ITEM 1. BUSINESS
THE COMPANY
Bank of New Hampshire Corporation (the "Company") is a registered bank holding company incorporated in 1979 under New Hampshire law. The Company is regulated by the State of New Hampshire Banking Department and by the Federal Reserve System and transacts its business through its only subsidiary, Bank of New Hampshire (the "Bank"), a state-chartered commercial bank organized under New Hampshire law, headquartered, along with the executive offices of the Company, at 300 Franklin Street, Manchester, New Hampshire 03105 (telephone 603-624-6600).
The Company employs approximately 500 employees and conducts its business through twenty-nine 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.
On Saturday, January 21, 1995, a fire forced a temporary closing of its branch office in downtown Dover. The loss was insured. Management expects that repairs and renovations to the office will take several months to complete and has provided temporary alternative banking facilities for customers.
BUSINESS OF THE COMPANY
The Company, primarily, provides management resources to the Bank. 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-three ATMs. The Bank maintains a centralized data processing facility at its Data Services Center located in Manchester, New Hampshire.
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 "SUPERVISION AND REGULATION" and "Dividends and Dividend Policy" on pages 5 and 7 of this Report.
COMPETITION AND INDUSTRY CONSOLIDATION
The business of the Bank is extremely competitive. In addition to competing actively with other commercial banks in its 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, it competes with 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, 1994, the Bank's deposits totalled
$825.9 million, which represents approximately 5.5% of the total time, savings and demand deposits of all banks, state co-operatives and savings and loan's in New Hampshire.
The banking industry has been experiencing continued consolidation in New Hampshire and in other states. 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.
SUPERVISION AND 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 State Banking Department and by the Board of Governors of the Federal Reserve ("FRB"). The Company is required to file quarterly reports and certain other information with the Federal Reserve Bank of Boston ("FRBB"). The FRBB also examines the Company.
The Bank is a state-chartered institution and is not a member of the FRB system. The Bank is, therefore, subject to supervision, regulation and examination by both the FDIC and the State Banking Department. Deposits in the Bank are insured by the FDIC to the extent allowed by law.
Several of the more significant regulatory provisions applicable to bank holding companies and banks to which the Company and the Bank are subject are noted below. 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 could have a material effect on the Company's business.
NEW LEGISLATION
Interstate Banking Efficiency Act
On September 29, 1994, the Federal government enacted the Interstate Banking Efficiency Act, which authorizes nationwide banking and branching. Under the new federal law, subject to states' rights and Community Reinvestment Act provisions, nationwide banking will be permitted one year after enactment, and nationwide branching will be permitted after June 1, 1997.
Interstate Banking
Under the new law, one year after enactment, bank holding companies will be allowed to acquire banking subsidiaries anywhere in the country. States cannot opt out of the interstate banking provisions. However, states can require that the target institution be above a certain age, though that age cannot exceed five years. A bank holding company will not be allowed to control more than 10% of the nationwide total or more than 30% of the state total amount of insured deposits. States may waive the 30% limit or set their own limit, subject to certain restrictions. In addition, the 30% limit does not apply to mergers of affililated banks nor to the acquisition of deposits, already exceeding the 30% limit, by an acquiror new to the state. The FRB, however, can waive any interstate restriction, if necessary, in a troubled bank acquisition.
Interstate Branching
Under the new law, states are permitted to authorize out-of-state banks to open de novo (new) branches in their states. De novo branching across state lines is otherwise generally barred. Similarly, acquisitions of branches across state lines are barred unless authorized by state law. One year after
enactment, banks will be allowed to accept deposits, close and service loans and accept loan payments on behalf of affiliated banks from other states, in effect a preview of interstate branching. However, banks cannot originate loans or open deposit accounts on an affiliates behalf.
After June 1, 1997, bank holding companies are allowed to convert all or part of their branch networks into interstate branches. They can also acquire banks in other states concurrent with converting them to branches. States now have three options (i) opt-in before June 1, 1997 (ii) opt-out by May 31, 1997 or (iii) accept the provisions of the new law based on the federal timetable. The selection of option (ii) above would bar branching in their state and also bar in-state banks from branching into other states or acquiring banks across state lines. Bank holding companies that convert their banks into branches across state lines retain the branching capacity of the original banks in their respective states.
Other Provisions
Under the new law, Federal regulators must implement regulations which prevent interstate branching from being used to create "deposit production offices"; the FRB must conduct an annual survey of banks' fees for retail financial services; the FDIC can revive an expired state statute of limitations if the statute expired within five years of the FDIC's takeover of a failed bank only in cases of fraud, intentional misconduct leading to personal enrichment or intentional misconduct leading to substantial loss to the bank; the General Accounting Office must compile a report on the efficiency of current reporting requirements in light of nationwide interstate banking and branching; and the Secretary of the Treasury must establish a commission to study the U.S. financial services systems' strengths and weaknesses in meeting customer needs.
The Company is reviewing the new law, but its impact is not determinable at this time. The New Hampshire legislature is in the process of considering a bill to address the options allowed under the new law.
BANK HOLDING COMPANY REGULATION
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. Restrictions also apply to similar acquisition of shares of stock of the Company by other bank holding companies.
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.
Control of Bank Holding Companies
The Change in Bank Control Act (the "CBCA") requires notice to and approval by 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 law currently may restrict acquisitions of control of New Hampshire bank holding companies. The Board of Directors of individual banks or bank holding companies may adopt regulations which, upon filing with the State Banking Department, prohibit acquisitions by out-of-state banks. Neither the Company's nor the Bank's Board has taken action with regard to these resolutions.
Capital Adequacy
The FRB uses 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 require the use of the leverage ratio as an additional tool to evaluate the capital adequacy of bank holding companies. Bank holding companies are required to maintain a leverage ratio of 3.0% plus an additional cushion of at least 100 to 200 basis points.
Information concerning the Company and the Bank with respect to capital is set forth in Management's Financial Review - "Consolidated Balance Sheet" and "Capital Resources", contained in the Company's 1994 Annual Report to Shareholders on pages 12 and 20, respectively, filed as Exhibit 13, which is incorporated herein by reference.
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. During 1994, the Bank paid $1.0 million in dividends to the Company. The right of the Company, and its creditors and shareholders, to participate in any distribution of the assets of the Bank is subject to the prior claims of creditors of the Bank, including depositors.
The Company's dividend policy with respect to its common stock is reviewed quarterly. During 1994, the Company paid $1.6 million in dividends to shareholders. Any dividend declaration by the Company or the Bank must con- sider the amount of current period earnings, capital adequacy and other factors (as discussed below). However, federal and state 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.
The FRB 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 consider reducing or eliminating its dividends to shareholders 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
The Bank is required to maintain cash reserves against deposits and is subject to restrictions, among others, upon the nature and amount of loans which it may make to a borrower, the nature and amount of securities in which it may invest, the amount of its assets which may be invested in bank premises, the geographic location of its branches, and the nature and extent to which it can borrow money.
FDICIA
The Federal government enacted the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") which, in general, required the adoption of regulations establishing minimum capital ratio requirements for insured institutions, established 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 provided 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, 1994, the Bank's ratio of "Tier 1" capital-to-total risk-weighted assets was 14.67% and its ratio of total capital-to-total risk-weighted assets was 15.94%. 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, 1994, the Bank's leverage ratio was 7.06%. 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 if it 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 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, 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 amount of any 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, 1994, the Bank is deemed to be "well capitalized" under the prompt corrective action regulations.
FDICIA contains numerous other provisions, including accounting, audit and reporting requirements, the termination of the "too big to fail" doctrine except in special cases, 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.
Deposit Insurance Assessments
In order to implement the recapitalization of the BIF pursuant to FDICIA, the FDIC established a schedule to increase the reserve ratio of the BIF to 1.25% of insured deposits by January 1, 2002. However, the FDIC reported that the BIF is expected to be fully recapitalized by July 31, 1995.
Each institution is placed in one of nine risk categories using a two-step process. First, a bank is assigned to one of three groups based on whether it is "well capitalized," "adequately capitalzied," or "undercapitalized". Second, a bank is assigned to one of three subgroups based on an evaluation of the risk posed by the bank. Based on these classifications, the FDIC uses an insurance premium schedule under which the safest banks currently pay $.23 cents per $100 of deposits. The rates increase incrementally to a top rate of $.31 cents for the weakest banks. The Bank pays $.23 cents per $100 of deposits.
The FDIC has the authority to change the premium rates and, on January 31, 1995, proposed cutting premiums to $.04 cents for the safest banks effective in the second half of 1995. The FDIC also plans to widen the range of risk- based premiums charged from $.04 cents for the safest banks to $.31 cents for the weakest banks.
FIRREA
The Federal government enacted the Financial Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA") which 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.
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 and the policies of various regulatory authorities. In addition to those enumerated under "SUPERVISION AND REGULATION" important FRB functions 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 re-
quirements 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. For example, the FRB raised the discount rate four times and the federal funds rate seven times since February, 1994. 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.
The FRB reported that it moved to keep inflation contained and thereby foster sustainable economic growth by raising short-term interest rates, as noted above. The Commerce Department reported that the gross domestic product, measuring the output of all goods and services produced in the United States, rose at a 4.0% adjusted rate in the third quarter and at a 4.5% rate in the fourth quarter of 1994. The FRB has indicated it wants to hold down inflation by slowing economic growth to about 2.5%. Most economic indicators now suggest minimal inflation. Many economists are forecasting continued growth through the middle of the year, followed by a slowing in the economy due to the effects of higher interest rates.
The effect 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 determined at this time. This section should be read in conjunction with "Management's Financial Review" contained in the Company's 1994 Annual Report to Shareholders, filed as Exhibit 13, which is incorporated herein by reference.
Table of Contents of Statistical Information Page No.
I. A. Distribution of Assets, Liabilities, and Shareholders' Equity 12
B. Interest Income and Expense 13
C. Interest Rates 14
D. Volume and Rate Analysis 15
II. Securities 16
III. A. Loans 17
B. Maturities and Interest Rate Sensitivity of Loans 18
C. Nonperforming Assets 19
IV. A. Analysis of Allowance for Possible Loan Losses 20
B. Allocation of Allowance for Possible Loan Losses 21
V. Deposits 22
VI. Return on Equity and Assets and Other Ratios 22
VII. Federal Funds Purchased and Securities Sold Under Agreements to Repurchase 23
VIII. Trust Data 24
I. A. Distribution of Assets, Liabilities and Shareholders' Equity
The following Table presents, for the years indicated, the average balances of each principal category of assets and liabilities, and shareholders' equity.
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.
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.
Year Ended December 31, 1994 1993 1992
Rate earned on: Loans (1) 8.82% 9.03% 9.45% Taxable securities 4.32 4.06 5.07 Non-taxable securities 5.73 6.90 9.17 Federal funds sold and securities purchased under agreements to resell 4.00 3.05 3.52
Total 6.98 7.25 8.12
Rate paid on: Savings deposits 2.32 2.53 3.21 Certificates of deposit of $100,000 or more 3.70 3.62 4.37 Other time deposits 3.99 4.23 5.26 Federal funds purchased and securities sold under agreements to repurchase 2.76 2.03 2.97 Other borrowed funds 4.12 2.38 2.46
Total 2.82 3.03 3.88
Interest Rate Spread (2) 4.16% 4.22% 4.24%
Net Interest Margin (3) 4.61% 4.62% 4.65% ____________________
(1) For the calculation of rate earned on loans, nonaccrual 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.
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 1994 as compared with 1993. 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.
II. Securities
The following Table presents the book values of securities for the years indicated.
Held-to-maturity debt securities totalled $286.6 million and had an estimated market value of $283.0 million at December 31, 1994. Available- for-sale equity securities at cost were $3.6 million with an estimated market value of $3.6 million at December 31, 1994.
The following Table presents the relative maturities at book value and weighted average interest rates of securities at December 31, 1994. Other securities having a book value of $3.9 million are 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, 1994.
III. A. Loans
The balance of loans outstanding, and the percent for each category, of loans to total loans at the dates indicated are shown in the following Tables.
December 31, 1991 1990 Balance % Balance % (Dollars in thousands) Commercial, financial and agricultural $104,468 16% $128,760 18% Real estate - commercial 166,627 26 187,419 27 Real estate - construction 8,598 1 15,695 2 Real estate - residential 320,564 50 304,517 43 Installment 47,277 7 66,861 10 Total loans $647,534 100% $703,252 100%
The Company does not have an automatic renewal policy for maturing loans. Loans are renewed at the maturity date, at the request of customers, if 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.
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 loans as of December 31, 1994.
III. C. Nonperforming Assets
The following Table summarizes nonperforming assets at December 31 for the years presented.
Substantially all of the nonaccrual loans at December 31, 1994 were secured. At December 31, 1994, $9.3 million in commercial and commercial real estate loans were not 90 days past due, restructured, or on nonaccrual but were 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 for the years presented.
IV. A. Analysis of Allowance for Possible Loan Losses
The allowance for possible loan losses (the "APLL") is available for future charge-offs of loans. The provision for possible loan losses is added to the APLL and is based upon management's estimation of the amount necessary to maintain the APLL at an adequate level. Management considers 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.
The following Table presents a five year analysis of the APLL.
1994 1993 1992 1991 1990 (Dollars in thousands)
Balance at January 1 $14,581 $16,619 $20,012 $21,575 $ 7,438 Provision for possible loan losses 1,580 4,200 6,800 12,542 37,334 Loan losses:
Commercial, financial and agricultural (1,101) (1,028) (3,160) (4,564) (8,120)
Real estate-commercial (880) (2,026) (1,564) (6,202) (8,720) Real estate-construction (100) (202) (431) (1,333) Real estate-residential (2,741) (4,080) (4,698) (3,073) (2,400) Installment (511) (777) (1,242) (1,959) (3,647)
Total loan losses (5,333) (8,113) (11,095) (15,798) (24,220)
Loan recoveries: Commercial, financial and agricultural 934 775 334 666 188 Real estate-commercial 455 449 152 189 Real estate-construction 278 147 80 Real estate-residential 326 102 14 244 46 Installment 370 402 402 594 709
Total loan recoveries 2,363 1,875 902 1,693 1,023
Net loan losses (2,970) (6,238) (10,193) (14,105) (23,197) APLL at December 31 $ 13,191 $14,581 $16,619 $20,012 $21,575
Loans at December 31 $541,284 $524,843 $624,381 $647,534 $703,252
Average loans $520,294 $573,561 $646,040 $672,954 $729,145
APLL/Total loans 2.44% 2.78% 2.66% 3.09% 3.07% Net loan losses/Average loans .57 1.09 1.58 2.10 3.18 Net loan losses/ Provision 187.97 148.52 149.90 112.46 62.13 Recoveries/Loan losses 44.31 23.11 8.13 10.72 4.22 Provision/Average loans .30 .73 1.05 1.86 5.12
IV. B. Allocation of the APLL
The APLL is a general reserve available for all categories of possible loan loss. Allocations of the reserve are based on estimates and subjective judgments and are not necessarily indicative of the specific amounts or loan categories in which losses may ultimately occur. The following Table presents a five year analysis of the allocations by loan categories. For the percentage of loans outstanding in each category to total loans, refer to the Table "Loans" on page 18.
1991 1990 % of % of Amount Total Amount Total (Dollars in thousands)
Commercial, financial and agricultural $ 4,626 23.1% $ 3,920 18.2% Real estate-commercial 7,379 36.9 6,096 28.3 Real estate-construction 380 1.8 330 1.5 Real estate-residential 2,417 12.1 1,910 8.9 Installment 934 4.7 989 4.6 Unallocated 4,276 21.4 8,330 38.5 $20,012 100.0% $21,575 100.0%
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, 1994, is as follows (in thousands):
Time Certificates of Deposit
3 months or less $2,345 Over 3 through 6 months 2,375 Over 6 through 12 months 2,887 Over 12 months 1,951 Total $9,558
VI. Return on Equity and Assets and Other Ratios
The ratio of net income to average shareholders' equity ("ROE") and to average total assets ("ROA") and certain other ratios are presented below for the years indicated.
VII. Federal Funds Purchased and Securities Sold Under Agreements to Repurchase
The following Table presents the distribution of 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.
Federal Funds Purchased & Securities Sold Under Agreements to Repurchase Balance at December 31: (Dollars in thousands) 1994 $ 40,888 1993 32,238 1992 36,107
Weighted average interest rate at December 31: 1994 4.20% 1993 1.75 1992 2.05
Maximum amount outstanding at any month's end during: 1994 $ 43,534 1993 44,381 1992 59,498
Average amount outstanding during: 1994 $ 33,346 1993 35,431 1992 46,417
Weighted average interest rate during: 1994 2.76% 1993 2.03 1992 2.97
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, 1994.
(1) Assets for which the Bank has shared investment responsibility (2) Predominantly invested in certificates of deposit
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 sublet to the Bank. Additional information on the Bank's properties is set forth in Note H on page 33 of the Company's 1994 Annual Report to Shareholders, filed as Exhibit 13, 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 24, 1995 are set forth below. Executive officers are 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.
Davis P. Thurber Mr. Thurber became a director of the Bank in Age 69 1949; President in 1962; and Chairman of the Board of Directors of the Bank in 1969. He is also President and Chairman of the Board of Directors of the Company.
Paul R. Shea Mr. Shea joined the Company in 1980, when he was Age 62 appointed Assistant to the Chairman. He was elected Vice President, Corporate Planning in 1982; Senior Vice President, Corporate Planning and Senior Vice President, Corporate Development of the Company in 1985; Executive Vice President in 1987; President and Chief Executive Officer of the Bank in 1991; and Senior Executive Vice President of the Company in 1994. He also serves as a director of the Company and the Bank.
Gregory D. Landroche Mr. Landroche was elected Controller of the Age 46 Company in 1983; Vice President, Controller of the Company in 1985; Vice President, Treasurer of the Company in 1986; Senior Vice President, Chief Financial Officer and Treasurer of the Company in 1987; Chief Financial Officer of the Bank in 1992; and Executive Vice President of the Company in 1994. Mr. Landroche is a Certified Public Accountant.
William D. Biser Mr. Biser was elected Vice President, Auditor of Age 53 the Company in 1987; and Senior Vice President of the Company in 1994. Mr. Biser is a Certified Public Accountant.
Alice L. DeSouza Ms. DeSouza was elected Vice President, Director Age 50 of Marketing of the Bank in 1981; Vice President, Marketing Services of the Company in 1985; Senior Vice President, Planning and Marketing for the Company in 1987; Senior Vice President, Admini- stration & Planning of the Company in 1991; and Executive Vice President, Administration and Retail Banking of the Bank in 1992.
Robert J. McDonald Mr. McDonald was elected Senior Vice President, Age 45 Loan Administration of the Company in 1992. Prior thereto, he was employed by Bank of Boston Corporation, most recently as a Vice President in the Financial Institutions Division.
Allen G. Tarbox, Jr. Mr. Tarbox was elected Senior Vice President, Age 60 Data Services of the Company in 1990 and Director of Information Systems of the Bank in 1992. Prior thereto, he was President of Fleet/Norstar Services-NH.
Robert A. Boulay Mr. Boulay was elected Controller of the Company Age 41 in 1986 and Vice President of the Company in 1988. Mr. Boulay is a Certified Public Accountant.
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 SHAREHOLDER MATTERS
The information required by this item is presented on page 24 of the Company's 1994 Annual Report to Shareholders, filed as Exhibit 13, 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, 1994 appears on page 23 of the Company's 1994 Annual Report to Shareholders, filed as Exhibit 13, 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 24 of the Company's 1994 Annual Report to Shareholders, filed as Exhibit 13, and such information is hereby incorporated by reference.
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 1994 Annual Report to Shareholders, filed as Exhibit 13, and such statements and data are hereby incorporated by reference.
Page of the 1994 Annual Report to Shareholders
Report of Independent Auditors 25
Consolidated Balance Sheets - December 31, 1994 and 1993 26
Consolidated Statements of Income - Years ended December 31, 1994, 1993 and 1992 27
Consolidated Statements of Changes in Shareholders' Equity - Years ended December 31, 1994, 1993 and 1992 28
Consolidated Statements of Cash Flows - Years ended December 31, 1994, 1993 and 1992 29
Notes to Consolidated Financial Statements 30 - 40
Five Year Summary of Selected Financial Data 23
Information on Common Stock and Selected Quarterly Data 24
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 begins, with respect to directors, on page 3 of the Company's Proxy Statement for its 1995 Annual Meeting of Shareholders, filed as Exhibit 99. 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 of this Report. The foregoing information is hereby incorporated by reference.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The information required in response to this Item begins on page 9 of the Company's Proxy Statement for its 1995 Annual Meeting of Shareholders, filed as Exhibit 99. 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 and 6 of the Company's Proxy Statement for its 1995 Annual Meeting of Shareholders, filed as Exhibit 99. 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 and 7 of the Company's Proxy Statement for its 1995 Annual Meeting of Shareholders, filed as Exhibit 99. 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 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.
(a) 3. Exhibits
(3) (a) By-Laws of the Company as amended through January 23, 1991, incorporated herein by reference to Form 8-K, filed February 13, 1991, p. 3 and Exhibit I, attached thereto.
(b) Articles of Agreement of the Company, as amended through April 17, 1991, incorported herein by reference to the Company's Form 10-K for the year ended December 31, 1991 (File No. 0-9517).
(10) (a)* Compensation Deferral Agreement for Paul R. Shea effective January 1, 1992, incorporated herein by reference to the Company's Form 10-K for the year ended December 31, 1991 (File No. 0-9517).
(b)* Compensation Deferral Agreement for Davis P. Thurber effective January 1, 1993, incorporated herein by reference to the Company's Form 10-K for the year ended December 31, 1992 (File No. 0-9517).
(c)* Merit Performance Plan, continued in effect through 1994, incorporated herein by reference to the Company's Form 10-K for the year ended December 31, 1988 (File No. 0-9517).
(d) Director Indemnification Agreement (Representative Form of Agreement), effective January 1, 1988, incorporated herein by reference to the Company's Form 10-K for the year ended December 31, 1988 (File No. 0-9517).
(e)* 1988 Incentive Bonus Plan, continued in effect through 1994, incorporated herein by reference to the Company's form 10-K for the year ended December 31, 1988 (File No. 0-9517).
(f)* Change of Control Agreements (Representative Form of Agreement) for Davis P. Thurber, Paul R. Shea and Gregory D. Landroche, effective December 21, 1994, on page 31.
(g)* Supplemental executive retirement plan for Davis P. Thurber, Paul R. Shea and Gregory D. Landroche, effective August 24, 1994, on page 50.
(h)* 1988 Incentive Bonus Plan, (1995 Approved Pools) effective January 1, 1995, on page 55.
(i)* Compensation Deferral Agreement, Davis P. Thurber (Amendment #(2)), effective January 1, 1995, on page 59.
(j)* Compensation Deferral Agreement, Paul R. Shea (Amendment #(2)), effective January 1, 1995, on page 60.
(13) Sections of the Company's 1994 Annual Report to Shareholders which are incorporated by reference into this filing, on page 61.
(21) Subsidiary of the Company.
(27) Financial Data Schedule
(99) Notice of 1995 Annual Meeting and Proxy Statement for the Annual Meeting of Shareholders.
(b) During the fourth quarter of 1994, the Company filed no Reports on Form 8-K.
* - Management contract or compensatory plan.
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.
Bank of New Hampshire Corporation
By:/s/Davis P. Thurber Davis P. Thurber, Chairman
Date: March 22, 1995
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:
3/21/95 /s/Davis P. Thurber 3/21/95 /s/Gregory D. Landroche Davis P. Thurber Gregory D. Landroche President, Chairman Executive Vice President, and Director Chief Financial Officer & Treasurer
3/21/95 /s/Paul R. Shea 3/21/95 /s/Robert A. Boulay Paul R. Shea Robert A. Boulay Senior Executive Vice Vice President & President and Director Controller
3/22/95 /s/Robert L. Bailey 3/21/95 /s/Sidney Thurber Cox Robert L. Bailey Sidney Thurber Cox Director Director
3/22/95 /s/Robert P. Bass, Jr. 3/22/95 /s/Raymond J. Creteau Robert P. Bass, Jr. Raymond J. Creteau Director Director
3/21/95 /s/Arthur E. Comolli 3/22/95 /s/Robert B. Field, Jr. Arthur E. Comolli Robert B. Field, Jr. Director Director and Secretary
3/21/95 /s/Raymond G. Cote 3/22/95 /s/Morton E.Goulder Raymond G. Cote Morton E. Goulder Director Director
Philip D. Labombarde Joseph G. Sakey Director Director
3/21/95 /s/Floyd A. Lamb 3/22/95 /s/George R. Walker Floyd A. Lamb George R. Walker Director Director
3/22/95 /s/Richard S. West Daniel R.W. Murdock Richard S. West Director Director
3/22/95 /s/Constance T. Prudden Constance T. Prudden Director