gives a revealing picture of the state of the local mortgage market. David Fox reports on who the major players are in the deposit company business and how the market may change with Bermuda Home's formation.

The formation of Bermuda Home through the merger of the Bank of Bermuda and LP Gutteridge's deposit companies will knock Butterfield Mortgage and Finance off its perch as the Island's mortgage giver.

That is one of the revelations in the prospectus of Bermuda Home, the newly merged company which this week opened its $15 million rights issue.

The prospectus also showed that through 1993, Bermuda's two major domestic banks held a stranglehold on the mortgage money market.

The Bank of Bermuda's Bermuda Mortgage and Finance (BF&M) held a third ($232 million) of the total mortgage and loan market ($687 million), while Butterfield Mortgage and Finance, the lending arm of the Bank of Butterfield, had even more -- 37 percent ($253 million).

At the end of a four-year period when total deposit company mortgages and loans had increased by 57.5 per cent, the two banks held better than 70 per cent of all outstanding mortgage and consumer loans.

By the end of June of last year, the pro forma combination of BM&F and LPG Mortgage and Finance in the form of Bermuda Home would have held a 42 per cent share of the domestic loan market. That together with Butterfield's 37 percent will mean that two companies will now command almost 80 percent of the mortgage and consumer loan market.

In the period from 1989 to 1993, while many were trying to finance a piece of the rock, there were others in the midst of a recession who were planning for the future, with Bermuda dollar deposits increasing from roughly $485 million to $880 million, a rise of almost 82 per cent.

And in that five-year period, it was clear that both LPG and the BM&F were losing market share to their competition, with LPG dropping consistently from 13 percent of the total mortgages and consumer loans to just eight percent.

The bank's share fell in that period from 39 percent to 34 percent. Other companies, led by Butterfield's Bank, were gaining ground.

An unaudited pro forma combined statement of income for Bermuda Home Ltd. was derived from the combined history of the merged companies' prior financial performance.

It showed that Bermuda Home, if it had been in operation, could have completed a year to the end of March with profits of $4,484,207.

The buy-out of the mortgage and finance arm of LPG included agreements that LPG contribute a net equity of $8 million, which included marketable securities, but did not include the LPG land or building. The equity contribution joins other equity contributions totalling $17,000,000.

And under the rights of the current offer, Bermuda Home is issuing 928,350 convertible preferred shares and 928,350 common shares to raise additional capital of nearly $14.5 million.

It is interesting to compare the balance sheets of the two companies up to the merger.

L.P. Gutteridge Mortgage & Finance Limited netted a profit for the year to the end of March of $1,350,610, but had paid out $650,000 in cash as dividends, together with the transfer of shares held by the company in The Bank of Bermuda at the net book value of $1,271,674.

It had retained earnings of more than $5 million at the beginning of the year and $4.5 million at the end.

The land (which cost $400,000) and the LPG building ($2,537,245) were not included in the merger and were being transferred to a wholly-owned subsidiary of LP Gutteridge Ltd., known as Banco Properties Limited. Through depreciation on a straight line basis, the prime Hamilton real estate is given a value of $1.8 million, although it could fetch a high price altogether on the market.

Bermuda Home (BM&F) had a net profit for the nine months to March of $3,166,182, but had paid out $3,935,462 in dividends to the bank as the only shareholder, to bring the equity position to the required $17 million (see above).

BM&F had retained earnings at the beginning of the period of $7,269,280 and nine months later, consolidated the position at $6,500,000 to make up that equity position.

The company had been hugely successful for the bank, with net income rising from more than three million dollars annually (1989 and 1990) to more than $4 million in 1991, before dropping back to $2.7 million in 1992 and almost $2.4 million to June 1993.

Both companies showed the effects of the recession in 1992 and 1993 with lower return on average equity and return on average assets, although for LPG it was also lower in 1991. Both have stronger showings for the period to 1994.

Bermuda Home was this month listed on the Bermuda Stock Exchange and last traded on Thursday at $8 a share.

The company is asking rights holders to pay $16.50 for one ordinary share and one 8.5 percent preference share. Shareholders have one right for every four shares held.