FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1996
OR
[ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 0-16947
PEOPLES HERITAGE FINANCIAL GROUP, INC.
(Exact name of Registrant as specified in its charter)
Maine 01-0137770
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
One Portland Square, Portland, Maine 04112
(Address of principal executive offices) (Zip Code)
(207) 761-8500
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15 (d) of
the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the Registrant was
required to file such reports); and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
The number of shares outstanding of each of the Registrant's
classes of common stock as of May 1, 1996 is:
Common stock, par value $.01 per share 17,044,776
(Class) (Outstanding)
<PAGE>
INDEX
PEOPLES HERITAGE FINANCIAL GROUP, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited).
Consolidated Balance Sheets - March 31, 1996
and December 31, 1995.
Consolidated Statements of Income - Three months
ended March 31, 1996 and 1995.
Consolidated Statements of Changes in
Shareholders' Equity - Three months ended
March 31, 1996 and 1995.
Consolidated Statements of Cash Flows -
Three months ended March 31, 1996 and 1995.
Notes to Consolidated Financial Statements.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
PART II. OTHER INFORMATION
Item 1. Legal proceedings.
Item 2. Changes in securities.
Item 3. Defaults upon senior securities.
Item 4. Submission of matters to a vote of security
holders.
Item 5. Other information.
Item 6. Exhibits and reports on Form 8-K.
<PAGE>
PEOPLES HERITAGE FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Number of Shares and Per Share Data)
(Unaudited)
March 31, December 31,
1996 1995
Assets
Cash and due from banks $ 111,904 $ 124,153
Federal funds sold -0- 58,255
Securities available for sale,
at market value 507,681 485,218
Loans held for sale, market value
$88,342 and $71,872, respectively 88,185 70,979
Loans and leases:
Residential real estate mortgages 786,066 607,369
Commercial real estate mortgages 659,250 623,686
Commercial business loans and leases 341,944 332,755
Consumer loans and leases 667,245 653,827
2,454,505 2,217,637
Less: Allowance for loan and
lease losses 53,553 49,138
Net loans and leases 2,400,952 2,168,499
Bank premises and equipment 45,400 44,358
Goodwill and other intangibles 38,512 21,176
Mortgage servicing rights 23,187 20,309
Other real estate and repossessed
assets owned 6,111 6,601
Deferred income taxes 26,621 26,621
Interest and dividends receivable 22,480 21,634
Other assets 30,614 30,866
$3,301,647 $3,078,669
Liabilities and Shareholders' Equity
Deposits:
Regular savings $ 340,044 $ 303,504
Money market access accounts 470,288 448,998
Certificates of deposit (including
certificates of $100 or more of
$124,709 and $103,730, respectively) 1,219,525 1,124,104
NOW accounts 219,308 215,529
Demand deposits 279,866 269,830
Total deposits 2,529,031 2,361,965
Federal funds purchased 20,337 1,500
Securities sold under repurchase
agreements 131,166 139,942
Borrowings from Federal Home Loan
Bank of Boston 291,444 252,446
Other borrowings 18,572 18,928
Deferred income taxes 9,296 10,400
Other liabilities 25,348 23,020
Total liabilities 3,025,194 2,808,201
Shareholders' Equity:
Preferred stock (par value $0.01 per share,
5,000,000 shares authorized, none issued) -0- -0-
Common stock (par value $0.01 per share,
30,000,000 shares authorized, 17,468,220
shares issued) 175 175
Paid-in capital 186,900 186,900
Retained earnings 95,613 88,951
Net unrealized gain on securities
available for sale 320 2,247
Treasury stock at cost (440,091 shares and
524,062 shares, respectively) (6,555) (7,805)
Total shareholders' equity 276,453 270,468
$3,301,647 $3,078,669
See accompanying notes to Consolidated Financial Statements.
<PAGE>
PEOPLES HERITAGE FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Number of Shares and Per Share Data)
(Unaudited)
Three Months Ended
March 31,
1996 1995
Interest and dividend income:
Interest on loans and leases $ 54,665 $ 47,763
Interest on mortgage-backed investments 3,496 3,098
Interest on other investments 4,151 3,669
Dividends on equity securities 373 495
Total interest and dividend income 62,685 55,025
Interest expense:
Interest on deposits 23,733 18,500
Interest on borrowed funds 5,642 6,660
Total interest expense 29,375 25,160
Net interest income 33,310 29,865
Provision for loan losses -0- 580
Net interest income after
provision for loan losses 33,310 29,285
Noninterest income:
Mortgage banking services 3,296 2,138
Customer services 2,417 1,831
Trust and investment advisory services 510 363
Loan related services 272 198
Net securities gains (losses) 400 (92)
Other noninterest income 11 58
6,906 4,496
Noninterest expenses:
Salaries and employee benefits 13,385 11,458
Occupancy 2,418 1,875
Data processing 2,056 1,689
Equipment 1,566 1,067
Advertising and marketing 814 907
Deposit and other assessments 317 1,382
Collection and carrying costs of
nonperforming assets 267 550
Other noninterest expenses 4,680 4,049
25,503 22,924
Income before income tax 14,713 10,804
Applicable income tax 5,114 3,540
Net income $ 9,599 $ 7,264
Weighted average shares outstanding 17,000,427 16,349,164
Earnings per share $ 0.56 $ 0.44
See accompanying notes to Consolidated Financial Statements.
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<TABLE>
<CAPTION>
PEOPLES HERITAGE FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(In Thousands, Except Number of Shares and Per Share Data)
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Net
Par Paid in Retained Unrealized Treasury
Value Capital Earnings Gain (loss) Stock Total
Balances at December 31, 1994 $175 $186,900 $62,235 $ (9,085) $(10,960) $229,265
Treasury stock purchased 646,600
shares at an average price of $12.84) -- -- -- -- (8,301) (8,301)
Treasury stock issued for employee
benefit plans (27,789 shares at
an average price of $6.12) -- -- (162) -- 387 225
Change in unrealized gains (losses)
on securities available for sale,
net of tax -- -- -- 5,302 -- 5,302
Net income -- -- 7,263 -- -- 7,263
Cash dividends $0.11 -- -- (1,814) -- -- 1,814
Balances at March 31, 1995 $175 $186,900 $67,522 $ (3,783) $(18,874) $231,940
Balances at December 31, 1995 $175 $186,900 $88,951 $ 2,247 $ (7,805) $270,468
Treasury stock issued for employee
benefit plans (83,971 shares at
an average price of $8.75) -- -- (215) -- 1,250 1,035
Change in unrealized gains (losses)
on securities available for sale,
net of tax -- -- -- (1,927) -- (1,927)
Net income -- -- 9,599 -- -- 9,599
Cash dividends $0.16 -- -- (2,722) -- -- (2,722)
Balances at March 31, 1996 $175 $186,900 $95,613 $ 320 $ (6555) $276,453
</TABLE>
See accompanying notes to Consolidated Financial Statements.
<PAGE>
PEOPLES HERITAGE FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
Three Months Ended
March 31,
1996 1995
Cash flows from operating activities:
Net income (loss) $ 9,599 $ 7,264
Adjustments to reconcile net income
to net cash provided by operating
activities:
Provision for loan losses -0- 580
Provision for depreciation 1,315 980
Provision for losses and writedowns
of other real estate owned -0- (869)
Amortization of goodwill and other
intangibles 895 483
Amortization of servicing rights 944 814
Net (gains) losses realized from sales
of other real estate owned 35 898
Net (gains) losses realized from sales
of securities and consumer loans (400) 92
Net (gains) losses realized from sales
of loans held for sale (a component
of mortgage banking services) 510 (446)
Proceeds from sales of loans held
for sale 232,390 47,832
Residential loans originated and
purchased for sale (251,079) (52,544)
Net decrease (increase in interest
and dividends receivable and
other assets (594) 194
Net increase (decrease) in other
liabilities 2,326 (5,295)
Net cash provided by operating activities $ (4,059) $ (17)
Cash flows from investing activities:
Proceeds from sales of securities
available for sale $ 30,416 $ 7,228
Proceeds from maturities and principal
repayments of securities available
for sale 70,467 39,058
Purchases of securities available
for sale (125,975) (45,262)
Net (increase) decrease in loans and
leases (231,169) (18,319)
Purchase of mortgage servicing rights (3,822) (194)
Premiums paid on deposits purchased (18,231) -0-
Net additions to premises and equipment (2,357) (1,152)
Proceeds from sales of other real
estate owned (297) 2,606
Net (increase) decrease in repossessed
assets owned 441 1,408
Net cash provided (used) by investing
activities $ (280,527) $ (14,627)
<PAGE>
PEOPLES HERITAGE FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - continued
(In Thousands)
(Unaudited)
Three Months Ended
March 31,
1996 1995
Cash flows from financing activities:
Net increase (decrease) in deposits $ 167,066 $ 7,555
Net increase (decrease) in securities
sold under repurchase agreements (8,776) 21,743
Advances from Federal Home Loan Bank
of Boston borrowings 110,000 50,000
Payments on Federal Home Loan Bank of
Boston borrowings (71,002) (55,000)
Net increase (decrease) in other
borrowings (356) (3,210)
Sale of treasury stock 1,035 225
Purchase of treasury stock -0- (8,301)
Cash dividends paid to shareholders (2,722) (1,814)
Net cash provided (used) by financing
activities $ 195,245 $ 11,198
Increase (decrease) in cash and cash
equivalents $ (89,341) $ (3,446)
Cash and cash equivalents at beginning
of period 180,908 126,072
Cash and cash equivalents at end of
period $ 91,567 $ 122,626
Supplemental disclosures of information:
Interest paid on deposits and borrowings $ 28,280 $ 24,851
Income taxes paid 371 -0-
Income tax refunds 38 44
Noncash investing transactions:
Loans transferred to other real estate
owned 660 2,302
Loans originated to finance the sales of
other real estate owned 971 2,886
Increases (decreases) resulting from the
adoption of SFAS No. 115:
Securities available for sale (3,029) 8,329
Deferred income taxes - liabilities (1,102) 3,027
Net unrealized gain (loss) on
securities available for sale (1,927) 5,302
<PAGE>
PEOPLES HERITAGE FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1996
Note 1 - Basis of Presentation
The accompanying unaudited consolidated financial statements
have been prepared in accordance with generally accepted
accounting principles and with the instructions to Form 10-Q
and Rule 10-01 of Regulation S-X of the Securities and
Exchange Commission. Accordingly, they do not include all
of the information and notes required by generally accepted
accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of
normal recurring accruals) necessary for a fair presentation
of the consolidated financial statements have been included.
The results of operations and other data for the three
months ended March 31, 1996 are not necessarily indicative
of results that may be expected for any other interim period
or the entire year ending December 31, 1996. Certain
amounts in prior periods have been reclassified to conform
to the current presentation.
On January 1, 1996, the Company adopted Statement of
financial Accounting Standards ("SFAS") No. 121, "Accounting
for the Impairment of Long-lived Assets and for Long-Lived
Assets to be Disposed of." The implementation of this
Statement did not have a material effect on the Company's
results of operations or financial condition.
On January 1, 1996, the Company adopted SFAS No. 123,
"Accounting for Stock-Based Compensation." The Company has
elected to continue to follow the accounting under
Accounting Principal Board ("APB") Opinion No. 25. SFAS No.
123 requires companies which elect to continue to follow APB
Opinion No. 25 to disclose in the notes to their financial
statements the pro forma net income and earnings per share
as if the value based method established under SFAS 123 had
been applied.
<PAGE>
PEOPLES HERITAGE FINANCIAL GROUP, INC. AND
SUBSIDIARIES
PART I - ITEM 2
Management's discussion and analysis of financial condition
and results of operations.
General
Peoples Heritage Financial Group, Inc. (the "Company") is a
multi-bank holding company which is incorporated under the
laws of the State of Maine and headquartered in Portland,
Maine. The Company's direct subsidiaries, both of which are
wholly-owned, are Peoples Heritage Savings Bank (the "Bank")
and, as of March 31, 1996, First Coastal Banks, Inc. ("First
Coastal"), which wholly owns The First National Bank of
Portsmouth ("Portsmouth"). Effective April 2, 1996, First
Coastal was merged into Bank of New Hampshire Corporation
("BNHC") in connection with the Company's acquisition of
BNHC. See "Acquisition of BNHC" below.
The Bank conducts business from its headquarters in
Portland, Maine and 60 additional offices located throughout
the State of Maine. At March 31, 1996, the Bank had total
assets of $2.5 billion and total shareholder's equity of
$189.1 million.
Portsmouth conducts business from its headquarters in
Portsmouth, New Hampshire and 20 additional offices located
throughout the State of New Hampshire. At March 31, 1996,
Portsmouth had $779.2 million of total assets and $55.9
million of shareholder's equity.
On February 16, 1996, five branch offices and $160.9 million
in related deposits located in New Hampshire were acquired
by Portsmouth from Fleet Bank NH (the "Branch Acquisition").
In addition to various assets related to the acquired
branches, approximately $216.4 million of loans were
purchased in connection with this transaction, which
consisted primarily of $178.6 million of single-family
residential loans. A deposit premium of $18.2 million was
paid which is being amortized over seven years.
On July 1, 1995, Bankcore, Inc. ("Bankcore"), the New
Hampshire-based holding company for North Conway Bank, was
acquired and North Conway Bank was merged into Portsmouth.
At the time of acquisition, Bankcore had $132.8 million in
total assets and shareholders' equity of $17.8 million. The
Bankcore acquisition was treated as a purchase for
accounting purposes and, accordingly, the Company's
financial statements reflect the acquisition from the time
of purchase only. As a result of the transaction, $3.4
million of goodwill was created, which is being amortized
over 15 years.
On June 15, 1995, the Company purchased all the branches and
associated deposits, as well as certain loans, of Fleet Bank
of Maine located in Aroostook County, Maine. Five of the
seven branches purchased were merged with and into existing
branches of the Bank. The purchase resulted in the transfer
of $46.1 million in deposits and $17.1 million in loans.
<PAGE>
Results of Operations
The Company reported net income of $9.6 million for the
three months ended March 31, 1996 as compared to $7.3
million for the same period in 1995. The improved results
in 1996 were primarily attributable to the improvement in
net interest income as a result of an increase in earning
assets and increased noninterest income, which were offset
in part by higher noninterest expenses and higher income tax
expense.
Net Interest Income. For purposes of the following table
and the following discussion, income from interest-earning
assets and net interest income are presented on a fully-
taxable equivalent basis primarily by adjusting income and
yields earned from tax-exempt interest received on qualified
tax-exempt securities and on loans to qualifying borrowers
to make them equivalent to income and yields earned on
fully-taxable securities and loans, assuming tax rates of
35%. In addition, nonaccrual loans have been included in
the appropriate average balance loan category, but unpaid
interest on nonaccrual loans has not been included for
purposes of determining interest income.
<PAGE>
<TABLE>
<CAPTION>
The following table sets forth, for the periods indicated, information regarding (i) the total dollar
amount of interest income of the Company from interest-earning assets and the resultant average
yields; (ii) the total dollar amount of interest expense on interest-bearing liabilities and the
resultant average cost; (iii) net interest income; (iv) interest rate spread; and (v) net interest
margin. Information is based on average daily balances during the indicated periods.
Three Months Ended March 31, Three Months Ended March 31,
1996 1995
Average Yield/ Average Yield/
Balance Interest Rate (2) Balance Interest Rate (2)
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Loans and leases (1):
Residential real estate mortgages $ 762,560 $15,226 7.99% $ 650,084 $12,994 8.00%
Commercial real estate mortgages 643,021 15,981 10.00 595,437 14,212 9.68
Commercial loans and leases 334,342 8,181 9.84 272,998 6,703 9.96
Consumer loans and leases 659,521 15,397 9.39 607,960 14,005 9.34
Total loans and leases 2,399,444 54,785 9.18 2,126,479 47,914 9.14
Investment securities (3) 510,458 7,813 6.16 431,619 6,938 6.52
Federal funds sold 18,331 239 5.24 24,838 364 5.94
Total earning assets 2,928,233 62,837 8.63 2,582,936 55,216 8.67
Nonearning assets 205,342 179,750
Total assets $3,133,575 $2,762,686
Interest-bearing deposits:
Regular savings 318,499 2,208 2.79 339,892 2,439 2.91
NOW accounts 205,579 656 1.26 181,517 569 1.27
Money market access accounts 463,048 4,374 3.80 294,161 2,441 3.37
Certificates of deposit 1,164,494 16,495 5.70 1,025,447 13,051 5.16
Total interest-bearing deposits 2,155,620 23,733 4.43 1,841,017 18,500 4.08
Borrowed funds 411,979 5,642 5.51 456,194 6,660 5.92
Total interest bearing liabilities 2,567,599 29,375 4.60 2,297,211 25,160 4.44
Demand deposits 259,255 195,480
Other liabilities (3) 35,051 32,764
Shareholders' equity (3) 271,670 237,231
Total liabilities and shareholders'
equity $3,133,575 $2,762,686
Net earning assets $ 360,634 $ 285,725
Net interest income (fully-taxable
equivalent) 33,642 30,056
Less: fully-taxable equivalent adjustments (152) (191)
Net interest income $33,310 29,865
Net interest rate spread (fully-taxable
equivalent) 4.03% 4.23%
Net interest margin (fully-taxable equivalent) 4.60% 4.72%
(1) Loans and leases includes loans available for sale.
(2) Annualized.
(3) Excludes effect of unrealized gains or losses on investment securities.
</TABLE>
<PAGE>
Net interest income on a fully-taxable equivalent basis
increased by $3.6 million for the three months ended March
31, 1996 as compared with the same period in 1995. The
increase was primarily attributable to an increase in the
level of interest-earning assets, which was offset somewhat
by a decrease in the Company's net interest rate spread.
The weighted average rate on loans and leases increased
slightly to 9.18% from 9.14% and the average outstanding
balances increased by $273.0 million, or 12.8% for the three
months ended March 31, 1996, compared with the same period
in 1995. Interest income earned on loans and leases
increased by $6.9 million, or 14.3%, during the three months
ended March 31, 1996, as compared with the three months
ended March 31, 1995. The increase in interest income on
loans was primarily attributable to loan growth from
purchases and acquisitions as well as internal loan growth.
Interest expense on deposits increased by $5.2 million, or
28.3%, during the three months ended March 31, 1996 as
compared with the three months ended March 31, 1995. The
increase in interest expense paid on deposits was
attributable to an increase in the weighted average rate
paid on interest-bearing deposits from 4.08% during the
three months ended March 31, 1995 to 4.43% during the three
months ended March 31, 1996 and a $314.6 million, or 17.1%,
increase in average interest-bearing deposit balances
outstanding during the three months ended March 31, 1996, as
compared with the same period in 1995. The increase in
average deposit balances was primarily attributable to
deposit growth from purchases and acquisitions during the
second half of 1995 and the first quarter of 1996. The
increase in deposit balances enabled the Company to both
fund the increase in earning assets and reduce the level of
borrowed funds.
Interest expense on borrowed funds decreased by $1.0
million, or 15.3%, for the three months ended March 31,
1996, as compared with the same period in 1995. This
decrease was attributable to a $44.2 million, or 9.7%,
decrease in outstanding average balances of borrowed funds
and a decrease in the weighted average rate paid to 5.51%
for the three months ended March 31, 1996, as compared with
5.51% for the same period in 1995.
The Company's net interest rate spread decreased from 4.23%
for the three months ended March 31, 1995 to 4.03% for the
three months ended March 31, 1996. This decrease was
attributable to the increased rate on interest-bearing
deposits and a slight decrease in the yield on earning
assets.
The net interest margin decreased from 4.72% for the three
months ended March 31, 1995 to 4.60% for the three months
ended March 31, 1996. This decrease was attributable to the
decreased net interest rate spread, which was offset in part
by the higher level of net earning assets during the three
months ended March 31, 1996, as compared with the same
period in 1995.
Provision for Loan Losses. The Company had a zero provision
for loan losses for the three months ended March 31, 1996,
as compared with a provision of $580 thousand for the three
months ended March 31, 1995. The lower provision resulted
<PAGE>
from management's ongoing evaluation of the adequacy of the
allowance for loan losses after taking into account recent
trends in nonperforming loans, delinquent loans and net loan
chargeoffs, as well as other asset quality factors. See
"Financial Condition - Nonperforming Assets" below.
Although management utilizes its best judgment in providing
for possible losses, there can be no assurance that the
Company will not have to increase its provisions for
possible loan and lease losses in the future as a result of
changing markets for real estate and economic conditions in
the Company's primary market area, future changes in
nonperforming assets or for other reasons which could affect
the Company's results of operations. In addition, various
regulatory agencies, as an integral part of their
examination process, periodically review the Company's
allowance for loan and lease losses. Such agencies may
require the Company to recognize changes to the allowance
for loan and lease losses based on their judgments about
information available to them at the time of the
examination. The Company was most recently examined by the
Federal Reserve Board as of December 31, 1994; the Bank was
most recently examined by the FDIC and the Maine Bureau of
Banking as of December 31, 1995; and Portsmouth was most
recently examined by the Comptroller of the Currency
("Comptroller") as of December 31, 1994.
Noninterest Income. Noninterest income increased $2.4
million, or 53.6%, for the three months ended March 31,
1996, as compared to the same period in 1995. The more
significant changes to the components of noninterest income
are more fully described below.
The following table sets forth certain information relating
to mortgage banking services income:
At or for the
Three Months Ended
March 31,
1996 1995
(In Thousands)
Residential mortgages serviced
for investors at end of period $2,621,948 $2,267,063
Gain on sale of residential
mortgage servicing rights $ 200 $ -0-
Residential mortgage sales
income 1,547 446
Residential mortgage servicing
income 1,549 1,692
Total $ 3,296 $ 2,138
The Company's portfolio of residential mortgages serviced
for investors increased by $354.9 million, net of
amortization and prepayments, or 15.7%, from March 31, 1995
to March 31, 1996. The Company's portfolio of mortgages
serviced for others continues to increase as a result of its
strategy to originate and sell primarily fixed rate
residential mortgages to the secondary market while
retaining the rights to service these loans for the
investors purchasing them. In addition, the outstanding
amount of residential mortgages serviced for investors is
impacted, from time to time, by the purchase and sale of
<PAGE>
mortgage servicing rights for portfolios of residential
mortgage loans.
In May 1995, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards
("SFAS") No. 122, "Accounting for Mortgage Servicing
Rights," which changes the method of accounting for certain
mortgage banking activities. The Company elected early
adoption of SFAS No. 122 in the second quarter of 1995 and
consequently the impact of the adoption is not included in
the results of operations of the Company which were reported
for the three months ended March 31, 1995. A total of $273
thousand in originated mortgage servicing rights were
attributable to mortgage banking sales activities for the
three months ended March 31, 1995 but were reported in the
results of operations for the three months ended June 30,
1995.
Residential mortgage sales income increased $1.1 million for
the three months ended March 31, 1996, as compared with the
three months ended March 31, 1995. Including the $273
thousand of originated mortgage servicing rights
attributable to mortgage sales activities during the three
months ended March 31, 1995, the comparable increase in
mortgage sales income during the three months ended March
31, 1996 was $828 thousand, or 115.2%. The increase in
residential mortgage sales income reflects the lower
interest rate environment during the three months ended
March 31, 1996, as compared with the same period in 1995,
which increased the level of both refinancing and purchase
mortgages as well as an increase in the volume of loans
originated by both the Bank and the acquired through the
Bank's correspondent network. Residential real estate
mortgage originations from correspondent lenders increased
by $160.7 million, or 737.2%, from $21.8 million for the
three months ended March 31, 1995 to $182.5 million for the
three months ended March 31, 1996.
Residential mortgage servicing income decreased $143
thousand, or 8.5%, during the three months ended March 31,
1996, as compared with the same period in 1995. Residential
mortgage servicing income was negatively impacted during the
three months ended March 31, 1996 by the Company's adoption
of SFAS No. 122 in 1995, which effectively accelerated
mortgage servicing income into the current period as a
component of residential mortgage sales income and increased
the amount of capitalized mortgage servicing rights. The
mortgage servicing rights that have been created as a result
of the adoption of SFAS No. 122 are amortized and recorded
as an offset to mortgage servicing income.
In order to mitigate the prepayment risk associated with
mortgage servicing rights and protect economic value, the
Company has purchased constant maturity treasury floors
("CMT"). The value of a CMT is inversely related to
movements in interest rates. As interest rates decline, the
value of a CMT floor increases. Market interest rate
movements also influence the behavior of borrowers, which
impacts the value of mortgage servicing rights as a result
of an increase or decrease on mortgage loan prepayment
speeds. The value of mortgage servicing rights generally
increases as market interest rates increase and decreases as
market interest rates decrease. While not accorded hedge
accounting treatment due to the uncertainty of strict
<PAGE>
correlation, in the event that interest rates fall, any
resulting increase in the value of the CMTs are intended to
offset, in part, the prospective impairment to mortgage
servicing rights. The CMT floors are included in other
assets on the Company's balance sheet at March 31, 1996 at
amortized cost of $868 thousand, which approximates market
value.
The following table shows the composition of net gains on
the sales of securities for the periods indicated:
Three Months Ended March 31,
1996 1995
(In Thousands)
Securities losses $( 1) $(121)
Securities gains 401 29
$ 400 $ (92)
The generation of mortgage sales income and the recognition
of net gains on the sales of securities are dependent on
market and economic conditions and, accordingly, there can
be no assurance that the income and net gains reported in
prior periods can be achieved in the future or that there
will not be significant inter-period variations in the
results from such activities.
Customer services income increased $586 thousand, or 32.0%,
for the three months ended March 31, 1996, as compared with
the same period in 1995. The increase in customer services
income reflects the Company's focus on increasing the number
and volume of transaction accounts, the increased use of and
fees generated by ATM machines and the increased volume
associated with the expansion of the retail branch franchise
from 67 branches at March 31, 1995 to 82 at March 31, 1996.
Other categories of noninterest income include loan related
services income, which increased $74 thousand; trust and
investment advisory services, which increased $147 thousand;
and other noninterest income, which decreased $47 thousand
for the three months ended March 31, 1996, as compared to
the same period in 1995. The changes in these categories of
noninterest income resulted primarily from the related
volume of customer transactions.
Noninterest Expenses. Total noninterest expenses increased
$2.6 million, or 11.0%, for the three months ended March 31,
1996, as compared with the same period in 1995.
Salaries and employee benefits increased $1.9 million, or
16.8%, for the three months ended March 31, 1996, as
compared to the same period in 1995. This increase was
principally the result of the employment of additional
employees in connection with the expansion of the retail
franchise as well as normal salary and wage increases.
Occupancy expenses increased $543 thousand, or 29.0%, for
the three months ended March 31, 1996, as compared with the
same period in 1995. This increase was primarily
attributable to the expansion of the Company's branch
network, which resulted in higher utilities and maintenance
expenses during the three months ended March 31, 1996, as
compared with the same period in 1995.
<PAGE>
Equipment expenses increased $499 thousand, or 46.8%, for
the three months ended March 31, 1996, as compared with the
same period in 1995. The increase in equipment expenses was
primarily attributable to increased investment in
alternative delivery systems, office automation equipment
and a larger branch network.
Deposit and other assessment expenses decreased $1.1
million, or 77.1%, for the three months ended March 31,
1996, as compared with the same period in 1995. This
decrease was directly attributable to the reduction in the
deposit insurance premiums from $0.23 per $100 of deposits
for the three months ended March 31, 1995 to a minimal
amount for the three months ended March 31, 1996 paid by the
Bank and Portsmouth to the Bank Insurance Fund ("BIF").
Approximately 83% of the Company's deposits are insured by
BIF. The Company continues to pay $0.23 per $100 of
deposits for the approximately 17% of its deposits that are
insured by the Savings Association Insurance Fund ("SAIF").
For additional information in this regard, see Item 5 below,
however.
Other categories of noninterest expenses include data
processing expense, which increased $367 thousand for the
three months ended March 31, 1996, as compared to the same
period in 1995; collection and carrying costs of
nonperforming assets, which decreased $283 thousand for the
three months ended March 31, 1996, as compared to the same
period in 1995; and advertising and marketing expenses,
which decreased $93 thousand for the three months ended
March 31, 1996 as compared with the same period in 1995.
Other noninterest expenses increased $631 thousand, or
15.6%, for the three months ended March 31, 1996, as
compared to the same period in 1995. The following table
sets forth information relating to other noninterest
expenses during the periods indicated:
Three Months Ended March 31,
1996 1995
(In Thousands)
Postage and freight $ 626 $ 484
Telephone 553 374
Amortization of goodwill 480 430
Amortization of deposit premiums 415 54
Other 2,606 2,709
$4,680 $4,049
The increase in amortization of deposit premiums was
attributable to the Branch Acquisition.
Income Tax Expense. Income tax expense was $5.1 million and
$3.5 million for the three months ended March 31, 1996 and
1995, respectively, which amounted to effective income tax
rates of 34.8% and 32.8%, respectively.
<PAGE>
Financial Condition
Set forth below is a discussion of the material changes in
the Company's financial condition from December 31, 1995 to
March 31, 1996.
Securities Available for Sale
Securities available for sale increased $22.5 million, or
4.6%. Securities available for sale are reported at fair
value, with unrealized gains and losses reported as a
separate component of shareholders' equity (net of related
taxes). At March 31, 1996, $320 thousand of net unrealized
gain (net of related taxes) was included in shareholders'
equity. A summary of the carrying values of securities
available for sale follows:
March 31, December 31,
1996 1995
(In Thousands)
U.S. Government obligations and
obligations of U.S. Government
agencies and corporations $233,920 $249,697
Other bonds and notes 26,592 15,716
Mortgage-backed securities 223,185 195,823
Total debt securities 483,697 461,236
Equity securities 23,984 23,982
Total securities
available for sale $507,681 $485,218
Loans Held for Sale
Loans held for sale, all of which were residential mortgage
loans, increased $17.2 million. The outstanding dollar
amount of loans held for sale can vary greatly from period
to period as a result of mortgage origination levels, timing
and delivery of loan sales, changes in market interest rates
and asset liability management strategies. The change in
loans held for sale from December 31, 1995 to March 31, 1996
was primarily attributable to the higher level of fixed rate
mortgage originations in the months preceding March 31, 1996
as compared with December 31, 1995.
Loans and Leases
Total loans and leases held for investment increased $236.9
million, or 10.7%, for the three months ended March 31,
1996. The increase was primarily attributable to $216.4
million of loans acquired through the Branch Acquisition, as
well as increases in residential and commercial real estate
loan originations.
<PAGE>
The following table sets forth loans held for sale and total
loans and leases originated or purchased and sold, repaid or
otherwise reduced, by loan type, for the periods indicated:
Three Months Ended
March 31,
1996 1995
(In Thousands)
Originations and purchases:
Residential real estate loans $251,079 $ 59,709
Commercial real estate loans 35,870 26,622
Commercial business loans
and leases 99,710 85,717
Consumer loans 78,298 61,954
Total originations and purchases 464,957 234,002
Loans acquired through
acquisitions 218,129 -0-
Total originations, purchases
and acquisitions $683,086 $234,002
Sales and principal reductions:
Sales $232,390 $ 47,386
Principal reductions 196,622 166,908
Total sales and principal
reductions $429,012 $214,295
Increase in loans held for sale
and loans and leases $254,074 $ 19,708
Residential real estate loan originations increased $191.4
million for the three months ended March 31, 1996, as
compared with the same period in 1995. The increase in
residential loan originations during the three months ended
March 31, 1996 reflected significant refinancing activity
due to a favorable interest rate environment and a
substantial increase in loans originated through the Bank's
correspondent network. For additional information regarding
residential loan originations, see discussion of Loans Held
for Sale and Noninterest Income above.
Commercial business loan and lease originations increased
$14.0 million for the three months ended March 31, 1996, as
compared with the same period in 1995. The increase in
commercial business loan and lease originations is
consistent with the Company's strategy to focus on lending
to sound small and medium-sized business customers within
its geographic market as well as an increase in tax exempt
loans to municipalities.
Consumer loan originations increased $16.3 million for the
three months ended March 31, 1996, as compared with the same
period in 1995. The growth in consumer loan originations
and balances was concentrated in home equity loans.
Originations of consumer loans include a significant amount
of loans indirectly obtained by the Company through various
dealers in products financed by the Company. Indirect
consumer loans accounted for approximately 18.1% of the
total originations of consumer loans during the three months
ended March 31, 1996 and amounted to $298.8 million, or
44.8%, of the Company's consumer loan portfolio at March 31,
1996.
<PAGE>
<TABLE>
(CAPTION>
Nonperforming Assets
The following table sets forth information regarding nonperforming assets at the dates indicated:
March 31, December 31, September 30, June 30,
1996 1995 1995 1995
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Residential real estate loans:
Nonaccrual loans $ 6,004 $ 4,990 $ 5,231 $ 4,517
Accruing loans which are 90 days overdue 2,722 2,724 2,013 2,833
Total 8,727 7,714 7,244 7,350
Commercial real estate mortgages:
Nonaccrual loans 13,548 13,247 16,106 15,327
Troubled debt restructurings 1,793 2,595 3,946 4,870
Total 15,341 15,842 20,052 20,197
Commercial business loans and leases:
Nonaccrual loans 5,458 6,235 5,940 6,620
Troubled debt restructurings 1,349 1,859 1,953 2,098
Total 6,807 8,094 7,893 8,718
Consumer loans and leases:
Nonaccrual loans 3,277 2,846 3,190 2,963
Accruing loans which are 90 days overdue 803 532 343 112
Total 4,080 3,378 3,533 3,075
Total nonperforming loans:
Nonaccrual loans 28,288 27,318 30,467 29,427
Accruing loans which are 90 days overdue 3,525 3,256 2,356 2,945
Troubled debt restructurings 3,142 4,454 5,899 6,968
Total 34,955 35,028 38,722 39,340
Other nonperforming assets:
Other real estate owned, net of related
reserves 4,256 5,073 6,589 8,555
Repossessions, net of related reserves 1,855 1,528 1,629 1,591
Total other nonperforming assets 6,111 6,601 8,218 10,146
Total nonperforming assets $41,066 $41,629 $46,940 $49,486
Total nonperforming loans as a percentage
of total loans (1) 1.42% 1.58% 1.74% 1.86%
Total nonperforming assets as a percentage
of total assets 1.24% 1.35% 1.55% 1.73%
Total nonperforming assets as a percentage
of total loans (1) and total other
nonperforming assets 1.67% 1.87% 2.10% 2.33%
</TABLE>
(1) Exclusive of loans held for sale.
<PAGE>
It is the policy of the Company to place all commercial real
estate loans and commercial business loans which are 90 days
or more past due, unless secured by sufficient cash or other
assets immediately convertible to cash, on nonaccrual
status. All such loans 90 days or more past due, whether on
nonaccrual status or not, are considered as nonperforming
loans. Residential real estate loans and consumer loans are
placed on nonaccrual and nonperforming status generally when
they are 90 days or more past due or when in management's
judgment the collectibility of interest and/or principal is
doubtful.
It is also the policy of the Company to place on nonaccrual
and nonperforming status loans currently performing in
accordance with their terms but which in management's
judgment are likely to present future principal and/or
interest repayment problems and thus ultimately could be
classified as nonperforming. At March 31, 1996, $11.4
million of commercial real estate and commercial business
loans and leases, or 51.3% of total nonperforming commercial
real estate and commercial business loans, were on
nonaccrual status and thus disclosed as nonperforming loans
even though they were less than 90 days past due.
Effective January 1, 1995, the Company adopted SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan," and SFAS
No. 118, "Accounting by Creditors for Impairment of a Loan -
Income Recognition and Disclosures." These statements
require changes in both the disclosure and impairment
measurement of nonperforming loans. Certain loans which had
previously been reported as nonperforming and certain in-
substance foreclosures are currently required to be
disclosed as impaired loans. At adoption, the Company
reclassified $2.2 million of in-substance foreclosures and
related reserves of $96 thousand to loans and the allowance
for loan losses, respectively. Prior year balances were not
reclassified as management deemed the amounts to be
immaterial.
Restructured accruing loans entered into subsequent to the
adoption of these statements are reported as impaired loans.
In the year subsequent to restructure these loans may be
removed from impaired loan status provided that the loan
bears a market rate of interest at the time of restructure
and is performing under the restructured terms.
Restructured, accruing loans entered into prior to the
adoption of these statements are not required to be reported
as impaired loans unless such loans are not performing in
accordance with the restructured terms.
Commercial business and commercial real estate loans are
considered impaired when it is probable that the Company
will not be able to collect all amounts due according to the
original contractual terms of the loan agreement. The
amount of impairment for impaired loans is determined by the
difference between the present value of the expected cash
flows related to the loan, using the original contractual
interest rate, and its recorded value, or, in the case of
collateralized loans, the difference between the fair value
of the collateral and the recorded amount of the loan. When
foreclosure is probable, impairment is measured based on the
fair value of the collateral. The Company recognizes income
on impaired loans also classified as nonperforming on a cash
<PAGE>
basis when the ability to collect the principal balance is
not in doubt.
At March 31, 1996, total impaired loans were $24.6 million,
of which $20.5 million had related allowances of $4.4
million. During the three months ended March 31, 1996, the
income recognized related to impaired loans was $333
thousand and the average balance of outstanding impaired
loans was $26.2 million.
Real estate acquired by the Company as a result of
foreclosure or by deed-in-lieu of foreclosure generally is
classified as other real estate owned until it is sold.
When property is acquired, it is recorded at the lower of
carrying or fair value less estimated selling costs at the
date of acquisition or classification and any writedown
resulting therefrom is charged to the allowance for loan
losses. Interest accrual ceases on the date of acquisition
and all costs incurred from that date in maintaining the
property and subsequent reductions in value are expensed.
Nonperforming assets at March 31, 1996 included $4.3 million
of other real estate owned and $1.9 million of repossessed
assets, in each case net of related reserves.
Potential Nonperforming Assets
At March 31, 1996, the Company had classified a total of
$79.9 million of commercial real estate loans and commercial
business loans and leases as substandard or lower on its
risk rating system, as compared to $79.8 million at December
31, 1995. Included in this amount was the Company's $22.1
million of nonperforming commercial business and commercial
real estate loans. In the opinion of management, the
remaining $57.8 million of commercial real estate loans and
commercial business loans and leases classified as
substandard or lower at March 31, 1996 evidence one or more
weaknesses or potential weaknesses and, depending on the
regional economy and other factors, may become nonperforming
assets in future periods. These loans are net of any
previously established specific reserves which have resulted
in chargeoffs, but not general reserves which have been
established based on the Company's internal rating of such
loans and evaluation of the adequacy of its allowance for
loan losses.
<PAGE>
Allowance for Loan Losses
The following table sets forth information regarding
activity in the allowance for loan losses for the three
months ended March 31, 1996 and 1995, as well as certain
related ratios:
Three Months Three Months
Ended Ended
March 31, March 31,
1996 1995
(Dollars in Thousands)
Average loans and leases
outstanding during the period $2,399,444 $2,216,479
Allowance at beginning of
period $ 49,138 $ 50,484
Chargeoffs:
Residential real estate 414 208
Commercial real estate 399 4,275
Commercial business loans
and leases 280 309
Consumer 651 517
Total loans charged off 1,744 5,369
Recoveries:
Residential real estate 58 43
Commercial real estate 1,352 427
Commercial business loans
and leases 321 521
Consumer 118 25
Total loans recovered 1,849 1,016
Net chargeoffs (recoveries) (105) 4,353
Additions charged to operating
expenses -0- 580
Additions due to purchase
acquisition 4,310 -0-
Allowance at end of period $ 53,553 $ 46,711
Ratio of net chargeoffs to
average loans and leases
outstanding during the
period - annualized (1) (0.02)% 0.83%
Ratio of allowance to total loans
and leases at end of period (2) 2.18% 2.21%
Ratio of allowance to nonperforming
loans at end of period 153.20% 104.15%
(1) Average loans and leases include portfolio loans and loans
held for sale.
(2) Excludes loans held for sale.
<PAGE>
The following table sets forth the manner in which the Company's
total allowance for loan losses was allocated by type of loan at
the dates indicated:
March 31, 1996 December 31, 1995
% of Total % of Total
Loans by Loans by
Category to Category to
Amount Total Loans Amount Total Loans
(Dollars in Thousands)
Residential real estate
loans $ 4,398 32.0% $ 2,872 27.4%
Commercial real estate
loans 32,621 26.9 29,240 28.1
Commercial business
loans and leases 8,242 13.9 8,201 15.0
Consumer loans 8,292 27.2 8,824 29.5
$53,553 100.0% $49,138 100.0%
Deposits and Borrowings
Total deposits increased by $167.1 million, or 7.1%, during the
three months ended March 31, 1996. This increase was principally
attributable to the $160.9 million of deposits that were acquired
in the Branch Acquisition, as described above. The increase in
deposits resulted from an increase in certificates of deposit of
$95.4 million, or 8.5%, an increase in regular savings of $36.5
million, or 12.0%, an increase in money market accounts of $21.3
million, or 4.7%, and a combined increase in NOW and demand
deposits of $13.8 million, or 2.8%. The changes in deposit
balances principally reflect the impact of the Branch Acquisition
completed during February, 1996 but also reflect the Company's
current strategy to emphasize relationship banking, cash
management services and core deposits.
Total borrowings increased by $48.7 million, or 11.8%, for the
three months ended March 31, 1996. The increase was primarily
attributable to a $39.0 million increase in Federal Home Loan Bank
borrowings and an $18.8 million increase in federal funds
purchased, which were offset in part by a $9.1 million decrease in
other borrowings. The increase in Federal Home Loan Bank
borrowings was directly attributable to the Branch Acquisition. At
March 31, 1996, the Company estimates its additional available
borrowing capacity from the Federal Home Loan Bank to be
approximately $417.0 million.
Shareholders' Equity
Total shareholders' equity increased by $6.0 million, or 2.2%,
during the three months ended March 31, 1996. This increase was
the result of $9.6 million of net income and $1.0 million of
treasury stock sales related to various employee benefit plans of
the Company, the effects of which were offset in part by cash
dividends of $2.7 million and a $1.9 million reduction in the net
unrealized gain (net of tax effect) in the market value of
securities available for sale.
Regulatory Capital Requirements
At March 31, 1996, the Company and each of its banking
subsidiaries were in compliance with all applicable regulatory
capital requirements.
<PAGE>
The following table sets forth the minimum regulatory capital
requirements and the actual capital ratios of the Company and its
two banking subsidiaries at March 31, 1996:
Actual
Required The The
Minimums Bank Portsmouth Company
Risk-based capital ratios:
Tier I 4% 10.89% 7.22% 10.87%
Total 8 12.16 8.48 12.14
Tier I leverage capital
ratios 3 (1) 7.58 5.32 7.75
(1) The federal banking agencies have indicated that the most
highly-rated institutions which meet certain criteria will be
subject to a 3% requirement and all other institutions will be
required to maintain an additional 1% to 2% of capital. The
federal banking agencies have not specified any requirements in
this regard with respect to the Company and its subsidiaries.
Liquidity and Capital Resources
The Company's liquidity increased slightly during the three months
ended March 31, 1996. Net cash, short term and marketable assets
amounted to $503.0 million, or 19.4% of net deposits and short
term liabilities at March 31, 1996. This compares to a ratio of
22.2% at December 31, 1995. Liquidity is considered adequate by
the Company to meet anticipated cash needs in the foreseeable
future.
Asset and Liability Management
The Company analyzes the future impact on net interest income as a
result of changing interest rates based on budget projections,
including anticipated business activity, anticipated changes in
interest rates and other variables which are adjusted periodically
to reflect the interest rate environment and other factors. Based
on this analysis and the information and assumptions in effect at
March 31, 1996, management of the Company estimates that a 100 to
200 basis point gradual change in interest rates would not
significantly affect the Company's annualized net interest income.
This assessment is primarily based on management's ability to
exert some control with respect to the extent and timing of the
change in rates paid on the Company's interest-bearing liabilities
and, therefore, to manage the effects somewhat of a negative or
positive gap position on net interest income.
The Company's methods for analyzing the effects of changes in
interest rates on its operations incorporate assumptions
concerning, among other things, the amortization and prepayment of
assets and liabilities. Management believes that these
assumptions approximate actual experience and considers them
reasonable, although the actual amortization and repayment of
assets and liabilities may vary substantially.
Acquisition of BNHC
On April 2, 1996, the Company completed the acquisition of Bank of
New Hampshire Corporation ("BNHC"). Pursuant to the Agreement and
Plan of Merger, First Coastal was merged with and into BNHC (the
"Merger") and, upon consummation thereof, each share of common
stock of BNHC was converted into two shares of common stock of the
Company. Pursuant to the Merger, First Coastal was merged into
BNHC. The acquisition was treated as a pooling of interests for
accounting purposes.
<PAGE>
<TABLE>
The following pro forma condensed balance sheet was prepared as if the Merger had been
completed at March 31, 1996:
Pro Forma Pro Forma
PHFG BNHC Adjustments Combined
<S> <C> <C> <C> <C>
Assets:
Investments (1) $ 507,681 $ 308,858 $ -0- $ 816,539
Total loans and leases, net 2,454,505 555,888 -0- 3,010,393
Other assets 339,461 91,308 -0- 430,769
Total assets $3,301,647 $ 956,054 $ -0- $4,257,701
Liabilities and equity:
Deposits $2,529,031 $ 820,154 $ -0- $3,349,185
Borrowings 461,519 36,200 -0- 497,719
Other liabilities (2) 34,644 13,998 3,000 51,642
Total liabilities 3,025,194 870,352 3,000 3,898,546
Shareholders' equity (2) 276,453 85,702 (3,000) 359,155
Total liabilities and
shareholders' equity $3,301,647 $ 956,054 $ -0- $4,257,701
(1) Includes federal funds sold.
(2) Reflects an estimated $4.0 million of remaining reorganization and restructuring
cost related to the Merger, less related tax benefits of $1.0 million. The
restructuring charges relate primarily to severance obligations, professional fees,
branch closures and consolidation of data processing operations. The Company expects
to take a one-time, nonrecurring reorganization and restructuring charge during the
second quarter of 1996.
</TABLE>
<PAGE>
<TABLE>
The following pro forma condensed consolidated statement of operations was prepared as
if the Merger had been completed as of January 1, 1996:
Pro Forma Pro Forma
PHFG BNHC Adjustments Combined
<S> <C> <C> <C> <C>
Interest income $ 62,685 $ 18,206 $ -0- $ 80,891
Interest expense 29,375 6,240 -0- 35,615
Net interest income 33,310 11,966 -0- 45,276
Provision for loan losses -0- 450 -0- 450
Net interest income after
provision for loan losses 33,310 $ 11,516 -0- 44,826
Noninterest income 6,906 2,722 -0- 9,628
Noninterest expense (1) 25,503 9,373 (453) 34,423
Income before income taxes 14,713 4,865 453 20,031
Income tax expense 5,114 1,858 159 7,131
Net income $ 9,599 $ 3,007 $ 294 $ 12,900
Earnings per common share $ 0.56 $ 0.74 -0- $ 0.51
Average shares outstanding 17,000,427 4,064,165 -0- 25,128,757
(1) The operations of BNHC included nonrecurring charges of $453 thousand related to
the Merger eliminated for pro forma presentation.
This unaudited pro forma information is not necessarily indicative of the results that
would have actually have occurred if the combination had been in effect on the dates
indicated or which may be obtained in the future. The pro forma information does not
give effect to anticipated cost savings in connection with the Merger.
</TABLE>
<PAGE>
Part II - Other Information
Item 1. Legal Proceedings:
The Company is involved in routine legal proceedings
occurring in the ordinary course of business which in the
aggregate are believed by management to be immaterial to the
financial condition and results of operations of the
Company.
Item 2. Changes in securities - not applicable
Item 3. Defaults upon senior securities - not applicable.
Item 4. Submission of matters to a vote of security
holders.
The Company's Annual Meeting of Stockholders was held on
April 23, 1996, at which the following action was taken by
the stockholders of the Company.
1. Election of Directors. The Company's nominees for
election as Directors were elected by stockholders as
follows:
WITHHOLD
FOR AUTHORITY
Everett W. Gray 12,122,127 335,574
William J. Ryan 12,125,047 332,654
Curtis M. Scribner 12,124,954 332,747
2. To amend the Articles of Incorporation to increase the
number of authorized shares.
Total for: 9,709,609
Against: 3,200,736
Abstain: 91,923
3. To adopt a 1996 Equity Incentive Plan for key employees:
Total for: 9,417,698
Against: 3,402,386
Abstain: 156,183
4. Ratification of appointment of KPMG Peat Marwick LLP:
Total for: 12,194,189
Against: 16,081
Abstain: 35,197
Item 5. Other Information.
The U.S. Senate and the U.S. House of Representatives have
considered bills which would, among other things,
recapitalize the Savings Association Insurance Fund ("SAIF")
administered by the FDIC by a one-time assessment on the
deposits of all SAIF-insured institutions and provide for an
eventual merger of the SAIF and the BIF. The deposit
assessment rate will be determined by the FDIC and set at a
level which will be sufficient to recapitalize the SAIF to
the designated statutory reserve ratio. Currently, it is
anticipated that the assessment rate will be approximately
$.85 for every $100 of assessable deposits as of March 31,
<PAGE>
1995 and that the one-time assessment will be due during the
second half of 1996.
Most legislative proposals have contained provisions which
provide certain relief for institutions, such as the Bank
and Portsmouth, which are members of the BIF but have
acquired SAIF-insured deposits as a result of acquisitions
of savings institutions in the transactions effected
pursuant to Section 5(d)(3) of the Federal Deposit Insurance
Act ("FDIA"). Such institutions do not pay SAIF assessments
based on the actual amount of the SAIF deposits acquired,
but as adjusted to reflect increases or decreases in such
deposits subsequent to the FDIA. The Company currently is
unable to predict the likelihood of legislation effecting
the foregoing changes, although a consensus among
legislators, regulators and bankers appears to be developing
in this regard.
At March 31, 1995, the date most proposals use as the
measurement date, the adjusted attributable amount of SAIF
deposits of the Company's banking subsidiaries amounted to
$352.4 million, or 17.0%, of the Company's total deposits.
If an assessment of $.85 per $100 of assessable deposits was
effected on these deposits (and assuming no downward
adjustment on the assessment rate for institutions such as
the Bank and Portsmouth), the one-time assessment which
would be payable by the Company's banking subsidiaries would
aggregate approximately $3.0 million on a pre-tax basis.
Item 6. Exhibits and reports on Form 8-K.
(a) The following exhibit required by Item 601 of
Regulation S-K accompanies this report:
(3) Articles of Amendment to Articles of Incorporation
of the Company.
(b) On April 3, 1996, the Company filed a Report on Form
8-K which disclosed the consummation of the Company's
acquisition of BNHC.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
PEOPLES HERITAGE FINANCIAL GROUP, INC.
Date May 14, 1996 By:
William J. Ryan
Chairman, President and
Chief Executive Officer
Date May 14, 1996 By:
Peter J. Verrill
Executive Vice President,
Chief Operating Officer and
Chief Financial Officer
(principal financial and
accounting officer)
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
PEOPLES HERITAGE FINANCIAL GROUP, INC.
/s/ William J. Ryan
Date May 14, 1996 By:
William J. Ryan
Chairman, President and
Chief Executive Officer
/s/ Peter J. Verrill
Date May 14, 1996 By:
Peter J. Verrill
Executive Vice President,
Chief Operating Officer and
Chief Financial Officer
(principal financial and
accounting officer)
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 111,904
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 507,681
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 2,454,505
<ALLOWANCE> 53,553
<TOTAL-ASSETS> 3,301,647
<DEPOSITS> 2,529,031
<SHORT-TERM> 461,519
<LIABILITIES-OTHER> 34,644
<LONG-TERM> 0
<COMMON> 175
0
0
<OTHER-SE> 276,278
<TOTAL-LIABILITIES-AND-EQUITY> 3,301,647
<INTEREST-LOAN> 54,665
<INTEREST-INVEST> 7,647
<INTEREST-OTHER> 373
<INTEREST-TOTAL> 62,685
<INTEREST-DEPOSIT> 23,733
<INTEREST-EXPENSE> 5,642
<INTEREST-INCOME-NET> 33,310
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 400
<EXPENSE-OTHER> 25,503
<INCOME-PRETAX> 14,713
<INCOME-PRE-EXTRAORDINARY> 14,713
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,599
<EPS-PRIMARY> .56
<EPS-DILUTED> .56
<YIELD-ACTUAL> 4.60
<LOANS-NON> 28,288
<LOANS-PAST> 3,525
<LOANS-TROUBLED> 3,142
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 49,138
<CHARGE-OFFS> 1,744
<RECOVERIES> 1,849
<ALLOWANCE-CLOSE> 53,553
<ALLOWANCE-DOMESTIC> 53,553
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
EXHIBIT A
The Articles of Incorporation of Peoples Heritage Financial Group, Inc.
are hereby amended by changing the first two sentences of Article 4
thereof to read as follows:
"The total number of shares of capital stock which the
Corporation has authority to issue is 105,000,000, of
which 5,000,000 shall be serial preferred stock, $.01 par
value per share (hereinafter the "Preferred Stock") and
100,000,000 shall be common stock, par value $.01 per share
(hereinafter the "Common Stock"). The aggregate par
value of all authorized shares of capital stock having a
par value if $1,050,000."
<PAGE>
For Use by the Secretary of State
STATE OF MAINE FILED
April 25, 1996
ARTICLES OF AMENDMENT
(Amendment by Shareholders /s/ Gary Cooper
Voting as One Class) Deputy Secretary of State
A true Copy When Attested
Pursuant to 13-A MRSA S.805 and 807 by Signature
the undersigned corporation adopts
these Articles of Amendment:
/s/ Gary Cooper
Deputy Secretary of State
FIRST: All outstanding shares were entitled to vote on the following
amendment as one class.
SECOND: The amendment set out in Exhibit A attached was adopted by the
shareholders of Peoples Heritage Financial Group, Inc. at a
meeting legally called and held on April 23, 1996.
THIRD: Shares outstanding and entitled to vote and shares voted
for and against said amendment were:
Number of Shares Number of Number of Number of
Outstanding and Shares Shares Shares
Entitled to Vote Voted For Voted Against Abstained
17,009,949 9,709,609 3,200,736 91,923
FOURTH: If such amendment provides for exchange, reclassification or
cancellation of issued shares, the manner in which this shall
be effected is contained in Exhibit B attached if it is not
set forth in the amendment itself. Not applicable.
FIFTH: If the amendment changes the number or par values of
authorized shares, the number of shares the corporation has
authority to issue thereafter, is as follows:
Series Number Par Value
Class (If Any) of Shares (If Any)
Preferred Stock 5,000,000 $0.01
Common Stock 100,000,000 $0.01
The aggregate par value of all such shares (of all classes and
series) having par value is $1,050,000 .
The total number of all such shares (of all classes and series)
without par value is 0 shares.
SIXTH: Address of the registered office in Maine:
One Portland Square, Portland, Maine 04112-9540.
(street, city and zip code)
<PAGE>
MUST BE COMPLETED FOR VOTE PEOPLES HERITAGE FINANCIAL GROUP, INC.
OF SHAREHOLDERS (Name of Corporation)
I certify that I have custody
of the minutes showing the
above action by the shareholders.
By* /s/ William J. Ryan
(Signature)
/s/ Carol L. Mitchell
Carol L. Mitchell William J. Ryan, Chairman, President
Senior Vice President, General
Counsel, Secretary and Clerk and Chief Executive Officer
(type or print name and capacity)
By* /s/ Carol L, Mitchell
(Signature)
Dated: April 24, 1996
Carol L. Mitchell, Senior Vice
President, General Counsel,
Secretary and Clerk
(type or print name and capacity)
* In addition to any certification of custody of minutes this document
MUST be signed by (1) the Clerk OR (2) the President or a vice president
AND the Secretary, an assistant secretary or other officer the bylaws
designate as second certifying officer OR (3) if no such officers, a
majority of directors then in office OR (4) if no directors, the
holders, or such of them designated by the holders of record of a
majority of all outstanding shares entitled to vote thereon OR (5) the
holders of all outstanding shares.
NOTE: This form should not be used if any class of shares is entitled
to vote as a separate class for any of the reasons set out in S.806, or
because the articles so provide. For vote necessary for adoption see
S.805.
