bank. Consideration was also given to the fact that the federal and state regulators (the "Regulators") granted prior approval of the dividend. The Regulators have indicated that, provided the Bank maintains a leverage ratio of at least 6.00%, the Bank will have the capacity to upstream dividends to the Company out of current earnings on a quarterly basis in amounts determined in accordance with the current rules and regulations, subject to approval by the Bank's independent Board of Directors. Additionally, in accordance with the requirements of the Regulators, common stock dividend declarations and payments by the Company require prior notice to and approval of the Federal Reserve Bank of Boston and dividend declara-
tions and payments by the Bank require prior approval of the State and FDIC. Any dividend declaration by the Company or the Bank must consider factors such as the amount of current period earnings, capital adequacy and other factors. However, the Regulators have the authority to prohibit the Bank and the Company from paying dividends at any time if they deem such payment to be an unsafe or unsound practice.
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SUPERVISION AND REGULATION
Bank holding companies and banks are subject to extensive supervision, regulation and examination by various bank regulatory authorities and other agencies of Federal and State governments. The supervision, regulation and examinations to which the Company and the Bank are subject are often intended by the regulators primarily for the protection of depositors or are aimed at carrying out broad public policy goals rather than for the protection of security holders.
Several of the more significant regulatory provisions applicable to banks and bank holding companies to which the Company and the Bank are subject are noted below along with certain current regulatory matters concerning the Company and the Bank. To the extent that the following information describes statutory or regulatory provisions, it is qualified in its entirety by reference to the particular statutory provisions. Any change in applicable law or regulation may have a material effect on the business and prospects of the Company.
BANK HOLDING COMPANY REGULATION
The Company is a bank holding company registered under the Bank Holding Company Act of 1956 (the "BHCA") and is subject to supervision by the Board of Governors of the Federal Reserve ("FRB"). The Company is required to file an annual report and certain other information with the Federal Reserve Bank of Boston ("FRBB"). The FRBB also makes examinations of the Company. Under regulations issued under the BHCA and other provisions, a bank holding company may be required to serve as a source of financial and managerial strength to its subsidiary banks. As a result, the FRB, pursuant to such regulations, may initiate efforts to require the Company to use its resources to provide adequate capital funds to the Bank during periods of financial stress or adversity, even in situations where the Company would be adversely affected by the provision of such capital funds.
The Company, currently a "one" bank holding company, may also in the future, under certain circumstances discussed below, be regulated under the provisions of the New Hampshire Bank Holding Company Act (the "NH BHCA").
Acquisitions by Bank Holding Companies
The BHCA prohibits the Company from acquiring direct or indirect control of more than 5% of the outstanding shares of any class of voting stock or substantially all of the assets of any bank, or merging or consolidating with another bank holding company, without prior approval of the FRB. Similar restrictions apply to acquisition of control of shares of stock of the Company by other bank holding companies.
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The BHCA also prohibits the Company from engaging in, or from acquiring ownership or control of, more than 5% of the outstanding shares of any class of voting stock of any company engaged in a nonbanking activity unless such activity has been determined by the FRB to be so closely related to banking as to be a proper incident thereto. The BHCA does not place territorial restrictions on the activities of such nonbanking-related activities.
Although the Company is not presently subject to the NH BHCA as a one bank holding company, the Company may in the future again become subject to the NH BHCA if it acquires 25% or more of the voting stock of another bank. The NH BHCA prohibits bank holding companies (defined as companies owning 25% or more of the voting stock of "two or more" banks) from acquiring any voting stock of an additional bank if, after such acquisition, the bank holding company would (i) have more than twelve affiliates in New Hampshire, or (ii) if the total deposits of such bank holding company and all its affiliates in New Hampshire would exceed twenty percent of the dollar volume of total deposits, time, savings, and demand, of all banks, national banks, and federal savings and loan associations, in the State of New Hampshire. If the test in (ii) is met, the banking subsidiaries of a bank holding company may not engage in further branching activities. Under certain circumstances the State Banking Department is permitted to waive the above limits.
Control of Bank Holding Company
The Change in Bank Control Act (the "CBCA") requires notice to and approval of the FRB prior to the acquisition by any person or entity of "control" of a bank holding company. The CBCA defines "control" as the power, directly or indirectly, to vote 25% or more of any class of voting securities. The FRB has promulgated regulations pursuant to which it presumes that one has "control" of a bank holding company if one owns, controls, or holds with the power to vote 10% or more of any class of voting securities of a publicly-traded bank holding company.
New Hampshire statutes and regulations also place certain potential restrictions on acquisitions of control of New Hampshire bank holding companies. Since September 1987, interstate banking has been permitted, with certain restrictions, in New Hampshire. These restrictions, which limited such acquisitions or affiliations to New England financial institutions, were deleted from the statute effective April 13, 1990. The statute was further amended in July 1992 to allow the Board of Directors of individual banks, or bank holding companies, to adopt resolutions which, upon filing with the State Banking Department, prohibit their acquisition by an out-of-state bank. Neither the Board of Directors of the Company nor the Board of Directors of the Bank has taken action with regard to these resolutions.
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Other New Hampshire legislation exists which requires full and fair disclosure and prior registration of acquiring corporations, and in the discretion of the New Hampshire Secretary of State, may require public hearings on registration compliance. The Company is excluded from this statute, so long as any takeover bid is subject to federal regulatory approval.
Capital Adequacy
The FRB has adopted risk-based capital adequacy guidelines to evaluate the capital adequacy of bank holding companies. Such guidelines require bank holding companies to maintain risk-based capital ratios substantially similar to those required for state banks, as described below. In addition to the risk-based capital guidelines, the FRB and the FDIC have adopted the use of the leverage ratio as an additional tool to evaluate the capital adequacy of bank holding companies. Under current regulations, all except the most highly rated institutions are expected to exceed the 3% minimum regulatory ratio by 100 to 200 basis points or more.
Dividends
The FRB has issued a policy statement that bank holding companies should serve as a source of managerial and financial strength to their subsidiary banks. As part of this policy, the FRB expects that if a major subsidiary bank is unable to pay dividends to a bank holding company, the bank holding company should seriously consider reducing or eliminating its dividends in order to conserve its capacity to provide capital assistance to the subsidiary bank. The policy also discourages bank holding companies with subsidiary banks which are experiencing earnings weaknesses, other serious problems, or that have inadequate capital, from paying dividends not covered by current earnings, from borrowed funds, or from unusual or nonrecurring gains. In addition, a bank holding company is prohibited under the Federal Deposit Insurance Act from paying dividends without the prior approval of the FRB if an insured bank subsidiary is deemed to be "significantly undercapitalized" (as discussed below) or is deemed to be "undercapitalized" and has failed to submit and implement a required capital restoration plan.
BANK REGULATION
Deposits in the Bank are insured by the FDIC to the extent allowed by law. The Bank is not a member of the FRB system and is a state-chartered institution; therefore, the Bank is subject to supervision and regulation by both the FDIC and the State Banking Department.
The Bank is required to maintain cash reserves against deposits and is subject to restrictions, among others, upon (i) the nature and amount of loans which it may make to a borrower, (ii) the nature and amount of securities in which it may invest, (iii) the portion of its assets
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which may be invested in bank premises, (iv) the geographic location of its branches, and (v) the nature and extent to which it can borrow money.
In December 1991, the Federal government enacted the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"). In general, FDICIA (i) requires the adoption of regulations establishing minimum capital ratio requirements for insured institutions such as the Bank, (ii) establishes a system of classifications for insured institutions based on capital ratios and other factors under which federal regulatory agencies are required to take "prompt corrective action" with regard to capital and other deficiencies, and (iii) provides for the recapitalization of the FDIC's Bank Insurance Fund (the "BIF") by setting up a risk-based scheme of premium assessments of insured institutions.
Capital Adequacy
Under the FDIC's minimum capital ratio regulations, state banks are required to have a ratio of "Tier 1," or core, capital-to-total risk-weighted assets of 4.0% and a ratio of total capital-to-total risk-weighted assets of 8.0%. Except in the case of the strongest institutions, the FDIC expects state banks to substantially exceed these minimum risk-based capital ratios. As of December 31, 1993, the Bank's ratio of "Tier 1" capital-to-total risk-weighted assets was 12.88% and its ratio of total capital-to-total risk-weighted assets was 14.16%. Also under FDIC regulations, state banks are required, in most cases, to maintain a leverage ratio, or "Tier 1" capital-to-average total assets ratio, of no less than 4.0%. As of December 31, 1993, the Bank's leverage ratio was 6.09%. Under certain circumstances, the FDIC may establish higher minimum capital ratio requirements than set forth above; for example, when a bank has received special regulatory attention or has high susceptibility to interest rate risk. A bank is restricted from paying dividends it if is, or as a result of the dividend would be, considered to be undercapitalized under these minimum capital ratio requirements. Banks with capital ratios below the required minimums are also subject to certain administrative actions, including termination of deposit insurance upon notice and hearing, or temporary suspension of insurance without a hearing in the event the institution has no tangible capital.
Prompt Corrective Action
The regulations relating to "prompt corrective action" establish five classifications based on capital levels, some of which require or permit the FRB or the FDIC to take supervisory action -- "well capitalized," "adequately capitalized," "undercapitalized," "signficantly undercapitalized," and "critically undercapitalized." The classifications are determined by the ratios of the institution's "Tier 1" capital-to-total risk-weighted assets, its total capital-to-total
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risk-weighted assets, and its leverage ratio. To fall within the "well capitalized" category, ratios (as described above) must be at least 6.0%, 10.0%, and 5.0%, respectively. The regulations require a bank to notify the appropriate agency of material events that decrease the capital level of the bank, and to do so within 15 days. In addition, the federal banking regulators are authorized to effectively downgrade an institution to a lower capital category than the institution's capital ratios would otherwise indicate, based upon safety and soundness considerations (such as when the institution has received a less than satisfactory examination rating for any of the rating categories for asset quality, management, earnings, or liquidity).
The scope and degree of regulatory intervention is linked to the extent of the shortfall in the capital ratios of the insured institution. In the case of an insured institution which is "critically undercapitalized" (a term defined to include institutions which have a positive net worth), the federal bank regulatory authorities are generally required to appoint a conservator or receiver. An "undercapitalized" bank must develop a capital restoration plan and its parent holding company must guarantee the bank's compliance with the plan. The liability of the parent holding company under any such guarantee is limited to the lesser of 5% of the bank's assets at the time it became "undercapitalized" or the amount needed to comply with the plan. An "undercapitalized" bank also is subject to limitations in numerous areas, including, but not limited to: capital distributions, asset growth, acquisitions, branching, new business lines and borrowings from the FRB. Under the regulations relating to brokered deposits, "well capitalized" banks may accept brokered deposits without restriction, "adequately capitalized" banks may accept such funds only if they first obtain a waiver from the FDIC, and "undercapitalized" banks are prohibited from accepting such deposits. In addition, banks which are not "well capitalized" (even if meeting minimum capital requirements) are subject to limits on the rates of interest they may pay on brokered and other deposits.
Based on its capital ratios as of December 31, 1993, the Bank would be deemed to be "well capitalized" under the prompt corrective action regulations. Due to the fact that the Bank is subject to the Capital Directive, however, the Bank is deemed to be "adequately capitalized" under these regulations. As such, the Bank may not accept brokered deposits without the prior waiver from the FDIC, but it is not subject to any of the above restrictions with respect to "undercapitalized" institutions.
Deposit Insurance Assessments
In order to implement the recapitalization of the BIF pursuant to FDICIA, the FDIC has established a schedule to increase the reserve ratio of the BIF to 1.25% of insured deposits by January 1, 2002, and may impose higher deposit insurance premiums on BIF members, if necessary, to achieve that ratio. Each institution is placed in one of nine risk categories using a two-step process. First, a bank will be assigned to one of three groups based on whether it is "well capitalized," "adequately capitalzied," or "undercapitalized" based on the same definitions contained in
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the prompt corrective action regulations discussed above. Second, a bank will be assigned to one of three subgroups based on an evaluation of the risk posed by the bank. Based on these new classifications, the FDIC has adopted an insurance premium schedule under which the healthiest banks will pay 23 cents per $100 of deposits, which is the same rate previously in effect. The rates increase incrementally to a top rate of 31 cents per $100 of deposits for the weakest banks. The Bank does not presently expect that any increased BIF insurance assessments which are reasonably foreseeable would significantly impair the Bank's overall financial condition or results of operations.
FDICIA contains numerous other provisions, including new accounting, audit and reporting requirements, the termination (beginning not later than January 1, 1995) of the "too big to fail" doctrine except in special cases, new regulatory standards in areas such as asset quality, earnings and compensation, and revised regulatory standards for, among other things, powers of state chartered banks, real estate lending, branch closures, and capital adequacy.
The full impact of FDICIA will not be completely known until the enactment by the various federal banking agencies of all the underlying regulations implementing the new legislation's provisions. However, it is anticipated that FDICIA will result in increased costs for the banking industry due to higher FDIC assessments, higher costs of compliance and recordkeeping, and more limitations on the activities of all but the most well capitalized banks.
FIRREA
The Bank may also be affected on an ongoing basis by various provisions of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA"). FIRREA empowers regulatory authorities to use their "cease-and-desist" authority to require institutions to take certain affirmative actions. Such cease-and-desist orders may include restricting the growth of the institution, disposing of any loan or assets, rescinding agreements or contracts, employing qualified officers or employees or taking other actions. Regulatory agencies also have the authority to order restitution where an institution or "institution-affiliated party" (a term which does not include bank holding companies) was "unjustly enriched" or recklessly disregarded the law.
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OTHER MATTERS
GOVERNMENTAL POLICIES AND ECONOMIC CONDITIONS
The earnings and business of the Company and the Bank are and will be affected by a number of external influences, including general economic conditions in New Hampshire and New England and the policies of various regulatory authorities. Important functions of the FRB, in addition to those enumerated under "SUPERVISION AND REGULATION" on page 7 of this Report, are to regulate the supply of money and of bank credit, to deal with general economic conditions within the United States and to be responsive to international economic conditions. Among the means available to the FRB to affect the money supply are open market operations in U.S. Government securities, changes in the discount rate on member bank borrowings, and changes in reserve requirements against member bank deposits. These means are used in varying combinations to influence overall growth and distribution of bank loans, investments and deposits, and their use may affect interest rates charged on loans or paid for deposits.From time to time, the FRB has taken specific steps to control domestic inflation and to control the country's money supply. FRB monetary policies have materially affected the operating results of commercial banks in the past and are expected to continue to do so in the future. The nature of future monetary policies and the effect of such policies on the business and earnings of the Company cannot be predicted.
Economic fundamentals indicated that U.S. economic activity strengthened during 1993 and, most economists believe, should continue to show improvement in 1994.
Similarly, during 1993, the New Hampshire economy showed definite signs of improvement. For example, the unemployment rate declined to a four year low of 5.3% in November, 1993, sales of existing homes have increased during the last several years and building permits issued for new privately-owned housing units have risen since 1991. In addition, property values appear to have stabilized, and there was a modest increase in the average sale price of homes from $113,000 in 1992 to $115,000 in 1993.
Overall, the Company remains optimistic that these favorable trends will continue, and anticipates that these economic factors will have a positive effect on its 1994 operating results.
The impact upon the future business and earnings of the Company, of prospective economic and political conditions, and of the policies of the FRB as well as other regulatory authorities, cannot be precisely determined at this time. This section should be read in conjunction with "Management's Financial Review" contained in the Company's 1993 Annual Report to Stockholders on pages 10 through 28 of this Report, filed as Exhibit 1, which is incorporated herein by reference.
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Table of Contents of Statistical Information Page No.
I. A. Distribution of Assets, Liabilities, and Stockholders' Equity 15
B. Interest Income and Expense 16
C. Interest Rates 17
D. Volume and Rate Analysis 18
II. Investment Securities 19
III. A. Loans 20
B. Maturities and Interest Rate Sensitivity of Loans 21
C. Nonperforming Assets 22
IV. A. Analysis of Allowance for Possible Loan Losses 23
B. Allocation of Allowance for Possible Loan Losses 24
V. Deposits 25
VI. Return on Equity and Assets and Other Ratios 25
VII. Federal Funds Purchased and Securities Sold Under Agreements to Repurchase 26
VIII. Trust Data 27
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I. A. Distribution of Assets, Liabilities and Stockholders' Equity The following Table presents, for the years indicated, the average balances of each principal category of assets, liabilities and stockholders' equity of the Company.
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I. B. Interest Income and Expense
The following Table presents, for the years indicated, interest income on earning assets on a fully taxable equivalent ("FTE") basis, interest expense on interest-bearing liabilities and net interest income. Interest earned from loans includes fees earned on loans.
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I. C. Interest Rates
The following Table presents, for the years indicated, the interest rate earned on average earning assets, on an FTE basis, and the interest rate paid on average interest-bearing liabilities:
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(1) For the calculation of rate earned on loans, non-accrual and restructured loans are included in the average amounts outstanding.
(2) Interest rate spread is the average rate earned on total earning assets less the average rate paid for interest-bearing liabilities.
(3) Interest rate margin is calculated by dividing net interest income by total earning assets.
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I. D. Volume and Rate Analysis
The following Table presents an analysis of the effect on net interest income, on an FTE basis, of volume and rate changes for 1993 as compared with 1992. The effect of changes due to both volume and rate have been allocated to the change in volume and change in rate categories in proportion to the relationship of the absolute dollar amounts of the change in each category.
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II. Investment Securities
The following Table presents, for the years indicated, the book values of investment securities of the Company:
The following Table presents the relative maturities at book value and weighted average interest rates of investment securities at December 31, 1993. The Parent Company's investment in equity securities having a book value of $606,000 is not included in the Table. Weighted average rates on tax-exempt obligations have been computed on an FTE basis assuming a tax rate of 34%. The rates are calculated by dividing annual interest, net of amortization of premiums and accretion of discounts, by the book value of the securities at December 31, 1993:
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III. A. Loans
The balance of loans outstanding and the percent, for each cate gory, of loans to total loans at the dates indicated are shown in the following Tables.
The Company does not have an automatic renewal policy for maturing loans. Rather, loans are renewed at the maturity date only at the request of those customers who are deemed to be creditworthy by the Company. Additionally, the Company reviews such requests in substantially the same manner as applications by new customers for extensions of credit. The maturity date and interest terms of renewed loans are based, in part, upon the needs of the individual customer and the Company's credit review and evaluation of current and future economic conditions. Since these factors have varied considerably and will most likely continue to do so, the Company believes it is impracticable to estimate the amount of loans in the portfolio which may be renewed in the future.
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III. B. Maturities and Interest Rate Sensitivity of Loans
The following Table presents the maturities and interest rate sensitivity, based on original contractual terms, of the Company's loans exclusive of residential real estate construction loans and loans secured by residential properties and installment loans as of December 31, 1993:
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III. C. Nonperforming Assets
The following Table summarizes the Company's nonperforming assets:
Substantially all of the nonaccrual loans at December 31, 1993 are secured. At December 31, 1993, the Company had $19.8 million in commercial loans which are not 90 day past due, restructured, or on nonaccrual but which are internally rated substandard, defined as inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any, with well defined weakness(s) that jeopardize the liquidation of the debt.
The following information and analysis of unrecorded interest income relates to loans on nonaccrual and/or restructured loans at December 31:
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IV. A. Analysis of Allowance for Possible Loan Losses
The Company's allowance for possible loan losses (the "APLL") is available for future charge-offs of loans. The provision for possible loan losses (the "Provision"), added to the APLL by charges to income, is based upon management's estimation of the amount necessary to maintain the APLL at an adequate level, considering evaluations of individual credits and concentrations of credit risk, net losses charged to the APLL, changes in the quality of the loan portfolio, levels of nonaccrual loans, current economic conditions, changes in the size and character of the loan risks and other pertinent factors warranting current recognition. The Company charges all or a portion of a loan against the APLL when a probability of loss has been established, with consideration given to such factors as the customer's financial condition, underlying collateral and guarantees. In addition, the Company's independent certified public accountants perform reviews of the loan portfolio. The loans of the Company are also subject to periodic examination by bank regulatory authorities.
The following Table presents a five year analysis of the Company's allowance for possible loan losses.
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IV. B. Allocation of Allowance for Possible Loan Losses
The Company's allowance for possible loan losses is a general reserve available for all categories of possible loan loss. The Company has made an allocation of its reserve giving consideration to management's evaluation of risk in the portfolios. The allocations are based on estimates and subjective judgments and are not necessar ily indicative of the specific amounts or loan categories in which losses may ultimately occur. The following Table presents a four year analysis of the allocation of the reserve by loan categories. For the percentage of loans outstanding in each category to total loans, refer to the Table "Loans" on page 21.
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V. Deposits
The average daily amount of deposits and rates paid on such deposits is summarized for the years indicated in the following Table:
The maturity schedule of time certificates of deposit of $100,000 or more at December 31, 1993, is as follows (in thousands):
VI. Return on Equity and Assets and Other Ratios
The ratio of net income (loss) to average stockholders' equity ("ROE") and average total assets ("ROA") and certain other ratios for the last three years are presented below:
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VII. Federal Funds Purchased and Securities Sold Under Agreements to Repurchase
The following Table presents the distribution of the Company's federal funds purchased and securities sold under agreements to repurchase and the weighted average interest rates thereon at the end of each of the last three years. Also provided are the maximum amount of these borrowings and the average amount of these borrowings as well as weighted average interest rates for the last three years.
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VIII. Trust Data
The following presents information with respect to Trust Investments and Trust Accounts for which the Bank has both sole and shared investment responsibility at December 31, 1993.
(1) Assets for which the Bank has shared investment responsibility (2) Predominantly invested in certificates of deposit
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ITEM 2.


ITEM 2. PROPERTIES
The Company's headquarters occupies a portion of the Bank's building at 300 Franklin Street, Manchester, New Hampshire, and the Company conducts its meetings of the Board of Directors at the Bank's Data Services Center at John Devine Drive, Manchester, New Hampshire.
The Bank owns or leases numerous premises used in the conduct of the business of the Company. The Company does not own or lease any real property, other than a branch office in Portsmouth, which is sub-let to the Bank. Additional information on the Bank's properties is set forth in Note H on page 38 of the Company's 1993 Annual Report to Stockholders, filed as Exhibit 1, and such information is hereby incorporated by reference.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
Various actions and proceedings are presently pending to which the Company and the Bank are parties. All such actions are deemed to be ordinary routine litigation incidental to the business of the Company and/or the Bank. Resolution of these matters is not expected to have a material effect on the consolidated financial statements of the Company.
ITEM 3A. EXECUTIVE OFFICERS OF THE COMPANY
The names, positions, ages and backgrounds of the executive officers of the Company, as of March 11, 1994 are set forth below. Executive officers are generally elected annually by the Board of Directors and hold office until the following year and until their successors are chosen and qualified, unless they sooner resign, retire, die, are removed or become disqualified. There are no family relationships existing between or among any of the executive officers listed below.
Names Position Age
Davis P. Thurber Chairman of the Board, 68 President, and Director of Company; Chairman of the Board and Director of Bank
Paul R. Shea Executive Vice President and 61 Director of Company; Director, President and Chief Executive Officer of Bank
Gregory D. Landroche Senior Vice President, Chief 45 Financial Officer and Treasurer of Company and Chief Financial Officer of Bank
Alice L. DeSouza Senior Vice President/ 49 Administration & Planning of Company; Executive Vice President/Administration and Retail Banking of Bank
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Names Position Age
Robert J. McDonald Senior Vice President/Loan 44 Administration of Company
Allen G. Tarbox, Jr. Senior Vice President/Data 59 Services of Company and Director of Information Systems of Bank
William D. Biser Vice President/Auditor 52 of Company
Robert A. Boulay Vice President/Controller 40 of Company
Robert B. Field, Jr. Director and Secretary of 51 Company
Mr. Thurber became a Director of the Bank in 1949, and joined The Second National Bank of Nashua, a predecessor to the Bank, in 1956 as Assistant Cashier, and became President in 1962, and, Chairman and President in 1969. On March 27, 1981, Mr. Thurber was re-elected President and Chairman of the Board of Directors of the Company. He is additionally Chairman of the Board of Directors of the Bank.
Mr. Shea has served the Company since October 16, 1980, when he was appointed Assistant to the Chairman. On December 22, 1982, he was elected Vice President, Corporate Planning. On June 26, 1985, he was elected Senior Vice President, Corporate Planning, and on December 18, 1985, he was elected Senior Vice President, Corporate Development of the Company. On July 22, 1987, he was elected Executive Vice President. On October 21, 1991, he was elected President and Chief Executive Officer of the Bank. He also serves as a Director of the Company and the Bank.
Mr. Landroche was elected Controller of the Company on September 28, 1983, was elected Vice President, Controller of the Company on June 26, 1985, and was elected Vice President, Treasurer of the Company on December 17, 1986. On July 22, 1987, he was elected Senior Vice President, Chief Financial Officer and Treasurer of the Company. On July 22, 1992 he was elected Chief Financial Officer of the Bank. Mr. Landroche is a Certified Public Accountant.
Ms. DeSouza was elected Vice President, Director of Marketing of the Bank in November, 1981. On December 18, 1985, she was elected Vice President, Marketing Services of the Company. On July 22, 1987, she was elected Senior Vice President, Planning and Marketing for the Company. Early in 1991, her duties were expanded to include administration, and, as of October, 1991, she became Senior Vice President, Administration & Planning of the Company. On July 22, 1992 she was elected Executive Vice President, Administration and Retail Banking of the Bank.
Page 30 of 249
Mr. McDonald was elected Senior Vice President, Loan Administration of the Company on June 24, 1992. During the five years prior thereto, Mr. McDonald was employed by Bank of Boston Corporation, most recently as a Vice President in the Financial Institutions Division.
Mr. Tarbox was elected Senior Vice President, Data Services of the Company on July 25, 1990. During the five years prior thereto, Mr. Tarbox was President of Fleet/Norstar Services-NH. On July 22, 1992 he was elected Director of Information Systems of the Bank.
Mr. Biser was elected Vice President, Auditor of the Company in September, 1987. Mr. Biser is a Certified Public Accountant.
Mr. Boulay was elected Controller of the Company on December 17, 1986. On February 24, 1988, he was elected Vice President of the Company. Mr. Boulay is a Certified Public Accountant.
Mr. Field was elected as a Director and Secretary of the Company on March 27, 1981, and served as a Director of the Bank, until February 22, 1989. His principal employment during the past five years is as a practicing attor-
ney-at-law, director and member of Sheehan, Phinney, Bass + Green, Professional Association. Mr. Field's law firm has served as general counsel for the Company and as general, or special counsel, for the Bank since April 13, 1981.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURTIY HOLDERS
Not applicable
Part II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information required by this item is presented on page 27 of the Company's 1993 Annual Report to Stockholders, filed as Exhibit 1, and such information is hereby incorporated by reference.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
The consolidated "Summary of Selected Financial Data" of the Company for the five years ended December 31, 1993 appears on page 26 of the Company's 1993 Annual Report to Stockholders, filed as Exhibit 1, and such information is hereby incorporated by reference.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
The information in response to this item is included in Manage- ment's Financial Review on pages 10 through 28 of the Company's 1993 Annual Report to Stockholders, filed as Exhibit 1, and such information is hereby incorporated by reference.
Page 31 of 249
ITEM 8.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data required by this Item are included as indicated below in the Company's 1993 Annual Report to Stockholders, filed as Exhibit 1, and such statements and data are hereby incorporated by reference.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable
PART III
ITEM 10.


ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The information which responds to this Item is contained, with respect to directors, on pages 4 and 5 of the Company's Proxy Statement for its 1994 Annual Meeting of Stockholders, filed as Exhibit 2. Information concerning the executive officers of the Company which responds to this Item is contained in the response to Item 3A contained in Part I, on pages 28 through 30, of this Report. The foregoing information is hereby incorporated by reference.
Page 32 of 249
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The information required in response to this Item is contained on pages 9 through 14 of the Company's Proxy Statement for its 1994 Annual Meeting of Stockholders, filed as Exhibit 2. The foregoing information is hereby incorporated by reference.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required in response to this Item is contained on pages 2, 3, 7 and 8 of the Company's Proxy Statement for its 1994 Annual Meeting of Stockholders, filed as Exhibit 2. The foregoing information is hereby incorporated by reference.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required in response to this Item is contained on pages 2, 3 and 9 of the Company's Proxy Statement for its 1994 Annual Meeting of Stockholders, filed as Exhibit 2. The foregoing information is hereby incorporated by reference.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
The financial statements required in response to this Item are listed in response to Item 8 on page 31 of this Report and are incorporated herein by reference.
(a) 2. Financial Statement Schedules
Schedules have been omitted because the information is either not required, not applicable, or is included in the financial statements or notes thereto listed in response to Item 8 on page 31 of this Report and are incorporated herein by reference.
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(B) FILED BY ENCLOSURE: Form 10-K Document Consecutive Page No.
(a) 4. During the fourth quarter of 1993, the Company filed no Reports on Form 8-K.
* - Management contract or compensatory plan.
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DOCUMENTS INCORPORATED BY REFERENCE
Exhibit 1 - 1993 Annual Report to Shareholders of the Company
Exhibit 2 - Notice of 1994 Annual Meeting of Shareholders and Proxy Statement
Page 36 of 249
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized, in the City of Manchester, New Hampshire on the 23rd day of March, 1994.
Bank of New Hampshire Corporation
By:/s/Davis P. Thurber Davis P. Thurber, Chairman
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company and in the capacities and on the dates indicated.
Date: Date:
3/23/94 /s/Davis P. Thurber 3/23/94 /s/Gregory D. Landroche Davis P. Thurber Gregory D. Landroche President, Chairman SVP/CFO & Treasurer and Director (Principal Financial (Principal Executive Officer) Officer)
3/23/94 /s/Paul R. Shea 3/23/94 /s/Robert A. Boulay Paul R. Shea Robert A. Boulay Executive Vice President VP & Controller and Director (Principal Accounting Officer)
3/23/94 /s/Robert L. Bailey 3/23/94 /s/Sidney Thurber Cox Robert L. Bailey Sidney Thurber Cox Director Director
3/23/94 /s/Robert P. Bass, Jr. 3/23/94 /s/Raymond J. Creteau Robert P. Bass, Jr. Raymond J. Creteau Director Director
3/23/94 /s/Robert B. Field, Jr. Arthur E. Comolli Robert B. Field, Jr. Director Director and Secretary
3/23/94 /s/Raymond G. Cote 3/23/94 /s/Morton E.Goulder Raymond G. Cote Morton E. Goulder Director Director
Page 37 of 249
3/23/94 /s/Joseph G. Sakey Philip deG. Labombarde Joseph G. Sakey Director Director
3/23/94 /s/Floyd A. Lamb 3/23/94 /s/George R. Walker Floyd A. Lamb George R. Walker Director Director
3/23/94 /s/Daniel R.W. Murdock Daniel R.W. Murdock Richard S. West Director Director
3/23/94 /s/Constance T. Prudden Constance T. Prudden Director